Q1 2023 Healthequity Inc Earnings Call
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Okay.
Good day, and thank you for standing by and welcome to Health equity first quarter 2023 earnings call I would now like to hand, the conference over to your host today Richard Putnam.
Thank you Justin Good afternoon, welcome to health Equities first fiscal year 2023 earnings Conference call. My name is Richard Putnam.
I do Investor Relations here for health equity and joining me today are John Kessler, President and CEO , Dr. Steve Neeleman, Our vice Chairman and founder of the company Tyson Murdock, the company's executive Vice President and CFO , and Ted Bloomberg Executive Vice President and Chief operating Officer.
Before I turn the call over to John I have two important reminders first a press release announcing our financial results for the first quarter of fiscal year 2023 was issued after the market closed. This afternoon. The financial results. In this press release includes contributions from our wholly owned subsidiary wage works and accounts it admins.
<unk>. The press release also includes definitions of certain non-GAAP financial measures that we will reference today.
A copy of today's press release, including reconciliations of these non-GAAP measures and a comparable GAAP measure and a recording of the webcast can be found on our Investor Relations website, which is IR dot help equity dotcom second.
Our comments and responses to your questions today reflect management's view as of today June six 2022 and will contain forward looking statements as defined by the SEC, including predictions expectations estimates or other information that might be considered forward looking.
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 risks and uncertainties that may cause our actual results to differ materially from the statements made here today, we caution against.
Against placing undue reliance on these forward looking statements and we also encourage you to review the discussion of these factors and other risks that may affect our future results as well as our market price of our stock detailed are detailed in our latest annual report on Form 10-K.
And any subsequent periodic reports filed with the SEC.
We assume no obligation to revise or update these forward looking statements in light of new information or future events.
At the conclusion of our prepared remarks, we will open up the call for Q&A with the help of our operator I'll now turn the call over to our CEO Jon Kessler. Thank you Richard well done as always Hello, everyone and thanks for joining US. This lovely afternoon. Today, we are announcing a strong start to help equities fiscal 'twenty three with results for the first.
Quarter ended April 30th.
I will discuss our Q1 results and then I've got my three and he goes with me are Ted will review operations Tyson will review the financial details of the quarter and provide updated guidance and Steve will be here for Q&A I guess that makes me anyways.
Anyways.
One has their own it'll go up.
Looking first to the key metrics that drive our business revenue.
Revenue grew 12% to $205 $7 million versus $184 2 million in the first quarter of last year, which reflects our recent acquisitions and growth in accounts and assets.
Adjusted EBITDA of $58 3 million was down 1% from the first quarter last year, which was $59 1 million.
As we exited Q4 busy season with higher than normal service staffing levels as we discussed in March and lower year over year historical yields versus a year ago.
HSA members reached seven 4 million up 26% year over year, including 12% organically and health equity HSA members grew their assets to a record 23 billion at quarter's end up and even larger 35% from a year ago total accounts grew to $14 5 million at quarter's end.
As ted's going to detail team purple started fiscal 'twenty three with very strong sales results, including a fiscal first quarter record of 159000, New HSA is up 38% from 115000, New HSA is opened in Q1 of last year.
Investments grew a net $650 million in the quarter and HSA members grew 36% year over year, even with the substantial market headwinds that we're all aware of as members and their employers continued to contribute and invest the average balance of HSA members is up a route.
A healthy 7% year over year notwithstanding the above headwinds also in Q1, we welcome members from health savings administrators, which is the 11th largest or was the 11th largest HSA administrator on Devon years 2021.
The league tables in it.
As of year end market report and adding.
As reported by Devin year health savings administrators assets to equities with placement of equity at the top of the league table in terms of both account and asset market share.
That's good as Tyson will detail custodial yields in Q1 were stronger than previous guidance driven by our members continuing to place more of their HSA cash in our enhanced rates product and by monetary tightening by central banks. So far this year to contain inflationary pressures health.
<unk> equity and our team members are subject to those pressures as well of course, but we expect the incremental revenue from higher yields will drive increased profit and reduced leverage even as we invest in our platform for future growth.
I'll now turn the call over to Ted to review operations.
Thanks, John I'm happy to report sales are continuing their record setting pace you just heard from John that sales are up 38% compared to last year's first quarter, driven by organic growth rates and strong performance in the mid market space. Our partner sales efforts are paying off and we have been the beneficiary.
Healthy hiring trends among our clients.
The work we've done over the last two years on our engagement messaging has helped us be common alloy to our clients as they seek to fight cost pressures, while increasing the value and attractiveness of their employee benefits.
With peak season behind us.
Our hardworking Purple Army is wrapping our arms around our members clients and partners and developing new ways of servicing that we're making investments as part of our commit to purple program to meet our constituents, where they are such as expanding our chat capabilities deploying self service tools that are resonating with our members and making it easy.
Year to start or deepen our relationship with us and.
And client service process improvements and self service are driving down average issue resolution time year over year and on the broker side. We've developed a relationship model for top offices that allows them a single point of contact for anything they might need.
Quest from brokers that we were able to deliver this quarter.
We know that Purple service is the best sales person and we will continue to invest here.
Those service improvements have been enabled by our aggressive approach to integrations over the past few years migrating clients and members from over a dozen platforms two of core three for HSA Cobra and CDB.
These efforts helped us achieve $80 million in run rate synergies allowed us to invest back into the business even during a low interest rate environment and provided an improved customer experience.
Team is now focused on doing the same for our further acquisition consolidating teams and platforms to ensure our purple experience and achieving synergies and cost savings along the way.
As mentioned previously we exited busy season more heavily staffed unusual the work to address this is now substantially complete.
Finally, we are innovating on the product side as well for example, as employers adjust to the new normal and build return to office programs. We're right there with them promoting a variety of lifestyle accounts in employer sponsored plans that allow them to attract and retain talent in a competitive job market with unique and innovative offerings.
We are well positioned to offer more of these accounts because we have a long track record of delivering both pre tax and post tax benefit and an engaging and simple way.
There is much more work to be done, but we are pleased with our progress a huge thank you to the health equity team for what you have accomplished at all that you will accomplish moving forward now I will turn it over to Tyson for a closer review of the financials.
Thank you Ted I will review, our first quarter GAAP and non-GAAP financial results a reconciliation of GAAP measures to non-GAAP measures is found in today's press release.
First quarter revenue increased 12% benefiting from a record fiscal 'twenty two selling seasons recent acquisitions of better than expected rate environment and as members increased spending.
Service revenue increased 2% to $104 3 million, representing 51% of total revenue in the quarter.
