HealthEquity Reports First Quarter Ended April 30, 2023 Financial Results

Highlights of the first quarter include:

• Revenue of $244.4 million, an increase of 19% compared to $205.7 million in Q1 FY23.
• Net income of $4.1 million, compared to net loss of $13.6 million in Q1 FY23, with non-GAAP net income of $42.8 million, an increase of 89% compared to $22.7 million in Q1 FY23.
• Net income per diluted share of $0.05, compared to net loss per diluted share of $0.16 in Q1 FY23, with non-GAAP net income per diluted share of $0.50, compared to $0.27 in Q1 FY23.
• Adjusted EBITDA of $86.6 million, an increase of 48% compared to $58.3 million in Q1 FY23.
• 8.0 million HSAs, an increase of 9% compared to Q1 FY23.
• Total HSA Assets of $22.3 billion, an increase of 10% compared to Q1 FY23.
• 15.0 million Total Accounts, including both HSAs and complementary CDBs, an increase of 4% compared to Q1 FY23.

DRAPER, Utah, June 05, 2023 (GLOBE NEWSWIRE) -- HealthEquity, Inc. (NASDAQ: HQY) ("HealthEquity" or the "Company"), the nation's largest health savings account ("HSA") custodian, today announced financial results for its first quarter ended April 30, 2023.

"Team Purple delivered both growth and profitability in Q1, adding 134,000 new HSA members in the quarter and increasing our Adjusted EBITDA margin by 700 basis points year over year," said Jon Kessler, President and CEO of HealthEquity. "We are raising our outlook for the full year based on this strong first quarter performance, which also enabled our early payment of $50 million of variable-rate debt even as we continue to invest in drivers of future growth, including a remarkable service experience for our partners, clients, and members."

First quarter financial results

Revenue for the first quarter ended April 30, 2023 was $244.4 million, an increase of 19% compared to $205.7 million for the first quarter ended April 30, 2022. Revenue this quarter included: service revenue of $105.1 million, custodial revenue of $94.4 million, and interchange revenue of $44.9 million.

HealthEquity reported net income of $4.1 million, or $0.05 per diluted share, and non-GAAP net income of $42.8 million, or $0.50 per diluted share, for the first quarter ended April 30, 2023. The Company reported a net loss of $13.6 million, or $0.16 per diluted share, and non-GAAP net income of $22.7 million, or $0.27 per diluted share, for the first quarter ended April 30, 2022.

Adjusted EBITDA was $86.6 million for the first quarter ended April 30, 2023, an increase of 48% compared to the first quarter ended April 30, 2022. Adjusted EBITDA was 35% of revenue, compared to 28% for the first quarter ended April 30, 2022.

Account and asset metrics

HSAs as of April 30, 2023 were 8.0 million, an increase of 9% year over year, including 556,000 HSAs with investments, an increase of 10% year over year. Total Accounts as of April 30, 2023 were 15.0 million, including 7.0 million other consumer-directed benefits ("CDBs").

Total HSA Assets as of April 30, 2023 were $22.3 billion, an increase of 10% year over year. Total HSA Assets included $14.1 billion of HSA cash and $8.2 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 $0.9 billion as of April 30, 2023.

Business outlook

For the fiscal year ending January 31, 2024, management expects revenue of $975 million to $985 million. Its outlook for net income is between $9 million and $14 million, resulting in net income of $0.10 to $0.16 per diluted share. Its outlook for non-GAAP net income, calculated using the method described below, is between $164 million and $171 million, resulting in non-GAAP net income per diluted share of $1.88 to $1.97 (based on an estimated 87 million diluted weighted-average shares outstanding). Management expects Adjusted EBITDA of $333 million to $343 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 Monday, June 5, 2023 to discuss the fiscal 2024 first 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; 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 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
801-727-1209
rputnam@healthequity.com

HealthEquity, Inc. and subsidiaries
Condensed consolidated balance sheets

(in thousands, except par value)	April 30, 2023				January 31, 2023
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	225,642			$	254,266
Accounts receivable, net of allowance for doubtful accounts of $4,722 and $4,989 as of April 30, 2023 and January 31, 2023, respectively		98,414				96,835
Other current assets		34,353				31,792
Total current assets		358,409				382,893
Property and equipment, net		10,532				12,862
Operating lease right-of-use assets		56,726				56,461
Intangible assets, net		907,703				936,359
Goodwill		1,648,145				1,648,145
Other assets		53,494				52,180
Total assets	$	3,035,009			$	3,088,900
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	13,362			$	13,899
Accrued compensation		20,001				45,835
Accrued liabilities		45,647				43,668
Current portion of long-term debt		—				17,500
Operating lease liabilities		10,646				10,159
Total current liabilities		89,656				131,061
Long-term liabilities
Long-term debt, net of issuance costs		872,902				907,838
Operating lease liabilities, non-current		58,625				58,988
Other long-term liabilities		13,307				12,708
Deferred tax liability		81,927				82,665
Total long-term liabilities		1,026,761				1,062,199
Total liabilities		1,116,417				1,193,260
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of April 30, 2023 and January 31, 2023, respectively		—				—
Common stock, $0.0001 par value, 900,000 shares authorized, 85,470 and 84,758 shares issued and outstanding as of April 30, 2023 and January 31, 2023, respectively		9				8
Additional paid-in capital		1,764,573				1,745,716
Accumulated earnings		154,010				149,916
Total stockholders’ equity		1,918,592				1,895,640
Total liabilities and stockholders’ equity	$	3,035,009			$	3,088,900

