Company Quick10K Filing
Quick10K
Blackhawk Network
10-Q 2018-03-24 Quarter: 2018-03-24
10-K 2017-12-30 Annual: 2017-12-30
10-Q 2017-09-09 Quarter: 2017-09-09
10-Q 2017-06-17 Quarter: 2017-06-17
10-Q 2017-03-25 Quarter: 2017-03-25
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-10 Quarter: 2016-09-10
10-Q 2016-06-18 Quarter: 2016-06-18
10-Q 2016-03-26 Quarter: 2016-03-26
10-K 2016-01-02 Annual: 2016-01-02
10-Q 2015-09-12 Quarter: 2015-09-12
10-Q 2015-06-20 Quarter: 2015-06-20
10-Q 2015-03-28 Quarter: 2015-03-28
10-K 2015-01-03 Annual: 2015-01-03
10-Q 2014-09-06 Quarter: 2014-09-06
10-Q 2014-06-14 Quarter: 2014-06-14
10-Q 2014-03-22 Quarter: 2014-03-22
10-K 2013-12-28 Annual: 2013-12-28
8-K 2018-06-15 Leave Agreement, M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Other Events, Exhibits
8-K 2018-05-01 Earnings, Exhibits
8-K 2018-03-30 Shareholder Vote
8-K 2018-03-20 Other Events
8-K 2018-02-27 Earnings, Exhibits
8-K 2018-02-20 Officers
8-K 2018-01-15 Enter Agreement, Other Events, Exhibits
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CAPC Capstone Companies 8
LTUM Lithium 8
MOJO Mojo Organics 6
DSGT DSG Global 1
NVST Envista 0
XREE X Rail Entertainment 0
HAWK 2018-03-24
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information.
Item 6. Exhibits
EX-10.1 hawk-20180324x10qex101.htm
EX-31.1 hawk-20180324x10qex311.htm
EX-31.2 hawk-20180324x10qex312.htm
EX-32.1 hawk-20180324x10qex321.htm

Blackhawk Network Earnings 2018-03-24

HAWK 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 hawk-20180324x10q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 
 
FORM 10-Q
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 24, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-35882 
 
BLACKHAWK NETWORK HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
43-2099257
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
6220 Stoneridge Mall Road
Pleasanton, CA
 
94588
(Address of Principal Executive Offices)
 
(Zip Code)
(925) 226-9990
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Emerging growth company
 
¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
As of April 23, 2018, there were 57,117,000 shares of the Registrant’s common stock outstanding.
 



Blackhawk Network Holdings, Inc.
FORM 10-Q
Table of Contents

 
 
Page
PART I. FINANCIAL STATEMENTS
 
 
 
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



BLACKHAWK NETWORK HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)

 
March 24, 2018
 
December 30, 2017
 
March 25, 2017
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
351,099

 
$
1,096,195

 
$
214,536

Restricted cash
69,781

 
135,345

 
56,832

Settlement receivables, net
416,633

 
1,038,347

 
319,557

Accounts receivable, net
152,262

 
185,741

 
259,138

Other current assets
158,301

 
142,737

 
165,898

Total current assets
1,148,076

 
2,598,365

 
1,015,961

Property, equipment and technology, net
172,132

 
172,607

 
173,403

Intangible assets, net
417,946

 
430,978

 
338,672

Goodwill
565,913

 
563,405

 
570,313

Deferred income taxes
235,860

 
235,797

 
361,981

Other assets
185,739

 
121,667

 
91,166

TOTAL ASSETS
$
2,725,666

 
$
4,122,819

 
$
2,551,496

 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements

1


BLACKHAWK NETWORK HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(In thousands, except par value)
(Unaudited)

 
March 24, 2018
 
December 30, 2017
 
March 25, 2017
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Settlement payables
$
683,027

 
$
2,074,673

 
$
547,179

Consumer and customer deposits
321,970

 
326,685

 
269,026

Accounts payable and accrued operating expenses
125,073

 
156,182

 
143,430

Contract liabilities
54,088

 
60,607

 
46,867

Note payable, current portion
14,912

 
10,662

 
7,390

Notes payable to Safeway
3,941

 
3,941

 
2,909

Bank line of credit

 

 
14,415

Other current liabilities
56,453

 
102,823

 
85,651

Total current liabilities
1,259,464

 
2,735,573

 
1,116,867

Deferred income taxes
29,648

 
29,085

 
28,796

Note payable
258,315

 
202,441

 
130,560

Convertible notes payable
444,707

 
441,655

 
431,941

Other liabilities
44,967

 
38,877

 
53,635

Total liabilities
2,037,101

 
3,447,631

 
1,761,799

Commitments and contingencies (see Note 9)

 

 

Stockholders’ equity:
 
 
 
 
 
Preferred stock: $0.001 par value; 10,000 shares authorized; no shares outstanding

 

 

Common stock: $0.001 par value; 210,000 shares authorized; 57,097, 55,767 and 56,290 shares outstanding, respectively
57

 
56

 
56

Additional paid-in capital
670,756

 
649,546

 
612,328

Treasury stock
(40,023
)
 
(40,023
)
 

Accumulated other comprehensive loss
(8,362
)
 
(16,121
)
 
(42,967
)
Retained earnings
62,097

 
77,864

 
216,001

Total Blackhawk Network Holdings, Inc. equity
684,525

 
671,322

 
785,418

Non-controlling interests
4,040

 
3,866

 
4,279

Total stockholders’ equity
688,565

 
675,188

 
789,697

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
2,725,666

 
$
4,122,819

 
$
2,551,496

See accompanying notes to condensed consolidated financial statements

2


BLACKHAWK NETWORK HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except for per share amounts)
(Unaudited)
 
12 weeks ended
 
March 24, 2018
 
March 25, 2017
OPERATING REVENUES:
 
 
 
Commissions and fees
$
288,626

 
$
249,525

Program and other fees
101,402

 
95,865

Marketing
14,367

 
14,281

Product sales
24,813

 
26,741

Total operating revenues
429,208

 
386,412

OPERATING EXPENSES:
 
 
 
Partner distribution expense
218,449

 
175,123

Processing and services
92,949

 
101,021

Sales and marketing
64,181

 
62,658

Costs of products sold
24,256

 
27,849

General and administrative
29,322

 
29,025

Transition and acquisition
4,927

 
451

Amortization of acquisition intangibles
14,107

 
12,562

Change in fair value of contingent consideration
100

 
1,040

Total operating expenses
448,291

 
409,729

OPERATING INCOME (LOSS)
(19,083
)
 
(23,317
)
OTHER INCOME (EXPENSE):
 
 
 
Interest income and other income (expense), net
(224
)
 
836

Interest expense
(7,786
)
 
(6,943
)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)
(27,093
)
 
(29,424
)
INCOME TAX EXPENSE (BENEFIT)
(11,505
)
 
(12,082
)
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS
(15,588
)
 
(17,342
)
Loss (income) attributable to non-controlling interests, net of tax
(179
)
 
(123
)
NET INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC.
$
(15,767
)
 
$
(17,465
)
EARNINGS (LOSS) PER SHARE:
 
 
 
Basic
$
(0.28
)
 
$
(0.31
)
Diluted
$
(0.28
)
 
$
(0.31
)
Weighted average shares outstanding—basic
56,477

 
55,904

Weighted average shares outstanding—diluted
56,477

 
55,904

See accompanying notes to condensed consolidated financial statements

3


BLACKHAWK NETWORK HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
 
12 weeks ended
 
 
March 24, 2018
 
March 25, 2017
 
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS
$
(15,588
)
 
$
(17,342
)
 
Other comprehensive income (loss):
 
 
 
 
Currency translation adjustments
7,752

 
5,975

 
COMPREHENSIVE INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS
(7,836
)
 
(11,367
)
 
Comprehensive loss (income) attributable to non-controlling interests, net of tax

 
(82
)
 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC.
$
(7,836
)
 
$
(11,449
)
 
See accompanying notes to condensed consolidated financial statements

4


BLACKHAWK NETWORK HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
12 weeks ended
 
 
March 24, 2018
 
March 25, 2017
 
OPERATING ACTIVITIES:
 
 
 
 
Net income (loss) before allocation to non-controlling interests
$
(15,588
)
 
