UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016.

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-34779

 

HIGHER ONE HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware	26-3025501
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

115 Munson Street

New Haven, CT 06511

(Address of Principal Executive Offices)(Zip Code)

(203) 776-7776

(Registrant's Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, If Changes Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” or “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).

Large accelerated filer	Accelerated filer	x
Non-accelerated filer	Smaller reporting company
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x

 

As of May 4, 2016, there were 48,664,224 shares of common stock, par value $0.001 per share, outstanding.

 

 

HIGHER ONE HOLDINGS, INC. 

INDEX TO REPORT ON FORM 10-Q 

FOR THE THREE MONTHS ENDED MARCH 31, 2016

 

		Page
PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015	2
	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2016	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
PART II – OTHER INFORMATION		22
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
	Signature	32

 

 

 

As used herein, the terms “we,” “us,” “our,” “the Company,” or “Higher One,” unless the context otherwise requires, mean Higher One Holdings, Inc. and its subsidiaries.

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

 

Higher One Holdings, Inc. 

Condensed Consolidated Balance Sheets 

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

(unaudited)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

Higher One Holdings, Inc. 

Condensed Consolidated Statements of Operations 

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

(unaudited)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

Higher One Holdings, Inc. 

Condensed Consolidated Statement of Changes in Stockholders’ Equity 

 (In thousands of dollars, except share amounts) 

(unaudited) 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

Higher One Holdings, Inc. 

Condensed Consolidated Statements of Cash Flows 

 (In thousands of dollars) 

(unaudited)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 

 

 

Higher One Holdings, Inc. 

Notes to Condensed Consolidated Financial Statements

 (unaudited)

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The information contained in this section should be read in conjunction with our audited consolidated financial statements and related notes as included in our annual report on Form 10-K for the year ended December 31, 2015 and information contained elsewhere in such annual report on Form 10-K and in this quarterly report on Form 10-Q. The discussion contains forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995) involving risks, uncertainties and assumptions that could cause our results to differ materially from expectations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “should” and similar expressions are intended to identify forward-looking statements. Factors that might cause these differences include those described under “Risk Factors” and elsewhere in the annual report on Form 10-K and in this quarterly report on Form 10-Q. The forward-looking statements included in this quarterly report on Form 10-Q are made only as of the date of this report. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent events or circumstances, except as required by law. We cannot assure you that projected results will be achieved or that anticipated events will occur.

 

Overview 

 

General

 

Based on market share and the number of campuses using our products and services, we believe we are a leading provider of technology-based payment processing services and refund disbursement to higher education institutions and their students. We also provide campus communities with convenient, cost-competitive and student-oriented banking services, which include extensive user-friendly features.

 

Our products and services for our higher education institution clients include our CASHNet® Payment Processing suite and our Refund Management disbursement service. Through our bank partners, we offer the OneAccount, which includes an FDIC-insured checking account, a debit MasterCard® ATM card and other retail banking services, to the students of our higher education institution clients that use our Refund Management disbursement service.

 

As of March 31, 2016, more than 800 campuses serving approximately 5.0 million students purchased our Refund Management disbursement service. In total, there are more than 1,400 campuses servicing over 8 million students contracted to use at least one of our services. As of December 31, 2015, we also serviced approximately 2.0 million OneAccounts.

 

Data Analytics Business Divestiture

  

On October 14, 2015, we entered into an Asset Purchase Agreement, the Campus Labs Asset Purchase Agreement, with CL NewCo, Inc., an affiliate of Leeds Equity Partners, for the sale of substantially all of the assets of our data analytics business. On November 25, 2015, we completed that sale pursuant to the terms of the Campus Labs Asset Purchase Agreement. Pursuant to the terms of the Campus Labs Asset Purchase Agreement, the parties agreed upon a purchase price of $91.0 million, subject to adjustment to reflect changes in certain working capital items prior to the closing. At the closing, the purchase price was reduced by $4.0 million to reflect estimated closing date net working capital.

 

At the time of closing, (1) we received total cash consideration of approximately $55.2 million, (2) the buyer paid $30 million on our behalf to reduce the amount outstanding under our credit facility, and (3) the buyer deposited $1.9 million into an escrow account for potential indemnification claims and a future working capital adjustment. In April 2016, $0.5 million of the amount in escrow was released to the buyer to resolve the working capital adjustment. The financial results of the data analytics business are reported as discontinued operations for the three months ended March 31, 2016 and 2015.

 

 

Planned Disposition of Disbursements Business

 

On December 15, 2015, we entered into an Asset Purchase Agreement with Customers Bank (“Bank”) and Customers Bancorp, Inc. (“Bancorp”, and together with Bank, “Customers”), under which Customers agreed to purchase substantially all of the assets and assume certain of the liabilities of our Refund Management® disbursement service, including the business of servicing OneAccounts. Customers is one of our current bank partners. The disposition of the disbursements business was approved by our shareholders on April 4, 2016. We expect the disposition of the disbursements business to be completed in the second quarter of 2016. Our revenue, gross margin and earnings are expected to decrease in 2016 after the disposition of the disbursements business. The disbursements business generated 57.9% and 63.7% of our revenue during the three months ended March 31, 2016 and 2015, respectively.

 Department of Education

 

In early 2014, the Department of Education formed a negotiated rulemaking committee to revise existing regulations to potentially address, among other things, consumer safeguards regarding debit and prepaid cards associated with Title IV Cash Management, marketing of financial products by institutions and their preferred banks or contractors, ATM access and availability, revenue sharing arrangements, and the potential for a government-sponsored debit or prepaid card solution. Final rules relating to Title IV Cash Management were published in the Federal Register on October 30, 2015. The Final Rules included, among others, provisions related to (i) restrictions on the ability of higher education institutions and third party servicers like the Company to market financial products to students, including sending unsolicited debit cards to students, (ii) prohibitions on the assessment of certain types of account fees on student accountholders and (iii) requirements related to ATM access for student accountholders, all of which will become effective as of July 1, 2016. Although the complete impact of the Final Rules are unknown, there could be a significant negative impact on the disbursements business, including related to OneAccounts, including reductions in service fees earned on OneAccounts and a decrease in the number of OneAccounts.

