HQY - NASDAQ

Good afternoon. And welcome to the HealthEquity, Inc. Fourth Quarter and Full Year 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, 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. Hello, everyone. Thank you for joining us this afternoon. This is HealthEquity, Inc.'s fourth quarter fiscal 2026 earnings conference call. My name is Richard Putnam. I do Investor Relations for HealthEquity, Inc. Joining me today are Scott Cutler, President and CEO, Dr. Steve Neeleman, Vice Chair and Founder of the company, and James Lucania, Executive Vice President and CFO. Before I turn the call over to Scott for our prepared remarks, we note that the press release announcing our fourth quarter financial results was issued after the market closed this afternoon, and that it includes certain non-GAAP financial measures that we will reference here today. You can find a copy of today's press release, including reconciliations of these non-GAAP measures with comparable GAAP measures, on our Investor Relations website, which is ir.healthequity.com. Our comments and responses to your questions reflect management's view as of today, March 17, 2026, and they will contain forward-looking statements as defined by the SEC, including predictions, expectations, estimates, or other information that might be considered forward-looking. There are many important factors relating to our business which could affect our results. Forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from results from statements made here today. We caution against placing undue reliance on these forward-looking statements, and we encourage you to review the discussion of these factors and other risks that may affect our future results or the market price of our stock as detailed in our latest annual report on Form 10-K, which was filed just today, 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. With that out of the way, let's go to Scott.

Thanks, Richard, and we welcome everybody for joining us today. I'll begin with our fiscal 2026 results and the strategic progress positioning us for fiscal 2027, Steve will address the regulatory environment, and Jim will walk through our financials and raised fiscal 2027 outlook. Fiscal 2026 was a year of accelerating earnings power for HealthEquity, Inc. as we delivered strong execution, significant margin expansion, and record HSA sales. We are proud of the team's execution and the progress we are making building this platform for the long term. In the fourth quarter, we delivered 23% adjusted EBITDA growth and more than 500 basis points of adjusted EBITDA margin expansion while adding a record 550,000 HSAs, resulting in more than 1,000,000 new HSAs from sales for the year, bringing total accounts to 17,800,000 and HSA assets to more than $36,000,000,000. Revenue grew 7% year over year and net income increased 89% to $49,700,000. Non-GAAP net income increased 33% and non-GAAP net income per diluted share grew 38% reflecting meaningful margin expansion. What you see in these results is the operating leverage inherent in the HealthEquity, Inc. platform as assets, engagement, and automation scale. We also returned more than $300,000,000 to our shareholders through our share repurchase program in fiscal 2026, reducing diluted shares outstanding by approximately 3%. At the center of our strategy is a flywheel helping members save, spend, and invest for healthcare. As engagement deepens across each dimension, the model becomes more valuable and more efficient. Greater engagement drives spending, balances, and long-term earnings power. We advanced each component in fiscal 2026. On save, total HSA assets increased 14% to more than $36,000,000,000, reinforcing the long-term value embedded in the platform. Importantly, asset growth continues to outpace account growth, reflecting higher balances per member and deeper engagement. On spend, we expanded the way members can use their HSAs by launching our market. Beyond HSAs, our platform also supports flexible spending accounts and commuter benefits, giving employers a single destination to administer the full spectrum of consumer-directed benefits. And on the invest component, HSA investors grew 10% year over year and invested assets now represent more than 50% of total HSA assets. Importantly, about 95% of HSA members still do not reach contribution limits and over 90% have not yet invested, creating significant opportunity for engagement-driven growth. Member engagement increasingly happens through our mobile platform. We now have more than 3,600,000 downloads of our app, reflecting the growing adoption of digital-first healthcare. That shift will only accelerate as younger consumers enter the system expecting to manage healthcare and finances digitally. Another advantage that becomes clear over time is the compounding value of our member cohorts. Each year we add new HSA members who grow balances, increase engagement, and become more valuable as their accounts mature. Some of the most valuable accounts on our platform today are those open more than a decade ago. The scale of our distribution is reflected in one simple fact. We added over 1,000,000 new HSAs from sales a year when the U.S. economy added just 181,000 jobs. That is a powerful reflection of the demand for 200 network partners and over 100,000 clients supported by a member-first secure mobile experience. Built over years, that advantage compounds as accounts mature and HSA assets grow, resulting in increased revenue and cash flow for us, which in turn funds our continued investment in innovation, security, and AI. We are also expanding HSA distribution into a large new retail healthcare channel. Our direct HSA enrollment platform expands access beyond employer-sponsored plans, enabling individuals to open and fund HSAs through our mobile and web experience. That is especially relevant for consumers selecting bronze plans on ACA exchanges, where we see a meaningful new retail distribution opportunity. As millions of households evaluate coverage options, our retail capabilities position us to capture incremental adoption. More