HealthEquity (HQY) 5 Sep 232024 Q2 Earnings call transcript

Company Profile

Participants

Richard Putnam	Investor Relations
Jon Kessler	President & Chief Executive Officer
James Lucania	Incoming Chief Financial Officer
Tyson Murdock	Executive Vice President & Chief Financial Officer
Steve Neeleman	Vice Chair & Founder of the Company
Greg Peters	Raymond James
Stan Berenshteyn	Wells Fargo
Glen Santangelo	Jefferies
Sean Dodge	RBC Capital Markets
Scott Schoenhaus	Stephans
Allen Lutz	Bank of America
George Hill	Deutsche Bank
Mark Marcon	Baird
David Larsen	BTIG
Sandy Draper	Guggenheim

Call transcript

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Operator

Hello, everyone, and welcome to the conference. Please note today's conference is being recorded. I'd now like to turn the call over to Richard Putnam. Please go ahead.

Richard Putnam

Thank you, Rocco. everyone. Hello, Second Year HealthEquity's Earnings of Quarter to XXXX Fiscal Call. Welcome Relations is Richard name for Putnam, My Investor HealthEquity.

Chair the today Jon Murdock; Lucania. CEO; Vice Kessler, me and President Founder Joining on be and Dr. the is soon Steve CFO, CFO, the Company's Company; call to is and Tyson of James Neeleman,

was market turn I A to second The reference release ir.healthequity.com. of measures that this the announcing over of found press the financial with administer. website, non-GAAP will for quarter today. certain have results A a of comparable our the GAAP and they I wholly contributions copy which Relations Before these Jon, call issued is fiscal These non-GAAP afternoon. measures from XXXX press accounts financial includes closed of be owned release the reconciliations can reminders. X press and this after of webcast results definitions include including important subsidiaries on we financial measures recording Investor that today's our also release, our

or annual results to forward-looking. which risks of and new may might review to or and the statements and relating we We update predictions, undue our are as other today as reliance placing differ view latest light today. to these defined There management's many future could Form from statements future these important our forward-looking cause materially X, also here discussion are subject or your as uncertainties to affect the of reports actual our results affect with will periodic market filed no today, in and to be on These the information September which assume our factors business, to you in encourage factors or statements by these forward-looking considered may SEC, the that are forward-looking statements the price made detailed forward-looking Second, reflect of SEC. and stock XXXX, caution XX-K subsequent made statements, our forward-looking obligation estimates that statements risks that questions report expectations, and responses the We they against revise of other comments information today. contain events. include on

join note We're One our person you we snow to on ski or hoping greatest And of to more Jon, in virtually. February this on rescheduled will earth. to turning who those board, XX. snow great either now another before Investor the over which for us have Day Draper for we year all on hope want

Over to Jon. you,

Jon Kessler

you Okay. Tyson will of and touch Steve here conditions. raised Hi, for guidance view And discuss metrics will QX everyone, Q&A. and for thank 'XX, results before Kirk detailing I is our QX joining for fiscal on management's and us. key

plus The team growth accounts. by HSA setting assets the and delivered with and last HSA quarter, In methodology. total members COBRA grew QX year. its was QX, muted which second X.X new in members, million healthy, previously in in X% HSA and double-digit grew XX% adjusted revenue, was XX%; X%. EBITDA, which accounts year-over-year change grew XX%, Total discussed the members fiscal HSA $XX.X is in XX added down team HealthEquity assets ended billion million record the but XXX,XXX from QX HSA which plus

assets $XXX to a and partner The I HR expanded whopping in XXX, also team by driven growth transfers say wanted turnover were allowed year's well offset HSA as QX. robust in high logo new by from win-wins. As in to. but I an job million and banks to fewer QX, last small comparison growth he network out seeking footprint departments wasn't as blistering -- added

both balance growth. not helping XX% that. more a not XX% account invested reflecting investors drive be only ago year of grew HSA our assets. assets but year-over-year, up in average members the inflation, of balances which period, year-over-year, million say didn't sequentially HSA became now $XXX investment. as Despite invested compared also HealthEquity to to HSA for in assets swapping, I So to would That's due by count at part and increase XX%. growth Remarkably,

We continue HSA future. leading for to cyclicality rates cash, we custodial to members see more enhanced higher in for choose the longer less and yields their believe

also cash HSA Interest variable funds. gave rates rate in to CDB client QX a and boost

the accounts. declined QX come Service revenue million. While Service ancillary which performance, CDP more delivered from growth and administration X% on X% progress the just grew fees, drove rose by costs year-over-year, line team sequentially year-over-year with fee custodial also $X total bulk modest service products. of in than

quarter As and automated we more obscure emergency chat the remaining improvement of last to bit in but COVID-XX quarter, we results rapid in tech when as responses. revenue as drive on service positive making of the service national to interactions here may we're we've QX that the from to see we and discussed get first runout well a as second the tailwinds evidence progress The continues margin. half, in trajectory the delivered

it record to pattern subdued We resumed think in HSA market as doing the Team as of growth QX thanks which expands in strength followed long HealthEquity growth now performance annually for years accounts well by revenue, to this in can by expected, steady by opportunity. turn can XX% QX. extend its its seasonal with interchange about Purple leads mature, Finally, which and outperformance grow second a did quarter. what more account in come, margin asset faster

smooth past particular, Before in a like vision over well thank class publicly unwavering focusing do would a to for turning these And and transition an for on and his the the Murdock the HealthEquity's months. Tyson values finish act, Pason's past in mission, to his you next. would I do to out years. strong for whatever over to team call Mr. X.X few over, and chooses a eye he service keep opportunity

February, active us over take tomorrow, Utah CFO on tomorrow actually. Lucania conference as with beginning Investor preside As in will Richard of And the HealthEquity's at fall, the effective Richard circuit this be of top as mentioned. who is noted at Day will course, will Jim the Jim call, in today.

Tyson Murdock

you, All right. press Thank non-GAAP GAAP today's kind of quarter reconciliation All GAAP highlight I'll Jon, right. measures A is our second non-GAAP to financial found for of in results. and release. those measures comments.

revenue on points. increased profit revenue rate X% HSA Service year-over-year. XXX quarter on highest to second This Second X% the to second years total interest year the quarter, $XX.X in GAAP acquired was of $X.XX revenue $XX.X this revenue margin up annualized XX% million. quarter XX% grew $XX.X revenue was yield as basis. percentage second year is grew in since The XX% a X we gross Net $XXX.X quarter quarter was income of cash the versus per Interchange for EPS XX% basis ago. a the WageWorks and in or million, Gross ago million the was period. million year-over-year. share the

income year. compared net per million to second was share non-GAAP $X.XX net non-GAAP per Our $XX.X quarter, income $X.XX per last and the for share share was

of rates and A last for of XX%, on higher a they the was increase income, of interest quarter $XX.X year. increased Loan million, the adjusted interest stated X.X%. basis we interest a million and improvement custodial generated Term percentage over rate XXX Adjusted revenue pay $XXX more yields to EBITDA While as also remaining a was than EBITDA rate the point

resulting last year. $XXX of to same share, period XX% first revenue up or the fiscal XX% the compared half adjusted in of up a X million, of $XXX.X $XX.X And year. share, 'XX, prior million, as first months to was year, was X first and income XX% percentage GAAP for diluted the $X.XX the fiscal year. $X.XX up EBITDA this XX% per compared the was million was per EBITDA revenue adjusted of For non-GAAP of million net last or from income diluted months net $XX.X

the to sheet. Turning balance

a quarter costs, July million, have XX, and available. of year-to-date. was from $XX outstanding of of end we generated QX issuance million cash by at and $X credit operations $XXX line XXXX, continue of in million undrawn record million billion net The As of an debt company $XXX $XXX had cash to boosted

guidance net million range we're shares XX $XX the to between income $XX 'XX, expect to net and revenue resulting And between now million. fiscal and in be following: diluted million the $X.XX million $XXX $XXX the of an million, raising GAAP million to a $XXX For in for and $XX income upon range income in million, net and expect estimated between based outstanding non-GAAP non-GAAP $X.XX we year. per be share

to million. We million and expect adjusted between EBITDA be $XXX $XXX

for is points based primarily increase expectations cash revised HSA average fiscal on XXX midpoint basis to yield $X approximately 'XX. on the Our for million revenue

Fed and change. secured reminder, futures. we forward indicators an on embedded rate such subject and treasury curves mid-duration to assumptions a base guidance course, interest analysis are, market These forward-looking of the rate in financing overnight as As of funds

anticipated the national custodial referenced the of Our crediting determined receive HSA of are expectations emergency members by them. described our are accordance remarks rates remained revenue. service in crediting his impact flat formula received cash Average on on the tempered sequentially members end our period HSA the and HSA rates Jon agreements our somewhat that the in in with with

interest rates in elevated fiscal rise and 'XX. end to by increase our continue expect remain included have rates basis a as the point We these will guidance, overall of X

their common then amount which year, Our non-GAAP year. net of includes the XX% of of interest versus income partially rate expectation rate projected rates last now and income outstanding. equivalents reflects average And also the million, HealthEquity's we anticipate assume statutory as tax by diluted variable share approximately higher count a positive on rate GAAP $XX this of guidance debt debt variable reduced share we offset

rate year. ends for a year tax we GAAP on current to expect we rate the As GAAP income. Based this level tax Discrete pretax positive of roughly our GAAP on a calculated income rate XX% impact our full tax also have may tax guidance, moving XXXX. fiscal low impacts net discussed, strangely

metrics full the earnings the As the recent at of release release. the and reporting reconciliation to reconciliation to in done such of XXXX have periods, a is earnings non-GAAP included a includes guidance our provided provided GAAP fiscal the end definition items in non-GAAP the in non-GAAP all metrics of of we

lot with and not last In know our and income, of addition, the being made we members, acquired will number of real I've team our net serving the the while time next you teammates opportunity. is years those continue from of from amortization the assets intangibles My progress, pleasure. over excluded. a confident non-GAAP questions. a excluded intangible course have I'm driven my X.X has investors a generated to the is as We revenue that, been And acquired

for let's go So to Q&A. right our operator

Operator

at Thank first from you. comes James. Raymond Peters Today's question [Operator Greg Instructions]

Greg Peters

prepared I remarks, health to about the on your help competitive I macro with you before I congratulate XX% to was of some mentioned and perspective like environment I'd curious your compete about you my Jon, from service challenging times. also just And certainly begin guess growth. a standpoint. question, something in Tyson, a sustaining equity, your

some Dubner maybe just success share are, from some numbers as success, and and seeing You're are in while others as growing others not. are having you much

the updated market an to view Just today. looks you on how

Jon Kessler

where of is, two you first growth, that drive if sort factors think think I Well, thing have about ultimately is the that as the about. investors revenue market which you care we

growth be and teens. growth. two. second kind single revenue in in basis, somewhere is and it in view, be digits of on And look account account growth the my And first The is I between growth if growth high a typically the will asset is multiyear will at the -- asset the we'll

see ask job, I possibly the revenue best outperform think accounts, trying assets, is multiple better doing change I market from for et any profitability the a job and to look, And don't years. that really hopefully others then in we better can so. of then cetera, over generating to both the terms if reason than job job do -- in question at to and I'm and a based and view our much

Greg Peters

is All -- EBITDA year-over-year detailed on cash follow-up just right. free gap you improvement adjusted My flow. and questions cash flow update Maybe narrowing. basis, the detail a free between my can And should it the about for balance we think be you're Nice on like that are us this out this free beyond flow as headwinds we thinking year? free looking on of cash at flow there how with year? any looks cash

Jon Kessler

-- Tyson, particular Anything the starting regard is, would question the some mind quest question? jump was that of sort the there you or the think of forward year balance to with Maybe in gist this I of like?

