HealthEquity's Q3 2026: Contradictions Emerge on HSA Enrollment Strategy, AI's Impact on Operations, and Market Competition

Date of Call: December 3, 2025

Financials Results

• Revenue: $322.2M, up 7% YOY (Service $120.3M, +1% YOY; Custodial $159.1M, +13% YOY; Interchange $42.8M, +6% YOY)
• EPS: $0.59 per diluted share (GAAP), net income $51.7M, up 806% YOY; non-GAAP net income $87.7M or $1.01 per share, up 29% YOY
• Gross Margin: 71% (Gross profit $228.1M), up from 66% in the prior year
• Operating Margin: Adjusted EBITDA margin 44%, up 460 bps YOY (Adjusted EBITDA $141.8M, up 20% YOY)

Guidance:

• Fiscal 2026 revenue expected $1.302B–$1.312B.
• GAAP net income $197M–$205M; GAAP EPS $2.24–$2.33.
• Non-GAAP net income $341M–$348M; non-GAAP EPS $3.87–$3.95 (assumes ~88M shares).
• Adjusted EBITDA $555M–$565M.
• Average HSA cash yield ~3.54% for fiscal '26 and additional interest-rate hedges possible.
• Plan to continue share repurchases (≈$259M authorization remaining) and opportunistic M&A.

Business Commentary:

• Revenue and Earnings Growth:
• HealthEquity reported revenue growth of 7% for Q3 2026, with net income up 806% year-on-year.

• The growth was driven by strong gross margin expansion, with gross margin reaching 71%, and adjusted EBITDA margin increasing to 44%.

• HSA Asset Expansion:

• 
• The company saw a 6% increase in HSA accounts and a 15% rise in HSA assets, with more than 10 million HSA accounts now.

• The expansion was due to new employer clients, increased HSA adoption, and contributions from new retail enrollees.

• Member Engagement and Retention:

• HealthEquity saw a significant increase in app downloads, reaching nearly 400,000 in October alone, indicating higher member engagement and retention.

• This trend is attributed to the implementation of enhanced security features and a focus on creating a seamless, engaging mobile experience.

• Investment in AI and Technology:

• The company is investing in AI and technology, with a focus on service improvements through AI-driven enhancements such as fraud prevention and automation.
• These investments aim to increase operational efficiency and improve member satisfaction, while also maintaining strong security measures.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'continued strong fiscal 2026 results' with revenue +7% YOY, adjusted EBITDA +20% and margin expansion; they raised FY2026 guidance, emphasized product/AI/security investments and said they are 'optimistic about new account growth' entering Q4.

Q&A:

• Question from Stanislav Berenshteyn (Wells Fargo Securities): On the direct HSA enrollment platform being set up for qualified ACA members, what are your marketing plans there? And how should we think about the progression of your sales and marketing expenses over the coming quarters pertaining to that? And regarding your forward contracts, do you plan to derisk any longer duration assets beyond August 2027?
  Response: They are ramping retail marketing into Q4—including a $25 new-account match and partner-integrated campaigns—while modestly extending interest-rate hedges further out but keeping the maturity concentration front-loaded.

• Question from Allen Lutz (BofA Securities): For Bronze exchange plans, what split do you expect between integrated plan partners versus stand-alone HealthEquity direct growth, and is there material opportunity for increasing the minimum threshold before customers can invest?
  Response: They will continue to rely primarily on partner distribution while pushing an improved retail enrollment flow for direct sign-ups; minimum investing thresholds are generally set by employers, and the priority is educating members to boost investing participation.

• Question from George Hill (Deutsche Bank): Are employer sponsors accelerating shifts toward HSAs in 2026 given buy-downs, and are there large custodial opportunities like recent high-profile contributions to create new markets?
  Response: Management expects affordability conversations to drive greater HSA adoption in 2026 and views larger custodial/market opportunities positively while emphasizing active policy engagement in Washington.

• Question from Mark Marcon (Robert W. Baird): What percentage of cash is in enhanced yield today and where will it be by Jan '27/Aug '27? Also, how much further can margin efficiency improve and are you worried about pricing pressure from employers?
  Response: They began the year roughly 50/50 basic/enhanced, target ~60/40 next year (Q4 update forthcoming), and expect continued margin improvement via AI/automation without expecting material near-term pricing erosion from clients.

• Question from Brian Tanquilut (Jefferies): Are you seeing shifts in competitive pricing or behavior as you expand to smaller employers and exchange accounts, and how will scale/product breadth sustain margins?
  Response: Competition exists, but the differentiated 'save‑spend‑invest' flywheel, marketplace capability, high retention and partner integrations support sustained share and margin resilience.

• Question from Sean Dodge (BMO Capital Markets): What percent of service cost structure is addressable by AI/automation and how should we think about the long-term savings opportunity versus fixed tech/infrastructure spend?
  Response: AI applies across member services, client services and back-office—initial focus on member services to reduce call volume—and management expects material efficiency upside over time though it's early innings.

• Question from Scott Schoenhaus (KeyBanc): You saw ~400k app downloads in October; how does app adoption (and passkey) impact new and legacy clients and contribute to margin expansion?
  Response: Passkey-driven app adoption reduces top call drivers (e.g., password resets), improves member engagement and lowers cost-to-serve, though there isn't a direct one-to-one margin attribution stated.

• Question from Steven Valiquette (Mizuho): Given macro uncertainty and soft labor markets, are you less worried about new account growth and how does employer demand to control costs offset macro weakness?
  Response: Macro risks persist, but employer affordability needs plus retail/bronze expansion offset those risks and management remains optimistic about Q4 pipeline and retention.

