Q1 2021 HealthEquity Inc Earnings Call
<unk> equities first quarter fiscal 2021 earnings calls. Please note that this event is being recorded.
Go ahead Mr. Putnam.
Thank you Joe well.
Good afternoon, and welcome to help equities first quarter fiscal year Twentytwenty one.
Earnings Conference call.
Joining me today is John Kessler, President and CEO.
Dr., Steve Neeleman, our vice chairman and founder.
Darcy Mott, the company's executive Vice President and CFO.
<unk> Bloomberg, our Chief operating officer.
Before I turn the call over to John I have three important reminders to provide first.
A copy of today's press release is posted earlier this afternoon on our Investor Relations website, which is IR dot Healthequity dotcom.
Second.
Our comments and responses to your question today reflect management's view as it today June 2nd Twentytwenty and will include forward looking statements as defined by the FCC, which include predictions expectations estimates rather information that might be considered for lucky.
There are many important factors relating to our business, which could affect the forward looking statements made today.
These forward looking statements are subject to risk and uncertainties that may cause our actual results to differ materially from statements made here today.
As a result, we caution you against placing undue reliance on these forward looking statements.
We also encourage you to review the discussions of these factors and other risks that may affect or future results or the market price of our stock detailed in our latest annual report on form 10-K as well as subsequent current reports filed with the FCC, we assume no obligation to revise or update these forward looking stay.
In light of new information or future events.
And third during this call we will reference certain non-GAAP financial measures that are defined in our press release.
There you will find additional disclosures regarding these non-GAAP <unk> GAAP non-GAAP measures, including reconciliations of these measures with comparable GAAP measures.
Thank you for your patience I'll now turn the call over to Mr., John Kessler, our CEO.
Thank you Richard you know Hello, everyone for joining us and Hello, everyone and thank you for joining us.
During the quarter and in the weeks since our hearts have been filled with.
Prayers for those who are dealing with personal loss gratitude for those who are fighting a pandemic on the front lines, but also with determination to help drive the recovery and we think the pandemic short term disruption and it's good to financial performance did actually strengthened our culture and they've certainly accelerated or soon.
He attained.
And we believe this movement has permanently accelerated market trends that were already in evidence before the pandemic their favorite those like health equity with operating scale with product depth with proprietary technology and with solid cultural Foundation.
On the call I will discuss fiscal Q1 performance against key metrics and strategic implications of the cobot 19 endemic and its economic follow.
Ted will describe our operational response to the pandemic and Darcy will detail fiscal Q1 and expected operating performance.
Steve will join us for market and regulatory color during Q1.
No doubt the pandemic in its economic fall out we'll hit our results in the near term they already have.
Fiscal Q1 revenue of 190 million and adjusted EBITDA of 63 million, well up 118, and 62% year over year, respectively were impacted by our members inability to use commuter benefits for spend on health care during extended locked down in the second half of Q1.
Well as by lower interest yields as anticipated on our Q4 earnings call.
And adjusted EBITDA margin of 33%. Despite these conditions, though speaks to the profit potential in our business.
Sales showed resilience as Healthequity opened 104000, new HSH grew total agencies to 5.4 million.
Similarly, HFSA assets held steady at 11.5 billion, despite steep market declines and it just say cash grew by 40 million as members continue to contribute.
Total accounts, which includes CDB is sell from 12.8 to 12.7 million with new Cdps and new HSH is offset by run off of see why 19 accounts on the CDB side as anticipated our Q4 earnings call.
Studio revenue performed as we previously anticipated and the team has kept depository partnerships healthy, adding more than 2 billion in capacity in just the last six months.
That's a long way of saying, we anticipated and hope to give you a hell of a quarter when it started.
But the Pandemics impact on our financial performance will fade and it will fade likely with the economy's gradual reopening.
More importantly, we believe that the accelerated opportunity is permanent.
So we're likewise accelerating achievement of our operating synergies from the Wageworks integration, we're accelerating migration from legacy platforms, and we're accelerating deployment of our total solution for connecting health and well to employers and consumers, who now more than ever our searching for win wins, so I'd like to have good detail.
What the team delivered on this course in Q1 debt.
Thanks, John.
As John said, our response to the pandemic is to go faster.
So I'd like to tell you what that meant in Q1.
The team reached $40 million and achieved net synergies in Q1, and we anticipate achieving our $50 million net synergy target by the end of this years Q2, six quarters faster than initially promised and before fully achieving the benefits that will come from platform consolidation go.
Going forward, we will report these incremental benefits not as standalone synergies, but as cost reduction and margin improvement and the ordinary course.
The team finished its fourth legacy platform migration and is on track to deliver six to eight more this year.
As of today more than half of HSH NHS assets have been migrated.
Retention during these migrations has more than met expectations.
Testament to the hard work of our service delivery and relationship management teams.
Our sales team has built a strong s. why 21 shells pipeline despite coated 90.
Hey, just say bundled RFP fees are up meaningfully year over year.
Over one third of our large manage clients are in cross sell discussions and we have launched new network partnerships across health plans retirement providers and benefits administrators.
We have made good on our promise to bring remarkable purple service to everything we do.
Q1 member call satisfaction scores on legacy Wageworks platforms increased 10 percentage points.
Given by a strong performance from our frontline team members and onshoring calls a process more complete this month.
The team accomplished all this while 97% of us.
Were transitioned to remote status.
And efforts so effectively we believe healthequity could maintain a successful remote work posture indefinitely if needed.
Fact, we recently announced internally that's three of our smaller offices will not reopened post pandemic.
And finally with all of that we applied purple spirit and innovation to immediately aid recovery for our members and a few ways first we're excited to formally launched our health saving score program. This is a proprietary algorithms that helps companies and individuals think about their retirement readiness and.
That of their employees from health perspective.
Especially happy that the score isn't just a number it comes with actionable recommendations to improve results our pilot clients love, both the score and the recommendations and we're excited to roll it out more broadly.
Second as many of you know us payrolls fell by 21.9 million workers in April with many additional new jobless claims in May.
The newly unemployed are just now beginning to tackle the challenge of staying covered.
As one of the largest managers of Cobra and other health benefit continuation programs, if not the largest we see the present situation as an opportunity for purple leadership.
Cobra eligibility confirms multiple options to stay covered options few consumers fully understand.
So in addition to 24 by seven life support for our members and went a little help from our friends at the Dave Ramsey show, we've launched Healthequity Dot com forward Slash state covered a public resource for consumers to learn about their employer sponsored government and commercial coverage options.
Encourage all of you to check that out.
The team did right by commuter members as well working with hundreds of transit in parking providers nationwide to facilitate refunds for monthly pass is not needed and launching what we believe to be the only comprehensive online resource for commuter past refunds.
