x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware
|
26-3025501
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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Large accelerated filer
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¨
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Accelerated filer
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x
|
|
|
|
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Non-accelerated filer
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¨ (Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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PART I
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2
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2
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9
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||
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17
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17
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17
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18
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PART II
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19
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19
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||
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20
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||
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21
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33
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34
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34
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34
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34
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PART III
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35
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35
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35
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35
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||
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35
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35
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PART IV
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36
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36
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||
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F-1
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||
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Exhibit Index
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|
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|
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EX-2.13
|
||
EX-2.14
|
||
EX-10.26
|
||
EX-10.27
|
|
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EX-10.28
|
|
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EX-10.29
|
||
EX-10.30
|
||
EX-10.31
|
||
EX-21.1
|
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EX-23.1
|
|
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EX-31.1
|
|
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EX-32.1
|
|
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EX-101.INS
|
|
|
EX-101.SCH
|
|
|
EX-101.CAL
|
|
|
EX-101.DEF
|
|
|
EX-101.LAB
|
|
|
EX-101.PRE
|
|
• | Expanding the number of contracted higher education institutions; |
• | Increasing OneAccount usage, including incentivizing primary checking account usage; |
• | Cross-selling our existing products and services; |
• | Enhancing and extending our products and services; and |
• | Pursuing strategic partnerships and opportunistic acquisitions. |
• | OneDisburse® ID. We offer our higher education institution clients the option to combine our debit card with the institution's ID cards. If an institution elects this option, we provide its students with a debit MasterCard ATM card that also serves as their official campus identification. |
• | OneDisburse® Payroll. Our OneDisburse® Payroll product can quickly and efficiently distribute payroll and other employee-related payments through the OneDisburse® platform. |
• | OneDisburse® PLUS. Our OneDisburse® PLUS product enables institutions to distribute Parent PLUS loan refunds to parents on behalf of the institution. |
• | Financial Intelligence. Our Financial Intelligence product delivers financial literacy to students at higher education institutions that can be purchased by the institution and offered directly to students through the institution's existing Higher One co-branded website. This product offers students an online class that uses game based learning to help teach financial literacy. |
• | Vendor Pay. Our VendorPay service, launched in 2012, helps institutions simply their accounts payable disbursements by eliminating paper checks and providing increased security. |
• | Alert! Our Alert! product, launched in early 2013, is an optional feature within our OneDisburse Refund Management service that helps institutions identify potential instances of fraud. Alert! leverages an institution's data by comparing it against other institutions' data and proactively identifies suspect enrollments and applications through data analytics. |
|
|
|
|
|
Name
|
|
Age
|
|
Title
|
Mark Volchek
|
|
35
|
|
Chief Executive Officer and Director
|
Miles Lasater
|
|
35
|
|
Chairman of the Board of Directors, President and Chief Operations Officer
|
Casey McGuane
|
|
38
|
|
Chief Service Officer
|
Robert Reach
|
|
56
|
|
Chief Sales Officer
|
Christopher Wolf*
|
|
51
|
|
Chief Financial Officer
|
* Christopher Wolf has been appionted Chief Financial Officer, effective March 5, 2013. |
• | the individual decision-making processes of each higher education institution client, which typically include extensive and lengthy evaluations and require us to spend substantial time, effort and money educating each client about the value of our products and services; |
• | the budgetary constraints and priorities and budget cycle of each higher education institution client; and |
• | the reluctance of higher education staff to change or modify existing processes and procedures. |
|
•
|
Title IV of the Higher Education Act of 1965, or Title IV;
|
|
•
|
the Family Educational Rights and Privacy Act of 1975, or FERPA;
|
|
•
|
the Electronic Fund Transfer Act and Regulation E;
|
|
•
|
the USA PATRIOT Act and related anti-money laundering requirements; and
|
|
•
|
certain federal rules regarding safeguarding personal information, including rules implementing the privacy provisions of Gramm-Leach-Bliley Act of 1999, or GLBA.
|
• | create liens; |
• | make investments and acquisitions; |
• | incur additional debt; |
• | transfer all or substantially all of our assets or enter into merger or consolidation transactions; |
• | dispose of assets; |
• | pay dividends or make any other distributions with respect to our stock; |
• | issue stock, warrants, options or other rights to purchase stock or securities convertible into or exchangeable for shares of stock; |
• | engage in any material line of business substantially different from the lines of business we currently conduct or any business substantially related or incidental thereto; and |
• | enter into transactions with affiliates. |
Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
|
||||||||
|
High
|
Low
|
||||||
Year ended December 31, 2012
|
||||||||
Fourth Quarter
|
$
|
13.40
|
$
|
8.81
|
||||
Third Quarter
|
13.59
|
10.93
|
||||||
Second Quarter
|
16.44
|
10.44
|
||||||
First Quarter
|
18.03
|
14.51
|
||||||
|
||||||||
Year ended December 31, 2011
|
||||||||
Fourth Quarter
|
$
|
20.01
|
$
|
16.25
|
||||
Third Quarter
|
21.08
|
14.28
|
||||||
Second Quarter
|
18.92
|
13.71
|
||||||
First Quarter
|
20.60
|
14.45
|
||||||
|
|
(a)
|
(b)
|
(c)
|
(d)
|
||||||||||||
Period
|
Total number
of shares
purchased (1) |
Average
price paid |
Total number of shares
purchased as part of publicly |
Approximate dollar value of
shares that may yet be purchased |
||||||||||||
|
||||||||||||||||
October 1 to October 31
|
1,453,916
|
$
|
12.50
|
1,453,916
|
$
|
67,028
|
||||||||||
|
||||||||||||||||
November 1 to November 30
|
3,235,385
|
$
|
9.96
|
3,235,385
|
$
|
34,817
|
||||||||||
|
||||||||||||||||
December 1 to December 31
|
2,912,476
|
$
|
9.51
|
2,912,476
|
$
|
7,109
|
|
|
Equity Compensation Plan Information
|
||||||
Plan Category
|
|
Number of shares
of common stock
to be issued upon
exercise of
outstanding
options (2)
|
|
Weighted-
average
exercise price
of
outstanding
options
|
|
Weighted-
average
term to
expiration of
options
outstanding
|
|
Number of shares
of common stock
remaining available
for future issuance
under equity
compensation plans
|
Equity compensation plans approved by stockholders (1)
|
|
5,439,335
|
|
$7.44
|
|
6.1 years
|
|
2,971,092
|
Equity compensation plans not approved by stockholders
|
|
—
|
|
—
|
|
—
|
|
—
|
(1) | Reflects number of shares of common stock to be issued upon exercise of outstanding options under all of our equity compensation plans, including our 2000 Stock Option Plan and 2010 Equity Incentive Plan. No shares of common stock are available for future issuance under any of our equity compensation plans, except the 2010 Equity Incentive Plan. |
(2) | Does not include 7,047 restricted shares outstanding that were issued under the 2000 Incentive Plan or 150,000 warrants to purchase our common stock at a price of $11.67 issued in connection with our acquisition of Campus Labs, LLC in August 2012. |
|
Year Ended December 31,
|
|||||||||||||||||||
|
2008
|
2009
|
2010
|
2011
|
2012
|
|||||||||||||||
|
(in thousands, except share and per share amounts)
|
|||||||||||||||||||
Revenue
|
$
|
44,006
|
$
|
77,606
|
$
|
144,969
|
$
|
176,320
|
$
|
197,720
|
||||||||||
Cost of revenue
|
16,302
|
26,529
|
51,845
|
67,560
|
80,280
|
|||||||||||||||
Gross margin
|
27,704
|
51,077
|
93,124
|
108,760
|
117,440
|
|||||||||||||||
Operating expenses
|
17,753
|
28,396
|
51,877
|
61,245
|
57,998
|
|||||||||||||||
Income from operations
|
9,951
|
22,681
|
41,247
|
47,515
|
59,442
|
|||||||||||||||
Other income (expense)
|
(26
|
)
|
(537
|
)
|
(700
|
)
|
1,302
|
(548
|
)
|
|||||||||||
Income before income taxes
|
9,925
|
22,144
|
40,547
|
48,817
|
58,894
|
|||||||||||||||
Income tax expense
|
3,547
|
7,925
|
15,488
|
16,924
|
22,024
|
|||||||||||||||
Net income
|
6,378
|
14,219
|
25,059
|
31,893
|
36,870
|
|||||||||||||||
Less: Effect of redemption of preferred stock
|
80,744
|
—
|
—
|
—
|
—
|
|||||||||||||||
Less: Net income allocable to participating securities
|
—
|
11,477
|
8,910
|
—
|
—
|
|||||||||||||||
Net income (loss) available and attributable to common shareholders
|
$
|
(74,366
|
)
|
$
|
2,742
|
$
|
16,149
|
$
|
31,893
|
$
|
36,870
|
|||||||||
|
||||||||||||||||||||
Net income (loss) per common share:
|
||||||||||||||||||||
Basic
|
$
|
(7.22
|
)
|
$
|
0.29
|
$
|
0.48
|
$
|
0.58
|
$
|
0.68
|
|||||||||
Diluted
|
(7.22
|
)
|
0.27
|
0.44
|
0.54
|
0.65
|
||||||||||||||
Weighted average common shares outstanding:
|
||||||||||||||||||||
Basic
|
10,306,392
|
9,298,131
|
33,395,310
|
55,210,972
|
53,877,879
|
|||||||||||||||
Diluted
|
10,306,392
|
53,150,890
|
57,302,843
|
59,553,678
|
56,728,807
|
|
As of December 31,
|
|||||||||||||||||||
|
(in thousands)
|
|||||||||||||||||||
|
2008
|
2009
|
2010
|
2011
|
2012
|
|||||||||||||||
Cash and cash equivalents
|
$
|
1,488
|
$
|
3,339
|
$
|
34,484
|
$
|
39,085
|
$
|
13,031
|
||||||||||
Total assets
|
13,665
|
58,695
|
119,441
|
176,015
|
190,898
|
|||||||||||||||
Total debt and capital lease obligations, including current maturities
|
18,934
|
27,647
|
8,250
|
9,801
|
89,490
|
|||||||||||||||
Total liabilities
|
25,402
|
51,589
|
36,050
|
52,429
|
133,186
|
|||||||||||||||
Total stockholders' (deficit) equity
|
(11,737
|
)
|
7,106
|
83,391
|
123,586
|
57,712
|
• | total revenue was approximately $197.7 million, representing three-year compounded annual growth of approximately 37%; |
• | net income was approximately $36.9 million, representing three-year compounded annual growth of approximately 37%; |
• | adjusted EBITDA was approximately $68.3 million, representing three-year compounded annual growth of approximately 31%; and |
• | adjusted net income was approximately $38.8 million, representing three-year compounded annual growth of approximately 29%. |
• | Expanding the number of contracted higher education institutions; |
• | Increasing OneAccount adoption and usage rates; |
• | Cross-selling our products to existing clients to increase the number of institutions using each product; |
• | Enhancing our products and services to create new sources of revenue; and |
• | Pursuing strategic partnerships and opportunistic acquisitions. |
• Provision for Operational Losses
|
• Stock-Based Compensation
|
|
• Goodwill and Intangible Assets
|
• Income Taxes
|
|
• Business Combinations
|
|
• | significant underperformance relative to historical or projected future operating results; |
• | significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and |
• | significant negative industry or economic trends. |
• | developments in our business; |
• | the rights and preferences of our convertible preferred stock relative to our common stock; |
• | independent valuations of our common stock; |
• | the lack of marketability of our common stock; |
• | the likelihood of achieving a liquidity event, given prevailing market conditions; |
• | our current and historical operating performance and current financial condition; |
• | our operating and financial projections; |
• | the stock price performance of a peer group comprised of selected publicly-traded companies identified as being comparable to us; and |
• | economic conditions and trends in the broad market for stocks. |
• | The income approach estimates the present value of future estimated debt-free cash flows, based upon forecasted revenue and costs. These discounted cash flows are added to the present value of our estimated enterprise terminal value, the multiple of which is derived from comparable company market data. These future cash flows are discounted to their present values using a rate corresponding to our estimated weighted average cost of capital. The discount rate is derived from an analysis of the weighted average cost of capital of our publicly-traded peer group as well as cost of capital studies for similar stage companies as of the valuation date and is adjusted to reflect the risk inherent in our cash flows. |
