Document

"Team Purple delivered an outstanding second quarter, increasing HSAs and HSA Assets by 15% and 27%, respectively, driven by strong growth in new HSAs from sales and the transition of the remaining BenefitWallet HSAs to the HealthEquity platform," said Jon Kessler, President and CEO of HealthEquity. "Momentum in both topline growth and margin expansion allows us to raise guidance, accelerate our platform investments, launch Health Payment Accounts and announce a $300 million share repurchase authorization."

HealthEquity reported net income of $35.8 million, or $0.40 per diluted share, and non-GAAP net income of $76.3 million, or $0.86 per diluted share, for the second quarter ended July 31, 2024. The Company reported net income of $10.6 million, or $0.12 per diluted share, and non-GAAP net income of $45.6 million, or $0.53 per diluted share, for the second quarter ended July 31, 2023.

The Company announced that its Board of Directors authorized a common stock repurchase program. Under the program, the Company may purchase up to $300 million of its common stock, as market conditions warrant. The common stock may be repurchased at prices that the Company deems appropriate and subject to market conditions, applicable law and other factors deemed relevant in the Company's sole discretion. Such repurchases may be effected through open market purchases, privately negotiated transactions or otherwise, including repurchase plans that satisfy the conditions of Rule 10b5-1 under the Securities Exchange Act of 1934. The stock repurchase program does not

On August 23, 2024, the Company entered into a new credit agreement, pursuant to which it established a new five-year senior secured revolving credit facility in an aggregate principal amount of up to $1.0 billion. The Company borrowed $511.9 million under this new facility to refinance all outstanding obligations under its prior credit agreement, including both the revolving credit facility and term loan facility thereunder. The revolving credit facility may be used in the future for working capital and general corporate purposes, including the financing of acquisitions and other investments.

For the fiscal year ending January 31, 2025, management expects revenue of $1.165 billion to $1.185 billion. Its outlook for net income is between $94 million and $109 million, resulting in net income of $1.05 to $1.22 per diluted share. Its outlook for non-GAAP net income, calculated using the method described below, is between $265 million and $280 million, resulting in non-GAAP net income per diluted share of $2.98 to $3.14 (based on an estimated 89 million diluted weighted-average shares outstanding). Management expects Adjusted EBITDA of $458 million to $478 million.

HealthEquity management will host a conference call at 4:30 pm (Eastern Time) on Tuesday, September 3, 2024 to discuss the fiscal 2025 second quarter financial results. The conference call will be accessible by dialing 1-833-630-1956, or 1-412-317-1837 for international callers, and referencing conference ID "HealthEquity." A live audio webcast of the call will be available on the investor relations section of our website at http://ir.healthequity.com.

•Adjusted EBITDA is earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, amortization of incremental costs to obtain a contract, costs associated with unused office space, and certain other non-operating items.

•Non-GAAP net income is calculated by adding back to GAAP net income before income taxes the following items: amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, costs associated with unused office space, and losses on extinguishment of debt, and subtracting a non-GAAP tax provision using a normalized non-GAAP tax rate.

Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. We believe that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the Company's financial condition and results of operations. The Company cautions investors that non-GAAP financial information, by its nature, departs from GAAP; accordingly, its use can make it difficult to compare current results with results from other reporting periods and with the results of other companies. In addition, while amortization of acquired intangible assets is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is not excluded. Whenever we use these non-GAAP financial measures, we provide a reconciliation of the applicable non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed in the tables below.

HealthEquity and its subsidiaries administer HSAs and various other consumer-directed benefits for over 16 million accounts, working in close partnership with employers, benefits advisors, and health and retirement plan providers who share our unwavering commitment to our mission to save and improve lives by empowering healthcare consumers. Through cutting-edge solutions, innovation, and a relentless focus on improving health outcomes, we empower individuals to take control of their healthcare journey while ultimately enhancing their overall well-being. Learn more about our “Purple" service and approach at www.healthequity.com.

