HealthEquity Inc. Q1 Fiscal Year 2025 Earnings Report

Executive Summary

HealthEquity has delivered an outstanding first quarter in fiscal year 2025, marked by robust year-over-year growth on multiple fronts. The highlights include an 18% increase in revenue, a 36% growth in adjusted EBITDA, and a 22% rise in HSA assets. The company's strong performance resulted in improved guidance for the fiscal year.

Financial Overview

HealthEquity recorded total revenue of $287.6M during Q1 FY 2025, driven by several key contributors:

Revenue Components

• Service Revenue: $118.2M, up 6% year-over-year, attributed to higher HSA numbers and increased invested HSA assets, although partially offset by the runoff of National Emergency CDB activity.
• Custodial Revenue: $121.6M, a 37% year-over-year increase, primarily driven by an annualized interest rate yield on HSA cash at 2.93% for the quarter.
• Interchange Revenue: Grew 6% to $47.7M.

Profitability and Earnings

HealthEquity's profitability metrics improved significantly, with gross profit margins at 65%. Other highlights include:

• Gross Profit: $187.14M
• Operating Income: $41.63M
• Net Income: $28.81M, translating to $0.33 per share on a GAAP basis.
• Adjusted EBITDA: $117.4M, an increase of 36%, now representing 41% of revenue.

These figures reflect HealthEquity’s continued focus on operating efficiency and strategic growth, with an aptitude for driving greater value from its service offerings.

Balance Sheet and Cash Flow

As of April 30, 2024, HealthEquity maintained a solid financial position with $251.23M in cash and cash equivalents. Key figures include:

• Cash at Beginning of Period: $403.98M (after spending $199M on BenefitWallet tranches)
• Net Change in Cash: $-152.75M
• Total Debt: $983.68M
• Operating Cash Flow: $65.43M
• Free Cash Flow: $64.71M

HealthEquity plans to utilize this strong cash position to pay down its variable rate debt over the next several quarters.

Operational Highlights

Strong HSA growth continued to be a key driver for HealthEquity, with the team achieving several milestones:

• Increased HSA members by 13%, attributed to robust HSA sales and BenefitWallet transitions.
• Total accounts reached 16M, including 9M HSA accounts with $27B in HSA assets.
• HSA assets grew by $2.1B in the quarter, including $0.4B from organic growth.
• HSA investors increased by 20%, driving invested assets up by 39%.

Moreover, HealthEquity introduced mobile wallet solutions, enhancing member experience and operational efficiency by enabling digital card usage, which over time will significantly reduce the cost of card issuance and distribution.

Guidance Update

Based on the first quarter’s performance, HealthEquity is raising its guidance for fiscal 2025:

• Revenue: Expected to be between $1.16B and $1.18B
• GAAP Net Income: Between $90M and $105M, corresponding to $1.01 to $1.18 per share
• Non-GAAP Net Income: Between $261M and $276M, translating to $2.93 to $3.10 per share
• Adjusted EBITDA: Between $454M and $474M

The company anticipates higher custodial revenue from the integration of BenefitWallet HSA portfolios, combined with operational efficiencies from its technology investments to drive these improved projections.

Closing Remarks

HealthEquity has made significant strides in Q1 FY 2025, demonstrating robust growth and operational excellence. The firm is well-positioned to continue delivering value to its stakeholders, leveraging its strategic acquisitions, technological advancements, and diligent execution of its business model. Management expresses its gratitude to the employees, partners, and shareholders for their continued support.