×

HealthEquity Reports Third Quarter Ended October 31, 2017 Financial Results

Highlights of the third quarter include:

  • Revenue of $56.8 million, an increase of 31% compared to Q3 FY17.
  • Net income of $10.5 million, an increase of 74% compared to Q3 FY17.
  • Net income per diluted share of $0.17 compared to $0.10 in Q3 FY17.
  • Adjusted EBITDA of $21.2 million, an increase of 46% compared to Q3 FY17.

DRAPER, Utah, Dec. 05, 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 third quarter ended October 31, 2017.

"HealthEquity has added more than 740,000 new HSAs and $1.3 billion in custodial assets since the end of the third quarter last year as we added more than 123,000 HSAs in this year’s third quarter, including 14,000 from First Interstate Bank,” said Jon Kessler, President and CEO of HealthEquity. “The 27% third quarter growth in HSAs helped us surpass 3 million total HSAs and drive our custodial assets up 30% to $5.6 billion. Our fully integrated investment platform continues to lead the industry with 73% custodial investment growth in the third quarter and total invested custodial assets at $1 billion at quarter end. With another strong quarterly performance and record year-to-date results, we are narrowing our guidance for fiscal 2018 financial expectations around a higher revenue forecast and confirming our adjusted EBITDA outlook."

Third quarter financial results

For the third quarter ended October 31, 2017, HealthEquity reported revenue of $56.8 million, an increase of 31% compared to $43.4 million for the third quarter ended October 31, 2016. Revenue consisted of:

  • Service revenue of $23.0 million, an increase of 22% compared to Q3 FY17.
  • Custodial revenue of $22.1 million, an increase of 48% compared to Q3 FY17.
  • Interchange revenue of $11.7 million, an increase of 22% compared to Q3 FY17.

Net income was $10.5 million for the third quarter ended October 31, 2017, compared to $6.0 million for the third quarter ended October 31, 2016.

Net income per diluted share was $0.17 for the third quarter ended October 31, 2017, compared to $0.10 for the third quarter ended October 31, 2016.

Adjusted EBITDA was $21.2 million for the third quarter ended October 31, 2017, an increase of 46% compared to $14.5 million for the third quarter ended October 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 October 31, 2017 was 3.0 million, an increase of 27% from 2.4 million as of October 31, 2016.

Total Custodial Assets as of October 31, 2017 was $5.6 billion, an increase of 30% year over year, consisting of:

  • Custodial Cash Assets of $4.6 billion, an increase of 24% compared to Q3 FY17; and
  • Custodial Investment Assets of $1.0 billion, an increase of 73% compared to Q3 FY17.

Business outlook

We are increasing our business outlook for the year ended January 31, 2018. We are narrowing our revenue outlook from a range between $223.0 million and $228.0 million to a range between $225.0 million and $228.0 million, our net income from a range between $41.0 million and $45.0 million to a range between $43.0 million and $45.0 million, our Adjusted EBITDA from a range between $79.0 million and $84.0 million to a range between $80.0 million and $83.0 million. We also expect our non-GAAP net income to be in a range between $39.0 million and $41.0 million, narrowed from our prior range between $39.0 million and $43.0 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 38%, 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 $0.64 and $0.66 (based on an estimated 62.0 million diluted weighted-average shares outstanding), narrowed from our prior range between $0.64 and $0.68.