HealthEquity, Inc. and subsidiaries
Condensed consolidated statements of operations and comprehensive income (loss) (unaudited)

	Three months ended April 30,
(in thousands, except per share data)		2023				2022
Revenue
Service revenue	$	105,112			$	104,348
Custodial revenue		94,441				59,365
Interchange revenue		44,879				41,966
Total revenue		244,432				205,679
Cost of revenue
Service costs		80,555				80,874
Custodial costs		9,000				6,641
Interchange costs		7,051				6,991
Total cost of revenue		96,606				94,506
Gross profit		147,826				111,173
Operating expenses
Sales and marketing		19,935				16,560
Technology and development		53,192				45,183
General and administrative		24,894				23,727
Amortization of acquired intangible assets		23,166				23,698
Merger integration		3,458				9,294
Total operating expenses		124,645				118,462
Income (loss) from operations		23,181				(7,289	)
Other expense
Interest expense		(14,997	)			(10,461	)
Other income (expense), net		1,828				(301	)
Total other expense		(13,169	)			(10,762	)
Income (loss) before income taxes		10,012				(18,051	)
Income tax provision (benefit)		5,918				(4,412	)
Net income (loss) and comprehensive income (loss)	$	4,094			$	(13,639	)
Net income (loss) per share:
Basic	$	0.05			$	(0.16	)
Diluted	$	0.05			$	(0.16	)
Weighted-average number of shares used in computing net income (loss) per share:
Basic		85,030				84,022
Diluted		86,102				84,022

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

	Three months ended April 30,
(in thousands)		2023				2022
Cash flows from operating activities:
Net income (loss)	$	4,094			$	(13,639	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		39,041				39,486
Stock-based compensation		18,204				13,986
Amortization of debt discount and issuance costs		782				812
Loss on extinguishment of debt		1,157				—
Deferred taxes		(738	)			(4,470	)
Changes in operating assets and liabilities:
Accounts receivable, net		(1,579	)			1,425
Other assets		(4,514	)			7,317
Operating lease right-of-use assets		1,844				2,034
Accrued compensation		(25,381	)			(13,731	)
Accounts payable, accrued liabilities, and other current liabilities		(50	)			(24,056	)
Operating lease liabilities, non-current		(1,921	)			(1,821	)
Other long-term liabilities		599				(266	)
Net cash provided by operating activities		31,538				7,077
Cash flows from investing activities:
Purchases of software and capitalized software development costs		(9,003	)			(13,635	)
Purchases of property and equipment		(132	)			(1,155	)
Acquisitions of HSA portfolios		—				(59,413	)
Net cash used in investing activities		(9,135	)			(74,203	)
Cash flows from financing activities:
Principal payments on long-term debt		(54,375	)			(2,187	)
Settlement of client-held funds obligation, net		2,432				2,335
Proceeds from exercise of common stock options		916				2,811
Net cash provided by (used in) financing activities		(51,027	)			2,959
Decrease in cash and cash equivalents		(28,624	)			(64,167	)
Beginning cash and cash equivalents		254,266				225,414
Ending cash and cash equivalents	$	225,642			$	161,247

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

	Three months ended April 30,
(in thousands)		2023				2022
Supplemental cash flow data:
Interest expense paid in cash	$	19,498			$	15,496
Income tax payments (refunds), net		(7	)			55
Supplemental 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		2,465				2,917
Purchases of property and equipment included in accounts payable or accrued liabilities		119				1,165
Acquisitions of HSA portfolios included in accounts payable or accrued liabilities		—				1,305
Exercise of common stock options receivable		120				—

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 April 30,
(in thousands)		2023				2022
Cost of revenue	$	3,835			$	3,007
Sales and marketing		2,779				2,014
Technology and development		4,892				3,380
General and administrative		6,698				5,585
Total stock-based compensation expense	$	18,204			$	13,986

Total Accounts (unaudited)

(in thousands, except percentages)	April 30, 2023		April 30, 2022		% Change			January 31, 2023
HSAs	8,045		7,359		9	%		7,984
New HSAs from sales - Quarter-to-date	134		159		(16	)%		445
New HSAs from sales - Year-to-date	134		159		(16	)%		971
New HSAs from acquisitions - Year-to-date	—		90		(100	)%		90
HSAs with investments	556		506		10	%		541
CDBs	6,954		7,095		(2	)%		6,933
Total Accounts	14,999		14,454		4	%		14,917
Average Total Accounts - Quarter-to-date	14,980		14,427		4	%		14,677
Average Total Accounts - Year-to-date	14,980		14,427		4	%		14,531

HSA Assets (unaudited)

(in millions, except percentages)	April 30, 2023			April 30, 2022			% Change			January 31, 2023
HSA cash	$	14,113		$	12,935		9	%		$	14,199
HSA investments		8,206			7,330		12	%			7,947
Total HSA Assets		22,319			20,265		10	%			22,146
Average daily HSA cash - Year-to-date		14,074			12,910		9	%			13,049
Average daily HSA cash - Quarter-to-date		14,074			12,910		9	%			13,375

Client-held funds (unaudited)

(in millions, except percentages)	April 30, 2023			April 30, 2022			% Change			January 31, 2023
Client-held funds	$	926		$	872		6	%		$	901
Average daily Client-held funds - Year-to-date		902			865		4	%			827
Average daily Client-held funds - Quarter-to-date		902			865		4	%			809

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

	Three months ended April 30,
(in thousands)		2023				2022
Net income (loss)	$	4,094			$	(13,639	)
Interest income		(1,598	)			(52	)
Interest expense		14,997				10,461
Income tax provision (benefit)		5,918				(4,412	)
Depreciation and amortization		15,875				15,788
Amortization of acquired intangible assets		23,166				23,698
Stock-based compensation expense		18,204				13,986
Merger integration expenses		3,458				9,294
Acquisition costs		—				6
Amortization of incremental costs to obtain a contract		1,304				1,067
Costs associated with unused office space		1,016				1,294
Other		153				844
Adjusted EBITDA	$	86,587			$	58,335

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

	Outlook for the year ending
(in millions)	January 31, 2024
Net income	$9 - 14
Interest income	(7	)
Interest expense	55
Income tax provision	9 - 14
Depreciation and amortization	61
Amortization of acquired intangible assets	93
Stock-based compensation expense	86
Merger integration expenses	17
Amortization of incremental costs to obtain a contract	5
Costs associated with unused office space	4
Other expense	1
Adjusted EBITDA	$333 - 343

Reconciliation of net income (loss) to non-GAAP net income (unaudited)

	Three months ended April 30,
(in thousands, except per share data)		2023				2022
Net income (loss)	$	4,094			$	(13,639	)
Income tax provision (benefit)		5,918				(4,412	)
Income (loss) before income taxes - GAAP		10,012				(18,051	)
Non-GAAP adjustments:
Amortization of acquired intangible assets		23,166				23,698
Stock-based compensation expense		18,204				13,986
Merger integration expenses		3,458				9,294
Acquisition costs		—				6
Costs associated with unused office space		1,016				1,294
Loss on extinguishment of debt		1,157				—
Total adjustments to income (loss) before income taxes - GAAP		47,001				48,278
Income before income taxes - Non-GAAP		57,013				30,227
Income tax provision - Non-GAAP (1)		14,253				7,557
Non-GAAP net income		42,760				22,670
Diluted weighted-average shares		86,102				84,022
Non-GAAP net income per diluted share	$	0.50			$	0.27

(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, 2024
Net income	$9 - 14
Income tax provision	9 - 14
Income before income taxes - GAAP	18 - 28
Non-GAAP adjustments:
Amortization of acquired intangible assets	93
Stock-based compensation expense	86
Merger integration expenses	17
Costs associated with unused office space	4
Total adjustments to income before income taxes - GAAP	200
Income before income taxes - Non-GAAP	218 - 228
Income tax provision - Non-GAAP (1)	54 - 57
Non-GAAP net income	$164 - 171
Diluted weighted-average shares	87
Non-GAAP net income per diluted share (2)	$1.88 - 1.97

(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

Term		Definition
HSA		A financial account through which consumers spend and save long-term for healthcare on a tax-advantaged basis.
CDB		Consumer-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 member		Consumers with HSAs that we serve.
Total HSA Assets		HSA 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.
Client		Our employer clients.
Total Accounts		The sum of HSAs and CDBs on our platforms.
Client-held funds		Deposits held on behalf of our Clients to facilitate administration of our CDBs.
Network Partner		Our health plan partners, benefits administrators, and retirement plan recordkeepers.
Adjusted EBITDA		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		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		Calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.