Higher One Holdings, Inc. Reports Second Quarter 2014 Financial Results

Gross quarterly revenue of $45 million, up 14% year-over-year

Payment Processing recorded revenue growth of 62% driven by the CASHNet suite

Over 460,000 signed school enrollment (SSE) converted from Campus Solutions to Refund Management since acquisition

NEW HAVEN, Conn.--()--Higher One Holdings, Inc. (NYSE:ONE) (“Higher One” or the “Company”), today announced financial results for the second quarter 2014. The Company reported second quarter 2014 gross revenue of $45.5 million, an increase of 14% from $40.0 million reported in the second quarter of 2013. Revenue growth was driven by the strong organic growth in the Payment Processing suite of products.

Marc Sheinbaum, president and chief executive officer, said, “Overall, we are pleased with our performance this quarter. We have experienced strong organic growth in both Payment Transaction and Higher Education revenue, and are also encouraged by growth in non-refund deposits. We continue to deliver value to our customers and operate effectively in this challenging environment.”

After making an allowance for possible customer restitution of $8.75 million, which reduced gross revenue from $45.5 million to net revenue of $36.7 million, the Company reported second quarter 2014 non-GAAP adjusted diluted EPS of $0.05, as compared to $0.04 for the same period a year ago. Non-GAAP adjusted net income, which excludes certain non-recurring, non-cash items and other items, was $2.5 million in second quarter 2014, which compares to non-GAAP adjusted net income of $2.2 million in the second quarter of 2013. In the second quarter of 2014, non-GAAP adjusted EBITDA was $7.2 million, as compared to $5.9 million last year. GAAP diluted EPS was a loss of $0.08 in the quarter, as compared to income of $0.07 recorded in the second quarter of 2013. The Company reported a second quarter 2014 GAAP net loss of $3.8 million compared to GAAP net income of $3.6 million in the second quarter of 2013.

Total enrollment at higher education clients that signed an agreement for Refund Management services increased approximately 339,000 to 5.1 million at the end of the second quarter of 2014. Total enrollment at higher education clients that have signed up for at least one of our Refund Management, Payment Processing, or Campus Labs services totals approximately 13 million.

The number of OneAccounts serviced at the end of the second quarter of 2014 was approximately 2.1 million, compared to approximately 2.2 million in the second quarter of 2013.

Conference Call Information

Higher One will host a conference call at 8:30 a.m. ET today to discuss second quarter results. The dial in phone number is (800) 299-8538 for domestic listeners and (617) 786-2902 for international listeners. The conference ID number is 99786169. 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. A replay of the call will be available at (888) 286-8010 for domestic listeners and (617) 801-6888 for international listeners. Please use the passcode 61021092 to access the replay.

About Higher One Holdings

Higher One Holdings, Inc. (NYSE: ONE) partners with colleges and universities to lower their administrative costs and to improve graduation rates. We provide a broad array of payment, refund disbursement and data analytics and management tools to institutions that help them save money and enhance institutional effectiveness. And for students, we offer financial literacy programs and convenient, flexible and affordable transaction options to help them manage their finances. Higher One is a leader in higher education, supporting more than 1,900 schools and approximately 13 million enrolled students. More information about Higher One can be found at www.ir.higherone.com.

Forward-Looking Statements

This press release contains statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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. Forward-looking statements may be identified by the use of words such as “expect,” “anticipate,” “believe,” “estimate,” “potential,” “should” or similar words intended to identify information that is not historical in nature. Forward-looking statements contained herein include, among others, statements concerning management’s expectations about future events and Higher One’s operating plans and performance, bank partners, the regulatory environment, banking fees, litigation, sales, and the expected benefits of acquisitions, and such statements are based on the current beliefs and expectations of Higher One management, as applicable, and are subject to known and unknown risks and uncertainties. There are a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. 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 press release do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof. For further information regarding the risks associated with Higher One’s business, please refer to Higher One’s filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the most recent fiscal year end, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

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, non-cash impacts and other adjustments 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.

