Executive Summary
HealthEquity (HQY) delivered a solid QQ2 FY2025, underpinned by strong top-line momentum and ongoing execution of the companyâs multi-year 3Ds transformation. Revenue rose 23% year over year to $299.9 million, with gross margin expanding to 68.0% (vs. 62.0% a year ago), and adjusted EBITDA up 46% to $128.3 million. Net income reached $35.8 million ($0.40â$0.41 per share GAAP; $0.86 nonâGAAP), reflecting continued operating leverage on higher HSA activity and favorable mix shifts as HealthEquity scales its cash management and custodial businesses. HSA assets climbed to $29.0 billion with total accounts exceeding 16 million, including over 9 million HSAs, and invested assets rose 43% year over year to more than $13.0 billion, aided by a 24% yearâoverâyear increase in members investing faster than accounts.
Management framed QQ2 as a down payment on a multiâyear growth trajectory anchored in the 3Ds â delivering remarkable experiences (digital service delivery), deepening partnerships (APIs and ecosystem collaborations), and driving member outcomes (differentiated, utilizationâoriented solutions). A notable nearâterm milestone was the formal launch of Health Payment Accounts (HPAs), a noâinterest, noâfee option designed to broaden access to care and strengthen employer/plan sponsor value propositions. While HPAs are expected to contribute meaningfully over the medium term (modest FY2026 impact, larger in FY2027âFY2028), the nearâterm dividend will accrue to crossâselling opportunities tied to BenefitWallet and enhanced rate deployments.
HQY reconfirmed fullâyear guidance for FY2025: revenue of $1.165â$1.185 billion; GAAP net income of $94â$109 million (~$1.05â$1.22 per share) and nonâGAAP net income of $265â$280 million (~$2.98â$3.14 per share) with adjusted EBITDA of $458â$478 million. The company also announced the start of a $300 million share repurchase program and completed a refinancing that extends revolver maturities to 2029, supporting portfolio growth and optionality. Cash flow remained robust on an operating basis (H1 FY25 operating cash flow of $108.1 million) but free cash flow was negative (â$100.95 million) largely due to the BenefitWallet acquisition-related investments. Investors should monitor the cadence of operating costs during the second half (seasonality in member onboarding and card issuance) and the evolving mix toward Enhanced Rates as the company progresses toward its 60% Enhanced Rates target by FY2027. Overall, the QQ2 results reinforce HQYâs differentiated position in the growing consumerâdirected health accounts market, with multiple levers to sustain growth and a clear path to improving profitability through operating leverage and higherâmargin product introductions.
Key Performance Indicators
QoQ: 38.68% | YoY:145.38%
QoQ: 24.33% | YoY:238.55%
QoQ: 24.24% | YoY:241.67%
Key Insights
Revenue: $299.93 million in Q2 FY2025, up 23% YoY; QoQ growth: +4.3% (Q2 vs Q1 as per reported quarterly metrics). Gross margin: 68.0% (vs. 62.0% in prior-year quarter). EBITDA: $105.65 million, with Adjusted EBITDA of $128.30 million (+46% YoY, 43% of revenue). Operating income: $60.71 million (operating margin ~20.24%). Net income: $35.82 million (GAAP), or $0.40 per share (GAAP); NonâGAAP net income: $76.30 million (~$0.86 per share). Weighted average diluted shares: ~88.646 million. Cash f...
Financial Highlights
Revenue: $299.93 million in Q2 FY2025, up 23% YoY; QoQ growth: +4.3% (Q2 vs Q1 as per reported quarterly metrics). Gross margin: 68.0% (vs. 62.0% in prior-year quarter). EBITDA: $105.65 million, with Adjusted EBITDA of $128.30 million (+46% YoY, 43% of revenue). Operating income: $60.71 million (operating margin ~20.24%). Net income: $35.82 million (GAAP), or $0.40 per share (GAAP); NonâGAAP net income: $76.30 million (~$0.86 per share). Weighted average diluted shares: ~88.646 million. Cash flow and liquidity: net cash provided by operating activities $108.13 million; free cash flow of $(100.95) million; cash at end of period $326.89 million. Balance sheet: total assets $3.51 billion; total liabilities $1.36 billion; total stockholdersâ equity $2.16 billion; longâterm debt $1.15 billion; net debt $0.83 billion. Guidance (FY2025): revenue $1.165â$1.185 billion; GAAP net income $94â$109 million; nonâGAAP net income $265â$280 million; Adjusted EBITDA $458â$478 million; expected HSA cash yield ~3.05%. Sufficient liquidity and improved financing terms postârefinancing to support acquisitions and share repurchases.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
299.93M |
23.15% |
4.29% |
| Gross Profit |
173.07M |
14.67% |
7.10% |
| Operating Income |
60.71M |
145.38% |
38.68% |
| Net Income |
35.82M |
238.55% |
24.33% |
| EPS |
0.41 |
241.67% |
24.24% |
Key Financial Ratios
operatingProfitMargin
20.2%
operatingCashFlowPerShare
$1.24
freeCashFlowPerShare
$-1.16
Management Commentary
- Strategy and execution: HQY remains focused on the 3Ds (delivering experiences, deepening partnerships, driving outcomes). Management highlighted the progress on digital service delivery (new mobile app, AI claim processing, card processor migration) and the planned thirdâparty developer portal/API expansion to broaden partner ecosystems.
