4 unchanged sentences
Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements.
−Removed: Such statements include, but are not limited to, statements concerning our ability to integrate the acquisition of Further, the impact of the ongoing COVID-19 pandemic on the Company, the anticipated synergies and other benefits of the acquisitions of WageWorks and Further, health savings accounts and other tax-advantaged consumer-directed benefits, tax and other regulatory changes, market opportunity, our future financial and operating results, our investment and acquisition strategy, our sales and marketing strategy, management’s plans, beliefs and objectives for future operations, technology and development, economic and industry trends or trend analysis, expectations about seasonality, opportunity for portfolio purchases and other acquisitions, operating expenses, anticipated income tax rates, capital expenditures, cash flows and liquidity.
+Added: Such statements include, but are not limited to, statements concerning our ability to integrate acquired businesses, the impact of the COVID-19 pandemic and resulting societal and economic changes on the Company, the anticipated synergies and other benefits of acquired businesses and any future acquisitions, health savings accounts and other tax-advantaged consumer-directed benefits, tax and other regulatory changes, market opportunity, our future financial and operating results, our investment and acquisition strategy, our sales and marketing strategy, management’s plans, beliefs and objectives for future operations, technology and development, economic and industry trends or trend analysis, expectations about seasonality, opportunity for portfolio purchases and other acquisitions, operating expenses, anticipated income tax rates, capital expenditures, cash flows and liquidity.
These statements are based on the beliefs and assumptions of our management based on information currently available to us.
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The core of our offerings is the HSA, a financial account through which consumers spend and save long-term for healthcare expenses on a tax-advantaged basis.
−Removed: As of October 31, 2021, we administered 6.2 million HSAs, with balances totaling $16.4 billion, which we call HSA Assets.
−Removed: Also, as of October 31, 2021, we administered 7.1 million complementary CDBs.
−Removed: We refer to the aggregate number of HSAs and other CDBs that we administer as Total Accounts, of which we had 13.3 million as of October 31, 2021.
+Added: As of April 30, 2022, we administered 7.4 million HSAs, with balances totaling $20.3 billion, which we call HSA Assets, as well as 7.1 million complementary CDBs.
+Added: We refer to the aggregate number of HSAs and other CDBs that we administer as Total Accounts, of which we had 14.5 million as of April 30, 2022.
We reach consumers primarily through relationships with their employers, which we call Clients.
−Removed: We reach Clients primarily through a sales force that calls on Clients directly, relationships with benefits brokers and advisors, and integrated partnerships with a network of health plans, benefits administrators, benefits brokers and consultants, and retirement plan recordkeepers, which we call Network Partners.
−Removed: We have increased our share of the growing HSA market from 4% in calendar year 2010 to 17% as of October 31, 2021, measured by HSA Assets.
−Removed: According to Devenir, we are the largest HSA provider by accounts and second largest by assets as of June 2021.
+Added: We reach Clients primarily through relationships with benefits brokers and advisors, integrated partnerships with a network of health plans, benefits administrators, benefits brokers and consultants, and retirement plan recordkeepers, which we call Network Partners, and a sales force that calls on Clients directly.
+Added: We have increased our share of the growing HSA market from 4% in December 2010 to 18% as of December 2021, measured by HSA Assets.
+Added: According to Devenir, we are the largest HSA provider by accounts and second largest by assets as of December 2021.
In addition, we believe we are the largest provider of other CDBs.
10 unchanged sentences
We earn interchange revenue mainly from fees paid by merchants on payments that our members make using our physical payment cards and on our virtual payment system.
−Removed: See “Key components of our results of operations” for additional information on our sources of revenue, including the adverse impacts caused by the ongoing COVID-19 pandemic.
−Removed: WageWorks Acquisition
−Removed: On August 30, 2019, we completed the acquisition of WageWorks, Inc.
−Removed: (the "WageWorks Acquisition") and paid approximately $2.0 billion in cash to WageWorks stockholders, financed through net borrowings of approximately $1.22 billion under our prior term loan facility and approximately $816.9 million of cash on hand.
−Removed: As a result of the WageWorks Acquisition, WageWorks Inc.
−Removed: became a wholly owned subsidiary of HealthEquity, Inc.
−Removed: The key strategy of the WageWorks Acquisition was to enable us to increase the number of our employer sales opportunities, the conversion of these opportunities to Clients, and the value of Clients in generating members, HSA Assets and complementary CDBs.
−Removed: WageWorks’ historic strength of selling to employers directly and through health benefits brokers and advisors complemented our distribution through Network Partners.
−Removed: With WageWorks’ CDB capabilities, we provide employers with a single partner for both HSAs and other CDBs, which is preferred by the vast majority of employers according to research conducted for us by Aite Group.
−Removed: For Clients that partner with us in this way, we believe we can produce more value by encouraging both CDB participants to contribute to HSAs and HSA-only members to take advantage of tax savings available through other CDBs.
−Removed: Accordingly, we believe that there are significant opportunities to expand the scope of services that we provide to our Clients.
−Removed: We are continuing our multi-year integration effort that we expect will produce long-term cost savings and revenue synergies.
−Removed: We have identified opportunities of approximately $80 million in annualized ongoing net synergies to be achieved by the end of fiscal year 2022, of which approximately $75 million were achieved as of October 31, 2021.
−Removed: Furthermore, we anticipate generating additional revenue synergies over the longer-term as our combined distribution channels and existing client base take advantage of the broader service offerings and as we continue to drive member engagement.
−Removed: We estimate non-recurring costs to achieve these synergies of approximately $110 million resulting from investment in technology we use to provide our services, and to run our back-office systems, and from integration of technology, as well as rationalization of cost of operations.
−Removed: Merger integration expenses attributable to the WageWorks Acquisition are expected to be completed by the end of fiscal year 2022, with the exception of ongoing lease expense related to certain WageWorks offices that have been permanently closed, less any related sublease income.
−Removed: As of October 31, 2021, we had incurred a total of $104 million of non-recurring merger integration costs related to the WageWorks Acquisition.
+Added: See “Key components of our results of operations” for additional information on our sources of revenue, including the adverse impacts caused by the COVID-19 pandemic and resulting societal and economic changes.
+Added: Recent acquisitions
Luum acquisition.
−Removed: In March 2021, we bolstered our commuter offering by acquiring 100% of the outstanding capital stock of Fort Effect Corp, d/b/a Luum (the "Luum Acquisition") for an aggregate purchase price consisting of $50.2 million in cash and up to $20.0 million in contingent payments payable during the two-year period following the closing of the Luum Acquisition.
−Removed: On October 31, 2021, we entered into an amendment to the purchase agreement to pay $6.0 million in satisfaction of the contingent consideration liability.
−Removed: Luum provides employers with a suite of commute tools as well as real-time commute data, to help them design and implement flexible return-to-office and hybrid-workplace strategies and benefits.
+Added: In March 2021, we bolstered our commuter offering by acquiring 100% of the outstanding capital stock of Fort Effect Corp, d/b/a Luum (the "Luum Acquisition").
+Added: The aggregate purchase price for the acquisition consisted of $56.2 million in cash.
+Added: 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.
Fifth Third Bank HSA portfolio acquisition.
−Removed: In April 2021, we entered into a definitive agreement with Fifth Third Bank, National Association ("Fifth Third"), to transition the custody of Fifth Third’s HSA portfolio to HealthEquity.
−Removed: On September 29, 2021, the transaction was closed, in which we paid a $60.8 million purchase price for a transfer of approximately 160,000 HSAs and
−Removed: $491.0 million of HSA Assets.
−Removed: The agreement includes a mechanism to adjust the purchase price based on the amount of HSA Assets actually transferred.
+Added: In September 2021, we acquired the Fifth Third Bank, National Association ("Fifth Third") HSA portfolio, which consisted of $490.0 million of HSA Assets held in approximately 160,000 HSAs in exchange for a purchase price of $60.8 million in cash.
Further acquisition.
−Removed: In April 2021, we entered into a definitive agreement to acquire Further for $500 million.
−Removed: Further is a leading provider of HSA and other CDB administration services, with approximately 580,000 HSAs and $1.9 billion of HSA Assets.
−Removed: In September 2021, the terms of the acquisition were amended pursuant to two agreements:
−Removed: (1) an amended agreement to acquire Further (other than VEBA, as described below) for $455 million, which closed on November 1, 2021, and (2) an agreement to acquire all cash balances and investment assets included in any voluntary employee beneficiary association (“VEBA”) account that is funding a health reimbursement arrangement (either Section 501(c)(9) or Section 115 trusts) and all contracts related exclusively thereto, subject to satisfaction of certain customary closing conditions, for a maximum purchase price of $45 million, calculated based on the actual amount of VEBA assets transferred relative to the total amount of VEBA assets as of April 30, 2021.
−Removed: On December 3, 2021, the parties agreed to terminate the agreement to acquire the Further VEBA business.
