Exchange: NASDAQ | Sector: Healthcare | Industry: Medical Healthcare Information Services
Q4 2025
Published: Mar 18, 2025
Earnings Highlights
Revenue of $311.82M up 18.8% year-over-year
EPS of $0.30 decreased by 3.2% from previous year
Gross margin of 60.6%
Net income of 26.37M
"“In Q4, without missing a beat, the team achieved and delivered strong year-over-year growth across our key metrics, including revenue up 19%, adjusted EBITDA up 9%, HSAs grew 14%, CDB accounts grew 2%, driving Total Accounts up 9%, and HSA Assets up 27%.”" - Scott Cutler
HealthEquity Inc (HQY) Q4 FY2025 Results Review and Outlook — Robust HSA growth and platform modernization support sustainable upside amid near-term fraud-related costs
Executive Summary
HealthEquity (HQY) delivered a solid Q4 FY2025, highlighted by strong revenue growth, expanding HSA assets, and continued momentum across core metrics. Revenue rose 19% year over year to $311.8 million, with Adjusted EBITDA up 9% to $107.8 million and gross margin stable around 61%. The company ended the year with 17 million total accounts and 9.9 million HSAs holding $32 billion in HSA assets, underscoring its leadership in the US HSA market. However, the quarter included approximately $17 million of event-driven service costs tied to fraud mitigation and card processor consolidation, which management expects to be partially temporary and to normalize through FY2026. Management’s FY2026 guidance implies continued top-line growth and margin progression as Invested in fraud prevention and platform modernization yield operating efficiencies, albeit with higher near-term costs. The strategic deployment of the Assist portfolio (Analyzer, Navigator, Momentum) and ongoing cloud/mobility initiatives are positioned to support longer-term revenue growth, client engagement, and cost-to-serve improvements. Investors should weigh the durable HSA growth and cash flow strength against the near-term headwinds from elevated service costs and cyber/fraud-related investments.
Key Performance Indicators
Revenue
311.82M
QoQ: 3.79% | YoY:18.84%
Gross Profit
189.04M
60.63% margin
QoQ: -4.05% | YoY:34.93%
Operating Income
42.15M
QoQ: 114.78% | YoY:2.39%
Net Income
26.37M
QoQ: 362.30% | YoY:0.00%
EPS
0.30
QoQ: 358.72% | YoY:-3.23%
Revenue Trend
Margin Analysis
Key Insights
Revenue Q4 2025: $311.8M, up 19% YoY; QoQ growth not explicitly stated in release but quarterly progression supported by 4Q call data
Gross profit: $189.0M, gross margin 60.6% (vs. 62% in the prior-year quarter)
- Revenue Q4 2025: $311.8M, up 19% YoY; QoQ growth not explicitly stated in release but quarterly progression supported by 4Q call data
- Gross profit: $189.0M, gross margin 60.6% (vs. 62% in the prior-year quarter)
- Operating income: $42.15M; operating margin 13.52%
- Net income: $26.37M; net margin 8.46%; GAAP EPS $0.30; Non-GAAP net income $61.3M; Non-GAAP EPS $0.69
- Adjusted EBITDA: $107.8M, up 9% YoY; Adj EBITDA margin 35% (vs. 38% prior year)
- FY2025 full-year: Revenue ~$1.2B, up ~20% YoY; Adjusted EBITDA ~$471.8M, up ~28%; Adj EBITDA margin +240 bps to ~39%
- Balance sheet: Cash $296M; gross debt ~$1.109B; net debt ~$813M; cash flow from operations $340M; share repurchases of $122M in FY2025; remaining buyback authorization $178M
- HSA metrics: 17.0M total accounts; 9.9M HSAs; HSA assets $32B; HSA assets up $6.9B YoY; invested assets $14.7B, +44% YoY; HSA cash $17.4B; enhanced yield on HSA cash ~49% at year-end; target enhanced yield 60% by end of FY2027
- Guidance (FY2026): Revenue $1.28B–$1.305B; GAAP net income $164M–$179M; Non-GAAP net income $318M–$333M; Adjusted EBITDA $525M–$545M; average HSA cash yield ~3.45% for FY26
- Notable commentary: Fraud-related costs expected to persist in early FY26 before normalization; Assist portfolio to drive enrollment, engagement, and efficiency; continued investments in cloud-based platforms and AI-driven claims processing
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
311.82M
18.84%
3.79%
Gross Profit
189.04M
34.93%
-4.05%
Operating Income
42.15M
2.39%
114.78%
Net Income
26.37M
0.00%
362.30%
EPS
0.30
-3.23%
358.72%
Key Financial Ratios
currentRatio
3.06
grossProfitMargin
60.6%
operatingProfitMargin
13.5%
netProfitMargin
8.46%
returnOnAssets
0.77%
returnOnEquity
1.25%
debtEquityRatio
0.52
operatingCashFlowPerShare
$0.87
freeCashFlowPerShare
$0.72
priceToBookRatio
4.53
priceEarningsRatio
90.77
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Strategy and product innovation: Scott Cutler emphasized Team Purple’s focus on a member-first, secure mobile experience and highlighted the Assist portfolio (Analyzer, Navigator, Momentum) as a core growth driver. Momentum is AI-driven personalization to nudge healthier behaviors and optimize plan ROI.
