NetSpend Holdings, Inc. Reports Fourth Quarter Financial Results

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended, and Rule 3(b)-6 under the Securities Exchange Act of 1934, as amended. These statements include, among other things, statements regarding future events that involve risks and uncertainties. Actual results may differ materially from those contained in the forward-looking statements contained in this release, and reported results should not be considered as an indication of future performance. Reliance on any forward-looking statement involves risks and uncertainties and although NetSpend believes that the assumptions on which the forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions could be materially incorrect. These factors include but are not limited to:

• NetSpend’s dependence on a limited number of retail distributors of its products;
• increasing competition in the prepaid card industry;
• exposure to cardholder fraud and other losses;
• NetSpend’s reliance on its relationships with its issuing banks;
• regulatory, legislative and judicial developments;
• changes in card association or network organization rules;
• NetSpend’s ability to protect against unauthorized disclosure of cardholder data;
• NetSpend’s ability to promote its brand;
• NetSpend’s reliance on outsourced customer service providers;
• NetSpend’s ability to protect its intellectual property rights and defend itself against claims of patent infringement.

The potential risks and uncertainties that could cause actual results to differ from those projected are discussed in greater detail in NetSpend’s filings with the Securities Exchange Commission (“SEC”), which are available on NetSpend’s website at www.netspend.com and on the SEC website at www.sec.gov. All information provided in this release and in the attachments is as of February 13, 2013, and, except as required by law, NetSpend does not intend to update this information as a result of future events or developments.

About NetSpend

NetSpend is a leading provider of general-purpose reloadable (GPR) prepaid debit cards and related financial services to the estimated 68 million underbanked consumers in the United States who do not have a traditional bank account or who rely on alternative financial services. The Company's mission is to develop products and services that empower underbanked consumers with the convenience, security and freedom to be self-banked. Headquartered in Austin, TX, NetSpend is traded on the NASDAQ stock exchange under the symbol NTSP. Please visit http://www.netspend.com for more information.

Follow NetSpend on Twitter: http://twitter.com/netspend or Facebook: http://www.facebook.com/netspend

___________________________

1 The number of active cards as of December 31, 2012 was approximately 2,352,000 and as of December 31, 2011 was approximately 2,063,000.

2 Reconciliations of Adjusted EBITDA and Adjusted Net Income to net income are provided in the tables immediately following the condensed consolidated statements of cash flows. Additional information about the Company’s non-GAAP financial measures can be found under the caption “Non-GAAP Financial Information.”

NetSpend Holdings, Inc.
Consolidated Statements of Operations
For the Three and Twelve Months Ended December 31, 2012 and 2011
		Three Months Ended									Twelve Months Ended
		December 31,									December 31,
		2012				2011					2012				2011
		(Unaudited)				(Unaudited)					(Unaudited)
		(in thousands, except per share data)
Operating Revenues		$	89,712			$	76,762				$	351,332			$	306,255
Operating Expenses
Direct operating costs			42,643				36,094					169,066				146,199
Salaries, benefits and other personnel costs			14,597				12,157					56,328				52,736
Advertising, marketing and promotion costs			6,504				3,237					20,127				14,230
Other general and administrative costs			5,045				4,512					21,116				20,135
Depreciation and amortization			3,489				3,797					13,778				15,031
Settlement (gains) and other losses			(160	)			191					36,988				515
Total operating expenses			72,118				59,988					317,403				248,846
Operating income			17,594				16,774					33,929				57,409
Other Income (Expense)
Interest income			30				30					139				108
Interest expense			(771	)			(963	)				(2,598	)			(2,457	)
Total other expense			(741	)			(933	)				(2,459	)			(2,349	)
Income before income taxes			16,853				15,841					31,470				55,060
Provision for income taxes			6,757				6,264					12,603				21,814
Net income		$	10,096			$	9,577				$	18,867			$	33,246
Net income per share of common stock:
Basic (1)		$	0.13			$	0.11				$	0.23			$	0.37
Diluted		$	0.13			$	0.11				$	0.22			$	0.36
Shares used in the computation of earnings per common share:
Basic			68,931				78,489					73,251				84,504
Diluted			80,183				88,560					84,321				91,284
(1) - Net income used in the calculation of basic earnings per share is adjusted for amounts unavailable to common stockholders. Our Annual Report on Form 10-K for the year ended December 31, 2012 will contain a further reconciliation of this number for the twelve months ended December 31, 2012 and 2011.

