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HealthEquity (HQY) Q1 Earnings Beat Estimates, FY22 View Up

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·5 min read
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HealthEquity, Inc. HQY reported adjusted earnings per share (EPS) of 38 cents for first-quarter fiscal 2022, which beat the Zacks Consensus Estimate by 22.6%. However, the bottom line fell 11.6% on a year-over-year basis.

GAAP loss per share in the fiscal first quarter was 3 cents against the year-ago period’s EPS of 3 cents.

Revenues in Detail

For the fiscal first quarter, the company generated revenues of $184.2 million, outpacing the Zacks Consensus Estimate by 0.6%. However, the top line dipped 3.1% from the prior-year quarter.

HSA Details

As of Apr 30, 2021, the total number of Health Savings Accounts (HSA) for which HealthEquity served as a non-bank custodian (HSA members) came in at 5.8 million, up 8.7% year over year.

Additionally, total Active HSA assets were $15 billion at the end of the reported quarter, up 30.5% year over year. Total Accounts as of Apr 30, 2021 were 12.8 million, up 0.9% year over year. This uptick included total HSAs as well as 6.9 million Consumer Direct Benefits or CDB.

Revenue Sources

HealthEquity derives revenues from three sources, namely Service revenues, Custodial revenues and Interchange revenues.

Service revenues totaled $102.5 million, down 7.9% year over year, primarily due to a significant (more than 60%) decrease in active commuter accounts. However, the segment was benefited by growth in HSAs and other CDBs.

Custodial revenues totaled $46.9 million, up by 0.2% from the year-ago period. Per management, growth in average HSA cash with yield and a significant uptick in average HSA investments with yield more than offset a 33-basis point (bps) fall in the annualized yield on HSA cash.

Interchange revenues totaled $34.7 million, up 8.9% year over year. The revenue outperformance was primarily led by a rebound in spend across HealthEquity’s platforms in the reported quarter and growth in average total accounts.

HealthEquity, Inc. Price, Consensus and EPS Surprise

HealthEquity, Inc. Price, Consensus and EPS Surprise
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 fell 4.6% to $103.1 million. Gross margin contracted 90 bps to 55.9%.

Meanwhile, sales and marketing expenses rose 22.9% to $14.1 million year over year. Technology and development expenses climbed 14.1% year over year to $35.5 million whereas general and administrative expenses grew 8.9% year over year to $20.7 million. Adjusted operating expenses of $70.2 million increased 14.2% year over year.

Adjusted operating profit totaled $32.9 million, declining 29.4% from the prior-year quarter. Further, adjusted operating margin in the quarter contracted a huge 665 bps to 17.8%.

Financial Position

The company exited first-quarter fiscal 2022 with cash and cash equivalents of $736.8 million compared with $328.8 million at the end of fiscal 2021. Total debt in the fiscal first quarter (net of issuance costs) is $972.3 million compared with $986.7 million at the end of fiscal 2021.

Net cash flow from operating activities in the quarter totaled $30.9 million, up from $15 million in the year-ago period.

FY22 Guidance

HealthEquity, on the basis of its fiscal first quarter performance, raised its earlier provided financial outlook for full fiscal.

For fiscal 2022, revenues are now projected in the range of $755 million-$765 million (up from the earlier projection in the band of $750 million-$760 million). The Zacks Consensus Estimate for the same is currently pegged at $756.2 million.

Adjusted EPS is expected within $1.45-$1.50, up from the previous estimate of $1.37-$1.42. The Zacks Consensus Estimate for the same currently stands at $1.40.

Our Take

HealthEquity exited first-quarter fiscal 2022 with better-than-expected results. The top line benefited from the robust contributions of Custodial and Interchange revenues. Solid growth in HSAs also drove the top line. In addition to HSA, the company offers health reimbursement arrangement to regional employers.

HealthEquity continued to gain from the acquisition of WageWorks, which was completed in August 2019. The company raising its fiscal 2022 financial outlook despite pandemic-led business challenges buoys optimism on the stock.

However, the company’s year-over-year fall in both adjusted EPS and the overall top line is concerning. Weakness in Service revenues is also disappointing. Contraction of both margins does not bode well either. The company also faces stiff competition in the Medical Services market, thus raising apprehensions.

Zacks Rank and Key Picks

HealthEquity currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are Apollo Medical Holdings, Inc. AMEH, AMN Healthcare Services Inc. AMN and Veeva Systems Inc. VEEV.

Apollo Medical Holdings reported first-quarter 2021 adjusted EPS of 30 cents, beating the Zacks Consensus Estimate by 36.4%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare, a Zacks Rank #1 company, reported first-quarter 2021 adjusted EPS of $1.70, beating the Zacks Consensus Estimate by 25%. Revenues of $885.9 million outpaced the consensus mark by 9.2%.

Veeva Systems reported first-quarter 2021 adjusted EPS of 91 cents, surpassing the Zacks Consensus Estimate by 16.7%. Net revenues of $433.6 million outpaced the consensus estimate by 5.9%. It currently carries a Zacks Rank #2.

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