Meta Data Limited
Q2 2014 Earnings Call Transcript

Published: 7 Aug 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q2 2014 Higher One Holdings Inc. Earnings Call. My name is Gemma, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Kevin Leblanc, Director of Investor Relations. Please proceed, sir.

[Kevin Leblanc:]

Thank you, Gemma. Good morning, everyone, and welcome to be Higher One second quarter 2014 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 the call up for Q&A. There is a slide presentation that accompanies our discussion of the quarter that is available on our was 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 the 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 results 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 conditions, 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 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 contemplated after the date hereof. For further information regarding risk associated with Higher One business, please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the most recent fiscal year end, company 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 nonrecurring or noncash 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 an 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:]

Thank you, Kevin, and thanks to everyone for joining us today. With me on the call is our CFO, Chris Wolf, who will provide our financial update. We also have our Chief Operating Officer, Casey McGuane, to answer questions after our prepared remarks. I've been in this position for almost 4 months, and in my first call, I spoke about the reasons I joined Higher One. I spoke about the assets of the company that included a terrific culture, a loyal client base, a strong suite of products and services and a motivated and talented employee base. Today, I am more certain about these sentiments than on the day I joined. However, with the regulatory uncertainty and some of the negative attention about the company, it's clearly been a challenging time. But I think you'll see from our second quarter results that our people continue to stay focused on the business and that the company continues to perform. Chris and I will go over the numbers in a few minutes. I've spent a lot of my time over the past few months meeting with colleges and universities, employees, consumer advocacy groups, bank partners and of course, meeting with our regulators. And I've had a very constructive dialogues with all, and I've come away with several important observations

[Christopher W. Wolf:]

