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Item 1. Financial Statements

2024-06-03 compared with 2023-12-05 · 158 added, 117 removed, 307 unchanged (47% of the section changed)

3 unchanged sentences

Condensed consolidated balance sheets

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

(in thousands, except par value) April 30, 2024 January 31, 2024

Current assets

Cash and cash equivalents $ 251,229 $ 403,979

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

Accounts receivable, net of allowance for doubtful accounts of $ 3,741 and $ 3,947 as of April 30, 2024 and January 31, 2024, respectively

106,218 104,893

12 unchanged sentences

Accrued liabilities 41,192 46,038

Current portion of long-term debt — 17,500

Operating lease liabilities 9,755 9,404

9 unchanged sentences

Stockholders’ equity

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

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

Preferred stock, $ 0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of April 30, 2024 and January 31, 2024, respectively

Common stock, $ 0.0001 par value, 900,000 shares authorized, 87,010 and 86,127 shares issued and outstanding as of April 30, 2024 and January 31, 2024, respectively

Additional paid-in capital 1,863,334 1,829,384

6 unchanged sentences

Condensed consolidated statements of operations and

comprehensive income (loss) (unaudited)

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

comprehensive income (unaudited)

Three months ended April 30,

(in thousands, except per share data) 2024 2023

16 unchanged sentences

Total operating expenses 145,508 125,289

Income (loss) from operations 30,891 5,542 78,812 ( 4,159 )

Income from operations 41,630 23,181

Other expense

2 unchanged sentences

Total other expense ( 8,391 ) ( 13,169 )

Income (loss) before income taxes 21,087 ( 6,180 ) 45,323 ( 38,104 )

Income tax provision (benefit) 6,414 ( 4,539 ) 15,975 ( 12,170 )

Net income (loss) and comprehensive income (loss) $ 14,673 $ ( 1,641 ) $ 29,348 $ ( 25,934 )

Net income (loss) per share:

Income before income taxes 33,239 10,012

Income tax provision 4,426 5,918

Net income and comprehensive income $ 28,813 $ 4,094

Net income per share:

Basic $ 0.33 $ 0.05

Diluted $ 0.33 $ 0.05

Weighted-average number of shares used in computing net income (loss) per share:

Weighted-average number of shares used in computing net income per share:

Basic 86,472 85,030

4 unchanged sentences

Condensed consolidated statements of stockholders’ equity (unaudited)

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

Three months ended April 30,

(in thousands) 2024 2023

11 unchanged sentences

Beginning balance 205,628 149,916

Net income (loss) 14,673 ( 1,641 ) 29,348 ( 25,934 )

Net income 28,813 4,094

Ending balance 234,441 154,010

4 unchanged sentences

Condensed consolidated statements of cash flows (unaudited)

Nine months ended October 31,

Three months ended April 30,

(in thousands) 2024 2023

Cash flows from operating activities:

Net income (loss) $ 29,348 $ ( 25,934 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income $ 28,813 $ 4,094

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 38,938 39,041

2 unchanged sentences

Loss on extinguishment of debt — 1,157

Other non-cash items — 269

Deferred taxes ( 5,388 ) ( 738 )

14 unchanged sentences

Cash flows from financing activities:

Proceeds from long-term debt 50,000 —

Principal payments on long-term debt — ( 54,375 )

1 unchanged sentence

Proceeds from exercise of common stock options 2,317 916

Net cash used in financing activities ( 51,154 ) ( 1,525 )

Increase (decrease) in cash and cash equivalents 79,795 ( 15,217 )

Net cash provided by (used in) financing activities 51,771 ( 51,027 )

Decrease in cash and cash equivalents ( 152,750 ) ( 28,624 )

Beginning cash and cash equivalents 403,979 254,266

4 unchanged sentences

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

Nine months ended October 31,

Three months ended April 30,

(in thousands) 2024 2023

1 unchanged sentence

Interest expense paid in cash $ 18,850 $ 19,498

Income tax payments, net 24,777 775

Income tax payments (refunds), net 277 ( 7 )

Supplemental disclosures of non-cash investing and financing activities:

1 unchanged sentence

Purchases of property and equipment included in accounts payable or accrued liabilities 32 119

Acquisitions of HSA portfolios included in accounts payable or accrued liabilities 4,453 —

Exercise of common stock options receivable 42 120

Increase in goodwill due to measurement period adjustments, net — 77

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

and subsidiaries

Notes to condensed consolidated financial statements

Notes to condensed consolidated financial statements (unaudited)

Summary of business and significant accounting policies

2 unchanged sentences

HealthEquity is a leader in administering health savings accounts (“HSAs”) and complementary consumer-directed benefits (“CDBs”), which empower consumers to access tax-advantaged healthcare savings while also providing corporate tax advantages for employers.