• | The market approach estimates the fair value of a company by applying to that company the market multiples of comparable publicly-traded companies. A multiple of key metrics implied by the enterprise values or acquisition values of our publicly-traded peers is calculated. Based on the range of these observed multiples, size of the company, company specific factors such as growth and margins, and professional judgment; an appropriate adjustment to the publicly-traded companies median multiple is applied our metrics in order to derive an indication of value. |
Date of Valuation
|
|
Discounted Cash Flows
Method / Guideline
Public Company Weighting
|
|
Discount for Lack of
Marketability
|
|
Discounted Cash Flow
Discount Rate
|
|
Common
Stock Value
|
March 15, 2010
|
|
75% / 25%
|
|
15%
|
|
23%
|
|
$13.94
|
|
Year Ended December 31,
|
Change from prior period
|
||||||||||||||||||||||||||
|
2010
|
2011
|
2012
|
2011
|
2012
|
2011
|
2012
|
|||||||||||||||||||||
|
(in thousands of dollars)
|
(in thousands of dollars)
|
(percentage)
|
|||||||||||||||||||||||||
Account revenue
|
$
|
113,516
|
$
|
142,589
|
$
|
150,715
|
$
|
29,073
|
$
|
8,126
|
25.6
|
%
|
5.7
|
%
|
||||||||||||||
Payment transaction revenue
|
15,742
|
18,733
|
23,168
|
2,991
|
4,435
|
19.0
|
%
|
23.7
|
%
|
|||||||||||||||||||
Higher education institution revenue
|
12,543
|
16,614
|
21,016
|
4,071
|
4,402
|
32.5
|
%
|
26.5
|
%
|
|||||||||||||||||||
Other revenue
|
3,168
|
3,112
|
2,821
|
(56
|
)
|
(291
|
)
|
(1.8
|
%)
|
(9.4
|
%)
|
|||||||||||||||||
Revenues before customer credit plan
|
144,969
|
181,048
|
197,720
|
36,079
|
16,672
|
24.9
|
%
|
9.2
|
%
|
|||||||||||||||||||
Less customer credit plan
|
—
|
(4,728
|
)
|
—
|
(4,728
|
)
|
4,728
|
100.0
|
%
|
(100.0
|
%)
|
|||||||||||||||||
Revenue
|
144,969
|
176,320
|
197,720
|
31,351
|
21,400
|
21.6
|
%
|
12.1
|
%
|
|||||||||||||||||||
Cost of revenue
|
51,845
|
67,560
|
80,280
|
15,715
|
12,720
|
30.3
|
%
|
18.8
|
%
|
|||||||||||||||||||
Gross margin
|
93,124
|
108,760
|
117,440
|
15,636
|
8,680
|
16.8
|
%
|
8.0
|
%
|
|||||||||||||||||||
General and administrative
|
32,381
|
37,715
|
46,321
|
5,334
|
8,606
|
16.5
|
%
|
22.8
|
%
|
|||||||||||||||||||
Product development
|
3,311
|
3,265
|
5,221
|
(46
|
)
|
1,956
|
(1.4
|
%)
|
59.9
|
%
|
||||||||||||||||||
Sales and marketing
|
16,185
|
20,265
|
12,284
|
4,080
|
(7,981
|
)
|
25.2
|
%
|
(39.4
|
%)
|
||||||||||||||||||
Merger and acquisition related expenses, net
|
—
|
—
|
(5,828
|
)
|
—
|
(5,828
|
)
|
—
|
%
|
(100.0
|
%)
|
|||||||||||||||||
Income from operations
|
41,247
|
47,515
|
59,442
|
6,268
|
11,927
|
15.2
|
%
|
25.1
|
%
|
|||||||||||||||||||
Interest income
|
29
|
68
|
109
|
39
|
41
|
134.5
|
%
|
60.3
|
%
|
|||||||||||||||||||
Interest expense
|
(729
|
)
|
(266
|
)
|
(967
|
)
|
463
|
(701
|
)
|
(63.5
|
%)
|
263.5
|
%
|
|||||||||||||||
Other income
|
—
|
1,500
|
310
|
1,500
|
(1,190
|
)
|
100.0
|
%
|
(79.3
|
%)
|
||||||||||||||||||
Net income before income taxes
|
40,547
|
48,817
|
58,894
|
8,270
|
10,077
|
20.4
|
%
|
20.6
|
%
|
|||||||||||||||||||
Income tax expense
|
15,488
|
16,924
|
22,024
|
1,436
|
5,100
|
9.3
|
%
|
30.1
|
%
|
|||||||||||||||||||
Net income
|
$
|
25,059
|
$
|
31,893
|
$
|
36,870
|
$
|
6,834
|
$
|
4,977
|
27.3
|
%
|
15.6
|
%
|
|
Year Ended December 31,
|
|||||||||||
|
2010
|
2011
|
2012
|
|||||||||
|
(% of revenue)
|
|||||||||||
Account revenue
|
78.3
|
%
|
80.9
|
%
|
76.3
|
%
|
||||||
Payment transaction revenue
|
10.9
|
%
|
10.6
|
%
|
11.7
|
%
|
||||||
Higher education institution revenue
|
8.6
|
%
|
9.4
|
%
|
10.6
|
%
|
||||||
Other revenue
|
2.2
|
%
|
1.8
|
%
|
1.4
|
%
|
||||||
Revenues before customer credit plan
|
100.0
|
%
|
102.7
|
%
|
100.0
|
%
|
||||||
Less customer credit plan
|
—
|
%
|
(2.7
|
%)
|
0.0
|
%
|
||||||
Revenue
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||||
Cost of revenue
|
35.8
|
%
|
38.3
|
%
|
40.6
|
%
|
||||||
Gross margin
|
64.2
|
%
|
61.7
|
%
|
59.4
|
%
|
||||||
General and administrative
|
22.3
|
%
|
21.4
|
%
|
23.4
|
%
|
||||||
Product development
|
2.3
|
%
|
1.9
|
%
|
2.6
|
%
|
||||||
Sales and marketing
|
11.1
|
%
|
11.5
|
%
|
6.2
|
%
|
||||||
Merger and acquisition related expenses, net
|
—
|
%
|
—
|
%
|
(2.9
|
%)
|
||||||
Income from operations
|
28.5
|
%
|
26.9
|
%
|
30.1
|
%
|
||||||
Interest income
|
0.0
|
%
|
0.0
|
%
|
0.1
|
%
|
||||||
Interest expense
|
(0.5
|
%)
|
(0.2
|
%)
|
(0.5
|
%)
|
||||||
Other income
|
0.0
|
%
|
1.0
|
%
|
0.1
|
%
|
||||||
Net income before income taxes
|
28.0
|
%
|
27.7
|
%
|
29.8
|
%
|
||||||
Income tax expense
|
10.7
|
%
|
9.6
|
%
|
11.2
|
%
|
||||||
Net income
|
17.3
|
%
|
18.1
|
%
|
18.6
|
%
|
|
Year Ended December 31,
|
Change from prior period
|
||||||||||||||||||
|
2010
|
2011
|
2012
|
2011
|
2012
|
|||||||||||||||
|
(in thousands)
|
(in thousands)
|
||||||||||||||||||
Net cash provided by (used in):
|
||||||||||||||||||||
Operating activities
|
$
|
40,056
|
$
|
44,467
|
$
|
53,597
|
$
|
4,411
|
$
|
9,130
|
||||||||||
Investing activities
|
(31,756
|
)
|
(43,011
|
)
|
(50,051
|
)
|
(11,255
|
)
|
(7,040
|
)
|
||||||||||
Financing activities
|
22,845
|
3,145
|
(29,600
|
)
|
(19,700
|
(32,745
|
)
|
|||||||||||||
Increase in cash and cash equivalents
|
31,145
|
4,601
|
(26,054
|
)
|
(26,544
|
(30,655
|
)
|
|||||||||||||
Cash and cash equivalents, end of period
|
$
|
34,484
|
$
|
39,085
|
$
|
13,031
|
$
|
4,601
|
$
|
(26,054
|
)
|
Name of program
|
|
Amount (in
thousands)
|
|
Description
|
Federal Historic Preservation Tax Incentives Program
|
|
$5,705
|
|
We have received a federal tax credit equal to 20% of qualified rehabilitation expenditures related to the project. A receivable was recorded as of December 31, 2011 and was received in 2012.
|
State of Connecticut Department of Economic and Community Development, or DECD, Urban Act and Environmental Remediation Grant
|
|
5,500
|
|
The full grant proceeds were received in 2011. We must (i) maintain corporate headquarters in Connecticut for the next 10 years, (ii) maintain a specified minimum average employment level for the years 2015 – 2018 and (iii) adhere to other administrative criteria.
|
Connecticut Development Authority Sales and Use Tax Relief Program
|
|
944
|
|
This program provided relief on certain sales and use tax associated with the real estate development project. We must maintain corporate headquarters in Connecticut for the next 10 years and meet a specified minimum employment level as of March 31, 2015.
|
Other contributions
|
|
1,955
|
|
Cash contributions from Science Park Development Corporation and the prior building owner were received during 2011 and 2012 to offset a portion of the environmental remediation costs.
|
Name of program
|
|
Potential
amount (in
thousands)
|
|
Nature of the program
|
DECD Urban and Industrial Site Reinvestment Tax Credits
|
|
$18,500
|
|
State tax credits that can be earned beginning in 2013 and continuing through 2019
|
Other contributions
|
|
2,400
|
|
Cash contributions from SPDC (i) following completion of our project and (ii) based on the value of state historic tax credits awarded to SPDC.
|
|
Year Ended December 31,
|
|||||||||||
|
2010
|
2011
|
2012
|
|||||||||
|
(in thousands)
|
|||||||||||
Adjusted EBITDA(1)
|
$
|
59,465
|
$
|
73,993
|
$
|
68,267
|
||||||
Adjusted net income(2)
|
$
|
34,418
|
$
|
45,028
|
$
|
38,750
|
||||||
|
||||||||||||
Number of students enrolled at OneDisburse client higher education institutions at end of period
|
3,281
|
4,169
|
4,642
|
|||||||||
|
||||||||||||
Number of students enrolled at payment transaction client higher education institutions at end of period
|
2,460
|
2,617
|
10,929
|
|||||||||
|
||||||||||||
Number of OneAccounts at end of period
|
1,618
|
1,997
|
2,004
|
· | adjusted EBITDA is widely used by investors to measure a company's operating performance without regard to certain items, such as interest expense, income tax expense, depreciation and amortization, stock-based expenses and certain other items, that can vary substantially from company to company and from period to period depending upon their financing and accounting methods, the book value of their assets, their capital structures and the method by which their assets were acquired; |
· | securities analysts use adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies; |
· | because non-cash equity grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time, stock-based customer acquisition expense and stock-based compensation expense are not key measures of our core operating performance; |
· | merger and acquisition related costs, including adjustments to the fair value of our contingent consideration liability, are specific to an acquisition of a business, we believe that the costs related to such an acquisition and does not reflect how our business is performing at any particular time; |
· | our decision to institute the customer credit plan during 2011 which provided approximately $4.7 million in credits to customers does not reflect on our current performance; |
· | cash-based customer acquisition expense is an item related to the acquisition of IDC and does not reflect how our business is performing at any particular time; and |
· | the gain we recorded in connection with the settlement of our litigation with the former stockholders of IDC is an item related to the acquisition of IDC and does not reflect how our business is performing at any particular time. |
|
Year Ended December 31,
|
|||||||||||
|
2010
|
2011
|
2012
|
|||||||||
|
(in thousands)
|
|||||||||||
Net income
|
$
|
25,059
|
$
|
31,893
|
$
|
36,870
|
||||||
Interest income
|
(29
|
)
|
(68
|
)
|
(109
|
)
|
||||||
Interest expense
|
729
|
266
|
967
|
|||||||||
Income tax expense
|
15,488
|
16,924
|
22,024
|
|||||||||
Depreciation and amortization
|
7,292
|
7,021
|
10,250
|
|||||||||
EBITDA
|
48,539
|
56,036
|
70,002
|
|||||||||
Customer credit plan
|
—
|
4,728
|
—
|
|||||||||
Other income
|
—
|
(1,500
|
)
|
—
|
||||||||
Merger and acquisition related expenses, net
|
—
|
—
|
(5,828
|
)
|
||||||||
Stock-based and other customer acquisition expense
|
8,013
|
10,861
|
—
|
|||||||||
Stock-based compensation expense
|
2,913
|
3,868
|
4,093
|
|||||||||
Adjusted EBITDA
|
$
|
59,465
|
$
|
73,993
|
$
|
68,267
|
· | because non-cash equity grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time, stock-based customer acquisition expense and stock-based compensation expense are not key measures of our core operating performance; |
· | because cash-based customer acquisition expense is an item related to the acquisition of IDC and does not reflect how our business is performing at any particular time; |
· | merger and acquisition related costs, including adjustments to the fair value of our contingent consideration liability, are specific to an acquisition of a business, we believe that the costs related to such an acquisition does not reflect how our business is performing at any particular time; |
· | our decision to institute the customer credit plan during 2011 which provided approximately $4.7 million in credits to customers does not reflect on our current performance; |
· | amortization expenses can vary substantially from company to company and from period to period depending upon their financing and accounting methods, the fair value and average expected life of their acquired intangible assets, their capital structures and the method by which their assets were acquired; and |
· | the gain we recorded in connection with the settlement of our litigation with the former stockholders of IDC is an item related to the acquisition of IDC and does not reflect how our business is performing at any particular time. |
|
Year Ended December 31,
|
|||||||||||
|
2010
|
2011
|
2012
|
|||||||||
|
(in thousands)
|
|||||||||||
Net income
|
$
|
25,059
|
$
|
31,893
|
$
|
36,870
|
||||||
Customer credit plan
|
—
|
4,728
|
—
|
|||||||||
Stock-based and other customer acquisition expense
|
8,013
|
10,861
|
—
|
|||||||||
Stock-based compensation expense – incentive stock options
|
1,526
|
1,743
|
1,964
|
|||||||||
Stock-based compensation expense – non-qualified stock options
|
1,387
|
2,125
|
2,129
|
|||||||||
Merger and acquisition related expenses, net
|
—
|
—
|
(5,828
|
)
|
||||||||
Other income
|
—
|
(1,500
|
)
|
—
|
||||||||
Amortization of intangible assets
|
3,070
|
3,071
|
3,350
|
|||||||||
Amortization of deferred finance costs
|
204
|
76
|
213
|
|||||||||
Total pre-tax adjustments
|
14,200
|
21,104
|
1,828
|
|||||||||
Tax rate
|
38.2
|
%
|
38.2
|
%
|
38.2
|
%
|
||||||
Tax adjustment (1)
|
4,841
|
7,969
|
(52
|
)
|
||||||||
Adjusted net income
|
$
|
34,418
|
$
|
45,028
|
$
|
38,750
|
(1) | We have tax effected all the pre-tax adjustments except for stock-based compensation expense for incentive stock options, which are generally not tax deductible and other income which is not tax deductible. |
|
Payments Due by Period
|
|||||||||||||||||||||||
|
Total
|
Less Than
1 Year
|
1 to 3
Years
|
3 to 5
Years
|
5+
Years
|
All
Other
|
||||||||||||||||||
|
(in thousands)
|
|||||||||||||||||||||||
Long-term debt obligations (1)
|
$
|
87,633
|
$
|
—
|
$
|
—
|
$
|
80,000
|
$
|
7,633
|
$
|
—
|
||||||||||||
Interest payments on long-term debt obligations (1)
|
9,339
|
1,716
|
3,432
|
3,092
|
1,099
|
|||||||||||||||||||
Operating lease obligations (2)
|
3,482
|
635
|
1,050
|
544
|
1,253
|
—
|
||||||||||||||||||
Purchase obligations (3)
|
13,568
|
2,622
|
5,535
|
5,411
|
—
|
—
|
||||||||||||||||||
Contingent consideration obligation (4)
|
6,700
|
2,230
|
4,470
|
|||||||||||||||||||||
Uncertain tax positions and related interest (5)
|
441
|
—
|
—
|
—
|
—
|
441
|
||||||||||||||||||
Total contractual obligations
|
$
|
121,163
|
$
|
7,203
|
$
|
14,487
|
$
|
89,047
|
$
|
9,985
|
$
|
441
|
(1) | We have a variable rate senior secured revolving credit facility which matures on October 16, 2017 and a fixed rate loan payable which has a maturity date of 2041 and in which payments commence in 2019. Interest payments have been estimated assuming that the long-term debt is outstanding until maturity and the interest rate on our senior secured revolving credit facility remains consistent with our weighted average interest rate as of December 31, 2012. |
(2) | We lease certain property in various locations under non-cancelable operating leases. |
(3) | Purchase obligations include minimum amounts committed under contracts for services. |
(4) | We have a contingent consideration obligation based on revenues earned through 2013 and the obligation will be paid through February 2014. |
(5) | We are unable to reasonably estimate the timing of such liability and interest payments in individual years due to uncertainties in the timing of the effective settlement of tax positions. |
Item 8. | Financial Statements and Supplementary Data |
Item 9A.
