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| 8-K - 8-K - HEALTHEQUITY, INC. | hqyq2fy188-k.htm |
HealthEquity Reports Second Quarter Ended July 31, 2017 Financial Results
Highlights of the second quarter include:
• | Revenue of $56.9 million, an increase of 29% compared to Q2 FY17. |
• | Net income of $16.9 million, an increase of 106% compared to Q2 FY17. |
• | Net income per diluted share of $0.27 compared to $0.14 in Q2 FY17. |
• | Adjusted EBITDA of $23.9 million, an increase of 30% compared to Q2 FY17. |
Draper, Utah – September 5, 2017 – 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 second quarter ended July 31, 2017.
“HealthEquity opened nearly 120,000 new HSAs in the second quarter, 40% more than during the same period last year,” said Jon Kessler, President and CEO of HealthEquity. “In terms of sales growth, this is the strongest second quarter performance in the team’s history. Since the second quarter of last year, we have added over 700,000 new HSAs and grown custodial assets by $1.2 billion. Our solid second quarter results and start to fiscal 2018, provide the basis to once again increase our guidance for fiscal 2018 financial expectations.”
Second quarter financial results
For the second quarter ended July 31, 2017, HealthEquity reported revenue of $56.9 million, an increase of 29% compared to $44.2 million for the second quarter ended July 31, 2016. Revenue consisted of:
• | Service revenue of $22.8 million, an increase of 21% compared to Q2 FY17. |
• | Custodial revenue of $21.3 million, an increase of 44% compared to Q2 FY17. |
• | Interchange revenue of $12.8 million, an increase of 21% compared to Q2 FY17. |
Net income was $16.9 million for the second quarter ended July 31, 2017, compared to $8.2 million for the second quarter ended July 31, 2016.
Net income per diluted share was $0.27 for the second quarter ended July 31, 2017, compared to $0.14 for the second quarter ended July 31, 2016.
Adjusted EBITDA was $23.9 million for the second quarter ended July 31, 2017, an increase of 30% compared to $18.4 million for the second quarter ended July 31, 2016.
HSA Member and Custodial Asset metrics
The total number of HSAs for which we serve as a non-bank custodian ("HSA Members") as of July 31, 2017 was 2.9 million, an increase of 26% from 2.3 million as of July 31, 2016.
Total Custodial Assets as of July 31, 2017 was $5.4 billion, an increase of 28% year over year, consisting of:
• | Custodial Cash Assets of $4.5 billion, an increase of 23% compared to Q2 FY17; and |
• | Custodial Investment Assets of $0.9 billion, an increase of 61% compared to Q2 FY17. |
Business outlook
We are increasing our business outlook for the year ended January 31, 2018. We are increasing our revenue outlook from a range between $222.0 million and $227.0 million to a range between $223.0 million and $228.0 million, our net income from a range between $33.0 million and $37.0 million to a range between $41.0 million and $45.0 million, our Adjusted EBITDA from a range between $78.0 million and $83.0 million to a range between $79.0 million and $84.0 million. We also expect our non-GAAP net income to be in a range between $39.0 million and $43.0 million, up from our prior range between $38.0 million and $42.0 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 38%, and the impact of excess tax benefits due to the adoption of Accounting Standards Update ("ASU") 2016-09. Our non-GAAP net income outlook results in a non-GAAP
net income per diluted share range between $0.64 and $0.68 (based on an estimated 62.0 million diluted weighted-average shares outstanding), up from our prior range between $0.62 and $0.67.
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 5, 2017 to discuss the fiscal year 2018 second quarter results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 64836688. 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, non-GAAP net income and non-GAAP net income per diluted share, which are non-GAAP financial measures. 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 of 38%, 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, business outlook, 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) | July 31, 2017 | January 31, 2017 | |||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 169,721 | $ | 139,954 | |||
Marketable securities, at fair value | 40,581 | 40,405 | |||||
Total cash, cash equivalents and marketable securities | 210,302 | 180,359 | |||||
Accounts receivable, net of allowance for doubtful accounts as of July 31, 2017 and January 31, 2017 were $45 and $75, respectively | 20,904 | 17,001 | |||||
Inventories | 339 | 592 | |||||
Other current assets | 8,078 | 2,867 | |||||
Total current assets | 239,623 | 200,819 | |||||
Property and equipment, net | 6,080 | 5,170 | |||||
Intangible assets, net | 73,827 | 65,020 | |||||
Goodwill | 4,651 | 4,651 | |||||
Deferred tax asset | 5,054 | 1,615 | |||||
Other assets | 1,709 | 1,861 | |||||
Total assets | $ | 330,944 | $ | 279,136 | |||
Liabilities and stockholders’ equity | |||||||
Current liabilities | |||||||
Accounts payable | $ | 1,594 | $ | 3,221 | |||
Accrued compensation | 6,520 | 8,722 | |||||
Accrued liabilities | 4,829 | 3,760 | |||||
Total current liabilities | 12,943 | 15,703 | |||||
Long-term liabilities | |||||||
Other long-term liabilities | 2,067 | 1,456 | |||||
Deferred tax liability | — | 37 | |||||
Total long-term liabilities | 2,067 | 1,493 | |||||
Total liabilities | 15,010 | 17,196 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity | |||||||
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2017 and January 31, 2017, respectively | — | — | |||||
Common stock, $0.0001 par value, 900,000 shares authorized, 60,399 and 59,538 shares issued and outstanding as of July 31, 2017 and January 31, 2017, respectively | 6 | 6 | |||||
Additional paid-in capital | 247,255 | 232,114 | |||||
Accumulated other comprehensive loss | (195 | ) | (165 | ) | |||
Accumulated earnings | 68,868 | 29,985 | |||||
Total stockholders’ equity | 315,934 | 261,940 | |||||
Total liabilities and stockholders’ equity | $ | 330,944 | $ | 279,136 | |||
HealthEquity, Inc. and its subsidiaries
Consolidated statements of operations and comprehensive income (unaudited)
(in thousands, except per share data) | Three months ended July 31, | Six months ended July 31, | |||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue: | |||||||||||||||
Service revenue | $ | 22,809 | $ | 18,835 | $ | 45,296 | $ | 37,829 | |||||||
Custodial revenue | 21,285 | 14,779 | 40,604 | 28,590 | |||||||||||
Interchange revenue | 12,785 | 10,571 | 26,400 | 21,779 | |||||||||||
Total revenue | 56,879 | 44,185 | 112,300 | 88,198 | |||||||||||
Cost of revenue: | |||||||||||||||
Service costs | 14,998 | 10,539 | 30,573 | 21,796 | |||||||||||
Custodial costs | 2,785 | 2,394 | 5,586 | 4,750 | |||||||||||
Interchange costs | 3,294 | 2,698 | 6,598 | 5,417 | |||||||||||
Total cost of revenue | 21,077 | 15,631 | 42,757 | 31,963 | |||||||||||
Gross profit | 35,802 | 28,554 | 69,543 | 56,235 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 5,194 | 4,190 | 9,815 | 8,373 | |||||||||||
Technology and development | 6,797 | 4,993 | 13,039 | 9,618 | |||||||||||
General and administrative | 6,234 | 5,550 | 12,102 | 10,124 | |||||||||||
Amortization of acquired intangible assets | 1,082 | 1,082 | 2,165 | 2,131 | |||||||||||
