Delivers Record HSA Asset Growth, Margin Expansion
Highlights of the second quarter include:
- Revenue of $243.5 million, an increase of 18% compared to $206.1 million in Q2 FY23.
- Net income of $10.6 million, compared to net loss of $10.7 million in Q2 FY23, with non-GAAP net income of $45.6 million, an increase of 62% compared to $28.1 million in Q2 FY23.
- Net income per diluted share of $0.12, compared to net loss per diluted share of $0.13 in Q2 FY23, with non-GAAP net income per diluted share of $0.53, compared to $0.33 in Q2 FY23.
- Adjusted EBITDA of $88.1 million, an increase of 31% compared to $67.0 million in Q2 FY23.
- 8.2 million HSAs, an increase of 9% compared to Q2 FY23.
- Total HSA Assets of $23.2 billion, an increase of 13% compared to Q2 FY23.
- 15.0 million Total Accounts, including both HSAs and complementary CDBs, an increase of 3% compared to Q2 FY23.
DRAPER, Utah, Sept. 05, 2023 (GLOBE NEWSWIRE) -- HealthEquity, Inc. ( HQY) ("HealthEquity" or the "Company"), the nation's largest health savings account ("HSA") custodian, today announced financial results for its second quarter ended July 31, 2023.
"HealthEquity’s 8.2 million HSA Members grew their health savings by $883 million, including strong contributions from the 156,000 new HSA Members Team Purple welcomed during the quarter," said Jon Kessler, President and CEO of HealthEquity. "Strong member and balance growth, improving custodial yields, and an ongoing service technology rollout all contributed to 360bps of year-over-year expansion of adjusted EBITDA as a percentage of revenue and record operating cash flow."
Second quarter financial results
Revenue for the second quarter ended July 31, 2023 was $243.5 million, an increase of 18% compared to $206.1 million for the second quarter ended July 31, 2022. Revenue this quarter included: service revenue of $105.7 million, custodial revenue of $98.9 million, and interchange revenue of $38.9 million.
HealthEquity 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 reported a net loss of $10.7 million, or $0.13 per diluted share, and non-GAAP net income of $28.1 million, or $0.33 per diluted share, for the second quarter ended July 31, 2022.
Adjusted EBITDA was $88.1 million for the second quarter ended July 31, 2023, an increase of 31% compared to the second quarter ended July 31, 2022. Adjusted EBITDA was 36% of revenue, compared to 33% for the second quarter ended July 31, 2022.
Account and asset metrics
HSAs as of July 31, 2023 were 8.2 million, an increase of 9% year over year, including 574,000 HSAs with investments, an increase of 11% year over year. Total Accounts as of July 31, 2023 were 15.0 million, including 6.8 million other consumer-directed benefits ("CDBs").
Total HSA Assets as of July 31, 2023 were $23.2 billion, an increase of 13% year over year. Total HSA Assets included $14.0 billion of HSA cash and $9.2 billion of HSA investments. Client-held funds, which are deposits held on behalf of our Clients to facilitate administration of our CDBs, and from which we generate custodial revenue, were $0.8 billion as of July 31, 2023.
Business outlook
For the fiscal year ending January 31, 2024, management expects revenue of $980 million to $990 million. Its outlook for net income is between $19 million and $24 million, resulting in net income of $0.21 to $0.27 per diluted share. Its outlook for non-GAAP net income, calculated using the method described below, is between $171 million and $179 million, resulting in non-GAAP net income per diluted share of $1.97 to $2.06 (based on an estimated 87 million diluted weighted-average shares outstanding). Management expects Adjusted EBITDA of $338 million to $348 million.
See "Non-GAAP financial information" below for definitions of our Adjusted EBITDA and non-GAAP net income. A reconciliation of the non-GAAP financial measures used throughout this release to the most comparable GAAP financial measures is included with the financial tables at the end of this release.
Conference call
HealthEquity management will host a conference call at 4:30 pm (Eastern Time) on Tuesday, September 5, 2023 to discuss the fiscal 2024 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, Inc. call." A live audio webcast of the call will be available on the investor relations section of our website at http://ir.healthequity.com.
Non-GAAP financial information
To supplement our financial information presented on a GAAP basis, we disclose non-GAAP financial measures, including Adjusted EBITDA, non-GAAP net income, and non-GAAP net income per diluted share.
