HQY - Earnings call transcript Q2 2020

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Operator

Welcome to HealthEquity's Second Quarter of Fiscal 2020 Earnings Call. Please note that this event is being recorded.

Go ahead, Mr. Putnam.

Richard Putnam

Thank you, Carmen. everyone. afternoon, Good

this call mentioned, HealthEquity's quarter second As our is fiscal conference for year earnings Carmen our XXXX.

Bloomberg, and By way CEO; Chair; COO; Founder and Mott, and our Kessler, Jon President Executive Ted and Vice Vice Darcy of introduction, Steve we Neeleman, have Executive and Vice CFO. President President HealthEquity's

ir.healthequity.com. to posted that of is are like release and on earnings site today's Investor accompanying that Web there would I information listening remind those financial our Relations copy is a which

affect also concerning that in be risks call, statements. subject materially We those Harbor be today's statements are we to uncertainties Throughout actual today. discussion, earnings or made and forward-looking conference considered forward-looking to included Safe forward-looking statements might present will important today's could factors These to some may estimate claim the statements this information made differ expectations, relating results cause release that will including that forward-looking. from other our which and predictions, during our business

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

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

Jon one. we at a our the those that to to today want on ask a has and one good make you Q&A remind is sure also for We asked it question call time and are during that

the that, Kessler. to call With Jon turn Mr. I'll over

Jon Kessler

part you the Well, them, far. idea. hasn’t of That’s if do ask. won’t worked but so If it it; I ask they

you hope and with everyone those Friday. HealthEquity's special deep thank Thank for call. welcome, And we second purple shareholders Let’s sure sue acquired analysts of know, us, a XXXX to fiscal you which earnings I’m Richard, and on joining all guys as try. don’t you, quarter WageWorks,

Steve On discuss detail today’s position results will Darcy call, acquisition with Bloomberg, integration; Mott COO I will to our it us and now and and Q&A. and quite market quickly time guidance, and then complete; to update our will the QX for results Ted cover best do a do WageWorks speak for there have that join do will We so to our we’ll questions. bit is

not impact four outperformed and team measures WageWorks, our did which against business, driven QX, robust revenue growth. any the and have key metrics from member once that and atop asset include growth of the During record again custodial HSA profitability performance delivered year-over-year on

adjusted of XX members year-over-year. year-over-year, year-over-year. custodial X.X up XX.X July million which XX.X XX% larger X.X and more. of million, assets Revenues at XX% billion EBITDA million even X.X HSA climbed at year-over-year were XX% XX% is HSA an Active growing members reached rose million to up reached XX%

investing was saving, and assets members during XX% to ago. important several number evident HSAs up members was Underlying learning milestones these the use the Progress invested of the to year grew team key for compared quarter. a XX%, the metrics, long-term achieved HSA in

first by basis more revenue, with year-over-year. HealthEquity’s of in of gross margins reducing more our half two-thirds history, paid exceeded than points that’s of total expanding gross service fees XXX by XX%, which accounted on than custodial fees Also, time, time dependence revenue clients. first the two-thirds, for total our the profits For is profit for

and discussed investments that our XXX Adjusted for on by more EBITDA margins expanded QX prior made points to platform as after XX%, year-over-year basis another even QX expenses than to record we calls. larger

grew last the opened essentially really them. sales. team year’s markets it’s $XXX comps by up during that’s from underlying the million, and These in flat tough year-ago than period, custodial X% despite new beat assets a the HSAs to quarter, team quarter. more equity were XX% and XXX,XXX up The QX Turning production, and

factors. really We to attribute three this outperformance

is that The employers complementary the HSA buy from partner. their of HSA to offerings rollout want upgraded first

HealthEquity’s second as The retirement of in underlying selling and plans footprint use distribution as long-term partnerships of style health to is our is the place. HSAs remain came the direct HSA driving expansion And plan of the third and expanded employer to really HSA online. shift the market greater resilience trends

the plans with some growth. chronic IRS designs that developments we notable expanded for spur of to clarified regulatory The to and costs introduced healthcare qualified expect traditional significantly QX for in saw more future benefits Medicare legislation those plan especially coverage also seniors recipients all include to HSAs scope conditions HSA and the Medicare. of would in reduce and out-of-pocket the bipartisan House extend would which

So that like thing. good seems a

distribution already above with footprint over intend but In secular outperformance across leading achieve to complete driven QX equation, is to a more and way, WageWorks That’s market strong growth what by the long-term working. offering delivered it’s previewed we trends. acquisition, wider long a a HSA a which

full culture market the and WageWorks build second its by accounts turns to to our of acquisition We while bringing according last with two new the closing it Devenir’s is Friday, by service and new full on on everything day Team as call assets. one out Purple We our number it just published the job. begins report intend HealthEquity, today to and as we midyear product do. our The remarkable to HSA number administrator lead

thing. strength, pace the introduced quarters and an but a exactly call has cohesion, He We delivered has increased the strong of four champion and nothing culture. a the Bloomberg ago, good same year been the of since, earnings the on investors the has and leadership. our operating focus, become Purple Ted one Ted to it’s been

we the close off across during is alignment preparation work speedy strong through are and and integration running. a WageWorks companies, most Ted importantly at Ted? both of pre-close to by thanks now head diligence, the process, and great teammates legacy

