HealthEquity(HQY) - 2026 Q2 - Quarterly Results

Executive Summary & Highlights Second Quarter FY25 Performance Overview HealthEquity reported strong financial results for the second quarter ended July 31, 2025, with significant growth in revenue, net income, and Adjusted EBITDA, alongside record gross margins Q2 FY25 Performance Summary | Metric | Q2 FY25 (Ended Jul 31, 2025) | Q2 FY24 (Ended Jul 31, 2024) | Change (%) | | :----------------------- | :--------------------------- | :--------------------------- | :--------- | | Revenue | $325.8 million | $299.9 million | 9% | | Gross Margin | 71% | - | Record | | Adjusted EBITDA | $151.1 million | $128.3 million | 18% | | Adjusted EBITDA (% of Rev) | 46% | 43% | +3 ppts | | Net Income | $59.9 million | $35.8 million | 67% | | Non-GAAP Net Income | $94.6 million | $76.3 million | 24% | | Diluted EPS (GAAP) | $0.68 | $0.40 | 70% | | Diluted EPS (Non-GAAP) | $1.08 | $0.86 | 26% | Key Account and Asset Growth The company continued to expand its account base and managed assets, with notable growth in HSAs and total HSA assets Account and Asset Metrics | Metric | As of Jul 31, 2025 | YoY Change (%) | | :----------------- | :----------------- | :------------- | | HSAs | 10.0 million | 6% | | HSAs with Investments | 782,000 | 10% | | Total Accounts | 17.1 million | 5% | | Total HSA Assets | $33.1 billion | 12% | | HSA Cash | $17.0 billion | - | | HSA Investments | $16.1 billion | - | CEO Commentary and Business Outlook CEO Scott Cutler highlighted the company's strong momentum and an even brighter outlook, driven by legislative expansion of HSAs and proprietary technologies. The company also provided its business outlook for the fiscal year ending January 31, 2026 - CEO Scott Cutler noted continued momentum with strong revenue growth, record gross margin, and record adjusted EBITDA, attributing success to proprietary technologies and platforms[3] - The outlook is considered brighter due to the largest legislative expansion of HSAs since 2006, increasing access to financial security and tax benefits for American families[3] Fiscal Year 2026 Business Outlook (Ending January 31, 2026) | Metric | Guidance Range | | :----------------------- | :------------------------- | | Revenue | $1.290 billion - $1.310 billion | | Net Income | $185 million - $200 million | | Net Income per Diluted Share | $2.11 - $2.28 | | Non-GAAP Net Income | $329 million - $344 million | | Non-GAAP Net Income per Diluted Share | $3.74 - $3.91 | | Adjusted EBITDA | $540 million - $560 million | Second Quarter Financial Results (Ended July 31, 2025) Revenue Analysis HealthEquity's total revenue for Q2 FY25 increased by 9% year-over-year, driven by growth across all three revenue streams, with custodial revenue showing the strongest percentage increase Revenue Breakdown | Revenue Type | Q2 FY25 ($ millions) | Q2 FY24 ($ millions) | YoY Change ($ millions) | YoY Change (%) | | :---------------- | :------------------- | :------------------- | :---------------------- | :------------- | | Service Revenue | $117.9 | $116.7 | $1.2 | 1% | | Custodial Revenue | $159.9 | $138.7 | $21.2 | 15% | | Interchange Revenue | $48.1 | $44.5 | $3.6 | 8% | | Total Revenue | $325.8 | $299.9 | $25.9 | 9% | Net Income and Earnings Per Share (GAAP & Non-GAAP) The company reported substantial increases in both GAAP and non-GAAP net income and diluted EPS for the second quarter, reflecting improved profitability Net Income and EPS | Metric | Q2 FY25 (Ended Jul 31, 2025) | Q2 FY24 (Ended Jul 31, 2024) | YoY Change (%) | | :----------------------- | :--------------------------- | :--------------------------- | :------------- | | Net Income (GAAP) | $59.9 million | $35.8 million | 67% | | Net Income per Diluted Share (GAAP) | $0.68 | $0.40 | 70% | | Non-GAAP Net Income | $94.6 million | $76.3 million | 24% | | Non-GAAP Net Income per Diluted Share | $1.08 | $0.86 | 26% | Adjusted EBITDA Performance Adjusted EBITDA saw an 18% increase year-over-year, reaching a record $151.1 million, and its margin improved to 46% of revenue Adjusted EBITDA | Metric | Q2 FY25 (Ended Jul 31, 2025) | Q2 FY24 (Ended Jul 31, 2024) | YoY Change ($ millions) | YoY Change (%) | | :-------------- | :--------------------------- | :--------------------------- | :---------------------- | :------------- | | Adjusted EBITDA | $151.1 million | $128.3 million | $22.8 | 18% | | As % of Revenue | 46% | 43% | +3 ppts | - | Account and Asset Metrics HSA and Total Accounts HealthEquity reported continued growth in its account base, with HSAs reaching 10.0 million and total accounts, including other consumer-directed benefits (CDBs), at 17.1 million Account Growth | Metric | As of Jul 31, 2025 | As of Jul 31, 2024 | YoY Change (%) | | :----------------- | :----------------- | :----------------- | :------------- | | HSAs | 9,989 thousand | 9,383 thousand | 6% | | HSAs with Investments | 782 thousand | 711 thousand | 10% | | CDBs | 7,153 thousand | 6,898 thousand | 4% | | Total Accounts | 17,142 thousand| 16,281 thousand| 5% | - New HSAs from sales decreased by 13% quarter-to-date and 18% year-to-date compared to the previous fiscal year[33] Total HSA Assets Total HSA Assets grew by 12% year-over-year, reaching $33.1 billion, with a significant portion allocated to investments Total HSA Assets | Asset Type | As of Jul 31, 2025 ($ billions) | As of Jul 31, 2024 ($ billions) | YoY Change (%) | | :---------------- | :------------------------------ | :------------------------------ | :------------- | | HSA Cash | $17.0 | $16.4 | 4% | | HSA Investments | $16.1 | $13.1 | 23% | | Total HSA Assets| $33.1 | $29.5 | 12% | Client-Held Funds Client-held funds remained stable year-over-year at $0.8 billion, which are deposits used to facilitate the administration of CDBs and generate custodial revenue Client-Held Funds | Metric | As of Jul 31, 2025 ($ millions) | As of Jul 31, 2024 ($ millions) | YoY Change (%) | | :---------------- | :------------------------------ | :------------------------------ | :------------- | | Client-held funds | $818 | $817 | 0% | Business Outlook for Fiscal Year 2026 Full Year FY26 Financial Guidance HealthEquity provided its financial guidance for the fiscal year ending January 31, 2026, projecting continued growth in revenue, net income, and Adjusted EBITDA Fiscal Year 2026 Business Outlook (Ending January 31, 2026) | Metric | Guidance Range | | :----------------------- | :------------------------- | | Revenue | $1.290 billion - $1.310 billion | | Net Income | $185 million - $200 million | | Net Income per Diluted Share | $2.11 - $2.28 | | Non-GAAP Net Income | $329 million - $344 million | | Non-GAAP Net Income per Diluted Share | $3.74 - $3.91 | | Adjusted EBITDA | $540 million - $560 million | Stock Repurchase Program Q2 FY25 Repurchase Activity During the second quarter, HealthEquity repurchased 0.7 million shares of its common stock for $66.0 million, with $351.8 million remaining authorized under its programs - The Company repurchased 0.7 million shares of common stock for $66.0 million during Q2 FY25[9][10] - As of July 31, 2025, $351.8 million remained authorized for repurchase under the Company's stock repurchase programs[9] Non-GAAP Financial Information Definitions of Non-GAAP Measures HealthEquity provides non-GAAP financial measures, including Adjusted EBITDA, non-GAAP net income, and non-GAAP net income per diluted share, to offer additional insights into its financial performance, cautioning that these should be considered supplementary to GAAP results - Non-GAAP financial measures are used to supplement GAAP information, providing useful insights into financial and business trends[15][16] - Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, amortization of incremental costs to obtain a contract, costs associated with unused office space, and certain other non-operating items[19][45] - Non-GAAP net income is calculated by adjusting GAAP net income before income taxes for amortization of acquired intangible assets, stock-based compensation expense, merger integration expenses, acquisition costs, gains and losses on equity securities, costs associated with unused office space, and losses on extinguishment of debt, then subtracting a non-GAAP tax provision[19][45] Reconciliation of Net Income to Adjusted EBITDA The reconciliation tables detail the adjustments made to GAAP net income to arrive at Adjusted EBITDA for both the three and six months ended July 31, 2025 and 2024, and for the full fiscal year 