NetSpend Holdings, Inc. Reports Second Quarter Financial Results

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| Source: NetSpend Holdings, Inc.

Revenues Up 15 Percent

Fully Diluted Earnings Per Share Up 50 percent

Continues Retail Expansion With New Distribution Partners

AUSTIN, Texas, Aug. 2, 2012 (GLOBE NEWSWIRE) -- NetSpend Holdings, Inc. (Nasdaq:NTSP), a leading provider of general-purpose reloadable (GPR) prepaid debit cards and related financial services, today announced financial results for the quarter ended June 30, 2012.

"We had strong results in the second quarter with all key metrics beating expectations," said Dan Henry, chief executive officer of NetSpend. "We are seeing steady growth of our core business by staying focused on our mission to empower consumers with the convenience, security and freedom to be self-banked. As a result, our number of accounts on direct deposit continues to grow, which contributed to higher revenues. During the second quarter, we also made further progress on our retail expansion plans. With the addition of several new partners, our retail distribution footprint has the opportunity to grow to more than 25,000 locations. Based on our positive results in the first half of this year and the momentum we are seeing across all channels of our business, we are raising our full year guidance for 2012."

Q2 2012 Highlights:

  • Revenues up 15% to $85.3 million in Q2 2012 as compared to $74.4 million in Q2 2011
  • Number of active cards with direct deposit up 24% to 957,000 as of June 30, 2012 as compared to 771,000 as of June 30, 2011
  • Percentage of active cards1 with direct deposit was 43% as of June 30, 2012 as compared to 37% as of June 30, 2011
  • GAAP net income up 34% to $10.2 million in Q2 2012 as compared to $7.6 million in Q2 2011
  • Fully Diluted Earnings Per Share up 50% in Q2 2012 to $0.12 as compared to $0.08 in Q2 2011
  • Adjusted EBITDA2 up 27% in Q2 2012 to $25.1 million as compared to $19.7 million in Q2 2011
  • Adjusted Diluted Net Income Per Share2 up 36% in Q2 2012 to $0.15 as compared to $0.11 in Q2 2011
  • Gross Dollar Volume (GDV) of $3.0 billion during Q2 2012 as compared to $2.6 billion during Q2 2011

1 The number of active cards as of June 30, 2012 was approximately 2,245,000 as compared to approximately 2,114,000 as of June 30, 2011.

2 Reconciliations of Adjusted EBITDA and Adjusted Net Income to net income are provided in the tables immediately following the condensed consolidated statements of cash flows. Additional information about the Company's non-GAAP financial measures can be found under the caption "Non-GAAP Financial Information."

Refer to our Annual Report on Form 10-K filed on February 24, 2012 for a description of our key business metrics.

Fiscal Second Quarter 2012 Results

Revenues were $85.3 million for the quarter ended June 30, 2012, an increase of approximately 15% over the $74.4 million of revenues recorded in the same quarter of 2011. This increase was substantially driven by the increase in direct deposit accounts, and to a lesser extent, the expansion of product features across NetSpend's direct deposit customer base. Interchange revenue represented approximately 22% of total revenue during the three months ended June 30, 2012.

Net income was $10.2 million for the quarter ended June 30, 2012, an increase of 34% over net income of $7.6 million for the quarter ended June 30, 2011. NetSpend's net income for the quarter ended June 30, 2012 includes an aggregate of $12.2 million of net interest expense, income tax expense, depreciation and amortization and other losses. Net income for the quarter ended June 30, 2012 also includes approximately $2.7 million in stock-based compensation expense. For the quarter ended June 30, 2011, the comparable amount of net interest expense, income tax expense and depreciation and amortization was $9.3 million. Net income for the quarter ended June 30, 2011 also includes approximately $2.8 million in stock-based compensation expense.

2012 Outlook

NetSpend reported that it raised its guidance and expects full year 2012 revenue to now be between $347 and $353 million, its adjusted EBITDA to fall between $93 and $97 million and its adjusted net income per fully diluted share to be between $0.54 and $0.58.

The foregoing expectations reflect the following assumptions:

  • An effective tax rate of approximately 40%;
  • Non-cash equity compensation of between approximately $10.5 and $11.5 million;
  • Cash outlays for capital expenditures for the full year of between approximately $12 and $13 million;
  • An effective cost of debt capital of approximately 3.5%; and
  • Fully diluted shares outstanding for the full year of approximately 86 million.

Investor Conference Call and Webcast

NetSpend will host an investor conference call to discuss its second quarter 2012 results today, August 2, 2012, at 5:00 p.m. EDT. The conference call can be accessed live over the phone by dialing (877) 853-5634 or (707) 287-9375 for international callers. A replay will be available until August 9, 2012 at (855) 859-2056 or (404) 537-3406 for international callers; the conference ID is 13379310. The call will be webcast live from NetSpend's website at http://investor.netspend.com.

