June 5, 2023

HealthEquity Reports First Quarter Ended April 30, 2023 Financial Results

Highlights of the first quarter include:

  • Revenue of $244.4 million, an increase of 19% compared to $205.7 million in Q1 FY23.
  • Net income of $4.1 million, compared to net loss of $13.6 million in Q1 FY23, with non-GAAP net income of $42.8 million, an increase of 89% compared to $22.7 million in Q1 FY23.
  • Net income per diluted share of $0.05, compared to net loss per diluted share of $0.16 in Q1 FY23, with non-GAAP net income per diluted share of $0.50, compared to $0.27 in Q1 FY23.
  • Adjusted EBITDA of $86.6 million, an increase of 48% compared to $58.3 million in Q1 FY23.
  • 8.0 million HSAs, an increase of 9% compared to Q1 FY23.
  • Total HSA Assets of $22.3 billion, an increase of 10% compared to Q1 FY23.
  • 15.0 million Total Accounts, including both HSAs and complementary CDBs, an increase of 4% compared to Q1 FY23.

DRAPER, Utah, June 05, 2023 (GLOBE NEWSWIRE) -- HealthEquity, Inc. (NASDAQ: HQY) ("HealthEquity" or the "Company"), the nation's largest health savings account ("HSA") custodian, today announced financial results for its first quarter ended April 30, 2023.

"Team Purple delivered both growth and profitability in Q1, adding 134,000 new HSA members in the quarter and increasing our Adjusted EBITDA margin by 700 basis points year over year," said Jon Kessler, President and CEO of HealthEquity. "We are raising our outlook for the full year based on this strong first quarter performance, which also enabled our early payment of $50 million of variable-rate debt even as we continue to invest in drivers of future growth, including a remarkable service experience for our partners, clients, and members."

First quarter financial results

Revenue for the first quarter ended April 30, 2023 was $244.4 million, an increase of 19% compared to $205.7 million for the first quarter ended April 30, 2022. Revenue this quarter included: service revenue of $105.1 million, custodial revenue of $94.4 million, and interchange revenue of $44.9 million.

HealthEquity reported net income of $4.1 million, or $0.05 per diluted share, and non-GAAP net income of $42.8 million, or $0.50 per diluted share, for the first quarter ended April 30, 2023. The Company reported a net loss of $13.6 million, or $0.16 per diluted share, and non-GAAP net income of $22.7 million, or $0.27 per diluted share, for the first quarter ended April 30, 2022.

Adjusted EBITDA was $86.6 million for the first quarter ended April 30, 2023, an increase of 48% compared to the first quarter ended April 30, 2022. Adjusted EBITDA was 35% of revenue, compared to 28% for the first quarter ended April 30, 2022.

Account and asset metrics

HSAs as of April 30, 2023 were 8.0 million, an increase of 9% year over year, including 556,000 HSAs with investments, an increase of 10% year over year. Total Accounts as of April 30, 2023 were 15.0 million, including 7.0 million other consumer-directed benefits ("CDBs").

Total HSA Assets as of April 30, 2023 were $22.3 billion, an increase of 10% year over year. Total HSA Assets included $14.1 billion of HSA cash and $8.2 billion of HSA investments. Client-held funds, which are deposits held on behalf of our Clients to facilitate administration of our CDBs, and from which we generate custodial revenue, were $0.9 billion as of April 30, 2023.

Business outlook

For the fiscal year ending January 31, 2024, management expects revenue of $975 million to $985 million. Its outlook for net income is between $9 million and $14 million, resulting in net income of $0.10 to $0.16 per diluted share. Its outlook for non-GAAP net income, calculated using the method described below, is between $164 million and $171 million, resulting in non-GAAP net income per diluted share of $1.88 to $1.97 (based on an estimated 87 million diluted weighted-average shares outstanding). Management expects Adjusted EBITDA of $333 million to $343 million.

See “Non-GAAP financial information” below for definitions of our Adjusted EBITDA and non-GAAP net income. 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 4:30 pm (Eastern Time) on Monday, June 5, 2023 to discuss the fiscal 2024 first quarter financial results. The conference call will be accessible by dialing 1-833-630-1956, or 1-412-317-1837 for international callers, and referencing conference ID "HealthEquity, Inc. call." A live audio webcast of the call will 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 non-GAAP financial measures, including Adjusted EBITDA, non-GAAP net income, and non-GAAP net income per diluted share.

  • Adjusted EBITDA is adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, amortization of incremental costs to obtain a contract, costs associated with unused office space, and certain other non-operating items.
  • Non-GAAP net income is calculated by adding back to GAAP net income (loss) before income taxes the following items: amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, costs associated with unused office space, and losses on extinguishment of debt, and subtracting a non-GAAP tax provision using a normalized non-GAAP tax rate.
  • 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. We believe that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the Company's financial condition and results of operations. 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. In addition, while amortization of acquired intangible assets is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is not excluded. 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.

