ONE OneSmart International Education Group Limited

Technology and payments services provider Higher One Holdings, Inc. (NYSE: ONE) (“Higher One”) today announced financial results for the fourth quarter and full year 2011. In the fourth quarter, revenue was impacted by a voluntary customer credit plan in which Higher One provided for $4.7 million in credits or payments to certain customers in relation to the potential $0 to $10 million contingency disclosed in the company’s third quarter Form 10-Q. Revenue and revenue before credits to customers for the fourth quarter and full year 2011 were as follows:

                    ($ in thousands)     FY'10     FY'11     Growth Revenue     144,969     176,320     22% Revenue (before customer credit plan)     144,969     181,048     25%                     ($ in thousands)     Q4'10     Q4'11     Growth Revenue     39,783     41,730     5% Revenue (before customer credit plan)     39,783     46,458     17%            

Revenue growth for both the fourth quarter and the full year 2011 was primarily attributable to an increase in the number of students choosing to use the OneAccount and growth in adoption of the CASHNet payment suite modules.

“I am very pleased with our performance throughout 2011 and particularly pleased that we exited the year in such a strong position,” said Dean Hatton, President and CEO of Higher One. “We had an excellent year for sales and delivered earnings at the top end of our guidance range. We also laid the groundwork to implement a multi-bank strategy and took other steps that greatly improve the company’s flexibility going forward. 2012 should be another year of strong growth for Higher One.”

Higher One also reported fourth quarter GAAP net income of $7.6 million, and non-GAAP adjusted net income, which excludes stock-based compensation, stock-based and other customer acquisition expense, amortization of intangible assets, and certain one-time costs such as our customer credit plan, of $12.4 million. GAAP diluted EPS was $0.13 in the quarter. Non-GAAP adjusted diluted EPS was $0.21 in the fourth quarter, up from $0.17 a year ago. In the fourth quarter of 2011, non-GAAP adjusted EBITDA was $19.8 million, up 18% from $16.8 million in the same period last year.

Full year 2011 GAAP net income was at $31.9 million, and non-GAAP adjusted net income, which excludes stock-based compensation, stock-based and other customer acquisition expense, amortization of intangible assets, and certain one-time costs such as our customer credit plan, was $45.0 million. GAAP diluted EPS was $0.54 for 2011, up from $0.44 in 2010. 2011 non-GAAP adjusted diluted EPS was $0.76, up from $0.60 a year ago. For full year 2011, non-GAAP adjusted EBITDA was $74.0 million, up 24% from $59.5 million in 2010.

The number of OneAccounts at the end of 2011 totaled 2.0 million, up 23% from approximately 1.6 million at the end of 2010. Total enrollment at higher education clients who have purchased the OneDisburse product increased to 4.2 million, an increase of more than 888,000, up 27% from 3.3 million at the end of 2010. 2011 was the best ever year for new OneDisburse sales. Total enrollment at higher education clients who have purchased the CASHNet suite of payment products increased to 2.6 million, up more than 157,000 from 2.5 million at the end of the prior year.

Operating cash flow in the quarter was $13.5 million, up 3% from $13.0 million in the fourth quarter of 2010. The company generated $44.8 million in operating cash flow for the full year 2011, up 12% from $40.1 million in 2010. Cash, cash equivalents, and liquid investments totaled $54.8 million at December 31, 2011.

Higher One issued revenue guidance for the first quarter of 2012 of $58.0 – $62.0 million. The company updated full year 2012 revenue guidance to $215.0 – $230.0 million. The company issued GAAP diluted EPS guidance for the first quarter of 2012 of $0.24 – $0.28, and maintained GAAP diluted EPS guidance for the full year 2012 of $0.80 – $0.90, respectively. The company issued first quarter 2012 non-GAAP adjusted diluted EPS guidance of $0.27 – $0.30, and maintained full year 2012 non-GAAP adjusted diluted EPS guidance of $0.90 – $1.00, respectively. The company believes that the non-GAAP adjusted diluted EPS measure, which excludes certain one-time costs, stock-based compensation, and amortization of intangible assets, all adjusted for taxes, 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. EST today to discuss fourth 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 their nearest comparable GAAP measures can be accessed through Higher One’s investor relations website at http://ir.higherone.com/. In addition, an archive of the webcast will be available for 90 days through the same link.

About Higher One Holdings, Inc.

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 and payment processing, 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 6.0 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. 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 available on our website at http://ir.higherone.com.

