10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2017

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

HEALTHEQUITY, INC.

(Exact name of registrant as specified in its charter)

Delaware	7389	52-2383166
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

15 West Scenic Pointe Drive

Suite 100

Draper, Utah 84020

(Address of principal executive offices) (Zip code)

(801) 727-1000

(Registrant's telephone Number, including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	þ	Accelerated filer	¨
Non-accelerated filer	¨ (Do not  check if a smaller reporting company)	Smaller reporting company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of August 31, 2017, there were 60,488,740 shares of the registrant's common stock outstanding.

HealthEquity, Inc. and subsidiaries

Form 10-Q quarterly report

Table of contents

		Page
Part I. FINANCIAL INFORMATION
Item 1.	Financial statements
	Condensed consolidated balance sheets as of July 31, 2017 and January 31, 2017 (unaudited)	3
	Condensed consolidated statements of operations and comprehensive income for the three and six months ended July 31, 2017 and 2016 (unaudited)	4
	Condensed consolidated statements of cash flows for the six months ended July 31, 2017 and 2016 (unaudited)	5
	Notes to condensed consolidated financial statements (unaudited)	6
Item 2.	Management's discussion and analysis of financial condition and results of operations	16
Item 3.	Quantitative and qualitative disclosures about market risk	27
Item 4.	Controls and procedures	28
Part II. OTHER INFORMATION
Item 1.	Legal proceedings	29
Item 1A.	Risk factors	29
Item 2.	Unregistered sales of equity securities and use of proceeds	29
Item 6.	Exhibits	30
	Signatures	31
	Exhibit index	32

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Part I. Financial information

Item 1. Financial statements

HealthEquity, Inc. and subsidiaries

Condensed 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 (see note 6)
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

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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HealthEquity, Inc. and subsidiaries

Condensed 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

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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HealthEquity, Inc. and subsidiaries

Condensed consolidated statements 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			—

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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HealthEquity, Inc. and subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Note 1. Summary of business and significant accounting policies

HealthEquity, Inc. was incorporated in the state of Delaware on September 18, 2002. The Company offers a full range of innovative solutions for managing health care accounts (Health Savings Accounts, Health Reimbursement Arrangements, and Flexible Spending Accounts) for health plans, insurance companies, and third-party administrators.

In February 2006, HealthEquity, Inc. received designation by the U.S. Department of Treasury to act as a passive non-bank custodian, which allows HealthEquity, Inc. to hold custodial assets in trust for individual account holders.  On July 24, 2017, HealthEquity, Inc. received designation by the U.S. Department of Treasury to act as both a passive and non-passive non-bank custodian, which allows HealthEquity, Inc. to hold custodial assets in trust for individual account holders and use discretion to direct investment of such assets held in trust .  As passive and non-passive non-bank custodian according to the Internal Revenue Code ("IRC") 1.408-2(e)(5)(ii)(B), the Company must maintain net worth (assets minus liabilities) greater than 2% of passive custodial funds held in trust at each year-end and 4% of the non-passive custodial funds held in trust at each year-end in order to take on additional custodial assets.

Principles of consolidation—The condensed consolidated financial statements include the accounts of HealthEquity, Inc. and its wholly owned subsidiaries, HealthEquity Trust Company, HEQ Insurance Services, Inc., HealthEquity Advisors, LLC and HealthEquity Retirement Services, LLC (collectively referred to as, the "Company").

The Company has a 22% ownership interest in a limited partnership for investment in and the management of early stage companies in the healthcare industry, such partnership is accounted for using the equity method of accounting. The investment was approximately $206,000 as of July 31, 2017 and is included in other assets on the accompanying condensed consolidated balance sheet.

The Company has a 2% ownership interest in a limited partnership that engages in the development of technology-based financial healthcare products. The Company determined there was no significant influence and therefore the investment was accounted for using the cost method of accounting. The investment was $500,000 as of July 31, 2017 and is included in other assets on the accompanying condensed consolidated balance sheet.

Acquisitions of businesses are accounted for as business combinations, and accordingly, the results of operations of acquired businesses are included in the consolidated financial statements from the date of acquisition. All significant intercompany balances and transactions have been eliminated.

Basis of presentation—The accompanying condensed consolidated financial statements as of July 31, 2017 and for the three and six months ended July 31, 2017 and 2016 are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. In the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended January 31, 2017. The fiscal year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Recent adopted accounting pronouncements—In March 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU requires excess tax benefits and tax deficiencies to be recognized in the statement of operations and comprehensive income, which were previously presented as a component of stockholders' equity, on a prospective basis. In addition, any excess tax benefits that were not previously recognized because the related tax deduction had not reduced current taxes payable are to be recorded on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. This ASU also requires cash flows related to excess tax benefits to be classified as an operating activity on the statement of cash flows. Finally, this ASU no longer allows tax benefits to be included in the assumed proceeds when applying the treasury stock method for computing diluted

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HealthEquity, Inc. and subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Note 1. Summary of business and significant accounting policies (continued)

weighted-average common shares outstanding, which results in share-based awards having a more dilutive effect on net income per diluted share.

The Company adopted this ASU during the three months ended April 30, 2017.  As required by the standard, excess tax benefits recognized on stock-based compensation expense are reflected in our condensed consolidated statements of operations and comprehensive income as a component of the provision for income taxes rather than additional paid-in capital on a prospective basis.  For the three and six months ended July 31, 2017, the Company recorded excess tax benefits in the amount of $6.6 million and $10.5 million, respectively, within our provision for income taxes in the condensed consolidated statements of operations and comprehensive income. In addition, any excess tax benefits that were not previously recognized because the related tax deduction had not reduced current taxes payable are to be recorded on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption, which resulted in an increase of $8.1 million to our retained earnings as of February 1, 2017.

For presentation requirements, the Company elected to prospectively apply the change in the presentation of excess tax benefits wherein excess tax benefits recognized on stock-based compensation expense are classified as operating activities on the condensed consolidated statements of cash flows for the three months ended April 30, 2017. Prior period classification of cash flows related to excess tax benefits were not adjusted. Further, the Company elected to adopt the forfeiture provisions of this ASU, which requires the Company to account for forfeitures as they occur. The adoption of the forfeiture provisions had no material impact on the condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which provides a more robust framework to use in determining when a set of assets and activities is a business. This ASU is effective for fiscal years beginning December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The new guidance is required to be applied on a prospective basis. The Company adopted this ASU during the three months ended July 31, 2017. The adoption had no material impact on the Company's condensed consolidated financial statements.

Recent issued accounting pronouncements—On May 28, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. In July 2015, the FASB voted to defer the effective date to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption beginning for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the guidance in determining revenue recognition as principal versus agent. In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, which provides guidance in accounting for immaterial performance obligations and shipping and handling. In May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for noncash consideration and completed contracts at transition. Finally, in December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which makes minor corrections or minor improvements to the Codification that are not expected to have a significant impact. The foregoing amendments are effective for annual reporting periods beginning after December 15, 2017 and for interim reporting periods within such annual periods. The adoption of this guidance is not expected to have a material impact on the Company's revenue. The Company is still evaluating the impact of this guidance on sales commissions and activation costs. The Company will use the cumulative effect transition method and does not plan to early adopt.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. The amendments in this ASU revise an entity's accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. This ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The amendments in this ASU are effective for annual periods, and interim periods within those annual

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HealthEquity, Inc. and subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Note 1. Summary of business and significant accounting policies (continued)

periods, beginning after December 15, 2017. Early adoption is permitted for the presentation of certain fair value changes for financial liabilities measured at fair value. The Company does not plan to early adopt and is currently evaluating the potential effect of this ASU on the consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure for both parties to a contract (i.e. lessees and lessors). ASC 842 supersedes the previous leases standard, ASC 840 leases. This ASU is effective for financial statements issued for reporting periods beginning after December 15, 2018 and requires a modified retrospective transition, and provides for certain practical expedients; early adoption is permitted. The Company does not plan to early adopt and is currently evaluating the potential effect of this ASU on the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires financial assets measured at amortized cost be presented at the net amount expected to be collected. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company does not plan to early adopt this ASU. The Company believes the adoption of this ASU will have an immaterial impact on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which provides guidance on the classification of certain cash receipts and cash payments. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not plan to early adopt this ASU. The Company believes the adoption of this ASU will have an immaterial impact on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory, which updates the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adoption and the potential effect of this ASU on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which removes step two from the goodwill impairment test. As a result, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units' fair value. This ASU is effective for fiscal years beginning December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adoption; however it does not believe this ASU will have material impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about changes to the terms or conditions of a share-based payment award. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The standard should be applied prospectively to an award modified on or after the adoption date. The Company does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements.

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HealthEquity, Inc. and subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Note 2. Net income per share

The following table sets forth the computation of basic and diluted net income per share:

(in thousands, except per share data)	Three months ended July 31,				Six months ended July 31,
	2017		2016		2017		2016
Numerator (basic and diluted):
Net income	$	16,946	$	8,233	$	30,975	$	16,306
Denominator (basic):
Weighted-average common shares outstanding	60,173		58,246		59,955		58,035
Denominator (diluted):
Weighted-average common shares outstanding	60,173		58,246		59,955		58,035
Weighted-average dilutive effect of stock options and restricted stock units	1,592		1,405		1,649		1,466
Diluted weighted-average common shares outstanding	61,765		59,651		61,604		59,501
Net income per share:
Basic	$	0.28	$	0.14	$	0.52	$	0.28
Diluted	$	0.27	$	0.14	$	0.50	$	0.27

For the three months ended July 31, 2017 and 2016, approximately 771,000 and 2.0 million shares, respectively, attributable to stock options and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

For the six months ended July 31, 2017 and 2016, approximately 670,000 and 2.2 million shares, respectively, attributable to stock options and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

Note 3. Cash, cash equivalents and marketable securities

Cash, cash equivalents and marketable securities as of July 31, 2017 consisted of the following:

(in thousands)	Cost basis		Gross unrealized gains		Gross unrealized losses			Fair value
Cash and cash equivalents	$	169,721	$	—	$	—		$	169,721
Marketable securities:
Mutual funds	40,894		243		(556		)	40,581
Total cash, cash equivalents and marketable securities	$	210,615	$	243	$	(556	)	$	210,302

Cash, cash equivalents and marketable securities as of January 31, 2017 consisted of the following:

(in thousands)	Cost basis		Gross unrealized gains		Gross unrealized losses			Fair value
Cash and cash equivalents	$	139,954	$	—	$	—		$	139,954
Marketable securities:
Mutual funds	40,670		207		(472		)	40,405
Total cash, cash equivalents and marketable securities	$	180,624	$	207	$	(472	)	$	180,359

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HealthEquity, Inc. and subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Note 3. Cash, cash equivalents and marketable securities (continued)

The following table summarizes the cost basis and fair value of the marketable securities by contractual maturity as of July 31, 2017:

(in thousands)	Cost basis		Fair value
One year or less	$	25,495	$	25,448
Over one year and less than five years	15,399		15,133
Total	$	40,894	$	40,581

Unrealized losses from marketable securities are primarily attributable to change in interest rates. The Company does not believe any remaining unrealized losses represent other-than-temporary impairments based on the Company's evaluation of available evidence as of July 31, 2017. As of July 31, 2017, marketable securities with an unrealized loss position for more than twelve consecutive months were as follows:

	Less than one year					Greater than one year
(in thousands)	Fair value		Unrealized losses			Fair value		Unrealized losses
Mutual funds	$	25,448	$	(207	)	$	15,133	$	(349	)

Note 4. Property and equipment

Property and equipment consisted of the following as of July 31, 2017 and January 31, 2017:

(in thousands)	July 31, 2017			January 31, 2017
Leasehold improvements	$	1,269		$	860
Furniture and fixtures	3,963			3,129
Computer equipment	8,140			7,194
Property and equipment, gross	13,372			11,183
Accumulated depreciation	(7,292		)	(6,013		)
Property and equipment, net	$	6,080		$	5,170

Depreciation expense for the three months ended July 31, 2017 and 2016 was $647,000 and $437,000, respectively, and $1.3 million and $884,000 for the six months ended July 31, 2017 and 2016, respectively.

Note 5. Intangible assets and goodwill

During the three months ended July 31, 2017, the Company acquired an HSA portfolio for $6.8 million. The cost, including transaction costs, was allocated to acquired intangible member assets as of July 31, 2017. The Company has determined the acquired intangible member assets to have a useful life of 15 years. The assets will be amortized using the straight-line amortization method, which has been determined appropriate to reflect the pattern over which the economic benefits of existing member assets are realized.

To increase its product offering, during the three months ended July 31, 2017, the Company acquired the assets of BenefitGuard LLC, pursuant to a definitive asset purchase agreement, for a purchase price of $3.0 million cash. BenefitGuard LLC is a 401(k) provider that offers 3(16) plan administrator and 3(21) named fiduciary services for 401(k) employer sponsors. The Company accounted for the acquisition of assets of BenefitGuard LLC as a purchase of a business under ASC 805. The preliminary purchase price allocation resulted in customer relationships, or other intangible assets, of $3.0 million. The Company has determined the other intangible assets to have a useful life of 10 years. The asset will be amortized using the straight-line amortization method, which has been determined appropriate to reflect the pattern over which the economic benefits will be realized. The financial impact of this acquisition, including pro forma financial results, was immaterial to the Company's consolidated statement of operations for the three and six months ended July 31, 2017.

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HealthEquity, Inc. and subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Note 5. Intangible assets and goodwill (continued)

During the three months ended July 31, 2017 and 2016, the Company capitalized software development costs of $2.0 million and $1.8 million, respectively, and $4.2 million and $3.7 million for the six months ended July 31, 2017 and 2016, respectively, related to significant enhancements and upgrades to its proprietary system.

The gross carrying amount and associated accumulated amortization of intangible assets were as follows as of July 31, 2017 and January 31, 2017:

(in thousands)	July 31, 2017			January 31, 2017
Amortized intangible assets:
Capitalized software development costs	$	28,119		$	23,925
Software	7,726			7,041
Other intangible assets	3,000			—
Acquired intangible member assets	71,747			64,962
Intangible assets, gross	110,592			95,928
Accumulated amortization	(36,765		)	(30,908		)
Intangible assets, net	$	73,827		$	65,020

During the three months ended July 31, 2017 and 2016, the Company incurred and expensed a total of $3.1 million and $2.3 million, respectively, and $5.9 million and $4.3 million for the six months ended July 31, 2017 and 2016, respectively, in software development costs primarily related to the post-implementation and operation stages of its proprietary software.

Amortization expense for the three months ended July 31, 2017 and 2016 was $3.0 million and $2.7 million, respectively, and $5.9 million and $5.2 million for the six months ended July 31, 2017 and 2016, respectively.

There were no changes to the goodwill carrying value during the three and six months ended July 31, 2017 and 2016.

