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Why HealthEquity's Better-Than-Expected Q4 Results Didn't Excite Investors

By Keith Speights - Mar 16, 2021 at 6:01AM

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The problem came with the HSA provider's full-year guidance.

Anyone wondering how HealthEquity (HQY -3.06%) stock would perform under President Biden now have a pretty good answer. Shares of the country's largest non-bank health savings account (HSA) custodian have easily beaten the S&P 500 index so far this year. However, that momentum could now be in jeopardy.

HealthEquity announced its fourth-quarter and full-year 2020 results after the market closed on Monday. The healthcare stock fell nearly 3% in after-hours trading. Here are the highlights from the company's Q4 update.

Health savings account paperwork on clipboard.

Image source: Getty Images.

By the numbers

HealthEquity reported revenue of $188.2 million in the fourth quarter, down 6% from the $201.2 million reported in the same quarter of the previous year. The company's reported revenue was a little higher than the average analysts' revenue estimate of $185.36 million.

The HSA provider announced net income in the fourth quarter of $5.4 million, or $0.07 per share, based on generally accepted accounting principles (GAAP). This reflected significant improvement from the GAAP net loss of $200,000 in the prior-year period.

HealthEquity's adjusted earnings also trended in the right direction. The company posted adjusted earnings in Q4 of $33.3 million, or $0.42 per share. This result was higher than its adjusted earnings of $28.4 million, or $0.40 per share, generated in the fourth quarter of 2019. It also beat the average analysts' earnings estimate of $0.39 per share.

Behind the numbers

The company's Q4 results weren't all that surprising. HealthEquity provided a look at its year-end sales metrics in February, which included its outlook for the just-ended fiscal year.

Lower service revenue was the primary culprit behind the company's year-over-year overall revenue decline. HealthEquity reported Q4 service revenue of $111.3 million compared to $122.2 million in the prior-year period.

However, the company's other revenue sources also slipped a bit in the fourth quarter. Custodial revenue fell nearly 1.6% to $48.6 million. Interchange revenue slid 4.8% to $28.3 million.

HealthEquity's bottom line, though, received a boost in a couple of ways. First, interest expense was markedly lower in the fourth quarter than in the prior-year period. In addition, the company enjoyed a nice income tax benefit of $6.7 million.

Looking ahead

The company expects that revenue for fiscal year 2022 will be between $750 million and $760 million. It anticipates a GAAP loss per share of between $0.12 and $0.07, with adjusted non-GAAP earnings per share between $1.37 and $1.42.

The midpoints of both of the top- and bottom-line ranges for HealthEquity's guidance were lower than consensus analyst estimates. The company's adjusted earnings outlook was especially disappointing: Wall Street analysts expect adjusted earnings of around $1.70.

Any improvement in the employment picture in the U.S. should help HealthEquity, though. It's possible that the recent $1.9 trillion stimulus package combined with the increased availability of COVID-19 vaccines could enable the company to beat its current full-year guidance.

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