Meta Data Limited
Q1 2015 Earnings Call Transcript

Published: 7 May 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Quarter One 2015 Higher One Holdings, Inc. Earnings Conference Call. My name is Saley, and I'll be your operator for today. At this time, all participants are in listen-only mode. We’ll conduct a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Patrick Pearson. Go ahead, sir.

[Patrick Pearson:]

Thank you, Saley. Good morning, everyone, and welcome to the Higher One First Quarter 2015 Earnings Call. Giving prepared remarks on the call today will be our Chief Executive Officer, Marc Sheinbaum; and our Chief Financial Officer, Chris Wolf. Marc will provide a summary of our quarterly performance and Chris will provide more detail on the financials before opening up the call for Q&A. There is a slide presentation that accompanies our discussion of the quarter that is available on our Investor Relations website at www.ir.higherone.com. This call contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management's projections and expectations are subject to a number of risks and uncertainties that could cause actual performance to differ materially from that predicted or implied. Forward-looking statements may be identified by the use of words such as expect, anticipate, believe, estimate, potential, should or similar words intended to identify information that is not historical in nature. Forward-looking statements are based on the current beliefs and expectations of Higher One management and are subject to known and unknown risks and uncertainties. There are a number of risks and uncertainties that could cause actual events to differ materially from those contemplated by the forward-looking statements. These statements speak only as of the date they are made, and the company does not intend to update or otherwise revise the forward-looking information to reflect actual results of operations, changes in financial condition, changes in estimates, expectations or assumptions, changes in general economic or industry conditions or other circumstances arising and/or existing since the preparation of this presentation or to reflect the occurrence of any unanticipated events. The forward-looking statements in this presentation do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof. For further information regarding the risks associated with our business, please refer to our filing with the Securities and Exchange Commission, including our annual report on Form 10-K for the most recent fiscal year end, quarterly reports on Form 10-Q and current reports on Form 8-K. Information about the factors that could affect future performance can be found in our recent SEC filings available on our website. We will also provide certain metrics on a non-GAAP basis, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted EPS and free cash flow. We believe that these non-GAAP measures, which exclude amortization of intangibles, stock-based compensation and certain non-recurring or non-cash impacts to our results provide useful information regarding normalized trends relating to the Company's financial condition and results of operations. Reconciliations of these non-GAAP measures to their closest comparable GAAP measure are included in the appendix to the presentation that accompanies this call as well as in our recent SEC filings. With that, I will now turn the call over to our CEO, Marc Sheinbaum. Marc?

[Marc Sheinbaum:]

