Q3 2023 Healthequity Inc Earnings Call
Okay.
[music].
Good day and welcome to.
The health equity third quarter 2023 earnings conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Richard Putnam. Please go ahead.
Thank you happy.
Happy holidays to everybody and welcome to health equity third quarter fiscal year 2023 earnings Conference call. My name is Richard Putnam I do Investor Relations for health equity.
Joining me today is John Kessler, President and CEO , Dr. Steve Neeleman, Vice Chairman and founder of the company.
Murdoch, the company's executive Vice President and CFO .
Before I turn the call over to John I have two important reminders first.
A press release announcing our financial results for the third quarter of fiscal year 2023 was issued after the market closed this afternoon.
Financial results in the press release include the contributions from our wholly owned subsidiary wafer.
And accounts that Didnt industries.
Press release also includes definitions of certain non-GAAP financial measures that we will reference here today.
Copy of today's press release, including reconciliations of these non-GAAP measures with comparable GAAP measures and a recording of this webcast can be found on our Investor Relations website, which is IR dot Trump equity dot com.
Second our.
Our comments and responses to your questions today reflect management's view as of today December six 2022.
And we 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 the actual results to differ materially from the statements made today.
We caution against placing undue reliance on these forward looking statements.
I also encourage you to review the discussion of these factors and other risks that may affect our future results or the market price of our stock.
Our detailed in our latest annual report on Form 10-K, and also the subsequent periodic reports filed with the FCC.
We have 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.
<unk> will help us with that process. So lets get started by turning the call over to our CEO , Jeff. Thank you Richard Hello, everyone and thanks for joining US. This afternoon. Today, we are announcing strong results for health equities fiscal 'twenty three third quarter, we're raising our full year outlook for fiscal 2023, and we are providing an early view.
Previous to fiscal 2024, I'll discuss Q3 operating results Tyson will review the financial results in detail and provide updated guidance.
<unk> is here for Q&A.
Let's start with reviewing five key metrics that drive our business revenue of $216 1 million in the quarter grew 20% versus the third quarter of last year. Thanks to strong growth in HSA members their assets and improving to stern yields and the inclusion of the acquired further business.
Adjusted EBITDA of $73 4 million also grew 20% versus the third quarter of last year, reflecting revenue growth total accounts grew to $14 5 million up 9% compared to last Q3, HSA members reached $7 7 million up 23% year over year and health equity HSA members grew their app.
It's $1 2 billion at quarter's end, which was also up 23% from a year ago.
Team Purple continued its strong FY 'twenty three sales effort, adding 170000 HSA is up 13% from 151000, New HSA opened in Q3 last year organic account growth of 12% over the last year as well ahead of the markets, 9% growth reported Kevin years Media assessment, which was published in September .
Yeah.
As we complete open enrollment, we're particularly excited about what appears to be a strong showing from our network partners and conversion of enterprise cross sell opportunities as well as increase in usage by our enterprise clients are Max enroll engage with Bob.
Continued volatile market conditions contributed to a sequential decline in HSA invested assets of $333 million in the quarter, even while HSA investing members grew 23% year over year and continued to fund their HSA investments the average HSA balance of our members increased slightly year over year.
Custodial revenue growth was very strong with higher than expected custodial yields in the quarter driven by robust adoption of health equities enhanced rates offering and the actions of our reserve we continue to build our enhanced rates partnerships, which will allow us to further grow HSA cash balances in that product, adding to yields in the future.
Today's.
And the guidance Tyson will detail in a moment include the softness in CEB administration services that we highlighted last quarter year to date service fees from CDB themselves declined in fiscal 'twenty three versus the same period in fiscal 'twenty, two however, with premier growth and partially recovering some of the FSA.
You attrition we saw earlier in the year in Q3, we are reporting a sequential and year over year increase in service fees, excluding Cobra accounts CDB accounts grew 3%.
Main optimistic that our CDB services can continue to grow with that I will turn the call over to Tyson for more detail.
Thanks, John I'll review, our third quarter, GAAP and non-GAAP financial results a reconciliation of GAAP measures to non-GAAP measures is found in today's press release.
Third quarter revenue increased 20% year over year led by robust custodial revenue growth service revenue was $109 6 million $5 8 million or 6% year over year Q3 service revenue growth included an uptake in Europe returning to work.
Small increase in FSA and continued softness in Cobra revenue as John mentioned. Please note that we made an adjustment in how we calculate cobra accounts, resulting in a $1 million to $2 million sequential reduction in Colorado contribution to total accounts, but with no material impact on revenue or expense.
So in your revenue grew 52% to $74 6 million in the third quarter benefiting from growth in average HSA cash combined with an uptick in annualized yield on interest cost, partially offset by a decrease in average HSA investments yes.
Annualized interest rate yield on HSA cash was 200 basis points during the third quarter of this year and 183 basis points year to date compared to $1 72, and $1 76, respectively for last year.
Yield is a blended rate for all HSA cash during the quarter and represents a better than expected yield due to rate hikes benefiting the variable rate portion of our HSA cash combined with higher enhanced rate balances in the quarter.
Intrastate assets table in today's press release provides additional details.
Unchanged revenue grew 16% to $32 9 million compared to $28 2 million in the same quarter last year year over year growth in Q3 benefited from growth in average total accounts with cards and increased spend for account.
Gross profit was $126 9 million compared to $103 3 million in the third quarter of last year gross margin was 59% in the third quarter of this year versus 57% in the year ago period.
Net income increased custodial revenue and reflecting the efforts, we discussed last quarter to control service cost and improve margins.
Operating expenses were $121 3 million or 56% of revenue.
Amortization of acquired intangible assets and merger and merger integration expenses, which together represented 14% of revenue.
Operating income was $5 5 million in the third quarter compared to a loss of <unk> 4 million in the third quarter of last year.
Net loss for the third quarter was $1 6 million or a loss of <unk> <unk> per share on a GAAP EPS basis compared to a net loss of $5 million or <unk> <unk> per share in the prior year.
Our non-GAAP net income was $32 4 million for the third quarter of this year compared to $28 $9 million a year ago non-GAAP net income per share was <unk> 38 per share compared to 35 per share last year higher interest rates also increased the rate of interest we pay on the remaining $343 million term loan a.
With the current effective rate of 638%.
Adjusted EBITDA for the quarter was $73 4 million and adjusted EBITDA margin was 34%.
