What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-22 compared with 2023-03-30 · 260 added, 102 removed, 747 unchanged (33% of the section changed)

36 unchanged sentences

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may

become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

7 unchanged sentences

The Company recognizes service revenue, in an amount that reflects the consideration it expects to be entitled to in exchange for those services, on a monthly basis as it satisfies its performance obligations.

The principal consideration for our determination that performing procedures relating to service revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to revenue recognition, including consideration of the material weaknesses in internal control over financial reporting that were previously disclosed by management and existed during the year related to this matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, evaluating the recognition of service revenue for a sample of revenue transactions by obtaining confirmation from customers or obtaining and inspecting source documents, including invoices, sales contracts, and cash receipts.

These procedures included testing the effectiveness of controls relating to the revenue recognition process for service revenue.

These procedures also included, among others, evaluating the recognition of service revenue for a sample of revenue transactions by obtaining confirmation from customers or obtaining and inspecting source documents, including invoices, sales contracts, and cash receipts.

/s/ PricewaterhouseCoopers LLP

70 unchanged sentences

Income (loss) before income taxes 75,040 ( 38,096 ) ( 66,741 )

Income tax benefit ( 11,953 ) ( 22,452 ) ( 4,694 )

Income tax provision (benefit) 19,328 ( 11,953 ) ( 22,452 )

Net income (loss) and comprehensive income (loss) $ 55,712 $ ( 26,143 ) $ ( 44,289 )

18 unchanged sentences

Stock-based compensation — — 52,750 — 52,750

Net income — — — 8,834 8,834

Net loss — — — ( 44,289 ) ( 44,289 )

Balance as of January 31, 2022 83,780 $ 8 $ 1,676,508 $ 176,059 $ 1,852,575

1 unchanged sentence

Issuance of common stock upon exercise of options, and for restricted stock 978 — 6,594 — 6,594

Other issuance of common stock 5,750 — 456,640 — 456,640

Stock-based compensation — — 62,614 — 62,614

4 unchanged sentences

Stock-based compensation — — 77,151 — 77,151

Net loss — — — ( 26,143 ) ( 26,143 )

Net income — — — 55,712 55,712

Balance as of January 31, 2024 86,127 $ 9 $ 1,829,384 $ 205,628 $ 2,035,021

73 unchanged sentences

As a passive and non-passive non-bank custodian according to Treasury Regulations section 1.408-2(e)(5)(ii)(B), the Company must maintain net worth (assets minus liabilities) greater than the sum of 2 % of passive custodial funds held at each fiscal year-end and 4 % of the non-passive custodial funds held at each fiscal year-end in order to take on additional custodial assets.

As of January 31, 2024, the Company's year-end for trust and tax purposes, the net worth of the Company exceeded the required thresholds.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP.

1 unchanged sentence

These accounting policies conform to accounting principles generally accepted in the United States and have been consistently applied in the preparation of the consolidated financial statements.

Reclassifications

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 the Company's financial statement presentation with the underlying drivers of the Company's revenue streams.

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

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

See Note 13—Selected quarterly financial data for additional information and the impact of the reclassifications by quarter.

Principles of consolidation

14 unchanged sentences

In evaluating the Company’s ability to collect outstanding receivable balances, the Company considers various factors including macroeconomic variables, the age of the balance, the creditworthiness of the customer, which is assessed based on ongoing credit evaluations and payment history, and the customer’s current financial condition.

Other assets consist primarily of contract costs, prepaid expenditures, debt issuance costs, income tax receivables, inventories, and various other assets.

Other assets consist primarily of contract costs, prepaid expenditures, debt issuance costs, income tax receivables, and various other assets.

Amounts expected to be recouped or recognized over a period of twelve months or less have been classified as current in the accompanying consolidated balance sheets.

59 unchanged sentences

The Company's primary sources of revenue are service, custodial, and interchange revenue and are disclosed in the consolidated statements of operations and comprehensive income (loss).

All of the Company's sources of revenue are deemed to be revenue contracts with customers.

Company's sources of revenue are deemed to be revenue contracts with customers.

Each revenue source is affected differently by economic factors as it relates to the nature, amount, timing and uncertainty.

11 unchanged sentences

The Company administers its platforms, prepares statements, provides a mechanism for spending funds, and provides customer support services.

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 the Company's investment partner from which the Company earns recordkeeping and advisory fees, calculated as a percentage of the member's HSA investments.

All of these services are consumed as they are received.

1 unchanged sentence

Custodial revenue.

The Company earns custodial revenue primarily from HSA assets deposited with depository partners or placed in group annuity contracts or similar arrangements with insurance company partners, recordkeeping fees earned in respect of mutual funds in which HSA members invest, and Client-held funds deposited with depository 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 a custodial investment partner, from which the Company earns a recordkeeping fee, calculated as a percentage of custodial investments.

The deposit of funds represents a service that is simultaneously received and consumed by the depository partners, insurance company partners, and investment partner.

