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CORRECTING and REPLACING Higher One Holdings, Inc. Reports Third Quarter 2014 Financial Results

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In the Unaudited Supplemental Operating Data, under the y/y growth in Refund Management SSE for the time period September 30, 2014, the percentage should read 6% (instead of 9%).

The corrected release reads:

HIGHER ONE HOLDINGS, INC. REPORTS THIRD QUARTER 2014 FINANCIAL RESULTS

  • Quarterly revenue of $59.8 million, up 5% year-over-year
  • Payment Transaction revenue grows 25%

Higher One Holdings, Inc. (NYSE:ONE) (“Higher One” or the “Company”), today reported financial results for the third quarter 2014.

The Company reported third quarter 2014 revenue of $59.8 million, an increase of 5% from the previous year and adjusted EPS of $0.15. Revenue growth was driven by the strong organic growth in the Payment Solutions suite of products.

“I am pleased with our solid third quarter financial results, which was led by strong organic growth in both our Payment Solutions and Campus Labs products. We continue to expand these offerings and believe they will contribute to further diversification of our revenue streams,” stated Marc Sheinbaum, president and chief executive officer.

GAAP financial results for the third quarter of 2014 compared to the third quarter of 2013:

  • Revenue increased 5% to $59.8 million in the third quarter of 2014 compared to revenue of $57.1 million for the third quarter of 2013
  • GAAP diluted EPS was $0.10 for the third quarter of 2014, compared to a loss of $(0.12) for the third quarter of 2013
  • The Company recorded net income of $4.9 million for the third quarter of 2014, compared to a GAAP loss of $5.5 million recorded for the third quarter of 2013

Non-GAAP financial results for the third quarter of 2014 compared to the third quarter of 2013:

  • Non-GAAP adjusted EBITDA was $15.0 million in the third quarter of 2014, an increase of 4%, from $14.3 million in the third quarter of 2013
  • Non-GAAP adjusted net income increased 1% to $7.0 million for the third quarter of 2014 from $6.9 million for the third quarter of 2013
  • Non-GAAP adjusted diluted EPS increased 2% to $0.15 for the third quarter of 2014 versus $0.14 for the third quarter of 2013

Conference Call Information

Higher One will host a conference call at 8:30 a.m. ET today to discuss third quarter results. The dial in phone number is (866) 953-6860 for domestic listeners and (617) 399-3484 for international listeners. The conference ID number is 48923558. 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 36260486 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 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
September 30,

Nine Months Ended
September 30,

2014 2013 2014 2013
Revenue:
Account revenue $ 31,468 $ 33,234 $ 99,475 $ 102,541
Payment transaction revenue 18,197 14,615 42,652 27,402
Higher education institution revenue 9,929 9,008 28,958 23,874
Other revenue 181 255 723 698
Gross revenue 59,775 57,112 171,808 154,515
Less: allowance for customer restitution (8,750)
Revenue 59,775 57,112 163,058 154,515
Cost of revenue 28,182 24,999 76,878 65,193
Gross margin 31,593 32,113 86,180 89,322
Operating expenses:
General and administrative 16,617 16,404 48,343 43,069
Product development 1,555 2,822 5,517 7,161
Sales and marketing 4,577 4,884 13,756 12,723
Litigation settlement and related costs 16,320 16,320
Merger and acquisition related (326) (4,791)
Total operating expenses 22,749 40,104 67,616 74,482
Income (loss) from operations 8,844 (7,991) 18,564 14,840
Interest income 20 19 73 58
Interest expense (828) (857) (2,443) (2,252)
Other income (198) 406 1,561 561
Net income (loss) before income taxes 7,838 (8,423) 17,755 13,207
Income tax expense (benefit) 2,922 (2,929) 6,900 5,340
Net income (loss) $4,916 $ (5,494) $ 10,855 $7,867
Net income (loss) available to common stockholders:
Basic $4,916 $ (5,494) $ 10,855 $7,867
Diluted $4,916 $ (5,494) $ 10,855 $7,867
Weighted average shares outstanding:
Basic 47,258,495 46,907,493 47,180,830 46,630,343
Diluted 47,710,262 46,907,493 48,104,873 48,360,447
Net income (loss) available to common stockholders per common share:
Basic $ 0.10 $(0.12) $ 0.23 $ 0.17
Diluted $ 0.10 $(0.12) $ 0.23 $ 0.16

Higher One Holdings, Inc.

Consolidated Balance Sheet

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

September 30,
2014

December 31,
2013

Assets
Current assets:
Cash and cash equivalents $ 32,445 $6,268
Investments in marketable securities 249 247
Accounts receivable, net 11,982 8,747
Income receivable 11,767 6,680
Deferred tax assets 3,513 5,895
Prepaid expenses and other current assets 6,308 7,725
Restricted cash 250 250
Total current assets 66,514 35,812
Deferred costs 4,631 4,373
Fixed assets, net 48,178 49,888
Intangible assets, net 57,529 59,834
Goodwill 67,403 67,403
Loan receivable related to New Markets Tax Credit financing 7,633 7,633
Other assets 1,002 4,940
Restricted cash 2,475 2,500
Total assets $255,365 $232,383
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable 2,151 3,787
Accrued expenses 28,891 30,322
Deferred revenue 29,521 22,392
Total current liabilities 60,563 56,501
Deferred revenue and other non-current liabilities 3,442 2,342
Loan payable and deferred contribution related to New Markets Tax Credit financing 8,948 9,181
Debt 94,000 89,000
Deferred tax liabilities 821 2,393
Total liabilities 167,774 159,417
Commitments and contingencies
Stockholders’ equity:

Common stock, $.001 par value; 200,000,000 shares
authorized; 59,549,839 shares issued and
47,636,813 shares outstanding at September 30,
2014; 59,028,810 shares issued and 47,115,784
shares outstanding at December 31, 2013

60 60
Additional paid-in capital 185,109 181,339
Treasury stock, 11,913,026 shares at September 30, 2014 and December 31, 2013 (137,899) (137,899)
Retained earnings 40,321 29,466
Total stockholders’ equity 87,591 72,966
Total liabilities and stockholders’ equity $255,365 $232,383

Higher One Holdings, Inc.

