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HealthEquity Reports Fourth Quarter and Fiscal Year Ended January 31, 2019 Financial Results

Highlights of the fiscal year include:

  • Revenue of $287.2 million, an increase of 25% compared to FY18.
  • Net income of $73.9 million, an increase of 56% compared to FY18.
  • Net income per diluted share of $1.17, compared to $0.77 in FY18.
  • Non-GAAP net income per diluted share of $1.19 compared to $0.68 in FY18.
  • Adjusted EBITDA of $118.4 million, an increase of 40% compared to FY18.
  • HSA Members of 4.0 million, an increase of 17% compared to FY18.
  • Total Custodial Assets of $8.1 billion, an increase of 19% compared to FY18.

Highlights of the fourth quarter include:

  • Revenue of $75.8 million, an increase of 25% compared to Q4 FY18.
  • Net income of $13.1 million, an increase of 122% compared to Q4 FY18.
  • Net income per diluted share of $0.21, compared to $0.09 in Q4 FY18.
  • Non-GAAP net income per diluted share of $0.27 compared to $0.11 in Q4 FY18.
  • Adjusted EBITDA of $27.3 million, an increase of 60% compared to Q4 FY18.                                     

DRAPER, Utah, March 18, 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 fourth quarter and fiscal year ended January 31, 2019.

“Our “Purple” team delivered another solid fourth quarter to cap a year of strong growth in fiscal year 2019, which included full-year revenue that increased 25% to $287 million, and Adjusted EBITDA that increased 40% to $118 million,” said Jon Kessler, President and CEO.  “We continue to outpace the market and gain market share as we edged up to 4 million HSA Members and eclipsed $8 billion of custodial assets. We are well positioned to have another great year for fiscal 2020 helping our members to connect health and wealth as we broaden our proprietary platform and deepen our relationships with our Network and Employer Partners.”

Full year financial results

For the year ended January 31, 2019, HealthEquity reported revenue of $287.2 million, an increase of 25% compared to $229.5 million for the year ended January 31, 2018. Revenue consisted of:

  • Service revenue of $100.6 million, an increase of 10% compared to FY18.
  • Custodial revenue of $126.2 million, an increase of 45% compared to FY18.
  • Interchange revenue of $60.5 million, an increase of 19% compared to FY18.

Net income was $73.9 million for the year ended January 31, 2019, compared to $47.4 million for the year ended January 31, 2018.

Net income per diluted share was $1.17 for the year ended January 31, 2019, compared to $0.77 for the year ended January 31, 2018.

Non-GAAP net income per diluted share was $1.19 for the year ended January 31, 2019, compared to $0.68 for the year ended January 31, 2018.

Adjusted EBITDA was $118.4 million for the year ended January 31, 2019, an increase of 40% compared to $84.7 million for the year ended January 31, 2018. Adjusted EBITDA was 41% of revenue for the year ended January 31, 2019, compared to 37% for the year ended January 31, 2018.

As of January 31, 2019, we had $361.5 million of cash and cash equivalents and no outstanding debt. This compares to $240.3 million in cash, cash equivalents and marketable securities and no outstanding debt as of January 31, 2018.

Fourth quarter financial results

For the fourth quarter ended January 31, 2019, HealthEquity reported revenue of $75.8 million, an increase of 25% compared to $60.4 million for the fourth quarter ended January 31, 2018. Revenue consisted of:

  • Service revenue of $25.8 million, an increase of 10% compared to Q4 FY18.
  • Custodial revenue of $35.5 million, an increase of 45% compared to Q4 FY18.
  • Interchange revenue of $14.5 million, an increase of 15% compared to Q4 FY18.

Net income was $13.1 million for the fourth quarter ended January 31, 2019, compared to $5.9 million for the fourth quarter ended January 31, 2018.

Net income per diluted share was $0.21 for the fourth quarter ended January 31, 2019, compared to $0.09 for the fourth quarter ended January 31, 2018.

Non-GAAP net income per diluted share was $0.27 for the fourth quarter ended January 31, 2019, compared to $0.11 for the fourth quarter ended January 31, 2018.

Adjusted EBITDA was $27.3 million for the fourth quarter ended January 31, 2019, an increase of 60% compared to $17.1 million for the fourth quarter ended January 31, 2018.