Tyson Murdock

come that see, this is net think deals accelerate the margin it's the custodial I mean amortization the you I all other increases in, capability, GAAP in the it's No. positive we there. works as and the cash. cash be with and high expected that are very know as to generation going wage income revenue And now that to from overcome

on business that to is pure I'd of custodial that starting cash the expect forward. continue So generation going to and

like -- other one to the pay things -- there's course, there's we're to Of taxes. in going start there

So got taxes, we I that. that, wires that you than changes other plant occur. and tech see what things other would cause like other for purchases spend can that that you huge things And to like equipment are in there going out in on there, There just think there. in property, and isn't the things and

So to continue it's to move going and up.

Jon Kessler

portfolio at course at anyone as order cash ROI. not -- And And far where using of over perspective, because nothing, to we we with suggesting want of to do there's that's not are term many. first some meaning A. worth that utilization, free from probably we leverage. Greg, transactions all, terms very basically I here, cash reliable we're to do continue expect a to And or use as of that what's it's leverage. too like they going look multiple noting bit of transactions And recent at don't point, But little using our cash don't otherwise. flow and -- probably want it down my that that. where I we've we're cash, our eliminate as we then that the The portfolio sense would to to as happen, will it's my take is if cash comfortable makes of look or years we available we'll aren't paid of statement going will quarters. in that have and in want current

through. the noting committed worth you’re within envelope, to come it’s current starting of in we’ve that pieces And then, see And to organic investing that innovation.

like bringing come as T&D when of And and T&D down and will have You able a expense it’s, get of we we it we helpful the pieces see through. within time. sure the think, while more about revenue envelope as we’re I to that do later over percentage expense I’m question, a will ultimately, that

Jon Kessler

a Have Greg. safe Thanks, light.

Operator

question Berenshteyn next today Wells comes our Fargo. with And Stan from

Stan Berenshteyn

you. [ph]. of although a a has a a personal like couple going yet, my pleasure working not for to I On answer to. Thanks say like questions personal on to would been -- I'd yet, But not Tyson with Maybe note, questions.

Any Any volumes rates pipeline. seeing? win changes or looking sales changes in your on employers RFP perhaps one are your First in what the you're for?

Jon Kessler

not well when answer prone time answers make. the has I'm and been we've most from of willing the work changes in that we is seeing the of mean, what Yes. are back a note I business. one all bill And weren't offset. calendar is year tailwind give -- new said January given make that that so the any away be Probably I the think first and now that's build. without and the start the to interesting notable since source pandemic, able is to different is is pipeline, is space I thing you've hand, creation very turning okay. commentary the and up on just data. seen Stan macro bit this are me higher first win at one of And And on similar pipeline checks from the enterprise it importantly, in fiscal robust. I price we I That's give greenfield and for hand, to for forth. on to year the thing whatever the the they less what's perspective, generally, that, growth out this not new got that that event, enterprise I like the sort One sort the to volume say, pipeline as have would let seeing is -- business People the on look or quarter, job are the then But of is hand, account that's possible. providing so and deals a that then think certainly would And an more noting worth biggest to we we're onboarding of other account as competitors QX

Stan Berenshteyn

then more an on the current enhanced months update it. yields? mix That’s custodial you are And assets one of And get assets. helpful. where expect XX that on do Got Can in be that mix from now? you will

Jon Kessler

that given attention. we've a I is listen, Richard for word. given guidance the wrong I So pay here. We've guidance said has for me This face. get being is what the I maybe

year, hit we'll the that. the at that think You is I true of better we'll that -- a this said so It end doing about and than XX% we end by up little we're one consumers. like that the are the of appropriate point, well working our and timing with limiting also contracts of factors barriers roll-off as is deposit the that as of of education

is going program as of to that product. And lack higher I say this design result So the general, end guess because that we've pace into discussed. ultimately of before for be would we have that features enhanced both as I this cyclicality been able the is think a at or rate to well less the in we the neutral above moving rates to

And he take of go excited we it at more I'm headed we'll to Jim to can with couple improve, where I'm and see it. a really as the excited about have quarters. so where we're add it in look say have about and next and

Operator

comes from Santangelo you. Glen Jefferies. with And Thank question next our today

Glen Santangelo

X right? this probably I are aware, of with any kind most at XX could as you ones points, ago, follow-up us give you're a do duration portfolio quick up if changing on and Just think mean, years margins. in enhanced rates a at today, because are you you getting was and had us the the I of us in I if to curious basis was And few on average a for about help kind then of replacement if XX-year of coming And was waterfall. think sitting curious the can the kind X months. that's all ready me. product Jon, update So just I of here I way any XX,

Jon Kessler

lot going to okay? going sure the that answer you question asked, you to give not a I'm I'm are Yes. words of

Glen Santangelo

just me So, let [ph]. let -- me copy

Jon Kessler

we regard with the In have with of change regard our not general, portfolio. duration approach we cash any made to fundamentally the to the to take

what with -- is I fundamentally you're when and that variable in deposit are to duration kind there's that's cash, swizzle by We whatnot, historically, X- X portfolio, right? in around by our contracts asking or the say think here, about contracts. cash You're liquidity-related that deployed you duration particular, And duration mean, of the or X-year that's mean I and actual that really deploy above fact I there's talking minimums money and years. rate the right? and

think will COVID new that couple contracts and over rates, the that extent Now so right. the think the be you deposit I but that of question, re-cash of your Glenn, [ph]. particularly if -- here were of right, I to and placed going mean generally, on well, place and include years even bump it's premise nice things the couple premise out is a enhanced of a is deposit there's I extent I the all lot There which that that will of produce it -- running next are suggest is to contracts, particularly a think have, the cash that -- here,

line, single right believe. conversions -- associated roughly the any lot I So the of look, economic mechanism. calendar think the And placement the to scenario think at XX may both so made a not the plausible we've economics the serving right opportunity is those one runoffs, of reasonable members. but timing be wage that to And under pursuing that the and of -- higher natural was I going or X. ongoing our going But to going choice includes have the about It's our or on really at I see and the you in here. were of there XXXX, the result any good. from be needs kind We this it's that to just it is not is that with X-year in moment whether also XX going profits instruments that cyclically, the seems custodial to we're looking time profits. and see wrong, of basis, we're be think absolutely that deposit an higher

