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Why Is HealthEquity (HQY) Down 4.3% Since Last Earnings Report?
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It has been about a month since the last earnings report for HealthEquity (HQY - Free Report) . Shares have lost about 4.3% 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 catalysts.
HealthEquity reported adjusted earnings per share of 86 cents for second-quarter fiscal 2025, surpassing the Zacks Consensus Estimate by 22.9%. The bottom line improved 62.2% on a year-over-year basis.
GAAP earnings per share in the fiscal second quarter was 40 cents, up 233% from the year-ago quarter’s earnings per share of 12 cents.
Revenues in Detail
In the fiscal second quarter, the company generated revenues of $299.93 million, which beat the Zacks Consensus Estimate by 5.4%. The top line improved 23.2% from the prior-year quarter.
HSA Details
As of July 31,2024, the total number of Health Savings Accounts (HSA) for which HealthEquity served as a non-bank custodian was 9.4 million, up 15% year over year.
HealthEquity reported 711,000 HSAs with investments as of July 31,2024, up 24% year over year. Total accounts, as of July 31,2024, were 16.3 million, up 9% year over year. This uptick included total HSAs and 6.9 million Consumer Direct Benefits (CDBs), up 1% year over year.
Total HSA assets were $29.5 billion at the end of July 31, 2024, up 27% year over year. This included $16.4 billion of HSA cash (up 17% year over year) and $13.1 billion of HSA investments (up 43% year over year).
This figure compares to our fiscal second-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 second 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 $820 million (up 1% year over year) as of July 31, 2024.
Revenue Sources
HealthEquity derives revenues from three sources: Service revenues, Custodial revenues, and Interchange revenues.
Service revenues totaled $116.7 million in the quarter, up 4.2% year over year. This reflected a higher number of HSAs and invested HSA Assets, partially offset by the runoff of National Emergency CDB activity. This figure compares favorably with our second-quarter projection of $114.3 million.
Custodial revenues totaled $138.7 million, up 49.6% from the year-ago period. Our projection for fiscal second-quarter Custodial revenues was $123.2 million.
Interchange revenues totaled $44.5 million, up 14.4% year over year. This figure compares favorably with our fiscal second-quarter projection of $43.7 million.
Margin Details
In the quarter under review, HealthEquity’s gross profit rose 34.5% to $204.1 million. The gross margin expanded 576 basis points (bps) to 68.03%. We had projected the gross margin to be 65.3% in the fiscal second quarter.
Sales and marketing expenses rose 12.6% to $21.5 million year over year, whereas technology and development expenses climbed 7% to $58.6 million. General and administrative expenses also increased 16.2% year over year to $32.3 million. Adjusted operating expenses of $145.1 million increased 14.3%.
Operating profit totaled $58.9 million, improving 138.4% from the prior-year quarter. Operating margin in the quarter expanded by 949 bps to 19.6%.
Financial Position
The company exited the second quarter of fiscal 2025 with cash and cash equivalents of $326.9 million compared with $404 million at the end of the first quarter of fiscal 2025. Total debt (net of issuance costs) at the end of second-quarter fiscal 2025 was $1.1 billion compared with $875 million at the end of first quarter fiscal 2025.
Net cash provided by operating activities at the end of second-quarter fiscal 2025 totaled $173.6 million compared with $108.6 million a year ago.
FY25 Guidance
HealthEquity has upped its revenue and earnings per share projections for fiscal 2025.
For fiscal 2025, revenues are now projected to be between $1.17 billion and $1.19 billion, up from the previous outlook of $1.16 billion to $1.18 billion. The Zacks Consensus Estimate is currently pegged at $1.17 billion.
Adjusted earnings per share is now expected to be in the range of $2.98-$3.14, up from the earlier guidance of $2.93-$3.10. The Zacks Consensus Estimate currently stands at $3.00.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, HealthEquity has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, HealthEquity has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is HealthEquity (HQY) Down 4.3% Since Last Earnings Report?
