Market Overview

HealthEquity Reports Fourth Quarter and Fiscal Year Ended January 31, 2018 Financial Results

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Highlights of the fiscal year include:

  • Revenue of $229.5 million, an increase of 29% compared to FY17.
  • Net income of $47.4 million, an increase of 80% compared to FY17.
  • Net income per diluted share of $0.77, compared to $0.44 in FY17.
  • Adjusted EBITDA of $84.7 million, an increase of 35% compared to FY17.
  • HSA Members of 3.4 million, an increase of 24% compared to FY17.
  • Total Custodial Assets of $6.8 billion, an increase of 35% compared to FY17.

Highlights of the fourth quarter include:

  • Revenue of $60.4 million, an increase of 29% compared to Q4 FY17.
  • Net income of $5.9 million, an increase of 45% compared to Q4 FY17.
  • Net income per diluted share of $0.09, compared to $0.07 in Q4 FY17.
  • Adjusted EBITDA of $17.1 million, an increase of 45% compared to Q4 FY17.                                                                        

DRAPER, Utah, March 19, 2018 (GLOBE NEWSWIRE) -- HealthEquity, Inc. (NASDAQ:HQY) ("HealthEquity" or the "Company"), the nation's largest health savings account ("HSA") non-bank custodian, today announced financial results for its fourth quarter and fiscal year ended January 31, 2018.

"HealthEquity recorded a strong fiscal year 2018 by opening a record 669,000 new HSAs and helping members grow their HSA assets to $6.8 billion," said Jon Kessler, President and CEO of HealthEquity. "We continued to outpace the market and gain market share with 35% growth in custodial assets, including 96% custodial investment growth, and 24% growth of HSA members. Our revenue for the year was up 29% to $229.5 million and our Adjusted EBITDA was up an even higher 35% to $84.7 million as the team continued to drive greater profitability in our business."

Full year financial results

For the year ended January 31, 2018, HealthEquity reported revenue of $229.5 million, an increase of 29% compared to $178.4 million for the year ended January 31, 2017. Revenue consisted of:

  • Service revenue of $91.6 million, an increase of 19% compared to FY17.
  • Custodial revenue of $87.2 million, an increase of 46% compared to FY17. 
  • Interchange revenue of $50.7 million, an increase of 22% compared to FY17.

Net income was $47.4 million for the year ended January 31, 2018, compared to $26.4 million for the year ended January 31, 2017.

Net income per diluted share was $0.77 for the year ended January 31, 2018, compared to $0.44 for the year ended January 31, 2017.

Non-GAAP Adjusted EBITDA was $84.7 million for the year ended January 31, 2018, an increase of 35% compared to $62.8 million for the year ended January 31, 2017. Adjusted EBITDA was 37% of revenue for the year ended January 31, 2018, compared to 35% for the year ended January 31, 2017.

As of January 31, 2018, we had $240.3 million of cash, cash equivalents and marketable securities and no outstanding debt. This compares to $180.4 million in cash, cash equivalents and marketable securities and no outstanding debt as of January 31, 2017.

Fourth quarter financial results

For the fourth quarter ended January 31, 2018, HealthEquity reported revenue of $60.4 million, an increase of 29% compared to $46.8 million for the fourth quarter ended January 31, 2017. Revenue consisted of:

  • Service revenue of $23.4 million, an increase of 13% compared to Q4 FY17.
  • Custodial revenue of $24.5 million, an increase of 52% compared to Q4 FY17. 
  • Interchange revenue of $12.6 million, an increase of 25% compared to Q4 FY17.

Net income was $5.9 million for the fourth quarter ended January 31, 2018, compared to $4.1 million for the fourth quarter ended January 31, 2017.

Net income per diluted share was $0.09 for the fourth quarter ended January 31, 2018, compared to $0.07 for the fourth quarter ended January 31, 2017.

Non-GAAP Adjusted EBITDA was $17.1 million for the fourth quarter ended January 31, 2018, an increase of 45% compared to $11.8 million for the fourth quarter ended January 31, 2017.

