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HealthEquity Reports Second Quarter Ended July 31, 2018 Financial Results

Highlights of the second quarter include:

  • Revenue of $71.1 million, an increase of 25% compared to Q2 FY18.
  • Net income of $22.5 million, an increase of 33% compared to Q2 FY18.
  • Net income per diluted share of $0.36 compared to $0.27 in Q2 FY18.
  • Non-GAAP net income per diluted share of $0.34 compared to $0.21 in Q2 FY18.
  • Adjusted EBITDA of $31.8 million, an increase of 33% compared to Q2 FY18.
  • HSA Members of 3.6 million, an increase of 23% compared to Q2 FY18.
  • Total Custodial Assets of $7.0 billion, an increase of 31% compared to Q2 FY18.

DRAPER, Utah, Sept. 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 second quarter ended July 31, 2018.

“HealthEquity recorded another strong quarter financially and operationally as we added over 121,000 new HSAs and $170 million to our members’ custodial assets, resulting in record quarterly revenue and earnings,” said Jon Kessler, HealthEquity’s President and CEO. “As we continue to deliver on our commitment to connecting health and wealth for our members, we are well positioned to outpace the market by providing comprehensive retirement solutions to our members and being the market’s purple standard for remarkable service."

Second quarter financial results

For the second quarter ended July 31, 2018, HealthEquity reported revenue of $71.1 million, an increase of 25% compared to $56.9 million for the second quarter ended July 31, 2017. Revenue consisted of:

  • Service revenue of $24.9 million, an increase of 9% compared to Q2 FY18.
  • Custodial revenue of $30.7 million, an increase of 44% compared to Q2 FY18.
  • Interchange revenue of $15.4 million, an increase of 21% compared to Q2 FY18.

Net income was $22.5 million for the second quarter ended July 31, 2018, compared to $16.9 million for the second quarter ended July 31, 2017.

Net income per diluted share was $0.36 for the second quarter ended July 31, 2018, compared to $0.27 for the second quarter ended July 31, 2017.

Non-GAAP net income per diluted share was $0.34 for the second quarter ended July 31, 2018, compared to $0.21 for the second quarter ended July 31, 2017.

Non-GAAP Adjusted EBITDA was $31.8 million for the second quarter ended July 31, 2018, an increase of 33% compared to $23.9 million for the second quarter ended July 31, 2017. Adjusted EBITDA was 45% of revenue for the second quarter ended July 31, 2018, compared to 42% for the second quarter ended July 31, 2017.

As of July 31, 2018, we had $302.9 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 July 31, 2018 was 3.6 million, an increase of 23% from 2.9 million as of July 31, 2017.  Additionally, total Active HSA Members as of July 31, 2018 was 2.9 million, an increase of 19% from 2.5 million as of July 31, 2017. An Active HSA Member is 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.

Total Custodial Assets as of July 31, 2018 was $7.0 billion, an increase of 31% year over year, consisting of:

  • Custodial Cash Assets of $5.5 billion, an increase of 23% compared to July 31, 2017; and
  • Custodial Investment Assets of $1.5 billion, an increase of 72% compared to July 31, 2017.

Business outlook

We have modestly increased our outlook for the year ending January 31, 2019. We expect our revenue to be between $279 million and $285 million. Our outlook for net income is a range of $63 million to $67 million, resulting in a net income per diluted share range of $0.98 to $1.05. Our Adjusted EBITDA outlook is a range of $108 million to $112 million. We also expect our non-GAAP net income to be in a range between $67 million and $71 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 $1.05 to $1.11 (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 Tuesday, September 4, 2018 to discuss the fiscal year 2019 second 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 8588717. 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)July 31, 2018
  January 31, 2018
 