Thanks Pat, and thanks to everyone for joining us today. With me on the call is our Chief Financial Officer, Chris Wolf who will provide our financial update as well as our Chief Operating Officer, Casey McGuane who will be available to answer questions after our prepared remarks. Please refer to the accompanying slide deck that's available on our Investor Relations website, as I discuss the first quarter details beginning of slide 3. I'd like to start by acknowledging that there two trends within our business that are precipitous for some time now and that we've taken considerable steps this quarter to address. First, the payments business and data analytics business continued to grow and contribute a larger percentage of our revenue. We believe that managing the Company along our three lines of business would provide us with a greater understanding of our operating metrics and would give shareholders more transparency into the profitability of the individual lines of business. So beginning this quarter, we will now be providing business line operating results. Chris will cover each one in more detail during his remarks. Second, is the continued pressure on the disbursements business, which includes the OneAccount. As we said on previous calls, we are always looking at opportunities to better manage expenses and we recently executed on one such opportunity by partnering with a third-party service provider to operator our customer care center. This partner will provide live agent, chat and IVR services for the disbursements business including the OneAccount. The transition to this partner will take place in the third and fourth quarters of this year and we expect to begin realizing cost savings of approximately $4 million to $5 million in 2016. I'm also excited to share that we will enhancing the OneAccount this fall with new features that believe can make our account one of the most compelling student accounts in the marketplace. I will cover the details of these enhancements later in my remarks. But before I get into this quarter's results, I'd like to provide a brief update on our ongoing financial regulatory matters. We have previously provided updates regarding the notifications we received from the Staff of the Board of Governors of the Federal Reserve as they intended to recommend that the Board of Governors seek an administrative order against the Company with respect to asserted violations of the Federal Trade Commission Act. We also discussed our need to consider voluntarily providing restitution to those account holders who hold accounts at our FDIC regulated bank partner on the same basis as maybe set forth in an order from the Federal Reserve. San Francisco regional office of the FDIC has now notified us that it is prepared to recommend that administrative enforcement action be taken against us for similar alleged violations. We are in the process of responding to the FDIC and continue to be in discussions with the staff of the Federal Reserve on its matter. We cannot give you a specific time frame or any additional details at this time as to when these matters will be resolved other than to conform that we believe that the maximum exposure related to these matters continues to be approximately $70 million in total as previously disclosed. So turning to slide 4. Gross revenue was $65.5 million in the first quarter of 2015 compared to $66.6 million in the first quarter of 2014. We ended the first quarter with non-GAAP adjusted earnings per share of $0.21 compared to $0.25 in the prior year. The decrease in revenue was the result of lower contributions from the disbursement business including the OneAccount, offset by increases in both the payments and data analytics businesses. Turning to slide 5. With the new presentation of our operating results, you will notice that the revenue categories are shown on the slide in a slightly different manner as compared to previous quarters but the trend of revenue diversification remains the same. Payments and data analytics continue to grow becoming a larger portion of revenue. Now let's look the growth drivers of the payments business beginning of slide 6. I’d like to start by giving you a brief overview of the two types of revenue sources that roll into the payments business. First of all, the transaction-based drivers. These are full service payment plan enrollment fees and the convenience fees clubbing through our SmartPay payment processing service and second are the recurring subscription fees we collect from schools to utilize our payment software. I'm pleased to report that the Payments revenue was up 11% this quarter compared to the first quarter of 2014 driven primarily by a 22% increase in SmartPay payment processing dollar volume, which rose to almost to $420 million. We continued to sign new clients having closed deals with multiple large state schools this quarter as well as investment in the CASHNet payment product suite. We are in the process of rolling out a number of exciting product enhancements over the next 15 months including an improved user interface and user experience with both administrators and students. And while we are allocating capital to improve our payment products, we are simultaneously leveraging opportunities to cut expenses as we've lined down the Campus Solutions products. Most recently we integrated the Campus Solutions team in our existing CASHNet team and we are actively working through our cost savings opportunities as a result of the consolidation of dual product environments. We continue to transition Campus Solutions clients over to the CASHNet product suite. This transition process inherently brings some stress points to the clients and we are working diligently through those hurdles. Moving to slide seven. We had another solid quarter in our data analytics business which we commonly refer to as Campus Labs with revenue up almost 20% compared to the first quarter of 2014. For reference, data analytics revenues comprise mostly of subscription fees that schools pay to use our Campus Labs software, accompanied by smaller one-time support and implementation fees. The continued growth in this business is the result of addition new institutions as well as selling additional modules to existing clients. I'm pleased to report that we added 18 new clients to our data analytics client base this quarter and sold a total of 50 modules to both new and existing data analytics clients. On the product development side, we continue to invest