December 9, 2014
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HealthEquity Reports Third Quarter Ended October 31, 2014 Financial Results

Highlights of the Third Quarter Include:

  • Revenue of $21.9 million, an increase of 43% compared to Q3 FY14.
  • Net income of $3.0 million, an increase of 54% compared to Q3 FY14.
  • Net income per diluted share of $0.05 compared to $0.04 in Q3 FY14.
  • Adjusted EBITDA of $6.1 million, an increase of 33% compared to Q3 FY14.
  • Pro Forma non-GAAP EPS of $0.05 per share compared to $0.05 in Q3 FY14.
  • HSA Members grew to 1.1 million, a 46% increase from Q3 FY14.
  • Total AUM grew to $1.8 billion, a 41% increase from Q3 FY14.
  • Increase in FY15 guidance.

DRAPER, Utah, Dec. 9, 2014 (GLOBE NEWSWIRE) -- HealthEquity, Inc. (Nasdaq:HQY), one of the largest HSA non-bank custodians, today announced financial results for its third quarter ended October 31, 2014.

"Third quarter revenue growth of 43% year over year was driven by continued robust growth in both HSA membership and in assets under management. In the quarter, HSA membership increased by 349,000 members to 1.1 million, up 46% year over year, and AUM reached $1.8 billion, up 41% year over year," remarked Jon Kessler, President and CEO of HealthEquity.

Mr. Kessler added, "We continued to execute on our growth strategy during the third quarter by adding several new network partners, as well as further penetrating our existing partners. We are encouraged by our results so far this year, as it's clear that our partners recognize the value we deliver to our members, and we are enthusiastic about the remainder of fiscal year 2015."

Third Quarter Financial Results

For the third quarter ended October 31, 2014, HealthEquity reported revenue of $21.9 million, compared to $15.2 million for the third quarter ended October 31, 2013, an increase of 43%. Revenue consisted primarily of:

  • Account fee revenue of $11.1 million, an increase of 48% compared to Q3 FY14.
  • Custodial fee revenue of $6.2 million, an increase of 29% compared to Q3 FY14.
  • Card fee revenue of $4.3 million, an increase of 51% compared to Q3 FY14.

Net income and comprehensive income was $3.0 million for the third quarter ended October 31, 2014, compared to $2.0 million for the third quarter ended October 31, 2013.

Net income per share attributable to diluted common share was $0.05 for the third quarter ended October 31, 2014, compared to $0.04 for the third quarter ended October 31, 2013. Pro Forma non-GAAP EPS for the third quarter ended October 31, 2014 was $0.05, compared to $0.05 for the third quarter ended October 31, 2013.

Non-GAAP Adjusted EBITDA was $6.1 million for the third quarter ended October 31, 2014, an increase of 33% compared to $4.6 million for the third quarter ended October 31, 2013. Adjusted EBITDA was 28% of revenue for the third quarter ended October 31, 2014, compared to 30% for the third quarter ended October 31, 2013.

As of October 31, 2014, we had $107.9 million of cash and cash equivalents and no outstanding debt. This compares to $13.9 million in cash and cash equivalents and no outstanding debt as of January 31, 2014.

HSA Member Metrics

The total number of HSAs for which we serve as a non-bank custodian ("HSA Members") as of October 31, 2014 was 1.1 million, an increase of 46%, from 760,000 as of October 31, 2013.

Total assets under management ("AUM") as of October 31, 2014 was $1.8 billion, an increase of 41% year over year, comprised of:

  • Cash AUM of $1.6 billion, an increase of 38% compared to the same period last year; and
  • Investment AUM of $256.8 million, an increase of 69% compared to the same period last year.

Investment AUM was 14% of total AUM as of October 31, 2014 compared to 12% as of October 31, 2013.

Business Outlook

For fiscal year 2015, we expect our revenue to be between $85.0 million and $87.0 million and our Adjusted EBITDA to be between $23.0 million and $25.0 million. We expect our Pro Forma non-GAAP EPS to be between $0.19 per share and $0.21 per share. Our Pro Forma non-GAAP EPS estimate is based on an estimated weighted average shares outstanding of 50.6 million and is calculated on a pro forma basis to give effect to the conversion of all of our outstanding convertible preferred stock and redeemable convertible preferred stock into common stock, which occurred on August 4, 2014 in connection with our IPO, as if such conversion occurred at the beginning of the period presented.

Conference Call

HealthEquity management will host a conference call at 5:00 pm (Eastern Time) on Tuesday, December 9, 2014 to discuss the third quarter financial results. The conference call will be accessible by dialing 888-359-3627, or 719-325-2376 for international callers, and referencing conference ID 2052239. A live webcast of the conference call will also be available on the investor relations section of the company's website at www.HealthEquity.com

An audio replay will be available following the conclusion of the call through January 9, 2015. The replay can be accessed by dialing 888-203-1112 in the U.S., or 719-457-0820 for international callers. The passcode for the replay is: 2052239.

