Highlights of the second quarter include:

  • Revenue of $86.6 million, an increase of 22% compared to Q2 FY19.
  • Net income of $19.4 million, a decrease of 14% compared to $22.5 million in Q2 FY19.
  • Net income per diluted share of $0.30 compared to $0.36 in Q2 FY19.
  • Non-GAAP net income per diluted share of $0.45 compared to $0.36 in Q2 FY19.
  • Adjusted EBITDA of $40.6 million, an increase of 28% compared to Q2 FY19.
  • HSA Members of 4.2 million, an increase of 16% compared to Q2 FY19.
  • Total Custodial Assets of $8.5 billion, an increase of 21% compared to Q2 FY19.

DRAPER, Utah, Sept. 03, 2019 (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 second quarter ended July 31, 2019.

“We believe that HealthEquity’s results in the second quarter and the speedy close of the WageWorks acquisition position us for a strong second half selling season,” said Jon Kessler, HealthEquity’s President and CEO. “HealthEquity’s more than 215,000 new HSAs and $400 million in custodial asset growth in the first half provides the team the opportunity to once again outpace HSA market growth this year. HealthEquity’s unique combined offering of HSAs and consumer-directed benefits will enable us to continue building our leading HSA market position.”

Second quarter financial results

For the second quarter ended July 31, 2019, HealthEquity reported revenue of $86.6 million, an increase of 22% compared to $71.1 million for the second quarter ended July 31, 2018. Revenue consisted of:

  • Service revenue of $26.3 million, an increase of 5% compared to Q2 FY19.
  • Custodial revenue of $43.6 million, an increase of 42% compared to Q2 FY19.
  • Interchange revenue of $16.7 million, an increase of 8% compared to Q2 FY19.

Net income was $19.4 million for the second quarter ended July 31, 2019, compared to $22.5 million for the second quarter ended July 31, 2018.

Net income per diluted share was $0.30 for the second quarter ended July 31, 2019, compared to $0.36 for the second quarter ended July 31, 2018.

Non-GAAP net income per diluted share was $0.45 for the second quarter ended July 31, 2019, compared to $0.36 for the second quarter ended July 31, 2018.

Adjusted EBITDA was $40.6 million for the second quarter ended July 31, 2019, an increase of 28% compared to $31.8 million for the second quarter ended July 31, 2018. Adjusted EBITDA was 47% of revenue for the second quarter ended July 31, 2019, compared to 45% for the second quarter ended July 31, 2018.

As of July 31, 2019, we had $815.2 million of cash and cash equivalents and no outstanding debt. This compares to $361.5 million in cash and cash equivalents and no outstanding debt as of January 31, 2019.

HSA Member and Custodial Asset metrics

The total number of HSAs for which we serve as a non-bank custodian ("HSA Members") as of July 31, 2019 was 4.2 million, an increase of 16% from 3.6 million as of July 31, 2018.  Total Active HSA Members as of July 31, 2019 was 3.3 million, an increase of 13% from 2.9 million as of July 31, 2018. Total HSA Members with investments as of July 31, 2019 was 187,000, an increase of 31% from 143,000 as of July 31, 2018.

Total Custodial Assets as of July 31, 2019 was $8.5 billion, an increase of 21% year over year, consisting of:

  • Custodial Cash Assets of $6.5 billion, an increase of 17% compared to July 31, 2018; and
  • Custodial Investment Assets of $2.1 billion, an increase of 38% compared to July 31, 2018.

Business outlook

We have updated the HealthEquity standalone outlook for the year ending January 31, 2020. We expect our revenue to be between $341 million and $347 million. Our outlook for net income is a range of $9 million to $13 million, resulting in a net income per diluted share range of $0.13 to $0.19. Our Adjusted EBITDA outlook is a range of $138 million to $142 million. We define Adjusted EBITDA as adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, integration and acquisition-related costs, unrealized gains and losses on marketable equity securities, and other certain non-operating items. We also expect our non-GAAP net income to be in a range between $76 million and $80 million. Our non-GAAP net income is calculated by adding back to net income amortization of acquired intangible assets, stock-based compensation expense, and integration and acquisition-related costs, net of an estimated statutory tax rate of 24%, subtracting the excess tax benefits due to the adoption of Accounting Standards Update ("ASU") 2016-09, and adjusting for unrealized gains and losses on marketable equity securities, net of an estimated statutory tax rate of 24%. Our non-GAAP net income outlook results in a non-GAAP net income per diluted share range between $1.10 to $1.16 (based on an estimated 69 million weighted-average shares outstanding).