Finally on the IRS authorize disaster relief accounts within days, our team had a solution ready for our clients and partners.
These are things only an organization like healthequity with scale depth platform ownership and a strong culture can do and we are proud to be helping our members clients partners and the public in these ways I will now turn the call over to Darcy to review the financials and outlook.
Thank you Ted I will review, our first quarter, GAAP and non-GAAP financial results.
A reconciliation of the GAAP measures to non-GAAP measures is found in today's press release.
Our fiscal first quarter financial results. As you know include the operations of Wageworks, which was acquired in Q3 last year.
First quarter revenue grew overall and organically in each of our three categories service revenue grew to $111.3 million, representing 59% of total revenue in the quarter and 315% year over year growth.
The increase is primarily attributable to a 173% growth in average total accounts from acquisitions, including Wageworks and new sales.
Custodial revenue grew to $46.9 million in the first quarter, representing 25% of revenue in the quarter and 12% year over year growth.
The increase is primarily attributable to 30% growth in both interest say cash with yield and NHS, a investments with yield all year over year.
Partially offset by a lower annualized interest rate yield of 2.12% on HSH cash with yield.
Previously we have provided yield data on legacy Healthequity HFSA cash only.
As Ted mentioned, we have now migrated over half of the legacy Wageworks HSC assets to the Healthequity classic platform.
Accordingly, we have adjusted our disclosures to separate.
Just a cash and investments with the yield from those without yield.
We will continue this separate disclosure until we have migrated the non yielding agency assets to become yielding assets.
The agency cash yield of 2.12% for the quarter is a blended rate for all HSH cash with yield during the quarter.
The HSH assets table in today's press release provides additional details.
Interchange revenue grew to $31.8 million, representing 17% of total revenue in the quarter and 74% year over year growth.
The increase is primarily attributable to growth in average total accounts any negotiated more favorable interchange share offset as John mentioned.
Significant Paul can spend across our platforms in the second half of the quarter.
Gross profit nearly doubled reaching $108.1 million compared to $57.8 million in the first quarter of last year.
Gross margin was 57% in the quarter versus 57% for the fourth quarter and 60%, 66% for the first quarter of last year.
Beyond the change in revenue mix, resulting from the wage works acquisition gross margin was impacted in Q1 by the decline in custodial cash yield loss of high margin interchange revenue and covert 19 related expenses associated with the transition of the team to read more remote work.
And other activities Ted mentioned.
Operating expenses were $93 million or 49% of revenue, including amortization of acquired intangible assets and merger integration expenses, which together represented 17% of revenue.
Income from operations was $8.1 million.
We had net income for the first quarter of $1.8 million or three cents per share on a GAAP EPS basis.
Our non-GAAP net income was $30.8 million for the quarter compared to $27.4 million a year ago, a 12% increase.
Non-GAAP net income per share was 43 cents per share compared to 43% 43 cents per share last year.
Adjusted EBITDA for the quarter increased 62% to $63 million and as John mentioned adjusted EBITDA margin was 33% [noise].
On the balance sheet as of April Thirtyth, 2020, we had $171 million of cash and cash equivalents.
1.2 billion of debt of term a debt outstanding and no outstanding amounts drawn against.
Right and credit.
Turning to guidance.
As you know the highly recurring nature of our business typically provides a high degree of visibility to future operating performance.
Due to the pandemic, we're providing guidance for our second fiscal quarter ending July 31st 2020, as we expect that our second quarter results will be more fully impacted by covert 19 that was our first quarter.
With prospects beyond the second quarter clear.
Currently unclear and with significant uncertainty regarding the pace of reopening and economic recovery, we are withdrawing prior guidance for full fiscal year 2021.
[music].
Specific specific variables that will impact our performance through the remainder of fiscal 2021 include but are not limited to members access to and spending on health care as shelter in place restrictions ease.
And their use of transit parking and other commuter benefits as workplaces, partially or fully reopened.
The pace of recovery in employment will impact the number of our average total accounts and Conversely, perhaps.
Uptake in Cobra and other benefit continuation products, among current or new Cobra eligible members.
Across these and other variables there exists a wide range of plausible outcomes for the remainder of fiscal year 2021.
Importantly, our guidance for our second quarter ending July 31, 2020 assumes that the conditions observed in April across these and other variables continue through the quarter, Hi, easy neither significant recovery north significant further declines.
Under these assumptions, we expect Healthequity will generate revenue for Q2 fiscal 2021 in a range between 168 and $173 million.
We expect our non-GAAP net income to be between 17 and $22 million, resulting in non-GAAP diluted net income per share between 23 cents and 30 cents per share.
We expect Healthequitys adjusted EBITDA to be between 42 and $48 million for Q2 fiscal 2021.
Today's guidance includes the effect of Q2 of having achieved approximately $40 million in annualized run rate net synergies achieved as of the ended the first quarter.
As Ted discussed as well as achieving as Ted discussed as well as achieving our goal of $50 million in total run rate synergies by the end of Q2.
Realization of synergies are expected to be additive to both the top and bottom lines in fiscal year 2021 and beyond.
We expect a yield of approximately 2.10% on HSN cash with yield during Q2.
Our non-GAAP diluted net income per share estimate is based on an estimated diluted weighted average shares outstanding of approximately 73 million shares for the quarter.
The outlook for Q2 fiscal 2021 assumes you projected statutory income tax rate of approximately 25%.
Our guidance includes a detailed reconciliation of GAAP to non-GAAP metrics provided in the earnings release and the definition of all such items included at the end of the earnings release.
In addition, while the amortization of acquired intangible assets as being excluded from non-GAAP net income the revenue generated from those acquired intangible assets is not excluded.
With that I'll turn the call back over to John for some closing remarks.
Thanks Darcy.
It is normally where I had some specific think is.
In this quarter there are just too many people to think.
For the extraordinary way remarkable way in which our teammates.
Taking care of and supported each other.
During coated.
And.
More recently, the thoughtful way in which they have begun to process.
Killing of George Floyd and the other recent events involving.
Race in the country.
I think the best thing.
We as leaders can do.
To honor the sacrifices of our team members and the fact that they are able to stay focused.
During these events.
And the best way, we can on or the trust that you a shareholders places.
Is.
To stay at work.
In.
To attain our synergies as fast as we came to permanently accelerate or to take advantage of the permanent acceleration that we see in market trends that really we are very well position.
The to capture.
To further our mission of connecting health and well into do all of that in a way.
Leads leaves us with a stronger cultures and coming into this particular crisis.
And that's what we're going to try and do.
So with that I will stop and welcome your questions.
Thank you.
Ask a question you will need to press star one on your telephone to withdraw your question comes to Conkey. Please standby will become the Q.
My first question comes from an Samuel with JP Morgan. Your line is now open.
