Healthequity Inc (HQY) 2018 Q4 法說會逐字稿

Welcome to HealthEquity's Fourth Quarter 2019 Earnings Call Conference Call.

Please note that this event is being recorded.

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

Go ahead, Mr. Putnam.

Thank you, Jimmy, and good afternoon, and welcome to HealthEquity's 2019 Fiscal Year-End Earnings Conference Call.

My name is Richard Putnam, and I head up Investor Relations for HealthEquity.

With me today, we have, Jon Kessler, our President and CEO; Dr. Steve Neeleman, Vice Chairman and Founder of the company; Darcy Mott, our Chief Executive -- Vice -- our Executive Vice President and Chief Financial Officer.

Earlier today, we reported in a press release our fourth quarter and fiscal 2019 year-end financial results, a copy of which can be accessed on our Investor Relations website at ir.healthequity.com.

It's also my duty to let you know that our call today will include forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward looking.

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

Forward-looking statements are subject to risk 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 risk that may affect our future results or the market price of our stock, which are detailed in our last year's annual report on Form 10-K, filed with the SEC last March in 2018, along with subsequent and periodic other current reports including this year's fiscal 2019 10-K that will be filed by the end of this month.

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

And with the introductions and cautionary statements out of the way, I'll turn the call over to Mr. Jon Kessler.

Thank you, Richard, it gets better every time.

And hello, everyone.

Thank you for joining us today.

We know you have a choice in entertainment for the late afternoon and we hope we can deliver, and prove that we made a wise one -- that you made a wise one.

The HealthEquity team is pleased to deliver strong Q4 and full fiscal 2019 results, and we're excited to share with you investments that these results set us up to make to drive future growth.

I have a few prepared remarks on the team's performance.

Steve will talk about investments, and then Darcy will detail results and guidance for fiscal 2020 before we open the line for questions, one at a time, please.

At the time of HealthEquity's IPO, we committed to aggressive 3-year growth and profitability targets, and we delivered.

Then, we doubled down, promising to outpace market growth while continuing to grow profits even faster than revenues.

With today's results, I'm pleased to say that the team has delivered on these commitments as well.

First, outpacing the market.

We talked sales results in February, but without a market comparison.

Devenir released its year-end 2018 market survey a few weeks ago.

According to Devenir, the market grew HSAs and custodial assets by 13% and 19% respectively, and HealthEquity, during the same period, handily beat those figures, growing HSAs and custodial assets, 18% and 26%, respectively.

HealthEquity added more HSAs and more custodial assets than any of its competitors, period, according to Devenir.

I guess that wasn't a period.

The strong growth in HSAs and custodial assets helped fuel revenue growth of 25% year-over-year in fiscal 2019 to $287.2 million, which brings me to our second promise, which was to increase profitability even faster than revenue growth.

We did.

We're reporting today adjusted EBITDA of $118.4 million for fiscal 2019, up 40% year-over-year.

Adjusted EBITDA margin of 41% grew 430 basis points year-over-year, driven by gross margin improvement.

Q4 was particularly strong as the team and our partners and clients absolutely nailed the busy season execution.

Thank you, team.

The team's performance has put HealthEquity in an enviable position for fiscal 2020, a position to deliver strong profit margins again, while making significant new investments in growth.

So I'd like to turn the call over to Steve now to describe a number of those investments.

Steve?

Thanks, Jon.

HealthEquity's vision is that every American family connects health and wealth by embracing HSAs and ultimately making them as widespread as 401(k)s and similar retirement accounts.

A nation of HSA-empowered consumers will not only personally benefit from more tax-efficient savings for healthcare and retirement but will also generate enormous rewards for the broader American healthcare system.

We believe our vision can happen in the next decade.

Let's quantify this vision a bit.

According to Devenir, today there are about 25 million HSAs holding approximately $54 billion in custodial assets, which generate about $2 billion in market-wide revenue.

Our vision implies a market with 50 million to 60 million HSAs, holding $600 billion to $1 trillion in custodial assets.

To get there, by 2030, from where we are today, implies annual market growth rates in the high single digits for HSAs and in the mid-20s in custodial assets.

This is a vision not a forecast.

Let me take some time today to outline 5 areas of investment on which the team is focused to realize that vision.

First, we are connecting health and wealth, investing along with our retirement industry partners in developing platform enhancements and tools to drive consumers and employers to use HSAs and retirement accounts together to their fullest potential.

Second, member engagement, which of course has been a HealthEquity strong suit from day one, and is now more than ever core to our growth strategy.

For HSAs to realize their market potential, more consumers must see them as part of a lifetime strategy, not just an annual election at open enrollment.

Whether it's deciding how much money to contribute to HSAs throughout the year relative to other accounts, deploying thoughtful investment strategies or spending less on necessary medical care, our total engagement efforts seek to deliver the right information at the right time to the right member to help them make better decisions.

