HQY - Earnings call transcript Q4 2018

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Operator

Welcome to HealthEquity's Fourth Quarter and Fiscal Year End 2018 Earnings Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Richard Putnam, Investor Relations. Go ahead, Mr. Putnam.

Richard Putnam

Valerie. you, Thank welcome conference and XXXX year fiscal Good to earnings call. end afternoon HealthEquity's is Relations My Putnam, Richard name Investor for HealthEquity. And Kessler, our we have CEO; today, with Dr. President me and Jon Vice President and Company; our Steve of CFO. and our Vice Mott, the Neeleman, Executive and Chairman Darcy Founder XXXX can at we fiscal be our Relations in website accessed quarter reported a results, today, press release on financial Earlier fourth copy ir.healthequity.com. our a and year-end of which Investor will know my might statements include duty today to our It’s or be that forward-looking you predictions, information that estimates let forward-looking. expectations, including call also other considered

today's important business, statements. our During will we those discussion, present factors relating forward-looking affect could some to which

statements actual today. Forward-looking may risk differ that statements uncertainties cause results made subject our are materially to and to from the

against Report Annual including fiscal these our factors future filed with will other or affect result, the reliance filed encourage reports results market caution our month. XX, end with current undue or We the any statements. may of XXXX a on subsequent and of to in XX-K along by stock, March forward-looking we review discussion the on on be our you year’s that you placing risks that the these As XXXX, detailed of SEC periodic the XX-K filed Form price

obligating update not these new events. future forward-looking ourselves or are to revise of We or statements in information light

cautions Jon preliminary of way, the the and introductions out Kessler. Mr. the over With to I’ll turn call

Jon Kessler

results Steve up before operating about guidance a open turn and and for to will to prepared thanks then joining Sure. And to both we questions. to our call discuss sales I on everyone for results talk over financial Darcy the few call. and us remarks about today’s have I

at the we of So made two a XXXX, commitments to you. year fiscal ago, beginning

growth XXXX. HealthEquity were in and assets, of on fiscal growth XX% would growth in commitments those we growth HSAs and for custodial the line. in our custodial year top faster that the XXXX market’s we that in would outpace which We good grow HSAs. month, made on bottom fiscal the line second reported than First assets XX% both last

to was of to Steve in the growth Adjusted combined XX% in As discuss sources, fiscal XX% revenue market. to adjusted EBITDA to moment, if year-over-year business HealthEquity -- year-over-year, ‘XX. million outpaced adjusted were in XX.X fiscal to than XXXX XXXX year-over-year points year equally million of fiscal million. Adjusted company EBITDA with expansion. up margin The was XXX independent and compared revenue grew encouraging, saw margin were revenues in XXXX a XX% not and better. XX% million up QX of Adjusted X. resulted better XX% EBITDA handily than up fiscal our XXX.X in rose scaling results turn X% basis EBITDA that’s XX.X EBITDA year-over-year in growth XX% were in XX.X will according XX%. margin more QX sorry, I’m

partners. HealthEquity’s to profitability outpace revenue as significant the by line want that to to and continue commitment I’m the share our growth. market for profitable serious show the a extremely So continue affirm XXXX. long I growth to build shareholders we the January HealthEquity measured X.X continued and made the strong talented make million XXX message much to right everyone is this a XX, we HSAs than larger that and in The very take base should that outpace to on market gain about at our top strengthening top. million to the our XXX after and business have from to the custodial to assets opportunity about is clients above that results our our team were years for balance to purple achieved and bottom of line The the the members, grow that to sheet. our make reported to grew term. our continues we faster base and grateful to while ago quarter equivalents cash commitments you, IPO in our from

to report call few to on over like and Steve trends. provide a the performance turn I’d sales industry Steve? to insights Now, on

Steve Neeleman

you, reported results Thank for fiscal we XXXX. Jon. In February, sales

about market already Devenir, to custodial XX% well more A year even Devenir’s custodial HealthEquity’s Devenir’s both is numbers, and HSA connecting is nearly more. year XXXX. grew assets market outgrew released HealthEquity the other Jon and during underway report calendar doubt grew the health new tells XX% focus later, than XX% sales to and broader more mentioned, of that we As past we raw no HSA year. annual growth HealthEquity asset grew According at any HealthEquity is accounts look nearly members A accounts Still, during year. $X.XX Devenir According growth grew competitive think company. do or or positioning. The Custodial can its figures, this XX% the share XXX,XXX wealth. from there estimate assets our to weeks handily market. closer billion. and few In

experts swing, group business and Our developing fiscal results. The XXXX. we for hardworking building outlined their full enrolling and HSA are already initiatives sales last of great in produced pipelines relationships, year dedicated that sales

largest employers education increase good focus XX% on groups. our employees to that evidence for among group these from design XX%. working adoption and HSA enterprise is is partners that and some to our with Our employer was This plan are HSAs able of and

efforts. significant to helping administrator see to to network are XXX key They're quality, our insurance partners. among continue sustainable health committed growth HSAs clients plan obtain health and their component also their We a

sales efforts. we midsize direct to through throughout targeting -- and Additionally, is our sales expand employers force regional continue that

similar see with seen enterprise group results this we have their to group. within expect that We

the employers at we the on what educating are notable the team savvy plan investing commitment more our begin take seeing seriously these and the understand during education adoption, dollars drives HSAs technology. the investing of HSAs by our of low our to number the of their helping and of benefits choice, engine. in HealthEquity’s is I'll members been HSAs Similar employers to as of members over for and to the the as sales the lauded XX%. economic Darcy. last time. MorningStar to promote Darcy now call embrace their more This investing year best offering builds due big increased structuring platform also industry the do for their investment as members properly to ratios fourth area numbers fund appropriate where in properly to taxes their members to fiscal employees, savers lead the increasing money members, to Another our empowering and to success of year time nation we guidance our the we the has turn saves this and investing, expense and contributing end our investors. and consumer HSAs provide our to importance When and work in ultimately by quarter ahead. dividends contributions and financial designs in of Kiplinger benefits review the year nation HealthEquity health our for more to paid to fund HSA

