Higher One Holdings, Inc. (NYSE: ONE) (“Higher One”) today announced financial results for the third quarter of 2011. The company reported revenue of $48.1 million, up 25% from $38.6 million in the third quarter of 2010. The year-over-year revenue growth was primarily attributable to an increase in the number of OneAccounts and an increase in the number of higher education institutions contracted for its services.

“I’m pleased to report yet another quarter that falls in line with our expectations, which I view as a testament to our recurring and predictable financials,” stated Dean Hatton, President and CEO of Higher One. “We continue to hear positive feedback from our clients and customers who are pleased with the High Touch Service® we provide administrators through the OneDisburse® and CASHNet® suites, and the value the OneAccount provides for students.”

Higher One also reported GAAP net income of $8.5 million, and non-GAAP adjusted net income, which excludes certain non-recurring or non-cash items, stock-based compensation, stock-based and other customer acquisition expense, and amortization of intangible assets, of $11.1 million. GAAP diluted EPS was $0.14 in the quarter, up from $0.11 in the third quarter of 2010. Non-GAAP adjusted diluted EPS was $0.19, up from $0.15 for the same period a year ago. In the third quarter of 2011, non-GAAP adjusted EBITDA was $18.2 million, up 17% from $15.5 million in the same period last year.

The number of OneAccounts at the end of the third quarter of 2011 totaled 2.0 million, up 31% from 1.5 million at the end of the third quarter of 2010. Total enrollment at higher education clients that have purchased the OneDisburse service increased to 4.0 million, an increase of approximately 753,000 from 3.2 million at the end of the third quarter of 2010. Total enrollment at higher education clients that have purchased the CASHNet suite of payment products increased to 2.6 million.

Operating cash flow in the quarter was $9.4 million. Cash, cash equivalents, and liquid investments totaled $51.3 million as of September 30, 2011. Higher One announced a share repurchase program during the quarter whereby it may repurchase up to $40 million of issued and outstanding shares of common stock. The company utilized $14.2 million to repurchase approximately 944,000 shares at an average price of $15.10 per share in the quarter.

Higher One narrowed the range on its full-year 2011 revenue and GAAP diluted EPS guidance to $182.0 – $186.0 million and $0.51 – $0.58, respectively. Noting that GAAP diluted EPS is subject to material and unpredictable impacts from certain M&A-related customer acquisition expenses, the company updated full-year 2011 non-GAAP adjusted diluted EPS guidance to $0.74 – $0.77. Higher One also issued full-year 2012 guidance of $227.0 – $237.0 million in revenue and $0.80 – $0.90 in GAAP diluted EPS. The company issued non-GAAP diluted EPS guidance of $0.90 – $1.00 for full-year 2012. The company believes that the non-GAAP adjusted diluted EPS measure, which excludes certain expenses including stock-based compensation, stock-based and other customer acquisition expense, and amortization of intangible assets, and the related tax expense, provides a useful view of more predictable and normalized business trends.

Quarterly Conference Call Information

Higher One will host a conference call at 5 p.m. ET today to discuss third quarter results. 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 its nearest comparable GAAP measures can be accessed through Higher One’s investor relations website at http://www.ir.higherone.com/. In addition, an archive of the webcast will be available for 90 days through the same link.

About Higher One Holdings

Higher One Holdings, Inc. (NYSE: ONE) is a leading company focused on helping college business offices manage operations and providing enhanced service to students. Through a full array of services from refunds, payments, electronic billing, payment plans and more, Higher One works closely with colleges and universities to ensure students receive Financial Aid refunds quickly, can pay tuition and bills online, make on-campus and community purchases and learn the basics of financial management.

Higher One provides its services to approximately 5.8 million students at distinguished public and private higher education institutions nationwide. More information about Higher One can be found at www.ir.higherone.com.

Forward-Looking Statements

This press release includes forward-looking statements, as defined by the Securities and Exchange Commission (“SEC”). 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. 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 release do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof. Information about the factors that could affect future performance can be found in our recent SEC filings.

Use of Non-GAAP Financial Measures

This release includes certain metrics presented on a non-GAAP basis, including non-GAAP adjusted EBITDA, non-GAAP adjusted net income, and non-GAAP adjusted EPS. We believe that these non-GAAP measures, which exclude amortization of intangibles, stock-based compensation, and certain non-recurring or non-cash impacts to our results, all net of taxes, provide useful information regarding normalized trends relating to the company’s financial condition and results of operations. Reconciliations of these non-GAAP measures to their closest comparable GAAP measure are included in this press release.

