Higher One Holdings, Inc. Reports Third Quarter 2015 Financial Results

By: Higher One Holdings, Inc. via Business Wire News Releases

October 27, 2015 at 06:00 AM EDT

Higher One Holdings, Inc. (NYSE:ONE) (“Higher One” or the “Company”), today announced financial results for the third quarter of 2015. The Company reported third quarter 2015 gross revenue of $56.4 million compared to $59.8 million in the third quarter 2014. Non-GAAP adjusted diluted EPS was $0.09, compared to $0.15 for the third quarter of 2014.

Marc Sheinbaum, President and Chief Executive Officer, said, “We experienced continued growth in our Payments business this quarter, as processing volumes grow and we continue to add new business. And while we continue to operate in a challenging environment for Disbursements, our team remains focused on serving our clients.”

Sheinbaum added, “We also announced the sale of our Campus Labs business, which took place on October 14, 2015 and we expect that transaction to close by the end of this November. We acquired the Campus Labs business over three years ago and in that time, have helped that business to grow. But our prevailing experience lies in serving the business offices of colleges and universities. Furthermore, this transaction will allow us to unlock the true value of that asset while simultaneously delivering shareholder value and strengthening our balance sheet.”

GAAP financial results for the third quarter of 2015 compared to the third quarter of 2014:

Gross revenue decreased 6% to $56.4 million in the third quarter of 2015 compared to revenue of $59.8 million for the third quarter of 2014. Net revenue reflects an increase in the allowance for potential customer restitution from $8.75 million to $30.6 million, related to the Federal Reserve and FDIC matters. As a result, net revenue was $21.9 million lower than gross revenue this quarter.
The Company recorded a net loss of $12.7 million for the third quarter of 2015, compared to net income of $4.9 million recorded for the third quarter of 2014. The net loss recorded in the third quarter of 2015 reflects the impact of the allowance for potential customer restitution of $21.9 million. GAAP diluted loss per share was $0.26 for the third quarter of 2015, compared to a GAAP diluted earnings per share of $0.10 for the third quarter of 2014.

Non-GAAP financial results for the third quarter of 2015 compared to the third quarter of 2014:

Non-GAAP adjusted EBITDA was $11.2 million in the third quarter of 2015, compared to $15.0 million in the third quarter of 2014
Non-GAAP adjusted net income was $4.2 million for the third quarter of 2015, compared to $7.0 million for the third quarter of 2014
Non-GAAP adjusted diluted earnings per share was $0.09 for the third quarter of 2015, compared to $0.15 for the third quarter of 2014

In addition to consolidated financial information, the Company is providing select financial information for its three lines of business: Disbursements; Payments; and Data Analytics.

Business-line financial results for the third quarter of 2015 compared to the third quarter of 2014 (in thousands):

Disbursements revenue is comprised of both subscription fees for our Refund Management disbursement service as well as the transaction-based sources of interchange and service fees derived through the OneAccount. The loss from operations in the third quarter of 2015 reflects the impact of the allowance for potential customer restitution of $21.9 million.


Disbursements		2015	2014	% Change
	Gross Revenue	$28,194	$33,202	-15.1%
	Adjusted EBITDA	3,084	7,142	-56.8%
	Income (loss) from Operations	(22,324)	4,434	NM

Payments revenue is derived through our CASHNet and Campus Solutions products and consists of recurring subscription fees as well as transactional fees generated by payment plan enrollments and payment processing convenience fees.


Payments		2015	2014	% Change
	Gross Revenue	$23,789	$22,889	3.9%
	Adjusted EBITDA	6,561	6,317	3.9%
	Income from Operations	3,795	3,566	6.4%

Data Analytics revenue is derived through our Campus Labs products and is comprised mostly of subscription fees, accompanied by smaller one-time support and implementation fees.