Note 6. Commitments and contingencies

The Company’s principal commitments and contingencies consist of a processing services agreement with a vendor, and obligations for office space, telephony services, data storage facilities, equipment and certain maintenance agreements under long-term, non-cancelable operating leases. These commitments as of January 31, 2017 are disclosed in the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended January 31, 2017, and did not change materially during the three and six months ended July 31, 2017, except for the following:

On May 31, 2017, the Company entered into an amendment to its lease agreement, dated May 15, 2015, by and between the Company and its landlord to expand its current office space. The term of the lease will commence on January 1, 2018 and will expire on March 31, 2027. The Company will be responsible for payment of taxes and operating expenses for its portion of the building, in addition to an annual base rent in the initial amount of approximately $513,000, with annual increases ranging from 2.5% to 3.1%.

Lease expense for office space for the three and six months ended July 31, 2017 was $1.0 million, and $2.1 million, respectively, and $424,000 and $1.0 million for the three and six months ended July 31, 2016, respectively. Expense for other lease agreements for the three and six months ended July 31, 2017 was $106,000 and $226,000, respectively, and $84,000 and $144,000 for the three and six months ended July 31, 2016, respectively.

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HealthEquity, Inc. and subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Note 7. Indebtedness

On September 30, 2015, the Company entered into a new credit facility (the "Credit Agreement"). The Credit Agreement provides for a secured revolving credit facility in the aggregate principal amount of $100.0 million for a term of five years. The proceeds of borrowings under the Credit Agreement may be used for general corporate purposes. No amounts have been drawn under the Credit Agreement as of July 31, 2017.

Borrowings under the Credit Agreement bear interest equal to, at the Company's option, a) an adjusted LIBOR rate or b) a customary base rate, in each case with an applicable spread to be determined based on the Company's leverage ratio as of the most recent fiscal quarter. The applicable spread for borrowing under the Credit Agreement ranges from 1.50% to 2.00% with respect to adjusted LIBOR rate borrowings and 0.50% to 1.00% with respect to customary base rate borrowings. Additionally, the Company pays a commitment fee ranging from 0.20% to 0.30% on the daily amount of the unused commitments under the Credit Agreement payable in arrears at the end of each fiscal quarter.

The Company's material subsidiaries are required to guarantee the obligations of the Company under the Credit Agreement. The obligations of the Company and the guarantors under the Credit Agreement and the guarantees are secured by substantially all assets of the Company and the guarantors, subject to customary exclusions and exceptions.

The Credit Agreement requires the Company to maintain a total leverage ratio of not more than 3.00 to 1.00 as of the end of each fiscal quarter and a minimum interest coverage ratio of at least 3.00 to 1.00 as of the end of each fiscal quarter. In addition, the Credit Agreement includes customary representations and warranties, affirmative and negative covenants, and events of default. The restrictive covenants include customary restrictions on the Company's ability to incur additional indebtedness; make investments, loans or advances; grant or incur liens on assets; engage in mergers, consolidations, liquidations or dissolutions; engage in transactions with affiliates; and make dividend payments. The Company was in compliance with these covenants as of July 31, 2017.

Note 8. Income taxes

The Company follows FASB Accounting Standards Codification 740-270, Income Taxes - Interim Reporting, for the computation and presentation of its interim period tax provision. Accordingly, management estimated the effective annual tax rate and applied this rate to the year-to-date pre-tax book income to determine the interim provision for income taxes. For the three months ended July 31, 2017, the Company recorded an income tax benefit of $489,000 and for the six months ended July 31, 2017 an income tax provision of $1.3 million. The resulting effective income tax rate was (3.0)% and 4.1%, compared with an effective income tax rate of 35.2%and 35.6% for the three and six months ended July 31, 2016. For the three and six months ended July 31, 2017, the net impact of discrete tax items caused a 38.8 and 31.7 percentage point decrease to the effective income tax rate primarily due to the excess tax benefit on stock-based compensation expense recognized in the provision for income taxes on the condensed consolidated statements of income, pursuant to the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. For the three and six months ended July 31, 2016, the net impact of discrete tax items was not material. The decrease in the effective income tax rate from the same period last year is primarily due to the excess tax benefit on stock-based compensation expense recognized in the provision for income taxes on the condensed consolidated statements of income during the three and six months ended July 31, 2017, pursuant to the adoption of ASU 2016-09.

As of July 31, 2017 and January 31, 2017, the Company’s total gross unrecognized tax benefit was $758,000 and $674,000, respectively. As a result of ASU No. 2013-11, certain unrecognized tax benefits have been netted against their related deferred tax assets; therefore, no unrecognized tax benefit has been recorded as of July 31, 2017 and January 31, 2017. If recognized, $640,000 of the total gross unrecognized tax benefits would affect the Company's effective income tax rate as of July 31, 2017.

The Company files income tax returns with U.S. federal and state taxing jurisdictions and is not currently under examination with any jurisdiction. The Company remains subject to examination by federal and various state taxing jurisdictions for tax years after 2005.

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HealthEquity, Inc. and subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Note 9. Stock-based compensation

The following table shows a summary of stock-based compensation in the Company's condensed consolidated statements of operations and comprehensive income during the periods presented:

	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

Stock options

The Company currently grants stock options under the 2014 Equity Incentive Plan (as amended and restated, the "Incentive Plan"). Under the terms of the Incentive Plan, the Company has the ability to grant incentive and nonqualified stock options. Incentive stock options may be granted only to Company team members. Nonqualified stock options may be granted to Company team members, directors and consultants. Such options are to be exercisable at prices, as determined by the board of directors, which must be equal to no less than the fair value of the Company's common stock at the date of the grant. Stock options granted under the Incentive Plan generally expire 10 years from the date of issuance, or are forfeited 90 days after termination of employment. Shares of common stock underlying stock options that are forfeited or that expire are returned to the Incentive Plan.

Stock option activity under the Company's equity incentive plans is as follows:

	Outstanding stock options
(in thousands, except for exercise prices and term)	Number of options		Range of exercise prices	Weighted- average exercise price		Weighted- average contractual term (in years)	Aggregate intrinsic value
Outstanding as of January 31, 2017	4,716		$0.10 - 44.53	$	18.36	7.60	$	131,529
Granted	412		$41.28 - 51.44	$	42.64
Exercised	(854	)	$0.10 - 33.47	$	9.47
Forfeited	(109	)	$3.50 - 46.40	$	33.87
Outstanding as of July 31, 2017	4,165		$0.10 - 51.44	$	22.18	7.60	$	98,900
Vested and expected to vest as of July 31, 2017	4,165			$	22.18	7.60	$	98,900
Exercisable as of July 31, 2017	1,264			$	13.53	6.29	$	40,894

The aggregate intrinsic value in the table above represents the difference between the estimated fair value of common stock and the exercise price of outstanding, in-the-money stock options.

The key input assumptions that were utilized in the valuation of the stock options granted during the periods presented:

	Three months ended July 31,				Six months ended July 31,
	2017		2016		2017		2016
Expected dividend yield	—	%	—	%	—	%	—	%
Expected stock price volatility	37.79	%	38.29	%	37.79% - 38.01%		38.29% - 38.37%
Risk-free interest rate	1.89	%	1.55	%	1.89% - 2.07%		1.33% - 1.55%
Expected life of options	6.25 years		6.25 years		5.17 - 6.25 years		5.17 - 6.25 years

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HealthEquity, Inc. and subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Note 9. Stock-based compensation (continued)

The determination of the fair value of stock options on the date of grant using an option pricing model is affected by the Company's stock price as well as assumptions regarding a number of complex and subjective variables. Expected volatility is determined using weighted average volatility of publicly traded peer companies. The Company expects that it will begin using its own historical volatility in addition to the volatility of publicly traded peer companies, as its share price history grows over time. The risk-free interest rate is determined by using published zero coupon rates on treasury notes for each grant date given the expected term on the options. The dividend yield of zero is based on the fact that the Company expects to invest cash in operations. The Company uses the "simplified" method to estimate expected term as determined under Staff Accounting Bulletin No. 110 due to the lack of sufficient option exercise history as a public company.

As of July 31, 2017, the weighted-average vesting period of non-vested awards expected to vest is approximately 2.2 years; the amount of compensation expense the Company expects to recognize for stock options vesting in future periods is approximately $23.0 million.

Restricted stock units

The Company grants restricted stock units ("RSU") to certain team members, officers, and directors under the 2014 Equity Incentive Plan. RSUs vest upon service-based criteria and performance-based criteria. Generally, service-based restricted stock units vest over a four-year period in equal annual installments commencing upon the first anniversary of the grant date. Performance-based restricted stock units ("PRSU") vest upon the achievement of certain financial criteria and cliff vest on January 31, 2020.

RSUs are valued based on the current value of the Company's closing stock price on the date of grant and stock-based compensation expense is recognized over the requisite service period. Stock-based compensation expense for PRSUs is recognized over the requisite service period based on the probable outcome of the achievement of the performance criteria.

A summary of the RSU activity is as follows:

(in thousands, except weight-average grant date fair value)	RSUs and PRSUs		Weighted-average grant date fair value
Outstanding as of January 31, 2017	10		$	26.93
Granted	397		43.34
Vested	(6	)	43.81
Forfeitures	(1	)	41.28
Outstanding as of July 31, 2017	400		$	42.90

Stock-based compensation expense related to RSUs, including PRSUs, for the three and six months ended July 31, 2017 was $1.4 million and $2.2 million, respectively. Total unrecorded stock-based compensation expense as of July 31, 2017 associated with RSUs was $15.0 million, which is expected to be recognized over a weighted-average period of 3.2 years.

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HealthEquity, Inc. and subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Note 10. Fair value

Fair value measurements are made at a specific point in time, based on relevant market information. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards specify a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:

• Level 1—quoted prices in active markets for identical assets or liabilities;

• Level 2—inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

• Level 3—unobservable inputs based on the Company’s own assumptions.

Level 1 instruments are valued based on publicly available daily net asset values. Level 1 instruments consist primarily of highly liquid mutual funds.

The following tables summarize the assets measured at fair value on a recurring basis and indicates the level within the fair value hierarchy reflecting the valuation techniques utilized to determine fair value:

	July 31, 2017
(in thousands)	Level 1		Level 2		Level 3
Marketable securities:
Mutual funds	$	40,581	$	—	$	—

	January 31, 2017
(in thousands)	Level 1		Level 2		Level 3
Marketable securities:
Mutual funds	$	40,405	$	—	$	—

The carrying value of financial instruments including cash and cash equivalents and certain non-trade receivables approximate fair values as ofJuly 31, 2017due to the short-term nature of these instruments.The Company has classified cash and cash equivalents as Level 1 and certain non-trade receivables as Level 2 in the fair value hierarchy.

Note 11. Subsequent event

On August 3, 2017, the Company acquired the rights to be the sole custodian of an HSA portfolio for $3.3 million.

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Item 2. Management’s discussion and analysis of financial condition and results of operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Statements that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. Such statements include, but are not limited to, statements concerning market opportunity, our future financial and operating results, investment strategy, sales and marketing strategy, management’s plans, beliefs and objectives for future operations, technology and development, economic and industry trends or trend analysis, expectations about seasonality, opportunity for portfolio purchases and other acquisitions, use of non-GAAP financial measures, operating expenses, anticipated income tax rates, capital expenditures, cash flows and liquidity. These statements are based on the beliefs and assumptions of our management based on information currently available to us. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk factors” included in our Annual Report on Form 10-K for the year ended January 31, 2017 and in our other reports filed with the SEC. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such events.

Overview

We are a leader and an innovator in the high-growth category of technology-enabled services platforms that empower consumers to make healthcare saving and spending decisions. Our platform provides an ecosystem where consumers can access their tax-advantaged healthcare savings, compare treatment options and pricing, evaluate and pay healthcare bills, receive personalized benefit and clinical information, earn wellness incentives, and make educated investment choices to grow their tax-advantaged healthcare savings.

The core of our ecosystem is the health savings account, or HSA, a financial account through which consumers spend and save long-term for healthcare on a tax-advantaged basis. We refer to the HSAs for which we serve as custodian as our HSA Members. We are the integrated HSA platform for 87 health plans, and over 34,000 employer clients. Our customers include individuals, employers of all sizes and health plans. We refer to our individual customers as our members, our health plan customers as our Health Plan Partners and our employer clients with more than 1,000 employees as our Employer Partners. Our Health Plan Partners and Employer Partners collectively constitute our Network Partners. Through our Network Partners, we have the potential to reach more than a third of the under-age 65 privately insured population in the United States.

Since our inception in 2002, we have been committed to developing technology solutions that empower healthcare consumers. In 2003, we began offering live 24/7/365 consumer support from health saving and spending experts. In 2005, we integrated HSAs with our first Health Plan Partner, and in 2006, we were authorized to act as an HSA custodian by the U.S. Department of the Treasury. In 2009, we integrated HSAs with multiple health plans of a single large employer, began delivering integrated wellness incentives through an HSA, and partnered with a private health insurance exchange as its preferred HSA partner. In 2011, we integrated HSAs, RAs, and investment accounts on one website, and in 2013, our registered investment advisor subsidiary began delivering HSA-specific investment advice online. In 2015, we launched our HSA Optimizer, which helps HSA members optimize their accounts based on their individual preferences and goals. In 2016, we launched a new feature which provides HSA account holders advance access to employer contributions.

We generate revenue primarily from three sources: service revenue, custodial revenue and interchange revenue. We generate service revenue by providing monthly account services on our platform, primarily through multi-year contracts with our Network Partners that are typically three to five years in duration. We generate custodial revenue

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from custodial cash assets deposited with our FDIC-insured custodial depository bank partners and with our insurance company partner, and recordkeeping fees we earn in respect of mutual funds in which our members invest. We also generate interchange revenue from interchange fees that we earn on payments that our members make using our physical and virtual payment cards.

Key factors affecting our performance

We believe that our performance and future success are driven by a number of factors, including those identified below. Each of these factors presents both significant opportunities and significant risks to our future performance. See the section entitled “Risk factors” included in our Annual Report on Form 10-K for the year ended January 31, 2017.

Structural change in U.S. private health insurance

Substantially all of our revenue is derived from healthcare-related saving and spending by consumers in the United States, which is impacted by changes affecting the broader healthcare industry in the U.S. The healthcare industry has changed significantly in recent years, and we expect that significant changes will continue to occur that will result in increased participation in HDHPs and other consumer-centric health plans. In particular, we believe that continued growth in healthcare costs, and related factors will spur HDHP and HSA growth; however, the timing and impact of these and other developments in the healthcare industry are difficult to predict.

Attracting and penetrating network partners

We created our business model to take advantage of the changing dynamics of the U.S. private health insurance market. Our model is based on a B2B2C distribution strategy, meaning that we rely on our Employer Partners and Health Plan Partners to reach potential members to increase the number of our HSA Members. Our success depends in large part on our ability to further penetrate our existing Network Partners by adding new HSA members from these partners and adding new Network Partners.