Increase was primarily attributable to growth in HSA A's and the addition of the further acquisition, partially offset by a decrease in CDP service revenue.
Custodial revenue grew 26% to $59 4 million in the first quarter compared to $47 million in the prior year first quarter as 28% growth in average HSA cash and 47% growth in average HSA investments more than offset a 10 basis point decline and the annualized yield on HSA cash.
The asset growth benefited from a strong selling season and multiple HSA portfolio and other acquisitions completed since the first quarter of last year.
Annualized interest rate yield was 169 basis points on HSA cash during the first quarter of this year.
This yielded a blended rate for all HSA cash during the quarter and represents a better than expected yield.
The HSA asset table of today's press release provides additional details you will note a slight change in our presentation and that no longer we no longer break out HSA cash with them without yield we have completed all HSA asset migration is related to wage works all HSA cash instruments, providing yield.
Interchange revenue grew 21% to $42 million, representing 20% of total revenue in the quarter. The interchange revenue increase was primarily due to strong sales in M&A during the past year driving growth in average total accounts as well as a modest increase in spend per account across our platforms in the quarter.
Gross profit was $111 2 million compared to $103 1 million in the first quarter of last year.
Gross margin was 54% in the quarter. We previously discussed the service costs included $5 million to $7 million of expense primarily incurred in Q1, Judy maintained elevated service servicing capacity in Q1, two response to record sales volumes portfolio acquisitions platform migration activity and pandemic related attrition in other.
The risks.
Operating expenses were $118 5 million or 58% of revenue, including amortization of acquired intangible assets and merger integration expense, which together represented 16% of revenue loss from operations was $7 3 million net loss for the first quarter was $13 6 million or a loss of <unk> 16 per share on a GAAP EPS.
This compared to a net loss of $2 6 million or <unk> <unk> per share in the prior year.
Our GAAP non-GAAP net income was $22 7 million for the first quarter of this year compared to $31 million a year ago non-GAAP net income per share was 27 per share compared to 38 cents per share last year.
Adjusted EBITDA for the quarter was $58 3 million and adjusted EBITDA margin was 28%.
Turning to the balance sheet as of April 32022, we had $161 billion of cash and cash equivalents with $929 million of debt outstanding net of issuance costs with no outstanding amounts drawn on our $1 billion line of credit.
Just on where we ended the first quarter and our current view of benefits and economic and the economic environment. We are providing the following rebound revision to our guidance for fiscal 'twenty three revenue for fiscal 'twenty three to range between 827 and $837 million.
non-GAAP net income to be between 103 and $111 million, resulting in non-GAAP diluted net income between $1 23, and $1 32 per share based upon an estimated 84 million shares outstanding for the year and.
And adjusted EBITDA to be between 249% and $259 million. Today's guidance includes our most recent estimate of service custodial and interchange revenue based on results to date, our guidance assumes a yield on HSA cash of approximately 170 basis points and includes only the actions, but that has taken to date and excludes.
Any additional broadly anticipated fed actions for the remainder of this year.
And rates before the end of our fiscal year will only benefit the HSA cash that is in short term floating rate vehicles in fiscal 'twenty three.
They have a much greater impact on fiscal 'twenty, four and beyond as we rollover fixed rate contracts in place new HSA cash coming in from open enrollment at the end of the year.
Well, we don't give quarterly guidance looking forward to the second quarter, we want to remind you that the second quarter last year included nonrecurring revenue items related to pandemic relief legislation first.
We will not have Cobra subsidy work in Q2 this year.
We are not expecting Q2 interchange revenue growth comparable to last year. When our members were using up rollover episode $8 in advance of the exploration of a pandemic relief.
We continue to be conservative in our commuter outlook with limited returned to work modeled into our guidance. We have seen three straight quarters of modest increases in commuter accounts, but remain cautious about modeling in an aggressive rebound.
Our guidance today also includes the impact of inflation on our service costs, an increase in expense for the resumption of travel by our sales team and a modest inflationary increase in engineering costs.
The outlook for fiscal 'twenty, three assumes a projected statutory income tax rate of approximately 25% and diluted share count of $84 million as we have done in recent reporting periods. Our full year guidance includes a detailed reconciliation of GAAP to the non-GAAP metrics provided in the earnings release and our definition of all such items is included at the end of the earnings release.
In addition, while the amortization of acquired intangibles is being excluded from non-GAAP net income the revenue generated from those acquired intangible and tangible assets is not excluded and with that I'll turn the call back over to John for some closing remarks.
Thank you Tyson well done health equity finds itself.
Yeah, I think a far better position today than it did a few quarters ago.
And that's a function of the hard work of the team as well as previous interest rate pandemic and integration headwinds.
It's starting to become tailwind for the business.
All right.
Watch CNBC or whatever.
The current macro environment might be forcing other technology driven growth companies.
Gael back for health equity and.
And this team.
It really gives us the opportunity to lean in and that's what we're going to do.
So with that let's open the call up to questions operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby we compile the Q&A roster and our first question comes from Anne Samuel from Jpmorgan.
Your line is now open.
Hi, good afternoon, guys congrats on a great quarter.
Thank you.
Maybe you could touch a little bit I mean cancel rates product and I was wondering how much of a higher yield, let's just do that better penetration there.
Maybe what are some of the drivers of that penetration of enhanced yields coming in better than you expected.
Why don't I, just start with Tyson there on a commentary on the higher yields we saw in the quarter and then two.
Turning to Ted for some commentary on the movement on enhanced rates.
Yeah.
The higher yields really relate to the variable component.
Of the HSA cash that we have and so when you think about the fed increases since we last reported of about 50 basis 50 basis points. That's really the increase on top of just the goodness. We saw for Q1 and that's really what that is from enhanced rate perspective.
I'll, let I'll turn it over to Ted and I can talk a little bit about penetration there.
Sure Hi, Ann.
We have been.
Undergoing a series of different efforts in order to educate our members and clients and other constituents without the availability of the enhanced rates program in all of those are conspiring to.
Put us in pretty good shape to hit that year end.
20% target for cash and enhanced rates some of that member engagement.
On the website in the App when you call us some of it is how we talk to clients and partners about how they can how they.
Can offer it in a lot of it is as new sales, where the enhanced rate offering as the default. So all those are sort of the three big tools that we're using in order to try to achieve that goal of 20% of our cash and enhanced rates by the end of year.
That's really helpful. Thank you.
And then John you commented a little bit on the macro environment things have obviously changed somewhat.