HSA Member and Custodial asset metrics

The total number of HSAs for which we serve as a non-bank custodian ("HSA Members") as of January 31, 2018 was 3.4 million, an increase of 24% from 2.7 million as of January 31, 2017.

Total Custodial Assets as of January 31, 2018 was $6.8 billion, an increase of 35% year over year, consisting of:

  • Custodial Cash Assets of $5.5 billion, an increase of 25% compared to January 31, 2017; and
  • Custodial Investment Assets of $1.3 billion, an increase of 96% compared to January 31, 2017.

Business outlook

For the year ending January 31, 2019, we expect our revenue to be between $276.0 million and $282.0 million. Our outlook for net income is a range of $47.0 million to $51.0 million, resulting in a net income per diluted share range of $0.74 to $0.80. Our Adjusted EBITDA outlook is a range of $106.0 million to $111.0 million. We also expect our non-GAAP net income to be in a range between $63.0 million and $67.0 million. Our non-GAAP net income is calculated by adding back to net income all non-cash stock-based compensation expense, net of an estimated statutory tax rate of 24%, and the impact of excess tax benefits due to the adoption of Accounting Standards Updated ("ASU") 2016-09. Our non-GAAP net income outlook results in a non-GAAP net income per diluted share range between $0.98 to $1.04 (based on an estimated 64.0 million weighted-average shares outstanding).

A reconciliation of the non-GAAP financial measure used throughout this release to the most comparable GAAP financial measure 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 Monday, March 19, 2018 to discuss the fiscal year 2018 fourth quarter and full year financial results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 3494468. A live audio webcast of the call will also 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 Adjusted EBITDA, which is a non-GAAP financial measure. We define Adjusted EBITDA as adjusted earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and other certain non-operating items. Non-GAAP net income is calculated by adding back to net income all non-cash stock-based compensation expense, net of an estimated statutory tax rate, and the impact of excess tax benefits due to the adoption of ASU 2016-09. 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. 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. 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, 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 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, our 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
Consolidated balance sheets (unaudited)

(in thousands, except par value) January 31, 2018   January 31, 2017
Assets      
Current assets      
Cash and cash equivalents $ 199,472     $ 139,954  
Marketable securities, at fair value 40,797     40,405  
Total cash, cash equivalents and marketable securities 240,269     180,359  
Accounts receivable, net of allowance for doubtful accounts of $208 and $75 as of January 31, 2018 and 2017, respectively 21,602     17,001  
Inventories 215     592  
Other current assets 3,310     2,867  
Total current assets 265,396     200,819  
Property and equipment, net 7,836     5,170  
Intangible assets, net 83,635     65,020  
Goodwill 4,651     4,651  
Deferred tax asset 5,461     1,615  
Other assets 2,180     1,861  
Total assets $ 369,159     $ 279,136  
Liabilities and stockholders' equity      
Current liabilities      
Accounts payable $ 2,420     $ 3,221  
Accrued compensation 12,549     8,722  
Accrued liabilities 5,521     3,760  
Total current liabilities 20,490     15,703  
Long-term liabilities      
Other long-term liabilities 2,395     1,456  
Deferred tax liability     37  
Total long-term liabilities 2,395     1,493  
Total liabilities 22,885     17,196  
Commitments and contingencies      
Stockholders' equity      
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of January 31, 2018 and 2017      
Common stock, $0.0001 par value, 900,000 shares authorized, 60,825 and 59,538 shares issued and outstanding as of January 31, 2018 and 2017, respectively 6     6  
Additional paid-in capital 261,237     232,114  
Accumulated other comprehensive loss, net (269 )   (165 )
Accumulated earnings 85,300     29,985  
Total stockholders' equity 346,274     261,940  
Total liabilities and stockholders' equity $ 369,159     $ 279,136  

HealthEquity, Inc. and its subsidiaries
Consolidated statements of operations and comprehensive income (unaudited)

(in thousands, except per share data) Three months ended January 31,
    Year ended January 31,
 