About HealthEquity

HealthEquity and its subsidiaries administer HSAs and other consumer-directed benefits for our 15 million accounts in partnership with employers, benefits advisors, and health and retirement plan providers who share our mission to connect health and wealth and value our culture of remarkable “Purple” service. For more information, visit www.healthequity.com.

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, acquisition synergies, 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,” “aims,” “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 dependence on the continued availability and benefits of tax-advantaged HSAs and other CDBs;
  • our ability to adequately place and safeguard our custodial assets, or the failure of any of our depository or insurance company partners;
  • the impact from a decline in interest rate levels on our financial results;
  • our ability to realize the anticipated financial and other benefits from combining the operations of recent and future acquisitions with our business successfully;
  • our ability to compete effectively in a rapidly evolving healthcare and benefits administration industry;
  • our ability to successfully identify, acquire and integrate additional portfolio purchases or acquisition targets;
  • the significant competition we face and may face in the future, including from those with greater resources than us;
  • the impact of societal and economic changes arising out of the COVID-19 pandemic on the Company, our operations and our financial results;
  • our reliance on the availability and performance of our technology and communications systems;
  • potential future cybersecurity breaches of our technology and communications systems 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, ERISA, investment adviser and other laws applicable to our business;
  • our reliance on partners and third-party vendors for distribution and important services;
  • our ability to develop and implement updated features for our technology and communications systems; 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 Annual Report on Form 10-K for the fiscal year ended January 31, 2023 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. Forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.

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


HealthEquity, Inc. and subsidiaries
Condensed consolidated balance sheets

(in thousands, except par value) April 30, 2023
    January 31, 2023
 
  (unaudited)        
Assets      
Current assets      
Cash and cash equivalents $ 225,642     $ 254,266  
Accounts receivable, net of allowance for doubtful accounts of $4,722 and $4,989 as of April 30, 2023 and January 31, 2023, respectively   98,414       96,835  
Other current assets   34,353       31,792  
Total current assets   358,409       382,893  
Property and equipment, net   10,532       12,862  
Operating lease right-of-use assets   56,726       56,461  
Intangible assets, net   907,703       936,359  
Goodwill   1,648,145       1,648,145  
Other assets   53,494       52,180  
Total assets $ 3,035,009     $ 3,088,900  
Liabilities and stockholders’ equity      
Current liabilities      
Accounts payable $ 13,362     $ 13,899  
Accrued compensation   20,001       45,835  
Accrued liabilities   45,647       43,668  
Current portion of long-term debt         17,500  
Operating lease liabilities   10,646       10,159  
Total current liabilities   89,656       131,061  
Long-term liabilities      
Long-term debt, net of issuance costs   872,902       907,838  
Operating lease liabilities, non-current   58,625       58,988  
Other long-term liabilities   13,307       12,708  
Deferred tax liability   81,927       82,665  
Total long-term liabilities   1,026,761       1,062,199  
Total liabilities   1,116,417       1,193,260  
Commitments and contingencies      
Stockholders’ equity      
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of April 30, 2023 and January 31, 2023, respectively          
Common stock, $0.0001 par value, 900,000 shares authorized, 85,470 and 84,758 shares issued and outstanding as of April 30, 2023 and January 31, 2023, respectively   9       8  
Additional paid-in capital   1,764,573       1,745,716  
Accumulated earnings   154,010       149,916  
Total stockholders’ equity   1,918,592       1,895,640  
Total liabilities and stockholders’ equity $ 3,035,009     $ 3,088,900  


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

  Three months ended April 30,
 
(in thousands, except per share data)   2023       2022  
Revenue      
Service revenue $ 105,112     $ 104,348  
Custodial revenue   94,441       59,365  
Interchange revenue   44,879       41,966  
Total revenue   244,432       205,679  
Cost of revenue      
Service costs   80,555       80,874  
Custodial costs   9,000       6,641  
Interchange costs   7,051       6,991  
Total cost of revenue   96,606       94,506  
Gross profit   147,826       111,173  
Operating expenses      
Sales and marketing   19,935       16,560  
Technology and development   53,192       45,183  
General and administrative   24,894       23,727  
Amortization of acquired intangible assets   23,166       23,698  
Merger integration   3,458       9,294  
Total operating expenses   124,645       118,462  
Income (loss) from operations   23,181       (7,289 )
Other expense      
Interest expense   (14,997 )     (10,461 )
Other income (expense), net   1,828       (301 )
Total other expense   (13,169 )     (10,762 )
Income (loss) before income taxes   10,012       (18,051 )
Income tax provision (benefit)   5,918       (4,412 )
Net income (loss) and comprehensive income (loss) $ 4,094     $ (13,639 )
Net income (loss) per share:      
Basic $ 0.05     $ (0.16 )
Diluted $ 0.05     $ (0.16 )
Weighted-average number of shares used in computing net income (loss) per share:      
Basic   85,030       84,022  
Diluted   86,102       84,022  


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

  Three months ended April 30,
 
(in thousands)   2023       2022  
Cash flows from operating activities:      
Net income (loss) $ 4,094     $ (13,639 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation and amortization   39,041       39,486  
Stock-based compensation   18,204       13,986  
Amortization of debt discount and issuance costs   782       812  
Loss on extinguishment of debt   1,157        
Deferred taxes   (738 )     (4,470 )
Changes in operating assets and liabilities:      
Accounts receivable, net   (1,579 )     1,425  
Other assets   (4,514 )     7,317  
Operating lease right-of-use assets   1,844       2,034  
Accrued compensation   (25,381 )     (13,731 )
Accounts payable, accrued liabilities, and other current liabilities   (50 )     (24,056 )
Operating lease liabilities, non-current   (1,921 )     (1,821 )
Other long-term liabilities   599       (266 )
Net cash provided by operating activities   31,538       7,077  
Cash flows from investing activities:      
Purchases of software and capitalized software development costs   (9,003 )     (13,635 )
Purchases of property and equipment   (132 )     (1,155 )
Acquisitions of HSA portfolios         (59,413 )
Net cash used in investing activities   (9,135 )     (74,203 )
Cash flows from financing activities:      
Principal payments on long-term debt   (54,375 )     (2,187 )
Settlement of client-held funds obligation, net   2,432       2,335  
Proceeds from exercise of common stock options   916       2,811  
Net cash provided by (used in) financing activities   (51,027 )     2,959  
Decrease in cash and cash equivalents   (28,624 )     (64,167 )
Beginning cash and cash equivalents   254,266       225,414  
Ending cash and cash equivalents $ 225,642     $ 161,247  


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

  Three months ended April 30,
 
(in thousands)   2023       2022  
Supplemental cash flow data:      
Interest expense paid in cash $ 19,498     $ 15,496  
Income tax payments (refunds), net   (7 )     55  
Supplemental disclosures of non-cash investing and financing activities:      
Purchases of software and capitalized software development costs included in accounts payable, accrued liabilities, or accrued compensation   2,465       2,917  
Purchases of property and equipment included in accounts payable or accrued liabilities   119       1,165  
Acquisitions of HSA portfolios included in accounts payable or accrued liabilities         1,305  
Exercise of common stock options receivable   120        


Stock-based compensation expense (unaudited)

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

  Three months ended April 30,
 
(in thousands)   2023       2022  
Cost of revenue $ 3,835     $ 3,007  
Sales and marketing   2,779       2,014  
Technology and development   4,892       3,380  
General and administrative   6,698       5,585  
Total stock-based compensation expense $ 18,204     $ 13,986  


Total Accounts (unaudited)

(in thousands, except percentages) April 30, 2023   April 30, 2022   % Change   January 31, 2023  
HSAs 8,045   7,359   9 %   7,984  
New HSAs from sales - Quarter-to-date 134   159   (16 )%   445  
New HSAs from sales - Year-to-date 134   159   (16 )%   971  
New HSAs from acquisitions - Year-to-date   90   (100 )%   90  
HSAs with investments 556   506   10 %   541  
CDBs 6,954   7,095   (2 )%   6,933  
Total Accounts 14,999   14,454   4 %   14,917  
Average Total Accounts - Quarter-to-date 14,980   14,427   4 %   14,677  
Average Total Accounts - Year-to-date 14,980   14,427   4 %   14,531  


HSA Assets (unaudited)

(in millions, except percentages) April 30, 2023   April 30, 2022   % Change   January 31, 2023
 
HSA cash $ 14,113   $ 12,935   9 %   $ 14,199  
HSA investments   8,206     7,330   12 %     7,947  
Total HSA Assets   22,319     20,265   10 %     22,146  
Average daily HSA cash - Year-to-date   14,074     12,910   9 %     13,049  
Average daily HSA cash - Quarter-to-date   14,074     12,910   9 %     13,375  


Client-held funds (unaudited)

(in millions, except percentages) April 30, 2023   April 30, 2022   % Change   January 31, 2023
 
Client-held funds $ 926   $ 872   6 %   $ 901  
Average daily Client-held funds - Year-to-date   902     865   4 %     827  
Average daily Client-held funds - Quarter-to-date   902     865   4 %     809  


Reconciliation of net income (loss) to Adjusted EBITDA (unaudited)