For the first nine months of fiscal 'twenty, three revenue was $627 9 million up 13% compared to the first nine months of last year.
GAAP net loss was $25 $9 million or <unk> 31 per diluted share non-GAAP net income was $83 2 million or <unk> 99 per diluted share and adjusted EBITDA was $198 7 million up 7% from the prior year, resulting in 32% adjusted EBITDA margin for the first nine months of the fiscal year.
Turning to the balance sheet.
As of October 31, 2022, we have $210 million of cash and cash equivalents with $927 million of debt outstanding net of issuance costs. This includes the $343 million of variable rate debt. There are no outstanding amounts drawn on our $1 billion line of credit.
We are providing the following updates to our guidance for fiscal 'twenty three.
<unk> our revenue estimates for fiscal 2003 to range between 850 and $860 million, we expect our GAAP net loss to be in a range of 34 million to $27 million.
We are increasing non-GAAP net income to be between 106 and $114 million, reflecting increased interest expense, partially offsetting the benefit of higher operating income.
Resulting in non-GAAP diluted net income between $1 $26 35 per share based upon an estimated 84 million shares outstanding for the year.
We are raising our adjusted EBITDA estimate to be between 261 in $271 million. Today's guidance includes our most recent estimate of service custodial and interchange revenue and expense based on results to date on service revenue todays guidance reflects continued solid performance of core HSA offerings offsetting the full year impact of that.
Cobra service fee headwinds observed year to date, we remain cautious on increased uptake.
On the strong sales outlet, John discussed and continuing labor market tightened today's guidance assumes incremental service costs during Q4 comparable to those experienced last year.
Our custodial revenue today's guidance assumes a full year yield on HSA cash of approximately 190 basis points based upon current conditions and expected HSA cash placements in the fourth quarter our guidance for this year does not assume additional increases or decreases in the overnight fed funds rate or other changes in macroeconomic policy will remain.
During the fiscal year, our guidance reflects the continued shift of our HSA members building and moving HSA assets to investments.
Unless with current rates rising or market driven formula of course, the interest rates that we pay our members on their HSA cash balances up five basis points for the upcoming fourth quarter. This year.
We expect to increases of a similar magnitude will continue over time under current conditions in the same vein todays guidance reflects additional interest expense for health equity is variable rate debt for the remainder of our fiscal 'twenty three based on current conditions without factoring in additional overnight fed funds rate hikes to remainder of the year.
We assume a projected statutory income tax rate of approximately 25% and a diluted share count of $84 million.
We are also providing the following initial guidance for fiscal year 2024.
We expect revenue to be between 950 and $970 million and we expect margin will expand with adjusted EBITDA growing to approximately 33% to 34% of revenue in fiscal 2024.
Yes. The initial guidance was based on an estimated HSA cash yield of 225 basis points based on our view of interest rate conditions during that period.
Today's guidance does not include any additional portfolio acquisitions in fiscal 'twenty, three 'twenty four and reflects anticipated inflationary impact on costs.
<unk> continued higher interest rates page HSA members and healthcare usage rates reported in this quarter and included in our fiscal 'twenty three guidance.
As we've done in recent reporting periods. Our full fiscal 2023 guidance includes a reconciliation of GAAP to the non-GAAP metrics provided in the earnings release for the definition of all such items is included at the end of the earnings release. In addition, while the amortization of acquired intangible assets is being excluded for non-GAAP net income the revenue generated from those acquired intangibles.
Not excluded.
However, a reconciliation of our adjusted EBITDA outlook for the fiscal year ending January 31, 2024 to net income its most directly comparable GAAP measure is not included because our net income outlook for this future period is not available without unreasonable efforts as we are unable to predict the ultimate outcome of certain significant items included or excluded from this non-GAAP measure.
Such as depreciation and amortization stock based compensation and income tax provision or benefit.
Now I'll turn it over to John Thanks.
Part of the answer is good is good.
I'd like to close the formal part of this by thanking our individual contributors both at health equity and from our clients and partners that have to date delivered a deep purple open enrollment season are finishing that up and getting ready to deliver.
Sure.
Equally impressive onboarding season in January .
It's their work.
<unk> has set us up for what we expect to be a very busy and productive end of this year and as patients.
<unk> indicated a very healthy next year.
I thought it was appropriate just to say thank you.
With that.
Let's open the call up to questions operator.
Thank you.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from Stephanie Davis with SBB Securities. Please go ahead.
Hey, guys. Thanks, so much for taking my question appreciate it.
I was a little surprised to see preliminary guidance soon.
One did you see the preliminary guidance factors in what seems like a relatively conservative view on that.
So I was hoping you could tell us a little bit more about the decision process.
Weighs into all of that.
You want to speak to the reason to do guidance yeah yeah.
Good to hear from you we wanted to give guidance out a little bit earlier. This year just to give people a view into next year based on the conversations that we've had about placements and those type of things one thing to keep in mind is directly to your question on yield as well.
Estimating that based on based on our current view of what the consensus does about the macro economy and the other thing Stephanie that's important to keep in mind on that is that we're going to have a lot less variable cash HSA cash as well so there won't be as much impact from that kind of in a very different year in fiscal 'twenty three with the fed rate movements.
Moving that yield up and then subsea.
Subsequently, having us raise guidance based off of that we're doing it a little bit different this year with regards to the fact that there's less of that catch there because we've been able to place it.
Due to the demand and then also just considering the way that we're actually doing guidance, we're trying to get a wholesale view on the year.
So thinking about it.
The kind of Delta in guidance philosophy between FY 'twenty for ever since FY 'twenty three is it safe to assume that youre not assuming as much potential upside or is there anything else to call out enhanced rate floating all the other toggles that been so beneficial this year.
Well I mean, we are.
If you look at it from a midpoint significantly perspective, Stephanie we're forecasting double digit topline growth.
Profitability on an EBIT basis, Thats like twice as fast with EBIT growing quite fast.
I know you have like a punk bring this up now.
Hi, guys.
Right, so like I'm kind of like we felt like this this will be the first time, we've ever given guidance ahead of the year.
The reason that we're doing that as Tyson suggests it is.
One because we have a great deal of confidence in the year, two because we have great deal of visibility.
And three to set a baseline and we will have plenty of opportunities to take more bikes. This apple.
And we will see how both obviously our sales season finishes up.
In the past.
Thank you.
