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HealthEquity (HQY) Q1 Earnings Lag Estimates, FY23 View Up

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HealthEquity, Inc. (HQY - Free Report) reported adjusted earnings per share (“EPS”) of 27 cents in first-quarter fiscal 2023, which missed the Zacks Consensus Estimate by a penny. The bottom line fell 28.9% on a year-over-year basis.

GAAP loss per share in the fiscal first quarter was 16 cents, wider than the year-ago quarter’s loss of 3 cents per share.

Revenues in Detail

In the fiscal first quarter, the company generated revenues of $205.7 million, beating the Zacks Consensus Estimate by 1.5%. The top line improved 11.7% from the prior-year quarter.

HSA Details

As of Apr 30, 2022, the total number of Health Savings Accounts (“HSA”) for which HealthEquity served as a non-bank custodian (HSA members) came in at 7.4 million, up 25.9% year over year.

HealthEquity reported sales of 159,000 new HSAs in the fiscal first quarter, up 38.3% year over year.

Total Active HSA assets were $20.3 billion at the end of the reported quarter, up 34.9% year over year. Total Accounts, as of Apr 30, 2022, were 14.5 million, up 12.6% year over year. This uptick included total HSAs and 7.1 million Consumer Direct Benefits (“CDB”).

Revenue Sources

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

Service revenues totaled $104.3 million in the quarter, up 1.8% year over year on the back of strong growth in HSAs and the Further acquisition. However, this was partially offset by a fall in CDB service revenues.

Custodial revenues totaled $59.4 million, up 26.4% from the year-ago period.

Interchange revenues totaled $41.9 million, up 20.9% year over year, primarily resulting from strong sales besides mergers and acquisitions during the past year.

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 7.8% to $111.2 million. However, gross margin contracted 193 basis points (bps) to 54.1%.

Sales and marketing expenses climbed 17.6% to $16.6 million year over year. Technology and development expenses climbed 27.4% to $45.2 million, whereas general and administrative expenses rose 14.7% year over year to $23.7 million. Adjusted operating expenses of $85.5 million increased 21.7%.

Adjusted operating profit totaled $25.7 million, declining 21.8% from the prior-year quarter. Adjusted operating margin in the quarter contracted 535 bps to 12.5%.

Financial Position

The company exited first-quarter fiscal 2023 with cash and cash equivalents of $161.2 million compared with $225.4 million at the end of fiscal 2022. Total debt at the end of first-quarter fiscal 2023 was $929.5 million compared with $930.8 million at the end of fiscal 2022.

Net cash flow from operating activities at the end of first-quarter fiscal 2023 totaled $7.1 million compared with $30.9 million in the year-ago period.

FY23 Guidance

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

For fiscal 2023, revenues are now projected to be $827-$837 million, up from its earlier projection of $820-$830 million. The Zacks Consensus Estimate for the same is currently pegged at $825.9 million.

Adjusted EPS is now expected within $1.23-$1.32, up from HealthEquity’s previous estimate of $1.21-$1.30. The Zacks Consensus Estimate for the same currently stands at $1.27.

Our Take

HealthEquity exited first-quarter fiscal 2023 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 arrangements to regional employers. Solid sales of new HSAs in the reported quarter are promising. 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 Other Key Picks

HealthEquity currently has a Zacks Rank #2 (Buy).

Some other stocks investors can consider in the broader medical space that have announced quarterly results are UnitedHealth Group Incorporated (UNH - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Masimo Corporation (MASI - Free Report) .

UnitedHealth, having a Zacks Rank #2, reported first-quarter 2022 adjusted EPS of $5.49, which beat the Zacks Consensus Estimate by 1.7%. Revenues of $80.1 billion outpaced the consensus mark by 1.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

UnitedHealth has an estimated long-term growth rate of 14.8%. UNH’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%.

AMN Healthcare, having a Zacks Rank #2, reported first-quarter 2022 adjusted EPS of $3.49, which beat the Zacks Consensus Estimate by 7.4%. Revenues of $1.55 billion outpaced the consensus mark by 3.7%.

AMN Healthcare has an estimated long-term growth rate of 1.1%. AMN’s earnings surpassed estimates in the trailing four quarters, the average surprise being 15.6%.

Masimo reported first-quarter 2022 adjusted EPS of 93 cents, which surpassed the Zacks Consensus Estimate by 1.1%. Revenues of $304.2 million outpaced the Zacks Consensus Estimate by 3.6%. It currently carries a Zacks Rank #2.

Masimo has an earnings yield of 3.3% against the industry’s negative yield. MASI’s earnings surpassed estimates in the trailing four quarters, the average surprise being 4.4%.

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