What changed in this filing

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Item 1. Financial Statements

2021-12-09 compared with 2021-09-09 · 177 added, 100 removed, 348 unchanged (44% of the section changed)

3 unchanged sentences

Condensed consolidated balance sheets

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

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

Current assets

Cash and cash equivalents $ 649,129 $ 328,803

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

Accounts receivable, net of allowance for doubtful accounts of $ 6,063 and $ 4,239 as of October 31, 2021 and January 31, 2021, respectively

84,083 72,767

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Long-term liabilities

Long-term debt, net of issuance costs 895,449 924,217

Long-term debt, net 923,501 924,217

Operating lease liabilities, non-current 67,836 74,224

5 unchanged sentences

Stockholders’ equity

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

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

Common stock, $ 0.0001 par value, 900,000 shares authorized, 83,586 and 77,168 shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively

Additional paid-in capital 1,662,965 1,158,372

7 unchanged sentences

comprehensive income (loss) (unaudited)

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

Three months ended October 31, Nine months ended October 31,

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

22 unchanged sentences

Income (loss) before income taxes ( 9,125 ) 4,129 ( 22,976 ) 5,482

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

Income tax provision (benefit) ( 4,087 ) 2,340 ( 11,505 ) 2,015

Net income (loss) and comprehensive income (loss) $ ( 5,038 ) $ 1,789 $ ( 11,471 ) $ 3,467

9 unchanged sentences

Condensed consolidated statements of stockholders’ equity (unaudited)

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

Three months ended October 31, Nine months ended October 31,

(in thousands) 2021 2020 2021 2020

20 unchanged sentences

Condensed consolidated statements of cash flows (unaudited)

Six months ended July 31,

Nine months ended October 31,

(in thousands) 2021 2020

4 unchanged sentences

Stock-based compensation 41,700 30,313

Amortization of debt issuance costs 2,482 2,533

Amortization of debt discount and issuance costs 3,616 3,818

Loss on extinguishment of debt 4,044 —

Change in fair value of contingent consideration ( 2,147 ) —

18 unchanged sentences

Cash flows from financing activities:

Proceeds from follow-on equity offering, net of payments for offering costs 456,642 287,318

Principal payments on long-term debt ( 1,003,125 ) ( 223,438 )

Proceeds from issuance of long-term debt 950,000 —

Payment of debt issuance costs ( 11,846 ) —

Proceeds from follow-on equity offering, net of payments for offering costs 456,642 286,779

Settlement of client-held funds obligation, net ( 1,565 ) ( 4,189 )

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

Six months ended July 31,

Nine months ended October 31,

(in thousands) 2021 2020

5 unchanged sentences

Purchases of property and equipment included in accounts payable or accrued liabilities 479 167

Purchases of intangible member assets included in accounts payable or accrued liabilities 2,281 289

Contingent consideration recognized at acquisition 8,147 —

Exercise of common stock options receivable 1 89

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

Decrease in goodwill due to measurement period adjustments, net 19 5,838

See accompanying notes to condensed consolidated financial statements.

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Basis of presentation

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.

The accompanying condensed consolidated financial statements as of October 31, 2021 and for the three and nine months ended October 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.

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The Company received net proceeds of $ 456.6 million after deducting underwriting discounts and commissions of $ 4.6 million and other offering expenses of approximately $ 0.5 million.

The Company used $ 50.2 million of the net proceeds from the offering to acquire 100 % of the outstanding capital stock of Fort Effect Corp, d/b/a Luum, and intends to use the remaining net proceeds from the offering for general corporate purposes, which may include prepayments under its term loan facility or potential acquisitions, including the acquisitions of Further and the Fifth Third Bank HSA portfolio.

The Company used $ 50.2 million of the net proceeds from the offering to acquire 100 % of the outstanding capital stock of Fort Effect Corp, d/b/a Luum, and used an additional $ 60.8 million to acquire the Fifth Third Bank HSA portfolio.

The Company used the remaining net proceeds from the offering, and other cash on hand, for the acquisition of Further on November 1, 2021.

For a description of the Further acquisition, refer to Note 11—Subsequent events.

Significant accounting policies

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

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

Three months ended October 31, Nine months ended October 31,

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

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Diluted $ ( 0.06 ) $ 0.02 $ ( 0.14 ) $ 0.05

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.