Hi, guys. Thanks for taking the question I mean, you're not providing full year cadence, but can you help us with how we should be thinking about what they called it impact is on maybe to the different business segments to kind of build it up just.
Particularly into can you just given its little bit below where we are expecting thanks.
Sure I'll start and then.
Darcy you extrapolate a little bit.
Maybe expense word but.
The way to think about it is.
That.
The impact that Cove it has had.
The cobot has in Q2 as I think what your question was to sort of divide that into the various components of our business.
Yes.
Yes.
The.
The biggest impact is.
I think about it in Q1.
Was on spent.
In the access that individual didnt have the healthcare spending, particularly in the month of April.
The thing that this is where impact.
Goes over to fees that.
People's use of commuter which as we all know we're not competing right now.
And that was on top of what we had originally expected which was obviously the impact rates that we so.
So.
Those are really the biggest impact in Q in Q1 that clean it.
Start us off with Q2, and then Darcy wanting to speak to how you thought about that as we forecasted Q2.
Yes so.
The spin has been the most notable item.
Even if you look at the Q2 Q1 results and then pass for the Q2. The spend was we really started to see the impact of it in mid March.
And you know, which would kind of you know that's basically when the country went on shutdown and and so that impacted Q1, and so what we've done for purposes of Q2, as we kind of took that.
Spend rate.
That we anticipate that we saw in April which is a full month of basically.
Shutdown.
And we played that out for May June July.
We know we acknowledge that that's probably a conservative way to look at it but we like to be conservative and to see how fast. This comes out we are tracking spend daily.
And Tyson and his team or watching this very closely and so.
That's the approach we took with respect to interchange.
If you think about the components of interchange though.
Spend associated with health care and H. assays are fs A's or HR is amending commuter.
In the agent say world.
We always encourage people to spend less than say more and so when they don't spend money out of their age assays that means the money is still in their accounts and they're still earning interest on it and were similar interests on it.
So that doesn't concern us really from a long term perspective, we always encourage people to do that but to spend it when they need to.
On the efficacy in the HR a front.
All of those dollars you are generally characterized as use it or lose it.
And I know, there's been some delays or extensions of time the allowed for for spending but the basic premise is that because the money has already been set aside in some fashion that eventually that spend will come back when exactly will come back we're not exactly sure, but we do believe that that spend will come back on that.
Commuter portion which is.
A relatively smaller portion of the total interchange that we.
We derive yet, but when that's been doesn't happen in April.
It's it's not going to happen.
As people.
Come out.
And started opening up cities and primarily large metropolitan areas, where you know mass transit starts operating more than we expect that that will come back, but we don't.
Anticipate that the lost revenue will be recouped. So that's kind of how we looked at it. There's there's some service revenue obviously associated with some of those things, particularly liken commuter and so on and so forth that are impacted in the <unk>.
Impact of unemployment on our service revenue.
Doesn't really started manifesting itself too much to date.
We'll see how things go but it it will probably.
You know there's been some talk about well, you'll get more Cobra and maybe that will offset loss in service revenue for those that were unemployed. We don't know how those will exactly in line.
But.
We've been fairly conservative we kind of took a look at what we what we got out of the April and then we kind of played that forward. So I don't know that gives you enough color for kind of how we went about giving our guidance for our Q2, but.
As we always are we try to take it fairly conservative approach and deliver what we say we're going to do.
That's extremely helpful. Thank you.
Thank you.
Next question comes from George Ho with Deutsche Bank. Your line is now open.
Hey, good afternoon, guys and I. Appreciate you taking the question I guess, maybe two things John on the guide I. Appreciate you guys are extrapolating what you saw from April out through the balance of the quarter is there any change you'd be willing to comment on may and my other question as we as we think about kind of deposits and assets that you guys were keen I guess can you talk about what did the differences.
The balance between kind of the market impact to the investments versus beneficiaries, who were either have job risk or might be losing their jobs.
Your question is are you basically seeing people read their HR assays as an immediate source of funding the by health care products, where do you feel like you're generally seeing account balances remained stable.
Let me think training any granularity that you have there would be great. You got it I will comment a little bit on me.
The recognizing if you sort of think about what Darcy said, a moment ago. The primary impact issues. We are concerned about on the negative side.
Our.
Really around commuter as a whole plus healthcare in terms of spin.
[music].
If I look at May.
Relative to April.
I think this is consistent with.
Other sources that are out there.
On the healthcare spend side.
We're marginally up from April but its margin.
Someone asked me yesterday when was how many times as any member of your family of into a Doctor This month.
The answer is.
So.
So so were largely up from April.
Especially in the areas you might expect pharmacy, like but but but it's it's.
So perhaps April is below there but.
We want to be thoughtful and careful.
With regard to commuter we're going exactly the same places we really were in April which is nobody's commute.
[noise] commuter is about seven and a half million of monthly revenue for us.
Some of that revenue a modest portion is still coming in for reasons that we could talk about if anyone's really interested but but the bigger picture is that.
That said that one is going to be commission until.
Things start to reopen both and I would remind everyone. It's not just transit. It's also people who drive to work and pay for parking people are in rideshare type arrangements that kind of thing but the.
The transit obviously does liberal.
The second question, let me say one of the thing about May which is about Cobra.
We are.
Between mid April and.
Into mid May and we'll talk about this more if someone wants to ask we didnt, we did begin to see.
The effects of the uptick in the and employee population.
Qualified events between mid April in mid May were up about depending on the week between 10, and 30% from a year over year basis.
And coal volume kind of follow that and.
In addition, we saw modest uptick in the percent of.
Those who are making cobra elections, and that sort of makes sense since.
The normal year.
Most qualified events or people, who are moving to another job or the like in this case.
It's not true.
As unemployment has stabilized a little bit in recent weeks or activity there's off its peaks in its little early but.
Those are things that we saw in may.
As to the second part of your question.
Which was essentially I appreciate the way you put it which is our people raising their HSH. The short answer is no.
That is to say.
A couple of points first of all let me start with the employer side of things.
If I look at the first quarter.
Contributions from employers.
Were essentially.
Flat year over year, meaning that employers have not didnt have not taken their contributions off the table.
Didn't see that in April.
Either.
And.
With respect to member behavior.
Member contribution levels remain strong and of course spending.
How did the accounts is actually decline for some of the reasons, we talked about a minute ago with regard to access to healthcare so.
My sense is that people are keeping a level head with regard to their HSH as.
We actually added to a grew the number of Im sorry, the number of our members who invest by about 38% and obviously that was much faster than account growth. So.
That seems like a good thing from a long term perspective, and a good sign that members or kind of keeping their heads as the market goes up and down.
Trying to do the right thing long term.
Very helpful. Thank you.
Thank you.
Thank you Sir our next question comes from Alex Paris with Barrington Research. Your line is now open.
