Exchange: NASDAQ | Sector: Healthcare | Industry: Medical Healthcare Information Services
Q1 2026
Published: Jun 3, 2025
Earnings Highlights
Revenue of $330.84M up 15% year-over-year
EPS of $0.61 increased by 87.9% from previous year
Gross margin of 67.8%
Net income of 53.92M
""revenue up 15%, adjusted EBITDA up 19%, HSAs grew 9%, CDB accounts grew 4%, driving total accounts up 7%, and HSA assets up 15%."" - Scott Cutler
HealthEquity Inc (HQY) QQ1 2026 Earnings Analysis: Robust HSA Growth, Security investments, and Raised Guidance in Healthcare Information Services
Executive Summary
HealthEquity Inc (HQY) delivered a solid QQ1 2026 performance, underscoring its leverage of a large and growing HSA ecosystem, enhanced security controls, and ongoing product innovation. Revenue rose 15% year over year to $330.8 million, with gross margin near 68% and operating margin around 25%, driving GAAP net income of $53.9 million and non-GAAP net income of $85.8 million. Adjusted EBITDA expanded 19% year over year to $140.2 million, illustrating operating leverage amid a disciplined cost structure. The quarter featured meaningful progress on HSA metrics: 9.9 million HSAs with over $31 billion in assets, HSA cash of $17.1 billion, and invested assets of $14.2 billion, with 16% of HSA members investing. Total accounts exceeded 17 million, including 260,000 net CDB accounts year over year. Management highlighted a stronger enterprise pipeline and continued SMB adoption of HSA-qualified plans, positioning the company to benefit from a multi-year growth trajectory in HSAs even as macro conditions moderating new HSA sales persisted in the near term.
Key operational improvements centered on fraud reduction and digital engagement. Direct fraud costs declined from about $11 million in Q4 to about $3 million in Q1, as HealthEquity accelerates its secure mobile experience and fraud prevention capabilities with an aspirational target of one basis point of total HSA assets per year. Management also signaled ongoing investments to derisk interest-rate exposure and stabilize HSA yields, including forward treasury hedging that aims to keep the average HSA cash yield near 3.5% in FY2026. The company raised full-year 2026 guidance, reflecting continued revenue growth, margin stability, and disciplined capital allocation (including share repurchases and potential revolver reductions).
Strategic optionality remains material due to policy momentum around HSAs. Management outlined potential expansion provisions in the House budget bill (e.g., Medicare Part A access to contributing to HSAs, broader HSA eligibility on bronze/catastrophic plans, extended catch-up rules, increased contribution limits for lower-to-middle income households), which could meaningfully enlarge the addressable market by up to 20 million additional families on a net basis. The commentary around policy action, combined with the company’s enterprise-focused go-to-market and product initiatives (Analyzer, Navigator, Momentum; AI-enabled claims and mobile wallet roadmap), supports an attractive long-term investment thesis in HQY’s ability to monetize HSAs and related services as the healthcare cost environment evolves.
Net income: $53.915 million; EPS (GAAP) $0.62; EPS (diluted) $0.61.
Non-GAAP net income: $85.8 million; Non-GAAP EPS $0.97; Adjusted EBITDA $140.2 million, up 19% YoY; EBITDA margin 42%.
Financial Highlights
- Revenue: $330.844 million, +15% YoY; QoQ +6.1% (Q4 2025 to Q1 2026).
- Gross profit: $224.311 million, gross margin ~67.80% (0.678).
- Operating income: $83.078 million, operating margin ~25.11%.
- Net income: $53.915 million; EPS (GAAP) $0.62; EPS (diluted) $0.61.
- Non-GAAP net income: $85.8 million; Non-GAAP EPS $0.97; Adjusted EBITDA $140.2 million, up 19% YoY; EBITDA margin 42%.
- Balance sheet: cash & equivalents $287.894 million; total debt ~$1.107 billion; net debt ~$818.864 million; total assets $3.416 billion; stockholders’ equity ~$2.123 billion.
- Cash flow: operating cash flow $64.738 million; free cash flow $48.596 million; net cash provided by operating activities $64.7M; shares repurchased $60 million; remaining authorization about $118 million.
- HSA metrics: 9.9 million HSAs with $31+ billion in assets; HSA cash $17.1 billion; HSAs invested assets $14.2 billion; 16% of HSA members invest; 9.9 million HSAs, 17 million total accounts; 260k net CDB accounts YoY.
