NetSpend Holdings, Inc. Reports Fourth Quarter Financial Results Revenues Up 17 Percent Active Accounts On Direct Deposit Up 25 Percent Business Wire AUSTIN, Texas -- February 13, 2013 NetSpend Holdings, Inc. (NASDAQ:NTSP), a leading provider of general-purpose reloadable prepaid debit cards and related financial services, today announced financial results for the fourth quarter and year ended December 31, 2012. “We ended the fourth quarter hitting all of our targets and delivered strong financial results for 2012,” said Dan Henry, chief executive officer of NetSpend. “We had a banner year in terms of signing up new partners, executing our retail expansion efforts and growing our business in every channel. From the momentum we created last year, we expect a continued fast pace of growth in all areas of our business.” Full Year 2012 Highlights: *Revenues up 15% to $351.3 million 2012 as compared to $306.3 million in 2011 *Adjusted earnings per share up 23% to $0.58 as compared to $0.47 in 2011 *Number of active cards with direct deposit up 25% to 1,082,000 as of December 31, 2012 as compared to 865,000 as of December 31, 2011 *Percentage of active cards^1 with direct deposit was approximately 46% as of December 31, 2012 as compared to approximately 42% as of December 31, 2011 *Gross Dollar Volume (GDV), also known in the industry as purchase volume, of $13.2 billion as compared to $11.2 billion as of December 31, 2011 Q4 2012 Highlights: *Revenues up 17% to $89.7 million in Q4 2012 as compared to $76.8 million in Q4 2011 *GAAP net income up 5% to $10.1 million in Q4 2012 as compared to $9.6 million in Q4 2011 *Diluted Earnings Per Share up 18% in Q4 2012 to $0.13 as compared to $0.11 in Q4 2011 *Adjusted EBITDA^2 up 3% in Q4 2012 to $23.9 million as compared to $23.2 million in Q4 2011 *Adjusted Diluted Net Income Per Share^2 up 15% in Q4 2012 to $0.15 as compared to $0.13 in Q4 2011 *GDV, also known in the industry as purchase volume, of $3.3 billion during Q4 2012 as compared to $2.8 billion during Q4 2011 Our Annual Report on Form 10-K for the year ended December 31, 2012 will contain a further description of our key business metrics. Fiscal Fourth Quarter 2012 Results Revenues were $89.7 million for the quarter ended December 31, 2012, an increase of approximately 17% over the $76.8 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 December 31, 2012. Net income was $10.1 million for the quarter ended December 31, 2012, an increase of 5% over the net income of $9.6 million recorded in the quarter ended December 31, 2011. NetSpend’s net income for the quarter ended December 31, 2012 includes an aggregate of $10.8 million of net interest expense, income tax expense, depreciation and amortization and settlement gains and other losses. Net income for the quarter ended December 31, 2012 also includes approximately $3.0 million in stock-based compensation expense. For the quarter ended December 31, 2011, the comparable amount of net interest expense, income tax expense, depreciation and amortization and settlement gains and other losses was $11.2 million. Net income for the quarter ended December31, 2011 also includes approximately $2.4million in stock-based compensation expense. 2013 Outlook NetSpend reported that it expects full year 2013 revenue to be between $414 and $424 million, its adjusted EBITDA to fall between $119 and $125 million and its adjusted net income per fully diluted share to be between $0.76 and $0.81. The foregoing expectations reflect the following assumptions: *An effective tax rate of approximately 40%; *Non-cash equity compensation of between approximately $14 and $16 million; *Cash outlays for capital expenditures for the full year of between approximately $10 and $12 million; *An effective cost of debt capital of approximately 3.0%; and *Fully diluted shares outstanding for the full year of approximately 84 million. Investor Conference Call and Webcast NetSpend will host an investor conference call to discuss its fourth quarter and fiscal year 2012 results today, February 13, 2013, at 5:00p.m. EDT. The conference call can be accessed live over the phone by dialing (877) 288-1043 or (970) 315-0267 for international callers. A replay will be available until February 20, 2013 at (855) 859-2056 or (404) 537-3406 for international callers; the conference ID is 96037708. 