$
(17,342
)
 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
 
Depreciation and amortization of property, equipment and technology
12,148

 
11,600

 
Amortization of intangibles
15,951

 
13,755

 
Amortization of deferred program and contract costs
7,905

 
7,397

 
Amortization of deferred financing costs and debt discount
2,860

 
3,162

 
Loss on property, equipment and technology disposal/write-down
16

 
108

 
Employee stock-based compensation expense
8,062

 
8,401

 
Change in fair value of contingent consideration
100

 
1,040

 
Deferred income taxes

 
(2,307
)
 
Other
2,942

 
1,605

 
Changes in operating assets and liabilities:
 
 
 
 
Settlement receivables
634,105

 
330,177

 
Settlement payables
(1,401,302
)
 
(1,080,989
)
 
Accounts receivable, current and long-term
29,788

 
(7,666
)
 
Other current assets
(3,273
)
 
(7,146
)
 
Other assets
(63,174
)
 
(3,037
)
 
Consumer and customer deposits
(13,424
)
 
32,018

 
Accounts payable and accrued operating expenses
(27,065
)
 
(4,645
)
 
Contract liabilities
(6,673
)
 
2,980

 
Other current and long-term liabilities
(21,820
)
 
635

 
Income taxes, net
(14,642
)
 
(9,944
)
 
Net cash (used in) provided by operating activities
(853,084
)
 
(720,198
)
 
INVESTING ACTIVITIES:
 
 
 
 
Expenditures for property, equipment and technology
(15,819
)
 
(16,697
)
 
Business acquisitions, net of cash acquired

 
(10,881
)
 
Investment in unconsolidated entities

 
(5,200
)
 
Other
(1,000
)
 

 
Net cash (used in) provided by investing activities
(16,819
)
 
(32,778
)
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements

5


BLACKHAWK NETWORK HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
(Unaudited)
 
12 weeks ended
 
 
March 24, 2018
 
March 25, 2017
 
FINANCING ACTIVITIES:
 
 
 
 
Payments for acquisition liability
(2,000
)
 

 
Proceeds from issuance of note payable
75,000

 

 
Repayment of note payable
(15,000
)
 
(10,000
)
 
Borrowings under revolving bank line of credit
127,536

 
667,936

 
Repayments on revolving bank line of credit
(127,536
)
 
(653,521
)
 
Repayment on notes payable to Safeway

 
(254
)
 
Proceeds from issuance of common stock from exercise of employee stock options and employee stock purchase plans
10,924

 
3,700

 
Other stock-based compensation related
(18,254
)
 
(8,897
)
 
Net cash (used in) provided by financing activities
50,670

 
(1,036
)
 
Effect of exchange rate changes on cash, cash equivalents and restricted cash
8,573

 
6,462

 
Decrease in cash, cash equivalents and restricted cash
(810,660
)
 
(747,550
)
 
Cash, cash equivalents and restricted cash—beginning of period
1,231,540

 
1,018,918

 
Cash, cash equivalents and restricted cash—end of period
$
420,880

 
$
271,368

 
 
 
 
 
 
NONCASH FINANCING AND INVESTING ACTIVITIES:
 
 
 
 
Financing of business acquisition with contingent consideration
$

 
$
2,000

 

Reconciliation of cash, cash equivalents and restricted cash as shown in the statement of cash flows is presented in the table below (in thousands):
 
March 24, 2018
 
March 25, 2017
Cash and cash equivalents
$
351,099

 
$
214,536

Restricted cash
69,781

 
56,832

Total cash, cash equivalents and restricted cash
$
420,880

 
$
271,368



See accompanying notes to condensed consolidated financial statements

6


BLACKHAWK NETWORK HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The Company and Significant Accounting Policies
The Company
Blackhawk Network Holdings, Inc., together with its subsidiaries (“we”, “us”, “our”, the “Company”), is a leading prepaid payment network utilizing proprietary technology to offer consumers and businesses a broad selection of prepaid cards in physical and electronic forms, as well as complementary prepaid products, payment services and incentives solutions. We currently offer our products and/or solutions directly or through commercial relationships in the United States and 25 other countries and can deliver solutions in over 100 countries. Our product offerings include single-use gift cards; loyalty, incentive and reward products and services; prepaid telecom products and prepaid financial services products, including general purpose reloadable (“GPR”) cards, and our reload network (collectively, “prepaid products”). We offer gift cards from leading consumer brands (known as “closed loop”) as well as branded gift and incentive cards from leading payment network card associations such as American Express, Discover, MasterCard and Visa (known as “open loop”) and prepaid telecom products offered by prepaid wireless telecom carriers. We also distribute GPR cards and operate a proprietary reload network named Reloadit, which allows consumers to reload funds onto their previously purchased GPR cards. We distribute these prepaid products across multiple high-traffic channels such as grocery, convenience, specialty and online retailers (referred to as “retail distribution partners”) in the Americas, Europe, Africa, Australia and Asia and provide these prepaid products and related services to business clients for their loyalty, incentive and reward programs.
Merger Agreement
On January 15, 2018, we entered into an agreement and plan of merger (the “Merger Agreement”) with BHN Holdings, Inc., a Delaware corporation (“Parent”), and BHN Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides, among other things and subject to the terms and conditions set forth therein, that Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Parent. Parent has agreed to acquire the Company in an all-cash transaction for a total consideration of approximately $3.5 billion, which includes assumption of our debt. Pursuant to the terms of the Merger Agreement, the completion of the Merger is subject to the satisfaction or waiver of certain customary closing conditions, including the stockholder approval which was obtained at the Special Meeting of Stockholders held on March 30, 2018. The completion of the Merger remains subject to certain other customary closing conditions, including, among others, (i) the absence of any law, order or injunction of a court or governmental entity of competent jurisdiction prohibiting the consummation of the Merger or the other transactions contemplated by the Merger Agreement; (ii) receipt of certain consents and approvals (or confirmation that no consent is required) from the applicable regulatory authority in a number of jurisdictions, including various U.S. states; and (iii) the absence of a “material adverse effect” on the Company after the date of the Merger Agreement. As of the date of this report, the Company continues to expect to complete the Merger in mid-2018. See Part I, Item 1A, “Risk Factors” and Note 16- Subsequent Event of the Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the fiscal year ended on December 30, 2017, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2018 (the “Annual Report”).
Basis of Presentation
The accompanying condensed consolidated financial statements of Blackhawk Network Holdings, Inc. are unaudited. We have prepared our unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. We have condensed or omitted certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP pursuant to such rules and regulations. Accordingly, our interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related notes included in the Annual Report. We have prepared our condensed consolidated financial statements on the same basis as our annual audited consolidated financial statements and, in the opinion of management, have reflected all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position and results of operations for the interim periods presented. Our results for the interim periods are not necessarily reflective of the results to be expected for the year ending December 29, 2018 or for any other interim period or other future year. Our condensed consolidated balance sheet as of December 30, 2017, included herein was derived from our audited consolidated financial statements as of that date but does not include all disclosures required by GAAP for annual financial statements, including notes to the financial statements.