- Operational execution and growth drivers: The Q4 call reiterated record quarter metrics (revenue, HSAs, and assets) and noted progress on the chip-enabled stacked benefits card and cloud migrations, setting the stage for a more seamless digital experience.
- Financial performance and costs: Jim Lucania disclosed a 19% YoY increase in fourth-quarter service revenue and 37% growth in custodial revenue, but also highlighted about $17M of event-driven service costs tied to fraud mitigation and card-processor consolidation. Management expects these costs to persist into the first half of FY26 and normalize later.
- Guidance and profitability trajectory: Scott and Jim reaffirmed a path toward margin expansion via cost-management, platform modernization, and higher enhanced-rate penetration, while acknowledging near-term headwinds from fraud-related costs and security investments. Enhanced yield on HSA cash was 49% by year-end, with a stated long-term goal of 60% enhanced yield by FY2027; FY26 guidance implies continued top-line growth and modest margin improvement.
- Capital allocation and balance sheet: The company highlighted substantial cash flow generation ($340M in FY25) and continued share repurchases ($122M in FY25) with $178M remaining on the authorization. Net debt stood at ~$813M, signaling solid liquidity to support portfolio opportunities and ongoing buybacks.
“In Q4, without missing a beat, the team achieved and delivered strong year-over-year growth across our key metrics, including revenue up 19%, adjusted EBITDA up 9%, HSAs grew 14%, CDB accounts grew 2%, driving Total Accounts up 9%, and HSA Assets up 27%.”
— Scott Cutler
“We expect heavier than normal costs in our first two quarters towards [fraud prevention and security] effort, followed by better margins in the later quarters from those investments.”
— James Lucania
Forward Guidance
HealthEquity’s FY2026 guidance reflects a measured path to growth, anchored by stronger HSA cash deployment and ongoing platform investments. Key takeaways:
- Revenue target of $1.28B–$1.305B implies mid-to-high single-digit to low-double-digit growth relative to FY25, supported by continued HSA sales momentum and improved monetization via enhanced-rate adoption.
- EBITDA and profitability: Adjusted EBITDA target of $525M–$545M suggests EBITDA margins in the mid-40s percent range on a normalized basis, but near-term spend on fraud prevention and platform security will temporarily compress margins in the first half of FY26.
- HSA cash strategy: Average yield guidance of ~3.45% for FY26 (vs. 3.23% in Q4) indicates a modest raise in custodial yields as deployment and rollovers evolve; this supports custodial revenue resilience.
- Capital allocation: Ongoing share repurchases and a flexible approach to revolver leverage indicate a balanced approach to returning capital while funding growth opportunities, including potential portfolio acquisitions should favorable assets become available.
- Risks to watch: (1) The anticipated one-to-two quarters of higher service costs related to fraud prevention and card-processor migration; (2) execution risk in achieving the 60% enhanced-rate penetration target; (3) regulatory and macro developments impacting HSAs (HOPE Act, HSA modernization) and cyber risk exposure.