|
Controls and Procedures
|
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
|
|
Document
|
Page
|
Report of Independent Registered Public Accounting Firm
|
F-1
|
Consolidated Balance Sheets as of December 31, 2011 and 2012
|
F-2
|
Consolidated Statements of Operations for the years ended December 31, 2010, 2011 and 2012
|
F-3
|
Consolidated Statements of Changes in Stockholder's (Deficit)/Equity for years ended December 31, 2010, 2011 and 2012
|
F-4
|
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2011 and 2012
|
F-5
|
Notes to Consolidated Financial Statements
|
F-7
|
|
Date: March 4, 2013
|
|
Higher One Holdings, Inc.
|
|
/s/ MARK VOLCHEK
|
Mark Volchek
President and Chief Executive Officer
(Duly authorized officer, principal executive officer and principal financial officer)
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ MARK VOLCHEK
|
|
|
|
|
Mark Volchek
|
|
Chief Executive Officer and Director
(principal executive officer and principal financial officer)
|
|
March 4, 2013
|
|
|
|
|
|
/s/ MILES LASATER
|
|
|
|
|
Miles Lasater
|
|
President, Chief Operations Officer and Chairman of the Board of Directors
|
|
March 4, 2013
|
|
|
|
|
|
/s/ PAUL BIDDELMAN
|
|
Director
|
|
March 4, 2013
|
Paul Biddelman
|
|
|
|
|
|
|
|
|
|
/s/ DAVID CROMWELL
|
|
Director
|
|
March 4, 2013
|
David Cromwell
|
|
|
|
|
|
|
|
|
|
/s/ STEWART GROSS
|
|
Director
|
|
March 4, 2013
|
Stewart Gross
|
|
|
|
|
|
|
|
|
|
/s/ ROBERT HARTHEIMER
|
|
Director
|
|
March 4, 2013
|
Robert Hartheimer
|
|
|
|
|
|
|
|
|
|
/s/ DEAN HATTON
|
|
Director
|
|
March 4, 2013
|
Dean Hatton
|
|
|
|
|
|
|
|
|
|
/s/ PATRICK MCFADDEN
|
|
Director
|
|
March 4, 2013
|
Patrick McFadden
|
|
|
|
|
|
|
|
|
|
/s/ CHARLES MORAN
|
|
Director
|
|
March 4, 2013
|
Charles Moran
|
|
|
|
|
|
2011
|
2012
|
||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
39,085
|
$
|
13,031
|
||||
Investments in marketable securities
|
15,743
|
247
|
||||||
Accounts receivable
|
3,672
|
4,860
|
||||||
Income receivable
|
5,961
|
7,466
|
||||||
Deferred tax assets
|
33
|
37
|
||||||
Income tax receivable, net
|
12,671
|
1,593
|
||||||
Prepaid expenses and other current assets
|
6,774
|
9,297
|
||||||
Restricted cash
|
-
|
2,000
|
||||||
Total current assets
|
83,939
|
38,531
|
||||||
Deferred costs
|
3,776
|
4,665
|
||||||
Fixed assets, net
|
46,088
|
52,686
|
||||||
Intangible assets, net
|
16,787
|
38,143
|
||||||
Goodwill
|
15,830
|
47,000
|
||||||
Loan receivable related to New Markets Tax Credit financing (Note 12)
|
7,633
|
7,633
|
||||||
Other assets
|
712
|
740
|
||||||
Restricted cash
|
1,250
|
1,500
|
||||||
Total assets
|
$
|
176,015
|
$
|
190,898
|
||||
|
||||||||
Liabilities and Stockholders' Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
3,118
|
$
|
3,756
|
||||
Accrued expenses
|
26,414
|
12,526
|
||||||
Contingent consideration, current portion
|
-
|
2,230
|
||||||
Deferred tax liabilities
|
-
|
356
|
||||||
Deferred revenue
|
9,690
|
16,027
|
||||||
Total current liabilities
|
39,222
|
34,895
|
||||||
Deferred revenue and other non-current liabilities
|
2,173
|
2,517
|
||||||
Loan payable and deferred contribution related to New Markets Tax Credit financing (Note 12)
|
9,801
|
9,490
|
||||||
Debt
|
-
|
80,000
|
||||||
Contingent consideration, non-current portion
|
-
|
3,520
|
||||||
Deferred tax liabilities
|
1,233
|
2,764
|
||||||
Total liabilities
|
52,429
|
133,186
|
||||||
Commitments and contingencies (Note 16)
|
||||||||
|
||||||||
Stockholders' equity:
|
||||||||
Common stock, $.001 par value; 200,000,000 shares authorized; 57,675,806 shares issued and 56,615,683 shares outstanding at December 31, 2011; 58,045,404 shares issued and 46,660,781 shares outstanding at December 31, 2012
|
58
|
59
|
||||||
Additional paid-in capital
|
161,268
|
174,218
|
||||||
Treasury stock, 1,060,123 and 11,384,623 shares at December 31, 2011 and December 31, 2012, respectively
|
(16,208
|
)
|
(131,903
|
)
|
||||
Retained earnings (accumulated deficit)
|
(21,532
|
)
|
15,338
|
|||||
Total stockholders' equity
|
123,586
|
57,712
|
||||||
Total liabilities and stockholders' equity
|
$
|
176,015
|
$
|
190,898
|
|
2010
|
2011
|
2012
|
|||||||||
Revenue:
|
||||||||||||
Account revenue
|
$
|
113,516
|
$
|
142,589
|
$
|
150,715
|
||||||
Payment transaction revenue
|
15,742
|
18,733
|
23,168
|
|||||||||
Higher education institution revenue
|
12,543
|
16,614
|
21,016
|
|||||||||
Other revenue
|
3,168
|
3,112
|
2,821
|
|||||||||
Revenue before customer credit plan
|
144,969
|
181,048
|
197,720
|
|||||||||
Less customer credit plan
|
—
|
(4,728
|
)
|
—
|
||||||||
Revenue
|
144,969
|
176,320
|
197,720
|
|||||||||
Cost of revenue
|
51,845
|
67,560
|
80,280
|
|||||||||
Gross margin
|
93,124
|
108,760
|
117,440
|
|||||||||
Operating expenses:
|
||||||||||||
General and administrative
|
32,381
|
37,715
|
46,321
|
|||||||||
Product development
|
3,311
|
3,265
|
5,221
|
|||||||||
Sales and marketing
|
16,185
|
20,265
|
12,284
|
|||||||||
Merger and acquisition related expenses, net
|
—
|
—
|
(5,828
|
)
|
||||||||
Total operating expenses
|
51,877
|
61,245
|
57,998
|
|||||||||
Income from operations
|
41,247
|
47,515
|
59,442
|
|||||||||
Interest income
|
29
|
68
|
109
|
|||||||||
Interest expense
|
(729
|
)
|
(266
|
)
|
(967
|
)
|
||||||
Other income
|
–
|
1,500
|
310
|
|||||||||
Net income before income taxes
|
40,547
|
48,817
|
58,894
|
|||||||||
Income tax expense
|
15,488
|
16,924
|
22,024
|
|||||||||
Net income
|
$
|
25,059
|
$
|
31,893
|
$
|
36,870
|
||||||
|
||||||||||||
Net income available to common stockholders:
|
||||||||||||
Basic
|
$
|
16,149
|
$
|
31,893
|
$
|
36,870
|
||||||
Participating Securities
|
8,910
|
–
|
–
|
|||||||||
Diluted
|
$
|
25,059
|
$
|
31,893
|
$
|
36,870
|
||||||
|
||||||||||||
Weighted average shares outstanding:
|
||||||||||||
Basic
|
33,395,310
|
55,210,972
|
53,877,879
|
|||||||||
Diluted
|
57,302,843
|
59,553,678
|
56,728,807
|
|||||||||
|
||||||||||||
Net income available to common stockholders per common share:
|
||||||||||||
Basic
|
$
|
0.48
|
$
|
0.58
|
$
|
0.68
|
||||||
Diluted
|
0.44
|
0.54
|
0.65
|
|
Convertible Preferred Stock
|
Common Stock
|
||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Treasury Stock
|
Retained Earnings (Accumulated Deficit)
|
Total Stockholders'
Equity
|
||||||||||||||||||||||||
Balance at December 31, 2009
|
12,975,169
|
$
|
80,954
|
12,276,765
|
$
|
12
|
$
|
4,624
|
$
|
—
|
$
|
(78,484
|
)
|
$
|
7,106
|
|||||||||||||||||
Stock-based compensation
|
—
|
—
|
—
|
—
|
2,913
|
—
|
—
|
2,913
|
||||||||||||||||||||||||
Stock-based customer acquisition expense
|
—
|
—
|
—
|
—
|
7,274
|
—
|
—
|
7,274
|
||||||||||||||||||||||||
Tax benefit related to options and restricted stock
|
—
|
—
|
—
|
—
|
2,811
|
—
|
—
|
2,811
|
||||||||||||||||||||||||
Conversion of preferred stock to common stock
|
(12,975,169
|
)
|
(80,954
|
)
|
38,925,507
|
39
|
80,915
|
—
|
—
|
—
|
||||||||||||||||||||||
Issuance of common stock
|
—
|
—
|
3,569,395
|
4
|
37,205
|
—
|
—
|
37,209
|
||||||||||||||||||||||||
Exercise of stock options, net of repurchases
|
—
|
—
|
1,337,567
|
1
|
1,018
|
—
|
—
|
1,019
|
||||||||||||||||||||||||
Net income
|
—
|
—
|
—
|
—
|
—
|
—
|
25,059
|
25,059
|
||||||||||||||||||||||||
Balance at December 31, 2010
|
—
|
$
|
—
|
56,109,234
|
$
|
56
|
$
|
136,760
|
$
|
—
|
$
|
(53,425
|
)
|
$
|
83,391
|
|||||||||||||||||
Stock-based compensation
|
—
|
—
|
—
|
—
|
4,010
|
—
|
—
|
4,010
|
||||||||||||||||||||||||
Stock-based customer acquisition expense
|
—
|
—
|
—
|
—
|
10,493
|
—
|
—
|
10,493
|
||||||||||||||||||||||||
Tax benefit related to options
|
—
|
—
|
—
|
—
|
8,793
|
—
|
—
|
8,793
|
||||||||||||||||||||||||
Repurchase of common stock
|
—
|
—
|
(1,060,123
|
)
|
—
|
—
|
(16,208
|
)
|
—
|
(16,208
|
)
|
|||||||||||||||||||||
Exercise of stock options
|
—
|
—
|
1,566,572
|
2
|
1,212
|
—
|
—
|
1,214
|
||||||||||||||||||||||||
Net income
|
—
|
—
|
—
|
—
|
—
|
—
|
31,893
|
31,893
|
||||||||||||||||||||||||
Balance at December 31, 2011
|
—
|
$
|
—
|
56,615,683
|
$
|
58
|
$
|
161,268
|
$
|
(16,208
|
)
|
$
|
(21,532
|
)
|
$
|
123,586
|
||||||||||||||||
Stock-based compensation
|
—
|
—
|
—
|
—
|
4,287
|
—
|
—
|
4,287
|
||||||||||||||||||||||||
Issuance of warrants |
—
|
—
|
—
|
—
|
960 |
—
|
—
|
960 | ||||||||||||||||||||||||
Tax benefit related to options
|
—
|
—
|
—
|
—
|
4,628
|
—
|
—
|
4,628
|
||||||||||||||||||||||||
Repurchase of common stock
|
—
|
—
|
(10,324,500
|
)
|
—
|
—
|
(115,695
|
)
|
—
|
(115,695
|
) | |||||||||||||||||||||
Cancellation of shares
|
—
|
—
|
(1,059,465
|
)
|
(1
|
)
|
—
|
—
|
—
|
(1
|
) | |||||||||||||||||||||
Exercise of stockoptions
|
—
|
—
|
1,429,063
|
2
|
3,075
|
—
|
—
|
3,077
|
||||||||||||||||||||||||
Net income
|
—
|
—
|
—
|
—
|
—
|
—
|
36,870
|
36,870
|
||||||||||||||||||||||||
Balance at December 31, 2012
|
—
|
$
|
—
|
46,660,781
|
$
|
59
|
$
|
174,218
|
$
|
(131,903
|
)
|
$
|
15,338
|
$
|
57,712
|
|
2010
|
2011
|
2012
|
|||||||||
Cash flows from operating activities
|
||||||||||||
Net income
|
$
|
25,059
|
$
|
31,893
|
$
|
36,870
|
||||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
Depreciation and amortization
|
7,292
|
7,021
|
10,250
|
|||||||||
Amortization of deferred finance costs
|
204
|
76
|
213
|
|||||||||
Non-cash interest expense
|
360
|
-
|
-
|
|||||||||
Stock-based customer acquisition expense
|
7,274
|
10,493
|
-
|
|||||||||
Stock-based compensation
|
2,913
|
3,868
|
4,093
|
|||||||||
Deferred income taxes
|
(3,166
|
)
|
(1,678
|
)
|
1,856
|
|||||||
Income tax benefit related to exercise of stock options
|
(2,811
|
)
|
(8,793
|
)
|
(4,655
|
)
|
||||||
Non-cash fair value adjustment of contingent consideration
|
-
|
-
|
(7,250
|
)
|
||||||||
Other income
|
-
|
-
|
(313
|
)
|
||||||||
Gain on litigation settlement agreement
|
-
|
(1,500
|
)
|
-
|
||||||||
Loss on disposal of fixed assets
|
24
|
428
|
44
|
|||||||||
Changes in operating assets and liabilities:
|
||||||||||||
Accounts receivable
|
(263
|
)
|
(1,050
|
)
|
1,220
|
|||||||
Income receivable
|
(382
|
)
|
(2,242
|
)
|
(1,505
|
)
|
||||||
Deferred costs
|
(988
|
)
|
(992
|
)
|
(903
|
)
|
||||||
Prepaid expenses and other current assets
|
(1,669
|
)
|
2,329
|
13,262
|
||||||||
Other assets
|
(125
|
)
|
109
|
(267
|
)
|
|||||||
