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HealthEquity Reports Second Quarter Results, Raises WageWorks Synergy Target

HealthEquity, Inc.

Highlights of the second quarter include:

  • Revenue of $176.0 million, an increase of 103% compared to $86.6 million in Q2 FY20.

  • Net loss of $0.1 million, with non-GAAP net income of $30.1 million, compared to net income of $19.4 million and non-GAAP net income of $28.8 million in Q2 FY20.

  • Net loss per diluted share of less than one half of one cent, with non-GAAP net income per diluted share of $0.42, compared to net income per diluted share of $0.30 and non-GAAP net income per diluted share of $0.44 in Q2 FY20.

  • Adjusted EBITDA of $60.0 million, an increase of 48% compared to $40.6 million in Q2 FY20.

  • 5.4 million HSAs, an increase of 29% compared to Q2 FY20.

  • $12.2 billion Total HSA Assets, an increase of 43% compared to Q2 FY20.

  • 12.5 million Total Accounts, including both HSAs and complementary CDB accounts, an increase of 158% compared to Q2 FY20.

  • The Company sold 5,290,000 shares of common stock, yielding net proceeds of $286.8 million.

DRAPER, Utah, Sept. 08, 2020 (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, 2020, compared to its prior quarter ended July 31, 2019, which did not include the acquisition of WageWorks.

“The HealthEquity team delivered strong results this quarter despite the pandemic. Adjusted EBITDA of $60 million, a sequential increase in adjusted EBITDA margin to 34%, and robust sales speak to the margin and growth opportunities of our business,” said Jon Kessler, President and CEO of HealthEquity. “Team Purple delivered for our members, clients and partners, growing HSA Assets sequentially by over $700 million, a second quarter record, and maintaining the high level of service HealthEquity is known for even as 97% of team members worked from home.”

Second quarter financial results

Revenue for the second quarter ended July 31, 2020 of $176.0 million grew 103% compared to $86.6 million for the second quarter ended July 31, 2019. Revenue this quarter included: service revenue of $103.8 million, custodial revenue of $46.9 million, and interchange revenue of $25.3 million.

HealthEquity reported a net loss of $0.1 million, or less than one half of one cent per diluted share, and non-GAAP net income of $30.1 million, or $0.42 per diluted share, for the second quarter ended July 31, 2020. The Company reported net income of $19.4 million, or $0.30 per diluted share, and non-GAAP net income of $28.8 million, or $0.44 per diluted share, for the second quarter ended July 31, 2019.

Adjusted EBITDA was $60.0 million for the second quarter ended July 31, 2020, an increase of 48% compared to $40.6 million for the second quarter ended July 31, 2019. Adjusted EBITDA was 34% of revenue compared to 47% for the second quarter ended July 31, 2019.

Account and asset metrics

HSAs as of July 31, 2020 were approximately 5.4 million, an increase of 29% year over year, including 284,000 HSAs with investments, an increase of 52% year over year. Total Accounts as of July 31, 2020 were 12.5 million, including 7.1 million consumer-directed benefit ("CDB") accounts.

Total HSA Assets as of July 31, 2020 were $12.2 billion, an increase of 43% year over year. Total HSA Assets included $9.0 billion of HSA cash and $3.2 billion of HSA investments. Client-held funds, which are deposits held on behalf of our Clients to facilitate administration of our CDBs, and from which we generate custodial revenue, were $0.8 billion as of July 31, 2020.

New HSA openings and HSA asset balances

HealthEquity reported sales of 108,000 new HSAs in the second quarter ended July 31, 2020, compared to 126,000 in the second quarter ended July 31, 2019. HSA members grew their cash balances by approximately $246.0 million during the quarter, while total member balances increased by approximately $707.0 million due primarily to decreased spending per HSA and appreciation of invested balances.

WageWorks integration and increased synergy target

HealthEquity completed its acquisition of WageWorks on August 30, 2019. The Company accelerated its integration efforts and achieved its previously stated goal of $50 million in run rate synergies by the end of this second quarter, more than a year ahead of schedule. We also successfully migrated five legacy platforms and approximately $1 billion in HSA assets to our legacy HealthEquity HSA platform. In addition, we completed the return of all service calls to the United States.

In light of this progress, the Company raised its net synergy target to $80 million, to be achieved over the next 18 months.  Said Ted Bloomberg, Chief Operating Officer of HealthEquity, “Consolidating to a single platform for the delivery of our total solution will enable our members, clients and partners to better connect health and wealth, while increasing the efficiency and focus of our team.”

