What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-06-07 compared with 2022-12-08 · 118 added, 162 removed, 278 unchanged (50% of the section changed)

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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.

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.

Such statements include, but are not limited to, statements concerning our ability to integrate acquired businesses, the impact on the Company of societal and economic changes arising out of the COVID-19 pandemic, 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.

Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk factors” included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, our Quarterly Report on Form 10-Q for the quarter ended April 30, 2022, and our other reports filed with the SEC.

Furthermore, such forward-looking statements speak only as of the date of this report.

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We use our innovative technology to manage consumers' tax-advantaged health savings accounts ("HSAs") and other consumer-directed benefits ("CDBs") offered by employers, including flexible spending accounts and health reimbursement arrangements (“FSAs” and “HRAs”), and to administer Consolidated Omnibus Budget Reconciliation Act (“COBRA”), commuter and other benefits.

As part of our services, we and our subsidiaries provide consumers with healthcare bill evaluation and payment processing services, personalized benefit information, including information on treatment options and comparative pricing, access to remote and telemedicine benefits, the ability to earn wellness incentives, and investment advice to grow their tax-advantaged healthcare savings.

As part of our services, we provide consumers with healthcare bill evaluation and payment processing services, personalized benefit information, including information on treatment options and comparative pricing, access to remote and telemedicine benefits, the ability to earn wellness incentives, and investment advice to grow their tax-advantaged healthcare savings.

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.

As of October 31, 2022, we administered 7.7 million HSAs, with balances totaling $20.2 billion, which we call HSA Assets, as well as 6.8 million complementary CDBs.

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 October 31, 2022.

As of April 30, 2023, we administered 8.0 million HSAs, with balances totaling $22.3 billion, which we call HSA Assets, as well as 7.0 million complementary CDBs.

We refer to the aggregate number of HSAs and other CDBs that we administer as Total Accounts, of which we had 15.0 million as of April 30, 2023.

We reach consumers primarily through relationships with their employers, which we call Clients.

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.

We have increased our share of the growing HSA market from 4% in December 2010 to 20% as of June 2022, measured by HSA Assets.

According to Devenir, as of June 2022, we are the largest HSA provider by both accounts and HSA Assets.

We have increased our share of the growing HSA market from 4% in December 2010 to 20% as of December 2022, measured by HSA Assets.

According to Devenir, as of December 2022, we are the largest HSA provider by both accounts and HSA Assets.

In addition, we believe we are the largest provider of other CDBs.

We seek to differentiate ourselves through our proprietary technology, product breadth, ecosystem connectivity, and service-driven culture.

We seek to differentiate ourselves through our service-driven culture, product breadth, ecosystem connectivity, and proprietary

Our proprietary technology allows us to help consumers optimize the value of their HSAs and other CDBs and gain confidence and skills in managing their healthcare costs as part of their financial security.

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Our commuter benefits offering also leverages connectivity to an ecosystem of mass transit, ride hailing, and parking providers.

These strengths reflect our “DEEP Purple” culture of remarkable service to customers and teammates, achieved by driving excellence, ethics, and process into everything we do.

We earn revenue primarily from three sources:

service, custodial, and interchange.

We earn service revenue mainly from fees paid by Clients on a recurring per-account per-month basis.

We earn custodial revenue mainly from HSA Assets held at our members’ direction in federally insured cash deposits, insurance contracts or mutual funds, and from investment of Client-held funds.

We earn service revenue mainly from fees paid by our Network Partners, Clients, and members for the administration services we provide in connection with the HSAs and other CDBs we offer.

We earn custodial revenue primarily from HSA Assets held by our federally insured bank and credit union partners, which we collectively call 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.

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.

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.

Recent acquisitions

Luum acquisition.

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").

The aggregate purchase price for the acquisition consisted of $56.2 million in cash.

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.

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.

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").

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.

In March 2022, we acquired the Health Savings Administrators, L.L.C.

(“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.

See “Key components of our results of operations” for additional information on our sources of revenue, including the adverse impacts caused by the societal and economic changes arising out of the COVID-19 pandemic.

Key factors affecting our performance

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Each of these factors presents both significant opportunities and significant risks to our future performance.

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, our Quarterly Report on Form 10-Q for the quarter ended April 30, 2022, and our other reports filed with the SEC.

See also the section entitled “Risk factors” included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023 and our other reports filed with the SEC.

Our acquisition and integration strategy

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The average premium for employer-sponsored health insurance has risen by 20% since 2017 and 43% since 2012, resulting in increased participation in HSA-qualified health plans and HSAs and increased consumer cost-sharing in health insurance more generally.

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.

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.

However, the timing and impact of these and other developments in U.S.

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Interest rates

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 by these partners.

As a non-bank custodian, our members’ custodial HSA cash assets are held by either our federally insured 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).

The lengths of our agreements with Depository Partners typically range from three to five years and may have fixed or variable interest rate terms.

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.

The terms of new and renewing agreements with our Depository Partners are 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.

Such factors, and the response of our competitors to them, also determine the amount of interest retained by our members.

