SOURCE: Rewards Network

Rewards Network

April 22, 2009 08:30 ET

Rewards Network Inc. Reports Positive Operating Income and Cash Flow for the First Quarter and Announces $5.0 Million Stock Repurchase Plan

CHICAGO, IL--(Marketwire - April 22, 2009) - 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 2009 and announced that its Board of Directors has authorized the repurchase of up to $5.0 million of the Company's common stock.

Rewards Network reported total sales of $54.0 million and net revenues of $16.0 million for the first quarter of 2009, a decrease of 8.6% and 15.1%, respectively, as compared to the first quarter of 2008. Rewards Network ended the first quarter with 9,926 merchants, a 3.5% increase over the same period in the prior year, and the highest number of merchants since December 2005. Operating expenses decreased $1.6 million, or 9.4%, for the first quarter of 2009 as compared to the same period in the prior year, continuing the Company's focus on achieving operating efficiencies. As a result, the Company maintained positive operating income during the first quarter of 2009.

During the first quarter of 2009, the Company generated $7.7 million of cash from operations, primarily because it continued to mitigate risk and preserve liquidity by purchasing fewer dining credits from fewer merchants. As a result, the net dining credits usage period declined to 6.6 months for the first quarter of 2009, as compared to 9.4 months for the same period in the prior year. The net dining credits portfolio was $63.0 million for the first quarter of 2009, as compared to $94.8 million for the same period in the prior year. The Company ended the first quarter with $16.2 million of cash on hand, debt free, and without drawing on its revolving line of credit.

The following table presents financial highlights of the Company's operations for the three months ended March 31, 2009 and 2008 (in millions, except per share amounts and merchant count).

                                                           1Q'09    1Q'08
                                                          -------  --------
Sales                                                     $  54.0  $   59.1
Net revenues                                              $  16.0  $   18.9
Operating expenses                                        $  15.4  $   17.0
Operating income                                          $   0.9  $    2.3
Net (loss) income                                         $  (0.1) $    1.2
Diluted (loss) earnings per share                         $ (0.00) $   0.04

Total merchants                                             9,926     9,586
Dining Credits portfolio, net of reserves                 $  63.0  $   94.8
Net Dining Credits Usage Period (Months)                      6.6       9.4

"As we expected, the first quarter of 2009 presented challenges for our business as we, along with our customers in the restaurant industry, were impacted by the decline in consumer spending in a difficult economy," said Ron Blake, CEO of Rewards Network. "Consumers are dining out less often and spending less money when they do dine out. Based upon our insights into the restaurant industry, we anticipated the decline in consumer spending and prepared for it by tightening our standards for purchasing dining credits, by purchasing fewer dining credits, and by managing our expenses. We generated cash and remained debt free in the first quarter. We believe the steps we took positively impacted our results."

Merchant count was 3.5% higher at the end of the first quarter of 2009 as compared to the end of the first quarter of 2008, largely as a result of an increase in marketing services merchants. "Our merchant count is the highest we have seen since December 2005 and demonstrates our belief that Rewards Network delivers value to merchants who are seeking to fill seats in difficult economic times," said Blake.

First Quarter 2009 Results

Sales for the first quarter of 2009 were 8.6% lower as compared to the first quarter of 2008. Despite an increase in merchant count, sales were impacted by lower consumer spending, the Company's decision to purchase fewer dining credits, and a shift in participating merchants to lower price point restaurants that meet the preferences of members, in the first quarter of 2009 as compared to the first quarter of 2008.

Net revenues for the first quarter of 2009 were 15.1% lower than the first quarter of 2008. Net revenues were negatively impacted by lower sales and a $1.2 million, or 54.0%, increase in the provision for losses, offset by a $1.5 million, or 20.4%, decrease in member benefits expense. The increase in the provision for losses was due to the increased risk presented by the difficult economic environment. Member benefit expense decreased during the first quarter of 2009 because the Company did not offer bonuses that were available in the prior year period.

Operating expenses for the first quarter of 2009 were $1.6 million, or 9.4%, lower than the first quarter of the prior year due to the Company's use of more cost-effective internet marketing and tight operating expense management.

The income tax provision for the quarter of $980 included a tax expense of $573, or $0.02 per share, relating to the distribution of employee and director stock awards.

"As a result of our tight management of operating expenses, restructuring of member benefits to reduce expense, and active management of the dining credits portfolio, we lowered the break even point of the business in the quarter," said Chris Locke, CFO of Rewards Network. "Despite the decline in consumer spending and increase in the loss provision, we continue to generate operating profitability."

