November 06, 2012 at 16:15 PM EST
Higher One Holdings, Inc. Reports Third Quarter 2012 Financial Results

Higher One Holdings, Inc. (NYSE: ONE) (“Higher One”) today announced financial results for the third quarter of 2012. The company reported revenue of $51.2 million, up 6% from $48.1 million in the third quarter of 2011. The year-over-year revenue growth was primarily attributable to an increase in the number of higher education institutions that have contracted for its services and the inclusion of recently acquired Campus Labs in the results.

“We continue to show revenue growth and stable sales despite continued pressure on enrollment and a difficult operating environment,” said Mark Volchek, Chief Executive Officer. “We continued to diversify our business, and we’ve made changes to the OneAccount suite that should help drive customer engagement and retention in the long-run. I believe our account offerings provide some of the best values on the market, and we allow students to choose the account type that works best for them. Although some headwinds are putting pressure on results in the near-term, I’m confident that we are making the right decisions to position the business for sustainable, long-term value creation.”

Higher One also reported GAAP net income of $7.3 million, and non-GAAP adjusted net income, which excludes certain non-recurring or non-cash items, of $9.3 million. GAAP diluted EPS was $0.13 in the quarter. Non-GAAP adjusted diluted EPS was $0.16. In the third quarter of 2012, non-GAAP adjusted EBITDA was $16.7 million.

The number of OneAccounts at the end of the third quarter of 2012 totaled 2.1 million, up 3% from 2.0 million at the end of the third quarter of 2011. The number of OneAccounts grew 10% on a sequential basis, up from 1.9 million at the end of the second quarter of 2012. A change in the protocols of closing low-balance, inactive accounts that was implemented in the second quarter of 2012 has had a negative impact on the year-over-year growth in number of OneAccounts.

Total enrollment at higher education clients that have purchased the OneDisburse® service increased to 4.6 million. Sales to new clients accounted for an increase of approximately 637,000 from 4.0 million at the end of the third quarter of 2011. A decline in enrollment at existing clients had a negative impact of approximately 19,000. Total enrollment at higher education clients that have signed up for at least one of our OneDisburse, CASHNet®, or Campus Labs® modules now totals 10.8 million.

Cash, cash equivalents, and liquid investments totaled $27.3 million as of September 30, 2012. Higher One continued with the previously announced share repurchase program, utilizing $14.8 million to repurchase approximately 1.2 million shares in the quarter.

Higher One revised its full-year 2012 revenue and GAAP diluted EPS guidance to $192.0 – $200.0 million and $0.53 – $0.60, respectively. The company maintained full-year 2012 non-GAAP adjusted diluted EPS guidance of $0.63 – $0.70.

Credit Facility

In October, Higher One entered into a new five-year, senior secured revolving credit facility in an amount of $200 million with Bank of America, N.A. as administrative agent, and other lenders. The amount available to be drawn under the credit facility may be increased by an additional $100 million upon Higher One’s request and the agreement of the lenders. This new credit facility replaces the company’s $50 million revolving credit facility. The facility will bear interest at floating rates, plus a margin based on the leverage ratio of the company.

Quarterly Conference Call Information

Higher One will host a conference call at 5 p.m. ET today to discuss third quarter results. A live webcast of the conference call, together with a slide presentation that includes supplemental financial information and reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures can be accessed through Higher One’s investor relations website at http://www.ir.higherone.com/. In addition, an archive of the webcast will be available for 90 days through the same link.

About Higher One Holdings

Higher One Holdings, Inc. (NYSE: ONE) is a leading company focused on creating cost-saving efficiencies for higher education institutions and providing high-value services to students. Higher One offers a wide array of technological services on campus, ranging from streamlining the institution’s performance analytics and financial aid refund processes to offering students innovative banking services, tuition payment plans, and the basics of financial management. Higher One works closely with colleges and universities to allocate resources more efficiently in order to provide a higher quality of service and education to students.

Founded in 2000 on a college campus by college students, Higher One now serves more than half of the higher education market, providing its services to over 1,250 campuses and 10.8 million students at distinguished public and private institutions nationwide. More information about Higher One can be found at www.ir.higherone.com.

Forward-Looking Statements

This press release includes forward-looking statements, as defined by the Securities and Exchange Commission (“SEC”). Management’s projections and expectations are subject to a number of risks and uncertainties that could cause actual performance to differ materially from that predicted or implied. These statements speak only as of the date they are made, and the company does not intend to update or otherwise revise the forward-looking information to reflect actual results of operations, changes in financial condition, changes in estimates, expectations or assumptions, changes in general economic or industry conditions or other circumstances arising and/or existing since the preparation of this press release or to reflect the occurrence of any unanticipated events. The forward-looking statements in this release do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof. Information about the factors that could affect future performance can be found in our recent SEC filings.