specifically by building more connectivity between these modules. By interconnecting all six Campus Labs products to allow schools who purchase multiple products to leverage not only the data being analyzed by each individual products, but more importantly it will make data integration much easier resulting in new insights and the identification of new opportunities for our campuses. It is this connectivity we believe that has the long-term value proposition of the data analytics business. [Technical Difficulty] as we work to grow our cross-selling and upselling initiatives. Today, only about one in five data analytics clients have two or more Campus Labs modules. This demonstrates our opportunities for the future growth in this area of our business. Now let's turn to slide eight and look at our disbursements business which includes the OneAccount. Disbursements revenues comprise of both recurring and transaction-based sources. The recurring revenues are the subscription fees for the Refund Management disbursement service and the transaction-based sources are interchange and service fees derived through the OneAccount. Disbursements revenue was down 9% on a year-over-year basis driven primarily by a decrease in OneAccount revenue of just under 10% over that same period. Similar to trends seen in previous quarters, the decrease in OneAccount revenue was the result of decrease in the financial aid refunds being disbursed into the OneAccount. Offsetting some of that decline we did see a continued increase in non-refund dollars being deposited into the OneAccount this quarter which was 7% higher than the first quarter of 2014 and signified a greater level of engagements by our customers with the OneAccount. As we've discussed in the last call, the sales and renewals environments are challenging. However, this quarter we did sign seven new schools representing over 21,000 SSE, lost one school representing 3,000 SSE and renewed 20 current clients representing over 7,000 SSE. Turning to slide nine. Today over 800 colleges and universities across the country rely upon Higher One’s Refund Management disbursement services to quickly, securely and conveniently deliver with financial aid refunds to students in compliance with cash management rules. This allows schools to reduce administrative cost and reallocate those resources. And for students, our service provides more choice for how they can receive their refunds as well as a better service experience. We anticipate that the Department of Education will propose new cash management rules in the coming months and we’ve recognized that these rules could impact both schools and our operating model. But the needs of these schools and the students are not going away, which only highlights the value we bring to them. As I said on previous calls, we are continuing to enhance the Refund Management disbursement service to best serve the needs of schools and students. For example, in cases where students don't receive our refund selection mail or lose the Higher One card, administrators can now issue a simple refund code instantaneously to those students, so they can initiate their refund process. On these exception cases, should a student choose the OneAccount, we’ve created a virtual card, which gives them instant access to their funds by allowing them to make online purchases until their physical card arrives. Moving to slide ten. We know that the ability to manage finances can be paramount to a student’s successful completion of a college degree. We also know that students need help in this area. In April, during National Financial Literacy Month, we put national attention to the issue through our third annual Money Matters on Campus research study, which we unveiled in Washington DC. This survey of 43,000 college students across the US found that students are feeling less prepared to manage their money than any other aspect of college life. So, on slide 11, you will see that we’re investing in our OneAccount product by adding agency [ph] account that can help students better manage their money as well as increase engagement and primary usage of the account. Central to this avatar are our new money management tools that we intend to launch this coming fall. Our online and mobile budgeting and tracking tools will be tailored specifically for students, easy to use, but robust enough to address most budgeting and tracking needs. Money management tools of this level of functionality are not widely available on students’ checking accounts, but based on our research, we believe that college students would greatly benefit from this capability. Moving to slide 12. We also continue to add, enhance and reinforce features of the OneAccount. In addition to the already robust elements of mobile check deposit and the card on/off switch, which allows students to temporarily disable their card, we recently added Photo Bill Pay. This functionality allowed OneAccount users to initiate a bill payment automatically by taking a picture of their bill with a mobile device. By combining our money management tools with these new and enhanced features, we believe that we offer a truly student-centric account that will appeal for the multiple needs of a very diverse student population. Turning to slide 13. I like to reiterate that as our business evolves, we are planning accordingly to position the Company for long-term success. As mentioned earlier, we are investing in our growth areas of payments and data analytics while closely managing our expenses in the disbursement business. The outsourcing of our customer care center is a great example of how we can manage expenses that affect the bottom line. This new customer care provider will bring better technology and workforce management tools that we have in our disposal today, which should result in a better service experience for our customers. And like all financial service companies today, we continue to invest in compliance and risk management to strengthen our total controls as well as enhanced areas like cybersecurity. And our overall governance of the Company continues to evolve as evidenced by the nomination of two new distinguished board members with extensive experience in banking and securities regulation as well as risk management. I am truly excited for the potential impact of these perspective directors can have in our organization. This concludes my prepared remarks. So, I’ll turn it over to Chris to discuss the financials beginning on slide 15. Chris?