Great. Thanks, Marc. At this point, I'll begin the discussion of our financial results for the quarter, starting on Page 8 of the accompanying slide presentation. Please remember that all growth rates I mention will be year-over-year, unless otherwise specified. Turning to Slide 8. Gross revenue for the second quarter was $45.5 million compared to $40 million during the second quarter last year, an increase of 13.6%. Net revenue was impacted by an $8.75 million allowance for customer restitution. We have recorded this amount as the minimum to cover the potential restitution for all of the OneAccounts including those at our bank partners regulated by both the Federal Reserve and the FDIC, with respect to the Federal Reserve matter that Marc previously discussed. For comparison purposes during the remainder of my presentation, I will refer to gross revenue. I will get into more detail on the drivers of our revenue changes on the upcoming slides. We have gross profit margin, excluding the impact for allowance for customer restitution, of 53.6% in the second quarter of 2014, compared to 55.3% last year. Gross margin in absolute dollars increased over the same period last year due to the addition of our new businesses along with strong performances from both SmartPay and Campus Labs, offsetting lower-margin in Refund Management. The year-over-year change in gross profit margin this quarter was due to higher cost to support the ongoing Refund Management and OneAccount services. In addition, we incurred additional volume-related merchant expenses as a result of the increased transaction count in volumes related to SmartPay, which as I just mentioned, continue to perform well. Although the payments business has gross margins that are less than account revenue, as we grow revenue from our payments products, we've been able to increase both profit and margin on our organic payments business year-over-year on certain types of convenience fees payment transactions. Turning to Slide 9. Account revenue increased 1.5% from the prior year, which was due to higher amounts deposited and spent in OneAccounts, which resulted in increased interchange in service fees. Account revenue now comprises 58% of gross revenue. We continue to diversify revenue our streams. Payment transaction revenues showed strength in the quarter, up approximately 62% over last year. During the quarter it comprised 22% of gross revenue, compared with 15% last year. The increase in payment transaction volume was primarily due to the strong revenue growth in SmartPay, which was discussed earlier. Higher Ed institutional revenue grew 17% year-over-year and now comprises 20% of gross revenue, driven mainly by Campus Labs revenue and also from revenue associated with the Campus Solutions business. The increase in Campus Labs revenue was due to a combination of fair value adjustments in deferred revenue, which reduced revenue during second quarter 2013, and year-over-year increases in client billings. We also had an increase in subscription revenue for our payment cost -- payment processing products due to a combination of new client sales as well as additional sales to existing schools. Moving to Slide 10. In general and administrative expenses, we had higher employee-related expenses due in part to increases in a number of employees brought on board through our acquisition last year. We also saw an increase in professional fees related to additional compliance and regulatory activities and to a lesser extent, due to increases in depreciation and amortization. The decrease in product development cost was primarily driven by 2 items. First, there was an increase in capitalized software development cost. Second, there was a decrease 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 cost decreased in the current period, we expect such cost to continue to be at elevated levels throughout the integration, which will continue into 2015. We are now in the critical phase of the transition to Higher One of the Campus Solutions business. The transition service agreements will conclude at the end of the fourth quarter, and we expect all products and services to be on our systems. Sales and marketing expense was higher in the quarter, primarily due to increased personnel cost and higher acquisition-related to amortization expense, partially offset by reduced sales support costs. However, due to the increase in revenue in the current period, sales and marketing expense came in at a lower percent of revenue as compared to last year. Turning to Slide 11, you'll see that adjusted EBITDA was $7.2 million compared to $5.9 million last year. The increase was driven by higher gross margin dollars and offset by higher operating costs. Moving to Slide 12. Our adjusted diluted EPS [indiscernible] $0.05 [ph] . In addition to the revenue expense items already mentioned, adjusted EPS was impacted by higher depreciation and amortization expenses in the current period. The second quarter was a solid quarter for Campus Solutions, as it contributed revenue of $2.7 million. On a non-GAAP basis, Campus Solutions was essentially breakeven. We received $1.6 million as a result of an the agreement related to the resolution of certain escrow balances that were part of acquisition in the Campus Solutions business. This amount is reflected in other income and excluded from adjusted net income. Slide 13 shows that our free cash flow increased to $7 million from the prior year quarter of negative $9.4 million. This was largely due to positive changes in working capital. Turning to Slide 14. We ended the quarter with a cash balance of $18.3 million. We now have $94 million drawn on our line of credit. One of the financial covenants in the credit facility relates to a requirement to have a minimum of $50 million of trailing 12-month EBITDA as defined by the credit agreement. As of June 30, our trailing 12-month EBITDA, as defined was, $52 million. Let me cover the impact of the pending regulatory matters on our credit facility and liquidity sources. As Marc mentioned, we recorded an allowance for potential customer restitution of $8.75 million during the quarter. This charge reduces our EBITDA based on the definitions in our credit facility although the ultimate amount of restitution or civil money penalties are subject to many uncertainties and, therefore, impossible to predict. It is reasonably possible that amounts could reach levels that could cause an event to default under the credit facility. In addition to the $50 million minimum EBITDA threshold, a settlement with regulatory authorities exceeding $10 million could cause a default under the other covenants in the credit facility. We believe that our cash flows from operations, together with existing liquidity sources, will be sufficient to fund our operations and anticipated capital expenditures over the next 12 months. However, it is possible the amounts that we are required to pay related to these regulatory matters could reach levels that would exceed our available cash flows from operations and existing liquidity sources available through our credit facility. In that case, we would seek additional forms of financing or other sources of liquidity to supplement our existing liquidity sources. It is possible that the charge could be of such magnitude that it would cause an event to default under our credit facility. In the event of a default, depending on the amount loss, we believe that we may be able to obtain relief under certain of our current covenants. However, there can be no assurance we would receive an amendment or a waiver. If there is an event of default under our credit facility, the amounts then outstanding may be immediately due and payable. In such an event, we may seek -- we may need to seek alternative forms of financing or other sources of liquidity in order to repay the amount outstanding under our credit facility, but there can be no assurances that such alternative forms of financing or other sources of liquidity would be available to us on favorable terms or at all. Moving to the last slide, Slide 15. We have previously discussed our views on what impacted sales in the second quarter of 2014. The Refund Management SSE growth rate was 7% on a year-over-year basis ended June 30, 2014. Also previously discussed, a good portion of this growth has been driven by the conversion of Campus Solutions' refund clients. Looking at the number of OneAccounts, you'll see that it decreased approximately 4% year-over-year. This decrease is a result of closing nearly 100,000 accounts, which had minimally overdrawn balances. In summary, we realized we've given you a lot of information today. As we stated, there are still uncertainties to the timing of decisions by the Department of Education and the matters relating to the Federal Reserve. However, our team continue to perform well despite the challenging environment. This concludes our prepared statements. And with that, we'll take your questions. Operator?

