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What changed in HEALTHEQUITY, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HEALTHEQUITY, INC.'s 2022 and 2023 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 2023 report.

+358 added−425 removedSource: 10-K (2023-03-30) vs 10-K (2022-03-31)

Top changes in HEALTHEQUITY, INC.'s 2023 10-K

358 paragraphs added · 425 removed · 294 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

64 edited+19 added−34 removed69 unchanged
Biggest changeThe 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. Our technology Technology solution. Our proprietary technology is deployed as a cloud-based solution that is accessible to customers online and through our mobile app.
Biggest changeThe 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.
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. Leadership. We have established a defensible leadership position in the HSA industry through our focus on innovation, and differentiated capabilities.
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.
As part of our services, we and our subsidiaries provide consumers with healthcare bill evaluation and payment processing services, personalized benefit information, including information on treatment options and comparative pricing, access to remote and telemedicine benefits, the ability to earn wellness incentives, and investment advice to grow their tax-advantaged healthcare savings.
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.
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 administrators partner’s health insurance products, such as HDHPs, and our HSAs.
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.
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. -6- Table of Contents • 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 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.
As -4- Table of Contents with healthcare FSAs, employers realize payroll tax savings on the pre-tax dependent care FSA contributions made by their employees. HealthEquity administers the United States Office of Personnel Management's (“OPM”) Federal Flexible Spending Account Program (“FSAFEDS”). This relationship provides eligible federal government employees access to our advanced technology platforms and premium service capabilities. Health reimbursement arrangements.
As with healthcare FSAs, employers realize payroll tax savings on the pre-tax dependent care FSA contributions made by their employees. HealthEquity administers the United States Office of Personnel Management's (“OPM”) Federal Flexible Spending Account Program (“FSAFEDS”). This relationship provides eligible federal government employees access to our advanced technology platforms and premium service capabilities. Health reimbursement arrangements.
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.
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.
We offer 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.
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 expect to continue this growth strategy and regularly evaluate opportunities. We have -7- Table of Contents 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 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.
Some of our direct competitors (including healthcare service companies such as United Health Group's Optum, Webster Bank, and well-known retail investment companies, such as Fidelity Investments ) are in a position to devote more resources to the development, sale and support of their products and services than we have at our disposal.
Some of our direct competitors (including healthcare service companies such as UnitedHealth Group's Optum, Webster Bank, and well-known retail investment companies, such as Fidelity Investments ) are in a position to devote more resources to the development, sale and support of their products and services than we have at our disposal.
The Medicare Modernization Act of 2003 created HSAs, a tax-exempt trust or custodial account managed by a custodian that is a bank, an insurance company, or a non-bank custodian -3- Table of Contents specifically authorized by the Internal Revenue Service, or IRS, as meeting certain ownership, capitalization, expertise, and governance requirements.
The Medicare Modernization Act of 2003 created HSAs, a tax-exempt trust or custodial account managed by a custodian that is a bank, an insurance company, or a non-bank custodian specifically authorized by the Internal Revenue Service, or IRS, as meeting certain ownership, capitalization, expertise, and governance requirements.
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
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
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.
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.
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 and related strategies, programs, and risks, 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, -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.
Our Security Incident Response Plan defines roles and responsibilities, incident severity levels, key contacts, post-incident steps, and guidelines for -5- Table of Contents testing. Our procedures cover response steps for phishing attacks, ransomware, data breaches, and major vulnerabilities. Lastly, we have an organic threat model that evaluates our security controls to help protect against attacker tactics, techniques, and procedures.
Our Security Incident Response Plan defines roles and responsibilities, incident severity levels, key contacts, post-incident steps, and guidelines for testing. Our procedures cover response steps for phishing attacks, ransomware, data breaches, and major vulnerabilities. Lastly, we have an organic threat model that evaluates our security controls to help protect against attacker tactics, techniques, and procedures.
As of January 31, 2022, the Company's year-end for trust and tax purposes, the net worth of the Company exceeded the required thresholds.
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.
According to Devenir, we are the largest HSA provider by accounts and second largest by assets as of December 2021. In addition, we believe we are the largest provider of other CDBs. We seek to differentiate ourselves through our proprietary technology, product breadth, ecosystem connectivity, and service-driven culture.
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.
Team Member Engagement HealthEquity also considers team member engagement an important metric of 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.
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 refer to the aggregate number of HSAs and other CDBs that we administer as Total Accounts, of which we had 14.4 million as of January 31, 2022. 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 14.9 million as of January 31, 2023. We reach consumers primarily through relationships with their employers, which we call Clients.
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. -2- Table of Contents Fifth Third Bank HSA portfolio acquisition.
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. Differentiated consumer experience.
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.
We are increasing investment in our technology and communications systems to support new opportunities and enhance security, privacy, and platform infrastructure. Our solution is hosted via cloud-based services and on a virtual private cloud with an ability to scale on demand. This allows us to quickly support our current and projected growth.
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.
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.
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.
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. Selectively pursue strategic acquisitions. 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 business.
Our DEEP Purple culture is a significant factor in our ability to attract and retain customers and to nimbly address opportunities in the rapidly changing healthcare sector. • Technology: Our technology helps us to deliver on our commitment to DEEP Purple.
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.
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, 2022, we administered 7.2 million HSAs, with balances totaling $19.6 billion, which we call HSA Assets, as well as 7.2 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, 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.
Our members utilize our platforms in a number of ways and in varying frequencies. For example, our members utilize our HSA platform to evaluate and pay healthcare bills through the member portal, which allows members to pay their healthcare providers, receive reimbursements and learn of savings opportunities for prescription drugs.
For example, our members utilize our HSA platform to evaluate and pay healthcare bills through the member portal, which allows members to pay their healthcare providers, receive reimbursements and learn of savings opportunities for prescription drugs.
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 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.
As of January 31, 2022, our platforms were integrated with 185 Network Partners, and we serve approximately 120,000 Clients. We have increased our share of the growing HSA market from 4% in December 2010 to 18% as of December 2021, measured by HSA Assets.
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.
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.
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.
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. We acquired several other technology platforms as part of the WageWorks Acquisition.
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.
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.
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.
Retention of our HSA members has been strong over time. Individually owned trust accounts, including HSAs, have inherently high switching costs, as switching requires a certain amount of effort on the part of the account holder and may result in closure fees.
Individually owned trust accounts, including HSAs, have inherently high switching costs, as switching requires a certain amount of effort on the part of the account holder and may result in closure fees.
On April 27, 2021, we signed an agreement to acquire 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. This acquisition closed on September 29, 2021. 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. Further acquisition.
With our CDB capabilities, we can provide employers with a single partner for both HSAs and complementary CDBs, which is preferred by the vast majority of employers, according to research conducted for us by Aite Group.
Our Clients and their benefits advisors increasingly seek HSA providers that can deliver an integrated offering of HSAs and complementary CDBs. With our CDB capabilities, we can provide employers with a single partner for both HSAs and complementary CDBs, which is preferred by the vast majority of employers, according to research conducted for us by Aite Group.
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 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.
HealthEquity strives to administer the program in a manner that is applied consistently, equitably, and free of discrimination, as follows: • Maintaining competitive pay by reviewing market data annually; • Ensuring that similar jobs are paid equitably across the organization; • 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; and • Complying with all applicable federal, state, and local laws and requirements.
On September 7, 2021, we signed an amended agreement to acquire the Further business (other than Further's voluntary employee beneficiary association business), a leading provider of HSA and other CDB administration services, with approximately 580,000 HSAs and $1.9 billion of HSA Assets, for $455 million in cash (the "Further Acquisition"). This acquisition closed on November 1, 2021.
In November 2021, we acquired the Further business (other than Further's voluntary employee beneficiary association business), a leading provider of HSA and other CDB administration services, with approximately 580,000 HSAs and $1.9 billion of HSA Assets, for $455 million in cash (the "Further Acquisition"). HealthSavings HSA portfolio acquisition. In March 2022, we acquired the Health Savings Administrators, L.L.C.
Scores are calculated by subtracting the percentage of detractors from the percentage of promoters (the percentage of passives is not used in the formula). Team member NPS scores can range from -100 to 100. As of January 31, 2022, our team member NPS was 37, based on a participation rate of 89 percent.
Scores are calculated by subtracting the percentage of detractors from the percentage of promoters (the percentage of passives is not used in the formula). Team member NPS scores can range from -100 to 100.
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. 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.
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.
Our leadership position is evidenced by the increase in our market share (measured by HSA Assets), from 4% in December 2010 to 18% in December 2021, as noted by the 2021 Devenir HSA Research Report, which indicates we are the second largest HSA custodian by market share measured by HSA Assets. Complete solution for managing consumer healthcare saving and spending.
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.
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. Proprietary and integrated technology solution.
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.
Out of all responders, 55 percent were promoters, 27 percent were passives, and 18 percent were detractors. -11- Table of Contents "NPS ® " is a registered trademark of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.
Out of all responders, 58 percent were promoters, an increase of 3% year over year, 26 percent were passives, a decrease of 1% year over year, and 16 percent were detractors, a decrease of 2% year over year. NPS ® is a registered trademark of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.
HealthSavings HSA portfolio acquisition. On December 4, 2021, we signed an agreement to acquire the Health Savings Administrators, L.L.C. (“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. This acquisition closed on March 2, 2022. Our products and services Technology platforms.
(“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.
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. Bundled solution for HSAs and 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.
