TRM Corporation Reports Second Quarter 2006 Financial Results
PORTLAND, Oregon, August 3, 2006 -- TRM Corporation (Nasdaq: TRMM) today reported financial results for the second quarter ended June 30, 2006.
During Q2 2006 consolidated sales were $52.8 million, 2% greater than $51.9 million in Q1 2006 and 12% less than sales of $60.1 million in Q2 2005. Compared to Q1 2006, sales reflect reduced attrition rates and increased withdrawal transactions in the ATM business.
Consolidated net sales were $27.5 million in Q2 2006, a 2% decrease from $28.1 million in Q1 2006, and a 14% decrease from $32.1 million in the prior year period. The year over year decline in net sales reflects a net decline in ATM unit count and cash withdrawals in the ATM business, as well as a decline in the average number of photocopies per machine.
Adjusted EBITDA in Q2 2006 was $6.8 million compared to adjusted EBITDA in Q1 2006 of $5.5 million. Adjusted EBITDA in Q2 2006 includes the gain of $2.2 million related to the sale of TRM Copy Centres (U.K.) Limited. (See Attachment: Adjusted EBITDA Reconciliation).
In Q2 2006, gross profit was $9.5 million, a sequential decline from $11.5 million during Q1 2006, and compared to $15.9 million in Q2 2005. The Company reported an operating loss of $2.2 million in Q2 2006, compared to operating income of $226,000 in Q1 2006 and compared to operating income of $5.1 million in Q2 2005.
Net loss was $4.5 million, or $0.26 per diluted share in Q2 2006, compared to a net loss of $1.5 million, or $0.09 per diluted share in Q1 2006, and compared to net income of $2.9 million, or $0.19 per diluted share in Q2 2005.
Interest expense increased to $3.6 million in Q2 2006 from $2.3 million in Q1 2006 and from $2.7 million in Q2 2005. The increase reflects the Company's debt refinancing in Q2 2006.
TRM Corporation had 17.0 million diluted shares outstanding in Q2 2006 compared to 14.8 million in Q2 2005.
SEGMENT HIGHLIGHTS
ATM
($ millions)
Q2 2006 Q2 2005 % Change Q1 2006 % Change
Sales 44.2 50.3 (12%) 43.8 1%
Discounts 23.8 26.3 (10%) 22.5 6%
Net Sales 20.4 24.0 (15%) 21.3 (4%)
Gross Profit 7.3 12.5 (42%) 9.7 (25%)
Operating
Income (loss) 0.1 5.0 (98%) 2.2 (95%)
Gross Margin
(% net sales) 35.6% 52.1% (32%) 45.5% (22%)
Operating
Margin (% net
sales) 0.7% 20.9% (97%) 10.3% (93%)
ATM Sales Drivers:
Average monthly
number of
transacting
ATMs 17,960 20,212 (11%) 18,321 (2%)
Total withdrawals
(millions) 18.0 20.2 (11%) 17.3 4%
Withdrawal
transactions
per unit
per month 334 333 0% 315 6%
Transaction
based sales
per
transaction $2.30 $2.32 1% $2.29 0%
Transaction based
sales per unit
per month $768 $771 0% $719 7%
On a sequential basis from Q1 2006 to Q2 2006, ATM sales increased 1% to $44.2 million from $43.8 million. Additionally, withdrawal transactions per unit per month increased 6%, transaction based sales per unit per month increased 7%, and total withdrawals increased 4%. This sequential improvement in volume reflects consumers' continued demand for cash at TRM ATMs, despite a net decline in unit count.
These results also reflect some success in the Company's efforts to reduce the rate of ATM attrition during the quarter. More specifically, attrition contributed to a unit decline of 361 average transacting terminals in Q2 2006, down from a unit decline of 941 average transacting terminals in Q1 2006, a 62% improvement.
Net sales declined sequentially to $20.4 million in Q2 2006 from $21.3 million in Q1 2006, primarily reflecting a U.S.-based customer conversion to the merchant owned program, which commands a higher discount rate.
When compared to Q1 2006, gross profit in Q2 2006 primarily reflects the increasing cost of vault cash and armored car costs, as the Company provides cash inventory to a growing number of ATM locations.
Additionally, the Company announced today that its German subsidiary, TRM ATM Deutschland GmbH, has signed a contract to provide exclusive cash machine services at up to 334 German military barracks over the following 12 months. Site by site viability assessments are now underway with the first installations expected within two months.
PHOTOCOPY*
($ millions) Q2 2006 Q2 2005 % Change Q1 2006 % Change
Sales 8.6 9.9 (13%) 8.1 6%
Discounts 1.5 1.8 (17%) 1.4 7%
Net Sales 7.1 8.1 (12%) 6.8 4%
Gross Profit 2.3 3.4 (32%) 1.7 35%
Operating Income 0.2 1.8 (89%) (0.4) NM
Gross Margin
(% net sales) 31.7% 42.3% (25%) 25.0% 27%
Operating
Margin
(% net sales) 2.8% 22.2% (87%) (5.9%) NM
Photocopy Sales
Drivers:
Average monthly
number of
billed
photocopiers 20,493 21,551 (5%) 20,899 (2%)
Total
photocopies
(millions) 88.7 119.9 (26%) 86.3 3%
Copies per
unit per
month 1,442 1,855 (22%) 1,376 5%
Sales per
copy $0.097 $0.082 18% $0.094 3%
Sales per
unit per
month $140.0 $152.5 (8%) $130.0 8%
*All quarters exclude results of TRM Copy Centres (U.K.) Limited
On a sequential basis from Q1 2006, Photocopy sales and net sales improved 6% and 4%, respectively. Results reflect increases in sales per copy and sales per unit per month, driven by income tax seasonality and increased usage despite fewer billed photocopiers. TRM Corporation continues to optimize the Company's photocopy unit base to include higher quality locations and to remove units that generate comparatively lower volume, revenue and profitability.
Gross profit and operating income also improved in Q2 2006 from Q1 2006. Gross profit increased 35% to $2.3 million from $1.7 million during this period, and operating income was $0.2 million compared to an operating loss of $0.4 million. This improvement reflects continued volume per unit enhancement and successful selective price increases.
On June 28, 2006, the Company completed the sale of TRM Copy Centres (U.K.) Limited, TRM's wholly-owned UK photocopier subsidiary, to Digital 4 Convenience PLC, a U.K.-based operator of retail photocopiers. TRM Copy Centres (U.K.) Limited included approximately 2,500 photocopier units and represented approximately 10% of the TRM photocopier units in stores worldwide. The sale allows the Company's entire U.K. operation to focus solely on the ATM business and is part of an overall effort to increase shareholder value across the organization. As of June 30, 2006, the Company had 20,338 photocopy units throughout the U.S. and Canada.
Balance Sheet
On June 6, 2006, TRM Corporation refinanced its principal indebtedness of $109.5 million. Except for required principal payments due within one year, the term loan portion of the new facility was reclassified as long term debt as reflected on the Company's balance sheet. The required annual debt service payments due under the refinanced loan facility declined to $9.8 million from roughly $16.2 million, at current interest rates.
Following the refinancing of the Company's principal indebtedness, TRM Corporation's syndicated loans are no longer classified as current liabilities.
The Company had cash and cash equivalents of $10.5 million at June 30, 2006 and cash of $4.5 million held by Bank of America as collateral for cash obligations under a treasury management program. This compares to cash and cash equivalents of $9.7 million at December 31, 2005. The Company had net working capital of $7.8 million at June 30, 2006 compared to a net working capital deficit of $89.2 million at December 31, 2005.
Forward Looking Guidance
TRM Corporation is withdrawing its previously announced forward looking guidance of $220.0 million in sales and $26.0-$30.0 million in adjusted EBITDA in 2006.
The Company will make its best efforts to provide investors with forward looking guidance in the future.
About TRM
TRM Corporation is a consumer services company that provides convenience ATM and photocopying services in high-traffic consumer environments. TRM's ATM and copier customer base consists of over 30,000 retailers throughout the United States and over 38,200 ATM and copier units worldwide, including 3,800 ATMs across the United Kingdom and over 4,200 ATM and copier units in Canada. TRM has the second largest non-bank ATM network in both the United States and in the United Kingdom, and its network has a total of approximately 17,900 ATM locations throughout the United States, Canada, Great Britain, Northern Ireland and Germany.
FORWARD LOOKING STATEMENTS
Statements made in this news release that are not historical facts are forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement. Specifically, there are a number of important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, such as consumer demand for our services; access to capital; maintaining satisfactory relationships with our banking partners; technological change; our ability to control costs and expenses; competition and our ability to successfully implement our planned growth. Additional information on these factors, which could affect our financial results, is included in our SEC filings. Finally, there may be other factors not mentioned above or included in our SEC filings that could cause actual results to differ materially from those contained in any forward- looking statement. Undue reliance should not be placed on any forward-looking statement, which reflects management's analysis only as of the date of the statement. We assume no obligation to update any forward-looking statements as a result of new information, future events or developments, except as required by federal securities laws.
