Healthequity Inc (HQY) 2021 Q1 法說會逐字稿

Welcome to HealthEquity's First Quarter of Fiscal 2021 Earnings Call. Please note that this event is being recorded. Go ahead, Mr. Putnam.

Thank you, Joelle, and good afternoon, and welcome to HealthEquity's First Quarter Fiscal Year 2021 Earnings Conference Call. Joining me today is Jon Kessler, President and CEO; Dr. Steve Neeleman, our Vice Chair and Founder; Darcy Mott, the company's Executive Vice President and CFO; and Ted Bloomberg, our Chief Operating Officer. Before I turn the call over to Jon, I have 3 important reminders to provide: First, a copy of today's press release is posted earlier this afternoon on our Investor Relations website, which is ir.healthequity.com. Second, our comments and responses to your question today reflect management's view as of today, June 2, 2020, and will include forward-looking statements as defined by the SEC, which include predictions, expectations, estimates or other information that might be considered forward-looking. There are many important factors relating to our business, which could affect the forward-looking statements made today. These forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from statements made here today. As a result, we caution you against placing undue reliance on these forward-looking statements. We also encourage you to review the discussion of these factors and other risks that may affect our future results or the market price of our stock detailed in our latest annual report on Form 10-K as well as subsequent recurrent reports filed with the SEC. We assume no obligation to revise or update these forward-looking statements in light of new information or future events. And third, during this call, we will reference certain non-GAAP financial measures that are defined in our press release. There you will find additional disclosures regarding these non-GAAP measures including reconciliation of these measures with comparable GAAP measures.

Thank you for your patience. I'll now turn the call over to Mr. Jon Kessler, our CEO.

Thank you, Richard. Hello, everyone, for joining us, and -- hello, everyone, and thank you for joining us. During the quarter and in the weeks since our hearts have been filled with prayers for those who are dealing with personal loss and gratitude for those who are fighting the pandemic on the front lines, but also with determination to help drive the recovery. And we think the pandemic short-term disruption and its hit to financial performance have actually strengthened our culture, and they've certainly accelerated our synergy attainment. And we believe this moment has permanently accelerated market trends that were already in evidence before the pandemic that favor those like HealthEquity with operating scale, with product depth, with proprietary technology and with solid cultural foundations. On the call, I will discuss fiscal Q1 performance against key metrics and strategic implications of the COVID-19 pandemic and its economic fallout. Ted will describe our operational response to the pandemic, and Darcy will detail fiscal Q1 and expected operating performance. Steve will join us for market and regulatory color during Q&A. No doubt, the pandemic and its economic fallout will hit our results in the near term. They already have.

Fiscal Q1 revenue of $190 million and adjusted EBITDA of $63 million, while up 118% and 62% year-over-year, respectively, were impacted by our members' inability to use commuter benefits or spend on health care during extended lockdown in the second half of Q1 as well as by lower interest yields, as anticipated on our Q4 earnings call. An adjusted EBITDA margin of 33%, despite these conditions, though, speaks to the profit potential in our business. And sales showed resilience as HealthEquity opened 104,000 new HSAs, grew total HSAs to 5.4 million. Similarly, HSA assets held steady at $11.5 billion despite steep market declines, and HSA cash grew by $40 million as members continued to contribute. Total accounts, which include CDBs, fell from 12.8 million to 12.7 million with new CDBs and new HSAs, offset by runoff of CY '19 accounts on the CDB side as anticipated in our Q4 earnings call. Custodial revenue performed as we previously anticipated, and the team has kept depository partnerships healthy, adding more than $2 billion in capacity in just the last 6 months. That's a long way of saying we anticipated and hope to give you a hell of a quarter when it started. But the pandemic's impact on our financial performance will fade, and it will fade likely with the economy's gradual reopening. More importantly, we believe that the accelerated opportunity is permanent. So we are, likewise, accelerating achievement of our operating synergies from the WageWorks integration, we're accelerating migration from legacy platforms, and we're accelerating deployment of our total solution for connecting health and wealth to employers and consumers, who now more than ever are searching for win wins.

So I'd like to have Ted detail what the team delivered on this course in Q1. Ted?

Thanks, Jon. As Jon said, our response to the pandemic is to go faster. So I'd like to tell you what that meant in Q1. The team reached $40 million and achieved net synergies in Q1, and we anticipate achieving our $50 million net synergy target by the end of this year's Q2, 6 quarters faster than initially promised and before fully achieving the benefits that will come from platform consolidation. Going forward, we will report these incremental benefits not as standalone synergies, but as cost reduction and margin improvement in the ordinary course. The team finished its fourth legacy platform migration and is on track to deliver 6 to 8 more this year. As of today, more than half of HSAs and HSA assets have been migrated. Retention during these migrations has more than met expectations. A testament to the hard work of our service delivery and relationship management teams. Our sales team has built a strong FY '21 sales pipeline despite COVID-19. HSA bundled RFPs are up meaningfully year-over-year, over 1/3 of our large managed clients are in cross-sell discussions and we have launched new network partnerships across health plans, retirement providers and benefits administrators. We have made good on our promise to bring remarkable Purple service to everything we do. In Q1, member call satisfaction scores on legacy WageWorks platforms increased 10 percentage points, driven by a strong performance from our frontline team members, and onshoring calls, a process we will complete this month. The team accomplished all of this while 97% of us were transitioned to remote status. An effort so effective that we believe HealthEquity could maintain a successful remote work posture indefinitely if needed. In fact, we recently announced internally that 3 of our smaller offices will not reopen post pandemic.

And finally, with all of that, we applied Purple spirit and innovation to immediately aid recovery for our members in a few ways: First, we are excited to formally launch our health savings score program. This is a proprietary algorithm that helps companies and individuals think about their retirement readiness and that of their employees from a health perspective. We are especially happy that the score isn't just a number, it comes with actionable recommendations to improve results. Our pilot clients loved both the score and the recommendations, and we are excited to roll it out more broadly. Second, as many of you know, U.S. payrolls fell by 21.9 million workers in April with many additional new jobless claims in May. The newly unemployed are just now beginning to tackle the challenge of staying covered. As one of the largest managers of COBRA and other health benefit continuation programs, if not the largest, we see the present situation as an opportunity for Purple leadership. COBRA eligibility confirms multiple options to stay covered, options few consumers fully understand. So in addition to 24/7 live support for our members and with a little help from our friends at the Dave Ramsey show, we've launched healthequity.com/staycovered, a public resource for consumers to learn about their employer sponsored, government and commercial coverage options. I encourage all of you to check that out. The team did ride by commuter members as well, working with hundreds of transit and parking providers nationwide to facilitate refunds for monthly passes not needed and launching what we believe to be the only comprehensive online resource for commuter pass refunds.