Generally under predicted our sales season, which is sort of how we do things as you know, but we will see how our sales season finishes up we'll see how things like FSA enrollment finishes up obviously, we'll see what happens in the broader economy, but we thought that this set of pretty darn healthy baseline for going into <unk>.
24.
Thank you Dan.
Our next question comes from Anne Samuel with Jpmorgan. Please go ahead.
Hey, guys.
Thanks for taking the question and thanks for providing the guidance really helpful.
Maybe you could talk about how youre selling season is shaping up this year and just the conversations with your customers or like just given the current macro environment.
Do you want to take this one sure.
Yes look I mean, obviously in the field yesterday with most of our sales leaders in one of our partners and I think there is some real genuine enthusiasm the way that the year is finishing up.
As you know.
So instead of us two or three cycles because of leveraging slowdown in the economy.
Now of course, there is concerned about the upcoming recession and whether.
Whether that may impact themselves, but I can tell you that both from our direct sales to clients and.
Our sales through our partners are helping our partners or the partners and then even we mentioned a little bit in your prepared remarks about this <unk> process I think we're really kind of excited with the weather years.
Sure.
Obviously, we're not all the numbers we say this every year at this time until we've actually.
January than last January was such a bumper crop year that.
But.
Sure.
A lot of work to do to even those numbers, but we feel pretty good about the year.
That's great to hear Thanks, and then I was hoping maybe just one on the enhanced rate product.
Should we be thinking about that yield relative to your overall yield and how should we be thinking about what the contribution was to the yield that you guided last year, 10% penetration gave you about 10.
Yes.
Yes, we've previously said that our goal was to get to about 20% penetration by the end of the year and net debt. We felt like we were likely to exceed that.
Still think that's true.
It did make a contribution.
And as we've talked about before but the enhanced rate product produces gross yield that you give or take we talked about this before.
Maybe.
75 ish basis point premium to.
What.
We're seeing from our deposit products.
Uh huh.
And so I think you can kind of do a little bit of math from there.
Well the way we look at it.
One of the biggest well two thoughts one is.
We have a long way to go with this this is going to be a benefit to you.
This is going to be a tailwind for us for many years to come as Tyson commented we've added incremental partners. This this period.
<unk>.
To the enhanced rates products sort of the equivalent of adding banks in the early days on the deposit side.
It makes all of all of our placements more competitive and.
That's just a good thing both in terms of aggregate rates, but I think also in terms of stability.
As you see all of this kind of variability on rigs back and forth. So.
It helped us a little bit going into fiscal 'twenty four it helped us a little bit in fiscal 'twenty three I think you'll recall at the start of the year we were.
Yes.
Where we guided to at the start of the year 150 basis points to 55 basis points I can't remember now in 60 165. Thank you.
Richard.
So Richard.
And.
So so it helped us along with the Fed's actions this year and again whatever the fed does this will continue to be.
A nice tailwind for us for a long time ago.
That's really helpful color. Thank you. Thank.
Thank you thanks, Dan.
Your next question comes from Greg Peters with Raymond James. Please go ahead Mr.
Mr Peters.
Good afternoon team Purple answer Richard.
Yes.
I guess the first question I wanted to.
Ask us about just the HSA total assets that you reported as of October 31.
2022.
In the press release, you comment on the growth on a year over year basis, but if I look at the number.
Relative to where it was January 31 2022.
Not growing the SaaS. So maybe you can speak to the cadence of total HSA asset growth.
Yeah.
I'm Mary factor that has been driving the deceleration in asset growth.
During the on a sequential basis.
Really been something we commented on in the Tech and Thats.
The decline in asset values over the over the period so.
<unk>.
I think we actually tried to quantify that a little bit in the tax.
And what I guess I would say is remarkable and helpful is that during that period.
That we haven't seen fundamental changes.
<unk> consumer contribution behavior of the like I do think there has been a little bit of Av.
A little bit of a pullback.
It's just based on exactly what you would expect when you have high inflation you tend to have low savings rates that kind of thing, but but that that is very modest and the biggest effect that we've seen there is is.
Market net asset values and those have a way of as you well know kind of reverting to a mean so.
We're just going to keep trying to do our thing and I think over time that will work itself out just fine.
Okay.
And then and then I guess my follow up question from a macro perspective.
Last time rates started to move up.
Which was some time ago.
We started to see some changes in competitive behavior around their attitudes of service revenue versus custodial revenue versus interchange.
I was just wondering if there's been any noticeable change in the competitive landscape.
Bring custodial versus service considering the movement in rates et cetera.
I'd like to believe Greg that people have gotten a lot smarter about this recognizing that rates go up and rates go down.
What I do think is the case that is that if you look at this let's say.
Three while certainly at the start of the pandemic right as Youll recall I remember you asking a question about negative rates. Obviously, it's not just that we're far from that is that I think.
It's fair to say that the consensus of what a normalized rate environment looks like.
Actually is probably not.
It's it's.
It's it's it's.
It's clearly an eight zero at NYT too and so.
I think people kind of understand that a little better and so we're not seeing quite.
The same sort of I'm going to call it.
Where some people were like Oh. This is going to last forever, let's do X y or Z on five year agreements, but it's a piece of the puzzle in terms of aggregate service fees I also point out too that that as you know, but others might not.
Our service fee revenue today.
Primarily from our CEB products, our HSA service revenue on a year over year basis is growing.
Growing it at more or less as I think I said in the commentary is more or less the rate of outgrowth.
CEB is where we've been more challenge as we discussed last quarter on the quarter before which is not fundamentally about competition. It's fundamentally about some of our challenges as we finished up the CEB side of the wafers migration, but.
But look I have always said there is some level of for lack of a better term elasticity between service fees and <unk> and rates, but I do think people are a little bit, let's say I think a little bit smarter about the fact that the.
They have to look at normalized rates over an extended period of time as opposed to what yesterday's fed funds rate.
Okay got it thanks for the answers.
Yes.
Okay.
Your next question comes from Glenn <unk>.
Santander <unk> with Jefferies. Please go ahead.
Yeah. Thanks, Hey, how are you guys doing thanks for taking my question Hey, John .
I just wanted to unpack this 24 guidance in a little bit more detail.
If you look at sort of this these third quarter results you put up a 34% gross margin and your initial.
Fiscal 'twenty four guidance is calling for an EBITDA margin of 33 to 34. So it looks like it takes a little bit of a step back which is a little bit surprising just given the growth in the custodial revenues and given the gross margins around those that custodial business. So tight and I was wondering if you can unpack the margins a little bit and give us a sense.
