Highlights of the third quarter include:
- Revenue of $157.1 million, an increase of 123% compared to Q3 FY19.
- Net loss of $21.3 million, compared to net income of $15.7 million in Q3 FY19, with non-GAAP net income of $32.8 million, an increase of 65% compared to Q3 FY19.
- Net loss per diluted share of $0.30, compared to net income per share of $0.25 in Q3 FY19, with non-GAAP net income per diluted share of $0.47, an increase of 52% compared to Q3 FY19.
- Adjusted EBITDA of $55.5 million, an increase of 87% compared to Q3 FY19.
- 5.0 million HSAs, an increase of 37% compared to Q3 FY19.
- $10.5 billion Total HSA Assets, an increase of 48% compared to Q3 FY19.
- 12.5 million Total Accounts, including both HSAs and complementary consumer-directed benefit ("CDB") accounts.
- The WageWorks acquisition closed on August 30, 2019.
DRAPER, Utah, Dec. 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 third quarter ended October 31, 2019.
“The new HealthEquity outperformed in a market that keeps growing, and got a fast start on the integration of WageWorks to continue that growth,” said President and CEO Jon Kessler. “For the full year, these results set the team up to deliver strong sales while keeping its commitments to customers, partners and shareholders.”
Third quarter financial results
Revenue for the third quarter ended October 31, 2019 of $157.1 million grew 123% compared to $70.5 million for the third quarter ended October 31, 2018, and 21% excluding the impact of the WageWorks acquisition and related realized net synergies. Revenue this quarter included: service revenue of $87.6 million, custodial revenue of $47.0 million, and interchange revenue of $22.5 million.
HealthEquity reported a net loss of $21.3 million, or $0.30 per diluted share, and non-GAAP net income of $32.8 million, or $0.47 per diluted share, for the third quarter ended October 31, 2019. One year ago, the Company reported third quarter ended October 31, 2018 net income of $15.7 million, or $0.25 per diluted share, and non-GAAP net income of $20.0 million, or $0.31 per diluted share. The net loss for the quarter is primarily due to merger integration expenses and acquisition costs combined, net of tax, of $38.5 million.
Adjusted EBITDA of $55.5 million for the third quarter ended October 31, 2019 grew 87% compared to $29.7 million for the third quarter ended October 31, 2018, and 24% excluding the impact of the WageWorks acquisition and related net realized synergies. Adjusted EBITDA was 35% of revenue compared to 42% for the third quarter ended October 31, 2018.
As of October 31, 2019, HealthEquity had $174.6 million of cash and cash equivalents and $1.2 billion of outstanding debt, net of issuance costs. This compares to $361.5 million in cash and cash equivalents and no outstanding debt as of January 31, 2019.
Account and Asset metrics
HSAs as of October 31, 2019 exceeded 5.0 million, an increase of 37% year over year, or 16% excluding acquired HSAs. Active HSAs were 4.1 million, up 38% from one year ago, including 197,000 HSAs with investments, an increase of 29% year over year. Total Accounts as of October 31, 2019 reached 12.5 million, including 7.5 million CDBs, 6.8 million from the WageWorks acquisition.
Total HSA Assets as of October 31, 2019 were $10.5 billion, an increase of 48% year over year, or 24% excluding acquired HSA assets. Total HSA Assets included $7.9 billion of HSA Cash and $2.5 billion of HSA Investment Assets. Client-held funds, which include funds remitted to the Company to pre-fund and facilitate administration of Client and employee contributions of other CDBs and from which we generate custodial revenue, were $670.0 million as of October 31, 2019, including approximately $593 million from the WageWorks acquisition.
New HSA Openings and HSA Asset Growth
HealthEquity reported sales of 141,000 new HSAs in the third quarter ended October 31, 2019, nearly 18% more than in the year-ago period. HSA members grew their balances by approximately $260 million in the quarter, more than four times greater than in the year-ago period, reflecting both large net inflows and a positive market backdrop.