HSA Member and Custodial asset metrics

The total number of HSAs for which we serve as a non-bank custodian ("HSA Members") as of January 31, 2019 was 4.0 million, an increase of 17% from 3.4 million as of January 31, 2018. Total Active HSA Members as of January 31, 2019 was 3.2 million, an increase of 13% from 2.9 million as of January 31, 2018. Total HSA Members with investments as of January 31, 2019 was 163,000, an increase of 34% from 122,000 as of January 31, 2018.

Total Custodial Assets as of January 31, 2019 was $8.1 billion, an increase of 19% year over year, consisting of:

  • Custodial Cash Assets of $6.4 billion, an increase of 17% compared to January 31, 2018; and
  • Custodial Investment Assets of $1.7 billion, an increase of 30% compared to January 31, 2018.

Business outlook

For the year ending January 31, 2020, we expect our revenue to be between $333 million and $339 million. Our outlook for net income is a range of $58 million to $62 million, resulting in a net income per diluted share range of $0.89 to $0.95. Our Adjusted EBITDA outlook is a range of $133 million to $138 million. We also expect our non-GAAP net income to be in a range between $80 million and $84 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%, and the impact of excess tax benefits due to the adoption of Accounting Standards Update ("ASU") 2016-09. Our non-GAAP net income outlook results in a non-GAAP net income per diluted share range between $1.23 to $1.29 (based on an estimated 65 million weighted-average shares outstanding).

A reconciliation of the non-GAAP financial measures used throughout this release to the most comparable GAAP financial measures is included with the financial tables at the end of this release.

Conference call

HealthEquity management will host a conference call at 5:00 pm (Eastern Time) on Monday, March 18, 2019 to discuss the fiscal year 2019 fourth quarter and full year financial results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 6796248. 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, 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, and the impact of excess tax benefits due to the adoption of ASU 2016-09. Non-GAAP net income per diluted share is calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.

Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. The Company cautions investors that non-GAAP financial information, by its nature, departs from GAAP; accordingly, its use can make it difficult to compare current results with results from other reporting periods and with the results of other companies. Whenever we use these non-GAAP financial measures, we provide a reconciliation of the applicable non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed in the tables below.

About HealthEquity

HealthEquity connects health and wealth, delivering health savings account (HSA), 401(k) 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 $8.1 billion in assets for 4.0 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;
  • 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 successfully identify, acquire and integrate additional portfolio purchases or acquisition targets;
  • 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
Consolidated balance sheets (unaudited)

(in thousands, except par value) January 31, 2019   January 31, 2018
 
Assets      
Current assets      
Cash and cash equivalents $ 361,475   $ 199,472  
Marketable securities, at fair value   40,797  
Total cash, cash equivalents and marketable securities 361,475   240,269  
Accounts receivable, net of allowance for doubtful accounts of $125 and $208 as of January 31, 2019 and 2018, respectively 25,668   21,602  
Inventories    
Other current assets 7,534   3,525  
Total current assets 394,677   265,396  
Property and equipment, net 8,223   7,836  
Intangible assets, net 79,666   83,635  
Goodwill 4,651   4,651  
Deferred tax asset 1,677   5,461  
Other assets 21,122   2,180  
Total assets $ 510,016   $ 369,159  
Liabilities and stockholders’ equity      
Current liabilities      
Accounts payable $ 3,520   $ 2,420  
Accrued compensation 16,981   12,549  
Accrued liabilities 8,552   5,521  
Total current liabilities 29,053   20,490  
Long-term liabilities      
Other long-term liabilities 2,968   2,395  
Deferred tax liability 916    
Total long-term liabilities 3,884   2,395  
Total liabilities 32,937   22,885  
Commitments and contingencies      
Stockholders’ equity      
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of January 31, 2019 and 2018    
Common stock, $0.0001 par value, 900,000 shares authorized, 62,446 and 60,825 shares issued and outstanding as of January 31, 2019 and 2018, respectively 6   6  
Additional paid-in capital
305,223   261,237  
Accumulated other comprehensive loss, net
  (269 )
Accumulated earnings
171,850   85,300  
Total stockholders’ equity
477,079   346,274  
Total liabilities and stockholders’ equity
$ 510,016   $ 369,159  
             

