HealthEquity Reports Third Quarter Ended October 31, 2017 Financial Results


Highlights of the third quarter include:

  • Revenue of $56.8 million, an increase of 31% compared to Q3 FY17.
  • Net income of $10.5 million, an increase of 74% compared to Q3 FY17.
  • Net income per diluted share of $0.17 compared to $0.10 in Q3 FY17.
  • Adjusted EBITDA of $21.2 million, an increase of 46% compared to Q3 FY17.

DRAPER, Utah, Dec. 05, 2017 (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, 2017.

"HealthEquity has added more than 740,000 new HSAs and $1.3 billion in custodial assets since the end of the third quarter last year as we added more than 123,000 HSAs in this year’s third quarter, including 14,000 from First Interstate Bank,” said Jon Kessler, President and CEO of HealthEquity. “The 27% third quarter growth in HSAs helped us surpass 3 million total HSAs and drive our custodial assets up 30% to $5.6 billion. Our fully integrated investment platform continues to lead the industry with 73% custodial investment growth in the third quarter and total invested custodial assets at $1 billion at quarter end. With another strong quarterly performance and record year-to-date results, we are narrowing our guidance for fiscal 2018 financial expectations around a higher revenue forecast and confirming our adjusted EBITDA outlook."

Third quarter financial results

For the third quarter ended October 31, 2017, HealthEquity reported revenue of $56.8 million, an increase of 31% compared to $43.4 million for the third quarter ended October 31, 2016. Revenue consisted of:

  • Service revenue of $23.0 million, an increase of 22% compared to Q3 FY17.
  • Custodial revenue of $22.1 million, an increase of 48% compared to Q3 FY17. 
  • Interchange revenue of $11.7 million, an increase of 22% compared to Q3 FY17.

Net income was $10.5 million for the third quarter ended October 31, 2017, compared to $6.0 million for the third quarter ended October 31, 2016.

Net income per diluted share was $0.17 for the third quarter ended October 31, 2017, compared to $0.10 for the third quarter ended October 31, 2016.

Adjusted EBITDA was $21.2 million for the third quarter ended October 31, 2017, an increase of 46% compared to $14.5 million for the third quarter ended October 31, 2016.

HSA Member and Custodial Asset metrics

The total number of HSAs for which we serve as a non-bank custodian ("HSA Members") as of October 31, 2017 was 3.0 million, an increase of 27% from 2.4 million as of October 31, 2016.

Total Custodial Assets as of October 31, 2017 was $5.6 billion, an increase of 30% year over year, consisting of:

  • Custodial Cash Assets of $4.6 billion, an increase of 24% compared to Q3 FY17; and
  • Custodial Investment Assets of $1.0 billion, an increase of 73% compared to Q3 FY17.

Business outlook

We are increasing our business outlook for the year ended January 31, 2018. We are narrowing our revenue outlook from a range between $223.0 million and $228.0 million to a range between $225.0 million and $228.0 million, our net income from a range between $41.0 million and $45.0 million to a range between $43.0 million and $45.0 million, our Adjusted EBITDA from a range between $79.0 million and $84.0 million to a range between $80.0 million and $83.0 million. We also expect our non-GAAP net income to be in a range between $39.0 million and $41.0 million, narrowed from our prior range between $39.0 million and $43.0 million. Our non-GAAP net income is calculated by adding back to net income all non-cash stock-based compensation expense, net of an estimated statutory tax rate of 38%, and the impact of excess tax benefits due to the adoption of Accounting Standards Update ("ASU") 2016-09. Our non-GAAP net income outlook results in a non-GAAP net income per diluted share range between $0.64 and $0.66 (based on an estimated 62.0 million diluted weighted-average shares outstanding), narrowed from our prior range between $0.64 and $0.68.

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 5:00 pm (Eastern Time) on Tuesday, December 5, 2017 to discuss the fiscal year 2018 third quarter results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 2796618. 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 Adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share, which are non-GAAP financial measures. We define Adjusted EBITDA as adjusted earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and other certain non-operating items. Non-GAAP net income is calculated by adding back to net income all non-cash stock-based compensation expense, net of an estimated statutory tax rate of 38%, and the impact of excess tax benefits due to the adoption of ASU 2016-09. 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. 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. 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.

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 the Company’s industry, business strategy, plans, goals and expectations concerning our market position, product expansion, future operations, revenue, margins, business outlook, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “may,” “believes,” “intends,” “seeks,” “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. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond the control of the Company. The Company’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, the continued availability of tax-advantaged, consumer-directed benefits to employers and employees, the Company’s ability to acquire and retain new network partners and to cross-sell its products to existing network partners and members, the Company’s ability to successfully identify, acquire and integrate portfolio purchases or acquisition targets, the Company’s ability to raise awareness among employers and employees about the advantages of adopting and participating in consumer-directed benefits programs, and the Company’s ability to identify and execute on network partner opportunities. For a detailed discussion of these and other risk factors, please refer to the risks detailed in the Company’s filings with the Securities and Exchange Commission, including, without limitation, our most recent Annual Report on Form 10-K and subsequent periodic and current reports. Past performance is not necessarily indicative of future results. The Company undertakes no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to the date of this press release.

