Form 8-K HEALTHEQUITY, INC. For: Dec 06
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E-mailHealthEquity Reports Third Quarter Ended October 31, 2021 Financial Results
Highlights of the third quarter include:
•Revenue of $180.0 million, an increase of less than one percent compared to $179.4 million in Q3 FY21.
•Net loss of $5.0 million, compared to net income of $1.8 million in Q3 FY21, with non-GAAP net income of $28.9 million, a decrease of 10% compared to $32.2 million in Q3 FY21.
•Net loss per diluted share of $0.06, compared to net income per diluted share of $0.02 in Q3 FY21, with non-GAAP net income per diluted share of $0.35, compared to $0.41 in Q3 FY21.
•Adjusted EBITDA of $61.1 million, the same as in Q3 FY21.
•6.2 million HSAs, an increase of 14% compared to Q3 FY21.
•Total HSA Assets of $16.4 billion, an increase of 32% compared to Q3 FY21.
•13.3 million Total Accounts, including both HSAs and complementary CDB accounts, an increase of 6% compared to Q3 FY21.
•The Company closed its acquisition of the Fifth Third Bank HSA portfolio on September 29, 2021 and its acquisition of Further on November 1, 2021.
•The Company issued $600 million aggregate principal amount of 4.50% Senior Notes due 2029 and refinanced its credit facility.
Draper, Utah – December 6, 2021 – 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, 2021.
"The HealthEquity team delivered another strong quarter of HSA growth, with new HSA sales of 151,000 in the third quarter and 446,000 in the year to date," said Jon Kessler, President and CEO of HealthEquity. "Adding to this year’s strong organic growth, we have on-boarded 160,000 new HSAs from Fifth Third Bank in the third quarter and 580,000 from Further in November to start our fourth quarter. HSA members have added nearly another $1 billion to their HSAs this quarter, and their HSA investments have grown significantly. We believe we are poised for a strong finish to this year’s selling season, continuing to outpace market growth."
Third quarter financial results
Revenue for the third quarter ended October 31, 2021 was $180.0 million, an increase of less than one percent compared to $179.4 million for the third quarter ended October 31, 2020. Revenue this quarter included: service revenue of $102.7 million, custodial revenue of $49.0 million, and interchange revenue of $28.2 million.
HealthEquity reported a net loss of $5.0 million, or $0.06 per diluted share, and non-GAAP net income of $28.9 million, or $0.35 per diluted share, for the third quarter ended October 31, 2021. The Company reported net income of $1.8 million, or $0.02 per diluted share, and non-GAAP net income of $32.2 million, or $0.41 per diluted share, for the third quarter ended October 31, 2020.
Adjusted EBITDA was $61.1 million for the third quarter ended October 31, 2021, the same as in the third quarter ended October 31, 2020. Adjusted EBITDA was 34% of revenue for each of the third quarters ended October 31, 2021 and 2020.
Account and asset metrics
HealthEquity reported sales of 151,000 new HSAs in the third quarter ended October 31, 2021, compared to 104,000 in the third quarter ended October 31, 2020. HSAs as of October 31, 2021 were approximately 6.2 million, an increase of 14% year over year, including 431,000 HSAs with investments, an increase of 43% year over year. Total Accounts as of October 31, 2021 were 13.3 million, including 7.1 million other consumer-directed benefits ("CDBs").
Total HSA Assets as of October 31, 2021 were $16.4 billion, an increase of 32% year over year. Total HSA Assets included $10.5 billion of HSA cash and $6.0 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 October 31, 2021.
HealthSavings HSA portfolio acquisition
HealthEquity also announced it has entered into a definitive agreement with Health Savings Administrators, L.L.C. (“HealthSavings”) to transition the custody of HealthSavings’ HSA portfolio to HealthEquity. The definitive agreement provides a $60 million purchase price for nearly $1.3 billion of HSA assets held in approximately 87,000 HSAs. Given that a significant portion of the HSA assets are currently invested, HealthSavings and HealthEquity are working closely
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to coordinate an in-kind transfer of most of the invested assets. The transition of HealthSavings’ HSAs to the HealthEquity platform is expected to be completed in the first quarter of fiscal 2023. Willkie Farr & Gallagher LLP is serving as legal advisor to HealthEquity. HealthSavings has engaged Raymond James & Associates, Inc. as financial advisor and Ellenoff Grossman & Schole LLP as its legal advisor.