Our innovative technology platform

We believe that innovations incorporated in our technology that enable consumers to make healthcare saving and spending decisions differentiate us from our competitors and drive our growth in revenue, HSA Members, Network Partners and custodial assets. Similarly, these innovations underpin our ability to provide a differentiated consumer experience in a cost-effective manner. For example, we are currently undertaking a significant update of our proprietary platform’s architecture, which will allow us to improve our transaction processing capabilities and related platform infrastructure to support continued account and transaction growth. We intend to continue to invest in our technology development to enhance our platform’s capabilities and infrastructure.

Our “DEEP Purple” culture

The new healthcare consumer needs education and advice delivered by people as well as technology. We believe that our "DEEP Purple" culture which we define as driving excellence, ethics, and process while providing remarkable service, is a significant factor in our ability to attract and retain customers and to address nimbly opportunities in the rapidly changing healthcare sector. We make significant efforts to promote and foster DEEP Purple within our workforce. We invest in and intend to continue to invest in human capital through technology-enabled training, career development and advancement opportunities.

Interest rates

As a non-bank custodian, we contract with FDIC-insured custodial depository bank partners and an insurance company partner to hold custodial cash assets on behalf of our members, and we generate a significant portion of our total revenue from interest rates offered by these partners. The contract terms range from three to five years and have either fixed or variable interest rates. As our custodial assets increase and existing agreements expire, we seek to enter into new contracts with FDIC-insured custodial depository bank partners, the terms of which are impacted by the then-prevailing interest rate environment. The diversification of deposits among bank partners and varied contract terms substantially reduces our exposure to short-term fluctuations in prevailing interest rates and mitigates the short-term impact of a sustained increase or decline in prevailing interest rates on our custodial revenue. A sustained decline in prevailing interest rates may negatively affect our business by reducing the size of the interest rate yield, or yield, available to us and thus the amount of the custodial revenue we can realize. Conversely, a sustained increase in prevailing interest rates would present us with an opportunity to increase our yield. An increase in our yield would increase our custodial revenue as a percentage of total revenue. In addition, as our yield increases, we expect the spread to grow between the interest offered to us by our custodial depository

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bank partners and the interest we offer to our members, thus increasing our profitability. Changes in prevailing interest rates are driven by macroeconomic trends and government policies over which we have no control.

Our competition and industry

Our direct competitors are HSA custodians. These are primarily state or federally chartered banks and other financial institutions for which we believe technology-based healthcare services are not a core business. Certain of our direct competitors have chosen to exit the market despite increased demand for these services. This has created, and we believe will continue to create, opportunities for us to leverage our technology platform and capabilities to increase our market share. However, some of our direct competitors are in a position, should they choose, to devote more resources to the development, sale and support of their products and services than we have at our disposal. In addition, numerous indirect competitors, including benefits administration technology and service providers, partner with banks and other HSA custodians to compete with us. Our Health Plan Partners may also choose to offer technology-based healthcare services directly, as some health plans have done. Our success depends on our ability to predict and react quickly to these and other industry and competitive dynamics.

Regulatory environment

Federal law and regulations, including the Affordable Care Act, the Internal Revenue Code and IRS regulations, the Employment Retirement Income Security Act of 1974 and Department of Labor regulations, and public health regulations that govern the provision of health insurance, play a pivotal role in determining our market opportunity. Privacy and data security-related laws such as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the Gramm-Leach-Bliley Act, laws governing the provision of investment advice to consumers, such as the Investment Advisers Act of 1940, or the Advisers Act, the USA PATRIOT Act, anti-money laundry laws, and the Federal Deposit Insurance Act, all play a similar role in determining our competitive landscape. In addition, state-level regulations also have significant implications for our business in some cases. For example, our subsidiary, HealthEquity Trust Company, is regulated by the Wyoming Division of Banking. Our ability to predict and react quickly to relevant legal and regulatory trends and to correctly interpret their market and competitive implications is important to our success.

Our acquisition strategy

We have a successful history of acquiring complementary assets and businesses that strengthen our platform. We seek to continue this growth strategy and are regularly engaged in evaluating different opportunities. We have developed an internal capability to source, evaluate and integrate acquisitions that have created value for shareholders. We believe the nature of our competitive landscape provides a significant acquisition opportunity. Many of our competitors view their HSA businesses as non-core functions. We believe they will look to divest these assets and, in certain cases, be limited from making acquisitions due to depository capital requirements. We intend to continue to pursue acquisitions of complementary assets and businesses that we believe will strengthen our platform.

Key financial and operating metrics

Our management regularly reviews a number of key operating and financial metrics to evaluate our business, determine the allocation of our resources, make decisions regarding corporate strategies and evaluate forward-looking projections and trends affecting our business. We discuss certain of these key financial metrics, including revenue, below in the section entitled “Key components of our results of operations.” In addition, we utilize other key metrics as described below.

HSA members

The following table sets forth our HSA Members as of the periods indicated:

	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

The number of our HSA Members is critical because our service revenue is driven by the amount we charge per HSA Member.

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The number of our HSA Members increased by approximately 600,000, or 26%, from July 31, 2016 to July 31, 2017, and by approximately 763,000, or 50%, from July 31, 2015 to July 31, 2016. During the three months ended July 31, 2017, the Company acquired the rights to be custodian of a portfolio of HSA Members, of which no HSA Members have transitioned to our platform as of July 31, 2017, and are not included in total HSA Members as of July 31, 2017.

The increase in the number of our HSA Members in these periods was driven by the addition of new Network Partners and further penetration into existing Network Partners.

Custodial assets

The following table sets forth our custodial assets as of the periods indicated:

(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

Our custodial assets, which are our HSA Members' assets for which we are the custodian, consist of the following components: (1) custodial cash deposits, which are deposits with our FDIC-insured custodial depository bank partners, (2) custodial cash deposits invested in an annuity contract with our insurance company partner and (3) members' investments in mutual funds through our custodial investment partner. Measuring our custodial assets is important because our custodial revenue is determined by the applicable account yields and average daily custodial cash balances.

Our total custodial assets increased by $1.2 billion, or 28%, from July 31, 2016 to July 31, 2017. Our total custodial assets increased by $1.6 billion, or 60%, from July 31, 2015 to July 31, 2016. The increase in total custodial assets in these periods was driven by additional custodial assets from our existing HSA Members and new custodial assets from new HSA Members added during the fiscal year. During the three months ended July 31, 2017, the Company acquired the rights to be custodian of a portfolio of HSA Members, of which no custodial assets have transitioned to our platform as of July 31, 2017.

Adjusted EBITDA

We define Adjusted EBITDA, which is a non-GAAP financial metric, as adjusted earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and certain other non-operating items. We believe that Adjusted EBITDA provides useful information to investors and analysts in understanding and evaluating our operating results in the same manner as our management and our board of directors because it reflects operating profitability before consideration of non-operating expenses and non-cash expenses, and serves as a basis for comparison against other companies in our industry.

The following table presents a reconciliation of net income, the most comparable GAAP financial measure, to Adjusted EBITDA for each of the periods indicated:

	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.

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The following table sets forth our Adjusted EBITDA:

	Three months ended July 31,										Six months ended July 31,
(in thousands, except percentages)	2017			2016			$ Change		% Change		2017			2016			$ Change		% Change
Adjusted EBITDA	$	23,943		$	18,427		$	5,516	30	%	$	46,361		$	36,446		$	9,915	27	%
As a percentage of revenue	42		%	42		%					41		%	41		%

Our Adjusted EBITDA increased by $5.5 million, or 30%, from $18.4 million for the three months ended July 31, 2016 to $23.9 million for the three months ended July 31, 2017. The increase in Adjusted EBITDA was driven by the overall growth of our business, including a $3.8 million, or 29%, increase in income from operations.

Our Adjusted EBITDA increased by $9.9 million, or 27%, from $36.4 million for the six months ended July 31, 2016 to $46.4 million for the six months ended July 31, 2017. The increase in Adjusted EBITDA was driven by the overall growth of our business, including a $6.4 million, or 25%, increase in income from operations.

Our use of Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.

Key components of our results of operations

Revenue

We generate revenue from three primary sources: service revenue, custodial revenue and interchange revenue.

Service revenue.    We earn service revenue from the fees we charge our Network Partners, employer clients and individual members for the administration services we provide in connection with the HSAs and RAs we offer. Our fees are generally based on a fixed tiered structure fixed for the duration of our agreement with the relevant Network Partner, which is typically three to five years, and are paid to us on a monthly basis. We recognize revenue on a monthly basis as services are rendered under our written service agreements.

Custodial revenue.    We earn custodial revenue from our custodial assets deposited with our FDIC-insured custodial depository bank partners, our insurance company partner and our custodial investment partner. As a non-bank custodian, we deposit our cash custodial assets with our various bank partners pursuant to contracts that (i) have terms that range from three to five years, (ii) provide for a fixed or variable interest rate payable on the average daily cash balances deposited with the relevant bank partner, and (iii) have minimum and maximum required deposit balances. We earn custodial revenue on our cash custodial assets that is based on the interest rates offered to us by these bank partners. In addition, once a member’s HSA cash balance reaches a certain threshold, the member is able to invest his or her HSA assets in mutual funds through our custodial investment partner. We receive a recordkeeping fee related to such investment custodial assets.

Interchange revenue.    We earn interchange revenue each time one of our members uses one of our payment cards to make a qualified purchase. This revenue is collected each time a member “swipes” our payment card to pay a healthcare-related expense. We recognize interchange revenue monthly based on reports received from third parties, namely, the card-issuing bank and the card processor.

Cost of revenue

Cost of revenue includes costs related to servicing member accounts, managing customer and partner relationships and processing reimbursement claims. Expenditures include personnel-related costs, depreciation, amortization, stock-based compensation, common expense allocations (such as office rent, supplies, and other overhead expenses), new member and participant supplies, and other operating costs related to servicing our members. Other components of cost of revenue include interest paid to members on cash custodial assets and interchange costs incurred in connection with processing card transactions for our members.

Service costs.    Service costs include the servicing costs described above. Additionally, for new accounts, we incur on-boarding costs associated with the new accounts, such as new member welcome kits, the cost associated with issuance of new payment cards and costs of marketing materials that we produce for our Network Partners.

Custodial costs.    Custodial costs are comprised of interest we pay to our HSA Members and fees we pay to banking consultants whom we use to help secure agreements with our FDIC-insured custodial depository banking partners. We pay interest to HSA Members on a tiered basis. The interest rates we pay to HSA Members can be changed at any time upon required notice, which is typically 30 days.

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Interchange costs.    Interchange costs are comprised of costs we incur in connection with processing payment transactions initiated by our members. Due to the substantiation requirement on RA-linked payment card transactions, which is the requirement that we confirm each purchase involves a "qualified medical expense" as defined under applicable law, payment card costs are higher for RA card transactions. In addition to fixed per card fees, we are assessed additional transaction costs determined by the amount of the transaction.

Gross profit and gross margin

Our gross profit is our total revenue minus our total cost of revenue, and our gross margin is our gross profit expressed as a percentage of our total revenue. Our gross margin has been and will continue to be affected by a number of factors, including the amount we charge our partners and members, interest rates, how many services we deliver per account, and payment processing costs per account. We expect our annual gross margin to remain relatively steady over the near term, although our gross margin could fluctuate from period to period depending on the interplay of these factors.

Operating expenses

Sales and marketing.    Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including sales commissions for our direct sales force, external agent/broker commission expenses, marketing expenses, depreciation, amortization, stock-based compensation, and common expense allocations.

We expect our sales and marketing expenses to increase for the foreseeable future as we continue to increase the size of our sales and marketing organization and expand into new markets. On an annual basis, we expect our sales and marketing expenses to increase slightly as a percentage of our total revenue over the near term. Our sales and marketing expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our sales and marketing expenses.

Technology and development.    Technology and development expenses include personnel and related expenses for software engineering, information technology, and product development. Technology and development expenses also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure, depreciation, amortization of capitalized software development costs, stock-based compensation, and common expense allocations.

We expect our technology and development expenses to increase for the foreseeable future due to higher amortization costs related to our planned capital expenditures to improve the architecture of our proprietary system. On an annual basis, we expect our technology and development expenses to remain unchanged as a percentage of our total revenue. Our technology and development expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our technology and development expenses.

General and administrative.    General and administrative expenses include personnel and related expenses, and professional fees incurred by our executive, finance, legal, compliance, and people departments. They also include depreciation, amortization, stock-based compensation and common expense allocations.

We expect our general and administrative expenses to increase for the foreseeable future due to the additional legal, compliance, accounting, insurance, investor relations and other public company costs that we incur as we continue to grow as a public company, as well as other costs associated with continuing to grow our business. Looking forward, on an annual basis we expect our general and administrative expenses to remain unchanged as a percentage of our total revenue over the near term. Our general and administrative expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our general and administrative expenses.

Amortization of acquired intangible assets.    Amortization of acquired intangible assets results from our acquisition of HSA portfolios. We acquired these intangible member assets from third-party custodians. We amortize these assets over the assets’ estimated useful life of 15 years. We evaluate these assets for impairment at least each year, or at a triggering event. Our amortization of acquired intangible assets will increase going forward due to the HSA portfolio acquisition which occurred during the three months ended July 31, 2017.

Other expense, net

Other expense primarily consists of interest expense associated with our credit agreement, non-income-based taxes and acquisition-related expenses, offset by interest income on corporate cash and marketable securities.

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Income tax provision

We are subject to federal and state income taxes in the United States based on a calendar tax year which differs from our fiscal year-end for financial reporting purposes. We use the asset and liability method to account for income taxes, under which current tax liabilities and assets are recognized for the estimated taxes payable or refundable on the tax returns for the current fiscal year. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating loss carryforwards, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. As of July 31, 2017, we have recorded a net deferred tax asset. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized. Due to the positive evidence of current taxable income coupled with forecasted profitability, no valuation allowance was required as of July 31, 2017.

Comparison of the three and six months ended July 31, 2017 and 2016

The following table sets forth our revenue for the periods indicated:

	Three months ended July 31,								Six months ended July 31,
(in thousands, except percentages)	2017		2016		$ Change		% Change		2017		2016		$ Change		% Change
Service revenue	$	22,809	$	18,835	$	3,974	21	%	$	45,296	$	37,829	$	7,467	20	%
Custodial revenue	21,285		14,779		6,506		44	%	40,604		28,590		12,014		42	%
Interchange revenue	12,785		10,571		2,214		21	%	26,400		21,779		4,621		21	%
Total revenue	$	56,879	$	44,185	$	12,694	29	%	$	112,300	$	88,198	$	24,102	27	%

Service revenue

The $4.0 million increase in service revenue from the three months ended July 31, 2016 to the three months endedJuly 31, 2017 was primarily due to an increase in the number of our HSA Members.The $7.5 million increase in service revenue from the six months ended July 31, 2016 to the six months endedJuly 31, 2017 was also primarily due to an increase in the number of our HSA Members. The number of our HSA Members increased by approximately 600,000, or 26%, from July 31, 2016 to July 31, 2017. The growth in the number of our HSA Members was due to growth from our new and existing Network Partners.

