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HealthEquity (HQY) Earnings & Revenues Beat Estimates in Q4

Zacks Equity Research

HealthEquity, Inc. HQY reported adjusted earnings of 27 cents per share in fourth-quarter fiscal 2019, which surpassed the Zacks Consensus Estimate of 22 cents. The bottom-line figure also skyrocketed 133.3% on a year-over-year basis.

Revenues amounted to $75.8 million, which increased 25% year over year and also exceeded the Zacks Consensus Estimate of $74 million.

FY19 at a Glance

In fiscal 2019 (ended January 31, 2019), HealthEquity reported revenues of $287.2 million, up 25% year over year. The top line also outpaced the Zacks Consensus Estimate of $285.9 million.

The company reported adjusted net income of $1.19 per share, up 75% year over year. The figure also trumped the Zacks Consensus Estimate of $1.1.

While Service revenues accounted for 40% of net revenues, Custodial revenues accounted for 38% of the same. Meanwhile, Interchange revenues accounted for 22% of net revenues.

HealthEquity, Inc. Price and Consensus

 

HealthEquity, Inc. Price and Consensus | HealthEquity, Inc. Quote

HSA Member Details

As of January 31, 2019, the total number of Health Savings Accounts (HSA), for which HealthEquity served as a non-bank custodian (HSA Members), was 4 million, up 17% year over year.

Additionally, total Active HSA Members were 3.2 million, up 13% year over year.

Total Custodial Assets was $8.1 billion, up 19% year over year.

Segmental Performance

Service Revenues: At this segment, revenues rose 10% year over year to $25.8 million. The uptick was driven by a 20% year-over-year increase in average HSA, partially offset by an 8% decline in service revenues per average HSA.

Custodial Revenues: At this segment, revenues increased 45% year over year to $35.5 million. The improvement was supported by 20% growth in average custodial cash assets and a higher annualized interest rate yield on custodial cash assets of 2.3% during the quarter under review.

Interchange Revenues: At this segment, revenues improved 15% year over year to $14.5 million. The interchange revenues gained from a 20% year-over-year increase in average HSAs.

Gross Margin Details

HealthEquity registered gross profit of $44.4 million, up 40.4% year over year in the fourth quarter. Gross margin level was 58.7% of net revenues, up 630 basis points (bps) year over year.

Sales and marketing expenses summed $7.9 million, up 6.2% year over year. Technology and development expenses totaled $10 million, up 33.7% year over year. General and administrative expenses amounted to $8.5 million, up 25.5% year over year.

Adjusted operating income in the fiscal fourth quarter came in at $18.1 million, up 81.1% year over year. Adjusted operating margin totaled 23.8% in the quarter, up 730 bps year over year.

Guidance

For fiscal 2020, HealthEquity projects revenues in the range of $333-$339 million. The midpoint of $336 million is below the Zacks Consensus Estimate of $337 million.

Adjusted net income is envisioned in the band of $80-$84 million. Adjusted net income per share is expected in the $1.23-$1.29 range. The midpoint of $1.26 is below the Zacks Consensus Estimate of $1.31.

Adjusted EBITDA outlook is projected between $133 million and $138 million.

Summing Up

With solid HSA member growth, HealthEquity exited the fourth quarter of fiscal 2019 on an impressive note. Additionally, the company issued fiscal 2020 guidance. Strong growth in Service and Custodial revenue segments buoys optimism.

Notably, solid growth in HSAs and custodial assets provided a boost to 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 a health flexible spending account (FSA) to regional employers.

These apart, HealthEquity’s 401(K) solution, which lowers the cost, risk and work of managing a retirement plan, bode well for the company. Moreover, management is optimistic about the launch of HealthEquity retirement services.

However, this Zacks Rank #3 (Hold) company faces stiff competition in the Medical Services markets. HealthEquity is required to comply with strict Treasury Regulations formulated by the Internal Revenue Service or the IRS.

Earnings Results of Other MedTech Majors

A few better-ranked stocks from the MedTech space are ABIOMED, Inc. ABMD, IDEXX Laboratories, Inc. IDXX and Wright Medical Group N.V. WMGI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ABIOMED’s long-term expected earnings growth rate is projected at 27.7%. The company wrapped up the third quarter of fiscal 2019 on a solid note, with solid gains from its flagship platform – Impella.  

IDEXX Laboratories exited the fourth quarter of 2018 on a promising note with better-than-expected earnings and revenues. The company also delivered a positive earnings surprise in each of the trailing four quarters, the average being 7.2%.

Wright Medical Group has a long-term earnings growth rate of 11.3%. The company exited the fourth quarter of 2018 on a solid note, wherein adjusted earnings and revenues outpaced the respective estimates.

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