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Official Payments Holdings (OPAY)

Q3 2013 Earnings Call

August 06, 2013 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

Gary F. Prestopino - Barrington Research Associates, Inc., Research Division

Samuel Bergman

Presentation

Operator

Good afternoon, and thank you, all, for standing by. [Operator Instructions] I will now turn the meeting over to Mr. Jack Browne. You may proceed.

Jack Browne

Thank you, and good afternoon. My name is Jack Browne, and I'm the Controller for Official Payments. Welcome to today's call to review our fiscal year 2013 third quarter results.

After the market closed today, we issued a press release announcing Official Payments' financial results for the quarter ended June 30, 2013. 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) 685-7910. The telephone replay will be available until 11:59 p.m. Eastern Time on September 2, 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 Factors sections on our most recent annual report on Form 10-K, which is on file with the SEC, and those discussed in the Management's Discussion and Analysis and Risk Factors sections of our quarterly report on Form 10-Q, which we filed with the SEC earlier today.

In addition, any forward-looking statements represents 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 Q3 2013, Q3, the quarter or the third quarter, refer to the quarter ended June 30, 2013. And references to fiscal 2013, FY '13 and the year refer to the fiscal year ending September 30, 2013.

We use the term client to refer to the various legal entities with whom we contract to provide our payment solutions. The term customer refers to the 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.

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're pleased to announce that we delivered our seventh consecutive quarter of positive adjusted EBITDA and the first quarter in quite some time of positive earnings per share.

As we've discussed in the past, our business is predictably seasonal. Our third fiscal quarter is typically our strongest. The trend continued this year as well, and was particularly strong in federal and state taxes, as well as higher education. I'll discuss our progress in a number of areas and share our increased expectations for FY 2013 and FY 2014 after Jeff reviews our third quarter financial results in more detail. Jeff?

Jeffrey W. Hodges

Thanks, Alex. We processed more than $3.2 billion of payments this Q3 2013, an 18.5% increase versus Q3 of 2012, resulting in net revenue of $13.2 million, a 12.5% increase over Q3 2012.

The difference in these growth rates is primarily a function of the increased volume of federal tax payments we processed during the quarter. Due to the large number of credit card transactions and, more specifically, the mix and types of credit cards used to make payments via IRS, we see lower net revenue margins in our third quarter as compared to other quarters. The sheer volume of IRS payments masked any impact to our net revenue margin, as consumers using ACH payments and our overall payment mix that we've seen in the recent quarters. This is reflected in our Q2 -- Q3 2013 net revenue margin of 29% versus 30.3% in the same period last year, as well as the increase in net revenue.

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