Form 8-K |
HEALTHEQUITY, INC. | ||
Delaware | 7389 | 52-2383166 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, par value $0.0001 per share | HQY | The NASDAQ Global Select Market |
HEALTHEQUITY, INC. | |||
Date: June 4, 2019 | By: | /s/ Darcy Mott | |
Name: | Darcy Mott | ||
Title: | Executive Vice President and Chief Financial Officer |
• | Revenue of $87.1 million, an increase of 25% compared to Q1 FY19. |
• | Net income of $41.8 million, compared to $22.6 million in Q1 FY19. |
• | Includes $17.9 million, net of tax ($23.5 million of mark-to-market adjustment), related to an equity investment. |
• | Net income per diluted share of $0.65 compared to $0.36 in Q1 FY19. |
• | Includes $0.28, net of tax, of mark-to-market adjustment related to an equity investment. |
• | Non-GAAP net income per diluted share of $0.41 compared to $0.31 in Q1 FY19. |
• | Adjusted EBITDA of $38.9 million, an increase of 31% compared to Q1 FY19. |
• | HSA Members of 4.1 million, an increase of 17% compared to Q1 FY19. |
• | Total Custodial Assets of $8.3 billion, an increase of 21% compared to Q1 FY19. |
• | Service revenue of $26.8 million, an increase of 8% compared to Q1 FY19. |
• | Custodial revenue of $42.0 million, an increase of 48% compared to Q1 FY19. |
• | Interchange revenue of $18.3 million, an increase of 10% compared to Q1 FY19. |
• | Custodial Cash Assets of $6.4 billion, an increase of 16% compared to April 30, 2018; and |
• | Custodial Investment Assets of $1.9 billion, an increase of 42% compared to April 30, 2018. |
• | our ability to compete effectively in a rapidly evolving healthcare industry; |
• | our dependence on the continued availability and benefits of tax-advantaged health savings accounts; |
• | our ability to successfully identify, acquire and integrate additional portfolio purchases or acquisition targets, including any potential acquisition of WageWorks, Inc.; |
• | the significant competition we face and may face in the future, including from those with greater resources than us; |
• | our reliance on the availability and performance of our technology and communications systems; |
• | recent and potential future cybersecurity breaches of our technology and communications systems and other data interruptions, including resulting costs and liabilities, reputational damage and loss of business; |
• | the current uncertain healthcare environment, including changes in healthcare programs and expenditures and related regulations; |
• | our ability to comply with current and future privacy, healthcare, tax, investment advisor and other laws applicable to our business; |
• | our reliance on partners and third party vendors for distribution and important services; |
• | our ability to develop and implement updated features for our technology and communications systems and successfully manage our growth; |
• | our ability to protect our brand and other intellectual property rights; and |
• | our reliance on our management team and key team members. |
(in thousands, except par value) | April 30, 2019 | January 31, 2019 | |||||
(unaudited) | |||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 329,310 | $ | 361,475 | |||
Accounts receivable, net of allowance for doubtful accounts as of April 30, 2019 and January 31, 2019 of $111 and $125, respectively | 27,022 | 25,668 | |||||
Other current assets | 8,244 | 7,534 | |||||
Total current assets | 364,576 | 394,677 | |||||
Other investments | 78,065 | 709 | |||||
Property and equipment, net | 8,481 | 8,223 | |||||
Operating lease right-of-use assets | 37,367 | — | |||||
Intangible assets, net | 81,437 | 79,666 | |||||
Goodwill | 4,651 | 4,651 | |||||
Deferred tax asset | 551 | 1,677 | |||||
Other assets | 21,511 | 20,413 | |||||
Total assets | $ | 596,639 | $ | 510,016 | |||
Liabilities and stockholders’ equity | |||||||
Current liabilities | |||||||
Accounts payable | $ | 1,964 | $ | 3,520 | |||
Accrued compensation | 8,501 | 16,981 | |||||
Accrued liabilities | 9,127 | 8,552 | |||||
Operating lease liabilities | 3,786 | — | |||||
Total current liabilities | 23,378 | 29,053 | |||||
Operating lease liabilities, non-current | 36,243 | — | |||||
Deferred tax liability | 7,332 | 916 | |||||
Other long-term liabilities | 387 | 2,968 | |||||
Total liabilities | 67,340 | 32,937 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity | |||||||
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of April 30, 2019 and January 31, 2019, respectively | — | — | |||||