WageWorks closing and integration
HealthEquity completed its acquisition of WageWorks on August 30, 2019. We have achieved an annual run-rate of approximately $15 million net synergies since that date, and we now aim to achieve our previously stated goal of a run rate of $50 million of net synergies by the end of fiscal 2021, earlier than the 24 to 36 months from closing previously anticipated. We have made progress on commitments to WageWorks clients, including that we now expect to complete the on-shoring of all telephone-based member services to the United States during the second quarter of fiscal 2021.
Business outlook
For fiscal year 2020 for the combined HealthEquity, which includes five months of WageWorks' operating results, we expect our revenue to be between $520 million and $526 million. Our outlook for net income is a range of $16 million to $20 million, resulting in net income per diluted share range of $0.24 to $0.28. Our Adjusted EBITDA outlook is a range of $182 million to $186 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, 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 $101 million and $105 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 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 $1.46 to $1.52 (based on an estimated 69 million weighted-average shares outstanding).
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 4:30 pm (Eastern Time) on Tuesday, December 3, 2019 to discuss the fiscal third 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 1373115. 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, 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 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 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 accounts 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 and benefits administration 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) | October 31, 2019 | January 31, 2019 | |||||
| (unaudited) | |||||||
| Assets | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 174,557 | $ | 361,475 | |||
| Accounts receivable, net of allowance for doubtful accounts as of October 31, 2019 and January 31, 2019 of $1,021 and $125, respectively | 66,647 | 25,668 | |||||
| Other current assets | 29,119 | 7,534 | |||||
| Total current assets | 270,323 | 394,677 | |||||
| Property and equipment, net | 35,199 | 8,223 | |||||
| Operating lease right-of-use assets | 88,515 | — | |||||
| Intangible assets, net | 796,228 | 79,666 | |||||
| Goodwill | 1,335,187 | 4,651 | |||||
| Deferred tax asset | — | 1,677 | |||||
| Other assets | 34,469 | 21,122 | |||||
| Total assets | $ | 2,559,921 | $ | 510,016 | |||
| Liabilities and stockholders’ equity | |||||||
| Current liabilities | |||||||
| Accounts payable | $ | 7,966 | $ | 3,520 | |||
| Accrued compensation | 37,559 | 16,981 | |||||
| Accrued liabilities | 54,305 | 8,552 | |||||
| Current portion of long-term debt | 31,250 | — | |||||
| Operating lease liabilities | 10,780 | — | |||||
| Total current liabilities | 141,860 | 29,053 | |||||
| Long-term debt, net of issuance costs | 1,196,016 | — | |||||
| Operating lease liabilities, non-current | 73,052 | — | |||||
| Deferred tax liability | 128,642 | 916 | |||||
| Other long-term liabilities | 2,590 | 2,968 | |||||
| Total liabilities | 1,542,160 | 32,937 | |||||
| Commitments and contingencies | |||||||
| Stockholders’ equity | |||||||
| Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of October 31, 2019 and January 31, 2019, respectively | — | — | |||||
