OFFICIAL PAYMENTS HOLDINGS, INC. - FORM 8-K - EX-99.1 - PRESS RELEASE - August 6, 2013

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8-K - FISCAL 2013 THIRD QUARTER EARNINGS RELEASE - OFFICIAL PAYMENTS HOLDINGS, INC.form8k.htm
Exhibit 99.1




Official Payments Reports Results from Third Quarter of Fiscal Year 2013:
Seventh Consecutive Quarter of Positive Adjusted EBITDA
Company reports earnings per share from continuing operations of $0.04 for the quarter

Norcross, GA, August 6, 2013 – Official Payments Holdings, Inc. (Nasdaq: OPAY), a leading provider of electronic payment solutions, reported results today for its fiscal year 2013 third quarter (Q3 fiscal 2013). The Company will host a call/webcast today at 5:00 p.m. EDT to review its results:
Conference Call Dial-In:
800-857-9646 Participant code – "OPAY"
Webcast/Replay:
http://www.OPAY.officialpayments.com
Replay Dial-In:
800-685-7910
–   10:00 pm ET, Tuesday, August 6, 2013 to
 
 
11:59 pm ET, Monday, September 2, 2013


Q3 Fiscal 2013 Highlights:
Official Payments Holdings, Inc. reported revenue from continuing operations of $45.8 million for Q3 fiscal 2013, an increase of $6.6 million compared to Q3 fiscal 2012. Q3 fiscal 2013 Payment Solutions net revenue, which reflects Payment Solutions revenues less related processing and interchange fees, was $13.2 million compared to $11.8 million in Q3 fiscal 2012. $3.2 billion of payment transactions were processed in Q3 fiscal 2013 compared to $2.7 billion of payment transactions in Q3 fiscal 2012 with the average size of transaction processed increasing 19.3% from Q3 fiscal 2012 to Q3 fiscal 2013.  General and administrative increased 6.7%, or $0.4 million in Q3 fiscal 2013 compared to Q3 fiscal 2012, while selling and marketing expenses decreased 22%, or $0.6 million from Q3 fiscal 2012 to Q3 fiscal 2013.

Official Payments reported  net income from continuing operations of $0.6 million, or $0.04 per share for Q3 fiscal 2013, compared to the prior year's net loss from continuing operations of $0.6 million, or negative $0.03 per share for Q3 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, and the legacy voice and systems automation (VSA) operations that are in the process of being wound down.

Adjusted EBITDA from continuing operations was $3.4 million in Q3 fiscal 2013 compared to $1.4 million in Q3 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 $1.2 million from $39.1 million at September 30, 2012 to $40.3 million at June 30, 2013. Official Payments cash position for the quarter includes $3.6 million of net settlement funds outstanding and $6.7 million of accrued discount fees, thus leaving cash available for company use of $30 million.

Management Overview
Alex P. Hart, President and CEO, stated, "We're pleased to report positive Adjusted EBITDA from continuing operations for our seventh consecutive quarter and positive earnings per share for the first time in several years.  Our platform consolidation project remains on target to be substantially complete by the end of the calendar year.  We expect significant savings from this project in terms of both improved operational efficiency and reduced capital expenditures for the next fiscal year.  We're confident that we've positioned ourselves for even better financial results in fiscal year 2014."

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
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operations as net income (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 June 30,
  
(in thousands, except percentages)
  
2013
    
2012
    
Change ($)
    
Change (%)
  
Net income (loss) from continuing operations
  
$
635
    
$
(852
)
  
$
1,487
      
174.5
%
Adjustments:
                                
Depreciation/amortization
    
2,106
      
1,851
      
255
      
13.8
%
Stock-based compensation
    
367
      
371
      
(4
)
    
(1.1
)%
Restructuring charge
    
292
      
2
      
290
      
14,500.0
%
Tax provision
    
5
      
5
      
—
      
0.0
%
Interest expense, net
    
1
      
1
      
—
      
0.0
%
Adjusted EBITDA from continuing operations
  
$
3,406
    
$
1,378
    
$
2,028
      
147.2
%
 
                                
 
  
Adjusted EBITDA from continuing operations
  
 
  
Nine months ended June 30,
  
(in thousands, except percentages)
    
2013
      
2012
    
Change ($)
    
Change (%)
  
Net loss from continuing operations
  
$
(554
)
  
$
(3,894
)
  
$
3,340
      
85.8
%
Adjustments:
                                
