HealthEquity, Inc. (HQY) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong operational efficiency and strategic advancements, such as AI and mobile enhancements, HSA growth, and fraud prevention. Despite some unclear management responses, the overall sentiment is positive, with optimistic guidance and improved service margins. The Q&A highlights proactive legislative engagement and market opportunities, reinforcing a positive outlook. The absence of negative financial surprises or guidance cuts further supports a positive stock price movement.
Key Financial Performance
Revenue Revenue increased 9% year-over-year. Service revenue increased 1% to $117.9 million. Custodial revenue grew 15% to a record $159.9 million. Interchange revenue grew 8% to $48.1 million.
Net Income Net income increased 67% year-over-year to $59.9 million or $0.68 per share on a GAAP EPS basis. Non-GAAP net income was $94.6 million or $1.08 per share.
Adjusted EBITDA Adjusted EBITDA increased 18% year-over-year to $151.1 million, achieving an all-time quarterly company high. Adjusted EBITDA margin was 46%, near an all-time record, up from 43% in the second quarter last year.
Gross Margin Gross margin reached a record 71%, up from 68% in the second quarter last year.
HSA Accounts and Assets HSAs grew 6%, CDB accounts grew 4%, driving total accounts up 5%. HSA assets were up 12%, increasing by $3.7 billion year-over-year to over $33 billion. The number of HSA members who invest grew by 10%, driving invested assets up 23% to $16.1 billion. HSA cash reached $17 billion, and average balances of HSA members grew by 6% year-over-year.
Fraud Costs Fraud costs reduced significantly, with direct fraud service costs decreasing from $3 million in Q1 to an exit run rate in Q2 near the goal of 1 basis point of total HSA assets per year. This was achieved through enhanced security measures and increased adoption of secure mobile experiences.
Operational Efficiency Service levels increased with 9% fewer teammates compared to the prior year, resulting in cost savings. The company also completed moving its V5 platform to 100% cloud-based, achieving 92% faster response times, 5x more stability, and an 80% reduction in delays.
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Operating Highlights
AI-powered expedited claims: Launched to automate claims adjudication, processing millions of dollars in reimbursements, increasing member satisfaction, and reducing processing costs.
Passkey authentication: Introduced to enhance trust and streamline login processes, eliminating the need for passwords.
Mobile-first strategy: New members can now set up HSA accounts through the mobile app, offering a faster and secure experience.
HSA market expansion: Legislation passed in July expands HSA eligibility to include direct primary care arrangements, low-cost telehealth, and ACA exchange plans, potentially adding 3-4 million new families.
Bronze and catastrophic plans: Starting January 2026, these plans will be HSA-eligible, targeting over 7 million current enrollees.
Fraud prevention: Implemented measures reducing fraud costs from $3 million in Q1 to near 1 basis point of total HSA assets per year.
Cloud-based platform: Completed migration to a 100% cloud-based platform, improving response times by 92% and reducing delays by 80%.
Consumer-centric mobile app: Shifted strategy to focus on a secure, consumer-centric mobile experience for HSA management.
Legislative advocacy: Efforts led to significant legislative wins for HSA expansion, enhancing market positioning.
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Risk or Challenges
Labor Market Underperformance: The labor market is underperforming relative to expectations, which could impact the pace of hiring and overall economic activity, potentially affecting the company's growth.
Healthcare Cost Growth: Healthcare costs are growing at 2 to 3 times the rate of wage growth, posing challenges for employers and employees in managing expenses.
Fraud Risks: Despite progress in reducing fraud, it remains a concern, with direct fraud service costs still impacting financials, though at a reduced rate.
Regulatory and Legislative Changes: While recent legislative changes expand HSA eligibility, the company must navigate the complexities of implementing these changes and educating stakeholders.
Economic Uncertainty: Economic conditions, including potential changes in interest rates and inflation, could impact HSA cash yields and overall financial performance.
Technology and Security Investments: Ongoing investments in technology and security, while necessary, represent significant costs and require careful management to ensure ROI.
