OFFICIAL PAYMENTS HOLDINGS, INC. - FORM 8-K - EX-99.1 - PRESS RELEASE - May 9, 2013

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8-K - FINANCIAL RESULTS FOR QUARTER ENDED MARCH 31, 2013 - OFFICIAL PAYMENTS HOLDINGS, INC.form8k.htm
Exhibit 99.1




Official Payments Reports Results from Second Quarter of Fiscal Year 2013:
Sixth Consecutive Quarter of Positive Adjusted EBITDA
Net loss per share narrowed to $0.02 per share for second quarter

Norcross, GA, May 9, 2013 – Official Payments Holdings, Inc. (Nasdaq: OPAY), a leading provider of electronic payment solutions, reported results today for its fiscal year 2013 second quarter (Q2 fiscal 2013) . The Company will host a call/webcast today at 5:00 p.m. EDT to review its results:
Conference Call Dial-In:
888-790-2049 Participant code – "OPAY"
Webcast/Replay:
http://investors.officialpayments.com
Replay Dial-In:
866-481-5021
–   10:00 pm ET, Thursday, May 9, 2013 to
 
 
11:59 pm ET, Friday, June 7, 2013


Q2 Fiscal 2013 Highlights:
Official Payments Holdings, Inc. reported revenue from continuing operations of $32.7 million for Q2 fiscal 2013, a decrease of $0.1 million compared to Q2 fiscal 2012. Q2 fiscal 2013 Payment Solutions net revenue, which reflects Payment Solutions revenues less related processing and interchange fees, was $12.1 million compared to $11.5 million in Q2 fiscal 2012. $2.3 billion of payment transactions were processed in Q2 fiscal 2013 compared to $2.0 billion of payment transactions in Q2 fiscal 2012 with  average payment size increasing 15.7%.  General and administrative and selling and marketing expenses decreased a combined 3.7% versus Q2 fiscal 2012, primarily due to lower compensation related expenses.

Official Payments reported a net loss from continuing operations of $0.4 million, or $0.02 per share for Q2 fiscal 2013, compared to the prior year's net loss from continuing operations of $1.4 million, or $0.08 per share for Q2 fiscal 2012.  Continuing operations consists of the Payment Solutions segment, which contributed more than 99% of the company's revenue from continuing operations in fiscal 2013, with nominal revenue contributions from the legacy voice and systems automation (VSA) operations that are in the process of being wound down.

Adjusted EBITDA from continuing operations was $1.9 million in Q2 fiscal 2013 compared to $1.0 million in Q2 fiscal 2012.

Payment Solutions net revenue and Adjusted EBITDA from continuing operations are non-GAAP financial measures.  These measures are defined and reconciled to GAAP financial measures below.

Cash Position and Use of Cash
Official Payments' cash and cash equivalents increased by approximately $2.5 million from $39.1 million at fiscal year-end 2012 to $41.6 million at March 31, 2013. Official Payments cash position includes $6.7 million of net settlement funds outstanding and $5.5 million of accrued discount fees, thus leaving cash available for company use of $29.4 million.

Management Overview
Alex P. Hart, President and CEO, stated, "We're very pleased to report a sixth consecutive quarter of positive Adjusted EBITDA. We're particularly excited about the launch of electronic bill delivery (e-Bill) and mobile payment apps for the iPad, iPhone, and Android phones and tablets, all of which will give consumers even more ways to utilize our services.  On the operations front, our platform consolidation project continues to progress, and the infrastructure upgrade we completed last year yielded tremendous results during the recently completed tax season. We handled a peak volume of 460,000 transactions on April 15th without incident, a record number of transactions, but well below our peak capacity: as a result of the infrastructure upgrade, our system is capable of handling one million transactions in a 24 hour period."

"The record IRS tax season bodes very well for our anticipated third quarter results and is cause for optimism for the remainder of FY13 and beyond," said Hart. "The most critical part of tax season occurs between March 1st and
Page 1 of 6
April 21st, and IRS transactions during that period were up 74% versus last year and dollar volume was up 82% versus last year. These increases were driven by a combination of the quality and availability of our upgraded user interfaces across multiple channels, a sizeable increase in volume from taxpayers who use TurboTax to calculate and pay their federal income taxes (up more than 100% for both transactions and dollars), the fact that we were listed in the first position on the list of payment providers on the IRS website, our improved search engine optimization and email marketing efforts, the reintroduction of our ChoicePay brand for taxpayers seeking more inexpensive payment options, and the ongoing increase in the adoption of electronic tax filing and electronic payment. The quality of this tax season, and our continued ability to handle significant increases in volume without incident, gives us confidence that we're on the right track, technologically, operationally and financially."

