HealthEquity Reports First Quarter Ended April 30, 2018 Financial Results

Highlights of the first quarter include:

  • Revenue of $69.9 million, an increase of 26% compared to Q1 FY18.
  • Net income of $22.6 million, an increase of 61% compared to Q1 FY18.
  • Net income per diluted share of $0.36 compared to $0.23 in Q1 FY18.
  • Non-GAAP net income per diluted share of $0.31 compared to $0.19 in Q1 FY18.
  • Adjusted EBITDA of $29.6 million, an increase of 32% compared to Q1 FY18.
  • HSA Members of 3.5 million, an increase of 24% compared to Q1 FY18.
  • Total Custodial Assets of $6.9 billion, an increase of 31% compared to Q1 FY18.

DRAPER, Utah, June 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 first quarter ended April 30, 2018.

"HealthEquity is off to an excellent start to fiscal 2019, delivering record results in helping members connect health and wealth," said Jon Kessler, President and CEO.  "The team opened nearly a hundred thousand new HSAs during the quarter, grew custodial assets 31% year over year, and delivered record performance across key financial metrics."

First quarter financial results

For the first quarter ended April 30, 2018, HealthEquity reported revenue of $69.9 million, an increase of 26% compared to $55.4 million for the first quarter ended April 30, 2017. Revenue consisted of:

  • Service revenue of $24.8 million, an increase of 10% compared to Q1 FY18.
  • Custodial revenue of $28.4 million, an increase of 47% compared to Q1 FY18. 
  • Interchange revenue of $16.6 million, an increase of 22% compared to Q1 FY18.

Net income was $22.6 million for the first quarter ended April 30, 2018, compared to $14.0 million for the first quarter ended April 30, 2017.

Net income per diluted share was $0.36 for the first quarter ended April 30, 2018, compared to $0.23 for the first quarter ended April 30, 2017.

Non-GAAP net income per diluted share was $0.31 for the first quarter ended April 30, 2018, compared to $0.19 for the first quarter ended April 30, 2017.

Non-GAAP Adjusted EBITDA was $29.6 million for the first quarter ended April 30, 2018, an increase of 32% compared to $22.4 million for the first quarter ended April 30, 2017. Adjusted EBITDA was 42% of revenue for the first quarter ended April 30, 2018, compared to 40% for the first quarter ended April 30, 2017.

As of April 30, 2018, we had $269.8 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 April 30, 2018 was 3.5 million, an increase of 24% from 2.8 million as of April 30, 2017.

Total Custodial Assets as of April 30, 2018 was $6.9 billion, an increase of 31% year over year, consisting of:

  • Custodial Cash Assets of $5.5 billion, an increase of 24% compared to April 30, 2017; and
  • Custodial Investment Assets of $1.4 billion, an increase of 75% compared to April 30, 2017.

Business outlook

We have modestly increased our outlook for the year ending January 31, 2019. We expect our revenue to be between $278 million and $284 million. Our outlook for net income is a range of $55 million to $59 million, resulting in a net income per diluted share range of $0.86 to $0.92. Our Adjusted EBITDA outlook is a range of $107 million to $111 million. We also expect our non-GAAP net income to be in a range between $64 million and $68 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 $1.00 to $1.06 (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 Monday, June 4, 2018 to discuss the fiscal year 2019 first 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 9585707. 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) April 30, 2018
    January 31, 2018
 
Assets      
Current assets      
Cash and cash equivalents $ 228,945     $ 199,472  
Marketable securities, at fair value 40,890     40,797  
Total cash, cash equivalents and marketable securities 269,835     240,269  
Accounts receivable, net of allowance for doubtful accounts as of April 30, 2018 and January 31, 2018 were $229 and $208, respectively 23,022     21,602  
Inventories 177     215  
Other current assets 10,730     3,310  
Total current assets 303,764     265,396  
Property and equipment, net 8,626     7,836  
Intangible assets, net 82,148     83,635  
Goodwill 4,651     4,651  
Deferred tax asset 616     5,461  
Other assets 18,226     2,180  
Total assets $ 418,031     $ 369,159  
Liabilities and stockholders' equity      
Current liabilities      
Accounts payable $ 3,112     $ 2,420  
Accrued compensation 7,640     12,549  
Accrued liabilities 6,402     5,521  
Total current liabilities 17,154     20,490  
Long-term liabilities      
Other long-term liabilities 2,466     2,395  
Deferred tax liability 1,437      
Total long-term liabilities 3,903     2,395  
Total liabilities 21,057     22,885  
Commitments and contingencies      
Stockholders' equity      
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of April 30, 2018 and January 31, 2018, respectively      
Common stock, $0.0001 par value, 900,000 shares authorized, 61,788 and 60,825 shares issued and outstanding as of April 30, 2018 and January 31, 2018, respectively 6     6  
Additional paid-in capital 276,440     261,237  
Accumulated other comprehensive loss     (269 )
Accumulated earnings 120,528     85,300  
Total stockholders' equity 396,974     346,274  
Total liabilities and stockholders' equity $ 418,031     $ 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 April 30,
 
2018
    2017
 
Revenue:      
Service revenue $ 24,821     $ 22,487  
Custodial revenue 28,434     19,319  
Interchange revenue 16,649     13,615  
Total revenue 69,904     55,421  
Cost of revenue:      
Service costs 18,047     15,575  
Custodial costs 3,439     2,801  
Interchange costs 4,062     3,304  
Total cost of revenue 25,548     21,680  
Gross profit 44,356     33,741  
Operating expenses:      
Sales and marketing 6,860     4,621  
Technology and development 7,979     6,242  
General and administrative 7,507     5,868  
Amortization of acquired intangible assets 1,470     1,083  
Total operating expenses 23,816     17,814  
Income from operations 20,540     15,927  
Other expense:      
Other expense, net (1 )   (90 )
Total other expense (1 )   (90 )
Income before income taxes 20,539     15,837  
Income tax provision (benefit) (2,038 )   1,808  
Net income $ 22,577     $ 14,029  
Net income per share:      
Basic $ 0.37     $ 0.23  
Diluted $ 0.36     $ 0.23  
Weighted-average number of shares used in computing net income per share:      
Basic 61,170     59,720  
Diluted 62,693     61,400  
Comprehensive income:      
Net income $ 22,577     $ 14,029  
Other comprehensive loss:      
Unrealized loss on available-for-sale marketable securities, net of tax     (26 )
Comprehensive income $ 22,577     $ 14,003  
               

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

  Three months ended April 30,
 
(in thousands) 2018
    2017
 
Cash flows from operating activities:      
Net income $ 22,577     $ 14,029  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 4,520     3,482  
Unrealized losses on marketable securities and other 102     41  
Deferred taxes 1,989     3,218  
Stock-based compensation 4,239     3,010  
Changes in operating assets and liabilities:      
Accounts receivable (1,420 )   (1,987 )
Inventories 38     63  
Other assets (5,471 )   (1,207 )
Accounts payable 87     (1,545 )
Accrued compensation (4,909 )   (4,397 )
Accrued liabilities 881     625  
Other long-term liabilities 71     244  
Net cash provided by operating activities 22,704     15,576  
Cash flows from investing activities:      
Purchases of marketable securities (180 )   (109 )
Purchases of property and equipment (1,121 )   (1,437 )
Purchases of software and capitalized software development costs (2,097 )   (2,728 )
Net cash used in investing activities (3,398 )   (4,274 )
Cash flows from financing activities:      
Proceeds from exercise of common stock options 10,167     3,829  
Net cash provided by financing activities 10,167     3,829  
Increase in cash and cash equivalents 29,473     15,131  
Beginning cash and cash equivalents 199,472     139,954  
Ending cash and cash equivalents $ 228,945     $ 155,085  
Supplemental disclosures of non-cash investing and financing activities:      
Purchases of property and equipment included in accounts payable or accrued liabilities at period end $ 491     $ 133  
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end 117     141  
Exercise of common stock options receivable 797      
           

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 April 30,
 
(in thousands)   2018
    2017
 
Cost of revenue   $ 413     $ 491  
Sales and marketing   705     317  
Technology and development   991     672  
General and administrative   2,130     1,530  
Total stock-based compensation expense   $ 4,239     $ 3,010  
                 

HSA Members (unaudited)

    April 30, 2018     April 30, 2017     % Change     January 31, 2018  
HSA Members   3,476,484     2,805,280     24 %   3,402,889  
Average HSA Members - Year-to-date   3,443,586     2,782,779     24 %   2,951,790  
Average HSA Members - Quarter-to-date   3,443,586     2,782,779     24 %   3,188,927  
HSA Members with investments   134,246     76,996     74 %   121,614  
                         

Custodial assets (unaudited)

(in thousands, except percentages)   April 30, 2018
    April 30, 2017
    % Change     January 31, 2018
 
Custodial cash   $ 5,510,500     $ 4,454,928     24 %   $ 5,489,617  
Custodial investments   1,351,331     772,867     75 %   1,288,693  
Total custodial assets   $ 6,861,831     $ 5,227,795     31 %   $ 6,778,310  
Average daily custodial cash - Year-to-date   $ 5,467,046     $ 4,410,507     24 %   $ 4,571,341  
Average daily custodial cash - Quarter-to-date   $ 5,467,046     $ 4,410,507     24 %   $ 4,876,438  
                               

Net income reconciliation to Adjusted EBITDA (unaudited)

    Three months ended April 30,
 
(in thousands)   2018
    2017
 
Net income   $ 22,577     $ 14,029  
Interest income   (258 )   (157 )
Interest expense   67     67  
Income tax provision (benefit)   (2,038 )   1,808  
Depreciation and amortization   3,050     2,398  
Amortization of acquired intangible assets   1,470     1,083  
Stock-based compensation expense   4,239     3,010  
Other (1)   520     180  
Adjusted EBITDA   $ 29,627     $ 22,418  
                 

(1) For the three months ended April 30, 2018 and 2017, Other consisted of non-income-based taxes of $104 and $88, other costs of $89 and $54, acquisition-related costs of $0 and $38, and amortization of incremental costs to obtain a contract of $327 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 $55 - $59
Income tax provision ~ 9
Depreciation and amortization ~ 14
Amortization of acquired intangible assets ~ 6
Stock-based compensation expense ~ 21
Other ~ 2
Adjusted EBITDA $107 - $111
   

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

  Three months ended
  Three months ended
  Outlook for the year ending  
(in millions, except per share data) April 30, 2018
  April 30, 2017
  January 31, 2019  
Net income $ 23   $ 14   $55 - $59  
Stock compensation, net of tax (1)   3     2   ~ 16  
Excess tax benefit due to adoption of ASU 2016-09   (7 )   (4 ) ~  (7 )
Non-GAAP net income $ 19   $ 12   $64 - $68  
         
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts   63     61   64  
Non-GAAP net income per diluted share (2) $ 0.31   $ 0.19   $1.00 - $1.06  
                 

(1) For the three months ended April 30, 2018 and 2017, the Company used an estimated statutory tax rate of 24% and 38%, respectively 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

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