Healthequity Inc (HQY) 2018 Q1 法說會逐字稿

Welcome to HealthEquity's First Quarter of Fiscal 2018 Earnings Conference Call.

Please note that this event is being recorded.

I would now like to turn the conference over to Richard Putnam, Investor Relations.

Go ahead, Mr. Putnam.

Thank you, Liz, and good afternoon.

Welcome to HealthEquity's First Quarter Earnings Conference Call.

With me today, we have Jon Kessler, President and CEO; Darcy Mott, our Executive Vice President and CFO; and Bill Otten, who recently joined our HealthEquity team as our Executive Vice President of Sales.

On the phone, we also have Dr. Steve Neeleman, who will be available to answer questions during the Q&A portion of our call.

Before I turn the call over to Jon, I'd like to remind those participating with us that there is a copy of today's earnings release and accompanying financial information posted on our investor relations website, which is ir.healthequity.com.

We also need to make the usual safe harbor statements concerning forward-looking statements included in today's earnings release and during this conference call with you, including predictions, expectations, estimates and other information that might be considered forward-looking.

Throughout today's discussion, we will present some important factors relating to our business, which could affect those forward-looking statements.

These forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from the statements made today.

As a result, we caution you against placing undue reliance on these forward-looking statements.

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 detailed in our annual report on Form 10-K filed with the SEC on March 30, 2017, along with any subsequent periodic or current reports filed with the SEC.

We're not obligating ourselves to revise or update these forward-looking statements in light of new information or future events.

And with that out of the way, I'll now turn the call over to Jon Kessler.

Thanks, Richard, and thank you, everyone, for joining us.

On HealthEquity's last earnings call back in March, we committed to continue to outpace market growth and, at the same time, have the opportunity to increase margins.

And on today's call, I'll provide a few prepared remarks on Q1, during which the team delivered another strong performance that will help us meet that commitment this year.

Then Bill Otten, HealthEquity's newly-appointed Executive Vice President of Sales, will describe some of the things we are doing to keep our commitment to growth well into the future.

And finally, Darcy will review our financial results and our improved outlook for the full fiscal year.

Turning to first quarter performance and the 4 key metrics that drive our business.

Revenues of $55.4 million were up 26% year-over-year.

Adjusted EBITDA of $22.4 million was up 24% year-over-year, despite additional expenses that we previewed last quarter.

HSA members at quarter's end topped 2.8 million, up 26% year-over-year; and custodial assets at quarter's end topped $5.2 billion, up an even larger 28% from a year ago.

HealthEquity opened nearly 77,000 new HSAs in the quarter, the most it has ever sold in a Q1, and up 7% over the same period last year.

And closures in Q1 were below last year on both a nominal and a percentage basis.

Custodial assets grew by $189 million.

As we discussed in March, the first year enrollments from our new employer network partners this year were lighter than anticipated.

And as one might expect, rollover activity from those same employers, which shows up in asset growth in the Q1 months of February and March, was light as well.

As you know, we're all about building health savings here at HealthEquity, and so we are particularly pleased that the strong growth we saw in investments in fiscal 2017 continued into the first quarter of fiscal 2018.

Investing HSA members at quarter's end grew 55% from a year ago, and custodial investments grew an even faster 58%.

We believe that HealthEquity's long-standing focus on helping our HSA members become long-term health savers and our track record of success in doing that is a differentiator, with value on its own and as a driver of other HSA success, such as savvier consumer decision-making and higher overall satisfaction with the HSA qualified benefits offered by our employer and health plan partners.

So once again, HealthEquity is off and running for the fiscal year with the goal of delivering to our shareholders another strong year of growth and profitability.

As I mentioned, Bill Otten is on the call with us today.

Bill, along with Gary Robinson, our new Chief Marketing Officer, joined HealthEquity to improve on what is already, by far, the industry's strongest track record of organic growth.

Bill joined on May 1, which is the first day of our fiscal quarter, so it's fitting that his remarks to you will be forward-looking.

Bill?

Thank you, Jon.

My name is Bill Otten.

I've been in sales nearly all of my professional career from starting territories from scratch for Enterprise Rent-A-Car early on to the last 14 years at ADP, where I was fortunate to hold leadership posts across the company's diverse human capital solutions portfolio.

