Attached files
| file | filename |
|---|---|
| 8-K - 8-K - HEALTHEQUITY, INC. | a2017q38-k.htm |
HealthEquity Reports Third Quarter Ended October 31, 2016 Financial Results
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 – December 6, 2016 – 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 and comprehensive 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 |