Higher One Holdings, Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - November 6, 2012

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EXHIBIT 99.1

Higher One Holdings, Inc. Reports Third Quarter 2012 Financial Results
 
·  
Revenue was $51.2 million, up 6% year-over-year
 
·  
Entered into new five-year, $200 million credit facility
 
·  
Higher One now serves over 1,250 campuses representing over 10.8 million students
 
New Haven, CT, November 6, 2012 – 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 Higher One's services and the inclusion of recently acquired Campus Labs in Higher One's 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.
 
 
1
 
 
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.
 
Contacts

 
Investor Relations:
Ken Goff, 203-776-7776 x4462, kgoff@higherone.com
Media Relations:
Shoba Lemoine, 203-776-7776 x4503, slemoine@higherone.com


 
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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
  
 
 
3
 
 
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
      
56,644
  
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 earnings (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
  
 

 
4
 
 
Higher One Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands of dollars)
 
 
   
Nine months ended
  
   
September 30,
  
   
2011
    
2012
  
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 exercise of 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 used in 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
  

 
5
 
 
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 growth
23%
  
27%
  
27%
  
22%
  
16%
                   
Total Company SSE (2)
5,802
  
5,995
  
6,204
  
6,437
  
        10,843
y/y growth
11%
  
14%
  
16%
  
16%
  
87%
                   
Ending OneAccounts (3)
        2,015
  
        1,997
  
        2,122
  
        1,896
  
2,083
y/y growth
31%
  
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

 
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Higher One Holdings, Inc.
Unaudited Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA
(in thousands)
 
   
Three Months Ended
  
   
September 30,
  
   
2011
  
2012
  
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
  
Other income
    
               –
    
               –
  
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,
  
   
2011
    
2012
  
            Net income
  
$
         8,468
    
 $
         7,318
  
                 
            Stock-based and other customer acquisition expense
    
         2,320
      
               –
  
            Stock-based compensation expense - incentive stock option grants
    
            480
      
            487
  
            Stock-based compensation expense - non-qualified stock option grants
    
            409
      
            414
  
            Merger and acquisition related expense
    
               –
      
         1,042
  
            Other income
    
               –
      
               –
  
            Amortization of intangibles
    
            768
      
            863
  
Amortization of deferred finance costs
    
              18
      
              34
  
            Total pre-tax adjustments
    
         3,995
      
         2,840
  
            Tax rate
    
38.2
%
    
38.2
%
            Tax adjustment (a)
    
         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
 % 

 

 
7
 
 
Higher One Holdings, Inc.
Business Outlook

 

   
Twelve Months Ending
  
   
December 31, 2012
  
   
GAAP
  
Non-GAAP (b)
  
Revenues (in millions)
  
$192.0
-
$200.0
  
$192.0
-
$200.0
  
Diluted EPS
  
$0.53
-
$0.60
  
$0.63
-
$0.70
  
                   
(b) 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.


 
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Higher One Holdings, Inc. Reports