Accounts payable
|
263
|
55
|
757
|
|||||||||
Accrued expenses
|
2,732
|
2,612
|
(3,256
|
)
|
||||||||
Deferred revenue
|
3,339
|
1,838
|
3,181
|
|||||||||
Net cash provided by operating activities
|
40,056
|
44,467
|
53,597
|
|||||||||
Cash flows from investing activities
|
||||||||||||
Purchases of available for sale investment securities
|
(20,777
|
)
|
(14,101
|
)
|
(11,230
|
)
|
||||||
Proceeds from sales of available for sale investment securities
|
6,080
|
13,055
|
14,634
|
|||||||||
Proceeds from maturities of available for sale investment securities
|
-
|
-
|
12,094
|
|||||||||
Purchases of fixed assets, net of changes in construction payables of $347, $11,584 and ($11,799), respectively
|
(7,059
|
)
|
(40,328
|
)
|
(23,495
|
)
|
||||||
Acquisition of Campus Labs
|
-
|
-
|
(37,280
|
)
|
||||||||
Proceeds from development related subsidies
|
-
|
7,125
|
330
|
|||||||||
Loan made related to New Markets Tax Credit financing
|
-
|
(7,633
|
)
|
-
|
||||||||
Additions to internal use software
|
-
|
(1,379
|
)
|
(2,854
|
)
|
|||||||
Deposits to restricted cash, net
|
-
|
-
|
(2,250
|
)
|
||||||||
Payment to escrow agent
|
(8,250
|
)
|
(1,250
|
)
|
-
|
|||||||
Payment of acquisition payable
|
(1,750
|
)
|
-
|
-
|
||||||||
Proceeds from escrow agent
|
-
|
1,500
|
-
|
|||||||||
Net cash used in investing activities
|
(31,756
|
)
|
(43,011
|
)
|
(50,051
|
)
|
||||||
Cash flows from financing activities
|
||||||||||||
Tax benefit related to exercise of stock options
|
2,811
|
8,793
|
4,655
|
|||||||||
Proceeds from exercise of stock options
|
1,019
|
1,214
|
3,077
|
|||||||||
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
|
- | 80,000 | |||||||||
Proceeds related to New Markets Tax Credit financing
|
-
|
7,633
|
-
|
|||||||||
Deferred contribution related to New Markets Tax Credit financing
|
-
|
2,168
|
-
|
|||||||||
Payment of deferred financing costs
|
(187
|
)
|
(455
|
)
|
(1,637
|
)
|
||||||
Repayment of capital lease obligations
|
(7
|
)
|
- | - | ||||||||
Repurchase of common stock
|
-
|
(16,208
|
)
|
(115,695
|
)
|
|||||||
Net cash provided by financing activities
|
22,845
|
3,145
|
(29,600
|
)
|
||||||||
Net change in cash and cash equivalents
|
31,145
|
4,601
|
(26,054
|
)
|
||||||||
Cash and cash equivalents at beginning of period
|
3,339
|
34,484
|
39,085
|
|||||||||
Cash and cash equivalents at end of period
|
$
|
34,484
|
$
|
39,085
|
$
|
13,031
|
||||||
|
||||||||||||
Supplemental information:
|
||||||||||||
Income tax paid
|
$
|
16,491
|
$
|
14,279
|
$
|
4,483
|
||||||
Cash paid for interest
|
165
|
190
|
426
|
1.
|
Nature of Business and Organization
|
2.
|
Significant Accounting Policies
|
Acquired technology
|
5 to 7 years
|
Customer contracts
|
4 to 12 years
|
Non-compete agreements
|
5 years
|
Trademarks
|
9 to 10 years
|
|
2010
|
|
2011
|
|
2012
|
Expected term
|
6.2 – 6.3 years
|
|
5.0 – 6.3 years
|
|
5.0 – 6.3 years
|
Expected volatility
|
51.0% – 51.9%
|
|
46.7% – 55.4%
|
|
47.8% – 51.7%
|
Risk-free rate
|
1.5% – 3.0%
|
|
1.1% – 2.7%
|
|
0.8% – 1.3%
|
Expected dividends
|
None
|
|
None
|
|
None
|
|
2010
|
2011
|
2012
|
|||||||||
Net income available to common shareholders:
|
||||||||||||
Basic
|
$
|
16,149
|
$
|
31,893
|
$
|
36,870
|
||||||
Participating securities
|
8,910
|
—
|
—
|
|||||||||
Diluted
|
$
|
25,059
|
$
|
31,893
|
$
|
36,870
|
||||||
|
||||||||||||
Weighted average shares outstanding:
|
||||||||||||
Basic
|
33,395,310
|
55,210,972
|
53,877,879
|
|||||||||
Stock awards
|
23,907,533
|
4,342,706
|
2,850,928
|
|||||||||
Diluted
|
57,302,843
|
59,553,678
|
56,728,807
|
|||||||||
|
||||||||||||
Net income per common share:
|
||||||||||||
Basic
|
$
|
0.48
|
$
|
0.58
|
$
|
0.68
|
||||||
Diluted
|
$
|
0.44
|
$
|
0.54
|
$
|
0.65
|
3.
|
Acquisitions
|
(i)
|
$37.3 million in cash;
|
(ii)
|
warrants to purchase 150,000 shares of our common stock, which were valued at $1.0 million utilizing a Black-Scholes pricing model; and
|
(iii)
|
a potential earn-out payment calculated by multiplying the amount of 2013 revenues for the acquired business in excess of $12.5 million, if any, by 3.5 (subject to a maximum payment of $46.4 million). The amount recognized as of the acquisition date for the potential earn-out payment was $13 million. The estimated range of outcomes (undiscounted) for the payments due under the earn-out was between approximately $7 million and $23 million at the time of the acquisition.
|
Assets acquired:
|
|
||||
Accounts receivable
|
|
$
|
2,408
|
||
Prepaid expenses
|
|
52
|
|||
Fixed assets
|
|
577
|
|||
Intangible assets
|
|
21,710
|
|||
Goodwill
|
|
31,170
|
|||
Total assets acquired
|
|
55,917
|
|||
|
|||||
Liabilities assumed:
|
|
||||
Accounts payable and accrued liabilities
|
|
1,178
|
|||
Deferred revenue
|
|
3,500
|
|||
Total liabilities assumed
|
|
4,678
|
|||
Total fair value of consideration transferred
|
|
$
|
51,239
|
Item
|
|
Valuation technique
|
|
Inputs
|
Deferred revenue
|
|
Income approach
|
|
Estimated costs and associated profit margin to service our remaining obligations on contracts assumed as a result of the acquisition, discount rate
|
Contingent consideration
|
|
Income approach
|
|
Estimated range of revenues for 2013, discount rate
|
Non-compete agreements
|
|
Income approach – lost profits
|
|
Estimated probability of the associated individual leaving and competing, estimated future revenue impact of potential future competition
|
Completed technology
|
|
Income approach – relief from royalty
|
|
Estimated future revenue attributable to technology completed as of the acquisition date, royalty rate and discount rate
|
Tradename
|
|
Income approach – relief from royalty
|
|
Estimated future revenue, expected probability of utilizing the acquired tradenames in the future, discount rate.
|
Customer relationships
|
|
Income approach – excess earnings
|
|
Estimated future revenues attributable to existing higher education institution customers as of the acquisition date, estimated income associated with such revenue, royalty rate and discount rate
|
|
Weighted-average amortization period (in years)
|
Amount
|
||||||
Customer relationships
|
12
|
$
|
14,410
|
|||||
Completed technology
|
7
|
5,600
|
||||||
Tradename
|
9
|
700
|
||||||
Non-compete agreements
|
5
|
1,000
|
||||||
|
10
|
$
|
21,710
|
|
Year ended
|
|||||||
|
December 31,
|
|||||||
in thousands (other than share and per share information)
|
2011
|
2012
|
||||||
Revenues
|
$
|
183,220
|
$
|
203,168
|
||||
Net income
|
$
|
30,677
|
$
|
36,747
|
||||
Basic earnings per share
|
$
|
0.56
|
$
|
0.68
|
||||
Basic weighted average number of common shares outstanding
|
55,210,972
|
53,877,879
|
||||||
Diluted earnings per share
|
$
|
0.52
|
$
|
0.65
|
||||
Diluted weighted average number of common and common equivalent shares outstanding
|
59,553,678
|
56,728,807
|
4.
|
Investments in Marketable Securities and Fair Value Measurements
|
|
Total
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Unobservable Inputs
(Level 3)
|
||||||||||||
Fair values at December 31, 2012
|
||||||||||||||||
Assets:
|
||||||||||||||||
Certificate of deposit
|
$
|
247
|
$
|
—
|
$
|
247
|
$
|
—
|
||||||||
|
||||||||||||||||
Liabilities:
|
||||||||||||||||
Contingent consideration
|
$
|
5,750
|
$
|
—
|
$
|
—
|
$
|
5,750
|
||||||||
|
||||||||||||||||
Fair values at December 31, 2011
|
||||||||||||||||
Assets:
|
||||||||||||||||
U.S. government debt securities
|
$
|
15,498
|
$
|
15,498
|
$
|
—
|
$
|
—
|
||||||||
Certificate of deposit
|
245
|
—
|
245
|
—
|
||||||||||||
Total assets
|
$
|
15,743
|
$
|
15,498
|
$
|
245
|
$
|
—
|
|
Beginning Value of Level 3 Liabilities
|
New Level 3 Liabilities
|
Gain Recognized in Earnings
|
Ending Fair Value of Level 3 Liabilities
|
||||||||||||
Contingent consideration
|
$
|
—
|
$
|
13,000
|
$
|
(7,250
|
)
|
$
|
5,750
|
5.
|
Restricted Cash
|
6.
|
Deferred Costs
|
|
December 31,
|
|||||||
|
2011
|
2012
|
||||||
Deferred implementation costs
|
$
|
8,484
|
$
|
9,375
|
||||
Deferred financing costs
|
978
|
2,628
|
||||||
Less: Accumulated amortization
|
(5,686
|
)
|
(7,338
|
)
|
||||
|
$
|
3,776
|
$
|
4,665
|
7.
|
Fixed Assets
|
|
Estimated
|
|||||||||||
|
Useful Life
|
December 31,
|
||||||||||
|
(in years)
|
2011
|
2012
|
|||||||||
|
||||||||||||
Building and building improvements
|
10 or 39
|
$
|
32,758
|
$
|
33,010
|
|||||||
Computers and software
|
3 – 10
|
5,881
|
17,001
|
|||||||||
Equipment
|
7
|
9,591
|
11,595
|
|||||||||
Furniture and fixtures
|
5
|
515
|
1,251
|
|||||||||
Leasehold improvements
|
5
|
498
|
508
|
|||||||||
Assets under construction
|
2,776
|
369
|
||||||||||
|
52,019
|
63,734
|
||||||||||
Less: Accumulated depreciation
|
(5,931
|
)
|
(11,048
|
)
|
||||||||
|
$
|
46,088
|
$
|
52,686
|
8.
|
Goodwill and Intangible Assets
|
|
Weighted
Average
Amortization Period
|
December 31,
|
||||||||||
|
(in years)
|
2011
|
2012
|
|||||||||
Goodwill
|
$
|
15,830
|
$
|
47,000
|
||||||||
|
||||||||||||
Acquired technology
|
7
|
$
|
6,883
|
$
|
12,483
|
|||||||
Internal use software
|
3
|
422
|
422
|
|||||||||
Contracts and customer lists
|
11
|
11,031
|
25,441
|
|||||||||
Trademarks and domain names
|
9
|
450
|
1,150
|
|||||||||
Covenants not to compete
|
5
|
4,016
|
5,016
|
|||||||||
Internal use software in development
|
1,402
|
4,398
|
||||||||||
|
24,204
|
48,910
|
||||||||||
Less: Accumulated amortization
|
(7,417
|
)
|
(10,767
|
)
|
||||||||
Intangible assets, net
|
$
|
16,787
|
$
|
38,143
|
|
||||
Balance at December 31, 2010
|
$
|
15,830
|
||
Balance at December 31, 2011
|
15,830
|
|||
Acquisition of Campus Labs
|
31,170
|
|||
Balance at December 31, 2012
|
$
|
47,000
|
Year Ending December 31,
|
||||
2013
|
$
|
4,449
|
||
2014
|
4,587
|
|||
2015
|
4,221
|
|||
2016
|
4,265
|
|||
2017
|
3,317
|
9.
|
Provision for Operational Losses
|
December 31,
|
||||||||||||
|
2010
|
2011
|
2012
|
|||||||||
(Prepayment of) reserve for operational losses, beginning
|
$
|
533
|
$
|
(1,870
|
)
|
$
|
(3,796
|
)
|
||||
Provision for operational losses
|
7,197
|
8,860
|
12,009
|
|||||||||
Payments to third party for losses, net of recoveries
|
(9,600
|
)
|
(10,786
|
)
|
(12,676
|
)
|
||||||
(Prepayment of) reserve for operational losses, ending
|
$
|
(1,870
|
)
|
$
|
(3,796
|
)
|
$
|
(4,463
|
)
|
10.
