Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures
Management, with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures as of January 31, 2022, the end of the period covered by this Annual Report on Form 10-K. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on such evaluation, our CEO and our CFO have concluded that as of January 31, 2022, the Company's disclosure controls and procedures were not effective because of the material weaknesses in internal control over financial reporting described below.
Notwithstanding the ineffective disclosure controls and procedures as a result of the identified material weaknesses described below, management has concluded that the consolidated financial statements included elsewhere in this Annual Report on Form 10-K present fairly, in all material respects, the Company’s financial position, results of operations and cash flows in accordance with generally accepted accounting principles in the United States of America.
In accordance with interpretive guidance issued by SEC staff, companies are allowed to exclude acquired businesses from the assessment of internal control over financial reporting during the first year after completion of an acquisition and from the assessment of disclosure controls and procedures to the extent subsumed in such internal control over financial reporting. In accordance with this guidance, as the Company acquired Luum on March 8, 2021, and Further on November 1, 2021, management's evaluation and conclusion as to the effectiveness of the Company's disclosure controls and procedures as of January 31, 2022 excluded the portion of disclosure controls and procedures that are subsumed by internal control over financial reporting of Luum and Further. The balances resulting from these acquisitions represented less than 1% of assets and approximately 3% of revenues, excluding the effects of purchase accounting, of the Company's consolidated total assets and consolidated total revenues as of and for the fiscal year ended January 31, 2022.
Management's report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of January 31, 2022 based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013) (“COSO Framework”) .
Based on that assessment, management has concluded that, as of January 31, 2022, due to material weaknesses in internal control over financial reporting the Company’s internal control over financial reporting was not effective.
-83-
Table of Contents
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 our annual or interim financial statements will not be prevented or detected on a timely basis.
In accordance with interpretive guidance issued by SEC staff, management has excluded Luum and Further from its assessment of internal control over financial reporting as of January 31, 2022, as the Company acquired Luum and Further during the fiscal year ended January 31, 2022. The balances resulting from these acquisitions represented less than 1% of assets and approximately 3% of revenues, excluding the effects of purchase accounting, of the Company's consolidated total assets and consolidated total revenues as of and for the fiscal year ended January 31, 2022.
The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Company’s internal control over financial reporting as of January 31, 2022. Its report appears in Part II, Item 8 of this Annual Report on Form 10-K.
As previously disclosed, management identified certain deficiencies in the Company’s internal control over financial reporting that aggregated to material weaknesses in the following areas:
A. Contract to Cash Process
The Company 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.
B. Information Technology General Controls
The Company 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. The Company’s business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted.
These material weaknesses resulted in material misstatements of WageWorks' historical financial statements, which preceded the WageWorks Acquisition, and could result in a misstatement of our account balances or disclosures that would result in a material misstatement to the annual or interim condensed consolidated financial statements that would not be prevented or detected.
Remediation of Previously Reported Material Weakness
As previously reported, the WageWorks subsidiary had material weaknesses related to its risk assessment, information and communication, control activities, and monitoring components of the COSO Framework. Additionally, WageWorks had a material weakness related to inadequate process level and monitoring controls in the area of accounting close and financial reporting.
During the year ended January 31, 2022, the Company completed the following remedial actions designed to address the previously identified material weaknesses in the COSO Framework components:
• incorporated certain WageWorks processes into the Company’s existing entity-level controls;
• performed its recurring risk assessment and scoping of key systems and business processes, including a risk assessment at the financial statement assertion level to ensure that the level of precision of relevant controls is adequate to address the identified risks;
• dedicated certain senior finance, accounting, operational, and IT leadership team members to work on remediation efforts and appointed third-party internal controls advisors to assist with such efforts;
• implemented a periodic assessment to monitor business changes impacting accounting processes and controls;
• reported periodic updates of the remediation plan progress to the Audit and Risk Committee of the Company's board of directors;
• formalized documentation underlying processes and controls to promote knowledge and information transfer across functions and upon personnel changes; and
-84-
Table of Contents
• monitored the operating effectiveness of the existing entity-level controls.
During the year ended January 31, 2022, the Company completed the following remedial actions designed to address the previously identified material weaknesses in accounting close and financial reporting:
• incorporated certain WageWorks processes into the Company’s process-level controls, including, but not limited to, those that address the monitoring of the accounting close cycle and enhanced the evaluation of accounting policies;
• redesigned certain processes and controls in conjunction with the enterprise resource planning (“ERP”) system migration described below;
• enhanced the design of existing controls, where applicable, and implemented additional controls to further strengthen the control environment;
• formalized the assessment of the relevancy of information and data used in key controls, including the design or augmentation of controls to incorporate the review of the accuracy and completeness of such items; and
• monitored the operating effectiveness of the process-level and redesigned controls.
