HealthEquity
September 6, 2016

HealthEquity Reports Second Quarter Ended July 31, 2016 Financial Results

Highlights of the second quarter include:

DRAPER, Utah, Sept. 06, 2016 (GLOBE NEWSWIRE) -- HealthEquity, Inc. (NASDAQ:HQY), one of the largest health savings account ("HSA") non-bank custodians, today announced financial results for its second quarter ended July 31, 2016.

"We continue to outpace the market with 50% growth of our HSA Members and 60% growth of our AUM, while the market grew accounts and AUM in the first half of 2016 by 25% and 22% respectively," said Jon Kessler, President and CEO of HealthEquity. Mr. Kessler added, "The strong growth in our HSA Members and AUM resulted in record revenue and Adjusted EBITDA for the second quarter and first half of fiscal year 2017, and put us on solid footing to make seasonal investments in operations for the busy benefits enrollment cycle in the back half of the year."

Mr. Kessler continued, "The HSA platform we've built continues to differentiate our services and capabilities from our bank and healthcare competitors. Our continued growth and solid first half performance gives us the confidence to raise our business outlook for the full fiscal year 2017."

Second quarter financial results

For the second quarter ended July 31, 2016, HealthEquity reported revenue of $44.2 million, compared to $30.5 million for the second quarter ended July 31, 2015, an increase of 45%. Revenue consisted of:

Net income was $8.2 million for the second quarter ended July 31, 2016, compared to $4.4 million for the second  quarter ended July 31, 2015.

Net income per diluted share was $0.14 for the second quarter ended July 31, 2016, compared to $0.08 for the second quarter ended July 31, 2015. Non-GAAP earnings per diluted share for the second quarter ended July 31, 2016 was $0.16, compared to $0.09 for the second quarter ended July 31, 2015.

Adjusted EBITDA was $18.4 million for the second quarter ended July 31, 2016, an increase of 66% compared to $11.1 million for the second quarter ended July 31, 2015. Adjusted EBITDA was 42% of revenue for the second quarter ended July 31, 2016, compared to 36% for the second quarter ended July 31, 2015.

As of July 31, 2016, we had $149.5 million of cash, cash equivalents and marketable securities and no outstanding debt. This compares to $123.8 million in cash and cash equivalents and no outstanding debt as of January 31, 2016.

HSA Member and AUM metrics

The total number of HSAs for which we serve as a non-bank custodian ("HSA Members") as of July 31, 2016 was 2.3 million, an increase of 50% from 1.5 million as of July 31, 2015.

Total assets under management ("AUM") as of July 31, 2016 was $4.2 billion, an increase of 60% year over year, comprised of:

Business outlook

For the year ended January 31, 2017, we are increasing our revenue outlook from a range of $173.0 million to $177.0 million to a range of $174.0 million to $178.0 million and our Adjusted EBITDA outlook from a range of $58.0 million to $60.0 million to a range of $59.0 million to $62.0 million. We will no longer provide guidance on non-GAAP earnings per diluted share, but will provide guidance on net income and net income per diluted share going forward. Our outlook for net income for the year ended January 31, 2017 is a range of $23.0 million to $25.0 million and our outlook for net income per diluted share for the year ended January 31, 2017 is a range of $0.38 to $0.42 (based on an estimated 60.0 million weighted-average shares outstanding). The business outlook for the year ended January 31, 2017 assumes a projected effective tax rate of approximately 36%.

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 6, 2016 to discuss the second 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 52684511. A live webcast of the conference call will also be available on the investor relations section of our website at www.HealthEquity.com.

A replay of the conference call will be made available for 30 days on the Company's website at ir.healthequity.com

Non-GAAP financial information

To supplement our financial information presented on a GAAP basis, we disclose Adjusted EBITDA and non-GAAP earnings per diluted share, which are non-GAAP financial measures. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and other certain non-operating items. We define non-GAAP earnings per diluted share as net income per diluted share, calculated by adding back to net income non-cash stock-based compensation expense, net of tax.

