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HealthEquity (HQY) Q3 Earnings Beat, FY 2022 View Lowered

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·5 min read
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HealthEquity, Inc. HQY reported adjusted earnings per share (EPS) of 35 cents in third-quarter fiscal 2022, which beat the Zacks Consensus Estimate by 2.9%. However, the bottom line fell 14.6% on a year-over-year basis.

GAAP loss per share in the fiscal third quarter was 6 cents against the year-ago quarter’s EPS of 2 cents.

Revenues in Detail

In the fiscal third quarter, the company generated revenues of $179.9 million, lagging the Zacks Consensus Estimate by 2.7%. However, the top line inched up 0.3% from the prior-year quarter.

HSA Details

As of Oct 31, 2021, the total number of Health Savings Accounts (“HSA”) for which HealthEquity served as a non-bank custodian (HSA members) came in at 6.2 million, up 14.3% year over year.

Total Active HSA assets were $16.4 billion at the end of the reported quarter, up 32.1% year over year. Total Accounts, as of Oct 31, 2021, were 13.3 million, up 6.4% year over year. This uptick included total HSAs and 7.1 million Consumer Direct Benefits (“CDB”).

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

Revenue Sources

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

Service revenues totaled $102.7 million in the quarter, down 1.7% year over year, primarily due to a fall in CDB service revenues in flexible spending accounts or FSAs, commuter and COBRA services. However, this was partially offset by 10% growth in average HSA accounts.

Custodial revenues totaled $49 million, up 0.9% from the year-ago period.

Interchange revenues totaled $28.2 million, up 7.5% year over year.

Margin Details

In the quarter under review, HealthEquity’s gross profit fell 1.2% to $103.3 million. Gross margin contracted 88 basis points (bps) to 57.4%.

Sales and marketing expenses fell 1.2% to $12.7 million year over year. Technology and development expenses climbed 23.8% to $38.1 million, whereas general and administrative expenses declined 9.5% year over year to $20 million. Adjusted operating expenses of $70.8 million increased 7.7%.

Adjusted operating profit totaled $32.5 million, declining 16.2% from the prior-year quarter. Adjusted operating margin in the quarter contracted 357 bps to 18.1%.

Financial Position

The company exited third-quarter fiscal 2022 with cash and cash equivalents of $649.1 million compared with $753.8 million at the end of the fiscal second quarter. Total debt in the fiscal third quarter was $930.1 million compared with $973.6 million at the end of the fiscal second quarter.

Cumulative net cash flow from operating activities in the quarter totaled $90.4 million compared with $120.7 million in the year-ago period.

FY22 Guidance

HealthEquity has lowered its financial outlook for the full fiscal year.

For fiscal 2022, revenues are projected in the range of $750 million-$755 million, lowered from the earlier-provided outlook of $755-$765 million. The Zacks Consensus Estimate for the same is currently pegged at $763.1 million.

Adjusted EPS is expected within $1.30-$1.35, lowered from the earlier-provided projection of $1.45-$1.50. The Zacks Consensus Estimate for the same currently stands at $1.48.

Our Take

HealthEquity exited third-quarter fiscal 2022 with better-than-expected earnings. The top line benefited from robust contributions from two of its revenue sources. Solid growth in HSAs also drove the top line. In addition to HSA, the company offers health reimbursement arrangement to regional employers. HealthEquity’s Further and Fifth-Third HSA portfolio buyouts raise our optimism.

However, lower-than-expected revenues and the year-over-year fall in adjusted EPS are concerning. Fall in Service revenues during the quarter is also disappointing. Contraction of both margins does not bode well either. The company lowering its fiscal 2022 financial outlook also raises apprehension.

Zacks Rank and Other Key Picks

HealthEquity currently carries a Zacks Rank #2 (Buy).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Chemed Corporation CHE, Thermo Fisher Scientific Inc. TMO and AMN Healthcare Services AMN.

Chemed, carrying a Zacks Rank #2, reported third-quarter 2021 adjusted earnings per share (EPS) of $5.06, which beat the Zacks Consensus Estimate by 13.5%. Revenues of $538.7 million outpaced the consensus mark by 1.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chemed has an estimated long-term growth rate of 7.7%. The company surpassed estimates in the trailing four quarters, the average surprise being 5.59%.

Thermo Fisher reported third-quarter 2021 adjusted EPS of $5.76, which surpassed the Zacks Consensus Estimate by 23.3%. Third-quarter revenues of $9.33 billion outpaced the Zacks Consensus Estimate by 12%. It currently carries a Zacks Rank #2.

Thermo Fisher has an estimated long-term growth rate of 14%. The company surpassed estimates in the trailing four quarters, the average surprise being 9.02%.

AMN Healthcare reported third-quarter 2021 adjusted EPS of $1.73, which surpassed the Zacks Consensus Estimate by 29.1%. Third-quarter revenues of $877.8 million outpaced the Zacks Consensus Estimate by 12.3%. It currently sports a Zacks Rank #1.

AMN Healthcare has an estimated long-term growth rate of 16.2%. The company surpassed estimates in the trailing four quarters, the average surprise being 19.51%.


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