Higher One 8-K Higher One Holdings, Inc. Reports Fourth Quarter and Full Year 2013 Financial Results

Higher One Holdings, Inc. Reports Fourth Quarter and Full Year 2013 Financial Results

• Fourth quarter revenue up 13.7% year-over-year to $56.6 million  

• OneDisburse total sales of 256,000 Signed School Enrollment (SSE) in fourth quarter  

• Over 392,000 SSE and 31 clients signed from Campus Solutions to OneDisburse since acquisition  

New Haven, CT, February 13, 2014 – Higher One Holdings, Inc.(NYSE: ONE) (“Higher One” or the “Company”), today announced financial results for the fourth quarter and full year 2013.  The Company reported fourth quarter 2013 revenue of $56.6 million, an increase of 13.7% from $49.8 million reported in the fourth quarter of 2012. Full year 2013 revenue came in at $211.1 million, as compared to $197.7 million in 2012. Revenue growth was driven by organic growth in the SmartPay and CASHNet® suite of payment products, as well as revenue from the acquisition of Campus Solutions.

Mark Volchek, Chief Executive Officer, said, “I am pleased with the strides we have made in the past quarter, as well as in the full year of 2013.  Our revenue continues to show year-over-year growth, aided by a combination of organic growth and contribution from the Campus Solutions acquisition. Our OneDisburse sales continued at an impressive pace by adding over 256,000 new SSE in the quarter and 547,000 SSE for the full year. We are seeing further growth in non-refund deposits. We believe that these factors as well as the investments we are making into the business are positioning the company for long-term growth.”

Volchek added, ‘We continue to operate in a difficult and complex operating environment due in part to our relationships with multiple bank partners that are overseen by different regulators. On a related note, the Department of Education has established a negotiated rulemaking committee that will convene next week and I am pleased to announce that Casey McGuane, our Chief Operating Officer, has been selected as a primary negotiator to the rulemaking committee on behalf of third-party servicers.”

Non-GAAP adjusted net income, which excludes certain non-recurring or non-cash items, was $8.1 million in fourth quarter 2013, which compares to non-GAAP adjusted net income of $9.2 million in fourth quarter 2012. Fourth quarter 2013 non-GAAP adjusted diluted EPS was $0.17, as compared to $0.17 for the same period a year ago. In the fourth quarter of 2013, non-GAAP adjusted EBITDA was $16.0 million, as compared to $16.4 million last year. Non-GAAP adjusted diluted EPS was $0.60 for the year.  Non-GAAP adjusted EBITDA was $57.8 million for 2013. The Company reported fourth quarter 2013 GAAP net income of $6.3 million compared to GAAP net income of $12.1 million in fourth quarter 2012. GAAP diluted EPS was $0.13 in the quarter, as compared to $0.22 in the fourth quarter of 2012. GAAP diluted EPS was $0.29 for 2013, which compares to $0.65 in 2012.

Total enrollment at higher education clients that have signed an agreement for OneDisburse services increased to 5.0 million, an increase of approximately 358,000 from 4.6 million at the end of the fourth quarter of 2012. 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 fourth quarter of 2013 was approximately 2.2 million, up 9% from the fourth quarter of 2012.

Conference Call Information

Higher One will host a conference call at 8:30 a.m. ET today to discuss fourth quarter results. The dial in phone number is (877) 415-3183 for domestic listeners and (857) 244-7326 for international listeners. The conference ID number is 81320870. 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.

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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 1,900 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 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 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.

Contacts

Investor Relations:	Kevin LeBlanc, 203-776-7776 x4296, kevin.leblanc@higherone.com
Media Relations:	Shoba Lemoine, 203-776-7776 x 4503, slemoine@higherone.com

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Higher One Holdings, Inc.

Consolidated Income Statement

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

	Three Months						Year Ended
	Ended December 31,						December 31,
	2013			2012			2013			2012
Revenue:
Account revenue	$	33,306		$	37,912		$	135,847		$	150,715
Payment transaction revenue		13,707			5,325			41,109			23,168
Higher education institution revenue		9,281			6,419			33,155			21,016
Other revenue		314			143			1,012			2,821
Revenue		56,608			49,799			211,123			197,720
Cost of revenue		23,631			19,977			88,824			80,280
Gross margin		32,977			29,822			122,299			117,440
Operating expenses:
General and administrative		15,486			12,116			58,555			46,321
Product development		2,144			1,850			9,305			5,221
Sales and marketing		4,335			3,289			17,058			12,284
Litigation settlement		-			-			16,320			-
Merger and acquisition related expenses		-			(6,870	)		(4,791	)		(5,828	)
Total operating expenses		21,965			10,385			96,447			57,998
Income from operations		11,012			19,437			25,852			59,442
Interest income		30			22			88			109
Interest expense		(830	)		(565	)		(3,082	)		(967	)
Other income		61			78			622			310
Net income before income taxes		10,273			18,972			23,480			58,894
Income tax expense		4,012			6,860			9,352			22,024
Net income	$	6,261		$	12,112		$	14,128		$	36,870
Net income available to common stockholders:
Basic	$	6,261		$	12,112		$	14,128		$	36,870
Diluted	$	6,261		$	12,112		$	14,128		$	36,870
Weighted average shares outstanding
Basic		46,975,571			50,998,605			46,717,359			53,877,879
Diluted		48,391,409			54,056,539			48,368,365			56,728,807
Net income available to common stockholders per common share:
Basic	$	0.13		$	0.24		$	0.30		$	0.68
Diluted	$	0.13		$	0.22		$	0.29		$	0.65

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Higher One Holdings, Inc.

Consolidated Balance Sheet

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

	December 31,
	2013			2012
Assets
Current assets:
Cash and cash equivalents	$	6,268		$	13,031
Investments in marketable securities		247			247
Accounts receivable		8,747			4,860
Income receivable		6,680			7,466
Deferred tax assets		5,895			37
Prepaid expenses and other current assets		10,890			10,890
Restricted cash		250			2,000
Total current assets		38,977			38,531
Deferred costs		4,373			4,665
Fixed assets, net		49,888			52,686
Intangible assets, net		57,524			38,143
Goodwill		66,548			47,000
Loan receivable related to New Markets Tax Credit financing		7,633			7,633
Other assets		4,940			740
Restricted cash		2,500			1,500
Total assets	$	232,383		$	190,898
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,787		$	3,756
Accrued expenses		30,322			12,526
Contingent consideration, current portion		-			2,230
Deferred tax liabilities		-			356
Deferred revenue		22,392			16,027
Total current liabilities		56,501			34,895
Deferred revenue and other non-current liabilities		2,342			2,517
Loan payable and deferred contribution related to New Markets Tax Credit financing		9,181			9,490
Debt		89,000			80,000
Contingent consideration, non-current portion		-			3,520
Deferred tax liabilities		2,393			2,764
Total liabilities		159,417			133,186
Stockholders' equity:
Common stock, $.001 par value; 200,000,000 shares authorized; 59,028,810 shares issued and 47,115,784 shares outstanding at December 31, 2013; 58,045,404 shares issued and 46,660,781 shares outstanding at December 31, 2012		60			59
Additional paid-in capital		181,339			174,218
Treasury stock, 11,913,026 and 11,384,623 shares at December 31, 2013 and 2012, respectively		(137,899	)		(131,903	)
Retained earnings		29,466			15,338
Total stockholders' equity		72,966			57,712
Total liabilities and stockholders' equity	$	232,383		$	190,898

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Higher One Holdings, Inc.

Consolidated Cash Flow Statement

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

	Year Ended
	December 31,
	2013			2012
Cash flows from operating activities
Net income	$	14,128		$	36,870
Adjustments to reconcile net income to net cash  provided by operating activities:
Depreciation and amortization		14,620			10,250
Amortization of deferred finance costs		452			213
Non-cash fair value adjustment of contingent consideration		(5,750	)		(7,250	)
Stock-based compensation		4,144			4,093
Deferred income taxes		(6,587	)		1,856
Income tax benefit related to exercise of stock options		(1,512	)		(4,655	)
Other income		(309	)		(313	)
Loss on disposal of fixed assets		28			44
Changes in operating assets and liabilities:
Accounts receivable		(3,117	)		1,220
Income receivable		786			(1,505	)
Deferred costs		(1,392	)		(903	)
Prepaid expenses and other current assets		6,768			13,262
Other assets		(355	)		(267	)
Accounts payable		31			757
Accrued expenses		19,384			(3,256	)
Deferred revenue		6,190			3,181
Net cash provided by operating activities		47,509			53,597
Cash flows from investing activities
Purchases of available for sale investment securities		-			(11,230	)
Proceeds from sales and maturities of available for sale investment securities		-			26,728
Purchases of fixed assets, net of changes in payables of ($163) and ($11,799), respectively		(6,761	)		(23,495	)
Cash paid for businesses acquired		(47,250	)		(37,280	)
Additions to internal use software		(2,725	)		(2,854	)
Investment in real estate entity		(3,856	)		-
Amounts received from restricted cash		2,000			-
Deposits to restricted cash		(1,250	)		(2,250	)
Proceeds from development related subsidies		-			330
Net cash used in investing activities		(59,842	)		(50,051	)
Cash flows from financing activities
Proceeds from line of credit		52,000			80,000
Repayments of line of credit		(43,000	)		-
Tax benefit related to exercise of stock options		1,514			4,655
Proceeds from exercise of stock options		1,303			3,077
Payment of deferred financing costs		(251	)		(1,637	)
Purchases of common stock		(5,996	)		(115,695	)
Net cash used in (provided by) financing activities		5,570			(29,600	)
Net change in cash and cash equivalents		(6,763	)		(26,054	)
Cash and cash equivalents at beginning of period		13,031			39,085
Cash and cash equivalents at end of period	$	6,268		$	13,031

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Higher One Holdings, Inc.

Unaudited Supplemental Operating Data

(in thousands)

	Three Months Ended
	December 31,	March 31,	June 30,	September 30,	December 31,
	2012	2013	2013	2013	2013
OneDisburse SSE (1)	4,642	4,709	4,798	4,752	5,000
y/y growth	11%	9%	7%	4%	8%
Ending OneAccounts (2)	2,004	2,161	2,165	2,194	2,192
y/y growth	0%	2%	14%	5%	9%

(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

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Higher One Holdings, Inc.

Unaudited Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA

(in thousands)

	Three Months Ended								Year Ended
	December 31,								December 31,
	2013				2012				2013				2012
	(unaudited)								(unaudited)
	(in thousands)								(in thousands)
Net income		$	6,261			$	12,112			$	14,128			$	36,870
Interest income			(30	)			(22	)			(88	)			(109	)
Interest expense			830				565				3,082				967
Income tax expense			4,012				6,860				9,352				22,024
Depreciation and amortization			4,033				2,914				14,620				10,250
EBITDA			15,106				22,429				41,094				70,002
Merger and acquisition related			-				(6,870	)			(4,791	)			(5,828	)
Litigation settlement and bank partner transition			-				-				17,326				-
Stock-based compensation expense			883				867				4,144				4,093
Adjusted EBITDA		$	15,989			$	16,426			$	57,773			$	68,267

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						Year Ended
	December 31,						December 31,
	2013			2012			2013			2012
	(unaudited)						(unaudited)
	(in thousands)						(in thousands)
Net income	$	6,261		$	12,112		$	14,128		$	36,870
Merger and acquisition related		-			(6,870	)		(4,791	)		(5,828	)
Litigation settlement and bank partner transition		-			-			17,326			-
Stock-based compensation expense - incentive stock option grants		438			474			1,896			1,964
Stock-based compensation expense - non-qualified stock option grants		445			393			2,248			2,129
Amortization of intangibles		1,782			964			6,209			3,350
Amortization of deferred finance costs		120			111			452			213
Total pre-tax adjustments		2,785			(4,928	)		23,340			1,828
Tax rate		38.5	%		38.2	%		38.5	%		38.2	%
Tax adjustment		904			(2,064	)		8,256			(52	)
Adjusted net income	$	8,142		$	9,248		$	29,212		$	38,750
Diluted weighted average shares outstanding		48,391,409			54,056,539			48,368,365			56,728,807
GAAP net income per share	$	0.13		$	0.22		$	0.29		$	0.65
Non-GAAP adjusted net income per share	$	0.17		$	0.17		$	0.60		$	0.68

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