OFFICIAL PAYMENTS HOLDINGS, INC. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - February 5, 2013

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8-K - FISCAL YEAR 2013 FIRST QUARTER EARNINGS RELEASE - OFFICIAL PAYMENTS HOLDINGS, INC.form8k.htm
Exhibit 99.1




Official Payments Reports Results from First Quarter Fiscal Year 2013 :
Revenue from continuing operations $33.4M for first quarter
Net loss from continuing operations narrowed to ($0.8M) for first quarter

Norcross, GA, February 5, 2013 – Official Payments Holdings, Inc. (Nasdaq: OPAY), a leading provider of electronic payment solutions, reported results today for its fiscal year 2013 first quarter (Q1 '13) . The Company will host a call/webcast today at 5:00 p.m. EDT to review its results:
Conference Call Dial-In:
888-982-4691 Participant code – "OPAY"
Webcast/Replay:
http://investors.officialpayments.com
Replay Dial-In:
888-397-5639
–   10:00 pm ET, Tuesday, Feb. 5, 2013 to
 
 
11:59 pm ET, Monday, Mar. 4, 2013


Q1 FY' 13 Highlights:
Official Payments Holdings, Inc. reported revenue from continuing operations of $33.4 million for Q1 fiscal 2013, a decrease of 4.1% compared to Q1 fiscal 2012. Q1 fiscal 2013 Payment Solutions net revenue, which reflects Payment Solutions revenues less related processing and interchange fees, was $11.3 million compared to $12.0 million in Q1 fiscal 2012. The decrease in revenue and net revenue  was principally due to a change in payment mix. General and administrative and selling and marketing expenses decreased a combined 15.3% versus Q1 FY 12, primarily as a result of a one-time restructuring charge in Q1 FY 12 associated with the relocation of company headquarters to Norcross, Georgia.

Official Payments reported a net loss from continuing operations of $0.8 million, or $0.05 per share, compared to the prior year's net loss from continuing operations of $1.6 million, or $0.10 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 2013, 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 was $1.6 million in Q1 fiscal 2013 compared to $2.2 million in Q1 fiscal 2012.

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.


Cash Position and Use of Cash
Official Payments' year-end cash and cash equivalents increased by approximately $14.2 million from $39.1 million at fiscal year-end 2012 to $53.3 million at December 2012. This balance included $8.8 million of accrued discount fees and $38.4 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 $21.9 million of cash which we received after quarter end as credit card companies and banks settled the transactions outstanding at quarter end.

Management Overview
Alex P. Hart, President and CEO, stated, "We recognize that the key to long-term success is accelerated profitable growth and we're proud to report our 5th consecutive quarter of positive Adjusted EBITDA and improved earnings per share on a year over year basis.  Payment volume increased in the first quarter compared to the previous year and we continue to see an increase in the average payment size.  We're confident that we'll have the platform, product set, and processing capabilities we'll need to facilitate our future growth when we complete our platform consolidation project at the end of the year."
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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:

Reconciliation of Adjusted EBITDA from continuing operations to net loss from continuing operations:


 
  
   
   
 
(in thousands)
    
Q1 2013
      
Q1 2012
    
Change (%)
  
Net loss from continuing operations
  
$
(828
)
  
$
(1,635
)
    
49.4
%
Adjustments:
                        
Depreciation/amortization
    
1,799
      
1,903
      
(5.5
)%
Stock-based compensation
    
677
      
467
      
45.0
%
Restructuring charge
    
—
      
1,456
      
(100.0
)%
Tax (benefit)
    
(7
)
    
—
    
nm
  
Interest (income) expense, net
    
1
      
(1
)
    
200.0
%
Adjusted EBITDA from continuing operations
  
$
1,642
    
$
2,190
      
(30.6
)%
nm - not meaningful
                        

Reconciliation of Payment Solutions net revenue to revenue from continuing operations:
 
  
   
   
 
(in thousands, except percentages)
    
Q1 2013
      
Q1 2012
    
Change (%)
  
Revenue from continuing operations
  
$
33,416
    
$
34,837
      
(4.1
)%
Less:
                        
Non-Payment Solutions revenue
    
134
      
535
      
(75.0
)%
Payment Solutions gross revenue
    
33,282
      
34,302
      
(3.0
)%
Less: Discount fees
    
21,948
      
22,342
      
(1.8
)%
Payment Solutions net revenue
  
$
11,334
    
$
11,960
      
(5.2
)%


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
Page 2 of 6
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, 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.

