HealthEquity Reports Fourth Quarter and Fiscal Year Ended January 31, 2018 Financial Results

Highlights of the fiscal year include:

  • Revenue of $229.5 million, an increase of 29% compared to FY17.
  • Net income of $47.4 million, an increase of 80% compared to FY17.
  • Net income per diluted share of $0.77, compared to $0.44 in FY17.
  • Adjusted EBITDA of $84.7 million, an increase of 35% compared to FY17.
  • HSA Members of 3.4 million, an increase of 24% compared to FY17.
  • Total Custodial Assets of $6.8 billion, an increase of 35% compared to FY17.

Highlights of the fourth quarter include:

  • Revenue of $60.4 million, an increase of 29% compared to Q4 FY17.
  • Net income of $5.9 million, an increase of 45% compared to Q4 FY17.
  • Net income per diluted share of $0.09, compared to $0.07 in Q4 FY17.
  • Adjusted EBITDA of $17.1 million, an increase of 45% compared to Q4 FY17.

DRAPER, Utah, March 19, 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 fourth quarter and fiscal year ended January 31, 2018.

“HealthEquity recorded a strong fiscal year 2018 by opening a record 669,000 new HSAs and helping members grow their HSA assets to $6.8 billion,” said Jon Kessler, President and CEO of HealthEquity. “We continued to outpace the market and gain market share with 35% growth in custodial assets, including 96% custodial investment growth, and 24% growth of HSA members. Our revenue for the year was up 29% to $229.5 million and our Adjusted EBITDA was up an even higher 35% to $84.7 million as the team continued to drive greater profitability in our business.”

Full year financial results

For the year ended January 31, 2018, HealthEquity reported revenue of $229.5 million, an increase of 29% compared to $178.4 million for the year ended January 31, 2017. Revenue consisted of:

  • Service revenue of $91.6 million, an increase of 19% compared to FY17.
  • Custodial revenue of $87.2 million, an increase of 46% compared to FY17.
  • Interchange revenue of $50.7 million, an increase of 22% compared to FY17.

Net income was $47.4 million for the year ended January 31, 2018, compared to $26.4 million for the year ended January 31, 2017.

Net income per diluted share was $0.77 for the year ended January 31, 2018, compared to $0.44 for the year ended January 31, 2017.

Non-GAAP Adjusted EBITDA was $84.7 million for the year ended January 31, 2018, an increase of 35% compared to $62.8 million for the year ended January 31, 2017. Adjusted EBITDA was 37% of revenue for the year ended January 31, 2018, compared to 35% for the year ended January 31, 2017.

As of January 31, 2018, we had $240.3 million of cash, cash equivalents and marketable securities and no outstanding debt. This compares to $180.4 million in cash, cash equivalents and marketable securities and no outstanding debt as of January 31, 2017.

Fourth quarter financial results

For the fourth quarter ended January 31, 2018, HealthEquity reported revenue of $60.4 million, an increase of 29% compared to $46.8 million for the fourth quarter ended January 31, 2017. Revenue consisted of:

  • Service revenue of $23.4 million, an increase of 13% compared to Q4 FY17.
  • Custodial revenue of $24.5 million, an increase of 52% compared to Q4 FY17.
  • Interchange revenue of $12.6 million, an increase of 25% compared to Q4 FY17.

Net income was $5.9 million for the fourth quarter ended January 31, 2018, compared to $4.1 million for the fourth quarter ended January 31, 2017.

Net income per diluted share was $0.09 for the fourth quarter ended January 31, 2018, compared to $0.07 for the fourth quarter ended January 31, 2017.

Non-GAAP Adjusted EBITDA was $17.1 million for the fourth quarter ended January 31, 2018, an increase of 45% compared to $11.8 million for the fourth quarter ended January 31, 2017.

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, 2018 was 3.4 million, an increase of 24% from 2.7 million as of January 31, 2017.

Total Custodial Assets as of January 31, 2018 was $6.8 billion, an increase of 35% year over year, consisting of:

  • Custodial Cash Assets of $5.5 billion, an increase of 25% compared to January 31, 2017; and
  • Custodial Investment Assets of $1.3 billion, an increase of 96% compared to January 31, 2017.

Business outlook

For the year ending January 31, 2019, we expect our revenue to be between $276.0 million and $282.0 million. Our outlook for net income is a range of $47.0 million to $51.0 million, resulting in a net income per diluted share range of $0.74 to $0.80. Our Adjusted EBITDA outlook is a range of $106.0 million to $111.0 million. We also expect our non-GAAP net income to be in a range between $63.0 million and $67.0 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 24%, and the impact of excess tax benefits due to the adoption of Accounting Standards Updated ("ASU") 2016-09. Our non-GAAP net income outlook results in a non-GAAP net income per diluted share range between $0.98 to $1.04 (based on an estimated 64.0 million weighted-average shares outstanding).

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 Monday, March 19, 2018 to discuss the fiscal year 2018 fourth quarter and full year financial results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 3494468. 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 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, 2018 January 31, 2017
Assets
Current assets
Cash and cash equivalents$199,472 $139,954
Marketable securities, at fair value40,797 40,405
Total cash, cash equivalents and marketable securities240,269 180,359
Accounts receivable, net of allowance for doubtful accounts of $208 and $75 as of January 31, 2018 and 2017, respectively21,602 17,001
Inventories215 592
Other current assets3,310 2,867
Total current assets265,396 200,819
Property and equipment, net7,836 5,170
Intangible assets, net83,635 65,020
Goodwill4,651 4,651
Deferred tax asset5,461 1,615
Other assets2,180 1,861
Total assets$369,159 $279,136
Liabilities and stockholders’ equity
Current liabilities
Accounts payable$2,420 $3,221
Accrued compensation12,549 8,722
Accrued liabilities5,521 3,760
Total current liabilities20,490 15,703
Long-term liabilities
Other long-term liabilities2,395 1,456
Deferred tax liability 37
Total long-term liabilities2,395 1,493
Total liabilities22,885 17,196
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of January 31, 2018 and 2017
Common stock, $0.0001 par value, 900,000 shares authorized, 60,825 and 59,538 shares issued and outstanding as of January 31, 2018 and 2017, respectively6 6
Additional paid-in capital261,237 232,114
Accumulated other comprehensive loss, net(269) (165)
Accumulated earnings85,300 29,985
Total stockholders’ equity346,274 261,940
Total liabilities and stockholders’ equity$369,159 $279,136

HealthEquity, Inc. and its subsidiaries
Consolidated statements of operations and comprehensive income (unaudited)

(in thousands, except per share data)Three months ended January 31,
Year ended January 31,
2018
2017
2018
2017
Revenue
Service revenue$23,361 $20,644 $91,619 $77,254
Custodial revenue24,451 16,036 87,160 59,593
Interchange revenue12,624 10,134 50,746 41,523
Total revenue60,436 46,814 229,525 178,370
Cost of revenue
Service costs22,602 17,397 70,426 51,868
Custodial costs3,030 2,556 11,400 9,767
Interchange costs3,158 2,632 12,783 10,380
Total cost of revenue28,790 22,585 94,609 72,015
Gross profit31,646 24,229 134,916 106,355
Operating expenses
Sales and marketing7,432 5,556 23,139 18,320
Technology and development7,480 6,548 27,385 22,375
General and administrative6,757 4,861 25,111 20,151
Amortization of acquired intangible assets1,543 1,083 4,863 4,297
Total operating expenses23,212 18,048 80,498 65,143
Income from operations8,434 6,181 54,418 41,212
Other expense
Other expense, net(1,706) (158) (2,229) (1,092)
Total other expense(1,706) (158) (2,229) (1,092)
Income before income taxes6,728 6,023 52,189 40,120
Income tax provision823 1,961 4,827 13,744
Net income$5,905 $4,062 $47,362 $26,376
Net income per share:
Basic$0.10 $0.07 $0.79 $0.45
Diluted$0.09 $0.07 $0.77 $0.44
Weighted-average number of shares used in computing net income per share:
Basic60,730 59,438 60,304 58,615
Diluted62,291 60,645 61,854 59,894
Comprehensive income:
Net income$5,905 $4,062 $47,362 $26,376
Other comprehensive loss:
Unrealized loss on available-for-sale marketable securities, net of tax(36) (31) (59) (67)
Comprehensive income$5,869 $4,031 $47,303 $26,309

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

Year ended January 31,
(in thousands)2018
2017
2016
Cash flows from operating activities:
Net income$47,362 $26,376 $16,613
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization15,952 13,186 8,601
Deferred taxes4,306 (2,891) (2,178)
Stock-based compensation14,310 8,398 5,883
Bad debt expense133 35 24
Amortization of deferred financing costs and loss on other investments87 68 23
Changes in operating assets and liabilities:
Accounts receivable(4,734) (2,728) (5,174)
Inventories377 28 5
Other assets(760) (1,343) (107)
Accounts payable(581) 567 1,011
Accrued compensation3,827 946 2,475
Accrued liabilities484 1,729 (383)
Other long-term liabilities939 1,220 (252)
Net cash provided by operating activities81,702 45,591 26,541
Cash flows from investing activities:
Purchase of marketable securities(483) (379) (40,291)
Purchase of property and equipment(5,458) (3,645) (2,376)
Purchase of software and capitalized software development costs(10,380) (9,030) (6,896)
Acquisition of intangible member assets(17,545) (40,489)
Acquisition of a business(2,882)
Purchases of other investments (500)
Net cash used in investing activities(36,748) (13,054) (90,552)
Cash flows from financing activities:
Proceeds from follow-on offering, net of payments for offering costs 23,492
Proceeds from exercise of common stock options14,564 7,142 1,915
Tax benefit from exercise of common stock options 16,634 11,557
Deferred financing costs paid (317)
Net cash provided by financing activities14,564 23,776 36,647
Increase (decrease) in cash and cash equivalents59,518 56,313 (27,364)
Beginning cash and cash equivalents139,954 83,641 111,005
Ending cash and cash equivalents$199,472 $139,954 $83,641

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)2018
2017
2018
2017
Cost of revenue$691 $522 $2,594 $1,780
Sales and marketing627 (16) 2,030 914
Technology and development953 613 3,318 1,903
General and administrative1,571 880 6,368 3,801
Total stock-based compensation expense$3,842 $1,999 $14,310 $8,398

HSA Members (unaudited)

% change from % change from
January 31, 2018 January 31, 2017 January 31, 2016 2017 to 2018 2016 to 2017
HSA Members 3,402,889 2,746,132 2,140,631 24% 28%
Average HSA Members - Year-to-date 2,951,790 2,339,091 1,600,327 26% 46%
Average HSA Members - Quarter-to-date 3,188,927 2,519,382 1,850,843 27% 36%
HSA Members with investments 121,614 65,906 44,680 85% 48%

Custodial assets (unaudited)

% change from % change from
(in thousands, except percentages)January 31, 2018
January 31, 2017
January 31, 2016
2017 to 2018 2016 to 2017
Custodial cash$5,489,617 $4,380,487 $3,278,628 25% 34%
Custodial investments1,288,693 658,580 405,878 96% 62%
Total custodial assets$6,778,310 $5,039,067 $3,684,506 35% 37%
Average daily custodial cash - Year-to-date$4,571,341 $3,661,058 $2,326,506 25% 57%
Average daily custodial cash - Quarter-to-date$4,876,438 $3,854,518 $2,682,827 27% 44%

Net income reconciliation to Adjusted EBITDA (unaudited)

Three months ended January 31,
Year ended January 31,
(in thousands)2018
2017
2018
2017
Net income$5,905 $4,062 $47,362 $26,376
Interest income(213) (146) (734) (531)
Interest expense69 69 274 275
Income tax provision823 1,961 4,827 13,744
Depreciation and amortization3,267 2,559 11,089 8,889
Amortization of acquired intangible assets1,543 1,083 4,863 4,297
Stock-based compensation expense3,842 1,999 14,310 8,398
Other (1)1,850 236 2,689 1,348
Adjusted EBITDA$17,086 $11,823 $84,680 $62,796


(1)For the three months ended January 31, 2018 and 2017, Other consisted of non-income based taxes of $136 and $101, acquisition-related costs of $1,715 and $0, and other costs of $0 and $135, respectively. For the years ended January 31, 2018 and 2017, Other consisted of non-income based taxes of $439 and $358, acquisition-related costs of $2,197 and $631, and other costs of $53 and $359, respectively.

Reconciliation of net income outlook to Adjusted EBITDA outlook

For the year ending
(in millions)January 31, 2019
Net income$47 - 51
Income tax provision 15 - 16
Depreciation and amortization~ 14
Amortization of acquired intangible assets~ 6
Stock-based compensation expense~ 21
Other~ 3
Adjusted EBITDA$106 - 111

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

Three months endedYear endedOutlook for the year ending
(in millions, except per share data)January 31, 2018January 31, 2018January 31, 2019
Net income$6
$47
$47 - $51
Stock compensation, net of tax (1) 3 9 ~ 16
Excess tax benefit due to adoption of ASU 2016-09 (2) (14)~ (0)
Non-GAAP net income$7
$42
$63 - $67
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts 62 6264
Non-GAAP net income per diluted share (2)$0.11
$0.68
$0.98 - $1.04


(1)For the three and twelve months ended January 31, 2018, the Company used an estimated statutory tax rate of 38% to calculate the net impact of stock-based compensation expense. For the year ending January 31, 2019, the Company used an estimated statutory tax rate of 24% 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

Source:HealthEquity, Inc.