Highlights of the third quarter include:
  • Revenue of $43.4 million, an increase of 42% compared to Q3 FY16.
  • Net income of $6.0 million, an increase of 47% compared to Q3 FY16.
  • Net income per diluted share of $0.10, compared to $0.07 in Q3 FY16.
  • Adjusted EBITDA of $14.5 million, an increase of 47% compared to Q3 FY16.
  • HSA Members grew to 2.4 million, an increase of 48% compared to Q3 FY16.
  • Total AUM grew to $4.3 billion, an increase of 59% compared to Q3 FY16.

DRAPER, Utah, Dec. 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 third quarter ended October 31, 2016.

"Our third quarter results continued to build on our record-setting year which has increased total HSA Members by more than 776,000 since the end of the third quarter last year. Total AUM has grown by nearly $1.6 billion, or 59%, over that same time frame," remarked Jon Kessler, President and CEO of HealthEquity.  "The growth in these base metrics of our business has driven a consistently strong performance from all three of our revenue streams. Our year-over-year revenue growth of 42% in the quarter continues to outpace the industry, and our Adjusted EBITDA growth of 47% demonstrates our ability to continue to scale profitability our business."

Third quarter financial results

For the third quarter ended October 31, 2016, HealthEquity reported revenue of $43.4 million, compared to $30.6 million for the third quarter ended October 31, 2015, an increase of 42%. Revenue consisted of:
  • Service revenue of $18.8 million, an increase of 24% compared to Q3 FY16.
  • Custodial revenue of $15.0 million, an increase of 64% compared to Q3 FY16.
  • Interchange revenue of $9.6 million, an increase of 55% compared to Q3 FY16.

Net income was $6.0 million for the third quarter ended October 31, 2016, compared to $4.1 million for the third quarter ended October 31, 2015.

Net income per diluted share was $0.10 for the third quarter ended October 31, 2016, compared to $0.07 for the third quarter ended October 31, 2015.

Adjusted EBITDA was $14.5 million for the third quarter ended October 31, 2016, an increase of 47% compared to $9.9 million for the third quarter ended October 31, 2015. Adjusted EBITDA was 34% of revenue for the third quarter ended October 31, 2016, compared to 32% for the third quarter ended October 31, 2015.

As of October 31, 2016, we had $165.7 million of cash, cash equivalents and marketable securities and no outstanding debt. This compares to $123.8 million in cash, cash equivalents and marketable securities 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 October 31, 2016 was 2.4 million, an increase of 48% from 1.6 million as of October 31, 2015.

Total assets under management ("AUM") as of October 31, 2016 was $4.3 billion, an increase of 59% year over year, comprised of:
  • Cash AUM of $3.7 billion, an increase of 61% compared to Q3 FY16; and
  • Investment AUM of $570.6 million, an increase of 48% compared to Q3 FY16.

Business outlook

For the year ended January 31, 2017, we are reaffirming our previously provided guidance. Our revenue outlook is a range of $174.0 million to $178.0 million. Our outlook for net income is a range of $23.0 million to $25.0 million, resulting in a net income per diluted share range of $0.38 to $0.42 (based on an estimated 60.0 million weighted-average shares outstanding). Our Adjusted EBITDA outlook is a range of $59.0 million to $62.0 million. 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, December 6, 2016 to discuss the third 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 12268124. 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 our website at  ir.healthequity.com

Non-GAAP financial information

To supplement our financial information presented on a GAAP basis, we disclose Adjusted EBITDA, which is a non-GAAP financial measure. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and other certain non-operating items.

