HealthEquity(US:HQY)2020-09-09 07:35Financial Data and Key Metrics Changes - Revenue for Q2 reached $176 million, a 103% increase year-over-year, driven by organic growth and the acquisition of WageWorks, although impacted by lower custodial yields and limited use of benefits during the pandemic [8][9] - Adjusted EBITDA was $60 million, up 48% year-over-year, with a margin of 34%, reflecting operational efficiencies despite the loss of high-margin revenue [9][28] - HSA assets grew to $12.2 billion, a 43% increase year-over-year, with $0.7 billion in sequential organic growth, despite $125 million lost during the migration from Legacy WageWorks [11][30] Business Line Data and Key Metrics Changes - Service revenue grew to $103.8 million, representing 59% of total revenue and a 295% year-over-year increase, primarily due to growth in average total accounts from acquisitions [21][22] - Custodial revenue increased to $46.9 million, accounting for 27% of revenue, with an 8% year-over-year growth attributed to higher average HSA cash and investment yields [22][23] - Interchange revenue rose to $25.3 million, making up 14% of total revenue, reflecting a 51% year-over-year growth driven by increased average total accounts [25] Market Data and Key Metrics Changes - HealthEquity outperformed competitors in the HSA market, with account growth of 29% and asset growth of 43% year-over-year, compared to the overall market growth of 12% in accounts and 19% in assets [13][14] - The sales pipeline remains strong, with high win rates and valuable RFPs, indicating a robust demand for total solutions [12] Company Strategy and Development Direction - The company is focused on integrating WageWorks and achieving higher synergies, raising the target for recurring net synergies from $50 million to $80 million, expected to be realized within 18 months [17][36] - Continued investment in the HealthEquity platform aims to enhance client experience, data engagement, and security, despite the pandemic's impact [20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of the economy and its potential positive impact on business, particularly regarding COBRA qualifying events and overall employment trends [49] - The company anticipates a revenue range of $720 million to $730 million for fiscal 2021, with non-GAAP net income expected between $111 million and $119 million [34][35] Other Important Information - The company reported a net loss of $0.1 million for Q2, equating to $0.00 per share on a GAAP basis, while non-GAAP net income was $30.1 million, a 5% increase year-over-year [28][30] - Operating expenses were $92.8 million, representing 53% of revenue, including merger integration costs [27] Q&A Session Summary Question: Impact of COBRA qualifying events on employment backdrop - Management noted that COBRA generates significant annual revenue and observed a recent increase in qualifying events, indicating a shift in the employment landscape [43][44][46] Question: Selling season performance and client engagement - Management reported positive trends in client engagement and RFPs, with a strong sales pipeline despite some opportunities being deferred due to COVID [50][51] Question: Clarification on account number data and trends - Management explained that the decrease in CDBs was primarily due to the loss of commuter accounts, while HSA closures were related to the migration process [56][58][60] Question: Cash yield on HSA cash balances - Management acknowledged uncertainty in cash yield due to the economic environment but remained optimistic about future placements and yields [62][66] Question: Contribution of net synergies to EBITDA - Management highlighted that the realization of synergies contributed positively to EBITDA, with expectations for continued improvements as integration progresses [75][78]