HealthEquity(US:HQY)2025-09-02 20:03HSA Accounts and Market Position - As of July 31, 2025, the company administered 10.0 million HSAs with total balances of $33.1 billion, alongside 7.2 million complementary consumer-directed benefits (CDBs), resulting in a total of 17.1 million accounts[80]. - The company increased its market share in the HSA sector from 4% in December 2010 to 21% as of December 2024, becoming the largest HSA provider by number of accounts and the second largest by HSA assets[82]. - In fiscal 2025, the company acquired the BenefitWallet HSA portfolio, which included approximately 616,000 HSAs and $2.7 billion in HSA assets, for a total purchase price of $425 million[85]. - The number of HSAs increased by 606, or 6%, from July 31, 2024 to July 31, 2025, driven by new HSAs from sales[104]. - Total Accounts increased by 861, or 5%, from July 31, 2024 to July 31, 2025[104]. Financial Performance - Adjusted EBITDA increased by $22.8 million, or 18%, from the three months ended July 31, 2024 to the three months ended July 31, 2025, primarily due to an increase in total revenue[112]. - Net income increased by $24.0 million, or 67%, from the three months ended July 31, 2024 to the three months ended July 31, 2025, primarily due to an increase in gross profit[112]. - Total revenue for Q3 2025 was $325.8 million, a 9% increase from $299.9 million in Q3 2024, while total revenue for the first half of 2025 was $656.7 million, a 12% increase from $587.5 million in the first half of 2024[138]. - Non-GAAP net income increased by $18.3 million, or 24%, from Q3 2024 to Q3 2025, driven by total revenue growth and efficiencies from technology investments[118]. - Non-GAAP net income increased by $33.8 million, or 23%, from the first half of 2024 to the first half of 2025, primarily due to total revenue growth and efficiencies from technology investments[119]. Revenue Sources - The company earns revenue primarily from service, custodial, and interchange sources, with service revenue coming from fees paid by Network Partners, Clients, and members[84]. - Custodial revenue increased by $21.2 million, or 15%, in Q3 2025 compared to Q3 2024, and by $56.0 million, or 22%, in the first half of 2025 compared to the first half of 2024, attributed to higher average annualized yield on HSA cash[140][141]. - Interchange revenue rose by $3.6 million, or 8%, in Q3 2025 compared to Q3 2024, and by $10.4 million, or 11%, in the first half of 2025 compared to the first half of 2024, driven by an increase in Total Accounts and spending per account[143][144]. - Service revenue increased by $1.2 million, or 1%, in Q3 2025 compared to Q3 2024, and by $2.7 million, or 1%, in the first half of 2025 compared to the first half of 2024, primarily due to increases in Total Accounts[138][139]. Cost Management - Total cost of revenue decreased as a percentage of total revenue to 30.4% for the six months ended July 31, 2025, compared to 33.4% for the same period in 2024, due to total revenue increasing at a significantly higher rate (12%) than total cost of revenue (2%)[154]. - Service costs decreased by $1.8 million, or 2%, from the three months ended July 31, 2024 to the three months ended July 31, 2025, primarily due to efficiencies from technology investments[146]. - Custodial costs increased by $1.0 million, or 10%, from the three months ended July 31, 2024 to the three months ended July 31, 2025, driven by a $0.7 billion, or 4%, increase in the year-over-year average daily balance of HSA cash[149]. - Interchange costs decreased by $1.9 million, or 22%, from the three months ended July 31, 2024 to the three months ended July 31, 2025, primarily due to efficiencies from transitioning to a single card processor[152]. Cash Flow and Investments - Net cash provided by operating activities increased by $27.0 million to $200.6 million for the six months ended July 31, 2025, compared to $173.6 million for the same period in 2024[186]. - Net cash used in investing activities decreased by $451.7 million to $(27.3) million for the six months ended July 31, 2025, primarily due to a $452.2 million decrease in cash used to acquire HSA portfolios[187]. - Capital expenditures for the six months ended July 31, 2025, were $27.3 million, slightly up from $26.8 million in the same period in 2024[183]. Regulatory and Market Trends - Regulatory changes, such as the "One Big Beautiful Bill Act," have expanded HSA eligibility, which may drive future growth in HSA-qualified health plans[88]. - The average family premium for employer-sponsored health insurance has risen by 24% since 2019, leading to increased participation in HSA-qualified health plans[88]. Technology and Development - The company is investing in the modernization of its proprietary technology platforms to enhance security, privacy, and transaction processing capabilities[99]. - Technology and development expenses increased by $6.2 million, or 11%, from the three months ended July 31, 2024 to the three months ended July 31, 2025, mainly due to increases in software costs and personnel-related expenses[159]. Tax and Interest - Corporate income tax payments are expected to be significantly reduced for the fiscal years ending January 31, 2026, and January 31, 2027, due to accelerated tax deductions from the "One Big Beautiful Bill Act"[184]. - Interest expense decreased by $0.5 million, or 3%, from the three months ended July 31, 2024 to the three months ended July 31, 2025, primarily due to a lower average interest rate on borrowings[170].