Adjusted EBITDA is adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, amortization of incremental costs to obtain a contract, costs associated with unused office space, and certain other non-operating items.Non-GAAP net income is calculated by adding back to GAAP net income (loss) before income taxes the following items: amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, costs associated with unused office space, and losses on extinguishment of debt, and subtracting a non-GAAP tax provision using a normalized non-GAAP tax rate.Non-GAAP net income per diluted share is calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. We believe that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the Company's financial condition and results of operations. The Company cautions investors that non-GAAP financial information, by its nature, departs from GAAP; accordingly, its use can make it difficult to compare current results with results from other reporting periods and with the results of other companies. In addition, while amortization of acquired intangible assets is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is not excluded. Whenever we use these non-GAAP financial measures, we provide a reconciliation of the applicable non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed in the tables below.
About HealthEquity
HealthEquity and its subsidiaries administer HSAs and other consumer-directed benefits for our 15 million accounts in partnership with employers, benefits advisors, and health and retirement plan providers who share our mission to connect health and wealth and value our culture of remarkable "Purple" service. For more information, visit www.healthequity.com.
Forward-looking statements
This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our industry, business strategy, plans, goals and expectations concerning our markets and market position, product expansion, future operations, expenses and other results of operations, revenue, margins, profitability, acquisition synergies, future efficiencies, tax rates, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words "may," "believes," "intends," "seeks," "aims," "anticipates," "plans," "estimates," "expects," "should," "assumes," "continues," "could," "will," "future" and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this press release.
Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to be correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, risks related to the following:
our dependence on the continued availability and benefits of tax-advantaged HSAs and other CDBs;our ability to adequately place and safeguard our custodial assets, or the failure of any of our depository or insurance company partners;the impact from a decline in interest rate levels on our financial results;our ability to realize the anticipated financial and other benefits from combining the operations of recent and future acquisitions with our business successfully;our ability to compete effectively in a rapidly evolving healthcare and benefits administration industry;our ability to successfully identify, acquire and integrate additional portfolio purchases or acquisition targets;the significant competition we face and may face in the future, including from those with greater resources than us;the impact of societal and economic changes arising out of the COVID-19 pandemic on the Company, our operations and our financial results;our reliance on the availability and performance of our technology and communications systems;potential future cybersecurity breaches of our technology and communications systems and other data interruptions, including resulting costs and liabilities, reputational damage and loss of business;the current uncertain healthcare environment, including changes in healthcare programs and expenditures and related regulations;our ability to comply with current and future privacy, healthcare, tax, ERISA, investment adviser and other laws applicable to our business;our reliance on partners and third-party vendors for distribution and important services;our ability to develop and implement updated features for our technology and communications systems; andour reliance on our management team and key team members.For a detailed discussion of these and other risk factors, please refer to the risks detailed in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the fiscal year ended January 31, 2023 and subsequent periodic and current reports. Past performance is not necessarily indicative of future results. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.
Investor Relations Contact
Richard Putnam
801-231-0697
[email protected]
HealthEquity, Inc. and subsidiaries
Condensed consolidated balance sheets
HealthEquity, Inc. and subsidiaries