After just a month at HealthEquity, I can comfortably say the ingredients for success are all here, the right people with the right products and services, and, as Jon said, a track record of industry-leading organic growth.

According to Devenir, in calendar 2016, HealthEquity had more net organic new HSAs than anybody.

In fact, more than the second and third place competitors combined.

(inaudible) at the top.

Let me describe 3 important things we're doing to make it happen.

First, we're attacking new targets beyond HealthEquity's traditional health plan and enterprise strengths to smaller employers and those who serve them, as well as other non-health plan channels.

To facilitate in this expansion, we have increased the size of the team and, as important, launched a significant sales force automation initiative.

In calendar 2016, HealthEquity accounted for nearly 1/4 of industry net organic growth without being in-market in any segments.

With a broader sales reach, HealthEquity can continue to gain market share.

Second, we're expanding HealthEquity's core value proposition to employers beyond HSAs.

A good example is health reimbursement and flexible spending arrangement administration, what we call our RA business.

Last year, HealthEquity grew organically our RAs by 28%.

From a cross-selling perspective, we had a 34% year-over-year increase in a number of HSA employer clients that also tapped HealthEquity for RA services in fiscal 2017.

We announced just last week the launch of products designed to bridge the gap between health and wealth-oriented savings.

This opens a couple of different doors for HealthEquity.

A platform for retirement plans to seamlessly integrate with our HSA platform, a broader foothold with existing partners in the health benefits world and a reason to speak with new ones in the retirement industry.

HealthEquity has thousands of employers, clear customers using its RA services as well as partnering on HSA.

If we were to have that kind of success on retirement, it would be a material growth engine.

At ADP, I supervised sales of 57 value-added products beyond the payroll service, which the company is best known.

HealthEquity does not and should not have that big a menu, but we do have an opportunity as HSAs go mainstream and our partners and members want more from us.

Finally, we're sharpening the message.

When our partners and members select HealthEquity, they're choosing the industry's only end-to-end proprietary platform, a platform built to connect with their health care and, now, retirement ecosystem, and they are choosing a company that truly values and delivers remarkable service.

As I have traveled around the country speaking with customers, I've heard frequently the comment that I didn't realize how good HealthEquity was until after I partnered with them, which is a great opportunity for us.

From the outside, I can tell you the competitors see HealthEquity as the industry leader.

Now we need to get employers of all sizes and consumers thinking the same.

Now I will turn to Darcy for comments on the quarter's financial results and our outlook.

Thanks, Bill, and welcome aboard.

I will discuss our results on both a GAAP and a non-GAAP basis.

A reconciliation of non-GAAP results that we discuss here to their nearest GAAP measurement is provided in the press release that was published earlier today.

I will begin by reviewing our first quarter financial results and then I'll end by updating our business outlook for the remainder of fiscal 2018.

Revenue for the first quarter grew 26% year-over-year to $55.4 million.

Breaking down the revenue into our 3 components, we continue to see growth in each of service, custodial and interchange revenue during the quarter.

Service revenue grew 18% year-over-year to $22.5 million in the first quarter.

Service revenue as a percent of total revenue declined to 41% in the quarter, down from 43% of total revenue that it represented in the first quarter last year as the custodial revenue stream became more predominant.

Service revenue growth was attributable to a 26% year-over-year increase in average HSAs during the quarter, partially offset by a 6% decrease in service revenue per average HSA, which was at the low end of the estimated 5% to 10% range we expected going forward as discussed last quarter.

Custodial revenue was $19.3 million in the first quarter, representing an increase of 40% year-over-year.

Custodial revenue growth was fueled by 25% growth in average custodial cash for the quarter and a higher annualized interest rate yield on custodial cash assets of 1.72% during the quarter compared to 1.55% in the first quarter last year as interest rates have increased.

Interchange revenue grew 21% in the first quarter to $13.6 million compared to $11.2 million in the first quarter last year.

Interchange revenue benefited from the 26% year-over-year increase in average HSAs in the quarter compared to the fourth quarter last year.

Gross profit grew 22% in the first quarter to $33.7 million compared to $27.7 million in the prior year or a gross profit margin of 61%.

Cost of revenue included additional fraud prevention measures, as we indicated in our last earnings call.

Operating expenses were $17.8 million or 32% of revenue compared to $14.4 million or 33% of revenue in the first quarter last year.

