What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-12-09 compared with 2021-09-09 · 68 added, 48 removed, 50 unchanged (70% of the section changed)

2 unchanged sentences

These risk factors do not identify all risks that we face, and our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations.

The ongoing COVID-19 pandemic has materially impacted our business and may continue to materially impact our business.

Our business has been, and may continue to be, materially and adversely affected by the COVID-19 pandemic.

The Federal Reserve’s interest rate cut in response to the economic impact of COVID-19 and other interest rate market conditions have caused interest rates to decline significantly.

While interest rates have improved somewhat since these actions were taken by the Federal Reserve, the funds that we place with our depository partners in this environment continue to be placed at lower interest rates than we originally expected.

We have also seen an increase in regulatory changes related to our products due to government responses to the COVID-19 pandemic and may continue to see additional regulatory changes, which changes require substantial time and costs for us to ensure compliance.

For example, regulatory changes related to our COBRA product have created uncertainty and additional workload on our team members.

Further regulatory changes could reduce our operational efficiency and result in additional costs.

Our financial results related to certain of our products have also been adversely affected.

For example, we have seen a significant decline in the use of commuter benefits, and the recent spread of the Delta variant of COVID-19 and the associated decisions by employers to delay return-to-office plans for their employees will further delay the recovery of use of these commuter benefits.

In addition, to the extent the "work from home" trend continues after the pandemic, that would further negatively impact the revenue we receive from commuter benefits.

During the initial stages of the pandemic, we saw a negative impact on our members' spend on healthcare, which negatively impacted both our interchange revenue and service revenue.

If the current increase in COVID-19 cases associated with the Delta variant results in new lockdowns or restrictions on elective medical procedures, our interchange revenue and service revenue could again be negatively impacted.

In the event our financial results are severely impacted, it may make it more difficult for us to comply with the financial covenants in our credit agreement, which could result in a breach of the financial covenants and the acceleration of our outstanding debt by our lenders.

As a result of the ongoing pandemic, substantially all of our team members have been working from home.

Sales opportunities have been impacted by the lack of travel and in-person meetings, with some opportunities delayed and most now being held virtually.

The rise in the Delta variant may mean that sales opportunities and lack of travel continue to be impacted longer than we anticipated and likely means that we will be supporting the open enrollment activities of our Clients virtually again during the upcoming open enrollment season.

We may be unable to meet our service level commitments to our Clients as a result of disruptions to our work force and disruptions to third-party contractors that we rely on to provide our services.

The risk of cybersecurity breaches and incidents, and the potential impact of these on our operations, is also higher while our team members log in to our network remotely.

The extent to which the COVID-19 pandemic will continue to negatively impact our business remains highly uncertain and, as a result, may continue to have a material and adverse impact on our business and financial results.

Failure to adequately manage and maintain our custodial assets, or the failure of any of our depository or insurance partners, could materially and adversely affect our business, financial condition and results of operations.

As a non-bank custodian, we rely on our federally insured custodial depository partners and our insurance company partners to hold the vast majority of the HSA Assets that we hold in custody.

If any material adverse event were to affect one of our depository partners or our insurance company partners, including a significant decline in its financial condition, a decline in the quality of its service, loss of deposits, its inability to comply with applicable banking and financial services regulatory requirements, systems failure or its inability to return principal or pay interest thereon, our business, financial condition and results of operations could be materially and adversely affected.

The HSA Assets held through our insurance company partners are not federally insured.

As a result, in the event of a failure of one of our insurance company partners, the HSA Assets held through that partner would be at risk and no assurance can be given that these contractual provisions will be sufficient.

Although the members bear the risk of loss with respect to investment of their HSA Assets, we would suffer reputational harm if one of our insurance company partners failed or otherwise breached its obligations to guarantee principal or pay interest thereon, which could in turn lead to financial harm to the Company.

Certain of our arrangements with our depository and insurance company partners require that we keep a minimum amount of HSA Assets with such partner, including sufficient liquid assets.

If we fail to comply with those minimum HSA Asset requirements, including as a result of withdrawals by our members, we may be subject to penalties payable to our partners or a reduction in the interest payable.

These requirements accordingly restrict our ability to quickly terminate our arrangements with these partners and remove our HSA Assets.

Such penalties or reductions, if imposed, could have a material and adverse impact on our business, financial condition and results of operations.

In addition, certain of our insurance company partners have commitments to us with respect to the interest rates paid;

however, some of these commitments are conditional upon certain market events and/or satisfaction of our obligations to the partner.

A reduction of the interest rate payable, or a requirement that we post collateral in lieu of any such reduction, could have a material and adverse impact on our business, financial condition and results of operations.

In addition to any potential penalties payable, if we were required to change depository or insurance company partners, we cannot accurately predict the success of such change or that the terms of our agreement with the new partner would be as favorable to us as our current agreements.

Our acquisition of the Further business may not be consummated, and the integration of the Further business may not be successful.

We have entered into two agreements to acquire Further:

(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, and (2) an amended agreement to acquire the remainder of the Further business.

Completion of this acquisition is subject to a number of risks and uncertainties, and we can provide no assurance that the various closing conditions to each part of this acquisition will be satisfied.

Many of the conditions required to close the acquisition are not within our control, and we cannot predict when, or if, the acquisition will be completed.

In particular, the closing of the VEBA portion of the acquisition is subject to our ability to arrange group annuity contracts with an insurance company partner for the assets of each of the VEBA plans being transferred in the acquisition, and no assurance can be given that all or a significant portion of the VEBA plans will agree to enter into such group annuity contracts.

These new group annuity contracts are subject to the approval of applicable state insurance departments and will be subject to counterparty risk with our insurance company partner.

The inability to complete the acquisition of Further could have a material adverse effect on our results of operations, financial condition and prospects.

The success of the Further acquisition, if completed, will depend in part on our ability to realize the anticipated business opportunities from combining the operations of Further with our business in an efficient and effective manner.

The integration of the Further business may not be successful.

The success of the Further acquisition will depend in part on our ability to realize the anticipated business opportunities from combining the operations of Further with our business in an efficient and effective manner.

The Further business is being carved out from the operations of its parent company.

As such, the successful integration of the Further business with the Company is dependent on our ability to successfully carve out the Further business from its parent.

While we intend to enter into a transition services agreement in order to effectively carve-out the Further business from its parent, no assurance can be given that the carve-out will be successful.

could adversely affect our ability to maintain relationships with team members, Clients, Network Partners, or other third parties, or our ability to achieve the anticipated benefits of the acquisition, and could harm our financial performance.

While we have entered into a transition services agreement in order to effectively carve-out the Further business from its parent, no assurance can be given that the carve-out will be successful.

In addition, the integration process could take longer than anticipated and could result in the loss of key employees, the disruption of the Company's ongoing business and the Further business, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with team members, Clients, Network Partners, or other third parties, or our ability to achieve the anticipated benefits of the acquisition, and could harm our financial performance.

If we are unable to successfully or timely integrate the operations of Further with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies and other anticipated benefits resulting from the acquisition of Further, and our business, results of operations and financial condition could be materially and adversely affected.

12 unchanged sentences

New team members may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals.

For example, it has become more difficult for us to hire entry-level team members in our member service and client service teams.

example, it has become more difficult for us to hire entry-level team members in our member service and client service teams.

If our retention efforts are not successful or our team member turnover rate continues to increase in the future, our business, results of operations and financial condition could be materially and adversely affected.

In September 2021, the President of the United States signed an executive order, and related guidance was published that, together, require certain COVID-19 precautions for federal contractors, including mandatory COVID-19 vaccines for employees of federal contractors (subject to medical and religious exemptions) (the “Vaccine Mandate”).

We are classified as a federal contractor due to a number of our agreements and believe we will be subject to the Vaccine Mandate.