Ted Bloomberg

that minute. many where many the their WageWorks with I’ve health great talented us will working and for meeting benefits plan team members sure past talented team building the pleasure with partner wasn’t been members and the consumer-directed It’s and I And in now consultants, HealthEquity year. my Jon. rookie Thanks, several you’re of in retirement a that going weeks, of benefits preferred HSA providers. had employers, for join over

our XXX clients, bring We these our the next a are million do. way partners, to investing our teammates, companies XX that our XX million and combine and importantly to in XX everything Purple shareholders most over to suits to we months to our members, two

will partners, markets. and integration to regularly have customers, to made the report we period, all on of we to the you towards specific During integration commitments progress

customer specific commitments. First, partner and

We with our every experts available U.S.-based serve every XX of will all of million hour day. members benefits

do to for clients consolidating us XXX,XXX We to business will with by our a unified technology make employer easier approximately platform. it

protections, We will prioritize strong continue maintaining data continuing to invest privacy security. and in to member securing data,

and educate on deliver engage by optimize their families more in benefits today will offering and less down We bundled we easier them value to solutions cost will by spending saving driving making how administer. to services tomorrow, and our

commitments. financial specific our Secondly,

clients sizes our we We the will to hand-in-hand and all market cost flow both run to synergies leverage. cash HSA market to extend will including will share And our sell to that lead. convert directly solution rate XX at outperform partners deliver with and of efficiently complete growth million free efficiencies to revenue reduce and in least continue

benefits, on key HSA including consumer-directed FSA, integration and commuter and Total members other quarterly and both COBRA, and including report break these growth, members We will investing an account in HSA metrics members. type asset and and down on HRA, we total basis. active HSA by assets, HSA new members, annual participants will

will on against against report $XXX $XX $XX to one-time achieved integration will spend including We the rate million cost million and to report on our and we revenue objective also also we synergies million run expect both invest. efficiencies

aims progress also from will on marketplace that effort. on the the insight achieving motivated to this We towards embark sales us provide strategic

not future of these we updates go sight of that our will growth a we will we will qualitative lose integration origins expectation integration of growth. of significant of or operations. Some as sales organic teams blur and as source anecdotal forward Nevertheless, as your and certain the be streamlining the consider may systems this be

can a of I forward. new our taken number steps we day already While the a have HealthEquity company, business has as just second completed that report combined

As Jon over closing executed just XX finance schedule. this in and mentioned, of days, legal well ahead

completed over dozen for our ranging plans consolidation work to a that go-to-market During platform integration to integration strategy. teams our from streams time, cultural

that be, giving We have either head identified been start synergy or commitments. us immediate and for will already soon a on cost revenue implemented our opportunities efficiency have

entity, and his of of XX reached executives On relationship resources sharing over days, message. leadership And first or achieve teams organization team to our strategic described. to complete as will customer, HealthEquity’s member the integration day X,XXX a to out executive top goals our the clients aligning over the next combined a assessment our each bottom financial I leaders, and her new personally

rest season, the year’s selling of take For a this buddy will we approach. sales

of hour and sales service our an our service clients transition. bipartisan on Our morning joint taken implementation in purple team the experience ensure first a call first throughout joint infuse with escalation And finally, after begun the are this we closing have announced partners of service attendance. Friday that began Jon into was and our well to to care huddle with

that just should a brand of integration real the feel a to not however, progress members consider our many partners and logos. of believe is that One changes don’t things clients, will the and proceed happen and We see overnight, purple can We team colors coat that paint. transition.

to look but reporting to to about quarters to I We a opportunities our you off forward about good challenges the come. realistic the the in are ahead. start, optimistic progress

to and call now And over the results I turn revised detail operating guidance. Darcy to will

Darcy Mott

ended all to results items that nearest non-GAAP definitions release all both provided the non-GAAP is reconciling will reconciliation we basis. discuss results of on measures all second A earlier their today. and GAAP for non-GAAP measurement a Thanks, July in herein that our was HealthEquity’s press published the Ted. and discuss of quarter I XX a and in GAAP operating guidance

we grew down growth custodial to of the three in $XX.X million. Revenue service, for revenue each second to the XX% the interchange see year-over-year quarter. the our revenue and into Breaking quarter during categories, continued

$XX.X down grew in declined quarter. years, X% to revenue custodial last has revenue more year-over-year service quarter, in become as million over from percentage year have the it quarter stream total of revenue strategy predominant. last the five total of second outlined Service the revenue we the as second with XX% to XX% that Consistent in a represented the revenue the

It’s was growth by to employers in paid service XX% service HSA average customers. down revenue in year-over-year by partners decrease expect are fees Service their of primarily to value time, behalf working we our fees revenue Remember, more to we help attributable quarter, bringing on XX% deliver and network the over HSA. their a continue. increase per during and more average these value offset by deliver employees partially so a and HSAs to

HSA indicated XXXX. we decrease last revenue guidance average the our quarter, of As for service end a we to high towards be historical in fiscal X% expect to XX% for

Custodial were X.XX% during revenue. quarter revenue of this assets of higher the quarter, was $XX.X factors up on XX% revenue total driving representing The a over year. average growth an million XX% quarter, rate of prior the custodial and XX% in the in XX% cash custodial the increase yield annualized second for in accounted of year-over-year. interest Custodial growth a assets

quarter average Interchange revenue compared Interchange in lower per year, second million the from second spend HSAs revenue by to $XX.X X% benefited in average HSA in the $XX.X quarter a quarter the year-over-year year. quarter million XX% member. of last offset the to the increase second last grew in compared X% to

mix custodial $XX.X XX.X% for to to gross year. compared quarter was Gross $XX.X in result from revenue. quarter last gross the margin was higher the the the the margin in increasing million prior million revenue of XX.X% profit increasing in second level year, the The the quarter second to

increased related $XX.X expenses million XX% and second to previously last Operating we of in year to million incur the revenue revenue $XX or discussed investment our strategic as or costs as compared integration quarter of initiatives. the in started XX% were we

the during and outlined we just as second up our activities We initiatives. of Ted we fiscal expect XXXX the strategic integration this to work half continue to trend ramp on continue as

of quarter. generated income increase operations Income operations generated an an costs year to income $XX.X XXXX the of year-over-year from was this due in prior quarter, during of and the tax million from $XX.X million the second decrease net second for the We the margin XX% compared million last fiscal integration-related year. is compared of higher The to in effective primarily quarter a $XX.X year. to XX% and rate

GAAP per share was and of items items XXXX of historical release for reporting share compared acquisition to in EPS reconciliations. to fiscal completed the reconciling in prior such recently have you reconciling We of our definitions expanded diluted to significance change the items second non-GAAP Due earlier in certain quarter the our refer of WageWorks, GAAP we the the $X.XX to Our the $X.XX related press today. per from issued the year. to

Our for of share non-GAAP net the net income second per and were and $XX.X fiscal income XXXX share. $X.XX per million quarter