+Added: In November 2021, we acquired the Further business (other than Further's voluntary employee beneficiary association business), a leading provider of HSA and other CDB administration services, with approximately 580,000 HSAs and $1.9 billion of HSA Assets, for $455 million in cash (the "Further Acquisition").
+Added: We expect merger integration expenses attributable to the Further Acquisition totaling approximately $55 million to be incurred over a period of approximately three years from the acquisition date.
HealthSavings HSA portfolio acquisition.
−Removed: On December 6, 2021, we entered into a definitive agreement with Health Savings Administrators, L.L.C.
−Removed: (“HealthSavings”) to transition the custody of HealthSavings’ HSA portfolio to HealthEquity.
−Removed: The definitive agreement provides a $60 million purchase price for approximately $1.3 billion of HSA assets held in approximately 87,000 HSAs.
−Removed: Given that a significant portion of the HSA assets are currently invested, HealthSavings and HealthEquity are working closely to coordinate an in-kind transfer of most of the invested assets.
−Removed: The transition of HealthSavings’ HSAs to the HealthEquity platform is expected to be completed in the first quarter of fiscal 2023.
+Added: In March 2022, we acquired the Health Savings Administrators, L.L.C.
+Added: (“HealthSavings”) HSA portfolio, which consisted of $1.3 billion of HSA Assets held in approximately 87,000 HSAs in exchange for a purchase price of $60 million in cash.
Key factors affecting our performance
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Each of these factors presents both significant opportunities and significant risks to our future performance.
−Removed: See also "Results of operations - Revenue" for information relating to the ongoing COVID-19 pandemic and also the section entitled “Risk factors” included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021, this Quarterly Report on Form 10-Q, and our other reports filed with the SEC.
+Added: See also "Results of operations - Revenue" for information relating to the COVID-19 pandemic and resulting societal and economic changes, and also the section entitled “Risk factors” included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, this Quarterly Report on Form 10-Q, and our other reports filed with the SEC.
+Added: Our acquisition and integration strategy
+Added: We have historically acquired HSA portfolios and businesses that strengthen our service offerings.
+Added: We plan to continue this growth strategy and are regularly engaged in evaluating different opportunities.
+Added: We have developed an internal capability to source, evaluate, and integrate acquired HSA portfolios.
+Added: Our success depends in part on our ability to successfully integrate acquired businesses and HSA portfolios with our business in an efficient and effective manner and to realize anticipated synergies.
Structural change in U.S.
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We believe that continued growth in healthcare costs and related factors will spur continued growth in HSA-qualified health plans and HSAs and may encourage policy changes making HSAs or similar vehicles available to new populations such as individuals in Medicare.
−Removed: However, the timing and impact of these and other developments in U.S.
+Added: However, the timing and impact of
+Added: these and other developments in U.S.
healthcare are uncertain.
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We believe that innovations incorporated in our technology, which enable us to better assist consumers to make healthcare saving and spending decisions and maximize the value of their tax-advantaged benefits, differentiate us from our competitors and drive our growth.
−Removed: We built on these innovations by combining our HSA offering with WageWorks' complementary CDB offerings, giving us a full suite of CDB products, and adding to our solutions set and leadership position within the HSA sector.
+Added: Our full suite of CDB offerings complements our HSA solution and enhances our leadership position within the HSA sector.
We intend to continue to invest in our technology development to enhance our capabilities and infrastructure, while maintaining a focus on data security and the privacy of our customers' data.
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Interest rates
−Removed: As a non-bank custodian, we contract with federally insured banks and credit unions, which we collectively call our Depository Partners, and also with insurance company partners, to hold custodial cash assets on behalf of our members.
+Added: As a non-bank custodian, our members’ custodial HSA cash assets are held by either our federally insured bank and credit union partners, which we collectively call our Depository Partners (our “Basic Rates” offering), pursuant to contractual arrangements we have with these Depository Partners, or by our insurance company partners through group annuity contracts or other similar arrangements (our “Enhanced Rates” offering).
We earn a material portion of our total revenue from interest paid to us by these partners.
−Removed: Custodial cash assets held by our insurance company partners are held in group annuity contracts and similar arrangements.
The lengths of our agreements with Depository Partners typically range from three to five years and may have fixed or variable interest rate terms.
−Removed: The terms of new and renewing agreements with our Depository Partners may be impacted by the then-prevailing interest rate environment, which in turn is driven by macroeconomic factors and government policies over which we have no control.
+Added: The terms of new and renewing agreements with our Depository Partners may be impacted by the then-prevailing interest rate environment, which in turn is driven by macroeconomic factors and
+Added: government policies over which we have no control.
Such factors, and the response of our competitors to them, also determine the amount of interest retained by our members.
+Added: HSA members who place their HSA cash into our Enhanced Rates offering receive a higher yield compared to our Basic Rates offering.
+Added: An increase in the percentage of HSA cash held in our Enhanced Rates offering also positively impacts our custodial revenues, as we generally receive a higher yield on HSA cash held by our insurance company partners compared to cash held by our Depository Partners.
+Added: As with our Depository Partners, yields paid by our insurance company partners may be impacted by the prevailing interest rate environment, which in turn is driven by macroeconomic factors and government policies over which we have no control.
+Added: Such factors, and the response of our competitors to them, also determine the amount of interest retained by our members.
We believe that diversification of Depository Partners and insurance company partners, varied contract terms, and other factors reduce our exposure to short-term fluctuations in prevailing interest rates and mitigate the short-term impact of sustained increases or declines in prevailing interest rates on our custodial revenue.
Over longer periods, sustained shifts in prevailing interest rates affect the amount of custodial revenue we can realize on custodial assets and the interest retained by our members.
−Removed: Although interest rates have improved somewhat, we expect our custodial revenue to continue to be adversely affected by the interest rate cuts by the Federal Reserve associated with the ongoing COVID-19 pandemic, the lack of demand from Depository Partners for deposits, and other market conditions that have caused the interest rates offered by our Depository Partners to decline significantly.
−Removed: Interest on our five-year senior secured term loan A facility (the “Term Loan Facility”) changes frequently due to variable interest rate terms, and as a result, our interest expense is expected to fluctuate based on changes in prevailing interest rates.
+Added: Although interest rates have increased, we expect our custodial revenue to continue to be adversely affected by the interest rate cuts by the Federal Reserve at the beginning of the COVID-19 pandemic, the lack of demand from Depository Partners for deposits, and other market conditions that have caused our average annualized yield on HSA cash to decline significantly.
+Added: Interest on our term loan facility changes frequently due to variable interest rate terms, and as a result, our interest expense is expected to fluctuate based on changes in prevailing interest rates.
Our competition and industry
1 unchanged sentence
Many of these are state or federally chartered banks and other financial institutions for which we believe benefits administration services are not a core business.
−Removed: Some of our direct competitors (including healthcare service companies such as United Health Group's Optum, Webster Bank, and well-known retail investment companies, such as Fidelity Investments) are in a position to
−Removed: devote more resources to the development, sale, and support of their products and services than we have at our disposal.
+Added: Some of our direct competitors (including healthcare service companies such as United Health Group's Optum, Webster Bank, and well-known retail investment companies, such as Fidelity Investments) are in a position to devote more resources to the development, sale, and support of their products and services than we have at our disposal.
+Added: Our other CDB administration competitors include health insurance carriers, human resources consultants and outsourcers, payroll providers, national CDB specialists, regional third-party administrators, and commercial banks.
In addition, numerous indirect competitors, including benefits administration service providers, partner with banks and other HSA custodians to compete with us.
1 unchanged sentence
Our success depends on our ability to predict and react quickly to these and other industry and competitive dynamics.
−Removed: As a result of the COVID-19 pandemic, we have seen an adverse impact on sales opportunities, with some opportunities delayed and most now being held virtually.
−Removed: We have seen a significant decline in the use of commuter benefits due to many of our members working from home during the outbreak or other impacts from the outbreak, which has negatively impacted both our interchange revenue and service revenue, and this "work from home" trend may continue after the pandemic.
−Removed: We have also seen a decline in interchange revenue across all other products.
−Removed: The extent to which the COVID-19 pandemic will negatively impact our business remains highly uncertain and cannot be accurately predicted.
+Added: As a result of the COVID-19 pandemic, we have seen a significant decline in the use of commuter benefits due to many of our members working from home, which has negatively impacted both our interchange revenue and service revenue, and this "work from home" trend, or hybrid work environments, may continue indefinitely.
Regulatory environment
7 unchanged sentences
Our ability to predict and react quickly to relevant legal and regulatory trends and to correctly interpret their market and competitive implications is important to our success.
−Removed: On March 21, 2021, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law.
−Removed: ARPA temporarily increased the dependent care flexible spending account contribution limit for the 2021 plan year.
−Removed: It also provided a temporary 100% subsidy of COBRA premium payments for eligible individuals who lost coverage due to an involuntary termination or a reduction of hours for up to 6 months.
−Removed: Our acquisition strategy
−Removed: We have a successful history of acquiring HSA portfolios and businesses that strengthen our service offerings.
