HealthEquity Reports Third Quarter Ended October 31, 2021 Financial Results

HealthEquity Reports Third Quarter Ended October 31, 2021 Financial Results




HealthEquity Reports Third Quarter Ended October 31, 2021 Financial Results

Highlights of the third quarter include:

  • Revenue of $180.0 million, an increase of less than one percent compared to $179.4 million in Q3 FY21.
  • Net loss of $5.0 million, compared to net income of $1.8 million in Q3 FY21, with non-GAAP net income of $28.9 million, a decrease of 10% compared to $32.2 million in Q3 FY21.
  • Net loss per diluted share of $0.06, compared to net income per diluted share of $0.02 in Q3 FY21, with non-GAAP net income per diluted share of $0.35, compared to $0.41 in Q3 FY21.
  • Adjusted EBITDA of $61.1 million, the same as in Q3 FY21.
  • 6.2 million HSAs, an increase of 14% compared to Q3 FY21.
  • Total HSA Assets of $16.4 billion, an increase of 32% compared to Q3 FY21.
  • 13.3 million Total Accounts, including both HSAs and complementary CDB accounts, an increase of 6% compared to Q3 FY21.
  • The Company closed its acquisition of the Fifth Third Bank HSA portfolio on September 29, 2021 and its acquisition of Further on November 1, 2021.
  • The Company issued $600 million aggregate principal amount of 4.50% Senior Notes due 2029 and refinanced its credit facility.

DRAPER, Utah, Dec. 06, 2021 (GLOBE NEWSWIRE) — HealthEquity, Inc. (NASDAQ: HQY) (“HealthEquity” or the “Company”), the nation’s largest health savings account (“HSA”) non-bank custodian, today announced financial results for its third quarter ended October 31, 2021.

“The HealthEquity team delivered another strong quarter of HSA growth, with new HSA sales of 151,000 in the third quarter and 446,000 in the year to date,” said Jon Kessler, President and CEO of HealthEquity. “Adding to this year’s strong organic growth, we have on-boarded 160,000 new HSAs from Fifth Third Bank in the third quarter and 580,000 from Further in November to start our fourth quarter. HSA members have added nearly another $1 billion to their HSAs this quarter, and their HSA investments have grown significantly. We believe we are poised for a strong finish to this year’s selling season, continuing to outpace market growth.”

Third quarter financial results

Revenue for the third quarter ended October 31, 2021 was $180.0 million, an increase of less than one percent compared to $179.4 million for the third quarter ended October 31, 2020. Revenue this quarter included: service revenue of $102.7 million, custodial revenue of $49.0 million, and interchange revenue of $28.2 million.

HealthEquity reported a net loss of $5.0 million, or $0.06 per diluted share, and non-GAAP net income of $28.9 million, or $0.35 per diluted share, for the third quarter ended October 31, 2021. The Company reported net income of $1.8 million, or $0.02 per diluted share, and non-GAAP net income of $32.2 million, or $0.41 per diluted share, for the third quarter ended October 31, 2020.

Adjusted EBITDA was $61.1 million for the third quarter ended October 31, 2021, the same as in the third quarter ended October 31, 2020. Adjusted EBITDA was 34% of revenue for each of the third quarters ended October 31, 2021 and 2020.

Account and asset metrics

HealthEquity reported sales of 151,000 new HSAs in the third quarter ended October 31, 2021, compared to 104,000 in the third quarter ended October 31, 2020. HSAs as of October 31, 2021 were approximately 6.2 million, an increase of 14% year over year, including 431,000 HSAs with investments, an increase of 43% year over year. Total Accounts as of October 31, 2021 were 13.3 million, including 7.1 million other consumer-directed benefits (“CDBs”).

Total HSA Assets as of October 31, 2021 were $16.4 billion, an increase of 32% year over year. Total HSA Assets included $10.5 billion of HSA cash and $6.0 billion of HSA investments. Client-held funds, which are deposits held on behalf of our Clients to facilitate administration of our CDBs, and from which we generate custodial revenue, were $0.8 billion as of October 31, 2021.

HealthSavings HSA portfolio acquisition

HealthEquity also announced it has entered into a definitive agreement with Health Savings Administrators, L.L.C. (“HealthSavings”) to transition the custody of HealthSavings’ HSA portfolio to HealthEquity. The definitive agreement provides a $60 million purchase price for nearly $1.3 billion of HSA assets held in approximately 87,000 HSAs. Given that a significant portion of the HSA assets are currently invested, HealthSavings and HealthEquity are working closely to coordinate an in-kind transfer of most of the invested assets. The transition of HealthSavings’ HSAs to the HealthEquity platform is expected to be completed in the first quarter of fiscal 2023. Willkie Farr & Gallagher LLP is serving as legal advisor to HealthEquity. HealthSavings has engaged Raymond James & Associates, Inc. as financial advisor and Ellenoff Grossman & Schole LLP as its legal advisor.

WageWorks integration

HealthEquity completed its acquisition of WageWorks on August 30, 2019. As of October 31, 2021, we have achieved approximately $75 million of the approximately $80 million in annualized ongoing net synergies we expect to achieve by the end of fiscal year 2022.

Business outlook

For the fiscal year ending January 31, 2022, management expects revenues of $750 million to $755 million. Its outlook for net loss is between $36 million and $33 million, resulting in net loss of $0.43 to $0.40 per diluted share. Its outlook for non-GAAP net income, calculated using the method described below, is between $108 million and $112 million, resulting in non-GAAP net income per diluted share of $1.30 to $1.35 (based on an estimated 83 million diluted weighted-average shares outstanding). Management expects Adjusted EBITDA of $230 million to $235 million. This outlook includes the impact of the Fifth Third Bank HSA portfolio, which closed on September 29, 2021, and the Further acquisition, which closed on November 1, 2021. This outlook also includes the impact of the $600 million aggregate principal amount of 4.50% Senior Notes due 2029 and the refinanced credit facility.

See “Non-GAAP financial information” below for definitions of our Adjusted EBITDA and non-GAAP net income. A reconciliation of the non-GAAP financial measures used throughout this release to the most comparable GAAP financial measures is included with the financial tables at the end of this release.

Conference call

HealthEquity management will host a conference call at 4:30 pm (Eastern Time) on Monday, December 6, 2021 to discuss the third quarter 2022 financial results. The conference call will be accessible by dialing 844-791-6252, or 661-378-9636 for international callers, and referencing conference ID 5354046. A live audio webcast of the call will also be available on the investor relations section of our website at http://ir.healthequity.com

Non-GAAP financial information

To supplement our financial information presented on a GAAP basis, we disclose non-GAAP financial measures, including Adjusted EBITDA, non-GAAP net income, and non-GAAP net income per diluted share.

  • Adjusted EBITDA is adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, and other certain non-operating items.
  • Non-GAAP net income is calculated by adding back to GAAP net income (loss) before income taxes the following items: amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, and losses on extinguishment of debt, and subtracting a non-GAAP tax provision using a normalized non-GAAP tax rate.
  • Non-GAAP net income per diluted share is calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.

Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. We believe that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the Company’s financial condition and results of operations. The Company cautions investors that non-GAAP financial information, by its nature, departs from GAAP; accordingly, its use can make it difficult to compare current results with results from other reporting periods and with the results of other companies. In addition, while amortization of acquired intangible assets is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is not excluded. Whenever we use these non-GAAP financial measures, we provide a reconciliation of the applicable non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed in the tables below.

About HealthEquity

HealthEquity and its subsidiaries administer HSAs and other consumer-directed benefits for our more than 13 million accounts in partnership with employers, benefits advisors, and health and retirement plan providers who share our mission to connect health and wealth and value our culture of remarkable “Purple” service. For more information, visit www.healthequity.com

Forward-looking statements

This press release contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our industry, business strategy, plans, goals and expectations concerning our markets and market position, product expansion, future operations, expenses and other results of operations, revenue, margins, profitability, acquisition synergies, future efficiencies, tax rates, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “may,” “believes,” “intends,” “seeks,” “aims,” “anticipates,” “plans,” “estimates,” “expects,” “should,” “assumes,” “continues,” “could,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this press release.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to be correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, risks related to the following:

