OREANDA-NEWS. June 08, 2016. HealthEquity, Inc. (NASDAQ:HQY), one of the largest health savings account ("HSA") non-bank custodians, today announced financial results for its first quarter ended April 30, 2016.

"We kicked off fiscal 2017 with a very strong first quarter. Once again, we saw acceleration in each of our key business metrics, revenue, adjusted EBITDA, HSAs, and assets under management, all while simultaneously expanding adjusted EBITDA margins to record levels," commented Jon Kessler, President and CEO of HealthEquity.

Mr. Kessler continued, "The platform we've built not only supports our rapid expansion, but it also enables us to drive incremental efficiencies. Our continued growth and solid first quarter performance gives us the confidence to raise our business outlook for the full fiscal year 2017."

First quarter financial results

For the first quarter ended April 30, 2016, HealthEquity reported revenue of \\$44.0 million, compared to \\$29.9 million for the first quarter ended April 30, 2015, an increase of 47%. Revenue consisted primarily of:

  • Service revenue of \\$19.0 million, an increase of 30% compared to Q1 FY16.
  • Custodial revenue of \\$13.8 million, an increase of 64% compared to Q1 FY16. 
  • Interchange revenue of \\$11.2 million, an increase of 64% compared to Q1 FY16.

Net income was \\$8.1 million for the first quarter ended April 30, 2016, compared to \\$5.0 million for the first quarter ended April 30, 2015.

Net income per diluted share was \\$0.14 for the first quarter ended April 30, 2016, compared to \\$.09 for the first quarter ended April 30, 2015. Non-GAAP EPS for the first quarter ended April 30, 2016 was \\$0.15, compared to \\$0.10 for the first quarter ended April 30, 2015.

Adjusted EBITDA was \\$18.0 million for the first quarter ended April 30, 2016, an increase of 66% compared to \\$10.8 million for the first quarter ended April 30, 2015. Adjusted EBITDA was 41% of revenue for the first quarter ended April 30, 2016, compared to 36% for the first quarter ended April 30, 2015.

As of April 30, 2016, we had \\$132.9 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 April 30, 2016 was 2.2 million, an increase of 51% from 1.5 million as of April 30, 2015.

Total assets under management ("AUM") as of April 30, 2016 was \\$4.1 billion, an increase of 61% year over year, comprised of:

  • Cash AUM of \\$3.6 billion, an increase of 64% compared to Q1 FY16; and
  • Investment AUM of \\$488.3 million, an increase of 41% compared to Q1 FY16.

Business outlook

For the year ended January 31, 2017, we are increasing our revenue outlook from \\$170.0 million and \\$174.0 million to a range of \\$173.0 million and \\$177.0 million and our Adjusted EBITDA from \\$56.0 million and \\$58.0 million to a range of \\$58.0 million and \\$60.0 million. We are also increasing our non-GAAP earnings per diluted share from a range of \\$0.45 and \\$0.47 to a range of \\$0.47 and \\$0.49 per share. Our non-GAAP earnings per diluted share is based on an estimated 60.5 million weighted-average shares outstanding, and is calculated by adding back to net income all non-cash stock-based compensation expense, net of tax. We expect total stock-based compensation expense, net of tax, for the year ended January 31, 2017 to be between \\$5.0 million and \\$6.0 million. The business outlook for the year ended January 31, 2017 assumes a projected effective tax rate of approximately 36%.

Conference call

HealthEquity management will host a conference call at 5:00 pm (Eastern Time) on Tuesday, June 7, 2016 to discuss the first quarter financial results. The conference call will be accessible by dialing 888-576-4387, or 719-785-1753 for international callers, and referencing conference ID 2005441. A live webcast of the conference call will also be available on the investor relations section of the company’s website at www.HealthEquity.com.

An audio replay will be available following the conclusion of the call through July 7, 2016. The replay can be accessed by dialing 888-203-1112 in the U.S., or 719-457-0820 for international callers. The passcode for the replay is: 2005441.

Non-GAAP financial information

To supplement our financial information presented on a GAAP basis, we disclose Adjusted EBITDA, non-GAAP earnings per diluted share, non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, and non-GAAP operating margin, which are non-GAAP financial measures. We define Adjusted EBITDA as adjusted 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. Non-GAAP gross profit is calculated by excluding from gross profit stock-based compensation expense attributable to cost of revenue. Non-GAAP gross margin is the ratio calculated by dividing non-GAAP gross profit by revenues. Non-GAAP income from operations is calculated by excluding stock-based compensation expense from operating income. Non-GAAP operating margin is the ratio calculated by dividing non-GAAP operating income by revenues.

