HealthEquity Inc HQY reported earnings of 7 cents per share in the third quarter of fiscal 2016, in line with the Zacks Consensus Estimate and 40% above the year-ago quarter figure. The upside was primarily driven by higher revenues and margin expansion.
Quarter Details
Revenues surged 39.8% from the year-ago quarter to $30.6 million. Card fee, Custodial fee and Account fee revenues were up 44%, 47.5% and 35.7%, respectively.
As of Oct 31, 2015, total number of HSA members – for which the company serves as a non-bank custodian – increased 45% year over year to 1.6 million. Total assets under management (AUM) surged 47% year over year to $2.7 billion.
Gross profit surged almost 44.5% year over year to $17.7 million in the reported quarter. Gross margin expanded 190 basis points (bps) to 57.8%.
Adjusted EBITDA improved a substantial 62.4% from the year-ago quarter to $9.9 million.
Total operating expenses increased 43.3% to $11.4 million, driven by higher general & administrative expenses (up 42.3%), technology & development expenses (up 57.2%) and sales & marketing expenses (up 34.8%).
As a percentage of revenues, operating expenses increased 90 bps to 37.2%, driven by higher general & administrative expenses (up 20 bps) and technology & development expenses (up 160 bps), partially offset by sales & marketing expenses (down 40 bps).
Operating income was up 46.8% year over year to $6.3 million while operating margin expanded 100 bps to 20.6%.
Guidance
For fiscal 2016 (ending Jan 31, 2016), HealthEquity forecasts revenues in the range of $124–$126 million, up from the previous range of $120–$124 million. Adjusted EBITDA is now projected in the band of $37 million to $39 million, up from the earlier range of $36 million to $38 million.
Earnings are expected in the band of 30 cents to 32 cents per share, up from the previous guidance of 28 cents to 30 cents.
Our Take
We believe HealthEquity’s increasing market traction and growing customer base are significantly positive. Higher retention and growing engagement will further contribute to the customer base. However, mounting expenses are likely to hurt profits in the remainder of fiscal 2016.
Zacks Rank and Other Key Picks
Currently, HealthEquity has a Zacks Rank #2 (Buy).
Other favorably ranked stocks in the same space include AMN Healthcare Services AHS, Air Methods AIRM and INC Research Holdings INCR. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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