broadly, healthcare affordability pressures continue to drive adoption of consumer-directed healthcare. As we previously shared, a third-party study across nearly 1,000,000 employees from several of our largest employer clients found that higher HSA adoption correlated with significantly lower per-employee healthcare costs while employees save more on premiums and taxes and grew their HSA balances. HSAs are becoming core infrastructure for how Americans plan and pay for healthcare. With that structural tailwind, trust remains foundational. On security, we continue to make measurable progress. In the fourth quarter, fraud reimbursements totaled approximately $300,000, putting our exit rate run rate at 0.1 basis points for the quarter, well below our target of one basis point of total HSA assets annually. Our team executed the highest performance level, reducing fraud cost to approximately 1.1 basis points during the fiscal year, placing HealthEquity, Inc. in the top percentile among comparable portfolios in the Visa network. We have also made meaningful progress improving card authorization performance, directly improving the member experience at checkout. Importantly, we are strengthening account protection while simplifying the member experience. Early-stage fraud detection has improved, false positives have declined, and authorization rates continue to strengthen. At the same time, passkey authentication is eliminating traditional passwords, enhancing security while simplifying account access, protecting members while preserving interchange economics. In a category where trust is everything, we are proving security and seamless experience can scale together. With that foundation in place, we have begun building the next-generation healthcare financial operating system, and AI is central to that evolution. AI will enable us to move from a phone- and manual-based service experience to a place where members are guided to resolve issues in real time across multiple channels. With 17,800,000 accounts and more than $36,000,000,000 in assets, we have the data density, transaction velocity, and integration footprint to deploy AI tools for our members responsibly. With millions of members and a growing flow of healthcare spending moving through the platform, our data scale enables AI applications that smaller platforms cannot easily replicate. AI will allow us to scale member engagement while lowering the cost to serve across the platform. We are embedding AI in three ways. First, elevating the member experience. As mentioned previously, our expedited claims solution has begun delivering faster reimbursements to members. HSA Answers and HealthEquity Assist are evolving into intelligent contextual support tools that guide members from voice to agentic chat and digital channels. Second, driving operational efficiency. We are already seeing impact as AI-driven automation reduces service costs while improving resolution speed. Over time, we expect AI-enabled self-service to help members resolve more needs directly within defined workflows, reducing reliance on live service interactions. Third, unlocking personalization at scale. Over time, we expect members to be able to use our AI applications to optimize contributions, identify tax savings opportunities, and make more informed spending and investing decisions. AI is becoming an earnings engine for HealthEquity, Inc., improving member experience while helping lower costs to serve and increase lifetime value per account over time. Additionally, that same intelligence will continue to extend beyond service to how members discover and access healthcare programs and products. That growing flow of healthcare spending creates an opportunity to help members discover and access services directly through our platform. Across the entire industry, Americans spent more than $40,000,000,000 from HSA accounts last year on qualified healthcare. More importantly, they more than replenished those funds by contributing more than $55,000,000,000, growing their HSA balances. As more healthcare spending moves through the platform, we see additional opportunities to bring more value to our members over time. In the fourth quarter, we launched our marketplace with early offerings focused on weight-loss programs, hormone replacement therapy, and healthcare wearables. Globally, these categories are experiencing rapid consumer adoption with an estimated total market spend of more than $100,000,000,000. Over time, we expect to expand our marketplace with additional products, programs, services, and partners. Our marketplace expands engagement inside the HSA while introducing new recurring revenue streams and increasing the share of healthcare spend flowing through our platform. Early adoption has been encouraging. We see strong initial retention rates among participating members. We are also seeing an increasing number of merchants highlighting HSA and FSA eligibility at checkout as a way to increase conversion and drive sales, reinforcing the growing role of tax-advantaged healthcare spending. All of this reinforces the operating leverage visible in our results. We enter fiscal 2027 as a three-year member of the exclusive Rule of 50 club. Members of this exclusive club deliver the sum of revenue growth and adjusted EBITDA margin in excess of 50. This is a designation typically associated with category-leading companies, and it is even more rare to see them sustained for longer periods of time. Based on guidance that Jim will provide in detail in a moment, we intend to make it four years in a row. That is the power of this model. As engagement, assets, and automation scale, earnings scale with them. As more Americans save, spend, and invest through HSAs, our flywheel strengthens. Accounts grow, assets deepen, engagement expands, and operating leverage follows. As we scale distribution, growing assets, expanding engagement, and an AI-enabled platform, HealthEquity, Inc. is building the financial infrastructure for how Americans will pay for healthcare. With that, I will turn it over to Steve to walk through the policy landscape. Steve?