HealthEquity, Inc. and its subsidiaries
Consolidated statements of operations and comprehensive income (unaudited)

(in thousands, except per share data) Three months ended January 31,
    Year ended January 31,
 
2019
    2018
    2019
    2018
 
Revenue              
Service revenue $ 25,767     $ 23,361     $ 100,564     $ 91,619  
Custodial revenue 35,465     24,451     126,178     87,160  
Interchange revenue 14,545     12,624     60,501     50,746  
Total revenue 75,777     60,436     287,243     229,525  
Cost of revenue              
Service costs 24,050     22,602     76,858     70,426  
Custodial costs 3,632     3,030     14,124     11,400  
Interchange costs 3,650     3,158     15,068     12,783  
Total cost of revenue 31,332     28,790     106,050     94,609  
Gross profit 44,445     31,646     181,193     134,916  
Operating expenses              
Sales and marketing 7,893     7,432     29,498     23,139  
Technology and development 10,002     7,480     35,057     27,385  
General and administrative 8,478     6,757     33,039     25,111  
Amortization of acquired intangible assets 1,491     1,543     5,929     4,863  
Total operating expenses 27,864     23,212     103,523     80,498  
Income from operations 16,581     8,434     77,670     54,418  
Other expense              
Other expense, net (221 )   (1,706 )   (1,852 )   (2,229 )
Total other expense (221 )   (1,706 )   (1,852 )   (2,229 )
Income before income taxes 16,360     6,728     75,818     52,189  
Income tax provision 3,241     823     1,919     4,827  
Net income $ 13,119     $ 5,905     $ 73,899     $ 47,362  
Net income per share:              
Basic $ 0.21     $ 0.10     $ 1.20     $ 0.79  
Diluted $ 0.21     $ 0.09     $ 1.17     $ 0.77  
Weighted-average number of shares used in computing net income per share:              
Basic 62,183     60,730     61,836     60,304  
Diluted 63,724     62,291     63,370     61,854  
Comprehensive income:              
Net income $ 13,119     $ 5,905     $ 73,899     $ 47,362  
Other comprehensive loss:              
Unrealized loss on available-for-sale marketable securities, net of tax     (36 )       (59 )
Comprehensive income $ 13,119     $ 5,869     $ 73,899     $ 47,303  
                               

HealthEquity, Inc. and its subsidiaries
Consolidated statements of cash flows (unaudited)

  Year ended January 31,  
(in thousands) 2019
    2018
    2017
 
Cash flows from operating activities:          
Net income
$ 73,899     $ 47,362     $ 26,376  
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization
18,185     15,952     13,186  
Deferred taxes
408     4,306     (2,891 )
Stock-based compensation
21,057     14,310     8,398  
Bad debt expense
240     133     35  
Loss on disposal of software development costs and other
933     464     96  
Changes in operating assets and liabilities:          
Accounts receivable
(4,306 )   (4,734 )   (2,728 )
Other assets
(5,893 )   (760 )   (1,343 )
Accounts payable
863     (581 )   567  
Accrued compensation
4,432     3,827     946  
Accrued liabilities
3,031     484     1,729  
Other long-term liabilities
573     939     1,220  
Net cash provided by operating activities
113,422     81,702     45,591  
Cash flows from investing activities:          
Purchase of marketable securities
(728 )   (483 )   (379 )
Purchase of property and equipment
(3,869 )   (5,458 )   (3,645 )
Purchase of software and capitalized software development costs
(9,978 )   (10,380 )   (9,030 )
Acquisition of intangible member assets
(1,195 )   (17,545 )    
Acquisition of a business
    (2,882 )    
Proceeds from sale of marketable securities
41,422        
Net cash provided by (used in) investing activities
25,652     (36,748 )   (13,054 )
Cash flows from financing activities:          
Proceeds from exercise of common stock options
22,929     14,564     7,142  
Tax benefit from exercise of common stock options
        16,634  
Net cash provided by financing activities
22,929     14,564     23,776  
Increase in cash and cash equivalents
162,003     59,518     56,313  
Beginning cash and cash equivalents
199,472     139,954     83,641  
Ending cash and cash equivalents
$ 361,475     $ 199,472     $ 139,954  
                       

