Highlights of the third quarter
include:
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 third quarter
ended October 31, 2017.
"HealthEquity has added more than 740,000 new HSAs and $1.3
billion in custodial assets since the end of the third quarter last
year as we added more than 123,000 HSAs in this year’s third
quarter, including 14,000 from First Interstate Bank,” said Jon
Kessler, President and CEO of HealthEquity. “The 27% third quarter
growth in HSAs helped us surpass 3 million total HSAs and drive our
custodial assets up 30% to $5.6 billion. Our fully integrated
investment platform continues to lead the industry with 73%
custodial investment growth in the third quarter and total invested
custodial assets at $1 billion at quarter end. With another strong
quarterly performance and record year-to-date results, we are
narrowing our guidance for fiscal 2018 financial expectations
around a higher revenue forecast and confirming our adjusted EBITDA
outlook."
Third quarter financial results
For the third quarter ended October 31, 2017, HealthEquity
reported revenue of $56.8 million, an increase of 31% compared to
$43.4 million for the third quarter ended October 31, 2016.
Revenue consisted of:
- Service revenue of $23.0 million, an increase of 22% compared
to Q3 FY17.
- Custodial revenue of $22.1 million, an increase of 48% compared
to Q3 FY17.
- Interchange revenue of $11.7 million, an increase of 22%
compared to Q3 FY17.
Net income was $10.5 million for the third quarter ended
October 31, 2017, compared to $6.0 million for the third
quarter ended October 31, 2016.
Net income per diluted share was $0.17 for the third quarter
ended October 31, 2017, compared to $0.10 for the third
quarter ended October 31, 2016.
Adjusted EBITDA was $21.2 million for the third quarter ended
October 31, 2017, an increase of 46% compared to $14.5 million
for the third quarter ended October 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 October 31, 2017 was 3.0
million, an increase of 27% from 2.4 million as of October 31,
2016.
Total Custodial Assets as of October 31, 2017 was $5.6
billion, an increase of 30% year over year, consisting of:
- Custodial Cash Assets of $4.6 billion, an increase of 24%
compared to Q3 FY17; and
- Custodial Investment Assets of $1.0 billion, an increase of 73%
compared to Q3 FY17.
Business outlook
We are increasing our business outlook for the year
ended January 31, 2018. We are narrowing our revenue outlook from a
range between $223.0 million and $228.0 million to a range between
$225.0 million and $228.0 million, our net income from a range
between $41.0 million and $45.0 million to a range between $43.0
million and $45.0 million, our Adjusted EBITDA from a range between
$79.0 million and $84.0 million to a range between $80.0 million
and $83.0 million. We also expect our non-GAAP net income to be in
a range between $39.0 million and $41.0 million, narrowed from our
prior range between $39.0 million and $43.0 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 $0.66 (based on an estimated
62.0 million diluted weighted-average shares outstanding), narrowed
from our prior range between $0.64 and $0.68.
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 5, 2017 to discuss the fiscal
year 2018 third quarter results. The conference call will be
accessible by dialing 844-791-6252, or 661-378-9636 for
international callers, and referencing conference ID 2796618. 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) |
October 31, 2017 |
|
|
January 31, 2017 |
|
Assets |
|
|
|
Current assets |
|
|
|
Cash and
cash equivalents |
$ |
184,367 |
|
|
$ |
139,954 |
|
Marketable securities, at fair value |
40,711 |
|
|
40,405 |
|
Total
cash, cash equivalents and marketable securities |
