HealthEquity
March 21, 2017

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

Highlights of the fiscal year include:

Highlights of the fourth quarter include:

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:

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:

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:

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