It has been about a month since the last earnings report for HealthEquity (HQY - Free Report) . Shares have lost about 4.3% 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 catalysts.
HealthEquity Q2 Earnings & Revenues Beat Estimates, Margins Expand
HealthEquity reported adjusted earnings per share of 86 cents for second-quarter fiscal 2025, surpassing the Zacks Consensus Estimate by 22.9%. The bottom line improved 62.2% on a year-over-year basis.
GAAP earnings per share in the fiscal second quarter was 40 cents, up 233% from the year-ago quarter’s earnings per share of 12 cents.
Revenues in Detail
In the fiscal second quarter, the company generated revenues of $299.93 million, which beat the Zacks Consensus Estimate by 5.4%. The top line improved 23.2% from the prior-year quarter.
HSA Details
As of July 31,2024, the total number of Health Savings Accounts (HSA) for which HealthEquity served as a non-bank custodian was 9.4 million, up 15% year over year.
HealthEquity reported 711,000 HSAs with investments as of July 31,2024, up 24% year over year. Total accounts, as of July 31,2024, were 16.3 million, up 9% year over year. This uptick included total HSAs and 6.9 million Consumer Direct Benefits (CDBs), up 1% year over year.
Total HSA assets were $29.5 billion at the end of July 31, 2024, up 27% year over year. This included $16.4 billion of HSA cash (up 17% year over year) and $13.1 billion of HSA investments (up 43% year over year).
This figure compares to our fiscal second-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 second 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 $820 million (up 1% year over year) as of July 31, 2024.
Revenue Sources
HealthEquity derives revenues from three sources: Service revenues, Custodial revenues, and Interchange revenues.
Service revenues totaled $116.7 million in the quarter, up 4.2% year over year. This reflected a higher number of HSAs and invested HSA Assets, partially offset by the runoff of National Emergency CDB activity. This figure compares favorably with our second-quarter projection of $114.3 million.
Custodial revenues totaled $138.7 million, up 49.6% from the year-ago period. Our projection for fiscal second-quarter Custodial revenues was $123.2 million.
Interchange revenues totaled $44.5 million, up 14.4% year over year. This figure compares favorably with our fiscal second-quarter projection of $43.7 million.
Margin Details
In the quarter under review, HealthEquity’s gross profit rose 34.5% to $204.1 million. The gross margin expanded 576 basis points (bps) to 68.03%. We had projected the gross margin to be 65.3% in the fiscal second quarter.
Sales and marketing expenses rose 12.6% to $21.5 million year over year, whereas technology and development expenses climbed 7% to $58.6 million. General and administrative expenses also increased 16.2% year over year to $32.3 million. Adjusted operating expenses of $145.1 million increased 14.3%.
Operating profit totaled $58.9 million, improving 138.4% from the prior-year quarter. Operating margin in the quarter expanded by 949 bps to 19.6%.
Financial Position
The company exited the second quarter of fiscal 2025 with cash and cash equivalents of $326.9 million compared with $404 million at the end of the first quarter of fiscal 2025. Total debt (net of issuance costs) at the end of second-quarter fiscal 2025 was $1.1 billion compared with $875 million at the end of first quarter fiscal 2025.
Net cash provided by operating activities at the end of second-quarter fiscal 2025 totaled $173.6 million compared with $108.6 million a year ago.
FY25 Guidance
HealthEquity has upped its revenue and earnings per share projections for fiscal 2025.
For fiscal 2025, revenues are now projected to be between $1.17 billion and $1.19 billion, up from the previous outlook of $1.16 billion to $1.18 billion. The Zacks Consensus Estimate is currently pegged at $1.17 billion.
Adjusted earnings per share is now expected to be in the range of $2.98-$3.14, up from the earlier guidance of $2.93-$3.10. The Zacks Consensus Estimate currently stands at $3.00.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, HealthEquity has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, HealthEquity has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.