225,078 |
|
|
180,359 |
|
Accounts
receivable, net of allowance for doubtful accounts as of October
31, 2017 and January 31, 2017 were $100 and $75,
respectively |
21,458 |
|
|
17,001 |
|
Inventories |
169 |
|
|
592 |
|
Other
current assets |
6,106 |
|
|
2,867 |
|
Total
current assets |
252,811 |
|
|
200,819 |
|
Property
and equipment, net |
6,789 |
|
|
5,170 |
|
Intangible assets, net |
85,450 |
|
|
65,020 |
|
Goodwill |
4,651 |
|
|
4,651 |
|
Deferred
tax asset |
4,656 |
|
|
1,615 |
|
Other
assets |
1,760 |
|
|
1,861 |
|
Total
assets |
$ |
356,117 |
|
|
$ |
279,136 |
|
Liabilities and
stockholders’ equity |
|
|
|
Current
liabilities |
|
|
|
Accounts
payable |
$ |
3,295 |
|
|
$ |
3,221 |
|
Accrued
compensation |
6,503 |
|
|
8,722 |
|
Accrued
liabilities |
9,680 |
|
|
3,760 |
|
Total
current liabilities |
19,478 |
|
|
15,703 |
|
Long-term
liabilities |
|
|
|
Other
long-term liabilities |
2,226 |
|
|
1,456 |
|
Deferred
tax liability |
— |
|
|
37 |
|
Total
long-term liabilities |
2,226 |
|
|
1,493 |
|
Total
liabilities |
21,704 |
|
|
17,196 |
|
Commitments and
contingencies |
|
|
|
Stockholders’
equity |
|
|
|
Preferred
stock, $0.0001 par value, 100,000 shares authorized, no shares
issued and outstanding as of October 31, 2017 and January 31, 2017,
respectively |
— |
|
|
— |
|
Common
stock, $0.0001 par value, 900,000 shares authorized, 60,652 and
59,538 shares issued and outstanding as of October 31, 2017 and
January 31, 2017, respectively |
6 |
|
|
6 |
|
Additional paid-in
capital |
255,245 |
|
|
232,114 |
|
Accumulated other
comprehensive loss |
(188 |
) |
|
(165 |
) |
Accumulated
earnings |
79,350 |
|
|
29,985 |
|
Total
stockholders’ equity |
334,413 |
|
|
261,940 |
|
Total liabilities and stockholders’ equity |
$ |
356,117 |
|
|
$ |
279,136 |
|
|
|
|
|
|
|
|
|
|
HealthEquity, Inc. and its subsidiaries |
Consolidated statements of operations and comprehensive
income (unaudited) |
|
|
|
|
(in thousands, except per share
data) |
Three months ended October 31, |
|
|
Nine months ended October 31, |
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Revenue: |
|
|
|
|
|
|
|
Service
revenue |
$ |
22,962 |
|
|
$ |
18,781 |
|
|
$ |
68,258 |
|
|
$ |
56,610 |
|
Custodial
revenue |
22,105 |
|
|
14,967 |
|
|
62,709 |
|
|
43,557 |
|
Interchange revenue |
11,722 |
|
|
9,610 |
|
|
38,122 |
|
|
31,389 |
|
Total
revenue |
56,789 |
|
|
43,358 |
|
|
169,089 |
|
|
131,556 |
|
Cost of revenue: |
|
|
|
|
|
|
|
Service
costs |
17,251 |
|
|
12,675 |
|
|
47,824 |
|
|
34,471 |
|
Custodial
costs |
2,784 |
|
|
2,461 |
|
|
8,370 |
|
|
7,211 |
|
Interchange costs |
3,027 |
|
|
2,331 |
|
|
9,625 |
|
|
7,748 |
|
Total
cost of revenue |
23,062 |
|
|
17,467 |
|
|
65,819 |
|
|
49,430 |
|
Gross profit |
33,727 |
|
|
25,891 |
|
|
103,270 |
|
|
82,126 |
|
Operating
expenses: |
|
|
|
|
|
|
|
Sales and
marketing |
5,892 |
|
|
4,391 |
|
|
15,707 |
|
|
12,764 |
|
Technology and development |
6,866 |
|
|
6,209 |
|
|
19,905 |
|
|
15,827 |
|
General
and administrative |
6,252 |
|
|
5,166 |
|
|
18,354 |
|
|
15,290 |
|
Amortization of acquired intangible assets |
1,155 |
|
|
1,083 |
|
|
3,320 |
|
|
3,214 |
|
Total
operating expenses |
20,165 |
|
|
16,849 |
|
|
57,286 |
|
|
47,095 |
|
Income from
operations |
13,562 |
|
|
9,042 |
|
|
45,984 |
|
|
35,031 |
|
Other expense: |
|
|
|
|
|
|
|
Other
expense, net |
(395 |
) |
|
(256 |
) |
|
(523 |
) |
|
(934 |
) |
Total other
expense |
(395 |
) |
|
(256 |
) |
|
(523 |
) |
|
(934 |
) |
Income before income
taxes |
13,167 |
|
|
8,786 |
|
|
45,461 |
|
|
34,097 |
|
Income tax
provision |
2,685 |
|
|
2,778 |
|
|
4,004 |
|
|
11,783 |
|
Net income |
$ |
10,482 |
|
|
$ |
6,008 |
|
|
$ |
41,457 |
|
|
$ |
22,314 |
|
Net income per
share: |
|
|
|
|
|
|
|
Basic |
$ |
0.17 |
|
|
$ |
0.10 |
|
|
$ |