Third, we're broadening the solutions HealthEquity can deliver to employers of all sizes.

In just the past few weeks, we've added 2 significant tools, COBRA and expanded FSA/HRA administration for employers of all sizes.

These new tools allow our sales team and our network partners to say yes more often, helping employers and advisers simplify their business partnerships, while giving employees the industry's best support resources and key points in healthcare finance decision making.

Fourth, to realize the full market opportunity, HealthEquity is, for the first time, investing directly in education and advocacy for the healthcare consumer in Washington, D.C. HSAs meet healthcare and retirement goals that are shared on a bipartisan basis.

In that spirit, we are pleased to see the president's 2020 budget includes specific proposals to expand consumer access to HSAs and congressional groundwork on price transparency and fairness in healthcare consumer billing.

When consumers have access and they are empowered, HealthEquity's market opportunity grows.

And finally, over the next several years, we will be investing in our proprietary code base and the security of our platform.

The goals of these investments are to achieve continuous deployment capability, which increases speed to market and enterprise class security.

This is not only prudent planning for continued fast growth, it's also a power move versus subscale competitors who will not or perhaps cannot deploy technology capital effectively.

The return on these investments is long term, sustainable and profitable growth.

We expect to expand the footprint of network partners and employers to grow consumer penetration within that footprint and to increase the value of each consumer relationship.

HealthEquity's Investor Day is on June 19, at the NASDAQ market site in New York Times Square.

This will be an opportunity for more in-depth discussions with our leadership team on these investments and on our growth strategy.

We hope to see you all there.

Now to a somewhat shorter term, I'd like to turn the call over to Darcy to review our operating results for the fourth quarter and fiscal year just ended and to provide guidance for the year ahead.

Darcy?

Thanks, Steve.

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 first review our fourth quarter and year-end financial results in fiscal 2019 and then I'll provide guidance for fiscal 2020.

Revenue for the fourth quarter grew 25% year-over-year to $75.8 million.

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

Service revenue grew 10% year-over-year to $25.8 million in the fourth quarter.

Service revenue as a percent of total revenue was 34% in the quarter, down from 39% of total revenue that are represented in the fourth quarter last year as custodial revenue became more predominant.

Service revenue growth was attributable to a 20% year-over-year increase in average HSAs during the quarter, partially offset by an 8% decrease in service revenue per average HSA during the quarter.

As discussed on our last several earnings calls, the expected decline in service revenue per account was offset by growth in custodial revenue per account as our average custodial asset balances and custodial cash yield increased during the fiscal year 2019.

Custodial revenue was $35.5 million in the fourth quarter, representing an increase of 45% year-over-year.

The driving factors were 20% growth in average custodial cash assets and a higher annualized interest rate yield on custodial cash assets of 2.3% during the quarter compared to 1.9% for the fourth quarter last year.

Custodial revenue accounted for 47% of total revenue in the fourth quarter compared to 40% for the fourth quarter last year.

Interchange revenue grew 15% in the fourth quarter to $14.5 million compared to $12.6 million in the fourth quarter last year.

Interchange revenue benefited from the 20% year-over-year increase in average HSAs in the quarter compared to the fourth quarter last year.

Gross profit for the fourth quarter was $44.4 million compared to $31.6 million in the prior year, with a gross margin expanding to 59% in the fourth quarter, up from 52% last year.

Operating expenses were $27.9 million or 37% of revenue compared to $23.2 million or 38% of revenue in the fourth quarter last year.

Income from operations was $16.6 million for the fourth quarter, an increase of 97% year-over-year, and generated an income from operations margin of 22% during the quarter.

We generated net income of $13.1 million for the fourth quarter of fiscal 2019 compared to $5.9 million in the prior year.

Our GAAP diluted EPS for the fourth quarter of fiscal 2019 was $0.21 per share compared to $0.09 per share for the prior year.

Excluding stock compensation expenses, net of tax and the tax impact of stock option exercises, our non-GAAP net income and net income per share for the fourth quarter of fiscal year 2019 were $17 million and $0.27 per share compared to $6.7 million and $0.11 per share for the prior year.

Our adjusted EBITDA for the quarter increased 60% to $27.3 million compared to $17.1 million in the prior year.

Adjusted EBITDA margin in the quarter was 36%.

Full year results for fiscal 2019 include, revenue grew 25% to $287.2 million.

Gross profit margin was 63% compared to 59% last year.

Income from operations grew by 43%, as we continued to scale our business model.

Operating margins were 27% compared to 24% last year.

Adjusted EBITDA grew 40% year-over-year to $118.4 million, growing our adjusted EBITDA margin to 41% compared to 37% last year.