This press release contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our industry, business strategy, plans, goals and expectations concerning our markets and market position, product expansion, future operations, expenses and other results of operations, revenue, margins, profitability, acquisition synergies, future efficiencies, tax rates, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “may,” “believes,” “intends,” “seeks,” “aims,” “anticipates,” “plans,” “estimates,” “expects,” “should,” “assumes,” “continues,” “could,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this press release.

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

For a detailed discussion of these and other risk factors, please refer to the risks detailed in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the fiscal year ended January 31, 2024 and subsequent periodic and current reports. Past performance is not necessarily indicative of future results. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.

Condensed consolidated balance sheets


(in thousands, except par value)	July 31, 2024		January 31, 2024
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	326,893	$	403,979
Accounts receivable, net of allowance for doubtful accounts of $2,831 and $3,947 as of July 31, 2024 and January 31, 2024, respectively	108,454		104,893
Other current assets	60,280		48,564
Total current assets	495,627		557,436
Property and equipment, net	4,592		6,013
Operating lease right-of-use assets	46,484		48,380
Intangible assets, net	1,254,210		835,948
Goodwill	1,648,145		1,648,145
Other assets	65,408		67,868
Total assets	$	3,514,466	$	3,163,790
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	10,562	$	12,041
Accrued compensation	37,072		49,608
Accrued liabilities	63,379		46,038
Operating lease liabilities	9,895		9,404
Total current liabilities	120,908		117,091
Long-term liabilities
Long-term debt, net of issuance costs	1,101,400		874,972
Operating lease liabilities, non-current	46,158		48,766
Other long-term liabilities	25,497		19,270
Deferred tax liability	63,466		68,670
Total long-term liabilities	1,236,521		1,011,678
Total liabilities	1,357,429		1,128,769
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2024 and January 31, 2024, respectively	—		—
Common stock, $0.0001 par value, 900,000 shares authorized, 87,324 and 86,127 shares issued and outstanding as of July 31, 2024 and January 31, 2024, respectively	9		9
Additional paid-in capital	1,886,765		1,829,384
Accumulated earnings	270,263		205,628
Total stockholders’ equity	2,157,037		2,035,021
Total liabilities and stockholders’ equity	$	3,514,466	$	3,163,790

Condensed consolidated statements of operations and comprehensive income (unaudited)


	Three months ended July 31,				Six months ended July 31,
(in thousands, except per share data)	2024		2023		2024		2023
Revenue
Service revenue	$	116,720	$	111,960	$	234,934	$	223,033
Custodial revenue	138,684		92,676		260,328		181,156
Interchange revenue	44,524		38,913		92,263		83,792
Total revenue	299,928		243,549		587,525		487,981
Cost of revenue
Service costs	76,915		76,904		159,262		157,777
Custodial costs	10,108		8,037		19,165		16,075
Interchange costs	8,853		6,943		17,908		13,994
Total cost of revenue	95,876		91,884		196,335		187,846
Gross profit	204,052		151,665		391,190		300,135
Operating expenses
Sales and marketing	21,525		19,123		45,019		39,058
Technology and development	58,580		54,767		114,670		107,959
General and administrative	32,260		27,825		70,496		53,363
Amortization of acquired intangible assets	30,981		23,166		56,526		46,332
Merger integration	1,777		2,044		3,920		5,502
Total operating expenses	145,123		126,925		290,631		252,214
Income from operations	58,929		24,740		100,559		47,921
Other expense
Interest expense	(15,427)		(13,272)		(27,222)		(28,269)
Other income, net	3,114		2,756		6,518		4,584
Total other expense	(12,313)		(10,516)		(20,704)		(23,685)
Income before income taxes	46,616		14,224		79,855		24,236
Income tax provision	10,794		3,643		15,220		9,561
Net income and comprehensive income	$	35,822	$	10,581	$	64,635	$	14,675
Net income per share:
Basic	$	0.41	$	0.12	$	0.74	$	0.17
Diluted	$	0.40	$	0.12	$	0.73	$	0.17
Weighted-average number of shares used in computing net income per share:
Basic	87,131		85,533		86,805		85,286
Diluted	88,646		86,341		88,606		86,356