- Fraud and security: direct fraud costs down to ~$3 million in Q1 from ~$11 million in Q4; management targets one bps of total HSA assets per year; forward hedging placed to derisk rate exposure.
- Guidance (FY2026): Revenue $1.285–$1.305 billion; GAAP net income $173–$188 million ($1.96–$2.13 per share); non-GAAP net income $320–$335 million ($3.61–$3.78 per share); Adjusted EBITDA $530–$550 million. Tax rate assumed ~25%, diluted weighted-average shares ~88.5 million.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
330.84M
15.04%
6.10%
Gross Profit
224.31M
38.81%
18.66%
Operating Income
83.08M
89.79%
97.10%
Net Income
53.92M
87.12%
104.49%
EPS
0.62
87.88%
106.67%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Strategy and growth engine: Scott Cutler highlighted a strong start to FY2026 with “revenue up 15%, adjusted EBITDA up 19%, HSAs grew 9%, CDB accounts grew 4%, driving total accounts up 7%, and HSA assets up 15.” He underscored a robust enterprise pipeline and ongoing SMB adoption of HSA-qualified plans.
- HSA platform and customer experience: The team emphasized investments in mobility and AI to improve member experience, including AI-powered claims adjudication now serving over 7,000 clients and reducing processing costs. Scott noted the company is “driving an enrollment and contribution strategy to grow from our existing client base” and expanding the digital wallet roadmap tied to Chip Card upgrades.
- Fraud and security: The company disclosed a material reduction in direct fraud costs to about $3 million in Q1 from ~$11 million in Q4, with the aim to exit the year at one basis point of total HSA assets. James Lucania explained the forward-looking hedging strategy and that they are “derisking” the remaining five-plus billion in HSA cash maturities with forward treasury contracts.
- Policy and addressable market: Steve Neeleman discussed potential HSA provisions in the House budget bill (e.g., Medicare Part A contributors to HSAs, expanded HSA use with bronze/catastrophic plans, gym memberships, FSA/HRA rollovers to fund HSAs, catch-up contributions, higher limits for lower-income families) and the expectation that these could add up to 20 million more families to HSAs, expanding the market size significantly.
- Financial framework and guidance: Jim Lucania reviewed the FY2026 guidance and stressed that the outlook incorporates continued investments in fraud prevention, platform stability, and revenue diversification, while maintaining generous buybacks and a strong liquidity profile. He stated the guidance implies “revenue in a range between $1.285 billion and $1.305 billion” and the assumption of a 25% tax rate and 88.5 million shares outstanding.
- Product and go-to-market evolution: The team discussed Analyzer (data benchmarking for employers), Navigator (member experience tool), and Momentum (progress updates on Assist portfolio) as components of a broader platform to drive adoption and cost savings for employers, with Analyzer already generally available and Navigator available to members.
"revenue up 15%, adjusted EBITDA up 19%, HSAs grew 9%, CDB accounts grew 4%, driving total accounts up 7%, and HSA assets up 15%."
— Scott Cutler
"We are driving an enrollment and contribution strategy to grow from our existing client base... which have historically brought stronger selling seasons."
— Scott Cutler
Forward Guidance
HQY reiterates FY2026 targets, signaling confidence in both the revenue trajectory and margin resilience amid ongoing fraud mitigation and security investments. The guidance assumes a stable to modestly improving macro backdrop and continued enterprise-led HSA adoption. Key considerations for forward visibility:
- HSA policy tailwinds: The potential expansion in HSAs from policy changes could materially expand the addressable market by up to 20 million net new families, potentially accelerating HSA account openings, contributions, and asset growth. If enacted, this could meaningfully lift HealthEquity’s TAM and accelerate adoption beyond current projections.
- Fraud and security trajectory: Management targets a stabilizing fraud cost run-rate at one basis point of total HSA assets. Achieving this would sustain higher margins and free cash flow, supporting ongoing buybacks and potential portfolio acquisitions.
- Product leverage and monetization: The Analyst/Navigator/Momentum suite and AI-enabled claims processing are designed to improve retention, cross-sell, and unit economics. If these innovations translate into higher adoption of high-margin services and greater enterprise attachment rates, margin and ARR could outpace current guidance.
