What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-31 compared with 2021-03-31 · 340 added, 255 removed, 661 unchanged (47% of the section changed)

3 unchanged sentences

Index to consolidated financial statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Consolidated Balance Sheets as of January 31, 2022 and 2021

Consolidated Statements of Operations and Comprehensive Income for the years ended January 31, 2021, 2020 and 2019

Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended January 31, 2022, 2021 and 2020

Consolidated Statements of Stockholders' Equity for the years ended January 31, 2022, 2021 and 2020

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We have audited the accompanying consolidated balance sheets of HealthEquity, Inc.

and its subsidiaries (the “Company”) as of January 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended January 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of January 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended January 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of January 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date.

The material weaknesses related to the following as the WageWorks subsidiary:

(i) did not have an effective risk assessment as it did not sufficiently identify and analyze risks arising from changes in the business environment, including risks arising in connection with the integration of acquisitions and financial system implementations, (ii) did not have effective information and communication as it did not establish cross-functional procedures and policies necessary to support the functioning of internal control over financial reporting, and (iii) did not have effective monitoring as it did not implement effective monitoring controls that were responsive to changes in the business or the timely remediation of identified control deficiencies.

The material weaknesses in risk assessment, information and communication and monitoring at the WageWorks subsidiary contributed to additional material weaknesses as the WageWorks subsidiary:

(a) had inadequate process level and monitoring controls in the area of accounting close and financial reporting specifically, but not exclusively, around the review of account reconciliations, completeness and accuracy of data material to financial reporting, accounting estimates and related cut-off, the establishment, review, and implementation of accounting policies, and the review of the accuracy and completeness of certain manual and complex data feeds into journal entries and reconciliations of high-volume standard transactions, (b) did not have effective controls around the contract-to-cash life cycle of service fees, including ineffective process level controls around billing set-up during customer implementation, managing change to existing customer billing terms and conditions, timely termination of customers, implementing complex and/or non-standard billing arrangements that require manual intervention or manual controls for billing to customers, processing timely adjustments, lack of robust, established and documented policies to assess collectability and reserve for revenue, bad debts and accounts receivable, availability of customer contracts, and reviews of non-standard contracts, and (c) did not have effective controls related to information technology general controls (ITGCs) in the areas of logical access and change-management over certain information technology systems that supported its financial reporting processes.

WageWorks' business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of January 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date related to (i) ineffective controls around the contract-to-cash life cycle of service fees, including ineffective process level controls around billing set-up during customer implementation, managing change to existing customer billing terms and conditions, timely termination of customers, implementing complex and/or non-standard billing arrangements that require manual intervention or manual controls for billing to customers, processing timely adjustments, lack of robust, established and documented policies to assess collectability and reserve for revenue, bad debts and accounts receivable, availability of customer contracts, and reviews of non-standard contracts and (ii) ineffective controls related to information technology general controls (ITGCs) in the areas of logical access and change-management over certain information technology systems that supported its financial reporting processes.

Business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

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We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in the year ended January 31, 2020.

Basis for Opinions

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Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of

the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s report on internal control over financial reporting, management has excluded Fort Effect Corp, d/b/a Luum (Luum) and the Further business from its assessment of internal control over financial reporting as of January 31, 2022 because they were acquired by the Company in purchase business combinations during fiscal 2022.

We have also excluded Luum and Further from our audit of internal control over financial reporting.

Luum and Further are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 1% and 3%, respectively, of the related consolidated financial statement amounts as of and for the year ended January 31, 2022.

Definition and Limitations of Internal Control over Financial Reporting

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

WageWorks, Inc.

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Service Revenue Recognition

As described in Note 1 to the consolidated financial statements, the Company's primary sources of revenue are service, custodial, and interchange revenue.

The Company’s service revenue was $431 million for the year ended January 31, 2021, of which a significant portion relates to WageWorks, Inc.

To generate service revenue, the Company hosts its platforms, prepares statements, provides a mechanism for spending funds, and provides customer support services.

The Company’s service revenue was $427 million for the year ended January 31, 2022.

To generate service revenue, the Company administers its platforms, prepares statements, provides a mechanism for spending funds, and provides customer support services.

All of these services are consumed as they are received.

The Company recognizes service revenue, in an amount that reflects the consideration it expects to be entitled to in exchange for those services, on a monthly basis as it satisfies its performance obligations.

The principal consideration for our determination that performing procedures relating to WageWorks, Inc.

service revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to revenue recognition in consideration of the material weaknesses identified by the Company in WageWorks, Inc.’s internal control environment relating to risk assessment, information and communication, and monitoring as described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section above.

The principal consideration for our determination that performing procedures relating to service revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to revenue recognition after consideration of the material weaknesses that were identified as described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section above.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, evaluating the recognition of service revenue for a sample of revenue transactions by obtaining confirmation from customers or obtaining and inspecting source documents, including invoices, sales contracts, and cash receipts.

Valuation of Customer Relationships Relating to the Acquisition of Further

As described in Notes 1 and 3 to the consolidated financial statements, on November 1, 2021, the Company completed its acquisition of the Further business (other than Further’s voluntary employee beneficiary association business) for $455 million.

Identifiable intangible assets acquired as part of the acquisition were $172 million, including customer relationships, developed technology, and in-process software development costs.

Customer relationships make up $146 million of the identifiable intangible assets acquired.

Acquired customer relationships are valued utilizing the discounted cash flow method, a form of the income approach.

As disclosed by management, significant estimates in valuing acquired customer relationships include, but are not limited to, discount rates and revenue growth rates, net of attrition.

The principal considerations for our determination that performing procedures relating to the valuation of customer relationships relating to the acquisition of Further is a critical audit matter are (i) the significant judgment by management when determining the fair value of the customer relationships intangible asset acquired;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to discount rates and revenue growth rates, net of attrition;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to acquisition accounting, including controls over management’s valuation of the customer relationships intangible asset.

These procedures also included, among others, (i) reading the purchase agreement;

(ii) testing management’s process for determining the fair value of the customer relationships, (iii) evaluating the appropriateness of the discounted cash flow method;

(iv) testing the completeness and accuracy of certain underlying data used in the discounted cash flow method;

and (v) evaluating the reasonableness of the significant assumptions used by management related to discount rates and revenue growth rates, net of attrition.

Evaluating management’s significant assumptions related to revenue growth rates, net of attrition, involved evaluating whether the significant assumptions used by management were reasonable considering (i) the past performance of the Further business;

(ii) consistency with external market and industry data;

and (iii) whether the significant assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the Company’s discounted cash flow method and (ii) the reasonableness of management’s significant assumptions related to discount rates and revenue growth rates, net of attrition.

