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HealthEquity Reports First Quarter Ended April 30, 2019 Financial Results

Highlights of the first quarter include:

  • Revenue of $87.1 million, an increase of 25% compared to Q1 FY19.
  • Net income of $41.8 million, compared to $22.6 million in Q1 FY19. Includes $17.9 million, net of tax ($23.5 million of mark-to-market adjustment), related to an equity investment.
  • Net income per diluted share of $0.65 compared to $0.36 in Q1 FY19. Includes $0.28, net of tax, of mark-to-market adjustment related to an equity investment.
  • Non-GAAP net income per diluted share of $0.41 compared to $0.31 in Q1 FY19.
  • Adjusted EBITDA of $38.9 million, an increase of 31% compared to Q1 FY19.
  • HSA Members of 4.1 million, an increase of 17% compared to Q1 FY19.
  • Total Custodial Assets of $8.3 billion, an increase of 21% compared to Q1 FY19.

DRAPER, Utah, June 04, 2019 (GLOBE NEWSWIRE) -- HealthEquity, Inc. (HQY) ("HealthEquity" or the "Company"), the nation's largest health savings account ("HSA") non-bank custodian, today announced financial results for its first quarter ended April 30, 2019.

“HealthEquity delivered excellent first quarter fiscal 2020 results across our key financial metrics, setting the stage for another record year and allowing us to raise our guidance,” said Jon Kessler, president and chief executive officer of HealthEquity. “We added over 89,000 new HSAs and helped our members grow their custodial assets by over $220 million in the quarter, while producing record revenue and earnings. Revenue grew 25% year-over-year and adjusted EBITDA grew an even larger 31%.”

First quarter financial results

For the first quarter ended April 30, 2019, HealthEquity reported revenue of $87.1 million, an increase of 25% compared to $69.9 million for the first quarter ended April 30, 2018. Revenue consisted of:

  • Service revenue of $26.8 million, an increase of 8% compared to Q1 FY19.
  • Custodial revenue of $42.0 million, an increase of 48% compared to Q1 FY19.
  • Interchange revenue of $18.3 million, an increase of 10% compared to Q1 FY19.

Net income was $41.8 million for the first quarter ended April 30, 2019, compared to $22.6 million for the first quarter ended April 30, 2018. Net income for the first quarter ended April 30, 2019 includes $17.9 million, net of tax ($23.5 million of mark-to-market adjustment), related to an equity investment. From February 1, 2019 to April 4, 2019, the Company acquired approximately 1.6 million common shares of WageWorks, Inc. ("WageWorks") in open market purchases ahead of its April 11, 2019 proposal to acquire all of WageWorks' outstanding shares.

Net income per diluted share was $0.65 for the first quarter ended April 30, 2019, compared to $0.36 for the first quarter ended April 30, 2018. Net income per diluted share for the first quarter ended April 30, 2019 includes $0.28, net of tax, of mark-to-market adjustment related to the equity investment in WageWorks.

Non-GAAP net income per diluted share was $0.41 for the first quarter ended April 30, 2019, compared to $0.31 for the first quarter ended April 30, 2018.

Adjusted EBITDA was $38.9 million for the first quarter ended April 30, 2019, an increase of 31% compared to $29.6 million for the first quarter ended April 30, 2018. Adjusted EBITDA was 45% of revenue for the first quarter ended April 30, 2019, compared to 42% for the first quarter ended April 30, 2018.

As of April 30, 2019, we had $329.3 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 April 30, 2019 was 4.1 million, an increase of 17% from 3.5 million as of April 30, 2018.  Total Active HSA Members as of April 30, 2019 was 3.2 million, an increase of 13% from 2.9 million as of April 30, 2018. Total HSA Members with investments as of April 30, 2019 was 177,000, an increase of 32% from 134,000 as of April 30, 2018.

Total Custodial Assets as of April 30, 2019 was $8.3 billion, an increase of 21% year over year, consisting of:

  • Custodial Cash Assets of $6.4 billion, an increase of 16% compared to April 30, 2018; and
  • Custodial Investment Assets of $1.9 billion, an increase of 42% compared to April 30, 2018.

