HealthEquity, Inc. (HQY) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Revenue Revenue increased 7% year-over-year. Service revenue increased 1% year-over-year to $120.3 million. Custodial revenue grew 13% to $159.1 million in the third quarter. Interchange revenue grew 6% to $42.8 million.
Net Income Net income for the third quarter was $51.7 million, up 806% compared to the third quarter last year, which included a $30 million one-time legal settlement. Non-GAAP net income increased 26% to $87.7 million.
Adjusted EBITDA Adjusted EBITDA for the quarter was $141.8 million, up 20% compared to Q3 last year. Adjusted EBITDA as a percentage of revenue was 44%, up 460 basis points compared to 39% in the third quarter last year.
Gross Margin Gross profit of $228.1 million resulted in a 71% gross margin in the third quarter, up from 66% in the third quarter last year.
HSA Assets HSA assets grew 15% year-over-year to over $34 billion. The number of HSA members who invest grew 12%, and HSA invested assets grew 29% to $17.5 billion.
Total Accounts HealthEquity ended Q3 with more than 17 million total accounts, including more than 10 million HSAs. Total accounts grew 5% year-over-year, with net CDB accounts up 3% and HSAs up 6%.
Average HSA Balances The average HSA balances grew 8% year-over-year, contributing to the 15% increase in HSA assets.
Fraud Costs Fraud costs totaled approximately $0.3 million in the third quarter, well below the run rate target of 1 basis point of total HSA assets per year.
Cash on Hand As of October 31, 2025, cash on hand was $309 million, with $339 million of cash flows generated from operations in the first 9 months of fiscal '26.
Debt Outstanding Approximately $982 million of debt was outstanding net of issuance costs after paying down $25 million on the revolver during the quarter.
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Operating Highlights
New HSA Enrollment Platform: Launched a streamlined digital experience for direct HSA enrollment through mobile and web platforms, targeting individuals choosing Bronze plans on ACA exchanges.
HealthEquity Marketplace: Introduced a platform providing access to affordable health care solutions, including a program supporting weight loss through GLP-1s. Early adoption and retention data are positive.
HSA Growth: HealthEquity ended Q3 with over 17 million total accounts, including more than 10 million HSAs. HSA assets grew 15% year-over-year to $34 billion.
New Employer Clients: Collaborating with employers and partners to support HSA adoption, including new clients offering HSAs for the first time.
Fraud Prevention: Investments in security reduced fraud costs to $0.3 million in Q3, below the target of 1 basis point of total HSA assets per year.
AI Integration: Implemented AI solutions like expedited claims processing and integrated AI experiences to improve service and reduce costs.
Legislative Advocacy: Engaging with policymakers to expand HSA access and promote their role in addressing health care affordability.
Interest Rate Hedging: Executed U.S. treasury bond forward contracts to mitigate interest rate volatility on future HSA cash deposit contracts.
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Risk or Challenges
Regulatory Environment: Uncertainty in public policy and legislative outcomes, including potential changes to ACA subsidies and HSA eligibility, could impact the company's operations and strategic plans.
Affordability Challenges: Rising healthcare costs outpacing wage growth create affordability challenges for American families and employers, which could affect HSA adoption and usage.
Fraud Prevention: Although fraud costs are currently low, evolving threats necessitate ongoing investment in security measures, which could increase operational costs.
Interest Rate Volatility: Potential volatility in interest rates could impact custodial revenue and the effectiveness of interest rate hedges.
Competitive Pressures: The need to continually invest in technology, security, and marketing to maintain competitive advantage could strain resources and margins.
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Guidance & Outlook
Revenue Expectations: For fiscal 2026, revenue is expected to range between $1.302 billion and $1.312 billion.
Net Income Projections: GAAP net income is projected to be between $197 million and $205 million, or $2.24 to $2.33 per share. Non-GAAP net income is expected to range from $341 million to $348 million, or $3.87 to $3.95 per share.
Adjusted EBITDA: Adjusted EBITDA is forecasted to be between $555 million and $565 million for fiscal 2026.
HSA Cash Yield: The average yield on HSA cash is expected to be approximately 3.54% for fiscal 2026.
Capital Return and Share Repurchases: The company plans to continue share repurchases under the remaining $259 million repurchase authorization and may reduce borrowings on its revolver during the fiscal year.
Investment in Technology and Security: Continued investment in technology and security is planned to enhance the member-first secure mobile experience and deliver innovative products across the platform.
HSA Adoption and ACA Exchanges: Investments in sales and marketing will be made to drive HSA adoption on the ACA exchanges.
Interest Rate Hedging: The company has entered into U.S. treasury bond forward contracts with a notional amount of approximately $2.3 billion, tied to basic rate contract maturities between January 2026 and August 2027, with a blended rate lock of 3.94%.
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Shareholder Return Plan
Share Repurchase Program: The company repurchased approximately $94 million of its outstanding shares during the quarter. Additionally, there is approximately $259 million remaining on the previously announced share repurchase authorization. The company expects to make additional share repurchases under this authorization during the fiscal year.
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Key Q&A
Q:On the direct HSA enrollment platform being set up for qualified ACA members, what are your marketing plans there? And how should we think about the progression of your sales and marketing expenses over the coming quarters pertaining to that?
A:The company is focusing on a seamless and frictionless enrollment experience for new HSA accounts. They are leveraging a $25 match for new accounts, integrated plan partners, and brand marketing initiatives such as paid search and social channels. Marketing expenditures are ramping up in Q4 to align with open enrollment. Early results show an average contribution level of $1,550 for new retail enrollees, slightly below the industry average of $1,800. The company views this as a long-term opportunity and is working with plan partners to expand enrollment.