For what you're assuming in 'twenty before because I don't know if thats pricing I don't know if its mix of.
<unk> mindset that may be driving that margin one way or.
Thanks.
Yes, I mean, the first thing to really keep in mind. One thing just still look at last year Q4, and just the seasonality of our business. So when you look at if you back into the margin for Q4 of last year.
Essentially 25% EBITDA.
We're trying to better because we've got the custodial revenue element in there, but this is really about the service costs coming into play and I mentioned in script.
Pretty much equivalent in the Q4 time period as to what they were last year as far as that increase that happens between Q3 and Q4. So blending the quarters. Together Q3 is always going to be a strong EBITDA margin quarter versus Q4.
Particularly even in Q1 of this year, we talked about some of the service cost we had flown into that plan and so that's why so when you blend that together for that guidance for next year and you think about a 33 to 34 is essentially ticking up all of those all of those quarters. If you will but still having that same seasonality trends and across the respective quarters.
Hopefully that helps.
Yes.
Let me yesterday one of them. So you just on the implied guide I just wanted to if you had said gross margin on the EBIT margin side is like 33%.
Our guide by <unk> 31, 32% for this year for FY 'twenty one.
100 basis points expansion exactly yeah, I just wanted to make sure that that's off the four points. We are forecasting in this thing give or take.
Depending on what mid point, whatever somewhere between 200 300 points.
Spansion EBIT margins and.
That doesn't seen shabby.
It's obviously the case that we our view is that we're going to look at how we do this fourth quarter.
And now I will have some impact on our on any guidance revisions as will ultimately unit sales and all that kind of stuff, but similar.
Similar to the Stephanie's question seems like a good start.
I think I get it.
Make sure that I was missing anything and John .
Wanted to ask you was.
For better or worse than many investors are just looking at the stock is the right trade.
I'm wondering if you could maybe take us back.
And give us some thoughts around these CDB businesses clearly maybe they have been a little bit slower to recover than what you maybe would have thought and I'm just trying to get your sense for how we think about that on a go forward basis, and how those CDB businesses should impact the growth algorithm in 'twenty four and beyond.
Yes, let me first say that I think that debt.
While I understand why investors may do that particularly if they are modeling out many years.
<unk>.
Wherever radio apply times corpus of zero equals zero.
<unk>.
Mostly what this company has done over the course of time as it has managed to grow the underlying asset base that advantages.
What are ultimately a large number of very small accounts.
And then in terms of the cash and so.
I do think that the sort of underlying the first underlying point before you get to <unk> and all of that.
Is the underlying growth in what you might think of as units in this case units. Our accounts HSA is in dollars and those are as we reported today.
I think over time consistently grown pretty well both.
And just on their own terms and then relative to market.
Specific to the CDB business.
We said it to begin first of all we said at the beginning of the year that we.
We're going to see softness in this business and.
We talked about basically trying to grow the HSA component of the business too.
Yet to place where by the end of the year. It was it was through 60% of total revenue.
We're basically there.
Through <unk> into.
This third quarter and.
And that growth will continue into the fourth so the first point I want to make on this one is is that we are.
We are very focused on growing the <unk> business, which is our core and where we are a market leader.
I think we are on CBS .
Tried to allude to this in the commentary is.
<unk>.
We wanted to get this to a place where it was sort of stable where.
We weren't talking about.
This legislative thing or that transition thing or that platform thing, causing.
$5 million surprise here or there.
<unk>.
I think that that's the way I would look at the performance thus far.
And the next step in this in my mind will be to see what actually yes out of consumer enrollment in the CDB products, particularly the FSA, which is the biggest component of all of that right.
In the current open enrollment season.
The the assumption underlying our current look at 'twenty four is.
I'm going to say I don't want say conservative thats not the right word, but it reflects what we've seen to date and but we will see what we actually get and we'll be able to talk about it.
KPN a few weeks.
And then ultimately refine our guidance accordingly, but.
I think that's the next step is to see.
The enrollment growth at the consumer level and we've done some things this year that really should help us there around how we engage with consumers that kind of maybe their AG got scrambling a little bit on this one during the pandemic.
Sure.
But.
And we're hoping to see real benefits from that but I want to actually see them first before I projected.
Okay. Thanks for all the detail thank.
Thank you.
Our next question comes from Scott showing Haas with Keybanc. Please go ahead.
Hi, John and team.
I apologize I'm fighting a cold here, so apologies for the nasal voice.
Today I want to say it all but you know you never know like that's the problem everyone says, it's a cold or allergies or something from you on the phone. So I guess, it's okay I said.
It's been negative so far we'll see what it develops into.
We want to see it another.
By the way.
Alright.
But at this point, yes.
Well, our full battery of tests alright.
T J.
And I do think that's up from my daughter daycare took so it might be RSV, but anyway. So I'm not going to ask you question about rates I just wanted to talk about the interchange revenue it came down 12% sequentially.
More than normal trend.
What's driving that what are you seeing so far in November and December I'm, just trying to kind of extrapolate the spending behavior from.
From customers on the health care system, obviously, its a broader talking point in health care.
Weaker or better than expected volumes heading into this.
Calendar <unk>, so any color would be appreciated.
Yeah.
It's we're up let me just say were up I want to say 16, or 17% something like that year on year.
Thank you.
And so that's good.
But I think typically Q3 is seasonally our softest quarter for interchange revenue.
And that was true here.
We saw a little if you look at the different account types.
There was a little more softness on the FSA side.
And then the HSA world.
But.
This is a tough one to predict and it does bounce around just a little bit to.
To the tune of a couple of hundred thousand dollars here and where they're in either direction in a given month.
So that's kind of my thought about it.
Ultimately, what's going to drive interchange over the long term is.
As having more accounts and having people comfortable contributing to those accounts and that's what ultimately their spending if that makes any sense.
But tyson anything to really add to that.
Really everything out of it and say I think youre doing some math on that I don't think it exceeded my.
My expectations by any means and I think it was maybe a little lighter, but I think it was well within the window of how I think about forecasting and thinking that desktop so I.
I didn't see anything, particularly other than what John mentioned, there I mean.
Commuter Scott continuing to increase a little bit. So that's always a positive sign that that continues to kind of be a tailwind that's probably the last comment I'd make on it.
Okay, great and nothing to call out there.
Just my last follow up I wanted to know what's the kind of the self help story of your margins.
Further acquisition now complete as we enter the one year anniversary or are there any costs that are baked into guidance at this point.
And then secondly, I still consolidating more real estate.
Yeah on the further one just to go back to other comments, we made we still have.
Bulk of the synergies are out a couple of years. So when we think about 'twenty four 'twenty five and getting our arms around what they did with technology and getting that migrated over onto our platforms and some of those things landed where we really get the synergies out of it those things remain to be seen.
And you can see as kind of spending our way through the $55 million.
Costs that we said we'd be there as well as we kind of put that in the order, but there will be more synergy out in the future relative to that business. The categories are different but usually you might see more of a process was more of a of a tail because it's on the technological side.
And then the second question was I think was about was about the.
The real estate, we've done that.
When I was visiting you guys out in person in the summer I saw a lot of consolidation I was wondering if there was more plans for condensing office space.
I mean, I think we're I think we're in a good spot where we have got a beautiful building here in Draper and some space out of Texas and largely gotten out of most of the other stuff you see being being back to back through EBITDA is really the stuff that relates to wage works right. It's not of everything.
Youll see our you can see also on our financials and you walked through there to really fixed asset cost capitalized coming are coming down and we're going to run the business in a much more virtual way in less less capital is always better.
If you're interested we do have some.
If you'd like to come out and check it out again they did come in we can do a full tour actually if anyone listening to this call.
Yeah.
So there is some opportunity there.
We will see.
Thanks Scott.
Our next question comes from Dan Bernstein with Wells Fargo. Please go ahead.
Hi, Thanks for taking my questions I appreciate the preliminary guidance. We provided can you perhaps share with US where are you in the process of actually rolling over into new custodial terms and when do you expect to be sufficiently completed with that process and then I'll follow up.
Yes.
It's a good question and when we do this throughout the throughout Q4 right with the majority of.
The assets come in and that ended December January timeframe, when they're actually quite so when you think about them going and shoot for example, our enhanced rate program and actually starting to drive revenue off of that.
In the January timeframe that that occurs and then of course, we're assigning FDIC type contracts.
Over the course of those the last part of December 1st part of January timeframe. So we're.
We kind of get through that by the end of January when we got all those assets placed in generating revenue.
Got it and then for my follow ups. So short term rates are 15 year highs debatable, whether we've seen peak rate. So this morning, but.
Got.
I am sure John has opinions on that but I'm just curious.
Are you inclined at all to increase the duration of your custodial deposits, given where rates are versus prior 10 15 years of history.
No Victor.
Victor the plan yes.
I mean, I don't I don't at this point I don't think duration is is you've got an inverted curve I don't think duration is our friend.
But even if it were the normal version.
We're basically in the view that.
You don't pay us to gamble on that and shareholders don't pay us to gamble on that.
We're trying to stay consistent.
There is enough other moving pieces out there.
Got it helpful. Thank you so much.
Sure.
Our next question comes from Cindy Motz with Goldman Sachs. Please go ahead.
Alright, Thanks for taking my questions and nice quarter and thank you for the preliminary guidance for 'twenty four.
Did you just want to ask a little bit more about.
24, not to beat a dead horse, but.
Is it fair to say that basically what you're doing is.
Youre anticipating passing through.
Maybe higher rates or some of the rates and you wanted to see how it goes in terms of balancing the growth because obviously you want to.
We're retaining our customers and members and then balance it but you know maybe has it gotten a little more competitive I mean is it fair to characterize it like that's what you're doing in like when you say youre, just sort of going to look and see how it goes.
Yes, it might be worth, noting here with regard specifically to the custodial expense, what we think of as our crediting rates.
These are mathematically determined and.
Hi.
I mean, there based on what our competitors do there we have not seen a lot of what one might call deposit data.
Nor did we in prior upswings, but theres, a little and we've tried to reflect that in our guidance section comment that.
Both for the remainder of 'twenty, three and 'twenty four.
Aye.
I think.
More broadly I mean, what we tried to do is is basically.
We reflect our view of the growth that is resulting from the sales cycle that we're now finishing.
And understanding things like.
We're trying to be thoughtful about what.
The needs of our teammates are going to be as we go into wage cycle and all that and tried to take a what I think is a very sober view of what fiscal 'twenty four might look like and use that as a baseline of that seems like a useful again useful thing to do.
And then just in terms of the overall margin so well so that's what we're seeing there's nothing else going on in terms of.
Are there expenses and things like that it's just basically the mix I mean, obviously its very strong margin improvement that I guess, you I mean, I know youre not going to give us 25 guidance, but I would expect.
That would continue as the mix shifts into 'twenty five.
Maybe similar improvement.
I think it's our general view has been that.
That as we see mix shift.
And a number of different ways that we have an opportunity to expand margin.
So I think your conclusion would be consistent with that view.
The only thing I would add to that too just to make a point of it is that the contracts that will replace in fiscal 'twenty five or not this January but next or the contracts that were placed in zero interest rate environment. They were negotiated in zero interest rate environment. So if rates stay steady they stay at the averages it will be an improved.
But over those contractual placements in that period. So there should be acceleration there we've talked about that before and then the other thing that I'll just make a point or two since you brought it up just on the custodial cost side and it is interesting because you've been in the zero interest rate environment for a long time and so we saw this move that I pointed out in script that increased the cost by $5.
<unk> points.
We will.
We're happy with and again, it's based on that mathematical calculation, where we use inputs from what our competitors are doing and thats right in the small print of the.
The number of agreements and we will increase that rate as our competitors increase the rate so.
Those should be being built into our models and so forth.
Based on what you think will happen there.
Great. Thank you very much.
Thanks, Dave.
Your next question comes from George Hill with Deutsche Bank. Please go ahead.
George Good evening, good evening, guys I Hope you can hear me, Okay, and I hope I'm not about to embarrass myself as I tried to do math from the back of a cab.
But my question is also on the fiscal 'twenty four guide in the rate environment.
If I'm doing the math right your annualized custodial yield this quarter was about two 3% and you guys are guiding to 2.25% for fiscal 'twenty. Four so I guess can you either walk me through the expectation of rate cadence or should I think of that as conservatism with respect to rates and I have a quick follow up.
Alright, I'll give you the correct numbers I'm watching Richard because I was looking at the piece of paper. So for Q3. It was it was 200 basis points, even for Q3 that we just reported and then for the annualized number of Richard was 191 annual which implies a little better than like to count for acute 190 was our guide.
For the full period right. After the full FY 'twenty for nine months ended it was 183 or something like that right. So those are the yields off of this year. So that math is a little soft.
To level set on the map and then of course the guidance is $2 25 for the next annualized periods I think George was including the pit.
Yes.
Yes.
Got it.
Okay.
Sure.
15%.
Yeah.
Like I said guys, Matt from the back of the cab I'm, sorry about that and then John I'll give you a two part follow up which is number one one of your larger competitors in the space seems to be targeting health care financial services as a growing market opportunity well of course that would kind of validate help equities market opportunity. It seems like they're trying to jam more into their car.
And what it can do so I'd love for you to talk a little about the competitive environment as it relates to services facing what I'd call. The commercial market and then John might joking question was going to be on the real estate that you guys are getting rid of how closer you guys to get scale.
I actually didn't hear that.
Key to go skiing, yes, well I mean again, we've got very attractive real estate and I mean, we could chalet. This thing if you needed to we can we do it.
You can see the snow were going to put a tradeoff from talking.
Fran.
Who are you we would do that for you George but.
But.
It's a tenant improvement that's what it is but.
But.
Your first question.
It was our first competitor Oh, yes, its competitive environment.
Thank <unk>.
Look at my basic view is that there is opportunity there.
Theres opportunity with regard to how we all think about like.
Where we're ultimately headed and we don't do product announcements and that kind of thing that's not how we do it.
But but ultimately I think youre going to want to think about.
Less about the card as a physical piece of plastic and more as something that's residing in the digital wallets, we're all carrying around and what's nice about that is it does open up some opportunities that having been said, but what we're not going to do.
Is.
Our I do see some of our competitors getting all.
And hungry for the idea of.
Issuing what amounts to high interest revolving credit.
And that does not interest us at all.
In other words I am not.
<unk> not there.
There is a place for that but.
I think what we want to do is get to a place where consumers can use these products. So theyre not putting these things on their consumer credit box and <unk>.
Rather than provide more or less the same thing with different these plastic. So I guess my basic view is there is opportunity there and the fact that.
Others are talking about it.
<unk> is somewhat validated with that and Thats where.
If you look at at what we're looking at in terms of sort of.
Gross revenue streams I'm sure, we'll have more to say about that as time goes on.
Okay. Thank you guys. Thank you.
Our next question comes from Mark Marcon with Baird. Please go ahead.
Hey, good afternoon team.
<unk>.
You know theres lots of discussion among companies about basically trying to reduce expenses.
Increased margins to what extent does that end up tilting a little bit of the preference.
From a health care benefits mix over to HSA or are you seeing any of that this quarter and then I've got a follow up.
Yes, Thanks, Marc I think there's always been this probably unappreciated benefit.
For these types of accounts, even over a four okay and that the money that people put in and out of their own paycheck into a health savings account reduces the employers cost not for every one of their employees, but for a big chunk out from the majority of their employees by roughly 8%. So that's at a 100 Bucks in my HSA employer.
And on the payroll taxes, and I would say that the payroll taxes plus they save money.
Taxes and state taxes.
All but two states.
California is.
New Jersey is the one where either Epsilon John doesn't get a state tax deduction.
So you're going to save on taxes, but then.
Still believe that if you look at.
<unk> that have what I would consider to be kind of mass adoption.
These savings account plans.
They just tend to have better trends than brands that are heavier benefited plans that are Richard benefits and so if you can save 3% are on trend.
Over the course of your entire employee base.
Plus some.
Cash taxes, it does make sense for you to do that and so that's why in.
Past recessions.
Even though you always hit the thought of.
Folks laid off employees and then that would naturally be our growth are impacted a little bit we have seen employers to more aggressive towards going towards succession plans.
And promote it and I think what's different this year exactly the last couple of years that we've had in the previous 18 years health equity, which we didn't really have the tools to soluble and clear okay. It introduces thing let's go after it and then to use of these products you talked about <unk> role in urgency optimizer and just our overall visual marketing effort. So I do.
Think that it's.
It's a way for employers that.
R B.
Feeling like look I still need to offer many of our people great benefits, but I still need to watch the dollar we're gonna did maybe last year or two go towards.
Did that help contribute to the 170000 that you ended up adding.
Well I think it was a little earlier I mean, the recession was.
It's not really a recession you have I guess, but yes.
There is no question that that employers are trying to be thoughtful about how there could be some benefits. So I think overall the biggest driver for those centers.
As employers are figuring out this is actually the richest benefit and kind of ironically, if you can do a well designed.
We've got this Pfizer to study that's out there now.
We've written about it.
When they they thought about this thing for 18 years before they did it finally, they did it and they said we're not doing this particular way we're doing it because you can leverage the tax code and you can leverage some other features of this to actually make it the richest benefit. So I think that's one where John if you'd agree with that.
I think more and more recent growth is not I want to save some bucks, it's I want to give the best benefit I, possibly can.
Okay great.
I just think what is true is that.
Hum.
We win win.
Our clients on the benefits side.
Need to be created.
Whether it's creative to retain people, who are creative to manage costs or whatever like creativity is our friend.
And.
This is a cycle and I expect next cycle will be such where people don't have to be created and what are they really trying to do ultimately they're trying to deliver the most value to their teammates and that's what that's what people go in the benefits to do they want to deliver real value. They don't just want to cut off.
And to Steve's point these are ways to do it whether it's promoting stuff that already exists or or fiddling around with it there is real value here and.
That's what people look at it.
Great and what does your guidance imply in terms of new ads for the fourth quarter.
I do I don't think we don't literally give sales.
Sales guidance, but no.
I guess, what I would say is tightened commented earlier I mean, if you look at last year.
We ended up selling in the full year I want to say a little over 900000 accounts and.
If you look at each quarter of this year.
While the new ads have slowed down as you might expect.
Labor market slowed down a little bit.
On a really good pace, so it's probably a similar to the message I would've given you on this topic at this point last year, which is.
Do I think that we're going to blow through 1 million accounts no I don't.
There's just not enough accounts out there but.
But we shouldnt have a very healthy year sort of.
Kind of.
Certainly as healthy as last year.
Perfect. Thank you thank.
Thanks Mark.
Sure.
Our next question comes from Allen Lutz with Bank of America. Please go ahead.
Hey, everyone. Thanks for taking the questions.
Tyson I guess on the <unk>.
On the Opex side technology and development as a percent of revenue is kind of steadily ramp since fiscal <unk> I think it was it was around 12% of revenue band and then even pre COVID-19. It was about 15% and now at the 21% I guess just to level set what exactly.
Exactly are the increases in tech and development being spent on and then I guess is there any chance or I guess, what's the timing around when we can see some operating leverage from that part of the business. Thanks.
Yes.
Thanks for asking it you have you're exactly right on the numbers you are FY chat.
With namely the acquisition drives if you think about wage and then further as well those will play a big part of that the amortization of the capitalized development. That's in there the security.
Build out that we've done.
We haven't built a.
Very good security team over the course of my tenure here and it's been quite a few dollars putting that in place and I think it's as good a selling tool as anything.
So that's in there. So I don't think there is no chance at all kind of goes back to where it was before and I don't think that'd be the right thing to do for the business I do think it sort of leveling off the other thing I would say in there too is that a lot of it has to do with stock comp coming through in metallic grab that we think that we need to bake in that particular area.
So you see that playing into that as well of course thats getting back out of the EBITDA margin side.
Don't see the impact of it there, but a lot of that increase will be in that.
And then really when you think about other things that are in there, but not any large investment in there necessarily theres just a merit.
Unit cost of the folks that are in there and then how much we ended up capitalizing relative to what we're building.
I don't know dropping anything else you want to add in Australia.
Look I think I think big picture I mean.
It's <unk>.
It's kind of gotten about as high as it's been it yet is the way I might put it at a low 20% of revenue.
It's kind of funny when when we were at 15.
As I recall.
Alan one of your predecessors was like it doesn't sound like enough for a growth company and.
And.
The way I kind of look at it is.
I do think when you sort of go apples to apples, we had increased spend in this area and the sources of increased spend I think are ultimately rifle versus technology is I'm, sorry, as security as Stacy mentioned.
I think the second is.
The fact that we.
<unk> is the fact that where we are.
We are actually investing more to innovate around the business and you've seen that and what the business has done over the course of time and a number of areas and we will continue to do we talked about some early this fall and then the last thing that its worth mentioning is that.
In practice in the near term anyway.
Versions of cloud on the IP side.
If youre doing it it does have a.
It does hurt you a little bit over time that works itself out and that should be.
A tale a tailwind but.
I think that plus kind of getting having kind of now getting through the amortization of acquisition related technology spend all of that.
Youre going to see this number start to come down as a percentage of total revenue over time without.
Without like Herculean efforts.
Okay. That's helpful. Thanks, John and then.
There was a $9 million sequential benefit in custodial revenue I think we talked about this last quarter. There's a couple of different buckets that are driving that enhanced yields and then the sof far LIBOR increases and then Youre also guiding for a 5% quarter over quarter increase in yield from 2% to 210% I believe or two 1%.
Obviously some of that is going to be from the repricing, but I guess as we think about.
The benefit that you saw over the course of fiscal 'twenty three a lot of cash being deployed how should we think about the step up quarter over quarter in fiscal 'twenty. Four is that could be more of a kind of flattish year, where the yield you get exiting the fiscal fourth quarter of this year is going to be more or less the yield.
Youre going to have over the course of the year is there anything else, we should be thinking about modeling for that thanks.
Well just to make sure that guide for the year is 190 basis points. So I just wanted to make sure. That's clear I know, we've put a lot of numbers out. There. So were just all kind of gearing level set on those.
And I think.
When you think about Q4 right, there's a it's a partial quarter and you've got those placements.
The roll off of the latter coming through there Alan so.
You get a little bit of upside relative to those new placements on the old contracts that were there because we're going to place at higher rates and we're going to place at higher interest rates as well so.
You'll have some you'll have some increase there but again, it's built into the guide that I gave already.
I think what Alan was asking is really about with regard to fiscal 'twenty disciplined three we had this relative to where we started the year. We had this pretty big step up quarter over quarter yield.
Yes, all in yield on HSA cash and I think Alan was sort of asking about how to think about that $2 25, a quarter attitude.
So, yes, I mean, the one thing.
That won't be there as well I don't know if it will be there or not but we try to take this into account is the fact that well have less variable cost.
What are the fed continues to raise rates it will be less variable HSA captured in there. So that was one of the things that you saw continually kind of pushing out rate quarter on quarter, So that would.
And going back to your question Alan.
Good tempered that because there wouldn't be.
Our base number on that.
Fed yield improvement if that were to occur.
But it probably it's probably safe to say.
7% of your characterization that that there is still some quarter as Nathan.
Less dramatic than this year and that's going to be reflected in the fact that our view is that overtime. These under any mainstream economic scenario. These yields are going to continue to go up because we're still we're going to be replacing these.
These contracts during that came in during the pandemic and all that stuff. So so there is going to be some level of hill.
First quarter to fourth quarter wont be as dramatic as it was this year.
On that very well.
Thanks got it thank you.
Our next question comes from Sandy Draper with Guggenheim. Please go ahead.
Sandy.
Hey, how are you.
Not a lot left to ask here, but maybe just.
Balance sheet question.
On the other side of the.
Arm and you mentioned Titan.
Variable rate debt.
The thinking about it looks like Youre on track to do I don't know if say round numbers 100 million free cash flow this year that.
That would likely grow next year is the primary focus is going to be on paying down the debt and how should we be thinking about.
Thinking about the cash that free cash flow and how to bring that debt down.
Yes, I mean, we're going to generate a lot of cash flow over the next couple of years right. So when you think about how how that works that is going to be one of the top.
Items that I'll be thinking about to pay down that debt relative to obviously portfolio acquisition opportunities as they come to market, but again, those maybe a little slower just given the negotiations that occur over a terminal value and things like that sandy so.
I've got to say those two things are top of mind I'd love to let's make some pay down on that GLA. So we've got to get rid of that headwind. So if they're not cash balance is starting to raise to a place where we may make that.
From our perspective, just to get a little bit in the weeds and from a turns perspective, we get to the doctor about $350 million of kind of capped out their cash to do the turns on our debt.
That makes sense.
Q if it doesn't.
So I won't get too close to that before we start making a paydown or an acquisition.
Got it. Thanks, so much that was my question.
Thanks Anthony.
Your next question comes from Sean Dodge with RBC capital markets. Please go ahead.
Hey, Shawn Hey, good afternoon guys.
This is Thomas Keller on for Sean Thanks for taking the question.