In order to comply with the Vaccine Mandate and based on current guidance provided by the federal government, HealthEquity is requiring all of its team members to show proof of vaccination or qualify for an applicable exemption by January 2022, although the timing of implementation of the executive order may be affected by additional guidance issued, including any extensions of time granted to comply.

HealthEquity’s compliance with the Vaccine Mandate could result in increased team member attrition and costs associated with preventing team member attrition, and a material increase in team member attrition or increase in retention costs could have a material and adverse impact on our business, results of operations and financial condition.

Replacing our third-party vendors would be difficult and disruptive to our business.

We have entered into contracts with third-party vendors to provide critical services relating to our business, including the redesign of our technology platforms, fraud management and other customer verification services, transaction processing and settlement, telephony services, call centers and card production.

In addition, WageWorks uses third-party vendors for its COBRA transaction processing and also uses one of our competitors for card processing and other services.

In the event that these service providers fail to maintain adequate levels of support, do not provide high quality service, increase the fees they charge us, discontinue their lines of business, terminate our contractual arrangements or cease or reduce operations, we may suffer additional costs and be required to pursue new third-party relationships, which could harm our reputation, materially disrupt our operations and our ability to provide our products and services, and could divert management’s time and resources.

A transition to a new vendor could take a significant amount of time and resources and, if we are unable to complete a transition to a new provider on a timely basis, or at all, we could be forced to temporarily or permanently discontinue certain services, such as our payment card services, which could disrupt services to our customers and adversely affect our business, financial condition, and results of operations.

We may also be unable to establish comparable new third-party relationships on as favorable terms or at all, which could materially and adversely affect our business, financial condition, and results of operations.

The Vaccine Mandate requires that certain of our third-party vendors also require employees to be vaccinated.

While we continue to evaluate the impact of the Vaccine Mandate on our third-party vendors, compliance with the Vaccine Mandate could result in certain key third-party vendors terminating their arrangements with us or in increased employee turnover at our third-party vendors, delays in performance by our third-party vendors, or increased costs for us.

Such impacts could have a material and adverse impact on our business, results of operations and financial condition.

Our substantial debt could limit our ability to fund operations, expose us to interest rate volatility, limit our ability to raise additional capital and have a material adverse effect on our ability to fulfill our obligations under the Notes and on our business and prospects generally.

We are party to a $1.35 billion credit agreement (the "Credit Agreement"), which consists of (i) a five-year senior secured term loan A facility in the aggregate principal amount of $350 million and (ii) a five-year senior secured revolving credit facility in an aggregate principal amount of up to $1 billion.

We have also issued $600 million of 4.50% unsecured Senior Notes due 2029.

Under the Credit Agreement, we have the right to request additional commitments for new term loans and increases to then-existing term loans and revolving credit commitments in an amount up to the sum of (i) $300 million, plus (ii) an unlimited additional amount so long as the pro forma First Lien Net Leverage Ratio (as defined in the Credit Agreement) does not exceed 3.85 to 1.00 (assuming any such new or increased revolving commitments are fully borrowed).

We also have the right to incur additional debt from time to time, subject to the restrictions contained in the Credit Agreement and the Indenture.

The substantial debt we have outstanding, combined with our other financial obligations and contractual commitments, has important consequences, including the following:

• our level of debt may make it more difficult for us to satisfy our obligations with respect to our debt, including the Notes, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under the Indenture and the agreements governing such other debt;

• we will be required to use a substantial portion of our cash flow from operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, strategic acquisitions, investments and alliances and other general corporate requirements;

• our interest expense could increase if interest rates increase because any outstanding borrowings under our Credit Facilities will be based on variable interest rates;

• the interest rate on our Revolving Credit Facility will depend on the level of our specified financial ratios, and therefore could increase if such specified financial ratios increase;

• such substantial debt could leave us vulnerable to general economic downturns and adverse competitive and industry conditions and could place us at a competitive disadvantage compared to those of our competitors that are less leveraged;

• our debt service obligations could limit our flexibility to plan for, or react to, changes in our business and the industry in which we operate;

• our level of debt may restrict us from raising additional financing on satisfactory terms to fund working capital, capital expenditures, strategic acquisitions, investments and joint ventures and other general corporate requirements;

• our level of debt may prevent us from raising the funds necessary to repurchase all of the Notes tendered to us upon the occurrence of a change of control, which would constitute an event of default under the Indenture;

• a potential failure to comply with the financial and other restrictive covenants in any of our debt instruments, which, among other things, require us to maintain specified financial ratios, could, if not cured or waived, have a material adverse effect on our ability to fulfill our obligations under the Notes and on our business and prospects generally.

The Indenture and the Credit Agreement contain covenants that impose significant operational and financial restrictions on us, and the failure to comply with these covenants would result in an event of default under these instruments.

The Indenture and the Credit Agreement impose on us operating and other restrictions.

These restrictions affect, and in many respects limit or prohibit, among other things, our ability to:

• incur additional debt and issue certain capital stock;

• create liens;

• make investments or acquisitions;

• enter into transactions with affiliates;

• sell assets;

• guarantee debt;

• declare or pay dividends or other distributions to shareholders;

• repurchase equity interests;

• redeem debt that is subordinated in right of payment to certain debt instruments;

• enter into agreements that restrict dividends or other payments from subsidiaries;

• consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis.

The terms of the Revolving Credit Facility in the Credit Agreement also require us to achieve and maintain compliance with specified financial ratios.

The restrictions contained in the Credit Agreement:

• limit our ability to plan for or react to market conditions or meet capital needs or otherwise restrict our activities or business plans;

• adversely affect our ability to finance our operations, strategic acquisitions, investments or alliances or other capital needs or to engage in other business activities that would be in our interest.

A breach of any of these restrictive covenants or our inability to comply with the required financial ratios would result in a default under some or all of the debt agreements.

During the occurrence and continuance of a default, lenders under our Credit Facilities may elect to declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable, which would result in an event of default under the Indenture.

The lenders will also have the right in these circumstances to terminate any commitments they have to provide further borrowings.

Additionally, our Credit Agreement contains a cross-default provision, which generally causes a default or event of default under the Credit Agreement upon a qualifying default or event of default under any other debt instrument (including under the Indenture) and the Indenture contains a cross-acceleration provision.

unable to repay outstanding borrowings when due, the lenders under our Credit Facilities will also have the right to proceed against the collateral granted to them to secure the debt.

If lenders under the Credit Facilities accelerate the debt thereunder, then the obligations under the Notes would be accelerated.

We cannot provide assurance that, if the indebtedness under our Credit Facilities or the Notes were to be accelerated, our assets would be sufficient to repay in full that indebtedness and our other indebtedness.

If not cured or waived, such acceleration could have a material adverse effect on our business and our prospects.

Incorporate by reference

6 unchanged sentences

8-K 001-36568 2.2 September 8, 2021

2.3† Amendment to Stock Purchase Agreement dated as of October 31, 2021 by and between HealthEquity, Inc.

and Evan McCordick as Sellers’ representative

8-K 001-36568 2.1 November 1, 2021

4.1 Indenture, dated as of October 8, 2021, by and among the Company, the guarantors party thereto and Wells Fargo Bank, National Association, as trustee

8-K 001-36568 4.1 October 12, 2021

10.1† Credit Agreement, dated as of October 8, 2021, by and among the Company, as borrower, each lender from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and the Swing Line Lender (as defined therein), and each L/C Issuer (as defined therein) party thereto.

8-K 001-36568 10.1 October 12, 2021

31.1+ Certification of the Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

10 unchanged sentences

101.PRE Inline XBRL Taxonomy presentation linkbase document

104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2021, formatted in Inline XBRL.

104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2021, formatted in Inline XBRL.

+ Filed herewith.

5 unchanged sentences

HEALTHEQUITY, INC.

September 9, 2021 By:

December 9, 2021 By:

/s/ Tyson Murdock

2 unchanged sentences

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 1A. Risk Factors