 

 

Results of Operations for the Three Months Ended March 31, 2016 and 2015

 

The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of total revenue:

 

		Three Months Ended March 31,
		(unaudited)
		2016				2015				$ Change				% Change				2016% of Revenue				2015% of Revenue
		(in thousands)
Revenue:
Account revenue		$	30,704			$	37,528			$	(6,824	)			(18.2%	)			55.3	%			61.0	%
Payment transaction revenue			18,215				17,324				891				5.1	%			32.8	%			28.2	%
Higher education institution revenue			6,471				6,416				55				0.9	%			11.6	%			10.4	%
Other revenue			161				240				(79	)			(32.9%	)			0.3	%			0.4	%
Revenue			55,551				61,508				(5,957	)			(9.7%	)			100.0	%			100.0	%
Cost of revenue			25,931				27,747				(1,816	)			(6.5%	)			46.7	%			45.1	%
Gross profit			29,620				33,761				(4,141	)			(12.3%	)			53.3	%			54.9	%
Operating expenses:
General and administrative			17,327				17,541				(214	)			(1.2%	)			31.2	%			28.5	%
Product development			1,757				1,405				352				25.1	%			3.2	%			2.3	%
Sales and marketing			2,787				3,267				(480	)			(14.7%	)			5.0	%			5.3	%
Costs related to planned disposal of disbursements business			421				-				421				100.0	%			0.8	%			0.0	%
Total operating expenses			22,292				22,213				79				0.4	%			40.1	%			36.1	%
Income from operations			7,328				11,548				(4,220	)			(36.5%	)			13.2	%			18.8	%
Interest income			20				20				-				0.0	%			0.0	%			0.0	%
Interest expense			(603	)			(1,144	)			541				(47.3%	)			(1.1%	)			(1.9%	)
Other income			77				77				-				0.0	%			0.1	%			0.1	%
Net income before income taxes from continuing operations			6,822				10,501				(3,679	)			(35.0%	)			12.3	%			17.1	%
Income tax expense from continuing operations			3,053				4,335				(1,282	)			(29.6%	)			5.5	%			7.0	%
Income from continuing operations			3,769				6,166				(2,397	)			(38.9%	)			6.8	%			10.0	%
Discontinued operations:
Income from discontinued operations			-				1,027				(1,027	)			(100.0%	)
Loss on disposal			(32	)			-				(32	)			100.0	%
Income tax (expense) benefit			12				(333	)			345				(103.6%	)
Income (loss) from discontinued operations			(20	)			694				(714	)			(102.9%	)
Net income		$	3,749			$	6,860			$	(3,111	)			(45.3%	)			6.7	%			11.2	%

 

 

The following table summarizes our revenue by segment:

 

		Three Months Ended March 31,
		(unaudited)
		2016				2015				$ Change				% Change				% of Revenue				% of Revenue
		(in thousands)
Disbursements		$	32,145			$	39,211			$	(7,066	)			(18.0	%)			57.9	%			63.7	%
Payments			23,406				22,297				1,109				5.0	%			42.1	%			36.3	%
Revenue			55,551				61,508				(5,957	)			(9.7	%)			100.0	%			100.0	%

 

Three Months Ended March 31, 2016 Compared to the Three Months Ended March 31, 2015

 

Revenue

 

Disbursements Revenue

 

The decrease in disbursements revenue during the three months ended March 31, 2016, was primarily due to a decrease in account revenue, as a result of fewer dollars spent from OneAccount holders, which had the effect of reducing both interchange revenue and service fee revenue when compared to the same period in the prior year. There was an approximate 18% decrease in the total dollars deposited into OneAccounts compared to the same period in the prior year, which led to a similar decrease in amounts spent from OneAccounts. The amounts deposited and spent from OneAccounts typically move by similar amounts, but may vary by several percentage points from one reporting period to the next depending on specific deposit and spending behavior. The decrease in dollars deposited into OneAccounts was the result of fewer financial aid refunds being deposited to OneAccounts, as well as a decrease in the amount of non-financial aid deposits made into OneAccounts. We experienced an approximate 8% decrease in amounts deposited to OneAccounts from non-financial aid refund sources. Deposits from non-financial aid refund sources constituted approximately 16% of all deposits made to OneAccounts during the three months ended March 31, 2016, an increase from 15% during the comparable prior year period.

 

The higher education institution revenue earned from our Refund Management services was $1.3 million during the three months ended March 31, 2016, compared to $1.5 million during the three months ended March 31, 2015.

 

Payments Revenue

 

The increase in payments revenue was due to higher payment transaction revenue, primarily due to an increase in the dollar volume of transactions processed through the SmartPay payment module during the three months ended March 31, 2016. The increase in payment transaction volume was primarily due to increases in volume at higher education institution clients that were processing payments during each of the three months ended March 31, 2016 and March 31, 2015. 

 

Higher education institution revenue in the payments line of business was $5.2 million during the three months ended March 31, 2016, compared to $4.9 million during the three months ended March 31, 2015. An increase in higher education institution revenue related to our CASHNet suite offset declines in the Campus Solutions suite.

 

Cost of Revenue

 

During the three months ended March 31, 2016, our gross margin percentage decreased to 53.3% from 54.9%, largely as a result of a decrease in margin associated with our Disbursements business.

 

The cost of revenue associated with our disbursements line of business decreased to $14.6 million during the three months ended March 31, 2016, compared to $16.7 million during the three months ended March 31, 2015. The gross margin percentage for the disbursements line of business was 54.5% and 57.3% during the three months ended March 31, 2016 and 2015, respectively.