Income from operations was $15.9 million in the first quarter, an increase of 20% year-over-year, and generated an operating margin of 29% during the quarter.

We generated net income of $14 million for the first quarter in fiscal 2018 compared to $8.1 million in the first quarter of the prior year.

Our GAAP net income per diluted share for the first quarter was $0.23 per share compared to $0.14 per share for the prior year.

Our adjusted EBITDA for the quarter increased 24% to $22.4 million compared to $18 million in the prior year.

Adjusted EBITDA margin in the quarter was 40%.

Turning to the balance sheet.

As of April 30, 2017, we had $196 million of cash, cash equivalents and marketable securities and no outstanding debt.

Before I turn to our fiscal year 2018 business outlook, I want to call your attention to the income tax provision for our first quarter income statement.

This quarter, we adopted Accounting Standard Update 2016-09, a new accounting standard that changes the way we account for the tax benefits associated with stock option exercises.

Under the old accounting rules, such benefits did not flow through the income statement, but were booked directly to additional paid-in capital on the balance sheet.

Under the new accounting standard, such benefits show up as a reduction to our income tax provision, which resulted in a higher GAAP net income and GAAP net income per share, per diluted share, in our first quarter than what they would have been under the old standard.

Because of the inherent difficulty in forecasting the timing of stock option exercises, the potential variability in our stock compensation for multiyear performance criteria and the variability in the size and timing of new equity grants, we have decided to add to the financial measures, which we will provide in our business outlook.

Starting today, we will provide our fiscal year 2018 business outlook for revenue, net income, adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share.

We have provided a definition of such non-GAAP measures and the reconciliation to the most comparable GAAP measure in the earnings release.

Now turning to our full year fiscal 2018, we are increasing our business outlook as follows.

We are increasing the revenue outlook for fiscal 2018 from a range between $220 million and $225 million to a range between $222 million and $227 million.

Our net income outlook is increasing from a range between $30 million and $40 million to a range between $33 million and $37 million.

However, we are not making any forecast with respect to additional stock option exercises during the year, which would have the effect of reducing net income tax expense and increasing net income.

Our adjusted EBITDA outlook is increasing from a range between $77 million and $82 million to a range between $78 million and $83 million.

We expect our non-GAAP net income to be between $38 million and $42 million, and we are providing a non-GAAP net income per diluted share outlook range between $0.62 and $0.67 per share based on an estimated diluted weighted average shares outstanding of approximately 62 million shares for the year.

Before I turn the call back to Jon, I would like to mention one additional item reflected in our business outlook.

We expect our gross profit margins in our second and third quarters to be consistent with the gross profit margin we had in the first quarter due to the additional costs related to fraud prevention, which we mentioned in our last earnings call.

The incremental costs reflect the costs of testing, training, partner and member communication and other costs of rolling additional fraud prevention out through the service delivery organization.

We think you will agree that this is money well spent, and we want to do it in a way that maintains the Purple service for which HealthEquity is known.

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

Thanks, Darcy, and then thank you, Bill.

Nice job.

I think what you have all heard today is a renewed commitment to outpace market growth, a solid start to delivering growth this year and the beginnings of a refresh, if you will, on our strategy to deliver that growth far into the future.

And these are good things.

But the way these things happen is through the hard work of more than, now, 900 HealthEquity team members who continue to perform incredibly in what is obviously a fast-moving environment.

I read feedback from members, clients and partners, everyone.

And as you might imagine, our customers are not shy about where we have opportunities to improve.

But I must tell you that I am humbled by what I read every morning about the efforts that HealthEquity team members make to be remarkable.

It is because of those efforts, fundamentally, that we are in a strong position to deliver value to you, our shareholders, long into the future.

And with that, operator, let's take some questions.

(Operator Instructions) Our first question comes from the line of Peter Costa with Wells Fargo Securities.

First question for you is, can you tell us more about BenefitGuard and sort of the revenue model there?

I understand you're not a custodian for 401(k) assets, I don't believe they are either.

Can you tell us how that revenue model is going to work and what the relative scale of BenefitGuard is?

And also, do your guidance changes today reflect anything to do with BenefitGuard?

I'll defer to Darcy to comment on the guidance component.

But let me say, generally, that we view -- the BenefitGuard acquisition itself is relatively modest feat.

And certainly, if it were anything but that, we would be disclosing additional details.