Cash

During the first quarter of 2009, the Company generated $7.7 million of cash from operations, primarily as a result of its decision to purchase fewer dining credits, while also funding approximately $22 million of new dining credits. The Company lowered the average amount of capital at risk by reducing the net dining credits usage period year over year from 9.4 months at the end of the first quarter of 2008 to 6.6 months at the end of the first quarter of 2009.

Cash used in investing and financing activities for the three months ended March 31, 2009 was $0.5 million, all of which was used to purchase information technology tools and for the development of new websites. At the end of the quarter, the Company had $16.2 million of cash on hand, was debt free and did not draw on its line of credit.

Stock Repurchase Plan

The Company's Board of Directors has authorized the repurchase of up to $5.0 million of the Company's common stock. The stock repurchase authorization does not have an expiration date and may be limited, suspended or terminated at any time without prior notice.

"Based on our positive cash flow and debt-free status, we believe we can increase long-term shareholder value by buying back stock, while at the same time retaining the strategic and operational flexibility to invest appropriately in our business," said Blake.

Shares may be purchased from time to time on the open market or through private transactions, pursuant to Rule 10b5-1 trading plans or other available means. Repurchases may occur depending on market conditions and other factors. The purchases will be funded from cash and cash reserves and repurchased shares will be deposited into treasury and retained for possible future use.

The Company has approximately 27.4 million shares of common stock outstanding.

Conclusion

"With over 9,900 merchants across the country in our network, we have a view of the restaurant industry across all price points and cuisine types. We use the information we have to adjust how we operate our business by analyzing and anticipating the needs of members and merchants. The challenges facing the restaurant industry came as no surprise to us," concluded Blake. "We were positioned well for the impact of the economy on our business and we generated cash and remained debt free in the first quarter. We believe we have positioned the business to operate in the current economic environment and to take full advantage of opportunities as the economy improves."

Webcast Information

Management will host a conference call at 10:00 a.m. Eastern Time on Wednesday, April 22, 2009. 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 22, 2009, by dialing 1-888-286-8010 and using passcode 49702454.

About Rewards Network

Rewards Network (NASDAQ: DINE), headquartered in Chicago, Illinois, operates the leading dining rewards programs in North America. Thousands of participating restaurants and other merchants benefit from the Company's extensive email, internet and print marketing efforts; member ratings, feedback and reporting; and access to capital. In conjunction with leading airline frequent flyer programs and other affinity organizations, Rewards Network provides millions of members with incentives to dine at participating restaurants, including airline miles, college savings rewards, reward program points, and Cashback Rewards(SM) savings. Additional details about Rewards Network can be found at www.rewardsnetwork.com or by calling 1-877-491-3463.

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 merchants, (iii) the Company's susceptibility to restaurant credit risk and the risk that its allowance for losses related to restaurant credit risk in connection with dining credits may prove inadequate, (iv) the Company's dependence upon its relationships with payment card issuers, transaction processors, presenters and aggregators, (v) a security breach that results in a payment card issuer re-issuing a significant number of registered payment cards, (vi) changes to payment card association rules and practices, (vii) the Company's dependence on its relationships with airlines and other reward program partners for a significant number of members, (viii) the concentration of a significant amount of the Company's rewards currency in one industry group, the airline industry, (ix) adverse weather conditions affecting dining activity, (x) the Company's minimum purchase obligations and performance requirements, (xi) the Company's inability to attract and retain active members, (xii) factors causing our operating results to fluctuate over time, (xiii) the Company's ability to obtain sufficient cash to operate its business, (xiv) changes in the Company's programs that affect the rate of rewards, (xv) the Company's inability to maintain an adequately-staffed sales force, (xvi) the Company's inability to maintain an appropriate balance between the number of members and the number of participating merchants in each market, (xvii) network interruptions, processing interruptions or processing errors, (xviii) susceptibility to a changing regulatory environment, (xix) increased operating costs or loss of members due to privacy concerns of the Company's program partners, payment card processors and the public, (xx) the failure of the Company's security measures, (xxi) the loss of key personnel, (xxii) increasing competition, and (xxiii) a shift toward Marketing Services Program that may cause revenues to decline. 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, 2008 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,
             restaurants in the program, average transaction amount
            and estimated months to consume dining credits portfolio)



                                         Three Months Ended March 31,
                                    --------------------------------------
                                      2009        %       2008        %
                                    --------  --------  --------- --------

Sales                               $ 53,990    100.00% $  59,063   100.00%

      Cost of sales                   28,695     53.15%    30,619    51.84%
      Provision for losses             3,427      6.35%     2,225     3.77%
      Member benefits                  5,854     10.84%     7,350    12.44%
                                    --------  --------  --------- --------

