HQY HealthEquity Inc

HealthEquity, Inc. (NASDAQ: HQY) ("HealthEquity" or the "Company"), the nation's largest health savings account ("HSA") custodian, today announced financial results for its third quarter ended October 31, 2024.

"Strong third quarter results delivered by Team Purple helped drive HSAs to 9.5 million, HSA Assets to $30 billion, Total Accounts to 16.5 million and quarterly revenue to over $300 million, all quarterly records," said Jon Kessler, President and CEO of HealthEquity. "Year to date, we have generated $264 million of cash from operations. This momentum has enabled us to return $60 million of capital to our shareholders via share repurchases, accelerate platform investments, raise our fiscal 2025 guidance, and provide a healthy initial outlook for fiscal year 2026."

Third quarter financial results

Revenue for the third quarter ended October 31, 2024 was $300.4 million, an increase of 21% compared to $249.2 million for the third quarter ended October 31, 2023. Revenue this quarter included: service revenue of $119.2 million, custodial revenue of $141.0 million, and interchange revenue of $40.3 million.

HealthEquity reported net income of $5.7 million, or $0.06 per diluted share, and non-GAAP net income of $69.4 million, or $0.78 per diluted share, for the third quarter ended October 31, 2024. The Company reported net income of $14.7 million, or $0.17 per diluted share, and non-GAAP net income of $52.2 million, or $0.60 per diluted share, for the third quarter ended October 31, 2023.

Adjusted EBITDA was $118.2 million for the third quarter ended October 31, 2024, an increase of 24% compared to the third quarter ended October 31, 2023. Adjusted EBITDA was 39% of revenue, compared to 38% for the third quarter ended October 31, 2023.

Account and asset metrics

HSAs as of October 31, 2024 were 9.5 million, an increase of 15% year over year, including 717,000 HSAs with investments, an increase of 21% year over year. Total Accounts as of October 31, 2024 were 16.5 million, including 7.0 million other consumer-directed benefits ("CDBs").

Total HSA Assets as of October 31, 2024 were $30.0 billion, an increase of 33% year over year. Total HSA Assets included $16.4 billion of HSA cash and $13.6 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 $0.7 billion as of October 31, 2024.

Stock repurchase program

The Company repurchased 0.7 million shares of its common stock for $60.0 million during the third quarter ended October 31, 2024. As of October 31, 2024, $240.0 million of common stock remained authorized for repurchase under the Company's stock repurchase program.

Business outlook

For the fiscal year ending January 31, 2025, management expects revenue of $1.185 billion to $1.195 billion. Its outlook for net income is between $88 million and $96 million, resulting in net income of $0.99 to $1.08 per diluted share. Its outlook for non-GAAP net income, calculated using the method described below, is between $274 million and $281 million, resulting in non-GAAP net income per diluted share of $3.08 to $3.16 (based on an estimated 89 million diluted weighted-average shares outstanding). Management expects Adjusted EBITDA of $470 million to $480 million.

For the fiscal year ending January 31, 2026, management expects revenue of approximately $1.275 billion to $1.295 billion and Adjusted EBITDA of approximately 41.5% to 42.5% of revenue. These amounts assume an average annualized yield on HSA cash of approximately 3.4% to 3.5%.

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 (other than with respect to our Adjusted EBITDA outlook for the fiscal year ending January 31, 2026) to the most comparable GAAP financial measures is included with the financial tables at the end of this release. A reconciliation of our Adjusted EBITDA outlook for the fiscal year ending January 31, 2026 to net income, its most directly comparable GAAP measure, is not included, because our net income outlook for this future period is not available without unreasonable efforts as we are unable to predict certain significant items excluded from this non-GAAP measure, such as stock-based compensation expense and income tax provision.

Conference call

HealthEquity management will host a conference call at 4:30 pm (Eastern Time) on Monday, December 9, 2024 to discuss the fiscal 2025 third 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." 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 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 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 various other consumer-directed benefits for over 16 million accounts, working in close partnership with employers, benefits advisors, and health and retirement plan providers who share our unwavering commitment to our mission to save and improve lives by empowering healthcare consumers. Through cutting-edge solutions, innovation, and a relentless focus on improving health outcomes, we empower individuals to take control of their healthcare journey while ultimately enhancing their overall well-being. Learn more about our “Purple" service and approach at 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 ability to adequately place and safeguard our custodial assets, or the failure of any of our depository or insurance company partners;
• our ability to compete effectively in a rapidly evolving healthcare and benefits administration industry;
• our dependence on the continued availability and benefits of tax-advantaged HSAs and other CDBs;
• risks relating to our upcoming CEO transition;
• 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;
• our reliance on the availability and performance of our technology and communications systems;
• recent and 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 platforms 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, 2024 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 ContactRichard Putnam801-727-1000rputnam@healthequity.com

HealthEquity, Inc. and subsidiariesCondensed consolidated balance sheets

(in thousands, except par value)		October 31, 2024				January 31, 2024
		(unaudited)
Assets
Current assets
Cash and cash equivalents	$	322,163			$	403,979
Accounts receivable, net of allowance for doubtful accounts of $2,516 and $3,947 as of October 31, 2024 and January 31, 2024, respectively		106,712				104,893
Other current assets		66,371				48,564
Total current assets		495,246				557,436
Property and equipment, net		3,890				6,013
Operating lease right-of-use assets		44,845				48,380
Intangible assets, net		1,228,476				835,948
Goodwill		1,648,145				1,648,145
Other assets		67,745				67,868
Total assets	$	3,488,347			$	3,163,790
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	10,352			$	12,041
Accrued compensation		47,514				49,608
Accrued liabilities		86,725				46,038
Operating lease liabilities		9,948				9,404
Total current liabilities		154,539				117,091
Long-term liabilities
Long-term debt, net of issuance costs		1,081,039				874,972
Operating lease liabilities, non-current		44,202				48,766
Other long-term liabilities		25,275				19,270
Deferred tax liability		58,605				68,670
Total long-term liabilities		1,209,121				1,011,678
Total liabilities		1,363,660				1,128,769
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of October 31, 2024 and January 31, 2024, respectively		—				—
Common stock, $0.0001 par value, 900,000 shares authorized, 86,823 and 86,127 shares issued and outstanding as of October 31, 2024 and January 31, 2024, respectively		9				9
Additional paid-in capital		1,893,088				1,829,384
Accumulated earnings		231,590				205,628
Total stockholders’ equity		2,124,687				2,035,021
Total liabilities and stockholders’ equity	$	3,488,347			$	3,163,790

HealthEquity, Inc. and subsidiariesCondensed consolidated statements of operations and comprehensive income (unaudited)

	Three months ended October 31,								Nine months ended October 31,
(in thousands, except per share data)		2024				2023				2024				2023
Revenue
Service revenue	$	119,174			$	114,082			$	354,108			$	337,115
Custodial revenue		140,953				100,005				401,281				281,161
Interchange revenue		40,305				35,132				132,568				118,924
Total revenue		300,432				249,219				887,957				737,200
Cost of revenue
Service costs		86,860				75,721				246,122				233,498
Custodial costs		10,241				8,029				29,406				24,104
Interchange costs		6,305				6,287				24,213				20,281
Total cost of revenue		103,406				90,037				299,741				277,883
Gross profit		197,026				159,182				588,216				459,317
Operating expenses
Sales and marketing		22,636				19,656				67,655				58,714
Technology and development		60,189				55,614				174,859				163,573
General and administrative		31,789				27,153				102,285				80,516
Amortization of acquired intangible assets		28,350				23,213				84,876				69,545
Merger integration		34,437				2,655				38,357				8,157
Total operating expenses		177,401				128,291				468,032				380,505
Income from operations		19,625				30,891				120,184				78,812
Other expense
Interest expense		(18,155	)			(13,545	)			(45,377	)			(41,814	)
Other income, net		4,748				3,741				11,266				8,325
Total other expense		(13,407	)			(9,804	)			(34,111	)			(33,489	)
Income before income taxes		6,218				21,087				86,073				45,323
Income tax provision		515				6,414				15,735				15,975
Net income and comprehensive income	$	5,703			$	14,673			$	70,338			$	29,348
Net income per share:
Basic	$	0.07			$	0.17			$	0.81			$	0.34
Diluted	$	0.06			$	0.17			$	0.79			$	0.34
Weighted-average number of shares used in computing net income per share:
Basic		87,193				85,697				86,935				85,424
Diluted		88,634				87,122				88,699				86,707

