SOURCE: Rewards Network

Rewards Network

April 28, 2010 08:30 ET

Rewards Network Inc. Reports First Quarter Results of $0.17 Earnings per Share and a 14% Increase in Gross Profit

CHICAGO, IL--(Marketwire - April 28, 2010) - Rewards Network Inc. (NASDAQ: DINE), a leading provider of marketing services and dining rewards programs to the restaurant industry, today reported its financial results for the first quarter of 2010.

Rewards Network announced $0.17 earnings per share for the first quarter of 2010, up $0.18 over the prior year period. Earnings per share in the quarter were positively impacted by Marketing Services Program revenue growth of 60.7% and a 77.0% reduction in the provision for losses as a result of the strong performance of the dining credits portfolio. The Company reported total revenues of $26.4 million and gross profit of $18.6 million for the first quarter of 2010, an increase of 2.5% and 14.3% respectively, as compared to the first quarter of 2009. Rewards Network ended the first quarter with 10,288 restaurants, a 3.6% increase over the prior year. The Company ended the first quarter with $14.6 million of cash on hand, debt free, and without having drawn on its revolving line of credit.

During the first quarter of 2010, the Company generated $1.9 million of cash due to Marketing Services Program revenue growth and improved profitability in the Marketing Credits Program. The net dining credits portfolio was $56.1 million as of March 31, 2010, as compared to $57.3 million as of December 31, 2009 and $63.0 million as of March 31, 2009.

"We are pleased both by our improved profitability year over year and the 61% growth in Marketing Services Program revenues," said Ron Blake, CEO of Rewards Network. "These results are consistent with our strategic focus on becoming the leading marketing services provider to the restaurant industry."

The following table presents financial highlights of the Company's operations for the three months ended March 31, 2010 and 2009 (in millions, except per share amounts, restaurant count and net dining credits usage period). All previous periods presented have been revised to reflect the net presentation of revenues effective beginning the fourth quarter of 2009. Earnings per share amounts have been adjusted to reflect the one-for-three reverse stock split effective July 6, 2009.

                                                        1Q'10     1Q'09
                                                     ---------- --------
   Total revenues                                    $     26.4 $   25.8
   Gross profit                                      $     18.6 $   16.3
   Operating expenses                                $     16.0 $   15.4
   Net income (loss)                                 $      1.5 $   (0.1)
   Earnings (loss) per share                         $     0.17 $  (0.01)

   Total restaurant clients                              10,288    9,926
   Dining credits portfolio, net of reserves         $     56.1 $   63.0
   Net dining credits usage period (months)                 7.1      6.6
   Cash and cash equivalents                         $     14.6 $   16.2

First Quarter 2010 Results

First quarter revenues increased 2.5% over the prior year as a result of growth in the Marketing Services Program. First quarter gross profit increased 14.3% over the prior year period primarily due to the reduced provision for losses expense. As a result of the Company's adherence to conservative dining credits purchasing policies, provision for losses expense declined to $0.8 million, or 3.0% of total revenues in the first quarter, as compared to $3.4 million, or 13.3% of total revenues in the prior year period.

During the first quarter of 2010, the Company's operating expenses increased by $0.7 million or 4.3% over the first quarter 2009 primarily as a result of growth in sales headcount and additional investments in sales force productivity tools.

At the end of March 31, 2010, the number of restaurants grew 3.6% over March 31, 2009 to 10,288. Marketing Services Program restaurants increased to 5,551 from 4,082 while Marketing Credits Program restaurants declined to 4,737 from 5,844. The mix of restaurants has shifted from 59% Marketing Credits Program restaurants and 41% Marketing Services Program restaurants at March 31, 2009 to 46% Marketing Credits Program restaurants and 54% Marketing Services Program restaurants at March 31, 2010.

The net dining credits portfolio was $56.1 million as of March 31, 2010, compared to $63.0 million as of March 31, 2009. The decrease in the net dining credits portfolio was driven by the Company's conservative dining credits purchasing policies that have been in effect throughout 2009 and the first quarter of 2010. Under these policies, the Company purchased fewer dining credits overall but also repositioned its portfolio towards lower risk restaurants.

Cash

During the first quarter of 2010, the Company generated $1.9 million of cash due to Marketing Services Program revenue growth and improved profitability in the Marketing Credits Program. The Company used $25.2 million of cash from operations to purchase dining credits and $1.0 million for capital expenditures. As of March 31, 2010 and after these expenditures, the Company had $14.6 million of cash on hand and was debt free.

