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

Stock-based compensation expense (unaudited)

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

HSA Members (unaudited)

HSA Member Custodial assets (unaudited)

Net income reconciliation to Adjusted EBITDA (unaudited)

(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)

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

(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