HQY
$50.90
Healthequity
($.41)
(.80%)
Earnings Details
2nd Quarter July 2017
Tuesday, September 05, 2017 4:07:15 PM
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Summary

Healthequity Beats

Healthequity (HQY) reported 2nd Quarter July 2017 earnings of $0.27 per share on revenue of $56.9 million. The consensus earnings estimate was $0.14 per share on revenue of $55.7 million. The Earnings Whisper number was $0.16 per share. Revenue grew 28.7% on a year-over-year basis.

The company said it expects fiscal year earnings of $0.64 to $0.68 per share on revenue of $223.0 million to $228.0 million. The company's previous guidance was earnings of $0.62 to $0.67 per share on revenue of $222.0 million to $227.0 million and the current consensus earnings estimate is $0.59 per share on revenue of $224.9 million for the year ending January 31, 2018.

HealthEquity Inc is a technology-enabled services platform that empowers consumers to make healthcare saving and spending decisions.

Results
Reported Earnings
$0.27
Earnings Whisper
$0.16
Consensus Estimate
$0.14
Reported Revenue
$56.9 Mil
Revenue Estimate
$55.7 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

HealthEquity Reports Second Quarter Ended July 31, 2017 Financial Results

Highlights of the second quarter include:

-- Revenue of $56.9 million, an increase of 29% compared to Q2 FY17.

-- Net income of $16.9 million, an increase of 106% compared to Q2 FY17.

-- Net income per diluted share of $0.27 compared to $0.14 in Q2 FY17.

-- Adjusted EBITDA of $23.9 million, an increase of 30% compared to Q2 FY17.

HealthEquity, Inc. (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, 2017.

"HealthEquity opened nearly 120,000 new HSAs in the second quarter, 40% more than during the same period last year," said Jon Kessler, President and CEO of HealthEquity. "In terms of sales growth, this is the strongest second quarter performance in the team’s history. Since the second quarter of last year, we have added over 700,000 new HSAs and grown custodial assets by $1.2 billion. Our solid second quarter results and start to fiscal 2018, provide the basis to once again increase our guidance for fiscal 2018 financial expectations."

Second quarter financial results

For the second quarter ended July 31, 2017, HealthEquity reported revenue of $56.9 million, an increase of 29% compared to $44.2 million for the second quarter ended July 31, 2016. Revenue consisted of:

-- Service revenue of $22.8 million, an increase of 21% compared to Q2 FY17.

-- Custodial revenue of $21.3 million, an increase of 44% compared to Q2 FY17.

-- Interchange revenue of $12.8 million, an increase of 21% compared to Q2 FY17.

Net income was $16.9 million for the second quarter ended July 31, 2017, compared to $8.2 million for the second quarter ended July 31, 2016.

Net income per diluted share was $0.27 for the second quarter ended July 31, 2017, compared to $0.14 for the second quarter ended July 31, 2016.

Adjusted EBITDA was $23.9 million for the second quarter ended July 31, 2017, an increase of 30% compared to $18.4 million for the second quarter ended July 31, 2016.

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, 2017 was 2.9 million, an increase of 26% from 2.3 million as of July 31, 2016.

Total Custodial Assets as of July 31, 2017 was $5.4 billion, an increase of 28% year over year, consisting of:

-- Custodial Cash Assets of $4.5 billion, an increase of 23% compared to Q2 FY17; and

-- Custodial Investment Assets of $0.9 billion, an increase of 61% compared to Q2 FY17.

Business outlook

We are increasing our business outlook for the year ended January 31, 2018. We are increasing our revenue outlook from a range between $222.0 million and $227.0 million to a range between $223.0 million and $228.0 million, our net income from a range between $33.0 million and $37.0 million to a range between $41.0 million and $45.0 million, our Adjusted EBITDA from a range between $78.0 million and $83.0 million to a range between $79.0 million and $84.0 million. We also expect our non-GAAP net income to be in a range between $39.0 million and $43.0 million, up from our prior range between $38.0 million and $42.0 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 38%, 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 $0.64 and $0.68 (based on an estimated 62.0 million diluted weighted-average shares outstanding), up from our prior range between $0.62 and $0.67.