The Company earns custodial revenue primarily from HSA assets deposited with depository partners or placed in group annuity contracts or similar arrangements with insurance company partners and Client-held funds deposited with depository partners.

The placement of funds represents a service that is simultaneously received and consumed by the depository partners and insurance company partners.

The Company recognizes custodial revenue each month, in an amount that reflects the consideration it expects to be entitled to in exchange for the service.

14 unchanged sentences

Stock-based compensation

The Company grants stock-based awards, which consist of stock options and restricted stock units ("RSUs"), to certain team members, executive officers, and directors.

Historically, the Company also granted restricted stock awards ("RSAs").

The Company recognizes compensation expense for stock-based awards based on the grant date estimated fair value.

The Company grants restricted stock units ("RSUs") to certain team members, executive officers, and directors.

Historically, the Company also granted stock options and restricted stock awards ("RSAs") under the Incentive Plan.

The Company recognizes compensation expense for stock-based awards based on the grant date estimated fair

Expense for stock-based awards is generally recognized on a straight-line basis over the requisite service period and is reversed as pre-vesting forfeitures occur.

The fair value of stock options is determined using the Black-Scholes option pricing model.

The fair value of stock options was determined using the Black-Scholes option pricing model.

The determination of fair value for stock options on the date of grant using an option pricing model requires management to make certain assumptions regarding a number of complex and subjective variables.

2 unchanged sentences

For awards with performance conditions, compensation expense is recognized using the graded-vesting attribution method in accordance with the provisions of ASC 718, Compensation—Stock Compensation ("Topic 718").

expense related to stock-based awards with market conditions is recorded on a straight-line basis over the requisite service period regardless of whether the market condition is satisfied.

Compensation expense related to stock-based awards with market conditions is recorded on a straight-line basis over the requisite service period regardless of whether the market condition is satisfied.

Upon the exercise of a stock option or release of an RSU, common shares are issued from authorized, but not outstanding, common stock.

Interest expense

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

Income tax benefit

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

Income tax provision (benefit)

The Company accounts for income taxes and the related accounts under the asset and liability method as set forth in ASC 740, Income Taxes .

23 unchanged sentences

Recently issued accounting pronouncements not yet adopted

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss, an amount and description of other segment items, interim disclosure of a reportable segment’s profit or loss and assets, the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.

The ASU requires public companies with a single reportable segment to provide the segment disclosures required by Topic 280 and will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

We are currently evaluating the ASU to determine its impact on our disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction.

It also includes certain other amendments to improve the effectiveness of income tax disclosures.

This guidance will be effective for annual periods beginning after December 15, 2024.

Early adoption is permitted.

Upon adoption, the guidance can be applied prospectively or retrospectively.

We are currently evaluating the ASU to determine its impact on our income tax disclosures.

Net income (loss) per share

13 unchanged sentences

Diluted $ 0.64 $ ( 0.31 ) $ ( 0.53 )

For the fiscal years ended January 31, 2023, 2022 and 2021, 2.5 million, 1.8 million, and 0.6 million shares, respectively, attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted earnings (loss) per share as their inclusion would have been anti-dilutive.

For the fiscal years ended January 31, 2024, 2023 and 2022, 0.6 million, 2.5 million, and 1.8 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.

Business combinations

32 unchanged sentences

Supplemental financial statement information

Selected consolidated balance sheet and consolidated statement of operations and comprehensive income (loss) components consist of the following:

Selected consolidated balance sheet and consolidated statement of operations and comprehensive income (loss) components consisted of the following:

Allowance for doubtful accounts

30 unchanged sentences

Acquisition costs — ( 53 ) ( 10,832 )

Other income (expense) ( 439 ) 1,708 5,080

Other miscellaneous income (expense) 658 ( 439 ) 1,708

Total other income (expense), net $ 12,796 $ 1,271 $ ( 5,931 )

Interest expense

Based on the application of ASC 470-50, Debt - Modifications and Extinguishments, the Company recorded a $ 4.0 million loss on extinguishment of debt during the fiscal year ended January 31, 2022, which is included within interest expense in the consolidated statements of operations and comprehensive income (loss) for the fiscal year ended January 31, 2022.

Based on the application of ASC 470-50, Debt - Modifications and Extinguishments, the Company recorded debt extinguishment losses of $ 1.2 million and $ 4.0 million during the fiscal years ended January 31, 2024 and 2022, respectively, which are included within interest expense in the consolidated statements of operations and comprehensive income (loss).

The Company has entered into various non-cancelable operating lease agreements for office space, data storage facilities, and other leases with remaining lease terms of less than 1 year to approximately 7 years, often with one or more Company options to renew.

17 unchanged sentences

Lease liabilities, non-current $ 48,766 $ 58,988

As of January 31, 2023, the Company had additional operating leases for office space that had not yet commenced with aggregate undiscounted lease payments of $ 3.2 million.

The operating leases will commence during fiscal years 2024 and 2025 and have lease terms of approximately 7 to 8 years.