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An increase in the percentage of HSA cash held in our Enhanced Rates offering also positively impacts our custodial revenue, as we generally receive a higher yield on HSA cash held by our insurance company partners compared to cash held by our Depository Partners.

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.

As with our Depository Partners, yields paid by our insurance company partners are impacted by the prevailing interest rate environment, which in turn is driven by macroeconomic factors and 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.

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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.

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 due to the impact of contracts signed with our Depository Partners in that environment and other market conditions that have caused our average annualized yield on HSA cash to decline significantly from historical levels.

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.

Recent interest rate increases have caused interest expense related to our term loan facility to increase.

Recent interest rate increases have caused interest expense related to our term loan facility to increase substantially.

Our proprietary technology

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For example, we are making significant investments in the architecture and infrastructure of the technology that we use to provide our services to improve our transaction processing capabilities and support continued account and transaction growth, as well as in data-driven personalized engagement to help our members spend less, save more, and build wealth for retirement.

Our “DEEP Purple” service culture

The successful healthcare consumer needs education and guidance delivered by people as well as by technology.

We believe that our "DEEP Purple" culture, which we define as driving excellence, ethics, and process while providing remarkable service, is a significant factor in our ability to attract and retain customers and to address nimbly, opportunities in the rapidly changing healthcare sector.

We make significant efforts to promote and foster DEEP Purple within our workforce.

Our Purple culture

A successful healthcare consumer needs education and guidance delivered by people as well as by technology.

The education and customer service we provide is driven by our Purple culture, which we believe is a significant factor in our ability to attract and retain customers and to address opportunities in the rapidly changing healthcare

We invest in and intend to continue to invest in human capital through technology-enabled training, career development, and advancement opportunities.

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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.

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.

Some of our direct competitors (including healthcare service companies such as UnitedHealth 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.

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.

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Various states also have laws and regulations that impose additional restrictions on our collection, storage, and use of personally identifiable information.

Privacy regulation in particular has become a priority issue in many states, including California, which in 2018 enacted the California Consumer Privacy Act broadly regulating California residents’ personal information and providing California residents with various rights to access and control their data, and the new California Privacy Rights Act.

We have also seen an increase in regulatory changes related to our services due to government responses to the COVID-19 pandemic and may continue to see additional regulatory changes.

For example, the Employee Benefits Security Administration provided disaster relief in the form of an indefinite extension to the required timeline for participants to make COBRA elections, which we believe has resulted in fewer

COBRA elections by our members because they have more time to assess the cost of their out-of-pocket expenses against the cost of COBRA premiums.

Privacy regulation in particular has become a priority issue in many states, including, for example, the California Privacy Rights Act, which became effective on January 1, 2023.

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.

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.

Each national emergency declaration generally lasts for one year unless the President announces an earlier termination.

Key financial and operating metrics

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The following table sets forth our HSAs, CDBs, and Total Accounts as of and for the periods indicated:

(in thousands, except percentages) October 31, 2022 October 31, 2021 % Change January 31, 2022

(in thousands, except percentages) April 30, 2023 April 30, 2022 % Change January 31, 2023

HSAs 8,045 7,359 9 % 7,984

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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.

The number of our HSAs increased by 1.4 million, or 23%, from October 31, 2021 to October 31, 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.

The number of our CDBs decreased by 0.2 million, or 3%, from October 31, 2021 to October 31, 2022, primarily driven by a decrease in COBRA accounts due to a change in the manner in which COBRA accounts are counted on our current COBRA platform, partially offset by CDBs acquired through the Further Acquisition.

The number of our HSAs increased by 0.7 million, or 9%, from April 30, 2022 to April 30, 2023, primarily driven by new HSAs from sales.

The number of our CDBs decreased by 0.1 million, or 2%, from April 30, 2022 to April 30, 2023, primarily driven by a decrease in COBRA accounts due to a change in the manner in which COBRA accounts are counted following migration to our current COBRA platform.

The following table sets forth HSA Assets as of and for the periods indicated:

(in millions, except percentages) October 31, 2022 October 31, 2021 % Change January 31, 2022

(in millions, except percentages) April 30, 2023 April 30, 2022 % Change January 31, 2023

HSA cash $ 14,113 $ 12,935 9 % $ 14,199

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Measuring HSA Assets is important because our custodial revenue is directly affected by average daily custodial balances for HSA Assets that are revenue generating.

HSA cash increased by $2.6 billion, or 25%, from October 31, 2021 to October 31, 2022, due primarily to net HSA contributions from new and existing HSA members, HSA cash transferred to us as part of the Further Acquisition, and acquisitions of HSA portfolios, partially offset by transfers to HSA investments.

HSA investments increased by $1.1 billion, or 19%, from October 31, 2021 to October 31, 2022, due primarily to transfers from HSA cash, the HealthSavings acquisition, and other HSA portfolio acquisitions, partially offset by the reduced value of invested balances due to market volatility.

Total HSA Assets increased by $3.8 billion, or 23%, from October 31, 2021 to October 31, 2022, due primarily to HSA Assets 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 the reduced value of invested balances due to market volatility.