Q:Regarding your forward contracts, do you plan to derisk any longer duration assets beyond August 2027?
A:The company has extended hedges into the summer of 2027 and plans to continue reaching further into the future to manage maturities. The updated maturity schedule shows a reduced concentration of maturities in fiscal '28 and '29, with a focus on the front end.
Q:Can you talk about the split between how much contribution you would expect from integrated plan partners versus stand-alone HealthEquity going direct?
A:The majority of business comes through integrated plan partners or brokers. The retail channel is still evolving, and the company is investing in retail experiences and marketing to educate potential members about HSA eligibility. The company expects growth over time as awareness and enrollment increase.
Q:Is there an opportunity to increase the minimum threshold before HSA consumers can invest, considering inflation?
A:The minimum threshold is typically set by enterprise clients. The company sees an opportunity to drive engagement and education, as only 9% of HSA account holders are investors. Strategies include improving the investment setup experience and educating members about the advantages of HSAs.
Q:Are you seeing employer sponsors move people towards HSAs at an accelerating rate for 2026, given rising health care costs?
A:The company is engaging with employers to address rising health care costs, promoting high-deductible health plans (HDHPs) as a cost-saving strategy. They are using their analyzer product to help enterprises compare their metrics to industry averages. The company expects greater adoption of HSAs this year due to affordability challenges.
Q:Are there opportunities to create new markets for HealthEquity, such as the Dell initiative to fund children's accounts?
A:The company sees significant opportunities in expanding HSA adoption due to the triple tax advantage and the need for Americans to prepare for future health care costs. They are actively engaging with policymakers to address health care affordability and promote HSAs as a solution.
Q:What percentage of cash assets are currently in the enhanced yield product, and where do you anticipate that percentage to be by January 2027 and August 2027?
A:The company started the year with a 50-50 split between enhanced yield and other assets. They aim to reach a 60-40 split by the end of next year. Over 90% of maturing contracts are adopting enhanced rates, and the company is on track to meet its target.
Q:How much further can the company improve efficiency and reduce the cost per account?
A:The company is leveraging AI and automation to improve efficiency, particularly in member services. Early wins include claims automation and reducing call times for routine issues. They believe there is significant room for further efficiency gains while maintaining or improving service quality.
Q:Are you seeing any shift in pricing or competitive behavior in the HSA space, particularly with smaller employers and new exchange-based accounts?
A:The market remains competitive, with pricing pressure primarily at the high end. The company differentiates itself through its integrated platform and focus on the save, spend, and invest strategy. Retention rates remain high, and the company is well-positioned to compete effectively.
Q:What percent of your cost structure can be addressed with AI and automation investments?
A:AI and automation have broad applications across member services, client services, and back-office operations. The company is focusing on improving voice interactions and automating routine tasks. They are also using AI to enhance productivity in product and technology teams.
Q:How do app downloads impact new and legacy clients, and what is the effect on margins?
A:The company has seen a significant increase in app downloads, driven by the adoption of Passkey for secure authentication. This reduces call volumes for password-related issues, contributing to lower service costs. The app is a strategic priority for improving member engagement and efficiency.
Q:Are you still worried about the soft labor market, and how does it impact your outlook?
A:The company’s view on the macro environment remains unchanged. While a soft labor market may affect new member growth, the value proposition of HSAs and the expansion of the market through Bronze plans provide significant opportunities. The company is optimistic about Q4 due to a strong enterprise pipeline and retention rates.
Q:What is the update on the M&A environment for additional HSA portfolios, and how are you thinking about capital allocation in fiscal '27?
A:The company remains opportunistic about M&A, focusing on portfolio acquisitions. Capital allocation priorities include stock buybacks, debt repayment, and disciplined investments in shareholder-friendly opportunities.
Q:How should we think about the repricing of HSAs in fiscal '27 compared to fiscal '28 and '29?
A:Repricing in fiscal '27 will occur as planned, with over 90% of maturing contracts adopting enhanced rates. The full benefit of repricing will be realized in fiscal '28. The company will provide more details at the JPMorgan conference.
Q:Where are you redeploying gross profit upside back into the business?
A:The company is reinvesting in product and technology, focusing on app experience, data, APIs, and service center modernization. They are also investing in the marketplace platform to enhance the spend experience and drive additional service revenue.
Q:Can you size the TAM expansion with the Bronze product opportunity?
A:The Bronze plan expansion adds 7 million potential members, equivalent to 2-3 million households. The company is optimistic about capturing a significant share of this market, but it will take time to educate and enroll members.
Q:Can you use HSA dollars to pay premiums?
A:HSA dollars can only be used for premiums in specific situations, such as unemployment or COBRA coverage. The company supports legislative changes to allow broader use of HSA funds for premiums.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the expected revenue impact of the Bronze plan expansion and the exact repricing yields for fiscal '27. They also did not quantify the potential savings from AI and automation investments or the exact TAM for the Bronze product opportunity.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ACA subsidy
AI capability
AI experience
AI future
American HSA
Americans HSAs
Americans mechanism
Assist work
CDB Purple
HSA adoption
HSA asset
HSA balance
HSAs Washington
HSAs health
HealthEquity app
access health
affordability challenge
app web
asset number
care consumer
care solution
challenge family
employer health
family employer
flywheel member
health care
health saving
household
job
leader
margin
marketplace
member HSA
member health
outcome
policy
policymakers
support
system
tool
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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