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 Twelve Months Ended December 31, December 31, 2010 2011 2010 2011 Revenue: Account revenue $ 31,821 $ 37,089 $ 113,516 $ 142,589 Payment transaction revenue 3,731 4,745 15,742 18,733 Higher education institution revenue 3,594 3,918 12,543 16,614 Other revenue   637   706   3,168   3,112 Revenue (before customer credit plan) 39,783 46,458 144,969 181,048 Less customer credit plan   -   (4,728)   -   (4,728) Revenue 39,783 41,730 144,969 176,320 Cost of revenue   14,517   17,074   51,845   67,560 Gross margin   25,266   24,656   93,124   108,760 Operating expenses: General and administrative 8,520 9,513 32,381 37,715 Product development 787 427 3,311 3,265 Sales and marketing   2,409   3,402   16,185   20,265 Total operating expenses   11,716   13,342   51,877   61,245 Income from operations 13,550 11,314 41,247 47,515 Interest income 16 17 29 68 Interest expense (169) (70) (729) (266) Other income   -   -   –   1,500 Net income before income taxes 13,397 11,261 40,547 48,817 Income tax expense   4,860   3,632   15,488   16,924 Net income and net income attributable to common stockholders $ 8,537 $ 7,629 $ 25,059 $ 31,893   Net income available to common stockholders: Basic $ 8,537 $ 7,629 $ 16,149 $ 31,893 Participating Securities   -   -   8,910   – Diluted $ 8,537 $ 7,629 $ 25,059 $ 31,893   Weighted average shares outstanding Basic 54,240,386 55,060,419 33,395,310 55,210,972 Diluted 59,360,619 59,134,013 57,302,843 59,553,678   Net income available to common stockholders per common share: Basic $ 0.16 $ 0.14 0.48 $ 0.58 Diluted $ 0.14 $ 0.13 0.44 $ 0.54        

Higher One Holdings, Inc.

Unaudited Condensed Consolidated Balance Sheets

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

  December 31, December 31 2010 2011 Assets Current assets: Cash and cash equivalents $ 34,484 $ 39,085 Investments in marketable securities and certificate of deposit 14,697 15,743 Accounts receivable 2,622 3,672 Income receivable 3,719 5,961 Deferred tax assets 48 33 Prepaid expenses and other current assets 6,981 19,445 Restricted cash   8,250   - Total current assets   70,801   83,939 Deferred costs 3,782 3,776 Fixed assets, net 9,919 46,088 Intangible assets, net 18,456 16,787 Goodwill 15,830 15,830 Loan receivable related to New Markets Tax Credit financing - 7,633 Other assets 653 712 Restricted cash   -   1,250 Total assets $ 119,441 $ 176,015   Liabilities and Equity Current liabilities: Accounts payable $ 3,063 $ 3,118 Accrued expenses 11,786 26,414 Acquisition payable 8,250 - Deferred revenue   7,974   9,690 Total current liabilities   31,073   39,222 Deferred revenue 2,051 2,173 Loan payable related to New Markets Tax Credit financing - 7,633 Deferred tax liabilities   2,926   1,233 Total liabilities   36,050   50,261 Commitments and contingencies   Stockholders' equity: Common stock, $0.001 par value; 200,000,000 shares authorized; 56,109,234 shares issued and outstanding at December 31, 2010; 57,675,806 shares issued and 56,615,683 shares outstanding at December 31, 2011 56 58 Additional paid-in capital 136,760 161,268 Treasury stock 1,060,123 shares at December 31, 2011 - (16,208) Accumulated deficit, net of 2008 stock tender transaction of $93,933   (53,425)   (21,532) Total stockholders' equity 83,391 123,586 Noncontrolling interest   -   2,168 Total equity   83,391   125,754 Total liabilities and equity $ 119,441 $ 176,015    

Higher One Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands of dollars)

  Twelve Months Ended December 31, 2010   2011 Cash flows from operating activities Net income and net income attributable to common stockholders $ 25,059 $ 31,893 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,292 7,021 Amortization of deferred finance costs 204 76 Non-cash interest expense 360 - Stock-based customer acquisition expense 7,274 10,493 Stock-based compensation 2,913 3,868 Deferred income taxes (3,166) (1,678) Gain on litigation settlement agreement - (1,500) Loss on disposal of fixed assets 24 428 Changes in operating assets and liabilities: Accounts receivable (263) (1,050) Income receivable (382) (2,242) Deferred costs (988) (992) Prepaid expenses and other current assets (4,480) (6,464) Other assets (125) 109 Accounts payable 263 55 Accrued expenses 2,732 2,933 Deferred revenue   3,339   1,838 Net cash provided by operating activities   40,056   44,788 Cash flows from investing activities Purchases of available for sale investment securities (20,777) (14,101) Proceeds from sales and maturities of available for sale investment securities 6,080 13,055 Purchases of fixed assets, net of changes in construction payables of $347 and