Service revenue per HSA Member decreased by approximately 4% and 5% from the three and six months ended July 31, 2016 tothe three and six months endedJuly 31, 2017. Our service fee tier structure incentivizes Network Partners to add HSA Members by charging a lower rate for more HSA Members. As Network Partners add more HSA Members, the account fee per HSA Member will continue to decrease. The decrease in service revenue per HSA Member was offset by increases in custodial revenue and interchange revenue per HSA Member.

Custodial revenue

The $6.5 million increase in custodial revenue from the three months ended July 31, 2016 to the three months endedJuly 31, 2017 was primarily due to an increase in average daily cash custodial assets of $845.9 million, or 23%, and an increase in the yield on average cash custodial assets from 1.58% for the three months ended July 31, 2016 to 1.83% for the three months ended July 31, 2017 primarily due to our entry into new custodial depository agreements with higher interest rates payable on average cash balances deposited thereunder.

The $12.0 million increase in custodial revenue from the six months ended July 31, 2016 to the six months ended July 31, 2017 was primarily due to an increase in average daily cash custodial assets of $869.2 million, or 24%, and an increase in the yield on average cash custodial assets from 1.56% for the six months ended July 31, 2016 to 1.78% for the six months ended July 31, 2017.

Custodial revenue per HSA Member increased by approximately 14% and 13% from the three and six months ended July 31, 2016 to the six months ended July 31, 2017, primarily due the increase in average daily cash custodial assets balances.

Interchange revenue

The $2.2 million increase in interchange revenue from the three months ended July 31, 2016 to the three months ended July 31, 2017 was due to an overall increase in the number of our HSA Members and payment activity.

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The $4.6 million increase in interchange revenue from the six months ended July 31, 2016 to the six months ended July 31, 2017 was due to an overall increase in the number of our HSA Members and payment activity.

Cost of revenue

The following table sets forth our cost of revenue for the periods indicated:

(in thousands, except percentages)	Three months ended July 31,								Six months ended July 31,
	2017		2016		$ Change		% Change		2017		2016		$ Change		% Change
Service costs	$	14,998	$	10,539	$	4,459	42	%	$	30,573	$	21,796	$	8,777	40	%
Custodial costs	2,785		2,394		391		16	%	5,586		4,750		836		18	%
Interchange costs	3,294		2,698		596		22	%	6,598		5,417		1,181		22	%
Total cost of revenue	$	21,077	$	15,631	$	5,446	35	%	$	42,757	$	31,963	$	10,794	34	%

Service costs

The $4.5 million increase in service costs from the three months ended July 31, 2016 to the three months ended July 31, 2017 was due to the higher volume of total accounts being serviced. The $4.5 million increase includes increases of $2.3 million related to the hiring of additional personnel to implement and support our new Network Partners and HSA Members, activation and processing costs of $1.3 million related to account and card activation as well as monthly processing of statements and other communications, stock compensation expense of $271,000, information and technology expenses of $227,000, and other expenses of $396,000. Service costs per HSA Member increased by 13% from the three months ended July 31, 2016 to the three months ended July 31, 2017 due to incremental expenses associated to fraud prevention measures.

The $8.8 million increase in service costs from the six months ended July 31, 2016 to the six months ended July 31, 2017 was due to the higher volume of total accounts being serviced. The $8.8 million increase includes increases of $4.8 million related to the hiring of additional personnel to implement and support our new Network Partners and HSA Members, activation and processing costs of $2.2 million related to account and card activation as well as monthly processing of statements and other communications, information and technology expenses of $412,000, stock compensation expense of $387,000, and other expenses of $941,000. Service costs per HSA Member increased by 11% from the six months ended July 31, 2016 to the six months ended July 31, 2017 due to incremental expenses associated to fraud prevention measures.

Custodial costs

The $391,000 increase in custodial costs from the three months ended July 31, 2016 to the three months ended July 31, 2017 was due to an increase in average daily cash custodial assets which increased from $3.6 billion for the three months ended July 31, 2016 to $4.4 billion for the three months ended July 31, 2017. Our custodial costs on average cash custodial assets decreased from 0.26% for the three months ended July 31, 2016 to 0.25% for the three months ended July 31, 2017.

The $836,000 increase in custodial costs from the six months ended July 31, 2016 to the six months ended July 31, 2017 was due to an increase in average daily cash custodial assets which increased from $3.6 billion for the six months ended July 31, 2016 to $4.4 billion for the six months ended July 31, 2017. Our custodial costs on average cash custodial assets decreased from 0.27% for the six months ended July 31, 2016 to 0.25% for the six months ended July 31, 2017.

Interchange costs

The $596,000 and 1.2 million increase in interchange costs for the three and six months ended July 31, 2016 compared to the three and six months ended July 31, 2017 was due to an overall increase in payment activity, which is attributable to the growth in HSA Members.

As we continue to add HSA Members, our cost of revenue will increase in aggregate dollar amount to support our Network Partners and members. Cost of revenue will continue to be affected by a number of different factors, including our ability to implement new technology in our Member Education Center as well as scaling our Network Partner implementation and account management functions.

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Operating expenses

The following table sets forth our operating expenses for the periods indicated:

(in thousands, except percentages)	Three months ended July 31,								Six months ended July 31,
	2017		2016		$ Change		% Change		2017		2016		$ Change		% Change
Sales and marketing	$	5,194	$	4,190	$	1,004	24	%	$	9,815	$	8,373	$	1,442	17	%
Technology and development	6,797		4,993		1,804		36	%	13,039		9,618		3,421		36	%
General and administrative	6,234		5,550		684		12	%	12,102		10,124		1,978		20	%
Amortization of acquired intangible assets	1,082		1,082		—		—	%	2,165		2,131		34		2	%
Total operating expenses	$	19,307	$	15,815	$	3,492	22	%	$	37,121	$	30,246	$	6,875	23	%

Sales and marketing

The $1.0 million increase in sales and marketing expense from the three months ended July 31, 2016 to the three months ended July 31, 2017 was due to increased staffing and sales commissions of $747,000, stock compensation expense of $173,000, which were offset by decreases in other expenses of $85,000.

The $1.4 million increase in sales and marketing expense from the six months ended July 31, 2016 to the six months ended July 31, 2017 was due to increased staffing and sales commissions of $1.1 million, stock compensation expense of $275,000, which were offset by decreases in other expenses of $40,000.

We will continue to invest in sales and marketing by hiring additional personnel and promoting our brand through a variety of marketing and public relations activities. As a result, we expect our sales and marketing expense to increase in future periods.

Technology and development

The $1.8 million increase in technology and development expense from the three months ended July 31, 2016 to the three months ended July 31, 2017 was due to personnel related expense of $1.3 million, increases in amortization and depreciation of $393,000, and stock compensation of $416,000, which were partially offset by an increase in capitalized engineering of $257,000 and decreases in other expenses of $63,000.

The $3.4 million increase in technology and development expense from the six months ended July 31, 2016 to the six months ended July 31, 2017 was due to personnel related expense of $2.4 million, increases in amortization and depreciation of $962,000, and stock compensation of $732,000, which were partially offset by an increase in capitalized engineering of $524,000 and decreases in other expenses of $136,000.

We will continue to invest in our proprietary technology platform. The timing of development and enhancement projects, including whether they are capitalized or expensed, will significantly affect our technology and development expense both in dollar amount and as a percentage of revenue.

General and administrative

The $684,000 increase in general and administrative expense from the three months ended July 31, 2016 to thethree months endedJuly 31, 2017 was due to increased personnel related expense of $643,000, stock compensation of $424,000, other expenses of $224,000, which were offset by decreases in professional fees of $607,000.

The $2.0 million increase in general and administrative expense from the six months ended July 31, 2016 to thesix months endedJuly 31, 2017 was due to increased personnel related expense of $1.6 million, stock compensation of $1.1 million, other expenses of $348,000, which were offset by decreases in professional fees of $1.1 million.

As we continue to grow, we expect our general and administrative expense to continue to increase in dollar amount as we expand general and administrative headcount to support our continued growth and the regulatory and compliance requirements of a public company.

Amortization of acquired intangible assets

The amortization of acquired intangible assets remained relatively unchanged for the three and six months ended July 31, 2017 compared to the three and six months ended July 31, 2016.

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Other expense, net

The change in other expense, net from the three and six months ended July 31, 2016 to the three and six months ended July 31, 2017, was due to the timing of ongoing acquisition-related activity costs, non-income-based taxes, interest income and interest expense.

Income tax provision (benefit)

Income tax provision (benefit) for the three and six months ended July 31, 2017 was $(489,000) and $1.3 million, compared to $4.5 million and $9.0 million for the three and six months ended July 31, 2016. The decrease in income tax provision for the three and six months ended July 31, 2017 compared to the three and six months ended July 31, 2016 was primarily the result of an increase in federal and state income taxes driven by an increase in income before income taxes netted with excess tax benefits on stock-based compensation expense recognized in the provision for income taxes on the condensed consolidated statements of income during the three and six months ended July 31, 2017, pursuant to the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.

Our effective income tax rate for the three and six months ended July 31, 2017 was (3.0)% and 4.1%, compared to 35.2% and 35.6% for the three and six months ended July 31, 2016. The 38.2 and 31.5 percentage point decrease for the three and six months ended July 31, 2017 compared to the three and six months ended July 31, 2016 was primarily due to the change in treatment of excess tax benefits related to stock-based compensation expense pursuant to ASU 2016-09.

Seasonality

Seasonal concentration of our growth combined with our recurring revenue model creates seasonal variation in our results of operations. A significant number of new and existing Network Partners brings new HSA Members beginning in January concurrent with the start of many employers’ benefit plan years. Before we realize any revenue from these new HSA Members, we incur costs related to implementing and supporting our new Network Partners and new HSA Members. These costs of revenue relate to activating the account and the hiring of additional staff, including seasonal help to support our Member Education Center. These expenses begin to increase during our third fiscal quarter with the majority of expenses incurred in our fourth fiscal quarter. We also experience higher operating expenses in our fourth fiscal quarter due to sales commissions for new accounts activated in January.

Liquidity and capital resources

Cash and marketable securities overview

As of July 31, 2017, our principal source of liquidity was our current cash and marketable securities balances, collections from our service, custodial and interchange revenue activities, and availability under our credit facility. We rely on cash provided by operating activities to meet our short-term liquidity requirements, which primarily relate to the payment of corporate payroll and other operating costs, and capital expenditures.

As of July 31, 2017 and January 31, 2017, cash, cash equivalents and marketable securities were $210.3 million and $180.4 million, respectively.

Capital resources

We have a “shelf” registration statement on Form S-3 on file with the SEC. This shelf registration statement, which includes a base prospectus, allows us at any time to offer any combination of securities described in the prospectus in one or more offerings. Unless otherwise specified in a prospectus supplement accompanying the base prospectus, we would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes, including, but not limited to, working capital, sales and marketing activities, general and administrative matters and capital expenditures, and if opportunities arise, for the acquisition of, or investment in, assets, technologies, solutions or businesses that complement our business. Pending such uses, we may invest the net proceeds in interest-bearing securities. In addition, we may conduct concurrent or other financings at any time.

We have a secured credit facility of $100.0 million. The credit facility has a term of five years and expires on September 30, 2020. The credit facility contains covenants and events of default customary for facilities of this type. There were no borrowings under the facility as of July 31, 2017. We were in compliance with all covenants as of July 31, 2017.

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Use of cash

Capital expenditures for the six months ended July 31, 2017 and 2016 were $7.3 million and $5.2 million, respectively. We expect our capital expenditures to increase for the remainder of the year ending January 31, 2018 as we are devoting a significant amount of our capital expenditures to improve the architecture and functionality of our proprietary system. Costs to improve the architecture of our proprietary system include outsourced software engineering services, computer hardware, and personnel and related costs for software engineering. In addition, we plan to devote resources to leasehold improvements and furniture and fixtures for new office space adjacent to our headquarters in Draper, Utah, which we began occupying in August 2016.

We believe our existing cash, cash equivalents and marketable securities will be sufficient to meet our operating and capital expenditure requirements for at least the next 12 months. To the extent these current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may need to raise additional funds through public or private equity or debt financing. In the event that additional financing is required, we may not be able to raise it on favorable terms, if at all.

The following table shows our cash flows from operating activities, investing activities and financing activities for the stated periods:

	Six months ended July 31,
(in thousands)	2017			2016
Net cash provided by operating activities	$	39,761		$	15,538
Net cash used in investing activities	(17,066		)	(5,387		)
Net cash provided by financing activities	7,072			15,377
Increase (decrease) 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

Cash flows provided by operating activities. Net cash provided by operating activities during the six months ended July 31, 2017 resulted primarily from our net income of $31.0 million being adjusted for the following non-cash items: depreciation and amortization of $7.1 million, stock-based compensation of $6.8 million, a change in deferred taxes of $4.7 million impacted by the adoption of ASU 2016-09 and utilization of deferred tax benefits and changes in inventories, accrued liabilities, other long-term liabilities and amortization of deferred financing costs and other totaling $1.8 million. These items were offset by a decrease in accrued compensation of $2.2 million resulting from the payment of bonuses and commissions subsequent to year-end, an increase in accounts receivable of $3.9 million, an increase in other assets of $4.1 million, and a decrease in accounts payable of $1.5 million.

Net cash provided by operating activities during the six months ended July 31, 2016 resulted primarily from our net income of $16.3 million being adjusted for the following non-cash items: depreciation and amortization of $6.1 million, stock-based compensation of $4.3 million, changes in other long-term liabilities of $840,000, and changes in accrued liabilities and amortization of deferred financing costs totaling $863,000. These items were offset by a decrease in accrued compensation of $3.4 million resulting from the payment of bonuses and commissions subsequent to year-end, an increase in other assets of $5.2 million, an increase in accounts receivable of $2.4 million, a decrease in accounts payable of $1.1 million, and a change in deferred taxes and inventories totaling $817,000.

Cash flows used in investing activities. Net cash used in investing activities for the six months ended July 31, 2017 was primarily the result of purchases of intangible member assets of $6.5 million and purchases of other intangible assets of $3.0 million. In addition, we continue to develop of our proprietary system and other software necessary to support our continued account growth. Purchases of software and capitalized software development costs for the six months ended July 31, 2017 were $5.2 million. This compares to purchases of software and capitalized software development costs of $4.0 million for the six months ended July 31, 2016. Our purchases of property and equipment increased from $1.3 million for the six months ended July 31, 2016 to $2.2 million for the six months ended July 31, 2017, the increase was as a result of our new facilities at our company headquarters.

Cash flows provided by financing activities. Cash flow provided by financing activities during the six months ended July 31, 2017 resulted primarily from the proceeds associated with the exercise of stock options of $7.1 million. ASU 2016-09 was adopted during the six months ended July 31, 2017. This ASU requires cash flows related to excess tax benefits to no longer be separately classified as a financing activity but should be classified as operating activity.

