- Revenue: Increased 23% year over year.
- Service Revenue: $116.7 million, up 4% year over year.
- Custodial Revenue: Grew 50% to $138.7 million.
- Interchange Revenue: Grew 14% to $44.5 million.
- Gross Profit Margin: 68%, up from 62% last year.
- Net Income: $35.8 million, or $0.40 per share (GAAP EPS).
- Non-GAAP Net Income: $76.3 million, or $0.86 per share.
- Adjusted EBITDA: $128.3 million, up 46% year over year.
- Cash on Hand: $327 million as of July 31, 2024.
- Cash Flow from Operations: $174 million in the first half of fiscal year 2025.
- Debt Outstanding: $1.1 billion, including $225 million drawn on the line of credit.
- Total Accounts: Over 16 million, including 9 million HSAs.
- HSA Assets: $29 billion, increased $2.2 billion in the quarter and $6.3 billion year over year.
- HSA Member Growth: 15% year over year.
- Invested HSA Assets: Up 43% year over year to over $13 billion.
- New HSAs from Sales: 187,000 in the quarter, 20% more than Q2 last year.
- BenefitWallet Acquisition: Added approximately 216,000 HSAs and $1.0 billion of HSA assets.
- Fiscal 2025 Revenue Guidance: $1.165 billion to $1.185 billion.
- Fiscal 2025 GAAP Net Income Guidance: $94 million to $109 million, or $1.05 to $1.22 per share.
- Fiscal 2025 Non-GAAP Net Income Guidance: $265 million to $280 million, or $2.98 to $3.14 per share.
- Fiscal 2025 Adjusted EBITDA Guidance: $458 million to $478 million.
- Average Yield on HSA Cash: Approximately 3.05% for fiscal 2025.
Release Date: September 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HealthEquity Inc (HQY, Financial) reported double-digit year-over-year growth across key metrics, including a 23% increase in revenue, 46% increase in adjusted EBITDA, and 27% increase in HSA assets.
- The company successfully transitioned the final tranche of BenefitWallet, adding approximately 216,000 HSAs and $1.0 billion in HSA assets in Q2.
- HealthEquity Inc (HQY) ended Q2 with over 16 million total accounts, including 9 million HSAs holding $29 billion in HSA assets.
- The company launched a new mobile app and completed a card processor migration, enabling stack cards on major digital wallets and future instant card issuance.
- HealthEquity Inc (HQY) announced a $300 million share repurchase authorization, reflecting confidence in its financial position and future growth prospects.
Negative Points
- Service revenue growth was only 4% year over year, reflecting a mixed shift toward HSAs with lower average unit service revenue.
- The company faces potential volatility in custodial yields due to changes in interest rates, which could impact future financial performance.
- Despite strong performance, the guidance for the second half of the fiscal year implies a significant step down in margins, raising concerns about future profitability.
- The company acknowledged challenges in maintaining flat service costs and highlighted the need for continued investment in technology and development.
- HealthEquity Inc (HQY) is still dealing with the aftermath of a cyber incident disclosed during the quarter, which required significant resources and attention.
Q & A Highlights
Q: Hi, thanks for the question and congrats on a great quarter. I was hoping you could provide a little bit more detail on the launch of your health payment accounts and maybe think about how those might contribute to the P&L. And is that going to be part of your selling season this year?
