OFFICIAL PAYMENTS HOLDINGS, INC. - FORM 8-K - EX-99.1 - FOURTH QUARTER 2012 EARNINGS PRESS RELEASE - December 12, 2012

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8-K - FOURTH QUARTER 2012 EARNINGS RELEASE - OFFICIAL PAYMENTS HOLDINGS, INC.form8k.htm
Exhibit 99.1

 
Official Payments Reports Results from Fiscal Year 2012 and its Fourth Fiscal Quarter:
Revenue from continuing operations increased to $135.7M for fiscal 2012
Net loss from continuing operations narrowed to ($6.0M) for fiscal 2012
Adjusted EBITDA from continuing operations improved to $4.8M in fiscal 2012, an increase of $5.3M from fiscal 2011

Norcross, GA, December 12, 2012 – Official Payments Holdings, Inc. (Nasdaq: OPAY), a leading provider of electronic payment solutions, reported results today for its fiscal 2012 fourth quarter (Q4 '12) and fiscal year ended September 30, 2012 (Fiscal 2012 or FY '12). The Company will host a call/webcast today at 5:00 p.m. EDT to review its results:
Conference Call Dial-In:
800-857-9792 Participant code – "OPAY"
Webcast/Replay:
http://investors.officialpayments.com
Replay Dial-In:
800-873-2149
–   10:00 pm ET, Wednesday, Dec. 12, 2012 to
 
 
11:59 pm ET, Wednesday, Jan. 2, 2013


FY' 12 Highlights:
Official Payments Holdings, Inc. reported revenue from continuing operations of $135.7 million for fiscal 2012, an increase of 4.3% over fiscal 2011. Fiscal 2012 Payment Solutions net revenue, which reflects Payment Solutions revenues less related processing and interchange fees, improved by 36.2% in fiscal 2012 versus fiscal 2011. The improvement was principally due to lower debit card fees established by the Durbin Amendment in October 2011, as well as negotiated reductions in credit interchange rates and other processing costs. General and administrative and selling and marketing expenses increased a combined 31.0% versus 2011, primarily as a result of increases in performance-based compensation, a one-time restructuring charge associated with the relocation of company headquarters to Norcross, Georgia, an increase in share based compensation and an increase in technology-related personnel expense.

Official Payments reported a net loss from continuing operations of $6.0 million, or $0.36 per share, compared to the prior year's net loss from continuing operations of $7.4 million, or $0.43 per share. Continuing operations consists of the Payment Solutions segment, which contributed more than 99% of the company's revenue from continuing operations in fiscal 2012, with nominal revenue contributions from the legacy voice and systems automation (VSA) operations that are in the process of being wound down.

Adjusted EBITDA from continuing operations improved to positive $4.8 million in fiscal 2012 from negative $0.5 million in fiscal 2011.

Payment Solutions net revenue and Adjusted EBITDA from continuing operations are non-GAAP financial measures.  These measures are defined and reconciled to GAAP financial measures below.

Q4 '12 Overview:
Q4 is seasonally the Company's slowest period of payment volume, given the timing of annual taxes, semiannual tuition and other non-monthly payments. Fiscal Q4 2012 revenue from continuing operations improved by 1.5% versus fiscal Q4 2011, Payment Solutions net revenue improved by 38.5% versus fiscal Q4 2011, while general and administrative and selling and marketing expenses increased a combined 14.8% to $9.5 million versus fiscal Q4 2011.

Official Payments reported a net loss from continuing operations of $2.1 million in fiscal Q4 2012, or $0.12 per share, as compared with a loss of $3.6 million, or $0.21 per share, in fiscal Q4 2011.

Adjusted EBITDA from continuing operations rose to positive $0.2 million in fiscal Q4 2012 versus negative $1.4 million in fiscal Q4 2011. This marks the fourth consecutive quarter of positive Adjusted EBITDA from continuing
Page 1 of 6 Pages


operations and the first time since 2004 that the Company has recorded positive Adjusted EBITDA from continuing operations in all four quarters of a fiscal year.

