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. 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.
Risks relating to our business and industry
Any diminution in, elimination of, or change in the availability of tax benefits for HSAs and other CDBs would materially adversely affect us.
Substantially all of our revenue is earned from tax-advantaged HSAs and other CDBs. The efforts of governmental and third-party payers to raise revenue or contain or reduce healthcare or other costs could include restructuring the tax benefits available through HSAs and other CDBs, which may adversely affect our business, operating results, and financial condition. For example, the federal government or states may seek to raise revenues by enacting tax laws that limit or eliminate the tax deductions available to individuals who contribute to HSAs and other CDBs. We cannot predict if any new tax reforms will ultimately become law, or if enacted, what their terms or the regulations promulgated pursuant to such reforms will be. If the laws or regulations are changed to limit or eliminate the tax benefits available through these accounts, such a change would have a material adverse effect on our business.
Failure to adequately place and safeguard HSA cash and Client-held funds, or the failure of any of our insurance company partners or Depository Partners, could materially and adversely affect our business, financial condition, and results of operations.
As a non-bank custodian, we rely on our insurance company partners and federally insured custodial Depository Partners to hold HSA cash that we custody. The portion of HSA cash held by our insurance company partners continues to increase with the increasing adoption of our Enhanced Rates program. The HSA cash held through our insurance company partners is not federally insured, and our members bear the risk of loss with respect to either the failure of the insurance company partner holding their HSA cash or the breach by the insurance company partner of its obligations to guarantee principal or pay interest thereon. In addition, we deposit Client-held funds with our Depository Partners in interest-bearing demand deposit accounts, and federal deposit insurance may not be available for certain Clients.
If any material adverse event were to affect one of our insurance company partners or Depository Partners, including a significant decline in its financial condition, a decline in the quality of its service, a loss of deposits, its inability to comply with applicable insurance, banking, or other regulatory requirements, systems failure, or its inability to return principal or pay interest thereon, our business, financial condition, and results of operations could be materially and adversely affected. In addition, in the event of such a failure of, or breach by, one of our insurance company partners, the HSA cash held through that insurance company partner would be at risk and no assurance can be given that our contractual arrangements with that insurance company partner would be sufficient for our members to fully recover their HSA cash, which would in turn result in reputational and financial harm to the Company.
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 or the satisfaction of our obligations to the partner. A reduction of the interest rate payable, or a requirement that we post collateral in lieu of any such reduction, could have a material and adverse impact on our business, financial condition, and results of operations.
Failure to adequately manage the liquidity of the custodial assets held by our insurance company partners and Depository Partners could materially and adversely affect our business, financial condition, and results of operations.
Certain of our arrangements with our insurance company partners and Depository Partners require that we keep a minimum amount of HSA cash with such partner. If we fail to comply with those minimum HSA cash requirements, including as a result of withdrawals by our members, we may be subject to penalties payable to our partners or a reduction in the interest paid to us under such arrangements. Such penalties or reductions, if imposed, could have a material and adverse impact on our business, financial condition, and results of operations, and we may not have sufficient capital on hand to pay such penalties.
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A decline in interest rates would reduce our income on our HSA Assets and Client-held funds and our ability to attract HSA contributions.
We partner with our insurance company partners and Depository Partners to hold our HSA Assets and other Client-held funds. We earn a substantial portion of our revenue from fees we earn from our insurance company partners and Depository Partners which comprised approximately 48%, 45%, and 39% of our revenues during the fiscal years ended January 31, 2026, 2025, and 2024, respectively. A decline in prevailing interest rates would negatively impact our business by reducing the yield we realize on our HSA Assets and other Client-held funds. In addition, if we do not offer competitive interest rates on HSA Assets, our members may choose another HSA custodian. Any such scenario could materially and adversely affect our business and results of operations.
A decline in the value of invested HSA Assets would adversely affect our results of operations.
If the value of invested HSA Assets that our members hold declines, whether due to market conditions or other factors, our fees received on invested HSA Assets, which are based on a percentage of the asset values, would be adversely affected, which would in turn negatively impact our results of operations.
If we are not successful in adapting to our rapidly evolving industry, our growth may be limited, and our business may be adversely affected.
The market for our products and services is subject to rapid and significant change and competition. The market for administering HSAs and other CDBs is characterized by rapid technological change, new product and service introductions, evolving industry standards, changing customer needs, existing competition, price sensitivity, and the entrance of non-traditional competitors. In addition, there may be a limited-time opportunity to achieve and maintain a significant share of this market due in part to our rapidly evolving industry, industry consolidation, and the substantial resources available to our existing and potential competitors. In order to remain competitive, we are continually involved in a number of projects to develop new services or compete with these new market entrants. These projects carry risks, such as cost overruns, delays in delivery, performance problems, and lack of acceptance by our Clients, Network Partners, marketplace partners, and members.
Any diminution in the use of HSAs or other CDBs would materially adversely affect us.
We believe that many consumers are not familiar with, or do not fully appreciate, the tax-advantaged benefits of HSAs and other CDBs. 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 our members do not fully use their HSAs or CDBs, if employers reduce or cease to offer HSAs or other CDB programs, if the rate of adoption of these accounts decreases, if existing Clients, Network Partners, and members do not recognize or acknowledge the benefits of our services or we do not drive engagement, then the market for our services might decline or develop more slowly than we expect, which could adversely affect our operating results.
The expanding use or anticipated use of AI technologies, including generative AI, by us or third parties, may increase or create new operational and competitive risks.
AI technologies – including generative AI – present numerous opportunities, such as benefits from increased operational efficiencies and innovative new products. The use of AI technologies by us, our service providers, and our competitors has increased recently, and we expect it to further increase rapidly. We utilize AI to streamline administrative processes and improve the experience for our members. These applications have and likely will continue to become increasingly important to our operations.
