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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form 8-K


CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

September 6, 2016

Commission File Number: 001-36568

 
 
 
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)

15 West Scenic Pointe Drive
Suite 100
Draper, Utah 84020
(801) 727-1000

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

Not Applicable
(Former name or former address, if changed since last report)
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02    Results of Operations and Financial Condition
On September 6, 2016, HealthEquity, Inc. issued a press release announcing its financial results for its second quarter ended July 31, 2016. The full text of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
This information is intended to be furnished under Item 2.02 of Form 8-K, “Results of Operations and Financial Condition” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01    Financial Statements and Exhibits

(d) Exhibits

Exhibit No.    Description

99.1
Press release issued by HealthEquity, Inc. dated September 6, 2016, announcing financial results for its second quarter ended July 31, 2016.






SIGNATURES

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

 
HEALTHEQUITY, INC.
Date: September 6, 2016
By:
 
/s/ Darcy Mott
 
Name:
 
Darcy Mott
 
Title:
 
Executive Vice President and Chief Financial Officer






EXHIBIT INDEX

 
 
 
Exhibit
no.
 
Description
99.1
 
Press release issued by HealthEquity, Inc. dated September 6, 2016, announcing financial results for its second quarter ended July 31, 2016.



Exhibit


HealthEquity Reports Second Quarter Ended July 31, 2016 Financial Results
Highlights of the second quarter include:
•
Revenue of $44.2 million, an increase of 45% compared to Q2 FY16.
•
Net income of $8.2 million, an increase of 86% compared to Q2 FY16.
•
Net income per diluted share of $0.14 compared to $0.08 in Q2 FY16.
•
Adjusted EBITDA of $18.4 million, an increase of 66% compared to Q2 FY16.
•
Non-GAAP earnings per diluted share of $0.16, compared to $0.09 in Q2 FY16.
•
HSA Members grew to 2.3 million, an increase of 50% compared to Q2 FY16.
•
Total AUM grew to $4.2 billion, an increase of 60% compared to Q2 FY16.
•
Increased FY17 outlook.    
Draper, Utah – September 6, 2016 – HealthEquity, Inc. (NASDAQ: HQY), one of the largest health savings account ("HSA") non-bank custodians, today announced financial results for its second quarter ended July 31, 2016.
"We continue to outpace the market with 50% growth of our HSA Members and 60% growth of our AUM, while the market grew accounts and AUM in the first half of 2016 by 25% and 22% respectively," said Jon Kessler, President and CEO of HealthEquity. Mr. Kessler added, “The strong growth in our HSA Members and AUM resulted in record revenue and Adjusted EBITDA for the second quarter and first half of fiscal year 2017, and put us on solid footing to make seasonal investments in operations for the busy benefits enrollment cycle in the back half of the year.”
Mr. Kessler continued, "The HSA platform we've built continues to differentiate our services and capabilities from our bank and healthcare competitors. Our continued growth and solid first half performance gives us the confidence to raise our business outlook for the full fiscal year 2017."
Second quarter financial results
For the second quarter ended July 31, 2016, HealthEquity reported revenue of $44.2 million, compared to $30.5 million for the second quarter ended July 31, 2015, an increase of 45%. Revenue consisted of:
•
Service revenue of $18.8 million, an increase of 28% compared to Q2 FY16.
•
Custodial revenue of $14.8 million, an increase of 64% compared to Q2 FY16.
•
Interchange revenue of $10.6 million, an increase of 56% compared to Q2 FY16.
Net income was $8.2 million for the second quarter ended July 31, 2016, compared to $4.4 million for the second quarter ended July 31, 2015.
Net income per diluted share was $0.14 for the second quarter ended July 31, 2016, compared to $0.08 for the second quarter ended July 31, 2015. Non-GAAP earnings per diluted share for the second quarter ended July 31, 2016 was $0.16, compared to $0.09 for the second quarter ended July 31, 2015.
Adjusted EBITDA was $18.4 million for the second quarter ended July 31, 2016, an increase of 66% compared to $11.1 million for the second quarter ended July 31, 2015. Adjusted EBITDA was 42% of revenue for the second quarter ended July 31, 2016, compared to 36% for the second quarter ended July 31, 2015.
As of July 31, 2016, we had $149.5 million of cash, cash equivalents and marketable securities and no outstanding debt. This compares to $123.8 million in cash and cash equivalents and no outstanding debt as of January 31, 2016.
HSA Member and AUM metrics
The total number of HSAs for which we serve as a non-bank custodian ("HSA Members") as of July 31, 2016 was 2.3 million, an increase of 50% from 1.5 million as of July 31, 2015.
Total assets under management ("AUM") as of July 31, 2016 was $4.2 billion, an increase of 60% year over year, comprised of:
•
Cash AUM of $3.7 billion, an increase of 62% compared to Q2 FY16; and
•
Investment AUM of $542.3 million, an increase of 46% compared to Q2 FY16.