|
Accrued Expenses
|
|
December 31,
|
|||||||
|
2011
|
2012
|
||||||
Construction related
|
$
|
11,931
|
$
|
153
|
||||
Compensation and benefits
|
4,093
|
4,162
|
||||||
Bank and payment processing expenses
|
5,680
|
2,912
|
||||||
Data processing
|
1,364
|
2,642
|
||||||
Other
|
3,346
|
2,657
|
||||||
|
$
|
26,414
|
$
|
12,526
|
11.
|
Debt and Acquisition Payable
|
12.
|
Real Estate Development Project and New Markets Tax Credit Financing
|
Name of program
|
Amount (in
thousands)
|
Continuing criteria
|
Potential recapture or forfeiture
|
|||
Federal Historic Preservation Tax Incentives Program
|
$
|
5,705
|
We may not dispose of the building or reduce our ownership interest below a specified level for five years following the date the building is placed in service.
|
The recapture amount is reduced 20% of the total amount claimed each year.
|
||
Department of Economic and Community Development Urban Act Grant and Environmental Remediation Grant
|
5,500
|
We must (i) maintain corporate headquarters in Connecticut for the next 10 years, (ii) maintain a specified minimum average employment level for the years 2015 – 2018 and (iii) adhere to other administrative criteria.
|
The full amount of the grant, plus 7.5%.
|
|||
Connecticut Development Authority Sales and Use Tax Relief Program
|
944
|
We must (i) maintain corporate headquarters in Connecticut for the next 10 years and (ii) meet a specified minimum employment level as of March 31, 2015.
|
The full amount of benefit received from the program plus 7.5%.
|
|||
Other contributions
|
1,955
|
None
|
None
|
13.
|
Capital Stock
|
14.
|
Stock Based Compensation
|
|
Stock Options
|
Warrants
|
Restricted Stock
|
||||||||||||||||||||||
|
Shares
|
Weighted Average Exercise Price
|
Shares
|
Weighted Average Exercise Price
|
Shares
|
Weighted Average Grant Stock Price
|
|||||||||||||||||||
Outstanding at December 31, 2009
|
8,463,432
|
$
|
2.57
|
-
|
$
|
-
|
43,344
|
$
|
10.80
|
||||||||||||||||
Granted
|
630,750
|
14.48
|
-
|
-
|
—
|
—
|
|||||||||||||||||||
Exercised
|
(1,337,567
|
)
|
0.81
|
-
|
-
|
(10,833
|
) | (1) |
10.80
|
||||||||||||||||
Forfeited / Canceled
|
(450,872
|
)
|
8.03
|
-
|
-
|
—
|
—
|
||||||||||||||||||
Outstanding at December 31, 2010
|
7,305,743
|
$
|
3.58
|
-
|
$
|
-
|
32,511
|
$
|
10.80
|
||||||||||||||||
Granted
|
608,750
|
17.45
|
-
|
-
|
—
|
—
|
|||||||||||||||||||
Exercised
|
(1,566,572
|
)
|
0.77
|
-
|
-
|
(10,833
|
) | (1) |
10.80
|
||||||||||||||||
Forfeited / Canceled
|
(157,455
|
)
|
8.52
|
-
|
-
|
—
|
—
|
||||||||||||||||||
Outstanding at December 31, 2011
|
6,190,466
|
$
|
5.53
|
-
|
$
|
-
|
21,678
|
$
|
10.80
|
||||||||||||||||
Granted
|
858,000
|
13.19
|
150,000
|
11.67
|
—
|
—
|
|||||||||||||||||||
Exercised
|
(1,429,063
|
)
|
2.15
|
-
|
-
|
(7,044
|
) | (1) |
10.80
|
||||||||||||||||
Forfeited / Canceled
|
(180,068
|
)
|
11.15
|
-
|
-
|
(7,587
|
) |
10.80
|
|||||||||||||||||
Outstanding at December 31, 2012
|
5,439,335
|
$
|
7.44
|
150,000
|
$
|
11.67
|
7,047
|
$
|
10.80
|
||||||||||||||||
|
|||||||||||||||||||||||||
Intrinsic value
|
|||||||||||||||||||||||||
Shares outstanding
|
$
|
24,776
|
$
|
-
|
$
|
74
|
|||||||||||||||||||
Shares vested
|
24,197
|
-
|
(1) | Represents restricted stock vested |
Options Outstanding and Expected to Vest
|
Options Exercisable
|
||||||||||||||||||||||
Number Outstanding
|
Weighted Average Remaining
Contractual Life (in years)
|
Weighted Average Exercise Price
|
Number Exercisable
|
Weighted Average Remaining Contractual Life (in years)
|
Weighted Average Exercise Price
|
||||||||||||||||||
5,439,335
|
6.1
|
$
|
7.44
|
3,952,661
|
5.2
|
$
|
5.17
|
15.
|
Income Taxes
|
|
2010
|
2011
|
2012
|
|||||||||
Current income tax expense
|
||||||||||||
Federal
|
$
|
17,035
|
$
|
17,131
|
$
|
18,788
|
||||||
State and local
|
1,619
|
1,471
|
1,380
|
|||||||||
Total
|
18,654
|
18,602
|
20,168
|
|||||||||
|
||||||||||||
Deferred income tax benefit
|
||||||||||||
Federal
|
(3,082
|
)
|
(807
|
)
|
1,992
|
|||||||
State and local
|
(84
|
)
|
(871
|
)
|
(136
|
)
|
||||||
Total
|
(3,166
|
)
|
(1,678
|
)
|
1,856
|
|||||||
Income tax expense
|
$
|
15,488
|
$
|
16,924
|
$
|
22,024
|
|
||||||||||||
|
2010
|
2011
|
2012
|
|||||||||
Expected federal income tax expense
|
$
|
14,191
|
$
|
17,086
|
$
|
20,613
|
||||||
Non-deductible expenses
|
496
|
26
|
631
|
|||||||||
State tax expense, net of federal tax effect
|
968
|
85
|
761
|
|||||||||
Federal credits
|
(98
|
)
|
(253
|
)
|
—
|
|||||||
Other
|
(69
|
)
|
(20
|
)
|
19
|
|||||||
|
$
|
15,488
|
$
|
16,924
|
$
|
22,024
|
|
December 31,
|
|||||||||||||||
|
2011
|
2012
|
||||||||||||||
|
Deferred
|
Deferred
|
Deferred
|
Deferred
|
||||||||||||
|
Tax
|
Tax
|
Tax
|
Tax
|
||||||||||||
|
Assets
|
Liabilities
|
Assets
|
Liabilities
|
||||||||||||
|
||||||||||||||||
Stock options
|
$
|
1,526
|
$
|
—
|
$
|
2,007
|
$
|
—
|
||||||||
Tax credits
|
693
|
—
|
850
|
—
|
||||||||||||
Intangible assets
|
2,952
|
—
|
|
1,330
|
—
|
|||||||||||
Fixed assets
|
—
|
(6,116
|
)
|
—
|
(6,402
|
)
|
||||||||||
Other
|
731
|
—
|
630
|
(356
|
)
|
|||||||||||
Total
|
5,902
|
(6,116
|
)
|
4,817
|
(6,758
|
)
|
||||||||||
Valuation allowance
|
(986
|
)
|
—
|
(1,142
|
)
|
—
|
||||||||||
Total
|
$
|
4,916
|
$
|
(6,116
|
)
|
$
|
3,675
|
$
|
(6,758
|
)
|
|
||||||||||||
|
2010
|
2011
|
2012
|
|||||||||
Balance at January 1
|
$
|
545
|
$
|
606
|
$
|
342
|
||||||
Additions for tax positions related to the current year
|
40
|
53
|
17
|
|||||||||
Additions for tax positions of prior years
|
33
|
243
|
18
|
|||||||||
Reductions for tax positions of prior years
|
—
|
|
(402
|
) |
(10
|
)
|
||||||
Settlements
|
(12
|
)
|
(158
|
)
|
—
|
|||||||
Reduction due to statute of limitation expiration |
—
|
—
|
(22 | ) | ||||||||
Balance at December 31
|
$
|
606
|
$
|
342
|
$
|
345
|
16.
|
Commitments and Contingencies
|
2013
|
$
|
635
|
||
2014
|
572
|
|||
2015
|
478
|
|||
2016
|
277
|
|||
2017
|
267
|
|||
Thereafter
|
1,253
|
|||
Total payments
|
$
|
3,482
|
2013
|
$
|
2,622
|
||
2014
|
2,718
|
|||
2015
|
2,817
|
|||
2016
|
2,919
|
|||
2017
|
2,492
|
|||
Total
|
$
|
13,568
|
17.
|
Quarterly Results (unaudited)
|
|
March 31,
2012
|
June 30,
2012
|
September 30,
2012
|
December 31,
2012
|
||||||||||||
Revenue
|
$
|
57,781
|
$
|
38,913
|
$
|
51,227
|
$
|
49,799
|
||||||||
Gross margin
|
36,457
|
21,772
|
29,389
|
29,822
|
||||||||||||
Income from operations
|
21,458
|
6,664
|
11,883
|
19,437
|
||||||||||||
Net income before income taxes
|
21,458
|
6,666
|
11,798
|
18,972
|
||||||||||||
Net income
|
13,388
|
4,052
|
7,318
|
12,112
|
||||||||||||
Basic net income per share
|
0.24
|
0.07
|
0.13
|
0.24
|
||||||||||||
Diluted net income per share
|
0.23
|
0.07
|
0.13
|
0.22
|
||||||||||||
|
|
March 31,
2011
|
June 30,
2011
|
September 30,
2011
|
December 31,
2011
|
||||||||||||
Revenue
|
$
|
51,383
|
$
|
35,067
|
$
|
48,140
|
$
|
41,730
|
||||||||
Gross margin
|
33,950
|
21,644
|
28,510
|
24,656
|
||||||||||||
Income from operations
|
17,929
|
5,033
|
13,239
|
11,314
|
||||||||||||
Net income before income taxes
|
17,880
|
6,488
|
13,188
|
11,261
|
||||||||||||
Net income
|
11,042
|
4,754
|
8,468
|
7,629
|
||||||||||||
Basic net income per share
|
0.20
|
0.09
|
0.15
|
0.14
|
||||||||||||
Diluted net income per share
|
0.19
|
0.08
|
0.14
|
0.13
|
||||||||||||
|
Exhibit
No.
|
|
Description
|
2.1
|
(1)
|
Asset Purchase Agreement dated as of June 9, 2008 by and among Higher One, Inc., EduCard, LLC and the members listed therein.
|
2.2
|
(1)
|
Intellectual Property Purchase Agreement dated as of June 9, 2008 by and between Kevin Jones and Higher One, Inc. (the "Intellectual Property Purchase Agreement").
|
2.3
|
(1)
|
First Amendment to the Intellectual Property Purchase Agreement dated as of May 7, 2009 by and between Kevin Jones and Higher One, Inc.
|
2.4
|
(1)
|
Second Amendment to the Intellectual Property Purchase Agreement dated as of August 21, 2009 by and between Kevin Jones and Higher One, Inc.
|
2.5
|
(1)
|
Stock Purchase Agreement dated as of November 19, 2009 by and among Higher One, Inc. and the shareholders of Informed Decisions Corporation listed thereto.
|
2.6
|
(4)
|
Third Amendment to the Intellectual Property Purchase Agreement dated as of May 5, 2010 by and between Kevin Jones and Higher One, Inc.
|
2.7
|
(4)
|
Fourth Amendment to the Intellectual Property Purchase Agreement dated as of December 10, 2010 by and between Kevin Jones and Higher One, Inc.
|
2.8
|
(4)
|
Fifth Amendment to the Intellectual Property Purchase Agreement dated as of February 3, 2010 by and between Kevin Jones and Higher One, Inc.
|
2.9
|
(5)
|
Sixth Amendment to the Intellectual Property Purchase Agreement dated as of April 15, 2011 by and between Kevin Jones and Higher One, Inc.
|
2.10
|
(5)
|
Seventh Amendment to the Intellectual Property Purchase Agreement dated as of April 20, 2011 by and between Kevin Jones and Higher One, Inc.
|
2.11
|
(7)
|
Eighth Amendment to the Intellectual Property Purchase Agreement dated as of December 21, 2011 by and between Kevin Jones and Higher One, Inc.
|
2.12
|
(10)
|
Asset Purchase Agreement dated August 7, 2012 between Campus Labs, LLC, the members of the Campus Labs, LLC and Higher One, Inc.
|
2.13
|
*
|
Ninth Amendment to the Intellectual Property Purchase Agreement dated as of June 1, 2012 by and between Kevin Jones and Higher One, Inc.
|
2.14
|
*
|
First Amendment to the Asset Purchase Agreement dated August 7, 2012 between Campus Labs, LLC, the members of the Campus Labs, LLC and Higher One, Inc.
|
3.1
|
(2)
|
Second Amended and Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of the State of Delaware on June 18, 2010.
|
3.2
|
(2)
|
Bylaws of the Registrant effective as of June 16, 2010.
|
10.1
|
(1)
|
Amended and Restated Investor Rights Agreement dated as of August 26, 2008 by and among Higher One Holdings, Inc. and the shareholders listed thereto.
|
10.2
|
(1)
|
Services Agreement dated as of May 9, 2008 by and between The Bancorp, Inc. and Higher One, Inc.**
|
10.3
|
(1)
|
Lease Agreement dated as of November 1, 2007 by and between WE 150 Munson LLC and Higher One, Inc (the "New Haven Lease").
|
10.4
|
(1)
|
Amendment No. 1 to the New Haven Lease dated as of June 5, 2009 by and between WE 150 Munson LLC and Higher One, Inc.
|
10.5
|
(1)
|
Amendment No. 2 to the New Haven Lease dated December 1, 2009 by and between WE 150 Munson LLC and Higher One, Inc.
|
10.6
|
(1)
|
Higher One Holdings, Inc. 2000 Stock Incentive Plan dated as of April 20, 2000, as amended on August 3, 2006.
