Higher One Holdings, Inc. (NYSE:ONE) ("Higher One" or the "Company"), today announced financial results for the fourth quarter and full year for 2015. The Company reported fourth quarter 2015 gross revenue of $49.4 million, compared to $53.1 million in the fourth quarter 2014, and full year revenue of $204.2 million, compared to $214.4 million in 2014. Non-GAAP adjusted diluted EPS was $0.10 for the quarter and $0.44 for the full year 2015, compared to $0.14 for the fourth quarter and $0.59 for the full year of 2014.

Marc Sheinbaum, President and Chief Executive Officer, said, "We experienced solid organic growth in our Payments business this quarter, as processing volumes grew and we continued to add new business."

Sheinbaum added, "We also executed on three key initiatives this quarter, which are vital to moving the company forward. First, we closed on the sale of the Campus Labs business and simultaneously used a portion of the proceeds to pay down a significant portion of our debt. Second, we entered into consent orders with both the Federal Reserve and the FDIC which include agreements on the total amount of customer restitution and penalties. Finally, we signed an agreement with Customers Bank under which we will sell our Disbursements business in a transaction we expect to close in the second quarter of 2016. By executing on these three actions, we are now better positioned to review the strategic options for the remaining Payments business."

GAAP financial results for the fourth quarter of 2015 compared to the fourth quarter of 2014:
  • Gross revenue decreased 7% to $49.4 million in the fourth quarter of 2015, compared to revenue of $53.1 million for the fourth quarter of 2014. Net revenue reflects an increase in the allowance for potential customer restitution from $30.6 million to $55.0 million, related to the Federal Reserve and FDIC settlements. As a result, net revenue was $24.4 million lower than gross revenue this quarter.
  • The Company recorded net income of $16.7 million for the fourth quarter of 2015, compared to net income of $4.1 million recorded for the fourth quarter of 2014. The net income recorded in the fourth quarter of 2015 reflects the gain on the sale of the Campus Labs business. GAAP diluted earnings per share was $0.34 for the fourth quarter of 2015, compared to GAAP diluted earnings per share of $0.09 for the fourth quarter of 2014.

GAAP financial results for full year 2015 compared to full year 2014:
  • Full year gross revenue decreased 5% to $204.2 million in 2015, compared to revenue of $214.4 million for the full year 2014.
  • The Company recorded net income of $10.9 million in 2015, compared to net income of $15.0 million recorded for the full year 2014. GAAP diluted earnings per share was $0.23 for 2015, compared to GAAP diluted earnings per share of $0.31 for 2014.

Non-GAAP financial results for the fourth quarter of 2015 compared to the fourth quarter of 2014:
  • Non-GAAP adjusted EBITDA was $11.9 million in the fourth quarter of 2015, compared to $14.7 million in the fourth quarter of 2014
  • Non-GAAP adjusted net income was $4.8 million for the fourth quarter of 2015, compared to $6.7 million for the fourth quarter of 2014
  • Non-GAAP adjusted diluted earnings per share was $0.10 for the fourth quarter of 2015, compared to $0.14 for the fourth quarter of 2014

Non-GAAP financial results for the full year 2015 compared to the full year 2014:
  • Non-GAAP adjusted EBITDA was $51.4 million in 2015, compared to $59.6 million in 2014
  • Non-GAAP adjusted net income was $21.0 million for the full year 2015, compared to $28.4 million for the full year 2014
  • Non-GAAP adjusted diluted earnings per share was $0.44 for the year, compared to $0.59 for the full year 2014

In addition to consolidated financial information, the Company is providing select financial information for its three lines of business: Disbursements; Payments; and Data Analytics.

Business-line financial results for the fourth quarter of 2015 compared to the fourth quarter of 2014 (in thousands):

  • Disbursements revenue is comprised of both subscription fees for our Refund Management disbursement service as well as the transaction-based sources of interchange and service fees derived through OneAccounts. The loss from operations in the fourth quarter of 2015 reflects the impact of the Federal Reserve and FDIC settlements, which resulted in an additional allowance for customer restitution of $24.4 million and civil money penalties and related administrative costs of $6.0 million.
                           