7


Seasonality
For our retail business, a significant portion of gift card sales occurs in late December each year during the holiday selling season. As a result, we earn a significant portion of our revenues, net income and cash flows during the fourth quarter of each year and remit the majority of the cash, less commissions, to our content providers in January of the following year. The timing of our fiscal year-end, December holiday sales and the related January cash settlement with content providers significantly increases our Cash and cash equivalents, Settlement receivables and Settlement payables balances at the end of each fiscal year relative to normal daily balances. We also experience an increase in revenues, net income and cash flows during the second quarter of each year, which we primarily attribute to the Mother’s Day, Father’s Day and graduation gifting season and the Easter holiday. Depending on when the Easter holiday occurs, the associated increase is in either the first or second quarter. As a result, quarterly financial results are not necessarily reflective of the results to be expected for the year or any other interim or future period. Seasonality also impacts our incentives businesses, but such impact is smaller in comparison to our retail business.
Significant Accounting Policies
The Company's significant accounting policies are detailed in "Note 1: Summary of Significant Accounting Policies" within Item 8 of the Company's Annual Report on Form 10-K for the year ended December 30, 2017.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (Topic 606)(“ASC 606”), which, along with amendments issued in 2015, 2016 and 2017, replaces nearly all current U.S. GAAP guidance on this topic with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. This new guidance provides a five-step analysis in determining when and how revenue is recognized. Under the new guidance, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the new guidance requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
As part of our assessment and implementation plan, we evaluated and made changes to our policies and procedures. Additionally, we evaluated the impact of this new guidance on the purchase accounting or intangibles assets from our recent acquisitions; this resulted in a reclassification of certain backlog assets to contract asset, with no impact to our consolidated net income. The Company adopted this new guidance using the full retrospective method in the first quarter of fiscal 2018, which impacted each prior reporting period presented.
Revenue Recognition under ASC 606
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Certain of the Company’s contracts have multiple performance obligations, as the promise to transfer individual goods or services is separately identifiable from other promises in the contracts and, therefore, is distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on its relative standalone selling price. Our performance obligations are satisfied at a point in time or over time as work progresses.
Revenue from goods and services transferred to customers at a point in time accounted for 5% and 6% of total operating revenues for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. Revenue recognized at a point in time relates to our card production services, handset sales and our Cardpool business. Revenue on these contracts is recognized when the goods are delivered or when the service is provided.
Revenue from products and services transferred to customers over time accounted for 95% and 94% of total operating revenues for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. This primarily includes revenue related to our employee engagement business, our rebate processing and reward fulfillment businesses as well as the sale of closed loop and open loop gift cards under long-term contracts for which we have a stand-ready obligation to provide services over the term of the contract. Revenue is typically recognized over time using an input measure (e.g., number of days passed or units sold) to measure progress.
Revenue allocated to the remaining performance obligations represent contracted revenue that has not yet been recognized (“contracted not recognized”), which includes deferred revenue and amounts that will be invoiced and

8


recognized as revenue in future periods, including noncancelable contractual commitments related to our employee engagement business. Based on average historical commission rates earned on redeemed points, total contracted not recognized revenue was $107.7 million as of March 24, 2018. Based on historical trends, points related to our employee engagement business are estimated to be redeemed and recognized as revenue within a year following the issuance of such points. The Company expects to recognize approximately 61% of its remaining performance obligations as revenue in fiscal 2018, an additional 20% by fiscal 2019 and 19% of the amount thereafter.
Significant Estimates
Transaction price—The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer. The nature of our contracts gives rise to several types of variable consideration. The amount of program management fees or merchant commissions that we will receive from the card partner or issuing bank varies according to the redemption rates on those cards. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. We estimate the amount we ultimately expect to collect from our customers and record a receivable or contract asset depending on the contractual billing schedule. Estimating the transaction price requires significant management judgment about future events and is based on historical card redemption patterns as well as other relevant information for the respective card programs. The estimated transaction price is determined at the inception of the contract; we recognize the related revenue as the performance obligation is fulfilled.
Standalone selling price—For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling prices are determined based on the prices at which the Company separately sells these services. For services that are not sold separately, the Company estimates the standalone selling prices using the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service. Forecasting the expected costs and estimating the appropriate margin require significant management judgement and affects the timing of revenue recognition.
Material right—We also consider whether renewal options for certain customer contracts represents a material right and should be accounted for as a separate performance obligation. This requires us to evaluate whether the renewal option to acquire additional goods and services provides the customer with a discount that is incremental to a discount typically given to that class of customer. We concluded that one of our key customer contracts includes a material right and we have accounted for this material right as a separate performance obligation.
These significant estimates are re-assessed each reporting period as required.
Contract Balances
We receive payments from customers based upon contractual billing schedules. The timing of revenue recognition, billings and cash collections results in contract assets (billed accounts receivable and unbilled receivables), and contract liabilities. We record a receivable when we have an unconditional right to invoice and receive payment in the future. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables which are anticipated to be invoiced in the next twelve months are included in Accounts receivable, net on the condensed consolidated balance sheet. Long-term unbilled receivables are included in Other assets. Amounts collected in advance of services being provided are included in Contract Liability if we expect to recognize the revenue within the next twelve months. Long-term contract liabilities are included in Other Liabilities.

9


The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):
 
March 24, 2018
 
December 30, 2017
 
March 25, 2017
Accounts receivables, net
$
152,262

 
$
185,741

 
$
259,138

 
 
 
 
 
 
Unbilled receivables, current
$
143,824

 
$
193,734

 
$
167,392

Unbilled receivables, long-term
11,265

 
9,235

 
1,475

Total unbilled receivables
$
155,089

 
$
202,969

 
$
168,867

 
 
 
 
 
 
Contract liabilities, current
$
54,088

 
$
60,607

 
$
46,867

Contract liabilities, long-term
24,463

 
23,897

 
16,318

Total contract liabilities
$
78,551

 
$
84,504

 
$
63,185

Changes in contract liabilities were as follows (in thousands):
 
12 weeks ended
 
March 24, 2018
 
March 25, 2017
Balance, beginning of period
$
84,504

 
$
63,410

Revenue recognized that was included in the contract liability balance at beginning of period
(51,790
)
 
(39,222
)
Deferrals, excluding amounts recognized as revenue during the period
45,625

 
38,799

Exchange rate effect
212

 
198

Balance, end of period
$
78,551

 
$
63,185

Contract Costs
Cost to obtain a contract—The Company defers all incremental costs of acquiring customer contracts, which consist of sales commissions paid or payable to our direct sales force. The deferred commission amounts are recoverable through future revenue streams under the contracts and are amortized on a straight-line basis over an estimated period of benefit of six years. Deferred commissions were $8.2 million and $6.5 million at March 24, 2018 and March 25, 2017, respectively. Amortization recognized during the 12 weeks ended March 24, 2018 and March 25, 2017, was $0.3 million and $0.3 million, respectively, included in Sales and marketing expense. There was no impairment loss in relation to the deferred commissions.
Cost to fulfill a contract—The Company sometimes incurs costs to fulfill its contract obligations before transferring goods or services to the customer. In certain card programs (for example, aggregated category gift cards), where redemption service has been identified to be the only performance obligation under ASC 606, we incur partner distribution expense upon the sale of a card prior to performing the redemption service. The costs are recoverable through the future revenue streams associated with the card programs. Under ASC 606, such costs are deferred and recognized in Partner Distribution Expense ratably in proportion to the historical redemption patterns of the card portfolio over the estimated life of the card. Deferred partner distribution expenses were $2.4 million and $4.3 million at March 24, 2018 and March 25, 2017, respectively. Amortization recognized during the three months ended March 24, 2018 and March 25, 2017, was $2.4 million and $2.5 million, respectively. There was no impairment loss in relation to the deferred partner distribution expenses.

10


Disaggregation of revenue
The following table provides information about disaggregated revenue by major product line for each of our segments (in thousands):
 
12 weeks ended
 
March 24, 2018
 
U.S. Retail
 
Incentives & Rewards
 
International
 
Total
Card servicesphysical retail (1)
$
185,625

 
$

 
$
118,171

 
$
303,796

Card servicese-commerce (2)
25,787

 
12,921

 

 
38,708

Marketing services (3)
5,770

 

 
8,597

 
14,367

Other services (4)
14,753

 
44,533

 
13,051

 
72,337

 
$
231,935

 
$
57,454

 
$
139,819

 
$
429,208

 
12 weeks ended
 
March 25, 2017
 
U.S. Retail
 
Incentives & Rewards
 
International
 
Total
Card services—physical retail (1)
$
159,647

 
$

 
$
98,097

 
$
257,744

Card services—e-commerce (2)
11,459

 
8,719

 

 
20,178

Marketing services (3)
7,309

 

 
6,972

 
14,281

Other services (4)
19,558

 
44,541

 
30,110

 
94,209

 
$
197,973

 
$
53,260

 
$
135,179

 
$
386,412


(1) Card services-physical retail: This includes all prepaid products sold in our retail distribution stores and card production services.
(2) Card services-e-commerce: This includes all prepaid products sold online through either our own websites or third-party online retailers. It also includes our first-party digital business, our loyalty business as well as digital services for online and mobile applications.
(3) Marketing services: Funds received from content providers to promote their prepaid cards throughout our distribution partner network.
(4) Other services: This includes our rebate processing and reward fulfillment businesses, software and reward redemption revenue from our employee engagement business, telecom handset sales, our Cardpool business and the Meetings and Events business of Grass Roots, which was sold in the fourth quarter of 2017.
In addition, see Note 10Segment Reporting for additional information regarding our reportable segments.