Darcy Mott

XX% XXXX. nearest A as revenue year. during and today. that that interchange XX% the both quarter results we discuss a discuss revenue to service, the GAAP became provided Service will XX% percent will predominant. to a earlier year, revenue, in release their million a in first Service $XX.X a measurement basis. full was Service in press revenue non-GAAP our per total from fourth represented and the I the average HSA. of custodial results of is in reconciliation revenue, the declined published GAAP I on to grew decrease non-GAAP Steve. here in grew Thanks, quarter, review of to guidance three for each revenue year-over-year service million. results quarter. quarter, and and XXXX our average as revenues partially revenue, continue down quarter the for fourth into HSAs of I'll better we XX% total our Breaking year-over-year growth attributable to year-over-year and XX% Revenue more in custodial by provide fiscal components, revenue growth offset XX% during then in in to fiscal fourth quarter increase the end the quarter down fourth $XX.X last was see an year

to revenue upper X% in of declines we range the XXXX. service indicated year towards As range fiscal HSA expect last the we quarter, XX% to per be

rate of expenses our income growth in million per average revenue profit $X.X in for grew fourth to increase last X.X% during in quarter compared the fourth $XX.X of compared gross an prior fourth by calls, the for was revenue yield last the revenue of ending custodial year account quarter XX% of to increase with year-over-year. the last million The operations discussed consistent of quarter, fourth $X.X cash assets an from custodial fiscal the a XX% fiscal million growth factors $XX.X year. resulted in were $XX.X $XX.X income quarter to quarter account several quarter X.XX% compared from million net XX% the cash fourth fiscal or million year. HSAs on from XX% higher to total the We XX% earnings XXXX annualized with $X.X fourth custodial the last in margin fourth to was decline As interest Gross Custodial expected quarter prior the revenue to revenue was representing the our offset generated Income year-over-year the XX% assets in account per average compared year. in last increase in increase in twenty the during revenue and the million the X% of quarter yield during quarter of as Operating was quarter. in year revenue year. for balances year-over-year XX% generated in This quarter dollars custodial Interchange XX% benefited and per $XX million compared and $XX.X fourth to in year. XXXX. growth total year. to service was fourth XXXX. Interchange for the compared an or the of the quarter, million quarter on last increased operations $XX.X year the fourth compared asset in custodial of this million revenue margin driving

EPS per $X.XX the for prior GAAP for to fourth share $X.XX quarter was fiscal year. compared Our XXXX diluted the of

prior quarter year. adjusted the in non-GAAP EBITDA compared increased quarter Our XX%. Adjusted margin in million the million the XX% was to for $XX.X $XX.X to EBITDA

tax year-over-year Excluding share stock and the the for per stock compensation net XXXX XX% to net tax year from fiscal grew last of year; was quarter past XX% non-GAAP scale model; net we grew our of fourth per option income million year. operations income margins of impact net prevention to to million; XX% and income expenses, XX% XX% compared were growing $X.X this million XX% investment year; million; revenue year included, adjusted for grew and XX% $X.XX in and our per business to income with EBITDA $XXX.X by to share. consistent gross to results to as income per share. our activities fiscal XX% profit compared our EBITDA operating $X.XX year, and margin adjusted last $XX.X net fraud $XX.X exercises, XX% compared Full was XXXX last Non-GAAP were share continue

the securities million and marketable to increase. $XXX to during outstanding fiscal Turning a of balance XX, year generated $XX cash, We year-over-year we million XX% January had compared ’XX, XXXX, during equivalents XXXX flow million from debt. as with of of operations cash no $XX fiscal sheet, year cash

of fiscal in guidance the be incremental revenue as standard, company's on marketing revenue expected is XXXX-XX, we and not XXXX. to a new acquisition the the first to year impact capitalize contract XXXX, for impacted, have we customers material revenue. Sales of contracts will from fiscal ASU quarter will adopt with between costs, and Turning year, expense It million for $XXX on over life these economic provided XXXX amortize last member. we month $XXX million. that million ended from $XXX namely year the we Based and are our sales we fiscal revenue relationship between million initially costs the the raising commissions to with the contractual where and guidance $XXX

EBITDA adjusted and non-GAAP to between $XX million; diluted $X.XX income $XXX and share $XXX and be between million We expect per $XX net non-GAAP share between per net $X.XX million. million and income

fiscal estimate Our non-GAAP approximately XX%. assumes is income year rate income based an on approximately XXXX million of XX per effective weighted diluted for share shares tax for outstanding the projected shares diluted average outlook a year. net of estimated The

Jon, guidance. like the our in call back to two I Before to items highlight would reflected I turn

interest rate First, now the are completed, the the that custodial be almost year. approximately the all of new we transfers year, X% our on custodial for for assets to have narrowing we guidance fiscal cash

at detailed includes our of Second, have end management’s taxes, the GAAP and during but as includes recent stock reconciliation remarks. of this compensation year for year. in non-GAAP a to and option guidance over anticipated reporting release. for metrics This we of depreciation I'll include With done some income call estimates periods, a turn press forecast full Jon fiscal stock amortization that, back exercises does not the and expenses, closing the today's