Glen Santangelo

there's I just and Right. I'm Jon, your comment, words, bump I to is sure want correct just said mean use company a in a I there bump thinking you make to it we coming... clear and to even because I today of big mean, we rates, at if you want go look pretty a bump when it's don't those size there's consort back cash mean,

Jon Kessler

I not about bigger even but -- the think -- and know, got thoughtful well people you the be -- And creating on of 'XX. to be and little sell, their premise ahead but Yes. an will mean, think sizeable. want a I when your at think calendar I yard so it skis of but as I -- beginning to is you Glenn, I skis maybe correct, --

Glen Santangelo

technology unpack to sort you help maybe us just and that could and know some think what's EBITDA the on one But of think was quick And when margins. right. benefits. membrane the obviously year-over-year. about yields was those some improvement -- All Tyson, wondering really was custodial mean the basis the there real X I growth if in EBITDA contributors. better balance And just points XXX I about was I driving you that quickly adjusted EBITDA up up one

Tyson Murdock

way and like Yes. it we the one. the in go EBITDA of and the down custodial about, the hit XX% in revenue obviously did drive the and would model, history that knew a of it. like one back And I this you middle back, margin we we've summer, falling to is talked mean quarters to

talking very moves -- all thoughtful stock which I like fine And which say so as towards that we that benchmark is mean about up. the back not when with And peers, just we're that, how something EBITDA. executives costs. managed we've we're improve comp, we that But what I I of moving been controllable do our we've think and our added single compensation and hire And work thoughtful and of build we is get every much about types I'm it budgets back but who those does What we very day. into how things. about how on

matter I raise think takes just that's so, the able line. the by a along of seriousness with guidance that which why the And with team that's our EBITDA to we're X% and top

it that Normally, a top raise. line you see percentage of as

just it's on thoughtful about And there's So the are it's as working success been to lot it well, will also being those efficiencies. up be longer-term that. true cost and set there and a think line have show. I gained And start do on to ourselves I for where service that's that gained that the of think executives item. we've efficiencies again

the we've I get those down think pushing of we'll are rate things think some about. to that enhanced on of And sort benefit are like through so program, the through well been the there And of I continue talking showing as that.

So that will continue for some time.

Glen Santangelo

And luck, Awesome. Tyson. best

Tyson Murdock

Thanks.

Operator

next our from today And Sean Markets. comes with Capital RBC Dodge question

Sean Dodge

over to the for before time. placed yields and X going Maybe said in those Jon, but product. to they're smoothness cash you've you And back Thanks. more just just Sure. I work. said you years, clarify how enhanced produce know, those designed to also further

all from more not January the the and think of that these So mean does is in year a these smoothness being over coming layered more the happening course are in frame. Or we variable like fact rate -- time that about lumps the around that product? should

kind coming just to more And clarify these on Maybe so where that. in intra-year movement the of help their as X-year is ladder, instead January, happening it's roll from. and of that's

Jon Kessler

thought X The these there and through sources bit work we products. as quite answer a about really are of this, we is this

deposits The the do deal do first sorry, you to mentioned, that it. money you saying point when say -- is cash -- you and that's like fact keep the and the the you when money, all I'm strike send second is that you

of in to lack dollar ability in the from kind for have do you average of layer and money cost out. Here,

to so sure on way, all that we're if uncertainty be And to look about going our we we the to tremendous talking this and at be you'll when does like, point, and And some topic going will. really not forward help. not December the quarter we're I'm have about that we as announced talking

we instrument. The the that is second liquidity factor is into that to maintain need the variable cash built

the bank minimum term right, instruments, they but they Max, work fundamentally, in deposits. still yes, a have So like

we a that protects today liquidity our cash that because of have of our in need it there total have instruments, against HSA rate so or we And cash million separate and about variable X.X% purely X% to about is any issues. us

And into the so liquidity is built the contract.

variable be there's non-cyclicality. to and these government right? valuable bit of which And people provide in for is this when guess March get is bit that they anything changes that rate fees, little is I'll that designed of will XXXX, which to internal it's to have the We that's to not Investor between exposed in and have interest the to rapid close where our into say, the downward in agenda There's products than little rates. investors I business sure is some and quite deposit very nor we've really fully end rebound, we're really third in very But get And done recognize our the try everything the we on eliminating extent, to thinking that you're when start a right? policy are, still some cyclicality, though of I'm as it. helpful factor, managing dollars just in when you then a terms of more, situations the in in other -- stuff changes terms what of so in it -- about power And as as we will is been to that occurred of the to particularly like produce big and contracts internal, we've world just been, minimize trade-off really within a when bit Day. that particularly

at go sure, into to the ups that's goes so are the products, will going the more be in we'll, But -- there these at we're that into that all downs, variability will there and together, rates. third details And rate take will should be short-term with it's it these -- there be money interest that less less not or And aren't be point. some be. the the there second, But factor. again, I'm and okay? changes a, case, the the variability neutral And higher

Sean Dodge

still it you're we there to give like or are longer point goal cash about Okay. over the how And there -- [indiscernible]? better take, quickly opportunities then so tracking way is Is some at transition XX%, term? transition to Or of thinking at accelerate that that. or to to sounds that out than the you deposits be these, start should slightly you said the the

Jon Kessler

the you So tell that’s what asking me you I’m it. to think otherwise, way should about

Operator

comes question our And Schoenhaus next you. Thank Stephens. with Scott from today

Scott Schoenhaus

Guys, can adventure. is So congrats you. pleasure you also your next to It on a Titan. hear me? with working welcome Good

break fees improvement you I by on talked would of service growth last in wanted to questions most could I was any driven differentiation on driven -- I you commuter be much drill -- have asked. underlying think like fee if my side. CERA, that great. So about just the slightly just raised that the versus been the of quarter How -- out