[Chris Wolf:]

Great. Thanks, Marc. At this point, I’ll begin the discussion of our financial results for the quarter, starting on page 14 of the accompanying slide presentation. Please remember that all growth rates I mention will be year-over-year unless otherwise specified. Turning to slide 14. Revenue for the first quarter was $65.5 million compared to $66.6 million during the first quarter of last year, a decrease of 1.6%. We had a gross profit margin of 57% in the first quarter of 2015 compared to 58.5% last year. I’ll get into more detail in the drivers of our revenue and gross profit margin on the upcoming slides. Turning to slide 15. As mentioned earlier, we continue to diversify our revenue sources. Payments revenue showed strength in the quarter, equaling $22.3 million, up 11.1% over last year. The increase in payment volume was primarily due to the solid revenue growth in our SmartPay payment processing service, which Marc discussed earlier. Our payments line of business accounted for approximately 34% of our total revenues this quarter. Data Analytics revenue, which comprise 6.1% of total revenue this quarter grew 19.7% year-over-year to $4 million. This growth is driven by the sales of Campus Labs products to both new and existing clients over the past 12 months. Disbursements revenue decreased 9.1% from the prior year to $39.2 million, primarily from a 9.9% decrease in account revenue. This decrease was due to lower amounts deposited and spent from the OneAccount, which resulted in decreased interchange and service fees. Turning to slide 16, let's examine the trends that drove the decreases in deposits and spending from the OneAccount. Enrolment and disbursement trends are key drivers in our business, so we will start off from what we saw during the spring disbursement cycle on refunds. Enrolment data is released on a one-year trailing basis, so our client school disbursement data is the best proxy we have when we are looking at enrolment trends. We'll begin with all schools in our network and then on slide 17, we will review the same school data. In summary, total unique recipients increased by 6%, which was aided by a 7% increase in launched SSE. But this increase was offset by the decrease in average refund size of approximately 4%, resulting in total dollars disbursed, increasing by only 2%. This increase of total dollars disbursed was offset by declines in the selection rates by our total school population, which resulted in total dollars disbursed into the OneAccount being down 12%. The decrease in the overall selection rate of the OneAccount is a function of reductions, both at same schools as well as new schools, which typically have a lower selection rate than the overall average. Total deposits into the OneAccount saw a 10% decrease, which included a 7% increase in non-refund deposits. Turning to slide 17, on a same school basis, total unique recipients were down approximately 3% and we saw average Financial Aid dollars down approximately 4%, resulting in total dollars disbursed being down 7%. We also showed a 10% decrease in refund dollars going into the OneAccount. As a result, total dollars disbursed in to the OneAccount on a same school basis were down approximately 16%. Now, we'll look at changes in our Refund Management SSE and ending OneAccounts for the period beginning on slide 18. The Refund Management SSE account was flat on a year-over-year basis ended March 31, 2015. As discussed previously, a good portion of the prior period's growth was driven by the conversion of Campus Solutions refund clients, which has since annualized. Looking at the number of OneAccounts, you'll see that it decreased 5% year-over-year. This decrease is primarily a result of closing nearly 100,000 accounts, which had minimally overdrawn balances in the second quarter of 2014. In addition, the reduction in the selection rates in the OneAccount at same schools discussed earlier also has impacted the number of accounts at those schools. Moving on to gross margin, let's turn to slide 19. As a reminder, consolidated gross margin this quarter was 57%. Gross margin for disbursements was $22.5 million this quarter, which was driven primarily by a lower account revenue. As we've previously stated, much of our cost of sales and disbursements are fixed and not necessarily reduced as revenue declines. In addition, we do sometimes experience higher costs, despite lower revenue amounts. To that end, we experienced longer call handle times in our customer care centre which resulted in higher customer care cost this quarter. Gross profit margin for payments this quarter increased to 50.6% from 47.1% in the comparable prior year period. Our cost of sales and payments was approximately $11 million in the first quarter compared to $10.6 million for the three months ended March 31, 2014. The largest driver of cost increase was additional volume related to merchant expenses as a result of increased transaction count and volumes in the SmartPay payment processing business. Offsetting those increases was a reduction of approximately $400,000 in costs incurred in the prior year associated with the Campus Solutions integration process. Lastly on this slide, gross profit margin in our data analytics line of business increased this quarter to 89%, up from 86.9% last year. Turning to slide 20, looking at operating expenses, we continue to make investments in compliance, product development and talent. During the current quarter, general and administrative costs increased to $18.6 million. This increase is attributable primarily to two factors. First, personnel costs increased by $1.8 million, including $600,000 of stock-based compensation expense. Secondly, depreciation and amortization increased $1 million, including amortization related to internal use software. The 19.2% decrease in product development costs which equates to 2.7% of revenue was driven by a reduction in certain transition related product development expenses associated with the Campus Solutions acquisition compared to the prior year period. Although these transition related product development costs decreased in the current period, we still have work to do and there could be some variability in the cost as we closed out remaining transition related activities. This decrease was slightly offset by lower internal costs, which would capitalize revenue and expense. These costs are related to internally used software development projects. Sales and marketing expense decreased 6.9% during to the quarter to 6.4% of revenue. This is was primarily due to the decrease in personnel related costs and lower discretionary marketing costs. Turning to slide 21, you will see that adjusted EBITDA was $20.3 million compared to $22.7 million last year. This decrease was largely driven by the decrease in account revenue and increases in G&A expense noted earlier. Now let’s look closer at the adjusted EBITDA margin at the three lines of business beginning on slide 22. Adjusted EBITDA for Disbursements was down 28% to $12.4 million in the quarter, driven by many of the factors I discussed earlier in my remarks related to this line of business. Despite the margin challenges for Disbursements, both Payments and Data Analytics were able to achieve a measure of operating leverage as both profitability and margin outpaced revenue growth. Payments achieved adjusted EBITDA of $6.2 million, an increase of 44% over the prior-year period and increased adjusted EBITDA margin to 27.8% in the current period from 21.5% in the prior-year period. Our Data Analytics line saw adjusted EBITDA increase by 56% this quarter to $1.7 million with margins reaching 41.9% compared to 32.2% in the first quarter of 2014. Turning to slide 23. Our adjusted diluted EPS equaled $0.21 compared to $0.25 last year. In addition to the revenue and expense items already mentioned, adjusted EPS was impacted largely by changes in income taxes. Although income tax expense was lower in the current quarter, the higher effective rate of 40.5% compared to 38.8% in the comparable prior-year period was the result of relatively higher non-deductible expenses this quarter. Moving to slide 24. Our free cash flow was $14.2 million in the first quarter of 2015 compared to the prior-year quarter, which had free cash flows of negative $400,000. This increase on a year-over-year basis is the result of the net cash impact of the settlement of the class action lawsuit on operating activities in the first quarter of 2014. In addition, our operating cash flows were sometimes impacted by the timing of normal working capital changes that vary quarter-to-quarter. Capital expenditures were lower by $439,000 in the current quarter compared to the same period in 2014. Moving to the last slide, slide 25. We ended the quarter with a cash balance of $15 million. In addition to the items affecting free cash flow that were mentioned on Slide 24, in connection with the amendment of our credit facility in February, we paid down the outstanding balance by $35 million and incurred fees of $4.5 million. We now have $59 million drawn on our line of credit. One of the financial covenants in the credit facility relates to a requirement for this quarter to have a minimum of $45 million of trailing 12-month EBITDA, as defined by the credit agreement. As of March 31, 2015, our trailing 12-month EBITDA, as defined, was $57.1 million. Last quarter, I discussed the potential impact of the pending regulatory matters on our credit facility and liquidity sources. These regulatory matters have not been resolved and we are uncertain of the timing of their resolution. As part of the February amendment to our credit facility, we added flexibility to incur up to $75 million to address these regulatory matters. And with that, we have concluded our prepared statements. We will now take your questions. Operator?