Net revenues                          16,014     29.66%    18,869    31.95%

Membership fees and other income         265      0.49%       351     0.59%
                                    --------  --------  --------- --------

         Total operating revenues     16,279     30.15%    19,220    32.54%
                                    --------  --------  --------- --------

Operating expenses:
      Salaries and benefits            4,717      8.74%     5,244     8.88%
      Sales commission and expenses    5,112      9.47%     5,257     8.90%
      Professional fees                  598      1.11%       621     1.05%
      Member and merchant marketing      676      1.25%       935     1.58%
      General and administrative       4,274      7.92%     4,909     8.32%

      Total operating expenses        15,377     28.48%    16,966    28.73%
                                    --------  --------  --------- --------

         Operating income                902      1.67%     2,254     3.82%

Other expenses, net                       35      0.06%       200     0.34%
                                    --------  --------  --------- --------

         Income before income
          tax provision                  867      1.61%     2,054     3.48%

Income tax provision                     980      1.82%       896     1.52%
                                    --------  --------  --------- --------

         Net (loss) income          $   (113)    -0.21% $   1,158     1.96%
                                    ========  ========  ========= ========

(Loss) earnings per share of common
 stock
      Basic                         ($  0.00)           $    0.04
      Diluted                       ($  0.00)           $    0.04
Weighted average number of common
 and common equivalent shares
      Basic                           27,418               27,107
      Diluted                         27,418               27,338




                    Rewards Network Inc. and Subsidiaries
                               - unaudited-
                 (amounts in thousands, except per share data,
             restaurants in the program, average transaction amount
            and estimated months to consume dining credits portfolio)


                   Three months ended            Three months ended
                      March 31, 2009               March 31, 2008
              -----------------------------  -----------------------------
              Marketing Marketing            Marketing Marketing
              Credits   Services             Credits   Services
              Program   Program     Total    Program   Program     Total
              --------  --------  ---------  --------  --------  ---------

Number of
 qualified
 transactions    1,498       863      2,361     1,521       776      2,297
Average
 transaction
 amount       $  42.52  $  45.41  $   43.58  $  47.00  $  45.66  $   46.55

Qualified
 transaction
 amount       $ 63,701  $ 39,190  $ 102,891  $ 71,487  $ 35,431  $ 106,918
Sales yield       75.2%     15.5%      52.5%     74.5%     16.5%      55.2%
Sales         $ 47,919  $  6,071  $  53,990  $ 53,235  $  5,828  $  59,063

Cost of
 dining
 credits      $ 28,478         -  $  28,478  $ 30,338         -  $  30,338
Processing
 fees              137        80        217       199        82        281
              --------  --------  ---------  --------  --------  ---------
Total cost of
 sales        $ 28,615  $     80  $  28,695  $ 30,537  $     82  $  30,619
              --------  --------  ---------  --------  --------  ---------

Provision for
 losses       $  3,427         -  $   3,427  $  2,225         -  $   2,225

Member
 benefits     $  3,734  $  2,120  $   5,854  $  5,192  $  2,158  $   7,350

              --------  --------  ---------  --------  --------  ---------
Net revenues  $ 12,143  $  3,871  $  16,014  $ 15,281  $  3,588  $  18,869
              ========  ========  =========  ========  ========  =========


Definitions:

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

Sales yield:                    Represents the percentage of qualified
                                transaction amounts that Rewards Network
                                reports as revenue. The percentage is based
                                on each agreement between the merchant and
                                Rewards Network.

Cost of dining credits:         Represents the amount of dining credits,
                                at cost, redeemed by members when
                                transacting at participating merchants 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 dining
                                credits portfolio. 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
                                merchants.

                    Rewards Network Inc. and Subsidiaries
                               - unaudited-
                 (amounts in thousands, except per share data,
             restaurants in the program, average transaction amount
            and estimated months to consume dining credits portfolio)

Selected Balance Sheet and Cash Flow
 Information                                      March 31,   December 31,
                                                    2009          2008
                                                ------------  ------------
                                                                (Audited)
Cash and cash equivalents                       $     16,213  $      9,008
Dining credits                                  $     82,305  $     95,727
Allowance for doubtful dining credits accounts  $    (19,289) $    (20,064)
Goodwill                                        $      8,117  $      8,117
Total assets                                    $    115,356  $    123,816

Accounts payable - dining credits               $      4,886  $      5,081
Litigation and related accruals                 $         49  $      3,164
Stockholders' equity                            $     99,666  $     99,319