2026 outlook Reconciliation of Net Income to Adjusted EBITDA (Three Months Ended July 31) | Item | 2025 ($ thousands) | 2024 ($ thousands) | | :------------------------------------------ | :----------------- | :----------------- | | Net income | $59,854 | $35,822 | | Interest income | (3,364) | (3,103) | | Interest expense | 14,955 | 15,427 | | Income tax provision | 18,194 | 10,794 | | Depreciation and amortization | 11,453 | 12,629 | | Amortization of acquired intangible assets | 27,001 | 30,981 | | Stock-based compensation expense | 19,068 | 21,574 | | Merger integration expenses | 1,266 | 1,777 | | Amortization of incremental costs to obtain a contract | 1,951 | 1,681 | | Costs associated with unused office space | 723 | 806 | | Other | (27) | (101) | | Adjusted EBITDA | $151,074 | $128,287 | Reconciliation of Net Income Outlook to Adjusted EBITDA Outlook (FY26) | Item | Outlook for FY26 ($ millions) | | :------------------------------------------ | :---------------------------- | | Net income | $185 - 200 | | Interest income | (11) | | Interest expense | 56 | | Income tax provision | 62 - 67 | | Depreciation and amortization | 48 | | Amortization of acquired intangible assets | 108 | | Stock-based compensation expense | 75 | | Merger integration expenses | 6 | | Amortization of incremental costs to obtain a contract | 8 | | Costs associated with unused office space | 3 | | Adjusted EBITDA | $540 - 560 | Reconciliation of Net Income to Non-GAAP Net Income This section provides the reconciliation from GAAP net income to non-GAAP net income, detailing specific adjustments for non-recurring and non-cash items, and applying a normalized non-GAAP tax rate for both historical periods and the fiscal year 2026 outlook Reconciliation of Net Income to Non-GAAP Net Income (Three Months Ended July 31) | Item | 2025 ($ thousands) | 2024 ($ thousands) | | :------------------------------------------ | :----------------- | :----------------- | | Net income | $59,854 | $35,822 | | Income tax provision | 18,194 | 10,794 | | Income before income taxes - GAAP | 78,048 | 46,616 | | Non-GAAP adjustments: | | | | Amortization of acquired intangible assets | 27,001 | 30,981 | | Stock-based compensation expense | 19,068 | 21,574 | | Merger integration expenses | 1,266 | 1,777 | | Costs associated with unused office space | 723 | 806 | | Loss on extinguishment of debt | — | — | | Total adjustments to income before income taxes - GAAP | 48,058 | 55,138 | | Income before income taxes - Non-GAAP | 126,106 | 101,754 | | Income tax provision - Non-GAAP (25%) | 31,526 | 25,439 | | Non-GAAP net income | $94,580 | $76,315 | | Non-GAAP net income per diluted share | $1.08 | $0.86 | Reconciliation of Net Income Outlook to Non-GAAP Net Income Outlook (FY26) | Item | Outlook for FY26 ($ millions) | | :------------------------------------------ | :---------------------------- | | Net income | $185 - 200 | | Income tax provision | 62 - 67 | | Income before income taxes - GAAP | 247 - 267 | | Non-GAAP adjustments: | | | Amortization of acquired intangible assets | 108 | | Stock-based compensation expense | 75 | | Merger integration expenses | 6 | | Costs associated with unused office space | 3 | | Total adjustments to income before income taxes - GAAP | 192 | | Income before income taxes - Non-GAAP | 439 - 459 | | Income tax provision - Non-GAAP (25%) | 110 - 115 | | Non-GAAP net income | $329 - 344 | | Non-GAAP net income per diluted share | $3.74 - 3.91 | - A normalized non-GAAP tax rate of 25% is applied to provide consistency across interim reporting periods, eliminating effects of non-recurring and period-specific items[41][43] Forward-Looking Statements Disclaimer and Identifying Terms This section serves as a disclaimer regarding forward-looking statements, which reflect current expectations about future events and outcomes, and identifies the terminology used to denote such statements - The press release contains 'forward-looking statements' as defined by the Private Securities Litigation Reform Act of 1995[18] - Such statements reflect current expectations and may not be realized, as they are subject to various known and unknown risks, uncertainties, and other factors[21] - Words like 'may,' 'believes,' 'intends,' 'seeks,' 'aims,' 'anticipates,' 'plans,' 'estimates,' 'expects,' 'should,' 'assumes,' 'continues,' 'could,' 'will,' 'future,' and their negatives or similar terms, identify forward-looking statements[20] Risks and Uncertainties The company outlines various risks and factors that could cause actual results to differ materially from forward-looking statements, including operational, competitive, regulatory, and technological challenges - Risks include the ability to safeguard custodial assets, competition in the healthcare and benefits administration industry, and dependence on tax-advantaged HSAs and other CDBs[23] - Operational risks encompass fraudulent account activity, successful integration of acquisitions, reliance on technology and communication systems, and cybersecurity breaches[23] - Regulatory and market risks include the uncertain healthcare environment, potential regulatory changes, compliance with various laws, and reliance on partners and third-party vendors[23] About HealthEquity Company Overview HealthEquity is the nation's largest health savings account (HSA) custodian, administering HSAs and other consumer-directed benefits (CDBs) for over 17 million accounts, aiming to empower healthcare consumers - HealthEquity is the nation's largest health savings account ('HSA') custodian by number of accounts[2] - The company and its subsidiaries administer HSAs and other consumer-directed benefits for more than 17 million accounts[17] - HealthEquity partners with employers, benefits advisors, and health and retirement plan providers to empower healthcare consumers and improve lives[17] Condensed Consolidated Financial Statements Balance Sheets The condensed consolidated balance sheets provide a snapshot of HealthEquity's financial position as of July 31, 2025, compared to January 31, 2025, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheets (in thousands) | Item | July 31, 2025 | January 31, 2025 | | :------------------------------------------ | :------------ | :--------------- | | Assets | | | | Cash and cash equivalents | $304,461 | $295,948 | | Total current assets | $492,832 | $477,749 | | Intangible assets, net | $1,152,456 | $1,204,658 | | Goodwill | $1,648,145 | $1,648,145 | | Total assets | $3,416,678| $3,448,550 | | Liabilities and stockholders' equity | | | | Total current liabilities | $116,575 | $156,323 | | Long-term debt, net of issuance costs | $1,006,834 | $1,056,301 | | Deferred tax liability | $86,615 | $55,834 | | Total liabilities | $1,270,257| $1,333,639 | | Total stockholders' equity | $2,146,421 | $2,114,911 | | Total liabilities and stockholders' equity| $3,416,678| $3,448,550 | Statements of Operations The condensed consolidated statements of operations present the company's revenues, costs, and expenses, leading to net income for the three and six months ended July 31, 2025, compared to the prior year Condensed Consolidated Statements of Operations (Three Months Ended July 31, in thousands) | Item | 2025 | 2024 | | :------------------------ | :--------- | :--------- | | Total revenue | $325,835 | $299,928 | | Total cost of revenue | $93,240 | $95,876 | | Gross profit | $232,595 | $204,052 | | Total operating expenses | $142,983 | $145,123 | | Income from operations | $89,612 | $58,929 | | Total other expense | $(11,564) | $(12,313) | | Income before income taxes| $78,048 | $46,616 | | Income tax provision | $18,194 | $10,794 | | Net income | $59,854| $35,822| | Diluted EPS | $0.68 | $0.40 | Condensed Consolidated Statements of Operations (Six Months Ended July 31, in thousands) | Item | 2025 | 2024 | | :------------------------ | :--------- | :--------- | | Total revenue | $656,679 | $587,525 | | Total cost of revenue | $199,773 | $196,335 | | Gross profit | $456,906 | $391,190 | | Total operating expenses | $284,216 | $290,631 | | Income from operations | $172,690 | $100,559 | | Total other expense | $(23,689) | $(20,704) | | Income before income taxes| $149,001 | $79,855 | | Income tax provision | $35,232 | $15,220 | | Net income | $113,769| $64,635| | Diluted EPS | $1.29 | $0.73 | Statements of Comprehensive Income The condensed consolidated statements of comprehensive income show net income and other comprehensive income components, such as net