 

 

Our cost of revenue to support the payments line of business increased to approximately $11.3 million during the three months ended March 31, 2016, compared to $11.0 million during the three months ended March 31, 2015.  The increase in costs was primarily related to the growth of SmartPay transaction volume described above in “Revenue – Payments Revenue.” The gross margin percentage for the payments line of business was 51.6% and 50.6% during the three months ended March 31, 2016 and 2015, respectively.

 

General and Administrative Expense

 

The decrease in general and administrative expenses is primarily related to decreases in professional service fees during the three months ended March 31, 2016, compared to the three months ended March 31, 2015.

 

Product Development Expense

 

The increase in product development expense is primarily the result of additional product development efforts and resources related to the payments line of business. In part, this increase is the result of a re-allocation of resources that had previously focused on other functions within the company.

 

Sales and Marketing Expense

 

The decrease in sales and marketing expense was due to decreases in both personnel related costs as well as discretionary external marketing costs, including tradeshows.

 

Costs related to planned disposal of disbursements business

 

Our costs related to the planned disposal of the disbursements business represents legal and other professional fees incurred in connection with the our agreement to sell the assets of the disbursements business, including the preparation and review of proxy materials related to the shareholder authorization of the sale of the business.

 

Interest Expense

 

Our interest expense during the three months ended March 31, 2016 decreased compared to the three months ended March 31, 2015, primarily due to a write-off of deferred financing costs in 2015. As a result of an amendment that we entered into in February 2015, the total capacity of our Credit Facility decreased from $200 million to $140 million. As a result of that decrease, we expensed approximately $0.4 million of deferred financing costs. The average interest rate during the three months ended March 31, 2016 was 4.4%, an increase from 3.1% during the three months ended March 31, 2015. The average amount outstanding on our Credit Facility was $29.0 million during the three months ended March 31, 2016, compared to an average of $75.3 million during the three months ended March 31, 2015. The interest expense associated with $30.0 million of the credit facility, or approximately $0.2 million, has been recorded as an expense in discontinued operations during the three months ended March 31, 2015.

 

Income Tax Expense

 

The change in income tax expense was primarily due to the decrease in net income before taxes. The effective tax rates on income from continuing operations for the three months ended March 31, 2016 and 2015 were 44.8% and 41.3%, respectively. The increase in the effective tax rate is the result of a decrease in our estimate of full year income before taxes for 2016, compared to 2015. The estimated full year income before taxes we have utilized does not take into account the expected disposition of the disbursements business in the second quarter of 2016, and as a result, our actual effective tax rate for 2016 may differ materially from our current estimate. The decrease in estimated full year income before taxes results in non-deductible items, including incentive stock compensation expenses and certain disallowed executive compensation expense, having an unfavorable impact on our estimated tax rate for the year.

  

 

Discontinued Operations

 

During the three months ended March 31, 2015, we recognized income from discontinued operations, net of tax of $0.7 million. During the three months ended March 31, 2016, we recorded a loss from discontinued operations as a result of a post-closing working capital adjustment.

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

Our primary sources of liquidity are cash flows from operations and borrowings under our Credit Facility, as defined below.  As of March 31, 2016, we had $35.0 million in cash and cash equivalents and approximately $35.5 million in borrowing capacity available under our Credit Facility. The available capacity under our Credit Facility decreases by $10.0 million as of June 30, 2016 and by an additional $10.0 million as of December 31, 2016. Our primary liquidity requirements are for working capital, capital expenditures, product development expenses and general corporate needs. As of March 31, 2016, we had working capital of $17.0 million.

 

Senior Secured Revolving Credit Facility

 

In October 2012, we entered into a five-year senior secured revolving credit facility, or the Credit Facility.  We have amended the Credit Facility several times since October 2012. The amendments to the Credit Facility modified certain of the financial covenants, decreased the maximum amount available under the Credit Facility and modified other terms of the agreement. As of March 31, 2016, we had $29.0 million in borrowings outstanding, at a weighted average interest rate of 4.4%, under the Credit Facility.  The Credit Facility permits the issuance of letters of credit of up to $20.0 million and swing line loans of up to $10.0 million to fund working capital needs.  Loans drawn under the Credit Facility are payable in a single maturity on October 16, 2017.

 

Each of HOH, HOMI, Real Estate Inc. and Real Estate LLC, or together with HOI, the Loan Obligors, is a guarantor of HOI’s obligations under the Credit Facility.  Loans drawn under the Credit Facility are secured by a perfected first priority security interest in all of the capital stock of HOI and its domestic subsidiaries, and substantially all of each Loan Obligor’s tangible and intangible assets, including intellectual property. We pay a commitment fee of 0.5% on the daily average undrawn portion of revolving commitments under the Credit Facility, which accrues and is payable quarterly in arrears.

 

The Credit Facility contains certain affirmative covenants including covenants to furnish the lenders with financial statements and other financial information and to provide the lenders notice of material events and information regarding collateral.  The Credit Facility also contains certain negative covenants that, among other things, restrict our ability, subject to certain exceptions, to incur additional indebtedness, grant liens on our assets, undergo fundamental changes, make investments, sell assets, make restricted payments, change the nature of our business and engage in transactions with our affiliates.  In addition, the Credit Facility contains certain financial covenants in addition to the covenants described above, including a requirement to maintain a fixed charge coverage ratio of at least 1.25 to 1.00. We were in compliance with each of the applicable affirmative, negative and financial covenants of the Credit Facility as of March 31, 2016. As of March 31, 2016, our trailing twelve month consolidated EBITDA was $39.0 million. Our leverage ratio was 0.7 to 1.0 as of March 31, 2016.

