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HealthEquity Reports Fourth Quarter and Year Ended January 31, 2017 Financial Results

Highlights of the fiscal year include:

  • Revenue of $178.4 million, an increase of 41% compared to FY16.
  • Net income of $26.4 million, an increase of 59% compared to FY16.
  • Net income per diluted share of $0.44 compared to $0.28 in FY16.
  • Adjusted EBITDA of $62.8 million, an increase of 55% compared to FY16.
  • HSA Members of 2.7 million, an increase of 28% compared to FY16.
  • Total Custodial Assets of $5.0 billion, an increase of 37% compared to FY16.

Highlights of the fourth quarter include:

  • Revenue of $46.8 million, an increase of 30% compared to Q4 FY16.
  • Net income of $4.1 million, an increase of 30% compared to Q4 FY16.
  • Net income per diluted share of $0.07 compared to $0.05 in Q4 FY16.
  • Adjusted EBITDA of $11.8 million, an increase of 33% compared to Q4 FY16.

DRAPER, Utah, March 21, 2017 (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 fourth quarter and year ended January 31, 2017.

“HealthEquity had another record setting year in fiscal year 2017 surpassing $5 billion in custodial assets and opening a record 668,000 new HSAs,” said Jon Kessler, President and CEO of HealthEquity. “Our 37% growth of custodial assets and 28% growth of HSAs led to greater market share and generated year-over-year revenue growth of 41% and Adjusted EBITDA growth of 55%. Adjusted EBITDA margins reached a record 35% of revenue as we continue to scale our proprietary platform and unique healthcare ecosystem. Building on our successful fiscal 2017, we are poised for another strong growth year in fiscal 2018.”

Dr. Steve Neeleman, Vice Chairman and Founder of HealthEquity, added, “With our commitment to remarkable ‘purple’ service combined with favorable tailwinds politically, and economically, and general market tides favoring HSAs, we are well-positioned to continue our efforts to outpace the market in helping build health savings for our members and driving down healthcare cost growth for our Network Partners.”

Full year financial results

For the year ended January 31, 2017, HealthEquity reported revenue of $178.4 million, an increase of 41% compared to $126.8 million for the year ended January 31, 2016. Revenue consisted of:

  • Service revenue of $77.3 million, an increase of 25% compared to FY16.
  • Custodial revenue of $59.6 million, an increase of 58% compared to FY16.
  • Interchange revenue of $41.5 million, an increase of 51% compared to FY16.

Net income was $26.4 million for the year ended January 31, 2017, compared to $16.6 million for the year ended January 31, 2016.

Net income per diluted share was $0.44 for the year ended January 31, 2017, compared to $0.28 for the year ended January 31, 2016.

Non-GAAP Adjusted EBITDA was $62.8 million for the year ended January 31, 2017, an increase of 55% compared to $40.6 million for the year ended January 31, 2016. Adjusted EBITDA was 35% of revenue for the year ended January 31, 2017, compared to 32% for the year ended January 31, 2016.

As of January 31, 2017, we had $180.4 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.

Fourth quarter financial results

For the fourth quarter ended January 31, 2017, HealthEquity reported revenue of $46.8 million, an increase of 30% compared to $35.9 million for the fourth quarter ended January 31, 2016. Revenue consisted of:

  • Service revenue of $20.6 million, an increase of 21% compared to Q4 FY16.
  • Custodial revenue of $16.0 million, an increase of 44% compared to Q4 FY16.
  • Interchange revenue of $10.1 million, an increase of 33% compared to Q4 FY16.

Net income was $4.1 million for the fourth quarter ended January 31, 2017, compared to $3.1 million for the fourth quarter ended January 31, 2016.

Net income per diluted share was $0.07 for the fourth quarter ended January 31, 2017, compared to $0.05 for the fourth quarter ended January 31, 2016.

Non-GAAP Adjusted EBITDA was $11.8 million for the fourth quarter ended January 31, 2017, an increase of 33% compared to $8.9 million for the fourth quarter ended January 31, 2016.

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, 2017 was 2.7 million, an increase of 28% from 2.1 million as of January 31, 2016.

