What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-22 compared with 2023-03-30 · 174 added, 126 removed, 321 unchanged (48% of the section changed)

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We use our innovative technology to manage consumers' tax-advantaged HSAs and other CDBs offered by employers, including FSAs and HRAs, and to administer COBRA, commuter and other benefits.

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.

As part of our services, we provide consumers with payment processing services, personalized benefit information, 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.

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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.

As of January 31, 2023, our platforms were integrated with more than 200 Network Partners, and we serve more than 120,000 Clients.

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.

As of January 31, 2024, our platforms were integrated with more than 200 Network Partners.

We have increased our share of the growing HSA market from 4% in December 2010 to 20% as of June 2023, measured by HSA Assets.

According to Devenir, as of June 2023, we were the largest HSA provider by both accounts and HSA Assets.

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

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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 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 custodial revenue primarily from HSA cash held by our federally insured bank and credit union partners, which we collectively call our Depository Partners, HSA cash held by our insurance company partners, 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 societal and economic changes arising out of the COVID-19 pandemic.

See “Key components of our results of operations” for additional information on our sources of revenue.

Recent acquisitions

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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.

We expect merger integration expenses attributable to the Further Acquisition totaling approximately $55 million to be incurred over a period of approximately three to four years from the acquisition date.

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 acquisition date.

HealthSavings HSA portfolio acquisition.

In March 2022, we acquired the 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.

BenefitWallet HSA portfolio acquisition.

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

In addition, we expect 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.

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.

We expect to pay approximately 50% of the purchase price and associated costs using cash on hand, with the remainder paid using our revolving credit facility with the actual percentages to be determined in connection with the payment for each tranche.

On March 7, 2024, the first of the three HSA Asset transfers occurred, with approximately 266,000 HSAs and $1.1 billion of HSA Assets transferring to HealthEquity’s custody.

In connection with this transfer, HealthEquity paid the applicable purchase price of $163.9 million using cash on hand.

Key factors affecting our performance

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We have historically acquired HSA portfolios and businesses that strengthen our service offerings.

We plan to continue this growth strategy and are regularly engaged in evaluating different opportunities.

We plan to continue this growth strategy, including through the BenefitWallet HSA portfolio acquisition, and are regularly engaged in evaluating different opportunities.

We have developed an internal capability to source, evaluate, and integrate acquired HSA portfolios.

Our success depends in part on our ability to successfully integrate acquired businesses and HSA portfolios with our business in an efficient and effective manner and to realize anticipated synergies.

Our success depends in part on our ability to successfully integrate acquired businesses and HSA portfolios with our business in an efficient and effective manner.

Structural change in U.S.

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We derive revenue primarily from healthcare-related saving and spending by consumers in the U.S., which are driven by changes in the broader healthcare industry, including the structure of health insurance.

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.

The average family premium for employer-sponsored health insurance has risen by 22% since 2018 and 47% since 2013, 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.

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Our sales force calls on enterprise and regional employers in industries across the U.S., as well as potential Network Partners from among health plans, benefits administrators, and retirement plan record keepers.

Our Network Partners are a key channel through which we gain access to Clients and members.

Our Network Partners collectively employ thousands of sales representatives and account managers who promote both the Network Partners' products and our products and services.

Our sales representatives and account management teams work with and train the sales representatives and account management teams of our Network Partners.

Product breadth

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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).

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).

For the reasons described below, we have been taking steps to encourage our members to place more of their HSA cash in our Enhanced Rates offering.

Beginning in the fiscal year ending January 31, 2025, as our Basic Rates contracts expire, the HSA cash held in those Basic Rates contracts will transition to Enhanced Rates contracts, subject to our members retaining the right to keep their HSA cash in Basic Rates.

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.

We believe that diversification of Depository Partners and insurance company partners, varied contract terms, and other factors reduce our exposure to short-term fluctuations in prevailing interest rates and mitigate the short-term impact of sustained increases or declines in prevailing interest rates on our custodial revenue.

We believe that increased participation in our Enhanced Rates offering, diversification of Depository Partners and insurance company partners, varied contract terms, and other factors reduce our exposure to short-term fluctuations in prevailing interest rates and mitigate the short-term impact of sustained increases or declines in prevailing interest rates on our custodial revenue.

Over longer periods, sustained shifts in prevailing interest rates affect the amount of custodial revenue we can realize on custodial assets and the interest retained by our members.

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.

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Our proprietary technology

We believe that innovations incorporated in our technology, which enable us to better assist consumers to make healthcare saving and spending decisions and maximize the value of their tax-advantaged benefits, differentiate us from our competitors and drive our growth.

We believe that innovations incorporated in our technology differentiate us from our competitors and help drive our growth by enabling us to better assist consumers to make healthcare saving and spending decisions and maximize the value of their tax-advantaged benefits.