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 Rule3(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 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 February 13, 2013, 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 68 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 ___________________________ ^1 The number of active cards as of December 31, 2012 was approximately 2,352,000 and as of December 31, 2011 was approximately 2,063,000. ^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.” NetSpend Holdings, Inc. Consolidated Statements of Operations For the Three and Twelve Months Ended December 31, 2012 and 2011 Three Months Ended Twelve Months Ended December 31, December 31, 2012 2011 2012 2011 (Unaudited) (Unaudited) (Unaudited) (in thousands, except per share data) Operating $ 89,712 $ 76,762 $ 351,332 $ 306,255 Revenues Operating Expenses Direct operating 42,643 36,094 169,066 146,199 costs Salaries, benefits and 14,597 12,157 56,328 52,736 other personnel costs Advertising, marketing and 6,504 3,237 20,127 14,230 promotion costs Other general and 5,045 4,512 21,116 20,135 administrative costs Depreciation and 3,489 3,797 13,778 15,031 amortization Settlement (gains) and (160 ) 191 36,988 515 other losses Total operating 72,118 59,988 317,403 248,846 expenses Operating income 17,594 16,774 33,929 57,409 Other Income (Expense) Interest income 30 30 139 108 Interest expense (771 ) (963 ) (2,598 ) (2,457 ) Total other (741 ) (933 ) (2,459 ) (2,349 ) expense Income before 16,853 15,841 31,470 55,060 income taxes Provision for 6,757 6,264 12,603 21,814 income taxes Net income $ 10,096 $ 9,577 $ 18,867 $ 33,246 Net income per share of common stock: Basic (1) $ 0.13 $ 0.11 $ 0.23 $ 0.37 Diluted $ 0.13 $ 0.11 $ 0.22 $ 0.36 Shares used in the computation of earnings per common share: Basic 68,931 78,489 73,251 84,504 Diluted 80,183 88,560 84,321 91,284 (1) - Net income used in the calculation of basic earnings per share is adjusted for amounts unavailable to common stockholders. Our Annual Report on Form 10-K for the year ended December 31, 2012 will contain a further reconciliation of this number for the twelve months ended December 31, 2012 and 2011. NetSpend Holdings, Inc. Consolidated Balance Sheets As of December 31, 2012 and 2011 2012 2011 (Unaudited) (in thousands of dollars) Assets Current assets Cash and cash equivalents $ 30,619 $ 72,076 Accounts receivable, net of allowance for doubtful accounts of $518 as of December 31, 2012 and $581 10,622 7,552 as of December 31, 2011 Prepaid card supply 3,535 2,000 Prepaid expenses 4,007 3,326 Other current assets 1,360 2,179 Income tax receivable 59 - Deferred tax assets 7,620 4,138 Total current assets 57,822 91,271 Property, equipment and software, net 23,743 20,631 Goodwill 128,567 128,567 Intangible assets 20,246 22,227 Long-term investment 4,560 2,497 Other assets 17,655 7,549 Total assets $ 252,593 $ 272,742 Liabilities & Stockholders' Equity Current liabilities Accounts payable $ 4,908 $ 3,183 Accrued expenses 26,362 20,937 Income tax payable - 1,733 Cardholders' reserve 3,633 3,892 Deferred revenue 1,765 1,585 Current litigation contingencies 10,900 - Long-term debt, current portion 10,000 - Total current liabilities 57,568 31,330 Long-term debt, net of current portion 70,000 58,500 Deferred tax liabilities 4,224 7,431 Other non-current liabilities 3,155 4,628 Total liabilities 134,947 101,889 Total stockholders' equity 117,646 170,853 Total liabilities & stockholders' equity $ 252,593 $ 272,742 NetSpend Holdings, Inc. Consolidated Statements of Cash Flows Years Ended December 31, 2012 and 2011 2012 2011 (Unaudited) (in thousands of dollars) Cash flows from operating activities Net income $ 18,867 $ 33,246 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 13,778 15,031 Amortization of debt issuance costs 326 326 Stock-based compensation 11,464 11,242 Tax benefit associated with stock options (2,741 ) (1,541 ) Provision for cardholder losses 18,741 14,441 Deferred income taxes (6,785 ) (2,646 ) Change in cash surrender value of life insurance (159 ) 8 policies Litigation contingencies, current 10,900 - Changes in operating assets and liabilities Accounts receivable (3,070 ) (2,111 ) Income tax receivable or payable 949 2,942 Prepaid card supply (1,535 ) (395 ) Prepaid expenses (681 ) (946 ) Other current assets 819 (1,172 ) Other long-term assets (9,752 ) (2,316 ) Accounts payable and accrued expenses 7,150 (3,797 ) Cardholders' reserve (19,000 ) (15,338 ) Deferred revenue 180 252 Other liabilities (1,473 ) 1,621 Net cash provided by operating activities 37,978 48,847 Cash flows from investing activities