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High Deductible Spending is Hurting Americans – HealthEquity is Relieving the Pain

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HealthEquity (HQY) delivers a unique value proposition for consumers by providing triple tax-free health savings accounts (HSA), lower health premiums and a fully portable application. The robust service platform has given HealthEquity a diverse revenue stream, engaging consumers and fostering long term relationships. The company has been able to sustain a 98.3% HSA member retention rate amongst its customers. The average account balance is $1,656 with less than 3% of members currently investing. HSA members who invest have 9x higher balances than those who don’t. The company is in its early innings to monetize its core customers and has the base to scale rapidly.

HealthEquity has three primary sources of revenue: account fees, custodial fees and card fees. Each of these streams have tremendous growth potential as medical expenses continue to rise. Since 2013 assets under management (AUM) and revenue have increased 42% and 38%, respectively. More impressive is that adjusted EBITDA has grown over 50% year over year as the company continues to expand its robust line of services. The beauty of a cloud based platform is the relatively low levels of reinvestment required to expand its customer base. HealthEquity can expand its network partnerships and have profits increase significantly due to the high degree of operating leverage. Being first to market with leading technology gives HealthEquity a competitive edge against newcomers.

In the first quarter, over 85% of the AUM for HealthEquity was held in cash. As balances begin increasing we can expect customers to begin utilizing HealthEquity’s investment advisory services, which will eventually increase its revenue stream. With no long term debt and being cash rich from its recent IPO, this technology company has a leg up versus regional banks in the same field. If you are looking for a growth stock in healthcare technology then HealthEquity can be the ideal company for your portfolio. With its high growth potential and solid relationships, investors can expect positive news from the company this month as it leads the health savings market.

Health Savings Accounts create a new way for Americans to save money. HSAs have been instrumental to cutting medical expenses for the average family, while also increasing their monthly cash flow. The closest comparison for opening a health savings account can be an individual IRA or college fund, where families are investing for the long term. The lack of exposure to HSAs has been challenging for banking institutions, but provides an upper hand to a technology company like HealthEquity. For investors looking for growth, HealthEquity offers a fast growing consumer portfolio that is outpacing traditional banks and digital health startups. HealthEquity does not have many competitors in their field.

There are only two health savings companies in the public markets that an investor can potentially invest in. First, HealthEquity Inc. (HQY), a leader in managing health care accounts for Americans by offering a variety of solutions to managing flex spending accounts, paying bills, comparing treatments and also an online-only investment advisory service.  Then there is Webster Financial (WBS), the nation’s largest provider of health savings accounts. This regional bank recently acquired J.P. Morgan Chase’s (JPM) health savings account business. Sahm Adrangi’s Kerrisdale Capital recently took an activist stake in Webster hoping to spin-off the health savings account segment. Kerrisdale believes the HSA segment can be a full-fledged bank using Webster’s back office, but we think there may be too many regulatory hurdles to overcome.

The health savings market has been consistently growing due to uncertainty from the Affordable Care Act and the Cadillac tax that will be forced upon employers. When it comes to health savings, very few banks across the country publicize their HSA options to consumers and employers. This lack of marketing has given HealthEquity an advantage and will be worth watching the next few quarters.

About HealthEquity Inc.

HealthEquity Inc. was founded in 2002 as one of the country’s largest dedicated health savings custodians. The company was first to market with an innovative cloud solution to help build health savings, while controlling healthcare costs. As of the recent quarter, HealthEquity is helping 3.2 million consumers manage save and spend healthcare dollars. With Network Partners consisting of over 270 large employers and 70 health plans that include the likes of Google, Anthem, Roche, and Blue Cross Blue Shield.

HealthEquity will be releasing its quarterly earnings on September 8th, 2015. Also the President and CEO, Jon Kessler, and CFO, Darcy Mott, have also announced they will be presenting at three investor conferences this month: Wells Fargo 2015 Healthcare Conference September 9th, Robert W. Baird 2015 Healthcare Conference September 10th, Morgan Stanley 2015 Healthcare Conference on September 18th, 2015.

At the time of this commentary Vijar Kohli, his family and/or clients of Golden Door Asset Management held no positions in the stocks mentioned above — although positions can change at any time.

Vijar Kohli is the Portfolio Manager of Golden Door Asset Management, LLC,a registered investment advisor specializing in individual and high net worth individual private wealth management. For more information on investing with Golden Door Asset Management, LLC please visit our website, Golden Door Asset Management, LLC is a New Jersey LLC, with its principal office located in Manalapan, NJ.

Vijar Kohli is also the publisher of CareStocks, a newsletter focusing in on healthcare services, medical equipment, technology and real estate stocks. More information to the newsletter can be found at

© 2015 Golden Door Asset Management, LLC. All rights reserved.

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