Non-GAAP net income and net income per share were $75.6 million and $1.19 per share.

Turning to the balance sheet.

As of January 31, 2019, we had $361 million of cash and cash equivalents with no outstanding debt.

We generated $113 million of cash flow from operations during fiscal 2019 compared to $82 million during fiscal 2018, a 39% year-over-year increase.

Turning to guidance for fiscal 2020.

As Jon and Steve have just outlined, we have identified several investments for fiscal 2020 that will continue to broaden our capabilities and distance us from our competition.

However, even taking these investments into consideration, our guidance denotes that we expect to deliver adjusted EBITDA margins in fiscal 2020 at or near those reported today for fiscal 2019.

Based on where we ended the year, we are reiterating our revenue guidance for fiscal 2020 from between $333 million and $339 million that we initially provided last month.

We expect non-GAAP net income to be between $80 million and $84 million, non-GAAP net income per diluted share between $1.23 and $1.29 per share, and adjusted EBITDA between $133 million and $138 million.

Our non-GAAP net income per diluted share estimate is based on an estimated diluted weighted average shares outstanding of approximately 65 million shares for the year.

The provided outlook for fiscal 2020 assumes a projected effective income tax rate of approximately 24%.

Before I turn the call back to Jon, I would like to highlight 4 items reflected in our guidance.

First, the investments that Steve outlined will result in increased operating expenses and capital expenditures for a combined investment of approximately $30 million for fiscal 2020, split evenly between operating expense and CapEx.

Second, we are increasing our interest rate guidance on the custodial cash assets to be approximately 2.45% for fiscal 2020 compared to 2.15% for fiscal 2019 just completed.

Third, we have consistently guided that service revenue per HSA will decrease between 5% and 10% per year.

We believe we will be at the high end of this range in fiscal 2020.

And fourth, as we have done in recent periods, our full year guidance includes a detailed reconciliation of GAAP and non-GAAP metrics at the end of today's press release.

This includes management's estimates of income taxes, depreciation and amortization and anticipated stock compensation expenses, but this does not include a forecast for stock option exercises for the fiscal year.

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

Thank you.

A wise person once told me that when you can say thank you more often than I'm sorry, you've had a good day.

So in that spirit, before we go to questions, I'd like to, again, take a moment to highlight and thank the HealthEquity team, both veterans and newcomers, and our partners for a highly successful fiscal 2019 open enrollment season from our customer's perspective.

During Q4, the team spoke to more of our members and prospective members, they sent more cards, they handled more transactions, they provided more education, et cetera, than ever before in the company's history.

And they did it in Purple style, and as we say, deep Purple style.

Service metrics such as the speed with which we answer calls or chats were extraordinary for our busy season.

Members, clients, partners, rated the quality of their interactions with HealthEquity from simple phone calls to complex implementation projects, very, very highly.

And the rapid growth in custodial assets is evidence of the high value of the education we and our partners provide together and how it drives members to connect health and wealth.

So again, thank you.

With that, operator, let's take some questions with a reminder that we're going with the one at a time rule.

(Operator Instructions) Our first question comes from Anne Samuel with JPMorgan.

I was hoping maybe you could speak a little bit to the inclusion of HSAs in the President's recent budget.

And what you think those 2 items kind of mean for the market and for HealthEquity?

Sure.

Steve?

Yes, happy to.

Anne, thanks for the question.

We've been talking for a long time that there's some inequity on folks that are currently working and are on a nonqualified plan, that maybe they're eligible for Medicare.

And so we think that the best proponent of what's in the budget is the ability to not only continue to make contributions to HSAs or to the Medicare MSA component of this, and it would be up, they will elevate the limits up to the HSA annual contributions.

Right there -- right now, there is the ability to have a Medicare MSA, the problem is, is that individuals can't make contributions up to the HSA allowances.

So that would be great if we can get that done.

And then, the ability to have these working seniors, which some estimate say are as much as 15% to 18% of the total population.

These are folks that are Medicare eligible but are still working full time, to allow them to continue to make contributions to HSAs even if they fall into a Medicare plan.

We think this absolutely expands the market.

I mean, there's about 11,000 people every single day that become Medicare eligible.

And a lot of those people now because of the growth in HSAs are in HSA-qualified plans.

They're still working, they still have income to defer.

And so that would be an absolute market expander for us.

The other component around the actual value, there's a couple different ways to view this.

Our opinion has always been that any time we can make it easier for employers that want to offer a richer benefit to allow for things like direct coverage of asthma meds and diabetic meds and things like that, that have never been very clear in the current law or in the current regulations and that's a good thing.

You can kind of quibble over whether it should be an actuarial approach or what's been out there in the past in some of the other bills that have just said cover drugs that cover preventative care meds and things like that.

