Official Payments Reports Fiscal 2012 Third Quarter Results

Official Payments Holdings, Inc. (Nasdaq: OPAY), a leading provider of electronic payment solutions for the biller direct market, today released results for the quarter ended June 30, 2012.

Results of Operations

Third Quarter Fiscal 2012 Results

For the quarter ended June 30, 2012, Official Payments reported revenues from Continuing Operations of $39.2 million, a 1.9% increase over the same quarter last year. Our loss from Continuing Operations was $0.9 million, or $0.05 per fully diluted share, as compared with a loss of $0.08 per fully diluted share from the same quarter last year. Continuing Operations include Payment Solutions, and our VSA operations, which we are winding down. On a standalone basis, our Payment Solutions business reported quarterly revenues of $38.9 million, or a 2.1% increase over the same quarter last year.

Our general, administrative, selling and marketing expenses, which support our Continuing Operations, were $9.2 million, an increase of $2.0 million, or 28%, from the same quarter last year. Approximately $1.5 million of this increase was due to management incentive plan accruals in the third quarter 2012 versus reversals of the incentive plan accrual in the same period in 2011.

Management’s Comments

Alex P. Hart, President and Chief Executive Officer of Official Payments Holdings, Inc. stated, “We’ve produced three quarters in a row of positive improvement over the prior year and I’m pleased with how we’re positioned. I believe our strategy is sound and that we’re executing well.”

Definition and Reconciliation

We use the following non-GAAP financial measures in this press release: Adjusted EBITDA from Continuing Operations and Payment Solutions net revenue. Official Payments’ management believes these measures are useful for evaluating our performance against the performance of peer companies within the electronic payments industry, and that these measures provide investors with additional transparency with respect to financial measures used by management in its financial and operational decision-making. Our management believes that Payment Solutions net revenue provides additional information about our business, as we wind-down our VSA operations. We also use Adjusted EBITDA from Continuing Operations, together with other criteria, in our executive compensation program. Non-GAAP financial measures should not be considered a substitute for the reported results prepared in accordance with generally accepted accounting principles in the United States, or US GAAP. Our definitions used to calculate non-GAAP financial measures may differ from those used by other companies.

Official Payments defines Adjusted EBITDA from Continuing Operations as net loss from our Continuing Operations before interest expense net of interest income, income taxes, depreciation and amortization, restructuring charges and stock-based compensation in both equity and cash.

The following table shows a reconciliation of net loss from Continuing Operations to Adjusted EBITDA from Continuing Operations for the three and nine months ended June 30, 2012 and 2011:
    Adjusted EBITDA
Three months ended June 30,
(in thousands) 2012   2011       Change
Net Loss from Continuing Operations $ (852 )   $ (1,356 )     $ 504
Adjustments:
Depreciation/Amortization 1,851 1,856 (5 )
Stock-based compensation 371 324 47
Restructuring charge 2 2
Taxes 5 46 (41 )
Less:
Interest (expense) income, net   (1 )     19         (20 )
Adjusted EBITDA from Continuing Operations $ 1,378     $ 851       $ 527  
 
 
Adjusted EBITDA
Nine months ended June 30,
(in thousands) 2012   2011     Change
Net Loss from Continuing Operations $ (3,894 ) $ (3,825 ) $ (69 )
Adjustments:
Depreciation/Amortization 5,620 5,420 200
Stock-based compensation 1,352 (522 ) 1,874
Restructuring charge 1,493 1,493
Taxes 5 (139 ) 144
Less:
Interest income, net         76         (76 )
Adjusted EBITDA from Continuing Operations $ 4,576     $ 858       $ 3,718  

Official Payments defines Payment Solutions net revenue as Payment Solutions gross revenue less discount fees. Discount fees include interchange fees and other processing-related dues, assessments and fees. Payment Solutions gross revenue is defined as revenue from continuing operations less revenue from VSA operations. The following is a reconciliation of Payment Solutions net revenue to revenue from continuing operations for the three and nine months ended June 30, 2012 and 2011:
    Net Revenue
Three months ended June 30,
(in thousands, except percentages)     2012   2011   Change ($)   Change (%)
Revenue from continuing operations $ 39,163   $ 38,443   $ 720   1.9 %
Less:
VSA revenue       257     353     (96 ) (27.2 )%
Payment Solutions gross revenue 38,906 38,090 816 2.1 %
Less:
Discount fees       27,134     29,170     (2,036 )   (7.0 )%
Payment Solutions net revenue $ 11,772   $ 8,920   $ 2,852     32.0 %
 
 
Net Revenue
Nine months ended June 30,
(in thousands, except percentages)     2012   2011   Change ($)   Change (%)
Revenue from continuing operations $ 106,820 $ 101,679 $ 5,141 5.1 %
Less:
VSA revenue       1,142     1,208     (66 ) (5.5 )%
Payment Solutions gross revenue 105,678 100,471 5,207 5.2 %
Less:
Discount fees       70,415     74,462     (4,047 )   (5.4 )%
Payment Solutions net revenue $ 35,263   $ 26,009   $ 9,254     35.6 %

Liquidity

As of June 30, 2012, we had $40.8 million in cash and cash equivalents. Our $40.8 million in cash, cash equivalents and marketable securities includes $6.9 million of accrued discount fees and funds of $1.1 million we have not yet paid to clients due to the timing of bank transactions. These items reduce our cash available for our use. Therefore, the cash and cash equivalents available to us at June 30, 2012 are $32.8 million. Using the same calculation, we had $32.7 million available to us at September 30, 2011.

Conference Call

Official Payments will host a conference call Tuesday, August 7 at 5:00 p.m. Eastern Time to discuss these results. To access the conference call, please dial (877) 917-3616. The conference call will also be broadcast live via the Internet at www.OPAY.OfficialPayments.com.

A replay will be available at 8:00 p.m. Eastern Time on Tuesday, August 7, 2012 at www.OPAY.OfficialPayments.com or by calling (800) 925-4415. The replay will be available from 10:00 p.m. Eastern Time, Tuesday August 7, 2012 until 11:59 p.m. Eastern Time on August 28, 2012.

About Official Payments Holdings, Inc.

Official Payments Holdings, Inc. (Nasdaq: OPAY) is a leading provider of electronic payment solutions in the biller direct market. Headquartered in Norcross, Georgia, the company provides enhanced electronic payment services that include multiple payment choices, payment channels, and bill payment products and services to more than 3,500 clients in all 50 states and the District of Columbia. Official Payments serves clients in multiple markets including federal, state, and local governments, educational institutions, and utilities. Consumers may pay federal taxes, state and local taxes, property taxes, and other bills such as utilities and college tuition with credit cards, debit cards, electronic checks and alternative payment methods via online, telephone, point of sale and other channels by visiting www.OfficialPayments.com. Corporate information is available at www.OPAY.OfficialPayments.com.

Forward looking statements

Statements made in this press release that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to future events or Official Payments’ future financial and/or operating performance and generally can be identified as such because the context of the statement includes words such as “may,” “will,” “intends,” “plans,” “believes,” “anticipates,” “expects,” “estimates,” “shows,” “predicts,” “potential,” “continue,” or “opportunity,” the negative of these words or words of similar import. Official Payments undertakes no obligation to update any such forward-looking statements. Each of these statements is made as of the date hereof based only on current information and expectations that are inherently subject to change and involve a number of risks and uncertainties. Actual events or results may differ materially from those projected in any of such statements due to various factors, including, but not limited to: general economic conditions, which affect Official Payments’ financial results in all our markets, which we refer to as “vertical markets”, particularly the federal vertical market, the state and local tax vertical market and the property tax vertical market; effectiveness and performance of our systems, payment processing platforms and operational infrastructure; our ability to grow Payment Solutions revenue while reducing our costs, including processor and interchange related costs; the timing, initiation, completion, renewal, extension or early termination of client or partner contracts or projects; our ability to execute on our sales and product strategy and realize revenues from our business development opportunities; the impact of regulatory requirements; and unanticipated claims as a result of project performance, including due to the failure of software providers, processors, vendors, partners, or subcontractors to satisfactorily perform and complete engagements. For a discussion of these and other factors which may cause our actual events or results to differ from those projected, please refer to the periodic reports on Form 10-K and Form 10-Q that we file with the Securities and Exchange Commission.
 