Last call when you talked about labor shortages, driving HSA adoption I know youre not planning on making any changes to your company, but are you seeing anything maybe within your customers around adoption.
Yes, I mean.
In the first quarter, we saw very strong hiring.
And that was a driver of our HSA sale. So.
I don't have a crystal ball, but I can read the same papers and stuff that you do as Ted says I want to say.
And so.
With efforts to slow the pace of the economy.
Obviously, you all can look at that and decide for ourselves what it means but but I think for health equity. There are a couple of points. The first is that.
HSA A's and CBS are win win.
Employees contribute to these products employee save money and our clients save money because there are those amounts that are contributed arent subject to payroll tax and then of course in the case of HSA is it's the products themselves are part of a broader effort to keep costs under control and so if.
For example, we have recession that focus employers and employees on cost cutting we think we have a great tool and.
And.
Within that context.
One of the things that we think is relevant is that because.
Our revenues are to a significant degree a function of our custodial yields and the like I mean, you can kind of think about that as a form of pricing power that is to say those and our interchange.
Will.
We'll we'll arent really determined by.
The need to raise rates or renegotiate with clients or the like and so that's I think a pretty helpful factor for us.
To the extent that we were to go into a period that would be both declining growth rates, but persistent inflation that seems like a good situation. So that's those are the things we think about for the business.
Very helpful. Thanks, guys. Thank.
Thank you Dan.
And thank you and our next question comes from Greg Peters from Raymond James Your line is now open.
Hey, Greg Good afternoon, the three Amigos I know guaco loved the reference.
I guess in the spirit of that reference I'd like to.
Continuing to focus on the plethora of net new HSA is.
Yeah.
So you just commented on the market conditions I was wondering if you could talk about the other drivers of net new new HSA is which should be retention and then.
What the competitors that you're you're in the market competing against how theyre performing relative to because it seems like you might be picking up market share.
Sure I'll start.
Jump in.
Greg I think I alluded to it briefly.
My comments, we're definitely a beneficiary of we're the beneficiary of robust hiring by our clients in Q1, which really helped and being the market leader for Devon year, we probably have the biggest sales to catch that cash that wind.
And then we've talked in the past about how one of the Differentiators for health equity as our distribution network, our tremendous partnerships with health plans. The health plan relationships. We've acquired when we bought further and and the tremendous work that the team has done to sort of build closer partnerships with other distribution.
Partners Health plans and others.
I think it gives us.
<unk> advantage and driving HSA is and we've seen the results of that so kudos to the teams that manage those relationships and then we've gotten smarter it where to focus in.
Kind of how to fish, where the fish are and kudos to our sales leadership team for driving those efforts and so we feel like we're spending time, where we can win and that's I alluded in my comments in the middle market, which is one place where we've really seen seeing some growth.
Don't have a ton to say about John maybe you do about competitors. This early in the year, it's just a little bit hard for us to tell we just like you we sort of leveraged seven year to get a sense of analytical sense at how our competitors are doing anecdotally are strong competitors remain our strong competitors.
I don't have much to add to that other than I would be remiss if I didn't.
A tiny bit of cold water in the sense that.
We don't expect that we're going to grow HSA sales for the year, while we don't give guidance on this topic.
Within our range of expectations to grow them, 38% for the full year relative to what was a fantastic year last year.
Hiring was clearly a big factor we had some some folks that were like late sort of late.
Breakers, particularly from our partners.
We got new partners up and rolling and kind of work and some of the Kinks out.
And so forth so we.
We would not want you to go Crazy and we're not going to go crazy on.
On projecting that number out to the full year or the subsequent years, but.
But it's a great way to start here.
Okay, well message delivered we won't go crazy.
The second question or the follow up question would be in your comments.
I think Ted you said that you were talking about.
Surface revenue results for maybe I'm, sorry, maybe it was Tyson.
And you're talking about the.
Service revenue was affected in part by a decrease in CDP service revenue and I was wondering if you could unpack what happened with service revenue in the first quarter not only from an absolute number perspective, but from a margin perspective.
Yes.
Tyson you want to you want to do this one.
Yeah. So.
Good question, Greg. Thanks, I mean, one of the things to point out immediately that HSA service revenue grew relative to the growth. We're just talking about so that was an area.
Of alignment.
What we expected just really quick on the margin side I did talk about the margin headwind again that we had in Q1 that will maybe slowed a little bit into Q2. So there was there's kind of that NPD map that.
Year on year view as we just had a huge year coming out about January timeframe and then the real point of your question is on this on the CDB part.
This is just a factor of what we talked about when we were talking about revenue before Cobra uptake is lower due to fewer people.
The pool unless uptake rate in FSA HRA pricing.
It could be a little bit down.
Just relative to all the migrations and things that we've done and so those would be the main reasons why that's occurring a lot about through getting through integration has now been stabilized and we're getting a lot better data and views of the business and so really working and making a lot of progress in the areas of how we think about pricing and so forth.
Hey, I can't help myself, but just as a follow up on that point Tyson.
You mentioned in the second quarter guidance, you don't have the benefit from the legislation last year that was about $10 million of additional Cobra revenue is that correct.
Yeah, Good point I mean.
That was the main quarter by far and that was not we'd called out almost $10 million, maybe a little bit.
Following quarter as well.
Their side and most of the costs are in there too. So that's a great point for people to make sure that they think about when they're modeling out our Q2.
Just I can't help myself the margin on that $10 million is it consistent with the <unk>.
The reported quarter average for the second quarter or was there something unusual in that.
I cannot I can probably take well go ahead.
Well no I was just going to say, we haven't we haven't necessarily ever talked about that I think John I don't know, what youre going to stay but I don't necessarily have a comp that was how to think about that that's what I was going to say.
I'm trying to say, okay voice and how he's at home not feeling so good. So we're trying to save his voice a little bit okay. Thanks, Greg.
You had a plethora of questions.
Indeed.
Thank you.
Next question comes from George Hill from Deutsche Bank.
Your line is now.
I guess I have to make the plethora of pinata as reference now.
So I guess.
Kevin I guess I'd, just kind of start off with anything that you guys start to call out is we're starting to see the earliest parts of the 2023 selling season, I guess anything that you could look different from the last two years or so given kind of how different the last two years look.
I think probably the biggest thing that I would note is it's a little bit of a continuation from last year.
And then I'll ask Steve in Canada, they have commentary, but which which was last year, we had with regard to new logos and the like which I think is where your question is.
The kind of market that is below the largest enterprises, but bigger than small business.
<unk> comes mostly from our partners was very strong and one of the factors that we mentioned I think we mentioned it last quarter or certainly somewhere between now and then and now.
I think has contributed to that strength pulling through into this year.
It's been the demand for HSA is from job seekers, and so people who are in.
It had an HSA theres a lot of movement across companies.
You know theres a lot of people in the benefits universe, who.
Still think about like the only way to use an HSA qualified plan or an HSA qualified plan it has like a.
Kind of a lower cost health plan as opposed to you can create it's a very flexible instruments you can create.
A very rich benefit and of course, it's a little bit kind of to me. It reminds me of.
What happened in the early years of 401, K, where the benefits world was like well people like pensions better than four O in case, except that as people got comfortable with how to use a 401K if that wasn't an option for them. They thought that was strange and so.
That's probably the one trend I would highlight that I have noticed as we walk through it Steve yes.
In addition to what Joe said I think I've been very impressed with the further team for example.
It's a good point.
These folks we knew them for a long time I think it was probably 15 years ago, we started talking to the team up there in Minnesota and now we are working and we love them.
So for them to have done the work that they've done over the years with I think about 10.
Partners and we are actually.
It can be spent some time with them to bring fully integrate them, we haven't had some of them.
Obviously by zoom, but downturn.
Can it get to know them.
Maybe the baseball game, maybe not who knows but we're going to spend some time with them.
To see the work they've done.
Really really impressive.
I think because we started.
That helped equity now almost 20 years ago, working with health plans as one of our key distribution channels.
We kind of thought we were the only people that knew how to work with health plans unless were overblown.
But we found that these folks really do know what they're doing it. So that's been I think another great addition to our team.
Reported growth.
Yes, Dan and John .
Maybe a quick follow up and this is gonna be a little bit of a meandering followup Mckinsey had a.
Survey out last week, all about employer sponsored health benefits and one of the one of the few data points in the report that kind of jumps out as unusual is over the last few years, you've actually seen tremendous growth in customer satisfaction of HTH piece of which HSA play an important role.
I guess I guess the question I'm trying to get to is like.
Can you talk about the HSA is the tip of the spear is I think when you think of any change piece of the things that beneficiary is probably going to react with them or interact with the most I would think would be their HSA and kind of.
Thank you.
Got it.
Yeah, well I mean I think.
Yeah.
<unk> penetration into employer sponsors that have already selected the HTH P plan like what can you do to drive the percentage of people inside the employer sponsor who want to choose.
Hum.
I guess that that like.
Yes.
Maybe.
Just to say first of all I think <unk> got a big piece of the answer in that.
Remember for most individuals who are enrolled in HSA qualified plan financially speaking their primary interaction with that plan is the HSA, meaning to say, they're not going to hit the industrial in a given year, but.
For people, who haven't interacted meaning.
There is a real opportunity to use the positive experience and help folks grow and so maybe you can talk about what we're doing right. Thanks, John I'll be brief I alluded to this fresh to nuance of fashion in my in my comments about sort of the engagement capabilities that we've built that's really code for communication and education right multichannel.
The channel right.
We've spent the last two or three years really investing in helping.
Employers' help their employees understand this benefit as John pointed out the early days of form of Canada revenue. It was it's still we're still pretty or still kind of in those early innings and whether you call. It on the phone where they interact with us through the app or the interact with us through the desktop if you read the materials. We send you were always talking about kind of the next best thing for you to be doing whether.
There is engaging in an HSA, if youre not whether it's investing saving more if you're not saving it all whether it's investing if youre saving a lot and we've dedicated a real resource to becoming because what we found.
<unk> is that our clients want us to partner with them on that and so we're having a lot of success, there and even though we still think it's pretty early days. So we agree with you that the opportunity to deep more deeply penetrate HSA participation and then and then how folks use the accounts is a real opportunity for us, especially as we have.
So many so many clients that offering.
Okay. So it wasn't a highly coherent question, but I appreciate the direction, which you guys took it thank you.
Thank you Sir thank you.
And our next question comes from Stephanie Davis from SBB Securities. Your line is now open.
Hey, guys. Thank you for taking my question and congrats on the solidified with Carrington, beating and raising.
It's quite a bit.
Well I think about the health savings and loans Greater acquisition, how should we think about that $1 billion.
Is it going to get quicker switchover or is there a longer process to unlock these custodial revenues given that.
The largest part of the assets revenue contribution yeah.
I think the important thing to understand about the HSA a HSA A's as we sometimes refer it administrators assets is that the vast majority of them and I'm talking about $85, 90% are.
Our our investor and.
What we liked about HCI administrations capabilities and members of the team was their knowledge and skill at working for.
For example, within the individual market, where it's still a small market, but where people are as you might imagine they're much more focused on investing.
Then anyone into then the average employee of the group market and so forth. So.
Those assets are directly answering your question those assets.
<unk> moved over in Q1 and they are included in the quarter end totals of course and.
The investment thanks to the solid work of our team.
As well as our partners from HCA, and our and very candidly our partners from.
The intermediary because.
Investment.
Custodians of managers the bulk of those funds were in fact virtually all of those funds were moved over in time so.
That is a source of growth on the investment side and and is contributing to our now to our income from investing as well as.
Some service fee income.
We've taken that one level further what level of custodial revenue contribution are you assuming from the acquisition this year and could we see a little bit of an uptick as it gets layered into some of your newer contracts.
I guess Stephanie.
Answer.
And if I don't understand your question exactly maybe could you repeat it one more time because maybe.
Second time.
So for the HSA deal what level of custodial revenue contribution are you assuming for the year and are we assuming a tailwind and that could happen for next year to further add to that.
So the since the bulk of the revenue in HSA is invested meaning it's in mutual funds and the like.
We've assumed are.
Actually what we've done there is if I recall and it works out to about the same thing, but we maintained all of HSA is pricing.
Looking ahead to make sure that's right and so.
And.
The result is that custodial yields from those assets will be similar to our custodial yields overall, meaning kind of in that roughly 30 basis point neighborhood and that's reflected in the price.
So it's not like they get any sort of.
Better rates or something like that.
No no. There is I will say there is a small maybe 100 some odd million dollars that is in HSA cash and.
The uptake of enhanced rates among that group, who was very solid in the kind of 90% range and and again our guidance does reflect that those assets have been deployed.
Alright fantastic. Thank you guys.
Thanks, Stephanie.
Thank you.
And our next question comes from Glenn to intangible from Jefferies.
Your line of ILD.
Yes, thanks for taking my questions I just had a couple of quick great questions.
It relates to the guidance for the balance of the year. Obviously, there is no future rate increases and that guidance is it still fair to say.
There's about $1 billion in cash that are tied to short term sort of variable rate. So we can think about.
Do our own math in terms of the potential impact of any future rate increases on the guidance.
Yep.
That's right Okay, perfect and then maybe if I could just ask a little bit more of a difficult question. I know you don't want to look out to fiscal 'twenty four at this point, but everybody is noticing right. Obviously, the five year and 10 year treasuries or just above 3%, we're starting to see five year CD rates start to breach, 3% so could you.
Without without sort of speculating on which way rates go right could you just do a quick look back to.
January of 2020, and remind us where those placement rates are so we can make an assumption that if rates did not move from right here and you were able to reinvest at the sort of place placement rates like what sort of lift we get on that third of the portfolio. So we can start to think about do our own assumptions and think about fiscal 'twenty.
Four.
Yes, so the way to think about it is that.
Our average placement rates for.
Deposits.
Going back to the.
Period.
If I look at like fiscal calendar, 'twenty, which is I'm sorry.
Fiscal 'twenty calendar effectively COVID-19 that ended in January of 2020.
We reported an average custodial yield of around 249 basis points give or take a basis point and.
And that since that was up from the prior year it reflected.
<unk> rates that were above that at the time and so I think while we don't give out individual placement rates as you know.
So it should suggest that at that point in time.
Which.
Represented the I think the closest we got to rate normalization in the last cycle.
We were we were obviously, placing individuals deposits above that rate at this time around you have the enhanced rates product there and so.
And as we've discussed before enhanced rates does as its name implies earn a premium for our members and also premium for us in excess of that and so.
So you might expect this time around.
As things kind of move along to even see a little bit of an increase on relative to what we were seeing at the end of calendar <unk> 19.
And so forth so that's kind of.
Order of.
I guess not order of magnitude, but directionally, what you would expect.
And as well as the baseline you might look at which would be some number of this kind of anchor to our fiscal 'twenty reported custodial yield would be a way to look at it okay. Perfect. That's helpful.
One how does that tie center, correct me or whatever.
No that was good.
Okay, and John maybe I just wanted to quickly ask about.
The FSA business in terms of are you seeing any normalization in terms of.
The seasonal spending patterns there I know.
With some of the government regulation sort of changing.
We saw some abnormal behavior is that starting to normalize seasonally now.
Yeah. This is an important question in terms of getting the quarters right and Tyson referenced it in his.
In his prepared remarks.
Q1, FSA spend was pretty much what we would expect which was nice to see.
Versus the past several quarters of either a much higher or much lower than we expected.
And.
And.
And thus far the same is frankly true in Q2 and so we.
But importantly, so I guess the answer is yes, we see things.
Looking much more normal in terms of spend per account and that kind of thing for FSA.
I think.
The other point to mention there and I think.
I think you've got this but.
Worth, noting that that want to make sure that our listeners do as you model year over year in the second quarter as Tyson suggests we won't have the benefit of the incremental spend that occurred in Q2 of fiscal 'twenty. Two that was people basically running up against the fed.
Governments kind of end of the rollover the excess rollover period that was part of the earlier part of the pandemic emergency and so.
We saw extra spend in that quarter as a result, effectively that ended up being some of it ended up being pulled forward from Q3, but.
A lot of it was just people had the money in their accounts and they spent it and so.
That's something to think about on a quarter to quarter basis, but big picture and.
So what we expect to see this year is much more normal as opposed to that bulge that you saw in Q2 of last year.
Okay very helpful. Thank you.
Yes, Sir Thanks Juan.
Lindsay invisible sort and thank you and our next question comes from Dan Bernstein from Wells Fargo. Your line is now open.
Alright. Thank.
Thank you for taking my questions.
Maybe.
Hi Ali.
So maybe first a clarification question on something you mentioned in the prepared remarks.
Regarding the further acquisition I think you've called out a potential source of synergies.
Are there any dollar figures youre targeting there that you can quantify maybe time to recognize those savings.
Yes.
We announced at the time of the transaction that we thought we would see about $15 million in synergies. We also said at the time that.
They would be back loaded over the course of.
A couple of years and in fact, that's the case that is to say.
Our fiscal 'twenty three initial guidance and the current revised guidance don't reflect much in the way of of further synergies and the reason for that is that the bulk of these synergies really come from the pace.
Or say the eventual.
Bringing together of the further operating platform and the health equity operating platform and we're taking that slowly.
Out of respect for one of.
Two factors one is that.
Our health plan partner clients on the further side.
We want to make sure that they know exactly what we're doing and that there's some trust built there and we have the ability to gather from them. Some things that are important to them that we can incorporate in that process and secondly.
Further as we've discussed before has some technical capabilities that we think are extremely useful, particularly as we begin to embed.
We talked about earlier in the year as we embed more features and more element or embed our product I should say more deeply into our partners products and vice versa.
They're folks who sell you know white label and that's all nice, but really what's where the real value is not just in a label. It's in meeting the consumer when it's relevant and that's done by embedding the product more deeply and so we are trying to you know as we can.
<unk> tried to bring some of those capabilities over a little more quickly than you've seen us talk a little bit about products on that but but from a pure synergy perspective, you won't see that in fiscal 'twenty three you'll see it out in in 'twenty, four and into 'twenty five and so I think I've answered both the order of magnitude as well as the timing.
You did.
And maybe one quick follow up maybe just revisiting the sales pipeline so.
Last couple of years, obviously, the story has been about multi product sales vendor consolidation trends.
Just more broadly it seems to me like benefit managers are becoming a bit more cost sensitive I'm. Just curious is there something youre seeing on your end.
What's your sales force and to the extent that you are seeing it.
How are you navigating this and the impact of the win rate.
<unk> be helpful.
I'll offer a couple of thoughts and then and then let's see.
You want to add anything.
So first point is from this perspective I think the first quarter was was in some ways really good news for us.
Our largest product is of course, HSA and it's not only the largest but our it's our growth engine and.
When you look at the portion of I mean, the good news of course, the bulk of HSA revenues don't come from fees paid by clients or members in that direct way that I think you're asking but even among those that do.
We if you look on a year over year basis, right fees are essentially equal.
In fact, there they're up.
Just a smidge, which is a departure from prior years and that reflects both.
Being able to hold price, where it's appropriate.
But also.
Being more efficient about where we should be charging fees and why we shouldnt. So so that's I think the first point to make and it's.
It's a.
Very important one.
When you look beyond that.
I think generally our approach to navigating this point is that the.