Attachment 1
TRM CORPORATION
Consolidated Results of
Operations
(in thousands, except per
share data)
(unaudited)
Three months ended Six months ended
6-30-05 3-31-06 6-30-06 6-30-05 6-30-06
Sales $60,137 $51,930 $52,833 $117,579 $104,763
Less discounts 28,065 23,849 25,296 53,275 49,145
Net sales 32,072 28,081 27,537 64,304 55,618
Cost of sales
Cost of vault cash 2,469 2,211 2,681 4,514 4,892
Other 13,674 14,406 15,332 28,530 29,738
Gross profit 15,929 11,464 9,524 31,260 20,988
Selling, general and
administrative expense 10,824 11,011 10,911 21,157 21,922
Non-cash stock compensation -- 84 711 -- 795
Asset retirements -- 143 83 141 226
Operating income (loss) 5,105 226 (2,181) 9,962 (1,955)
Interest expense
Interest and
amortization of debt
issuance costs 2,659 2,262 3,596 5,019 5,858
Loss on debt redemption -- -- 3,477 -- 3,477
Other expense (income), net (857) (289) (1,252) (1,210) (1,541)
Income (loss) from
continuing operations
before provision (benefit)
for income taxes 3,303 (1,747) (8,002) 6,153 (9,749)
Provision (benefit) for
income taxes 1,229 (334) (1,387) 2,225 (1,721)
Income (loss) from
continuing operations 2,074 (1,413) (6,615) 3,928 (8,028)
Discontinued operations
Gain (loss) from
discontinued UK
photocopier operations
(including gain on
disposal of
$2,186 in the three
and six months
ended June 30,
2006) 100 (202) 1,834 (243) 1,632
Provision (benefit) for
income taxes (688) (116) (284) (827) (400)
Gain (loss) from
discontinued
operations 788 (86) 2,118 584 2,032
Net income (loss) $2,862 $(1,499) $(4,497) $4,512 $(5,996)
BASIC AND DILUTED PER SHARE
INFORMATION:
Income (loss) from
continuing operations $2,074 $(1,413) $(6,615) $3,928 $(8,028)
Preferred stock dividends -- -- -- (147) --
Income allocated to Series
A preferred shareholders -- -- -- (57) --
Net income (loss) from
continuing operations
available to common
shareholders $2,074 $(1,413) $(6,615) $3,724 $(8,028)
Weighted average common
shares outstanding 13,972 16,871 17,046 13,692 16,959
Weighted average common
shares assuming dilution 14,775 16,871 17,046 14,580 16,959
Net income (loss) per
share:
Basic
From continuing
operations $0.15 $(0.08) $(0.39) $0.27 $(0.47)
Discontinued
operations 0.05 (0.01) 0.13 0.04 0.12
Net income $0.20 $(0.09) $(0.26) $0.31 $(0.35)
Diluted
From continuing
operations $0.14 $(0.08) $(0.39) $0.26 $(0.47)
Discontinued
operations 0.05 (0.01) 0.13 0.04 0.12
Net income $0.19 $(0.09) $(0.26) $0.30 $(0.35)
Attachment 2
TRM Corporation
Consolidated Balance Sheet
(in thousands)
(unaudited)
December 31, June 30,
Assets 2005 2006
Current assets:
Cash and cash equivalents $9,708 $10,459
Restricted cash -- 4,500
Accounts receivable, net 13,231 12,418
Income taxes receivable 211 335
Inventories 1,930 2,671
Prepaid expenses and other 3,610 3,844
Deferred tax asset 1,036 1,054
Restricted cash - TRM Inventory
Funding Trust 74,962 --
Total current assets 104,688 35,281
Equipment, less accumulated
depreciation 71,709 66,466
Restricted cash - TRM Inventory
Funding Trust -- 85,459
Deferred tax asset 1,631 --
Goodwill 118,875 119,694
Other intangible assets, less
accumulated amortization 43,044 40,169
Other assets 1,835 1,148
Total assets $341,782 $348,217
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $13,218 $12,807
Accrued expenses 14,940 8,780
Current portion of long-term
debt 91,605 5,539
TRM Inventory Funding Trust note
payable 73,269 --
Current portion of obligations
under capital leases 828 313
Total current
liabilities 193,860 27,439
TRM Inventory Funding Trust note
payable -- 83,798
Long-term debt -- 94,882
Obligations under capital leases 686 56
Deferred tax liability 5,430 3,606
Other long-term liabilities 380 307
Total liabilities 200,356 210,088
Minority interest 1,500 1,500
Shareholders' equity:
Common stock 131,545 132,431
Additional paid-in capital 63 63
Accumulated other comprehensive
income 2,884 4,697
Retained earnings (deficit) 5,434 (562)
Total shareholders'
equity 139,926 136,629
$341,782 $348,217
Attachment 3
TRM Corporation
Adjusted EBITDA Reconciliation
(in thousands - USD)
(unaudited)
Three months ended Six months ended
6-30-05 3-31-06 6-30-06 6-30-05 6-30-06
Net income (loss) $2,862 $(1,499) $(4,497) $4,512 $(5,996)
Add:
Interest expense 2,696 2,278 3,610 5,099 5,888
Loss on debt redemption -- -- 3,477 -- 3,477
Provision (benefit) for
income taxes 541 (450) (1,671) 1,398 (2,121)
Depreciation and
amortization 4,947 4,982 5,069 9,708 10,051
Asset retirements -- 143 83 141 226
EBITDA 11,046 5,454 6,071 20,858 11,525
Non-cash stock compensation
expense -- 84 711 -- 795
Adjusted EBITDA $11,046 $5,538 $6,782 $20,858 $12,320
Note: Our Adjusted EBITDA calculation is based upon the definition of
EBITDA in the loan documents governing our loan facility entered into in
June 2006 and includes asset retirements which were not part of our
Adjusted EBITDA calculations in previous periods. As a result, Q1 2006
Adjusted EBITDA has increased $143K over the previously published Adjusted
EBITDA number.