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 5, 2017 to discuss the fiscal year 2018 second quarter results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 64836688. 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, non-GAAP net income and non-GAAP net income per diluted share, 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. 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 38%, 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 the Company’s industry, business strategy, plans, goals and expectations concerning our market position, product expansion, future operations, revenue, margins, business outlook, 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 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, our 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
Consolidated balance sheets (unaudited)
(in thousands, except par value)
July 31, 2017
January 31, 2017
Assets
Current assets
Cash and cash equivalents
$
169,721
$
139,954
Marketable securities, at fair value
40,581
40,405
Total cash, cash equivalents and marketable securities
210,302
180,359
Accounts receivable, net of allowance for doubtful accounts as of July 31, 2017 and January 31, 2017 were $45 and $75, respectively
20,904
17,001
Inventories
339
592
Other current assets
8,078
2,867
Total current assets
239,623
200,819
Property and equipment, net
6,080
5,170
Intangible assets, net
73,827
65,020
Goodwill
4,651
4,651
Deferred tax asset
5,054
1,615
Other assets
1,709
1,861
Total assets
$
330,944
$
279,136
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
$
1,594
$
3,221
Accrued compensation
6,520
8,722
Accrued liabilities
4,829
3,760
Total current liabilities
12,943
15,703
Long-term liabilities
Other long-term liabilities
2,067
1,456
Deferred tax liability
--
37
Total long-term liabilities
2,067
1,493
Total liabilities
15,010
17,196
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2017 and January 31, 2017, respectively
--
--
Common stock, $0.0001 par value, 900,000 shares authorized, 60,399 and 59,538 shares issued and outstanding as of July 31, 2017 and January 31, 2017, respectively 6
6
Additional paid-in capital
247,255
232,114
Accumulated other comprehensive loss
(195
)
(165
)
Accumulated earnings
68,868
29,985
Total stockholders’ equity
315,934
261,940
Total liabilities and stockholders’ equity
$
330,944
$
279,136
HealthEquity, Inc. and its subsidiaries
Consolidated statements of operations and comprehensive income (unaudited)
(in thousands, except per share data)
Three months ended July 31,
Six months ended July 31,
2017
2016
2017
2016
Revenue:
Service revenue
$
22,809
$
18,835
$
45,296
$
37,829
Custodial revenue
21,285
14,779
40,604
28,590
Interchange revenue
12,785
10,571
26,400
21,779
Total revenue
56,879
44,185
112,300
88,198
Cost of revenue:
Service costs
14,998
10,539
30,573
21,796
Custodial costs
2,785
2,394
5,586
4,750
Interchange costs
3,294
2,698
6,598
5,417
Total cost of revenue
21,077
15,631
42,757
31,963
Gross profit
35,802
28,554
69,543
56,235
Operating expenses:
Sales and marketing
5,194
4,190
9,815
8,373
Technology and development
6,797
4,993
13,039
9,618
General and administrative
6,234
5,550
12,102
10,124
Amortization of acquired intangible assets
1,082
1,082
2,165
2,131
Total operating expenses
19,307
15,815
37,121
30,246
Income from operations
16,495
12,739
32,422
25,989
Other expense:
Other expense, net
(38
)
(37
)
(128
)
(678
)
Total other expense
(38
)
(37
)
(128
)
(678
)
Income before income taxes
16,457
12,702
32,294
25,311
Income tax provision (benefit)
(489
)
4,469
1,319
9,005
Net income
$
16,946
$
8,233
$
30,975
$
16,306
Net income per share:
Basic
$
0.28
$
0.14
$
0.52
$
0.28
Diluted
$
0.27
$
0.14
$
0.50
$
0.27
Weighted-average number of shares used in computing net income per share:
Basic
60,173
58,246
59,955
58,035
Diluted
61,765
59,651
61,604
59,501
Comprehensive income:
Net income
$
16,946
$
8,233
$
30,975
$
16,306
Other comprehensive gain (loss):
Unrealized gain (loss) on available-for-sale marketable securities, net of tax (4
)
27
(30
)
(12
)
Comprehensive income
$
16,942
$
8,260
$
30,945
$
16,294
HealthEquity, Inc. and its subsidiaries
Statement of Cash flows (unaudited)
Six months ended July 31,
(in thousands)
2017
2016
Cash flows from operating activities:
Net income
$
30,975
$
16,306
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
7,136
6,125
Amortization of deferred financing costs and other
27
36
Deferred taxes