As of January 31, 2024, the Company had an additional operating lease for office space that had not yet commenced with aggregate undiscounted lease payments of $ 1.9 million.

The operating lease will commence during fiscal year 2025 and has a lease term of approximately 7 years.

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

39 unchanged sentences

The Company’s annual goodwill impairment test resulted in no impairment charges in any of the periods presented in the accompanying consolidated financial statements.

During the fiscal year ended January 31, 2023, goodwill increased by $ 2.3 million due to measurement period adjustments associated with the Further Acquisition.

During the fiscal year ended January 31, 2022, goodwill increased by $ 318.6 million due to the acquisitions of Luum and Further and associated measurement period adjustments.

There were no other changes to the goodwill carrying value during the fiscal years ended January 31, 2023 and 2022.

During the fiscal year ended January 31, 2023, goodwill increased by $ 2.3 million due to measurement period adjustments associated with the Further Acquisition and the Luum Acquisition.

There were no changes to the carrying value of goodwill during the fiscal year ended January 31, 2024.

Commitments and contingencies

8 unchanged sentences

Other contractual obligations (4) 23,496 21,487 7,302 6,502 — — 58,787

BenefitWallet HSA portfolio acquisition (5) 445,000 — — — — — 445,000

Total $ 524,860 $ 85,045 $ 336,554 $ 43,825 $ 37,553 $ 635,952 $ 1,663,789

3 unchanged sentences

(3) The Company leases office space and data storage facilities and has other non-cancelable operating leases expiring at various dates through 2030.

These amounts exclude contractual sublease income of $ 0.9 million, which is expected to be received through May 2027.

(4) Other contractual obligations consist of processing services agreements, software subscriptions, telephony services, and other contractual commitments.

These amounts exclude contractual sublease income of $ 16.3 million, which is expected to be received through December 2030.

(4) Other contractual obligations consist of processing services agreements, software subscriptions, and other contractual commitments.

(5) 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 reimbursement of up to $ 20.0 million of Conduent's transfer-related expenses.

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

Contingencies

3 unchanged sentences

Legal matters

In April 2021, WageWorks exercised its right to terminate a lease for office space in Mesa, Arizona that had not yet commenced, with aggregate lease payments of $ 63.1 million and a term of approximately 11 years, following the landlord's failure to fulfill its obligations under the lease agreement.

Because the lease had not yet commenced, the Company had not recognized a right-of-use asset, operating lease liability, or any rent expense associated with the

WageWorks' right to terminate the lease agreement was disputed by the landlord, Union Mesa 1, LLC (“Union Mesa”).

On November 5, 2021, Union Mesa notified WageWorks that it was in default of the lease for failure to pay rent, which Union Mesa claimed was due beginning in November 2021, and on November 24, 2021 drew $ 2.8 million, the full amount under the letter of credit that WageWorks had posted to secure its obligations under the lease.

In April 2021, WageWorks, a wholly owned subsidiary of the Company, exercised its right to terminate a lease for office space in Mesa, Arizona that had not yet commenced, with aggregate lease payments of $ 63.1 million and a term of approximately 11 years, following the landlord's failure to fulfill its obligations under the lease agreement (the "Lease").

WageWorks' right to terminate the Lease was disputed by the landlord, Union Mesa 1, LLC (“Union Mesa”), which claimed that the Lease had commenced on December 1, 2020.

On November 5, 2021, Union Mesa notified WageWorks that it was in default of the Lease for failure to pay rent, which Union Mesa claimed was due beginning in November 2021, after 11 months of abated rent.

On November 24, 2021, Union Mesa drew $ 2.8 million, the full amount under the letter of credit that WageWorks had posted to secure its obligations under the Lease.

The Company recorded the $ 2.8 million draw as merger integration expense in the consolidated statement of operations and comprehensive income (loss).

On December 1, 2021, WageWorks filed a lawsuit against Union Mesa in the Superior Court of the State of Arizona in and for the County of Maricopa.

On January 4, 2022, WageWorks filed an amended complaint in the Superior Court.

Pursuant to the lawsuit, WageWorks seeks declaratory judgment that the lease was properly terminated and recourse against Union Mesa for breach of contract, breach of the duty of good faith and fair dealing, and conversion, including return of the funds drawn under the letter of credit.

On January 31, 2022, Union Mesa filed a motion to dismiss for the conversion cause of action, which the Superior Court denied on April 13, 2022.

On May 18, 2022, Union Mesa filed an answer and counterclaim with the Superior Court, wherein Union Mesa denied WageWorks' claims, and separately seeks recourse against WageWorks for breach of contract and breach of the implied covenant of good faith and fair dealing.

On May 19, 2022, Union Mesa filed an amended complaint and counterclaim seeking the same recourse.

On June 29, 2022, Union Mesa filed a second amended answer and counterclaim, which names the Company as a counter-defendant.

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

The parties are currently engaged in discovery.

On December 1, 2021, WageWorks filed a lawsuit against Union Mesa in the Maricopa County Superior Court in the State of Arizona.

