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Summary

  • HQY, provider of a platform designed to assist in the management of health savings accounts, plans to raise $100.1 million in its upcoming IPO.
  • We rate this IPO a Buy as HQY has seen burgeoning revenues over the past several years; and should continue to do so as more Americans adopt HSAs.
  • HQY’s impressive management with cross-sectoral experience also encourages us.

HealthEquity, Inc (Pending:HQY), provider of a platform designed to assist in the management of health savings accounts, plans to raise $100.1 million in its upcoming IPO.

The Draper, Utah-based firm will offer 9.1 million shares at an expected price range of $10-$12 per share. If the IPO can reach the midpoint of that range at $11 per share, HQY will command a market value of $625 million.

Filing, Underwriting

HQY filed on June 10, 2014

Lead Underwriters: J.P. Morgan Securities LLC; Wells Fargo Securities, LLC

Underwriters: Raymond James and Associates, Inc; Robert W. Baird & Co. Incorporated; SunTrust Robinson Humphrey, Inc

Summary: Assisting Consumers In Saving and Spending Wisely for Healthcare

HQY provides a technology platform designed to assist consumers in saving and spending wisely for healthcare through tax-advantaged accounts. The platform allows customers to compare treatment options, pay healthcare bills, and access their savings, among other functions.

The platform is centered around Health Savings Accounts (HSAs), and is currently the integrated HSA system for over 25,000 employer clients as well as 28 Blue Cross and Blue Shield plans. Major employer clients include Google (NASDAQ:GOOG) (NASDAQ:GOOGL), eBay (NASDAQ:EBAY), American Express (NYSE:AXP), and Kohl's (NYSE:KSS).

As of June 30, 2014, HQY had over 1.0 million HSAs managed on its platform, which represented a total of over 2.3 million individuals. The firm added over 300,000 accounts representing over 700,000 individuals in the year ended January 31, 2014.

HQY has consistently expanded the functionality of its platform in order to attract and retain members. The platform now offers investment advice specific to HSAs, integrated price transparency tools, integrated functionality with employers' health plans, and integrated enrollment on state health insurance exchanges.

Valuation

HQY offers the following figures in its S-1 balance sheet for the three months ended April 30, 2014:

Revenue: $20,231,000.00

Net Income: $2,718,000.00

Total Assets: $55,922,000.00

Total Liabilities: $11,581,000.00

Stockholders' Equity: $1,648,000.00

Direct Competition From Major HSA Custodians

HQY faces direct competition from other HSA custodians, some of which have access to far greater financial resources than HQY.

These competitors include banks, such as JPMorgan Chase & Co. (NYSE:JPM), Webster Bank (NYSE:WBS), and Optum Bank, as well as non-bank custodians approved by the U.S. Treasury, such as Payflex Systems USA.

HQY hopes to capitalize on the growing number of HSAs in the United States; the 4.9 million accounts open in December 2009 had grown to 10.7 million in December 2013. Consumer Driven Market Report estimates that the number of individuals with HSAs will grow to 50 million by 2020.

Management: Footholds in Business and Government

President and CEO Jon Kessler has served in his current positions since February 2014 and as a director since March 2009.

He previously served as the firm's executive chairman. He has also served as the chairman of Healthcharge Inc. since 2008. Mr. Kessler previously founded WageWorks, Inc. (NYSE:WAGE), and served as the firm's CEO from 2000 until 2007. He also worked as a benefits taxation specialist at Arthur Andersen, LLP and as a senior economist in Washington, D.C. specializing in employee benefits and environmental taxation during the Clinton and Bush (Sr.) administrations.

Mr. Kessler received a B.A. from George Washington University in International Affairs and an M.P.P. from Harvard University's John F. Kennedy School of Government.

Conclusion: Investors Should Take Care and Buy In

We rate this IPO a buy and suggest investors strongly consider buying this exciting company in the proposed range.

HQY has become profitable and has seen burgeoning revenues over the past several years, posting a total revenue of $62.0 million for the year ended January 31, 2014 after a total revenue of $46.1 million for the previous year.

The firm should continue to grow as more and more Americans adopt HSAs.

HQY may benefit from the individual mandate of the Patient Protection and Affordable Care Act, as the relatively low premiums associated with HSAs will likely prove attractive to individuals who are now required to purchase healthcare.

HQY's impressive management with cross-sectoral experience also encourages us.

We invite readers wishing to join the discussion on IPOs to click the +FOLLOW button above the title of this article -- and those looking for the latest developments to click +Get real-time alerts.

Note: As a large sample of information sources does not yet exist for HQY, we have taken much of the information for this article directly from HQY's S-1 filing.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in HQY over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Investors Should Take Care To Get A Piece Of Upcoming HealthEquity IPO