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HealthEquity Reports First Quarter Ended April 30, 2018 Financial Results

Highlights of the first quarter include:

  • Revenue of $69.9 million, an increase of 26% compared to Q1 FY18.
  • Net income of $22.6 million, an increase of 61% compared to Q1 FY18.
  • Net income per diluted share of $0.36 compared to $0.23 in Q1 FY18.
  • Non-GAAP net income per diluted share of $0.31 compared to $0.19 in Q1 FY18.
  • Adjusted EBITDA of $29.6 million, an increase of 32% compared to Q1 FY18.
  • HSA Members of 3.5 million, an increase of 24% compared to Q1 FY18.
  • Total Custodial Assets of $6.9 billion, an increase of 31% compared to Q1 FY18.

DRAPER, Utah, June 04, 2018 (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 first quarter ended April 30, 2018.

“HealthEquity is off to an excellent start to fiscal 2019, delivering record results in helping members connect health and wealth,” said Jon Kessler, President and CEO.  “The team opened nearly a hundred thousand new HSAs during the quarter, grew custodial assets 31% year over year, and delivered record performance across key financial metrics.”

First quarter financial results

For the first quarter ended April 30, 2018, HealthEquity reported revenue of $69.9 million, an increase of 26% compared to $55.4 million for the first quarter ended April 30, 2017. Revenue consisted of:

  • Service revenue of $24.8 million, an increase of 10% compared to Q1 FY18.
  • Custodial revenue of $28.4 million, an increase of 47% compared to Q1 FY18. 
  • Interchange revenue of $16.6 million, an increase of 22% compared to Q1 FY18.

Net income was $22.6 million for the first quarter ended April 30, 2018, compared to $14.0 million for the first quarter ended April 30, 2017.

Net income per diluted share was $0.36 for the first quarter ended April 30, 2018, compared to $0.23 for the first quarter ended April 30, 2017.

Non-GAAP net income per diluted share was $0.31 for the first quarter ended April 30, 2018, compared to $0.19 for the first quarter ended April 30, 2017.

Non-GAAP Adjusted EBITDA was $29.6 million for the first quarter ended April 30, 2018, an increase of 32% compared to $22.4 million for the first quarter ended April 30, 2017. Adjusted EBITDA was 42% of revenue for the first quarter ended April 30, 2018, compared to 40% for the first quarter ended April 30, 2017.

As of April 30, 2018, we had $269.8 million of cash, cash equivalents and marketable securities 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.

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, 2018 was 3.5 million, an increase of 24% from 2.8 million as of April 30, 2017.

Total Custodial Assets as of April 30, 2018 was $6.9 billion, an increase of 31% year over year, consisting of:

  • Custodial Cash Assets of $5.5 billion, an increase of 24% compared to April 30, 2017; and
  • Custodial Investment Assets of $1.4 billion, an increase of 75% compared to April 30, 2017.

Business outlook

We have modestly increased our outlook for the year ending January 31, 2019. We expect our revenue to be between $278 million and $284 million. Our outlook for net income is a range of $55 million to $59 million, resulting in a net income per diluted share range of $0.86 to $0.92. Our Adjusted EBITDA outlook is a range of $107 million to $111 million. We also expect our non-GAAP net income to be in a range between $64 million and $68 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 $1.00 to $1.06 (based on an estimated 64 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 Monday, June 4, 2018 to discuss the fiscal year 2019 first quarter financial results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 9585707. 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.

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;
  • cybersecurity breaches of our platform 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 platform 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. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.

HealthEquity, Inc. and its subsidiaries
Condensed consolidated balance sheets (unaudited)

(in thousands, except par value)April 30, 2018
  January 31, 2018
 
Assets   
Current assets   
Cash and cash equivalents$228,945  $199,472 
Marketable securities, at fair value40,890  40,797 
Total cash, cash equivalents and marketable securities269,835  240,269 
Accounts receivable, net of allowance for doubtful accounts as of April 30, 2018 and January 31, 2018 were $229 and $208, respectively23,022  21,602 
Inventories177  215 
Other current assets10,730  3,310 
Total current assets303,764  265,396 
Property and equipment, net8,626  7,836 
Intangible assets, net82,148  83,635 
Goodwill4,651  4,651 
Deferred tax asset616  5,461 
Other assets18,226  2,180 
Total assets$418,031  $369,159 
Liabilities and stockholders’ equity   
Current liabilities   
Accounts payable$3,112  $2,420 
Accrued compensation7,640  12,549 
Accrued liabilities6,402  5,521 
Total current liabilities17,154  20,490 
Long-term liabilities   
Other long-term liabilities2,466  2,395 
Deferred tax liability1,437   
Total long-term liabilities3,903  2,395 
Total liabilities21,057  22,885 
Commitments and contingencies   
Stockholders’ equity   
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of April 30, 2018 and January 31, 2018, respectively   
Common stock, $0.0001 par value, 900,000 shares authorized, 61,788 and 60,825 shares issued and outstanding as of April 30, 2018 and January 31, 2018, respectively6  6 
Additional paid-in capital276,440  261,237 
Accumulated other comprehensive loss  (269)
Accumulated earnings120,528  85,300 
Total stockholders’ equity396,974  346,274 
Total liabilities and stockholders’ equity$418,031  $369,159 
        

