What changed in this filing

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Item 1. Financial Statements

2021-09-09 compared with 2021-06-08 · 97 added, 94 removed, 351 unchanged (35% of the section changed)

3 unchanged sentences

Condensed consolidated balance sheets

(in thousands, except par value) April 30, 2021 January 31, 2021

(in thousands, except par value) July 31, 2021 January 31, 2021

Current assets

Cash and cash equivalents $ 753,754 $ 328,803

Accounts receivable, net of allowance for doubtful accounts of $ 4,648 and $ 4,239 as of April 30, 2021 and January 31, 2021, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 5,824 and $ 4,239 as of July 31, 2021 and January 31, 2021, respectively

74,223 72,767

24 unchanged sentences

Stockholders’ equity

Preferred stock, $ 0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of April 30, 2021 and January 31, 2021, respectively

Common stock, $ 0.0001 par value, 900,000 shares authorized, 83,377 and 77,168 shares issued and outstanding as of April 30, 2021 and January 31, 2021, respectively

Preferred stock, $ 0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2021 and January 31, 2021, respectively

Common stock, $ 0.0001 par value, 900,000 shares authorized, 83,608 and 77,168 shares issued and outstanding as of July 31, 2021 and January 31, 2021, respectively

Additional paid-in capital 1,648,743 1,158,372

7 unchanged sentences

comprehensive income (loss) (unaudited)

Three months ended April 30,

Three months ended July 31, Six months ended July 31,

(in thousands, except per share data) 2021 2020 2021 2020

16 unchanged sentences

Total operating expenses 112,846 92,756 211,709 185,759

Income from operations 4,253 15,071

Income (loss) from operations ( 875 ) 9,028 3,378 24,099

Other expense

Interest expense ( 7,254 ) ( 8,895 ) ( 13,943 ) ( 21,158 )

Other expense, net ( 3,630 ) ( 764 )

Other income (expense), net 344 ( 824 ) ( 3,286 ) ( 1,588 )

Total other expense ( 6,910 ) ( 9,719 ) ( 17,229 ) ( 22,746 )

Income (loss) before income taxes ( 7,785 ) ( 691 ) ( 13,851 ) 1,353

Income tax provision (benefit) ( 3,451 ) 218

Income tax benefit ( 3,967 ) ( 543 ) ( 7,418 ) ( 325 )

Net income (loss) and comprehensive income (loss) $ ( 3,818 ) $ ( 148 ) $ ( 6,433 ) $ 1,678

9 unchanged sentences

Condensed consolidated statements of stockholders’ equity (unaudited)

Three months ended April 30,

Three months ended July 31, Six months ended July 31,

(in thousands) 2021 2020 2021 2020

20 unchanged sentences

Condensed consolidated statements of cash flows (unaudited)

Three months ended April 30,

Six months ended July 31,

(in thousands) 2021 2020

5 unchanged sentences

Amortization of debt issuance costs 2,482 2,533

Change in fair value of contingent consideration 1,011 —

Other non-cash items ( 752 ) 1,145

1 unchanged sentence

Changes in operating assets and liabilities:

Accounts receivable ( 475 ) 1,074

Accounts receivable, net ( 230 ) 628

Other assets 20,636 ( 3,187 )

10 unchanged sentences

Acquisition of intangible member assets ( 2,653 ) ( 24,922 )

Proceeds from sale of equity securities 2,367 —

Net cash used in investing activities ( 88,268 ) ( 55,696 )

4 unchanged sentences

Proceeds from exercise of common stock options 6,672 2,817

Net cash provided by (used in) financing activities 444,853 ( 10,365 )

Increase (decrease) in cash and cash equivalents 407,970 ( 20,633 )

Net cash provided by financing activities 445,053 64,218

Increase in cash and cash equivalents 424,951 77,184

Beginning cash and cash equivalents 328,803 191,726

4 unchanged sentences

Condensed consolidated statements of cash flows (unaudited) (continued)

Three months ended April 30,

Six months ended July 31,

(in thousands) 2021 2020

7 unchanged sentences

Exercise of common stock options receivable 119 66

Purchases of intangible member assets — 58

Additions to goodwill due to measurement period adjustments — 1,177

Follow-on equity offering costs accrued during the period — 540

See accompanying notes to condensed consolidated financial statements.