Disbursements

2015

2014

% Change
Gross Revenue $28,006 $32,887 -14.8%
Adjusted EBITDA 5,271 7,623 -30.9%

Income (loss) fromOperations
(28,876) 4,620

 NM
 
  • Payments revenue is derived through our CASHNet and Campus Solutions products and consists of recurring software subscription fees as well as transactional fees generated by payment plan enrollments and payment processing convenience fees.
                             
Payments

2015

2014

% Change
Gross Revenue $21,351 $20,238 5.5%
Adjusted EBITDA 6,134 5,689 7.8%
Income from Operations 3,234 2,809 15.1%
 
  • Data Analytics revenue was derived through our Campus Labs products and was comprised mostly of subscription fees, accompanied by smaller one-time support and implementation fees. The Data Analytics business was sold during the fourth quarter of 2015 and the results of the Data Analytics business are presented as discontinued operations. The Data Analytics business generated adjusted EBITDA of $539 and $1,435 during the fourth quarter of 2015 and 2014, respectively. The results of the fourth quarter of 2015 reflect the period through the disposition of the business on November 25, 2015, whereas the fourth quarter of 2014 reflects a full quarter of activity.

Business-line financial results for the full year 2015 compared to the full year 2014 (in thousands):
  • Disbursements revenue is comprised of both subscription fees for our Refund Management disbursement service as well as the transaction-based sources of interchange and service fees derived through OneAccounts.
                           
Disbursements

2015

2014

% Change
Gross Revenue $120,936 $136,720 -11.5%
Adjusted EBITDA 24,030 35,941 -33.1%
Income (loss) from Operations (44,941) 15,132 NM
 
  • Payments revenue is derived through our CASHNet and Campus Solutions products and consists of recurring software subscription fees as well as transactional fees generated by payment plan enrollments and payment processing convenience fees.
                           
Payments

2015

2014

% Change
Gross Revenue $83,272 $77,693 7.2%
Adjusted EBITDA 22,083 18,507 19.3%
Income from Operations 10,007 6,976 43.4%
 
  • Data Analytics revenue was derived through our Campus Labs products and was comprised mostly of subscription fees, accompanied by smaller one-time support and implementation fees. The Data Analytics business was sold during the fourth quarter of 2015 and the results of the Data Analytics business are presented as discontinued operations. The Data Analytics business generated adjusted EBITDA of $5.3 million and $5.1 during 2015 and 2014, respectively. The results for this line of business for 2015 reflect the year through the disposition of the business on November 25, 2015, whereas the results for 2014 reflect a complete year of activity.

Conference Call Information

Higher One will host a conference call at 8:30 a.m. EST today to discuss fourth quarter results. The dial-in phone number is 866-499-3420 for domestic listeners and 678-562-4219 for international listeners. The conference ID number is 18902953. 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. A replay of the call will be available at 855-859-2056 for domestic listeners and 404-537-3406 for international listeners. Please use the passcode 18902953 to access the replay.

About Higher One Holdings

Higher One Holdings, Inc. (NYSE:ONE) is a leading financial technology company focused on providing cost-saving solutions that enhance student service for the business office of colleges and universities. Higher One's technologies for higher education institutions streamline the processes of financial aid disbursement and payment acceptance. Higher One also provides options for students and families to manage college-related expenses, such as unique student-banking services, and financial education through $tart with Change. Higher One supports more than 1,500 college and university campuses and more than 9 million students across the U.S. More information can be found at www.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 management's expectations about future events and Higher One's operating plans and performance, 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, non-cash impacts and other adjustments 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 each non-GAAP measure to its closest comparable GAAP measure are included in this press release.
 
 

Higher One Holdings, Inc.