 

 

Cash Flows

 

The following table presents information regarding our cash flows and cash and cash equivalents for the three months ended March 31, 2016 and 2015:

 

		Three Months Ended March 31,
		2016				2015				$ Change
		(unaudited)
		(in thousands)
Net cash provided by (used in):
Operating activities		$	9,033			$	16,169			$	(7,136	)
Investing activities			(885	)			(1,983	)			1,098
Financing activities			8				(39,226	)			39,234
Change in cash and cash equivalents			8,156				(25,040	)			33,196
Cash and cash equivalents, end of period		$	35,024			$	14,982			$	20,042

 

The decrease in net cash provided by operating activities was primarily the result of lower earnings during the three months ended March 31, 2016 and an unfavorable change in working capital balances, including accrued expenses.  During the three months ended March 31, 2015, the change in accrued expenses was a source of cash as a result of the timing of our tax payments, whereas during the three months ended March 31, 2016, the change in accrued expenses was a use of cash as a result of the payment of 2015’s incentive compensation, which exceeded the payment of 2014’s incentive compensation.

 

The decrease in cash used in investing activities relates to the elimination of internal-use software projects related to the data analytics business, which was a use of approximately $0.4 million during the three months ended March 31, 2015, and lower overall capital expenditure requirements during the three months ended March 31, 2016.

  

The change in cash provided by (used in) financing activities primarily relates to the cash used to pay down the balance on our credit facility in connection with the amendment to that credit facility in February 2015 which totaled $39.5 million. 

 

We believe that our cash flows from operations, together with our existing liquidity sources, will be sufficient to fund our operations and anticipated capital expenditures over the next twelve months.

 

Supplemental Financial and Operating Information

 

		Three Months Ended
		March 31,
		2016				2015
		(unaudited)
		(in thousands)
Adjusted EBITDA from continuing operations		$	14,925			$	18,110
Adjusted net income from continuing operations		$	6,580			$	8,689
Number of students enrolled at Refund Management client higher education institutions at end of period			5,038				5,096
Number of OneAccounts at end of period			1,959				2,179

 

 

We define adjusted EBITDA from continuing operations as income from continuing operations before interest, income taxes and depreciation and amortization, or EBITDA from continuing operations, further adjusted to remove the effects of stock-based compensation expense, transaction costs incurred in preparation of the sale of the disbursements business and amounts related to certain legal settlements. Neither EBITDA from continuing operations nor adjusted EBITDA from continuing operations should be considered an alternative to income from continuing operations, operating income or any other measure of financial performance calculated and presented in accordance with GAAP. Our EBITDA from continuing operations and adjusted EBITDA from continuing operations may not be comparable to similarly titled measures of other organizations, because other organizations may not calculate EBITDA from continuing operations and adjusted EBITDA from continuing operations in the same manner as we do.  In addition, adjusted EBITDA from continuing operations may not be identical to the corresponding measure used in our various agreements, in particular our Credit Facility.

 

The following table presents a reconciliation of net income from continuing operations, the most comparable GAAP measure, to EBITDA from continuing operations and adjusted EBITDA from continuing operations for each of the periods indicated:

 

		Three Months Ended March 31,
		2016				2015
		(unaudited)
		(in thousands)
Income from continuing operations		$	3,769			$	6,166
Interest income			(20	)			(20	)
Interest expense			603				1,144
Income tax expense			3,053				4,335
Depreciation and amortization			4,573				4,457
EBITDA from continuing operations			11,978				16,082
Stock-based compensation expense			2,284				2,028
Disbursements transaction costs			421				-
Impact of legal settlements, net			242				-
Adjusted EBITDA from continuing operations		$	14,925			$	18,110

 

The following table presents adjusted EBITDA from continuing operations for each of our three lines of business for each of the periods indicated:

 

 

		Three Months Ended
		March 31,
		2016				2015
		(unaudited)
		(in thousands)
Disbursements		$	8,187			$	12,069
Payments			6,738				6,041
Adjusted EBITDA from continuing operations		$	14,925			$	18,110

 

We define adjusted net income from continuing operations as income from continuing operations, adjusted to eliminate (a) stock-based compensation expense related to incentive stock option grants and (b) after giving effect to tax adjustments, (1) transaction costs incurred in preparation of the sale of the disbursements business, (2) amounts related to certain legal settlements (3) stock-based compensation expense related to non-qualified stock option, restricted and cash-settled stock units, and (4) amortization expenses related to acquisition-related intangible assets and deferred financing costs. Adjusted net income from continuing operations should not be considered as an alternative to income from continuing operations, operating income or any other measure of financial performance calculated and presented in accordance with GAAP. Our adjusted net income from continuing operations may not be comparable to similarly titled measures of other organizations, because other organizations may not calculate adjusted net income from continuing operations in the same manner as we do.

 

 

The following table presents a reconciliation of income from continuing operations, the most comparable GAAP measure, to adjusted net income from continuing operations for each of the periods indicated:

 

 

 

 

		Three Months Ended
		March 31,
		2016				2015
		(unaudited)
		(in thousands)
Income from continuing operations		$	3,769			$	6,166
Disbursements transaction costs			421				-
Impact of legal settlements, net			242				-
Stock-based compensation expense - non-qualified stock option grants and restricted and cash-settled stock units			2,148				1,795
Amortization of acquisition-related intangible assets			1,270				1,270
Amortization of deferred finance costs			270				659
Total pre-tax adjustments			4,351				3,724
Tax rate (a)			38.5	%			38.5	%
Tax adjustment			1,675				1,434
Adjustments, net of tax			2,676				2,290
Stock-based compensation expense - incentive stock option grants			135				233
Total after-tax adjustments			135				233
Adjusted net income from continuing operations		$	6,580			$	8,689

 

(a)           We have tax effected, utilizing an estimated statutory rate, all of the pre-tax adjustments, except for stock-based compensation expense for incentive stock options, which is generally not tax deductible.

 

Contractual Obligations

 

There have been no material changes to our contractual commitments from those disclosed in our annual report on Form 10-K for the year ended December 31, 2015.