So again, we think it's a step in the right direction but kind of the benefit both of these areas of focus would be to expand the market and to have more people that ought to be in HSAs deferring income, creating long-term tax savings that they can spend either on healthcare or on just their overall retirement needs.

And we think market expansion is a great thing and something that's been long overdue.

It's been 13 years really since we've seen this type of expansion in the HSA law.

Our next question comes from Donald Hooker with KeyBanc.

Yes, I'll ask about -- I guess, we all asked this last conference call and I'll ask it again in this one.

I think we were all interested and excited to see these larger retirement, I think, companies like Vanguard, Nationwide, and last quarter I think you talked about Principal.

Just curious, any kind of update there in terms of timing.

I know there's a lot of expenses up front going into those relationships as you mentioned in your prepared comments, but maybe an update as to when the revenue from that might start kicking in?

Yes, this is Jon, Don, thanks for the question.

As we commented elsewhere, the primary impact on fiscal 2020 will be in sales going into '21, however, I can say that we will see our first customers on these partnerships in the second quarter.

And -- I want to say either second or first depending on whether it's calendar or ours.

And in any case -- so these are starting to ramp up.

We see some really interesting pipeline activity.

Obviously, it's -- this is still work in progress.

And as we talked about before, one of the biggest issues is, what you're really trying to do here is you're trying to get people who are retirement people and talk about things in terms of lifetimes and people who are health benefits people, who talk about things in terms of annual elections to work together more effectively.

And I think Steve put it really nicely in his opening comments in saying that this is really about understanding that an HSA is more than one annual election to another.

And I think that's really where the value is here, but we do feel pretty good about what we're seeing there as well as what we're seeing from our -- both our direct selling as well as our health plan channels going into the new cycle.

Our next question comes from Mohan Naidu with Oppenheimer.

Steve, I want to go back to Anne's question there.

What is your comfort level -- meaning expectations, I guess, in getting this through the fracas in D.C.?

Can you repeat the Medicare beneficiaries you thought would get benefit from this if it gets through?

Yes.

So, I mean, trust me, whenever we think about D.C., I have no idea what comfort level is.

It's like watching the Kentucky Derby, who knows.

But I think the nice thing is that these really are becoming a consumer benefit.

And when you compare, Mohan, what's in the President's budget to even what's come out more recently with some of the bipartisan efforts to address consumer drug pricing and transparency on billing and things like that, I think you're starting to see the weight of millions and millions, I mean, 25 million, if you believe in Devenir numbers, American families that are behind this.

And so that's where we feel like there's traction.

They keep talking about it.

Obviously, there will need to be some trade-offs.

And so I can't, by any means, put any type of number on what we -- our confidence level is, other than the fact, they know about it, they keep talking about it, these are things that have been priced.

The [actual] budget office level and things like that.

So we feel comfortable with that.

Getting back to the Medicare side, I think your question was -- is, what's -- what would be the benefit to the market, Mohan, or was it something different?

Yes, no, no, that's right.

Well, I mean, think about it like this.

If you look at the Baby boomers, I think there were 80 million Baby boomers that were born between 1946 and 1964.

And some estimates suggest that about, I mean, for easy math, about 20% of these people are still working.

So 20% of 80 million is 16 million families -- at some point, they're going to stop working.

But even if they're starting to -- I think, my parents, for example, they're still -- they have income, they have to -- they're in their mid-80s.

And there's -- they still have income that they're having to take mandatory distributions out of their 401(k)s, and they say to me all the time, why can't we put that into an HSA -- take our distribution out of our 401(k), put it into an HSA and pay for their $3,000 or $4,000 a year that they're having to pay for in their current Medicare plan design.

And we talk a lot about the fact that if you really want to look at a plan that's out there that apparently is bipartisan, it's Medicare that happens to have a fairly high consumer out-of-pocket spend, and you can buy different types of coverages to [budget yourself].

And the best way to fill in the doughnut hole and to pay for that would be through the HSA.

So it's going to -- I can tell you, it's tens of millions of people that would benefit and that would expand the market.

Jon, do you have any additions?

I mean, I just -- I always find it useful to -- I mean, this is sort of in the category even of education -- to remind people in Washington that Medicare is, in a fun way, is the ultimate high deductible plan.

I mean, I say that a little bit tongue in cheek, but it is certainly from an out-of-pocket expense perspective, there is a significant amount of consumer responsibility in Medicare.

And by the way, that's one reason why it's one factor that has controlled some of the potential challenges that there might be and that exist in other federal programs.

And so, the question then becomes, why can't working seniors or those that are fully in the Medicare system get the same attach benefits?

Why should you have to pay with your health -- for your healthcare with after-tax dollars?

And the answer, of course is, you shouldn't.

And so I think particularly -- this is particularly relevant for those who've gotten a little bit later start on saving, the HSA [has been] around a few years so they haven't had the opportunity to really build a balance.