A: So let me just start with the longer term and work our way back to the short term. What this product really does is intended to assure that when people, particularly those who are in employer-based health plans, but the product also works for plan-sponsored individual plans, if there's demand there. But when folks are going to pay their out-of-pocket expenses, their ability to get care at that point really shouldn't be limited by their credit limit or credit score. It's just not the right answer in our view. And the product gives employers and health plans a very cost-effective way to get to avoid that. And so my view is that this will have relatively broad applicability out there, both to people who might be using HSAs or the other health accounts, but also to the broader population, including those that don't. And remember that even at market maturity, right, we don't expect that everyone is going to have an HSA or the like. And so we think that over time, this could be rather significant. And the midterm goal we've set kind of internally is -- and this is -- in my view, part of sort of establishing this as part of benefits package that standard is we'd like to see within the next three, four years here, 1% of those in group coverage have access to that. That seems like a highly achievable goal. That seems fine for the relatively near term and then go from there. So it's establishing something new that in a way is back to the past. When folks had HMO plans with little choice and whatnot, they typically -- these costs were being covered in the same way. They were just in premiums. And so it's sort of in a way going back to that from a cash flow management perspective. The short term -- with regard to -- obviously, no impact in fiscal '25, we do anticipate a modest impact in fiscal '26 as observers of our release can see on this topic. There are clients of ours who have been testing out this product, including large ones and with, in my mind, really good response, both in terms of the quantity and also, I think, more importantly, the quality of how it's being used. And so we do think there'll be a modest impact in '26, a more significant impact as the thing catches on in '27 and '28. So we'll certainly reflect that as we get to '26 guidance. But this is a good product. And we've been thinking about how to do this -- Steve, how long does it go back that we've been mucking around with products to solve this problem? 10 years? Maybe longer?
A: Yes, longer. I think 2008 is when we first started thinking about it. We had a large client that wanted them and then the world melted at the end of 2008. So it's been, Jon, I think, 16 years since we've been thinking about it. When I practiced, it was heartbreaking to have patients come in and say they were delaying care because they couldn't afford their deductible. And we think the HSA is the best way to fund the deductible, but for people that are just getting started. These work great, too. So we're thrilled with our team.
A: Yes, exactly. Thanks for asking.
Q: Thanks for taking my question. Jon, I want to focus on the custodial rates a little bit. And as we look out to next year, right, I think you have almost $1.8 billion that needs to be renegotiated at the end of the year. which you're replacing 3.7% cash. And so not that I want to want you to talk about next year at all. But as I think about the yield curve, like investors are continuously concerned about the decline in rates. So it seems like where you sit right now that your yield on your custodian revenue shouldn't really move that much given that the five years at [$364]. And even with the benefit of enhanced rates, you'd obviously get another 75 basis points on top of that. Am I thinking about all that kind of correctly?
A: I think that I'll put on to Jim. The only part that you lost me a little bit on was the rate at which -- the rate that that cash is currently earning that will reflect.
A: Yes, that's right. Yes. So well, I think that was -- the remainder of this year, yes, you're right, Glenn. Yes. So kind of mid-3s is going to reprice at mid-3s plus a spread. So there's some tailwind to that number heading into next year. But obviously, yes, that is dwarfed by the potential tailwind over the next couple of years, about $6.5 billion over the next two fiscal years that's currently priced in the high 1s, right? And that you can look at the forward curves as well as we can. If it's 3.5 plus that spread, that's still a great number when we're rolling off at 1.9%.
Q: And Jim, did I miss the split on enhanced rates this quarter? Because I know that number has been climbing every quarter. And should we think about the volatility of rates having any greater or lesser effect based on the continued shift towards enhanced rates?
A: No. We've not provided a number other than we told you our goal is to get 30% at the end of last fiscal year, which we achieved. And we guided to trying to get to 60% over our three-year double non-GAAP net income per share objective, and we're well on track there. Obviously, those are going to be a little lumpy. It's not going to be a straight line. It's going to move based on when cash is deployed. But we feel really, really good about that objective to getting to about 60% by the time of our objective. And it should increase any extra volatility, right? Like the whole -- one of the benefits of moving to enhanced rates, it should reduce volatility over time.
Q: Thanks. Good afternoon. Maybe just on the guidance. If we look at what you all did in a quarter revenue, EBITDA, EPS wise, all of those came in well ahead of consensus. But the magnitude of the adjustment in the guidance for the full year was less than this Q2 beat or upside that we saw. Are there some onetime items that we should be aware of in Q2 that won't necessarily flow into the back half of the year? Or is there something else that kind of explains this difference between the Q2 upside and the guidance adjustment?
A: Yes. Thanks for that question. Yes, look, I think the first point is that I think the consensus is
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