These 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 traditional accounting conventions; 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 comparable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures 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 the company's 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 additional 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, the 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
Condensed consolidated balance sheets (unaudited)

(in thousands, except par value) July 31, 2016 January 31, 2016
Assets    
Current assets    
Cash and cash equivalents $109,169  $83,641 
Marketable securities, at fair value 40,292  40,134 
Total cash, cash equivalents and marketable securities 149,461  123,775 
Accounts receivable, net of allowance for doubtful accounts of $39 as of July 31, 2016 and $40 as of January 31, 2016 16,681  14,308 
Inventories 699  620 
Current deferred tax asset   2,642 
Other current assets 6,899  1,703 
Total current assets 173,740  143,048 
Property and equipment, net 4,251  3,506 
Intangible assets, net 65,675  66,840 
Goodwill 4,651  4,651 
Deferred tax asset 505   
Other assets 1,763  1,750 
Total assets $250,585  $219,795 
Liabilities and stockholders' equity    
Current liabilities    
Accounts payable $1,801  $2,431 
Accrued compensation 4,353  7,776 
Accrued liabilities 2,782  1,899 
Total current liabilities 8,936  12,106 
Long-term liabilities    
Other long-term liabilities 1,076  236 
Deferred tax liability 1,114  3,996 
Total long-term liabilities 2,190  4,232 
Total liabilities 11,126  16,338 
Commitments and contingencies    
Stockholders' equity    
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2016 and January 31, 2016, respectively    
Common stock, $0.0001 par value, 900,000 shares authorized, 58,493 and 57,726 shares issued and outstanding as of July 31, 2016 and January 31, 2016, respectively 6  6 
Additional paid-in capital 219,648  199,940 
Accumulated other comprehensive loss (110) (98)
Accumulated earnings 19,915  3,609 
Total stockholders' equity 239,459  203,457 
Total liabilities and stockholders' equity $250,585  $219,795 
 

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

(in thousands, except per share data)Three months ended July 31, Six months ended July 31,
2016 2015 2016 2015
Revenue:       
Service revenue$18,835  $14,692  $37,829  $29,306 
Custodial revenue14,779  9,031  28,590  17,450 
Interchange revenue10,571  6,771  21,779  13,588 
Total revenue44,185  30,494  88,198  60,344 
Cost of revenue:       
Service costs10,539  8,348  21,796  16,767 
Custodial costs2,394  1,512  4,750  2,935 
Interchange costs2,698  2,049  5,417  4,151 
Total cost of revenue15,631  11,909  31,963  23,853 
Gross profit28,554  18,585  56,235  36,491 
Operating expenses:       
Sales and marketing4,190  2,737  8,373  5,570 
Technology and development4,993  3,998  9,618  7,522 
General and administrative5,550  3,943  10,124  7,101 
Amortization of acquired intangible assets1,082  409  2,131  818 
Total operating expenses15,815  11,087  30,246  21,011 
Income from operations12,739  7,498  25,989  15,480 
Other expense:       
Other expense, net(37) (542) (678) (647)
Total other expense(37) (542) (678) (647)
Income before income taxes12,702  6,956  25,311  14,833 
Income tax provision4,469  2,535  9,005  5,435 
Net income$8,233  $4,421  $16,306  $9,398 
Net income per share:       
Basic$0.14  $0.08  $0.28  $0.17 
Diluted$0.14  $0.08  $0.27  $0.16 
Weighted-average number of shares used in computing net income per share:         
Basic58,246  56,730  58,035  55,909 
Diluted59,651  58,932  59,501  58,318 
Comprehensive income:       
Net income$8,233  $4,421  $16,306  $9,398 
Other comprehensive loss:       
Unrealized gain/(loss) on available-for-sale marketable securities, net of tax27  (11) (12) (33)
Comprehensive income$8,260  $4,410  $16,294  $9,365 
 

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

  Six months ended July 31,
(in thousands) 2016 2015
Cash flows from operating activities:    
Net income $16,306  $9,398 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 6,125  3,665 
Amortization of deferred financing costs 36   
Deferred taxes (738) (1,133)
Stock-based compensation 4,331  2,771 
Changes in operating assets and liabilities:    
Accounts receivable (2,373) (1,801)
Inventories (79) 35 
Other assets (5,245) (3,611)
Accounts payable (1,069) (277)
Accrued compensation (3,423) (1,989)
Accrued liabilities 827  577 
Other long-term liabilities 840  (343)
Net cash provided by operating activities 15,538  7,292 
Cash flows from investing activities:    
Purchases of marketable securities (177) (40,137)
Purchase of property and equipment (1,250) (1,257)
Purchase of software and capitalized software development costs (3,960) (2,982)
Net cash used in investing activities (5,387) (44,376)
Cash flows from financing activities:    
Proceeds from follow-on offering, net of payments for offering costs   23,492 
Proceeds from exercise of common stock options 1,128  1,153 
Tax benefit from exercise of common stock options 14,249  10,285 
Net cash provided by financing activities 15,377  34,930 
Increase (decrease) in cash and cash equivalents 25,528  (2,154)
Beginning cash and cash equivalents 83,641  111,005 
Ending cash and cash equivalents $109,169  $108,851 
Supplemental disclosures of non-cash investing and financing activities:    
Purchases of property and equipment included in accounts payable or accrued liabilities at period end $379  $ 
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end 116   
       

Stock-based compensation expense

Total stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive income is as follows:

  Three months ended July 31, Six months ended July 31,
(in thousands) 2016 2015 2016 2015
Cost of revenue $421  $208  $796  $436 
Sales and marketing 353  259  566  487 
Technology and development 446  237  803  387 
General and administrative 1,289  973  2,166  1,461 
Total stock-based compensation expense $2,509  $1,677  $4,331  $2,771 

HSA Members

  July 31, 2016 July 31, 2015 % Change January 31, 2016
HSA Members 2,300,007  1,537,147  50% 2,140,631 
Average HSA Members - Year-to-date 2,241,378  1,484,990  51% 1,600,327 
Average HSA Members - Quarter-to-date 2,270,896  1,510,403  50% 1,850,843 
HSA Members with investments 52,722  38,501  37% 44,680 

Assets under management (AUM)

(in thousands, except percentages) July 31, 2016 July 31, 2015 % Change January 31, 2016
Cash AUM $3,658,245  $2,260,111  62% $3,278,628 
Investment AUM 542,331  372,120  46% 405,878 
Total AUM $4,200,576  $2,632,231  60% $3,684,506 
Average daily cash AUM - Year-to-date $3,560,117  $2,176,971  64% $2,326,506 
Average daily cash AUM - Quarter-to-date $3,602,152  $2,214,287  63% $2,682,827 

Reconciliation of net income to Adjusted EBITDA

  Three months ended July 31, Six months ended July 31,
(in thousands) 2016 2015 2016 2015
Net income $8,233  $4,421  $16,306  $9,398 
Interest income (128) (109) (248) (185)
Interest expense 69    137   
Income tax provision 4,469  2,535  9,005  5,435 
Depreciation and amortization 2,097  1,506  3,994  2,847 
Amortization of acquired intangible assets 1,082  409  2,131  818 
Stock-based compensation expense 2,509  1,677  4,331  2,771 
Other (1) 96  653  790  832 
Adjusted EBITDA $18,427  $11,092  $36,446  $21,916 

(1) For the three months ended July 31, 2016 and 2015, Other consisted of non-income-based taxes of $86 and $82, and acquisition-related costs of $10 and $571, respectively. For the six months ended July 31, 2016 and 2015, Other consisted of non-income-based taxes of $172 and $171, acquisition-related costs of $595 and $661, and other costs of $23 and $0, respectively.

Reconciliation of net income outlook to adjusted EBITDA outlook

  For the year ending
(in millions) January 31, 2017
Net income $23 - 25
Income tax provision 13 -14
Depreciation and amortization ~ 9
Amortization of acquired intangible assets ~ 4
Stock-based compensation expense ~9
Other ~ 1
Adjusted EBITDA $59 - 62

Reconciliation of net income to adjusted net income and resulting non-GAAP earnings per diluted share

  Three months ended July 31, Six months ended July 31,
(in thousands, except per share data) 2016 2015 2016 2015
Net income $8,233  $4,421  $16,306  $9,398 
Stock compensation expense, net of tax (1) 1,555  1,027  2,685  1,717 
Adjusted net income 9,788  5,448  18,991  11,115 
Diluted weighted-average number of shares used in computing net income per diluted share 59,651  58,932  59,501  58,318 
Non-GAAP earnings per diluted share $0.16  $0.09  $0.32  $0.19 

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

 

Investor Relations Contact:
Richard Putnam
801-727-1209
rputnam@healthequity.com