Non-GAAP Financial Information

To supplement our condensed consolidated financial statements presented on a GAAP basis, we disclose Adjusted EBITDA and Pro Forma non-GAAP EPS, which are non-GAAP financial measures. We define Adjusted EBITDA as adjusted earnings before interest, taxes, depreciation and amortization and other certain non-cash statement of operations items. We define Pro Forma non-GAAP EPS as net income per diluted share, calculated on a pro forma basis to give effect to the conversion of all of our outstanding convertible preferred stock and redeemable convertible preferred stock into common stock, which occurred on August 4, 2014 in connection with our IPO, as if such conversion occurred at the beginning of the fiscal year. 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 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, 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 final prospectus for the company's initial public offering filed on August 1, 2014 and most recent Quarterly Report on Form 10-Q 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 statements of operations and comprehensive income (unaudited)  
         
  Three months ended October 31, Nine months ended October 31,
(in thousands, except per share data) 2014 2013 2014 2013
         
Revenue        
Account fee revenue  $ 11,086  $ 7,496  $ 32,022  $ 21,721
Custodial fee revenue  6,196  4,816  17,557  13,913
Card fee revenue  4,317  2,853  12,848  8,929
Other revenue  263  83  557  291
Total revenue  21,862  15,248  62,984  44,854
         
Cost of services        
Account costs  7,057  4,977  20,188  14,677
Custodial costs  1,050  858  2,994  2,737
Card costs  1,467  1,006  4,284  2,989
Other costs  56  29  58  71
Total cost of services  9,630  6,870  27,524  20,474
         
Gross profit  12,232  8,378  35,460  24,380
         
Operating expenses        
Sales and marketing  2,275  1,876  6,829  5,458
Technology and development  2,811  1,803  7,299  5,131
General and administrative  2,443  894  5,252  2,629
Amortization of acquired intangible assets  409  409  1,227  1,227
Total operating expenses  7,938  4,982  20,607  14,445
         
Income from operations  4,294  3,396  14,853  9,935
         
Other expense        
Loss on revaluation of redeemable convertible preferred stock derivative  —  (109)  (735)  (109)
Other expense, net  (145)  (29)  (276)  (152)
         
Total other expense  (145)  (138)  (1,011)  (261)
         
Income before income taxes  4,149  3,258  13,842  9,674
         
Income tax provision  1,100  1,280  5,047  3,724
         
Net income and comprehensive income  $ 3,049  $ 1,978  $ 8,795  $ 5,950
         
Net income attributable to common stockholders:        
Basic  $ 3,020  $ 607  $ 10,245  $ 1,717
Diluted  $ 3,036  $ 1,213  $ 9,530  $ 3,520
         
Net income per share attributable to common stockholders:        
Basic  $ 0.06  $ 0.11  $ 0.44  $ 0.31
Diluted  $ 0.05  $ 0.04  $ 0.19  $ 0.12
         
Weighted-average number of shares used in computing net income per share attributable to common stockholders:        
Basic  53,678  5,582  23,232  5,548
Diluted  57,553  28,725  50,052  28,705
     
Net income and comprehensive income reconciliation to Adjusted EBITDA    
         
  Three months ended October 31, Nine months ended October 31,
(in thousands) 2014 2013 2014 2013
Net income and comprehensive income  $ 3,049  $ 1,978  $ 8,795  $ 5,950
Income tax provision  1,100  1,280  5,047  3,724
Depreciation and amortization  1,134  742  2,960  1,913
Amortization of acquired intangible assets  409  409  1,227  1,227
Loss on revaluation of redeemable convertible preferred stock derivative liability  —  109  735  109
Other (1)  373  43  972  113
Total adjustments  $ 3,016  $ 2,583  $ 10,941  $ 7,086
Adjusted EBITDA  $ 6,065  $ 4,561  $ 19,736  $ 13,036
         
(1)  For the three and nine months ended October 31, 2014, Other consisted of interest income of $(9) and $(9), interest expense of $0 and $0, miscellaneous taxes of $55 and $188, and stock-based compensation expense of $327 and $793, respectively. For the three and nine months ended October 31, 2013, Other consisted of interest income of $(12) and $(36), interest expense of $11 and $30, miscellaneous taxes of $31 and $75, and stock-based compensation expense of $13 and $44, respectively.
         
HSA Members        
         
  October 31, 2014 October 31, 2013 % Change January 31, 2014
HSA Members  1,108,533   759,736  46 %  967,710 
Average HSA Members  1,040,531   717,021  45 %  747,182 
           
Assets under management          
           
(in thousands, except percentages) October 31, 2014 October 31, 2013 $ Change % Change January 31, 2014
Cash AUM  $ 1,578,814  $ 1,146,138  $ 432,676 38 %  $ 1,442,336
Investment AUM  256,791  151,663  105,128 69 %  182,614
Total AUM  $ 1,835,605  $ 1,297,801  $ 537,804 41 %  $ 1,624,950
Average daily cash AUM  $ 1,505,659  $ 1,109,237  $ 396,422 36 %  $ 1,137,825
     
Net income per share reconciliation to Pro Forma non-GAAP EPS    
         
  Three months ended October 31, Nine months ended October 31,
(in thousands, except per share data) 2014 2013 2014 2013
GAAP net income  $ 3,049  $ 1,978  $ 8,795  $ 5,950
Pro forma weighted average shares used in computing non-GAAP diluted earnings per share (1)  57,696  42,459  50,052  42,439
Pro forma non-GAAP earnings per diluted share  $ 0.05  $ 0.05  $ 0.18  $ 0.14
         
(1)  The pro-forma diluted weighted average shares outstanding give effect to the conversion of all outstanding shares of convertible preferred stock and redeemable convertible preferred stock into shares of common stock using the as-if converted method as of the beginning of each period presented. In August 2014, in connection with the closing of our initial public offering, all of our outstanding convertible preferred stock and redeemable convertible preferred stock was converted into common stock.  
CONTACT: Investors Contact:

         Westwicke PartnersBob East / Asher Dewhurst

         443-213-0500

         bob.east@westwicke.com

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Source: HealthEquity

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