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HealthEquity (HQY) Q4 Earnings Lag Estimates, Margins Down

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HealthEquity, Inc. (HQY - Free Report) reported adjusted earnings per share (“EPS”) of 20 cents in fourth-quarter fiscal 2022, which missed the Zacks Consensus Estimate by 4.8%. The bottom line fell 54.5% on a year-over-year basis.

GAAP loss per share in the fiscal fourth quarter was 39 cents against the year-ago quarter’s EPS of 7 cents.

Full-year EPS was $1.33, reflecting a 21.3% decline over fiscal 2021.

Revenues in Detail

In the fiscal fourth quarter, the company generated revenues of $203.3 million, beating the Zacks Consensus Estimate by 2%. The top line improved 8% from the prior-year quarter.

Full-year revenues were $756.6 million, reflecting a 3.1% improvement over fiscal 2021.

HSA Details

As of Jan 31, 2022, the total number of Health Savings Accounts (“HSA”) for which HealthEquity served as a non-bank custodian (HSA members) came in at 7.2 million, up 24.6% year over year.

Total Active HSA assets were $19.6 billion at the end of the reported quarter, up 36.9% year over year. Total Accounts, as of Jan 31, 2022, were 14.4 million, up 12.4% year over year. This uptick included total HSAs and 7.2 million Consumer Direct Benefits (“CDB”).

Revenue Sources

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

Service revenues totaled $112.5 million in the quarter, up 1% year over year on the back of strong growth in HSAs (which led to average total accounts growth of 13% year over year) and 2% year-over-year growth in CDB (which benefited from acquired and new open enrolment accounts started in January).

Custodial revenues totaled $58.1 million, up 19.5% from the year-ago period.

Interchange revenues totaled $32.8 million, up 15.9% year over year, primarily resulting from HSA spend associated with 25% year-over-year growth in HSAs.

HealthEquity, Inc. Price, Consensus and EPS Surprise

HealthEquity, Inc. Price, Consensus and EPS Surprise

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

Margin Details

In the quarter under review, HealthEquity’s gross profit rose 4.3% to $105.3 million. However, gross margin contracted 184 basis points (bps) to 51.8%.

Sales and marketing expenses climbed 21.2% to $16.3 million year over year. Technology and development expenses climbed 42.1% to $45.9 million, whereas general and administrative expenses declined 8.9% year over year to $20.9 million. Adjusted operating expenses of $83.1 million increased 21%.

Adjusted operating profit totaled $22.2 million, declining 31.2% from the prior-year quarter. Adjusted operating margin in the quarter contracted 622 bps to 10.9%.

Financial Position

The company exited fiscal 2022 with cash and cash equivalents of $225.4 million compared with $328.8 million at the end of fiscal 2021. Total debt (net of issuance costs) at the end of fiscal 2022 was $930.8 million compared with $986.7 million at the end of fiscal 2021.

Cumulative net cash flow from operating activities at the end of fiscal 2022 totaled $140.9 million compared with $181.6 million in the year-ago period.

FY23 Guidance

HealthEquity has initiated its financial outlook for the full fiscal year 2023.

For fiscal 2023, revenues are projected to be $820-$830 million. The Zacks Consensus Estimate for the same is currently pegged at $820.8 million.

Adjusted EPS is expected within $1.21-$1.30. The ZCE for the same currently stands at $1.38.

Our Take

HealthEquity exited fourth-quarter fiscal 2022 with better-than-expected revenues. The top line benefited from robust contributions from all of its 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 Further and HealthSavings HSA portfolio buyouts (which closed on Nov 1, 2021 and Mar 2, 2022, respectively) raise our optimism.

However, lower-than-expected earnings and the year-over-year fall in adjusted EPS are concerning. Contraction of both margins does not bode well either.

Zacks Rank and Key Picks

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

Some better-ranked stocks in the broader medical space that have announced quarterly results include AMN Healthcare Services, Inc. (AMN - Free Report) , Allscripts Healthcare Solutions, Inc. (MDRX - Free Report) and Henry Schein, Inc. (HSIC - Free Report) .

AMN Healthcare, currently flaunting a Zacks Rank #1 (Strong Buy), reported fourth-quarter 2021 adjusted EPS of $2.95, which beat the Zacks Consensus Estimate by 14.3%. Revenues of $1.36 billion also outpaced the consensus mark by 0.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has an estimated long-term growth rate of 16.2%. AMN’s earnings surpassed estimates in all the trailing four quarters, with the average beat being 20%.

Allscripts, presently carrying a Zacks Rank #2 (Buy), reported fourth-quarter 2021 adjusted EPS of 79 cents, which beat the Zacks Consensus Estimate by 154.8%. Revenues of $391.7 million also outpaced the consensus mark by 0.1%.

Allscripts has an estimated long-term growth rate of 16.3%. MDRX’s earnings surpassed estimates in the trailing four quarters, with the average surprise being 64.8%.

Henry Schein reported fourth-quarter 2021 adjusted EPS of $1.07, which surpassed the Zacks Consensus Estimate by 18.9%. Fourth-quarter revenues of $3.33 billion also outpaced the Zacks Consensus Estimate by 4.7%. It currently has a Zacks Rank #2.

Henry Schein has an estimated long-term growth rate of 11.8%. HSIC’s earnings surpassed estimates in the trailing four quarters, with the average surprise being 25.5%.

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