View:
Download DOC
Download PDF
Download XLS
Document


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 4, 2018

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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth 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. ¨






Item 2.02    Results of Operations and Financial Condition
On September 4, 2018, HealthEquity, Inc. issued a press release attached as Exhibit 99.1 to this current report on Form 8-K.
The information in Exhibit 99.1 is being furnished to the Securities and Exchange Commission and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Item 9.01    Financial Statements and Exhibits

(d) Exhibits

Exhibit No.    Description

99.1






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 4, 2018
By:
 
/s/ Darcy Mott
 
Name:
 
Darcy Mott
 
Title:
 
Executive Vice President and Chief Financial Officer






EXHIBIT INDEX

Exhibit no.
Description
99.1



Exhibit
HealthEquity Reports Second Quarter Ended July 31, 2018 Financial Results
Highlights of the second quarter include:
•
Revenue of $71.1 million, an increase of 25% compared to Q2 FY18.
•
Net income of $22.5 million, an increase of 33% compared to Q2 FY18.
•
Net income per diluted share of $0.36 compared to $0.27 in Q2 FY18.
•
Non-GAAP net income per diluted share of $0.34 compared to $0.21 in Q2 FY18.
•
Adjusted EBITDA of $31.8 million, an increase of 33% compared to Q2 FY18.
•
HSA Members of 3.6 million, an increase of 23% compared to Q2 FY18.
•
Total Custodial Assets of $7.0 billion, an increase of 31% compared to Q2 FY18.
Draper, Utah – September 4, 2018 – HealthEquity, Inc. (NASDAQ: HQY) ("HealthEquity" or the "Company"), the nation's largest health savings account ("HSA") non-bank custodian, today announced financial results for its second quarter ended July 31, 2018.
“HealthEquity recorded another strong quarter financially and operationally as we added over 121,000 new HSAs and $170 million to our members’ custodial assets, resulting in record quarterly revenue and earnings,” said Jon Kessler, HealthEquity’s President and CEO. “As we continue to deliver on our commitment to connecting health and wealth for our members, we are well positioned to outpace the market by providing comprehensive retirement solutions to our members and being the market’s purple standard for remarkable service."
Second quarter financial results
For the second quarter ended July 31, 2018, HealthEquity reported revenue of $71.1 million, an increase of 25% compared to $56.9 million for the second quarter ended July 31, 2017. Revenue consisted of:
•
Service revenue of $24.9 million, an increase of 9% compared to Q2 FY18.
•
Custodial revenue of $30.7 million, an increase of 44% compared to Q2 FY18.
•
Interchange revenue of $15.4 million, an increase of 21% compared to Q2 FY18.
Net income was $22.5 million for the second quarter ended July 31, 2018, compared to $16.9 million for the second quarter ended July 31, 2017.
Net income per diluted share was $0.36 for the second quarter ended July 31, 2018, compared to $0.27 for the second quarter ended July 31, 2017.
Non-GAAP net income per diluted share was $0.34 for the second quarter ended July 31, 2018, compared to $0.21 for the second quarter ended July 31, 2017.
Non-GAAP Adjusted EBITDA was $31.8 million for the second quarter ended July 31, 2018, an increase of 33% compared to $23.9 million for the second quarter ended July 31, 2017. Adjusted EBITDA was 45% of revenue for the second quarter ended July 31, 2018, compared to 42% for the second quarter ended July 31, 2017.
As of July 31, 2018, we had $302.9 million of cash, cash equivalents and marketable securities and no outstanding debt. This compares to $240.3 million in cash, cash equivalents and marketable securities and no outstanding debt as of January 31, 2018.
HSA Member and Custodial Asset metrics
The total number of HSAs for which we serve as a non-bank custodian ("HSA Members") as of July 31, 2018 was 3.6 million, an increase of 23% from 2.9 million as of July 31, 2017. Additionally, total Active HSA Members as of July 31, 2018 was 2.9 million, an increase of 19% from 2.5 million as of July 31, 2017. An Active HSA Member is 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.
Total Custodial Assets as of July 31, 2018 was $7.0 billion, an increase of 31% year over year, consisting of:
•
Custodial Cash Assets of $5.5 billion, an increase of 23% compared to July 31, 2017; and
•
Custodial Investment Assets of $1.5 billion, an increase of 72% compared to July 31, 2017.