| Common stock, $0.0001 par value, 900,000 shares authorized, 70,832 and 62,446 shares issued and outstanding as of October 31, 2019 and January 31, 2019, respectively | 7 | 6 | |||||
| Additional paid-in capital | 806,050 | 305,223 | |||||
| Accumulated earnings | 211,704 | 171,850 | |||||
| Total stockholders’ equity | 1,017,761 | 477,079 | |||||
| Total liabilities and stockholders’ equity | $ | 2,559,921 | $ | 510,016 | |||
| HealthEquity, Inc. and its subsidiaries | |||||||||||||||
| Condensed consolidated statements of operations and comprehensive income (loss) (unaudited) | |||||||||||||||
| (in thousands, except per share data) | Three months ended October 31, | Nine months ended October 31, | |||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Revenue: | |||||||||||||||
| Service revenue | $ | 87,620 | $ | 25,041 | $ | 140,710 | $ | 74,797 | |||||||
| Custodial revenue | 46,972 | 31,564 | 132,538 | 90,713 | |||||||||||
| Interchange revenue | 22,526 | 13,890 | 57,545 | 45,956 | |||||||||||
| Total revenue | 157,118 | 70,495 | 330,793 | 211,466 | |||||||||||
| Cost of revenue: | |||||||||||||||
| Service costs | 52,278 | 17,562 | 92,672 | 52,808 | |||||||||||
| Custodial costs | 4,384 | 3,551 | 12,716 | 10,492 | |||||||||||
| Interchange costs | 4,421 | 3,565 | 13,177 | 11,418 | |||||||||||
| Total cost of revenue | 61,083 | 24,678 | 118,565 | 74,718 | |||||||||||
| Gross profit | 96,035 | 45,817 | 212,228 | 136,748 | |||||||||||
| Operating expenses: | |||||||||||||||
| Sales and marketing | 12,654 | 7,502 | 30,015 | 21,605 | |||||||||||
| Technology and development | 23,511 | 8,678 | 46,061 | 25,055 | |||||||||||
| General and administrative | 19,222 | 9,161 | 37,193 | 24,561 | |||||||||||
| Amortization of acquired intangible assets | 13,051 | 1,490 | 16,036 | 4,438 | |||||||||||
| Merger integration | 17,675 | — | 20,459 | — | |||||||||||
| Total operating expenses | 86,113 | 26,831 | 149,764 | 75,659 | |||||||||||
| Income from operations | 9,922 | 18,986 | 62,464 | 61,089 | |||||||||||
| Other expense: | |||||||||||||||
| Interest expense | (10,225 | ) | (68 | ) | (10,355 | ) | (204 | ) | |||||||
| Other expense, net | (30,949 | ) | (1,487 | ) | (8,347 | ) | (1,427 | ) | |||||||
| Income (loss) before income taxes | (31,252 | ) | 17,431 | 43,762 | 59,458 | ||||||||||
| Income tax provision (benefit) | (9,918 | ) | 1,745 | 3,908 | (1,322 | ) | |||||||||
| Net income (loss) and comprehensive income (loss) | $ | (21,334 | ) | $ | 15,686 | $ | 39,854 | $ | 60,780 | ||||||
| Net income (loss) per share: | |||||||||||||||
| Basic | $ | (0.30 | ) | $ | 0.25 | $ | 0.61 | $ | 0.98 | ||||||
| Diluted | $ | (0.30 | ) | $ | 0.25 | $ | 0.59 | $ | 0.96 | ||||||
| Weighted-average number of shares used in computing net income (loss) per share: | |||||||||||||||
| Basic | 70,524 | 62,088 | 65,727 | 61,718 | |||||||||||
| Diluted | 70,524 | 63,923 | 67,150 | 63,628 | |||||||||||
| HealthEquity, Inc. and its subsidiaries | |||||||
| Condensed consolidated statements of cash flows (unaudited) | |||||||
| Nine months ended October 31, | |||||||
| (in thousands) | 2019 | 2018 | |||||
| Cash flows from operating activities: | |||||||
| Net income | $ | 39,854 | $ | 60,780 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation and amortization | 28,791 | 13,498 | |||||
| (Gains) losses on marketable equity securities and other | (25,303 | ) | 895 | ||||
| Deferred taxes | 690 | 394 | |||||
| Stock-based compensation | 31,194 | 15,461 | |||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | (2,817 | ) | (2,863 | ) | |||