Non-GAAP Financial Measures
Official Payments uses the following non-GAAP financial measures in this press release:  Adjusted EBITDA from continuing operations and Payment Solutions net revenue. We define 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 share-based compensation expense. We define 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.

Management believes these measures are useful for evaluating our performance against the performance of peer companies within the electronic payments industry, and that they provide investors with additional transparency on the financial measures used in management's decision-making.  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.

These measures are reconciled to GAAP financial measures in the tables below:

Reconciliation of Adjusted EBITDA from continuing operations to net loss from continuing operations:

 
  
Adjusted EBITDA from continuing operations
  
 
  
Three months ended March 31,
  
(in thousands, except percentages)
  
2013
    
2012
    
Change ($)
    
Change (%)
  
Net loss from continuing operations
  
$
(361
)
  
$
(1,408
)
  
$
1,047
      
(74.4
)%
Adjustments:
                                
Depreciation/amortization
    
1,924
      
1,867
      
57
      
(3.1
)%
Stock-based compensation
    
365
      
514
      
(149
)
    
(29.0
)%
Restructuring charge
    
—
      
35
      
(35
)
    
(100.0
)%
Tax provision
    
9
      
—
      
9
    
nm
  
Interest expense, net
    
1
      
—
      
1
    
nm
  
Adjusted EBITDA from continuing operations
  
$
1,938
    
$
1,008
    
$
930
      
92.3
%
nm not meaningful
                                

 
  
Adjusted EBITDA from continuing operations
  
 
  
Six months ended March 31,
  
(in thousands, except percentages)
  
2013
    
2012
    
Change ($)
    
Change (%)
  
Net loss from continuing operations
  
$
(1,189
)
  
$
(3,042
)
  
$
1,853
      
60.9
%
Adjustments:
                                
Depreciation/amortization
    
3,723
      
3,770
      
(47
)
    
(1.2
)%
Stock-based compensation
    
1,044
      
981
      
63
      
6.4
%
Restructuring charge
    
—
      
1,490
      
(1,490
)
    
(100.0
)%
Tax provision
    
2
      
—
      
2
    
nm
  
Interest expense (income), net
    
2
      
(1
)
    
3
      
(300.0
)%
Adjusted EBITDA from continuing operations
  
$
3,582
    
$
3,198
    
$
384
      
12.0
%
nm not meaningful
                                


 
Page 2 of 6

 
Reconciliation of Payment Solutions net revenue to revenue from continuing operations:

 
  
Three months ended March 31,
  
(in thousands, except percentages)
  
2013
    
2012
    
Change ($)
    
Change (%)
  
Revenue from continuing operations
  
$
32,714
    
$
32,820
    
$
(106
)
    
(0.3
)%
Less:
                                
Non-Payment Solutions revenue
    
179
      
350
      
(171
)
    
(48.9
)%
Payment Solutions gross revenue
    
32,535
      
32,470
      
65
      
0.2
%
Less:
                                
Payment Solutions Discount fees
    
20,479
      
20,938
      
(459
)
    
(2.2
)%
Payment Solutions net revenue
  
$
12,056
    
$
11,532
    
$
524
      
4.6
%

 
  
Six months ended March 31,
  
(in thousands, except percentages)
  
2013
    
2012
    
Change ($)
    
Change (%)
  
Revenue from continuing operations
  
$
66,130
    
$
67,657
    
$
(1,527
)
    
(2.3
)%
Less:
                                
Non-Payment Solutions revenue
    
313
      
885
      
(572
)
    
(64.6
)%
Payment Solutions gross revenue
    
65,817
      
66,772
      
(955
)
    
(1.4
)%
Less:
                                
Payment Solutions Discount fees
    
42,426
      
43,281
      
(855
)
    
(2.0
)%
Payment Solutions net revenue
  
$
23,391
    
$
23,491
    
$
(100
)
    
(0.4
)%
 
                                
About Official Payments Holdings, Inc. (www.OPAY.OfficialPayments.com):
Official Payments provides electronic payment solutions for over 3,000 clients across all 50 states, Puerto Rico and the District of Columbia. During the past year more than 12 million Customers and Constituents of our Clients utilized our services. Official Payments' solutions enable government agencies, educational institutions, utility companies, charitable organizations, and other billers to seamlessly accept secure, convenient payments by credit card, debit card and electronic check via mobile, web (www.OfficialPayments.com), telephone and point of sale.