We employ individuals who provide real-time assistance to our members via telephone, email, or chat. • Customer service and education: As a key part of our strategy and commitment to DEEP Purple, our team members work directly with our Network Partners 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 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.
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. Scalable operating model. We believe that our model is scalable because our services are accessed primarily through our cloud-based technology platforms.
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.
We handle the accounting and customer services for such terminated employees, as well as interfacing with the carrier regarding the employees’ eligibility for participation in the COBRA program.
We handle the accounting and customer services for such terminated employees, as well as interfacing with the carrier regarding the employees’ eligibility for participation in the COBRA program. Commuter Programs. We administer pre-tax commuter benefit programs. Employers are permitted to provide employees with commuter benefits including qualified transit (which includes vanpooling) and parking.
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. We earn service revenue mainly from fees paid by Clients on a recurring per-account per-month basis.
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.
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.
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.
After initial on-boarding and a period of education, our service costs for any given customer typically decline over time. Our opportunity to earn high-margin revenue from existing HSA members grows over time because our HSA members’ balances typically grow, increasing custodial revenue without significant incremental cost to us. Strong customer retention rates .
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.
We have a proprietary cloud-based technology solution, developed and refined during more than a decade of operations and acquired through the WageWorks Acquisition, which we believe is differentiated in the marketplace for a number of key reasons: • Purpose-built technology: Our solution was designed specifically to serve the needs of healthcare consumers, health plans and employers.
We have a proprietary cloud-based technology solution, developed and refined during more than a decade of operations, which we believe is differentiated in the marketplace for a number of key reasons: • Complete solution for managing consumer healthcare saving and spending: Our members utilize our technology platforms in a number of ways and in varying frequencies.
We earn custodial revenue mainly from HSA Assets held at our members’ direction in federally insured cash deposits, insurance contracts or mutual funds, and from investment of Client-held funds. We earn interchange revenue mainly from fees paid by merchants on payments that our members make using our physical payment cards and on our virtual payment system.
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.
We tailor the content of our platforms and the guidance of our experts to be timely, personal, and relevant to each member. For example, our technology generates health savings strategies that are delivered to our members when they interact with our platforms or call us.
We tailor the content of our technology platforms and the guidance of our experts to be timely, personal, and relevant to each member.
As January 31, 2022, our team members had the following demographic characteristics: Executive Leadership Team People Leaders All HealthEquity Team Members Women 29 % 54 % 68 % Men 71 % 46 % 32 % Under age 30 0 % 5 % 18 % Between ages 30 and 50 43 % 63 % 56 % Over age 50 57 % 32 % 26 % People of color 14 % 22 % 34 % Diversity and inclusion As an employer, we celebrate the diversity of our team members and strive for consistent inclusion.
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.
We believe this provides an advantage relative to legacy competitors whom we believe prioritize transaction processing and benefits administration. • Culture: We call our culture “DEEP Purple,” which we define as driving excellence, ethics, and process while providing remarkable service.
We believe this provides an advantage relative to legacy competitors, which we believe prioritize transaction processing and benefits administration. • Culture: We call our culture "Purple," which we define by our four Purple values — Do the Right Thing, Be Remarkable, Make a Difference, and Celebrate People.
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. Department of Treasury to act as a passive non-bank custodian, which allows HealthEquity, Inc. to hold custodial assets for individual account holders.
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.
Various states also have laws and regulations that impose additional restrictions on our collection, storage, and use of personally identifiable information.
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.
We believe that our DEEP Purple culture is a key differentiator that drives the success of our company through, among other things, attracting and retaining top talent. DEEP Purple is the essence of our company, and we invest a lot of time and energy to support and maintain it.
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.
We are working to phase out certain technology platforms that we acquired in the WageWorks Acquisition, which requires us to migrate certain Clients to one of our remaining technology platforms. We expect to complete these migrations during the fiscal year ending January 31, 2023. Health savings accounts.
As of January 31, 2023, we had substantially completed our efforts to phase out certain technology platforms that we acquired in the acquisition of our wholly owned subsidiary, WageWorks, Inc. (the "WageWorks Acquisition"), and migrate the associated clients to one of our other technology platforms.
See “Key components of our results of operations” for additional information on our sources of revenue, including the adverse impacts caused by the ongoing COVID-19 pandemic. Recent acquisitions WageWorks acquisition. On August 30, 2019, we completed our acquisition of WageWorks, Inc.
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 are the largest custodian and administrator of HSAs (by number of accounts), as well as a market-share leader in each of the major categories of complementary CDBs, including FSAs and HRAs, COBRA and commuter benefits administration. Our Clients and their benefits advisors increasingly seek HSA providers that can deliver an integrated offering of HSAs and complementary CDBs.
We employ individuals who provide real-time assistance to our members via telephone, email, or chat. Bundled solution for HSAs and complementary CDBs. We are a market-share leader in each of the major categories of complementary CDBs, including FSAs and HRAs, COBRA and commuter benefits administration.
As of January 31, 2022, we had 3,688 full-time team members and 27 part-time team members, including 2,297 in service delivery, 655 in technology and development, and 763 in sales and marketing, and general and administrative positions.
As of January 31, 2023, we had 3,170 full-time team members and 38 part-time team members.
In addition, numerous indirect competitors, including benefits administration service providers, partner with banks and other HSA custodians to compete with us. Our Network Partners may also choose to offer competitive services directly, as some health plans have done. Our success depends on our ability to predict and react quickly to these and other industry and competitive dynamics.
Our Network Partners may also choose to offer competitive services directly, as some health plans have done.
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Our commuter benefits offering also leverages connectivity to an ecosystem of mass transit, ride hailing, and parking providers. These strengths reflect our “DEEP Purple” culture of remarkable service to customers and teammates, achieved by driving excellence, ethics, and process into everything we do.
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We earn service revenue mainly from fees paid by our Network Partners, Clients, and members for the administration services we provide in connection with the HSAs and other CDBs we offer.
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(the "WageWorks Acquisition") and paid approximately $2.0 billion in cash to WageWorks stockholders, financed through net borrowings of approximately $1.22 billion under our prior term loan facility and approximately $816.9 million of cash on hand.
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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.
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The key strategy of the WageWorks Acquisition was to enable us to increase the number of our employer sales opportunities, the conversion of these opportunities to Clients, and the value of Clients in generating members, HSA Assets and complementary CDBs.
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Our CDB administration competitors include health insurance carriers, human resources consultants and outsourcers, payroll providers, national CDB specialists, regional third-party administrators, and commercial banks. In addition, numerous indirect competitors, including benefits administration service providers, partner with banks and other HSA custodians to compete with us.
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WageWorks’ historic strength of selling to employers directly and through health -2- Table of Contents benefits brokers and advisors complemented our distribution through Network Partners. With WageWorks’ CDB capabilities, we provide employers with a single partner for both HSAs and other CDBs, which is preferred by the vast majority of employers according to research conducted for us by Aite Group.
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Our success depends on our ability to predict and react quickly to these and other industry and competitive dynamics. -5- Table of Contents As a result of the societal and economic changes arising out of the COVID-19 pandemic, we have seen a significant decline in the use of commuter benefits due to many of our members working from home, which has negatively impacted both our interchange revenue and service revenue, and this "work from home" trend, or hybrid work environments, may continue indefinitely.
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For Clients that partner with us in this way, we believe we can produce more value by encouraging both CDB participants to contribute to HSAs and HSA-only members to take advantage of tax savings available through other CDBs.
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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.
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As of January 31, 2022, we had substantially completed our multi-year integration effort and achieved approximately $80 million in annualized ongoing net synergies. We anticipate generating additional revenue synergies over the longer-term as our combined distribution channels and existing client base take advantage of the broader service offerings and as we continue to drive member engagement. Luum acquisition.
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We believe that our model is scalable because our services are accessed primarily through our cloud-based technology platforms. After initial on-boarding and a period of education, our service costs for any given customer typically decline over time.
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These additional technology platforms are designed to be highly scalable based on an on-demand delivery model that Clients and members may access through a standard web browser on any internet-enabled device, including computers, smart phones, and other mobile devices such as tablet computers.
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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.
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Our on-demand delivery model for these platforms eliminates the need for our Clients to install and maintain hardware and software in order to support CDB programs and enables us to rapidly implement product enhancements across our entire user base.
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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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

101 edited+18 added−56 removed150 unchanged
Biggest changeFinancing 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. -14- Table of Contents General Risk Factors • Our ability to secure insurance may not be sufficient to cover potential liabilities. • Natural disasters, pandemics or other epidemics (including the current COVID-19 pandemic), acts of terrorism, acts of war and other unforeseen events may cause damage or disruption to us or our customers. • Our quarterly operating results may fluctuate significantly from period to period, which could adversely impact the value of our common stock. • We do not intend to pay regular cash dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock. • Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable. • The exclusive forum provision in our amended and restated certificate of incorporation could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or team members.
Biggest changeFinancing 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.
Our direct HSA competitors are HSA custodians and administrators that include state or federally chartered banks, such as Webster and Optum Bank, insurance companies, well-known retail investment companies, such as Fidelity Investments, and non-bank custodians approved by the U.S. Treasury.
Our direct HSA competitors are HSA custodians and administrators that include state or federally chartered banks, such as Webster Bank and Optum Bank, insurance companies, well-known retail investment companies, such as Fidelity Investments, and non-bank custodians approved by the U.S. Treasury.