Total operating expenses | 19,307 | 15,815 | 37,121 | 30,246 | |||||||||||
Income from operations | 16,495 | 12,739 | 32,422 | 25,989 | |||||||||||
Other expense: | |||||||||||||||
Other expense, net | (38 | ) | (37 | ) | (128 | ) | (678 | ) | |||||||
Total other expense | (38 | ) | (37 | ) | (128 | ) | (678 | ) | |||||||
Income before income taxes | 16,457 | 12,702 | 32,294 | 25,311 | |||||||||||
Income tax provision (benefit) | (489 | ) | 4,469 | 1,319 | 9,005 | ||||||||||
Net income | $ | 16,946 | $ | 8,233 | $ | 30,975 | $ | 16,306 | |||||||
Net income per share: | |||||||||||||||
Basic | $ | 0.28 | $ | 0.14 | $ | 0.52 | $ | 0.28 | |||||||
Diluted | $ | 0.27 | $ | 0.14 | $ | 0.50 | $ | 0.27 | |||||||
Weighted-average number of shares used in computing net income per share: | |||||||||||||||
Basic | 60,173 | 58,246 | 59,955 | 58,035 | |||||||||||
Diluted | 61,765 | 59,651 | 61,604 | 59,501 | |||||||||||
Comprehensive income: | |||||||||||||||
Net income | $ | 16,946 | $ | 8,233 | $ | 30,975 | $ | 16,306 | |||||||
Other comprehensive gain (loss): | |||||||||||||||
Unrealized gain (loss) on available-for-sale marketable securities, net of tax | (4 | ) | 27 | (30 | ) | (12 | ) | ||||||||
Comprehensive income | $ | 16,942 | $ | 8,260 | $ | 30,945 | $ | 16,294 | |||||||
HealthEquity, Inc. and its subsidiaries
Statement of Cash flows (unaudited)
Six months ended July 31, | |||||||
(in thousands) | 2017 | 2016 | |||||
Cash flows from operating activities: | |||||||
Net income | $ | 30,975 | $ | 16,306 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 7,136 | 6,125 | |||||
Amortization of deferred financing costs and other | 27 | 36 | |||||
Deferred taxes | 4,699 | (738 | ) | ||||
Stock-based compensation | 6,803 | 4,331 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (3,873 | ) | (2,373 | ) | |||
Inventories | 253 | (79 | ) | ||||
Other assets | (4,073 | ) | (5,245 | ) | |||
Accounts payable | (1,495 | ) | (1,069 | ) | |||
Accrued compensation | (2,202 | ) | (3,423 | ) | |||
Accrued liabilities | 900 | 827 | |||||
Other long-term liabilities | 611 | 840 | |||||
Net cash provided by operating activities | 39,761 | 15,538 | |||||
Cash flows from investing activities: | |||||||
Purchases of intangible member assets | (6,515 | ) | — | ||||
Acquisition of a business | (3,000 | ) | — | ||||
Purchases of marketable securities | (224 | ) | (177 | ) | |||
Purchase of property and equipment | (2,161 | ) | (1,250 | ) | |||
Purchase of software and capitalized software development costs | (5,166 | ) | (3,960 | ) | |||
Net cash used in investing activities | (17,066 | ) | (5,387 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from exercise of common stock options | 7,072 | 1,128 | |||||
Tax benefit from exercise of common stock options | — | 14,249 | |||||
Net cash provided by financing activities | 7,072 | 15,377 | |||||
Increase in cash and cash equivalents | 29,767 | 25,528 | |||||
Beginning cash and cash equivalents | 139,954 | 83,641 | |||||
Ending cash and cash equivalents | $ | 169,721 | $ | 109,169 | |||
Supplemental disclosures of non-cash investing and financing activities: | |||||||
Purchases of property and equipment included in accounts payable or accrued liabilities at period end | $ | 53 | $ | 379 | |||
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end | 69 | 116 | |||||
Purchases of intangible member assets accrued at period end | 270 | — | |||||
Exercise of common stock options receivable | 1,017 | — | |||||
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 July 31, | Six months ended July 31, | |||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Cost of revenue | $ | 692 | $ | 421 | $ | 1,183 | $ | 796 | ||||||||
