8-K


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form 8-K


CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

September 8, 2015

Commission File Number: 001-36568

 
 
 
HEALTHEQUITY, INC.
 
 
 


Delaware
 
7389
 
52-2383166
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)

15 West Scenic Pointe Drive
Suite 100
Draper, Utah 84020
(801) 727-1000

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

Not Applicable
(Former name or former address, if changed since last report)
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




Item 2.02    Results of Operations and Financial Condition
On September 8, 2015, HealthEquity, Inc. issued a press release announcing its financial results for its three and six months ended July 31, 2015. The full text of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
This information is intended to be furnished under Item 2.02 of Form 8-K, “Results of Operations and Financial Condition” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01    Financial Statements and Exhibits

(d) Exhibits

Exhibit No.    Description

99.1
Press release issued by HealthEquity, Inc. dated September 8, 2015, announcing financial results for its three and six months ended July 31, 2015.





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
HEALTHEQUITY, INC.
Date: September 8, 2015
By:
 
/s/ Darcy Mott
 
Name:
 
Darcy Mott
 
Title:
 
Executive Vice President and Chief Financial Officer





EXHIBIT INDEX

 
 
 
Exhibit
no.
 
Description
99.1
 
Press release issued by HealthEquity, Inc. dated September 8, 2015, announcing financial results for its three and six months ended July 31, 2015.


Exhibit

HealthEquity Reports Second Quarter Ended July 31, 2015 Financial Results
Highlights of the second quarter include:
Revenue of $30.5 million, an increase of 46% compared to Q2 FY15.
Net income of $4.4 million, an increase of 46% compared to Q2 FY15.
Net income per diluted share of $0.08 compared to $0.06 in Q2 FY15.
Adjusted EBITDA of $11.1 million, an increase of 62% compared to Q2 FY15.
Pro forma non-GAAP EPS of $0.09 per share compared to $0.07 in Q2 FY15.
HSA Members grew to 1.5 million, an increase of 45% compared to Q2 FY15.
Total AUM grew to $2.6 billion, a 47% increase compared to Q2 FY15.
Increase in FY16 revenue guidance.
    
Draper, Utah – September 8, 2015 – 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, 2015.
Commenting on the quarter, Jon Kessler, President and CEO of HealthEquity, stated, “HealthEquity has experienced two very solid quarters so far this year and I'm very optimistic about the progress to come during the rest of fiscal 2016. In the second quarter, our revenue grew 46% and our adjusted EBITDA increased 62% year over year, demonstrating strong margin expansion. We grew our HSA membership and assets under management at a robust pace. Our technology, ecosystem, and exemplary levels of customer service continue to differentiate HealthEquity in the fast-growing HSA market and have allowed us to gain market share over the last year.”
Second quarter financial results
For the second quarter ended July 31, 2015, HealthEquity reported revenue of $30.5 million, compared to $20.9 million for the second quarter ended July 31, 2014, an increase of 46%. Revenue consisted primarily of:
Account fee revenue of $14.6 million, an increase of 38% compared to Q2 FY15.
Custodial fee revenue of $9.0 million, an increase of 52% compared to Q2 FY15.
Card fee revenue of $6.8 million, an increase of 60% compared to Q2 FY15.

Net income was $4.4 million for the second quarter ended July 31, 2015, compared to $3.0 million for the second quarter ended July 31, 2014.
Net income per share attributable to diluted common share was $0.08 for the second quarter ended July 31, 2015, compared to $0.06 for the second quarter ended July 31, 2014. Pro forma non-GAAP EPS for the second quarter ended July 31, 2015 was $0.09, compared to $0.07 for the second quarter ended July 31, 2014.
Adjusted EBITDA was $11.1 million for the second quarter ended July 31, 2015, an increase of 62% compared to $6.9 million for the second quarter ended July 31, 2014. Adjusted EBITDA was 36% of revenue for the second quarter ended July 31, 2015, compared to 33% for the second quarter ended July 31, 2014.
As of July 31, 2015, we had $148.9 million of cash, cash equivalents and marketable securities and no outstanding debt. This compares to $111.0 million in cash and cash equivalents and no outstanding debt as of January 31, 2015.