	Six months ended July 31,
(in thousands)	2024		2023
Cash flows from operating activities:
Net income	$	64,635	$	14,675
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	82,548		77,387
Stock-based compensation	53,594		38,277
Amortization of debt discount and issuance costs	1,428		1,461
Loss on extinguishment of debt	—		1,157
Deferred taxes	(5,204)		(8,138)
Changes in operating assets and liabilities:
Accounts receivable, net	(3,561)		4,254
Other assets	(9,345)		(8,526)
Operating lease right-of-use assets	3,365		6,594
Accrued compensation	(12,706)		(14,675)
Accounts payable, accrued liabilities, and other current liabilities	7,267		3,970
Operating lease liabilities, non-current	(3,840)		(8,175)
Other long-term liabilities	(4,623)		384
Net cash provided by operating activities	173,558		108,645
Cash flows from investing activities:
Purchases of software and capitalized software development costs	(25,329)		(18,794)
Purchases of property and equipment	(1,462)		(590)
Acquisitions of HSA portfolios	(452,241)		—
Net cash used in investing activities	(479,032)		(19,384)
Cash flows from financing activities:
Proceeds from long-term debt	225,000		—
Principal payments on long-term debt	—		(54,375)
Settlement of client-held funds obligation, net	(828)		(161)
Proceeds from exercise of common stock options	4,216		1,354
Net cash provided by (used in) financing activities	228,388		(53,182)
Increase (decrease) in cash and cash equivalents	(77,086)		36,079
Beginning cash and cash equivalents	403,979		254,266
Ending cash and cash equivalents	$	326,893	$	290,345

Condensed consolidated statements of cash flows (unaudited) (continued)


	Six months ended July 31,
(in thousands)	2024		2023
Supplemental cash flow data:
Interest expense paid in cash	$	26,970	$	23,504
Income tax payments, net	13,471		15,113
Supplemental disclosures of non-cash investing and financing activities:
Purchases of software and capitalized software development costs included in accounts payable, accrued liabilities, or accrued compensation	3,370		3,228
Purchases of property and equipment included in accounts payable or accrued liabilities	70		300
Non-cash purchase consideration related to acquisitions of HSA portfolios	20,325		—
Exercise of common stock options receivable	—		50

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


	Three months ended July 31,				Six months ended July 31,
(in thousands)	2024		2023		2024		2023
Cost of revenue	$	2,934	$	4,393	$	7,459	$	7,999
Sales and marketing	3,850		3,478		8,173		6,257
Technology and development	6,454		4,283		12,394		9,175
General and administrative	8,336		7,919		25,568		14,846
Total stock-based compensation expense	$	21,574	$	20,073	$	53,594	$	38,277

Total Accounts (unaudited)


(in thousands, except percentages)	July 31, 2024	July 31, 2023	% Change		January 31, 2024
HSAs	9,383	8,164	15	%	8,692
New HSAs from sales - Quarter-to-date	187	156	20	%	497
New HSAs from sales - Year-to-date	382	290	32	%	949
New HSAs from acquisitions - Year-to-date	616	—	*		—
HSAs with investments	711	574	24	%	610
CDBs	6,898	6,831	1	%	7,006
Total Accounts	16,281	14,995	9	%	15,698
Average Total Accounts - Quarter-to-date	16,214	14,954	8	%	15,318
Average Total Accounts - Year-to-date	16,066	14,967	7	%	15,105

Reconciliation of net income to Adjusted EBITDA (unaudited)


	Three months ended July 31,				Six months ended July 31,
(in thousands)	2024		2023		2024		2023
Net income	$	35,822	$	10,581	$	64,635	$	14,675
Interest income	(3,103)		(2,484)		(6,984)		(4,082)
Interest expense	15,427		13,272		27,222		28,269
Income tax provision	10,794		3,643		15,220		9,561
Depreciation and amortization	12,629		15,180		26,022		31,055
Amortization of acquired intangible assets	30,981		23,166		56,526		46,332
Stock-based compensation expense	21,574		20,073		53,594		38,277
Merger integration expenses	1,777		2,044		3,920		5,502
Amortization of incremental costs to obtain a contract	1,681		1,350		3,313		2,654
Costs associated with unused office space	806		1,286		1,596		2,302
Other	(101)		—		658		153
Adjusted EBITDA	$	128,287	$	88,111	$	245,722	$	174,698

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


			Outlook for the year ending
(in millions)			January 31, 2025
Net income			$94 - 109
Interest income			(13)
Interest expense			60
Income tax provision			31 - 36
Depreciation and amortization			50
Amortization of acquired intangible assets			112
Stock-based compensation expense			99
Merger integration expenses			13
Amortization of incremental costs to obtain a contract			7
Costs associated with unused office space			4
Other expense			1
Adjusted EBITDA			$458 - 478


	Three months ended July 31,				Six months ended July 31,
(in thousands, except per share data)	2024		2023		2024		2023
Net income	$	35,822	$	10,581	$	64,635	$	14,675
Income tax provision	10,794		3,643		15,220		9,561
Income before income taxes - GAAP	46,616		14,224		79,855		24,236
Non-GAAP adjustments:
Amortization of acquired intangible assets	30,981		23,166		56,526		46,332
Stock-based compensation expense	21,574		20,073		53,594		38,277
Merger integration expenses	1,777		2,044		3,920		5,502
Costs associated with unused office space	806		1,286		1,596		2,302
Loss on extinguishment of debt	—		—		—		1,157
Total adjustments to income before income taxes - GAAP	55,138		46,569		115,636		93,570
Income before income taxes - Non-GAAP	101,754		60,793		195,491		117,806
Income tax provision - Non-GAAP (1)	25,439		15,199		48,873		29,452
Non-GAAP net income	76,315		45,594		146,618		88,354

Diluted weighted-average shares	88,646		86,341		88,606		86,356
GAAP net income per diluted share	$	0.40	$	0.12	$	0.73	$	0.17
Non-GAAP net income per diluted share	$	0.86	$	0.53	$	1.65	$	1.02

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


			Outlook for the year ending
(in millions, except per share data)			January 31, 2025
Net income			$94 - 109
Income tax provision			31 - 36
Income before income taxes - GAAP			125 - 145
Non-GAAP adjustments:
Amortization of acquired intangible assets			112
Stock-based compensation expense			99
Merger integration expenses			13
Costs associated with unused office space			4
Total adjustments to income before income taxes - GAAP			228
Income before income taxes - Non-GAAP			353 - 373
Income tax provision - Non-GAAP (1)			88 - 93
Non-GAAP net income			$265 - 280

Diluted weighted-average shares			89
GAAP net income per diluted share (2)			$1.05 - 1.22
Non-GAAP net income per diluted share (2)			$2.98 - 3.14


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


(in millions, except percentages)	July 31, 2024		July 31, 2023		% Change		January 31, 2024
HSA cash	$	16,368	$	14,021	17	%	$	15,006
HSA investments	13,099		9,181		43	%	10,208
Total HSA Assets	29,467		23,202		27	%	25,214
Average daily HSA cash - Quarter-to-date	16,363		14,001		17	%	14,210
Average daily HSA cash - Year-to-date	15,875		14,048		13	%	14,071


(in millions, except percentages)	July 31, 2024		July 31, 2023		% Change		January 31, 2024
Client-held funds	$	817	$	811	1	%	$	842
Average daily Client-held funds - Quarter-to-date	860		891		(3)	%	791
Average daily Client-held funds - Year-to-date	850		896		(5)	%	845