"Our focus on Marketing Services revenue growth and improving the performance of our dining credits portfolio has allowed us to grow gross profit significantly over the prior year," said Chris Locke, CFO of Rewards Network. "In addition to improved gross profit, this focus has had a continued positive impact on our cash flow."

Conclusion

"Our first quarter results set the stage for further earnings growth and future revenue growth for the year," said Blake. "We continue to be focused on broadening our marketing services offerings to our restaurant clients as part of our long-term goal of having Marketing Services represent the majority of our revenues."

Webcast Information

Management will host a conference call at 10:00 a.m. Eastern Time on Wednesday, April 28, 2010. Participants are invited to join a live webcast of the call, which may be accessed by visiting the Investor Relations section of the Rewards Network website at investor.rewardsnetwork.com. The webcast is also available at www.streetevents.com and www.earnings.com. Participants should log on at least 10 minutes prior to the webcast to register and download any necessary software. If you are unable to participate during the live webcast, a replay of the call and presentation will be archived on the Company's website at investor.rewardsnetwork.com. Alternatively, a dial-in replay is available through May 28, 2010, by dialing 1-888-286-8010 and using passcode 16906195.

About Rewards Network

Rewards Network (NASDAQ: DINE), headquartered in Chicago, IL, operates the leading dining rewards programs in North America by marketing participating restaurants to members of these programs and by providing incentives to members to dine at these restaurants. In addition to operating the dining rewards program of leading airline frequent flyer programs, hotel frequent-stay programs, retailer shopping programs, college savings programs, and other affinity organizations, the Company offers its own dining rewards program, iDine®, at www.idine.com. Thousands of restaurants and other clients benefit from the company's restaurant marketing efforts, which include millions of email impressions, mobile access to restaurants via iPhone™, BlackBerry® and Android ® smartphones and dining Web sites. Rewards Network also provides restaurant ratings and other restaurant business intelligence, as well as the purchase of dining credits from restaurants in the program. In conjunction with major airline frequent flyer programs and other affinity organizations, Rewards Network provides more than three million members with incentives to dine at participating restaurants. These incentives include airline miles, college savings rewards, reward program points and cash back benefits. For additional information about Rewards Network, visit www.RewardsNetwork.com or call (866) 539-9792.

Safe Harbor Statement

Statements in this release that are not strictly historical are "forward-looking" statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectation or beliefs, and are subject to risks, trends and uncertainties. Actual results, performance or achievements may differ materially from those expressed or implied by the statements herein due to factors that include, but are not limited to, the following: (i) the impact of the economy on dining activity, (ii) the Company's inability to attract and retain clients, (iii) the Company's susceptibility to restaurant credit risk and the risk that its allowance for unredeemable dining credits may prove inadequate, (iv) modifications to the Company's dining credits purchasing policies that lead to an increase in the allowance for unredeemable dining credits, (v) network interruptions, processing interruptions or processing errors, (vi) susceptibility to a changing regulatory environment, (vii) the Company's dependence upon its relationships with payment card issuers, transaction processors, presenters and aggregators, (viii) the failure of the Company's security measures, (ix) the Company's failure to maintain compliance certifications, (x) increased operating costs or loss of members due to privacy concerns of the Company's program partners, payment card processors and the public, (xi) a security breach that results in a payment card issuer re-issuing a significant number of registered payment cards, (xii) changes to payment card association rules and practices, (xiii) the Company's dependence on its relationships with airlines and other reward program partners for a significant number of members, (xiv) the concentration of a significant amount of the Company's rewards currency in one industry group, the airline industry, (xv) the Company's inability to attract and retain active members, (xvi) the Company's ability to obtain sufficient cash to operate its business, (xvii) changes in the Company's programs that affect the rate of rewards, (xviii) the Company's inability to maintain an adequately-staffed sales force, (xix) the Company's inability to maintain an appropriate balance between the number of members and the number of participating clients in each market, (xx) changes in the regulatory environment, (xxi) the Company's minimum purchase obligations and performance requirements, (xxii) class action lawsuits, (xxiii) increasing competition, (xxiv) impairment to goodwill, (xxv) factors causing our operating results to fluctuate over time, and (xxvi) adverse weather conditions affecting dining activity. A more detailed description of the factors that, among others, should be considered in evaluating our outlook can be found in the Company's annual report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission. The Company undertakes no obligation to, and expressly disclaims any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, changes to future results over time or otherwise, except as required by law.