Business outlook

We have increased our outlook for the year ending January 31, 2020. We expect our revenue to be between $339 million and $345 million. Our outlook for net income is a range of $82 million to $86 million, resulting in a net income per diluted share range of $1.26 to $1.32. Our Adjusted EBITDA outlook is a range of $135 million to $140 million. We define Adjusted EBITDA as adjusted earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, 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 $83 million and $87 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 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 $1.28 to $1.34 (based on an estimated 65 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 5:00 pm (Eastern Time) on Tuesday, June 4, 2019 to discuss the fiscal first 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 2472868. 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, which is a non-GAAP financial measure. We define Adjusted EBITDA as adjusted earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, unrealized gains and losses on marketable equity securities, 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, 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. 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 connects health and wealth, delivering health savings account (HSA) and other consumer driven health and retirement solutions in partnership with over 45,000 employers and 141 health, retirement and other benefit plan providers nationwide. HealthEquity members have access to its end-to-end platform and remarkable “purple” service to become consumers of healthcare while building health and retirement savings for tomorrow. HealthEquity is the custodian of $8.3 billion in assets for 4.1 million HSA members nationwide. 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 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, including any potential acquisition of WageWorks, Inc.;
  • 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) April 30, 2019
    January 31, 2019
 
  (unaudited)          
Assets      
Current assets      
Cash and cash equivalents $ 329,310     $ 361,475  
Accounts receivable, net of allowance for doubtful accounts as of April 30, 2019 and January 31, 2019 of $111 and $125, respectively 27,022     25,668  
Other current assets 8,244     7,534  
Total current assets 364,576     394,677  
Other investments 78,065     709  
Property and equipment, net 8,481     8,223  
Operating lease right-of-use assets 37,367      
Intangible assets, net 81,437     79,666  
Goodwill 4,651     4,651  
Deferred tax asset 551     1,677  
Other assets 21,511     20,413  
Total assets $ 596,639     $ 510,016  
Liabilities and stockholders’ equity      
Current liabilities      
Accounts payable $ 1,964     $ 3,520  
Accrued compensation 8,501     16,981  
Accrued liabilities 9,127     8,552  
Operating lease liabilities 3,786      
Total current liabilities 23,378     29,053  
Operating lease liabilities, non-current 36,243      
Deferred tax liability 7,332     916  
Other long-term liabilities 387     2,968  
Total liabilities 67,340     32,937  
Commitments and contingencies      
Stockholders’ equity      
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of April 30, 2019 and January 31, 2019, respectively      
Common stock, $0.0001 par value, 900,000 shares authorized, 62,718 and 62,446 shares issued and outstanding as of April 30, 2019 and January 31, 2019, respectively 6     6  
Additional paid-in capital 315,621     305,223  
Accumulated earnings 213,672     171,850  
Total stockholders’ equity 529,299     477,079  
Total liabilities and stockholders’ equity $ 596,639     $ 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 April 30,
 
2019
    2018
 
Revenue:      
Service revenue $ 26,808     $ 24,821  
Custodial revenue 41,952     28,434  
Interchange revenue 18,292     16,649  
Total revenue 87,052     69,904  
Cost of revenue:      
Service costs 20,649     18,047  
Custodial costs 4,123     3,439  
Interchange costs 4,527     4,062  
Total cost of revenue 29,299     25,548  
Gross profit 57,753     44,356  
Operating expenses:      
Sales and marketing 8,970     6,860  
Technology and development 10,905     7,979  
General and administrative 8,709     7,507  
Amortization of acquired intangible assets 1,491     1,470  
Total operating expenses 30,075     23,816  
Income from operations 27,678     20,540  
Other income (expense), net 23,600     (1 )
Income before income taxes 51,278     20,539  
Income tax provision (benefit) 9,456     (2,038 )
Net income and comprehensive income $ 41,822     $ 22,577  
Net income per share:      
Basic $ 0.67     $ 0.37  
Diluted $ 0.65     $ 0.36  
Weighted-average number of shares used in computing net income per share:      
Basic 62,326     61,170  
Diluted 63,901     62,693  


   
HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of cash flows (unaudited)
 
   
  Three months ended April 30,
(in thousands) 2019   2018
Cash flows from operating activities:      
Net income $ 41,822     $ 22,577  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 4,773     4,520  
Unrealized (gains) losses on marketable equity securities and other (23,484 )   140  
Deferred taxes 7,542     1,989  
Stock-based compensation 6,028     4,239  
Changes in operating assets and liabilities:      
Accounts receivable (1,354 )   (1,420 )
Other assets (1,694 )   (5,471 )
Operating lease right-of-use assets 635      
Accounts payable (1,577 )   87  
Accrued compensation (8,480 )   (4,909 )
Accrued liabilities and other current liabilities 1,769     881  
Operating lease liabilities, non-current (627 )    
Other long-term liabilities (17 )   71  
Net cash provided by operating activities 25,336     22,704  
Cash flows from investing activities:      
Purchases of intangible member assets (1,262 )    
Purchases of marketable equity securities (53,845 )   (180 )
Purchases of property and equipment (1,126 )   (1,121 )
Purchases of software and capitalized software development costs (5,497 )   (2,097 )
Net cash used in investing activities (61,730 )   (3,398 )
Cash flows from financing activities:      
Proceeds from exercise of common stock options 4,229     10,167  
Net cash provided by financing activities 4,229     10,167  
Increase (decrease) in cash and cash equivalents (32,165 )   29,473  
Beginning cash and cash equivalents 361,475     199,472  
Ending cash and cash equivalents $ 329,310     $ 228,945  
Supplemental cash flow data:      
Interest expense paid in cash $ 50     $ 50  
Income taxes paid in cash, net of refunds received (51 )   39  
Supplemental disclosures of non-cash investing and financing activities:      
Purchases of property and equipment included in accounts payable or accrued liabilities at period end $ 21     $ 491  
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end 158     117  
Exercise of common stock options receivable 141     797  
           