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

was share. million first diluted adjusted prior last million GAAP XXXX, up revenue was XX.X $X.XX year. six months diluted the fiscal And from income $X.XX income first $XX.X XX% $XX.X was or compared the six XX% Non-GAAP up was of EBITDA months per million, For or million, of per to net $XXX.X share. year. net the

in balance as July equivalents we no net cash This Turning $XXX closed of of on debt help to from XX, of stock fund XXXX, million July offering the proceeds XXth. $XXX cash was XX, we and sheet July. common to WageWorks we the million the outstanding to includes of August and debt. billion Subsequent which $X.XX funded with had issued of approximately acquisition executed

fiscal guidance for to year Turning XXXX.

component acquisition for versus of greater year, this the visibility we think the guidance WageWorks. remainder in of with have that experience business about more and we HealthEquity the our forecasting recognize As to we confidence therefore the pre-integrated added fiscal

time. over change to this expect We

guidance for we revised margin stand-alone our are the for for fiscal providing and HealthEquity remainder estimates revenue adjusted the of incremental the business WageWorks EBITDA component and year. Today, of

raising million. we and we XXXX, guidance for on revenue are the XXXX, contribution, WageWorks ended range million Based $XXX $XXX where a fiscal half between the of fiscal first of to HealthEquity excluding

the between and $XX $X.XX the WageWorks income newly debt We net million changes expect issued HealthEquity the to dilutive interest net excluding million in $XX between contribution, results of and income, share non-GAAP our non-GAAP $X.XX definitional reflecting mentioned This above. for share. and addition be per expense per non-GAAP

acquired guidance contribution, see in raising XXXX. for WageWorks million provided of and EBITDA, adjusted HealthEquity’s note to non-GAAP to reconciliation $XXX are not WageWorks We income million earnings acquisition fiscal without the amortization include that the which net income reflects associated GAAP per with the do share estimates non-GAAP interest our expense and the $XXX on and potential Please between our guidance These with calculations results. starts WageWorks net excluding synergies. on the operating release intangible including measures

Our average based it non-GAAP year. other diluted the of shares per estimate equity is includes diluted the shares million net the July income part of on impact In as an of outstanding estimated shares XX new for issued offering. share weighted our words, approximately

guidance. to contribution the in from I highlight Before would turning reflected four like HealthEquity to the stand-alone WageWorks, items

assets First, custodial approximately we expect fiscal cash year to of XXXX. of on rate for sustain our yield X.X% the full year-to-date interest

the such custodial revenue onto the guidance additional we and assets on as move to partner WageWorks custodial expected efforts be diligently assets network pursue bank platform. will to provide HSA We our generated from

approximately Second, $XX date deferred we of along with that beginning our the $X.XX the billion XX-day of we you variable financing of LIBOR as five-year million. of of interest plus closing X% will have costs rate acquisition September statement borrowed amortization in which the with be current included income in remind the

today non-GAAP the reconciling Third, metrics. are acquisition. guidance review as earlier that included that detailed includes result been some detailed release the GAAP have of reconciliation a We note our in to of earnings list new a the of there and full year added items WageWorks you and encourage distributed items estimated

include year. estimates stock remainder do the for for not exercises the However, a forecast our with prior fiscal option such consistent of practice,

of Fourth, a income we statutory tax assumed rate approximately XX%.

million the contribute expect in months of $XXX We for revenue of WageWorks $XXX range five fiscal our the acquisition the to year. million remaining to

five for months period. revenue includes WageWorks year. contributed expect benefits the the period We fiscal an to five-month cost remaining intensive generate EBITDA the margin adjusted XX% from approximate of This enrollment our acquisition

that as is cost a may fiscal it. we it the This year. any realize and synergies for baseline excludes business Therefore, we revenue received have this

realize will on Ted As timing, when we our we are operations. With reduce and these to from synergies provide activities we costs revenue clarity already an quarter third update report working combined in mentioned, on more December.

over I’ll Jon turn back With the for call to that, closing some remarks.

Jon Kessler

you. Thank

start in vision while our uncertainties Before Carmen moment QX. record Q&A, takes a fast the all completing for forward, any remarkable the a to and in HealthEquity teammates enthusiastic to of us situation integration embrace I despite their to that acquisition, the want like work thank this mostly take for of going delivering for of their my in new the

same your shareholders accountability vision. for vein, all that that the at know that truly Please us that of HealthEquity well appreciate seeing is our In in us trust ultimately support for understand we of rewarded.

we’ll go ahead With that Carmen, and questions. take

Operator

Instructions]. [Operator

Anne is Our from question with first Samuel JPMorgan.

is line Your open.

Anne Samuel

for Hi, year-over-year are of a for taking of On a the decline first baseline a of like then about year the back-half we looks that moving guide basis. in the Wage, guys. think bit what terms and growth what you how should of the wondering months revenue kind Thanks forward? six little saw targeting just it business question. I’m implies on

Ted Bloomberg

Anne. appreciate the I question. Okay. Thanks,

ADP this about I book benefits you WageWorks X% of looking was primarily and that in six the COBRA lack associated – direct say, renewals, issues reported, the revenues at which to previously first business. months suppose, renewal manages and primarily due within before if that exited year-over-year, with WageWorks consumer FSA said, as business of WageWorks were So that as down and is ADP

in be there get do you decline, there the and is of threefold. that second is more of what source will – half – to math the guidance the bit that – little pronounced can and view that source of and a really reflects the Our a our that

the The first first to the half. what the mentioned company is saw I say decline [ph] in is that X%

the was Second that business and half, pretty of that out run there out now. played much kind but first is of it’s produced during revenue still run out

more Fed revenue won’t as very And the in so, then to to our unlike overnight funds course, a custodians, products in business the about way on rate. see side that. company very third And And custodial those tied is the as rate lastly, provide is of rate reflect company’s tied of HSA party and much much cut and changes is the revenue WageWorks one I from know, the July many and it the things occurred HealthEquity immediate that you that lot happen the so very believe said, But from this expect. synergies, any stability than cuts a loss the Wage from model on further to that. guidance basis, a might cetera, will seen doesn’t that year stand-alone some would have – timing, presumably Darcy et in

the half. the those bit led little So that are pronounced decline a first forecast that three to company factors in assumes saw more the us a than

