UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~April 30,~~July 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-36568



HEALTHEQUITY, INC.

(Exact name of registrant as specified in its charter)

Delaware

52-2383166

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

15 West Scenic Pointe Drive

Suite 100

Draper, Utah 84020

(Address of principal executive offices) (Zip code)

(801) 727-1000

(Registrant's telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	HQY	The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of ~~May~~August 31, 2021, there were ~~83,389,315~~83,508,975 shares of the registrant's common stock outstanding.

Table of Contents

HealthEquity, Inc. and subsidiaries

Form 10-Q quarterly report

Table of contents


		Page
Part I. FINANCIAL INFORMATION
Item 1.	Financial statements
	Condensed consolidated balance sheets as of ~~April 30,~~July 31, 2021 (unaudited) and January 31, 2021	3
	Condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended ~~April 30,~~July 31, 2021 and 2020 (unaudited)	4
	Condensed consolidated statements of stockholders' equity for the three and six months ended ~~April 30,~~July 31, 2021 and 2020 (unaudited)	5
	Condensed consolidated statements of cash flows for the ~~three~~six months ended ~~April 30,~~July 31, 2021 and 2020 (unaudited)	6
	Notes to condensed consolidated financial statements (unaudited)	8
Item 2.	Management's discussion and analysis of financial condition and results of operations	17
Item 3.	Quantitative and qualitative disclosures about market risk	3032
Item 4.	Controls and procedures	3133
Part II. OTHER INFORMATION
Item 1.	Legal proceedings	3437
Item 1A.	Risk factors	3437
Item 6.	Exhibits	3540
	Signatures	3641

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Part I. Financial information

Item 1. Financial statements

HealthEquity, Inc. and subsidiaries

Condensed consolidated balance sheets


(in thousands, except par value)	(in thousands, except par value)	April 30, 2021		January 31, 2021		(in thousands, except par value)	July 31, 2021		January 31, 2021
		(unaudited)					(unaudited)
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	736,773	$	328,803	Cash and cash equivalents	$	753,754	$	328,803
Accounts receivable, net of allowance for doubtful accounts of $4,648 and $4,239 as of April 30, 2021 and January 31, 2021, respectively		74,468		72,767
Accounts receivable, net of allowance for doubtful accounts of $5,824 and $4,239 as of July 31, 2021 and January 31, 2021, respectively						Accounts receivable, net of allowance for doubtful accounts of $5,824 and $4,239 as of July 31, 2021 and January 31, 2021, respectively	74,223		72,767
Other current assets	Other current assets	53,870		58,607		Other current assets	32,637		58,607
Total current assets	Total current assets	865,111		460,177		Total current assets	860,614		460,177
Property and equipment, net	Property and equipment, net	27,479		29,106		Property and equipment, net	27,382		29,106
Operating lease right-of-use assets	Operating lease right-of-use assets	86,139		89,508		Operating lease right-of-use assets	83,768		89,508
Intangible assets, net	Intangible assets, net	780,794		767,003		Intangible assets, net	770,329		767,003
Goodwill	Goodwill	1,363,568		1,327,193		Goodwill	1,363,568		1,327,193
Other assets	Other assets	38,778		37,420		Other assets	42,973		37,420
Total assets	Total assets	$	3,161,869	$	2,710,407	Total assets	$	3,148,634	$	2,710,407
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	9,636	$	1,614	Accounts payable	$	4,696	$	1,614
Accrued compensation	Accrued compensation	33,045		50,670		Accrued compensation	40,154		50,670
Accrued liabilities	Accrued liabilities	73,446		75,880		Accrued liabilities	49,098		75,880
Current portion of long-term debt	Current portion of long-term debt	62,500		62,500		Current portion of long-term debt	78,125		62,500
Operating lease liabilities	Operating lease liabilities	13,677		14,037		Operating lease liabilities	13,051		14,037
Total current liabilities	Total current liabilities	192,304		204,701		Total current liabilities	185,124		204,701
Long-term liabilities	Long-term liabilities					Long-term liabilities
Long-term debt, net of issuance costs	Long-term debt, net of issuance costs	909,820		924,217		Long-term debt, net of issuance costs	895,449		924,217
Operating lease liabilities, non-current	Operating lease liabilities, non-current	71,916		74,224		Operating lease liabilities, non-current	69,998		74,224
Other long-term liabilities	Other long-term liabilities	14,811		8,808		Other long-term liabilities	20,091		8,808
Deferred tax liability	Deferred tax liability	124,748		119,729		Deferred tax liability	115,306		119,729
Total long-term liabilities	Total long-term liabilities	1,121,295		1,126,978		Total long-term liabilities	1,100,844		1,126,978
Total liabilities	Total liabilities	1,313,599		1,331,679		Total liabilities	1,285,968		1,331,679
Commitments and contingencies (see Note 6)	Commitments and contingencies (see Note 6)	0		0		Commitments and contingencies (see Note 6)	0		0
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Preferred stock, $0.0001 par value, 100,000 shares authorized, 0 shares issued and outstanding as of April 30, 2021 and January 31, 2021, respectively		0		0
Common stock, $0.0001 par value, 900,000 shares authorized, 83,377 and 77,168 shares issued and outstanding as of April 30, 2021 and January 31, 2021, respectively		8		8
Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2021 and January 31, 2021, respectively						Preferred stock, $0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of July 31, 2021 and January 31, 2021, respectively	—		—
Common stock, $0.0001 par value, 900,000 shares authorized, 83,608 and 77,168 shares issued and outstanding as of July 31, 2021 and January 31, 2021, respectively						Common stock, $0.0001 par value, 900,000 shares authorized, 83,608 and 77,168 shares issued and outstanding as of July 31, 2021 and January 31, 2021, respectively	8		8
Additional paid-in capital	Additional paid-in capital	1,630,529		1,158,372		Additional paid-in capital	1,648,743		1,158,372
Accumulated earnings	Accumulated earnings	217,733		220,348		Accumulated earnings	213,915		220,348
Total stockholders’ equity	Total stockholders’ equity	1,848,270		1,378,728		Total stockholders’ equity	1,862,666		1,378,728
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	3,161,869	$	2,710,407	Total liabilities and stockholders’ equity	$	3,148,634	$	2,710,407

See accompanying notes to condensed consolidated financial statements.

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HealthEquity, Inc. and subsidiaries

Condensed consolidated statements of operations and

comprehensive income (loss) (unaudited)


		Three months ended April 30,					Three months ended July 31,				Six months ended July 31,
(in thousands, except per share data)	(in thousands, except per share data)	2021		2020		(in thousands, except per share data)	2021		2020		2021		2020
Revenue	Revenue					Revenue
Service revenue	Service revenue	$	102,534	$	111,271	Service revenue	$	109,182	$	103,805	$	211,716	$	215,076
Custodial revenue	Custodial revenue	46,978		46,899		Custodial revenue	48,776		46,909		95,754		93,808
Interchange revenue	Interchange revenue	34,690		31,841		Interchange revenue	31,145		25,325		65,835		57,166
Total revenue	Total revenue	184,202		190,011		Total revenue	189,103		176,039		373,305		366,050
Cost of revenue	Cost of revenue					Cost of revenue
Service costs	Service costs	70,632		71,013		Service costs	67,334		65,246		137,966		136,259
Custodial costs	Custodial costs	5,009		5,045		Custodial costs	4,824		4,998		9,833		10,043
Interchange costs	Interchange costs	5,445		5,879		Interchange costs	4,974		4,011		10,419		9,890
Total cost of revenue	Total cost of revenue	81,086		81,937		Total cost of revenue	77,132		74,255		158,218		156,192
Gross profit	Gross profit	103,116		108,074		Gross profit	111,971		101,784		215,087		209,858
Operating expenses	Operating expenses					Operating expenses
Sales and marketing	Sales and marketing	14,086		11,455		Sales and marketing	15,476		12,167		29,562		23,622
Technology and development	Technology and development	35,469		31,078		Technology and development	37,898		30,654		73,367		61,732
General and administrative	General and administrative	20,687		18,998		General and administrative	22,812		20,493		43,499		39,491
Amortization of acquired intangible assets	Amortization of acquired intangible assets	19,814		18,702		Amortization of acquired intangible assets	20,289		19,077		40,103		37,779
Merger integration	Merger integration	8,807		12,770		Merger integration	16,371		10,365		25,178		23,135
Total operating expenses	Total operating expenses	98,863		93,003		Total operating expenses	112,846		92,756		211,709		185,759
Income from operations		4,253		15,071
Income (loss) from operations						Income (loss) from operations	(875)		9,028		3,378		24,099
Other expense	Other expense					Other expense
Interest expense	Interest expense	(6,689)		(12,263)		Interest expense	(7,254)		(8,895)		(13,943)		(21,158)
Other expense, net		(3,630)		(764)
Other income (expense), net						Other income (expense), net	344		(824)		(3,286)		(1,588)
Total other expense	Total other expense	(10,319)		(13,027)		Total other expense	(6,910)		(9,719)		(17,229)		(22,746)
Income (loss) before income taxes	Income (loss) before income taxes	(6,066)		2,044		Income (loss) before income taxes	(7,785)		(691)		(13,851)		1,353
Income tax provision (benefit)		(3,451)		218
Income tax benefit						Income tax benefit	(3,967)		(543)		(7,418)		(325)
Net income (loss) and comprehensive income (loss)	Net income (loss) and comprehensive income (loss)	$	(2,615)	$	1,826	Net income (loss) and comprehensive income (loss)	$	(3,818)	$	(148)	$	(6,433)	$	1,678
Net income (loss) per share:	Net income (loss) per share:					Net income (loss) per share:
Basic	Basic	$	(0.03)	$	0.03	Basic	$	(0.05)	$	0.00	$	(0.08)	$	0.02
Diluted	Diluted	$	(0.03)	$	0.03	Diluted	$	(0.05)	$	0.00	$	(0.08)	$	0.02
Weighted-average number of shares used in computing net income (loss) per share:	Weighted-average number of shares used in computing net income (loss) per share:					Weighted-average number of shares used in computing net income (loss) per share:
Basic	Basic	81,747		70,980		Basic	83,481		72,343		82,628		71,669
Diluted	Diluted	81,747		72,292		Diluted	83,481		72,343		82,628		72,971

See accompanying notes to condensed consolidated financial statements.

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HealthEquity, Inc. and subsidiaries

Condensed consolidated statements of stockholders’ equity (unaudited)


		Three months ended April 30,					Three months ended July 31,				Six months ended July 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2021		2020		2021		2020
Total stockholders' equity, beginning balance	Total stockholders' equity, beginning balance	$	1,378,728	$	1,030,295	Total stockholders' equity, beginning balance	$	1,848,270	$	1,040,650	$	1,378,728	$	1,030,295

Common stock:	Common stock:					Common stock:
Beginning balance	Beginning balance	8		7		Beginning balance	8		7		8		7
Issuance of common stock upon exercise of stock options, and for restricted stock	Issuance of common stock upon exercise of stock options, and for restricted stock	—		—		Issuance of common stock upon exercise of stock options, and for restricted stock	—		—		—		—
Other issuance of common stock	Other issuance of common stock	—		—		Other issuance of common stock	—		1		—		1
Ending balance	Ending balance	8		7		Ending balance	8		8		8		8
Additional paid-in capital:	Additional paid-in capital:					Additional paid-in capital:
Beginning balance	Beginning balance	1,158,372		818,774		Beginning balance	1,630,529		827,303		1,158,372		818,774
Issuance of common stock upon exercise of stock options, and for restricted stock	Issuance of common stock upon exercise of stock options, and for restricted stock	2,716		1,133		Issuance of common stock upon exercise of stock options, and for restricted stock	2,599		1,618		5,315		2,751
Other issuance of common stock	Other issuance of common stock	456,642		0		Other issuance of common stock	(2)		286,777		456,640		286,777
Stock-based compensation	Stock-based compensation	12,799		7,396		Stock-based compensation	15,617		11,438		28,416		18,834
Ending balance	Ending balance	1,630,529		827,303		Ending balance	1,648,743		1,127,136		1,648,743		1,127,136
Accumulated earnings	Accumulated earnings					Accumulated earnings
Beginning balance	Beginning balance	220,348		211,514		Beginning balance	217,733		213,340		220,348		211,514
Net income (loss)	Net income (loss)	(2,615)		1,826		Net income (loss)	(3,818)		(148)		(6,433)		1,678
Ending balance	Ending balance	217,733		213,340		Ending balance	213,915		213,192		213,915		213,192

Total stockholders' equity, ending balance	Total stockholders' equity, ending balance	$	1,848,270	$	1,040,650	Total stockholders' equity, ending balance	$	1,862,666	$	1,340,336	$	1,862,666	$	1,340,336

See accompanying notes to condensed consolidated financial statements.

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HealthEquity, Inc. and subsidiaries

Condensed consolidated statements of cash flows (unaudited)


		Three months ended April 30,					Six months ended July 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)	Net income (loss)	$	(2,615)	$	1,826	Net income (loss)	$	(6,433)	$	1,678
Adjustments to reconcile net income (loss) to net cash provided by operating activities:	Adjustments to reconcile net income (loss) to net cash provided by operating activities:					Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	31,768		27,507		Depreciation and amortization	64,819		56,106
Stock-based compensation	Stock-based compensation	12,799		7,396		Stock-based compensation	28,416		18,834
Amortization of debt issuance costs	Amortization of debt issuance costs	1,228		1,201		Amortization of debt issuance costs	2,482		2,533
Change in fair value of contingent consideration						Change in fair value of contingent consideration	1,011		—
Other non-cash items	Other non-cash items	893		972		Other non-cash items	(752)		1,145
Deferred taxes	Deferred taxes	3,243		3,786		Deferred taxes	(4,051)		(568)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable		(475)		1,074
Accounts receivable, net						Accounts receivable, net	(230)		628
Other assets	Other assets	2,249		(8,360)		Other assets	20,636		(3,187)
Operating lease right-of-use assets	Operating lease right-of-use assets	3,369		3,104		Operating lease right-of-use assets	6,060		5,563
Accrued compensation	Accrued compensation	(17,748)		(22,924)		Accrued compensation	(10,639)		(13,854)
Accounts payable, accrued liabilities, and other current liabilities	Accounts payable, accrued liabilities, and other current liabilities	(381)		1,362		Accounts payable, accrued liabilities, and other current liabilities	(30,213)		30
Operating lease liabilities, non-current	Operating lease liabilities, non-current	(2,308)		(3,045)		Operating lease liabilities, non-current	(4,556)		(5,723)
Other long-term liabilities	Other long-term liabilities	(1,104)		1,127		Other long-term liabilities	1,616		5,477
Net cash provided by operating activities	Net cash provided by operating activities	30,918		15,026		Net cash provided by operating activities	68,166		68,662
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(49,533)		0		Acquisitions, net of cash acquired	(49,533)		—
Purchases of software and capitalized software development costs	Purchases of software and capitalized software development costs	(15,469)		(11,775)		Purchases of software and capitalized software development costs	(32,097)		(21,787)
Purchases of property and equipment	Purchases of property and equipment	(2,490)		(7,511)		Purchases of property and equipment	(6,352)		(8,987)
Acquisition of intangible member assets	Acquisition of intangible member assets	(309)		(6,008)		Acquisition of intangible member assets	(2,653)		(24,922)
Proceeds from sale of equity securities						Proceeds from sale of equity securities	2,367		—
Net cash used in investing activities	Net cash used in investing activities	(67,801)		(25,294)		Net cash used in investing activities	(88,268)		(55,696)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from follow-on equity offering, net of payments for offering costs	Proceeds from follow-on equity offering, net of payments for offering costs	456,642		0		Proceeds from follow-on equity offering, net of payments for offering costs	456,642		287,318
Principal payments on long-term debt	Principal payments on long-term debt	(15,625)		(7,812)		Principal payments on long-term debt	(15,625)		(215,625)
Settlement of client-held funds obligation, net	Settlement of client-held funds obligation, net	(353)		(3,776)		Settlement of client-held funds obligation, net	(2,636)		(10,292)
Proceeds from exercise of common stock options	Proceeds from exercise of common stock options	4,189		1,223		Proceeds from exercise of common stock options	6,672		2,817
Net cash provided by (used in) financing activities		444,853		(10,365)
Increase (decrease) in cash and cash equivalents		407,970		(20,633)
Net cash provided by financing activities						Net cash provided by financing activities	445,053		64,218
Increase in cash and cash equivalents						Increase in cash and cash equivalents	424,951		77,184
Beginning cash and cash equivalents	Beginning cash and cash equivalents	328,803		191,726		Beginning cash and cash equivalents	328,803		191,726
Ending cash and cash equivalents	Ending cash and cash equivalents	$	736,773	$	171,093	Ending cash and cash equivalents	$	753,754	$	268,910

See accompanying notes to condensed consolidated financial statements.

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HealthEquity, Inc. and subsidiaries

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


		Three months ended April 30,					Six months ended July 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2021		2020
Supplemental cash flow data:	Supplemental cash flow data:					Supplemental cash flow data:
Interest expense paid in cash	Interest expense paid in cash	$	4,988	$	10,749	Interest expense paid in cash	$	9,838	$	17,659
Income tax payments (refunds), net	Income tax payments (refunds), net	(4,852)		733		Income tax payments (refunds), net	(5,545)		798
Supplemental disclosures of non-cash investing and financing activities:	Supplemental disclosures of non-cash investing and financing activities:					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	Purchases of software and capitalized software development costs included in accounts payable, accrued liabilities, or accrued compensation	3,982		1,537		Purchases of software and capitalized software development costs included in accounts payable, accrued liabilities, or accrued compensation	4,077		1,262
Purchases of property and equipment included in accounts payable or accrued liabilities	Purchases of property and equipment included in accounts payable or accrued liabilities	765		968		Purchases of property and equipment included in accounts payable or accrued liabilities	357		1,104
Contingent consideration recognized at acquisition	Contingent consideration recognized at acquisition	8,147		0		Contingent consideration recognized at acquisition	8,147		—
Exercise of common stock options receivable	Exercise of common stock options receivable	5		0		Exercise of common stock options receivable	119		66
Purchases of intangible member assets						Purchases of intangible member assets	—		58
Additions to goodwill due to measurement period adjustments						Additions to goodwill due to measurement period adjustments	—		1,177
Follow-on equity offering costs accrued during the period						Follow-on equity offering costs accrued during the period	—		540

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

HealthEquity, Inc. and subsidiaries

Notes to condensed consolidated financial statements

Note 1. Summary of business and significant accounting policies

Business

HealthEquity, Inc. ("HealthEquity" or the "Company") was incorporated in the state of Delaware on September 18, 2002. HealthEquity is a leader in administering health savings accounts (“HSAs”) and complementary consumer-directed benefits (“CDBs”), which empower consumers to access tax-advantaged healthcare savings while also providing corporate tax advantages for employers.

Principles of consolidation

The condensed consolidated financial statements include the accounts of HealthEquity and its direct and indirect subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Basis of presentation

The accompanying condensed consolidated financial statements as of ~~April 30,~~July 31, 2021 and for the three and six months ended ~~April 30,~~July 31, 2021 and 2020 are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. In the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2021. The fiscal year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

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

Follow-on equity offering

In the first quarter of fiscal year 2022, the Company closed a follow-on public offering of 5,750,000 shares of common stock at a public offering price of $80.30 per share, less the underwriters' discount. The Company received net proceeds of $456.6 million after deducting underwriting discounts and commissions of $4.6 million and other offering expenses of approximately $0.5 million. The Company used $50.2 million of the net proceeds from the offering to acquire 100% of the outstanding capital stock of Fort Effect Corp, d/b/a Luum, and intends to use the remaining net proceeds from the offering for general corporate purposes, which may include prepayments under its term loan facility or potential acquisitions, including the acquisitions of Further and the Fifth Third Bank HSA portfolio.

Significant accounting policies

There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

Recently adopted accounting pronouncements

None.

Recently issued accounting pronouncements not yet adopted

None.

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Table of Contents

Note 2. Net income (loss) per share

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


		Three months ended April 30,					Three months ended July 31,				Six months ended July 31,
(in thousands, except per share data)	(in thousands, except per share data)	2021		2020		(in thousands, except per share data)	2021		2020		2021		2020
Numerator (basic and diluted):	Numerator (basic and diluted):					Numerator (basic and diluted):
Net income (loss)	Net income (loss)	$	(2,615)	$	1,826	Net income (loss)	$	(3,818)	$	(148)	$	(6,433)	$	1,678
Denominator (basic):	Denominator (basic):					Denominator (basic):
Weighted-average common shares outstanding	Weighted-average common shares outstanding	81,747		70,980		Weighted-average common shares outstanding	83,481		72,343		82,628		71,669
Denominator (diluted):	Denominator (diluted):					Denominator (diluted):
Weighted-average common shares outstanding	Weighted-average common shares outstanding	81,747		70,980		Weighted-average common shares outstanding	83,481		72,343		82,628		71,669
Weighted-average dilutive effect of stock options and restricted stock units	Weighted-average dilutive effect of stock options and restricted stock units	0		1,312		Weighted-average dilutive effect of stock options and restricted stock units	—		—		—		1,302
Diluted weighted-average common shares outstanding	Diluted weighted-average common shares outstanding	81,747		72,292		Diluted weighted-average common shares outstanding	83,481		72,343		82,628		72,971
Net income (loss) per share:	Net income (loss) per share:					Net income (loss) per share:
Basic	Basic	$	(0.03)	$	0.03	Basic	$	(0.05)	$	0.00	$	(0.08)	$	0.02
Diluted	Diluted	$	(0.03)	$	0.03	Diluted	$	(0.05)	$	0.00	$	(0.08)	$	0.02

For the three months ended ~~April 30,~~July 31, 2021 and 2020, 1.9 million and ~~0.5~~2.1 million shares, respectively, attributable to stock options and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

For the six months ended July 31, 2021 and 2020, approximately 2.0 million and 0.6 million shares, respectively, attributable to stock options and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

Note 3. Business combination

Acquisition of Luum

On March 8, 2021, the Company acquired 100% of the outstanding capital stock of Fort Effect Corp, d/b/a Luum (the "Luum Acquisition"). Luum provides employers with a suite of commute tools as well as real-time commute data to help them design and implement flexible return-to-office and hybrid-workplace strategies and benefits. The aggregate purchase price consisted of $50.2 million in cash, and up to $20.0 million in additional payments which are contingent on Luum achieving certain ~~financial~~revenue targets during the two-year period following the closing of the Luum Acquisition and, if achieved, would be payable in fiscal years 2023 and 2024. The Company recorded an $8.1 million liability representing its best estimate of the fair value of the contingent consideration as of the acquisition date. The fair value of this contingent consideration was determined using a Monte Carlo valuation model based on Level 3 inputs and will be remeasured to fair value quarterly, with any changes in the fair value recorded as other income (expense), net, in the condensed consolidated statement of operations and comprehensive income (loss). As of July 31, 2021, the fair value of the contingent consideration liability was $9.2 million.

The Luum Acquisition was accounted for under the acquisition method of accounting for business combinations. Consideration paid was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. The initial allocation of the consideration paid was based on a preliminary valuation and is subject to adjustment during the measurement period (up to one year from the acquisition date). Balances subject to adjustment primarily include the valuations of acquired assets (tangible and intangible) and liabilities assumed, as well as tax-related matters. The Company expects the allocation of the consideration transferred to be finalized within the measurement period.

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The following table summarizes the Company's current allocation of the consideration paid:


(in ~~millions)~~thousands)	Estimated fair value
Cash and cash equivalents	$	~~0.6~~626
Other current assets	~~1.5~~1,469
Intangible assets	~~23.9~~23,900
Goodwill	~~36.4~~36,374
Other assets	~~0.1~~100
Current liabilities	~~(0.6)~~(597)
Deferred tax liability	~~(3.6)~~(3,566)
Total consideration paid	$	~~58.3~~58,306

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The Luum Acquisition resulted in $36.4 million of goodwill. The preliminary goodwill to be recognized is attributable to several strategic, operational, and financial benefits expected from the Luum Acquisition, including an expanded commuter offering beyond traditional pre-tax commuter benefits and additional cross-selling opportunities. The goodwill created in the Luum Acquisition is not expected to be deductible for tax purposes.

The preliminary allocation of consideration exchanged to acquired identified intangible assets is as follows:


($ in millions)		Fair value		Estimated life (in years)
($ in thousands)					($ in thousands)	Fair value		Estimated life (in years)
Customer relationships (1)	Customer relationships (1)	$	12.4	7.0	Customer relationships (1)	$	12,400	7.0
Developed technology (1)	Developed technology (1)	10.9		5.0	Developed technology (1)	10,900		5.0
Trade names & trademarks (1)	Trade names & trademarks (1)	0.6		3.0	Trade names & trademarks (1)	600		3.0
Total acquired intangible assets	Total acquired intangible assets	$	23.9	6.0	Total acquired intangible assets	$	23,900	6.0

(1) The Company preliminarily valued the acquired assets utilizing the discounted cash flow method, a form of the income approach.

The pro forma effects of the Luum Acquisition would not materially impact the Company's reported results for any period presented, and as a result no pro forma financial information is presented.

Note 4. Supplemental financial statement information

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

Property and equipment

Property and equipment consisted of the following as of ~~April 30,~~July 31, 2021 and January 31, 2021:


(in thousands)	(in thousands)	April 30, 2021		January 31, 2021		(in thousands)	July 31, 2021		January 31, 2021
Leasehold improvements	Leasehold improvements	$	20,172	$	22,271	Leasehold improvements	$	20,604	$	22,271
Furniture and fixtures	Furniture and fixtures	9,014		9,230		Furniture and fixtures	9,014		9,230
Computer equipment	Computer equipment	31,129		28,592		Computer equipment	33,927		28,592
Property and equipment, gross	Property and equipment, gross	60,315		60,093		Property and equipment, gross	63,545		60,093
Accumulated depreciation	Accumulated depreciation	(32,836)		(30,987)		Accumulated depreciation	(36,163)		(30,987)
Property and equipment, net	Property and equipment, net	$	27,479	$	29,106	Property and equipment, net	$	27,382	$	29,106

Depreciation expense ~~was $3.9 million~~ for ~~each of~~ the three months ended ~~April 30,~~July 31, 2021 and ~~2020.~~2020 was $3.5 million and $4.1 million, respectively, and $7.4 million and $8.0 million for the six months ended July 31, 2021 and 2020, respectively.

Contract balances

The Company does not recognize revenue ~~in advance of invoicing~~until its ~~customers~~right to consideration is unconditional and therefore has no related contract assets. The Company records a receivable when revenue is recognized prior to payment and the Company has unconditional right to payment. Alternatively, when payment precedes the related services, the Company records a contract liability, or deferred revenue, until its performance obligations are satisfied. As of ~~April 30,~~July 31, 2021 and January 31, 2021, the balance of deferred revenue was ~~$4.4~~$4.0 million and $4.1 million, respectively. The balances are related to cash received in advance for an interchange revenue arrangement, other up-front fees and other commuter deferred revenue, and are generally recognized within twelve months, with the

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exception of the interchange arrangement, which is recognized over a term of approximately ten years. During the three and six months ended ~~April 30,~~July 31, 2021, approximately ~~$0.6~~$0.5 million and $1.1 million of revenue was recognized that was included in the balance of deferred revenue as of January 31, 2021.

Leases

The components of operating lease costs were as follows:


		Three months ended April 30,					Three months ended July 31,				Six months ended July 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2021		2020		2021		2020
Operating lease expense	Operating lease expense	$	4,313	4,308		Operating lease expense	$	3,498	$	3,925	$	7,809	$	8,249
Sublease income	Sublease income	(450)		(450)		Sublease income	(450)		(450)		(900)		(900)
Net operating lease expense	Net operating lease expense	$	3,863	$	3,858	Net operating lease expense	$	3,048	$	3,475	$	6,909	$	7,349

~~-10-~~Other income (expense), net

~~Table~~Other income (expense), net, consisted of ~~Contents~~the following:


	Three months ended July 31,				Six months ended July 31,
(in thousands)	2021		2020		2021		2020
Interest income	$	533	$	76	$	941	$	676
Acquisition gains (costs), net	(1,665)		28		(7,604)		(66)
Other income (expense), net	1,476		(928)		3,377		(2,198)
Total other income (expense), net	$	344	$	(824)	$	(3,286)	$	(1,588)

Supplemental cash flow information related to the Company's operating leases was as follows:
Three months ended April 30,
(in thousands) 2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 3,635 $ 3,297
Operating lease right-of-use assets obtained in exchange for new operating lease obligations $ 0 $ 17,480

~~Other expense, net~~

~~Other expense, net, consisted of the following:~~
Three months ended April 30,
(in thousands) 2021 2020
Interest income $ 408 $ 600
Acquisition costs (5,939) (94)
Other income (expense) 1,901 (1,270)
Total other expense, net $ (3,630) $ (764)


	Six months ended July 31,
(in thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	7,261	$	6,468
Operating lease right-of-use assets obtained in exchange for new operating lease obligations	$	320	$	17,480

Note 5. Intangible assets and goodwill

Intangible assets

The gross carrying amount and associated accumulated amortization of intangible assets were as follows as of ~~April 30,~~July 31, 2021 and January 31, 2021:


(in thousands)	(in thousands)	April 30, 2021		January 31, 2021		(in thousands)	July 31, 2021		January 31, 2021
Amortizable intangible assets:	Amortizable intangible assets:					Amortizable intangible assets:
Software and software development costs	Software and software development costs	$	144,411	$	127,005	Software and software development costs	$	161,134	$	127,005
Acquired HSA portfolios	Acquired HSA portfolios	125,450		125,141		Acquired HSA portfolios	127,794		125,141
Acquired customer relationships	Acquired customer relationships	613,781		601,381		Acquired customer relationships	613,781		601,381
Acquired developed technology	Acquired developed technology	107,825		96,925		Acquired developed technology	107,825		96,925
Acquired trade names	Acquired trade names	12,900		12,300		Acquired trade names	12,900		12,300
Amortizable intangible assets, gross	Amortizable intangible assets, gross	1,004,367		962,752		Amortizable intangible assets, gross	1,023,434		962,752
Accumulated amortization	Accumulated amortization	(223,573)		(195,749)		Accumulated amortization	(253,105)		(195,749)
Amortizable intangible assets, net	Amortizable intangible assets, net	$	780,794	$	767,003	Amortizable intangible assets, net	$	770,329	$	767,003

Amortization expense for the three months ended ~~April 30,~~July 31, 2021 and 2020 was ~~$27.9~~$29.5 million and ~~$23.6~~$24.5 million, respectively, and $57.4 million and $48.1 million for the six months ended July 31, 2021 and 2020, respectively.

Goodwill

During the ~~three~~six months ended ~~April 30,~~July 31, 2021, goodwill increased by $36.4 million due to the Luum Acquisition. For further information, see Note 3—Business combination. There were no other changes to the carrying value of goodwill during the ~~three~~six months ended ~~April 30,~~July 31, 2021.

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Note 6. Commitments and contingencies

Commitments

Contingent acquisition consideration. In connection with the Luum Acquisition, the Company agreed to pay up to $20.0 million in additional payments which are contingent on Luum achieving certain ~~financial~~revenue targets during the two-year period following the closing of the Luum Acquisition and, if achieved, would be payable in fiscal years 2023 and 2024. For further information, see Note 3—Business combination.

Fifth Third Bank HSA portfolio acquisition. In April 2021, the Company entered into a definitive agreement with Fifth Third Bank, National Association ("Fifth Third"), to transition custodianship of Fifth Third’s HSA portfolio to HealthEquity. The definitive agreement contemplates a $60.8 million dollar purchase price for a transfer of approximately 149,000 HSA members and their approximately $477.0 million of HSA assets. The agreement

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includes a mechanism to adjust the purchase price based on the amount of HSA assets actually transferred. The transaction is subject to ~~regulatory approval and~~ satisfaction of ~~other~~certain customary closing ~~conditions.~~conditions and is expected to close by the end of the Company's fiscal third quarter.

Further acquisition. In April 2021, the Company entered into a definitive agreement to acquire Further for $500 million. Further is a leading provider of HSA and other CDB administration services, with approximately 550,000 HSAs and $1.7 billion of HSA assets. In September 2021, the terms of the acquisition were amended pursuant to two agreements: (1) an agreement to acquire all cash balances and investment assets included in any voluntary employee beneficiary association (“VEBA”) account that is funding a health reimbursement arrangement (either Section 501(c)(9) or Section 115 trusts) and all contracts related exclusively thereto for, which is anticipated to close on January 31, 2022 for a maximum purchase price of $45 million, calculated based on the actual amount of VEBA assets transferred relative to the total amount of VEBA assets as of April 30, 2021, and (2) an amended agreement to acquire the remainder of the Further business for $455 million, with a target closing date on November 1, 2021. The ~~transaction is~~transactions are subject to ~~regulatory approvals and other~~satisfaction of certain customary closing ~~conditions and is expected to close by September 2021.~~conditions.

Lease termination. In April 2021, the Company exercised its right to terminate an operating lease that had not yet commenced with aggregate undiscounted lease payments of $63.1 million and a term of approximately 11 years following the landlord's failure to fulfill its obligations under the lease agreement. The Company's right to terminate the lease agreement is disputed by the landlord. Because the lease had not yet commenced, the Company had not recognized a right-of-use asset, operating lease liability, or any rent expense associated with the lease.

Other commitments.

The Company’s other commitments consist primarily of a term loan facility, operating lease obligations for office space, data storage facilities, and other leases, a processing services agreement with a vendor, and contractual commitments related to network infrastructure, equipment, and certain maintenance agreements under long-term, non-cancelable commitments. Except for the items noted above, there were no material changes during the three and six months ended ~~April 30,~~July 31, 2021, outside of the ordinary course of business, in our commitments from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

Contingencies

As described above, the Company's right to terminate an operating lease agreement with aggregate undiscounted lease payments of $63.1 million is disputed by the landlord.

In the normal course of business, the Company enters into contracts and agreements that contain a variety of covenants, representations, and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

Legal matters

On March 9, 2018, a putative class action was filed in the U.S. District Court for the Northern District of California (the “Securities Class Action”). On May 16, 2019, a consolidated amended complaint was filed by the lead plaintiffs asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, against the Company's subsidiary WageWorks, Inc. ("WageWorks"), its former Chief Executive Officer and its former Chief Financial Officer on behalf of purchasers of WageWorks common stock between May 6, 2016 and March 1, 2018. The complaint also alleged claims under the Securities Act of 1933, as amended, arising from WageWorks’ June 19, 2017 common stock offering against those same defendants, as well as the members of its board of directors at the time of that offering. ~~On February 11, 2021, counsel for all parties involved in this lawsuit signed a term sheet to settle all claims~~The class action settled for $30.0 ~~million,~~million. During the quarter ended July 31, 2021, WageWorks

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Table of ~~which WageWorks will contribute~~Contents

contributed $5.0 million and its insurers ~~will pay~~paid the remaining $25.0 million. The $30.0 million settlement and related $25.0 million insurance recovery are included within accrued liabilities and other current assets, respectively, on the April 30, 2021 condensed consolidated balance sheet. On May 3, 2021, the Court preliminarily approved the settlement. The settlement is subject to notice to class members andcourt granted final approval of the ~~Court.~~settlement and entered a final judgment on August 20, 2021.

On June 22, 2018 and September 6, 2018, 2 derivative lawsuits were filed against certain of WageWorks’ former officers and directors and WageWorks (as nominal defendant) in the Superior Court of the State of California, County of San Mateo. The actions were consolidated. On July 23, 2018, a similar derivative lawsuit was filed against certain former WageWorks’ officers and directors and WageWorks (as nominal defendant) in the U.S. District Court for the Northern District of California (together, the “Derivative Suits”). The allegations in the Derivative Suits relate to substantially the same facts as those underlying the Securities Class Action described above. The plaintiffs seek unspecified damages, fees and costs. Plaintiffs in the Superior Court action filed an amended consolidated complaint on October 28, 2019, naming as defendants certain former officers and directors of WageWorks and alleging a direct claim of "inseparable fraud/breach of fiduciary duty" on behalf of a class. WageWorks was not named as a party in that complaint. On June 24, 2020, the court granted the defendants’ motion to dismiss the amended complaint. The plaintiffs subsequently filed a notice of appeal. The District Court action is currently stayed.

On February 16, 2021, a complaint was filed in the United States District Court for the Northern District of California against WageWorks, its former Chief Executive Officer, and its former Chief Financial Officer. The allegations in this suit relate to substantially the same facts as those underlying the Securities Class Action described above and the SEC settlement involving the former executives described below. The action alleges claims under Sections 10(b)

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and 20(a) of the Securities Exchange Act of 1934, as well as common law fraud and negligent misrepresentation. The Company responded to the complaint and filed a motion to dismiss on May 10, 2021, which is pending before the Court. Plaintiffs seek unspecified damages, costs and expenses.

WageWorks voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the restatement of WageWorks' financial statements and related independent investigation. WageWorks is providing information and documents to the SEC and continues to cooperate with the SEC’s investigation into these matters. The U.S. Attorney’s Office for the Northern District of California also opened an investigation. WageWorks has provided documents and information to the U.S. Attorney’s Office and continues to cooperate with any inquiries by the U.S. Attorney’s Office regarding the matter. On February 2, 2021, the SEC announced charges against 2 former WageWorks executives and reached a settlement with these former executives. As part of the settlement, the 2 executives agreed to reimburse WageWorks for a total of $2.1 million, which is included within other expense, net in the condensed consolidated statement of operations and comprehensive income (loss).

WageWorks previously entered into indemnification agreements with its former directors and officers and, pursuant to these indemnification agreements, is covering the defense fees and costs of its former directors and officers in the legal proceedings described above.

The Company and its subsidiaries are involved in various other litigation, governmental proceedings and claims, not described above, that arise in the normal course of business. It is not possible to determine the ultimate outcome or the duration of such litigation, governmental proceedings or claims, or the impact that such litigation, proceedings and claims will have on the Company’s financial position, results of operations, and cash flows.

The Company maintains liability insurance coverage that is intended to cover the legal matters described above; however, it is possible that claims may be denied by our insurance carriers or could exceed the amount of our applicable insurance coverage, we may be required by our insurance carriers to contribute to the payment of claims, and our insurance coverage may not continue to be available to us on acceptable terms or in sufficient amounts.

As required under GAAP, the Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Except with respect to the Securities Class Action, which has been settled, the Company does not believe, based on currently available information, that any liabilities relating to these matters are probable or that the amount of any resulting loss is estimable. However, litigation is subject to inherent uncertainties and the Company’s view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position, results of operations and cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.

Note 7. Income taxes

The Company follows Accounting Standards Codification ("ASC") 740-270, Income Taxes - Interim Reporting, for the computation and presentation of its interim period tax provision. Accordingly, management estimated the effective annual tax rate and applied this rate to the year-to-date pre-tax book income (loss) to determine the interim benefit or provision for income taxes. For the three and six months ended ~~April 30,~~July 31, 2021, the Company recorded an income tax benefit of ~~$3.5 million.~~$4.0 million and $7.4 million, respectively. This resulted in an effective income tax benefit rate of ~~57.1%~~50.8% and 53.6% for the three and six months ended ~~April 30,~~July 31, 2021, respectively, compared with an effective income tax ~~expense~~benefit rate of ~~10.7%~~78.6% and 24.0% for the three and six months ended ~~April 30, 2020.~~July 31, 2020, respectively. For the three and six months ended ~~April 30,~~July 31, 2021, ~~and 2020,~~ discrete tax items had an effective tax rate benefit of ~~33.2%~~25.6% and ~~16.8%~~28.9%, respectively, compared with an effective tax rate benefit of 62.9% and 57.4% for the three and six months ended July 31, 2020, respectively, primarily due to excess tax benefits on stock-based compensation expense recognized in the provision for income taxes.

As of ~~April 30,~~July 31, 2021 and January 31, 2021, the Company’s total gross unrecognized tax benefit was ~~$10.5~~$10.7 million and $10.2 million, respectively. If recognized, ~~$9.7~~$9.9 million of the total gross unrecognized tax benefits would affect the Company's effective tax rate as of ~~April 30,~~July 31, 2021.

The Company files income tax returns with U.S. federal and state taxing jurisdictions and is currently under examination by the IRS and in the ~~states~~state of ~~California and~~ Texas. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes, net operating losses, and/or tax credit carryforwards. As a result of the Company's net operating loss carryforwards and tax credit carryforwards, the Company remains subject to examination by one or more jurisdictions for tax years after 2001.

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Note 8. Indebtedness

~~As of April 30, 2021, long-term~~Long-term debt consisted of the following:


~~(in millions)~~	~~April 30, 2021~~
~~Term loan facility~~	$	~~987.5~~
~~Less: unamortized loan issuance costs (1)~~	~~15.2~~
~~Long-term debt, net of issuance costs~~	$	~~972.3~~


(in thousands)	July 31, 2021		January 31, 2021
Term loan facility	$	987,500	$	1,003,125
Less: unamortized loan issuance costs (1)	13,926		16,408
Long-term debt, net of issuance costs	$	973,574	$	986,717

(1)In addition to the ~~$15.2~~$13.9 million and $16.4 million of unamortized issuance costs related to the term loan facility ~~$4.6~~as of July 31, 2021 and January 31, 2021, respectively, $4.3 million and $5.0 million of unamortized issuance costs related to our revolving credit facility are included within other assets on the ~~April 30, 2021~~ condensed consolidated balance ~~sheet.~~sheets as of July 31, 2021 and January 31, 2021, respectively.

The Company is party to a credit facility (the "Credit Agreement”) that provides for:

(i) a five-year senior secured term loan A facility (the “Term Loan Facility”), in an aggregate principal amount of $1.25 billion; and

(ii) a five-year senior secured revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Credit Facilities”), in an aggregate principal amount of up to $350.0 million, which may be used for working capital and general corporate purposes, including acquisitions and other investments. ~~NaN~~No amounts were drawn under the Revolving Credit Facility as of ~~April 30,~~July 31, 2021.

Borrowings under the Credit Facilities bear interest at an annual rate equal to, at the option of HealthEquity, either (i) LIBOR (adjusted for reserves) plus a margin ranging from 1.25% to 2.25% or (ii) an alternate base rate plus a margin ranging from 0.25% to 1.25%, with the applicable margin determined by reference to a leverage-based pricing grid set forth in the Credit Agreement. As of ~~April 30,~~July 31, 2021, the stated interest rate was ~~1.86%~~1.84% and the effective interest rate was ~~2.39%~~2.37%. The Company is also required to pay certain fees to the lenders, including, among others, a quarterly commitment fee on the average unused amount of the Revolving Credit Facility at a rate ranging from 0.20% to 0.40%, with the applicable rate also determined by reference to a leverage-based pricing grid set forth in the Credit Agreement.

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit, among other things, the ability of the Company to incur additional indebtedness, create liens, merge or dissolve, make investments, dispose of assets, engage in sale and leaseback transactions, make distributions and dividends and prepayments of junior indebtedness, engage in transactions with affiliates, enter into restrictive agreements, amend documentation governing junior indebtedness, modify its fiscal year and modify its organizational documents, in each case, subject to customary exceptions, thresholds, qualifications and “baskets.” In addition, the Credit Agreement contains financial performance covenants, which require the Company to maintain (i) a maximum total net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than ~~5.00 to 1.00, which steps down to~~ 4.50 to 1.00 ~~beginning with the fiscal quarter ending July 31, 2021~~ (subject to a customary “acquisition holiday” provision that allows the maximum total net leverage ratio to increase to 5.00 to 1.00 for the four fiscal quarter period ending on or following the date of a permitted acquisition by the Company in excess of $100.0 million), and (ii) a minimum interest coverage ratio, measured as of the last day of each fiscal quarter, of no less than 3.00 to 1.00. The Company was in compliance with all covenants under the Credit Agreement as of ~~April 30,~~July 31, 2021, and for the period then ended.

The obligations of HealthEquity under the Credit Agreement are required to be unconditionally guaranteed by WageWorks and Fort Effect Corp and are secured by security interests in substantially all assets of HealthEquity and the guarantors, subject to certain customary exceptions.

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Note 9. Stock-based compensation

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


		Three months ended April 30,					Three months ended July 31,				Six months ended July 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2021		2020		2021		2020
Cost of revenue	Cost of revenue	$	2,403	$	1,463	Cost of revenue	$	3,068	$	2,065	$	5,471	$	3,528
Sales and marketing	Sales and marketing	2,188		958		Sales and marketing	2,660		1,818		4,848		2,776
Technology and development	Technology and development	3,013		2,917		Technology and development	3,693		2,493		6,706		5,410
General and administrative	General and administrative	5,195		2,058		General and administrative	6,196		5,062		11,391		7,120
Other expense, net (1)		342		0
Other expense (1)						Other expense (1)	—		—		342		—
Total stock-based compensation expense	Total stock-based compensation expense	$	13,141	$	7,396	Total stock-based compensation expense	$	15,617	$	11,438	$	28,758	$	18,834

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

Stock award plans

Incentive Plan. The Company grants stock options, restricted stock units ("RSUs"), and restricted stock awards ("RSAs") under the HealthEquity, Inc. 2014 Equity Incentive Plan (as amended and restated, the "Incentive Plan"), which provided for the issuance of stock awards to the directors and team members of the Company to purchase up to an aggregate of 2.6 million shares of common stock.

In addition, under the Incentive Plan, the number of shares of common stock reserved for issuance under the Incentive Plan automatically increases on February 1 of each year, beginning as of February 1, 2015 and continuing through and including February 1, 2024, by 3% of the total number of shares of the Company’s capital stock outstanding on January 31 of the preceding fiscal year, or a lesser number of shares determined by the board of directors. As of ~~April 30,~~July 31, 2021, 7.5 million shares were available for grant under the Incentive Plan.

Stock options

A summary of stock option activity is as follows:


		Outstanding stock options								Outstanding stock options
(in thousands, except for exercise prices and term)	(in thousands, except for exercise prices and term)	Number of options	Range of exercise prices	Weighted- average exercise price		Weighted- average contractual term (in years)	Aggregate intrinsic value		(in thousands, except for exercise prices and term)	Number of options	Range of exercise prices	Weighted- average exercise price		Weighted- average contractual term (in years)	Aggregate intrinsic value
Outstanding as of January 31, 2021	Outstanding as of January 31, 2021	1,674	$1.25 - 82.39	$	31.46	5.00	$	87,164	Outstanding as of January 31, 2021	1,674	$1.25 - 82.39	$	31.46	5.00	$	87,164
Exercised	Exercised	(103)	$14.00 - 44.53	$	26.46				Exercised	(225)	$1.25 - 44.53	$	23.69
Outstanding as of April 30, 2021		1,571	$1.25 - 82.39	$	31.79	4.70	$	69,562
Vested and expected to vest as of April 30, 2021		1,571		$	31.79	4.70	$	69,562
Exercisable as of April 30, 2021		1,463		$	29.08	4.50	$	68,694
Outstanding as of July 31, 2021									Outstanding as of July 31, 2021	1,449	$1.25 - 82.39	$	32.66	4.40	$	60,083
Vested and expected to vest as of July 31, 2021									Vested and expected to vest as of July 31, 2021	1,449		$	32.66	4.40	$	60,083
Exercisable as of July 31, 2021									Exercisable as of July 31, 2021	1,352		$	29.95	4.20	$	59,645

Restricted stock units and restricted stock awards

A summary of RSU and RSA activity is as follows:


		RSUs and PRSUs			RSAs and PRSAs				RSUs and PRSUs			RSAs and PRSAs
(in thousands, except weighted-average grant date fair value)	(in thousands, except weighted-average grant date fair value)	Shares	Weighted-average grant date fair value		Shares	Weighted-average grant date fair value		(in thousands, except weighted-average grant date fair value)	Shares	Weighted-average grant date fair value		Shares	Weighted-average grant date fair value
Outstanding as of January 31, 2021	Outstanding as of January 31, 2021	1,832	$	60.41	193	$	61.77	Outstanding as of January 31, 2021	1,832	$	60.41	193	$	61.77
Granted	Granted	1,213	72.00		0	0		Granted	1,265	72.47		—	—
Vested	Vested	(274)	56.05		(116)	61.77		Vested	(383)	57.64		(116)	61.77
Forfeited	Forfeited	(36)	63.18		(73)	61.77		Forfeited	(103)	60.43		(73)	61.77
Outstanding as of April 30, 2021		2,735	$	65.95	4	$	61.72
Outstanding as of July 31, 2021								Outstanding as of July 31, 2021	2,611	$	66.66	4	$	61.72

Performance restricted stock units. During the first quarter of fiscal year 2022, the Company awarded 249,750 performance restricted stock units ("PRSUs") subject to a market condition based on the Company’s total shareholder return ("TSR") relative to the Russell 2000 index as measured on January 31, 2024. The Company used a Monte Carlo simulation to determine that the grant date fair value of the awards was $22.4 million.

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Compensation expense is recorded if the service condition is met regardless of whether the market condition is satisfied. The market condition allows for a range of vesting from 0% to 200% based on the level of performance achieved. The PRSUs cliff vest upon approval by the Compensation Committee of the board of directors.

Note 10. Fair value

Fair value measurements are made at a specific point in time based on relevant market information. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards specify a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:

•Level 1—quoted prices in active markets for identical assets or liabilities;

•Level 2—inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

•Level 3—unobservable inputs based on the Company’s own assumptions.

Level 1 instruments are valued based on publicly available daily net asset values. Level 1 instruments consist primarily of cash and cash equivalents. The carrying value of cash and cash equivalents approximate fair values as of ~~April 30,~~July 31, 2021 due to the short-term nature of these instruments.

Our long-term debt is considered a Level 2 instrument and is recorded at book value in our condensed consolidated financial statements. Our long-term debt reprices frequently due to variable interest rate terms and entails no significant changes in credit risk. As a result, we believe the fair value of our long-term debt approximates carrying value.

The contingent consideration liability resulting from the Luum Acquisition was determined using a Monte Carlo valuation model based on Level 3 inputs. The estimate of fair value of the contingent consideration obligation requires subjective assumptions to be made regarding ~~the future business results,~~revenue growth rates, discount rates, peer revenue volatilities, and probabilities assigned to various potential business result scenarios and was determined using probability assessments with respect to the likelihood of achieving certain ~~financial~~revenue targets. The fair value measurement is based on ~~significant~~ inputs unobservable in the market and thus represents a level 3 measurement. Changes in current expectations of progress could change the probability of achieving the targets within the measurement periods and result in an increase or decrease in the fair value of the contingent consideration obligation. For further information, see Note 3—Business combination.

The following table reconciles the change in the fair value of the contingent consideration during the period presented:


(in thousands)	Carrying Amount
Balance as of January 31, 2021	$	—
Contingent consideration recognized at acquisition	8,147
Change in fair value recognized in the condensed consolidated statement of operations and comprehensive income (loss)	1,011
Balance as of July 31, 2021	$	9,158

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Item 2. Management’s discussion and analysis of financial condition and results of operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Statements that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. Such statements include, but are not limited to, statements concerning our ability to close the acquisition of Further, the impact of the ongoing COVID-19 pandemic on the Company, the anticipated synergies and other benefits of the acquisitions of WageWorks ~~acquisition,~~and Further, health savings accounts and other tax-advantaged consumer-directed benefits, tax and other regulatory changes, market opportunity, our future financial and operating results, our investment and acquisition strategy, our sales and marketing strategy, management’s plans, beliefs and objectives for future operations, technology and development, economic and industry trends or trend analysis, expectations about seasonality, opportunity for portfolio purchases and other acquisitions, operating expenses, anticipated income tax rates, capital expenditures, cash flows and liquidity. These statements are based on the beliefs and assumptions of our management based on information currently available to us. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk factors” included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021, this Quarterly Report on Form 10-Q, and our other reports filed with the SEC. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such events.

Overview

We are a leader and an innovator in providing technology-enabled services that empower consumers to make healthcare saving and spending decisions. We use our innovative technology to manage consumers' tax-advantaged health savings accounts ("HSAs") and other consumer-directed benefits ("CDBs") offered by employers, including flexible spending accounts and health reimbursement arrangements (“FSAs” and “HRAs”), and to administer Consolidated Omnibus Budget Reconciliation Act (“COBRA”), commuter and other benefits. As part of our services, we and our subsidiaries provide consumers with healthcare bill evaluation and payment processing services, personalized benefit information including information on treatment options and comparative pricing, access to remote and telemedicine benefits, the ability to earn wellness incentives, and investment advice to grow their tax-advantaged healthcare savings.

The core of our offerings is the HSA, a financial account through which consumers spend and save long-term for healthcare expenses on a tax-advantaged basis. As of ~~April 30,~~July 31, 2021, we administered ~~5.8~~6.0 million HSAs, with balances totaling ~~$15.0~~$15.5 billion, which we call HSA Assets. Also, as of ~~April 30,~~July 31, 2021, we administered ~~7.0~~7.2 million complementary CDBs. We refer to the aggregate number of HSAs and other CDBs that we administer as Total Accounts, of which we had ~~12.8~~13.1 million as of ~~April 30,~~July 31, 2021.

We reach consumers primarily through relationships with their employers, which we call Clients. We reach Clients primarily through a sales force that calls on Clients directly, relationships with benefits brokers and advisors, and integrated partnerships with a network of health plans, benefits administrators, benefits brokers and consultants, and retirement plan recordkeepers, which we call Network Partners.

We have increased our share of the growing HSA market from 4% in calendar year 2010 to 16% in 2020, measured by HSA Assets. According to Devenir, today we are the largest HSA provider by accounts and second largest by assets. In addition, we believe we are the largest provider of other CDBs. We seek to differentiate ourselves through our proprietary technology, product breadth, ecosystem connectivity, and service-driven culture. Our proprietary

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technology allows us to help consumers optimize the value of their HSAs and other CDBs and gain confidence and skills in managing their healthcare costs as part of their financial security.

Our ability to assist consumers is enhanced by our capacity to securely share data in both directions with others in the health, benefits, and retirement ecosystems. Our commuter benefits offering also leverages connectivity to an ecosystem of mass transit, ride hailing, and parking providers. These strengths reflect our “DEEP Purple” culture of remarkable service to customers and teammates, achieved by driving excellence, ethics, and process into everything we do.

We earn revenue primarily from three sources: service, custodial, and interchange. We earn service revenue mainly from fees paid by Clients on a recurring per-account per-month basis. We earn custodial revenue mainly from HSA Assets held at our members’ direction in federally insured cash deposits, insurance contracts or mutual funds, and from investment of Client-held funds. We earn interchange revenue mainly from fees paid by merchants on payments that our members make using our physical payment cards and on our virtual payment system. See “Key components of our results of operations” for additional information on our sources of revenue, including the adverse impacts caused by the ongoing COVID-19 pandemic.

WageWorks Acquisition

On August 30, 2019, we completed the acquisition of WageWorks, Inc. (the "WageWorks Acquisition") and paid approximately $2.0 billion in cash to WageWorks stockholders, financed through net borrowings of approximately $1.22 billion under a new term loan facility and approximately $816.9 million of cash on hand. As a result of the WageWorks Acquisition, WageWorks Inc. became a wholly owned subsidiary of HealthEquity, Inc.

The key strategy of the WageWorks Acquisition was to enable us to increase the number of our employer sales opportunities, the conversion of these opportunities to Clients, and the value of Clients in generating members, HSA Assets and complementary CDBs. WageWorks’ historic strength of selling to employers directly and through health benefits brokers and advisors complemented our distribution through Network Partners. With WageWorks’ CDB capabilities, we provide employers with a single partner for both HSAs and other CDBs, which is preferred by the vast majority of employers according to research conducted for us by Aite Group. For Clients that partner with us in this way, we believe we can produce more value by encouraging both CDB participants to contribute to HSAs and HSA-only members to take advantage of tax savings available through other CDBs. Accordingly, we believe that there are significant opportunities to expand the scope of services that we provide to our Clients.

We are continuing our multi-year integration effort that we expect will produce long-term cost savings and revenue synergies. We have identified opportunities of approximately $80 million in annualized ongoing net synergies to be achieved by the end of fiscal year 2022, of which approximately ~~$65~~$70 million were achieved as of ~~April 30,~~July 31, 2021. Furthermore, we anticipate generating additional revenue synergies over the longer-term as our combined distribution channels and existing client base take advantage of the broader service offerings and as we continue to drive member engagement. We estimate non-recurring costs to achieve these synergies of approximately $100 million ~~incurred by the end of fiscal year 2022,~~ resulting from investment in technology we use to provide our services, and to run our back-office systems, and from integration of technology, as well as rationalization of cost of operations. Merger integration expenses attributable to the WageWorks Acquisition are expected to be completed by the end of fiscal year 2022, with the exception of ongoing lease expense related to certain WageWorks offices that have been permanently closed, less any related sublease income. As of ~~April 30,~~July 31, 2021, we had incurred a total of ~~approximately $87~~$96 million of non-recurring merger integration costs related to the WageWorks Acquisition.

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 "Luum Acquisition") for an aggregate purchase price consisting of $50.2 million in cash and up to $20.0 million in contingent payments payable during the two-year period following the closing of the Luum Acquisition. Luum provides employers with a suite of commute tools as well as 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 April 2021, we entered into a definitive agreement with Fifth Third Bank, National Association ("Fifth Third"), to transition custodianship of Fifth Third’s HSA portfolio to HealthEquity. The definitive agreement contemplates a $60.8 million dollar purchase price for a transfer of approximately 149,000 HSA members and their approximately $477.0 million of HSA Assets. The agreement includes a mechanism to adjust the purchase price based on the amount of HSA Assets actually transferred. The transaction is subject to ~~regulatory approval and~~ satisfaction of ~~other~~certain customary closing ~~conditions.~~

conditions and is expected to close by the end of our fiscal third quarter.

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Further Acquisition

In April 2021, we entered into a definitive agreement to acquire Further for $500 million. Further is a leading provider of HSA and other CDB administration services, with approximately 550,000 HSAs and $1.7 billion of HSA Assets. In September 2021, the terms of the acquisition were amended pursuant to two agreements: (1) an agreement to acquire all cash balances and investment assets included in any voluntary employee beneficiary association (“VEBA”) account that is funding a health reimbursement arrangement (either Section 501(c)(9) or Section 115 trusts) and all contracts related exclusively thereto for, which is anticipated to close on January 31, 2022 for a maximum purchase price of $45 million, calculated based on the actual amount of VEBA assets transferred relative to the total amount of VEBA assets as of April 30, 2021, and (2) an amended agreement to acquire the remainder of the Further business for $455 million, with a target closing date on November 1, 2021. The ~~transaction is~~transactions are subject to ~~regulatory approvals and other~~satisfaction of certain customary closing ~~conditions and is expected to close by September 2021.~~conditions.

Key factors affecting our performance

We believe that our future performance will be driven by a number of factors, including those identified below. Each of these factors presents both significant opportunities and significant risks to our future performance. See also "Results of operations - Revenue" for information relating to the ongoing COVID-19 pandemic and also the section entitled “Risk factors” included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021, this Quarterly Report on Form 10-Q, and our other reports filed with the SEC.

Structural change in U.S. health insurance

We derive revenue primarily from healthcare-related saving and spending by consumers in the U.S., which are driven by changes in the broader healthcare industry, including the structure of health insurance. The average premium for employer-sponsored health insurance has risen by 22% since 2015 and 55% since 2010, resulting in increased participation in HSA-qualified health plans and HSAs and increased consumer cost-sharing in health insurance more generally. We believe that continued growth in healthcare costs and related factors will spur continued growth in HSA-qualified health plans and HSAs and may encourage policy changes making HSAs or similar vehicles available to new populations such as individuals in Medicare. However, the timing and impact of these and other developments in U.S. healthcare are uncertain. Moreover, changes in healthcare policy, such as "Medicare for all" plans, could materially and adversely affect our business in ways that are difficult to predict.

Trends in U.S. tax law

Tax law has a profound impact on our business. Our offerings to members, Clients, and Network Partners consist primarily of services enabled, mandated, or advantaged by provisions of U.S. tax law and regulations. We believe that the present direction of U.S. tax policy is favorable to our business, as evidenced for example by recent regulatory action and bipartisan policy proposals to expand the availability of HSAs. However, changesChanges in tax policy are speculative, and may affect our business in ways that are difficult to predict.

Our client base

Our business model is based on a B2B2C distribution strategy, whereby we work with Network Partners and Clients to reach consumers to increase the number of our members with HSA accounts and complementary CDBs. We believe that there are significant opportunities to expand the scope of services that we provide to our current Clients.

Broad distribution footprint

We believe we have a diverse distribution footprint to attract new Clients and Network Partners. Our sales force calls on enterprise and regional employers in industries across the U.S., as well as potential Network Partners from among health plans, benefits administrators, and retirement plan record keepers.

Product breadth

We are the largest custodian and administrator of HSAs (by number of accounts), as well as a market-share leader in each of the major categories of complementary CDBs, including FSAs and HRAs, COBRA and commuter benefits administration. Our Clients and their benefits advisors increasingly seek HSA providers that can deliver an integrated offering of HSAs and complementary CDBs. With our CDB capabilities, we can provide employers with a single partner for both HSAs and complementary CDBs, which is preferred by the vast majority of employers, according to research conducted for us by Aite Group. We believe that the combination of HSA and complementary CDB offerings significantly strengthens our value proposition to employers, health benefits brokers and consultants, and Network Partners as a leading single-source provider.

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Our proprietary technology

We believe that innovations incorporated in our technology, which enable us to better assist consumers to make healthcare saving and spending decisions and maximize the value of their tax-advantaged benefits, differentiate us from our competitors and drive our growth. We are building on these innovations by combining our HSA offering with WageWorks' complementary CDB offerings, giving us a full suite of CDB products, and adding to our solutions set

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and leadership position within the HSA sector. We intend to continue to invest in our technology development to enhance our capabilities and infrastructure, while maintaining a focus on data security and the privacy of our customers' data. 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.

Our “DEEP Purple” service culture

The successful healthcare consumer needs education and guidance delivered by people as well as by technology. We believe that our "DEEP Purple" culture, which we define as driving excellence, ethics, and process while providing remarkable service, is a significant factor in our ability to attract and retain customers and to address nimbly, opportunities in the rapidly changing healthcare sector. We make significant efforts to promote and foster DEEP Purple within our workforce. We invest in and intend to continue to invest in human capital through technology-enabled training, career development, and advancement opportunities.

Interest rates

As a non-bank custodian, we contract with federally insured banks and credit unions, which we collectively call our Depository Partners, and also with insurance company partners, to hold custodial cash assets on behalf of our members. We earn a material portion of our total revenue from interest paid to us by these partners. The lengths of our agreements with Depository Partners typically range from three to five years and may have fixed or variable interest rate terms. The terms of new and renewing agreements may be impacted by the then-prevailing interest rate environment, which in turn is driven by macroeconomic factors and government policies over which we have no control. Such factors, and the response of our competitors to them, also determine the amount of interest retained by our members. We believe that diversification of Depository Partners, varied contract terms and other factors reduce our exposure to short-term fluctuations in prevailing interest rates and mitigate the short-term impact of sustained increases or declines in prevailing interest rates on our custodial revenue. 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.

Although interest rates have improved somewhat, we expect our custodial revenue to continue to be adversely affected by the interest rate cuts by the Federal Reserve associated with the ongoing COVID-19 pandemic, the lack of demand from Depository Partners for deposits, and other market conditions that have caused the interest rates offered by our Depository Partners to decline significantly.

Interest on our long-term debt 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 competition and industry

Our direct competitors are HSA custodians and other CDB providers. 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 United Health 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. In addition, numerous indirect competitors, including benefits administration service providers, partner with banks and other HSA custodians to compete with us. Our Network Partners may also choose to offer competitive services directly, as some health plans have done. Our success depends on our ability to predict and react quickly to these and other industry and competitive dynamics.

As a result of the COVID-19 pandemic, we have seen an adverse impact on sales opportunities, with some opportunities delayed and most now being held virtually. As an increasing number of companies go out of business, the number of our Clients and potential Clients is adversely affected. Increased unemployment may mean that fewer of our members contribute to HSAs, FSAs, or other CDBs and reduce overall demand for our products. We have seen a significant decline in the use of commuter benefits due to many of our members working from home during the outbreak or other impacts from the outbreak, which has negatively impacted both our interchange revenue and service revenue, and this "work from home" trend may continue after the pandemic. We have also

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seen a decline in interchange revenue across all other products. The extent to which the COVID-19 pandemic will negatively impact our business remains highly uncertain and cannot be accurately predicted.

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Regulatory environment

Federal law and regulations, including the Affordable Care Act, the Internal Revenue Code, the Employee Retirement Income Security Act and Department of Labor regulations, and public health regulations that govern the provision of health insurance and provide the tax advantages associated with our services, play a pivotal role in determining our market opportunity. Privacy and data security-related laws such as the Health Insurance Portability and Accountability Act, or HIPAA, and the Gramm-Leach-Bliley Act, laws governing the provision of investment advice to consumers, such as the Investment Advisers Act of 1940, or the Advisers Act, the USA PATRIOT Act, anti-money laundering laws, and the Federal Deposit Insurance Act, all play a similar role in determining our competitive landscape. In addition, state-level regulations also have significant implications for our business in some cases. For example, our subsidiary HealthEquity Trust Company is regulated by the Wyoming Division of Banking, and several states are considering, or have already passed, new privacy regulations that can affect our business. 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 California, which in 2018 enacted the California Consumer Privacy Act broadly regulating California residents’ personal information and providing California residents with various rights to access and control their data, and the new California Privacy Rights Act. We have also seen an increase in regulatory changes related to our services due to government responses to the COVID-19 pandemic and may continue to see additional regulatory changes. 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.

On March 21, 2021, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law. ARPA temporarily increased the dependent care flexible spending account contribution limit for the 2021 plan year. It also provided a temporary 100% subsidy of COBRA premium payments for eligible individuals who lost coverage due to an involuntary termination or a reduction of hours for up to 6 months.

Our acquisition strategy

We have a successful history of acquiring HSA portfolios and businesses that strengthen our service offerings. We seek 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. We intend to continue to pursue acquisitions of complementary assets and businesses that we believe will strengthen our service offering, and our success depends in part on our ability to successfully integrate acquired businesses and HSA portfolios with our business in an efficient and effective manner.

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Key financial and operating metrics

Our management regularly reviews 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.

Total Accounts

The following table sets forth our HSAs, CDBs, and Total Accounts as of and for the periods indicated:


(in thousands, except percentages)	(in thousands, except percentages)	April 30, 2021	April 30, 2020	% Change		January 31, 2021	(in thousands, except percentages)	July 31, 2021	July 31, 2020	% Change		January 31, 2021
HSAs	HSAs	5,846	5,380	9	%	5,782	HSAs	5,972	5,384	11	%	5,782
New HSAs from sales - Quarter-to-date	New HSAs from sales - Quarter-to-date	115	104	11	%	370	New HSAs from sales - Quarter-to-date	180	108	67	%	370
New HSAs from sales - Year-to-date	New HSAs from sales - Year-to-date	115	104	11	%	687	New HSAs from sales - Year-to-date	295	213	38	%	687
New HSAs from acquisitions - Year-to-date	New HSAs from acquisitions - Year-to-date	—	—	n/a		—	New HSAs from acquisitions - Year-to-date	—	—	n/a		—
HSAs with investments	HSAs with investments	371	245	51	%	333	HSAs with investments	402	284	42	%	333
CDBs	CDBs	6,986	7,338	(5)	%	7,028	CDBs	7,171	7,090	1	%	7,028
Total Accounts	Total Accounts	12,832	12,718	1	%	12,810	Total Accounts	13,143	12,474	5	%	12,810
Average Total Accounts - Quarter-to-date	Average Total Accounts - Quarter-to-date	12,870	12,784	1	%	12,659	Average Total Accounts - Quarter-to-date	13,358	12,416	8	%	12,659
Average Total Accounts - Year-to-date	Average Total Accounts - Year-to-date	12,870	12,784	1	%	12,604	Average Total Accounts - Year-to-date	13,114	12,602	4	%	12,604

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 approximately ~~0.5~~0.6 million, or 9%11%, from ~~April 30,~~July 31, 2020 to ~~April 30,~~July 31, 2021, due to further penetration into existing Network Partners and the addition of new Network Partners. The number of

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our CDBs ~~decreased~~increased by approximately ~~0.4~~0.1 million, or 5%1%, from ~~April 30,~~July 31, 2020 to ~~April 30,~~July 31, 2021, driven by an increase in COBRA accounts, largely offset by a ~~0.7 million~~ decrease in commuter benefit accounts that are currently suspended due to the COVID-19 pandemic and fewer workers being required to commute to an ~~office, partially offset by an increase in COBRA accounts.~~office. The suspended commuter accounts continue to be administered on our platform and can be reinstated at any time. We have excluded the suspended commuter accounts from our account totals because they are currently not generating revenue for the Company.

HSA Assets

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


(in millions, except percentages)	(in millions, except percentages)	April 30, 2021		April 30, 2020		% Change		January 31, 2021		(in millions, except percentages)	July 31, 2021		July 31, 2020		% Change		January 31, 2021
HSA cash with yield (1)	HSA cash with yield (1)	$	9,809	$	8,338	18	%	$	9,875	HSA cash with yield (1)	$	9,938	$	8,626	15	%	$	9,875
HSA cash without yield (2)	HSA cash without yield (2)	217		386		(44)	%	244		HSA cash without yield (2)	90		344		(74)	%	244
Total HSA cash	Total HSA cash	10,026		8,724		15	%	10,119		Total HSA cash	10,028		8,970		12	%	10,119
HSA investments with yield (1)	HSA investments with yield (1)	4,869		2,483		96	%	4,078		HSA investments with yield (1)	5,351		3,046		76	%	4,078
HSA investments without yield (2)	HSA investments without yield (2)	118		297		(60)	%	138		HSA investments without yield (2)	92		195		(53)	%	138
Total HSA investments	Total HSA investments	4,987		2,780		79	%	4,216		Total HSA investments	5,443		3,241		68	%	4,216
Total HSA Assets	Total HSA Assets	15,013		11,504		31	%	14,335		Total HSA Assets	15,471		12,211		27	%	14,335
Average daily HSA cash with yield - Year-to-date	Average daily HSA cash with yield - Year-to-date	9,826		8,283		19	%	8,599		Average daily HSA cash with yield - Year-to-date	9,838		8,332		18	%	8,599
Average daily HSA cash with yield - Quarter-to-date	Average daily HSA cash with yield - Quarter-to-date	$	9,826	$	8,283	19	%	$	9,060	Average daily HSA cash with yield - Quarter-to-date	$	9,850	$	8,380	18	%	$	9,060

(1)HSA Assets that generate custodial revenue.

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

~~Our~~ HSA Assets, which are our HSA members' assets for which we are the custodian or administrator, or from which we generate custodial revenue, consist of the following components: (i) HSA cash, ~~deposits,~~ which ~~are~~includes cash deposits with our Depository Partners or other custodians ~~(ii) custodial~~and cash ~~deposits invested~~placed in annuity contracts with our insurance company partners, and ~~(iii)~~(ii) HSA investments in mutual funds through our custodial investment fund partners. We are continuing to transition HSA cash without yield to HSA cash with yield and expect to complete the transition in fiscal year 2022. Measuring ~~our~~ HSA Assets is important because our custodial revenue is directly affected by average daily custodial balances for HSA Assets that are revenue generating.

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Tabl e of Co ntents

Total HSA cash increased by ~~$1.3~~$1.1 billion, or ~~15%~~12%, from ~~April 30,~~July 31, 2020 to ~~April 30,~~July 31, 2021, due primarily to HSA contributions, new HSAs, and decreased spending per HSA, partially offset by transfers to HSA investments.

~~Our~~ HSA ~~investment assets~~investments increased by $2.2 billion, or ~~79%~~68%, from ~~April 30,~~July 31, 2020 to ~~April 30,~~July 31, 2021, due primarily to transfers from HSA cash and appreciation of invested balances.

~~Our total~~Total HSA Assets increased by ~~$3.5~~$3.3 billion, or ~~31%~~27%, from ~~April 30,~~July 31, 2020 to ~~April 30,~~July 31, 2021, due primarily to HSA contributions, new HSAs, decreased spending per HSA, and appreciation of invested balances.

Client-held funds


(in millions, except percentages)	(in millions, except percentages)	April 30, 2021		April 30, 2020		% Change		January 31, 2021		(in millions, except percentages)	July 31, 2021		July 31, 2020		% Change		January 31, 2021
Client-held funds (1)	Client-held funds (1)	$	903	$	894	1	%	$	986	Client-held funds (1)	$	810	$	840	(4)	%	$	986
Average daily Client-held funds - Year-to-date (1)	Average daily Client-held funds - Year-to-date (1)	899		831		8	%	847		Average daily Client-held funds - Year-to-date (1)	876		861		2	%	847
Average daily Client-held funds - Quarter-to-date (1)	Average daily Client-held funds - Quarter-to-date (1)	899		831		8	%	848		Average daily Client-held funds - Quarter-to-date (1)	853		891		(4)	%	848

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

~~Our~~ Client-held funds are interest-earning deposits from which we generate custodial revenue. These deposits are amounts remitted by Clients and held by us on their behalf to pre-fund and facilitate administration of CDBs. We deposit the Client-held funds with our Depository Partners in interest-bearing, demand deposit accounts that have a floating interest rate and no set term or duration. Client-held funds fluctuate depending on the timing of funding and spending of CDB balances.

Adjusted EBITDA

We define Adjusted EBITDA, which is a non-GAAP financial metric, as 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 ~~marketable~~ equity securities, 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

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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:


		Three months ended April 30,					Three months ended July 31,				Six months ended July 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2021		2020		2021		2020
Net income (loss)	Net income (loss)	$	(2,615)	$	1,826	Net income (loss)	$	(3,818)	$	(148)	$	(6,433)	$	1,678
Interest income	Interest income	(408)		(600)		Interest income	(533)		(76)		(941)		(676)
Interest expense	Interest expense	6,689		12,263		Interest expense	7,254		8,895		13,943		21,158
Income tax provision (benefit)		(3,451)		218
Income tax benefit						Income tax benefit	(3,967)		(543)		(7,418)		(325)
Depreciation and amortization	Depreciation and amortization	11,954		8,805		Depreciation and amortization	12,762		9,522		24,716		18,327
Amortization of acquired intangible assets	Amortization of acquired intangible assets	19,814		18,702		Amortization of acquired intangible assets	20,289		19,077		40,103		37,779
Stock-based compensation expense	Stock-based compensation expense	12,799		7,396		Stock-based compensation expense	15,617		11,438		28,416		18,834
Merger integration expenses	Merger integration expenses	8,807		12,770		Merger integration expenses	16,371		10,365		25,178		23,135
Acquisition costs (1)		5,939		94
Acquisition costs (gains) (1)						Acquisition costs (gains) (1)	1,665		(28)		7,604		66
Gain on equity securities						Gain on equity securities	(1,677)		—		(1,677)		—
Other (2)	Other (2)	(554)		1,535		Other (2)	1,552		1,500		999		3,034
Adjusted EBITDA	Adjusted EBITDA	$	58,974	$	63,009	Adjusted EBITDA	$	65,515	$	60,002	$	124,490	$	123,010

(1)For the ~~three~~six months ended ~~April 30,~~July 31, 2021, acquisition costs included $0.3 million of stock-based compensation.

(2)For the three months ended ~~April 30,~~July 31, 2021 and 2020, other consisted of amortization of incremental costs to obtain a contract of ~~$1.3~~$1.4 million ~~offset by~~and $0.6 million, respectively, and other ~~income,~~costs, net, of ~~$1.8 million.~~$0.2 million and $0.9 million, respectively. For the ~~three~~six months ended ~~April 30,~~July 31, 2021 and 2020, other consisted of amortization of incremental costs to obtain a contract of ~~$0.3~~$2.6 million and $0.8 million, respectively, and other income of $1.6 million and other costs of ~~$1.3 million.~~$2.2 million, respectively.

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


		Three months ended April 30,											Three months ended July 31,										Six months ended July 31,
(in thousands, except percentages)	(in thousands, except percentages)	2021			2020			$ Change		% Change		(in thousands, except percentages)	2021			2020			$ Change		% Change		2021			2020			$ Change		% Change
Adjusted EBITDA	Adjusted EBITDA	$	58,974		$	63,009		$	(4,035)	(6)	%	Adjusted EBITDA	$	65,515		$	60,002		$	5,513	9	%	$	124,490		$	123,010		$	1,480	1	%
As a percentage of revenue	As a percentage of revenue	32		%	33		%					As a percentage of revenue	35		%	34		%					33		%	34		%

Our Adjusted EBITDA ~~decreased~~increased by ~~$4.0~~$5.5 million, or 6%9%, from ~~$63.0~~$60.0 million for the three months ended ~~April 30,~~July 31, 2020 to ~~$59.0~~$65.5 million for the three months ended ~~April 30,~~July 31, 2021. The ~~decrease~~increase in Adjusted EBITDA was primarily driven by an increase in revenue related to COBRA benefits administration, which increased primarily due to the temporary COBRA subsidy available to eligible individuals under ARPA.

Our Adjusted EBITDA increased by $1.5 million, or 1%, from $123.0 million for the six months ended July 31, 2020 to $124.5 million for the six months ended July 31, 2021. The increase in Adjusted EBITDA was driven by the increase in revenue related to COBRA benefits administration, partially offset by a decrease in ~~revenue~~the number of ~~$5.8 million, or 3%,~~commuter benefit accounts due to accounts being suspended as ~~described below.~~a result of the COVID-19 pandemic.

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

Key components of our results of operations

Revenue

We generate revenue from three primary sources: service revenue, custodial revenue, and interchange revenue.

Service revenue. We earn service revenue from the fees we charge our Network Partners, Clients, and members for the administration services we provide in connection with the HSAs and other CDBs we offer. 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. We recognize revenue on a monthly basis as services are rendered to our members and Clients.

Custodial revenue. We earn custodial revenue primarily from ~~our~~ HSA Assets deposited with our Depository Partners and with our insurance company partners, Client-held funds deposited with our Depository Partners, and recordkeeping fees we earn in respect of mutual funds in which our members invest. We deposit HSA cash with 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 deposited with the relevant Depository Partner, and (iii) have minimum and maximum required deposit balances. We deposit the Client-held funds with our Depository Partners in interest-bearing, demand deposit accounts that have a floating interest rate and no set term or duration. We earn custodial revenue on HSA Assets and Client-held funds that is based on the interest rates offered to us by these Depository Partners and insurance company partners. In addition, once a member’s HSA cash balance reaches a certain threshold, the member is able to invest his or her HSA Assets in mutual funds through our custodial investment partner. We earn a recordkeeping fee, calculated as a percentage of custodial investments. We are continuing to transition HSA cash without yield to HSA cash with yield and expect to complete the transition in fiscal year 2022.

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Interchange revenue. We earn interchange revenue each time one of our members uses one of our physical payment cards or virtual platforms to make a purchase. This revenue is collected each time a member “swipes” our payment card to pay expenses. We recognize interchange revenue monthly based on reports received from third parties, namely, the card-issuing banks and card processors.

Cost of revenue

Cost of revenue includes 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. Other components of cost of revenue include interest retained by members on HSA cash and interchange costs incurred in connection with processing card transactions for our members.

Service costs. Service costs include the servicing costs described above. Additionally, for new accounts, we incur on-boarding costs associated with the new accounts, such as new member welcome kits, the cost associated with issuance of new payment cards, and costs of marketing materials that we produce for our Network Partners.

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Tabl e of Co ntents

Custodial costs. Custodial costs are comprised of interest retained by our HSA members, in respect of HSA cash with yield, and fees we pay to banking consultants whom we use to help secure agreements with our Depository Partners. Interest retained by HSA members is calculated on a tiered basis. The interest rates retained by HSA members can change based on a formula or upon required notice.

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

Gross profit and gross margin

Our gross profit is our total revenue minus our total cost of revenue, and our gross margin is our gross profit expressed as a percentage of our total revenue. Our gross margin has been and will continue to be affected by a number of factors, including interest rates, the amount we charge our Network Partners, Clients, and members, the mix of our sources of revenue, how many services we deliver per account, and payment processing costs per account.

Operating expenses

Sales and marketing. Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including sales commissions for our direct sales force, external agent/broker commission expenses, marketing expenses, depreciation, amortization, stock-based compensation, and common expense allocations.

Technology and development. Technology and development expenses include personnel and related expenses for software development and delivery, information technology, data management, product, and security. Technology and development expenses also include software engineering services, the costs of operating our on-demand technology infrastructure, depreciation, amortization of capitalized software development costs, stock-based compensation, and common expense allocations.

General and administrative. General and administrative expenses include personnel and related expenses of, and professional fees incurred by our executive, finance, legal, internal audit, corporate development, compliance, and people departments. They also include depreciation, amortization, stock-based compensation, and common expense allocations.

Amortization of acquired intangible assets. 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. We also acquired intangible HSA portfolios from third-party custodians. We amortize these assets over the assets’ estimated useful life of 15 years. We evaluate our acquired intangible assets for impairment annually, or at a triggering event.

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.

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Interest expense

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

Other ~~expense,~~income (expense), net

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

Income tax provision (benefit)

We are subject to federal and state income taxes in the United States based on a January 31 fiscal year end. We use the asset and liability method to account for income taxes, under which current tax liabilities and assets are recognized for the estimated taxes payable or refundable on the tax returns for the current fiscal year. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating loss carryforwards, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted statutory

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Tabl e of Co ntents

tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized. As of ~~April 30,~~July 31, 2021, we have recorded an overall net deferred tax liability on our condensed consolidated balance sheet.

Comparison of the three and six months ended ~~April 30,~~July 31, 2021 and 2020

Revenue

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


		Three months ended April 30,									Three months ended July 31,								Six months ended July 31,
(in thousands, except percentages)	(in thousands, except percentages)	2021		2020		$ Change		% Change		(in thousands, except percentages)	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Service revenue	Service revenue	$	102,534	$	111,271	$	(8,737)	(8)	%	Service revenue	$	109,182	$	103,805	$	5,377	5	%	$	211,716	$	215,076	$	(3,360)	(2)	%
Custodial revenue	Custodial revenue	46,978		46,899		79		—	%	Custodial revenue	48,776		46,909		1,867		4	%	95,754		93,808		1,946		2	%
Interchange revenue	Interchange revenue	34,690		31,841		2,849		9	%	Interchange revenue	31,145		25,325		5,820		23	%	65,835		57,166		8,669		15	%
Total revenue	Total revenue	$	184,202	$	190,011	$	(5,809)	(3)	%	Total revenue	$	189,103	$	176,039	$	13,064	7	%	$	373,305	$	366,050	$	7,255	2	%

Service revenue. The ~~$8.7~~$5.4 million, or 8%5%, ~~decrease~~increase in service revenue from the three months ended ~~April 30,~~July 31, 2020 to the three months ended ~~April 30,~~July 31, 2021 was primarily due to an increase in revenue related to COBRA benefits administration, which increased primarily due to the ~~0.7~~temporary COBRA subsidy available to eligible individuals under ARPA.

The $3.4 million, or 2%, decrease in service revenue from the six months ended July 31, 2020 to the six months ended July 31, 2021 was primarily due to the decrease in the number of commuter benefit accounts due to accounts being suspended as a result of the COVID-19 ~~pandemic.~~pandemic, partially offset the increase in revenue related to COBRA benefits administration.

Custodial revenue. The ~~$0.1~~$1.9 million, or ~~less than 1%~~4%, increase in custodial revenue from the three months ended ~~April 30,~~July 31, 2020 to the three months ended ~~April 30,~~July 31, 2021 was primarily due to the $1.5 billion, or ~~19%~~18%, increase in the year-over-year average daily balance of HSA cash with yield. The increase was ~~largely~~partially offset by a decrease in average annualized yield from ~~2.12%~~2.10% for the three months ended ~~April 30,~~July 31, 2020 to ~~1.79%~~1.77% for the three months ended ~~April 30,~~July 31, 2021, which was due in part to the interest rate cuts made by the Federal Reserve in response to the COVID-19 pandemic.

The $1.9 million, or 2%, increase in custodial revenue from the six months ended July 31, 2020 to the six months ended July 31, 2021 was primarily due to the $1.5 billion, or 18%, increase in the year-over-year average daily balance of HSA cash with yield. The increase was partially offset by a decrease in average annualized yield from 2.11% for the six months ended July 31, 2020 to 1.78% for the six months ended July 31, 2021, which was due in part to the interest rate cuts made by the Federal Reserve in response to the COVID-19 pandemic.

We are continuing to transition HSA cash without yield to HSA cash with yield and expect to complete the transition in fiscal year 2022. This cash is being placed with our Depository Partners at prevailing interest rates, which we expect will generate additional custodial revenue.

Interchange revenue. The ~~$2.8~~$5.8 million, or 9%23%, increase in interchange revenue from the three months ended ~~April 30,~~July 31, 2020 to the three months ended ~~April 30,~~July 31, 2021 was primarily due to increased spend per ~~HSA,~~account, as healthcare-related restrictions related to the COVID-19 pandemic have decreased.

The $8.7 million, or 15%, increase in interchange revenue from the six months ended July 31, 2020 to the six months ended July 31, 2021 was primarily due to increased spend per account, as healthcare-related restrictions related to the COVID-19 pandemic have decreased, partially offset by a decrease in spend with respect to commuter benefit accounts partially attributable to the COVID-19 pandemic and fewer workers being required to commute to an office.

Total revenue. Total revenue ~~decreased by $5.8~~increased $13.1 million, or 3%7%, from the three months ended ~~April 30,~~July 31, 2020 to the three months ended ~~April 30,~~July 31, 2021 ~~primarily~~ due to the increases in interchange, service, and custodial revenues.

Total revenue increased $7.3 million, or 2%, from the six months ended July 31, 2020 to the six months ended July 31, 2021 due to the increases in interchange and custodial revenues, partially offset by the decrease in service ~~revenue associated with suspended commuter benefit accounts, partially offset by an increase in interchange~~ revenue.

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Tabl e of Co ntents

Impact of COVID-19. Our business has been adversely affected by the COVID-19 pandemic, and we expect that it will continue to be adversely affected by the COVID-19 pandemic, including as a result of the associated interest rate cuts by the Federal Reserve and other market conditions that have caused interest rates to decline significantly,

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which reduces the yield on funds placed with our Depository Partners in this environment. Sales opportunities have also been impacted, with some opportunities delayed and most now being held virtually. In addition, we are required to support our Clients' open enrollment activities virtually. As an increasing number of companies go out of business, the number of our Clients and potential Clients is adversely affected. Increased unemployment may mean that fewer of our members contribute to HSAs, FSAs or other CDBs. We may be unable to meet our service level commitments to our Clients as a result of disruptions to our work force and disruptions to third party contracts that we rely on to provide our services. Our financial results related to certain of our products have also been adversely affected, such as commuter benefits, due to many of our members working from home during the outbreak and other impacts from the outbreak, and the "work from home" trend may continue after the pandemic. ~~Clients may~~In particular, the recent increased spread of COVID-19 and the associated decisions by employers to delay return-to-office plans for their employees will further delay the recovery of use of these commuter benefits. During the initial stages of the COVID-19 pandemic, we saw a negative impact on our members' spend on healthcare, which negatively impacted both our interchange revenue and service revenue. If the current increase in COVID-19 cases results in new lockdowns or restrictions on elective medical procedures, our interchange revenue and service revenue could again be ~~unable to pay fees required under contracts and exercise "force majeure" or similar defenses, which would~~ negatively ~~impact our financial results.~~impacted. The extent to which the COVID-19 pandemic will continue to negatively impact our business remains highly uncertain and as a result may have a material adverse impact on our business and financial results.

Cost of revenue

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


		Three months ended April 30,									Three months ended July 31,								Six months ended July 31,
(in thousands, except percentages)	(in thousands, except percentages)	2021		2020		$ Change		% Change		(in thousands, except percentages)	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Service costs	Service costs	$	70,632	$	71,013	$	(381)	(1)	%	Service costs	$	67,334	$	65,246	$	2,088	3	%	$	137,966	$	136,259	$	1,707	1	%
Custodial costs	Custodial costs	5,009		5,045		(36)		(1)	%	Custodial costs	4,824		4,998		(174)		(3)	%	9,833		10,043		(210)		(2)	%
Interchange costs	Interchange costs	5,445		5,879		(434)		(7)	%	Interchange costs	4,974		4,011		963		24	%	10,419		9,890		529		5	%
Total cost of revenue	Total cost of revenue	$	81,086	$	81,937	$	(851)	(1)	%	Total cost of revenue	$	77,132	$	74,255	$	2,877	4	%	$	158,218	$	156,192	$	2,026	1	%

Service costs. The ~~$0.4~~$2.1 million, or 1%3%, ~~decrease~~increase in service costs from the three months ended ~~April 30,~~July 31, 2020 to the three months ended ~~April 30,~~July 31, 2021 was primarily due to ~~decreases~~an increase in costs related to COBRA benefits administration, which increased primarily due to efforts to implement the offering of the temporary COBRA subsidy available to eligible individuals under ARPA.

The $1.7 million, or 1%, increase in service costs from the six months ended July 31, 2020 to the six months ended July 31, 2021 was primarily due to an increase in costs related to ~~commuter benefit accounts.~~COBRA benefits administration, which increased primarily due to efforts to implement the offering of the temporary COBRA subsidy available to eligible individuals under ARPA.

Custodial costs. The ~~$36,000,~~$0.2 million, or 1%3%, decrease in custodial costs from the three months ended ~~April 30,~~July 31, 2020 to the three months ended ~~April 30,~~July 31, 2021 was due to a lower average annualized rate of interest retained by HSA members on HSA cash with yield, which decreased from ~~0.21%~~0.20% for the three months ended ~~April 30,~~July 31, 2020 to ~~0.18%~~0.16% for the three months ended ~~April 30,~~July 31, 2021, ~~largely~~partially offset by an increase in the average daily balance of HSA cash with yield, which increased from $8.4 billion for the three months ended July 31, 2020 to $9.9 billion for the three months ended July 31, 2021.

The $0.2 million, or 2%, decrease in custodial costs from the six months ended July 31, 2020 to the six months ended July 31, 2021 was due to a lower average annualized rate of interest retained by HSA members on HSA cash with yield, which decreased from 0.20% for the six months ended July 31, 2020 to 0.17% for the six months ended July 31, 2021, partially offset by an increase in the average daily balance of HSA cash with yield, which increased from $8.3 billion for the ~~three~~six months ended ~~April 30,~~July 31, 2020 to $9.8 billion for the ~~three~~six months ended ~~April 30,~~July 31, 2021.

Interchange costs. The ~~$0.4~~$1.0 million, or 7%24%, ~~decrease~~increase in interchange costs from the three months ended ~~April 30,~~July 31, 2020 to the three months ended ~~April 30,~~July 31, 2021 was due to ~~realized synergies attributable~~higher card spend volumes, as healthcare-related restrictions related to the ~~WageWorks Acquisition.~~COVID-19 pandemic have decreased.

The $0.5 million, or 5%, increase in interchange costs from the six months ended July 31, 2020 to the six months ended July 31, 2021 was due to higher card spend volumes, as healthcare-related restrictions related to the COVID-19 pandemic have decreased.

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Tabl e of Co ntents

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. 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, account management functions, realized synergies, and the impact of the COVID-19 pandemic.

Operating expenses

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


		Three months ended April 30,									Three months ended July 31,								Six months ended July 31,
(in thousands, except percentages)	(in thousands, except percentages)	2021		2020		$ Change		% Change		(in thousands, except percentages)	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Sales and marketing	Sales and marketing	$	14,086	$	11,455	$	2,631	23	%	Sales and marketing	$	15,476	$	12,167	$	3,309	27	%	$	29,562	$	23,622	$	5,940	25	%
Technology and development	Technology and development	35,469		31,078		4,391		14	%	Technology and development	37,898		30,654		7,244		24	%	73,367		61,732		11,635		19	%
General and administrative	General and administrative	20,687		18,998		1,689		9	%	General and administrative	22,812		20,493		2,319		11	%	43,499		39,491		4,008		10	%
Amortization of acquired intangible assets	Amortization of acquired intangible assets	19,814		18,702		1,112		6	%	Amortization of acquired intangible assets	20,289		19,077		1,212		6	%	40,103		37,779		2,324		6	%
Merger integration	Merger integration	8,807		12,770		(3,963)		(31)	%	Merger integration	16,371		10,365		6,006		58	%	25,178		23,135		2,043		9	%
Total operating expenses	Total operating expenses	$	98,863	$	93,003	$	5,860	6	%	Total operating expenses	$	112,846	$	92,756	$	20,090	22	%	$	211,709	$	185,759	$	25,950	14	%

Sales and marketing. The ~~$2.6~~$3.3 million, or ~~23%~~27%, increase in sales and marketing expense from the three months ended ~~April 30,~~July 31, 2020 to the three months ended ~~April 30,~~July 31, 2021 was primarily due to an increase in marketing expenses from increased team member and partner commissions, staffing, and marketing materials.

The $5.9 million, or 25%, increase in sales and marketing expense from the six months ended July 31, 2020 to the six months ended July 31, 2021 was primarily due to an increase in marketing expenses from increased staffing and marketing collateral and increases in team member and partner commissions.

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We expect our sales and marketing expenses to increase for the foreseeable future as we focus on our cross-selling program and marketing campaigns. On an annual basis, we expect our sales and marketing expenses to continue to increase as a percentage of our total revenue. However, our sales and marketing 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 sales and marketing expenses.

Technology and development. The ~~$4.4~~$7.2 million, or ~~14%~~24%, increase in technology and development expense from the three months ended ~~April 30,~~July 31, 2020 to the three months ended ~~April 30,~~July 31, 2021 was primarily due to increases in amortization, stock-based compensation, and personnel-related expenses.

The $11.6 million, or 19%, increase in technology and development expense from the six months ended July 31, 2020 to the six months ended July 31, 2021 was primarily due to increases in amortization, stock-based compensation, 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. On an annual basis, we expect our technology and development expenses to continue to increase as a percentage of our total revenue pursuant to our growth initiatives. Our technology and development 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 technology and development expenses.

General and administrative. The ~~$1.7~~$2.3 million, or 9%11%, increase in general and administrative expense from the three months ended ~~April 30,~~July 31, 2020 to the three months ended ~~April 30,~~July 31, 2021 was primarily due to increases in credit losses on trade receivables and stock-based compensation, partially offset by decreases in personnel-related ~~expenses.~~expenses and professional fees.

The $4.0 million, or 10%, increase in general and administrative expense from the six months ended July 31, 2020 to the six months ended July 31, 2021 was primarily due to increases in credit losses on trade receivables and stock-based compensation, partially offset by decreases in personnel-related expenses and professional fees.

We expect our general and administrative expenses to continue to increase for the foreseeable future due to the additional demands on our legal, compliance, accounting, and insurance functions that we incur 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 over the near term pursuant to our growth initiatives. Our general and

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Tabl e of Co ntents

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 ~~$1.1~~$1.2 million, or 6%, increase in amortization of acquired intangible assets from the three months ended ~~April 30,~~July 31, 2020 to the three months ended ~~April 30,~~July 31, 2021 was primarily due to the inclusion of amortization related to identified intangible assets acquired through the Luum Acquisition. The remainder of the increase was due to amortization of acquired HSA portfolios.

The $2.3 million, or 6%, increase in amortization of acquired intangible assets from the six months ended July 31, 2020 to the six months ended July 31, 2021 was primarily due to the inclusion of amortization related to identified intangible assets acquired through the Luum Acquisition commencing March 8, 2021. The remainder of the increase was due to ~~the inclusion~~amortization of ~~amortization related to~~acquired HSA ~~portfolios acquired during the fiscal year ended January 31, 2021.~~portfolios.

Merger integration. The ~~$8.8~~$16.4 million and ~~$12.8~~$25.2 million in merger integration expense for the three and six months ended ~~April 30,~~July 31, 2021, ~~and 2020,~~ respectively, was primarily due to personnel and related expenses, including expenses incurred in conjunction with the migration of accounts, severance, professional fees, technology-related, and facilities expenses directly related to the WageWorks ~~Acquisition.~~Acquisition and additional integration expenses incurred related to the acquisition of Further. We expect integration expenses totaling approximately $100 million and $55 million in the aggregate for the WageWorks and Further acquisitions, respectively. Merger integration expenses attributable to the WageWorks Acquisition are expected to be ~~incurred~~completed by the end of fiscal year ~~2022.~~2022, with the exception of ongoing lease expense related to certain WageWorks offices that have been permanently closed, less any related sublease income. As of ~~April 30,~~July 31, 2021, we had incurred a total of approximately ~~$87~~$103 million of non-recurring merger integration costs related to the WageWorks ~~Acquisition.~~Acquisition and the Further acquisition.

Interest expense

The ~~$6.7~~$7.3 million and ~~$12.3~~$13.9 million in interest expense for the three and six months ended ~~April 30,~~July 31, 2021, ~~and 2020~~respectively, consisted primarily of interest accrued under our term loan facility and amortization of financing costs. We expect interest expense to decrease as a result of the principal repayments under our term loan facility and to fluctuate based on changes in prevailing interest rates.

Other ~~expense,~~income (expense), net

The $1.2 million change in other income (expense), net, from expense of $0.8 million during the three months ended July 31, 2020 to income of $0.4 million during the three months ended July 31, 2021 was due to a $2.9 million increase in interest income and other income, partially offset by a $1.7 million increase in acquisition costs.

The $1.7 million increase in other expense, net, from ~~$0.8~~$1.6 million during the ~~three~~six months ended ~~April 30,~~July 31, 2020 to ~~$3.6~~$3.3 million during the ~~three~~six months ended ~~April 30,~~July 31, 2021 was due to a ~~$5.8~~$7.5 million increase in acquisition costs, partially offset by a ~~$2.9~~$5.8 million increase in interest income and other ~~income, net.~~income.

Income tax ~~provision (benefit)~~benefit

Income tax benefit for the three and six months ended ~~April 30,~~July 31, 2021 was ~~$3.5~~$4.0 million and $7.4 million, respectively, compared to an income tax ~~expense~~benefit of ~~$0.2~~$0.5 million and $0.3 million for the three and six months ended ~~April 30, 2020.~~July 31, 2020, respectively. The $~~3.7~~3.5 million and $7.1 million ~~decrease~~increase in the income tax ~~provision~~benefit for the three and six months ended ~~April 30,~~July 31, 2021 compared to the three and six months ended ~~April 30,~~July 31, 2020 was primarily due to a decrease in pre-tax book income and an increase in excess tax benefits on stock-based compensation expense recognized in the provision for income taxes.

Seasonality

Seasonal concentration of our growth combined with our recurring revenue model create seasonal variation in our results of operations. Revenue results are seasonally impacted due to ancillary service fees, timing of HSA

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contributions, and timing of card spend. Cost of revenue is seasonally impacted as a significant number of new and existing Network Partners bring us new HSAs and CDBs beginning in January of each year concurrent with the start of many employers’ benefit plan years. Before we realize any revenue from these new accounts, we incur costs related to implementing and supporting our new Network Partners and new accounts. These costs of services relate to activating accounts and hiring additional staff, including seasonal help to support our member support center. These expenses begin to ramp up during our third fiscal quarter, with the majority of expenses incurred in our fourth fiscal quarter.

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Liquidity and capital resources

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 described below. 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, payments under our term loan facility, and capital expenditures.

As of ~~April 30,~~July 31, 2021 and January 31, 2021, cash and cash equivalents were ~~$736.8~~$753.8 million and $328.8 million, respectively. Cash and cash equivalents as of ~~April 30,~~July 31, 2021 included $456.6 million of net proceeds we received from our follow-on public offering in the first quarter of fiscal year 2022 from the sale of 5,750,000 shares of our common stock, partially offset by $50.2 million used for the Luum Acquisition.

Capital resources

We ~~have~~routinely maintain a “shelf” registration statement on Form S-3 on file with the SEC. ~~This~~A shelf registration statement, which includes a base prospectus, allows us at any time to offer any combination of securities described in the prospectus in one or more offerings. Unless otherwise specified in a prospectus supplement accompanying the base prospectus, we would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes, including, but not limited to, working capital, sales and marketing activities, general and administrative matters, ~~and~~ capital expenditures, and repayment of indebtedness, and if opportunities arise, for the acquisition of, or investment in, assets, technologies, solutions or businesses that complement our business. Pending such uses, we may invest the net proceeds in interest-bearing securities. In addition, we may conduct concurrent or other financings at any time.

In the first quarter of fiscal year 2022, we closed a follow-on public offering of 5,750,000 shares of common stock at a public offering price of $80.30 per share, less the underwriters' discount. We received net proceeds of $456.6 million after deducting underwriting discounts and commissions of $4.6 million and other offering expenses of approximately $0.5 million.

Our credit agreement includes a five-year senior secured revolving credit facility in an aggregate principal amount of up to $350.0 million, 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. We were in compliance with all covenants under the credit agreement as of ~~April 30,~~July 31, 2021, and for the period then ended.

Use of cash

We used $50.2 million of the net proceeds from the follow-on public offering for the Luum Acquisition, with the remaining proceeds to be used for general corporate purposes, which may include prepayments under our term loan facility or potential acquisitions, including the acquisitions of Further and the Fifth Third Bank HSA portfolio.

Capital expenditures for the ~~three~~six months ended ~~April 30,~~July 31, 2021 and 2020 were ~~$18.0~~$38.4 million and ~~$19.3~~$30.8 million, respectively. We expect to continue our current level of increased capital expenditures for the remainder of the fiscal year ending January 31, 2022 as we continue to devote a significant amount of our capital expenditures to improving the architecture and functionality of our proprietary systems. Costs to improve the architecture of our proprietary systems include computer hardware, personnel and related costs for software engineering and outsourced software engineering services.

We believe our existing cash, cash equivalents, and revolving credit facility will be sufficient to meet our operating and capital expenditure requirements for at least the next 12 months. To the extent these current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may need to raise additional funds through public or private equity or debt financing. In the event that additional financing is required, we may not be able to raise it on favorable terms, if at all.

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~~Table~~Tabl e of ~~Contents~~Co ntents

The following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods:


		Three months ended April 30,					Six months ended July 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2021		2020
Net cash provided by operating activities	Net cash provided by operating activities	$	30,918	$	15,026	Net cash provided by operating activities	$	68,166	$	68,662
Net cash used in investing activities	Net cash used in investing activities	(67,801)		(25,294)		Net cash used in investing activities	(88,268)		(55,696)
Net cash provided by (used in) financing activities		444,853		(10,365)
Increase (decrease) in cash and cash equivalents		407,970		(20,633)
Net cash provided by financing activities						Net cash provided by financing activities	445,053		64,218
Increase in cash and cash equivalents						Increase in cash and cash equivalents	424,951		77,184
Beginning cash and cash equivalents	Beginning cash and cash equivalents	328,803		191,726		Beginning cash and cash equivalents	328,803		191,726
Ending cash and cash equivalents	Ending cash and cash equivalents	$	736,773	$	171,093	Ending cash and cash equivalents	$	753,754	$	268,910

Cash flows from operating activities. Net cash provided by operating activities during the ~~three~~six months ended ~~April 30,~~July 31, 2021 resulted from net loss of ~~$2.6~~$6.4 million, plus depreciation and amortization expense of ~~$31.8~~$64.8 million, stock-based compensation expense of ~~$12.8~~$28.4 million, ~~and~~ amortization of debt issuance costs of ~~$1.2~~$2.5 million, and an increase in the fair value of contingent consideration of $1.0 million, partially offset by other non-cash items and working capital changes totaling ~~$12.3~~$22.1 million.

Net cash provided by operating activities during the ~~three~~six months ended ~~April 30,~~July 31, 2020 resulted from net income of ~~$1.8~~$1.7 million, plus depreciation and amortization expense of ~~$27.5~~$56.1 million, stock-based compensation expense of ~~$7.4~~$18.8 million, and amortization of debt issuance costs of ~~$1.2~~$2.5 million, ~~and~~partially offset by other non-cash items and working capital changes totaling ~~$22.9~~$10.5 million.

Cash flows from investing activities. Cash used in investing activities for the ~~three~~six months ended ~~April 30,~~July 31, 2021 resulted from the Luum Acquisition for $49.5 million, net of cash acquired, ~~$15.5~~$32.1 million in software and capitalized software development, ~~$2.5~~$6.4 million in purchases of property and equipment, and ~~$0.3~~$2.7 million in acquisitions of intangible member ~~assets.~~assets, partially offset by $2.4 million of proceeds from the sale of equity securities associated with a long-term capital investment.

Net cash used in investing activities for the ~~three~~six months ended ~~April 30,~~July 31, 2020 resulted from ~~$11.8~~$21.8 million in software and capitalized software development, ~~$7.5~~$9.0 million in purchases of property and equipment, and ~~$6.0~~$24.9 million in acquisitions of intangible member assets.

Cash flows from financing activities. Net cash provided by financing activities during the ~~three~~six months ended ~~April 30,~~July 31, 2021 resulted from $456.6 million of net proceeds from our follow-on public offering of 5,750,000 shares of common stock and the exercise of stock options of ~~$4.2~~$6.7 million. These items were partially offset by $15.6 million of principal payments on our long-term debt and ~~$0.4~~$2.6 million used in the settlement of Client-held funds obligation.

Net cash ~~used in~~provided by financing activities during the ~~three~~six months ended ~~April 30,~~July 31, 2020 resulted primarily from ~~$7.8~~$287.3 million of net proceeds from our follow-on public offering of 5,290,000 shares of common stock, which does not include accrued offering costs of $0.5 million, and the exercise of stock options of $2.8 million, partially offset by $215.6 million of principal payments on our long-term debt and ~~$3.8~~$10.3 million used in the settlement of ~~client-held~~Client-held funds ~~obligation, partially offset by $1.2 million of proceeds associated with the exercise of stock options.~~obligation.

Contractual obligations

See Note 6—Commitments and contingencies for information about our contractual obligations.

Off-balance sheet arrangements

As of ~~April 30,~~July 31, 2021, other than outstanding letters of credit issued under our revolving credit facility, we did not have any off-balance sheet arrangements. The majority of the standby letters of credit 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 condensed consolidated balance sheets.

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Critical accounting policies and significant management estimates

Our management’s discussion and analysis of financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

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Our significant accounting policies are more fully described in Note 1 of the accompanying unaudited condensed consolidated financial statements and in Note 1 to our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021. There have been no significant or material changes in our critical accounting policies during the ~~three~~six months ended ~~April 30,~~July 31, 2021, as compared to those disclosed in “Management’s discussion and analysis of financial condition and results of operations – Critical accounting policies and significant management estimates” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

Recent accounting pronouncements

See Note 1—Summary of business and significant accounting policies within the interim financial statements included in this Form 10-Q for further discussion.

Item 3. Qualitative and quantitative disclosures about market risk

Market risk

Concentration of market risk. We derive a substantial portion of our revenue from providing services to tax-advantaged healthcare account holders. A significant downturn in this market or changes in state and/or federal laws impacting the preferential tax treatment of healthcare accounts such as HSAs could have a material adverse effect on our results of operations. During the ~~three~~six months ended ~~April 30,~~July 31, 2021 and 2020, no one customer accounted for greater than 10% of our total revenue. We monitor market and regulatory changes regularly and make adjustments to our business if necessary.

Inflation. Inflationary factors may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of expenses as a percentage of revenue if our revenue does not correspondingly increase with inflation.

Concentration of credit risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash and cash equivalents. We maintain our cash and cash equivalents in bank and other depository accounts, which frequently may exceed federally insured limits. Our cash and cash equivalents as of ~~April 30,~~July 31, 2021 were ~~$736.8~~$753.8 million, the vast majority of which was not covered by federal depository insurance. We have not experienced any material losses in such accounts and believe we are not exposed to any significant credit risk with respect to our cash and cash equivalents. Our accounts receivable balance as of ~~April 30,~~July 31, 2021 was ~~$74.5~~$74.2 million. We have not experienced any significant write-offs to our accounts receivable and believe that we are not exposed to significant credit risk with respect to our accounts receivable; however, the extent to which the ongoing COVID-19 pandemic will negatively impact our credit risk remains highly uncertain and cannot be accurately predicted. We continue to monitor our credit risk and place our cash and cash equivalents with reputable financial institutions.

Interest rate risk

HSA Assets and Client-held funds. ~~Our~~ HSA Assets consist of custodial HSA funds we hold in custody on behalf of our members. As of ~~April 30,~~July 31, 2021, we ~~had~~held in custody HSA Assets of approximately ~~$15.0~~$15.5 billion. As a non-bank custodian, we contract with our Depository Partners and insurance company partners to hold custodial cash assets on behalf of our members, and we earn a significant portion of our total revenue from interest paid to us by these partners. The contract terms with our Depository Partners typically range from three to five years and have either fixed or variable interest rates. As ~~our~~ HSA Assets increase and existing contracts with Depository Partners expire, we seek to enter into new contracts with Depository Partners, the terms of which are impacted by the then-prevailing interest rate environment. The diversification of ~~deposits~~HSA Assets placed among our Depository Partners and insurance

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Tabl e of Co ntents

company partners, and varied contract terms, substantially reduces our exposure to short-term fluctuations in prevailing interest rates and mitigates the short-term impact of a sustained increase or decline in prevailing interest rates on our custodial revenue. A sustained decline in prevailing interest rates may negatively affect our business by reducing the size of the interest rate yield, or yield, available to us and thus the amount of the custodial revenue we can realize. Conversely, a sustained increase in prevailing interest rates can increase our yield. An increase in our yield would increase our custodial revenue as a percentage of total revenue. In addition, if our yield increases, we expect the spread to also increase between the interest offered to us by our Depository Partners and insurance company partners and the interest retained by our members, thus increasing our profitability. However, we may be required to increase the interest retained by our members in a rising prevailing interest rate environment. Changes in prevailing interest rates are driven by macroeconomic trends

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and government policies over which we have no control, such as the interest rate cuts by the Federal Reserve associated with the ongoing COVID-19 pandemic.

~~Our~~ Client-held funds are interest earning deposits from which we generate custodial revenue. As of ~~April 30,~~July 31, 2021, we ~~had~~held Client-held funds of approximately ~~$903.0~~$810.0 million. These deposits are amounts remitted by Clients and held by us on their behalf to pre-fund and facilitate administration of our other CDBs. These deposits are held with Depository Partners. We deposit the Client-held funds with our Depository Partners in interest-bearing, demand deposit accounts that have a floating interest rate and no set term or duration. A sustained decline in prevailing interest rates may negatively affect our business by reducing the size of the yield available to us and thus the amount of the custodial revenue we can realize from Client-held funds. Changes in prevailing interest rates are driven by macroeconomic trends and government policies over which we have no control.

Cash and cash equivalents. We consider all highly liquid investments purchased with an original maturity of three months or less to be unrestricted cash equivalents. Our unrestricted cash and cash equivalents are held in institutions in the U.S. and include deposits in a money market account that is unrestricted as to withdrawal or use. As of ~~April 30,~~July 31, 2021, we had unrestricted cash and cash equivalents of ~~$736.8~~$753.8 million. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our cash and cash equivalents as a result of changes in interest rates.

Credit agreement. As of ~~April 30,~~July 31, 2021, we had $987.5 million outstanding under our term loan facility and no amounts drawn under our revolving credit facility. Our overall interest rate sensitivity under these credit facilities is primarily influenced by any amounts borrowed and the prevailing interest rates on these instruments. The interest rate on our term loan credit facility and revolving credit facility is variable and was ~~1.86~~1.84 percent at ~~April 30,~~July 31, 2021. Accordingly, we may incur additional expense if interest rates increase in future periods. For example, a one percent increase in the interest rate on the amount outstanding under our credit facilities at ~~April 30,~~July 31, 2021 would result in approximately ~~$9.8~~$9.6 million of additional interest expense over the next 12 months.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~April 30,~~July 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on such evaluation, the CEO and CFO have concluded that as of ~~April 30,~~July 31, 2021, the Company’s disclosure controls and procedures were not effective because of the material weaknesses in internal control over financial reporting at the Company’s wholly owned subsidiary, WageWorks, described below.

Notwithstanding the ineffective disclosure controls and procedures as a result of the identified material weaknesses in its WageWorks subsidiary, management has concluded that the condensed consolidated financial statements

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Tabl e of Co ntents

included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial position, results of operations and cash flows in accordance with generally accepted accounting principles in the United States of America.

In accordance with interpretive guidance issued by SEC staff, companies are allowed to exclude acquired businesses from the assessment of internal control over financial reporting during the first year after completion of an acquisition and from the assessment of disclosure controls and procedures to the extent subsumed in such internal control over financial reporting. In accordance with this guidance, as the Company acquired Luum on March 8, 2021, management's evaluation and conclusion as to the effectiveness of the Company's disclosure controls and procedures as of ~~April 30,~~July 31, 2021 excluded the portion of disclosure controls and procedures that are subsumed by

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internal control over financial reporting of Luum. Luum’s assets and revenues represented approximately 1%, excluding the effects of purchase accounting, of the Company's consolidated total assets and consolidated total revenues as of and for the fiscal quarter ended ~~April 30,~~July 31, 2021.

Material Weaknesses in Internal Control over Financial Reporting

Management identified certain deficiencies in WageWorks' internal control over financial reporting that aggregated to material weaknesses in the following components of the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO Framework”):

Risk Assessment – The WageWorks subsidiary did not sufficiently identify and analyze risks arising from changes in the business environment, including risks arising in connection with the integration of acquisitions and financial system implementations.

Information and Communication – The WageWorks subsidiary did not establish cross-functional procedures and policies relating to effective information and communication necessary to support the functioning of internal control over financial reporting.

Monitoring – The WageWorks subsidiary did not implement effective monitoring controls that were responsive to changes in the business or the timely remediation of identified control deficiencies.

The COSO Framework component material weaknesses described above contributed to deficiencies at the control activity level that aggregated to the material weaknesses described below:

A. Accounting Close and Financial Reporting

The WageWorks subsidiary had inadequate process level and monitoring controls in the area of accounting close and financial reporting specifically, but not exclusively, around the review of account reconciliations, completeness and accuracy of data material to financial reporting, accounting estimates and related cut-off, the establishment, review, and implementation of accounting policies, and the review of the accuracy and completeness of certain manual and complex data feeds into journal entries and reconciliations of high-volume standard transactions.

B. Contract to Cash Process

The WageWorks subsidiary did not have effective controls around the contract-to-cash life cycle of service fees, including ineffective process level controls around billing set-up during customer implementation, managing change to existing customer billing terms and conditions, timely termination of customers, implementing complex and/or non-standard billing arrangements that require manual intervention or manual controls for billing to customers, processing timely adjustments, lack of robust, established and documented policies to assess collectability and reserve for revenue, bad debts and accounts receivable, availability of customer contracts, and reviews of non-standard contracts.

C. Information Technology General Controls

The WageWorks subsidiary did not have effective controls related to information technology general controls (ITGCs) in the areas of logical access and change-management over certain information technology systems that supported its financial reporting processes. WageWorks’ business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted.

These material weaknesses resulted in material misstatements of WageWorks' historical financial statements, which preceded the acquisition, and could result in a misstatement of our account balances or disclosures that would result in a material misstatement to the annual or interim condensed consolidated financial statements that would not be prevented or detected.

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Ongoing Integration and Remediation Efforts

Management has assessed the impact of the acquisition of WageWorks on the Company’s internal control over financial reporting and continues to assess changes driven by the integration of WageWorks with the existing operations at the consolidated Company. As part of this assessment, management has continued to evaluate the Company’s internal control environment to ensure that it has appropriate controls in place to mitigate the risks of a material misstatement to its consolidated financial statements associated with the WageWorks subsidiary and the Company as a whole.

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In response to the COSO Framework component material weaknesses in the WageWorks subsidiary’s internal control over financial reporting, management has taken the following actions:

•performed aits semi-annual risk assessment and scoping of key systems and business processes, including a risk assessment at the financial statement assertion level to ensure that the level of precision of relevant controls is adequate to address the identified risks;

•dedicated certain senior finance, accounting, operational, and IT leadership team members to work on remediation efforts and appointed a third-party internal controls ~~advisor~~advisors to assist with such efforts;

•~~developed and have begun to execute a plan to implement~~implemented a periodic assessment to monitor business changes impacting accounting processes and controls;

•incorporated certain WageWorks processes into the Company’s existing entity-level controls;

•established periodic reporting of the remediation plan progress to the Audit and Risk Committee of the Company's board of directors; ~~and~~

•~~developed and have begun~~continued to execute aits plan to formalize documentation underlying processes and controls to promote knowledge and information transfer across functions and upon personnel ~~changes.~~changes; and

•continued to monitor the operating effectiveness of the existing entity-level controls.

In response to the material weakness “A. Accounting Close and Financial Reporting,” management has taken the following actions:

•incorporated certain WageWorks processes into the Company’s process-level controls, including, but not limited to, those that address the monitoring of the accounting close cycle and enhanced the evaluation of accounting policies;

•redesigned certain processes and controls in conjunction with the enterprise resource planning “ERP” system migration described below; ~~and~~

•~~developed and have begun~~continued to execute aits plan to assess the relevancy of information and data used in key controls, including a plan to design or augment controls to incorporate the review of the accuracy and completeness of such ~~items.~~items; and

~~In addition to the steps above, specifically to address material weaknesses “B” and “C” above, the Company took the following measures:~~

•~~developed~~continued to monitor the operating effectiveness of the process-level and ~~have begun~~redesigned controls.

In response to the material weakness “B. Contract to Cash Process,” management has taken the following actions:

•continued to execute aits plan to consolidate service platforms related to the contract-to-cash cycle, which will reduce a significant number of manual business process controls; and

•enhanced the design of existing controls including information and ~~have begun~~data used in controls, where applicable, and implemented additional controls to further strengthen the control environment.

In response to the material weakness “C. Information Technology General Controls,” management has taken the following actions:

•continued to execute its plan to consolidate service platforms, which will reduce the number of ITGCs;

•enhanced the design of existing controls, where applicable, and implemented additional controls to further strengthen the control environment; and

•continued to monitor the operating effectiveness of controls related to logical access and change management for relevant WageWorks applications and systems.

As we continue to evaluate operating effectiveness and monitor improvements to our internal control over financial reporting, we may take additional measures to address control deficiencies or modify the remediation plans described above.

As part of our integration efforts, we have migrated all of our material operations to a single ERP system for the consolidated Company that will enhance our business and financial processes and standardize our information systems. We have re-assessed risks in response to the ERP system migration and the associated changes to underlying processes. We have redesigned certain controls in response to the current risks and continue to monitor the operating effectiveness of the redesigned controls.

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Tabl e of Co ntents

Changes in Internal Control Over Financial Reporting

Other than ascontinuing to make progress on the ongoing integration and remediation efforts described above, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended ~~April 30,~~July 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II—Other Information

Item 1. Legal Proceedings

From time-to-time, we may be subject to various legal proceedings and claims that arise in the normal course of our business activities. ~~Our wholly owned subsidiary, WageWorks, is party to certain pending material litigation~~Except as described in Note 6—Commitments and ~~other legal proceedings. Except for such matters,~~contingencies, as of the date of this Quarterly Report on Form 10-Q, we were not a party to any litigation whereby the outcome of such litigation, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations, cash flows or financial position. For a description of these legal proceedings, see Note 6—Commitments and contingencies of the Notes to condensed consolidated financial statements.

Item 1A. Risk factors

The risks described in “Risk factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021 could materially and adversely affect our business, financial condition and results of operations. Except as described below, there have been no material changes in such risks. These risk factors do not identify all risks that we face, and our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations.

The ongoing COVID-19 pandemic has materially impacted our business and may continue to materially impact our business.

Our business has been, and may continue to be, materially and adversely affected by the COVID-19 pandemic. The Federal Reserve’s interest rate cut in response to the economic impact of COVID-19 and other interest rate market conditions have caused interest rates to decline significantly. While interest rates have improved somewhat since these actions were taken by the Federal Reserve, the funds that we place with our depository partners in this environment continue to be placed at lower interest rates than we originally expected. We have also seen an increase in regulatory changes related to our products due to government responses to the COVID-19 pandemic and may continue to see additional regulatory changes, which changes require substantial time and costs for us to ensure compliance. For example, regulatory changes related to our COBRA product have created uncertainty and additional workload on our team members. Further regulatory changes could reduce our operational efficiency and result in additional costs.

Our financial results related to certain of our products have also been adversely affected. For example, we have seen a significant decline in the use of commuter benefits, and the recent spread of the Delta variant of COVID-19 and the associated decisions by employers to delay return-to-office plans for their employees will further delay the recovery of use of these commuter benefits. In addition, to the extent the "work from home" trend continues after the pandemic, that would further negatively impact the revenue we receive from commuter benefits.

During the initial stages of the pandemic, we saw a negative impact on our members' spend on healthcare, which negatively impacted both our interchange revenue and service revenue. If the current increase in COVID-19 cases associated with the Delta variant results in new lockdowns or restrictions on elective medical procedures, our interchange revenue and service revenue could again be negatively impacted. In the event our financial results are severely impacted, it may make it more difficult for us to comply with the financial covenants in our credit agreement, which could result in a breach of the financial covenants and the acceleration of our outstanding debt by our lenders.

As a result of the ongoing pandemic, substantially all of our team members have been working from home. Sales opportunities have been impacted by the lack of travel and in-person meetings, with some opportunities delayed and most now being held virtually. The rise in the Delta variant may mean that sales opportunities and lack of travel continue to be impacted longer than we anticipated and likely means that we will be supporting the open enrollment activities of our Clients virtually again during the upcoming open enrollment season. We may be unable to meet our service level commitments to our Clients as a result of disruptions to our work force and disruptions to third-party contractors that we rely on to provide our services. The risk of cybersecurity breaches and incidents, and the potential impact of these on our operations, is also higher while our team members log in to our network remotely.

The extent to which the COVID-19 pandemic will continue to negatively impact our business remains highly uncertain and, as a result, may continue to have a material and adverse impact on our business and financial results.

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Failure to adequately manage and maintain our custodial assets, or the failure of any of our depository or insurance partners, could materially and adversely affect our business, financial condition and results of operations.

As a non-bank custodian, we rely on our federally insured custodial depository partners and our insurance company partners to hold the vast majority of the HSA Assets that we hold in custody. If any material adverse event were to affect one of our depository partners or our insurance company partners, including a significant decline in its financial condition, a decline in the quality of its service, loss of deposits, its inability to comply with applicable banking and financial services regulatory requirements, systems failure or its inability to return principal or pay interest thereon, our business, financial condition and results of operations could be materially and adversely affected.

The HSA Assets held through our insurance company partners are not federally insured. As a result, in the event of a failure of one of our insurance company partners, the HSA Assets held through that partner would be at risk and no assurance can be given that these contractual provisions will be sufficient. Although the members bear the risk of loss with respect to investment of their HSA Assets, we would suffer reputational harm if one of our insurance company partners failed or otherwise breached its obligations to guarantee principal or pay interest thereon, which could in turn lead to financial harm to the Company.

Certain of our arrangements with our depository and insurance company partners require that we keep a minimum amount of HSA Assets with such partner, including sufficient liquid assets. If we fail to comply with those minimum HSA Asset requirements, including as a result of withdrawals by our members, we may be subject to penalties payable to our partners or a reduction in the interest payable. These requirements accordingly restrict our ability to quickly terminate our arrangements with these partners and remove our HSA Assets. Such penalties or reductions, if imposed, could have a material and adverse impact on our business, financial condition and results of operations.

In addition, certain of our insurance company partners have commitments to us with respect to the interest rates paid; however, some of these commitments are conditional upon certain market events and/or satisfaction of our obligations to the partner. A reduction of the interest rate payable, or a requirement that we post collateral in lieu of any such reduction, could have a material and adverse impact on our business, financial condition and results of operations.

In addition to any potential penalties payable, if we were required to change depository or insurance company partners, we cannot accurately predict the success of such change or that the terms of our agreement with the new partner would be as favorable to us as our current agreements.

Our acquisition of the Further business may not be consummated, and the integration of the Further business may not be successful.

We have entered into two agreements to acquire Further: (1) an agreement to acquire ~~Further.~~all cash balances and investment assets included in any voluntary employee beneficiary association (“VEBA”) account that is funding a health reimbursement arrangement (either Section 501(c)(9) or Section 115 trusts) and all contracts related exclusively thereto, and (2) an amended agreement to acquire the remainder of the Further business. Completion of ~~the~~this acquisition is subject to a number of risks and uncertainties, and we can provide no assurance that the various closing conditions to ~~the Further~~each part of this acquisition will be satisfied. Many of the conditions ~~that are~~ required to close the acquisition ~~of Further~~ are not within our control, and we cannot predict when, or if, the acquisition will be completed. In particular, the closing of the VEBA portion of the acquisition is subject to our ability to ~~put in place~~arrange group annuity contracts with an insurance company partner ~~to hold~~for the ~~custodial and other account~~ assets of each of the VEBA plans being transferred in the ~~acquisition.~~acquisition, and no assurance can be given that all or a significant portion of the VEBA plans will agree to enter into such group annuity contracts. These new group annuity contracts are subject to the approval of applicable state insurance departments and will be subject to counterparty risk with our insurance company partner. The inability to complete the acquisition of Further could have a material adverse effect on our results of operations, financial condition and prospects.

The success of the Further acquisition, if completed, will depend in part on our ability to realize the anticipated business opportunities from combining the operations of Further with our business in an efficient and effective manner. The Further business is being carved out from the operations of its parent company. As such, the successful integration of the Further business with the Company is dependent on our ability to successfully carve out the Further business from its parent. While we intend to enter into a transition services agreement in order to effectively carve-out the Further business from its parent, no assurance can be given that the carve-out will be successful. In addition, the integration process could take longer than anticipated and could result in the loss of key employees, the disruption of the Company's ongoing business and the Further business, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which

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could adversely affect our ability to maintain relationships with team members, Clients, Network Partners, or other third parties, or our ability to achieve the anticipated benefits of the acquisition, and could harm our financial performance. If we are unable to successfully or timely integrate the operations of Further with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies and other anticipated benefits resulting from the acquisition of Further, and our business, results of operations and financial condition could be materially and adversely affected.

We rely on our management team and team members, and our business could be harmed if we are unable to retain qualified personnel.

Our success depends, in part, on the skills, working relationships and continued services of our executive leadership team and other key personnel. While we have entered into offer letters or employment agreements with certain of our executive officers, all of our team members are “at-will” employees, and their employment can be terminated by us or them at any time, for any reason, and without notice, subject, in certain cases, to severance payment rights. In order to retain valuable team members, in addition to salary and cash incentives, we provide equity-based awards that vest over time or based on performance. The value to team members of these awards will be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract offers from other organizations. The departure of key personnel could adversely affect the conduct of our business. In such event, we would be required to hire other personnel to manage and operate our business, and there can be no assurance that we would be able to employ a suitable replacement for the departing individual, or that a replacement could be hired on terms that are favorable to us. Volatility or lack of performance in our stock price may affect our ability to attract replacements should key personnel depart.

Our success also depends on our ability to attract, retain, and motivate additional skilled management personnel and other team members. For example, competition for qualified personnel in our field and geographic markets is intense due to the limited number of individuals who possess the skills and experience required by our industry, particularly in the technology-related fields. In addition, we have experienced team member turnover as a result of both the WageWorks Acquisition and the ongoing "great resignation" occurring throughout the American economy, and we expect to continue to experience team member turnover in the future. New hires require significant training and, in most cases, take significant time before they achieve full productivity. New team members may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals. For example, it has become more difficult for us to hire entry-level team members in our member service and client service teams. If our retention efforts are not successful or our team member turnover rate continues to increase in the future, our business, results of operations and financial condition could be materially and adversely affected.

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Item 6. Exhibits
Incorporate by reference
Exhibit
no. Description Form File No. Exhibit Filing Date
10.1†
Stock Purchase Agreement, dated as of March 8, 2021 between HealthEquity, Inc., the Sellers listed on Schedule 1 and Evan McCordick, solely as the Sellers’ Representative.
8-K 001-36568 2.1 March 8, 2021
10.2
Employment Agreement between Tyson Murdock and the Company
8-K 001-36568 10.1 April 1, 2021
10.3†
Asset and Unit Purchase Agreement, dated as of April 8, 2021, by and among Viking Acquisition Corp., HealthEquity, Inc., MII Life Insurance, Incorporated d/b/a Further and Aware Integrated, Inc.
8-K 001-36568 2.1 April 14, 2021
10.4†
Custodial Transfer and Asset Purchase Agreement, dated as of April 27, 2021, by and between Fifth Third Bank, National Association, and HealthEquity, Inc.
8-K 001-36568 2.1 April 27, 2021
31.1+
Certification of the Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2+
Certification of the Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*#
Certification of the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*#
Certification of the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy schema linkbase document
101.CAL Inline XBRL Taxonomy calculation linkbase document
101.DEF Inline XBRL Taxonomy definition linkbase document
101.LAB Inline XBRL Taxonomy labels linkbase document
101.PRE Inline XBRL Taxonomy presentation linkbase document
104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2021, formatted in Inline XBRL.

Incorporate by reference

Exhibit
no.

Description

Form

File No.

Exhibit

Filing Date

10.1†

Amended and Restated Asset and Unit Purchase Agreement, dated as of September 7, 2021, by and among Viking Acquisition Corp., HealthEquity, Inc., MII Life Insurance, Incorporated d/b/a Further and Aware Integrated, Inc.

8-K

001-36568

2.1

September 8, 2021

10.2†

Asset Purchase Agreement, dated as of September 7, 2021, by and among HealthEquity, Inc., Viking Acquisition Corp. and MII Life Insurance, Incorporated d/b/a Further

8-K

001-36568

2.2

September 8, 2021

31.1+

Certification of the Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2+

Certification of the Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*#

Certification of the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*#

Certification of the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy schema linkbase document

101.CAL

Inline XBRL Taxonomy calculation linkbase document

101.DEF

Inline XBRL Taxonomy definition linkbase document

101.LAB

Inline XBRL Taxonomy labels linkbase document

101.PRE

Inline XBRL Taxonomy presentation linkbase document

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2021, formatted in Inline XBRL.


+						Filed herewith.
*						Furnished herewith.
#						These certifications are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference in any filing the registrant makes under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.
†						Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. HealthEquity hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	HEALTHEQUITY, INC.
Date: ~~June 8,~~September 9, 2021	By:	/s/ Tyson Murdock
	Name:	Tyson Murdock
	Title:	Executive Vice President and Chief Financial Officer

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