Consolidated Income Statement
(In thousands of dollars, except share and per share amounts)
 
    Three Months Ended June 30,     Six Months Ended June 30,
  2014         2013     2014         2013  
Revenue:
Account revenue $ 26,345 $ 25,944 $ 68,007 $ 69,307
Payment transaction revenue 9,835 6,086 24,455 12,787
Higher education institution revenue 9,050 7,725 19,029 14,866
Other revenue   247         268         542         443  
Gross revenue 45,477 40,023 112,033 97,403
Less: allowance for customer restitution   (8,750 )       -         (8,750 )       -  
Revenue 36,727 40,023 103,283 97,403
Cost of revenue   21,102         17,894         48,696         40,194  
Gross margin   15,625         22,129         54,587         57,209  
Operating expenses:
General and administrative 16,015 13,576 31,726 26,665
Product development 1,770 2,444 3,962 4,339
Sales and marketing 4,705 4,632 9,179 7,839
Merger and acquisition related   -         (5,011 )       -         (4,465 )
Total operating expenses   22,490         15,641         44,867         34,378  
Income from operations (6,865 ) 6,488 9,720 22,831
Interest income 34 20 53 39
Interest expense (792 ) (766 ) (1,615 ) (1,395 )
Other income   1,681         78         1,759         155  
Net income (loss) before income taxes (5,942 ) 5,820 9,917 21,630
Income tax expense   (2,171 )       2,261         3,978         8,269  
Net income (loss) $ (3,771 )     $ 3,559       $ 5,939       $ 13,361  
 
Net income (loss) available to common stockholders:
Basic $ (3,771 ) $ 3,559 $ 5,939 $ 13,361
Diluted $ (3,771 ) $ 3,559 $ 5,939 $ 13,361
 
Weighted average shares outstanding:
Basic 47,198,922 46,704,451 47,141,355 46,489,470
Diluted 47,198,922 48,382,828 48,189,411 48,354,283
 
Net income (loss) available to common stockholders per common share:
Basic $ (0.08 ) $ 0.08 $ 0.13 $ 0.29
Diluted $ (0.08 ) $ 0.07 $ 0.12 $ 0.28
 
 
Higher One Holdings, Inc.
Consolidated Balance Sheet
(In thousands of dollars, except share and per share amounts)
       
 
June 30, 2014 December 31, 2013
Assets
Current assets:
Cash and cash equivalents $ 18,059 $ 6,268
Investments in marketable securities 248 247
Accounts receivable 13,973 8,747
Income receivable 7,377 6,680
Deferred tax assets 480 5,895
Prepaid expenses and other current assets 9,368 7,725
Restricted cash   250     250  
Total current assets   49,755     35,812  
Deferred costs 4,971 4,373
Fixed assets, net 48,675 49,888
Intangible assets, net 58,367 59,834
Goodwill 67,403 67,403
Loan receivable related to New Markets Tax Credit financing 7,633 7,633
Other assets 4,998 4,940
Restricted cash   2,475     2,500  
Total assets $ 244,277   $ 232,383  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,655 $ 3,787
Accrued expenses 25,059 30,322
Deferred revenue   27,460     22,392  
Total current liabilities 55,174 56,501
Deferred revenue and other non-current liabilities 2,341 2,342
Loan payable and deferred contribution related to New Markets Tax Credit financing 9,026 9,181
Debt 94,000 89,000
Deferred tax liabilities   2,237     2,393  
Total liabilities   162,778     159,417  
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $.001 par value; 200,000,000 shares authorized; 59,500,405 shares issued and 47,587,379 shares outstanding at June 30, 2014; 59,028,810 shares issued and 47,115,784 shares outstanding at December 31, 2013 60 60
Additional paid-in capital 183,933 181,339
Treasury stock, 11,913,026 shares at June 30, 2014 and December 31, 2013 (137,899 ) (137,899 )
Retained earnings   35,405     29,466  
Total stockholders’ equity   81,499     72,966  
Total liabilities and stockholders’ equity $ 244,277   $ 232,383  
 
 
Higher One Holdings, Inc.
Consolidated Cash Flow Statement
(In thousands of dollars, except share and per share amounts)
       
 
Six Months Ended June 30,
  2014     2013  
Cash flows from operating activities
Net income $ 5,939 $ 13,361
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 8,887 6,598
Amortization of deferred finance costs 245 223
Non-cash fair value adjustment of contingent consideration - (5,215 )
Stock-based compensation 2,348 2,326
Deferred income taxes 5,259 990
Income tax benefit related to exercise of stock options (17 ) (735 )
Other income (155 ) (154 )
Loss on disposal of fixed assets 84 16
Changes in operating assets and liabilities:
Accounts receivable (5,226 ) (5,687 )
Income receivable (697 ) (6,057 )
Deferred costs (1,807 ) (477 )
Prepaid expenses and other current assets (5,111 ) 5,086
Other assets (86 ) (330 )
Accounts payable (1,132 ) (1,160 )
Accrued expenses (5,375 ) 1,731
Deferred revenue   5,067     4,989  
Net cash provided by operating activities   8,223     15,505  
Cash flows from investing activities
Purchases of fixed assets, net of changes in payables of ($238) and ($153), respectively