/s/ PricewaterhouseCoopers LLP

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Goodwill 1,645,836 1,327,193

Deferred tax asset — 18

Other assets 49,807 37,420

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and subsidiaries

Consolidated Statements of Operations and Comprehensive Income

Consolidated Statements of Operations and Comprehensive Income (Loss)

Year ended January 31,

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Total operating expenses 447,944 381,320 248,903

Income from operations 34,014 77,006 77,670

Income (loss) from operations ( 24,238 ) 34,014 77,006

Other expense

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Total other expense ( 42,503 ) ( 29,874 ) ( 33,851 )

Income before income taxes 4,140 43,155 75,818

Income (loss) before income taxes ( 66,741 ) 4,140 43,155

Income tax provision (benefit) ( 22,452 ) ( 4,694 ) 3,491

Net income and comprehensive income $ 8,834 $ 39,664 $ 73,899

Net income per share:

Net income (loss) and comprehensive income (loss) $ ( 44,289 ) $ 8,834 $ 39,664

Net income (loss) per share:

Basic $ ( 0.53 ) $ 0.12 $ 0.59

Diluted $ ( 0.53 ) $ 0.12 $ 0.58

Weighted-average number of shares used in computing net income per share:

Weighted-average number of shares used in computing net income (loss) per share:

Basic 83,133 74,235 67,026

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Common stock Additional

capital Accumulated compre-

hensive loss Accumulated earnings Total

capital Accumulated earnings Total

stockholders'

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Issuance of common stock upon exercise of options, and for restricted stock 842 — 11,438 — 11,438

Other issuance of common stock 7,763 1 462,269 — 462,270

Stock-based compensation — — 39,844 — 39,844

Cumulative effect from adoption of ASC 606 — — — — 13,007 13,007

Cumulative effect from adoption of ASU 2016-01 — — — 269 ( 356 ) ( 87 )

Net income — — — 39,664 39,664

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Stock-based compensation — — 52,750 — 52,750

Net income — — — — 8,834 8,834

Net loss — — — ( 44,289 ) ( 44,289 )

Balance as of January 31, 2022 83,780 $ 8 $ 1,676,508 $ 176,059 $ 1,852,575

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Cash flows from operating activities:

Net income $ 8,834 $ 39,664 $ 73,899

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss) $ ( 44,289 ) $ 8,834 $ 39,664

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 137,188 115,904 55,352

Stock-based compensation 52,750 42,863 39,844

Impairment of right-of-use assets 11,246 — —

Amortization of debt issuance costs 4,448 5,102 2,711

(Gains) losses on marketable equity securities — ( 27,570 ) 103

Loss on extinguishment of debt 4,049 — —

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

Gains on equity securities ( 1,677 ) — ( 27,570 )

Other non-cash items 1,232 1,753 728

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Cash flows from investing activities:

Purchases of property and equipment ( 13,093 ) ( 7,286 ) ( 3,869 )

Acquisitions, net of cash acquired ( 504,533 ) — ( 1,644,575 )

Purchases of software and capitalized software development costs ( 62,708 ) ( 51,500 ) ( 25,654 )

Acquisition of intangible member assets ( 65,465 ) ( 32,371 ) ( 9,134 )

Acquisitions, net of cash acquired — ( 1,644,575 ) —

Purchases of marketable securities — ( 53,845 ) ( 728 )

Proceeds from sale of marketable securities — — 41,422

Net cash provided by (used in) investing activities ( 96,964 ) ( 1,740,494 ) 25,652

Purchases of property and equipment ( 8,908 ) ( 13,093 ) ( 7,286 )

Purchases of equity securities — — ( 53,845 )

Proceeds from sale of equity securities 2,367 — —

Net cash used in investing activities ( 639,247 ) ( 96,964 ) ( 1,740,494 )

Cash flows from financing activities:

Proceeds from follow-on equity offering, net of payments for offering costs 286,779 458,495 —

Principal payments on long-term debt ( 1,003,125 ) ( 239,063 ) ( 7,813 )

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Payment of debt issuance costs ( 11,920 ) — ( 30,504 )

Settlement of client-held funds obligation ( 3,862 ) ( 215,790 ) —

Proceeds from follow-on equity offering, net of payments for offering costs 456,640 286,779 458,495

Settlement of client-held funds obligation, net ( 486 ) ( 3,862 ) ( 215,790 )

Proceeds from exercise of common stock options 9,754 8,568 11,347

Payment of contingent consideration ( 6,000 ) — —

Net cash provided by financing activities 394,863 52,422 1,465,735

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Supplemental disclosures of non-cash investing and financing activities:

Purchases of property and equipment included in accounts payable or accrued liabilities 160 487 37

Purchases of software and capitalized software development costs included in accounts payable, accrued liabilities, or accrued compensation 4,640 1,930 1,742

Purchases of property and equipment included in accounts payable or accrued liabilities 1,414 160 487

Purchases of intangible member assets included in accounts payable or accrued liabilities 1,692 — —

Decrease in goodwill due to measurement period adjustments, net 19 5,438 —

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The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity.

These accounting policies conform to accounting principles generally accepted in the United States and have been consistently applied in the preparation of the consolidated financial statements, except for the new accounting pronouncements adopted during the fiscal year ended January 31, 2021, as described below.

These accounting policies conform to accounting principles generally accepted in the United States and have been consistently applied in the preparation of the consolidated financial statements.

Certain reclassifications have been made to prior year amounts to conform to the current year presentation .

Acquisition of WageWorks, Inc.

On August 30, 2019, HealthEquity closed the acquisition of WageWorks, Inc.

(the “WageWorks Acquisition”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), for $ 51.35 per share in cash, or approximately $ 2.0 billion to WageWorks stockholders.

As a result of the WageWorks Acquisition, HealthEquity gained access to more of the HSA market by expanding its direct distribution to employers and benefits advisors as a single source provider of HSAs and other CDBs, including flexible spending accounts, health reimbursement arrangements, Consolidated Omnibus Budget Reconciliation Act ("COBRA") administration, commuter and other benefits.

Follow-on equity offering

In July 2020, the Company closed a follow-on public offering of 5,290,000 shares of common stock at a public offering price of $ 56.00 per share, less the underwriters' discount.

The Company received net proceeds of $ 286.8 million after deducting underwriting discounts and commissions of $ 8.9 million and other offering expenses of $ 0.6 million.

The Company used $ 200.0 million of such proceeds to repay debt under its term loan facility.

In the first quarter of fiscal year 2022, the Company closed a follow-on public offering of 5,750,000 shares of common stock at a public offering price of $ 80.30 per share, less the underwriters' discount.

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.

Principles of consolidation

The consolidated financial statements include the accounts of HealthEquity and its direct and indirect subsidiaries.

The Company consolidates entities in which the Company has a controlling financial interest, which includes all of its wholly owned direct and indirect subsidiaries.

All significant intercompany accounts and transactions have been eliminated in consolidation.

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In evaluating the Company’s ability to collect outstanding receivable balances, the Company considers various factors including macroeconomic variables, the age of the balance, the creditworthiness of the customer, which is assessed based on ongoing credit evaluations and payment history, and the customer’s current financial condition.

Marketable equity securities are strategic equity investments with readily determinable fair values for which the Company does not have the ability to exercise significant influence.

These securities are accounted for at fair value and were classified as investments on the consolidated balance sheets.

All gains and losses on these investments, realized and unrealized, are recognized in other income (expense), net in the consolidated statements of operations and comprehensive income.

Non-marketable equity securities are strategic equity investments without readily determinable fair values for which the Company does not have the ability to exercise significant influence.

These securities are accounted for using the measurement alternative and are classified as other assets on the consolidated balance sheets.

All gains and losses on these investments, realized and unrealized, are recognized in other income (expense), net on the consolidated statements of operations and comprehensive income.

Equity method investments are equity securities in investees the Company does not control but over which the Company has the ability to exercise significant influence.

Equity method investments are included in other assets on the consolidated balance sheets.

