What changed in this filing

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Item 1. Financial Statements

2023-12-05 compared with 2023-09-05 · 69 added, 59 removed, 355 unchanged (27% of the section changed)

3 unchanged sentences

Condensed consolidated balance sheets

(in thousands, except par value) July 31, 2023 January 31, 2023

(in thousands, except par value) October 31, 2023 January 31, 2023

Current assets

Cash and cash equivalents $ 334,061 $ 254,266

Accounts receivable, net of allowance for doubtful accounts of $ 4,639 and $ 4,989 as of July 31, 2023 and January 31, 2023, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 4,876 and $ 4,989 as of October 31, 2023 and January 31, 2023, respectively

96,181 96,835

24 unchanged sentences

Stockholders’ equity

Preferred stock, $ 0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2023 and January 31, 2023, respectively

Common stock, $ 0.0001 par value, 900,000 shares authorized, 85,612 and 84,758 shares issued and outstanding as of July 31, 2023 and January 31, 2023, respectively

Preferred stock, $ 0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of October 31, 2023 and January 31, 2023, respectively

Common stock, $ 0.0001 par value, 900,000 shares authorized, 85,800 and 84,758 shares issued and outstanding as of October 31, 2023 and January 31, 2023, respectively

Additional paid-in capital 1,808,695 1,745,716

7 unchanged sentences

comprehensive income (loss) (unaudited)

Three months ended July 31, Six months ended July 31,

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

(in thousands, except per share data) 2023 2022 2023 2022

19 unchanged sentences

Interest expense ( 13,545 ) ( 12,165 ) ( 41,814 ) ( 34,119 )

Other income (expense), net 2,756 32 4,584 ( 269 )

Other income, net 3,741 443 8,325 174

Total other expense ( 9,804 ) ( 11,722 ) ( 33,489 ) ( 33,945 )

12 unchanged sentences

Condensed consolidated statements of stockholders’ equity (unaudited)

Three months ended July 31, Six months ended July 31,

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

(in thousands) 2023 2022 2023 2022

18 unchanged sentences

Condensed consolidated statements of cash flows (unaudited)

Six months ended July 31,

Nine months ended October 31,

(in thousands) 2023 2022

34 unchanged sentences

Condensed consolidated statements of cash flows (unaudited) (continued)

Six months ended July 31,

Nine months ended October 31,

(in thousands) 2023 2022

5 unchanged sentences

Purchases of property and equipment included in accounts payable or accrued liabilities 98 297

Acquisitions of HSA portfolios included in accounts payable or accrued liabilities — 1,849

Exercise of common stock options receivable 19 21

12 unchanged sentences

Basis of presentation

The accompanying condensed consolidated financial statements as of July 31, 2023 and for the three and six months ended July 31, 2023 and 2022 are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting.

The accompanying condensed consolidated financial statements as of October 31, 2023 and for the three and nine months ended October 31, 2023 and 2022 are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting.

In the opinion of management, the interim data includes all adjustments necessary for a fair presentation of the results for the interim periods.

8 unchanged sentences

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

Three months ended July 31, Six months ended July 31,

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

(in thousands, except per share data) 2023 2022 2023 2022

10 unchanged sentences

Diluted $ 0.17 $ ( 0.02 ) $ 0.34 $ ( 0.31 )

For the three months ended July 31, 2023 and 2022, approximately 1.6 million and 3.3 million shares, respectively, attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted net income (loss) per share as their inclusion would have been anti-dilutive.

For the six months ended July 31, 2023 and 2022, approximately 0.9 million and 2.6 million shares, respectively, attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted net income (loss) per share as their inclusion would have been anti-dilutive.

For the three months ended October 31, 2023 and 2022, approximately 0.6 million and 2.0 million shares, respectively, attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted net income (loss) per share as their inclusion would have been anti-dilutive.

For the nine months ended October 31, 2023 and 2022, approximately 1.0 million and 2.4 million shares, respectively, attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted net income (loss) per share as their inclusion would have been anti-dilutive.

Supplemental financial statement information

2 unchanged sentences

Property and equipment consisted of the following:

(in thousands) July 31, 2023 January 31, 2023

(in thousands) October 31, 2023 January 31, 2023

Leasehold improvements $ 18,214 $ 18,269

4 unchanged sentences

Property and equipment, net $ 7,660 $ 12,862

Depreciation expense for the three months ended July 31, 2023 and 2022 was $ 2.0 million and $ 3.2 million, respectively, and $ 4.5 million and $ 6.4 million for the six months ended July 31, 2023 and 2022, respectively.

Depreciation expense for the three months ended October 31, 2023 and 2022 was $ 1.8 million and $ 2.9 million, respectively, and $ 6.4 million and $ 9.4 million for the nine months ended October 31, 2023 and 2022, respectively.

Contract balances

2 unchanged sentences

Alternatively, when payment precedes the related services, the Company records a contract liability, or deferred revenue, until its performance obligations are satisfied.

As of July 31, 2023 and January 31, 2023, the balance of deferred revenue was $ 6.7 million and $ 8.3 million, respectively.

As of October 31, 2023 and January 31, 2023, the balance of deferred revenue was $ 5.8 million and $ 8.3 million, respectively, and is included within accrued liabilities on the Company's condensed consolidated balance sheets.

The balances are related to cash received in advance for interchange and custodial revenue arrangements, other up-front fees and other commuter deferred revenue.

The Company expects to recognize approximately 67 % of its balance of deferred revenue as revenue over the next 12 months and the remainder thereafter.

During the three and six months ended July 31, 2023, approximately $ 1.4 million and $ 2.9 million, respectively, of revenue was recognized that was included in the balance of deferred revenue as of January 31, 2023.

During the three and nine months ended October 31, 2023, approximately $ 1.1 million and $ 4.0 million, respectively, of revenue was

recognized that was included in the balance of deferred revenue as of January 31, 2023.

The Company expects to satisfy its remaining obligations for these arrangements.

The components of operating lease costs were as follows:

Three months ended July 31, Six months ended July 31,

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

(in thousands)

3 unchanged sentences

Net operating lease expense $ 1,510 $ 2,287 $ 5,494 $ 6,954

Other income (expense), net

Other income (expense), net, consisted of the following:

Three months ended July 31, Six months ended July 31,

Accrued liabilities

Accrued inventory of $ 5.7 million is included within accrued liabilities on the Company's condensed consolidated balance sheet as of October 31, 2023.

Other income, net

Other income, net, consisted of the following:

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

(in thousands) 2023 2022 2023 2022

2 unchanged sentences

Other income (expense), net 28 — 530 ( 357 )

Total other income (expense), net $ 2,756 $ 32 $ 4,584 $ ( 269 )

Total other income, net $ 3,741 $ 443 $ 8,325 $ 174

Interest expense

Based on the application of Accounting Standards Codification ("ASC") 470-50, Debt - Modifications and Extinguishments , the Company recorded a $ 1.2 million loss on extinguishment of debt due to the prepayment of $ 50.0 million under the Company's Term Loan Facility (as defined in Note 6—Indebtedness) in April 2023, which is included within interest expense in the condensed consolidated statement of operations and comprehensive income for the six months ended July 31, 2023.

Supplemental cash flow information

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

Six months ended July 31,

Nine months ended October 31,

(in thousands) 2023 2022

5 unchanged sentences

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

July 31, 2023

October 31, 2023

(in thousands) Gross carrying amount Accumulated amortization Net carrying amount

15 unchanged sentences

Total amortizable intangible assets $ 1,399,889 $ ( 463,530 ) $ 936,359

Amortization expense for the three months ended July 31, 2023 and 2022 was $ 36.3 million and $ 37.6 million, respectively, and $ 72.8 million and $ 73.8 million for the six months ended July 31, 2023 and 2022, respectively.

There were no changes to the carrying value of goodwill during the six months ended July 31, 2023.

Amortization expense for the three months ended October 31, 2023 and 2022 was $ 36.0 million and $ 37.6 million, respectively, and $ 108.8 million and $ 111.4 million for the nine months ended October 31, 2023 and 2022, respectively.

There were no changes to the carrying value of goodwill during the nine months ended October 31, 2023.

Commitments and contingencies

1 unchanged sentence

In April 2023, the Company used $ 50.0 million of cash to prepay, in direct order of maturity, principal due under its Term Loan Facility.

There were no other material changes during the six months ended July 31, 2023, outside of the ordinary course of business, in the Company's commitments from those disclosed in its Annual Report on Form 10-K for the fiscal year ended January 31, 2023.

In September 2023, the Company entered into an agreement to acquire the BenefitWallet HSA portfolio from Conduent Business Services, LLC, for a purchase price of $ 425.0 million and up to $ 20.0 million in transfer-related expenses.

In addition, the Company expects to incur approximately $ 7.0 million of transaction costs associated with the acquisition.

The agreement contemplates a transfer of approximately 665,000 customer accounts and their approximately $ 2.8 billion of HSA assets and includes a mechanism to adjust the purchase price based on the amount of HSA assets actually transferred.

Pursuant to the agreement, HealthEquity will assume a contract with a depository partner representing approximately 7 % of the total maximum acquired HSA assets, which provides a custodial yield that is below current market rates and expires in June 2026.

The transfer is expected to close in multiple tranches during the first half of fiscal 2025, subject to the satisfaction of certain customary closing conditions.

The Company expects to pay approximately 50 % of the purchase price and associated costs using cash on hand, with the remainder paid using the Company’s Revolving Credit Facility (as defined in Note 6—Indebtedness) with the actual percentages to be determined in connection with the payment for each tranche.

There were no other material changes during the nine months ended October 31, 2023, outside of the ordinary course of business, in the Company's commitments from those disclosed in its Annual Report on Form 10-K for the fiscal year ended January 31, 2023.

Contingencies

16 unchanged sentences

On July 21, 2022, WageWorks and the Company filed an answer to the counterclaims.

On April 26, 2023, Union Mesa filed a motion for partial summary judgment, and the Company expects to file its response in due course.

Through its claims, Union Mesa is seeking direct and consequential damages in an amount to be

proven at trial and an award of its reasonable attorney fees, plus interest until any damages or fees that are awarded are paid.

On April 26, 2023, Union Mesa filed a motion for partial summary judgment, the Company and WageWorks filed a response on September 5, 2023, an oral argument was held on the motion on September 29, 2023, and the parties are awaiting a decision on the motion from the Superior Court.

Through its claims, Union Mesa is seeking direct and consequential damages in an amount to be proven at trial and an award of its reasonable attorney fees, plus interest until any damages or fees that are awarded are paid.

The parties are currently engaged in discovery.

6 unchanged sentences

Long-term debt consisted of the following:

(in thousands) July 31, 2023 January 31, 2023

(in thousands) October 31, 2023 January 31, 2023

4.50 % Senior Notes due 2029

6 unchanged sentences

Long-term debt, net $ 874,270 $ 907,838

(1) In addition to the $ 13.3 million and $ 15.9 million of unamortized discount and issuance costs related to long-term debt as of July 31, 2023 and January 31, 2023, respectively, $ 3.0 million and $ 3.4 million of unamortized issuance costs related to the Company's Revolving Credit Facility (as defined below) are included within other assets on the condensed consolidated balance sheets as of July 31, 2023 and January 31, 2023, respectively.

(1) In addition to the $ 12.6 million and $ 15.9 million of unamortized discount and issuance costs related to long-term debt as of October 31, 2023 and January 31, 2023, respectively, $ 2.7 million and $ 3.4 million of unamortized issuance costs related to the Company's Revolving Credit Facility (as defined below) are included within other assets on the condensed consolidated balance sheets as of October 31, 2023 and January 31, 2023, respectively.

4.50 % Senior Notes due 2029

4 unchanged sentences

Interest on the Notes is payable on April 1 and October 1 of each year.

Accrued interest on the Notes was $ 9.0 million at each of July 31, 2023 and January 31, 2023, and is included within accrued liabilities on the Company's condensed consolidated balance sheets.

Accrued interest on the Notes was $ 2.3 million and $ 9.0 million as of October 31, 2023 and January 31, 2023, respectively, and is included within accrued liabilities on the Company's condensed consolidated balance sheets.

The effective interest rate on the Notes is 4.72 %.

10 unchanged sentences

(i) a five-year senior secured term loan A facility (the “Term Loan Facility”), in an aggregate principal amount of $ 350 million;

(ii) a five-year senior secured revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Credit Facilities”), in an aggregate principal amount of up to $ 1.0 billion (with a $ 25 million sub-limit for the issuance of letters of credit), the proceeds of which may be used for working capital and general corporate purposes of the Company and its subsidiaries, including the financing of acquisitions and other investments.

general corporate purposes of the Company and its subsidiaries, including the financing of acquisitions and other investments.

Subject to the terms and conditions set forth in the Credit Agreement (including obtaining additional commitments from one or more new or existing lenders), the Company may in the future incur additional loans or commitments under the Credit Agreement in an aggregate principal amount of up to $ 300 million, plus an additional amount so long as the Company’s pro forma First Lien Net Leverage Ratio (as defined in the Credit Agreement) would not exceed 3.85 to 1.00 as of the date such loans or commitments are incurred.

3 unchanged sentences

As a result, borrowings under the Credit Agreement as so amended by Amendment No.

1 bear interest, as of July 31, 2023, at an annual rate equal to, at the option of the Company, either (i) Term SOFR, plus a 0.10 % credit spread adjustment, plus a margin ranging from 1.25 % to 2.25 %, or (ii) an alternate base rate, plus a margin ranging from 0.25 % to 1.25 %, with the applicable margin determined in either scenario by reference to a leverage-based pricing grid set forth in the Credit Agreement (as amended by Amendment No.

As of July 31, 2023, the stated interest rate was 6.92 % and the effective interest rate was 7.68 %.

1 bear interest, as of October 31, 2023, at an annual rate equal to, at the option of the Company, either (i) Term SOFR, plus a 0.10 % credit spread adjustment, plus a margin ranging from 1.25 % to 2.25 %, or (ii) an alternate base rate, plus a margin ranging from 0.25 % to 1.25 %, with the applicable margin determined in either scenario by reference to a leverage-based pricing grid set forth in the Credit Agreement (as amended by Amendment No.

As of October 31, 2023, the stated interest rate was 6.68 % and the effective interest rate was 7.44 %.

The Company is also required to pay certain fees to the Lenders, including, among others, a quarterly commitment fee on the average unused amount of the Revolving Credit Facility at a rate ranging from 0.20 % to 0.40 %, with the applicable rate also determined by reference to a leverage-based pricing grid set forth in the Credit Agreement.

As of July 31, 2023, no amounts have been drawn under the Revolving Credit Facility.

As of October 31, 2023, no amounts have been drawn under the Revolving Credit Facility.

The loans made under the Term Loan Facility amortize in equal quarterly installments in an aggregate annual amount equal to the following percentage of the original principal amount of the Term Loan Facility:

5 unchanged sentences

The loans under the Credit Facilities may be prepaid, and the commitments thereunder may be reduced, by the Company without penalty or premium, subject to the reimbursement of customary “breakage costs.” In April 2023, the Company used $ 50.0 million of cash to prepay, in direct order of maturity, principal due under its Term Loan Facility.

organizational documents, in each case, subject to customary exceptions, thresholds, qualifications and “baskets.” In addition, the Credit Agreement contains financial performance covenants, which require the Company to maintain (i) a maximum total net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than 5.00 to 1.00 and (ii) a minimum consolidated interest coverage ratio, measured as of the last day of each fiscal quarter, of no less than 3.00 to 1.00.

The Company was in compliance with all covenants under the Credit Agreement as of July 31, 2023, and for the period then ended.

The Credit Agreement contains significant customary affirmative and negative covenants, including covenants that limit, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, merge or dissolve, make investments, dispose of assets, engage in sale and leaseback transactions, make distributions and dividends and prepayments of junior indebtedness, engage in transactions with affiliates, enter into restrictive agreements, amend documentation governing junior indebtedness, modify its fiscal year and modify its organizational documents, in each case, subject to customary exceptions, thresholds, qualifications and “baskets.” In addition, the Credit Agreement contains financial performance covenants, which require the Company to maintain (i) a maximum total net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than 5.00 to 1.00 and (ii) a minimum consolidated interest coverage ratio, measured as of the last day of each fiscal quarter, of no less than 3.00 to 1.00.

The Company was in compliance with all covenants under the Credit Agreement as of October 31, 2023, and for the period then ended.

The repayment obligation under the Credit Agreement may be accelerated upon the occurrence of an event of default thereunder, including, among other things, failure to pay principal, interest or fees on a timely basis, material inaccuracy of any representation or warranty, failure to comply with covenants, cross-default to other material debt, material judgments, change of control and certain insolvency or bankruptcy-related events, in each case, subject to any certain grace and/or cure periods.

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

interests in substantially all assets of the Company and the guarantors, in each case, subject to certain customary exceptions.

The Company follows ASC 740-270, Income Taxes - Interim Reporting , for the computation and presentation of its interim period tax provision.

Accordingly, management estimated the effective annual tax rate and applied this rate to pre-tax income through the end of the latest fiscal quarter to determine the interim income tax provision.

For the three and six months ended July 31, 2023, the Company recorded an income tax provision of $ 3.6 million and $ 9.6 million, respectively.

This resulted in an effective income tax provision rate of 25.6 % and 39.4 % for the three and six months ended July 31, 2023, respectively, compared with an effective income tax benefit rate of 23.2 % and 23.9 % for the three and six months ended July 31, 2022, respectively.

For the three and six months ended July 31, 2023 and 2022, discrete tax items impacting the effective tax rate were primarily due to differences in tax deductible stock-based compensation compared to GAAP stock-based compensation expense.

As of July 31, 2023 and January 31, 2023, the Company’s total gross unrecognized tax benefit was $ 8.9 million and $ 8.7 million, respectively.

If recognized, $ 5.6 million of the total gross unrecognized tax benefits would affect the Company's effective tax rate as of July 31, 2023.

For the three and nine months ended October 31, 2023, the Company recorded an income tax provision of $ 6.4 million and $ 16.0 million, respectively.

This resulted in an effective income tax provision rate of 30.4 % and 35.2 % for the three and nine months ended October 31, 2023, respectively, compared with an effective income tax benefit rate of 73.4 % and 31.9 % for the three and nine months ended October 31, 2022, respectively.

For the three and nine months ended October 31, 2023, discrete tax items impacting the effective tax rate were primarily due to return-to-provision adjustments on research and development tax credits, an increase in unrecognized tax benefits, adjustments from settlement of an Internal Revenue Service ("IRS") examination, and differences in tax deductible stock-based compensation compared to GAAP stock-based compensation expense.

For the three and nine months ended October 31, 2022, discrete tax items impacting the effective tax rate were primarily due to a decrease in unrecognized tax benefits and differences in tax deductible stock-based compensation compared to GAAP stock-based compensation expense.

As of October 31, 2023 and January 31, 2023, the Company’s total gross unrecognized tax benefit was $ 13.8 million and $ 8.7 million, respectively.

If recognized, $ 10.3 million of the total gross unrecognized tax benefits would affect the Company's effective tax rate as of October 31, 2023.

The Company files income tax returns with U.S.

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

These examinations may lead to ordinary course adjustments or proposed adjustments to the Company's taxes, net operating losses, and/or tax credit carryforwards.

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

The Texas examination may lead to ordinary course adjustments or proposed adjustments to the Company's taxes, net operating losses, and/or tax credit carryforwards.

An IRS examination was effectively settled during the three months ended October 31, 2023;

adjustments recorded as a result of the examination were not material.

As a result of the Company's net operating loss carryforwards and tax credit carryforwards, the Company remains subject to examination by one or more jurisdictions for tax years after 2006.

1 unchanged sentence

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

Three months ended July 31, Six months ended July 31,

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

(in thousands) 2023 2022 2023 2022

8 unchanged sentences

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

through and including February 1, 2024, by 3 % of the total number of shares of the Company’s capital stock outstanding on January 31 of the preceding fiscal year, or a lesser number of shares determined by the board of directors.

As of July 31, 2023, 11.5 million shares were available for grant under the Incentive Plan.

In addition, under the Incentive Plan, the number of shares of common stock reserved for issuance under the Incentive Plan automatically increases on February 1 of each year, beginning as of February 1, 2015 and continuing through and including February 1, 2024, by 3 % of the total number of shares of the Company’s capital stock outstanding on January 31 of the preceding fiscal year, or a lesser number of shares determined by the board of directors.

As of October 31, 2023, 11.5 million shares were available for grant under the Incentive Plan.

Stock options

10 unchanged sentences

Forfeited ( 4 ) $ 24.36 - 44.53

Outstanding as of July 31, 2023 983 $ 14.00 - 82.39

Outstanding as of October 31, 2023 918 $ 14.00 - 82.39

$ 36.63 2.4 $ 32,636

Vested and expected to vest as of July 31, 2023 983 $ 36.27 2.6 $ 32,047

Exercisable as of July 31, 2023 983 $ 36.27 2.6 $ 32,047

Vested and expected to vest as of October 31, 2023 918 $ 36.63 2.4 $ 32,636

Exercisable as of October 31, 2023 918 $ 36.63 2.4 $ 32,636

Restricted stock units

6 unchanged sentences

Forfeited ( 307 ) 70.03

Outstanding as of July 31, 2023 3,727 $ 68.13

Outstanding as of October 31, 2023 3,669 $ 68.33

Performance restricted stock units.

15 unchanged sentences

The Notes are valued based upon quoted market prices and are considered Level 2 instruments because the markets in which the Notes trade are not considered active markets.

As of July 31, 2023, the fair value of the Notes was $ 536.7 million.

As of October 31, 2023, the fair value of the Notes was $ 514.7 million.

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

2 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements