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What changed in HEALTHEQUITY, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of HEALTHEQUITY, INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+374 added−395 removedSource: 10-K (2024-03-22) vs 10-K (2023-03-30)

Top changes in HEALTHEQUITY, INC.'s 2024 10-K

374 paragraphs added · 395 removed · 285 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

76 edited+29 added−23 removed53 unchanged
Biggest changeAs of January 31, 2023, our platforms were integrated with more than 200 Network Partners, and we serve more than 120,000 Clients. We have increased our share of the growing HSA market from 4% in December 2010 to 20% as of December 2022, measured by HSA Assets.
Biggest changeWe have increased our share of the growing HSA market from 4% in December 2010 to 20% as of June 2023, measured by HSA Assets. According to Devenir, as of June 2023, we were the largest HSA provider by both accounts and HSA Assets. In addition, we believe we are the largest provider of other CDBs.
Because part of our business is the administration of financial products such as HSAs, we are required under the Consumer Financial Protection Bureau’s financial privacy rule under GLBA to send a notice of privacy practices to account holders and to comply with restrictions on the disclosure of nonpublic personal information to non-affiliated third parties.
Because part of our business is the administration of financial products such as HSAs, we are required under the Consumer Financial Protection Bureau’s financial privacy rule under GLBA to send a notice of our privacy practices to account holders and to comply with restrictions on the disclosure of nonpublic personal information to non-affiliated third parties.
For example, our technology generates health savings strategies that are delivered to our members when they interact with our platforms or call us. • Customer service and education: As a key part of our strategy and commitment to provide Purple service, our team members work directly with our Network Partners, Clients, and members to engage with consumers, educating them about the benefits of our HSAs and our other products and providing personalized guidance.
For example, our technology generates health savings strategies that are delivered to our members when they interact with our platforms or contact us. • Customer service and education: As a key part of our strategy and commitment to provide Purple service, our team members work directly with our Network Partners, Clients, and members to engage with consumers, educating them about the benefits of our HSAs and our other products and providing personalized guidance.
We offer a mutual fund investment platform and access to an online-only automated investment advisory service to all of our members whose account balances exceed a stated threshold. These services are entirely elective to the member. The advisory service is delivered through a web-based tool, Advisor, which is offered and managed by HealthEquity Advisors, LLC, our SEC-registered investment adviser subsidiary.
We offer an investment platform and access to an online-only automated investment advisory service to all of our members whose account balances exceed a stated threshold. These services are entirely elective to the member. The advisory service is delivered through a web-based tool, Advisor, which is offered and managed by HealthEquity Advisors, LLC, our SEC-registered investment adviser subsidiary.
Advisor provides investment education guidance and management, including maintaining HSA cash (liquidity) in amounts directed by the member, targeting risk appropriate portfolio diversification, and mutual fund selection. We offer investors access to three levels of service: • Self-driven: For members who do not subscribe for Advisor, we provide a mutual fund investment platform to invest HSA balances.
Advisor provides investment education guidance and management, including maintaining HSA cash (liquidity) in amounts directed by the member, targeting risk appropriate portfolio diversification, and mutual fund selection. We offer investors access to three levels of service: • Self-driven: For members who do not subscribe for Advisor, we provide an investment platform to invest HSA balances.
Both civil and criminal penalties apply for violating HIPAA, which may be enforced by both the Department of Health and Human Services’ Office for Civil Rights and state attorneys general. Violations of HIPAA may also subject us to contractual remedies under the terms of agreements with covered entities.
Both civil and criminal penalties apply for violating HIPAA, which may be enforced by both the Department of Health and Human Services’ Office for Civil Rights and state attorneys general. Violations of HIPAA may also subject us to contractual remedies under the terms of business associate agreements with covered entities.
We offer COBRA continuation services to employer clients to meet the employer’s obligation to make available continuation of coverage for participants who are no longer eligible for the employer’s COBRA covered benefits, which include medical, dental, vision, HRAs and certain healthcare FSAs.
We offer federal COBRA and state continuation services to employer clients to meet the employer’s obligation to make available continuation of coverage for participants who are no longer eligible for the employer’s COBRA covered benefits, which include medical, dental, vision, HRAs, and certain healthcare FSAs.
Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of charge, on our investor relations website as soon as reasonably practicable after we file such material electronically with or furnish it to the SEC.
Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of charge, on our investor relations website as soon as reasonably practicable after we file such material electronically with or furnish it to the -11- Table of Contents SEC.
Recent acquisitions Luum acquisition. In March 2021, we bolstered our commuter offering by acquiring 100% of the outstanding capital stock of Fort Effect Corp, d/b/a Luum (the "Luum Acquisition"). The aggregate purchase price for the acquisition consisted of $56.2 million in cash.
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"). The aggregate purchase price for the acquisition consisted of $56.2 million in cash.
Neither we nor Advisor provides advice to members in respect of investments among funds on the platform; • GPS powered by HealthEquity Advisors, LLC: Advisor provides guidance and advice, but the member makes the final investment decisions and implements portfolio allocation and investment advice through the HealthEquity platform; and • AutoPilot powered by HealthEquity Advisors, LLC: Advisor manages the account and implements portfolio allocation and investment advice automatically for the member.
Neither we nor Advisor provides advice to members in respect of investments among funds on the platform; • GPS powered by HealthEquity Advisors, LLC: Advisor provides guidance and advice, but the member makes the final investment decisions and implements portfolio allocation and investment advice through the HealthEquity platform; and -3- Table of Contents • AutoPilot powered by HealthEquity Advisors, LLC: Advisor manages the account and implements portfolio allocation and investment advice automatically for the member.
We believe we are one of few providers with a solution that encompass all of the core functionality of healthcare saving and spending in integrated, secure, and compliant systems, including custodial administration of individual savings and investment accounts, card and electronic funds transaction processing, benefits enrollment and eligibility, electronic and paper medical claims processing, medical bill presentment, tax-advantaged reimbursement account and health incentive administration, HSA trust administration, online investment advice, and sophisticated analytics. • Data integration: Our technology solution allows us to integrate data from disparate sources, which enables us to seamlessly incorporate personal health information, clinical insight, and individually tailored strategies into the consumer experience.
We believe we are one of few providers with a solution that encompasses all of the core functionality of healthcare saving and spending in one integrated, secure, and compliant system, including custodial administration of individual savings and investment accounts, card and electronic funds transaction processing, benefits enrollment and eligibility, electronic and paper medical claims processing, medical bill presentment, tax-advantaged reimbursement account and health incentive administration, HSA trust administration, online investment advice, and sophisticated analytics. • Data integration: Our technology solution allows us to integrate data from disparate sources, which enables us to seamlessly incorporate personal health information and individually tailored strategies into the consumer experience.
In addition, we are subject to conflict of interest and other prohibited transaction rules that are enforced through excise -7- Table of Contents taxes under the Internal Revenue Code. Although the excise taxes are enforced by the IRS, the underlying rules are promulgated by the Department of Labor. In February 2006, HealthEquity, Inc. received designation by the U.S.
In addition, we are subject to conflict of interest and other prohibited transaction rules that are enforced through excise taxes under the Internal Revenue Code. Although the excise taxes are enforced by the IRS, the underlying rules are promulgated by the Department of Labor. In February 2006, HealthEquity, Inc. received designation by the U.S.
We believe that our retention rates are also high due to our HSA platform’s integration with the broader healthcare system used by our HSA members and our customer engagement and focus on the consumer experience. Selective acquisition strategy. We have historically acquired HSA portfolios and businesses that strengthen our business.
We believe that our retention rates are also high due to our HSA platform’s integration with the broader healthcare system used by our HSA members and our customer engagement and focus on the consumer experience. Selective acquisition strategy. We have historically acquired HSA portfolios and businesses that strengthen our service offerings.
The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. -11- Table of Contents
The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. -12- Table of Contents
We also require our team members and consultants to disclose and assign to us all inventions conceived during the term of their employment or engagement while using our property or which relate to our business. Geographic areas Our sole geographic market is the U.S.
We also require our team members and consultants to disclose and assign to us all inventions conceived during the term of their employment or engagement while using our property or which relate to our business. -9- Table of Contents Geographic areas Our sole geographic market is the U.S.
In September 2021, we acquired the Fifth Third Bank, National Association ("Fifth Third") HSA portfolio, which consisted of $490.0 million of HSA Assets held in approximately 160,000 HSAs in exchange for a purchase price of $60.8 million in cash. Further acquisition.
In September 2021, we acquired the Fifth Third Bank, National Association ("Fifth Third") HSA portfolio, which consisted of $490.0 million of HSA Assets held in approximately 160,000 HSAs in exchange for a purchase price of $60.8 million in cash. -2- Table of Contents Further acquisition.
The Talent, Compensation and Culture Committee of our board of directors acts on behalf of the board to review and determine executive compensation plans, policies, and programs; oversee the Company’s culture and related strategies, -9- Table of Contents programs, and risks; and oversee the Company’s talent management, development, and retention efforts, including with respect to diversity and inclusion.
The Talent, Compensation and Culture Committee of our board of directors acts on behalf of the board to review and determine executive compensation plans, policies, and programs; oversee the Company’s culture and related strategies, programs, and risks; and oversee the Company’s talent management, development, and retention efforts, including with respect to diversity and inclusion.
Privacy and data security regulations In the provision of HSA custodial services and directed TPA services for FSAs and HRAs, we are subject to the Financial Services Modernization Act of 1999 (Gramm-Leach-Bliley Act or GLBA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act), and similar state laws.
Privacy and data security regulations In the provision of HSA custodial services and directed third-party administration services for FSAs and HRAs, we are subject to the Financial Services Modernization Act of 1999 (Gramm-Leach-Bliley Act or GLBA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act), and similar state laws.
Our sales and account management teams work with and train the sales representatives and account management teams of our Network Partners and the human resource professionals of our Clients on the benefits of enrolling in, contributing to, and saving and spending through our HSAs, and our Network Partners and Clients then convey these benefits to prospective members.
Our sales and account management teams work with and train the sales -5- Table of Contents representatives and account management teams of our Network Partners and the human resource professionals of our Clients on the benefits of enrolling in, contributing to, and saving and spending through our HSAs, and our Network Partners and Clients then convey these benefits to prospective members.
We believe our Purple culture is a significant factor in our ability to attract and retain customers and to address opportunities in the rapidly changing healthcare sector. • Technology: Our technology helps us deliver on our commitment to provide Purple service.
We believe our Purple culture is a significant factor in our ability to attract and retain customers and to address opportunities in the rapidly changing healthcare sector. • Technology: We believe our technology helps us drive member outcomes and deliver on our commitment to provide Purple service.
This package includes: • Base salary • Incentive/bonus pay • Stock-based compensation • 401(k) with company matching • Health benefits -10- Table of Contents The Total Rewards philosophy underlying this package is intended to promote fairness and simplicity so that team members and people leaders understand the goals and the outcomes.
This package includes: • Base salary • Incentive/bonus pay • Stock-based compensation • 401(k) with company matching • Health benefits The Total Rewards philosophy underlying this package is intended to promote fairness and simplicity so that team members and people leaders understand the goals and the outcomes.
As of January 31, 2023, the Company's year-end for trust and tax purposes, the net worth of the Company exceeded the required thresholds.
As of January 31, 2024, the Company's year-end for trust and tax purposes, the net worth of the Company exceeded the required thresholds.
IRS regulations We are subject to applicable IRS regulations, which lay the foundation for tax savings and eligible expenses under the HSAs, HRAs, and FSAs we administer. The IRS issues guidance regarding these regulations regularly.
IRS regulations We are subject to applicable IRS regulations, which lay the foundation for tax savings and eligible expenses under the HSAs, HRAs, tax-advantaged commuter benefits, and FSAs we administer. The IRS issues guidance regarding these regulations regularly.
Luum provides employers with various commuter services, including access to real-time commute data, to help them design and implement flexible return-to-office and hybrid-workplace strategies and benefits. -2- Table of Contents Fifth Third Bank HSA portfolio acquisition.
Luum provides employers with various commuter services, including access to real-time commute data, to help them design and implement flexible return-to-office and hybrid-workplace strategies and benefits. Fifth Third Bank HSA portfolio acquisition.
Our leadership position is evidenced by the increase in our market share (measured by HSA Assets), from 4% in December 2010 to 20% in December 2022, as reported in the 2022 year-end Devenir HSA Research Report, which indicates we are the largest HSA custodian measured by both accounts and HSA Assets. Differentiated consumer experience.
Our leadership position is evidenced by the increase in our market share (measured by HSA Assets), from 4% in December 2010 to 20% in June 2023, as reported in the June 2023 Devenir HSA Research Report, which indicates we are the largest HSA custodian measured by both accounts and HSA Assets. Differentiated consumer experience.
Department of Treasury to act as a passive non-bank custodian, which allows HealthEquity, Inc. to hold custodial assets for individual account holders. In July 2017, HealthEquity, Inc. received designation by the U.S.
Department of Treasury to act as a passive non-bank custodian, which allows HealthEquity, Inc. to custody HSA Assets for individual account holders. In July 2017, HealthEquity, Inc. received designation by the U.S.
Department of Treasury to act as both a passive and non-passive non-bank custodian, which allows HealthEquity, Inc. to hold custodial assets for individual account holders and use discretion to direct investment of such assets held.
Department of Treasury to act as both a passive and non-passive non-bank custodian, which allows HealthEquity, Inc. to custody HSA Assets for individual account holders and use discretion to direct investment of such assets held.
HealthEquity Advisors, LLC provides investment advice to its clients exclusively through the Advisor tool on an interactive website. Members who utilize our mutual fund investment platform or subscribe for Advisor services pay asset-based fees, which include the cost of the advisory service and all other expenses associated with transactions made through these online tools.
HealthEquity Advisors, LLC provides investment advice to its clients exclusively through the Advisor tool on an interactive website. Members who utilize our investment platform or subscribe for Advisor services pay asset-based fees, subject to a monthly fee cap, which include the cost of the advisory service and all other expenses associated with transactions made through these online tools.
Our technology Technology platforms. We provide multiple cloud-based platforms, accessed by our members online via a desktop or mobile device, through which individuals can make health saving and spending decisions, pay healthcare bills, compare treatment options and prices, receive personalized benefit and clinical information, earn wellness incentives, grow their savings and make investment choices.
We provide multiple cloud-based platforms, accessed by our members online via a desktop or mobile device, through which our members can make health saving and spending decisions, pay healthcare bills, receive personalized benefit information, earn wellness incentives, grow their savings, and make investment choices.