Non-GAAP Financial Information

To supplement NetSpend's consolidated financial statements presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), this press release includes EBITDA, Adjusted EBITDA and Adjusted Net Income. EBITDA, Adjusted EBITDA and Adjusted Net Income are not measures of financial performance under GAAP. Accordingly, they should not be considered a substitute for net income, operating income or other income or cash flow data prepared in accordance with GAAP. These non-GAAP financial measures may be different from similarly-titled non-GAAP financial measures used by other companies.  We believe that the presentation of these non-GAAP financial measures provides useful information to management and investors regarding underlying trends in NetSpend's business and provides improved comparability between periods in different years.  Reconciliations between GAAP measures and non-GAAP measures and between actual results and adjusted results are provided at the end of this press release.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended, and Rule 3(b)-6 under the Securities Exchange Act of 1934, as amended. These statements include, among other things, statements regarding future events that involve risks and uncertainties. Actual results may differ materially from those contained in the forward-looking statements contained in this release, and reported results should not be considered as an indication of future performance. Reliance on any forward-looking statement involves risks and uncertainties and although NetSpend believes that the assumptions on which the forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions could be materially incorrect.  These factors include but are not limited to:

  • NetSpend's dependence on a limited number of retail distributors of its products;
  • increasing competition in the prepaid card industry;
  • exposure to cardholder fraud and other losses;
  • NetSpend's reliance on its relationships with its issuing banks;
  • regulatory, legislative and judicial developments;
  • changes in card association or network organization rules;
  • NetSpend's ability to protect against unauthorized disclosure of cardholder data;
  • NetSpend's ability to promote its brand;
  • NetSpend's reliance on outsourced customer service providers;
  • NetSpend's ability to protect its intellectual property rights and defend itself against claims of patent infringement.

The potential risks and uncertainties that could cause actual results to differ from those projected are discussed in greater detail in NetSpend's filings with the Securities and Exchange Commission ("SEC"), which are available on NetSpend's website at www.netspend.com and on the SEC website at www.sec.gov. All information provided in this release and in the attachments is as of August 2, 2012, and, except as required by law, NetSpend does not intend to update this information as a result of future events or developments.

About NetSpend

NetSpend is a leading provider of general-purpose reloadable (GPR) prepaid debit cards and related financial services to the estimated 60 million underbanked consumers in the United States who do not have a traditional bank account or who rely on alternative financial services. The Company's mission is to develop products and services that empower underbanked consumers with the convenience, security and freedom to be self-banked. Headquartered in Austin, TX, NetSpend is traded on the NASDAQ stock exchange under the symbol NTSP. Please visit http://www.netspend.com for more information.

Follow NetSpend on Twitter: http://twitter.com/netspend or Facebook: http://www.facebook.com/netspend

The NetSpend Holdings, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=8154

 NetSpend Holdings, Inc.
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2012 and 2011
(Unaudited)
 
  Three Months Ended  Six Months Ended 
  June 30, June 30,
  2012 2011 2012 2011
  (in thousands, except per share data)
         
Operating Revenues   $ 85,334  $ 74,419  $ 176,727  $ 155,169
         
Operating Expenses         
Direct operating costs   39,793  35,489  86,864  75,622
Salaries, benefits and other personnel costs   13,848  12,788  27,961  27,721
Advertising, marketing and promotion costs   3,825  4,147  8,897  7,732
Other general and administrative costs   5,504  5,136  10,509  10,303
Depreciation and amortization   3,401  3,742  7,182  7,440
Other losses   1,533  --   26,848  -- 
Total operating expenses   67,904  61,302  168,261  128,818
         
         
 Operating income   17,430  13,117  8,466  26,351
         
         
 Other Income (Expense)         
 Interest income   34  30  70  50
 Interest expense   (527)  (502)  (1,247)  (1,005)
 Total other expense   (493)  (472)  (1,177)  (955)
         
         
 Income before income taxes   16,937  12,645  7,289  25,396
         
         
 Provision for income taxes   6,775  5,065  2,915  10,037
         
         
 Net income   $ 10,162  $ 7,580  $ 4,374  $ 15,359
         
         
Net income per share of common stock: (1)        
Basic   $ 0.12  $ 0.08  $ 0.05  $ 0.17
Diluted   $ 0.12  $ 0.08  $ 0.05  $ 0.16
         
Shares used in the computation of earnings per share:        
Basic   76,114  88,412  76,266  88,298
Diluted   86,774  92,824  87,298  93,295
         
(1) - Net income used in the calculation of basic and diluted earnings per share is adjusted for amounts unavailable to common stockholders. Our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012 will contain a further reconciliation of this number for the three and six months ended June 30, 2012 and 2011.
         
