HealthEquity Crashes 25% on Disappointing Q3 Revenues

HealthEquity, Inc. (HQY) has reported disappointing fiscal Q3 (ended October 31) revenues and earnings in line with expectations. Following the results, shares of the health savings account (HSA) non-bank custodian declined 24.9% in Monday’s extended trading session after closing 4.4% higher on the day.

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Results in Detail

The company reported third-quarter adjusted earnings of $0.35 per share, down 14.6% on a year-over-year basis, and met the Street’s estimate. Revenues increased marginally to $180 million but missed analysts’ expectations of $185.05 million.

Segment-wise, service revenue came in at $102.7 million, down 1.8% year-over-year, while custodial revenue grew 1% to $49 million. Additionally, interchange revenue stood at $28.2 million, reflecting a rise of 7.6%.

HealthEquity reported adjusted EBITDA of $61.1 million in the quarter, in line with the same quarter last year. (See HealthEquity stock charts on TipRanks)

Other Metrics

In Fiscal Q3, HealthEquity reported sales of 151,000 new HSAs versus 104,000 in the same quarter last year. As of October 31, 2021, HSAs stood at 6.2 million, up 14% year-over-year. Additionally, total accounts were 13.3 million.

CEO Comments

HealthEquity CEO Jon Kessler said, “Adding to this year’s strong organic growth, we have on-boarded 160,000 new HSAs from Fifth Third Bank in the third quarter and 580,000 from Further in November to start our fourth quarter. HSA members have added nearly another $1 billion to their HSAs this quarter, and their HSA investments have grown significantly.”

“We believe we are poised for a strong finish to this year’s selling season, continuing to outpace market growth,” Kessler added.

Guidance

For Fiscal 2022, the company anticipates total revenue of $750 million to $755 million, versus the consensus estimate of $762.3 million. Adjusted EPS is forecast in the range of $1.30 to $1.35, lower than analysts’ expectations of $1.48 per share. Additionally, adjusted EBITDA is expected to land between $230 million and $235 million.

Other Developments

HealthEquity inked a $60 million deal with Health Savings Administrators, under which the custody of HealthSavings’ HSA portfolio will be transitioned to HealthEquity. Notably, $1.3 billion of HSA assets is held in about 87,000 HSAs. The transition is likely to complete in the first quarter of Fiscal 2023.

Additionally, during the third quarter, HealthEquity completed the acquisition of WageWorks. As of October 31, 2021, the company achieved synergies worth $75 million of the total $80 million expected in annualized net synergies by the end of Fiscal 2022.

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Analysts Recommendation

Consensus among analysts is a Strong Buy based on 6 Buys versus 2 Holds. The average HealthEquity price target of $78.71 implies 38.9% upside potential to current levels. However, shares have fallen 31.2% over the past six months.

Risk Analysis

According to the new TipRanks’ Risk Factors tool, HealthEquity stock is at risk mainly from three factors: Finance and Corporate, Tech and Innovation, and Legal and Regulatory, which contribute 38%, 18%, and 18%, respectively, to the total 50 risks identified for the stock.