[Operator:]

[Operator Instructions] The first question comes from the line of Andrew Jeffrey, SunTrust.

[Andrew W. Jeffrey:]

Chris, could you elaborate just a little bit on the current period allowance for restitution, the $8.8 million versus the potential ultimate exposure of $70 million and sort of how you came to the $8.8 million number and sort of where we go from here and also in the context of potential covenant relief should total restitution exceed $10 million or certainly, in worst case approach the $70 million line number out there?

[Marc Sheinbaum:]

Andrew, it's Marc. Let me take the first half and I'll turn to Chris for the second half. So I think -- so it's -- we're in active discussions with the Federal Reserve and it's difficult to go into a lot of details about the basis of the $8.75 million versus the other amounts. I think we've put something forward. And I think that's -- as I said, we're in active conversations right now, so you have to just understand we can't go into a lot of detail about that. How we calculated it or where we are. Once we put it out there, we know that we're required to disclose, to take a charge and go forward with that. So, Chris, why don't you talk about the covenant?

[Christopher W. Wolf:]

Sure, Marc. Andrew, as Marc said, we can't really give details about how we came to the number, but what I can tell you is that as far as financing or liquidity, I'm trying to anticipate all alternatives here. Obviously, if we're towards the $8.8 million that Marc talked about, that's well within the confines of what we can do now. But if the number were to increase, as I mentioned in my prepared remarks, that we would have to look for alternative sources of financing. Primarily, I'm working with my current bank group, I'm in communication with them. The dialogue has been very good. And they are working very closely with us. And so we have a good dialogue. So that's the preferred route. If the number becomes large enough and we disclose, there are ranges here, we might have to look for other sources, and we've been exploring those options. So at this point, I would say I'm cautiously optimistic but obviously, things change. And so we're working with the group and other primary lenders that could help us in those situations.

[Andrew W. Jeffrey:]

And then with regard to the adoption rate, I think you mentioned what, there were a number of OneAccounts, I missed the number, I think they were closed to, you said, minimally overdrawn balances? I'm just trying to understand that. And whether the low 40s is probably a correct new adoption rate going forward?

[Christopher W. Wolf:]

Yes. So, I'll take that, Andrew. This is Chris again. As far as the accounts, we periodically will close accounts that either have low or no activity here, either be it 0 balance or in this case negative balance account. So we did that this quarter, and we closed about 100,000 accounts. So that's just part of the periodic cycle and that's why you saw the decrease in accounts there. As far as adoption rates, what I would say there, and I think this is something that we've been talking about there, is that we're looking at creating total value for the account, right? And not necessarily homing in on what necessarily adoption rates are. The one thing I would mention as we transition the Sallie Mae business on there, that does affect the numbers little bit as it's the way we market it to folks, so it's a little bit different there and there will probably be some changes in the short term. But I do really want to emphasize, we're really trying to create a value proposition for the account and getting more dollars deposited in the account, including non-refund deposits as well.

[Andrew W. Jeffrey:]

Okay. And then with regard to expenses, especially as we look at the G&A, which is the largest component, are we at a pretty good run rate right now? And in light of likely changes to your OneAccount business, the timing of which, obviously, is uncertain at this point, given Department of Education, are there cost cuts that you're contemplating going forward?