The Company's share of the earnings or losses as reported by equity method investees, amortization of basis differences, and related gains or losses, if any, are recognized in other income (expense), net on the consolidated statements of operations and comprehensive income.

The Company assesses whether an other-than-temporary impairment loss on equity method investments and an impairment loss on non-marketable equity securities has occurred due to declines in fair value or other market conditions.

If any impairment is considered other than temporary for equity method investments or impairment is identified for non-marketable equity securities, the Company will write down the investment to its fair value and record the corresponding charge through other income (expense), net in the consolidated statements of operations and comprehensive income.

Marketable equity securities were strategic equity investments with readily determinable fair values for which the Company did not have the ability to exercise significant influence.

These securities were accounted for at fair value and were classified as investments on the consolidated balance sheets.

All gains and losses on these investments, realized and unrealized, were recognized in other income (expense), net in the consolidated statements of operations and comprehensive income (loss).

As of January 31, 2022 and 2021, the Company had no marketable equity securities.

Non-marketable equity securities were strategic equity investments without readily determinable fair values for which the Company did not have the ability to exercise significant influence.

These securities were accounted for using the measurement alternative and were classified as other assets on the consolidated balance sheets.

All gains and losses on these investments, realized and unrealized, were recognized in other income (expense), net on the consolidated statements of operations and comprehensive income (loss).

As of January 31, 2022 and 2021, the Company had no non-marketable equity securities and an immaterial balance of non-marketable equity securities, respectively.

Other assets consist primarily of contract costs, debt issuance costs, prepaid expenditures, income tax receivables, inventories, and various other assets.

Amounts expected to be recouped or recognized over a period of twelve months or less have been classified as current in the accompanying consolidated balance sheets.

The Company adopted ASU 2016-02, Leases (codified as "ASC 842") on February 1, 2019 using the modified retrospective transition method with the adoption date as the date of initial application.

Consequently, prior period balances and disclosures have not been restated.

The Company determines if a contract contains a lease at inception or any modification of the contract.

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Acquired HSA portfolios 15 years

We account for the costs of computer software developed or obtained for internal use in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software .

The Company accounts for the costs of computer software developed or obtained for internal use in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software .

Costs incurred during operation and post-implementation stages are charged to expense.

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Management’s judgment is required in determining the point when various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized.

Acquired customer relationships, developed technology, and trade names and trade marks are valued utilizing the discounted cash flow method, a form of the income approach.

The useful lives of acquired customer relationships were estimated based on future revenue growth and attrition.

Acquired customer relationships, developed technology, and trade names and trademarks are valued utilizing the discounted cash flow method, a form of the income approach.

The useful lives of acquired customer relationships were estimated based on discount rates and revenue growth rates, net of attrition.

The useful lives of developed technology and trade names were estimated based on expected obsolescence.

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Disaggregation of revenue.

The Company's primary sources of revenue are service, custodial, and interchange revenue and are disclosed in the consolidated statements of operations and comprehensive income.

The Company's primary sources of revenue are service, custodial, and interchange revenue and are disclosed in the consolidated statements of operations and comprehensive income (loss).

All of the Company's sources of revenue are deemed to be revenue contracts with customers.

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Accordingly, the amortization period of the assets has been determined to be the average economic life of an HSA or other CDB relationship, which is estimated to be 15 years and 7 years, respectively.

Amortization of capitalized sales commission contract costs is included in sales and marketing expenses in the consolidated statements of operations and comprehensive income.

Amortization of capitalized sales commission contract costs is included in sales and marketing expenses in the consolidated statements of operations and comprehensive income (loss).

The Company has applied the practical expedient which allows an entity to account for incremental costs of obtaining a contract at a portfolio level.

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Service revenue.

The Company hosts its platforms, prepares statements, provides a mechanism for spending funds, and provides customer support services.

The Company administers its platforms, prepares statements, provides a mechanism for spending funds, and provides customer support services.

All of these services are consumed as they are received.

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Custodial revenue.

The Company deposits HSA assets and Client-held funds at federally insured custodial depository partners, which we refer to as our Depository Partners, and investment assets with an investment

The deposit of funds represents a service that is simultaneously received and consumed by our Depository Partners and investment partner.

The Company recognizes custodial revenue, in an amount that reflects the consideration it expects to be entitled to in exchange for the service, each month based on the amount received by its custodial partners and investment partners.

The Company earns custodial revenue primarily from HSA assets deposited with depository partners or placed in group annuity contracts or similar arrangements with insurance company partners, recordkeeping fees earned in respect of mutual funds in which HSA members invest, and Client-held funds deposited with depository partners.

In addition, once a member’s HSA cash balance reaches a certain threshold, the member is able to invest his or her HSA assets in mutual funds through a custodial investment partner, from which the Company earns a recordkeeping fee, calculated as a percentage of custodial investments.

The deposit of funds represents a service that is simultaneously received and consumed by the depository partners, insurance company partners, and investment partner.

The Company recognizes custodial revenue each month, in an amount that reflects the consideration it expects to be entitled to in exchange for the service.

Interchange revenue.

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The Company makes no significant judgments in determining the amount or timing of revenue recognition.

The Company has estimated the average economic life of an HSA or CDB member relationship, which has been determined to be the amortization period for the capitalized sales commissions contract costs.

The Company has estimated the average economic life of an HSA or CDB member

relationship, which has been determined to be the amortization period for the capitalized sales commissions contract costs.

Cost of revenue

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Interest Expense

Interest expense consists of accrued interest expense and amortization of deferred financing costs associated with our credit agreement.

Interest expense primarily consists of accrued interest expense and amortization of deferred financing costs associated with our long-term debt.

Income tax provision (benefit)

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Under this method, current tax liabilities and assets are recognized for the estimated taxes payable or refundable on the tax returns for the current fiscal year.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, for net operating losses, and for tax credit

carryforwards.

Deferred tax assets and liabilities are measured using enacted statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled.

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A valuation allowance is provided for when it is more likely than not that some or all of the deferred tax assets may not be realized in future years.

After weighing both the positive and negative evidence, the Company has recorded a valuation allowance with respect to realized capital losses for which the Company does not expect to generate capital gains in order to utilize the capital losses in the future.

The Company believes that it is more likely than not that all other deferred tax assets will be realized as of January 31, 2021.

The Company uses the tax law ordering approach of intraperiod allocation in determining when excess tax benefits have been realized for provisions of the tax law that identify the sequence in which those amounts are utilized for tax purposes.

The Company has elected to exclude the indirect tax effects of share-based compensation deductions in computing the income tax provision or benefit recorded within the consolidated statement of operations and comprehensive income.

Also, the Company uses the portfolio approach in releasing income tax effects from accumulated other comprehensive income.

The Company recognizes the tax benefit from an uncertain tax position taken or expected to be taken in a tax return using a two-step approach.

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For tax positions that are more likely than not to be sustained upon audit, the second step is to measure the tax benefit in the financial statements as the largest benefit that has a greater than 50% likelihood of being sustained upon settlement.

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as a component of other income (expense), net in the consolidated statements of operations and comprehensive income.

Changes in facts and circumstances could have a material impact on the Company’s effective tax rate and results of operations.

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Consideration paid for the acquisition of a business as defined by ASC 805-10 is allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date.

Acquisition-related expenses incurred in conjunction with the acquisition of a business are recognized in earnings in the period in which they are incurred and are included in other income (expense), net on the consolidated statements of operations and comprehensive income.