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Guidance & Outlook
Revenue Guidance: HealthEquity expects revenue for fiscal year 2026 to be in the range of $1.29 billion to $1.31 billion.
Net Income Guidance: GAAP net income is projected to be between $185 million and $200 million, or $2.11 to $2.28 per share. Non-GAAP net income is expected to range from $329 million to $344 million, or $3.74 to $3.91 per share.
Adjusted EBITDA Guidance: Adjusted EBITDA is forecasted to be between $540 million and $560 million for fiscal year 2026.
HSA Market Expansion: The budget bill passed in July 2025 expands HSA eligibility to include direct primary care arrangements and low-cost telehealth services, effective January 1, 2026. This is expected to increase HSA adoption among American families, with an estimated 3 to 4 million more families gaining access to HSAs.
Bronze and Catastrophic Plans: Starting January 1, 2026, all individual bronze and catastrophic plans on ACA exchanges will be eligible for HSAs. This change could lead to increased HSA adoption, particularly among the 7 million people currently enrolled in bronze plans.
Interest Rate Forward Contracts: HealthEquity has entered into treasury bond forward contracts to derisk interest rate volatility on future HSA cash placement contracts. The average yield on HSA cash is expected to be approximately 3.5% for fiscal year 2026.
Fraud Cost Reduction: The company aims to reduce fraud costs to 1 basis point of total HSA assets per annum by the end of fiscal year 2026.
Technology and Security Investments: HealthEquity plans to increase investments in technology and security, including enhancements to its member-first secure mobile experience and fraud prevention measures.
Sales and Marketing Investments: Additional investments will be made in sales and marketing efforts to capitalize on the expanded HSA eligibility for bronze plan consumers.
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Shareholder Return Plan
Share Repurchase: We also repurchased approximately $66 million of our outstanding shares during the quarter, and we have approximately $352 million remaining on our previously announced share repurchase authorizations.
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Key Q&A
Q:Are there any milestones or sticking points to address regarding HSA fraud in the next few quarters?
A:The company is focused on a member-first secure mobile experience, emphasizing the rollout of a secure app and passkey authentication. Progress has been made in reducing fraud numbers sequentially each month this year, but there are no specific milestones, just continued progress.
Q:Do you foresee any opportunities for HSA reform or access improvement in future legislations?
A:The company is excited about the recent HSA expansion, the largest in decades, and is redesigning enrollment and onboarding for new consumers. While Medicare was not included in the recent bill, they see opportunities in future legislations and are focused on expanding provisions like direct primary care and telemedicine.
Q:Should the 4% lock rate apply to all repricing next year, and does it relate to the enhanced yield product or traditional FDIC product?
A:The 4% lock rate applies to basic rates contracts maturing, with most rolling into enhanced rate contracts. The average lock rate is 4% on the 5-year treasury, with an additional 75 basis point spread for enhanced rates.
Q:Are there any nuances to the net new HSAs and AUM growth in the second quarter?
A:There are no specific nuances. The company is ahead of expectations despite macroeconomic challenges and is investing in marketing and improved enrollment experiences to capitalize on expanded opportunities.
Q:What is the ceiling for app adoption, and how does it impact gross margins?
A:The company does not see incremental gross margin improvement from app adoption but focuses on active and engaged members. The app provides a better experience, and penetration will reflect active members accessing their accounts.
Q:Can you explain the disconnect between slower employer market growth and the company's outperformance?
A:Despite slower employment growth (down 40% year-over-year), the company has leaned into its sales pipeline and client relationships. They attribute outperformance to improved service, technology use, and their leadership position in the market.
Q:How fast is the HSA market growing, and can the growth rate be sustained?
A:The market is expanding due to OBBB and other factors. The company is focusing on increasing contributions, participation, and engagement, which should drive growth beyond just account growth.
Q:What is causing the dip in HSA cash, and what is the outlook for cash growth?
A:The dip is due to increased investment behavior and higher health care spending. Contributions and spending are up, and cash inflows are lumpy, with significant inflows expected in fiscal Q4.