[Operator:]

Thank you. [Operator Instructions] Please standby for your first question, which comes from the line of Andrew Jeffrey. Go ahead Andrew.

[Andrew Jeffrey:]

Hi, good morning guys. Thanks for taking the question. Good to see the SSE signings pick up a little bit, can you just comment on sort of existing customer and potential new customer sentiment and the pipeline and close rates and whether or not any of the deals that you’ve had in pipeline perhaps are breaking lose here it’s obviously been a protracted period of certainly in the business and I'm just wondering if anything of the margin has changed?

[Marc Sheinbaum:]

Yes Andrew, hi it's Mark, thanks for the question. I would say that the -- I don't characterize that the pipeline is broken lose, I think we are, the numbers are still relatively small, I mean we're pleased that we find 21,000 but I think they are still relatively small especially by the historic norms of this business. So, I do think that people are still basically waiting on the sidelines if not a lot of movement out there. So it becomes a new deal I think that product characterizes that. In terms of the existing deals I think, look we characterized it last quarter as a challenging year from a lot of perspective and with everything that's going on, so I won't change that characterization at all, I think we lost few thousand SSEs, one client in the first quarter but we hate losing anybody, and so we're working hard to make sure that we are out there working with our client day and day out to retain them, and I think it's a -- I won't characterize that as a easy battle, it’s tough and that we work hard and take very seriously. So I wouldn’t say, so back to your question, I wouldn’t characterize of any real change in the attitude from last quarter.