 

Off-Balance Sheet Arrangements

 

We are not a party to any material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

 

Critical Accounting Policies

 

The significant accounting policies and basis of preparation of our consolidated financial statements are described in “Note 2 – Significant Accounting Policies” of our notes to consolidated financial statements included in each of our Annual Report on Form 10-K for the year ended December 31, 2015 and in this Quarterly Report on Form 10-Q. Under accounting principles generally accepted in the United States, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities in our financial statements. Actual results could differ materially from those estimates.

 

We believe the judgments, estimates and assumptions associated with the following critical accounting policies have the greatest potential impact on our consolidated financial statements:

 

-	Provision for OneAccount losses	-	Stock-based compensation
-	Goodwill, intangible assets and Operating Segments	-	Income taxes
-	Loss contingencies	-	Revenue

 

For a complete discussion of these critical accounting policies, refer to “Critical Accounting Policies” within “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” included within our annual report on Form 10-K for the year ended December 31, 2015. As of March 31, 2016, there have been no material changes to any of the Critical Accounting Policies described above.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

Our principal market risk relates to interest rate sensitivity, which is the risk that future changes in interest rates will reduce our net income or net assets. Our Credit Facility accrues interest at a rate equal to a base rate plus a margin of 3% or London Interbank Offered Rate plus a margin of 4%. Based upon a sensitivity analysis at April 1, 2016, assuming average outstanding borrowings during the three months ended March 31, 2016 of $29.0 million, a hypothetical 50 basis point increase in interest rates would result in an increase in interest expense of approximately $0.1 million for an annual period.

 

Item 4.

Controls and Procedures

 

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of March 31, 2016. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2016, our disclosure controls and procedures were effective to provide reasonable assurance that information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure, and ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

There has been no change in our internal controls over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonable likely to materially affect, our internal controls over financial reporting.

 

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

The following information supplements and amends our discussion set forth under Part I, Item 3. “Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Refer to “Note 7 – Commitments and Contingencies” to our condensed consolidated financial statements for developments and information related to our legal proceedings.

 

Item 1A.

Risk Factors

 

There have been no material changes to our risk factors from those disclosed in our annual report on Form 10-K for the year ended December 31, 2015, other than the following:

 

We are subject to substantial federal and state governmental regulation that could change and thus force us to make modifications to our business. Compliance with the various complex laws and regulations is costly and time consuming, and failure to comply could have a material adverse effect on our business. Additionally, increased regulatory requirements on our services may increase our costs, which could materially and adversely affect our business, financial condition and results of operations.

 

As a payments processor to higher education institutions we take payment instructions from institutions and their constituents, including students and employees, and gives them to our Bank Partners. Accordingly, we are directly or indirectly subject to a variety of federal and state laws and regulations. Our contracts with most of our higher education institution clients and our Bank Partners require us to comply with applicable laws and regulations, including:

 

●

Title IV of the Higher Education Act of 1965, or Title IV;

●

the Family Educational Rights and Privacy Act of 1975, or FERPA;

●

the Electronic Fund Transfer Act and Regulation E;

●

the USA PATRIOT Act and related anti-money laundering requirements; and

●

certain federal rules regarding safeguarding personal information, including rules implementing the privacy provisions of Gramm-Leach-Bliley Act of 1999, or GLBA.

 

Higher Education Regulations

 

Third-Party Servicer. Because of the services we provide to some institutions with regard to the handling of Title IV funds, we are considered a “third-party servicer” under the Title IV regulations. Those regulations require a third-party servicer annually to submit a compliance audit conducted by outside independent auditors that cover the servicer’s Title IV activities. Each year we submit a “Compliance Attestation Examination of the Title IV Student Financial Assistance Programs” audit to ED, which includes a report by an independent audit firm. This yearly compliance audit submission to ED provides comfort to our higher education institution clients that we are in compliance with the third-party servicer regulations that may apply to us. We also provide this compliance audit report to clients upon request to help them fulfill their compliance audit obligations as Title IV participating institutions.

   

Under ED’s regulations, a third party servicer that contracts with a Title IV institution acts in the nature of a fiduciary in the administration of Title IV programs. Among other requirements, the regulations provide that a third-party servicer is jointly and severally liable with its client institution for any liability to ED arising out of the servicer’s violation of Title IV or its implementing regulations, which could subject us to material fines related to acts or omissions of entities beyond our control. ED is also empowered to limit, suspend or terminate the violating servicer’s eligibility to act as a third-party servicer and to impose significant civil penalties on the violating servicer.

 

Additionally, on behalf of our higher education institution clients, we are required to comply with ED’s cash management regulations regarding payment of financial aid credit balances to students and providing bank accounts to students that may be used for receiving such payments. In the event ED concluded that we had violated Title IV or its implementing regulations and should be subject to one or more of these sanctions, our business and results of operations could be materially and adversely affected. There is limited enforcement and interpretive history of Title IV regulations.

 

In 2012, ED published in the Federal Register a notice of intent to establish a negotiated rulemaking committee to draft proposed regulations designed to prevent fraud through the use of electronic fund transfers to students’ bank accounts, ensure proper use of federal financial aid funds, address the use of debit cards and other banking products for disbursing federal financial aid funds, and improve and streamline campus’ financial aid programs. In 2013, ED announced additional topics for consideration, and in early 2014, formed a negotiated rulemaking committee. The negotiated rulemaking committee concluded its efforts in May 2014 and a consensus was not reached on any proposed regulations. On May 18, 2015, ED published its Notice of Proposed Rulemaking, or NPRM on program integrity and improvement issues. Final rules relating to Title IV Cash Management were published in the Federal Register on October 30, 2015. The Final Rules included, among others, provisions related to (i) restrictions on the ability of higher education institutions and third party servicers like the Company to market financial products to students including sending unsolicited debit cards to students, (ii) prohibitions on the assessment of certain types of account fees on student accountholders and (iii) requirements related to ATM access for student accountholders that would become effective as of July 1, 2016. Although the complete impact of the Final Rules are unknown, there could be a significant negative impact on the disbursement business, including related to OneAccounts.

 

 

 In connection with the new requirements under the Title IV regulations related to ATM access, in the second quarter 2016 we moved away from ATMs owned by Higher One to a nationwide ATM network which provides our OneAccount accountholders surcharge-free access to 55,000 ATMs worldwide. Given the potential significance of this change, there could be a negative impact on our accountholder and higher education institution client relationships and, in turn, the disbursement business, including the OneAccounts.

 

FERPA. Our higher education institution clients are subject to FERPA, which provides, with certain exceptions, that an educational institution that receives any federal funding under a program administered by ED may not have a policy or practice of disclosing education records or “personally identifiable information” from education records, other than directory information, to third parties without the student’s or parent’s written consent. Our higher education institution clients that use the Refund Managements disbursement services disclose to us certain non-directory information concerning their students, including contact information, student identification numbers and the amount of students’ credit balances. Additionally, our higher education institution clients that use Campus Labs® products also share personally identifiable information with us. We believe that our higher education institution clients may disclose this information to us without the students’ or their parents’ consent pursuant to one or more exceptions under FERPA. However, if ED asserts that we do not fall into one of these exceptions or if future changes to legislation or regulations require student consent before our higher education institution clients can disclose this information to us, a sizeable number of students may cease using our products and services, which could materially and adversely affect our business, financial condition and results of operations.

 

Additionally, as we are indirectly subject to FERPA, we may not permit the transfer of any personally identifiable information to another party other than in a manner in which a higher education institution may disclose it. In the event that we re-disclose student information in violation of this requirement, FERPA requires our clients to suspend our access to any such information for a period of five years. Any such suspension could have a material adverse effect on our business, financial condition and results of operations

  

State Laws. We may also be subject to similar state laws and regulations, including those that restrict higher education institutions from disclosing certain personally identifiable information of students. State attorneys general and other enforcement agencies may monitor our compliance with state and federal laws and regulations that affect our business, including those pertaining to higher education and banking, and conduct investigations of our business that are time consuming and expensive and could result in fines and penalties that have a material adverse effect on our business, financial condition and results of operations. In July 2014, we received a civil investigative demand from the Office of the Attorney General of the Commonwealth of Massachusetts pursuant to the Commonwealth's Consumer Protection Act. The Massachusetts Attorney General has informed us that its investigation relates to our debt collection practices. We provided the information requested by the civil investigative demand, which included information and records about our company and certain of our business practices, particularly as they relate to Massachusetts residents, institutions of higher education located in Massachusetts, and students who attended those institutions. We cannot predict whether we will become subject to any action by the Massachusetts Attorney General or any other state agencies.

 

Additionally, individual state legislatures may propose and enact new laws that restrict or otherwise affect our ability to offer our products and services as we currently do, which could have a material adverse effect on our business, financial condition and results of operations. For example, legislation has been introduced in the State of Oregon which may further regulate the disbursement of financial aid refunds and associated financial products and services.

 

 

Regulation of OneAccounts

 

Anti-Money Laundering; USA PATRIOT ACT; Office of Foreign Assets Control. Our Bank Partners are insured depository institutions and funds held by them are insured by the FDIC up to applicable limits. As insured depository institutions, our Bank Partners are subject to comprehensive government regulation and supervision and, in the course of making their services available to our customers, we are required to assist our bank partners in complying with certain of their regulatory obligations. In particular, the anti-money laundering provisions of the USA PATRIOT Act require that customer identifying information be obtained and verified whenever a checking account is established. For example, because we facilitate the opening of checking accounts at our Bank Partners on behalf of our customers, we assist our bank partners in collecting the customer identification information that is necessary to open an account. In addition, both we and our Bank Partners are subject to the laws and regulations enforced by the Office of Foreign Assets Control, or OFAC, which prohibit U.S. persons from engaging in transactions with certain prohibited persons. Our failure to comply with any of these laws or regulators could materially and adversely affect our business, financial position and results of operations.

 

Compliance; Audit. As a service provider to insured depository institutions, we are required under applicable federal and state laws to submit to examination by our Bank Partners’ regulators. We also are subject to audit by our Bank Partners to ensure that we comply with our obligations to them appropriately. Failure to comply with our responsibilities properly could negatively affect our operations. Our Bank Partners are required under our respective agreements to comply with state and federal banking regulations. The failure of our bank partners to maintain regulatory compliance could result in significant disruptions to our business and have a material adverse effect on our business, financial condition and results of operations.

 

Electronic Fund Transfer Act; Regulation E. Our Bank Partners provide depository services for OneAccounts through a private label relationship. We provide processing services for OneAccounts for our Bank Partners. These services are subject to, among other things, the requirements of the Electronic Fund Transfer Act and the CFPB’s Regulation E, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of ATMs, debit cards and certain other electronic banking services. We may assist our bank partners with fulfilling their compliance obligations pursuant to these requirements. See “Fees for financial services are subject to increasingly intense legislative and regulatory scrutiny, which could have a material adverse effect on our business, financial condition, results of operations and prospects for future growth” in our Annual Report on Form 10-K for the year ended December 31, 2015for additional discussion. Failure to comply with applicable regulations could materially and adversely affect our business, financial condition and results of operations.

 

 Money Transmitter Regulations. Our products and services are occasionally reviewed by regulatory agencies to ensure that we do not impermissibly engage in activities that require licensing at the state or federal level. In the ordinary course of business, we receive letters and inquiries concerning the nature of our business as it applies to state “money transmitter” licensing and regulations from different state regulatory agencies. In light of the increasing importance of the payments business to the overall finances of the Company as well as the impending sale of the disbursements business, we are currently analyzing the “money transmitter” licensing requirements and regulations at both the state and federal level with respect to our payments products. If it were to be determined that we are required to be licensed as a “money transmitter,” we may need to undergo a costly licensing process, and failure to comply could be a violation of state and potentially federal law. Failure to comply with applicable regulations could materially and adversely affect our business, financial condition and results of operations.