                                                    Three Months Ended
                                                         March 31,
                                                --------------------------
                                                    2009          2008
                                                ------------  ------------
Net cash provided by (used in):
         Operations                             $      7,690  $        337
         Investing                              $       (476) $     (1,203)
         Financing                                         -  $     (1,963)





                    Rewards Network Inc. and Subsidiaries
                               - unaudited-
                 (amounts in thousands, except per share data,
             restaurants in the program, average transaction amount
            and estimated months to consume dining credits portfolio)

                      Q1 2009    Q4 2008    Q3 2008    Q2 2008    Q1 2008
                     ---------  ---------  ---------  ---------  ---------
Sales Statistic
 Trends:
Marketing Credits
 Program sales       $  47,919  $  51,795  $  56,402  $  59,723  $  53,235
Marketing Services
 Program sales           6,071      5,890      6,040      6,000      5,828
                     ---------  ---------  ---------  ---------  ---------
Total sales          $  53,990  $  57,685  $  62,442  $  65,723  $  59,063
Sequential
 Percentage Change
Marketing Credits
 Program sales            -7.5%      -8.2%      -5.6%      12.2%       2.1%
Marketing Services
 Program sales             3.1%      -2.5%       0.7%       3.0%      -3.5%
Total sales               -6.4%      -7.6%      -5.0%      11.3%       1.5%

Merchant Count
 Trends (period
 ended):
Marketing Credits
 Program merchants       5,844      6,293      6,449      6,646      6,644
Marketing Services
 Program merchants       4,082      3,595      3,306      3,123      2,942
                     ---------  ---------  ---------  ---------  ---------
Total merchants          9,926      9,888      9,755      9,769      9,586
Sequential
 Percentage Change
Marketing Credits
 Program merchants        -7.1%      -2.4%      -3.0%       0.0%       2.4%
Marketing Services
 Program merchants        13.5%       8.7%       5.9%       6.2%      -3.7%
Total merchants            0.4%       1.4%      -0.1%       1.9%       0.5%

Qualified
 Transaction Amounts
 Trends:
Marketing Credits
 Program             $  63,701  $  66,673  $  73,780  $  78,039  $  71,487
Marketing Services
 Program                39,190     37,485     37,574     36,702     35,431
                     ---------  ---------  ---------  ---------  ---------
Total qualified
 transaction amounts $ 102,891  $ 104,158  $ 111,354  $ 114,741  $ 106,918
Sequential
 Percentage Change
Marketing Credits
 Program                  -4.5%      -9.6%      -5.5%       9.2%       3.5%
Marketing Services
 Program                   4.5%      -0.2%       2.4%       3.6%       0.3%
Total qualified
 transaction amounts      -1.2%      -6.5%      -3.0%       7.3%       2.4%

Sales Yield Trends:
Marketing Credits
 Program sales yield      75.2%      77.7%      76.4%      76.5%      74.5%
Marketing Services
 Program sales yield      15.5%      15.7%      16.1%      16.3%      16.5%
Total sales yield         52.5%      55.4%      56.1%      57.3%      55.2%

Member Activity
 Trends:
Member accounts
 active last 12
 months                  3,142      3,146      3,130      3,103      3,057
Number of qualified
 transactions during
 quarter                 2,361      2,305      2,486      2,509      2,297

Cost of Dining
 Credits Trends:
Cost of dining
 credits             $  28,478  $  30,411  $  32,994  $  34,528  $  30,338
Cost as % of
 Marketing Credits
 Program sales            59.4%      58.7%      58.5%      57.8%      57.0%

Dining Credits
 Portfolio and
 Allowance Trends:
Ending gross dining
 credits portfolio   $  82,305  $  95,727  $ 103,265  $ 107,815  $ 113,831
Ending net dining
 credits portfolio   $  63,016  $  75,663  $  82,389  $  87,547  $  94,750
Net write-offs -
 gross write-offs
 less recoveries     $   4,394  $   3,563  $   2,106  $   2,681  $   4,743
Ending allowance for
 dining credits
 losses              $  19,289  $  20,064  $  20,876  $  20,268  $  19,081
Allowance as % of
 gross dining
 credits                  23.4%      21.0%      20.2%      18.8%      16.8%
Estimated months to
 consume gross
 dining credits *          8.7        9.4        9.4        9.4       11.3
Estimated months to
 consume net dining
 credits *                 6.6        7.5        7.5        7.6        9.4
* Calculated as Ending Dining Credits Portfolio / (Quarterly Cost of Dining
  Credits / 3)

Contact Information

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