Higher One Holdings, Inc. Reports Third Quarter 2013 Financial Results
  • Revenue up 11.5% year-over-year to $57.1 million
  • OneDisburse total sales of 131,000 SSE
  • Over 220,000 SSE and 21 clients signed from Campus Solutions to OneDisburse from close of acquisition through October

NEW HAVEN, Conn.--(BUSINESS WIRE)--Nov. 7, 2013-- Higher One Holdings, Inc.(NYSE:ONE) ("Higher One" or the "Company")reported third quarter 2013 revenue of $57.1 million, as compared to $51.2 million in the third quarter of 2012. Revenue growth was driven by organic growth in our SmartPay and CASHNet suite of payment products, as well as revenue from our acquisitions of the Campus Labs and Campus Solutions businesses.

"I am pleased with our performance this quarter. We continue to see solid progress in our Payment Transaction and Higher Education Revenue, with good contributions from Campus Solutions and outstanding organic growth in SmartPay. This progress has been offset, however, with a decrease in our core Account Revenue due primarily to previously announced changes to our fee schedule," said Mark Volchek, Chief Executive Officer. "Impacting our financials this quarter was an accrual for a proposed settlement agreement on the class action lawsuits against the company. We believe this settlement is in the best interest of the Company and our shareholders and we look forward to a final agreement once all of the appropriate parties have had a chance to approve it."

After accruing $16.3 million for a proposed settlement on the class action lawsuits against the Company, including estimated legal fees, and costs to administer the settlement, the Company reported a third quarter 2013 GAAP net loss of ($5.5) million, compared to GAAP net income of $7.3 million in third quarter 2012. GAAP diluted loss per share was ($0.11) in the quarter, as compared to $0.13 of income in the third quarter of 2012. Non-GAAP adjusted net income, which excludes certain non-recurring or non-cash items, was $6.9 million in the third quarter of 2013, as compared to non-GAAP adjusted net income of $9.3 million in third quarter 2012. Third quarter 2013 non-GAAP adjusted diluted EPS was $0.14, as compared to $0.16 for the same period a year ago. In the third quarter of 2013, non-GAAP adjusted EBITDA was $14.3 million, as compared to $16.7 million in the same period last year.

Total enrollment at higher education clients that have signed an agreement for the OneDisburse service increased to 4.8 million, an increase of approximately 194,000 from 4.6 million at the end of the third quarter of 2012. A decline in enrollment at existing clients had a negative impact of approximately 137,000 on the enrollment count as of September 30, 2013. This enrollment change reflects changes from the Fall 2011 to the Fall 2012 enrollment figures, which were released by IPEDS this quarter. Total enrollment at higher education clients that have signed up for at least one of our OneDisburse, CASHNet, Campus Labs or Campus Solutions modules totals approximately 13 million.

The number of OneAccounts at the end of the third quarter of 2013 was approximately 2.2 million, up 5% from the third quarter of 2012.

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 (800) 295-4740 for domestic listeners and (617) 614-3925 for international listeners. The conference ID number is 57513136. 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) 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 is a leader in higher education, supporting more than 1,600 schools and 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 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 Annual Reports 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 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.

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,

2013 2012 2013 2012
Revenue:
Account revenue $ 33,234 $ 35,660 $ 102,541 $ 112,803
Payment transaction revenue 14,615 8,342 27,402 17,843
Higher education institution revenue 9,008 5,946 23,874 14,597
Other revenue 255 1,279 698 2,678
Revenue 57,112 51,227 154,515 147,921
Cost of revenue 24,999 21,838 65,193 60,303
Gross margin 32,113 29,389 89,322 87,618
Operating expenses:
General and administrative 16,404 11,902 43,069 34,205
Product development 2,822 1,380 7,161 3,371
Sales and marketing 4,884 3,182 12,723 8,995
Litigation settlement and related costs 16,320 - 16,320 -
Merger and acquisition related (326 ) 1,042 (4,791 ) 1,042
Total operating expenses 40,104 17,506 74,482 47,613
Income (loss) from operations (7,991 ) 11,883 14,840 40,005
Interest income 19 23 58 87
Interest expense (857 ) (185 ) (2,252 ) (402 )
Other income 406 77 561 232
Net income (loss) before income taxes (8,423 ) 11,798 13,207 39,922
Income tax expense (benefit) (2,929 ) 4,480 5,340 15,164
Net income (loss) $ (5,494 ) $ 7,318 $ 7,867 $ 24,758
Net income (loss) available to common stockholders:
Basic