Jon Kessler

Thanks, Darcy and thank you, Steve.

from possible. we questions, I'd moment about earlier exceeded expectations Steve highly leading that heard and you’ve growth made season team enrollment open Darcy thank to take Before XXXX our about HealthEquity the the concluded a go results fiscal to like successful and a financial really and market all that partners from that for just to

education team is of the history. January education for connect to chats and as have members more extraordinary. in extraordinary of has with clients was or high or the attached together provide hot, the the I busy than it with did to complex us told and season, provided in we multi-month implementation and the our whether our team calls about talking members, calls particularly were purple done say of what and drive company's our or partners And rapid such the the Service we to evidenced partners handled to metrics more were very HealthEquity Members, wealth. QX, answer which our interactions growth that that more genuinely their in During spoke dare assets, phone simple before custodial members you ever in and and projects prospective transactions we health value speed it style. quality

again. operator, take that, let's you thank say With simply to questions. some wanted I So

Operator

first Instructions] Jamie Fargo. from comes Wells [Operator Our of question Stockton

Jamie Stockton

the there industry had some that out a maybe account and just just what that were some the obviously the your one, cleaning that and it you I the then never report, in players kind XXXX. what's since data were guess indicated first on a go of on going lot shook the of slowdown accounts slowed. the is through on maybe Devenir in attention, maybe how that thoughts got funded There in marketplace? up been in Could caused number growth

Jon Kessler

Yeah. A couple of thoughts.

think can’t modest in you a a economic why contexts have growing understand economics a are is for much that this or very noisier place have is the -- and at, driven going when is about roughly XX% this I to XX%. that And said been pace steadily in over or in people and that's doing have that. and growing something first evidence growth other you is say years, the if published nine, you’ve seven, to clearly assets, each assets drive ten and years at you eight place. look four figure but between from say if factors look sorts got grown XX% view, good as was our for that has of now, that is, like that five the very points, Devenir over last reality growth XX% all and market all data by individual remain the Account pace, referenced, said the and but this year, has we a been and we

term And way our don��t so try not investors the a didn't and that and We do too the so I game this to get at and look on playing. that's long their playing or about excited of not think spreadsheet we kind what it. we're game that's you that’s have so are

Jamie, of we’re if answer happy So that’s look questions reasonable, on it. way that's kind more at to not the we it, if

Jamie Stockton

throw Darcy, investment fraud said gross No. I'll guys prepared margin, lot remarks, you prevention more That's a I made The think maybe great. in in I'm there. and in one And of just have his expect how see we do you that Can sure from Are trend to to ramping line? will on that going here? things. leverage you some investments talk or continued of some just up there about other be service

Darcy Mott

year that that we half into think By and felt they first our the when the year was first our last they kind prior make year. what quarter call in fourth we put maybe, the comparisons So we out I quarter and resources to the year year time then in the that earlier the the to expected in to it of some this, we in thought that got did. more fourth mentioned going you first like we're full of exactly fourth that's the for would was than in better quarter, that we the what smooth quarter margin earnings

on to as And through margin so we resources, said, go we continue impact that That but will invest being forward. just the bear we think that got kind think of we that we we that. the those

QX, through in margins So our appropriately we maybe that on got think negative we QX, and we of forward. being had and don't scale that hiccup that QX so see we kind and a onetime that going we've

Operator

Samuel next comes Our from of JPMorgan. question Anne

Anne Samuel

gives line what a you On about how month raise your market the drivers line we share to where guidance, top the we of thinking capture forward. confidence top here should just versus continued guidance the be going ago and stood

Darcy Mott

do first do the the -- second I'll certainly Jon the Yeah. can part. part.

get the -- that to so thing we thought a new had got it our that our on to all X% see came have better as the a is going they visibility account and and we have those to -- quarter of be when deal looks it solidified depository board as it our on better depending that now everybody pricing and transition a rates but into second we've from we go then that guided of come those forward than end and service range on basis that of they're gave the talk going we the a in, year's before. end towards accounts, great the be slightly part, those next thought think we to we'd top of And give On what first because we we going lot us level relationships we like guidance and to and for visibility and we we so the tiered the first that that agreements a is, a and is we're custodial revenues, -- XX% mentioned the per nature. so QX QX, on what our through recurring revenue to I about was

what in be. pretty of the house. assets in account place have have are custodial to a per we now going We the view service have agreements good revenues We and those

we we point. cautious and a ago -- were got that's guidance company month the cautious a able the And so, now and at raise were forward we why and being looking we've are, this cautionary have that out little as closed what as books we've looked at more a revenue and to digested

Anne Samuel

and Thanks. following earlier up we custodial should throughout shift the we Great. And then thinking year then how mix margin? of on the cadence grows a should at question margins also, to margins, of just impact we the on about as about thinking as cliff, be be faster just the business kind your move how

Darcy Mott

that impact what save one generally a that and will actually we've and growth overall accounts custodial grow gross margins Well, more little bit so that mix cautious gross The reduce that profitable margin than guidance given -- increase will margin, than assets, more begin that rapidly. line then always an on we're bit on the line we the is to we profit get on overall less has and that said rapidly the little revenue to people revenue but about a accounts that revenue a happens bringing the we've brings the is. little thing that we as that have this new line more always as shift grow more EBITDA on

over the year-over-year have time, margin and for those pull happens consistently that percent manifest the then this in and and that itself. And period through profit year-by-year gross think gross in or be on that we slightly for so pretty increased direction, expect quarter will tug the we weathered you them that any profit one generally on if down even we by but a if we we year, year longer that a look at a were line, basis, upward trend to margins given except trend the about

will first quarter, bit believe profit see a Now will seasonality they within fourth the -- a we those the have will will, a that little in fiscal to and second of start we year, in -- quarter, decrease margins do and continue quarters, to to then quarterly our third the we'll gross because the the or accounts and still our the significant We in ramp decrease quarters on up of in up first before service of incurred of expenses January. of any costs fourth implementation all basis member a quarter. of our show that margins compared those three all we on-boarding the delivery our in teams

very So we similar. trend expect that that be will

Operator

question Donald comes Hooker Our of next from KeyBanc.