Finally, when the IRS authorized disaster relief accounts, within days, our team had a solution ready for our clients and partners. These are things only an organization like HealthEquity, with scale, depth, platform ownership and a strong culture, can do. And we are proud to be helping our members, clients, partners and the public in these ways.

I will now turn the call over to Darcy to review the financials and outlook.

Thank you, Ted. I will review our first quarter GAAP and non-GAAP financial results. A reconciliation of the GAAP measures to non-GAAP measures is found in today's press release. Our fiscal first quarter financial results, as you know, include the operations of WageWorks, which was acquired in Q3 last year. First quarter revenue grew overall and organically in each of our 3 categories. Service revenue grew to $111.3 million, representing 59% of total revenue in the quarter and 315% year-over-year growth. The increase is primarily attributable to 173% growth in average total accounts from acquisitions, including WageWorks and new sales. Custodial revenue grew to $46.9 million in the first quarter, representing 25% of revenue in the quarter and 12% year-over-year growth. The increase is primarily attributable to 30% growth in both HSA cash with yield and in HSA investments with yield year-over-year, partially offset by a lower annualized interest rate yield of 2.12% on HSA cash with yield. Previously, we have provided yield data on legacy HealthEquity HSA cash only. As Ted mentioned, we have now migrated over half of the legacy WageWorks HSA assets to the HealthEquity classic platform. Accordingly, we have adjusted our disclosures to separate HSA cash and investments with yield from those without yield. We will continue this separate disclosure until we have migrated the nonyielding HSA assets to become yielding assets. The HSA cash yield of 2.12% for the quarter is a blended rate for all HSA cash with yield during the quarter. The HSA assets table in today's press release provides additional details.

Interchange revenue grew to $31.8 million, representing 17% of total revenue in the quarter and 74% year-over-year growth. The increase is primarily attributable to growth in average total accounts and a negotiated more favorable interchange share, offset, as Jon mentioned, by significant falloff in spend across our platforms in the second half of the quarter. Gross profit nearly doubled, reaching $108.1 million compared to $57.8 million in the first quarter of last year. Gross margin was 57% in the quarter, versus 57% for the fourth quarter and 66% for the first quarter of last year. Beyond the change in revenue mix resulting from the WageWorks acquisition, gross margin was impacted in Q1 by the decline in custodial cash yield, loss of high-margin interchange revenue and COVID-19 related expenses associated with the transition of the team to remote work and other activities, Ted mentioned. Operating expenses were $93 million or 49% of revenue, including amortization of acquired intangible assets and merger integration expenses, which together represented 17% of revenue. Income from operations was $8.1 million. We had net income for the first quarter of $1.8 million or $0.03 per share on a GAAP EPS basis. Our non-GAAP net income was $30.8 million for the quarter compared to $27.4 million a year ago, a 12% increase. Non-GAAP net income per share was $0.43 per share compared to 43% -- $0.43 per share last year. Adjusted EBITDA for the quarter increased 62% to $63 million, and as Jon mentioned, adjusted EBITDA margin was 33%. On the balance sheet, as of April 30, 2020, we had $171 million of cash and cash equivalents, with $1.2 billion of debt -- of Term A debt outstanding and no outstanding amounts drawn against our line of credit.

Turning to guidance. As you know, the highly recurring nature of our business typically provides a high degree of visibility to future operating performance. Due to the pandemic, we are providing guidance for our second fiscal quarter ending July 31, 2020, as we expect that our second quarter results will be more fully impacted by COVID-19 than was our first quarter. With prospects beyond the second quarter currently unclear and with significant uncertainty regarding the pace of reopening and economic recovery, we are withdrawing prior guidance for full fiscal year 2021. Specific variables that will impact our performance through the remainder of fiscal 2021 include, but are not limited to, members access to and spending on health care as shelter-in-place restrictions ease and their use of transit, parking and other commuter benefits as workplaces partially or fully reopen. The pace of recovery in employment will impact the number of our average total accounts and conversely perhaps uptake in COBRA and other benefit continuation products among current or new COBRA eligible members. Across these and other variables, there exists a wide range of plausible outcomes for the remainder of fiscal year 2021.

Importantly, our guidance for our second quarter ending July 31, 2020, assumes that the conditions observed in April across these and other variables continue through the quarter, i.e., neither significant recovery nor significant further declines. Under these assumptions, we expect HealthEquity will generate revenue for Q2 fiscal 2021 in a range between $168 million and $173 million. We expect our non-GAAP net income to be between $17 million and $22 million, resulting in non-GAAP diluted net income per share between $0.23 and $0.30 per share. We expect HealthEquity's adjusted EBITDA to be between $42 million and $48 million for Q2 fiscal 2021. Today's guidance includes the effect of Q2 of having achieved approximately $40 million in annualized run rate net synergies achieved as of the end of the first quarter. As Ted discussed, as well as achieving our goal of $50 million in total run rate synergies by the end of Q2. Realization of synergies are expected to be additive to both the top and bottom lines in fiscal year 2021 and beyond. We expect a yield of approximately 2.10% on HSA cash with yield during Q2. Our non-GAAP diluted net income per share estimate is based on an estimated diluted weighted average shares outstanding of approximately 73 million shares for the quarter. The outlook for Q2 fiscal 2021 assumes a projected statutory income tax rate of approximately 25%. Our guidance includes a detailed reconciliation of GAAP to the non-GAAP metrics provided in the earnings release and a definition of all such items is included at the end of the earnings release. In addition, while the amortization of acquired intangible assets is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is not excluded.

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

Thanks, Darcy. This is normally where I have some specific thank yous. In this quarter, there are just too many people to thank for the extraordinary way and remarkable way in which our teammates have taken care of and supported each other during COVID, and more recently, the thoughtful way in which they have begun to process the killing of George Floyd and the other recent events involving racism in the country. I think the best thing that we, as leaders, can do to honor the sacrifices of our team members and the fact that they're able to stay focused during these events, and the best way we can honor the trust that you as shareholders place in us is to stay at work. And to attain our synergies as fast as we can to permanently accelerate or to take advantage of the permanent acceleration that we see in market trends that really we are very well positioned to capture and to further our mission of connecting health and wealth. And to do all of that in a way that leaves us with a stronger culture than coming into this particular crisis, and that's what we're going to try and do.

So with that, I will stop and welcome your questions.

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

Given that you're not providing full year guidance, but can you help us with how we should be thinking about what the COVID impact is on maybe each of the different business segments to kind of build that up, just particularly in 2Q, just given it's a little bit below what we were expecting?

Sure. I'll start and then ask Darcy to extrapolate a little bit. Maybe extrapolate isn't the right word. But the way to think about it is that the impact that COVID has had -- that COVID has in Q2 -- I think what your question was to sort of divide that into the various components of our business.

Yes, that will be fair. Yes.

The biggest impact is, a way to think about it in Q1 was on spend. And the access that individuals didn't have to health care spending, particularly in the month of April. And the fact that -- and this is where impact goes over to fees, that people's use of commuter, which, as we all know, we're not commuting right now. And that was on top of what we had originally expected, which was obviously the impact to rates that we saw. So those are really the biggest impacts in Q1 that kind of start us off with Q2. And then Darcy, why don't you speak to how you thought about that as we forecasted you to?

Yes. So the spend has been the most notable item. And even if you look at the Q1 results and then pass forward that to Q2, the spend was -- we really started to see the impact of it in mid-March and which would kind of -- that's basically when the country went on shutdown. And so that impacted Q1 and so what we've done for purposes of Q2 as we kind of took that spend rate that we anticipate, that we saw in April, which is a full month of basically shutdown and we played that out for May, June, July. We acknowledge that, that's probably a conservative way to look at it, but we like to be conservative and to see how fast this comes out. We are tracking spend daily, and Tyson and his team are watching this very closely. And so that's the approach we took with respect to interchange. If you think about the components of interchange, though, spend associated with health care in HSAs or FSAs or HRAs and then in commuter. In the HSA world, we always encourage people to spend less and save more. And so when they don't spend money out of their HSAs, that means the money is still in their accounts and they're still earning interest on it, and we're still earning interest on it. And so that doesn't concern us really from a long-term perspective. We always encourage people to do that, but to spend it when they need to. On the FSA and the HRA front, all of those dollars are generally characterized as use it or lose it. And I know there's been some delays or extensions of time allowed for spending. But the basic premise is that because the money has already been set aside in some fashion, that eventually that spend will come back. When exactly it will come back, we're not exactly sure, but we do believe that, that spend will come back.

On the commuter portion, which is a relatively smaller portion of the total interchange that we derive. But when that spend doesn't happen in April, it's not going to happen. As people come out and start opening up cities, and primarily large metropolitan areas where mass transit starts operating more, then we expect that, that will come back, but we don't anticipate that the lost revenue will be recouped. So that's kind of how we look at it. There's some service revenue, obviously, associated with some of those things, particularly like in commuter and so on and so forth that are impacted. And the impact of unemployment on our service revenue hasn't really started manifesting itself too much to date. We'll see how things go, but it will probably -- there's been some talk about, well, you'll get more COBRA, and maybe that will offset loss in service revenue for those that were unemployed. We don't know how those will exactly align, but we've been fairly conservative. We kind of took a look at what we got out of April, and then we kind of played that forward. So I don't know if that gives you enough color for kind of how we went about giving our guidance for our Q2. But as we always are, we try to take a fairly conservative approach and deliver what we say we're going to do.

Our next question comes from George Hill with Deutsche Bank.

I guess, maybe 2 things. Jon, on the guide, I appreciate that you guys are extrapolating what you saw from April out through the balance of the quarter. Is there any change you'd be willing to comment on May? And my other question, as we think about kind of deposits and assets that you guys retain, I guess, can you talk about what is the difference in the balance between the kind of the market impact of the investments versus with beneficiaries who were either have a job risk or might be losing their jobs. The short question is, are you basically seeing people rate their HSAs as an immediate source of funding to buy health care products? Or do you feel like you're generally seeing account balances remain stable? And maybe kind of any granularity that you have there would be great.

You got it. I will comment a little bit on May, recognizing if you sort of think about what Darcy said a moment ago, the primary impact issues we are concerned about on the negative side are really around commuter as a whole plus health care in terms of spend. And if I look at May, relative to April, and I think this is consistent with other sources that are out there. On the health care spend side, we're marginally up from April, but it's marginal. As someone asked me yesterday, when was -- how many times has any member of your family been to a doctor this month? And the answer is, none. So we're marginally up from April, especially in the areas you might expect pharmacy and the like. But it's -- so perhaps April is the low there, but we want to be thoughtful and careful. With regard to commuter, we're in exactly the same place as we really were in April, which is nobody's commuting. And commuter is about $7.5 million of monthly revenue for us. Some of that revenue, a modest portion is still coming in for reasons that we could talk about, if anyone is really interested. But the bigger picture is that, that one is going to be out of commission until things start to reopen, both -- and I would remind everyone, it's not just transit, it's also people who drive to work and pay for parking, people who are in rideshare type arrangements, that kind of thing, but transit obviously does play a big role. The second question -- let me say one other thing about May, which is about COBRA. We are between mid-April and into mid-May, and we'll talk about this more if someone wants to ask. We did begin to see the effects of the uptick in the unemployed population. Qualified events between mid-April and mid-May were up about, depending on the week, between 10% and 30% on a year-over-year basis. And call volume kind of followed that. And then in addition, we saw a modest uptick in the percent of those who are making COBRA elections, and that sort of makes sense since in a normal year, most qualified events are people who are moving to another job or the like. And in this case, that's not true. As unemployment has stabilized a little bit in recent weeks, our activity there is off its peaks, and it's a little early, but those are things that we saw in May.

As to the second part of your question, which was essentially, I appreciate the way you put it, which is our people rating their HSAs. The short answer is, no. That is to say a couple of points. First of all, let me start with the employer side of things. If I look at the first quarter contributions from employers, we're essentially flat year-over-year, meaning that employers have not taken their contributions off the table. We didn't see that in April either. And with respect to member behavior, member contribution levels remain strong. And of course, spending out of the accounts has actually declined for some of the reasons we talked about a minute ago, with regard to access to health care. So my sense is that people are keeping a level head with regard to their HSAs. We actually added -- grew the number of -- I'm sorry, the number of our members who invest by about 38%. And obviously, that was much faster than account growth. So that seems like a good thing from a long-term perspective and a good sign that members are kind of keeping their heads as the market goes up and down and trying to do the right thing for the long term.

