HealthEquity Reports Third Quarter Ended October 31, 2020 Financial Results

Highlights of the third quarter include:

• Revenue of $179.4 million, an increase of 14% compared to $157.1 million in Q3 FY20.
• Net income of $1.8 million, with non-GAAP net income of $32.2 million, compared to net loss of $21.3 million and non-GAAP net income of $30.3 million in Q3 FY20.
• Net income per diluted share of $0.02, with non-GAAP net income per diluted share of $0.41, compared to net loss per diluted share of $0.30 and non-GAAP net income per diluted share of $0.43 in Q3 FY20.
• Adjusted EBITDA of $61.1 million, an increase of 10% compared to $55.5 million in Q3 FY20.
• 5.5 million HSAs, an increase of 9% compared to Q3 FY20.
• $12.4 billion Total HSA Assets, an increase of 19% compared to Q3 FY20.
• 12.5 million Total Accounts, including both HSAs and complementary CDB accounts, the same as in Q3 FY20.

DRAPER, Utah, Dec. 07, 2020 (GLOBE NEWSWIRE) -- HealthEquity, Inc. (NASDAQ: HQY) ("HealthEquity" or the "Company"), the nation's largest health savings account ("HSA") non-bank custodian, today announced financial results for its third quarter ended October 31, 2020, compared to its prior quarter ended October 31, 2019. The third quarter of fiscal 2020 reflects two months of WageWorks' results.

"HealthEquity provided another quarter of growth and profitability," said Jon Kessler, President and CEO of HealthEquity. "Our team helped members open over 104,000 new HSAs this quarter, growing membership organically by 11% year-over-year, with HSA assets growing by more than $200 million, or 19% year-over-year. Total accounts held steady at 12.5 million despite 0.6 million commuter accounts being suspended as more participants began working from home due to COVID-19. Revenue grew by 14% to $179 million, overcoming a nearly 40% decrease in commuter revenue, and adjusted EBITDA grew 10% to $61 million in the quarter, producing a 34% margin during the pandemic. We are pleased with how quickly the team has adjusted during this time and look forward to finishing this fiscal year strong, positioning us for further growth next year."

Third quarter financial results

Revenue for the third quarter ended October 31, 2020 of $179.4 million grew 14% compared to $157.1 million for the third quarter ended October 31, 2019. Revenue this quarter included: service revenue of $104.6 million, custodial revenue of $48.5 million, and interchange revenue of $26.3 million.

HealthEquity reported net income of $1.8 million, or $0.02 per diluted share, and non-GAAP net income of $32.2 million, or $0.41 per diluted share, for the third quarter ended October 31, 2020. The Company reported a net loss of $21.3 million, or $0.30 per diluted share, and non-GAAP net income of $30.3 million, or $0.43 per diluted share, for the third quarter ended October 31, 2019.

Adjusted EBITDA was $61.1 million for the third quarter ended October 31, 2020, an increase of 10% compared to $55.5 million for the third quarter ended October 31, 2019. Adjusted EBITDA was 34% of revenue compared to 35% for the third quarter ended October 31, 2019.

Account and asset metrics

HSAs as of October 31, 2020 were approximately 5.5 million, an increase of 9% year over year, including 302,000 HSAs with investments, an increase of 54% year over year. Total Accounts as of October 31, 2020 were 12.5 million, including 7.0 million consumer-directed benefit ("CDB") accounts.

Total HSA Assets as of October 31, 2020 were $12.4 billion, an increase of 19% year over year. Total HSA Assets included $9.0 billion of HSA cash and $3.4 billion of HSA investments. Client-held funds, which are deposits held on behalf of our Clients to facilitate administration of our CDBs, and from which we generate custodial revenue, were $0.8 billion as of October 31, 2020.

New HSA openings and HSA asset balances

HealthEquity reported sales of 104,000 new HSAs in the third quarter ended October 31, 2020, compared to 129,000 in the third quarter ended October 31, 2019. HSA members grew their cash balances by approximately $46.0 million during the quarter, while total member balances increased by approximately $229.0 million due primarily to decreased spending per HSA and appreciation of invested balances.

WageWorks integration

HealthEquity completed its acquisition of WageWorks on August 30, 2019. We have identified opportunities of approximately $80 million in annualized ongoing net synergies to be achieved by the end of the fiscal year ending January 31, 2022, of which approximately $55 million have been achieved as of October 31, 2020.

Business outlook

For the fiscal year ending January 31, 2021, management expects revenues of $725 million to $731 million. Its outlook for net loss or income is between net loss of $5 million and net income of $2 million, resulting in net loss of $0.07 to net income of $0.02 per diluted share. Its outlook for non-GAAP net income, calculated using the method described below, is between $116 million and $121 million, resulting in non-GAAP net income per diluted share of $1.55 to $1.61 (based on an estimated 75 million weighted-average shares outstanding). Management expects Adjusted EBITDA of $232 million to $238 million.