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, 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 from operations, net income, cash flows, or stockholders' equity.

The following table presents the impact of the reclassifications:

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

Principles of consolidation

2 unchanged sentences

Basis of presentation

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

The accompanying condensed consolidated financial statements as of April 30, 2024 and for the three months ended April 30, 2024 and 2023 are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting.

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

6 unchanged sentences

Recently issued accounting pronouncements not yet adopted

Net income (loss) per share

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

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

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 per share

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

Three months ended April 30,

(in thousands, except per share data) 2024 2023

Numerator (basic and diluted):

Net income (loss) $ 14,673 $ ( 1,641 ) $ 29,348 $ ( 25,934 )

Net income $ 28,813 $ 4,094

Denominator (basic):

4 unchanged sentences

Diluted weighted-average common shares outstanding 88,324 86,102

Net income (loss) per share:

Net income per share:

Basic $ 0.33 $ 0.05

Diluted $ 0.33 $ 0.05

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

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

For the three months ended April 30, 2024 and 2023, 0.1 million and 1.0 million shares, respectively, attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted net income per share as their inclusion would have been anti-dilutive.

Supplemental financial statement information

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

Selected condensed consolidated balance sheet and condensed consolidated statement of operations and comprehensive income components consisted of the following:

Prepaid expenses

As of April 30, 2024 and January 31, 2024, the Company had prepaid expenses of $ 36.9 million and $ 31.2 million, respectively, which are included within other current assets on the Company's condensed consolidated balance sheets.

Property and equipment

Property and equipment consisted of the following:

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

(in thousands) April 30, 2024 January 31, 2024

Leasehold improvements $ 14,455 $ 14,455

4 unchanged sentences

Property and equipment, net $ 5,083 $ 6,013

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

Depreciation expense was $ 1.4 million and $ 2.5 million for the three months ended April 30, 2024 and 2023, respectively.

Contract balances

2 unchanged sentences

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

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

As of April 30, 2024 and January 31, 2024, the balance of deferred revenue was $ 5.3 million and $ 6.2 million, respectively.

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

The Company expects to recognize approximately 74 % of its balance of deferred revenue as revenue over the next 12 months and the remainder thereafter.

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

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

Amounts expected to be recognized as revenue within a period of 12 months or less are classified as accrued liabilities on the Company's condensed consolidated balance sheets, with the remainder included within other long-term liabilities.

Revenue recognized during the three months ended April 30, 2024 that was included in the balance of deferred revenue as of January 31, 2024 was $ 1.5 million.

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

The components of operating lease costs were as follows:

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

Three months ended April 30,

(in thousands)

2023 2022 2023 2022

Operating lease expense $ 2,367 $ 2,601

1 unchanged sentence

Net operating lease expense $ 1,395 $ 2,239

Accrued liabilities

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

Other income, net

Other income, net, consisted of the following:

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

Three months ended April 30,

(in thousands) 2024 2023

Interest income $ 3,881 $ 1,598

Acquisition costs — — — ( 53 )

Other income (expense), net ( 477 ) 230

1 unchanged sentence

Interest expense

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

Supplemental cash flow information

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

Nine months ended October 31,

Three months ended April 30,

(in thousands) 2024 2023

1 unchanged sentence

Operating cash flows from operating leases $ 2,257 $ 2,741

Operating lease right-of-use assets obtained in exchange for new operating lease obligations $ 2,109 $ 1,092

Right-of-use assets obtained in exchange for lease obligations $ 1,469 $ 2,109

Intangible assets and goodwill

1 unchanged sentence

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

October 31, 2023

April 30, 2024

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

15 unchanged sentences

Total amortizable intangible assets $ 1,437,450 $ ( 601,502 ) $ 835,948

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

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

Amortization expense was $ 37.5 million and $ 36.5 million for the three months ended April 30, 2024 and 2023, respectively.

There were no changes to the carrying value of goodwill during the three months ended April 30, 2024.

Commitments and contingencies

The Company’s principal commitments consist of long-term debt, operating lease obligations for office space and data storage facilities, processing services agreements, software subscriptions, telephony services, and other contractual commitments.

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.

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

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

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

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

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

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

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

In September 2023, the Company entered into an agreement to acquire the BenefitWallet HSA portfolio from Conduent Business Services, LLC ("Conduent").

The transfer closed in a series of three tranches, as presented in the following table:

Transfers to HealthEquity Applicable purchase price

(in thousands, except HSA Assets) HSAs HSA Assets

(in millions) Paid using cash on hand Paid using borrowings under the Revolving Credit Facility Total purchase price

March 7, 2024 266 $ 1,071 $ 163,974 $ — $ 163,974

April 11, 2024 134 555 34,925 50,000 84,925

May 9, 2024 216 1,047 1,101 175,000 176,101

Total 616 $ 2,673 $ 200,000 $ 225,000 $ 425,000

The BenefitWallet HSA portfolio acquisition was accounted for as an asset acquisition, and related acquisition costs were capitalized as part of the cost of the asset, which is included within intangible assets, net, on the Company's condensed consolidated balance sheet.

The Company capitalized $ 11.7 million and $ 15.5 million of transaction costs associated with the acquisition during the three months ended April 30, 2024 and in May 2024, respectively.

Total capitalized transaction costs of $ 27.2 million include the reimbursement of $ 20.0 million of Conduent's transfer-related expenses.

In addition, in May 2024, the Company assumed a contract with a depository partner representing approximately 7 % of the total HSA Assets added through the acquisition, which provides a custodial yield that is below current market rates and expires in June 2026.

The Company recorded a $ 20.3 million liability in May 2024 as a result of the assumed contract, which will be recorded as an increase to custodial revenue over the life of the assumed contract.

There were no other material changes during the three months ended April 30, 2024, outside of the ordinary course of business, in the Company's commitments from those disclosed in its Annual Report on Form 10-K for the fiscal year ended January 31, 2024.

Contingencies

4 unchanged sentences

In April 2021, WageWorks, Inc.

("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.

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 lease.

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.

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.

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

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.

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.

The parties are currently engaged in discovery.

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.

5 unchanged sentences

Long-term debt consisted of the following:

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

(in thousands) April 30, 2024 January 31, 2024

4.50 % Senior Notes due 2029

1 unchanged sentence

Term Loan Facility 286,875 286,875

Revolving Credit Facility 50,000 —

Principal amount 936,875 886,875

3 unchanged sentences

Long-term debt, net $ 925,675 $ 874,972

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

(1) In addition to the $ 11.2 million and $ 11.9 million of unamortized discount and issuance costs related to long-term debt as of April 30, 2024 and January 31, 2024, respectively, $ 2.3 million and $ 2.5 million of unamortized issuance costs related to the Company's Revolving Credit Facility (as defined below) are included within other assets on the condensed consolidated balance sheets as of April 30, 2024 and January 31, 2024, respectively.

4.50 % Senior Notes due 2029

4 unchanged sentences

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

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

As of April 30, 2024 and January 31, 2024, the balance of accrued interest on the Notes was $ 2.3 million and $ 9.3 million, respectively, which is included within accrued liabilities on the Company's condensed consolidated balance sheets.

The effective interest rate on the Notes is 4.72 %.

8 unchanged sentences

Credit Agreement

On October 8, 2021, the Company entered into a credit agreement (the “Credit Agreement”) among the Company, as borrower, each lender from time to time party thereto (the “Lenders”), JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Agent”) and the Swing Line Lender (as defined in the Credit Agreement), and each L/C Issuer (as defined therein) party thereto, pursuant to which the Company established:

On October 8, 2021, the Company entered into a credit agreement (the “Credit Agreement”) among the Company, as borrower, each lender from time to time party thereto (the “Lenders”), JPMorgan Chase Bank, N.A., as administrative agent and the Swing Line Lender (as defined in the Credit Agreement), and each L/C Issuer (as defined therein) party thereto, pursuant to which the Company established:

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

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

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

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.

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 (“Amendment No.

1”) 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 by Amendment No.

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

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

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 April 30, 2024, the stated interest rate on the Credit Facilities was 6.67 % and the effective interest rate on the Term Loan Facility was 7.43 %.

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

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

As of April 30, 2024, the Company had $ 50.0 million outstanding under its Revolving Credit Facility.

In May 2024, the Company borrowed an additional $ 175.0 million under its Revolving Credit Facility, which was used to pay for the third tranche of the BenefitWallet HSA portfolio acquisition.

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

1 unchanged sentence

(ii) 5.0 % for each of the second and third years after October 8, 2021;

(iii) 7.5 % for the fourth year after October 8, 2021;

(iii) 7.5 % for

the fourth year after October 8, 2021;

and (iv) 10.0 % for the fifth year after October 8, 2021.

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.” 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.

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

The Company was in compliance with all covenants under the Credit Agreement as of April 30, 2024, and for the period then ended.

The Company continues to be in compliance with all covenants under the Credit Agreement through the filing date of this Quarterly Report on Form 10-Q.

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

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

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

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

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

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

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

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

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

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

For the three months ended April 30, 2024, the Company recorded an income tax provision of $ 4.4 million.

This resulted in an effective income tax rate of 13.3 % for the three months ended April 30, 2024, compared with an effective income tax rate of 59.1 % for the three months ended April 30, 2023.

For the three months ended April 30, 2024 and 2023, discrete tax items impacting the effective tax rate were primarily due to differences in tax deductible stock-based compensation compared to GAAP stock-based compensation expense.

As of April 30, 2024 and January 31, 2024, the Company’s total gross unrecognized tax benefit was $ 20.2 million and $ 19.2 million, respectively.

If recognized, $ 17.1 million of the total gross unrecognized tax benefits would affect the Company's effective tax rate as of April 30, 2024.

The Company files income tax returns with U.S.

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

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

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

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

federal and state taxing jurisdictions and is currently under examination by California and 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.

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.

Stock-based compensation

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

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

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

Three months ended April 30,

(in thousands) 2024 2023

6 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.

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

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

The Company grants restricted stock units ("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 under the Incentive Plan.

As of April 30, 2024, 14.3 million shares were available for grant under the Incentive Plan.

Stock options

9 unchanged sentences

Exercised ( 117 ) $ 14.00 - 41.28

Forfeited ( 4 ) $ 24.36 - 44.53

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

Outstanding as of April 30, 2024 609 $ 14.00 - 73.61

$ 40.84 2.6 $ 23,169

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

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

Vested and expected to vest as of April 30, 2024 609 $ 40.84 2.6 $ 23,169

Exercisable as of April 30, 2024 609 $ 40.84 2.6 $ 23,169

Restricted stock units

6 unchanged sentences

Forfeited ( 39 ) 62.67

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

Outstanding as of April 30, 2024 3,563 $ 73.81

Performance restricted stock units.

1 unchanged sentence

The Company used a Monte Carlo simulation to determine that the grant date fair value of the awards was $ 20.2 million.

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

Compensation expense is recorded over the requisite service period 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 PRSUs cliff vest upon approval by the Compensation Committee of the board of directors.

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

During the three months ended April 30, 2024, the Company awarded 60,682 PRSUs subject to the achievement of certain financial criteria measured on January 31, 2027.

The PRSUs cliff vest and are issued upon approval by the Talent, Compensation and Culture Committee.

The Company records stock-based compensation related to PRSUs over the requisite service period when it is considered probable that the performance conditions will be met.

Company believes it is probable that the PRSUs will vest at least in part.

The vesting of the PRSUs will ultimately range from 0 % to 200 % of the number of shares underlying the PRSU grant based on the level of achievement of the performance goals.

Each of the PRSUs granted during the three months ended April 30, 2024 contain a provision such that upon the award holder's eligible retirement, the PRSUs would remain outstanding and eligible to vest based on achievement of their respective market or performance conditions without regard to the award holder’s continued employment on the vesting date.

Based on the application of ASC 718, Compensation - Stock Compensation , expense is recognized over the requisite service period, which ends on the earlier of (1) the date of approval by the Talent, Compensation and Culture Committee or (2) the date the award holder becomes eligible for retirement (defined as at least 55 years old with least 10 years of service at the Company).

As a result, the expense associated with PRSUs granted to retirement-eligible individuals was recorded on the grant date.

Fair value measurements are made at a specific point in time based on relevant market information.

9 unchanged sentences

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

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

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

The Term Loan Facility reprices frequently due to variable interest rate terms and entails no significant changes in credit risk.

As a result, the fair value of the Term Loan Facility approximates carrying value.

As of April 30, 2024, the fair value of the Notes was $ 547.5 million.

Borrowings under the Credit Facilities are considered Level 2 instruments and recorded at book value in the Company's condensed consolidated financial statements.

The Credit Facilities reprice frequently due to variable interest rate terms and entail no significant changes in credit risk.

As a result, the fair value of the Credit Facilities approximates carrying value.

Subsequent events

Except for the completion of the BenefitWallet HSA portfolio acquisition and related borrowing under the Revolving Credit Facility, as described in Note 5—Commitments and contingencies, there were no subsequent events that required recognition or 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-Q

Item 1. Financial Statements