                    Rewards Network Inc. and Subsidiaries
                                - unaudited-
 (amounts in thousands, except per share data, number of restaurants in the
 program, average transaction amount and estimated months to consume dining
                             credits portfolio)
 (all share and per share amounts have been adjusted to reflect the reverse
              one-for-three stock split effective July 6, 2009)


                                       Three Months Ended March 31,
                                 -----------------------------------------
                                    2010        %        2009         %
                                 ---------- --------  ----------  --------

Operating revenues:
  Revenues (gross amount billed
   of $50,027 and $53,990,
   respectively) (1)                 26,160    99.00%     25,512     98.97%
  Membership fees                       263     1.00%        265      1.03%
                                 ----------           ----------
    Total revenues                   26,423    100.0%     25,777     100.0%
                                 ==========           ==========

Direct expenses:
  Member benefits                     6,760    25.58%      5,854     22.71%
  Provision for losses                  787     2.98%      3,427     13.29%
  Processing fees                       265     1.00%        217      0.84%
                                 ----------           ----------
    Total direct expenses             7,812    29.57%      9,498     36.85%
                                 ----------           ----------

      Gross profit                   18,611    70.43%     16,279     63.15%
                                 ----------           ----------
Operating expenses:
    Salaries and benefits             5,069    19.18%      4,717     18.30%
    Sales commission and
     expenses                         5,652    21.39%      5,112     19.83%
    Professional fees                   587     2.22%        598      2.32%
    Member and restaurant
     marketing                          688     2.60%        676      2.62%
    General and administrative        4,044    15.30%      4,274     16.58%
                                 ----------           ----------
      Total operating expenses       16,040    60.70%     15,377     59.65%
                                 ----------           ----------

      Operating income                2,571     9.73%        902      3.50%

Other expenses, net                      31     0.12%         35      0.13%
                                 ----------           ----------

Income before income tax
 provision                            2,540     9.61%        867      3.36%

Income tax provision                  1,013     3.83%        980      3.80%
                                 ----------           ----------

Net income (loss)                $    1,527     5.78% $     (113)    -0.44%
                                 ==========           ==========

Net income (loss) per share
    Basic                        $     0.17           $    (0.01)
    Diluted                      $     0.17           $    (0.01)
Weighted average number of
 common and common equivalent
 shares
    Basic                             8,779                9,139
    Diluted                           8,928                9,139

(1) Effective in the fourth quarter of 2009, the Company revised certain
aspects of its income statement presentation. Most prominently, the Company
is now reporting revenues net of the redemption of dining credits
(previously referred to as cost of sales). The redemption of dining credits
is now classified as a direct reduction of revenue rather than as a direct
expense.


                  Rewards Network Inc. and Subsidiaries
                              - unaudited-
          (amounts in thousands, except per share data, number
        of restaurants in the program, average transaction amount
        and estimated months to consume dining credits portfolio)
     (all share and per share amounts have been adjusted to reflect
      the reverse one-for-three stock split effective July 6, 2009)

                                          Three months ended
                            ----------------------------------------------
                                            March 31, 2010
                            ----------------------------------------------
                             Marketing   Marketing
                              Credits    Services   Membership
                              Program     Program      Fees        Total
                            ----------  ----------  ----------  ----------
Number of qualified
 transactions(1)                 1,254       1,447                   2,701
Average transaction
 amount(1)                  $    45.22  $    46.77              $    46.05

Qualified transaction
 amount(1)                  $   56,703  $   67,672              $  124,375
Rewards Network percentage
 share of qualified
 transaction amount(1) (2)        71.0%       14.4%                   40.2%
Rewards Network share of
 qualified transaction
 amount and membership
 fees(1)                    $   40,269  $    9,758  $      263  $   50,290

Redemption of dining
 credits (1)                $   23,867  $        -              $   23,867
                            ----------  ----------  ----------  ----------

Total revenues              $   16,402  $    9,758  $      263  $   26,423
                            ----------  ----------  ----------  ----------
Revenues as a percentage of
 qualified transaction
 amount(1) (2)                    28.9%       14.4%                   21.0%

Total member benefits       $    3,219  $    3,541              $    6,760
Provision for losses        $      787  $        -              $      787
Processing fees             $      109  $      156              $      265
                            ----------  ----------  ----------  ----------
Gross profit                $   12,287  $    6,061  $      263  $   18,611
==========================================================================



                                          Three months ended
                            ---------------------------------------------
                                            March 31, 2009
                            ---------------------------------------------
                             Marketing   Marketing
                              Credits    Services   Membership
                              Program     Program      Fees       Total
                            ----------  ----------  ---------- ----------
 Number of qualified
  transactions(1)                1,498         863                  2,361
 Average transaction
  amount(1)                 $    42.52  $    45.41             $    43.58