[Christopher W. Wolf:]

This is Chris again. I'll start on that. And look, I think the situation here, obviously, is it's a fluid situation. Everything we talked about from the debt to other issues, there are fluid situations, and the circumstances evolve, and same with cost. What I'd say in the near term, probably the biggest focus that we have really is with the Campus Solutions integration. We're going to incur costs there in the near term but, ultimately, our goal was to take those costs out, so with all -- or a majority of those costs. So with all the things that are going on, our -- the integration of Campus Solutions is still a big project going on here, and that's where we are looking for cost reduction there. But in the near term, I would say, look, we are spending a fair amount on compliance and legal fees. So obviously, we're incurring those in the near term as we manage our way through the issues. But I do want to reemphasize, part of our job is to manage the business. And as things change, we will try to adjust the cost structure, if necessary. I mean, that's really a little bit speculative, but we are trying to manage those costs. But we are running the business in the near term, and we'll adjust accordingly.

[Operator:]

Your next question comes from the line of David Scharf, JMP Securities.

[David M. Scharf:]

A few things. Maybe to start, just curious on the growth in non-refund deposits. Can you give us a little more color there in terms of where you suspect the sources of those are coming from? And also, whether or not those non-refund deposits, any of them are coming from account holders who have subsequently graduated?

[Marc Sheinbaum:]

I think we are having a lot of marketing activity against existing accounts to show them the benefit of the account. And I think, some of those, all the activity is starting to show some promise but I think, we are excited about some of the plans we have down the road. And clearly, our goal is to see people staying with the account after they graduate and be able to use it as an account beyond their use in school. And I don't want to characterize that a lot of that is coming from there yet. It's still early in our process. But I think, the reason we highlighted here is it is an important part of where we are trying to go and we are spending time on it. And I think, hopefully, in future calls we can talk about more of the specific actions that we are taking and plan to take, and again as Chris said, it's really more about the value proposition of the product that will get people to see why they want to put more money on the card and use it.

[David M. Scharf:]

Got it. Switching over to the DOE. Obviously, it remains to be seen whether or not they'll issue anything by November 1. Obviously, there wasn't full consensus. Our understanding from some of the members of the committee were that maybe some of the issues that consensus hadn't been reached on really weren't potentially that material to your business. I'm just curious, as far as the -- your understanding of those issues that was agreement on that related to Higher One specifically, things like direct consumer marketing and the like. Do you feel you comfortable that you're already putting into place business practices particularly, on the marketing side that at the end of the day are likely to conform with what new rules?

[Marc Sheinbaum:]

I -- clearly, when Casey was part of the negotiating sessions there, and I think if you look at the iterations along the way, I think it did show good progress, and we felt that the place where we were trying to get to with the other people at the table was a place that would allow us to continue to provide our service to schools and to students. And we -- but we also recognized we have a lot of work to do because we need to give you some clarification, direction on what does all that mean. And so we are working on some of those things now to put into place. Some of it will be in pilot because we want to understand different options for some of those things. Some of those we're working on because we -- no matter what comes up, as you said, we're going to go in that direction. So for example, we have put an RFP out for ATM, a national ATM that -- we think that's the right thing to do. And it was part of the negotiated sessions that was part of consensus. We're going to go take our best shot at that and look at those pieces and there are other aspects to that came out of this. So again, it's a fluid piece. As you know, it was not reached via consensus but we did -- we were encouraged by where discussions ended up. And we do think that gives us a basis for continuing the product and doing a lot of different iterations. One thing I will say is that some of the -- I mentioned in my remarks, some of the things that we're doing anyway will also give us a lot of learnings towards what the impact of some of the Department of Education final rules are. Because there are some schools who have also -- had asked for different options in how we present the options to the students in our marketing. So it all kind of lines up in the same direction. So we -- in some cases, we have to wait because it is -- we you don't know the -- all the give-and-take of the final rules. In some cases, we are moving forward.