Depreciation/amortization
    
5,829
      
5,620
      
209
      
3.7
%
Stock-based compensation
    
1,412
      
1,352
      
60
      
4.4
%
Restructuring charge
    
292
      
1,493
      
(1,201
)
    
(80.4
)%
Tax provision
    
7
      
5
      
2
      
40.0
%
Interest expense, net
    
3
      
—
      
3
    
NM
  
Adjusted EBITDA from continuing operations
  
$
6,989
    
$
4,576
    
$
2,413
      
52.7
%
1NM = not meaningful
                                

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Reconciliation of Payment Solutions net revenue to revenue from continuing operations:
 
  
Three months ended June 30,
  
(in thousands, except percentages)
  
2013
    
2012
    
Change ($)
    
Change (%)
  
Revenue from continuing operations
  
$
45,792
    
$
39,163
    
$
6,629
      
16.9
%
Less:
                                
Non-Payment Solutions revenue
    
174
      
257
      
(83
)
    
(32.3
)%
Payment Solutions gross revenue
    
45,618
      
38,906
      
6,712
      
17.3
%
Less:
                                
Payment Solutions Discount fees
    
32,376
      
27,134
      
5,242
      
19.3
%
Payment Solutions net revenue
  
$
13,242
    
$
11,772
    
$
1,470
      
12.5
%
 
  
Nine months ended June 30,
  
(in thousands, except percentages)
    
2013
      
2012
    
Change ($)
    
Change (%)
  
Revenue from continuing operations
  
$
111,922
    
$
106,820
    
$
5,102
      
4.8
%
Less:
                                
Non-Payment Solutions revenue
    
487
      
1,142
      
(655
)
    
(57.4
)%
Payment Solutions gross revenue
    
111,435
      
105,678
      
5,757
      
5.4
%
Less:
                                
Payment Solutions Discount fees
    
74,802
      
70,415
      
4,387
      
6.2
%
Payment Solutions net revenue
  
$
36,633
    
$
35,263
    
$
1,370
      
3.9
%

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.

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                                                    OFFICIAL PAYMENTS HOLDINGS, INC.
                                                Consolidated Balance Sheets
 
 
 
(in thousands)
  
June 30, 2013
    
September 30, 2012
  
 
  
(unaudited)
    
 
ASSETS:
  
   
 
Current assets:
  
   
 
Cash and cash equivalents
  
$
40,298
    
$
39,071
  
Accounts receivable, net
    
3,353
      
5,304
  
Settlements receivable
    
20,337
      
15,291
  
Prepaid expenses and other current assets
    
1,608
      
1,692
  
Total current assets
    
65,596
      
61,358
  
 
                
Property, equipment and software, net
    
19,456
      
17,368
  
Goodwill
    
17,673
      
17,582
  
Other intangible assets, net
    
631
      
1,107
  
Other assets
    
706
      
509
  
Total assets
  
$
104,062
    
$
97,924
  
 
                
LIABILITIES AND SHAREHOLDERS' EQUITY:
                
Current liabilities:
                
Accounts payable
  
$
114
    
$
74
  
Settlements payable
    
23,911
      
17,019
  
Accrued compensation liabilities
    
3,070
      
6,373
  
Accrued discount fees
    
6,671
      
5,616
  
Other accrued liabilities
    
3,084
      
2,201
  
Deferred income
    
263
      
284
  
Total current liabilities
    
37,113
      
31,567
  
Other liabilities:
                
Deferred rent
    
3
      
67
  
Other liabilities
    
884
      
1,103
  
Total other liabilities
    
887
      
1,170
  
Total liabilities
    
38,000
      
32,737
  
 
                
Contingencies and commitments
                
 
                
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: 20,905 and 20,817; shares outstanding: 16,730 and 16,642
    
196,689
      
195,126
  
Treasury stock—at cost, 4,175 shares
    
(31,383
)
    
(31,383
)
Accumulated deficit
    
(99,244
)
    
(98,556
)
Total shareholders' equity
    
66,062
      
65,187
  
Total liabilities and shareholders' equity
  
$
104,062
    
$
97,924
  

Page 4 of 6
 


OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Statements of Operations
(unaudited)


 
  
Three months ended
June 30,
    
Nine months ended
June 30,
  
(in thousands, except per share data)
  
2013
    
2012
    
2013
    
2012
  
Revenues
  
$
45,792
    
$
39,163
    
$
111,922
    
$
106,820
  
 
                                
Costs and expenses:
                                