Common stock, $0.0001 par value, 900,000 shares authorized, 62,718 and 62,446 shares issued and outstanding as of April 30, 2019 and January 31, 2019, respectively | 6 | 6 | |||||
Additional paid-in capital | 315,621 | 305,223 | |||||
Accumulated earnings | 213,672 | 171,850 | |||||
Total stockholders’ equity | 529,299 | 477,079 | |||||
Total liabilities and stockholders’ equity | $ | 596,639 | $ | 510,016 |
(in thousands, except per share data) | Three months ended April 30, | ||||||
2019 | 2018 | ||||||
Revenue: | |||||||
Service revenue | $ | 26,808 | $ | 24,821 | |||
Custodial revenue | 41,952 | 28,434 | |||||
Interchange revenue | 18,292 | 16,649 | |||||
Total revenue | 87,052 | 69,904 | |||||
Cost of revenue: | |||||||
Service costs | 20,649 | 18,047 | |||||
Custodial costs | 4,123 | 3,439 | |||||
Interchange costs | 4,527 | 4,062 | |||||
Total cost of revenue | 29,299 | 25,548 | |||||
Gross profit | 57,753 | 44,356 | |||||
Operating expenses: | |||||||
Sales and marketing | 8,970 | 6,860 | |||||
Technology and development | 10,905 | 7,979 | |||||
General and administrative | 8,709 | 7,507 | |||||
Amortization of acquired intangible assets | 1,491 | 1,470 | |||||
Total operating expenses | 30,075 | 23,816 | |||||
Income from operations | 27,678 | 20,540 | |||||
Other income (expense), net | 23,600 | (1 | ) | ||||
Income before income taxes | 51,278 | 20,539 | |||||
Income tax provision (benefit) | 9,456 | (2,038 | ) | ||||
Net income and comprehensive income | $ | 41,822 | $ | 22,577 | |||
Net income per share: | |||||||
Basic | $ | 0.67 | $ | 0.37 | |||
Diluted | $ | 0.65 | $ | 0.36 | |||
Weighted-average number of shares used in computing net income per share: | |||||||
Basic | 62,326 | 61,170 | |||||
Diluted | 63,901 | 62,693 |
Three months ended April 30, | |||||||
(in thousands) | 2019 | 2018 | |||||
Cash flows from operating activities: | |||||||
Net income | $ | 41,822 | $ | 22,577 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 4,773 | 4,520 | |||||
Unrealized (gains) losses on marketable equity securities and other | (23,484 | ) | 140 | ||||
Deferred taxes | 7,542 | 1,989 | |||||
Stock-based compensation | 6,028 | 4,239 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (1,354 | ) | (1,420 | ) | |||
Other assets | (1,694 | ) | (5,471 | ) | |||
Operating lease right-of-use assets | 635 | — | |||||
Accounts payable | (1,577 | ) | 87 | ||||
Accrued compensation | (8,480 | ) | (4,909 | ) | |||
Accrued liabilities and other current liabilities | 1,769 | 881 | |||||
Operating lease liabilities, non-current | (627 | ) | — | ||||
Other long-term liabilities | (17 | ) | 71 | ||||
Net cash provided by operating activities | 25,336 | 22,704 | |||||
Cash flows from investing activities: | |||||||
Purchases of intangible member assets | (1,262 | ) | — | ||||
Purchases of marketable equity securities | (53,845 | ) | (180 | ) | |||
Purchases of property and equipment | (1,126 | ) | (1,121 | ) | |||
Purchases of software and capitalized software development costs | (5,497 | ) | (2,097 | ) | |||
Net cash used in investing activities | (61,730 | ) | (3,398 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from exercise of common stock options | 4,229 | 10,167 | |||||
Net cash provided by financing activities | 4,229 | 10,167 | |||||
Increase (decrease) in cash and cash equivalents | (32,165 | ) | 29,473 | ||||
Beginning cash and cash equivalents | 361,475 | 199,472 | |||||
Ending cash and cash equivalents | $ | 329,310 | $ | 228,945 | |||
Supplemental cash flow data: | |||||||
Interest expense paid in cash | $ | 50 | $ | 50 | |||
Income taxes paid in cash, net of refunds received | (51 | ) | 39 | ||||
Supplemental disclosures of non-cash investing and financing activities: | |||||||
Purchases of property and equipment included in accounts payable or accrued liabilities at period end | $ | 21 | $ | 491 | |||
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end | 158 | 117 | |||||
Exercise of common stock options receivable | 141 | 797 |
Three months ended April 30, | ||||||||
(in thousands) | 2019 | 2018 | ||||||
Cost of revenue | $ | 860 | $ | 413 | ||||
Sales and marketing | 1,007 | 705 | ||||||
Technology and development | 1,499 | 991 | ||||||
General and administrative | 2,662 | 2,130 | ||||||
Total stock-based compensation expense | $ | 6,028 | $ | 4,239 |