| Other assets | (4,937 | ) | (4,568 | ) | |||
| Operating lease right-of-use assets | 3,340 | — | |||||
| Accounts payable | 524 | (1,087 | ) | ||||
| Accrued compensation | (8,012 | ) | (2,617 | ) | |||
| Accrued liabilities and other current liabilities | 13,655 | 451 | |||||
| Operating lease liabilities, non-current | (2,859 | ) | — | ||||
| Other long-term liabilities | (50 | ) | 441 | ||||
| Net cash provided by operating activities | 74,070 | 80,785 | |||||
| Cash flows from investing activities: | |||||||
| Acquisitions, net of cash acquired | (1,630,066 | ) | — | ||||
| Purchases of intangible member assets | (9,070 | ) | (1,195 | ) | |||
| Purchases of marketable equity securities and other | (53,845 | ) | (574 | ) | |||
| Purchases of property and equipment | (5,180 | ) | (3,467 | ) | |||
| Purchases of software and capitalized software development costs | (17,232 | ) | (7,352 | ) | |||
| Net cash used in investing activities | (1,715,393 | ) | (12,588 | ) | |||
| Cash flows from financing activities: | |||||||
| Proceeds from long-term debt | 1,250,000 | — | |||||
| Payment of debt issuance costs | (30,504 | ) | — | ||||
| Settlement of client-held funds obligation | (230,928 | ) | |||||
| Proceeds from follow-on equity offering, net of payment for offering costs | 458,495 | — | |||||
| Proceeds from exercise of common stock options | 7,342 | 21,338 | |||||
| Net cash provided by financing activities | 1,454,405 | 21,338 | |||||
| Increase (decrease) in cash and cash equivalents | (186,918 | ) | 89,535 | ||||
| Beginning cash and cash equivalents | 361,475 | 199,472 | |||||
| Ending cash and cash equivalents | $ | 174,557 | $ | 289,007 | |||
| Supplemental cash flow data: | |||||||
| Interest expense paid in cash | $ | 249 | $ | 162 | |||
| Income taxes paid in cash, net of refunds received | 9,127 | 628 | |||||
| Supplemental disclosures of non-cash investing and financing activities: | |||||||
| Equity-based acquisition consideration | $ | 3,776 | $ | — | |||
| Purchases of property and equipment included in accounts payable or accrued liabilities at period end | 168 | 6 | |||||
| Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end | 316 | 156 | |||||
| Purchases of intangible member assets accrued during the period | (151 | ) | — | ||||
| Exercise of common stock options receivable | 21 | 28 | |||||
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:
| Three months ended October 31, | Nine months ended October 31, | ||||||||||||||
| (in thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
| Cost of revenue | $ | 1,415 | $ | 788 | $ | 3,285 | $ | 2,008 | |||||||
| Sales and marketing | 1,304 | 990 | 3,469 | 2,586 | |||||||||||
| Technology and development | 2,171 | 1,386 | 5,600 | 3,677 | |||||||||||
| General and administrative | 3,332 | 2,570 | 9,486 | 7,190 | |||||||||||
| Merger integration | 1,220 | — | 1,220 | — | |||||||||||
| Other expense, net | 13,714 | — | 13,714 | — | |||||||||||
| Total stock-based compensation expense | $ | 23,156 | $ | 5,734 | $ | 36,774 | $ | 15,461 | |||||||
| Total Accounts (unaudited) | |||||||||||
| (in thousands, except percentages) | October 31, 2019 | October 31, 2018 | % Change | January 31, 2019 | |||||||
| HSAs | 5,031 | 3,677 | 37 | % | 3,994 | ||||||
| Average HSAs - Year-to-date | 4,296 | 3,540 | 21 | % | 3,608 | ||||||
| Average HSAs - Quarter-to-date | 4,743 | 3,642 | 30 | % | 3,813 | ||||||
| New HSAs - Year-to-date | 1,113 | 338 | 229 | % | 679 | ||||||
| New HSAs - Quarter-to-date | 898 | 119 | 655 | % | 341 | ||||||