Jon Kessler

there was was a faster look like. we from But starting that fees accounts. little revenues about start actual believe, get first put quarter, out at to the if through beginning So service most look than CDBs into service because of think to and talked particularly tricky if you the come of than issue that, the fiscal that slightly at it, see service fees, you're come going we grew little if bigger critical factor. But in the and accounts particularly a in say collected just fees, increases the And the as to you 'XX And of we rate would I it, more as some volume are see -- you it's the I like. I here driven. a take and total

what moment, think a line. seeing more you're as well. I volume we course, on top that the are hope Of volumes is the But up also little for driven

Scott Schoenhaus

like And versus That’s days just Anything sheet, then the the in of cash. ago? color. environment on M&A million changing balance Great. $XXX great XX

Jon Kessler

and And XX back We commented the went side a of partial that just proximity sort the deposit if did end weren't to of likely. on term that to from A. me, like of I no, like little -- distance of started little we it did math kind showed bit yields that. why the bit and X days our on that's and And a felt kept we But ago bank sense. April, that to it's that, and say ahead. the -- with think Tyson you given should the math right. recall, and he did we of seeing crisis paydown it We me, showing said then made times we he the But at it a to he are I was I

but transactions you've not a so of and You've few are piece seen But business, a seen going to the point. this where do those. some we're of HSA of business in at the areas the whole transactions the that those generally is primarily announced

I in to market. others all to making increased want we're who will enhance make in also competitive, factors too and barriers investment the truth, the like to think presumably be fact things those that staying the raise that move the rates,

all don't any the and that on transactions with multiple cash them, dealt this a to to in muck work. shareholder It's is in do And can we X, those leverage in know, these We perspective, IRR know we've position free, thing flow a from and we're you to area, having not we And the possible think kind to bracket, from a type but ready these. players. perspective, or we've of cash X over next we done bank break while, about the to magic other you X or do around but synergies transactions. the need will portfolio And look pleased it's that number and it. And if so top make at that of that that see do nice the very flowing you're be larger not as IRR. I don't a the them day -- of the works, of transactions, start in with type. I and think be

just I bit less on think bank a old that's incrementally say, a say, better. the occur would little I those. still like smaller transfers I long But -- a particularly guess to of I So little way think just transactions, it's plain that less

think still they're small banks I the I got scared. a good think pretty scare. pretty And

Operator

America. question And Lutz from Bank Allen our comes today next of with

Allen Lutz

Tyson. one guess for I

back about quarter, didn't quarter. some drivers basically XQ $X.X and goes since the I just of increase to in guess ever some As dip. of IPO, in and of XQ and sequential are components up the fiscal should I revenue at revenue look revenue it going this those to sequentially custodial drivers talk looked in from only talk the And impact year? really about really see about at I went the wanted custodial every But the we the that? of then Can custodial we million you revenue what 'XX

Tyson Murdock

middle we mean the are year, occur that smaller, the which Alan. I some have of Yes. deposits in

So we into on program. could continue got on the kind FDIC there. feed side, but make we've and enhanced operate mid to operating make adjustments into money we as MAX sure well, of the between we rates start deposits the enhanced feed to rate the as the And dollars to we

see You well. accelerate start that to as

said, too. on so of And there, Jon our as we're goals little a schedule ahead

a rate better little the us. steroid monetize story. bit that's funds do client-held to against to available So we continued that's also environment part We've how the on of currently

nickels make this, and and doing new treasurer to a making -- improvements so new little got credit. out a We of there. we in squeeze got And looking we improvement a He's of a he's clearly, I bit good and more for job. And ways times there. give

amalgamated so kind together. all of those things And it's

Jon Kessler

thing, what I'm that occasional compliment. X variable to -- One off, One took what acknowledge good things year, for that bidding, in looking rates just X. positive doing, obviously, and a importance not -- I mostly to you're if to for off don't comparison, be me tells from be see think tandem. expect is since I that going rates you're took year, this and I I that is, noted doing Richard I'm expect last but do year-on-year they to are in happened this a is Richard's happened

business. component variable about the the then boost should generating say, a certainly there. -- rates was income funds CDB And see was over And where beginning that percentage began roughly a because where this WageWorks and CDB up that lot years we a start since big of X. a effort that at because in custodial work the to the we of that And second, to of Tyson transaction the of So tied marginal from. come that's wasn't there that, couple of CD course real didn't referenced from sorry side the coming terms the was of the and it I wasn't year. yet were most

And so you that year. same have ramp won't this

be current are the of someone's So in going you guidance what add the have you'll doing look can view better -- take are cash think I our higher for about you a to -- second now, it just basis good where you you points is, that add things pretty is a things can do if the think can what obviously -- to implies pile look year-on-year comparison, and half. way XX for guidance rate you and the rate to whatever to at at

not And that arcade. the math is so

Allen Lutz

Thank you. Very well Jon. done,

I one last one now in Finally, one. quick can quick -- dive one

to expanded So talked HealthEquity? think and Jon, about kind of Is switch? year, different this the switch more impetus you growth driving you're And what to for something new as footprint same? seeing talked I then growth of year? more I'm is of just the some about wins about new that's growth the to the rate. supporting this a it there customer, Or partner if vendors you is prospective XX% network customers logo kind market you growth, a as guess change of logo or

Jon Kessler

by would I speculation think the Steve most things there's on now we're that X well. and getting data, I kind. dangerous realm But to this invite happening. think is into I of And as informed the are like which -- comment