Business outlook

For the fiscal year ending January 31, 2021, management expects revenues of $720 million to $730 million. Its outlook is for net loss between $13 million and $5 million, resulting in net loss per diluted share of $0.17 to $0.08. Its outlook for non-GAAP net income, calculated using the method described below, is between $111 million and $119 million, resulting in non-GAAP net income per diluted share of $1.48 to $1.58 (based on an estimated 75 million weighted-average shares outstanding). Management expects Adjusted EBITDA of $226 million to $236 million.

See “Non-GAAP financial information” below for definitions of our Adjusted EBITDA and non-GAAP net income. 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 4:30 pm (Eastern Time) on Tuesday, September 8, 2020 to discuss the second quarter 2021 financial results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 5170518. 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, merger 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 net income before provision for income taxes the following items: amortization of acquired intangible assets, stock-based compensation expense, merger integration and acquisition-related costs, and gains and losses on marketable equity securities.

  • 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 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, acquisition synergies, 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,” “aims,” “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:

  • the impact of the ongoing COVID-19 pandemic on the Company, its operations and its financial results;

  • 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 and other consumer-directed benefits;

  • 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, ERISA, investment adviser 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 Annual Report on Form 10-K for the fiscal year ended January 31, 2020, our Quarterly Report on Form 10-Q for the quarter ended April 30, 2020, and subsequent periodic and current reports. Past performance is not necessarily indicative of future results. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.

Investor Relations Contact
Richard Putnam
801-727-1209
rputnam@healthequity.com

 

HealthEquity, Inc. and its subsidiaries

Condensed consolidated balance sheets

(in thousands, except par value)

 

July 31, 2020

 

 

 

January 31, 2020

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

268,910

 

 

$

191,726

 

Accounts receivable, net of allowance for doubtful accounts of $1,954 and $1,216 as of July 31, 2020 and January 31, 2020, respectively

70,235

 

 

70,863

 

Other current assets

43,982

 

 

34,711

 

Total current assets

383,127

 

 

297,300

 

Property and equipment, net

34,528

 

 

33,486

 

Operating lease right-of-use assets

95,095

 

 

83,178

 

Intangible assets, net

783,106

 

 

783,279

 

Goodwill

1,333,808

 

 

1,332,631

 

Deferred tax asset

59

 

 

18

 

Other assets

34,658

 

 

35,089

 

Total assets

$

2,664,381

 

 

$

2,564,981

 

Liabilities and stockholders’ equity

 

 

 

Current liabilities

 

 

 

Accounts payable

$

11,708

 

 

$

3,980

 

Accrued compensation

36,435

 

 

50,121

 

Accrued liabilities

37,424

 

 

46,372

 

Current portion of long-term debt

54,688

 

 

39,063

 

Operating lease liabilities

13,521

 

 

12,401

 

Total current liabilities

153,776

 

 

151,937

 

Long-term liabilities

 

 

 

Long-term debt, net of issuance costs

952,898

 

 

1,181,615

 

Operating lease liabilities, non-current

79,304

 

 

68,017

 

Other long-term liabilities

8,210

 

 

2,625

 

Deferred tax liability

129,857

 

 

130,492

 

Total long-term liabilities

1,170,269

 

 

1,382,749

 

Total liabilities

1,324,045

 

 

1,534,686

 

Commitments and contingencies

 

 

 

Stockholders’ equity

 

 

 

Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2020 and January 31, 2020, respectively

 

 

 

Common stock, $0.0001 par value, 900,000 shares authorized, 76,872 and 71,051 shares issued and outstanding as of July 31, 2020 and January 31, 2020, respectively

8

 

 

7

 

Additional paid-in capital

1,127,136

 

 

818,774

 

Accumulated earnings

213,192

 

 

211,514

 

Total stockholders’ equity

1,340,336

 

 

1,030,295

 

Total liabilities and stockholders’ equity

$

2,664,381

 

 

$

2,564,981

 

 


HealthEquity, Inc. and its subsidiaries

Condensed consolidated statements of operations and comprehensive income (loss) (unaudited)

 

Three months ended July 31,

 

 

Six months ended July 31,

 

(in thousands, except per share data)

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service revenue

$

103,805

 

 

$

26,282

 

 

$

215,076

 

 

$

53,090

 

Custodial revenue

46,909

 

 

43,614

 

 

93,808

 

 

85,566

 

Interchange revenue

25,325

 

 

16,727

 

 

57,166

 

 

35,019

 

Total revenue

176,039

 

 

86,623

 

 

366,050

 

 

173,675

 

Cost of revenue

 

 

 

 

 

 

 

Service costs

65,246

 

 

19,745

 