4,699
(738
)
Stock-based compensation
6,803
4,331
Changes in operating assets and liabilities:
Accounts receivable
(3,873
)
(2,373
)
Inventories
253
(79
)
Other assets
(4,073
)
(5,245
)
Accounts payable
(1,495
)
(1,069
)
Accrued compensation
(2,202
)
(3,423
)
Accrued liabilities
900
827
Other long-term liabilities
611
840
Net cash provided by operating activities
39,761
15,538
Cash flows from investing activities:
Purchases of intangible member assets
(6,515
)
--
Acquisition of a business
(3,000
)
--
Purchases of marketable securities
(224
)
(177
)
Purchase of property and equipment
(2,161
)
(1,250
)
Purchase of software and capitalized software development costs
(5,166
)
(3,960
)
Net cash used in investing activities
(17,066
)
(5,387
)
Cash flows from financing activities:
Proceeds from exercise of common stock options
7,072
1,128
Tax benefit from exercise of common stock options
--
14,249
Net cash provided by financing activities
7,072
15,377
Increase in cash and cash equivalents
29,767
25,528
Beginning cash and cash equivalents
139,954
83,641
Ending cash and cash equivalents
$
169,721
$
109,169
Supplemental disclosures of non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable or accrued liabilities at period end
$
53
$
379
Purchases of software and capitalized software development costs included in accounts payable or accrued liabilities at period end 69
116
Purchases of intangible member assets accrued at period end
270
--
Exercise of common stock options receivable
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)
2017
2016
2017
2016
Cost of revenue
$
692
$
421
$
1,183
$
796
Sales and marketing
526
353
842
566
Technology and development
862
446
1,534
803
General and administrative
1,714
1,289
3,244
2,166
Total stock-based compensation expense
$
3,794
$
2,509
$
6,803
$
4,331
HSA Members (unaudited)
July 31, 2017
July 31, 2016
% Change
January 31, 2017
HSA Members
2,899,646
2,300,007
26%
2,746,132
Average HSA Members - Year-to-date
2,820,433
2,241,378
26%
2,339,091
Average HSA Members - Quarter-to-date
2,858,087
2,270,896
26%
2,519,382
HSA Members with investments
86,868
52,722
65%
65,906
Custodial assets (unaudited)
(in thousands, except percentages)
July 31, 2017
July 31, 2016
% Change
January 31, 2017
Custodial cash
$
4,502,841
$
3,658,245
23%
$
4,380,487
Custodial investments
871,524
542,331
61%
658,580
Total custodial assets
$
5,374,365
$
4,200,576
28%
$
5,039,067
Average daily custodial cash - Year-to-date
$
4,429,299
$
3,560,117
24%
$
3,661,058
Average daily custodial cash - Quarter-to-date
$
4,448,090
$
3,602,152
23%
$
3,854,518
Net income reconciliation to Adjusted EBITDA (unaudited)
Three months ended July 31,
Six months ended July 31,
(in thousands)
2017
2016
2017
2016
Net income
$
16,946
$
8,233
$
30,975
$
16,306
Interest income
(179
)
(128
)
(336
)
(248
)
Interest expense
69
69
136
137
Income tax provision (benefit)
(489
)
4,469
1,319
9,005
Depreciation and amortization
2,573
2,097
4,971
3,994
Amortization of acquired intangible assets
1,082
1,082
2,165
2,131
Stock-based compensation expense
3,793
2,509
6,803
4,331
Other (1)
148
96
328
790
Adjusted EBITDA
$
23,943
$
18,427
$
46,361
$
36,446

(1) For the three months ended July 31, 2017 and 2016, Other consisted of non-income-based taxes of $102 and $86, and acquisition-related costs of $46 and $10, respectively. For the six months ended July 31, 2017 and 2016, Other consisted of non-income based taxes of $190 and $172, acquisition-related costs of $84 and $595, and other costs of $54 and $23, respectively.

Reconciliation of Adjusted EBITDA outlook (unaudited)
Outlook for the year ending
(in millions)
January 31, 2018
Net income
$41 - $45
Income tax provision
8 - 9
Depreciation and amortization
11
Amortization of acquired intangible assets
4
Stock-based compensation expense
14
Other
1
Adjusted EBITDA
$79 - $84
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, 2017
July 31, 2017
January 31, 2018
Net income
$17
$31
$41 - $45
Stock compensation, net of tax
2
4
9
Excess tax benefit due to adoption of ASU 2016-09
(6
)
(10
)
(11)
Non-GAAP net income
$13
$25
$39 - $43
Diluted weighted-average shares used in computing GAAP and Non-GAAP per share amounts 62
62
62
Non-GAAP net income per diluted share
$0.21
$0.40
$0.64 - $0.68

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

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

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