WageWorks integration
HealthEquity completed its acquisition of WageWorks on August 30, 2019. As of October 31, 2021, we have achieved approximately $75 million of the approximately $80 million in annualized ongoing net synergies we expect to achieve by the end of fiscal year 2022.
Business outlook
For the fiscal year ending January 31, 2022, management expects revenues of $750 million to $755 million. Its outlook for net loss is between $36 million and $33 million, resulting in net loss of $0.43 to $0.40 per diluted share. Its outlook for non-GAAP net income, calculated using the method described below, is between $108 million and $112 million, resulting in non-GAAP net income per diluted share of $1.30 to $1.35 (based on an estimated 83 million diluted weighted-average shares outstanding). Management expects Adjusted EBITDA of $230 million to $235 million. This outlook includes the impact of the Fifth Third Bank HSA portfolio, which closed on September 29, 2021, and the Further acquisition, which closed on November 1, 2021. This outlook also includes the impact of the $600 million aggregate principal amount of 4.50% Senior Notes due 2029 and the refinanced credit facility.
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 Monday, December 6, 2021 to discuss the third quarter 2022 financial results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 5354046. 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 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, and other certain 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, 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.
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About HealthEquity
HealthEquity and its subsidiaries administer HSAs and other consumer-directed benefits for our more than 13 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 the ongoing 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 WageWorks and Further with our business in an efficient and effective manner;
•our ability to integrate the Further 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;
•recent and 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, 2021 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.
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Investor Relations Contact
Richard Putnam
801-727-1209
rputnam@healthequity.com
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HealthEquity, Inc. and its subsidiaries
Condensed consolidated balance sheets
| (in thousands, except par value) | October 31, 2021 | January 31, 2021 | |||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 649,129 | $ | 328,803 | |||||||
| Accounts receivable, net of allowance for doubtful accounts of $6,063 and $4,239 as of October 31, 2021 and January 31, 2021, respectively | 84,083 | 72,767 | |||||||||
| Other current assets | 30,919 | 58,607 | |||||||||
| Total current assets | 764,131 | 460,177 | |||||||||
| Property and equipment, net | 24,930 | 29,106 | |||||||||
| Operating lease right-of-use assets | 81,150 | 89,508 | |||||||||
| Intangible assets, net | 820,946 | 767,003 | |||||||||
| Goodwill | 1,363,549 | 1,327,193 | |||||||||
| Other assets | 44,908 | 37,420 | |||||||||
| Total assets | $ | 3,099,614 | $ | 2,710,407 | |||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | 5,244 | $ | 1,614 | |||||||
| Accrued compensation | 32,695 | 50,670 | |||||||||
| Accrued liabilities | 49,879 | 75,880 | |||||||||
| Current portion of long-term debt | 6,563 | 62,500 | |||||||||
| Operating lease liabilities | 12,693 | 14,037 | |||||||||
| Total current liabilities | 107,074 | 204,701 | |||||||||
| Long-term liabilities | |||||||||||
| Long-term debt, net | 923,501 | 924,217 | |||||||||
| Operating lease liabilities, non-current | 67,836 | 74,224 | |||||||||
| Other long-term liabilities | 18,953 | 8,808 | |||||||||
| Deferred tax liability | 110,400 | 119,729 | |||||||||