- Bottom line for investors: HQY remains exposed to meaningful secular growth in HSAs and benefits transparency, with the Assist initiative and AI-enabled claims automation providing optionality for margin expansion and revenue growth. The achievability of FY26 targets appears plausible if the company can moderate near-term fraud-related costs and sustain the strong HSA enrollment ramp.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
HQY Focus
60.63%
13.50%
1.25%
90.77%
EVH
11.70%
-2.88%
-2.28%
-14.19%
PINC
64.50%
29.30%
3.09%
8.03%
OMCL
46.20%
4.04%
1.27%
32.35%
PGNY
21.30%
5.29%
2.50%
37.46%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
HQY presents a constructive long-term investment thesis grounded in secular growth of HSAs, a scalable digital platform, and a diversified product roadmap (Assist, AI-enabled claims processing, mobile experience). The company generated strong cash flow ($340M FY25) and reduced leverage while returning capital through share repurchases. FY2026 guidance supports continued revenue growth (at the mid-to-high single digits) and margin expansion as near-term fraud-related costs normalize and platform modernization yields efficiency gains. The key risk is the near-term cost headwind from fraud prevention and card-processor consolidation, which could temper margins in the first half of FY26. Investors should monitor: (1) the pace of enhanced-rate adoption (target 60% by FY2027), (2) the cadence of fraud-related costs and the effectiveness of security investments, (3) the monetization trajectory of the Assist portfolio, (4) regulatory developments affecting HSAs, and (5) capital allocation flexibility for potential portfolio acquisitions. Overall, HQY’s earnings power remains tied to its leadership in HSAs, its consistent cash generation, and its ability to translate technology investments into higher engagement and contributions.
Key Investment Factors
Growth Potential
- Long runway in HSAs with continued penetration into small/medium-sized businesses; enhanced-rate adoption remains a key driver (49% at year-end, with a target of 60% by FY2027).
- Assist portfolio (Analyzer, Navigator, Momentum) offers data-driven monetization opportunities through enrollment, engagement, and cost-reduction for employers and members.
- AI-enabled claims processing and app/mobile enhancements (>1M app downloads; 7,000+ clients) bolster member engagement and platform stickiness.
- Potential M&A optionality with a disciplined hurdle rate to complement internal growth.
Profitability Risk
- Near-term elevated service costs tied to fraud mitigation and card-processor consolidation, with expectations of normalization in H2 FY26.
- Regulatory and policy risk around HSAs (HOPE Act, modernization) and evolving healthcare policy could affect growth dynamics and product design.
- Cyber risk and fraud remain structural headwinds; success depends on ongoing investments in security and fraud-prevention technologies.
- Competition in the HSA/benefits administration space could pressure pricing and market share in selective segments.
Financial Position
- Strong cash generation: $340M cash flow from operations in FY25; cash balance $296M; net debt ~$813M on ~$1.109B gross debt, implying comfortable leverage given EBITDA of $471.8M for FY25.
- Shareholder returns: $122M in share repurchases in FY25 with $178M remaining under the $300M authorization.
- Balance sheet quality supports strategic investments in platform modernization and potential acquisitions without compromising liquidity.
SWOT Analysis
Strengths
Market leadership in Health Savings Accounts with 17 million total accounts and $32B in HSA assets; strong client retention (high-90s) and growing invested assets ($14.7B, +44% YoY); robust free cash flow generation and improving liquidity; scalable cloud-based, mobile-first platform with AI-enabled features; significant near-term operating leverage from improved custodial yields and high-margin interchange.
weaknesses':['Near-term pressure from event-driven fraud costs and investments in security infrastructure that compress near-term margins','High valuation multiple relative to earnings in an evolving regulatory and macro environment'],
opportunities':['Assist portfolio expansion (Analyzer, Navigator, Momentum) to improve employer and member engagement and reduce healthcare costs; potential regulatory tailwinds from HOPE Act and HSAs modernization; continued device-agnostic digital wallet and card-stack enablement to unlock new revenue streams; M&A optionality with disciplined capital allocation.'],
threats':['Regulatory and policy uncertainty around HSAs and healthcare reforms; persistent cyber threats and fraud requiring ongoing security spend; competitive dynamics in the benefits administration and HSA ecosystems; macroeconomic factors impacting employer benefit programs and consumer healthcare spending.
Weaknesses
Near-term margin headwinds from event-driven costs related to fraud mitigation and card processor consolidation
Opportunities
Assist portfolio monetization, AI-led efficiency gains, and deeper employer adoption to drive enrollment and contributions
Threats
Regulatory shifts, cyber risk, and competitive intensity in the HSA ecosystem