Healthequity Inc (HQY) 2017 Q1 法說會逐字稿

Good day, everyone, and welcome to today's HealthEquity first-quarter earnings conference call. Please note this event is being recorded and I'd now like to turn the floor over for Frode Jensen, General Counsel. Please go ahead.

Thank you, Greg. Good afternoon and welcome. My name is Frode Jensen and I'm General Counsel of HealthEquity.

Please be advised that today's discussion includes forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking. In this afternoon's discussion, we will present important factors relating to our business, which could affect these forward-looking statements. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements made today. As a result, we caution you against placing undue reliance on these forward-looking statements.

We encourage you to review the risk factors detailed in our Annual Report on Form 10-K, which we filed with the SEC on March 31, 2016, and any subsequent periodic or current reports for a discussion of these factors and other risks that may affect our future results or the market price of our stock. Finally, we are not obligating ourselves to revise our results or publicly release any updates to these forward-looking statements in light of new information or future events.

With that, I will turn the call over to Jon.

Thank you, Darcy. Joining me this afternoon are -- Did I say thank you, Darcy? I did. Thank you, Frode.

Thanks, Jon.

We're already off to great start. Joining me this afternoon are -- hi, everybody -- are Darcy Mott, our EVP and CFO; Steve Neeleman, our Founder and Vice Chairman; and both Steve, Darcy, as well as I will have prepared remarks and then we will be available to answer questions.

So, HealthEquity delivered a very positive first quarter for FY17, with substantial growth in the four key metrics that drive our business: revenue, adjusted EBITDA, HSA members and assets under management, or AUM. Revenue increased by 47% year over year in the first quarter to $44 million. Adjusted EBITDA increased 66% year over year to $18 million. HSA members grew 51% year over year to $2.2 million, and total AUM grew 61% year over year, reaching $4.1 billion at the end of the fiscal quarter.

Note that growth continued to accelerate on a multi-year basis. HSA growth of 51% exceeded the 46% experienced in Q1 FY16, which in turn had exceeded the 45% in Q1 FY15. AUM growth of 61% exceeded the 50% experienced in Q1 FY16 and the 39% in Q1 FY15. Revenue growth of 47% was comparable to the 48% in Q1 FY16 and significantly exceeded the 38% experienced in Q1 FY15.

At the same time, adjusted EBITDA margins continued their expansion, reaching a Company record 41% in Q1. That supports our view that growth and profitability, at HealthEquity at least, can be achieved hand-in-hand.

Sales also got off to a fast start. HealthEquity opened 71,994 new HSAs in Q1 FY17. That's versus 53,492 in the year-ago period, which is a 35% increase year over year in incremental sales. AUM grew by $338 million organically versus $182 million in the year-ago period, an 86% increase year over year. This sales growth is on top of the 35,000 HSAs and $63 million in AUM that the team successfully transitioned from M&T Bank's platform during the quarter.

To provide a bit more detail on some of the factors that drove first-quarter results, I'd like to turn the call over to Dr. Steve Neeleman, our Founder and Vice Chair, and my partner in leading the business. Steve?

Thank you, Jon. I would like to focus on three factors that contributed to our strong financial results in the quarter. First, our high rate of HSA roll-overs and AUM transfers from other custodians. Second, our record interchange revenue. Third, the scalability of our platform that allows us to rapidly expand our membership base while reducing our servicing cost and still delivering the remarkable purple service for which HealthEquity is known.

HSA rollovers and AUM transfers are particularly fun to discuss because they represent a win for members and a vivid example of HealthEquity beating our competition. Our team did a phenomenal job during the open enrollment season and in the first quarter, executing these transfers and educating new HSA members on the benefits of moving their existing HSA balances from previous custodians to HealthEquity. We added approximately $240 million of transfer AUM in the first quarter, which did not include the $63 million of transfer AUM from the M&T acquisition. It represented a record for us and is up significantly from the approximately $90 million of transfer AUM we saw the first quarter of last year.

During the quarter, we also realized record levels of interchange revenue as a result of increased card spend and more favorable interchange terms, which Darcy will elaborate a bit later in the call. We made an important business decision early in our history to opt for the efficiency and reduced fraud of HSA debit cards and electronic payments over the market accepted practice of issuing paper checkbooks. Our platform makes this innovative decision possible because of the integrated claims we received from most health plans throughout the country. This business decision is now paying dividends with more interchange revenue and lower costs.

We are most excited by our platform's ability to deliver increasing value for our network partners and our shareholders. We are starting to see the leverage in our business model that we talked about during our IPO. I want to highlight a few particular items that prove this point.

Our scalability has allowed us to smoothly onboard a record number of new HSA members and 173 new network partners this past selling season. Our people and processes have provided every new HSA member with top-notch customer service. We have now met or exceeded our aggressive service levels for more than 112 consecutive months. Our platform has allowed us to gain efficiencies resulting in record gross and EBITDA margins. Our sheer scale as a leading HSA provider coupled with our flexible and efficient technology allows us to obtain more favorable terms with our interchange and bank depository partners.

And by sharing these efficiencies and cost savings with our network partners and HSA members, for example in the form of highly competitive services fees, HealthEquity drives even more growth in scale. We are creating a strong and sustainable business with higher AUM, more interchange revenue, and increasingly efficient but still remarkable every hour of every day customer service. Of course we could not do this without all of our purple team members commitment to each other and to help our members build health savings.

I will now turn the time over to Darcy to discuss our financial details for the quarter.

Thanks, Steve. Today I will discuss our results on both a GAAP and a non-GAAP basis. I'd like to review our first-quarter FY17 financial results, and then I'll update our guidance for the full FY17.

This was a very strong quarter for HealthEquity. Overall, our revenue for the first quarter grew 47% year over year to $44 million. We also saw each component of our revenue: service revenue, custodial revenue and interchange revenue grow significantly.

Service revenue of $19 million in the first quarter increased 30% year over year and represented 43% of total revenue for the quarter compared to 49% in the prior year. The growth was attributable to a 52% year-over-year increase in average HSAs, offset by a 14% decrease in service revenue per average HSA. Let me remind you of the three primary reasons for the decrease in service revenue per average HSA.

First, we have historically, and we will continue, to offer lower service fees per HSA for more HSA volume from our network partners, particularly when they come to us with higher balances. This tiered pricing approach to service fees is a key element of our business strategy, and based upon our operating results, it is working. We proactively offer lower service fees for more volume because the profitability of an HSA in our business model increases as balances grow.

Also, our servicing costs per HSA have consistently decreased over time due to the scalability of our platform. We think about HSAs holistically and recognize that the revenue and profitability of an individual HSA comes from all three of our revenue sources, even though the mix of those revenue sources have changed and will continue to change over time.

Second, service revenue also includes revenue from flexible spending and health reimbursement arrangements, what we call RAs, which are complementary too, but are not growing rapidly. And third, acquired HSA portfolios typically have lower service revenues per HSA and no RAs.

Custodial revenue was up $13.8 million, representing an increase of 64% year over year. It represented 31% of total revenue compared to 28% in the prior year. A significant factor for this growth is that our average daily cash AUM increased 64% year over year, partially fueled by acquisition cash AUM and increased HSA rollovers and AUM transfers that Steve referred to earlier. Our annualized interest yield on cash AUM was 1.55% in the first quarter of FY17 compared to 1.56% in the prior year.

Interchange revenue was $11.2 million, representing an increase of 64% year over year. It represented 26% of total revenue compared to 23% in the prior year. Our first quarter is typically the highest spend quarter of the year, as many deductibles reset on January 1. Additionally, though to a lesser extent, we also benefited from obtaining a higher percentage of the interchange rate pie due to our higher spend volumes.

Gross profit for the quarter was $27.7 million compared to $17.9 million in the prior year. We also reached a record gross margin level of 63% in the quarter versus 60% in the prior year. Income from operations of $13.2 million in the quarter increased 66% year over year and generated an operating margin of 30% compared to 27% in the prior year.

We generated net income of $8.1 million for the first quarter of FY17 compared to $5 million in the prior year. Our non-GAAP adjusted EBITDA for the quarter increased 66% to $18 million compared to $10.8 million in the prior year. Adjusted EBITDA margin in the quarter was 41% compared to 36% last year. Our GAAP diluted EPS for the first quarter of FY17 was $0.14 per share compared to $0.09 in the prior year. Non-GAAP diluted EPS was $0.15 per share for the first quarter of FY17 compared to $0.10 for the prior year.

Turning to the balance sheet, as of April 30, 2016, we had $133 million of cash, cash equivalents and marketables to securities and no outstanding debt.

Before I turn the call back over to Jon, for a few closing remarks, I want to comment on our increased outlook for the full FY17. We now expect revenue between $173 million and $177 million, up from our prior guidance of $170 million to $174 million. Adjusted EBITDA between $58 million and $60 million, up from our prior guidance of $56 million to $58 million and non-GAAP diluted EPS between $0.47 and $0.49 per share, up from our prior guidance of $0.45 to $0.47 per share.

Our non-GAAP diluted EPS estimate is based on an estimated diluted weighted average shares outstanding of approximately 60.5 million shares and was calculated by adding back to net income all non-cash stock compensation expense, net of tax. We expect total stock compensation expense, net of tax, for FY17 to be between $5 million and $6 million. The outlook for the full FY17 assumes a projected effective income tax rate of approximately 36%.

With that, I'll turn the call back over to Jon for some closing remarks.

Thank you, Darcy. As Steve mentioned, we cannot do this, in fact, we cannot do anything without the partnership of our health plan employer and ecosystem partners, our members, and most of all, of the purple team here at HealthEquity.

That team is pleased to invite you, our fellow shareholders, analysts and other members of the investment community to the Company's 2016 Analyst and Investor Day to be held two weeks from today on Tuesday, June 21 from 8 AM to 12:30 PM at the Westin New York Hotel in Times Square. Presentations will feature HealthEquity's product, sales, service and technology leaders, as well as representatives of health plan and employer network partners, and personal finance powerhouse and best-selling author, Suze Orman. Suze will provide a consumer's perspective on the value of HSAs.

Now, we're going to be just slightly off-Broadway, but you will laugh, you will cry, but most importantly, you will learn. RSVP, webcast and event details can be found at our investor website, which is IR.HealthEquity.com.

With that, operator, lets go ahead and take some questions.

Perfect.

(Operator Instructions)

Lisa Gill, JPMorgan.

Thanks very much. Good afternoon, everyone, and congratulations on the quarter.

Let me just start with one of the comments I think Steve made around the scale of the platform and your ability to leverage that. Darcy, are you comfortable giving any kind of longer-term targets as to where you think margins can go over time? And will you have to make incremental investments at some point to the platform or is it just, you've made the investments that you need to make and, therefore, we could really see margins continue to improve?

No, we will continue to make -- every year, we look at our platform, and we make additional investments and we do them within the constraints of what we feel our operating objectives are.

What we have commented on before and that we will continue to comment is the profitability of an HSA increases largely over time, not only because of the scalability, but more importantly, because of the balance growth. And so, in our presentations that we've made to investors many a time, our average margins -- this quarter they were 63%, but they've been in the mid- to high-50%s, and we're comfortable in that range.

But as an account grows, an individual account, the margin of that when the balance grows, it can get up north of 70%. And so, over the longer term, as these accounts mature -- of course, that is brought down somewhat by our fast growth rate, where we're bringing on lower balanced newer accounts that kind of have a balancing effect on that overall margin. But we think that the margins will continue to grow over time, particularly as the balances grow.

Okay, that's helpful. And then just secondly, either Jon or Steve, can you maybe just talk about, without giving away too much, of what you'll talk about in the off-Broadway production around partnerships on the platform? Is there anything new that you've added or anything of note that you think is maybe driving some of the utilization, in addition to normal utilization in the first quarter?

Well, I read yesterday -- this is Jon and it's great to hear your voice, Lisa. I read yesterday that JK Rowling is urging people who go to the Harry Potter play not to give away the plot. And I suppose we should follow the same strategy.

That having been said, I think one of the things that's interesting that we are seeing is, and we've talked about this for some time, but as people use the platform, we get tremendous visibility into what they're really using, what consumers are gravitating towards in terms of the various ecosystem partners that are out there. I think that's what you're really asking about.

Right.

And it's -- as you well know, it's really a challenge in a lot of these areas to identify content that attracts people to itself versus let's say content you have to pay them or cajole them or nag them to get to. And so, one of the things I think we'll talk about a little bit, but nonetheless is out there, is how are we using that knowledge? Where can we use it to help us help our partners be more effective?

And so, I think that's something that, again, as scale really shows up and as we get more longitudinal data about what's actually happening out there, it is truly valuable to us in ways that maybe are not immediately monetized per se, though some are. But I think it's also something that really strengthens our partnerships, and allows us to talk about value with -- whether it's with our employer partners or our health plan partners or our ecosystem partners. And you'll hear, I think, some of them talk about that a little bit as well, so that's what I would expect.

And, Jon, does that help you to -- so, if you have an employer that doesn't have every one of their employees on an HSA today, these kinds of discussions around value, do you find that that's starting to resonate, where they're adding more employees to the platform because of that, or do you think it's still too early to make that call?

I think -- and I'm going to encourage Steve to comment on this -- that the way to think about that issue is that from -- let me back up and say, as we've always said, I think if you look back 5, 10 years, the reason that people, that employers did not immediately flock to these products, because the economics are pretty obvious, was the fear, appropriate fear, that these are significant changes for people's lives. And reasonable questions about whether, broadly speaking, the infrastructure was there to support those changes, and you can define that however you want, but certainly a piece of it is, is the content there for people to be reasonably informed?

Can they operate in this world and feel like they are still getting high-quality health benefits? And I think what I would say is that the availability of connectivity to the various sort of pieces of an ecosystem that an employer creates and kind of the leveraging of that, I think just provides a level of comfort to the employer about expanding the HSA population, and whether that's in through plan design choices or otherwise, making these plans more available.

And, Steve, what do you think and what color would you add?

Look, I think the only color is, and we talked a little bit about this before, is that our team members -- we talked a lot about purple and what gets them excited every day, and I think what we're seeing is this virtuous business where people can actually save more money. They save more money on taxes, they see their account balances grow, they're pleased with the services and the ecosystem that we are providing. They give positive feedback to their office peers that maybe didn't sign up for it in the previous year.

You start to see a bit more acceleration of adoption. And then what -- there are stats out there that are really exciting for us when you look at the annual retention year over year when people have a choice, Lisa. They have a choice to go back to the old plan, and yet a high majority of them stick around.

So it's this virtuous business cycle of people having a great experience in something that they were a little bit frightened about. And then they tell their friends about it, and then they figure out, oh, I can put more money in. We're obviously always educating people on -- and trying to do it in a very thoughtful way.

We don't want to educate the wrong folks on the wrong thing, but educate the right people on the right information -- for example, have they maxed out their account for that year. And we think we can get better at that, but it's certainly exciting for our team members to have this kind of virtuous cycle that just happens over and over again every day.

Great. Well, I'm looking forward to the analyst day, and I'll see you in two weeks.

Thank you.

Sandy Draper, SunTrust.

Thanks very much, and I'll also echo my congratulations on a really strong start to the year.

First, maybe, don't know, Jon or Steve, if you're willing to comment (technical difficulty) fairly sizable transaction that occurred in the space with one of your large competitors buying another bank's business. I don't know if you can make any comments on that, but also just the general environment for banks getting out of the business.

But also, maybe just remind us what you look for? Is it just the multiple? Is it the type of account? What type of business are you willing to go after, and what do you want to walk away from? Thanks.

Yes, I assume you're referring to Wells Fargo's exit of the business, yes?

Yes.

What we think is that the decision by Wells to exit, and Wells was the fifth largest provider in the space, give or take, really validates the thesis that HealthEquity has been executing on really for more than a decade. And that thesis is that the HSA market would not only be fast growing, but that it would ultimately consolidate around those who can best help consumers wisely save and spend for healthcare, and provide real differentiated value to employers, health plans and others who introduce us to consumers.

And so, a different way to put that might be, our view was and remains that those who control and invest in their own platforms, in their own distribution networks, and in the ability to create third-party content ecosystems, will win. And we think, I guess fundamentally, that the big news about this is really that it kind of validates that point. We think that's sort of more important than ultimately who acquired the portfolio and -- after all, the number of HSAs that HealthEquity on-boarded in FY16 alone, as we've reported in our public filings and all that, it really exceeded the total number of HSAs at Wells Fargo, which, by the way, presumably includes accounts of Wells Fargo's own team members, as they've reported or has been reported by folks like [Devon Year] and the like.

And then beyond that, obviously this kind of consolidation does create organic growth opportunities for us, particularly when you're already in the position of being a growth leader on the organic side, as we are, and have an outstanding sales team, as we do. So, while I think HSAs are generally pretty sticky, I think that affected employers and others will take this opportunity to review their partnerships. And some of them will go with the best, and we obviously believe we're the best.

So, I guess my first point on this really just boils down to, we think that the important point really is that a party like Wells that obviously had a strong market position looked at this and said, you know what, we see where this market's heading and we see who it's headed to, and we're out. And we're going to benefit from that whether or not we are the acquirer, and obviously, in this case, we weren't.

So, the second part of your question was about how we think about these sorts of portfolio transactions. And I guess I'd say as follows: Obviously, we are, and we intend to be an active acquirer as this consolidation continues. If we think we have completed more of these portfolio transactions than anyone, including our Bancorp and M&T transactions, and not just transactions, but actual transfers that have occurred in the last couple quarters. And we also think we offer some really unique advantages to the sellers in proven execution, independence, including from their competitors, and a strong service reputation.

As far as how we kind of value the deals and all of that, obviously we're not going to comment on any specific transaction or the like. But as I've said even when we announced these things, we look at these as incremental to the industry's strongest organic growth story and, frankly, strongest growth story overall, rather than somehow transformational where you get into a multiples type discussion.

So as a result, the way we actually do this is we carefully consider each opportunity the old-fashioned way and that's leveraging our experience, having done a lot of these things and having done a lot of them over a long period of time, we can figure out the plausible return on investment of our shareholders' capital in plain old IRR. And we do. And if, on that basis, and the basis of the advantages we offer to a would-be exiter, we can make something work, then we do; and if we can't, then we don't.

So that's kind of how we think about it. And I think, obviously we see this as an opportunity that will be out there significantly over time, and it was one of the important reasons we went public in the first place. So those are my thoughts. I hope that's helpful.

That's very helpful. I really appreciate that.

Maybe one other just follow-up and then I'll get back in the queue. One of the areas you guys continue just to do really well, obviously, is the assets under management. And when I think about it a couple different ways, one is the accounts you're bringing on board are going to have higher balances.

But also, are you guys able to look at -- the people that are saving, are they maxing out more? Are they just spending less? What are the trends that are driving the growth in accounts, and just trying to think of longer term, can we continue to see people, more and more people max out and that drives the growth or people maxing out but also not spending what they're putting in? Just can you guys get into the data that much to really see what the behavioral patterns are of the people as they start to put money in the accounts?

Yes, I mean, it's a great question. I will say one of the advantages of being unique in our business and having access to a rich set of claims information and the like for the bulk of our members is you really can actually see what they spend, not just what they spent with us, but what they spent in total. And I do think that the answer is a mix of both.

Clearly, if you look at accounts over time, while obviously for the most part an individual's health spending is going to be a function of things like their actual health conditions, stuff that happens over the course of the year and so forth. You can see, and there's third-party research that has come to the same conclusion -- you can see them adopting behaviors that any of us would adopt faced with the right marginal incentives.

You can see it, and you can see it in the spend patterns, as well as their actual activity. And so that's a piece of the puzzle. I think that piece contributes somewhat, but look, it's not going to be a huge source of annual balance growth because, obviously, there is also variability in the actual experience of individuals in terms of their healthcare needs and the like.

The second factor probably accounts for the bulk of balance growth in any given year, and that is the fact that people, as they begin to understand what you can do with an HSA and the sort of unique power of an HSA, they will put more money in it that is intended to be there for a longer period of time. And whether that's maxing out or not, and most people can't afford to max out, but certainly recognizing the advantages of putting that money in and keeping as much of it there as they can, as opposed to putting it somewhere else is something that I think people -- it's -- like any social education process, it is slow and it's hand-to-hand combat. But you see it year over year as accounts age, that second component kind of really starts to drive things.

And ultimately, we do see people kind of marching down a path where they start out as pure spenders of whatever money the employer gives them, and then they become contributors, and then they become, in this fashion, modest savers. And then ultimately, really begin to understand that it's also about how you allocate money across different savings vehicles, and they start to become max savers.

And I don't think we've begun to see the power of that yet, even remotely. So we have a long way to go in terms of growing these balances and then ultimately growing the value of that to HealthEquity and its shareholders.

Jon, could I actually add a couple of comments?

Yes.

So, kind of in reverse order, so on the hand-to-hand combat, I agree with you. It takes a lot of work. We are deploying technology and we've made investments to help people understand. Jon mentions that we're able to see their spend and remind them -- hey, some of the dollars for some of the people they spent were not spent through the HSA.

In other words, you had claim expense in excess of what you contributed to your HSA. You ought to at least put it in. Even if you take it out the next day, you'll get a tax deduction, or decrease your cost of those claims by 20% or 30% depending on your tax bracket. So, we're deploying technology to help us in that hand-to-hand combat, which I think is really important, and that's some of the spend we make on an investment side.

I think the other point I would make is that you asked a question early around -- do people that invest and save more spend less? And the best data we have now is they spend about the same. It's just they're putting more in their account.

So this is not a case -- in the early days of HSAs, it was this whole -- people are going to hoard their HSA dollars and they're going to end up sick and deathly ill over this. There's no evidence of that. There's been study after study that say that people still spend about the same amount, either out of their HSA or maybe through their linked bank account.

So they're spending about the same amount. We are trying to help them understand lower-cost alternatives and things like that, but they're saving a lot more.

Helpful (multiple speakers). Thanks, you guys. Absolutely. Thanks.

Thank you, Sandy.

Greg Peters, Raymond James.

Good afternoon, and thank you for taking our questions. If you don't mind, could we back up on the M&A, and maybe -- and take even a broader look on uses of cash and -- because of the positive cash flow characteristics of your Business? And can you talk about perhaps other capabilities, content of services, that might be interesting from an M&A perspective and, of course, in the context of IRR, as you pointed out, Jon?

Yes. I'll say this: We're certainly cognizant, Greg, that shareholders are not paying us to hold their money and, notwithstanding the fact that we get a decent return on cash, I'm sure that in the longer term, shareholders themselves can get a better one. So we're cognizant of that fact.

That having been said, I think -- I guess here's the mindset we enter this with: First of all, let's repeat what we've always said. One, our primary, when we look at M&A, first of all, we start with these competitive portfolio transactions. We are certainly looking at other things, but what we're not going to do is we are not going to go into the content business in the sense -- if I think of a lot of what our ecosystem partners do, it is -- you can think of it as content, and content is hard.

I really cheer what these folks can do because what they're doing is extraordinarily difficult. It's perishable, and we don't fool ourselves in thinking that that's -- we may learn a lot about content as we see it, but creating it is hard. And that's probably not where we look.

We do certainly look at what we can do that adds value, whether it's at the consumer level or in terms of our network partners, or for that matter, our ecosystem partners. So there are things we look at in that regard, and whether we pursue those through M&A or through direct investment, that's what we're going to do. And to the best of our ability, we will always apply an IRR-type framework to it. It's just that your beta gets higher depending on what you're doing.

I guess I'd say one more thing, which is kind of hard -- it's back to Lisa's question about investment. One of the luxuries that we have and that I think we will need to continue to pay attention to is -- we talked about this a little bit at the end of last year, is when we see a backup of investments in our own platform that generates strong returns, we are happy to accelerate the pace of our internal investment. We're just as careful with those as we are with external investments, probably more so because it's easy to drink your own Kool-Aid. And so they deserve certainly a level of skepticism.

But to the extent that -- I mean, it's not only true that we will, we are investing in not just adding things, but in growing the scale itself because we believe this is going to be a company, at some point, that is many times its current size. And obviously that is occurring rather rapidly. And so it's not just that we could invest in further things or that, the like, or scale, it's that we are. And you see that in our CapEx and our -- and, to some extent, bleeds over into OpEx as well.

But M&A, we'll talk a little bit more about this at the investor day, but I think that there might be a tendency to believe, because profitability continues to grow and profit margins continue to grow, that somehow our platform is static. Our members certainly don't see it that way. Our partners certainly don't see it that way, and we don't see it that way.

If anything, we've increased, relative to our expectations, platform investment over the last couple years. And so, I just think that's worth noting, and again, it's a high-class problem to have, but that's how we think about it.

Right. Excellent color to the question. Thank you, Jon.

The one other question I have, perhaps for you and Darcy and Steve, would be just on the average cash yield. It seems to be relatively stable, or at least in the last year, moving by 1 basis point here or there. And I'm just curious if there's any impactful contracts that are coming due this year that might impact that yield number by year end? I suppose this is sort of an attempt, a cute way, to ask about what your embedded average cash yield assumption is in your revised guidance, but any color on this would be helpful.

Sure, thanks, Greg. One of our objectives is to try to keep this as stable as we can, and it's consistent with what our guidance would be. The way that these work, we enter into these longer-term contracts, so we don't see a lot of quarterly variation up and down. And for right now, we placed all the money that we got, not only from our year end but also through the rollovers, and we think that that's got a stable home for it through the remainder of this year.

Where it will come up is when we start placing a large amount of cash, AUM, say in our fourth quarter, and then we'll enter into new contracts for those. We don't have any particular ones that are rolling off that are going to impact us either positively or negatively in the near term. But we'll manage that as we have done in the past.

I will say that, in our kind of funny way, as we've grown higher balances, that our banking relationships are growing and we have more opportunities to partner with some of our existing partners and bring other people. So I think it's partially because of our visibility. But I guess the short answer is we feel pretty good about a consistent yield.

It is worth noting that this is certainly an area of -- we try and promote stability on. Well, why? I mean, $1 million of net income, which obviously would be significant for us, is like 2.5 basis points on $4 billion.

So, stability becomes important to us. And we have a very good team that works on this, and has been working on it for, again, a decade now. And so I feel very fortunate that we've been able to do it. Will it always be quite as stable? I don't know, but certainly that's been a goal.

And just as a follow-up, I mean, you're talking about this expanded banking relationship you have with some of these vendors. Have you seen, just in the last quarter or two, any change in their demand for your deposits or is it just -- I mean, is this also relatively consistent? And I guess what I'm trying to reconcile that with is the mixed data we see coming out of the United States in terms of economic and employment.

Yes, I mean, Darcy, you want to comment on this?

Yes. I would say, maybe I should ask Cordell to comment on it. He's sitting in the room, and he's the one that's talking with the banks day in and day out.

As we talked, I mean, we keep in touch with these banks all the time, and they know that what our pattern is and how we grow and what it's going to be in the year. And so we have a long lead time with them to say -- do you have more appetite, et cetera, et cetera? And then, can we work in, and we've added new banking relationships every year as we go.

So I would say that it's a healthy dialogue that we have with them, and we have a fairly long lead time. And their appetite's been pretty good so far.

I'd say, too, Greg, it's not that we -- I don't think what we see -- I mean, obviously, over extended periods, what we see and what broader economic conditions dictate are pretty similar, and we've commented on that before. But I will say, while ultimately all dollars are fungible, if you ask any banker I think they will tell you that all depositors are not created equally in terms of the predictability they bring, do they do what they say they're going to do? And bankers make judgments about those issues with regard to their material depositors.

And so a big piece of the equation is proving, through deeds over time, that if you say that the, irrespective of what your contractual agreements are, that the deposits are going to look like this at a given point in time, that they will. And conversely, if for whatever reason, again, irrespective of what our contractual agreements are, if one of our -- and we definitely do think of our banking partners as partners. If they have a need from us in one direction or the other, and we can meet it, that we do.

And so that's a big piece of the puzzle, too. It's not about -- it really is about quality of the relationships. I mean obviously, diversification is extremely important in this area, but it's also true that you want every relationship you have to be a high-quality relationship.

And when it's a high-quality relationship, there's a willingness to perhaps be a little looser with the basis points because you really are getting something in return, in terms of knowledge about what's actually going to happen as opposed to what -- let's say I were a generic large corporate depositor, as anyone who's done corporate treasury at a large corporation knows, is there are unpredictable factors. And the treasurer whom you are dealing with is not the last word necessarily in what cash needs might be out there. We've tried to assure that that is not the case in terms of our partnerships in this area, any more than that would be true in our other partnerships.

Got it. Thank you for the answers, and congratulations on your quarter.

Thank you, Greg.

Peter Costa, Wells Fargo.

Congratulations on the quarter, and good afternoon, guys. Some of your competitors' website portals are starting to improve, and others with the weaker portals are getting out of the business. How do you see your growth being maintained at double the market if others are starting to catch up to you, and some of the weaker ones are going away?

And then, do you think, first off, that they are catching up to you? How do you maintain a lead against them?

And then, do you think that your -- what would eventually happen if they do catch up to you? Will your growth rate decelerate towards where the market growth is, or will the market growth start to rise more in line with where your growth rate has been?

And then, I guess, lastly, what's more important, scale or the strength of the portal? And I know they're both important, but which is more important?

Well, luckily, that last question is the only one you asked that I think I know the answer to. I was getting worried there, and then at the end I'm like, there's something we can answer. Because in all seriousness, with regard to a number of those points, I wouldn't -- we obviously don't give extended forward guidance, you know that. But more importantly, and generally, I think we have the opportunity in part to define what this market looks like. That's what leaders do.

And I think, to give you a simple example of that, I mean, and Steve is the one who made the decision long before I was here to say an HSA is about care, in part. It's not just a financial account. It has other elements to it, and we're going to need to be open to that data.

At the time, I very much remember, I was certainly involved in the industry broadly, and I remember people thinking, well, that's stupid. Why would anyone do that? That's going to create a lot of cost, and why would people even need that? They can go to their health plan website and get all of that information, not to worry, or whatever it might be.

And this Company has defined what's acceptable, and now, as you say, others are trying to get to that place, and our job at HealthEquity is to go beyond it. And what I will say is, and this sort of gets to your last question, look, scale is important to us, and it's important to us in terms of generating returns to our shareholders and generating value for our, as Darcy talked about a little bit, generating value to our network partners and the like.

But scale is not important to me as a consumer. I don't go to a company because they've got scale. I go to the company because they meet my needs.

And so the answer is not only that it could be both, but that it has to be both. And we cannot look at it -- we do not look at it like, oh, we have scale so we don't have to be the best. We have to be the best, period, at what we do.

And in fact, up on the wall, underneath the logo, or actually part of the logo, it says building health savings, and that's a reminder to all of us, and the thing's purple. And that's a reminder to us of two things: one, that our mission here and what we think we can be the best in the world at, not saying we are, but can be because we think we have a long way to go, is helping people wisely save and spend their dollars. And so that's what that's a reminder of.

And the purple is a reminder of our commitment to deliver remarkable service to people. And that's what we try and do in improving the platform.

So I guess, I mean I'm trying, I know I'm sounding a little salesy, but that's really our view of the matter is that if you start to get into scale versus product excellence trade-offs, which, frankly, many of our competitors do -- well, we don't have to be the best in this because it's just part of our investment platform, and we've got a highly scaled investment platform or we are -- you are pushing the easy button with us or whatever it might be. That's fine. But that's not defining the market, and what we are about is defining the market in terms of what consumers should expect from this product.

Steve, you look like you're itching to say something.

Well, yes, I think that the fact that the early entrance into the space over the last 12 years -- the fact that portals were lousy, stunted the growth of the market, to be honest with you. I mean, a lot of our business early on was take-away business.

So I don't know if that answers part of your last question, which is will they catch up -- but this is kind of the exactly why companies go public, and the benefits of raising capital is so you can continue to invest to try and be the best. And we see it in every industry, and we make a lot of investments to continue to do that. And we try and stay humble because we know that there's always a competitor around the corner that wants to compete.

But I do believe that they are getting better. I think the ones that don't want to make the investment to get better are exiting. And I think that will continue. We need to hustle. We do it every day.

Yes, Pete, this is Darcy. I was just going to add another nuance to that. I think that the portal does help, and there's differentiation there.

But part of that differentiation is the network partners that come with that portal, and those just -- you just can't go out and build that network overnight like you can enhance a portal or provide some more data to somebody. You have to have these relationships and partnerships, which we've been building for 10 plus years, particularly with our health plans and with our employers. And so it doesn't -- the growth doesn't just come because you have a better portal. It's the broader, what we would call the whole ecosystem related to that, that feeds that portal that's been very beneficial for us.

I'm not meaning to pile on. We try not to do the circular answer thing, but I'm going to do it anyway.

It's interesting -- what a consumer can see as value add is one piece of the puzzle. But we have to remember, we're an unusual business where our network partners -- the reason we call them network partners is because they are our partners in introducing us to consumers with whom we will ultimately have, quite literally, a trust relationship.

That's employers and health plans. We have to deliver value to them, too, and that value comes -- a lot of it comes from that integration and that platform.

And I'm kind of thinking about what was something I was working on earlier today was this is one of our health plan partners who is trying to win a significant piece of business. It's something they've been hammering at taking away from one of their competitors for probably 10 years. And I'm not saying they're going to win it because of what we are doing. What I am saying, though, is we are in the fight with them. And we have tools that they can use.

We're bringing data to the table, we're bringing functionality to the table, we're creating ways in which the functionality they are bringing to the table really shows well in areas that consumers are going to traffic, which obviously the HSA is. By doing the other accounts, we're simplifying the lives of this would-be prospect, the far A and the like. And we are -- it's not just like software that we're developing, and if they buy it and pay our fees, fantastic. We are in there with them swinging as hard as you can.

And so that's a piece of the value equation as well. And I don't want to minimize the consumer piece, and I obviously have, but as Steve said, that's a big piece of the puzzle. And I do think there are certain advantages of both scale and of platform ownership that you really can only get if you're in a leadership position that can help you really build and cement that sort of network or what some might call distribution partnership environment.

Thanks, that's helpful. And then, you had some good margin improvement this quarter, and you've compiled it over the years here. But some of that comes from scalability. It came a little bit differently than I was expecting it to come, in that your service costs were a little bit lower than I thought, and your G&A was a little bit higher than I thought.

Can you talk about if there's some more variability in your G&A line relative to the revenues, or was there some one-time thing that caused that to jump up as much as it did this quarter? And then can you maintain that scalability improvement on the service cost line?

Yes, so, two items. On service cost, we've looked back at this over time, and since we've been public we've had improvements in our service cost line efficiencies and scalability, ranging from 3% to 10%. We're not saying that we're guaranteeing whatever that would be, but we are continually looking for opportunities to leverage our robust service offering.

And there's some benefit that comes with our size and growth that's scalable, and so we'll continue to strive to do that and at the margin level. And the other thing at the margin level is, as the revenue mix changes, that margin changes, as we pointed out.

On the operating expense line, particularly in G&A, we went through a period as a public company, and I think I've said this before, people tell you the estimates of -- costs of being a public company are high and you always look at those numbers and say, oh, we'll never spend that much money. And we went through this process last year becoming SOX compliant that we had to do by January 31, and so we started to ramp up outside professional fees, internal resources, et cetera, et cetera, to do that, and we were successful at that, and now, we have those expenses that we've incurred in order to maintain and keep that, and they're in the full quarter. Over time, we certainly hope that there is some leverage in the operating expense lines, that the investments that we've made to become compliant, that they'll become more routine and they'll be in there, and we hope that they will continue to grow at the rate that they were growing before.

And so there's some scalability in there, but that, Pete, I would say there wasn't any one-time special thing. It was just the ramp up from a compliance and regulatory standpoint.

Yes, I mean, it's, I suppose, a high-class problem, but one of the simple facts of putting up these numbers is that it's hard to justify not being very conservative when it comes to -- conservative meaning overspend in terms of some of these areas of G&A as you build up, whether it's our audit and risk-management function, which as a distinct entity, didn't exist six months ago as a distinct organizational unit reporting to CEO. Or whether it's in information security or whether it's in governance, or whether it's including Board composition and having the best possible Board members, or whether it's in preparing for the bumps that will happen through things like making sure that you have as much training and as many -- as much DR and the like, disaster recovery as you can.

And it's probably fair to say that if we didn't have something to protect, we would probably be spending less on the G&A line, but we do. And we feel we have something to protect for the very long term, so it's tough to argue that you shouldn't be, again, as conservative, which in this case really means over prepare, over invest, build out things a little early maybe than you would.

And hopefully -- I never like to be in the position of saying, trust me, that will even itself out, and appreciate Darcy's reticence to do so. So let's not. But certainly that's our expectation is that we're front-loading some of these things, and that certainly will pay dividends to our shareholders, so to speak, in ways that they may never see, and the shoe that doesn't drop or what have you, as well as in ways that they will see.

Makes sense. Thank you very much.

Steven Wardell, Leerink Partners.

Hello, guys. Congrats on the quarter.

Thank you, Steve.

So I think there's a concern in investors' minds that there is some sort of growing competition in account fees, that there's a growing competition that's leading to pressure on account fees just in the last 3 to 6 months. Are you seeing that competitively? Are you seeing a recent increasing competitive pressure on account fees?

Want to comment?

Sure. I would say, Steve, that the only place where we actually really see that is in the large employer space where people are making the decision to move into HSAs. And so they're usually done in a -- they have a benefits consultant and there's probably an RFP and they're bringing a package deal to us and that's where we'll evaluate it on the complete picture of the HSA. How much AUM? Do they have existing HSAs? Is there some -- do they front-load contributions? And all of that.

And so, in that regard, there's a competition on that price, and we feel like that we actually have a competitive advantage because we do all phases of the HSA. We do the servicing for the account fee, but we also are the custodian and we also provide interchange services for them on their card platform.

The other, when you look at our, and we tried to highlight this and not run away from it, part of our service fee decrease per custodial account per HSA has been building over a long period of time, and it's by design that we have these lower fees when they get to higher volumes of HSAs they bring to us. And frankly, our health plans are bringing us more HSAs. And we're getting further penetration with our employers, and some of those employers are getting to a level where they're getting a lower fee. We're absolutely happy with that because we know when they get to that point where they're adding an HSA, that HSA will grow and will become more profitable over time.

So, yes, there is some market competition, and we see it in certain pockets and we'll be very responsive to that. But that's actually been part of our whole business strategy all along, and that's how we intend to compete and we think we will do it aggressively.

Great, thanks. And in addition, I think there was some concern around the December time frame that the Cadillac tax had been postponed, and if this represented kind of the removal of a positive catalyst for HSAs in general, and that, by clients, employers might just be a little less eager to get HSAs than they had been in the past. Have you noticed any -- now of course, we're into June -- have you noticed any effect, any slowing down of interest effect in this postponement of the Cadillac tax, or do you think that recent results show that there hasn't been a slowing down in interest?

In short, no. That is to say, we have not seen any kind of slowing down along those lines. And I think perhaps the best evidence of that, that you can verify is really if you look at the new account sales in the quarter and compare it to the same period last year or the same period the year before or the same period the year before that.

And what you see is that to add 80,000 accounts, give or take -- not add, sell 80,000 new accounts in Q1, which is not exactly the heaviest quarter -- to grow that [second] derivative, for lack of a better term, by 35%, that speaks to sales effectiveness. And I mean our team is good, but they're not that good. The demand is there.

So I guess the short answer is, at least in our view, is as we've said previously, that is that the demand for HSAs is ultimately a function of the fact that they are a win-win-win. The economics make sense, and so that's really what's driving things. I will say, again, as we've said before, that the Cadillac tax has the effect of pushing forward demand that would ultimately be there during its period of implementation and we still believe that.

So, if the thing is implemented in 2020, that will be good for us in 2020. But we don't count on that sort of thing. And neither our short- nor long-term expectations in the Business are built on it. It's additive to the growth that we're seeing.

Steve, just to clarify, he meant to say 72,000 accounts in the quarter.

I'm sorry, my mistake, 72,000 accounts. Thank you.

Great, thank you.

Randy Reece, Avondale Partners.

Good afternoon. Can you hear me?

Yes. Hello. Thank you.

Good to hear from you.

All right. Okay. First of all, the interchange, let's just say unit fee per member, was quite a bit higher in this quarter than I would've anticipated. I'm wondering if any change in the account composition might have driven that, and whether we should be conservative and expect that to tail off quite a bit as the rest of the year goes on?

So, if you look at the overall interchange revenue, year-over-year, quarter-to-quarter comparison, it was up 64%. Now, 52% of that is attributable to just higher average HSAs, and then the delta between that is attributable to a little bit better rate that we got.

We are getting a bigger share, I guess is the best way for us to say it, of the dollars that are available from interchange because of our volume. And as we've grown, the sources of that revenue has provided to us a little bit better pricing on that interchange pie. And so it's been incremental. I think it was probably 1/5 of the increase that we, 20% versus the 80% coming from volume.

The other thing that we, as you pointed out, and I would caution everybody, our first quarter is our highest spend quarter. Typically, just in sheer dollar volume, the spend decreases a little bit in Q2. And as you'll recall, we had a lower Q3 spend last year.

But overall on the rate, it wasn't dramatic. We kind of gauge it off of what Q3 -- our Q1 spend levels are.

And so there will be some probably decrease a little bit in Q2 and Q3, but it is seasonal and it's really kind of hard to predict. Usually, our Q4 levels come back up because we add so many more accounts in January. And so, if you look at our interchange kind of revenue, the cycle that we've had in our quarterly basis in the past years, we would expect it would be somewhat consistent with that, but there is some seasonality that's hard to predict in that regard.

For those for whom it might not be apparent -- I'm sure it is to you, Randy -- the source of that seasonality really boils down to the timing of when the deductibles reset. So, for most people, their deductible resets in January.

And so that's why you get a lot of first-quarter spend, and also why the fourth quarter, which of course, includes January, tends to -- in our case, tends to come up. Plus the additional accounts, of course. So just to point that out, that's really the source of the seasonality where, by the time you get to sort of the end of the year there, the end of the calendar year, and particularly Q3, you're kind of scraping bottom in that regard.

And you have heard plenty of talk about companies attempting to compete more aggressively in this business. Are there areas to invest where you can push either competitive advantage or sales success any harder than you are? Because you just had an incredible 40% EBITDA margin quarter.

It's interesting. We have this discussion -- we used to, as a private company, have this discussion, I would say we could allocate about a third of each Board meeting to it, and that probably wouldn't have been enough. And we still have it internally, obviously. That is to say, we want to grow, and so where do we want to invest to grow? So I guess, in short, our answer is, to the extent that investments are within our core competency and meet our investment criteria, we're going to do them, and we do them, period, from my earlier comments.

I will say, we guard our core competencies somewhat jealously. We're cognizant of the competitive points that others have made, and so we are always biased towards spending to improve our competitive advantages, whether that's functionally or by better understanding what our customers want and delivering it, or by trying new things or what have you. And so it's probably fair to say that in that regard, we are cautious people.

But I think what you should think about, and certainly what we think about, is we obviously believe that the balance sheet capacity that exists in the Company and the profits that the Company's generating in terms of either accounting profits or free cash flow are worth more than the cash sitting there. That is to say, if we didn't think that we were going to have, on an ongoing basis, significant opportunities to deploy that capital in ways that produce material return to the shareholders well in excess of what it's producing just sitting there, being conservative people, we wouldn't be holding on to it.

So that's something we think about, too. We may be a growth Company, but we absolutely understand our obligation to shareholders in that regard.

So, I guess, Randy, what I'd say is that, the fact that we continue to build up that store and the fact that we're conservative about it should -- the conclusion that you should come to is we have a strong self-faith, whether it turns out to be justified or not, we'll see. But we have a strong self-faith that the kinds of things we're looking at today and we'll look at in the future will be very good uses of that capital.

Jon, just one comment. Darcy mentioned earlier, when we think about our competitive advantage, our number of network partners, and so we're investing every day in supporting them.

And so that's kind of starting with [Veechead] that we have that we want to maintain and expand on, and so, whether it's building technology links with them or putting more support in market to support them. And so that's, I think to your point, we want to make investments that we feel like are the closest to actually driving more value and more business, and so that's certainly something we do, and every quarter we add investments to our portfolio.

Yes, it's funny, I mean, to Steve's point, as you can obviously tell, we may be a [moon-shot] company, but it's only one. We're not going to make five. There's no alphabet equivalent of HealthEquity here. And so, I'm not sure what alphabet it would be.

But in any event, and so it's about supporting the one moon shot we have here, which is -- our view is that, over time, most everyone is going to have an HSA. And they're going to be supported by tools that help people spend and save wisely.

And the result is we're all going to have a better healthcare system that's more responsive to consumers, and that's our vision. That's what we see out there in the future, and darn if we're not going to try and make the investments that have us leading that, and that's what we're going to do. What we are not going to do -- I mean I don't want to say we don't do other things, because we do, but we're going to do them in support of that vision.

Very good. Thank you very much.

Mark Marcon, Robert W. Baird.

I'd like to add my congratulations for the quarter. It's absolutely terrific.

Thank you, Mark.

I was wondering, a lot of questions have been asked, the incremental questions that I have. On the R&D spend, what sort of pace should we look at in terms of technology and development?

The thing that affects the R&D spend somewhat more than in other areas is that when we do internal development on our platform, to the extent that it's enhancing the platform, we capitalize it and then we amortize generally those expenses once they've been capitalized over three years. And so not only do we have the pace of just growth in OpEx that's coming into our technology and development, but we are also adding that incremental CapEx that was added in the prior year.

Of our CapEx in any given year, probably about 50% of it is probably capitalized development. And so what that has the tendency to do, Mark, is to increase the component of expense that's sitting there in technology and development, but it's characterized as amortization. So that's why you'll see variance between the net income, per se, and adjusted EBITDA, which backs out that amortization.

So the pace of it has been pretty consistent relative to the size. When we look at our CapEx dollars, we've been in this high single-digits, low double-digits percentage of revenue, and we think that we'll probably continue in that realm going forward. It might trickle down a little bit.

But every year we go through and say what thing -- speaking about the platform enhancements, there seems to be more requests than what we have the wherewithal to spend. And so we do a prioritization and we invest in the things that we think are most valuable to our partners and to our customers, and so we think that will continue similar to the pattern that we've been having.

Great, and then I fully appreciate all the enhancements that you've made over the years. I was just wondering if there was anything specific to the rollovers that you ended up experiencing that weren't related to the M&T. I mean that was a really impressive number. I was wondering, was there anything different in the approach in terms of getting those rollovers to come through or is it just continued execution?

This is Steve, Mark. Look, generally, it's just I think getting better at kind of focusing on the details and on the execution. Clearly, when we start to see larger employer cases, for example, that are bringing with them a balance, let's say they have 10% or 15% adoption, and let's say it's a large employer, you can imagine that those dollars add up pretty quickly on the potential transfer. And so that will affect our aggressiveness on pricing and everything else.

And so, as we go into those opportunities, what we try and explain to the employer is that, and there's some required blackout periods and things like that, as you might guess, any time you transfer an account to -- if you ever transferred an IRA to another custodian or anything like that, you have a blackout period. And so we try and get really into the details during implementation about explaining the particulars and saying, let's make this a smooth process because even though there's some required windows where they can't use the one account until they use the second account, we think we're just getting better at it. Plus, we're having a lot more opportunity because there are cases out there that are coming over that have already started in the industry. We think this will continue.

So there are some processes that we would consider to be almost proprietary in the way that we communicate with members and say, to avoid having to spend down your other account or having to take a withdrawal and then send it to us, which is technically in IRS speak called a rollover, versus a custodian-to-custodian transfer. We think if we can remove all the friction and just make it a custodian-custodian transfer and make it easy for the member, then ultimately obviously we're going to benefit because we're going see a lot more deposits.

But the sweet thing is, again, getting back to my comments on this being a virtuous cycle, the member loves it because it's like, yes, it was a little bit of a hassle, but HealthEquity made this happen and we worked with the other custodian to bring the money over, and I think it's, most importantly, best for the member, which is what we are always centered on, and then it also makes it easier for the employer as well. So look, other than maybe just trying to enhance that process with some technology investments and things like that, I think it really is execution.

Jon, do you agree?

Yes. Let me just add three points. First is, as we said in our comments after the fourth quarter, part of what drove this number is, and this sort of does speak to, I guess it was Pete's question about outsized market growth -- this is the first year where we, more of our new wins were takeaways than not.

And so, of course, the more takeaways you have, by definition, there are more accounts to roll over. The problem is that for most people, they think about this like it's a real hassle. It does have an upfront expense to it -- and just let them spend the money down. What's the big deal? It's $1,000. They'll spend it down and they'll have the new account and it'll be fine.

Well, that's $1,000 of hard-earned health savings, to the question that I think Sandy asked about how do people save, it's hard to spend less. So that's $1,000 of hard-earned savings that you'd rather have people keep than somehow like, you just spend it down and now it's out of the system and that's that. So I guess point one is really this is, in part, a function of us being successful at beating the competition.

Second point is, I think, more directly to your question about functionality is, and Steve touched on this, is a lot of this is resourcing the function and having the scale to resource the function and understand the difference between -- maybe we don't understand all 2,200-odd competitors out there, but we certainly understand the larger ones, and we understand what bumps are going to be there and what we need to do to make this an easy process. And some of that does come with scale, and that is proprietary knowledge. And it helps us be successful and in these maybe more so than we otherwise would, that we can go fairly far down the list and say, yes, we've done a transfer with them and we know what that's going to look like and we know what kind of file format they're going to need in order to accept our bulk transfer request as opposed to 500 individual pieces of paper and all that. So that's a piece of it.

And the last point I want to make about this is about data. And this does go a little bit to the question about where do you invest? Do you invest in the core? One of the areas that we are investing in the core is in the use of data to help us do better for our members and partners, and then to do better for our shareholders. And this is a great example of the opportunity there.

So what's interesting is people's HSA balances are not a matter of public record. I don't know coming in what a particular new member's balance was at a prior custodian. There's no file that's provided to us. That's their information, their personal private info, and I don't know it.

So we have to get good at figuring out, to some extent, where we can put effort. And that's a matter of using data on the rollovers and transfers that we've done to try and predict who's going to be an effective candidate, not just at the beginning of the year in this example, but as new people join firms over the course of the year.

So there's -- this same point could be made, and I think we will talk a little bit about this at, not to tease it, but a little bit about this at the investor day -- is the same point can be made about how you help people grow their balances. I don't pretend that we're going to invent money for people. But for people that, given the knowledge, will do it, the issue is how do we identify those people using data, and then provide messaging that helps them do it sooner than they otherwise would?

And so the last point I guess I made there is that I think there are both some of what we're doing today and we can do more scalably as we continue to invest in the platform is using the data that we have about our customers, which is part of scale, because we have more of it and more customers, to serve those new customers better. So maybe rambled on a little bit, but those are factors that I think are relevant as you look at the roll-over story.

I appreciate the color. And then something that you said that was really interesting was just that this year you had more competitive takeaways. Is that on purpose or it just happened to fall that way?

I think that what it reflects really is just the fact that there's -- it's funny, usually people talk about, well, there's greenfield and that's easier, and then there's brownfield and that's harder. That's not our experience, and it's quite the opposite, in fact. I think about the customers that have been our most kind of partners that have been our longest standing partners that we used as examples during the IPO, the American Expresses of the world, we were not their first HSA partner.

But still, it was the case for many years that most of our new network partners, new employers, et cetera, were new to the HSA. That's not true today, particularly in the large group market.

It's what they're trying to do that's new, meaning they had a genetic experience. They are looking to grow this piece of -- they're looking to bring more members into the HSA. They see the opportunity, and they are looking to partner with someone who can help get them there. And that's really, I think, where we've seen that. It certainly wasn't a function of targeting or what have you; it's a function of what's available and whether other parties are delivering what the market really needs or whether we are.

Terrific. Thank you.

Thank you

All right. And at this time, we have no further questions. I'll turn things back to management for any additional or closing remarks.

So if it wasn't obvious already, June 21, 8 AM until 12:30 PM, greatest show on turf. Well, probably not. Probably there will be no turf.

It'll be worth your time.

But in all seriousness, we are putting effort into this. I don't want to build it up too much as an investor day, but we are putting effort into this. We know it's the first time we've done it.

In particular, I want to say that one thing that is really nice about this is that Steve, Darcy and I will not be doing much of any talking, other than perhaps in the wrap-up and in the introductions. And you will hear mostly from, and have opportunities to engage with, other members of our management team, some of whom you've heard on these calls and elsewhere, and some of whom you haven't, as well as members of our network partner base and, of course, Ms. Orman, who I will say, she has an incredible track record on this HSA stuff. She is on it and has worked with a number of employers, including a number of our clients, to really try and think through how this stuff works for a consumer, and is really impressive on the topic when she gets going. So I'd encourage you to come. I'm sure that it will be, as Steve said, worth your time.

And with that, thanks, everyone, and we'll see you in a couple weeks.

Once again, ladies and gentlemen, that does conclude today's conference. Thank you for your participation.