Use of Non-GAAP Financial Measures

This release includes certain metrics presented on a non-GAAP basis, including non-GAAP adjusted EBITDA, non-GAAP adjusted net income, and non-GAAP adjusted EPS. We believe that these non-GAAP measures, which exclude amortization of intangibles, stock-based compensation, and certain non-recurring or non-cash impacts to our results, all net of taxes, provide useful information regarding normalized trends relating to the company’s financial condition and results of operations. Reconciliations of these non-GAAP measures to their closest comparable GAAP measure are included in this press release.

Higher One Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations

(in thousands of dollars, except share and per share amounts)

Three Months
Ended September 30,

2011

2012
Revenue:
Account revenue $ 35,800 $ 35,660
Payment transaction revenue 6,603 8,342
Higher education institution revenue 4,595 5,946
Other revenue 1,142 1,279
Total revenue 48,140 51,227
Cost of revenue 19,630 21,838
Gross margin 28,510 29,389
Operating expenses:
General and administrative 9,415 11,902
Product development 1,158 1,380
Merger and acquisition related expenses - 1,042
Sales and marketing 4,698 3,182
Total operating expenses 15,271 17,506
Income from operations 13,239 11,883
Interest income 15 23
Interest expense (66 ) (185 )
Other income - 77
Net income before income taxes 13,188 11,798
Income tax expense 4,720 4,480
Net income $ 8,468 $ 7,318
Net income available to common stockholders:
Basic $ 8,468 $ 7,318
Diluted $ 8,468 $ 7,318
Weighted average shares outstanding
Basic 55,470,457 54,511,509
Diluted 59,789,977 57,246,289
Net income available to common stockholders per common share:
Basic $ 0.15 $ 0.13
Diluted $ 0.14 $ 0.13

Higher One Holdings, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands of dollars, except share and per share amounts)

December 31,September 30,

2011

2012

Assets
Current assets:
Cash and cash equivalents $ 39,085 $ 27,044
Investments in marketable securities 15,743 245
Accounts receivable 3,672 8,704
Income receivable 5,961 8,990
Deferred tax assets 33 -
Income tax receivable 12,671 1,608
Prepaid expenses and other current assets 6,774 7,688
Restricted cash - 2,365
Total current assets 83,939 56,664
Deferred costs 3,776 3,306
Fixed assets, net 46,088 53,250
Intangible assets, net 16,787 38,283
Goodwill 15,830 46,910
Loan receivable related to New Markets Tax Credit financing 7,633 7,633
Other assets 712 619
Deferred tax assets - 1,423
Restricted cash 1,250 1,500
Total assets $ 176,015 $ 209,568
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,118 $ 3,798
Accrued expenses 26,414 12,125
Contingent consideration, current portion - 2,286
Deferred tax liabilities - 868
Deferred revenue 9,690 16,861
Total current liabilities 39,222 35,938
Deferred revenue 2,173 2,210
Loan payable and deferred contribution related to New Markets Tax Credit financing 9,801 9,568
Debt - 30,000
Contingent consideration, non-current portion - 11,024
Deferred tax liabilities 1,233 -
Total liabilities 52,429 88,740
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $.001 par value; 200,000,000 shares authorized; 57,675,806 shares issued and 56,615,683 shares outstanding at December 31, 2011; 57,974,292 shares issued and 54,191,446 shares outstanding at September 30, 2012 58 59
Additional paid-in capital 161,268 171,351
Treasury stock, 1,060,123 and 3,782,846 shares at December 31, 2011 and September 30, 2012, respectively (16,208 ) (53,808 )
Accumulated deficit, net of 2008 stock tender transaction of $93,933 (21,532 ) 3,226
Total stockholders' equity 123,586 120,828
Total liabilities and stockholders' equity $ 176,015 $ 209,568

Higher One Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands of dollars)

