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Why Is HealthEquity (HQY) Down 0.7% 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 0.7% 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 its most recent earnings report in order to get a better handle on the important drivers.

HealthEquity Q1 Earnings Beat Estimates, FY22 View Up

HealthEquity reported adjusted earnings per share of 38 cents for first-quarter fiscal 2022, which beat the Zacks Consensus Estimate by 22.6%. However, the bottom line fell 11.6% on a year-over-year basis.

GAAP loss per share in the fiscal first quarter was 3 cents against the year-ago period’s earnings per share of 3 cents.

Revenues in Detail

For the fiscal first quarter, the company generated revenues of $184.2 million, outpacing the Zacks Consensus Estimate by 0.6%. However, the top line dipped 3.1% from the prior-year quarter.

HSA Details

As of Apr 30, 2021, the total number of HSA for which HealthEquity served as a non-bank custodian (HSA members) came in at 5.8 million, up 8.7% year over year.

Additionally, total Active HSA assets were $15 billion at the end of the reported quarter, up 30.5% year over year. Total Accounts as of Apr 30, 2021 were 12.8 million, up 0.9% year over year. This uptick included total HSAs as well as 6.9 million CDB.

Revenue Sources

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

Service revenues totaled $102.5 million, down 7.9% year over year, primarily due to a significant (more than 60%) decrease in active commuter accounts. However, the segment was benefited by growth in HSAs and other CDBs.

Custodial revenues totaled $46.9 million, up by 0.2% from the year-ago period. Per management, growth in average HSA cash with yield and a significant uptick in average HSA investments with yield more than offset a 33-basis point (bps) fall in the annualized yield on HSA cash.

Interchange revenues totaled $34.7 million, up 8.9% year over year. The revenue outperformance was primarily led by a rebound in spend across HealthEquity’s platforms in the reported quarter and growth in average total accounts.

Margin Details

In the quarter under review, HealthEquity’s gross profit fell 4.6% to $103.1 million. Gross margin contracted 90 bps to 55.9%.

Meanwhile, sales and marketing expenses rose 22.9% to $14.1 million year over year. Technology and development expenses climbed 14.1% year over year to $35.5 million whereas general and administrative expenses grew 8.9% year over year to $20.7 million. Adjusted operating expenses of $70.2 million increased 14.2% year over year.

Adjusted operating profit totaled $32.9 million, declining 29.4% from the prior-year quarter. Further, adjusted operating margin in the quarter contracted a huge 665 bps to 17.8%.

Financial Position

The company exited first-quarter fiscal 2022 with cash and cash equivalents of $736.8 million compared with $328.8 million at the end of fiscal 2021. Total debt in the fiscal first quarter (net of issuance costs) is $972.3 million compared with $986.7 million at the end of fiscal 2021.

Net cash flow from operating activities in the quarter totaled $30.9 million, up from $15 million in the year-ago period.

FY22 Guidance

HealthEquity, on the basis of its fiscal first quarter performance, raised its earlier provided financial outlook for full fiscal.

For fiscal 2022, revenues are now projected in the range of $755 million-$765 million (up from the earlier projection in the band of $750 million-$760 million). The Zacks Consensus Estimate for the same is currently pegged at $756.2 million.

Adjusted earnings per share is expected within $1.45-$1.50, up from the previous estimate of $1.37-$1.42. The Zacks Consensus Estimate for the same currently stands at $1.40.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted 11.87% due to these changes.

VGM Scores

At this time, HealthEquity has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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 looks promising. 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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