Condensed Consolidated Statements of Operations

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

(unaudited)
       
Three Months Ended Year Ended
December 31, December 31,
2015   2014 2015   2014
Revenue:
Account revenue $ 26,660 $ 31,578 $ 115,183 $ 131,053
Payment transaction revenue 16,562 15,579 64,059 58,231
Higher education institution revenue 5,924 5,781 24,197 24,219
Other revenue   211     187     769     910  
Gross revenue 49,357 53,125 204,208 214,413
Less: allowance for customer restitution   (24,370 )   -     (46,250 )   (8,750 )
Revenue 24,987 53,125 157,958 205,663
Cost of revenue   23,487     24,972     99,534     100,607  
Gross margin   1,500     28,153     58,424     105,056  
Operating expenses:
General and administrative 15,464 15,588 65,728 61,150
Product development 1,682 1,362 6,579 5,840
Sales and marketing 3,428 3,774 13,909 15,958
Restructuring charge 106 - 680 -

Civil money penalty and administrative costs related to customer restitution
6,026 - 6,026 -
Costs related to planned disposal of disbursements business   436     -     436     -  
Total operating expenses   27,142     20,724     93,358     82,948  
Income (loss) from continuing operations (25,642 ) 7,429 (34,934 ) 22,108
Interest income 19 19 82 92
Interest expense (3,031 ) (633 ) (6,073 ) (2,546 )
Other income (loss)   78     (883 )   1,435     678  
Net income (loss) before income taxes (28,576 ) 5,932 (39,490 ) 20,332
Income tax expense (benefit)   (9,664 )   2,412     (13,055 )   8,036  
Income (loss) from continuing operations   (18,912 )   3,520     (26,435 )   12,296  
Discontinued operations:
Income (loss) from operations (656 ) 955 2,145 4,310
Gain on disposal 58,153 - 58,153 -
Income tax expense   (21,934 )   (363 )   (23,004 )   (1,639 )
Income from discontinued operations   35,563     592     37,294     2,671  
Net income $ 16,651   $ 4,112   $ 10,859   $ 14,967  
 
Weighted average shares outstanding
Basic 47,797,671 47,295,685 47,653,763 47,209,780
Diluted 48,622,870 47,696,315 48,186,437 48,050,039
 
Earnings per share of common stock - basic
Continuing operations -$0.40 $ 0.07 -$0.55 $ 0.26
Net income per share $ 0.35 $ 0.09 $ 0.23 $ 0.32
 
Earnings per share of common stock - diluted
Continuing operations -$0.40 $ 0.07 -$0.55 $ 0.26
Net income per share $ 0.34 $ 0.09 $ 0.23 $ 0.31
 
Net income $ 16,651 $ 4,112 $ 10,859 $ 14,967
Other comprehensive loss
Foreign currency translation adjustment   (113 )   -     (113 )   -  
Comprehensive income $ 16,538   $ 4,112   $ 10,746   $ 14,967  
   
 

Higher One Holdings, Inc.

Condensed Consolidated Operating Segment Statements of Operations

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

(unaudited)
       

Three Months Ended December 31,
   

Year Ended December 31,
2015   2014     2015   2014
Revenue
Disbursements

$(1)

3,636

 
$       32,887

$(2)

74,686

 

$(3)
 

127,970
Payments   21,351             20,238       83,272         77,693
Total revenues   24,987             53,125       157,958         205,663
 
Cost of revenue
Disbursements 13,456 15,422 58,755 61,540
Payments   10,031             9,550       40,779         39,067
Total cost of revenue   23,487             24,972       99,534         100,607
 
Gross margin
Disbursements (9,820 ) 17,465 15,931 66,430
Payments   11,320             10,688       42,493         38,626
Total gross margin   1,500             28,153       58,424         105,056
 
Operating expenses
Disbursements 19,056 12,845 60,872 51,298
Payments   8,086             7,879       32,486         31,650
Total operating expenses   27,142             20,724       93,358         82,948
 
Income from continuing operations
Disbursements (28,876 ) 4,620 (44,941 ) 15,132
Payments   3,234             2,809       10,007         6,976
Total income (loss) from continuing operations $ (25,642 )   $       7,429     $ (34,934 )   $   22,108
 
(1) Reflects the impact of the allowance for potential customer restitution of $24.4 million.
(2) Reflects the impact of the allowance for potential customer restitution of $46.3 million.
(3) Reflects the impact of the allowance for potential customer restitution of $8.75 million.
 