Nine months ended
September 30,
20112012
Cash flows from operating activities
Net income $ 24,264 $ 24,758
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 5,204 7,336
Amortization of deferred finance costs 54 102
Stock-based customer acquisition expense 9,233 -
Stock-based compensation 3,049 3,226
Deferred income taxes (4,866) (1,755)
Income tax benefit related to exercise of stock options (5,274) (2,796)
Non-cash fair value adjustment of contingent consideration - 310
Other income - (233)
Gain on litigation settlement agreement (1,500) -
Loss on disposal of fixed assets 343 35
Changes in operating assets and liabilities:
Accounts receivable (2,912) (2,624)
Income receivable (2,574) (3,029)
Deferred costs (645) (703)
Prepaid expenses and other current assets 3,964 12,997
Other assets (9) (114)
Accounts payable (576) 799
Accrued expenses 816 (3,566)
Deferred revenue 2,764 3,708
Net cash provided by operating activities 31,335 38,451
Cash flows from investing activities
Purchases of available for sale investment securities (11,192) (11,230)
Proceeds from sales of available for sale investment securities - 14,634
Proceeds from maturities of available for sale investment securities 8,000 12,094
Purchases of fixed assets, net of changes in construction payables of $3,494 and ($11,799), respectively (21,623) (22,499)
Acquisition of Campus Labs - (37,280)
Proceeds from development related subsidies - 330
Additions to internal use software - (2,061)
Deposits to restricted cash, net - (2,615)
Payment to escrow agent (1,075) -
Proceeds from escrow agent 1,500 -
Net cash used in investing activities (24,390) (48,627)
Cash flows from financing activities
Tax benefit related to stock options 5,274 2,796
Proceeds from exercise of stock options 983 2,939
Proceeds from line of credit - 30,000
Repurchase of common stock (14,244) (37,600)
Net cash provided by financing activities (7,987) (1,865)
Net change in cash and cash equivalents (1,042) (12,041)
Cash and cash equivalents at beginning of period 34,484 39,085
Cash and cash equivalents at end of period $ 33,442 $ 27,044

Higher One Holdings, Inc.

Unaudited Supplemental Operating Data

(in thousands)

Three Months Ended
Sept 30, Dec 31, March 31, June 30, Sept 30,
2011 2011 2012 2012 2012
OneDisburse SSE (1) 3,970 4,169 4,330 4,480 4,589
y/y growth23%27%27%22%16%
Total Company SSE (2) 5,802 5,995 6,204 6,437 10,843
y/y growth11%14%16%16%87%
Ending OneAccounts (3) 2,015 1,997 2,122 1,896 2,083
y/y growth31%23%20%10%3%

(1)

OneDisburse SSE is defined as the number of students enrolled at institutions that have signed contracts to use the OneDisburse service by the end of a given period as of the date the contract is signed (using the most up-to-date IPEDS data at that point in time)

(2)

Total Company SSE is defined as the number of students enrolled at institutions that have signed contracts to use one or more OneDisburse, CASHNet, or Campus Labs modules by the end of a given period as of the date the contract is signed (using the most up-to-date IPEDS data at that point in time)

(3)

Ending OneAccounts is defined as the number of accounts with a non-zero balance at the end of a given period

Higher One Holdings, Inc.

Unaudited Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA

(in thousands)

Three Months Ended
September 30,
20112012
Net income $ 8,468 $ 7,318
Interest income (15 ) (23 )
Interest expense 66 185
Income tax expense 4,720 4,480
Depreciation and amortization 1,770 2,805
EBITDA 15,009 14,765
Stock-based and other customer acquisition expense 2,320 -
Stock-based compensation expense 889 901
Merger and acquisition related expenses - 1,042
Adjusted EBITDA $ 18,218 $ 16,708
Revenues $ 48,140 $ 51,227
Net Income Margin 17.6 % 14.3 %
Adjusted EBITDA Margin 37.8 % 32.6 %

Unaudited Reconciliation of GAAP Net Income and Diluted EPS to Non-GAAP

Adjusted Net Income and Adjusted Diluted EPS

(in thousands, except per share amounts)

Three Months Ended
September 30,
20112012
GAAP Net Income $ 8,468 $ 7,318
Stock-based and other customer acquisition expense 2,320 -
Stock-based compensation expense - ISO 480 487
Stock-based compensation expense - NQO 409 414
Merger and acquisition related expense - 1,042
Amortization of intangible assets 768 863
Amortization of finance costs 18 34
Total pre-tax adjustments 3,995 2,840
Tax rate 38.2 % 38.2 %
Tax adjustment 1,343 899
Adjusted net income $ 11,120 $ 9,259
Diluted Weighted Average Shares Outstanding 59,790 57,246
Diluted EPS $ 0.14 $ 0.13
Adjusted Diluted EPS $ 0.19 $ 0.16
Revenues $ 48,140 $ 51,227
Net Income Margin 13.6 % 14.3 %
Adjusted Net Income Margin 20.3 % 18.1 %

Higher One Holdings, Inc.

Business Outlook

Twelve Months Ending
December 31, 2012

GAAP

Non-GAAP (a)

Revenues (in millions) $192.0 - $200.0 $192.0 - $200.0
Diluted EPS $0.53 - $0.60 $0.63 - $0.70

(a) Estimated Non-GAAP amounts above for the twelve months ending December 31, 2012 reflect the estimated annual adjustments, that exclude (i) the amortization of intangibles and finance costs of approximately $3.5 million, and (ii) stock-based compensation expense of approximately $4.0 million.

Contacts:

Higher One Holdings, Inc.
Investor Relations:
Ken Goff, 203-776-7776 x 4462
kgoff@higherone.com
or
Media Relations:
Shoba Lemoine, 203-776-7776 x 4503
slemoine@higherone.com
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