Shares of HealthEquity (HQY -2.78%), a leading administrator of health savings accounts, fell as much as 17% in early morning trading on Tuesday in response to fourth-quarter results that featured a cut to its full-year fiscal 2021 guidance. As of 11:30 a.m. EDT, shares were down about 5%.
Investors were given a sneak peek of HealthEquity's fiscal fourth-quarter 2020 results a few weeks ago, so they knew what was coming.
Here's how the actual numbers shook out:
- Revenue grew 166% to $201.2 million. The strong growth is largely attributable to the acquisition of WageWorks, which closed on Aug. 30. This figure exceeded Wall Street's estimate by about 1%.
- Net loss under generally accepted accounting principles (GAAP) was $0.2 million.
- Non-GAAP (adjusted) net income was $27.8 million, or $0.39 per share. This exceeded the consensus estimate on Wall Street by $0.05.
- HSA accounts grew 34% to 5.3 million.
- HSA assets grew 43% to $11.5 billion.
The numbers for the full fiscal year 2020 looked good, too:
- Revenue grew 85% to $532 million. This was at the high end of guidance.
- GAAP net income dropped 46% to $39.7 million.
- Non-GAAP net income grew 44% to $118.4 million.
- Non-GAAP EPS expanded 34% to $1.73. This was also at the high end of guidance.
However, management dialed back its guidance for the upcoming fiscal year:
- Revenue is expected to land between $770 million and $790 million. That's much lower than the range of $812 million to $820 million range that was reported just a few weeks ago. It's also well short of the $821.5 million that Wall Street was expecting.
- GAAP net loss is expected to be between $14 million and $4 million, or $0.19 to $0.05 per share.
- Non-GAAP net income is expected to land between $124 million and $132 million, or $1.70 and $1.81 per share. The midpoint of this range is below the $1.80 that traders were projecting.
Traders do not appear to be amused with the sudden guidance cut.
On the conference call with Wall Street, CEO Jon Kessler noted that the surprise interest rate cut by the Fed over the weekend was a major reason why they cut their guidance. Last quarter, 23% of HealthEquity's revenue came from the yield on its custodial cash. The sudden drop in interest rates is going to lower revenue from this segment.
Kessler also noted that the company is going to continue to invest aggressively in itself during this period: "Today's guidance also reflects a commitment to continue the integration process discussed over the last two quarters and to do so at full speed," he said. "We expect more growth opportunities as competitors with variable rate exposure, with incomplete solutions, or with outsourced platforms or insufficient scale find it more difficult to compete under these conditions."
In other words, HealthEquity's management team believes this pandemic is a great time for it to grab market share. That should be music to any investor's ear.
Growth stocks like HealthEquity are likely to experience high volatility until the COVID-19 outbreak is under control. With shares currently trading at a 52-week low, this Fool thinks it's a great time for forward-thinking investors to get in.