[David M. Scharf:]

Got it. Just 2 more questions. One just to clarify. Marc, based on just the regulatory overhang right now. Did I hear you say that it was advisable for us to not consider really much in the way of any incremental SSE growth in the second half on the modeling front?

[Marc Sheinbaum:]

Yes, I think, again, we just wanted to make sure that everybody was aware that we are seeing issues in closing sales. We're having great conversations with prospects. Doors are open. By the end of the day, I think there's enough uncertainty out there that people are -- well, not everybody because we are closing sales. But the pace is definitely slower than we would've expected. But I guess, again, given the overhang right now, we're not sure when that's going to clear. And we are hoping that -- and again, we don't -- the timeline is uncertain too. So I think, that's why we are just saying we don't know -- we know how to -- we don't know if it's good, we're going to see that far anytime soon. So I think, we will sign clients. I think we expect the sign clients, but I think the pace is going to be slower than we would've expected in more certain times.

[David M. Scharf:]

Got it. And a little more sensitive question. I mean, obviously, more of a no-name basis. But just sort of curious about the status of your relationships with your bank partners going forward. And specifically, traditionally, Higher One's kept the bulk of the -- has kept all the interchange, really all the fees, what was in it for the banks were access to these balances. And given, clearly, a different operating environment with the regulatory overhang and the lack of SSE growth, it's different than what the banks originally thought they were getting into. I mean, is there -- are there any discussions being set forth by your bank partners that perhaps they want a little more cut of the fess in exchange for the lack of balance growth or -- and maybe you can also update us on just when the current contracts end?

[Marc Sheinbaum:]

Yes. I guess, I would characterize that we're not in any kind of negotiations, active negotiations with the bank partners. We are in very active discussions with them every day. We have very strong open dialogues with them. They spent a lot of time with us, looking at our practices and -- as they should. And so at this stage, I think we continue to have very active dialogues about our operation today and how we continue to evolve it. But there is no active negotiations along the way that you're describing.

[Operator:]

Your next question comes from the line of Mike Grondahl, Piper Jaffray.

[Michael J. Grondahl:]

First one, just the $8.75 million of restitution, did you guys say that, that was for both the Federal Reserve and the FDIC. Did I hear that?

[Marc Sheinbaum:]

Yes, you did hear correctly. We've -- we believe that while we are in discussions with the Fed, that it's -- it would be prudent to look at the FDIC account at the same time.

[Michael J. Grondahl:]

Okay. I just wanted to make sure I heard this right. How are you thinking really about the growth rate going forward for the payment transaction business in the Higher Ed revenue?

[Christopher W. Wolf:]

Yes Mike, it's Chris. So what I would tell you right now, I mean, first of all, I want to caution we're not giving direct guidance at this point. But what I would tell you is look at, first of all, we've had the addition of the business coming over from Campus Solutions, which has really been a boon for us. I mean, payment business there has been great. We've also done on our organic business here as we've managed, talking about CASHNet and the SmartPay module, in particular, has done quite well for us. So I would say, though, to be fair, that we've had a little bit of inorganic growth coming from Campus Solutions and some of the payment modules that we use in CASHNet. In particular, SmartPay have given us additional growth this year, pretty good growth rates. We're adding schools, but I guess I'd be a little bit cautious that if we're going to grow at the same type of rate that we did in 2014, primarily because the Campus Solutions acquisition will annualize this year. So it does make the comparables a little bit harder as we go into 2015. But the message I do want to send, stepping back though, we're very bullish on the business, we're very positive about it, we're putting a lot of effort against it we think we have a great solution especially bringing Campus Solutions together. And as you can see, it's becoming a bigger part of the business and I'd like to say, that it will become a bigger part of the business as it grows on itself.

[Michael J. Grondahl:]

Okay. And did you guys disclose your legal fees in the quarter?