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Cash flow provided by financing activities during the six months ended July 31, 2016 resulted primarily from the proceeds associated with the exercise of stock options of $1.1 million and the associated tax benefits of $14.2 million.

Contractual obligations

There were no material changes, outside of the ordinary course of business, in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended January 31, 2017.

Off-balance sheet arrangements

During the three months ended July 31, 2017 and 2016, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements.

Critical accounting policies and significant management estimates

Our management’s discussion and analysis of financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Our significant accounting policies are more fully described in Note 1 of the accompanying unaudited condensed consolidated financial statements and in Note 1 to our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended January 31, 2017. Other than the adoption of ASU 2016-09 described in Note 1 of the accompanying unaudited condensed consolidated financial statements, there have been no significant or material changes in our critical accounting policies during the six months ended July 31, 2017, as compared to those disclosed in “Management’s discussion and analysis of financial condition and results of operations – Critical accounting policies and significant management estimates” in our Annual Report on Form 10-K for the year ended January 31, 2017.

Recent accounting pronouncements

See Note 1. Summary of business and significant accounting policies within the interim financial statements included in this Form 10-Q for further discussion.

Item 3. Qualitative and quantitative disclosures about market risk

Concentration of market risk

We derive a substantial portion of our revenue from providing services to tax-advantaged healthcare account holders. A significant downturn in this market or changes in state and/or federal laws impacting the preferential tax treatment of healthcare accounts such as HSAs could have a material adverse effect on our results of operations. During the six months ended July 31, 2017, and 2016, no one customer accounted for greater than 10% of our total revenue.

Concentration of credit risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash, cash equivalents and marketable securities. We maintain our cash and cash equivalents in bank and other depository accounts, which, at times, may exceed federally insured limits. Our cash, cash equivalents and marketable securities as of July 31, 2017 were $210.3 million, of which $750,000 was covered by federal depository insurance. We have not experienced any material losses in such accounts and believe we are not exposed to any significant credit risk with respect to our cash, cash equivalents, and marketable securities. Our accounts receivable balance as of July 31, 2017 was $20.9 million. We have not experienced any significant write-offs to our accounts receivable and believe that we are not exposed to significant credit risk with respect to our accounts receivable.

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Interest rate risk

Custodial assets

As of July 31, 2017, we had custodial cash assets of approximately $4.5 billion. We have entered into depository agreements with financial institutions for our cash custodial assets. The contracted interest rates were negotiated at the time the depository agreements were executed. A significant reduction in prevailing market interest rates may make it difficult for us to continue to place custodial deposits at the current contracted rates.

Cash, cash equivalents and marketable securities

We consider all highly liquid investments purchased with an original maturity of three months or less to be unrestricted cash equivalents. Our unrestricted cash and cash equivalents are held in institutions in the U.S. and include deposits in a money market account that is unrestricted as to withdrawal or use. As of July 31, 2017, we had unrestricted cash and cash equivalents of $169.7 million. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.

As of July 31, 2017, we had marketable securities of $40.6 million. Marketable securities are recorded at their estimated fair value. We do not enter into investments for trading or speculative purposes. Our marketable securities are exposed to market risk due to a fluctuation in interest rates, which may affect the fair market value of our marketable securities. However, because we classify our marketable securities as “available-for-sale,” no gains or losses are recognized in net income due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures included, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II—Other Information

Item 1. Legal Proceedings

From time-to-time, we may be subject to various legal proceedings and claims that arise in the normal course of our business activities. As of the date of this Quarterly Report on Form 10-Q, we are not a party to any litigation whereby the outcome of such litigation, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations, cash flows, financial position or brand.

Item 1A. Risk factors

The risks described in “Risk factors,” in our Annual Report on Form 10-K for the year ended January 31, 2017 could materially and adversely affect our business, financial condition and results of operations. There have been no material changes in such risks. These risk factors do not identify all risks that we face - our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Unregistered Sale of Equity Securities

None.

(b) Use of Proceeds from Public Offering of Common Stock

On August 5, 2014, we closed our initial public offering of 10,465,000 shares of common stock sold by us. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-196645), which was declared effective by the SEC on July 30, 2014. JP Morgan & Chase Co. and Wells Fargo acted as the lead underwriters. The public offering price of the shares sold in the offering was $14.00 per share. The total gross proceeds from the offering to us were $146.5 million. After deducting underwriting discounts and commissions of approximately $10.2 million and offering expenses payable by us of approximately $3.7 million, we received approximately $132.6 million. There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus (dated July 30, 2014) filed with the SEC on August 1, 2014 pursuant to Rule 424(b) of the Securities Act. We paid a previously declared cash dividend of $50.0 million on shares of our common stock outstanding on August 4, 2014. In addition, we paid a cash dividend of $347,000 on shares of our outstanding series D-3 redeemable convertible preferred stock accrued through the date of conversion of such shares into common stock, which occurred on August 4, 2014. Other than the foregoing dividends, we made no payments directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities, or (iii) any of our affiliates.

On May 11, 2015, we closed our public offering of 972,500 shares of common stock sold by us. The offer and sale of all of the shares in the public offering were registered under the Securities Act pursuant to registration statements on Form S-1 (File Nos. 333-203190 and 333-203888), which became effective on May 5, 2015. Wells Fargo acted as the lead underwriter. The public offering price of the shares sold in the offering was $25.90 per share. Certain selling stockholders sold 3,455,000 shares of common stock in the offering, including 380,000 shares of common stock which were issued upon the exercise of outstanding options. The Company received net proceeds of approximately $23.5 million after deducting underwriting discounts and commissions of approximately $1.0 million and other offering expenses payable by the Company of approximately $688,000. The Company did not receive any proceeds from the sale of shares by the selling stockholders other than $222,000 representing the exercise price of the options that were exercised by certain selling stockholders in connection with the offering. We paid all of the expenses related to the registration and offering of the shares sold by the selling stockholders, other than underwriting discounts and commissions relating to those shares. Other than these expenses, we made no payments directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities, or (iii) any of our affiliates. There has been no material change in the planned use of proceeds from our public offering as described in our final prospectus (dated May 5, 2015) filed with the SEC on May 6, 2015 pursuant to Rule 424(b) of the Securities Act.

During the year ended January 31, 2016, the Company used funds received from the offerings to acquire the rights to be the custodian of HSA portfolios acquired from The Bancorp Bank and M&T Bank, for approximately $34.2 million and $6.2 million, respectively.

-29-

During the three months ended July 31, 2017, the Company used funds received from the offerings to acquire the rights to be custodian of an HSA portfolio for approximately $6.5 million cash and the assets of BenefitGuard LLC, a 401(k) provider that offers 3(16) plan administrator and 3(21) named fiduciary services for 401(k) employer sponsors, for approximately $3.0 million.

The remainder of the funds received have been invested in registered money market accounts and mutual funds.

Item 6. Exhibits

The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Quarterly Report.

-30-

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HEALTHEQUITY, INC.
Date: September 7, 2017	By:	/s/ Darcy Mott
	Name:	Darcy Mott
	Title:	Executive Vice President and Chief Financial Officer

-31-

Exhibit Index

		Incorporate by reference
Exhibit no.	Description	Form	File No.	Exhibit	Filing Date
31.1+	Certification of the Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2+	Certification of the Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*#	Certification of the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*#	Certification of the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS††	XBRL Instance document
101.SCH††	XBRL Taxonomy schema linkbase document
101.CAL††	XBRL Taxonomy calculation linkbase document
101.DEF††	XBRL Taxonomy definition linkbase document
101.LAB††	XBRL Taxonomy labels linkbase document
101.PRE††	XBRL Taxonomy presentation linkbase document

+	Filed herewith
*	Furnished herewith
#	These certifications are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference in any filing the registrant makes under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.
††	In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections.

-32-

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to

Exchange Act Rules 13a-14(a) and 15d-14(a),

as Adopted Pursuant to

Section 302 of Sarbanes-Oxley Act of 2002

I, Jon Kessler, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of HealthEquity, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 7, 2017

By:	/s/ Jon Kessler
Name:	Jon Kessler
Title:	Chief Executive Officer  (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

pursuant to

Exchange Act Rules 13a-14(a) and 15d-14(a),

as adopted pursuant to

Section 302 of Sarbanes-Oxley Act of 2002

I, Darcy Mott, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of HealthEquity, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 7, 2017

By:	/s/ Darcy Mott
Name:	Darcy Mott
Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Jon Kessler, the Chief Executive Officer (Principal Executive Officer) of HealthEquity, Inc. (the “Company”), hereby certify that, to my knowledge:

1. Our Quarterly Report on Form 10-Q for the quarter ended July 31, 2017 (the “Report”), of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: September 7, 2017

By:	/s/ Jon Kessler
Name:	Jon Kessler
Title:	Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Darcy Mott, Executive Vice President and Chief Financial Officer (Principal Financial Officer) of HealthEquity, Inc. (the “Company”), hereby certify that, to my knowledge:

1. Our Quarterly Report on Form 10-Q for the quarter ended July 31, 2017 (the “Report”), of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: September 7, 2017

By:	/s/ Darcy Mott
Name:	Darcy Mott
Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Jul. 31, 2017	Aug. 31, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	HEALTHEQUITY INC
Entity Central Index Key	0001428336
Current Fiscal Year End Date	--01-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Jul. 31, 2017
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		60,488,740

XML

Condensed consolidated balance sheets (unaudited) - USD ($) $ in Thousands	Jul. 31, 2017	Jan. 31, 2017
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
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	0	37
Total long-term liabilities	2,067	1,493
Total liabilities	15,010	17,196
Commitments and contingencies (see note 6)
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	0	0
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

XML

Condensed consolidated balance sheets (unaudited) (Parenthetical) - USD ($) $ in Thousands	Jul. 31, 2017	Jan. 31, 2017
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 45	$ 75
Preferred Stock, Par Value (usd per share)	$ 0.0001	$ 0.0001
Preferred Stock, Shares Authorized (in shares)	100,000,000	100,000,000
Preferred Stock, Shares Issued (in shares)	0	0
Preferred Stock, Shares Outstanding (in shares)	0	0
Common Stock, Par Value (usd per share)	$ 0.0001	$ 0.0001
Common Stock, Shares Authorized (in shares)	900,000,000	900,000,000
Common Stock, Shares, Issued (in shares)	60,399,000	59,538,000
Common Stock, Shares, Outstanding (in shares)	60,399,000	59,538,000

XML

Condensed consolidated statements of operations and comprehensive income (unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 31, 2017	Jul. 31, 2016	Jul. 31, 2017	Jul. 31, 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 (in dollars per share)	$ 0.28	$ 0.14	$ 0.52	$ 0.28
Diluted (in dollars per share)	$ 0.27	$ 0.14	$ 0.50	$ 0.27
Weighted-average number of shares used in computing net income per share:
Basic (in shares)	60,173	58,246	59,955	58,035
Diluted (in shares)	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

XML

Condensed consolidated statements of cash flows (unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jul. 31, 2017	Jul. 31, 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 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	0	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
Exercise of common stock options receivable	1,017	0
Member assets
Cash flows from investing activities:
Purchases of intangible assets	(6,515)	0
Supplemental disclosures of non-cash investing and financing activities:
Purchases of intangible assets accrued at period end	270	0
Other intangibles assets
Cash flows from investing activities:
Purchases of intangible assets	(3,000)	0
Software
Supplemental disclosures of non-cash investing and financing activities:
Purchases of intangible assets accrued at period end	$ 69	$ 116

XML

Summary of business and significant accounting policies

6 Months Ended

Jul. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of business and significant accounting policies

HealthEquity, Inc. was incorporated in the state of Delaware on September 18, 2002. The Company offers a full range of innovative solutions for managing health care accounts (Health Savings Accounts, Health Reimbursement Arrangements, and Flexible Spending Accounts) for health plans, insurance companies, and third-party administrators.

In February 2006, HealthEquity, Inc. received designation by the U.S. Department of Treasury to act as a passive non-bank custodian, which allows HealthEquity, Inc. to hold custodial assets in trust for individual account holders.  On July 24, 2017, HealthEquity, Inc. received designation by the U.S. Department of Treasury to act as both a passive and non-passive non-bank custodian, which allows HealthEquity, Inc. to hold custodial assets in trust for individual account holders and use discretion to direct investment of such assets held in trust .  As passive and non-passive non-bank custodian according to the Internal Revenue Code ("IRC") 1.408-2(e)(5)(ii)(B), the Company must maintain net worth (assets minus liabilities) greater than 2% of passive custodial funds held in trust at each year-end and 4% of the non-passive custodial funds held in trust at each year-end in order to take on additional custodial assets.

Principles of consolidation—The condensed consolidated financial statements include the accounts of HealthEquity, Inc. and its wholly owned subsidiaries, HealthEquity Trust Company, HEQ Insurance Services, Inc., HealthEquity Advisors, LLC and HealthEquity Retirement Services, LLC (collectively referred to as, the "Company").

The Company has a 22% ownership interest in a limited partnership for investment in and the management of early stage companies in the healthcare industry, such partnership is accounted for using the equity method of accounting. The investment was approximately $206,000 as of July 31, 2017 and is included in other assets on the accompanying condensed consolidated balance sheet.

The Company has a 2% ownership interest in a limited partnership that engages in the development of technology-based financial healthcare products. The Company determined there was no significant influence and therefore the investment was accounted for using the cost method of accounting. The investment was $500,000 as of July 31, 2017 and is included in other assets on the accompanying condensed consolidated balance sheet.

Acquisitions of businesses are accounted for as business combinations, and accordingly, the results of operations of acquired businesses are included in the consolidated financial statements from the date of acquisition. All significant intercompany balances and transactions have been eliminated.

Basis of presentation—The accompanying condensed consolidated financial statements as of July 31, 2017 and for the three and six months ended July 31, 2017 and 2016 are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. In the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended January 31, 2017. The fiscal year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Recent adopted accounting pronouncements—In March 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU requires excess tax benefits and tax deficiencies to be recognized in the statement of operations and comprehensive income, which were previously presented as a component of stockholders' equity, on a prospective basis. In addition, any excess tax benefits that were not previously recognized because the related tax deduction had not reduced current taxes payable are to be recorded on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. This ASU also requires cash flows related to excess tax benefits to be classified as an operating activity on the statement of cash flows. Finally, this ASU no longer allows tax benefits to be included in the assumed proceeds when applying the treasury stock method for computing diluted weighted-average common shares outstanding, which results in share-based awards having a more dilutive effect on net income per diluted share.