Cash Position and Use of Cash
Official Payments' year-end cash and cash equivalents decreased by approximately $0.7 million from $39.8 million at fiscal year-end 2011 to $39.1 million at fiscal year-end 2012, and by approximately $1.7 million versus June 30, 2012. Our $39.1 million in cash and cash equivalents included $5.6 million of accrued discount fees and $17.0 million of funds that have settled or will settle to us that we had not yet distributed to our clients due to the timing of bank transactions.  Offsetting these liabilities was $15.3 million of cash which we received within two days of the fiscal year end as settlements from credit card companies or banks.

Management Overview
Alex P. Hart, President and CEO, stated, "In the fourth quarter of fiscal 2010 we initiated a plan to turn around the Company's operations and financial performance. Our Q4 and full fiscal year operating results in 2012 highlight the significant progress we have made in this effort."

"Central to the turnaround were major upgrades we made to our payment services infrastructure. During fiscal 2012 we completed the bulk of the upgrade work, allowing us to shift our focus to the consolidation of our three payment processing platforms onto a single platform. We now expect to be substantially complete with this process by the end of calendar 2013 at an anticipated cost of approximately $3 million – well below the $10 to $12 million we projected two years ago.  Upon completion of this consolidation we expect to realize significant ongoing cost savings and to be able to deploy new products and services more quickly and efficiently."

Mr. Hart added, "With the operational turnaround largely complete and our platform consolidation project expected to be substantially concluded in a year, we are now able to focus our attention on increasing adoption within our existing client base and expanding our list of clients through direct sales, expanded alliances, and tuck-in acquisitions. A key to increasing both adoption and new client acquisition is the delivery of new products and services that enable our customers to pay their bills where, when, and how they want to pay them.  Two of the exciting products that we'll be launching after the first of the year will give our customers unprecedented levels of convenience and ease of use – an electronic bill presentment solution that will enable our clients to deliver interactive ebills with all of the rich functionality that customers have come to expect from their online service providers, and mobile payment apps for the iPad, iPhone, and Android phones and tablets that extend that great online experience to wherever they happen to be when they have a moment to pay a bill."

Financial Guidance
Based on the Company's current expectations of continued operational improvements and initial benefits from its sales and marketing efforts, it is providing the following financial guidance for fiscal 2013:

·
The Company believes that Adjusted EBITDA from continuing operations will be approximately $7.2 million in fiscal year 2013, approximately 50% above fiscal year 2012;

Non-GAAP Financial Measures
Official Payments uses the following non-GAAP financial measures in this press release:  Adjusted EBITDA from continuing operations and Payment Solutions net revenue. We define Adjusted EBITDA from continuing operations as net loss from our continuing operations before interest expense net of interest income, income taxes, depreciation and amortization, restructuring charges and share-based compensation expense. We define Payment Solutions net revenue as Payment Solutions gross revenue less discount fees. Discount fees include interchange fees and other processing-related dues, assessments and fees. Payment Solutions gross revenue is defined as revenue from continuing operations less revenue from VSA operations.

Management believes these measures are useful for evaluating our performance against the performance of peer companies within the electronic payments industry, and that they provide investors with additional transparency on the financial measures used in management's decision-making.  Management believes that Payment Solutions net revenue provides additional information about our business, as we wind-down our VSA operations.  We also use Adjusted EBITDA from continuing operations, together with other criteria, in our executive compensation program. Non-GAAP financial measures should not be considered a substitute for the reported results prepared in accordance with generally accepted accounting principles in the United States, or US GAAP.  Our definitions used to calculate non-GAAP financial measures may differ from those used by other companies.

These measures are reconciled to GAAP financial measures in the tables below:
Page 2 of 6 Pages


Reconciliation of Adjusted EBITDA from continuing operations to net loss from continuing operations:
(in thousands)
  
Q4 Fiscal 2012
    
Q4 Fiscal 2011
    
Change
    
Fiscal 2012
    
Fiscal 2011
    
Change
  
Net loss from continuing operations
  
$
(2,072
)
  
$
(3,606
)
  
$ 
+1,534
    
$
(5,966
)
  
$
(7,432
)
  
$ 
+1,466
  
Adjustments:
                                                
Depreciation/Amortization
    
1,734
      
1,894
      
(160
)
    
7,354
      
7,314
      
+40
  
Share based compensation
    
477
      
305
      
+172
      
1,830
      
(216
)
    
+2,046
  
Restructuring charge
    
—
      
—
      
—
      
1,493
      
—
      
+1,493
  
Taxes
    
49
      
39
      
+10
      
53
      
(100
)
    