Our next question comes from Alex Paris with Barrington Research.

This is Chris sitting in for Alex. So first off, I don't want to be the bearer of news, but assuming in an environment where COVID makes a comeback to some extent, similar to what we've seen with the flu later this year, and has some impact on Q4, the primary selling season. Can you talk about just the things that are in place, given what you've experienced with your current workforce? And how the company would be able to flex and sustain profitability? I don't want it to happen, but I'm -- in a certain scenario like that, how the company would be prepared?

Thank you. It's -- this is a risk management environment. So it's better to be the bearer of hypothetical bad news and have us plan for it. We have a crisis management team that has been in operation since the middle of February that did just tremendous work in teeing up the call for us to go to work-from-home early in March, early enough that we probably -- we certainly saved infections and perhaps saved lives. And that group has switched over to beginning to think through or thinking through return to the office. But to some extent, for the reasons you suggest, we intend to be -- we don't use this phrase often, slow followers, as Steve put it in an e-mail on return to work. We are not -- not that we have any special knowledge, but we are not confident about what the near-term holds for us in terms of not only the ability from a regulatory or whatever perspective of people to stay at the office, but also the ability for that to be a productive environment. And the team has been incredibly productive work from home, and so we feel like our best risk mitigation strategy is to maintain that posture. And that's generally what we intend to do certainly until further notice. We do intend to be ready to pull the trigger and return to the office on a phased basis, but we will do that when we feel like the answer -- we have the answers to questions such as the one you raised.

With regard to selling, while it's absolutely true that this is a sales cycle that is unique. I think it's worth emphasizing some of the data that Ted offered. And if you kind of think about it, what he said is 1/3 of our enterprise clients are in cross-sell discussions. The absolute number of RFPs we have is holding its own year-over-year, which is remarkable. But even better from our perspective, more of those RFPs are bundled, which means we're selling more services. And in fact, 3/4 now of our HSA RFPs include at least 1 of our CDBs. And that's up from numbers we presented previously, both in history pre-transaction and in the early part of the transaction. And you know what, we don't like to talk about win rates at this stage of the year. Where we can actually see them is in our RFP business or our middle-sized employer business, and our win rates are very good rates. We are really confident that we are taking away business from competitors. And that the combination of breadth and of stability that we can now offer our clients is, what they have wanted is, out there and is resonating in the market. So a lot of that sales work for the full fiscal year will be done before next September. But for example, one other -- and I'll add one other item, the thing that we do get concerned about during that period is, how are we educating new potential members? And how are we educating existing members during the open enrollment period? And to that end, we have also launched and begun communicating to all of our clients about a fully online education effort. And though it is online, a lot of it involves real people with real abilities to have back and forth conversation. And I think we're going to have certainly the most unique, but the best open enrollment cycle we've ever had in terms of the ability of our members current and members would be to access the educational resources we have, whether those are materials or tools or people who are there 24/7 to help them during open enrollment. So I feel like without wanting to minimize the difficulties that a resurgence will create for our entire economy that at least at HealthEquity, we will be prepared to deliver Purple to our members, to our clients, to our partners during the fall.

Our next question comes from Robert Jones with Goldman Sachs.

I guess just one clarification around COBRA. It wasn't clear to me what exactly is contemplated? I know you're taking recent trends and, obviously, trying to extrapolate them into at least 2Q. So I just wanted to make sure I understood how much contribution, if any, is contemplated from COBRA in 2Q? And then I guess just taking a step back, Jon, you shared some high-level statistics about what you're seeing from your customer base as far as unemployment in recent months or recent weeks, one of the things that makes this obvious macro situation different from prior ones is folks holding on to benefits. So I'm just curious if you'd be willing to share within the clients that have had layoffs any perspective as far as those holding on to benefits, kind of furloughed situation versus those that have been more severed permanently from those organizations?

Yes, why don't I -- I'll take the second part of your discussion and then ask Darcy to comment on the -- why don't we go in order, you say. Darcy, would you be willing to comment on the question that was essentially, I'm going to rephrase it as, what are you assuming about COBRA for Q2? And then I'll comment on the broader question about the effect of unemployment and potential use of direct billing and the like.

Sure. I think, consistent with our past practices, until we see it, we don't count it. And so notwithstanding the fact that people have put out there the possibility that maybe our COBRA revenue will get a spike or start rising, we have not built that into our Q2 guidance. We're watching it carefully to see what qualifying events happen and what kind of uptake we get, but until we start seeing the fruits of that with respect to revenue, we have not included that in the guidance.

So returning to your broader question. We actually, during this period, we're able to get out a survey across our entire client base. No more perfect than any survey is, but nonetheless, with some really interesting results. 59% of our clients are not or have not and are not planning layoffs. Another 49% of our clients are -- either have implemented or are planning to implement either layoffs or furloughs of 25% or less of their workforce. And I say that hesitantly since 25% is a huge number. But nonetheless, importantly, we feel like our workforce -- our client base is not -- nobody is insulated from the level of unemployment we're seeing. But we seem to be in a better spot than some, let's say. Beyond that, though, relative to your question about COBRA direct billing, our clients, 62% say that they plan on continuing coverage for a period of time for those that do end up getting laid off. And a 93% expect to rehire, most, if not all of those who are impacted. And what that means is that people are thinking about how to continue benefits during this period. Not just because it's a kind thing to do, but actually because it can make a ton of sense versus the alternatives if that person is going to end up back on your workforce anyway. Today, direct billing is -- direct billing is a product that we have for that. It's somewhere between 5% and 7% of our COBRA business today. So the way to just think about it as a sort of subset of what we call COBRA really benefits continuation. Historically, direct billing has been for retirees, where the company will provide some amount of health coverage in retirement for a period of time or as they leave the firm. And we'll continue to offer them health benefits. But obviously, in this setting, we think there is the possibility that this will grow with regard to those, who are in temporary furlough situations. And obviously, we see more and people are -- more employers are interested in keeping people on benefits because they expect to rehire them. So we do think there's some potential for growth there. It's -- and obviously, our pipeline in both COBRA broadly and retiree billing, in particular, is quite healthy, very healthy. But we want to see it. And so that's something maybe to think about a little more as we get into the latter half of the year.

Our next question comes from Donald Hooker with KeyBanc.