CONTACT:
Jeff Hodges, CFO
770-325-3102
Investorrelations@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: intense competition in the marketplace; our ability to increase Payment Solutions revenues and reduce operating costs, including discount fees; our ability to execute on our sales, marketing and product development strategy and expand our business including introduction of new services, products, and product enhancements into the marketplace;  timely consolidation of our payment platforms; maintaining secure systems and protecting against security breaches, loss of privacy/data, and fraud; litigation; unanticipated claims as a result of the failure of software providers, processors, vendors, or subcontractors to satisfactorily perform and complete engagements; the renewal, extension or early termination of client contracts or projects; and compliance with government regulations and the impact of regulatory requirements.    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 sections, "Risk Factors" and "Management Discussion and Analysis of Financial Condition and Results of Operations" in the periodic reports on Form 10-K and Form 10-Q that we file with the Securities and Exchange Commission.

Page 3 of 6
 
OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Balance Sheets


(in thousands)
  
March 31, 2013
    
September 30, 2012
  
 
  
(unaudited)
    
 
ASSETS:
  
   
 
Current assets:
  
   
 
Cash and cash equivalents
  
$
41,575
    
$
39,071
  
Accounts receivable, net
    
3,890
      
5,304
  
Settlements receivable, net
    
28,277
      
15,291
  
Prepaid expenses and other current assets
    
1,965
      
1,692
  
Total current assets
    
75,707
      
61,358
  
 
                
Property, equipment and software, net
    
18,766
      
17,368
  
Goodwill
    
17,642
      
17,582
  
Other intangible assets, net
    
792
      
1,107
  
Other assets
    
934
      
509
  
Total assets
  
$
113,841
    
$
97,924
  
 
                
LIABILITIES AND SHAREHOLDERS' EQUITY:
                
Current liabilities:
                
Accounts payable
  
$
16
    
$
74
  
Settlements payable
    
34,948
      
17,019
  
Accrued compensation liabilities
    
3,579
      
6,373
  
Accrued discount fees
    
5,497
      
5,616
  
Other accrued liabilities
    
3,344
      
2,201
  
Deferred income
    
298
      
284
  
Total current liabilities
    
47,682
      
31,567
  
Other liabilities:
                
Deferred rent
    
9
      
67
  
Other liabilities
    
953
      
1,103
  
Total other liabilities
    
962
      
1,170
  
Total liabilities
    
48,644
      
32,737
  
 
                
 
                
 
                
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: 20,898 and 20,817; shares outstanding: 16,722 and 16,642
    
196,371
      
195,126
  
Treasury stock—at cost, 4,175 shares
    
(31,383
)
    
(31,383
)
Accumulated deficit
    
(99,791
)
    
(98,556
)
Total shareholders' equity
    
65,197
      
65,187
  
Total liabilities and shareholders' equity
  
$
113,841
    
$
97,924
  

Page 4 of 6
OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Statements of Operations
(unaudited)
 
  
Three months ended
March 31,
    
Six months ended
March 31,
  
(in thousands, except per share data)
  
2013
    
2012
    
2013
    
2012
  
Revenues1
  
$
32,714
    
$
32,820
    
$
66,130
    
$
67,657
  
 
                                
Costs and expenses:
                                
Direct costs
    
22,030
      
22,900
      
45,531
      
46,775
  
General and administrative
    
6,997
      
7,309
      
13,807
      
16,495
  
Selling and marketing
    
2,114
      
2,152
      
4,254
      
3,660
  
Depreciation and amortization
    
1,924
      
1,867
      
3,723
      
3,770
  
Total costs and expenses
    
33,065
      
34,228
      
67,315
      
70,700
  
Loss from continuing operations before other income and income taxes
    
(351
)
    
(1,408
)
    
(1,185
)
    
(3,043
)
 
                                
Other (expense) income:
                                
Interest (expense) income, net
    
(1
)
    
—
      
(2
)
    
1
  
Total other income
    
(1
)
    
—
      
(2
)
    
1
  
 
                                
Loss from continuing operations before income taxes2
    
(352
)
    
(1,408
)
    
(1,187
)
    
(3,042
)
Income tax provision
    
9
      
—
      
2
      
—
  
 
                                
Loss from continuing operations
    
(361
)
    
(1,408
)
    
(1,189
)
    
(3,042
)
Loss from discontinued operations, net
    
(46
)
    
(3
)
    
(46
)
    
(12
)
 
                                
Net loss
  
$
(407
)
  
$
(1,411
)
  
$
(1,235
)
  
$
(3,054
)
 
                                
(Loss) gain per share—Basic and diluted:
                                
From continuing operations
  
$
(0.02
)
  
$
(0.08
)
  
$
(0.07
)
  
$
(0.18
)
From discontinued operations
    
—
      
—
      
—
      
—
  
(Loss) gain per share—Basic and diluted
  
$
(0.02
)
  
$
(0.08
)
  
$
(0.07
)
  
$
(0.18
)
 
                                
Weighted average common shares used in computing:
                                
Basic and diluted loss per share
    
16,716
      
16,642
      
16,682
      
16,642
  

(1)
Reflects revenues from the company's legacy VSA operations  which are being wound down of $0.2 million and $0.4 million, respectively, in Q2 fiscal 2013, and Q2 fiscal 2012 and $0.3 million and $0.9 million for the six months ended March 31, 2013, and 2012, respectively.
 
(2)
Reflects VSA income (loss) from continuing operations before and after taxes of $0.1 million and ($0.1) million, respectively, in Q2 fiscal 2013 and Q1 fiscal 2012 and $0.2 million and $0.3 million, for the six months ended March 31, 2013, and 2012, respectively.

.



Page 5 of 6
OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Statements of Cash Flows
(unaudited)



 
  
Six months ended
March 31,
  
(in thousands)
  
2013
    
2012
  
CASH FLOWS FROM OPERATING ACTIVITIES:
  
   
 
Net loss
  
$
(1,235
)
  
$
(3,054
)
Less: Gain from discontinued operations, net
    
(46
)
    
(12
)
Loss from continuing operations, net
    
(1,189
)
    
(3,042
)
Non-cash items included in net loss:
                
Restructuring costs
    
—
      
962
  
Depreciation and amortization
    
3,723
      
3,770
  
Deferred rent
    
(21
)
    
21
  
Share-based compensation
    
843
      
680
  
Net effect of changes in assets and liabilities:
                
Accounts receivable, net
    
1,414
      
(135
)
Settlement processing assets and obligations, net
    
4,943
      
1,167
  
Prepaid expenses and other assets
    
(146
)
    
(225
)
Accounts payable and accrued liabilities
    
(2,400
)
    
(1,521
)
Other long term liabilities
    
(147
)
    
70
  
Deferred income
    
14
      
(33
)
Cash provided by operating activities from continuing operations
    
7,034
      
1,714
  
Cash used in operating activities from discontinued operations
    
(46
)
    
(12
)
Cash provided by operating activities
    
6,988
      
1,702
  
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Capitalized internally developed software
    
(3,924
)
    
(1,192
)
Purchase of equipment and software
    
(890
)
    
(982
)
ChoicePay acquisition
    
(60
)
    
(61
)
Cash (used in) provided by investing activities
    
(4,874
)
    
(2,235
)
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Net proceeds from issuance of common stock
    
402
      
—
  
Capital lease obligations and other financing arrangements
    
(12
)
    
(17
)
Cash provided by (used in) financing activities
    
390
      
(17
)
Net increase (decrease) in cash and cash equivalents
    
2,504
      
(550
)
Cash and cash equivalents at beginning of period
    
39,071
      
39,760
  
Cash and cash equivalents at end of period
  
$
41,575
    
$
39,210
  

 
Page 6 of 6

OFFICIAL PAYMENTS HOLDINGS, INC. Reports