XNAS:NTSP Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 

x                Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the quarterly period ended June 30, 2012

 

OR

 

o                   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the transition period from                   to                   

 

Commission file number: 001-34915

 

NETSPEND HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-2306550

(State of organization)

 

(I.R.S. Employer Identification No.)

 

 

 

701 BRAZOS STREET

 

 

SUITE 1300

 

 

AUSTIN, TEXAS

 

78701-2582

(Address of principal executive offices)

 

(Zip Code)

 

(512) 532-8200

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o No x

 

The Registrant had 74,635,918 shares of common stock, par value $0.001 per share, outstanding as of July 31, 2012.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

Item

 

Description

 

Page

 

 

 

 

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

37

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

38

 

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

38

 

 

 

 

 

Item 1A.

 

Risk Factors

 

38

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

39

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

39

 

 

 

 

 

Item 5.

 

Other Information

 

39

 

 

 

 

 

Item 6.

 

Exhibits

 

40

 



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. Unaudited Financial Statements

 

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, except share and per share data)

 

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 (includes $416 and $0 of related party payables as of June 30, 2012 and December 31, 2011, respectively)

 

$

10,222

 

$

3,183

 

Accrued expenses (includes $3,686 and $3,791 of accrued related party expenses as of June 30, 2012 and December 31, 2011, respectively)

 

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

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value; 1,500,000 shares authorized; outstanding: 700,000 as of June 30, 2012 and December 31, 2011

 

1

 

1

 

Common stock, $0.001 par value; 225,000,000 shares authorized; outstanding: as of June 30, 2012 - 86,106,895 issued less 10,755,922 held in treasury and as of December 31, 2011 - 85,492,234 issued less 7,758,386 held in treasury

 

86

 

85

 

Treasury stock at cost

 

(70,436

)

(44,753

)

Additional paid-in capital

 

173,552

 

165,298

 

Accumulated other comprehensive loss

 

(239

)

(712

)

Retained earnings

 

55,308

 

50,934

 

Total stockholders’ equity

 

158,272

 

170,853

 

 

 

 

 

 

 

Total liabilities & stockholders’ equity

 

$

240,532

 

$

272,742

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

1



Table of Contents

 

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 (includes $1,297 and $1,236 of related party revenues for the three months ended June 30, 2012 and 2011, respectively, and $3,153 and $2,879 for the six months ended June 30, 2012 and 2011, respectively)

 

$

85,334

 

$

74,419

 

$

176,727

 

$

155,169

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

Direct operating costs (includes $12,378 and $11,617 of related party expenses for the three months ended June 30, 2012 and 2011, respectively, and $27,776 and $25,714 for the six months ended June 30, 2012 and 2011, respectively)

 

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 (includes $52 and $53 of related party expenses for the three months ended June 30, 2012 and 2011, respectively, and $129 and $94 for the six months ended June 30, 2012 and 2011, respectively)

 

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:

 

 

 

 

 

 

 

 

 

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

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2



Table of Contents

 

NetSpend Holdings, Inc.

Condensed Consolidated Statements of Comprehensive 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)

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

10,162

 

$

7,580

 

$

4,374

 

$

15,359

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Investment securities, available-for-sale net unrealized gain (loss)

 

(180

)

384

 

473

 

790

 

Other comprehensive income (loss)

 

(180

)

384

 

473

 

790

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

9,982

 

$

7,964

 

$

4,847

 

$

16,149

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3



Table of Contents

 

NetSpend Holdings, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity

For the Six Months Ended June 30, 2012

(Unaudited)

 

 

 

Series A Convertible
Preferred Stock

 

Common Stock

 

Treasury Stock

 

Additional
Paid-in

 

Accumulated
Other
Comprehensive

 

Retained

 

Total
Stockholders’

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Loss

 

Earnings

 

Equity

 

 

 

(in thousands of dollars, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2011

 

700,000

 

$

1

 

85,492,234

 

$

85

 

(7,758,386

)

$

(44,753

)

$

165,298

 

$

(712

)

$

50,934

 

$

170,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of treasury stock

 

 

 

 

 

(3,032,893

)

(25,928

)

 

 

 

(25,928

)

Re-issuance of treasury stock under stock compensation plan

 

 

 

 

 

35,357

 

245

 

 

 

 

245

 

Stock-based compensation

 

 

 

 

 

 

 

5,692

 

 

 

5,692

 

Exercise of options for common stock

 

 

 

608,514

 

1

 

 

 

1,945

 

 

 

1,946

 

Vesting of restricted stock

 

 

 

6,147

 

 

 

 

 

 

 

 

Tax benefit associated with stock options

 

 

 

 

 

 

 

617

 

 

 

617

 

Unrealized gain on available-for-sale investment

 

 

 

 

 

 

 

 

473

 

 

473

 

Net income

 

 

 

 

 

 

 

 

 

4,374

 

4,374

 

Balances at June 30, 2012

 

700,000

 

$

1

 

86,106,895

 

$

86

 

(10,755,922

)

$

(70,436

)

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