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 April 30,
 
(in thousands)   2019
    2018
 
Cost of revenue   $ 860     $ 413  
Sales and marketing   1,007     705  
Technology and development   1,499     991  
General and administrative   2,662     2,130  
Total stock-based compensation expense   $ 6,028     $ 4,239  


HSA Members (unaudited)
                 
(in thousands, except percentages)   April 30, 2019   April 30, 2018   % Change     January 31, 2019
HSA Members   4,054   3,476   17 %   3,994
Average HSA Members - Year-to-date   4,026   3,444   17 %   3,608
Average HSA Members - Quarter-to-date   4,026   3,444   17 %   3,813
New HSA Members - Year-to-date   89   98   (9 )%   679
New HSA Members - Quarter-to-date   89   98   (9 )%   341
Active HSA Members   3,245   2,882   13 %   3,241
HSA Members with investments   177   134   32 %   163


HSA Member Custodial assets (unaudited)
                 
(in millions, except percentages)   April 30, 2019   April 30, 2018   % Change     January 31, 2019
Custodial cash   $ 6,404   $ 5,511   16 %   $ 6,428
Custodial investments   1,917   1,351   42 %   1,670
Total custodial assets   $ 8,321   $ 6,862   21 %   $ 8,098
Average daily custodial cash - Year-to-date   $ 6,407   $ 5,467   17 %   $ 5,586
Average daily custodial cash - Quarter-to-date   $ 6,407   $ 5,467   17 %   $ 5,837


Net income reconciliation to Adjusted EBITDA (unaudited)
     
    Three months ended April 30,
 
(in thousands)   2019
    2018
 
Net income   $ 41,822     $ 22,577  
Interest income   (1,343 )   (258 )
Interest expense   63     67  
Income tax provision (benefit)   9,456     (2,038 )
Depreciation and amortization   3,282     3,050  
Amortization of acquired intangible assets   1,491     1,470  
Stock-based compensation expense   6,028     4,239  
Unrealized gain on marketable equity securities   (23,511 )    
Other (1)   1,635     520  
Adjusted EBITDA   $ 38,923     $ 29,627  
  1. For the three months ended April 30, 2019 and 2018, Other consisted of non-income-based taxes of $13 and $104, other (income)/costs of $(6) and $88, acquisition-related costs of $1,184 and $1, and amortization of incremental costs to obtain a contract of $444 and $327, respectively.
   
   
Reconciliation of net income outlook to Adjusted EBITDA outlook (unaudited)
   
  Outlook for the year ending
(in millions) January 31, 2020
Net income $82 - $86
Income tax provision 23 - 24
Depreciation and amortization ~ 17
Amortization of acquired intangible assets ~ 6
Stock-based compensation expense ~ 28
Unrealized gain on marketable equity securities ~ (24)
Other ~ 3
Adjusted EBITDA $135 - $140


 
Reconciliation of non-GAAP net income per diluted share (unaudited)
     
  Three months ended
  Outlook for the year ending  
(in millions, except per share data)   April 30, 2019     April 30, 2018   January 31, 2020  
Net income $ 42   $ 23   $82 - $86  
Stock compensation, net of tax (1)   4     3   21  
Excess tax benefit due to adoption of ASU 2016-09   (2 )   (7 ) (2 )
Mark-to-market adjustment, net of tax (1)   (18 )   -   (18 )
Non-GAAP net income $ 26   $ 19   $83 - $87  
                 
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts   64     63   65  
Non-GAAP net income per diluted share (2) $ 0.41   $ 0.31   $1.28 - $1.34  
  1. For the three months ended April 30, 2019 and 2018, the Company used an estimated statutory tax rate of 24% to calculate the net impact of stock-based compensation expense and mark-to-market adjustments.
  2. Non-GAAP net income per diluted share does not calculate due to rounding.
   
   
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, stock-based compensation expense, unrealized gains and losses on marketable equity securities, and other certain non-operating items.
Non-GAAP net income Calculated by adding back to net income all non-cash stock-based compensation expense, 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.