The Company adopted this ASU during the three months ended April 30, 2017.  As required by the standard, excess tax benefits recognized on stock-based compensation expense are reflected in our condensed consolidated statements of operations and comprehensive income as a component of the provision for income taxes rather than additional paid-in capital on a prospective basis.  For the three and six months ended July 31, 2017, the Company recorded excess tax benefits in the amount of $6.6 million and $10.5 million, respectively, within our provision for income taxes in the condensed consolidated statements of operations and comprehensive income. In addition, any excess tax benefits that were not previously recognized because the related tax deduction had not reduced current taxes payable are to be recorded on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption, which resulted in an increase of $8.1 million to our retained earnings as of February 1, 2017.

For presentation requirements, the Company elected to prospectively apply the change in the presentation of excess tax benefits wherein excess tax benefits recognized on stock-based compensation expense are classified as operating activities on the condensed consolidated statements of cash flows for the three months ended April 30, 2017. Prior period classification of cash flows related to excess tax benefits were not adjusted. Further, the Company elected to adopt the forfeiture provisions of this ASU, which requires the Company to account for forfeitures as they occur. The adoption of the forfeiture provisions had no material impact on the condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which provides a more robust framework to use in determining when a set of assets and activities is a business. This ASU is effective for fiscal years beginning December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The new guidance is required to be applied on a prospective basis. The Company adopted this ASU during the three months ended July 31, 2017. The adoption had no material impact on the Company's condensed consolidated financial statements.

Recent issued accounting pronouncements—On May 28, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. In July 2015, the FASB voted to defer the effective date to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption beginning for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the guidance in determining revenue recognition as principal versus agent. In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, which provides guidance in accounting for immaterial performance obligations and shipping and handling. In May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for noncash consideration and completed contracts at transition. Finally, in December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which makes minor corrections or minor improvements to the Codification that are not expected to have a significant impact. The foregoing amendments are effective for annual reporting periods beginning after December 15, 2017 and for interim reporting periods within such annual periods. The adoption of this guidance is not expected to have a material impact on the Company's revenue. The Company is still evaluating the impact of this guidance on sales commissions and activation costs. The Company will use the cumulative effect transition method and does not plan to early adopt.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. The amendments in this ASU revise an entity's accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. This ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted for the presentation of certain fair value changes for financial liabilities measured at fair value. The Company does not plan to early adopt and is currently evaluating the potential effect of this ASU on the consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure for both parties to a contract (i.e. lessees and lessors). ASC 842 supersedes the previous leases standard, ASC 840 leases. This ASU is effective for financial statements issued for reporting periods beginning after December 15, 2018 and requires a modified retrospective transition, and provides for certain practical expedients; early adoption is permitted. The Company does not plan to early adopt and is currently evaluating the potential effect of this ASU on the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires financial assets measured at amortized cost be presented at the net amount expected to be collected. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company does not plan to early adopt this ASU. The Company believes the adoption of this ASU will have an immaterial impact on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which provides guidance on the classification of certain cash receipts and cash payments. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not plan to early adopt this ASU. The Company believes the adoption of this ASU will have an immaterial impact on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory, which updates the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adoption and the potential effect of this ASU on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which removes step two from the goodwill impairment test. As a result, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units' fair value. This ASU is effective for fiscal years beginning December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adoption; however it does not believe this ASU will have material impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about changes to the terms or conditions of a share-based payment award. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The standard should be applied prospectively to an award modified on or after the adoption date. The Company does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements.

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Net income per share

6 Months Ended

Jul. 31, 2017

Earnings Per Share [Abstract]

Net income per share

The following table sets forth the computation of basic and diluted net income per share:

(in thousands, except per share data)	Three months ended July 31,				Six months ended July 31,
	2017		2016		2017		2016
Numerator (basic and diluted):
Net income	$	16,946	$	8,233	$	30,975	$	16,306
Denominator (basic):
Weighted-average common shares outstanding	60,173		58,246		59,955		58,035
Denominator (diluted):
Weighted-average common shares outstanding	60,173		58,246		59,955		58,035
Weighted-average dilutive effect of stock options and restricted stock units	1,592		1,405		1,649		1,466
Diluted weighted-average common shares outstanding	61,765		59,651		61,604		59,501
Net income per share:
Basic	$	0.28	$	0.14	$	0.52	$	0.28
Diluted	$	0.27	$	0.14	$	0.50	$	0.27

For the three months ended July 31, 2017 and 2016, approximately 771,000 and 2.0 million shares, respectively, attributable to stock options and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

For the six months ended July 31, 2017 and 2016, approximately 670,000 and 2.2 million shares, respectively, attributable to stock options and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

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Cash, cash equivalents and marketable securities

6 Months Ended

Jul. 31, 2017

Investments, Debt and Equity Securities [Abstract]

Cash, cash equivalents and marketable securities

Cash, cash equivalents and marketable securities as of July 31, 2017 consisted of the following:

(in thousands)	Cost basis		Gross unrealized gains		Gross unrealized losses			Fair value
Cash and cash equivalents	$	169,721	$	—	$	—		$	169,721
Marketable securities:
Mutual funds	40,894		243		(556		)	40,581
Total cash, cash equivalents and marketable securities	$	210,615	$	243	$	(556	)	$	210,302

Cash, cash equivalents and marketable securities as of January 31, 2017 consisted of the following:

(in thousands)	Cost basis		Gross unrealized gains		Gross unrealized losses			Fair value
Cash and cash equivalents	$	139,954	$	—	$	—		$	139,954
Marketable securities:
Mutual funds	40,670		207		(472		)	40,405
Total cash, cash equivalents and marketable securities	$	180,624	$	207	$	(472	)	$	180,359

The following table summarizes the cost basis and fair value of the marketable securities by contractual maturity as of July 31, 2017:

(in thousands)	Cost basis		Fair value
One year or less	$	25,495	$	25,448
Over one year and less than five years	15,399		15,133
Total	$	40,894	$	40,581

Unrealized losses from marketable securities are primarily attributable to change in interest rates. The Company does not believe any remaining unrealized losses represent other-than-temporary impairments based on the Company's evaluation of available evidence as of July 31, 2017. As of July 31, 2017, marketable securities with an unrealized loss position for more than twelve consecutive months were as follows:

	Less than one year					Greater than one year
(in thousands)	Fair value		Unrealized losses			Fair value		Unrealized losses
Mutual funds	$	25,448	$	(207	)	$	15,133	$	(349	)

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Property and equipment

6 Months Ended

Jul. 31, 2017

Property, Plant and Equipment [Abstract]

Property and equipment

Property and equipment consisted of the following as of July 31, 2017 and January 31, 2017:

(in thousands)	July 31, 2017			January 31, 2017
Leasehold improvements	$	1,269		$	860
Furniture and fixtures	3,963			3,129
Computer equipment	8,140			7,194
Property and equipment, gross	13,372			11,183
Accumulated depreciation	(7,292		)	(6,013		)
Property and equipment, net	$	6,080		$	5,170

Depreciation expense for the three months ended July 31, 2017 and 2016 was $647,000 and $437,000, respectively, and $1.3 million and $884,000 for the six months ended July 31, 2017 and 2016, respectively.

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Intangible assets and goodwill

6 Months Ended

Jul. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible assets and goodwill

During the three months ended July 31, 2017, the Company acquired an HSA portfolio for $6.8 million. The cost, including transaction costs, was allocated to acquired intangible member assets as of July 31, 2017. The Company has determined the acquired intangible member assets to have a useful life of 15 years. The assets will be amortized using the straight-line amortization method, which has been determined appropriate to reflect the pattern over which the economic benefits of existing member assets are realized.

To increase its product offering, during the three months ended July 31, 2017, the Company acquired the assets of BenefitGuard LLC, pursuant to a definitive asset purchase agreement, for a purchase price of $3.0 million cash. BenefitGuard LLC is a 401(k) provider that offers 3(16) plan administrator and 3(21) named fiduciary services for 401(k) employer sponsors. The Company accounted for the acquisition of assets of BenefitGuard LLC as a purchase of a business under ASC 805. The preliminary purchase price allocation resulted in customer relationships, or other intangible assets, of $3.0 million. The Company has determined the other intangible assets to have a useful life of 10 years. The asset will be amortized using the straight-line amortization method, which has been determined appropriate to reflect the pattern over which the economic benefits will be realized. The financial impact of this acquisition, including pro forma financial results, was immaterial to the Company's consolidated statement of operations for the three and six months ended July 31, 2017.

During the three months ended July 31, 2017 and 2016, the Company capitalized software development costs of $2.0 million and $1.8 million, respectively, and $4.2 million and $3.7 million for the six months ended July 31, 2017 and 2016, respectively, related to significant enhancements and upgrades to its proprietary system.

The gross carrying amount and associated accumulated amortization of intangible assets were as follows as of July 31, 2017 and January 31, 2017:

(in thousands)	July 31, 2017			January 31, 2017
Amortized intangible assets:
Capitalized software development costs	$	28,119		$	23,925
Software	7,726			7,041
Other intangible assets	3,000			—
Acquired intangible member assets	71,747			64,962
Intangible assets, gross	110,592			95,928
Accumulated amortization	(36,765		)	(30,908		)
Intangible assets, net	$	73,827		$	65,020

During the three months ended July 31, 2017 and 2016, the Company incurred and expensed a total of $3.1 million and $2.3 million, respectively, and $5.9 million and $4.3 million for the six months ended July 31, 2017 and 2016, respectively, in software development costs primarily related to the post-implementation and operation stages of its proprietary software.

Amortization expense for the three months ended July 31, 2017 and 2016 was $3.0 million and $2.7 million, respectively, and $5.9 million and $5.2 million for the six months ended July 31, 2017 and 2016, respectively.

There were no changes to the goodwill carrying value during the three and six months ended July 31, 2017 and 2016.

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Commitment and contingencies

6 Months Ended

Jul. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and contingencies

The Company’s principal commitments and contingencies consist of a processing services agreement with a vendor, and obligations for office space, telephony services, data storage facilities, equipment and certain maintenance agreements under long-term, non-cancelable operating leases. These commitments as of January 31, 2017 are disclosed in the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended January 31, 2017, and did not change materially during the three and six months ended July 31, 2017, except for the following:

On May 31, 2017, the Company entered into an amendment to its lease agreement, dated May 15, 2015, by and between the Company and its landlord to expand its current office space. The term of the lease will commence on January 1, 2018 and will expire on March 31, 2027. The Company will be responsible for payment of taxes and operating expenses for its portion of the building, in addition to an annual base rent in the initial amount of approximately $513,000, with annual increases ranging from 2.5% to 3.1%.

Lease expense for office space for the three and six months ended July 31, 2017 was $1.0 million, and $2.1 million, respectively, and $424,000 and $1.0 million for the three and six months ended July 31, 2016, respectively. Expense for other lease agreements for the three and six months ended July 31, 2017 was $106,000 and $226,000, respectively, and $84,000 and $144,000 for the three and six months ended July 31, 2016, respectively.

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Indebtedness

6 Months Ended

Jul. 31, 2017

Debt Disclosure [Abstract]

Indebtedness

On September 30, 2015, the Company entered into a new credit facility (the "Credit Agreement"). The Credit Agreement provides for a secured revolving credit facility in the aggregate principal amount of $100.0 million for a term of five years. The proceeds of borrowings under the Credit Agreement may be used for general corporate purposes. No amounts have been drawn under the Credit Agreement as of July 31, 2017.

Borrowings under the Credit Agreement bear interest equal to, at the Company's option, a) an adjusted LIBOR rate or b) a customary base rate, in each case with an applicable spread to be determined based on the Company's leverage ratio as of the most recent fiscal quarter. The applicable spread for borrowing under the Credit Agreement ranges from 1.50% to 2.00% with respect to adjusted LIBOR rate borrowings and 0.50% to 1.00% with respect to customary base rate borrowings. Additionally, the Company pays a commitment fee ranging from 0.20% to 0.30% on the daily amount of the unused commitments under the Credit Agreement payable in arrears at the end of each fiscal quarter.

The Company's material subsidiaries are required to guarantee the obligations of the Company under the Credit Agreement. The obligations of the Company and the guarantors under the Credit Agreement and the guarantees are secured by substantially all assets of the Company and the guarantors, subject to customary exclusions and exceptions.

The Credit Agreement requires the Company to maintain a total leverage ratio of not more than 3.00 to 1.00 as of the end of each fiscal quarter and a minimum interest coverage ratio of at least 3.00 to 1.00 as of the end of each fiscal quarter. In addition, the Credit Agreement includes customary representations and warranties, affirmative and negative covenants, and events of default. The restrictive covenants include customary restrictions on the Company's ability to incur additional indebtedness; make investments, loans or advances; grant or incur liens on assets; engage in mergers, consolidations, liquidations or dissolutions; engage in transactions with affiliates; and make dividend payments. The Company was in compliance with these covenants as of July 31, 2017.

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Income taxes

6 Months Ended

Jul. 31, 2017

Income Tax Disclosure [Abstract]

Income taxes

The Company follows FASB Accounting Standards Codification 740-270, Income Taxes - Interim Reporting, for the computation and presentation of its interim period tax provision. Accordingly, management estimated the effective annual tax rate and applied this rate to the year-to-date pre-tax book income to determine the interim provision for income taxes. For the three months ended July 31, 2017, the Company recorded an income tax benefit of $489,000 and for the six months ended July 31, 2017 an income tax provision of $1.3 million. The resulting effective income tax rate was (3.0)% and 4.1%, compared with an effective income tax rate of 35.2%and 35.6% for the three and six months ended July 31, 2016. For the three and six months ended July 31, 2017, the net impact of discrete tax items caused a 38.8 and 31.7 percentage point decrease to the effective income tax rate primarily due to the excess tax benefit on stock-based compensation expense recognized in the provision for income taxes on the condensed consolidated statements of income, pursuant to the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. For the three and six months ended July 31, 2016, the net impact of discrete tax items was not material. The decrease in the effective income tax rate from the same period last year is primarily due to the excess tax benefit on stock-based compensation expense recognized in the provision for income taxes on the condensed consolidated statements of income during the three and six months ended July 31, 2017, pursuant to the adoption of ASU 2016-09.

As of July 31, 2017 and January 31, 2017, the Company’s total gross unrecognized tax benefit was $758,000 and $674,000, respectively. As a result of ASU No. 2013-11, certain unrecognized tax benefits have been netted against their related deferred tax assets; therefore, no unrecognized tax benefit has been recorded as of July 31, 2017 and January 31, 2017. If recognized, $640,000 of the total gross unrecognized tax benefits would affect the Company's effective income tax rate as of July 31, 2017.

The Company files income tax returns with U.S. federal and state taxing jurisdictions and is not currently under examination with any jurisdiction. The Company remains subject to examination by federal and various state taxing jurisdictions for tax years after 2005.