+153
  
Interest (income) expense, net
    
1
      
(6
)
    
+7
      
1
      
(82
)
    
+83
  
 
Adjusted EBITDA from continuing operations
  
$
189
    
$
(1,374
)
  
$ 
+1,563
    
$
4,765
    
$
(516
)
  
$ 
+5,281
  

Reconciliation of Payment Solutions net revenue to revenue from continuing operations:
(in thousands, except percentages)
  
Q4 Fiscal 2012
    
Q4 Fiscal 2011
    
Change
    
Fiscal 2012
    
Fiscal 2011
    
Change
  
Revenue from continuing operations
  
$
28,922
    
$
28,491
      
+1.5
%
  
$
135,741
    
$
130,170
      
+4.3
%
  Less: VSA revenue
    
194
      
319
      
(39.2
)%
    
1,335
      
1,526
      
(12.5
)%
Payment Solutions gross revenue
    
28,728
      
28,172
      
+2.0
%
    
134,406
      
128,644
      
+4.5
%
  Less: Discount fees
    
18,052
      
20,463
      
(11.8
)%
    
88,468
      
94,925
      
(6.8
)%
Payment Solutions net revenue
  
$
10,676
    
$
7,709
      
+38.5
%
  
$
45,938
    
$
33,719
      
+36.2
%


About Official Payments Holdings, Inc. (www.OPAY.OfficialPayments.com):
Official Payments provides electronic payment solutions for over 3,000 clients across all 50 states, Puerto Rico and the District of Columbia. During the past year more than 12 million Customers and Constituents of our Clients utilized our services. Official Payments' solutions enable government agencies, educational institutions, utility companies, charitable organizations, and other billers to seamlessly accept secure, convenient payments by credit card, debit card and electronic check via mobile, web (www.OfficialPayments.com), telephone and point of sale.

CONTACT:
Jeff Hodges, CFO
770-325-3102
Investorrelations@officialpayments.com


Forward looking statements
Statements made in this press release that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements relate to future events or Official Payments' future financial and/or operating performance and generally can be identified as such because the context of the statement includes words such as "may," "will," "intends," "plans," "believes," "anticipates," "expects," "estimates," "shows," "predicts," "potential," "continue," or "opportunity," the negative of these words or words of similar import.  Official Payments undertakes no obligation to update any such forward-looking statements.  Each of these statements is made as of the date hereof based only on current information and expectations that are inherently subject to change and involve a number of risks and uncertainties.  Actual events or results may differ materially from those projected in any of such statements due to various factors, including, but not limited to: intense competition in the marketplace; our ability to increase Payment Solutions revenues and reduce operating costs, including discount fees; our ability to execute on our sales, marketing and product development strategy and expand our business including introduction of new services, products, and product enhancements into the marketplace; completion of our infrastructure upgrade and timely consolidation of our payment platforms; maintaining secure systems and protecting against security breaches, loss of privacy/data, and fraud; unanticipated claims as a result of the failure of software providers, processors, vendors, or subcontractors to satisfactorily perform and complete engagements; the renewal,
Page 3 of 6 Pages


extension or early termination of client contracts or projects; and compliance with government regulations and the impact of regulatory requirements.    For a discussion of these and other factors which may cause our actual events or results to differ from those projected, please refer to the sections, "Risk Factors" and "Management Discussion and Analysis of Financial Condition and Results of Operations" in the periodic reports on Form 10-K and Form 10-Q that we file with the Securities and Exchange Commission.




OFFICIAL PAYMENTS HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets


(in thousands, except per share data)
  
September 30,
             2012             (unaudited)
    
September 30,
2011
                          
 
ASSETS:
  
   
 
Current assets:
  
   
 
Cash and cash equivalents
  
$
39,071
    
$
39,760
  
Accounts receivable, net
    
5,304
      
4,467
  
Settlements receivable
    
15,291
      
7,648
  
Prepaid expenses and other current assets
    
1,692
      
2,368
  
Total current assets
    
61,358
      
54,243
  
 
                
Property, equipment and software, net
    
17,368
      
18,189
  
Goodwill
    
17,582
      
17,460
  
Other intangible assets, net
    
1,107
      
4,037
  
Other assets
    
509
      
238
  
Total assets
  
$
97,924
    
$
94,167
  
 
                
