Highlights of the second quarter include:
  • Revenue of $44.2 million, an increase of 45% compared to Q2 FY16.
  • Net income of $8.2 million, an increase of 86% compared to Q2 FY16.
  • Net income per diluted share of $0.14 compared to $0.08 in Q2 FY16.
  • Adjusted EBITDA of $18.4 million, an increase of 66% compared to Q2 FY16.
  • Non-GAAP earnings per diluted share of $0.16, compared to $0.09 in Q2 FY16.
  • HSA Members grew to 2.3 million, an increase of 50% compared to Q2 FY16.
  • Total AUM grew to $4.2 billion, an increase of 60% compared to Q2 FY16.
  • Increased FY17 outlook.                                    

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:
  • Service revenue of $18.8 million, an increase of 28% compared to Q2 FY16.
  • Custodial revenue of $14.8 million, an increase of 64% compared to Q2 FY16. 
  • Interchange revenue of $10.6 million, an increase of 56% compared to Q2 FY16.

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:
  • Cash AUM of $3.7 billion, an increase of 62% compared to Q2 FY16; and
  • Investment AUM of $542.3 million, an increase of 46% compared to Q2 FY16.

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 revenue 14,779     9,031     28,590     17,450  
Interchange revenue 10,571     6,771     21,779     13,588  
Total revenue 44,185     30,494     88,198     60,344  
Cost of revenue:              
Service costs 10,539     8,348     21,796     16,767  
Custodial costs 2,394     1,512     4,750     2,935  
Interchange costs 2,698     2,049     5,417     4,151  
Total cost of revenue 15,631     11,909     31,963     23,853  
Gross profit 28,554     18,585     56,235     36,491  
Operating expenses:              
Sales and marketing 4,190     2,737     8,373     5,570  
Technology and development 4,993     3,998     9,618     7,522  
General and administrative 5,550     3,943     10,124     7,101  
Amortization of acquired intangible assets 1,082     409     2,131     818  
Total operating expenses 15,815     11,087     30,246     21,011  
Income from operations 12,739     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 taxes 12,702     6,956     25,311     14,833  
Income tax provision 4,469     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:                
Basic 58,246     56,730     58,035     55,909  
Diluted 59,651     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 tax 27     (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 Putnam801-727-1209rputnam@healthequity.com

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