10 unchanged sentences

Basis of presentation

The accompanying condensed consolidated financial statements as of April 30, 2021 and for the three months ended April 30, 2021 and 2020 are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting.

The accompanying condensed consolidated financial statements as of July 31, 2021 and for the three and six months ended July 31, 2021 and 2020 are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting.

In the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods.

13 unchanged sentences

The following table sets forth the computation of basic and diluted net income (loss) per share:

Three months ended April 30,

Three months ended July 31, Six months ended July 31,

(in thousands, except per share data) 2021 2020 2021 2020

10 unchanged sentences

Diluted $ ( 0.05 ) $ 0.00 $ ( 0.08 ) $ 0.02

For the three months ended April 30, 2021 and 2020, 1.9 million and 0.5 million shares, respectively, attributable to stock options and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

For the three months ended July 31, 2021 and 2020, 1.9 million and 2.1 million shares, respectively, attributable to stock options and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

For the six months ended July 31, 2021 and 2020, approximately 2.0 million and 0.6 million shares, respectively, attributable to stock options and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

Business combination

2 unchanged sentences

Luum provides employers with a suite of commute tools as well as real-time commute data to help them design and implement flexible return-to-office and hybrid-workplace strategies and benefits.

The aggregate purchase price consisted of $ 50.2 million in cash, and up to $ 20.0 million in additional payments which are contingent on Luum achieving certain financial targets during the two-year period following the closing of the Luum Acquisition and, if achieved, would be payable in fiscal years 2023 and 2024.

The aggregate purchase price consisted of $ 50.2 million in cash, and up to $ 20.0 million in additional payments which are contingent on Luum achieving certain revenue targets during the two-year period following the closing of the Luum Acquisition and, if achieved, would be payable in fiscal years 2023 and 2024.

The Company recorded an $ 8.1 million liability representing its best estimate of the fair value of the contingent consideration as of the acquisition date.

The fair value of this contingent consideration was determined using a Monte Carlo valuation model based on Level 3 inputs and will be remeasured to fair value quarterly, with any changes in the fair value recorded in the condensed consolidated statement of operations and comprehensive income (loss).

The fair value of this contingent consideration was determined using a Monte Carlo valuation model based on Level 3 inputs and will be remeasured to fair value quarterly, with any changes in the fair value recorded as other income (expense), net, in the condensed consolidated statement of operations and comprehensive income (loss).

As of July 31, 2021, the fair value of the contingent consideration liability was $ 9.2 million.

The Luum Acquisition was accounted for under the acquisition method of accounting for business combinations.

4 unchanged sentences

The following table summarizes the Company's current allocation of the consideration paid:

(in millions) Estimated fair value

(in thousands) Estimated fair value

Cash and cash equivalents $ 626

10 unchanged sentences

The preliminary allocation of consideration exchanged to acquired identified intangible assets is as follows:

($ in millions) Fair value Estimated life

($ in thousands) Fair value Estimated life

Customer relationships (1) $ 12,400 7.0

3 unchanged sentences

(1) The Company preliminarily valued the acquired assets utilizing the discounted cash flow method, a form of the income approach.

The pro forma effects of the Luum Acquisition would not materially impact the Company's reported results for any period presented, and as a result no pro forma financial information is presented.

Supplemental financial statement information

1 unchanged sentence

Property and equipment

Property and equipment consisted of the following as of April 30, 2021 and January 31, 2021:

(in thousands) April 30, 2021 January 31, 2021

Property and equipment consisted of the following as of July 31, 2021 and January 31, 2021:

(in thousands) July 31, 2021 January 31, 2021

Leasehold improvements $ 20,604 $ 22,271

4 unchanged sentences

Property and equipment, net $ 27,382 $ 29,106

Depreciation expense was $ 3.9 million for each of the three months ended April 30, 2021 and 2020.

Depreciation expense for the three months ended July 31, 2021 and 2020 was $ 3.5 million and $ 4.1 million, respectively, and $ 7.4 million and $ 8.0 million for the six months ended July 31, 2021 and 2020, respectively.

Contract balances

The Company does not recognize revenue in advance of invoicing its customers and therefore has no related contract assets.

The Company does not recognize revenue until its right to consideration is unconditional and therefore has no related contract assets.

The Company records a receivable when revenue is recognized prior to payment and the Company has unconditional right to payment.

