HealthEquity(HQY) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue increased by 15% year over year, reaching $119.8 million for the first quarter [19] - Adjusted EBITDA rose by 19$140.2 million, with adjusted EBITDA as a percentage of revenue at 42% compared to 41% in the previous year [21] - Net income for the first quarter was $53.9 million or$0.61 per share on a GAAP basis, while non-GAAP net income was $85.8 million or$0.97 per share [21] - Custodial revenue grew by 29% to a record $156.5 million [20] - Fraud reimbursements decreased significantly from$11 million in Q4 to $3 million in Q1 [20][21] Business Line Data and Key Metrics Changes - Health Savings Accounts (HSAs) grew by 9$4 billion year over year, totaling over $31 billion [6][7] - The number of HSA members who invest grew by 16$14.2 billion [7] Market Data and Key Metrics Changes - HealthEquity serves nearly a quarter of all HSAs in the USA, reflecting market share growth [8] - The average balances of HSA members grew by 6% this year [7] - The annualized yield on HSA cash was 3.5% for the quarter [20] Company Strategy and Development Direction - The company is focusing on expanding its Member First secure mobile experience and leveraging AI technology to enhance claims processing and member satisfaction [9][10] - HealthEquity is advocating for legislative changes to expand HSA access, particularly for working seniors eligible for Medicare [15][18] - The company aims to help employers reduce healthcare costs while empowering employees to build health security [7][8] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the enterprise pipeline and selling season despite softer macroeconomic conditions [7][30] - The company is cautious about the macro impact on job creation and slower GDP growth affecting new account sales [31] - Management believes that the proposed budget bill could significantly expand the addressable market for HSAs, potentially allowing 20 million more families access [16][18] Other Important Information - The company repurchased approximately $60 million of its outstanding shares during the quarter [22] - HealthEquity is committed to reducing fraud costs to one basis point of total HSA assets per year [21][26] Q&A Session Summary Question: What is the reason for the slowdown in HSA selling conditions? - Management noted that the current sales are lower than last year but still higher than two years ago, expressing optimism about the enterprise pipeline and the potential for growth despite macroeconomic challenges [30] Question: What is the duration of the locked-in rates from forward treasury contracts? - The company locked in rates for five-year treasury contracts to enhance rate migration [33] Question: How much of the fraud costs above the one basis point are included in the guidance? - Management indicated that they are not changing their outlook based on the current quarter's fraud costs, which were in line with expectations [39] Question: Can you clarify the net increase in the addressable market due to proposed legislation? - Management clarified that the net increase is 20 million, considering both Medicare Part A individuals and those on exchanges [42] Question: How is the company tracking towards app downloads and security measures? - The company reported 1.2 million app downloads and is focused on enhancing security through mobile authentication methods [49] Question: Has there been any fallout from elevated fraud levels on enterprise retention? - Management confirmed that there has been no fallout from fraud, with retention rates higher than in previous years [54] Question: Is the AI technology already impacting service costs? - Management stated that while they do not break out exact costs, AI is expected to help reduce service costs over time by automating interactions [100]