 

Higher One Holdings, Inc.

Condensed Consolidated Balance Sheets

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

(unaudited)
       
December 31, 2015 December 31, 2014
Assets
Current assets:
Cash and cash equivalents $ 26,868 $ 40,022
Investments in marketable securities - 249
Accounts receivable 5,052 4,765
Income receivable 9,227 9,053
Prepaid expenses and other current assets 8,059 7,697
Current assets of discontinued operations   -     4,272  
Total current assets   49,206   $ 66,058  
Deferred costs 3,753 4,187
Fixed assets, net 42,288 46,315
Intangible assets, net 31,430 37,106
Goodwill 53,022 53,023
Loan receivable related to New Markets Tax Credit financing 7,633 7,633
Other assets 2,909 2,523
Restricted cash 2,729 2,725
Non-current assets of discontinued operations   -     33,982  
Total assets $ 192,970   $ 253,552  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,040 $ 3,276
Accrued expenses 19,675 25,833
Deferred revenue 17,145 16,216
Current liabilities of discontinued operations   -     9,060  
Total current liabilities $ 39,860 $ 54,385
Deferred revenue and other non-current liabilities 5,414 3,858
Loan payable and deferred contribution related to New Markets Tax Credit financing 8,561 8,871
Debt 29,000 94,000
Deferred tax liabilities 1,659 95
Non-current liabilities of discontinued operations   -     161  
Total liabilities $ 84,494   $ 161,370  
Commitments and contingencies (Note 15)
Stockholders' equity:

Common stock, $.001 par value; 200,000,000 shares authorized; 59,921,503shares issued and 48,008,477 shares outstanding at December 31, 2015;59,570,839 shares issued and 47,657,813 shares outstanding at December 31, 2014

 
60 60
Additional paid-in capital 191,136 185,588
Treasury stock, 11,913,026 shares at December 31, 2015 and 2014 (137,899 ) (137,899 )
Accumulated other comprehensive loss (113 ) -
Retained earnings   55,292     44,433  
Total stockholders' equity   108,476     92,182  
Total liabilities and stockholders' equity $ 192,970   $ 253,552  
 
 

Higher One Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands of dollars)

(unaudited)
     
Year Ended December 31,
2015     2014
Cash flows from operating activities
Net income $ 10,859 $ 14,967
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 21,618 19,072
Amortization of deferred finance costs 4,275 484
Gain on disposition of data analytics business (58,153 ) -
Stock-based compensation 6,589 4,574
Deferred income taxes 255 2,967
Income tax benefit related to exercise of stock options (14 ) (49 )
Other income (314 ) (35 )
Loss on disposal of fixed assets 149 118
Changes in operating assets and liabilities:
Accounts receivable 528 (182 )
Income receivable (174 ) (2,373 )
Deferred costs (498 ) (2,250 )
Prepaid expenses and other current assets 943 (3,548 )
Other assets (386 ) (1,612 )
Accounts payable (299 ) (528 )
Accrued expenses (6,000 ) (4,776 )
Deferred revenue   2,008     3,381  
Net cash provided by (used in) operating activities   (18,614 )   30,210  
Cash flows from investing activities
Purchases of fixed assets (2,681 ) (3,487 )
Additions to internal use software (4,478 ) (5,295 )
Proceeds from disposition of data analytics business 52,063 -
Proceeds from sale of investments and amounts received from restricted cash 249 25
Proceeds from disposition of equity method investment - 3,581
Proceeds from development related subsidies   -     3,468  
Net cash provided by (used in) investing activities   45,153     (1,708 )
Cash flows from financing activities
Proceeds from line of credit - 15,000
Repayments of line of credit (35,000 ) (10,000 )
Payment of deferred financing costs (4,990 ) -
Excess tax benefit related to stock options 14 49
Proceeds from exercise of stock options   356     203  
Net cash provided by (used in) financing activities   (39,620 )   5,252  
Effect of exchange rate changes on cash   (73 )   -  
Net change in cash and cash equivalents (13,154 ) 33,754
Cash and cash equivalents at beginning of period   40,022     6,268  
Cash and cash equivalents at end of period $ 26,868   $ 40,022  
 