- Interest rate and capital management: Forward hedging on HSA cash and a moderate yield outlook (around 3.5% for FY2026) support earnings stability but remain subject to market dynamics and rollover timing.
- Risks: A slower-than-expected HSA enrollment or weaker enterprise demand could compress near-term growth. Regulatory outcomes, macro weakness affecting job creation, or delays in policy approval could temper the upside to the market expansion scenario. Investors should monitor the progression of the enterprise pipeline, fraud normalization timeline, and the pace of adoption for Analyzer/Navigator/Momentum.
Overall, the outlook is constructive with a high degree of optionality tied to policy developments and continued execution on security, product, and go-to-market initiatives. Investors should monitor HSA legislation progress, enterprise win rates, and the trajectory of fraud costs as key drivers of earnings visibility.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
HQY Focus
67.80%
N/A
N/A
N/A
EVH
21.20%
-0.34%
-6.91%
-4.22%
PINC
72.70%
14.20%
3.62%
7.09%
OMCL
41.10%
-4.31%
-0.56%
-57.99%
PGNY
23.40%
7.46%
3.22%
31.71%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
HealthEquity’s QQ1 2026 results underscore a mature, cash-generative platform with a compelling growth runway driven by HSA adoption, asset accumulation, and product innovations. The company’s earnings power is supported by a high gross margin, strong operating leverage, and substantial free cash flow, enabling ongoing buybacks and potential acquisitions while maintaining a prudent balance sheet. The most meaningful driver of upside is policy-driven expansion of the HSA addressable market, which could unlock material net-new account openings and contributions, amplifying assets and fee-based revenue. Management’s emphasis on security, mobile-first engagement, and AI-enabled automation positions HQY to improve unit economics and customer retention, particularly as the workforce evolves toward digital-first expectations.
Key considerations for investors:
- If the proposed HSA provisions become law, HQY could experience a sizable uplift in TAM and accelerated adoption, potentially surpassing current revenue trajectory and margin stability.
- The company’s path to normalize fraud costs toward one basis point of total assets is crucial for sustaining high EBITDA margins and FCF generation; progress on this front remains a key risk factor.
- The Analyzer/Navigator/Momentum suite represents a valuable extension of HQY’s enterprise value proposition, potentially increasing contract value and cross-sell opportunities.
- The balance sheet remains leveraged but with strong operating cash flow and a healthy repurchase program; investors should monitor debt levels and any incremental funding needs associated with growth initiatives.
Overall investment thesis: Moderate to above-moderate upside potential exists for HQY, contingent on successful policy-driven market expansion, continued execution on security and product initiatives, and maintenance of cost discipline. The stock warrants a disciplined approach to valuation that weighs the optionality of regulatory tailwinds against execution risk in a competitive and evolving market.
Key Investment Factors
Growth Potential
- Substantial TAM expansion from potential HSA policy provisions (net 20 million additional families).
- Ongoing HSA assets growth (HSA assets of $31B and invested assets of $14.2B) supported by rising adoption of investment options and higher average balances.
- AI-enabled claims and secure mobile experience can improve service levels, reduce costs, and drive higher member engagement and retention.
- Analyzer and Navigator monetization could increase enterprise attach rates and plan-design optimization, boosting revenue per client.
Profitability Risk
- Regulatory/policy shifts remain a major swing factor; legislation may or may not pass or be tempered by Senate reconciliation.
- Fraud risk and cybersecurity spend must be maintained to avoid cost volatility; achievement of the 1 bps target is not guaranteed.
- Macro headwinds could dampen new HSA sales and enterprise pipeline, affecting near-term growth.
- Competition in the HSA administration space and potential market consolidation could pressure pricing or share.
- Execution risk related to new product introductions (Momentum) and the speed of adoption by employers and members.
Financial Position
- Healthy liquidity with cash of ~$287.9M and ~$1.1B of debt, resulting in net debt of ~$818.9M.
- robust free cash flow generation ($48.6M in Q1; FY guidance implies solid FY free cash flow potential).
- Strong profitability with GAAP operating margin ~25.1% and adjusted EBITDA margin ~42% in Q1 2026.
- Share repurchases: ~$60M in the quarter with ~$118M remaining on a $300M authorization, signaling disciplined capital allocation.
SWOT Analysis
Strengths
Leading HSA administration platform with large, diversified cash and investment balances
Strong gross margins and high operating leverage; Adjusted EBITDA margin ~42% (Q1 2026)