HealthEquity Shares Drop 19% as Higher Service Costs Weigh on Earnings
Warning! GuruFocus has detected 3 Warning Signs with HQY.
With a sales of $311.82 millionan 18.8% rise from the previous yearthe firm exceeded experts' projections by $5.99 million. But profits per share came in at $0.69, below projections by $0.03. Strong year over-year increase in Health Savings Accounts, invested assets, and custodial income drove the results.With 17 million total accounts at end of the quarter, HealthEquity had 9.9 million HSAs totaling $32 billion in assets. 23% more members of HSAs made investments, which helped to boost invested assetswhich came to $14.7 billionby 44%.Gross profit margin dropped from 62% a year ago to 61% notwithstanding income increase. The corporation blamed the decline on extra $17 million in service costs, mostly for system consolidation of card processing and handling of fraudulent activity in member accounts.On the results conference, Chief Financial Officer James Lucania said HealthEquity keeps improving fraud prevention strategies and anticipates service expenses to remain high in the first half of fiscal 2026 before leveling later in the year.Expecting revenue between $1.28 billion and $1.305 billion, HealthEquity offered direction for fiscal 2026. Projected GAAP net income falls between $164 million and $179 million, or $1.85 to $2.01 per share. Forecasts of adjusted EBITDA fall between $525 million and $545 million.Driven by fresh deposits and a change toward enhanced rate placements, the business also anticipates the average return on HSA cash to rise to 3.45% over the year. With an aim to achieve 60% by the end of fiscal 2027, 49% of HSA cash placements now are in improved rates.The firm unveiled its Assist suite of digital solutions meant to maximize advantages for businesses and workers. Along with Navigator, a tool created with TALON to assist educated healthcare choices, the portfolio has Analyzer, which offers statistical insights on benefit patterns.HealthEquity keeps making investments in security and fraud avoidance while giving cost savings via service automation first priority. To simplify processes and lower service costs, the corporation intends to deploy digital technologies and artificial intelligence more widely.Under its $300 million buyback authorization, HealthEquity has $178 million left after purchasing $122 million worth of shares in fiscal 2025. The corporation also paid back loans totaling $50 million, leaving around $1.1 billion in outstanding borrowings.Regarding possible acquisitions, Cutler said the firm has a high bar for M&A and emphasizes portfolio purchases in line with its main business instead of broad development.The business is keeping an eye on legislative actions like the bipartisan HOPE Act and other regulatory changes pertaining to HSA growth. Cutler expressed hope for possible legislative reforms meant to increase the acceptance of HSA.Expanding its HSA platform, enhancing digital engagement, and tackling fraud-related issues are HealthEquity's top priorities. Over fiscal 2026, the business anticipates further revenue growth, profitability improvements, and more technological and security enhancing investments.
This article first appeared on GuruFocus.
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