ERISA generally imposes extensive reporting requirements on employers, as well as an obligation to provide various disclosures to covered employees and beneficiaries; and employers and third-party administrators that have authority or discretion over management, administration, or investment of plan assets are subject to fiduciary responsibility under ERISA.
ERISA generally imposes extensive reporting requirements on employers, as well as an obligation to provide various disclosures to covered employees and beneficiaries; and employers and third-party administrators that have authority or discretion over management, administration, or investment of plan assets are subject to fiduciary responsibility under ERISA. ERISA's requirements affect our FSAs, HRAs, and COBRA administration businesses.
We strive to administer the Total Rewards package consistently, equitably, and free of discrimination as follows: • Maintaining competitive pay by reviewing market data annually; • Rewarding team members based on their abilities, competencies, experience, and performance levels; • Effectively communicating our Total Rewards policies and practices; and • Complying with all applicable federal, state, and local laws and requirements.
We strive to administer the Total Rewards package consistently, equitably, and free of discrimination as follows: • Maintaining competitive pay by reviewing market data annually • Rewarding team members based on their abilities, competencies, experience, and performance levels • Effectively communicating our Total Rewards policies and practices • Complying with all applicable federal, state, and local laws and requirements Team member engagement We also consider team member engagement an important metric of our organizational health.
We refer to the aggregate number of HSAs and other CDBs that we administer as Total Accounts, of which we had 14.9 million as of January 31, 2023. We reach consumers primarily through relationships with their employers, which we call Clients.
We refer to the aggregate number of HSAs and other CDBs that we administer as Total Accounts, of which we had 15.7 million as of January 31, 2024. We reach consumers primarily through relationships with their employers, which we call Clients.
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 January 31, 2023, we administered 8.0 million HSAs, with balances totaling $22.1 billion, which we call HSA Assets, as well as 6.9 million complementary CDBs.
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 January 31, 2024, we administered 8.7 million HSAs, with balances totaling $25.2 billion, which we call HSA Assets, as well as 7.0 million complementary CDBs.
Members also utilize the platform’s mobile app to view and pay claims on-the-go, including uploading medical and insurance documentation to the platform with their mobile phone cameras. • Purpose-built technology: Our solution was designed specifically to serve the needs of healthcare consumers, health plans and employers.
Members also utilize the platform’s mobile app to view and pay claims on-the-go, including uploading medical and insurance documentation to the platform with their mobile phone cameras. • Purpose-built technology: Our technology solution was designed specifically to serve the needs of our members, Network Partners, other ecosystem partners and our Clients.
ERISA's -8- Table of Contents requirements affect our FSAs, HRAs, and COBRA administration businesses. The Department of Labor can bring enforcement actions or assess penalties against employers, investment advisers, administrators, and other service providers for failing to comply with ERISA’s requirements. Participants and beneficiaries may also file lawsuits against employers, investment advisers, administrators, and other service providers under ERISA.
The Department of Labor can bring enforcement actions or assess penalties against employers, investment advisers, administrators, and other service providers for failing to comply with ERISA’s requirements. Participants and beneficiaries may also file lawsuits against employers, investment advisers, administrators, and other service providers under ERISA.
Healthcare FSAs can be customized by employers so they have the freedom to -3- Table of Contents determine what eligible expenses may be reimbursed under these arrangements. Our employer Clients also realize payroll tax (i.e., FICA and Medicare) savings on the pre-tax contributions made by their employees.
Healthcare FSAs can be customized by employers so they have the freedom to determine what eligible expenses may be reimbursed under these arrangements. Our employer Clients also realize payroll tax (i.e., FICA and Medicare) savings on the pre-tax contributions made by their employees. The IRS imposes a limit, indexed to inflation, on pre-tax dollar employee contributions made to healthcare FSAs.
We reach Clients primarily through relationships with benefits brokers and advisors, integrated partnerships with a network of health plans, benefits administrators, benefits brokers and consultants, and retirement plan recordkeepers, which we call Network Partners, and a sales force that calls on Clients directly.
We reach Clients primarily through relationships with benefits brokers and advisors, integrated partnerships with a network of health plans, benefits administrators, benefits brokers and consultants, and retirement plan recordkeepers, which we call Network Partners, and a sales force that calls on Clients directly. As of January 31, 2024, our platforms were integrated with more than 200 Network Partners.
The CPRA requires companies, such as ours, that process information on California residents to make new disclosures to consumers about their data collection, use, and sharing practices, and allows consumers to opt out of certain data sharing with third parties and provides a new cause of action for data breaches.
For example, the California Consumer Privacy Act (“CCPA”) protects certain privacy rights of California consumers and requires companies, such as ours, that process information on California residents, to make disclosures to consumers about their data collection, use, and sharing practices, and allows consumers to opt out of certain data sharing with third parties and provides a private right of action for data breaches.
(“HealthSavings”) HSA portfolio, which consisted of $1.3 billion of HSA Assets held in approximately 87,000 HSAs in exchange for a purchase price of $60 million in cash. Our products and services Health savings accounts.
(“HealthSavings”) HSA portfolio, which consisted of $1.3 billion of HSA Assets held in approximately 87,000 HSAs in exchange for a purchase price of $60 million in cash. BenefitWallet HSA portfolio acquisition.
Our competitive strengths and strategy We believe we are well-positioned to benefit from the transformation of the healthcare benefits market. Our technology platforms are aligned with a healthcare environment that rewards consumer engagement and fosters an integrated consumer experience. Market leadership. We have established a defensible leadership position in the HSA industry through our focus on innovation and differentiated capabilities.
Our technology platforms are aligned with a healthcare environment that rewards consumer engagement and fosters an integrated consumer experience. Market leadership. We have established a leadership position in the HSA industry through our focus on innovation and differentiated capabilities.
The IRS imposes a limit, indexed to inflation, on pre-tax dollar employee contributions made to healthcare FSAs. The IRS also allows a carryover of up to 20% of the indexed contribution limit that does not count against or otherwise affect the indexed salary reduction limit applicable to each plan year.
The IRS also allows a carryover of up to 20% of the indexed contribution limit that does not count against or otherwise affect the indexed salary reduction limit applicable to each plan year.
As part of our services, we 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.
As part of our services, we provide consumers with payment processing services, personalized benefit information, the ability to earn wellness incentives, and investment advice to grow their tax-advantaged healthcare savings.
Net Promoter Score℠ is a service mark of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld. Corporate information HealthEquity, Inc. was incorporated as a Delaware corporation on September 18, 2002. Our principal business office is located at 15 W. Scenic Pointe Dr., Ste. 100, Draper, Utah 84020. Our website address is www.healthequity.com.
NPS ® is a registered trademark of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld. Net Promoter Score℠ is a service mark of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld. Corporate information HealthEquity, Inc. was incorporated as a Delaware corporation on September 18, 2002. Our principal business office is located at 15 W.
We believe they provide greater functionality and flexibility than the technologies used by our competitors, many of which were originally developed for banking, benefits administration or retirement services.
We believe our technology enables us to both provide remarkable experiences and drive member outcomes by providing greater functionality and flexibility than the technologies used by our competitors, many of which were originally developed for banking, benefits administration or retirement services.
As of January 31, 2023, we had 3,170 full-time team members and 38 part-time team members.
As of January 31, 2024, we had 3,126 full-time team members and 24 part-time team members.
The maximum monthly federal (and sometimes state) tax free exclusion is indexed for inflation. For 2023, the maximum pre-tax monthly limits are $300 for qualified transit and $300 for qualified parking. Our Luum technology platform provides employers with various commuter services, including access to real-time commute data, to help them design and implement flexible return-to-office and hybrid-workplace strategies and benefits.
The maximum monthly federal (and sometimes state) tax free exclusion is indexed for inflation. Our Luum technology platform provides employers with various commuter services, including access to real-time commute data, to help them design and implement flexible return-to-office and hybrid-workplace strategies and benefits. -4- Table of Contents Our competitive landscape Our direct competitors are HSA custodians and other CDB providers.
Our commuter benefits offering also leverages connectivity to an ecosystem of mass transit, ride hailing, and parking providers. Our business model provides strong visibility into our future operating performance, with the vast majority of our accounts opened before the start of our fiscal year. We earn revenue primarily from three sources: service, custodial, and interchange.
Our business model provides strong visibility into our future operating performance, with the vast majority of our accounts opened before the start of our fiscal year. We earn revenue primarily from three sources: service, custodial, and interchange.
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 and with the Federal government. For example, the California Privacy Rights Act ("CPRA") became effective on January 1, 2023.
Various states also have laws and regulations that impose additional restrictions on our collection, storage, use, and disclosure of personal information. Privacy regulation in particular has become a priority issue in many states and with the Federal government.
Human capital HealthEquity is comprised of people dedicated to empowering consumers to connect health and wealth by delivering Purple service. We believe that our culture is a key differentiator that drives the success of our company through, among other things, attracting and retaining top talent. Our board of directors and its committees provide oversight on certain human capital matters.
Human capital HealthEquity is comprised of people dedicated to empowering consumers to spend, save, and invest for healthcare by delivering Purple service. We believe that our culture is a key differentiator that drives the success of our company through, among other things, attracting and retaining top talent.
We expect to continue this growth strategy and regularly evaluate opportunities. We have developed an internal capability to source, evaluate, and integrate acquisitions that have created value for stockholders. We believe the nature of our competitive landscape provides significant acquisition opportunities. Many of our competitors view their HSA businesses as non-core functions.
We expect to continue this growth strategy, including through the BenefitWallet HSA portfolio acquisition, and are regularly engaged in evaluating different opportunities. We have developed an internal capability to source, evaluate, and integrate acquisitions that have created value for stockholders. We believe the nature of our competitive landscape provides significant acquisition opportunities.
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 societal and economic changes arising out of the COVID-19 pandemic.
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. Recent acquisitions Luum acquisition.
We do not incorporate the information contained on, or accessible through, our corporate website into this Annual Report on Form 10-K, and you should not consider it to be part of this report. Where you can find additional information Our website is located at www.healthequity.com, and our investor relations website is located at ir.healthequity.com.
Scenic Pointe Dr., Ste. 100, Draper, Utah 84020. Our website address is www.healthequity.com. We do not incorporate the information contained on, or accessible through, our corporate website into this Annual Report on Form 10-K, and you should not consider it to be part of this report.
As a result of this collaboration, -6- Table of Contents we develop relationships with each member who enrolls in an HSA with us. This personalized engagement with our members constitutes our B2B2C channel strategy. Proprietary and integrated technology solution.
As a result of this collaboration, we develop relationships with each member who enrolls in an HSA with us. This personalized engagement with our members constitutes our B2B2C channel strategy. Proprietary and integrated technology solution. We have a proprietary cloud-based technology solution, which we believe is differentiated in the marketplace for the key reasons described below.
For example, a HealthEquity team member can readily configure product attributes, including integration with a partner’s chosen healthcare price transparency or wellness tools, single sign on, sales and broker support sites, branding, member communication, custom fulfillment and payment card, savings options and interest rates, fees, and mutual fund investment choices. Scalable operating model.
For example, a HealthEquity team member can configure product attributes, including integration with a partner’s chosen healthcare price transparency or wellness tools, single sign on, sales and broker support sites, branding, member communication, custom fulfillment and payment card, savings options and interest rates, fees, and investment choices. • Innovation: We continue to invest in technology solutions to meet the evolving needs of our Network Partners, Clients and members.
We work directly with our Network Partners and Clients to reach the consumer in various ways. Our health plan and administrator partners collectively employ thousands of sales representatives and account managers who promote both the health plan and administrator partner’s health insurance products, such as HDHPs, and our HSAs.
Our Network Partners collectively employ thousands of sales representatives and account managers who promote both the health plan and administrator partner’s health insurance products, such as HDHPs, and our products and services. Our Clients collectively employ thousands of human resources professionals who are tasked with explaining the benefits of our HSAs to their employees.
We are increasing investment in our technology and communications systems to support new opportunities and enhance security, privacy, and platform infrastructure. Our solution is delivered via cloud-based services and hosted in third-party data centers or on a virtual private cloud with an ability to scale on demand. This allows us to quickly support our current and projected growth.
Our solution is delivered via cloud-based services and hosted in third-party data centers or on a virtual private cloud with an ability to scale on demand. This allows us to quickly support our current and projected growth. We utilize regional cloud failover and multiple redundant third-party data centers to ensure continuous access and data availability.
We expect further privacy requirements to be applicable to us as a result of additional recently passed, and likely upcoming, state privacy laws, which will expand consumers’ rights with respect to their personal information. The Federal government is also considering legislative and regulatory proposals concerning data protection.
The CCPA does not generally apply to data subject to GLBA or HIPAA. We expect further privacy requirements to be applicable to us as a result of additional recently passed, and likely upcoming, state privacy laws similar to CCPA, which may expand consumers’ rights with respect to their personal information.
We are working to phase out a technology platform that we acquired in the Further Acquisition, which requires us to migrate the associated clients to one of our other technology platforms. Cloud-based solution. Our proprietary technology is deployed as a cloud-based solution that is accessible to customers online and through our mobile app.
We are working to phase out a technology platform that we acquired in the Further Acquisition, which requires us to migrate the associated Clients to one of our other technology platforms. For a description of our cybersecurity risk management framework for our technology platforms, see Item 1C. Cybersecurity. Cloud-based solution.
Health plan Network Partners have been, and continue to be, a key channel through which we gain access to clients and members. The Further Acquisition expanded the number of health plan Network Partners with which we work and is providing greater access to clients and members.
Reaching the consumer is critical in order for us to increase the number of our HSA members. Health plan Network Partners have been, and continue to be, a key channel through which we gain access to Clients and members. We work directly with our Network Partners and Clients to reach the consumer in various ways.
Our specialists can assist users with such tasks as optimizing the use of tax-advantaged accounts to reduce medical spending or selecting from among medical plans offered by an employer or health plan.
Our specialists can assist users with such tasks as optimizing the use of tax-advantaged accounts to reduce medical spending or selecting from among medical plans offered by an employer or health plan. Our commuter platform provides Clients with various commuter services, including access to real-time commute data, to help Clients design and implement flexible return-to-office and hybrid-workplace strategies and benefits.
Our solution is built on a business-to-business-to-consumer, or B2B2C, channel strategy, whereby we work with Network Partners and Clients to reach consumers in addition to marketing our services to these potential members directly. Reaching the consumer is critical in order for us to increase the number of our HSA members.