Significant changes in accounting policies resulting from the adoption of ASC 606
Revenue
Content Provider Commissions—Under the new guidance, we will continue to recognize content provider commissions for closed loop cards as revenue at the time of card activation, as that is the time that our performance obligation to the content provider is complete. However, the actual revenue recognition treatment required under the new guidance may be dependent on contract-specific terms and, therefore, may vary in some instances.
Consumer Purchase Fees and Program Management Fees—Under the new guidance, we consider the transaction price for our open loop gift cards, including our Visa gift card, to include consumer purchase fees and program management fees. Under the new guidance, we have identified three performance obligations - distribution-and-activation, redemption service and customer care. Revenue from consumer purchase fees and program management fees, included within Commissions and fees and Program and other fees, respectively, related to our Visa gift cards will predominantly be recognized as revenue at the time of card activation when our distribution-and-activation obligation is

11


complete. The remainder will be recognized over the estimated period of card redemption as redemption service and customer care obligations are performed. Under previous GAAP, we defer these revenues and recognize them based on the redemption pattern of the card. Interchange revenue will be recognized over the period of card redemption as we provide information required for card redemption, similar to our current revenue recognition. Additionally, revenue from program management fees related to our proprietary Visa gift cards issued by MetaBank will be based on a blended rate over the appropriate periods as required by the contract-specific terms compared to a contractually stated rate under the current accounting policy. Although we expect the blended rate to be lower than the contract rate initially, the economics of the arrangement will be the same over the term of the contract period. Under previous GAAP, we defer consumer purchase fees and program management fees related to our Visa gift cards in Deferred revenue and recognize revenue ratably in proportion to the historical redemption patterns of the card portfolio over the estimated life of the card.
Rebate Processing Fees—Under the new guidance, we recognize revenue for rebates fulfilled with open loop incentive cards when we fulfill the cards to the end consumer versus ratably in proportion to historical redemption patterns as our performance obligation for rebate processing is complete at time of fulfillment. The recognition of revenue for rebates fulfilled by checks or closed loop cards is recognized at fulfillment and remains unchanged under the new guidance.
Incentive Merchandise Rewards—Under the new guidance, we classify the costs of certain incentive merchandise rewards issued in connection with our employee engagement solutions as a reduction to revenue versus a cost of products sold. These costs will only be recorded as a cost of product sold if it is determined that we control the goods or services before they are transferred to the customer. In doing so, we will evaluate (i) if we are primarily responsible for fulfilling the promise to provide the good or service; (ii) if we have inventory risk before the good or service has been transferred to customer or after transfer of control to the customer; and (iii) if we have discretion in establishing the price for the good or service.
Operating Expenses
Partner Distribution Expense—Under the new guidance, partner distribution expense for Visa gift and other open loop incentive cards will be recognized at the time of card activation when our distribution-and-activation obligation is complete. Under previous GAAP, we defer these expenses and amortize them based on the redemption pattern of the card.
Processing and Services—Under the new guidance, card production and upfront transaction processing fees for the Visa gift card and open loop incentive cards will be recognized at the time of card activation when our distribution-and-activation obligation is complete. Under previous GAAP, these costs are deferred and expensed based on the same redemption pattern as the related revenue.
Sales and Marketing—The accounting for the recognition of costs related to obtaining customer contracts under the new guidance is different from our current capitalization policy. The adoption of the new guidance results in additional capitalized commissions which will be amortized over a longer term than our previous policy.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to explain the changes in the combined total of restricted and unrestricted cash balances in the statement of cash flows. ASU 2016-18 should be applied using a retrospective transition method, for fiscal years beginning after December 15, 2017, and early adoption is permitted. The Company adopted this new guidance using the full retrospective method in the first quarter of fiscal 2018, which impacted each prior reporting period presented. The new guidance has no impact on the Company’s condensed consolidated balance sheets or income statements; but impacted the presentation of restricted cash and restricted cash equivalents within our condensed consolidated statements of cash flows.

12


Impacts to Previously Reported Results
Adoption of ASU 2014-09 impacted select lines in our previously reported condensed consolidated balance sheets as follows (in thousands):
 
As of December 30, 2017
 
As Previously Reported
 
Impact of Adoption
 
As Adjusted
Assets:
 
 
 
 
 
Accounts receivable, net
$
184,994

 
$
747

 
$
185,741

Other current assets
$
165,374

 
$
(22,637
)
 
$
142,737

Intangible assets, net
$
431,681

 
$
(703
)
 
$
430,978

Deferred income taxes
$
236,496

 
$
(699
)
 
$
235,797

Other assets
$
115,236

 
$
6,431

 
$
121,667

Total assets
$
4,139,680

 
$
(16,861
)
 
$
4,122,819

Liabilities:
 
 
 
 
 
Consumer and customer deposits
$
252,822

 
$
73,863

 
$
326,685

Contract liabilities (previously reported as Deferred revenue)
$
179,684

 
$
(119,077
)
 
$
60,607

Deferred income taxes, long term
$
28,083

 
$
1,002

 
$
29,085

Other liabilities
$
16,747

 
$
22,130

 
$
38,877

Total liabilities
$
3,469,713

 
$
(22,082
)
 
$
3,447,631

Stockholders’ equity:
 
 
 
 
 
Accumulated other comprehensive loss
$
(16,049
)
 
$
(72
)
 
$
(16,121
)
Retained earnings
$
72,571

 
$
5,293

 
$
77,864

Total stockholder’s equity
$
669,967

 
$
5,221

 
$
675,188

 
As of March 25, 2017
 
As Previously Reported
 
Impact of Adoption
 
As Adjusted
Assets:
 
 
 
 
 
Other current assets
$
177,463

 
$
(11,565
)
 
$
165,898

Intangible assets, net
$
340,846

 
$
(2,174
)
 
$
338,672

Deferred income taxes
$
361,404

 
$
577

 
$
361,981

Other assets
$
85,647

 
$
5,519

 
$
91,166

Total assets
$
2,559,139

 
$
(7,643
)
 
$
2,551,496

Liabilities:
 
 
 
 
 
Consumer and customer deposits
$
199,822

 
$
69,204

 
$
269,026

Accounts payable
$
143,858

 
$
(428
)
 
$
143,430

Contract liabilities (previously reported as Deferred revenue)
$
140,834

 
$
(93,967
)
 
$
46,867

Deferred income taxes, long term
$
28,200

 
$
596

 
$
28,796

Other liabilities
$
37,745

 
$
15,890

 
$
53,635

Total liabilities
$
1,770,504

 
$
(8,705
)
 
$
1,761,799

Stockholders’ equity:
 
 
 
 
 
Accumulated other comprehensive loss
$
(42,861
)
 
$
(106
)
 
$
(42,967
)
Retained earnings
$
214,833

 
$
1,168

 
$
216,001

Total stockholder’s equity
$
788,635

 
$
1,062

 
$
789,697


13


Adoption of ASU 2014-09 impacted select lines in our previously reported condensed consolidated income statement as follows (in thousands, except per share amounts):
 
12 weeks ended
 
For the quarter ended March 25, 2017
 
As Previously Reported
 
Impact of Adoption
 
As Adjusted
Operating revenues:
 
 
 
 
 
Commissions and fees
$
255,206

 
$
(5,681
)
 
$
249,525

Program and other fees
$
100,910

 
$
(5,045
)
 
$
95,865

Product sales
$
36,839

 
$
(10,098
)
 
$
26,741

Total operating revenues
$
407,236

 
$
(20,824
)
 
$
386,412

Operating expenses:
 
 
 
 
 
Partner distribution expense
$
179,476

 
$
(4,353
)
 
$
175,123

Processing and services
$
102,272

 
$
(1,251
)
 
$
101,021

Sales and marketing
$
62,785

 
$
(127
)
 
$
62,658

Costs of products sold
$
36,193

 
$
(8,344
)
 
$
27,849

Amortization of acquisition intangibles
$
13,025

 
$
(463
)
 
$
12,562

Total operating expenses
$
424,267

 
$
(14,538
)
 
$
409,729

Income tax expense (benefit)
$
(9,775
)
 
$
(2,307
)
 
$
(12,082
)
Net income (loss) attributable to Blackhawk Network Holdings, Inc.
$
(13,486
)
 