Alternatively, when payment precedes the related services, the Company records a contract liability, or deferred revenue, until its performance obligations are satisfied.

As of April 30, 2021 and January 31, 2021, the balance of deferred revenue was $ 4.4 million and $ 4.1 million, respectively.

The balances are related to cash received in advance for an interchange revenue arrangement, other up-front fees and other commuter deferred revenue, and are generally recognized within twelve months, with the exception of the interchange arrangement, which is recognized over a term of approximately ten years .

During the three months ended April 30, 2021, approximately $ 0.6 million of revenue was recognized that was included in the balance of deferred revenue as of January 31, 2021.

As of July 31, 2021 and January 31, 2021, the balance of deferred revenue was $ 4.0 million and $ 4.1 million, respectively.

exception of the interchange arrangement, which is recognized over a term of approximately ten years .

During the three and six months ended July 31, 2021, approximately $ 0.5 million and $ 1.1 million of revenue was recognized that was included in the balance of deferred revenue as of January 31, 2021.

The components of operating lease costs were as follows:

Three months ended April 30,

Three months ended July 31, Six months ended July 31,

(in thousands)

2021 2020 2021 2020

Operating lease expense $ 3,498 $ 3,925 $ 7,809 $ 8,249

1 unchanged sentence

Net operating lease expense $ 3,048 $ 3,475 $ 6,909 $ 7,349

Other income (expense), net

Other income (expense), net, consisted of the following:

Three months ended July 31, Six months ended July 31,

(in thousands) 2021 2020 2021 2020

Interest income $ 533 $ 76 $ 941 $ 676

Acquisition gains (costs), net ( 1,665 ) 28 ( 7,604 ) ( 66 )

Other income (expense), net 1,476 ( 928 ) 3,377 ( 2,198 )

Total other income (expense), net $ 344 $ ( 824 ) $ ( 3,286 ) $ ( 1,588 )

Supplemental cash flow information related to the Company's operating leases was as follows:

Three months ended April 30,

Six months ended July 31,

(in thousands) 2021 2020

2 unchanged sentences

Operating lease right-of-use assets obtained in exchange for new operating lease obligations $ 320 $ 17,480

Other expense, net

Other expense, net, consisted of the following:

Three months ended April 30,

(in thousands) 2021 2020

Interest income $ 408 $ 600

Acquisition costs ( 5,939 ) ( 94 )

Other income (expense) 1,901 ( 1,270 )

Total other expense, net $ ( 3,630 ) $ ( 764 )

Intangible assets and goodwill

Intangible assets

The gross carrying amount and associated accumulated amortization of intangible assets were as follows as of April 30, 2021 and January 31, 2021:

(in thousands) April 30, 2021 January 31, 2021

The gross carrying amount and associated accumulated amortization of intangible assets were as follows as of July 31, 2021 and January 31, 2021:

(in thousands) July 31, 2021 January 31, 2021

Amortizable intangible assets:

7 unchanged sentences

Amortizable intangible assets, net $ 770,329 $ 767,003

Amortization expense for the three months ended April 30, 2021 and 2020 was $ 27.9 million and $ 23.6 million, respectively.

During the three months ended April 30, 2021, goodwill increased by $ 36.4 million due to the Luum Acquisition.

Amortization expense for the three months ended July 31, 2021 and 2020 was $ 29.5 million and $ 24.5 million, respectively, and $ 57.4 million and $ 48.1 million for the six months ended July 31, 2021 and 2020, respectively.

During the six months ended July 31, 2021, goodwill increased by $ 36.4 million due to the Luum Acquisition.

For further information, see Note 3—Business combination.

There were no other changes to the carrying value of goodwill during the three months ended April 30, 2021.

There were no other changes to the carrying value of goodwill during the six months ended July 31, 2021.

Commitments and contingencies

Contingent acquisition consideration.

In connection with the Luum Acquisition, the Company agreed to pay up to $ 20.0 million in additional payments which are contingent on Luum achieving certain financial targets during the two-year period following the closing of the Luum Acquisition and, if achieved, would be payable in fiscal years 2023 and 2024.

In connection with the Luum Acquisition, the Company agreed to pay up to $ 20.0 million in additional payments which are contingent on Luum achieving certain revenue targets during the two-year period following the closing of the Luum Acquisition and, if achieved, would be payable in fiscal years 2023 and 2024.