What I think is important to understand is that we view BenefitGuard per se as part of a broader strategy and product offering that we are referring to as HealthEquity retirement services.

And that product offering really is designed to meet employers where they are across the spectrum.

So for some employers, particularly in what we think of as our regional segment and our -- perhaps into our commercial segment, we will have the ability to offer kind of an out-of-the-box solution.

If you've never had a 401(k) before or if you are looking for a new provider, we will have the ability to do that.

We think to do it incredibly competitively and have your members keep more of the money in their pockets.

For other employers that have very large and sophisticated retirement programs, the name of the game is not replacing those programs, but rather a level of integration with those programs.

Something we call wealth view.

And so to some extent, what we're going to do is, with sort of a set of offerings that targets the scope of employers, is we're going to learn a little bit about where the true opportunities are.

I will say that our view is, as your comment suggested, is that the opportunity, at least in the foreseeable future for HealthEquity, is not in administration per se, there are a lot of great 401(k) record keepers out there; but rather, in providing the management an advice that is needed both at the individual level and in terms of management of the overall plan set and integration with the HSA.

We think we can do that and at the same time, deliver an economically -- what is economically an incredibly compelling offer to these employers.

So we'll have more to say about this as it develops, but what I would generally say is that we're trying to think about the economic model here as consistent with the way we think about the broader HealthEquity business, and that is, we want to be our successful when our members and partners are successful, and that's how we want to build the business versus sort of viewing administration as sort of the core of the job.

And Pete, this is Darcy.

From our guidance perspective, we have not included anything in our increased guidance with respect to BenefitGuard.

BenefitGuard will probably close sometime in the third quarter.

We don't expect any material revenue or expenses from that in the current fiscal year.

As they happen, then we'll certainly include them and record them.

But it's a small enough transaction that we're -- we haven't updated anything within our financial model with respect to BenefitGuard at this time.

Okay, that's helpful.

And then, during this quarter, Anthem selected to go with a software vendor for their HSAs.

Can you talk about that a little bit and whether you think that that's a risk for other accounts, health plan accounts that you have, particularly the other Blue plan accounts that you have?

Yes.

We talked about this, I think, in the March call.

I may be wrong.

But first of all, we say, our relationship with Anthem continues as it has been in the national account space.

So -- and then I may ask Bill to elaborate on this a little bit.

Even though he's relatively new, he's seen this up close.

But it really is working cooperatively with Anthem in the case of somewhat larger accounts.

I expect that, that will continue.

Certainly, there's no evidence that it won't continue.

But obviously, they will have an alternative that they can use elsewhere.

Bill, maybe you can comment a little bit on what you're seeing generally and happy either to comment or have you comment on other accounts?

Sure, Jon.

So I am still seeing quite a bit of activity within the employers that are using Anthem.

And so our HealthEquity sales team is out proactively, marketing the benefits of partnering with HealthEquity and any connection that we've got with Anthem.

So I'm still seeing quite a bit of activity in that area.

We will continue to proactively market to the Anthem clients.

I think, with regard to other partners, I mean, this is a discussion -- and we touched on this actually as far back as last year's Investor Day.

Our colleague from Michigan, Janet Fava, touched on it in her discussion.

Health plans will go back and forth in terms of their view about the role that they want to play in these sort of account-based programs, HSA or otherwise.

And I use that phrase, account-based programs, because in Anthem's case, that's sort of how they thought about it, it wasn't specific to HSA.

So -- and not only will they, but also other companies do, too.

You've seen Bill's former company, ADP, who -- that years ago made an acquisition to get heavier into the space, and then more recently sold that business and got out of it.

Our view is that, ultimately, what the consumer wants and what anyone who's representing the consumer's interest want is a strong level of connectivity, independence, ability to serve and support that consumer through what is a health care discussion, but it's just as much a financial discussion, a benefits discussion, even sometimes -- and of course, a retirement discussion.

And so we think we're in the best position to hit -- to touch all of those bases.

And there will always be providers of software or services that hit on pieces of that, and that'll be tempting for folks, and that's what we battle every day.

So that's kind of the way I think about it.

And just one housekeeping question for Darcy.

What was the yield on average cash AUM in the quarter?

1.72%.

Our next question comes from Stephanie Davis with JPMorgan.

