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HealthEquity Reports Third Quarter Ended October 31, 2016 Financial Results

Highlights of the third quarter include:

  • Revenue of $43.4 million, an increase of 42% compared to Q3 FY16.
  • Net income of $6.0 million, an increase of 47% compared to Q3 FY16.
  • Net income per diluted share of $0.10, compared to $0.07 in Q3 FY16.
  • Adjusted EBITDA of $14.5 million, an increase of 47% compared to Q3 FY16.
  • HSA Members grew to 2.4 million, an increase of 48% compared to Q3 FY16.
  • Total AUM grew to $4.3 billion, an increase of 59% compared to Q3 FY16.

DRAPER, Utah, Dec. 06, 2016 (GLOBE NEWSWIRE) -- HealthEquity, Inc. (NASDAQ:HQY), one of the largest health savings account ("HSA") non-bank custodians, today announced financial results for its third quarter ended October 31, 2016.

“Our third quarter results continued to build on our record-setting year which has increased total HSA Members by more than 776,000 since the end of the third quarter last year. Total AUM has grown by nearly $1.6 billion, or 59%, over that same time frame,” remarked Jon Kessler, President and CEO of HealthEquity. “The growth in these base metrics of our business has driven a consistently strong performance from all three of our revenue streams. Our year-over-year revenue growth of 42% in the quarter continues to outpace the industry, and our Adjusted EBITDA growth of 47% demonstrates our ability to continue to scale profitability our business.”

Third quarter financial results

For the third quarter ended October 31, 2016, HealthEquity reported revenue of $43.4 million, compared to $30.6 million for the third quarter ended October 31, 2015, an increase of 42%. Revenue consisted of:

  • Service revenue of $18.8 million, an increase of 24% compared to Q3 FY16.
  • Custodial revenue of $15.0 million, an increase of 64% compared to Q3 FY16.
  • Interchange revenue of $9.6 million, an increase of 55% compared to Q3 FY16.

Net income was $6.0 million for the third quarter ended October 31, 2016, compared to $4.1 million for the third quarter ended October 31, 2015.

Net income per diluted share was $0.10 for the third quarter ended October 31, 2016, compared to $0.07 for the third quarter ended October 31, 2015.

Adjusted EBITDA was $14.5 million for the third quarter ended October 31, 2016, an increase of 47% compared to $9.9 million for the third quarter ended October 31, 2015. Adjusted EBITDA was 34% of revenue for the third quarter ended October 31, 2016, compared to 32% for the third quarter ended October 31, 2015.

As of October 31, 2016, we had $165.7 million of cash, cash equivalents and marketable securities and no outstanding debt. This compares to $123.8 million in cash, cash equivalents and marketable securities and no outstanding debt as of January 31, 2016.

HSA Member and AUM metrics

The total number of HSAs for which we serve as a non-bank custodian ("HSA Members") as of October 31, 2016 was 2.4 million, an increase of 48% from 1.6 million as of October 31, 2015.

Total assets under management ("AUM") as of October 31, 2016 was $4.3 billion, an increase of 59% year over year, comprised of:

  • Cash AUM of $3.7 billion, an increase of 61% compared to Q3 FY16; and
  • Investment AUM of $570.6 million, an increase of 48% compared to Q3 FY16.

Business outlook

For the year ended January 31, 2017, we are reaffirming our previously provided guidance. Our revenue outlook is a range of $174.0 million to $178.0 million. Our outlook for net income is a range of $23.0 million to $25.0 million, resulting in a net income per diluted share range of $0.38 to $0.42 (based on an estimated 60.0 million weighted-average shares outstanding). Our Adjusted EBITDA outlook is a range of $59.0 million to $62.0 million. The business outlook for the year ended January 31, 2017 assumes a projected effective tax rate of approximately 36%.

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 Tuesday, December 6, 2016 to discuss the third 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 12268124. A live webcast of the conference call will also be available on the investor relations section of our website at www.HealthEquity.com.

A replay of the conference call will be made available for 30 days on our website at 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 earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and other certain non-operating items.