However, the development and deployment of such technologies also pose significant risks. For example, new products and services incorporating or utilizing AI and machine learning may raise technological, security, legal, reputational, and other risks and challenges related to, among other items, the use of personal information or the information of clients who have not granted permission for the use of their data in such AI systems, flaws in our models or training datasets that may result in biased or inaccurate results, or other unanticipated outcomes, ethical considerations regarding AI, potential infringement of third-party intellectual property rights, exposure of data, and our ability to safely deploy and implement governance and controls for AI systems. We are also exposed to risks arising from the use of AI technologies by bad actors, who may use such technologies to commit fraud, misappropriate funds, and facilitate cyberattacks. Further, our competitors may adopt AI or generative AI more quickly or more effectively than we do, causing competitive . AI is subject to rapidly evolving domestic and international laws and regulations, the scope and requirements of which may be across jurisdictions and which could impose significant costs and obligations on us. Any of these risks could impact our reputation, the demand for our products and services, and our financial condition and results of operations.
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We may be unable to compete effectively against our current and future competitors.
The market for our products and services is highly competitive. We view our competition in terms of direct and indirect competitors. Our direct HSA competitors are well-known retail investment companies, such as Fidelity Investments, HSA custodians and administrators that include state or federally chartered banks, such as Webster Bank and Optum Bank, insurance companies, and non-bank custodians approved by the U.S. Treasury. We also have numerous indirect HSA administration competitors, including benefits administrators and health plans, that license technology platforms and partner with other HSA custodians to provide "white label" HSA offerings. 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. Our marketplace initiative also faces competition from telehealth companies with whom we are not affiliated, other providers of similar marketplaces, the producers of products and services competitive with the products and services made available through our marketplace, as well as from similar initiatives by our direct HSA competitors.
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. This risk would be compounded if legal requirements or administrative rules are interpreted in a way that makes compliance more onerous for us than for our competitors.
If one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could materially adversely affect our ability to compete effectively. Our competitors have and may continue to establish or strengthen cooperative relationships with our current or future Network Partners, marketplace partners, or other strategic partners, thereby limiting our ability to promote our solution with these parties. We have seen an increase in Network Partners that have decided to offer HSAs or other CDBs directly to their customers, and a continuation of this trend would significantly reduce our channel partner opportunities and result in account attrition.
Well-known retail mutual fund companies, such as Fidelity Investments, have entered the HSA and CDB business and gained significant market share. Our market share could decline if Fidelity Investments and other mutual fund companies continue expanding their presence in the market. These investment companies have significant advantages over us in terms of brand name recognition, years of experience managing tax-advantaged retirement accounts (e.g., 401(k) and IRA), highly developed recordkeeping, trust functions, and fund advisory and customer relations management, among others. If we are unable to compete effectively with these mutual fund company competitors, our results of operations, financial condition, business, and prospects could be materially adversely affected.
Many of our competitors, in particular banks, insurance companies, and other financial institutions, have longer operating histories and significantly greater financial, technical, marketing, and other resources than we have. 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.
Finally, our competitors may have the ability to devote more financial and operational resources than we can to developing new technologies and services, including services that provide improved operating functionality, and adding features to their existing service offerings. They may have a greater ability to use AI to provide enhanced products and service offerings. If successful, their development efforts could render our services less desirable, resulting in the loss of our existing customers or a reduction in the fees we earn from our products and services.
Developments in the rapidly changing healthcare industry could adversely affect our business.
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. General reductions in expenditures by healthcare industry participants could result from, among other things:
• government regulation or private initiatives that affect the manner in which healthcare industry participants interact with consumers and the general public;
• consolidation of healthcare industry participants;
• reductions in governmental funding for healthcare; and
• adverse changes in general business or economic conditions affecting healthcare industry participants.
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Even if general expenditures by industry participants remain the same or increase, developments in the healthcare industry may result in reduced spending in some or all of the specific market segments that we serve now or in the future. The healthcare industry has changed significantly in recent years, and we expect that significant changes will continue to occur. However, the timing and impact of developments in the healthcare industry are difficult to predict. There is no assurance that the demand for our products and services will continue to exist at current levels or that we will have adequate technical, financial, and marketing resources to react to changes in the healthcare industry.
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 15%, 15%, and 16% of our total revenue during the fiscal years ended January 31, 2026, 2025, and 2024, respectively, from interchange fees that are paid to us when our customers utilize our payment cards. These fees represent a percentage of the expenses transacted on each card. 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, or if other alternatives to these payment cards develop, our results of operations, business, and prospects would be materially adversely affected.
If we fail to operate our marketplace effectively, if our Network Partners, Clients, or members respond negatively to our marketplace, or if our marketplace partners, products, or services are disrupted, our business may be adversely affected.
We generate revenue from our marketplace partners who provide the HSA or FSA eligible products and services, including access to telehealth consultations, certain healthcare programs, and certain prescription medications through a third-party partner, to our members. The growth of our marketplace is dependent on our ability to operate the marketplace in a regulatorily compliant manner, market to members effectively and in a cost-efficient manner, and adapt to demands of our Network Partners, Clients, and members. Failure to operate the marketplace effectively could have a negative impact on our growth opportunities.
In addition, negative publicity concerning our marketplace, our marketplace partners, or member experience using our marketplace could limit acceptance of this offering by our Network Partners, Clients, or members, which would adversely affect our revenue and future growth opportunities.
We are dependent upon the partnerships we have entered into for certain of the products, programs, and services available in our marketplace which could be negatively affected if those partnerships are disrupted or experience negative publicity. Such disruption of our partners, along with any negative developments regarding the products, programs, and services made available through the marketplace, could damage our brand, subject us to liability, affect our ability to retain Network Partners, Clients and members, and harm our business and financial results.
The products, programs, and services made available through our marketplace may also subject us to additional federal, state, and local laws and regulations, and a failure to comply with any such law or regulation could have a negative effect on our business, financial condition, and results of operations, and may expose us to civil and criminal penalties. For example, one of our marketplace partners, in addition to offering branded GLP-1 medications as part of its weight loss programs, also offers access to compounded GLP-1 medications, and the regulatory environment around compounded GLP-1 medications has been volatile. The products, programs, and services made available through the marketplace are part of highly competitive markets, and introduce new and more sophisticated competitors to us, which could result in scrutiny, competitive pressures, and litigation from these competitors.
Failure to maintain effective internal control over financial reporting could have a material adverse effect on our reputation, results of operations, and financial condition.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports, prevent fraud, and operate successfully as a public company. A ny failure, whether in connection with our growth, acquisitions, or otherwise, to execute on our internal controls and continue to maintain effective internal controls, to timely implement any necessary additional improvement to our internal controls, or to effect remediation of any future material weakness or significant deficiency could, among other things, result in losses from fraud or error, harm our reputation, result in regulatory fines, penalties, or investigations, or cause investors to confidence in our reported financial information, all of which could have a material effect on our reputation, results of operations, or financial condition.
Management reviews and updates our systems of internal controls and procedures, as appropriate. Any system of controls is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply
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with regulations related to controls and procedures 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.
As one of the largest providers of HSAs and other CDBs, our proprietary technology platforms enable the exchange of, and access to, sensitive information. As a result, we are frequently the target of cyber attacks, including ransomware attacks, which means we must continue to monitor and take steps to secure each of our technology platforms, making sure these platforms are aligned to our industry benchmark security posture. In addition, geopolitical events, including the war between Russia and Ukraine, have resulted in, and may continue to result in, an increase in cyber attacks.
Substantially all of our workforce works remotely. This remote work environment increases the risk of cybersecurity breaches and incidents, and the potential impact of these on our operations is also higher while our team members log into our network remotely. In addition, we use third-party partners to service our members. These third-party partners must have access to member information in order to provide this service. Third-party partner remote access to our member information further increases the risk of cybersecurity breaches and incidents through those partners, and from time to time our third-party partners are also the victims of cybersecurity breaches and incidents that may involve member information.
Our ability to ensure the security of our technology platforms and sensitive customer and partner information is critical to our operations. We rely on standard Internet and other security systems to provide the security and authentication necessary to effect secure transmission of data. Despite our security measures, our information technology and infrastructure are vulnerable to cybersecurity threats, including attacks by hackers, AI-powered threats, human error, insider threats, and other malfeasance or outages. Such threats could result in actual security events that compromise our networks, or those of third-party service providers on which we rely, and result in the information stored or transmitted there to be accessed, modified, or used in an unauthorized manner, publicly disclosed, lost, or . Such access, use, disclosure, or other of information may result in regulatory , and legal and liability, including under laws that protect the privacy of personal information, as it has in the recent past. Cybersecurity events our operations and the services we provide to our Clients, our reputation, and cause a of confidence in our products and services, which could affect our business, operations, and competitive position.
Security breaches, including a major breach of our network security and systems, could result in serious negative consequences for our business, including the loss of sensitive information, theft or loss of actual funds, litigation, indemnity obligations to our Clients, fines, penalties, regulatory scrutiny, and other liabilities, including under laws that protect the privacy of personal information, and disrupt our operations and the services we provide to our members, Clients and Network Partners. We have been the victim of such breaches, which have damaged our reputation and caused a loss of confidence in our products and services, and which may lead to a reduction in demand and result in an unwillingness of members, Clients, Network Partners, and other data owners to provide us with their payment information or personal information, and otherwise our brand. Furthermore, when third parties obtain and use the personal information of our members, we are required to expend significant resources to and these .
While we have security measures in place, we have experienced data privacy incidents in the past, including an incident in 2024 in which a business partner's user account containing personally identifiable information was breached. As a result of the incident, we are now subject to a consolidated putative class action lawsuits seeking unspecified damages, and we are subject to regulatory inquiries related to the incident, which may lead to fines or other enforcement by these regulators. Whether as a result of these incidents, or if our security measures are breached again or unauthorized access to data is otherwise obtained as a result of third-party action, team member error, or otherwise, our reputation could be significantly damaged, our business may suffer, and we could incur substantial liability, which could result in of sales, Clients and Network Partners.
Because techniques used to obtain unauthorized access to or sabotage systems change frequently and such novel techniques, including by use of AI technologies by threat actors, may not be identified until they are launched against a target, we may be unable to anticipate, or to implement adequate preventative measures to address, these techniques. Any or all of these issues could negatively impact our ability to attract new, or increase engagement by, members, Clients and Network Partners, and subject us to third-party lawsuits, regulatory actions or fines, contractual liability, and other action or liability, thereby harming our operating results or financial condition.
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Fraudulent activity, whether involving member accounts or our third-party service providers, has led, and could continue to lead, to financial and reputational damage to us and could reduce the use and acceptance of our products and services.
Criminals are using increasingly sophisticated methods, including AI, to obtain personal information, which they then use to commit fraud. As a non-bank custodian of HSAs, we are frequently targeted by sophisticated and persistent bad actors for fraudulent activity, through various tactics such as high-volume credential stuffing attacks, denial of service attacks, and social engineering attacks, among others. For example, in the fiscal year ended January 31, 2025, and the fiscal quarter ended April 30, 2025, we experienced a significant increase in the volume and sophistication of outside fraudulent activity targeting member accounts, resulting in a significant loss to us as we incurred service costs to reimburse and protect impacted members. Losses due to fraud committed against us and our Clients, members, and Network Partners may not be covered by insurance policies, and losses not covered by insurance may be material. Even in the event that relating to activity are covered by insurance, premiums and/or deductibles related to our insurance coverage may increase or the scope of our coverage may decrease, any of which could have an impact on our financial results.
We are also vulnerable to criminal fraudulent activity through our third-party service providers. We rely upon third parties to provide certain services, such as some transaction processing services and data feeds, and such reliance subjects us to risks related to the vulnerabilities of those third parties. For example, we are exposed to risks relating to the theft of payment card numbers housed in a merchant's point of sale systems if our members use our payment cards at a merchant whose systems are compromised. We may reimburse our members for losses sustained when using our payment cards, even in instances where we are not directly responsible for the underlying cause of such loss.
In addition, because of a significant increase in outside fraudulent member account activity, we have suffered reputational damage that could reduce the use and acceptance of our products and services, or cause our Clients, members, and Network Partners to look for alternative providers. Further fraud incidents, or increases in the overall level of fraud involving either member accounts, our reimbursement administrative services, or our third-party service providers, could result in financial and reputational damage to us. If we fail to successfully protect against fraud in the future, our business and financial results may be adversely affected.
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.
We rely on certain cloud-based software licensed from third parties to run our business. This software may experience outages, may not continue to be available to us on commercially reasonable terms and any loss of the right to use any of this software could result in, among others, delays in producing our financial statements, risks to our security environment, or the provisioning of our products and services until equivalent technology is either developed by us, or, if available, identified, obtained, and integrated into our systems and processes, which would likely take a significant amount of time and harm our business. In addition, we have service level agreements with certain of our Clients and Network Partners for which the availability of this software is critical. Any decrease in the availability of our services as a result of errors, defects, a disruption, or failure of our licensed software may require us to provide significant fee credits or refunds to our customers. Our software licensed from third parties is also subject to change or upgrade, which may result in us incurring significant costs to implement such changes or upgrades and or in our services as a result of such changes or upgrades.
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.
Attracting and retaining new Clients and Network Partners requires us to continue to improve the technology underlying our proprietary technology platforms and requires our technology to operate as expected. In addition, potential Clients and Network Partners are increasingly seeking a bundled solution, encompassing a wide range of features. We are currently investing in a modernization of our proprietary technology platforms to support new opportunities and enhance security, privacy, and platform infrastructure, while maintaining existing applications, features, and services. If we are unable to do so on a timely basis or if we are unable to implement this modernization without disruption to our existing applications, features, and services, or if we encounter technical obstacles that result in the technology not operating properly, we may lose potential and existing Clients and Network Partners. We rely on a combination of internal development, strategic relationships, licensing, and acquisitions to develop our content offerings, products, and services. These efforts may be more expensive than expected, take longer to develop and implement, and require additional personnel and resources.
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The revenue opportunities earned from these efforts may fail to justify the effort or resources spent and may not have the anticipated returns on attracting and retaining new Clients and Network Partners. In addition, material performance problems, defects or errors in our existing or new software have occurred and may occur in the future. Similar challenges in the future may affect our reputation, the demand for our products and services, our financial condition and results of operations, and otherwise draw adverse regulatory scrutiny.
New products and services, including those incorporating or utilizing AI and machine learning, may raise technological, security, legal, and other risks and challenges related to, among other items, the use of personal information in such AI systems, flaws in our models or training datasets that may result in biased or inaccurate results or other unanticipated outcomes, ethical considerations regarding AI, potential infringement of third-party intellectual property rights, and our ability to safely deploy and implement governance and controls for AI systems. Realization of these risks could negatively impact our reputation, the demand for our products and services, our financial condition and results of operations, and otherwise draw adverse regulatory scrutiny.
Disruptions of service at our facilities, our servers, our third-party data centers, or our cloud service providers have interrupted and delayed our customers’ access to our products and services and will be harmful if repeated.
The ability of our team members, members, Network Partners, and Clients to access our technology platforms is critical to our business. We may experience disruptions to certain data centers and servers upon which we rely to provide timely services to our clients. For example, an unplanned storage service outage in 2024 led to multiple critical services for our members being unavailable and degraded. We cannot ensure that the measures we have taken to enable access to our technology platforms, including changes in response to previous disruptions to important platforms, will be effective to prevent or minimize interruptions to our operations. Our technology platforms are hosted by third-party data centers, and we increasingly rely on third-party cloud service providers to support our technology platforms. Our facilities, our third-party data centers, and our cloud service providers are vulnerable to or from a number of sources, many of which are beyond our control, including, without :
• extended power loss or other failure of critical infrastructure;
• 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;
• mistakes in updating, maintaining, and accessing databases, data centers, and servers;
• 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.
We attempt to mitigate these risks through various business continuity efforts, including redundant infrastructure, 24/7/365 system activity monitoring, backup and recovery procedures, use of a secure storage facility for backup media, separate production and test systems, and change management and system security measures, but our precautions, even after previous incidents, may not protect against all potential problems. Our data recovery centers are equipped with physical space, power, storage and networking infrastructure and Internet connectivity to support our technology platforms in the event of the interruption of services at our data centers. Even with these data recovery centers, our operations can be interrupted during transition processes when our primary and other data centers experience failures. Disruptions at our data centers may cause disruptions to our technology platforms and lead to data loss or corruption. We have experienced interruptions and in service and availability for data centers, and bandwidth and other technology issues in the past. Frequent or system that result in the of our technology platforms or response times could reduce our members', Clients', and Network Partners' ability to access our technology platforms, the delivery of our products and services, and the perception of our platforms as reliable, trustworthy, and consistent. Any future , , , or experienced in connection with these third-party technologies could access to our products by members, Clients and Network Partners, which would our business. This could our reputation, subject us to potential liability or costs related to or cause our members, Clients and Network Partners to doing business with us, any of which could impact our financial results.
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.
Our technology platforms may incorporate software covered by open source licenses. The terms of various open source licenses have not been interpreted by United States courts, and there is a risk that such licenses could be
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construed in a manner that imposes unfavorable conditions on us. For example, by the terms of certain open source licenses, we could be required to offer our technology platforms that incorporate the open source software for no cost, that we make publicly available source code for modifications or derivative works that we created based upon, incorporating or using the open source software, and/or that we license such modifications or derivative works under the terms of the particular open source license. If portions of our proprietary software are determined to be subject to an open source license, then the value of our technologies and services could be reduced.
In addition to risks related to license requirements, usage of open source software may be riskier than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with usage of open source software cannot be eliminated and could negatively affect our business.
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.
Healthcare laws and regulations are rapidly evolving and may change significantly, which could adversely affect our financial condition and results of operations. In addition, proposals to implement a single payer or "Medicare for all" system in the U.S. or in individual states, if adopted, could have a material adverse effect 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.
HSAs and other CDBs exist as a result of provisions in the Internal Revenue Code and other laws and regulations. Changes to the regulatory landscape impacting our products require substantial time and costs for us to ensure our products are compliant. In addition, federal or state governments could impose laws that limit the eligibility requirements for our products, which could limit our ability to grow or cause us to lose existing members, or such governments could change the eligibility requirements we must meet to maintain the licenses we need to offer our products. We cannot predict if any new reforms will ultimately become law, or if enacted, what their terms or the regulations promulgated pursuant to such reforms will be, and such reforms could have a material adverse effect on our business.
We are subject to privacy regulations, including regarding the access, use, and disclosure of personal information, and the privacy breaches that we or our third-party service providers have experienced or may experience in the future could result in substantial financial and reputational harm, including possible criminal and civil penalties.
We and certain third party service providers process sensitive personal information in connection with our services, including, where applicable, protected health information and nonpublic personal information. A failure to comply with evolving privacy and data protection requirements including sector-specific regimes such as HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act ("HITECH"), which govern protected health information, the Gramm-Leach-Bliley Act, which governs nonpublic personal information, and various state privacy and breach-notification laws, or a failure to prevent unauthorized access to or disclosure of personal information due to cyberattack, human error, system misconfiguration, third‑party compromise, or other security incident or event could result in regulatory investigations, penalties, litigation (including class actions), contractual claims, member losses, remediation and monitoring costs, operational , and reputational . We experienced privacy/security in the past (including an in 2024 involving a third-party user account) and future could have impact. While we maintain formal privacy and security programs, third‑party oversight, and response and notification processes designed to mitigate risks to the confidentiality, , and availability of the sensitive information, including personal information that we hold, residual risk remains. Compliance costs may increase as requirements and expectations continue to change, along with the possibility of in the event we are deemed to not be in compliance with such laws and regulations. Privacy and data protection regulation have become priority issues in many states, and, as such, the regulatory environment is continually changing. For example, many states provide a private right of action for data . Additional privacy requirements are expected as new state and federal privacy laws are enacted.
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Legislative, regulatory, and legal developments involving taxes could adversely affect our results of operations and cash flows.
We are subject to U.S. federal and state income, payroll, property, sales and use, and other types of taxes in numerous jurisdictions. Significant judgment is required in determining our provisions for income taxes. Changes in tax rates, enactments of new tax laws, revisions of tax regulations, and claims or litigation with taxing authorities could result in substantially higher taxes.
We do not collect sales and use taxes in all jurisdictions in which our customers are located, other than from sales of certain commuter services, based on our belief that such taxes are generally not applicable to our services. Sales and use tax laws and rates vary by jurisdiction and such laws are subject to interpretation. In those jurisdictions and in those cases where we do believe sales taxes are applicable, we collect and file timely sales tax returns. Currently, such sales taxes apply to certain commuter services, but otherwise are minimal to the rest of our services. Jurisdictions in which we do not collect sales and use taxes may assert that such taxes are applicable, which could result in the assessment of such taxes, interest, and penalties, and we could be required to collect such taxes in the future. Such additional sales and use tax liability could adversely affect the results of our operations.
Regulatory changes and changes in the enforcement environment may have an adverse result on our business.
Changes to regulations and the enforcement environment create uncertainty around our business and our Clients. In addition, changes to the legal, regulatory, or political environment may require management's attention, divert resources from other areas, and expose us to potential liability.
As a federal contractor, we are required to follow federal law, including executive orders, directed at federal contractors. We are unable to anticipate the scope of potential changes federal contractors will be required to comply with and cannot predict what impact any such changes may have on us or whether we will be able to implement adequate preventative measures to address any future requirements.
Additionally, we administer programs allowing eligible federal government employees access to our technology platforms and services. We generate revenue from this relationship, and in the event that the program or the number of federal employees who participate in the program change significantly, our financial results could be affected.
Changes in laws and regulations relating to interchange fees on payment card transactions could adversely affect our revenue and results of operations.
Existing laws and regulations limit the fees or interchange rates that can be charged on payment card transactions. For example, the Federal Reserve Board has the power to regulate payment card interchange fees and has issued a rule setting a cap on the interchange fee an issuer can receive from a single payment card transaction. Our HSA-linked payment cards are exempt from this rule, although we are subject to a general requirement of reasonable compensation for services rendered. To the extent that our payment cards lose their exempt status, the interchange rates applicable to transactions involving our payment cards could be impacted, which could have a material adverse effect on our financial condition and results of operations.
Failure to comply with, or changes in, payment card industry, credit card association or other network rules or standards set by Visa or changes in card association and debit network fees or products or interchange rates, could materially adversely affect us.
We, and the banks that issue our prepaid debit cards, are subject to Payment Card Industry Data Security Standards and Visa 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. Failure to comply with these rules and standards could result in significant fines, other penalties, or the termination of our interchange revenue agreements. The termination of the card association registrations held by us or any of the banks that issue our cards, or any changes in card association or other debit network rules or standards, including interpretation and implementation of existing rules, participants deciding to use PIN networks, standards, or guidance that increase the cost of doing business or limit our ability to provide our products and services, or limit our ability to receive interchange fees, could have a material adverse effect on our results of operations, financial condition, business, and prospects. In addition, from time-to-time, card associations increase the organization or processing fees that they charge, which could increase our operating expenses, reduce our profit margin, and materially affect our results of operations, financial condition, business, and prospects.
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We are subject to complex regulation, and any compliance failures or regulatory action could adversely affect our business.
Our business, including HSAs and many of the CDBs we administer and our investment adviser and trust company subsidiaries, is subject to extensive, complex, and frequently changing federal and state laws and regulations, including IRS, Health and Human Services (“HHS”), and Department of Labor (“DOL”) regulations; ERISA, HIPAA, HITECH, and other privacy and data security regulations; the Advisers Act; state banking laws; state third-party administrator laws; the Patient Protection and Affordable Care Act; and developing regulation regimes for the use of AI.
Our subsidiary HealthEquity Advisors, LLC is an SEC-registered investment adviser that provides automated web-only investment advisory services. As such, it must comply with the requirements of the Advisers Act and related SEC regulations and is subject to periodic inspections by the SEC staff. 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. The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act, ranging from fines and censure to termination of an investment adviser’s registration. Investment advisers also are subject to certain state securities laws and regulations.
Our subsidiary HealthEquity Trust Company is a non-depository trust company and subject to regulation and supervision by the Wyoming Division of Banking.
As we continue to innovate and improve our products and services by leveraging automated decision making, machine learning, and AI, our business model may be affected by global trends and laws that regulate the use of these developing technologies. Such laws or regulations may restrict or impose burdensome and costly requirements on our ability to use AI and machine learning and also may impact our ability to use certain data for developing our products and services.
Compliance with regulatory requirements requires resources and takes significant time and effort. Any claim of non-compliance, regardless of merit or ultimate outcome, could subject us to investigation by the HHS, the DOL, the SEC, the Wyoming Division of Banking, or other regulatory authorities. This in turn could result in additional claims or class action litigation brought on behalf of our members, Clients or Network Partners, any of which, regardless of merit or ultimate outcome, could result in substantial cost to us and divert management’s attention and other resources away from our operations. Furthermore, investor perceptions of us may suffer, and this could cause a decline in the market price of our common stock. Our compliance processes may not be sufficient to prevent assertions that we failed to comply with any applicable law, rule, or regulation. In addition, all of our business is subject, to varying degrees, to fiduciary and other service provider obligations under ERISA, the Internal Revenue Code, and underlying regulations. A failure to comply with these or other regulatory and compliance obligations could subject us to of profits, excise taxes, civil , private lawsuits, and other costs, including reputational .
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. If we should fail to comply with the Treasury Regulations’ non-bank custodian requirements, including the net worth requirements, such failure would materially and adversely affect our ability to maintain our current custodial accounts and grow by adding additional custodial accounts, and it could result in the institution of procedures for the revocation of our authorization to operate as a non-bank custodian.
Risks relating to our service and culture
Any failure to offer high-quality member, Client, and Network Partner support services could adversely affect our relationships with our members, Clients, and Network Partners and our operating results.
Our members, Clients, and Network Partners depend on our support and education organizations to educate them about, and resolve technical issues relating to, our products and services. We may be unable to respond quickly enough to accommodate short-term increases in demand for education and support services. Increased demand for these services, without a corresponding increase in revenue, could increase costs and adversely affect our operating results.
Our sales process is highly dependent on the reputation of our products, services, and business and on positive recommendations from our existing members, Clients and Network Partners. Further, we use third-party service providers for certain call centers and COBRA claims and transaction processing, including certain offshore service
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providers for member chat service, which service providers may not provide the same quality of support services for our Clients and members. Any failure to maintain high-quality education and technical support, or a market perception that we do not maintain high-quality education support, could adversely affect our reputation, our ability to sell our products and services to existing and prospective customers, and our business and operating results. We promote 24/7/365 education and support along with our proprietary technology platforms. Interruptions or delays that inhibit our ability to meet that standard have hurt our reputation and ability to attract and retain customers, and any such interruptions or delays in the future would likely also do so.
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 team and other key personnel. While we have entered into employment agreements with our executive officers, all of our team members are “at-will” employees, and their employment can be terminated by us or them at any time, for any reason, and without notice, subject, in certain cases, to severance payment rights. In order to retain valuable team members, in addition to salary and cash incentives, we provide equity-based awards that vest over time or based on performance. The value to team members of these awards will be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract offers from other organizations. The departure of key personnel could adversely affect the conduct of our business. In such event, we would be required to hire other personnel to manage and operate our business, and there can be no assurance that we would be able to employ a suitable replacement for the departing individual, or that a replacement could be hired on terms that are favorable to us. or of performance in our stock price may affect our ability to attract replacements should key personnel depart.
Our success also depends on our ability to attract, retain, and motivate additional skilled management personnel and other team members. For example, competition for qualified personnel in our field is intense due to the limited number of individuals who possess the skills and experience required by our industry. New hires require significant training and, in most cases, take significant time before they achieve full productivity. New team members may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals. If our retention efforts are not successful or our team member turnover rate increases, our business, results of operations, and financial condition could be materially and adversely affected.
If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute to our success.
We believe that a critical component to our success has been our corporate culture. We have invested substantial time and resources in building our team. As we continue to grow, including 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. Any failure to preserve our culture could negatively affect our future success, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.
Risks relating to our partners and service providers
If our Network Partners choose to partner with other providers of, or otherwise reduce offering or cease to offer, our products and services, our business could be materially and adversely affected.
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. 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. 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.
A change in relationship with our bank identification number sponsor, or the failure by our sponsor to comply with certain banking regulations, could materially and adversely affect our business.
We rely on a single bank identification number ("BIN") sponsor 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). Our BIN sponsor enables us to link the payment cards that we offer our members to the VISA network, thereby allowing our members to use our payment cards to pay for expenses with a “swipe” of the card. If any material adverse event were to affect our BIN
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sponsor, including a significant decline in the financial condition of such BIN sponsor, a decline in the quality of service provided by our BIN sponsor, the inability of our BIN sponsor to comply with applicable banking and financial service regulatory requirements or industry standards, systems failure, or the inability of our BIN sponsor to pay us fees, our business, financial condition, and results of operations could be materially and adversely affected because we may be forced to reduce the availability of, or eliminate entirely, our payment card offering, which would materially impact our interchange revenue. In addition, we do not have long-term contracts with our BIN sponsor, and our BIN sponsor may increase the fees charged to us or terminate our relationship. If we were required to change our BIN sponsor, 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 of the payment card industry, which has rendered the market for BIN sponsor services less competitive.
Replacing our third-party service providers would be difficult and disruptive to our business.
We have entered into contracts with third-party service providers to provide critical services relating to our business, including the redesign of our technology platforms, fraud management and other customer verification services, transaction processing and settlement, telephony services, call centers, and card production. In the past, certain of these service providers have failed to maintain adequate levels of support, did not provide high quality service to us and our members, increased the fees they charge us, discontinued their lines of business, terminated our contractual arrangements, or ceased or reduce operations, and as a result, we suffered additional costs and were required to pursue new third-party relationships, which resulted in reputational harm, material disruption of our operations and our ability to provide our products and services, missed service-level agreements with Clients and Network Partners, and diverted management’s time and resources, and these events and consequences could happen with our current service providers moving forward. Transitioning to a new service provider often takes a significant amount of time and resources and, if we are to complete a transition to a new provider on a timely basis, or at all, we could be to temporarily or permanently certain services, such as our payment card services, which could services to our customers and affect our business, financial condition, reputation, and results of operations. We may also be to establish comparable new third-party relationships on as terms or at all, which could materially and affect our business, financial condition, and results of operations.
Growth-related risks
Our acquisition and investment strategies may not be successful.
As a key part of our strategy, we 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. There is no assurance that we will be successful in consummating such acquisitions or investments, or even if consummated, realize the anticipated benefits of these or any future acquisitions or investments. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses related to identifying, investigating, and pursuing suitable acquisitions or investments, whether or not they are consummated.
Acquisitions and investments 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 or businesses we invest in that are not discovered during the due diligence process. If an acquisition or investment fails to meet our expectations, our operating results, business, and financial condition may suffer. Certain of our past transactions also resulted in dilutive issuances of equity securities and the incurrence of additional debt, and future acquisitions or investments could result in additional dilutive issuances of equity securities or the incurrence of additional debt, which could adversely affect our business, results of operations, or financial condition.
Failure to manage future growth effectively could have a material adverse effect on our business, financial condition, and results of operations.
The continued rapid expansion and development of our business has placed a significant strain upon our management and administrative, operational, and financial infrastructure. As of January 31, 2026, we had approximately 10.6 million HSAs and $36.5 billion in HSA Assets representing growth of 7% and 14%, respectively, from January 31, 2025. Our growth strategy contemplates further increasing the number of our HSAs, CDBs, and HSA Assets at relatively higher growth rates than industry averages. However, the rate at which we have been able to add new HSAs, CDBs, and HSA Assets in the past may not be indicative of the rate at which we will be able to grow in the future.
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Our success depends in part upon the ability of our executive officers to manage growth effectively. Our ability to grow also depends upon our ability to successfully hire, train, supervise, and manage new team members, obtain financing for our capital needs, leverage and expand our systems and data effectively, control increasing costs, allocate our human resources optimally, maintain clear lines of communication between our operational functions and our finance and accounting functions, utilize cost saving measures including artificial intelligence efficiently, enter and grow new initiatives such as our marketplace, and manage the pressures on our management and administrative, operational, and financial infrastructure. There can be no assurance that we will be able to accurately anticipate and respond to the changing demands we will face as we continue to expand our operations or that we will be able to manage growth effectively or to achieve further growth at all. 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.
We intend to continue to invest in technology and development to create new and enhanced products and services to offer our customers and to enhance the capabilities of our platforms. We may not be able to anticipate or manage new risks and obligations or legal, compliance, or other requirements that may arise in these areas. The anticipated benefits of such new and improved products and services may not outweigh the costs and resources associated with their development. Some new services may be received negatively by our existing and/or potential customers and strategic partners and have to be put on hold or canceled entirely.
Our ability to attract and retain new customer revenue from existing customers will depend in large part on our ability to enhance and improve our existing products and services and to introduce new products and services. The success of any enhancement or new product or service depends on several factors, including the timely completion, introduction, and market acceptance of the enhancement or new product or service. Any new product or service we develop or acquire may not be introduced in a timely or cost-effective manner and may not achieve the broad market acceptance necessary to earn significant revenue. If we are unable to successfully develop, ourselves or through partnerships, or acquire new products or services or enhance our existing products or services to meet member or network partner requirements, our results of operations, financial condition, business, or prospects may be materially adversely affected.
We may need to record write-downs from future impairments of identified intangible assets and goodwill.
Our consolidated balance sheet includes significant intangible assets, including approximately $1.65 billion in goodwill and $1.10 billion in intangible assets, together representing approximately 81% of our total assets as of January 31, 2026. The determination of related estimated useful lives and whether these assets are impaired involves significant judgments. We test our goodwill for impairment each fiscal year, but we also test goodwill and other intangible assets for impairment at any time when there is a change in circumstances that indicates that the carrying value of these assets may be impaired. This is particularly relevant to us given our recent acquisition history and the amount of goodwill and intangible assets on our balance sheet associated with those acquisitions. Any future determination that these assets are carried at greater than their fair value could result in substantial non-cash impairment charges, which could significantly impact our reported operating results.
Integration of our acquisitions may not be successful, and we may not realize the synergies anticipated from our acquisitions.
The success of our acquisitions depends in part on our ability to realize the anticipated business opportunities from combining the operations of the acquired businesses with our business in an efficient and effective manner. 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. In addition, we may not realize the anticipated cost, revenue, and other synergies associated with successfully integrating our acquisitions.
Financing and related risks
Our substantial debt could limit our ability to fund operations, expose us to interest rate volatility, limit our ability to raise additional capital, and have a material adverse effect on our ability to fulfill our obligations under our Credit Agreement and Indenture and to our Network Partners, Clients, and members.
We are party to a credit agreement (the "Credit Agreement"), which consists of a five-year senior secured revolving credit facility in the aggregate principal amount of $1 billion (the “Revolving Credit Facility”), of which $361.9 million
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was outstanding as of January 31, 2026 . We have also issued $600 million of 4.50% unsecured Senior Notes due 2029 (the "Notes"). Under the Credit Agreement, we have the right to request additional loans or commitments in an amount up to $450 million, plus (ii) an additional amount so long as the pro forma First Lien Net Leverage Ratio (as defined in the Credit Agreement) does not exceed 3.85 to 1.00 as of the date such loans or commitments are incurred. We also have the right to incur additional debt from time to time, subject to the restrictions contained in the Credit Agreement and the indenture under which the Notes were issued (the "Indenture") . 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 use a portion of our cash flow from operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, strategic acquisitions, investments, alliances, and other general corporate requirements;
• our interest expense has increased substantially, and could continue to increase if interest rates increase beyond current levels, because any outstanding borrowings under the Revolving Credit Facility are based on variable interest rates;
• the interest rate on our Revolving Credit Facility will depend on the level of its 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, 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 Indenture and the Credit Agreement contain covenants that impose significant operational and financial restrictions on us, and the failure to comply with these covenants would result in an event of default under these instruments.
The Indenture and the Credit Agreement impose on us operating and other restrictions. These restrictions affect, and in many respects limit or prohibit, among other things, our ability to:
• incur additional debt and issue certain capital stock;
• create liens;
• make investments or acquisitions;
• enter into transactions with affiliates;
• sell assets;
• guarantee debt;
• declare or pay dividends or other distributions to shareholders;
• repurchase equity interests;
• redeem debt that is subordinated in right of payment to certain debt instruments;
• enter into agreements that restrict dividends or other payments from subsidiaries; and
• consolidate, merge, or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis.
The terms of the Revolving Credit Facility in the Credit Agreement also require us to achieve and maintain compliance with specified financial ratios and contain the following restrictions:
• limit our ability to plan for or react to market conditions or meet capital needs or otherwise restrict our activities or business plans; and
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• adversely affect our ability to finance our operations, strategic acquisitions, investments, alliances, or other capital needs or to engage in other business activities that would be in our interest.
A breach of any of these restrictive covenants or our inability to comply with the required financial ratios would result in a default under some or all of the debt agreements. During the occurrence and continuance of a default, lenders under our Revolving Credit Facility may elect to declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable, which would result in an event of default under the Indenture. The lenders will also have the right in these circumstances to terminate any commitments they have to provide further borrowings. Additionally, our Credit Agreement contains a cross-default provision, which generally causes a default or event of default under the Credit Agreement upon a qualifying default or event of default under any other debt instrument (including under the Indenture) and the Indenture contains a cross-acceleration provision. If we are to repay outstanding borrowings when due, the lenders under our Revolving Credit Facility will also have the right to proceed the collateral granted to them to secure the debt. If lenders under the Revolving Credit Facility accelerate the debt thereunder, then the obligations under the Notes would be accelerated. We cannot provide assurance that, if the indebtedness under our Revolving Credit Facility 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 effect on our business and our prospects.
General risk factors
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Certain provisions in our governing documents could make a merger, tender offer, or proxy contest involving us difficult; even if such events would be beneficial to the interests of our stockholders. These provisions include the inability of our stockholders to act by written consent and certain advance notice procedures with respect to stockholder proposals and nominations for candidates for the election of directors. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. Accordingly, our board of directors could rely upon these or other provisions in our governing documents and Delaware law to prevent or delay a transaction involving a change in control of our company, even if doing so would benefit our stockholders.
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.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim for breach of a fiduciary duty owed by any of our directors and officers to us or our stockholders, any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other team members, which may discourage such lawsuits against us and our directors, officers, and other team members. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could affect our business and financial condition.