 

136,259

 

 

40,394

 

Custodial costs

4,998

 

 

4,209

 

 

10,043

 

 

8,332

 

Interchange costs

4,011

 

 

4,229

 

 

9,890

 

 

8,756

 

Total cost of revenue

74,255

 

 

28,183

 

 

156,192

 

 

57,482

 

Gross profit

101,784

 

 

58,440

 

 

209,858

 

 

116,193

 

Operating expenses

 

 

 

 

 

 

 

Sales and marketing

12,167

 

 

8,391

 

 

23,622

 

 

17,361

 

Technology and development

30,654

 

 

11,645

 

 

61,732

 

 

22,550

 

General and administrative

20,493

 

 

9,262

 

 

39,491

 

 

17,971

 

Amortization of acquired intangible assets

19,077

 

 

1,494

 

 

37,779

 

 

2,985

 

Merger integration

10,365

 

 

2,784

 

 

23,135

 

 

2,784

 

Total operating expenses

92,756

 

 

33,576

 

 

185,759

 

 

63,651

 

Income from operations

9,028

 

 

24,864

 

 

24,099

 

 

52,542

 

Other income (expense)

 

 

 

 

 

 

 

Interest expense

(8,895

)

 

(67

)

 

(21,158

)

 

(130

)

Other income (expense), net

(824

)

 

(1,061

)

 

(1,588

)

 

22,602

 

Total other income (expense)

(9,719

)

 

(1,128

)

 

(22,746

)

 

22,472

 

Income (loss) before income taxes

(691

)

 

23,736

 

 

1,353

 

 

75,014

 

Income tax provision (benefit)

(543

)

 

4,370

 

 

(325

)

 

13,826

 

Net income (loss) and comprehensive income (loss)

$

(148

)

 

$

19,366

 

 

$

1,678

 

 

$

61,188

 

Net income per share:

 

 

 

 

 

 

 

Basic

$

0.00

 

 

$

0.30

 

 

$

0.02

 

 

$

0.97

 

Diluted

$

0.00

 

 

$

0.30

 

 

$

0.02

 

 

$

0.94

 

Weighted-average number of shares used in computing net income per share:

 

 

 

 

 

 

 

Basic

72,343

 

 

64,220

 

 

71,669

 

 

63,289

 

Diluted

72,343

 

 

65,583

 

 

72,971

 

 

64,785

 

 

 

 

 

 

 

 

 

 

 

 

 


HealthEquity, Inc. and its subsidiaries

Condensed consolidated statements of cash flows (unaudited)

 

Six months ended July 31,

 

(in thousands)

 

2020

 

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

1,678

 

 

$

61,188

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

56,106

 

 

9,722

 

Stock-based compensation

18,834

 

 

13,618

 

Amortization of debt issuance costs

2,533

 

 

31

 

Gains on marketable equity securities

 

 

(27,285

)

Other non-cash items

1,925

 

 

 

Deferred taxes

(568

)

 

7,868

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

(152

)

 

(1,689

)

Other assets

(3,187

)

 

(4,962

)

Operating lease right-of-use assets

5,563

 

 

1,286

 

Accounts payable

6,047

 

 

(1,083

)

Accrued compensation

(13,854

)

 

(5,926

)

Accrued liabilities and other current liabilities

(6,017

)

 

4,942

 

Operating lease liabilities, non-current

(5,723

)

 

(1,210

)

Other long-term liabilities

5,477

 

 

331

 

Net cash provided by operating activities

68,662

 

 

56,831

 

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

(8,987

)

 

(3,492

)

Purchases of software and capitalized software development costs

(21,787

)

 

(9,518

)

Acquisition of intangible member assets

(24,922

)

 

(1,736

)

Purchases of marketable securities

 

 

(53,845

)

Net cash used in investing activities

(55,696

)

 

(68,591

)

Cash flows from financing activities:

 

 

 

Proceeds from follow-on equity offering, net of payments for offering costs

287,318

 

 

458,881

 

Principal payments on long-term debt

(215,625

)

 

 

Settlement of client-held funds obligation, net

(10,292

)

 

 

Proceeds from exercise of common stock options

2,817

 

 

6,564

 

Net cash provided by financing activities

64,218

 

 

465,445

 

Increase in cash and cash equivalents

77,184

 

 

453,685

 

Beginning cash and cash equivalents

191,726

 

 

361,475

 

Ending cash and cash equivalents

$

268,910

 

 

$

815,160

 

 

 

 

 

 

 

 

 


HealthEquity, Inc. and its subsidiaries

Condensed consolidated statements of cash flows (unaudited) (continued)