Data Analytics		2015	2014	% Change
	Gross Revenue	$4,379	$3,684	18.9%
	Adjusted EBITDA	1,566	1,500	4.4%
	Income from Operations	526	844	-37.7%

Conference Call Information

Higher One will host a conference call at 8:30 a.m. EDT today to discuss third quarter results. The dial in phone number is 866-499-3420 for domestic listeners and 678-562-4219 for international listeners. The conference ID number is 33042978. 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 855-859-2056 for domestic listeners and 404-537-3406 for international listeners. Please use the passcode 33042978 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 each non-GAAP measure to its closest comparable GAAP measure are included in this press release.


Higher One Holdings, Inc. Condensed Consolidated Statements of Operations (In thousands of dollars, except share and per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,
		2015			2014			2015			2014
Revenue:
Account revenue	$	26,654		$	31,468		$	88,523		$	99,475
Payment transaction revenue		19,055			18,197			47,497			42,652
Higher education institution revenue		10,486			9,929			30,891			28,958
Other revenue		167			181			558			723
Gross revenue		56,362			59,775			167,469			171,808
Less: allowance for customer restitution		(21,880	)		-			(21,880	)		(8,750	)
Revenue		34,482			59,775			145,589			163,058
Cost of revenue		27,817			28,182			77,479			76,878
Gross margin		6,665			31,593			68,110			86,180
Operating expenses:
General and administrative		18,098			16,617			54,417			48,343
Product development		2,040			1,555			6,120			5,517
Sales and marketing		4,196			4,577			12,638			13,756
Restructuring charge		334			-			574			-
Total operating expenses		24,668			22,749			73,749			67,616
Income (loss) from operations		(18,003	)		8,844			(5,639	)		18,564
Interest income		23			20			63			73
Interest expense		(1,262	)		(828	)		(3,894	)		(2,443	)
Other income (loss)		77			(198	)		1,357			1,561
Net income (loss) before income taxes		(19,165	)		7,838			(8,113	)		17,755
Income tax expense (benefit)		(6,510	)		2,922			(2,321	)		6,900
Net income (loss)	$	(12,655	)	$	4,916		$	(5,792	)	$	10,855
Net income (loss) available to common stockholders:
Basic	$	(12,655	)	$	4,916		$	(5,792	)	$	10,855
Diluted	$	(12,655	)	$	4,916		$	(5,792	)	$	10,855
Weighted average shares outstanding:
Basic		47,783,217			47,258,495			47,605,164			47,180,830
Diluted		47,783,217			47,710,262			47,605,164			48,104,873

Net income (loss) available to common stockholders per common share:
Basic	$	(0.26	)	$	0.10		$	(0.12	)	$	0.23
Diluted	$	(0.26	)	$	0.10		$	(0.12	)	$	0.23


Higher One Holdings, Inc. Condensed Consolidated Operating Segment Statements of Operations (In thousands of dollars, except share and per share amounts)


	Three Months Ended September 30,							Nine Months Ended September 30,
		2015				2014			2015				2014
Revenue
Disbursements	$	6,314		(1)	$	33,202		$	71,050		(1)	$	95,083		(2)
Payments		23,789				22,889			61,921				57,455
Data Analytics		4,379				3,684			12,618				10,520
Total revenues		34,482				59,775			145,589				163,058

Cost of revenue
Disbursements		15,197				16,059			45,299				46,118
Payments		12,120				11,726			30,748				29,517
Data Analytics		500				397			1,432				1,243
Total cost of revenue		27,817				28,182			77,479				76,878

Gross margin
Disbursements		(8,883	)			17,143			25,751				48,965
Payments		11,669				11,163			31,173				27,938
Data Analytics		3,879				3,287			11,186				9,277
Total gross margin		6,665				31,593			68,110				86,180

Operating expenses
Disbursements		13,441				12,709			40,619				36,999
Payments		7,874				7,597			23,682				23,070
Data Analytics		3,353				2,443			9,448				7,547
Total operating expenses		24,668				22,749			73,749				67,616

Income from operations
Disbursements		(22,324	)			4,434			(14,868	)			11,966
Payments		3,795				3,566			7,491				4,868
Data Analytics		526				844			1,738				1,730
Total income (loss) from operations		(18,003	)			8,844			(5,639	)			18,564
Interest income		23				20			63				73
Interest expense		(1,262	)			(828	)		(3,894	)			(2,443	)
Other income (loss)		77				(198	)		1,357				1,561
Net income (loss) before income taxes	$	(19,165	)		$	7,838		$	(8,113	)		$	17,755

(1) Reflects the impact of the allowance for potential customer restitution of $21.9 million.