This makes a ton of sense, I think, from whatever partisan prism one looks at it.

And that's what the team is really trying to bring to Washington, maybe a little less -- and I mean, look, as Steve said, we're not naive, we just might be hopeful -- a little less ideology with regard to healthcare and a little more practical, hey, there's 70-odd million people on Medicare and there's 200 million of us, give or take, in the employment-based system.

Let's help people out, let's figure out a way to get them informed and empowered, which is a piece of the puzzle, and then give them tools to help them save money and get healthcare for the family.

So look, we're just going to keep hammering away at it and the message we want you to have here was that whether it's a President's budget or some bill introduced in Congress, what have you, is that we have determined is that now is an appropriate time where we can put additional resources to our education efforts in Washington and we think there will be a return.

Our next question comes from Alex Paris with Barrington Research.

This is Chris Howe sitting in for Alex.

As we look at where you are as far as building the level of awareness with HSAs, and you mentioned some of the key, like, platform enhancements.

As we look at these 2 factors and how they drive member engagement, what specifically are you seeing internally that's driving momentum within engagement?

And as we move towards these long-term vision goals that you outlined, how should we think about the optimal mix between cash and investments as a higher proportion transitions to the healthy saver category?

Those are excellent questions.

Let me kind of start with your second part of your question, and work backwards.

Say, if you think about the vision of the market that Steve outlined in his comments, it really lays bare the importance of evolving and the opportunity in evolving how people use these accounts, that is using them for a lifetime versus annual election to annual election.

I mean, as Steve discussed, you talk about -- you can get to essentially full penetration on accounts from our perspective with sub-10% growth, right?

So that's great, but -- it's not bad over a decade but really increasingly the growth in the market is going to come from growth in assets and that requires people to understand how to use these accounts.

And to your point, a big piece of that is when they understand that, one of the things they do is invest, which is why we've been reporting our invested members since day one.

Our view is that, at market maturity, it's likely that we know this from our mature accounts is just that give or take 2/3 of the balance will be in investments, and perhaps, 1/3 on average will be in cash.

But the good news is, either way, that's -- it's a win-win, the investments are, in fact, additive to the cash balances that non-investors do.

Now kind of working -- so that's kind of our view of where the market can get to and why this area is so important and why we're investing in it.

Getting back to the first part of your question, which was really about, okay, what are the things that need to occur from a consumer's perspective?

As we've said often, when it comes to driving mindsets and how people use these kinds of products, there's no single answer, there's no one power point or whatnot that will make that occur, And maybe that's a good thing because -- from our perspective, because if it was, someone would've just put it up on the Internet 15 years ago and that'd be that.

But it takes effort, and it takes effort, but that effort has to be personalized.

It has to be supported by a platform that takes information about you and tries to deliver as much as possible something that's relevant to you.

And it has to be delivered in the context at a point where you have reason to be paying attention.

That is to say that you can send out all e-mails you want, right?

We all get e-mails, we hit delete all day, right?

Some of us do.

And so it's about: one, being highly personalized; two, delivering that personalized education in the context of a service experience.

And we think that -- that our platform is really uniquely suited to that, because we take in the kinds of information like healthcare claims and the like that create service interactions, they create reasons for people to come to us, right?

Which, in turn, create opportunities for education.

And then I think about what we're doing with our friends on the retirement side right now, really increases our ability to be relevant to a member.

And again, that's a function of having information that allows us to be relevant.

And so, from my perspective, those are really the keys, they're the things that our platform, I think, really uniquely supports in the industry versus just being a better place to calculate debits and credits and fund balances and the like.

And so, that's kind of -- our investments in this area really are about doing that in more ways and for more people and so forth.

So whether it's having our voice systems and call routing be more specific so that, based on what we know about you, we can route you to the agent that is best able to handle your situation, something that we'll be rolling out enhancements on later this year as part of this investment activity.

Or it's as simple as taking full advantage of the time we do get during open enrollment-type processes to deliver more personalized, more relevant information, even to scale what we're doing for our largest groups into our smaller groups.

Those are all part of the puzzle there.

But again, I think it really starts with the notion that, one, education doesn't occur to -- that education doesn't occur in a vacuum, and it's not generic.

It has to be personalized and it has to be at a point where you are ready to receive it, not where it's convenient for us or for your employer or some other party who just provides them.

Our next question comes from Mark Marcon with Baird.

I was wondering if you could talk a little bit about what you're seeing in terms of the evolution of the competitive environment and how that's changed over the last couple of years and how you foresee it changing.

And then if I could just sneak in an add-on for Darcy because I'm afraid he's being left out.

Could you talk a little bit about the margin profile from a longer-term perspective?

