HEALTHEQUITY, INC. Q3 FY2025 earnings call

• Q3 momentum: Double-digit growth in revenue (+21%), adjusted EBITDA (+24%), HSA assets (+33%), HSA members +15%, total accounts +8%. Operations team completed card processor consolidation but faced fraud-related service expenses.
• Post-election advocacy: Steve Neeleman discussed three approaches to expand access to personal portable health accounts: bipartisan legislation (Bipartisan HOPE Act), budget reconciliation, and rulemaking by the new administration.
• Financial results and guidance: James Lucania detailed Q3 financials, raised FY '25 guidance, and previewed FY '26. Scott Cutler introduced himself, excited about the mission, leading position, and tech innovation.

In Q3, HealthEquity saw double-digit year-over-year growth across key metrics. Revenue was up 21%. Service revenue was $119.2 million, up 4% due to growth in total accounts, HSA investor accounts, and invested assets with product mix shifting to lower fee HSAs. Custodial revenue grew 41% to $141 million. Interchange revenue grew 15% to $40.3 million. HSA assets totaled $30 billion, with HSA members growing 15%, total accounts reaching 16.5 million (including 9.5 million HSAs). Invested assets in HSAs were $13.6 billion, up 58%, and HSA cash was $16.4 billion. Revenue contribution: Service revenue, custodial revenue, and interchange revenue each played distinct roles in the overall revenue mix.

• FY '25: Revenue expected in the range of $1.185 billion to $1.195 billion, GAAP net income $88 million to $96 million, non-GAAP net income $274 million to $281 million, adjusted EBITDA $470 million to $480 million.
• FY '26: Revenue expected in the range of $1.275 billion to $1.295 billion, adjusted EBITDA projected to be 41.5% to 42.5% of revenue, based on an average HSA cash yield range of 3.4% to 3.5%.

Fraud activities led to excess one-time service expenses. Market conditions and timing of HSA cash maturities and repricings pose risks to yield and revenue projections.

Q: Gregory Peters asked about FY '26 revenue guidance A: James Lucania and Jon Kessler discussed custodial yield, interchange revenue, and market action Q: Stan Berenshteyn asked about custodial revenue reset and gross margin increase A: James Lucania and Jon Kessler explained repricing of WageWorks assets and mix-shift to HSAs Q: Glen Santangelo asked about TAM expansion via HOPE Act A: Steve Neeleman discussed potential TAM increase to 100M+ households Q: Allen Lutz asked about Medicare expansion impact A: Steve Neeleman discussed rectifying dual enrollment issues and selling to Medicare populations Q: Mark Marcon asked about account growth guidance A: Jon Kessler discussed HSA retention and CDB churn Q: David Roman asked about capital allocation A: James Lucania discussed sales and marketing spend, tech and dev, and capital return to shareholders Q: David Larsen asked about Scott Cutler's experience A: Scott Cutler talked about leveraging technology and consumer e-commerce Q: Thomas Keller asked about commuter offering A: Jon Kessler said it's stable at 60%-65% of pre-pandemic levels