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Why Is HealthEquity (HQY) Down 10% Since Last Earnings Report?

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It has been about a month since the last earnings report for HealthEquity (HQY - Free Report) . Shares have lost about 10% 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 the most recent earnings report in order to get a better handle on the important catalysts.

HealthEquity Q1 Earnings Lag Estimates, FY23 View Up

HealthEquity reported adjusted earnings per share 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 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 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.

Margin Details

In the quarter under review, HealthEquity’s gross profit rose 7.8% to $111.2 million. However, gross margin contracted 193 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 earnings per share is now expected within $1.23-$1.32, up from HealthEquity’s previous estimate of $1.21-$1.30. The ZCE for the same currently stands at $1.27.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -10.46% 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 an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 #2 (Buy). We expect an above average return from the stock in the next few months.


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