Good afternoon, everyone.
Alex.
This is Chris sitting in for Alex.
Okay, great risk sorry.
So first off I don't want to be the bearer of Ah.
News, but assuming in an environment where.
Hold it.
Makes a comeback to some extent similar what we've seen with the flu.
Later this year.
It has some impact on Q4 of the primary selling season.
Can you talk about just the things that are in place given what you've experienced.
With your current workforce and how the company would be able to.
Flex and sustained profitability.
I don't want it to happen in a certain scenario like that how the company would be prepared.
Thank you.
It's.
This is a risk management environment. So.
It's better to be the error hypothetical bad news and service plan for it.
We have a crisis management team that has been operation since the middle of February.
It did just tremendous work in teeing up the coal for us to go.
To work from home.
Early in March early enough that we probably we certainly saved infections and.
Perhaps save lives.
And that group has switched over to beginning to think through we're thinking through returned to the office.
But to some extent for the reasons you suggest.
We intend to be.
We don't use this phrase often slow followers as Steve put it in an email.
No on return to work.
We are not not that we have any special knowledge.
But we are not confident about what the near term holds for us in terms of not only the ability from a regulatory or whatever perspective with people to stay at the office, but also the ability for that to be a productive environment.
And the team's been incredibly productive work from home and.
So we feel like our best risk mitigation strategy is to maintain that posture and that's generally what we.
Intend to do.
Certainly until further notice.
We do intend to be ready to pull the trigger.
Turn to the office on a phase basis, but we will do that when we feel like the answer we have the answers to questions such as the one you raised with regard to selling.
Well, it's absolutely true that.
This is the sales cycle that is unique.
I think it's worth emphasizing some.
Some of the data that Ted offered.
And.
If you kind of think about it what he said is a third of our inner of our enterprise clients.
Or in cross sell discussions the absolute number of or a piece. We have is holding its own year over year, which is remarkable.
But even better from our perspective more of those RFP is our bundle, which means we're selling more services and in fact, we quarters now of our HFSA. RFP is include at least one of our Cdps and that's up from numbers. We presented previously both in history pre transaction and.
The early part of the transaction.
And what we don't like to talk about when rates.
At this stage of the year.
Where we can actually see them is in our RSV business or or middle sized employer business.
And.
Our win rates are very good Reg.
We are really confident that we are taking away business from competitors in that.
The combination of Brett.
End of stability that we can now offer or clients as what they have one it.
The is is out there and is resonating the mark so.
A lot of that sales work for the full fiscal year.
We will be done before next number.
But.
For example, one other and I'll add one other item to the thing that we do get concerned about during that period is how are we educating new potential members and how are we educating existing members during the open enrollment period to that end.
We have also launched and begun communicating to all of our clients about.
A fully online.
Education effort and though it is online a lot of it involves real people with real abilities to back and forth conversation and I think we're going to house.
Certainly the most unique but what's the best open enrollment cycle, we've ever had in terms of the ability of our members current and members would be.
Access we educational resources, we have whether those are materials for tools or people, who are there 24 seven to help them during open enrollment so.
I feel like without wanting to minimize the difficulties that a resurgence will create for our entire economy.
Leased at home equity, we will be prepared to deliver purple to our members to our clients to our partners during.
Thanks, Chris.
Thanks, John appreciate the comments thank you Sir.
Thank you next question comes from Robert Jones with Goldman Sachs. Your line is now open.
Great. Thanks for taking the questions I guess, just one clarification around Cobra I wasn't clear to me what exactly is contemplated I know you're.
You know, taking recent trends and obviously trying to extrapolate them into at least to accuse us. So just wanted to make sure I understood.
How much contribution if any is contemplated from Cobra into Q and then I guess, just taking a step back you know John you shared some some high level statistics about what you're seeing from your customer base as far as unemployment in recent months in recent weeks.
One of the things that makes this obvious macro situation different from prior ones is folks holding on to benefit. So I'm just curious if you'd be willing to share within the clients that have had lay offs any perspective as far as those holding onto benefits kind of furloughed situation versus those.
It had been more severed permanently from those organizations. Thanks.
Yeah, why don't I I'll take the second part of your discussion and then ask.
Darcy too.
Comment on the when we go when we go in order you said Darcy would you be willing to comment on the.
Question that was essentially I'm going to rephrase it as.
What are you assuming about Cobra for Q2.
And then I'll comment on the broader question about the effective unemployment.
Potential use of direct billing in Italy.
Sure.
I think consistent with our past practices until we see it we don't count it and so.
Notwithstanding the fact that.
Well put out there the possibility that maybe are Cobra revenue will get a spike or starting rising we have not built that into our our acute Q2 guidance we.
We're watching that carefully to see no what qualifying events happen and what kind of uptake we get.
But until we start seeing.
The fruits of that with respect to revenue we have not included that in the guidance.
So so returning to your broader question, we actually during this period were able to get out.
Survey across our entire client base.
No no more perfect in any survey is but nonetheless, with some really interesting results.
59% of our clients or not or have not and are not planning layoffs.
Another 49% of our clients or either have implemented or or.
Planning to implement.
Either layoffs or furloughs.
25% or less of their workforce I say that has at least since 25% of the huge number but.
Nonetheless.
Importantly.
We feel like our workforce or client bases.
Not nobody's insulated from the level of unemployment, we're seeing but.
We seem to be in a better spot than some let's say.
Beyond that though relative to your question about.
Over direct billing.
Our client, 62% say that they plan on continuing coverage for a period of time for those that do end up getting laid off and.
93% expect to rehire, most if not all of those were impacted and.
What that means is that people are thinking about.
How to continue benefits during this period.
Just because it's a kind thing to do but actually because.
It can make a ton of cents versus the alternatives.
If that person is going to end up back in your workforce anyway today direct billing is a direct billing as a product that we have for that.
It's somewhere between five and 7% of our Cobra business today.
So we just think about it as a sort of subset of we call Cobra really benefits continuation.
Historically direct billing has been for retirees.
Where the company will provide.
Some amount of health coverage and retirement for a period of time or or as they leave the firm and we'll we'll continue to offer them health benefits, but obviously in this setting.
We think there is the possibility that this will grow.
With regard to those who are intent look temporary furlough situations.
And obviously, we see more people are more employers rich and keeping people in the benefits because they expect to hire them. So we.
We do think theres some potential for growth there.
[music].
It's and obviously our pipeline in both Cobra broadly and retiree billing in particular is quite healthy.
Very healthy but.
But but we want to see it and so that's something maybe to think about a little more as we get into latter half of the here.
That's super helpful context. Thanks.
Thank you.
Thank you.
Next question comes from Donald Hooker Keybanc. Your line is now open.
Great. Good afternoon, this might be a tough question to answer but would love to hear your perspective in terms of as you think about the competitive environment for your services.