Regarding the WageWorks acquisition, which closed August 30, 2019, we will include WageWorks' operating results for the five months from September through January 2020. In addition to our outlook for the HealthEquity standalone business above, we expect WageWorks revenue for the five months to be between $170 and $175 million.

A reconciliation of the non-GAAP financial measures used in 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, September 3, 2019 to discuss the fiscal second quarter 2020 financial results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 5799847. 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, integration and acquisition-related costs, unrealized 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 amortization of acquired intangible assets, stock-based compensation expense, and integration and acquisition-related costs, net of an estimated statutory tax rate, subtracting the excess tax benefits due to the adoption of ASU 2016-09, and adjusting for unrealized gains and losses on marketable equity securities, net of an estimated statutory 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 of financial results 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. 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 nearly 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, 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,” “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:

  • 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 industry;
  • our dependence on the continued availability and benefits of tax-advantaged health savings accounts;
  • 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, investment advisor 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 most recent Annual Report on Form 10-K 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

     
HealthEquity, Inc. and its subsidiaries
Condensed consolidated balance sheets
     
(in thousands, except par value)July 31, 2019  January 31, 2019
 (unaudited)   
Assets    
Current assets    
Cash and cash equivalents$815,160  $361,475
Accounts receivable, net of allowance for doubtful accounts as of July 31, 2019 and January 31, 2019 of $105 and $125, respectively27,357  25,668
Other current assets10,999  7,534
Total current assets853,516  394,677
Other investments81,839  709
Property and equipment, net9,873  8,223
Operating lease right-of-use assets36,716  
Intangible assets, net88,768  79,666
Goodwill4,651  4,651
Deferred tax asset666  1,677
Other assets22,311  20,413
Total assets$1,098,340  $510,016
Liabilities and stockholders’ equity    
Current liabilities    
Accounts payable$2,740  $3,520
Accrued compensation11,055  16,981
Accrued liabilities19,392  8,552
Operating lease liabilities3,954  
Total current liabilities37,141  29,053
Operating lease liabilities, non-current35,660  
Deferred tax liability7,773  916
Other long-term liabilities735  2,968
Total liabilities81,309  32,937
Commitments and contingencies    
Stockholders’ equity    
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2019 and January 31, 2019, respectively  
Common stock, $0.0001 par value, 900,000 shares authorized, 70,603 and 62,446 shares issued and outstanding as of July 31, 2019 and January 31, 2019, respectively7  6
Additional paid-in capital783,986  305,223
Accumulated earnings233,038  171,850
Total stockholders’ equity1,017,031  477,079
Total liabilities and stockholders’ equity$1,098,340  $510,016


 
HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of operations and comprehensive income (unaudited)
 
(in thousands, except per share data)Three months ended July 31,
  Six months ended July 31,
 
 2019   2018   2019   2018 
Revenue:       
Service revenue$26,282  $24,935  $53,090  $49,756 
Custodial revenue43,614  30,715  85,566  59,149 
Interchange revenue16,727  15,417  35,019  32,066 
Total revenue86,623  71,067  173,675  140,971 
Cost of revenue:       
Service costs19,745  17,199  40,394  35,246 
Custodial costs4,209  3,502  8,332  6,941 
Interchange costs4,229  3,791  8,756  7,853 
Total cost of revenue28,183  24,492  57,482  50,040 
Gross profit58,440  46,575  116,193  90,931 
Operating expenses:       
Sales and marketing8,391  7,243  17,361  14,103 
Technology and development11,645  8,398  22,550  16,377 
General and administrative9,262  7,893  17,971  15,400 
Integration2,784    2,784   
Amortization of acquired intangible assets1,494  1,478  2,985  2,948 
Total operating expenses33,576  25,012  63,651  48,828 
Income from operations24,864  21,563  52,542  42,103 
Other income (expense), net(1,128) (75) 22,472  (76)
Income before income taxes23,736  21,488  75,014  42,027 
Income tax provision (benefit)4,370  (1,029) 13,826  (3,067)
Net income and comprehensive income$19,366  $22,517  $61,188  $45,094 
Net income per share:       
Basic$0.30  $0.36  $0.97  $0.73 
Diluted$0.30  $0.36  $0.94  $0.72 
Weighted-average number of shares used in computing net income per share:       
Basic64,220  61,880  63,289  61,531 
Diluted65,583  63,397  64,785  63,060 


