Higher One Holdings, Inc. Reports Third Quarter 2015 Financial Results

  • Consolidated gross revenue of $56.4 million
  • Payments revenue increases 4%
  • Sale of Campus Labs to provide financial flexibility

NEW HAVEN, Conn.--()--Higher One Holdings, Inc. (NYSE:ONE) (“Higher One” or the “Company”), today announced financial results for the third quarter of 2015. The Company reported third quarter 2015 gross revenue of $56.4 million compared to $59.8 million in the third quarter 2014. Non-GAAP adjusted diluted EPS was $0.09, compared to $0.15 for the third quarter of 2014.

Marc Sheinbaum, President and Chief Executive Officer, said, “We experienced continued growth in our Payments business this quarter, as processing volumes grow and we continue to add new business. And while we continue to operate in a challenging environment for Disbursements, our team remains focused on serving our clients.”

Sheinbaum added, “We also announced the sale of our Campus Labs business, which took place on October 14, 2015 and we expect that transaction to close by the end of this November. We acquired the Campus Labs business over three years ago and in that time, have helped that business to grow. But our prevailing experience lies in serving the business offices of colleges and universities. Furthermore, this transaction will allow us to unlock the true value of that asset while simultaneously delivering shareholder value and strengthening our balance sheet.”

GAAP financial results for the third quarter of 2015 compared to the third quarter of 2014:

  • Gross revenue decreased 6% to $56.4 million in the third quarter of 2015 compared to revenue of $59.8 million for the third quarter of 2014. Net revenue reflects an increase in the allowance for potential customer restitution from $8.75 million to $30.6 million, related to the Federal Reserve and FDIC matters. As a result, net revenue was $21.9 million lower than gross revenue this quarter.
  • The Company recorded a net loss of $12.7 million for the third quarter of 2015, compared to net income of $4.9 million recorded for the third quarter of 2014. The net loss recorded in the third quarter of 2015 reflects the impact of the allowance for potential customer restitution of $21.9 million. GAAP diluted loss per share was $0.26 for the third quarter of 2015, compared to a GAAP diluted earnings per share of $0.10 for the third quarter of 2014.

Non-GAAP financial results for the third quarter of 2015 compared to the third quarter of 2014:

  • Non-GAAP adjusted EBITDA was $11.2 million in the third quarter of 2015, compared to $15.0 million in the third quarter of 2014
  • Non-GAAP adjusted net income was $4.2 million for the third quarter of 2015, compared to $7.0 million for the third quarter of 2014
  • Non-GAAP adjusted diluted earnings per share was $0.09 for the third quarter of 2015, compared to $0.15 for the third quarter of 2014

In addition to consolidated financial information, the Company is providing select financial information for its three lines of business: Disbursements; Payments; and Data Analytics.

Business-line financial results for the third quarter of 2015 compared to the third quarter of 2014 (in thousands):

  • Disbursements revenue is comprised of both subscription fees for our Refund Management disbursement service as well as the transaction-based sources of interchange and service fees derived through the OneAccount. The loss from operations in the third quarter of 2015 reflects the impact of the allowance for potential customer restitution of $21.9 million.
                           
Disbursements

2015

2014

% Change

Gross Revenue $28,194 $33,202 -15.1%
Adjusted EBITDA 3,084 7,142 -56.8%
Income (loss) from Operations (22,324) 4,434 NM
 
  • Payments revenue is derived through our CASHNet and Campus Solutions products and consists of recurring subscription fees as well as transactional fees generated by payment plan enrollments and payment processing convenience fees.
                           
Payments

2015

2014

% Change

Gross Revenue $23,789 $22,889 3.9%
Adjusted EBITDA 6,561 6,317 3.9%
Income from Operations 3,795 3,566 6.4%
 
  • Data Analytics revenue is derived through our Campus Labs products and is comprised mostly of subscription fees, accompanied by smaller one-time support and implementation fees.
                           