LIABILITIES AND SHAREHOLDERS' EQUITY:
                
Current liabilities:
                
Accounts payable
  
$
74
    
$
1,057
  
Settlements payable
    
17,019
      
9,812
  
Accrued compensation liabilities
    
6,373
      
2,721
  
Accrued discount fees
    
5,616
      
4,900
  
Other accrued liabilities
    
2,201
      
3,881
  
Deferred income
    
284
      
439
  
Total current liabilities
    
31,567
      
22,810
  
Other liabilities:
                
Deferred rent
    
67
      
1,556
  
Other liabilities
    
1,103
      
28
  
Total other liabilities
    
1,170
      
1,584
  
Total liabilities
    
32,737
      
24,394
  
 
                
Commitments and contingencies
                
 
                
Shareholders' equity:
                
Preferred stock, no par value; authorized shares:  4,579;
no shares issued and outstanding
    
—
      
—
  
Common stock, $0.01 par value, and paid-in capital; shares authorized: 44,260;
shares issued: 20,817 and 20,817; shares outstanding: 16,642 and 16,642
    
195,126
      
193,732
  
Treasury stock—at cost, 4,175 and 4,175 shares
    
(31,383
)
    
(31,383
)
Accumulated other comprehensive loss
    
—
      
—
  
Accumulated deficit
    
(98,556
)
    
(92,576
)
Total shareholders' equity
    
65,187
      
69,773
  
Total liabilities and shareholders' equity
  
$
97,924
    
$
94,167
  


Page 4 of 6 Pages


OFFICIAL PAYMENTS HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations

 
  
Three months ended
September 30,
    
Year ended
September 30,
  
(in thousands, except per share data)
  
2012
    
2011
    
2012
    
2011
  
 
  
(unaudited)
    
(unaudited)
    
(unaudited)
    
 
Revenues (1)
  
$
28,922
    
$
28,491
    
$
135,741
    
$
130,170
  
 
                                
Costs and expenses:
                                
Direct costs
    
19,676
      
21,866
      
95,373
      
100,764
  
General and administrative
    
7,361
      
6,426
      
30,457
      
22,766
  
Selling and marketing
    
2,173
      
1,878
      
8,468
      
6,940
  
Depreciation and amortization
    
1,734
      
1,894
      
7,354
      
7,314
  
Total costs and expenses
    
30,944
      
32,064
      
141,652
      
137,784
  
 
Loss from continuing operations before other
 income and income taxes
    
(2,022
)
    
(3,573
)
    
(5,911
)
    
(7,614
)
 
                                
Other income:
                                
Interest (expense) income, net
    
(1
)
    
6
      
(1
)
    
82
  
Total other income
    
(1
)
    
6
      
(1
)
    
82
  
 
                                
Loss from continuing operations before income taxes (2)
    
(2,023
)
    
(3,567
)
    
(5,912
)
    
(7,532
)
Income tax provision (benefit)
    
49
      
39
      
54
      
(100
)
 
                                
Loss from continuing operations
    
(2,072
)
    
(3,606
)
    
(5,966
)
    
(7,432
)
(Loss) gain from discontinued operations, net
    
(2
)
    
(7
)
    
(14
)
    
219
  
 
                                
Net loss (2)
  
$
(2,074
)
  
$
(3,613
)
  
$
(5,980
)
  
$
(7,213
)
 
                                
(Loss) gain per share—Basic and diluted:
                                
From continuing operations (2)
  
$
(0.12
)
  
$
(0.21
)
  
$
(0.36
)
  
$
(0.43
)
From discontinued operations
    
—
      
—
      
—
      
0.01
  
Loss per share—Basic and diluted (2)
  
$
(0.12
)
  
$
(0.21
)
  
$
(0.36
)
  
$
(0.42
)
 
                                
Weighted average common shares used in computing:
                                
Basic and diluted loss per share
    
16,642
      
16,951
      
16,642
      
17,112
  

(1)
Reflects revenues from the company's legacy VSA subsidiary which is being wound down of $0.2 million, $0.3 million, $1.3 million and $1.5 million, respectively in the fiscal fourth quarter 2012, the fiscal fourth quarter 2011, fiscal 2012, and fiscal 2011.
(2)
Reflects VSA income from continuing operations before and after taxes of $0.1 million, $0.3 million, $0.5 million and $1.3 million, respectively, in the fiscal fourth quarter 2012, the fiscal fourth quarter 2011, fiscal 2012 and fiscal 2011, amounting to $0.01, $0.02, $0.03 and $0.07 per share, respectively.