Large and diversified channel access. We believe our differentiated distribution platforms provide a competitive advantage by efficiently enabling us to reach a growing consumer market. Our solution is built on a business-to-business-to-consumer, or B2B2C, channel strategy, whereby we work with Network Partners and Clients to reach consumers in addition to marketing our services to these potential members directly.
Team member engagement We also consider team member engagement an important metric of our organizational health. We seek team member feedback, measure team member engagement, and measure our team member Net Promoter Score℠, or NPS ® , twice a year through a survey.
We regularly seek team member feedback and measure engagement, previously through the Net Promoter Score℠, or NPS ® , survey, which was performed twice a year.
Our delivery model for these platforms eliminates the need for our Clients to install and maintain hardware and software in order to support HSA and other CDB programs and enables us to rapidly implement product enhancements across our entire user base. -4- Table of Contents Among other features, our HSA platform includes the capability to present to users medical bills upon adjudication by a health plan, including details such as the amount paid by insurance, specific nature of the medical service provided, and diagnostic code.
Among other features, our HSA platform includes the capability to present to users medical bills upon adjudication by a health plan, including details such as the amount paid by insurance, specific nature of the medical service provided, and diagnostic code.
Many of our partners’ systems rely on custom data models, non-standard formats, complex business rules, and security protocols that are difficult or expensive to change. • Configurability: Our flexible technology solution enables us to create a unique solution for each of our Network Partners.
A key part of our strategy is to integrate into our partners' ecosystems, rather than requiring them to conform to ours, as many of our partners’ systems rely on custom data models, non-standard formats, complex business rules, and security protocols that are difficult or expensive to change.
We utilize a multi-tenant architecture that allows changes made for one Network Partner to be extended to all others. This architecture provides operating leverage by reducing costs and improving efficiencies, enabling us to maximize the utilization of our infrastructure capacity with a reduction in required maintenance.
This architecture provides operating leverage by reducing costs and improving efficiencies, enabling us to maximize the utilization of our infrastructure capacity with a reduction in required maintenance. We are increasing investment in our technology and communications systems to support new opportunities and enhance security, privacy, and platform infrastructure.
Our proprietary 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.
We seek to differentiate ourselves through our service-driven culture, product breadth, ecosystem connectivity, and proprietary technology. Our proprietary 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.
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. Large and diversified channel access. We believe our differentiated distribution platforms provide a competitive advantage by efficiently enabling us to reach a growing consumer market.
Our Clients and their benefits advisors increasingly seek HSA providers that can deliver an integrated offering of HSAs and complementary CDBs. We believe that our ability to provide a 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.
We have designed our solution and support services to deliver a differentiated consumer experience, which is a function of our culture and technology.
We have designed our solution and support services to deliver a differentiated consumer experience, which is a function of our culture and technology. We believe this provides an advantage relative to legacy competitors. • Culture: We seek to provide remarkable experiences for our members, Clients and Network Partners through what we call our "Purple" service.
As January 31, 2023, our team members had the following demographic characteristics: Executive Leadership Team People Leaders All HealthEquity Team Members Women 23 % 56 % 69 % Men 77 % 44 % 31 % Under age 30 0 % 4 % 14 % Between ages 30 and 50 31 % 67 % 59 % Over age 50 69 % 29 % 27 % People of color 15 % 24 % 37 % Diversity and inclusion We embrace diversity as a powerful strength.
As of January 31, 2024, our team members had the following demographic characteristics: Executive Leadership Team (1) All Other People Leaders All Other HealthEquity Team Members (2) Women 31 % 59 % 66 % Men 69 % 41 % 33 % Under age 30 0 % 3 % 12 % Between ages 30 and 50 60 % 67 % 60 % Over age 50 40 % 30 % 28 % People of color 18 % 26 % 37 % (1) Our executive leadership team includes people in VP-level positions and above.
We believe they may look to divest these assets and, in certain cases, be limited from making acquisitions due to depository capital requirements. Government regulation Our business is subject to extensive, complex, and rapidly changing federal and state laws and regulations.
Many of our competitors view their HSA businesses as non-core functions. We believe they may look to divest these assets and, in certain cases, be limited from making acquisitions due to depository capital requirements. Our technology Technology platforms.
We currently have more than 20,000 distinct integrations with health plans, pharmacy benefit managers, employers, and other benefits provider systems.
We utilize application programming interfaces (APIs) to integrate with health plans, pharmacy benefit managers, employers, and other benefits provider systems.
Our opportunity to earn high-margin revenue from existing HSA members grows over time because as our HSA members’ balances grow, our custodial revenue is increased without equivalent incremental cost to us. Strong retention rates . Retention of our HSA members has been strong over time.
Our opportunity to earn high-margin revenue from existing HSA members grows over time because as our HSA members’ balances grow, our custodial revenue and recordkeeping and advisory service revenues are increased without equivalent incremental cost to us. Enhanced Rates. We partner with large, highly rated insurance company partners to hold, through group annuity contracts or other similar arrangements, HSA cash.
We utilize regional cloud failover and multiple redundant third-party data centers to ensure continuous access and data availability. The data centers are purpose-built facilities for hosting mission critical systems with multiple built-in redundancy layers to minimize service disruptions and meet industry-standard measures. Data security and protection.
The data centers are purpose-built facilities for hosting mission critical systems with multiple built-in redundancy layers to minimize service disruptions and meet industry-standard measures. -7- Table of Contents Government regulation Our business is subject to extensive, complex, and rapidly changing federal and state laws and regulations.
Created Equal is our DE&I initiative. Focused on rooting DE&I in all aspects of our Purple culture, Created Equal is committed to supporting process development that will allow all team members equal opportunity. Created Equal is run by HealthEquity team members who identify opportunities, guide solutions, and hold the Company accountable in the integration of DE&I practices.
We recognize the power of diverse workplaces to produce innovative ideas and foster a productive work environment. The Created Equal Council, our DE&I initiative, is comprised of HealthEquity team members who identify opportunities, guide solutions, and hold the Company accountable in the integration of DE&I practices.
Information on our website is not incorporated into this report.
Where you can find additional information Our website is located at www.healthequity.com, and our investor relations website is located at ir.healthequity.com. Information on our website is not incorporated into this report.
Our Network Partners may also choose to offer competitive services directly, as some health plans have done.
Our Network Partners and ecosystem 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. Our competitive strengths and strategy We believe we are well-positioned to benefit from the transformation of the healthcare benefits market.
Removed
According to Devenir, as of December 2022, we are the largest HSA provider by both accounts and HSA Assets. In addition, we believe we are the largest provider of other CDBs. We seek to differentiate ourselves through our service-driven culture, product breadth, ecosystem connectivity, and proprietary technology.
Added
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.
Removed
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, which are deposits remitted by Clients and held by us on their behalf to pre-fund and facilitate administration of CDBs.
Added
We earn custodial revenue primarily from HSA cash held by our federally insured bank and credit union partners, which we collectively call our Depository Partners, HSA cash held by our insurance company partners, and Client-held funds deposited with our Depository Partners.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe substantial debt we have outstanding, combined with our other financial obligations and contractual commitments, has important consequences, including the following: • our level of debt may make it more difficult for us to satisfy our obligations with respect to our debt, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under the Credit Agreement or the Indenture and the agreements governing such other debt; • we will be required to use a substantial portion of our cash flow from operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, strategic acquisitions, investments and alliances and other general corporate requirements; • our interest expense has increased substantially, and could continue to increase, if interest rates continue to increase, because any outstanding borrowings under our Credit Facilities are based on variable interest rates; • the interest rate on our Revolving Credit Facility is based on LIBOR, and although the Credit Agreement provides an alternative mechanism for determining the applicable interest rate when LIBOR is no longer available, the interest rates we pay may be adversely affected as a result of potential disruptions in connection with the LIBOR phase-out; • the interest rate on our Revolving Credit Facility will depend on the level of our specified financial ratios, and therefore could increase if such specified financial ratios increase; • such substantial debt could leave us vulnerable to general economic downturns and adverse competitive and industry conditions and could place us at a competitive disadvantage compared to those of our competitors that are less leveraged; • our debt service obligations could limit our flexibility to plan for, or react to, changes in our business and the industry in which we operate; • our level of debt may restrict us from raising additional financing on satisfactory terms to fund working capital, capital expenditures, strategic acquisitions, investments and joint ventures and other general corporate requirements; • our level of debt may prevent us from raising the funds necessary to repurchase all of the Notes tendered to us upon the occurrence of a change of control, which would constitute an event of default under the Indenture; and • a potential failure to comply with the financial and other restrictive covenants in any of our debt instruments, which, among other things, require us to maintain specified financial ratios, could, if not cured or waived, have a material adverse effect on our ability to fulfill our obligations under the Notes and on our business and prospects generally. -27- Table of Contents The Indenture and the Credit Agreement contain covenants that impose significant operational and financial restrictions on us, and the failure to comply with these covenants would result in an event of default under these instruments.
Biggest changeThe substantial debt we have outstanding, combined with our other financial obligations and contractual commitments, has important consequences, including the following: • our level of debt may make it more difficult for us to satisfy our obligations with respect to our debt, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, -24- Table of Contents could result in an event of default under the Credit Agreement or the Indenture and the agreements governing such other debt; • we use a portion of our cash flow from operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, strategic acquisitions, investments and alliances and other general corporate requirements; • our interest expense has increased substantially, and could continue to increase, if interest rates continue to increase, because any outstanding borrowings under our Credit Facilities are based on variable interest rates; • the interest rate on our Revolving Credit Facility will depend on the level of our specified financial ratios, and therefore could increase if such specified financial ratios increase; • such substantial debt could leave us vulnerable to general economic downturns and adverse competitive and industry conditions and could place us at a competitive disadvantage compared to those of our competitors that are less leveraged; • our debt service obligations could limit our flexibility to plan for, or react to, changes in our business and the industry in which we operate; • our level of debt may restrict us from raising additional financing on satisfactory terms to fund working capital, capital expenditures, strategic acquisitions, investments and joint ventures and other general corporate requirements; • our level of debt may prevent us from raising the funds necessary to repurchase all of the Notes tendered to us upon the occurrence of a change of control, which would constitute an event of default under the Indenture; and • a potential failure to comply with the financial and other restrictive covenants in any of our debt instruments, which, among other things, require us to maintain specified financial ratios, could, if not cured or waived, have a material adverse effect on our ability to fulfill our obligations under the Notes and on our business and prospects generally.
Similar to the work completed to integrate the WageWorks Acquisition, as part of the Further Acquisition integration process we are working to migrate certain Clients and Network Partners to different technology platforms.
Similar to the work completed to integrate the acquisition of WageWorks, as part of the Further Acquisition integration process we are working to migrate certain Clients and Network Partners to different technology platforms.
In the past, certain of these service providers have failed to maintain adequate levels of support, did not provide high quality service to us and our members, increased the fees they charge us, discontinued their lines of business, terminated our contractual arrangements or ceased or reduce operations, and as a result, we suffered additional costs and were required to pursue new third-party relationships, which resulted in reputational harm, material disruption of our operations and our ability to provide our products and services, missed service-level agreements with Clients and Network Partners, and diverted management’s time and resources, and these events and consequences could happen with our current vendors moving forward.
In the past, certain of these service providers have failed to maintain adequate levels of support, did not provide high quality service to us and our members, increased the fees they charge us, discontinued their lines of business, terminated our contractual arrangements or ceased or reduce operations, and as a result, we suffered additional costs and were required to pursue new third-party relationships, which resulted in reputational harm, material disruption of our operations and our ability to provide our products and services, missed service-level agreements with Clients and Network Partners, and diverted management’s time and resources, and these events and consequences could happen with our current service providers moving forward.
We attempt to mitigate these risks through various business continuity efforts, including redundant infrastructure, 24/7/365 system activity monitoring, backup and recovery procedures, use of a secure storage facility for backup media, separate test systems, and change management and system security measures, but our precautions may not protect against all potential problems.
We attempt to mitigate these risks through various business continuity efforts, including redundant infrastructure, 24/7/365 system activity monitoring, backup and recovery procedures, use of a secure storage facility for backup media, separate production and test systems, and change management and system security measures, but our precautions may not protect against all potential problems.
If third parties improperly obtain and use the personal information of our members, we may be required to expend significant resources to resolve these problems. While we have security measures in place, we have experienced data privacy incidents in the past, including several incidents in 2018.
Furthermore, if third parties improperly obtain and use the personal information of our members, we may be required to expend significant resources to resolve these problems. While we have security measures in place, we have experienced data privacy incidents in the past, including several incidents in 2018.
The success of our recent acquisitions depends in part on our ability to realize the anticipated business opportunities from combining the operations of the acquired businesses with our business in an efficient and effective manner.
The success of our acquisitions depends in part on our ability to realize the anticipated business opportunities from combining the operations of the acquired businesses with our business in an efficient and effective manner.
Transitioning to a new vendor often takes a significant amount of time and resources and, if we are unable to complete a transition to a new provider on a timely basis, or at all, we could be forced to temporarily or permanently discontinue certain services, such as our payment card services, which could disrupt services to our customers and adversely affect our business, financial condition, and results of operations.
Transitioning to a new service provider often takes a significant amount of time and resources and, if we are unable to complete a transition to a new provider on a timely basis, or at all, we could be forced to temporarily or permanently discontinue certain services, such as our payment card services, which could disrupt services to our customers and adversely affect our business, financial condition, and results of operations.
Our facilities, our third-party data centers, and our cloud service providers are vulnerable to interruption or damage from a number of sources, many of which are beyond our control, including, without limitation: • extended power loss; • telecommunications failures from multiple telecommunications providers; • natural disaster or an act of terrorism; -19- Table of Contents • software and hardware errors, or failures in our own systems or in other systems; • network environment disruptions such as computer viruses, hacking and similar problems in our own systems and in other systems; • theft and vandalism of equipment; and • actions or events caused by or related to third parties.
Our facilities, our third-party data centers, and our cloud service providers are vulnerable to interruption or damage from a number of sources, many of which are beyond our control, including, without limitation: • extended power loss; • telecommunications failures from multiple telecommunications providers; • natural disaster or an act of terrorism; • software and hardware errors, or failures in our own systems or in other systems; • network environment disruptions such as computer viruses, hacking and similar problems in our own systems and in other systems; • theft and vandalism of equipment; and • actions or events caused by or related to third parties.