|
10.7
|
(1)
|
Form of Higher One Holdings, Inc. Incentive Stock Option Agreement.
|
10.8
|
(1)
|
Form of Higher One Holdings, Inc. Non-Qualified Stock Option Agreement.
|
10.9
|
(1)
|
Form of Higher One Holdings, Inc. Stock Restriction Agreement.
|
10.10
|
(1)
|
Higher One Holdings, Inc. Short Term Incentive Plan, dated as of March 26, 2010
|
10.11
|
(1)
|
Higher One Holdings, Inc. 2010 Equity Incentive Plan, dated as of March 26, 2010
|
10.12
|
(1)
|
Form of Higher One Holdings, Inc. Stock Option Grant Agreement.
|
10.13
|
(3)
|
Credit Agreement, dated as of December 31, 2010, by and among Higher One, Inc., and Bank of America, N.A.
|
10.14
|
(4)
|
Guaranty dated as of December 31, 2010 by Higher One Holdings, Inc. in favor of Bank of America, N.A., as administrative agent.
|
10.15
|
(4)
|
Guaranty dated as of December 31, 2010 by Higher One Payments, Inc. in favor of Bank of America, N.A., as administrative agent.
|
10.16
|
(4)
|
Guaranty dated as of December 31, 2010 by Higher One Real Estate, Inc. in favor of Bank of America, N.A., as administrative agent.
|
10.17
|
(4)
|
Guaranty dated as of December 31, 2010 by Higher One Real Estate SP, LLC in favor of Bank of America, N.A., as administrative agent.
|
10.18
|
(4)
|
Guaranty dated as of December 31, 2010 by Higher One Machines, Inc. in favor of Bank of America, N.A., as administrative agent.
|
10.19
|
(4)
|
Stock Pledge Agreement dated as of December 31, 2010 by and between Higher One Holdings, Inc. and Bank of America, N.A., as administrative agent.
|
10.20
|
(4)
|
Lease Agreement dated as of May 21, 2010 by and between Higher One Payments, Inc. and GSR II, LLC and LM Swan Way, LLC
|
10.21
|
(6)
|
Termination to Amended and Restated Investor Rights Agreements dated as of August 22, 2011 by and among Higher One Holdings, Inc. and the shareholders listed thereto.
|
10.22
|
(7)
|
Deposit Processing Services Agreement between Urban Trust Bank and Higher One, Inc., dated December 23, 2011.**
|
10.23
|
(7)
|
Deposit Processing Services Agreement between Wright Express Financial Services Corporation and Higher One, Inc., dated January 11, 2012.**
|
10.24
|
(8)
|
Deposit Processing Services Agreement between Cole Taylor Bank and Higher One, Inc., dated March 29, 2012**
|
10.25
|
(9)
|
Credit Agreement, dated as of October 16, 2012 among Higher One, Inc., its subsidiaries, Bank of America, N.A., other lenders party thereto and Merrill Lynch, Pierce Fenner & Smith, Incorporated.
|
10.26
|
*
|
First Amendment to the Deposit Processing Services Agreement between Cole Taylor Bank and Higher One, Inc., dated May 3, 2012
|
10.27
|
*
|
Second Amendment to the Deposit Processing Services Agreement between Cole Taylor Bank and Higher One, Inc., dated June 20, 2012
|
10.28
|
*
|
Third Amendment to the Deposit Processing Services Agreement between Cole Taylor Bank and Higher One, Inc., dated July 26, 2012
|
10.29
|
*
|
Fourth Amendment to the Deposit Processing Services Agreement between Cole Taylor Bank and Higher One, Inc., dated August 30, 2012
|
10.30
|
*
|
Fifth Amendment to the Deposit Processing Services Agreement between Cole Taylor Bank and Higher One, Inc., dated November 30, 2012
|
10.31
|
*
|
Sixth Amendment to the Deposit Processing Services Agreement between Cole Taylor Bank and Higher One, Inc., dated February 8, 2012
|
21.1
|
*
|
List of Subsidiaries of Higher One Holdings, Inc.
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23.1
|
*
|
Consent of PricewaterhouseCoopers LLP
|
31.1
|
*
|
Certifications of Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
32.1
|
*
|
Certifications of Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
101.INS
|
*(11)
|
XBRL Instance Document
|
101.SCH
|
*(11)
|
XBRL Taxonomy Extension Schema
|
101.CAL
|
*(11)
|
XBRL Taxonomy Calculation Linkbase
|
101.DEF
|
*(11)
|
XBRL Taxonomy Extension Definition Linkbase
|
101.LAB
|
*(11)
|
XBRL Taxonomy Extension Label Linkbase
|
101.PRE
|
*(11)
|
XBRL Taxonomy Extension Presentation Linkbase
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|
|
|
|
|
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*
**
|
Filed herewith
Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
|
(1) | Incorporated by reference to exhibit filed with Registrant's registration statement on Form S-1 (File No. 333-165673), as amended. |
(2) | Incorporated by reference to exhibit filed with Registrant's Quarterly Report on Form 10-Q for the period ending June 30, 2010. |
(3) | Incorporated by reference to exhibit filed with Registrant's Report on Form 8-K filed on January 5, 2011. |
(4) | Incorporated by reference to exhibit filed with Registrant's Annual Report on Form 10-K for the period ending December 31, 2010. |
(5) | Incorporated by reference to exhibit filed with Registrant's Quarterly Report on Form 10-Q for the period ending March 31, 2011. |
(7) | Incorporated by reference to exhibit filed with Registrant's Annual Report on Form 10-K for the period ending December 31, 2011. |
(8) | Incorporated by reference to exhibit filed with Registrant's Quarterly Report on Form 10-Q for the period ending March 31, 2012. |
(9) | Incorporated by reference to exhibit filed with Registrant's Report on Form 8-K filed on October 18, 2012. |
(10) | Incorporated by reference to exhibit filed with Registrant's Quarterly Report on Form 10-Q for the period ending September 30, 2012. |
(11) | Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibits 101 to this Annual Report on Form 10-K shall not be deemed to be "filed" for purposes of Section 18 of the Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing. |
|
HIGHER ONE, INC.
By: /s/ Miles Lasater
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Name: Miles Lasater | |
Title: President and Chief Operations Officer
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MEDINA MYSTERY LLC
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By: /s/ Eric Reich
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Name: Eric Reich
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Title: Manager
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THE MEMBERS:
/s/ Eric Reich
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Eric Reich
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/s/ Michael Weisman | |
Michael Weisman |
(l) | Sponsorship of ATMS and Related Services. Higher One shall be responsible for sponsoring or identifying a sponsor of Higher One-branded ATMs at various sites on or near the premises of educational institutions associated with the Depositor Program ("ATM Sites"). Higher One shall enter into agreements with the applicable third parties that own or operate the ATM Sites, which agreements shall provide that the applicable third party acknowledges that such third party has no ownership interest in the cash located at each ATM Site ("ATM Cash"). Higher One hereby (i) acknowledges that Bank is the sole owner of all ATM Cash prior to its withdrawal by a user of such ATM and (ii) disclaims, under any circumstances, any claim, set off or lien related to the ATM Cash by Higher One against Bank. Higher One shall arrange for the transport and placement of ATM Cash from a banking institution reasonably satisfactory to Bank (the "Vault Bank") by a third party, armored cash delivery service (the "Cash Delivery Service"). Higher One shall be responsible for the timely payment and satisfaction of all costs and expenses incurred by Bank to the Vault Bank or any Cash Delivery Service. For purposes of this Agreement, the Vault Bank and any Cash Delivery Service shall each constitute a Third Party Service Provider. Higher One shall be responsible for ensuring that ATM Cash is transported by the Cash Delivery Service solely to and from ATM Sites from the locations maintained or otherwise serviced by the Vault Bank and in accordance with the mutually agreed upon directions of Higher One and Bank. Higher One agrees to provide and arrange for Bank to have ready access to its ATM Cash wherever located. Higher One further agrees to cause the return of ATM Cash at any time upon the written notice of Bank. In addition to its obligations set forth elsewhere in this Agreement, Higher One assumes all risk of loss and agrees to reimburse Bank promptly for any theft, damage, destruction, incorrect dispensing or other loss of ATM Cash after Bank has provided the Vault Bank with funds sufficient to satisfy Higher One's ATM Cash needs. |
(f) | ATM Sponsorship. Bank shall provide funds to the Vault Bank sufficient to satisfy Higher One's ATM Cash needs for designated Higher One-branded ATMs at no additional cost to Higher One. |
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Subsidiary
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Jurisdiction of Incorporation
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Higher One, Inc.(1)
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Delaware
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Higher One Machines, Inc.(2)
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Delaware
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Higher One Real Estate, Inc. (2)
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Delaware
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Higher One Real Estate SP, LLC (3)
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Delaware
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Higher One Financial Technology Private Limited (4)
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India
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(1)
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100% owned by Higher One Holdings, Inc.
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(2)
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100% owned by Higher One, Inc.
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(3)
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98% owned by Higher One Real Estate, Inc.
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(4)
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99% owned by Higher One, Inc. and Higher One Machines, Inc.
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1.
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I have reviewed this Annual Report on Form 10-K of Higher One Holdings, Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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|
|
(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date: March 4, 2013
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By:
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/s/ Mark Volchek
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||
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Mark Volchek
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Chief Executive Officer (principal executive officer and principal financial officer)
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(1)
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The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: March 4, 2013
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By:
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/s/ Mark Volchek
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||
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Mark Volchek
Chief Executive Officer (principal executive officer and principal financial officer)
|
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Nature of Business and Organization (Details)
|
12 Months Ended |
---|---|
Dec. 31, 2012
|
|
Nature of Business and Organization [Abstract] | |
Number of subsidiaries | 2 |
Collective ownership held by two subsidiaries (in hundredths) | 99.00% |
Ownership percentage of subsidiary (in hundredths) | 98.00% |
Accrued Expenses (Details) (USD $)
In Thousands, unless otherwise specified |
Dec. 31, 2012
|
Dec. 31, 2011
|
---|---|---|
Accrued Expenses [Abstract] | ||
Construction related | $ 153 | $ 11,931 |
Compensation and benefits | 4,162 | 4,093 |
Bank and payment processing expenses | 2,912 | 5,680 |
Data processing | 2,642 | 1,364 |
Other | 2,657 | 3,346 |
Accrued Liabilities | $ 12,526 | $ 26,414 |
Quarterly Results (unaudited) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2012
|
Sep. 30, 2012
|
Jun. 30, 2012
|
Mar. 31, 2012
|
Dec. 31, 2011
|
Sep. 30, 2011
|
Jun. 30, 2011
|
Mar. 31, 2011
|
Dec. 31, 2012
|
Dec. 31, 2011
|
Dec. 31, 2010
|
|
Quarterly Results (unaudited) [Abstract] | |||||||||||
Revenues | $ 49,799 | $ 51,227 | $ 38,913 | $ 57,781 | $ 41,730 | $ 48,140 | $ 35,067 | $ 51,383 | |||
Gross margin | 29,822 | 29,389 | 21,772 | 36,457 | 24,656 | 28,510 | 21,644 | 33,950 | 117,440 | 108,760 | 93,124 |
Income from operations | 19,437 | 11,883 | 6,664 | 21,458 | 11,314 | 13,239 | 5,033 | 17,929 | 59,442 | 47,515 | 41,247 |
Net income before income taxes | 18,972 | 11,798 | 6,666 | 21,458 | 11,261 | 13,188 | 6,488 | 17,880 | 58,894 | 48,817 | 40,547 |
Net income | $ 12,112 | $ 7,318 | $ 4,052 | $ 13,388 | $ 7,629 | $ 8,468 | $ 4,754 | $ 11,042 | $ 36,870 | $ 31,893 | $ 25,059 |
Basic net income per share (in dollars per share) | $ 0.24 | $ 0.13 | $ 0.07 | $ 0.24 | $ 0.14 | $ 0.15 | $ 0.09 | $ 0.20 | |||
Diluted net income per share (in dollars per share) | $ 0.22 | $ 0.13 | $ 0.07 | $ 0.23 | $ 0.13 | $ 0.14 | $ 0.08 | $ 0.19 | $ 0.65 | $ 0.54 | $ 0.44 |
Accrued Expenses (Tables)
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12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2012
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Accrued Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Expenses | Accrued expenses consist of the following:
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Significant Accounting Policies (Policies)
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12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2012
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Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Consolidation | Basis of Presentation and Consolidation The consolidated financial statements reflect the financial position and results of operations of HOH and our majority and wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. |
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Use of Estimates | Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates include those related to the valuation of deferred taxes, provision for operational losses, valuation of our contingent consideration liability, valuation of acquired intangible assets and assumptions used in the valuation of stock options. Actual results could differ from these estimates. |
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Cash and Cash Equivalents | Cash and Cash Equivalents We consider all short-term, highly-liquid investments, with an original maturity of three months or less, to be cash equivalents. Cash equivalents are recorded at cost which approximates their fair value. |
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Accounts Receivable | Accounts Receivable Accounts receivable are recorded at face amounts less an allowance for doubtful accounts. We evaluate our accounts receivable and establish the allowance for doubtful accounts based on historical experience, analysis of past due accounts and other current available information. |
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Investments in Marketable Securities | Investments in Marketable Securities Marketable securities that have a readily determinable fair value and that we do not intend to trade are classified as available for sale and carried at fair value. Unrealized holding gains and losses are recorded as other comprehensive income, a separate component of shareholders' equity, net of deferred income taxes. |
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Fair Value of Financial Instruments | Fair Value of Financial Instruments The carrying amounts of our financial instruments, which include cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair value because of the short-term nature of these instruments. |
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Fair Value Measurements | Fair Value Measurements We evaluate assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level to classify them each reporting period. We had no recorded unrealized gains or losses from investments as of either December 31, 2011 or 2012 and there is no difference between the amortized cost and fair value of the securities we held. There were no liabilities carried at fair value measured on a recurring basis as of December 31, 2011. The fair value of our cash equivalents as of December 31, 2011 and 2012 was valued based upon Level 1 inputs. |
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Concentration of Credit Risk | Concentration of Credit Risk Our potential concentration of credit risk consists primarily of trade accounts receivable from university clients. For the years ended December 31, 2010, 2011 and 2012 no university client individually accounted for more than 10% of trade accounts receivable or revenue. |
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Fixed Assets | Fixed Assets Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. |
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Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill represents the excess of the fair value of consideration transferred over the fair values assigned to the underlying net identifiable assets of acquired businesses. We test goodwill for impairment annually on October 31, or whenever events or changes in circumstances indicate that an impairment may have occurred, by comparing its fair value to its carrying value. Effective for our test as of October 31, 2011, we adopted Accounting Standard Update No. 2011-08, "Testing Goodwill for Impairment" which allows for a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of the acquired business, and a variety of other circumstances. If it is determined that an impairment has occurred, we record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. We test intangible assets for impairment whenever events occur indicating that the carrying value may be impaired. No impairments of goodwill or intangible assets were recorded during the years ended December 31, 2010, 2011 or 2012. The costs of defending and protecting patents are expensed. All costs incurred to the point when a patent application is to be filed are expensed as incurred. Intangible assets are amortized using an estimate of the pattern in which the intangible asset's benefits are utilized, or the straight-line method if such a pattern cannot be determined, over the following estimated useful lives of the assets:
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Impairment of Long-Lived Assets | Impairment of Long-Lived Assets We evaluate the recoverability of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the difference between the fair value of the asset compared to its carrying amount. |
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Capitalized Software | Capitalized Software Computer software costs incurred in the preliminary project stage for software to be used for internal use are expensed as incurred until the capitalization criteria have been met. The criteria for capitalization is defined as the point at which the preliminary project stage is complete, management commits to funding a computer software project, it is probable that the project will be completed and the software will be used to perform the function intended. Capitalization ceases at the point that the computer software project is substantially complete and ready for its intended use. The capitalized costs are amortized using the straight-line method over the estimated economic life of the software, generally three years. Although we incurred costs relating to software improvements, for the year ended December 31, 2010, none of these costs met the criteria for capitalization. During the year ended December 31, 2011 and 2012, approximately $1.4 million and $3.0 million, respectively, of costs were capitalized. |
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Revenue Recognition and Deferred Revenue | Revenue Recognition and Deferred Revenue We derive revenues from the delivery of services to higher education institution clients and their constituents such as students, faculty, staff and alumni. Revenues are recognized when persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. We enter into long-term (generally three- or five-year initial term) contracts with the institutions to provide payment and disbursement services. Our contracts to provide data analytic services are usually one-year contracts. We categorize revenue as account revenue, payment transaction revenue, higher education institution revenue and other revenue. Deferred revenue consists of amounts billed to or received from clients for services prior to the performance of services. During 2011, we implemented a customer credit plan which returned fees that had been charged to customers previously which is recorded as a reduction of revenue. See Note 16 for further information. Account Revenue Account revenue is generated from deposit accounts opened and funded by students and other members of the campus community. We earn fees for services based on a fee schedule, including interchange fees charged to merchants, ATM fees, non-sufficient funds fees and other fees. Revenue on such transactions is recognized when the banking transaction is completed. Payment Transaction Revenue Payment transaction revenue is generated through convenience fees charged to students, parents or other payors who make online payments to higher education institution clients through our online payment product using a credit or debit card or by students that setup up a payment plan through us. Payment transaction revenue is recognized when the payment plan is established or as the transaction is processed and reflects the convenience fees from items paid by our clients' customers via the service. Higher Education Institution Revenue Revenue from higher education institution clients is generated from fees charged for the services they purchase from us. For refund management services, clients are charged an annual fee and/or per-transaction fees for certain transactions. The annual fee is recognized ratably over the period of service and the transaction fees are recognized when the transaction is completed. Revenues from payment services include subscription license fees from clients accessing on-demand application services. Subscription fees are recognized ratably over the term of the subscription agreement, which generally ranges from 1 to 5 years and are renewable at the option of the customer. For certain payment transaction products, an implementation fee may be charged. This implementation fee is deferred and recognized over the longer of the estimated client relationship period, which we estimate is 5 years, or the contractual term of the agreement. Revenues from data analytic services include subscription license fees from clients accessing on-demand application services. Subscription fees are recognized ratably over the term of the subscription agreement, which is generally 1 year and renew unless cancelled by the customer. Other Revenue Other revenue consists of two main components: (i) fees received from our current bank partners based on prevailing interest rates and the total deposits held in accounts and (ii) a marketing incentive fee paid by MasterCard International Incorporated, or MasterCard, through June 30, 2012, based on new debit card issuances. We recognize this revenue as it is earned in each period. |
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Cost of Revenues | Cost of Revenues Cost of revenue consists primarily of data processing expenses, interchange expenses related to online payment and ATM transactions, amortization of acquired technology, uncollectible fees and customer service expenses. We incur set-up and other direct costs of implementation at the outset of certain contracts that are comprised primarily of employee labor costs. These costs are directly related to a contract and are thus deferred and amortized to costs of revenue over the expected term of the contract, which is generally three to five years. In instances where a client terminates its contract before the end of the expected term of the contract, we modify the amortization period of the deferred costs of the related contract to equal the remaining period of time until termination of the service. See Note 6 for further information. |
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Stock-based Compensation | Stock-based Compensation We measure and recognize compensation expense for share-based awards based on the estimated fair value on the date of grant. We issue new shares upon the exercise of outstanding stock options. We estimate fair value of each option using the Black-Scholes option-pricing model with the following assumptions for stock options granted during the years ended December 31, 2010, 2011 and 2012:
Expected term is the period of time that the equity grants are expected to remain outstanding. The Company calculates the expected life of the options using the "simplified method." The simplified method is used because we do not yet have sufficient historical exercise data to provide a reasonable basis to estimate the expected term. We use the midpoint between the end of the vesting period and the contractual life of the grant to estimate option exercise timing. The simplified method was applied for all options granted during 2010, 2011 and 2012. Expected volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. We have based our estimated volatility both on the historical volatility of a peer group of publically traded companies which includes companies that are in the same industry or are our competitors and our own historical volatility. We use a blended rate of our actual historical volatility and the historical volatility of a peer group because we do not yet have sufficient historical share volatility to provide a reasonable basis to estimate our expected volatility for the entire expected term. Risk-free rate is the average U.S. Treasury rate at the time of grant having a term that most closely approximates the expected term of the option. Expected dividends have not been assumed as we have never declared or paid dividends on our common stock and do not anticipate paying dividends in the foreseeable future. Restricted stock is a stock award that entitles the holder to receive shares of our common stock as the award vests over time. The fair value of each restricted stock award is estimated using the intrinsic value method which is based on the fair market value price on the date of grant. Compensation expense for restricted stock awards is recognized ratably over the vesting period on a straight-line basis. |
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Provision for Operational Losses | Provision for Operational Losses We have entered into agreements with third-party FDIC-insured banks to hold all deposit accounts of our accountholders. Although those deposit funds are held by the third-party banks, we are liable to the banks for any uncollectible accountholder overdrafts and any other losses due to fraud or theft. We provide reserves for our estimated overdraft liability and our estimated uncollectible fees to the third-party banks. The provision for these reserves is included within the costs of revenue on the accompanying consolidated financial statements. Such reserve is based upon an analysis of outstanding overdrafts and historical repayment rates. See Note 9 for further information. |
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Income Taxes | Income Taxes Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting bases and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax net operating loss carry-forwards. These deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when such amounts are expected to reverse or be utilized. The realization of total deferred tax assets is contingent upon the generation of future taxable income. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized. Income tax provision or benefit includes U.S. federal, and state and local income taxes and is based on pre-tax income or loss. In determining the estimated annual effective income tax rate, we analyze various factors, including projections of our annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local taxes and our ability to use tax credits and net operating loss carry-forwards. We utilize a more-likely-than-not recognition threshold, based on the technical merits of the tax position taken, when we consider the need for a provision related to an uncertain tax provision. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of the tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. We recognize interest and penalties related to income tax matters in income tax expense. |
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Business Combinations | Business Combinations When we are the acquiring entity in a business combination, we recognize all of the assets acquired and liabilities assumed in the transaction at their acquisition-date fair value. Contingent consideration, if any, is recognized and measured at fair value on the acquisition date. Transaction costs associated with an acquisition are expensed as incurred. |
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Basic and Diluted Net Income Available to Common Stockholders per Common Share | Basic and Diluted Net Income Available to Common Stockholders per Common Share As discussed in Note 13 below, on June 22, 2010, we consummated an initial public offering of common stock. Had we made a distribution to stockholders prior to the initial public offering, all classes of preferred stock would have participated pro rata in dividends if and when we declared a dividend. Therefore, the two class method of calculating basic net income per common share was applied for the periods prior to the initial public offering. Upon completion of the initial public offering, all classes of preferred stock were converted to common shares. Basic net income per common share excludes dilution for potential common stock issuances and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted net income per common share, the basic weighted-average number of shares is increased by the dilutive effect of restricted stock, warrants and stock options using the treasury-stock method. The treasury-stock method assumes that the options or warrants are exercised at the beginning of the year (or date of issue if later), and that the company uses those proceeds to purchase common stock for treasury at the average price for the reporting period. The following table provides a reconciliation of the numerators and denominators used in computing basic and diluted net income available to common stockholders per common share:
The dilutive effect of stock options and warrants totaling 936,728, 1,091,876 and 2,161,583 were not included in the computation of diluted net income per common share for the years ended December 31, 2010, 2011 and 2012, respectively, as their effect would be anti-dilutive. Anti-dilutive securities are securities that upon conversion or exercise increase earnings per share (or reduce the loss per share). Restricted stock shares totaling 1,701,975, 1,073,556 and 7,047 were not included in the computation of either basic or diluted earnings per share as all necessary conditions for vesting had not been satisfied by the end of the years ended December 31, 2010, 2011 and 2012, respectively. |
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Treasury Stock [Policy Text Block] | Treasury Stock Treasury stock is recorded at cost. |
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Comprehensive Net Income | Comprehensive Net Income Comprehensive net income includes net income, combined with any unrealized gains and losses not included in earnings and reflected as a separate component of stockholders' equity. There were no differences between net income and comprehensive net income for the years ended December 31, 2010, 2011 and 2012. |
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Segment Information | Segment Information We currently operate in one business segment, namely, providing technology, data analytics and payment services to the higher education industry. We provide products and services to two distinct, but related target markets, higher education institutions and their students. We are not organized by market and we are managed and operated as one business. A single management team that reports to the chief operating decision maker comprehensively manages the entire business. We do not operate any material separate lines of business or separate business entities with respect to our products or product development. Accordingly, we do not accumulate discrete financial information with respect to separate product lines and we do not have separately reportable segments. All of our material identifiable assets and substantially all of our clients and customers are located in the United States. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements There were no new accounting standards adopted during 2012 which had a material impact on our consolidated financial position, results of operations or liquidity. There were no new accounting standards issued which we expect to have a material impact on our consolidated financial position, results of operations or liquidity. |
Investments in Marketable Securities and Fair Value Measurements (Details) (USD $)
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12 Months Ended | |||||||||||||||||||||||||
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Dec. 31, 2012
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Dec. 31, 2013
Campus Labs, LLC [Member]
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Dec. 31, 2012
Campus Labs, LLC [Member]
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Sep. 30, 2012
Campus Labs, LLC [Member]
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Dec. 31, 2012
Campus Labs, LLC [Member]
Minimum [Member]
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Dec. 31, 2012
Campus Labs, LLC [Member]
Maximum [Member]
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Dec. 31, 2011
U.S. government debt securities [Member]
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Dec. 31, 2011
U.S. government debt securities [Member]
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
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Dec. 31, 2011
U.S. government debt securities [Member]
Significant Other Observable Inputs (Level 2) [Member]
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Dec. 31, 2011
U.S. government debt securities [Member]
Unobservable Inputs (Level 3) [Member]
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Dec. 31, 2012
Certificates of deposit [Member]
|
Dec. 31, 2011
Certificates of deposit [Member]
|
Dec. 31, 2012
Certificates of deposit [Member]
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
|
Dec. 31, 2011
Certificates of deposit [Member]
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
|
Dec. 31, 2012
Certificates of deposit [Member]
Significant Other Observable Inputs (Level 2) [Member]
|
Dec. 31, 2011
Certificates of deposit [Member]
Significant Other Observable Inputs (Level 2) [Member]
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Dec. 31, 2012
Certificates of deposit [Member]
Unobservable Inputs (Level 3) [Member]
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Dec. 31, 2011
Certificates of deposit [Member]
Unobservable Inputs (Level 3) [Member]
|
Dec. 31, 2012
Fair Value, Measurements, Recurring [Member]
|
Dec. 31, 2011
Fair Value, Measurements, Recurring [Member]
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Dec. 31, 2012
Fair Value, Measurements, Recurring [Member]
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
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Dec. 31, 2011
Fair Value, Measurements, Recurring [Member]
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
|
Dec. 31, 2012
Fair Value, Measurements, Recurring [Member]
Significant Other Observable Inputs (Level 2) [Member]
|
Dec. 31, 2011
Fair Value, Measurements, Recurring [Member]
Significant Other Observable Inputs (Level 2) [Member]
|
Dec. 31, 2012
Fair Value, Measurements, Recurring [Member]
Unobservable Inputs (Level 3) [Member]
|
Dec. 31, 2011
Fair Value, Measurements, Recurring [Member]
Unobservable Inputs (Level 3) [Member]
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Assets [Abstract] | ||||||||||||||||||||||||||
Total Assets | $ 15,498,000 | $ 15,498,000 | $ 0 | $ 0 | $ 247,000 | $ 245,000 | $ 0 | $ 0 | $ 247,000 | $ 245,000 | $ 0 | $ 0 | $ 15,743,000 | $ 15,498,000 | $ 245,000 | $ 0 | ||||||||||
Liabilities [Abstract] | ||||||||||||||||||||||||||
Liabilities, fair value disclosure | 5,750,000 | 0 | 0 | 5,750,000 | ||||||||||||||||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||||||||||||||||||||||||||
Beginning Balance | 0 | |||||||||||||||||||||||||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Purchases | 13,000,000 | |||||||||||||||||||||||||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Gain (Loss) Included in Earnings | (7,250,000) | |||||||||||||||||||||||||
Ending Balance | 5,750,000 | |||||||||||||||||||||||||
Business Acquisition, Contingent Consideration [Line Items] | ||||||||||||||||||||||||||
Range of revenues to estimate contingent consideration, minimum | 12,500,000 | |||||||||||||||||||||||||
Range of revenues to estimate contingent consideration, maximum | 17,300,000 | |||||||||||||||||||||||||
Benchmark amount of estimated revenues | 1,000,000 | |||||||||||||||||||||||||
Increase (decrease) in contingent consideration | 3,500,000 | 7,300,000 | ||||||||||||||||||||||||
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, Low | 0 | 7,000,000 | ||||||||||||||||||||||||
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High | $ 17,000,000 | $ 23,000,000 |
Commitments and Contingencies (Tables)
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12 Months Ended | |||||||||||||||||||||||||||||||||||
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Dec. 31, 2012
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Commitments and Contingencies [Abstract] | ||||||||||||||||||||||||||||||||||||
Aggregate Future Minimum Lease Payments Under Non-cancelable Operating Leases | We lease facilities with varying terms, renewal options and expiration dates. Aggregate future minimum lease payments under non-cancelable operating leases are as follows:
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Minimum Amounts Committed for Contracts for Services | We also have certain purchase obligations which include minimum amounts committed for contracts for services through 2014. The minimum payments due for these services are as follows:
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Provision for Operational Losses (Details) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | ||
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Dec. 31, 2012
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Dec. 31, 2011
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Dec. 31, 2010
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Provision for Operating Losses [Roll Forward] | |||
(Prepayment of) reserve for operational losses, beginning | $ (3,796) | $ (1,870) | $ 533 |
Provision for operational losses | 12,009 | 8,860 | 7,197 |
Payments to third party for losses, net of recoveries | (12,676) | (10,786) | (9,600) |
(Prepayment of) reserve for operational losses, ending | $ (4,463) | $ (3,796) | $ (1,870) |
Significant Accounting Policies
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12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2012
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Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Accounting Policies |
Basis of Presentation and Consolidation The consolidated financial statements reflect the financial position and results of operations of HOH and our majority and wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates include those related to the valuation of deferred taxes, provision for operational losses, valuation of our contingent consideration liability, valuation of acquired intangible assets and assumptions used in the valuation of stock options. Actual results could differ from these estimates. Cash and Cash Equivalents We consider all short-term, highly-liquid investments, with an original maturity of three months or less, to be cash equivalents. Cash equivalents are recorded at cost which approximates their fair value. Accounts Receivable Accounts receivable are recorded at face amounts less an allowance for doubtful accounts. We evaluate our accounts receivable and establish the allowance for doubtful accounts based on historical experience, analysis of past due accounts and other current available information. Investments in Marketable Securities Marketable securities that have a readily determinable fair value and that we do not intend to trade are classified as available for sale and carried at fair value. Unrealized holding gains and losses are recorded as other comprehensive income, a separate component of shareholders' equity, net of deferred income taxes. Fair Value of Financial Instruments The carrying amounts of our financial instruments, which include cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair value because of the short-term nature of these instruments. Fair Value Measurements We evaluate assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level to classify them each reporting period. We had no recorded unrealized gains or losses from investments as of either December 31, 2011 or 2012 and there is no difference between the amortized cost and fair value of the securities we held. There were no liabilities carried at fair value measured on a recurring basis as of December 31, 2011. The fair value of our cash equivalents as of December 31, 2011 and 2012 was valued based upon Level 1 inputs. Concentration of Credit Risk Our potential concentration of credit risk consists primarily of trade accounts receivable from university clients. For the years ended December 31, 2010, 2011 and 2012 no university client individually accounted for more than 10% of trade accounts receivable or revenue. Fixed Assets Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Goodwill and Intangible Assets Goodwill represents the excess of the fair value of consideration transferred over the fair values assigned to the underlying net identifiable assets of acquired businesses. We test goodwill for impairment annually on October 31, or whenever events or changes in circumstances indicate that an impairment may have occurred, by comparing its fair value to its carrying value. Effective for our test as of October 31, 2011, we adopted Accounting Standard Update No. 2011-08, "Testing Goodwill for Impairment" which allows for a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of the acquired business, and a variety of other circumstances. If it is determined that an impairment has occurred, we record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. We test intangible assets for impairment whenever events occur indicating that the carrying value may be impaired. No impairments of goodwill or intangible assets were recorded during the years ended December 31, 2010, 2011 or 2012. The costs of defending and protecting patents are expensed. All costs incurred to the point when a patent application is to be filed are expensed as incurred. Intangible assets are amortized using an estimate of the pattern in which the intangible asset's benefits are utilized, or the straight-line method if such a pattern cannot be determined, over the following estimated useful lives of the assets:
Impairment of Long-Lived Assets We evaluate the recoverability of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the difference between the fair value of the asset compared to its carrying amount. Capitalized Software Computer software costs incurred in the preliminary project stage for software to be used for internal use are expensed as incurred until the capitalization criteria have been met. The criteria for capitalization is defined as the point at which the preliminary project stage is complete, management commits to funding a computer software project, it is probable that the project will be completed and the software will be used to perform the function intended. Capitalization ceases at the point that the computer software project is substantially complete and ready for its intended use. The capitalized costs are amortized using the straight-line method over the estimated economic life of the software, generally three years. Although we incurred costs relating to software improvements, for the year ended December 31, 2010, none of these costs met the criteria for capitalization. During the year ended December 31, 2011 and 2012, approximately $1.4 million and $3.0 million, respectively, of costs were capitalized. Revenue Recognition and Deferred Revenue We derive revenues from the delivery of services to higher education institution clients and their constituents such as students, faculty, staff and alumni. Revenues are recognized when persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. We enter into long-term (generally three- or five-year initial term) contracts with the institutions to provide payment and disbursement services. Our contracts to provide data analytic services are usually one-year contracts. We categorize revenue as account revenue, payment transaction revenue, higher education institution revenue and other revenue. Deferred revenue consists of amounts billed to or received from clients for services prior to the performance of services. During 2011, we implemented a customer credit plan which returned fees that had been charged to customers previously which is recorded as a reduction of revenue. See Note 16 for further information. Account Revenue Account revenue is generated from deposit accounts opened and funded by students and other members of the campus community. We earn fees for services based on a fee schedule, including interchange fees charged to merchants, ATM fees, non-sufficient funds fees and other fees. Revenue on such transactions is recognized when the banking transaction is completed. Payment Transaction Revenue Payment transaction revenue is generated through convenience fees charged to students, parents or other payors who make online payments to higher education institution clients through our online payment product using a credit or debit card or by students that setup up a payment plan through us. Payment transaction revenue is recognized when the payment plan is established or as the transaction is processed and reflects the convenience fees from items paid by our clients' customers via the service. Higher Education Institution Revenue Revenue from higher education institution clients is generated from fees charged for the services they purchase from us. For refund management services, clients are charged an annual fee and/or per-transaction fees for certain transactions. The annual fee is recognized ratably over the period of service and the transaction fees are recognized when the transaction is completed. Revenues from payment services include subscription license fees from clients accessing on-demand application services. Subscription fees are recognized ratably over the term of the subscription agreement, which generally ranges from 1 to 5 years and are renewable at the option of the customer. For certain payment transaction products, an implementation fee may be charged. This implementation fee is deferred and recognized over the longer of the estimated client relationship period, which we estimate is 5 years, or the contractual term of the agreement. Revenues from data analytic services include subscription license fees from clients accessing on-demand application services. Subscription fees are recognized ratably over the term of the subscription agreement, which is generally 1 year and renew unless cancelled by the customer. Other Revenue Other revenue consists of two main components: (i) fees received from our current bank partners based on prevailing interest rates and the total deposits held in accounts and (ii) a marketing incentive fee paid by MasterCard International Incorporated, or MasterCard, through June 30, 2012, based on new debit card issuances. We recognize this revenue as it is earned in each period. Cost of Revenues Cost of revenue consists primarily of data processing expenses, interchange expenses related to online payment and ATM transactions, amortization of acquired technology, uncollectible fees and customer service expenses. We incur set-up and other direct costs of implementation at the outset of certain contracts that are comprised primarily of employee labor costs. These costs are directly related to a contract and are thus deferred and amortized to costs of revenue over the expected term of the contract, which is generally three to five years. In instances where a client terminates its contract before the end of the expected term of the contract, we modify the amortization period of the deferred costs of the related contract to equal the remaining period of time until termination of the service. See Note 6 for further information. Stock-based Compensation We measure and recognize compensation expense for share-based awards based on the estimated fair value on the date of grant. We issue new shares upon the exercise of outstanding stock options. We estimate fair value of each option using the Black-Scholes option-pricing model with the following assumptions for stock options granted during the years ended December 31, 2010, 2011 and 2012:
Expected term is the period of time that the equity grants are expected to remain outstanding. The Company calculates the expected life of the options using the "simplified method." The simplified method is used because we do not yet have sufficient historical exercise data to provide a reasonable basis to estimate the expected term. We use the midpoint between the end of the vesting period and the contractual life of the grant to estimate option exercise timing. The simplified method was applied for all options granted during 2010, 2011 and 2012. Expected volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. We have based our estimated volatility both on the historical volatility of a peer group of publically traded companies which includes companies that are in the same industry or are our competitors and our own historical volatility. We use a blended rate of our actual historical volatility and the historical volatility of a peer group because we do not yet have sufficient historical share volatility to provide a reasonable basis to estimate our expected volatility for the entire expected term. Risk-free rate is the average U.S. Treasury rate at the time of grant having a term that most closely approximates the expected term of the option. Expected dividends have not been assumed as we have never declared or paid dividends on our common stock and do not anticipate paying dividends in the foreseeable future. Restricted stock is a stock award that entitles the holder to receive shares of our common stock as the award vests over time. The fair value of each restricted stock award is estimated using the intrinsic value method which is based on the fair market value price on the date of grant. Compensation expense for restricted stock awards is recognized ratably over the vesting period on a straight-line basis. Provision for Operational Losses We have entered into agreements with third-party FDIC-insured banks to hold all deposit accounts of our accountholders. Although those deposit funds are held by the third-party banks, we are liable to the banks for any uncollectible accountholder overdrafts and any other losses due to fraud or theft. We provide reserves for our estimated overdraft liability and our estimated uncollectible fees to the third-party banks. The provision for these reserves is included within the costs of revenue on the accompanying consolidated financial statements. Such reserve is based upon an analysis of outstanding overdrafts and historical repayment rates. See Note 9 for further information. Income Taxes Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting bases and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax net operating loss carry-forwards. These deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when such amounts are expected to reverse or be utilized. The realization of total deferred tax assets is contingent upon the generation of future taxable income. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized. Income tax provision or benefit includes U.S. federal, and state and local income taxes and is based on pre-tax income or loss. In determining the estimated annual effective income tax rate, we analyze various factors, including projections of our annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local taxes and our ability to use tax credits and net operating loss carry-forwards. We utilize a more-likely-than-not recognition threshold, based on the technical merits of the tax position taken, when we consider the need for a provision related to an uncertain tax provision. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of the tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. We recognize interest and penalties related to income tax matters in income tax expense. Business Combinations When we are the acquiring entity in a business combination, we recognize all of the assets acquired and liabilities assumed in the transaction at their acquisition-date fair value. Contingent consideration, if any, is recognized and measured at fair value on the acquisition date. Transaction costs associated with an acquisition are expensed as incurred. Basic and Diluted Net Income Available to Common Stockholders per Common Share As discussed in Note 13 below, on June 22, 2010, we consummated an initial public offering of common stock. Had we made a distribution to stockholders prior to the initial public offering, all classes of preferred stock would have participated pro rata in dividends if and when we declared a dividend. Therefore, the two class method of calculating basic net income per common share was applied for the periods prior to the initial public offering. Upon completion of the initial public offering, all classes of preferred stock were converted to common shares. Basic net income per common share excludes dilution for potential common stock issuances and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted net income per common share, the basic weighted-average number of shares is increased by the dilutive effect of restricted stock, warrants and stock options using the treasury-stock method. The treasury-stock method assumes that the options or warrants are exercised at the beginning of the year (or date of issue if later), and that the company uses those proceeds to purchase common stock for treasury at the average price for the reporting period. The following table provides a reconciliation of the numerators and denominators used in computing basic and diluted net income available to common stockholders per common share:
The dilutive effect of stock options and warrants totaling 936,728, 1,091,876 and 2,161,583 were not included in the computation of diluted net income per common share for the years ended December 31, 2010, 2011 and 2012, respectively, as their effect would be anti-dilutive. Anti-dilutive securities are securities that upon conversion or exercise increase earnings per share (or reduce the loss per share). Restricted stock shares totaling 1,701,975, 1,073,556 and 7,047 were not included in the computation of either basic or diluted earnings per share as all necessary conditions for vesting had not been satisfied by the end of the years ended December 31, 2010, 2011 and 2012, respectively. Treasury Stock Treasury stock is recorded at cost. Comprehensive Net Income Comprehensive net income includes net income, combined with any unrealized gains and losses not included in earnings and reflected as a separate component of stockholders' equity. There were no differences between net income and comprehensive net income for the years ended December 31, 2010, 2011 and 2012. Segment Information We currently operate in one business segment, namely, providing technology, data analytics and payment services to the higher education industry. We provide products and services to two distinct, but related target markets, higher education institutions and their students. We are not organized by market and we are managed and operated as one business. A single management team that reports to the chief operating decision maker comprehensively manages the entire business. We do not operate any material separate lines of business or separate business entities with respect to our products or product development. Accordingly, we do not accumulate discrete financial information with respect to separate product lines and we do not have separately reportable segments. All of our material identifiable assets and substantially all of our clients and customers are located in the United States. Recent Accounting Pronouncements There were no new accounting standards adopted during 2012 which had a material impact on our consolidated financial position, results of operations or liquidity. There were no new accounting standards issued which we expect to have a material impact on our consolidated financial position, results of operations or liquidity. |