$

(5,494 ) $ 7,318 $ 7,867 $ 24,758
Diluted $ (5,494 ) $ 7,318 $ 7,867 $ 24,758
Weighted average shares outstanding:
Basic 46,907,493 54,511,509 46,630,343 54,837,154

Diluted

48,375,584 57,246,289 48,360,447 57,903,692

Net income (loss) available to common stockholders per
common share:

Basic

$

(0.12 )

$

0.13

$

0.17

$

0.45
Diluted

$

(0.11 )

$

0.13

$

0.16

$

0.43

Higher One Holdings, Inc.

Consolidated Balance Sheet

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

September 30,
2013

December 31,
2012

Assets
Current assets:
Cash and cash equivalents $ 11,830 $ 13,031
Investments in marketable securities 247 247
Accounts receivable

10,104

4,860
Income receivable 7,306 7,466
Deferred tax assets 19 37
Prepaid expenses and other current assets 14,139 10,890
Restricted cash 250 2,000
Total current assets

43,895

38,531
Deferred costs 4,188 4,665
Fixed assets, net 52,879 52,686
Intangible assets, net 58,867 38,143
Goodwill

66,548

47,000
Loan receivable related to New Markets Tax Credit financing 7,633 7,633
Other assets 1,066 740
Restricted cash 2,500 1,500
Total assets $ 237,576 $ 190,898
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,122 $ 3,756
Accrued expenses 31,974 12,526
Contingent consideration, current portion - 2,230
Deferred tax liabilities - 356
Deferred revenue 22,014 16,027
Total current liabilities 57,110 34,895
Deferred revenue and other non-current liabilities 2,349 2,517
Loan payable and deferred contribution related to New Markets Tax Credit financing 9,258 9,490
Debt 100,000 80,000
Contingent consideration, non-current portion - 3,520
Deferred tax liabilities 3,982 2,764
Total liabilities 172,699 133,186
Commitments and contingencies
Stockholders' equity:

Common stock, $.001 par value; 200,000,000 shares authorized; 58,914,697 shares issued
and 47,001,671 shares outstanding at September 30, 2013; 58,045,404 shares issued and
46,660,781 shares outstanding at December 31, 2012

60 59
Additional paid-in capital 179,511 174,218

Treasury stock, 11,913,026 and 11,384,623 shares at September 30, 2013 and December
31, 2012, respectively

(137,899 ) (131,903 )
Retained earnings 23,205 15,338
Total stockholders' equity 64,877 57,712
Total liabilities and stockholders' equity $ 237,576 $ 190,898

Higher One Holdings, Inc.

Consolidated Cash Flow Statement

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

Nine months Ended
September 30,

2013 2012
Cash flows from operating activities
Net income $ 7,867 $ 24,758
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,587 7,336
Amortization of deferred finance costs 332 102
Non-cash fair value adjustment of contingent consideration (5,750 ) 310
Stock-based compensation 3,261 3,226
Deferred income taxes 880 (1,755 )
Income tax benefit related to exercise of stock options (796 ) (2,796 )
Other income (232 ) (233 )
Loss on disposal of fixed assets 8 35
Changes in operating assets and liabilities:
Accounts receivable (4,474 ) (2,624 )
Income receivable 160 (3,029 )
Deferred costs (920 ) (703 )
Prepaid expenses and other current assets 51 12,997
Other assets (337 ) (114 )
Accounts payable (634 ) 799
Accrued expenses 20,363 (3,566 )
Deferred revenue 5,819 3,708