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 5, 2017 to discuss the fiscal year 2018 third quarter results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 2796618. 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, non-GAAP net income and non-GAAP net income per diluted share, which are non-GAAP financial measures. 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 of 38%, 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 the Company’s industry, business strategy, plans, goals and expectations concerning our market position, product expansion, future operations, revenue, margins, business outlook, 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)October 31, 2017
January 31, 2017
Assets
Current assets
Cash and cash equivalents$184,367 $139,954
Marketable securities, at fair value40,711 40,405
Total cash, cash equivalents and marketable securities225,078 180,359
Accounts receivable, net of allowance for doubtful accounts as of October 31, 2017 and January 31, 2017 were $100 and $75, respectively21,458 17,001
Inventories169 592
Other current assets6,106 2,867
Total current assets252,811 200,819
Property and equipment, net6,789 5,170
Intangible assets, net85,450 65,020
Goodwill4,651 4,651
Deferred tax asset4,656 1,615
Other assets1,760 1,861
Total assets$356,117 $279,136
Liabilities and stockholders’ equity
Current liabilities
Accounts payable$3,295 $3,221
Accrued compensation6,503 8,722
Accrued liabilities9,680 3,760
Total current liabilities19,478 15,703
Long-term liabilities
Other long-term liabilities2,226 1,456
Deferred tax liability 37
Total long-term liabilities2,226 1,493
Total liabilities21,704 17,196
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of October 31, 2017 and January 31, 2017, respectively
Common stock, $0.0001 par value, 900,000 shares authorized, 60,652 and 59,538 shares issued and outstanding as of October 31, 2017 and January 31, 2017, respectively6 6
Additional paid-in capital255,245 232,114
Accumulated other comprehensive loss(188) (165)
Accumulated earnings79,350 29,985
Total stockholders’ equity334,413 261,940
Total liabilities and stockholders’ equity$356,117 $279,136


HealthEquity, Inc. and its subsidiaries
Consolidated statements of operations and comprehensive income (unaudited)
(in thousands, except per share data)Three months ended October 31,
Nine months ended October 31,
2017
2016
2017
2016
Revenue:
Service revenue$22,962 $18,781 $68,258 $56,610
Custodial revenue22,105 14,967 62,709 43,557
Interchange revenue11,722 9,610 38,122 31,389
Total revenue56,789 43,358 169,089 131,556
Cost of revenue:
Service costs17,251 12,675 47,824 34,471
Custodial costs2,784 2,461 8,370 7,211
Interchange costs3,027 2,331 9,625 7,748
Total cost of revenue23,062 17,467 65,819 49,430
Gross profit33,727 25,891 103,270 82,126
Operating expenses:
Sales and marketing5,892 4,391 15,707 12,764
Technology and development6,866 6,209 19,905 15,827
General and administrative6,252 5,166 18,354 15,290
Amortization of acquired intangible assets1,155 1,083 3,320 3,214
Total operating expenses20,165 16,849 57,286 47,095
Income from operations13,562 9,042 45,984 35,031
Other expense:
Other expense, net(395) (256) (523) (934)
Total other expense(395) (256) (523) (934)
Income before income taxes13,167 8,786 45,461 34,097
Income tax provision2,685 2,778 4,004 11,783
Net income$10,482 $6,008 $41,457 $22,314
Net income per share:
Basic$0.17 $0.10 $0.69 $0.38
Diluted$0.17 $0.10 $0.67 $0.37
Weighted-average number of shares used in computing net income per share:
Basic60,562 58,938 60,160 58,338
Diluted61,868 60,073 61,703 59,693
Comprehensive income:
Net income$10,482 $6,008 $41,457 $22,314
Other comprehensive gain (loss):
Unrealized gain (loss) on available-for-sale marketable securities, net of tax7 (23) (23) (36)
Comprehensive income$10,489 $5,985 $41,434 $22,278


HealthEquity, Inc. and its subsidiaries
Statement of Cash flows (unaudited)
Nine months ended October 31,
(in thousands)2017
2016
Cash flows from operating activities:
Net income$41,457 $22,314
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization11,142 9,543
Amortization of deferred financing costs and other97 53
Deferred taxes5,093 (1,880)
Stock-based compensation10,468 6,399
Changes in operating assets and liabilities:
Accounts receivable(4,482) 244
Inventories423 (324)
Other assets(3,027) (3,955)
Accounts payable(425) (973)
Accrued compensation(2,219) (3,117)
Accrued liabilities2,586 1,666
Other long-term liabilities770 1,059
Net cash provided by operating activities61,883 31,029
Cash flows from investing activities:
Purchases of intangible member assets(15,529)
Acquisition of a business(2,882)
Purchases of marketable securities(343) (275)
Purchase of property and equipment(3,382) (2,705)
Purchase of software and capitalized software development costs(7,654) (6,799)
Net cash used in investing activities(29,790) (9,779)
Cash flows from financing activities:
Proceeds from exercise of common stock options12,320 4,546
Tax benefit from exercise of common stock options 15,909
Net cash provided by financing activities12,320 20,455
Increase in cash and cash equivalents44,413 41,705
Beginning cash and cash equivalents139,954 83,641
Ending cash and cash equivalents$184,367 $125,346
Supplemental disclosures of non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable or accrued liabilities at period end$238 $569
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end501 185
Purchases of intangible member assets accrued at period end3,429


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 October 31, Nine months ended October 31,
(in thousands) 2017 2016 2017 2016
Cost of revenue $720 $462 $1,903 $1,258
Sales and marketing 561 364 1,403 930
Technology and development 831 487 2,365 1,290
General and administrative 1,553 755 4,797 2,921
Total stock-based compensation expense $3,665 $2,068 $10,468 $6,399


HSA Members (unaudited)
October 31, 2017 October 31, 2016 % Change January 31, 2017
HSA Members 3,012,968 2,378,353 27% 2,746,132
Average HSA Members - Year-to-date 2,872,744 2,278,994 26% 2,339,091
Average HSA Members - Quarter-to-date 2,977,367 2,354,227 26% 2,519,382
HSA Members with investments 98,257 58,226 69% 65,906


Custodial assets (unaudited)
(in thousands, except percentages) October 31, 2017 October 31, 2016 % Change January 31, 2017
Custodial cash $4,592,658 $3,713,290 24% $4,380,487
Custodial investments 987,050 570,553 73% 658,580
Total custodial assets $5,579,708 $4,283,843 30% $5,039,067
Average daily custodial cash - Year-to-date $4,469,641 $3,596,571 24% $3,661,058
Average daily custodial cash - Quarter-to-date $4,550,327 $3,669,480 24% $3,854,518


Net income reconciliation to Adjusted EBITDA (unaudited)
Three months ended October 31,
Nine months ended October 31,
(in thousands) 2017
2016
2017
2016
Net income $10,482 $6,008 $41,457 $22,314
Interest income (185) (137) (521) (385)
Interest expense 69 69 205 206
Income tax provision 2,685 2,778 4,004 11,783
Depreciation and amortization 2,851 2,335 7,822 6,329
Amortization of acquired intangible assets 1,155 1,083 3,320 3,214
Stock-based compensation expense 3,665 2,068 10,468 6,399
Other (1) 511 323 839 1,113
Adjusted EBITDA $21,233 $14,527 $67,594 $50,973

(1) For the three months ended October 31, 2017 and 2016, Other consisted of non-income-based taxes of $113 and $86, acquisition-related costs of $398 and $10, and other costs of $0 and $237, respectively. For the nine months ended October 31, 2017 and 2016, Other consisted of non-income based taxes of $303 and $260, acquisition-related costs of $482 and $595, and other costs of $54 and $258, respectively.

Reconciliation of Adjusted EBITDA outlook (unaudited)
Outlook for the year ending
(in millions)January 31, 2018
Net income$43 - $45
Income tax provision5 - 6
Depreciation and amortization~ 11
Amortization of acquired intangible assets~ 4
Stock-based compensation expense~ 14
Other~ 3
Adjusted EBITDA$80 - $83


Reconciliation of non-GAAP net income per diluted share (unaudited)
Three months ended
Nine months ended
Outlook for the year ending
(in millions, except per share data)October 31, 2017
October 31, 2017
January 31, 2018
Net income$10 $41 $43 - $45
Stock compensation, net of tax (1) 2 6 ~ 9
Excess tax benefit due to adoption of ASU 2016-09 (2) (12)~ (13)
Non-GAAP net income$10 $35 $39 - $41
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts 62 62 62
Non-GAAP net income per diluted share (2)$0.17 $0.57 $0.64 - $0.66

(1) The Company used an estimated statutory tax rate of 38% to calculate the net impact 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

Source:HealthEquity, Inc.