We understand the investments that are occurring in the upcoming 12 months, but how should we think about that longer term in terms of the margin trajectory?

You want to go first?

Sure.

So yes, we've always talked about margin expansion really being facilitated by people becoming savers and investors, and that that margin expansion occurs when people have larger balances.

And we've certainly seen that happen, although as we add new accounts, then that kind of dampens the average balance.

But we have more and more people who are becoming not only investors but even healthy savers, as we call them.

And so we would expect that that margin -- we got into -- our EBITDA margin was 41% this year, first time for a year that we've actually been into the 40s.

And we expect that we can continue that.

And we made mention of that on the call, notwithstanding the fact that we're making these investments.

The reason we're making these investments is to expand that margin even further over time.

Now there's always a little bit of a lag between the time you make these investments and when they start producing results.

But we've been fortunate in the fact that we've grown custodial revenue, which helps to fund some of this investment that we're making and still maintain margin.

So I would say, over time, Mark, that we would see improvement, like we've shown pretty steady improvement over the last 5 years that we've been public and expanding that margin.

And we will expect that to continue in the future.

That's the reason we're making the investments.

And then, Mark, on the first part of your question with regard to competitive landscape, I guess, I'd say this, first of all, according to Devenir, there are 3 competitors that make up almost 50% of the marketplace: ourselves, UnitedHealth Group and their Optum Bank and Webster's HSA Bank.

And investors have heard from all of them and can make their own assessments as to how we're doing relative to each other.

I suppose if I throw Fidelity in there with a couple percent, you get to the -- you get to 50%.

Our view -- so we would encourage investors to take a look at what people are saying and make their own assessments.

I'll tell you what our assessment is.

We believe that where we are out there in the field and where we're playing, we can win and do win.

Looking at the data from Devenir, it's clear that we gained market share again this year, as I mentioned in the prepared remarks, added more net HSAs, added more gross HSAs, added more assets than anyone.

And we're not even playing on the full field yet.

A lot of what we're going to get from the investments we're making are circumstances, as Steve said, where we want to be able to say yes.

If someone says, "I want to buy this product from you.

I'm just in a position where I need to buy with some other stuff.

Can you do that for me?" Yes.

We want to be able to say yes.

And in other cases, people are saying, "I get it.

I'm not sure I understood this when it was a health thing, but now I understand it as a retirement thing." And they're looking to help -- for help to their advisers on the retirement side.

And so it's about us being in a position to be a leading authority with those folks.

And at the same time, this continues to be a huge part of what's going on in health care, so continuing to build out there.

So I guess, that's a way of saying, from our perspective, I think, looked at from a feature function, et cetera, perspective, we offer the best product in the marketplace.

I really do.

And it's about -- when I think about the investments we're making and how they drive growth.

From a market share perspective, it's really about being in more places, being able to say yes more often when we're asked.

And I think when we do that, we should be in position to continue to take market share year after year after year, which we have committed to do.

That's great.

And then can I just sneak one more in?

With regards to the smaller business effort, can you just give us a little bit of an update there just in terms of as you go back and you break down and analyze the gains that you've had in terms of the HSA accounts that you ended up gaining over the last year and the prospects?

How does that look in terms of just penetrating the smaller and medium-sized business market?

I feel like this -- maybe you're Greg Peters masquerading as Mark Marcon with the third -- the part 3. I know Greg's not on the call.

I hardly ever do that, but I just wanted to get that one in.

Look, without going into the details, I said in the call that we had, in February, on sales that I felt we made some good progress, but it's definitely an area where we've got more work to do.

And in particular, I think the work that we have -- are doing is in 2 areas.

One I've already mentioned, which is this is definitely -- the middle market is definitely one of the places where having a more complete product suite is helpful because -- having a broader product solution is helpful because -- you're a 500-person group, that means maybe you have 1 or 2 people in HR and benefits and, you know what, fewer vendors matter.

It's helpful, and it helps -- helpful to your brokers.

So the ability to, again, say yes when people are saying I want to buy this from you, can you also do X, Y and Z, given my needs, is valuable.

The second thing I would mention, though, here is really the way we approach the advisory community, brokers, advisers and folks [to help] on the health side as well as now on the retirement side.

We've always been of the view that the advisers are incredibly important in the decision-making process.

But I think as we entered this marketplace, what we have learned is how important they are in the day-to-day administration of the product.

And again, to my earlier point, there's only so many people in HR.

And very often, they turn immediately to the brokers and advisers for support when they're in need.

So we've added functionality that we've rolled out to our sales team as well already that really expands what advisers are able to do in terms of helping employers administer the product on a sort of day-to-day basis.

So those are areas that I think we still have some work to do.

But we've clearly committed to this.

We've talked about it now for at least a year, maybe 2, and we'll get there.

And I think it'll be an important part of our growth strategy as we go forward.