This might be a tough question to answer, but would love to hear your perspective in terms of as you think about the competitive environment for your services. Everyone's feeling pain. I think last quarter, we talked a little bit about how at WageWorks, your exposure to interest on custodial cash is maybe a little bit less than some of your competitors, which could be obviously a relative positive for HealthEquity. Can you talk about what you think you might be seeing across other similar service providers to employers? And how they're sort of faring as well and competitively?

Yes. I mean a couple of thoughts, Don. Thank you for the question. I'm going to answer and then since I know Steve has had an opportunity to talk to some of our competitors in the last few weeks, I'm going to ask him to maybe offer some color. First of all, as you referenced, I think the key fact for people to be aware of is that by virtue of the business model that we have evolved to and are continuing to evolve, there are competitors that are far more exposed to the current environment than we are. The average HSA provider generates about -- or the average HSA generates about 50-odd percent of its margin from -- well actually, 55% of it was revenue from net interest income. And as you know, from the current quarter we just reported, we generated about 25% of total revenue from gross interest and of that about 23% or so was from the cash side. So we feel like we have an opportunity to kind of come out of this ahead. And more broadly, as you know, generally, when downturns happen, people take a look at their businesses and look at opportunities where they really want to deploy scarce capital and where they don't, and so markets consolidate. And Don, we're spending a lot of time thinking about how to -- one of the reasons that -- and one of the reasons that we are kind of keeping the gas on integration and those kinds of activities is that we think there are going to be consolidation opportunities. We're certainly thinking about how to handle those, given our capital structure. But we're not going to rush into anything because sometimes it's good to wait until you see the tide roll all the way out as it were. But we are -- we do think there are going to be those opportunities, and we're going to be a winner in that environment. And the experience that we've gone through in bringing WageWorks onto the platform. And then our prior experience with consolidated M&A, I think, is really helpful in this regard. So and I have to say, I have to thank Ted for a lot of that. He's done a great job in the last year on Wage since -- before we completed the transaction. Steve, do you want to offer any color as you've talked to different competitors, in particular, the banks and others, how they're thinking about this?

Sure, sure. Don, thanks for the question. And I certainly concur with everything, Jon said. I would just add that, as you know, there's this broad spectrum of competitors that we deal with. We have banks, over 2,000 of them. That are largely kind of single product shops. I mean most of the banks will accumulate some HSAs through their business relationships and some of the direct consumer relationships, and they don't tend to offer a lot of other products. I think HealthEquity started offering a broader suite of products about 12 to 13 years ago. Obviously, when Jon joined us, oh, man coming up on what Jon, 11 years, a little over 11 years now. He obviously brought the expertise that he had with these consumer-directed benefits, and then that helped us accelerate and that had been kind of the capstone of that whole accelerations. And with the acquisition of Wage, it's put us in the competitive position we are in. So I think that now this being a second major downturn since we started the company, obviously, the bear recession we saw this same story. And then as people started pulling out of that, I think, the dynamics change a little bit. And so I think it's a similar dynamic.

We -- I think the banks, who we talk to in different industry groups and things like that on a regular basis are now, as they're starting to see revenue drop a little bit when it comes to interest rates and things like that, I think they're more open to the discussions that companies like HealthEquity that have expanded to offer more benefits, the CDBs, as we call them. I think realizing that their margins are going to squeeze a little bit on the HSA side of things on the revenue, but they have some other plays there. But look, we're in constant discussions with these folks. We think that where we're positioned now being at scale on the HSAs and the CDBs, it allows us to really shine. And we've got the team put together well. I mean, I just was on ourselves huddle today, and I'm so impressed with not only what our salespeople are doing, but what the whole sales operations team is doing to help dial-up the qualified leads and then, of course, our fantastic Purple service in the back end, which is always our best-selling point as a service we've always provided and not just for HSAs. We do it for basically every product now that a consumer could choose. And so I think we're well positioned. I do know that in coming out of the '08 time period, it opened the door for some more account acquisitions just because when you're a single source provider of HSAs only, the time is going to get pretty lean for a while. So...

Our next question comes from Jamie Stockton with Wells Fargo.

Maybe just one quick one. The non-HSA accounts, which are primarily from Wage. Seems like churn was kind of high last quarter, maybe again this quarter in those accounts. Can you just talk about what your expectations are as we move through the rest of this year? I realize that the environment is making that calculus a little more complicated, but just any color there would be great.

Yes, Jamie, thanks. So we ended the quarter with about 100,000 net CDBs, fewer than we had at the end of Q4. And as I think we said in the remarks, but if we didn't, I'll say it now. That was -- that consisted of a runoff of about 200,000 accounts, give or take, that -- we talked about this at some length on the Q4 call, you'll recall that we had hoped that we could somehow like break those runoff accounts out and have just not report them ever in the first place, and we just couldn't do it. So in any event, these are not accounts that left us, they are actually accounts that -- the way to think about it is it's the 2019 calendar plan year ending with grace period and the like. And we'll actually have a few more of those this quarter because for some employers, the grace period is a little longer, but also because the government has given employer the option to extend it. And while I think most employers will not do that, some will in any event, and we'll earn some revenue from that potentially. But in any event, extent of that factor, which we'll have to get used to, but it will occur every year in the fourth versus first quarter of a little bit of inclusive of those runoff accounts and so forth. If I take that out of the picture, the non-HSA accounts business was up a bit on a sequential basis. And certainly relative to where we were concerned about when we first closed the acquisition is doing pretty well. As I referenced in my comments, I think we are going to have tremendous and, I mean, it's a funny word to use, but we're going to have a lot of takeaway opportunities in that space.

I don't think people are -- for the most part, our competitors are not prepared to execute at scale. They're not prepared to do the kind of things we're doing, whether it's COBRA and some of the efforts that Ted talked about. I don't think our competitors are prepared to say, members of the public, we know there's 20 million of you out there that are currently, were employed yesterday that aren't employed today, there are more claims than that. But nonetheless, in terms of actual payrolls, we can be of some help. I don't think that our competitors are prepared at scale to do the kind of things that we are doing on the card side that while spend may have been down during the quarter, folks will note that interchange, actually on a sequential basis, was not. And maybe we can talk about that. And I don't think that folks are going to be able to do what we are doing on the education side that helps us deliver really high -- and service side that helps us deliver that Purple service. So I think we're going to have a lot of takeaway opportunity in those markets over the course of the next few years, and I'm actually pretty excited about it.

Our next question comes from Greg Peters with Raymond James.

Team Purple, first question is on capital structure. Can you guys give us an update on your debt leverage, especially in the context of the revised adjusted EBITDA guidance that we could annualize out for the next couple of quarters?

