HealthEquity, Inc. (NASDAQ:HQY) Q3 2019 Earnings Conference Call Transcript

Dec 05, 2018 • 05:00 pm ET


HealthEquity, Inc. (NASDAQ:HQY) Q3 2019 Earnings Conference Call Transcript


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Welcome to HealthEquity's Third Quarter 2019 Earnings Conference Call. Please note that this event is being recorded.

I would now like to turn the conference over to Richard Putnam, IR. Go ahead, Mr. Putnam.

Richard Putnam

Thank you, Hailey. Good afternoon, everyone. We wish you a happy holidays and welcome to HealthEquity's third quarter earnings conference call. With me today, we have Jon Kessler, President and CEO; Steve Neeleman, Founder and Vice Chair; Darcy Mott, our EVP and CFO; and Tyson Murdock, our SVP and Corporate Controller.

Before I turn the call over to Jon, I have two quick reminders. First, there is a copy of today's earnings release and accompanying financial information posted on our IR website, which is

(Forward-Looking Cautionary Statements)

And with that out of the way, I'll turn the call over to Mr. Jon Kessler.

Jon Kessler

Well done, Richard, thank you. And thanks, everyone else, for joining our third quarter fiscal 2019 earnings call. I have a few prepared remarks on the quarter, and Steve will then comment on progress in the retirement channel partnerships that we have been building, and Darcy will review the numbers.

The HealthEquity team delivered an encore-worthy performance -- I'm not sure I know what that means, but it's what it says -- in the third quarter across the key metrics that drive the business. Revenue of $70.5 million, it was an increase of 24% year-over-year. Adjusted EBITDA of $29.7 million was up an even larger 40% year-over-year, generating significant margin expansion. Custodial assets at the end of the third quarter surpassed $7.1 billion, up 27% from a year ago even in the face of broad market declines during the period. Total HSA members at quarter's end reached 3.7 million, up 22% year-over-year and active HSA members were 3.0 million, up 17% from the third quarter of last year.

Turning to sales. The team opened 119,000 new HSAs in the quarter, 9% more than it did during the same period a year ago. For the first three quarters of fiscal 2019, the team has opened more than 333,000 new HSAs, and that excludes portfolio acquisitions and also up 9% year-over-year and a record. As many of you know, however, our biggest quarter for new accounts is Q4 and we're working hard to deliver a strong one.

Custodial assets grew by $59 million during the quarter, which ended October 31. As you may recall, this was a period where the value of broad categories of assets fell. Notwithstanding market volatility though, HealthEquity continues to grow the share of members investing for the long-term. During the third quarter, custodial invested assets grew 53% and the number of investing HSA members grew 56% year-over-year. So the team has delivered strong year-to-date results in fiscal 2019.

And because we believe HealthEquity is still in the early stages of its growth, we've made some significant investments in leadership count. Last quarter, we introduced Ted Bloomberg, HealthEquity's COO. And today, I have the pleasure to announce the addition of Larry