$
(3,979
)
 
$
(17,465
)
Diluted earnings (loss) per share
$
(0.24
)
 
$
(0.07
)
 
$
(0.31
)
Adoption of ASU 2014-09 and ASU 2016-18 impacted select lines in our previously reported condensed consolidated statement of cash flows as follows (in thousands):
 
12 weeks ended
 
March 25, 2017
 
As Previously Reported
 
Impact of Adoption
 
As Adjusted
Net loss
$
(13,363
)
 
$
(3,979
)
 
$
(17,342
)
Amortization of intangibles
$
14,218

 
$
(463
)
 
$
13,755

Deferred income taxes
$

 
$
(2,307
)
 
$
(2,307
)
Change in operating assets and liabilities:


 


 
 
Other current assets
$
(2,215
)
 
$
(4,931
)
 
$
(7,146
)
Other assets
$
(3,158
)
 
$
121

 
$
(3,037
)
Consumer and customer deposits
$
(24,484
)
 
$
56,502

 
$
32,018

Accounts payable and accrued operating expenses
$
(4,218
)
 
$
(427
)
 
$
(4,645
)
Contract liabilities (previously reported as Deferred revenue)
$
3,585

 
$
(605
)
 
$
2,980

Other current and long-term liabilities
$
(1,403
)
 
$
2,038

 
$
635

Net cash provided (used in ) by operating activities
$
(766,147
)
 
$
45,949

 
$
(720,198
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
$
6,372

 
$
90

 
$
6,462

Increase (decrease) in cash, cash equivalents and restricted cash
$
(793,589
)
 
$
46,039

 
$
(747,550
)
Cash, cash equivalents and restricted cash—beginning of period
$
1,008,125

 
$
10,793

 
$
1,018,918

Cash, cash equivalents and restricted cash—end of period
$
214,536

 
$
56,832

 
$
271,368


In March 2018, the FASB issued ASU 2018-05 Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 formally amended ASC Topic 740, Income Taxes (“ASC 740”) for the guidance previously provided by SEC Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance for the application of ASC 740 in the reporting period in which the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The Company

14


adopted SAB 118 in the fourth quarter of year-end 2017 and therefore, the Company’s subsequent adoption of ASU 2018-05 in the first quarter of year-end 2018 had no impact on its accounting for income taxes in the first quarter of year-end 2018. Additional information regarding the accounting for income taxes for the Tax Reform Act is contained in Note 8, Income Taxes.
Except for the adoption of ASU 2014-09, ASU 2016-18 and ASU 2018-05 as stated above, there have been no material changes to our significant accounting policies, as compared to the significant accounting policies described in the audited consolidated financial statements and related notes included in the Annual Report.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 changes the current lease accounting standard by requiring the recognition of lease assets and lease liabilities for all leases, including those currently classified as operating leases. This new guidance is to be applied under a modified retrospective application to the earliest reporting period presented for reporting periods beginning after December 15, 2018. Early adoption is permitted. We plan to adopt this guidance for our 2019 fiscal year. While management is evaluating the comprehensive impact of this guidance, this new guidance would require us to capitalize, at the appropriate discount rate, our operating lease commitments.

2. Business Acquisitions
There were no acquisitions entered into during the first quarter of 2018. There were also no measurement period adjustments made in the first quarter of 2018. The measurement period for the rebates and incentives business acquired during the first quarter of 2017 is now closed.

3. Financing
Credit Agreement

On January 11, 2018, we borrowed an additional $75 million in the form of a term loan under the Amended and Restated Credit Agreement, dated July 27, 2016, between the Company and lenders party thereto and Wells Fargo Bank, National Association as administrative agent (Credit Agreement), as further amended. The terms of the new term loan are substantially similar to the outstanding term loan.
On March 21, 2018, we repaid $15 million of the term loan outstanding under the amended Credit Agreement.

The following table presents the amounts due by maturity date of our term loan and convertible notes as of March 24, 2018 (in thousands):
 
March 24, 2018
2019
$
15,000

2020
30,000

2021
230,000

2022
500,000

Total long-term debt
$
775,000

As a result of the covenants in the amended Credit Agreement which require us to maintain certain leverage ratios of total debt to adjusted EBITDA (as defined in the amended Credit Agreement), and depending on our levels of adjusted EBITDA, we are limited in our ability to incur additional indebtedness either under the amended Credit Agreement or through other debt facilities. These limitations also affect the amount of capital we can allocate to acquisitions, internal capital developments and capital returned to stockholders.


15


4. Fair Value Measurements
We measure certain assets and liabilities at fair value on a recurring basis. The table below summarizes the fair values of these assets and liabilities as of March 24, 2018, December 30, 2017 and March 25, 2017 (in thousands):
 
March 24, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
Money market mutual funds
$
43,236

 
$

 
$

 
$
43,236

Contingent asset
$

 
$

 
$
6,413

 
$
6,413

Liabilities
 
 
 
 
 
 
 
Contingent consideration
$

 
$

 
$
4,029

 
$
4,029

 
December 30, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
Money market mutual funds
$
694,075

 
$

 
$

 
$
694,075

Contingent asset
$

 
$

 
$
6,131

 
$
6,131

Liabilities
 
 
 
 
 
 
 
Warrants
$

 
$
20,000

 
$

 
$
20,000

Contingent consideration
$

 
$

 
$
3,886

 
$
3,886

 
March 25, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
Money market mutual funds
$
4,073

 
$

 
$

 
$
4,073

Liabilities
 
 
 
 
 
 
 
Contingent consideration
$

 
$

 
$
21,096

 
$
21,096

Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 investments include money market mutual funds.
Level 2— Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable.
Level 3— Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the inputs that market participants would use in pricing. Level 3 includes the estimated fair value of our contingent consideration liabilities. We estimate the fair value of the contingent consideration based on our estimates of the probability of achieving the relevant targets and discount rates reflecting the risk of meeting these targets.
During the 12 weeks ended March 24, 2018, there were no transfers between levels.
Term loan —As of March 24, 2018, using Level 2 inputs, we estimate the fair value of our term loan (classified as Note payable on the balance sheet) to be approximately $275.0 million.
Convertible notes payable—As of March 24, 2018, using Level 2 inputs, we estimate the fair value of our convertible notes payable to be approximately $552.5 million.
Contingent asset—The changes in fair value of contingent asset for the the first quarter of 2018 is due to foreign currency translation adjustment.

16


Contingent consideration—We estimate the fair value of the contingent consideration based on our estimates of the probability of achieving the relevant targets and discount rates reflecting the risk of meeting these targets. The changes in fair value of contingent consideration for the 12 weeks ended March 24, 2018 and March 25, 2017 are as follows (in thousands):
 
12 weeks ended
 
March 24, 2018
 
March 25, 2017
Balance, beginning of period
$
3,886

 
$
23,752

Additions from acquisitions

 
2,000

Foreign currency translation adjustments
43

 

Change in fair value of contingent consideration
100

 
1,040

Settlement

 
(5,696
)
Balance, end of period
$
4,029


$
21,096

We present the change in the fair value of contingent consideration in Change in fair value of contingent consideration and as a noncash adjustment to net income in our condensed consolidated statements of cash flows. A significant increase (decrease) in our estimates of the amounts payable for and probability of achieving the relevant targets or a significant decrease (increase) in the discount rate could materially increase (decrease) the estimated fair value of contingent consideration.
As of March 25, 2017, related to our acquisition of 888extramoney.com LLC (“Extrameasures”), $5.7 million was estimated to be payable for achieving relevant targets during the first earn-out year, and we estimated the fair value of the remaining contingent consideration based on our estimates of the amounts payable for and probability of achieving the relevant targets and a discount rate of 17%.