[Andrew Jeffrey:]

Okay. And, with regard to the fee structure on the OneAccount and potential regulatory visibility or clarity I guess, we saw revenue down about 6% of account basis this quarter. Are we kind of reaching a level where you feel there is equilibrium between where the business is profitable for Higher One and will you think the regulatory environment will let you sort of set pricing ultimately?

[Marc Sheinbaum:]

It's really hard to characterize that at all with everything in play on the regulatory side. So I don't want to say we reached any equilibrium level at this stage.

[Andrew Jeffrey:]

Do you think the declines are decelerating?

[Chris Wolf:]

Andrew, its Chris, I too eco Marc's point, I still think [Technical Difficulty] and fluid situation, I mean when we were looking at 2015, mostly anticipation that we talked about in giving the guidance and the decline were really anticipated in the second half of the year. I mean, we've seen trends, the macro trends and as selection rates as well with us on the decline but, I think most of the things we had anticipated would happen in the second half and I would eco Marc's point, it's unclear at this point exactly when we’ll leave, if I can use that term equilibrium will occur.

[Andrew Jeffrey:]

Okay. I appreciate the greater disclosure in terms of line of business profitability. I see that you're just at this point giving us Q1 versus Q1 and perhaps we can get some historical quarterly data but as you look at the full year for EBITDA by line of business, how does that change recognizing that there is pretty material seasonality in your business, should we see disbursements profitability go down versus where it is in the first quarter. How does that fluctuate?

[Chris Wolf:]

Yes, Andrew its Chris again, let me answer that, I mean I think that first of all, stepping back, we did give guidance for 2015 and I wanted to stay away from talking in pure quarterly splits here. But as -- as directionally to your point, historically both disbursements and payments experienced a decline in Q2 because there was no real enrollment period in that quarter. So, I don't expect that trend to stop, quite frankly I do expect that to be the norm as far as Q2 and then Q3 and Q4 would probably reflect a more historical pattern with the caveat of what I just talked about that we still have a dynamic situation with fees and other changes going on, so that's how I’d anticipate playing out the rest of the year.

[Andrew Jeffrey:]

And one last one from me, Chris, can you tell me what percentage of the account revenue is interchanged this quarter?

[Chris Wolf:]

Well, I can go back to the standard line there Andrew, it's really between 40% and 50% that is really, that's the guidance or the color we've given historically and that trend has continued. What I can tell you is, it has not really fluctuated from prior periods, [indiscernible].

[Andrew Jeffrey:]

Okay. Thank you very much.

[Operator:]

Thank you. Your next question comes from the line of Gary Prestopino, go ahead please Gary.

[Gary Prestopino:]

Hey, Marc, Chris, how are you doing?

[Marc Sheinbaum:]

Hey, Gary.

[Chris Wolf:]

Good morning.

[Gary Prestopino:]

Good. Mack, you mentioned something about the San Francisco Federal Reserve is doing similar issue that the Chicago Federal Reserve is doing here with the -- in terms of the ultimate amount that you could be fined I guess is the word. Does that change that you have two different Federal Reserve districts attempting to fine you?

[Marc Sheinbaum:]

I am sorry, I didn't mean to interrupt you. Just to clarify, so the Federal Reserve was what we've had previously. This is the FDIC, not the Federal Reserve. So it's not two different regional offices of the Federal Reserve.

[Gary Prestopino:]

Okay, then I am sorry, I was mistaken. And then in terms of the negotiator rule making, that is slated to start this summer again, the committee first meets and then we were still on track for something announced in September.

[Marc Sheinbaum:]

Yeah. My understanding of the process is that that’s not another negotiator rule making. They actually would publish rules, at this stage there would be a commentary which could last I guess anywhere between here from 30 to 60 days and then they go back and identify what they are actually ultimately going to publish. And our understanding is that if that gets published by November 1, 2015, then any new rules that came out of that would have to be implemented by July 2016. So there is no -- I don't there is a re-gathering of the negotiators, it's more of they publish something and we can go in and have comments on them.