Use of estimates

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Recently adopted accounting pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments, which requires financial assets measured at amortized cost be presented at the net amount expected to be collected.

This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company adopted the

new standard as of February 1, 2020 using the modified retrospective transition method.

The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends ASC 820, Fair Value Measurement .

ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures.

This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

The Company adopted the new standard as of February 1, 2020.

The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements.

The Company adopted the new standard as of February 1, 2020.

The Company retrospectively adopted the provision related to the classification of taxes partially based on income, and prospectively adopted the provisions related to intraperiod tax allocation and interim recognition of enactment of tax laws.

The adoption of this standard did not have a material effect on the Company’s current- or prior-period consolidated financial statements.

Net income per share

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

Recently issued accounting pronouncements not yet adopted

Net income (loss) per share

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

Year ended January 31,

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Numerator (basic and diluted):

Net income $ 8,834 $ 39,664 $ 73,899

Net income (loss) $ ( 44,289 ) $ 8,834 $ 39,664

Denominator (basic):

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Diluted weighted-average common shares outstanding 83,133 75,679 68,453

Net income per share:

Net income (loss) per share:

Basic $ ( 0.53 ) $ 0.12 $ 0.59

Diluted $ ( 0.53 ) $ 0.12 $ 0.58

For the fiscal years ended January 31, 2021, 2020 and 2019, 0.6 million, 0.3 million, and 0.1 million shares, respectively, attributable to outstanding 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

For the fiscal years ended January 31, 2022, 2021 and 2020, 1.8 million, 0.6 million, and 0.3 million shares, respectively, attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted earnings (loss) per share as their inclusion would have been anti-dilutive.

Business combinations

WageWorks Acquisition

On August 30, 2019, the Company closed the WageWorks Acquisition for $ 51.35 per share in cash, or $ 2.0 billion to WageWorks stockholders.

On August 30, 2019, the Company closed the acquisition of WageWorks, Inc.

(the "WageWorks Acquisition") for $ 51.35 per share in cash, or $ 2.0 billion to WageWorks stockholders.

The Company financed the transaction through a combination of $ 816.9 million cash on hand plus net borrowings of approximately $ 1.22 billion, after deducting lender fees of approximately $ 30.5 million, under a term loan facility (see Note 8—Indebtedness).

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

Consideration paid was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date.

The consideration paid was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date.

The initial allocation of the consideration paid was based on a preliminary valuation and was subject to adjustment during the measurement period (up to one year from the acquisition date).

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Net income $ 23,101 $ 6,419

Luum acquisition

On March 8, 2021, the Company acquired 100 % of the outstanding capital stock of Fort Effect Corp, d/b/a Luum (the "Luum Acquisition").

Luum provides employers with various commuter services, including access to 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 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, with any changes in the fair value recorded as other income (expense), net, in the consolidated statement of operations and comprehensive income (loss).

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 recognized income of $ 2.1 million resulting from the change in fair value of the contingent consideration.

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

The consideration paid was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date.

The initial allocation of the consideration paid was based on a preliminary valuation and is subject to adjustment during the measurement period (up to one year from the acquisition date).

Balances subject to adjustment primarily include the valuations of acquired assets (tangible and intangible) and liabilities assumed, as well as tax-related matters.

The Company expects the allocation of the consideration transferred to be finalized within the measurement period.

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

(in thousands) Estimated fair value Adjustments Updated Allocation

Cash and cash equivalents $ 626 $ — $ 626

Other current assets 1,469 — 1,469

Intangible assets 23,900 — 23,900

Goodwill 36,374 ( 19 ) 36,355

Other assets 100 — 100

Current liabilities ( 597 ) — ( 597 )

Deferred tax liability ( 3,566 ) 19 ( 3,547 )

Total consideration paid $ 58,306 $ — $ 58,306

The Luum Acquisition resulted in $ 36.4 million of goodwill.

The preliminary goodwill 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.

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

($ in thousands) Fair value Estimated life

Customer relationships (1) $ 12,400 7.0

Developed technology (1) 10,900 5.0

Trade names & trademarks (1) 600 3.0

Total acquired intangible assets $ 23,900 6.0

(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.

Further acquisition

On November 1, 2021, the Company completed its acquisition of the Further business (other than Further's voluntary employee beneficiary association business) for $ 455 million (the "Further Acquisition").

Further is a leading provider of HSA and other CDB administration services.

The parties also entered into related agreements ancillary to the Further Acquisition, including a transition services agreement.

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

The consideration paid was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date.

The initial allocation of the consideration paid was based on a preliminary valuation and is subject to adjustment during the measurement period (up to one year from the

acquisition date).

Balances subject to adjustment primarily include the valuations of acquired assets (tangible and intangible) and liabilities assumed, as well as tax-related matters.

The Company expects the allocation of the consideration transferred to be finalized within the measurement period.

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

(in thousands) Estimated fair value

Current assets $ 2,667

Intangible assets 172,183

Goodwill 282,287

Current liabilities ( 2,137 )

Total consideration paid $ 455,000

The Further Acquisition resulted in $ 282.3 million of goodwill.

The preliminary goodwill recognized is attributable to several strategic, operational, and financial benefits expected from the Further Acquisition, including an enhanced ability to drive growth with health plans, custodial and interchange revenue synergies based on current contractual relationships, and operational cost synergies resulting from increased scale in service delivery.

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

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

($ in thousands) Fair value Estimated life

Customer relationships (1) $ 146,000 15.0

Developed technology (1) 25,000 5.0

Identified intangible assets subject to amortization 171,000 13.5

In-process software development costs 1,183 n/a

Total acquired intangible assets $ 172,183

(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 Further 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

Selected consolidated balance sheet and consolidated statement of operations and comprehensive income components consist of the following:

Selected consolidated balance sheet and consolidated statement of operations and comprehensive income (loss) components consist of the following:

Allowance for doubtful accounts

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As of January 31, 2022 and 2021, the balance of deferred revenue was $ 10.5 million and $ 4.1 million, respectively.

The balances are related to cash received in advance for a certain 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 .

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 47 % of its balance of deferred revenue as revenue over the next 12 months and the remainder thereafter.

Revenue recognized during the fiscal year that was included in the beginning balance of deferred revenue was $ 1.3 million.

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Interest income $ 1,501 $ 1,045 $ 5,905

Gain (loss) on equity securities — 27,760 ( 102 )

Gain on equity securities 1,692 — 27,760

Acquisition costs ( 10,832 ) ( 1,118 ) ( 40,810 )

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Total other income (expense), net $ ( 5,931 ) $ 5,007 $ ( 9,079 )

Interest expense

Based on the application of ASC 470-50, Debt - Modifications and Extinguishments , the Company recorded a $ 4.0 million loss on extinguishment of debt during the year ended January 31, 2022, which is included within interest expense in the consolidated statements of operations and comprehensive income (loss) for the year ended January 31, 2022.

The Company has entered into various non-cancelable operating lease agreements for office space, data storage facilities, and other leases with remaining lease terms of less than 1 year to approximately 9 years, often with one or more Company options to renew.

These renewal terms can extend the lease term from 3 to 10 years and are included in the lease term when it is reasonably certain that the Company will exercise the option.

Amortization and interest expense related to finance leases were not material during the fiscal years ended January 31, 2021, 2020, and 2019.