  • the impact of the ongoing COVID-19 pandemic on the Company, its operations and its financial results;
  • our ability to realize the anticipated financial and other benefits from combining the operations of WageWorks and Further with our business in an efficient and effective manner;
  • our ability to integrate the Further business successfully;
  • our ability to compete effectively in a rapidly evolving healthcare and benefits administration industry;
  • our dependence on the continued availability and benefits of tax-advantaged health savings accounts and other consumer-directed benefits;
  • our ability to successfully identify, acquire and integrate additional portfolio purchases or acquisition targets;
  • the significant competition we face and may face in the future, including from those with greater resources than us;
  • our reliance on the availability and performance of our technology and communications systems;
  • recent and potential future cybersecurity breaches of our technology and communications systems and other data interruptions, including resulting costs and liabilities, reputational damage and loss of business;
  • the current uncertain healthcare environment, including changes in healthcare programs and expenditures and related regulations;
  • our ability to comply with current and future privacy, healthcare, tax, ERISA, investment adviser and other laws applicable to our business;
  • our reliance on partners and third-party vendors for distribution and important services;
  • our ability to develop and implement updated features for our technology and communications systems and successfully manage our growth;
  • our ability to protect our brand and other intellectual property rights; and
  • our reliance on our management team and key team members.

For a detailed discussion of these and other risk factors, please refer to the risks detailed in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the fiscal year ended January 31, 2021 and subsequent periodic and current reports. Past performance is not necessarily indicative of future results. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.

Investor Relations Contact
Richard Putnam
801-727-1209
rputnam@healthequity.com

HealthEquity, Inc. and its subsidiaries
Condensed consolidated balance sheets

(in thousands, except par value) October 31, 2021   January 31, 2021
  (unaudited)    
Assets      
Current assets      
Cash and cash equivalents $ 649,129     $ 328,803  
Accounts receivable, net of allowance for doubtful accounts of $6,063 and $4,239 as of October 31, 2021 and January 31, 2021, respectively 84,083     72,767  
Other current assets 30,919     58,607  
Total current assets 764,131     460,177  
Property and equipment, net 24,930     29,106  
Operating lease right-of-use assets 81,150     89,508  
Intangible assets, net 820,946     767,003  
Goodwill 1,363,549     1,327,193  
Other assets 44,908     37,420  
Total assets $ 3,099,614     $ 2,710,407  
Liabilities and stockholders’ equity      
Current liabilities      
Accounts payable $ 5,244     $ 1,614  
Accrued compensation 32,695     50,670  
Accrued liabilities 49,879     75,880  
Current portion of long-term debt 6,563     62,500  
Operating lease liabilities 12,693     14,037  
Total current liabilities 107,074     204,701  
Long-term liabilities      
Long-term debt, net 923,501     924,217  
Operating lease liabilities, non-current 67,836     74,224  
Other long-term liabilities 18,953     8,808  
Deferred tax liability 110,400     119,729  
Total long-term liabilities 1,120,690     1,126,978  
Total liabilities 1,227,764     1,331,679  
Commitments and contingencies      
Stockholders’ equity      
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively      
Common stock, $0.0001 par value, 900,000 shares authorized, 83,586 and 77,168 shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively 8     8  
Additional paid-in capital 1,662,965     1,158,372  
Accumulated earnings 208,877     220,348  
Total stockholders’ equity 1,871,850     1,378,728  
Total liabilities and stockholders’ equity $ 3,099,614     $ 2,710,407  


HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of operations and comprehensive income (loss) (unaudited)

  Three months ended October 31,   Nine months ended October 31,
(in thousands, except per share data) 2021   2020   2021   2020
Revenue              
Service revenue $ 102,733     $ 104,562     $ 314,449     $ 319,638  
Custodial revenue 49,006     48,544     144,760     142,352  
Interchange revenue 28,215     26,245     94,050     83,411  
Total revenue 179,954     179,351     553,259     545,401  
Cost of revenue              
Service costs 66,217     65,936     204,183     202,195  
Custodial costs 5,734     4,762     15,567     14,805  
Interchange costs 4,683     4,095     15,102     13,985  
Total cost of revenue 76,634     74,793     234,852     230,985  
Gross profit 103,320     104,558     318,407     314,416  
Operating expenses              
Sales and marketing 12,726     12,880     42,288     36,502  
Technology and development 38,070     30,758     111,437     92,490  
General and administrative 20,004     22,099     63,503     61,590  
Amortization of acquired intangible assets 19,642     19,126     59,745     56,905  
Merger integration 13,244     8,193     38,422     31,328  
Total operating expenses 103,686     93,056     315,395     278,815  
Income (loss) from operations (366 )   11,502     3,012     35,601  
Other expense              
Interest expense (11,881 )   (6,952 )   (25,824 )   (28,110 )
Other income (expense), net 3,122     (421 )   (164 )   (2,009 )
Total other expense (8,759 )   (7,373 )   (25,988 )   (30,119 )
Income (loss) before income taxes (9,125 )   4,129     (22,976 )   5,482  
Income tax provision (benefit) (4,087 )   2,340     (11,505 )   2,015  
Net income (loss) and comprehensive income (loss) $ (5,038 )   $ 1,789     $ (11,471 )   $ 3,467  
Net income (loss) per share:              
Basic $ (0.06 )   $ 0.02     $ (0.14 )   $ 0.05  
Diluted $ (0.06 )   $ 0.02     $ (0.14 )   $ 0.05  
Weighted-average number of shares used in computing net income (loss) per share:              
Basic 83,551     76,701     82,939     73,358  
Diluted 83,551     77,845     82,939     74,665  


HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of cash flows (unaudited)

  Nine months ended October 31,
(in thousands)   2021       2020  
Cash flows from operating activities:      
Net income (loss) $ (11,471 )   $ 3,467  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation and amortization 98,364     85,485  
Stock-based compensation 41,700     30,313  
Amortization of debt discount and issuance costs 3,616     3,818  
Loss on extinguishment of debt 4,044      
Change in fair value of contingent consideration (2,147 )    
Other non-cash items (750 )   1,727  
Deferred taxes (8,765 )   (973 )
Changes in operating assets and liabilities:      
Accounts receivable, net (10,090 )   8,063  
Other assets 19,888     3,309  
Operating lease right-of-use assets 8,944     8,344  
Accrued compensation (18,098 )   (15,251 )
Accounts payable, accrued liabilities, and other current liabilities (34,023 )   (7,936 )
Operating lease liabilities, non-current (6,808 )   (8,361 )
Other long-term liabilities 6,034     8,712  
Net cash provided by operating activities 90,438     120,717  
Cash flows from investing activities:      
Acquisitions, net of cash acquired (49,533 )    
Purchases of software and capitalized software development costs (49,033 )   (37,242 )
Purchases of property and equipment (7,284 )   (11,388 )
Acquisition of intangible member assets (64,463 )   (28,100 )
Proceeds from sale of equity securities 2,367      
Net cash used in investing activities (167,946 )   (76,730 )
Cash flows from financing activities:      
Principal payments on long-term debt (1,003,125 )   (223,438 )
Proceeds from issuance of long-term debt 950,000      
Payment of debt issuance costs (11,846 )    
Proceeds from follow-on equity offering, net of payments for offering costs 456,642     286,779  
Settlement of client-held funds obligation, net (1,565 )   (4,189 )
Proceeds from exercise of common stock options 7,728     4,491  
Net cash provided by financing activities 397,834     63,643  
Increase in cash and cash equivalents 320,326     107,630  
Beginning cash and cash equivalents 328,803     191,726  
Ending cash and cash equivalents $ 649,129     $ 299,356  


HealthEquity, Inc. and its subsidiaries
Condensed consolidated statements of cash flows (unaudited) (continued)

  Nine months ended October 31,
(in thousands) 2021   2020
Supplemental cash flow data:      
Interest expense paid in cash $ 13,685     $ 22,849  
Income tax payments (refunds), net (5,926 )   1,053  
Supplemental disclosures of non-cash investing and financing activities:      
Purchases of software and capitalized software development costs included in accounts payable, accrued liabilities, or accrued compensation 3,708     1,346  
Purchases of property and equipment included in accounts payable or accrued liabilities 479     167  
Purchases of intangible member assets included in accounts payable or accrued liabilities 2,281     289  
Contingent consideration recognized at acquisition 8,147      
Exercise of common stock options receivable 1     89  
Decrease in goodwill due to measurement period adjustments, net 19     5,838  


Stock-based compensation expense (unaudited)

Total stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive income (loss) is as follows:

  Three months ended October 31,   Nine months ended October 31,
(in thousands)   2021       2020       2021       2020  
Cost of revenue $ 3,076     $ 2,209     $ 8,547     $ 5,737  
Sales and marketing 829     2,035     5,677     4,810  
Technology and development 3,458     2,641     10,164     8,051  
General and administrative 5,921     4,594     17,312     11,715  
Other expense (1)         342      
Total stock-based compensation expense $ 13,284     $ 11,479     $ 42,042     $ 30,313  

(1)   Equity-based awards exchanged for cash in connection with the Luum acquisition.


Total Accounts (unaudited)

(in thousands, except percentages) October 31, 2021   October 31, 2020   % Change   January 31, 2021
HSAs 6,241     5,460     14 %   5,782  
New HSAs from sales – Quarter-to-date 151     104     45 %   370  
New HSAs from sales – Year-to-date 446     317     41 %   687  
New HSAs from acquisitions – Year-to-date 160         n/a      
HSAs with investments 431     302     43 %   333  
CDBs 7,085     7,060     0 %   7,028  
Total Accounts 13,326     12,520     6 %   12,810  
Average Total Accounts – Quarter-to-date 13,247     12,084     10 %   12,659  
Average Total Accounts – Year-to-date 13,158     12,429     6 %   12,604  


HSA Assets (unaudited)

(in millions, except percentages) October 31, 2021   October 31, 2020   % Change   January 31, 2021
HSA cash with yield (1) $ 10,410     $ 8,759     19   %   $ 9,875  
HSA cash without yield (2) 59     258     (77 ) %   244  
                         
Total HSA cash 10,469     9,017     16   %   10,119  
HSA investments with yield (1) 5,900     3,255     81   %   4,078  
HSA investments without yield (2) 59     168     (65 ) %   138  
Total HSA investments 5,959     3,423     74   %   4,216  
Total HSA Assets 16,428     12,440     32   %   14,335  
Average daily HSA cash with yield – Year-to-date 9,925     8,445     18   %   8,599  
Average daily HSA cash with yield – Quarter-to-date $ 10,099     $ 8,672     16   %   $ 9,060  

(1)   HSA Assets that generate custodial revenue.

(2)   HSA Assets that do not generate custodial revenue.

Client-held funds (unaudited)

(in millions, except percentages) October 31, 2021   October 31, 2020   % Change   January 31, 2021
Client-held funds (1) $ 811     $ 798     2   %   $ 986  
Average daily Client-held funds – Year-to-date (1) 849     847       %   847  
Average daily Client-held funds – Quarter-to-date (1) 796     819     (3 ) %   848  

(1)   Client-held funds that generate custodial revenue.

Net income (loss) reconciliation to Adjusted EBITDA (unaudited)

  Three months ended October 31,   Nine months ended October 31,
(in thousands)   2021       2020       2021       2020  
Net income (loss) $ (5,038 )   $ 1,789     $ (11,471 )   $ 3,467  
Interest income (478 )   (174 )   (1,419 )   (850 )
Interest expense 11,881     6,952     25,824     28,110  
Income tax provision (benefit) (4,087 )   2,340     (11,505 )   2,015  
Depreciation and amortization 13,904     10,253     38,619     28,580  
Amortization of acquired intangible assets 19,642     19,126     59,745     56,905  
Stock-based compensation expense 13,284     11,479     41,700     30,313  
Merger integration expenses 13,244     8,193     38,422     31,328  
Acquisition costs (gains) (1) (2,687 )   13     4,917     79  
Gain on equity securities         (1,677 )    
Other (2) 1,422     1,168     2,421     4,202  
Adjusted EBITDA $ 61,087     $ 61,139     $ 185,576     $ 184,149  

(1)   For the nine months ended October 31, 2021, acquisition costs included $0.3 million of stock-based compensation expense.

(2)   For the three months ended October 31, 2021, other consisted of amortization of incremental costs to obtain a contract of $0.8 million and other expenses, net, of $0.6 million. For the three months ended October 31, 2020, other consisted of amortization of incremental costs to obtain a contract of $0.6 million and other expenses, net, of $0.6 million. For the nine months ended October 31, 2021, other consisted of amortization of incremental costs to obtain a contract of $3.5 million, partially offset by other income, net, of $1.0 million. For the nine months ended October 31, 2020, other consisted of amortization of incremental costs to obtain a contract of $1.4 million and other expenses, net, of $2.8 million.

Reconciliation of net loss outlook to Adjusted EBITDA outlook (unaudited)

  Outlook for the year ending
(in millions) January 31, 2022
Net loss $(36) – (33)  
Interest income (2)  
Interest expense 36  
Income tax benefit (16) – (14)  
Depreciation and amortization 53  
Amortization of acquired intangible assets 84  
Stock-based compensation expense 57  
Merger integration expenses 48  
Other expense 6  
Adjusted EBITDA $230 – 235  


Reconciliation of net income (loss) to non-GAAP net income (unaudited)

  Three months ended October 31,   Nine months ended October 31,   Outlook for the year ending
(in millions, except per share data) 2021   2020   2021   2020   January 31, 2022
Net income (loss) $ (5 )   $ 2     $ (11 )   $ 3     $(36) – (33)  
Income tax provision (benefit) (4 )   2     (12 )   2     (16) – (14)  
Income (loss) before income taxes – GAAP (9 )   4     (23 )   5     (52) – (47)  
Non-GAAP adjustments:                    
Amortization of acquired intangible assets 20     19     60     57     84  
Stock-based compensation expense 13     12     42     30     57  
Merger integration expenses 13     8     38     32     48  
Acquisition costs (gains) (2 )       5         5  
Gain on equity securities         (2 )       (2)  
Loss on extinguishment of debt 4         4         4  
Total adjustments to income (loss) before income taxes – GAAP 48     39     147     119     196  
Income before income taxes – Non-GAAP 39     43     124     124     144 – 149  
Income tax provision – Non-GAAP (1) 10     11     31     31     36 – 37  
Non-GAAP net income 29     32     93     93     108 – 112  
                     
Diluted weighted-average shares 84     78     83     75     83  
Non-GAAP net income per diluted share (2) $ 0.35     $ 0.41     $ 1.12     $ 1.25     $1.30 – 1.35  

(1)   The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations. The normalized non-GAAP tax rate applied to each period presented was 25%. The Company may adjust its non-GAAP tax rate as additional information becomes available and in conjunction with any other significant events occurring that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other changes in expectations regarding tax regulations.

(2)   Non-GAAP net income per diluted share may not calculate due to rounding of non-GAAP net income and diluted weighted-average shares.

Certain terms

Term   Definition
HSA   A financial account through which consumers spend and save long-term for healthcare on a tax-advantaged basis.
CDB   Consumer-directed benefits offered by employers, including flexible spending and health reimbursement arrangements (“FSAs” and “HRAs”), Consolidated Omnibus Budget Reconciliation Act (“COBRA”) administration, commuter and other benefits.
HSA member   Consumers with HSAs that we serve.
Total HSA Assets   HSA members’ deposits with our federally insured custodial depository partners and custodial cash placed in annuity contracts with our insurance company partners. Total HSA Assets also includes HSA members’ investments in mutual funds through our custodial investment fund partner.
Client   Our employer clients.
Total Accounts   The sum of HSAs and CDBs on our platforms.
Client-held funds   Deposits held on behalf of our Clients to facilitate administration of our CDBs.
Network Partner   Our health plan partners, benefits administrators, and retirement plan recordkeepers.
Adjusted EBITDA   Adjusted earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, and other certain non-operating items.
Non-GAAP net income   Calculated by adding back to GAAP net income (loss) before income taxes the following items: amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, and losses on extinguishment of debt, and subtracting a non-GAAP tax provision using a normalized non-GAAP tax rate.
Non-GAAP net income per diluted share   Calculated by dividing non-GAAP net income by diluted weighted-average shares outstanding.