HealthEquity, Inc. Q2 FY2026 earnings call

• Financials: Q2 revenue up 9%, net income up 67%, Adjusted EBITDA up 18% to an all-time quarterly high with 71% gross margin. - Account Growth: HSAs grew 6%, CDB accounts grew 4%, total accounts up 5%, HSA assets up 12%. 17 million total accounts, over 10 million HSAs holding over $33 billion in assets. - Macro Environment: Labor market underperforming, but team opened 163,000 new HSAs, with strong enterprise wins and SMB adoption. - AI and Service: Leveraging AI for expedited claims and voice channel automation to enhance member experience and reduce costs. - Fraud Prevention: Reducing fraud through security measures, passkey rollout, and secure mobile experience, aiming for one basis point of total assets in fraud cost per annum. - Legislative Wins: Budget bill in July expanded HSA access, including DPC, telehealth, and ACA exchange eligibility for bronze/catastrophic plans, with efforts to further expand HSA access.

In the second quarter of 2026, HealthEquity saw strong financial performance across segments. Revenue increased 9% year over year. Service revenue was $117.9 million, up 1% year over year. Custodial revenue grew 15% to a record $159.9 million. Interchange revenue grew 8% to $48.1 million. Gross profit was $232.6 million, a record 71% of revenue. HSA accounts grew 6%, CDB accounts grew 4%, driving total accounts up 5%. HSA assets were up 12%, with HSA members who invest growing 10%, invested assets up 23% to $16.1 billion, HSA cash at $17 billion, and average balances of HSA members up 6% year over year. HSA revenue contribution was significant due to growth in accounts, assets, and investor participation.

Fiscal 2026 guidance: Revenue expected in range $1.29 - $1.31 billion. GAAP net income range $185 million - $200 million or $2.11 - $2.28 per share. Non-GAAP net income between $329 million and $344 million or $3.74 and $3.91 per share. Adjusted EBITDA expected between $540 million and $560 million. Also, plans for share repurchases and debt paydowns.

• Market Uncertainties: Labor market underperformance and macroeconomic conditions could impact growth. - Interest Rate Fluctuations: Impact on HSA cash placement rates and custodial revenue. - Fraud Risks: Evolving fraud threats despite prevention efforts, though sequential fraud reduction seen.

Q: Brian Tanquilut asked about fraud milestones and future legislative opportunities for HSA access.

A: Scott Cutler stated progress on member-first secure mobile experience and passkey rollout, and excitement about the large HSA expansion in the budget bill, with Steve Neeleman mentioning continuing efforts for Medicare HSA access.

Q: Greg Peters inquired about rate locks and HSA net new accounts.

A: James Lucania explained rate locking on basic rates contracts and Scott Cutler discussed strong enterprise wins and execution against market opportunity.

Q: Scott Schoenhaus asked about app adoption ceiling and incremental margin.

A: Scott Cutler said app adoption drives engagement but not incremental gross margin improvement, focusing on active engaged members.

Q: George Hill questioned macro disconnect and outperformance.

A: Scott Cutler discussed macro labor market challenges but positive execution on sales pipeline and service improvement.

Q: Alan Lutz asked about market growth and HSA engagement.

A: Scott Cutler talked about market expansion from legislative wins, engagement metrics, and potential for higher contributions and investor rates.

Q: Mark Marcon asked about HSA cash dip and growth.

A: James Lucania said it's due to investment behavior, spending, and faster interchange growth, with lumpy cash inflows.

Q: David Roman asked about macro and HSA enrollment.

A: Scott Cutler said HSA value proposition strengthens in challenging macro, focusing on plan design and member engagement.

Q: Steven Valiquette asked about forward contracts and hedging.

A: James Lucania explained treasury forward curves and ongoing hedging efforts.

Q: David Larsen asked about AI cost benefits and stock impact.

A: Scott Cutler discussed AI as early in the journey, with cost benefits from claims automation and more opportunities in service center.

Q: Stan Berenshteyn asked about ACA opportunity and breakout.

A: Steve Neeleman talked about 3-4 million household opportunity from ACA expansion, not breaking out ACA lives separately.

Q: Matthew Ingalls asked about AI cost benefits and automation.

A: Scott Cutler discussed AI as beginning of journey, with cost benefits from claims automation and more opportunities in service center and product development.