This software may experience outages, may not continue to be available to us on commercially reasonable terms and any loss of the right to use any of this software could result in, among others, delays in producing our financial statements, risks to our security environment, or the provisioning of our products and services until equivalent technology is either developed by us, or, if available, identified, obtained, and integrated, which would likely take a significant amount of time and harm our business.
This software may experience outages, may not continue to be available to us on commercially reasonable terms and any loss of the right to use any of this software could result in, among others, delays in producing our financial statements, risks to our security environment, or the provisioning of our products and services until equivalent technology is either developed by us, or, if available, identified, obtained, and integrated into our systems and processes, which would likely take a significant amount of time and harm our business.
As one of the largest providers of HSAs and other CDBs, we are an even more attractive target for cyber-attacks, including ransomware attacks, which means we must continue to secure and monitor each of our technology platforms, making sure these platforms are aligned to our industry benchmark security posture.
As one of the largest providers of HSAs and other CDBs, we are an attractive target for cyber-attacks, including ransomware attacks, which means we must continue to secure and monitor each of our technology platforms, making sure these platforms are aligned to our industry benchmark security posture.
Any or all of these issues could negatively impact our ability to attract new, or increase engagement by, members, Clients and Network Partners, and subject us to third-party lawsuits, regulatory fines, contractual liability, and other action or liability, thereby harming our operating results.
Any or all of these issues could negatively impact our ability to attract new, or increase engagement by, members, Clients and Network Partners, and subject us to third-party lawsuits, regulatory fines, contractual liability, and other action or liability, thereby harming our operating results or financial condition.
This is particularly relevant to us given our recent acquisition history and the amount of goodwill and intangible assets on our balance sheet associated with those acquisitions. -26- Table of Contents Any future determination that these assets are carried at greater than their fair value could result in substantial non-cash impairment charges, which could significantly impact our reported operating results.
This is particularly relevant to us given our recent acquisition history and the amount of goodwill and intangible assets on our balance sheet associated with those acquisitions. Any future determination that these assets are carried at greater than their fair value could result in substantial non-cash impairment charges, which could significantly impact our reported operating results.
We have seen an increase in Network Partners that have decided to offer HSAs or other CDBs directly to their customers, and a continuation of this trend would significantly reduce our channel partner opportunities. Well-known retail mutual fund companies, such as Fidelity Investments, have entered the HSA and CDB business and gained significant market share.
We have seen an increase in Network Partners that have decided to offer HSAs or other CDBs directly to their customers, and a continuation of this trend would significantly reduce our channel partner opportunities and result in account attrition. Well-known retail mutual fund companies, such as Fidelity Investments, have entered the HSA and CDB business and gained significant market share.
These efforts may: • cost more than expected; • take longer than originally expected; • require more testing than originally anticipated; • require significant cost to address or resolve technical defects or obstacles; • require additional advertising and marketing costs; and • require the acquisition of additional personnel and other resources.
These efforts may: • cost more than expected; • take longer than originally expected to develop or implement; • require more testing than originally anticipated; • require significant cost to address or resolve technical defects or obstacles; • require additional advertising and marketing costs; and • require the acquisition of additional personnel and other resources.
Such access, disclosure, or other loss of information could result in legal claims or proceedings leading to liability, including under laws that protect the privacy of personal information, disrupt our operations and the services we provide to our clients, damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business, operations, and competitive position.
Such access, use, disclosure, or other loss of information could result in regulatory scrutiny, legal claims or proceedings leading to liability, including under laws that protect the privacy of personal information, disrupt our operations and the services we provide to our Clients, damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business, operations, and competitive position.
We, and the banks that issue our prepaid debit cards, are subject to Payment Card Industry Data Security Standards and Visa and MasterCard association rules that could subject us to a variety of fines or penalties that may be levied by the card associations or networks for acts or omissions by us or businesses that work with us, -22- Table of Contents including card processors.
We, and the banks that issue our prepaid debit cards, are subject to Payment Card Industry Data Security Standards and Visa and MasterCard association rules that could subject us to a variety of fines or penalties that may be levied by the card associations or networks for acts or omissions by us or businesses that work with us, including card processors.
In addition, from time-to-time, card associations increase the organization or processing fees that they charge, which could increase our operating expenses, reduce our profit margin and materially adversely affect our results of operations, financial condition, business, and prospects. We are subject to complex regulation, and any compliance failures or regulatory action could adversely affect our business.
In addition, from time-to-time, card associations increase the organization or processing fees that they charge, which could increase our operating expenses, reduce our profit margin and materially adversely affect our results of operations, financial condition, business, and prospects. -20- Table of Contents We are subject to complex regulation, and any compliance failures or regulatory action could adversely affect our business.
Continued compliance with current and potential new privacy laws, rules, and regulations and meeting consumer expectations with respect to the control of personal data in a rapidly changing technology environment could result in higher compliance and technology costs for us, as well as costly penalties in the event we are deemed to not be in compliance with such laws, rules, and regulations.
Continued compliance with current and potential new privacy and data protection laws and regulations, and meeting expectations with respect to the control of personal data in a rapidly changing technology environment, could result in higher compliance and technology costs for us, as well as costly penalties in the event we are deemed to not be in compliance with such laws and regulations.
Replacing our third-party vendors would be difficult and disruptive to our business. We have entered into contracts with third-party vendors to provide critical services relating to our business, including the redesign of our technology platforms, fraud management and other customer verification services, transaction processing and settlement, telephony services, call centers and card production.
Replacing our third-party service providers would be difficult and disruptive to our business. We have entered into contracts with third-party service providers to provide critical services relating to our business, including the redesign of our technology platforms, fraud management and other customer verification services, transaction processing and settlement, telephony services, call centers and card production.
Even if we can secure our systems against these activities, we -18- Table of Contents are vulnerable through third parties. We rely upon third parties for certain services, such as some transaction processing services and data feeds, which subjects us to risks related to the vulnerabilities of those third parties.
Even if we can secure our systems against these activities, we are vulnerable through third parties. We rely upon third parties for certain services, such as some transaction processing services and data feeds, which subjects us to risks related to the vulnerabilities of those third parties.
However, the rate at which we have been able to add new HSAs, CDBs and HSA Assets in the past may not be indicative of the rate at which we will be able to grow in the future. Our success depends in part upon the ability of our executive officers to manage growth effectively.
However, the rate at which we have been able to add new HSAs, CDBs and HSA Assets in the past may not be indicative of the rate at which we will be able to grow in the future. -23- Table of Contents Our success depends in part upon the ability of our executive officers to manage growth effectively.
If successful, their development efforts could render our services less desirable, resulting in the loss of our existing customers or a reduction in the fees we earn from our products and services. Developments in the rapidly changing healthcare industry could adversely affect our business.
If successful, their development efforts could render our services less desirable, resulting in the loss of our existing customers or a reduction in the fees we earn from our products and services. -15- Table of Contents Developments in the rapidly changing healthcare industry could adversely affect our business.
Risks relating to our business and industry Any diminution in, elimination of, or change in the availability of tax benefits for HSAs and other CDBs, or in the use of these accounts, would materially adversely affect us. Substantially all of our revenue is earned from tax-advantaged HSAs and other CDBs.
Risks relating to our business and industry Any diminution in, elimination of, or change in the availability of tax benefits for HSAs and other CDBs would materially adversely affect us. Substantially all of our revenue is earned from tax-advantaged HSAs and other CDBs.
In the event of such a failure of, or breach by, one of our insurance company partners, the HSA Assets held through that partner would be at risk and no assurance can be given that our contractual arrangements with that partner would be sufficient for our members to fully recover their HSA Assets, which would in turn result in reputational harm to us and financial harm to the Company.
In addition, in the event of such a failure of, or breach by, one of our insurance company partners, the HSA cash held through that insurance company partner would be at risk and no assurance can be given that our contractual arrangements with that insurance company partner would be sufficient for our members to fully recover their HSA cash, which would in turn result in reputational and financial harm to the Company.
If our members do not continue to utilize our payment cards, our results of operations, business, and prospects would be materially adversely affected. We derived 17%, 17%, and 15% of our total revenue during the fiscal years ended January 31, 2023, 2022, and 2021, respectively, from interchange fees that are paid to us when our customers utilize our payment cards.
If our members do not continue to utilize our payment cards, our results of operations, business, and prospects would be materially adversely affected. We derived 16%, 17%, and 17% of our total revenue during the fiscal years ended January 31, 2024, 2023, and 2022, respectively, from interchange fees that are paid to us when our customers utilize our payment cards.
In addition, as substantially all of our team members in our support and customer education -23- Table of Contents areas now work remotely, it is more difficult to train and manage these team members, which could adversely affect the service we provide.
In addition, as substantially all of our team members in our support and customer education areas now work remotely, it is more difficult to train and manage these team members, which could adversely affect the service we provide.
Any failure to execute on our new controls and continue to maintain effective internal controls, to timely implement any necessary additional improvement to our internal controls or to effect -17- Table of Contents remediation of any future material weakness or significant deficiency could, among other things, result in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our reputation, results of operations, or financial condition.
A ny failure to execute on our internal controls and continue to maintain effective internal controls, to timely implement any necessary additional improvement to our internal controls or to effect remediation of any future material weakness or significant deficiency could, among other things, result in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our reputation, results of operations, or financial condition.
The revenue opportunities earned from these efforts may fail to justify the amounts spent. In addition, material performance problems, defects or errors in our existing or new software may occur in the future, which may harm our operating results.
The revenue opportunities earned from these efforts may fail to justify the effort or resources spent. In addition, material performance problems, defects or errors in our existing or new software may occur in the future, which may harm our operating results.
Our BIN sponsors enable us to link the payment cards that we offer our members to the VISA and Mastercard networks, thereby allowing our members to use our payment cards to pay for expenses with a “swipe” of the card.
Our BIN sponsors enable us to link the payment cards that we offer our members to the VISA and Mastercard networks, thereby -22- Table of Contents allowing our members to use our payment cards to pay for expenses with a “swipe” of the card.
Substantially all of our revenue is derived from healthcare-related saving and spending by consumers, which could be affected by changes affecting the broader healthcare industry, including decreased spending in the industry -16- Table of Contents overall.
Substantially all of our revenue is derived from healthcare-related saving and spending by consumers, which could be affected by changes affecting the broader healthcare industry, including decreased spending in the industry overall.
The HSA Assets held through our insurance company partners are not federally insured, and our members bear the risk of loss with respect to either the failure of the insurance company partner holding their HSA Assets or the breach by the partner of its obligations to guarantee principal or pay interest thereon.
The HSA cash held through our insurance company partners is not federally insured, and our members bear the risk of loss with respect to either the failure of the insurance company partner holding their HSA cash or the breach by the insurance company partner of its obligations to guarantee principal or pay interest thereon.
If we are unable to repay outstanding borrowings when due, the lenders under our Credit Facilities will also have the right to proceed against the collateral granted to them to secure the debt. If lenders under the Credit Facilities accelerate the debt thereunder, then the obligations under the Notes would be accelerated.
If we are -25- Table of Contents unable to repay outstanding borrowings when due, the lenders under our Credit Facilities will also have the right to proceed against the collateral granted to them to secure the debt. If lenders under the Credit Facilities accelerate the debt thereunder, then the obligations under the Notes would be accelerated.
If we or any of our third-party vendors experience a privacy breach, it could result in substantial financial and reputational harm, including possible criminal and civil penalties.
If we or any of our third-party service providers experience a privacy breach, it could result in substantial financial and reputational harm, including possible criminal and civil penalties.
Our business, including HSAs and many of the CDBs we administer and our investment adviser and trust company subsidiaries, is subject to extensive, complex, and frequently changing federal and state laws and regulations, including IRS, Health and Human Services (“HHS”), and Department of Labor (“DOL”) regulations; ERISA, HIPAA, HITECH, and other privacy and data security regulations; the Advisers Act; state banking laws; state third-party administrator laws, and the Patient Protection and Affordable Care Act.
Our business, including HSAs and many of the CDBs we administer and our investment adviser and trust company subsidiaries, is subject to extensive, complex, and frequently changing federal and state laws and regulations, including IRS, Health and Human Services (“HHS”), and Department of Labor (“DOL”) regulations; ERISA, HIPAA, HITECH, and other privacy and data security regulations; the Advisers Act; state banking laws; state third-party administrator laws; the Patient Protection and Affordable Care Act; and developing regulation regimes for the use of AI.
Because techniques used to obtain unauthorized access to or sabotage systems change frequently and are generally not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
Because techniques used to obtain unauthorized access to or sabotage systems change frequently and such novel techniques may not be identified until they are launched against a target, we may be unable to anticipate, or to implement adequate preventative measures to address, these techniques.
Disruptions at our data centers could cause disruptions to our technology platforms and data loss or corruption. We have experienced interruptions and delays in service and availability for data centers, and bandwidth and other technology issues in the past.
Disruptions at our data centers could cause disruptions to our technology platforms and data loss or corruption. We have experienced interruptions and delays in service and availability for data centers, and bandwidth and other -18- Table of Contents technology issues in the past.
Our Credit Agreement consists of (i) a five-year senior secured term loan A facility in the aggregate principal amount of $350 million (the "Term Loan Facility") 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 $1 billion.
We are party to a credit agreement (the "Credit Agreement"), which consists of (i) a five-year senior secured term loan A facility in the aggregate principal amount of $350 million (the "Term Loan Facility") 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 $1 billion.
Failure to adequately place and safeguard our custodial assets and Client-held funds, or the failure of any of our depository or insurance company partners, could materially and adversely affect our business, financial condition and results of operations.
Failure to adequately place and safeguard HSA cash and Client-held funds, or the failure of any of our depository or insurance company partners, could materially and adversely affect our business, financial condition and results of operations.
Further, we use third-party vendors for certain call centers and COBRA claims and transaction processing, including certain offshore vendors for member chat service, which vendors may not provide the same quality of support services for our Clients and members.
Further, we use third-party service providers for certain call centers -21- Table of Contents and COBRA claims and transaction processing, including certain offshore service providers for member chat service, which service providers may not provide the same quality of support services for our Clients and members.
If we are unable to do so on a timely basis or if we are unable to implement new applications, features and services that enhance our members’ and Clients' experience without disruption to our existing applications, features and services, or if we encounter technical obstacles that result in the technology not operating properly, we may lose potential and existing Clients and Network Partners.
If we are unable to do so on a timely basis or if we are unable to implement this modernization without disruption to our existing applications, features and services, or if we encounter technical obstacles that result in the technology not operating properly, we may lose potential and existing Clients and Network Partners.