For the three months ended October 31, 2021 and 2020, 1.6 million and 1.0 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 nine months ended October 31, 2021 and 2020, approximately 1.9 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

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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 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 aggregate purchase price consisted of $ 50.2 million in cash, and up to $ 20.0 million in additional payments which were 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 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 fair value of this contingent consideration was determined using a Monte Carlo valuation model based on Level 3 inputs, with any changes in the fair value recorded as other income (expense), net, in the condensed consolidated statement of operations and comprehensive income (loss).

During the three and nine months ended October 31, 2021, the Company recognized income of $ 3.2 million and $ 2.1 million, respectively, resulting from changes in the fair value of the contingent consideration.

On October 31, 2021, the Company entered into an amendment to the purchase agreement to pay $ 6.0 million in satisfaction of the contingent consideration liability, which is presented within accrued liabilities on the Company's condensed consolidated balance sheet as of October 31, 2021.

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

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

(in thousands) Estimated fair value

(in thousands) Estimated fair value Adjustments Updated Allocation

Cash and cash equivalents $ 626 $ — $ 626

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The preliminary goodwill to be recognized is attributable to several strategic, operational, and financial benefits expected from the Luum Acquisition, including an expanded commuter offering beyond traditional pre-tax commuter benefits and additional cross-selling opportunities.

The adjustments to the initial allocation were based on more detailed information obtained about the specific assets acquired, liabilities assumed, and tax-related matters.

The goodwill created in the Luum Acquisition is not expected to be deductible for tax purposes.

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Property and equipment

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

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

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

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

Leasehold improvements $ 20,718 $ 22,271

4 unchanged sentences

Property and equipment, net $ 24,930 $ 29,106

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.

Depreciation expense for the three months ended October 31, 2021 and 2020 was $ 3.5 million and $ 4.0 million, respectively, and $ 10.9 million and $ 12.0 million for the nine months ended October 31, 2021 and 2020, respectively.

Contract balances

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

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

October 31, 2021 and January 31, 2021, the balance of deferred revenue was $ 10.1 million and $ 4.1 million, respectively.

The balances are related to cash received in advance for interchange and custodial revenue arrangements, other up-front fees and other commuter deferred revenue.

The Company expects to recognize approximately 40 % of its balance of deferred revenue as revenue over the next 12 months and the remainder thereafter.

During the three and nine months ended October 31, 2021, approximately $ 0.3 million and $ 1.4 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 July 31, Six months ended July 31,

Three months ended October 31, Nine months ended October 31,

(in thousands)

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

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

Three months ended October 31, Nine months ended October 31,

(in thousands) 2021 2020 2021 2020

Interest income $ 478 $ 174 $ 1,419 $ 850

Gain on equity securities — — 1,677 —

Acquisition gains (costs), net 2,687 ( 13 ) ( 4,917 ) ( 79 )

1 unchanged sentence

Total other income (expense), net $ 3,122 $ ( 421 ) $ ( 164 ) $ ( 2,009 )

Interest expense

Based on the application of Accounting Standards Codification ("ASC") 470-50, Debt - Modifications and Extinguishments , the Company recorded a $ 4.0 million loss on extinguishment of debt during the three months ended October 31, 2021, which is included within interest expense in the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended October 31, 2021.

Supplemental cash flow information

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

Six months ended July 31,

Nine months ended October 31,

(in thousands) 2021 2020

4 unchanged sentences

Intangible assets

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

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

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

Amortizable intangible assets:

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Amortizable intangible assets, net $ 820,946 $ 767,003

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 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 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.

Amortization expense for the three months ended October 31, 2021 and 2020 was $ 30.0 million and $ 25.3 million, respectively, and $ 87.5 million and $ 73.5 million for the nine months ended October 31, 2021 and 2020, respectively.

Fifth Third Bank HSA portfolio acquisition.

In April 2021, the Company entered into a definitive agreement with Fifth Third Bank, National Association ("Fifth Third"), to transition custodianship of Fifth Third’s HSA portfolio to HealthEquity.

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.

In April 2021, the Company entered into a definitive agreement with Fifth Third Bank, National Association ("Fifth Third"), to transition the custody of Fifth Third’s HSA portfolio to HealthEquity.

On September 29, 2021, the transaction was closed, in which the Company paid a $ 60.8 million purchase price for a transfer of approximately 160,000 HSAs and $ 491.0 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 satisfaction of certain customary closing conditions and is expected to close by the end of the Company's fiscal third quarter.

During the nine months ended October 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 nine months ended October 31, 2021.