  Three months ended April 30,
 
(in thousands)   2023       2022  
Net income (loss) $ 4,094     $ (13,639 )
Interest income   (1,598 )     (52 )
Interest expense   14,997       10,461  
Income tax provision (benefit)   5,918       (4,412 )
Depreciation and amortization   15,875       15,788  
Amortization of acquired intangible assets   23,166       23,698  
Stock-based compensation expense   18,204       13,986  
Merger integration expenses   3,458       9,294  
Acquisition costs         6  
Amortization of incremental costs to obtain a contract   1,304       1,067  
Costs associated with unused office space   1,016       1,294  
Other   153       844  
Adjusted EBITDA $ 86,587     $ 58,335  


Reconciliation of net income outlook to Adjusted EBITDA outlook (unaudited)

  Outlook for the year ending  
(in millions) January 31, 2024  
Net income $9 - 14  
Interest income (7 )
Interest expense 55  
Income tax provision 9 - 14  
Depreciation and amortization 61  
Amortization of acquired intangible assets 93  
Stock-based compensation expense 86  
Merger integration expenses 17  
Amortization of incremental costs to obtain a contract 5  
Costs associated with unused office space 4  
Other expense 1  
Adjusted EBITDA $333 - 343  


Reconciliation of net income (loss) to non-GAAP net income (unaudited)

  Three months ended April 30,
 
(in thousands, except per share data)   2023       2022  
Net income (loss) $ 4,094     $ (13,639 )
Income tax provision (benefit)   5,918       (4,412 )
Income (loss) before income taxes - GAAP   10,012       (18,051 )
Non-GAAP adjustments:      
Amortization of acquired intangible assets   23,166       23,698  
Stock-based compensation expense   18,204       13,986  
Merger integration expenses   3,458       9,294  
Acquisition costs         6  
Costs associated with unused office space   1,016       1,294  
Loss on extinguishment of debt   1,157        
Total adjustments to income (loss) before income taxes - GAAP   47,001       48,278  
Income before income taxes - Non-GAAP   57,013       30,227  
Income tax provision - Non-GAAP (1)   14,253       7,557  
Non-GAAP net income   42,760       22,670  
       
Diluted weighted-average shares   86,102       84,022  
Non-GAAP net income per diluted share $ 0.50     $ 0.27  

(1) The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations. The normalized non-GAAP tax rate applied to each period presented was 25%. The Company may adjust its non-GAAP tax rate as additional information becomes available and in conjunction with any other significant events occurring that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other changes in expectations regarding tax regulations.


Reconciliation of net income outlook to non-GAAP net income outlook (unaudited)

  Outlook for the year ending  
(in millions, except per share data) January 31, 2024  
Net income $9 - 14  
Income tax provision 9 - 14  
Income before income taxes - GAAP 18 - 28  
Non-GAAP adjustments:    
Amortization of acquired intangible assets 93  
Stock-based compensation expense 86  
Merger integration expenses 17  
Costs associated with unused office space 4  
Total adjustments to income before income taxes - GAAP 200  
Income before income taxes - Non-GAAP 218 - 228  
Income tax provision - Non-GAAP (1) 54 - 57  
Non-GAAP net income $164 - 171  
     
Diluted weighted-average shares 87  
Non-GAAP net income per diluted share (2) $1.88 - 1.97  

(1) The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations. The normalized non-GAAP tax rate applied to each period presented was 25%. The Company may adjust its non-GAAP tax rate as additional information becomes available and in conjunction with any other significant events occurring that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other changes in expectations regarding tax regulations.

(2) Non-GAAP net income per diluted share may not calculate due to rounding of non-GAAP net income and diluted weighted-average shares.


Certain terms

Term   Definition
HSA   A financial account through which consumers spend and save long-term for healthcare on a tax-advantaged basis.
CDB   Consumer-directed benefits offered by employers, including flexible spending and health reimbursement arrangements (“FSAs” and “HRAs”), Consolidated Omnibus Budget Reconciliation Act (“COBRA”) administration, commuter and other benefits.
HSA member   Consumers with HSAs that we serve.
Total HSA Assets   HSA members’ custodial cash assets held by our federally insured depository partners and our insurance company partners. Total HSA Assets also includes HSA members' investments in mutual funds through our custodial investment fund partner.
Client   Our employer clients.
Total Accounts   The sum of HSAs and CDBs on our platforms.
Client-held funds   Deposits held on behalf of our Clients to facilitate administration of our CDBs.
Network Partner   Our health plan partners, benefits administrators, and retirement plan recordkeepers.
Adjusted EBITDA   Adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, amortization of incremental costs to obtain a contract, costs associated with unused office space, and certain other non-operating items.
Non-GAAP net income   Calculated by adding back to GAAP net income (loss) before income taxes the following items: amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, costs associated with unused office space, and losses on extinguishment of debt, and subtracting a non-GAAP tax provision using a normalized non-GAAP tax rate.
Non-GAAP net income per diluted share   Calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.


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Source: HealthEquity, Inc.