Data Analytics

2015

2014

% Change

Gross Revenue $4,379 $3,684 18.9%
Adjusted EBITDA 1,566 1,500 4.4%
Income from Operations 526 844 -37.7%
 

Conference Call Information

Higher One will host a conference call at 8:30 a.m. EDT today to discuss third quarter results. The dial in phone number is 866-499-3420 for domestic listeners and 678-562-4219 for international listeners. The conference ID number is 33042978. 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 855-859-2056 for domestic listeners and 404-537-3406 for international listeners. Please use the passcode 33042978 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’s products and services support 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 each non-GAAP measure to its closest comparable GAAP measure are included in this press release.

     

Higher One Holdings, Inc.

Condensed Consolidated Statements of Operations

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

 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

  2015       2014       2015       2014  
Revenue:    
Account revenue $ 26,654 $ 31,468 $ 88,523 $ 99,475
Payment transaction revenue 19,055 18,197 47,497 42,652
Higher education institution revenue 10,486 9,929 30,891 28,958
Other revenue   167     181     558     723  
Gross revenue 56,362 59,775 167,469 171,808
Less: allowance for customer restitution   (21,880 )   -     (21,880 )   (8,750 )
Revenue 34,482 59,775 145,589 163,058
Cost of revenue   27,817     28,182     77,479     76,878  
Gross margin   6,665     31,593     68,110     86,180  
Operating expenses:
General and administrative 18,098 16,617 54,417 48,343
Product development 2,040 1,555 6,120 5,517
Sales and marketing 4,196 4,577 12,638 13,756
Restructuring charge   334     -     574     -  
Total operating expenses   24,668     22,749     73,749     67,616  
Income (loss) from operations (18,003 ) 8,844 (5,639 ) 18,564
Interest income 23 20 63 73
Interest expense (1,262 ) (828 ) (3,894 ) (2,443 )
Other income (loss)   77     (198 )   1,357     1,561  
Net income (loss) before income taxes (19,165 ) 7,838 (8,113 ) 17,755
Income tax expense (benefit)   (6,510 )   2,922     (2,321 )   6,900  
Net income (loss) $ (12,655 ) $ 4,916   $ (5,792 ) $ 10,855  
Net income (loss) available to common stockholders:
Basic $ (12,655 ) $ 4,916 $ (5,792 ) $ 10,855
Diluted $ (12,655 ) $ 4,916 $ (5,792 ) $ 10,855
Weighted average shares outstanding:
Basic 47,783,217 47,258,495 47,605,164 47,180,830
Diluted 47,783,217 47,710,262 47,605,164 48,104,873
 
Net income (loss) available to common stockholders per common share:
Basic $ (0.26 ) $ 0.10 $ (0.12 ) $ 0.23
Diluted $ (0.26 ) $ 0.10 $ (0.12 ) $ 0.23
 
     

Higher One Holdings, Inc.

Condensed Consolidated Operating Segment Statements of Operations

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

 
 

Three Months Ended September
30,

Nine Months Ended September
30,

  2015     2014     2015     2014  
Revenue
Disbursements

$

6,314

(1)

$ 33,202

$

71,050

(1)

$

95,083

(2)

Payments 23,789 22,889 61,921 57,455
Data Analytics   4,379     3,684     12,618     10,520  
Total revenues   34,482     59,775     145,589     163,058  
 
Cost of revenue
Disbursements 15,197 16,059 45,299 46,118
Payments 12,120 11,726 30,748 29,517
Data Analytics   500     397     1,432     1,243  
Total cost of revenue   27,817     28,182     77,479     76,878  
 
Gross margin
Disbursements (8,883 ) 17,143 25,751 48,965
Payments 11,669 11,163 31,173 27,938
Data Analytics   3,879     3,287     11,186     9,277  
Total gross margin   6,665     31,593     68,110     86,180  
 
Operating expenses
Disbursements 13,441 12,709 40,619 36,999
Payments 7,874 7,597 23,682 23,070
Data Analytics   3,353     2,443     9,448     7,547  
Total operating expenses   24,668     22,749     73,749     67,616  
 
Income from operations
Disbursements (22,324 ) 4,434 (14,868 ) 11,966
Payments 3,795 3,566 7,491 4,868
Data Analytics   526     844     1,738     1,730  
Total income (loss) from operations (18,003 ) 8,844 (5,639 ) 18,564
Interest income 23 20 63 73
Interest expense (1,262 ) (828 ) (3,894 ) (2,443 )
Other income (loss)   77     (198 )   1,357     1,561  
Net income (loss) before income taxes $ (19,165 ) $ 7,838   $ (8,113 ) $ 17,755  

 

(1) Reflects the impact of the allowance for potential customer restitution of $21.9 million.
(2) Reflects the impact of the allowance for potential customer restitution of $8.75 million.
     