| Total long-term liabilities | 1,120,690 | 1,126,978 | |||||||||
| Total liabilities | 1,227,764 | 1,331,679 | |||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ equity | |||||||||||
| Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively | — | — | |||||||||
| Common stock, $0.0001 par value, 900,000 shares authorized, 83,586 and 77,168 shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively | 8 | 8 | |||||||||
| Additional paid-in capital | 1,662,965 | 1,158,372 | |||||||||
| Accumulated earnings | 208,877 | 220,348 | |||||||||
| Total stockholders’ equity | 1,871,850 | 1,378,728 | |||||||||
| Total liabilities and stockholders’ equity | $ | 3,099,614 | $ | 2,710,407 | |||||||
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HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of operations and comprehensive income (loss) (unaudited)
| Three months ended October 31, | Nine months ended October 31, | ||||||||||||||||||||||
| (in thousands, except per share data) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Service revenue | $ | 102,733 | $ | 104,562 | $ | 314,449 | $ | 319,638 | |||||||||||||||
| Custodial revenue | 49,006 | 48,544 | 144,760 | 142,352 | |||||||||||||||||||
| Interchange revenue | 28,215 | 26,245 | 94,050 | 83,411 | |||||||||||||||||||
| Total revenue | 179,954 | 179,351 | 553,259 | 545,401 | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Service costs | 66,217 | 65,936 | 204,183 | 202,195 | |||||||||||||||||||
| Custodial costs | 5,734 | 4,762 | 15,567 | 14,805 | |||||||||||||||||||
| Interchange costs | 4,683 | 4,095 | 15,102 | 13,985 | |||||||||||||||||||
| Total cost of revenue | 76,634 | 74,793 | 234,852 | 230,985 | |||||||||||||||||||
| Gross profit | 103,320 | 104,558 | 318,407 | 314,416 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Sales and marketing | 12,726 | 12,880 | 42,288 | 36,502 | |||||||||||||||||||
| Technology and development | 38,070 | 30,758 | 111,437 | 92,490 | |||||||||||||||||||
| General and administrative | 20,004 | 22,099 | 63,503 | 61,590 | |||||||||||||||||||
| Amortization of acquired intangible assets | 19,642 | 19,126 | 59,745 | 56,905 | |||||||||||||||||||
| Merger integration | 13,244 | 8,193 | 38,422 | 31,328 | |||||||||||||||||||
| Total operating expenses | 103,686 | 93,056 | 315,395 | 278,815 | |||||||||||||||||||
| Income (loss) from operations | (366) | 11,502 | 3,012 | 35,601 | |||||||||||||||||||
| Other expense | |||||||||||||||||||||||
| Interest expense | (11,881) | (6,952) | (25,824) | (28,110) | |||||||||||||||||||
| Other income (expense), net | 3,122 | (421) | (164) | (2,009) | |||||||||||||||||||
| Total other expense | (8,759) | (7,373) | (25,988) | (30,119) | |||||||||||||||||||
| Income (loss) before income taxes | (9,125) | 4,129 | (22,976) | 5,482 | |||||||||||||||||||
| Income tax provision (benefit) | (4,087) | 2,340 | (11,505) | 2,015 | |||||||||||||||||||
| Net income (loss) and comprehensive income (loss) | $ | (5,038) | $ | 1,789 | $ | (11,471) | $ | 3,467 | |||||||||||||||
| Net income (loss) per share: | |||||||||||||||||||||||
| Basic | $ | (0.06) | $ | 0.02 | $ | (0.14) | $ | 0.05 | |||||||||||||||
| Diluted | $ | (0.06) | $ | 0.02 | $ | (0.14) | $ | 0.05 | |||||||||||||||
| Weighted-average number of shares used in computing net income (loss) per share: | |||||||||||||||||||||||
| Basic | 83,551 | 76,701 | 82,939 | 73,358 | |||||||||||||||||||
| Diluted | 83,551 | 77,845 | 82,939 | 74,665 | |||||||||||||||||||
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HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of cash flows (unaudited)
| Nine months ended October 31, | |||||||||||
| (in thousands) | 2021 | 2020 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | (11,471) | $ | 3,467 | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 98,364 | 85,485 | |||||||||
| Stock-based compensation | 41,700 | 30,313 | |||||||||
