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HealthEquity (HQY) Down 1.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for HealthEquity (HQY - Free Report) . Shares have lost about 1.7% in that time frame, outperforming 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 Q2 Earnings & Revenues Beat Estimates

HealthEquity reported adjusted earnings per share 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 earnings per share.

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 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.

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 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 earnings per share is expected within $1.45-$1.50. The Zacks Consensus Estimate for the same currently stands at $1.48.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -11.29% due to these changes.

VGM Scores

At this time, HealthEquity has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, 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 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 indicates a downward shift. 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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