Higher One Holdings, Inc.

Condensed Consolidated Balance Sheets

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

 

September 30, 2015

 

December 31, 2014

Assets
Current assets:
Cash and cash equivalents $ 27,785 $ 40,022
Investments in marketable securities 251 249
Accounts receivable 12,581 8,929
Income receivable 8,624 9,053
Deferred tax assets 11,338 3,719
Prepaid expenses and other current assets   5,408     7,805  
Total current assets   65,987     69,777  
Deferred costs 6,133 4,187
Fixed assets, net 43,374 46,768
Intangible assets, net 51,637 56,255
Goodwill 67,403 67,403

Loan receivable related to New Markets Tax
Credit financing

7,633 7,633
Other assets 3,092 2,523
Restricted cash   2,728     2,725  
Total assets $ 247,987   $ 257,271  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,044 $ 3,339
Accrued expenses 50,423 25,872
Deferred revenue   31,930     25,174  
Total current liabilities 84,397 54,385
Deferred revenue and other non-current liabilities 4,443 4,019

Loan payable and deferred contribution related to New Markets Tax
Credit financing

8,638 8,871
Debt 59,000 94,000
Deferred tax liabilities   961     3,814  
Total liabilities   157,439     165,089  
Commitments and contingencies (Note 6)
Stockholders’ equity:

Common stock, $.001 par value; 200,000,000 shares authorized;
59,893,737 shares issued and 47,980,711 shares outstanding at
September 30, 2015; 59,570,839 shares issued and 47,657,813 shares
outstanding at December 31, 2014

60 60
Additional paid-in capital 189,746 185,588

Treasury stock, 11,913,026 shares at September 30, 2015 and
December 31, 2014

(137,899 ) (137,899 )
Retained earnings   38,641     44,433  
Total stockholders’ equity   90,548     92,182  
Total liabilities and stockholders’ equity $ 247,987   $ 257,271  
 
   

Higher One Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands of dollars)

(unaudited)

 

Nine Months Ended
September 30,

  2015       2014  
Cash flows from operating activities  
Net income (loss) $ (5,792 ) $ 10,855

Adjustments to reconcile net income to net cash provided by operating
activities:

Depreciation and amortization 16,429 14,124
Amortization of deferred finance costs 1,657 368
Stock-based compensation 4,877 3,426
Deferred income taxes (11,569 ) 810
Income tax benefit related to exercise of stock options (120 ) (47 )
Other (income) loss (236 ) 42
Loss on disposal of fixed assets 118 90
Changes in operating assets and liabilities:
Accounts receivable (3,652 ) (3,235 )
Income receivable 429 (5,087 )
Deferred costs (396 ) (2,103 )
Prepaid expenses and other current assets 2,397 (2,051 )
Other assets (569 ) (91 )
Accounts payable (1,295 ) (1,636 )
Accrued expenses 24,245 (1,713 )
Deferred revenue   6,412     7,151  
Net cash provided by operating activities   32,935     20,903  
Cash flows from investing activities
Purchases of fixed assets (2,471 ) (2,858 )
Additions to internal use software (3,699 ) (4,173 )
Amounts received from restricted cash - 25
Proceeds from disposition of equity method investment - 3,581
Proceeds from development related subsidies   -     3,468  
Net cash provided by (used in) investing activities   (6,170 )   43  
Cash flows from financing activities
Proceeds from line of credit - 15,000
Repayments of line of credit (35,000 ) (10,000 )
Payment of deferred financing costs (4,467 ) -
Tax benefit related to exercise of stock options 120 47
Proceeds from exercise of stock options   345     184  
Net cash provided by (used in) financing activities   (39,002 )   5,231  
Net change in cash and cash equivalents (12,237 ) 26,177
Cash and cash equivalents at beginning of period   40,022     6,268  
Cash and cash equivalents at end of period $ 27,785   $ 32,445  
 
