HealthEquity – Continued Double-Digit Revenue Growth

Introduction:
I’ve written a handful of articles highlighting HealthEquity (HQY) in 2017 as a great growth play in the rapidly growing Health Savings Accounts (HSAs) space. HealthEquity just reported beats on both the top and bottom line, beating revenue and EPS estimates by $1.39 million and $0.04, respectively. It’s noteworthy to point out that revenue was up 30% year-over-year for its Q3 FY18 quarter. HealthEquity is a major player in the HSA secular growth market and has continued to gain market share over the years. HealthEquity has posted annual revenue growth of 42%, 44% and 41% when comparing FY14 to FY15, FY15 to FY16 and FY16 to FY17, respectively. If consensus estimates are accurate for FY18, revenue growth will come in at 27% when comparing FY17 to FY18 (Figure 1). The sustainability of this growth will likely move in lock-step with the growth in the HSA market in addition to optimizing revenues extracted from the investments within these accounts via offering investment advising, collecting fees from the investment line-up and its newly announced 401k with paired HSA offerings. I feel that HealthEquity will continue to post strong growth as it services the double-digit HSA growth market and manages more assets and investments within these accounts. As HealthEquity rolls out additional products such as the launch of its own 401k offerings paired with HSA accounts, HSA members elect to invest money within these accounts and accounts age, revenue will continue to accelerate with stock appreciation. 

Figure 1 – Fiscal year-over-year growth in revenue, number of HSA accounts and custodial assets   

HealthEquity’s FY18 Q3 Earnings: 

HealthEquity reported another great quarter however the stock responded by selling off by ~7%. HealthEquity reported EPS of $0.17 and revenue of $56.8 million. These EPS and revenue figures beat estimates by $0.04 per share and $1.39 million, respectively with the latter revenue figure posting 30% year-over-year growth. After announcing its most recent earnings, the stock sold off due to narrowing its FY18 guidance. Management provided guidance for revenue of $225-$228 million verses a consensus of $227 million relative to previously released guidance of $223-$228 million. Updated EPS estimates were $0.64-$0.66 compared to a consensus of $0.71 relative to previously released guidance of $0.64-$0.68. Effectively, management raised the lower end of revenue estimates while lowering the high end of its EPS estimates. Regardless, revenue will increase year-over-year by 27% with growth across all business segments. With continued double-digit growth rates in an expanding marketplace HealthEquity is poised to rebound from this sell-off and continue appreciating higher.