Our full suite of CDB offerings complements our HSA solution and enhances our leadership position within the HSA sector.

We intend to continue to invest in our technology development to enhance our capabilities and infrastructure, while maintaining a focus on data security and the privacy of our customers' data.

We are currently investing in a significant modernization of our proprietary technology platforms to support new opportunities and enhance security, privacy and platform infrastructure, while maintaining existing applications, features, and services.

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.

In addition, we are investing in technology solutions to meet the evolving needs of our members, Clients and Network Partners.

Our current innovation efforts include, among others, increasing member and client self-service capabilities, developing APIs, driving electronic communication rather than paper, increasing straight-through processing, improving overall process times utilizing both traditional robotic process automation, and increasingly through AI tools, leveraging stacked cards, and mobile wallet.

Our Purple culture

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In addition, numerous indirect competitors, including benefits administration service providers, partner with banks and other HSA custodians to compete with us.

Our Network Partners may also choose to offer competitive services directly, as some health plans have done.

Our Network Partners and ecosystem partners may also choose to offer competitive services directly, as some health plans have done.

Our success depends on our ability to predict and react quickly to these and other industry and competitive dynamics.

As a result of the COVID-19 pandemic, we have seen a significant decline in the use of commuter benefits due to many of our members working from home, which has negatively impacted both our interchange revenue and service revenue, and this "work from home" trend, or hybrid work environments, may continue indefinitely.

Regulatory environment

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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 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 tolled certain deadlines related to COBRA and other CDBs and increased the complexity of properly administering these programs.

On January 30, 2023, President Biden announced that the national emergency will be extended until May 11, 2023 and then terminated after that date.

Key financial and operating metrics

Our management regularly reviews a number of key operating and financial metrics to evaluate our business, determine the allocation of our resources, make decisions regarding corporate strategies, and evaluate forward-looking projections and trends affecting our business.

We discuss certain of these key financial metrics, including revenue, below in the section entitled “Key components of our results of operations.” In addition, we utilize other key metrics as described below.

We regularly review a number of key operating and financial metrics to evaluate our business, determine the allocation of our resources, make decisions regarding corporate strategies, and evaluate forward-looking projections and trends affecting our business.

We discuss certain of these key financial metrics, including revenue, below in the

section entitled “Key components of our results of operations.” In addition, we utilize other key metrics as described below.

For a discussion related to key financial and operating metrics for fiscal year 2023 compared to fiscal year 2022, refer to Part II, Item 7.

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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 approximately 0.8 million, or 11%, from January 31, 2022 to January 31, 2023, primarily driven by new HSAs from sales and HSAs acquired through the HealthSavings HSA portfolio acquisition and other HSA portfolio acquisitions.

The number of our CDBs decreased by 0.3 million, or 4%, from January 31, 2022 to January 31, 2023, primarily driven by a decrease in COBRA accounts due to the migration of certain COBRA accounts to our current COBRA technology platform and a difference in the manner in which COBRA accounts were counted on the discontinued platform.

The number of our HSAs increased by 0.7 million, or 9%, from January 31, 2023 to January 31, 2024, driven by new HSAs from sales.

The number of our CDBs increased by 0.1 million, or 1%, from January 31, 2023 to January 31, 2024, primarily driven by an increase in HRA and commuter accounts, partially offset by a decrease in COBRA accounts.

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

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Total HSA Assets 25,214 22,146 14 %

Average daily HSA cash - Year-to-date 13,049 10,579 23 %

Average daily HSA cash - Quarter-to-date 14,210 13,375 6 %

Average daily HSA cash - Year-to-date $ 14,071 $ 13,049 8 %

HSA Assets includes our HSA members’ custodial assets, which consists of the following components:

(i) HSA cash, which includes cash deposits held by our Depository Partners and our insurance company partners, and (ii) HSA investments in mutual funds through our custodial investment fund partners.

(i) HSA cash, which includes member cash held by our Depository Partners and our insurance company partners, and (ii) HSA investments, which includes member investments held by our custodial investment partners.

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

HSA cash increased by $1.3 billion, or 10%, from January 31, 2022 to January 31, 2023, primarily due to net HSA contributions from new and existing HSA members and acquisitions of HSA portfolios, partially offset by transfers to HSA investments.

HSA investments increased by $1.3 billion, or 19%, from January 31, 2022 to January 31, 2023, primarily due to transfers from HSA cash and HSA investments from the HealthSavings and other HSA portfolio acquisitions, partially offset by the reduced value of invested balances due to market volatility.

Total HSA Assets increased by $2.5 billion, or 13%, from January 31, 2022 to January 31, 2023, primarily due to net HSA contributions from new and existing HSA members and HSA Assets from the HealthSavings and other HSA portfolio acquisitions, partially offset by the reduced value of invested balances due to market volatility.

HSA cash increased by $0.8 billion, or 6%, from January 31, 2023 to January 31, 2024, due to net HSA contributions from new and existing HSA members, partially offset by transfers to HSA investments.

HSA investments increased by $2.3 billion, or 28%, from January 31, 2023 to January 31, 2024, due to the increased market value of invested balances and transfers from HSA cash.

Total HSA Assets increased by $3.1 billion, or 14%, from January 31, 2023 to January 31, 2024, primarily due to net HSA contributions from new and existing HSA members and the increased market value of invested balances.

The following table summarizes the amount of HSA cash held by our Depository Partners and insurance company partners that is expected to reprice by fiscal year and the respective average annualized yield currently earned on that HSA cash as of January 31, 2024:

Year ending January 31, (in billions, except percentages) HSA cash expected to reprice Average annualized yield

2025 $ 2.1 3.6 %

2026 3.5 1.6 %

2027 3.2 1.6 %

2028 1.9 3.8 %

Thereafter 3.6 3.5 %

Total (1) $ 14.3 2.7 %

(1) Excludes $0.7 billion of HSA cash held in floating-rate contracts as of January 31, 2024.

BenefitWallet HSA Assets and any subsequent growth in HSA cash are also excluded.

Client-held funds

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Client-held funds $ 842 $ 901 (7) %

Average daily Client-held funds - Year-to-date 827 842 (2) %

Average daily Client-held funds - Quarter-to-date 791 809 (2) %

Average daily Client-held funds - Year-to-date 845 827 2 %

Client-held funds are interest-earning deposits from which we generate custodial revenue.

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Adjusted EBITDA

We define Adjusted EBITDA, which is a non-GAAP financial metric, as adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, amortization of incremental costs to obtain a contract, costs associated with unused office space, and certain other non-operating items.

We define Adjusted EBITDA, which is a non-GAAP financial metric, as earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, amortization of incremental costs to obtain a contract, costs associated with unused office space, and certain other non-operating items.

We believe that Adjusted EBITDA provides useful information to investors and analysts in understanding and evaluating our operating results in the same manner as our management and our board of directors because it reflects operating profitability before consideration of non-operating expenses and non-cash expenses and serves as a basis for comparison against other companies in our industry.

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

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

Year ended January 31,

(in thousands) 2024 2023

Net loss $ (26,143) $ (44,289)

Net income (loss) $ 55,712 $ (26,143)

Interest income (12,138) (1,763)

Interest expense 55,455 48,424

Income tax benefit (11,953) (22,452)

Income tax provision (benefit) 19,328 (11,953)

Depreciation and amortization 60,315 66,615

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Acquisition costs — 53

Gain on equity securities — (1,692)

Amortization of incremental costs to obtain a contract 5,435 4,393

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Adjusted EBITDA $ 369,173 $ 272,348

(1) For the fiscal year ended January 31, 2022, acquisition costs included $0.3 million of stock-based compensation expense.

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

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

Year ended January 31,

(in thousands, except percentages) 2024 2023 $ Change % Change

Net loss $ (26,143) $ (44,289) $ 18,146 (41) %

Net income (loss) $ 55,712 $ (26,143) $ 81,855 *

As a percentage of revenue 6 % (3) %

The $18.1 million, or 41%, decrease in our net loss was primarily due to an increase in gross profit and a decrease in merger integration expense, partially offset by increases in technology and development expense, amortization of intangible assets, general and administrative expense, sales and marketing expense, and other expense, and a decrease in our income tax benefit.

* Not meaningful

Our net income (loss) increased by $81.9 million, from net loss of $26.1 million for the fiscal year ended January 31, 2023 to net income of $55.7 million for the fiscal year ended January 31, 2024, due to an increase in gross profit and other income, net, partially offset by net increases in operating expenses and income tax provision, as described more fully in the section entitled "Results of operations."

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

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As a percentage of revenue 37 % 32 %

The $36.3 million, or 15%, increase in Adjusted EBITDA was primarily due to an increase in total revenue, partially offset by increases in personnel and related costs.

Our Adjusted EBITDA increased by $96.8 million, or 36%, from $272.3 million for the fiscal year ended January 31, 2023 to $369.2 million for the fiscal year ended January 31, 2024, primarily due to an increase in total revenue, partially offset by increases in personnel-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.

Non-GAAP net income

Non-GAAP net income is calculated by adding back to GAAP net income (loss) before income taxes the following items:

amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, costs associated with unused office space, and losses on extinguishment of debt, and subtracting a non-GAAP tax provision using a normalized non-GAAP tax rate.

We believe that non-GAAP net income and non-GAAP net income per diluted share provide 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 these non-GAAP metrics reflect operating profitability before consideration of certain non-operating expenses and non-cash expenses and serve as a basis for comparison against other companies in our industry.

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

Year ended January 31,

(in thousands, except per share data) 2024 2023

Net income (loss) $ 55,712 $ (26,143)

Income tax provision (benefit) 19,328 (11,953)

Income (loss) before income taxes - GAAP 75,040 (38,096)

Non-GAAP adjustments:

Amortization of acquired intangible assets 92,763 94,586

Stock-based compensation expense 77,151 62,614

Merger integration expenses 10,435 28,596

Acquisition costs — 53

Costs associated with unused office space 4,179 4,958

Loss on extinguishment of debt 1,157 —

Total adjustments to income (loss) before income taxes - GAAP 185,685 190,807

Income before income taxes - Non-GAAP 260,725 152,711

Income tax provision - Non-GAAP (1) 65,180 38,178

Non-GAAP net income 195,545 114,533

Diluted weighted-average shares 86,957 84,442

GAAP net income (loss) per diluted share $ 0.64 $ (0.31)

Non-GAAP net income per diluted share $ 2.25 $ 1.36

(1) The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations.

The normalized non-GAAP tax rate applied to each period presented was 25%.

The Company may adjust its non-GAAP tax rate as additional information becomes available and in conjunction with any other significant events occurring that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other changes in expectations regarding tax regulations.

Our non-GAAP net income increased by $81.0 million, or 71%, from $114.5 million for the fiscal year ended January 31, 2023 to $195.5 million for the fiscal year ended January 31, 2024, primarily due to an increase in total revenue, partially offset by increases in personnel-related costs and interest expense.

Our use of non-GAAP net income 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.

Key components of our results of operations

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With respect to our Network Partners and Clients, our fees are generally based on a fixed tiered structure for the duration of the relevant service agreement and are paid to us on a monthly basis.

In addition, once a member’s HSA cash balance

reaches a certain threshold, the member is able to invest his or her HSA Assets through our investment partner from which we earn recordkeeping and advisory fees, calculated as a percentage of the member's HSA investments.

We recognize revenue on a monthly basis as services are rendered to our members and Clients.

Custodial revenue.

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.

We earn custodial revenue primarily from HSA cash held by our Depository Partners or our insurance company partners and Client-held funds held by our Depository Partners.

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.

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Client-held funds held by our Depository Partners are held in interest-bearing demand deposit accounts that have a floating interest rate and no set term or duration.

We earn custodial revenue on HSA Assets and Client-held funds that is based on the interest rates offered to us by these Depository Partners and insurance company partners.

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

We earn custodial revenue on HSA cash and Client-held funds that is based on the interest rates offered to us by these Depository Partners and insurance company partners.

Interchange revenue.

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Cost of revenue

Cost of revenue includes costs related to servicing accounts, managing Client and Network Partner relationships and processing reimbursement claims.

Expenditures include personnel-related costs, depreciation, amortization, stock-based compensation, common expense allocations (such as office rent, supplies, and other overhead expenses), new member and participant supplies, and other operating costs related to servicing our members.

Other components of cost of revenue include interest retained by members on HSA cash and interchange costs incurred in connection with processing card transactions for our members.

Service costs.

Service costs include the servicing costs described 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.

Service costs are comprised of costs related to servicing accounts, managing Client and Network Partner relationships and processing reimbursement claims.

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 on HSA cash 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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Interchange costs are comprised of costs we incur in connection with processing payment transactions initiated by our members.

Due to the substantiation requirement on FSA/HRA-linked payment card

transactions, payment card costs are higher for FSA/HRA card transactions.

Due to the substantiation requirement on FSA/HRA-linked payment card transactions, payment card costs are higher for FSA/HRA card transactions.

In addition to fixed per card fees, we are assessed additional transaction costs determined by the amount of the transaction.

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Amortization of acquired intangible assets results primarily from intangible assets acquired in connection with business combinations.

The assets include acquired customer relationships, acquired developed technology, and acquired trade names and trademarks, which we amortize over the assets' estimated useful lives, estimated to be 7-15 years, 2-5 years, and 3 years, respectively.

The assets include acquired customer

relationships, acquired developed technology, and acquired trade names and trademarks, which we amortize over the assets' estimated useful lives, estimated to be 7-15 years, 2-5 years, and 3 years, respectively.

We also acquired intangible HSA portfolios from third-party custodians.

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Interest expense

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

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

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

Income tax benefit

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 January 31, 2023, we have not recorded a valuation allowance on federal deferred tax assets;

however, we have recorded a valuation allowance on certain state deferred tax assets.

As of January 31, 2024, we have not recorded a valuation allowance on federal deferred tax assets, but we have recorded a valuation allowance on certain state deferred tax assets.

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

We evaluate our tax positions in accordance with Accounting Standards Codification (“ASC”) 740-10-25, Accounting for Uncertainty in Income Taxes , which prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return.

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 at this time.

Results of operations

For a discussion related to the results of operations and liquidity and capital resources for fiscal year 2022 compared to fiscal year 2021, refer to Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal year 2022 Form 10-K, filed with the SEC on March 31, 2022.

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

The reclassifications relate primarily to recordkeeping and advisory fees associated with HSA investments of $25.6 million, $21.8 million, and $16.7 million for the fiscal years ended January 31, 2024, 2023, and 2022, respectively, which were reclassified from custodial revenue to service revenue to better align our financial statement presentation with the underlying drivers of our revenue streams.

We also reclassified certain immaterial personnel-related costs from custodial costs to service costs or general and administrative costs.

The reclassifications had no impact on our total revenue, income (loss) from operations, net income (loss), cash flows, or stockholders' equity.

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

Year ended January 31,

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

Year ended January 31, 2023 to 2024 2022 to 2023

(in thousands, except percentages) 2024 2023 2022 $ change % change $ change % change

Service revenue $ 455,690 $ 452,026 $ 443,608 $ 3,664 1 % $ 8,418 2 %

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Service revenue.

The $3.3 million, or 1%, increase in service revenue was primarily due to new revenue from the Further Acquisition and our HSA portfolio acquisitions, new HSAs from sales, and increased revenue from HRA and commuter benefits administration, largely offset by non-recurring revenue related to COBRA benefits administration during the fiscal year ended January 31, 2022.

The $3.7 million, or 1%, increase in service revenue from the year ended January 31, 2023 to the year ended January 31, 2024 was primarily due to an increase in administration fees earned with respect to HSAs and recordkeeping and advisory fees earned with respect to HSA investments, partially offset by lower fees with respect to FSA and COBRA accounts.

The $8.4 million, or 2%, increase in service revenue from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to new revenue from the Further Acquisition and our HSA portfolio acquisitions, an increase in administration fees earned with respect to HSAs and recordkeeping and advisory fees earned with respect to HSA investments, and increased revenue from HRA and commuter benefits administration, partially offset by non-recurring revenue related to COBRA benefits administration during the fiscal year ended January 31, 2022.

We expect service revenue to increase, primarily due to an increase in Total Accounts, partially offset by lower average service fees per account.

Custodial revenue.

The $80.3 million, or 40%, increase in custodial revenue was primarily due to the $2.5 billion, or 23%, increase in the average daily balance of HSA cash, as described above, and an increase in average annualized yield from 1.75% for the fiscal year ended January 31, 2022 to 1.90% for the fiscal year ended January 31, 2023.

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 average annualized yield and thus our custodial revenue.

Finally, 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.

The $125.3 million, or 48%, increase in custodial revenue from the year ended January 31, 2023 to the year ended January 31, 2024 was primarily due to an increase in average annualized yield from 1.90% for the fiscal year ended January 31, 2023 to 2.49% for the fiscal year ended January 31, 2024 (due to both higher interest rates overall and increased participation in our Enhanced Rates offering), the $1.0 billion, or 8%, increase in the average daily balance of HSA cash, as described above, and an increase in interest rates on the portion of our Client-held funds held by our Depository Partners in interest-bearing demand deposit accounts that have a floating interest rate.

The $75.2 million, or 40%, increase in custodial revenue from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the $2.5 billion, or 23%, increase in the average daily balance of HSA cash, as described above, and an increase in average annualized yield from 1.75% for the fiscal year ended January 31, 2022 to 1.90% for the fiscal year ended January 31, 2023 (due to both higher interest rates overall and increased participation in our Enhanced Rates offering).

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

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

As Basic Rates contracts mature, we intend to transfer the associated HSA cash into Enhanced Rates contracts unless the HSA member affirmatively opts to remain in the Basic Rates offering.

Interchange revenue.

The $21.6 million, or 17%, increase in interchange revenue was primarily due to increased spend per account and an increase in accounts.

The $8.9 million, or 6%, increase in interchange revenue from the year ended January 31, 2023 to the year ended January 31, 2024 was primarily due to an increase in Total Accounts.

The $21.6 million, or 17%, increase in interchange revenue from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to increased spend per account and an increase in Total Accounts.

Total revenue.

Total revenue increased by $105.2 million, or 14%, 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 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 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 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.

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 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.

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.

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.

Total revenue increased by $137.8 million, or 16%, from the year ended January 31, 2023 to the year ended January 31, 2024, primarily due to the increase in custodial revenue, as well as the increases in interchange and service revenues, described above.

Total revenue increased by $105.2 million, or 14%, from the year ended January 31, 2022 to the year ended January 31, 2023 due to the increases in custodial, interchange, and service revenues, described above.

Cost of revenue

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

Year ended January 31,

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

Year ended January 31, 2023 to 2024 2022 to 2023

(in thousands, except percentages) 2024 2023 2022 $ change % change $ change % change

Service costs $ 317,357 $ 318,516 $ 291,618 $ (1,159) 0 % $ 26,898 9 %

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Service costs.

The $27.1 million, or 9%, increase in service costs was primarily due to the inclusion of a full year of Further's results of operations and an increase in personnel costs to support the increase in average Total Accounts.

The $1.2 million, or less than 1%, decrease in service costs from the year ended January 31, 2023 to the year ended January 31, 2024 was primarily due to efficiencies resulting from our technology investments and lower amortization expense, largely offset by increases in personnel-related costs to support the increase in average Total Accounts.

The $26.9 million, or 9%, increase in service costs from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the inclusion of a full year of Further's results of operations and an increase in personnel-related costs to support the increase in average Total Accounts.

Custodial costs.

The $7.2 million, or 33%, increase in custodial costs was primarily due to an increase in the average daily balance of HSA cash, which increased from $10.6 billion for the fiscal year ended January 31, 2022 to $13.0 billion for the fiscal year ended January 31, 2023, and an increase in the average annualized rate of interest retained by HSA members on HSA cash, which increased from 0.17% for the fiscal year ended January 31, 2022 to 0.19% for the fiscal year ended January 31, 2023.

The $6.4 million, or 25%, increase in custodial costs from the year ended January 31, 2023 to the year ended January 31, 2024 was primarily due to an increase in the average annualized rate of interest retained by HSA members on HSA cash, which increased from 0.19% for the fiscal year ended January 31, 2023 to 0.22% for the fiscal year ended January 31, 2024, and the $1.0 billion, or 8% increase in the average daily balance of HSA cash, as described above.

The $6.6 million, or 34%, increase in custodial costs from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to an increase in the average daily balance of HSA cash, which increased from $10.6 billion for the fiscal year ended January 31, 2022 to $13.0 billion for the fiscal year ended January 31, 2023, and an increase in the average annualized rate of interest retained by HSA members on HSA cash, which increased from 0.17% for the fiscal year ended January 31, 2022 to 0.19% for the fiscal year ended January 31, 2023.

Assuming the current interest rate environment continues, we expect custodial costs to increase due to an increase in the average annualized rate of interest retained by HSA members on HSA cash and an increase in the year-over-year average daily balance of HSA cash.

Interchange costs.

The $4.5 million, or 22%, increase in interchange costs was primarily due to increased spend per account and an increase in accounts.

The $1.9 million, or 8%, increase in interchange costs from the year ended January 31, 2023 to the year ended January 31, 2024 was primarily due to an increase in Total Accounts.

The $4.5 million, or 22%, increase in interchange costs from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to increased spend per account and an increase in Total Accounts.

Total cost of revenue.

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However, on an annual basis, relative to the fiscal year ended January 31, 2024, 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.

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, and account management functions.

Operating expenses

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

Year ended January 31,

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

Year ended January 31, 2023 to 2024 2022 to 2023

(in thousands, except percentages) 2024 2023 2022 $ change % change $ change % change

Sales and marketing $ 79,273 $ 68,849 $ 58,605 $ 10,424 15 % $ 10,244 17 %

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Sales and marketing.

The $10.2 million, or 17%, increase in sales and marketing expenses was primarily due to the inclusion of a full year 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.

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

The $10.4 million, or 15%, increase in sales and marketing expenses from the year ended January 31, 2023 to the year ended January 31, 2024 was primarily due to an increase in personnel-related expenses and travel costs.

The $10.2 million, or 17%, increase in sales and marketing expenses from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the inclusion of a full year of Further's results of operations and an increase in personnel-related expenses and travel costs, partially offset by a decrease in advertising expenses.

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

On an annual basis, we expect our sales and marketing expenses to remain relatively steady as a percentage of our total revenue.

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.

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 $36.0 million, or 23%, increase in technology and development expenses was primarily due to the inclusion of a full year of Further's results of operations and increases in amortization and personnel-related expenses.

We expect our technology and development expenses to increase for the foreseeable future as we continue to invest in the development and security of our proprietary technology.

The $25.4 million, or 13%, increase in technology and development expenses from the year ended January 31, 2023 to the year ended January 31, 2024 was primarily due to increases in personnel-related expenses and software costs.

The $36.0 million, or 23%, increase in technology and development expenses from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the inclusion of a full year of Further's results of operations and increases in amortization and personnel-related expenses.

We expect our technology and development expenses to increase for the foreseeable future as we continue to invest in the development and security of our proprietary technology, including our ongoing modernization project described earlier.

On an annual basis, we expect our technology and development expenses to remain relatively steady as a percentage of our total revenue.

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.

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 $11.2 million, or 13%, increase in general and administrative expenses was primarily due to the inclusion of a full year 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 as we continue to grow our business and the increased cost of cybersecurity and directors and officers insurance.

The $6.2 million, or 6%, increase in general and administrative expenses from the year ended January 31, 2023 to the year ended January 31, 2024 was primarily due to increases in professional services expense and personnel-related expenses, partially offset by a decrease in amortization expense.

The $12.0 million, or 14%, increase in general and administrative expenses from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the inclusion of a full year 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 finance functions as we continue to grow our business.

On an annual basis, we expect our general and administrative expenses to remain relatively steady as a percentage of our total revenue.

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.

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 $11.8 million, or 14%, increase in amortization of acquired intangible assets was primarily due to the inclusion of amortization related to identified intangible assets acquired through the Further Acquisition commencing November 1, 2021.

The $1.8 million, or 2%, decrease in amortization of acquired intangible assets from the year ended January 31, 2023 to the year ended January 31, 2024 was due to the smaller carrying amount of intangible assets that have not been fully amortized.

The $11.8 million, or 14%, increase in amortization of acquired intangible assets from the year ended January 31, 2022 to the year ended January 31, 2023 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 primarily due to amortization of acquired HSA portfolios, including the Fifth Third and HealthSavings HSA portfolios.

Merger integration.

The $36.2 million, or 56%, decrease in merger integration expense was primarily due to a decrease in merger integration activities related to the WageWorks Acquisition.

The $28.6 million in merger integration expense for the fiscal year ended January 31, 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, professional fees associated with the remediation of remaining material weaknesses in internal control over financial reporting, and costs associated with remaining platform migrations.

The $18.2 million, or 64%, decrease in merger integration expense from the year ended January 31, 2023 to the year ended January 31, 2024 was primarily due to a decrease in merger integration activities related to the acquisitions of WageWorks and the Further business.

The $10.4 million in merger integration expense for the fiscal year ended January 31, 2024 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 WageWorks, including ongoing lease expense related to WageWorks offices that have been permanently closed, less any related sublease income, and professional fees.

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.

The $36.2 million, or 56%, decrease in merger integration expense from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to a decrease in merger integration activities related to the acquisition of WageWorks.

Interest expense

The $11.9 million 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 7.14% as of January 31, 2023, up from 2.63% as of January 31, 2022.

The $7.0 million increase in interest expense from the year ended January 31, 2023 to the year ended January 31, 2024 was primarily due to the impact of higher interest rates on our Term Loan Facility, which had an effective interest rate of 7.45% as of January 31, 2024, up from 7.14% as of January 31, 2023, and a $1.2 million loss on extinguishment of debt due to the prepayment of $50.0 million under our Term Loan Facility in April 2023, partially offset by a lower average principal balance under our Term Loan Facility.

Our Term Loan Facility had an outstanding principal balance of $286.9 million and $341.3 million as of January 31, 2024 and January 31, 2023, respectively.

On an annual basis, we expect our interest expense to increase, primarily due to the impact of increased interest rates on our Term Loan Facility.

The $11.9 million increase in interest expense from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the impact of higher interest rates on our Term Loan Facility, which had an effective interest rate of 7.14% as of January 31, 2023, up from 2.63% as of January 31, 2022.

Our Term Loan Facility had an outstanding principal balance of $341.3 million and $350.0 million as of January 31, 2023 and January 31, 2022, respectively.

On an annual basis, we expect our interest expense to increase, primarily due to the impact of borrowings under our Revolving Credit Facility in conjunction with the BenefitWallet HSA portfolio acquisition, which is expected to close in multiple tranches during the first half of fiscal 2025, and 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 change in other income (expense), net, from expense of $5.9 million during the fiscal year ended January 31, 2022 to income of $1.3 million during the fiscal year ended January 31, 2023, was primarily due to a $10.8 million decrease in acquisition costs, partially offset by a $3.6 million decrease in other income, net.

Income tax benefit

The $11.5 million increase in other income, net, from $1.3 million during the fiscal year ended January 31, 2023 to $12.8 million during the fiscal year ended January 31, 2024, was primarily due to a $10.4 million increase in interest income on corporate cash and a $1.2 million increase in other miscellaneous income, net.

Income tax provision (benefit)

For the fiscal years ended January 31, 2024 and 2023, we recorded an income tax provision of $19.3 million and an income tax benefit of $12.0 million, respectively.

The increase in income tax provision was primarily the result of an increase in pre-tax book income, an increase in unrecognized tax benefits, adjustments from settlement of an IRS examination, and a decrease in tax deductible stock-based compensation compared to GAAP stock-based compensation expense, partially offset by an increase in research and development tax credits and a decrease in valuation allowance.

For the fiscal years ended January 31, 2023 and 2022, we recorded an income tax benefit of $12.0 million and $22.5 million, respectively.

The decrease in income tax benefit was primarily the result of lower current year pre-tax book loss, a corresponding decrease in benefit for state income taxes, a decrease in research and development tax credits, a decrease in excess tax benefits on stock-based compensation expense, and an increase in nondeductible executive compensation, partially offset by a release of uncertain tax positions and a smaller change in valuation allowance.

Our effective income tax benefit rate for the fiscal years ended January 31, 2023 and 2022 was 31.4% and 33.6%, respectively.

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

federal statutory income tax rate for

each period is impacted by a number of factors, including the relative mix of earnings among state jurisdictions, credits, excess tax benefits or shortfalls on stock-based compensation expense, changes in valuation allowance, and other items.

The decrease in the effective tax benefit rate for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022 was primarily due to a decrease in benefit for state income taxes, a decrease in research and development tax credits, a decrease in excess tax benefits on stock-based compensation expense, and an increase in nondeductible executive compensation relative to pre-tax book loss, partially offset by a release of uncertain tax positions and a smaller change in valuation allowance.

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

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Liquidity and capital resources

For a discussion related to liquidity and capital resources for fiscal year 2023 compared to fiscal year 2022, refer to Part II, Item 7.

Management's discussion and analysis of financial condition and results of operations in our fiscal year 2023 Form 10-K, filed with the SEC on March 30, 2023.

Cash and cash equivalents overview

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For a description of the terms of the Credit Agreement, refer to Note 8—Indebtedness.

In connection with the BenefitWallet HSA portfolio acquisition, which is expected to close in multiple tranches during the first half of fiscal 2025, we expect to borrow approximately 50% of the purchase price and related costs using our Revolving Credit Facility with the actual percentages to be determined in connection with the payment for each tranche.

As of January 31, 2024, there were no amounts outstanding under the Revolving Credit Facility.

We were in compliance with all covenants under the Credit Agreement as of January 31, 2024, 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.

In April 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 fiscal years ended January 31, 2024 and 2023 were $42.8 million and $48.5 million, respectively.

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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.

To the extent these current and anticipated

future sources of liquidity are insufficient to fund our future business activities and requirements, we may need to raise additional funds through public or private equity or debt financing.

To the extent these current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may need to raise additional funds through public or private equity or debt financing.

In the event that additional financing is required, we may not be able to raise it on favorable terms, if at all.

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Net cash used in investing activities (46,074) (119,127)

Net cash provided by (used in) financing activities (2,671) 394,863

Increase (decrease) in cash and cash equivalents 28,852 (103,389)

Net cash used in financing activities (47,039) (2,671)

Increase in cash and cash equivalents 149,713 28,852

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 $9.7 million, 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 fiscal year ended January 31, 2023.

Net cash provided by operating activities increased by $92.2 million, primarily due to increased cash receipts with respect to our custodial revenue, partially offset by an increase in cash payments for income taxes, personnel-related expenses, and interest expense during the fiscal year ended January 31, 2024.

Cash flows from investing activities.

Net cash used in investing activities decreased by $520.1 million, primarily due to a $499.4 million decrease in cash used in business combinations and HSA portfolio acquisitions, a $17.5 million decrease in cash used for purchases of software and capitalized software development costs, and a $5.5 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 $73.1 million, due to a $67.3 million decrease in cash used for HSA portfolio acquisitions, a $4.1 million decrease in cash used for

purchases of software and capitalized software development costs, and a $1.7 million decrease in cash used for purchases of property and equipment.

Cash flows from financing activities.

Net cash used in financing activities was $2.7 million during the fiscal year ended January 31, 2023, compared to net cash provided by financing activities of $394.9 million during the fiscal year ended January 31, 2022.

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 fiscal year ended January 31, 2022, a $3.1 million decrease in proceeds from the exercise of common stock options, and a $0.1 million increase in cash used in the settlement of client-held funds obligation, net.

These changes were partially offset by a $56.3 million decrease in net payments related to our long-term debt and associated debt issuance costs, as compared to the fiscal year ended January 31, 2022, and a $6.0 million payment of contingent consideration related to the Luum Acquisition made during the fiscal year ended January 31, 2022.

Net cash used in financing activities increased by $44.4 million, primarily due to a $45.6 million increase in principal payments related to our long-term debt.

Contractual obligations

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To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

selecting among available alternative accounting standards that allow different accounting treatment for similar transactions.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, management’s judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions.

We believe that there are several accounting policies that are critical to understanding our business and prospects for future performance, as these policies affect the reported amounts of revenue and other significant areas that involve management’s judgment and estimates.

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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-K

Item 7. Management’s Discussion and Analysis