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,
 
2018
  2017
 
Revenue:   
Service revenue$24,821  $22,487 
Custodial revenue28,434  19,319 
Interchange revenue16,649  13,615 
Total revenue69,904  55,421 
Cost of revenue:   
Service costs18,047  15,575 
Custodial costs3,439  2,801 
Interchange costs4,062  3,304 
Total cost of revenue25,548  21,680 
Gross profit44,356  33,741 
Operating expenses:   
Sales and marketing6,860  4,621 
Technology and development7,979  6,242 
General and administrative7,507  5,868 
Amortization of acquired intangible assets1,470  1,083 
Total operating expenses23,816  17,814 
Income from operations20,540  15,927 
Other expense:   
Other expense, net(1) (90)
Total other expense(1) (90)
Income before income taxes20,539  15,837 
Income tax provision (benefit)(2,038) 1,808 
Net income$22,577  $14,029 
Net income per share:   
Basic$0.37  $0.23 
Diluted$0.36  $0.23 
Weighted-average number of shares used in computing net income per share:   
Basic61,170  59,720 
Diluted62,693  61,400 
Comprehensive income:   
Net income$22,577  $14,029 
Other comprehensive loss:   
Unrealized loss on available-for-sale marketable securities, net of tax  (26)
Comprehensive income$22,577  $14,003 
        

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

 Three months ended April 30,
 
(in thousands)2018
  2017
 
Cash flows from operating activities:   
Net income$22,577  $14,029 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization4,520  3,482 
Unrealized losses on marketable securities and other102  41 
Deferred taxes1,989  3,218 
Stock-based compensation4,239  3,010 
Changes in operating assets and liabilities:   
Accounts receivable(1,420) (1,987)
Inventories38  63 
Other assets(5,471) (1,207)
Accounts payable87  (1,545)
Accrued compensation(4,909) (4,397)
Accrued liabilities881  625 
Other long-term liabilities71  244 
Net cash provided by operating activities22,704  15,576 
Cash flows from investing activities:   
Purchases of marketable securities(180) (109)
Purchases of property and equipment(1,121) (1,437)
Purchases of software and capitalized software development costs(2,097) (2,728)
Net cash used in investing activities(3,398) (4,274)
Cash flows from financing activities:   
Proceeds from exercise of common stock options10,167  3,829 
Net cash provided by financing activities10,167  3,829 
Increase in cash and cash equivalents29,473  15,131 
Beginning cash and cash equivalents199,472  139,954 
Ending cash and cash equivalents$228,945  $155,085 
Supplemental disclosures of non-cash investing and financing activities:   
Purchases of property and equipment included in accounts payable or accrued liabilities at period end$491  $133 
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end117  141 
Exercise of common stock options receivable797   
      

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) 2018
  2017
 
Cost of revenue $413  $491 
Sales and marketing 705  317 
Technology and development 991  672 
General and administrative 2,130  1,530 
Total stock-based compensation expense $4,239  $3,010 
         

HSA Members (unaudited)

  April 30, 2018  April 30, 2017  % Change  January 31, 2018 
HSA Members 3,476,484  2,805,280  24% 3,402,889 
Average HSA Members - Year-to-date 3,443,586  2,782,779  24% 2,951,790 
Average HSA Members - Quarter-to-date 3,443,586  2,782,779  24% 3,188,927 
HSA Members with investments 134,246  76,996  74% 121,614 
             

Custodial assets (unaudited)

(in thousands, except percentages) April 30, 2018
  April 30, 2017
  % Change  January 31, 2018
 
Custodial cash $5,510,500  $4,454,928  24% $5,489,617 
Custodial investments 1,351,331  772,867  75% 1,288,693 
Total custodial assets $6,861,831  $5,227,795  31% $6,778,310 
Average daily custodial cash - Year-to-date $5,467,046  $4,410,507  24% $4,571,341 
Average daily custodial cash - Quarter-to-date $5,467,046  $4,410,507  24% $4,876,438 
                

Net income reconciliation to Adjusted EBITDA (unaudited)

  Three months ended April 30,
 
(in thousands) 2018
  2017
 
Net income $22,577  $14,029 
Interest income (258) (157)
Interest expense 67  67 
Income tax provision (benefit) (2,038) 1,808 
Depreciation and amortization 3,050  2,398 
Amortization of acquired intangible assets 1,470  1,083 
Stock-based compensation expense 4,239  3,010 
Other (1) 520  180 
Adjusted EBITDA $29,627  $22,418 
         

(1) For the three months ended April 30, 2018 and 2017, Other consisted of non-income-based taxes of $104 and $88, other costs of $89 and $54, acquisition-related costs of $0 and $38, and amortization of incremental costs to obtain a contract of $327 and $0, respectively.

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

 Outlook for the year ending
(in millions)January 31, 2019
Net income$55 - $59
Income tax provision~ 9
Depreciation and amortization~ 14
Amortization of acquired intangible assets~ 6
Stock-based compensation expense~ 21
Other~ 2
Adjusted EBITDA$107 - $111
  

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

 Three months ended
 Three months ended
 Outlook for the year ending 
(in millions, except per share data)April 30, 2018
 April 30, 2017
 January 31, 2019 
Net income$23 $14 $55 - $59 
Stock compensation, net of tax (1) 3  2 ~ 16 
Excess tax benefit due to adoption of ASU 2016-09 (7) (4)~  (7)
Non-GAAP net income$19 $12 $64 - $68 
     
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts 63  61 64 
Non-GAAP net income per diluted share (2)$0.31 $0.19 $1.00 - $1.06 
         

(1) For the three months ended April 30, 2018 and 2017, the Company used an estimated statutory tax rate of 24% and 38%, respectively to calculate the net impact of stock-based compensation expense.

(2) Non-GAAP net income per diluted share does not calculate due to rounding.

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

Monday, June 4, 2018 - 16:07