17


5. Consolidated Financial Statement Details
The following tables represent the components of Other current assets, Other assets, Other current liabilities and Other liabilities as of March 24, 2018, December 30, 2017 and March 25, 2017 consisted of the following (in thousands):
 
March 24, 2018
 
December 30, 2017
 
March 25, 2017
Other current assets:
 
 
 
 
 
Inventory
$
38,663

 
$
37,007

 
$
48,683

Deferred expenses
4,894

 
5,831

 
3,334

Income tax receivables
18,547

 
10,823

 
22,960

Contract asset
540

 
702

 
1,657

Other
68,451

 
64,912

 
44,313

Assets held for sale
27,206

 
23,462

 
44,951

Total other current assets
$
158,301

 
$
142,737

 
$
165,898

Other assets:
 
 
 
 
 
Deferred program and contract costs
$
118,819

 
$
60,000

 
$
48,678

Other receivables
11,265

 
9,235

 
1,475

Income tax receivables
2,323

 
2,321

 
2,358

Deferred financing costs
2,579

 
2,759

 
2,552

Contract asset

 

 
516

Other
50,753

 
47,352

 
35,587

Total other assets
$
185,739

 
$
121,667

 
$
91,166

Other current liabilities:
 
 
 
 
 
Payroll and related liabilities
$
34,693

 
$
43,022

 
$
28,198

Income taxes payable
1,841

 
8,056

 
3,860

Acquisition liability
2,329

 
4,012

 
9,047

Warrant liability

 
20,000

 

Other payables and accrued liabilities
15,353

 
25,292

 
9,836

Liabilities held for sale
2,237

 
2,441

 
34,710

Total other current liabilities
$
56,453

 
$
102,823

 
$
85,651

Other liabilities:
 
 
 
 
 
Contingent consideration
$
1,700

 
$
1,874

 
$
17,744

Income taxes payable
3,393

 
3,883

 
7,056

Contract liability
24,463

 
23,897

 
16,318

Other long-term liabilities
15,411

 
9,223

 
12,517

Total other liabilities
$
44,967

 
$
38,877

 
$
53,635


Assets held for sale

On October 9, 2017, the Board of Directors approved management’s plan to sell the Cardpool gift card exchange business. As we begin to actively market the Cardpool business, we may identify specific assets and liabilities to be retained by the Company. It is probable that such sale will occur within one year from the date of approval. As a result, beginning from the time the plan was approved, Cardpool’s assets and liabilities were accounted for as held for sale and measured at the lower of its carrying value or fair value less cost to sell.

    

18


The following table presents the aggregate carrying amounts of the major classes of assets and liabilities as of March 24, 2018 related to the Cardpool business (in thousands):
    
 
March 24, 2018
Other current assets
$
6,349

Property, equipment and technology, net
8,467

Goodwill
8,991

Intangible assets, net
431

Total assets
$
24,238

 
 
Accounts payable and accrued operating expenses
$
1,468

Other current liabilities
377

Contract liabilities
392

Total liabilities
$
2,237

During the first quarter of 2018, the Cardpool business recorded pre-tax loss of $1.8 million during the period it was accounted for as an asset held for sale.
Also included in Assets held for sale is $3.0 million related to a building in the UK that was held for sale as of March 24, 2018. The sale has since been completed.

6. Goodwill

We have assigned goodwill to our U.S. Retail, Incentives & Rewards and International segments. To date, we have recorded goodwill impairment charges totaling $31.5 million and $46.0 million related to the Cardpool and Blackhawk Engagement Solutions reporting units respectively.
In March 2018, management became aware that a retail distribution partner in Germany will not be renewing its contract with us after the contract expires at the end of 2018. Accordingly, we performed a goodwill impairment test incorporating such information and determined that the fair value of the Europe East reporting unit exceeded its carrying value by $19.1 million, or 22%. The fair value was determined using a combination of the income approach and the market approach. We believe that the income approach is the more reliable indication of value since it incorporates estimated revenues and earnings for the Europe East reporting unit that the market approach may not directly incorporate. Therefore, a weighting of 75% was assigned to the income approach and a weighting of 25% was assigned to the market approach. We continue to monitor the operating results and cash flows of our reporting units on a quarterly basis for indicators of goodwill impairment.
We also assessed the recoverability of the intangible asset related to the Germany retail distribution partner relationships as we concluded that an impairment indicator was present in the current quarter. As of March 24, 2018, the Germany retail distribution partner relationship intangible asset had a remaining carrying value of $18.8 million. The results of the recoverability test indicated that the estimate future undiscounted cash flows exceeded the carrying value of the asset, therefore no impairment was recorded during the quarter. We continue to monitor potential triggering events in our Europe East reporting unit.

A summary of changes in goodwill during the 12 weeks ended March 24, 2018 is as follows (in thousands):
 
March 24, 2018
 
U.S. Retail
 
Incentives & Rewards
 
International
 
Total
Balance, beginning of period
$
132,660

 
$
335,298

 
$
95,447

 
$
563,405

Foreign currency translation adjustments

 
(814
)
 
3,322

 
2,508

Balance, end of period
$
132,660

 
$
334,484

 
$
98,769

 
$
565,913




19


7. Stock-Based Compensation
During the 12 weeks ended March 24, 2018, our Board of Directors granted 665,733 restricted stock units. No performance stock units were granted during 12 weeks ended March 24, 2018.
The following table presents total stock-based compensation expense according to the income statement line in our condensed consolidated statements of income (loss) for 12 weeks ended March 24, 2018 and March 25, 2017 (in thousands):
 
12 weeks ended
 
 
March 24, 2018
 
March 25, 2017
 
Processing and services
$
1,779

 
$
1,702

 
Sales and marketing
2,558

 
2,812

 
Cost of products sold
16

 
17

 
General and administrative
3,709

 
3,870

 
Total stock-based compensation expense
$
8,062

 
$
8,401

 

8. Income Taxes

On December 22, 2017, the Tax Reform Act was signed into law by the President of the United States. We recognized the income tax effects of the Tax Reform Act in our 2017 financial statements in accordance with SAB 118, subsequently codified by ASU 2018-05 (see Note 1, The Company and Significant Accounting Policies, Recently Adopted Accounting Pronouncements), which provides guidance for the application of ASC 740 in the reporting period in which the Tax Reform Act was signed into law. The guidance addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Reform Act.

As noted at year-end 2017 our accounting for the Tax Reform Act is incomplete, however, we were able to reasonably estimate certain effects and, therefore, recorded provisional adjustments associated with the Deemed Repatriation Transition Tax and are continuing to evaluate its impact on outside basis differences with respect to our foreign operations. Further, we are continuing to assess how to account for the global intangible low-taxed income of foreign subsidiaries from an accounting policy standpoint.
Our effective tax rates were 42.5% and 41.1% for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. The increase in the effective tax rate for the 12 weeks ended March 24, 2018 compared to the 12 weeks ended March 25, 2017 was primarily due to current year U.S. taxation of certain income of our foreign subsidiaries and a discrete tax benefit related to an uncertain tax position (increasing the effective tax rate due to pre-tax loss), offset by a decrease in the U.S. federal corporate tax rate effective for our fiscal year ending December 29, 2018.


20


9. Commitments and Contingencies
Distribution Partner Commitments

Our sales and marketing teams manage our relationships with our distribution partners and develop retail marketing programs and communication strategies to reach our consumers. We provide or fund product display fixtures and provide or coordinate merchandising visits intended to maintain in-stock conditions on the displays. We also manage or participate in the design of effective in-store marketing programs funded jointly by our distribution partners.

Future commitments to our distribution partners as of March 24, 2018 are as follows (in thousands):
 
Distribution Partner Commitments
2018
$
62,088

2019
67,772

2020
50,458

2021
46,751

2022 and after
86,574

Distribution partner commissions (uncertainty in timing of future payments)
6,232

Total
$
319,875

Included above is $130.0 million which represents the maximum potential payments depending on performance under the arrangements. The estimated fair value of such commitments is approximately $12.0 million.
Contingencies
From time to time, we enter into contracts containing provisions that require us to indemnify various parties against certain potential claims from third parties. Under contracts with certain issuing banks, we are responsible to the banks for any unrecovered overdrafts on cardholders’ accounts. Under contracts with certain content providers, retail distribution partners and issuing banks, we are responsible for potential losses resulting from certain claims from third parties. Because the indemnity amounts associated with these agreements are not explicitly stated, the maximum amount of the obligation cannot be reasonably estimated. Historically, we have paid immaterial amounts pursuant to these indemnification provisions.
We are subject to audits related to various indirect taxes, including, but not limited to, sales and use taxes, value-added tax, and goods and services tax, in various foreign and state jurisdictions. We evaluate our exposure related to these audits and potential audits and do not believe that it is probable that any audit would hold us liable for any material amounts due.
Legal and other matters
There are various claims and lawsuits arising in the normal course of business pending against us, including the matters described below, some of which seek damages and other relief which, if granted, may require future cash expenditures. Management does not believe that it is probable that the resolution of these matters would result in any liability that would materially affect our results of operations or financial condition.
We have equity investments in various markets. With respect to one of our equity investments, we are currently in dispute and attempting to negotiate with certain of the investment partners regarding the future operations of such investment. The carrying value of such joint investment is $8.8 million as of March 24, 2018, which may be adjusted depending on the outcome of the negotiation attempts.
In addition, we transact business in non-U.S. markets and may, from time to time, be subject to disputes and tax audits by foreign tax authorities related to value added or other indirect taxes typically on commissions or fees we receive from non-resident content providers. After the application of third party indemnities, our present exposure is approximately $4.6 million, primarily in a single jurisdiction. If we were to be assessed for this exposure, we believe it is probable that we will prevail.

