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| 8-K - 8-K - HEALTHEQUITY, INC. | a2017q28-k.htm |
HealthEquity Reports Second Quarter Ended July 31, 2016 Financial Results
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 – September 6, 2016 – 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. |