Net cash provided by operating activities

36,185 38,451

Cash flows from investing activities

Purchases of available for sale investment securities - (11,230 )
Proceeds from sales of available for sale investment securities - 26,728
Purchases of fixed assets, net of changes in payables of ($153) and ($11,799), respectively (4,563 ) (22,499 )
Cash paid for business acquisitions (47,250 ) (37,280 )
Additions to internal use software (2,237 ) (2,061 )
Amounts received from restricted cash 2,000 -
Deposits to restricted cash (1,250 ) (2,615 )
Proceeds from development related subsidies - 330

Net cash used in investing activities

(53,300 ) (48,627 )

Cash flows from financing activities

Proceeds from line of credit 52,000 30,000
Repayments of line of credit (32,000 ) -
Tax benefit related to exercise of stock options 796 2,796
Proceeds from exercise of stock options 1,114 2,939
Purchases of common stock (5,996 ) (37,600 )
Net cash used in (provided by) financing activities 15,914 (1,865 )
Net change in cash and cash equivalents (1,201 ) (12,041 )
Cash and cash equivalents at beginning of period 13,031 39,085
Cash and cash equivalents at end of period $ 11,830 $ 27,044

Higher One Holdings, Inc.

Unaudited Supplemental Operating Data

(in thousands)

Three Months Ended
September 30, December 31, March 31, June 30, September 30,
2012 2012 2013 2013 2013
OneDisburse SSE (1) 4,589 4,642 4,709 4,798 4,752
y/y growth 16% 11% 9% 7% 4%
Ending OneAccounts (2) 2,083 2,004 2,161 2,165 2,194
y/y growth 3% 0% 2% 14% 5%
(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) 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,
2013 2012 2013 2012
(unaudited)
(in thousands)
Net income (loss) $ (5,494 ) $ 7,318 $ 7,867 $ 24,758
Interest income (19 ) (23 ) (58 ) (87 )
Interest expense 857 185 2,252 402
Income tax expense (2,929 ) 4,480 5,340 15,164
Depreciation and amortization 3,989 2,805 10,587 7,336
EBITDA (3,596 ) 14,765 25,988 47,573
Merger and acquisition related (326 ) 1,042 (4,791 ) 1,042
Litigation settlement and bank partner transition 17,326 - 17,326 -
Stock-based compensation expense 935 901 3,261 3,226
Adjusted EBITDA $ 14,339 $ 16,708 $ 41,784 $ 51,841

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 Nine Months Ended
September 30, September 30,
2013 2012 2013 2012
(unaudited)
(in thousands)
Net income (loss) $ (5,494 ) $ 7,318 $ 7,867 $ 24,758
Merger and acquisition related (326 ) 1,042 (4,791 ) 1,042
Litigation settlement and bank partner transition 17,326 - 17,326 -

Stock-based compensation expense - incentive stock option
grants

473 487 1,458 1,490

Stock-based compensation expense - non-qualified stock
option grants

462 414 1,803 1,736
Amortization of intangible assets 1,806 863 4,427 2,386
Amortization of deferred finance costs 109 34 332 102
Total pre-tax adjustments 19,850 2,840 20,555 6,756
Tax rate 38.5 % 38.2 % 38.5 % 38.2 %
Less: tax adjustment 7,460 899 7,352 2,012
Adjusted net income $ 6,896 $ 9,259 $ 21,070 $ 29,502
Diluted weighted average shares outstanding 48,375,584 57,246,289 48,360,447 57,903,692

Net income (loss) per diluted weighted average shares
outstanding

$ (0.11 ) $ 0.13 $ 0.16 $ 0.43

Adjusted net income per diluted weighted average shares
outstanding

$ 0.14 $ 0.16 $ 0.44 $ 0.51

Source: Higher One Holdings, Inc.

Higher One Holdings, Inc.
Investor Relations:
Kevin LeBlanc, 203-776-7776 x4296
kevin.leblanc@higherone.com
or
Media Relations:
Shoba Lemoine, 203-776-7776 x4503
slemoine@higherone.com


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