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

	Nine months ended October 31,
(in thousands)		2024				2023
Cash flows from operating activities:
Net income	$	70,338			$	29,348
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		123,269				115,167
Stock-based compensation		74,717				59,939
Amortization of debt discount and issuance costs		1,805				2,150
Loss on extinguishment of debt		1,576				1,157
Deferred taxes		(10,065	)			(15,928	)
Changes in operating assets and liabilities:
Accounts receivable, net		(1,819	)			654
Other assets		(11,672	)			(12,820	)
Operating lease right-of-use assets		5,004				8,241
Accrued compensation		(3,161	)			(14,829	)
Accounts payable, accrued liabilities, and other current liabilities		24,757				(2,363	)
Operating lease liabilities, non-current		(5,796	)			(9,966	)
Other long-term liabilities		(4,845	)			5,003
Net cash provided by operating activities		264,108				165,753
Cash flows from investing activities:
Purchases of software and capitalized software development costs		(37,900	)			(30,413	)
Purchases of property and equipment		(1,756	)			(1,134	)
Acquisitions of HSA portfolios		(452,241	)			(3,257	)
Net cash used in investing activities		(491,897	)			(34,804	)
Cash flows from financing activities:
Proceeds from long-term debt		736,875				—
Principal payments on long-term debt		(536,875	)			(54,375	)
Payment of debt issuance costs		(3,748	)			—
Repurchases of common stock		(58,513	)			—
Settlement of client-held funds obligation, net		3,188				(183	)
Proceeds from exercise of common stock options		5,046				3,404
Net cash provided by (used in) financing activities		145,973				(51,154	)
Increase (decrease) in cash and cash equivalents		(81,816	)			79,795
Beginning cash and cash equivalents		403,979				254,266
Ending cash and cash equivalents	$	322,163			$	334,061

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

	Nine months ended October 31,
(in thousands)		2024				2023
Supplemental cash flow data:
Interest expense paid in cash	$	50,203			$	44,194
Income tax payments, net		23,817				24,777
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		4,754				2,882
Purchases of property and equipment included in accounts payable or accrued liabilities		106				98
Repurchases of common stock included in accrued liabilities		1,500				—
Non-cash purchase consideration related to acquisitions of HSA portfolios		20,325				—
Exercise of common stock options receivable		7				19

Stock-based compensation expense (unaudited)

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

	Three months ended October 31,								Nine months ended October 31,
(in thousands)		2024				2023				2024				2023
Cost of revenue	$	3,751			$	4,343			$	11,210			$	12,342
Sales and marketing		3,700				3,506				11,873				9,763
Technology and development		6,353				5,923				18,747				15,098
General and administrative		7,319				7,890				32,887				22,736
Total stock-based compensation expense	$	21,123			$	21,662			$	74,717			$	59,939

Total Accounts (unaudited)

(in thousands, except percentages)	October 31, 2024			October 31, 2023			% Change				January 31, 2024
HSAs	9,508			8,295			15		%		8,692
New HSAs from sales - Quarter-to-date	186			163			14		%		497
New HSAs from sales - Year-to-date	568			453			25		%		949
New HSAs from acquisitions - Year-to-date	616			—			*				—
HSAs with investments	717			592			21		%		610
CDBs	6,955			6,984			0		%		7,006
Total Accounts	16,463			15,279			8		%		15,698
Average Total Accounts - Quarter-to-date	16,400			15,167			8		%		15,318
Average Total Accounts - Year-to-date	16,177			15,034			8		%		15,105

*  Not meaningful

HSA Assets (unaudited)