- HPAs and market positioning: HQY announced the formal launch of Health Payment Accounts (HPAs), a noâinterest, noâfee option for employees to pursue medical care with flexible payment terms, intended to improve access to care and widen the total addressable market. Management stressed that HPAs should become more widespread in inâgroup coverage within 3â4 years, with modest FY2026 impact and larger gains in FY2027âFY2028.
- BenefitWallet integration and crossâsales: The final tranche of BenefitWallet was transferred in Q2, adding roughly 216,000 HSAs and $1.0 billion of HSA assets, unlocking opportunities for crossâsales into FY2026 (CDB crossâsales) and securing custodial yields on these assets for years to come.
- Margin discipline and cost trajectory: Service cost was flat on 9% topâline growth, aided by digitization and automation (AI, API platforms). There was emphasis on continuing to manage the secondâhalf âhumpâ of onboarding and card issuance costs, with the expectation that future innovations (instant card issuance, improved issuance costs) will reduce unit costs over time.
- Guidance and capital allocation: HQY reiterated FY2025 targets and announced the start of a $300 million share repurchase program. The company completed refinancing to extend debt maturities to 2029, and guidance accounts for higher net interest expense due to a larger variableârate debt base from the BenefitWallet acquisition. Management also noted the potential capital allocation flexibility to pursue portfolio acquisitions given strong cash flows.
- Market and demand backdrop: Leadership indicated continued demand for consumerâdirected accounts (HSAs and CDBs) even in a softer labor market environment, noting a persistent appetite among employers to reduce costs via efficient benefit structures. The team highlighted robust new HSA openings (Team Purple added 187,000 HSAs in Q2, up 20% YoY) and strong investor activity in HSAs (invested assets up 43% YoY to over $13 billion).
"In Q2, the team again delivered double-digit year-over-year growth across most key metrics, including revenue plus 23% year-over-year, adjusted EBITDA plus 46%, and HSA assets plus 27%."
â Jon Kessler
"HPAs, spelled HPA's, a no interest and no-fee option for employees to pursue medical care with flexible payment terms. Your credit score should not influence your access to care."
â Jon Kessler
Forward Guidance
- Revenue visibility: The company expects FY2025 revenue of $1.165â$1.185 billion, supported by a continued sales trajectory and operational efficiencies from technology investments. The BenefitWallet integration remains a meaningful contributor to topline growth and will carry higher net interest expense as the balance sheet expands.
- Profitability trajectory: Management guided GAAP net income of $94â$109 million and nonâGAAP net income of $265â$280 million, with Adjusted EBITDA of $458â$478 million. The emphasis remains on achieving operating leverage through higher volumes and continued cost discipline, while recognizing that the back half will be impacted by interest rateâdriven cash deployments and card issuance costs.
- HSA cash/yield dynamics: The expected average yield on HSA cash is ~3.05% for FY2025. Yields are forwardâlooking and will reflect the mix and timing of cash deployments; the company notes that a portion of deposits will reprice in late 2024â2025, influencing the backâhalf margin profile.
- Growth catalysts and potential risks: Nearâterm catalysts include HPAs and APIâdriven partner enablement that could broaden distribution and accelerate crossâsale opportunities. Risks include further declines in interest rates (affecting custodial revenue and differential yields), execution risk on migrating to Enhanced Rates, and competitive dynamics in the HSA/CDB space. Management reinforced the plan to migrate to Enhanced Rates as bank maturities roll off, with a target of ~60% Enhanced Rates by FY2027.
- Key monitoring factors for investors: (i) HSA inflows and cash deployments by quarter; (ii) utilization of HPAs and resulting impact on outâofâpocket costs; (iii) progress of API platform and partner enrollments; (iv) cadence of card issuance costs and technology investments; (v) cash conversion cycle and debt financing costs given the new revolver and debt maturities.