If we are unable to meet or exceed the net worth test required by the IRS, we could be unable to maintain our non-bank custodian status. As a non-bank custodian, we are required to comply with Treasury Regulations Section 1.408-2(e), or the Treasury Regulations, including the net worth requirements set forth therein.
If we are unable to meet or exceed the net worth test required by the IRS, we could be unable to maintain our non-bank custodian status. As a non-bank custodian, we are required to comply with Treasury Regulations Section 1.408-2(e), including the net worth requirements set forth therein.
In the provision of services to our customers, we and our third-party vendors may 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 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.
Increased focus on HSA-favorable healthcare regulatory reforms may create renewed interest and investment by our competitors in their HSA offerings and lead to greater competition, which could make it harder for us to maintain our growth trajectory.
An increased focus on HSA-favorable healthcare regulatory reforms may create renewed interest and investment by our competitors in their HSA offerings and lead to greater competition, which could make it harder for us to maintain our growth trajectory.
Our business depends on our Network Partners’ willingness to partner with us to offer their customers and/or employees our products and services. In particular, certain of our Network Partners enjoy significant market share in various geographic regions.
Our business increasingly depends on our Network Partners’ willingness to partner with us to offer their customers and/or employees our products and services. In particular, certain of our Network Partners enjoy significant market share in various geographic regions.
The CCPA 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.
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.
Legal and regulatory risks • The healthcare regulatory and political framework is uncertain and evolving, and we cannot predict the effect that further healthcare reform and other changes in government programs may have on our business, financial condition, or results of operations. • Changes in applicable federal and state laws relating to HSAs and other CDBs could materially adversely affect our business. • We are subject to privacy regulations, including regarding the access, use, and disclosure of personally identifiable information.
Legal and regulatory risks • The healthcare regulatory and political framework is uncertain and evolving, and we cannot predict the effect that further healthcare reform and other changes in government programs may have on our business, financial condition, or results of operations. -12- Table of Contents • Changes in applicable federal and state laws relating to HSAs and other CDBs could materially adversely affect our business. • We are subject to privacy regulations, including regarding the access, use, and disclosure of personally identifiable information.
Acquisitions also increase the risk of unforeseen legal liability, including for potential violations of applicable law or industry rules and regulations, arising from prior or ongoing acts or omissions by the acquired businesses which are not discovered by due diligence during the acquisition process.
Acquisitions also increase the risk of unforeseen legal liability, including for potential violations of applicable law or industry rules and regulations, arising from prior or ongoing acts or omissions by the acquired businesses that are not discovered by due diligence during the acquisition process.
Growth-related risks • We may not be able to operate, integrate, and scale our technology effectively to match our business growth. • Failure to manage future growth effectively could have a material adverse effect on our business, financial condition, and results of operations. • We may not accurately estimate the impact on our business of developing, introducing, and updating new and existing products and services. • We may need to record write-downs from future impairments of identified intangible assets and goodwill.
Growth-related risks • Our acquisition strategy may not be successful. • We may not be able to operate, integrate, and scale our technology effectively to match our business growth. • Failure to manage future growth effectively could have a material adverse effect on our business, financial condition, and results of operations. • We may not accurately estimate the impact on our business of developing, introducing, and updating new and existing products and services. • We may need to record write-downs from future impairments of identified intangible assets and goodwill.
We have in the past acquired, and, as a key part of our strategy, seek to acquire or invest in, assets, businesses, products, or technologies that we believe could complement or expand our products and services, enhance our technical capabilities, or otherwise offer growth opportunities.
We have in the past acquired, and, as a key part of our strategy, seek to acquire or invest in, assets, businesses, products, or technologies that we believe would complement or expand our products and services, enhance our technical capabilities, or otherwise offer growth opportunities.
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. -18- Table of Contents 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. Well-known retail mutual fund companies, such as Fidelity Investments, have entered the HSA and CDB business and gained significant market share.
As a result, some of these competitors may be in a position to devote greater resources to the development, promotion, sale, and support of their products and services and have offered, or may in the future offer, a wider range of products and services that are increasingly desired by potential customers, and they may also use advertising and marketing strategies (including loss-leaders) that achieve broader brand recognition or acceptance.
As a result, some of these competitors are in a position to devote greater resources to the development, promotion, sale, and support of their products and services and have offered, or may in the future offer, a wider range of products and services that are increasingly desired by potential customers, and they have also used advertising and marketing strategies (including loss-leaders) that achieve broader brand recognition or acceptance.
Any disruption of service at our facilities or our third-party data centers 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.
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.
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 -22- Table of Contents 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 test systems, and change management and system security measures, but our precautions may not protect against all potential problems.
The 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 could increase if interest rates increase because any outstanding borrowings under our Credit Facilities will be 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 -29- Table of Contents 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.
The 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.
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%, 15%, and 16% of our total revenue during the fiscal years ended January 31, 2022, 2021, and 2020, 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 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.
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.
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.
If our business does not continue to grow or if we fail to effectively manage any future growth, our business, financial condition, and results of operations could be materially and adversely affected. -28- Table of Contents We may not accurately estimate the impact on our business of developing, introducing, and updating new and existing products and services.
If our business does not continue to grow or if we fail to effectively manage any future growth, our business, financial condition, and results of operations could be materially and adversely affected. We may not accurately estimate the impact on our business of developing, introducing, and updating new and existing products and services.
Integration of our acquisitions could take longer than anticipated and could result in the loss of key team members, the disruption of our ongoing business and the acquired business, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with team members, Clients, Network Partners or other third parties, and could harm our financial performance.
Integration of our acquisitions could take longer and be more costly than anticipated, and it could result in the loss of key team members, the disruption of our ongoing business and the acquired business, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with team members, Clients, Network Partners or other third parties, and could harm our financial performance.
We rely on a combination of trademark and copyright laws, trade secret protection, and confidentiality and license agreements to protect the intellectual property rights related to our products and services such as our technology platforms, applications and the content on our website. We also rely on intellectual property licensed from third parties.
We rely on a combination of trademark and copyright laws, trade secret protection, and confidentiality and license agreements to protect the intellectual property rights related to our products and services such as our technology platforms, applications and the content on our website. We also rely on intellectual property licensed from third -20- Table of Contents parties.
Our facilities and our third-party data centers 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.
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.
If our customers do not use these payment cards at the rate we expect, if they elect to withdraw funds using a non-revenue generating mechanism such as direct reimbursement, if the impacts of the COVID-19 pandemic continue, or if other alternatives to these payment cards develop, our results of operations, business, and prospects would be materially adversely affected.
If our customers do not use these payment cards at the rate we expect, if they elect to withdraw funds using a non-revenue generating mechanism such as direct reimbursement, if the impacts of societal changes arising out of the COVID-19 pandemic continue, or if other alternatives to these payment cards develop, our results of operations, business, and prospects would be materially adversely affected.
A transition to a new vendor could take 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 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.
These fees represent a percentage of the expenses transacted on each card. The COVID-19 pandemic has had a materially adverse impact on the interchange fees generated due to decreased usage of our payment cards in our commuter product and in healthcare spending.
These fees represent a percentage of the expenses transacted on each card. For example, the COVID-19 pandemic had a materially adverse impact on the interchange fees generated due to decreased usage of our payment cards in our commuter product and in healthcare spending.
As a result of any such dispute, we may have to: • develop non-infringing technology; • pay damages; • enter into royalty or licensing agreements; -23- Table of Contents • cease providing certain products or services; or • take other actions to resolve the claims.
As a result of any such dispute, we may have to: • develop non-infringing technology; • pay damages; • enter into royalty or licensing agreements; • cease providing certain products or services; or • take other actions to resolve the claims.
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, 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 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.
Our other CDB administration competitors include health insurance carriers, human resources consultants and outsourcers, payroll providers, national CDB specialists, regional third-party administrators, and commercial banks, and these competitors may enter the HSA market or expand existing HSA offerings to compete with us.
Our other CDB administration competitors include health insurance carriers, human resources consultants and outsourcers, payroll providers, national CDB specialists, regional third-party administrators, and commercial banks, and these competitors have entered, and others may also enter, the HSA market or expand existing HSA offerings to compete with us.
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.
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.
We may make our members whole for losses sustained when using our payment cards, even in instances where we are not directly responsible -21- Table of Contents for the underlying cause of such loss.
We may make our members whole for losses sustained when using our payment cards, even in instances where we are not directly responsible for the underlying cause of such loss.
Failure to adequately place and safeguard our custodial assets, 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 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.
Such requirements relate to, among other things, fiduciary duties to clients, disclosure obligations, recordkeeping and reporting requirements, marketing restrictions, limitations on agency cross and principal transactions between the adviser and its clients, and general -26- Table of Contents anti-fraud prohibitions.
Such requirements relate to, among other things, fiduciary duties to clients, disclosure obligations, recordkeeping and reporting requirements, marketing restrictions, limitations on agency cross and principal transactions between the adviser and its clients, and general anti-fraud prohibitions.
Our consolidated balance sheet includes significant intangible assets, including approximately $1.65 billion in goodwill and $973.1 million in intangible assets, together representing approximately 84% of our total assets as of January 31, 2022. 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 $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.
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 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.
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, 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.
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 • The COVID-19 pandemic has materially impacted our business and this impact may continue. • Our acquisition strategy and the integration of our recent and future acquisitions may not be successful. • Our management has identified material weaknesses in our internal control over financial reporting that could adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner. • 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, 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. • A decline in interest rate levels, including an environment of negative interest rates, may 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. • If our members do not continue to utilize our payment cards, our results of operations, business, and prospects would be materially adversely affected.