| Amortization of debt discount and issuance costs | 3,616 | 3,818 | |||||||||
| Loss on extinguishment of debt | 4,044 | — | |||||||||
| Change in fair value of contingent consideration | (2,147) | — | |||||||||
| Other non-cash items | (750) | 1,727 | |||||||||
| Deferred taxes | (8,765) | (973) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable, net | (10,090) | 8,063 | |||||||||
| Other assets | 19,888 | 3,309 | |||||||||
| Operating lease right-of-use assets | 8,944 | 8,344 | |||||||||
| Accrued compensation | (18,098) | (15,251) | |||||||||
| Accounts payable, accrued liabilities, and other current liabilities | (34,023) | (7,936) | |||||||||
| Operating lease liabilities, non-current | (6,808) | (8,361) | |||||||||
| Other long-term liabilities | 6,034 | 8,712 | |||||||||
| Net cash provided by operating activities | 90,438 | 120,717 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisitions, net of cash acquired | (49,533) | — | |||||||||
| Purchases of software and capitalized software development costs | (49,033) | (37,242) | |||||||||
| Purchases of property and equipment | (7,284) | (11,388) | |||||||||
| Acquisition of intangible member assets | (64,463) | (28,100) | |||||||||
| Proceeds from sale of equity securities | 2,367 | — | |||||||||
| Net cash used in investing activities | (167,946) | (76,730) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Principal payments on long-term debt | (1,003,125) | (223,438) | |||||||||
| Proceeds from issuance of long-term debt | 950,000 | — | |||||||||
| Payment of debt issuance costs | (11,846) | — | |||||||||
| Proceeds from follow-on equity offering, net of payments for offering costs | 456,642 | 286,779 | |||||||||
| Settlement of client-held funds obligation, net | (1,565) | (4,189) | |||||||||
| Proceeds from exercise of common stock options | 7,728 | 4,491 | |||||||||
| Net cash provided by financing activities | 397,834 | 63,643 | |||||||||
| Increase in cash and cash equivalents | 320,326 | 107,630 | |||||||||
| Beginning cash and cash equivalents | 328,803 | 191,726 | |||||||||
| Ending cash and cash equivalents | $ | 649,129 | $ | 299,356 | |||||||
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HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of cash flows (unaudited) (continued)
| Nine months ended October 31, | |||||||||||
| (in thousands) | 2021 | 2020 | |||||||||
| Supplemental cash flow data: | |||||||||||
| Interest expense paid in cash | $ | 13,685 | $ | 22,849 | |||||||
| Income tax payments (refunds), net | (5,926) | 1,053 | |||||||||
| 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 | 3,708 | 1,346 | |||||||||
| Purchases of property and equipment included in accounts payable or accrued liabilities | 479 | 167 | |||||||||
| Purchases of intangible member assets included in accounts payable or accrued liabilities | 2,281 | 289 | |||||||||
| Contingent consideration recognized at acquisition | 8,147 | — | |||||||||
| Exercise of common stock options receivable | 1 | 89 | |||||||||
| Decrease in goodwill due to measurement period adjustments, net | 19 | 5,838 | |||||||||
Stock-based compensation expense (unaudited)
Total stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive income (loss) is as follows:
| Three months ended October 31, | Nine months ended October 31, | ||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Cost of revenue | $ | 3,076 | $ | 2,209 | $ | 8,547 | $ | 5,737 | |||||||||||||||
| Sales and marketing | 829 | 2,035 | 5,677 | 4,810 | |||||||||||||||||||
| Technology and development | 3,458 | 2,641 | 10,164 | 8,051 | |||||||||||||||||||
| General and administrative | 5,921 | 4,594 | 17,312 | 11,715 | |||||||||||||||||||
| Other expense (1) | — | — | 342 | — | |||||||||||||||||||
| Total stock-based compensation expense | $ | 13,284 | $ | 11,479 | $ | 42,042 | $ | 30,313 | |||||||||||||||
(1)Equity-based awards exchanged for cash in connection with the Luum acquisition.