[Christopher W. Wolf:]

No, we didn't specifically break those out, Mike. I mean, I can say directionally, obviously they've gone up because, obviously, we've had to incur legal fees related to attorneys and professional fees related to all the regulatory matters and -- or working with the Department of Education. But that -- we don't consider them onetime.

[Michael J. Grondahl:]

Were they over $1 million in the quarter?

[Christopher W. Wolf:]

That's just something I really don't want to comment on.

[Michael J. Grondahl:]

Okay. And then I understand your comments on the core OneAccounts and sort of what's going on there, but when do you expect to begin to turn on some of the Campus Solutions OneAccounts? Is there a decent chance, you can do any of that this fall? Or is that all pushed into 2015?

[Christopher W. Wolf:]

No, Mike. Because as we've talked about converting the 460,000 plus SSE, we've been converting them. The first real push will be in the fall. Where we'll actually activate those things and start to go through the fall refund season. So we will start to see some activity on the revenue side in Q3 here as we go through the fall period.

[Michael J. Grondahl:]

Okay. And then in terms of the 100,000 OneAccounts that you closed, was there any or little revenue associated with those accounts?

[Christopher W. Wolf:]

No, they've been inactive for quite a period of time, right? And had balances below 0. So they weren't generating any fees, so there really wasn't any fee activity related to those accounts in the current period. Am I clear? I'm not sure, I -- but that's the answer, I don't know if you got the answer.

[Michael J. Grondahl:]

Yes, no I heard. Basically, you said no revenue associated with...

[Christopher W. Wolf:]

No revenue, that's right.

[Michael J. Grondahl:]

And then, I guess, I'm sorry, one last question. Going back to $8.75 million, should we think of that as restitution to customers and we still need to decide what the penalty is, if you will, or the fine to the Fed and FDIC or where would you draw the line that the $8.75 million takes care of?

[Marc Sheinbaum:]

Yes, this is Marc again. Again, I think we prefer not to add any more color to the $8.75 million. I think we've explained why. It's in active discussions at this point.

[Operator:]

The next question comes from the line of John Rowan from Sidoti & Co.

[John J. Rowan:]

I have to ask a follow-up to the last question. Does the $8.75 million include a civil penalty expectation because, obviously, your bank partner was fined $4 million for the same action that you're being investigated for?

[Marc Sheinbaum:]

Look, I don't know -- I apologize but we cannot really comment any further on the $8.75 million. We've explained what we have, and we'll try to, obviously, provide more information in the future.

[John J. Rowan:]

Okay. And if you were to have a civil penalty, would that also be included in the EBITDA calculations that go against your debt covenants as well?

[Christopher W. Wolf:]

Yes, the short answer is yes. I mean, yes.

[John J. Rowan:]

Okay. And then, lastly, the Department of Education rule-making processes. Obviously, November 1 is the deadline for them to get something finalized for to become effective for the 2015 school year. Can you kind of walk back the timing as to when they need to publish something in order to have it out by November 1? I think there's a 60-day comment period, et cetera. Can you just kind of walk back any other statutory periods that we have to be aware of?

[Casey M. McGuane:]

Sure, John. This is Casey. Our understanding is again, that November 1. So backing up, there is a 60-day public comment period, as you mentioned. And those are really the only 2 periods that to our understanding that we're aware of at this point. So being August right now it's, I guess, still possible but it's -- if anything happens by November 1, it would be in effect for July 1 of 2015.

[John J. Rowan:]

Okay. So basically the end of August is the drop-dead period for them to publish something and put it out for comment?

[Casey M. McGuane:]

I really can't comment on that. All I'm unaware of, in my understanding, it's a 60-day comment period and November 1 is the date.

[Operator:]

The next question comes from the line of Michael Tarkan at Compass Point.

[Michael Tarkan:]

Just I know you said you're still around a 70 -- sorry, a 98% retention rate for the existing relationships. Did you have any campus departures this quarter?

[Marc Sheinbaum:]

Not in the second quarter. No, we did not.

