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HealthEquity (HQY) Earnings & Revenues Beat Estimates in Q3

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HealthEquity, Inc. (HQY - Free Report) reported adjusted earnings per share (EPS) of 47 cents in third-quarter fiscal 2020, which surpassed the Zacks Consensus Estimate of 22 cents. The bottom line also improved a significant 51.6% on a year-over-year basis.

Revenues of the Zacks Rank #3 (Hold) company amounted to $157.1 million, which skyrocketed 122.9% year over year and also outpaced the Zacks Consensus Estimate of $152.1 million.

HSA Member Detail

As of Oct 31, 2019, the total number of Health Savings Accounts (HSA), for which HealthEquity served as a non-bank custodian (HSA members), was 5 million, up 37% year over year.

Additionally, total Active HSA members were 4.1 million, up 38% year over year.

Total Custodial Assets totaled $10.5 billion, up 48% year over 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

Segmental Performance

Service Revenues: At this segment, revenues totaled $87.6 million, up significantly from the year-ago quarter’s $25 million on organic growth of 16% in average HSA.

Custodial Revenues: At this segment, revenues grew 48.8% year over year to $47 million, attributable to growth in HSA assets and 2.48% higher year-over-year annualized interest rate yield on HSA cash assets.

Interchange Revenues: At this segment, revenues improved 62.1% year over year to $22.5 million. Per management, the upside was driven by increase in average total accounts, including contributions from WageWorks.

Margin Details

HealthEquity registered gross profit of $96 million, up significantly from the year-ago quarter’s $45.8 million. Gross margin was 61.1% of net revenues, down 390 bps year over year.

Sales and marketing expenses summed $12.7 million, up 68.7% year over year. Technology and development expenses totaled $23.5 million, up from $8.7 million in the second quarter of fiscal 2019. General and administrative expenses amounted to $19.2 million, up from the prior-year quarter’s $9.2 million.

Operating income in the fiscal third quarter was $9.9 million, down 47.7% year over year. Operating margin totaled 6.3% in the quarter, down significantly from the year-ago quarter’s 26.9%.

Guidance

HealthEquity raised its revenue guidance for fiscal 2020.

The company now expects revenues between $520 million and $526 million, much higher than the earlier projected range of $341-$347 million The Zacks Consensus Estimate of $516.8 million is below HealthEquity’s guided range.

Adjusted net income is projected between $101 million and $105 million, much above the earlier stated range of $76-$80 million.

Adjusted EPS for fiscal 2020 is expected within $1.46-$1.52, compared to $1.10-$1.16 issued earlier. The Zacks Consensus Estimate for earnings is pegged at $1.22, much below the company’s guided range.

Summing Up

With solid HSA member growth, HealthEquity exited the third quarter of fiscal 2020 on an impressive note. Additionally, the company raised its fiscal 2020 guidance. Strong growth in Service and Custodial segments buoys optimism.

Notably, solid growth in HSAs and custodial assets bolstered the company’s top-line performance. Currently, HealthEquity is the third-largest HSA custodian by market share. In addition to HSA, the company offers health reimbursement arrangement (HRA) and health flexible spending account to regional employers.

However, a significant drop in operating and gross margin raises concern. In fact, operating income also plunged in the quarter. The company also faces stiff competition in the Medical Services market. HealthEquity is required to comply with the strict treasury regulations formulated by the Internal Revenue Service (IRS).

Earnings of MedTech Majors at a Glance

Some better-ranked companies, which posted solid results this earnings season, are NuVasive, Inc (NUVA - Free Report) , Thermo Fisher Scientific Inc (TMO - Free Report) and CONMED Corporation (CNMD - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NuVasive’s third-quarter 2019 adjusted EPS of 59 cents beat the consensus estimate by 9.3%. Revenues of $290.8 million outpaced the consensus mark by 2.4%.

Thermo Fisher delivered third-quarter 2019 adjusted EPS of $2.94, beating the Zacks Consensus Estimate by 2.1%. Revenues of $6.27 billion exceeded the Zacks Consensus Estimate by 1.3%.

CONMED reported third-quarter 2019 adjusted EPS of 62 cents, which beat the Zacks Consensus Estimate of 56 cents by 10.7%. Revenues of $233.6 million surpassed the Zacks Consensus Estimate of $228.3 million by 2.3%.

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