NetSpend Holdings, Inc.
Condensed Consolidated Balance Sheets
As of June 30, 2012 and December 31, 2011
 
  June 30, December 31,
  2012 2011
  (Unaudited)  
  (in thousands of dollars)
Assets     
Current assets     
Cash and cash equivalents   $ 31,177  $ 72,076
Accounts receivable, net of allowance for doubtful accounts of $1,174 and $581 as of June 30, 2012 and December 31, 2011, respectively   7,747  7,552
Prepaid card supply   4,031  2,000
Prepaid expenses   3,822  3,326
Other current assets   1,801  2,179
Income tax receivable   2,383  -- 
Deferred tax assets   3,891  4,138
Total current assets   54,852  91,271
     
Property, equipment and software, net   22,226  20,631
Goodwill   128,567  128,567
Intangible assets   20,835  22,227
Long-term investment   2,970  2,497
Non-current deferred tax assets   2,233  -- 
Other assets   8,849  7,549
Total assets   $ 240,532  $ 272,742
     
Liabilities & Stockholders' Equity     
Current liabilities     
Accounts payable   $ 10,222  $ 3,183
Accrued expenses   25,461  20,937
Income tax payable   --   1,733
Cardholders' reserve   5,738  3,892
Deferred revenue   1,694  1,585
Total current liabilities   43,115  31,330
     
Long-term debt   10,000  58,500
Deferred tax liabilities   --   7,431
Litigation contingency   24,160  -- 
Other non-current liabilities   4,985  4,628
Total liabilities   82,260  101,889
     
Total stockholders' equity   158,272  170,853
     
Total liabilities & stockholders' equity   $ 240,532  $ 272,742
     
 NetSpend Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2012 and 2011
(Unaudited)
 
  June 30, June 30,
  2012 2011
  (in thousands of dollars)
     
Cash flows from operating activities    
Net income  $ 4,374  $ 15,359
Adjustments to reconcile net income to net cash provided by operating activities    
Depreciation and amortization   7,182  7,440
Amortization of debt issuance costs   163  163
Stock-based compensation   5,692  5,961
Tax benefit associated with stock options  (617)  (1,032)
Provision for cardholder losses   9,241  7,014
Deferred income taxes   (9,417)  (1,802)
Change in cash surrender value of life insurance policies  (17)  (105)
Litigation contingency  24,160  -- 
Changes in operating assets and liabilities     
Accounts receivable   (195)  (1,117)
Income tax receivable or payable   (3,499)  (1,670)
Prepaid card supply   (2,031)  86
Prepaid expenses   (496)  (613)
Other current assets   378  (850)
Other long-term assets   (991)  (1,985)
Accounts payable and accrued expenses   11,563  (5,328)
Cardholders' reserve   (7,395)  (8,105)
Other liabilities   466  1,174
Net cash provided by operating activities   38,561  14,590
     
Cash flows from investing activities    
Purchases of property, equipment and software  (7,362)  (4,750)
Premiums paid on cash surrender value life insurance policies  (455)  (831)
Other  (23)  -- 
Net cash used in investing activities   (7,840)  (5,581)
     
Cash flows from financing activities    
Dividend equivalents paid  --   (353)
Proceeds from the exercise of stock options  1,946  561
Proceeds from issuance of treasury stock  245  -- 
Tax benefit associated with stock options  617  1,032
Issuance costs of public offering  --   (95)
Proceeds from issuance of long-term debt  10,000  -- 
Principal payments on debt   (58,500)  (2,609)
Treasury stock purchase   (25,928)  (10,694)
Tax withholding on restricted stock  --   (357)
Net cash used in financing activities   (71,620)  (12,515)
     
Net change in cash and cash equivalents  (40,899)  (3,506)
     
Cash and cash equivalents at beginning of period  72,076  67,501
Cash and cash equivalents at end of period  $ 31,177  $ 63,995
     
Supplemental disclosure of cash flow information:    
Cash paid for interest  $ 1,085  $ 1,296
Cash paid for income taxes  15,835  13,470
     
Non-cash investing activities:    
Capital lease entered into for the license of software  $ --   $ 1,949
     
  NetSpend Holdings, Inc.
Reconciliation of Adjusted EBITDA to Net Income
For the Three and Six Months Ended June 30, 2012 and 2011
(Unaudited)
 
  Three Months Ended Six Months Ended
  June 30, June 30,
  2012 2011 2012 2011
  (in thousands of dollars)
         