Business outlook
We have modestly increased our outlook for the year ending January 31, 2019. We expect our revenue to be between $279 million and $285 million. Our outlook for net income is a range of $63 million to $67 million, resulting in a net income per diluted share range of $0.98 to $1.05. Our Adjusted EBITDA outlook is a range of $108 million to $112 million. We also expect our non-GAAP net income to be in a range between $67 million and $71 million. Our non-GAAP net income is calculated by adding back to net income all non-cash stock-based compensation expense, net of an estimated statutory tax rate of 24%, and the impact of excess tax benefits due to the adoption of Accounting Standards Update ("ASU") 2016-09. Our non-GAAP net income outlook results in a non-GAAP net income per diluted share range between $1.05 to $1.11 (based on an estimated 64 million weighted-average shares outstanding).
A reconciliation of the non-GAAP financial measures used in 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 4, 2018 to discuss the fiscal year 2019 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 8588717. A live audio webcast of the call will also 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 Adjusted EBITDA, which is a non-GAAP financial measure. We define Adjusted EBITDA as adjusted earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and other certain non-operating items. Non-GAAP net income is calculated by adding back to net income all non-cash stock-based compensation expense, net of an estimated statutory tax rate, and the impact of excess tax benefits due to the adoption of ASU 2016-09. 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. 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. 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.
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, 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,” “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 ability to compete effectively in a rapidly evolving healthcare industry;
•
our dependence on the continued availability and benefits of tax-advantaged health savings accounts;
•
the significant competition we face and may face in the future, including from those with greater resources than us;



•
cybersecurity breaches of our platform 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 successfully identify, acquire and integrate additional portfolio purchases or acquisition targets;
•
our ability to develop and implement updated features for our platform 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.

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 most recent Annual Report on Form 10-K 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. These forward-looking statements should not be relied upon as representing our 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, 2018


January 31, 2018

Assets



Current assets



Cash and cash equivalents
$
261,808


$
199,472

Marketable securities, at fair value
41,109


40,797

Total cash, cash equivalents and marketable securities
302,917


240,269

Accounts receivable, net of allowance for doubtful accounts as of July 31, 2018 and January 31, 2018 of $288 and $208, respectively
24,906


21,602

Inventories
163


215

Other current assets
11,727


3,310

Total current assets
339,713


265,396

Property and equipment, net
8,869


7,836

Intangible assets, net
82,277


83,635

Goodwill
4,651


4,651

Deferred tax asset
1,038


5,461

Other assets
18,054


2,180

Total assets
$
454,602


$
369,159

Liabilities and stockholders’ equity



Current liabilities



Accounts payable
$
1,769


$
2,420

Accrued compensation
9,723


12,549

Accrued liabilities
5,577


5,521

Total current liabilities
17,069


20,490

Long-term liabilities



Other long-term liabilities
2,693


2,395

Deferred tax liability
2,221


—

Total long-term liabilities
4,914


2,395

Total liabilities
21,983


22,885

Commitments and contingencies



Stockholders’ equity



Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2018 and January 31, 2018, respectively
—


—

Common stock, $0.0001 par value, 900,000 shares authorized, 62,251 and 60,825 shares issued and outstanding as of July 31, 2018 and January 31, 2018, respectively
6


6

Additional paid-in capital
289,568


261,237

Accumulated other comprehensive loss
—


(269
)
Accumulated earnings
143,045


85,300

Total stockholders’ equity
432,619


346,274

Total liabilities and stockholders’ equity
$
454,602


$
369,159





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,
 
2018

 
2017

 
2018


2017

Revenue:

 
 
 



Service revenue
$
24,935

 
$
22,809

 
$
49,756


$
45,296

Custodial revenue
30,715

 
21,285

 
59,149


40,604

Interchange revenue
15,417

 
12,785

 
32,066


26,400

Total revenue
71,067

 
56,879

 
140,971


112,300

Cost of revenue:

