- Revenue Growth: Revenue increased 9% to $656.7 million, with custodial revenue surging 15% to $159.9 million.
- Gross Profit Margin: Gross profit reached 71% of revenue, a record, driven by lower service costs and fraud reserve releases.
- Adjusted EBITDA: Grew 18% to $151.1 million, achieving a 46% margin, near an all-time high.
- HSA Asset Expansion: HSA assets rose 12% to $33 billion, with legislative changes enabling 3–4 million additional HSA-eligible families.
- Mobile Adoption: The secure mobile app achieved 1.7 million downloads, enhancing user engagement and digital access.
Key Drivers of Growth
The growth in HSAs is attributed to the company's focus on serving customers well, improving product experience, and leveraging technology, with HSAs growing 6% and HSA assets increasing 12% to $33 billion. Invested assets climbed 23% to $16.1 billion, driven by the company's efforts to increase adoption through marketing and plan partnerships.
Legislative Wins and Market Opportunities
The recent budget bill passed in July significantly expanded HSA eligibility, allowing direct primary care arrangements and low-cost telehealth before deductibles, and making bronze and catastrophic plans eligible for HSAs starting in 2026. This could enable 3 to 4 million more families to access HSAs, providing a significant market opportunity for HealthEquity.
Valuation and Outlook
With a P/E Ratio of 56.7, P/B Ratio of 3.85, and EV/EBITDA of 19.74, the market is pricing in significant growth expectations. Analysts estimate next year's revenue growth at 9.3%. The company's focus on improving the member experience, investing in technology, and expanding HSA eligibility positions it for continued growth.
Investment Strategy and Risk Management
The company plans to repurchase shares and reduce revolver borrowings, while maintaining ample capacity for acquisitions. HealthEquity is also hedging its rate exposure and expects to benefit from rising healthcare costs driving HSA adoption.