| Active HSAs | 4,115 | 2,972 | 38 | % | 3,241 | ||||||
| HSAs with investments | 197 | 153 | 29 | % | 163 | ||||||
| CDBs | 7,504 | 598 | 1,155 | % | 572 | ||||||
| Total Accounts | 12,535 | 4,275 | 193 | % | 4,566 | ||||||
| Average Total Accounts - Year-to-date | 6,482 | 4,125 | 57 | % | 4,194 | ||||||
| Average Total Accounts - Quarter-to-date | 9,970 | 4,239 | 135 | % | 4,402 | ||||||
| HSA Assets (unaudited) | ||||||||||||||
| (in millions, except percentages) | October 31, 2019 | October 31, 2018 | % Change | January 31, 2019 | ||||||||||
| HealthEquity HSA cash (custodial revenue) (1) | $ | 6,578 | $ | 5,583 | 18 | % | $ | 6,428 | ||||||
| WageWorks HSA cash (custodial revenue) (2) | 986 | — | n/a | — | ||||||||||
| WageWorks HSA cash (no custodial revenue) (3) | 381 | — | n/a | — | ||||||||||
| Total HSA cash | 7,945 | 5,583 | 42 | % | 6,428 | |||||||||
| HealthEquity HSA investments (custodial revenue) (1) | 2,188 | 1,507 | 45 | % | 1,670 | |||||||||
| WageWorks HSA investments (no custodial revenue) (3) | 326 | — | n/a | — | ||||||||||
| Total HSA investments | 2,514 | 1,507 | 67 | % | 1,670 | |||||||||
| Total HSA Assets | 10,459 | 7,090 | 48 | % | 8,098 | |||||||||
| Average daily HealthEquity HSA cash - Year-to-date | 6,435 | 5,503 | 17 | % | 5,586 | |||||||||
| Average daily HealthEquity HSA cash - Quarter-to-date | $ | 6,493 | $ | 5,551 | 17 | % | $ | 5,837 | ||||||
| (1) HSA Assets administered by HealthEquity that generate custodial revenue | ||||||||||||||
| (2) HSA Assets administered by WageWorks that generate custodial revenue | ||||||||||||||
| (3) HSA Assets administered by WageWorks that do not currently generate custodial revenue | ||||||||||||||
| Client-held funds (unaudited) | |||||||||||||
| (in millions, except percentages) | October 31, 2019 | October 31, 2018 | % Change | January 31, 2019 | |||||||||
| Client-held funds (custodial revenue) (1) | $ | 670 | $ | — | n/a | $ | — | ||||||
| Average daily Client-held funds - Year-to-date | $ | 268 | $ | — | n/a | $ | — | ||||||
| Average daily Client-held funds - Quarter-to-date | $ | 500 | $ | — | n/a | $ | — | ||||||
| (1) Client-held funds that generate custodial revenue | |||||||||||||
| Net income (loss) reconciliation to Adjusted EBITDA (unaudited) | |||||||||||||||
| Three months ended October 31, | Nine months ended October 31, | ||||||||||||||
| (in thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
| Net income (loss) | $ | (21,334 | ) | $ | 15,686 | $ | 39,854 | $ | 60,780 | ||||||
| Interest income | (2,046 | ) | (358 | ) | (5,273 | ) | (919 | ) | |||||||
| Interest expense | 10,225 | 68 | 10,355 | 204 | |||||||||||
| Income tax provision (benefit) | (9,918 | ) | 1,745 | 3,908 | (1,322 | ) | |||||||||
| Depreciation and amortization | 6,203 | 3,092 | 12,940 | 9,060 | |||||||||||
| Amortization of acquired intangible assets | 13,051 | 1,490 | 16,036 | 4,438 | |||||||||||
| Stock-based compensation expense | 8,222 | 5,734 | 21,840 | 15,461 | |||||||||||
| Merger integration expenses (1) | 17,675 | — | 20,459 | — | |||||||||||
| Acquisition costs (2) | 32,932 | 849 | 40,712 | 1,074 | |||||||||||
| Gain on marketable equity securities | (285 | ) | — | (27,570 | ) | — | |||||||||
| Other (3) | 824 | 1,360 | 1,854 | 2,318 | |||||||||||
| Adjusted EBITDA | $ | 55,549 | $ | 29,666 | $ | 135,115 | $ | 91,094 | |||||||
| (1) Includes $1.2 million of stock-based compensation expense related to post-acquisition merger integration activities. | |||||||||||||||