−Removed: We seek to continue this growth strategy and are regularly engaged in evaluating different opportunities.
−Removed: We have developed an internal capability to source, evaluate, and integrate acquired HSA portfolios.
−Removed: We intend to continue to pursue acquisitions of complementary assets and businesses that we believe will strengthen our service offering, and our success depends in part on our ability to successfully integrate acquired businesses and HSA portfolios with our business in an efficient and effective manner.
+Added: On February 18, 2022, President Biden formally continued the National Emergency Concerning COVID-19, which tolls certain deadlines related to COBRA and other CDBs and increases the complexity of properly administering these programs.
+Added: Each national emergency declaration generally lasts for one year unless the President announces an earlier termination.
Key financial and operating metrics
3 unchanged sentences
The following table sets forth our HSAs, CDBs, and Total Accounts as of and for the periods indicated:
−Removed: (in thousands, except percentages) October 31, 2021 October 31, 2020 % Change January 31, 2021
+Added: (in thousands, except percentages) April 30, 2022 April 30, 2021 % Change January 31, 2022
HSAs 7,359 5,846 26 % 7,207
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The number of our HSAs and CDBs are key metrics because our revenue is driven by the amount we earn from them.
−Removed: The number of our HSAs increased by approximately 0.8 million, or 14%, from October 31, 2020 to October 31, 2021, due to further penetration into existing Network Partners, the addition of new Network Partners, and HSA portfolio acquisitions.
−Removed: The number of our CDBs increased slightly from October 31, 2020 to October 31, 2021, driven by an increase in COBRA and HRA accounts, largely offset by a decrease in FSA accounts and also commuter benefit accounts that are currently suspended due to the COVID-19 pandemic and fewer workers being required to commute to an office.
−Removed: The suspended commuter accounts continue to be administered on our platform and can be reinstated at any time.
−Removed: We have excluded the suspended commuter accounts from our account totals because they are currently not generating revenue for the Company.
+Added: The number of our HSAs increased by 1.5 million, or 26%, from April 30, 2021 to April 30, 2022, primarily driven by new HSAs from sales, HSAs acquired through the Further Acquisition, the Fifth Third acquisition, the HealthSavings acquisition, and other HSA portfolio acquisitions.
+Added: The number of our CDBs increased by 0.1 million, or 2%, from April 30, 2021 to April 30, 2022, primarily driven by CDBs acquired through the Further Acquisition, partially offset by a decrease in FSA accounts and COBRA accounts.
The following table sets forth HSA Assets as of and for the periods indicated:
−Removed: (in millions, except percentages) October 31, 2021 October 31, 2020 % Change January 31, 2021
−Removed: HSA cash with yield (1) $ 10,410 $ 8,759 19 % $ 9,875
−Removed: HSA cash without yield (2) 59 258 (77) % 244
−Removed: Total HSA cash 10,469 9,017 16 % 10,119
−Removed: HSA investments with yield (1) 5,900 3,255 81 % 4,078
−Removed: HSA investments without yield (2) 59 168 (65) % 138
−Removed: Total HSA investments 5,959 3,423 74 % 4,216
+Added: (in millions, except percentages) April 30, 2022 April 30, 2021 % Change January 31, 2022
+Added: HSA cash $ 12,935 $ 10,026 29 % $ 12,943
+Added: HSA investments 7,330 4,987 47 % 6,675
Total HSA Assets 20,265 15,013 35 % 19,618
−Removed: Average daily HSA cash with yield - Year-to-date 9,925 8,445 18 % 8,599
−Removed: Average daily HSA cash with yield - Quarter-to-date $ 10,099 $ 8,672 16 % $ 9,060
−Removed: (1) HSA Assets that generate custodial revenue.
−Removed: (2) HSA Assets that do not generate custodial revenue.
−Removed: HSA Assets, which are our HSA members' assets for which we are the custodian or administrator, or from which we generate custodial revenue, consist of the following components:
−Removed: (i) HSA cash, which includes cash deposits with our Depository Partners or other custodians and cash placed in group annuity contracts with our insurance company partners, and (ii) HSA investments in mutual funds through our custodial investment fund partners.
−Removed: We are continuing to transition HSA cash without yield to HSA cash with yield and expect to complete the transition in fiscal year 2022.
+Added: Average daily HSA cash - Year-to-date 12,910 10,051 28 % 10,579
+Added: Average daily HSA cash - Quarter-to-date 12,910 10,051 28 % 12,118
+Added: HSA Assets includes our HSA members’ custodial assets, which consists of the following components:
+Added: (i) HSA cash, which includes cash deposits held by our Depository Partners and our insurance company partners, and (ii) HSA investments in mutual funds through our custodial investment fund partners.
Measuring HSA Assets is important because our custodial revenue is directly affected by average daily custodial balances for HSA Assets that are revenue generating.
−Removed: Total HSA cash increased by $1.5 billion, or 16%, from October 31, 2020 to October 31, 2021, due primarily to HSA contributions, new HSAs, and acquisitions of HSA portfolios, partially offset by transfers to HSA investments.
−Removed: HSA investments increased by $2.5 billion, or 74%, from October 31, 2020 to October 31, 2021, due primarily to transfers from HSA cash and appreciation of invested balances.
−Removed: Total HSA Assets increased by $4.0 billion, or 32%, from October 31, 2020 to October 31, 2021, due primarily to HSA contributions, new HSAs, acquisitions of HSA portfolios, and appreciation of invested balances.
+Added: HSA cash increased by $2.9 billion, or 29%, from April 30, 2021 to April 30, 2022, due primarily to HSA cash transferred to us as part of the Further Acquisition, net HSA contributions from new and existing HSA members, and acquisitions of HSA portfolios, partially offset by transfers to HSA investments.
+Added: HSA investments increased by $2.3 billion, or 47%, from April 30, 2021 to April 30, 2022, due primarily to the HealthSavings acquisition, other HSA portfolio acquisitions, and transfers from HSA cash.
+Added: Total HSA Assets increased by $5.3 billion, or 35%, from April 30, 2021 to April 30, 2022, due primarily to HSA Assets transferred to us as part of the Further Acquisition, the Fifth Third acquisition, the HealthSavings acquisition, and other HSA portfolio acquisitions, and net HSA contributions from new and existing HSA members.
Client-held funds
−Removed: (in millions, except percentages) October 31, 2021 October 31, 2020 % Change January 31, 2021
+Added: (in millions, except percentages) April 30, 2022 April 30, 2021 % Change January 31, 2022
Client-held funds $ 872 $ 903 (3) % $ 897
1 unchanged sentence
Average daily Client-held funds - Quarter-to-date 865 899 (4) % 822
−Removed: (1) Client-held funds that generate custodial revenue.
Client-held funds are interest-earning deposits from which we generate custodial revenue.
1 unchanged sentence
We deposit the Client-held funds with our Depository Partners in interest-bearing, demand deposit accounts that have a floating interest rate and no set term or duration.
−Removed: Client-held funds fluctuate depending on the timing of funding and spending of CDB balances.
+Added: Client-held funds fluctuate depending on the timing of funding and spending of CDB balances and the number of CDBs we administer.
Adjusted EBITDA
−Removed: We define Adjusted EBITDA, which is a non-GAAP financial metric, as adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, and certain other non-operating items.
+Added: We define Adjusted EBITDA, which is a non-GAAP financial metric, as adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, amortization of incremental costs to obtain a contract, costs associated with unused office space, and certain other non-operating items.
We believe that Adjusted EBITDA provides useful information to investors and analysts in understanding and evaluating our operating results in the same manner as our management and our board of directors because it reflects operating profitability before consideration of non-operating expenses and non-cash expenses and serves as a basis for comparison against other companies in our industry.
−Removed: The following table presents a reconciliation of net income (loss), the most comparable GAAP financial measure, to Adjusted EBITDA for the periods indicated:
−Removed: Three months ended October 31, Nine months ended October 31,
+Added: The following table presents a reconciliation of net loss, the most comparable GAAP financial measure, to Adjusted EBITDA for the periods indicated:
+Added: Three months ended April 30,
(in thousands) 2022 2021
−Removed: Net income (loss) $ (5,038) $ 1,789 $ (11,471) $ 3,467
+Added: Net loss $ (13,639) $ (2,615)
Interest income (52) (408)
Interest expense 10,461 6,689
−Removed: Income tax provision (benefit) (4,087) 2,340 (11,505) 2,015
+Added: Income tax benefit (4,412) (3,451)
Depreciation and amortization 15,788 11,954
2 unchanged sentences
Merger integration expenses 9,294 8,807
−Removed: Acquisition costs (gains) (1) (2,687) 13 4,917 79
−Removed: Gain on equity securities — — (1,677) —
+Added: Acquisition costs (1) 6 5,939
+Added: Amortization of incremental costs to obtain a contract 1,067 1,272
+Added: Costs associated with unused office space 1,294 —
Other 844 (1,826)
Adjusted EBITDA $ 58,335 $ 58,974
−Removed: (1) For the nine months ended October 31, 2021, acquisition costs included $0.3 million of stock-based compensation expense.