 

Six months ended July 31,

 

(in thousands)

 

2020

 

 

 

2019

 

Supplemental cash flow data:

 

 

 

 

 

 

 

Interest expense paid in cash

$

17,659

 

 

$

101

 

Income taxes paid in cash, net of refunds received

798

 

 

9,119

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

Purchases of property and equipment included in accounts payable or accrued liabilities

$

1,104

 

 

$

3

 

Purchases of software and capitalized software development costs included in accounts payable, accrued liabilities, or accrued compensation

1,262

 

 

487

 

Purchases of intangible member assets

58

 

 

6,500

 

Additions to goodwill due to measurement period adjustments

1,177

 

 

 

Exercise of common stock options receivable

66

 

 

87

 

Follow-on equity offering costs accrued during the period

540

 

 

386

 

Debt issuance costs accrued during the period

 

 

345

 

 

 

 

 

 

 


Stock-based compensation expense (unaudited)

 

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

 

Three months ended July 31,

 

 

Six months ended July 31,

 

(in thousands)

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Cost of revenue

$

2,065

 

 

$

1,010

 

 

$

3,528

 

 

$

1,869

 

Sales and marketing

1,818

 

 

1,158

 

 

2,776

 

 

2,166

 

Technology and development

2,493

 

 

1,930

 

 

5,410

 

 

3,429

 

General and administrative

5,062

 

 

3,492

 

 

7,120

 

 

6,154

 

Total stock-based compensation expense

$

11,438

 

 

$

7,590

 

 

$

18,834

 

 

$

13,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Total Accounts (unaudited)

(in thousands, except percentages)

July 31, 2020

 

 

July 31, 2019

 

 

% Change

 

 

 

January 31, 2020

 

HSAs

5,384

 

 

4,163

 

 

29

 

%

 

5,344

 

New HSAs from Sales - Quarter-to-date

108

 

 

126

 

 

(14

)

%

 

379

 

New HSAs from Sales - Year-to-date

213

 

 

215

 

 

(1

)

%

 

724

 

New HSAs from Acquisitions - Year-to-date

 

 

 

 

n/a

 

 

 

757

 

HSAs with investments

284

 

 

187

 

 

52

 

%

 

220

 

CDBs

7,090

 

 

680

 

 

943

 

%

 

7,437

 

Total Accounts

12,474

 

 

4,843

 

 

158

 

%

 

12,781

 

Average Total Accounts - Quarter-to-date

12,416

 

 

4,797

 

 

159

 

%

 

12,603

 

Average Total Accounts - Year-to-date

12,602

 

 

4,739

 

 

166

 

%

 

8,013

 

 


HSA Assets (unaudited)

(in millions, except percentages)

 

July 31, 2020

 

 

 

July 31, 2019

 

 

% Change

 

 

 

January 31, 2020

 

HSA cash with yield (1)

$

8,626

 

 

$

6,460

 

 

34

%

 

$

8,301

 

HSA cash without yield (2)

 

344

 

 

 

 

 

n/a

 

 

 

383

 

Total HSA cash

8,970

 

 

6,460

 

 

39

%

 

8,684

 

HSA investments with yield (1)

3,046

 

 

2,056

 

 

48

%

 

2,495

 

HSA investments without yield (2)

195

 

 

 

 

n/a

 

 

362

 

Total HSA investments

3,241

 

 

2,056

 

 

58

%

 

2,857

 

Total HSA Assets

12,211

 

 

8,516

 

 

43

%

 

11,541

 

Average daily HSA cash with yield - Year-to-date

8,332

 

 

6,404

 

 

30

%

 

6,937

 

Average daily HSA cash with yield - Quarter-to-date

$

8,380

 

 

$

6,402

 

 

31

%

 

$

7,791

 

(1) HSA Assets that generate custodial revenue.

(2) HSA Assets that do not generate custodial revenue.

 


Client-held funds (unaudited)

(in millions, except percentages)

 

July 31, 2020

 

 

 

July 31, 2019

 

 

% Change

 

 

January 31, 2020

 

Client-held funds (1)

$

840

 

 

$

 

 

n/a

 

$

779

 

Average daily Client-held funds - Year-to-date (1)

861

 

 

 

 

n/a

 

382

 

Average daily Client-held funds - Quarter-to-date (1)

891

 

 

 

 

n/a

 

727

 

(1) Client-held funds that generate custodial revenue. The Company did not have material Client-held funds prior to the WageWorks acquisition.