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OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Balance Sheets


(in thousands, except per share data)
  
December 31,
2012
(unaudited)
    
September 30,
2012
 
  
ASSETS:
  
   
 
Current assets:
  
   
 
Cash and cash equivalents
  
$
53,291
    
$
39,071
  
Accounts receivable, net
    
5,680
      
5,304
  
Settlements receivable
    
21,878
      
15,291
  
Prepaid expenses and other current assets
    
1,726
      
1,692
  
Total current assets
    
82,575
      
61,358
  
 
                
Property, equipment and software, net
    
17,730
      
17,368
  
Goodwill
    
17,642
      
17,582
  
Other intangible assets, net
    
954
      
1,107
  
Other assets
    
466
      
509
  
Total assets
  
$
119,367
    
$
97,924
  
 
                
LIABILITIES AND SHAREHOLDERS' EQUITY:
                
Current liabilities:
                
Accounts payable
  
$
76
    
$
74
  
Settlements payable
    
38,423
      
17,019
  
Accrued compensation liabilities
    
2,530
      
6,373
  
Accrued discount fees
    
8,793
      
5,616
  
Other accrued liabilities
    
2,871
      
2,201
  
Deferred income
    
298
      
284
  
Total current liabilities
    
52,991
      
31,567
  
Other liabilities:
                
Deferred rent
    
57
      
67
  
Other liabilities
    
1,051
      
1,103
  
Total other liabilities
    
1,108
      
1,170
  
Total liabilities
    
54,099
      
32,737
  
 
                
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: 20,885 and 20,817; shares outstanding: 16,710 and 16,642
    
196,035
      
195,126
  
Treasury stock—at cost, 4,175 shares
    
(31,383
)
    
(31,383
)
Accumulated deficit
    
(99,384
)
    
(98,556
)
Total shareholders' equity
  
$
65,268
      
65,187
  
Total liabilities and shareholders' equity
  
$
119,367
    
$
97,924
  

Page 4 of 6
OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Statements of Operations
(unaudited)
 
  
Three months ended
 December 31,
  
(in thousands, except per share data)
  
2012
    
2011
  
Revenues(1)
  
$
33,416
    
$
34,837
  
 
                
Costs and expenses:
                
Direct costs
    
23,501
      
23,876
  
General and administrative
    
6,810
      
9,186
  
Selling and marketing
    
2,140
      
1,508
  
Depreciation and amortization
    
1,799
      
1,903
  
Total costs and expenses
    
34,250
      
36,473
  
Loss from continuing operations before other income and income taxes
    
(834
)
    
(1,636
)
 
                
Other (expense) income:
                
Interest (expense) income, net
    
(1
)
    
1
  
Total other (expense) income
    
(1
)
    
1
  
 
                
Loss from continuing operations before income taxes(2)
    
(835
)
    
(1,635
)
Income tax benefit
    
7
      
—
  
 
                
Loss from continuing operations
    
(828
)
    
(1,635
)
Loss from discontinued operations, net
    
—
      
(8
 ) 
 
                
Net loss
  
$
(828
)
  
$
(1,643
)
 
                
Loss per share—Basic and diluted:
                
From continuing operations
  
$
(0.05
)
  
$
(0.10
)
From discontinued operations
    
—
      
—
  
Loss per share—Basic and diluted
  
$
(0.05
)
  
$
(0.10
)
 
                
Weighted average common shares used in computing:
                
Basic and diluted loss per share
    
16,649
      
16,642
  


(1)
Reflects revenues from the company's legacy VSA subsidiary which is being wound down of $0.1 million and $0.5 million, respectively in Q1 fiscal  2013, and Q1 fiscal 2012.
(2)
Reflects VSA income from continuing operations before and after taxes of $0.1 million and $0.3 million, respectively, in Q1 fiscal 2013 and Q1 fiscal 2012.
.

Page 5 of 6
OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Statements of Cash Flows
(unaudited)

 
  
Three months ended
December 31,
  
(in thousands)
  
2012
    
2011
  
CASH FLOWS FROM OPERATING ACTIVITIES:
  
   
 
Net loss
  
$
(828
)
  
$
(1,643
)
Less: loss from discontinued operations, net
    
—
      
(8
)
Loss from continuing operations, net
    
(828
)
    
(1,635
)
Non-cash items included in net loss:
                
Restructuring costs
    
—
      
1,196
  
Depreciation and amortization
    
1,799
      
1,903
  
Deferred rent
    
(10
)
    
(1
)
Share-based compensation
    
568
      
467
  
Net effect of changes in assets and liabilities:
                
Accounts receivable, net
    
(376
)
    
(1,073
)
Settlement processing assets and obligations, net
    
14,817
      
5,551
  
Prepaid expenses and other assets
    
350
      
192
  
Accounts payable and accrued liabilities
    
11
      
1,947
  
Other long term liabilities
    
14
      
79
  
Deferred income
    
(51
)
    
(71
)
Cash provided by operating activities from continuing operations
    
16,294
      
8,555
  
Cash used in operating activities from discontinued operations
    
—
      
(8
)
Cash provided by operating activities
    
16,294
      
8,547
  
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Capitalized internally developed software
    
(1,272
)
    
(600
)
Purchase of equipment and software
    
(736
)
    
(818
)
Earn out payments—ChoicePay
    
(60
)
    
(30
)
Cash used in investing activities
    
(2,068
)
    
(1,448
)
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Capital lease obligations and other financing arrangements
    
(6
)
    
(8
)
Cash used in financing activities
    
(6
)
    
(8
)
Net increase in cash and cash equivalents
    
14,220
      
7,091
  
Cash and cash equivalents at beginning of period
    
39,071
      
39,760
  
Cash and cash equivalents at end of period
  
$
53,291
    
$
46,851
  




 
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OFFICIAL PAYMENTS HOLDINGS, INC. Reports