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Why Is HealthEquity (HQY) Down 2.4% Since Last Earnings Report?
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A month has gone by since the last earnings report for HealthEquity (HQY - Free Report) . Shares have lost about 2.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is HealthEquity due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
HealthEquity Q3 Earnings Surpass Estimates, Margins Up
HealthEquity reported adjusted earnings per share of 60 cents in third-quarter fiscal 2024, which surpassed the Zacks Consensus Estimate by 22.5%. The bottom line improved 57.9% on a year-over-year basis.
GAAP earnings per share in the fiscal third quarter was 17 cents against the year-ago quarter’s loss of 2 cents.
Revenues in Detail
In the fiscal third quarter, the company generated revenues of $249.2 million, beating the Zacks Consensus Estimate by 2.3%. The top line improved 15.3% from the prior-year quarter.
HSA Details
As of Oct 31, 2023, the total number of HSA for which HealthEquity served as a non-bank custodian (HSA members) was 8.3 million, up 8.4% year over year.
HealthEquity reported 592,000 HSAs with investments as of Oct 31, 2023, up 11.9% year over year. Total Accounts, as of Oct 31, 2023, were 15.3 million, up 5.4% year over year. This uptick included total HSAs and 6.9 million other CDBs.
Total HSA assets were $22.57 billion at the end of Oct 31, 2023, up 11.7% year over year. This included $13.97 billion of HSA cash and $8.59 billion of HSA investments.
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 $0.76 billion as of Oct 31, 2023.
Revenue Sources
HealthEquity derives revenues from three sources: Service revenues, Custodial revenues and Interchange revenues.
Service revenues totaled $107.5 million in the quarter, down 0.9% year over year.
Custodial revenues totaled $106.6 million, up 42.8% from the year-ago period.
Interchange revenues totaled $35.1 million, up 6.9% year over year.
Margin Details
In the quarter under review, HealthEquity’s gross profit rose 24.9% to $158.4 million. The gross margin expanded 485 basis points (bps) to 63.6%.
Sales and marketing expenses climbed 19.7% to $13.9 million year over year, whereas technology and development expenses climbed 13.8% to $55.6 million. General and administrative expenses also increased 4.9% year over year to $26.4 million. Adjusted operating expenses of $101.6 million increased 11.4%.
Adjusted operating profit totaled $56.8 million, improving 59.5% from the prior-year quarter. Adjusted operating margin in the quarter expanded 630 bps to 22.8%.
Financial Position
The company exited third-quarter fiscal 2024 with cash and cash equivalents of $334.1 million compared with $290.3 million at the fiscal second-quarter end. Total debt (net of issuance costs) at the end of third-quarter fiscal 2024 was $874.3 million compared with $873.6 million at the end of the fiscal second quarter.
Cumulative net cash flow from operating activities at the end of third-quarter fiscal 2024 totaled $165.8 million compared with $95.2 million in the year-ago period.
FY24 Guidance
HealthEquity has upped its revenue and earnings per share outlook for fiscal 2024.
For fiscal 2024, revenues are now projected to be between $985 million and $995 million, up from the earlier projections of $980 million and $990 million. The Zacks Consensus Estimate is currently pegged at $990.3 million.
Adjusted earnings per share is now expected to be in the range of $2.08 to $2.16, up from the prior outlook of $1.97-$2.06. The Zacks Consensus Estimate currently stands at $2.03.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 12.45% due to these changes.
VGM Scores
At this time, HealthEquity has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, HealthEquity has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is HealthEquity (HQY) Down 2.4% Since Last Earnings Report?
A month has gone by since the last earnings report for HealthEquity (HQY - Free Report) . Shares have lost about 2.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is HealthEquity due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
HealthEquity Q3 Earnings Surpass Estimates, Margins Up
HealthEquity reported adjusted earnings per share of 60 cents in third-quarter fiscal 2024, which surpassed the Zacks Consensus Estimate by 22.5%. The bottom line improved 57.9% on a year-over-year basis.
GAAP earnings per share in the fiscal third quarter was 17 cents against the year-ago quarter’s loss of 2 cents.
Revenues in Detail
In the fiscal third quarter, the company generated revenues of $249.2 million, beating the Zacks Consensus Estimate by 2.3%. The top line improved 15.3% from the prior-year quarter.
HSA Details
As of Oct 31, 2023, the total number of HSA for which HealthEquity served as a non-bank custodian (HSA members) was 8.3 million, up 8.4% year over year.
HealthEquity reported 592,000 HSAs with investments as of Oct 31, 2023, up 11.9% year over year. Total Accounts, as of Oct 31, 2023, were 15.3 million, up 5.4% year over year. This uptick included total HSAs and 6.9 million other CDBs.
Total HSA assets were $22.57 billion at the end of Oct 31, 2023, up 11.7% year over year. This included $13.97 billion of HSA cash and $8.59 billion of HSA investments.
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 $0.76 billion as of Oct 31, 2023.
Revenue Sources
HealthEquity derives revenues from three sources: Service revenues, Custodial revenues and Interchange revenues.
Service revenues totaled $107.5 million in the quarter, down 0.9% year over year.
Custodial revenues totaled $106.6 million, up 42.8% from the year-ago period.
Interchange revenues totaled $35.1 million, up 6.9% year over year.
Margin Details
In the quarter under review, HealthEquity’s gross profit rose 24.9% to $158.4 million. The gross margin expanded 485 basis points (bps) to 63.6%.
Sales and marketing expenses climbed 19.7% to $13.9 million year over year, whereas technology and development expenses climbed 13.8% to $55.6 million. General and administrative expenses also increased 4.9% year over year to $26.4 million. Adjusted operating expenses of $101.6 million increased 11.4%.
Adjusted operating profit totaled $56.8 million, improving 59.5% from the prior-year quarter. Adjusted operating margin in the quarter expanded 630 bps to 22.8%.
Financial Position
The company exited third-quarter fiscal 2024 with cash and cash equivalents of $334.1 million compared with $290.3 million at the fiscal second-quarter end. Total debt (net of issuance costs) at the end of third-quarter fiscal 2024 was $874.3 million compared with $873.6 million at the end of the fiscal second quarter.
Cumulative net cash flow from operating activities at the end of third-quarter fiscal 2024 totaled $165.8 million compared with $95.2 million in the year-ago period.
FY24 Guidance
HealthEquity has upped its revenue and earnings per share outlook for fiscal 2024.
For fiscal 2024, revenues are now projected to be between $985 million and $995 million, up from the earlier projections of $980 million and $990 million. The Zacks Consensus Estimate is currently pegged at $990.3 million.
Adjusted earnings per share is now expected to be in the range of $2.08 to $2.16, up from the prior outlook of $1.97-$2.06. The Zacks Consensus Estimate currently stands at $2.03.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 12.45% due to these changes.
VGM Scores
At this time, HealthEquity has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, HealthEquity has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.