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, 2022.

"Team Purple opened a record 196,000 new HSAs in Q2 and grew Total HSA Assets 33% year-over-year to an industry-leading $20.5 billion," said Jon Kessler, President and CEO of HealthEquity. "Sales momentum, macro tailwinds, and a team focused on remarkable service position us for strong results in fiscal 2023 and beyond."

Second quarter financial results

Revenue for the second quarter ended July 31, 2022 was $206.1 million, an increase of 9% compared to $189.1 million for the second quarter ended July 31, 2021. Revenue this quarter included: service revenue of $103.0 million, custodial revenue of $65.6 million, and interchange revenue of $37.5 million.

HealthEquity reported a net loss of $10.7 million, or $0.13 per diluted share, and non-GAAP net income of $28.1 million, or $0.33 per diluted share, for the second quarter ended July 31, 2022. The Company reported a net loss of $3.8 million, or $0.05 per diluted share, and non-GAAP net income of $33.4 million, or $0.40 per diluted share, for the second quarter ended July 31, 2021.

Adjusted EBITDA was $67.0 million for the second quarter ended July 31, 2022, an increase of 2% compared to the second quarter ended July 31, 2021. Adjusted EBITDA was 33% of revenue, compared to 35% for the fiscal quarter ended July 31, 2021.

Account and asset metrics

HealthEquity reported sales of 196,000 new HSAs in the second quarter ended July 31, 2022, compared to 180,000 in the second quarter ended July 31, 2021. HSAs as of July 31, 2022 were 7.5 million, an increase of 26% year over year, including 516,000 HSAs with investments, an increase of 28% year over year. Total Accounts as of July 31, 2022 were 14.5 million, including 7.0 million other consumer-directed benefits ("CDBs").

Total HSA Assets as of July 31, 2022 were $20.5 billion, an increase of 33% year over year. Total HSA Assets included $13.1 billion of HSA cash and $7.4 billion of HSA investments. Client-held funds, which are deposits held on behalf of our Clients to facilitate administration of our CDBs, and from which we generate custodial revenue, were $0.8 billion as of July 31, 2022.

Business outlook

For the fiscal year ending January 31, 2023, management expects revenues of $834 million to $844 million. Its outlook for net loss is between $43 million and $36 million, resulting in net loss of $0.51 to $0.43 per diluted share. Its outlook for non-GAAP net income, calculated using the method described below, is between $103 million and $111 million, resulting in non-GAAP net income per diluted share of $1.23 to $1.32 (based on an estimated 84 million diluted weighted-average shares outstanding). Management expects Adjusted EBITDA of $252 million to $262 million.

See “Non-GAAP financial information” below for definitions of our Adjusted EBITDA and non-GAAP net income. 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 4:30 pm (Eastern Time) on Tuesday, September 6, 2022 to discuss the second quarter 2023 financial results. A live audio webcast of the call will 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 non-GAAP financial measures, including Adjusted EBITDA, non-GAAP net income, and non-GAAP net income per diluted share.

  • Adjusted EBITDA is adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, amortization of incremental costs to obtain a contract, costs associated with unused office space, and certain other non-operating items.
  • Non-GAAP net income is calculated by adding back to GAAP net income (loss) before income taxes the following items: amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, costs associated with unused office space, and losses on extinguishment of debt, and subtracting a non-GAAP tax provision using a normalized non-GAAP tax rate.
  • 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. We believe that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the Company's financial condition and results of operations. 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. In addition, while amortization of acquired intangible assets is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is not excluded. 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.

About HealthEquity

HealthEquity and its subsidiaries administer HSAs and other consumer-directed benefits for our more than 14 million accounts in partnership with employers, benefits advisors, and health and retirement plan providers who share our mission to connect health and wealth and value our culture of remarkable “Purple” service. For more information, visit www.healthequity.com.