Total Custodial Assets as of January 31, 2017 was $5.0 billion, an increase of 37% year over year, consisting of:

  • Custodial Cash Assets of $4.4 billion, an increase of 34% compared to Q4 FY16; and
  • Custodial Investment Assets of $658.6 million, an increase of 62% compared to Q4 FY16.

Business outlook

For the year ended January 31, 2018, we expect our revenue to be between $220.0 million and $225.0 million. Our outlook for net income is a range of $30.0 million to $34.0 million, resulting in a net income per diluted share range of $0.50 to $0.55 (based on an estimated 61.5 million weighted-average shares outstanding). Our Adjusted EBITDA outlook is a range of $77.0 million to $82.0 million. The business outlook for the year ended January 31, 2018 assumes a projected effective income tax rate of approximately 37%.

A reconciliation of the non-GAAP financial measure used throughout this release to the most comparable GAAP financial measure 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, March 21, 2017 to discuss the fiscal year 2017 fourth quarter and full year financial results. The conference call will be accessible by dialing 884-791-6252, or 661-378-9636 for international callers, and referencing conference ID 79091036. 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 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 the company’s industry, business strategy, plans, goals and expectations concerning our 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 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, our 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
Consolidated balance sheets (unaudited)
(in thousands, except par value)January 31, 2017
January 31, 2016
Assets
Current assets
Cash and cash equivalents$139,954 $83,641
Marketable securities, at fair value40,405 40,134
Total cash, cash equivalents and marketable securities180,359 123,775
Accounts receivable, net of allowance for doubtful accounts of $75 and $40 as of January 31, 2017 and 2016, respectively17,001 14,308
Inventories592 620
Current deferred tax asset 2,642
Other current assets2,867 1,703
Total current assets200,819 143,048
Property and equipment, net5,170 3,506
Intangible assets, net65,020 66,840
Goodwill4,651 4,651
Deferred tax asset1,615
Other assets1,861 1,750
Total assets$279,136 $219,795
Liabilities and stockholders’ equity
Current liabilities
Accounts payable$3,221 $2,431
Accrued compensation8,722 7,776
Accrued liabilities3,760 1,899
Total current liabilities15,703 12,106
Long-term liabilities
Other long-term liabilities1,456 236
Deferred tax liability37 3,996
Total long-term liabilities1,493 4,232
Total liabilities17,196 16,338
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of January 31, 2017 and 2016
Common stock, $0.0001 par value, 900,000 shares authorized, 59,538 and 57,726 shares issued and outstanding as of January 31, 2017 and 2016, respectively6 6
Additional paid-in capital232,114 199,940
Accumulated other comprehensive loss, net(165) (98)
Accumulated earnings29,985 3,609
Total stockholders’ equity261,940 203,457
Total liabilities and stockholders’ equity$279,136 $219,795


HealthEquity, Inc. and its subsidiaries
Consolidated statements of operations and comprehensive income (unaudited)
Three months ended January 31,
Year ended January 31,
(in thousands, except per share data)2017
2016
2017
2016
Revenue
Service revenue$20,644 $17,101 $77,254 $61,608
Custodial revenue16,036 11,163 59,593 37,755
Interchange revenue10,134 7,622 41,523 27,423
Total revenue46,814 35,886 178,370 126,786
Cost of revenue
Service costs17,397 13,256 51,868 39,418
Custodial costs2,556 2,051 9,767 6,522
Interchange costs2,632 2,148 10,380 8,248
Total cost of revenue22,585 17,455 72,015 54,188
Gross profit24,229 18,431 106,355 72,598
Operating expenses
Sales and marketing5,556 4,665 18,320 13,302
Technology and development6,548 4,891 22,375 16,832
General and administrative4,861 3,535 20,151 14,113
Amortization of acquired intangible assets1,083 981 4,297 2,208
Total operating expenses18,048 14,072 65,143 46,455
Income from operations6,181 4,359 41,212 26,143
Other expense
Other expense, net(158) (63) (1,092) (589)
Total other expense(158) (63) (1,092) (589)
Income before income taxes6,023 4,296 40,120 25,554
Income tax provision1,961 1,168 13,744 8,941
Net income$4,062 $3,128 $26,376 $16,613
Net income attributable to common stockholders:
Basic$4,062 $3,128 $26,376 $16,613
Diluted$4,062 $3,128 $26,376 $16,613
Net income per share attributable to common stockholders:
Basic$0.07 $0.05 $0.45 $0.29
Diluted$0.07 $0.05 $0.44 $0.28
Weighted-average number of shares used in computing net income per share attributable to common stockholders:
Basic59,438 57,673 58,615 56,719
Diluted60,645 59,420 59,894 58,863
Comprehensive income:
Net income4,062 3,128 26,376 16,613
Other comprehensive loss:
Unrealized loss on available-for-sale marketable securities, net of tax(31) (64) (67) (98)
Comprehensive income$4,031 $3,064 $26,309 $16,515