(2) Reflects the impact of the allowance for potential customer restitution of $8.75 million.


Higher One Holdings, Inc. Condensed Consolidated Balance Sheets (In thousands of dollars, except share and per share amounts)

	September 30, 2015			December 31, 2014
Assets
Current assets:
Cash and cash equivalents	$	27,785		$	40,022
Investments in marketable securities		251			249
Accounts receivable		12,581			8,929
Income receivable		8,624			9,053
Deferred tax assets		11,338			3,719
Prepaid expenses and other current assets		5,408			7,805
Total current assets		65,987			69,777
Deferred costs		6,133			4,187
Fixed assets, net		43,374			46,768
Intangible assets, net		51,637			56,255
Goodwill		67,403			67,403
Loan receivable related to New Markets Tax Credit financing		7,633			7,633
Other assets		3,092			2,523
Restricted cash		2,728			2,725
Total assets	$	247,987		$	257,271

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2,044		$	3,339
Accrued expenses		50,423			25,872
Deferred revenue		31,930			25,174
Total current liabilities		84,397			54,385
Deferred revenue and other non-current liabilities		4,443			4,019
Loan payable and deferred contribution related to New Markets Tax Credit financing		8,638			8,871
Debt		59,000			94,000
Deferred tax liabilities		961			3,814
Total liabilities		157,439			165,089
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $.001 par value; 200,000,000 shares authorized; 59,893,737 shares issued and 47,980,711 shares outstanding at September 30, 2015; 59,570,839 shares issued and 47,657,813 shares outstanding at December 31, 2014		60			60
Additional paid-in capital		189,746			185,588
Treasury stock, 11,913,026 shares at September 30, 2015 and December 31, 2014		(137,899	)		(137,899	)
Retained earnings		38,641			44,433
Total stockholders’ equity		90,548			92,182
Total liabilities and stockholders’ equity	$	247,987		$	257,271


Higher One Holdings, Inc. Condensed Consolidated Statements of Cash Flows (In thousands of dollars) (unaudited)

	Nine Months Ended September 30,
		2015			2014
Cash flows from operating activities
Net income (loss)	$	(5,792	)	$	10,855
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		16,429			14,124
Amortization of deferred finance costs		1,657			368
Stock-based compensation		4,877			3,426
Deferred income taxes		(11,569	)		810
Income tax benefit related to exercise of stock options		(120	)		(47	)
Other (income) loss		(236	)		42
Loss on disposal of fixed assets		118			90
Changes in operating assets and liabilities:
Accounts receivable		(3,652	)		(3,235	)
Income receivable		429			(5,087	)
Deferred costs		(396	)		(2,103	)
Prepaid expenses and other current assets		2,397			(2,051	)
Other assets		(569	)		(91	)
Accounts payable		(1,295	)		(1,636	)
Accrued expenses		24,245			(1,713	)
Deferred revenue		6,412			7,151
Net cash provided by operating activities		32,935			20,903
Cash flows from investing activities
Purchases of fixed assets		(2,471	)		(2,858	)
Additions to internal use software		(3,699	)		(4,173	)
Amounts received from restricted cash		-			25
Proceeds from disposition of equity method investment		-			3,581
Proceeds from development related subsidies		-			3,468
Net cash provided by (used in) investing activities		(6,170	)		43
Cash flows from financing activities
Proceeds from line of credit		-			15,000
Repayments of line of credit		(35,000	)		(10,000	)
Payment of deferred financing costs		(4,467	)		-
Tax benefit related to exercise of stock options		120			47
Proceeds from exercise of stock options		345			184
Net cash provided by (used in) financing activities		(39,002	)		5,231
Net change in cash and cash equivalents		(12,237	)		26,177
Cash and cash equivalents at beginning of period		40,022			6,268
Cash and cash equivalents at end of period	$	27,785		$	32,445


