What changed in this filing

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Item 1. Financial Statements

2024-09-03 compared with 2024-06-03 · 104 added, 91 removed, 374 unchanged (34% of the section changed)

3 unchanged sentences

Condensed consolidated balance sheets

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

(in thousands, except par value) July 31, 2024 January 31, 2024

Current assets

Cash and cash equivalents $ 326,893 $ 403,979

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

Accounts receivable, net of allowance for doubtful accounts of $ 2,831 and $ 3,947 as of July 31, 2024 and January 31, 2024, respectively

108,454 104,893

23 unchanged sentences

Stockholders’ equity

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

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

Common stock, $ 0.0001 par value, 900,000 shares authorized, 87,324 and 86,127 shares issued and outstanding as of July 31, 2024 and January 31, 2024, respectively

Additional paid-in capital 1,886,765 1,829,384

7 unchanged sentences

comprehensive income (unaudited)

Three months ended April 30,

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

(in thousands, except per share data) 2024 2023 2024 2023

34 unchanged sentences

Condensed consolidated statements of stockholders’ equity (unaudited)

Three months ended April 30,

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

(in thousands) 2024 2023 2024 2023

18 unchanged sentences

Condensed consolidated statements of cash flows (unaudited)

Three months ended April 30,

Six months ended July 31,

(in thousands) 2024 2023

27 unchanged sentences

Net cash provided by (used in) financing activities 228,388 ( 53,182 )

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

Increase (decrease) in cash and cash equivalents ( 77,086 ) 36,079

Beginning cash and cash equivalents 403,979 254,266

4 unchanged sentences

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

Three months ended April 30,

Six months ended July 31,

(in thousands) 2024 2023

1 unchanged sentence

Interest expense paid in cash $ 26,970 $ 23,504

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

Income tax payments, net 13,471 15,113

Supplemental disclosures of non-cash investing and financing activities:

1 unchanged sentence

Purchases of property and equipment included in accounts payable or accrued liabilities 70 300

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

Non-cash purchase consideration related to acquisitions of HSA portfolios 20,325 —

Exercise of common stock options receivable — 50

13 unchanged sentences

The following table presents the impact of the reclassifications:

Three months ended April 30, 2023

(in thousands) Prior presentation Reclassifications Current presentation

Three months ended July 31, 2023 Six months ended July 31, 2023

(in thousands) Prior presentation Reclassifications Current presentation Prior presentation Reclassifications Current presentation

Service revenue $ 105,719 $ 6,241 $ 111,960 $ 210,831 $ 12,202 $ 223,033

12 unchanged sentences

Basis of presentation

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.

The accompanying condensed consolidated financial statements as of July 31, 2024 and for the three and six months ended July 31, 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.

20 unchanged sentences

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

Three months ended April 30,

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

(in thousands, except per share data) 2024 2023 2024 2023

10 unchanged sentences

Diluted $ 0.40 $ 0.12 $ 0.73 $ 0.17

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.

For the three months ended July 31, 2024 and 2023, 0.1 million and 1.6 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.

For the six months ended July 31, 2024 and 2023, 0.1 million and 0.9 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

1 unchanged sentence

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.

As of July 31, 2024 and January 31, 2024, the Company had prepaid expenses of $ 42.7 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) April 30, 2024 January 31, 2024

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

Leasehold improvements $ 14,461 $ 14,455

4 unchanged sentences

Property and equipment, net $ 4,592 $ 6,013

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

Depreciation expense was $ 1.3 million and $ 2.7 million for the three and six months ended July 31, 2024, respectively, and $ 2.0 million and $ 4.5 million for the three and six months ended July 31, 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 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.

As of July 31, 2024 and January 31, 2024, the balance of deferred revenue was $ 22.6 million and $ 6.2 million, respectively.

The balance as of July 31, 2024 relates primarily to a contract with a depository partner, which the Company assumed in conjunction with the BenefitWallet HSA portfolio acquisition, as described in Note 5—Commitments and contingencies.

The remainder of the balances as of July 31, 2024 and January 31, 2024 relates 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 56 % of its balance of deferred revenue as revenue over the next 12 months and the remainder thereafter.

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.

Revenue recognized during the three and six months ended July 31, 2024 that was included in the balance of deferred revenue as of January 31, 2024 was $ 1.3 million and $ 2.8 million, respectively.

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

The components of operating lease costs were as follows:

Three months ended April 30,

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

(in thousands)

2024 2023 2024 2023

Operating lease expense $ 2,257 $ 2,365 $ 4,624 $ 4,966

3 unchanged sentences

Other income, net, consisted of the following:

Three months ended April 30,

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

(in thousands) 2024 2023 2024 2023

3 unchanged sentences

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 three months ended April 30, 2023.

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 Prior Term Loan Facility (as defined in Note 6—Indebtedness) in April 2023, which is included within interest expense in the condensed consolidated statement of operations and comprehensive income for the six months ended July 31, 2023.

Supplemental cash flow information

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

Three months ended April 30,

Six months ended July 31,

(in thousands) 2024 2023

5 unchanged sentences

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

April 30, 2024

July 31, 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 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.

Amortization expense was $ 42.3 million and $ 79.9 million for the three and six months ended July 31, 2024, respectively, and $ 36.3 million and $ 72.8 million for the three and six months ended July 31, 2023, respectively.

There were no changes to the carrying value of goodwill during the six months ended July 31, 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 September 2023, the Company entered into an agreement to acquire the BenefitWallet HSA portfolio from Conduent Business Services, LLC ("Conduent").

2 unchanged sentences

(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

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

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

3 unchanged sentences

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.

The Company capitalized $ 27.2 million of transaction costs associated with the acquisition during the six months ended July 31, 2024, which includes 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.

The Company recorded deferred revenue of $ 20.3 million 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 six months ended July 31, 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

10 unchanged sentences

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.

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.

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.

WageWorks is seeking 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.

2 unchanged sentences

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 is subject to several putative class action lawsuits seeking unspecified damages as a result of a cybersecurity incident earlier this year in which a business partner's user account containing personally identifiable information was breached.

The Company intends to vigorously defend these lawsuits.

The amount of the potential loss associated with these lawsuits cannot be reasonably estimated based on currently available information.

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.

1 unchanged sentence

As required under GAAP, the Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Based on currently available information, the Company does not believe that any liabilities relating to these matters are probable or that the amount of any resulting loss is estimable.

No loss accrual relating to these matters was recorded because, based on currently available information, the Company does not believe that any liabilities relating to these matters are probable or that the amount of any resulting loss is estimable.

However, litigation is subject to inherent uncertainties and the Company’s view of these matters may change in the future.

1 unchanged sentence

Long-term debt consisted of the following:

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

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

4.50 % Senior Notes due 2029

$ 600,000 $ 600,000

Term Loan Facility 286,875 286,875

Revolving Credit Facility 50,000 —

Prior Term Loan Facility 286,875 286,875

Prior Revolving Credit Facility 225,000 —

Principal amount 1,111,875 886,875

3 unchanged sentences

Long-term debt, net $ 1,101,400 $ 874,972

(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.

(1) In addition to the $ 10.5 million and $ 11.9 million of unamortized discount and issuance costs related to long-term debt as of July 31, 2024 and January 31, 2024, respectively, $ 2.0 million and $ 2.5 million of unamortized issuance costs related to the Company's Prior Revolving Credit Facility (as defined below) are included within other assets on the condensed consolidated balance sheets as of July 31, 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.

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.

As of July 31, 2024 and January 31, 2024, the balance of accrued interest on the Notes was $ 9.0 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 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 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 %.

On August 23, 2024, 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 a new five-year senior secured revolving credit facility (the “Revolving Credit Facility”) 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 Company borrowed $ 511.9 million under the Revolving Credit Facility to refinance the Prior Credit Agreement (as defined below).

The Revolving Credit Facility may be used in the future for working capital and general corporate purposes, including the financing of acquisitions and other investments.

As of August 23, 2024, the outstanding balance under the Revolving Credit Facility was $ 511.9 million.

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 $ 450 million, plus an additional amount so long as the Company’s pro forma first lien net leverage ratio would not exceed 3.85 to 1.00 as of the date such loans or commitments are incurred.

Borrowings under the Revolving Credit Facility bear interest at an annual rate equal to, at the Company’s option, either (i) the secured overnight financing rate published by the CME Group Benchmark Administration Limited (“Term SOFR”) (subject to a 0.10 % “credit spread adjustment”) plus a margin ranging from 1.25 % to 2.50 % or (ii) an alternate base rate plus a margin ranging from 0.25 % to 1.50 %, with the applicable margin determined by reference to a leverage-based pricing grid set forth in the Credit Agreement.

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 0.25 % to 0.50 %, with the applicable rate also determined by reference to a leverage-based pricing grid set forth in the Credit Agreement.

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:

(i) 2.5 % for the first year after October 8, 2021;

(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;

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.”

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 April 30, 2024, and for the period then ended.

The loans under the Revolving Credit Facility 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 Credit Agreement contains 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 beginning with the fiscal quarter ending January 31, 2025, 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 beginning with the fiscal quarter ending January 31, 2025.

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.

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’s obligations under the Credit Agreement are required to be unconditionally guaranteed by each of its existing or subsequently acquired or organized direct and indirect 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.

Prior Credit Agreement

On October 8, 2021, the Company entered into a credit agreement (as amended, the “Prior Credit Agreement”) among the Company, as borrower, each lender from time to time party thereto (the “Prior Lenders”), JPMorgan Chase Bank, N.A., as administrative agent and the Swing Line Lender (as defined in the Prior 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 “Prior Term Loan Facility”), in an aggregate principal amount of $ 350 million;

(ii) a five-year senior secured revolving credit facility (the “Prior Revolving Credit Facility” and, together with the Prior Term Loan Facility, the “Prior 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).

Prior to June 1, 2023, borrowings under the Prior 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 Prior Credit Agreement.

On June 1, 2023, the Company entered into an amendment to the Prior Credit Agreement which replaced interest rate provisions based on LIBOR with the forward-looking term rate based on Term SOFR.

As a result, borrowings under the Prior Credit Agreement as so amended bore 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 Prior Credit Agreement (as amended).

As of July 31, 2024, the stated interest rate on the Prior Credit Facilities was 6.70 % and the effective interest rate on the Prior Term Loan Facility was 7.46 %.

The Company was also required to pay certain fees to the Prior Lenders, including, among others, a quarterly commitment fee on the average unused amount of the Prior 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 Prior Credit Agreement.

As of July 31, 2024, the Company had $ 225.0 million outstanding under its Prior Revolving Credit Facility and $ 286.9 million under the Prior Term Loan Facility.

The Prior Credit Agreement contained significant customary affirmative and negative covenants.

The Company was in compliance with all covenants under the Prior Credit Agreement as of July 31, 2024, and for the period then ended.

The Company continued to be in compliance with all covenants under the Prior Credit Agreement through the date on which the Prior Credit Agreement was terminated.

On August 23, 2024, in connection with the entry into the Credit Agreement, the Company repaid all outstanding obligations in the amount of $ 511.9 million under the Prior Credit Agreement and terminated all commitments thereunder.

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 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.

For the three and six months ended July 31, 2024, the Company recorded an income tax provision of $ 10.8 million and $ 15.2 million, respectively.

This resulted in an effective income tax rate of 23.2 % and 19.1 % for the three and six months ended July 31, 2024, respectively, compared with an effective income tax rate of 25.6 % and 39.4 % for the three and six months ended July 31, 2023, respectively.

For the three and six months ended July 31, 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 July 31, 2024 and January 31, 2024, the Company’s total gross unrecognized tax benefit was $ 21.2 million and $ 19.2 million, respectively.

If recognized, $ 18.1 million of the total gross unrecognized tax benefits would affect the Company's effective tax rate as of July 31, 2024.

The Company files income tax returns with U.S.

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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,

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

(in thousands) 2024 2023 2024 2023

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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.

During the six months ended July 31, 2024, the Company adopted the HealthEquity, Inc.

2024 Equity Incentive Plan (the "Incentive Plan"), which provides for the issuance of stock awards to team members, consultants, and directors of the Company.

Subject to adjustment as provided in the Incentive Plan, the aggregate number of shares of the Company’s common stock reserved and available for issuance pursuant to awards granted under the Incentive Plan is 4.1 million.

As of July 31, 2024, 4.1 million shares were available for grant under the Incentive Plan.

No further awards will be made under the Company’s 2014 Equity Incentive Plan.

Stock options

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Exercised ( 219 ) $ 14.00 - 47.21

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

Outstanding as of July 31, 2024 507 $ 21.27 - 73.61

$ 45.38 2.8 $ 16,780

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

Vested and expected to vest as of July 31, 2024 507 $ 45.38 2.8 $ 16,780

Exercisable as of July 31, 2024 507 $ 45.38 2.8 $ 16,780

Restricted stock units

A summary of RSU activity is as follows:

A summary of restricted stock unit ("RSU") and performance restricted stock unit ("PRSU") activity is as follows:

RSUs and PRSUs

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Forfeited ( 156 ) 71.95

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

Outstanding as of July 31, 2024 3,271 $ 73.74

Performance restricted stock units.

During the three months ended April 30, 2024, the Company awarded 182,044 performance restricted stock units ("PRSUs") subject to a market condition based on the Company’s total shareholder return ("TSR") relative to the Russell 2000 index as measured on January 31, 2027.

During the six months ended July 31, 2024, the Company awarded 182,044 PRSUs subject to a market condition based on the Company’s total shareholder return relative to the Russell 2000 index as measured on January 31, 2027.

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

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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.

During the six months ended July 31, 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 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.

Each of the PRSUs granted during the six months ended July 31, 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).

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Accounting standards specify a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable.

Observable inputs reflect data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.

Observable inputs reflect data obtained from

independent sources, while unobservable inputs reflect the Company’s market assumptions.

These two types of inputs have created the following fair value hierarchy:

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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 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.

As of July 31, 2024, the fair value of the Notes was $ 565.1 million.

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

The Prior Credit Facilities repriced frequently due to variable interest rate terms and entailed no significant changes in credit risk.

As a result, the fair value of the Prior Credit Facilities approximated 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.

As described in Note 6—Indebtedness, on August 23, 2024, the Company entered into the Credit Agreement, under which the Company borrowed $ 511.9 million to repay all outstanding obligations under the Prior Credit Agreement.

On September 3, 2024, the Company announced that its Board of Directors authorized a common stock repurchase program.

Under the program, the Company may purchase up to $ 300 million of its common stock, as market conditions warrant.

The common stock may be repurchased at prices that the Company deems appropriate and subject to market conditions, applicable law and other factors deemed relevant in the Company's sole discretion.

Such repurchases may be effected through open market purchases, privately negotiated transactions or otherwise, including repurchase plans that satisfy the conditions of Rule 10b5-1 under the Securities Exchange Act of 1934.

The stock repurchase program does not obligate the Company to repurchase any dollar amount or number of shares of common stock, and the program may be suspended or discontinued at any time.

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