A decline in interest rate levels, including an environment of negative interest rates, would reduce our ability to earn income on our HSA Assets and Client-held funds and to attract HSA contributions. We partner with our depository and insurance company partners to hold our HSA Assets and other Client-held funds.
A decline in interest rate levels would reduce our ability to earn income on our HSA Assets and Client-held funds and to attract HSA contributions. We partner with our depository and insurance company partners to hold our HSA Assets and other Client-held funds.
However, the timing and impact of developments in the healthcare industry are difficult to predict. We cannot assure you that the demand for our products and services will continue to exist at current levels or that we will have adequate technical, financial, and marketing resources to react to changes in the healthcare industry.
However, the timing and impact of developments in the healthcare industry are difficult to predict. There is no assurance that the demand for our products and services will continue to exist at current levels or that we will have adequate technical, financial, and marketing resources to react to changes in the healthcare industry.
Our consolidated balance sheet includes significant intangible assets, including approximately $1.65 billion in goodwill and $936.4 million in intangible assets, together representing approximately 84% of our total assets as of January 31, 2023. The determination of related estimated useful lives and whether these assets are impaired involves significant judgments.
Our consolidated balance sheet includes significant intangible assets, including approximately $1.65 billion in goodwill and $835.9 million in intangible assets, together representing approximately 79% of our total assets as of January 31, 2024. The determination of related estimated useful lives and whether these assets are impaired involves significant judgments.
For example, competition for qualified personnel in our field is intense due to the limited number of individuals who possess the skills and experience required by our industry, particularly in technology-related fields where we have recently experienced significant turnover. New hires require significant training and, in most cases, take significant time before they achieve full productivity.
For example, competition for qualified personnel in our field is intense due to the limited number of individuals who possess the skills and experience required by our industry. New hires require significant training and, in most cases, take significant time before they achieve full productivity.
State and federal laws and regulations govern the collection, dissemination, access, and use of personally identifiable information, including HIPAA and HITECH, which govern the treatment of protected health information, -21- Table of Contents and the Gramm-Leach Bliley Act, which governs the treatment of nonpublic personal information.
State and federal laws and regulations govern the collection, dissemination, access, and use of personally identifiable information, including HIPAA and the Health Information Technology for Economic and Clinical Health Act ("HITECH"), which govern protected health information, and the Gramm-Leach-Bliley Act, which governs nonpublic personal information.
Any such scenario could materially and adversely affect our business and results of operations. If we are not successful in adapting to our rapidly evolving industry, our growth may be limited, and our business may be adversely affected. The market for our products and services is subject to rapid and significant change and competition.
If we are not successful in adapting to our rapidly evolving industry, our growth may be limited, and our business may be adversely affected. The market for our products and services is subject to rapid and significant change and competition.
We earn a significant portion of our consolidated revenue from fees we earn from our depository and insurance company partners, approximately 33%, 27%, and 26% during the fiscal years ended January 31, 2023, 2022, and 2021, respectively.
We earn a significant portion of our consolidated revenue from fees we earn from our depository and insurance company partners, approximately 39%, 30%, and 25% during the fiscal years ended January 31, 2024, 2023, and 2022, respectively.
As of January 31, 2023, we had approximately 8.0 million HSAs and $22.1 billion in HSA assets representing growth of 11% and 13%, respectively, from January 31, 2022. Our growth strategy contemplates further increasing the number of our HSAs, CDBs and our HSA Assets at relatively higher growth rates than industry averages.
As of January 31, 2024, we had approximately 8.7 million HSAs and $25.2 billion in HSA Assets representing growth of 9% and 14%, respectively, from January 31, 2023. Our growth strategy contemplates further increasing the number of our HSAs, CDBs and our HSA Assets at relatively higher growth rates than industry averages.
Security breaches could result in the loss of sensitive information, theft or loss of actual funds, litigation, indemnity obligations to our Clients, fines and other liabilities, including under laws that protect the privacy of personal information, disrupt our operations and the services we provide to our members, Clients and Network Partners, damage our reputation, and cause a loss of confidence in our products and services.
Security breaches, including a major breach of our network security and systems, could result in serious negative consequences for our business, including the loss of sensitive information, theft or loss of actual funds, litigation, indemnity obligations to our Clients, fines, penalties and other liabilities, including under laws that protect the privacy of personal information, disrupt our operations and the services we provide to our members, Clients and Network Partners.
In many cases, we are subject to HIPAA and other privacy regulations because we are a business associate providing services to covered entities; as a result, the covered entities direct HIPAA compliance matters in the event of a security breach, which complicates our ability to address harm caused by the breach.
In situations where we are subject to HIPAA and HITECH, in which we are a business associate providing services to covered entities, the covered entities direct HIPAA compliance matters in the event of a security breach, which complicates our ability to address harm caused by the breach.
We rely on a limited number of bank identification number ("BIN") sponsors in relation to the payment cards we issue. A BIN sponsor is a bank or credit union that provides the BIN that allows a prepaid card program to run on one of the major card brand networks (e.g., VISA, MasterCard, Discover or American Express).
A BIN sponsor is a bank or credit union that provides the BIN that allows a prepaid card program to run on one of the major card brand networks (e.g., VISA, MasterCard, Discover or American Express).
In addition, we deposit 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, and for certain Clients these amounts exceed maximum federal deposit insurance levels.
In addition, we deposit Client-held funds with our Depository Partners in interest-bearing demand deposit accounts, and for certain Clients these amounts exceed maximum federal deposit insurance levels.
Any further unauthorized disclosure of personally identifiable information experienced by us or our third-party vendors could result in substantial financial and reputational harm, including possible criminal and civil penalties.
Any further unauthorized disclosure of personally identifiable information -19- Table of Contents experienced by us or our third-party service providers that process such information on our behalf could result in substantial financial and reputational harm to us, including possible criminal and civil penalties.
Certain provisions in our governing documents could make a merger, tender offer or proxy contest involving us difficult; even if such events would be beneficial to the interests of our stockholders.
General risk factors Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable. Certain provisions in our governing documents could make a merger, tender offer or proxy contest involving us difficult; even if such events would be beneficial to the interests of our stockholders.
Our subsidiary HealthEquity Trust Company is a non-depository trust company and subject to regulation and supervision by the Wyoming Division of Banking. Compliance with regulatory requirements requires resources and takes significant time and effort.
Our subsidiary HealthEquity Trust Company is a non-depository trust company and subject to regulation and supervision by the Wyoming Division of Banking.
If our existing Clients, Network Partners and members do not recognize or acknowledge the benefits of our services or we do not drive engagement, then the market for our services might develop more slowly than we expect, which could adversely affect our operating results.
If our members do not fully use their HSAs or CDBs, if employers reduce or cease to offer HSAs or other CDB programs, if the rate of adoption of these accounts decreases, if existing Clients, Network Partners and members do not recognize or acknowledge the benefits of our services or we do not drive engagement, then the market for our services might decline or develop more slowly than we expect, which could adversely affect our operating results.
In addition, if we do not offer competitive interest rates on HSA Assets, our members may choose another HSA custodian. Similarly, if the value of the invested HSA Assets we hold declines, whether due to market conditions or other factors, our fees, which are based on a percentage of the asset values, would be adversely affected.
If the value of the invested HSA Assets our members hold declines, whether due to market conditions or other factors, our fees, which are based on a percentage of the asset values, would be adversely affected, which would in turn negatively impact our results of operations.
A decline in prevailing interest rates has in the past and may again in the future negatively affect our business by reducing the yield we realize on our HSA Assets and other Client-held funds. A negative interest rate environment would also reduce the yield we realize on our HSA Assets and other Client-held funds.
A decline in prevailing interest rates has in the past and may again in the future negatively affect our business by reducing the yield we realize on our HSA Assets and other Client-held funds. In addition, if we do not offer competitive interest rates on HSA Assets, our members may choose another HSA custodian.
Certain of our past acquisitions also resulted in dilutive issuances of equity securities and the incurrence of additional debt, and future acquisitions could result in additional dilutive issuances of equity securities or the incurrence of additional debt, which could adversely affect our business, results of operations, or financial condition. -25- Table of Contents We may not be able to operate, integrate, and scale our technology effectively to match our business growth.
Certain of our past acquisitions also resulted in dilutive issuances of equity securities and the incurrence of additional debt, and future acquisitions could result in additional dilutive issuances of equity securities or the incurrence of additional debt, which could adversely affect our business, results of operations, or financial condition.
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. Such penalties or reductions, if imposed, could have a material and adverse impact on our business, financial condition and results of operations.
If we fail to comply with those minimum HSA cash 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.
In the provision of services to our customers, we and our third-party vendors collect, access, use, maintain, and transmit personally identifiable information in ways that are subject to many of these laws and regulations. Although we have implemented measures to comply with these privacy laws, rules, and regulations, we have experienced data privacy incidents.
In the provision of services, we and our third-party service providers collect, access, use, maintain, and transmit personally identifiable information in ways that are subject to these laws and regulations.
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 custody.
As a non-bank custodian, we rely on our federally insured custodial Depository Partners and our insurance company partners to hold HSA cash that we custody. The portion of HSA cash held by our insurance company partners is increasing with the increased adoption of our Enhanced Rates program.
If the laws or regulations are changed to limit or eliminate the tax benefits available through these accounts, such a change would have a material adverse effect on our business. We believe that many consumers are not familiar with, or do not fully appreciate, the tax-advantaged benefits of HSAs and other CDBs.
If the laws or regulations are changed to limit or eliminate the tax benefits available through these accounts, such a change would have a material adverse effect on our business.
If these Network Partners choose to instead partner with our competitors, or otherwise reduce offering, or cease to offer, our products and services, our results of operations, business, and prospects could be materially adversely affected. -24- Table of Contents A change in relationship with any of our bank identification number sponsors, or the failure by these sponsors to comply with certain banking regulations, could materially and adversely affect our business.
If these Network Partners choose to instead partner with our competitors, or otherwise reduce offering, or cease to offer, our products and services, our results of operations, business, and prospects could be materially adversely affected.
These projects carry risks, such as cost overruns, delays in delivery, performance problems, and lack of acceptance by our Clients, Network Partners and members. -15- Table of Contents Our success depends on the willingness of consumers to increase their use of HSAs and other CDBs, our ability to increase engagement, and our ability to demonstrate the value of our services to our existing and potential Clients, Network Partners and members.
Our success depends on the willingness of consumers to increase their use of HSAs and other CDBs, our ability to increase engagement, and our ability to demonstrate the value of our services to our existing and potential Clients, Network Partners and members.
This risk would be compounded if legal requirements or administrative rules are interpreted in a way that makes compliance more onerous for us than for our competitors.
This risk would be compounded if legal requirements or administrative rules are interpreted in a way that makes compliance more onerous for us than for our competitors. If one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could materially adversely affect our ability to compete effectively.
Developing and implementing new and updated applications, features, and services for our technology platforms may be more difficult than expected, may take longer and cost more than expected, or may result in the platforms not operating as expected.
Our software licensed from third parties is also subject to change or upgrade, which may result in our incurring significant costs to implement such changes or upgrades. -17- Table of Contents Developing and implementing new and updated applications, features, and services for our technology platforms may be more difficult than expected, may take longer and cost more than expected, or may result in the platforms not operating as expected.
We cannot ensure that the measures we have taken to enable access to our technology platforms will be effective to prevent or minimize interruptions to our operations. Our technology platforms are hosted by third-party data centers, and we increasingly rely on third-party cloud service providers to support our technology platforms.
Our technology platforms are hosted by third-party data centers, and we increasingly rely on third-party cloud service providers to support our technology platforms.
Our ability to ensure the security of our technology platforms and thus sensitive customer and partner information is critical to our operations. We rely on standard Internet and other security systems to provide the security and authentication necessary to effect secure transmission of data.
We rely on standard Internet and other security systems to provide the security and authentication necessary to effect secure transmission of data. Despite our security measures, our information technology and infrastructure are vulnerable to cybersecurity threats, including attacks by hackers and other malfeasance.
If we are unable to manage the technology associated with our business effectively, we could experience increased costs, reductions in system availability, and customer loss. We are currently investing in a significant modernization of our proprietary technology platforms to support new opportunities and enhance security, privacy, and platform infrastructure.
We are currently investing in a significant modernization of our proprietary technology platforms to support new opportunities and enhance security, privacy and platform infrastructure, while maintaining existing applications, features, and services.
A major breach of our network security and systems could have serious negative consequences for our business, including possible fines, penalties and damages, reduced demand for our services, an unwillingness of members, Clients, Network Partners and other data owners to provide us with their payment information, an unwillingness of members and other data owners to provide us with personal information, and harm to our reputation and brand.
Such breaches could damage our reputation, and cause a loss of confidence in our products and services, reducing demand and resulting in an unwillingness of members, Clients, Network Partners and other data owners to provide us with their payment information or personal information, and otherwise harm our brand.
In addition, recent geopolitical events, including the war between Russia and Ukraine, may result in an increase in cyber-attacks. Substantially all of our workforce works remotely. This remote work environment increases 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.
In addition, geopolitical events, including the war between Russia and Ukraine, have resulted in, and may continue to result in, an increase in cyber-attacks. Substantially all of our workforce works remotely.
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.
Failure to adequately manage the liquidity of the custodial assets held by our Depository Partners and insurance company partners could materially and adversely affect our business, financial condition, and results of operations. Certain of our arrangements with our depository and insurance company partners require that we keep a minimum amount of HSA cash with such partner.
Any disruption of service at our facilities or our third-party data centers and cloud service providers could interrupt or delay our customers’ access to our products and services. The ability of our team members, members, Network Partners, and Clients to access our technology platforms is critical to our business.
Realization of these risks could negatively impact our reputation, the demand for our products and services, our financial condition and results of operations, and otherwise draw adverse regulatory scrutiny. Any disruption of service at our facilities, our third-party data centers, or our cloud service providers could interrupt or delay our customers’ access to our products and services.
In addition, our increased offering of CDBs means we now obtain substantially more HIPAA data. Additionally, as we have in connection with prior security incidents, we may be required to report breaches to partners, regulators, state attorney generals, and impacted individuals depending on the severity of the breach, our role, legal requirements, and contractual obligations.
Additionally, as we have in connection with prior security incidents, we may be required to notify impacted individuals, plan sponsors, and regulatory authorities depending on the severity of the breach, our role, legal requirements, and contractual obligations. Privacy and data protection regulation have become priority issues in many states, and as such the regulatory environment is continually changing.