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Stock-based compensation

6 Months Ended

Jul. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based compensation

The following table shows a summary of stock-based compensation in the Company's condensed consolidated statements of operations and comprehensive income during the periods presented:

	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

Stock options

The Company currently grants stock options under the 2014 Equity Incentive Plan (as amended and restated, the "Incentive Plan"). Under the terms of the Incentive Plan, the Company has the ability to grant incentive and nonqualified stock options. Incentive stock options may be granted only to Company team members. Nonqualified stock options may be granted to Company team members, directors and consultants. Such options are to be exercisable at prices, as determined by the board of directors, which must be equal to no less than the fair value of the Company's common stock at the date of the grant. Stock options granted under the Incentive Plan generally expire 10 years from the date of issuance, or are forfeited 90 days after termination of employment. Shares of common stock underlying stock options that are forfeited or that expire are returned to the Incentive Plan.

Stock option activity under the Company's equity incentive plans is as follows:

	Outstanding stock options
(in thousands, except for exercise prices and term)	Number of options		Range of exercise prices	Weighted- average exercise price		Weighted- average contractual term (in years)	Aggregate intrinsic value
Outstanding as of January 31, 2017	4,716		$0.10 - 44.53	$	18.36	7.60	$	131,529
Granted	412		$41.28 - 51.44	$	42.64
Exercised	(854	)	$0.10 - 33.47	$	9.47
Forfeited	(109	)	$3.50 - 46.40	$	33.87
Outstanding as of July 31, 2017	4,165		$0.10 - 51.44	$	22.18	7.60	$	98,900
Vested and expected to vest as of July 31, 2017	4,165			$	22.18	7.60	$	98,900
Exercisable as of July 31, 2017	1,264			$	13.53	6.29	$	40,894

The aggregate intrinsic value in the table above represents the difference between the estimated fair value of common stock and the exercise price of outstanding, in-the-money stock options.

The key input assumptions that were utilized in the valuation of the stock options granted during the periods presented:

	Three months ended July 31,				Six months ended July 31,
	2017		2016		2017		2016
Expected dividend yield	—	%	—	%	—	%	—	%
Expected stock price volatility	37.79	%	38.29	%	37.79% - 38.01%		38.29% - 38.37%
Risk-free interest rate	1.89	%	1.55	%	1.89% - 2.07%		1.33% - 1.55%
Expected life of options	6.25 years		6.25 years		5.17 - 6.25 years		5.17 - 6.25 years

The determination of the fair value of stock options on the date of grant using an option pricing model is affected by the Company's stock price as well as assumptions regarding a number of complex and subjective variables. Expected volatility is determined using weighted average volatility of publicly traded peer companies. The Company expects that it will begin using its own historical volatility in addition to the volatility of publicly traded peer companies, as its share price history grows over time. The risk-free interest rate is determined by using published zero coupon rates on treasury notes for each grant date given the expected term on the options. The dividend yield of zero is based on the fact that the Company expects to invest cash in operations. The Company uses the "simplified" method to estimate expected term as determined under Staff Accounting Bulletin No. 110 due to the lack of sufficient option exercise history as a public company.

As of July 31, 2017, the weighted-average vesting period of non-vested awards expected to vest is approximately 2.2 years; the amount of compensation expense the Company expects to recognize for stock options vesting in future periods is approximately $23.0 million.

Restricted stock units

The Company grants restricted stock units ("RSU") to certain team members, officers, and directors under the 2014 Equity Incentive Plan. RSUs vest upon service-based criteria and performance-based criteria. Generally, service-based restricted stock units vest over a four-year period in equal annual installments commencing upon the first anniversary of the grant date. Performance-based restricted stock units ("PRSU") vest upon the achievement of certain financial criteria and cliff vest on January 31, 2020.

RSUs are valued based on the current value of the Company's closing stock price on the date of grant and stock-based compensation expense is recognized over the requisite service period. Stock-based compensation expense for PRSUs is recognized over the requisite service period based on the probable outcome of the achievement of the performance criteria.

A summary of the RSU activity is as follows:

(in thousands, except weight-average grant date fair value)	RSUs and PRSUs		Weighted-average grant date fair value
Outstanding as of January 31, 2017	10		$	26.93
Granted	397		43.34
Vested	(6	)	43.81
Forfeitures	(1	)	41.28
Outstanding as of July 31, 2017	400		$	42.90

Stock-based compensation expense related to RSUs, including PRSUs, for the three and six months ended July 31, 2017 was $1.4 million and $2.2 million, respectively. Total unrecorded stock-based compensation expense as of July 31, 2017 associated with RSUs was $15.0 million, which is expected to be recognized over a weighted-average period of 3.2 years.

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Fair value

6 Months Ended

Jul. 31, 2017

Fair Value Disclosures [Abstract]

Fair value

Fair value measurements are made at a specific point in time, based on relevant market information. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards specify a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:

• Level 1—quoted prices in active markets for identical assets or liabilities;

• Level 2—inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

• Level 3—unobservable inputs based on the Company’s own assumptions.

Level 1 instruments are valued based on publicly available daily net asset values. Level 1 instruments consist primarily of highly liquid mutual funds.

The following tables summarize the assets measured at fair value on a recurring basis and indicates the level within the fair value hierarchy reflecting the valuation techniques utilized to determine fair value:

	July 31, 2017
(in thousands)	Level 1		Level 2		Level 3
Marketable securities:
Mutual funds	$	40,581	$	—	$	—

	January 31, 2017
(in thousands)	Level 1		Level 2		Level 3
Marketable securities:
Mutual funds	$	40,405	$	—	$	—

The carrying value of financial instruments including cash and cash equivalents and certain non-trade receivables approximate fair values as ofJuly 31, 2017due to the short-term nature of these instruments.The Company has classified cash and cash equivalents as Level 1 and certain non-trade receivables as Level 2 in the fair value hierarchy.

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Subsequent event

6 Months Ended

Jul. 31, 2017

Subsequent Events [Abstract]

Subsequent event

On August 3, 2017, the Company acquired the rights to be the sole custodian of an HSA portfolio for $3.3 million.

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Summary of business and significant accounting policies (Policies)

6 Months Ended

Jul. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Principles of consolidation

Principles of consolidation—The condensed consolidated financial statements include the accounts of HealthEquity, Inc. and its wholly owned subsidiaries, HealthEquity Trust Company, HEQ Insurance Services, Inc., HealthEquity Advisors, LLC and HealthEquity Retirement Services, LLC (collectively referred to as, the "Company").

The Company has a 22% ownership interest in a limited partnership for investment in and the management of early stage companies in the healthcare industry, such partnership is accounted for using the equity method of accounting. The investment was approximately $206,000 as of July 31, 2017 and is included in other assets on the accompanying condensed consolidated balance sheet.

The Company has a 2% ownership interest in a limited partnership that engages in the development of technology-based financial healthcare products. The Company determined there was no significant influence and therefore the investment was accounted for using the cost method of accounting. The investment was $500,000 as of July 31, 2017 and is included in other assets on the accompanying condensed consolidated balance sheet.

Acquisitions of businesses are accounted for as business combinations, and accordingly, the results of operations of acquired businesses are included in the consolidated financial statements from the date of acquisition. All significant intercompany balances and transactions have been eliminated.

Basis of presentation

Basis of presentation—The accompanying condensed consolidated financial statements as of July 31, 2017 and for the three and six months ended July 31, 2017 and 2016 are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. In the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended January 31, 2017. The fiscal year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Recent accounting pronouncements

Recent adopted accounting pronouncements—In March 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU requires excess tax benefits and tax deficiencies to be recognized in the statement of operations and comprehensive income, which were previously presented as a component of stockholders' equity, on a prospective basis. In addition, any excess tax benefits that were not previously recognized because the related tax deduction had not reduced current taxes payable are to be recorded on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. This ASU also requires cash flows related to excess tax benefits to be classified as an operating activity on the statement of cash flows. Finally, this ASU no longer allows tax benefits to be included in the assumed proceeds when applying the treasury stock method for computing diluted weighted-average common shares outstanding, which results in share-based awards having a more dilutive effect on net income per diluted share.

The Company adopted this ASU during the three months ended April 30, 2017.  As required by the standard, excess tax benefits recognized on stock-based compensation expense are reflected in our condensed consolidated statements of operations and comprehensive income as a component of the provision for income taxes rather than additional paid-in capital on a prospective basis.  For the three and six months ended July 31, 2017, the Company recorded excess tax benefits in the amount of $6.6 million and $10.5 million, respectively, within our provision for income taxes in the condensed consolidated statements of operations and comprehensive income. In addition, any excess tax benefits that were not previously recognized because the related tax deduction had not reduced current taxes payable are to be recorded on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption, which resulted in an increase of $8.1 million to our retained earnings as of February 1, 2017.

For presentation requirements, the Company elected to prospectively apply the change in the presentation of excess tax benefits wherein excess tax benefits recognized on stock-based compensation expense are classified as operating activities on the condensed consolidated statements of cash flows for the three months ended April 30, 2017. Prior period classification of cash flows related to excess tax benefits were not adjusted. Further, the Company elected to adopt the forfeiture provisions of this ASU, which requires the Company to account for forfeitures as they occur. The adoption of the forfeiture provisions had no material impact on the condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which provides a more robust framework to use in determining when a set of assets and activities is a business. This ASU is effective for fiscal years beginning December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The new guidance is required to be applied on a prospective basis. The Company adopted this ASU during the three months ended July 31, 2017. The adoption had no material impact on the Company's condensed consolidated financial statements.

Recent issued accounting pronouncements—On May 28, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. In July 2015, the FASB voted to defer the effective date to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption beginning for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the guidance in determining revenue recognition as principal versus agent. In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, which provides guidance in accounting for immaterial performance obligations and shipping and handling. In May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for noncash consideration and completed contracts at transition. Finally, in December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which makes minor corrections or minor improvements to the Codification that are not expected to have a significant impact. The foregoing amendments are effective for annual reporting periods beginning after December 15, 2017 and for interim reporting periods within such annual periods. The adoption of this guidance is not expected to have a material impact on the Company's revenue. The Company is still evaluating the impact of this guidance on sales commissions and activation costs. The Company will use the cumulative effect transition method and does not plan to early adopt.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. The amendments in this ASU revise an entity's accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. This ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted for the presentation of certain fair value changes for financial liabilities measured at fair value. The Company does not plan to early adopt and is currently evaluating the potential effect of this ASU on the consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure for both parties to a contract (i.e. lessees and lessors). ASC 842 supersedes the previous leases standard, ASC 840 leases. This ASU is effective for financial statements issued for reporting periods beginning after December 15, 2018 and requires a modified retrospective transition, and provides for certain practical expedients; early adoption is permitted. The Company does not plan to early adopt and is currently evaluating the potential effect of this ASU on the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires financial assets measured at amortized cost be presented at the net amount expected to be collected. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company does not plan to early adopt this ASU. The Company believes the adoption of this ASU will have an immaterial impact on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which provides guidance on the classification of certain cash receipts and cash payments. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not plan to early adopt this ASU. The Company believes the adoption of this ASU will have an immaterial impact on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory, which updates the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adoption and the potential effect of this ASU on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which removes step two from the goodwill impairment test. As a result, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units' fair value. This ASU is effective for fiscal years beginning December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adoption; however it does not believe this ASU will have material impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about changes to the terms or conditions of a share-based payment award. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The standard should be applied prospectively to an award modified on or after the adoption date. The Company does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements.

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Net income per share (Tables)

6 Months Ended

Jul. 31, 2017

Earnings Per Share [Abstract]

Schedule of earnings per share, basic and diluted

The following table sets forth the computation of basic and diluted net income per share:

(in thousands, except per share data)	Three months ended July 31,				Six months ended July 31,
	2017		2016		2017		2016
Numerator (basic and diluted):
Net income	$	16,946	$	8,233	$	30,975	$	16,306
Denominator (basic):
Weighted-average common shares outstanding	60,173		58,246		59,955		58,035
Denominator (diluted):
Weighted-average common shares outstanding	60,173		58,246		59,955		58,035
Weighted-average dilutive effect of stock options and restricted stock units	1,592		1,405		1,649		1,466
Diluted weighted-average common shares outstanding	61,765		59,651		61,604		59,501
Net income per share:
Basic	$	0.28	$	0.14	$	0.52	$	0.28
Diluted	$	0.27	$	0.14	$	0.50	$	0.27

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Cash, cash equivalents and marketable securities (Tables)

6 Months Ended

Jul. 31, 2017

Investments, Debt and Equity Securities [Abstract]

Available-for-sale securities

Cash, cash equivalents and marketable securities as of July 31, 2017 consisted of the following:

(in thousands)	Cost basis		Gross unrealized gains		Gross unrealized losses			Fair value
Cash and cash equivalents	$	169,721	$	—	$	—		$	169,721
Marketable securities:
Mutual funds	40,894		243		(556		)	40,581
Total cash, cash equivalents and marketable securities	$	210,615	$	243	$	(556	)	$	210,302

Cash, cash equivalents and marketable securities as of January 31, 2017 consisted of the following:

(in thousands)	Cost basis		Gross unrealized gains		Gross unrealized losses			Fair value
Cash and cash equivalents	$	139,954	$	—	$	—		$	139,954
Marketable securities:
Mutual funds	40,670		207		(472		)	40,405
Total cash, cash equivalents and marketable securities	$	180,624	$	207	$	(472	)	$	180,359

Investments classified by contractual maturity date

The following table summarizes the cost basis and fair value of the marketable securities by contractual maturity as of July 31, 2017:

(in thousands)	Cost basis		Fair value
One year or less	$	25,495	$	25,448
Over one year and less than five years	15,399		15,133
Total	$	40,894	$	40,581

Schedule of marketable securities with an unrealized loss position

As of July 31, 2017, marketable securities with an unrealized loss position for more than twelve consecutive months were as follows:

	Less than one year					Greater than one year
(in thousands)	Fair value		Unrealized losses			Fair value		Unrealized losses
Mutual funds	$	25,448	$	(207	)	$	15,133	$	(349	)

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Property and equipment (Tables)

6 Months Ended

Jul. 31, 2017

Property, Plant and Equipment [Abstract]

Property and equipment

Property and equipment consisted of the following as of July 31, 2017 and January 31, 2017:

(in thousands)	July 31, 2017			January 31, 2017
Leasehold improvements	$	1,269		$	860
Furniture and fixtures	3,963			3,129
Computer equipment	8,140			7,194
Property and equipment, gross	13,372			11,183
Accumulated depreciation	(7,292		)	(6,013		)
Property and equipment, net	$	6,080		$	5,170

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Intangible assets and goodwill (Tables)

6 Months Ended

Jul. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of finite-lived intangible assets

The gross carrying amount and associated accumulated amortization of intangible assets were as follows as of July 31, 2017 and January 31, 2017:

(in thousands)	July 31, 2017			January 31, 2017
Amortized intangible assets:
Capitalized software development costs	$	28,119		$	23,925
Software	7,726			7,041
Other intangible assets	3,000			—
Acquired intangible member assets	71,747			64,962
Intangible assets, gross	110,592			95,928
Accumulated amortization	(36,765		)	(30,908		)
Intangible assets, net	$	73,827		$	65,020

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Stock-based compensation (Tables)