Yes. I will start this one and then turn over to Darcy. Did I forget to turn it over to Darcy last time, I might have?

No.

Well, go ahead. Go ahead, Darcy.

Well, no. So yes, Greg, we obviously watch this very carefully. In fact, we report this quarterly and had just completed the review of our just completed quarter. Over the next several quarters, we get the benefit of the synergies. And as we talked about, we've derived and will continue to drive synergy benefit going forward. Our cash flows, even just for this quarter, if you look at it, we were down $20 million in cash, but a big portion of that was actually the payout of the FY '20 bonuses that impacted cash in this quarter, that is not a cash drain next -- in ensuing quarters in the next periods. Additionally, if you think about it, we've devoted a fair amount of cash resources to the integration and merger integration activities that will dissipate as we get through the end of this year. Our cash flow from operations for the first quarter was about $15 million. And it would have been more absent the payout. We feel pretty comfortable with our debt covenants and achievement of our debt covenants and the flexibility we have, both with respect to CapEx expense. At the same time, knowing that we have some onetime things that will disappear going forward that will help not only our cash position, but will enhance our EBITDA as we get through some of these conversions.

Well, Greg, I would just say, and to add to that, while I'm always worried about any debt I owe to anyone personally or otherwise. Managing to -- managing within the existing capital structure to meet our debt obligations and so forth is even in any really plausible scenario with regard to the rest of the year and so forth, I feel fine about. What I'm, I think, more focused on and what I want the Board to focus on as well is that we are a growth company. And when we took on this debt as part of the WageWorks transaction, it was with the expectation of fairly rapid deleveraging. We're dealing with COVID now. As I said, I suspect that one way or the other, the impacts of COVID on interchange and the like will fade. Less sanguine that the impacts on interest rates will fade very quickly for reasons you and I commiserate on occasion. And so, I want to think about that. And what I don't want to happen is for the fact that we will be managing to our existing debt and so forth to deter us from being aggressive on our investing, whether it's in innovation, whether it's in sales or whether it's in consolidative M&A. And I'm not going to be terribly hesitant to encourage us to make changes to capital structure, whatever the change may be that allow us to do that. Right now, we benefit from the fact that we borrowed money in a very conventional structure at very low rates, and we're going to hold on to that with dear life and certainly and so forth. But if -- but we're going to do what we can to both continue delevering and also to be aggressive. And we'll see what that means as time goes on. But what we're not going to sacrifice is the idea of growing and the idea of being aggressive about what I really believe is an opportunity that this thing has presented to us given the acceleration of trends that were already out there in the market. There's not a part like -- where's like 4 or 5 parts?

I have 5 parts, but I'm not allowed to ask them.

All right. Okay. Let's go to the next one. We'll come back. Stay if you want, we'll come back.

Our next question comes from Vikram Kesavabhotla with Guggenheim Securities.

I appreciate all the color you've given so far on the impact to the business. But I'm just curious, if we go back to the prior fiscal year guidance range, it seemed like some of the macro trends have been taken into consideration at the time and some of the assumptions that were embedded within that. And so I'm just curious if you can talk about what the biggest surprises have been relative to those initial assumptions based on how the market and consumer behavior has evolved here in the last few months. Any color there would be helpful as we try to put the forward commentary into context?

Absolutely, Vik. When we guided, at the outset, we made clear that we were adjusting our guidance to reflect -- or reflecting in our guidance about $30 million less revenue from interest from custodial than we would otherwise achieve. In other words, what we knew at the time was that rates were not good and that we sort of wanted to put that in the box and said, all right, here's the effect of that and brought it to you. We said at the time that we thought that other than that, that while there might be, and it's sort of funny to think about it now, I don't know, 3 months plus later, but -- and speaking to you from my living room floor that at the time, I think we were with the general consensus that there might be some period of disruption in commuting and the like, but that it would be relatively short. So -- and certainly, we were not thinking about people not having long-term access to the health care system and, therefore, just the ability, the practical ability to spend funds. And so I think the biggest thing that has taken us by surprise is what feels like much longer-term impairment of revenue from commuter. I'm sure Darcy and Tyson would never want me to use the word, impairment. But I use it in its colloquial sense for our accounting friends. But that's somewhat longer term, and longer term, maybe 3 months; longer term, maybe 6 months, I don't really know, but certainly longer than a few weeks, issues on the commuter side and then on the health care spend side. Where that one -- I wish we had perfect visibility to it.

There are a lot of good reasons to believe that, that number will come back, not the least of which is the fact that people -- on the FSA side, there are use or lose type things. And though there are some options around that, most employers will, I think, be reticent to use those options. So that spend, I think, will, at the very least, is likely to come back to its current -- its prior levels, and we may actually see some makeup of the spend. I just don't know when. And we wanted to call it as we see it, and that's what we're doing here. So that was really our thinking. I guess one other thing that has surprised me that's worth mentioning is the adaptability of our team and their ability even during a period where we have some extra money that we have to spend to keep everyone safe and functioning and so forth, their ability to generate synergies that we expected to get later to do so soon. And that's before we've even gotten to the sort of halfway point of migrating all these various legacy platforms. So that means more to come. So those are the things that have surprised us.

Our next question comes from Dave Demko with SVB Leerink.

Jon, thank you for those closing remarks that touch on everything going on right now. So the new HSA wins came in better than we expected and better than the recent ones you've trend. So how much of that was execution versus adding in new WageWorks channels or the cross-sales off?

I think the biggest issue is the cross sales. There were -- and then maybe I'll add one more, which I guess I could call WageWorks channels, but you decide. It's just so crystal clear that what we're offering here is what the market wanted. And therefore, I think there are folks who we just wouldn't have been in their wheelhouse, and now we are. And that sort of, a version of that, part 2 of the answer is, when you look at -- in particular, when you look at the relationships and that our folks have really done a great job with both the national and some of the regional advisory firms that work in benefits. That's something that kind of leveraged what WageWorks was doing in more of its direct selling activities. But I think as people really understand what we have to offer, both in terms of product depth, but also breadth. It's a pretty good thing, and we see that in the sentiment of those folks and so forth. So I think that's really what's accounting for that is -- and again, that's also why net of the '19 runoffs, why CDBs were also up, same reason in a quarter that would normally be pretty flat. So if you have all that going during COVID, that seems okay.

Is there anything you can give to help kind of quantify how much of the help it was given there are so many puts and takes right now in the quarter?