Business outlook
For the year ended January 31, 2017, we are increasing our revenue outlook from a range of $173.0 million to $177.0 million to a range of $174.0 million to $178.0 million and our Adjusted EBITDA outlook from a range of $58.0 million to $60.0 million to a range of $59.0 million to $62.0 million. We will no longer provide guidance on non-GAAP earnings per diluted share, but will provide guidance on net income and net income per diluted share going forward. Our outlook for net income for the year ended January 31, 2017 is a range of $23.0 million to $25.0 million and our outlook for net income per diluted share for the year ended January 31, 2017 is a range of $0.38 to $0.42 (based on an estimated 60.0 million weighted-average shares outstanding). The business outlook for the year ended January 31, 2017 assumes a projected effective tax rate of approximately 36%.
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 5:00 pm (Eastern Time) on Tuesday, September 6, 2016 to discuss the second quarter financial results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 52684511. A live webcast of the conference call will also be available on the investor relations section of our website at www.HealthEquity.com.
A replay of the conference call will be made available for 30 days on the Company's website at ir.healthequity.com
Non-GAAP financial information
To supplement our financial information presented on a GAAP basis, we disclose Adjusted EBITDA and non-GAAP earnings per diluted share, which are non-GAAP financial measures. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and other certain non-operating items. We define non-GAAP earnings per diluted share as net income per diluted share, calculated by adding back to net income non-cash stock-based compensation expense, net of tax.
These 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. The company cautions investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions; accordingly, its use can make it difficult to compare current results with results from other reporting periods and with the results of other companies. Whenever we use these non-GAAP financial measures, we provide a reconciliation of the applicable non-GAAP financial measure to the most comparable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures as detailed in the tables below.
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 the company’s industry, business strategy, plans, goals and expectations concerning the company's market position, product expansion, future operations, revenue, margins, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “may,” “believes,” “intends,” “seeks,” “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. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond the control of the company. The company’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, the continued availability of tax-advantaged consumer-directed benefits to employers and employees, the company’s ability to acquire and retain new network partners and to cross-sell its products to existing network partners and members, the company’s ability to successfully identify, acquire and integrate additional portfolio purchases or acquisition targets, the company’s ability to raise awareness among employers and employees about the advantages of adopting and participating in consumer-directed benefits programs, and the company’s ability to identify and execute on network partner opportunities. For a detailed discussion of these and other risk factors, please refer to the risks detailed in the company’s filings with the Securities and Exchange Commission, including, without limitation, the most recent Annual Report on Form 10-K and subsequent periodic and current reports. Past performance is not necessarily indicative of future results. The company undertakes no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements should not be relied upon as representing the company’s views as of any date subsequent to the date of this press release.




HealthEquity, Inc. and its subsidiaries
Condensed consolidated balance sheets (unaudited)

(in thousands, except par value)
July 31, 2016


January 31, 2016

Assets



Current assets



Cash and cash equivalents
$
109,169


$
83,641

Marketable securities, at fair value
40,292


40,134

Total cash, cash equivalents and marketable securities
149,461


123,775

Accounts receivable, net of allowance for doubtful accounts of $39 as of July 31, 2016 and $40 as of January 31, 2016
16,681


14,308

Inventories
699


620

Current deferred tax asset
—


2,642

Other current assets
6,899


1,703

Total current assets
173,740


143,048

Property and equipment, net
4,251


3,506

Intangible assets, net
65,675


66,840

Goodwill
4,651


4,651

Deferred tax asset
505


—

Other assets
1,763


1,750

Total assets
$
250,585


$
219,795

Liabilities and stockholders’ equity



Current liabilities



Accounts payable
$
1,801


$
2,431

Accrued compensation
4,353


7,776

Accrued liabilities
2,782


1,899

Total current liabilities
8,936


12,106

Long-term liabilities



Other long-term liabilities
1,076


236

Deferred tax liability
1,114


3,996

Total long-term liabilities
2,190


4,232

Total liabilities
11,126


16,338

Commitments and contingencies



Stockholders’ equity



Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2016 and January 31, 2016, respectively
—


—

Common stock, $0.0001 par value, 900,000 shares authorized, 58,493 and 57,726 shares issued and outstanding as of July 31, 2016 and January 31, 2016, respectively
6


6

Additional paid-in capital
219,648


199,940

Accumulated other comprehensive loss
(110
)

(98
)
Accumulated earnings
19,915


3,609

Total stockholders’ equity
239,459


203,457

Total liabilities and stockholders’ equity
$
250,585


$
219,795






HealthEquity, Inc. and its 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,
 
2016


2015


2016


2015

Revenue:







Service revenue
$
18,835


$
14,692


$
37,829


$
29,306

Custodial revenue
14,779


9,031


28,590


17,450

Interchange revenue
10,571


6,771


21,779


13,588

Total revenue
44,185


30,494


88,198


60,344

Cost of revenue:







Service costs
10,539


8,348


21,796


16,767

Custodial costs
2,394


1,512


4,750


2,935

Interchange costs
2,698


2,049


5,417


4,151

Total cost of revenue
15,631


11,909


31,963


23,853

Gross profit
28,554


18,585


56,235


36,491

Operating expenses:







Sales and marketing
4,190


2,737


8,373


5,570

Technology and development
4,993


3,998


9,618


7,522

General and administrative
5,550


3,943


10,124


7,101

Amortization of acquired intangible assets
1,082


409


2,131


818

Total operating expenses
15,815


11,087


30,246


21,011

Income from operations
12,739


7,498


25,989


15,480

Other expense:







Other expense, net
(37
)

(542
)

(678
)

(647
)
Total other expense
(37
)

(542
)

(678
)

(647
)
Income before income taxes
12,702


6,956


25,311


14,833

Income tax provision
4,469


2,535


9,005


5,435

Net income
$
8,233


$
4,421


$
16,306


$
9,398

Net income per share:







Basic
$
0.14


$
0.08


$
0.28


$
0.17

Diluted
$
0.14


$
0.08


$
0.27


$
0.16

Weighted-average number of shares used in computing net income per share:







Basic
58,246


56,730


58,035


55,909

Diluted
59,651


58,932


59,501


58,318

Comprehensive income:







Net income
$
8,233


$
4,421


$
16,306


$
9,398

Other comprehensive loss:







Unrealized gain/(loss) on available-for-sale marketable securities, net of tax
27


(11
)

(12
)

(33
)
Comprehensive income
$
8,260


$
4,410


$
16,294


$
9,365






HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of cashflows (unaudited)

Six months ended July 31,
 
(in thousands)
2016


2015

Cash flows from operating activities:



Net income
$
16,306


$
9,398

Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation and amortization
6,125


3,665

Amortization of deferred financing costs
36


—

Deferred taxes
(738
)

(1,133
)
Stock-based compensation
4,331


2,771

Changes in operating assets and liabilities:





Accounts receivable
(2,373
)

(1,801
)
Inventories
(79
)

35

Other assets
(5,245
)

(3,611
)
Accounts payable
(1,069
)

(277
)
Accrued compensation
(3,423
)

(1,989
)
Accrued liabilities
827


577

Other long-term liabilities
840


(343
)
Net cash provided by operating activities
15,538


7,292

Cash flows from investing activities:



Purchases of marketable securities
(177
)

(40,137
)
Purchase of property and equipment
(1,250
)

(1,257
)
Purchase of software and capitalized software development costs
(3,960
)

(2,982
)
Net cash used in investing activities
(5,387
)

(44,376
)
Cash flows from financing activities:



Proceeds from follow-on offering, net of payments for offering costs
—


23,492

Proceeds from exercise of common stock options
1,128


1,153

Tax benefit from exercise of common stock options
14,249


10,285

Net cash provided by financing activities
15,377


34,930

Increase (decrease) in cash and cash equivalents
25,528


(2,154
)
Beginning cash and cash equivalents
83,641


111,005

Ending cash and cash equivalents
$
109,169


$
108,851

Supplemental disclosures of non-cash investing and financing activities:



Purchases of property and equipment included in accounts payable or accrued liabilities at period end
$
379


$
—

Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end
116


—






Stock-based compensation expense
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)

2016


2015

 
2016

 
2015

Cost of revenue

$
421


$
208

 
$
796


$
436

Sales and marketing

353


259

 
566


487

Technology and development

446


237

 
803


387

General and administrative

1,289


973

 
2,166


1,461

Total stock-based compensation expense

$
2,509


$
1,677

 
$
4,331


$
2,771

HSA Members


July 31, 2016


July 31, 2015


% Change


January 31, 2016

HSA Members

2,300,007


1,537,147


50
%

2,140,631

Average HSA Members - Year-to-date

2,241,378


1,484,990


51
%

1,600,327

Average HSA Members - Quarter-to-date

2,270,896


1,510,403


50
%

1,850,843

HSA Members with investments

52,722


38,501


37
%

44,680

Assets under management (AUM)
(in thousands, except percentages)

July 31, 2016


July 31, 2015


% Change


January 31, 2016

Cash AUM

$
3,658,245


$
2,260,111


62
%

$
3,278,628

Investment AUM

542,331


372,120


46
%

405,878

Total AUM

$
4,200,576


$
2,632,231


60
%

$
3,684,506

Average daily cash AUM - Year-to-date

$
3,560,117


$
2,176,971


64
%

$
2,326,506

Average daily cash AUM - Quarter-to-date

$
3,602,152


$
2,214,287


63
%

$
2,682,827

Reconciliation of net income to Adjusted EBITDA


Three months ended July 31,
 

Six months ended July 31,
 
(in thousands)

2016


2015


2016


2015

Net income

$
8,233


$
4,421


$
16,306


$
9,398

Interest income

(128
)

(109
)

(248
)

(185
)
Interest expense

69


—


137


—

Income tax provision

4,469


2,535


9,005


5,435

Depreciation and amortization

2,097


1,506


3,994


2,847

Amortization of acquired intangible assets

1,082


409


2,131


818

Stock-based compensation expense

2,509


1,677


4,331


2,771

Other (1)

96


653


790


832

Adjusted EBITDA

$
18,427


$
11,092


$
36,446


$
21,916

(1)
For the three months ended July 31, 2016 and 2015, Other consisted of non-income-based taxes of $86 and $82, and acquisition-related costs of $10 and $571, respectively. For the six months ended July 31, 2016 and 2015, Other consisted of non-income-based taxes of $172 and $171, acquisition-related costs of $595 and $661, and other costs of $23 and $0, respectively.




Reconciliation of net income outlook to adjusted EBITDA outlook

For the year ending
(in millions)
January 31, 2017
Net income
$23 - 25
Income tax provision
 13 -14
Depreciation and amortization
~ 9
Amortization of acquired intangible assets
~ 4
Stock-based compensation expense
~9
Other
~ 1
Adjusted EBITDA
$59 - 62
Reconciliation of net income to adjusted net income and resulting non-GAAP earnings per diluted share

Three months ended July 31,
 

Six months ended July 31,
 
(in thousands, except per share data)
2016


2015


2016


2015

Net income
$
8,233


$
4,421


$
16,306


$
9,398

Stock compensation expense, net of tax (1)
1,555


1,027


2,685


1,717

Adjusted net income
9,788


5,448


18,991


11,115

Diluted weighted-average number of shares used in computing net income per diluted share
59,651


58,932


59,501


58,318

Non-GAAP earnings per diluted share
$
0.16


$
0.09


$
0.32


$
0.19

(1)
The company used an estimated statutory tax rate of 38% to calculate the net impact of non-cash stock-based compensation expense.