 
OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Balance Sheets
     
September 30,
(in thousands)     June 30, 2012   2011
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 40,753 $ 39,760
Accounts receivable, net 4,350 4,467
Settlements receivable, net 12,848 7,648
Prepaid expenses and other current assets       1,497       2,368  
Total current assets 59,448 54,243
 
Property, equipment and software, net 17,617 18,189
Goodwill 17,551 17,460
Other intangible assets, net 1,491 4,037
Other assets       585       238  
Total assets     $ 96,692     $ 94,167  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable $ 63 $ 1,057
Settlements payable 13,989 9,812
Accrued compensation liabilities 4,778 2,721
Accrued discount fees 6,933 4,900
Other accrued liabilities 2,260 3,703
Accrued restructuring charges 314 178
Deferred income       244       439  
Total current liabilities       28,581       22,810  
Other liabilities:
Deferred rent 78 1,556
Accrued restructuring charges 991
Other liabilities       168       28  
Total other liabilities       1,237       1,584  
Total liabilities       29,818       24,394  
 
Shareholders’ equity:

Preferred stock, no par value; authorized shares: 4,579; no shares issued and outstanding

Common stock, $0.01 par value, and paid-in capital; shares authorized: 44,260; shares issued: 20,817 and 20,817; shares outstanding: 16,642 and 16,642
194,740 193,732
Treasury stock—at cost, 4,175 shares (31,383 ) (31,383 )
Accumulated deficit       (96,483 )     (92,576 )
Total shareholders’ equity       66,874       69,773  
Total liabilities and shareholders’ equity     $ 96,692     $ 94,167  
 
 
OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Statements of Operations
(unaudited)
       
Three months ended Nine months ended
June 30,     June 30,
(in thousands, except per share data)       2012       2011         2012       2011  
Revenues     $ 39,163     $ 38,443       $ 106,820     $ 101,679  
   
Costs and expenses:
Direct costs 28,922 30,696 75,697 78,898
General and administrative 6,601 5,530 23,096 16,339
Selling and marketing 2,635 1,690 6,296 5,062
Depreciation and amortization       1,851       1,856         5,620       5,420  
Total costs and expenses       40,009       39,772         110,709       105,719  
Loss from continuing operations before other income and income taxes       (846 )     (1,329 )       (3,889 )     (4,040 )
 
Other income:
Interest (expense) income, net       (1 )     19               76  
Total other income       (1 )     19               76  
 
Loss from continuing operations before income taxes (847 ) (1,310 ) (3,889 ) (3,964 )
Income tax provision (benefit)       5       46         5       (139 )
 
Loss from continuing operations (852 ) (1,356 ) (3,894 ) (3,825 )
(Loss) gain from discontinued operations, net       (1 )     (76 )       (13 )     226  
 
Net loss     $ (853 )   $ (1,432 )     $ (3,907 )   $ (3,599 )
 
(Loss) gain per share—Basic and diluted:
From continuing operations $ (0.05 ) $ (0.08 ) $ (0.23 ) $ (0.22 )
From discontinued operations                           0.01  
Loss per share—Basic and diluted     $ (0.05 )   $ (0.08 )     $ (0.23 )   $ (0.21 )
 
Weighted average common shares used in computing:
Basic and diluted loss per share 16,642 16,951 16,642 17,252
 
 
OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Statements of Cash Flows
(unaudited)
   
Nine months ended
June 30,
(in thousands)     2012   2011
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net loss $ (3,907 ) $ (3,599 )
Less: (Loss) gain from discontinued operations, net       (13 )     226  
Loss from continuing operations, net (3,894 ) (3,825 )
Non-cash items included in net loss:
Restructuring costs 803
Depreciation and amortization 5,620 5,420
Provision for doubtful accounts 26 457
Deferred rent (3 ) 415
Share-based compensation 1,008 (523 )
Capitalized software impairment loss 268
Net effect of changes in assets and liabilities:
Accounts receivable, net 91 710
Settlement processing assets and obligations, net (1,023 ) 1,991
Prepaid expenses and other assets 524 (273 )
Accounts payable and accrued liabilities 1,526 (3,226 )
Income taxes receivable (62 )
Other long term liabilities 161
Deferred income       (195 )     (150 )
Cash provided by operating activities from continuing operations 4,644 1,202
Cash used in operating activities from discontinued operations       (13 )     (138 )
Cash provided by operating activities       4,631       1,064  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (13,248 )
Maturities of available-for-sale securities 14,576
Maturities of restricted investments 983
Capitalized internally developed software (1,911 ) (1,063 )
Purchase of equipment and software (1,610 ) (2,111 )
ChoicePay acquisition       (91 )     (56 )
Cash used in investing activities from continuing operations (3,612 ) (919 )
Cash provided by investing activities from discontinued operations             364  
Cash used in investing activities       (3,612 )     (555 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 482
Purchase of company stock (10,363 )
Capital lease obligations and other financing arrangements       (26 )     (25 )
Cash used in financing activities       (26 )     (9,906 )
Net increase (decrease) in cash and cash equivalents 993 (9,397 )
Cash and cash equivalents at beginning of period       39,760       45,757  
Cash and cash equivalents at end of period     $ 40,753     $ 36,360  
 
 
OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Statement of Operations—Continuing Operations
(unaudited)
     
Payment
(in thousands)   Solutions   VSA   Total
Three months ended June 30, 2012:            
Revenues   $ 38,906     $ 257   $ 39,163  
Costs and expenses:
Direct costs 28,776 146 28,922
General and administrative 6,584 17 6,601
Selling and marketing 2,635 2,635
Depreciation and amortization     1,851           1,851  
Total costs and expenses     39,846       163     40,009  
(Loss) income from continuing operations before other income and income taxes     (940 )     94     (846 )
Other income:
Interest income, net     (1 )         (1 )
Total other income     (1 )         (1 )
(Loss) income from continuing operations before taxes (941 ) 94 (847 )
Income tax provision     5           5  
(Loss) income from continuing operations   $ (946 )   $ 94   $ (852 )
 
Payment
(in thousands)   Solutions   VSA   Total
Three months ended June 30, 2011:
Revenues   $ 38,090     $ 353   $ 38,443  
Costs and expenses:
Direct costs 30,622 74 30,696
General and administrative 5,519 11 5,530
Selling and marketing 1,690 1,690
Depreciation and amortization     1,856           1,856  
Total costs and expenses     39,687       85     39,772  
(Loss) income from continuing operations before other income and income taxes     (1,597 )     268     (1,329 )
Other income:
Interest income, net     19           19  
Total other income     19           19  
(Loss) income from continuing operations before taxes (1,578 ) 268 (1,310 )
Income tax provision     46           46  
(Loss) income from continuing operations   $ (1,624 )   $ 268   $ (1,356 )
  Payment    
(in thousands)   Solutions   VSA   Total
Nine months ended June 30, 2012:
Revenues   $ 105,678     $ 1,142   $ 106,820  
Costs and expenses:
Direct costs 75,099 598 75,697
General and administrative 22,906 190 23,096
Selling and marketing 6,296 6,296
Depreciation and amortization     5,620           5,620  
Total costs and expenses     109,921       788     110,709  
(Loss) income from continuing operations before other income and income taxes     (4,243 )     354     (3,889 )
Other income:
Interest income, net                
Total other income                
(Loss) income from continuing operations before taxes (4,243 ) 354 (3,889 )
Income tax benefit     (5 )         (5 )
(Loss) income from continuing operations   $ (4,248 )   $ 354   $ (3,894 )
 
 
Payment
(in thousands)   Solutions   VSA   Total
Nine months ended June 30, 2011:
Revenues   $ 100,471     $ 1,208   $ 101,679  
Costs and expenses:
Direct costs 78,705 193 78,898
General and administrative 16,328 11 16,339
Selling and marketing 5,062 5,062
Depreciation and amortization     5,420           5,420  
Total costs and expenses     105,515       204     105,719  
(Loss) income from continuing operations before other income and income taxes     (5,044 )     1,004     (4,040 )
Other income:
Interest income, net     76           76  
Total other income     76           76  
(Loss) income from continuing operations before taxes (4,968 ) 1,004 (3,964 )
Income tax benefit     (139 )         (139 )
(Loss) income from continuing operations   $ (4,829 )   $ 1,004   $ (3,825 )

Copyright Business Wire 2010

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