6 Months Ended

Jul. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of share based compensation recognized

The following table shows a summary of stock-based compensation in the Company's condensed consolidated statements of operations and comprehensive income during the periods presented:

	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

Summary of stock option activity

Stock option activity under the Company's equity incentive plans is as follows:

	Outstanding stock options
(in thousands, except for exercise prices and term)	Number of options		Range of exercise prices	Weighted- average exercise price		Weighted- average contractual term (in years)	Aggregate intrinsic value
Outstanding as of January 31, 2017	4,716		$0.10 - 44.53	$	18.36	7.60	$	131,529
Granted	412		$41.28 - 51.44	$	42.64
Exercised	(854	)	$0.10 - 33.47	$	9.47
Forfeited	(109	)	$3.50 - 46.40	$	33.87
Outstanding as of July 31, 2017	4,165		$0.10 - 51.44	$	22.18	7.60	$	98,900
Vested and expected to vest as of July 31, 2017	4,165			$	22.18	7.60	$	98,900
Exercisable as of July 31, 2017	1,264			$	13.53	6.29	$	40,894

Summary of assumptions

The key input assumptions that were utilized in the valuation of the stock options granted during the periods presented:

	Three months ended July 31,				Six months ended July 31,
	2017		2016		2017		2016
Expected dividend yield	—	%	—	%	—	%	—	%
Expected stock price volatility	37.79	%	38.29	%	37.79% - 38.01%		38.29% - 38.37%
Risk-free interest rate	1.89	%	1.55	%	1.89% - 2.07%		1.33% - 1.55%
Expected life of options	6.25 years		6.25 years		5.17 - 6.25 years		5.17 - 6.25 years

Summary of restricted stock unit activity

A summary of the RSU activity is as follows:

(in thousands, except weight-average grant date fair value)	RSUs and PRSUs		Weighted-average grant date fair value
Outstanding as of January 31, 2017	10		$	26.93
Granted	397		43.34
Vested	(6	)	43.81
Forfeitures	(1	)	41.28
Outstanding as of July 31, 2017	400		$	42.90

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Fair value (Tables)

6 Months Ended

Jul. 31, 2017

Fair Value Disclosures [Abstract]

Assets measured at fair value on a recurring basis

The following tables summarize the assets measured at fair value on a recurring basis and indicates the level within the fair value hierarchy reflecting the valuation techniques utilized to determine fair value:

	July 31, 2017
(in thousands)	Level 1		Level 2		Level 3
Marketable securities:
Mutual funds	$	40,581	$	—	$	—

	January 31, 2017
(in thousands)	Level 1		Level 2		Level 3
Marketable securities:
Mutual funds	$	40,405	$	—	$	—

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Summary of business and significant accounting policies (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jul. 31, 2017	Jul. 31, 2017	Jan. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Ownership percentage	22.00%	22.00%
Equity method investments	$ 206	$ 206
Cost method investment, ownership percentage	2.00%	2.00%
Cost method investments	$ 500	$ 500
Excess tax benefits related to stock-based compensation	$ 6,600	$ 10,500
ASU 2016-09 | Retained Earnings
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Cumulative-effect adjustment to retained earnings for adoption of ASU 2016-09			$ 8,100

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Net income per share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 31, 2017	Jul. 31, 2016	Jul. 31, 2017	Jul. 31, 2016
Earnings Per Share [Abstract]
Net income	$ 16,946	$ 8,233	$ 30,975	$ 16,306
Denominator (basic):
Weighted-average common shares outstanding (in shares)	60,173	58,246	59,955	58,035
Denominator (diluted):
Weighted-average common shares outstanding (in shares)	60,173	58,246	59,955	58,035
Weighted-average dilutive effect of stock options and restricted stock units (in shares)	1,592	1,405	1,649	1,466
Diluted weighted-average common shares outstanding (in shares)	61,765	59,651	61,604	59,501
Net income per share:
Basic (in dollars per share)	$ 0.28	$ 0.14	$ 0.52	$ 0.28
Diluted (in dollars per share)	$ 0.27	$ 0.14	$ 0.50	$ 0.27
Antidilutive securities excluded from computation of earnings per share (in shares)	771	2,000	670	2,200

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Cash, cash equivalents and marketable securities (Amortized Cost to Fair Value) (Details) - USD ($) $ in Thousands	Jul. 31, 2017	Jan. 31, 2017	Jul. 31, 2016	Jan. 31, 2016
Schedule of Available-for-sale Securities [Line Items]
Cash and cash equivalents, cost basis	$ 169,721	$ 139,954	$ 109,169	$ 83,641
Cash and cash equivalents, fair value	169,721	139,954
Marketable securities:
Marketable securities, gross unrealized gains	243	207
Marketable securities, gross unrealized losses	(556)	(472)
Marketable securities, fair value	40,581	40,405
Total cash, cash equivalents and marketable securities, cost basis	210,615	180,624
Total cash, cash equivalents and marketable securities, fair value	210,302	180,359
Mutual funds
Marketable securities:
Marketable securities, cost basis	40,894	40,670
Marketable securities, gross unrealized gains	243	207
Marketable securities, gross unrealized losses	(556)	(472)
Marketable securities, fair value	$ 40,581	$ 40,405

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Cash, cash equivalents and marketable securities (Contract Maturity) (Details) $ in Thousands	Jul. 31, 2017 USD ($)
Cost basis
One year or less	$ 25,495
Over one year and less than five years	15,399
Total	40,894
Fair value
One year or less	25,448
Over one year and less than five years	15,133
Total	$ 40,581

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Cash, cash equivalents and marketable securities (Unrealized Losses) (Details) $ in Thousands	Jul. 31, 2017 USD ($)
Less than one year
Fair value	$ 25,448
Unrealized losses	(207)
Greater than one year
Fair value	15,133
Unrealized losses	$ (349)

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Property and equipment (Schedule of property and equipment) (Details) - USD ($) $ in Thousands	Jul. 31, 2017	Jan. 31, 2017
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 13,372	$ 11,183
Accumulated depreciation	(7,292)	(6,013)
Property and equipment, net	6,080	5,170
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	1,269	860
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and equipment, gross	3,963	3,129
Computer equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 8,140	$ 7,194

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Property and equipment (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 31, 2017	Jul. 31, 2016	Jul. 31, 2017	Jul. 31, 2016
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 647	$ 437	$ 1,300	$ 884

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Intangible assets and goodwill (Narrative) (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jul. 31, 2017	Jul. 31, 2016	Jul. 31, 2017	Jul. 31, 2016
Finite-Lived Intangible Assets [Line Items]
Capitalized software development costs	$ 2,000,000	$ 1,800,000	$ 4,200,000	$ 3,700,000
Software development costs incurred and expensed	3,100,000	2,300,000	5,900,000	4,300,000
Amortization expense	3,000,000	2,700,000	5,900,000	5,200,000
Change in goodwill	0	$ 0	$ 0	$ 0
Member assets
Finite-Lived Intangible Assets [Line Items]
Useful life			15 years
HSA portfolio | Member assets
Finite-Lived Intangible Assets [Line Items]
Purchase price of intangibles acquired	6,800,000
Definitive asset purchase agreement with BenefitGuard LLC | Other intangible assets
Finite-Lived Intangible Assets [Line Items]
Purchase price of intangibles acquired	$ 3,000,000
Useful life	10 years
Other intangible assets acquired	$ 3,000,000		$ 3,000,000

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Intangible assets and goodwill (Schedule of finite-lived intangible assets) (Details) - USD ($) $ in Thousands	Jul. 31, 2017	Jan. 31, 2017
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	$ 110,592	$ 95,928
Accumulated amortization	(36,765)	(30,908)
Intangible assets, net	73,827	65,020
Capitalized software development costs
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	28,119	23,925
Software
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	7,726	7,041
Other intangible assets
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	3,000	0
Acquired intangible member assets
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	$ 71,747	$ 64,962

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Commitment and contingencies (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 31, 2017	Jul. 31, 2016	Jul. 31, 2017	Jul. 31, 2016
Commitments and Contingencies Disclosure [Abstract]
Initial annual lease payments			$ 513
Operating Leased Assets [Line Items]
Lease expense for office space	$ 1,000	$ 424	2,100	$ 1,000
Expenses for other agreements	$ 106	$ 84	$ 226	$ 144
Minimum
Operating Leased Assets [Line Items]
Annual lease increase	2.50%		2.50%
Maximum
Operating Leased Assets [Line Items]
Annual lease increase	3.10%		3.10%

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Indebtedness (Details) - Line of Credit - Secured Revolving Credit Facility		6 Months Ended
	Sep. 30, 2015 USD ($)	Jul. 31, 2017 USD ($)
Debt Instrument [Line Items]
Secured revolving credit facility, aggregate principal	$ 100,000,000
Facility term (in years)	5 years
Amounts drawn under Credit Agreement		$ 0
Minimum
Debt Instrument [Line Items]
Commitment fee percentage		0.20%
Minimum interest coverage ratio		3
Maximum
Debt Instrument [Line Items]
Commitment fee percentage		0.30%
Maximum leverage ratio		3
London Interbank Offered Rate (LIBOR) | Minimum
Debt Instrument [Line Items]
Variable rate borrowing spread		1.50%
London Interbank Offered Rate (LIBOR) | Maximum
Debt Instrument [Line Items]
Variable rate borrowing spread		2.00%
Customary Base Rate | Minimum
Debt Instrument [Line Items]
Variable rate borrowing spread		0.50%
Customary Base Rate | Maximum
Debt Instrument [Line Items]
Variable rate borrowing spread		1.00%

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Income taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 31, 2017	Jul. 31, 2016	Jul. 31, 2017	Jul. 31, 2016	Jan. 31, 2017
Income Tax Disclosure [Abstract]
Income tax provision (benefit)	$ (489)	$ 4,469	$ 1,319	$ 9,005
Effective tax rate	(3.00%)	35.20%	4.10%	35.60%
Decrease in effective tax rate from excess tax benefit on stock-based compensation expense	38.80%		31.70%
Unrecognized tax benefits	$ 758		$ 758		$ 674
Unrecognized tax benefits that would impact the effective tax rate	$ 640		$ 640

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Stock-based compensation (Stock-based compensation) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 31, 2017	Jul. 31, 2016	Jul. 31, 2017	Jul. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	$ 3,794	$ 2,509	$ 6,803	$ 4,331
Cost of revenue
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	692	421	1,183	796
Sales and marketing
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	526	353	842	566
Technology and development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	862	446	1,534	803
General and administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	$ 1,714	$ 1,289	$ 3,244	$ 2,166

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Stock-based compensation (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 31, 2017	Jul. 31, 2016	Jul. 31, 2017	Jul. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock compensation expense to be recognized in future	$ 23,000		$ 23,000
Stock-based compensation expense	3,794	$ 2,509	$ 6,803	$ 4,331
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expiration period			10 years
Forfeiture period			90 days
Weighted-average vesting period of non-vested awards expected to vest			2 years 2 months
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-average vesting period of non-vested awards expected to vest			3 years 2 months
Award vesting period			4 years
Stock-based compensation expense	1,400		$ 2,200
Unrecognized stock-based compensation expense related to restricted stock units to be recognized in future	$ 15,000		$ 15,000

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Stock-based compensation (Stock option activity) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	6 Months Ended	12 Months Ended
	Jul. 31, 2017	Jan. 31, 2017
Number of options (shares)
Opening balance (shares)	4,716
Granted (shares)	412
Exercised (shares)	(854)
Forfeited (shares)	(109)
Ending balance (shares)	4,165	4,716
Vested and expected to vest, number of options (shares)	4,165
Exercisable, number of options (shares)	1,264
Range of exercise prices (usd per share)
Beginning balance, minimum (usd per share)	$ 0.10
Beginning balance, maximum (usd per share)	44.53
Granted, minimum (usd per share)	41.28
Granted, maximum (usd per share)	51.44
Exercised, minimum (usd per share)	0.10
Exercised, maximum (usd per share)	33.47
Forfeited, minimum (usd per share)	3.50
Forfeited, maximum (usd per share)	46.40
Ending balance, minimum (usd per share)	0.10	$ 0.10
Ending balance, maximum (usd per share)	51.44	44.53
Weighted- average exercise price (usd per share)
Opening balance (usd per share)	18.36
Granted (usd per share)	42.64
Exercised (usd per share)	9.47
Forfeited (usd per share)	33.87
Ending balance (usd per share)	22.18	$ 18.36
Vested and expected to vest, Weighted- average exercise price (usd per share)	22.18
Exercisable, Weighted average exercise price (usd per share)	$ 13.53
Weighted- average contractual term (in years)	7 years 7 months 6 days	7 years 7 months 6 days
Vested and expected to vest, Weighted- average contractual term (in years)	7 years 7 months 6 days
Exercisable, Weighted average contractual term (in years)	6 years 3 months 15 days
Aggregate intrinsic value	$ 98,900	$ 131,529
Vested and expected to vest, Aggregate intrinsic value	98,900
Exercisable, Aggregate intrinsic value	$ 40,894

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Stock-based compensation (Assumptions) (Details)	3 Months Ended		6 Months Ended
	Jul. 31, 2017	Jul. 31, 2016	Jul. 31, 2017	Jul. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected dividend yield	0.00%	0.00%	0.00%	0.00%
Expected stock price volatility	37.79%	38.29%
Expected stock price volatility, minimum			37.79%	38.29%
Expected stock price volatility, maximum			38.01%	38.37%
Risk-free interest rate	1.89%	1.55%
Risk-free interest rate, minimum			1.89%	1.33%
Risk-free interest rate, maximum			2.07%	1.55%
Expected life of options	6 years 3 months	6 years 3 months
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life of options			5 years 2 months 1 day	5 years 2 months 1 day
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life of options			6 years 3 months	6 years 3 months

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Stock-based compensation (Restricted stock unity activity) (Details) - Restricted Stock Units shares in Thousands	6 Months Ended
	Jul. 31, 2017 $ / shares shares
RSUs and PRSUs
Unvested, beginning balance (shares) | shares	10
Granted (shares) | shares	397
Vested (shares) | shares	(6)
Forfeitures (shares) | shares	(1)
Unvested, ending balance (shares) | shares	400
Weighted-average grant date fair value
Unvested, beginning balance (usd per share) | $ / shares	$ 26.93
Granted (usd per share) | $ / shares	43.34
Vested (usd per share) | $ / shares	43.81
Forfeitures (usd per share) | $ / shares	41.28
Unvested, ending balance (usd per share) | $ / shares	$ 42.90

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Fair value (Details) - Recurring - Mutual funds - USD ($) $ in Thousands	Jul. 31, 2017	Jan. 31, 2017
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities:	$ 40,581	$ 40,405
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities:	0	0
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities:	$ 0	$ 0

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Subsequent event (Details) $ in Millions	Aug. 03, 2017 USD ($)
Subsequent event
Subsequent Event [Line Items]
Estimated purchase price	$ 3.3