  
HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of cash flows (unaudited)
  
 Six months ended July 31,
 
(in thousands) 2019   2018 
Cash flows from operating activities:       
Net income$61,188  $45,094 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization9,722  8,916 
Unrealized (gains) losses on marketable equity securities and other(27,180) 86 
Deferred taxes7,868  2,351 
Stock-based compensation13,618  9,727 
Changes in operating assets and liabilities:   
Accounts receivable(1,689) (3,304)
Other assets(5,036) (6,921)
Operating lease right-of-use assets
1,286   
Accounts payable(1,083) (837)
Accrued compensation(5,926) (2,826)
Accrued liabilities and other current liabilities4,942  56 
Operating lease liabilities, non-current(1,210)  
Other long-term liabilities331  298 
Net cash provided by operating activities56,831  52,640 
Cash flows from investing activities:   
Purchases of intangible member assets(1,736) (1,014)
Purchases of marketable equity securities and other(53,845) (368)
Purchases of property and equipment(3,492) (2,690)
Purchases of software and capitalized software development costs(9,518) (4,701)
Net cash used in investing activities(68,591) (8,773)
Cash flows from financing activities:   
Proceeds from follow-on equity offering, net of payments for offering costs458,881   
Proceeds from exercise of common stock options6,564  18,469 
Net cash provided by financing activities465,445  18,469 
Increase in cash and cash equivalents453,685  62,336 
Beginning cash and cash equivalents361,475  199,472 
Ending cash and cash equivalents$815,160  $261,808 
Supplemental cash flow data:   
Interest expense paid in cash$101  $101 
Income taxes paid in cash, net of refunds received9,119  554 
Supplemental disclosures of non-cash investing and financing activities:   
Purchases of property and equipment included in accounts payable or accrued liabilities at period end$3  $14 
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end487  175 
Purchases of intangible member assets accrued during the period6,500  181 
Exercise of common stock options receivable87  135 
Follow-on equity offering costs accrued during the period386   
Debt issuance costs accrued during the period345   
      

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 July 31,
  Six months ended July 31,
 
(in thousands)  2019   2018   2019   2018 
Cost of revenue $1,010  $807  $1,869  $1,220 
Sales and marketing 1,158  891  2,166  1,596 
Technology and development 1,930  1,300  3,429  2,291 
General and administrative 3,492  2,490  6,154  4,620 
Total stock-based compensation expense $7,590  $5,488  $13,618  $9,727 
                 

HSA Members (unaudited)

(in thousands, except percentages)  July 31, 2019   July 31, 2018   % Change   January 31, 2019 
HSA Members  4,163   3,574   16%  3,994 
Average HSA Members - Year-to-date  4,073   3,488   17%  3,608 
Average HSA Members - Quarter-to-date  4,119   3,533   17%  3,813 
New HSA Members - Year-to-date  215   219   (2)%  679 
New HSA Members - Quarter-to-date  126   121   4%  341 
Active HSA Members  3,300   2,933   13%  3,241 
HSA Members with investments  187   143   31%  163 
                 

HSA Member Custodial assets (unaudited)

(in millions, except percentages) July 31, 2019
  July 31, 2018
   % Change  January 31, 2019
 
Custodial cash $6,460  $5,537   17% $6,428 
Custodial investments 2,056  1,494   38% 1,670 
Total custodial assets $8,516  $7,031   21% $8,098 
Average daily custodial cash - Year-to-date $6,404  $5,478   17% $5,586 
Average daily custodial cash - Quarter-to-date $6,402  $5,489   17% $5,837 
                 

Net income reconciliation to Adjusted EBITDA (unaudited)