The components of operating lease costs are as follows:

The components of operating lease costs were as follows:

Year ended January 31,

(in thousands, except for term and percentages)

2021 2020 2019

(in thousands) 2022 2021 2020

Operating lease expense $ 14,762 $ 16,073 $ 9,059

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Net operating lease cost $ 12,926 $ 14,274 $ 8,309

Weighted average lease term and discount rate are as follows:

Weighted average lease term and discount rate were as follows:

January 31, 2022 January 31, 2021

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Weighted average discount rate 4.29 % 4.32 %

As of January 31, 2021, our lease liabilities were as follows:

(in thousands) Operating leases

Lease liabilities were as follows:

(in thousands) January 31, 2022 January 31, 2021

Gross lease liabilities $ 92,529 $ 107,150

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Lease liabilities, non-current $ 65,232 $ 74,224

As of January 31, 2021, the Company had additional operating leases for office space that have not yet commenced with aggregate undiscounted lease payments of $ 63.1 million.

These operating leases will commence in fiscal year 2022 with leases terms ranging from 3 to 11 years.

As of January 31, 2022, the Company had an additional operating lease for office space that had not yet commenced with aggregate undiscounted lease payments of $ 4.5 million.

This operating lease will commence in fiscal year 2023 and has a lease term of approximately 9 years.

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

Year ended January 31,

(in thousands, except for term and percentages) 2021 2020

(in thousands) 2022 2021

Cash paid for amounts included in the measurement of lease liabilities:

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Right-of-use assets obtained in exchange for lease obligations $ 586 $ 17,480

During the fiscal year ended January 31, 2022, the Company recorded impairment losses on right-of-use assets of $ 11.2 million, which are included within merger integration expense in the consolidated statement of operations and comprehensive income (loss).

The impairment losses related primarily to a right-of-use asset acquired through the WageWorks Acquisition, which had a carrying value of $ 14.8 million prior to impairment and no corresponding lease liability.

During the year ended January 31, 2022, the right-of-use asset met the criteria to be classified as held-for-sale and an impairment loss of $ 10.9 million was recognized.

The remaining carrying value of $ 3.9 million was included within other current assets on the Company's consolidated balance sheet as of January 31, 2022.

On March 24, 2022, the Company completed the sale of the asset for $ 3.9 million.

Intangible assets and goodwill

Intangible assets

The gross carrying amount and associated accumulated amortization of intangible assets is as follows as of January 31, 2021 and January 31, 2020:

The gross carrying amount and associated accumulated amortization of intangible assets were as follows:

(in thousands) January 31, 2022 January 31, 2021

Amortizable intangible assets:

Software and software development costs $ 192,050 $ 127,005

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Acquired trade names 12,900 12,300

Amortizable intangible assets, gross 962,752 879,597

Intangible assets, gross 1,289,854 962,752

Accumulated amortization ( 316,717 ) ( 195,749 )

Total amortizable intangible assets, net 767,003 780,746

Acquired in process software development costs — 2,533

Total intangible assets, net $ 767,003 $ 783,279

During the fiscal year ended January 31, 2021, the Company capitalized $ 32.4 million to acquire the rights to act as a custodian of HSA portfolios.

Intangible assets, net $ 973,137 $ 767,003

During the fiscal years ended January 31, 2022 and 2021, the Company capitalized $ 67.2 million and $ 32.4 million, respectively, to acquire the rights to act as a custodian of HSA portfolios.

Amortization expense for the fiscal years ended January 31, 2022, 2021, and 2020 was $ 122.5 million, $ 99.9 million and $ 46.5 million, respectively.

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The Company’s annual goodwill impairment test resulted in no impairment charges in any of the periods presented in the accompanying consolidated financial statements.

During the fiscal year ended January 31, 2022, goodwill increased by $ 318.6 million due to the acquisitions of Luum and Further.

During the fiscal year ended January 31, 2021, goodwill decreased by $ 5.4 million due to measurement period adjustments related to the WageWorks Acquisition.

During the fiscal year ended January 31, 2020, the Company recorded $ 1.33 billion of goodwill from the WageWorks Acquisition and related measurement period adjustments.

There were no other changes to the goodwill carrying value during the fiscal years ended January 31, 2022 and 2021.

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(in thousands) 2023 2024 2025 2026 2027 Thereafter Total

Long-term debt obligations (1) $ 62,500 $ 70,313 $ 101,562 $ 768,750 $ — $ — $ 1,003,125

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) 33,951 33,708 33,467 32,965 30,764 72,975 237,830

Operating lease obligations (3) 12,527 10,501 10,849 11,094 11,344 40,671 96,986

HealthSavings portfolio acquisition (4) 60,000 — — — — — 60,000

Other contractual obligations (5) 25,243 13,191 6,137 5,516 6,500 — 56,587

Total $ 140,471 $ 74,900 $ 67,953 $ 75,825 $ 328,608 $ 713,646 $ 1,401,403

(1) As of January 31, 2021, our outstanding principal of $ 1.00 billion is presented net of debt issuance costs on our consolidated balance sheets.

(1) As of January 31, 2022, our outstanding combined principal of $ 950.0 million is presented net of debt issuance costs on our consolidated balance sheets.

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

The debt maturity date is August 31, 2024.

The amount required to be repaid in fiscal year 2025 reflects the $ 200.0 million prepayment made in July 2020 with proceeds from the follow-on offering.

(2) Estimated interest payments assume the stated interest rate applicable as of January 31, 2021 of 1.87 % per annum on a $ 1.00 billion outstanding principal amount.

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

These amounts exclude contractual sublease income of $ 3.7 million, which is expected to be received through February 2023.

(4) Other contractual obligations consist of processing services agreements, telephony services, immaterial finance leases, and other contractual commitments.

Subsequent to the WageWorks Acquisition, the Company entered into non-cancelable agreements to acquire the rights to administer WageWorks HSAs currently administered by third-party custodians.

The remaining amounts due under these agreements are primarily variable in nature based on the number of HSAs transferred.

(2) Estimated interest payments assume the stated interest rates applicable to the Notes and Term Loan Facility as of January 31, 2022, which were 4.50 % and 1.88 % per annum, respectively.

(3) We lease office space and data storage facilities, and we have other non-cancelable operating leases expiring at various dates through 2030.

These amounts exclude contractual sublease income of $ 2.2 million, which is expected to be received through March 2023.

(4) On March 2, 2022, the Company completed its acquisition of the Health Savings Administrators, L.L.C.

("HealthSavings") HSA portfolio for $ 60 million in cash.

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

Contingencies

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Legal matters

WageWorks previously pursued affirmative claims against the Office of Personnel Management ("OPM") to obtain payment for services provided by WageWorks between March 1, 2016 and August 31, 2016 pursuant to its contract

On December 18, 2020, the United States Civilian Board of Contract Appeals granted in part WageWorks' motion for summary judgment and denied OPM's motion for summary judgment, ending the dispute in WageWorks' favor.

In addition, it was stipulated that OPM would pay WageWorks $ 6.8 million, which is included within other income (expense), net, on the January 31, 2021 consolidated statement of operations and comprehensive income.

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.

The Company recorded the $ 2.8 million draw as merger integration expense in the consolidated statement of operations and comprehensive income (loss).

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.

On January 4, 2022, WageWorks filed an amended complaint in the Superior Court.

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 January 31, 2022, Union Mesa filed a motion to dismiss for the conversion cause of action, but has not yet responded to WageWorks' other claims raised in the amended complaint.

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

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On May 16, 2019, a consolidated amended complaint was filed by the lead plaintiffs asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, against WageWorks, its former Chief Executive Officer and its former Chief Financial Officer on behalf of purchasers of WageWorks common stock between May 6, 2016 and March 1, 2018.

The complaint also alleges 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 January 31, 2021 consolidated balance sheet, and the net $ 5.0 million expense is included within merger integration expense on the January 31, 2021 consolidated statement of operations and comprehensive income.

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

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.

The class action settled for $ 30.0 million.

During the fiscal year ended January 31, 2022, 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.

The District Court action is 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 has not yet responded to the complaint.

Plaintiffs seek unspecified damages and costs.

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.

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 .

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.

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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.

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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.

As of January 31, 2021, long-term debt consisted of the following:

(in millions) January 31, 2021

Long-term debt consisted of the following:

(in thousands) January 31, 2022 January 31, 2021

4.50 % Senior Notes due 2029

$ 600,000 $ —

Term Loan Facility 350,000 —

unamortized loan issuance costs (1) 16.4

Long-term debt, net of issuance costs $ 986.7

(1) In addition to the $ 16.4 million of unamortized issuance costs related to the term loan facility, $ 5.0 million of unamortized issuance costs related to our revolving credit facility are included within other assets on the January 31, 2021 consolidated balance sheet.

In connection with the closing of the WageWorks Acquisition, on August 30, 2019, the Company entered into a credit facility (the "Credit Agreement”) that provided for:

(i) a five-year senior secured term loan A facility (the “Term Loan Facility”), in an aggregate principal amount of $ 1.25 billion, the proceeds of which were used to finance the WageWorks Acquisition, to refinance substantially all outstanding indebtedness of HealthEquity and WageWorks and to pay related fees and expenses;

(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 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 January 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.

Prior Term Loan Facility — 1,003,125

Principal amount 950,000 1,003,125

unamortized discount and issuance costs (1) 19,173 16,408

Total debt, net 930,827 986,717

current portion of long-term debt 8,750 62,500

Long-term debt, net $ 922,077 $ 924,217

(1) In addition to the $ 19.2 million and $ 16.4 million of unamortized discount and issuance costs related to long-term debt as of January 31, 2022 and 2021, respectively, $ 4.4 million and $ 5.0 million of unamortized issuance costs related to our Revolving Credit Facility (as defined below) are included within other assets on the consolidated balance sheets as of January 31, 2022 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, 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.

As of January 31, 2022, the balance of accrued interest on the Notes was $ 8.7 million, which is included within accrued liabilities on the Company's consolidated balance sheet.

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 are 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 January 31, 2022, 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 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 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 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 significant, 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 ended 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 ended January 31, 2022.

The Company was in compliance with all covenants under the Credit Agreement as of January 31, 2022, and for the period then ended.

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

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.

The Company was in compliance with all covenants under the Prior Credit Agreement during the fiscal year ended January 31, 2022.

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.

The income tax provision (benefit) consisted of the following:

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(in thousands) 2022 2021 2020

Federal income tax expense at the statutory rate $ 869 $ 9,063 $ 15,922

State income tax expense, net of federal tax benefit ( 99 ) 960 1,518

Federal income tax provision (benefit) at the statutory rate $ ( 14,016 ) $ 869 $ 9,063

State income tax provision (benefit), net of federal tax provision (benefit) ( 3,733 ) ( 99 ) 960

Other non-deductible or non-taxable items, net ( 165 ) 469 798

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Total income tax provision (benefit) $ ( 22,452 ) $ ( 4,694 ) $ 3,491

The Company’s effective income tax rate for the fiscal years ended January 31, 2021, 2020, and 2019 was an effective income tax benefit rate of 113.4 % and an effective income tax expense rate of 8.1 % and 2.5 %, respectively.

The Company’s effective income tax rate for the fiscal years ended January 31, 2022, 2021, and 2020 was an effective income tax benefit rate of 33.6 % and 113.4 % and an effective income tax expense rate of 8.1 %, respectively.

The difference between the effective income tax rate and the U.S.

federal statutory income tax rate each period is impacted by a number of factors, including the relative mix of earnings among state jurisdictions, credits, excess tax benefits or shortfalls on stock-based compensation expense due to the adoption of ASU 2016-09, and other discrete items.

The decrease in the effective tax rate for the fiscal year ended January 31, 2021 from the fiscal year ended January 31, 2020 was primarily due to an increase in excess tax benefits on stock-based compensation expense, deferred tax rate adjustments due to merger integration, and research and development credits recognized in the provision for income taxes relative to pre-tax income.

The increase in the effective tax rate for the fiscal year ended January 31, 2020 compared to the fiscal year ended January 31, 2019 was primarily due to a decrease in excess tax benefits on stock-based compensation expense recognized in the provision for income taxes relative to pre-tax income and an increase in non-deductible expenses, which were offset by exclusion of the gain in connection with our equity investment in WageWorks that will not be realized for income tax purposes.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law.

The CARES Act, among other things, provides various income and payroll tax provisions to provide economic and other relief from the COVID-19 pandemic.

The CARES Act did not have a material impact on our income tax expense or effective tax rate for 2020.

The decrease in the effective tax benefit rate for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021 was primarily due to the impact of tax benefit items, such as stock-based compensation expense, credits, and changes to the valuation allowance, relative to the larger pre-tax book loss and smaller pre-tax book income, respectively.

The decrease in the effective tax rate for the fiscal year ended January 31, 2021 compared to the fiscal year ended January 31, 2020 was primarily due to an increase in excess tax benefits on stock-based compensation expense, deferred tax rate adjustments due to the integration of WageWorks, and research and development credits recognized in the provision for income taxes relative to pre-tax book income.

Deferred tax assets and liabilities consisted of the following:

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The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment and determined that based on the weight of all available evidence, it is more likely than not (a likelihood of more than 50%) that the Company will be able to realize most of its deferred tax assets.

Management considered the scheduled reversal of deferred tax liabilities in making this assessment and determined that based on the weight of all available evidence, it is more likely than not (i.e., a likelihood of more than 50%) that the Company will be able to realize most of its deferred tax assets.

However, the Company recorded a valuation allowance of $ 3.6 million and $ 0.1 million as of January 31, 2022 and 2021, respectively.

The decrease in valuation allowance recorded is primarily the result of state tax credits that are expected to be utilized before expiration, and the remaining valuation allowance as of January 31, 2021 relates to capital loss carryovers.

As of January 31, 2021, the Company had no remaining federal net operating loss carryforward and had gross state net operating loss carryforwards of $ 26.9 million which begin to expire at various intervals following the tax year ending January 31, 2028.

As of January 31, 2021, the Company also had federal and state research and development credits of $ 5.3 million and $ 8.5 million, respectively, which begin to expire following the tax years ending January 31, 2037 and 2022, respectively.

The increase in valuation allowance recorded is primarily the result of state research and development tax credits that are not expected to be utilized before expiration.

As of January 31, 2022, the Company had recorded federal and state net operating loss carryforwards of $ 12.1 million and $ 50.1 million, respectively, which begin to expire at various intervals following the tax year ending January 31, 2029.

As of January 31, 2022, the Company also had federal and state research and development credits of $ 10.9 million each, which begin to expire following the tax years ending January 31, 2032 and 2023, respectively.

As of January 31, 2022 and 2021, the gross unrecognized tax benefit was $ 11.7 million and $ 10.2 million, respectively.

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Total gross unrecognized tax benefits increased by $ 1.4 million in the period from January 31, 2021 to January 31, 2022.

A tabular reconciliation of the beginning and ending amount of gross unrecognized tax benefits, including the impact of purchase accounting from the WageWorks Acquisition, is as follows:

A tabular reconciliation of the beginning and ending amount of gross unrecognized tax benefits, including the impact of purchase accounting from the Luum Acquisition, is as follows:

(in thousands) January 31, 2022 January 31, 2021

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Gross amounts of increases and decreases:

Purchase accounting adjustments 240 —

Increases as a result of tax positions taken during a prior period 38 1

Decreases as a result of tax positions taken during a prior period — ( 1 )

Increases as a result of tax positions taken during the current period 1,169 835

Decreases as a result of tax positions taken during the current period — —

Decreases resulting from the lapse of the applicable statute of limitations — —

Gross unrecognized tax benefits at end of year $ 11,653 $ 10,206

Certain unrecognized tax benefits are required to be netted against their related deferred tax assets as a result of ASU No.

2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists .

Other unrecognized tax benefits have been netted against existing tax receivable balances where significant overpayments have resulted.

Certain unrecognized tax benefits are required to be netted against their related deferred tax assets as a result of ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar

Tax Loss, or a Tax Credit Carryforward Exists .

The resulting unrecognized tax benefit recorded within the Company's consolidated balance sheet excludes the following amounts that have been netted against the related deferred tax assets or tax receivables accordingly:

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Unrecognized tax benefits recorded on the consolidated balance sheet $ 4,556 $ 632

The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a component of other income (expense), net in the statement of operations and comprehensive income.

During the fiscal years ended January 31, 2021 and 2020, the Company recorded penalties and interest of $ 0.2 million and $ 0.1 million, respectively, related to unrecognized tax benefits.

No interest and penalties were recorded related to unrecognized tax benefits during the year ended January 31, 2019.

As of January 31, 2021 and 2020, accrued interest and penalties of $ 0.8 million and $ 0.6 million, respectively, were recorded, of which $ 0.5 million related to existing balances from the WageWorks Acquisition recorded through purchase accounting.

During the fiscal years ended January 31, 2022, 2021, and 2020, the Company recorded penalties and interest of $ 0.7 million, $ 0.2 million, and $ 0.1 million, respectively, related to unrecognized tax benefits.

As of January 31, 2022 and 2021, the Company recorded accrued interest and penalties of $ 1.5 million and $ 0.8 million, respectively.

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.

These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses.

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

Stock-based compensation

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

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

Year ended January 31,

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Stock options $ 1,816 $ 4,499 $ 6,612

Performance stock options — — 681

Restricted stock units 37,693 28,040 25,781

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2014 Equity Incentive Plan (as amended and restated, the "Incentive Plan"), which provided for the issuance of stock awards to the directors and team members of the Company to purchase up to an aggregate of 2.6 million shares of common stock.

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.

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 January 31, 2022, 7.4 million shares were available for grant under the Incentive Plan.

WageWorks Incentive Plan.

At the closing of the WageWorks Acquisition, and in accordance with the Merger Agreement, certain RSUs with respect to WageWorks common stock, granted under WageWorks, Inc.

2010 Equity Incentive Plan (the "WageWorks Incentive Plan"), were replaced by the Company and converted into RSUs with respect to 0.5 million shares of common stock of the Company.

No additional shares were issued under the WageWorks Incentive Plan, and the period during which the remaining 5.3 million shares were available to be utilized expired on May 26, 2020.

Stock options

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The variables include, but are not limited to, (1) the expected life of the option, (2) the expected volatility of the fair value of the Company's common stock over the term of the award estimated by averaging the Company's historical volatility in addition to published volatilities of a relative peer group, (3) risk-free interest rate, and (4) expected dividends.

No options were granted during the fiscal year ended January 31, 2022.

The weighted-average fair value of options granted during the fiscal years ended January 31, 2021 and 2020 was $ 23.68 and $ 25.97 per share, respectively.

The key input assumptions that were utilized in the valuation of the stock options granted during the fiscal years ended January 31, 2021, 2020 and 2019 are as follows:

The key input assumptions utilized in the valuation of the stock options were as follows:

Year ended January 31,

2022 2021 2020

Expected dividend yield 0 % 0 % 0 %

Expected stock price volatility 37.97 %

35.98 % - 36.53 %

36.53 % - 37.84 %

Risk-free interest rate 1.39 %

Expected dividend yield n/a 0 % 0 %

Expected stock price volatility n/a 37.97 %

35.98 % - 36.53 %

Risk-free interest rate n/a 1.39 %

2.21 % - 2.43 %

Expected life of options 5.18 years

4.95 - 5.09 years

Expected life of options n/a 5.18 years

4.95 - 5.09 years

The Company historically used the "simplified" method to estimate the expected term of an option as determined under Staff Accounting Bulletin No.

110 due to limited option exercise history as a public company.

Commencing February 1, 2019, the Company began estimating the expected life of an option using its own historical option exercise and termination data.

Expected volatility is determined using weighted average volatility of publicly traded peer companies.

During the fiscal year ended January 31, 2019, the Company began using its own historical volatility in addition to the volatility of publicly traded peer companies, as its share price history grows over time.

Expected volatility is determined using a weighted average volatility of publicly traded peer companies and the Company's own historical volatility.

The risk-free interest rate is determined by using published zero coupon rates on treasury notes for each grant date given the expected term on the options.

The dividend yield of zero is based on the fact that the Company expects to invest cash in operations.

The dividend yield of zero is based on the fact that the Company has no current plans to pay dividends on its common stock.

A summary of stock option activity is as follows:

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$ 31.46 5.00 $ 87,164

Granted 16 $ 66.06

Exercised ( 442 ) $ 1.25 - 44.53

Forfeited ( 10 ) $ 25.45 - 44.53

Outstanding as of January 31, 2022 1,232 $ 1.25 - 82.39

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The total intrinsic value of options exercised during the fiscal years ended January 31, 2022, 2021 and 2020 was $ 19.3 million, $ 15.4 million, and $ 22.5 million, respectively.

As of January 31, 2021, the weighted-average vesting period of non-vested awards expected to vest is approximately 1.0 year;

As of January 31, 2022, the weighted-average vesting period of non-vested awards expected to vest is approximately 0.7 years;

the amount of compensation expense the Company expects to recognize for stock options vesting in future periods is approximately $ 1.1 million.

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Performance restricted stock units and awards.

During the first quarter of the fiscal year ended January 31, 2019, the Company awarded 227,760 performance-based restricted stock awards (the “FY19 PRSAs”).

The Company records stock-based compensation related to the FY19 PRSAs when it is considered probable that the performance conditions will be met.

The underlying shares were issued at 200 % of the target level of achievement at the grant date.

In March 2020, the Compensation Committee modified the vesting conditions of the FY19 PRSAs by basing the first two years of the award solely on the Company’s revenue compound annual growth rate (“CAGR”) for the first two years , exclusive of the revenue recognized through the WageWorks Acquisition, and measured using the original revenue CAGR targets set by the Compensation Committee in respect of such awards.