(in millions, except percentages)	October 31, 2024				October 31, 2023				% Change				January 31, 2024
HSA cash	$	16,386			$	13,971			17		%		$	15,006
HSA investments		13,601				8,597			58		%			10,208
Total HSA Assets		29,987				22,568			33		%			25,214
Average daily HSA cash - Quarter-to-date		16,441				13,977			18		%			14,210
Average daily HSA cash - Year-to-date		16,064				14,024			15		%			14,071

Client-held funds (unaudited)

(in millions, except percentages)	October 31, 2024				October 31, 2023				% Change				January 31, 2024
Client-held funds	$	748			$	761			(2	)	%		$	842
Average daily Client-held funds - Quarter-to-date		770				794			(3	)	%			791
Average daily Client-held funds - Year-to-date		823				862			(5	)	%			845

Reconciliation of net income to Adjusted EBITDA (unaudited)

	Three months ended October 31,								Nine months ended October 31,
(in thousands)		2024				2023				2024				2023
Net income	$	5,703			$	14,673			$	70,338			$	29,348
Interest income		(3,897	)			(3,713	)			(10,881	)			(7,795	)
Interest expense		18,155				13,545				45,377				41,814
Income tax provision		515				6,414				15,735				15,975
Depreciation and amortization		12,371				14,567				38,393				45,622
Amortization of acquired intangible assets		28,350				23,213				84,876				69,545
Stock-based compensation expense		21,123				21,662				74,717				59,939
Merger integration expenses		34,437				2,655				38,357				8,157
Amortization of incremental costs to obtain a contract		1,702				1,379				5,015				4,033
Costs associated with unused office space		812				950				2,408				3,252
Other		(1,026	)			301				(368	)			454
Adjusted EBITDA	$	118,245			$	95,646			$	363,967			$	270,344

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

	Outlook for the year ending
(in millions)	January 31, 2025
Net income	$88 - 96
Interest income	(13	)
Interest expense	60
Income tax provision	22 - 24
Depreciation and amortization	51
Amortization of acquired intangible assets	112
Stock-based compensation expense	98
Merger integration expenses	42
Amortization of incremental costs to obtain a contract	7
Costs associated with unused office space	3
Other expense	0
Adjusted EBITDA	$470 - 480

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

	Three months ended October 31,								Nine months ended October 31,
(in thousands, except per share data)		2024				2023				2024				2023
Net income	$	5,703			$	14,673			$	70,338			$	29,348
Income tax provision		515				6,414				15,735				15,975
Income before income taxes - GAAP		6,218				21,087				86,073				45,323
Non-GAAP adjustments:
Amortization of acquired intangible assets		28,350				23,213				84,876				69,545
Stock-based compensation expense		21,123				21,662				74,717				59,939
Merger integration expenses		34,437				2,655				38,357				8,157
Costs associated with unused office space		812				950				2,408				3,252
Loss on extinguishment of debt		1,576				—				1,576				1,157
Total adjustments to income before income taxes - GAAP		86,298				48,480				201,934				142,050
Income before income taxes - Non-GAAP		92,516				69,567				288,007				187,373
Income tax provision - Non-GAAP (1)		23,129				17,391				72,002				46,843
Non-GAAP net income		69,387				52,176				216,005				140,530
Diluted weighted-average shares		88,634				87,122				88,699				86,707
GAAP net income per diluted share	$	0.06			$	0.17			$	0.79			$	0.34
Non-GAAP net income per diluted share	$	0.78			$	0.60			$	2.44			$	1.62

(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, 2025
Net income	$88 - 96
Income tax provision	22 - 24
Income before income taxes - GAAP	110 - 120
Non-GAAP adjustments:
Amortization of acquired intangible assets	112
Stock-based compensation expense	98
Merger integration expenses	42
Costs associated with unused office space	3
Total adjustments to income before income taxes - GAAP	255
Income before income taxes - Non-GAAP	365 - 375
Income tax provision - Non-GAAP (1)	91 - 94
Non-GAAP net income	$274 - 281
Diluted weighted-average shares	89
GAAP net income per diluted share (2)	$0.99 - 1.08
Non-GAAP net income per diluted share (2)	$3.08 - 3.16

(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)	GAAP and non-GAAP net income per diluted share may 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.
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		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 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.