[Gary Prestopino:]

Okay, thank you.

[Marc Sheinbaum:]

Thank you.

[Operator:]

Thank you. Your next question comes from the line of Mike Grondahl. Go ahead, please.

[Mike Grondahl:]

Yeah. The retention or the resigning of the 700,000 SSEs, was that on similar terms or can you just kind of describe any concessions you had to do to sign those?

[Marc Sheinbaum:]

Yeah, I think I can't -- I am trying to – we don’t have the details on all of that. I think they are largely on some of our terms. We certainly had few that were heavily negotiated, but they were largely only similar terms.

[Mike Grondahl:]

Okay. And what kind of feedback have you been getting on the new features that you are offering. I assume you've tested that a little bit. Is this something that you think can drive penetration a little bit higher or is this just a -- we need to sort of offer these features that kind of maintain penetration?

[Marc Sheinbaum:]

Yeah. Look, it’s a good question to know what the ultimate impact is going to be on account penetration. I think we have done a lot of -- we've done extensive quantitative and qualitative research with students across the country that help us design what the product features that were important to them. We sat down with school administrators, because clearly we are selling for them first and they've got to feel good that we are providing something that's important that they agree will be critical to their students. And I think I’ve said on previous calls financial literacy is top priority for everybody, even for students. So it really was designed with the entire -- all of our customer groups in mind and our intention is to launch it in the fall and we will find out, right. But that – so that is kind of how it goes with marketing. We haven't launched this to kind of see what people' reaction will be in the actual sales cycle of the account, but we are pretty excited about it, but there is obviously -- a lot of those things that will go into people’s -- which choice they select, but we've spent a lot of time and energy on making sure that we are listening to customers and then designing this the right way.

[Mike Grondahl:]

Got it. And then outsourcing the customer care center, was that the largest opportunity to save costs or to streamline things and are there other things you are considering?

[Marc Sheinbaum:]

Yeah, it's Mark again. It certainly was one of the most significant cost areas that we had and so we put a lot of focus and attention on that across the team. Tough call, but we -- it is significant cost savings for us and it does have the additional benefit of improving our, we think it's going to improve our service and our technology, but as we've said on our calls, we have to look at everything and we will continue to look at everything, but that was -- the reason we looked at that one, it was one of our more significant cost, absolutely.

[Mike Grondahl:]

Okay. And then just lastly, I didn't quite catch your prepared comment about some Campus Solution customers were being converted in the payments business line, can you just repeat that? I didn't quite get it.

[Marc Sheinbaum:]

Sure. I'll try to elaborate that. So we are running two platforms right now within our environment and because we basically brought the Campus Solution system in to our environment that was the most important conversion we did when we acquired the business. It's basically decoupled from Sallie Mae and any other outside parties. So it's all in our environment. Now, we've got to move them over to our CASHNets, we feel a lot of these invest with, that product is more robust, that's why we're making all our investment and clearly we can't run two platforms from a cost perspective going forward. So that does require the clients to go through a conversion process. So it's -- we loved it to be to pull the switch and they go over, but it's not that simple. So that was the stress point that I was mentioning in my prepared remarks, that we're working that real hard, but anytime you introduce conversion and get IT resources involved on both sides, it creates trust points. Resource allocations, different ways of doing business. So that was what I was referring to.

[Mike Grondahl:]

Okay. Thank you.

[Marc Sheinbaum:]

Thank you.

[Operator:]

Thank you. The next question comes from the line of Michael Tarkan. Go ahead please, Michael.

[Michael Tarkan:]

Thanks for taking my question. Just a quick one here, getting back to the San Francisco issue again, it sounded like this was a little new, but is it fair to say that the only real new development here is that they're in fact recommending an enforcement action. Like I guess I'm trying to understand why the exposure is still $70 million and whether you're already accounting for that within that number?

[Marc Sheinbaum:]

I think your characterization was correct, Michael.

[Michael Tarkan:]

Perfect. Thank you.

[Operator:]

Thank you. There are no further questions in the queue. Okay. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.

[Marc Sheinbaum:]

Okay. Thank you very much everybody. Appreciate your participation today. We will see you next time.