(2,334

) (3,296 )
Cash paid for acquired businesses - (47,250 )
Additions to internal use software (2,754 ) (966 )
Amounts received from restricted cash 25

2,000

Proceeds from development related subsidies   3,468     -  
Net cash used in investing activities  

(1,595

)   (49,512 )
Cash flows from financing activities
Proceeds from line of credit 15,000 52,000
Repayments of line of credit (10,000 ) (20,000 )
Excess tax benefit related to stock options 17 735
Proceeds from exercise of stock options 146 1,060
Purchases of common stock   -     (5,996 )
Net cash provided by financing activities   5,163     27,799  
Net change in cash and cash equivalents 11,791 (6,208 )
Cash and cash equivalents at beginning of period   6,268     13,031  
Cash and cash equivalents at end of period $ 18,059  

$

6,823

 
 
   

Higher One Holdings, Inc.

Unaudited Supplemental Operating Data

(In thousands)

 
Three Months Ended
June 30,     September 30,     December 31,     March 31,     June 30,
2013 2013 2013 2014 2014
 
Refund Management SSE (1) 4,798 4,752 5,000 5,083 5,119
y/y growth 7 % 4 % 8 % 8 % 7 %
 
Ending OneAccounts (2) 2,165 2,194 2,192 2,292 2,088
y/y growth 14 % 5 % 9 % 6 % -4 %
 
 
(1) Refund Management SSE is defined as the number of students enrolled at institutions that have signed contracts to use the Refund Management 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)

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 Six Months Ended
June 30, June 30,
  2014         2013     2014         2013  
(unaudited)
(in thousands)
 
Net income (loss) $ (3,771 ) $ 3,559 $ 5,939 $ 13,361
Interest income (34 ) (20 ) (53 ) (39 )
Interest expense 792 766 1,615 1,395
Income tax expense (2,171 ) 2,261 3,978 8,269
Depreciation and amortization   4,432     3,487     8,887     6,598  
EBITDA (752 ) 10,053 20,366 29,584
Merger and acquisition related expenses - (5,011 ) - (4,465 )
Stock-based compensation expense 790 841 2,348 2,326
Allowance for customer restitution 8,750 - 8,750 -
Campus Solutions settlement received   (1,604 )   -     (1,604 )   -  
Adjusted EBITDA $ 7,184   $ 5,883   $ 29,860   $ 27,445  
 
       

Higher One Holdings, Inc.

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

(In thousands, except share and per share amounts)

 
Three Months Ended Six Months Ended
June 30, June 30,
  2014         2013     2014         2013  
(unaudited)
(in thousands)
 
Net income (loss) $ (3,771 ) $ 3,559 $ 5,939 $ 13,361
 
Merger and acquisition related expense - (5,011 ) - (4,465 )
Allowance for customer restitution 8,750 - 8,750 -
Campus Solutions settlement received (1,604 ) - (1,604 ) -
Stock-based compensation expense - incentive stock option grants 292 500 717 985
Stock-based compensation expense - non-qualified stock option grants 498 341 1,631 1,341
Amortization of intangibles 1,931 1,491 4,066 2,621
Amortization of deferred finance costs   122     112     245     223  
Total pre-tax adjustments 9,989 (2,567 ) 13,805 705
Tax rate 38.5 % 38.5 % 38.5 % 38.5 %
Tax adjustment   3,733     (1,181 )   5,039     (108 )
Adjusted net income $ 2,485   $ 2,173   $ 14,705   $ 14,174  
 
Diluted weighted average shares outstanding (non-GAAP) 47,955,706 48,382,828 48,189,411 48,354,283
GAAP net income per share (diluted) $ (0.08 ) $ 0.07 $ 0.12 $ 0.28
Non-GAAP adjusted net income per share (diluted) $ 0.05 $ 0.04 $ 0.31 $ 0.29
 

Contacts

Higher One Holdings, Inc.
Investor Relations:
Kevin LeBlanc, 203-776-7776 x 4296
kevin.leblanc@higherone.com
or
Media Relations:
Shoba Lemoine, 203-776-7776 x 4503
slemoine@higherone.com

Contacts

Higher One Holdings, Inc.
Investor Relations:
Kevin LeBlanc, 203-776-7776 x 4296
kevin.leblanc@higherone.com
or
Media Relations:
Shoba Lemoine, 203-776-7776 x 4503
slemoine@higherone.com