Assets   
Current assets   
Cash and cash equivalents$261,808  $199,472 
Marketable securities, at fair value41,109  40,797 
Total cash, cash equivalents and marketable securities302,917  240,269 
Accounts receivable, net of allowance for doubtful accounts as of July 31, 2018 and January 31, 2018 of $288 and $208, respectively24,906  21,602 
Inventories163  215 
Other current assets11,727  3,310 
Total current assets339,713  265,396 
Property and equipment, net8,869  7,836 
Intangible assets, net82,277  83,635 
Goodwill4,651  4,651 
Deferred tax asset1,038  5,461 
Other assets18,054  2,180 
Total assets$454,602  $369,159 
Liabilities and stockholders’ equity   
Current liabilities   
Accounts payable$1,769  $2,420 
Accrued compensation9,723  12,549 
Accrued liabilities5,577  5,521 
Total current liabilities17,069  20,490 
Long-term liabilities   
Other long-term liabilities2,693  2,395 
Deferred tax liability2,221   
Total long-term liabilities4,914  2,395 
Total liabilities21,983  22,885 
Commitments and contingencies   
Stockholders’ equity   
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2018 and January 31, 2018, respectively   
Common stock, $0.0001 par value, 900,000 shares authorized, 62,251 and 60,825 shares issued and outstanding as of July 31, 2018 and January 31, 2018, respectively6  6 
Additional paid-in capital289,568  261,237 
Accumulated other comprehensive loss  (269)
Accumulated earnings143,045  85,300 
Total stockholders’ equity432,619  346,274 
Total liabilities and stockholders’ equity$454,602  $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 July 31,
  Six months ended July 31,
 
2018
  2017
  2018
  2017
 
Revenue:       
Service revenue$24,935  $22,809  $49,756  $45,296 
Custodial revenue30,715  21,285  59,149  40,604 
Interchange revenue15,417  12,785  32,066  26,400 
Total revenue71,067  56,879  140,971  112,300 
Cost of revenue:       
Service costs17,199  14,998  35,246  30,573 
Custodial costs3,502  2,785  6,941  5,586 
Interchange costs3,791  3,294  7,853  6,598 
Total cost of revenue24,492  21,077  50,040  42,757 
Gross profit46,575  35,802  90,931  69,543 
Operating expenses:       
Sales and marketing7,243  5,194  14,103  9,815 
Technology and development8,398  6,797  16,377  13,039 
General and administrative7,893  6,234  15,400  12,102 
Amortization of acquired intangible assets1,478  1,082  2,948  2,165 
Total operating expenses25,012  19,307  48,828  37,121 
Income from operations21,563  16,495  42,103  32,422 
Other expense:       
Other expense, net(75) (38) (76) (128)
Total other expense(75) (38) (76) (128)
Income before income taxes21,488  16,457  42,027  32,294 
Income tax provision (benefit)(1,029) (489) (3,067) 1,319 
Net income$22,517  $16,946  $45,094  $30,975 
Net income per share:       
Basic$0.36  $0.28  $0.73  $0.52 
Diluted$0.36  $0.27  $0.72  $0.50 
Weighted-average number of shares used in computing net income per share:       
Basic61,880  60,173  61,531  59,955 
Diluted63,397  61,765  63,060  61,604 
Comprehensive income:       
Net income$22,517  $16,946  $45,094  $30,975 
Other comprehensive loss:       
Unrealized loss on available-for-sale marketable securities, net of tax  (4)   (30)
Comprehensive income$22,517  $16,942  $45,094  $30,945 
                
                


HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of cash flows (unaudited)
 
 Six months ended July 31,
 
(in thousands)2018
  2017
 
Cash flows from operating activities:   
Net income$45,094  $30,975 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization8,916  7,136 
Unrealized losses on marketable securities and other86  27 
Deferred taxes2,351  4,699 
Stock-based compensation9,727  6,803 
Changes in operating assets and liabilities:   
Accounts receivable(3,304) (3,873)
Inventories52  253 
Other assets(6,973) (4,073)
Accounts payable(837) (1,495)
Accrued compensation(2,826) (2,202)
Accrued liabilities56  900 
Other long-term liabilities298  611 
Net cash provided by operating activities52,640  39,761 
Cash flows from investing activities:   
Purchases of intangible member assets(1,014) (6,515)
Acquisition of a business  (3,000)
Purchases of marketable securities(368) (224)
Purchases of property and equipment(2,690) (2,161)
Purchases of software and capitalized software development costs(4,701) (5,166)
Net cash used in investing activities(8,773) (17,066)
Cash flows from financing activities:   
Proceeds from exercise of common stock options18,469  7,072 
Net cash provided by financing activities18,469  7,072 
Increase in cash and cash equivalents62,336  29,767 
Beginning cash and cash equivalents199,472  139,954 
Ending cash and cash equivalents$261,808  $169,721 
Supplemental disclosures of non-cash investing and financing activities:   
Purchases of property and equipment included in accounts payable or accrued liabilities at period end$14  $53 
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end175  69 
Purchases of intangible member assets accrued during the period181  270 
Exercise of common stock options receivable135  1,017 
      
      

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 July 31,
  Six months ended July 31,
 