Purchases of property, equipment and software (14,595 ) (9,182 ) Purchase of intangible assets (314 ) (12 ) Long-term investment (1,095 ) - Premiums paid on cash surrender value life (521 ) (894 ) insurance policies Net cash used in investing activities (16,525 ) (10,088 ) Cash flows from financing activities Dividend equivalents paid - (353 ) Proceeds from the exercise of common stock options 5,318 1,405 Proceeds from the re-issuance of treasury stock 441 - under employee stock purchase plan Tax benefit associated with stock options 2,741 1,541 Net cash proceeds (disbursements) from initial - (95 ) public offering Proceeds from issuance of long-term debt 90,000 - Principal payments on debt (68,500 ) (3,303 ) Treasury stock purchase (92,559 ) (32,718 ) Tax withholding on restricted stock (351 ) (661 ) Net cash used in financing activities (62,910 ) (34,184 ) Net change in cash and cash equivalents (41,457 ) 4,575 Cash and cash equivalents at beginning of period 72,076 67,501 Cash and cash equivalents at end of period $ 30,619 $ 72,076 Supplemental disclosure of cash flow information Cash paid for interest $ 2,330 $ 2,591 Cash paid for income taxes 18,403 21,432 Non-cash investing activities Capital lease entered into for the license of $ - 1,949 software NetSpend Holdings, Inc. Reconciliation of Adjusted EBITDA to Net Income For the Three and Twelve Months Ended December 31, 2012 and 2011 (Unaudited) Three Months Ended Twelve Months Ended December 31, December 31, 2012 2011 2012 2011 (in thousands of dollars) Net income $ 10,096 $ 9,577 $ 18,867 $ 33,246 Interest income (30 ) (30 ) (139 ) (108 ) Interest expense 771 963 2,598 2,457 Income tax expense 6,757 6,264 12,603 21,814 Depreciation and 3,489 3,797 13,778 15,031 amortization EBITDA 21,083 20,571 47,707 72,440 Stock-based compensation 2,993 2,410 11,464 11,242 expense Settlement (gains) and (160 ) 191 36,988 515 other losses Adjusted EBITDA (1)(3) $ 23,916 $ 23,172 $ 96,159 $ 84,197 NetSpend Holdings, Inc. Reconciliation of Adjusted Net Income to Net Income For the Three and Twelve Months Ended December 31, 2012 and 2011 (Unaudited) Three Months Ended Twelve Months Ended December 31, December 31, 2012 2011 2012 2011 (in thousands of dollars, except percentages and per share data) Net income $ 10,096 $ 9,577 $ 18,867 $ 33,246 Stock-based compensation 2,993 2,410 11,464 11,242 expense Amortization 434 881 2,295 3,524 of intangibles Settlement (gains) and (160 ) 191 36,988 515 other losses Total pre-tax 3,267 3,482 50,747 15,281 adjustments Tax rate 40.1 % 39.5 % 40.0 % 39.6 % Tax adjustment 1,310 1,375 20,299 6,051 Adjusted net $ 12,053 $ 11,684 $ 49,315 $ 42,476 income (2)(3) Adjusted net income per share of common stock Basic $ 0.17 $ 0.15 $ 0.67 $ 0.50 Diluted $ 0.15 $ 0.13 $ 0.58 $ 0.47 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 (1) 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. Settlement gains of $0.2 million during the three months ended December 31, 2012 and other losses of $37.0 million during the twelve months ended December 31, 2012 primarily relate to accruals for legal contingencies and settlements. Other losses of $0.2 million during the three months ended December 31, 2011 and $0.5 million in the twelve months ended December 30, 2011 primarily relate to severance costs incurred in connection with the consolidation of some of our processing platforms and call center activities. 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 (2) 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 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. Settlement gains of $0.2 million during the three months ended December 31, 2012 and other losses of $37.0 million during the twelve months ended December 31, 2012 primarily relate to accruals for legal contingencies and settlements. Other losses of $0.2 million during the three months ended December 31, 2011 and $0.5 million in the twelve months ended December 30, 2011 primarily relate to severance costs incurred in connection with the consolidation of some of our processing platforms and call center activities. 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 (3) 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. Contact: NetSpend Holdings, Inc. Investors: George Gresham, 866-979-1996 Chief Financial Officer email@example.com or Media: Krista Shepard, 512-531-8732 firstname.lastname@example.org
NetSpend Holdings, Inc. Reports Fourth Quarter Financial Results
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