Total Accounts (unaudited)
| (in thousands, except percentages) | October 31, 2021 | October 31, 2020 | % Change | January 31, 2021 | |||||||||||||||||||
| HSAs | 6,241 | 5,460 | 14 | % | 5,782 | ||||||||||||||||||
| New HSAs from sales - Quarter-to-date | 151 | 104 | 45 | % | 370 | ||||||||||||||||||
| New HSAs from sales - Year-to-date | 446 | 317 | 41 | % | 687 | ||||||||||||||||||
| New HSAs from acquisitions - Year-to-date | 160 | — | n/a | — | |||||||||||||||||||
| HSAs with investments | 431 | 302 | 43 | % | 333 | ||||||||||||||||||
| CDBs | 7,085 | 7,060 | 0 | % | 7,028 | ||||||||||||||||||
| Total Accounts | 13,326 | 12,520 | 6 | % | 12,810 | ||||||||||||||||||
| Average Total Accounts - Quarter-to-date | 13,247 | 12,084 | 10 | % | 12,659 | ||||||||||||||||||
| Average Total Accounts - Year-to-date | 13,158 | 12,429 | 6 | % | 12,604 | ||||||||||||||||||
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HSA Assets (unaudited)
| (in millions, except percentages) | October 31, 2021 | October 31, 2020 | % Change | January 31, 2021 | |||||||||||||||||||
| HSA cash with yield (1) | $ | 10,410 | $ | 8,759 | 19 | % | $ | 9,875 | |||||||||||||||
| HSA cash without yield (2) | 59 | 258 | (77) | % | 244 | ||||||||||||||||||
| Total HSA cash | 10,469 | 9,017 | 16 | % | 10,119 | ||||||||||||||||||
| HSA investments with yield (1) | 5,900 | 3,255 | 81 | % | 4,078 | ||||||||||||||||||
| HSA investments without yield (2) | 59 | 168 | (65) | % | 138 | ||||||||||||||||||
| Total HSA investments | 5,959 | 3,423 | 74 | % | 4,216 | ||||||||||||||||||
| Total HSA Assets | 16,428 | 12,440 | 32 | % | 14,335 | ||||||||||||||||||
| Average daily HSA cash with yield - Year-to-date | 9,925 | 8,445 | 18 | % | 8,599 | ||||||||||||||||||
| Average daily HSA cash with yield - Quarter-to-date | $ | 10,099 | $ | 8,672 | 16 | % | $ | 9,060 | |||||||||||||||
(1)HSA Assets that generate custodial revenue.
(2)HSA Assets that do not generate custodial revenue.
Client-held funds (unaudited)
| (in millions, except percentages) | October 31, 2021 | October 31, 2020 | % Change | January 31, 2021 | |||||||||||||||||||
| Client-held funds (1) | $ | 811 | $ | 798 | 2 | % | $ | 986 | |||||||||||||||
| Average daily Client-held funds - Year-to-date (1) | 849 | 847 | — | % | 847 | ||||||||||||||||||
| Average daily Client-held funds - Quarter-to-date (1) | 796 | 819 | (3) | % | 848 | ||||||||||||||||||
(1)Client-held funds that generate custodial revenue.
Net income (loss) reconciliation to Adjusted EBITDA (unaudited)
| Three months ended October 31, | Nine months ended October 31, | ||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net income (loss) | $ | (5,038) | $ | 1,789 | $ | (11,471) | $ | 3,467 | |||||||||||||||
| Interest income | (478) | (174) | (1,419) | (850) | |||||||||||||||||||
| Interest expense | 11,881 | 6,952 | 25,824 | 28,110 | |||||||||||||||||||
| Income tax provision (benefit) | (4,087) | 2,340 | (11,505) | 2,015 | |||||||||||||||||||
| Depreciation and amortization | 13,904 | 10,253 | 38,619 | 28,580 | |||||||||||||||||||
| Amortization of acquired intangible assets | 19,642 | 19,126 | 59,745 | 56,905 | |||||||||||||||||||
| Stock-based compensation expense | 13,284 | 11,479 | 41,700 | 30,313 | |||||||||||||||||||
| Merger integration expenses | 13,244 | 8,193 | 38,422 | 31,328 | |||||||||||||||||||
| Acquisition costs (gains) (1) | (2,687) | 13 | 4,917 | 79 | |||||||||||||||||||
| Gain on equity securities | — | — | (1,677) | — | |||||||||||||||||||
| Other (2) | 1,422 | 1,168 | 2,421 | 4,202 | |||||||||||||||||||
| Adjusted EBITDA | $ | 61,087 | $ | 61,139 | $ | 185,576 | $ | 184,149 | |||||||||||||||
(1)For the nine months ended October 31, 2021, acquisition costs included $0.3 million of stock-based compensation expense.
(2)For the three months ended October 31, 2021, other consisted of amortization of incremental costs to obtain a contract of $0.8 million and other expenses, net, of $0.6 million. For the three months ended October 31, 2020, other consisted of amortization of incremental costs to obtain a contract of $0.6 million and other expenses, net, of $0.6 million. For the nine months ended October 31, 2021, other consisted of amortization of incremental costs to obtain a contract of $3.5 million, partially offset by other income, net, of $1.0 million. For the nine months ended October 31, 2020, other consisted of amortization of incremental costs to obtain a contract of $1.4 million and other expenses, net, of $2.8 million.
9
Reconciliation of net loss outlook to Adjusted EBITDA outlook (unaudited)
| Outlook for the year ending | |||||
| (in millions) | January 31, 2022 | ||||
| Net loss | $(36) - (33) | ||||
| Interest income | (2) | ||||
| Interest expense | 36 | ||||
| Income tax benefit | (16) - (14) | ||||
| Depreciation and amortization | 53 | ||||
| Amortization of acquired intangible assets | 84 | ||||
| Stock-based compensation expense | 57 | ||||
| Merger integration expenses | 48 | ||||
| Other expense | 6 | ||||
| Adjusted EBITDA | $230 - 235 | ||||
Reconciliation of net income (loss) to non-GAAP net income (unaudited)
| Three months ended October 31, | Nine months ended October 31, | Outlook for the year ending | |||||||||||||||||||||||||||
| (in millions, except per share data) | 2021 | 2020 | 2021 | 2020 | January 31, 2022 | ||||||||||||||||||||||||
| Net income (loss) | $ | (5) | $ | 2 | $ | (11) | $ | 3 | $(36) - (33) | ||||||||||||||||||||
| Income tax provision (benefit) | (4) | 2 | (12) | 2 | (16) - (14) | ||||||||||||||||||||||||
| Income (loss) before income taxes - GAAP | (9) | 4 | (23) | 5 | (52) - (47) | ||||||||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||||||||
| Amortization of acquired intangible assets | 20 | 19 | 60 | 57 | 84 | ||||||||||||||||||||||||
| Stock-based compensation expense | 13 | 12 | 42 | 30 | 57 | ||||||||||||||||||||||||
| Merger integration expenses | 13 | 8 | 38 | 32 | 48 | ||||||||||||||||||||||||
| Acquisition costs (gains) | (2) | — | 5 | — | 5 | ||||||||||||||||||||||||
| Gain on equity securities | — | — | (2) | — | (2) | ||||||||||||||||||||||||
| Loss on extinguishment of debt | 4 | — | 4 | — | 4 | ||||||||||||||||||||||||
| Total adjustments to income (loss) before income taxes - GAAP | 48 | 39 | 147 | 119 | 196 | ||||||||||||||||||||||||
| Income before income taxes - Non-GAAP | 39 | 43 | 124 | 124 | 144 - 149 | ||||||||||||||||||||||||
| Income tax provision - Non-GAAP (1) | 10 | 11 | 31 | 31 | 36 - 37 | ||||||||||||||||||||||||
| Non-GAAP net income | 29 | 32 | 93 | 93 | 108 - 112 | ||||||||||||||||||||||||
| Diluted weighted-average shares | 84 | 78 | 83 | 75 | 83 | ||||||||||||||||||||||||
| Non-GAAP net income per diluted share (2) | $ | 0.35 | $ | 0.41 | $ | 1.12 | $ | 1.25 | $1.30 - 1.35 | ||||||||||||||||||||
(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.
10
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' deposits with our federally insured custodial depository partners and custodial cash placed in annuity contracts with 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, and other certain 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, 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. | ||||
11
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