For further information, see Note 3—Business combination.

2 unchanged sentences

The definitive agreement contemplates a $ 60.8 million dollar purchase price for a transfer of approximately 149,000 HSA members and their approximately $ 477.0 million of HSA assets.

The agreement

includes a mechanism to adjust the purchase price based on the amount of HSA assets actually transferred.

The transaction is subject to regulatory approval and satisfaction of other customary closing conditions.

The agreement includes a mechanism to adjust the purchase price based on the amount of HSA assets actually transferred.

The transaction is subject to satisfaction of certain customary closing conditions and is expected to close by the end of the Company's fiscal third quarter.

Further acquisition.

1 unchanged sentence

Further is a leading provider of HSA and other CDB administration services, with approximately 550,000 HSAs and $ 1.7 billion of HSA assets.

The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close by September 2021.

In September 2021, the terms of the acquisition were amended pursuant to two agreements:

(1) an agreement to acquire all cash balances and investment assets included in any voluntary employee beneficiary association (“VEBA”) account that is funding a health reimbursement arrangement (either Section 501(c)(9) or Section 115 trusts) and all contracts related exclusively thereto for, which is anticipated to close on January 31, 2022 for a maximum purchase price of $ 45 million, calculated based on the actual amount of VEBA assets transferred relative to the total amount of VEBA assets as of April 30, 2021, and (2) an amended agreement to acquire the remainder of the Further business for $ 455 million, with a target closing date on November 1, 2021.

The transactions are subject to satisfaction of certain customary closing conditions.

Lease termination.

4 unchanged sentences

The Company’s other commitments consist primarily of a term loan facility, operating lease obligations for office space, data storage facilities, and other leases, a processing services agreement with a vendor, and contractual commitments related to network infrastructure, equipment, and certain maintenance agreements under long-term, non-cancelable commitments.

Except for the items noted above, there were no material changes during the three months ended April 30, 2021, outside of the ordinary course of business, in our commitments from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

Except for the items noted above, there were no material changes during the three and six months ended July 31, 2021, outside of the ordinary course of business, in our commitments from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

Contingencies

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications.

As described above, the Company's right to terminate an operating lease agreement with aggregate undiscounted lease payments of $ 63.1 million is disputed by the landlord.

In the normal course of business, the Company enters into contracts and agreements that contain a variety of covenants, representations, and warranties and provide for general indemnifications.

The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made.

6 unchanged sentences

The complaint also alleged claims under the Securities Act of 1933, as amended, arising from WageWorks’ June 19, 2017 common stock offering against those same defendants, as well as the members of its board of directors at the time of that offering.

On February 11, 2021, counsel for all parties involved in this lawsuit signed a term sheet to settle all claims for $ 30.0 million, of which WageWorks will contribute $ 5.0 million and its insurers will pay the remaining $ 25.0 million.

The $ 30.0 million settlement and related $ 25.0 million insurance recovery are included within accrued liabilities and other current assets, respectively, on the April 30, 2021 condensed consolidated balance sheet.

On May 3, 2021, the Court preliminarily approved the settlement.

The settlement is subject to notice to class members and final approval of the Court.

The class action settled for $ 30.0 million.

During the quarter ended July 31, 2021, WageWorks

contributed $ 5.0 million and its insurers paid the remaining $ 25.0 million.

The court granted final approval of the settlement and entered a final judgment on August 20, 2021.

On June 22, 2018 and September 6, 2018, two derivative lawsuits were filed against certain of WageWorks’ former officers and directors and WageWorks (as nominal defendant) in the Superior Court of the State of California, County of San Mateo.

9 unchanged sentences

The District Court action is currently stayed.

On February 16, 2021, a complaint was filed in the United States District Court for the Northern District of California against WageWorks, its former Chief Executive Officer, and its former Chief Financial Officer.

The allegations in this suit relate to substantially the same facts as those underlying the Securities Class Action described above and the SEC settlement involving the former executives described below.

The action alleges claims under Sections 10(b)

and 20(a) of the Securities Exchange Act of 1934, as well as common law fraud and negligent misrepresentation.

The Company responded to the complaint and filed a motion to dismiss on May 10, 2021, which is pending before the Court.

Plaintiffs seek unspecified damages, costs and expenses.