The bigger source of savings for benefits managers in what we do is in the products itself, it's not in our fees right. It's in enhanced enrollment and more contributions in people using all of the other things that we integrate with more effectively because our clients are working with us.
And with our integrated partners, rather than with a more generic service that might be offered by a firm. That's just in the retirement space or just in the Ben admin payroll processing space or just the back end.
So that discussion tends to you know that tends to dominate you know of course will be as aggressive as we need to be with regard to fees and so forth, but I think that's that's the heart of the discussion is that the real opportunity for savings is in the product itself not in the fees you pay us taking one of them.
How does that at all.
The only thing I might add is it is it.
Through our health plan distribution the cost of the services that we provide is a relatively modest component of the total cost of the decisions being made.
Using in choosing a health care provider and not only that choosing a high deductible health plan are finding ways to have more of your teammates choose that health plan is actually a cost savings opportunity regardless of what the HSA fees are to John's point, So I think that our distribution helps insulate us a little bit from.
Cost pressures and I would also say well, yes, there's always going to be.
<unk> cost questions or cost pressures or competitive cost environment.
I think that that debt.
The benefit of offering a bundle that was our primary hypothesis. When we bought wage works three years ago has kind of been proven out probably in excess of our expectations people.
People do want to consume multiple services and not only that even if some of the consuming multiple services the broker the consultant the health plan who's selling it wants to send you multiple pieces of business, even if each individual pieces is not the whole bundle and so I think that having the bundle and being able to offer it in a thoughtful way as is probably a trend is stronger.
Then niccolo.
Nickel or a dime here and there on a on a on a.
On a product price.
Got it thank you.
Thanks Sterling.
And our next question comes from Sandy Draper from Guggenheim.
Your line is now open.
Thanks, very much and good afternoon. So you can see I haven't changed my ability to be very slow on hitting star one some always late in the queue.
Most of my questions have been asked but maybe just.
Quick clarification, not clarification is confirm so it sounds like for the health savings administrators. The bulk of those assets were more towards investments just wanted to confirm and less on the cash is that correct interpretation of what you were saying.
Yes, yes.
Okay got it. So then that leads into my second is that as I think about Triangulating, where cash balances are we're spending patterns are.
About an inflationary environment have you seen any indication that and I don't know how you would parse this out are people, saying hey for the past two years or three years, our saving a lot in my in my HSA wasn't paying not felt that maybe kind of what do you think going to the doctor, but now I'm going back to the doctor and going back to the Doctor and gases $5 a gallon.
I need to pay myself back are you seeing any signs of while people are still contributing theyre actually going to start taking more money out because of inflationary pressures just trying to think about how that sort of plays out and how that may impact cash balances with the obvious offset or potentially stronger interchange revenue.
We haven't but the logic of what you are saying we know as we did in the first quarter, but I think the logic of what you are saying is pretty sound. So generically.
<unk>.
The immediate impact of recession is higher savings rates right. The immediate impact of inflation is people spend right. That's the way it is.
Little bit counterintuitive, except it's worked over and over and over and over and over again and it's in every macro textbooks. So I would expect that some version of what you are describing ends up being true and that is a result for example may be the case that we won't see on net as healthy.
Average cash balanced growth as we did last year, but maybe we'll see a little healthier spend and of course, we would over the long term rather have the balanced growth.
But I think there is.
You know again without having seen it in the day to get I can't.
Say do much other than yes, but it's quite large what youre, saying is quite logical and as you've kind of try to triangulate between.
Sort of the triangulation around investments cash in and and also are between balances and interchange.
I think its a worthwhile factor relative to the last few years.
Great. Thanks, I'll ask my question I appreciate it John that's a good one that's a good one for late in the queue.
Thank you.
And our next question comes from Mark Marcon from Baird. Your line is now open.
Hey, Mark.
<unk>.
Good to talk to you.
I was wondering can you just talk a little bit more about the the enhanced youll product just in terms of what sort of premium.
You're getting there and then in addition to that.
With.
The Sudbury simply pulling back in terms of.
Going from quantitative easing.
Easing the tightening.
What if you're replacing funds today like how much of a premium would you would you get now would your regular partners.
In terms of the.
In terms of on top of what jumbo.
Three to five year Cds are getting.
Sure why don't I try to answer those in reverse.
Because of the because of the deposit rates sort of a useful baseline.
So on the deposit side.
We've commented before about the range of premium to current average rates.
And that range is sort of 75 basis points on the low end 125 on the high but of course, the other important caveat there is.
That premium is higher when rates are rising and when rate expectations are high and it is lower when rates are falling annual rate expectations are and rate expectations are for further fall. So.
As you might imagine the spread at the moment, if we were placing funds between.
Where we feel we could place and.
What current averaged three and five Cds are trading are at are pretty hot.
In terms of the historical spreads not dissimilar to an earlier question to kind of what the middle of calendar 2019 look like and so.
And so reasonable question as to whether how much of the feds activity and other activity is already is now kind of baked into all of those expectations I don't know the answer to that but I don't think anyone does but.
But.
That gives you a feel for it on the deposit side and then.
Generally the commentary we've made on the enhanced rates product is that it tends to be about.
A 50 to 75 basis point premium relative to where we're able to place cash.
So.
Or.
And so.
That's and that's we only have in terms of this formula and so forth.
Only been dealing with it for you know all I guess, almost a year now, but nonetheless still a little bit early on that but but that's sort of held pretty well and.
And.
You do make one point that I think is very important and that is that.
While one might reasonably take the view that banks and the like have.
<unk> factored.
Their own estimate of when where the fed ends up and where it stops into the rates they are willing to pay on cash.
Quantitative tightening that is to say the reduction in the size of the fed's balance sheet.
It's still a little bit.
It's still somewhat out there in terms of its impacts and the reason for that sort of boils down to the fact that it is.
Not fully cleared any one what the true impact will be on the price of oil.
On the yields on treasuries and then the pricing on corporate debt and the like so because no one's ever done it before and so we.
We will see how that goes but look I think if I step back from all of that.
We've as we've said before on this call Mark.
There is a large amount of the earnings power of the business that has been missing from the business for a year or two and certainly is still missing in the current year relative to history and.
<unk>.
So as that comes back that will be valuable to the business in terms not only of incremental profits, but it will also give us incremental opportunity to invest and so forth. In addition to two ascending a significant chunk of that bottom line.
Great and then.
Couple of other questions one would be we'd be in there.
Opposite ends of the spectrum on the one hand, you know.
How should we think about.
Wage inflation as it relates to you know team purple.
All of you folks have lots of opportunities. So just thinking like how should we.
As we start thinking about fiscal 'twenty, four and you know.
Puts and takes.
How should we think about the servicing costs, but youre going to incur but then on the flip side.
The benefits from scale that youre going to see.
You're accruing here in terms of.
<unk> savings.
Associates acquisition or the.
The HSA assets.
B.
Further being integrated to a greater extent the size and scale that you'd just have naturally.
Even in terms of marketing presence.
I mean, you've kind of just run through the nice list of if your question has been how do we think about margin in the out years, right, which kind of was.
You just run through the puts and takes and so I'll repeat them back but in the order that I think it's worth considering let's start with the takes right yeah.
<unk> got.
As you say.
<unk> are going to rise and they just start and.
And we're trying to keep up as best we can and take care of our team.
And.
But our assumption is in the out years and you can make your own but our assumption is that.
It's not like this is going to be a one and done situation.
I think again secondly on taxes that debt with.
Is that with higher custodial yields on the put side.
Some of that comes back at you from a service fee pressure feel really good about what we were able to do on the HSA side, which is where those are.
In the first quarter, but we'll see how it goes over time and then lastly, I think important on the take side below the EBIT line, but nonetheless.
No if you look at our.
If you look at our reporting we've increased capex and of course their stock comp and that rolls through over the course of the next few years. So those are the takes on margin right.
Puts as you say our custodial yields.
Yeah.
The bundle in cross selling the growth of the underlying base both from from organic growth as well as from M&A that has brings all of that scale.
The real payoff in terms of of winding down integration expenses, which again is below the EBIT line, but nonetheless is real cash.
The tech driven efficiency and service delivery that that we've started to see as a result of our investments in that area, but but expect to continue and then whatever happens with commuter and.
If I am given the luxury of thinking about it over multiple years I can be a little bit more optimistic than.
Whereas obviously tysons is being extremely cautious I think with regard to the current year. So.
All of that put together obviously.
We expect that or I think we think it's reasonable to take the view that.
There is plenty of opportunity to grow margin in the business as well as to continue to invest to grow top line in the business so that seems pretty good.
Yeah.
That's great and then just the last one just with regards to further.
Lots of.
Lots of things that Youre doing.
How are you being perceived by the clients now.
Within those within those blues plans just in terms of partnering with.
Being able to expand geographically into.
To really leverage what we're still in early days, but.
How are you thinking about that unfolding over the next two to three years.
I wish you were asking next quarter, because we're having.
Our summit with.
These clients, which is cleverly titled Blueprints I'm sure that I'm sure. That's not the first time that funds have been used.
But it's in Chicago next month, which is the home of the blueprint and.
It was invented technically but it's true home Chicago school of architects and but Steve you can maybe give us since you've probably participated more than any of the rest of us on this call in discussions with particularly with the further.
Partners May be you could talk about where you think we are.
Happy to Mark.
I think it is still pretty early but generally its been very positive I'll tell you one story.
But the further team and our team now our team I can't say it any more searches.
Are the dollar in the or.
Our collective team reported back.
Do they met with.
One of our one of our lives.
Blues plans that happened to do business with both health equity part.
To the acquisition and now help equity again because.
Because further had to go through a relationship with them and they said boy. This works out perfect. They said, we've lost health equity for.
What they did we loved what we received from further and now we'd love it even more so the point is is that I think that now with its own footprint of well over three fronts that we're working with.
We do have scale in these folks they you know they work really well together to go to conferences together.
Association actually happens to be headquartered ultra.
Chicago, which I don't know.
I thought they did the rivers great start to the flu out there.
Hey, Patrick.
I think the short of it is mark is that.
We're really learning how to work with these types of plans many of the people that used to work at further network.
Good health equity previously even work.
Minnesota.
So they know.
How to meet their needs and.
And that was kind of their model was look we want to help these listeners growth health equity has a lot more than lose those two we've got some fantastic we're vertically integrated systems all over the country that Roomba Hospital systems, and we were able to reach out to them as well and so it's not just about it's about meeting any of the partners or clients where they are.
Providing a unique and sophisticated solution for them so that they can compete in every market.
That's the short of it and we just.
We start with one health plan back in 2003, so remember.
That.
Uh huh.
Our overhead or it's pretty exciting.
That's great I'll be sure. Thanks, again next quarter.
You got it.
Thank you.
Our next question comes from Allen Lutz from Bank of America. Your line is now.
Hi, Alan Hey, everyone. Thanks for taking the questions I guess on interchange.
That came in really strong in the quarter I guess looking.
Looking back at the model kind of pre Covid pre wage works.
The first fiscal quarter as sort of a high watermark of the year for interchange.
I guess question one is that what youre thinking or is that sort of what's embedded in the guide for this year and then 0.2 in that $42 million is that is that health care spending back to normal or is there any reason to be optimistic that health care spend increases over the course of the year.
Tyson you want to hit this one.
Yeah, Alan Thanks for the question Mike. Thank you.
Hum.
On that exactly and you already answered it basically which is that it is front end loaded its a lot of it.
I think this quarter is going to be kind of a Q4 rolling out into Q1, a little bird.
And then sort of a use it or lose it on the FSA side. It just stays a little bit more stable, but I would think about it that way. So if you think about kind of the softer months or quarters theyre going to be sort of in the summer fall timeframe with regards to our people are sort of expenses and things.
That type of timing.
And then John I.
I guess the second one.
Well I was just going to say also don't don't forget that if youre doing year on year that last year had these unique features that right. It really blew up Q2.
But yeah.
Yeah.
Things as I said earlier, if at least at the moment appear pretty normal meaning normal that is if you look at spend per account all those kinds of things.
How much is left in accounts et cetera things.
Things are looking a lot more like the graphs that we would've seen immediately prior to the pandemic then.
Like anything else and I think I commented.
Time of our initial fiscal 'twenty three guidance, we were looking forward to a year of not having surprises on this topic and so so.
So far so good.
Great and then I think.
Investors kind of understand the upside optionality on rates, but I guess kind of taking.
The other direction there.
There's been some concerns about employment trends in the very recent.
<unk> I guess is there anything that youre seeing within your book of business regarding employment trends, maybe active accounts or anything that can kind of point to a slowdown in the economic environment. I guess, we're just trying to understand kind of if we do go into a slowdown in.
Hiring.
The puts and takes of the model from here. Thanks.
Yeah.
I mean, the short answer is that we haven't seen anything along those lines in terms of Av.
Active account type stuff.
That having and I think that that statement is actually perfectly consistent with the national data, which if you actually look at it the first four months of the year and also even may.
We're.
Some of the steepest increases in.
Civilian employment in the United States that have been observed period end of sentence and obviously.
And obviously <unk> and <unk>.
Far steeper than than the runoff.
The sort of boom period in the run up to the pandemic. So.
But I don't think anyone should expect that that will continue since one.
We're starting to get back to levels of employment that were pre pandemic and we're not quite there, but we're getting close and too.
The government's policy is to slow the economy down and slowing the economy down is going to slow hiring down and so.
As I said earlier the implications for our model are one is as was suggested earlier.
We probably Shouldnt go crazy on the the year over year percentage increase in Q1, an HSA is in kind of a b.
Be a little more modest about our expectations for the full year. The second is that our clients are looking for win wins and.
Worth, noting here and I think this really bodes well for using all of those educational things that Ted was talking about which parenthetically, it's not like just generic capabilities. It's a product with no. It doesn't we don't charge directly for it but we track the revenue from it and our account executives in <unk>.
This delivery managers for our enterprise clients are are they are accountable for.
For bringing what we call Max enroll into our customers at a greater substantially greater level. This year than last and the reason I mentioned that here is to say, we know that our clients either they know where they need to know that.
World, where they're seeing something they've never seen before which is a still tight labor market plus wage pressure right. Most of these folks were not alive in 1981.
Our 1980 and.
We're best case 1990, they were alive, but they probably weren't working in HR.
And so they're seeing something they've never seen before and they're going to need tools and we have some of those tools and so our job is to go out there and from a sales and relationship management perspective give them those tools and if we do that well.
We will have a good season, and thats kind of Thats, what I think.
Great. Thank you.
And thank you and our next question comes from David Larsen from <unk>.
Line is now open.
Hi, Congrats I mean, yes, hi, congrats on a very good quarter.
Hopefully fairly quick here so for the interchange revenue I'm looking at a growth rate of around 21% year over year. I mean is that what you reported and then is both health card revenue in their utilization of services and then as commuter revenue also in there.
What is that 21% growth all organic.
Commuter and health card both up around the same amount 21%.
So theres a lot in that question I'm going to let Tyson catches breath and answer most of it I'll answer the piece that I can easily.
Total revenue, obviously and Theres, an organic and inorganic component to that.
Ah.
And so so obviously inorganic was helpful.
And it's of course, a mix of HSA and CDB and yes includes both healthcare and commuter.
But tyson.
Tyson.
You want to elaborate a little bit there.
I'm not sure you're missing anything John but.
No.
Peter.
And I'm thinking what am I going to add but I would just say on the commuter side just to kind of.
Talk about that for a second in a way that it is very small relative to reduce the improvements but on the interchange from an interchange perspective, it's a small amount about it as an indicator of people utilizing it still would have seen that utilization in the card swipes going up over the course of the of the course of the last three.
Three quarters, and so we continue to see that margin there. So it does help from a P.
Perspective, how thats growing.
On the commuter side, that's a very high percentages, but a very small dollar amount and I think everything else John said is true.
Okay, and then for the enhanced rate product I heard that on about $1 billion of invested dollars right now.
When I look at your press report.
I am seeing HSA cash 13 billion HSA investments 7 billion for a total of about $23 billion and I'm, assuming all of those are invested all of that 23 billion is invested earning some sort of yield. So does the enhanced rate product are we looking at that as a percentage of 23 billion or a sub component of that.
So let me clean that up for you.
I think when you heard the billion with that but that was a response to the question about variable basically the effects of fed funds changes and how much cash those fed funds changes impact and the answer is they impact about $1 billion today that is deployed in variable rate.
Contracts that as part of HSA cash so that was that number.
We said at the beginning of the year that enhanced rates was about 10% of our HSA cash number and our HSA cash number at the beginning of the year was one point was about $13 billion give or take and now it's and so 10% of $13 billion is $1 3 billion.
And our goal is by the end of this year to roughly double that.
To get at 20%, we're pretty confident we will so kind of.
Pushing 3 billion and <unk>.
So.
I hope that cleans it up for you and if not that's something we can take off well we can talk about in one on one or whatnot make sure you got it all.
That's fine that's very helpful. So as we enter into fiscal 'twenty four what I'm hearing is that 1 billion might actually turn into $3 billion. So assuming interest rates continue to rise to benefit from that will actually increase even more than what it has this year.
I think well.
Well, let me say I think I want to be clear, what we're saying is with regard to the enhanced with regard to the enhanced rates.
<unk>.
That piece will grow from one three at the start of last year that started this year to something around double that and then that $1 billion that's in variable cash.
I would expect that number will be.
A similar next year.
In percentage terms. It is again it depends on the time of year, and so forth, but it's between 5% and 10% of our total cash and.
And so to the extent that total cash grows it will grow too.
Okay and then just the last quick one from me.
12% organic growth in membership was that from in cells into your existing base or is that from new account ads per box.
My Kids got me under Red Red It and apparently Intel and read it is a totally different thing.
So you said that and that's what I thought of it I didn't hear the rest of the question, but no I get so so the answer is both.
That's that is inclusive of of new organically, one logos as well as growth of existing logos.
Okay, great. Thanks, very much congrats on a good quarter.
Sure.
Thank you and our next question comes from Sean Dodge from RBC Capital markets. Your line is now open.
Sorry, we missed you last make Shaun.
This is actually Thomas Keller.
I'm on for Shaun.
Yes, not much left to pick out here, so I'm going to keep this to a quick clarification.
$5 7 million of incremental costs in Q1 type of servicing capacity and that was factored into guidance did you say that there might be some additional costs spilling into Q2 or how much carryover incremental would there be in Q2 and beyond.
Tyson you want to hit that one.
Yeah, I got that Curt.
Kept that last time, we talked about it in the last release in this release.
I mean, just a little bit of a battle the pill burden into Q2.
I'd say the Q1 number about five ish plus million dollars in there and so that's the way I would think about it just kind of bridging between those two quarters as we kind of move people off parts of that.
Alright, great. Thanks, although I'd leave it there congrats on the quarter.
Thanks, Thomas I thought you were Sean, but but your Thomas Thank you.
Okay.
Thank you.
And I would now like to turn the call back over to Jon Kessler for closing remarks.
Well I have no closing remarks prepared so let's let's consider it a win that we are.
Some of you asked us to like less Bloviate lessen our answers and so we tried and we would save about 15 minutes. So let's keep it that way everyone have great day, and a great safe summer.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
Yes.
Yeah.
Yes.
Okay.
Yes.
Excellent.
In the fourth quarter.
Yes.