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HealthEquity (HQY) Earnings & Revenues Beat Estimates in Q3

HealthEquity, Inc. HQY reported earnings of 28 cents per share in the third quarter of fiscal 2019, which surpassed the Zacks Consensus Estimate of 25 cents. The bottom line was higher than the year-ago quarter’s earnings of 17 cents on revenue and margin expansion.

Revenues amounted to $70.5 million, up 24.1% year over year. Moreover, the top line marginally exceeded the Zacks Consensus Estimate of $69.8 million.

HSA Member Details

The total number of Health Savings Accounts (HSA), for which HealthEquity served as a non-bank custodian (HSA Members), was 3.7 million, up 22% year over year.

Additionally, total Active HSA Members were 3 million in the reported quarter, up 17% year over year.

Segmental Performance

Service Revenues: At this segment, revenues rose 9.1% year over year to $25 million. The uptick was driven by 22% year-over-year increase in average HSA, partially offset by an 11% decline in service revenue per average HSA.

Custodial Revenues:  At this segment, revenues increased 42.8% year over year to $31.6 million. The improvement was supported by 29% growth in total custodial assets and a higher annualized interest rate yield on custodial cash assets of 2.1% during the quarter under review.

Interchange Revenues: At this segment, revenues improved 18.5% year over year to $13.9 million. Increased card spending and more favorable interchange terms (higher spend volume) led to this upside.

HealthEquity, Inc. Price and Consensus

 

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

Gross Margin Details

HealthEquity registered gross profit of $45.8 million, up 30.1% year over year in the third quarter.  Gross margin level was 65% of net revenues, up 560 basis points year over year.

Sales and marketing expenses summed $7.5 million, 27.3% year over year.

Technology and development expenses totaled $8.7 million, up 26.4% year over year.

General and administrative expenses amounted to $9.2 million, up 46.5% year over year.

Guidance

For fiscal 2019, HealthEquity projects revenues in the range of $281-$285 million, up from $279-$285 million anticipated earlier. The Zacks Consensus Estimate is pegged at $284.1 million, which lies within the guided range.  

Adjusted income is envisioned in the band of $68-$72 million, up from the previous guidance of $67-$71 million. Adjusted net income per share is expected in the range of $1.06-$1.13, up from $1.05-$1.11 projected previously. The Zacks Consensus Estimate is pegged at $1.11, which lies within the guided range.

Summing Up

With solid HSA member growth, HealthEquity exited the third quarter on an impressive note. Additionally, a bullish guidance for fiscal 2019 paints a bright picture. Strong growth in Service and Custodial revenue segments too buoys optimism.

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 that 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 are Genomic Health, Inc. GHDX, Illumina, Inc. ILMN and Hill-Rom Holdings Inc. HRC. While Genomic Health sports a Zacks Rank #1 (Strong Buy), Illumina and Hill-Rom carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Genomic Health reported adjusted EPS of 35 cents in the third quarter of 2018, which outpaced the Zacks Consensus Estimate of 7 cents.

Illumina reported adjusted EPS of $1.52, which surpassed the consensus mark by 21.6%.

Hill-Rom Holdings reported adjusted EPS of $1.63 in fourth-quarter fiscal 2018, which exceeded the Zacks Consensus Estimate by 7.9%.

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