Risks relating to our partners and service providers • If our Network Partners choose to partner with other providers of, or otherwise reduce offering or cease to offer, our products and services, our business could be materially and adversely affected . • A change in relationship with any of our bank identification number sponsors, or the failure by these sponsors to comply with certain banking regulations, could materially and adversely affect our business. • Replacing our third-party vendors would be difficult and disruptive to our business.
A change in relationship with any of our bank identification number sponsors, or the failure by these sponsors to comply with certain banking regulations, could materially and adversely affect our business. We rely on a limited number of bank identification number ("BIN") sponsors in relation to the payment cards we issue.
Despite our security measures, our information technology and infrastructure are vulnerable to cybersecurity threats, including attacks by hackers and other malfeasance. Such security breaches could compromise our networks and result in the information stored or transmitted there to be accessed, publicly disclosed, lost, or stolen.
Such security breaches could compromise our networks, or those of third-party service providers on which we rely, and result in the information stored or transmitted there to be accessed, modified or used in an unauthorized manner, publicly disclosed, lost, or stolen.
If we are not able to achieve these objectives and realize the synergies expected from these acquisitions within the anticipated timing or at all, our business, financial condition, and operating results may be adversely affected. Our management team and other team members are spending significant amounts of time on integration efforts relating to the Further Acquisition.
In addition, we may not realize the anticipated cost, revenue, and other synergies associated with successfully integrating our acquisitions. Our management team and other team members continue to spend significant amounts of time on integration efforts relating to the Further Acquisition.
Financing and related risks • Our substantial debt could limit our ability to fund operations, expose us to interest rate volatility, limit our ability to raise additional capital and have a material adverse effect on our ability to fulfill our obligations under our credit agreement and indenture and to our Network Partners, Clients and members. • The indenture and the credit agreement contain covenants that impose significant operational and financial restrictions on us, and the failure to comply with these covenants would result in an event of default under these instruments. • We may be unable to generate or obtain sufficient capital to fund our business and growth strategy.
The Indenture and the Credit Agreement contain covenants that impose significant operational and financial restrictions on us, and the failure to comply with these covenants would result in an event of default under these instruments. The Indenture and the Credit Agreement impose on us operating and other restrictions.
Removed
Risk factors summary The following is a summary of the principal risks that could adversely affect our business, operations and financial results: Risks relating to our business and industry • Any diminution in, elimination of, or change in the availability of tax benefits for HSAs and other CDBs, or in the use of these accounts, would materially adversely affect us. • Failure to adequately place and safeguard our custodial assets and Client-held funds, or the failure of any of our depository or insurance company partners, could materially and adversely affect our business, financial condition and results of operations. • Integration of our recent acquisitions may not be successful. • A decline in interest rate levels, including an environment of negative interest rates, would reduce our ability to earn income on our HSA Assets and Client-held funds and to attract HSA contributions. • If we are not successful in adapting to our rapidly evolving industry, our growth may be limited, and our business may be adversely affected. • We may be unable to compete effectively against our current and future competitors. • Developments in the rapidly changing healthcare industry could adversely affect our business. • The COVID-19 pandemic and resulting societal and economic changes has materially impacted our business and this impact may continue. • If our members do not continue to utilize our payment cards, our results of operations, business, and prospects would be materially adversely affected. • Failure to maintain effective internal control over financial reporting could have a material adverse effect on our reputation, results of operations and financial condition.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeHowever, since a majority of our workforce is now permanently working remotely, most of our office space (other than a portion of our Texas office space and one building in Draper) is no longer used and we have subleased, or are seeking opportunities to sublease, these offices.
Biggest changeSince a majority of our workforce is now permanently working remotely, we no longer use portions of our office space and we have subleased, or are seeking opportunities to sublease, these offices.
Item 2. Properties We do not currently own any of our facilities. Our principal executive offices are located in Draper, Utah. We lease additional office space in California, Texas, and Wisconsin.
Item 2. Properties We do not currently own any of our facilities. Our principal executive offices are located in Draper, Utah, and we lease additional office space in Texas.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeExcept for such matters, as of the date of this Annual Report on Form 10-K, 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 -29- Table of Contents expected to have a material adverse effect on our results of operations, cash flows or financial position.
Biggest changeExcept for such matters, as of the date of this Annual Report on Form 10-K, 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe chart assumes $100 was invested on January 31, 2018 in the common stock of HealthEquity, Inc., the NASDAQ Composite and the Russell 3000, and assumes reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance. Unregistered sales of equity securities None.
Biggest changeData for the Russell 3000 is provided for comparison purposes only as we transition to use of the Russell 2000. The chart assumes $100 was invested on January 31, 2019 in the common stock of HealthEquity, Inc., the NASDAQ Composite, the Russell 2000, and the Russell 3000, and assumes reinvestment of any dividends.
Any decision to declare and pay dividends in the future will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, and other factors that our board of directors may deem relevant. -31- Table of Contents Performance graph This performance graph shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Any decision to declare and pay dividends in the future will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, and other factors that our board of directors may deem relevant. -29- Table of Contents Performance graph This performance graph shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 5. Market for registrant's common equity, related stockholder matters and issuer purchases of equity securities Market information Our common stock is listed on the NASDAQ Global Select Market under the symbol "HQY." Holders As of March 21, 2023, there were 24 holders of record of our common stock.
Item 5. Market for registrant's common equity, related stockholder matters and issuer purchases of equity securities Market information Our common stock is listed on the NASDAQ Global Select Market under the symbol "HQY." Holders As of March 13, 2024, there were 23 holders of record of our common stock.
The following graph compares the cumulative total return of our common stock with the total return of the NASDAQ Composite Index (the "NASDAQ Composite"), and the Russell 3000 Index (the "Russell 3000") from January 31, 2018 through January 31, 2023.
The following graph compares the cumulative total return of our common stock with the total return of the NASDAQ Composite Index (the "NASDAQ Composite"), the Russell 2000 Index (the "Russell 2000"), and the Russell 3000 Index (the "Russell 3000") from January 31, 2019 through January 31, 2024.
Purchases of equity securities by the issuer and affiliated purchasers None. -32- Table of Contents Item 6. Reserved
The stock price performance on the following graph is not necessarily indicative of future stock price performance. Unregistered sales of equity securities None. Purchases of equity securities by the issuer and affiliated purchasers None. -30- Table of Contents Item 6. Reserved
Added
Beginning with our Form 10-K for the fiscal year ended January 31, 2024, we changed one of our benchmark indexes from the Russell 3000 to the Russell 2000, as we believe that the Russell 2000 is more representative of our median peer group market capitalization.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table presents a reconciliation of net loss, the most comparable GAAP financial measure, to Adjusted EBITDA for the periods indicated: Year ended January 31, (in thousands) 2023 2022 Net loss $ (26,143) $ (44,289) Interest income (1,763) (1,501) Interest expense 48,424 36,572 Income tax benefit (11,953) (22,452) Depreciation and amortization 66,615 54,397 Amortization of acquired intangible assets 94,586 82,791 Stock-based compensation expense 62,614 52,750 Merger integration expenses 28,596 64,805 Acquisition costs (1) 53 10,832 Gain on equity securities — (1,692) Amortization of incremental costs to obtain a contract 4,393 4,326 Costs associated with unused office space 4,958 — Other 1,968 (524) Adjusted EBITDA $ 272,348 $ 236,015 (1) For the fiscal year ended January 31, 2022, acquisition costs included $0.3 million of stock-based compensation expense.
Biggest changeThe following table presents a reconciliation of net income (loss), the most comparable GAAP financial measure, to Adjusted EBITDA for the periods indicated: Year ended January 31, (in thousands) 2024 2023 Net income (loss) $ 55,712 $ (26,143) Interest income (12,138) (1,763) Interest expense 55,455 48,424 Income tax provision (benefit) 19,328 (11,953) Depreciation and amortization 60,315 66,615 Amortization of acquired intangible assets 92,763 94,586 Stock-based compensation expense 77,151 62,614 Merger integration expenses 10,435 28,596 Acquisition costs — 53 Amortization of incremental costs to obtain a contract 5,435 4,393 Costs associated with unused office space 4,179 4,958 Other 538 1,968 Adjusted EBITDA $ 369,173 $ 272,348 -36- Table of Contents The following table sets forth our net income (loss) as a percentage of revenue: Year ended January 31, (in thousands, except percentages) 2024 2023 $ Change % Change Net income (loss) $ 55,712 $ (26,143) $ 81,855 * As a percentage of revenue 6 % (3) % * Not meaningful Our net income (loss) increased by $81.9 million, from net loss of $26.1 million for the fiscal year ended January 31, 2023 to net income of $55.7 million for the fiscal year ended January 31, 2024, due to an increase in gross profit and other income, net, partially offset by net increases in operating expenses and income tax provision, as described more fully in the section entitled "Results of operations." The following table sets forth our Adjusted EBITDA as a percentage of revenue: Year ended January 31, (in thousands, except percentages) 2024 2023 $ Change % Change Adjusted EBITDA $ 369,173 $ 272,348 $ 96,825 36 % As a percentage of revenue 37 % 32 % Our Adjusted EBITDA increased by $96.8 million, or 36%, from $272.3 million for the fiscal year ended January 31, 2023 to $369.2 million for the fiscal year ended January 31, 2024, primarily due to an increase in total revenue, partially offset by increases in personnel-related costs.
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 equity securities, amortization of incremental costs to obtain a contract, costs associated with unused office space, and certain other non-operating items.
Adjusted EBITDA We define Adjusted EBITDA, which is a non-GAAP financial metric, as earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, amortization of incremental costs to obtain a contract, costs associated with unused office space, and certain other non-operating items.
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.
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.
Income tax benefit For the fiscal years ended January 31, 2023 and 2022, we recorded an income tax benefit of $12.0 million and $22.5 million, respectively.
For the fiscal years ended January 31, 2023 and 2022, we recorded an income tax benefit of $12.0 million and $22.5 million, respectively.
Other income (expense), net The change in other income (expense), net, from expense of $5.9 million during the fiscal year ended January 31, 2022 to income of $1.3 million during the fiscal year ended January 31, 2023, was primarily due to a $10.8 million decrease in acquisition costs, partially offset by a $3.6 million decrease in other income, net.
The change in other income (expense), net, from expense of $5.9 million during the fiscal year ended January 31, 2022 to income of $1.3 million during the fiscal year ended January 31, 2023, was primarily due to a $10.8 million decrease in acquisition costs, partially offset by a $3.6 million decrease in other miscellaneous income, net.
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 remain relatively steady as a percentage of our total revenue.
We expect our sales and marketing expenses to increase for the foreseeable future as we continue to focus on our cross-selling program and marketing campaigns. On an annual basis, we expect our sales and marketing expenses to remain relatively steady as a percentage of our total revenue.
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.
Our Network Partners and ecosystem 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.
In addition, we expect an increase in the percentage of HSA cash held in our Enhanced Rates offering to positively impact our average annualized yield and thus our custodial revenue.
In addition, we expect an increase in the percentage of HSA cash held in our Enhanced Rates offering to continue to positively impact our average annualized yield and thus our custodial revenue.
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. -42- Table of Contents Technology and development.
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. -42- Table of Contents Technology and development.
However, on an annual basis, relative to the fiscal year ended January 31, 2023, we expect our cost of revenue to decrease as a percentage of our total revenue, primarily due to an increase in custodial revenue, partially offset by increases in stock-based compensation and other personnel costs.
However, on an annual basis, relative to the fiscal year ended January 31, 2024, we expect our cost of revenue to decrease as a percentage of our total revenue, primarily due to an increase in custodial revenue, partially offset by increases in stock-based compensation and other personnel costs.
We expect to continue our current level of capital expenditures during the fiscal year ending January 31, 2024 as we continue to invest in improving the architecture and functionality of our proprietary systems. Capital expenditures to improve the architecture of our proprietary systems include computer hardware, personnel and related costs for software engineering, and outsourced software engineering services.
We expect to continue our current level of capital expenditures during the fiscal year ending January 31, 2025 as we continue to invest in improving the architecture and functionality of our proprietary systems. Capital expenditures to improve the architecture of our proprietary systems include computer hardware, personnel and related costs for software engineering, and outsourced software engineering services.
Assuming the current interest rate environment continues, we expect our average annualized yield on HSA cash to increase as our existing agreements with our Depository Partners are renewed or replaced, resulting in higher custodial revenue.
Assuming the current interest rate environment continues, we expect our average annualized yield on HSA cash to further increase as our existing agreements with our Depository Partners are renewed or replaced with agreements with higher rates, resulting in higher custodial revenue.
As with our Depository Partners, yields paid by our insurance company partners may be impacted by the 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.
As with our Depository Partners, yields paid by our insurance company partners are impacted by the 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.
As of January 31, 2023, there were no amounts outstanding under the Revolving Credit Facility. We were in compliance with all covenants under the Credit Agreement as of January 31, 2023, and for the period then ended.
As of January 31, 2024, there were no amounts outstanding under the Revolving Credit Facility. We were in compliance with all covenants under the Credit Agreement as of January 31, 2024, and for the period then ended.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, management’s judgment is required in -45- Table of Contents selecting among available alternative accounting standards that allow different accounting treatment for similar transactions.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, management’s judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions.
The $7.2 million, or 33%, increase in custodial costs was primarily due to an increase in the average daily balance of HSA cash, which increased from $10.6 billion for the fiscal year ended January 31, 2022 to $13.0 billion for the fiscal year ended January 31, 2023, and an increase in the average annualized rate of interest retained by HSA members on HSA cash, which increased from 0.17% for the fiscal year ended January 31, 2022 to 0.19% for the fiscal year ended January 31, 2023.
The $6.6 million, or 34%, increase in custodial costs from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to an increase in the average daily balance of HSA cash, which increased from $10.6 billion for the fiscal year ended January 31, 2022 to $13.0 billion for the fiscal year ended January 31, 2023, and an increase in the average annualized rate of interest retained by HSA members on HSA cash, which increased from 0.17% for the fiscal year ended January 31, 2022 to 0.19% for the fiscal year ended January 31, 2023.
We reach Clients primarily through relationships with benefits brokers and advisors, integrated partnerships with a network of health plans, benefits administrators, benefits brokers and consultants, and retirement plan recordkeepers, which we call Network Partners, and a sales force that calls on Clients directly.
We reach consumers primarily through relationships with their employers, which we call Clients. We reach Clients primarily through relationships with benefits brokers and advisors, integrated partnerships with a network of health plans, benefits administrators, benefits brokers and consultants, and retirement plan recordkeepers, which we call Network Partners, and a sales force that calls on Clients directly.