 
Higher One Holdings, Inc.
Unaudited Supplemental Operating Data
(In thousands)
           
Three Months Ended
December 31, March 31, June 30, September 30, December 31,
2014 2015 2015 2015 2015
 
Refund Management SSE (1) 5,078 5,096 5,026 4,918 4,919
change from prior year period 2% 0% -2% -2% -3%
 
Ending OneAccounts (2) 2,135 2,179 2,007 2,038 1,965
change from prior year period -3% -5% -4% -7% -8%
(1)     Refund Management SSE is defined as the number of students enrolled at institutions that have signed contracts to use the Refund Management disbursement service by the end of a given period as of the date the contract is signed (using the most up-to-date Integrated Postsecondary Education Data System data at that point in time). Refund Management SSE for all periods other than September 30, 2015 reflects Fall 2013 provisional enrollment data from IPEDS. The effect of updating Refund Management SSE as of September 30, 2015 resulted in a decrease of approximately 98,000 SSE from the enrollment figures prior to 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.
 
 

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,
2015 2014 2015 2014
(unaudited)
(in thousands)
 
Net income $ 16,651 $ 4,112 $ 10,859 $ 14,967
Interest income (19 ) (19 ) (82 ) (92 )
Interest expense 3,356 823 7,250 3,266
Income tax expense 12,270 2,775 9,949 9,675
Depreciation and amortization   5,189     4,949     21,618     19,072  
EBITDA 37,447 12,640 49,594 46,888
Restructuring charge 106 - 680 -
Stock-based compensation expense 1,712 1,147 6,589 4,574
Allowance for customer restitution 30,396 - 52,276 8,750
Costs related to planned disposal of disbursements business 436 - 436 -
Gain on disposition of data analytics business (58,153 ) - (58,153 ) -
Campus Solutions settlement received, net of related expense   -     960     -     (644 )
Adjusted EBITDA $ 11,944   $ 14,747   $ 51,422   $ 59,568  
 
 

Higher One Holdings, Inc.

Unaudited Reconciliation of GAAP Net Income and Diluted EPS to Non-GAAP Adjusted Net Income and Adjusted Diluted EPS

(In thousands, except share and per share amounts)
           
Three Months Ended Year Ended
December 31, December 31,
2015 2014 2015 2014
(unaudited)
(in thousands)
 
Net income $ 16,651 $ 4,112 $ 10,859 $ 14,967
 
Restructuring charge 106 - 680 -
Allowance for customer restitution and related costs 25,933 - 47,813 8,750
Gain on disposition of data analytics business (58,153) - (58,153) -
Costs related to planned disposal of disbursements business 436 - 436 -
Campus Solutions settlement received, net - 960 - (644)
Stock-based compensation expense - non-qualified stock option grants 1,439 903 5,618 3,284
Amortization of intangibles 1,606 1,850 7,066 7,847
Amortization of deferred finance costs 2,617 115 4,274 484
Total pre-tax adjustments (26,016) 3,828 7,734 19,721
Tax rate 35.1% 38.5% 39.0% 38.5%
Tax adjustment (9,135) 1,474 3,016 7,593
Adjustments, net of tax (16,881) 2,354 4,718 12,128
 
Civil money penalty related to customer restitution 4,463 - 4,463 -
Release of state tax valuation allowance 285 - - -
Stock-based compensation expense - incentive stock option grants 273 245 970 1,290
Total after-tax adjustments 5,021 245 5,433 1,290
 
Adjusted net income $ 4,791 $ 6,711 $ 21,010 $ 28,385
 
Diluted weighted average shares outstanding

48,623
47,696 48,186 48,050
GAAP net income per share (diluted) $0.34 $0.09 $0.23 $0.31
Non-GAAP adjusted net income per share (diluted) $0.10 $0.14 $0.44 $0.59

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