What You'll Want to Know About HealthEquity's Blowout Q1 Earnings Results

HealthEquity (NASDAQ: HQY) got off to a great start in 2019, thanks in part to stellar fourth-quarter results. Revenue jumped 25% year over year while earnings skyrocketed 145.5%. However, the stock has given up some of its impressive gains it racked up earlier in the year over the past couple of months.

The health savings account (HSA) provider announced its Q1 results after the market closed on Tuesday. And HealthEquity yet again delivered strong growth. Here's what you need to know from the company's quarterly update.

By the numbers

HealthEquity's revenue jumped 25% year over year to $87.1 million. Analysts estimated that the company's revenue for the first quarter would come in at $84.06 million.

The company announced GAAP net income of $41.8 million, or $0.65 per share, in the first quarter. This represented an 85% increase from GAAP net income of $22.6 million, or $0.36 per share, reported in the same quarter of 2018.

On a non-GAAP adjusted basis, HealthEquity's net income in the first quarter was $0.41 per share. That reflected a 32% increase from the prior-year period's adjusted net income of $0.31 per share. It also handily beat the Wall Street Q1 earnings estimate of $0.34 per share in the quarter.

At the end of the first quarter, HealthEquity served 4.1 million HSAs as a non-bank custodian, up 17% year over year. Its total active HSA members at the end of Q1 was 3.2 million, a 13% year-over-year increase. Total custodial assets as of April 30, 2019, was $8.3 billion, up 21% over the prior-year period.

Behind the numbers

HealthEquity makes its money in three primary ways -- service revenue, custodial revenue, and interchange revenue. Service revenue increased 8% year over year to $26.8 million. Custodial revenue, which costs of fees charged for assets held under management, rose 48% to $42 million. Interchange revenue related to transactions processed increased by 10% to $18.3 million.

It certainly helped that HealthEquity signed up 89,000 new accounts during Q1. CEO Jon Kessier also said the company "helped our members grow their custodial assets by over $220 million in the quarter."

The company's net income was boosted by its purchase of around 1.6 million shares of WageWorks (NYSE: WAGE) during the first quarter. This investment increased HealthEquity's earnings by $17.9 million. HealthEquity subsequently proposed a full acquisition of WageWorks, which manages consumer-directed benefits plans.

Looking ahead

HealthEquity now projects its fiscal 2020 revenue to be between $339 million and $345 million, up from the previous guidance of $333 million to $339 million. The company expects GAAP earnings per share (EPS) to come in between $1.26 and $1.32, up from its previous forecast of a range of $0.89 to $0.95. Non-GAAP EPS is expected to be between $83 million and $87 million, up from previous guidance of $80 million and $84 million.

The growth prospects for HealthEquity continue to look promising. The company thinks that its total addressable market stands at a whopping $1 trillion. HealthEquity currently claims a market share of 15% but is growing rapidly. With HSAs picking up momentum and becoming more familiar with Americans, HealthEquity could have plenty of room to run.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends HealthEquity. The Motley Fool has a disclosure policy.