We believe that there are significant opportunities to expand the scope of services that we provide to our current Clients. -34- Table of Contents Broad distribution footprint We believe we have a diverse distribution footprint to attract new Clients and Network Partners.
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.
We believe that diversification of Depository Partners and insurance company 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.
We believe that increased participation in our Enhanced Rates offering, diversification of Depository Partners and insurance company 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.
Luum provides employers with various commuter services, including access to real-time commute data, to help them design and implement flexible return-to-office and hybrid-workplace strategies and benefits. Fifth Third Bank HSA portfolio acquisition.
Luum provides employers with various commuter services, including access to real-time commute data, to help them design and implement flexible return-to-office and hybrid-workplace strategies and benefits. -31- Table of Contents Fifth Third Bank HSA portfolio acquisition.
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.
The assets include acquired customer -39- Table of Contents 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.
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 and to realize anticipated synergies.
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.
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.
Key financial and operating metrics We regularly review a number of key operating and financial metrics to evaluate our business, determine the allocation of our resources, make decisions regarding corporate strategies, and evaluate forward-looking projections and trends affecting our business.
We expect merger integration expenses attributable to the Further Acquisition totaling approximately $55 million to be incurred over a period of approximately three to four years from the acquisition date. HealthSavings HSA portfolio acquisition.
We expect merger integration expenses attributable to the Further Acquisition totaling approximately $55 million to be incurred over a period of approximately five to six years from the acquisition date. HealthSavings HSA portfolio acquisition.
Our use of Adjusted EBITDA, including as a percentage of revenue, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Key components of our results of operations Revenue We generate revenue from three primary sources: service revenue, custodial revenue, and interchange revenue.
Our use of non-GAAP net income has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. 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 rely on cash provided by operating activities to meet our short-term liquidity requirements, which primarily relate to the payment of corporate payroll and other operating costs, principal and interest payments on our long-term debt, and capital expenditures. As of January 31, 2023 and January 31, 2022, cash and cash equivalents were $254.3 million and $225.4 million, respectively.
We rely on cash provided by operating activities to meet our short-term liquidity requirements, which primarily relate to the payment of corporate payroll and other operating costs, principal and interest payments on our long-term debt, and capital expenditures. -44- Table of Contents As of January 31, 2024 and January 31, 2023, cash and cash equivalents were $404.0 million and $254.3 million, respectively.
Amortization of acquired intangible assets. The $11.8 million, or 14%, increase in amortization of acquired intangible assets was primarily due to the inclusion of amortization related to identified intangible assets acquired through the Further Acquisition commencing November 1, 2021.
The $11.8 million, or 14%, increase in amortization of acquired intangible assets from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the inclusion of amortization related to identified intangible assets acquired through the Further Acquisition commencing November 1, 2021.
The $10.2 million, or 17%, increase in sales and marketing expenses was primarily due to the inclusion of a full year of Further's results of operations and an increase in marketing expenses from increased staffing and travel costs, partially offset by a decrease in advertising expenses.
The $10.2 million, or 17%, increase in sales and marketing expenses from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the inclusion of a full year of Further's results of operations and an increase in personnel-related expenses and travel costs, partially offset by a decrease in advertising expenses.
Interest rates As a non-bank custodian, our members’ custodial HSA cash assets are held by either our federally insured bank and credit union partners, which we collectively call our Depository Partners (our “Basic Rates” offering), pursuant to contractual arrangements we have with these Depository Partners, or by our insurance company partners through group annuity contracts or other similar arrangements (our “Enhanced Rates” offering).
Interest rates As a non-bank custodian, our members’ custodial HSA cash assets are held by either our federally insured Depository Partners (our Basic Rates offering), pursuant to contractual arrangements we have with these Depository Partners, or by our insurance company partners through group annuity contracts or other similar arrangements (our Enhanced Rates offering).
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.
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.
The $80.3 million, or 40%, increase in custodial revenue was primarily due to the $2.5 billion, or 23%, increase in the average daily balance of HSA cash, as described above, and an increase in average annualized yield from 1.75% for the fiscal year ended January 31, 2022 to 1.90% for the fiscal year ended January 31, 2023.
The $75.2 million, or 40%, increase in custodial revenue from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the $2.5 billion, or 23%, increase in the average daily balance of HSA cash, as described above, and an increase in average annualized yield from 1.75% for the fiscal year ended January 31, 2022 to 1.90% for the fiscal year ended January 31, 2023 (due to both higher interest rates overall and increased participation in our Enhanced Rates offering).
During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.
Results of operations For a discussion related to the results of operations and liquidity and capital resources for fiscal year 2022 compared to fiscal year 2021, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal year 2022 Form 10-K, filed with the SEC on March 31, 2022.
For a discussion related to key financial and operating metrics for fiscal year 2023 compared to fiscal year 2022, refer to Part II, Item 7. Management's discussion and analysis of financial condition and results of operations in our fiscal year 2023 Form 10-K, filed with the SEC on March 30, 2023.
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 from which we earn a recordkeeping fee, calculated as a percentage of custodial investments. Interchange revenue.
In addition, once a member’s HSA cash balance -38- Table of Contents reaches a certain threshold, the member is able to invest his or her HSA Assets through our investment partner from which we earn recordkeeping and advisory fees, calculated as a percentage of the member's HSA investments.
The average premium for employer-sponsored health insurance has risen by 20% since 2017 and 43% since 2012, resulting in increased participation in HSA-qualified health plans and HSAs and increased consumer cost-sharing in health insurance more generally.
The average family premium for employer-sponsored health insurance has risen by 22% since 2018 and 47% since 2013, resulting in increased participation in HSA-qualified health plans and HSAs and increased consumer cost-sharing in health insurance more generally.
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. -35- Table of Contents Our Purple culture A successful healthcare consumer needs education and guidance delivered by people as well as by technology.
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.
According to Devenir, as of December 2022, we are the largest HSA provider by both accounts and HSA Assets. In addition, we believe we are the largest provider of other CDBs. We seek to differentiate ourselves through our service-driven culture, product breadth, ecosystem connectivity, and proprietary technology.
In addition, we believe we are the largest provider of other CDBs. We seek to differentiate ourselves through our service-driven culture, product breadth, ecosystem connectivity, and proprietary technology.
Interest expense The $11.9 million increase in interest expense was primarily due to the impact of higher interest rates on our Term Loan Facility, which had an effective interest rate of 7.14% as of January 31, 2023, up from 2.63% as of January 31, 2022.
Our Term Loan Facility had an outstanding principal balance of $286.9 million and $341.3 million as of January 31, 2024 and January 31, 2023, respectively. -43- Table of Contents The $11.9 million increase in interest expense from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the impact of higher interest rates on our Term Loan Facility, which had an effective interest rate of 7.14% as of January 31, 2023, up from 2.63% as of January 31, 2022.
As of January 31, 2023, our platforms were integrated with more than 200 Network Partners, and we serve more than 120,000 Clients. We have increased our share of the growing HSA market from 4% in December 2010 to 20% as of December 2022, measured by HSA Assets.
As of January 31, 2024, our platforms were integrated with more than 200 Network Partners. We have increased our share of the growing HSA market from 4% in December 2010 to 20% as of June 2023, measured by HSA Assets. According to Devenir, as of June 2023, we were the largest HSA provider by both accounts and HSA Assets.
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, and the impact of societal and economic changes arising out of the COVID-19 pandemic.
Cost of revenue will continue to be affected by a number of different factors, including our ability to scale our service delivery, Network Partner implementation, and account management functions.
We expect merger integration expenses attributable to the Further Acquisition totaling approximately $55 million to be incurred over a period of approximately three to four years from the acquisition date.
We expect merger integration expenses attributable to the Further acquisition totaling approximately $55 million to be incurred over a period of approximately five to six years from the date of the acquisition, which occurred in November 2021.
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.
Custodial costs are comprised of interest retained by our HSA members on HSA cash 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.
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.
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. Our Network Partners are a key channel through which we gain access to Clients and members.
We have not recorded any significant impairment charges during the years presented. Recent accounting pronouncements See Note 1—Summary of business and significant accounting policies within the financial statements included in this Form 10-K for further discussion.
Recent accounting pronouncements See Note 1—Summary of business and significant accounting policies within the financial statements included in this Form 10-K for further discussion.
The $28.6 million in merger integration expense for the fiscal year ended January 31, 2023 was primarily due to personnel and related expenses, including expenses incurred in conjunction with the migration of accounts, professional fees, and technology-related expenses directly related to the Further Acquisition and certain ongoing merger integration expenses related to the WageWorks Acquisition, including ongoing lease expense related to WageWorks offices that have been permanently closed, less any related sublease income, professional fees associated with the remediation of remaining material weaknesses in internal control over financial reporting, and costs associated with remaining platform migrations.
The $10.4 million in merger integration expense for the fiscal year ended January 31, 2024 was primarily due to personnel and related expenses, including expenses incurred in conjunction with the migration of accounts, professional fees, and technology-related expenses directly related to the Further acquisition and certain ongoing merger integration expenses related to the acquisition of WageWorks, including ongoing lease expense related to WageWorks offices that have been permanently closed, less any related sublease income, and professional fees.
Contractual obligations See Note 7—Commitments and contingencies for information about our contractual obligations. Off-balance sheet arrangements As of January 31, 2023, other than outstanding letters of credit issued under our Revolving Credit Facility, we did not have any off-balance sheet arrangements. The standby letters of credit generally expire within one year.
Off-balance sheet arrangements As of January 31, 2024, other than outstanding letters of credit issued under our Revolving Credit Facility, we did not have any off-balance sheet arrangements. The standby letters of credit generally expire within one year.
Total Accounts The following table sets forth our HSAs, CDBs, and Total Accounts as of and for the periods indicated: (in thousands, except percentages) January 31, 2023 January 31, 2022 % Change HSAs 7,984 7,207 11 % New HSAs from sales - Quarter-to-date 445 472 (6) % New HSAs from sales - Year-to-date 971 918 6 % New HSAs from acquisitions - Year-to-date 90 740 (88) % HSAs with investments 541 455 19 % CDBs 6,933 7,192 (4) % Total Accounts 14,917 14,399 4 % Average Total Accounts - Quarter-to-date 14,677 14,326 2 % Average Total Accounts - Year-to-date 14,531 13,450 8 % The number of our HSAs and CDBs are key metrics because our revenue is driven by the amount we earn from them.
Total Accounts The following table sets forth our HSAs, CDBs, and Total Accounts as of and for the periods indicated: (in thousands, except percentages) January 31, 2024 January 31, 2023 % Change HSAs 8,692 7,984 9 % New HSAs from sales - Quarter-to-date 497 445 12 % New HSAs from sales - Year-to-date 949 971 (2) % New HSAs from acquisitions - Year-to-date — 90 (100) % HSAs with investments 610 541 13 % CDBs 7,006 6,933 1 % Total Accounts 15,698 14,917 5 % Average Total Accounts - Quarter-to-date 15,318 14,677 4 % Average Total Accounts - Year-to-date 15,105 14,531 4 % The number of our HSAs and CDBs are key metrics because our revenue is driven by the amount we earn from them.
HSA Assets The following table sets forth HSA Assets as of and for the periods indicated: (in millions, except percentages) January 31, 2023 January 31, 2022 % Change HSA cash $ 14,199 $ 12,943 10 % HSA investments 7,947 6,675 19 % Total HSA Assets 22,146 19,618 13 % Average daily HSA cash - Year-to-date 13,049 10,579 23 % Average daily HSA cash - Quarter-to-date $ 13,375 $ 12,118 10 % HSA Assets includes our HSA members’ custodial assets, which consists of the following components: (i) HSA cash, which includes cash deposits held by our Depository Partners and our insurance company partners, and (ii) HSA investments in mutual funds through our custodial investment fund partners.
HSA Assets The following table sets forth HSA Assets as of and for the periods indicated: (in millions, except percentages) January 31, 2024 January 31, 2023 % Change HSA cash $ 15,006 $ 14,199 6 % HSA investments 10,208 7,947 28 % Total HSA Assets 25,214 22,146 14 % Average daily HSA cash - Quarter-to-date 14,210 13,375 6 % Average daily HSA cash - Year-to-date $ 14,071 $ 13,049 8 % HSA Assets includes our HSA members’ custodial assets, which consists of the following components: (i) HSA cash, which includes member cash held by our Depository Partners and our insurance company partners, and (ii) HSA investments, which includes member investments held by our custodial investment partners.
General and administrative. The $11.2 million, or 13%, increase in general and administrative expenses was primarily due to the inclusion of a full year of Further's results of operations and increases in personnel-related expenses and stock-based compensation.
The $12.0 million, or 14%, increase in general and administrative expenses from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the inclusion of a full year of Further's results of operations and increases in personnel-related expenses and stock-based compensation.
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.
We invest in and intend to continue to invest in human capital through technology-enabled training, career development, and advancement opportunities. 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.
The $3.3 million, or 1%, increase in service revenue was primarily due to new revenue from the Further Acquisition and our HSA portfolio acquisitions, new HSAs from sales, and increased revenue from HRA and commuter benefits administration, largely offset by non-recurring revenue related to COBRA benefits administration during the fiscal year ended January 31, 2022. Custodial revenue.
The $8.4 million, or 2%, increase in service revenue from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to new revenue from the Further Acquisition and our HSA portfolio acquisitions, an increase in administration fees earned with respect to HSAs and recordkeeping and advisory fees earned with respect to HSA investments, and increased revenue from HRA and commuter benefits administration, partially offset by non-recurring revenue related to COBRA benefits administration during the fiscal year ended January 31, 2022.
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.
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. Custodial costs.
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.
Changes in tax policy are speculative and may affect our business in ways that are difficult to predict. -32- Table of Contents 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 maintain an overall net federal and state deferred tax liability on our consolidated balance sheet. -40- Table of Contents We evaluate our tax positions in accordance with Accounting Standards Codification (“ASC”) 740-10-25, Accounting for Uncertainty in Income Taxes , which prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return.
We evaluate our tax positions in accordance with Accounting Standards Codification (“ASC”) 740-10-25, Accounting for Uncertainty in Income Taxes , which prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return.
Our acquisition and integration strategy We have historically acquired HSA portfolios and businesses that strengthen our service offerings. We plan to continue this growth strategy and are regularly engaged in evaluating different opportunities. We have developed an internal capability to source, evaluate, and integrate acquired HSA portfolios.