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 our industry, business strategy, plans, goals and expectations concerning our markets and market position, product expansion, future operations, expenses and other results of operations, revenue, margins, profitability, acquisition synergies, future efficiencies, tax rates, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “may,” “believes,” “intends,” “seeks,” “aims,” “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 in this press release.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to be correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, risks related to the following:

  • the impact of societal and economic changes arising out of the COVID-19 pandemic on the Company, its operations and its financial results;
  • our ability to realize the anticipated financial and other benefits from combining the operations of recent and future acquisitions with our business successfully;
  • our ability to compete effectively in a rapidly evolving healthcare and benefits administration industry;
  • our dependence on the continued availability and benefits of tax-advantaged health savings accounts and other consumer-directed benefits;
  • our ability to successfully identify, acquire and integrate additional portfolio purchases or acquisition targets;
  • the significant competition we face and may face in the future, including from those with greater resources than us;
  • our reliance on the availability and performance of our technology and communications systems;
  • potential future cybersecurity breaches of our technology and communications systems and other data interruptions, including resulting costs and liabilities, reputational damage and loss of business;
  • the current uncertain healthcare environment, including changes in healthcare programs and expenditures and related regulations;
  • our ability to comply with current and future privacy, healthcare, tax, ERISA, investment adviser and other laws applicable to our business;
  • our reliance on partners and third-party vendors for distribution and important services;
  • our ability to develop and implement updated features for our technology and communications systems and successfully manage our growth;
  • our ability to protect our brand and other intellectual property rights; and
  • our reliance on our management team and key team members.

For a detailed discussion of these and other risk factors, please refer to the risks detailed in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, our Quarterly Report on Form 10-Q for the quarter ended April 30, 2022, and subsequent periodic and current reports. Past performance is not necessarily indicative of future results. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.

Investor Relations ContactRichard Putnam801-727-1209rputnam@healthequity.com

HealthEquity, Inc. and its subsidiariesCondensed consolidated balance sheets

(in thousands, except par value) July 31, 2022   January 31, 2022
  (unaudited)    
Assets      
Current assets      
Cash and cash equivalents $ 176,886   $ 225,414
Accounts receivable, net of allowance for doubtful accounts of $6,215 and $6,228 as of July 31, 2022 and January 31, 2022, respectively   90,426     87,428
Other current assets   41,274     38,495
Total current assets   308,586     351,337
Property and equipment, net   18,028     23,372
Operating lease right-of-use assets   60,588     63,613
Intangible assets, net   991,945     973,137
Goodwill   1,645,999     1,645,836
Other assets   48,878     49,807
Total assets $ 3,074,024   $ 3,107,102
Liabilities and stockholders’ equity      
Current liabilities      
Accounts payable $ 15,841   $ 27,541
Accrued compensation   41,989     47,136
Accrued liabilities   43,287     57,589
Current portion of long-term debt   13,125     8,750
Operating lease liabilities   11,275     12,171
Total current liabilities   125,517     153,187
Long-term liabilities      
Long-term debt, net   914,966     922,077
Operating lease liabilities, non-current   62,626     65,232
Other long-term liabilities   13,731     14,185
Deferred tax liability   92,288     99,846
Total long-term liabilities   1,083,611     1,101,340
Total liabilities   1,209,128     1,254,527
Commitments and contingencies      
Stockholders’ equity      
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2022 and January 31, 2022, respectively      
Common stock, $0.0001 par value, 900,000 shares authorized, 84,526 and 83,780 shares issued and outstanding as of July 31, 2022 and January 31, 2022, respectively   8     8
Additional paid-in capital   1,713,122     1,676,508
Accumulated earnings   151,766     176,059
Total stockholders’ equity   1,864,896     1,852,575
Total liabilities and stockholders’ equity $ 3,074,024   $ 3,107,102

HealthEquity, Inc. and its subsidiariesCondensed consolidated statements of operations and comprehensive loss (unaudited)

  Three months ended July 31,   Six months ended July 31,
(in thousands, except per share data)   2022       2021       2022       2021  
Revenue              
Service revenue $ 103,034     $ 109,182     $ 207,382     $ 211,716  
Custodial revenue   65,599       48,776       124,964       95,754  
Interchange revenue   37,509       31,145       79,475       65,835  
Total revenue   206,142       189,103       411,821       373,305  
Cost of revenue              
Service costs   74,914       67,334       155,788       137,966  
Custodial costs   7,090       4,824       13,731       9,833  
Interchange costs   6,326       4,974       13,317       10,419  
Total cost of revenue   88,330       77,132       182,836       158,218  
Gross profit   117,812       111,971       228,985       215,087  
Operating expenses              
Sales and marketing   15,843       15,476       32,403       29,562  
Technology and development   46,580       37,898       91,763       73,367  
General and administrative   25,937       22,812       49,664       43,499  
Amortization of acquired intangible assets   24,181       20,289       47,879       40,103  
Merger integration   7,683       16,371       16,977       25,178  
Total operating expenses   120,224       112,846       238,686       211,709  
Income (loss) from operations   (2,412 )     (875 )     (9,701 )     3,378  
Other expense              
Interest expense   (11,493 )     (7,254 )     (21,954 )     (13,943 )
Other income (expense), net   32       344       (269 )     (3,286 )
Total other expense   (11,461 )     (6,910 )     (22,223 )     (17,229 )
Loss before income taxes   (13,873 )     (7,785 )     (31,924 )     (13,851 )
Income tax benefit   (3,219 )     (3,967 )     (7,631 )     (7,418 )
Net loss and comprehensive loss $ (10,654 )   $ (3,818 )   $ (24,293 )   $ (6,433 )
Net loss per share:              
Basic $ (0.13 )   $ (0.05 )   $ (0.29 )   $ (0.08 )
Diluted $ (0.13 )   $ (0.05 )   $ (0.29 )   $ (0.08 )
Weighted-average number of shares used in computing net loss per share:              
Basic   84,443       83,481       84,236       82,628  
Diluted   84,443       83,481       84,236       82,628  

HealthEquity, Inc. and its subsidiariesCondensed consolidated statements of cash flows (unaudited)

  Six months ended July 31,
(in thousands)   2022       2021  
Cash flows from operating activities:      
Net loss $ (24,293 )   $ (6,433 )
Adjustments to reconcile net loss to net cash provided by operating activities:      
Depreciation and amortization   80,226       64,819  
Stock-based compensation   32,140       28,416  
Amortization of debt discount and issuance costs   1,639       2,482  
Change in fair value of contingent consideration         1,011  
Other non-cash items   269       (752 )
Deferred taxes   (7,558 )     (4,051 )
Changes in operating assets and liabilities:      
Accounts receivable, net   (3,161 )     (230 )
Other assets   (1,546 )     20,636  
Operating lease right-of-use assets   4,117       6,060  
Accrued compensation   (4,973 )     (10,639 )
Accounts payable, accrued liabilities, and other current liabilities   (25,586 )     (30,213 )
Operating lease liabilities, non-current   (3,594 )     (4,556 )
Other long-term liabilities   (454 )     1,616  
Net cash provided by operating activities   47,226       68,166  
Cash flows from investing activities:      
Purchases of software and capitalized software development costs   (24,215 )     (32,097 )
Purchases of property and equipment   (2,384 )     (6,352 )
Acquisition of intangible member assets   (68,725 )     (2,653 )
Acquisitions, net of cash acquired         (49,533 )
Proceeds from sale of equity securities         2,367  
Net cash used in investing activities   (95,324 )     (88,268 )
Cash flows from financing activities:      
Principal payments on long-term debt   (4,375 )     (15,625 )
Settlement of client-held funds obligation, net   (991 )     (2,636 )
Proceeds from exercise of common stock options   4,936       6,672  
Proceeds from follow-on equity offering, net of payments for offering costs         456,642  
Net cash provided by (used in) financing activities   (430 )     445,053  
Increase (decrease) in cash and cash equivalents   (48,528 )     424,951  
Beginning cash and cash equivalents   225,414       328,803  
Ending cash and cash equivalents $ 176,886     $ 753,754  

HealthEquity, Inc. and its subsidiariesCondensed consolidated statements of cash flows (unaudited) (continued)

  Six months ended July 31,
(in thousands)   2022     2021  
Supplemental cash flow data:      
Interest expense paid in cash $ 19,450   $ 9,838  
Income tax payments (refunds), net   573     (5,545 )
Supplemental disclosures of non-cash investing and financing activities:      
Purchases of software and capitalized software development costs included in accounts payable, accrued liabilities, or accrued compensation   5,040     4,077  
Purchases of property and equipment included in accounts payable or accrued liabilities   356     357  
Purchases of intangible member assets included in accounts payable or accrued liabilities   1,849      
Contingent consideration recognized at acquisition       8,147  
Exercise of common stock options receivable   8     119  
Increase in goodwill due to measurement period adjustments, net   163      

Stock-based compensation expense (unaudited)

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

  Three months ended July 31,   Six months ended July 31,
(in thousands)   2022     2021     2022     2021
Cost of revenue $ 3,998   $ 3,068   $ 7,005   $ 5,471
Sales and marketing   2,553     2,660     4,567     4,848
Technology and development   2,963     3,693     6,343     6,706
General and administrative   8,640     6,196     14,225     11,391
Other expense, net (1)               342
Total stock-based compensation expense $ 18,154   $ 15,617   $ 32,140   $ 28,758

(1)   Equity-based awards exchanged for cash in connection with the Luum acquisition.

Total Accounts (unaudited)

(in thousands, except percentages) July 31, 2022   July 31, 2021   % Change   January 31, 2022
HSAs 7,523   5,972   26%   7,207
New HSAs from sales - Quarter-to-date 196   180   9%   472
New HSAs from sales - Year-to-date 355   295   20%   918
New HSAs from acquisitions - Year-to-date 90     n/a   740
HSAs with investments 516   402   28%   455
CDBs 7,023   7,171   (2)%   7,192
Total Accounts 14,546   13,143   11%   14,399
Average Total Accounts - Quarter-to-date 14,497   13,358   9%   14,326
Average Total Accounts - Year-to-date 14,462   13,114   10%   13,450

HSA Assets (unaudited)

(in millions, except percentages) July 31, 2022   July 31, 2021   % Change   January 31, 2022
HSA cash $ 13,097   $ 10,028   31%   $ 12,943
HSA investments   7,441     5,443   37%     6,675
Total HSA Assets   20,538     15,471   33%     19,618
Average daily HSA cash - Year-to-date   12,924     10,007   29%     10,579
Average daily HSA cash - Quarter-to-date   12,941     9,963   30%     12,118

Client-held funds (unaudited)

(in millions, except percentages) July 31, 2022   July 31, 2021   % Change   January 31, 2022
Client-held funds $ 801   $ 810   (1)%   $ 897
Average daily Client-held funds - Year-to-date   852     876   (3)%     842
Average daily Client-held funds - Quarter-to-date   839     853   (2)%     822

Reconciliation of net loss to Adjusted EBITDA (unaudited)

  Three months ended July 31,   Six months ended July 31,
(in thousands)   2022       2021       2022       2021  
Net loss $ (10,654 )   $ (3,818 )   $ (24,293 )   $ (6,433 )
Interest income   (89 )     (533 )     (141 )     (941 )
Interest expense   11,493       7,254       21,954       13,943  
Income tax benefit   (3,219 )     (3,967 )     (7,631 )     (7,418 )
Depreciation and amortization   16,559       12,762       32,347       24,716  
Amortization of acquired intangible assets   24,181       20,289       47,879       40,103  
Stock-based compensation expense   18,154       15,617       32,140       28,416  
Merger integration expenses   7,683       16,371       16,977       25,178  
Acquisition costs (1)   47       1,665       53       7,604  
Gain on equity securities         (1,677 )           (1,677 )
Amortization of incremental costs to obtain a contract   1,074       1,352       2,142       2,624  
Costs associated with unused office space   1,313             2,607        
Other   501       200       1,345       (1,625 )
Adjusted EBITDA $ 67,043     $ 65,515     $ 125,379     $ 124,490  

(1)   For the six months ended July 31, 2021, acquisition costs included $0.3 million of stock-based compensation expense.

Reconciliation of net loss outlook to Adjusted EBITDA outlook (unaudited)

  Outlook for the year ending
(in millions) January 31, 2023
Net loss $(43) - (36)
Interest expense 46
Income tax benefit (15) - (12)
Depreciation and amortization 64
Amortization of acquired intangible assets 97
Stock-based compensation expense 67
Merger integration expenses 27
Amortization of incremental costs to obtain a contract 4
Costs associated with unused office space 5
Adjusted EBITDA $252 - 262

Reconciliation of net loss to non-GAAP net income (unaudited)

  Three months ended July 31,   Six months ended July 31,
(in thousands, except per share data)   2022       2021       2022       2021  
Net loss $ (10,654 )   $ (3,818 )   $ (24,293 )   $ (6,433 )
Income tax benefit   (3,219 )     (3,967 )     (7,631 )     (7,418 )
Loss before income taxes - GAAP   (13,873 )     (7,785 )     (31,924 )     (13,851 )
Non-GAAP adjustments:              
Amortization of acquired intangible assets   24,181       20,289       47,879       40,103  
Stock-based compensation expense   18,154       15,617       32,140       28,416  
Merger integration expenses   7,683       16,371       16,977       25,178  
Acquisition costs   47       1,665       53       7,604  
Gain on equity securities         (1,677 )           (1,677 )
Costs associated with unused office space   1,313             2,607        
Total adjustments to loss before income taxes - GAAP   51,378       52,265       99,656       99,624  
Income before income taxes - Non-GAAP   37,505       44,480       67,732       85,773  
Income tax provision - Non-GAAP (1)   9,376       11,120       16,933       21,443  
Non-GAAP net income   28,129       33,360       50,799       64,330  
               
Diluted weighted-average shares   84,443       83,481       84,236       82,628  
Non-GAAP net income per diluted share $ 0.33     $ 0.40     $ 0.60     $ 0.78  

(1)   The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations. The normalized non-GAAP tax rate applied to each period presented was 25%. The Company may adjust its non-GAAP tax rate as additional information becomes available and in conjunction with any other significant events occurring that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other changes in expectations regarding tax regulations.

Reconciliation of net loss outlook to non-GAAP net income outlook (unaudited)

  Outlook for the year ending
(in millions, except per share data) January 31, 2023
Net loss $(43) - (36)
Income tax benefit (15) - (12)
Loss before income taxes - GAAP (58) - (48)
Non-GAAP adjustments:  
Amortization of acquired intangible assets 97
Stock-based compensation expense 67
Merger integration expenses 27
Costs associated with unused office space 5
Total adjustments to loss before income taxes - GAAP 196
Income before income taxes - Non-GAAP 138 - 148
Income tax provision - Non-GAAP (1) 35 - 37
Non-GAAP net income $103 - 111
   
Diluted weighted-average shares 84
Non-GAAP net income per diluted share (2) $1.23 - 1.32

(1)   The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations. The normalized non-GAAP tax rate applied to each period presented was 25%. The Company may adjust its non-GAAP tax rate as additional information becomes available and in conjunction with any other significant events occurring that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other changes in expectations regarding tax regulations.

(2)   Non-GAAP net income per diluted share may not calculate due to rounding of non-GAAP net income and diluted weighted-average shares.

Certain terms

Term Definition
HSA A financial account through which consumers spend and save long-term for healthcare on a tax-advantaged basis.
CDB Consumer-directed benefits offered by employers, including flexible spending and health reimbursement arrangements (“FSAs” and “HRAs”), Consolidated Omnibus Budget Reconciliation Act (“COBRA”) administration, commuter and other benefits.
HSA member Consumers with HSAs that we serve.
Total HSA Assets HSA members’ custodial cash assets held by our federally insured depository partners and our insurance company partners. Total HSA Assets also includes HSA members' investments in mutual funds through our custodial investment fund partner.
Client Our employer clients.
Total Accounts The sum of HSAs and CDBs on our platforms.
Client-held funds Deposits held on behalf of our Clients to facilitate administration of our CDBs.
Network Partner Our health plan partners, benefits administrators, and retirement plan recordkeepers.
Adjusted EBITDA Adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, amortization of incremental costs to obtain a contract, costs associated with unused office space, and certain other non-operating items.
Non-GAAP net income Calculated by adding back to GAAP net income (loss) before income taxes the following items: amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, costs associated with unused office space, and losses on extinguishment of debt, and subtracting a non-GAAP tax provision using a normalized non-GAAP tax rate.
Non-GAAP net income per diluted share Calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.
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