HSA Contradictions in Q2 2026: Fraud Costs, Macroeconomic Impact, and Member Retention

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 02, 2025

Financials Results

• Revenue: $327.6M, up 9% YOY
• EPS: $0.68 GAAP EPS ($1.08 non-GAAP); YOY change not disclosed
• Gross Margin: 71%, up from 68% in the prior year

Guidance:

• FY26 revenue expected at $1.29B–$1.31B.
• FY26 GAAP EPS $2.11–$2.28; non-GAAP EPS $3.74–$3.91.
• FY26 adjusted EBITDA $540M–$560M.
• Average FY26 HSA cash yield ~3.5%; $1.2B Treasury forwards locked at just over 4% on 5Y; ~+75 bps spread on enhanced deposits.
• Ongoing investments in security/mobile and marketing for ACA Bronze HSA expansion; fraud costs targeted to ~1 bp of assets exiting FY26.
• Assumes ~25% tax rate and ~88M diluted shares; includes share repurchases and potential revolver paydown.
• Liquidity maintained for potential portfolio acquisitions.

Business Commentary:

• Revenue and Financial Performance:
• HealthEquity reported a second quarter fiscal 2026 revenue increase of 9% year over year, with adjusted EBITDA up 18% to a record quarterly company high.

• Revenue growth was driven by strong year over year growth across key metrics, including custodial revenue up 15% and interchange revenue up 8%.

• Account and Asset Growth:

• The company saw a 5% increase in total accounts, with HSA assets growing by 12% year over year, reaching over $33,000,000,000.

• This growth is attributed to the opening of 163,000 new HSAs from sales and improved engagement with existing clients.

• Budget Bill Impact and Expansion Opportunities:

• The budget bill passed in July expanded market access for HSAs by allowing Direct Primary Care (DPC) arrangements and low-cost telemedicine before deductibles, impacting over 7,000,000 Bronze and Catastrophic ACA plan enrollees.

• These changes are expected to drive more HSA adoption, with potential additional 3,000,000 to 4,000,000 families gaining access to HSA benefits.

• Investment and Fraud Prevention:

• HealthEquity invested in fraud prevention and detection capabilities, reducing direct fraud service costs to near their goal of one basis point of total HSA assets per year.
• The company's AI-enhanced expedited claims and secure mobile experience helped streamline member interactions and reduced processing costs.

Sentiment Analysis:

• “Team again delivered strong year over year growth and margin expansion… revenue up 9%, net income up 67%, adjusted EBITDA up 18%.” “Gross margin of 71%… up from 68% last year.” “Adjusted EBITDA… 46%, up from 43%.” “We expect revenue… $1.29B to $1.31B… GAAP EPS $2.11 to $2.28… adjusted EBITDA $540M to $560M.” Management highlighted record profitability, raised FY26 outlook, and continued derisking of custodial yields.

Q&A:

• Question from Brian Tanquilut (Jefferies): What milestones or sticking points remain to reach your fraud-cost goal over the next few quarters?
  Response: No single milestone; continued rollout of secure mobile app and passkey is reducing fraud sequentially toward the 1 bp target.

• Question from Brian Tanquilut (Jefferies): Any near-term legislative catalysts to expand HSA access (e.g., Medicare)?
  Response: Largest HSA expansion in decades already passed; Medicare wasn’t included but remains a future target as opportunities arise.

• Question from Greg Peters (Raymond James): Does the ~4% rate lock apply to 2026–2027 maturities, and how does it relate to enhanced vs. basic placements?
  Response: Locked ~4% on 5Y Treasuries for basic-rate maturities (Jan-26 to Jan-27); rolling to enhanced typically adds ~75 bps spread.

• Question from Greg Peters (Raymond James): Any timing nuances behind Q2 net new HSA/AUM growth?
  Response: No unusual timing; focus shifts to execution, marketing, and onboarding to capture the expanded HSA opportunity.

• Question from Scott Schoenhaus (KeyBanc): What’s the ceiling for app adoption and expected margin impact?
  Response: Goal is higher active engagement via mobile and passkey; not expecting direct gross-margin uplift purely from app penetration.

• Question from George Hill (Deutsche Bank): Why outperformance despite softer employment trends?
  Response: Execution, better service and retention, and sales momentum offset macro softness, supporting raised guidance.

• Question from Alan Lutz (Bank of America): How fast is the HSA market growing and can growth sustain with OBDD changes?
  Response: Market expanding via policy; growth will also come from increased contributions/investing through higher engagement, not just new accounts.

• Question from Mark Marcon (Baird): What drove slower HSA cash growth—more investing vs. higher spend?
  Response: Both: faster investor growth and higher on-platform spend; balances are also seasonal and lumpy.

• Question from David Roman (Goldman Sachs): How do premium increases vs. macro headwinds net out for HSA growth?
  Response: Rising premiums strengthen the HSA value proposition; engagement and plan design should drive growth beyond macro swings.

• Question from Steven Valiquette (Mizuho Securities): What limits the pace of adding more rate hedges?
  Response: No counterparty limits; they’re legging in via highly liquid Treasury forwards, dollar-cost averaging over time.

• Question from David Larson (BTIG): What lifted service gross margin, and how sensitive is custodial revenue to rate declines?
  Response: Efficiency and early AI automation reduced service costs; rate impacts depend on placement-day 5Y levels, with hedges mitigating volatility.

• Question from Stan Berenstain (Wells Fargo Securities): How much of the 7M ACA Bronze lives can you capture, and will you disclose ACA HSAs separately?
  Response: Targeting millions of eligible households via partners and marketing; will not break out ACA HSAs separately.

• Question from Matthew Inglis (RBC Capital Markets): Magnitude of AI-driven cost benefits and next areas to automate?
  Response: Early benefits from claims automation; biggest opportunity is contact center automation, with broader AI to speed development and operations.