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 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) October 31, 2016     January 31, 2016  
Assets
Current assets          
Cash and cash equivalents $ 125,346     $ 83,641  
Marketable securities, at fair value 40,352     40,134  
Total cash, cash equivalents and marketable securities 165,698     123,775  
Accounts receivable, net of allowance for doubtful accounts of $34 as of October 31, 2016 and $40 as of January 31, 2016 14,064     14,308  
Inventories 944     620  
Current deferred tax asset     2,642  
Other current assets 5,352     1,703  
Total current assets 186,058     143,048  
Property and equipment, net 5,373     3,506  
Intangible assets, net 65,688     66,840  
Goodwill 4,651     4,651  
Deferred tax asset 696      
Other assets 2,003     1,750  
Total assets $ 264,469     $ 219,795  
Liabilities and stockholders' equity          
Current liabilities          
Accounts payable $ 1,582     $ 2,431  
Accrued compensation 4,659     7,776  
Accrued liabilities 4,195     1,899  
Total current liabilities 10,436     12,106  
Long-term liabilities          
Other long-term liabilities 1,295     236  
Deferred tax liability 149     3,996  
Total long-term liabilities 1,444     4,232  
Total liabilities 11,880     16,338  
Commitments and contingencies          
Stockholders' equity          
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of October 31, 2016 and January 31, 2016, respectively      
Common stock, $0.0001 par value, 900,000 shares authorized, 59,306 and 57,726 shares issued and outstanding as of October 31, 2016 and January 31, 2016, respectively 6     6  
Additional paid-in capital 226,794     199,940  
Accumulated other comprehensive loss (134 )   (98 )
Accumulated earnings 25,923     3,609  
Total stockholders' equity 252,589     203,457  
Total liabilities and stockholders' equity $ 264,469     $ 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 October 31,     Nine months ended October 31,  
2016     2015     2016     2015  
Revenue:              
Service revenue $ 18,781     $ 15,201     $ 56,610     $ 44,507  
Custodial revenue 14,967     9,142     43,557     26,592  
Interchange revenue 9,610     6,213     31,389     19,801  
Total revenue 43,358     30,556     131,556     90,900  
Cost of revenue:              
Service costs 12,675     9,395     34,471     26,162  
Custodial costs 2,461     1,536     7,211     4,471  
Interchange costs 2,331     1,949     7,748     6,100  
Total cost of revenue 17,467     12,880     49,430     36,733  
Gross profit 25,891     17,676     82,126     54,167  
Operating expenses:              
Sales and marketing 4,391     3,067     12,764     8,637  
Technology and development 6,209     4,419     15,827     11,941  
General and administrative 5,166     3,477     15,290     10,578  
Amortization of acquired intangible assets 1,083     409     3,214     1,227  
Total operating expenses 16,849     11,372     47,095     32,383  
Income from operations 9,042     6,304     35,031     21,784  
Other expense:              
Other expense, net (256 )   121     (934 )   (526 )
Total other expense (256 )   121     (934 )   (526 )
Income before income taxes 8,786     6,425     34,097     21,258  
Income tax provision 2,778     2,338     11,783     7,773  
Net income $ 6,008     $ 4,087     $ 22,314     $ 13,485  
Net income per share:              
Basic $ 0.10     $ 0.07     $ 0.38     $ 0.24  
Diluted $ 0.10     $ 0.07     $ 0.37     $ 0.23  
Weighted-average number of shares used in computing net income per share:              
Basic 58,938     57,353     58,338     56,397  
Diluted 60,073     59,263     59,693     58,664  
Comprehensive income:              
Net income $ 6,008     $ 4,087     $ 22,314     $ 13,485  
Other comprehensive loss:              
Unrealized loss on available-for-sale marketable securities, net of tax (23 )   (34 )   (36 )   (67 )
Comprehensive income $ 5,985     $ 4,053     $ 22,278     $ 13,418  
                               

HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of cash flows (unaudited)
 