 Qualified transaction
  amount(1)                 $   63,701  $   39,190             $  102,891
 Rewards Network percentage
  share of qualified
  transaction amount(1) (2)       75.2%       15.5%                  52.5%
 Rewards Network share of
  qualified transaction
  amount and membership
  fees(1)                   $   47,919  $    6,071  $      265 $   54,255

 Redemption of dining
  credits (1)               $   28,478  $        -             $   28,478
                            ----------  ----------  ---------- ----------

 Total revenues             $   19,441  $    6,071  $      265 $   25,777
                            ----------  ----------  ---------- ----------
 Revenues as a percentage of
  qualified transaction                                                    
  amount(1) (2)                   30.5%       15.5%                  24.8%

 Total member benefits      $    3,734  $    2,120             $    5,854
 Provision for losses       $    3,427  $        -             $    3,427
 Processing fees            $      137  $       80             $      217
                            ----------  ----------  ---------- ----------
 Gross profit               $   12,143  $    3,871  $      265 $   16,279
 ========================================================================
(1) Supplemental operating and statistical data. See below for a complete
    description.
(2) Total percentage excludes membership fees.

Definitions:
--------------------------

Qualified transaction      Represents the total dollar value of all member
amount(a):                 dining transactions at participating restaurants
                           when a benefit is offered. Qualified transaction
                           amounts are divided by the number of qualified
                           transactions to arrive at the average
                           transaction amount.

Rewards Network percentage Represents the percentage of qualified
share of qualified         transaction amounts that Rewards Network is
transaction                entitled to receive. The percentage is based on
amount(1)                  each agreement between the restaurant client and
                           Rewards Network.

Rewards Network share of   Represents the Company's portion of the member's
qualified transaction      dining transaction that the Company is entitled
amount(a)                  to receive in accordance with the terms of the
                           agreement with the participating restaurant
                           client.

Redemption of dining       Represents the amount of dining credits, at
credits(a)                 cost, redeemed by members when dining at
                           participating clients when a benefit is offered.
                           Under the Company's Marketing Services Program,
                           no dining credits are purchased by Rewards
                           Network.

Provision for losses:      Represents the current period expense necessary
                           to maintain an appropriate reserve against the
                           Company's unredeemable dining credits. No
                           provision is applied to the Marketing Services
                           Program, as the Company does not purchase dining
                           credits under that program.

Total member benefits:     Represents the dollar value of benefits paid to
                           members in Cashback Rewards(SM) savings, airline
                           miles, or other benefit currencies, for dining
                           at participating clients.

(a) Qualified transaction amount, Rewards Network share of qualified
transaction amount, redemption of dining credits and related statistical
measures (number of qualified transactions, average transaction amount,
Rewards Network percentage share of qualified transaction amount and
revenues as a percentage qualified transaction amount) are supplemental
information the Company uses in analyzing operating results and managing
the business. These supplemental financial measures provide useful
information because they are important factors that affect the
Company's sales.



                 Rewards Network Inc. and Subsidiaries
                             - unaudited-
        (amounts in thousands, except per share data, number of
  restaurants in the program, average transaction amount and estimated
             months to consume dining credits portfolio)
  (all share and per share amounts have been adjusted to reflect the
       reverse one-for-three stock split effective July 6, 2009)


Information the Company uses in analyzing operating results and managing
the business. These supplemental financial measures provide useful
information because they are important factors that affect the Company's
sales.

Selected Balance Sheet and Cash               March 31,    December 31,
 Flow Information                               2010           2009
                                            ------------   ------------

Cash and cash equivalents                   $     14,569   $     12,665
Dining credits                              $     66,384   $     68,747
Allowance for unredeemable dining credits  ($     10,265) ($     11,448)
Goodwill                                    $      8,117   $      8,117
Total assets                                $    102,539   $    102,840

Accounts payable - dining credits           $      4,059   $      4,598
Stockholders' equity                        $     86,606   $     84,951


                                                 Three Months Ended
                                                     March 31,
                                            ---------------------------
                                                2010           2009
                                            ------------   ------------
Net cash provided by (used in):
  Operations                                $      2,264    $    7,690
  Investing activities                     ($      1,046)  ($      476)
  Financing activities                      $        580            --