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 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 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 our 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)April 30, 2016
  January 31, 2016
 
Assets   
Current assets   
Cash and cash equivalents\\$92,766  \\$83,641 
Marketable securities, at fair value40,159  40,134 
Total cash, cash equivalents and marketable securities132,925  123,775 
Accounts receivable, net of allowance for doubtful accounts of \\$36 as of April 30, 2016 and \\$40 as of January 31, 201615,706  14,308 
Inventories598  620 
Current deferred tax asset—  2,642 
Other current assets6,300  1,703 
Total current assets155,529  143,048 
Property and equipment, net3,388  3,506 
Intangible assets, net66,454  66,840 
Goodwill4,651  4,651 
Deferred tax asset345  — 
Other assets1,874  1,750 
Total assets\\$232,241  \\$219,795 
Liabilities and stockholders’ equity   
Current liabilities   
Accounts payable\\$1,226  \\$2,431 
Accrued compensation2,603  7,776 
Accrued liabilities3,146  1,899 
Total current liabilities6,975  12,106 
Long-term liabilities   
Other long-term liability819  236 
Deferred tax liability1,711  3,996 
Total long-term liabilities2,530  4,232 
Total liabilities9,505  16,338 
Commitments and contingencies   
Stockholders’ equity   
Preferred stock, \\$0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of April 30, 2016 and January 31, 2016, respectively—  — 
Common stock, \\$0.0001 par value, 900,000 shares authorized, 57,945 and 57,726 shares issued and outstanding as of April 30, 2016 and January 31, 2016, respectively6  6 
Additional paid-in capital211,185  199,940 
Accumulated other comprehensive loss(137) (98)
Accumulated earnings11,682  3,609 
Total stockholders’ equity222,736  203,457 
Total liabilities and stockholders’ equity\\$232,241  \\$219,795 
HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of operations and comprehensive income (unaudited)
 
 Three months ended April 30,
 
(in thousands, except per share data)2016
  2015
 
Revenue:   
Service revenue\\$18,994  \\$14,614 
Custodial revenue13,811  8,419 
Interchange revenue11,208  6,817 
Total revenue44,013  29,850 
Cost of revenue:   
Service costs11,257  8,419 
Custodial costs2,356  1,423 
Interchange costs2,719  2,102 
Total cost of revenue16,332  11,944 
Gross profit27,681  17,906 
Operating expenses:   
Sales and marketing4,183  2,833 
Technology and development4,625  3,524 
General and administrative4,574  3,158 
Amortization of acquired intangible assets1,049  409 
Total operating expenses14,431  9,924 
Income from operations13,250  7,982 
Other expense:   
Other expense, net(641) (105)
Total other expense(641) (105)
Income before income taxes12,609  7,877 
Income tax provision4,536  2,900 
Net income\\$8,073  \\$4,977 
Net income per share:   
Basic\\$0.14  \\$0.09 
Diluted\\$0.14  \\$0.09 
Weighted-average number of shares used in computing net income per share:   
Basic57,820  55,063 
Diluted59,399  57,770 
Comprehensive income:   
Net income\\$8,073  \\$4,977 
Other comprehensive loss:   
Unrealized loss on available-for-sale marketable securities, net of tax(39) (22)
Comprehensive income\\$8,034  \\$4,955 
HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of cashflows (unaudited)
 
 Three months ended April 30,
 
(in thousands)2016
  2015
 
Cash flows from operating activities:   
Net income\\$8,073  \\$4,977 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization2,947  1,750 
Amortization of deferred financing costs18  — 
Deferred taxes34  (2)
Stock-based compensation1,822  1,094 
Changes in operating assets and liabilities:   
Accounts receivable(1,398) (1,425)
Inventories22  (42)
Other assets(4,739) (871)
Accounts payable(1,241) (340)
Accrued compensation(5,173) (3,260)
Accrued liabilities1,164  (99)
Other long-term liability583  (11)
Net cash provided by operating activities2,112  1,771 
Cash flows from investing activities:   
Purchases of marketable securities(86) (40,062)
Purchase of property and equipment(321) (826)
Purchase of software and capitalized software development costs(2,003) (1,451)
Purchase of other investments—  — 
Acquisition of intangible member assets—  — 
Net cash used in investing activities(2,410) (42,339)
Cash flows from financing activities:   
Proceeds from exercise of common stock options145  493 
Tax benefit from exercise of common stock options9,278  3,931 
Net cash provided by financing activities9,423  4,424 
Increase (decrease) in cash and cash equivalents9,125  (36,144)
Beginning cash and cash equivalents83,641  111,005 
Ending cash and cash equivalents\\$92,766  \\$74,861 
Supplemental disclosures of non-cash investing and financing activities:   
Purchases of property and equipment included in accounts payable or accrued liabilities at period end\\$8  \\$— 
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end111  — 
      

