HealthEquity(US:HQY)2025-12-03 21:04HSA Accounts and Market Position - As of October 31, 2025, the company administered 10.1 million HSAs with total balances of $34.4 billion, alongside 7.2 million complementary consumer-directed benefits (CDBs), resulting in a total of 17.3 million accounts[83]. - The company increased its market share in the HSA sector from 4% in December 2010 to 20% as of June 2025, becoming the largest HSA provider by number of accounts and the second largest by HSA assets[85]. - In fiscal 2025, the company acquired the BenefitWallet HSA portfolio, adding approximately 616,000 HSAs and $2.7 billion in HSA assets for a purchase price of $425 million[88]. - Total Accounts increased by 5% from 16,463 thousand on October 31, 2024 to 17,280 thousand on October 31, 2025, driven by a 6% increase in HSAs[107]. Financial Performance - Adjusted EBITDA for the three months ended October 31, 2025 was $141.812 million, a 20% increase from $118.245 million in the same period of 2024[115]. - Net income for the three months ended October 31, 2025 was $51.692 million, an increase of 806% from $5.703 million in the same period of 2024[115]. - Non-GAAP net income increased by $18.3 million, or 26%, from Q3 2024 to Q3 2025, driven by total revenue growth and cost efficiencies[120]. - Non-GAAP net income for the nine months ended October 31, 2025, rose by $52.1 million, or 24%, compared to the same period in 2024, primarily due to increased total revenue and operational efficiencies[121]. - Total revenue for Q3 2025 was $322.2 million, a 7% increase from $300.4 million in Q3 2024, while total revenue for the nine months ended October 31, 2025, reached $978.8 million, up 10% from $888.0 million in the prior year[140]. Revenue Sources - The company earns revenue primarily from service, custodial, and interchange sources, with custodial revenue being significantly influenced by the interest rate environment[87]. - Custodial revenue increased by $18.1 million, or 13%, in Q3 2025, attributed to a rise in average annualized yield on HSA cash from 3.17% to 3.53%[142]. - Interchange revenue rose by $2.5 million, or 6%, in Q3 2025, primarily due to an increase in Total Accounts[144]. - Service revenue for Q3 2025 was $120.3 million, a slight increase of 1% from $119.2 million in Q3 2024, driven by growth in Total Accounts and HSA investments[140]. Cost Management - Total cost of revenue decreased to 30.0% of total revenue for the nine months ended October 31, 2025, down from 33.8% for the same period in 2024, as total revenue grew at a significantly higher rate than total cost of revenue[156]. - Service costs decreased by $10.0 million, or 11%, for the three months ended October 31, 2025, primarily due to efficiencies from technology investments[147]. - General and administrative expenses decreased by $15.9 million, or 16%, for the nine months ended October 31, 2025, primarily due to a reduction in stock-based compensation expenses[165]. Cash Flow and Investments - Net cash provided by operating activities increased by $75.1 million from $264.1 million for the nine months ended October 31, 2024, to $339.2 million for the same period in 2025, primarily due to increased cash receipts from custodial, interchange, and service revenues[189]. - Net cash used in investing activities decreased by $453.2 million from $491.9 million for the nine months ended October 31, 2024, to $38.7 million for the same period in 2025, largely due to a significant reduction in cash used to acquire HSA portfolios[190]. - Capital expenditures for the nine months ended October 31, 2025, were $38.4 million, slightly down from $39.7 million in the same period of 2024[186]. Regulatory and Market Trends - Regulatory changes, including the "One Big Beautiful Bill Act," have expanded HSA eligibility, potentially increasing market opportunities for the company[91]. - The average family premium for employer-sponsored health insurance has risen by 24% since 2019, driving increased participation in HSA-qualified health plans[91]. Technology and Development - The company is investing in the modernization of its proprietary technology platforms to enhance security, privacy, and transaction processing capabilities[101]. - Technology and development expenses increased by $5.7 million, or 10%, for the three months ended October 31, 2025, mainly due to higher software costs and personnel-related expenses[162]. Tax and Interest Expenses - The increase in income tax provision from $35.3 million for the nine months ended October 31, 2024, to the same period in 2025 was mainly due to higher pre-tax book income and a decrease in research and development tax credits[179]. - Interest expense decreased by $4.1 million, or 23%, for the three months ended October 31, 2025, due to lower average interest rates and principal balances[173].