Anne Samuel

Thanks. pretty that maybe the initially said synergy about guess very portion, on not had I some a that we said as helpful. quickly. up think the to it’s that And come just you follow I then guidance, expect but That’s you to of you included think within

being the those about should So of synergies think recognized? some Thanks. how we of cadence

Jon Kessler

and to I’ll a Yes, throw comment bit. Ted then over little

and good. said, that’s So heard as sounds was he it like Darcy

fiscal That’s subsequent synergies year. itself time positive outlook That here our with We any the as acquisition of conservative remainder is well equity assumed consistent raise. the we of over the our and effect assessment. said at as what of a in borrowing for course have from the not the

at it. the working he’s at away it working mentioned, Ted and As away team’s

and more you there to a months XX more I certainly, said bit a planning that the felt have give including and timing really lead so otherwise. believe synergies if million to sort clarity approach we of maybe about look issue picture, more big from realize of that nothing like me at forth, that’s least we what to the add one guidance today. take cost. XX of And would prudent to us is with I anything Ted, regard going we it it know on to recent at perspective, will XX having both was think But between and revenue there’s developments? and just on

Ted Bloomberg

sentiments cost No, would echo already that we’re on synergies. briefly Jon. I just underway your

to We call, be have that a we of of of at we expect sort robust third associated taken with you actions fulsome to expect time. quarter that actions in to taken concrete the reasonably them to be deliver more able our and savings review list the with

Darcy Mott

just This what and this we run convey is wanted transaction the days have business to business right just and producing any quantify this changes that without the timing important certainly we very set sure but the current make us. we that on right also closed wanted changes implementing expectations two We Darcy, call is Anne. them is we to today get ago, start to to implemented. will we And and of the rate those

we’ll that try QX that. when release so, to clarity give sure And we some you results do our make and on and

Anne Samuel

much, Great. very guys. Thanks

Operator

Thank you.

with Stockton Jamie from comes question next Wells Fargo. Our

Your line is open.

Jamie Stockton

were taking it little quick for a Anne’s up looking maybe than deal a plus when I Wage’s you this rough Are questions. I are questions. this optimistic any numbers closed you about months my ago? just closed on you this ago. two guess now a couple Thanks months year. less Jon, follow guess of

Jon Kessler

analysts closing, an If By were and company paid view about if lot And anyone Thanks, entered of for approach a Wage the a need numbers answer But our very that else we to deal. question, sober to and reflected say was -- pleased what we where of were, assessment awkward asked be we it who those large, in we taking would would because one and I were of not that sober we the It’s the I’m its at, what was things say with worry today to I platform, diligent discussions would we it. in hard the one are early time were it that where on and aligned the most is on you to period those I corps at anything, relative kind to on think that the about where people to to be we days of going things really of really the how esprit that others look this are the if points, it’s it’s And difficult very we days. while the at partner-client what’s team, in still receptivity? no product certainly each challenges whose de obviously that address. what of some of with are thing Jamie. get be had it’s you’re granted ultimately easier. early longer for mission going ultimately

plan We and plan have a as to implemented platforms move today. being that is together the of

And in and earlier of as transaction. little for a plan highly comments, deeper, We to deliver importantly really and some think Service I I the particularly implemented the have level QX business results this view And validative said being described, rationale Ted as looked sales that everything plan, in have grows. Purple we I a the to results most your to at today. HealthEquity’s as the are we a do how is point, as

going think want if have in product across and think us a our for us And terms us. going a and the spectrums size as do our truly they with they’re accelerate of back us they when really and the position see really are I it this all We to allowing service to in buy we’re and expect from we leader all both position done want the to going grow that, to but market. deliver buy, that we’re our to specifically telling look was that to said transformative I cement underlying leadership employers market, is of that growth

So, a I work there’s guess do. lot to I’m not surprised of that

with work it’s of be of we do. proprietary we think you are. that type lot any there same We I to I of in this before expect a and worn were some sort possession that had and out conversation, kind remember that’s of of we’ve about and so talking where would information,

Jamie Stockton

I are said Okay, maybe follow account down was revenue it up, accounts more that’s that The my balance uptick kind in the they’re vehicle Darcy per of are think using in you’re uptick great. and on investment savings as basis in incrementally? these X%. then this number And the account, intertwined the adding, of the people that all more, a just interchange trend saving a per

Jon Kessler

XX short accounts only funny Yes, the this, were I it’s there and vice else there’s when up ready some Answer; for can’t unless maxing investments – up X%. our XX%. you up And the What members were Active it say both. that just investing gave now. And versa, happened? and yes. do more you as or was we’ve prepped you see up answer can to data will I are XX you the prep think spend Spend is remember. in question answer. because were people for in you’re I out, can opportunity

directions. some And so there’s help more to opportunity for more both in us us members save

for but the both yes. we for there’s answer squeeze members, us as I and of out say one our some short So can juice that is more

Jamie Stockton

Thank Okay. you.

Jon Kessler

on tell [ph]. follow speaking I – can’t Anne ups, the end the Everyone’s though. I let

right, yet. to gotten He’s going have even Greg All haven’t to who’s Peters We next? [indiscernible]. like

Operator

Our Hooker from Donald with next question KeyBanc. is

open. line Your is

Donald Hooker

evening. Good Great.

some nationwide of to principle. referring Is retirement partnerships? been I and maybe that? Vanguard any chatting with assume you’re plan has everyone’s reasonably are the think and So watching you new, some about there way those to referenced large of I you in around everyone that but I partnerships think for your I remarks, data I quantify Jon, those obviously they’re know guess

Jon Kessler

talk have kind of throw what there going Yes, Ted quantify little opportunity and of and and we’re I the to some of him I’m then bit a to to through up can the progress.

do other we kinds of do the announcements If do. If on don’t said side before, at these as that you we every will. we we look them, Don, – wants deal to