 
HealthEquity, Inc. and its subsidiaries
Consolidated balance sheets (unaudited)
 
(in thousands, except par value)October 31, 2017
  January 31, 2017
 
Assets   
Current assets   
Cash and cash equivalents$184,367  $139,954 
Marketable securities, at fair value40,711  40,405 
Total cash, cash equivalents and marketable securities225,078  180,359 
Accounts receivable, net of allowance for doubtful accounts as of October 31, 2017 and January 31, 2017 were $100 and $75, respectively21,458  17,001 
Inventories169  592 
Other current assets6,106  2,867 
Total current assets252,811  200,819 
Property and equipment, net6,789  5,170 
Intangible assets, net85,450  65,020 
Goodwill4,651  4,651 
Deferred tax asset4,656  1,615 
Other assets1,760  1,861 
Total assets$356,117  $279,136 
Liabilities and stockholders’ equity   
Current liabilities   
Accounts payable$3,295  $3,221 
Accrued compensation6,503  8,722 
Accrued liabilities9,680  3,760 
Total current liabilities19,478  15,703 
Long-term liabilities   
Other long-term liabilities2,226  1,456 
Deferred tax liability  37 
Total long-term liabilities2,226  1,493 
Total liabilities21,704  17,196 
Commitments and contingencies   
Stockholders’ equity   
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of October 31, 2017 and January 31, 2017, respectively   
Common stock, $0.0001 par value, 900,000 shares authorized, 60,652 and 59,538 shares issued and outstanding as of October 31, 2017 and January 31, 2017, respectively6  6 
Additional paid-in capital255,245  232,114 
Accumulated other comprehensive loss(188) (165)
Accumulated earnings79,350  29,985 
Total stockholders’ equity334,413  261,940 
Total liabilities and stockholders’ equity$356,117  $279,136 
        


 
HealthEquity, Inc. and its subsidiaries
Consolidated statements of operations and comprehensive income (unaudited)
    
(in thousands, except per share data)Three months ended October 31,
  Nine months ended October 31,
 
2017
  2016
  2017
  2016
 
Revenue:       
Service revenue$22,962  $18,781  $68,258  $56,610 
Custodial revenue22,105  14,967  62,709  43,557 
Interchange revenue11,722  9,610  38,122  31,389 
Total revenue56,789  43,358  169,089  131,556 
Cost of revenue:       
Service costs17,251  12,675  47,824  34,471 
Custodial costs2,784  2,461  8,370  7,211 
Interchange costs3,027  2,331  9,625  7,748 
Total cost of revenue23,062  17,467  65,819  49,430 
Gross profit33,727  25,891  103,270  82,126 
Operating expenses:       
Sales and marketing5,892  4,391  15,707  12,764 
Technology and development6,866  6,209  19,905  15,827 
General and administrative6,252  5,166  18,354  15,290 
Amortization of acquired intangible assets1,155  1,083  3,320  3,214 
Total operating expenses20,165  16,849  57,286  47,095 
Income from operations13,562  9,042  45,984  35,031 
Other expense:       
Other expense, net(395) (256) (523) (934)
Total other expense(395) (256) (523) (934)
Income before income taxes13,167  8,786  45,461  34,097 
Income tax provision2,685  2,778  4,004  11,783 
Net income$10,482  $6,008  $41,457  $22,314 
Net income per share:       
Basic$0.17  $0.10  $0.69  $0.38 
Diluted$0.17  $0.10  $0.67  $0.37 
Weighted-average number of shares used in computing net income per share:       
Basic60,562  58,938  60,160  58,338 
Diluted61,868  60,073  61,703  59,693 
Comprehensive income:       
Net income$10,482  $6,008  $41,457  $22,314 
Other comprehensive gain (loss):       
Unrealized gain (loss) on available-for-sale marketable securities, net of tax7  (23) (23) (36)
Comprehensive income$10,489  $5,985  $41,434  $22,278 
                


 
HealthEquity, Inc. and its subsidiaries
Statement of Cash flows (unaudited)
  