NetSpend Holdings, Inc.
Consolidated Balance Sheets
As of December 31, 2012 and 2011
		2012			2011
		(Unaudited)
		(in thousands of dollars)
Assets
Current assets
Cash and cash equivalents		$	30,619		$	72,076
Accounts receivable, net of allowance for doubtful accounts of $518 as of December 31, 2012 and $581 as of December 31, 2011			10,622			7,552
Prepaid card supply			3,535			2,000
Prepaid expenses			4,007			3,326
Other current assets			1,360			2,179
Income tax receivable			59			-
Deferred tax assets			7,620			4,138
Total current assets			57,822			91,271
Property, equipment and software, net			23,743			20,631
Goodwill			128,567			128,567
Intangible assets			20,246			22,227
Long-term investment			4,560			2,497
Other assets			17,655			7,549
Total assets		$	252,593		$	272,742
Liabilities & Stockholders' Equity
Current liabilities
Accounts payable		$	4,908		$	3,183
Accrued expenses			26,362			20,937
Income tax payable			-			1,733
Cardholders' reserve			3,633			3,892
Deferred revenue			1,765			1,585
Current litigation contingencies			10,900			-
Long-term debt, current portion			10,000			-
Total current liabilities			57,568			31,330
Long-term debt, net of current portion			70,000			58,500
Deferred tax liabilities			4,224			7,431
Other non-current liabilities			3,155			4,628
Total liabilities			134,947			101,889
Total stockholders' equity			117,646			170,853
Total liabilities & stockholders' equity		$	252,593		$	272,742

NetSpend Holdings, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2012 and 2011
		2012				2011
		(Unaudited)
		(in thousands of dollars)
Cash flows from operating activities
Net income		$	18,867			$	33,246
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			13,778				15,031
Amortization of debt issuance costs			326				326
Stock-based compensation			11,464				11,242
Tax benefit associated with stock options			(2,741	)			(1,541	)
Provision for cardholder losses			18,741				14,441
Deferred income taxes			(6,785	)			(2,646	)
Change in cash surrender value of life insurance policies			(159	)			8
Litigation contingencies, current			10,900				-
Changes in operating assets and liabilities
Accounts receivable			(3,070	)			(2,111	)
Income tax receivable or payable			949				2,942
Prepaid card supply			(1,535	)			(395	)
Prepaid expenses			(681	)			(946	)
Other current assets			819				(1,172	)
Other long-term assets			(9,752	)			(2,316	)
Accounts payable and accrued expenses			7,150				(3,797	)
Cardholders' reserve			(19,000	)			(15,338	)
Deferred revenue			180				252
Other liabilities			(1,473	)			1,621
Net cash provided by operating activities			37,978				48,847
Cash flows from investing activities
Purchases of property, equipment and software			(14,595	)			(9,182	)
Purchase of intangible assets			(314	)			(12	)
Long-term investment			(1,095	)			-
Premiums paid on cash surrender value life insurance policies			(521	)			(894	)
Net cash used in investing activities			(16,525	)			(10,088	)
Cash flows from financing activities
Dividend equivalents paid			-				(353	)
Proceeds from the exercise of common stock options			5,318				1,405
Proceeds from the re-issuance of treasury stock under employee stock purchase plan			441				-
Tax benefit associated with stock options			2,741				1,541
Net cash proceeds (disbursements) from initial public offering			-				(95	)
Proceeds from issuance of long-term debt			90,000				-
Principal payments on debt			(68,500	)			(3,303	)
Treasury stock purchase			(92,559	)			(32,718	)
Tax withholding on restricted stock			(351	)			(661	)
Net cash used in financing activities			(62,910	)			(34,184	)
Net change in cash and cash equivalents			(41,457	)			4,575
Cash and cash equivalents at beginning of period			72,076				67,501
Cash and cash equivalents at end of period		$	30,619			$	72,076
Supplemental disclosure of cash flow information
Cash paid for interest		$	2,330			$	2,591
Cash paid for income taxes			18,403				21,432
Non-cash investing activities
Capital lease entered into for the license of software		$	-				1,949

NetSpend Holdings, Inc.
Reconciliation of Adjusted EBITDA to Net Income
For the Three and Twelve Months Ended December 31, 2012 and 2011
(Unaudited)
		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
		2012				2011				2012				2011
		(in thousands of dollars)
Net income		$	10,096			$	9,577			$	18,867			$	33,246
Interest income			(30	)			(30	)			(139	)			(108	)
Interest expense			771				963				2,598				2,457
Income tax expense			6,757				6,264				12,603				21,814
Depreciation and amortization			3,489				3,797				13,778				15,031
EBITDA			21,083				20,571				47,707				72,440
Stock-based compensation expense			2,993				2,410				11,464				11,242
Settlement (gains) and other losses			(160	)			191				36,988				515
Adjusted EBITDA (1)(3)		$	23,916			$	23,172			$	96,159			$	84,197