[Michael Tarkan:]

Okay. A couple of other little ones. Campus Labs you mentioned is doing well. Do you have the revenue contribution this quarter?

[Christopher W. Wolf:]

Yes, I guess, right now, Mike, we actually put it in the higher education bucket. We don't break it out from there. We know that people are asking a lot about the businesses and that's something we're considering down the road. But right now, all the revenue, it's the bulk of the revenue that's in the higher education bucket.

[Michael Tarkan:]

Can you sort of provide some color as to the growth year-over-year in that business? Or at least just directionally, is it coming in line or is it maybe a little bit lower than, I know you had aggressive expectations out of the gate with that transaction. I'm just wondering kind of where, how that...

[Marc Sheinbaum:]

Yes, well, I can -- I can talk directionally about it. And you're right, last year we did have some aggressive goals but I think, as the company -- as the Campus Labs business has settled in and worked with us, I think is -- the transition from acquisition, I think last year there were just some what I will call some integration issues, if you will. I do think the way that we position the business now, it's really performing well. The product that we believe is in demand, I mean, there's no doubt about it. But at the same time, we have issues with sales and things like that. But overall, I would characterize where we are right now in the business is that, it's growing over 20% on top line year-over-year so we feel pretty good about that.

[Michael Tarkan:]

Okay. And lastly, on the product development side, can you elaborate a little more on maybe some of the changes you're contemplating for the OneAccount?

[Marc Sheinbaum:]

Yes, I mean, again, the OneAccount itself, I think we're pretty excited about some of the activity that we have. I've sat through market research, and we're really talking to students and understanding what their challenges are, what their needs are. Clearly, we'll try to develop capabilities for them to use the product on mobile phones and tablets. Bill pay is a big part of their challenges, not just paying the bills but managing their cash flow and understanding where they are in a particular time, when they're paying a bill, so we're trying to add some features in there to give them better line of sight and planning tools to do that. And then, as well as some of the financial literacy things I mentioned, so that it actually puts things in place that actually educates them as they use it about better ways to manage their finances. So really, we're trying to build it, Mike, around education and helping them as opposed to just a utility.

[Michael Tarkan:]

Are any fee or marketing changes part of those sort of studies?

[Marc Sheinbaum:]

Yes, we're looking at everything. That's all I can say. We're evaluating the -- everything that you just mentioned.

[Operator:]

The next question comes from the line of Andrew Jeffrey, SunTrust.

[Andrew W. Jeffrey:]

Just as a follow-up. When I look at your revenue per account, Chris, kind of flattish this quarter, I assume that is sort of -- beginning to anniversary some of the fee reductions but also the reduction in the denominator given the closed accounts. Is that -- should we be thinking about that metric as being relatively flattish for the rest of the year?

[Christopher W. Wolf:]

Yes, Andrew, let me once again put the disclaimer as far as forward-looking guidance at this point, we don't say that type -- I do want to be careful about that. The one thing I do want to say is the delinquent account fee annualizes in August of this year. So we still have had that comparison there, so that has made the year-over-year comparables a little more of a challenge for us this year because we did have the delinquent account fee last year. And it stopped, it's the beginning of August 1 there. So that's one thing to keep in mind as we go through the year there. I think, what I would say, just to kind of reiterate the one data point that I can point out to you is that when the Campus Solutions schools come on, and I believe, there's over 300 campuses that are going to come on board in the fall, we would expect there would be an increase in accounts. So that much I can tell you. What's going to happen on the revenue side obviously is -- there are a lot of variables including as we go into the fall period, what enrollment and what financial aid is going to look like as well. So that those will be big drivers on the revenue side. And at this point, as you know, the folks have been around for us for a while, at this point, we don't really know what those trends are going to look like.

[Andrew W. Jeffrey:]

Okay. So safe to say there are some puts and takes that the primary trade-off being between revenue per account and perhaps a little bit of lift from Campus Solutions in terms of the number of accounts?