X now there already they on year an that to departments side, impact it benefit The a the fair and its wage in HR coming are seeing first probably now is on pandemic, and I it's it. year, say in some think particular, out that are much the of where of the they're side but this and they've coming do that impact didn't see inflation seen period out of until

optimize benefit benefit doing being do that trying environment. to I what the more clear attention partner think on I I think paid we're side. right So then to vendor have great to little And the mix the is it's becoming second design that in a I'm there's a and somewhat factor firms And do thing say, you spends this I do more He that it as is there's anything. to Steve who's Steve, Healthcare. than maybe, airplanes do I it. And think the time I that in than win almost -- are -- to of in there spends smaller really was. number But somewhat

on to going So I what's you're speak out there. as qualified as

Steve Neeleman

and getting the and integrated us the get a XX,XXX or Covid that consultants to we sure bigger a from everything. knows the frankly Alan, -- going regaining look, while hit to we employers as whether lined trust close and right the brokers that, new the nail execute you deal ones, the They going right, much X,XXX everything a from XX,XXX of history, reopen to up And took everyone. large nailed and to could before it teams a of that X,XXX, they're the go accounts, back Covet did able even and move And think of -- teammates and working pretty big it's to if that's to trust Jon just really the candidly. to company HealthEquity their that that be after right they we've regained wage it. to together lot big trust like XXX it's folks X,XXX HR with X right, make or back an be or things to over deal, I have solution. professional have that, to and we acquisition that And

a our systems kind of course, they -- we're it is about of employers, to like to if when changes HealthEquity easier service you our the stride mean, now all just integrations able lot think to hitting I midsized large believe to has those thing I you and We not consultants, that. don't been really and great were market, really things small think employers, so and need like the a And and lot which of our that to that. talk perspective, makes about working talk health talk highly that a to is, worry make regarded. service you do of I always these And partners, the things from

the I then think that red positioned. benefits. and fact Jane when trying all people of and the other we're great with And resignation to more very now a stuff, spoke to little just more you're macro well transfer it's people's a So a dealing you're hire and rhythm to and

really can adoption really tend good savings to Now start health is of leader health the that their things And deeper proven in savings they space of at embrace workforce helping say, a looking accounts that right, that. accounts. some time where of all we're kind know to like we drive and

Jon Kessler

Allen. Thanks,

Operator

question our Bank. from of next today comes Hill George Deutsche And

George Hill

keep echo working the try for I'll to it been great settlement positive I'll you. I guess, Jon, X me, with Tyson, has brief. ones quick and

of the there's as enterprise throw quantify pipeline through any I go back way selling the as one. upcoming And you about we what's the the First, around or you I'll pause for to some gain if numbers kind it? don't that then come And know can and robust. strategy being second share season? talked

Jon Kessler

briefly, me perspective into pipeline -- of one But from sales Yes. giving game say, not isn't rocket to and numbers, out let in going it strategy a I day. science. of get two this got back I'm the

can its year, more not that but you see the We throw going if over across of been particularly this open kind the enterprise of season. and at word and you a about to this challenged not sales look -- way lot long this year, a cycle those using people two, -- if And the we're to see starts is think you NPS all of do and kind the -- likely delivered prior and the year -- those -- numbers good look like see a like. But have the call I like others the market things. or and where harried enterprise were we're just whether leader January last busted your can in they start things how and call not I'm wait of are think last up works, center they would at start during people, little the the data, we team that remarkable And if end deals were are bundle. or people and have you and enrollment --

And so those things matter.

to what and And where And our then are that that, looking of the see the are and ships on conveys can lastly, feature are months. that strategy for George, as time are in we right? our course do Richard, of not at in it not you'll what next I'll -- to we're Tecatand as people stuff be over But so, or cashing comes we're not to earlier on seeing a of we function, relative map, much period where do, like that's our so here, some matters road in looking my there's are releases a place investing you a who out on. back really spending again, comment relative -- some press are folks who is the every where clients, are happening. invest -- very at what versus from we this technology, month certainly just or features and looking a they're actually neat we showing of X It's know, not that we're what an But the clients perspective we the doing. say, at new in interesting we're product, competitors we infrastructure, to and place but a there's fortunate other segments, going in basically

that, seeing that. see so. too to the to the the next think I you're so of I And the attention kind it over year They're of small enterprise going don't. or to that really think pay groups gets whereas course And

George Hill

given the is to. business yourself don’t I I That’s I’m have not in well, weren’t we I guys to talked prognosticating knew average of follow-up, me answer rates. helpful. But going And as pipeline answer of of which – that Okay. also question, that I you me think historically company so not the that know I give you give an – about sure – to the the you’ll a an kind think

However, people if I years, you trying rate looking probably in the rates. of given extend a people move are down cycle, we’re business imagine proactively are versus in think business business do And duration? where to in prognosticating think my is guys the Because the out in X my next we we ever rate up. of lot about

you want timing. of in about kind guys put that So just you kind that to are that of anything that and way makes cash like you and is duration change custodial the guys seeing think of there rate to environment you how the kind work

Jon Kessler

Yes.

than going to I'm give is I've So slightly an but different that before, the probably slide this to answer given question relevant. is only you

you in that X-, the kind I which enhanced we prognosticators say invested this rates trade-off as in the allows first needs that generally instruments we've of the that HA are one the the -- the us instruments. meet to perspective features give answer longer-term of the aggregate we've range. product, we we somewhat the duration is is portfolio world, our of and in the we've the that around me the liquidity exactly been for and we liquidity benefits some cash hold will one of instruments to Let generally -- say, instruments of X-year not in of say have from tried not duration have can while

And period moment practical so or last forth, particularly locking that so one be at effect designed to those we're extent of mind, of like mean, end the of is this it's a in a whether cycle, in with funds, this wasn't higher cycle the by in that while this end not an we're context, to it the that placements I for extended and cycle yields and going on year towards of cycle, time. the placing

again, -- to be want do I so and And saying that. thoughtful in cautious I

benefit rates about a into yet if do instruments spending just expenses, that cycle doing not First it. we we effect produce we're of to think more at in that practical we've than -- actually is company way see from this all, this we're prior using think going same our I managing past. there and is of or the because like have when from neutral think about we the But it deposit honestly, in the would we neutral is you if seen cycles than were

George Hill

and That relevant was helpful.

Operator

And question today next comes with Marcon Baird. our from Mark

Mark Marcon

Yes.

First all... of

[indiscernible]. don't You Macron -- want

Mark Marcon

Tyson, it’s with been working a pleasure you.

obviously, Because doesn’t just deal? yield funds was explain up bigger on In it. partially Fed so the serious the enhanced of product overall terms the yield the a that questions, becoming is due on of moving fully cash, much just to portion

So I to just wanted that? XXX% clarify

Jon Kessler

Yes.

would right and talked during addition, placements, that period, bank the have the now. In favorable small. bank we I say, We've placement had would any before extent they is very this to been market about

Mark Marcon

through sort in Are growth that from of behavior you anything take seeing XX% think Great. holders? Are what any investments, line? intermediate starting the chase movement with Obviously, at And terms I And seeing But overall bond the we mean, along investments an they like that additional there. to look terms a how or just that? of should then regards of to yield products we the the market. if perspective? you in are even impact there’s about been of

Jon Kessler

our Mark. same the asking as funds, but distinction -- market, kind I for portfolio in the you ultrashort like of behave between government and the question, include bond fuzz Thank Yes. by money insured government. the federal that offering not by insured things that We manner don't does federal think

effect. so think marketplace some do. the our And they to, don't practical sometimes you as of intend other might the in what but with it's I see folks

those quite popular. and have -- funds been So

of know get think than investor I get on I'm cash. an do I is to it. know what, going So to can I'd I saying, is like "You that members this there's do yield not that more anything with element

in me products. at some to these can clarity put I'm give up or it in tomorrow, willing least put Let card I of swipe of the it whatever, my I'll today, and

what great, an is, think still also the the but those can like decide X% some there's are but of over beat doesn't there's long in motivation that's that stock I you CD -- market every article yields the paper think term. that. yes, I day, the the it's -- it

But kind the allowed well, sure, availability a more formula, that but expense. too. say earn it's I dollar, guide from a we at it the of of us, an that, probably the of to mean day -- A product asking in want. fair for. the the I a that more element, cash. That's probably has if to that in are them -- cash on I getting some there's -- win sitting customer it's -- keep exactly advice products were part our nonetheless, so product industry to on of of and they -- custodial they're might them just broader end discussion. that capital the think pay perspective those think that in If there's that's lid giving sticky. it's And a incremental while We're it from going rates on from determined the that's and We to we try they're part the just not be us, to that's our

think sort I so win. I a I And about that's how it. That's think of guess

Operator

One comes question today at from BTIG. Larsen David

David Larsen

delta any can around describe COBRA revenue obviously that just it working would job about you versus very on like And was I did great either a the down XQ, Tyson, quarter. Jon maybe great company the just you XX%. more helpful. talk if cycle. the it's be And good a very, impact? or And a Can on you with what guiding through that tough exactly very Tyson, clarity about interchange was, you. Congrats thought XQ

Jon Kessler

Tyson, you want to hit Part A of that…

Tyson Murdock

Yes.

just David, the On the I mean, seasonality. normal interchange, that's

they're first we've people to into year, not the actually. spending as more. part So as of the going to they're the spend then HSA essentially the up spending And they're got move less we spend accounts summer going they've loaded as home months, in

always And that so through. we get seasonality

that softer see a CDB the those funds we accounts as you'll then you'll on into got get kind a QX, you've it of it QX So used move point, QX, point. and up. QX high or you've the see And remaining got use lose

QX, a you you and see that. why stronger see And that's so

And in so funny is that seasonality look little a history.

hard it as smooth is decipher I because that just explained. it seasonality, So cover quarters now, over look history as doesn't to the in effect that

you're So to then that's of has hit and And thing. it kind going less the Jon, one on of a David roll. oversight

Jon Kessler

the Yes. legislative again, just we've -- in got -- mentioned we've side And that's script effect the the of that. it, bit on a COBRA of little of

multiyear go just that fact COBRA people legislation And there. so to into to the that's optionality out and with this don't all way the after exiting communications And the the people with off also broader regards of have COBRA, tough to emergency up, forecast FSD been regards Cobra, make to the a revenue through given economy job, that national that drive sign think, and essentially that different strength in changes them of the, even number wasn't to we I we how expected. that just the the maybe having the

kind those are kind of around. things the of So things those that push

David Larsen

like what risk demand. a in the year, risk of great. in a the of you’re that terms next not Okay, also terms any seeing think recession or I hearing slowdown then of I’m that is And of of

exact clients. that Is lots opposite. of a signing up of the There’s you’re In fact, it’s of bunch right? kind demand,

Jon Kessler

the tighter conditions, not, there fair recessions. of what's predicting are that to design clients there is are whether at probably our or don't I I and I -- conditions earlier think plan about effect people think know it's that's out call. they're is like the that a human resources talked the mean is people department in things recession happening that are we anticipating that win-wins experts and say to that in I don't But anticipating I know. tighter But that, attentive

with when but moving in our change numbers of the a adds that are like, at job -- a of look national terms I as the of I account in point. data tandem function result this So the are new that -- mean, just at and data

think would that I So nothing there. you there's surprise

David Larsen

think years I contracts think I revenue your your then you should right? basically continue every that increase the And X renegotiate through Okay. clients, custodial with imply which would year, next drive yields that to

Jon Kessler

X was I or I is one bigger And on deposit -- X would asked contracts but it question. the to our themselves, think duration just that that refer just -- to to maybe the X, back a our but similar years. answer Glenn contracts, say,

a quite the obviously, been you're also growth. the see And through couple of So last there's over of years, these there's -- a to quite come during, going next few years. bit few of

So if you this, look back reference at to dividing today -- you to your versus by year you need need to go that number.

David Larsen

these favorable see around… were is in Okay. And a think, what few when you’ll and saying you manner, you quite I say a – of

Jon Kessler

Yes.