2018
    2017
    2018
    2017
 
Revenue              
  Service revenue $ 23,361     $ 20,644     $ 91,619     $ 77,254  
  Custodial revenue 24,451     16,036     87,160     59,593  
  Interchange revenue 12,624     10,134     50,746     41,523  
  Total revenue 60,436     46,814     229,525     178,370  
 Cost of revenue              
  Service costs 22,602     17,397     70,426     51,868  
  Custodial costs 3,030     2,556     11,400     9,767  
  Interchange costs 3,158     2,632     12,783     10,380  
  Total cost of revenue 28,790     22,585     94,609     72,015  
 Gross profit 31,646     24,229     134,916     106,355  
 Operating expenses              
  Sales and marketing 7,432     5,556     23,139     18,320  
  Technology and development 7,480     6,548     27,385     22,375  
  General and administrative 6,757     4,861     25,111     20,151  
  Amortization of acquired intangible assets 1,543     1,083     4,863     4,297  
  Total operating expenses 23,212     18,048     80,498     65,143  
 Income from operations 8,434     6,181     54,418     41,212  
 Other expense              
  Other expense, net (1,706 )   (158 )   (2,229 )   (1,092 )
 Total other expense (1,706 )   (158 )   (2,229 )   (1,092 )
 Income before income taxes 6,728     6,023     52,189     40,120  
 Income tax provision 823     1,961     4,827     13,744  
 Net income $ 5,905     $ 4,062     $ 47,362     $ 26,376  
Net income per share:              
 Basic $ 0.10     $ 0.07     $ 0.79     $ 0.45  
 Diluted $ 0.09     $ 0.07     $ 0.77     $ 0.44  
Weighted-average number of shares used in computing net income per share:              
 Basic 60,730     59,438     60,304     58,615  
 Diluted 62,291     60,645     61,854     59,894  
Comprehensive income:              
Net income $ 5,905     $ 4,062     $ 47,362     $ 26,376  
Other comprehensive loss:              
Unrealized loss on available-for-sale marketable securities, net of tax (36 )   (31 )   (59 )   (67 )
Comprehensive income $ 5,869     $ 4,031     $ 47,303     $ 26,309  

HealthEquity, Inc. and its subsidiaries
Consolidated statements of cash flows (unaudited)

  Year ended January 31,
 
(in thousands) 2018
    2017
    2016
 
 Cash flows from operating activities:          
 Net income $ 47,362     $ 26,376     $ 16,613  
 Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization 15,952     13,186     8,601  
Deferred taxes 4,306     (2,891 )   (2,178 )
Stock-based compensation 14,310     8,398     5,883  
Bad debt expense 133     35     24  
Amortization of deferred financing costs and loss on other investments 87     68     23  
 Changes in operating assets and liabilities:          
Accounts receivable (4,734 )   (2,728 )   (5,174 )
Inventories 377     28     5  
Other assets (760 )   (1,343 )   (107 )
Accounts payable (581 )   567     1,011  
Accrued compensation 3,827     946     2,475  
Accrued liabilities 484     1,729     (383 )
Other long-term liabilities 939     1,220     (252 )
 Net cash provided by operating activities 81,702     45,591     26,541  
 Cash flows from investing activities:          
Purchase of marketable securities (483 )   (379 )   (40,291 )
Purchase of property and equipment (5,458 )   (3,645 )   (2,376 )
Purchase of software and capitalized software development costs (10,380 )   (9,030 )   (6,896 )
Acquisition of intangible member assets (17,545 )       (40,489 )
Acquisition of a business (2,882 )        
Purchases of other investments         (500 )
 Net cash used in investing activities (36,748 )   (13,054 )   (90,552 )
 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 14,564     7,142     1,915  
Tax benefit from exercise of common stock options     16,634     11,557  
Deferred financing costs paid         (317 )
 Net cash provided by financing activities 14,564     23,776     36,647  
 Increase (decrease) in cash and cash equivalents 59,518     56,313     (27,364 )
 Beginning cash and cash equivalents 139,954     83,641     111,005  
 Ending cash and cash equivalents $ 199,472     $ 139,954     $ 83,641  

Stock-based compensation expense (unaudited)

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

  Three months ended January 31,
    Year ended January 31,
(in thousands) 2018
    2017
    2018
    2017
 