Page 5 of 6 Pages



OFFICIAL PAYMENTS HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows

 
  
Year ended September 30,
  
(In thousands)
  
2012
(unaudited)
    
2011
    
2010
  
CASH FLOWS FROM OPERATING ACTIVITIES:
  
   
   
 
Net loss
  
$
(5,980
)
  
$
(7,213
)
  
$
(6,193
)
Less: (Loss) income from discontinued operations, net
    
(14
)
    
219
      
(245
)
Loss from continuing operations, net
    
(5,966
)
    
(7,432
)
    
(5,948
)
Non-cash items included in net loss:
                        
Restructuring costs
    
435
      
178
      
(21
)
Depreciation and amortization
    
7,354
      
7,314
      
6,712
  
Provision for doubtful accounts
    
26
      
363
      
1,304
  
Deferred rent
    
(14
)
    
204
      
388
  
Share-based compensation
    
1,394
      
(217
)
    
1,012
  
Capitalized software impairment loss
    
—
      
268
      
—
  
(Gain) loss on trading investments
    
—
      
—
      
(31
)
Gain on sale of equipment
    
—
      
—
      
(10
)
Other
    
—
      
—
      
1
  
Net effect of changes in assets and liabilities:
                        
Accounts receivable, net
    
(863
)
    
53
      
(1,396
)
Settlement processing assets and obligations, net
    
(436
)
    
(195
)
    
(960
)
Prepaid expenses and other assets
    
405
      
(1,034
)
    
629
  
Accounts payable and accrued liabilities
    
1,763
      
(624
)
    
(196
)
Income taxes receivable
    
—
      
7
      
84
  
Deferred income
    
(155
)
    
(119
)
    
(303
)
Other long term liabilities
    
160
      
(268
)
    
731
  
Cash provided by (used in) operating activities from continuing operations
    
4,103
      
(1,502
)
    
1,996
  
Cash used in operating activities from discontinued operations
    
(14
)
    
(149
)
    
(855
)
Cash  provided by (used in) operating activities
    
4,089
      
(1,651
)
    
1,141
  
CASH FLOWS FROM INVESTING ACTIVITIES:
                        
Purchases of available-for-sale securities
    
—
      
(13,248
)
    
(23,587
)
Sales and maturities of available-for-sale securities
    
—
      
21,826
      
19,886
  
Sales of trading securities
    
—
      
—
      
31,200
  
Restricted investments matured, sold and released from restriction
    
—
      
6,983
      
—
  
Purchase of equipment and software
    
(1,833
)
    
(7,532
)
    
(1,681
)
Capitalized internally developed software
    
(2,789
)
    
(2,749
)
    
(3,563
)
Earn out payments—ChoicePay
    
(122
)
    
(79
)
    
(52
)
Collection of note receivable
    
—
      
—
      
527
  
Proceeds from sale of equipment
    
—
      
—
      
10
  
Cash (used in) provided by investing activities from continuing operations
    
(4,744
)
    
5,201
      
22,740
  
Cash provided by investing activities from discontinued operations
    
—
      
368
      
610
  
Cash (used in) provided by investing activities
    
(4,744
)
    
5,569
      
23,350
  
CASH FLOWS FROM FINANCING ACTIVITIES:
                        
Purchase of company stock
    
—
      
(10,363
)
    
(749
)
Net proceeds from issuance of common stock
    
—
      
482
      
82
  
Capital lease obligations and other financing arrangements
    
(34
)
    
(34
)
    
(36
)
Cash used in financing activities
    
(34
)
    
(9,915
)
    
(703
)
Net (decrease) increase in cash and cash equivalents
    
(689
)
    
(5,997
)
    
23,788
  
Cash and cash equivalents at beginning of period
    
39,760
      
45,757
      
21,969
  
Cash and cash equivalents at end of period
  
$
39,071
    
$
39,760
    
$
45,757
  








Page 6 of 6 Pages

OFFICIAL PAYMENTS HOLDINGS, INC. Reports