 
Higher One Holdings, Inc.
Unaudited Supplemental Operating Data
(In thousands)
                   
Three Months Ended
September 30, December 31, March 31, June 30, September 30,

2014

2014

2015

2015

2015

 
Refund Management SSE (1) 5,018 5,078 5,096 5,026 4,918

change from prior year
period

6% 2% 0% -2% -2%
 
Ending OneAccounts (2) 2,190 2,135 2,179 2,007 2,038

change from prior year
period

0% -3% -5% -4% -7%
 

(1)

 

Refund Management SSE is defined as the number of students enrolled at institutions that have signed contracts to use the Refund Management disbursement service by the end of a given period as of the date the contract is signed (using the most up-to-date Integrated Postsecondary Education Data System data at that point in time). Refund Management SSE for all periods other than September 30, 2015 reflects Fall 2013 provisional enrollment data from IPEDS. The effect of updating Refund Management SSE as of September 30, 2015 resulted in a decrease of approximately 98,000 SSE from the enrollment figures prior to 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 Nine Months Ended
September 30, September 30,
  2015       2014       2015       2014  
(unaudited)
 
Net income (loss) $ (12,655 ) $ 4,916 $ (5,792 ) $ 10,855
Interest income (23 ) (20 ) (63 ) (73 )
Interest expense 1,262 828 3,894 2,443
Income tax expense (6,510 ) 2,922 (2,321 ) 6,900
Depreciation and amortization   5,563     5,235     16,429     14,123  
EBITDA (12,363 ) 13,881 12,147 34,248
Restructuring charge 334 - 574 -
Stock-based compensation expense 1,360 1,078 4,877 3,426
Allowance for customer restitution 21,880 - 21,880 8,750
Campus Solutions settlement received   -     -     -     (1,604 )
Adjusted EBITDA $ 11,211   $ 14,959   $ 39,478   $ 44,820  
 
             

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 Nine Months Ended
September 30,   September 30,
  2015       2014       2015       2014  
(unaudited)
Net income (loss) $ (12,655 ) $ 4,916 $ (5,792 ) $ 10,855
 
Restructuring charge 334 - 574 -
Release of state tax valuation allowance - - (285 ) -
Allowance for customer restitution 21,880 - 21,880 8,750
Campus Solutions settlement received - - - (1,604 )
Stock-based compensation expense - incentive stock option grants 205 328 698 1,045
Stock-based compensation expense - non-qualified stock option grants 1,155 750 4,179 2,381
Amortization of acquisition related intangible assets 1,820 1,931 5,459 5,997
Amortization of deferred finance costs   499     123     1,657     368  
Total pre-tax adjustments 25,893 3,132 34,162 16,937
Tax rate 35.2 % 38.5 % 36.0 % 38.5 %
Less: tax adjustment   9,047     1,079     12,150     6,118  
Adjusted net income $ 4,191   $ 6,969   $ 16,220   $ 21,674  
 
GAAP diluted weighted average shares outstanding 47,783,217 47,710,262 47,605,164 48,104,873
Non-GAAP diluted weighted average shares outstanding 48,027,168 47,710,262 47,932,311 48,104,873
GAAP net income per share (diluted) $ (0.26 ) $ 0.10 $ (0.12 ) $ 0.23
Non-GAAP adjusted net income per share (diluted) $ 0.09 $ 0.15 $ 0.34 $ 0.45

Contacts

Higher One Holdings, Inc.
Investor Relations:
Patrick Pearson, 203-776-7776 x4421
ppearson@higherone.com
or
Media Relations:
Shoba Lemoine, 203-776-7776 x4503
slemoine@higherone.com

Contacts

Higher One Holdings, Inc.
Investor Relations:
Patrick Pearson, 203-776-7776 x4421
ppearson@higherone.com
or
Media Relations:
Shoba Lemoine, 203-776-7776 x4503
slemoine@higherone.com