Higher One Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations

(in thousands of dollars, except share and per share amounts)
     
Three Months
Ended September 30,

2010

2011
Revenue:
Account revenue $ 28,221 $ 35,800
Payment transaction revenue 5,496 6,603
Higher education institution revenue 3,528 4,595
Other revenue   1,321     1,142  
Total revenue 38,566 48,140
Cost of revenue   14,390     19,630  
Gross margin   24,176     28,510  
Operating expenses:
General and administrative 8,278 9,415
Product development 762 1,158
Sales and marketing   4,356     4,698  
Total operating expenses   13,396     15,271  
Income from operations 10,780 13,239
Interest income 10 15
Interest expense (84 ) (66 )
Other income        
Net income before income taxes 10,706 13,188
Income tax expense   4,277     4,720  
Net income $ 6,429   $ 8,468  
 
Net income available to common stockholders:
Basic $ 6,429 $ 8,468
Participating Securities        
Diluted $ 6,429   $ 8,468  
 
Weighted average shares outstanding:
Basic 53,987,601 55,470,457
Diluted 59,154,446 59,789,977
 

Net income available to common stockholdersper common share:
Basic $ 0.12 $ 0.15
Diluted $ 0.11 $ 0.14

Higher One Holdings, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands of dollars, except share and per share amounts)
     
December 31, September 30,

2010
2011
Assets
Current assets:
Cash and cash equivalents $ 34,484 $ 33,442
Investments in marketable securities 14,697 17,889
Accounts receivable 2,622 5,534
Income receivable 3,719 6,293
Deferred tax assets 48 38
Prepaid expenses and other current assets 6,981 8,291
Restricted cash   8,250      
Total current assets   70,801     71,487  
Deferred costs 3,782 3,398
Fixed assets, net 9,919 37,643
Intangible assets, net 18,456 16,153
Goodwill 15,830 15,830
Other assets 653 1,787
Deferred tax assets 1,950
Restricted cash       1,075  
Total assets $ 119,441   $ 149,323  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,063 $ 2,487
Accrued expenses 11,786 22,097
Acquisition payable 8,250
Deferred revenue   7,974     10,646  
Total current liabilities   31,073     35,230  
Deferred revenue 2,051 2,143
Deferred tax liabilities   2,926      
Total liabilities   36,050     37,373  
Commitments and contingencies
 
Stockholders' equity:

Common stock, $.001 par value; 200,000,000 shares authorized; 56,109,234and 56,763,635 shares issued and outstanding at December 31, 2010 andSeptember 30, 2011, respectively;
56 57
Additional paid-in capital 136,760 155,298
Treasury stock, 943,549 shares at September 30, 2011 (14,244 )
Accumulated deficit, net of 2008 stock tender transaction of $93,933   (53,425 )   (29,161 )
Total stockholders' equity   83,391     111,950  
Total liabilities and stockholders' equity $ 119,441   $ 149,323  

Higher One Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands of dollars)
 
Nine Months Ended
September 30,
2010     2011
Cash flows from operating activities
Net income $ 16,522 $ 24,264
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 5,321 5,204
Amortization of deferred finance costs 153 54
Non-cash interest expense 258
Stock-based customer acquisition expense 6,988 9,233
Stock-based compensation 2,184 3,049
Deferred income taxes (4,024 ) (4,866 )
Gain on litigation settlement agreement (1,500 )
Loss on disposal of fixed assets 343
Changes in operating assets and liabilities:
Accounts receivable (1,669 ) (2,912 )
Income receivable (1,057 ) (2,574 )
Deferred costs (1,917 ) (645 )
Prepaid expenses and other current assets (822 ) (1,310 )
Other assets (109 ) (9 )
Accounts payable (115 ) (576 )
Accrued expenses 1,188 816
Deferred revenue   4,140     2,764  
Net cash provided by operating activities   27,041     31,335  
Cash flows from investing activities
Purchases of available for sale investment securities (20,818 ) (11,192 )
Proceeds from sales and maturities of available for sale investment securities 6,080 8,000

Purchases of fixed assets, net of changes in construction payables of $0 and $9,410,respectively
(5,899 ) (21,623 )
Payment to escrow agent (8,250 ) (1,075 )
Proceeds from escrow agent 1,500
Payment of acquisition payable   (1,750 )    
Net cash used in investing activities   (30,637 )   (24,390 )
Cash flows from financing activities
Tax benefit related to stock options 2,170 5,274
Proceeds from exercise of stock options 817 983
Repurchase of common stock - (14,244 )
Repayments of line of credit (22,000 ) -
Proceeds from issuance of common stock, net of issuance costs 37,209 -
Proceeds from line of credit 4,000 -
Repayment of capital lease obligations   (7 )   -  
Net cash provided by (used in) financing activities   22,189     (7,987 )
Net change in cash and cash equivalents 18,593 (1,042 )
Cash and cash equivalents at beginning of period   3,339     34,484  
Cash and cash equivalents at end of period $ 21,932   $ 33,442  

Higher One Holdings, Inc.

Unaudited Supplemental Operating Data

(in thousands)
     
Three Months Ended
Sept 30,   Dec 31, March 31, June 30, Sept 30,
2010 2010 2011 2011 2011
 
OneDisburse SSE (1) 3,217 3,281 3,413 3,659 3,970
y/y growth 45% 41% 27% 31% 23%
 
CASHNet suite SSE (2) 2,450 2,460 2,506 2,550 2,576
y/y growth 39% 25% 14% 10% 5%
 
Ending OneAccounts (3) 1,538 1,618 1,762 1,722 2,015
y/y growth 66% 61% 46% 39% 31%
(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) CASHNet suite SSE is defined as the number of students enrolled at institutions that have signed contracts to use one or more CASHNet modules 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)
(3) Ending OneAccounts is defined as the number of open accounts with a non-zero balance at the end of a given period

Higher One Holdings, Inc.

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

(in thousands)
 
Three Months Ended
September 30,
2010     2011
 
Net income $ 6,429 $ 8,468
Interest income (10 ) (15 )
Interest expense 84 66
Income tax expense 4,277 4,720
Depreciation and amortization   1,947     1,770  
EBITDA 12,727 15,009
Stock-based and other customer acquisition expense 2,139 2,320
Stock-based compensation expense 643 889
Other income        
Adjusted EBITDA $ 15,509   $ 18,218  
 
Revenues 38,566 48,140
Net Income Margin 16.7 % 17.6 %
Adjusted EBITDA Margin 40.2 % 37.8 %

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
September 30,
2010     2011
 
Net income $ 6,429 $ 8,468
 
Stock-based and other customer acquisition expense 2,139 2,320
Stock-based compensation expense - ISO 338 480
Stock-based compensation expense - NQO 305 409
Other income
Amortization of intangibles 768 768
Amortization of deferred finance costs   51   18
Total pre-tax adjustments 3,601 3,995
Tax rate 38.6% 38.2%
Tax adjustment (a)   1,259   1,343
Adjusted net income $ 8,771 $ 11,120
 
Diluted average weighted shares outstanding 59,154 59,790
Diluted EPS $0.11 $0.14
Adjusted Diluted EPS $0.15 $0.19
 
Revenues 38,566 48,140
Net Income Margin 16.7% 17.6%
Adjusted Net Income Margin 22.7% 23.1%

Higher One Holdings, Inc.

Business Outlook
             
Twelve Months Ending
December 31, 2011

GAAP
   

Non-GAAP (a)
Revenues (in millions) $182.0   -   $186.0 $182.0

-
$186.0
Diluted EPS $0.51 - $0.58 $0.74 - $0.77
(a) Estimated Non-GAAP amounts above for the twelve months ending December 31, 2011 reflect the estimated quarterly adjustments that exclude (i) the amortization of intangibles and finance costs of approximately $3.0 million, (ii) stock-based compensation expense of approximately $4.0 million, (iii) stock-based and other customer acquisition expense of approximately $11.0 million to $17.5 million, and (iv) the gain related to the settlement of litigation with the former stockholders of Informed Decisions Corporation of approximately $1.5 million.
 
Stock-based and other customer acquisition expense primarily relates to our acquisition of EduCard in 2008, in connection with which we issued restricted stock, and IDC in 2009. We calculate the stock-based and other customer acquisition expense based on the undergraduate enrollment at higher education clients acquired relating to the acquisition, and the market value of our common stock at the time the client is acquired. It is difficult to predict with any degree of certainty either the number of new higher education clients we will acquire, the timing of future customer acquisitions, or the market value of our common stock at any time, resulting in a wide range of expected expense.
        Twelve Months Ending
December 31, 2012

GAAP
 

Non-GAAP (b)
Revenues (in millions) $227.0   -   $237.0 $227.0   -   $237.0
Diluted EPS $0.80 - $0.90 $0.90 - $1.00
(b) Estimated Non-GAAP amounts above for the twelve months ending December 31, 2012 reflect the estimated annual adjustments, that exclude (i) the amortization of intangibles and finance costs of approximately $3.0 million, and (ii) stock-based compensation expense of approximately $5.0 million.

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