Management evaluated the design and operating effectiveness of the entity level and process level controls associated with the remediation activities above. Management has concluded that such controls are operating effectively, and that the previously reported material weaknesses in the COSO Framework components and accounting close and financial reporting have been remediated as of January 31, 2022.
Ongoing Integration and Remediation Efforts
In response to the material weakness "A. Contract to Cash Process", management has taken the following actions:
• continued to execute its plan to consolidate service platforms related to the contract-to-cash cycle, which will reduce a significant number of manual business process controls;
• enhanced the design of existing controls including information and data used in controls, where applicable, and are implementing additional controls to further strengthen the control environment; and
• implemented a process to assess the design and monitor the operating effectiveness of the new and redesigned controls.
In response to the material weakness "B. Information Technology General Controls", management has taken the following actions:
• continued to execute its plan to consolidate service platforms, which will reduce the number of ITGCs in the area of logical access and change management;
• enhanced the design of existing controls, where applicable, and implemented additional controls to further strengthen the control environment; and
• implemented a process to assess and enhance the design and monitor the operating effectiveness of controls related to logical access and change management for relevant applications and systems.
As part of our integration efforts, we have migrated all of our material operations to a single ERP system for the consolidated Company which enhanced our business and financial processes and standardized our information systems. We have re-assessed risks in response to the ERP system migration and the associated changes to underlying processes. We redesigned certain controls in response to the current risks and evaluated the operating effectiveness of the redesigned controls.
As we continue to evaluate operating effectiveness and monitor improvements to our internal control over financial reporting, we may take additional measures to address control deficiencies or modify the remediation plans described above.
Changes in Internal Control Over Financial Reporting
Other than as described above, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended January 31, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other information
None.
-85-
Table of Contents
Item 9C. Disclosure regarding foreign jurisdictions that prevent inspections
Not applicable.
-86-
Table of Contents
PART III.
Item 10. Directors, executive officers and corporate governance
The information required by this Item 10 of Form 10-K is found in our 2022 Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for the Company's 2022 Annual Meeting of Stockholders is incorporated by reference to our 2022 Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year to which this report relates.
Code of business conduct and ethics
Our board of directors has adopted a Code of Business Conduct and Ethics that applies to all of our team members, officers and directors, including our Chief Executive Officer, Chief Financial Officer, and other executive and senior financial officers. The full text of our Code of Business Conduct and Ethics is posted on our website at www.healthequity.com in the Corporate Governance section of our Investor Relations webpage. We intend to post any amendments to our Code of Business Conduct and Ethics, and any waivers of our Code of Business Conduct and Ethics for directors and executive officers, on the same website.
Item 11. Executive compensation
The information required by this Item 11 of Form 10-K is incorporated by reference in our 2022 Proxy Statement.
Item 12. Security ownership of certain beneficial owners and management and related stockholder matters
The information required by this Item 12 of Form 10-K is incorporated by reference in our 2022 Proxy Statement.
Item 13. Certain relationships and related transactions, and director independence
The information required by this Item 13 of Form 10-K is incorporated by reference in our 2022 Proxy Statement.
Item 14. Principal accounting fees and services
The information required by this Item 14 of Form 10-K is incorporated by reference in our 2022 Proxy Statement.
-87-
Table of Contents
Part IV.
Item 15. Exhibits, financial statement schedules
(a) Documents filed as part of this report
(1) All financial statements
Index to consolidated financial statements Page
Consolidated Balance Sheets as of January 31, 2022 and 2021
55
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended January 31, 2022, 2021 and 2020
56
Consolidated Statements of Stockholders' Equity for the years ended January 31, 2022, 2021 and 2020
57
Consolidated Statements of Cash Flows for the years ended January 31, 2022, 2021 and 2020
58
Notes to consolidated financial statements
60
(2) Financial statement schedules
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this Form 10-K.
