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Outerwall: Should You Invest?

The Motley Fool is on the road in Seattle! Recently we visited Coinstar -- now officially renamed Outerwall  (NASDAQ: OUTR  ) -- to speak with CFO-turned-CEO Scott Di Valerio about the 22-year-old company's well-known coin-cashing machines, as well as its more recent acquisition of Redbox, and future initiatives to expand into other aspects of the automated retail market.

In this video segment, Scott discusses Coinstar's top and bottom-line growth, the strategy behind its share repurchase, its cash flow, and its commitment to delivering returns for shareholders. The full version of the interview can be watched here.

A full transcript follows the video.

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Austin Smith: You guys have dramatically reduced shares outstanding in just a few quarters. I think it was about 3 million shares. I'm wondering, now that you're CEO, if you could discuss the logic and strategy behind that share repurchase program and whether or not you guys are interested in continuing it.

Scott Di Valerio: You bet. We do capital allocation on a holistic basis. You first take a look and say, "OK, I need to invest in my core businesses to continue to grow them, both from new innovations into the core businesses, as well as the existing. I need to invest in new businesses -- like we've been talking about -- to bring new concepts into the marketplace, and then also in infrastructure in the corporation."

You calculate out what those returns are, and also returning money to the shareholders through share buyback. We'll continue to do that. We balance those out to make sure that we're doing it in a smart way, but a way that really does drive the highest return.

Four years ago, our return on invested capital, for example, was in the low single digits. Last year we finished out at 18.3%.

Smith: Congratulations.

Di Valerio: It's a nice focus for us to continue to do that, and as we try to grow out this business -- and we've talked about doubling the size of the company over the next five years -- we're going to do that while getting our return on invested capital up to 20%, which isn't necessarily the easiest thing to do, but that's how we stay in this very structured and balanced approach to getting returns for our shareholders.

Smith: Got to aim high.

Di Valerio: That's right.

Smith: What do you think is the single biggest thing that retail investors may be missing, or should know, about Coinstar today?

Di Valerio: It's a business that really focuses on its customer, and it's a business that is very operationally sound, and a business that continues to be inventive, innovative, and to bring new products to the market that customers want, and do it in a way that's efficient and effective, that's driving top-line and bottom-line growth.

If you look at our business, we've grown double digits over the last four or five years, both top line and bottom line, and we've driven great free cash flow. Well over $250 million of free cash flow last year; we'll generate between $185 and $205 million of free cash flow this year.

It's a business that's very strong, very growth-oriented, but we're growing profitability at the same time we're growing revenue and free cash flows which is, again, a business that is very good to run. It's a business that should be very good to invest in, and one that's probably a little bit misunderstood, given the fact that we have a lot of great businesses and we're in a business that we think is going to continue to grow, and grow quite rapidly.

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9/26/2016 1:07 PM
OUTR $51.99 Down -0.02 -0.04%
Outerwall CAPS Rating: **