Consolidated Cash Flow Statement

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

Nine Months Ended September 30,
2014 2013
Cash flows from operating activities
Net income $10,855 $7,867
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 14,124 10,587
Amortization of deferred finance costs 368 332
Non-cash fair value adjustment of contingent consideration (5,750)
Stock-based compensation 3,426 3,261
Deferred income taxes 810 880
Income tax benefit related to exercise of stock options (47) (796)
Other loss (income) 42 (232)
Loss on disposal of fixed assets 90 8
Changes in operating assets and liabilities:
Accounts receivable (3,235) (4,474)
Income receivable (5,087) 160
Deferred costs (2,103) (920)
Prepaid expenses and other current assets (2,051) 51
Other assets (91) (337)
Accounts payable (1,636) (634)
Accrued expenses (1,713) 20,363
Deferred revenue 7,151 5,819
Net cash provided by operating activities 20,903 36,185
Cash flows from investing activities
Purchases of fixed assets, net of changes in payables of ($200) and ($153), respectively (2,858) (4,563)
Cash paid for acquired businesses (47,250)
Additions to internal use software (4,173) (2,237)
Amounts received from restricted cash 25 2,000
Deposits to restricted cash (1,250)
Proceeds from disposition of equity method investment 3,581
Proceeds from development related subsidies 3,468
Net cash provided by (used in) investing activities 43 (53,300)
Cash flows from financing activities
Proceeds from line of credit 15,000 52,000
Repayments of line of credit (10,000) (32,000)
Excess tax benefit related to stock options 47 796
Proceeds from exercise of stock options 184 1,114
Purchases of common stock (5,996)
Net cash provided by financing activities 5,231 15,914
Net change in cash and cash equivalents 26,177 (1,201)
Cash and cash equivalents at beginning of period 6,268 13,031
Cash and cash equivalents at end of period $32,445 $11,830

Higher One Holdings, Inc.

Unaudited Supplemental Operating Data

(In thousands)

Three Months Ended
September 30, December 31, March 31, June 30, September 30,
2013 2013 2014 2014 2014
Refund Management SSE (1) 4,752 5,000 5,083 5,119 5,018
y/y growth 4% 8% 8% 7%

6%

Ending OneAccounts (2) 2,194 2,192 2,292 2,088 2,190
y/y growth 5% 9% 6% -4% 0%

(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). Refund Management SSE as of September 30, 2014 reflects Fall 2013 provisional enrollment data from IPEDS. The affect of updating Refund Management SSE as of September 30, 2014 resulted in a decrease of approximately 112,000 SSE from the enrollment figures previously reported.

(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,
2014 2013 2014 2013
(unaudited)
(in thousands)
Net income (loss) $ 4,916 $(5,494) $ 10,855 $7,867
Interest income (20) (19) (73) (58)
Interest expense 828 857 2,443 2,252
Income tax expense (benefit) 2,922 (2,929) 6,900 5,340
Depreciation and amortization 5,235 3,989 14,123 10,587
EBITDA 13,881 (3,596) 34,248 25,988
Merger and acquisition related (326) (4,791)
Stock-based compensation expense 1,078 935 3,426 3,261
Allowance for customer restitution (2014); litigation settlement and bank partner transition costs (2013) 17,326 8,750 17,326
Campus Solutions settlement received (1,604)
Adjusted EBITDA $14,959 $ 14,339 $ 44,820 $41,784

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

Nine Months
Ended

September 30, September 30,
2014 2013 2014 2013
(unaudited)
(in thousands)
Net income (loss) $ 4,916 $ (5,494) $ 10,855 $ 7,867
Merger and acquisition related (326) (4,791)
Allowance for customer restitution (2014); litigation settlement and bank partner transition costs (2013) 17,326 8,750 17,326
Campus Solutions settlement received (1,604)
Stock-based compensation expense – incentive stock option grants 328 473 1,045 1,458
Stock-based compensation expense – non-qualified stock option grants 750 462 2,381 1,803
Amortization of intangibles 1,931 1,806 5,997 4,427
Amortization of deferred finance costs 123 109 368 332
Total pre-tax adjustments 3,132 19,850 16,937 20,555
Tax rate 38.5% 38.5% 38.5% 38.5%
Less: tax adjustment (a) 1,079 7,460 6,118 7,352
Adjusted net income $ 6,969 $6,896 $ 21,674 $ 21,070
Diluted weighted average shares outstanding (non-GAAP) 47,710,262 48,375,584 48,104,873 48,360,447
GAAP net income per share (diluted) $ 0.10 $(0.12) $ 0.23 $ 0.16
Non-GAAP adjusted net income per share (diluted) $.015 $0.14 $0.45 $0.44

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