As a result, two-thirds of the FY19 PRSAs were deemed by the Compensation Committee to be earned at target;

however, despite this determination, and in order to encourage retention of our executive officers, our executive officers were required to remain employed until the remaining performance conditions for the FY19 PRSAs were certified by the Compensation Committee, which occurred in March 2021.

The remaining one-third of the FY19 PRSAs were modified to vest based on the Company’s net cash provided by operating activities (as defined under GAAP) relative to target given the importance of the Company generating sufficient cash flow to service the additional indebtedness incurred in connection with the WageWorks Acquisition.

The modification affected 10 team members and did not result in an adjustment to stock-based compensation expense.

The Company's actual net cash provided by operating activities for the year ended January 31, 2021 was 163 % of the target level of achievement.

The FY19 PRSAs cliff vested upon approval by the Compensation Committee in March 2021.

During the first quarter of the fiscal year ended January 31, 2020, the Company awarded 129,963 PRSUs (the “FY20 PRSUs”).

The Company records stock-based compensation related to the FY20 PRSUs when it is considered probable that the performance conditions will be met.

During the fiscal year ended January 31, 2020, the Company awarded 129,963 PRSUs (the “FY20 PRSUs”).

The Company recorded stock-based compensation related to the FY20 PRSUs when it was considered probable that the performance conditions would be met.

In March 2020, the Compensation Committee modified the vesting conditions of the FY20 PRSUs by basing the first year of the award solely on the Company’s revenue CAGR for the first year, exclusive of the revenue recognized through the WageWorks Acquisition, and measured using the original revenue CAGR targets set by the Compensation Committee in respect of such awards.

As a result, one-third of the FY20 PRSUs were deemed by the Compensation Committee to be earned at target;

however, despite this determination, and in order to encourage retention of our executive officers, our executive

officers must remain employed until the remaining performance conditions for the FY20 PRSUs are certified by the Compensation Committee, which we expect to occur in March 2022.

The remaining two-thirds of the FY20 PRSUs will vest based on the Company’s net cash provided by operating activities (as defined under GAAP) relative to target given the importance of the Company generating sufficient cash flow to service the additional indebtedness incurred in connection with the WageWorks Acquisition.

The modification affected 12 team members and resulted in incremental stock-based compensation expense of $ 6.6 million, which will be recognized over the remaining service period, adjusted for the level of achievement of the performance conditions and any forfeitures.

however, despite this determination, and in order to encourage retention of our executive officers, our executive officers were required to remain employed until the remaining performance conditions for the FY20 PRSUs were certified by the Compensation Committee.

The remaining two-thirds of the FY20 PRSUs vested based on the Company’s net cash provided by operating activities (as defined under GAAP) relative to target given the importance of the Company generating sufficient cash flow to service the additional indebtedness incurred in connection with the WageWorks Acquisition.

The modification affected 12 team members and resulted in incremental stock-based compensation expense of $ 6.6 million, which was recognized over the remaining service period, adjusted for the level of achievement of the performance conditions and any forfeitures.

Prior to the modification, the Company did not believe the FY20 PRSUs were likely to vest, and as a result, $ 2.9 million of previously recorded stock-based compensation expense was reversed during the three months ended April 30, 2020.

The FY20 PRSUs cliff vest upon approval by the Compensation Committee.

The modified performance conditions for the remaining two-thirds tranche allow for a range of vesting from 0 % to 200 % based on the level of achievement of the new performance conditions, and the Company believes it is probable that the FY20 PRSUs will vest at least in part.

During the first and second quarters of the fiscal year ended January 31, 2021, the Company awarded 277,950 PRSUs subject to a market condition based on the Company’s total shareholder return ("TSR") relative to the Russell 2000 index as measured on January 31, 2023.

The modified performance conditions for the second and third tranches allowed for a range of vesting from 0 % to 200 % based on the level of achievement of the new performance conditions.

The Company's actual net cash provided by operating activities for the fiscal year ended January 31, 2022 was below the threshold level of achievement, and for the fiscal year ended January 31, 2021 was 163 % of the target level of achievement.

Previously recorded stock-based compensation expense associated with FY20 PRSUs that did not vest was reversed during the fiscal year ended January 31, 2022 when it was no longer considered probable that the performance conditions would be met.

The FY20 PRSUs cliff vested upon approval by the Compensation Committee, which occurred in March 2022.

During the fiscal year ended January 31, 2021, the Company awarded 277,950 PRSUs subject to a market condition based on the Company’s total shareholder return ("TSR") relative to the Russell 2000 index as measured on January 31, 2023.

The Company used a Monte Carlo simulation to determine that the grant date fair value of the awards was approximately $ 20.8 million.

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The PRSUs cliff vest upon approval by the Compensation Committee.

During the fiscal year ended January 31, 2022, the Company awarded 249,750 PRSUs subject to a market condition based on the Company’s total shareholder return ("TSR") relative to the Russell 2000 index as measured on January 31, 2024.

The Company used a Monte Carlo simulation to determine that the grant date fair value of the awards was approximately $ 22.4 million.

Compensation expense is recorded if the service condition is met regardless of whether the market condition is satisfied.

The market condition allows for a range of vesting from 0 % to 200 % based on the level of performance achieved.

The PRSUs cliff vest upon approval by the Compensation Committee.

A summary of the RSU and RSA activity is as follows:

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Total unrecorded stock-based compensation expense as of January 31, 2022 associated with RSUs and PRSUs was $ 123.0 million, which is expected to be recognized over a weighted-average period of 2.5 years.

Total unrecorded stock-based compensation expense as of January 31, 2021 associated with RSAs and PRSAs was $ 0.2 million, which is expected to be recognized over a weighted-average period of 0.2 years.

Total unrecorded stock-based compensation expense as of January 31, 2022 associated with RSAs and PRSAs was less than $ 0.1 million, which is expected to be recognized over a weighted-average period of 0.2 years.

Fair value measurements are made at a specific point in time, based on relevant market information.

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• 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 January 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 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 January 31, 2022, the fair value of the Notes was $ 588.4 million.

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

The following table reconciles the change in the fair value of the contingent consideration during the fiscal year ended January 31, 2022:

(in thousands) Carrying amount

Balance as of January 31, 2021 $ —

Contingent consideration recognized at acquisition 8,147

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

Payments ( 6,000 )

Balance as of January 31, 2022 $ —

Employee benefits

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Subsequent events

The Company received net proceeds of $ 456.7 million after deducting underwriting discounts and commissions of $ 4.6 million and other offering expenses of $ 0.5 million.

The Company intends to use the net proceeds from the offering for potential acquisitions, repayment of indebtedness, and other general corporate purposes.

On March 8, 2021, the Company acquired 100 % of the outstanding capital stock of Fort Effect Corp, d/b/a Luum for an aggregate purchase price consisting of approximately $ 50.5 million in cash, subject to net working capital and other customary adjustments, and up to $ 20 million in contingent payments payable during the two-year period following the closing of the acquisition.

See Note 7—Commitments and contingencies for subsequent events related to legal matters.

On March 2, 2022, the Company completed its acquisition of the Health Savings Administrators, L.L.C.

HSA portfolio for $ 60 million in cash.

Changes in and disagreements with accountants on accounting and financial disclosure

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-K

Item 8. Financial Statements and Supplementary Data