Net income  $ 10,162  $ 7,580  $ 4,374  $ 15,359
         
Interest income  (34)  (30)  (70)  (50)
Interest expense  527  502  1,247  1,005
Income tax expense  6,775  5,065  2,915  10,037
Depreciation and amortization  3,401  3,742  7,182  7,440
EBITDA  20,831  16,859  15,648  33,791
         
Stock-based compensation expense  2,702  2,799  5,692  5,961
Other losses  1,533  --   26,848  -- 
Adjusted EBITDA (1)(3)  $ 25,066  $ 19,658  $ 48,188  $ 39,752
         
NetSpend Holdings, Inc.
Reconciliation of Adjusted Net Income to Net Income
For the Three and Six Months Ended June 30, 2012 and 2011
(Unaudited)
 
  Three Months Ended  Six Months Ended 
  June 30, June 30,
  2012 2011 2012 2011
  (in thousands of dollars, except percentages and per share data)
         
Net income  $ 10,162  $ 7,580  $ 4,374  $ 15,359
         
Stock-based compensation expense  2,702  2,799  5,692  5,961
Amortization of intangibles  534  881  1,415  1,762
Other losses  1,533  --   26,848  -- 
Total pre-tax adjustments  4,769  3,680  33,955  7,723
         
Tax rate 40.0% 40.1% 40.0% 39.5%
Tax adjustment  1,908  1,474  13,582  3,051
         
Adjusted net income (2)(3)  $ 13,023  $ 9,786  $ 24,747  $ 20,031
         
Adjusted net income per share:        
Basic   $ 0.17  $ 0.11  $ 0.32  $ 0.23
Diluted   $ 0.15  $ 0.11  $ 0.28  $ 0.21
         
Shares used in the computation of adjusted earnings per share:      
Basic   76,114  88,412  76,266  88,298
Diluted   86,774  92,824  87,298  93,295
         

(1)  We use a non-GAAP financial metric that we label "Adjusted EBITDA" to evaluate our financial performance. We compute Adjusted EBITDA by adjusting net income or net loss to remove the effect of income and expenses related to interest, taxes, depreciation and amortization, or EBITDA, and then adjusting for stock-based compensation, and non-recurring gains and losses. We believe that Adjusted EBITDA is an important metric for the following reasons:

  • It provides a meaningful comparison of our operating results over several periods because it removes the impact of income and expense items that are not a direct result of our core operations, such as goodwill and intangible impairments, legal settlements and one-time settlement gains, losses on the early extinguishment of long-term debt and other infrequent losses;
  • We use it as a tool to assist in our planning for the effect of strategic operating decisions and for the prediction of future operating results; and
  • We use it to evaluate our capacity to incur and service debt, fund capital expenditures and expand our business.

Other losses of $1.5 million during the three months ended June 30, 2012 and $26.8 million during the six months ended June 30, 2012 primarily relate to accruals for legal contingencies and settlements.

(2)  In addition to Adjusted EBITDA, we use a second non-GAAP financial metric that we label "Adjusted Net Income" to evaluate our financial performance. We compute Adjusted Net Income by adjusting net income or net loss to remove tax-effected amortization expense, stock-based compensation and other non-recurring gains and losses. We believe that Adjusted Net Income is an important metric that is useful to our board of directors, management and investors for the following reasons:

  • Assets being depreciated will often have to be replaced in the future and Adjusted EBITDA does not reflect any expenditure for these items;
  • Adjusted EBITDA does not reflect the significant interest expense or the payments necessary to service interest payments on our debt;
  • Adjusted Net Income provides a meaningful comparison of our operating results over several periods because it removes the impact of income and expense items that are not a direct result of our core operations, such as goodwill and intangible impairments, legal settlements and one-time settlement gains, losses on the early extinguishment of long-term debt and other infrequent losses;
  • Adjusted Net Income per share on a diluted basis functions as a threshold target for our company-wide employee bonus compensation; and
  • We believe Adjusted Net Income measurements are used by investors as a supplemental measure to evaluate the overall operating performance of companies in our industry. 

Other losses of $1.5 million during the three months ended June 30, 2012 and $26.8 million during the six months ended June 30, 2012 primarily relate to accruals for legal contingencies and settlements.

(3)  By providing this non-GAAP financial measure, together with the above reconciliation, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives. Our Adjusted EBITDA and Adjusted Net Income are not necessarily comparable to what other companies define as Adjusted EBITDA and Adjusted Net Income. In addition, Adjusted EBITDA and Adjusted Net Income are not measures defined by U.S. GAAP and should not be considered as substitutes for or alternatives to net income, operating income, cash flows from operating activities or other financial information as determined by U.S. GAAP. Our presentation of Adjusted EBITDA and Adjusted Net Income should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.

Investor Contact:
George Gresham
Chief Financial Officer
(866) 979-1996


Media Contact:
Krista Shepard
(512)531-8732