WageWorks voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the restatement of WageWorks' financial statements and related independent investigation.

WageWorks is providing information and documents to the SEC and continues to cooperate with the SEC’s investigation into these matters.

Attorney’s Office for the Northern District of California also opened an investigation.

WageWorks has provided documents and information to the U.S.

Attorney’s Office and continues to cooperate with any inquiries by the U.S.

Attorney’s Office regarding the matter.

On February 2, 2021, the SEC announced charges against two former WageWorks executives and reached a settlement with these former executives.

As part of the settlement, the two executives agreed to reimburse WageWorks for a total of $ 2.1 million, which is included within other expense, net in the condensed consolidated statement of operations and comprehensive income (loss).

WageWorks previously entered into indemnification agreements with its former directors and officers and, pursuant to these indemnification agreements, is covering the defense fees and costs of its former directors and officers in the legal proceedings described above.

1 unchanged sentence

It is not possible to determine the ultimate outcome or the duration of such litigation, governmental proceedings or claims, or the impact that such litigation, proceedings and claims will have on the Company’s financial position, results of operations, and cash flows.

The Company maintains liability insurance coverage that is intended to cover the legal matters described above;

however, it is possible that claims may be denied by our insurance carriers or could exceed the amount of our applicable insurance coverage, we may be required by our insurance carriers to contribute to the payment of claims, and our insurance coverage may not continue to be available to us on acceptable terms or in sufficient amounts.

As required under GAAP, the Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Except with respect to the Securities Class Action, the Company does not believe, based on currently available information, that any liabilities relating to these matters are probable or that the amount of any resulting loss is estimable.

Except with respect to the Securities Class Action, which has been settled, the Company does not believe, based on currently available information, that any liabilities relating to these matters are probable or that the amount of any resulting loss is estimable.

However, litigation is subject to inherent uncertainties and the Company’s view of these matters may change in the future.

2 unchanged sentences

Accordingly, management estimated the effective annual tax rate and applied this rate to the year-to-date pre-tax book income (loss) to determine the interim benefit or provision for income taxes.

For the three months ended April 30, 2021, the Company recorded an income tax benefit of $ 3.5 million.

This resulted in an effective income tax benefit rate of 57.1 % for the three months ended April 30, 2021, compared with an effective income tax expense rate of 10.7 % for the three months ended April 30, 2020.

For the three months ended April 30, 2021 and 2020, discrete tax items had an effective tax rate benefit of 33.2 % and 16.8 %, respectively, primarily due to excess tax benefits on stock-based compensation expense recognized in the provision for income taxes.

As of April 30, 2021 and January 31, 2021, the Company’s total gross unrecognized tax benefit was $ 10.5 million and $ 10.2 million, respectively.

If recognized, $ 9.7 million of the total gross unrecognized tax benefits would affect the Company's effective tax rate as of April 30, 2021.

For the three and six months ended July 31, 2021, the Company recorded an income tax benefit of $ 4.0 million and $ 7.4 million, respectively.

This resulted in an effective income tax benefit rate of 50.8 % and 53.6 % for the three and six months ended July 31, 2021, respectively, compared with an effective income tax benefit rate of 78.6 % and 24.0 % for the three and six months ended July 31, 2020, respectively.

For the three and six months ended July 31, 2021, discrete tax items had an effective tax rate benefit of 25.6 % and 28.9 %, respectively, compared with an effective tax rate benefit of 62.9 % and 57.4 % for the three and six months ended July 31, 2020, respectively, primarily due to excess tax benefits on stock-based compensation expense recognized in the provision for income taxes.

As of July 31, 2021 and January 31, 2021, the Company’s total gross unrecognized tax benefit was $ 10.7 million and $ 10.2 million, respectively.

If recognized, $ 9.9 million of the total gross unrecognized tax benefits would affect the Company's effective tax rate as of July 31, 2021.

The Company files income tax returns with U.S.

federal and state taxing jurisdictions and is currently under examination by the IRS and in the states of California and Texas.

federal and state taxing jurisdictions and is currently under examination by the IRS and in the state of Texas.

These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes, net operating losses, and/or tax credit carryforwards.

As a result of the Company's net operating loss carryforwards and tax credit carryforwards, the Company remains subject to examination by one or more jurisdictions for tax years after 2001.