Condensed consolidated statements of operations and comprehensive income (loss) (unaudited) Three months ended July 31, Six months ended July 31,(in thousands, except per share data) 2023 2022 2023 2022 Revenue Service revenue$105,719 $103,034 $210,831 $207,382 Custodial revenue 98,917 65,599 193,358 124,964 Interchange revenue 38,913 37,509 83,792 79,475 Total revenue 243,549 206,142 487,981 411,821 Cost of revenue Service costs 76,543 74,914 157,098 155,788 Custodial costs 9,133 7,090 18,133 13,731 Interchange costs 6,943 6,326 13,994 13,317 Total cost of revenue 92,619 88,330 189,225 182,836 Gross profit 150,930 117,812 298,756 228,985 Operating expenses Sales and marketing 19,123 15,843 39,058 32,403 Technology and development 54,767 46,580 107,959 91,763 General and administrative 27,090 25,937 51,984 49,664 Amortization of acquired intangible assets 23,166 24,181 46,332 47,879 Merger integration 2,044 7,683 5,502 16,977 Total operating expenses 126,190 120,224 250,835 238,686 Income (loss) from operations 24,740 (2,412) 47,921 (9,701)Other expense Interest expense (13,272) (11,493) (28,269) (21,954)Other income (expense), net 2,756 32 4,584 (269)Total other expense (10,516) (11,461) (23,685) (22,223)Income (loss) before income taxes 14,224 (13,873) 24,236 (31,924)Income tax provision (benefit) 3,643 (3,219) 9,561 (7,631)Net income (loss) and comprehensive income (loss)$10,581 $(10,654) $14,675 $(24,293)Net income (loss) per share: Basic$0.12 $(0.13) $0.17 $(0.29)Diluted$0.12 $(0.13) $0.17 $(0.29)Weighted-average number of shares used in computing net income (loss) per share: Basic 85,533 84,443 85,286 84,236 Diluted 86,341 84,443 86,356 84,236
HealthEquity, Inc. and subsidiaries
Condensed consolidated statements of cash flows (unaudited) Six months ended July 31,(in thousands) 2023 2022 Cash flows from operating activities: Net income (loss)$14,675 $(24,293)Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 77,387 80,226 Stock-based compensation 38,277 32,140 Amortization of debt discount and issuance costs 1,461 1,639 Loss on extinguishment of debt 1,157 — Other non-cash items — 269 Deferred taxes (8,138) (7,558)Changes in operating assets and liabilities: Accounts receivable, net 4,254 (3,161)Other assets (8,526) (1,546)Operating lease right-of-use assets 6,594 4,117 Accrued compensation (14,675) (4,973)Accounts payable, accrued liabilities, and other current liabilities 3,970 (25,586)Operating lease liabilities, non-current (8,175) (3,594)Other long-term liabilities 384 (454)Net cash provided by operating activities 108,645 47,226 Cash flows from investing activities: Purchases of software and capitalized software development costs (18,794) (24,215)Purchases of property and equipment (590) (2,384)Acquisitions of HSA portfolios — (68,725)Net cash used in investing activities (19,384) (95,324)Cash flows from financing activities: Principal payments on long-term debt (54,375) (4,375)Settlement of client-held funds obligation, net (161) (991)Proceeds from exercise of common stock options 1,354 4,936 Net cash used in financing activities (53,182) (430)Increase (decrease) in cash and cash equivalents 36,079 (48,528)Beginning cash and cash equivalents 254,266 225,414 Ending cash and cash equivalents$290,345 $176,886
HealthEquity, Inc. and subsidiaries
Condensed consolidated statements of cash flows (unaudited) (continued) Six months ended July 31,(in thousands) 2023 2022Supplemental cash flow data: Interest expense paid in cash$23,504 $19,450Income tax payments, net 15,113 573Supplemental 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 3,228 5,040Purchases of property and equipment included in accounts payable or accrued liabilities 300 356Acquisitions of HSA portfolios included in accounts payable or accrued liabilities — 1,849Exercise of common stock options receivable 50 8Increase in goodwill due to measurement period adjustments, net — 163
Stock-based compensation expense (unaudited)
Total stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive income (loss) is as follows:
Three months ended July 31, Six months ended July 31,(in thousands) 2023 2022 2023 2022Cost of revenue$4,714 $3,998 $8,549 $7,005Sales and marketing 3,478 2,553 6,257 4,567Technology and development 4,283 2,963 9,175 6,343General and administrative 7,598 8,640 14,296 14,225Total stock-based compensation expense$20,073 $18,154 $38,277 $32,140Total Accounts (unaudited)
(in thousands, except percentages) July 31, 2023 July 31, 2022 % Change January 31, 2023HSAs 8,164 7,523 9% 7,984New HSAs from sales - Quarter-to-date 156 196 (20)% 445New HSAs from sales - Year-to-date 290 355 (18)% 971New HSAs from acquisitions - Year-to-date — 90 (100)% 90HSAs with investments 574 516 11% 541CDBs 6,831 7,023 (3)% 6,933Total Accounts 14,995 14,546 3% 14,917Average Total Accounts - Quarter-to-date 14,954 14,497 3% 14,677Average Total Accounts - Year-to-date 14,967 14,462 3% 14,531HSA Assets (unaudited)
(in millions, except percentages)July 31, 2023 July 31, 2022 % Change January 31, 2023HSA cash$14,021 $13,097 7% $14,199HSA investments 9,181 7,441 23% 7,947Total HSA Assets 23,202 20,538 13% 22,146Average daily HSA cash - Year-to-date 14,048 12,924 9% 13,049Average daily HSA cash - Quarter-to-date 14,001 12,941 8% 13,375Client-held funds (unaudited)
(in millions, except percentages)July 31, 2023 July 31, 2022 % Change January 31, 2023Client-held funds$811 $801 1% $901Average daily Client-held funds - Year-to-date 896 852 5% 827Average daily Client-held funds - Quarter-to-date 891 839 6% 809Reconciliation of net income (loss) to Adjusted EBITDA (unaudited)