And with what’s way I of of to in footprints, XX% the all by market. to entire I across the our recordkeeper we about defined XX%, a look that contribution manage So grow recordkeepers assets. retirement expect today the pipeline our partner if believe of recordkeeper about quarter

little to we’re to on a think take one opportunity and and as together we’re as market can plans trying that we our all as can about Ted? partners feel with great a health seems the what talk I as to among Ted soberly go think retirement opportunity of building real way hand also That good. pretty and sounds formidable but of So how quickly that that advantage so wealth about possible. bit connect is footprint carefully like to we

Ted Bloomberg

Yes. Thanks, Jon.

partnerships publicly whom announced the whom think we’re some been been as recordkeepers, I and encouraged not. alluded of highly establish to, with able others to of by several we’ve Jon that have have

very the more We have their on they’re deliver and a real to partnerships This exciting just we’re we’re up accounts the is need which able is already exciting clients real great the and to for that. be beneficiary recordkeeping to our books but of is finding. stepping it deals partners signed, real that even

but of I than average, that years target if year. opportunity, And and targets really think appears We it release well which lots at you internally lots partners a HealthEquity but far. typically recordkeeper set these our lot externally to thus we’re really they slowly. far targets didn’t of exceeding partnerships faster of fruit in and that have our internal health we we a health excess the signed is for plan this borne thus our historians work plans ask develop probably somewhat exciting develop on up more do, but encouraging have that the over ourselves but they

Donald Hooker

your follow-up translate that guess I but as maybe some to to and guess coverage Okay, and of I how change into would prepared remarks you of IRS friendly love first-dollar my very think great. would maybe that’s then diseases employers might guidelines also alluded I But HSA would conditions. think I’m this around in I Jon the inclusion of quick more maybe chronic And to your the concept? being important term, subtle a long I hear to wrong. open question view

Jon Kessler

the that? to time I’m long has Yes, with that important drum Steve, for punt this thing Q&A to to term the is for the because it a Steve want and and you on us going speak to for right precisely been change do. Neeleman the particular over to one long banging who’s who

Steve Neeleman

Sure. Thanks, Don.

pressure And people diabetes talking and came change. have HSA. whether like these with pretty to reg dollars things illness health just of the not of the the plan many out and as account if lack blood paid that health the stuff, have you their been to company long to can as and assure conditions by our family that run out mill the so about that for that, benefit the phone is, there’s executives is on fantastic and for of were dollars. of not Obviously this someone our have savings it’s from asthma somebody’s these be do use they’re can employers or bottom clarity and members from chronic largest and treated we or HHS our Treasury So minute other dollars important too us high line that a like account with our can a account

it. so phone talking And the we’ve about been on

came Some July April out or of as of end plan employers large and enrollment to – the design towards even these January March of the discussions early a as July. mid start real end for X

so talking it. to And them we’re about

the educate have members other do to is able my a benefits. our to that it’s their to effect long-term the of these adding ask this employers going over make plan helps adoption But to to a event start about that also The bit make employers is, on it to we’re we’re for types is us may come expectation little thing have out It HSAs. late but it. of and all to large changes year, for –

more I and it way accounts. I it’s about address disease to the you’re this think of folks chronic great to I this savings not think country. up our in anything a go all of more most to the to see in you’ll able be going Because adoption, talking but than only see We’re think

people as As chronic get diseases. their they at these older, of most Americans XXs one least get into have

some And of offerings so are are that wonder their about it about don’t clinics it The employers re-tool this and the start to as health to starting well included. sure we’re it. anymore they is can thrilled really to make excited have that offering they and

Donald Hooker

much. Great. so you Thank

Jon Kessler

employers, small particular, in For midsized I that will impact the be midsized the think year. this folks and some there

the little options for the little and us of under with X,XXX of 'XX just company flexibility guess pros a benefits using – in benefits for our an of to HSA then for obviously our this lot actually incremental we’re a And room terms gives companies for do as like as calendar today, and wiggle certain conditions a both call finalizing in the Just financially as terms to to for in have do but uncertainty. and and company both more work. I thing ourselves design right plan who employees middle coverage our X,XXX of merge the example, also people coverage teammates for

come of So having now. and in that well those long time enrollment make a lot pick so discussion, plans that whether enrollment firms for of over having a see existing up term a certainly context. maybe to open been months January and around when meaningful we’ll accounts commented suspect we’re as discussion in much don’t HRA are year not results elsewhere, forth I on mega as that this – really as size there’s result. the in And that this as the kind as few a sense think we’ve comes if in But as I

to in plans to an the short those time get existing HSA over that with more plans likely HSA a plan see very of that context. to many [ph] and member higher You’re to team lot the – it’s into becomes PPO just deductibles, the there’s clearly puck value and turn

we’re it and doing. we along Thanks. makes everything So else with right think sense

Donald Hooker

Thank you.

Operator

you. Thank

with Greg Raymond James. Our Peters next question comes from

open. Your line is

Jon Kessler

laid that you. We’ve wide for The is out open. course

Greg Peters

a judging to their and you from good they earlier. Darcy Good for callout start. flawlessly so Thank scripts must Ted’s I impressed I you Yes. performance, read be guess afternoon. was off the

Jon Kessler

we minutes least It good. beforehand, have so means that five at that’s

Greg Peters

about yield think end how where Can a important should the from on of metric lower the I about quarter. X.XX% interest the perspective forward? going Darcy’s is give us the go pressure the current or to you of rate said I and very we market Can second back comment you think the AUM? through cash rates on this

Darcy Mott

before and a out the the The portfolios, current happened rate Yes, by talking the now and about we the that ladder full first they only July and year in and just our rate four environment increases but year ago this guidance they’re we decrease that for way rate obviously about increase impacted were this X.X% talking how view who not did in knows time rate that a long. commented in in they it has being about of – that it our reiterated longer-term is range. we

rates us and we may that impact current see but have they But onto what the rates about still will our feel we the pretty assets new will and came what Wage amount we in rate much we we yielding interest December be will the as had coming are decreasing we placing they today that And term, of assets variables; longer funds. environment in above But so time – the on a environment, season that rate good will And we’ll an start just up. and when actually matter that January. actually some and little this rate environment, In go-forward. how quickly uptick of on believe impact we we bring grow platform the in then the currently bit two there’s it. like bring on as see rates increasing assets in how an the current an impact

Greg Peters

All right.