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 traditional accounting conventions; 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 non-GAAP financial measures, we provide a reconciliation of the applicable non-GAAP financial measure to the most comparable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures 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 the company’s industry, business strategy, plans, goals and expectations concerning the company's market position, product expansion, future operations, revenue, margins, profitability, future efficiencies, 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. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond the control of the company. The company’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, the continued availability of tax-advantaged consumer-directed benefits to employers and employees, the company’s ability to acquire and retain new network partners and to cross-sell its products to existing network partners and members, the company’s ability to successfully identify, acquire and integrate additional portfolio purchases or acquisition targets, the company’s ability to raise awareness among employers and employees about the advantages of adopting and participating in consumer-directed benefits programs, and the company’s ability to identify and execute on network partner opportunities. For a detailed discussion of these and other risk factors, please refer to the risks detailed in the company’s filings with the Securities and Exchange Commission, including, without limitation, the most recent Annual Report on Form 10-K and subsequent periodic and current reports. Past performance is not necessarily indicative of future results. The company undertakes 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 the company’s 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)October 31, 2016
January 31, 2016
Assets
Current assets
Cash and cash equivalents$125,346 $83,641
Marketable securities, at fair value40,352 40,134
Total cash, cash equivalents and marketable securities165,698 123,775
Accounts receivable, net of allowance for doubtful accounts of $34 as of October 31, 2016 and $40 as of January 31, 201614,064 14,308
Inventories944 620
Current deferred tax asset 2,642
Other current assets5,352 1,703
Total current assets186,058 143,048
Property and equipment, net5,373 3,506
Intangible assets, net65,688 66,840
Goodwill4,651 4,651
Deferred tax asset696
Other assets2,003 1,750
Total assets$264,469 $219,795
Liabilities and stockholders’ equity
Current liabilities
Accounts payable$1,582 $2,431
Accrued compensation4,659 7,776
Accrued liabilities4,195 1,899
Total current liabilities10,436 12,106
Long-term liabilities
Other long-term liabilities1,295 236
Deferred tax liability149 3,996
Total long-term liabilities1,444 4,232
Total liabilities11,880 16,338
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and
outstanding as of October 31, 2016 and January 31, 2016, respectively
Common stock, $0.0001 par value, 900,000 shares authorized, 59,306 and 57,726 shares
issued and outstanding as of October 31, 2016 and January 31, 2016, respectively
6 6
Additional paid-in capital226,794 199,940
Accumulated other comprehensive loss(134) (98)
Accumulated earnings25,923 3,609
Total stockholders’ equity252,589 203,457
Total liabilities and stockholders’ equity$264,469 $219,795


HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of operations and comprehensive income (unaudited)
(in thousands, except per share data)Three months ended October 31,
Nine months ended October 31,
2016
2015
2016
2015
Revenue:
Service revenue$18,781 $15,201 $56,610 $44,507
Custodial revenue14,967 9,142 43,557 26,592
Interchange revenue9,610 6,213 31,389 19,801
Total revenue43,358 30,556 131,556 90,900
Cost of revenue:
Service costs12,675 9,395 34,471 26,162
Custodial costs2,461 1,536 7,211 4,471
Interchange costs2,331 1,949 7,748 6,100
Total cost of revenue17,467 12,880 49,430 36,733
Gross profit25,891 17,676 82,126 54,167
Operating expenses:
Sales and marketing4,391 3,067 12,764 8,637
Technology and development6,209 4,419 15,827 11,941
General and administrative5,166 3,477 15,290 10,578
Amortization of acquired intangible assets1,083 409 3,214 1,227
Total operating expenses16,849 11,372 47,095 32,383
Income from operations9,042 6,304 35,031 21,784
Other expense:
Other expense, net(256) 121 (934) (526)
Total other expense(256) 121 (934) (526)
Income before income taxes8,786 6,425 34,097 21,258
Income tax provision2,778 2,338 11,783 7,773
Net income$6,008 $4,087 $22,314 $13,485
Net income per share:
Basic$0.10 $0.07 $0.38 $0.24
Diluted$0.10 $0.07 $0.37 $0.23
Weighted-average number of shares used in computing net income per share:
Basic58,938 57,353 58,338 56,397
Diluted60,073 59,263 59,693 58,664
Comprehensive income:
Net income$6,008 $4,087 $22,314 $13,485
Other comprehensive loss:
Unrealized loss on available-for-sale marketable securities, net of tax(23) (34) (36) (67)
Comprehensive income$5,985 $4,053 $22,278 $13,418


HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of cash flows (unaudited)
Nine months ended October 31,
(in thousands)2016
2015
Cash flows from operating activities:
Net income$22,314 $13,485
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization9,543 5,730
Amortization of deferred financing costs53
Deferred taxes(1,880) (1,505)
Stock-based compensation6,399 4,254
Changes in operating assets and liabilities:
Accounts receivable244 (868)
Inventories(324) (190)
Other assets(3,955) (1,421)
Accounts payable(973) 415
Accrued compensation(3,117) (1,403)
Accrued liabilities1,666 568
Other long-term liabilities1,059 (293)
Net cash provided by operating activities31,029 18,772
Cash flows from investing activities:
Purchases of marketable securities(275) (40,213)
Purchase of property and equipment(2,705) (1,882)
Purchase of software and capitalized software development costs(6,799) (4,757)
Purchase of other investments (500)
Acquisition of intangible member assets (33,821)
Net cash used in investing activities(9,779) (81,173)
Cash flows from financing activities:
Proceeds from follow-on offering, net of payments for offering costs 23,492
Proceeds from exercise of common stock options4,546 1,751
Tax benefit from exercise of common stock options15,909 11,315
Deferred financing costs paid (153)
Net cash provided by financing activities20,455 36,405
Increase (decrease) in cash and cash equivalents41,705 (25,996)
Beginning cash and cash equivalents83,641 111,005
Ending cash and cash equivalents$125,346 $85,009
Supplemental disclosures of non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable or accrued liabilities at period end$569 $221
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end185 215
Deferred financing costs 150


Stock-based compensation expense
Total stock-based compensation expense included in the condensed consolidated statements of operations and
comprehensive income is as follows:
Three months ended October 31,
Nine months ended October 31,
(in thousands) 2016
2015
2016
2015
Cost of revenue $462 $304 $1,258 $740
Sales and marketing 364 218 930 705
Technology and development 487 290 1,290 677
General and administrative 755 671 2,921 2,132
Total stock-based compensation expense $2,068 $1,483 $6,399 $4,254


HSA Members
October 31, 2016 October 31, 2015 % Change January 31, 2016
HSA Members 2,378,353 1,602,156 48% 2,140,631
Average HSA Members - Year-to-date 2,278,994 1,516,821 50% 1,600,327
Average HSA Members - Quarter-to-date 2,354,227 1,580,482 49% 1,850,843
HSA Members with investments 58,226 40,695 43% 44,680


Assets under management (AUM)
(in thousands, except percentages) October 31, 2016
October 31, 2015
% Change January 31, 2016
Cash AUM $3,713,290 $2,307,914 61% $3,278,628
Investment AUM 570,553 385,243 48% 405,878
Total AUM $4,283,843 $2,693,157 59% $3,684,506
Average daily cash AUM - Year-to-date $3,596,571 $2,207,732 63% $2,326,506
Average daily cash AUM - Quarter-to-date $3,669,480 $2,269,253 62% $2,682,827


Reconciliation of net income to Adjusted EBITDA
Three months ended October 31,
Nine months ended October 31,
(in thousands) 2016
2015
2016
2015
Net income $6,008 $4,087 $22,314 $13,485
Interest income (137) (116) (385) (302)
Interest expense 69 23 206 23
Income tax provision 2,778 2,338 11,783 7,773
Depreciation and amortization 2,335 1,656 6,329 4,503
Amortization of acquired intangible assets 1,083 409 3,214 1,227
Stock-based compensation expense 2,068 1,483 6,399 4,254
Other (1) 323 (29) 1,113 804
Adjusted EBITDA $14,527 $9,851 $50,973 $31,767
(1) For the three months ended October 31, 2016 and 2015, Other consisted of non-income-based taxes of $86 and $77, other costs of $237
and $81, and acquisition-related costs of $0 and $(187) respectively. For the nine months ended October 31, 2016 and 2015, Other
consisted of non-income-based taxes of $260 and $249, acquisition-related costs of $595 and $474, and other costs of $258 and $81,
respectively.


Reconciliation of net income outlook to adjusted EBITDA outlook
For the year ending
(in millions)January 31, 2017
Net income$23 - 25
Income tax provision13 - 14
Depreciation and amortization~ 9
Amortization of acquired intangible assets~ 4
Stock-based compensation expense~ 9
Other~ 1
Adjusted EBITDA$59 - 62

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

Source:HealthEquity, Inc.