Given the interest rate backdrop and just kind of yields improving as they have, how should we think about your laddered investment strategy?

And as a follow-up to that, kind of what would preclude you guys from kind of operating and getting a small bank and take it all in-house?

Why don't you answer the first part, Darcy, and I'll maybe comment on the second?

Okay.

As we have stated before, our ladder in how we place funds, we put them into depository agreements with banks.

Generally, what you'll see is, as you've seen in the past, is from our fourth quarter to our first quarter, you'll see some rate change based on new contracts, replacing old contracts and new contracts for new money that we received.

Once we look at our first quarter and we have that money pretty well fully placed by the end of the quarter, you see a pretty consistent rate environment for us for the remainder of the year.

Unless there's some sort of an acquisition, we have capacity to handle the cash increases that occur during the year.

And so we expect the rates to be fairly stable for the remainder of the fiscal year.

And on the second part of your question.

There's really 3 ways in which cash deposits generate income.

There's time, of course.

There's aggregation.

And then, there's risk.

And we've made it clear from day 1 that we do not bring principal risk onto the HealthEquity balance sheet.

And we think that's the right formula, not only in that it matches with our expertise, but also in that the environment -- were we to do that, and effectively that's what a bank charter or the like would involve, then we would be taking on -- we would be entering a business that, from a capital efficiency perspective, has very, very different properties than the one we're in.

I'm not saying we would never do it, but we have, as you can imagine, looked at it from time to time and always come to the same conclusion, which is look at in terms of what investors truly care about, which is return on their investment capital or return on equity.

The lending business, for us, given our expertise, is not a winner.

And that's really what it boils down to.

And I think that as long as that's the case, we're likely to stick with the way we do things.

I will say that the team and the approach we've taken has been, I think, quite effective at -- and will continue to be effective at capturing the other sources of income from these deposits while providing service to our members.

So we do a good job of aggregation while providing an outstanding level of service to our members and obviously, we make funds available to our members on a daily basis and at a highly competitive rate of interest.

And so I think that the strategy that we employed, which is, to work with a group of partner FI on the bank side, has really been effective for us.

And it's -- while I can't say we're the only people who do it certainly in our business, we've done it effectively.

And I think we've done it effectively by delivering on our promises for deposits, for growth, by being a good business partner for the long term and by understanding what their needs are as well as ours.

And so that's kind of working for us.

Our next question comes from Mark Marcon with Robert W. Baird.

I was just wondering if Bill could elaborate a little bit more about going after small employers, first, and then I've got a follow-up.

Sure, Mark.

So really, what we're thinking about is what we call our regional or our commercial market.

So we define the regional market as employers who have below 2,500 employees and the commercial market as having between 2,500 and 25,000.

So as I kind of mentioned a few moments ago, our strategy is to not only work through our health plan partners and brokers, but also go direct to employers.

And so we expect to see some additional growth in that area as we continue to see the convergence between the health savings and the 401(k) savings also.

Great.

And so what sort of expansion of the sales force would you assume?

Well, we have -- last year, we expanded the sales force to put more people in market in both the regional sales director and the commercial space.

So right now, we're not anticipating any further expansion until we have a little bit better data.

Okay, great.

And then...

I think that last point, Mark, bears repeating.

The way we're approaching this is, is we make investments, we measure the results and we make more investments.

And so we have no reluctance in terms of expanding sales and marketing spend.

As I've commented before, actually, we'd love to be able to do that.

And one of the effects of the strategy, I think, is that we may have more opportunities to do that.

But we try to like shoot a bullet, see if hits the target, shoot another bullet, see if it hits the target, before we fire cannonballs.

Okay, great.

And then, obviously, the margin performance on a consolidated basis speaks for itself.

I'm just wondering if you could talk a little bit with regards to, within custodial, what drove the higher investment balances versus cash, specifically within the client base?

Were there some proactive actions?

Or was it just all the new accounts that came on?

Actually, it's a great question.

Thank you for asking it, and I'll see if Darcy wants to comment on this as well.

But this is something we've been working on for quite some time.

And we commented on this in the fourth quarter, I think in the third as well.

We put increasing effort into driving the 90 -- now I guess 97% of our members who are not investors to think about investing.

Now obviously, they have to get to a cash balance where this becomes relevant and all of that.

And so there are a lot of steps before you get to investing.

