HealthEquity, Inc. HQY reported adjusted earnings per share (EPS) of 78 cents in third-quarter fiscal 2025, surpassing the Zacks Consensus Estimate by 9.86%. The bottom line improved 30% on a year-over-year basis.

GAAP EPS in the fiscal third quarter was 6 cents, down 64.7% from the year-ago quarter’s EPS of 17 cents.

However, shares of HQY lost 6.9% in after-market trading following the earnings call.

HealthEquity Revenues in Detail

In the fiscal third quarter, the company generated revenues of $300.4 million, which beat the Zacks Consensus Estimate by 3.84%. The top line improved 23.2% from the prior-year quarter.

HSA Details of HQY

As of Oct. 31, 2024, the total number of Health Savings Accounts (HSA) for which HealthEquity served as a non-bank custodian was 9.5 million, up 15% year over year.

HealthEquity reported 717,000 HSAs with investments as of Oct. 31,2024, up 21% year over year. Total accounts, as of Oct. 31, were 16.5 million, up 7.8% year over year. This uptick included total HSAs and 7 million Consumer Direct Benefits (CDBs), flat year over year.

Total HSA assets were $30 billion at the end of Oct. 31, 2024, up 33% year over year. This included $16.4 billion of HSA cash (up 17.1% year over year) and $13.6 billion of HSA investments (up 58.1% year over year). This figure compares to our fiscal third-quarter HSA cash and HSA investments projection of $16.4 billion and $9.8 billion, respectively. We had projected total HSA assets of $26.2 billion for the fiscal third quarter.

Client-held funds, which are deposits held on behalf of HealthEquity’s clients to facilitate the administration of its CDBs and from which the company generates custodial revenues, were $0.7 billion as of Oct. 31, 2024.

Revenue Sources of HealthEquity

HealthEquity derives revenues from three sources: Service revenues, Custodial revenues, and Interchange revenues.

Service revenues totaled $119.2 million in the quarter, up 4.5% year over year. This reflected a higher number of HSAs and invested HSA Assets. This figure compares favorably with our fiscal third-quarter projection of $116.7 million.

Custodial revenues totaled $140.9 million, up 40.9% from the year-ago period. Our projection for fiscal third-quarter Custodial revenues was $133.6 million.

Interchange revenues totaled $40.3 million, up 14.7% year over year. This figure compares favorably with our fiscal third-quarter projection of $38 million.

HQY Margin Details

In the quarter under review, HealthEquity’s gross profit rose 23.8% year over year to $197 million. The gross margin expanded 170 basis points (bps) to 65.6%. We had projected the gross margin to be 64.5% in the fiscal third quarter.

Sales and marketing expenses rose 15.2% to $22.6 million year over year, whereas technology and development expenses climbed 8.2% year over year to $60.2 million. General and administrative expenses also increased 17.1% year over year to $31.8 million. Total operating expenses of $177.4 million increased 38.3%. Higher merger integration expenses during the fiscal third quarter significantly increased the total operating expenses.  

However, operating profit totaled $19.6 million, declining 36.5% from the prior-year quarter. Operating margin in the quarter contracted 590 bps to 6.5% compared with the prior-year quarter.

HealthEquity, Inc. Price, Consensus and EPS Surprise

HealthEquity, Inc. price-consensus-eps-surprise-chart | HealthEquity, Inc. Quote

Financial Position of HQY

The company exited the third quarter of fiscal 2025 with cash and cash equivalents of $322.2 million compared with $326.9 million at the end of the fiscal second quarter of 2025. Total debt (net of issuance costs) at the end of third-quarter fiscal 2025 was $1.08 billion compared with $1.1 billion at the end of the second quarter of fiscal 2025.

Cumulative net cash provided by operating activities at the end of third-quarter fiscal 2025 totaled $264.1 million compared with $165.8 million a year ago.

HealthEquity FY25 Guidance

HealthEquity has upped its revenue and EPS projections for fiscal 2025.

For fiscal 2025, revenues are now projected to be between $1,185 million and $1,195 million, up from the previous outlook of $1,165 million-$1,185 million. The Zacks Consensus Estimate is currently pegged at $1.18 billion.

Adjusted EPS is now expected to be in the range of $3.08-$3.16, up from the earlier guidance of $2.98-$3.14. The Zacks Consensus Estimate currently stands at $3.11.

Our Take on HQY

HealthEquity exited fiscal third-quarter 2025 with better-than-expected results. The company witnessed solid top-line and bottom-line performances in the reported quarter. Solid growth in HSAs also drove the top line. The solid uptick in total HSA assets in the reported quarter is promising. The expansion of gross margin also bodes well.

Despite inflationary challenges, HealthEquity has experienced solid growth in HSA balances, driven by a significant increase in invested assets, which now represent a larger portion of total HSA assets. The growing number of members choosing to invest in HSAs reflects a positive trend. Additionally, more members are selecting enhanced rates on HSA cash, leading to improved and more consistent custodial yields.

With improved profit margins and a solid financial position, HealthEquity has raised its revenue and earnings guidance for fiscal 2025, signaling confidence in its ongoing growth trajectory.

However, significant rise in operating expenses leading to a decline in operating margin raises concerns.

HQY’s Zacks Rank & Key Picks

Currently, HealthEquity carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space are Masimo MASI, Accuray ARAY and AxoGen AXGN.

Masimo, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated growth rate of 11.8% for 2025. You can see the complete list of today’s Zacks #1 Rank stocks here.

MASI’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 17.10%. Its shares have risen 48.6% compared with the industry’s 6.4% growth year to date.

Accuray, carrying a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 1200% for 2025. Its earnings missed estimates in three of the trailing four quarters and met in one, delivering an average negative surprise of 141.97%.

ARAY’s shares have lost 25.8% against the industry’s 6.4% growth year to date.

AxoGen, carrying a Zacks Rank of 2 at present, has an estimated earnings growth rate of 252% for 2025. It delivered a trailing four-quarter average earnings surprise of 91.11%.

AXGN’s shares have risen 111.4% year to date compared with the industry’s 6.4% growth.

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