HealthEquity (HQY) Stock Falls 1.6% Despite Q3 Earnings Beat
Shares of HealthEquity, Inc. HQY fell 1.6% till Dec 8, following the company's third-quarter fiscal 2023 results announcement on Dec 6.
HealthEquity reported adjusted earnings per share (EPS) of 38 cents in third-quarter fiscal 2023, which surpassed the Zacks Consensus Estimate by 8.6%. The bottom line improved 8.6% on a year-over-year basis.
Our projection of adjusted EPS was 37 cents.
GAAP loss per share in the fiscal third quarter was 2 cents, narrower than the year-ago quarter’s loss of 6 cents per share.
Revenues in Detail
In the fiscal third quarter, the company generated revenues of $216.1 million, beating the Zacks Consensus Estimate by 4.6%. The top line improved 20.1% from the prior-year quarter.
The fiscal third-quarter revenue compares to our estimate of $206.3 million.
HSA Details
As of Oct 31, 2022, the total number of Health Savings Accounts (HSA) for which HealthEquity served as a non-bank custodian (HSA members) came in at 7.7 million, up 22.6% year over year.
HealthEquity reported sales of 170,000 new HSAs in the fiscal third quarter, up 12.6% year over year.
Total Active HSA assets were $20.2 billion at the end of the reported quarter, up 22.9% year over year. Total Accounts, as of Oct 31, 2022, were 14.5 million, up 8.8% year over year. This uptick included total HSAs and 6.8 million other Consumer Direct Benefits.
This figure compares to our total Active HSA assets’ fiscal third-quarter projection of $20.9 billion.
Revenue Sources
HealthEquity derives revenues from three sources: Service revenues, Custodial revenues and Interchange revenues.
Service revenues totaled $108.6 million in the quarter, up 5.7% year over year, which included an uptick in commuters returning to work, a small increase in flexible spending arrangements and continued softness in COBRA revenue.
This figure compares to our Service revenues’ fiscal third-quarter projection of $105.9 million.
Custodial revenues totaled $74.6 million, up 52.3% from the year-ago period, on the back of benefits from growth in average HSA cash combined with an uptick in annualized yield on HSA cash. However, this was partially offset by a decrease in average HSA investments.
This figure compares to our Custodial revenues’ fiscal third-quarter projection of $66.6 million.
Interchange revenues totaled $32.9 million, up 16.5% year over year, primarily resulting from benefits from growth in average total accounts with cards and increased spending per account.
This figure compares to our Interchange revenues’ fiscal third-quarter projection of $33.8 million.
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 rose 22.8% to $126.9 million. The gross margin expanded 129 basis points (bps) to 58.7%.
We had projected 58.1% of gross margin for the fiscal third quarter.
Sales and marketing expenses climbed 35.5% to $17.2 million year over year. Technology and development expenses climbed 28.4% to $48.9 million, whereas general and administrative expenses rose 25.6% year over year to $25.1 million. Adjusted operating expenses of $91.3 million increased 28.9%.
Adjusted operating profit totaled $35.6 million, improving 9.4% from the prior-year quarter. Adjusted operating margin in the quarter contracted 160 bps to 16.5%.
Financial Position
The company exited third-quarter fiscal 2023 with cash and cash equivalents of $210.2 million compared with $176.9 million at the end of the fiscal second quarter. Total debt at the end of third-quarter fiscal 2023 was $926.7 million compared with $928.1 million at the end of the fiscal second quarter.
Cumulative net cash flow from operating activities at the end of third-quarter fiscal 2023 totaled $95.2 million compared with $90.4 million in the year-ago period.
FY23 Guidance
HealthEquity has upped its revenue and EPS outlook for the full fiscal year 2023.
For fiscal 2023, revenues are now projected to be within $850 million-$860 million, up from its earlier projection of $834 million-$844 million. The Zacks Consensus Estimate for the same is currently pegged at $849.3 million.
Adjusted EPS is now expected to be within $1.26-$1.35, up from its earlier projection of $1.23-$1.32. The ZCE for the same currently stands at $1.29.
Our Take
HealthEquity exited third-quarter fiscal 2023 with better-than-expected results. The company witnessed solid top-line and bottom-line performances in the reported quarter. The top line benefited from robust contributions from all of its revenue sources. Solid growth in HSAs also drove the top line. In addition to HSA, the company offers health reimbursement arrangements to regional employers. Solid sales of new HSAs in the reported quarter are promising. The gross margin expansion also bodes well.
However, rising operating costs putting pressure on the adjusted operating margin does not bode well.
Zacks Rank and Other Key Picks
HealthEquity currently has a Zacks Rank #2 (Buy).
A few other top-ranked stocks in the broader medical space that have announced quarterly results are AMN Healthcare Services, Inc. AMN, Medpace Holdings, Inc. MEDP and Merit Medical Systems, Inc. MMSI.
AMN Healthcare, carrying a Zacks Rank #2, reported third-quarter 2022 adjusted EPS of $2.57, which beat the Zacks Consensus Estimate by 10.3%. Revenues of $1.14 billion outpaced the consensus mark by 3.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed estimates in all the trailing four quarters, the average being 10.9%.
Medpace Holdings, sporting a Zacks Rank #1, reported third-quarter 2022 EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $383.7 million outpaced the consensus mark by 8.1%.
Medpace Holdings has an estimated growth rate of 44.9% for the full-year 2022. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average being 22%.
Merit Medical, carrying a Zacks Rank #2, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.
Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.
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HealthEquity, Inc. (HQY) : Free Stock Analysis Report
Medpace Holdings, Inc. (MEDP) : Free Stock Analysis Report
