Good afternoon, welcome to the HealthEquity fourth quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Richard Putnam. Please go ahead. Thank you, Gary, happy first full day of spring to everyone, welcome to HealthEquity's fourth quarter and fiscal year-end 2023 earnings conference call. My name is Richard Putnam. I do investor relations for HealthEquity. Joining me today I have Jon Kessler, who is our President and CEO, Dr. Steve Neeleman, our Vice Chair and Founder of the company, and Tyson Murdock, the company's Executive Vice President and Chief Financial Officer. Before I turn the call over to Jon, I have two important reminders. First, a press release announcing our financial results for the fourth quarter and fiscal 2023 year-end was issued after the market closed this afternoon. The financial results in the press release include the contributions from our wholly owned subsidiaries and accounts that they administer. The press release also includes definitions of certain non-GAAP financial measures that we will reference today. A copy of today's press release, including reconciliations of these non-GAAP measures with comparable GAAP measures and a recording of the webcast can be found 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, March 21, 2023, and will contain forward-looking statements as defined by the SEC. That includes 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 here today. These forward-looking statements are subject to risks and uncertainties that may cause the actual results to differ materially from statements made here today. We caution 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. They are found in our latest annual report on Form 10-K and subsequent periodic reports filed with the SEC. We assume no obligation to revise or update these forward-looking statements in light of new information or future events. At the conclusion of our prepared remarks, as Gary just mentioned, we'll open up the call for Q&A. We'll turn the time over to him to instruct us on how we do that. Then I have one final announcement before we hear from Jon. We plan to hold our next Investor Day on July eleventh later this year. We hope that you will be able to make plans to join us, and please stay tuned for more details as they come available. Jon, over to you. That was fun, that last part. Good afternoon, everyone, and thank you for joining us. I am going to report on key metrics, as always, and then discuss management's view of fiscal 2024 in light of current conditions. Tyson similarly will touch on Q4 and fiscal 2023 before detailing our revised guidance for fiscal 2024, and of course, Steve is here for Q&A. For fiscal 2023, we are pleased to report double-digit year-over-year growth across revenue, which is +14%, adjusted EBITDA, which is +15%, HSA members +11%, and HSA assets +13%. Total accounts grew 4% and muted by CDB underperformance and a change in methodology with no revenue impact. HealthEquity ended fiscal 2023 with nearly 15 million total accounts, including 8 million HSAs, more than $22 billion in HSA assets, nearly 1 million new HSA opened in the year, record numbers of clients and network partners, strong year-end service, thank you team, and number one market position. As a result of all that, we are able today to raise our outlook for fiscal 2024, which Tyson will detail. We expect revenue to again grow double digits, EBITDA growth to accelerate to around 20%, even faster growth in non-GAAP net income and a return to positive GAAP net income, which is good. Our outlook factors in HealthEquity's inherently strong visibility to future performance, as well as our belief that the current crisis underscores the valuable stability of HSA balances, combining as they do the stickiness of individual small balance accounts and individual tax advantaged accounts. While U.S. commercial bank deposits fell 0.9% in the first two months of calendar 23, for example, HealthEquity's HSA cash grew by 6% in that same period, that growth has continued through the banking crisis that began on March 8th. Meanwhile, overall job creation continues its strong rebound from pandemic lows, which contributes to new HSA openings. As Tyson will detail, our outlook does reflect current interest rate expectations and a more neutral rate of job creation going forward. Of course, we're closely monitoring the condition of bank and credit union participants in our Basic Rates program, insurers in our Enhanced Rates program, bank holders of client-held CDB funds and holders of HealthEquity's operating cash to ensure that all continue to meet our strength thresholds. With that, I will turn it over to Tyson to detail the results and guidance. Mr. Murdock. Thank you, Jon. I will highlight our fourth quarter and fiscal year-end GAAP and non-GAAP financial results. There's a reconciliation of GAAP measures to non-GAAP measures to be found in today's press release. Fourth quarter revenue increased 15% year-over-year. Service revenue was $114.2 million, up 2% year-over-year. Custodial revenue grew 44% to $83.5 million in the fourth quarter. The annualized interest rate yield on HSA cash was 211 basis points during the fourth quarter of this year, which brought our full year average to 190 basis points. Interchange revenue grew 10% to $36.1 million. Gross margin was 57% in the fourth quarter this year versus 52% in the year ago period. Net loss for the fourth quarter was $0.2 million, which rounds to $0.00 per share on a GAAP EPS basis. Our non-GAAP net income was $31.3 million for the fourth quarter this year, and non-GAAP net income per share was $0.37 per share compared to $0.20 per share last year. While higher interest rates increased revenue, they also increased the rate of interest we pay on the remaining $341 million Term Loan A to a stated rate of 6.3%. Adjusted EBITDA for the quarter was $73.6 million, and adjusted EBITDA margin was 31%. For the full year of fiscal 2023, revenue was $861.7 million, up 14%. GAAP net loss was $26.1 million, or $0.31 per diluted share. Non-GAAP net income was $114.5 million, or $1.36 per diluted share. Adjusted EBITDA was $272.3 million, up 15% from the prior year, resulting in 32% adjusted EBITDA margin for the fiscal year. Turning to the balance sheet. As of January 31, 2023, we had $254 million of cash and cash equivalents, with $925 million of debt outstanding net of issuance costs. This includes the $341 million of variable rate debt I mentioned earlier. We have an undrawn $1 billion line of credit, so we have a strong balance sheet with a reoccurring revenue model. Now, we expect the following for fiscal 2024. We expect to generate revenue in a range between $960 million and $975 million, we expect GAAP net income to be in a range of $0 to $11 million. We expect non-GAAP net income to be between $152 million and $163 million, resulting in non-GAAP diluted net income between $1.74 and $1.87 per share based upon an estimated 87 million shares outstanding for the year. We expect adjusted EBITDA to be between $320 million and $335 million. As a reminder, beginning in fiscal 2024, we are basing future interest rate assumptions embedded in guidance on forward-looking market indicators such as the Secured Overnight Financing Rate and Mid-duration Treasury forward curves and Fed Funds futures. We now expect an average yield on HSA cash of approximately 230 basis points in fiscal 2024, up about 40 basis points from last year. We continue to assume that the average crediting rates our HSA members receive on HSA cash will increase by 5 basis points per quarter in fiscal 2024. Finally, our guidance reflects the expectation of higher average interest rates on HealthEquity's variable rate debt versus last year, consistent with the current forward-looking market indicators. We assume a projected statutory income tax rate of approximately 25% and a diluted share count of 87 million shares, which now includes common share equivalents as we anticipate positive GAAP net income this year. As we have done in recent reporting periods, our full fiscal 2024 guidance includes a reconciliation of GAAP to the non-GAAP metrics provided in the earnings release. 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, we now know you have a number of questions. Let's go right to the operator for Q&A. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Anne Samuel with J.P. Morgan. Please go ahead. Hey, guys. congrats on a terrific quarter, and thanks for taking the question. My first one was I was just hoping you could speak a little bit to the Enhanced Rates product. I don't think I heard you say, you know, what proportion of deposits are in it now, and just maybe, you know, where is that expected to go over time? How are you thinking about that as maybe a potential, you know, tailwind for yields or maybe just a stabilizer? Thanks. Yeah. Thank you for asking the question, Anne, and it's good to hear your voice. We ended the year north of our goal of 20% of our HSA cash in Enhanced Rates. I think just as importantly, we ended the year with a growing set of partners in this space amongst the large and highly rated insurers. We think that both the demand is there for this and then the supply, if you will, from our members, is there for it. Our expectation continues to be that this product is going to grow, that it's gonna grow, I think we've said elsewhere, something on the order of about 10% of our HSA cash a year, and that'll depend a little bit on, you know, factors like the underlying speed of the HSA cash growth and whatnot. I think that's a good conservative estimate. You know, maybe, we'll certainly be north of 30% by the end of this year. Further our expectation, you know, based on what we've seen here is, as you said, that, you know, this is both a really nice... You know, there is a net growth opportunity because the yields on Enhanced Rates, as the name suggests, are, sort of, you know, always, or almost always a little bit higher than they are on our Basic Rates product. That's good for us and good for our members. It's also stabilizing. We've kinda seen that during this period where when rates on the bank side were falling, the premium to this product was very high. When rates were rising very rapidly, the premium was somewhat lower. You know, all of that produces net stability in that underlying custodial yield, which is what we're going for. It's kind of full steam ahead with this product. That's really helpful color. Thanks. Then I was just maybe hoping you could touch on how some of the recent banking volatility might impact your business. You know, realize you don't have any depositories that are impacted, but you often speak about, you know, the primary driver of yield being competition for deposits. Just wondering, you know, how this might impact that. It's interesting. You've got it exactly right. What we've seen during this period is the value of stable deposits and the value of being a good, in our case, a good customer of these depository institutions, right? whereas, you know, well reported, you saw these banks, and other institutions that were heavily dependent on corporate deposits, you know, see, you know, big flows. That's not what we saw. Our members were extremely steady for all the right reasons. These are long-term tax-advantaged accounts. They're small balance. They're FDIC insured at the member level, et cetera, et cetera. And there are real, you know, penalties and so forth to moving your money. People, you know... What I think this crisis on the banking side has kinda showed is that, you know, all deposits aren't equal, and we offer a great source of funds for institutions that have real loan demand, you know, not sort of created in money markets or the like. And that's who we do business with, and we feel really good about how, you know, we've responded in terms of both how our members have responded. I mean, of course, as a team, we went into the same, you know, with all the unknowns of two weeks ago, we went into the same, you know, kind of crisis management mode as everyone else did to make sure that things were okay. I can't tell you how much this demonstrates to us and I think ultimately to our partners across the banks and the insurance companies that, you know, this is, you know, why this is a very stable source of liquidity when they need it. Great. Thank you so much for the color. Thanks, Anne. The next question is from Greg Peters with Raymond James. Please go ahead. Well, good afternoon, everyone. Hey, Greg. I guess, I'd just like to build on your answer from the last question about, you know, the chaos that's unfolded in the bank channel. You know, not only have bank prices gotten killed and there's been some companies that have been called into question. We've seen pressure in the life insurance industry. I know you were talking about the value of your deposits from the perspective of how the, your depository partners might look at it. Can you talk to us for a moment about the credit risk that you're considering as you establish these partnerships not only with the depositories, but also with the life insurance companies and maybe how that might have changed in the last couple weeks? Yeah. I mean, I think fundamentally, Greg, the things that you would be concerned about... Let me. The first thing that we are concerned about, I don't even get into issues of asset quality. I wanna start with issues of, you know, whether the... For the insurer, whether the liability side of the balance sheet is strong, meaning whether these are truly illiquid and so forth, and so there's real good coordination. That's had an impact on the kinds of insurers that we wanna do business with as we start this program. As you well know, we have largely steered away from the folks that are relatively newer into the space, that have gotten in on the back of private equity, you know, money accumulating, that kind of thing, and have tended to focus, perhaps at the expense of some premium on return, have tended to focus on winning partners, who have been in, you know, in the insurance business across multiple lines, for not just tens of years, but as you know, in some cases, hundreds. That's served us well here. We, you know, we obviously do monitor. The nice thing about the insurance side is we get a ton of data, and we get it in rough real-time. We have been able to monitor very closely things, the kinds of issues that people have talked about in the bank space. With regard to both the liability and asset side of those institutions, and they have performed extremely well, exactly as we would have expected. I think where you're seeing more stress is, I think in institutions where the growth of the balance sheet is a relatively new phenomenon. So, you know, not dissimilar, I think you've heard me say before on the bank side, where we get very cautious when someone is looking to us as a means to sort of launch a business plan on the bank side, or, you know, the regulators don't want us to be necessarily the source of rapid balance sheet growth. They want us to be the source of stability. I think we've sort of taken the same approach with the insurers. Again, I think that's serving well from the perspective of our goal, which is ultimately, you know, getting the most for our members and for us, but in the context of stability. It's a great question, and it does seem like it's playing out in the way that we would want thus far. Well, okay, that's helpful. I guess the other question that comes to mind, you know, there's the credit side, but then there's also the business side of what's going on. You know, as we think about the selling season for HSAs and the other accounts, can you talk to us for a minute about how you might have exposure to different industries, say, the banking industry versus startup tech companies versus, you know, you have almost 8 million HSAs. Can you give us a sense of how that is spread across different subsectors of the economy? When