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 April 30,
 
(in thousands) 2016
  2015
 
Cost of revenue \\$375  \\$228 
Sales and marketing 213  228 
Technology and development 357  150 
General and administrative 877  488 
Total stock-based compensation expense \\$1,822  \\$1,094 
         

The following table presents components of our condensed consolidated statements of operations and comprehensive income, adjusted for stock compensation expense:

 Three months ended April 30,
 
(in thousands, except for percentages)2016
  2015
 
Reconciliation of gross profit to non-GAAP gross profit:   
Gross profit\\$27,681  \\$17,906 
Excluding: Stock-based compensation expense attributable to cost of revenue375  228 
Non-GAAP gross profit\\$28,056  \\$18,134 
Reconciliation of gross margin to non-GAAP gross margin:   
GAAP gross margin63% 60%
Excluding: Stock-based compensation expense attributable to cost of revenue1% 1%
Non-GAAP gross margin64% 61%
Reconciliation of income from operations to non-GAAP income from operations:       
Income from operations\\$13,250  \\$7,982 
Excluding: Stock-based compensation expense1,822  1,094 
Non-GAAP income from operations\\$15,072  \\$9,076 
Reconciliation of operating margin to non-GAAP operating margin:       
GAAP operating margin30% 27%
Excluding: Stock-based compensation expense4% 3%
Non-GAAP operating margin34% 30%
      

Net income reconciliation to Adjusted EBITDA

  Three months ended April 30,
 
(in thousands) 2016
  2015
 
Net income \\$8,073  \\$4,977 
Interest expense 68  — 
Income tax provision 4,536  2,900 
Depreciation and amortization 1,898  1,341 
Amortization of acquired intangible assets 1,049  409 
Stock-based compensation expense 1,822  1,094 
Other (1) 573  103 
Total adjustments \\$9,946  \\$5,847 
Adjusted EBITDA \\$18,019  \\$10,824 
         

(1) For the three months ended April 30, 2016 and 2015, Other consisted of interest income of \\$(120) and \\$(76), miscellaneous taxes of \\$84 and \\$90, acquisition-related costs of \\$585 and \\$89, and miscellaneous other costs of \\$24 and \\$0, respectively.

HSA Members

  April 30, 2016  April 30, 2015  % Change January 31, 2016 
HSA Members 2,228,041  1,474,327  51% 2,140,631 
Average HSA Members - Year-to-date 2,211,860  1,459,578  52% 1,600,327 
Average HSA Members - Quarter-to-date 2,211,860  1,459,578  52% 1,850,843 
HSA Members with investments 49,761  35,699  39% 44,680 
             

Assets under management (AUM)

(in thousands, except percentages) April 30, 2016
  April 30, 2015
  % Change January 31, 2016
 
Cash AUM \\$3,597,111  \\$2,198,800  64% \\$3,278,628 
Investment AUM 488,343  345,790  41% 405,878 
Total AUM \\$4,085,454  \\$2,544,590  61% \\$3,684,506 
Average daily cash AUM - Year-to-date \\$3,518,081  \\$2,139,644  64% \\$2,326,506 
Average daily cash AUM - Quarter-to-date \\$3,518,081  \\$2,139,644  64% \\$2,682,827 
                

Net income per diluted share reconciliation to non-GAAP earnings per diluted share

 Three months ended April 30,
 
(in thousands, except per share data)2016
  2015
 
Net income\\$8,073  \\$4,977 
Stock compensation expense, net of tax (1)1,130  690 
Adjusted net income9,203  5,667 
Diluted weighted-average number of shares used in computing net income per diluted share59,399  57,770 
Non-GAAP earnings per diluted share\\$0.15  \\$0.10 
        

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