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HealthEquity (HQY) Q2 Earnings Lag Estimates, Margins Down
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HealthEquity, Inc. (HQY - Free Report) reported adjusted earnings per share (EPS) of 33 cents in second-quarter fiscal 2023, which missed the Zacks Consensus Estimate by a penny. The bottom line fell 17.5% on a year-over-year basis.
Our projection of adjusted EPS was 36 cents.
GAAP loss per share in the fiscal second quarter was 13 cents, wider than the year-ago quarter’s loss of 5 cents per share.
Revenues in Detail
In the fiscal second quarter, the company generated revenues of $206.1 million, beating the Zacks Consensus Estimate by 1.4%. The top line improved 9% from the prior-year quarter.
The fiscal second-quarter revenue compares to our estimate of $201.6 million.
HSA Details
As of Jul 31, 2022, the total number of Health Savings Accounts (HSA) for which HealthEquity served as a non-bank custodian (HSA members) came in at 7.5 million, up 25.9% year over year.
HealthEquity reported sales of 196,000 new HSAs in the fiscal second quarter, up 8.9% year over year.
Total Active HSA assets were $20.5 billion at the end of the reported quarter, up 32.8% year over year. Total Accounts, as of Jul 31, 2022, were 14.5 million, up 10.7% year over year. This uptick included total HSAs and 7 million Consumer Direct Benefits.
This figure compares to our total Active HSA assets’ fiscal second-quarter projection of $17.9 billion.
Revenue Sources
HealthEquity derives revenues from three sources: Service revenues, Custodial revenues and Interchange revenues.
Service revenues totaled $103 million in the quarter, down 5.6% year over year. However, excluding the non-recurring revenue impact of the COBRA subsidy, the service revenue grew approximately 4% during the reported quarter, primarily on the back of strong HSA growth and an uptick in commuters returning to work.
This figure compares to our Service revenues’ fiscal second-quarter projection of $118.6 million.
Custodial revenues totaled $65.6 million, up 34.5% from the year-ago period, driven by 30% growth in average HSA cash and 37% growth in average HSA investments, along with an uptick in the annualized yield on HSA cash.
This figure compares to our Custodial revenues’ fiscal second-quarter projection of $62.9 million.
Interchange revenues totaled $37.5 million, up 20.4% year over year, primarily resulting from growth in average total accounts with cards and increased spending per account.
This figure compares to our Interchange revenues’ fiscal second-quarter projection of $20.2 million.
HealthEquity, Inc. Price, Consensus and EPS Surprise
In the quarter under review, HealthEquity’s gross profit rose 5.2% to $117.8 million. However, gross margin contracted 206 basis points (bps) to 57.2%.
We had projected 58.4% of gross margin for fiscal second quarter.
Sales and marketing expenses climbed 2.4% to $15.8 million year over year. Technology and development expenses climbed 22.9% to $46.6 million, whereas general and administrative expenses rose 13.7% year over year to $25.9 million. Adjusted operating expenses of $88.4 million increased 15.9%.
Adjusted operating profit totaled $29.5 million, declining 17.7% from the prior-year quarter. Adjusted operating margin in the quarter contracted 464 bps to 14.3%.
Financial Position
The company exited second-quarter fiscal 2023 with cash and cash equivalents of $176.9 million compared with $161.2 million at the end of fiscal first quarter. Total debt at the end of second-quarter fiscal 2023 was $928.1 million compared with $929.5 million at the end of fiscal first quarter.
Cumulative net cash flow from operating activities at the end of second-quarter fiscal 2023 totaled $47.2 million compared with $68.2 million in the year-ago period.
FY23 Guidance
HealthEquity has upped its revenue outlook for the full fiscal year 2023 while reiterating its adjusted EPS projections.
For fiscal 2023, revenues are now projected to be within $834 million-$844 million, up from its earlier projection of $827-$837 million. The Zacks Consensus Estimate for the same is currently pegged at $830.4 million.
Adjusted EPS is continued to be expected within $1.23-$1.32. The ZCE for the same currently stands at $1.29.
Our Take
HealthEquity exited second-quarter fiscal 2023 with better-than-expected revenues. The top line benefited from robust contributions from majority 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.
However, lower-than-expected earnings and dismal bottom-line performances are concerning. Decline in Service revenues in the quarter is also worrying. Rising operating costs putting pressure on both margins does not bode well either.
Zacks Rank and Other Key Picks
HealthEquity currently has a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader medical space that have announced quarterly results are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and ShockWave Medical, Inc. (SWAV - Free Report) .
McKesson, carrying a Zacks Rank #2, reported first-quarter fiscal 2023 adjusted EPS of $5.83, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $67.2 billion outpaced the consensus mark by 5.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
McKesson has an estimated long-term growth rate of 9.9%. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 13%.
AMN Healthcare, sporting a Zacks Rank #1, reported second-quarter 2022 adjusted EPS of $3.31, which beat the Zacks Consensus Estimate by 11.8%. Revenues of $1.43 billion outpaced the consensus mark by 4.8%.
AMN Healthcare has an estimated long-term growth rate of 3.2%. AMN’s earnings surpassed estimates in all the trailing four quarters, the average being 15.7%.
ShockWave Medical reported second-quarter 2022 EPS of 68 cents, which surpassed the Zacks Consensus Estimate by 58.1%. Second-quarter revenues of $120.7 million outpaced the Zacks Consensus Estimate by 12.6%. It currently flaunts a Zacks Rank #1.
ShockWave Medical has an estimated growth rate of 33.1% for 2023. SWAV’s earnings surpassed estimates in all the trailing four quarters, the average being 180.1%.