-88-
Table of Contents
(3) Exhibits required by Item 601 of Regulation S-K
Exhibit Index
Incorporated by reference
Exhibit
no. Description Form File No. Exhibit Filing Date
3.1 Amended and Restated Certificate of Incorporation of the Registrant
8-K 001-36568 3.2 July 6, 2018
3.2 Amended and Restated Bylaws of the Registrant
8-K 001-36568 3.4 July 6, 2018
4.1 Description of Securities of the Registrant
10-K 001-36568 4.1 March 31, 2020
4.2 Form of Common Stock Certificate.
S-1/A 333-196645 4.1 July 16, 2014
4.3 Amended and Restated Registration Rights Agreement, dated August 11, 2011, by and among the Registrant and certain of its stockholders.
S-1 333-196645 4.2 June 10, 2014
4.4 Indenture, dated as of October 8, 2021, by and among the Company, the guarantors party thereto and Wells Fargo Bank, National Association, as trustee, including the form of 4.500% Senior Notes due 2029
8-K 001-36568 4.1 October 12, 2021
10.1 Form of Indemnification Agreement by and between the Registrant and its directors and officers.
S-1/A 333-196645 10.1 July 16, 2014
10.2† HealthEquity, Inc. 2014 Equity Incentive Plan and Form of Award Agreement.
S-1 333-196645 10.2 June 10, 2014
10.3† HealthEquity, Inc. 2014 Amended and Restated Equity Incentive Plan and Form of Award Agreement.
S-1/A 333-196645 10.3 July 16, 2014
10.4† Amendment No. 1 to the HealthEquity 2014 Equity Incentive Plan, as amended and restated
8-K 001-36568 10.3 August 30, 2019
10.5† Restricted Stock Unit Award Agreement
10-Q 001-36568 10.4 December 6, 2018
10.6† Restricted Stock Award Agreement
10-K 001-36568 10.30 March 28, 2019
10.7† HealthEquity, Inc. and WageWorks, Inc. 2010 Equity Incentive Plan (Amended and Restated in August 2019)
8-K 001-36568 10.2 August 30, 2019
10.8† Forms of Stock Option Agreements under the HealthEquity, Inc. and WageWorks, Inc. Amended and Restated 2010 Equity Incentive Plan
S-1 333-173709 10.3 July 19, 2011
10.9† HealthEquity, Inc. Section 409A Specified Employee Policy.
S-1 333-196645 10.23 June 10, 2014
10.10† Employment Agreement, dated June 10, 2014, by and between the Company and Jon Kessler.
S-1 333-196645 10.24 June 10, 2014
10.11† Amendment No. 1 to Employment Agreement between the Company and Jon Kessler, dated April 1, 2017
10-Q 001-36568 10.2 June 4, 2020
10.12† Employment Agreement, dated June 10, 2014, by and between the Company and Stephen D. Neeleman, M.D.
S-1 333-196645 10.25 June 10, 2014
10.13† Employment Agreement, dated June 10, 2014, by and between the Company and Darcy Mott.
S-1 333-196645 10.26 June 10, 2014
10.14† Transition and Separation Agreement between the Company and Darcy Mott, dated June 25, 2020.
10-Q 001-36568 10.1 September 9, 2020
10.15† Employment Agreement, dated June 25, 2020, by and between the Company and Tyson Murdock
8-K 001-36568 10.1 April 1, 2021
10.16† Employment Agreement, dated May 15, 2018, by and between the Company and Edward R. Bloomberg
10-Q 001-36568 10.1 September 6, 2018
10.17+ Employment Agreement, dated November 9, 2018, by and between the Company and Larry Trittschuh
-89-
Table of Contents
Incorporated by reference
Exhibit
no. Description Form File No. Exhibit Filing Date
10.18+ Amendment No. 1 to Employment Agreement, dated December 4, 2018, by and between the Company and Larry Trittschuh
10.19 Lease Agreement, dated May 15, 2015, by and between the Registrant and BG Scenic Point Office 2, L.C.
10-Q 001-36568 10.1 June 11, 2015
10.20 Amended and Restated Lease Agreement, dated May 15, 2015, by and between the Registrant and BG Scenic Point Office 1, L.C.
10-Q 001-36568 10.2 June 11, 2015
10.21 First Amendment to Lease Agreement, dated November 3, 2015, by and between the Company and the Landlord.
10-Q 001-36568 10.1 December 8, 2016
10.22 First Amendment to Amended and Restated Lease Agreement, dated June 1, 2016, by and between the Company and the Landlord.
10-Q 001-36568 10.1 June 8, 2017
10.23 Second Amendment to Lease Agreement, dated September 16, 2016, by and between the Company and the Landlord.
10-Q 001-36568 10.2 December 8, 2016
10.24 Second Amendment to Amended and Restated Lease Agreement, dated May 31, 2017, by and between the Company and the Landlord.
10-Q 001-36568 10.2 June 8, 2017
10.25 Third Amendment to Lease Agreement, dated September 26, 2018, by and between the Company and the Landlord
10-K 001-36568 10.31 March 28, 2019
10.26 Lease Agreement, dated September 27, 2018, by and between the Company and the Landlord
10-Q 001-36568 10.1 December 6, 2018
10.27 Third Amendment to Amended and Restated Lease Agreement, dated September 27, 2018, by and between the Company and the Landlord
10-Q 001-36568 10.2 December 6, 2018
10.28 Fourth Amendment to Lease Agreement, dated September 27, 2018, by and between the Company and the Landlord
10-Q 001-36568 10.3 December 6, 2018
10.29† Form of Indemnification Agreement entered into between WageWorks, Inc., its affiliates and its former directors and officers
S-1 333-173709 10.1 July 19, 2011
10.30 Credit Agreement, dated as of October 8, 2021, by and among the Company, as borrower, each lender from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and the Swing Line Lender (as defined therein), and each L/C Issuer (as defined therein) party thereto.
8-K 001-36568 10.1 October 12, 2021
10.31 Custodial Transfer and Asset Purchase Agreement, dated as of April 27, 2021, by and between Fifth Third Bank, National Association, and HealthEquity, Inc.
8-K 001-36568 2.1 April 27, 2021
10.32 Amended and Restated Asset and Unit Purchase Agreement, dated as of September 7, 2021, by and among Viking Acquisition Corp., HealthEquity, Inc., MII Life Insurance, Incorporated d/b/a Further and Aware Integrated, Inc.**
8-K 001-36568 2.1 September 8, 2021
10.33+ Non-Employee Director Compensation Policy
21.1+ List of Subsidiaries
23.1+ Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
24.1+ Power of Attorney (included in the signature page to this Annual Report).
-90-
Table of Contents
Incorporated by reference
Exhibit
no. Description Form File No. Exhibit Filing Date
31.1+ Certification of the Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2+ Certification of the Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*# Certification of the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*# Certification of the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†† XBRL Instance document
101.SCH†† XBRL Taxonomy schema linkbase document
101.CAL†† XBRL Taxonomy calculation linkbase document
101.DEF†† XBRL Taxonomy definition linkbase document
101.LAB†† XBRL Taxonomy labels linkbase document
101.PRE†† XBRL Taxonomy presentation linkbase document
104 The cover page from the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022, formatted in Inline XBRL.
+ Filed herewith
* Furnished herewith
# These certifications are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference in any filing the registrant makes under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.
† Indicates management contract or compensatory plan.
††
In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections.
** Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. HealthEquity hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.
Item 16. Form 10-K Summary
None.
-91-
Table of Contents
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Draper, State of Utah on this 31st day of March, 2022.
HEALTHEQUITY, INC.
Date: March 31, 2022 By: /s/ Jon Kessler
Name: Jon Kessler
Title: President and Chief Executive Officer
-92-
Table of Contents
Power of attorney
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below hereby constitutes and appoints Jon Kessler and Tyson Murdock, and each of them acting individually, as his or her true and lawful attorneys-in-fact and agents, with full power of each to act alone, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or her or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 31, 2022 By: /s/ Robert Selander
Name: Robert Selander
Title: Chairman of the Board, Director
Date: March 31, 2022 By: /s/ Jon Kessler
Name: Jon Kessler
Title: President and Chief Executive Officer (Principal Executive Officer), Director
Date: March 31, 2022 By: /s/ Tyson Murdock
Name: Tyson Murdock
Title: Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
Date: March 31, 2022 By: /s/ Frank Corvino
Name: Frank Corvino
Title: Director
Date: March 31, 2022 By: /s/ Adrian Dillon
Name: Adrian Dillon
Title: Director
Date: March 31, 2022 By: /s/ Evelyn Dilsaver
Name: Evelyn Dilsaver
Title: Director
Date: March 31, 2022 By: /s/ Debra McCowan
Name: Debra McCowan
Title: Director
Date: March 31, 2022 By: /s/ Stuart Parker
Name: Stuart Parker
Title: Director
Date: March 31, 2022 By: /s/ Stephen Neeleman
Name: Stephen Neeleman, M.D.
Title: Vice Chairman and Director
Date: March 31, 2022 By: /s/ Ian Sacks
Name: Ian Sacks
Title: Director
Date: March 31, 2022 By: /s/ Gayle Wellborn
Name: Gayle Wellborn
Title: Director
-93-