Cost of revenue $ 691     $ 522     $ 2,594     $ 1,780  
Sales and marketing 627     (16 )   2,030     914  
Technology and development 953     613     3,318     1,903  
General and administrative 1,571     880     6,368     3,801  
Total stock-based compensation expense $ 3,842     $ 1,999     $ 14,310     $ 8,398  

HSA Members (unaudited)

                % change from   % change from
    January 31, 2018     January 31, 2017     January 31, 2016     2017 to 2018   2016 to 2017
HSA Members   3,402,889     2,746,132     2,140,631     24%   28%
Average HSA Members - Year-to-date   2,951,790     2,339,091     1,600,327     26%   46%
Average HSA Members - Quarter-to-date   3,188,927     2,519,382     1,850,843     27%   36%
HSA Members with investments   121,614     65,906     44,680     85%   48%

Custodial assets (unaudited)

              % change from   % change from
(in thousands, except percentages) January 31, 2018
    January 31, 2017
    January 31, 2016
    2017 to 2018   2016 to 2017
Custodial cash $ 5,489,617     $ 4,380,487     $ 3,278,628     25%   34%
Custodial investments 1,288,693     658,580     405,878     96%   62%
Total custodial assets $ 6,778,310     $ 5,039,067     $ 3,684,506     35%   37%
Average daily custodial cash - Year-to-date $ 4,571,341     $ 3,661,058     $ 2,326,506     25%   57%
Average daily custodial cash - Quarter-to-date $ 4,876,438     $ 3,854,518     $ 2,682,827     27%   44%

Net income reconciliation to Adjusted EBITDA (unaudited)

  Three months ended January 31,
    Year ended January 31,
 
(in thousands) 2018
    2017
    2018
    2017
 
Net income $ 5,905     $ 4,062     $ 47,362     $ 26,376  
Interest income (213 )   (146 )   (734 )   (531 )
Interest expense 69     69     274     275  
Income tax provision 823     1,961     4,827     13,744  
Depreciation and amortization 3,267     2,559     11,089     8,889  
Amortization of acquired intangible assets 1,543     1,083     4,863     4,297  
Stock-based compensation expense 3,842     1,999     14,310     8,398  
Other (1) 1,850     236     2,689     1,348  
Adjusted EBITDA $ 17,086     $ 11,823     $ 84,680     $ 62,796  


(1) For the three months ended January 31, 2018 and 2017, Other consisted of non-income based taxes of $136 and $101, acquisition-related costs of $1,715 and $0, and other costs of $0 and $135, respectively. For the years ended January 31, 2018 and 2017, Other consisted of non-income based taxes of $439 and $358, acquisition-related costs of $2,197 and $631, and other costs of $53 and $359, respectively.

 Reconciliation of net income outlook to Adjusted EBITDA outlook

  For the year ending
(in millions) January 31, 2019
Net income $47 - 51
Income tax provision  15 - 16
Depreciation and amortization ~ 14
Amortization of acquired intangible assets ~ 6
Stock-based compensation expense ~ 21
Other ~ 3
Adjusted EBITDA $106 - 111

Reconciliation of non-GAAP net income per diluted share (unaudited)

  Three months ended Year ended Outlook for the year ending
(in millions, except per share data) January 31, 2018 January 31, 2018 January 31, 2019
Net income $6
$47
$47 - $51
Stock compensation, net of tax (1)  3   9   ~ 16
Excess tax benefit due to adoption of ASU 2016-09  (2)  (14) ~  (0)
Non-GAAP net income $7
$42
$63 - $67
       
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts  62  62 64
Non-GAAP net income per diluted share (2) $0.11
$0.68
$0.98 - $1.04


(1) For the three and twelve months ended January 31, 2018, the Company used an estimated statutory tax rate of 38% to calculate the net impact of stock-based compensation expense. For the year ending January 31, 2019, the Company used an estimated statutory tax rate of 24% to calculate the net impact of stock-based compensation expense.
(2) Non-GAAP net income per diluted share does not calculate due to rounding.

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

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