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HealthEquity (HQY) Q2 Earnings Lag Estimates, Margins Down
HealthEquity, Inc. (HQY - Free Report) reported adjusted earnings per share (EPS) of 33 cents in second-quarter fiscal 2023, which missed the Zacks Consensus Estimate by a penny. The bottom line fell 17.5% on a year-over-year basis.
Our projection of adjusted EPS was 36 cents.
GAAP loss per share in the fiscal second quarter was 13 cents, wider than the year-ago quarter’s loss of 5 cents per share.
Revenues in Detail
In the fiscal second quarter, the company generated revenues of $206.1 million, beating the Zacks Consensus Estimate by 1.4%. The top line improved 9% from the prior-year quarter.
The fiscal second-quarter revenue compares to our estimate of $201.6 million.
HSA Details
As of Jul 31, 2022, the total number of Health Savings Accounts (HSA) for which HealthEquity served as a non-bank custodian (HSA members) came in at 7.5 million, up 25.9% year over year.
HealthEquity reported sales of 196,000 new HSAs in the fiscal second quarter, up 8.9% year over year.
Total Active HSA assets were $20.5 billion at the end of the reported quarter, up 32.8% year over year. Total Accounts, as of Jul 31, 2022, were 14.5 million, up 10.7% year over year. This uptick included total HSAs and 7 million Consumer Direct Benefits.
This figure compares to our total Active HSA assets’ fiscal second-quarter projection of $17.9 billion.
Revenue Sources
HealthEquity derives revenues from three sources: Service revenues, Custodial revenues and Interchange revenues.
Service revenues totaled $103 million in the quarter, down 5.6% year over year. However, excluding the non-recurring revenue impact of the COBRA subsidy, the service revenue grew approximately 4% during the reported quarter, primarily on the back of strong HSA growth and an uptick in commuters returning to work.
This figure compares to our Service revenues’ fiscal second-quarter projection of $118.6 million.
Custodial revenues totaled $65.6 million, up 34.5% from the year-ago period, driven by 30% growth in average HSA cash and 37% growth in average HSA investments, along with an uptick in the annualized yield on HSA cash.
This figure compares to our Custodial revenues’ fiscal second-quarter projection of $62.9 million.
Interchange revenues totaled $37.5 million, up 20.4% year over year, primarily resulting from growth in average total accounts with cards and increased spending per account.
This figure compares to our Interchange revenues’ fiscal second-quarter projection of $20.2 million.
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 5.2% to $117.8 million. However, gross margin contracted 206 basis points (bps) to 57.2%.
We had projected 58.4% of gross margin for fiscal second quarter.
Sales and marketing expenses climbed 2.4% to $15.8 million year over year. Technology and development expenses climbed 22.9% to $46.6 million, whereas general and administrative expenses rose 13.7% year over year to $25.9 million. Adjusted operating expenses of $88.4 million increased 15.9%.
Adjusted operating profit totaled $29.5 million, declining 17.7% from the prior-year quarter. Adjusted operating margin in the quarter contracted 464 bps to 14.3%.
Financial Position
The company exited second-quarter fiscal 2023 with cash and cash equivalents of $176.9 million compared with $161.2 million at the end of fiscal first quarter. Total debt at the end of second-quarter fiscal 2023 was $928.1 million compared with $929.5 million at the end of fiscal first quarter.
Cumulative net cash flow from operating activities at the end of second-quarter fiscal 2023 totaled $47.2 million compared with $68.2 million in the year-ago period.
FY23 Guidance
HealthEquity has upped its revenue outlook for the full fiscal year 2023 while reiterating its adjusted EPS projections.
For fiscal 2023, revenues are now projected to be within $834 million-$844 million, up from its earlier projection of $827-$837 million. The Zacks Consensus Estimate for the same is currently pegged at $830.4 million.
Adjusted EPS is continued to be expected within $1.23-$1.32. The ZCE for the same currently stands at $1.29.
Our Take
HealthEquity exited second-quarter fiscal 2023 with better-than-expected revenues. The top line benefited from robust contributions from majority 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.
However, lower-than-expected earnings and dismal bottom-line performances are concerning. Decline in Service revenues in the quarter is also worrying. Rising operating costs putting pressure on both margins does not bode well either.
Zacks Rank and Other Key Picks
HealthEquity currently has a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader medical space that have announced quarterly results are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and ShockWave Medical, Inc. (SWAV - Free Report) .
McKesson, carrying a Zacks Rank #2, reported first-quarter fiscal 2023 adjusted EPS of $5.83, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $67.2 billion outpaced the consensus mark by 5.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
McKesson has an estimated long-term growth rate of 9.9%. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 13%.
AMN Healthcare, sporting a Zacks Rank #1, reported second-quarter 2022 adjusted EPS of $3.31, which beat the Zacks Consensus Estimate by 11.8%. Revenues of $1.43 billion outpaced the consensus mark by 4.8%.
AMN Healthcare has an estimated long-term growth rate of 3.2%. AMN’s earnings surpassed estimates in all the trailing four quarters, the average being 15.7%.
ShockWave Medical reported second-quarter 2022 EPS of 68 cents, which surpassed the Zacks Consensus Estimate by 58.1%. Second-quarter revenues of $120.7 million outpaced the Zacks Consensus Estimate by 12.6%. It currently flaunts a Zacks Rank #1.
ShockWave Medical has an estimated growth rate of 33.1% for 2023. SWAV’s earnings surpassed estimates in all the trailing four quarters, the average being 180.1%.