As of April 30, 2021, long-term debt consisted of the following:

(in millions) April 30, 2021

Long-term debt consisted of the following:

(in thousands) July 31, 2021 January 31, 2021

Term loan facility $ 987,500 $ 1,003,125

1 unchanged sentence

Long-term debt, net of issuance costs $ 973,574 $ 986,717

(1) In addition to the $ 15.2 million of unamortized issuance costs related to the term loan facility, $ 4.6 million of unamortized issuance costs related to our revolving credit facility are included within other assets on the April 30, 2021 condensed consolidated balance sheet.

(1) In addition to the $ 13.9 million and $ 16.4 million of unamortized issuance costs related to the term loan facility as of July 31, 2021 and January 31, 2021, respectively, $ 4.3 million and $ 5.0 million of unamortized issuance costs related to our revolving credit facility are included within other assets on the condensed consolidated balance sheets as of July 31, 2021 and January 31, 2021, respectively.

The Company is party to a credit facility (the "Credit Agreement”) that provides for:

1 unchanged sentence

(ii) a five-year senior secured revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Credit Facilities”), in an aggregate principal amount of up to $ 350.0 million, which may be used for working capital and general corporate purposes, including acquisitions and other investments.

No amounts were drawn under the Revolving Credit Facility as of April 30, 2021.

No amounts were drawn under the Revolving Credit Facility as of July 31, 2021.

Borrowings under the Credit Facilities bear interest at an annual rate equal to, at the option of HealthEquity, either (i) LIBOR (adjusted for reserves) plus a margin ranging from 1.25 % to 2.25 % or (ii) an alternate base rate plus a margin ranging from 0.25 % to 1.25 %, with the applicable margin determined by reference to a leverage-based pricing grid set forth in the Credit Agreement.

As of April 30, 2021, the stated interest rate was 1.86 % and the effective interest rate was 2.39 %.

As of July 31, 2021, the stated interest rate was 1.84 % and the effective interest rate was 2.37 %.

The Company is also required to pay certain fees to the lenders, including, among others, a quarterly commitment fee on the average unused amount of the Revolving Credit Facility at a rate ranging from 0.20 % to 0.40 %, with the applicable rate also determined by reference to a leverage-based pricing grid set forth in the Credit Agreement.

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit, among other things, the ability of the Company to incur additional indebtedness, create liens, merge or dissolve, make investments, dispose of assets, engage in sale and leaseback transactions, make distributions and dividends and prepayments of junior indebtedness, engage in transactions with affiliates, enter into restrictive agreements, amend documentation governing junior indebtedness, modify its fiscal year and modify its organizational documents, in each case, subject to customary exceptions, thresholds, qualifications and “baskets.” In addition, the Credit Agreement contains financial performance covenants, which require the Company to maintain (i) a maximum total net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than 5.00 to 1.00, which steps down to 4.50 to 1.00 beginning with the fiscal quarter ending July 31, 2021 (subject to a customary “acquisition holiday” provision that allows the maximum total net leverage ratio to increase to 5.00 to 1.00 for the four fiscal quarter period ending on or following the date of a permitted acquisition by the Company in excess of $ 100.0 million), and (ii) a minimum interest coverage ratio, measured as of the last day of each fiscal quarter, of no less than 3.00 to 1.00.

The Company was in compliance with all covenants under the Credit Agreement as of April 30, 2021, and for the period then ended.

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit, among other things, the ability of the Company to incur additional indebtedness, create liens, merge or dissolve, make investments, dispose of assets, engage in sale and leaseback transactions, make distributions and dividends and prepayments of junior indebtedness, engage in transactions with affiliates, enter into restrictive agreements, amend documentation governing junior indebtedness, modify its fiscal year and modify its organizational documents, in each case, subject to customary exceptions, thresholds, qualifications and “baskets.” In addition, the Credit Agreement contains financial performance covenants, which require the Company to maintain (i) a maximum total net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than 4.50 to 1.00 (subject to a customary “acquisition holiday” provision that allows the maximum total net leverage ratio to increase to 5.00 to 1.00 for the four fiscal quarter period ending on or following the date of a permitted acquisition by the Company in excess of $ 100.0 million), and (ii) a minimum interest coverage ratio, measured as of the last day of each fiscal quarter, of no less than 3.00 to 1.00.