(in thousands) 2018
  2017
  2018
  2017
 
Cost of revenue $807  $692  $1,220  $1,183 
Sales and marketing 891  526  1,596  842 
Technology and development 1,300  862  2,291  1,534 
General and administrative 2,490  1,714  4,620  3,244 
Total stock-based compensation expense $5,488  $3,794  $9,727  $6,803 
                 

HSA Members (unaudited)

(in thousands, except percentages) July 31, 2018  July 31, 2017  % Change  January 31, 2018 
HSA Members 3,574  2,900  23%  3,403 
Average HSA Members - Year-to-date 3,488  2,820  24%  2,952 
Average HSA Members - Quarter-to-date 3,533  2,858  24%  3,189 
New HSA Members - Year-to-date 219  196  12%  723 
New HSA Members - Quarter-to-date 121  119  2%  404 
Active HSA Members 2,933  2,461  19%  2,863 
HSA Members with investments 143  87  64%  122 
             

Custodial assets (unaudited)

(in millions, except percentages) July 31, 2018
  July 31, 2017
  % Change  January 31, 2018
 
Custodial cash $5,537  $4,503  23%  $5,489 
Custodial investments 1,494  871  72%  1,289 
Total custodial assets $7,031  $5,374  31%  $6,778 
Average daily custodial cash - Year-to-date $5,478  $4,429  24%  $4,571 
Average daily custodial cash - Quarter-to-date $5,489  $4,448  23%  $4,876 
                

Net income reconciliation to Adjusted EBITDA (unaudited)

  Three months ended July 31,
  Six months ended July 31,
 
(in thousands) 2018
  2017
  2018
  2017
 
Net income $22,517  $16,946  $45,094  $30,975 
Interest income (303) (179) (561) (336)
Interest expense 69  69  136  136 
Income tax provision (benefit) (1,029) (489) (3,067) 1,319 
Depreciation and amortization 2,918  2,573  5,968  4,971 
Amortization of acquired intangible assets 1,478  1,082  2,948  2,165 
Stock-based compensation expense 5,488  3,793  9,727  6,803 
Other (1) 663  148  1,183  328 
Adjusted EBITDA $31,801  $23,943  $61,428  $46,361 

(1) For the three months ended July 31, 2018 and 2017, Other consisted of non-income-based taxes of $116 and $102, other costs of $(32) and $0, acquisition-related costs of $224 and $46, and amortization of incremental costs to obtain a contract of $355 and $0, respectively. For the six months ended July 31, 2018 and 2017, Other consisted of non-income-based taxes of $220 and $190, other costs of $56 and $54, acquisition-related costs of $225 and $84, and amortization of incremental costs to obtain a contract of $682 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$63 - $67
Income tax provision~ 3
Depreciation and amortization~ 13
Amortization of acquired intangible assets~ 6
Stock-based compensation expense~ 21
Other~ 2
Adjusted EBITDA$108 - $112
  

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

 Three months ended
 Six months ended
 Outlook for the
year ending
(in millions, except per share data)July 31, 2018
 July 31, 2017
 July 31, 2018
 July 31, 2017
 January 31, 2019
Net income$22 $17 $45 $31 $63 - $67
Stock compensation, net of tax (1) 4  2  7  4 ~ 16
Excess tax benefit due to adoption of ASU 2016-09 (5) (6) (12) (10)~  (12)
Non-GAAP net income$21 $13 $40 $25 $67 - $71
               
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts 63  62  63  62 64
Non-GAAP net income per diluted share (2)$0.34 $0.21 $0.64 $0.40 $1.05 - $1.11

(1) For the three and six months ended July 31, 2018, the Company used an estimated statutory tax rate of 24%, to calculate the net impact of stock-based compensation expense and 28% for the three and six months ended July 31, 2017.
(2) Non-GAAP net income per diluted share does not calculate due to rounding.

Certain terms

TermDefinition
HSAA financial account through which consumers spend and save long-term for healthcare on a tax-advantaged basis.
HSA MemberAn HSA for which we serve as custodian.
Active HSA MemberAn 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 assetsDeposits with our federally-insured custodial depository partners and custodial cash deposits invested in an annuity contract with our insurance company partner.
Custodial investmentsHSA Members' investments in mutual funds through our custodial investment fund partner.
Employer PartnerOur employer clients.
Health Plan and Administrator PartnerOur Health Plan and Administrator clients.
Adjusted EBITDAAdjusted earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and other certain non-operating items.
Non-GAAP net incomeCalculated 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 shareCalculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.

  

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

Tuesday, September 4, 2018 - 16:04