Direct costs
    
33,946
      
28,922
      
79,477
      
75,697
  
General and administrative
    
7,044
      
6,601
      
20,851
      
23,096
  
Selling and marketing
    
2,055
      
2,635
      
6,309
      
6,296
  
Depreciation and amortization
    
2,106
      
1,851
      
5,829
      
5,620
  
Total costs and expenses
    
45,151
      
40,009
      
112,466
      
110,709
  
Income (loss) from continuing operations before other expense and income taxes
    
641
      
(846
)
    
(544
)
    
(3,889
)
 
                                
Other expense :
                                
Interest expense, net
    
1
      
1
      
3
      
—
  
Total other expense
    
1
      
1
      
3
      
—
  
 
                                
Income (loss) from continuing operations before income taxes
    
640
      
(847
)
    
(547
)
    
(3,889
)
Income tax provision
    
5
      
5
      
7
      
5
  
 
                                
Income (loss) from continuing operations
    
635
      
(852
)
    
(554
)
    
(3,894
)
Loss from discontinued operations, net
    
(88
)
    
(1
)
    
(134
)
    
(13
)
 
                                
Net income (loss)
  
$
547
    
$
(853
)
  
$
(688
)
  
$
(3,907
)
 
                                
Earnings (loss) per share—Basic:
                                
From continuing operations
  
$
0.04
    
$
(0.05
)
  
$
(0.03
)
  
$
(0.23
)
From discontinued operations
    
(0.01
)
    
—
      
(0.01
)
    
—
  
Earnings (loss) per share—Basic
  
$
0.03
    
$
(0.05
)
  
$
(0.04
)
  
$
(0.23
)
Earnings (loss) per share—Diluted:
                                
From continuing operations
  
$
0.04
    
$
(0.05
)
  
$
(0.03
)
  
$
(0.23
)
From discontinued operations
    
(0.01
)
    
—
      
(0.01
)
    
—
  
Earnings (loss) per share—Diluted
  
$
0.03
    
$
(0.05
)
  
$
(0.04
)
  
$
(0.23
)
 
                                
Weighted average common shares used in computing per share amounts:
                                
Basic
    
16,727
      
16,642
      
16,697
      
16,642
  
Diluted
    
16,912
      
16,642
      
16,697
      
16,642
  

Page 5 of 6
 


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



 
  
Nine months ended
June 30,
  
(in thousands)
  
2013
    
2012
  
CASH FLOWS FROM OPERATING ACTIVITIES:
  
   
 
Net loss
  
$
(688
)
  
$
(3,907
)
Less: Loss from discontinued operations, net
    
(134
)
    
(13
)
Loss from continuing operations, net
    
(554
)
    
(3,894
)
Non-cash items included in net loss:
                
Restructuring costs
    
256
      
803
  
Depreciation and amortization
    
5,829
      
5,620
  
Provision for doubtful accounts
    
—
      
26
  
Deferred rent
    
(34
)
    
(3
)
Share-based compensation
    
1,121
      
1,008
  
Net effect of changes in assets and liabilities:
                
Accounts receivable, net
    
1,951
      
91
  
Settlement processing assets and obligations, net
    
1,846
      
(1,023
)
Prepaid expenses and other assets
    
294
      
524
  
Accounts payable and accrued liabilities
    
(1,932
)
    
1,526
  
Other long term liabilities
    
(283
)
    
161
  
Deferred income
    
(21
)
    
(195
)
Cash provided by operating activities from continuing operations
    
8,473
      
4,644
  
Cash used in operating activities from discontinued operations
    
(134
)
    
(13
)
Cash provided by operating activities
    
8,339
      
4,631
  
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Capitalized internally developed software
    
(6,236
)
    
(1,911
)
Purchase of equipment and software
    
(1,213
)
    
(1,610
)
ChoicePay acquisition
    
(91
)
    
(91
)
Cash used in investing activities
    
(7,540
)
    
(3,612
)
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Net proceeds from issuance of common stock
    
442
      
—
  
Capital lease obligations and other financing arrangements
    
(14
)
    
(26
)
Cash provided by (used in) financing activities
    
428
      
(26
)
Net increase in cash and cash equivalents
    
1,227
      
993
  
Cash and cash equivalents at beginning of period
    
39,071
      
39,760
  
Cash and cash equivalents at end of period
  
$
40,298
    
$
40,753
  


 
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OFFICIAL PAYMENTS HOLDINGS, INC. Reports