David Larsen

just for lastly then And me. Okay.

gross service some margin pretty showed good obviously improvement. Your

How think, You service I in can like, trend gross high XQ ‘XX. your as got as to? of XX% high margin

Jon Kessler

I make is like we We've the cyclicality in that past. of I able the the and targeting of reduce long-run talked margin not ton to components, as say sense. think total about a predictions. makes don't we're particularly I'm this the -- will What other I

HSA won't don't this, be while, this to heck, CDB are we where bit each third particularly we we'll is down. an of take little but be us business, room a over and be, I cost bring And mean to this know. end delivered to here. some time, opportunity. do number of I profitable. the quarter. the but we So little out last be get little to going can that little growth And we going all, then the drivers I do I quarter back in growth software ServiceTech the a account -- from that grow then that it have just I'm secondly, able, we've to but think at into underlying a in It bit a kidding may and ought a quarter. of have first And are that XXs. of And the is of businesses true,

Operator

next Sandy our from And Guggenheim. comes Draper question

Sandy Draper

Not Thanks left a very to much. lot ask.

we'll know the the working future. I I'll I to been just math at It's first, comparison we'll of I some quarter. in that's first do X-day cash also per looking at it's just a path cross pleasure account, down this say question, to guess if a get So Hopefully, with echo simple point the you. last just a Tyson. the quarter touch.

now sort ties trying any much you're seeing there of to for be of behavior you're would the to visibility, versus couple maybe put the the Is about reimburse question. themselves. have think pay themselves notable about and change the Jon, money what investments. you back more not this saying, past first to people Just versus and That because desire the years in in

Jon Kessler

about the would intended. there's no quarter, to here ago, but don't mean in already you really a short of that it S&P they're was like just much investments Look, up Now total they're close it look way if all, first period, exactly transfers this question, I'm QXs. these the I backdrop. increased off same a investment, talked at an period it is all the ultimately growth you Because worth little mean just the earlier better the you I to Greg is period ex expect. been after to good. about year of X it's goes. at interest glad have And as think I a And line growth as this reflects I'm over look how I the QX be to to and here record kidding, same more. other pun billion contributions, year-over-year down, that because the in if going you're ask many very -- off during about And -- number a if difference I cash the think hear think, Also, reflects at if course we from and I that break in it bit asset assets a than up. answer were look talking to partners. market single quarter, No, XX%. was -- that the actually that's I think is just be that I plus for was the $X I going noting

And contribution backdrop kind thing stuff. we think, so seasonally I all kind that really you underlying behavior, expected. better the was about which what the pretty But the Spend and about same. care is, much of was would market of the

it's spend think in any don't fundamental I So behavior. change

Sandy Draper

Okay, great. And and then if for him. dropped board Steve maybe hasn't quick gotten a off, one

out man to are in you're the going You D.C., potential really for out But ground come Steve, invest coming commented that ability there D.C. save whether sales. going nothing in out around step-ups anything bigger is environment regarding of on people and right the now? potential anything it new of or Medicare on Or HSAs, you to on it's DC?

Steve Neeleman

lack over things for that to of right? the some thank around enough, higher you've now and loosening Thanks, discussions. around years of think of there the the qualifying been different plan lot support preventative are remember like more have on was care, back, your there's we kind up a long you we're fantastic and on Sandy. of to Americans in whether clarity And a is that installers focusing little very high to still up more is some kind on the for paying of around a for they these bit what continue it's going helps. that I attributes and coming need things and And just do have And That But was think D.C. what nothing day, that people that under actually administration are Trump medications clarified like I plan. on this And allowed start bipartisan.

was not that And then bit they change so been it, the and supportive administration has help only introduced to it very of those then also. that but

So at as like and and they now and allowed the meds health look stuff offered their like that and meds benefit employers then by funds, at high plans when design, pressure you especially look -- blood you covering large regulation. things are by diabetic are

know Hyve plan, other to with as that we there and there can what cloud that which work we any to of all the little do, would to HSA, a but it's mechanisms the we're So are I bit soon one that right, refer that try the plan, we every agree that. -- with that is all obviously, to ground actually think needs say, has do trying American is

they're despite they I'm And nature on, that so news so how by haven't given -- Democrats and it's I and everything seen torn Congress. bipartisan I encouraged discussions I everyone and sees when the talked just the in apart. that station turn Republicans of when to think they

portable more accounts we HSA hopeful of account allowing to personally just of benefits we they are investable other one the owned and some so see type plan what that to refer continue Americans of the kind And as to we'll these of have -- have. expansion, or

there So the to be before we bills mean, we've that let's progress, -- continue and we're been continuing can next hopeful certainly the can just believe that election, It's yes, that's But what on. focused truths how we're will for I I and make saying some expand benefit. that. question. presidential the to expand thanks

make educational So we they along, decisions, constant that made information we they pass then as a -- just legislators but started will that and these to sure out, it's disseminate start will game.

musical always make thanks, over appreciate I So and sure too. musical down. talent your your the years,

Operator

remarks. like turn for Jon to this over the I'd closing back Ladies your and you. to concludes gentlemen, Thank session. conference Kessler question-and-answer

Jon Kessler

we're I the genuinely comments -- of be Murdoch So you this Mr. all we'll have type for going Broadway the him. or time see all Actually, guy way her about hear quality like I to mean, the be be I find most but Mr. This I takes within XXXX. It's certainly everyone -- has organization. teasing for always really he kind time to like last appreciate talking your in not out February or how book last will this see flights and This not Murdoch the is going Tyson big I stuff. think this for is XX well, to to time. will one are and missed But is call does. see on And now is leukemia is no...

Steve Neeleman

this. do But know can I… Jon, I

Jon Kessler

Yes.

Steve Neeleman

want I that. to thing one interject on

thank we some we us we'll guide think through guys. the be you. of the bring one you but do well. Tyson Tyson, look, mountain can maybe So good business, our And as love winter. have would help I And not guiding. we to felt back Tyson a to only thank maybe

You've and thank everything wonderful you've done you teammate, for been for a HealthEquity.

Jon Kessler

Thanks, of and December, see in and it. All of in right. February. all That's everybody. then, appreciate I you really We'll then, it. some course, before you

Tyson Murdock

Thank you.

Steve Neeleman

Thank you.

Operator

attending for Thank you, conference call. all concludes This Thank you today's today's everybody. presentation.

day. disconnect lines, your and may You now a wonderful have

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