HealthEquity Inc. Reports Strong HSA Growth Amid Challenges

Healthequity Inc ((HQY)) has held its Q4 earnings call. Read on for the main highlights of the call.

HealthEquity Inc. recently held its earnings call, revealing a generally positive sentiment despite some challenges. The company showcased strong growth in Health Savings Accounts (HSAs) and financial metrics, achieving significant milestones and launching new product initiatives. However, these positive results were somewhat overshadowed by increased service costs due to fraud and cyber threats, which impacted margins.

Record-Breaking HSA Growth

HealthEquity achieved a remarkable milestone by adding 1 million new Health Savings Accounts (HSAs) from sales for the year, marking a first in the company’s history. This growth underscores the increasing demand for HSAs and HealthEquity’s ability to capture market share.

Strong Financial Growth

The company reported a 19% year-over-year increase in revenue, with adjusted EBITDA growing by 9% in the fourth quarter. For the entire fiscal year, revenue was up 20%, and adjusted EBITDA rose by 28%, highlighting HealthEquity’s robust financial performance.

Significant Increase in HSA Assets

HSA assets saw a substantial increase of $6.9 billion year-over-year, representing a 27% rise compared to the previous year. This growth reflects the company’s success in expanding its asset base and enhancing its financial standing.

Growth in HSA Investor Accounts

The number of HSA members who invest grew by 23% year-over-year, driving invested assets up 44% to $14.7 billion. This indicates a growing interest among members to invest their HSA funds, contributing to the company’s overall asset growth.

Launch of Assist Portfolio

HealthEquity announced the launch of the Assist portfolio, which includes Analyzer and Navigator tools aimed at improving member engagement and healthcare decision-making. This initiative reflects the company’s commitment to enhancing member experiences through innovative solutions.

Increased Service Costs due to Fraud

The quarter’s gross profit was reduced by approximately $17 million due to additional service costs incurred to protect members from sophisticated fraud activity. This highlights the challenges the company faces in maintaining security and trust among its members.

Challenges with Fraud Prevention

HealthEquity has been investing significantly in fraud prevention and detection capabilities due to increased cyber threats and fraud attacks. These efforts, while necessary, have impacted service costs and margins.

Margin Pressure

Adjusted EBITDA as a percentage of revenue decreased from 38% to 35% in the fourth quarter, affected by service costs related to fraud activity. This margin pressure underscores the financial impact of the company’s efforts to combat fraud.

Forward-Looking Guidance

Looking ahead, HealthEquity remains optimistic about its growth prospects. The company anticipates revenue between $1.28 billion and $1.305 billion for fiscal 2026, with adjusted EBITDA projected to range from $525 million to $545 million. Despite the challenges posed by increased service costs, HealthEquity is committed to enhancing member experiences through technological advancements, including a new app and AI-driven claims processing.

In summary, HealthEquity’s earnings call highlighted a strong growth trajectory in HSAs and financial metrics, driven by strategic initiatives and market demand. While increased service costs due to fraud prevention posed challenges, the company remains focused on innovation and improving member experiences. Investors can look forward to continued growth and technological advancements as HealthEquity navigates the evolving landscape.