0.69 |
|
|
$ |
0.38 |
|
Diluted |
$ |
0.17 |
|
|
$ |
0.10 |
|
|
$ |
0.67 |
|
|
$ |
0.37 |
|
Weighted-average number
of shares used in computing net income per share: |
|
|
|
|
|
|
|
Basic |
60,562 |
|
|
58,938 |
|
|
60,160 |
|
|
58,338 |
|
Diluted |
61,868 |
|
|
60,073 |
|
|
61,703 |
|
|
59,693 |
|
Comprehensive
income: |
|
|
|
|
|
|
|
Net
income |
$ |
10,482 |
|
|
$ |
6,008 |
|
|
$ |
41,457 |
|
|
$ |
22,314 |
|
Other
comprehensive gain (loss): |
|
|
|
|
|
|
|
Unrealized gain (loss) on available-for-sale marketable securities,
net of tax |
7 |
|
|
(23 |
) |
|
(23 |
) |
|
(36 |
) |
Comprehensive income |
$ |
10,489 |
|
|
$ |
5,985 |
|
|
$ |
41,434 |
|
|
$ |
22,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HealthEquity, Inc. and its subsidiaries |
Statement of Cash flows (unaudited) |
|
|
|
Nine months ended October 31, |
|
(in thousands) |
2017 |
|
|
2016 |
|
Cash flows from
operating activities: |
|
|
|
Net income |
$ |
41,457 |
|
|
$ |
22,314 |
|
Adjustments to
reconcile net income to net cash provided by operating
activities: |
|
|
|
Depreciation and amortization |
11,142 |
|
|
9,543 |
|
Amortization of deferred financing costs and other |
97 |
|
|
53 |
|
Deferred
taxes |
5,093 |
|
|
(1,880 |
) |
Stock-based compensation |
10,468 |
|
|
6,399 |
|
Changes in operating
assets and liabilities: |
|
|
|
Accounts
receivable |
(4,482 |
) |
|
244 |
|
Inventories |
423 |
|
|
(324 |
) |
Other
assets |
(3,027 |
) |
|
(3,955 |
) |
Accounts
payable |
(425 |
) |
|
(973 |
) |
Accrued
compensation |
(2,219 |
) |
|
(3,117 |
) |
Accrued
liabilities |
2,586 |
|
|
1,666 |
|
Other
long-term liabilities |
770 |
|
|
1,059 |
|
Net cash provided by
operating activities |
61,883 |
|
|
31,029 |
|
Cash flows from
investing activities: |
|
|
|
Purchases
of intangible member assets |
(15,529 |
) |
|
— |
|
Acquisition of a business |
(2,882 |
) |
|
— |
|
Purchases
of marketable securities |
(343 |
) |
|
(275 |
) |
Purchase
of property and equipment |
(3,382 |
) |
|
(2,705 |
) |
Purchase
of software and capitalized software development costs |
(7,654 |
) |
|
(6,799 |
) |
Net cash used in
investing activities |
(29,790 |
) |
|
(9,779 |
) |
Cash flows from
financing activities: |
|
|
|
Proceeds
from exercise of common stock options |
12,320 |
|
|
4,546 |
|
Tax
benefit from exercise of common stock options |
— |
|
|
15,909 |
|
Net cash provided by
financing activities |
12,320 |
|
|
20,455 |
|
Increase in cash and
cash equivalents |
44,413 |
|
|
41,705 |
|
Beginning cash and cash
equivalents |
139,954 |
|
|
83,641 |
|
Ending cash and cash
equivalents |
$ |
184,367 |
|
|
$ |
125,346 |
|
Supplemental
disclosures of non-cash investing and financing activities: |
|
|
|
Purchases
of property and equipment included in accounts payable or accrued
liabilities at period end |
$ |
238 |
|
|
$ |
569 |
|
Purchases
of software and capitalized software development costs included in
accounts payable or accrued liabilities at period end |
501 |
|
|
185 |
|
Purchases
of intangible member assets accrued at period end |
3,429 |
|
|
— |
|
|
|
|
|
|
|
|
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 October 31, |
|
Nine months ended October 31, |
(in thousands) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Cost of revenue |
|
$ |
720 |
|
$ |
462 |
|
$ |
1,903 |
|
$ |
1,258 |
Sales and
marketing |
|
561 |
|
364 |
|
1,403 |
|
930 |
Technology and
development |
|
831 |
|
487 |
|
2,365 |
|
1,290 |
General and
administrative |
|
1,553 |
|
755 |
|
4,797 |
|
2,921 |
Total stock-based compensation expense |
|
$ |
3,665 |
|
$ |
2,068 |
|
$ |
10,468 |
|
$ |
6,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSA Members (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017 |
|
October 31, 2016 |
|
% Change |
|
January 31, 2017 |