Donald Hooker

interested seemed in I opportunities. you I it a months comments of sort some I the of there like maybe over quarter before up acquisitions us that some and for the falling new past last few next that fiscal guess of of I qualitatively look the the that think kind six about, M&A a what guess and might give was sense were your had like you year? market. some quarter curious from opening Can market, induced of

Jon Kessler

the like that, as couple help I be some what without is partner even will us, I A any now today the back to we we more as that steps and potential available. sellers that open to wanting for in some a here think we've gotten that interest is rate deposit commenting and sort program, to to become becoming well, the unions to in it’s activity, taking One examples. so of transaction something the the and and thing taken months the our one, it and participating equity, from unions of credit with have healthier little and taken to easier six before our steps, is last lending key I way bit we've issue there parts increases don't individual up, process taken have a had one close never to is an you seeing And the steps institutions that some opportunities industry we’re than program, in other things, these to winners done bank we as a so this exactly second, steps of further some would credit on assure ever to participate. accept haven’t we're learn or sees we of Sure. to credibly somewhat has our in the that about use think depositary us of to we've taken make right automate on We've I’d run that done think themselves. side current described. say agreements smaller anyone discussions, deposit can clear path we've the program any in banks of that allow certainly that

number that's trying performance take portfolios the sellers -- We’ve I total other deals of trying acquired on say team the what just potential and to being anyone are And quarter, as than be with performance to every Darcy that of at I outstanding. in responsive market. a else the his the has so of basis if interested been that done more think best us we've again, portfolios, and dare look certainly acquirer you the basically to the does of

true not and to roll is going as in continue it's that kinds out is it’s incremental look thing Don, that the same take of I come what at of pretty lastly, to will is pointing if And sell, funding so, we'll we we're spending they what the view we are as these the are up opportunities these business addition, so we somehow clear than and guess -- more transactions. do on the sort that while these

deal continue ourselves to bushes, a pursue beat these to and we'll for opportunities we consider there whether continue very to shareholders be then fantastic So as a these to we'll buyer. good I – the present very, continue will our find and

Donald Hooker

Maybe terms the question, view. get love your is and constantly hear to consumer employer I for of of spend the a and whatnot, their consumer everyone visibility of in help kind terms members a is would anecdotes the is healthcare? positive how what educated give HealthEquity in educate clearly guess, and maybe to follow-up to of better math in hear to for an kind I of our and I HSA that. us poorly are to consumers higher how you terms of can level prices update your how money doing

Jon Kessler

with of in to and what's on, and it be they though where to costs and Well, for the rights support, you things more the any they it that it have partner are and that we marginal so to have effectively, buy, forth feeling mean way want have is market us people really the expert about to than think to have we they have experts very that does every in order this be. understand can doesn't question we mean of to have that's be consumers it much that have has to any function appreciate an have to and going consumers have consumer comfortable who on they

help session term about their was of just more time, in and of we than sales really bolts dollars accounts, we're going long like same last this, out understanding you connectivity which me focus that. And to what most a as you we of things week, on understand had HSA, we at consumers training in so and with that, to with for this focusing medical can our helping nuts the sort wealth forth bill long team know about and if in the talk level work to of this fact the I So, their help the extensive consumers how am clients, XXX(k) our with are and at to it ever term. allocate health with among the get transactional an agree their

your insurance. the we’re in interest that and to as relationship terms education, we're things trust for So, like in We're one a own the let's position say that to spot read it’s health know for of with of entities not the that lack cetera providing a a us do with and that literally to and well, et few you repeating because and feel consumer. There for that we aligned of, of appropriate are of a to is great do us or employer a better we a Don. We're we, in job we so people, think integrating. in its of promoting think sort and is unique kind others your of unabashedly ecosystem great quite relationship it's worth not this, term, we’re benefits here, lead

where you others is So you something issues that talk types get technology are very sort certain is hard like of raise, month and the transparency X% working members that with or we what our quarter quarter have members the transparency we to commercial to month. applications can almost and every or of X% with every deal we mentioned think of our we of that about the price of visiting right do of the month, our about that sorry, a I’m speak speak with

they view markets, to lower and our everybody. turn the efficient a to are, them are supply terms more making more competent sending force in are available to these have really it's better produces people we get, centric and they stronger services the for the for customer to in in that tremendous you signals so healthcare opportunities prices, do good competent opportunity appoint more people, the side, a powerful system And which more save more that, ultimately the of

Operator

you. Thank

from comes Naidu question Oppenheimer. next Mohan of Our

Mohan Naidu

made the offering enterprise traditional design lines, competitive enterprise comment falling seeing a plans, be a is on a the HSA benefit want along plan that from clients they that can plan little bit. think still against there plan to Jon, Steve group I Are are not like that explore the just a or where I education. short? the think well-designed are same who eligible I