Higher One Holdings, Inc.
Unaudited Supplemental Operating Data
(In thousands)

	Three Months Ended
	September 30,	December 31,	March 31,	June 30,	September 30,
	2014	2014	2015	2015	2015

Refund Management SSE (1)	5,018	5,078	5,096	5,026	4,918
change from prior year period	6%	2%	0%	-2%	-2%

Ending OneAccounts (2)	2,190	2,135	2,179	2,007	2,038
change from prior year period	0%	-3%	-5%	-4%	-7%

(1)		Refund Management SSE is defined as the number of students enrolled at institutions that have signed contracts to use the Refund Management disbursement service by the end of a given period as of the date the contract is signed (using the most up-to-date Integrated Postsecondary Education Data System data at that point in time). Refund Management SSE for all periods other than September 30, 2015 reflects Fall 2013 provisional enrollment data from IPEDS. The effect of updating Refund Management SSE as of September 30, 2015 resulted in a decrease of approximately 98,000 SSE from the enrollment figures prior to 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,
		2015			2014			2015			2014
	(unaudited)

Net income (loss)	$	(12,655	)	$	4,916		$	(5,792	)	$	10,855
Interest income		(23	)		(20	)		(63	)		(73	)
Interest expense		1,262			828			3,894			2,443
Income tax expense		(6,510	)		2,922			(2,321	)		6,900
Depreciation and amortization		5,563			5,235			16,429			14,123
EBITDA		(12,363	)		13,881			12,147			34,248
Restructuring charge		334			-			574			-
Stock-based compensation expense		1,360			1,078			4,877			3,426
Allowance for customer restitution		21,880			-			21,880			8,750
Campus Solutions settlement received		-			-			-			(1,604	)
Adjusted EBITDA	$	11,211		$	14,959		$	39,478		$	44,820


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,
		2015			2014			2015			2014
	(unaudited)
Net income (loss)	$	(12,655	)	$	4,916		$	(5,792	)	$	10,855

Restructuring charge		334			-			574			-
Release of state tax valuation allowance		-			-			(285	)		-
Allowance for customer restitution		21,880			-			21,880			8,750
Campus Solutions settlement received		-			-			-			(1,604	)
Stock-based compensation expense - incentive stock option grants		205			328			698			1,045
Stock-based compensation expense - non-qualified stock option grants		1,155			750			4,179			2,381
Amortization of acquisition related intangible assets		1,820			1,931			5,459			5,997
Amortization of deferred finance costs		499			123			1,657			368
Total pre-tax adjustments		25,893			3,132			34,162			16,937
Tax rate		35.2	%		38.5	%		36.0	%		38.5	%
Less: tax adjustment		9,047			1,079			12,150			6,118
Adjusted net income	$	4,191		$	6,969		$	16,220		$	21,674

GAAP diluted weighted average shares outstanding		47,783,217			47,710,262			47,605,164			48,104,873
Non-GAAP diluted weighted average shares outstanding		48,027,168			47,710,262			47,932,311			48,104,873
GAAP net income per share (diluted)	$	(0.26	)	$	0.10		$	(0.12	)	$	0.23
Non-GAAP adjusted net income per share (diluted)	$	0.09		$	0.15		$	0.34		$	0.45

View source version on businesswire.com: http://www.businesswire.com/news/home/20151027005623/en/

Contacts:

Higher One Holdings, Inc.
Investor Relations:
Patrick Pearson, 203-776-7776 x4421
ppearson@higherone.com
or
Media Relations:
Shoba Lemoine, 203-776-7776 x4503
slemoine@higherone.com