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HEALTHEQUITY, INC. (HQY)·Q3 2025 Earnings Summary

Executive Summary

  • HealthEquity delivered strong Q3 FY25 operational performance: revenue rose 21% YoY to $300.4M, non-GAAP EPS increased 30%+ YoY to $0.78, and Adjusted EBITDA grew 24% to $118.2M, while GAAP EPS fell to $0.06 due to a $30M one-time legal settlement and elevated service costs tied to fraud remediation and card migration .
  • Mix continued to shift positively: custodial revenue surged 41% YoY and card-driven interchange grew 15% YoY as members increasingly transacted on-platform; gross margin expanded to 66% vs 64% last year, despite ~$8M of event-driven service costs in the quarter .
  • KPIs tracked well: HSAs rose 15% YoY to 9.5M, Total HSA Assets grew 33% YoY to $30.0B with invested HSA assets up 58%; Total Accounts reached 16.5M .
  • Guidance: FY25 revenue $1.185–$1.195B, GAAP EPS $0.99–$1.08, non-GAAP EPS $3.08–$3.16, Adjusted EBITDA $470–$480M; initial FY26 revenue $1.275–$1.295B and Adjusted EBITDA margin 41.5–42.5% on ~3.4–3.5% HSA cash yield assumptions .
  • Near-term stock catalysts: positive legislative momentum (HOPE Act) expanding TAM, interchange strength, mix shift to enhanced custodial rates, and visible FY26 margin expansion; offset by residual Q4 seasonality in service costs and normalization of interchange growth .

What Went Well and What Went Wrong

What Went Well

  • Custodial yield/mix and interchange strength: custodial revenue grew 41% YoY to $141.0M; interchange rose 15% YoY to $40.3M as members used the HealthEquity card more versus off-platform reimbursements .
  • Margin expansion despite event-driven costs: gross profit was $197M (66% of revenue) vs 64% last year; Adjusted EBITDA up 24% YoY to $118.2M (39% margin) .
  • KPI growth: HSAs +15% YoY to 9.5M; invested HSAs +21% YoY; HSA assets +33% YoY to $30.0B; new HSAs from sales 186k in Q3 (+14% YoY) .
  • Quote: “Team again delivered double-digit year-over-year growth across most key metrics, including revenue… adjusted EBITDA… HSA assets” .
  • Quote: “We now project custodial HSA cash yield ~3.1% for fiscal ’25… and introduced FY ’26 EBITDA margins of ~41.5–42.5%” .

What Went Wrong

  • GAAP EPS impact from legal settlement: GAAP EPS dropped to $0.06 due to a $30M WageWorks lease termination settlement; non-GAAP EPS was $0.78 excluding this .
  • Elevated service costs: ~$8M excess service expense tied to fraud remediation and largest phase of card processor consolidation pressured gross profit in the quarter; modest carryover expected into Q4 .
  • Seasonality and normalization: management flagged typical Q4 peak service costs and prudence on forward interchange growth after a strong year-to-date performance .

Financial Results

MetricQ3 FY24 (older)Q2 FY25Q3 FY25 (newest)Vs Estimates
Revenue ($USD Millions)$249.2 $299.9 $300.4 N/A†
GAAP Diluted EPS ($USD)$0.17 $0.40 $0.06 N/A†
Non-GAAP Diluted EPS ($USD)$0.60 $0.86 $0.78 N/A†
Adjusted EBITDA ($USD Millions)$95.6 $128.3 $118.2 N/A†
Adjusted EBITDA Margin %38% 43% 39% N/A†
Gross Margin %64% —66% N/A†

Segment breakdown (Revenue):

Segment Revenue ($USD Millions)Q3 FY24 (older)Q2 FY25Q3 FY25 (newest)
Service Revenue$114.1 $116.7 $119.2
Custodial Revenue$100.0 $138.7 $141.0
Interchange Revenue$35.1 $44.5 $40.3

KPIs:

KPIQ3 FY24 (older)Q2 FY25Q3 FY25 (newest)
HSAs (Millions)8.30 9.40 9.51
HSAs with Investments (Thousands)610 711 717
Total Accounts (Millions)15.28 16.30 16.46
Total HSA Assets ($USD Billions)$22.57 $29.50 $29.99
HSA Cash ($USD Billions)$13.97 $16.37 $16.39
HSA Investments ($USD Billions)$8.60 $10.21 $13.60
Client-held Funds ($USD Billions)$0.76 $0.82 YTD avg $0.75