we think about the selling season, you know, if there's layoffs in the tech space, if that can affect your outlook more disproportionately than if there are layoffs in the banking space, et cetera. Sure. maybe I'll make that a two-parter. Steve, I appreciate if you would chime in here. Steve's in Washington today, and I assume you can nonetheless get... We're not on TikTok here, so I assume you can nonetheless get reception and is on this call. maybe you can talk a little bit about how our prospects, you know, and our health plans and the like have reacted, you know, to what's going on in the last few weeks. Then I'll sort of address the broader client concentration question. Sure. Thanks, Jon. Hey, Greg, good to hear your voice. You know, I think that anytime there's instability, people always pause a little bit. You know, I think the good news for us is that we've seen this movie before, right? We've been through the GFC, we went through COVID. The one thing that just keeps coming back around is that when employers are worried about their bottom lines, when they're worried about, you know, what the future beholds, they really do look for ways to save some money for not just their own premiums, but I think more importantly for their, the people that work for them. They know that HSAs can do that. It can help them get a lower cost premium. It can help them save money on taxes. It can really help prepare their folks. Greg, you know, with our 130 health plan partners and another 40 different types of partners, we have such a wide variety that we're not really that concentrated in any specific industry. It's pretty amazing, honestly. There's been, you know, if you just look across the sectors of types of businesses, I mean, we have everything from hospital systems, and we do have some tech, but not, thankfully, the tech companies we've been working with have not been heavily adversely affected. You know, we can never say never that it's gonna impact us, but we have seen this, and I think we're pretty well diversified and hedged from that perspective. We just keep hearing the same thing come back, that keeps coming back around, which is, yeah, a recession could be in front of us, but this is the best time to help employees understand that when dollars are tight, let's get you into a lower cost premium plan, let's get your tax rate lower, and let's help you start saving. So we've seen, Greg, a strong an RFP season as we ever had. I think that's consistent with what we were able to do last year, having a record sell year. I mean, you know, those, almost 1 million health savings accounts. So, look, I mean, we're always, I think, productively paranoid around HealthEquity. You've known us for a long time. That's the way we roll. On the other hand, I think we're pretty enthusiastic that we're gonna keep the momentum going. Jon, do you have other stuff you wanted to add? It sounded like. Yeah. I mean, look, you, as I sometimes do, now I know how it feels, you took my half of the answer, too. I'll only add that, you know, our guidance, Greg, does as both Tyson and I said in one form or another, you know, our guidance reflects the view of a more neutral view of job creation. I think that's a fair way to look at the full year, notwithstanding the fact that the jobs numbers we've seen thus far, in the first few months of the calendar and fiscal year have been pretty heady. You know, it's a reasonable view to say that whether or not we go into economic recession, that job creation will likely slow down. You know, that's the way we've constructed guidance. You know, it's just another factor to kind of keep in mind. Great. I appreciate the answers. Yeah? Thanks, man. See, I haven't said one thing to in any way tease you. I'm playing it. Well, I... 100% right down the middle. I was just gonna add, you know, for the clothing requirement for your Investor Day, and maybe we can include some Bermuda shorts that seems to be pretty popular these days. It's funny you should mention that. Yeah. It's funny. That will be in the invite. Suffice it to say it will be in a warm location, right? Got it. A warm summer location. I mean, it's Salt Lake City, nonetheless. I'm letting that cat out of the bag. We're doing Salt Lake. We're getting the Utah people out to. It's gonna happen. It's gonna be fun. It is gonna be fun, by the way. It is gonna be fun. We hope that folks can join us. Thanks a lot. The next question is from Sean Dodge with RBC Capital. Please go ahead. Yep, thanks. Good afternoon. Jon, just going back to your comments about the benefits or the stability of your HSA deposits and those becoming increasingly attractive given all that's transpired. Just maybe to put a finer point on that, is that something? Is this increasing attractiveness something you can monetize going forward in the form of generating higher yields on those types of placements? Is it kind of all else equal, can you get a little bit more of a premium because of that? I think the answer to your question is, I mean, the answer to your question is yes, the key point being all else being equal. I sort of look at it like, or I guess I'm maybe stealing the words out of the mouth of our newly appointed treasurer in saying, you know, this is making my introductions to institutions that the company has dealt with over many years, a lot more friendly. Presumably that good feeling will last. I also think it's true that the fact that we were not in the mode of moving this money around willy-nilly over the course of Thursday and Friday of the week of March eighth. It's not that we couldn't have, and it's not that we didn't pay very, very close attention to what's going on. Ultimately, the fact that we were able to do that, I think, you know, breeds confidence and breeds is the kind of thing we wanna be as a partner. When those renewals come up, you know, those are likely to be more effective renewals. I do think, you know, you make friends and or lose friends very quickly in these moments, and you shouldn't be making, and we're not making decisions on the basis of friendship. When something works from the perspective of safety, when safety is needed, people don't forget that. I do think ultimately, you know, when you think about the long-term durability of the premiums that we've generally been able to earn on relative to what banks have been willing to pay elsewhere, you know, this is a really nice event from that perspective. Okay, great. On the Enhanced product, you said, looking ahead, the goal is to shift give or take 10% of your portfolio over there per year. You also said both demand and supply are there. What's keeping you from shifting more of it in any given year? Is it just because there's a limited number of partners still, and so only so much demand for those types of deposits? Is it more on the individual account holder side and just getting them on board and kind of the mechanicals of what you need from the account holder to shift? No, I think there are two factors, Sean. One is that we don't wanna create a sort of uneven ladder, if that makes any sense. Well, three factors. One is we don't wanna create an uneven ladder. That is to say, were we to, let's say, have a movement of 30% or 40% of our deposits in a, in one year, you would then be asking us, you know, X years from there, well, wait, have we created uncertainty about the redeployment of those assets? We don't wanna do that. That's not good for how we manage the business, and it's not good for our shareholders. That's kind of issue one. Issue two is that we are learning as we go. Learning is, I think, as are our partners. That is, it's probably fair to say that the demand for this program today among would-be partners is higher than it was one year ago. Part of the reason is because it's existed for this long and people have watched the results, and there's a level of confidence in those results. The last factor, which is of course relevant, is that the source of these assets, in addition to new members' contributions to HSAs, is existing members. We also have to manage our FDIC commitments, meaning our bank deposit commitments. You know, we were able to, you know, in this cycle, you know, we were able to deploy less into banks than we would have without the existence of Enhanced Rates. That allowed us to be, I think, appropriately choosy, both in terms of economic return and other factors. That's also a bit of a breaking factor too. That is to say, we wanna make sure that we still have, you know, plenty of liquidity to meet all of our minimum commitments there. Within those three parameters, which are really in my view, the key to this ultimately, you know, we feel like we're moving at pace. you know, member interest has been there, no pun intended, has been there, the whole time. I think if we were, you know, devoting. If our sole objective was to move as fast as we could, we would be doing so, with, we'd be moving faster with a, you know, heavy marketing emphasis. I don't think that's what we need to do right now. We're happy to have a, you know, with this element, a multi-year tailwind that will contribute to even longer term stability. It's very helpful. Thank you again. Thank you. Thanks, Sean. The next question is from David Larsen with BTIG. Please go ahead. Hi. Congrats on a good quarter. Can you talk about the increase in the revenue and EBITDA guidance? What are the main drivers of that? Also, it looks like the interchange revenue increased sequentially from about $33 million up to $36 million. What was the main driver of that? And was that ahead of or in line with your expectations? Thank you. Tyson, you wanna take those? Yep. From a revenue perspective, when we gave guidance back on December 6, and you look at, for example, the average CD rates, jumbo CD rates, and you look at things like LIBOR SOFR rates, they were actually lower then. We got a tailwind from those that we would be putting into the yield rate as well as to the revenue top line. You know, just going back down to the plan from a perspective of profitability and the flow down of those custodial revenues, that's why you see the bottom line lift up as well. You have essentially that running down through the plan, and we knew that would be the case, and I believe we called it out at that time as well. Then the second question was the Interchange. Interchange. Yes. that's- Quarter-over-quarter sequential interchange. Yeah. Yeah. Quarter-over-quarter sequential. I mean, you have more accounts. You have the seasonality that typically happens in Q4. You know, we sold a lot of accounts. We brought those online. We had the seasonality. It was much more normal this time around than it has been over the last couple of years. That was, you know, probably to be expected, and we feel like that's sort of stabilized itself. When you say seasonality, do you mean more people are going to the hospital using their health card, so utilization has increased, so that's where that increase came from? No. It's more about the normal seasonality of those card usages. When you think about, for example, the use it or lose it nature of an FSA, you know, towards the end of the year, people are gonna use up those funds. You think about when a HSA is funded from an employer standpoint in January, sometimes people typically utilize those funds at that time. You have a normal seasonality in Q4 that occurs there, and you sort of have that flow into Q1, and then you get a much softer Q2, Q3. That would be the more normal reps of the business that we haven't necessarily seen over the pandemic era. I think, Dave, that's one of the things about the nature of our fiscal year being January 31st is you got that January month where people begin a new plan year and haven't met their deductible, and so pretty much everything's out of pocket. Okay, great. For the $22 billion of managed assets, is all of that FDIC insured, every single one of those accounts? If I look at our, I'll take this one. If I look at our overall custodial assets, you can divide that first into two pies. About, $14 billion of it is what we call HSA cash, and the remainder is invested. The invested assets are obviously not FDIC insured. They're in mutual funds and the like, at the member's discretion. I think you understand that. If I look at the cash component, it has two elements. The bulk of it is in our Basic Rates product, and all of those funds are in FDIC member institutions, or NCUA, I guess, member institutions that offer pass-through insurance to our members subject to the usual $200,000 limit, which generally an HSA is not gonna reach almost exclusively. Then, with the Enhanced Rates product, these are not FDIC insured. They're not deposits. These are, as we've talked about before, these are group annuities that are insured by highly rated insurers that are again entered into at the direction of the members. That's sort of the breakdown there. Great. I guess I would add to all of that, what all of those have in common is, you know, we do not bring, our members aren't paying us to be a principal risk taker. We are not a principal risk taker. We don't bring principal risk onto the HealthEquity balance sheet. Thanks, David. Thanks very much. The next question is from Stan Berenshteyn with Wells Fargo Securities. Please go ahead. Hi. Thanks for taking my questions. Yes, Stan. I'd love to get an update. I'd love to get an update on your MaxEnroll product. I think it's probably been out for a year or so, if I recall correctly. I'm just wondering how widely has it been adopted by your clients, and do you have any sense how much of your member growth this past year could be attributed to MaxEnroll? Thanks. Yeah. We began to address this, I believe, in the. We talked about this somewhere. Now I don't know where, so I guess I probably should here. Sorry, I heard beeps there for a second. Stan, the way we approach this, first of all, as a reminder for everybody, MaxEnroll is a product that is really about addressing not just our existing HSA members but would-be members in HSAs. In addition, this year we also applied it to a portion of our or applied this technology, of course, for our FSA population. We've had the greatest penetration of this product within what we call our managed client base. This is our groups, roughly 500 of them that have named account executives and the like, I think that's appropriate. Then we have a more, I'm gonna call it generic version of the product that is available for download and so forth, that our smaller groups can use. I think we did well this year. We're still, I would say, we may be beyond the nail it and now in the scale it stage, but we're still in the early part of the scale it stage of this thing. There are good reasons for that. You know, we still have, I think, work to do to make the product truly effortless for our clients, to have it more deeply integrated. What we found this year was where we did the best was where we were more deeply integrated in terms of data with other things that our clients were doing within open enrollment. You know, where we understood precisely, you know, where from a data perspective, we could understand precisely what their open enrollment dates were, when things would begin and end, so we could show people timers and those kinds of things. You know, which seem trivial, but they created more immediacy about action, and that was extremely helpful, where we understood what our clients were trying to do in terms of the pricing of their various health plans. We could speak that language within this stuff, or give them the tools to do so. That was extremely helpful. I think we did well this year. There's more gain to be had. To the second part of your question, which was how much does this thing contribute? I think I've estimated elsewhere that if you look at the gains that we got from existing clients that were over and above what we might have expected without this product, it probably gave us, you know, somewhere between 50,000 and 100,000 new HSA openings over the course of this cycle. That's probably maybe a little bit of an exaggeration because, you know, obviously, there's some favorable selection with these clients, where people who are really interested in growing the HSA base are more likely to really, you know, get aggressive with this and use it to its fullest extent. You kind of get the idea. It was absolutely a material contributor to the overperformance that we saw this year on a year-over-year basis. Great. That's helpful. Thank you. Thanks, Stan. The next question is from Alexander Draper with Guggenheim. Please go ahead. Hey, Sandy. Thanks so much. How are you? I guess it's gonna try to be one question, but it'll sort of wrap a couple of things together. When I look at the cash flow, you're starting to see an improvement in your cash from operations. Capitalized software is moderating. You did step up a little bit on M&A, but if I think about your guidance, you know, your net income and your EBITDA is up. If I look at the add back, some of the cash add backs integration costs are going down. It looks like net-net of all that is free cash flow and cash EF looks like it's gonna be pretty good and hopefully sustainable. When I think about the M&A environment, what's that like? Also, I know Tyson indicated you're at, I think he said 6.3% is the stated rate, maybe on the floating rate debt. You know, how are we thinking about debt paydown versus M&A or any other internal investments and balancing those three things out? Thanks. Awesome question. Thank you. It really is. This is actually, we probably spent an half hour, in our prep just kind of thinking about how to answer this in such a way that, like, it's like, sometimes you have things where you wanna answer and you don't wanna, like, give them everything. This is one where, like, I want to give you everything 'cause it's so it's such a, you know, fun, interesting, and important capital allocation problem. I'm gonna resist doing that. Because that's what the team told me to do. A couple thoughts. First of all, the premise is right. That is to say that, you know, if you look at fiscal 23, we converted, you know, EBITDA free cash flow at a rate pushing 60%. That rate's coming up. Well, why? Because integration expenses are coming down, and that was a big add back, et cetera, et cetera. As you say, you know, one break on all of that is the interest on the relatively small, but nonetheless, they're a very good portion of debt. You've got all of the right factors that we're looking at in terms of where to deploy capital here. I think if I look at the M&A environment, a couple of things really strike me. The first comment I've made elsewhere, which was we are absolutely not in a rush to do anything from an M&A perspective material that is in the nature of, you know, let's go horizontally expand to this, that, or whatever, in the way of existing established markets. We're not in a rush to do that, both because we think that our clients aren't demanding that we do it, that valuations are plenty fulsome out there, and that we can deliver more shareholder value at this point in time through the work that we're doing on the organic side and with partners to kind of develop product that isn't established out in the marketplace. So our inclination is not to go out on the sort of horizontal side and deploy capital there. If I look at competitive consolidation, you know part of my answer, which is we're always interested in attractive transactions that have high IRR for our shareholders. I think for all of the reasons we talked about, both at the beginning of the call and in the first answer, about these deposits being very steady for the banks, at the moment, I'm less sanguine even than I was a few months ago that, like, there's gonna be a material transaction that's gonna develop in that area. I just that is how it is, and I think that's totally fine. There's no reason for us to run around pricing those transactions into the market or the like, and it's a reflection of the quality and steadiness of the underlying business. You know, that being said, you know, we then are looking at and should be looking at, like, what's the purpose of maintaining that, the outstanding TLA and its current size when we obviously have the capacity should we need it, for pretty much anything that we would contemplate, and we are looking at that. I probably did just give you more than they told me to give you, but that's the full answer. Thanks, Sandy. Thanks, Richard. Thanks, Jon. The next question is from George Hill with Deutsche Bank. Please go ahead. Go ahead. Good afternoon, guys. I'll say now I'm bummed out 'cause Sandy took my cash flow question. I guess what I'll roll into is maybe talk a little bit about expectations for the CDB business in 2024. Is that something that we think shrinks again next year, or is it poised for stability and a rebound? I'll have a quick follow-up. Yeah. you know, you can't just claim credit for Sandy's question. That doesn't, you know, that doesn't fly. Jon, I had a four-part cash flow question here written out in my notes. He basically asked every part of it. Look, on CDB, you know, as folks will recall, I was hopeful that we could put, you know, a, a black single digit on the boards coming into 24. We didn't quite get there because COBRA remains weak, and that's probably the biggest problem. We are gonna have to really look at it and understand a little better, or understand as well as we can what our levers are. I, I think, our, what is fair to say is that our guidance with regard to revenue generation in the current year reflects a level of conservatism on this topic, but that it is pretty clear that we know what to, but that having been said, sales have actually been pretty good. Our challenge, George, has been the platform movement and all of that. If I could be convinced, as well as the regulatory issues that kind of brought us up and then brought us down around the national emergency. If I weren't convinced that all that were behind us and that, we, you know, that the, not just we, but employers had fully digested the implications of all of that, I'd probably feel more confident in giving you a view that I'm not just hopeful, but comfortable that, you know, from a sales perspective, we will be able to put up a black number here. It'll still be a single-digit number, but a black number. I'm just not as convinced of that. You know, do we know... You know, obviously, if employment sloughs off, will that be somewhat good for COBRA? Yes, right. Has anyone figured out what Congress is gonna do with the existing effectively competing subsidies in the ACA marketplace? No, right. Has everyone fully figured out the national emergency, you know, end that's gonna happen in a few months? I think we know what the implication is for our business immediately, and we forecasted it, but I'm not sure everyone's fully digested it. I guess my answer is, unfortunately, I feel like we're still in a mode where I can't beat my chest about this thing yet. You know, understood. If I can have a real quick follow-up, I guess, are you seeing anything in benefit construction and benefit pricing and the things that I'm kind of leaning on right here and thinking about are like what's going on in the insulin market, where you're seeing much lower out-of-pockets for patients on insulin. I guess, are you seeing any of these changes either in benefit pricing or benefit design that has the capability to either... I'm thinking about it could, like, lower your interchange fees, but it might increase your average balances as people dip into their HSAs less as their out-of-pockets fall. Would just be interested in how you're thinking about kind of those parts of the market and kinda how those pieces move together. Well, I'll comment on this and then invite Steve to comment further. I personally think that this stuff that's going on right now with insulin as an example is, and I'm sure I'm stepping on somebody's toes here, but I think it is both fantastic and incredibly realistic, right? What it's doing is it's giving people certainty. Certainty is really important, you know, for people. You know, we talk about being in the business of connecting health and wealth. It is hard to talk about that in a world where people think that every healthcare transaction that they have, they're being cheated by somebody on it. My hope is genuinely that from a plan design perspective and frankly, from a legislative perspective, and we're. You know, and this maybe where Steve will comment a little bit. You know, we're these are our issues that we're starting to weigh in on that we're able to bring people greater certainty with regard to the routine kind of medications and the like that are part of their regular daily lives. There's no reason we can't. These are now, you know, incredibly low cost items at this point. And, you know, insulin is an example, but there are many others that are their actual out of, you know, real cost is low and yet we, and it's low in HSA plans too, right? It's just that we've like scare the heck out of people because of the way we all talk about this. We can create certainty which creates real value. That is something I do see employers looking at as they go through plan design. Steve, you wanna comment further on this? Yeah. I wanna also, George, say that Jon stole my answer just to answer your question. Yes. No. Look, I think that as you know, George, we've known you for now, doggone it, nine years when we met you, right? It's been a long time, yes. Yep, consumers have always been number one to us. We've had questions that are similar to the one you just asked, which is, like, why do you always tell people about these investments when you make less yield on the investments or than you do on the cash? The answer is because the consumer will always be number one in our book, and it's because consumers need the help. One of the things I did talk to some legislators today about was where they stand on things. In fact, I gave an article from NPR to a senior senator today that talked about the very insulin question you just asked. You know, I asked him, "What do you think about where we're standing with these transparency requirements for hospitals and health plans?" Who are some of our great partners, hospitals and health plans. It's great to hear that there's actually some bipartisan, you know, kind of girth behind getting consumers the right information they need to make better choices. Whether that plays out in the market where consumers just now have the ability to go get a lower cost insulin because, you know, the price drops by 75% because the new entrants, which happens to be one of our partners, comes out with new insulin, that's wonderful. or if it's manifests itself a little bit differently that Jon was alluding to, which is, you know, that there has been some progress, as you know, getting consumers to use your, Jon's word, certainty on cost. For example, under the Affordable Care Act, consumers, if they're diagnosed with high cholesterol, they can get statins for free, right? With no cost share. It's certainty. Their health plan pays for it, Obviously the health plan's gonna negotiate a great price on that. I think that there's other opportunities out there. As legislators have looked at it and said, you know, "How can we help people be more healthy? Is there, is there a way to help have better, you know, drug prices? Can we throw our weight behind some of these initiatives?" It completely benefits us. To your point, there may be lower upfront spend, but we've always said we'd much rather have people have more money in their health savings accounts longer. Then they can spend it next year. You know, at some point they start getting older and the healthcare costs start to go up. You know, the average age of cancer in this country is in the 60s. You know, those are gonna be times when they really need to spend this money when they have those types of events, and we're gonna be there for them. So I think you will always find us completely comforted by expanding regulations to be able to do things like better transparency and lower cost drugs and things like that. We're gonna keep doing that, and we're gonna keep innovating to get people the right information at the right time so they can make the right choices with the way that they both save and invest and spend their healthcare dollars. Let me say one more thing for those who are wondering, like, what the hell this answer and question has to do with our revenue streams. They're in addition to the sort of more obvious answer that is, it makes the health plans that people choose and then choose to bring to us, you know, you know, bring dollars to us more appealing and, you know, can the. There are also some more direct opportunities here. Our clients at the employer level, our health plans and our partners at the broker level are absolutely, you know, this whole discussion around bringing. I mean, it's transparency, but it's also simplicity to some of the more routine pharma items, to things like maternity, to mental health, where we don't want people not using these services, not because they can't afford them, because they don't understand what they cost and they're scared. We don't want to be in that circumstance. There are easy things that are you know, relative to rocket science, there are easy things that can be done in plan design and that helping employers do those things and helping clients do those things and helping our partners arrange those things, there are interesting top-line opportunities for us that, you know, right now we're in the exploratory phase and seeing what, you know, where we have the right to win and where, you know, where we can partner with others and whatnot. You know, this is an area of real opportunity for us. Thanks for all the comments. The next question is from Mark Marcon with Baird. Please go ahead. Hey, good afternoon, and thanks for taking my question. I've got two questions. The first one is with regards to the number of HSAs that were added in the fourth quarter. Can you kind of break down both for the fourth quarter and for the year, the percentage of new HSAs that were a function of brand new sales to, you know, new employer partners versus what percentage was due to, you know, new hires and to what extent may have the new hires slowed down, you know, in the fourth quarter relative to earlier in the year? Yeah. Let me, without... You always ask questions in a way that I'm not gonna answer them exactly that way, but I'll do my best. If you look at it, you will notice on a year-over-year basis that we were ahead in earlier quarters of the year, but as the year went on, right, in terms of new adds, right, we were closer to last year. I think in Q4, we actually had more new adds in the prior year than last year. You know, someone could bang us on that, except that we said throughout the year that again, particularly at the beginning of the year, that hey, part of what was going on here was essentially job formation, right? Job formation, as you know, did slow down a bit in Q4, particularly calendar Q4 and relatively early part of the year. That was reflected a little bit in the data. Again, apropos of the commentary made about guidance, right? We've tried to be, I think, very realistic about as we look forward, you know, let's guide with the idea of a neutral view of job creation, right? Neutral doesn't mean zero, it doesn't mean negative number. It means, you know, more neutrally, 100,000 a month, that kind of thing, in terms of what the broader economy is doing. There is the connection there, Mark, that the question implies. That having been said, across both HSA and our CDB business, you know, new logo and new client within existing health plan and retirement record keeper partner was a very important part of this year. You know, we looked at, what's nice is today is that, you know, more of your new logos are actual, you know, in the HSA world, are HSA takeaways. Of course, in our world, many of those are also cross-sells. We have existing products with them. You know, some of the folks that, you know, if you look at the case studies that we talked about over the course of the latter part of this year, you know, Pfizer being an example, right? That's an example of a company that never offered HSA, so there's those. There are also examples of like, they were offering it, right? They weren't satisfied with a partner that was really looking at it from the perspective of the needs of every member, maybe just looking at the top 2% or just looking at, you know, a way to just pay healthcare claims without regard to how they could help, you know, the consumer. Either way, we're a better option than that. That's the takeaway business. I, it is probably a fair statement to say that in the earlier part of the year, right, basically, employment growth at existing firms was a bigger component than in prior years, and that kinda normalized itself as we got towards the end of the year. I mean, you continue to gain share and, you continue to win more and more than your fair share. I think that's fairly clear. I was just trying to dimensionalize, you know, what. Yeah. year-over-year trends were looking like. The relevant point is when people go into next year and, or now this year, and they say, "Oh, you sold almost 1 million HSAs, is it gonna be 1.1 million?" I kinda say the same thing that we went with last year. People said, "You're gonna sell 900, you're gonna sell 1 million." I you know, if I rewind a year ago, we were not thinking that we would have the level of robust employment growth over the course of calendar 2022 that we actually did. we were, you know, we were sort of trying to point that out to folks, and I'd make the same comment this year, just starting from a slightly different point. I think people are more on board with the idea that employment growth is gonna have to moderate from here. The government seems to wanna make that happen, but it's kind of the same point. Right. The second, follow-up question is basically, it was really nice to see the gross margins improve on the service line and on the interchange fee. I imagine a large part of that is due to the integrations, and I'm wondering if you can, you know, talk at a high level in terms of what the implications are on a go-forward basis, because that was a really nice improvement. Well, I'm gonna focus on service, and I think there, you know, Mark Marcon, the truth is we have work to do. I'm not, you know, I appreciate that, you know, on a year-over-year basis, you know, we boosted what you might call, you know, service gross margin by 11%. That's also because the year, the prior year just sucked. I don't know if I say that. In my view, we still have a ton of work to do here. What's interesting and important, and for those who are close observers of, you know, our hiring and so forth, what you'll see is that there's some of that work that's very, I'm gonna call it, you know, commercial and operational. You know, as an example, there are some areas that now that the dust has settled from the pandemic, that, you know, there are fees that we have to look at, and we have to pay reasonable fees for reasonable work. There are elements of, for example, the COBRA business that we're looking at and working with our partners and saying, "Guys, you know, here's how this has kind of sorted out, right?" Things are different than they were pre-pandemic. Let's address that. And obviously, labor costs have risen too, right? But there also is a ton that we have done and can do with tech, and I'm gonna give you one example. Like, You know, I don't have a ChatGPT story to share with you, so you can be relieved in that regard. I'm not gonna try and suggest that we ginned up some initiative in that area. What is true is that if you look at our volumes during our peak month, which is January, right? We, I mean they, the team just delivered an outstanding month. Part of the reason that they were able to do that is that Chat handled, not ChatGPT, but our Chat functionality handled, I don't know, 30% more calls than it had the prior year. Part of the reason that makes things easier is because it turns out that Chat is more effective at inserting, you know, I'm not gonna call it AI, I'm gonna call it computer-generated answers, than you can do in the context of an IVR or the like. There is a lot more juice to squeeze there. Plus which our members from the perspective of SAT have loved that stuff. It does, to some extent, reflect the kind of changing demographics of the membership. You know, the highest uptake rates of HSAs are among millennials. You know, that's a bigger part of our base. They want rapid answers, they get them. But I do think on the... You know, we tend to talk about tech from a revenue growth perspective, but there's also a ton of opportunity here. I guess I really... I don't wanna convey in any way, shape, or form genuinely, like, that we've accomplished much of anything other than we didn't make the same mistakes that we made last year, that is back in the rollover. We didn't have the same, you know, macro environment of remember Omicron or whatever, you know, Greek letter we were dealing with. you know, so I don't, I don't think we're like at pat ourselves on the back level here. We're at a place where we've got more we can do. Thank you, Jon. Jon, appreciate that. You mind if I just tap for one thing. Maybe just come in on the service level, though. I mean, Oh, you... Yeah. Pat on that back for just a second 'cause we did, I think, you know, I can tell you that was great. Go ahead, though. Yeah. No. I mean, look, I think, at some level for everything we try and do, you know, the table stakes in our business is that when our clients, particularly our smaller clients, you know, call us up in the middle of January with something going on, that we can help them, and we can help them quickly. You know, that was a challenge in January of calendar 2022. It's always a little bit of a challenge 'cause everyone calls the same time, but, far less so. That was, you know, both the work of our team, the work of our partners, in getting clients loaded, and then, you know, and then the work of our operations partners, sort of our word for vendor, in doing their thing. It's gonna help us from a sales perspective. It already is helping us from a sales perspective as we get into this year. I mean, Steve alluded to, and we've tried to get away from like quoting RFP stats, but Steve alluded to some of them. Like, look, the truth is a lot of that is people are like, "Okay, you just helped me out of a jam that maybe I created in January, right? I'm gonna remember that when it comes time to do my next, you know, RFP for something in February, like, again, it's obviously a very uncertain time, but this is one of the reasons why we felt comfortable with the idea that we could, you know, do what we thought we would be able to, which was come here in March, raise our guidance a little bit, you know, just as if nothing had happened in the last few weeks. Obviously something has happened, and yet, you know, we feel like we're in really good shape here. Thanks, Jon. Perfect. Thank you. Our next question is from Allen Lutz with Bank of America. Please go ahead. Thanks for taking the questions. Jon, you mentioned Chat, as an area where you're spending tech dollars. I think I asked a similar question last quarter. As we look at the tech and development line, you know, obviously that's gone up, pretty dramatically over the past few years. Can you talk about, in fiscal 2024, your expectations? Obviously, you're gonna be spending on things like Chat and other things, but is that gonna scale as a percent of revenue in fiscal 2024, or should we expect that to continue to, de-lever as a percent of revenue this year? Then can you talk about kind of what's driving that outside of Chat, if anything? Thanks. Yeah. It's. Maybe I'll invite Tyson to correct me if I'm being imprecise, or if I'm going in the wrong direction here. This is gonna level out, and it's leveling out as a percentage of revenue because really because expenses that, you know, were really, if you look at it, you know, were integration expenses are now, you know, are either not necessary or being used for innovation. You know, there are some things that muck around with it, like, you know, as you well know as we're now well into cloud world, you get less, you know, D&A, which, you know, the good news is you get more free cash flow conversion, right? The bad news is that from an EBITDA perspective, it doesn't, you know, doesn't look as good, blah, blah. You know all that stuff. Your intuition, which is that this is leveling out, is correct. It's. It's really about. What's really important is not just that it levels out, but rather, I think ultimately, you know, begins to decline as a percentage of revenue. That it's what we're spending it on because in real dollars, this number is going up. What's important is the shift in that expenditure from the process of integration, which was really important for us to get us to where we are today, to now, you know, shifting those dollars towards really focused on our core growth platforms and on innovation on those core growth platforms. Anyone who looks at, you know, LinkedIn or any of these things that they can see exactly what's happening, and that is what's happening. Thanks, Allen. Thank you. I just want to give Tyson a chance. Did I answer that in the way you would have? You did great. I guess the only thing I would add is just say the way we build plans is we try to get leverage off those P&L items, even when you think about stock comp and things like that. That's a priority for us as a business today. There's always stock comp. For all of our leaders. Yeah. That's my mention. The next question is from- Thanks. The next question is from Stephanie Davis with SVB Securities. Please go ahead. You're here. Hey, guys. This is Anna. Hi. That's the on for Stephanie. Thank you for taking our question. Uh-oh. Uh-oh, Uh-oh, I don't like the sound of that, Anna. Go ahead. Go ahead, Anna. First, I actually wanted to go back to the more elevated R&D spend on the platform. You did mention that this should start to level out, but curious if you could give any sort of outline on how you're working to modernize the platform. Yeah. You wanna give your second part too, and we'll try and hit both together? Sure, yes. The second one was actually kind of all circling back to the M&A piece with, private market valuations rationalizing. I was curious if there was any potential to accelerate some of these R&D priorities via M&A. Yeah, awesome. That's perfect. What we're really focused on, and I expect for those who I don't mean to, like, build it up crazy, but for those who attend our Investor Day, you know, we'll talk a little more about this and we'll bring some more people to talk about it. We're really focused on the view that, within broadly defined the world that we operate, which is, you know, ultimately about helping people, you know, we say connect health and wealth. The longer version of that is to help people manage the financial aspects of their healthcare. There's, you know, the evolution of technology, you know, the incremental use of APIs, obviously some of the AI stuff, it creates some new opportunities that I think did not... We think didn't exist four or five years ago. Some of it is the existence of the tech, and some of it is the embrace of the tech by, everyone else, you know, by others within the ecosystem. That's really where we're investing. I talked earlier in the year at some other bank's conference about some of the specific opportunities both in that we have here to drive both a new product that's very visible to our clients and members, as well as, you know, drive things in the area of the transaction or card fees, around, you know, really integrating what we do into the existing mobile wallets, making some of that stuff easier and ultimately driving incremental transaction value. You know, that's really where we're focused in terms of where those dollars are going, you know, as well as the basics of completing our cloud journey and all those kind of things. I think, you know, my take here is that we have this period of time where all of the things we've done from expanding the product set through, you know, the addition of Wage and all of that, extending our partnership base through things like the Further acquisition, Enhanced Rates and the migration of that over the course of the next few years, you know, plus, you know, notwithstanding events over the last few weeks, what is still a far more favorable environment, you know, from a macro and rate perspective. You know, this gives us a period of time where we can both invest in these kinds of innovations that will produce growth over time and still in the near term, deliver to you as we've done in our outlook here, incremental and prematerial incremental margin improvement. To the second part of your question, is it plausible that, you know, that some M&A is a piece of that? The answer is yeah. I think it's far more plausible that it would be in the nature of smaller, you know, enterprises where it's a little bit more like, you know, acqui-hire or the like, as opposed to existing $300 million-$400 million businesses. I say that, it's not impossible. I say that because that's where I think the opportunity is for us and for creating value for our shareholders right now. One, I don't see the same level of rationalization within those established businesses yet. Two, you know. Our clients are, especially in, you know, one of the reactions to inflation and the like, our clients want more solutions that help their consumers navigate the financials of healthcare, right? That's, you know, we already do what's great in that space that's established. It's about, you know, some of the new stuff that's out there and, you know, are there examples of folks who are out there, you know, and able to try stuff as effectively R&D labs? Yep. You know, we'll be happy to do that kind of stuff, but it's not gonna be like, you know, big draws on the balance sheet or the like. It really is, you know, build versus buy type discussion on some of those things. Thanks, Anna. This concludes our question and answer session. I'd like to turn the conference back over to Jon Kessler for any closing remarks. Man, you really cut that off. That was like, that was Richard quality there. Thank you. Can we have you at every call? No. Thanks everybody. Look, obviously, I hope what you have taken from today's call is that, we really feel, you know, now having been a full two weeks into this current, you know, craziness, that if we're able to step back and look at it from the perspective of the long-term of our business, you know, this demonstrates the quality of what we do and the value of having a plan and sticking to it, and ultimately, the steadiness of our business, which has always been one of the things we have promised you. That is to say, visibility, you know, along with growth, which we're delivering with our outlook profitability, which obviously we're delivering with our outlook. Then, you know, durable competitive advantage, which as someone pointed out in the Q&A, is ultimately a function of extending our market leadership. Hopefully we're doing what you want us to do and hopefully that's, you know, we sort of believe we'll get rewarded in the long term for that. In the meantime, we appreciate everyone's questions, everyone's interest. Get your Bermuda shorts now before they're, you know, they're spring priced. We'll talk to you before then, but we'll hopefully see you all in Utah in the month of July. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.