 
 
 



Service costs
17,199

 
14,998

 
35,246


30,573

Custodial costs
3,502

 
2,785

 
6,941


5,586

Interchange costs
3,791

 
3,294

 
7,853


6,598

Total cost of revenue
24,492

 
21,077

 
50,040


42,757

Gross profit
46,575

 
35,802

 
90,931


69,543

Operating expenses:

 
 
 



Sales and marketing
7,243

 
5,194

 
14,103


9,815

Technology and development
8,398

 
6,797

 
16,377


13,039

General and administrative
7,893

 
6,234

 
15,400


12,102

Amortization of acquired intangible assets
1,478

 
1,082

 
2,948


2,165

Total operating expenses
25,012

 
19,307

 
48,828


37,121

Income from operations
21,563

 
16,495

 
42,103


32,422

Other expense:

 
 
 



Other expense, net
(75
)
 
(38
)
 
(76
)

(128
)
Total other expense
(75
)
 
(38
)
 
(76
)

(128
)
Income before income taxes
21,488

 
16,457

 
42,027


32,294

Income tax provision (benefit)
(1,029
)
 
(489
)
 
(3,067
)

1,319

Net income
$
22,517

 
$
16,946

 
$
45,094


$
30,975

Net income per share:

 
 
 



Basic
$
0.36

 
$
0.28

 
$
0.73


$
0.52

Diluted
$
0.36

 
$
0.27

 
$
0.72


$
0.50

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

 
 
 



Basic
61,880

 
60,173

 
61,531


59,955

Diluted
63,397

 
61,765

 
63,060


61,604

Comprehensive income:

 
 
 



Net income
$
22,517

 
$
16,946

 
$
45,094


$
30,975

Other comprehensive loss:

 
 
 



Unrealized loss on available-for-sale marketable securities, net of tax
—

 
(4
)
 
—


(30
)
Comprehensive income
$
22,517

 
$
16,942

 
$
45,094


$
30,945





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


Six months ended July 31,
 
(in thousands)
2018


2017

Cash flows from operating activities:



Net income
$
45,094


$
30,975

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



Depreciation and amortization
8,916


7,136

Unrealized losses on marketable securities and other
86


27

Deferred taxes
2,351


4,699

Stock-based compensation
9,727


6,803

Changes in operating assets and liabilities:





Accounts receivable
(3,304
)

(3,873
)
Inventories
52


253

Other assets
(6,973
)

(4,073
)
Accounts payable
(837
)

(1,495
)
Accrued compensation
(2,826
)

(2,202
)
Accrued liabilities
56


900

Other long-term liabilities
298


611

Net cash provided by operating activities
52,640


39,761

Cash flows from investing activities:



Purchases of intangible member assets
(1,014
)

(6,515
)
Acquisition of a business
—


(3,000
)
Purchases of marketable securities
(368
)

(224
)
Purchases of property and equipment
(2,690
)

(2,161
)
Purchases of software and capitalized software development costs
(4,701
)

(5,166
)
Net cash used in investing activities
(8,773
)

(17,066
)
Cash flows from financing activities:



Proceeds from exercise of common stock options
18,469


7,072

Net cash provided by financing activities
18,469


7,072

Increase in cash and cash equivalents
62,336


29,767

Beginning cash and cash equivalents
199,472


139,954

Ending cash and cash equivalents
$
261,808


$
169,721

Supplemental disclosures of non-cash investing and financing activities:



Purchases of property and equipment included in accounts payable or accrued liabilities at period end
$
14


$
53

Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end
175


69

Purchases of intangible member assets accrued during the period
181


270

Exercise of common stock options receivable
135


1,017





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


Three months ended July 31,
 

Six months ended July 31,
 
(in thousands)

2018


2017


2018


2017

Cost of revenue

$
807


$
692


$
1,220


$
1,183

Sales and marketing

891


526


1,596


842

Technology and development

1,300


862


2,291


1,534

General and administrative

2,490


1,714


4,620


3,244

Total stock-based compensation expense

$
5,488


$
3,794


$
9,727


$
6,803

HSA Members (unaudited)
(in thousands, except percentages)