† S&P Global consensus estimates data was unavailable at time of writing (attempted retrieval; daily limit exceeded). Values that would normally be shown for estimates are omitted.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Billions)FY25Not disclosed in documents retrieved; management stated guidance raised $1.185–$1.195 Raised (vs prior, per mgmt)
GAAP EPS ($USD)FY25Not disclosed; mgmt stated guidance raised $0.99–$1.08 Raised
Non-GAAP EPS ($USD)FY25Not disclosed; mgmt stated guidance raised $3.08–$3.16 Raised
Adjusted EBITDA ($USD Millions)FY25Not disclosed; mgmt stated guidance raised $470–$480 Raised
Revenue ($USD Billions)FY26 (initial)N/A$1.275–$1.295 New
Adjusted EBITDA Margin %FY26 (initial)N/A~41.5%–42.5% New
HSA Cash Yield AssumptionFY26 (initial)N/A~3.4%–3.5% New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 FY25)Trend
AI/technology initiativesEmphasis on platform investments and card/mobile wallet capabilities Mobile wallet integration; AI transforming member contacts and claims; fraud-fighting tech Expanding deployment
Custodial yield strategyEnhanced rate mix adoption; raised guidance on momentum Yield 3.17% in Q3; FY25 ~3.1%; pulling forward repricings, normalizing assumptions for FY26 Managed repricing; mix improvement continues
Interchange/product performanceStrong card usage growth; elevated interchange Interchange +15% YoY; prudent about normalizing forward growth after outsized FY25 performance Strong but normalizing
Regulatory/legislative (HOPE Act)Advocacy posture; TAM expansion prospects Bipartisan paths (HOPE Act, reconciliation, rulemaking) with TAM uplift 40–45M households Momentum building
Fraud/security and operationsOngoing operational initiatives ~$8M excess service costs to protect/reimburse members; largest card processor consolidation wave Event-driven costs ebbing
Pricing and mix strategyMix shift to HSAs; margin focus Aggressive HSA pricing in middle/upper-mid market; hold/increase prices where margins lower (CDB) Margin-accretive mix shift

Management Commentary

  • Jon Kessler (CEO): “In Q3, the team again delivered double-digit year-over-year growth across most key metrics… HealthEquity ended Q3 with 16.5 million total accounts… holding $30 billion in HSA assets” .
  • James Lucania (CFO): “Gross profit was $197 million… 66% of revenue… reduced by approximately $8 million of excess service costs incurred to protect members… [and] card processor consolidation… GAAP net income included the $30 million one-time settlement… Non-GAAP EPS $0.78” .
  • Steve Neeleman (Founder/Vice Chair): “We now see three approaches to expanding access… bipartisan HOPE Act… budget reconciliation… rulemaking… [TAM could rise by] as much as 40–45 million households” .

Q&A Highlights

  • FY26 guide composition and consensus context: Revenue guide implies high-single-digit growth; custodial yield build assumes ~$4B of replacements rolling off ~3.2% with enhanced/basic mix; interchange strong but prudently normalized in FY26 .
  • Repricing timeline and hedging: Will pull forward some repricings (e.g., mid-year legacy WageWorks maturities) when market economics justify, to de-risk large slugs of maturities over next two years; actions are reflected in guidance .
  • Fraud and service costs: ~$8M excess service costs encompassed fraud remediation and member support during the largest card migration; absorbed in reported gross profit; modest carryover into Q4 .
  • Medicare/MA opportunity alongside HOPE: Ability to pair MA out-of-pocket assistance with HOPE accounts; infrastructure positioned for both conventional Medicare and MA enhancements .
  • Sales/pricing and retention: More aggressive HSA pricing in middle markets; retention strong entering FY26; potential “healthy churn” in some lower-margin CDB given price discipline; EBITDA margins targeted to rise to ~42% mid-range in FY26 .

Estimates Context

  • S&P Global consensus estimates (EPS and revenue) were unavailable due to data access limits at time of writing; therefore, explicit beat/miss vs S&P consensus cannot be shown. Management-reported results and guidance are presented above, and external directional indicators (gross margin expansion, strong custodial/interchange trends) suggest upward estimate revisions in non-GAAP profitability and sustained revenue momentum into FY26 .

Key Takeaways for Investors

  • Custodial yield/mix and interchange are key earnings drivers; even with event-driven service costs, gross and EBITDA margins expanded, pointing to underlying operational strength .
  • GAAP EPS was depressed by a one-time settlement; on a non-GAAP basis the company delivered $0.78 EPS and 39% EBITDA margin, underscoring the quality of recurring economics excluding unusual items .
  • FY26 initial guide (revenue $1.275–$1.295B; EBITDA margin ~41.5–42.5%) with explicit HSA cash yield assumptions enhances visibility; watch custodial cash repricing execution and enhanced-rate mix .
  • Legislative pathway (HOPE Act) could materially expand TAM by 40–45M households over time; continued advocacy and partner distribution footprint position HQY to benefit .
  • Near term, expect Q4 seasonal service costs; fraud-related remediation costs largely behind; interchange likely normalizes from outsized growth—manage expectations accordingly .
  • Sales/pricing discipline should support margin accretion: more aggressive HSA pricing in middle markets, with price discipline in lower-margin CDB segments .
  • Tactical trading: upside catalysts include legislative momentum, FY26 margin expansion, and ongoing mix shift; risks include macro rate volatility affecting custodial yields and any residual operational headwinds.

Appendix: Supporting Documents

  • Q3 FY25 press release (Dec 9, 2024) .
  • Form 8-K furnishing Q3 FY25 results (Item 2.02; Dec 9, 2024) .
  • Q3 FY25 earnings call transcript (Dec 9, 2024) .
  • Q2 FY25 press release (Sep 3, 2024) .
  • Q1 FY25 press release (Jun 3, 2024) .