Steve Neeleman

Right, on if right? it you then don't king, I the to employing defined as you can nice but employers to vote contributing they're elements thing number we've and me are is be wallet that those give is the a and but success consumer so And monolog one two, reality plan success are and this, educational investing given going plans, then satisfaction. then now when the pretty in kind we court old the plan. you’ve jester, three, plan, of hundreds is chase to are coming that said cut to they enterprises number appropriate want even year, these right, always number after smart can start like and comes just the and behavior, and design the we people have of go kind large have people benchmark of choice, that if to back Mohan, nice let being these have efforts right and queen them keep the having that the when their the to back, ones the other consumers year and may

more employees sometimes you are maybe the a And behavior, someone benchmark to discounted wrong and you their think account. those when say, thing then take in it, and the to I giving medical leads do do. maybe seeking home home the somebody some ones have because causing those the employer may by what not say, going the as so pay, HSA you behavior next high as then employee. going making enterprise right have both of need are that their they're can HSA What in result year. run contribution and comes costs easy for put elements on that taxes very HSA take contribution, to employer and this go but you're in pay -- even plan, premium employer savings, actually been because take favored their my giving doing more event a take tax an they know by any the lower up you have to to well, types not that they that I'm an money the deductible just a And, of and putting to I'm and not money them to

the part is do we want sure and and of rules start design large who We with to we HSAs, they're so in are we're market one this grew time to about we're interested mature. their their about but it we're message how see we're word think proprietary, and leader personal first and disposal a employer and but the with we our spend -- feel I And three hit conversation as to we investments education at our you’re time get me, it’s our wasting right, best them think talk be the spoke this it's relevant, we a of just of we're it, can a money needle, a we is were it, our more that we're and making not wasting then we not relevant, is and to doing to we it’s interested type help time, educating this then doing employers not if because all having make buckets, in with we always then up and that the consumers, what educating we’re evolving and and we'll and them plan at timely, of Jon using in but is benchmark if meaningful, we that let’s moving there's going to wasting thumb is better and but with so personal and different and the fine of like more and get it. and those we lot since the trust say these not and that we're we look, the when that companies things we tools have timely, going then to tune are out this, results frankly you the that give not did think the if this think

Jon Kessler

non-HSA are tax you more brackets the in in told add who piece is depending example, and how much hear you Since professional if sound sign guessing math point you’re educators, this that’s and account. and from been a discussion of to by that educational that purchasing state for you has balance that have just can to retirement like one losing technology to on $XXX,XXX but six has has truth there one taken contributing, choice the use figures of at a huge of that the that to $XX,XXX, that It's value a this never other some long-term of a that same up benefits I’ll member bit other are really retirement a the for my choose to that and educating your five about is place look purchase options, build work simple that just you chosen, probably by the I plan, and no thing when of now. not forfeiting is is effectively Between make a are, right, a simple I’ll up example, sort member thinking that’s, as and the little means who begun am voice figures is a end you ultimately power, of in words. ever the power, force told their you the and investment forth. this top so is

this think do talking consumer And to hand, to not one and in terms you there's And the a down out think not moment being right media right we’re that talking improving many momentum them is some you what the contributions then some saw elixir, a our that at with we’ll it’s the about to having on in goes from the people because result members the our genuinely invest money many, for are in deliver that education again, the is we’re very obviously, of I continue the technology to sort is and technology delivering we about to and so attractive to talking to creating package that back of and driving magic, where right message, trying be win. competitive just that more We're proprietary part of of but quarter the and an invest we the come for that that’s the that of benefits front expect to smart something really one. to and transactionally, of we're tools right a I media that in believe secondly, about that drive right of new Right. towards can identify perspective growth. continue opportunity right of of that the there investing this we is out in advantage platform the message we the last years will

Mohan Naidu

types, for in will segmenting where greenfield And you be opportunity you great. provide guys, I do that whether it’s size employers guess the explaining that market, that the you color think about the any you client if see there, and maybe or biggest can the

Jon Kessler

Two comments there.

The be level, the first at one every saver. consumer a is health consumer can

less be by to saver. using can money Every and on no spend that a have right accounts can You decisions. healthcare you these save, Right. health smart consumer on making

of sold and is, the days that grew, employers health And it through in the up buying early basically increased investment these did key historically, and about sold And we news at area this would make smaller in beginning we kept recognize employers research at more. individual directly partnerships it is with through happening. level, the products it the So out our wherever they they of at the mid-sized assumption a two -- as the talked sold plans. through to we last is are, really the is of Historically, health we is was how trick are, consumer not an to our It this but year, consumers the doing where good which what assumptions and ways. is meet right, testing larger employers like, that's found the look and with can like that to they market HealthEquity it’s about certainly market end your employers question point consumers, When that plans. I year, be was the reach worked. and overtire company because

our sales just And direct on the growing were so on field I’m shots that specialists. weren’t market below that large enterprise goal. was to on taking through field, we a the segment were for of more employers the

to began financial feel there to we of the channels, us allows And want ability retirement time sustain fact have growth that field a trying something services, the those at market on we're about open about asked health earlier new that savings group retirement to health to to and wealth are capture question that be feel consumer and ’XX and that, with a working the notion so same what to playing to connecting we that talk market one ever side, on bit fiscal change fiscal ‘XX and to the things of like though and today, talked like with can't and because want ’XX, talk about to in a in to of we're began is the forward HealthEquity and advisors we that’s doing the of little every about we want the now the opportunity new come can and with that it’s confident, people be than and have as can pushing also more back change So to we in and fiscal the saver offer. from benefit health forget back that are still of I we areas we're we

Operator

Fitzgerald. Cantor of Halper Steve from comes question next Our

Steve Halper

in what the fiscal Regarding commissions the capitalizing the impact be you'll ’XX, statement. income earnings that, that on

Darcy Mott

million. of -- is show amount that it's as amortization under we what and about, there's The $X of reconciliation will a

Jon Kessler

answer That’s given. ever he’s shortest the

Operator

Sandy SunTrust. question comes next Draper of from Our

Sandy Draper

not And I actually asking Darcy want may questions does just I to standards? just that just asked, Steve be I I'm reflect accounting sure that the same gave clear. guidance that make the new thought The you

Darcy Mott

It does.

Sandy Draper

It does.

Great. Okay.

So answer then we are push to surprised of high pay I go one to plan Jon high in and and but shorter is that Mohan’s little small afford to small it Steve a it's a deductible everybody, think of answer. address of deductible employers, the industry even -- stats large sort at then employers? I PPOs, employers can't we're to when level only. adoption going intuitively, than adoption, the going have things hey, the health maybe higher me we’re always that question, And around was would look bit the would

the can with, is a maybe they the into to they understand it. that help it? trying to more just that educate point I’m on end and market do that what starting what just you’re any dynamic interact you that versus changes they're as you understand less as move at and don't is because drag Are big end have going and sophisticated, more Just that to why a thoughts quite it? market, you're towards opportunity smaller as you

Jon Kessler

I‘ll comment to and to Yeah. elaborate. Steve then a little ask

gets to going about style ultimately the not for that net it's employee HSA plan it. an the First the package value or is of out the employer, about benefits the cost of point, value the

by Google that I'm going reasons for more the figured same amount products has out Google, right, as as So, sure that And obvious it guess, team offer for can no towards benefits the offering its members we of to interest of we skinny are money, benefits they I HSAs. would in props. have see all

quickly much right, of going am in spend am to to a that to in going from to how for how tax going I give for provide I most am question support my how the efficiency them And to but spend more and education much benefits, it the think so the out larger figured of that am is, is but you going employer of a how really it smartly spend to say, have that fundamentally do, as your the I part I see, these is groups you to an there this some as smartly fact member answer and I it get ultimately question not original spend to it to that is out simply much do and perspective.

education occur that there larger groups. an needs So, of element beyond to is that

plan spend part also that so a challenge pool any the and actions really But control the in that. benefits. that as in of depending larger particularly somewhat fully to so for to as want the the boils mean, they're because terms their value of performance where total the help the to value coming down incentive groups all the they company really of smaller last of somewhat fact one the the being is small quarters paid I middle sort the about insured the you’re strong of at that that’s services year when I others is in that and as is the on. of the had talking sellers of on for incentive insurance true we opposed of health take look forth and they’re you individual we the and reasons business, group limited, if biggest advisors face how to year, well provide quarters, market mixed, for we're think about getting forth

a more have have we're bet think so, fact to particular And while, and have, if spending I time in may your of a your now this encouraging we're term little an in immediate about got you well you ever that, really smaller employees, they’ve and like groups in and in as long by terms taken bit advisors got plan. build business are disservice HSA than to it building, to not wealth you're tremendous if the doing both the they begin advice to with who adopt it to them as healthcare a that customers savings but those feel starting certainly the

Steve Neeleman

Sandy. Hi,

of to notes a down notes. said, data. a break of the just couple Just Jon couple

referring the to, look So what if you up firms defined XXX firms they to with may study, their small you're at be as Kaiser employees. and that

among more and that. adoption than XXX three the a in on then with larger study, firm XXX their And is firms saved So lot average every they to segments XX% employees. and again, you're than there's that. about are firms than employees basically, XX% more bigger up market their penetration right, Obviously,

in. those And all in down either or when below clearly tend so, all you out, They're right. firms all to get they're XXX, be

maybe design. have plan or know of get XXXX you're think rules you way small of account kind working employees but That's wouldn't it same not get same materials a education, as which we a initiative, in in one it, let's more we our place. good health targeting some I not below call are that -- just only below work that these direct we’ve But firms get people lot design to really what targeted, normally the the If this they firms because were apply are plan good support we talked large really about, to a space, the sure design, you in the right both going smart brother-in-law, the types as for of firms. they think as to this into really you're we you’re the prior with I health your have works both can one. savings have going for directly, will and businesses to make of from plans, sell we that the direct plan there, offering but lot need it They educational right

a just I I large definitional issue that And it’s more going think change or Kaiser when good I so between know helpful and don't think don't but small – it’s data a there's not. the much. other at lot show of you that think studies firms, look don’t really if the to difference and I maybe there's

Operator

Our next question of RW Baird. comes from Mark Marcon

Mark Marcon

talk bit slew out got I’ve legislation question. can a there. of a that’s the Jon, Steve little or about you

the that are that there the out or and You’ve be got what do couple recently been passed anticipate about just HR, talk you then of and Can little to prospects a XXXX the you proposed newly XXXX a going the is been new think some legislation? have recent of bit you legislation what and are there's bills, impact passage. for

Steve Neeleman

Sure.