10. Segment Reporting
Our three reportable segments are U.S. Retail, Incentives & Rewards and International. We do not assess performance based on assets and do not provide information on the assets of our reportable segments to our CODM. The key metrics used

21


by our CODM to assess segment performance include Operating revenues, Operating revenues, net of Partner distribution expense and segment profit.
The following tables present the key metrics used by our CODM for the evaluation of segment performance, including certain significant noncash charges (consisting of certain depreciation and amortization of property, equipment and technology and distribution partner stock-based compensation expense) which have been deducted from the segment profit amounts shown below, and reconciliations of these amounts to our condensed consolidated financial statements (in thousands):
 
12 weeks ended
 
March 24, 2018
 
U.S. Retail
 
Incentives & Rewards
 
International
 
Consolidated
Total operating revenues
$
231,935

 
$
57,454

 
$
139,819

 
$
429,208

Partner distribution expense
130,190

 
5,027

 
83,232

 
218,449

Operating revenues, net of Partner distribution expense
101,745

 
52,427

 
56,587

 
210,759

Other operating expenses
108,777

 
59,076

 
61,989

 
229,842

Segment profit (loss) / Operating income (loss)
$
(7,032
)
 
$
(6,649
)
 
$
(5,402
)
 
$
(19,083
)
Other income (expense)
 
 
 
 
 
 
(8,010
)
Income (loss) before income tax expense
 
 
 
 
 
 
$
(27,093
)
Noncash charges
$
18,158

 
$
14,870

 
$
8,370

 


 
12 weeks ended
 
March 25, 2017
 
U.S. Retail
 
Incentives & Rewards
 
International
 
Consolidated
Total operating revenues
$
197,973

 
$
53,260

 
$
135,179

 
$
386,412

Partner distribution expense
97,978

 
3,856

 
73,289

 
175,123

Operating revenues, net of Partner distribution expense
99,995

 
49,404

 
61,890

 
211,289

Other operating expenses
108,604

 
56,827

 
69,175

 
234,606

Segment profit (loss) / Operating income (loss)
$
(8,609
)
 
$
(7,423
)
 
$
(7,285
)
 
$
(23,317
)
Other income (expense)
 
 
 
 
 
 
(6,107
)
Income (loss) before income tax expense
 
 
 
 
 
 
$
(29,424
)
Noncash charges
$
13,856

 
$
14,718

 
$
7,829

 
 


22


11. Earnings Per Share
The following table provides reconciliations of net income (loss) and shares used in calculating basic earnings (loss) per share (“EPS”) to those used in calculating diluted EPS (in thousands, except per share amounts):
 
12 weeks ended
 
March 24, 2018
 
March 25, 2017
 
Basic
 
Diluted
 
Basic
 
Diluted
Net income (loss) attributable to common stockholders
$
(15,767
)
 
$
(15,767
)
 
$
(17,465
)
 
$
(17,465
)
Weighted-average common shares outstanding
56,477

 
56,477

 
55,904

 
55,904

Common share equivalents
 
 

 


 

Weighted-average shares outstanding
 
 
56,477

 
 
 
55,904

Earnings (loss) per share
$
(0.28
)
 
$
(0.28
)
 
$
(0.31
)
 
$
(0.31
)
The weighted-average common shares outstanding for diluted EPS for the 12 weeks ended March 24, 2018 and March 25, 2017, excluded approximately 4,378,000 and 5,307,000, respectively, of total potential common stock outstanding because the effect would have been anti-dilutive.






23


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”) and the Annual Report, on February 28, 2018 (the Annual Report). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. You should review the “Risk Factors” section of the Annual Report and the “Special Note regarding Forward-Looking Statements” section and the “Risk Factors” section of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Special Note regarding Forward Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements are indicated by words or phrases such as “guidance,” “believes,” “expects,” “intends,” “forecasts,” “can,” “could,” “may,” “anticipates,” “estimates,” “plans,” “projects,” “seeks,” “should,” “targets,” “will,” “would,” “outlook,” “continuing,” “ongoing,” “on track” and similar words or phrases and the negative of such words and phrases. Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties which are, in many instances, beyond our control, and which could cause actual results to differ materially from those included in or contemplated or implied by the forward-looking statements. Such risks and uncertainties include the following:
the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;
the failure to obtain certain required regulatory approvals to the completion of the Merger or the failure to satisfy any of the other conditions to the completion of the Merger;
the effect of the announcement of the Merger on our ability to retain and hire key personnel and maintain relationships with our partners, clients, customers, providers, advertisers, and others with whom we do business, or on our operating results and businesses generally;
risks associated with the disruption of management’s attention from ongoing business operations due to the Merger; our ability to meet expectations regarding the timing and completion of the Merger;
our ability to grow adjusted operating revenues and net income as anticipated;
our ability to grow at historic rates or at all;
the consequences should we lose one or more of our top distribution partners, fail to maintain or renew existing relationships with our distribution partners on the same or similar economic terms or fail to attract new distribution partners to our network or if the financial performance of our distribution partners’ businesses decline;
our reliance on our content providers, the demand for their products and our exclusivity arrangements with them;
our reliance on relationships with card issuing banks;
the consequences to our future growth if our distribution partners fail to actively and effectively promote our products and services;
changes in consumer behavior away from our distribution partners or our products resulting from limits or controls implemented by our distribution partners during their transition to comply with Europay, MasterCard and Visa (“EMV”) requirements;
our ability to successfully integrate our acquisitions;
our ability to generate adequate taxable income to enable us to fully utilize our tax benefits;
changes in applicable tax law that preclude us from fully utilizing our tax benefits;
the requirement that we comply with applicable laws and regulations, including increasingly stringent anti-money laundering rules and regulations; and
other risks and uncertainties described in our reports and filings with the SEC, including the risks and uncertainties set forth in Item 1A under the heading Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 30, 2017, this Quarterly Report on Form 10-Q and other subsequent periodic reports we file with the SEC.
Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

24


Quarterly Results of Operations and Seasonality
For our retail business, a significant portion of gift card sales occurs in late December each year during the holiday selling season. As a result, we earn a significant portion of our revenues, net income and cash flows during the fourth quarter of each year and remit the majority of the cash, less commissions, to our content providers in January of the following year. The timing of our fiscal year-end, December holiday sales and the related January cash settlement with content providers significantly increases our Cash and cash equivalents, Settlement receivables and Settlement payables balances at the end of each fiscal year relative to normal daily balances. We also experience an increase in revenues, net income and cash flows during the second quarter of each year, which we primarily attribute to the Mother’s Day, Father’s Day and graduation gifting season and the Easter holiday. Depending on when the Easter holiday occurs, the associated increase is in either the first or second quarter. As a result, quarterly financial results are not necessarily reflective of the results to be expected for the year or any other interim or future period. Seasonality also impacts our incentives businesses, but such impact is smaller in comparison to our retail business.
Merger Agreement
On January 15, 2018, we entered into an agreement and plan of merger (the “Merger Agreement”) with BHN Holdings, Inc., a Delaware corporation (“Parent”), and BHN Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides, among other things and subject to the terms and conditions set forth therein, that Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Parent. Parent has agreed to acquire the Company in an all-cash transaction for a total consideration of approximately $3.5 billion, which includes assumption of our debt. Pursuant to the terms of the Merger Agreement, the completion of the Merger is subject to the satisfaction or waiver of certain customary closing conditions, including the stockholder approval which was obtained at the Special Meeting of Stockholders held on March 30, 2018. The completion of the Merger remains subject to certain other customary closing conditions, including, among others, (i) the absence of any law, order or injunction of a court or governmental entity of competent jurisdiction prohibiting the consummation of the Merger or the other transactions contemplated by the Merger Agreement; (ii) receipt of certain consents and approvals (or confirmation that no consent is required) from the applicable regulatory authority in a number of jurisdictions, including various U.S. states; and (iii) the absence of a “material adverse effect” on the Company after the date of the Merger Agreement. As of the date of this report, the Company continues to expect to complete the Merger in mid-2018. See Part I, Item 1A, “Risk Factors” and Note 16- Subsequent Event of the Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the fiscal year ended on December 30, 2017, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2018 (the “Annual Report”).