unrealized gains from cash flow hedges, for the three and six months ended July 31, 2025 and 2024 Condensed Consolidated Statements of Comprehensive Income (Three Months Ended July 31, in thousands) | Item | 2025 | 2024 | | :------------------------ | :--------- | :--------- | | Net income | $59,854 | $35,822 | | Net unrealized gains, net of income tax expense (Cash flow hedges) | $203 | — | | Comprehensive income | $60,057| $35,822| Condensed Consolidated Statements of Comprehensive Income (Six Months Ended July 31, in thousands) | Item | 2025 | 2024 | | :------------------------ | :--------- | :--------- | | Net income | $113,769 | $64,635 | | Net unrealized gains, net of income tax expense (Cash flow hedges) | $203 | — | | Comprehensive income | $113,972| $64,635| Statements of Cash Flows The condensed consolidated statements of cash flows detail the cash generated from or used in operating, investing, and financing activities for the six months ended July 31, 2025, compared to the prior year Condensed Consolidated Statements of Cash Flows (Six Months Ended July 31, in thousands) | Cash Flow Activity | 2025 | 2024 | | :---------------------------------- | :---------- | :---------- | | Net cash provided by operating activities | $200,604 | $173,558 | | Net cash used in investing activities | $(27,323) | $(479,032) | | Net cash provided by (used in) financing activities | $(164,768) | $228,388 | | Increase (decrease) in cash and cash equivalents | $8,513 | $(77,086) | | Beginning cash and cash equivalents | $295,948 | $403,979 | | Ending cash and cash equivalents| $304,461| $326,893| - Investing activities in 2024 included significant acquisitions of HSA portfolios ($452,241 thousand), which were absent in 2025[29] - Financing activities in 2025 included principal payments on long-term debt ($50,000 thousand) and repurchases of common stock ($125,810 thousand), which were not present in 2024[29] Supplemental Financial Data Stock-Based Compensation Expense Stock-based compensation expense decreased for both the three and six months ended July 31, 2025, compared to the prior year, with reductions across most functional areas Stock-Based Compensation Expense (Three Months Ended July 31, in thousands) | Functional Area | 2025 | 2024 | | :------------------------ | :-------- | :-------- | | Cost of revenue | $3,114 | $2,934 | | Sales and marketing | $1,529 | $3,850 | | Technology and development| $5,732 | $6,454 | | General and administrative| $8,693 | $8,336 | | Total | $19,068| $21,574| Stock-Based Compensation Expense (Six Months Ended July 31, in thousands) | Functional Area | 2025 | 2024 | | :------------------------ | :-------- | :-------- | | Cost of revenue | $6,501 | $7,459 | | Sales and marketing | $6,399 | $8,173 | | Technology and development| $11,652 | $12,394 | | General and administrative| $8,852 | $25,568 | | Total | $33,404| $53,594| HSA Cash Yields The company provided a summary of HSA cash held by depository and insurance company partners, indicating expected repricing schedules and the average annualized yield earned on these funds HSA Cash Expected to Reprice and Average Annualized Yield (As of July 31, 2025, in billions) | Year ending January 31, | HSA cash expected to reprice | Average annualized yield | | :---------------------- | :--------------------------- | :----------------------- | | Remainder of 2026 | $1.3 | 1.7% | | 2027 | $4.1 | 2.0% | | 2028 | $2.2 | 4.1% | | 2029 | $1.5 | 3.7% | | Thereafter | $7.3 | 4.5% | | Total | $16.4 | 3.5% | - The total HSA cash expected to reprice is $16.4 billion, excluding $0.6 billion held in floating-rate contracts[35] Glossary of Certain Terms Key Definitions This section provides definitions for key terms used throughout the financial report, including various account types, asset categories, and non-GAAP financial measures, ensuring clarity and consistent understanding - HSA (Health Savings Account) is a financial account for tax-advantaged healthcare spending and saving[45] - CDB (Consumer-directed benefits) include flexible spending and health reimbursement arrangements, COBRA administration, commuter, and other benefits[45] - Total HSA Assets comprise HSA members' custodial cash assets and investments held by partners[45]