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Official Payments Holdings (OPAY)

F4Q 2012 Earnings Call

December 12, 2012 5:00 pm ET

Executives

Jack Browne

Alex P. Hart - Chief Executive Officer, President and Director

Jeffrey W. Hodges - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

John Campbell - Stephens Inc., Research Division

Ryan Lee Vardeman - Palogic Value Management, LP

Dan Weston

Sam Bergman - Bayberry Capital Management

Presentation

Operator

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] Now I'd like to go ahead and turn today's call over to Jack Browne. Sir, you may begin.

Jack Browne

Thank you. Good afternoon. My name is Jack Browne, and I’m the Controller for Official Payments. Welcome to today's call to review our fiscal 2012 and fourth quarter results. After the market closed today, we issued a press release announcing Official Payments' financial results for the fiscal year and quarter ended September 30, 2012.

A copy of the press release can be found on the Investor Relations section of our website www.opay.officialpayments.com. We invite investors who wish to speak to management about the company to contact our CFO, Jeff Hodges, at (770) 325-3102 or by emailing him at Jeff.Hodges@officialpayments.com.

A replay of today's call will be available later this evening on our investor website, www.opay.officialpayments.com or by calling 1 (800) 873-2149. The telephone replay will be available until 11:59 p.m. Eastern Time, on January 2, 2003 (sic) [2013].

I want to remind you that various remarks that we may make on today's call about the company’s future expectations, plans and prospects, constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Management's Discussion and Analysis and Risk Factor sections of our most recently filed quarterly report on Form 10-Q, which is on file with the SEC, and those discussed in the Management's Discussion and Analysis and Risk Factor sections of our annual report on Form 10-K, which will be filed with the SEC later this week.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today.

In this call, references to Q4 2012, Q4, the quarter or the fourth quarter, refer to the quarter ended September 30, 2012, and the references to fiscal 2012, FY 2012 and the year refers to the fiscal year ended September 30, 2012.

We use the term client to refer to the various legal entities with whom we contract to provide our Payment Solutions. The term customers refers to consumers who utilize our payment services to pay amounts due to our clients.

During this call, we will be referring to non-GAAP financial measures that are not prepared in accordance with Generally Accepted Accounting Principles. The 2 non-GAAP financial measures that we will be discussing today are Payment Solutions' net revenue and adjusted EBITDA from Continuing Operations.

During this call, when we use the terms net revenue and adjusted EBITDA, we are referring to Payment Solutions' net revenue and adjusted EBITDA from Continuing Operations. We define the non-GAAP financial measures used in this call and we have presented reconciliations of these non-GAAP financial measures, on a historical basis, to the most directly comparable GAAP measures in the press release that we issued earlier today. That press release was furnished to the SEC earlier today as an exhibit to a current report on Form 8-K. The Form 8-K, including the press release that reconciles the non-GAAP financial measures to the most directly comparable GAAP measures, is available in the Investor Relations section of our website, www.opay.officialpayments.com under the heading Investor Relations.

Payment Solutions' net revenue is defined as Payment Solutions' growth revenue, less related third-party transaction processing costs, which we refer to as discount fees. Discount fees are comprised of interchange fees and other third-party transaction costs we must pay to process transactions.

Adjusted EBITDA from Continuing Operations is defined as net income or loss from our Continuing Operations before interest expense, net of interest income, income taxes, depreciation and amortization, share-based compensation expense and restructuring charges.

With me on the call today are Jeff Hodges, our CFO; and Alex Hart, our President and CEO. I'll now turn the call over to Alex.

Alex P. Hart

Thanks, Jack, and welcome, everyone. We appreciate your interest in the company.

We are proud of the progress we've made in the turnaround of the business as reflected in the consistent operating performance we've posted each quarter, and for the year as a whole. Fiscal 2012 was an important turning point in the business as we refined our long-term growth strategy and made significant enhancements to our technology infrastructure and sales and marketing programs to support that growth. These investments will continue, though at a reduced rate during fiscal 2013, and should significantly improve our operating results in fiscal 2014 and beyond.

For the fourth quarter and the year as a whole, we achieved modest growth in gross revenue and grew significantly in both net revenue and adjusted EBITDA, which we believe are more reliable indicators of our operating performance given the consistently large amount of interchange included in our gross revenue number.

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