See “Non-GAAP financial information” below for definitions of our Adjusted EBITDA and non-GAAP net income. A reconciliation of the non-GAAP financial measures used throughout this release to the most comparable GAAP financial measures is included with the financial tables at the end of this release.

Conference call

HealthEquity management will host a conference call at 4:30 pm (Eastern Time) on Monday, December 7, 2020 to discuss the third quarter 2021 financial results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 4225999. A live audio webcast of the call will also be available on the investor relations section of our website at http://ir.healthequity.com.

Non-GAAP financial information

To supplement our financial information presented on a GAAP basis, we disclose non-GAAP financial measures, including Adjusted EBITDA, non-GAAP net income, and non-GAAP net income per diluted share.

• Adjusted EBITDA is adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration and acquisition-related costs, gains and losses on marketable equity securities, and other certain non-operating items.
• Non-GAAP net income is calculated by adding back to GAAP net income (loss) before income taxes the following items: amortization of acquired intangible assets, stock-based compensation expense, merger integration and acquisition-related costs, and gains and losses on marketable equity securities, and subtracting a non-GAAP tax provision using a normalized non-GAAP tax rate.
• Non-GAAP net income per diluted share is calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.

Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. We believe that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the Company's financial condition and results of operations. The Company cautions investors that non-GAAP financial information, by its nature, departs from GAAP; accordingly, its use can make it difficult to compare current results with results from other reporting periods and with the results of other companies. In addition, while amortization of acquired intangible assets is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is not excluded. Whenever we use these non-GAAP financial measures, we provide a reconciliation of the applicable non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed in the tables below.

About HealthEquity

HealthEquity administers Health Savings Accounts (HSAs) and other consumer-directed benefits for our more than 12 million members in partnership with employers, benefits advisors, and health and retirement plan providers who share our mission to connect health and wealth and value our culture of remarkable “Purple” service. For more information, visit www.healthequity.com.

Forward-looking statements

This press release contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our industry, business strategy, plans, goals and expectations concerning our markets and market position, product expansion, future operations, expenses and other results of operations, revenue, margins, profitability, acquisition synergies, future efficiencies, tax rates, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “may,” “believes,” “intends,” “seeks,” “aims,” “anticipates,” “plans,” “estimates,” “expects,” “should,” “assumes,” “continues,” “could,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this press release.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to be correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, risks related to the following:

• the impact of the ongoing COVID-19 pandemic on the Company, its operations and its financial results;
• our ability to realize the anticipated financial and other benefits from combining the operations of WageWorks with our business in an efficient and effective manner;
• our ability to compete effectively in a rapidly evolving healthcare and benefits administration industry;
• our dependence on the continued availability and benefits of tax-advantaged health savings accounts and other consumer-directed benefits;
• our ability to successfully identify, acquire and integrate additional portfolio purchases or acquisition targets;
• the significant competition we face and may face in the future, including from those with greater resources than us;
• our reliance on the availability and performance of our technology and communications systems;
• recent and potential future cybersecurity breaches of our technology and communications systems and other data interruptions, including resulting costs and liabilities, reputational damage and loss of business;
• the current uncertain healthcare environment, including changes in healthcare programs and expenditures and related regulations;
• our ability to comply with current and future privacy, healthcare, tax, ERISA, investment adviser and other laws applicable to our business;
• our reliance on partners and third-party vendors for distribution and important services;
• our ability to develop and implement updated features for our technology and communications systems and successfully manage our growth;
• our ability to protect our brand and other intellectual property rights; and
• our reliance on our management team and key team members.

For a detailed discussion of these and other risk factors, please refer to the risks detailed in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the fiscal year ended January 31, 2020, as updated by our Quarterly Report on Form 10-Q for the quarter ended July 31, 2020, and subsequent periodic and current reports. Past performance is not necessarily indicative of future results. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.

Investor Relations Contact
Richard Putnam
801-727-1209
rputnam@healthequity.com

Stock-based compensation expense (unaudited)

Total stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive income (loss) is as follows:

(1) HSA Assets that generate custodial revenue.
(2) HSA Assets that do not generate custodial revenue.

(1) Client-held funds that generate custodial revenue.

(1) The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations. The normalized non-GAAP tax rate applied to each period presented was 25%. The Company may adjust its non-GAAP tax rate as additional information becomes available and in conjunction with any other significant events occur that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other changes in expectations regarding tax regulations.

(2) Non-GAAP net income per diluted share may not calculate due to rounding of non-GAAP net income and diluted weighted-average shares.