What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-18 compared with 2024-03-22 · 123 added, 157 removed, 338 unchanged (45% of the section changed)

14 unchanged sentences

We have increased our share of the growing HSA market from 4% in December 2010 to 21% as of June 2024, measured by HSA Assets.

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

According to the 2024 Midyear Devenir HSA Research Report, as of June 2024, we were the largest HSA provider by both accounts and HSA Assets.

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

10 unchanged sentences

Recent acquisitions

Luum acquisition.

In March 2021, we bolstered our commuter offering by acquiring 100% of the outstanding capital stock of Fort Effect Corp, d/b/a Luum.

The aggregate purchase price for the acquisition consisted of $56.2 million in cash.

Luum provides employers with various commuter services, including access to real-time commute data, to help them design and implement flexible return-to-office and hybrid-workplace strategies and benefits.

Fifth Third Bank HSA portfolio acquisition.

In September 2021, we acquired the Fifth Third HSA portfolio, which consisted of $490.0 million of HSA Assets held in approximately 160,000 HSAs in exchange for a purchase price of $60.8 million in cash.

Further acquisition.

In November 2021, we acquired the Further business (other than Further's voluntary employee beneficiary association business), a leading provider of HSA and other CDB administration services, with approximately 580,000 HSAs and $1.9 billion of HSA Assets, for $455 million in cash.

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

HealthSavings HSA portfolio acquisition.

1 unchanged sentence

BenefitWallet HSA portfolio acquisition.

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

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

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

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

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

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

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

In fiscal 2025, we acquired the BenefitWallet HSA portfolio, comprised of approximately 616,000 HSAs plus other accounts and $2.7 billion of HSA Assets, from Conduent for a purchase price of $425.0 million.

We paid the purchase price using $225.0 million of borrowings under our revolving credit facility, with the remainder paid using cash on hand.

Key factors affecting our performance

4 unchanged sentences

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

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

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

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

29 unchanged sentences

As a non-bank custodian, our members’ custodial HSA cash assets are held by either our federally insured Depository Partners (our "Basic Rates" offering), pursuant to contractual arrangements we have with these Depository Partners, or by our insurance company partners through group annuity contracts or other similar arrangements (our "Enhanced Rates" offering).

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

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

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

As our Basic Rates contracts expire, the HSA cash held in those Basic Rates contracts will transition to Enhanced Rates contracts, subject to our members retaining the right to keep their HSA cash in Basic Rates.

The lengths of our agreements with Depository Partners typically range from three to five years and may have fixed or variable interest rate terms.

7 unchanged sentences

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

Interest on our Term Loan Facility changes frequently due to variable interest rate terms, and as a result, our interest expense is expected to fluctuate based on changes in prevailing interest rates.

Recent interest rate increases have caused interest expense related to our Term Loan Facility to increase substantially.

Interest on our revolving credit facility changes frequently due to variable interest rate terms, and as a result, our interest expense is expected to fluctuate based on changes in prevailing interest rates.

Our proprietary technology

1 unchanged sentence

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

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

For example, we are making significant investments in the architecture and infrastructure of the technology that we use to provide our services to improve our transaction processing capabilities and support continued account and transaction growth, as well as in data-driven personalized engagement to help our members spend less, save more, and build wealth for retirement.

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

For example, we are making investments in the architecture and infrastructure of the technology that we use to provide our services to improve our transaction processing capabilities and support continued account and transaction growth, as well as in data-driven personalized engagement to help our members spend less, save more, and build wealth for retirement.

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

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

Our Purple culture

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Many of these are state or federally chartered banks and other financial institutions for which we believe benefits administration services are not a core business.

Some of our direct competitors (including healthcare service companies such as UnitedHealth Group's Optum, Webster Bank, and well-known retail investment companies, such as Fidelity Investments) are in a position to devote more resources to the development, sale, and support of their products and services than we have at our disposal.

Some of our direct competitors (including well-known retail investment companies, such as Fidelity Investments, and healthcare service companies such as UnitedHealth Group's Optum and Webster Bank ) are in a position to

devote more resources to the development, sale, and support of their products and services than we have at our disposal.

Our other CDB administration competitors include health insurance carriers, human resources consultants and outsourcers, payroll providers, national CDB specialists, regional third-party administrators, and commercial banks.

8 unchanged sentences

Various states also have laws and regulations that impose additional restrictions on our collection, storage, and use of personally identifiable information.

Privacy regulation in particular has become a priority issue in many states, including, for example, the California Privacy Rights Act, which became effective on January 1, 2023.

Privacy regulation in particular has become a priority issue in many states, including, for example, the California Privacy Rights Act.

Our ability to predict and react quickly to relevant legal and regulatory trends and to correctly interpret their market and competitive implications is important to our success.

1 unchanged sentence

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

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

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

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

For a discussion related to key financial and operating metrics for fiscal year 2024 compared to fiscal year 2023, refer to Part II, Item 7.

12 unchanged sentences

Average Total Accounts - Year-to-date 16,302 15,105 8 %

* Not meaningful

The number of our HSAs and CDBs are key metrics because our revenue is driven by the amount we earn from them.

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

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

The number of our HSAs increased by 1.2 million, or 14%, from January 31, 2024 to January 31, 2025, driven by new HSAs from sales and new HSAs added through the BenefitWallet HSA portfolio acquisition.

The number of our CDBs increased by 0.1 million, or 2%, from January 31, 2024 to January 31, 2025, primarily driven by an increase in HRA accounts.

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

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

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

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

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

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

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

HSA cash increased by $2.4 billion, or 16%, from January 31, 2024 to January 31, 2025, due to HSA cash added through the BenefitWallet HSA portfolio acquisition and net HSA contributions from new and existing HSA members, partially offset by transfers to HSA investments.

HSA investments increased by $4.5 billion, or 44%, from January 31, 2024 to January 31, 2025, due to the increased market value of invested balances, transfers from HSA cash, and HSA investments added through the BenefitWallet HSA portfolio acquisition.

Total HSA Assets increased by $6.9 billion, or 27%, from January 31, 2024 to January 31, 2025, primarily due to the increased market value of invested balances, HSA Assets added through the BenefitWallet HSA portfolio acquisition, and net HSA contributions from new and existing HSA members.

The following table summarizes the amount of HSA cash held by our Depository Partners and insurance company partners that is expected to reprice by fiscal year and the respective average annualized yield currently earned on that HSA cash as of January 31, 2025:

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(1) Excludes $0.8 billion of HSA cash held in floating-rate contracts as of January 31, 2025.

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

Client-held funds

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

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

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

We believe that

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

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

Year ended January 31,

(in thousands) 2025 2024

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

Net income $ 96,703 $ 55,712

Interest income (13,914) (12,138)

Interest expense 60,634 55,455

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

Income tax provision 19,331 19,328

Depreciation and amortization 50,573 60,315

2 unchanged sentences

Merger integration expenses 40,535 10,435

Acquisition costs — 53

Amortization of incremental costs to obtain a contract 6,745 5,435

2 unchanged sentences

Adjusted EBITDA $ 471,751 $ 369,173

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

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

Year ended January 31,

(in thousands, except percentages) 2025 2024 $ Change % Change

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

Net income $ 96,703 $ 55,712 $ 40,991 74%

As a percentage of revenue 8 % 6 %

* Not meaningful

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

The $41.0 million, or 74%, increase in net income from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to an increase in total revenue, partially offset by an increase in operating expenses, including the settlement of a lawsuit related to a lease termination (the "Lease Settlement"), as described in Note 6—Commitments and contingencies to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, and an increase in cost of revenue, including increased costs incurred to reimburse and protect members from outside fraud activity.

For additional information, refer to the section entitled "Results of operations."

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

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As a percentage of revenue 39 % 37 %

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

The $102.6 million, or 28%, increase in Adjusted EBITDA from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to an increase in total revenue, partially offset by increases in personnel-related costs, professional fees, and costs incurred to reimburse and protect members from outside fraud activity.

Our use of Adjusted EBITDA, including as a percentage of revenue, has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.

Non-GAAP net income

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

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

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

We believe that non-GAAP net income and non-GAAP net income per diluted share provide useful information to investors and analysts in understanding and evaluating our operating results in the same manner as our management and our board of directors because these non-GAAP metrics reflect operating profitability before consideration of certain non-operating expenses and non-cash expenses and serve as a basis for comparison against other companies in our industry.

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

believe that non-GAAP net income and non-GAAP net income per diluted share provide useful information to investors and analysts in understanding and evaluating our operating results in the same manner as our management and our board of directors because these non-GAAP metrics reflect operating profitability before consideration of certain non-operating expenses and non-cash expenses and serve as a basis for comparison against other companies in our industry.

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

Year ended January 31,

(in thousands, except per share data) 2025 2024

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

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

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

Net income $ 96,703 $ 55,712

Income tax provision 19,331 19,328

Income before income taxes - GAAP 116,034 75,040

Non-GAAP adjustments:

2 unchanged sentences

Merger integration expenses 40,535 10,435

Acquisition costs — 53

Costs associated with unused office space 3,244 4,179

Loss on extinguishment of debt 1,576 1,157

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

Total adjustments to income before income taxes - GAAP 253,658 185,685

Income before income taxes - Non-GAAP 369,692 260,725

2 unchanged sentences

Diluted weighted-average shares 88,828 86,957

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

GAAP net income per diluted share $ 1.09 $ 0.64

Non-GAAP net income per diluted share $ 3.12 $ 2.25

2 unchanged sentences

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

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

The $81.7 million, or 42%, increase in non-GAAP net income from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to an increase in total revenue, partially offset by increases in personnel-related costs, professional fees, and costs incurred to reimburse and protect members from outside fraud activity.

Our use of non-GAAP net income has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.

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

In addition, once a member’s HSA cash balance

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

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

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

1 unchanged sentence

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

HSA cash is held by our Depository Partners pursuant to contracts that (i) typically have terms ranging from three to five years, (ii) provide for a fixed or variable interest rate payable on the average daily cash balances held by the relevant Depository Partner, and (iii) have minimum and maximum required balances.

HSA cash is held by our

Depository Partners pursuant to contracts that (i) typically have terms ranging from three to five years, (ii) provide for a fixed or variable interest rate payable on the average daily cash balances held by the relevant Depository Partner, and (iii) have minimum and maximum required balances.

HSA cash held by our insurance company partners is held in group annuity contracts or similar arrangements.

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

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

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

Custodial costs.

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

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

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

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

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

The assets include acquired customer

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

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

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

2 unchanged sentences

Merger integration.

Merger integration expenses include personnel and related expenses, including severance, professional fees, legal expenses, and facilities and technology expenses directly related to integration activities to merge operations as a result of acquisitions.

Merger integration expenses include personnel and related expenses, including severance, professional fees, legal expenses and settlements, and facilities and technology expenses directly related to integration activities to merge operations as a result of acquisitions.

Interest expense

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

Other income (expense), net

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

Income tax provision (benefit)

Other income, net

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

Income tax provision

We are subject to federal and state income taxes in the United States based on a January 31 fiscal year end.

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Results of operations

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

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

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

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

For a discussion related to results of operations for the fiscal year ended January 31, 2024 compared to the fiscal year ended January 31, 2023, refer to Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024, filed with the SEC on March 22, 2024.

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

Year ended January 31, 2023 to 2024 2022 to 2023

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

Year ended January 31,

(in thousands, except percentages) 2025 2024 $ change % change

Service revenue $ 478,317 $ 455,690 $ 22,627 5 %

3 unchanged sentences

Service revenue.

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

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

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

The $22.6 million, or 5%, increase in service revenue from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to the increases in the number of HSAs and the amount of HSA investments, partially offset by lower average service fees per account.

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

Custodial revenue.

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

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

The $158.8 million, or 41%, increase in custodial revenue from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to an increase in average annualized yield on HSA cash from 2.49% for the fiscal year ended January 31, 2024 to 3.11% for the fiscal year ended January 31, 2025 (due to both higher market interest rates and an increase in participation in our Enhanced Rates offering from 32% of HSA cash as of January 31, 2024 to 49% as of January 31, 2025), the $2.1 billion, or 15%,

increase in the average daily balance of HSA cash, as described above, and an increase in interest rates on the portion of our Client-held funds held by our Depository Partners in interest-bearing demand deposit accounts that have a floating interest rate.

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

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Interchange revenue.

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

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

The $18.7 million, or 12%, increase in interchange revenue from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to an increase in Total Accounts and an increase in spend per account using our payment cards.

We expect interchange revenue to continue to increase, primarily due to an increase in Total Accounts.

Total revenue.

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

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

Total revenue increased by $200.2 million, or 20%, from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025, due to the increases in custodial, service, and interchange revenues, described above.

Cost of revenue

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

Year ended January 31, 2023 to 2024 2022 to 2023

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

Year ended January 31,

(in thousands, except percentages) 2025 2024 $ change % change

Service costs $ 351,588 $ 317,357 $ 34,231 11 %

3 unchanged sentences

Service costs.

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

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

The $34.2 million, or 11%, increase in service costs from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to a $19.1 million increase in costs incurred to reimburse members impacted by outside fraud activity and increases in costs to support the increase in Total Accounts and member interactions, partially offset by efficiencies resulting from our technology investments.

For the fiscal year ending January 31, 2026, we expect service costs to decrease as a result of our technology investments in security and further operational efficiencies, partially offset by costs resulting from an increase in Total Accounts.

Custodial costs.

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

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

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

The $7.2 million, or 22%, increase in custodial costs from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to the $2.1 billion, or 15% increase in the average daily balance of HSA cash, as described above, an increase in fees charged by our Depository Partners, and an increase in the average annualized rate of interest retained by HSA members on HSA cash, from 0.22% during the fiscal year ended January 31, 2024 to 0.23% during the fiscal year ended January 31, 2025.

On an annual basis, we expect custodial costs to increase due to an increase in the year-over-year average daily balance of HSA cash, an increase in fees charged by our Depository Partners, and an increase in the average annualized rate of interest retained by HSA members on HSA cash.

Interchange costs.

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

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

The $4.2 million, or 15%, increase in interchange costs from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to an increase in Total Accounts and certain costs associated with our transition to a single card processor during the fiscal year ended January 31, 2025, partially offset by efficiencies resulting from the transition.

Total cost of revenue.

As we continue to add Total Accounts, we expect that our cost of revenue will increase in dollar amount to support our Network Partners, Clients, and members.

However, on an annual basis, relative to the fiscal year ended January 31, 2024, we expect our cost of revenue to decrease as a percentage of our total revenue, primarily due to an increase in custodial revenue, partially offset by increases in stock-based compensation and other personnel costs.

For the fiscal year ending January 31, 2026, we expect that our cost of revenue will decrease in dollar amount, primarily due to a decrease in service costs.

We expect our cost of revenue to decrease as a percentage of our total revenue, primarily due to an increase in custodial revenue and a decrease in service costs, partially offset by costs resulting from an increase in Total Accounts.

Cost of revenue as a percentage of total revenue decreased to 35% for the fiscal year ended January 31, 2025 compared to 38% for the fiscal year ended January 31, 2024, due to total revenue increasing at a significantly higher rate (20%) than total cost of revenue (12%).

Cost of revenue will continue to be affected by a number of different factors, including our ability to scale our service delivery, Network Partner implementation, and account management functions.

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

Year ended January 31, 2023 to 2024 2022 to 2023

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

Year ended January 31,

(in thousands, except percentages) 2025 2024 $ change % change

Sales and marketing $ 90,739 $ 79,273 $ 11,466 14 %

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Sales and marketing.

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

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

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

The $11.5 million, or 14%, increase in sales and marketing expenses from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to an increase in personnel-related expenses.

We expect our sales and marketing expenses to increase as we continue to focus on our cross-selling and member engagement programs.

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

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Technology and development.

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

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

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

The $20.7 million, or 9%, increase in technology and development expenses from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to increases in personnel-related expenses and software costs.

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

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

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General and administrative.

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

The $12.0 million, or 14%, increase in general and administrative expenses from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the inclusion of a full year of Further's results of operations and increases in personnel-related expenses and stock-based compensation.

We expect our general and administrative expenses to increase for the foreseeable future due to the additional demands on our legal, compliance, and finance functions as we continue to grow our business.

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

The $28.6 million, or 28%, increase in general and administrative expenses from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to accelerated stock-based compensation expense recognized with respect to certain performance restricted stock units granted during the current fiscal year, as described in Note 9—Stock-based compensation to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, and increases in professional services expense.

For the fiscal year ending January 31, 2026, we expect our general and administrative expenses to decrease, primarily due to a decrease in stock-based compensation expense, partially offset by additional demands on our legal, compliance, and finance functions as we continue to grow our business.

We expect our general and administrative expenses to decrease as a percentage of our total revenue.

However, our general and administrative expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our general and administrative expenses.

Amortization of acquired intangible assets.

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

The $11.8 million, or 14%, increase in amortization of acquired intangible assets from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the inclusion of amortization related to identified intangible assets acquired through the Further Acquisition commencing November 1, 2021.

The remainder of the increase was primarily due to amortization of acquired HSA portfolios, including the Fifth Third and HealthSavings HSA portfolios.

The $19.1 million, or 21%, increase in amortization of acquired intangible assets from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to the new intangible assets added through the BenefitWallet HSA portfolio acquisition.

On an annual basis, we expect amortization of acquired intangible assets to decrease, primarily due to a smaller carrying amount of intangible assets that have not been fully amortized.

Merger integration.

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

The $10.4 million in merger integration expense for the fiscal year ended January 31, 2024 was primarily due to personnel and related expenses, including expenses incurred in conjunction with the migration of accounts, professional fees, and technology-related expenses directly related to the Further acquisition and certain ongoing merger integration expenses related to the acquisition of WageWorks, including ongoing lease expense related to WageWorks offices that have been permanently closed, less any related sublease income, and professional fees.

We expect merger integration expenses attributable to the Further acquisition totaling approximately $55 million to be incurred over a period of approximately five to six years from the date of the acquisition, which occurred in November 2021.

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

The $30.1 million, or 288%, increase in merger integration expense from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to the Lease Settlement, as described in Note 6—Commitments and contingencies to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Other merger integration expenses during the fiscal year ended January 31, 2025 consisted of professional fees, including expenses incurred in conjunction with the migration of accounts, technology-related expenses directly related to the Further acquisition and certain ongoing merger integration expenses related to the acquisition of WageWorks, Inc.

("WageWorks").

On an annual basis, we expect merger integration expense to decrease as we complete the remaining merger integration activities.

Interest expense

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

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

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

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

On an annual basis, we expect our interest expense to increase, primarily due to the impact of borrowings under our Revolving Credit Facility in conjunction with the BenefitWallet HSA portfolio acquisition, which is expected to close in multiple tranches during the first half of fiscal 2025, and increased interest rates on our Term Loan Facility, partially offset by a lower average principal balance under our Term Loan Facility.

The interest rate on our Term Loan Facility and Revolving Credit Facility is variable and, accordingly, we may incur additional expense if interest rates continue to increase in future periods.

Other income (expense), net

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

The change in other income (expense), net, from expense of $5.9 million during the fiscal year ended January 31, 2022 to income of $1.3 million during the fiscal year ended January 31, 2023, was primarily due to a $10.8 million decrease in acquisition costs, partially offset by a $3.6 million decrease in other miscellaneous income, net.

Income tax provision (benefit)

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

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

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

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

The $5.2 million, or 9%, increase in interest expense from the fiscal year ended January 31, 2024 to the fiscal year ended January 31, 2025 was primarily due to a higher average principal balance and a $0.4 million increase in losses on extinguishment of debt.

The increase was partially offset by a lower average interest rate on borrowings with variable interest rate terms.

On August 23, 2024, we entered into the Credit Agreement 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, a portion of which was used to repay all outstanding obligations under our prior credit agreement (the "Prior Credit Agreement").

As of January 31, 2025, borrowings under our Revolving Credit Facility were $461.9 million and had a stated interest rate of 5.91%.

As of January 31, 2024, borrowings under our Prior Credit Agreement were $286.9 million and had a stated interest rate of 6.69%.

The increase in principal was due to $225.0 million of borrowings to pay a portion of the BenefitWallet HSA portfolio acquisition purchase price, partially offset by prepayments of $50.0 million during the fiscal year ended January 31, 2025.

The interest rate on our Revolving Credit Facility is variable and, accordingly, we may incur additional expense if interest rates increase in future periods.

Other income, net

The $1.5 million increase in other income, net, was due to an increase in interest income on corporate cash, partially offset by a decrease in other miscellaneous income, net.

Income tax provision

We recorded an income tax provision of $19.3 million in each of the fiscal years ended January 31, 2025 and 2024.

Relative to the year ended January 31, 2024, we had an increase in pre-tax book income, an increase in nondeductible executive compensation, and increased expense from deferred tax rate adjustments due to state apportionment changes, which were offset by an increase in tax deductible stock-based compensation compared to GAAP stock-based compensation expense and a decrease in expense from unrecognized tax benefits.

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

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Liquidity and capital resources

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

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

For a discussion related to liquidity and capital resources for the fiscal year ended January 31, 2024 compared to the fiscal year ended January 31, 2023, refer to Part II, Item 7.

Cash and cash equivalents overview

Our principal sources of liquidity are our current cash and cash equivalents balances, collections from our service, custodial, and interchange revenue activities, and availability under our Revolving Credit Facility.

We rely on cash provided by operating activities to meet our short-term liquidity requirements, which primarily relate to the payment of corporate payroll and other operating costs, principal and interest payments on our long-term debt, and capital expenditures.

Our principal sources of liquidity are our current cash and cash equivalents balances, collections from our custodial, service, and interchange revenue activities, and availability under our Revolving Credit Facility.

We rely on cash provided by operating activities to meet our short-term liquidity requirements, which primarily relate to the payment of corporate payroll and other operating costs, interest payments on our long-term debt, and capital expenditures.

As of January 31, 2025 and January 31, 2024, cash and cash equivalents were $295.9 million and $404.0 million, respectively.

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In addition, we may conduct concurrent or other financings at any time.

Our Credit Agreement includes a Revolving Credit Facility, in an aggregate principal amount of up to $1.0 billion, which may be used for working capital and general corporate purposes, including the financing of acquisitions and other investments.

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

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

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

On August 23, 2024, we entered into the Credit Agreement, which includes a five-year senior secured Revolving Credit Facility in an aggregate principal amount of up to $1.0 billion, a portion of which was used to refinance our Prior Credit Agreement.

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.

For a description of the terms of the Credit Agreement, refer to Note 7—Indebtedness to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

As of January 31, 2025, the outstanding balance under the Revolving Credit Facility was $461.9 million.

We were in compliance with all covenants under the Credit Agreement as of January 31, 2025, and for the period then ended.

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

During the fiscal year ended January 31, 2025, we used $452.2 million of cash, which includes $225.0 million borrowed under our prior revolving credit facility, to pay for the BenefitWallet HSA portfolio acquisition.

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

During the fiscal year ended January 31, 2025, we prepaid $50.0 million under the Credit Agreement.

During the fiscal year ended January 31, 2025, we used $121.5 million of cash for common stock repurchases.

See Note 10—Stockholders' equity to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to our stock repurchase program.

Capital expenditures for the fiscal years ended January 31, 2025 and 2024 were $53.2 million and $42.8 million, respectively.

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Net cash used in investing activities (505,454) (46,074)

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

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

Net cash provided by (used in) financing activities 57,567 (47,039)

Increase (decrease) in cash and cash equivalents (108,031) 149,713

Beginning cash and cash equivalents 403,979 254,266

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Cash flows from operating activities.

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

Net cash provided by operating activities increased by $97.0 million, primarily due to increased cash receipts with respect to our custodial, service, and interchange revenues and a decrease in income tax payments, partially offset by an increase in cash payments with respect to operating expenses, cost of revenue, and interest on our long-term debt.

Cash flows from investing activities.

Net cash used in investing activities decreased by $73.1 million, due to a $67.3 million decrease in cash used for HSA portfolio acquisitions, a $4.1 million decrease in cash used for

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

Net cash used in investing activities increased by $459.4 million, primarily due to a $449.0 million increase in cash used to acquire HSA portfolios and a $10.0 million increase in cash used for purchases of software and capitalized software development costs.

Cash flows from financing activities.

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

Net cash provided by financing activities was $57.6 million during the fiscal year ended January 31, 2025, compared to $47.0 million of net cash used in financing activities during the fiscal year ended January 31, 2024.

The change was due to a $736.9 million increase in proceeds from long-term debt and a $3.0 million increase in proceeds from the exercise of common stock options, partially offset by a $511.2 million increase in cash used for principal payments and debt issuance costs associated with our long-term debt, a $121.5 million increase in cash used for repurchases of common stock, and a $2.5 million increase in net cash used in the settlement of client-held funds obligations.

Contractual obligations

See Note 7—Commitments and contingencies for information about our contractual obligations.

See Note 6—Commitments and contingencies to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for information about our contractual obligations.

Off-balance sheet arrangements

As of January 31, 2024, other than outstanding letters of credit issued under our Revolving Credit Facility, we did not have any off-balance sheet arrangements.

The standby letters of credit generally expire within one year.

However, in the ordinary course of business, we will continue to renew or modify the terms of the letters of credit to support business requirements.

The letters of credit are contingent liabilities, supported by our Revolving Credit Facility, and are not reflected on our consolidated balance sheets.

As of January 31, 2025, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Critical accounting policies and significant management estimates

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Management’s judgment is required in determining the point when various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized.

Valuation of long-lived assets including goodwill and intangible assets

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.

Significant estimates in valuing certain intangible assets include, but are not limited to, discount rates and revenue growth rates, net of attrition, related to acquired customer relationships.

Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Allocation of purchase consideration to identifiable assets and liabilities affects our amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite lived intangible assets, including goodwill, are not amortized.

During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Valuation of goodwill and other long-lived assets

We review goodwill for impairment at least annually or more frequently if events or changes in circumstances would more likely than not reduce the fair value of our single reporting unit below its carrying value.

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The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate from the use and eventual disposition.

Recoverability of these assets is measured by a comparison of the carrying

amounts to the future undiscounted cash flows the assets are expected to generate from the use and eventual disposition.

If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis