HealthEquity, Inc. — FY2024 Form 10-K
Reporting period: Fiscal year ended January 31, 2024; comparisons are primarily with the year ended January 31, 2023. This is an annual filing, not a standalone calendar fourth-quarter report. Amounts below are U.S. dollars.
Business context
HealthEquity administers health savings accounts (HSAs) and related consumer-directed benefits, including FSAs, HRAs, COBRA and commuter programs. Revenue comes mainly from service fees, custodial income earned on HSA cash and client-held funds, and payment-card interchange. At year-end, it administered 8.7 million HSAs with $25.2 billion of HSA assets, plus 7.0 million other benefit accounts, for 15.7 million total accounts. HSA assets are customers’ custodial assets, not company cash.
Financial performance and liquidity
| Metric | FY2024 | FY2023 |
|---|---|---|
| Total revenue | $999.6 million | $861.7 million |
| Gross profit / gross margin | $622.6 million / 62.3% | $491.9 million / 57.1% |
| Operating income (loss) | $117.7 million | $9.1 million |
| Net income (loss) | $55.7 million | $(26.1) million |
| Diluted EPS | $0.64 | $(0.31) |
| Operating cash flow | $242.8 million | $150.7 million |
| Cash and cash equivalents at year-end | $404.0 million | $254.3 million |
- Revenue rose 16%. Custodial revenue increased 48% to $386.6 million, driven by higher yields, greater use of the Enhanced Rates offering and increased average HSA cash balances. Service revenue was nearly flat at $455.7 million (+1%); interchange revenue rose 6% to $157.3 million.
- Cost of revenue increased 2% to $377.0 million, while operating expenses increased 5% to $504.9 million. Technology and development expense rose 13% to $218.8 million; merger integration expense fell 64% to $10.4 million.
- Adjusted EBITDA, a non-GAAP measure, increased 36% to $369.2 million, or 37% of revenue versus 32%. Non-GAAP net income was $195.5 million, or $2.25 per diluted share, versus $114.5 million, or $1.36. These measures exclude specified costs and should not be viewed as substitutes for GAAP results.
- Investing cash outflow was $46.1 million and financing cash outflow was $47.0 million. Capital expenditures were $42.8 million. Cash increased by $149.7 million during the year.
- Year-end principal debt was $886.9 million: $600 million of 4.50% senior notes due 2029 and $286.9 million under the variable-rate term loan. No revolving-credit borrowings were outstanding. The term loan’s effective rate was 7.45%; the company prepaid $50 million of principal in April 2023. It reported compliance with credit-agreement covenants.
- Current assets were $557.4 million and current liabilities were $117.1 million. Management said cash, cash equivalents and revolving-credit availability should cover operating and capital needs for at least 12 months.
Material changes and outlook
- HSA assets grew 14% year over year to $25.2 billion; HSA count grew 9%, while complementary CDB accounts grew 1%. HSA investments rose 28%, reflecting market appreciation and transfers from cash.
- Management expects service revenue to increase with account growth, partly offset by lower average service fees per account. It expects custodial revenue to benefit if the prevailing rate environment continues and more cash transitions into Enhanced Rates contracts. Cost of revenue is expected to decline as a percentage of revenue, while technology and development spending is expected to increase. The filing does not provide a clear numerical revenue or earnings forecast.
- The BenefitWallet portfolio purchase is priced at $425 million, plus reimbursement of up to $20 million of transfer expenses and approximately $7 million of transaction costs. Transfers were expected in tranches in the first half of FY2025; the first transfer occurred March 7, 2024, bringing about 266,000 HSAs and $1.1 billion of assets, for a $163.9 million cash payment. Management expected roughly half of the purchase price and related costs to be funded with cash and half with the revolving facility.
- Basic Rates contracts are expected to transition to Enhanced Rates as they mature beginning in FY2025, unless members elect to remain in Basic Rates. This may support custodial yields, but outcomes remain sensitive to interest rates, contract repricing, member choices and partner terms.
Risks, contingencies and unusual items
- Custodial income is rate-sensitive: custodial revenue represented about 39% of FY2024 revenue, versus 30% in FY2023. Management estimates a 1 percentage-point increase in rates on year-end credit-facility borrowings would add about $2.9 million of interest expense over 12 months.
- HSA cash held through insurance-company partners is not federally insured; certain client-held balances at depository partners may exceed federal insurance limits. Partner failure, liquidity requirements or lower interest commitments could adversely affect members and results.
- Key risks include changes to tax advantages for HSAs/CDBs, competition and partner attrition, acquisition and technology-platform integration, cybersecurity and privacy incidents, and regulatory change. The company reported no known cybersecurity threats during FY2024 that materially affected or were reasonably likely to materially affect its business or results.
- Goodwill of $1.65 billion and net intangible assets of $835.9 million together represented approximately 79% of total assets, creating potential exposure to future non-cash impairment charges. No goodwill impairment was recorded.
- A WageWorks subsidiary is involved in disputed Arizona lease litigation. Trial was scheduled for December 2024. The company said it could not estimate the ultimate outcome and had not concluded that a loss was probable or estimable; an adverse outcome could be material.
- Other notable items: FY2024 included a $1.2 million debt-extinguishment loss and a $19.3 million income-tax provision, compared with tax benefits in the prior two years. Comparative revenue categories were reclassified, with no effect on total revenue, earnings, cash flows or equity. The auditor issued unqualified opinions on the financial statements and internal controls; management also concluded internal controls were effective.
Important facts for investors to verify
- How much of future custodial-revenue growth depends on current interest rates, Enhanced Rates participation and contract repricing.
- The final BenefitWallet purchase price, transfer volumes, funding mix, integration costs and account-retention outcomes.
- Debt repayment capacity and interest expense if variable rates rise or acquisition borrowing is higher than planned.
- Progress and costs of the Further platform migration and technology modernization, including any client attrition or service disruption.
- The status and potential financial exposure of the Union Mesa litigation, along with the carrying values and impairment assumptions for goodwill and acquired intangible assets.