Everyone's feeling pain, I think last quarter, we talk a little bit about how at Wageworks. Your exposure to interest on casino cash is maybe a little bit less than some of your competitors, which could be.
Obviously relative positive for health equity can you talk about what you think your might be seeing across other other similar service providers to employers.
And how they're sort of fairing as well and competitively, yes, I mean, a couple of thoughts Don. Thank you for the question I'm going to answer and then since I know, Steve has had an opportunity to talk to some of our.
Petters in the last few weeks and I'm going ask him to to.
Maybe offer some color.
The first of all.
As you referenced I think the key facts for keeping people to be aware of is that.
And by virtue of the bid the business model that we have a little too in or continuing to evolve.
Okay.
There are competitors that are far more exposed to the current environment than we are the average HSC provider.
Generates about the aggregate say generates about.
50% of its.
Margin from.
If I have said it was revenue from net interest income and.
As you know from the current quarter, we just reported we generated about 25% of total revenue from gross interest and of that.
23% or so was from the cash side so.
We feel like we have an opportunity to.
Come out of this ahead and more broadly as you know generally when downturns happen people take a look at their businesses and look at opportunities, where they really want to deploy scarce capital and where they don't and so markets consolidate and.
Don we're spending a lot of time.
Thinking about how to one of the reason that as I said and one of the reasons that we are kind of keeping the gas on integration.
And those kinds of activities is that we think there are going to be consolidation opportunities.
We are certainly thinking about how to handle those given our capital structure.
But.
We're not going to rush and anything to sometimes it's good to wait till we see the tide roll all the way out of that were.
But we aren't we do think they're going to be those opportunities.
And.
We're going to be a winner in that environment.
The experience that we've gone through in.
Wageworks onto the platform and then our prior experience with Consolidative M&A I think is really helpful. In this regard so.
And I have said, thank Ted for a lot of that is done a great job in the last year on on wage since before we completed the transaction.
Steve do you want to offer any color as you've talked to different competitors in particular.
The banks and others, how they're thinking about this.
Sure sure Hey, Don Thanks for your question.
And I certainly concur with their can John said I would just add that you know there's this broad spectrum as competitors that we deal with we have banks over 2000 album.
That are largely kind of single products shops, most of the banks will accumulate some HSH through their business relationships and some of their consumer relationships and they don't tend to offer a lot of other products.
Healthequity started offering a broader sweeter products about 12 to 13 years ago, obviously, when John joined Us.
And coming up on what John 11 years little over 11 years now.
He obviously brought the expertise he had had once these consumer if you're going to fits and then that helped us accelerate in that kind of the capstone.
Hi, acceleration as with the acquisition of wage put us in the competitive.
Recently or in so I think that now this being a second major downturn since we started the company obviously the pre recession. We saw this same story and then as people start pulling out of that dynamics changed a little bit. So I think it's similar dynamic we feel like we've been banks, we talked to in different you missed.
For groups and things like that on a regular basis are now.
As they're starting to see.
Revenue dropped a little bit when it comes to interest rates and things are going to think you're more open discussions.
Companies like health equity that has expanded to offer more benefits.
Pieces, we Paul and I think.
We are realized.
Their margins are going to squeeze will get on the on.
It's just say side of things on the revenue, but we have some other plays there but look we're in constant discussions with these folks we think that where we're positioned.
Now being scale on on the agencies Mcd visas.
It allows us to really.
So really shine when we got the team put together well I just was on ourselves settled today in them. So impressed with.
Not only what our salespeople are doing but with the whole cells operations. He was doing good health.
Dollar qualified leads and then of course are fantastic service in the back end with which is always our our best.
Our best selling point is this is a services, we've always provide and not just for each assays, we do it for me.
Basically every product now that a consumer could choose and so I think we're well positioned I do know.
In coming out of the Oh wait time period.
Your first some more count acquisitions, just because when you're a single source provider of agencies only.
Good times, when you're pretty lean for awhile so.
Interesting. Thank you.
Thank you.
Next question comes from Jamie Stockton with Wells Fargo. Your line is now open.
Hey, good afternoon evening. Thanks for taking my question, maybe just one quick one.
The non HFI accounts.
Which are primarily from wage.
You know.
Seems like turn was put kind of high last quarter, you know maybe again this quarter and those accounts can you just talk about what your expectations ours.
Yes this year.
I realize that the environment is making that calculus, a little more complicated, but just any color there would be great.
Jamie Thanks.
So we ended the quarter with.
Uh huh.
100000 net.
Cdps fewer than we had at the end of Q4.
And.
As I think we said in the remarks, but if we didnt see now.
That.
Was that consisted of runoff of about 200000 accounts.
Give or take.
We talked about this at some length on the Q4 call you'll recall that.
We.
We had hoped that we could somehow like break those run off accounts out you have just not report the never in the first place we just couldn't do it so.
So in any event.
These are not accounts that left us they are actually accounts the way to think about it is it's the 2019 calendar plan year, ending with Grace period in the light and we'll actually have a few more of those this quarter because for some employers the grace periods, a little longer but also because the government has given employer the option to extend.
Well I think most employers will not do that some will.
In any event and we'll learn some revenue from that potentially but but in any event.
The extent of.
That.
Factor, which will you will have to get used to but it will occur every year in the fourth versus first quarter.
A little bit of inclusive of this run off council.
If I take that out of the picture.
The non agency accounts business was.
Was up a bit on a sequential basis and.
Certainly relative to where we were concerned about when we first a closed the acquisition.
Still pretty well.
As I referenced in my comments I think we're going to have.
Mendis.
Funny word to use but.
Right.
We're going to have a lot of particularly opportunities in that space I don't think people are for the most part our competitors are not prepared to execute it scale.
We're not prepared to do the kinds of things we're doing.
Whether its cobra and some of the efforts that Ted talked about.
I don't think our competitors are prepared to say numbers. The public we know there's 20 million a view out there that are currently were employed yesterday that on employee today.
More claims than that but nonetheless in terms of actual payrolls, we can't be of some help.
I don't think that our competitors are prepared at scale to do the kind of things that we are doing on the card side.
Well spend may have been down during the quarter.
Folks will note that interchange actually on sequential basis was not.
I mean, we've talked about that.
And I don't think that folks are going to be able to do what we are doing on the education side.
That helps us deliver.
Really high club and serve assigned it helps us deliver that purple service. So I think we're going to have a lot equally opportunity in those markets over the course next few years.
And on.
Pretty excited.
Okay. Thank you.
Thank you. Our next question comes from Greg Peters with Raymond James Your line is now open.
Good afternoon team Purple first question is on capital structure can you guys give us an update on.
Your debt leverage, especially in the context of the revised adjusted EBITDA guidance that we could annualize out for the next couple of quarters.
Yes.
I will start this one and then.
Turning over to Darcy.
I forget to turn over to Darcy list.
No.
Well go ahead go ahead Darcy.
Well no. So yeah, Greg we obviously watch this very carefully.
In fact, we report this quarterly and then just completed the review of our.
Just completed quarter over the next.
Several quarters.
We get the benefit of the synergies and is as we talked about weve.
Weve derived and we'll continue to drive synergy benefit going forward.
Our cash flows.
Even just for this quarter. If you look at it we were down 20 million in cash but.
A big portion of that was actually the pay out of the F. why 20 bonuses that.
That impacted cash in this quarter that that isn't not a cash drain next.
In the.
Ensuing quarters in the next periods. Additionally, if you think about it we devoted a fair amount of cash resources to the integration and merger integration activities that will dissipate as we get through the end of this year.
Our cash flow from operations for the first quarter was about $15 million and it would have been more absent.
The payout.
We feel pretty comfortable with our debt covenants and achievement of our debt covenants and the flexibility we have both with respect to Capex expense at the same time, knowing knowing that we have some onetime things that will disappear going forward that will help not only our cash position, but will enhance our our EBITDA as we.
Get through some of these conversions.
Well, Greg I would just to add to that I.
Well.
I am always worried about any debt owed anyone personally or otherwise.
Managing.
Two.
Managing within the existing capital structure.
Meet our debt obligations and so forth.
Even.
In any really plausible scenario with regard to the rest of year and so forth.
I feel fine about what I'm.
I think.
More focused on.
What.
[noise] afford to focus on as well is that.
We are growth and when we took on this debt as part of wafer transaction.
It was with the expectation.
Fairly rapid deleveraging.
We're dealing with Covance now as I said I suspect that one way or the other the impacts of posted on <unk>.
Interchange and alike.
We will fade.
Less sanguine that the impacts on interest rates will fade very quickly.
For.
Reasons, you and I commiserate on it.
And so.
So I want to think about that and what I don't want happen is for the fact that we will be managing to our.
Existing deal and so forth too.
The deter us from being aggressive on our investing whether its innovation, whether it's in sales or whether it's in consolidated M&A.
And.
I'm not going to be terribly hesitant to encourage us to to make changes cap structure of the change maybe that allow us to do that right now we we benefit from the fact that.
We borrowed money in a very conventional structure.
Great.
And.
We're going to hold onto that with your life.
Certainly.
So forth, but yes.
But we're going to do what we can to both.
Continue de levering and also to be aggressive.
We'll see what that means as time goes on but.
What we're not going to sacrifice is.
The idea of rowing in the idea of.
Being aggressive about what I really believe is an opportunity that this thing has presented to us.
Given the acceleration of trends that were already out there.
Got it thank you for the answer.
There's not a shortly.
We're.
Like four or five.
I have acquired parts, but I'm not allowed to ask them.
Okay. Let's go to the next one will come to say if you will come back.
Thank you and next question comes from become Cutover Butler with Guggenheim Securities. Your line is now open.
Yes. Thank you for taking the question I appreciate all the color given so far on the impact to the business.
I'm just curious if we go back to the prior fiscal year guidance range. It seemed like some of the macro trends have been taken consider taking into consideration at the time and some of the assumptions that were embedded within that and so just curious if you can talk about what the biggest surprises have been relative to those initial assumptions based on how the market and consumer behavior has evolved here in the last few months.
Any color there would be helpful. As we try to put forward commentary into context. Thanks.
But we guided.
At the outset.
We made clear that we were adjusting our guidance.
To reflect where we reflecting our guidance about $30 million less revenue from interest from social.
Then we would otherwise achieve in other words, what we knew at the time was.
Right. So we're not good and.
That.
We sort of wanted to put that.
He said all right theres the effect of that and brought it to you we said at the time that.
We thought that.
Other than that that well there might be sort of funding to think about it now.
I don't know.
Three months plus later.
But.
And speaking to you from my living room floor that.
At the time I think we were with the general consensus that there might be some period of disruption.
Commuting in the light, but that it would be relatively short.
So and certainly we were not thinking about.
People not having long term access to the healthcare system and therefore, just the ability the practical ability to spend funds.
And so I think the biggest thing that has taken us by surprises.
The what feels like much longer term.
Impairment.
Revenue from commuter.
Sure Darcy and thanks, everyone, we use the word impairment but.
You said, it's colloquial sense for accounting front.
But but there's a somewhat longer term longer term, maybe three months longer term, maybe six months I don't really know but.
But certainly longer than than a few weeks.
Issues on the commuter side and then on the health care Spencer.
Where is that when I wish we had perfect visibility to it.
There are lot of good reasons to believe that that number will come back not the least which is the fact that.
People.
On the Fsh side their user lose type things and although there is some options around that most employers.
We'll.
I think the reticent to use those options.
So.
That spend I think will.
Very least is likely to come back to its currently prior levels and we may actually see some.
Makeup of the spend I, just don't know win and.
We wanted to call it as we see it and that's what we're doing here so.
That was really are thinking I guess, one other thing that has surprised me that's worth mentioning is.
The adaptability of our team and.
Their ability even during a period, where we have some extra money that we have to spend keep everyone safe assumption so for.
Their ability to generate.
To generate synergies that we expected to get later to do so soon and.
That's before we've even gotten too.
The sort of halfway point of migrating all these various legacy platform. So that means more to come. So those are the things that have.
Great. Thank you.
Thank you.
Next question comes from.
Got it SDB, Inc. Your line is now open.
Yes. Thank you taking my question John Thank you for those closing remark.
Well, John anything going on right now.
Yes ma'am.
So the new agency wins came in better than we expected and the recent ones track.
So how much of that way I think you machine berson, adding a new way direct channels or the process.
I think the biggest issue is across sales.
There there were.
And then maybe last one more which I guess I could call wageworks channels.
But you decide.
It's just so crystal clear that.
What we're offering here is what the market wanted.
And therefore, I think there are folks who.
We just wouldn't have been in their wheelhouse and now we are.
And that sort of.
Version of that part to the answer is.
When you look at.
In particular, when you look at.
The relationships.
That are folks have really done a great job with with both the national and some of the regional advisory firms that work in in benefits.
So that's something that kind of leveraged what wageworks was doing more of its direct selling activities, but.
But I think as people really understand what we have to offer.
Both in terms of product.
But also Brett.
It's a pretty good thing and we see that incentive into those folks and so forth. So I think that's really what's what's accounting for that.
Is and again, that's also why net of the.
The 19 run on swipe Cds were also up.
Same reason in a quarter that would normally be pretty flat. So if you have all that going during cove and that seems okay.
Is there anything you can give just help kind of quantify how much of the health that way.
Given they are theres. So many puts and takes are now in the quarter I.
I don't think so it's tough to do that on a quarterly basis.
Normally when we see we just if maybe just maybe I'll I'll I guess I don't think so now I'm going to try to at least do something.
I appreciate it.
I mean, we added 104000 HSH during the quarter, we opened 100 with Ltacs and.
The that.
Reflected could think about it was about 17%, whether we will seem pretty last year.
And normally.
I could look at that and I could say, where those extra 15000, each day's come from give or take and.
There will be like an employer that you know added a bunch of people are some funky thing.
Obviously, there were a lot of employers, adding a lot of people this quarter.
And so.
It's the factors that really are about new skills that had a big impacted the quarter.
So that's somewhat helpful to say I really do think that.
We got some lift there now it'll be up it will be down.
[music].
Certainly.
Yes every week seems to bring some new challenge and the challenges that we're all dealing with this week that you referenced earlier is a big one.
One that people keep asking what I'm supposed to say I have no preqin idea what to say or why anyone would think guy.
Should be should should know what to say.
We haven't figured it out you would have thought that there was anything that can make us forgot bottler in the middle level kind of yes, I mean, we haven't figured it out for 400 years I'm not sure I'm I'm going to.
Though it stopped me from at least trying but but in any event.
I guess I would.
To bring it back to something a little more mundane.
If you had asked me when we last spoke.
Beginning of March when we were just starting to see what cobot would do.
If you had given me the opportunity to take the sales pipeline that we have in the sales results that we had in the quarter.
I would do that in Murphy.
That's very helpful. Alcohol now the this is a little more out of the Bob's question might be done I may be theme.
So I look at the current environment and the stock market's doing fine by us.
A lot of the right that's out there aren't doing as well.
Is there any chance you can see an up tick and agency asset sales and if there. If there is an uptick and that is that something you would even consider giving your digesting right now.
In the short answer is yes, and yes.
It's a little bit back to Greg's question.
In that that.
Uh huh.
Hi, I feel like I mean, let me say this first of all we know how to do HFSA acquisition transactions. The work we're doing on wage.
I would not prevent us from doing that.
It's.
Ken.
I'd Love to me is probably not going to get to talk here at all.
He he and the too busy working.
That's good points multi task.
In the team.
Hi, great it.
What.
Billion dollars' worth of accounts last week like it was nothing.
Maybe not quite a billion, but you get the idea and.
That was like the first item on our agenda, they're just doing incredible now they got lot more work to do but.
But.
The age of say type consolidation transactions I think we would do all day, what we have to think about though is two things first of all.
Our capital structure matters and.
We don't want to live our lives.
Anywhere near the edge much less on it and so.
We will do what we need to do to prevent that and then second.
I think we also have to think about the fact that that for a lot of these providers and we talk to you know, it's a small industry, we talk to each other.
I don't know that the tides all the way out in terms of People's digestion of what has occurred.
You know how many people have you spoken to or the others listening on this call spoken to particularly in private equity, who say well my portfolio is fine, but dot dot dot dot dot whatever is after that if I could have a nickel reach one of those so.
I think that.
All I can say as into 2000 in 2008 period, if I look at it it's sort of took some time for the water to come all the way out.
And so were not jumping at anything just because it's there but.
We are absolutely trying to prepare ourselves to be aggressive in that area as well as frankly to be aggressive organically. If there are places we can deploy incremental capital with very comp with high confidence in the return. So that's a balance to walk, but the way, we're walking that balances to say.
If the capital structure needs change make that happen, we'll be happy if we think we can deploy more of public shareholders money at high return we will.
Helpful. Thank you John.
Thank you.
Thank you.
Next question comes from Mark much more Khan with Baird.
Your line is now open.
Thanks for taking my question and good afternoon.
Just wondering can you talk a little bit about the competitive environment as it relates to.
Adjusting pricing on a month we.
See basis relative to where interest rates are now how does that on falls I mean, you obviously went through a last time.
Then how do you balance out relative to our you know sort of a pressures that clients are in and your long term partnership our perspective with them.
Okay can't get ready this is it.
Oh, My Big My Big moment, you go first.
So, let's talk about how we'd rather a save people money by selling a more stuff.
Okay I can do that I was going to answer the question a couple of ways that was going to be first which is.
We are aggressively out in the marketplace talk future brokers talking to consultants talking to clients and prospects about a value proposition that is pretty simply what John just said more you buy from us to cheaper it'll get on a per unit basis and that's been resonating.
Very powerful, especially in an environment, where people are looking at.
Kind of a stronger need for cost savings and maybe they face six or 12 months ago. So I think that that's that to answer one. The second one is your second part of your question was how are we handling clients that are kind of in distress and I think two answers that question. The first one is.
Vince is extreme vigilance my team in Tysons to partner literally daily to to be sure that we're checking in with clients that are maybe having cash flow issues or that.
You know are seeking relief and thus far the volume kind of hasn't hasn't really materialize.
You could you to Kansas issues, where they've come up and we've tried to be as good and purple partners, we can but we havent experienced a ton of of need there.
And then the second piece is where we think we can win proactively.
We are reaching out to especially brokers and representatives, a multiple employer organizations and empowering them to offer pricing concessions to their entire book of business.
Order to win that business and activate that partner I think I was listening to John dancer about quantifying where we think.
Our sales wins are coming from and I would just add although it's not a quantification. It's just another perhaps anecdote put an important one is legacy wage had many relationships to legacy Healthequity simply didnt.
Right and so reaching out to and re activating those relationships, sometimes with a pricing story other times with a service story or a breadth of offerings story has been incredibly powerful so.
We recognize we're not trying to kind of me caught dollar for dollar fee revenue versus.
Versus perhaps short term lost interest revenue, but we are absolutely trying to use prices weapon folks to drive more volume and broader volume and also to empower our reseller partners have a really compelling story trust marketplace, you think thus far.
Returns.
Pretty positive buffers.
Really appreciate that and then what do you think some of your competitors are doing that youre basically entirely reliant on.
To a much greater degree and reliant on interest income.
For their revenue stream are they going to adjust or and does that provided an additional opportunity.
Yes.
Thanks.
Thank you.
You're right I think that it actually provide we're looking at it as an opportunity.
Because we do have competitors that are struggling.
Because the revenue model is really significantly up ended and also candidly because there's service model itself and huge Cutovers goes to our frontline service team, but also the infrastructure to use security team. The operations team. The fact them up to make sure that our phones work every day and we've had a pay.
The seamless transition from a search firm service perspective that we think is one offs.
Got it.
In the marketplace as well, having said that we have competitors for him.
Perhaps the revenue of this particular business less Ralph.
And so we're keeping an eye on those folks as well.
And you know because you know so there are definitely opportunities for the stronger among us, we're not alone and being truck.
Great. Thank you very much.
Thanks, Mark Thank you.
Next question comes from Alan Much Bank of America. Your line is now open.
Thanks for taking the question Darcy I thought I heard you say that service revenue was then maybe impacted it maybe you thought it would be.
I, just I guess, a clarification on that and then for the Twoq Guide you assumption and that remains the ball where that there's some level of deterioration obviously, there's a lot of uncertainty around employment trends just trying to get a sense of what you're thinking there.
Yes, no just to clarify no. We believe the service revenue was impacted.
Particularly there's an element of the commuter service revenue that if they don't have the account there is no service revenues associated with that that was impacted.
The part where we anticipated.
As in the run off accounts and so we know that.
There was a run off element of service revenue, that's impacted and just in general activity.
In the first quarter so yes.
Yes, I came across as I said that service revenue was not impacted it was impacted.
And that's also reflected in our.
Q2 guidance.
What was the second part of your question.
No that that answered it and then just a quick follow up before before may before the tend to 30% uptick in keep you guys for Cobra, what was that business run rating.
Revenue thanks.
No our Cobra business.
Right.
Okay.
Yeah, So cobra business, depending on a month and so forth, but running.
Historically run about.
85 million on annualized basis.
There's some seasonality to it.
But.
Uh huh.
I want to be clear in saying the uptick that we've seen is in.
Q ease corporate events right.
Qualified event per se does it make us money it gives us an opportunity to make money.
But it also includes costs we have to serve.
But the put the opportunities make money are.
In seeing more qualified events and perhaps a higher uptake rate on Cobra itself.
Turning to.
Sure.
You mean collections and therefore more more revenue, but then also as I mentioned on the pipeline side for.
Existing clients, who don't have Cobra and new clients on the whole.
Opportunity to bring those on and therefore, just sort of expand the pie.
And so I think there are are both opportunities there, but I just want to be clear I don't it's not the case Alan that a eight an increase in acutely activity per se produces an increase in revenue. It just made priests agent.
Got it thanks John.
Thank you.
Our next question comes from Sandy Draper with Suntrust. Your line is now open.
Thanks, very much and good afternoon.
Not just here.
I'm going to try to simplify this and see if I if I've got it right.
When I look at the sequential decline in April over January $10 million decline. If I just assume the 170 is sort of the midpoint your guidance. It's a 20 million dollar decline so.
And then obviously on one hand, you can just look and say well that makes sense, because you've got up you're assuming a full.
Quarter of of coveted impact versus last quarter, where it was partial when I think about the moving parts custodial revenue should be relatively stable that actually performed better and as you pointed out John Youre interchange revenue actually was up sequentially, but it sounds like now you're expecting that to be down and then I would.
I assume another step down in service. So I'm just trying to think the the.
$20 million decline how to think about.
That off the first quarter win.
When interchange revenue was stable. So I'm just trying to think about the puts and takes that.
I get the hold idea of the whole full quarter impact, but it just seems like it's going to be a little bit different in terms of the three segments and I'm just trying to see why that's happening. Thank you.
I'll start and if Darcy wants to chime in.
Sounds good first of all you've done your usual excellent job of.
Taking a lot of information and distilling it to its essence.
I think about Q2 versus Q1.
On a sequential basis the primary impacts are really.
A full quarter impacts on interchange in service fees the reason that interchange.
We would expect interchange fees to decline Q2 over Q1 is.
That.
Is that they always do and if we looked at the two they did and legacy held equity and and certainly if I pro forma the two companies, though I understand wage Didnt reported this way so that would be true and the reason it's true is because during Q1, you're dealing with new plan years you all.
So dealing with Grace period on the essay side that get spending and then also we have more HSH members and we have more and obviously more FSC numbers in this case.
Who are new and then.
Also the H. say members, who get employer contributions.
Which is most of them spend a little more so so Q1 is always a very good interchange quarter comes down in Q2.
A little bit more in Q3, and then comes background.
At least historically that was the case and so so that's a big part of it the reason that notwithstanding the fact that we saw the drop in spend.
That we talked about earlier.
The reason that.
The other reason that Q1.
Interchange with higher and this will be true in Q2, and a for a long time com I'm pleased to say is that.
As the quarter turned.
We saw a change in the interchange yield for lack of better term.
We have negotiated with our card partners that Lisa.
We talked about this little bit on last call.
The the card networks. So we invited to all of them to take a look at our book in once the acquisition was done.
I think it's fair to say they like what they saw in terms of the growth potential the book.
You know as well as the way we handle our businesses in terms of how we relate to the card networks and try and make things efficient for them.
Came in with very aggressive proposals and very thoughtful proposals and.
We ended up.
Deciding to remain with visa and so you're starting to see in Q1, and we'll continue to see.
At that well again, well short term spend is impacted.
This is a synergy we said we would realize and.
In terms of actual earnings as we said we would achieve in in terms of actually achieving it the jobs done just wasn't done and so so that will be a bit of a tailwind for us.
Spend returns.
Darcy.
And yes, yeah and just to.
Even make that point, even further if you go back historically sandy and look at interchange revenue on a you're going on just on the Healthequity Standalone basis Theres, a pretty good uplift from Q4 to Q1, almost every year and the reason for that is one we've added a bunch new accounts in the fourth quarter that are now spending and the.
Peter.
And there's a there's a certain element of people whether it's in a nation say were an episode who will spend some of that money maybe their employer load their money into their account in January and so then they they have some things that they want to spend maybe elective or whatever and they go spend it if they plan on doing that.
So our first quarter is always our largest spend and largest interchange revenue number that didn't really change with the merger. The same is largely true for fsh.
People. They go through their open enrollment they've identified how much they are putting aside and interesting thing about NFS. They are nature is you can spend that money before you actually have deducted from your payroll. So theres a lot of spend that happens in first quarter and then as John said It goes down Q2 known in Q3 and then it comes back up in Q4.
Primarily a function of the kind of the January a effect of the new accounts coming on board.
And so even though we had an increase in an.
Interchange revenue from Q4, Q1, we expected a lot more and its masked by the decrease in spend that we normally would've seen in Q1.
Got it that's really helpful commentary for that you guys. Thanks, so much.
Thank you I'm not showing any further questions at this time I'd now like to turn the call back over to John Kessler for closing remarks.
Yes, thanks, everybody.
We're going to keep work, our butts off at it and try and be as transparent as we.
Possibly can about how things are going and take it one quarter to time from here and.
Hopefully.
Between now and the next time, we speak both.
Will be a few less clouds in the sky, but to also maybe we'll all be a little more enlightened by then so.
With that I hope everyone has a great rest of the weak and stay safe stay saying.
I guess, we were going with safe before all this now, let's let's throw in an extra day dosing.
And thank you thanks operator.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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