 

Privacy and Data Regulation

 

We are subject to laws and regulations relating to the collection, use, retention, security and transfer of personally identifiable information and data regarding our customers and their financial information. In addition, we are bound by our own privacy policies and practices concerning the collection, use and disclosure of user data, which are posted on our website.

 

In conjunction with the disbursement, payroll and tuition payment services we make available through our Bank Partners, we collect certain information from our customers (such as bank account and routing numbers) to transmit to our bank partners. Our bank partners use this information to execute the funds transfers requested by our customers, which are effected primarily by means of ACH networks and other wire transfer systems, such as FedWire. To the extent the data required by these electronic funds networks change, the information that we will be required to request from our clients may also change.

 

 

We are subject, either directly or by virtue of our contractual relationship with our bank partners, to the privacy and security standards of the GLBA privacy regulations, as well as certain state data protection laws and regulations. The GLBA privacy regulations require that we develop, implement and maintain a written comprehensive information security program prescribing safeguards that are appropriate to our size and complexity, the nature and scope of our activities and the sensitivity of any personally identifiable information we access for processing purposes or otherwise maintain. As a service provider of our bank partners, we also are limited in our use and disclosure of the personal information we receive from our bank partners, which we may use and disclose only for the purposes for which it was provided to us and consistent with the bank’s own data privacy and security obligations. We also are subject to the standards set forth in guidance on data security issued by the Federal Financial Institution Examination Council, as well as the data security standards imposed by the card associations, including Visa, Inc., and MasterCard. In addition, we are subject to similar data security breach laws enacted by a number of states.

 

Any failure or perceived failure by us to comply with any legal or regulatory requirements or orders or other federal or state privacy or consumer protection-related laws and regulations, or with our own privacy policies, could result in fines, sanctions, litigation, negative publicity, limitation of our ability to conduct our business and injury to our reputation, any of which could materially and adversely affect our business, financial condition and results of operations.

 

New legislation and regulations in this area have been proposed, both at the federal and state level. Such measures, including pending Federal legislation, would potentially impose additional obligations on us, including requiring that we provide notifications to consumers and government authorities in the event of a data breach or unauthorized access or disclosure, beyond what state law already requires. These laws and regulations could cause us to incur substantial costs or require us to change our business practices any of which could materially and adversely affect our business, financial condition and results of our operations

  

Compliance

 

We monitor our compliance through (i) an internal audit program, led by our vice president of internal audit, (ii) our compliance management system, led by our chief compliance officer and (iii) a risk management program, led by our chief risk officer. Our internal audit team works with a third-party internal audit firm to conduct annual reviews to ensure compliance with the regulatory requirements described above. The costs of these audits and the costs of complying with the applicable regulatory requirements are significant. Increased regulatory requirements on our products and services, such as in connection with the matters described above, could materially increase our costs or reduce revenue.

 

It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. The imposition of any new laws or regulations could make compliance more difficult and expensive and affect the manner in which we conduct business. In addition, many of these laws and regulations are evolving, unclear and inconsistent across various jurisdictions. If we were deemed to be in violation of any laws or regulations that are currently in place or that may be promulgated in the future, including those described above, we could be exposed to financial liability and negative publicity or forced to change our business practices or stop offering some of our products and services. We also could face significant legal fees, delays in extending our product and services offerings and damage to our reputation that could harm our business and reduce demand for our products and services. Even if we are not required to change our business practices, we could be required to obtain licenses or regulatory approvals that could cause us to incur substantial legal fees, costs and delays.

 

 

We rely on our Bank Partners for certain banking services, and a change in the relationships, or difficulties implementing our program, with our Bank Partners or their failure to comply with certain banking regulations could materially and adversely affect our business.

 

As the provider of FDIC-insured depository services for all OneAccounts, as well as other banking functions, our bank partners provide third-party services that are critical to our student-oriented banking services. Within the past few years, we have experienced turnover with respect to our bank partners, which presents certain risks and uncertainties. For example, on February 8, 2013, we agreed to a mutual termination with Cole Taylor of our Deposit Processing Services Agreement to be effective August 30, 2013. On July 11, 2013, we entered into an agreement with Customers Bank under which it currently provides deposit services as a bank partner. In connection with transitioning bank partners, we made certain changes to our practices and operations, and could be required to make further changes in the future. Should we encounter any difficulties in on-boarding, retaining or transitioning bank partners, we may not be able to continue offering the OneAccount in the same manner as we do now, which could have a material adverse effect on our business, financial condition and results of operations. Further, in the future, if we are not able to transition the functions performed by our then current bank partners to another financial institution, or, to the extent necessary, replace a current bank partner, we may not be able to continue offering the OneAccount in the same manner as we do now, which could have a material adverse effect on our business, financial condition and results of operations. Additionally, if any material adverse event were to affect any of our bank partners or future bank partners, including, a significant decline in financial condition, a decline in the quality of service, loss of deposits, a change in deposit classification related to the OneAccounts, inability to comply with applicable banking and financial service regulatory requirements, systems failure or inability to pay us fees, our business, financial condition and results of operations could be materially and adversely affected. There is also a risk that the terms of our services agreement with future bank partners may not be as favorable to us as our current agreements. The aggregate impact of any of these risks could have a material adverse effect on our business, financial condition and results of operations.

 

We depend on key members of management and the loss of their services could have a material adverse effect on our business.

 

We have historically depended on the efforts, skill and reputations of our senior executive team, including Marc Sheinbaum (Chief Executive Officer and President) Casey McGuane (Chief Operating Officer), Robert Reach (Chief Sales Officer) and Christopher Wolf (Chief Financial Officer). We do not currently maintain key person life insurance policies with respect to our executive officers. None of our executive officers have entered into employment agreements with us that would prevent them from terminating their involvement with us at any time and/or pursuing other opportunities. The loss of any of our executive officers or other members of management could have a material adverse effect on our ability to manage our company, growth prospects, business, financial condition and results of operations. In addition, our success also depends on our ability to continue to attract, manage, and retain other qualified management, as well as technical and operational personnel. We may not be able to continue to attract and retain such personnel in the future, which could adversely impact our business.

