HealthEquity Reports Second Quarter Ended July 31, 2017 Financial Results – Markets Insider

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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.

DRAPER, Utah, Sept. 05, 2017 (GLOBE NEWSWIRE) — 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, 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 (1)   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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