HealthEquity, Inc. and its subsidiaries
Consolidated statements of redeemable convertible preferred stock and stockholders' equity (deficit) (unaudited)
Stockholders’ equity (deficit)
Redeemable
convertible
preferred stock

Convertible
preferred stock

Common stock
Common
Additional
Accumu-
lated
compre-

Accumu-
lated

Total
stock-
holders'

(in thousands, except exercise prices)Shares Amount
Shares Amount
Shares Amount
stock
warrants
paid-in
capital
hensive
loss
earnings
(deficit)
equity
(deficit)
Balance as of January 31, 201417,349 $46,714 6,156 $8,129 7,038 $1 $2,334 $ $ $(23,170)$(12,706)
Issuance of series D-3 redeemable convertible preferred stock cash dividend (347) (347)
Issuance of common stock cash dividend (50,000) (50,000)
Issuance of common stock:
Exercise of 2,972 warrants at $0.8008 per share 2,972 (2,334)4,714 2,380
Exercise of 1,841 options at $1.3204 per share 1,841 2,430 2,430
Conversion of preferred stock to common stock upon initial public offering(17,349)(42,693)(6,156)(8,129)32,486 3 50,819 42,693
Issuance of common stock 10,465 1 132,586 132,587
Stock-based compensation 2,525 2,525
Tax benefit on stock options exercised 3,429 3,429
Redeemable convertible preferred stock accretion (4,021) 4,021 4,021
Reclassification of series D-3 redeemable convertible preferred stock derivative liability 6,917 6,917
Net income 10,166 10,166
Balance as of January 31, 2015 $ $ 54,802 $5 $ $157,094 $ $(13,004)$144,095
Issuance of common stock:
Exercise of 1,951 options at $0.98 per share 1,951 1 1,914 1,915
Issuance of common stock 973 23,492 23,492
Stock-based compensation 5,883 5,883
Tax benefit on stock options exercised 11,557 11,557
Other comprehensive loss, net of tax (98) (98)
Net income 16,613 16,613
Balance as of January 31, 2016 $ $ 57,726 $6 $ $199,940 $(98)$3,609 $203,457
Issuance of common stock:
Issuance of common stock upon exercise of options, and for restricted stock units 1,812 7,142 7,142
Stock-based compensation 8,398 8,398
Tax benefit on stock options exercised 16,634 16,634
Other comprehensive loss, net of tax (67) (67)
Net income 26,376 26,376
Balance as of January 31, 2017 $ $ 59,538 $6 $ $232,114 $(165)$29,985 $261,940



HealthEquity, Inc. and its subsidiaries
Consolidated statements of cash flows (unaudited)
Year ended January 31,
(in thousands)2017
2016
2015
Cash flows from operating activities:
Net income$26,376 $16,613 $10,166
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization13,186 8,601 5,890
Deferred taxes(2,891) (2,178) 1,593
Stock-based compensation8,398 5,883 2,525
Loss on revaluation of redeemable convertible preferred stock derivative 735
Loss on other investments 24
Bad debt expense35 24 31
Amortization of deferred financing costs68 23
Changes in operating assets and liabilities:
Accounts receivable(2,728) (5,174) (3,380)
Inventories28 5 (234)
Other assets(1,343) (107) (1,608)
Accounts payable567 1,011 (1,156)
Accrued compensation946 2,475 1,167
Accrued liabilities1,729 (383) (802)
Other long-term liabilities1,220 (252) 95
Net cash provided by operating activities45,591 26,541 15,046
Cash flows from investing activities:
Purchase of marketable securities(379) (40,291)
Purchase of property and equipment(3,645) (2,376) (1,712)
Purchase of software and capitalized software development costs(9,030) (6,896) (6,420)
Purchase of other investments (500) (305)
Acquisition of intangible member assets (40,489)
Net cash used in investing activities(13,054) (90,552) (8,437)
Cash flows from financing activities:
Dividend payments (50,347)
Proceeds from initial public offering, net of payments for offering costs 132,587
Proceeds from follow-on offering, net of payments for offering costs 23,492
Proceeds from exercise of common stock options7,142 1,915 2,430
Proceeds from exercise of common stock warrants 2,380
Tax benefit from exercise of common stock options16,634 11,557 3,429
Deferred financing costs paid (317)
Net cash provided by financing activities23,776 36,647 90,479
Increase (decrease) in cash and cash equivalents56,313 (27,364) 97,088
Beginning cash and cash equivalents83,641 111,005 13,917
Ending cash and cash equivalents$139,954 $83,641 $111,005

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)2017
2016
2017
2016
Cost of revenue$522 $348 $1,780 $1,088
Sales and marketing(16) 198 914 903
Technology and development613 336 1,903 1,014
General and administrative880 747 3,801 2,878
Total stock-based compensation expense$1,999 $1,629 $8,398 $5,883

HSA Members (unaudited)

% change from % change from
January 31, 2017 January 31, 2016 January 31, 2015 2016 to 2017 2015 to 2016
HSA Members 2,746,132 2,140,631 1,426,785 28% 50%
Average HSA Members - Year-to-date 2,339,091 1,600,327 1,087,962 46% 47%
Average HSA Members - Quarter-to-date 2,519,382 1,850,843 1,230,256 36% 50%
HSAs with investments 65,906 44,680 30,552 48% 46%

Custodial assets (unaudited)

% change from % change from
(in thousands, except percentages)January 31, 2017
January 31, 2016
January 31, 2015
2016 to 2017 2015 to 2016
Custodial cash$4,380,487 $3,278,628 $2,075,741 34% 58%
Custodial investments658,580 405,878 286,526 62% 42%
Total custodial assets$5,039,067 $3,684,506 $2,362,267 37% 56%
Average daily custodial cash - Year-to-date$3,661,058 $2,326,506 $1,553,845 57% 50%
Average daily custodial cash - Quarter-to-date$3,854,518 $2,682,827 $1,698,402 44% 58%

Net income reconciliation to Adjusted EBITDA (unaudited)

Three months ended January 31,
Year ended January 31,
(in thousands)2017
2016
2017
2016
Net income$4,062 $3,128 $26,376 $16,613
Interest income(146) (112) (531) (414)
Interest expense69 68 275 91
Income tax provision1,961 1,168 13,744 8,941
Depreciation and amortization2,559 1,890 8,889 6,393
Amortization of acquired intangible assets1,083 981 4,297 2,208
Stock-based compensation expense1,999 1,629 8,398 5,883
Other (1)236 106 1,348 910
Adjusted EBITDA$11,823 $8,858 $62,796 $40,625

(1) For the three months ended January 31, 2017 and 2016, Other consisted of non-income based taxes of $101 and $85, and other costs of $135 and $21, respectively. For the years ended January 31, 2017 and 2016, Other consisted of miscellaneous taxes of $358 and $334, acquisition-related costs of $631 and $471, and other costs of $359 and $105, respectively.


Reconciliation of net income outlook to Adjusted EBITDA outlook

For the year ending
(in millions)January 31, 2018
Net income$30 - 34
Income tax provision18 - 19
Depreciation and amortization~ 12
Amortization of acquired intangible assets~ 4
Stock-based compensation expense~ 12
Other~ 1
Adjusted EBITDA$77 - 82


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

Source:HealthEquity, Inc.