[Christopher W. Wolf:]

Yes, and that's fair and but I also -- not to kind of reiterate the stump speech again, but we are looking for not only the number of students and accounts and adoption rates. We are looking at volume of dollars through the accounts and getting people to actively use the account to the point that Marc said, again about, on the non-refund deposits as well.

[Andrew W. Jeffrey:]

Okay. And I guess, one last one if I may. Could you help us with the organic revenue is good this quarter. Can you break that out? And just help us with what the non-account organic revenue growth was?

[Christopher W. Wolf:]

Yes, I mean, as it relates to account revenue, the number that really came from Campus Labs was a pretty de minimis number in the quarter. I mean, I think most of the revenue is from our core business. Where the number, and I don't have that handy right now, it's more on the payment side, is where we've seen the numbers that are coming from Campus Solutions on the payment side, that's where it is. But on refund and OneAccount, there really hasn't been much, as far as it relating to the former Campus Solutions. And as I said, I think we'll start to see that number kick in, in Q3.

[Andrew W. Jeffrey:]

Okay. All right. Yes, looks like maybe a point or so then from non- -- or from the account business. Okay.

[Operator:]

The next question comes from the line of David Scharf, JMP Securities.

[David M. Scharf:]

Maybe -- I apologize in advance for this somewhat hypothetical question, but relating to sort of the business model. As it relates to the sales cycle and schools being on hold right now while regulatory issues play out? Just curious, do you have any sense for whether or not a lot of the universities you're in front of right now would be pulling the trigger on signing a contract if you were out of the consumer banking business? I mean, have any of them come to you and say, "OneDisburse, world-class BPO offering looks great. Where do I sign?" as long as you weren't in the OneAccount side of the business. Has there been any kind of considerations of just sort of focusing on the BPO side?

[Marc Sheinbaum:]

Yes, it's a -- as you said, it's kind of a hypothetical question. And I have not heard that, and I'm not in the sales team, but I do speak to customers. And I've not -- definitely not heard that they said, hey, they love the OneDisburse but they would rather not be in the -- seeing the account business. But I will tell you that, as I said earlier, that we are going to look at different options and flexibility in how we sell and market to schools. So we're going to put a lot of different flavors on the table, if you will for our schools. And I think that -- so we'll be able to answer your question a lot better when we see how that plays out.

[Operator:]

The next question comes from the line of Michael Tarkan at Compass Point.

[Michael Tarkan:]

Just one more follow-up. In terms of converting the student account from Campus Solutions to OneAccounts in the fall. Is that an automatic conversion for the students, so basically if you have a Campus Solutions card it will automatically be enrolled into a new OneAccount, or is there a proactive option that he would have to do? And then, as it relates to that, can you just talk about the different fee structure of the 2 cards?

[Casey M. McGuane:]

Mike this is Casey. I'll take that question. Yes, when we're referring to the Campus Solutions transition into the Refund Management it's -- when we refer to that, there's not an automatic transition from the old product to the new. Students would want to make their choice and the choices that would be available to them are those within our disbursement product today. So there is not necessarily a -- an automatic transition at all between Campus Solutions and a refund disbursement process. And therefore, no fee comparison as a result.

[Operator:]

I would now like to turn the call over to Marc Sheinbaum for closing remarks.

[Marc Sheinbaum:]

Thank you, operator. So listen, everyone, I appreciate the time you take -- you took to listen to the call today. We do believe we have a strong understanding of the important role we play for students to get their refunds in the most expedient manner. Our goal is to continue to ensure that all students have a choice of fast, safe, electronic options for receiving their funds and access to low-cost banking options. We also want to strengthen our leading position in providing simple and efficient payment options for families and on campus needs. Higher One is committed to a shared course of success with students in colleges and universities by helping to lower the cost of education, by improving administrative efficiencies and providing students with access to financial literacy and low-cost financial services and improving graduation rates. Thank you. We look forward to speaking with you on our next call.

[Operator:]

Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Good day.