Q:How will rising health care premiums impact HSA enrollment?
A:Rising premiums make HSAs more attractive as a cost-management tool for employers. The company believes the value proposition for HSAs strengthens in challenging macro environments.
Q:What are the gating factors for signing more forward contracts and hedging?
A:There are no counterparty issues; the company is gradually entering into hedges as part of its strategy, viewing them as insurance contracts.
Q:What is driving the increase in service gross margin?
A:The increase is due to more efficient service delivery, improved service quality, and investments in technology. The company is at the beginning of its journey to further reduce costs through automation and AI.
Q:What is the potential impact of declining interest rates on custodial revenue?
A:The company did not provide specific modeling but noted that placement rates depend on the 5-year treasury rate at the time of asset placement.
Q:What is the company's strategy for capturing the ACA opportunity?
A:The company sees a significant opportunity in the ACA market, targeting 3-4 million households. They plan to educate consumers, leverage health plan partners, and deploy marketing resources to capture this market.
Q:What are the cost benefits of AI initiatives, and what are the future opportunities?
A:AI has already reduced costs through claims automation and service improvements. Future opportunities include automating repeatable processes, improving service efficiency, and enhancing the overall experience.
Q:Review of Unclear Management Responses
A:Management avoided providing specific numbers or detailed projections for the ACA opportunity, the impact of declining interest rates on custodial revenue, and the exact cost benefits of AI initiatives. Responses were often broad and lacked precise data.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ACA exchange
AI journey
AI voice
Agentic AI
Americans
Assets phase
CDB account
CFO Investor
DPC
HSA Assets
HSA adoption
HSA eligibility
Purple
access family
account HSAs
adoption member
afternoon HealthEquity
app
authentication
benefit HSAs
bronze plan
capability
client HSA
control
employer health
enrollment process
experience HSA
health care
individual
margin
member experience
partner
passkey technology
plan HSAs
pocket
premium
provision
team
tool
use
HQY Transcript
HealthEquity, Inc. (HQY) Q1 2027 Earnings Call Transcript
Positive5-29
The earnings call summary indicates strong financial performance with projected revenue growth and net income. The Q&A session reveals positive analyst sentiment, especially regarding AI adoption and its impact on cost reduction and efficiency. The company's strategic focus on digital experiences, HSA utilization, and marketplace growth is well-received. Despite some uncertainties in specific figures, the overall guidance and strategic initiatives suggest a positive outlook, likely leading to a stock price increase.
HealthEquity, Inc. (HQY) Q4 2026 Earnings Call Transcript
Positive3-17
The earnings call summary presents a positive outlook with strong financial performance, optimistic guidance, and strategic investments in technology and market expansion. The Q&A section highlights positive trends in HSA adoption and member engagement, with management addressing macroeconomic challenges effectively. Share repurchase plans and capital return strategies further bolster investor confidence. Despite some unclear responses, the overall sentiment is positive, with promising market opportunities and growth potential.
HealthEquity, Inc. (HQY) Q3 2026 Earnings Call Transcript
Positive12-3
The earnings call summary and Q&A indicate positive financial performance, strategic HSA market expansion, and efficiency improvements through AI and automation. Despite competitive pressures, the company maintains high retention rates and leverages a strong enterprise pipeline. The Bronze plan expansion adds significant growth potential, supported by positive analyst sentiment. While management avoided some specifics, optimistic guidance and strategic investments in technology and shareholder returns bolster a positive outlook.
HealthEquity, Inc. (HQY) Q2 2026 Earnings Call Transcript
Positive9-2
The earnings call indicates strong operational efficiency and strategic advancements, such as AI and mobile enhancements, HSA growth, and fraud prevention. Despite some unclear management responses, the overall sentiment is positive, with optimistic guidance and improved service margins. The Q&A highlights proactive legislative engagement and market opportunities, reinforcing a positive outlook. The absence of negative financial surprises or guidance cuts further supports a positive stock price movement.
HQY Report
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