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.
Data security, technological, and intellectual property risks • Cyber-attacks, including ransomware attacks, or other privacy or data security incidents could materially adversely impact our business. • Fraudulent and other illegal activity involving our products and services could lead to financial and reputational damage to us and reduce the use and acceptance of our products and services. • We rely on software licensed from third parties that may be difficult to replace or that could cause errors or failures of our technology platforms that could lead to lost customers or harm to our reputation. • 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. • Any disruption of service at our facilities or our third-party data centers could interrupt or delay our customers’ access to our products and services. • Interruption or failure of our information technology and communications systems could impair our ability to effectively deliver our products and services. -13- Table of Contents • Our technology platforms may link to or utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business. • Failure to adequately protect our brands and other intellectual property rights, and infringement of the intellectual property rights of others, would negatively impact our business. • If we are unable to promote our brands effectively, our business may suffer. • Confidentiality arrangements with team members and others may not adequately prevent disclosure of trade secrets and other proprietary information.
Data security, technological, and intellectual property risks • Cyber-attacks, including ransomware attacks, or other privacy or data security incidents could materially adversely impact our business. • Fraudulent and other illegal activity involving our products and services could lead to financial and reputational damage to us and reduce the use and acceptance of our products and services. • We rely on software licensed from third parties that may be difficult to replace or that could cause errors or failures of our technology platforms that could lead to lost customers or harm to our reputation. • 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. • Any disruption of service at our facilities or our third-party data centers and cloud providers could interrupt or delay our customers’ access to our products and services. • Interruption or failure of our information technology and communications systems could impair our ability to effectively deliver our products and services. • Our technology platforms may link to or utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business. • Failure to adequately protect our brands and other intellectual property rights, and infringement of the intellectual property rights of others, would negatively impact our business.
Our competitors may also establish or strengthen cooperative relationships with our current or future Network Partners or other strategic partners, thereby limiting our ability to promote our solution with these parties.
Our competitors have and may continue to establish or strengthen cooperative relationships with our current or future Network Partners or other strategic partners, thereby limiting our ability to promote our solution with these parties.
Even if we can secure our systems against these activities, we are vulnerable through third parties. We rely upon third parties for some transaction processing services, data feeds, and vendors, which subjects us to risks related to the vulnerabilities of those third parties.
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.
This software 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 delays in 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, which would likely take a significant amount of time and harm our business.
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 may divert internal resources and take 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. Compliance with regulatory requirements requires resources and takes significant time and effort.
We may also be unable to establish comparable new third-party relationships on as favorable terms or at all, which could materially and adversely affect our business, financial condition, and results of operations.
We may also be unable to establish comparable new third-party relationships on as favorable terms or at all, which could materially and adversely affect our business, financial condition, and results of operations. Growth-related risks Our acquisition strategy may not be successful.
If we were required to change BIN sponsors, we could not accurately predict the success of such change or that the terms of our agreement with a new BIN sponsor would be as favorable to us, especially in light of the regulatory scrutiny of the payment card industry, which has rendered the market for BIN sponsor services less competitive. -27- Table of Contents Replacing our third-party vendors would be difficult and disruptive to our business.
If we were required to change BIN sponsors, we could not accurately predict the success of such change or that the terms of our agreement with a new BIN sponsor would be as favorable to us, especially in light of the regulatory scrutiny of the payment card industry, which has rendered the market for BIN sponsor services less competitive.
To fund our expanding business and growth strategy, we must have sufficient working capital to continue to make significant investments in our service offerings, advertising, technology, and other activities.
We may be unable to generate or obtain sufficient capital to fund our business and growth strategy. To fund our expanding business and growth strategy, we must have sufficient working capital to continue to make significant investments in our service offerings, advertising, technology, and other activities.
The success of our acquisitions will depend in part on our ability to realize the anticipated business opportunities from combining the operations of these businesses with our business in an efficient and effective manner.
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 pursuit of potential acquisitions may divert the attention of management and cause us to incur -15- Table of Contents various expenses related to identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.
The pursuit of potential acquisitions has in the past, and may in the future, divert the attention of management and cause us to incur various expenses related to identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.
Any unscheduled interruption in our service could negatively impact our financial results. In addition, our insurance policies provide only limited coverage for service interruptions and may not adequately compensate us for any losses that may occur due to any failures or interruptions in our systems.
In addition, our insurance policies provide only limited coverage for service interruptions and may not adequately compensate us for any losses that may occur due to any failures or interruptions in our systems.
Privacy regulation has become a priority issue in many states, and as such the regulatory environment is continually changing. For example, the California Consumer Privacy Act ("CCPA") became effective on January 1, 2020.
Privacy regulation has become a priority issue in many states, and as such the regulatory environment is continually changing. For example, the CPRA became effective on January 1, 2023.
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.
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.
In certain geographies, we have multiple Network Partners that may be competing against each other for the same business, which may result in our inability to bid for certain business or could result in us upsetting a Network Partner that we choose not to partner with in a certain bid or that expects us to bid exclusively with them.
In other geographies, we have multiple Network Partners that compete against each other for the same business, which at times results in our inability to bid for certain business or in us upsetting a Network Partner that we choose not to partner with in a certain bid or that expects us to bid exclusively with them.
As we continue to grow, including through the integration of team members joining us through our acquisitions, we have found it difficult to maintain these important aspects of our corporate culture.
As we continue to grow, including through the integration of team members joining us through our acquisitions, we have found it difficult to maintain these important aspects of our corporate culture. In addition, it is difficult to instill our culture in our now predominantly remote workforce.
Accordingly, we must continue to develop new and updated applications, features, and services, and maintain existing applications, features, and services.
Accordingly, we are continuing to develop new and updated applications, features, and services, and maintain existing applications, features, and services.
The loss of our intellectual property or the inability to secure or enforce our intellectual property rights or to defend successfully against an infringement action could harm our business, results of operations, financial condition, and prospects. If we are unable to promote our brands effectively, our business may suffer.
The loss of our intellectual property or the inability to secure or enforce our intellectual property rights or to defend successfully against an infringement action could harm our business, results of operations, financial condition, and prospects.
Changes to the regulatory landscape impacting our products may require substantial time and costs for us to ensure our products are compliant. For example, regulatory changes related to our FSA and COBRA products enacted in the wake of the COVID-19 pandemic created uncertainty and additional workload on our team members and resulted in additional costs.
For example, regulatory changes related to our FSA and COBRA products enacted in the wake of the COVID-19 pandemic created uncertainty and additional workload on our team members and resulted in additional costs.
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. -25- Table of Contents Legislative, regulatory, and legal developments involving taxes could adversely affect our results of operations and cash flows.
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.
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).
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).
Interruptions in our service could negatively impact our financial results, and our reputation could be damaged if our systems are viewed as unreliable. Our systems and operations are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires, power loss, break-ins, hardware or software failures, telecommunications failures, computer viruses or other attempts to harm our systems, and similar events.
Our systems and operations are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires, power loss, break-ins, hardware or software failures, failures from third-party vendors who support our systems and operations, telecommunications failures, computer viruses or other attempts to harm our systems, and similar events. Any unscheduled interruption in our service could negatively impact our financial results.
As of January 31, 2022, we had approximately 7.2 million HSAs and $19.6 billion in HSA assets representing growth of 25% and 37%, respectively, from January 31, 2021. 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, 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.
For example, the Credit Agreement may make it more challenging to incur additional debt, as it includes prohibitions against incurring additional debt without approval from our existing lenders, and other lenders may not be willing to take on the risk of adding to our existing leverage, In addition, debt financing increases expenses, may contain additional covenants that restrict the operation of our business and must be repaid regardless of operating results.
For example, the Credit Agreement may make it more challenging to incur additional debt, as it includes prohibitions against incurring additional debt without approval from our existing lenders, and other lenders may not be willing to take on the risk of adding to our existing leverage.
Item 1A. Risk factors You should carefully consider the risks described below together with the other information set forth in this Annual Report on Form 10-K, which could materially affect our business, financial condition, and future results. The risks described below are not the only risks facing our company.
Item 1A. Risk factors You should carefully consider the risks described below together with the other information set forth in this Annual Report on Form 10-K. If any of the risks described below are realized, our business, financial condition, results of operations, and prospects could be materially and adversely affected.
We partner with our depository and insurance company partners to hold our HSA Assets and other Client-held funds. We earn a significant portion of our consolidated revenue from fees we earn from our depository and insurance company partners, approximately 27%, 26%, and 34% during the fiscal years ended January 31, 2022, 2021, and 2020, respectively.
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.
The extent to which the COVID-19 pandemic will continue to negatively impact our business remains highly uncertain and, as a result, may continue to have a material and adverse impact on our business and financial results. Our acquisition strategy and the integration of our recent and future acquisitions may not be successful.
The extent to which the COVID-19 pandemic and the societal and economic changes arising out of the pandemic will continue to negatively impact our business remains highly uncertain and, as a result, may continue to have a material and adverse impact on our business and financial results.
Such penalties or reductions, if imposed, could have a material and adverse impact on our business, financial condition and results of operations. In addition, certain of our insurance company partners have commitments to us with respect to the interest rates paid; however, some of these commitments are conditional upon certain market events and/or satisfaction of our obligations to the partner.
In addition, certain of our insurance company partners have commitments to us with respect to the interest rates paid; however, some of these commitments are conditional upon certain market events and/or satisfaction of our obligations to the partner.
Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results. If any of the following risks are realized, our business, financial condition, results of operations, and prospects could be materially and adversely affected.
The risks described below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results.
We cannot provide assurance that, if the indebtedness under our Credit Facilities or the Notes were to be accelerated, our assets would be sufficient to repay in full that indebtedness and our other indebtedness.
We cannot provide assurance that, if the indebtedness under our Credit Facilities or the Notes were to be accelerated, our assets would be sufficient to repay in full that indebtedness and our other indebtedness. If not cured or waived, such acceleration could have a material adverse effect on our business and our prospects.
Risks relating to our business and industry The COVID-19 pandemic has materially impacted our business and this impact may continue. Our business has been, and may continue to be, materially and adversely affected by the COVID-19 pandemic.
The COVID-19 pandemic and resulting societal and economic changes has materially impacted our business and this impact may continue. Our business has been adversely affected by the COVID-19 pandemic, and we may continue to be adversely affected by the societal and economic changes arising out of the pandemic.
Our inability to generate or obtain the financial resources needed to fund our business and growth strategies may require us to delay, scale back or eliminate some or all of our operations or the expansion of our business, which may have a material adverse effect on our business, operating results, financial condition, and prospects.
Our inability to generate or obtain the financial resources needed to fund our business and growth strategies may require us to delay, scale back or eliminate some or all of our operations or the expansion of our business, which may have a material adverse effect on our business, operating results, financial condition, and prospects. -28- Table of Contents General risk factors Natural disasters, pandemics or other epidemics, acts of terrorism, acts of war, adverse economic conditions, and other unforeseen events, may cause damage or disruption to us or our customers.
A decline in prevailing interest rates, such as the current low interest rate environment due to the COVID-19 pandemic, or a negative interest rate environment, has and may continue to negatively affect our business by reducing 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. A negative interest rate environment would also reduce the yield we realize on our HSA Assets and other Client-held funds.
Such security breaches could compromise our networks and result in the information stored or transmitted there to be accessed, publicly disclosed, lost, or stolen.
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.
If we are not able to achieve these objectives and realize the anticipated synergies expected from these acquisitions within the anticipated timing or at all, our business, financial condition, and operating results may be adversely affected. The Further business is being carved out from the operations of its parent company.
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.
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.
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.
Our success depends, in part, on the skills, working relationships and continued services of our executive leadership team and other key personnel.
We rely on our management team and team members and our business could be harmed if we are unable to retain qualified personnel. Our success depends, in part, on the skills, working relationships and continued services of our executive leadership team and other key personnel.
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.
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.
If we fail to comply with those minimum HSA Asset requirements, including as a result of withdrawals by our members, we may be subject to penalties payable to our partners or a reduction in the interest payable. These requirements accordingly restrict our ability to quickly terminate our arrangements with these partners and remove our HSA Assets.
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.
In addition to any potential penalties payable, if we were required to change depository or insurance company partners, we cannot accurately predict the success of such change or that the terms of our agreement with the new partner would be as favorable to us as our current agreements. -17- Table of Contents A decline in interest rate levels, including an environment of negative interest rates, may reduce our ability to earn income on our HSA Assets and Client-held funds and to attract HSA contributions.
In addition to any potential penalties payable, if we were required to change depository or insurance company partners, we cannot accurately predict the success of such change or that the terms of our agreement with the new partner would be as favorable to us as our current agreements. -14- Table of Contents Integration of our recent acquisitions may not be successful.
We may be unable to meet our service level commitments to our Clients as a result of disruptions to our work force and disruptions to third-party contractors that we rely on to provide our services.
Outbreaks of new COVID-19 variants or other future pandemics may result in us being unable to meet our service level commitments to our Clients and Network Partners as a result of disruptions to our workforce and disruptions to third-party contractors that we rely on to provide our services.
For example, competition for qualified personnel in our field and geographic markets is intense due to the limited number of individuals who possess the skills and experience required by our industry, particularly in the technology-related fields.
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.
Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. -24- Table of Contents Legal and regulatory risks The healthcare regulatory and political framework is uncertain and evolving, and we cannot predict the effect that further healthcare reform and other changes in government programs may have on our business, financial condition, or results of operations.
Legal and regulatory risks The healthcare regulatory and political framework is uncertain and evolving, and we cannot predict the effect that further healthcare reform and other changes in government programs may have on our business, financial condition, or results of operations.
Natural disasters, pandemics or other epidemics (including the current COVID-19 pandemic) acts of war (including the current war between Russia and Ukraine), terrorist attacks, and the escalation of military activity in response to such attacks or otherwise may have negative and significant effects, such as imposition of increased security measures, changes in applicable laws, market disruptions, and job losses.
Natural disasters, pandemics or other epidemics, acts of war (including the current war between Russia and Ukraine), terrorist attacks, the escalation of military activity in response to such attacks, adverse economic conditions (including the recent increase in inflation and its impact on our labor and third-party vendor costs), or otherwise may have negative and significant effects, such as imposition of increased security measures, changes in applicable laws, market disruptions, increased costs to operate our business, reduced economic activity among our clients, and job losses, which could in turn have a material adverse effect on our business, financial condition, and results of operations.
The full impact of healthcare reform and other changes in the healthcare industry and in healthcare spending is unknown and may be affected by President Biden's administration and a Democratically controlled Congress. Accordingly, we are unable to predict what effect healthcare reform measures will have on our business.
The full impact of healthcare reform and other changes in the healthcare industry and in healthcare spending is unknown. Accordingly, we are unable to predict what effect healthcare reform measures will have on our business. Changes in applicable federal and state laws relating to HSAs and other CDBs could materially adversely affect our business.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 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, New York, Texas, Wisconsin, and Washington.
Biggest changeItem 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.
However, since a majority of our work force 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.
However, 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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal proceedings From time-to-time, we may be subject to various legal proceedings and claims that arise in the normal course of our business activities. Our wholly owned subsidiary, WageWorks, is party to certain pending material litigation and other legal proceedings.
Biggest changeItem 3. Legal proceedings From time-to-time, we may be subject to various legal proceedings and claims that arise in the normal course of our business activities. Our wholly owned subsidiary, WageWorks, is party to certain pending material litigation.
Except 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.
Except 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 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, 2022, there were 16 holders of record of our common stock.
Biggest changeItem 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.
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. -33- 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. -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.
The chart assumes $100 was invested on January 31, 2017 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.
The 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.
Purchases of equity securities by the issuer and affiliated purchasers None. -34- Table of Contents Item 6. Reserved
Purchases of equity securities by the issuer and affiliated purchasers None. -32- Table of Contents Item 6. Reserved
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, 2017 through January 31, 2022.
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.

Item 7. Management's Discussion & Analysis

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

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Biggest changeWe have excluded the suspended commuter accounts from our account totals because they are currently not generating revenue for the Company. -39- Table of Contents HSA Assets The following table sets forth our HSA Assets as of and for the periods indicated: (in millions, except percentages) January 31, 2022 January 31, 2021 % Change HSA cash with yield (1) $ 12,934 $ 9,875 31 % HSA cash without yield (2) 9 244 (96) % Total HSA cash 12,943 10,119 28 % HSA investments with yield (1) 6,668 4,078 64 % HSA investments without yield (2) 7 138 (95) % Total HSA investments 6,675 4,216 58 % Total HSA Assets 19,618 14,335 37 % Average daily HSA cash with yield - Year-to-date 10,465 8,599 22 % Average daily HSA cash with yield - Quarter-to-date $ 12,084 $ 9,060 33 % (1) HSA Assets that generate custodial revenue.
Biggest changeHSA 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.
As part of our services, we and our subsidiaries provide consumers with healthcare bill evaluation and payment processing services, personalized benefit information, including information on treatment options and comparative pricing, access to remote and telemedicine benefits, the ability to earn wellness incentives, and investment advice to grow their tax-advantaged healthcare savings.
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.
Other income (expense), net Other income (expense), net, consists of acquisition costs, interest income earned on corporate cash and other miscellaneous income and expense. Income tax provision (benefit) We are subject to federal and state income taxes in the United States based on a January 31 fiscal year end.
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.
We expect merger integration expenses attributable to the Further Acquisition totaling approximately $55 million to be incurred over a period of approximately three 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 three to four years from the acquisition date. HealthSavings HSA portfolio acquisition.
Unless otherwise specified in a prospectus supplement accompanying the base prospectus, we would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes, including, but not limited to, working capital, sales and marketing activities, general and administrative matters, capital expenditures, and repayment of indebtedness, and -46- Table of Contents if opportunities arise, for the acquisition of, or investment in, assets, technologies, solutions or businesses that complement our business.
Unless otherwise specified in a prospectus supplement accompanying the base prospectus, we would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes, including, but not limited to, working capital, sales and marketing activities, general and administrative matters, capital expenditures, and repayment of indebtedness, and if opportunities arise, for the acquisition of, or investment in, assets, technologies, solutions or businesses that complement our business.
Results of operations For a discussion related to the results of operations and liquidity and capital resources for fiscal year 2021 compared to fiscal year 2020, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal year 2021 Form 10-K, filed with the SEC on March 31, 2021.
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.
Technology and development expenses include personnel and related expenses for software development and delivery, licensed software, information technology, data management, product, and security. Technology and development expenses also include software engineering services, the costs of operating our on-demand technology infrastructure, depreciation, amortization of capitalized software development costs, stock-based compensation, and common expense allocations. General and administrative.
Technology and development expenses include personnel and related expenses for software development and delivery, licensed software, information technology, data management, product, and security. Technology and development expenses also include software engineering services, the costs of operating our technology infrastructure, depreciation, amortization of capitalized software development costs, stock-based compensation, and common expense allocations. General and administrative.
Our acquisition and integration strategy We have historically acquired HSA portfolios and businesses that strengthen our service offerings. We seek to continue this growth strategy and are regularly engaged in evaluating different opportunities. We have developed an internal capability to source, evaluate, and integrate acquired HSA portfolios.
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 expect our general and administrative expenses to increase for the foreseeable future due to the additional demands on our legal, compliance, and accounting functions that we incur 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 accounting functions as we continue to grow our business and the increased cost of cybersecurity and directors and officers insurance.
The difference between the effective income tax rate and the U.S. federal statutory income tax rate for each period is impacted by a number of factors, including the relative mix of earnings among state jurisdictions, credits, excess tax benefits or shortfalls on stock-based compensation expense, changes in valuation allowance, and other items.
The difference between the effective income tax rate and the U.S. federal statutory income tax rate for -43- Table of Contents each period is impacted by a number of factors, including the relative mix of earnings among state jurisdictions, credits, excess tax benefits or shortfalls on stock-based compensation expense, changes in valuation allowance, and other items.
Product breadth We are the largest custodian and administrator of HSAs (by number of accounts), as well as a market-share leader in each of the major categories of complementary CDBs, including FSAs and HRAs, COBRA and commuter benefits administration. Our Clients and their benefits advisors increasingly seek HSA providers that can deliver an integrated offering of HSAs and complementary CDBs.
Product breadth We are the largest custodian and administrator of HSAs, as well as a market-share leader in each of the major categories of complementary CDBs, including FSAs and HRAs, COBRA and commuter benefits administration. Our Clients and their benefits advisors increasingly seek HSA providers that can deliver an integrated offering of HSAs and complementary CDBs.
Some of our direct competitors (including healthcare service companies such as United Health Group's Optum, Webster Bank, and well-known retail investment companies, such as Fidelity Investments) are in a position to devote more resources to the development, sale, and support of their products and services than we have at our disposal.
Some of our direct competitors (including healthcare service companies such as UnitedHealth Group's Optum, Webster Bank, and well-known retail investment companies, such as Fidelity Investments) are in a position to devote more resources to the development, sale, and support of their products and services than we have at our disposal.
We earn custodial revenue primarily from HSA Assets deposited with our Depository Partners and with our insurance company partners, recordkeeping fees we earn in respect of mutual funds in which our members invest, and Client-held funds deposited with our Depository Partners.
We earn custodial revenue primarily from HSA Assets held by our Depository Partners or our insurance company partners, recordkeeping fees we earn in respect of mutual funds in which our members invest, and Client-held funds deposited with our Depository Partners.
The interest rates retained by HSA members can change based on a formula or upon required notice. Interchange costs. Interchange costs are comprised of costs we incur in connection with processing payment transactions initiated by our members. Due to the substantiation requirement on FSA/HRA-linked payment card transactions, payment card costs are higher for FSA/HRA card transactions.
The interest rates retained by HSA members can change based on a formula or upon required notice. Interchange costs. Interchange costs are comprised of costs we incur in connection with processing payment transactions initiated by our members. Due to the substantiation requirement on FSA/HRA-linked payment card -39- Table of Contents transactions, payment card costs are higher for FSA/HRA card transactions.
As of January 31, 2022, 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, 2022, and for the period then ended.
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.
The interest rate on our Term Loan Facility and Revolving Credit Facility is variable and, accordingly, we may incur additional expense if interest rates increase in future periods.
The interest rate on our Term Loan Facility and Revolving Credit Facility is variable and, accordingly, we may incur additional expense if interest rates continue to increase in future periods.
We evaluate our acquired intangible assets for impairment annually, or at a triggering event. -42- Table of Contents Merger integration. Merger integration expenses include personnel and related expenses, including severance, professional fees, legal expenses, and facilities and technology expenses directly related to integration activities to merge operations as a result of acquisitions.
We evaluate our acquired intangible assets for impairment annually, or at a triggering event. Merger integration. Merger integration expenses include personnel and related expenses, including severance, professional fees, legal expenses, and facilities and technology expenses directly related to integration activities to merge operations as a result of acquisitions.
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.
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.
Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal year 2021 Form 10-K, filed with the SEC on March 31, 2021.
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.
Management’s judgment is required in determining the point when various projects enter the stages at which costs may be -48- Table of Contents capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized.
Management’s judgment is required in determining the point when various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized.
Privacy regulation in particular has become a priority issue in many states, including -38- Table of Contents California, which in 2018 enacted the California Consumer Privacy Act broadly regulating California residents’ personal information and providing California residents with various rights to access and control their data, and the new California Privacy Rights Act.
Privacy regulation in particular has become a priority issue in many states, including California, which in 2018 enacted the California Consumer Privacy Act broadly regulating California residents’ personal information and providing California residents with various rights to access and control their data, and the new California Privacy Rights Act.
According to Devenir, we are the largest HSA provider by accounts and second largest by assets as of December 2021. In addition, we believe we are the largest provider of other CDBs. We seek to differentiate ourselves through our proprietary technology, product breadth, ecosystem connectivity, and service-driven culture.
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.
We discuss certain of these key financial metrics, including revenue, below in the section entitled “Key components of our results of operations.” In addition, we utilize other key metrics as described below. For a discussion related to key financial and operating metrics for fiscal year 2021 compared to fiscal year 2020, refer to Part II, Item 7.
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 refer to the aggregate number of HSAs and other CDBs that we administer as Total Accounts, of which we had 14.4 million as of January 31, 2022. 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 14.9 million as of January 31, 2023. We reach consumers primarily through relationships with their employers, which we call Clients.
An increase in the percentage of HSA cash held in our Enhanced Rates offering also positively impacts our custodial revenues, as we generally receive a higher yield on HSA cash held with insurance company partners compared to cash held with Depository Partners.
An increase in the percentage of HSA cash held in our Enhanced Rates offering also positively impacts our custodial revenue, as we generally receive a higher yield on HSA cash held by our insurance company partners compared to cash held by our Depository Partners.
Client-held funds are interest-earning deposits from which we generate custodial revenue. These deposits are amounts remitted by Clients and held by us on their behalf to pre-fund and facilitate administration of CDBs. We deposit the Client-held funds with our Depository Partners in interest-bearing, demand deposit accounts that have a floating interest rate and no set term or duration.
These deposits are amounts remitted by Clients and held by us on their behalf to pre-fund and facilitate administration of CDBs. We deposit the Client-held funds with our Depository Partners in interest-bearing, demand deposit accounts that have a floating interest rate and no set term or duration.
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, 2022 and January 31, 2021, cash and cash equivalents were $225.4 million and $328.8 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. As of January 31, 2023 and January 31, 2022, cash and cash equivalents were $254.3 million and $225.4 million, respectively.
As a result of the COVID-19 pandemic, we have seen a significant decline in the use of commuter benefits due to many of our members working from home during the outbreak or other impacts from the outbreak, which has negatively impacted both our interchange revenue and service revenue, and this "work from home" trend, or hybrid work environments, may continue after the pandemic.
As a result of the COVID-19 pandemic, we have seen a significant decline in the use of commuter benefits due to many of our members working from home, which has negatively impacted both our interchange revenue and service revenue, and this "work from home" trend, or hybrid work environments, may continue indefinitely.
Our effective income tax benefit rate for the fiscal years ended January 31, 2022 and 2021 was 33.6% and 113.4%, respectively.
Our effective income tax benefit rate for the fiscal years ended January 31, 2023 and 2022 was 31.4% and 33.6%, respectively.
In March 2021, we bolstered our commuter offering through the Luum Acquisition, in which we acquired 100% of the outstanding capital stock of Fort Effect Corp, d/b/a Luum. The aggregate purchase price for the acquisition consisted of $56.2 million in cash.
In March 2021, we bolstered our commuter offering by acquiring 100% of the outstanding capital stock of Fort Effect Corp, d/b/a Luum. The aggregate purchase price for the acquisition consisted of $56.2 million in cash.
However, our sales and marketing expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our sales and marketing expenses. Technology and development.
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.
We deposit HSA cash with our Depository Partners pursuant to contracts that (i) typically have terms ranging from three to five years, (ii) provide for a fixed or variable interest rate payable on the average daily cash balances deposited with the relevant Depository Partner, and (iii) have minimum and maximum required deposit balances.
HSA cash is held by our Depository Partners pursuant to contracts that (i) typically have terms ranging from three to five years, (ii) provide for a fixed or variable interest rate payable on the average daily cash balances held by the relevant Depository Partner, and (iii) have minimum and maximum required balances.
HSA members who elect to place their HSA cash into our Enhanced Rates offering receive a higher yield compared to Basic Rates.
HSA members who place their HSA cash into our Enhanced Rates offering retain a higher yield compared to our Basic Rates offering.
The extent to which the COVID-19 pandemic and any longer lasting impacts on the usage of our services will continue to negatively impact our business remains highly uncertain and as a result may have a material adverse impact on our business and financial results.
The extent to which the societal and economic changes arising out of the COVID-19 pandemic, including any longer lasting impacts on the usage of our services, will continue to negatively impact our business remains highly uncertain and as a result may have a material adverse impact on our business and financial results.
HSA cash placed with our insurance company partners is placed in group annuity contracts or similar arrangements. We deposit the Client-held funds with our Depository Partners in interest-bearing, demand deposit accounts that have a floating interest rate and no set term or duration.
HSA cash held by our insurance company partners is held in group annuity contracts or similar arrangements. Client-held funds held by our Depository Partners are held in interest-bearing, demand deposit accounts that have a floating interest rate and no set term or duration.
Our financial results related to certain of our products have also been adversely affected, such as commuter benefits, due to many of our members working from home during the outbreak, and the "work from home" trend, or a new hybrid work environment, may continue after the pandemic.
Our financial results related to certain of our products have also been adversely affected, such as commuter benefits, due to many of our members working from home during the outbreak, and the "work from home" trend, or hybrid work environments, may continue indefinitely.
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, and certain other non-operating items.
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.
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, 2022, we administered 7.2 million HSAs, with balances totaling $19.6 billion, which we call HSA Assets, as well as 7.2 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, 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.
As of January 31, 2022, our platforms were integrated with 185 Network Partners, and we serve approximately 120,000 Clients. We have increased our share of the growing HSA market from 4% in December 2010 to 18% as of December 2021, measured by HSA Assets.
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.
Interchange costs. The $2.2 million, or 12%, increase in interchange costs was due to increased spend per account compared to the COVID-19 pandemic lows 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.
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.
Our client base Our business model is based on a B2B2C distribution strategy, whereby we work with Network Partners and Clients to reach consumers to increase the number of our members with HSA accounts and complementary CDBs. We believe that there are significant opportunities to expand the scope of services that we provide to our current Clients.
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.
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.
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.
Income tax provision (benefit) For the fiscal years ended January 31, 2022 and 2021, we recorded an income tax benefit of $22.5 million and $4.7 million, respectively.
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.
On September 7, 2021, we signed an amended agreement to acquire the Further business (other than Further's voluntary employee beneficiary association business), a leading provider of HSA and other CDB administration services, with approximately 580,000 HSAs and $1.9 billion of HSA Assets, for $455 million in cash. This acquisition closed on November 1, 2021.
In November 2021, we acquired the Further business (other than Further's voluntary employee beneficiary association business), a leading provider of HSA and other CDB administration services, with approximately 580,000 HSAs and $1.9 billion of HSA Assets, for $455 million in cash.
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.
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.
On April 27, 2021, we signed an agreement to acquire the Fifth Third HSA portfolio, which consisted of $490.0 million of HSA Assets held in approximately 160,000 HSAs in exchange for a purchase price of $60.8 million in cash. This acquisition closed on September 29, 2021. Further acquisition.
In September 2021, we acquired the Fifth Third HSA portfolio, which consisted of $490.0 million of HSA Assets held in approximately 160,000 HSAs in exchange for a purchase price of $60.8 million in cash. Further acquisition.
Broad distribution footprint We believe we have a diverse distribution footprint to attract new Clients and Network Partners. Our sales force calls on enterprise and regional employers in industries across the U.S., as well as potential Network Partners from among health plans, benefits administrators, and retirement plan record keepers.
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.
Total revenue increased by $23.0 million, or 3%, due to the increases in interchange and custodial revenues, partially offset by the decrease in service revenue. Impact of COVID-19. Our business has been adversely affected by the COVID-19 pandemic, and we expect that it will continue to be adversely affected by the COVID-19 pandemic and related societal changes.
Total revenue increased by $105.2 million, or 14%, due to the increases in custodial, interchange, and service revenues, described above. Impact of COVID-19. Our business has been adversely affected by the COVID-19 pandemic, and we expect that it will continue to be adversely affected by the societal and economic changes arising out of the pandemic.
The $2.3 million, or 12%, increase in custodial costs was due to an increase in the average daily balance of HSA cash with yield, which increased from $8.6 billion for the fiscal year ended January 31, 2021 to $10.5 billion for the fiscal year ended January 31, 2022 and an associated increase in interest retained by HSA members, partially offset by a lower average annualized rate of interest retained by HSA members on HSA cash with yield, which decreased from 0.19% for the fiscal year ended January 31, 2021 to 0.17% for the fiscal year ended January 31, 2022.
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 increase in income tax benefit was primarily the result of current year pre-tax book loss, a corresponding increase in benefit for state income taxes, an increase in research and development tax credits, and an increase in excess tax benefits on stock-based compensation expense.
The decrease in income tax benefit was primarily the result of lower current year pre-tax book loss, a corresponding decrease in benefit for state income taxes, a decrease in research and development tax credits, a decrease in excess tax benefits on stock-based compensation expense, and an increase in nondeductible executive compensation, partially offset by a release of uncertain tax positions and a smaller change in valuation allowance.
Key components of our results of operations Revenue We generate revenue from three primary sources: service revenue, custodial revenue, and interchange revenue. Service revenue. We earn service revenue from the fees we charge our Network Partners, Clients, and members for the administration services we provide in connection with the HSAs and other CDBs we offer.
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.
The average premium for employer-sponsored health insurance has risen by 22% since 2016 and 47% since 2011, resulting in -36- Table of Contents increased participation in HSA-qualified health plans and HSAs and increased consumer cost-sharing in health insurance more generally.
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.
We intend to continue to invest in our technology development to enhance our capabilities and infrastructure, while maintaining a focus on data security and the privacy of our customers' data.
Our full suite of CDB offerings complements our HSA solution and enhances our leadership position within the HSA sector. We intend to continue to invest in our technology development to enhance our capabilities and infrastructure, while maintaining a focus on data security and the privacy of our customers' data.
Other income (expense), net The change in other income (expense), net, from income of $5.0 million during the fiscal year ended January 31, 2021 to expense of $5.9 million during the fiscal year ended January 31, 2022 was primarily due to a $9.7 million increase in acquisition costs and a $1.2 million decrease in other income, net.
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 following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods: Year ended January 31, (in thousands) 2022 2021 Net cash provided by operating activities $ 140,995 $ 181,619 Net cash used in investing activities $ (639,247) $ (96,964) Net cash provided by financing activities $ 394,863 $ 52,422 Increase (decrease) in cash and cash equivalents (103,389) 137,077 Beginning cash and cash equivalents 328,803 191,726 Ending cash and cash equivalents $ 225,414 $ 328,803 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) 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.
Off-balance sheet arrangements As of January 31, 2022, other than outstanding letters of credit issued under our Revolving Credit Facility, we did not have any off-balance sheet arrangements. The majority of the standby letters of credit expire within one year.
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.
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.
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.
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, 2022 January 31, 2021 % Change HSAs 7,207 5,782 25 % New HSAs from sales - Quarter-to-date 472 370 28 % New HSAs from sales - Year-to-date 918 687 34 % New HSAs from acquisitions - Year-to-date 740 — n/a HSAs with investments 455 333 37 % CDBs 7,192 7,028 2 % Total Accounts 14,399 12,810 12 % Average Total Accounts - Quarter-to-date 14,326 12,659 13 % Average Total Accounts - Year-to-date 13,450 12,604 7 % 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, 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.
The $6.7 million 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 and the Luum Acquisition commencing March 8, 2021. The remainder of the increase was due to amortization of acquired HSA portfolios. Merger integration.
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 $32.6 million, or 26%, increase in technology and development expenses was primarily due to increases in amortization, stock-based compensation, and personnel-related expenses. We expect our technology and development expenses to increase for the foreseeable future as we continue to invest in the development and security of our proprietary technology.
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 number of our HSAs increased by approximately 1.4 million, or 25%, from January 31, 2021 to January 31, 2022, primarily driven by new HSAs from sales, HSAs acquired through the Further Acquisition, and the acquisition of Fifth Third's HSA portfolio.
The number of our HSAs increased by approximately 0.8 million, or 11%, from January 31, 2022 to January 31, 2023, primarily driven by new HSAs from sales and HSAs acquired through the HealthSavings HSA portfolio acquisition and other HSA portfolio acquisitions.
Costs to improve the architecture of our proprietary systems include computer hardware, personnel and related costs for software engineering and outsourced software engineering services. We believe our existing cash, cash equivalents, and Revolving Credit Facility will be sufficient to meet our operating and capital expenditure requirements for at least the next 12 months.
We believe our existing cash, cash equivalents, and Revolving Credit Facility will be sufficient to meet our operating and capital expenditure requirements for at least the next 12 months.
To the extent these current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may need to raise additional funds through public or private equity or debt financing. In the event that additional financing is required, we may not be able to raise it on favorable terms, if at all.
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.
We intend to continue to pursue acquisitions of complementary assets and businesses that we believe will strengthen our service offering, and our success depends in part on our ability to successfully integrate acquired businesses and HSA portfolios with our business in an efficient and effective manner 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 and to realize anticipated synergies.
We earn a material portion of our total revenue from interest paid to us by these partners. -37- Table of Contents 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 lengths of our agreements with Depository Partners typically range from three to five years and may have fixed or variable interest rate terms.
In addition, on October 8, 2021, we entered into the Credit Agreement, which includes a five-year senior secured term loan A facility, in an aggregate principal amount of $350.0 million, and a Revolving Credit Facility, in an aggregate principal amount of up to $1.0 billion, which may be used for working capital and general corporate purposes, including the financing of acquisitions and other investments.
Our Credit Agreement includes a Revolving Credit Facility, in an aggregate principal amount of up to $1.0 billion, which may be used for working capital and general corporate purposes, including the financing of acquisitions and other investments. For a description of the terms of the Credit Agreement, refer to Note 8—Indebtedness.
These expenses begin to ramp up during our third fiscal quarter, with the majority of expenses incurred in our fourth fiscal quarter. Liquidity and capital resources Cash and cash equivalents overview Our principal sources of liquidity are our current cash and cash equivalents balances, collections from our service, custodial, and interchange revenue activities, and availability under our Revolving Credit Facility.
Liquidity and capital resources Cash and cash equivalents overview Our principal sources of liquidity are our current cash and cash equivalents balances, collections from our service, custodial, and interchange revenue activities, and availability under our Revolving Credit Facility.
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.
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.
Although interest rates have increased somewhat, we expect our custodial revenue to continue to be adversely affected by the interest rate cuts by the Federal Reserve associated with the COVID-19 pandemic, the lack of demand from Depository Partners for deposits, and other market conditions that have caused the interest rates offered by our Depository Partners to decline significantly.
Although interest rates have increased, we expect our custodial revenue to continue to be adversely affected by the interest rate cuts by the Federal Reserve at the beginning of the COVID-19 pandemic due to the impact of contracts signed with our Depository Partners in that environment and other market conditions that have caused our average annualized yield on HSA cash to decline significantly from historical levels.
We have also seen an increase in regulatory changes related to our services due to government responses to the COVID-19 pandemic and may continue to see additional regulatory changes. Our ability to predict and react quickly to relevant legal and regulatory trends and to correctly interpret their market and competitive implications is important to our success.
We have also seen an increase in regulatory changes related to our services due to government responses to the COVID-19 pandemic and may continue to see additional regulatory changes.
During the initial stages of the COVID-19 pandemic, we saw a negative impact on our members' spend on healthcare, which negatively impacted both our interchange revenue and service revenue, and the recent increase in COVID-19 cases has negatively impacted our interchange revenue and service revenue. In addition, we are required to support our Clients' open enrollment activities virtually.
During the initial stages of the COVID-19 pandemic, and during subsequent increases in COVID-19 cases, we saw a negative impact on our members' spend on -41- Table of Contents healthcare, which negatively impacted both our interchange revenue and service revenue.
We earn service revenue mainly from fees paid by Clients on a recurring per-account per-month basis. We earn custodial revenue mainly from HSA Assets held at our members’ direction in federally insured cash deposits, insurance contracts or mutual funds, and from investment of Client-held funds.
We earn custodial revenue mainly from HSA Assets held at our members’ direction in federally insured cash deposits, insurance contracts or mutual funds, and from investment of Client-held funds. We earn interchange revenue mainly from fees paid by merchants on payments that our members make using our physical payment cards and on our virtual payment system.
Interest rates As a non-bank custodian, we hold custodial HSA cash assets pursuant to agreements with federally insured banks and credit unions, which we collectively call our Depository Partners (our "Basic Rates" offering), and also in annuity contracts or other similar arrangements with our insurance company partners (our "Enhanced Rates" offering).
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 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. Our competition and industry Our direct competitors are HSA custodians and other CDB providers.
Interest on our Term Loan Facility changes frequently due to variable interest rate terms, and as a result, our interest expense is expected to fluctuate based on changes in prevailing interest rates. Recent interest rate increases have caused interest expense related to our Term Loan Facility to increase substantially.
See also "Results of operations - Revenue" for information relating to the ongoing COVID-19 pandemic and also the section entitled “Risk factors” included in Part 1, Item 1A of this Annual Report on Form 10-K and our other reports filed with the SEC.
Each of these factors presents both significant opportunities and significant risks to our future performance. See also the section entitled “Risk factors” included in Part 1, Item 1A of this Annual Report on Form 10-K and our other reports filed with the SEC.
The Company evaluates its 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 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.
Our compliance with the Vaccine Mandate has resulted in, and could continue to result in, increased team member attrition, absenteeism, and associated costs. We may be unable to meet our service level commitments to our Clients as a result of disruptions to our work force and disruptions to third-party contracts that we rely on to provide our services.
In the event of further outbreaks, we may be unable to meet our service level commitments to our Clients as a result of disruptions to our workforce and disruptions to third-party contracts that we rely on to provide our services.
Net cash provided by financing activities during the fiscal year ended January 31, 2022 resulted from $938.1 million of net proceeds from the issuance of long-term debt, $456.6 million of net proceeds from our follow-on public offering of 5,750,000 shares of common stock, and the exercise of stock options of $9.8 million.
The change resulted primarily from $456.6 million of net proceeds from our follow-on public offering of 5,750,000 shares of common stock during the fiscal year ended January 31, 2022, a $3.1 million decrease in proceeds from the exercise of common stock options, and a $0.1 million increase in cash used in the settlement of client-held funds obligation, net.
We earn custodial revenue on HSA Assets and Client-held funds that is based on the interest rates offered to us by these Depository Partners and insurance company partners. In addition, once a member’s HSA cash balance reaches a certain threshold, the member is able to invest his or her HSA Assets in mutual funds through our custodial investment partner.
We earn 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.
As of January 31, 2022, we have recorded a valuation allowance on certain state deferred tax assets and maintained an overall net federal and state deferred tax liability on our consolidated balance sheet.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

14 edited+1 added−1 removed8 unchanged
Biggest changeWe consider all highly liquid investments purchased with an original maturity of three months or less to be unrestricted cash equivalents. Our unrestricted cash and cash equivalents are held in institutions in the U.S. and include deposits in a money market account that is unrestricted as to withdrawal or use.
Biggest changeOur 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.
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, 2022, 2021, and 2020, 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, 2023, 2022, and 2021, no one customer accounted for greater than 10% of our total revenue.
For example, a one percent increase in the interest rate on the amount outstanding under our credit facilities at January 31, 2022 would result in approximately $3.5 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%. -50- Table of Contents
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
As of January 31, 2022, we had $350.0 million outstanding under our Term Loan Facility and no amounts drawn under our Revolving Credit Facility. Our overall interest rate sensitivity under these credit facilities is primarily influenced by any amounts borrowed and the prevailing interest rates on these instruments.
As 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.
The diversification of HSA Assets placed among 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.
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 monitor market and regulatory changes regularly and make adjustments to our business if necessary. Inflation. Inflationary factors may adversely affect our operating results.
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.
As of January 31, 2022, we had unrestricted cash and cash equivalents of $225.4 million. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our cash and cash equivalents as a result of changes in interest rates. Long-term debt.
Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our cash and cash equivalents as a result of changes in interest rates. Long-term debt.
The interest rate on our Term Loan Facility and Revolving Credit Facility is variable and was 1.88% at January 31, 2022. Accordingly, we may incur additional expense if interest rates increase in future periods.
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.
Client-held funds are interest earning deposits from which we generate custodial revenue. As of January 31, 2022, we held Client-held funds of $897 million. These deposits are amounts remitted by Clients and held by us on their behalf to pre-fund and facilitate administration of our other CDBs. These deposits are held with Depository Partners.
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.
A sustained decline in prevailing interest rates may negatively affect our business by reducing the size of the yield available to us and thus the amount of the custodial revenue we can realize from Client-held funds. Changes in prevailing interest rates are driven by macroeconomic trends and government policies over which we have no control. Cash and cash equivalents .
A sustained decline in prevailing interest rates may negatively affect our business by reducing the size of the yield available to us and thus the amount of the custodial revenue we can realize from Client-held funds. Conversely, a sustained increase in prevailing interest rates may increase our yield.
Our cash and cash equivalents as of January 31, 2022 were $225.4 million, the vast majority of which was not covered by federal depository insurance. We have not experienced any material losses in such accounts and believe we are not exposed to any significant credit risk with respect to our cash and cash equivalents.
Our 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.
However, we may be required to increase the interest retained by our members in a rising prevailing interest rate environment. Changes in prevailing interest rates are driven by macroeconomic trends and government policies over which we have no control, such as the interest rate cuts by the Federal Reserve associated with the ongoing COVID-19 pandemic.
However, we may be required to increase the interest retained by our members in a rising prevailing interest rate environment. Changes in prevailing interest rates are driven by macroeconomic trends and government policies over which we have no control. Client-held funds are interest earning deposits from which we generate custodial revenue.
We continue to monitor our credit risk and place our cash and cash equivalents with reputable financial institutions. Interest rate risk HSA Assets and Client-held funds. HSA Assets consist of custodial HSA funds we hold in custody on behalf of our members. As of January 31, 2022, we held in custody HSA Assets of approximately $19.6 billion.
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.
We have not experienced any significant write-offs to our accounts receivable and believe that we are not exposed to significant -49- Table of Contents credit risk with respect to our accounts receivable; however, the extent to which the ongoing COVID-19 pandemic will negatively impact our credit risk remains highly uncertain and cannot be accurately predicted.
We have not experienced any significant write-offs to our accounts receivable and believe that we are not exposed to significant credit risk with respect to our accounts receivable. We continue to monitor our credit risk and place our cash and cash equivalents with reputable financial institutions. Interest rate risk HSA Assets and Client-held funds.
Removed
Our accounts receivable balance as of January 31, 2022 was $87.4 million.
Added
Changes in prevailing interest rates are driven by macroeconomic trends and government policies over which we have no control. Cash and cash equivalents . We consider all highly liquid investments purchased with an original maturity of three months or less to be unrestricted cash equivalents.

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