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, 2015 was 1.5 million, an increase of 45% from 1.1 million as of July 31, 2014.
Total assets under management ("AUM") as of July 31, 2015 was $2.6 billion, an increase of 47% year over year, comprised of:
Cash AUM of $2.3 billion, an increase of 46% compared to July 31, 2014; and
Investment AUM of $372.1 million, an increase of 56% compared to July 31, 2014.
Investment AUM was 14% of total AUM as of July 31, 2015, compared to 13% as of July 31, 2014.
Business outlook
For the year ended January 31, 2016, we are increasing our expected revenue to be between $120.0 million and $124.0 million. We are maintaining our Adjusted EBITDA to be between $36.0 million and $38.0 million. We expect our pro forma non-GAAP earnings per diluted share to be between $0.28 and $0.30 per share. Our pro forma non-GAAP earnings per diluted share is based on an estimated 60 million weighted-average shares outstanding, and is calculated by adding back to net income all non-cash stock compensation expense, net of tax. We expect total stock compensation expense, net of tax, for the year ended January 31, 2016 to be between $3.5 million and $4.0 million. The business outlook for the year ended January 31, 2016 assumes a projected effective tax rate of approximately 37%.
Conference call
HealthEquity management will host a conference call at 5:00 pm (Eastern Time) on Tuesday, September 8, 2015 to discuss the second quarter financial results. The conference call will be accessible by dialing 888-438-5453, or 719-457-2627 for international callers, and referencing conference ID 7067718. 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 October 8, 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: 7067718.
Non-GAAP financial information
To supplement our financial information presented on a GAAP basis, we disclose Adjusted EBITDA, pro forma non-GAAP earnings per diluted share, non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, and non-GAAP operating margin, 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. We define pro forma 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, and to give effect to the conversion of all our outstanding convertible preferred stock and redeemable convertible preferred stock into common stock, which occurred on August 4, 2014 in connection with our initial public offering, as if such conversion occurred at the beginning of the fiscal year. Non-GAAP gross profit is calculated by excluding from gross profit stock-based compensation expense attributable to cost of services. Non-GAAP gross margin is the ratio calculated by dividing non-GAAP gross profit by revenues. Non-GAAP income from operations is calculated by excluding stock-based compensation expense from operating income. Non-GAAP operating margin is the ratio calculated by dividing non-GAAP operating income by revenues.

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 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 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 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 statements of operations and comprehensive income (unaudited)
(in thousands, except per share data)
Three months ended July 31,
 

Six months ended July 31,
 
2015


2014


2015


2014

Revenue:







   Account fee revenue
$
14,604


$
10,548


$
29,001


$
20,936

   Custodial fee revenue
9,031


5,934


17,450


11,361

   Card fee revenue
6,771


4,233


13,588


8,531

   Other revenue
88


176


305


294

   Total revenue
30,494


20,891


60,344


41,122

 Cost of services:







   Account costs
8,316


6,703


16,705


13,131

   Custodial costs
1,512


1,006


2,935


1,944

   Card costs
2,049


1,412


4,151


2,817

   Other costs
32


1


62


2

   Total cost of services
11,909


9,122


23,853


17,894

 Gross profit
18,585


11,769


36,491


23,228

 Operating expenses:







   Sales and marketing
2,737


2,321


5,570


4,554

   Technology and development
3,998


2,302


7,522


4,488

   General and administrative
3,943


1,666


7,101


2,809

   Amortization of acquired intangible assets
409


409


818


818

   Total operating expenses
11,087


6,698


21,011


12,669

 Income from operations
7,498


5,071


15,480


10,559

 Other expense:







Loss on revaluation of redeemable convertible preferred stock derivative






(735
)
   Other expense, net
(542
)

(39
)

(647
)

(131
)
 Total other expense
(542
)

(39
)

(647
)

(866
)
 Income before income taxes
6,956


5,032


14,833


9,693

 Income tax provision
2,535


2,004


5,435


3,947

 Net income
$
4,421


$
3,028


$
9,398


$
5,746

Net income attributable to common stockholders:







 Basic
$
4,421


$
1,565


$
9,398


$
5,457

 Diluted
$
4,421


$
2,591


$
9,398


$
6,481

Net income per share attributable to common stockholders:







 Basic
$
0.08


$
0.19


$
0.17


$
0.70

 Diluted
$
0.08


$
0.06


$
0.16


$
0.14

Weighted-average number of shares used in computing net income per share attributable to common stockholders:







 Basic
56,730


8,135


55,909


7,757

 Diluted
58,932


41,680


58,318


45,847

Comprehensive income:







Net income
$
4,421


$
3,028


$
9,398


$
5,746

Other comprehensive loss:







Unrealized loss on available-for-sale marketable securities, net of tax
(11
)



(33
)


Comprehensive income
$
4,410


$
3,028


$
9,365


$
5,746




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)

2015


2014


2015


2014

Cost of services

$
208


$
52


$
436


$
70

Sales and marketing

259


138


487


141

Technology and development

237


53


387


85

General and administrative

973


160


1,461


172

Total stock-based compensation expense

$
1,677


$
403


$
2,771


$
468

The following table presents components of our condensed consolidated statements of operations and comprehensive income, adjusted for stock compensation expense:

Three months ended July 31,
 

Six months ended July 31,
 
(in thousands, except for percentages)
2015


2014


2015


2014

Reconciliation of gross profit to non-GAAP gross profit:







Gross profit
$
18,585


$
11,769


$
36,491


$
23,228

Excluding: Stock-based compensation expense attributable to cost of services
208


52


436


70

Non-GAAP gross profit
$
18,793


$
11,821


$
36,927


$
23,298

Reconciliation of gross margin to non-GAAP gross margin:







GAAP gross margin
61
%

56
%

60
%

56
%
Excluding: Stock-based compensation expense attributable to cost of services
1
%

%

1
%

1
%
Non-GAAP gross margin
62
%

56
%

61
%

57
%
Reconciliation of income from operations to non-GAAP income from operations:







Income from operations
$
7,498


$
5,071


$
15,480


$
10,559

Excluding: Stock-based compensation expense
1,677


403


2,771


468

Non-GAAP income from operations
$
9,175


$
5,474


$
18,251


$
11,027

Reconciliation of operating margin to non-GAAP operating margin:







GAAP operating margin
25
%

24
%

26
%

26
%
Excluding: Stock-based compensation expense
5
%

2
%

4
%

1
%
Non-GAAP operating margin
30
%

26
%

30
%

27
%



Net income reconciliation to Adjusted EBITDA


Three months ended July 31,
 

Six months ended July 31,
 
(in thousands)

2015


2014


2015


2014

Net income

$
4,421


$
3,028


$
9,398


$
5,746

Income tax provision

2,535


2,004


5,435


3,947

Depreciation and amortization

1,506


983


2,847


1,825

Amortization of acquired intangible assets

409


409


818


818

Loss on revaluation of redeemable convertible preferred stock derivative liability







735

Stock-based compensation expense

1,677


403


2,771


468

Other (1)

544


40


647


132

Total adjustments

$
6,671


$
3,839


$
12,518


$
7,925

Adjusted EBITDA

$
11,092


$
6,867


$
21,916


$
13,671

(1)
For the three months ended July 31, 2015 and 2014, Other consisted of interest income of $(109) and $0, miscellaneous taxes of $82 and $40, and acquisition-related costs of $571 and $0, respectively. For the six months ended July 31, 2015 and 2014, Other consisted of interest income of $(185) and $0, miscellaneous taxes of $171 and $132, and acquisition-related costs of $661 and $0, respectively.

HSA Members


July 31, 2015


July 31, 2014


% Change


January 31, 2015

HSA Members

1,537,147


1,061,713


45
%

1,426,785

Average HSA Members - Year-to-date

1,484,990


1,015,539


46
%

1,087,962

Average HSA Members - Quarter-to-date

1,510,403


1,038,853


45
%

1,230,256

Assets under management (AUM)
(in thousands, except percentages)

July 31, 2015


July 31, 2014


% Change


January 31, 2015

Cash AUM

$
2,260,111


$
1,546,753


46
%

$
2,075,741

Investment AUM

372,120


237,831


56
%

286,526

Total AUM

$
2,632,231


$
1,784,584


47
%

$
2,362,267

Average daily cash AUM - Year-to-date

$
2,176,971


$
1,480,075


47
%

$
1,553,845

Average daily cash AUM - Quarter-to-date

$
2,214,287


$
1,500,672


48
%

$
1,698,402

Net income per diluted share reconciliation to Pro forma non-GAAP earnings per diluted share

Three months ended July 31,
 
Six months ended July 31,
 
(in thousands, except per share data)
2015


2014


2015


2014

Net income attributable to common stockholders for diluted earnings per share
$
4,421


$
2,591


$
9,398


$
6,481

GAAP adjustments for participating securities (1)


437




(735
)
Net income
$
4,421


$
3,028


$
9,398


$
5,746

Stock compensation expense, net of tax (2)
1,027


252


1,718


290

Adjusted net income
5,448


3,280


11,116


6,036









Pro forma diluted weighted-average number of shares used in computing pro forma non-GAAP earnings per diluted share (3)
58,932


46,137


58,318


45,923









Pro forma non-GAAP earnings per diluted share
$
0.09


$
0.07


$
0.19


$
0.13

(1)
The net impact of adjustments required for participating securities in conformity with the two-class method as prescribed by GAAP.
(2)
The company used an estimated statutory tax rate of 38% to calculate the net impact of non-cash stock-based compensation expense.
(3)
For the three and six months ended July 31, 2014, the pro forma diluted weighted average shares outstanding give effect to the conversion of all outstanding shares of convertible preferred stock and redeemable preferred stock into 32,468 shares of common stock using the as-if converted method as of the beginning of the period. In August 2014, in connection with the closing of the Company's initial public offering, all of the outstanding convertible preferred stock and redeemable convertible preferred stock were converted into common stock.