Highlights of the second quarter include:
Revenue of $299.9 million, an increase of 23% compared to $243.5 million in Q2 FY24.
Net income of $35.8 million, compared to $10.6 million in Q2 FY24, with non-GAAP net income of $76.3 million, an increase of 67% compared to $45.6 million in Q2 FY24.
Net income per diluted share of $0.40, compared to $0.12 in Q2 FY24, with non-GAAP net income per diluted share of $0.86, compared to $0.53 in Q2 FY24.
Adjusted EBITDA of $128.3 million, an increase of 46% compared to $88.1 million in Q2 FY24.
9.4 million HSAs, an increase of 15% compared to Q2 FY24.
Total HSA Assets of $29.5 billion, an increase of 27% compared to Q2 FY24.
16.3 million Total Accounts, including both HSAs and complementary CDBs, an increase of 9% compared to Q2 FY24.
DRAPER, Utah, Sept. 03, 2024 (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 second quarter ended July 31, 2024.
"Team Purple delivered an outstanding second quarter, increasing HSAs and HSA Assets by 15% and 27%, respectively, driven by strong growth in new HSAs from sales and the transition of the remaining BenefitWallet HSAs to the HealthEquity platform," said Jon Kessler, President and CEO of HealthEquity. "Momentum in both topline growth and margin expansion allows us to raise guidance, accelerate our platform investments, launch Health Payment Accounts and announce a $300 million share repurchase authorization."
Second quarter financial results
Revenue for the second quarter ended July 31, 2024 was $299.9 million, an increase of 23% compared to $243.5 million for the second quarter ended July 31, 2023. Revenue this quarter included: service revenue of $116.7 million, custodial revenue of $138.7 million, and interchange revenue of $44.5 million.
HealthEquity reported net income of $35.8 million, or $0.40 per diluted share, and non-GAAP net income of $76.3 million, or $0.86 per diluted share, for the second quarter ended July 31, 2024. The Company reported net income of $10.6 million, or $0.12 per diluted share, and non-GAAP net income of $45.6 million, or $0.53 per diluted share, for the second quarter ended July 31, 2023.
Adjusted EBITDA was $128.3 million for the second quarter ended July 31, 2024, an increase of 46% compared to the second quarter ended July 31, 2023. Adjusted EBITDA was 43% of revenue, compared to 36% for the second quarter ended July 31, 2023.
Account and asset metrics
HSAs as of July 31, 2024 were 9.4 million, an increase of 15% year over year, including 711,000 HSAs with investments, an increase of 24% year over year. Total Accounts as of July 31, 2024 were 16.3 million, including 6.9 million other consumer-directed benefits ("CDBs").
Total HSA Assets as of July 31, 2024 were $29.5 billion, an increase of 27% year over year. Total HSA Assets included $16.4 billion of HSA cash and $13.1 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 $0.8 billion as of July 31, 2024.
Stock repurchase program
The Company announced that its Board of Directors authorized a common stock repurchase program. Under the program, the Company may purchase up to $300 million of its common stock, as market conditions warrant. The common stock may be repurchased at prices that the Company deems appropriate and subject to market conditions, applicable law and other factors deemed relevant in the Company's sole discretion. Such repurchases may be effected through open market purchases, privately negotiated transactions or otherwise, including repurchase plans that satisfy the conditions of Rule 10b5-1 under the Securities Exchange Act of 1934. The stock repurchase program does not obligate the Company to repurchase any dollar amount or number of shares of common stock, and the program may be suspended or discontinued at any time.
Refinancing of credit facilities
On August 23, 2024, the Company entered into a new credit agreement, pursuant to which it established a new five-year senior secured revolving credit facility in an aggregate principal amount of up to $1.0 billion. The Company borrowed $511.9 million under this new facility to refinance all outstanding obligations under its prior credit agreement, including both the revolving credit facility and term loan facility thereunder. The revolving credit facility may be used in the future for working capital and general corporate purposes, including the financing of acquisitions and other investments.
Business outlook
For the fiscal year ending January 31, 2025, management expects revenue of $1.165 billion to $1.185 billion. Its outlook for net income is between $94 million and $109 million, resulting in net income of $1.05 to $1.22 per diluted share. Its outlook for non-GAAP net income, calculated using the method described below, is between $265 million and $280 million, resulting in non-GAAP net income per diluted share of $2.98 to $3.14 (based on an estimated 89 million diluted weighted-average shares outstanding). Management expects Adjusted EBITDA of $458 million to $478 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 Tuesday, September 3, 2024 to discuss the fiscal 2025 second 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;
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 successfully manage our growth; 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
HealthEquity, Inc. and subsidiariesCondensed consolidated balance sheets
(in thousands, except par value)
July 31, 2024
January 31, 2024
(unaudited)
Assets
Current assets
Cash and cash equivalents
$
326,893
$
403,979
Accounts receivable, net of allowance for doubtful accounts of $2,831 and $3,947 as of July 31, 2024 and January 31, 2024, respectively
108,454
104,893
Other current assets
60,280
48,564
Total current assets
495,627
557,436
Property and equipment, net
4,592
6,013
Operating lease right-of-use assets
46,484
48,380
Intangible assets, net
1,254,210
835,948
Goodwill
1,648,145
1,648,145
Other assets
65,408
67,868
Total assets
$
3,514,466
$
3,163,790
Liabilities and stockholders' equity
Current liabilities
Accounts payable
$
10,562
$
12,041
Accrued compensation
37,072
49,608
Accrued liabilities
63,379
46,038
Operating lease liabilities
9,895
9,404
Total current liabilities
120,908
117,091
Long-term liabilities
Long-term debt, net of issuance costs
1,101,400
874,972
Operating lease liabilities, non-current
46,158
48,766
Other long-term liabilities
25,497
19,270
Deferred tax liability
63,466
68,670
Total long-term liabilities
1,236,521
1,011,678
Total liabilities
1,357,429
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 July 31, 2024 and January 31, 2024, respectively
—
—
Common stock, $0.0001 par value, 900,000 shares authorized, 87,324 and 86,127 shares issued and outstanding as of July 31, 2024 and January 31, 2024, respectively
9
9
Additional paid-in capital
1,886,765
1,829,384
Accumulated earnings
270,263
205,628
Total stockholders' equity
2,157,037
2,035,021
Total liabilities and stockholders' equity
$
3,514,466
$
3,163,790
HealthEquity, Inc. and subsidiariesCondensed consolidated statements of operations and comprehensive income (unaudited)
Three months ended July 31,
Six months ended July 31,
(in thousands, except per share data)
2024
2023
2024
2023
Revenue
Service revenue
$
116,720
$
111,960
$
234,934
$
223,033
Custodial revenue
138,684
92,676
260,328
181,156
Interchange revenue
44,524
38,913
92,263
83,792
Total revenue
299,928
243,549
587,525
487,981
Cost of revenue
Service costs
76,915
76,904
159,262
157,777
Custodial costs
10,108
8,037
19,165
16,075
Interchange costs
8,853
6,943
17,908
13,994
Total cost of revenue
95,876
91,884
196,335
187,846
Gross profit
204,052
151,665
391,190
300,135
Operating expenses
Sales and marketing
21,525
19,123
45,019
39,058
Technology and development
58,580
54,767
114,670
107,959
General and administrative
32,260
27,825
70,496
53,363
Amortization of acquired intangible assets
30,981
23,166
56,526
46,332
Merger integration
1,777
2,044