| (2) Includes $13.7 million of stock-based compensation expense related to acquisition related cash and equity accelerations. | |||||||||||||||
| (3) For the three months ended October 31, 2019 and 2018, Other consisted of other costs of $349 and $321, amortization of incremental costs to obtain a contract of $475 and $363, and loss on disposal of previously capitalized software development of $0 and $676, respectively. For the nine months ended October 31, 2019 and 2018, Other consisted of other costs of $479 and $597, amortization of incremental costs to obtain a contract of $1,375 and $1,045, and loss on disposal of previously capitalized software development of $0 and $676, respectively. | |||||||||||||||
| Reconciliation of net income outlook to Adjusted EBITDA outlook (unaudited) | |
| Outlook for the year ending | |
| (in millions) | January 31, 2020 |
| Net income | $16 - $20 |
| Interest income | ~ (6) |
| Interest expense | ~ 25 |
| Income tax provision | ~ 2 |
| Depreciation and amortization | ~ 25 |
| Amortization of acquired intangible assets | ~ 35 |
| Stock-based compensation expense | ~ 31 |
| Merger integration expenses | ~ 38 |
| Acquisition costs | ~ 41 |
| Gain on marketable equity securities | ~ (28) |
| Other | ~ 3 |
| Adjusted EBITDA | $182 - $186 |
| 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, 2019 | October 31, 2018 | October 31, 2019 | October 31, 2018 | January 31, 2020 | |||||||||
| Net income (loss) | ($21 | ) | $16 | $40 | $61 | $16 - $20 | ||||||||
| Amortization of acquired intangible assets, net of tax (1) | 10 | 1 | 12 | 3 | 26 | |||||||||
| Stock-based compensation expense, net of tax (1) | 6 | 4 | 17 | 12 | 24 | |||||||||
| Excess tax benefit due to adoption of ASU 2016-09 | — | (2 | ) | (4 | ) | (14 | ) | (4 | ) | |||||
| Merger integration expenses, net of tax (1) | 13 | — | 16 | — | 29 | |||||||||
| Acquisition costs, net of tax (1) | 25 | 1 | 31 | 1 | 31 | |||||||||
| Gain on marketable equity securities, net of tax (1) | — | — | (21 | ) | — | (21 | ) | |||||||
| Non-GAAP net income | $33 | $20 | $91 | $63 | $101 - $105 | |||||||||
| Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts | 71 | 64 | 67 | 64 | 69 | |||||||||
| Non-GAAP net income per diluted share (2) | $0.47 | $0.31 | $1.36 | $0.98 | $1.46 - $1.52 | |||||||||
| (1) For the three and nine months ended October 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. |
| CDB | Consumer-directed benefits offered by employers, including flexible spending and health reimbursement arrangements (“FSAs” and “HRAs”), Consolidated Omnibus Budget Reconciliation Act (“COBRA”) administration, commuter and other benefits. |
| HSA member | Consumers with HSAs that we serve. |
| Active HSA member | An HSA member that (i) is associated with a Network Partner or a Client, 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. |
| CDB member | Consumers with CDBs that we serve. |
| Total HSA 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. Total HSA Assets also includes HSA members' investments in mutual funds through our custodial investment fund partner. |
| Client | Our employer clients. |
| Total Accounts | The sum of HSAs and CDBs on our platforms. |
| Client-held funds | Pre-funds held on behalf of our Clients to facilitate administration of our CDBs |
| Network Partner | Our health plan partners, benefits administrators, and retirement plan recordkeepers. |
| Adjusted EBITDA | Adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, 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 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. |