$11,610 respectively

(7,059) (40,426) Additions to capitalized software - (1,602) Proceeds from development related subsidies - 7,125 Investment related to New Markets Tax Credit financing - (7,633) Payment to escrow agent (8,250) (1,250) Proceeds from escrow agent - 1,500 Payment of acquisition payable   (1,750)   - Net cash used in investing activities   (31,756)   (43,332) Cash flows from financing activities Tax benefit related to stock options 2,811 8,793 Proceeds from exercise of stock options 1,019 1,214 Repurchase of common stock - (16,208) Proceeds related to New Markets Tax Credit financing - 7,633 Noncontrolling interest contribution - 2,168 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 - Payment of deferred financing costs (187) (455) Repayment of capital lease obligations   (7)   - Net cash provided by financing activities   22,845   3,145 Net change in cash and cash equivalents 31,145 4,601 Cash and cash equivalents at beginning of period   3,339   34,484 Cash and cash equivalents at end of period $ 34,484 $ 39,085                    

Higher One Holdings, Inc.

Unaudited Supplemental Operating Data

(in thousands)

  Three Months Ended Dec 31, March 31, June 30, Sept 30, Dec 31, 2010 2011 2011 2011 2011   OneDisburse SSE (1) 3,281 3,413 3,659 3,970 4,169 y/y growth 41% 27% 31% 23% 27%   CASHNet suite SSE (2) 2,460 2,506 2,550 2,576 2,617 y/y growth 25% 14% 10% 5% 6%   Ending OneAccounts (3) 1,618 1,762 1,722 2,015 1,997 y/y growth 61% 46% 39% 31% 23%  

(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 Year Ended December 31, December 31, 2010     2011 2010 2011 (unaudited) (unaudited)   Net income $ 8,537 $ 7,629 $ 25,059 $ 31,893 Interest income (16) (17) (29) (68) Interest expense 169 70 729 266 Income tax expense 4,860 3,632 15,488 16,924 Depreciation and amortization   1,971   1,817   7,292   7,021 EBITDA 15,521 13,131 48,539 56,036 Stock-based and other customer acquisition expense 565 1,120 8,013 10,861 Stock-based compensation expense 729 819 2,913 3,868 Customer credit plan - 4,728 - 4,728 Other income   -   -   -   (1,500) Adjusted EBITDA $ 16,815 $ 19,798 $ 59,465 $ 73,993   Revenues (before customer credit plan) $ 39,783 $ 46,458 $ 144,969 $ 181,048 Net Income Margin 21.5% 16.4% 17.3% 17.6% Adjusted EBITDA Margin 42.3% 42.6% 41.0% 40.9%            

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

Income and Non-GAAP Adjusted Diluted EPS

(in thousands, except per share amounts)

  Three Months Ended Year Ended December 31, December 31, 2010     2011 2010 2011 (unaudited) (unaudited)   Net income $ 8,537 $ 7,629 $ 25,059 $ 31,893 Customer credit plan - 4,728 - 4,728 Stock-based and other customer acquisition expense 565 1,120 8,013 10,861 Stock-based compensation expense - ISO 378 375 1,526 1,743 Stock-based compensation expense - NQO 351 444 1,387 2,125 Other income - - - (1,500) Amortization of intangibles 767 768 3,070 3,071 Amortization of deferred finance costs   51   22   204   76 Total pre-tax adjustments 2,112 7,457 14,200 21,104 Tax rate 35.7% 38.2% 38.6% 38.2% Tax adjustment   618   2,705   4,841   7,969 Adjusted net income $ 10,031 $ 12,381 $ 34,418 $ 45,028   Diluted average weighted shares outstanding 59,360,619 59,134,013 57,302,843 59,553,678 Diluted EPS $ 0.14 $ 0.13 $ 0.44 $ 0.54 Adjusted Diluted EPS $ 0.17 $ 0.21 $ 0.60 $ 0.76   Revenues (before customer credit plan) $ 39,783 $ 46,458 $ 144,969 $ 181,048 Net Income Margin 21.5% 16.4% 17.3% 17.6% Adjusted Net Income Margin 25.2% 26.6% 23.7% 24.9%    

Higher One Holdings, Inc.

Business Outlook

  Three Months Ending March 31, 2012 GAAP   Non-GAAP (a) Revenues (in millions) $58.0   -   $62.0 $58.0   -   $62.0 Diluted EPS $0.24 - $0.28 $0.27 - $0.30  

(a)

Estimated Non-GAAP amounts above for the three months ending March 31, 2012 reflect the estimated quarterly adjustments that exclude (i) the amortization of intangibles and finance costs of approximately $750,000, (ii) stock-based compensation expense of approximately $1.25 million.

    Twelve Months Ending December 31, 2012 GAAP   Non-GAAP (b) Revenues (in millions) $215.0   -   $230.0 $215.0   -   $230.0 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.