On January 4, 2022, WageWorks filed an amended complaint, seeking a declaratory judgment that the Lease was properly terminated and recourse against Union Mesa for breach of contract, breach of the duty of good faith and fair dealing, and conversion, including return of the funds drawn under the letter of credit.

In May and June 2022, Union Mesa filed an answer, counterclaim, and third-party complaint against WageWorks and the Company, denying WageWorks' claims and separately seeking recourse against WageWorks for breach of contract and breach of the implied covenant of good faith and fair dealing as well as against the Company under the terms of its guaranty of WageWorks' obligations under the Lease.

On July 21, 2022, WageWorks and the Company filed an answer to the counterclaim and the third-party complaint on its declaratory judgment claim that WageWorks' termination was improper under the Lease.

On December 8, 2023, representatives from the parties participated in a court-ordered mediation held in Phoenix, Arizona, which was unsuccessful.

On December 29, 2023, the Superior Court issued an order denying Union Mesa’s motion for partial summary judgment after finding that genuine issues of material fact exist.

A trial is scheduled to start on December 9, 2024.

WageWorks is seeking consequential damages relating to Union Mesa’s breach of the Lease and conversion of the letter of credit, including consequential damages, pre-judgment interest, and its attorneys’ fees.

Union Mesa has denied liability for these damages.

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.

According to Union Mesa, these damages include (i) all rent payments due under the Lease accruing from December 2, 2020 (including abated rent), (ii) late charges of 3 % on past due amounts, (iii) interest on past due amounts at an interest rate of the prime rate plus 5 %, (iv) costs incurred in reletting the premises, (v) attorneys’ fees negotiating the lease and related agreements, and (vi) any other amounts necessary to compensate Union Mesa for the detriment proximately caused by WageWorks’ alleged breach of the Lease.

In addition, Union Mesa states that it intends to re-assert periodic actions against WageWorks to seek all amounts due from time to time through the remaining term of the Lease or until the premises are successfully relet.

The Company and its subsidiaries are involved in various other litigation, governmental proceedings and claims, not described above, that arise in the normal course of business.

21 unchanged sentences

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

As of January 31, 2023, the balance of accrued interest on the Notes was $ 9.0 million, which is

included within accrued liabilities on the Company's consolidated balance sheets.

As of January 31, 2024, the balance of accrued interest on the Notes was $ 9.3 million, which is included within accrued liabilities on the Company's consolidated balance sheets.

The effective interest rate on the Notes is 4.72 %.

The Notes are unsecured senior obligations of the Company and rank equally in right of payment to all of its existing and future senior unsecured debt and senior in right of payment to all of its future subordinated debt.

The Notes are redeemable at the Company’s option, in whole or in part, at any time on or after October 1, 2024, at a redemption price if redeemed during the 12 months beginning (i) October 1, 2024 of 102.250 %, (ii) October 1, 2025 of 101.125 %, and (iii) October 1, 2026 and thereafter of 100.000 %, in each case of the principal amount of the Notes being redeemed, and together with accrued and unpaid interest, if any, to, but excluding, the date of redemption.

The Company may also redeem some or all of the Notes before October 1, 2024 at a redemption price equal to 100 % of the principal amount of the Notes, plus the applicable “make-whole” premium as of, and accrued and unpaid interest, if any, to, but excluding, the date of redemption.

9 unchanged sentences

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.

Borrowings under the Credit Facilities bear interest at an annual rate equal to, at the option of the Company, either (i) LIBOR (adjusted for reserves) 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 by reference to a leverage-based pricing grid set forth in the Credit Agreement.

Prior to June 1, 2023, borrowings under the Credit Facilities bore interest at an annual rate equal to, at the option of the Company, either (i) LIBOR (adjusted for reserves) 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.

On June 1, 2023, the Company entered into an amendment to the Credit Agreement which replaced interest rate provisions based on LIBOR with the forward-looking term rate based on the secured overnight financing rate published by the CME Group Benchmark Administration Limited (“Term SOFR”).

As a result, borrowings under the Credit Agreement as so amended bear interest 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).

As of January 31, 2024, the stated interest rate was 6.69 % and the effective interest rate was 7.45 %.

7 unchanged sentences

In addition, the Term Loan Facility is required to be mandatorily prepaid with 100 % of the net cash proceeds of all asset sales, insurance and condemnation recoveries, subject to customary exceptions and thresholds, including to the extent such proceeds are reinvested in assets useful in the business of the Company and its subsidiaries within 450 days following receipt (or committed to be reinvested within such 450 -day period and reinvested within 180 days after the end of such 450 -day period).

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.”

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.

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.

2 unchanged sentences

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.

The income tax benefit consisted of the following:

The income tax provision (benefit) consisted of the following:

Year ended January 31,

6 unchanged sentences

Total deferred tax benefit $ ( 13,995 ) $ ( 17,181 ) $ ( 23,319 )

Total income tax benefit $ ( 11,953 ) $ ( 22,452 ) $ ( 4,694 )

Total income tax benefit differed from the amounts computed by applying the U.S.

Total income tax provision (benefit) $ 19,328 $ ( 11,953 ) $ ( 22,452 )

Total income tax provision (benefit) differed from the amounts computed by applying the U.S.

federal statutory income tax rate to income before income taxes as a result of the following:

2 unchanged sentences

Federal income tax provision (benefit) at the statutory rate $ 15,759 $ ( 8,000 ) $ ( 14,016 )

State income tax benefit, net of federal tax provision (benefit) ( 1,021 ) ( 3,733 ) ( 99 )

State income tax provision (benefit), net of federal tax provision (benefit) 5,382 ( 1,021 ) ( 3,733 )

Other non-deductible or non-taxable items, net 447 225 ( 165 )

Excessive employee remuneration 2,939 3,246 1,214

Excess tax benefits on stock-based compensation expense, net ( 2,479 ) ( 5,098 ) ( 2,983 )

Excess tax (benefit) shortfall on stock-based compensation expense, net 304 ( 2,479 ) ( 5,098 )

Federal research and development credits ( 9,202 ) ( 1,341 ) ( 4,218 )

Change in uncertain tax position reserves, net of indirect benefits 6,137 ( 2,970 ) 836

Reclassification of operating lease right-of-use assets — — 185

Change in net operating losses due to measurement period adjustments — — 377

Deferred tax rate adjustment due to merger integration — 725 ( 1,814 )

Deferred tax rate adjustment due to state apportionment changes ( 1,039 ) ( 30 ) 725

Adjustment from settlement of IRS examination 2,461 — —

Return-to-provision adjustments ( 433 ) ( 38 ) ( 810 )

1 unchanged sentence

Other items, net ( 298 ) ( 278 ) ( 644 )

Total income tax benefit $ ( 11,953 ) $ ( 22,452 ) $ ( 4,694 )

The Company’s effective income tax benefit rate for the fiscal years ended January 31, 2023, 2022, and 2021 was 31.4 %, 33.6 %, and 113.4 %, respectively.

Total income tax provision (benefit) $ 19,328 $ ( 11,953 ) $ ( 22,452 )

The Company’s effective income tax provision rate for the fiscal year ended January 31, 2024 was 25.8 %, and the Company’s 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 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.

The decrease in the effective tax rate for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021 was primarily due to the impact of tax benefit items, such as stock-based compensation expense, credits, and changes to the valuation allowance, relative to the larger pre-tax book loss and smaller pre-tax book income, respectively.

The increase in the effective tax rate for the fiscal year ended January 31, 2024 compared to the fiscal year ended January 31, 2023 was primarily due to 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.

The decrease in the effective tax 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.

Deferred tax assets and liabilities consisted of the following:

6 unchanged sentences

Capitalized research and development 33,474 16,419

Fixed assets 939 —

Accruals and reserves 3,557 4,439

11 unchanged sentences

Total gross deferred tax liabilities ( 141,379 ) ( 148,219 )

Net deferred tax liability $ ( 82,665 ) $ ( 99,846 )

The impact of Internal Revenue Code Section 174 changes requiring capitalization of software development costs pursuant to the Tax Cuts and Jobs Act of 2017 resulted in higher current income tax payable and significant utilization of net operating loss and research and development tax credit deferred tax assets for the fiscal year ended January 31, 2023.

Net deferred tax liabilities $ ( 68,670 ) $ ( 82,665 )

Management considered whether it is more likely than not that some portion or all of the deferred tax assets would be realized.

2 unchanged sentences

The Company recorded a valuation allowance of $ 1.2 million and $ 4.3 million as of January 31, 2024 and 2023, respectively, related to certain state deferred tax assets.

The $ 0.7 million increase in valuation allowance recorded is primarily the result of state research and development tax credits that are not expected to be utilized before expiration.

The $ 3.1 million decrease in valuation allowance recorded is primarily the result of state research and development tax credits that are expected to be utilized before expiration.

As of January 31, 2024, the Company had recorded state net operating loss carryforwards of $ 27.2 million, which begin to expire at various intervals following the tax year ending January 31, 2032.

As of January 31, 2023, the Company also had federal and state research and development credits of $ 2.4 million and $ 10.8 million, respectively, which begin to expire following the tax years ending January 31, 2032 and 2024, respectively.

As of January 31, 2024, the Company also had state research and development credits of $ 11.9 million, which begin to expire at various intervals following the tax year ending January 31, 2025.

As of January 31, 2024 and 2023, the gross unrecognized tax benefit was $ 19.2 million and $ 8.7 million, respectively.

If recognized, $ 16.2 million and $ 5.4 million of the total unrecognized tax benefits would affect the Company's effective tax rate as of January 31, 2024 and 2023, respectively.

Total gross unrecognized tax benefits decreased by $ 3.0 million in the period from January 31, 2022 to January 31, 2023.

A tabular reconciliation of the beginning and ending amount of gross unrecognized tax benefits, including the impact of purchase accounting from the Luum Acquisition, is as follows:

Total gross unrecognized tax benefits increased by $ 10.5 million in the period from January 31, 2023 to January 31, 2024.

A tabular reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

(in thousands) January 31, 2024 January 31, 2023

1 unchanged sentence

Gross amounts of increases and decreases:

Purchase accounting adjustments — 240

Increases as a result of tax positions taken during a prior period 9,325 —

1 unchanged sentence

Increases as a result of tax positions taken during the current period 3,386 639

Decreases as a result of settlement ( 1,030 )

Decreases resulting from the lapse of the applicable statute of limitations ( 1,158 ) ( 3,419 )

Gross unrecognized tax benefits at end of year $ 19,213 $ 8,690

Certain unrecognized tax benefits are required to be netted against their related deferred tax assets as a result of Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists .

Certain unrecognized tax benefits are required to be netted against their related deferred tax assets as a result of ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists .

The resulting unrecognized tax benefit recorded within the Company's consolidated balance sheet excludes the following amounts that have been netted against the related deferred tax assets accordingly:

7 unchanged sentences

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.

Such examinations 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 settled during the year ended January 31, 2024;

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.

12 unchanged sentences

(in thousands) 2024 2023 2022

Stock options $ 882 $ 1,816 $ 4,499

Restricted stock units $ 60,688 $ 46,590 $ 37,693

Performance restricted stock units 16,384 15,120 12,948

Stock options 79 882 1,816

Restricted stock awards — 22 155

5 unchanged sentences

Incentive Plan.

The Company grants stock options and restricted stock units ("RSUs") under the HealthEquity, Inc.

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.

Historically, the Company also granted restricted stock awards ("RSAs") 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.

The Company grants RSUs under the HealthEquity, Inc.

2014 Equity Incentive Plan (as amended and restated, the "Incentive Plan"), which provides for the issuance of stock awards to the directors and team members of the Company.

Historically, the Company also granted stock options and RSAs under the Incentive Plan.

As of January 31, 2024, 11.9 million shares were available for grant under the Incentive Plan.

3 unchanged sentences

Nonqualified stock options may be granted to Company executive officers, other team members, directors and consultants.

Such options are to be exercisable at prices, as determined by the board of directors, which must be equal to no less than the fair value of the Company's common stock at the date of the grant.

Such stock options are to be exercisable at prices, as determined by the board of directors, which must be equal to no less than the fair value of the Company's common stock at the date of the grant.

Stock options granted under the Incentive Plan generally expire 10 years from the date of issuance or are forfeited 90 days after termination of employment.

Shares of common stock underlying stock options that are forfeited or that expire are returned to the Incentive Plan.

Valuation assumptions.

The Company has adopted the provisions of Topic 718, which requires the measurement and recognition of compensation for all stock-based awards made to team members and directors, based on estimated fair values.

Under Topic 718, the Company uses the Black-Scholes option pricing model as the method of valuation for stock options.

The determination of the fair value of stock-based awards on the date of grant is affected by the fair value of the stock as well as assumptions regarding a number of complex and subjective variables.

The variables include, but are not limited to, (1) the expected life of the option, (2) the expected volatility of the fair value of the Company's common stock over the term of the award estimated by averaging the Company's historical volatility in addition to published volatilities of a relative peer group, (3) risk-free interest rate, and (4) expected dividends.

No options were granted during the fiscal years ended January 31, 2023 and 2022.

The weighted-average fair value of options granted during the fiscal year ended January 31, 2021 was $ 23.68 per share.

The key input assumptions utilized in the valuation of the stock options were as follows:

Year ended January 31,

2023 2022 2021

Expected dividend yield n/a n/a 0 %

Expected stock price volatility n/a n/a 37.97 %

Risk-free interest rate n/a n/a 1.39 %

Expected life of options n/a n/a 5.18 years

Expected volatility was determined using a weighted average volatility of publicly traded peer companies and the Company's own historical volatility.

The risk-free interest rate was determined by using published zero coupon rates

on treasury notes for each grant date given the expected term on the options.

The dividend yield of zero was based on the fact that the Company had no current plans to pay dividends on its common stock.

No stock options were granted during the fiscal years ended January 31, 2024, 2023, or 2022.

A summary of stock option activity is as follows:

13 unchanged sentences

Exercisable as of January 31, 2024 726 $ 36.91 2.5 $ 28,067

The aggregate intrinsic value in the table above represents the difference between the estimated fair value of common stock and the exercise price of outstanding, in-the-money stock options.

The aggregate intrinsic value in the table above represents the difference between the fair value of common stock and the exercise price of outstanding, in-the-money stock options.

The total intrinsic value of options exercised during the fiscal years ended January 31, 2024, 2023 and 2022 was $ 10.1 million, $ 7.2 million, and $ 19.3 million, respectively.

As of January 31, 2023, the weighted-average vesting period of non-vested options expected to vest was approximately 0.2 years, and the amount of compensation expense the Company expects to recognize for stock options vesting in future periods was $ 0.1 million.

As of January 31, 2024, there was no unrecorded stock-based compensation expense associated with stock options, and all outstanding stock options were vested.

Restricted stock units

4 unchanged sentences

Service-based RSUs granted in March 2022 or later generally vest 25 % on the first anniversary of the vesting commencement date, which is generally the first day of the fiscal quarter of the grant date, with the remaining portion vesting ratably over the following 12 calendar quarters.

Service-based RSUs are valued based on the current value of the Company's closing stock price on the date of grant less the present value of future expected dividends discounted at the risk-free interest rate.

Service-based RSUs are valued based on the Company's closing stock price on the date of grant less the present value of future expected dividends discounted at the risk-free interest rate.

Performance restricted stock units.

12 unchanged sentences

Compensation expense is recorded if the service condition is met regardless of whether the market condition is satisfied.

The market condition allows for a range of vesting from 0 % to 200 % based on the

level of performance achieved.

The market condition allows for a range of vesting from 0 % to 200 % based on the level of performance achieved.

The PRSUs cliff vest upon approval by the Talent, Compensation and Culture Committee of the board of directors.

29 unchanged sentences

The plan provides for Company matching of employee contributions up to 3.5 % of eligible earnings.

Employer matching contribution expense was $ 8.0 million, $ 7.1 million and $ 6.5 million for the fiscal years ended January 31, 2023, 2022 and 2021, respectively.

matching contribution expense was $ 8.7 million, $ 8.0 million and $ 7.1 million for the fiscal years ended January 31, 2024, 2023 and 2022, respectively.

The Company is self-insured for medical and dental benefits for all qualifying employees.

2 unchanged sentences

The Company's liability for self-insured medical claims is included in accrued compensation in its consolidated balance sheet and was $ 4.7 million and $ 5.1 million as of January 31, 2024 and 2023, respectively.

Selected quarterly financial data (unaudited)

As described in Note 1—Summary of business and significant accounting policies—Reclassifications, certain reclassifications have been made to prior year amounts to conform to the current year presentation.

The following tables present the impact of the reclassifications by quarter:

Three months ended January 31, 2024

(in thousands) Prior presentation Reclassifications Current presentation

Service revenue $ 111,759 $ 6,816 $ 118,575

Custodial revenue 112,249 ( 6,816 ) 105,433

Interchange revenue 38,379 — 38,379

Total revenue 262,387 — 262,387

Total cost of revenue 99,939 ( 872 ) 99,067

Gross profit 162,448 872 163,320

Total operating expenses 123,561 872 124,433

Total other expense ( 9,170 ) — ( 9,170 )

Income tax provision 3,353 — 3,353

Net income $ 26,364 $ — $ 26,364

Three months ended October 31, 2023

(in thousands) Prior presentation Reclassifications Current presentation

Service revenue $ 107,512 $ 6,570 $ 114,082

Custodial revenue 106,575 ( 6,570 ) 100,005

Interchange revenue 35,132 — 35,132

Total revenue 249,219 — 249,219

Total cost of revenue 90,811 ( 774 ) 90,037

Gross profit 158,408 774 159,182

Total operating expenses 127,517 774 128,291

Total other expense ( 9,804 ) — ( 9,804 )

Income tax provision 6,414 — 6,414

Net income $ 14,673 $ — $ 14,673

Three months ended July 31, 2023

(in thousands) Prior presentation Reclassifications Current presentation

Service revenue $ 105,719 $ 6,241 $ 111,960

Custodial revenue 98,917 ( 6,241 ) 92,676

Interchange revenue 38,913 — 38,913

Total revenue 243,549 — 243,549

Total cost of revenue 92,619 ( 735 ) 91,884

Gross profit 150,930 735 151,665

Total operating expenses 126,190 735 126,925

Total other expense ( 10,516 ) — ( 10,516 )

Income tax provision 3,643 — 3,643

Net income $ 10,581 $ — $ 10,581

Three months ended April 30, 2023

(in thousands) Prior presentation Reclassifications Current presentation

Service revenue $ 105,112 $ 5,961 $ 111,073

Custodial revenue 94,441 ( 5,961 ) 88,480

Interchange revenue 44,879 — 44,879

Total revenue 244,432 — 244,432

Total cost of revenue 96,606 ( 644 ) 95,962

Gross profit 147,826 644 148,470

Total operating expenses 124,645 644 125,289

Total other expense ( 13,169 ) — ( 13,169 )

Income tax provision 5,918 — 5,918

Net income $ 4,094 $ — $ 4,094

Three months ended January 31, 2023

(in thousands) Prior presentation Reclassifications Current presentation

Service revenue $ 114,234 $ 5,620 $ 119,854

Custodial revenue 83,506 ( 5,620 ) 77,886

Interchange revenue 36,101 — 36,101

Total revenue 233,841 — 233,841

Total cost of revenue 99,593 ( 525 ) 99,068

Gross profit 134,248 525 134,773

Total operating expenses 121,032 525 121,557

Total other expense ( 13,208 ) — ( 13,208 )

Income tax provision 217 — 217

Net loss $ ( 209 ) $ — $ ( 209 )

Three months ended October 31, 2022

(in thousands) Prior presentation Reclassifications Current presentation

Service revenue $ 108,580 $ 5,495 $ 114,075

Custodial revenue 74,642 ( 5,495 ) 69,147

Interchange revenue 32,864 — 32,864

Total revenue 216,086 — 216,086

Total cost of revenue 89,228 ( 460 ) 88,768

Gross profit 126,858 460 127,318

Total operating expenses 121,316 460 121,776

Total other expense ( 11,722 ) — ( 11,722 )

Income tax benefit ( 4,539 ) — ( 4,539 )

Net loss $ ( 1,641 ) $ — $ ( 1,641 )

Three months ended July 31, 2022

(in thousands) Prior presentation Reclassifications Current presentation

Service revenue $ 103,034 $ 5,508 $ 108,542

Custodial revenue 65,599 ( 5,508 ) 60,091

Interchange revenue 37,509 — 37,509

Total revenue 206,142 — 206,142

Total cost of revenue 88,330 ( 436 ) 87,894

Gross profit 117,812 436 118,248

Total operating expenses 120,224 436 120,660

Total other expense ( 11,461 ) — ( 11,461 )

Income tax benefit ( 3,219 ) — ( 3,219 )

Net loss $ ( 10,654 ) $ — $ ( 10,654 )

Three months ended April 30, 2022

(in thousands) Prior presentation Reclassifications Current presentation

Service revenue $ 104,348 $ 5,207 $ 109,555

Custodial revenue 59,365 ( 5,207 ) 54,158

Interchange revenue 41,966 — 41,966

Total revenue 205,679 — 205,679

Total cost of revenue 94,506 ( 423 ) 94,083

Gross profit 111,173 423 111,596

Total operating expenses 118,462 423 118,885

Total other expense ( 10,762 ) — ( 10,762 )

Income tax benefit ( 4,412 ) — ( 4,412 )

Net loss $ ( 13,639 ) $ — $ ( 13,639 )

Three months ended January 31, 2022

(in thousands) Prior presentation Reclassifications Current presentation

Service revenue $ 112,461 $ 4,924 $ 117,385

Custodial revenue 58,057 ( 4,924 ) 53,133

Interchange revenue 32,779 — 32,779

Total revenue 203,297 — 203,297

Total cost of revenue 97,998 ( 315 ) 97,683

Gross profit 105,299 315 105,614

Total operating expenses 132,549 315 132,864

Total other expense ( 16,515 ) — ( 16,515 )

Income tax benefit ( 10,947 ) — ( 10,947 )

Net loss $ ( 32,818 ) $ — $ ( 32,818 )

Three months ended October 31, 2021

(in thousands) Prior presentation Reclassifications Current presentation

Service revenue $ 102,733 $ 4,408 $ 107,141

Custodial revenue 49,006 ( 4,408 ) 44,598

Interchange revenue 28,215 — 28,215

Total revenue 179,954 — 179,954

Total cost of revenue 76,634 ( 252 ) 76,382

Gross profit 103,320 252 103,572

Total operating expenses 103,686 252 103,938

Total other expense ( 8,759 ) — ( 8,759 )

Income tax benefit ( 4,087 ) — ( 4,087 )

Net loss $ ( 5,038 ) $ — $ ( 5,038 )

Three months ended July 31, 2021

(in thousands) Prior presentation Reclassifications Current presentation

Service revenue $ 109,182 $ 3,965 $ 113,147

Custodial revenue 48,776 ( 3,965 ) 44,811

Interchange revenue 31,145 — 31,145

Total revenue 189,103 — 189,103

Total cost of revenue 77,132 ( 256 ) 76,876

Gross profit 111,971 256 112,227

Total operating expenses 112,846 256 113,102

Total other expense ( 6,910 ) — ( 6,910 )

Income tax benefit ( 3,967 ) — ( 3,967 )

Net loss $ ( 3,818 ) $ — $ ( 3,818 )

Three months ended April 30, 2021

(in thousands) Prior presentation Reclassifications Current presentation

Service revenue $ 102,534 $ 3,401 $ 105,935

Custodial revenue 46,978 ( 3,401 ) 43,577

Interchange revenue 34,690 — 34,690

Total revenue 184,202 — 184,202

Total cost of revenue 81,086 ( 236 ) 80,850

Gross profit 103,116 236 103,352

Total operating expenses 98,863 236 99,099

Total other expense ( 10,319 ) — ( 10,319 )

Income tax benefit ( 3,451 ) — ( 3,451 )

Net loss $ ( 2,615 ) $ — $ ( 2,615 )

Subsequent events

On March 7, 2024, the first of three HSA asset transfers occurred in connection with HealthEquity's acquisition of the BenefitWallet HSA portfolio, with 266,000 HSAs and $ 1.1 billion 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.

Changes in and disagreements with accountants on accounting and financial disclosure

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 8. Financial Statements and Supplementary Data