−Removed: (2) For the three months ended October 31, 2021, other consisted of amortization of incremental costs to obtain a contract of $0.8 million and other expenses, net, of $0.6 million.
−Removed: For the three months ended October 31, 2020, other consisted of amortization of incremental costs to obtain a contract of $0.6 million and other expenses, net, of $0.6 million.
−Removed: For the nine months ended October 31, 2021, other consisted of amortization of incremental costs to obtain a contract of $3.5 million, partially offset by other income, net, of $1.0 million.
−Removed: For the nine months ended October 31, 2020, other consisted of amortization of incremental costs to obtain a contract of $1.4 million and other expenses, net, of $2.8 million.
+Added: (1) For the three months ended April 30, 2021, acquisition costs included $0.3 million of stock-based compensation expense.
The following table further sets forth our Adjusted EBITDA as a percentage of revenue:
−Removed: Three months ended October 31, Nine months ended October 31,
−Removed: (in thousands, except percentages) 2021 2020 $ Change % Change 2021 2020 $ Change % Change
+Added: Three months ended April 30,
+Added: (in thousands, except percentages) 2022 2021 $ Change % Change
Adjusted EBITDA $ 58,335 $ 58,974 $ (639) (1) %
As a percentage of revenue 28 % 32 %
−Removed: Our Adjusted EBITDA was $61.1 million for each of the three month periods ended October 31, 2021 and 2020.
−Removed: Our Adjusted EBITDA increased by $1.4 million, or 1%, from $184.1 million for the nine months ended October 31, 2020 to $185.6 million for the nine months ended October 31, 2021, which reflects a similar increase in total revenue from the nine months ended October 31, 2020 to the nine months ended October 31, 2021.
+Added: Our Adjusted EBITDA decreased by $0.6 million, less than 1%, from $59.0 million for the three months ended April 30, 2021 to $58.3 million for the three months ended April 30, 2022, primarily due to increases in personnel and related costs, largely offset by an increase in total revenue.
Our use of Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.
7 unchanged sentences
Custodial revenue.
−Removed: We earn custodial revenue primarily from HSA Assets deposited with our Depository Partners and with our insurance company partners, recordkeeping fees we earn in respect of mutual funds in which our members invest, and Client-held funds deposited with our Depository Partners.
−Removed: We deposit HSA cash with our Depository Partners pursuant to contracts that (i) typically have terms ranging from three to five years, (ii) provide for a fixed or variable interest rate payable on the average daily cash balances deposited with the relevant Depository Partner, and (iii) have minimum and maximum required deposit balances.
−Removed: HSA cash placed with our insurance company partners is placed in group annuity contracts or similar arrangements.
−Removed: We deposit the Client-held funds with our Depository Partners in interest-bearing, demand deposit accounts that have a floating interest rate and no set term or duration.
+Added: We earn custodial revenue primarily from HSA Assets held by our Depository Partners or our insurance company partners, recordkeeping fees we earn in respect of mutual funds in which our members invest, and Client-held funds deposited with our Depository Partners.
+Added: HSA cash held by our Depository Partners is held pursuant to contracts that (i) typically have terms ranging from three to five years, (ii) provide for a fixed or variable interest rate payable on the average daily cash balances held by the relevant Depository Partner, and (iii) have minimum and maximum required balances.
+Added: HSA cash held by our insurance company partners is held in group annuity contracts or similar arrangements.
+Added: Client-held funds held by our Depository Partners are held in interest-bearing, demand deposit accounts that have a floating interest rate and no set term or duration.
We earn custodial revenue on HSA Assets and Client-held funds that is based on the interest rates offered to us by these Depository Partners and insurance company partners.
−Removed: 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 our custodial investment partner.
−Removed: We earn a recordkeeping fee, calculated as a percentage of custodial investments.
−Removed: We are continuing to transition HSA cash without yield to HSA cash with yield and expect to complete the transition in fiscal year 2022.
+Added: 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 our custodial investment partner from which we earn a recordkeeping fee, calculated as a percentage of custodial investments.
Interchange revenue.
10 unchanged sentences
Custodial costs.
−Removed: Custodial costs are comprised of interest retained by our HSA members, in respect of HSA cash with yield, and fees we pay to banking consultants whom we use to help secure agreements with our Depository
+Added: Custodial costs are comprised of interest retained by our HSA members, in respect of HSA cash with yield, and fees we pay to banking consultants whom we use to help secure agreements with our Depository Partners.
Interest retained by HSA members is calculated on a tiered basis.
11 unchanged sentences
Technology and development.
−Removed: Technology and development expenses include personnel and related expenses for software development and delivery, information technology, data management, product, and security.
+Added: Technology and development expenses include personnel and related expenses for software development and delivery, licensed software, information technology, data management, product, and security.
Technology and development expenses also include software engineering services, the costs of operating our on-demand technology infrastructure, depreciation, amortization of capitalized software development costs, stock-based compensation, and common expense allocations.
11 unchanged sentences
Interest expense
−Removed: Interest expense consists of accrued interest expense and amortization of deferred financing costs associated with our long-term debt.
+Added: Interest expense primarily consists of accrued interest expense and amortization of deferred financing costs associated with our long-term debt.
Interest on our term loan facility changes frequently due to variable interest rate terms, and as a result, our interest expense is expected to fluctuate based on changes in prevailing interest rates.
−Removed: Other income (expense), net
−Removed: Other income (expense), net, consists of acquisition costs, interest income earned on corporate cash and other miscellaneous income and expense.
−Removed: Income tax provision (benefit)
+Added: Other expense, net
+Added: Other expense, net, consists of acquisition costs, interest income earned on corporate cash and other miscellaneous income and expense.
+Added: Income tax benefit
We are subject to federal and state income taxes in the United States based on a January 31 fiscal year end.
2 unchanged sentences
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.
−Removed: Valuation allowances are established when necessary to reduce net deferred tax assets to the
−Removed: amount expected to be realized.
−Removed: As of October 31, 2021, we have recorded an overall net deferred tax liability on our condensed consolidated balance sheet.
−Removed: Comparison of the three and nine months ended October 31, 2021 and 2020
+Added: Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized.
+Added: As of April 30, 2022, we have recorded a valuation allowance on certain state deferred tax assets and maintained an overall net federal and state deferred tax liability on our condensed consolidated balance sheet.
+Added: Comparison of the three months ended April 30, 2022 and 2021
The following table sets forth our revenue for the periods indicated:
−Removed: Three months ended October 31, Nine months ended October 31,
−Removed: (in thousands, except percentages) 2021 2020 $ Change % Change 2021 2020 $ Change % Change
+Added: Three months ended April 30,
+Added: (in thousands, except percentages) 2022 2021 $ Change % Change
Service revenue $ 104,348 $ 102,534 $ 1,814 2 %
3 unchanged sentences
Service revenue.
−Removed: The $1.8 million, or 2%, decrease in service revenue from the three months ended October 31, 2020 to the three months ended October 31, 2021 was primarily due to a decrease in CDB accounts due to the COVID-19 pandemic and efforts to simplify our CDB administrative engagements on our go-forward platform, partially offset by new revenue from the Luum Acquisition.
−Removed: The $5.2 million, or 2%, decrease in service revenue from the nine months ended October 31, 2020 to the nine months ended October 31, 2021 was primarily due to a decrease in CDB accounts due to the COVID-19 pandemic and efforts to simplify our CDB administrative engagements on our go-forward platform, partially offset by new revenue from the Luum Acquisition and an increase in revenue related to COBRA benefits administration.
+Added: The $1.8 million, or 2%, increase in service revenue from the three months ended April 30, 2021 to the three months ended April 30, 2022 was primarily due to new revenue from acquired businesses and HSA portfolios, and new HSAs from sales, partially offset by lower average service fees per account.
Custodial revenue.
−Removed: The $0.5 million, or 1%, increase in custodial revenue from the three months ended October 31, 2020 to the three months ended October 31, 2021 was primarily due to the $1.4 billion, or 16%, increase in the year-over-year average daily balance of HSA cash with yield.
−Removed: The increase was partially offset by a decrease in average annualized yield from 2.08% for the three months ended October 31, 2020 to 1.72% for the three months ended October 31, 2021, which was due in part to the interest rate cuts made by the Federal Reserve in response to the COVID-19 pandemic, and by increased transfers from HSA cash to HSA investments.
−Removed: The $2.4 million, or 2%, increase in custodial revenue from the nine months ended October 31, 2020 to the nine months ended October 31, 2021 was primarily due to the $1.5 billion, or 18%, increase in the year-over-year average daily balance of HSA cash with yield.
