It’s been about a month since the last revenue report for HealthEquity (HQY – Free report). Stocks lost around 1.7% during that time, outperforming the S&P 500.
Will the recent negative trend continue until its next results release, or is HealthEquity likely to take a break? Before we dive into how investors and analysts have reacted in recent times, let’s take a look at the latest earnings report to get a better understanding of the important factors.
HealthEquity’s second quarter earnings and revenue exceed estimates
HealthEquity reported adjusted earnings per share of 40 cents in the second quarter of fiscal 2022, beating Zacks’ consensus estimate by 11.1%. However, net income was down 4.8% year-on-year.
The second fiscal quarter GAAP loss per share was 5 cents compared to breakeven earnings per share in the previous year quarter.
Income in detail
In the fiscal second quarter, the company generated revenue of $ 189.1 million, beating Zacks’ consensus estimate by 2.1%. Revenue jumped 7.4% from the previous year quarter.
As of July 31, 2021, the total number of HSAs for which HealthEquity served as the non-bank custodian (HSA members) was 5.9 million, up 10.9% year-over-year.
Total active HSA assets stood at $ 15.5 billion at the end of the quarter, up 26.7% year-over-year. Total accounts as of July 31, 2021 stood at 13.1 million, up 5.4% year-over-year. This increase included total HSAs and 7.2 million Consumer Direct Benefits or CDBs.
Sources of income
HealthEquity derives income from three sources, namely service income, custody income, and exchange income.
Service revenues totaled $ 109.2 million, up 5.2% year-over-year, mainly due to an 8% increase in average total accounts, driven by growth in COBRA. However, this was partially offset by the suspension of commuter accounts due to the impacts of the pandemic.
Child care revenues totaled $ 48.8 million, up 3.9% from the previous year.
Interchange revenue totaled $ 31.1 million, up 22.9% year over year. The outperformance in revenue was primarily driven by a rebound in spending on HealthEquity’s platforms in the current quarter and growth in average total accounts.
In the quarter under review, HealthEquity’s gross profit increased 10% to $ 111.9 million. Gross margin increased 139 basis points to 59.2%.
Sales and marketing expenses increased 27.2% to $ 15.5 million year-over-year. Technology and development expenses soared 23.6% to $ 37.9 million, while general and administrative expenses jumped 11.3% year-over-year to $ 22.8 million. dollars. Adjusted operating expenses of $ 76.2 million increased 20.3%.
Adjusted operating income totaled $ 35.8 million, down 6.9% from the prior year quarter. In addition, the adjusted operating margin in the quarter contracted 293 basis points to 18.9%.
The company ended the second quarter of fiscal 2022 with cash and cash equivalents of $ 753.8 million, compared to $ 736.8 million at the end of the first quarter of fiscal 2022. Total debt during the second quarter of the year (including the current portion but net of issue costs) was $ 973.6. million dollars compared to $ 972.3 million at the end of the first fiscal quarter.
Cumulative free cash flow from operating activities during the quarter totaled $ 68.2 million compared to $ 68.7 million for the same period last year.
HealthEquity reiterated its financial outlook provided previously for the full year.
For fiscal 2022, revenues continue to be projected in the range of $ 755 million to $ 765 million. Zacks’ consensus estimate for the same is currently set at $ 763.2 million.
Adjusted earnings per share is expected to be between $ 1.45 and $ 1.50. Zacks’ consensus estimate for the same currently stands at $ 1.48.
How have the estimates evolved since then?
It turns out that revised estimates have trended downward over the past month. The consensus estimate has changed by -11.29% due to these changes.
Currently, HealthEquity has an average Growth Score of C, although it lags significantly on the Momentum Score front with an F. Tracing a somewhat similar path, the stock received a rating of D on the value side, which places it in the bottom 40% for this investment strategy.
Overall, the stock has an overall VGM score of D. If you’re not strategy-focused, this score is the one you should be interested in.
Estimates have had a general downward trend for the stock, and the magnitude of these revisions indicates a downward change. Notably, HealthEquity has a Zacks Rank # 3 (Hold). We expect the stock to come back online in the coming months.