HSA cash increased by $1.2 billion, or 9%, from April 30, 2022 to April 30, 2023, due primarily to net HSA contributions from new and existing HSA members, partially offset by transfers to HSA investments.

HSA investments increased by $0.9 billion, or 12%, from April 30, 2022 to April 30, 2023, due primarily to transfers from HSA cash, partially offset by the reduced value of invested balances due to market volatility.

Total HSA Assets increased by $2.1 billion, or 10%, from April 30, 2022 to April 30, 2023, due primarily to net HSA contributions from new and existing HSA members, partially offset by the reduced value of invested balances due to market volatility.

Client-held funds

(in millions, except percentages) October 31, 2022 October 31, 2021 % Change January 31, 2022

(in millions, except percentages) April 30, 2023 April 30, 2022 % Change January 31, 2023

Client-held funds $ 926 $ 872 6 % $ 901

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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.

The following table presents a reconciliation of net loss, the most comparable GAAP financial measure, to Adjusted EBITDA for the periods indicated:

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

The following table presents a reconciliation of net income (loss), the most comparable GAAP financial measure, to Adjusted EBITDA for the periods indicated:

Three months ended April 30,

(in thousands) 2023 2022

Net loss $ (1,641) $ (5,038) $ (25,934) $ (11,471)

Net income (loss) $ 4,094 $ (13,639)

Interest income (1,598) (52)

Interest expense 14,997 10,461

Income tax benefit (4,539) (4,087) (12,170) (11,505)

Income tax provision (benefit) 5,918 (4,412)

Depreciation and amortization 15,875 15,788

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Merger integration expenses 3,458 9,294

Acquisition costs (gains) (1) — (2,687) 53 4,917

Gain on equity securities — — — (1,677)

Acquisition costs — 6

Amortization of incremental costs to obtain a contract 1,304 1,067

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Adjusted EBITDA $ 86,587 $ 58,335

(1) For the nine months ended October 31, 2021, acquisition costs included $0.3 million of stock-based compensation expense.

The following table sets forth our net loss as a percentage of revenue:

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

(in thousands, except percentages) 2022 2021 $ Change % Change 2022 2021 $ Change % Change

Net loss $ (1,641) $ (5,038) $ 3,397 (67) % $ (25,934) $ (11,471) $ (14,463) 126 %

The following table sets forth our net income (loss) as a percentage of revenue:

Three months ended April 30,

(in thousands, except percentages) 2023 2022 $ Change % Change

Net income (loss) $ 4,094 $ (13,639) $ 17,733 (130) %

As a percentage of revenue 2 % (7) %

Our net loss decreased by $3.4 million, or 67%, from $5.0 million for the three months ended October 31, 2021 to $1.6 million for the three months ended October 31, 2022, primarily due to an increase in gross profit and a decrease in merger integration expense, partially offset by increases in technology and development expense, general and administrative expense, sales and marketing expense, amortization of intangible assets, and other expense.

Our net loss increased by $14.5 million, or 126%, from $11.5 million for the nine months ended October 31, 2021 to $25.9 million for the nine months ended October 31, 2022, primarily due to increases in technology and development expense, amortization of acquired intangibles, general and administrative expense, sales and marketing expense, and other expense, partially offset by an increase in gross profit and a decrease in merger integration expense.

Our net income increased by $17.7 million, from net loss of $13.6 million for the three months ended April 30, 2022 to net income of $4.1 million for the three months ended April 30, 2023, due to an increase in gross profit, partially offset by net increases in operating expenses, income tax provision, and other expenses, as described more fully in the section entitled "Comparison of the three months ended April 30, 2023 and 2022."

The following table sets forth our Adjusted EBITDA as a percentage of revenue:

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

(in thousands, except percentages) 2022 2021 $ Change % Change 2022 2021 $ Change % Change

Three months ended April 30,

(in thousands, except percentages) 2023 2022 $ Change % Change

Adjusted EBITDA $ 86,587 $ 58,335 $ 28,252 48 %

As a percentage of revenue 35 % 28 %

Our Adjusted EBITDA increased by $12.3 million, or 20%, from $61.1 million for the three months ended October 31, 2021 to $73.4 million for the three months ended October 31, 2022, primarily due to an increase in total revenue, partially offset by increases in personnel and related costs.

Our Adjusted EBITDA increased by $13.2 million, or 7%, from $185.6 million for the nine months ended October 31, 2021 to $198.7 million for the nine months ended October 31, 2022, primarily due to an increase in total revenue, partially offset by increases in personnel and related costs.

Our Adjusted EBITDA increased by $28.3 million, or 48%, from $58.3 million for the three months ended April 30, 2022 to $86.6 million for the three months ended April 30, 2023, primarily due to an increase in total revenue, partially offset by increases in personnel and related costs.

Our use of Adjusted EBITDA, including as a percentage of revenue, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.

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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.

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.

HSA cash is held by 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 held by the relevant Depository Partner, and (iii) have minimum and maximum required balances.

HSA cash held by our insurance company partners is held in group annuity contracts or similar arrangements.

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Service costs.

Service costs include the servicing costs described above.

Service costs include the servicing costs described in the paragraph above.

Additionally, for new accounts, we incur on-boarding costs associated with the new accounts, such as new member welcome kits, the cost associated with issuance of new payment cards, and costs of marketing materials that we produce for our Network Partners.

Custodial costs.

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.

Custodial costs are comprised of interest retained by our HSA members, in respect of HSA cash, personnel-related costs, 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.

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Other income (expense), net

Other income (expense), net, consists of acquisition costs, interest income earned on corporate cash and other miscellaneous income and expense.

Income tax benefit

Other income (expense), net, consists primarily of interest income earned on corporate cash and other miscellaneous income and expense.

Income tax provision (benefit)

We are subject to federal and state income taxes in the United States based on a January 31 fiscal year end.

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Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized.

As of October 31, 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.

The Inflation Reduction Act, which was enacted on August 16, 2022, includes a number of tax provisions, including an adjusted book minimum tax and excise tax on stock buybacks.

We do not expect these provisions to have a material impact on the Company.

Comparison of the three and nine months ended October 31, 2022 and 2021

As of April 30, 2023, we have not recorded a valuation allowance on federal deferred tax assets, but have recorded a valuation allowance on certain state deferred tax assets.

We maintain an overall net federal and state deferred tax liability on our condensed consolidated balance sheet.

Comparison of the three months ended April 30, 2023 and 2022

The following table sets forth our revenue for the periods indicated:

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

(in thousands, except percentages) 2022 2021 $ Change % Change 2022 2021 $ Change % Change

Three months ended April 30,

(in thousands, except percentages) 2023 2022 $ Change % Change

Service revenue $ 105,112 $ 104,348 $ 764 1 %

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Service revenue.

The $5.8 million, or 6%, increase in service revenue from the three months ended October 31, 2021 to the three months ended October 31, 2022 was primarily due to new revenue from the Further Acquisition and our HSA portfolio acquisitions, and sales of new HSAs, partially offset by non-recurring revenue related to COBRA benefits administration during the three months ended October 31, 2021.

The $1.5 million, or less than one percent, increase in service revenue from the nine months ended October 31, 2021 to the nine months ended October 31, 2022 was primarily due to new revenue from the Further Acquisition and our HSA portfolio acquisitions, and sales of new HSAs, largely offset by non-recurring revenue related to COBRA benefits administration during the nine months ended October 31, 2021 and FSA and COBRA fee attrition resulting from platform migrations.

The $0.8 million, or 1%, increase in service revenue from the three months ended April 30, 2022 to the three months ended April 30, 2023 was primarily due to service revenue earned with respect to new HSAs, largely offset by FSA and COBRA fee attrition in connection with platform migrations.

Custodial revenue.

The $25.6 million, or 52%, increase in custodial revenue from the three months ended October 31, 2021 to the three months ended October 31, 2022 was primarily due to the $2.8 billion, or 27%, increase in the year-over-year average daily balance of HSA cash, as described above, and an increase in average annualized yield from 1.72% for the three months ended October 31, 2021 to 2.00% for the three months ended October 31, 2022.

The $54.8 million, or 38%, increase in custodial revenue from the nine months ended October 31, 2021 to the nine months ended October 31, 2022 was primarily due to the $2.9 billion, or 29%, increase in the year-over-year average daily balance of HSA cash, as described above, and an increase in average annualized yield from 1.76% for the nine months ended October 31, 2021 to 1.83% for the nine months ended October 31, 2022.

The $35.1 million, or 59%, increase in custodial revenue from the three months ended April 30, 2022 to the three months ended April 30, 2023 was primarily due to an increase in average annualized yield on HSA cash from 1.69% for the three months ended April 30, 2022 to 2.32% for the three months ended April 30, 2023 and the $1.2 billion, or 9%, increase in the year-over-year average daily balance of HSA cash, as described above.

Assuming the current interest rate environment continues, we expect our average annualized yield on HSA cash to increase as our existing agreements with our Depository Partners are renewed or replaced, resulting in higher custodial revenue.

In addition, we expect an increase in the percentage of HSA cash held in our Enhanced Rates offering to positively impact our custodial revenue.

In addition, we expect an increase in the percentage of HSA cash held in our Enhanced Rates offering to positively impact our average annualized yield and thus our custodial revenue.

In addition, on an annual basis, relative to the fiscal year ended January 31, 2023, we expect an increase in custodial revenue resulting from the portion of our Client-held funds held by our Depository Partners in interest-bearing, demand deposit accounts that have a floating interest rate.

Interchange revenue.

The $4.6 million, or 16%, increase in interchange revenue from the three months ended October 31, 2021 to the three months ended October 31, 2022 was primarily due to an increase in accounts and increased spend per account.

The $18.3 million, or 19%, increase in interchange revenue from the nine months ended October 31, 2021 to the nine months ended October 31, 2022 was primarily due to an increase in accounts and increased spend per account.

The $2.9 million, or 7%, increase in interchange revenue from the three months ended April 30, 2022 to the three months ended April 30, 2023 was primarily due to an increase in Total Accounts and increased spend per account.

Total revenue.

Total revenue increased $36.1 million, or 20%, from the three months ended October 31, 2021 to the three months ended October 31, 2022 due to the increases in custodial, service, and interchange revenues, described above.

Total revenue increased $74.6 million, or 13%, from the nine months ended October 31, 2021 to the nine months ended October 31, 2022 due to the increases in custodial, interchange, and service revenues, described above.

Total revenue increased $38.8 million, or 19%, from the three months ended April 30, 2022 to the three months ended April 30, 2023 due to the increases in custodial, interchange, and service revenues, described above.

Impact of COVID-19.

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.

Our business was adversely affected by the COVID-19 pandemic, and we expect that it will continue to be adversely affected by the societal and economic changes arising out of the pandemic.

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.

As a result, the yield we currently receive from our Depository Partners remains significantly below the levels seen before the pandemic.

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.

In particular, decisions by employers to delay return-to-office plans for their employees has continued to delay the recovery of use of these commuter benefits.

We have also seen a negative impact on the financial results related to our COBRA product, as the Employee Benefits Security Administration provided disaster relief in the form of an indefinite extension to the required timeline for participants to make COBRA elections, which we believe has resulted in fewer COBRA elections by our members because they have more time to assess the cost of their out-of-pocket expenses against the cost of COBRA premiums.

As a result, the average annualized yield we currently receive from our Depository Partners remains below the levels seen immediately before the pandemic due to the HSA cash that was deposited with them during the pandemic.

Our financial results related to certain of our products were adversely affected, such as commuter benefits, due to "work from home" and hybrid work environments, which have continued and may continue indefinitely.

We saw a negative impact on the financial results related to our COBRA product, as the Employee Benefits Security Administration provided disaster relief in the form of an extension to the required timeline for participants to make COBRA elections, which we believe resulted in fewer COBRA elections by our members because they had more time to assess the cost of their out-of-pocket expenses against the cost of COBRA premiums.

The national emergency under which the disaster relief was provided ended in April 2023;

however, the extent to which COBRA elections will return to their prior levels, if at all, remains uncertain.

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.

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.

The extent to which the COVID-19 pandemic, its resulting societal and economic impact, and any other 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.

In the event of further outbreaks, we may be unable to meet our service level commitments to our Clients as a result of disruptions to our workforce and disruptions to third-party contracts that we rely on to provide our services.

The extent to which the societal and economic changes arising out of the COVID-19 pandemic, including 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:

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

(in thousands, except percentages) 2022 2021 $ Change % Change 2022 2021 $ Change % Change

Three months ended April 30,

(in thousands, except percentages) 2023 2022 $ Change % Change

Service costs $ 80,555 $ 80,874 $ (319) 0 %

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Service costs.

The $10.3 million, or 16%, increase in service costs from the three months ended October 31, 2021 to the three months ended October 31, 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.

The $28.1 million, or 14%, increase in service costs from the nine months ended October 31, 2021 to the nine months ended October 31, 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.

The $0.3 million, or less than 1%, decrease in service costs from the three months ended April 30, 2022 to the three months ended April 30, 2023 was primarily due to a decrease in personnel costs.

Custodial costs.

The $1.1 million, or 19%, increase in custodial costs from the three months ended October 31, 2021 to the three months ended October 31, 2022 was due to an increase in the average daily balance of HSA cash, which increased from $10.2 billion for the three months ended October 31, 2021 to $13.0 billion for the three months ended October 31, 2022 and an associated increase in interest retained by HSA members.

The average annualized rate of interest retained by HSA members on HSA cash was 0.17% during the three months ended October 31, 2022 and 2021.

The $5.0 million, or 32%, increase in custodial costs from the nine months ended October 31, 2021 to the nine months ended October 31, 2022 was due to an increase in the average daily balance of HSA cash, which increased from $10.1 billion for the nine months ended October 31, 2021 to $12.9 billion for the nine months ended October 31, 2022 and an associated increase in interest retained by HSA members.

The average annualized rate of interest retained by HSA members on HSA cash was 0.17% during the nine months ended October 31, 2022 and 2021.

The $2.4 million, or 36%, increase in custodial costs from the three months ended April 30, 2022 to the three months ended April 30, 2023 was primarily due to an increase in the average annualized rate of interest retained by HSA members on HSA cash from 0.16% during the three months ended April 30, 2022 to 0.22% during the three months ended April 30, 2023, and the $1.2 billion, or 9%, increase in the year-over-year average daily balance of HSA cash, as described above.

Interchange costs.

The $1.2 million, or 26%, increase in interchange costs from the three months ended October 31, 2021 to the three months ended October 31, 2022 was due to an increase in accounts and increased spend per account.

The $4.1 million, or 27%, increase in interchange costs from the nine months ended October 31, 2021 to the nine months ended October 31, 2022 was due to an increase in accounts and increased spend per account.

The $0.1 million, or 1%, increase in interchange costs from the three months ended April 30, 2022 to the three months ended April 30, 2023 was due to an increase in Total 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.

However, on an annual basis, relative to the fiscal year ended January 31, 2022, we expect our cost of revenue to decrease as a percentage of our total revenue, primarily due to an increase in custodial revenue, partially offset by the inclusion of a full year of Further's results of operations and 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 societal and economic changes arising out of the COVID-19 pandemic.

However, on an annual basis, relative to the fiscal year ended January 31, 2023, we expect our cost of revenue to decrease as a percentage of our total revenue, primarily due to an increase in custodial revenue, partially offset by increases in stock-based compensation and other personnel costs.

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, and the impact of societal and economic changes arising out of the COVID-19 pandemic.

Operating expenses

The following table sets forth our operating expenses for the periods indicated:

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

(in thousands, except percentages) 2022 2021 $ Change % Change 2022 2021 $ Change % Change

Three months ended April 30,

(in thousands, except percentages) 2023 2022 $ Change % Change

Sales and marketing $ 19,935 $ 16,560 $ 3,375 20 %

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Sales and marketing.

The $4.5 million, or 36%, increase in sales and marketing expense from the three months ended October 31, 2021 to the three months ended October 31, 2022 was primarily due to the inclusion of Further's results of operations and an increase in marketing expenses from increased staffing and travel costs, partially offset by a decrease in advertising expenses.

The $7.4 million, or 17%, increase in sales and marketing expense from the nine months ended October 31, 2021 to the nine months ended October 31, 2022 was primarily due to the inclusion of Further's results of operations and an increase in marketing expenses from increased staffing and travel costs, partially offset by a decrease in advertising expenses.

The $3.4 million, or 20%, increase in sales and marketing expenses from the three months ended April 30, 2022 to the three months ended April 30, 2023 was primarily due to an increase in marketing expenses from increased personnel-related expenses and travel costs.

We expect our sales and marketing expenses to increase for the foreseeable future as we focus on our cross-selling program and marketing campaigns.

On an annual basis, relative to the fiscal year ended January 31, 2022, we expect our sales and marketing 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 and increases in stock-based compensation.

On an annual basis, relative to the fiscal year ended January 31, 2023, we expect our sales and marketing expenses to remain relatively steady as a percentage of our total revenue.

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.

Technology and development.

The $10.8 million, or 28%, increase in technology and development expense from the three months ended October 31, 2021 to the three months ended October 31, 2022 was primarily due to the inclusion of Further's results of operations and increases in amortization and personnel-related expenses.

The $29.2 million, or 26%, increase in technology and development expense from the nine months ended October 31, 2021 to the nine months ended October 31, 2022 was primarily due to the inclusion of Further's results of operations and increases in amortization and personnel-related expenses.

The $8.0 million, or 18%, increase in technology and development expenses from the three months ended April 30, 2022 to the three months ended April 30, 2023 was primarily due to increases in personnel-related expenses and amortization.

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.

On an annual basis, relative to the fiscal year ended January 31, 2022, we expect our technology and development 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, 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.

On an annual basis, relative to the fiscal year ended January 31, 2023, we expect our technology and development expenses to remain relatively steady as a

percentage of our total revenue.

However, 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.

General and administrative.

The $5.1 million, or 26%, increase in general and administrative expense from the three months ended October 31, 2021 to the three months ended October 31, 2022 was primarily due to the inclusion of Further's results of operations and increases in personnel-related expenses and stock-based compensation.

The $11.3 million, or 18%, increase in general and administrative expense from the nine months ended October 31, 2021 to the nine months ended October 31, 2022 was primarily due to the inclusion of Further's results of operations and increases in personnel-related expenses and stock-based compensation.

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.

On an annual basis, relative to the fiscal year ended January 31, 2022, 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, increases in stock-based compensation, and our growth initiatives.

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.

The $1.2 million, or 5%, increase in general and administrative expenses from the three months ended April 30, 2022 to the three months ended April 30, 2023 was primarily due to an increase in stock-based compensation.

We expect our general and administrative expenses to increase for the foreseeable future due to the additional demands on our legal, compliance, and finance functions as we continue to grow our business.

On an annual basis, relative to the fiscal year ended January 31, 2023, we expect our general and administrative expenses to remain relatively steady as a percentage of our total revenue.

However, 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.

The $3.9 million, or 20%, increase in amortization of acquired intangible assets from the three months ended October 31, 2021 to the three months ended October 31, 2022 was primarily due to the inclusion of amortization related to identified intangible assets acquired through the Further Acquisition commencing November 1, 2021.

The remainder of the increase was due to amortization of acquired HSA portfolios, including the Fifth Third and HealthSavings HSA portfolios.

The $11.7 million, or 20%, increase in amortization of acquired intangible assets from the nine months ended October 31, 2021 to the nine months ended October 31, 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.

The remainder of the increase was due to amortization of acquired HSA portfolios, including the Fifth Third and HealthSavings HSA portfolios.

The $0.5 million, or 2%, decrease in amortization of acquired intangible assets from the three months ended April 30, 2022 to the three months ended April 30, 2023 was primarily due to the smaller amount of intangible assets that have not been fully amortized.

Merger integration.

The $6.5 million and $23.5 million in merger integration expense for the three and nine months ended October 31, 2022, respectively, 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.

("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.

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.

The $5.8 million, or 63%, decrease in merger integration expense from the three months ended April 30, 2022 to the three months ended April 30, 2023 was primarily due to a decrease in merger integration activities related to the acquisition of the Further business.

The $3.5 million in merger integration expense for the three months ended April 30, 2023 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 WageWorks acquisition, including ongoing lease expense related to WageWorks offices that have been permanently closed, less any related sublease income, and professional fees associated with the remediation of material weaknesses in internal control over financial reporting.

We expect merger integration expenses attributable to the Further acquisition totaling approximately $55 million to be incurred over a period of approximately five to six years from the date of the acquisition, which occurred in November 2021.

Interest expense

The $12.2 million and $34.1 million in interest expense for the three and nine months ended October 31, 2022, respectively, consisted primarily of interest accrued on our long-term debt and amortization of debt discount and issuance costs, up from $11.9 million and $25.8 million for the three and nine months ended October 31, 2021, respectively.

On an annual basis, relative to the fiscal year ended January 31, 2022, we expect interest expense to increase, primarily from the inclusion of a full year of interest expense 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 effective interest rate of 6.38% as of October 31, 2022, up from 2.63% as of October 31, 2021.

Our term loan facility had an outstanding principal balance of $343.4 million as of October 31, 2022.

The $4.5 million, or 43%, increase in interest expense was primarily due to the impact of higher interest rates on our Term Loan Facility, which had an effective interest rate of 7.32% as of April 30, 2023, up from 3.33% as of April 30, 2022, and a $1.2 million loss on extinguishment of debt due to the prepayment of $50.0 million under our Term Loan Facility during the three months ended April 30, 2023.

Our Term Loan Facility had an outstanding principal balance of $286.9 million and $347.8 million as of April 30, 2023 and 2022, respectively.

On an annual basis, relative to the fiscal year ended January 31, 2023, we expect our interest expense to increase, primarily due to the impact of increased interest rates on our Term Loan Facility, partially offset by a lower average principal balance under our Term Loan Facility.

The interest rate on our Term Loan Facility and Revolving Credit Facility is variable and, accordingly, we may incur additional expense if interest rates continue to increase in future periods.

Other income (expense), net

The $2.7 million decrease in other income, net, from $3.1 million during the three months ended October 31, 2021 to $0.4 million during the three months ended October 31, 2022 was primarily due to a reduction in the fair value of the contingent acquisition consideration relating to the Luum Acquisition, which was recognized during the three months ended October 31, 2021.

The $0.3 million change in other income (expense), net, from expense of $0.2 million during the nine months ended October 31, 2021 to income of $0.2 million during the nine months ended October 31, 2022 was primarily due to a $4.9 million decrease in acquisition costs, net, partially offset by a $2.8 million decrease in interest and other income, net, and a $1.7 million non-recurring gain on equity securities recognized during the nine months ended October 31, 2021.

Income tax benefit

For the three months ended October 31, 2022 and 2021, we recorded an income tax benefit of $4.5 million and $4.1 million, respectively.

The increase in income tax benefit was primarily the result of a release of uncertain tax positions, partially offset by an increase in nondeductible executive compensation and a decrease in research and development tax credits.

For the nine months ended October 31, 2022 and 2021, we recorded an income tax benefit of $12.2 million and $11.5 million, respectively.

The increase in income tax benefit was primarily the result of an increase in pre-tax book loss and a release of uncertain tax positions, partially offset by a decrease in excess tax benefits on stock-based compensation, an increase in nondeductible executive compensation, and a decrease in research and development tax credits.

The $2.1 million change in other income (expense), net, from expense of $0.3 million during the three months ended April 30, 2022 to income of $1.8 million during the three months ended April 30, 2023 was due to a $1.5 million increase in interest income and a $0.6 million increase in other income, net.

Income tax provision (benefit)

For the three months ended April 30, 2023 and 2022, we recorded an income tax provision of $5.9 million and an income tax benefit of $4.4 million, respectively.

The increase in income tax provision was primarily the result of an increase in pre-tax book income, a decrease in tax deductible stock-based compensation compared to GAAP stock-based compensation expense, an increase in nondeductible executive compensation, and a decrease in research and development tax credits.

Seasonal concentration of our growth combined with our recurring revenue model create seasonal variation in our results of operations.

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Before we realize any revenue from these new accounts, we incur costs related to implementing and supporting our new Network Partners and new accounts.

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.

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 seasonal expenses incurred in our fourth fiscal quarter.

Liquidity and capital resources

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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.

As of October 31, 2022 and January 31, 2022, cash and cash equivalents were $210.2 million and $225.4 million, respectively.

As of April 30, 2023 and January 31, 2023, cash and cash equivalents were $225.6 million and $254.3 million, respectively.

Capital resources

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A shelf registration statement, which includes a base prospectus, allows us at any time to offer any combination of securities described in the prospectus in one or more offerings.

Unless otherwise specified in a prospectus supplement accompanying the base prospectus, we would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes, including, but not limited to, working capital, sales and marketing activities, general and administrative matters, capital expenditures, and repayment of indebtedness, and

if opportunities arise, for the acquisition of, or investment in, assets, technologies, solutions or businesses that complement our business.

Pending such uses, we may invest the net proceeds in interest-bearing securities.

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For a description of the terms of the credit agreement, refer to Note 6—Indebtedness.

As of October 31, 2022, there were no amounts outstanding under the Revolving Credit Facility.

We were in compliance with all covenants under the credit agreement as of October 31, 2022, and for the period then ended.

On March 2, 2022, we completed our acquisition of the HealthSavings HSA portfolio in exchange for a purchase price of $60 million in cash.

Capital expenditures for the nine months ended October 31, 2022 and 2021 were $38.3 million and $56.3 million, respectively.

We expect to continue our current level of 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.

Costs to improve the architecture of our proprietary systems include computer hardware, personnel and related costs for software engineering and outsourced software engineering services.

As of April 30, 2023, there were no amounts outstanding under the Revolving Credit Facility.

We were in compliance with all covenants under the credit agreement as of April 30, 2023, and for the period then ended.

During the three months ended April 30, 2023, we used $50.0 million of cash to prepay, in direct order of maturity, principal due under our Term Loan Facility.

Capital expenditures for the three months ended April 30, 2023 and 2022 were $9.1 million and $14.8 million, respectively.

We expect to continue our current level of capital expenditures for the remainder of the fiscal year ending January 31, 2024 as we continue to invest in improving the architecture and functionality of our proprietary systems.

Capital expenditures to improve the architecture of our proprietary systems include computer hardware, personnel and related costs for software engineering, and outsourced software engineering services.

We believe our existing cash, cash equivalents, and Revolving Credit Facility will be sufficient to meet our operating and capital expenditure requirements for at least the next 12 months.

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The following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods:

Nine months ended October 31,

Three months ended April 30,

(in thousands) 2023 2022

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Net cash provided by (used in) financing activities (51,027) 2,959

Increase (decrease) in cash and cash equivalents (15,217) 320,326

Decrease in cash and cash equivalents (28,624) (64,167)

Beginning cash and cash equivalents 254,266 225,414

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Cash flows from operating activities.

Net cash provided by operating activities increased by $4.7 million from the nine months ended October 31, 2021 to the nine months ended October 31, 2022 primarily due to increased collections from customers, partially offset by an increase in cash payments made to our accounts payable, accrued liabilities, and other current liabilities during the nine months ended October 31, 2022.

Net cash provided by operating activities increased by $24.5 million from the three months ended April 30, 2022 to the three months ended April 30, 2023 primarily due to increased collections with respect to our custodial and interchange revenues and a decrease in cash payments made to our accounts payable, accrued liabilities, and other current liabilities during the three months ended April 30, 2023.

Cash flows from investing activities.

Net cash used in investing activities decreased by $59.1 million from the nine months ended October 31, 2021 to the nine months ended October 31, 2022 primarily due to a $43.4 million decrease in cash used in HSA portfolio acquisitions and businesses combinations, a $13.7 million decrease in cash used for purchases of software and capitalized software development costs, and a $4.3 million decrease in cash used for purchases of property and equipment.

The decrease was partially offset by a $2.4 million decrease in proceeds from the sale of equity securities associated with a long-term capital investment.

Net cash used in investing activities decreased by $65.1 million from the three months ended April 30, 2022 to the three months ended April 30, 2023 due to a $59.4 million decrease in cash used in HSA portfolio acquisitions, a $4.6 million decrease in cash used for purchases of software and capitalized software development costs, and a $1.0 million decrease in cash used for purchases of property and equipment.

Cash flows from financing activities.

Net cash used in financing activities was $1.5 million during the nine months ended October 31, 2022, compared to net cash provided by financing activities of $397.8 million during the nine months ended October 31, 2021.

The change resulted primarily from $456.6 million of net proceeds from our follow-on public offering of 5,750,000 shares of common stock during the nine months ended October 31, 2021, and a $1.1 million decrease in proceeds from the exercise of common stock options.

These changes were partially offset by an $58.4 million decrease in net payments related to our long-term debt and associated debt issuance costs, as compared to the nine months ended October 31, 2021.

Net cash used in financing activities was $51.0 million during the three months ended April 30, 2023, compared to net cash provided by financing activities of $3.0 million during the three months ended April 30, 2022.

The change resulted primarily from a $52.2 million increase in payments related to our long-term debt, including $50.0 million of cash used to prepay, in direct order of maturity, principal due under our Term Loan Facility, and a $1.9 million decrease in proceeds from the exercise of common stock options.

These changes were partially offset by a $0.1 million increase in net payments received in the settlement of client-held funds obligation.

Contractual obligations

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Off-balance sheet arrangements

As of October 31, 2022, other than outstanding letters of credit issued under our Revolving Credit Facility, we did not have any off-balance sheet arrangements.

As of April 30, 2023, other than outstanding letters of credit issued under our Revolving Credit Facility, we did not have any off-balance sheet arrangements.

The standby letters of credit generally expire within one year.

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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, 2023.

There have been no significant or material changes in our critical accounting policies during the nine months ended October 31, 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.

There have been no significant or material changes in our critical accounting policies during the three months ended April 30, 2023, 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, 2023.

Recent accounting pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis