• Revenue Growth: Increased 21% year over year.
• Adjusted EBITDA: Up 24% year over year.
• HSA Assets: Increased 33% year over year to $30 billion.
• HSA Members: Grew 15%, driving total accounts up 8% to 16.5 million.
• Invested Assets: Increased 58% to $13.6 billion.
• Service Revenue: $119.2 million, up 4% year over year.
• Custodial Revenue: Grew 41% to $141 million.
• Interchange Revenue: Grew 15% to $40.3 million.
• Gross Profit: $197 million, 66% of revenue.
• Net Income: $5.7 million or $0.06 per share (GAAP).
• Non-GAAP Net Income: $69.4 million or $0.78 per share.
• Cash on Hand: $322 million.
• Debt Outstanding: Approximately $1.1 billion.
• Share Repurchase: $60 million repurchased during the quarter.
• Fiscal 2025 Revenue Guidance: $1.185 billion to $1.195 billion.
• Fiscal 2025 Adjusted EBITDA Guidance: $470 million to $480 million.
• Fiscal 2026 Revenue Guidance: $1.275 billion to $1.295 billion.
• Fiscal 2026 Adjusted EBITDA Margin Guidance: 41.5% to 42.5% of revenue.

• Warning! GuruFocus has detected 6 Warning Signs with HQY.

Release Date: December 09, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• HealthEquity Inc (NASDAQ:HQY) reported double-digit year-over-year growth in key metrics, including a 21% increase in revenue and a 24% rise in adjusted EBITDA.
• The company ended Q3 with 16.5 million total accounts, including 9.5 million HSAs, and HSA assets increased by $7.4 billion year over year.
• HSA members grew by 15%, driving total accounts up by 8%, and the number of HSA members who invest increased by 21%, boosting invested assets by 58% to $13.6 billion.
• HealthEquity Inc (NASDAQ:HQY) raised its FY25 guidance and provided an initial FY26 outlook, expecting revenue growth and margin expansion.
• The company successfully completed the final wave of single card processor consolidation and is leveraging AI to enhance member experiences and reduce service costs.

Negative Points

• HealthEquity Inc (NASDAQ:HQY) faced $8 million in excess service costs due to sophisticated fraud activity and the final phase of card processor consolidation.
• The company anticipates a challenging year-over-year new HSA sales comparison in Q4 due to a strong performance in the previous year.
• There is potential for healthy churn in CDB products due to incremental price increases, which could impact retention.
• The fiscal 2026 revenue guidance reflects high single-digit growth, which may be below consensus expectations.
• The commuter offering remains stable at 60-65% of pre-pandemic levels, indicating slow recovery in this segment.

Q & A Highlights

Q: Can you provide more details on the fiscal year '26 revenue guidance, which seems to be slightly below consensus? A: Scott Cutler, Appointed President and CEO, explained that the key part of the guidance is the expectation on custodial yield, which is projected between 3.25% and 3.5%. The guidance reflects a logical build based on the HSA cash maturity schedule and current market rates. The company is outperforming in the interchange line, but it's prudent to be cautious about future contributions and spend in that line. The guidance aims to reflect normalized growth expectations.

Q: How does the HOPE Act potentially expand the total addressable market (TAM) for HealthEquity? A: Stephen Neeleman, Vice Chairman and Founder, stated that the HOPE Act could increase the TAM by 40 to 45 million households. This expansion would include individuals with ACA-qualified health insurance, Medicare, Medicaid, TRICARE, and other plans that currently do not offer HSA-compatible options. The Act aims to make personal portable health accounts more accessible to a broader population.

Q: What impact did the $8 million excess service costs have on the quarter's financials? A: James Lucania, CFO, clarified that the $8 million in excess service costs were absorbed in the quarter's gross profit numbers. These costs were related to protecting members from fraud and assisting them during the card processor consolidation. The company expects only modest carryover of these costs into Q4.

Q: How does HealthEquity plan to approach the Medicare expansion opportunity? A: Stephen Neeleman explained that HealthEquity plans to leverage its existing partnerships with health plans, many of which have significant Medicare populations. The company aims to offer HOPE accounts or expanded Medicare HSAs through these channels, utilizing its strong distribution network to reach Medicare beneficiaries.

Q: Can you discuss the company's capital allocation strategy for fiscal '26 and beyond? A: James Lucania highlighted that the company plans to operate within its established cost envelopes for sales and marketing and tech and development. HealthEquity is returning capital to shareholders through share repurchases and paying down revolver borrowings. The company maintains ample capacity for potential acquisitions, viewing HSA portfolio acquisitions as high ROI investments.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.