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HealthEquity (HQY) Earnings & Revenues Beat Estimates in Q2

Zacks Equity Research

HealthEquity, Inc. HQY reported adjusted earnings per share (EPS) of 45 cents in second-quarter fiscal 2020, which surpassed the Zacks Consensus Estimate of 35 cents. The bottom-line figure also improved 27.8% on a year-over-year basis.

Revenues of the Zacks Rank #3 (Hold) company amounted to $86.6 million, which rose 21.9% year over year and also outpaced the Zacks Consensus Estimate of $85.4 million.

HSA Member Detail

As of Jul 31, 2019, the total number of Health Savings Accounts (HSA), for which HealthEquity served as a non-bank custodian (HSA members), was 4.2 million, up 16% year over year.

Additionally, total Active HSA members were 3.3 million, up 13% year over year.

Total Custodial Assets was $8.5 billion, up 21% 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 rose 5.4% year over year to $26.3 million. The uptick was driven by a year-over-year increase of 17% in average HSA, partially offset by a decline of 10% in service revenues per average HSA.

Custodial Revenues: At this segment, revenues grew 42% year over year to $43.6 million. The improvement was supported by 21% growth in average custodial cash assets and higher annualized interest rate yield on custodial cash assets of 2.5% during the quarter under review.

Interchange Revenues: At this segment, revenues improved 8.5% year over year to $16.7 million. The interchange revenues gained from year-over-year growth of 17% in average HSAs.

Margin Details

HealthEquity registered gross profit of $58.4 million, up 25.5% year over year in the fiscal second quarter. Gross margin level was 67.5% of net revenues, up 200 bps year over year.

Sales and marketing expenses summed $8.4 million, up 15.8% year over year. Technology and development expenses totaled $11.6 million, up 38.7% year over year. General and administrative expenses amounted to $9.3 million, up 17.3% year over year.

Operating income in the fiscal second quarter was $24.9 million, up 15.3% year over year. Operating margin totaled 28.7% in the quarter, down 160 bps year over year.

Guidance

HealthEquity raised its revenue guidance for fiscal 2020.

The company now expects revenues of $341-$347 million compared with $339-$345 million mentioned earlier. The Zacks Consensus Estimate of $343.4 million for the same lies within HealthEquity’s guided range.

Adjusted net income is projected between $76 million and $80 million.

Adjusted EPS for fiscal 2020 is expected to be $1.10-$1.16. The Zacks Consensus Estimate for earnings is pegged at $1.33, above the company’s guided range.

Summing Up

With solid HSA member growth, HealthEquity exited the second quarter of fiscal 2020 on an impressive note. Additionally, the company raised fiscal 2020 guidance. Strong growth in Service and Custodial revenue 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 (FSA) to regional employers.

However, it faces stiff competition in the Medical Services market. HealthEquity is required to comply with the strict treasury regulations formulated by the Internal Revenue Service or the IRS.

Earnings of Better-Ranked MedTech Majors at a Glance

Some better-ranked stocks, which posted solid results this earnings season, are Masimo Corporation MASI, Baxter International Inc. BAX and Intuitive Surgical, Inc. ISRG, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Masimo delivered second-quarter 2019 adjusted EPS of 76 cents, beating the Zacks Consensus Estimate of 73 cents. Its revenues of $229.7 million surpassed the consensus mark of $223 million.

Baxter delivered second-quarter 2019 adjusted EPS of 89 cents, which surpassed the Zacks Consensus Estimate of 81 cents by 9.9%. The company’s revenues of $2.84 billion outpaced the consensus mark of $2.79 billion by 1.9%.

Intuitive Surgical reported second-quarter 2019 adjusted EPS of $3.25, which beat the Zacks Consensus Estimate of $2.85. Its revenues were $1.1 billion, surpassing the consensus mark of $1.03 billion.

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