But I do think there are couple of things that have occurred in the last few quarters that have really kind of put a fine point on it.

Probably the biggest is something we talked about, again, I believe in the third quarter, which was the conversion of -- the completion of the conversion of sort of the last of our portfolio into highly affordable, low-cost investment products that really meet the needs of this kind of investor.

And so investing -- we basically cut in half the cost of investing for our members.

And we told them about it.

And we were transparent about exactly what we're doing.

And transparency can sometimes work, and it certainly has in this case.

So that's, I think, one rather specific factor that's driven some of this growth.

But broadly speaking, a big part of our interaction with members as they begin to move from pure spenders to accumulators and then get to the opportunity to invest is here are the advantages of doing this, here's why it makes sense for the long term.

And the reason we do that, Mark, as you know, is that these investors are not only very profitable customers, but also, they're some of our stickiest customers.

And so we feel like when people begin to invest, the light turns on, that this is a long-term thing, kind of like an IRA, et cetera, and that's a really good thing.

So we'd like to believe that it's the result of deliberate action, and we'll see how the trends continue over the course of the quarters to come to see whether that's, in fact, true.

But that's certainly our basic view of it.

Darcy, anything to say, again, there?

Yes.

I would just point out that usually new account openings don't generally have enough balance in them that they actually start investing.

So this is occurring with HSAs that have been with us for a while.

Yes, that's a great point.

Great.

Can I just ask one more?

Just with regards to the ending number of HSAs.

Was there any impact from Anthem in the quarter as it relates to that?

No.

Okay, great.

Well, except to say that I think we probably got some from Anthem.

We got some.

I mean, in terms of any kind of turnover, as we've commented elsewhere, I think, look, what -- the area where -- a way to think about this is that -- what I think -- and I would let Anthem speak for themselves in terms of their objectives.

But where we would expect to see this is more in the vein of as we renew individual employers, that kind of thing, Anthem might want to present their solution.

And it's those employers' right to consider that solution, and we'll see how that goes.

But that's where you would start to see that impact.

We haven't seen anything along those lines to this point.

Our next question comes from Donald Hooker with KeyBanc.

Just one question on your existing members.

Is there a way to sort of parse out kind of the growth in HSA balances per member kind of on a sort of a same-store basis, if you will, kind of over the past year?

I mean, is that still growing?

How do you think about that?

Do you want to try this one?

Well, the way that we look at it is generally put HSAs in 2 buckets at least.

We'll take all new accounts in a given year and we kind of put them into one bucket.

And historically, we have always found that they -- in that first year, on average, you're going to have probably $700 or $800 in their account.

What we do then is we take -- once they got through that first year, we measure what balance growth -- I mean, we can tier it up.

But we measure existing accounts that have been with us at the beginning of that year, and then what their balance has grown from that prior year.

And so we have seen a little bit of an uptick in balance growth.

But that's kind of how we measure it.

And I guess, historically, how -- in your experience, how have assets per member grown if we're thinking about it going forward?

Right.

Oh, yes.

So on those existing accounts, once they're in the door and then we have that first year of $700 or $800, beyond that, they seem to grow about $200 or $300 a year.

They'll get contributions on average of somewhere around $1,500.

They might spend $1,200, so the net increase would be somewhere in that $300 on that range on average.

I mean, Don, it's worth noting, almost by definition -- no, I guess not by definition, but in all likelihood, you sort of think about it.

An account that is coming from a new partner in a given fiscal year is almost -- well, is typically going to be a new account.

That is to say, it's a new HSA and it will start with, as Darcy said, relatively low balance.

With the existing partners, right, not only are you going to get some new accounts, obviously, but you also get the growth from the accounts that were existing, which, now, by definition, I can say are somewhat more mature and you're going to see balance growth there.

So in both -- in terms of number of accounts as well as assets, new relationships contribute -- they don't pull their weight in their first year.

And we certainly saw that this year, as I commented on earlier.

But what they do is kind of a seed that sprouts.

And then over the course of a number of years, those relationships grow and those become your mature relationships.

So obviously, none of these -- a very few of these are we at, okay, it's 100% penetrated and they all have mature balances.

So there's no tree in the forest that is not growing, if that makes any sense.

But that's a way to think about it is that, that almost by definition your new relationships are going to be relatively modest in terms of their contribution to growth in their first year.