Commitments and contingencies

The following table summarizes the payments due by fiscal year for our outstanding contractual obligations as of October 31, 2021:

Payments due by fiscal year

(in thousands) 2022 2023 2024 2025 2026 Thereafter Total

4.50 % Senior Notes due 2029 (1)

$ — $ — $ — $ — $ — $ 600,000 $ 600,000

Term Loan Facility (1) — 8,750 17,500 17,500 26,250 280,000 350,000

Interest on long-term debt obligations (2) 8,577 33,951 33,708 33,467 32,965 103,739 246,407

Operating lease obligations (3) 3,416 12,689 10,442 10,836 11,080 52,563 101,026

Further acquisition (4) 500,000 — — — — — 500,000

In April 2021, the Company entered into a definitive agreement to acquire Further for $ 500 million.

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

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.

In April 2021, the Company exercised its right to terminate an operating lease that had not yet commenced with aggregate undiscounted lease payments of $ 63.1 million and a term of approximately 11 years following the landlord's failure to fulfill its obligations under the lease agreement.

The Company's right to terminate the lease agreement is disputed by the landlord.

Because the lease had not yet commenced, the Company had not recognized a right-of-use asset, operating lease liability, or any rent expense associated with the lease.

Other commitments.

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 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.

Contingent acquisition consideration 6,000 — — — — — 6,000

Other contractual obligations (5) 7,143 21,368 9,559 622 16 — 38,708

Total $ 525,136 $ 76,758 $ 71,209 $ 62,425 $ 70,311 $ 1,036,302 $ 1,842,141

(1) As of October 31, 2021, our outstanding combined principal of $ 950.0 million is presented net of debt discount and issuance costs on our condensed consolidated balance sheets.

The debt discount and issuance costs are not included in the table above.

(2) With respect to the Term Loan Facility, estimated interest payments assume the stated interest rate applicable as of October 31, 2021 of 1.88 % per annum.

(3) We lease office space and data storage facilities, and we have other non-cancelable operating leases expiring at various dates through 2031.

These amounts exclude contractual sublease income of $ 2.7 million, which is expected to be received through March 2023.

(4) For a description of the Further acquisition, refer to Note 11—Subsequent events.

(5) Other contractual obligations consist of processing services agreements, telephony services, and other contractual commitments.

Contingencies

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.

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Legal matters

In April 2021, WageWorks exercised its right to terminate a lease for office space in Mesa, Arizona that had not yet commenced, with aggregate lease payments of $ 63.1 million and a term of approximately 11 years, following the landlord's failure to fulfill its obligations under the lease agreement.

Because the lease had not yet commenced, the Company had not recognized a right-of-use asset, operating lease liability, or any rent expense associated with the lease.

WageWorks' right to terminate the lease agreement was disputed by the landlord, Union Mesa 1, LLC (“Union Mesa”).

On November 5, 2021, Union Mesa notified WageWorks that it was in default of the lease for failure to pay rent, which Union Mesa claimed was due beginning in November 2021, and on November 24, 2021 drew $ 2.8 million, the full amount under the letter of credit that WageWorks had posted to secure its obligations under the lease.

On December 1, 2021, WageWorks filed a lawsuit against Union Mesa in the Superior Court of the State of Arizona in and for the County of Maricopa.

Pursuant to the lawsuit, WageWorks seeks declaratory judgment that the lease was properly terminated and recourse against Union Mesa for breach of contract, breach of the duty of good faith and fair dealing, and conversion, including return of the funds drawn under the letter of credit.

On March 9, 2018, a putative class action was filed in the U.S.

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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.

During the nine months ended October 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.

This matter is now closed.

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.

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The plaintiffs subsequently filed a notice of appeal.

On October 28, 2021, the court of appeal dismissed the appeal pursuant to the release in the class action settlement discussed above.

The District Court action is currently stayed.

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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, 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.

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.

Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position, results of operations and cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.

The Company follows Accounting Standards Codification ("ASC") 740-270, Income Taxes - Interim Reporting , for the computation and presentation of its interim period tax provision.

Were an unfavorable outcome to occur, there exists the possibility of a

material adverse impact on the Company’s financial position, results of operations and cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.

The Company follows ASC 740-270, Income Taxes - Interim Reporting , for the computation and presentation of its interim period tax provision.

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 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.

For the three and nine months ended October 31, 2021, the Company recorded an income tax benefit of $ 4.1 million and $ 11.5 million, respectively.

