HealthEquity Inc (HQY) Q3 2025 Earnings Report

- Revenue: $300.432 million in Q3 FY2025, up 21% YoY and 0.17% QoQ; gross profit $197.026 million, gross margin 65.6% (vs 64.0% YoY); operating income $19.625 million (operating margin 6.53%); net income $5.703 million (GAAP) and non‑GAAP net income $69.4 million (EPS $0.78, diluted $0.64); Adjusted EBITDA $118.2 million (EBITDA margin 39.0%).
- Profitability and margins: 3Q23/3Q24 margin expansion driven by HSA mix shift; non‑GAAP net income excludes a $30 million one‑time settlement; net income margin ~1.9% GAAP vs. ~23% non‑GAAP EBITDA margin; gross margin improved to mid‑60s percentile.
- Cash flow and liquidity: Net cash provided by operating activities $90.55 million; free cash flow $77.68 million; cash at end of period $322.16 million; cash flow from investing activities around −$12.87 million; net cash used in financing activities −$82.42 million; total debt $1.135 billion; net debt negative $268.01 million; repurchased $60 million of stock; remaining authorization $240 million.
- Balance sheet strength: Total assets $3.489 billion; goodwill $1.648 billion; intangible assets $1.229 billion; total liabilities $1.3637 billion; stockholders’ equity $2.1247 billion; cash and short‑term investments $322.16 million; debt to EBITDA proxy supports a conservative leverage profile for continued growth.
- Per share and size metrics: Weighted average shares outstanding 87.193 million (diluted 88.634 million); earnings per share (GAAP) $0.0654; non‑GAAP EPS $0.78; cash yield on HSA cash 3.17% in the quarter; HSA cash deployments and maturities provide a pathway to higher yields in FY2026 (target 3.4%–3.5%).

- Strategy and leadership: Scott Cutler will assume President/CEO duties in January 2025; management emphasized a tech‑enabled growth strategy (the 3D framework: Delivering remarkable experiences, Deepening partnerships, Driving member outcomes) and a continued emphasis on data, AI, and platform enhancements to improve member experiences and asset growth.
- Operations and cost discipline: The Q3 call highlighted approximately $8 million of excess service costs tied to fraud protection and card processor consolidation, with management projecting most of these event‑driven costs behind them and only modest carryover into Q4. They reiterated ongoing benefits from digital experiences, AI, and mobile wallet integrations to reduce service costs over time.
- Growth drivers and monetization: HSA assets (+33% YoY to $30B), HSAs (+15% YoY to 16.5M accounts; 9.5M HSAs), invested assets up 58% to $13.6B; HSA member investments grew 21% YoY; custodial revenue growth supported by higher cash yields and a shift toward higher‑margin investments; interchange revenue up 15% YoY as members contributed more and used the card more frequently.
- Regulatory momentum and TAM expansion: Steve Neeleman outlined three pathways for expanding access to HSAs (HOPE Act, budget reconciliation, and regulatory rulemaking). He highlighted a potential TAM expansion from roughly 60–65 million accounts to 100 million+ households if HOPE or related initiatives advance, underscoring a meaningful long‑term growth runway for HQY’s platform.
- Guidance framing and execution: Jim Lucania stressed the 2025 guidance and the factors influencing the 2026 plan, including a custodial yield uplift to 3.4%–3.5%, maturities of roughly $7 billion over the next two fiscal years, and a continued shift to higher‑margin HSA products. He noted that the 2026 guide assumes no M&A activity and that replication of a consumer‑grade digital experience remains a core operational objective.
- Market positioning and competitive context: HQY’s scale in HSAs and partnerships with health plans, employers, and brokers positions it to monetize the growing HSAs market; however, execution risk remains around fraud events, regulatory changes, and the pace of competitor development in the HSA ecosystem. Quote excerpts: “The underlying trend of service cost reduction through remarkable digital experience continues with AI transforming more member contacts and claims interactions and mobile wallet integration” (James Lucania) and “we think that HOPE Act could increase the TAM by as much as 40–45 million households” (Steve Neeleman).

HQY sits at a pivotal point where the combination of a large, growing HSA platform and a clear strategic emphasis on technology enablement could drive meaningful margin expansion and scalable revenue growth over the medium term. The Q3 FY2025 results show substantial progress in assets, accounts, and invested assets, with a notable shift toward higher‑margin HSA products that should bolster profitability as the company leverages operating leverage and AI‑driven efficiency. The 2026 guidance implies a durable earnings trajectory, with revenue of roughly $1.275–$1.295 billion and EBITDA margins approaching the low‑to mid‑40s percentage range, supported by a targeted HSA cash yield of 3.4%–3.5% and an ongoing mix shift. The HOPE Act and related regulatory actions represent a significant, though uncertain, long‑term growth tailwind that could meaningfully expand HQY’s TAM beyond today’s specified metrics. Investors should monitor the pace of TAM expansion, the realization of cost efficiencies from the card migration and fraud mitigation efforts, and Scott Cutler’s execution of the growth agenda (the 3D strategy). In the near term, HQY’s solid cash generation, disciplined capital allocation (reinvesting in growth while returning capital via buybacks), and a strong partner network underpin a constructive risk‑reward profile, albeit with earnings cadence that includes some non‑recurring costs and regulatory risk.