 

Pursuant to the Disbursements Asset Purchase Agreement, Mr. McGuane will be offered employment by the Buyer or one of its affiliates as of the closing date of the transaction contemplated thereby. We may not be able to attract or retain a qualified successor, which could adversely impact our business.

 

We outsource critical operations, which exposes us to risks related to our third-party vendors, and we have begun to in-source certain technology functions, which exposes us to other risks.

 

We have entered into contracts with third-party vendors to provide critical services, technology and software in our operations. These outsourcing partners include: Fiserv, which provides back-end account and transaction data processing for OneAccounts; MasterCard, which provides the payment network for our debit MasterCard ATM cards, as well as for certain other transactions; and BMO Harris and Global Payments, which provide transaction processing and banking services for payment processing related to the SmartPay feature of our ePayment service, Ubiquity Global Services, which provides live-agent, chat and IVR services for the disbursements business, including the OneAccount and ATM National, LLC. doing business as Allpoint, which provides our OneAccount cardholders access to a nationwide ATM network. In the event that these service providers fail to maintain adequate levels of support, do not provide high quality service, discontinue their lines of business, terminate our contractual arrangements or cease or reduce operations, we may be required to pursue new third-party relationships, which could materially disrupt our operations and our ability to provide our products and services, and could divert management’s time and resources. Replacement technology or services provided by replacement third-party vendors could be more expensive than those we have currently, while the process of transitioning services and data from one provider to another can be complicated and time consuming. If we are unable to complete a transition to a new provider on a timely basis, or at all, we could be forced to temporarily or permanently discontinue certain services, which could disrupt services to our customers and materially and adversely affect our business, financial condition and results of operations. We may be unable to establish comparable new third-party relationships on as favorable terms or at all, which could materially and adversely affect our business, financial condition and results of operations. With respect to the technology and operational support functions that we have in-sourced to date or that we seek to in-source, we may encounter difficulty or delays in developing and supporting an appropriate infrastructure to be able to perform these functions ourselves. We may also not realize the full value of our investments in these projects.

 

 

The transaction contemplated by the Disbursements Asset Purchase Agreement may not be completed or may be delayed if the conditions to closing are not satisfied or waived.

 

The transaction contemplated by the Disbursements Asset Purchase Agreement may not be completed or may be delayed because the conditions to closing, including consents from certain third parties, may not be satisfied or waived. If the transaction contemplated by the Disbursements Asset Purchase Agreement is not completed, we may have difficulty recouping the costs incurred in connection with negotiating the transaction contemplated by the Disbursements Asset Purchase Agreement, our relationships with our clients, customers, suppliers and employees may be damaged, and our business may be harmed.

 

If the transaction contemplated by the Disbursements Asset Purchase Agreement is consummated, we will be reliant on Bank to provide certain transition services to us.

 

Pursuant to the terms of a Transition Services Agreement between HOI and Bank, following the consummation of the transaction contemplated by the Disbursements Asset Purchase Agreement, Bank will provide certain transition services to us for a period that may extend as late as June 30, 2017. These services will include specified banking operations, litigation and regulatory support services, information technology, finance and client operations services as will be set forth in an annex to the Transition Services Agreement. If Bank fails to provide these services as required by the Transition Services Agreement, we would be required to perform these services ourselves or attempt to find another third-party service provider to do so. We may be unable to perform these services ourselves or find another third-party service provider to do so, or not on the same terms as provided in the Transition Services Agreement, which could adversely impact our business.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

Item 5.

Other Information

 

On May 6, 2016, Higher One Holdings, Inc. (the “Company”) entered into identical severance agreements (the “Severance Agreements”) with Marc Sheinbaum, Chief Executive Officer of the Company; Christopher Wolf, Chief Financial Officer of the Company; Robert Reach, Chief Sales Officer of the Company; and Thomas Kavanaugh, General Counsel of the Company (each such individual, an “Executive”). The Severance Agreements reflect the terms of the Company Executive Severance Policy, effective August 6, 2015 (previously disclosed in the Company Form 10-Q filed on August 7, 2015), other than with respect to the termination of an Executive’s employment in connection with an asset sale and with one adjustment to the calculation and timing of annual bonus payments for the year of termination in connection with a change in control or a liquidation of the Company. As set forth in and subject to the terms of the Severance Agreements, an Executive terminated in connection in with a change in control or a liquidation of the Company will receive a pro rata portion of his target bonus amount as soon as practicable following the triggering event. The Severance Agreements provide for offsets in the event of conflict with other severance plans, agreements or policies of the Company including, but not limited to, Mr. Sheinbaum’s employment agreement.

 

The foregoing summary does not constitute a complete summary of the terms of the Severance Agreements, and reference is made to the complete text of the form of Severance Agreement that is attached hereto as Exhibit 10.1. The form of Severance Agreement is incorporated herein by reference.

 

 

Item 6.

Exhibits

 

Exhibit
Number		Description
10.1	*	Form of Severance Agreement
31.1	*	Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
31.2	*	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.1	*(1)	Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2	*(1)	Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101.INS	*(2)	XBRL Instance Document
101.SCH	*(2)	XBRL Taxonomy Extension Schema
101.CAL	*(2)	XBRL Taxonomy Calculation Linkbase
101.DEF	*(2)	XBRL Taxonomy Extension Definition Linkbase
101.LAB	*(2)	XBRL Taxonomy Extension Label Linkbase
101.PRE	*(2)	XBRL Taxonomy Extension Presentation Linkbase

 

*	Filed herewith

 

(1)

The material contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

 

(2)

Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: May 6, 2016

 

 

Higher One Holdings, Inc.
/s/ Christopher Wolf
Christopher Wolf
Executive Vice President and Chief Financial Officer (Duly authorized officer and principal financial officer)

 

 

32