• Question from Charles Peters (Raymond James): Any update on the M&A environment for HSA portfolios and how are you thinking about capital allocation in fiscal '27?
  Response: Capital allocation remains unchanged—priorities are share repurchases, debt paydown and disciplined, opportunistic M&A with portfolio acquisitions viewed as attractive.

• Question from Unknown Analyst (JPMorgan - Destiny for Alexei): You mentioned encouraging early adoption of the GLP-1 program; what's the revenue-sharing opportunity and is it material?
  Response: GLP-1 marketplace adoption is encouraging but currently immaterial to results; the model may evolve into recurring admin fees and affiliate/marketing arrangements over time.

• Question from David Larsen (BTIG): Can you size the TAM expansion from the Bronze product opportunity (~7M Bronze enrollees) and can HSA dollars be used to pay premiums?
  Response: Bronze-to-HSA conversion is a meaningful but uncertain TAM expansion (estimates vary; industry reports ~1.6M potential new HSAs), and HSA dollars generally cannot pay premiums except in limited cases (unemployed or COBRA).

• Question from David Roman (Goldman Sachs): How should we think about HSA cash repricing in 2027 versus current yields and the impact on revenue given much will reprice higher?
  Response: They expect HSA cash yields to reprice higher; some repricings are hedged for visibility, but full benefit will accrue over time and additional yield guidance will be provided at JPMorgan.

Contradiction Point 1

HSA Enrollment Strategy and Market Conditions

It highlights differing perspectives on the enrollment strategy and market conditions, which could impact revenue and growth expectations.

What are your marketing plans for the direct HSA enrollment platform for qualified ACA members? - Stanislav Berenshteyn (Wells Fargo Securities, LLC, Research Division)

2026Q3: We call it the new retail enrollment flow, ensuring a seamless and frictionless experience. We offer a $25 match for new accounts. We're going to market with integrated plan partners. - Scott Cutler(CEO, President & Director)

Can you address the HSA selling slowdown and provide the market's future outlook? - George Robert Hill (Deutsche Bank)

2026Q1: The decrease in new HSA sales is due to macroeconomic conditions affecting job creation and slower GDP growth, but there's optimism about the enterprise pipeline. - Scott R. Cutler(CEO, President & Director)

Contradiction Point 2

AI and Operational Efficiency

It involves contrasting expectations regarding the impact of AI on operational efficiency and cost savings, which are crucial for financial performance.

What percentage of your cost structure can be reduced through new capabilities or enhancements? What is the risk-to-return ratio associated with AI investments? - Sean Dodge (BMO Capital Markets Equity Research)

2026Q3: AI is broad across our business, impacting member services, client services, and back-office operations. It enhances efficiency and experience, with significant potential for further gains. - Scott Cutler(CEO, President & Director)

What is the impact of AI chat and agent support on service costs? - Unidentified Analyst (RBC)

2026Q1: AI is automating claims adjudication, reducing processing costs and enhancing member satisfaction. More self-service options are being introduced to lower service costs over time. - Scott R. Cutler(CEO, President & Director)

Contradiction Point 3

HSA Market Demand and Competition

It reveals differing views on HSA market demand and competitive positioning, which are essential for strategic planning and investor expectations.

Have you noticed changes in pricing or competitive behavior as you expand into smaller employers and new exchange-based accounts? - Brian Tanquilut (Jefferies LLC, Research Division)

2026Q3: We're competitive, but we differentiate through our comprehensive strategy on better save, spend, and invest. We focus on efficiency and retention with high retention rates. The market is competitive, but our quality service drives strong retention, and we're well-positioned for future growth. - Scott Cutler(CEO, President & Director)

What's the growth rate of custodial cash compared to HSA investment cash, and how do they affect unit economics? - Unidentified Analyst (Goldman Sachs)

2026Q1: The vast majority of account holders would benefit with median incomes around $72,000. Plan design changes could drive higher adoption, especially with employer contributions supporting lower-income employees. - Stephen D. Neeleman(Founder & Vice Chairman)

Contradiction Point 4

AI and Member Engagement

It involves differing statements on the strategy and milestones regarding AI's impact on member engagement, which affects operational efficiency and customer experience.

What percentage of your cost structure can be addressed by new capabilities or enhancements? What is the risk-to-return ratio of AI investments? - Sean Dodge (BMO Capital Markets Equity Research)

2026Q3: Over three-quarters of our members now use our digital platform, including AI-powered tools for better engagement. Now, we're rolling out automated chat capabilities for 24/7 support. - Scott Cutler(CEO, President & Director)

Can you explain the 67% to 71% expense growth guidance for the fiscal year and the key factors driving this trend? - Unidentified Analyst (BofA Securities)

2026Q1: We continue to enhance our AI capabilities across our platform. We are improving our ability to predict and prevent fraud and adding new self-service options for members to lower our service costs. - Scott R. Cutler(CEO, President & Director)

Contradiction Point 5

HSA Fraud and Security Enhancements

It involves differing statements on the strategy and milestones regarding HSA fraud prevention, which impacts the company's security and member trust.

What is the expected contribution split between plan partners and standalone HealthEquity's direct efforts, and will the latter be material? - Allen Lutz (BofA Securities, Research Division)

2026Q3: We continue to make great progress in reducing our fraud and cybercrime exposure, with more than 20 million passkey-enabled mobile bank accounts. - Scott Cutler(CEO, President & Director)

How is HSA fraud impacting your business? What milestones or challenges remain to normalize fraud costs? - Brian Tanquilut (Jefferies)

2026Q2: The strategy is to drive a member-first secure mobile experience with more secure authentication, such as passkey. The focus is on improving member engagement and security. No specific milestones, but progress is made sequentially in fraud numbers. - Scott Cutler(President and CEO)