We plan to continue this growth strategy, including through the BenefitWallet HSA portfolio acquisition, and are regularly engaged in evaluating different opportunities. We have developed an internal capability to source, evaluate, and integrate acquired HSA portfolios.
Net cash used in investing activities decreased by $520.1 million, primarily due to a $499.4 million decrease in cash used in business combinations and HSA portfolio acquisitions, a $17.5 million decrease in cash used for purchases of software and capitalized software development costs, and a $5.5 million decrease in cash used for purchases of property and equipment.
Net cash used in investing activities decreased by $73.1 million, due to a $67.3 million decrease in cash used for HSA portfolio acquisitions, a $4.1 million decrease in cash used for -45- Table of Contents purchases of software and capitalized software development costs, and a $1.7 million decrease in cash used for purchases of property and equipment.
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. Changes in tax policy are speculative and may affect our business in ways that are difficult to predict.
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.
The following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods: Year ended January 31, (in thousands) 2023 2022 Net cash provided by operating activities $ 150,650 $ 140,995 Net cash used in investing activities (119,127) (639,247) Net cash provided by (used in) financing activities (2,671) 394,863 Increase (decrease) in cash and cash equivalents 28,852 (103,389) Beginning cash and cash equivalents 225,414 328,803 Ending cash and cash equivalents $ 254,266 $ 225,414 Cash flows from operating activities.
The following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods: Year ended January 31, (in thousands) 2024 2023 Net cash provided by operating activities $ 242,826 $ 150,650 Net cash used in investing activities (46,074) (119,127) Net cash used in financing activities (47,039) (2,671) Increase in cash and cash equivalents 149,713 28,852 Beginning cash and cash equivalents 254,266 225,414 Ending cash and cash equivalents $ 403,979 $ 254,266 Cash flows from operating activities.
Other income (expense), net Other income (expense), net, consists of acquisition costs, interest income earned on corporate cash and other miscellaneous income and expense. Income tax benefit We are subject to federal and state income taxes in the United States based on a January 31 fiscal year end.
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.
On an annual basis, we expect our technology and development expenses to remain relatively steady as a percentage of our total revenue. 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.
However, 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.
To the extent these current and anticipated -44- Table of Contents 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.
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.
Interest expense Interest expense primarily consists of accrued interest expense and amortization of deferred financing costs associated with our long-term debt. Interest on our Term Loan Facility changes frequently due to variable interest rate terms, and as a result, our interest expense is expected to fluctuate based on changes in prevailing interest rates.
Interest on our Term Loan Facility changes frequently due to variable interest rate terms, and as a result, our interest expense is expected to fluctuate based on changes in prevailing interest rates. Other income (expense), net Other income (expense), net, consists of acquisition costs, interest income earned on corporate cash and other miscellaneous income and expense.
The $36.0 million, or 23%, increase in technology and development expenses was primarily due to the inclusion of a full year of Further's results of operations and increases in amortization and personnel-related expenses. We expect our technology and development expenses to increase for the foreseeable future as we continue to invest in the development and security of our proprietary technology.
The $36.0 million, or 23%, increase in technology and development expenses from the year ended January 31, 2022 to the year ended January 31, 2023 was primarily due to the inclusion of a full year of Further's results of operations and increases in amortization and personnel-related expenses.
The education and customer service we provide is driven by our Purple culture, which we believe is a significant factor in our ability to attract and retain customers and to address opportunities in the rapidly changing healthcare sector. We invest in and intend to continue to invest in human capital through technology-enabled training, career development, and advancement opportunities.
Our Purple culture A successful healthcare consumer needs education and guidance delivered by people as well as by technology. The education and customer service we provide is driven by our Purple culture, which we believe is a significant factor in our ability to attract and retain customers and to address opportunities in the rapidly changing healthcare sector.
The terms of new and renewing agreements with our Depository Partners 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.
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 with our Depository Partners are 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.
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.
Recent interest rate increases have caused interest expense related to our Term Loan Facility to increase substantially. -33- Table of Contents Our proprietary technology We believe that innovations incorporated in our technology differentiate us from our competitors and help drive our growth by enabling us to better assist consumers to make healthcare saving and spending decisions and maximize the value of their tax-advantaged benefits.
In March 2022, we acquired the HealthSavings HSA portfolio, which consisted of $1.3 billion of HSA Assets held in approximately 87,000 HSAs in exchange for a purchase price of $60 million in cash. Key factors affecting our performance We believe that our future performance will be driven by a number of factors, including those identified below.
In March 2022, we acquired the HealthSavings HSA portfolio, which consisted of $1.3 billion of HSA Assets held in approximately 87,000 HSAs in exchange for a purchase price of $60 million in cash. BenefitWallet HSA portfolio acquisition.
Interchange costs. The $4.5 million, or 22%, increase in interchange costs was primarily due to increased spend per account and an increase in accounts. 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.
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.
On an annual basis, we expect our general and administrative expenses to remain relatively steady as a percentage of our total revenue. Our general and administrative expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our general and administrative expenses.
However, our general and administrative expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our general and administrative expenses. Amortization of acquired intangible assets.
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. -36- Table of Contents For a discussion related to key financial and operating metrics for fiscal year 2022 compared to fiscal year 2021, refer to Part II, Item 7.
We discuss certain of these key financial metrics, including revenue, below in the -34- Table of Contents section entitled “Key components of our results of operations.” In addition, we utilize other key metrics as described below.
HSA investments increased by $1.3 billion, or 19%, from January 31, 2022 to January 31, 2023, primarily due to transfers from HSA cash and HSA investments from the HealthSavings and other HSA portfolio acquisitions, partially offset by the reduced value of invested balances due to market volatility.
HSA investments increased by $2.3 billion, or 28%, from January 31, 2023 to January 31, 2024, due to the increased market value of invested balances and transfers from HSA cash.
Our Term Loan Facility had an outstanding principal balance of $341.3 million and $350.0 million as of January 31, 2023 and January 31, 2022, respectively. On an annual basis, we expect our interest expense to increase, primarily due to the impact of increased interest rates on our Term Loan Facility.
Our Term Loan Facility had an outstanding principal balance of $341.3 million and $350.0 million as of January 31, 2023 and January 31, 2022, respectively.
The remainder of the increase was primarily due to amortization of acquired HSA portfolios, including the Fifth Third and HealthSavings HSA portfolios. Merger integration. The $36.2 million, or 56%, decrease in merger integration expense was primarily due to a decrease in merger integration activities related to the WageWorks Acquisition.
The remainder of the increase was primarily due to amortization of acquired HSA portfolios, including the Fifth Third and HealthSavings HSA portfolios. Merger integration.
Operating expenses The following table sets forth our operating expenses for the periods indicated: Year ended January 31, (in thousands, except percentages) 2023 2022 $ change % change Sales and marketing $ 68,849 $ 58,605 $ 10,244 17 % Technology and development 193,375 157,364 36,011 23 % General and administrative 95,628 84,379 11,249 13 % Amortization of acquired intangible assets 94,586 82,791 11,795 14 % Merger integration 28,596 64,805 (36,209) (56) % Total operating expenses $ 481,034 $ 447,944 $ 33,090 7 % Sales and marketing.
Operating expenses The following table sets forth our operating expenses for the periods indicated: Year ended January 31, 2023 to 2024 2022 to 2023 (in thousands, except percentages) 2024 2023 2022 $ change % change $ change % change Sales and marketing $ 79,273 $ 68,849 $ 58,605 $ 10,424 15 % $ 10,244 17 % Technology and development 218,811 193,375 157,364 25,436 13 % 36,011 23 % General and administrative 103,656 97,472 85,438 6,184 6 % 12,034 14 % Amortization of acquired intangible assets 92,763 94,586 82,791 (1,823) (2) % 11,795 14 % Merger integration 10,435 28,596 64,805 (18,161) (64) % (36,209) (56) % Total operating expenses $ 504,938 $ 482,878 $ 449,003 $ 22,060 5 % $ 33,875 8 % Sales and marketing.
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.
Over longer periods, sustained shifts in prevailing interest rates affect the amount of custodial revenue we can realize on custodial assets and the interest retained by our members. Interest on our Term Loan Facility changes frequently due to variable interest rate terms, and as a result, our interest expense is expected to fluctuate based on changes in prevailing interest rates.
We expect our general and administrative expenses to increase for the foreseeable future due to the additional demands on our legal, compliance, and accounting functions as we continue to grow our business and the increased cost of cybersecurity and directors and officers insurance.
We expect our general and administrative expenses to increase for the foreseeable future due to the additional demands on our legal, compliance, and finance functions as we continue to grow our business. On an annual basis, we expect our general and administrative expenses to remain relatively steady as a percentage of our total revenue.
We review goodwill for impairment at least annually or more frequently if events or changes in circumstances would more likely than not reduce the fair value of our single reporting unit below its carrying value. The Company’s annual goodwill impairment test resulted in no impairment charges in any of the periods presented in the accompanying consolidated financial statements.
Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. -46- Table of Contents We review goodwill for impairment at least annually or more frequently if events or changes in circumstances would more likely than not reduce the fair value of our single reporting unit below its carrying value.
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.
We earn custodial revenue on HSA cash and Client-held funds that is based on the interest rates offered to us by these Depository Partners and insurance company partners. 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.
HSA members who place their HSA cash into our Enhanced Rates offering retain a higher yield compared to our Basic Rates offering.
Such factors, and the response of our competitors to them, also determine the amount of interest retained by our members. HSA members who place their HSA cash into our Enhanced Rates offering retain a higher yield compared to our Basic Rates offering.
As of January 31, 2023, we have not recorded a valuation allowance on federal deferred tax assets; however, we have recorded a valuation allowance on certain state deferred tax assets.
As of January 31, 2024, we have not recorded a valuation allowance on federal deferred tax assets, but we have recorded a valuation allowance on certain state deferred tax assets. We maintain an overall net federal and state deferred tax liability on our consolidated balance sheet.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

12 edited+3 added−1 removed10 unchanged
Biggest changeAs of January 31, 2023 and 2022, we had $341.3 million and $350.0 million, respectively, 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.
Biggest changeOur overall interest rate sensitivity under these credit facilities is primarily influenced by any amounts borrowed and the prevailing interest rates on these instruments. The stated interest rate on our Term Loan Facility and Revolving Credit Facility is variable and was 6.69% and 6.31% at January 31, 2024 and 2023, respectively.
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 fiscal years ended January 31, 2023, 2022, and 2021, no one customer accounted for greater than 10% of our total revenue.
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 fiscal years ended January 31, 2024, 2023, and 2022, no one customer accounted for greater than 10% of our total revenue.
The lengths of our agreements with Depository Partners typically range from three to five years and have either fixed or variable interest rates. As 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 lengths of our agreements with Depository Partners typically range from three to five years and have either fixed or variable interest rates. As HSA Assets increase and existing contracts with Depository Partners expire, we seek to enter into new contracts with Depository Partners and insurance company partners, the terms of which are impacted by the then-prevailing interest rate environment.
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.
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 -47- Table of Contents can realize. Conversely, a sustained increase in prevailing interest rates can increase our yield.
As of January 31, 2023 and 2022, we held Client-held funds of $901 million and $897 million, respectively. 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.
As of January 31, 2024 and 2023, we held Client-held funds of $842 million and $901 million, respectively. 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.
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. Custodial cash assets held by our insurance company partners are held in group annuity contracts or similar arrangements.
As a non-bank custodian, we contract with our Depository Partners and insurance company partners to hold HSA cash on behalf of our members, and we earn a significant portion of our total revenue from interest paid to us by these partners. HSA cash held by our insurance company partners is held in group annuity contracts or similar arrangements.
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 January 31, 2023 and 2022, we had unrestricted cash and cash equivalents of $254.3 million and $225.4 million, respectively.
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 January 31, 2024 and 2023, we had unrestricted cash and cash equivalents of $404.0 million and $254.3 million, respectively.
We monitor market and regulatory changes regularly and make adjustments to our business if necessary. -46- Table of Contents Inflation. Inflationary factors may adversely affect our operating results.
We monitor market and regulatory changes regularly and make adjustments to our business if necessary. Inflation. Inflationary factors may adversely affect our operating results.
Our cash and cash equivalents as of January 31, 2023 and 2022 were $254.3 million and $225.4 million, respectively, the vast majority of which was not covered by federal depository insurance. We have not experienced any material losses in such accounts. Our accounts receivable balance as of January 31, 2023 and 2022 was $96.8 million and $87.4 million, respectively.
Our cash and cash equivalents as of January 31, 2024 and 2023 were $404.0 million and $254.3 million, respectively, the vast majority of which was not covered by federal depository insurance. We have not experienced any material losses in such accounts. Our accounts receivable balance as of January 31, 2024 and 2023 was $104.9 million and $96.8 million, respectively.
HSA Assets consist of custodial HSA funds we hold in custody on behalf of our members. As of January 31, 2023 and 2022, we held in custody HSA Assets of $22.1 billion and $19.6 billion, respectively.
HSA Assets consist of custodial HSA funds we hold in custody on behalf of our members. As of January 31, 2024 and 2023, we held in custody HSA Assets of $25.2 billion and $22.1 billion, respectively.
The diversification of HSA Assets held by our Depository Partners and insurance 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.
We believe that increased participation in our Enhanced Rates offering, diversification of Depository Partners and insurance 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.
For example, a one percent increase in the interest rate on the amount outstanding under our credit facilities at January 31, 2023 would result in approximately $3.4 million of additional interest expense over the next 12 months. The interest rate on our $600 million of unsecured Senior Notes due 2029 is fixed at 4.50%. -48- Table of Contents
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 January 31, 2024 would result in approximately $2.9 million of additional interest expense over the next 12 months.
Removed
The stated interest rate on our Term Loan Facility and Revolving Credit Facility is variable and was 6.31% and 1.88% at January 31, 2023 and 2022, respectively. Accordingly, we -47- Table of Contents may incur additional expense if interest rates increase in future periods.
Added
As of January 31, 2024 and 2023, we had $286.9 million and $341.3 million, respectively, outstanding under our Term Loan Facility and no amounts drawn under our Revolving Credit Facility.
Added
In connection with the BenefitWallet HSA portfolio acquisition, which is expected to close in multiple tranches during the first half of fiscal 2025, we expect to borrow approximately 50% of the purchase price and related costs using our Revolving Credit Facility with the actual percentages to be determined in connection with the payment for each tranche.
Added
The interest rate on our $600 million of unsecured Senior Notes due 2029 is fixed at 4.50%. -48- Table of Contents

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