HealthEquity
September 5, 2017

HealthEquity Reports Second Quarter Ended July 31, 2017 Financial Results

Highlights of the second quarter include:

DRAPER, Utah, Sept. 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 second quarter ended July 31, 2017.

"HealthEquity opened nearly 120,000 new HSAs in the second quarter, 40% more than during the same period last year," said Jon Kessler, President and CEO of HealthEquity. "In terms of sales growth, this is the strongest second quarter performance in the team's history. Since the second quarter of last year, we have added over 700,000 new HSAs and grown custodial assets by $1.2 billion. Our solid second quarter results and start to fiscal 2018, provide the basis to once again increase our guidance for fiscal 2018 financial expectations."

Second quarter financial results

For the second quarter ended July 31, 2017, HealthEquity reported revenue of $56.9 million, an increase of 29% compared to $44.2 million for the second quarter ended July 31, 2016. Revenue consisted of:

Net income was $16.9 million for the second quarter ended July 31, 2017, compared to $8.2 million for the second quarter ended July 31, 2016.

Net income per diluted share was $0.27 for the second quarter ended July 31, 2017, compared to $0.14 for the second quarter ended July 31, 2016.

Adjusted EBITDA was $23.9 million for the second quarter ended July 31, 2017, an increase of 30% compared to $18.4 million for the second quarter ended July 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 July 31, 2017 was 2.9 million, an increase of 26% from 2.3 million as of July 31, 2016.

Total Custodial Assets as of July 31, 2017 was $5.4 billion, an increase of 28% year over year, consisting of:

Business outlook

We are increasing our business outlook for the year ended January 31, 2018. We are increasing our revenue outlook from a range between $222.0 million and $227.0 million to a range between $223.0 million and $228.0 million, our net income from a range between $33.0 million and $37.0 million to a range between $41.0 million and $45.0 million, our Adjusted EBITDA from a range between $78.0 million and $83.0 million to a range between $79.0 million and $84.0 million. We also expect our non-GAAP net income to be in a range between $39.0 million and $43.0 million, up from our prior range between $38.0 million and $42.0 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 $0.68 (based on an estimated 62.0 million diluted weighted-average shares outstanding), up from our prior range between $0.62 and $0.67.

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, September 5, 2017 to discuss the fiscal year 2018 second quarter results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 64836688. 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) July 31, 2017
  January 31, 2017
 
Assets   
Current assets   
Cash and cash equivalents$169,721  $139,954 
Marketable securities, at fair value40,581  40,405 
Total cash, cash equivalents and marketable securities210,302  180,359 
Accounts receivable, net of allowance for doubtful accounts as of July 31, 2017 and January 31, 2017 were $45 and $75, respectively20,904  17,001 
Inventories339  592 
Other current assets8,078  2,867 
Total current assets239,623  200,819 
Property and equipment, net6,080  5,170 
Intangible assets, net73,827  65,020 
Goodwill4,651  4,651 
Deferred tax asset5,054   1,615 
Other assets1,709  1,861 
Total assets$330,944  $279,136 
Liabilities and stockholders' equity       
Current liabilities       
Accounts payable$1,594  $3,221 
Accrued compensation6,520  8,722 
Accrued liabilities4,829  3,760 
Total current liabilities12,943  15,703 
Long-term liabilities   
Other long-term liabilities2,067  1,456 
Deferred tax liability  37 
Total long-term liabilities2,067  1,493 
Total liabilities15,010  17,196 
Commitments and contingencies       
Stockholders' equity        
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2017 and January 31, 2017, respectively   
Common stock, $0.0001 par value, 900,000 shares authorized, 60,399 and 59,538 shares issued and outstanding as of July 31, 2017 and January 31, 2017, respectively6  6 
Additional paid-in capital247,255  232,114 
Accumulated other comprehensive loss(195 ) (165)
Accumulated earnings68,868  29,985 
Total stockholders' equity315,934  261,940 
Total liabilities and stockholders' equity$330,944  $279,136 
        


 
HealthEquity, Inc. and its subsidiaries
Consolidated statements of operations and comprehensive income (unaudited)
 
(in thousands, except per share data)Three months ended July 31,
  Six months ended July 31,
 
2017
  2016
  2017
  2016
 
Revenue:       
Service revenue$22,809  $18,835  $45,296  $37,829 
Custodial revenue21,285  14,779  40,604  28,590 
Interchange revenue12,785  10,571  26,400  21,779 
Total revenue56,879  44,185  112,300  88,198 
Cost of revenue:       
Service costs14,998  10,539  30,573  21,796 
Custodial costs2,785  2,394  5,586  4,750 
Interchange costs3,294  2,698  6,598  5,417 
Total cost of revenue21,077  15,631  42,757  31,963 
Gross profit35,802  28,554   69,543  56,235 
Operating expenses:       
Sales and marketing5,194  4,190  9,815  8,373 
Technology and development6,797   4,993  13,039  9,618 
General and administrative6,234  5,550  12,102  10,124 
Amortization of acquired intangible assets1,082  1,082  2,165  2,131 
Total operating expenses19,307  15,815  37,121  30,246 
Income from operations16,495  12,739  32,422  25,989 
Other expense:       
Other expense, net(38) (37) (128) (678)
Total other expense(38) (37) (128) (678)
Income before income taxes16,457  12,702  32,294  25,311 
Income tax provision (benefit)(489) 4,469  1,319  9,005 
Net income$16,946  $8,233  $30,975  $16,306 
Net income per share:       
Basic$0.28  $0.14  $0.52  $0.28 
Diluted$0.27  $0.14  $0.50  $0.27 
Weighted-average number of shares used in computing net income per share:       
Basic60,173  58,246  59,955  58,035 
Diluted61,765  59,651  61,604  59,501 
Comprehensive income:       
Net income$ 16,946  $8,233  $30,975  $16,306 
Other comprehensive gain (loss):       
Unrealized gain (loss) on available-for-sale marketable securities, net of tax(4) 27   (30) (12)
Comprehensive income$16,942  $8,260  $30,945  $16,294 
                


 
HealthEquity, Inc. and its subsidiaries
Statement of Cash flows (unaudited)
 
 Six months ended July 31,
 
(in thousands)2017
  2016
 
Cash flows from operating activities:   
Net income$30,975  $16,306 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization7,136  6,125 
Amortization of deferred financing costs and other27  36 
Deferred taxes4,699  (738)
Stock-based compensation6,803  4,331 
Changes in operating assets and liabilities:   
Accounts receivable(3,873) (2,373)
Inventories253  (79)
Other assets(4,073) (5,245)
Accounts payable(1,495) (1,069)
Accrued compensation(2,202) (3,423)
Accrued liabilities900  827 
Other long-term liabilities611  840 
Net cash provided by operating activities39,761   15,538 
Cash flows from investing activities:   
Purchases of intangible member assets(6,515)  
Acquisition of a business(3,000)  
Purchases of marketable securities(224) (177)
Purchase of property and equipment(2,161) (1,250)
Purchase of software and capitalized software development costs(5,166) (3,960)
Net cash used in investing activities(17,066) (5,387)
Cash flows from financing activities:   
Proceeds from exercise of common stock options7,072  1,128 
Tax benefit from exercise of common stock options  14,249 
Net cash provided by financing activities7,072  15,377 
Increase in cash and cash equivalents29,767  25,528 
Beginning cash and cash equivalents139,954  83,641 
Ending cash and cash equivalents$169,721   $109,169 
Supplemental disclosures of non-cash investing and financing activities:   
Purchases of property and equipment included in accounts payable or accrued liabilities at period end$53  $379 
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end69  116 
Purchases of intangible member assets accrued at period end270   
Exercise of common stock options receivable1,017   
      

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 July 31,   Six months ended July 31,
(in thousands) 2017 2016 2017 2016
Cost of revenue $692 $421 $1,183 $796
Sales and marketing 526 353 842 566
Technology and development 862 446 1,534 803
General and administrative 1,714 1,289 3,244 2,166
Total stock-based compensation expense $3,794 $2,509 $6,803 $4,331
             


HSA Members (unaudited)
 
  July 31, 2017  July 31, 2016 % Change January 31, 2017
HSA Members 2,899,646 2,300,007 26% 2,746,132
Average HSA Members - Year-to-date 2,820,433 2,241,378 26% 2,339,091
Average HSA Members - Quarter-to-date 2,858,087 2,270,896 26% 2,519,382
HSA Members with investments 86,868 52,722 65% 65,906
 


Custodial assets (unaudited)
 
(in thousands, except percentages) July 31, 2017 July 31, 2016 % Change January 31, 2017
Custodial cash $4,502,841 $3,658,245 23% $4,380,487
Custodial investments 871,524 542,331 61% 658,580
Total custodial assets $5,374,365 $4,200,576 28% $5,039,067
Average daily custodial cash - Year-to-date $4,429,299 $3,560,117 24% $3,661,058
Average daily custodial cash - Quarter-to-date $4,448,090 $3,602,152 23% $3,854,518
            


Net income reconciliation to Adjusted EBITDA (unaudited)
 
  Three months ended July 31,
    Six months ended July 31,
 
(in thousands) 2017
  2016
  2017
  2016
 
Net income $16,946  $8,233  $30,975  $16,306 
Interest income (179) (128) (336) (248)
Interest expense 69  69  136  137 
Income tax provision (benefit) (489) 4,469  1,319  9,005 
Depreciation and amortization 2,573  2,097  4,971  3,994 
Amortization of acquired intangible assets 1,082  1,082  2,165  2,131 
Stock-based compensation expense 3,793  2,509  6,803  4,331 
Other (1) 148  96  328  790 
Adjusted EBITDA $23,943  $18,427  $46,361  $36,446 

(1) For the three months ended July 31, 2017 and 2016, Other consisted of non-income-based taxes of $102 and $86, and acquisition-related costs of $46 and $10, respectively. For the six months ended July 31, 2017 and 2016, Other consisted of non-income based taxes of $190 and $172, acquisition-related costs of $84 and $595, and other costs of $54 and $23, respectively.

 
Reconciliation of Adjusted EBITDA outlook (unaudited)
 
  Outlook for the year ending
(in millions)January 31, 2018
Net income$41 - $45
Income tax provision8 - 9
Depreciation and amortization~ 11
Amortization of acquired intangible assets~ 4
Stock-based compensation expense~ 14
Other~ 1
Adjusted EBITDA$79 - $84
 


Reconciliation of non-GAAP net income per diluted share (unaudited)
 
 Three months ended
 Six months ended
 Outlook for the year ending
(in millions, except per share data)July 31, 2017
 July 31, 2017
 January 31, 2018
Net income$17 $31 $41 - $45
Stock compensation, net of tax (1) 2  4 ~ 9
Excess tax benefit due to adoption of ASU 2016-09 (6) (10)~ (11)
Non-GAAP net income$13  $25 $39 - $43
      
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts62 62 62
Non-GAAP net income per diluted share$0.21 $0.40  $0.64 - $0.68

(1) The Company used an estimated statutory tax rate of 38% to calculate the net impact stock-based compensation expense.

Investor Relations Contact:

Richard Putnam

801-727-1209

rputnam@healthequity.com

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Source: HealthEquity, Inc.

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