HealthEquity, Inc. (HQY) Earnings & Analysis

Latest quarter

HealthEquity reported Q2 FY2027 revenue of $350.7 million, above the $350.2 million consensus, and adjusted earnings per share of $1.24, above the $1.19 consensus. Revenue rose from $325.8 million a year earlier, while diluted earnings per share rose to $0.78 from $0.68.

The company’s filing attributed the revenue increase to growth in custodial, service and interchange revenue. It said custodial revenue benefited from a higher yield on HSA cash and more cash on deposit. Service revenue rose with marketplace activity, account numbers and HSA investments, partly offset by lower average service fees per account. Higher account numbers and card spending also supported interchange revenue.

HealthEquity reported a gross margin of 73.5%, compared with 71.4% a year earlier, and an operating margin of 28.1%, compared with 27.5%. Its filing attributed lower service costs partly to technology-related efficiencies and fewer self-insured medical claims. Free cash flow was $120.4 million, down from $124.7 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Scott Cutler said account and asset growth, member engagement and technology-enabled efficiency were driving HealthEquity’s strategy. He said new HSAs from sales grew year over year and client renewals were on pace to remain above the company’s retention threshold. He also said members who invest tend to have larger balances, higher average contributions and greater spending engagement over time.

Cutler said Marketplace had more than 14,000 active members at quarter-end, although its revenue remained immaterial to overall results. The company plans to roll out a new app in the coming months, bringing accounts, education, reimbursements and Marketplace together. Asked about Marketplace marketing, Cutler said the company was testing personalized app content, email campaigns and promotions while adding merchants and categories.

On costs, Cutler said automation and self-service had reduced service contacts. Asked how much further efficiency could go, he said the results so far were “more on the member services side” and that the company was introducing AI into client onboarding and back-office claims workflows.

CFO James Lucania said “year-over-year price reduction” was a headwind to service revenue. In response to a question about pricing and margins, he said HealthEquity must balance passing cost savings to clients through lower administration fees with retaining savings in its margin, while competitors also work to reduce costs.

Lucania said the company had placed its first hedge on an enhanced-rate repricing after quarter-end and would continue evaluating additional hedges. He said greater precision about the following year’s HSA cash yield would come after open enrollment, when cash inflows and outflows are clearer.

Guidance

HealthEquity raised its FY2027 revenue guidance. It also raised the top of its GAAP earnings-per-share range and now expects $2.88 to $2.96 per share. The company raised its adjusted EBITDA outlook to $628.0 million to $636.0 million.