 Nine months ended October 31,
 
(in thousands)2017
  2016
 
Cash flows from operating activities:   
Net income$41,457  $22,314 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization11,142  9,543 
Amortization of deferred financing costs and other97  53 
Deferred taxes5,093  (1,880)
Stock-based compensation10,468  6,399 
Changes in operating assets and liabilities:   
Accounts receivable(4,482) 244 
Inventories423  (324)
Other assets(3,027) (3,955)
Accounts payable(425) (973)
Accrued compensation(2,219) (3,117)
Accrued liabilities2,586  1,666 
Other long-term liabilities770  1,059 
Net cash provided by operating activities61,883  31,029 
Cash flows from investing activities:   
Purchases of intangible member assets(15,529)  
Acquisition of a business(2,882)  
Purchases of marketable securities(343) (275)
Purchase of property and equipment(3,382) (2,705)
Purchase of software and capitalized software development costs(7,654) (6,799)
Net cash used in investing activities(29,790) (9,779)
Cash flows from financing activities:   
Proceeds from exercise of common stock options12,320  4,546 
Tax benefit from exercise of common stock options  15,909 
Net cash provided by financing activities12,320  20,455 
Increase in cash and cash equivalents44,413  41,705 
Beginning cash and cash equivalents139,954  83,641 
Ending cash and cash equivalents$184,367  $125,346 
Supplemental disclosures of non-cash investing and financing activities:   
Purchases of property and equipment included in accounts payable or accrued liabilities at period end$238  $569 
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end501  185 
Purchases of intangible member assets accrued at period end3,429   
      


 
Stock-based compensation expense (unaudited)
 
Total stock-based compensation expense included in the consolidated statements of operations and comprehensive income is as follows:
     
  Three months ended October 31, Nine months ended October 31,
(in thousands) 2017 2016 2017 2016
Cost of revenue $720 $462 $1,903 $1,258
Sales and marketing 561 364 1,403 930
Technology and development 831 487 2,365 1,290
General and administrative 1,553 755 4,797 2,921
Total stock-based compensation expense $3,665 $2,068 $10,468 $6,399
             


 
HSA Members (unaudited)
         
  October 31, 2017 October 31, 2016 % Change January 31, 2017
HSA Members 3,012,968 2,378,353 27% 2,746,132
Average HSA Members - Year-to-date 2,872,744 2,278,994 26% 2,339,091
Average HSA Members - Quarter-to-date 2,977,367 2,354,227 26% 2,519,382
HSA Members with investments 98,257 58,226 69% 65,906
         


         
Custodial assets (unaudited)
         
(in thousands, except percentages) October 31, 2017 October 31, 2016 % Change January 31, 2017
Custodial cash $4,592,658 $3,713,290 24% $4,380,487
Custodial investments 987,050 570,553 73% 658,580
Total custodial assets $5,579,708 $4,283,843 30% $5,039,067
Average daily custodial cash - Year-to-date $4,469,641 $3,596,571 24% $3,661,058
Average daily custodial cash - Quarter-to-date $4,550,327 $3,669,480 24% $3,854,518
            


 
Net income reconciliation to Adjusted EBITDA (unaudited)
     
  Three months ended October 31,
  Nine months ended October 31,
 
(in thousands) 2017
  2016
  2017
  2016
 
Net income $10,482  $6,008  $41,457  $22,314 
Interest income (185) (137) (521) (385)
Interest expense 69  69  205  206 
Income tax provision 2,685  2,778  4,004  11,783 
Depreciation and amortization 2,851  2,335  7,822  6,329 
Amortization of acquired intangible assets 1,155  1,083  3,320  3,214 
Stock-based compensation expense 3,665  2,068  10,468  6,399 
Other (1) 511  323  839  1,113 
Adjusted EBITDA $21,233  $14,527  $67,594  $50,973 
                 

(1) For the three months ended October 31, 2017 and 2016, Other consisted of non-income-based taxes of $113 and $86, acquisition-related costs of $398 and $10, and other costs of $0 and $237, respectively. For the nine months ended October 31, 2017 and 2016, Other consisted of non-income based taxes of $303 and $260, acquisition-related costs of $482 and $595, and other costs of $54 and $258, respectively.

  
Reconciliation of Adjusted EBITDA outlook (unaudited)
  
 Outlook for the year ending
(in millions)January 31, 2018
Net income$43 - $45
Income tax provision5 - 6
Depreciation and amortization~ 11
Amortization of acquired intangible assets~ 4
Stock-based compensation expense~ 14
Other~ 3
Adjusted EBITDA$80 - $83
  


    
Reconciliation of non-GAAP net income per diluted share (unaudited)
    
 Three months ended
 Nine months ended
 Outlook for the year ending
(in millions, except per share data)October 31, 2017
 October 31, 2017
 January 31, 2018
Net income$10 $41 $43 - $45
Stock compensation, net of tax (1) 2  6 ~ 9
Excess tax benefit due to adoption of ASU 2016-09 (2) (12)~  (13)
Non-GAAP net income$10 $35 $39 - $41
      
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts 62  62 62
Non-GAAP net income per diluted share (2)$0.17 $0.57 $0.64 - $0.66
      

(1) The Company used an estimated statutory tax rate of 38% to calculate the net impact stock-based compensation expense.
(2) Non-GAAP net income per diluted share does not calculate due to rounding.

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