25


Key Operating Statistics
The following table sets forth key operating statistics that directly affect our financial performance, a reconciliation of Commissions and fees and Program and other fees to Prepaid and processing revenues and a reconciliation of Total operating revenues to Adjusted operating revenues for the 12 weeks ended March 24, 2018 and March 25, 2017:
 
12 weeks ended
 
March 24, 2018
 
March 25, 2017
 
 
 
 
 
(in thousands, except percentages and per share amounts)
Prepaid and processing revenues:
 
 
 
Commissions and fees
$
288,626

 
$
249,525

Program and other fees
101,402

 
95,865

Prepaid and processing revenues
$
390,028

 
$
345,390

Partner distribution expense as % of prepaid and processing revenues
56.0
%
 
50.7
%
Total operating revenues
$
429,208

 
$
386,412

Revenue adjustment from purchase accounting (2)
520

 
1,574

Marketing revenue and other pass-through revenue
(17,708
)
 
(16,980
)
Partner distribution expense
(218,449
)
 
(175,123
)
Adjusted operating revenues (1)
$
193,571

 
$
195,883


(1)
Our Adjusted operating revenues is a non-GAAP financial measure. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. This measure, however, should be considered in addition to, and not as a substitute for or superior to, operating revenues, operating income, operating margin, cash flows, or other measures of the financial performance prepared in accordance with GAAP.
(2)
Impact on revenues recognized resulting from the step down in basis of deferred revenue from its carrying value to fair value in a business combination at the acquisition date.
Prepaid and Processing Revenues—Represents the total amount of Commissions and fees and Program and other fees recognized during the period. Our prepaid product revenues vary among our various product offerings: content provider commissions from closed loop gift and prepaid telecom cards; program management fees, interchange, software revenue and other fees included in Program and other fees in addition to the consumer and client purchase fees included in Commissions and fees from open loop gift cards and incentive and reward products and services.
Partner Distribution Expense as a Percentage of Prepaid and Processing Revenues—Represents partner distribution expense divided by Prepaid and processing revenues during the period. Partner Distribution Expense represents the expense recognized for the portion of content provider commissions and purchase or load fees shared with our retail distribution partners (known as distribution partner commissions), as well as other compensation we pay our retail business partners and certain business clients, including certain program development payments to our retail distribution partners, compensation for the distribution of our open loop products and expense recognized for equity awards issued to certain retail distribution partners. We present this expense as a percentage of prepaid and processing revenues to present the overall portion of our revenues from the sale of our prepaid products and services that we share with our retail distribution partners and business clients. The substantial majority of this expense is distribution partner commissions which are based on a percentage of the gross content provider commissions and consumer purchase fees. These percentages are individually negotiated with our retail distribution partners and are independent of the commission rates negotiated between us and our content providers. Partner distribution expense percentage is affected by changes in the proportion of sales i) among our various products (as we share significantly lower amounts of revenues included in Program and other fees generated by our open loop gift, open loop incentive and financial services products), ii) among our various regions (as commission share percentages differ from region to region, particularly those with sub-distributor relationships) and iii) among retail distribution partners (as the commission share percentage is individually negotiated with each retail distribution partner).
Adjusted Operating Revenues—We regard Adjusted operating revenues as a useful measure of operational and financial performance of the business. Adjusted operating revenues are prepared and presented to offset the distribution commissions

26


paid and other compensation to our distribution partners and business clients, to remove marketing revenues and other pass-through revenues which have offsetting marketing expenses included in Sales and marketing expense and to remove the impact of the step down in basis of deferred revenue from its book value to its fair value in purchase accounting. Our Adjusted operating revenues may not be comparable to similarly titled measures of other organizations because other organizations may not calculate these measures in the same manner as we do. You are encouraged to evaluate our adjustments and the reasons we consider them appropriate.
We believe Adjusted operating revenues is useful to evaluate our operating performance for the following reasons:
adjusting our operating revenues for distribution commissions paid and other compensation to our retail distribution partners and business clients is useful to understanding our operating margin;
adjusting our operating revenues for marketing and other pass-through revenue, which has offsetting expense, is useful for understanding our operating margin;
in a business combination, a company records an adjustment to reduce the carrying value of deferred revenue to its fair value and reduces the company’s revenues from what it would have recorded otherwise, and as such we do not believe is indicative of our core operating performance.
Transaction Dollar Volume—For our incentives and rewards businesses, transaction dollar volume generally does not correlate with the amount of revenues recognized in the same period. Due to the growth of our incentives businesses worldwide, we no longer monitor this metric at the reportable segment level for Incentives & Rewards and International. Transaction dollar volume remains a key operating statistic for our U.S. Retail segment as discussed in our Results of Operations.

27


Results of Operations
Comparison of the 12 Weeks ended March 24, 2018 and March 25, 2017
The fiscal periods presented in the accompanying tables below and throughout this Results of Operations section consist of the 12-week periods ended March 24, 2018 and March 25, 2017 (the first quarter of 2018 and first quarter of 2017, respectively).
The following tables set forth the revenue and expense amounts as a percentage of total operating revenues by the line items in our condensed consolidated statements of income (loss) for the first quarter of 2018 and first quarter of 2017.
 
12 weeks ended March 24, 2018
 
% of Total Operating Revenues
 
12 weeks ended March 25, 2017
 
% of Total Operating Revenues
 
(in thousands, except percentages)
OPERATING REVENUES:
 
 
 
 
 
 
 
Commissions and fees
$
288,626

 
67.2
 %
 
$
249,525

 
68.6
 %
Program and other fees
101,402

 
23.6
 %
 
95,865

 
17.9
 %
Marketing
14,367

 
3.3
 %
 
14,281

 
5.0
 %
Product sales
24,813

 
5.9
 %
 
26,741

 
8.5
 %
Total operating revenues
429,208

 
100.0
 %
 
386,412

 
100.0
 %
OPERATING EXPENSES:
 
 
 
 
 
 
 
Partner distribution expense
218,449

 
50.9
 %
 
175,123

 
45.2
 %
Processing and services
92,949

 
21.6
 %
 
101,021

 
26.1
 %
Sales and marketing
64,181

 
15.0
 %
 
62,658

 
16.2
 %
Costs of products sold
24,256

 
5.7
 %
 
27,849

 
7.2
 %
General and administrative
29,322

 
6.8
 %
 
29,025

 
7.5
 %
Transition and acquisition
4,927

 
1.1
 %
 
451

 
0.1
 %
Amortization of acquisition intangibles
14,107

 
3.3
 %
 
12,562

 
3.3
 %
Change in fair value of contingent consideration
100

 
 %
 
1,040

 
0.3
 %
Total operating expenses
448,291

 
104.4
 %
 
409,729

 
106.0
 %
OPERATING INCOME (LOSS)
(19,083
)
 
(4.4
)%
 
(23,317
)
 
(6.0
)%
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Interest income and other income (expense), net
(224
)
 
(0.1
)%
 
836

 
0.2
 %
Interest expense
(7,786
)
 
(1.8
)%
 
(6,943
)
 
(1.8
)%
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)
(27,093
)
 
(6.3
)%
 
(29,424
)
 
(7.6
)%
INCOME TAX EXPENSE (BENEFIT)
(11,505
)
 
(2.7
)%
 
(12,082
)
 
(3.1
)%
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS
(15,588
)
 
(3.6
)%
 
(17,342
)
 
(4.5
)%
Loss (income) attributable to non-controlling interests, net of tax
(179
)
 
(0.1
)%
 
(123
)
 
 %
NET INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC.
$
(15,767
)
 
(3.7