Jon Kessler

Greg. ahead, Go

Greg Peters

rate with only behavior follow follow regarding in You your any competitive that noted in guidance service you’re the of decline of one going I’m end rates service allowed revenue would of the at have with I a as lower environment, you up, seen up revenue? change Just revenue. per to anticipate in decline begin lower account diminish? to and current in the would rate that the high service come

Jon Kessler

that be. Yes, may

that but one piece are that biggest say things let’s if correct Wage these is intertwined. spending incremental of what’s volume of the on they at profile of you look is And any of evidence a driver their account know, that you with flexible the As right. of contracts, is where you much component or stable, don’t that things has in large are that have rates. these more of And custodial case here as in you custodial have variability component, have don’t business

back, so I back, – I is go I it’s clearly there am can Boston academic in cross-price if and so go like be And all elasticity.

on earnings And hear been thoughts relevant. calls Greg, I think – said, having You that that two are think I that a our that lot.

we can expressed to an And people marketplace the need and all take you and expense a then know the a non-interest service, build is, earns is loan as around the as of company are they portfolio reliable terms because about to talking associated we’re asset so second, right, actually out it in as what very because on premium reason needing going in accounts. it portfolio. that First we the to rates of with

and it’s DAC transaction So day per our that’s that’s banks program. one and in why And participate out it. bank a [ph] in

haven’t I that’s and fundamentally those So think changed thing. factors a good

said, year guidance as we’re business forward obviously in Darcy out. So a giving of not the

predict today we’d of was rates expected, able presently our factors, positive the they by least because year to depending But would into year our amount going to next If be kind it and it that we be that we we to are happen tick to be this thought at think I margins period that conditions We to feel we continue as and that this will slightly or have expect as cash up as change of revenue conditions as a ability for are time well broadly may expect useful of if as those different. I contributor forth. all rates on year we next that growth. like just so and then said broadly which mean things did

Darcy Mott

to still Yes, seen. the the magnitude of is be uptick

Jon Kessler

Yes.

Greg Peters

you. Thank

Jon Kessler

you. Thank

Operator

Thank you.

Demko Stephanie Citi. is next Our from question with

Your line is open.

Jon Kessler

Stephanie. Hi,

Stephanie Demko

and Wage closing the strong on Congrats quarter. for Hi.

Jon Kessler

Thank you.

Stephanie Demko

of consolidating much How you’re in to a little my I’d bit So XXX million investment such with location that customer about the question U.S. of thought Wage’s be first in closing like of hiring more XX of hear care other? run for versus or staff one-time making a as or more own? to rate your as million cost could costs, the like just services

Jon Kessler

Ted me as let want then and start So to well. may kick and I’ll lay Darcy to in over

Stephanie Demko

answer. Full team

Jon Kessler

thing. the say if same all see get we to You’ll

The careful don’t integration very experience with – few meaning the be teammates and my In we wages in they one-time not up and our for be away. [indiscernible] transaction, entire about very very, exceptions very include to essentially about our this we’d to careful trying go that’s part one-time are setting of prior salaries most We costs. a what expense.

so about that commitments things talk truly they really a the about to that Ted described. meet need expense our talking one-time of we’re And are to do, when we that nature we

that what With and are And is would business that level Ted, of to intent these require of the expenses a you confidence without truly describe us it investment. nature to you’re some position give are the report nature a great the our seems them. twisting that, so to we’re like one-time of to that of or in be doing able the it words in that

Ted Bloomberg

Sure. Thanks, Jon.

be require resources XX number. expense XXX to a of the rate cost sort a with months calls those answer more going XX is to incremental and to is that one-time net To it’s to question, million your platform be there rate So in associated run XX like harmonization bringing million meaning That question and biggest that’s and to going of but single run are to costs, biggest U.S. in probably process things about million, and the will integration. the that’s that’s the take is contemplated a million XX expense. XX going absolutely the probably your consolidation lot that to to –

fancy expect is embedded target $XX of have. – are if those don’t million that the but I the some synergy We know within word we dissynergies there, kind

investments, right. with anything? Darcy, these but want some don’t I plan how it. some know be absolutely of ongoing will add if you you’re expenses There to that’s So for we associated

Darcy Mott

the several references made reconciliation. I to

those related $XX that are and we costs so $XX provided we that approximately look income in towards earnings going keep you how can we’re expect between forward, And activity. will that’s separate will or million our those of the report this to acquisitions integrated fiscal costs reconciliation year excuse integration you’ll we see in the our our at a outlook in you then now incur statement – as item and current million release, of track doing If line January. me,

Stephanie Demko

follow sneak to super one, a helpful, right. then really appreciate questions, That’s housekeeping guys. a clarity. housekeeping. up I All up. and Not in that a follow a I two want

For costs for down? that that nature Wage restatement that anything or the piece, EBITDA housekeeping or seems XX% low. it be Does include may would the bring estimate,

Jon Kessler

and we It’s most a realistic business. thoughts. which keeping Obviously, being had side the the as actually we’re – on So we’re being in year, half Darcy service revenue couple to I five in any again the last making of running the second are months particular conservative, said intensive. want mind the say to we’re without make estimate don’t not it

example our items. included view incorporated we for we this of any haven’t haven’t we synergy So course of adjustments outside make of any in given and estimate synergy would items revenue of type

people and of it adopt – I costs, to the going then Darcy said the is So like which is convention et the certainly is as know, cost – that who on we’re will comment I backing on not as ongoing audit, Stephanie will out any and back number, have but that on we an we’re we are our integration is low stuff our on – view kind before work say relevant we but basis. cetera this out annualized that of you recognize

which accounting, one other the add associated terms would again back for right to incurred there’s way its in company think or there And no the so the the cost here. business with have running cost of I

there. impact some well reported. has a Darcy, main But those factors highly number that to anything relative add? adjusted as that’s perhaps to are been So