And our next question comes from Stephanie Demko with Citi.

This is Joy Zhang on for Stephanie.

In line with one of the largest [payers HAS] contracts coming up for bid this, can you talk to how you're positioning yourself for the RFP?

Specifically, if you could walk us through the different levers you can pull in a competitive RFP process, whether that's raising the consumer rate, lowering your PAPM or any other strategy that you have, that will be great.

Well, thanks for the question.

And we do wish Stephanie well in her travels.

I think, in general, we approach -- and obviously, we approach each opportunity that's large uniquely, but I think there are really 3 key things we're trying to do as we approach opportunities.

The first is, as I said a moment ago, I think when it comes to the actual value that's ultimately delivered to employers, to consumers and to advisers, we want to be able to show that value upfront in the process.

And that's ultimately the reason to do this.

And you got to check all the boxes, of course.

But I think, first and foremost, it's about -- the nice thing about large opportunities is you have the opportunity to sell value, and we have value to sell.

The second thing is an item I also mentioned, which is checking the boxes.

So very often, it's the case that there are things that your larger opportunities just want you to do.

And that can sometimes be incremental products, but sometimes it's supporting specialized populations, supporting specialized educational needs.

I think we're in a better position to do that than anyone, to be honest with you.

And I look at some of the things we've done for some of the largest public and private employers in the United States, and I'm sure that they will tell -- would tell you and would tell reference takers in [the context of an] RFP process that we are there to deliver.

And we bring meaningful education resources to their team members, whether they are all in one place and, therefore, can be reached with a personal touch or highly distributed and, therefore, it's all about training the trainers as well as providing online and telephone resources.

And we -- I think that's an area where we really excel and, ultimately, again, produces better outcomes.

And then lastly, as it relates to pricing and so forth, there, the key is -- and something Darcy talks about a lot, including on these calls -- the key is understanding the value of the relationship you're getting for the long term.

And so we have always been willing to reduce costs for the employer or provider to the extent that we have greater certainty about the assets that we're getting and the commitment to grow that balance.

And so we will, for lack of a better term, underwrite cases, I think, very effectively and be extremely competitive in that regard.

We think that's what the market wants to see, and it's really what we try to do.

And I think it's been helpful.

Darcy mentioned in his guidance that we're going to continue this year with our strategy with regard to fees.

And the strategy is we're going to drive the fees that our customers see down.

And we would rather be paying our customers money; that really works as a strategy.

And in a funny way, I mean, in terms of interest, of course, we do.

We don't set interest rates on a discretionary or individual basis.

Anything along those lines, as your question suggests.

But on the fee side, certainly, our view is that we can be highly competitive and, I think, effective in understanding when it's appropriate to be competitive.

So those are really the keys to, I think, winning business and why we've won more of it than anyone else.

And our next question comes from Allen Lutz with Bank of America.

Jon, you talked about partnerships coming online.

Now I know it's early, but what's the feedback been like?

Where are you guys winning?

Why do you think you're winning?

And if you're not winning in certain areas, why do you think maybe you didn't get to the finish line?

And then, what are you guys learning throughout the process so far?

So I'll take a stab at this and then invite Steve, too, as well as he's been out in the market quite a bit on this one.

From my perspective, I have to say -- and again, on these calls, we're always cautious about creating expectations that we can't meet.

But I have to say the feedback, thus far, from the marketplace on the new linked products that we're offering with retirement partners has been really, really positive.

I was going to use the word extraordinary, but then that seemed too good, so I didn't.

And -- but admittedly it's what I think.

Given -- what we are used to is a world in which it takes a lot of time for people to get comfortable with what you're doing, to understand what you're doing.

This feels like a group of products that, at least in terms of interest, that the marketplace was very much ready for.

And the market gets it.

That is to say that if you look at these products over a lifetime and you look at them together, you can drive better outcomes for members and actually save money for employers because the dollars that go into the HSA are not subject to payroll tax.

And so moving contributions into the HSA really has some very tangible value for the employers as well, aside from the success of helping their members save.

So I think that's been very positive.

And then the second thing has been really the way that our partners have gone about this.

In each case, the partner is bringing something unique to the table.

And that's -- rather than say, well, we're just an arms merchant, whatever, we're trying to focus on partnerships that truly bring something unique to a segment of the market.

And -- because we're not -- we can reach employers, that's not the problem.

And so we think the issue here is can we reach them with products that they can't get anywhere else.

And based on the market feedback, it's clear that's something people are ready for.

I'll say I think the biggest challenge overall is one that I sort of mentioned earlier, and that is it's still the case that within employers, even not terribly large ones, the decisions about the retirement plan and the decisions about health benefits are made by -- typically, by 2 different people, and they don't talk to each other enough in terms of how they are ultimately serving the long-term needs of their employee base.