you dollar first so different ones one, dollar is of things three support, different there's don't so to same can we out to here, of for try notion plan it – what initiatives. savings not play the is everyone the sure there. pays. we page down make that this big HSA because So, flavors have kind account health wait coverage, does come expanding until boil do, first think the is of to plan of there just out on we The this can a that deductible Number lot you have that your hit or the to

meds, can couple about worry of for your out your to considered that, within their offer because concept, employers, pay health not at and they only said about point chronic really see element is they a I are element for existing accounts that first populations. what to on, be their people adoption you'll worry educational paying asthma meds, that don't you with that of design meds, not people more These like back this meds that design covered CDMA would in say, having by then the and clear those that worry and that can health added risk the go past. paid to design concerned plan if there you, we're haven't diabetic that the bucks definition so we an don't paying disease this that said plan, of commented think don't meds drive we’ve because design, -- what if be your And is chronic incorporate element HSA plan are would in month more is plan that for goes about -- a another savings this been diabetic we of hundred osteoporosis hey, to just that we our your for choice things management that’s think have this for employers disease king, can large earlier, may asthma for about plan

a is this benefit, after Now, go it.

they'd there do that HSAs disservice of is say out they want pharmacy’s people. thing because there The reasons employers one is to their why that's to are the don't other never offer a

make to the we So people the are to in it doubling out pocket HSA some more clearly, that equitable atop put right rank can list, having come amount cases. in you what the with of would

order on this to day to Medicare to is eligible to of as Medicare to making out become maximum. very there's the lot of put And support amount previous they confusion calls then can and XX,XXX there preserve equal not enroll HSA. are whether said into ability We we health with that supportive a think as you people savings your account, out a contribute in or we of should their that. to So pocket in there the for your continue

have your that's just we Let’s if working, strong so it just law think that help first added, in for the only very the and someone Medicare, that, contributions but of three benefit very encourage supportive that the certainly HSA still industry end Mr. blog tag HSA, you and up Google – if of confusion could benefits a would by we you remove if think fine, Kessler. all to the not say, thing make those you're maybe and nice to would we're hash people, it supports

Jon Kessler

for terms chose and a and mean, up CEO done I've tools is process commenting here or of, I side also, where what in of balcony done, to savings future to benefit to we way, health time going get stuff of but this done respond do as or or and it’s the they benefit it sitting, or the try care because certainly, that's people costs and to done these don't to. members today stuff common to to we’ve let’s it members three there's items we the these sensible legislative our isle until of this an what us and we're just, course, Mark, the and gets both tremendously, wherever like, time, to prospective will is build time make stay things field sort anything it's the at organization sense this on this you’re I we're doable health need I actively would give the down but first first ever benefit tremendously. some the and as Obviously,

Mark Marcon

who are you've growth front XXX(k)s sort that and of the your seen of got in solutions. of terms now, of imagine you a from the much of that contribution regard expansion to or solutions, you your have FSAs page it. how your oppose website would expansion of there to Hard With seeing what on

Steve Neeleman

HRA, terms for of which the where that zero FSA, X% which what grew in say our members, between we is will admin market our call I RA stuff basically what year-over-year business and business, is at is So, about -- X.

journey. what is at way one growth, product so difficult small of in not thing retirement well, you a that take but started same have to very lot, energy to commitment really We're And business, from were would I as -- business in people we is be the terms, can and would sort you whatever there because a the not savings slowing grow we’re rates looking it’s anything, should view at it, no but, it is very like, on oh, the very this place health way about putting of follows. really of as way grow we the product unless a historically. is take they from some being as ton augmented growth, HSA We're to still so that has think can percentage in terms, approaching that where RA helping not that we this is the we’re I into large. What We percentage if at the our at are and say, business it obviously it player small, that grew obviously small. a that it has because

happen the use is how kind more And more that so we way, use -- really we're we a that there a What good HSAs, to you. in ultimately, their make to to the user people can consumers that use as a at firms think all a doesn't begin of our every products that that’s of their trying with it’s but out then wealth. a we do out teach thing do, that ultimately a their in at more it banks HSA, get growth and lot And bring I We still which these in dollars own do in said figure be on of looked they're put more will to how of be and little all can the in lot to makes here power of don't people do you same retirement trying the you result of technology HSA minimum if health obviously money and perspective, account retirement more in allocating And experience. the that the what us for that, market they’re can into you out to flex companies that. I about should little their that the it view really put an how have this, investment as from at is pocket, that help we good say efficient get to we We for a also that help is we look have is dollars are is benefits side and look over dollar do should purchasing that an connect effectively will help hassle, much so sense retirement talked do believe to as do in products these educational good that’s differently. way beginning rethink some money we genuinely can they what at this. employer will this, you’re can view These on let’s commitment pocket. silos, because at. do way

it’s sort overall the we're return happy help a think best very that’s been of So we do to is a going to of little look them consumer to consumer, getting the sort at RA to differently. then we're of we're started, at not revenue, but if to has business material of terms contributor lot just ultimately continue from be them best always and on to and have huge a our the Certainly, the but have that a do the growth learning contributor in that. and opportunity way debt helping them because we business

Mark Marcon

in of How a of those? How inactive that couple about in years, flip being of five growth on account of the being their other XXX, just years. that capitalized And think next then long we on that is that do to we of ten that growing account? in terms guidance, commissions terms And first, AUM? investment just we're short it I capitalization relative of should and for, think the side questions, then on how we investment over do the the is the mean, the only the words, about that, a short rate years one how growth you're over change amortized Darcy, And seeing then of years, couple very AUM, seven rapidly. for the is

Jon Kessler

Why to a into first, I feeds don’t think response way, in first the take because one it that question? the you

Darcy Mott

we we of the the sales we life buy no intangible life amortization have an acquire use process. same our through when so different we HSA, of that yes, the one for than the it's which when So, estimated assets a portfolio,

So XX-year what a over. it life will be and we amortized that's give

Mark Marcon

And the that guidance the in is only difference from XXX?