I don't think so. It's tough to do that on a quarterly basis. Normally when we see -- I mean, just -- maybe I can just -- maybe I'll -- I just said, I don't think so, and now I'm going to try to at least do something.

Appreciate it.

I mean we added 104,000 HSAs in the quarter -- we opened 104,000 HSAs. And that reflected, if you think about it, it was about 17% more than we opened the same period last year. And normally, I could look at that, and I could say where did those extra 15,000 HSAs come from, give or take. And they'll be like an employer that added a bunch of people or some funky thing. Obviously, there weren't a lot of employers adding a lot of people this quarter. And so it's the factors that really are about new sales that had a big impact during the quarter. So that's somewhat helpful to say, I really do think that we got some lift there. Now it will be up. It will be down. Certainly, every week seems to bring some new challenge. And the challenge that we're all dealing with this week that you referenced earlier is a big one, and one that people keep asking me what I'm supposed to say, and I have no freaking idea with to say or why anyone would think I should be -- should know what to say. We haven't figured it out.

Who would have thought that there was anything that could make us forget that we're in the middle of a global pandemic?

Yes. I mean, we haven't figured it out for 400 years. I'm not sure I'm going to; though, it won't stop me from at least trying. But in any event, I guess I would -- to bring it back to something a little more mundane, if you had ask me when we last spoke beginning of March, when we were just starting to see what COVID would do, if you had given me the opportunity to take the sales pipeline that we have and the sales results that we had in the quarter, I would do that in a heartbeat.

Good. Very helpful. Very helpful. Now the -- this is a little more out of the box question, so it might be Jon or maybe Steve. So I look at the current environment and the stock market is doing fine. But a lot of the privates out there aren't doing as well. Is there any chance you could see an uptick in HSA asset sales? And if there is an uptick in that, is that something you would even consider given you're digesting Wage right now?

The short answer is yes and yes. It's a little bit back to Greg's question. In that, I feel like, I mean -- let me say this, first of all, we know how to do HSA acquisition transactions. The work we're doing on Wage would not prevent us from doing that. It's -- Ted, God love him, he's probably not going to get to talk here at all. He and the team...

Too busy working.

Now that's a good point, he's multitasking. He and the team migrated what billion-dollar worth of accounts last week like it was nothing, maybe not quite $1 billion, but you get the idea. And that was like the fifth item on our agenda. They're just doing incredible. Now they've got a lot more work to do. But the HSA type consolidation transactions, I think, we would do all day. What we have to think about, though, is 2 things. First of all, our capital structure matters. And we don't want to live our lives anywhere near the edge, much less on it. And so we'll do what we need to do to prevent that. And then second, I think we also have to think about the fact that for a lot of these providers, and we talk to -- it's a small industry, we talk to each other. I don't know that the tide is all the way out in terms of people's digestion of what has occurred. How many people have you spoken to or others listening on this call, spoken to particularly in private equity, who say, "Well, my portfolio is fine, but... whatever is after that." If I could have a nickel for each one of those, so I think that -- all I can say is in the 2000 and 2008 period, if I look at it, it sort of took some time for the water to come all the way out. And so we're not jumping at anything just because it's there. But we are absolutely trying to prepare ourselves to be aggressive in that area as well as, frankly, to be aggressive organically if there are places we can deploy incremental capital with very -- with high confidence in the return. So that's a balanced walk, but the way we're walking that balance is to say if the capital structure needs to change to make that happen, we'll be -- we think we can deploy more of public shareholders' money at high return, we will.

Our next question comes from Mark Marcon with Baird.

Just wondering, can you talk a little bit about the competitive environment as it relates to adjusting pricing on a monthly fee basis relative to where interest rates are now. How does that unfold? I mean you obviously went through it last time. And then how do you balance that relative to some of the pressures that the clients are in and your long-term partnership perspective with them?

Okay. Ted, get ready. This is it.

My big moment, you go first.

Your big moment. So let's talk about how we'd rather save people money by selling them more stuff?

Okay. I can do that. I was going to answer the question in a couple of ways. That was going to be first, which is we are aggressively out in the marketplace, talking to brokers, talking to consultants, talking to clients and prospects, about a value proposition that is pretty simply, what Jon just said, the more you buy from us, the cheaper it will get on a per unit basis. And that's been resonating very powerfully, especially in an environment where people are looking at kind of a stronger need for cost savings than maybe they faced 6 or 12 months ago. So I think that, that's answer one. The second one is -- the second part of your question was, how are we handling clients that are kind of in distress? And I think 2 answers to that question. The first one is extreme vigilance. My team and Tyson's team partnered literally daily to be sure that we're checking out with clients that are maybe having cash flow issues or that are seeking relief, and thus far, the volume kind of hasn't really materialized. We've adjudicated those issues where they've come up, and we've tried to be as good and Purple partner as we can, but we haven't experienced a ton of need there. And then the second piece is where we think we can win proactively. We are reaching out to especially brokers and representatives of multiple employer organizations and empowering them to offer pricing concessions to their entire book of business in order to win that business and activate that partner. I was listening to Jon's answer about quantifying where we think our sales wins are coming from. And I would just add, although it's not a quantification, it's just another perhaps anecdote, but an important one is, legacy Wage had many relationships that legacy HealthEquity simply didn't have, right? And so reaching out to and reactivating those relationships, sometimes with a pricing story, other times with a service story or a breadth of offering story has been incredibly powerful. So we recognize -- we're not trying to kind of make up dollar-for-dollar fee revenue versus perhaps short-term lost interest revenue, but we are absolutely trying to use price as a weapon both to drive more volume and broader volume and also to empower our reseller partners to have a really compelling story for us in the marketplace. And we think, thus far, it's early returns, but we feel pretty positive about the results.

Really appreciate that. And then what do you think some of your competitors are doing that are basically entirely reliant on -- or to a much greater degree, reliant on interest income for their revenue stream? Are they going to adjust? Or -- and does that provide an additional opportunity?

Go ahead, Ted.

Yes, thanks. I think you're right. I think it actually provides -- we're looking at it as an opportunity because we do have competitors that are struggling, both because the revenue model is really significantly upended. And also, candidly, because their service model is upended. Huge kudos goes to our frontline service team, but also the infrastructure team, the security team and the operations team that backed them up to make sure that our phones worked every day. And we've had a pretty seamless transition from a service perspective that we think has won us some plaudits in the marketplace as well. Now having said that, we have competitors for whom perhaps the revenue of this particular business is less relevant, and so we're keeping an eye on those folks as well. And because -- so there are definitely opportunities for the stronger among us. We're not alone in being stronger.