Sales and marketing | 526 | 353 | 842 | 566 | ||||||||||||
Technology and development | 862 | 446 | 1,534 | 803 | ||||||||||||
General and administrative | 1,714 | 1,289 | 3,244 | 2,166 | ||||||||||||
Total stock-based compensation expense | $ | 3,794 | $ | 2,509 | $ | 6,803 | $ | 4,331 | ||||||||
HSA Members (unaudited)
July 31, 2017 | July 31, 2016 | % Change | January 31, 2017 | |||||||||
HSA Members | 2,899,646 | 2,300,007 | 26 | % | 2,746,132 | |||||||
Average HSA Members - Year-to-date | 2,820,433 | 2,241,378 | 26 | % | 2,339,091 | |||||||
Average HSA Members - Quarter-to-date | 2,858,087 | 2,270,896 | 26 | % | 2,519,382 | |||||||
HSA Members with investments | 86,868 | 52,722 | 65 | % | 65,906 | |||||||
Custodial assets (unaudited)
(in thousands, except percentages) | July 31, 2017 | July 31, 2016 | % Change | January 31, 2017 | |||||||||||
Custodial cash | $ | 4,502,841 | $ | 3,658,245 | 23 | % | $ | 4,380,487 | |||||||
Custodial investments | 871,524 | 542,331 | 61 | % | 658,580 | ||||||||||
Total custodial assets | $ | 5,374,365 | $ | 4,200,576 | 28 | % | $ | 5,039,067 | |||||||
Average daily custodial cash - Year-to-date | $ | 4,429,299 | $ | 3,560,117 | 24 | % | $ | 3,661,058 | |||||||
Average daily custodial cash - Quarter-to-date | $ | 4,448,090 | $ | 3,602,152 | 23 | % | $ | 3,854,518 | |||||||
Net income reconciliation to Adjusted EBITDA (unaudited)
Three months ended July 31, | Six months ended July 31, | |||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 16,946 | $ | 8,233 | $ | 30,975 | $ | 16,306 | ||||||||
Interest income | (179 | ) | (128 | ) | (336 | ) | (248 | ) | ||||||||
Interest expense | 69 | 69 | 136 | 137 | ||||||||||||
Income tax provision (benefit) | (489 | ) | 4,469 | 1,319 | 9,005 | |||||||||||
Depreciation and amortization | 2,573 | 2,097 | 4,971 | 3,994 | ||||||||||||
Amortization of acquired intangible assets | 1,082 | 1,082 | 2,165 | 2,131 | ||||||||||||
Stock-based compensation expense | 3,793 | 2,509 | 6,803 | 4,331 | ||||||||||||
Other (1) | 148 | 96 | 328 | 790 | ||||||||||||
Adjusted EBITDA | $ | 23,943 | $ | 18,427 | $ | 46,361 | $ | 36,446 | ||||||||
(1) | For the three months ended July 31, 2017 and 2016, Other consisted of non-income-based taxes of $102 and $86, and acquisition-related costs of $46 and $10, respectively. For the six months ended July 31, 2017 and 2016, Other consisted of non-income based taxes of $190 and $172, acquisition-related costs of $84 and $595, and other costs of $54 and $23, respectively. |
Reconciliation of Adjusted EBITDA outlook (unaudited)
Outlook for the year ending | |
(in millions) | January 31, 2018 |
Net income | $41 - $45 |
Income tax provision | 8 - 9 |
Depreciation and amortization | ~ 11 |
Amortization of acquired intangible assets | ~ 4 |
Stock-based compensation expense | ~ 14 |
Other | ~ 1 |
Adjusted EBITDA | $79 - $84 |
Reconciliation of non-GAAP net income per diluted share (unaudited)
Three months ended | Six months ended | Outlook for the year ending | |||||
(in millions, except per share data) | July 31, 2017 | July 31, 2017 | January 31, 2018 | ||||
Net income | $17 | $ | 31 | $41 - $45 | |||
Stock compensation, net of tax (1) | 2 | 4 | ~ 9 | ||||
Excess tax benefit due to adoption of ASU 2016-09 | (6 | ) | (10 | ) | ~ (11) | ||
Non-GAAP net income | $13 | $25 | $39 - $43 | ||||
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts | 62 | 62 | 62 | ||||
Non-GAAP net income per diluted share | $0.21 | $0.40 | $0.64 - $0.68 | ||||
(1) The Company used an estimated statutory tax rate of 38% to calculate the net impact stock-based compensation expense.