HSA Members |
|
3,012,968 |
|
2,378,353 |
|
27% |
|
2,746,132 |
Average HSA Members -
Year-to-date |
|
2,872,744 |
|
2,278,994 |
|
26% |
|
2,339,091 |
Average HSA Members -
Quarter-to-date |
|
2,977,367 |
|
2,354,227 |
|
26% |
|
2,519,382 |
HSA
Members with investments |
|
98,257 |
|
58,226 |
|
69% |
|
65,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custodial assets (unaudited) |
|
|
|
|
|
|
|
|
|
(in thousands, except percentages) |
|
October 31, 2017 |
|
October 31, 2016 |
|
% Change |
|
January 31, 2017 |
Custodial cash |
|
$ |
4,592,658 |
|
$ |
3,713,290 |
|
24% |
|
$ |
4,380,487 |
Custodial
investments |
|
987,050 |
|
570,553 |
|
73% |
|
658,580 |
Total custodial
assets |
|
$ |
5,579,708 |
|
$ |
4,283,843 |
|
30% |
|
$ |
5,039,067 |
Average daily custodial
cash - Year-to-date |
|
$ |
4,469,641 |
|
$ |
3,596,571 |
|
24% |
|
$ |
3,661,058 |
Average
daily custodial cash - Quarter-to-date |
|
$ |
4,550,327 |
|
$ |
3,669,480 |
|
24% |
|
$ |
3,854,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income reconciliation to Adjusted EBITDA
(unaudited) |
|
|
|
|
|
|
|
Three months ended October 31, |
|
|
Nine months ended October 31, |
|
(in thousands) |
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Net income |
|
$ |
10,482 |
|
|
$ |
6,008 |
|
|
$ |
41,457 |
|
|
$ |
22,314 |
|
Interest
income |
|
(185 |
) |
|
(137 |
) |
|
(521 |
) |
|
(385 |
) |
Interest
expense |
|
69 |
|
|
69 |
|
|
205 |
|
|
206 |
|
Income
tax provision |
|
2,685 |
|
|
2,778 |
|
|
4,004 |
|
|
11,783 |
|
Depreciation and amortization |
|
2,851 |
|
|
2,335 |
|
|
7,822 |
|
|
6,329 |
|
Amortization of acquired intangible assets |
|
1,155 |
|
|
1,083 |
|
|
3,320 |
|
|
3,214 |
|
Stock-based compensation expense |
|
3,665 |
|
|
2,068 |
|
|
10,468 |
|
|
6,399 |
|
Other
(1) |
|
511 |
|
|
323 |
|
|
839 |
|
|
1,113 |
|
Adjusted
EBITDA |
|
$ |
21,233 |
|
|
$ |
14,527 |
|
|
$ |
67,594 |
|
|
$ |
50,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) For the three months ended October 31, 2017 and 2016,
Other consisted of non-income-based taxes of $113 and $86,
acquisition-related costs of $398 and $10, and other costs of $0
and $237, respectively. For the nine months ended October 31,
2017 and 2016, Other consisted of non-income based taxes of $303
and $260, acquisition-related costs of $482 and $595, and other
costs of $54 and $258, respectively.
|
|
Reconciliation of Adjusted EBITDA outlook
(unaudited) |
|
|
|
Outlook for the year ending |
(in millions) |
January 31, 2018 |
Net income |
$43 -
$45 |
Income
tax provision |
5 -
6 |
Depreciation and amortization |
~
11 |
Amortization of acquired intangible assets |
~
4 |
Stock-based compensation expense |
~
14 |
Other |
~ 3 |
Adjusted
EBITDA |
$80 - $83 |
|
|
|
|
|
|
Reconciliation of non-GAAP net income per diluted share
(unaudited) |
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
Outlook for the year ending |
(in millions, except per share data) |
October 31, 2017 |
|
October 31, 2017 |
|
January 31, 2018 |
Net income |
$10 |
|
$41 |
|
$43 - $45 |
Stock
compensation, net of tax (1) |
2 |
|
6 |
|
~ 9 |
Excess
tax benefit due to adoption of ASU 2016-09 |
(2 |
) |
(12 |
) |
~ (13) |
Non-GAAP net
income |
$10 |
|
$35 |
|
$39 - $41 |
|
|
|
|
|
|
Diluted
weighted-average shares used in computing GAAP and Non-GAAP per
share amounts |
62 |
|
62 |
|
62 |
Non-GAAP
net income per diluted share (2) |
$0.17 |
|
$0.57 |
|
$0.64 - $0.66 |
|
|
|
|
|
|
(1) The Company used an estimated statutory tax rate of 38% to
calculate the net impact stock-based compensation expense.(2)
Non-GAAP net income per diluted share does not calculate due to
rounding.
Investor Relations Contact:Richard
Putnam801-727-1209rputnam@healthequity.com
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