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HealthEquity (HQY) Q2 Earnings & Revenues Beat Estimates

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HealthEquity, Inc. (HQY - Free Report) reported adjusted earnings per share (EPS) of 40 cents in second-quarter fiscal 2022, which beat the Zacks Consensus Estimate by 11.1%. However, the bottom line fell 4.8% on a year-over-year basis.

GAAP loss per share in the fiscal second quarter was 5 cents against the year-ago quarter’s breakeven EPS.

Revenues in Detail

In the fiscal second quarter, the company generated revenues of $189.1 million, outpacing the Zacks Consensus Estimate by 2.1%. The top line jumped 7.4% from the prior-year quarter.

HSA Details

As of Jul 31, 2021, the total number of Health Savings Accounts (HSA) for which HealthEquity served as a non-bank custodian (HSA members) came in at 5.9 million, up 10.9% year over year.

Total Active HSA assets were $15.5 billion at the end of the reported quarter, up 26.7% year over year. Total Accounts as of Jul 31, 2021, were 13.1 million, up 5.4% year over year. This uptick included total HSAs and 7.2 million Consumer Direct Benefits or CDB.

Revenue Sources

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

Service revenues totaled $109.2 million, up 5.2% year over year, primarily due to an 8% rise in average total accounts driven by growth in COBRA. However, this was partially offset by commuter accounts in suspension due to the pandemic-led impacts.

HealthEquity, Inc. Price, Consensus and EPS Surprise

HealthEquity, Inc. Price, Consensus and EPS Surprise

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

Custodial revenues totaled $48.8 million, up 3.9% from the year-ago period.

Interchange revenues totaled $31.1 million, up 22.9% 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 rose 10% to $111.9 million. Gross margin expanded 139 basis points (bps) to 59.2%.

Sales and marketing expenses rose 27.2% to $15.5 million year over year. Technology and development expenses climbed 23.6% to $37.9 million whereas general and administrative expenses jumped 11.3% year over year to $22.8 million. Adjusted operating expenses of $76.2 million increased 20.3%.

Adjusted operating profit totaled $35.8 million, declining 6.9% from the prior-year quarter. Further, adjusted operating margin in the quarter contracted 293 bps to 18.9%.

Financial Position

The company exited second-quarter fiscal 2022 with cash and cash equivalents of $753.8 million compared with $736.8 million at the end of the first quarter of fiscal 2022. Total debt in the fiscal second quarter (including current portion but net of issuance costs) was $973.6 million compared with $972.3 million at the end of the fiscal first quarter.

Cumulative net cash flow from operating activities in the quarter totaled $68.2 million compared with $68.7 million in the year-ago period.

FY22 Guidance

HealthEquity reiterated its earlier provided financial outlook for the full fiscal year.

For fiscal 2022, revenues are continued to be projected in the range of $755-$765 million. The Zacks Consensus Estimate for the same is currently pegged at $763.2 million.

Adjusted EPS is expected within $1.45-$1.50. The Zacks Consensus Estimate for the same currently stands at $1.48.

Our Take

HealthEquity exited second-quarter fiscal 2022 with better-than-expected results. The top line benefited from the robust contributions from all three revenue sources. Solid growth in HSAs also drove the top line. In addition to HSA, the company offers health reimbursement arrangement to regional employers. HealthEquity’s continued organic momentum and the Further and Fifth-Third HSA portfolio buyouts (which are likely to close later this fiscal year) raise our optimism. Gross margin expansion also augurs well.

However, the year-over-year fall in adjusted EPS is concerning. Suspension of commuter accounts due to the pandemic-led impacts is also worrying. Contraction of adjusted operating margin does not bode well either. The company also faces stiff competition in the Medical Services market, thus raising apprehensions.

Zacks Rank and Key Picks

HealthEquity currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Encompass Health Corporation (EHC - Free Report) , West Pharmaceutical Services, Inc. (WST - Free Report) , and Bio-Rad Laboratories, Inc. (BIO - Free Report) .

Encompass Health, carrying a Zacks Rank #2 (Buy), reported second-quarter 2021 adjusted EPS of $1.17, which beat the Zacks Consensus Estimate by 15.8%. Second-quarter revenues of $1.3 billion outpaced the consensus mark by 1.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

West Pharmaceutical reported second-quarter 2021 adjusted EPS of $2.46, which surpassed the Zacks Consensus Estimate by 41.4%. Second-quarter revenues of $723.6 million outpaced the Zacks Consensus Estimate by 8.7%. It currently carries a Zacks Rank #2.

Bio-Rad reported second-quarter 2021 adjusted EPS of $3.54, surpassing the Zacks Consensus Estimate by 86.3%. Revenues of $715.9 million surpassed the Zacks Consensus Estimate by 17.3%. It currently carries a Zacks Rank #2.

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