HealthEquity(US:HQY)2021-12-07 04:31Financial Data and Key Metrics Changes - Q3 revenue was $180 million, slightly up from $179.4 million in the same quarter last year, representing a growth of less than 1% year-over-year [7][14] - Adjusted EBITDA for Q3 was $61.1 million, flat compared to the previous year, with an adjusted EBITDA margin of 34% [14][16] - Total accounts reached 13.3 million, a 6% increase year-over-year, while HSA members grew to 6.2 million, up 14% from a year ago [7][9] - HSA assets at the end of the quarter were $16.4 billion, reflecting a 32% increase year-over-year, including 28% organic growth [7][9] Business Line Data and Key Metrics Changes - Core HSA sales continued strong growth, with record new HSA openings of 151,000 in Q3, up 45% from 104,000 in Q3 of the previous year [8][9] - Ancillary consumer-directed benefits (CDB) administration slowed, impacting overall operating performance [7][10] - Interchange revenue grew by 8% to $28.2 million, but FSA spend on debit cards slowed more than anticipated, affecting service revenue [10][15] Market Data and Key Metrics Changes - HealthEquity's organic HSA and asset growth outperformed industry averages, with 14% account growth compared to an estimated 6% market-wide [9] - The company captured a greater share of HSA growth during the pandemic, achieving record organic openings and asset growth [9][10] Company Strategy and Development Direction - The company is focusing on expanding revenue generation capabilities around high-margin HSAs through sales execution, portfolio M&A, and product innovation [12] - Recent acquisitions, including the HSA business of Further, are expected to enhance the company's market position and technology integration [12][13] - The company aims to streamline operations by discontinuing non-core services and focusing on core HSA growth [12][19] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding future revenue growth, anticipating a rebound in interchange revenue as pandemic effects wane [10][29] - The company is adjusting its guidance for fiscal 2022, projecting revenue between $750 million and $755 million, reflecting a conservative outlook for service and interchange revenue [18][19] - Management highlighted the importance of member education and engagement in driving HSA investment growth [68] Other Important Information - The company reported a net loss of $5 million for Q3, with non-GAAP net income of $29 million, down from $32.2 million a year ago [14][16] - The cash balance as of October 31, 2021, was $649 million, with $930 million in debt outstanding [16][17] Q&A Session Summary Question: Can you provide more color on what happened with the interchange? - Management noted that interchange revenue was impacted by a decline in FSA accounts, which affected both service fees and interchange revenue [25][26] Question: What is the outlook for custodial revenue? - Management indicated that custodial revenues are expected to stabilize, with a focus on enhanced rates products to improve yields [36][38] Question: How is the adoption of the enhanced rates product progressing? - The company expects a yield differential of 50 to 75 basis points with the enhanced rates product, which is still in the early stages of adoption [49][50] Question: What are the headwinds and tailwinds for fiscal 2023? - Management identified the mix shift towards enhanced rates as a significant tailwind, while employment trends and pandemic impacts on spending remain headwinds [57][58] Question: What is driving the organic growth rate in HSAs? - The company is seeing strong sales from various channels and is focused on cross-selling opportunities with legacy WageWorks clients [73]