                   Rewards Network Inc. and Subsidiaries
                               - unaudited-
          (amounts in thousands, except per share data, number of
         restaurants in the program, average transaction amount and
           estimated months to consume dining credits portfolio)
       (all share and per share amounts have been adjusted to reflect
        the reverse one-for-three stock split effective July 6, 2009)

                          --------  --------  --------  --------  --------
                           Q1 2010   Q4 2009   Q3 2009   Q2 2009   Q1 2009
                          --------  --------  --------  --------  --------
Restaurant Count Trends
 (period ended):
Marketing Credits Program    4,737     4,961     4,920     5,343     5,844
Marketing Services Program   5,551     5,279     5,201     4,854     4,082
                          --------  --------  --------  --------  --------
Total clients               10,288    10,240    10,121    10,197     9,926
Sequential Quarterly
 Percentage Change
--------------------------
Marketing Credits Program     -4.5%      0.8%     -7.9%     -8.6%     -7.1%
Marketing Services Program     5.1%      1.5%      7.1%     18.9%     13.5%
Total clients                  0.5%      1.2%     -0.7%      2.7%      0.4%

Qualified Transaction
 Amounts Trends:
Marketing Credits Program $ 56,703  $ 57,110  $ 58,473  $ 61,683  $ 63,701
Marketing Services Program  67,672    69,093    67,053    53,583    39,190
                          --------  --------  --------  --------  --------
Total qualified
 transaction amounts      $124,375  $126,203  $125,526  $115,266  $102,891
Sequential Quarterly
 Percentage Change
--------------------------
Marketing Credits Program     -0.7%     -2.3%     -5.2%     -3.2%     -4.5%
Marketing Services Program    -2.1%      3.0%     25.1%     36.7%      4.5%
Total qualified
 transaction amounts          -1.4%      0.5%      8.9%     12.0%     -1.2%

Rewards Network Percentage
 Share of Qualified
 Transaction Amount
 Trends:
Marketing Credits Program     71.0%     74.0%     74.0%     75.8%     75.6%
Marketing Services Program    14.4%     14.5%     14.5%     15.0%     15.6%
Total                         40.2%     41.4%     42.2%     47.6%     52.7%

Revenue Trends:
Marketing Credits Program $ 16,402  $ 17,218  $ 17,821  $ 19,267  $ 19,441
Marketing Services Program   9,758     9,931     9,702     8,009     6,071
Membership fees                263       288       261       278       265
                          --------  --------  --------  --------  --------

Total revenues             $26,423   $27,437   $27,784   $27,554   $25,777
Sequential Quarterly
 Percentage Change
--------------------------
Marketing Credits Program     -4.7%     -3.3%     -7.5%     -0.9%     -9.1%
Marketing Services Program    -1.7%      2.4%     21.1%     31.9%      3.1%
Membership fees               -8.7%     10.3%     -6.1%      4.9%     -9.9%
Total                         -3.7%     -1.3%      0.8%      6.9%     -6.5%

Redemption of Dining
 Credits Trends:
Redemption of dining
 credits                  $ 23,867  $ 24,806  $ 25,261  $ 27,279  $ 28,478
Redemption as % of
 Marketing Credits Program
 share of qualified
 transaction amount           59.3%     59.0%     58.6%     58.6%     59.4%

Dining Credits Portfolio
 and Allowance Trends:
Ending gross dining
 credits portfolio        $ 66,384  $ 68,747  $ 68,839  $ 72,888  $ 82,305
Ending net dining credits
 portfolio                $ 56,119  $ 57,299  $ 55,125  $ 56,618  $ 63,016
Net write-offs (gross
 write-offs less
 recoveries)              $  2,140  $  3,507  $  4,811  $  5,332  $  4,394
Ending allowance for
 unredeemable dining
 credits                  $ 10,265  $ 11,448  $ 13,714  $ 16,270  $ 19,289
Allowance as % of gross
 dining credits               15.5%     16.7%     19.9%     22.3%     23.4%
Estimated months to
 consume gross dining
 credits *                     8.3       8.3       8.2       8.0       8.7
Estimated months to
 consume net dining
 credits *                     7.1       6.9       6.5       6.2       6.6
Member Activity Trends:
Member accounts active
 last 12 months              3,349     3,298     3,219     3,142     3,142
Number of qualified
 transactions during
 quarter                     2,701     2,664     2,747     2,573     2,361

* Calculated as Ending Dining Credits Portfolio / (Quarterly Redemption of
Dining Credits / 3)

Contact Information

  • CONTACT:
    Christopher Locke
    Chief Financial Officer
    Rewards Network Inc.
    (312) 521-6741