−Removed: The increase was partially offset by a decrease in average annualized yield from 2.10% for the nine months ended October 31, 2020 to 1.76% for the nine months ended October 31, 2021, which was due in part to the interest rate cuts made by the Federal Reserve in response to the COVID-19 pandemic, and by increased transfers from HSA cash to HSA investments.
−Removed: We are continuing to transition HSA cash without yield to HSA cash with yield and expect to complete the transition in fiscal year 2022.
−Removed: This cash is being placed with our Depository Partners at prevailing interest rates, which we expect will generate additional custodial revenue.
+Added: The $12.4 million, or 26%, increase in custodial revenue from the three months ended April 30, 2021 to the three months ended April 30, 2022 was primarily due to the $2.9 billion, or 28%, increase in the year-over-year average daily balance of HSA cash.
+Added: The increase was partially offset by a decrease in average annualized yield from 1.79% for the three months ended April 30, 2021 to 1.69% for the three months ended April 30, 2022, which was due in part to HSA cash that was placed with our Depository Partners following the interest rate cuts made by the Federal Reserve at the beginning of the COVID-19 pandemic, and by transfers from HSA cash to HSA investments.
Interchange revenue.
−Removed: The $2.0 million, or 8%, increase in interchange revenue from the three months ended October 31, 2020 to the three months ended October 31, 2021 was primarily due to increased spend per account and an increase in accounts.
−Removed: The $10.6 million, or 13%, increase in interchange revenue from the nine months ended October 31, 2020 to the nine months ended October 31, 2021 was primarily due to increased spend per account and an increase in accounts.
+Added: The $7.3 million, or 21%, increase in interchange revenue from the three months ended April 30, 2021 to the three months ended April 30, 2022 was primarily due to an increase in accounts and increased spend per account.
Total revenue.
−Removed: Total revenue increased $0.6 million, or less than one percent, from the three months ended October 31, 2020 to the three months ended October 31, 2021 due to the increases in custodial and interchange revenues, largely offset by the decrease in service revenue.
−Removed: Total revenue increased $7.9 million, or 1%, from the nine months ended October 31, 2020 to the nine months ended October 31, 2021 due to the increases in custodial and interchange revenues, partially offset by the decrease in service revenue.
+Added: Total revenue increased $21.5 million, or 12%, from the three months ended April 30, 2021 to the three months ended April 30, 2022 due to the increases in service, custodial, and interchange revenues described above.
Impact of COVID-19.
−Removed: Our business has been adversely affected by the COVID-19 pandemic, and we expect that it will continue to be adversely affected by the COVID-19 pandemic, including as a result of the associated interest
−Removed: rate cuts by the Federal Reserve and other market conditions that have caused interest rates to decline significantly, which reduces the yield on funds placed with our Depository Partners and insurance company partners in this environment.
−Removed: Sales opportunities have also been impacted, with some opportunities delayed and most now being held virtually.
−Removed: Our financial results related to certain of our products have also been adversely affected, such as commuter benefits, due to many of our members working from home during the outbreak and other impacts from the outbreak, and the "work from home" trend may continue after the pandemic.
−Removed: In particular, the recent increased spread of COVID-19 and the associated decisions by employers to delay return-to-office plans for their employees will further delay the recovery of use of these commuter benefits.
−Removed: During the initial stages of the COVID-19 pandemic, we saw a negative impact on our members' spend on healthcare, which negatively impacted both our interchange revenue and service revenue, and the current increase in COVID-19 cases has negatively impacted our interchange revenue and service revenue.
−Removed: In addition, we are required to support our Clients' open enrollment activities virtually.
+Added: Our business has been adversely affected by the COVID-19 pandemic, and we expect that it will continue to be adversely affected by related societal and economic changes.
+Added: Although interest rates have increased from their pandemic lows, a majority of our members' HSA cash is deposited with our Depository Partners pursuant to contracts that have fixed interest rate terms, typically ranging from three to five years, which reduces the short-term impact of an increase or decline in prevailing interest rates on our custodial revenue.
+Added: As a result, the yield we currently receive from our Depository Partners and insurance company partners remains significantly below the levels seen before the pandemic.
+Added: Our financial results related to certain of our products have also been adversely affected, such as commuter benefits, due to many of our members working from home during the outbreak, and the "work from home" trend, or hybrid work environments, may continue indefinitely.
+Added: In particular, the increased spread of COVID-19 in early 2022 and the associated decisions by employers to delay return-to-office plans for their employees further delayed the recovery of use of these commuter benefits.
+Added: During the initial stages of the COVID-19 pandemic, and during subsequent increases in COVID-19 cases, we saw a negative impact on our members' spend on healthcare, which negatively impacted both our interchange revenue and service revenue.
+Added: Our compliance with proposed COVID-19 vaccine mandates has resulted in, and could continue to result in, increased team member attrition, absenteeism, and associated costs.
We may be unable to meet our service level commitments to our Clients as a result of disruptions to our work force and disruptions to third-party contracts that we rely on to provide our services.
−Removed: The extent to which the COVID-19 pandemic will continue to negatively impact our business remains highly uncertain and as a result may have a material adverse impact on our business and financial results.
+Added: The extent to which the COVID-19 pandemic and any longer lasting impacts on the usage of our services will continue to negatively impact our business remains highly uncertain and as a result may have a material adverse impact on our business and financial results.
Cost of revenue
The following table sets forth our cost of revenue for the periods indicated:
−Removed: Three months ended October 31, Nine months ended October 31,
−Removed: (in thousands, except percentages) 2021 2020 $ Change % Change 2021 2020 $ Change % Change
+Added: Three months ended April 30,
+Added: (in thousands, except percentages) 2022 2021 $ Change % Change
Service costs $ 80,874 $ 70,632 $ 10,242 15 %
3 unchanged sentences
Service costs.
−Removed: The $0.3 million, or less than one percent, increase in service costs from the three months ended October 31, 2020 to the three months ended October 31, 2021 reflects a similar increase in total revenue from the three months ended October 31, 2020 to the three months ended October 31, 2021.
−Removed: The $2.0 million, or 1%, increase in service costs from the nine months ended October 31, 2020 to the nine months ended October 31, 2021 reflects a similar increase in total revenue from the three months ended October 31, 2020 to the three months ended October 31, 2021.
+Added: The $10.2 million, or 15%, increase in service costs from the three months ended April 30, 2021 to the three months ended April 30, 2022 was primarily due to the inclusion of Further's results of operations and an increase in personnel costs to support the increase in average Total Accounts.
Custodial costs.
−Removed: The $1.0 million, or 20%, increase in custodial costs from the three months ended October 31, 2020 to the three months ended October 31, 2021 was due to an increase in the average daily balance of HSA cash with yield, which increased from $8.7 billion for the three months ended October 31, 2020 to $10.1 billion for the three months ended October 31, 2021 and an associated increase in interest retained by HSA members, partially offset by a lower average annualized rate of interest retained by HSA members on HSA cash with yield, which decreased from 0.18% for the three months ended October 31, 2020 to 0.17% for the three months ended October 31, 2021.
−Removed: The $0.8 million, or 5%, increase in custodial costs from the nine months ended October 31, 2020 to the nine months ended October 31, 2021 was due to an increase in the average daily balance of HSA cash with yield, which increased from $8.4 billion for the nine months ended October 31, 2020 to $9.9 billion for the nine months ended October 31, 2021 and an associated increase in interest retained by HSA members, partially offset by a lower average annualized rate of interest retained by HSA members on HSA cash with yield, which decreased from 0.20% for the nine months ended October 31, 2020 to 0.17% for the nine months ended October 31, 2021.
+Added: The $1.6 million, or 33%, increase in custodial costs from the three months ended April 30, 2021 to the three months ended April 30, 2022 was due to an increase in the average daily balance of HSA cash, which increased from $10.1 billion for the three months ended April 30, 2021 to $12.9 billion for the three months ended April 30, 2022 and an associated increase in interest retained by HSA members, partially offset by a lower average annualized rate of interest retained by HSA members on HSA cash, which decreased from 0.18% for the three months ended April 30, 2021 to 0.16% for the three months ended April 30, 2022.
Interchange costs.
−Removed: The $0.6 million, or 14%, increase in interchange costs from the three months ended October 31, 2020 to the three months ended October 31, 2021 was due to increased spend per account and an increase in accounts.
−Removed: The $1.1 million, or 8%, increase in interchange costs from the nine months ended October 31, 2020 to the nine months ended October 31, 2021 was due to increased spend per account and an increase in accounts.
+Added: The $1.5 million, or 28%, increase in interchange costs from the three months ended April 30, 2021 to the three months ended April 30, 2022 was due to an increase in accounts and increased spend per account.
Total cost of revenue.
As we continue to add Total Accounts, we expect that our cost of revenue will increase in dollar amount to support our Network Partners, Clients, and members.
+Added: On an annual basis, we expect our cost of revenue to continue to increase as a percentage of our total revenue, primarily due to the inclusion of a full year of Further's results of operations and expected increases in stock-based compensation.
Cost of revenue will continue to be affected by a number of different factors, including our ability to scale our service delivery, Network Partner implementation, account management functions, realized synergies, and the impact of the COVID-19 pandemic.
−Removed: We expect our cost
−Removed: of revenue to increase as a percentage of our total revenue, primarily due to the Further acquisition and stock-based compensation.
Operating expenses
The following table sets forth our operating expenses for the periods indicated:
−Removed: Three months ended October 31, Nine months ended October 31,
−Removed: (in thousands, except percentages) 2021 2020 $ Change % Change 2021 2020 $ Change % Change
+Added: Three months ended April 30,
+Added: (in thousands, except percentages) 2022 2021 $ Change % Change
Sales and marketing $ 16,560 $ 14,086 $ 2,474 18 %
5 unchanged sentences
Sales and marketing.
−Removed: Sales and marketing expense decreased by $0.2 million, or 1%, from the three months ended October 31, 2020 to the three months ended October 31, 2021.
−Removed: The $5.8 million, or 16%, increase in sales and marketing expense from the nine months ended October 31, 2020 to the nine months ended October 31, 2021 was primarily due to an increase in marketing expenses from increased staffing and marketing collateral and increases in team member and partner commissions.
+Added: The $2.5 million, or 18%, increase in sales and marketing expense from the three months ended April 30, 2021 to the three months ended April 30, 2022 was primarily due to the inclusion of Further's results of operations, an increase in marketing expenses from increased staffing and marketing collateral costs, and increases in team member and partner commissions.
We expect our sales and marketing expenses to increase for the foreseeable future as we focus on our cross-selling program and marketing campaigns.
−Removed: On an annual basis, we expect our sales and marketing expenses to continue to increase as a percentage of our total revenue.
+Added: On an annual basis, we expect our sales and marketing expenses to continue to increase as a percentage of our total revenue, primarily due to the inclusion of a full year of Further's results of operations and expected increases in stock-based compensation.
However, our sales and marketing expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our sales and marketing expenses.
−Removed: We expect our sales and marketing expenses to increase as a percentage of our total revenue, primarily due to the Further acquisition and stock-based compensation.
Technology and development.
−Removed: The $7.3 million, or 24%, increase in technology and development expense from the three months ended October 31, 2020 to the three months ended October 31, 2021 was primarily due to increases in amortization, stock-based compensation, and personnel-related expenses.
−Removed: The $18.9 million, or 20%, increase in technology and development expense from the nine months ended October 31, 2020 to the nine months ended October 31, 2021 was primarily due to increases in amortization, stock-based compensation, and personnel-related expenses.
+Added: The $9.7 million, or 27%, increase in technology and development expense from the three months ended April 30, 2021 to the three months ended April 30, 2022 was primarily due to the inclusion
+Added: of Further's results of operations and increases in amortization, stock-based compensation, and personnel-related expenses.
We expect our technology and development expenses to increase for the foreseeable future as we continue to invest in the development and security of our proprietary technology.
−Removed: On an annual basis, we expect our technology and development expenses to continue to increase as a percentage of our total revenue pursuant to our growth initiatives.
+Added: On an annual basis, we expect our technology and development expenses to continue to increase as a percentage of our total revenue, primarily due to the inclusion of a full year of Further's results of operations, expected increases in stock-based compensation, and our growth initiatives.
Our technology and development expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our technology and development expenses.
−Removed: We expect our technology and development expenses to increase as a percentage of our total revenue, primarily due to the Further acquisition and stock-based compensation.
General and administrative.
−Removed: The $2.1 million, or 9%, decrease in general and administrative expense from the three months ended October 31, 2020 to the three months ended October 31, 2021 was primarily due to temporary decreases in personnel-related expenses and professional fees.
−Removed: The $1.9 million, or 3%, increase in general and administrative expense from the nine months ended October 31, 2020 to the nine months ended October 31, 2021 was primarily due to increases in credit losses on trade receivables and stock-based compensation, partially offset by decreases in personnel-related expenses and professional fees.
−Removed: We expect our general and administrative expenses to continue to increase for the foreseeable future due to the additional demands on our legal, compliance, accounting, and insurance functions that we incur as we continue to grow our business.
−Removed: On an annual basis, we expect our general and administrative expenses to increase as a percentage of our total revenue over the near term pursuant to our growth initiatives.
−Removed: Our general and administrative expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our
−Removed: total revenue and the timing and extent of our general and administrative expenses.
−Removed: We expect our technology and development expenses to increase as a percentage of our total revenue, primarily due to the Further acquisition and stock-based compensation.
+Added: The $3.0 million, or 15%, increase in general and administrative expense from the three months ended April 30, 2021 to the three months ended April 30, 2022 was primarily due to the inclusion of Further's results of operations and increases in personnel-related expenses and stock-based compensation.
+Added: We expect our general and administrative expenses to increase for the foreseeable future due to the additional demands on our legal, compliance, and accounting functions that we incur as we continue to grow our business.
+Added: On an annual basis, we expect our general and administrative expenses to increase as a percentage of our total revenue, primarily due to the inclusion of a full year of Further's results of operations, expected increases in stock-based compensation, and our growth initiatives.
+Added: Our general and administrative expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our general and administrative expenses.
Amortization of acquired intangible assets.
−Removed: The $0.5 million, or 3%, increase in amortization of acquired intangible assets from the three months ended October 31, 2020 to the three months ended October 31, 2021 was primarily due to the inclusion of amortization related to identified intangible assets acquired through the Luum Acquisition.
−Removed: The remainder of the increase was due to amortization of the Fifth Third Bank HSA portfolio and other acquired HSA portfolios.
−Removed: The $2.8 million, or 5%, increase in amortization of acquired intangible assets from the nine months ended October 31, 2020 to the nine months ended October 31, 2021 was primarily due to the inclusion of amortization related to identified intangible assets acquired through the Luum Acquisition commencing March 8, 2021.
−Removed: The remainder of the increase was due to amortization of acquired HSA portfolios.
+Added: The $3.9 million, or 20%, increase in amortization of acquired intangible assets from the three months ended April 30, 2021 to the three months ended April 30, 2022 was primarily due to the inclusion of amortization related to identified intangible assets acquired through the Further Acquisition commencing November 1, 2021 and the Luum Acquisition commencing March 8, 2021.
+Added: The remainder of the increase was due to amortization of acquired HSA portfolios, including the Fifth Third and HealthSavings HSA portfolios.
Merger integration.
−Removed: The $13.2 million and $38.4 million in merger integration expense for the three and nine months ended October 31, 2021, respectively, was primarily due to personnel and related expenses, including expenses incurred in conjunction with the migration of accounts, severance, professional fees, technology-related, and facilities expenses directly related to the WageWorks Acquisition and additional integration expenses incurred related to the acquisition of Further.
−Removed: We expect integration expenses totaling approximately $110 million and $55 million in the aggregate for the WageWorks and Further acquisitions, respectively.
−Removed: Merger integration expenses attributable to the WageWorks Acquisition are expected to be completed by the end of fiscal year 2022, with the exception of ongoing lease expense related to certain WageWorks offices that have been permanently closed, less any related sublease income.
−Removed: As of October 31, 2021, we had incurred a total of approximately $117 million of non-recurring merger integration costs related to the WageWorks Acquisition and the Further acquisition.
+Added: The $9.3 million in merger integration expense for the three months ended April 30, 2022 was primarily due to personnel and related expenses, including expenses incurred in conjunction with the migration of accounts, professional fees, and technology-related expenses directly related to the Further Acquisition and certain ongoing merger integration expenses related to the acquisition of our wholly owned subsidiary WageWorks, Inc.
+Added: ("WageWorks"), including ongoing lease expense related to WageWorks offices that have been permanently closed, less any related sublease income, professional fees associated with the remediation of remaining material weaknesses in internal control over financial reporting, and costs associated with remaining platform migrations.
+Added: We expect merger integration expenses attributable to the Further Acquisition totaling approximately $55 million to be incurred over a period of approximately three years from the acquisition date.
Interest expense
−Removed: The $11.9 million and $25.8 million in interest expense for the three and nine months ended October 31, 2021, respectively, consisted primarily of interest accrued on our long-term debt and amortization of debt discount and issuance costs, as well as a $4.0 million loss on extinguishment of debt recorded during the three months ended October 31, 2021 as a result of the refinancing of our prior credit facility.
−Removed: We expect interest expense to increase, primarily as a result of the interest expense we will incur on the $600.0 million aggregate principal amount of the Notes issued during the quarter.
−Removed: Other income (expense), net
−Removed: The $3.5 million change in other income (expense), net, from expense of $0.4 million during the three months ended October 31, 2020 to income of $3.1 million during the three months ended October 31, 2021 was due to a $3.2 million gain resulting from a change in the fair value of contingent acquisition consideration from the Luum Acquisition and a $0.3 million increase in net other income.
−Removed: The $1.8 million decrease in other expense, net, from $2.0 million during the nine months ended October 31, 2020 to $0.2 million during the nine months ended October 31, 2021 was due to a $1.7 million gain on the sale of equity securities, a $0.6 million increase in interest income, and a $4.4 million increase in net other income, partially offset by a $4.9 million increase in net acquisition costs, which includes a $2.1 million gain resulting from a change in the fair value of contingent acquisition consideration from the Luum Acquisition.
+Added: The $10.5 million in interest expense for the three months ended April 30, 2022 consisted primarily of interest accrued on our long-term debt and amortization of debt discount and issuance costs.
+Added: On an annual basis, we expect interest expense to increase, primarily from the inclusion of a full year of interest expense we will incur on the $600.0 million aggregate principal amount of the Notes, which were issued in October 2021, and due to the impact of increased interest rates on our term loan facility, which had an outstanding principal balance of $347.8 million as of April 30, 2022.
+Added: The interest rate on our term loan facility and Revolving Credit Facility is variable and, accordingly, we may incur additional expense if interest rates increase in future periods.
+Added: Other expense, net
+Added: The $3.3 million decrease in other expense, net, from $3.6 million during the three months ended April 30, 2021 to $0.3 million during the three months ended April 30, 2022 was primarily due to a $5.9 million decrease in acquisition costs, partially offset by a $2.6 million decrease in interest and other income, net.
Income tax benefit
−Removed: Income tax benefit for the three and nine months ended October 31, 2021 was $4.1 million and $11.5 million, respectively, compared to income tax expense of $2.3 million and $2.0 million for the three and nine months ended October 31, 2020, respectively.
−Removed: The $6.4 million and $13.5 million increase in the income tax benefit for the three and nine months ended October 31, 2021 compared to the three and nine months ended October 31, 2020 was primarily due to a decrease in pre-tax book income and an increase in excess tax benefits on stock-based compensation expense recognized in the provision for income taxes.
+Added: For the three months ended April 30, 2022 and 2021, we recorded an income tax benefit of $4.4 million and $3.5 million, respectively.
+Added: The increase in income tax benefit was primarily the result of increased pre-tax book loss and a corresponding increase in benefit for state income taxes, partially offset by an increase in nondeductible executive compensation and a decrease in excess tax benefits on stock-based compensation and research and development tax credits.
Seasonal concentration of our growth combined with our recurring revenue model create seasonal variation in our results of operations.
2 unchanged sentences
Before we realize any revenue from these new accounts, we incur costs related to implementing and supporting our new Network Partners and new accounts.
−Removed: These costs of services relate
−Removed: to activating accounts and hiring additional staff, including seasonal help to support our member support center.
+Added: These costs of services relate to activating accounts and hiring additional staff, including seasonal help to support our member support center.
These expenses begin to ramp up during our third fiscal quarter, with the majority of expenses incurred in our fourth fiscal quarter.
2 unchanged sentences
Our principal sources of liquidity are our current cash and cash equivalents balances, collections from our service, custodial, and interchange revenue activities, and availability under our Revolving Credit Facility (as defined below).
−Removed: We rely on cash provided by operating activities to meet our short-term liquidity requirements, which primarily relate to the payment of corporate payroll and other operating costs, payments under our Term Loan Facility, and capital expenditures.
−Removed: As of October 31, 2021 and January 31, 2021, cash and cash equivalents were $649.1 million and $328.8 million, respectively.
−Removed: Cash and cash equivalents as of October 31, 2021 included $456.6 million of net proceeds we received from our follow-on public offering in the first quarter of fiscal year 2022 from the sale of 5,750,000 shares of our common stock, partially offset by $50.2 million used for the Luum Acquisition, and an additional $60.8 million used to acquire the Fifth Third Bank HSA portfolio.
−Removed: Subsequent to October 31, 2021, the Company used the remaining net proceeds from the offering, and other cash on hand, for the acquisition of Further.
+Added: We rely on cash provided by operating activities to meet our short-term liquidity requirements, which primarily relate to the payment of corporate payroll and other operating costs, principal and interest payments on our long-term debt, and capital expenditures.
+Added: As of April 30, 2022 and January 31, 2022, cash and cash equivalents were $161.2 million and $225.4 million, respectively.
Capital resources
4 unchanged sentences
In addition, we may conduct concurrent or other financings at any time.
−Removed: In the first quarter of fiscal year 2022, we 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.
−Removed: We 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.
−Removed: On October 8, 2021, the Company completed its offering of $600.0 million aggregate principal amount of its 4.50% Senior Notes due 2029.
−Removed: In addition, on October 8, 2021, the Company entered into a Credit Agreement (the “Credit Agreement”) which includes a five-year senior secured term loan A facility, in an aggregate principal amount of $350.0 million, and a five-year senior secured revolving credit facility (the “Revolving Credit Facility”), in an aggregate principal amount of up to $1.0 billion, which may be used for working capital and general corporate purposes, including the financing of acquisitions and other investments.
−Removed: The net proceeds from the issuance of the Notes together with borrowings under the Credit Agreement and $31.8 million of cash on hand, were used to repay the outstanding borrowings under the prior credit agreement, dated August 20, 2019.
+Added: Our credit agreement includes a five-year senior secured revolving credit facility (the “Revolving Credit Facility”), in an aggregate principal amount of up to $1.0 billion, which may be used for working capital and general corporate purposes, including the financing of acquisitions and other investments.
For a description of the terms of the credit agreement, refer to Note 8—Indebtedness.
−Removed: As of October 31, 2021, there were no amounts outstanding under the Revolving Credit Facility.
−Removed: We were in compliance with all covenants under the Credit Agreement as of October 31, 2021, and for the period then ended.
−Removed: We used $50.2 million of the net proceeds from the follow-on public offering for the Luum Acquisition and used an additional $60.8 million to acquire the Fifth Third Bank HSA portfolio.
−Removed: Subsequent to October 31, 2021, the Company used the remaining net proceeds from the offering, and other cash on hand, for the acquisition of Further.
−Removed: Capital expenditures for the nine months ended October 31, 2021 and 2020 were $56.3 million and $48.6 million, respectively.
+Added: As of April 30, 2022, there were no amounts outstanding under the Revolving Credit Facility.
+Added: We were in compliance with all covenants under the credit agreement as of April 30, 2022, and for the period then ended.
+Added: On March 2, 2022, we completed our acquisition of the HealthSavings HSA portfolio in exchange for a purchase price of $60 million in cash.
+Added: Capital expenditures for the three months ended April 30, 2022 and 2021 were $14.8 million and $18.0 million, respectively.
We expect to continue our current level of increased capital expenditures for the remainder of the fiscal year ending January 31, 2023 as we continue to devote a significant amount of our capital expenditures to improving the architecture and functionality of our proprietary systems.
4 unchanged sentences
The following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods:
−Removed: Nine months ended October 31,
+Added: Three months ended April 30,
(in thousands) 2022 2021
2 unchanged sentences
Net cash provided by financing activities 2,959 444,853
−Removed: Increase in cash and cash equivalents 320,326 107,630
+Added: Increase (decrease) in cash and cash equivalents (64,167) 407,970
Beginning cash and cash equivalents 225,414 328,803
1 unchanged sentence
Cash flows from operating activities.
−Removed: Net cash provided by operating activities during the nine months ended October 31, 2021 resulted from net loss of $11.5 million, plus depreciation and amortization expense of $98.4 million, stock-based compensation expense of $41.7 million, amortization of debt discount and issuance costs of $3.6 million, and a loss on extinguishment of debt of $4.0 million, partially offset by a decrease in the fair value of contingent consideration of $2.1 million and other non-cash items and working capital changes totaling $43.7 million.
−Removed: Net cash provided by operating activities during the nine months ended October 31, 2020 resulted from net income of $3.5 million, plus depreciation and amortization expense of $85.5 million, stock-based compensation expense of $30.3 million, and amortization of debt discount and issuance costs of $3.8 million, partially offset by other non-cash items and working capital changes totaling $2.4 million.
+Added: Net cash provided by operating activities during the three months ended April 30, 2022 resulted from a net loss of $13.6 million, plus depreciation and amortization expense of $39.5 million, stock-based compensation expense of $14.0 million, and amortization of debt discount and issuance costs of $0.8 million, partially offset by other non-cash items and working capital changes totaling $33.6 million.
+Added: Net cash provided by operating activities during the three months ended April 30, 2021 resulted from a net loss of $2.6 million, plus depreciation and amortization expense of $31.8 million, stock-based compensation expense of $12.8 million, and amortization of debt issuance costs of $1.2 million, partially offset by other non-cash items and working capital changes totaling $12.3 million.
Cash flows from investing activities.
−Removed: Cash used in investing activities for the nine months ended October 31, 2021 resulted from the Luum Acquisition for $49.5 million, net of cash acquired, $49.0 million in software and capitalized software development, $7.3 million in purchases of property and equipment, and $64.5 million in acquisitions of intangible member assets, partially offset by $2.4 million of proceeds from the sale of equity securities associated with a long-term capital investment.
−Removed: Net cash used in investing activities for the nine months ended October 31, 2020 resulted from $37.2 million in software and capitalized software development, $11.4 million in purchases of property and equipment, and $28.1 million in acquisitions of intangible member assets.
+Added: Cash used in investing activities for the three months ended April 30, 2022 resulted from $59.4 million in acquisitions of intangible member assets, $13.6 million in software and capitalized software development, and $1.2 million in purchases of property and equipment.
+Added: Cash used in investing activities for the three months ended April 30, 2021 resulted from the Luum Acquisition for $49.5 million, net of cash acquired, $15.5 million in software and capitalized software development, $2.5 million in purchases of property and equipment, and $0.3 million in acquisitions of intangible member assets.
Cash flows from financing activities.
−Removed: Net cash provided by financing activities during the nine months ended October 31, 2021 resulted from $938.2 million of net proceeds from the issuance of long-term debt, $456.6 million of net proceeds from our follow-on public offering of 5,750,000 shares of common stock, and the exercise of stock options of $7.7 million.
−Removed: These items were partially offset by $1.0 billion of principal payments on our long-term debt and $1.6 million used in the settlement of Client-held funds obligations.
−Removed: Net cash provided by financing activities during the nine months ended October 31, 2020 resulted primarily from $286.8 million of net proceeds from our follow-on public offering of 5,290,000 shares of common stock and the exercise of stock options of $4.5 million, partially offset by $223.4 million of principal payments on our long-term debt and $4.2 million used in the settlement of Client-held funds obligations.
+Added: Net cash provided by financing activities during the three months ended April 30, 2022 resulted from $2.3 million received in the settlement of Client-held funds obligations, net, and the exercise of stock options of $2.8 million.
+Added: These items were partially offset by $2.2 million of principal payments on our long-term debt.
+Added: Net cash provided by financing activities during the three months ended April 30, 2021 resulted from $456.6 million of net proceeds from our follow-on public offering of 5,750,000 shares of common stock and the exercise of stock options of $4.2 million.
+Added: These items were partially offset by $15.6 million of principal payments on our long-term debt and $0.4 million used in the settlement of Client-held funds obligation, net.
Contractual obligations
1 unchanged sentence
Off-balance sheet arrangements
−Removed: As of October 31, 2021, other than outstanding letters of credit issued under our Revolving Credit Facility, we did not have any off-balance sheet arrangements.
+Added: As of April 30, 2022, other than outstanding letters of credit issued under our Revolving Credit Facility, we did not have any off-balance sheet arrangements.
The majority of the standby letters of credit expire within one year.
8 unchanged sentences
Our significant accounting policies are more fully described in Note 1 of the accompanying unaudited condensed consolidated financial statements and in Note 1 to our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022.
−Removed: There have been no significant or material changes in our critical accounting policies during the nine months ended October 31, 2021, as compared to those disclosed in “Management’s discussion and analysis of financial condition and results of operations – Critical accounting policies and significant management estimates” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.
+Added: There have been no significant or material changes in our critical accounting policies during the three months ended April 30, 2022, as compared to those disclosed in “Management’s discussion and analysis of financial condition and results of operations – Critical accounting policies and significant management estimates” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022.
Recent accounting pronouncements
See Note 1—Summary of business and significant accounting policies within the interim financial statements included in this Form 10-Q for further discussion.
−Removed: Qualitative and quantitative disclosures about market risk
−Removed: Concentration of market risk.
−Removed: We derive a substantial portion of our revenue from providing services to tax-advantaged healthcare account holders.
−Removed: A significant downturn in this market or changes in state and/or federal laws impacting the preferential tax treatment of healthcare accounts such as HSAs could have a material adverse effect on our results of operations.
−Removed: During the nine months ended October 31, 2021 and 2020, no one customer accounted for greater than 10% of our total revenue.
−Removed: We monitor market and regulatory changes regularly and make adjustments to our business if necessary.
−Removed: Inflationary factors may adversely affect our operating results.
−Removed: Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of expenses as a percentage of revenue if our revenue does not correspondingly increase with inflation.
−Removed: Concentration of credit risk
−Removed: Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash and cash equivalents.
−Removed: We maintain our cash and cash equivalents in bank and other depository accounts, which frequently may exceed federally insured limits.
−Removed: Our cash and cash equivalents as of October 31, 2021 were $649.1 million, the vast majority of which was not covered by federal depository insurance.
−Removed: We have not experienced any material losses in such accounts and believe we are not exposed to any significant credit risk with respect to our cash and cash equivalents.
−Removed: Our accounts receivable balance as of October 31, 2021 was $84.1 million.
−Removed: We have not experienced any significant write-offs to our accounts receivable and believe that we are not exposed to significant credit risk with respect to our accounts receivable;
−Removed: however, the extent to which the ongoing COVID-19 pandemic will negatively impact our credit risk remains highly uncertain and cannot be accurately predicted.
−Removed: We continue to monitor our credit risk and place our cash and cash equivalents with reputable financial institutions.
−Removed: Interest rate risk
−Removed: HSA Assets and Client-held funds.
−Removed: HSA Assets consist of custodial HSA funds we hold in custody on behalf of our members.
−Removed: As of October 31, 2021, we held in custody HSA Assets of approximately $16.4 billion.
−Removed: As a non-bank custodian, we contract with our Depository Partners and insurance company partners to hold custodial cash assets on behalf of our members, and we earn a significant portion of our total revenue from interest paid to us by these partners.
−Removed: Custodial cash assets held by our insurance company partners are held in group annuity contracts and similar arrangements.
−Removed: The lengths of our agreements with Depository Partners typically range from three to five years and have either fixed or variable interest rates.
−Removed: As HSA Assets increase and existing contracts with Depository Partners expire, we seek to enter into new contracts with Depository Partners, the terms of which are impacted by the then-prevailing interest rate environment.
−Removed: The diversification of HSA Assets placed among our Depository Partners and insurance company partners, and varied contract terms, substantially reduces our exposure to short-term fluctuations in prevailing interest rates and mitigates the short-term impact of a sustained increase or decline in prevailing interest rates on our custodial revenue.
−Removed: A sustained decline in prevailing interest rates may negatively affect our business by reducing the size of the interest rate yield, or yield, available to us and thus the amount of the custodial revenue we can realize.
−Removed: Conversely, a sustained increase in prevailing interest rates can increase our yield.
−Removed: An increase in our yield would increase our custodial revenue as a percentage of total revenue.
−Removed: In addition, if our yield increases, we expect the spread to also increase between the interest offered to us by our Depository Partners and insurance company partners and the interest retained by our members, thus increasing our profitability.
−Removed: However, we may be required to increase the interest retained by our members in a rising prevailing interest rate environment.
−Removed: Changes in prevailing interest rates are driven by macroeconomic trends and government policies over which we have no control, such as the interest rate cuts by the Federal Reserve associated with the ongoing COVID-19 pandemic.
−Removed: Client-held funds are interest earning deposits from which we generate custodial revenue.
−Removed: As of October 31, 2021, we held Client-held funds of approximately $811.0 million.
−Removed: These deposits are amounts remitted by Clients and held by us on their behalf to pre-fund and facilitate administration of our other CDBs.
−Removed: These deposits are held with Depository Partners.
−Removed: We deposit the Client-held funds with our Depository Partners in interest-bearing, demand deposit accounts that have a floating interest rate and no set term or duration.
−Removed: A sustained decline in prevailing interest rates may negatively affect our business by reducing the size of the yield available to us and thus the amount of the custodial revenue we can realize from Client-held funds.
−Removed: Changes in prevailing interest rates are driven by macroeconomic trends and government policies over which we have no control.
−Removed: Cash and cash equivalents .
−Removed: We consider all highly liquid investments purchased with an original maturity of three months or less to be unrestricted cash equivalents.
−Removed: Our unrestricted cash and cash equivalents are held in institutions in the U.S.
−Removed: and include deposits in a money market account that is unrestricted as to withdrawal or use.
−Removed: As of October 31, 2021, we had unrestricted cash and cash equivalents of $649.1 million.
−Removed: Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our cash and cash equivalents as a result of changes in interest rates.
−Removed: Long-term debt.
−Removed: As of October 31, 2021, we had $350.0 million outstanding under our Term Loan Facility and no amounts drawn under our Revolving Credit Facility.
−Removed: Our overall interest rate sensitivity under these credit facilities is primarily influenced by any amounts borrowed and the prevailing interest rates on these instruments.
−Removed: The interest rate on our term loan credit facility and Revolving Credit Facility is variable and was 1.88% at October 31, 2021.
−Removed: Accordingly, we may incur additional expense if interest rates increase in future periods.
−Removed: For example, a one percent increase in the interest rate on the amount outstanding under our credit facilities at October 31, 2021 would result in approximately $3.5 million of additional interest expense over the next 12 months.
−Removed: The interest rate on our Notes is fixed at 4.50%.
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.