(in thousands, except percentages) | April 30, 2019 | April 30, 2018 | % Change | January 31, 2019 | ||||||||
HSA Members | 4,054 | 3,476 | 17 | % | 3,994 | |||||||
Average HSA Members - Year-to-date | 4,026 | 3,444 | 17 | % | 3,608 | |||||||
Average HSA Members - Quarter-to-date | 4,026 | 3,444 | 17 | % | 3,813 | |||||||
New HSA Members - Year-to-date | 89 | 98 | (9 | )% | 679 | |||||||
New HSA Members - Quarter-to-date | 89 | 98 | (9 | )% | 341 | |||||||
Active HSA Members | 3,245 | 2,882 | 13 | % | 3,241 | |||||||
HSA Members with investments | 177 | 134 | 32 | % | 163 |
(in millions, except percentages) | April 30, 2019 | April 30, 2018 | % Change | January 31, 2019 | |||||||||||
Custodial cash | $ | 6,404 | $ | 5,511 | 16 | % | $ | 6,428 | |||||||
Custodial investments | 1,917 | 1,351 | 42 | % | 1,670 | ||||||||||
Total custodial assets | $ | 8,321 | $ | 6,862 | 21 | % | $ | 8,098 | |||||||
Average daily custodial cash - Year-to-date | $ | 6,407 | $ | 5,467 | 17 | % | $ | 5,586 | |||||||
Average daily custodial cash - Quarter-to-date | $ | 6,407 | $ | 5,467 | 17 | % | $ | 5,837 |
Three months ended April 30, | ||||||||
(in thousands) | 2019 | 2018 | ||||||
Net income | $ | 41,822 | $ | 22,577 | ||||
Interest income | (1,343 | ) | (258 | ) | ||||
Interest expense | 63 | 67 | ||||||
Income tax provision (benefit) | 9,456 | (2,038 | ) | |||||
Depreciation and amortization | 3,282 | 3,050 | ||||||
Amortization of acquired intangible assets | 1,491 | 1,470 | ||||||
Stock-based compensation expense | 6,028 | 4,239 | ||||||
Unrealized gain on marketable equity securities | (23,511 | ) | — | |||||
Other (1) | 1,635 | 520 | ||||||
Adjusted EBITDA | $ | 38,923 | $ | 29,627 |
(1) | For the three months ended April 30, 2019 and 2018, Other consisted of non-income-based taxes of $13 and $104, other (income)/costs of $(6) and $88, acquisition-related costs of $1,184 and $1, and amortization of incremental costs to obtain a contract of $444 and $327, respectively. |
Outlook for the year ending | |
(in millions) | January 31, 2020 |
Net income | $82 - $86 |
Income tax provision | 23 - 24 |
Depreciation and amortization | ~ 17 |
Amortization of acquired intangible assets | ~ 6 |
Stock-based compensation expense | ~ 28 |
Unrealized gain on marketable equity securities | ~ (24) |
Other | ~ 3 |
Adjusted EBITDA | $135 - $140 |
Three months ended | Outlook for the year ending | |||||
(in millions, except per share data) | April 30, 2019 | April 30, 2018 | January 31, 2020 | |||
Net income | $42 | $23 | $82 - $86 | |||
Stock compensation, net of tax (1) | 4 | 3 | 21 | |||
Excess tax benefit due to adoption of ASU 2016-09 | (2 | ) | (7 | ) | (2 | ) |
Mark-to-market adjustment, net of tax (1) | (18 | ) | - | (18 | ) | |
Non-GAAP net income | $26 | $19 | $83 - $87 | |||
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts | 64 | 63 | 65 | |||
Non-GAAP net income per diluted share (2) | $0.41 | $0.31 | $1.28 - $1.34 |
Term | Definition |
HSA | A financial account through which consumers spend and save long-term for healthcare on a tax-advantaged basis. |
HSA Member | An HSA for which we serve as custodian. |
Active HSA Member | An HSA Member that (i) is associated with a Health Plan and Administrator Partner or an Employer Partner, in each case as of the end of the applicable period; or (ii) has held a custodial balance at any point during the previous twelve month period. |
Custodial cash assets | HSA Members' deposits with our federally-insured custodial depository partners and custodial cash deposits invested in an annuity contract with our insurance company partner. |
Custodial investments | HSA Members' investments in mutual funds through our custodial investment fund partner. |
Employer Partner | Our employer clients. |
Health Plan and Administrator Partner | Our Health Plan and Administrator clients. |
Adjusted EBITDA | Adjusted earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, unrealized gains and losses on marketable equity securities, and other certain non-operating items. |
Non-GAAP net income | Calculated by adding back to net income all non-cash stock-based compensation expense, net of an estimated statutory tax rate, subtracting the excess tax benefits due to the adoption of ASU 2016-09, and adjusting for unrealized gains and losses on marketable equity securities, net of an estimated statutory tax rate. |
Non-GAAP net income per diluted share | Calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding. |