July 31, 2018


July 31, 2017


% Change


January 31, 2018

HSA Members

3,574


2,900


23
%

3,403

Average HSA Members - Year-to-date

3,488


2,820


24
%

2,952

Average HSA Members - Quarter-to-date

3,533


2,858


24
%

3,189

New HSA Members - Year-to-date

219


196


12
%

723

New HSA Members - Quarter-to-date

121


119


2
%

404

Active HSA Members

2,933


2,461


19
%

2,863

HSA Members with investments

143


87


64
%

122

Custodial assets (unaudited)
(in millions, except percentages)

July 31, 2018


July 31, 2017


% Change


January 31, 2018

Custodial cash

$
5,537


$
4,503


23
%

$
5,489

Custodial investments

1,494


871


72
%

1,289

Total custodial assets

$
7,031


$
5,374


31
%

$
6,778

Average daily custodial cash - Year-to-date

$
5,478


$
4,429


24
%

$
4,571

Average daily custodial cash - Quarter-to-date

$
5,489


$
4,448


23
%

$
4,876

Net income reconciliation to Adjusted EBITDA (unaudited)


Three months ended July 31,
 

Six months ended July 31,
 
(in thousands)

2018


2017


2018


2017

Net income

$
22,517


$
16,946


$
45,094


$
30,975

Interest income

(303
)

(179
)

(561
)

(336
)
Interest expense

69


69


136


136

Income tax provision (benefit)

(1,029
)

(489
)

(3,067
)

1,319

Depreciation and amortization

2,918


2,573


5,968


4,971

Amortization of acquired intangible assets

1,478


1,082


2,948


2,165

Stock-based compensation expense

5,488


3,793


9,727


6,803

Other (1)

663


148


1,183


328

Adjusted EBITDA

$
31,801


$
23,943


$
61,428


$
46,361

(1)
For the three months ended July 31, 2018 and 2017, Other consisted of non-income-based taxes of $116 and $102, other costs of $(32) and $0, acquisition-related costs of $224 and $46, and amortization of incremental costs to obtain a contract of $355 and $0, respectively. For the six months ended July 31, 2018 and 2017, Other consisted of non-income-based taxes of $220 and $190, other costs of $56 and $54, acquisition-related costs of $225 and $84, and amortization of incremental costs to obtain a contract of $682 and $0, respectively.







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

Outlook for the year ending
(in millions)
January 31, 2019
Net income
$63 - $67
Income tax provision
~ 3
Depreciation and amortization
~ 13
Amortization of acquired intangible assets
~ 6
Stock-based compensation expense
~ 21
Other
~ 2
Adjusted EBITDA
$108 - $112

Reconciliation of non-GAAP net income per diluted share (unaudited)

Three months ended
 
Six months ended
 
Outlook for the year ending

(in millions, except per share data)
July 31, 2018

July 31, 2017

July 31, 2018

July 31, 2017

January 31, 2019

Net income
$22

$17

$45

$31

$63 - $67

Stock compensation, net of tax (1)
4

2

7

4

 ~ 16

Excess tax benefit due to adoption of ASU 2016-09
(5
)
(6
)
(12
)
(10
)
~ (12)

Non-GAAP net income
$21

$13

$40

$25

$67 - $71







Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts
63

62

63

62

64

Non-GAAP net income per diluted share (2)
$0.34

$0.21

$0.64

$0.40

$1.05 - $1.11

(1) For the three and six months ended July 31, 2018, the Company used an estimated statutory tax rate of 24%, to calculate the net impact of stock-based compensation expense and 28% for the three and six months ended July 31, 2017.
(2) Non-GAAP net income per diluted share does not calculate due to rounding.

Certain terms
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
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, 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, and the impact of excess tax benefits due to the adoption of ASU 2016-09.
Non-GAAP net income per diluted share
Calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.


Investor Relations Contact
Richard Putnam
801-727-1209
rputnam@healthequity.com