The Company was in compliance with all covenants under the Credit Agreement as of July 31, 2021, and for the period then ended.

The obligations of HealthEquity under the Credit Agreement are required to be unconditionally guaranteed by WageWorks and Fort Effect Corp and are secured by security interests in substantially all assets of HealthEquity and the guarantors, subject to certain customary exceptions.

1 unchanged sentence

The following table shows a summary of stock-based compensation in the Company's condensed consolidated statements of operations and comprehensive income (loss) during the periods presented:

Three months ended April 30,

Three months ended July 31, Six months ended July 31,

(in thousands) 2021 2020 2021 2020

3 unchanged sentences

General and administrative 6,196 5,062 11,391 7,120

Other expense, net (1) 342 —

Other expense (1) — — 342 —

Total stock-based compensation expense $ 15,617 $ 11,438 $ 28,758 $ 18,834

5 unchanged sentences

In addition, under the Incentive Plan, the number of shares of common stock reserved for issuance under the Incentive Plan automatically increases on February 1 of each year, beginning as of February 1, 2015 and continuing through and including February 1, 2024, by 3 % of the total number of shares of the Company’s capital stock outstanding on January 31 of the preceding fiscal year, or a lesser number of shares determined by the board of directors.

As of April 30, 2021, 7.5 million shares were available for grant under the Incentive Plan.

As of July 31, 2021, 7.5 million shares were available for grant under the Incentive Plan.

Stock options

9 unchanged sentences

Exercised ( 225 ) $ 1.25 - 44.53

Outstanding as of April 30, 2021 1,571 $ 1.25 - 82.39

Outstanding as of July 31, 2021 1,449 $ 1.25 - 82.39

$ 32.66 4.40 $ 60,083

Vested and expected to vest as of April 30, 2021 1,571 $ 31.79 4.70 $ 69,562

Exercisable as of April 30, 2021 1,463 $ 29.08 4.50 $ 68,694

Vested and expected to vest as of July 31, 2021 1,449 $ 32.66 4.40 $ 60,083

Exercisable as of July 31, 2021 1,352 $ 29.95 4.20 $ 59,645

Restricted stock units and restricted stock awards

6 unchanged sentences

Forfeited ( 103 ) 60.43 ( 73 ) 61.77

Outstanding as of April 30, 2021 2,735 $ 65.95 4 $ 61.72

Outstanding as of July 31, 2021 2,611 $ 66.66 4 $ 61.72

Performance restricted stock units.

14 unchanged sentences

Level 1 instruments consist primarily of cash and cash equivalents.

The carrying value of cash and cash equivalents approximate fair values as of April 30, 2021 due to the short-term nature of these instruments.

The carrying value of cash and cash equivalents approximate fair values as of July 31, 2021 due to the short-term nature of these instruments.

Our long-term debt is considered a Level 2 instrument and is recorded at book value in our condensed consolidated financial statements.

2 unchanged sentences

The contingent consideration liability resulting from the Luum Acquisition was determined using a Monte Carlo valuation model based on Level 3 inputs.

The estimate of fair value of the contingent consideration obligation requires subjective assumptions to be made regarding the future business results, discount rates, volatilities, and probabilities assigned to various potential business result scenarios and was determined using probability assessments with respect to the likelihood of achieving certain financial targets.

The fair value measurement is based on significant inputs unobservable in the market and thus represents a level 3 measurement.

The estimate of fair value of the contingent consideration obligation requires subjective assumptions to be made regarding revenue growth rates, discount rates, peer revenue volatilities, and probabilities assigned to various potential business result scenarios and was determined using probability assessments with respect to the likelihood of achieving certain revenue targets.

The fair value measurement is based on inputs unobservable in the market and thus represents a level 3 measurement.

Changes in current expectations of progress could change the probability of achieving the targets within the measurement periods and result in an increase or decrease in the fair value of the contingent consideration obligation.

For further information, see Note 3—Business combination.

The following table reconciles the change in the fair value of the contingent consideration during the period presented:

(in thousands) Carrying Amount

Balance as of January 31, 2021 $ —

Contingent consideration recognized at acquisition 8,147

Change in fair value recognized in the condensed consolidated statement of operations and comprehensive income (loss) 1,011

Balance as of July 31, 2021 $ 9,158

Tabl e of Co ntents

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements