Q4 2026 HealthEquity Inc Earnings Call

March 17, 2026

Speaker #2: Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. Please note, this event is being recorded. I would now like to turn the conference over to Richard Putnam.

Operator: Please note, this event is being recorded. I would now like to turn the conference over to Richard Putnam. Please go ahead.

Speaker #2: Please go ahead. Thank you, Gary. Hello, everyone. Thank you for joining us this afternoon. This is HealthEquity's fourth quarter fiscal 2026 earnings conference call.

Richard Putnam: Thank you, Gary. Hello, everyone. Thank you for joining us this afternoon. This is HealthEquity's Q4 fiscal 2026 earnings conference call. My name is Richard Putnam. I do investor relations for HealthEquity. Joining me today are Scott Cutler, President and CEO, Dr. Steve Neeleman, Vice Chair and Founder of the company, and James Lucania, Executive Vice President and CFO. Before I turn the call over to Scott for our prepared remarks, we note that the press release announcing our Q4 financial results was issued after the market closed this afternoon, and that it includes certain non-GAAP financial measures that we will reference here today. You can find a copy of today's press release, including reconciliations of these non-GAAP measures with comparable GAAP measures on our investor relations website, which is ir.healthequity.com.

Speaker #2: My name is Richard Putnam. I do investor relations for HealthEquity. Joining me today are Scott Cutler, president and CEO; Dr. Steve Neeleman, vice chair and founder of the company; and James Lucania, executive vice president and CFO.

Speaker #2: Before I turn the call over to Scott for our prepared remarks, we note that the press release announcing our fourth quarter financial results was issued after the market closed. This includes certain non-GAAP financial measures that we will reference here today.

Speaker #2: You can find a copy of today's press release, including reconciliations of these non-GAAP measures with comparable GAAP measures, on our investor relations website, which is ir.healthequity.com.

Speaker #2: Our comments and responses to your questions reflect management's view as of today, March 17, 2026. They will contain forward-looking statements as defined by the SEC, including predictions and expectations, estimates, or other information that might be considered forward-looking.

Richard Putnam: Our comments and responses to your questions reflect management's view as of today, 17 March 2026, and they 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 our results. These forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from results from statements made here today. We caution against placing undue reliance on these forward-looking statements, and we 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, as detailed in our latest annual report on Form 10-K, which was filed just today, and subsequent periodic reports filed with the SEC.

Speaker #2: There are many important factors relating to our business that could affect our results. 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.

Speaker #2: We caution against placing undue reliance on these forward-looking statements, and we 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, as detailed in our latest annual report on Form 10-K, which was filed just today.

Speaker #2: And 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.

Richard Putnam: We assume no obligation to revise or update these forward-looking statements in light of new information or future events. With that out of the way, let's go to Scott.

Speaker #2: With that out of the way, let's go to Scott.

Speaker #3: Thanks, Richard. And we welcome everybody for joining us today. I'll begin with our Fiscal 2026 results and the strategic progress position asked for Fiscal 27.

Scott Cutler: Thanks, Richard, and we welcome everybody for joining us today. I'll begin with our fiscal 2026 results and the strategic progress positioning us for fiscal 27. Steve will address the regulatory environment, and Jim will walk through our financials, and raised fiscal 2027 outlook. Fiscal 2026 was a year of accelerating earnings power for HealthEquity as we delivered strong execution, significant margin expansion, and record HSA sales. We're proud of the team's execution and the progress we're making building this platform for the long term. In Q4, we delivered 23% Adjusted EBITDA growth and more than 500 basis points of Adjusted EBITDA margin expansion while adding a record 550,000 HSAs, resulting in more than 1 million new HSAs from sales for the year, bringing total accounts to 17.8 million and HSA assets to more than $36 billion.

Speaker #3: Steve will address the regulatory environment, and Jim will walk through our financials and raised fiscal 2027 outlook. Fiscal 2026 was a year of accelerating earnings power for HealthEquity, as we delivered strong execution, significant margin expansion, and record HSA sales.

Speaker #3: We're proud of the team's execution and the progress we're making, building this platform for the long term. In the fourth quarter, we delivered 23% adjusted EBITDA growth and more than 500 basis points of adjusted EBITDA margin expansion, while adding a record 550,000 HSAs, resulting in more than 1 million new HSAs from sales for the year. This brings total accounts to 17.8 million and HSA assets to more than $36 billion.

Speaker #3: Revenue grew 7% year over year, and net income increased 89% to $49.7 million. Non-GAAP net income increased 33%, and non-GAAP net income per diluted share grew 38%, reflecting meaningful margin expansion.

Scott Cutler: Revenue grew 7% year-over-year, and net income increased 89% to $49.7 million. Non-GAAP net income increased 33%, and non-GAAP net income per diluted share grew 38%, reflecting meaningful margin expansion. What you see in these results is the operating leverage inherent in the HealthEquity platform as assets, engagement, and automation scale. We also returned more than $300 million to our shareholders through our share repurchase program in fiscal 2026, reducing diluted shares outstanding by approximately 3%. At the center of our strategy is a flywheel, helping members save, spend, and invest for healthcare. As engagement deepens across each dimension, the model becomes more valuable and more efficient. Greater engagement drives spending, balances, and long-term earnings power. We advanced each component in fiscal 2026.

Speaker #3: What you see in these results is the operating leverage inherent in the HealthEquity platform as assets, engagement, and automation scale. We also returned more than $300 million to our shareholders through our share repurchase program in fiscal 2026, reducing diluted shares outstanding by approximately 3%.

Speaker #3: At the center of our strategy is a flywheel: helping members save, spend, and invest for healthcare. As engagement deepens across each dimension, the model becomes more valuable and more efficient.

Speaker #3: Greater engagement drives spending, balances, and long-term earnings power. We advanced each component in fiscal 2026. On save, total HSA assets increased 14% to more than $36 billion, reinforcing the long-term value embedded in the platform.

Scott Cutler: On save, total HSA assets increased 14% to more than $36 billion, reinforcing the long-term value embedded in the platform. Importantly, asset growth continues to outpace account growth, reflecting higher balances per member and deeper engagement. On spend, we expanded the way members can use their HSAs by launching our Marketplace. Beyond HSAs, our platform also supports flexible spending accounts and commuter benefits, giving employers a single destination to administer the full spectrum of consumer-directed benefits. On the invest component, HSA investors grew 10% year-over-year, and invested assets now represent more than 50% of total HSA assets. Importantly, about 95% of HSA members still do not reach contribution limits, and over 90% have not yet invested, creating significant opportunity for engagement-driven growth. Member engagement increasingly happens through our mobile platform.

Speaker #3: Importantly, asset growth continues to outpace account growth, reflecting higher balances per engagement. On spend, we expanded the way members can use their HSAs by launching our marketplace.

Speaker #3: Beyond HSAs, our platform also supports flexible spending accounts and commuter benefits, giving employers a single destination to administer the full spectrum of consumer-directed benefits.

Speaker #3: And on the invest component, HSA investors grew 10% year over year, and invested assets now represent more than 50% of total HSA assets. Importantly, about 95% of HSA members still do not reach contribution limits, and over 90% have not yet invested, creating significant opportunity for engagement-driven growth.

Speaker #3: Member engagement increasingly happens through our mobile platform. We now have more than 3.6 million downloads of our app, reflecting the growing adoption of digital-first healthcare.

Scott Cutler: We now have more than 3.6 million downloads of our app, reflecting the growing adoption of digital-first healthcare. That shift will only accelerate as younger consumers enter the system expecting to manage healthcare and finances digitally. Another advantage that becomes clear over time is the compounding value of our member cohorts. Each year, we add new HSA members who grow balances, increase engagement, and become more valuable as their accounts mature. Some of the most valuable accounts on our platform today are those opened more than a decade ago. The scale of our distribution is reflected in one simple fact. We added over 1 million new HSAs from sales in a year when the US economy added just 181,000 jobs. That is a powerful reflection of the demand for HSAs.

Speaker #3: That shift will only accelerate as younger consumers enter the system, expecting to manage healthcare and finances digitally. Another advantage that becomes clear over time is the compounding value of our member cohorts.

Speaker #3: Each year, we add new HSA members who grow balances and increase engagement and become more valuable as their accounts mature. Some of the most valuable accounts on our platform today are those open more than a decade ago.

Speaker #3: The scale of our distribution is reflected in one simple fact: we added over 1 million new HSAs from sales in a year when the US economy added just 181,000 jobs.

Speaker #3: That is a powerful reflection of the demand for HSAs. That level of growth reflects a deeply integrated, proprietary, compliant platform with more than 200 network partners and over 100,000 clients, supported by a member-first, secure mobile experience.

Scott Cutler: That level of growth reflects a deeply integrated, proprietary, compliant platform with more than 200 network partners and over 100,000 clients supported by a member-first secure mobile experience. Built over years, that advantage compounds as accounts mature and HSA assets grow, resulting in increased revenue and cash flow for us, which in turn funds our continued investment in innovation, security, and AI. We're also expanding HSA distribution into a large new retail healthcare channel. Our direct HSA enrollment platform expands access beyond employer sponsor plans, enabling individuals to open and fund HSAs through our mobile and web experience. That is especially relevant for consumers selecting Bronze plans on ACA exchanges, where we see a meaningful new retail distribution opportunity. As millions of households evaluate coverage options, our retail capabilities position us to capture incremental adoption. More broadly, healthcare affordability pressures continue to drive adoption of consumer-directed healthcare.

Speaker #3: Built over years, that advantage compounds as accounts mature and HSA assets grow, resulting in increased revenue and cash flow for us, which in turn funds our continued investment in innovation, security, and AI.

Speaker #3: We're also expanding HSA distribution into a large new retail healthcare channel. Our direct HSA enrollment platform expands access beyond employer-sponsored.

Speaker #1: Plans , enabling individuals to open and fund HSAs through our mobile and web experience . That is especially relevant for consumers . Selecting bronze plans on ACA exchanges , where we see a meaningful new retail distribution opportunity as millions of households evaluate coverage options .

Speaker #1: Our retail capabilities position us to capture incremental adoption . More broadly . Healthcare affordability pressures continue to drive adoption of consumer directed healthcare , as we previously shared , a third party study across nearly 1 million employees from several of our largest employer clients found that higher HSA adoption correlated with lower per employee healthcare costs .

Scott Cutler: As we previously shared, a third-party study across nearly 1 million employees from several of our largest employer clients found that higher HSA adoption correlated with significantly lower per-employee healthcare costs, while employees saved more on premiums and taxes, and grew their HSA balances. HSAs are becoming core infrastructure for how Americans plan and pay for healthcare. With that structural tailwind, trust remains foundational. On security, we continue to make measurable progress. In Q4, fraud reimbursements totaled approximately $0.3 million, putting our exit rate run rate at 0.1 basis points for the quarter, well below our target of 1 basis point of total HSA assets annually. Our team executed the highest performance level, reducing fraud costs to approximately 1.1 basis points during the fiscal year, placing HealthEquity in the top percentile among comparable portfolios in the Visa network.

Speaker #1: While employees save more on premiums and taxes and grow their HSA balances, HSAs are becoming core infrastructure for how Americans plan and pay for health care. With that structural tailwind, trust remains foundational on security.

Speaker #1: We continue to make measurable progress in the fourth quarter . Fraud reimbursements totaled approximately $0.3 million , putting our exit run rate at 0.1 basis points for the quarter .

Speaker #1: Well below our target of one basis point of total HSA assets annually . Our team executed the highest performance level , reducing fraud costs to approximately 1.1 basis points during the fiscal year , placing health equity in the top percentile among comparable portfolios in the visa network .

Speaker #1: We have also made meaningful progress, improving card authorization performance, directly improving the member experience at checkout. Importantly, we are strengthening account protection while simplifying the member experience. Early stage fraud detection has improved, false positives have declined, and authorization rates continue to strengthen.

Scott Cutler: We have also made meaningful progress improving card authorization performance, directly improving the member experience at checkout. Importantly, we are strengthening account protection while simplifying the member experience. Early-stage fraud detection has improved, false positives have declined, and authorization rates continue to strengthen. At the same time, Passkey authentication is eliminating traditional passwords, enhancing security while simplifying account access, protecting members while preserving interchange economics. In a category where trust is everything, we are proving security and seamless experience can scale together. With that foundation in place, we have begun building the next generation healthcare financial operating system, and AI is central to that evolution. AI will enable us to move from a phone and manual-based service experience to a place where members are guided to resolve issues in real time across multiple channels.

Speaker #1: At the same time Passkey authentication is eliminating traditional passwords , enhancing security while simplifying account access . Protecting members while preserving interchange economics in a category where trust is everything , we are proving security and seamless experience can scale together with that foundation in place , we have begun building the next generation healthcare , financial , operating system and AI is central to that evolution .

Speaker #1: AI will enable us to move from a phone- and manual-based service experience to a place where members are guided to resolve issues in real time across multiple channels.

Speaker #1: With 17.8 million accounts and more than $36 billion in assets, we have the data density, transaction velocity, and integration footprint to deploy AI tools for our members responsibly.

Scott Cutler: With 17.8 million accounts and more than $36 billion in assets, we have the data density, transaction velocity, and integration footprint to deploy AI tools for our members responsibly. With millions of members and a growing flow of healthcare spending moving through the platform, our data scale enables AI applications that smaller platforms cannot easily replicate. AI will allow us to scale member engagement while lowering the cost to serve across the platform. We are embedding AI in three ways. First, elevating the member experience. As mentioned previously, our expedited claims solution has begun delivering faster reimbursements to members. HSAnswers and HealthEquity Assist are evolving into intelligent contextual support tools that guide members from voice to agentic chat and digital channels. Second, driving operational efficiency. We are already seeing impact as AI-driven automation reduces service costs while improving resolution speed.

Speaker #1: With millions of members and a growing flow of healthcare spending moving through the platform, our data scale enables AI applications that smaller platforms cannot easily replicate. AI will allow us to scale member engagement while lowering the cost to serve across the platform.

Speaker #1: We are embedding AI in three ways . First , elevating the member experience . As mentioned previously , our expedited claims solution has begun delivering faster reimbursements to members .

Speaker #1: HSA Answers and HealthEquity Assist are evolving into intelligent contextual support tools that guide members from voice to a generative chat and digital channels. Second, driving operational efficiency.

Speaker #1: We are already seeing impact as AI driven automation reduces service costs while improving resolution speed over time . We expect AI enabled self-service to help members resolve more needs directly within defined workflows , reducing reliance on live service interactions .

Scott Cutler: Over time, we expect AI-enabled self-service to help members resolve more needs directly within defined workflows, reducing reliance on live service interactions. Third, unlocking personalization at scale. Over time, we expect members to be able to use our AI applications to optimize contributions, identify tax savings opportunities, and make more informed spending and investing decisions. AI is becoming an earnings engine for HealthEquity, improving member experience while helping lower costs to serve and increase lifetime value per account over time. Additionally, that same intelligence will continue to extend beyond service in how members discover and access healthcare programs and products. That growing flow of healthcare spending creates an opportunity to help members discover and access services directly through our platform. Across the entire industry, Americans spent more than $40 billion from HSA accounts last year on qualified healthcare.

Speaker #1: Third , unlocking personalization at scale . Over time , we expect members to be able to use our AI applications to optimize contributions , identify tax savings opportunities , and make more informed spending and investing decisions .

Speaker #1: AI is becoming an earnings engine for health equity, improving member experience while helping lower costs to serve and increase lifetime value per account over time.

Speaker #1: Additionally , that same intelligence will continue to extend beyond service and how members discover and access healthcare programs and products that growing flow of healthcare spending creates an opportunity to help members discover and access services directly through our platform , across the entire industry .

Speaker #1: Americans spend more than $40 billion from HSA accounts . Last year on qualified healthcare , more importantly , they more than replenish those funds by contributing more than $55 billion , growing their HSA balances as more health care spending moves through the platform .

Scott Cutler: More importantly, they more than replenished those funds by contributing more than $55 billion, growing their HSA balances. As more healthcare spending moves through the platform, we see additional opportunities to bring more value to our members over time. In Q4, we launched our Marketplace with early offerings focused on weight loss programs, hormone replacement therapy, and healthcare wearables. Globally, these categories are experiencing rapid consumer adoption with an estimated total market spend of more than $100 billion. Over time, we expect to expand our Marketplace with additional products, programs, services, and partners. Our Marketplace expands engagement inside the HSA while introducing new recurring revenue streams and increasing the share of healthcare spend flowing through our platform. Early adoption has been encouraging with strong initial retention rates among participating members.

Speaker #1: We see additional opportunities to bring more value to our members over time In the fourth quarter , we launched our marketplace with early offerings focused on weight loss programs , hormone replacement therapy , and healthcare , wearables globally .

Speaker #1: These categories are experiencing rapid consumer , consumer adoption , with an estimated total market spend of more than $100 billion . Over time , we expect to expand our marketplace with additional products , programs , and services , and partners .

Speaker #1: Our marketplace expands engagement inside the HSA while introducing new recurring revenue streams and increasing the share of healthcare spend flowing through our platform.

Speaker #1: Early adoption has been encouraging, with strong initial retention rates among participating members. We're also seeing an increasing number of merchants highlighting HSA and FSA eligibility at checkout as a way to increase conversion and drive sales, reinforcing the growing role of tax-advantaged healthcare spending. All of this reinforces the operating leverage visible in our results.

Scott Cutler: We're also seeing an increasing number of merchants highlighting HSA and FSA eligibility at checkout as a way to increase conversion and drive sales, reinforcing the growing role of tax-advantaged healthcare spending. All of this reinforces the operating leverage visible in our results. We enter fiscal 2027 as a three-year member of the exclusive Rule of 50 club. Members of this exclusive club deliver the sum of revenue growth and Adjusted EBITDA margin in excess of 50. This is a designation typically associated with category-leading companies, and it is even more rare to see them sustained for longer periods of time. Based on guidance that Jim will provide in detail in a moment, we intend to make it four years in a row. That's the power of this model. As engagement, assets, and automation scale, earnings scale with them.

Speaker #1: We enter fiscal 2027 as a three year member of the exclusive rule of 50 club . Members of this exclusive club deliver the sum of revenue growth and adjusted EBITDA margin in excess of 50 .

Speaker #1: This is a designation typically associated with category leading companies , and it is even more rare to see them sustained for longer periods of time based on guidance , the gym will provide in detail in a moment .

Speaker #1: We intend to make it four years in a row . That's the power of this model . As engagement assets and automation scale earning scale with them .

Speaker #1: As more Americans save , spend and invest through HSAs , our flywheel strengthens accounts , grow assets , deepen engagement , expands , and operating leverage follows with scale , distribution , growing assets , expanding engagement , and an AI enabled platform Health equity is building the financial infrastructure for how Americans will pay for health care .

Scott Cutler: As more Americans save, spend, and invest through HSAs, our flywheel strengthens. Accounts grow, assets deepen, engagement expands, and operating leverage follows. With scaled distribution, growing assets, expanding engagement, and an AI-enabled platform, HealthEquity is building the financial infrastructure for how Americans will pay for healthcare. With that, I'll turn it over to Steve to walk through the policy landscape. Steve?

Speaker #1: With that , I'll turn it over to Steve to walk through the policy landscape . Steve , thank you . Scott . The policy environment for HSA is the most constructive it has been in two decades .

Steve Neeleman: Thank you, Scott. The policy environment for HSAs is the most constructive it has been in two decades, and we believe we are at a genuine inflection point with healthcare affordability at the center of the conversation. Last year's Working Families Tax Cuts, also known as the One Big Beautiful Bill Act, expanded HSA eligibility to Americans selecting Bronze plans offered on ACA exchanges. This law is the most significant structural change to the HSA market since the accounts were created. For the first time, millions of households purchasing coverage through the exchanges compare their plans with an HSA and access the same triple tax advantage, advantages that employer-sponsored participants have long benefited. This is a meaningful democratization of a tool that has historically skewed towards employer-covered workers.

Speaker #1: And we believe we are a genuine inflection point with healthcare affordability at the center of the conversation Last year's Working Families Tax Cut Act , also known as the big as the one big , beautiful bill , expanded HSA eligibility to Americans , selecting bronze plans offered on ACA exchanges .

Speaker #1: This law is the most significant structural change to the HSA market since the accounts were created for the first time , millions of households purchasing coverage through the exchanges compare their plans with an HSA and access the same triple tax advantage advantages that employer sponsored participants have long benefited This is a meaningful democratization of a tool that has historically skewed towards employer covered workers We continue to work closely with our health plan partners to simplify the process , to enroll in Enroll Bronze Plan members into HSAs beyond the ACA exchange expansion .

Operator: We continue to work closely with our health plan partners to simplify the process to enroll in, enroll Bronze plan members into HSAs. Beyond the ACA exchange expansion, we are encouraged by the broader legislative momentum. The current administration has put forth a healthcare proposal that includes HSAs as a core component, and several members of Congress have introduced legislation aimed at further expanding HSA eligibility. We are actively engaged with policymakers on both sides of the aisle to share what we see in the real world, how HSAs reduce per-employee healthcare costs, grow member savings, and give families genuine control over their healthcare spending. With HSAs, employers do not need to choose between saving money on benefits and ensuring healthcare financial security for their employees. They can have both. HealthEquity scale and close partnerships position us well to convert this policy momentum into growth.

Steve Neeleman: We continue to work closely with our health plan partners to simplify the process to enroll in, enroll Bronze plan members into HSAs. Beyond the ACA exchange expansion, we are encouraged by the broader legislative momentum. The current administration has put forth a healthcare proposal that includes HSAs as a core component, and several members of Congress have introduced legislation aimed at further expanding HSA eligibility. We are actively engaged with policymakers on both sides of the aisle to share what we see in the real world, how HSAs reduce per-employee healthcare costs, grow member savings, and give families genuine control over their healthcare spending. With HSAs, employers do not need to choose between saving money on benefits and ensuring healthcare financial security for their employees. They can have both. HealthEquity scale and close partnerships position us well to convert this policy momentum into growth.

Speaker #1: We are encouraged by the broader legislative momentum. The current administration has put forth a healthcare proposal that includes HSAs as a core component, and several members of Congress have introduced legislation aimed at further expanding HSA eligibility.

Speaker #1: We are actively engaged with policymakers on both sides of the aisle to share what we see in the real world , how HSAs reduce per employee health care costs , grow member savings , and give families genuine control over their healthcare spending .

Speaker #1: With HSAs , employers do not need to choose between saving money on benefits and ensuring healthcare , financial security for their employees . They can have both health equity scale and close partnerships position us well to convert this policy momentum into growth .

Speaker #1: When legislative changes , create new eligible populations are more than 200 network partners in 100,000 clients . Allow us to move quickly . Educating and enrolling and enrolling newly eligible members and helping them realize the full financial benefit of HSAs Importantly , our strategy does not depend on any single legislative outcome .

Operator: When legislative changes create new eligible populations, our more than 200 network partners and 100,000 clients allow us to move quickly, educating and enrolling newly eligible members and helping them realize the full financial benefit of HSAs. Importantly, our strategy does not depend on any single legislative outcome. The secular trends towards consumer-directed healthcare are well underway across employers, retail consumers, and policymakers. Policy tailwinds accelerate that trend. I believe these efforts, along with our strategy, brings us closer to realizing the original mission we have for HealthEquity: to save and improve lives by empowering healthcare consumers. Now I'll turn it over to Jim to discuss the financials. Jim?

Steve Neeleman: When legislative changes create new eligible populations, our more than 200 network partners and 100,000 clients allow us to move quickly, educating and enrolling newly eligible members and helping them realize the full financial benefit of HSAs. Importantly, our strategy does not depend on any single legislative outcome. The secular trends towards consumer-directed healthcare are well underway across employers, retail consumers, and policymakers. Policy tailwinds accelerate that trend. I believe these efforts, along with our strategy, brings us closer to realizing the original mission we have for HealthEquity: to save and improve lives by empowering healthcare consumers. Now I'll turn it over to Jim to discuss the financials. Jim?

Speaker #1: The secular trends towards consumer directed healthcare are well underway across employers , retail consumers and policymakers . Policy tailwinds accelerate that trend . I believe these efforts , along with our strategy , brings us closer to realizing the original mission we had for health equity to save and improve lives by empowering health care consumers .

Speaker #1: Now, I'll turn it over to Jim to discuss the financials. Jim?

Speaker #2: Thanks, Steve. I'll review our fourth quarter and full year fiscal 2020 GAAP and non-GAAP financial results. A reconciliation of GAAP to non-GAAP measures is included in today's press release. Starting with the fourth quarter, revenue increased 7% year over year to $334.6 million.

James Lucania: Thanks, Steve. I'll review our Q4 and full year fiscal 2026 GAAP and non-GAAP financial results, as a reconciliation of the GAAP to non-GAAP measures is included in today's press release. Starting with the Q4, revenue increased 7% year-over-year to $334.6 million. Service revenue grew 2% year-over-year to $127.1 million. Custodial revenue increased 12% to $161.4 million, and the annualized yield on HSA cash was 3.57% for the quarter, reflecting higher replacement rates and a continued mix shift of HSA cash toward enhanced rates. We ended the year with 58% of HSA cash in enhanced rates contracts. Interchange revenue grew 6% to $46.1 million, outpacing our 4% total account growth.

Speaker #2: Service revenue grew 2% year over year to $127.1 million . Custodial revenue increased 12% to $161.4 million , and the annualized yield on HSA cash was 3.57% for the quarter , reflecting higher replacement rates and a continued mix shift of HSA cash toward enhanced rates .

Speaker #2: We ended the year with 58% of HSA cash and enhanced rates. Contracts interchange revenue grew 6% to $46.1 million, outpacing our 4% total account growth. Gross profit was $228.1 million, resulting in a 68% gross margin, up from 61% in the fourth quarter last year.

James Lucania: Gross profit was $228.1 million, resulting in 68% gross margin, up from 61% in Q4 last year, an expansion of more than 700 basis points. This reflects reduced fraud costs and continued service efficiency, as Scott detailed earlier. Service costs declined $17 million year-over-year as fraud reimbursements totaled just $0.3 million in Q4. As Scott mentioned, our investments in security, AI service technologies, and our member first secure mobile experience is delivering greater functionality and member satisfaction at a lower cost to serve. Net income for Q4 was $49.7 million, or 58 cents per share, up 93% compared to Q4 last year. Net income margin was 15%.

Speaker #2: An expansion of more than 700 basis points. This reflects reduced fraud costs and continued service efficiency. As Scott detailed earlier, service costs declined $17 million year over year, as fraud reimbursements totaled just $0.3 million in the fourth quarter.

Speaker #2: As Scott mentioned , our investments in security AI service technologies , and our member first secure mobile experience is delivering greater functionality and member satisfaction at a lower cost to serve Net income for the fourth quarter was $49.7 million , or $0.58 per share , up 93% compared to the fourth quarter last year .

Speaker #2: Net income margin was 15% . non-GAAP net income increased 33% to $81.8 million , and non-GAAP net income per share grew 38% to $0.95 .

James Lucania: Non-GAAP net income increased 33% to $81.8 million, and non-GAAP net income per share grew 38% to $0.95. Adjusted EBITDA was $132.9 million, up 23% compared to the Q4 last year. Adjusted EBITDA margin expanded over 500 basis points to 40% in the Q4. Turning to the balance sheet, as of 31 January 2026, cash on hand was $319 million, as we generated $457 million of cash flow from operations in fiscal 2026. Debt outstanding was approximately $957 million net of issuance costs, after paying down another $25 million of the revolver during the quarter. We repurchased approximately $82 million of our outstanding shares during the quarter and over $300 million during fiscal 2026.

Speaker #2: Adjusted EBITDA was $132.9 million, up 23% compared to the fourth quarter last year. Adjusted EBITDA margin expanded over 500 basis points to 40% in the fourth quarter.

Speaker #2: Turning to the balance sheet as of January 31st , 2026 , cash on hand was $319 million . As we generated $457 million of cash flow from operations in fiscal 2026 .

Speaker #2: Debt outstanding was approximately $957 million, net of issuance costs, after paying down another $25 million of the revolver during the quarter.

Speaker #2: We repurchased approximately $82 million of our outstanding shares during the quarter , and over $300 million during fiscal 2026 . We have approximately $178 million remaining on our previously announced share repurchase authorization .

James Lucania: We have approximately $178 million remaining on our previously announced share repurchase authorization. Our capital allocation priorities remain consistent, invest in organic growth, maintain optimal balance sheet flexibility to pursue industry consolidation opportunities, and return capital to shareholders. For fiscal 2026, we exceeded our guidance. Revenue was $1.313 billion, up 9.5% compared to last year. GAAP net income was $215.2 million, or $2.46 per diluted share, with a net income margin at 16%. Non-GAAP net income was $349.8 million or $4 per diluted share. Adjusted EBITDA was $566 million, up 20% from the previous year, representing a 43% Adjusted EBITDA margin for the fiscal year. Before I detail our raised guidance and assumptions, let me briefly update you on the interest rate forward contracts we discussed on prior calls.

Speaker #2: Our capital allocation priorities remain consistent: invest in organic growth, maintain optimal balance sheet flexibility to pursue industry consolidation opportunities, and return capital to shareholders for fiscal 2026.

Speaker #2: We exceeded our guidance , revenue was $1.313 billion , up 9.5% compared to last year . GAAP net income was $215.2 million , or $2.46 per diluted share , with a net income margin at 16% .

Speaker #2: non-GAAP net income was $349.8 million , or $4 per diluted share . Adjusted EBITDA was $566 million , up 20% from the previous year , representing a 43% adjusted EBITDA margin for the fiscal year Before I detail our raised guidance and assumptions , let me briefly update you on the interest rate forward contracts we discussed on prior calls .

Speaker #2: The first of these forward rate locks matured in connection with expiring basic rates contracts during the fourth quarter and allowed us to place funds in our enhanced Rates program at above-market rates.

James Lucania: The first of these forward rate locks matured in connection with expiring Basic Rates contracts during Q4 and allowed us to place funds in our Enhanced Rates program at above-market rates. We expect the remaining interest rate forward contracts and additional contracts that we may enter to further de-risk potential interest rate volatility on future HSA cash deposit contracts that flow into our Enhanced Rates program. At the end of Q4, we had forward contracts on U.S. Treasury bonds with a notional amount of approximately $2.4 billion, tied to contract maturities between March 2026 and January 2028, and a blended rate lock of 3.92%, not including the negotiated premium that we receive above the five-year Treasury benchmark on our Enhanced Rates placements. We expect to execute additional forward interest rate hedges depending on market conditions.

Speaker #2: We expect the remaining interest rate forward contracts, and additional contracts that we may enter, to further de-risk potential interest rate volatility on future HSA cash deposit contracts that flow into our enhanced rates program.

Speaker #2: At the end of the quarter , we had forward contracts on US Treasury bonds with a notional amount of approximately $2.4 billion , tied to contract maturities between March 2026 and January 2028 , and a blended rate lock of 3.92% , not including the negotiated premium that we receive above .

Speaker #2: The five-year Treasury benchmark on our enhanced rates placements. We expect to execute additional forward interest rate hedges depending on market conditions.

Speaker #2: We ended fiscal 2026 with an average yield of 3.53% on HSA cash assets, and expect the average yield on HSA cash will be approximately 3.8% for fiscal 2027.

James Lucania: We ended fiscal 2026 with an average yield of 3.53% on HSA cash assets and expect the average yield on HSA cash will be approximately 3.8% for fiscal 2027. Our custodial yield assumptions take into account forward hedges for the maturing contracts in fiscal 2027 and the projected HSA cash deployments, which are detailed in today's release. We also consider a range of forward-looking market indicators, including the Secured Overnight Financing Rate and mid-duration Treasury forward curves. These indicators are, of course, subject to change and are not perfect predictors of future market conditions, but they provide a consistent framework for how we set our outlook. Given our momentum in new account sales and assets, we're raising our guidance for fiscal 2027. This increase reflects strong execution to date, increased visibility into our fiscal 2027 trajectory.

Speaker #2: Our custodial yield assumptions take into account forward hedges for the maturing contracts in fiscal 2027 and the projected HSA cash deployments , which are detailed in today's release .

Speaker #2: We also consider a range of forward looking market indicators , including the secured overnight financing rate and mid duration . Treasury forward curves .

Speaker #2: These indicators are , of course , subject to change and are not perfect predictors of future market conditions , but they provide a consistent framework for how we set our outlook given our momentum and new account sales and assets , we're raising our guidance for fiscal 2027 .

Speaker #2: This increase reflects strong execution to date, and increased visibility into our fiscal 2027 trajectory. We now expect revenue between $1.405 and $1.415 billion.

James Lucania: We now expect revenue between $1.405 and $1.415 billion. GAAP net income is expected to be between $239 and $246 million, or $2.78 and $2.85 per share. We expect non-GAAP net income to be between $392 and $400 million, or $4.56 and $4.65 per share, based upon an estimated 86 million shares outstanding for the year. Finally, we expect adjusted EBITDA to be between $618 and $628 million. We're pleased with how we exited fiscal 2026. We expect to make additional progress on growth and margin expansion in fiscal 2027. Our outlook reflects continued revenue growth, sustained margin expansion, and disciplined investment in technology, security, and sales and marketing. Our guidance also assumes continued capital return and a strong balance sheet.

Speaker #2: GAAP net income is expected to be between 200 and 30 9 to $246 million , or $2.78 , to $2.85 per share . We expect non-GAAP net income to be between 392 and $400 million , or $4.56 , and $4.65 per share , based upon an estimated 86 million shares outstanding for the year .

Speaker #2: Finally, we expect adjusted EBITDA to be between $618 million and $628 million. We're pleased with how we exited fiscal 2026. Expect to make additional progress on growth and margin expansion in fiscal 2027.

Speaker #2: Our outlook reflects continued revenue growth , sustained margin expansion , and disciplined investment in technology , security and sales and marketing . Our guidance also assumes continued capital return and a strong balance sheet .

Speaker #2: We expect to make additional share repurchases under the remaining $178 million repurchase authorization , and may further reduce borrowings on our revolver during fiscal 2027 , with continued strong cash flows and available revolver capacity will maintain ample flexibility for portfolio acquisitions .

James Lucania: We expect to make additional share purchases under the remaining $178 million repurchase authorization and may further reduce borrowings on our revolver during fiscal 2027. With continued strong cash flows and available revolver capacity, we'll maintain ample flexibility for portfolio acquisitions should attractive opportunities arise. Our guidance assumes GAAP and non-GAAP income tax rate of approximately 25% and a diluted share count of 86 million, including common share equivalents. As in prior periods, our fiscal 2027 guidance includes a reconciliation of GAAP to the non-GAAP metrics, and a definition of all non-GAAP metrics can be found in today's earnings release. While we exclude the amortization of acquired intangible assets from non-GAAP net income, the revenue generated from those acquired intangible assets is included. As a reminder, we plan to provide fiscal 2028 guidance following fiscal year 2027. Operator, please open the line for questions.

Speaker #2: Should attractive opportunities arise , our guidance assumes GAAP and non-GAAP income tax rate of approximately 25% and a diluted share count of 86 million , including common share equivalents as in prior periods , our fiscal 2027 guidance includes a reconciliation of GAAP to non-GAAP metrics and a definition of all non-GAAP metrics can be found in today's earnings release While we exclude the amortization of acquired intangible assets from non-GAAP net income , the revenue from those acquired intangible assets is included .

Speaker #2: As a reminder, we plan to provide fiscal 2028 guidance following fiscal year 2027. Operator, please open the line for questions.

Speaker #3: We will now begin the question and answer session . To ask a question , you may press star , then one on your telephone keypad .

Operator: We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Our first question today is from Mark Marcon with Baird. Please go ahead.

Speaker #3: If you are using a speakerphone, pick up your handset before pressing the keys. To withdraw your question, please press star then two.

Speaker #3: Our first question today is from Mark Marconi with Baird. Please go ahead.

Speaker #4: Hey . Good afternoon . Congratulations on the strong quarter and the raised guidance . I wanted to ask two questions . One , I thought the gross margin expansion was was very impressive .

Mark Marcon: Hey, good afternoon. Congratulations on the strong quarter and the raised guidance. Wanted to ask two questions. One, I thought the gross margin expansion was very impressive. If we strip out the fraud costs and adjust for that in the year ago, you still ended up having significant gross margin expansion despite the fact that you ended up having a lot of implementations in Q4, and you only have 3.7 or 3.6 million downloads out of the 10.6 that you potentially could have. I'm wondering, like, how should we think about the gross margin potential.

Speaker #4: If we strip out the fraud costs and adjust for that in the year ago, you still ended up having gross margin expansion, despite the fact that you ended up having a lot of implementations in the fourth quarter.

Speaker #4: And you only have 3.7 or 3.6 million downloads out of the 10.6 that you potentially could have . So I'm wondering like , how should we think about the gross margin potential going forward , particularly as you continue to roll out the AI initiatives and get more and more of the account holders to download the app and streamline their interactions .

Mark Marcon: Going forward, particularly as you continue to roll out the AI initiatives and get more and more of the account holders to download the app and streamline their interactions.

Scott Cutler: Was that your one question? You said you had two.

Speaker #5: Was that your one question? You said you had two.

Scott Cutler: Was that your one question? You said you had two.

Mark Marcon: That's one, and then there's another.

Speaker #4: That's one. And then there's another.

Mark Marcon: That's one, and then there's another.

Speaker #5: Oh , okay . I see a follow up . Yeah . So on the gross margin expansion , look , we are incredibly proud with the work .

Scott Cutler: Oh, okay. I see a follow-up. Yeah. On the gross margin expansion, look, we are incredibly proud with the work obviously that we did in driving down fraud costs, reflected in tremendous progress there. We're at or below our target run rate there. I think the other thing you're highlighting is also the progress that we've made on the service cost per account. We're driving those operational efficiencies through technology changes, use of AI, automating many of the manual and phone-based interactions that we have today while also improving service. We know that we're at the very beginning of our journey on AI, Mark, as we've talked about, but our team is maniacally focused on delivering a consistent end-to-end experience for our members and to be able to do that more efficiently.

Speaker #5: Obviously, what we did in driving down fraud costs is reflected in the tremendous progress there. We're at or below our target run rate there.

Speaker #5: I think the other thing you're highlighting is also the progress that we've made on the service cost per account . And we're driving those operational efficiencies through technology changes , use of AI , automating many of the manual and phone based interactions that we have today , while also improving service .

Speaker #5: We know that we're at the very beginning of our journey on AI , Mark , as we as we've talked about , but our team is maniacally focused on delivering a consistent end to end experience for our members and to be able to do that more efficiently .

Speaker #5: So, I really think that we've got tremendous opportunity to drive that gross margin expansion, with a particular focus on the way that we deliver our service.

Scott Cutler: I really think that we've got tremendous opportunities to continue to drive that gross margin expansion with a particular focus on the way that we deliver our service. Again, when we think about the opportunities there, it's obviously in how we serve our members, but it's also in a lot of the processes that we have with clients. That's not something that we focused on as much last year and is gonna be a big area for us just to be more efficient in terms of how we integrate with new clients, how we onboard new members that are coming in through our client relationships. I expect us to make meaningful progress again this year on that.

Speaker #5: And again, when we think about the opportunities there, it's obviously in how we serve our members, but it's also in a lot of the processes that we have with clients.

Speaker #5: And that's not something that we focused on as much last year and is going to be a big area for us, just to be more efficient in terms of how we integrate with new clients, how we onboard new members that are coming in through our client relationships.

Speaker #5: And again, I expect us to make meaningful progress again this year on that.

Speaker #4: That's great . And just a quick follow up , it's early in terms of expanding the platform in terms of , you know , having curated , you know , whether it's weight loss or hormone or devices , but what are you seeing just in terms of the level of engagement with the the early users that have started to procure some of the services through the platform ?

Mark Marcon: That's great. Just a quick follow-up. It's early in terms of expanding the platform, in terms of, you know, having curated, you know, whether it's weight loss or hormone or devices. What are you seeing just in terms of the level of engagement with the early users that have started to procure some of the services through the platform? What's the engagement gone up like? And what are you seeing in terms of the cash that they're actually putting into the system, as they re-enrolled?

Speaker #4: What's the engagement gone up like? And what are you seeing in terms of the cash that they're actually putting into the system as they're enrolled?

Speaker #5: So we're still very early in that . And we've only got really three programs in , in weight loss and in hormone replacement .

Scott Cutler: We're still very early in that, and we've only got really three programs in weight loss, in hormone replacement, and then in the wearables category. The metrics that we're gonna be driving obviously starts with just engagement on the mobile platform. I don't think I answered your question on the mobile, but driving our members into the mobile experience, we think is the place where they start engagement. Then we wanna be able to provide seamless opportunities where they're spending money on the programs that make sense and make sense for us to be able to introduce on it. What we're looking at is really members that sign up for those programs.

Speaker #5: And then in , in the wearables category , the metrics that we're going to be driving , obviously starts with just engagement on the mobile platform .

Speaker #5: I don't think I answered your question on mobile, but driving our members into the mobile experience, we think, is the place where they start engagement.

Speaker #5: And then we want to be able to provide seamless opportunities where they're spending money on the programs that make sense, and make sense for us to be able to introduce on it.

Speaker #5: And so what we're looking at is really members that sign up for those programs , if it's a program that persists over a longer period of time , for example , in weight loss , we want to make sure that they stay in that program .

Scott Cutler: If it's a program that persists over a longer period of time, for example, in weight loss, we wanna make sure that they stay in that program, they choose to stay in that program. You'll be looking at traditional metrics like churn. We've been really pleased with the number of members that have signed up in those programs, the number of members that have stayed in those programs. Again, we've only got a couple of months of cohorts to look at that, but we're very pleased with that progress. Now over time, we're gonna be introducing, again, other programs, other partners, other services.

Speaker #5: They choose to stay in that program, and so you'll be looking at traditional metrics like churn. We've been really pleased with the number of members that have signed up in those programs.

Speaker #5: The number of members that have stayed in those programs . And again , we've only got a couple of months of cohorts to look at that , but we're very pleased with that progress with that progress .

Speaker #5: And then now over time , we're going to be introducing again other programs , other partners , other services . And again , the limited programs that we have today , you know , represent , as I said in my prepared comments , a market opportunity of over $100 billion of spend on things that consumers are already spending those dollars on .

Scott Cutler: Again, the limited programs that we have today, you know, represent, as I said in my prepared comments, a market opportunity of over $100 billion of spend on things that consumers are already spending those dollars on. We're very optimistic about the progress that we're seeing. Again, as you think about that relative to the guide that we have given, we have not incorporated a material Marketplace revenue in our guide for this next year. If we perform and if that performs well, we would hope for that to become a material part of our revenue going forward.

Speaker #5: So we're very optimistic about the the progress that we're seeing . And again , as you think about that relative to the guide that we have given , we have not incorporated material marketplace revenue in our guide for this next year .

Speaker #5: So, if we perform, and if that performs well, we would hope for that to become a material part of our revenue going forward.

Speaker #1: Thanks , Mark .

Scott Cutler: Thanks, Mark.

Speaker #4: Perfect . Thank you so much

Mark Marcon: Perfect. Thank you so much.

Speaker #3: The next question is from Stan Burnside with Wells Fargo. Please go ahead.

Operator: The next question is from Stan Berenshteyn with Wells Fargo. Please go ahead.

Speaker #6: Hi . Thanks so much . A couple of questions . First , maybe I missed this . I had some issues logging in , but do you have any comments related to the conversion you're getting out of the ACA cohort ?

Stan Berenshteyn: Hi. Thanks so much. A couple of questions. First, maybe I missed this. I had some issues logging in, but do you have any comments related to the conversion you're getting out of the ACA cohort? If you can comment on that and what the cadence there is. Thank you.

Speaker #6: If you can comment on that and what the cadence there is. Thank you.

Speaker #5: Yeah , so I'll , I'll talk about it and Steve can talk about how that's evolving . You know , as we've said from the very beginning , this represents about a 10% expansion to the overall market in terms of potential accounts that could be added .

Scott Cutler: Yeah. I'll talk about it, and Steve can talk about how that's evolving. You know, as we said from the very beginning, this represents about a 10% expansion to the overall market in terms of potential accounts that could be added. We have said that those accounts will come over time. We really only started to see those accounts come in starting in January associated with that enrollment season. Again, these are gonna come into the market differently than associated with an employer, meaning that we'll be looking to our plan partners to be able to go to market efficiently like we do. It's also opened up via a retail one-to-one offering. We have the most attractive match for members that are signing up through that retail channel. We want to encourage them to do that.

Speaker #5: We have said that those accounts will come over time. We really only started to see those accounts come in, starting in January.

Speaker #5: Associated with that enrollment season. Again, these are going to come into the market differently than associated with an employer, meaning that we'll be looking to our planned partners to be able to go to market efficiently like we do.

Speaker #5: And it's also opened up via a retail one-to-one offering. We have the most attractive match for members that are signing up through that retail channel.

Speaker #5: We want to encourage them to do that, and we still see significant opportunity ahead because we're just at the very early stages of those that are moving to bronze.

Scott Cutler: We still see significant opportunity ahead because we're just at the very early stages of those that are moving to Bronze plans, for one, which we're seeing momentum there. Then two, just the awareness that historically these plans have not been tied or associated with qualification for an HSA. That member needs to be able to know that they're eligible. Going at that with our plan partners is the way we're going to go about it. We saw really great progress in January with respect to how those are coming in. Steve, would you add to that? I think you captured most of it, Stan. We're in early innings. As you know, the law was not signed until 4 July 2025, and at that point, all the plans had been filed, and so they were already named.

Speaker #5: Plans for one, which we're seeing momentum there. And then two, just the awareness that historically these plans have not been tied or associated with qualification for an HSA.

Speaker #5: And that and that member needs to be able to know that they're eligible . And so , again , going at that with our plan partners is the way we're going to go about it .

Speaker #5: Again , we saw really great progress again in January with respect to how those are coming in . Steve , would you add to that ?

Speaker #1: I think you captured most of it . Stan , we're in early innings . As you know , the law was not signed until July 4th .

Speaker #1: And at that point , all the plans had been filed . And so they were already named . It was really hard to find out when people ended up on the exchanges in November , December , January , if they were even HSA qualified .

Scott Cutler: It was really hard to find out when people ended up on the exchanges in November, December, January, if they were even HSA qualified. Obviously, we have a head start on that now. The goal, like I pointed out, is to just make it really simple. One of the first things HealthEquity did when we came out as a company was to make it easy for people in the employed markets to enroll in HSAs. I mean, most of our competitors are way behind us. You'd have to go sign up for the high deductible plan with your employer. Then your employer would say, "Now go find yourself a HSA provider," and it was non-integrated. We became the leader in the HSA space by integrating the benefits that you get from your employer.

Speaker #1: Obviously , we have a head start on that now . And so the goal , like I pointed out , is to just make it really simple .

Speaker #1: One of the first things HealthEquity did when we came out as a company was to make it easy for people in the employer and the employed markets to enroll in HSAs.

Speaker #1: I mean , most of our competitors are way behind us . You'd have to go sign up for the high deductible plan with your employer .

Speaker #1: Then your employer would say , now go find yourself a HSA provider . And it was non-integrated . So we became the leader in , in , in the HSA space by integrating the benefits that you get from your employer .

Speaker #1: And of course, our competitors followed suit. And that's not that much of an— We're seeking to do the same kind of stuff in the exchange markets where, if somebody enrolls in a bronze plan or super simple, it'll be integrated.

Scott Cutler: Of course, our competitors followed suit, and that's not that much of innovation. We're seeking to do the same kind of stuff in the exchange markets, where if somebody enrolls in a Bronze plan or super simple, it'll be integrated, get the account open. The key is, we have that relationship with that member to start helping them understand how to optimize that account, fund it, spend through the account, use the Marketplace, things like that. Early innings, but we're encouraged, and now at least we have a little bit of a running head start, because the law did not pass after the plans were filed, if that makes sense.

Speaker #1: Get the account open and then and then the key is to we have that relationship with that member to start helping them understand how to optimize that account , fund it , spend through the account , use the marketplace , things like that .

Speaker #1: Early innings. But we're encouraged. And now at least we have a little bit of a running head start because the law did not pass after the plans were filed.

Speaker #1: If that makes sense .

Speaker #6: That's helpful . And then a quick one here for Jim just to give him some airtime as well . Just big picture . I know you mentioned rule of 50 .

Stan Berenshteyn: That's helpful. A quick one here for Jim, just to give him some air time as well. Just big picture, I know you mentioned Rule 50. You know, you have another tailwind from asset resets, that's gonna impact next year, presumably. You know, you have a lot of cash that you're gonna be generating. What are your plans in terms of reinvestment in the business? Do they change, you know, as you think about having that tailwind pretty much sunset after next year? Thanks.

Speaker #6: You know , you have another tailwind from asset resets . That's going to impact next year . Presumably , you know , you have a lot of cash that you're going to be generating .

Speaker #6: What are your plans in terms of reinvestment in the business? And do they change, you know, as you think about having that tailwind pretty much sunset after next year?

Speaker #6: Thanks .

Speaker #2: Yeah . No , I mean , I think as we we sort of highlighted , right . There's no real change in our in our capital allocation philosophy .

James Lucania: Yeah, no, I mean, I think as we sort of highlighted, right, there's no real change in our capital allocation philosophy. You know, you're effectively seeing us using our free cash flow both to repurchase shares and to chip away at the line of credit that we borrowed for the BenefitWallet deal. So, no real change there. And you're right, yeah, we've got $4+ billion that is gonna reprice this year. Yeah, agreed. Sort of not as much influential on this year's potential growth than it will be for next year. We fund the business first, right?

Speaker #2: Your , you're effectively seeing us using using our free cash flow , both to , to repurchase shares and to , and to chip away at the , at the line of credit that we borrowed for , for the benefit wallet deal .

Speaker #2: So , so no real , no real change there . And you're right . Yeah , we've got four plus billion that is going to reprice this year .

Speaker #2: Yeah . Agreed . Sort of not not not as much influential on on this year's potential growth than than it will be for than it will be for next year .

Speaker #2: But but we we fund we fund the business first . Right . And then and then it's with with what's left is what we're repurchasing , repurchasing shares and , and chipping away at the debt with , with , with what's left .

James Lucania: It's with what's left is what we're repurchasing shares and chipping away at the debt with what's left.

Speaker #6: Great . Thank you

Stan Berenshteyn: Great. Thank you.

Speaker #5: Thanks , Stan .

Scott Cutler: Thanks, Stan Berenshteyn.

Speaker #3: The next question is from George Hill with Deutsche Bank . Please go ahead

Operator: The next question is from George Hill with Deutsche Bank. Please go ahead.

Speaker #7: Yeah . Hi . It's Max young for George . Thanks for taking the question . Could you talk about are there any early trends showing that members are reallocating HSA dollars toward Glp1 and marketplace offerings ?

Max Yong: Yeah. Hi, it's Max Yong for George. Thanks for taking the question. Could you talk about, are there any early trends showing that members are reallocating HSA dollars towards GLP-1 and Marketplace offerings? How might that influence custodial revenue and asset allocation behavior over time? Thanks.

[Analyst] (Deutsche Bank): Yeah. Hi, it's Max Yong for George. Thanks for taking the question. Could you talk about, are there any early trends showing that members are reallocating HSA dollars towards GLP-1 and Marketplace offerings? How might that influence custodial revenue and asset allocation behavior over time? Thanks.

Speaker #7: And how might that influence custodial revenue and asset allocation behavior over time ? Thanks .

Speaker #8: Thanks , Maxine .

Scott Cutler: Thanks, Max. Yeah, the early trends, again, we launched it in Q4. We've got three programs. We've had a significant number of our members sign up to those programs. As I said, it's gonna be important that they sign up, they continue to, you know, to stay into those programs, and that we expand the Marketplace offerings over time. It's not just GLP or weight loss programs, it's HRT and wearables. Like I said, we're gonna be driving that to become a material part of our revenue that will show up in service revenue, again, over time.

Speaker #5: Yeah . So the early trends , again , we launched it in the in Q4 , we've got three programs We've had a significant number of our members sign up to those programs .

Speaker #5: As I said , it's going to be important that they sign up . They continue to , you know , to stay into those programs .

Speaker #5: And that we expand the marketplace offerings over time . And so it's , it's not just GLP or weight loss programs , it's HR and wearables .

Speaker #5: And so, like I said, we're going to be driving that to become a material part of our revenue that will show up in service revenue.

Speaker #5: Again over time . And , you know , what we see is our opportunity is that we're really connecting those dollars that are already being spent out of HSAs on these types of programs , bringing it into the into the platform experience .

Scott Cutler: You know, what we see as our opportunity is that we're really connecting those dollars that are already being spent out of HSAs on these types of programs, bringing it into the platform experience. The other trend that we're really excited about, and this is why we believe so strongly in the spend flywheel, is the behavior that we see is that when people spend on Marketplace and when they spend dollars, they contribute those dollars and more. They end up becoming larger savers, which is also an economic flywheel. We know also, and we've made great progress about moving from savers to spenders to also investors. An investor actually spends and saves more. Moving our members through that continuum is really important to driving contributions, which has always been a flywheel to the business.

Speaker #5: And the other trend that we're really excited about , and this is why we believe so strongly in the split , the spend flywheel is the behavior that we that when people spend on marketplace and when they spend dollars , they contribute those dollars and more .

Speaker #5: So they end up becoming larger savers , which is also an economic flywheel . We know also , and we've made great progress about moving from savers to spenders to also investors .

Speaker #5: And an investor actually spends and saves more. So moving our members through that continuum is really important to driving contributions, which has always been a flywheel to the business.

Speaker #5: So the early trends are very positive . And , you know , again , we expect that program to expand over time .

Scott Cutler: The early trends are very positive. You know, again, we expect that program to expand over time.

Speaker #8: Thanks , maxi

Scott Cutler: Thanks, Max Yong.

Speaker #3: The next question is from Steven Valiquette with Mizuho Securities . Please go ahead

Operator: The next question is from Steven Valiquette with Mizuho Securities. Please go ahead.

Speaker #9: Thanks . Good afternoon everybody .

Steven Valiquette: Thanks. Good afternoon, everybody. Just a quick question really kind of on the macro and the, you know, unemployment trends and how you're sort of thinking about that and the, you know, the guidance for the, fiscal 2027 that you just provided. Just any color in your thoughts on how you factor that in, that would be helpful. Thanks. Yeah, certainly we observed the macro, last year, 181,000 jobs created in the, in the United States. I think, what we see out in the market and again, against that backdrop, we delivered record HSA sales. That's represented by an affordability challenge for healthcare for employers, which is to say that the cost of benefits that employers are providing are growing much faster than wages.

Speaker #6: Just a quick question , really .

Speaker #9: Kind of on the macro and the unemployment trends and how you're sort of thinking about that and the the guidance for the fiscal 27 that you just provided .

Speaker #9: Does any color in your thoughts on how you factor that in? That would be helpful. Thanks.

Speaker #5: Yeah , yeah , certainly . We observe the macro last year , 181,000 jobs created in the United States . I think what what we see out in the market and again , against that backdrop , we delivered record HSA sales .

Speaker #5: That's represented by an affordability challenge for healthcare , for employers , which is to say that the cost of benefits that employers are providing are growing much faster than wages .

Speaker #5: And so the thing that we're doing with our employers is giving them data and information and products to help them drive greater adoption , greater contribution .

Scott Cutler: The thing that we're doing with our employers is giving them data, information, and products to help them drive greater adoption, greater contribution. If they follow those recommendations, they can reduce their cost per employee per year significantly in the thousands of dollars. Healthcare affordability is driving growth in the market, maybe more so than the macro headwinds. The other thing that drives this as well is essentially how Americans are feeling and are concerned about healthcare. Healthcare affordability for most Americans is the central issue as well, which again drives towards greater adoption of HSAs as a mechanism to be prepared financially for their future health. We don't see the macro environment changing. We think it's going to continue into this year.

Speaker #5: And if they follow those recommendations , they can reduce their cost per employee per year significantly in the thousands of dollars . And so healthcare affordability is driving growth in the market , maybe more so than the macro headwinds .

Speaker #5: The other thing that drives this as well is essentially how Americans are feeling and are concerned about healthcare. So, healthcare affordability for most Americans is the central issue as well, which again drives towards greater adoption of HSAs as a mechanism to be prepared financially for their future health.

Speaker #5: We don't see the macro environment changing. We think it's going to continue into this year, but we think the other counteracting forces there around healthcare affordability and driving greater adoption are things like we've seen this year that have enabled us to be able to drive significant performance in the business, despite that weaker macro backdrop.

Scott Cutler: We think the other counteracting forces there around healthcare affordability and driving greater adoption are things like we've seen this year that have enabled us to be able to drive significant performance in the business despite that weaker macro backdrop.

Speaker #10: Okay. Got it. Thanks.

Steven Valiquette: Okay. Got it. Thanks.

Speaker #8: Thanks , Steve .

Scott Cutler: Thanks, Steve.

Speaker #3: The next question is from Brian Tanquilut with Jefferies. Please go ahead.

Operator: The next question is from Brian Tanquilut with Jefferies. Please go ahead.

Speaker #11: Hi , this is Cameron on for Brian . I guess my question was , when you're thinking about organic or engagement driven growth , how are you thinking about that going forward and kind of that employment environment you were talking about ?

[Analyst] (Jefferies): Hi, this is Cameron on for Brian. I guess my question was, when you're thinking about organic or engagement-driven growth, how are you thinking about that going forward and kind of that employment environment you were talking about?

Speaker #5: Yeah . So this this kind of builds on Mark's question at the very beginning , driving engagement is really important to driving the flywheel of save , spend and invest .

Scott Cutler: Yeah. This kind of builds on Mark's question at the very beginning. Driving engagement is really important to driving the flywheel of save, spend, and invest. We'll actually measure engagement by how often people are engaging on the platform. It starts principally with the mobile device and the app. As you can see in the numbers that we put up this year, we've been driving several million downloads of our app. That's step one. Step two is what is our monthly active users of that app? That goes into just the quality of the overall app experience. Is it engaging? Is there a reason to come back? Marketplace is one of those things that gives an opportunity to come back.

Speaker #5: We'll actually measure engagement by how often people are engaging on the platform . It starts principally with the mobile device and the app .

Speaker #5: And so as you can see in the numbers that we put up this year , we've been driving several million downloads of our app .

Speaker #5: That's step one. Step two is, what is our monthly active users of, of, of that app? That goes into just the quality of the overall app experience.

Speaker #5: Is it engaging? Is there a reason to come back? Marketplace is one of those things that gives an opportunity to come back as we drive more engagement.

Scott Cutler: As we drive more engagement, again, all of the flywheels of save, spend, and invest get greater. We're thinking about the business at the core central feature is what is the quality of that product experience? How engaging can we make it? Can we make it more routine in terms of healthcare? And then can we drive greater usage? One of the great advantages that we have is, since our experience is also integrated already with our plan partners, is every time you go to see a doctor, every time you go have a healthcare visit, you fulfill a pharmacy prescription, all of that is integrated into the experience. Those dollars are loaded into the mobile wallet. At any point in time where you might need to withdraw those dollars tax-free, you can do that.

Speaker #5: Again , all the flywheels of save , spend and invest get , get greater . So we're thinking about the business at the core , central feature is what is the quality of that product experience ?

Speaker #5: How engaging can we make it? Can we make it more routine in terms of healthcare? And then, can we drive greater usage?

Speaker #5: One of the great advantages that we have is since our experience is also integrated already with our plan partners , is every time you go to see a doctor , every time you go have a healthcare visit , you fulfill a pharmacy prescription .

Speaker #5: All of that is integrated into the experience . Those dollars are loaded into the into the mobile wallet . At any point in time where you might need to withdraw those dollars tax free , you can do that .

Speaker #5: But every single time you do something that's integrated into our experience , and that's a really important differentiator for us relative to the competition , because we have such a deep integrated experience with our planned partners and going to the market .

Scott Cutler: Every single time you do something, that's integrated into our experience. That's a really important differentiator for us relative to the competition because we have such a deep integrated experience with our plan partners in going to the market. That's just another way that helps drive that monthly usage and monthly engagement in the platform. I still feel like we're actually in the very early innings of what that product experience is going to look like because we're investing in that member-first experience, which is a new muscle for us.

Speaker #5: And that's just another way that helps drive that monthly usage, and monthly engagement in the platform. And I still feel like we're actually also in the very early innings of what that product experience is going to look like, because we're investing in that member-first experience, which is a new muscle for us.

Speaker #11: Thank you

[Analyst] (Jefferies): Thank you.

Operator: The next question is from Peter Warendorf with Barclays. Please go ahead.

Speaker #3: question is from Peter Wahrendorff with Barclays . Please go ahead .

Speaker #12: Hey . Yeah , thanks for the question . I actually just wanted to talk to you about the the member lives that are coming in through the bronze plans versus traditional employee sponsored plans .

Peter Warendorf: Hey. Yeah, thanks for the question. I actually just wanted to talk to you about the member lives that are coming in through the Bronze plans versus traditional employee-sponsored plans. I mean, is there a difference in terms of, I know it's early, how those members are saving or spending? I'm just trying to understand, maybe the relative value for those customers versus some of the traditional ones. Thanks.

Speaker #12: I mean , is there a difference in terms of I know it's early how those members are saving or spending ? I'm just trying to understand maybe the relative value for those customers versus some of the traditional ones .

Speaker #12: Thanks .

Speaker #5: Yeah . Remember , I mean , in terms of that cohort , it's it's it's a few months old . And so it's , it's , it's so early .

Scott Cutler: Yeah. Remember, I mean, in terms of that cohort, it's a few months old. It's so early. The early data points are encouraging in the sense that we're seeing really strong contributions. The performance of these accounts will evolve over time. When you think about the value of any HSA, the biggest driver of value is essentially just time. That time component is really important. We'll be looking at those cohorts as they come in. Again, I think what we see in the early behavior is nice contributions, and those contributions aren't coming with an employer match, which is also quite interesting. Remember that these are also coming to the market differently, meaning we might have to acquire that customer individually.

Speaker #5: The early data points are encouraging in the sense that we're seeing really strong contributions. The performance of these, of these accounts will evolve over time.

Speaker #5: When you think about the value of any HSA, the biggest driver of value is essentially just time. And so that time component is really important.

Speaker #5: We'll be looking at those cohorts as as they come in . And so again , I think what we see in the early behavior is nice contributions and those contributions aren't coming with an employer match , which which is also quite interesting .

Speaker #5: Again , remember that these are also coming to the market differently , meaning we might have to acquire that , that that customer individually , we provide a bonus match for them if they contribute in those dollars , stay into the account that that that matches the highest of anybody in the industry .

Scott Cutler: We provide a bonus match for them if they contribute and those dollars stay into the account. That match is the highest of anybody in the industry, so we're driving that retail. As Steve talked about, we're in the early phases of partner integration to be able to bring more of those bronze participants in at greater scale through our partner relationships.

Speaker #5: So, we're driving that retail. And then, as Steve talked about, we're in the early phases of partner integration to be able to bring more of those bronze participants in at greater scale through our partner relationships.

Speaker #12: Great . And then quickly , can I just follow up on the competitive landscape over this last selling season ? I mean , did you see any pressure anywhere , any kind of any kind of pricing pressure or anything like that ?

Peter Warendorf: Great. Then quickly, can I just follow up on the competitive landscape? Over this last selling season, I mean, did you see any pressure anywhere, any kind of pricing pressure or anything like that?

Speaker #5: The competitive landscape for us, I think, is reflected in the strength of our retention. So we have north of 98% retention of revenue from our existing accounts.

Scott Cutler: The competitive landscape for us, I think, is reflected in the strength of our retention. We have north of 98% retention of revenue from our existing accounts this year. We're also winning and expanding the market and taking market share greater than market growth. That kind of reflects our ability to both retain the existing business as well as grow in competition. What I would say early into the sales season, and we're so early, but we're seeing a really strong pipeline develop in large enterprises which we didn't see this year. We've already had some really nice enterprise wins that are taking business from the competitors. We like that.

Speaker #5: This year . We're also winning and expanding the market and taking market share greater than market growth . So that kind of reflects our ability to , to both retain the existing business as well as grow in competition .

Speaker #5: What I would say early into the sales season , and we're , we're so early , but we're seeing a really strong pipeline develop in large enterprises , which we didn't see this year .

Speaker #5: We've already had some really nice enterprise wins that are that are taking business from the competitors . And so we like that . We feel really strong about our ability to continue to retain the business .

Scott Cutler: We feel really strong about our ability to continue to retain the business, again, focused on the quality of the service that we're providing, the quality of that product experience. I think as you've seen in the last number of years, we're growing faster than the rest of the market, and we're taking more share. Thanks, Peter.

Speaker #5: Again , focused on the quality of the service that we're providing , the quality of that product experience . And so I think as , as you've seen in the last number of years , we're growing faster than the rest of the market and we're taking more share

Speaker #8: Thanks , Peter .

Speaker #3: The next question is from Allen Luz with Bank of America Securities. Please go ahead.

Operator: The next question is from Allen Lutz with Bank of America Securities. Please go ahead.

Speaker #13: Hey , this is dev on for Allen . Thanks for taking my question . I guess the first one again , I just want to circle back to the service margins which have trended nicely .

[Analyst] (Bank of America Securities): Hey, this is Dev on for Allen Lutz. Thanks for taking my question. I guess the first one, again, I just want to circle back to the service margins which have trended nicely. I think you've talked about some of those drivers, you know, in the past, but just good to get an update on, you know, the cost makeup there, as more users shift to the digital app. Could you just, you know, give us color on the breakdown between kind of the technology component, human labor, and plastic cards in that cost line item? And then, you know, how much more there is to do there in terms of automating, maybe in the near term.

Speaker #13: I think you've talked about some of those drivers in the past , but just good to get an update on , you know , the cost makeup there as more users shift to the digital app , could you just give us color on the breakdown between kind of the technology component , human labor , plastic cards in that Cogs line item , and then you know how much more there is to do there in terms of automating maybe in the near term

Speaker #5: Yeah . Great . So when you think about the service costs overall , really think of it in three buckets , almost equally divided , a third being member services , a third being client services and a third being back office on the member service .

Scott Cutler: Yeah. Great. When you think about the service costs overall, really think of it in three buckets, almost equally divided. A third being member services, a third being client services, and a third being back office. On the member service, that's largely associated with the contacts that are coming in through the service center. Majority of those contacts today are coming in by phone, and then we're increasingly looking at many of those journeys to automate those with agentic and real-time responses that don't require a phone interaction. Again, most of our interactions today are by phone, and so we're moving into that agentic digital response very quickly. That's a lot of the things that we started on last year we're gonna continue, and that's where there's significant opportunity for AI.

Speaker #5: That's largely associated with the contacts that are coming in through the service center . Majority of those contacts today are coming in by phone , and we're increasingly looking at many of those journeys to automate those with agentic and real time responses that don't require a phone interaction most of our interactions today are by phone .

Speaker #5: And so we're moving into that Agentic digital response very quickly . And that's a lot of the things that we started on last year .

Speaker #5: We're going to we're going to continue . And that's where there's significant opportunity for AI on the client side . Also , as I talked about , that's the that's the other third .

Scott Cutler: On the client side also, as I talked about, that's the other third. That's automating a lot of the file integration and process that we have in terms of onboarding and serving our existing clients. The other third would be the back office. As we think about AI across all of those journeys, it's really taking those things that can be automated that are repeatable, where data can help us do that. Many of those things, for example, on the member services side, are fairly simple questions. I've lost a card. I want to replace a card. I don't know my password. If you download Passkey, you don't need that interaction anymore. I want to check my balance.

Speaker #5: That's automating a lot of the file and file integration and process that we have in terms of onboarding and serving our existing clients .

Speaker #5: And then the other third would be the back office . As we think about AI across , across all of those journeys , it's really taking those things that can be automated , that are repeatable , where data can help us do that .

Speaker #5: And many of those things , for example , in the member services side are fairly simple questions . I've lost a card . I want to replace a card .

Speaker #5: I don't know my password . If you downloaded passkey , you don't need that interaction anymore . I want to check my balance .

Speaker #5: We want to automate as many of those responses as possible so that, when we need to have a human interaction, we can respond with empathy.

Scott Cutler: We want to automate as many of those responses so that when we need to have a human interaction, we can respond with empathy. It may be more detail-oriented and incredibly valuable in terms of that remarkable service experience that we strive to deliver. Thanks, Dev.

Speaker #5: It may be more detail-oriented and incredibly valuable in terms of that remarkable service experience that we strive to deliver.

Speaker #8: Thanks , Deb .

Speaker #13: Yeah , it's very helpful . And then just one more , you know , it seems like kind of the AI and the impact on the labor market , you know , is a point of concern .

[Analyst] (Bank of America Securities): Yeah. That's very helpful. Then just one more. You know, it seems like kind of the AI and the impact on the labor market, you know, is a point of concern. You know, and just curious how that is layering in, if at all, to the opportunities and activity level in M&A that you're seeing. Would just love an update on what you're seeing in the market and how the landscape for opportunities M&A in 2026 early on here look relative to the last couple of years.

Speaker #13: You know, and just curious how that is layering in, if at all, to the opportunities and activity level in M&A that you're seeing.

Speaker #13: We'd just love an update on what you're seeing in the market and how the landscape for opportunities, M&A in 2026, early on here, outlook relative to the last couple of years.

Speaker #5: I don't think there's any correlation between the massive adoption of AI and consolidation in this in this industry . I think we're deploying AI across every function in the business .

Scott Cutler: I don't think there's any correlation between the massive adoption of AI and consolidation in this industry. I think we're deploying AI across every function of the business. We see significant opportunity in cost and productivity enhancements, but I don't think it has any correlation to the M&A market. The reason for that is that when you look at the long tail of where HSA assets are held, it's held by banks that might be focused on a deposit. It might be a retirement company that's focused on retirement assets. That's the long tail of this market. I don't see AI as being a driver or accelerator to that. Thanks, Dev.

Speaker #5: We see significant opportunity in cost and productivity enhancements, but I don't think it has any correlation to the M&A market. And the reason for that is that when you look at the long tail of where HSA assets are held, it's held by banks.

Speaker #5: That might be focused on a deposit . It might be a retirement company that's focused on retirement assets . That's the long tail of the , of , of , of , of this market .

Speaker #5: And I don't see AI as being a driver or accelerator to that.

Speaker #8: Thanks , dev .

Speaker #3: The next question is from David Larsen with BTIG. Please go ahead.

Operator: The next question is from David Larsen with BTIG. Please go ahead.

Speaker #6: Hi .

David Larsen: Hi. Congratulations on the good quarter. One of the questions I get asked from investors is, okay, if interest rates decline, isn't that gonna pressure your, you know, custodial revenue growth? If interest rates were to decline by 50 basis points, say in the back half of this year, when would that manifest in the form of like, slightly lower, custodial yield growth? Would that take like three years to manifest? Thank you. Jim, do you wanna take that?

Speaker #14: Congratulations on the good quarter . One of the questions I get asked from investors is , okay , if interest rates decline , isn't that going to pressure ?

Speaker #14: Pressure on your custodial revenue growth? So, if interest rates were to decline by 50 basis points, say in the back half of this year, when would that manifest in the form of slightly lower custodial yield growth?

Speaker #14: Would that take, like, three years to manifest? Thank you.

Speaker #5: Go ahead. Jim, do you want to take that?

Speaker #8: Yeah .

James Lucania: Yeah. Yeah, sure. I mean, like, obviously, the movement of cash into the Enhanced Rates program would significantly slow down that movement. Like, I guess I don't think about it that way. What would directly impact us is if short rates go down, the cash that we have deposited overnight, which is about $1.5 billion, would be directly impacted. Now, that is not particularly meaningful to the total quantum of cash that we deposit, but you should really just think of it as whatever is being replaced at that point in time that we haven't hedged yet is gonna be placed at 50 basis points lower than it would have been placed today, or that the forward curve says it's gonna be. The forward curve is strongly steeply sloped up into the right.

Speaker #2: Yeah , sure . I so obviously the movement of of cash into the enhanced rates program would significantly slow down that that movement .

Speaker #2: So I guess I don't think about it that way . What would directly impact us is if short rates go down , the cash that we have deposited overnight , which is about a billion and a half dollars , would be directly impacted .

Speaker #2: Now , that is not particularly meaningful to to the total quantum of cash that we deposit . But you should really just think of it as whatever is being replaced at that point in time , that we haven't hedged yet is going to be placed at 50 basis points lower than it would have been placed today , or that the forward curve says it's going to be the forward curve is strongly , steeply sloped up into the right .

James Lucania: That is reflected in our guidance. That would be reflected in our long-term view that rates are going up, not down, the rates that matter to us, the five-year rates. The short rates forward curve is expected to go down. That's also factored into our guidance. The outlook sort of includes current expectations on rates. All things equal, we like higher rates than lower rates, but it's becoming less of an issue. Now we're at almost 60% at year-end in Enhanced Rates.

Speaker #2: So that is reflected in our guidance . That would be reflected in our long term view that rates are going up , not down the rates that matter to us .

Speaker #2: The five year rates , the short rates are forward curve is expected to go down . That's also factored into our guidance . So so the outlook sort of includes current expectations on rates .

Speaker #2: All things equal . We we like higher rates and lower rates . But it's becoming it's becoming less of an issue . Now we're at almost 60% at year end in enhanced rates .

Speaker #2: You know , it doesn't take rocket science to look at the maturity curve and just say , hey , we're going to be pushing 80% in enhanced rates in the relatively near future .

James Lucania: You know, it doesn't take rocket science to look at the maturity curve and just say, "Hey, we're gonna be pushing 80% in Enhanced Rates in the relatively near future." Then we're gonna sort of call end of job on this Basic Rates to Enhanced Rates migration. Then what you should expect to earn in the HSA cash yield is the move, the 10-year moving average of the 5-year Treasury. Like any movement within the year is only gonna potentially have one-tenth of the impact on the entire portfolio because that's how those contracts generally reprice. Sort of one-tenth of it reprices each year at current rates. You need a prolonged downward shift in yields or in rates, I should say, to really move that average.

Speaker #2: And then we're going to sort of call end of job on on this , on this basic rates to enhance rates migration , and then what you should expect to earn in the HSA cash yield is the , the ten year moving average of the five year Treasury .

Speaker #2: So like any movement within the year , is only going to potentially have one tenth of the impact on on the entire portfolio , because that's how those contracts generally reprice sort of one tenth of it reprices each year at current rates .

Speaker #2: So if you need a prolonged downward shift in yields or in rates , I should say to really move that average , you're going to get a very slow moving , moving average .

James Lucania: You're gonna get a very slow-moving moving average once we're complete with this migration, and that was the entire purpose of this. Like, the extra alpha was nice, but the purpose of this migration was to reduce the standard deviation of these returns. What I would love for you all to believe when we're done is that custodial revenue is actually just monthly recurring revenue, no different than my other lines. Will I get you all the way there? That remains to be seen, but that was the purpose of this Enhanced Rates migration strategy.

Speaker #2: Once , we're once we're complete with this migration . And that was the entire purpose of , of this , the extra alpha was nice , but the purpose of this migration was to reduce the standard deviation of these returns .

Speaker #2: And what I , what I would love for you all to believe when we're done is that custodial revenue is actually just monthly recurring revenue .

Speaker #2: No different than than my other lines . Will I get you all the way there ? That remains to be seen . But , but that that was the purpose of this of this enhanced rates migration strategy .

Speaker #14: That's very helpful . Thank you . And then in my mind , like HSAs are a fantastic mechanism . Probably the best to improve cost trend .

David Larsen: That's very helpful. Thank you. In my mind, like, HSAs are a fantastic mechanism, probably the best to improve cost trend. Since most employers are self-insured, there's enormous value in the HSAs. With the Marketplace, you're simply enhancing that overall value in my view. Scott, I think you mentioned you had four programs in the Marketplace. GLP-1s is one of them. What are the other three? What sort of other programs would you add over time? How much improvement in cost trend could these Marketplace products provide to your clients? Have any of your clients purchased any of them? Thanks. That's just one question, right?

Speaker #14: And since most employers are self-insured , there's enormous value in the HSAs . And with the marketplace , you're simply enhancing that overall value .

Speaker #14: In my view . So , Scott , I think you mentioned you had four programs in the marketplace , GLP one is one of them .

Speaker #14: What are the other three ? And then what sort of other programs would you add over time ? And how much improvement in cost trend could these marketplace products provide to your clients and have have any of your clients purchased any of them ?

Speaker #14: Thanks .

Speaker #8: That's just one question, right? Yeah.

James Lucania: Yeah.

Speaker #14: So .

David Larsen: Just one.

James Lucania: Yeah. So yeah, David, a couple of things. I mean, again, when you just think about the HSA industry overall, you do have to step back and remember that 95% of members do not contribute at the max. 92% do not invest this product, and yet it's a triple tax advantage product. We want to encourage people to actually use the product, and that, again, is why we go back to the flywheel. On Marketplace specifically, again, repeating what I said before, we have three programs today.

Speaker #5: So yeah , David , a couple of things . I mean , again , when you just think about the HSA industry overall , you do have to step back and remember that 95% of , of members do not contribute at the max , 92% do not invest this product .

Speaker #5: And yet it's a triple tax advantage product . And so we want to encourage people to actually use the product . And that again , is why we go back to the flywheel on marketplace , specifically .

Speaker #5: Again, repeating what I said before, we have three programs today. The other areas that we're going to expand are going to be the other areas that are typically outside of what would be covered by insurance.

James Lucania: Other areas that we're going to expand are gonna be the other areas that are typically outside of what would be covered by insurance, but are programs that consumers are spending a lot of money on, but have to access licensed, qualified physicians to be able to do that. So think of all the opportunities around labs, skin, hair, or products that are unlocked because of a doctor's prescription. In the wearable space, there's all sorts of interesting opportunities in digital health of products that we can bring into the Marketplace. So there's not really a limit. This is the Marketplace opportunity is in the hundreds of billions of dollars that consumers are already spending dollars on.

Speaker #5: But are programs that consumers are spending a lot of money on , but have to access licensed , qualified physicians to be able to do that .

Speaker #5: So think of all the opportunities around , around labs or skin or hair or products that are unlocked because of a doctor's prescription in the wearable space , there's all sorts of interesting opportunities in digital health of products that we can bring into , into the marketplace .

Speaker #5: So there's not really a limit . This is the marketplace opportunity is in the hundreds and hundreds of billions of dollars that consumers are already spending dollars on .

Speaker #5: It's really just a question of what makes sense for us to naturally include that product into the marketplace . And again , what will we see is that those consumers that spend in the marketplace , in addition to interchange , which we already monetize , we can monetize either in a take rate or an administrative fee associated with a program .

James Lucania: It's really just a question of what makes sense for us to naturally include that product into the Marketplace. Again, what will we see is that those consumers that spend in the Marketplace, in addition to Interchange, which we already monetize, we can monetize either in a take rate or an administrative fee associated with a program. In that case, we're driving average revenue per user up over time or per member up over time.

Speaker #5: And in that case , we're driving average revenue per user up over time or per member over , up , up over time .

Speaker #8: Thanks , David .

David Larsen: Thanks, David.

Speaker #3: The next question is from Mitch Rubin with Raymond James. Please go ahead.

Operator: The next question is from Mitch Rubin with Raymond James. Please go ahead.

Speaker #15: Hey . Good afternoon guys . This is Mitch on for Greg Peters . Congrats on the quarter in the year . I wanted to ask if you guys are seeing any meaningful differences in balances or engagement from the ACA driven retail members relative to your traditional base .

Mitch Rubin: Hey, good afternoon, guys. This is Mitch on for Greg Peters. Congrats on the quarter and the year. I wanted to ask if you guys are seeing any meaningful differences in balances or engagement from the ACA-driven retail members relative to your traditional base. Thanks.

Speaker #15: Thanks .

Speaker #5: Yeah . I mean , I think this is a question that we just answered before the cohort is , is too early . We're only a couple of months into it .

Scott Cutler: Yeah, I mean, I think this is a question that we just answered before. The cohort is too early. We're only a couple of months into it. We're pleased with the contribution, behavior that we've seen. Again, since it's so early, it's very difficult to say what that's gonna look like over time. My expectation is they're gonna perform like other cohorts that develop in value, balances, spend, and investment over the years to come.

Speaker #5: We're pleased with the contribution behavior that we've seen . But again , since it's so early , it's , it's , it's very difficult to say what that's going to look like over time .

Speaker #5: My expectation is they're going to perform like other cohorts that develop in value and balances, and spend and investment over the years to come.

Speaker #8: Thanks , Mitch .

Scott Cutler: Thanks, Mitch.

Speaker #3: The next question is from David Roman with Goldman Sachs. Please go ahead.

Operator: The next question is from David Roman with Goldman Sachs. Please go ahead.

Speaker #16: Hey , thanks . You've you've got Jamie on for David . I wanted to dig into the dynamic where you have HSA cash growing 3% and HSA investments growing 26% .

[Analyst] (Goldman Sachs): Hey, thanks. You've got Jamie on for David. I wanted to dig into the dynamic where you have HSA cash growing 3% and HSA investments growing 26%. You know, really, what are the implications of that going forward? I fully understand how you monetize the HSA cash. You've talked about that extensively on this call. But as the HSA investments grow and become a bigger portion of mix, how does that show up across the different revenue lines? Is interchange and service more levered to the growth in investments? And what are the margin implications, just given the different margin structures across those lines of revenue? Thank you.

Speaker #16: You know, really, what are the implications of that going forward? And I fully understand how you monetize the HSA cash.

Speaker #16: You've talked about that extensively on this call, but as the HSA investments grow and become a bigger portion of the mix, how does that show up across the different revenue lines?

Speaker #16: Is , is interchange and service more levered to the growth and investments ? And what are the margin implications just given the different margin structures across those lines of revenue ?

Speaker #16: Thank you .

Speaker #5: Jim , you .

Scott Cutler: Jim, you wanna take that?

Speaker #2: Yeah , I can take I can take that one . Yeah . So you should not think of them as like the same person , right .

James Lucania: Yeah, I can take that one. Yeah. You should not think of them as like the same person, right? These are different sets of different parts of the cohorts that Scott was talking about earlier, different points along the journey. In general, like if you think about a higher balance or just an older account, they're going to have a certain amount of assets and cash, and they're not gonna grow or shrink that amount ever, right? All incremental contributions are gonna go into the investment account. All spending is gonna come out of the investment account. Like that's the marginal account that they're playing with. Yes, the cash in reality comes out of the checking account and gets replenished immediately from the investment account, but functionally that's what's happening.

Speaker #2: So these are these are different sets of different parts of the cohorts that Scott was talking about earlier , different , different points along the journey .

Speaker #2: So, in general, if you think of a higher balance or just an older account, they're going to have a certain amount of assets and cash, and they're not going to grow or shrink that amount ever.

Speaker #2: Right. So all incremental contributions are going to go into the investment account, and all spending is going to come out of the investment account.

Speaker #2: So that's the marginal account that they're that they're playing with . Yes . The cash in reality comes out of the checking account and gets replenished immediately from from the investment account .

Speaker #2: But functionally, that's what's happening. So, the accounts that are growing our total cash balance are the new accounts, who have not built those balances yet.

James Lucania: The accounts that are growing our total cash balance are the new accounts who have not built those balances yet. There's a large cohort of HSAs that don't do anything with their cash account. They're just zero growth, zero loss, zero growth. It's the new accounts that drive cash growth. Like we love investment growth, obviously, look at it's growing massively. We participate in that upside, but obviously at a different rate. Our sort of record-keeping fees and, think of them as like mutual fund sub-account fees, as well as the fees from our Registered Investment Adviser. We will earn in like the mid-20s basis points on a blended basis on our invested assets, and that hits the service revenue line.

Speaker #2: So there's a large cohort of HSAs that don't do anything with their cash account . They're just zero growth , zero zero loss , zero growth .

Speaker #2: It's the new accounts that drive cash growth. Now, on the like, we love investment growth, obviously. Look at it. It's growing.

Speaker #2: Growing massively . And so we participate in that upside . But but obviously at a different at a different rate . So our sort of record keeping fees and think of them as like mutual funds , subaccount fees , as well as the fees from our registered investment advisor .

Speaker #2: We'll earn in like the mid 20s basis points on a , on a blended basis on our on our invested assets . And that hits that hits the service revenue line .

Speaker #2: So, we love the growth on both. We love the growth on both sides.

James Lucania: We love the growth on both. We love the growth on both sides.

Speaker #8: Thanks , Jamie .

[Analyst] (Goldman Sachs): Thanks, Jamie.

Speaker #3: This concludes our question and answer session. I would like to turn the conference back over to Scott Cutler for any closing remarks.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Scott Cutler for any closing remarks.

Speaker #5: Thanks, everybody, for the thoughtful questions and for the engaging dialogue. Hopefully, the takeaway is that we're really pleased with the results for the quarter.

Scott Cutler: Thanks, everybody, for the thoughtful questions, for the engaging dialogue. Hopefully, the takeaway is that we're really pleased with the results for the quarter, for the year. We're optimistic about the future. As assets and engagement scales, the earning power of this platform continues to expand, and we really look forward to updating you on our continued progress as we go out throughout this year. Thank you very much.

Speaker #5: For the year, we're optimistic about the future as assets and engagement scale, the earning power of this platform continues to expand, and we really look forward to our continued progress as we go out throughout this year.

Speaker #5: So, thank you very much.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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