This resulted in an effective income tax benefit rate of 44.8 % and 50.1 % for the three and nine months ended October 31, 2021, respectively, compared with an effective income tax expense rate of 56.7 % and 36.8 % for the three and nine months ended October 31, 2020, respectively.

For the three and nine months ended October 31, 2021, discrete tax items had an effective tax rate benefit of 7.7 % and 20.5 %, respectively, compared with an effective tax rate expense of 6.0 % and an effective tax rate benefit of 9.6 % for the three and nine months ended October 31, 2020, respectively, primarily due to excess tax benefits on stock-based compensation expense recognized in the provision for income taxes.

As of October 31, 2021 and January 31, 2021, the Company’s total gross unrecognized tax benefit was $ 11.2 million and $ 10.2 million, respectively.

If recognized, $ 10.3 million of the total gross unrecognized tax benefits would affect the Company's effective tax rate as of October 31, 2021.

The Company files income tax returns with U.S.

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Long-term debt consisted of the following:

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

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

4.50 % Senior Notes due 2029

$ 600,000 $ —

Term Loan Facility 350,000 —

unamortized loan issuance costs (1) 13,926 16,408

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

(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:

(i) a five-year senior secured term loan A facility (the “Term Loan Facility”), in an aggregate principal amount of $ 1.25 billion;

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

Prior Term Loan Facility — 1,003,125

Principal amount 950,000 1,003,125

unamortized discount and issuance costs (1) 19,936 16,408

Total debt, net 930,064 986,717

current portion of long-term debt 6,563 62,500

Long-term debt, net $ 923,501 $ 924,217

(1) In addition to the $ 19.9 million and $ 16.4 million of unamortized discount and issuance costs related to long-term debt as of October 31, 2021 and January 31, 2021, respectively, $ 4.6 million and $ 5.0 million of unamortized issuance costs related to our Revolving Credit Facility (as defined below) and Prior Revolving Credit Facility (as defined below) are included within other assets on the condensed consolidated balance sheets as of October 31, 2021 and January 31, 2021, respectively.

4.50 % Senior Notes due 2029

On October 8, 2021, the Company completed its offering of $ 600.0 million aggregate principal amount of its 4.50 % Senior Notes due 2029 (the “Notes”).

The Notes were issued under an indenture (the “Indenture”), dated October 8, 2021, among the Company, the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee.

The net proceeds from the issuance of the Notes together with borrowings under the Credit Agreement (as defined below) and cash on hand, were used to repay the outstanding borrowings under the Prior Credit Agreement (as defined below).

The Notes are guaranteed by each of the Company’s existing direct and indirect, wholly owned domestic subsidiaries that guarantees its obligations under the Credit Agreement and are required to be guaranteed by any of the Company’s future subsidiaries that guarantee its obligations under the Credit Agreement or certain of its other indebtedness.

The Notes will mature on October 1, 2029.

Interest on the Notes will be payable on April 1 and October 1 of each year, beginning on April 1, 2022.

The effective interest rate on the Notes is 4.72 %.

The Notes are unsecured senior obligations of the Company and rank equally in right of payment to all of its existing and future senior unsecured debt and senior in right of payment to all of its future subordinated debt.

The Notes will be redeemable at the Company’s option, in whole or in part, at any time on or after October 1, 2024, at a redemption price if redeemed during the 12 months beginning (i) October 1, 2024 of 102.250 %, (ii) October 1, 2025 of 101.125 %, and (iii) October 1, 2026 and thereafter of 100.000 %, in each case of the principal amount of the Notes being redeemed, and together with accrued and unpaid interest, if any, to, but excluding, the date of redemption.

The Company may also redeem some or all of the Notes before October 1, 2024 at a redemption price equal to 100 % of the principal amount of the Notes, plus the applicable “make-whole” premium as of, and accrued and unpaid interest, if any, to, but excluding, the date of redemption.

In addition, at any time prior to October 1, 2024, the Company may redeem up to 40 % of the aggregate principal amount of the Notes issued under the Indenture on one or more occasions in an aggregate amount equal to the net cash proceeds of one or more equity offerings at a redemption price equal to 104.500 % of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

Furthermore, the Company may be required to make an offer to purchase the Notes upon the sale of certain assets or upon specific kinds of changes of control.

The Indenture contains covenants that impose significant operational and financial restrictions on the Company;

however, these covenants generally align with the covenants contained in the Credit Agreement.

See "Credit Agreement" below for a description of these covenants.

Credit Agreement

On October 8, 2021, the Company entered into a new credit agreement (the “Credit Agreement”) among the Company, as borrower, each lender from time to time party thereto (the “Lenders”), JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Agent”) and the Swing Line Lender (as defined in the Credit Agreement), and each L/C Issuer (as defined therein) party thereto, pursuant to which the Company established:

(i) a five-year senior secured term loan A facility (the “Term Loan Facility”), in an aggregate principal amount of $ 350.0 million, the proceeds of which were used to refinance the Company’s existing senior secured credit facility as described below (the “Refinancing”), to pay fees and expenses incurred in connection with the Refinancing and the establishment of the Credit Facilities (as defined below) and for working capital and general corporate purposes of the Company and its subsidiaries, including the financing of acquisitions and other investments;

(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 $ 1.0 billion (with a $ 25 million sub-limit for the issuance of letters of credit), the proceeds of which may be used for working capital and general corporate purposes of the Company and its subsidiaries, including the financing of acquisitions and other investments.

Subject to the terms and conditions set forth in the Credit Agreement (including obtaining additional commitments from one or more new or existing lenders), the Company may in the future incur additional loans or commitments under the Credit Agreement in an aggregate principal amount of up to $ 300 million, plus an additional amount so long as the Company’s pro forma First Lien Net Leverage Ratio (as defined in the Credit Agreement) would not exceed 3.85 to 1.00 as of the date such loans or commitments are incurred.

Borrowings under the Credit Facilities bear interest at an annual rate equal to, at the option of the Company, 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 October 31, 2021, the stated interest rate was 1.88 % and the effective interest rate was 2.63 %.

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 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.

The loans made under the Term Loan Facility will amortize in equal quarterly installments in an aggregate annual amount equal to the following percentage of the original principal amount of the Term Loan Facility:

(i) 2.5 % for the first year after October 8, 2021;

(ii) 5.0 % for each of the second and third years after October 8, 2021;

(iii) 7.5 % for the fourth year after October 8, 2021;

and (iv) 10.0 % for the fifth year after October 8, 2021.

In addition, the Term Loan Facility is required to be mandatorily prepaid with 100 % of the net cash proceeds of all asset sales, insurance and condemnation recoveries, subject to customary exceptions and thresholds, including to the extent such proceeds are reinvested in assets useful in the business of the Company and its subsidiaries within 450 days following receipt (or committed to be reinvested within such 450 -day period and reinvested within 180 days after the

end of such 450 -day period).

The loans under the Credit Facilities may be prepaid, and the commitments thereunder may be reduced, by the Company without penalty or premium, subject to the reimbursement of customary “breakage costs.”

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit, among other things, the ability of the Company and its subsidiaries 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 beginning with the fiscal quarter ending January 31, 2022, and (ii) a minimum consolidated interest coverage ratio, measured as of the last day of each fiscal quarter, of no less than 3.00 to 1.00 beginning with the fiscal quarter ending January 31, 2022.

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

The repayment obligation under the Credit Agreement may be accelerated upon the occurrence of an event of default thereunder, including, among other things, failure to pay principal, interest or fees on a timely basis, material inaccuracy of any representation or warranty, failure to comply with covenants, cross-default to other material debt, material judgments, change of control and certain insolvency or bankruptcy-related events, in each case, subject to any certain grace and/or cure periods.

The obligations of the Company under the Credit Agreement are required to be unconditionally guaranteed by each of the Company’s existing or subsequently acquired or organized direct and indirect domestic subsidiaries and are secured by security interests in substantially all assets of the Company and the guarantors, in each case, subject to certain customary exceptions.

Prior Credit Agreement

On August 30, 2019, the Company entered into a credit agreement (the "Prior Credit Agreement”) that provided for:

(i) a five-year senior secured term loan A facility (the “Prior Term Loan Facility”), in an aggregate principal amount of $ 1.25 billion;

(ii) a five-year senior secured revolving credit facility (the “Prior Revolving Credit Facility” and, together with the Prior Term Loan Facility, the “Prior Credit Facilities”), in an aggregate principal amount of up to $ 350.0 million.

No amounts were drawn under the Prior Revolving Credit Facility.

Borrowings under the Prior Credit Facilities bore 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 Prior Credit Agreement.

The Company was also required to pay certain fees to the lenders, including, among others, a quarterly commitment fee on the average unused amount of the Prior 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 Prior Credit Agreement.

The Prior Credit Agreement contained customary affirmative and negative covenants, including covenants that limited, 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 Prior Credit Agreement contained financial performance covenants, which required 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 Prior Credit Agreement during the period ended October 31, 2021.

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

On October 8, 2021, in connection with the entry into the Credit Agreement, the Company repaid all outstanding obligations under the Prior Credit Agreement and terminated all commitments thereunder.

Stock-based compensation

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 July 31, Six months ended July 31,

Three months ended October 31, Nine months ended October 31,

(in thousands) 2021 2020 2021 2020

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

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

Stock options

9 unchanged sentences

Exercised ( 280 ) $ 1.25 - 44.53

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

Outstanding as of October 31, 2021 1,394 $ 1.25 - 82.39

$ 33.29 4.2 $ 47,032

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

Vested and expected to vest as of October 31, 2021 1,394 $ 33.29 4.2 $ 47,032

Exercisable as of October 31, 2021 1,303 $ 30.76 4.0 $ 46,863

Restricted stock units and restricted stock awards

6 unchanged sentences

Forfeited ( 255 ) 62.99 ( 75 ) 61.77

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

Outstanding as of October 31, 2021 2,540 $ 66.62 2 $ 61.72

Performance restricted stock units.

12 unchanged sentences

• Level 3—unobservable inputs based on the Company’s own assumptions.

Level 1 instruments are valued based on publicly available daily net asset values.

Level 1 instruments consist primarily of cash and cash equivalents.

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.

Our long-term debt reprices frequently due to variable interest rate terms and entails no significant changes in credit risk.

As a result, we believe the fair value of our long-term debt approximates carrying value.

Cash and cash equivalents are considered Level 1 instruments and are valued based on publicly available daily net asset values.

The carrying values of cash and cash equivalents approximate fair values due to the short-term nature of these instruments.

The Notes are valued based upon quoted market prices and are considered Level 2 instruments because the markets in which the Notes trade are not considered active markets.

As of October 31, 2021, the fair value of the Notes was $ 605.2 million.

The Term Loan Facility is considered a Level 2 instrument and recorded at book value in the Company's condensed consolidated financial statements.

The Term Loan Facility reprices frequently due to variable interest rate terms and entails no significant changes in credit risk.

As a result, the fair value of the Term Loan Facility approximates carrying value.

The Prior Term Loan Facility was considered a Level 2 instrument and recorded at book value in the Company's condensed consolidated financial statements.

The Prior Term Loan Facility repriced frequently due to variable interest rate terms and entailed no significant changes in credit risk.

As a result, the fair value of the Prior Term Loan Facility approximated carrying value.

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 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.

The estimate of fair value of the contingent consideration obligation required 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 was based on inputs unobservable in the market and thus represented a level 3 measurement.

On October 31, 2021, the Company entered into an amendment to the purchase agreement to pay $ 6.0 million in satisfaction of the contingent consideration liability, and accordingly, the liability was transferred out of Level 3 as it was no longer measured at fair value.

For further information, see Note 3—Business combination.

4 unchanged sentences

Change in fair value recognized in the condensed consolidated statement of operations and comprehensive income (loss) ( 2,147 )

Balance as of July 31, 2021 $ 9,158

Tabl e of Co ntents

Balance as of October 31, 2021 $ 6,000

Subsequent events

In April 2021, the Company entered into a definitive agreement to acquire Further for $ 500 million.

Further is a leading provider of HSA and other CDB administration services, with approximately 580,000 HSAs and $ 1.9 billion of HSA Assets.

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

(1) an amended agreement to acquire Further (other than VEBA, as described below) for $ 455 million, which closed on November 1, 2021, and (2) 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, subject to satisfaction of certain customary closing conditions, 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.

On December 3, 2021, the parties agreed to terminate the agreement to acquire the Further VEBA business.

The initial accounting for the acquisition is incomplete, pending identification and measurement of the assets acquired and liabilities assumed.

On December 6, 2021, HealthEquity entered into a definitive agreement with Health Savings Administrators, L.L.C.

(“HealthSavings”) to transition the custody of HealthSavings’ HSA portfolio to HealthEquity.

The definitive agreement provides a $ 60 million purchase price for approximately $ 1.3 billion of HSA assets held in approximately 87,000 HSAs.

Given that a significant portion of the HSA assets are currently invested, HealthSavings and HealthEquity are working closely to coordinate an in-kind transfer of most of the invested assets.

The transition of HealthSavings’ HSAs to the HealthEquity platform is expected to be completed in the first quarter of fiscal 2023.

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