So first one I know, there's nothing factored into fiscal 'twenty guidance and you just touched on a little bit but as you all think about HSA account growth over the next year or two do you expect M&A could still be a meaningful driver or most of the bigger near term opportunities for consolidation kind of off the table at this point.
No I think that that M&A still has a role or has a role to play and.
We continue to have very active discussions obviously.
This is as we talked about earlier in the year. This is an environment where we.
We want to be disciplined about what we do and.
Yeah.
It can be harder for buyer and seller.
Agreement.
But.
I think the counterweight to that is that sellers can look at where they stand on the league tables and understand apropos of the investment discussion a few questions ago, whether it's capex or opex.
They also understand what they are putting into the business versus what we are and what other leading players are and.
So there is that two or two and I think so I guess my my basic view is if I had to guess.
About our use of cash I would guess that.
We'd be more likely to be utilizing cash on.
On acquisition opportunities that have high returns for you all and the shareholders and certainly if we can that's what we wanted.
Alright Thats helpful. Thanks, and then a question on the investment accounts have you seen any changes in like adoption or interest there given you have got other options like in Haddonfield product I guess, maybe versus your internal expectations or.
Thinking about it a different way are you, making any more of an effort around education on the merits of one versus the other.
We don't.
We're very careful not to give guidance to our members or advice to our members with regard to should I be in investments should I be in cash and that kind of thing.
So we do give advice with regard to throw a wrench vest advisor with regard to.
If you have any investments what you should be and generally we are we will do a lot in terms of education to help people understand the long term value of being in investments.
I guess my view is that if I look at HSA behavior relative to the behavior of other types of investment accounts that are out there. During this year's period of where we had no. There hasnt really been a great place to hide in terms of your stocking of broadly speaking equities fixed income et cetera.
My view is that our membership held up remarkably well.
Ultimately, we're looking at first of all.
In terms of the aggregates I mean, we're looking at 23% asset growth.
If you look at average account balance average account balance at health equity has actually grown by a little bit on a year over year basis, notwithstanding the fact that.
But that debt.
Within our industry more broadly certainly that has not been the case for Devon ear and then if you look at again much more broadly at.
Traders or pay balances I think it's fair to say that those folks would be very happy with their with flat year over year were slightly up year over year account balances. So I'm pretty pleased with the predictability of behavior that we've seen around the products.
Yeah.
Thanks, Thomas Alright.
Alright. Thanks.
Our next question comes from David Larsen with BPI. Please go ahead.
David Hi.
Hey, how are you can you. Please talk about health card revenue and also to meter revenue how is that trending this quarter relative to expectations and what's baked into guidance and I think that's sort of the peak headwind year there was like a.
$30 million headwind for those two businesses just any any color around how that's trending relative to.
Your expectations. Thanks, a lot.
I mean I think.
I think overall there were in the range of how we think about forecasting them.
They're definitely not exceeding expectations.
Yourself as kind of.
It's kind of slowly coming back through and I'm not going to really.
The drug getting ahead of that again I think it kind of is what it is is becoming a very small part of the business, where you think about low single digit.
Contributions, even though it is.
High margin.
Respective of the product and from a card perspective.
So earlier in the Q&A.
Probably a little light and.
In Q3, but again within the range of reason unless youre talking about a few hundred thousand dollars a month for us where it's just kind of a little bit below expectations. So I don't know what to make about it's hard to forecast anyway, because it's transactional.
And so I think it was again in the realm of reason was in Q4 is interesting because thats the user loser quarter, and so you kind of see what people do and then.
The heaviest quarter of spend and I guess the last thing I'd say is I think John already mentioned this.
Again more on the FSA side versus the HSA side, the HSA side seems to be very steady you would do that in a much more steady way because it's a longer term account.
You get the volatility on the FSA side, I mean, you kind of get the reactionary things to whether it'd be legislation or use it or lose it.
Great. Thanks, very much and then in terms of wage synergies I think the guidance that calls for $80 million in annual synergies where are you at that $80 million and how much sort of incremental benefit are you expecting for next year fiscal 'twenty four.
I mean, we've done we've done the work we've hit the number we reported that $80 million so as far as like the contribution it's in there and it will run rate through so that $80 million there.
What I would say too.
When you think about revenue, they're not a revenue synergy as part of the $80 million. So when you think about the bundled sales approach and the fact that we are selling HSA is up in the 900000 range over the last years here versus down 700000 range. There's a macro comment to that there's also the strategy change that came from.
Wage so back the benefit of that along with other things that just we get from scale, whether it would be better rates on interchange whether it would be.
Are there other things that we can get relative to scale, including I think be enhanced through partnerships and having enough cash to really go out and get multiple partners in that area too. So there's a lot of synergies that arent quantified there, but as far as the work done with that and were also done with the spend as well relative to the wage deal and you see that further.
<unk>, which was a much smaller number working its way through but decreasing and so therefore, the cash that comes from that the business generates more cash thanks to the decreasing merger and integration spend.
Okay as a unified products. Your go to market strategy I think it's probably more effectively sharing even more sales. That's that's great and then just my last question in terms of like the overall interest rate environment I think the federal funds rate is that about three 8% right. Now if you look at the fed's projections. They were they were calling for around four 8%.
At the end of calendar 'twenty, three that's 100 basis points.
We're at 6% core inflation, they want to get into too. So my view is interest rates might go up well above a 100 basis points next year.
Any thoughts around that just broadly speaking and then let's say, we do end up at around 5% at the federal funds rate does that mean your yield is going to be 500 basis points at some point in time.
Thanks.
Well youre getting into fiscal 'twenty five guys.
Consistent message there.
That before on this call there's always replacing those contracts that were negotiated in a zero interest rate environment with whatever the rates are at that time. So there is there are higher at that at that time not this January but next that's going to be great for the business.
It continues to be high for 26 27, 28, eventually you got to do the math and things.
Youre not necessarily wrong, it's just math right.
It works its way through the latter both ways up and down so.
It's a reasonable thing to talk about.
Not really there.
Okay I appreciate it thank you.
Thanks, David.
This concludes our question and answer session I would like to turn the conference back over to Jon Kessler for any closing remarks.
Well, we managed to do that and not quite under an hour, but we're working on it.
Thanks, Paul and happy holidays to everyone and look forward to talking to a bunch of you in the next few days and if we don't then again please.
Everyone wishing and wish you a safe and.
Hopefully family oriented time at the end of December Joy.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.