NetSpend Holdings, Inc.
Reconciliation of Adjusted Net Income to Net Income
For the Three and Twelve Months Ended December 31, 2012 and 2011
(Unaudited)
		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
		2012				2011				2012				2011
		(in thousands of dollars, except percentages and per share data)
Net income		$	10,096			$	9,577			$	18,867			$	33,246
Stock-based compensation expense			2,993				2,410				11,464				11,242
Amortization of intangibles			434				881				2,295				3,524
Settlement (gains) and other losses			(160	)			191				36,988				515
Total pre-tax adjustments			3,267				3,482				50,747				15,281
Tax rate			40.1	%			39.5	%			40.0	%			39.6	%
Tax adjustment			1,310				1,375				20,299				6,051
Adjusted net income (2)(3)		$	12,053			$	11,684			$	49,315			$	42,476
Adjusted net income per share of common stock
Basic		$	0.17			$	0.15			$	0.67			$	0.50
Diluted		$	0.15			$	0.13			$	0.58			$	0.47

(1)

We use a non-GAAP financial metric that we label "Adjusted EBITDA" to evaluate our financial performance. We compute Adjusted EBITDA by adjusting net income or net loss to remove the effect of income and expenses related to interest, taxes, depreciation and amortization, or EBITDA, and then adjusting for stock-based compensation, and non-recurring gains and losses. We believe that Adjusted EBITDA is an important metric for the following reasons:

• It provides a meaningful comparison of our operating results over several periods because it removes the impact of income and expense items that are not a direct result of our core operations, such as goodwill and intangible impairments, legal settlements and one-time settlement gains, losses on the early extinguishment of long-term debt and other infrequent losses;
• We use it as a tool to assist in our planning for the effect of strategic operating decisions and for the prediction of future operating results; and
• We use it to evaluate our capacity to incur and service debt, fund capital expenditures and expand our business.

		Settlement gains of $0.2 million during the three months ended December 31, 2012 and other losses of $37.0 million during the twelve months ended December 31, 2012 primarily relate to accruals for legal contingencies and settlements. Other losses of $0.2 million during the three months ended December 31, 2011 and $0.5 million in the twelve months ended December 30, 2011 primarily relate to severance costs incurred in connection with the consolidation of some of our processing platforms and call center activities.
(2)		In addition to Adjusted EBITDA, we use a second non-GAAP financial metric that we label "Adjusted Net Income" to evaluate our financial performance. We compute Adjusted Net Income by adjusting net income or net loss to remove tax-effected amortization expense, stock-based compensation and other non-recurring gains and losses. We believe that Adjusted Net Income is an important metric that is useful to our board of directors, management and investors for the following reasons:

• Assets being depreciated will often have to be replaced in the future and Adjusted EBITDA does not reflect any expenditure for these items;
• Adjusted EBITDA does not reflect the interest expense or the payments necessary to service interest payments on our debt;
• Adjusted Net Income provides a meaningful comparison of our operating results over several periods because it removes the impact of income and expense items that are not a direct result of our core operations, such as goodwill and intangible impairments, legal settlements and one-time settlement gains, losses on the early extinguishment of long-term debt and other infrequent losses;
• Adjusted Net Income per share on a diluted basis functions as a threshold target for our company-wide employee bonus compensation; and
• We believe Adjusted Net Income measurements are used by investors as a supplemental measure to evaluate the overall operating performance of companies in our industry.

		Settlement gains of $0.2 million during the three months ended December 31, 2012 and other losses of $37.0 million during the twelve months ended December 31, 2012 primarily relate to accruals for legal contingencies and settlements. Other losses of $0.2 million during the three months ended December 31, 2011 and $0.5 million in the twelve months ended December 30, 2011 primarily relate to severance costs incurred in connection with the consolidation of some of our processing platforms and call center activities.
(3)		By providing this non-GAAP financial measure, together with the above reconciliation, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives. Our Adjusted EBITDA and Adjusted Net Income are not necessarily comparable to what other companies define as Adjusted EBITDA and Adjusted Net Income. In addition, Adjusted EBITDA and Adjusted Net Income are not measures defined by U.S. GAAP and should not be considered as substitutes for or alternatives to net income, operating income, cash flows from operating activities or other financial information as determined by U.S. GAAP. Our presentation of Adjusted EBITDA and Adjusted Net Income should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.

« First ‹ Previous 1 2 3 4 Next › Last »