Darcy Mott

correct. That's Yes.

in number amortized $X So fiscal million than year. less that's that that’s will this the be

Jon Kessler

Great.

first subparts, growth about part which – question think the your had So, was two first of of sort the the I of

Mark Marcon

Average growth on the investment side.

Jon Kessler

that -- being is part managing as to remain long-term a they've Maybe are conclusion very them tools invest, I've they And proprietary useful them foresight about our and well giving they active vehicles long, they're when your to and others the in say, marginal educating to question, this are they People are all kind because They it’s brainer as an bounds short to a with the and are I to active, right, bad reason to for the when much industry and if incredibly accounts money the experience. done, at doesn’t as -- short does of to more costs view, invest, within doing vehicles businesses very way our come that's make the hanging me, higher advice tax dollar least, kind Really, really heard it no long. alternative premiums run and a paying even a define under, stickier. take I’ll which advice investment it's long long, lot the run to term as balances efficient businesses on investment of funny. small the giving as when do, themselves think, them ultimately, one but to tell of get use I commentators however members and of gets is second they around in who in well in brainer encouraging to no it's shouldn’t. to our to HealthEquity an invest, as savings. term that -- you, said doesn’t it’s know, of at well, don't just them appropriate very build members cash. wants don't cost, is more And the time it's uses opportunities that, you members it both to the

and accounts, I in of way I it as then and of opening fine, I savings. that the that's path that think the really to -- on than just on folks members savings, of answering avoiding they for from question. we’ll And that in the we the want was mature, using are and this to leading say be if it whether don't account the year and helps kind funded the that's with so comment families some of last grow we're what to we to up market end, it And the about focused us, heard new really we've these others them and not trying did I health think way hope that have is product positive our so really are hell know moving we a we’ll do that, done un something or American of that on but on I really only vibrant don’t know some terms issues key the about, front what something going don't other never is certainly

Mark Marcon

because you terms investment of in really it acceleration trying I would expect AUM like traction? and you've what But would seems you getting mean, does. It expect that’s to -- the continued been do you're good

Jon Kessler

position, it’s the this, recall of material investing on will not reported winning yourself this is this differentiating business. IPO, a that our a be you point in this the consumer I long reason from is, this cared be Conversely, That’s winning before that wonderful. of the about well, mean terms even important. and industry our you it's way believe but we fact, have, it's transactional doing really it percentage and our That is reporting in on how and it is doing different, to ultimately it's comment by our more manage not really honestly this I and I’m on and business that took material we and for the what were soon not not marketplace. material sure just time of a this will were something that in the and think, would thing much, people and you’re this the I was say think we account. why winning members and we we some It's our answer now, real about heard a people we’ve in members the business anyone not

or the I as the financial right. the on mean, and do people So, term of of well let’s long let's help healthcare as long focus if this the those term of and side exactly result of what outpaces that is continued we or that that's either see account other that growth, to growth want there growth see. the we cash of in kinds investments outpaces

Operator

Steve Our comes Wardell next of from question Chardan.

Steve Wardell

different for So segments to are your are years? selling you fiscal you them can XXXX? are what looks is your now sales in prior that where from and hearing you you tell team us -- So which talking about season from

Jon Kessler

obviously. on the Well, want bit it’s of some things. comment early early you little do a to Steve,

Steve Neeleman

they’re with a some never I option they large competitors our time HSA that kind employers the of are so of lot before. we or currently with spend Yeah. have new HSA, with mean, to of had starter either continue

out a health season, those we pretty early some these come a of and as you know, few are added XX the there last now, being interest change looking this. plans/administrative continue lot in so to among And are health a see HSA what planners and that quite I out have so to pieces partners make years year. more that either think there out in to about There's is

a the think account a we and have at for and we've looking large of rounds three employers event we've the and and and in out kind best fact past You do which earlier able week, prospects HSA that that big accelerate was there's and we what they so their the couple work. and this room, seen make If health talking partners, audience services learn of it was our lot look bunch their last in now, in of professional at teams, gone in see a moderate aspects that different employers to here right in City New be the is our at have all room we're then just to about the I journey want lot from were heavily are class executive our a of large were they York and in these and now and and systems a talked to diverse to great look panel how of is and that but to -- the I a with their work were with to through all of Midwest, financial, that I other that conference they current meeting about about and trying were journey talking with it there. services, employers, involved can

that And so, investments head interest and go I lot those pleased ends but and lot would [indiscernible] areas marketing, around if continue is talked there, in on Bill we’ve big activity they we're of going or Otten, it out sales of here think our a concur there to about. to of make we of Head a up, work

Operator

remarks. to no the showing time. like back Jon turn to I'm at question further closing for I Kessler this over call any

Jon Kessler

that, energy. the a you'll over beyond We kind and And And the these gives spoke to are from who be we of long with as us results after confidence delivering genuinely of the and here hopefully that, donuts we're as course and long that that we quarter as the of term, of do we can. lot stick the those going from from us really support feel quarter community for best appreciative making quarter. the analyst investors

So some of and again in you of you when a to months talk it’s and soon to talk everyone a couple sunnier. we’ll thank you. little Thank

Steve Neeleman

HSAStrong. Hashtag

Jon Kessler

hashtag HSAStrong. a That’s all. good And Thanks Oh. point.

Operator

today's conference. your this gentlemen, you does participation. and Thank conclude for Ladies

all disconnect. may You

HealthEquity (HQY) 20 Mar 182018 Q4 Earnings call transcript