Three months ended July 31, Six months ended July 31,(in thousands) 2023 2022 2023 2022 Net income (loss)$10,581 $(10,654) $14,675 $(24,293)Interest income (2,484) (89) (4,082) (141)Interest expense 13,272 11,493 28,269 21,954 Income tax provision (benefit) 3,643 (3,219) 9,561 (7,631)Depreciation and amortization 15,180 16,559 31,055 32,347 Amortization of acquired intangible assets 23,166 24,181 46,332 47,879 Stock-based compensation expense 20,073 18,154 38,277 32,140 Merger integration expenses 2,044 7,683 5,502 16,977 Acquisition costs — 47 — 53 Amortization of incremental costs to obtain a contract 1,350 1,074 2,654 2,142 Costs associated with unused office space 1,286 1,313 2,302 2,607 Other — 501 153 1,345 Adjusted EBITDA$88,111 $67,043 $174,698 $125,379Reconciliation of net income outlook to Adjusted EBITDA outlook (unaudited)
Outlook for the year ending(in millions)January 31, 2024Net income$19 - 24Interest income(11)Interest expense55Income tax provision18 - 23Depreciation and amortization60Amortization of acquired intangible assets93Stock-based compensation expense79Merger integration expenses15Amortization of incremental costs to obtain a contract5Costs associated with unused office space4Other expense1Adjusted EBITDA$338 - 348Reconciliation of net income (loss) to non-GAAP net income (unaudited)
Three months ended July 31, Six months ended July 31,(in thousands, except per share data) 2023 2022 2023 2022 Net income (loss)$10,581 $(10,654) $14,675 $(24,293)Income tax provision (benefit) 3,643 (3,219) 9,561 (7,631)Income (loss) before income taxes - GAAP 14,224 (13,873) 24,236 (31,924)Non-GAAP adjustments: Amortization of acquired intangible assets 23,166 24,181 46,332 47,879 Stock-based compensation expense 20,073 18,154 38,277 32,140 Merger integration expenses 2,044 7,683 5,502 16,977 Acquisition costs — 47 — 53 Costs associated with unused office space 1,286 1,313 2,302 2,607 Loss on extinguishment of debt — — 1,157 — Total adjustments to income (loss) before income taxes - GAAP 46,569 51,378 93,570 99,656 Income before income taxes - Non-GAAP 60,793 37,505 117,806 67,732 Income tax provision - Non-GAAP (1) 15,199 9,376 29,452 16,933 Non-GAAP net income 45,594 28,129 88,354 50,799 Diluted weighted-average shares 86,341 84,443 86,356 84,236 Non-GAAP net income per diluted share$0.53 $0.33 $1.02 $0.60(1) The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations. The normalized non-GAAP tax rate applied to each period presented was 25%. The Company may adjust its non-GAAP tax rate as additional information becomes available and in conjunction with any other significant events occurring that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other changes in expectations regarding tax regulations.
Reconciliation of net income outlook to non-GAAP net income outlook (unaudited)
Outlook for the year ending(in millions, except per share data)January 31, 2024Net income$19 - 24Income tax provision18 - 23Income before income taxes - GAAP37 - 47Non-GAAP adjustments: Amortization of acquired intangible assets93Stock-based compensation expense79Merger integration expenses15Costs associated with unused office space4Total adjustments to income before income taxes - GAAP191Income before income taxes - Non-GAAP228 - 238Income tax provision - Non-GAAP (1)57 - 59Non-GAAP net income$171 - 179 Diluted weighted-average shares87Non-GAAP net income per diluted share (2)$1.97 - 2.06(1) The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations. The normalized non-GAAP tax rate applied to each period presented was 25%. The Company may adjust its non-GAAP tax rate as additional information becomes available and in conjunction with any other significant events occurring that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other changes in expectations regarding tax regulations.
(2) Non-GAAP net income per diluted share may not calculate due to rounding of non-GAAP net income and diluted weighted-average shares.
Certain terms
TermDefinitionHSAA financial account through which consumers spend and save long-term for healthcare on a tax-advantaged basis.CDBConsumer-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 memberConsumers with HSAs that we serve.Total HSA AssetsHSA 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.ClientOur employer clients.Total AccountsThe sum of HSAs and CDBs on our platforms.Client-held fundsDeposits held on behalf of our Clients to facilitate administration of our CDBs.Network PartnerOur health plan partners, benefits administrators, and retirement plan recordkeepers.Adjusted EBITDAAdjusted 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 incomeCalculated by adding back to GAAP net income (loss) before income taxes the following items: amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, costs associated with unused office space, and losses on extinguishment of debt, and subtracting a non-GAAP tax provision using a normalized non-GAAP tax rate.Non-GAAP net income per diluted shareCalculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.
