The U.S. job market was heavily disrupted in 2020 as the COVID-19 pandemic spread across the nation. However, health savings account (HSA) provider HealthEquity (NASDAQ:HQY) still produced some impressive earnings results. In this Fool Live video clip, recorded on Feb. 11, contributors Brian Feroldi and Brian Withers discuss the latest results and what investors should keep in mind.

Brian Feroldi: So, I'm going to do HealthEquity. HealthEquity's update here. Ticker's HQY. HealthEquity does something weird or that's unique to them. I thought they were reporting earnings. They were actually reporting their year-end sales results in which time they developed some of their rough earnings. This isn't going to be necessarily a full earnings update, even though the company does host a conference call and everything and they even give guidance for the following year. It's earnings-like, but I don't have all the earnings for you. With that small caveat in mind, let's get to it.

Brian Withers: I feel let down, Brian.

Feroldi: I know. Me, too. I'm let down. [laughs] OK. HealthEquity is focused on providing a number of consumer benefits related to healthcare. Their No. 1 product and has been their No. 1 product for a long time, is health savings accounts. These are triple tax-free savings accounts that you can put money in pre-tax, it grows pre-tax and if you spend it on healthcare stuff, it's tax-free. It's really a wonderful account if you have access to that and HealthEquity has been steadily taking market share and is now the American leader in providing HSA accounts.

The headline numbers from the fourth quarter was that the total number of HSA accounts that they have grew 8% during the year to $5.8 million. The number of assets that are held in HSA accounts, that could be cash, it could be investments, it could be bonds, and you can actually invest your HSA accounts. That grew 24% to $11.5 billion. A much faster rate than HSA in total. That's great news to me because HealthEquity makes money not only on off of each account that they sign up, but also on the assets that are under management. So we want to see that number go higher.

Revenue for the full year is estimated to be between $729 and $733 million. That's right in line with Wall Street's expectations. However, if you've been following this company at all, you know that this is an under-promise over-deliver company and their revenue is extremely predictable because they have four sources of recurring revenue. I am pretty sure the number is going to be higher than this, but looks like they're going to roughly beat Wall Street's estimate on the top-line and on the bottom line too. Their adjusted earnings will be somewhere between these two numbers, most likely above $171, so that was also pretty pleasing to see. Here are some of the details about their, account growth.

Again, total number of HSAs grew 8%. The number of new sign-ups that they had actually declined year-over-year and these numbers are pretty good considering the disruption in employment that the country has seen this year, that they were actually able to get within spitting distance of last year's results is pretty impressive to me.

Management team noted on the conference call that hiring for a lot of their existing clients came to an absolute standstill in different points throughout this year. That is a huge headwind to account growth. This thing here, CDB, sounds like it's related to marijuana; it's not. It's consumer directed benefits. This includes things like commuter benefits. That is one of the services that HealthEquity gets into. That actually declined year-over-year because people aren't committing to work anymore. That's a pretty big headwind there. Overall, the results were good considering the circumstances. These are some more details about the accounts.

The big numbers here is that the number of HSAs that have investments, this is a relatively new business for them, that grew 63%. So not only are people putting a lot more money into their HSA accounts, but they are also investing that money at record results. That's really good because HealthEquity has a partnership with Vanguard and it offers Vanguard funds through that and it gets to earn a higher assets under management fee when people invest that money. That's a really good sign for the company. This is what their year-end results were. We covered these quickly, but their revenue is expected to be up. Modestly their adjusted net income was quite good. We already covered their earnings.

For next year, they already provided revenue guidance. They're saying $740 million to $750 million for a little of previous year, they're expected to do about $733, call it millions. Basically, they are not expecting much topline growth at all in the year ahead. That's going to be partially due to a huge reduction in interest rates because the company does earn a yield on its assets. I think it's a quarter of its assets are actually income producing, so they are interest rate sensitive. They're going to be lapping. When was it? March, when interest rates went to zero surprisingly. So that's a bit of a headwind form as well as the commuter benefits and things like that. The company is not expecting much topline growth in fiscal year 2022, that's not great.

The longer-term picture looks pretty good. The company has consistently taken market share and did so even more so in the year 2020. So it is now the number one provider of HSA accounts and the opportunity remains absolutely massive and they think that if the HSA market is essentially trending on the exact same trajectory as the 401(k) markets did just 20+ years later. Because they just said benefits are still pretty new. Wall Street is expecting a little bit higher revenue growth next year. Although they were well aware that the growth is going to come to a very significant slowdown.

Valuation-wise, the stock has actually held up pretty well. All things considered and it's currently trading about 49 times next year's earnings estimates. Once interest rates start to tick back up, that will be a natural tailwind for this business, but I'm not expecting a ton of growth over the next couple of years, but maybe I'm wrong, and hopefully they can outperform that. All right, that was seven minutes on HealthEquity.

Withers: Brian, I've got a question on HealthEquity. Is their revenue driven by user sign-ups and putting money in their health savings account or is it by companies signing up and then therefore it would sort of be lumpy when we get new health plans every year?

Feroldi: Yes and yes. They make money in four ways. One of the ways that they make money is just purely they earn fees based upon the number of people that have accounts with them, they earn account fees. They also earn assets under management fees based on how much assets they manage, and they also earn interchange fees. Whenever you spend your money, they actually get a payment fee on there and then the fourth way is when you invest. They actually have four sources of recurring revenue that they're growing. In any given time, each category is growing at a higher and lower rate but given the unemployment picture, as well as the huge slowdown, and commuter benefits, and interest rates, they had some pretty big headwinds due to COVID.

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