  Three months ended July 31,
  Six months ended July 31,
 
(in thousands)  2019   2018   2019   2018 
Net income $19,366  $22,517  $61,188  $45,094 
Interest income (1,884) (303) (3,227) (561)
Interest expense 67  69  130  136 
Income tax provision (benefit) 4,370  (1,029) 13,826  (3,067)
Depreciation and amortization 3,455  2,918  6,737  5,968 
Amortization of acquired intangible assets 1,494  1,478  2,985  2,948 
Stock-based compensation expense 7,590  5,488  13,618  9,727 
Integration-related costs 2,784    2,784   
Acquisition-related costs 6,596  224  7,780  225 
Unrealized gain on marketable equity securities (3,774)   (27,285)  
Other (1) 579  439  1,030  958 
Adjusted EBITDA $40,643  $31,801  $79,566  $61,428 

(1) For the three months ended July 31, 2019 and 2018, Other consisted of non-income-based taxes of $108 and $116, other (income)/costs of $15 and $(32), and amortization of incremental costs to obtain a contract of $456 and $355, respectively. For the six months ended July 31, 2019 and 2018, Other consisted of non-income-based taxes of $121 and $220, other costs of $9 and $56, and amortization of incremental costs to obtain a contract of $900 and $682, respectively.

Reconciliation of net income outlook to Adjusted EBITDA outlook (unaudited)

 Outlook for the year ending
(in millions)January 31, 2020
Net income$9 - $13
Interest expense~ 23
Income tax benefit~ (1)
Depreciation and amortization~ 16
Amortization of acquired intangible assets~ 36
Stock-based compensation expense~ 28
Integration-related costs~ 29
Acquisition-related costs~ 27
Unrealized gain on marketable equity securities~ (28)
Other~ (1)
Adjusted EBITDA$138 - $142
  

Reconciliation of non-GAAP net income per diluted share (unaudited)

 Three months ended
 Six months ended
 Outlook for the
year ending
 
(in millions, except per share data)July 31, 2019
 July 31, 2018
 July 31, 2019
 July 31, 2018
 January 31, 2020 
Net income$19 $22 $61 $45 $9 - $13 
Amortization of acquired intangible assets, net of tax (1) 1  1  3  3 27 
Stock-based compensation, net of tax (1) 6  4  10  7 22 
Excess tax benefit due to adoption of ASU 2016-09 (1) (5) (3) (12)(3)
Integration-related costs, net of tax (1) 2  -  2  - 22 
Acquisition-related costs, net of tax (1) 5  -  6  - 20 
Unrealized gain on marketable equity securities, net of tax (1) (3) -  (21) - (21)
Non-GAAP net income$29 $22 $58 $43 $76 - $80 
               
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts 66  63  65  63 69 
Non-GAAP net income per diluted share (2)$0.45 $0.36 $0.89 $0.68 $1.10 - $1.16 

(1) For the three and six months ended July 31, 2019 and 2018, the Company used an estimated statutory tax rate of 24% to calculate the net impact of stock-based compensation expense, mark-to-market adjustments, and acquisition and integration-related costs.

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

Certain terms

Term Definition
HSA A financial account through which consumers spend and save long-term for healthcare on a tax-advantaged basis.
HSA Member An HSA for which we serve as custodian.
Active HSA Member An HSA Member that (i) is associated with a Health Plan and Administrator Partner or an Employer Partner, in each case as of the end of the applicable period; or (ii) has held a custodial balance at any point during the previous twelve month period.
Custodial cash assets HSA Members' deposits with our federally-insured custodial depository partners and custodial cash deposits invested in an annuity contract with our insurance company partner.
Custodial investments HSA Members' investments in mutual funds through our custodial investment fund partner.
Employer Partner Our employer clients.
Health Plan and Administrator Partner Our Health Plan and Administrator clients.
Adjusted EBITDA Adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, unrealized gains and losses on marketable equity securities, acquisition and integration-related costs, and other certain non-operating items.
Non-GAAP net income Calculated by adding back to net income amortization of acquired intangible assets, stock-based compensation expense, and integration and acquisition-related costs, net of an estimated statutory tax rate, subtracting the excess tax benefits due to the adoption of ASU 2016-09, and adjusting for unrealized gains and losses on marketable equity securities, net of an estimated statutory tax rate.
Non-GAAP net income per diluted share Calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.