  Nine months ended October 31,  
(in thousands) 2016     2015  
Cash flows from operating activities:      
Net income $ 22,314     $ 13,485  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 9,543     5,730  
Amortization of deferred financing costs 53      
Deferred taxes (1,880 )   (1,505 )
Stock-based compensation 6,399     4,254  
Changes in operating assets and liabilities:      
Accounts receivable 244     (868 )
Inventories (324 )   (190 )
Other assets (3,955 )   (1,421 )
Accounts payable (973 )   415  
Accrued compensation (3,117 )   (1,403 )
Accrued liabilities 1,666     568  
Other long-term liabilities 1,059     (293 )
Net cash provided by operating activities 31,029     18,772  
Cash flows from investing activities:      
Purchases of marketable securities (275 )   (40,213 )
Purchase of property and equipment (2,705 )   (1,882 )
Purchase of software and capitalized software development costs (6,799 )   (4,757 )
Purchase of other investments     (500 )
Acquisition of intangible member assets     (33,821 )
Net cash used in investing activities (9,779 )   (81,173 )
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 4,546     1,751  
Tax benefit from exercise of common stock options 15,909     11,315  
Deferred financing costs paid     (153 )
Net cash provided by financing activities 20,455     36,405  
Increase (decrease) in cash and cash equivalents 41,705     (25,996 )
Beginning cash and cash equivalents 83,641     111,005  
Ending cash and cash equivalents $ 125,346     $ 85,009  
Supplemental disclosures of non-cash investing and financing activities:      
Purchases of property and equipment included in accounts payable or accrued liabilities at period end $ 569     $ 221  
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end 185     215  
Deferred financing costs     150  
           

Stock-based compensation expense
 
Total stock-based compensation expense included in the condensed consolidated statements of operations andcomprehensive income is as follows:
 
    Three months ended October 31,     Nine months ended October 31,  
(in thousands)   2016     2015     2016     2015  
Cost of revenue   $ 462     $ 304     $ 1,258     $ 740  
Sales and marketing   364     218     930     705  
Technology and development   487     290     1,290     677  
General and administrative   755     671     2,921     2,132  
Total stock-based compensation expense   $ 2,068     $ 1,483     $ 6,399     $ 4,254  
                                 

HSA Members                
                 
    October 31, 2016     October 31, 2015     % Change   January 31, 2016  
HSA Members   2,378,353     1,602,156     48 %   2,140,631  
Average HSA Members - Year-to-date   2,278,994     1,516,821     50 %   1,600,327  
Average HSA Members - Quarter-to-date   2,354,227     1,580,482     49 %   1,850,843  
HSA Members with investments   58,226     40,695     43 %   44,680  
                         

Assets under management (AUM)
 
(in thousands, except percentages)   October 31, 2016     October 31, 2015     % Change   January 31, 2016  
Cash AUM   $ 3,713,290     $ 2,307,914     61 %   $ 3,278,628  
Investment AUM   570,553     385,243     48 %   405,878  
Total AUM   $ 4,283,843     $ 2,693,157     59 %   $ 3,684,506  
Average daily cash AUM - Year-to-date   $ 3,596,571     $ 2,207,732     63 %   $ 2,326,506  
Average daily cash AUM - Quarter-to-date   $ 3,669,480     $ 2,269,253     62 %   $ 2,682,827  
                               

Reconciliation of net income to Adjusted EBITDA
 
    Three months ended October 31,     Nine months ended October 31,  
(in thousands)   2016     2015     2016     2015  
Net income   $ 6,008     $ 4,087     $ 22,314     $ 13,485  
Interest income   (137 )   (116 )   (385 )   (302 )
Interest expense   69     23     206     23  
Income tax provision   2,778     2,338     11,783     7,773  
Depreciation and amortization   2,335     1,656     6,329     4,503  
Amortization of acquired intangible assets   1,083     409     3,214     1,227  
Stock-based compensation expense   2,068     1,483     6,399     4,254  
Other (1)   323     (29 )   1,113     804  
Adjusted EBITDA   $ 14,527     $ 9,851     $ 50,973     $ 31,767  
 
(1)  For the three months ended October 31, 2016 and 2015, Other consisted of non-income-based taxes of $86 and $77, other costs of $237
and $81, and acquisition-related costs of $0 and $(187) respectively. For the nine months ended October 31, 2016 and 2015, Other
consisted of non-income-based taxes of $260 and $249, acquisition-related costs of $595 and $474, and other costs of $258 and $81,
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
   
Investor Relations Contact:Richard Putnam801-727-1209rputnam@healthequity.com

Primary Logo