Darcy Mott

both as worked trying give next we’re them of the this point frankly acquired much we middle with that opportunity. were putting you XX year-to-date, the we to evaluating Stephanie, around some second of But we something out business this revenues this, revenues they figuring books and but being that did through a to some have going time in as learn this and and down also and lot were in quarter attention Yes. closing first for as know second clarity hard as decreases revenue not for their come of at the the even details probably to they do the rightsizing – this. and and on devote on didn’t to year heck a We’ve days those out down they believe don’t quarter in start the

after business we see being look appropriate the So fit. as the business get the revenue will run decision at to we’ll take we and will produced that we current a and make the that’s as

a go you is things we’ve those are so it come. all there. then for from set and More baseline inherited that the wanted today we So what on about to

Stephanie Demko

about revenue then prevent this conservatism lot Okay, one up, just I optimization and the before, as a the business That’s of but healthy longer we’ve synergies on follow understood. taking And talked them helpful. think know the synergies, for this I creating custodial like month period from or new current Is that happening contracts time environment of there? the negotiate to would some events. there anything your is there a just

Jon Kessler

of today working been not tomorrow. talk couple we been them I a have think on we with actually with with until Wage. able And Well, fronts. providers have to meetings these Up scheduled really that

this And just always we’re can about when custodial We’ve so from you on that make move we just can’t we we’ve day platforms experience cautious fast learned that transition how acquired one. – them happen. one,

sheer of movement there’s and Sometimes that them. overcome volume things and the contractual you just to have the

timing. the as we’re going on we is What we’ll appropriate give day seeing like one soon day we’re that one. we said, to after clarity So as from get it know you

exactly revenue soon sure we the that can. when will actually clarify will to We’re as just as we but start materialize, not

Stephanie Demko

questions. much the Thank Okay, you for understood. so

Jon Kessler

say to different the us position it’s processors, whether card but the the maybe here’s business with we And you coming recognize These a I do, banks, do et will what some or with can of want us this. help in partners, they cetera. networks to are they folks card

go were as close. did our the to positive these appropriate led better things good this stage we of have maybe in approached I signing. that felt about of But let what if negotiations good we than us and feel feel one way way. that of being in of confident that the event I that opportunities abundance in not transaction, any So feel Out closed we’re on to there did next to about caution that’s DoJ date to is the I wasn’t a it the right the prior approaching of

Darcy Mott

before deliver we like in never pretty timeframe to we the can we’re define. something that Stephanie, promise that confident we

Stephanie Demko

that. hear It makes all I conservatism. easier. lives I of our the appreciate

Operator

Thank you.

next SunTrust. Our Sandy comes with from question Draper

line open. Your is

Sandy Draper

much. has about levels higher very the investments maybe million on million, spending but any you talking of up this sense? technology? have XX that, top keeping been the on been making XXX questions of that have WageWorks of to lot Thanks of about investments, guys least sort encapsulate does to extra be additional XXX Is and million million XX of portion spending. somewhat to or at then already makes those this to incremental if A terms should talking as already in asked follow my and the answered, been million about million thinking $XX I this $XXX

Ted Bloomberg

were of that top certainly that, announced Sandy, Wage, on some call I believe, this focused to top With that HSA of initiative on our talked we deployment. initiative initiatives million we Yes, their of the on in would $XX respect heavily be quarter that fourth about.

ones that some million as we sort that this But and those million that be we’ve through And so that to of on certainly to that. we believe so XX of announced can is we’ll top thought of have the platform, previously, that. provided respect with XXX being

Jon Kessler

got got there is are there of down it to are boils you what things And more less you of. and things

say we privacy spent promising very protection. one deployment is commuter really course, customers to launch let’s have of Of security of benefits we’re not. things the going are conversely So a our spend But high what of and would level we product? meaningful to

we’re of going that lot doing to And so across be platforms. a

their it general synergies. and investments it’s and a But to there’s P&L inclusive WageWorks So I those little the then hard the component look exist that think is that should would the of we’ve you period guided a is in track. keep the at to P&L way of

that’s it. think so to about the way And

Sandy Draper

my Okay. That Thanks. questions. was

Operator

Thank you.

from Marcon with comes Our next question Baird. Mark

open. Your line is

Mark Marcon

you Can hear me? Hi.

Jon Kessler

Yes, sir.

Mark Marcon

Great.

of maybe think through trying I margins business. where regards thanks all, seasonality since XX% the into how a within Wage an for you base? two the the just that typically there’s premature the it. kind it’s With feel recognize the days First annualized account but thinking rate just closing, of and in a about How get we XX% and run of margin, obviously some to higher that first questions. translate get take for to we quarter you second so only to would

Darcy Mott

appreciate I Mark. Yes, that,

expect in million to you I period, translated at rate last the million the look of So the XXX we their think that would into run to if you XXX is probably five-month million rate of a million if be revenue XXX in run full it’s – off revenue XXX year. XX% year which that

be the adjusted margin. kind adjusted where but their expect is cost that margin from levels rate would is in because previously which would from XX% intensive it margin, as EBITDA, to been we this the we their view obviously the where concerned, of far the range five overall that of the is As down has XX, be would part months more annualized EBITDA heavy is on starting XX% EBITDA to EBITDA of Wage

Jon Kessler

it’s Mark. Yes, actually pretty simple math,

give XXX of take believe first is you of I or If XXX. [ph] what five-twelve’s take all

as real get guess think to it will what the business That nor I don’t way get well, So received. – you think then a is Darcy but ago, to baseline. it suggested revenue basically would we, We operate revenue you less of what a don’t margin. that that’s happens? is is number. where changing if kind you say that’s And change way think without You minutes expenses, anyone the about few Darcy’s substantially we

as And well as so synergy take management have the the continue to taken on additionally take we have have we and to would WageWorks – that actions path.

be don’t that look will as purple to we everything there. And put I longer news the and that, and efficient to can there have grow need so think perspective think result I’m an to at to opportunities that do there we true. are term like OpEx and perspective. there do from from the more on many long, of get view need two clearly is to things margins be displacement my that is you good And a everything we the to if are to this is here going start we you think too be my where One to I pretty do. as and they I room certainly enough clear. – some do in deliver while That’s

news and to of of conversion ultimately that and we sort base, piece customer the more current is in second transaction, our business – service gross pretty margins, truth of relative with of can the the mind and of that idea underlying extremely which some are business I the good gaudy, ours. lower gross than somehow are business compelling. We from at and The margin they business, like, is this to we then my Wage’s real this there’s back compelling. synergies average a And by gross is the heads standard in very people’s announced margins that said them certainly think least a time perspective to margin HSAs is the the at particularly in just get have be this

that’s we give way you And so says, there’s sense replicate to up the where we’re end going box, and so to where honest no the want here. as in thinking it an same that but math, time Darcy starting nobody’s where like at you a black do of we’re could

and to combined margin is going to both from will business our margin end ultimately perspective in view up with attractive a continue grow. a that gross operating and one that We’re highly

Mark Marcon

that. appreciate certainly I

things some that what million few investments I or plan. is just integration integration $XXX a to I $XX make and that for want the the say ongoing? would sequencing. million to follow up would the is So all investments, to to in full of to And the you heard XX relates integration sure complete? that The our be just correctly XX months did be hear is I understand

Darcy Mott

above one-time with million quicker to probably the happen XX investment XXX as these what little the than think XX to get one-timers think that. and months. to be will little over But a as The we through It million of results and itself XX Correct. our a takes of of within to completed just time we results. CapEx program.

Mark Marcon

Great. Thank you.

Jon Kessler

Go ahead. gave the He you man. hook,

Mark Marcon

Just one other --

Jon Kessler

Go work me like now letting hard Mark. him back. at the looking He’s I you’re and did ahead,

Mark Marcon

regards quickly like Just your the wanted to terms to ask assets in to potentially how of assets just with sequencing what’s integration, the custodial HSA could the --? over of platform, custodial do you think come

Jon Kessler

will going about We’re the to I parties the about end other be X.XX discussions talking in having person. it with of AM start on believe that tomorrow. Cordell meeting the

Darcy Mott

timing we timing clarity any that to diligently the on we reason yet, don’t didn’t the are happen quickly we give it And as that make as can. know going to because work we but

Mark Marcon

you. Thank Great.

Jon Kessler

Day, they’d against have mark already. flown What That’s If here Labor a they can you people. would been have do? on

Mark Marcon

That by get means time conference, the we’ll to an we answer have our right?

Jon Kessler

Probably. Nicely played. I’m card. that out surprised Jamie pull didn’t

Operator

Thank you.

America. from with Bank is Allen question last Our of Lutz

is line open. Your

Jon Kessler

Hi, Allen.

Allen Lutz

done year? question. adjusted the you investments about in half then the the XX%. but and in talk you for you’ve to Can how the spending expect said EBITDA was of Jon, margin date you’ve much quarter the begun much partnership Thanks Great. how back the you

Jon Kessler

Yes.

one? I in of effectively spent --? what Darcy, up with of of to instead want sort hit what first I we – to as Allen, regard stand-alone the I million we were it if what So, think ended the is question, think asking to is think the the second about you understand half, XX you’re Wage, saying going this we half

Darcy Mott

Yes, been do each We you I at mean – we’ve and million to we million do about that We’ve the it. added where look added areas There’s about up a looking our able quarter. other as technology going more of tried in $X at sequential, hire sequentially some spent. we we ramp the just $X more if I’m people. were actually to

we’ve and on continue initiatives would ramp we would already expect up fourth that that So that of third quarter to started. some the throughout the

Jon Kessler

admit of been much on we area break were investments have in to we very big year to able Yes, of we’ve out going offset we’ve done way, been Allen, both spend as that that to with we side, have it this beginning the business there efficiencies well known things talk we’ve the about. extent could as have able the just been to a up because probably wouldn’t have some other such But wouldn’t at that’s this going to fortunate. CapEx ramp make as I made our in on. it. had deal and some while it’s the elsewhere turned side been been and that the If

items example, – one an of one just the example. As

use project platform agents, have easily as making yesterday and security which the we’re say. One we best was perspective that it important member our or weekend. well of out the for telepathy all from as our over Saturday changed was it’s live of services could items our year. you went taken doing I actually Thank a that also the who those should for stayed And long-term

kind her but things while both all doing. WageWorks So we’re also going even the going trying be be has team I really to about it been keeping been whole Ashley and think the have of and team’s this fantastic thing good about our efficient been investments on, of just about efficient

Allen Lutz

XX% you above I guess then the year, That’s you talk about Wage back where for that helpful. the are come for a EBITDA the half above or profile of for drive if that all could XX% you that than in can above things XX% of most of margin can the get And of things see confidence some higher XXXX, margins what that threshold?

Jon Kessler

impact non-HSA the quickly. that HSAs huge ones that on one there deploy it It’s been have out is that’s the cash side, more revenue as Yes. all here Probably has it more the line. to to and and and certainly bottom biggest quickly ability move the mentioned say cash the items whether are drops

forward, they’ve that reduction from day the getting team been cost there doing XX that’s we’re thing are plan really a Ted that cost other members me relative appropriately of the that that on as kept it’s have defined team and rare they’re days. XX it, perspective is they And also The perspective say of one Ted that XXX focus yesterday, to in, next on going the what have clear the there while cost from would involved days, that out very I opportunities. on transactions course days, you other been a his meaning over reminded well he’s our

both revenue to more immediately, are well. it are bottom just little there because side probably cost drops is line as the the So I’d a powerful on opportunities all but there sides. opportunities say

Allen Lutz

Jon. Thanks, Great.

Operator

you. I for Mr. final Kessler no the to call more queue. in to remarks. will his the like turn There’s Thank questions back

Jon Kessler

will Thanks, this week. we conferences everybody. And forward look to the

it hard on Darcy As than for will the And and to the as team times, to thanks in season everybody work. Thanks talk basis a we’ll that to a like as know a provide too, well. detail we here regular so said lot got December have several we more close that regard sales other we and have. in would we folks that, all. to Thanks, about

Operator

program. Ladies in concludes the and gentlemen, today’s participating for you This conference. thank

wonderful day. Have You may all disconnect. a

HealthEquity (HQY) 4 Sep 192020 Q2 Earnings call transcript