 


Net income reconciliation to Adjusted EBITDA (unaudited)

 

Three months ended July 31,

 

 

Six months ended July 31,

 

(in thousands)

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Net income (loss)

$

(148

)

 

$

19,366

 

 

$

1,678

 

 

$

61,188

 

Interest income

(76

)

 

(1,884

)

 

(676

)

 

(3,227

)

Interest expense

8,895

 

 

67

 

 

21,158

 

 

130

 

Income tax provision (benefit)

(543

)

 

4,370

 

 

(325

)

 

13,826

 

Depreciation and amortization

9,522

 

 

3,455

 

 

18,327

 

 

6,737

 

Amortization of acquired intangible assets

19,077

 

 

1,494

 

 

37,779

 

 

2,985

 

Stock-based compensation expense

11,438

 

 

7,590

 

 

18,834

 

 

13,618

 

Merger integration expenses

10,365

 

 

2,784

 

 

23,135

 

 

2,784

 

Acquisition costs (gains)

(28

)

 

6,596

 

 

66

 

 

7,780

 

Gain on marketable equity securities

 

 

(3,774

)

 

 

 

(27,285

)

Other (1)

1,500

 

 

579

 

 

3,034

 

 

1,030

 

Adjusted EBITDA

$

60,002

 

 

$

40,643

 

 

$

123,010

 

 

$

79,566

 

(1)    For the three months ended July 31, 2020 and 2019, Other consisted of amortization of incremental costs to obtain a contract of $569 and $456, non-income-based taxes of $390 and $108, and other costs of $541 and $15, respectively. For the six months ended July 31, 2020 and 2019, Other consisted of amortization of incremental costs to obtain a contract of $834 and $900, non-income-based taxes of $832 and $121, and other costs of $1,368 and $9, respectively.

 


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

 

Outlook for the

(in millions)

year ending January 31, 2021

Net loss

$(13) - (5)

Interest income

(2)

Interest expense

37

Income tax benefit

(5) - (3)

Depreciation and amortization

38

Amortization of acquired intangible assets

76

Stock-based compensation expense

42

Merger integration expenses

48

Other

5

Adjusted EBITDA

$226 - 236

 

 


Reconciliation of net income (loss) to non-GAAP net income (unaudited)

 

Three months ended July 31,

 

 

Six months ended July 31,

 

 

Outlook for the

(in millions, except per share data)

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

 

year ending January 31, 2021

Net income (loss)

$

0

 

 

$

19

 

 

$

2

 

 

$

61

 

 

$(13) - (5)

Income tax provision (benefit)

(1

)

 

5

 

 

(1

)

 

14

 

 

(5) - (3)

Income (loss) before income tax provision (benefit) - GAAP

(1

)

 

24

 

 

1

 

 

75

 

 

(18) - (8)

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

 

Amortization of acquired intangible assets

19

 

 

1

 

 

38

 

 

3

 

 

76

Stock-based compensation expense

12

 

 

8

 

 

19

 

 

14

 

 

42

Merger integration expenses

10

 

 

3

 

 

23

 

 

2

 

 

48

Acquisition costs

 

 

7

 

 

 

 

8

 

 

Gain on marketable equity securities

 

 

(4

)

 

 

 

(27

)

 

Total adjustments to GAAP income before income tax provision

41

 

 

15

 

 

80

 

 

 

 

166

Income before income tax provision - Non-GAAP

40

 

 

39

 

 

81

 

 

75

 

 

148 - 158

Income tax provision - Non-GAAP (1)

10

 

 

10

 

 

20

 

 

19

 

 

37 - 39

Non-GAAP net income

30

 

 

29

 

 

61

 

 

56

 

 

111 - 119

 

 

 

 

 

 

 

 

 

 

Diluted weighted-average shares

72

 

 

66

 

 

73

 

 

65

 

 

75

Non-GAAP net income per diluted share (2)

$

0.42

 

 

$

0.44

 

 

$

0.83

 

 

$

0.87

 

 

$1.48 - 1.58

(1) The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations. The normalized non-GAAP tax rate applied to each period presented was 25%. The Company may adjust its non-GAAP tax rate as additional information becomes available and in conjunction with any other significant events occur that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other changes in expectations regarding tax regulations.

(2) Non-GAAP net income per diluted share may 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.

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

 

Deposits 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, merger integration and acquisition-related costs, gains and losses on marketable equity securities, and other certain non-operating items.

Non-GAAP net income

 

Calculated by adding back to net income before provision for income taxes the following items: amortization of acquired intangible assets, stock-based compensation expense, merger integration and acquisition-related costs, and gains and losses on marketable equity securities.

Non-GAAP net income per diluted share

 

Calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.