Our next question comes from Allen Lutz with Bank of America.

Darcy, I thought I heard you say that service revenue wasn't maybe as impacted as maybe you thought it would be. I just -- I guess a clarification on that? And then for the 2Q guide, is the assumption that, that remains stable or that there's some level of deterioration? Obviously, there's a lot of uncertainty around employment trends, just trying to get a sense of what you're thinking there.

Yes. No, just to clarify. No, we believe the service revenue was impacted. Particularly, there's an element of the commuter service revenue that if they don't have the accounts, there's no service revenue associated with that. That was impacted. The part where we anticipated is in the runoff accounts, and so we know that there's a runoff element of service revenue that's impacted and just in general activity in the first quarter. So yes, if I came across it, I said that service revenue was not impacted, it was impacted. And that's also reflected in our Q2 guidance. What was the second part of your question?

No, that answered it. And then just a quick follow-up. Before May, before the 10% to 30% uptick in the KPIs for COBRA, what was that business run rating for revenue?

You know October business...go ahead, Jon.

Okay. So COBRA business, depending on the month and so forth, but running has historically run about $85 million on an annualized basis. There is some seasonality to it. But I want to be clear in saying the uptick that we've seen is in QEs, qualified events, right? A qualified event per se doesn't make us money. It gives us an opportunity to make money. But it also imposes costs. We have to serve. But the opportunities to make money are in seeing more qualified events and perhaps a higher uptake rate on COBRA itself turn into more premium collections and, therefore, more revenue. But then also, as I mentioned, on the pipeline side for existing clients who don't have COBRA and new clients on the whole, the opportunity to bring those on and, therefore, just sort of expand the pie. And so I think there are both opportunities there. But I just want to be clear, I don't -- it's not the case, Allen, that an increase in QE activity per se produces an increase in revenue. It just may presage it.

Our next question comes from Sandy Draper with SunTrust.

A lot to digest here. I'm going to try to simplify this and see if I've got it right. When I look at the sequential decline in April over January, it was a $10 million decline. If I just assume the $170 million is sort of the midpoint of your guidance, it's a $20 million decline. So obviously, on one hand, you can just look and say, well, that makes sense because you've got a -- you're assuming a full quarter of COVID impact versus last quarter where it was partial. But when I think about the moving parts, custodial revenue should be relatively stable. That actually performed a little bit better and as you pointed out, Jon, your interchange revenue actually was up sequentially, but it sounds like now you're expecting that to be down. And then I would assume another step down in service, so I'm just trying to think the $20 million decline, how to think about that of the first quarter when interchange revenue was stable. So I'm just trying to think about the puts and takes that -- I get the whole idea of the whole full quarter impact, but it just seems like it's going to be a little bit different in terms of that 3 segments, and I'm just trying to see why that's happening.

Yes. I'll start and if Darcy wants to chime in, sounds good. First of all, you've done your usual excellent job of taking a lot of information and distilling it to its essence. If I think about Q2 versus Q1 on a sequential basis, the primary impacts are really full quarter impacts on interchange and service fees. The reason that interchange -- we would expect interchange fees to decline Q2 over Q1 is that they always do. And if we looked at the 2 -- they did in legacy HealthEquity and certainly if I pro forma the 2 companies, though I understand Wage didn't report it this way. That would be true. And the reason it's true is because during Q1, you're dealing with new plan years. You're also dealing with grace period on the FSA side that get spending. And then also we have more HSA members, and we have more -- and obviously, more FSA members in this case, who are new. And then also the HSA members who get employer contributions, which is most of them, spend a little more. So Q1 is always a very good interchange quarter. It comes down in Q2, a little bit more in Q3 and then comes back around. At least historically, that was the case. And so that's a big part of it. The reason that, notwithstanding the fact that we saw the drop in spend that we talked about earlier, the reason that -- the other reason that Q1 interchange was higher, and this will be true in Q2 and for a long time to come, I'm pleased to say, is that as the quarter turned, we saw a change in the interchange yield for lack of better term, that we have negotiated with our card partners at Visa. We talked about this a little bit on the last call. The card networks, we invited all of them to take a look at our book in -- once the acquisition was done. And I think it's fair to say they like what they saw in terms of the growth potential of the book as well as the way we handle our businesses in terms of how we relate to the card networks and try and make things efficient for them. Came in with very aggressive proposals and very thoughtful proposals, and we ended up deciding to remain with Visa. And so you're starting to see in Q1, and will continue to see that while -- again, while short-term spend is impacted, this is a synergy we said we would realize. And in terms of -- or as we said we would achieve and in terms of actually achieving it, the job's done. Job is more than done. And so that will be a bit of a tailwind for us as spend returns. Darcy, do you want to add anything?

Yes. Yes. And just to even make that point even further, if you go back historically, Sandy, and look at interchange revenue on, even just on a HealthEquity stand-alone basis, there's a pretty good uplift from Q4 to Q1 almost every year. And the reason for that is, one, we've added a bunch of new accounts in the fourth quarter that are now spending in the first quarter. And there's a certain element of people whether it's in an HSA or an FSA, who will spend some of that money. Maybe their employer load their money into their account in January, and so then they have some things that they want to spend, maybe elective or whatever and they go spend it, if they planned on doing that. So our first quarter is always our largest spend and largest interchange revenue number. That did not really change with the merger. The same is largely true for FSAs as people, they go through their open enrollment. They've identified how much they're putting aside. And the interesting thing about an FSA or an HRA is you can spend that money before you actually have it deducted from your payroll. So there's a lot of spend that happens in the first quarter. And then as Jon said, it goes down in Q2, down in Q3, and then it comes back up in Q4, primarily a function of the kind of the January effect of the new accounts coming on board. And so even though we have an increase in interchange revenue from Q4 to Q1, we expected a lot more, and it's masked by the decrease in spend that we normally would have seen in Q1.

I'm not showing any further questions at this time. I would now like to turn the call back over to Jon Kessler for closing remarks.

Yes. Thanks, everybody. We're going to keep working our butts off at it and try and be as transparent as we possibly can about how things are going and take it one quarter at a time from here. And hopefully, between now and the next time we speak, both -- there will be a few less clouds in the sky, but also maybe we'll all be a little more enlightened by then. So with that, I hope everyone has a great rest of the week and stay safe, stay same. I guess we were going with safe before all this, now let's throw in an extra dose of same. And thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.