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 January 31,   Year ended January 31,
(in thousands) 2019   2018   2019   2018
Cost of revenue $ 829   $ 691   $ 2,837   $ 2,594
Sales and marketing 950   627   3,536   2,030
Technology and development 1,440   953   5,117   3,318
General and administrative 2,377   1,571   9,567   6,368
Total stock-based compensation expense $ 5,596   $ 3,842   $ 21,057   $ 14,310
                       

HSA Members (unaudited)

              % change from   % change from
(in thousands, except percentages) January 31, 2019   January 31, 2018   January 31, 2017   2018 to 2019   2017 to 2018
HSA Members 3,994   3,403   2,746   17 %   24 %
Average HSA Members - Year-to-date 3,608   2,952   2,339   22 %   26 %
Average HSA Members - Quarter-to-date 3,813   3,189   2,519   20 %   27 %
New HSA Members - Year-to-date 679   723   703   (6 )%   3 %
New HSA Members - Quarter-to-date 341   404   422   (16 )%   (4 )%
Active HSA Members 3,241   2,863   2,378   13 %   20 %
HSA Members with investments 163   122   66   34 %   85 %
                       

Custodial assets (unaudited)

              % change from   % change from
(in millions, except percentages) January 31, 2019   January 31, 2018   January 31, 2017   2018 to 2019   2017 to 2018
Custodial cash $ 6,428   $ 5,489   $ 4,380   17 %   25 %
Custodial investments 1,670   1,289   659   30 %   96 %
Total custodial assets $ 8,098   $ 6,778   $ 5,039   19 %   35 %
Average daily custodial cash - Year-to-date $ 5,586   $ 4,571   $ 3,661   22 %   25 %
Average daily custodial cash - Quarter-to-date $ 5,837   $ 4,876   $ 3,855   20 %   27 %
                             

Net income reconciliation to Adjusted EBITDA (unaudited)

  Three months ended January 31,
            Year ended January 31,
 
(in thousands) 2019
    2018
    2019
    2018
 
Net income $ 13,119     $ 5,905     $ 73,899     $ 47,362  
Interest income (1,027 )   (213 )   (1,946 )   (734 )
Interest expense 66     69     270     274  
Income tax provision 3,241     823     1,919     4,827  
Depreciation and amortization 3,196     3,267     12,256     11,089  
Amortization of acquired intangible assets 1,491     1,543     5,929     4,863  
Stock-based compensation expense 5,596     3,842     21,057     14,310  
Other (1) 1,606     1,850     4,998     2,689  
Adjusted EBITDA $ 27,288     $ 17,086     $ 118,382     $ 84,680  


(1) For the three months ended January 31, 2019 and 2018, Other consisted of non-income based taxes of $153 and $136, acquisition-related costs of $1,047 and $1,714, amortization of incremental costs to obtain a contract of $425 and $0, and other costs of ($19) and $0, respectively. For the years ended January 31, 2019 and 2018, Other consisted of non-income based taxes of $487 and $439 acquisition-related costs of $2,121 and $2,197, amortization of incremental costs to obtain a contract of $1,470 and $0, loss on disposal of previously capitalized software development of $676 and $0, and other costs of $244 and $53, respectively.

Reconciliation of net income outlook to Adjusted EBITDA outlook

  Outlook for the year ending
(in millions) January 31, 2020
Net income $58 - 62
Income tax provision 18 - 19
Depreciation and amortization ~ 18
Amortization of acquired intangible assets ~ 6
Stock-based compensation expense ~ 29
Other ~ 4
Adjusted EBITDA $133 - 138
   

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

  Three months ended Year ended
  Outlook for the year ending
(in millions, except per share data) January 31, 2019 January 31, 2019
  January 31, 2020
Net income
$ 13 $ 74   $58 - $62
Stock compensation, net of tax (1)
  4   16    ~ 22
Excess tax benefit due to adoption of ASU 2016-09
    (14 ) ~ (0)
Non-GAAP net income
$ 17 $ 76   $80 - $84
       
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)
$ 0.27 $ 1.19   $1.23 - $1.29


(1) For the three months and year ended January 31, 2019, and for the year ending January 31, 2020, the Company used an estimated statutory tax rate of 24% to calculate the net impact of stock-based compensation expense.
(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 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, 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, and the impact of excess tax benefits due to the adoption of ASU 2016-09.
Non-GAAP net income per diluted share Calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.