And this is causing some of that to happen, which is fantastic.

But in many cases, those are new conversations.

And I'm sure it will take several cycles before they have a familiar path to them.

And our people in the field understand that and so forth.

So that's -- I think whenever you do something -- doing something, and we're not -- I'm not saying we're in this alone, we have great partners.

And I think there are other people trying to row in the same direction.

But whenever you're doing something that truly is about bringing together two constituencies towards a single goal, there's always a certain amount of learning how to work with each other at -- even within the customers themselves and within their advisers.

And so that's the -- those are the positives and challenges that I see.

Steve, anything?

Yes, the only thing I'd add -- I certainly share Jon's enthusiasm for the retirement channel.

And yet, we've been at this health plan channel for 15-plus, 16 years, and it continues to really yield good results.

And when we did this analysis, as we were starting to think about our strategy the last couple of years, we really thought that we were really covering, I think, a broader swath of the market, and we were.

I mean, in fact, probably about 1/3 of the market is covered by our health plan partnerships.

And so really, there's this other 2/3 of the market.

How do we get in front of them?

Well, one way to get in front of part of that other 1/3 of the market is through these retirement plan relationships.

They'll take us there.

They want to keep that business.

They want to win more, and so they'll take us there.

And then we're also, by expanding our product suite, being able to say yes, as I said, to more people, Allen, in our expanded offering of -- with COBRA and FSAs and HRAs and all of that, we're able to now go sell directly to that other 2/3 of the market.

So I think that's the thing that excites us.

We've -- it would've been really easy for us to just kind of rest on our laurels and say, wow, we've got 125, 130, 140 health plans, let's just keep kind of focusing on that opportunity.

But that's never where we've been at HealthEquity.

It's always been how do we get what we believe is the best solution in the market in front of more people and help them save long term for retirement.

And whether it's approaching that through health plans or retirement partners or direct-to-employers, I really think we've tooled up.

And I appreciate Darcy letting our team spend all of this new invested money.

Darcy and Jon, of course.

We thought it was you.

No, no, no.

There was this joke before the call that it sounded like these were my investments.

These were the team's investments.

I just spoke to those investments.

Just so that everyone knows.

(inaudible), Allen, it's a little campy.

But look, we -- achieving our mission around connecting health and wealth and around American families having a financial plan around health care that is part of the financial plan they have for retirement, you can't do that if education stops at you have this account, and it kind of goes along with sort of like with your health plan, and here's all the way you can spend your money, and we're going to put $1,000 in it, now please don't ask us any questions, right?

And we think that relative to our competitors, and this gets back to a question asked early on, we feel like we have to carry this ball down the field.

We're -- we think we're the only ones to do it.

And I'll tell you why, right?

If I look at the health plans that compete with us, it's pretty clear that they -- and with their own products, it's pretty clear that their primary interest in those products, as they would put it, is it's almost like a secondary insurer.

Their interest within the HSA simply as a source to pay bills.

Nothing wrong with that but unlikely to carry the education ball down the field.

When we see a lot of the banks that are in this space continue to look at the account as a source of just deposits, nothing wrong with that but unlikely to carry the education ball down the field, particularly when it comes to investing for the longer term.

We see a lot of folks who compete with us on the retirement side simply saying, well, we don't really care where the money comes as long as it shows up in our managed funds.

Nothing wrong with that but unlikely to be the kind of folks who are really going to educate people about how to efficiently allocate, really take that next leg down in terms of the effective cost of investment.

What we like about the partners that we have in every one of these segments is that they are as committed as we are -- thank you.

I'm pounding on the podium as we speak, if it sounds that way.

They are as committed as we are to the vision of this marketplace.

And I really can't stress enough how important we believe, as an organization, it is to stay focused on that outcome and how educating people and driving how they use these accounts over an extended period of time is central to achieving that vision.

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

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

So again, thanks everybody.

Welcome to spring.

Let's hope we all don't get melted away.

And again, we will see you all in early June.

We'll keep -- we'll talk in early June, I suspect, with regard to our first quarter.

And then we really do want to encourage everyone.

We're promoting heavily here.

We don't get -- we're not [paid in] particular or anything, but we're promoting heavily our Investor Day.

There is a lot of work being put into it.

We are not -- as you all know, we are not super fancy, glamorous types here.

We're not going to spend your money on fancy stuff.

And then NASDAQ's even kicking in a little bit to make this happen.

But we are -- I got an eye roll there.

But -- they are.

But it is going to be informative about this company's growth strategy over the -- both the near term and the long term.

And it's appointment -- it's not appointment television, it's appointment Investor Day, so we hope you will join us in June here in New York.

Thanks, everybody.

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

This does conclude your program, and you may all disconnect.

Everyone, have a great day.