And it's really as those mature, that they start to really sprout out.

Our next question comes from Steve Halper with Cantor Fitzgerald.

When you think about the new effort in retirement services, when do you think that becomes a meaningful contributor to the income statement?

Steve, it's Jon.

Thank you for the question.

It's a great question and one we prepped for prior, which is why, sorry for me to say, the real answer is I don't know.

What we'll do is, recognizing the people want information on this as we'll certainly say something as this year goes through, as to how the transition's going with the existing customers of BenefitGuard, which there are a few, what we're learning from them, but then what's happening in terms of how this is being received in the marketplace.

And I think, we'll be in a better position after having a little bit of time under our belt to comment on when this might be at a point where it's material enough to really talk about numbers.

No.

I think that's a fair expectation.

Well, I will say, before we continue, just to say, I mean, obviously, as you can tell in this call, we're new in this area and we're -- certainly, there's nobody else in our industry that's providing any detail on anything like this.

So we're a little reluctant to hand you our business plan on it obviously.

But I will say, the potential here is quite substantial.

I mean, we said in our Investor Day last June that our view is that HSAs should be as common as retirement accounts.

And that at maturity, there might be, let's say, $1 trillion invested in HSAs.

Well, there's $7 trillion invested in 410(k)s and more in other retirement accounts.

So to the extent that HealthEquity, that our thesis is correct, that is to say that people are going to save faster, generate more savings and save today as well.

By looking at HSAs and their retirement plans together, there's an opportunity for us to capture meaningful -- a meaningful share there.

And so I do think -- don't let the fact that it's early days let -- make you think that or lead you to the conclusion that we don't see the opportunity here, because we really do.

And the opportunity is ultimately driven by the simple fact that -- or simple belief, in our view, that as an American consumer, a working family, if I look at these 2 things together, of which I'm going to likely have both, I look at them together and think about them together, I can save more now, I can build a retirement nest egg faster and I can keep more of my money in retirement.

And that's pretty good, so that's kind of what's driving our interest here.

Our next question comes from Steven Wardell of Chardan Capital Markets.

So with this BenefitGuard acquisition, do you see this changing the job of the administrator who administrates or offering the benefit to the administrator?

So for example, would it help -- in some way, help the benefit administrator get higher engagement across their benefits?

Is there a way that this offers less work for more benefits for the benefit administrator at the client?

Well, to that point, I mean, think about the challenge -- if you look at the challenge that retirement plan administrators have, in some ways, it's similar to the challenge on the health side.

That is to say, it really is about helping people pay attention so they can do the right things.

And one thing that really does create an opportunity, this is how we got started in this area 2 or 3 years ago now, was recognizing that the average HealthEquity member, and we've talked about this elsewhere and around here, on average, we interact with about 1/4 of our members every month, on the application, et cetera, et cetera, and then perhaps 8% of our members every month in a live forum.

And we built our platform to help those members engage.

In retirement plan land, and probably each of you that's listening can identify with this, the interaction with one's retirement account is much more sparse.

So I've read elsewhere that you may see interaction rates of 5% a year.

So the opportunity, not dissimilar to what we've tried to do in other areas of health care to sort of extend the metaphor of ecosystem engagement into retirement, in our view, is a really nice opportunity there to help people get them the information that will help them do the right thing.

So that can be as simple as, hey, by the way, you haven't got your 401(k) match yet and that's really important and let's talk to you about that.

At the same time, we're talking about HSA contributions.

Or it could be as complex as, here's a tool that helps you sort through how you might allocate these things, your dollars across different accounts and so forth.

So there really is, I think, a lot of opportunity to drive engagement on the retirement side, just as we've tried, I think with a reasonable amount of success, to do on sort of the health financial side.

And if we can do that, then we can help people retire better and build more savings and that's all good.

So that's really the goal of all this, isn't it?

It's not platforms and this and that, whatever, it's people engaged to build savings.

So that is a big piece of the opportunity we see.

I'm showing no further questions in queue at this time.

I'd like to turn the call back to Mr. Kessler for any closing remarks.

Well, thanks, everybody.

And I have no -- I'm now speechless, which doesn't happen often, so enjoy it.

Have a good evening, everyone, and thank you for your attention.

And we'll see you in a quarter.

Thank you.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the program, and you may now disconnect.

Everyone, have a great day.