Thank you, Scott. The policy environment for HSAs is the most constructive it has been in two decades. We believe we are at a genuine inflection point with healthcare affordability at the center of the conversation. Last year's Working Families Tax Cut Act, also known as the one big beautiful bill, expanded HSA eligibility to Americans selecting bronze plans offered on ACA exchanges. This law is the most significant structural change to the HSA market since the accounts were created. For the first time, millions of households purchasing coverage through the exchanges compare their plans with an HSA and access the same triple tax advantages that employer-sponsored participants have long benefited. This is a meaningful democratization of a tool that has historically skewed towards employer-covered workers. We continue to work closely with our health plan partners to simplify the process to enroll bronze plan members into HSAs. Beyond the ACA exchange expansion, we are encouraged by the broader legislative momentum. The current administration has put forth a healthcare proposal that includes HSAs as a core component, and several members of Congress have introduced legislation aimed at further expanding HSA eligibility. We are actively engaged with policymakers on both sides of the aisle to share what we see in the real world, how HSAs reduce per-employee healthcare costs, grow member savings, and give families genuine control over their healthcare spending. With HSAs, employers do not need to choose between saving money on benefits and ensuring healthcare financial security for their employees, they can have both. HealthEquity, Inc.'s scale and close partnerships position us well to convert this policy momentum into growth. When legislative changes create new eligible populations, our more than 200 network partners and 100,000 clients allow us to move quickly, educating and enrolling newly eligible members and helping them realize the full financial benefit of HSAs. Importantly, our strategy does not depend on any single legislative outcome. The secular trends towards consumer-directed healthcare are well underway across employers, retail consumers, and policymakers. Policy tailwinds accelerate that trend. I believe these efforts, along with our strategy, bring us closer to realizing the original mission we have for HealthEquity, Inc., to save and improve lives by empowering healthcare consumers. Now I will turn it over to Jim to discuss the financials. Jim?

Thanks, Steve. I will review our fourth quarter and full year fiscal 2026 GAAP and non-GAAP financial results. A reconciliation of the GAAP to non-GAAP measures is included in today's press release. Starting with the fourth quarter, revenue increased 7% year over year to $334,600,000. Service revenue grew 2% year over year to $127,100,000. Custodial revenue increased 12% to $161,400,000, and the annualized yield on HSA cash was 3.57% for the quarter, reflecting high replacement rates and a continued mix shift of HSA cash toward enhanced rates. We ended the year with 58% of HSA cash in enhanced rates contracts. Interchange revenue grew 6% to $46,100,000, outpacing our 4% total account growth. Gross profit was $228,100,000, resulting in 68% gross margin, up from 61% in the fourth quarter last year, an expansion of more than 700 basis points. This reflects reduced fraud costs and continued service efficiency, as Scott detailed earlier. Service costs declined $17,000,000 year over year as fraud reimbursements totaled just $300,000 in the fourth quarter. As Scott mentioned, our investments in security and AI service technologies, our member-first secure mobile experience is delivering greater functionality and member satisfaction at a lower cost to serve. Net income for the fourth quarter was $49,700,000, or $0.58 per share, up 93% compared to the fourth quarter last year. Net income margin was 15%. Non-GAAP net income increased 33% to $81,800,000, and non-GAAP net income per share grew 38% to $0.95. Adjusted EBITDA was $132,900,000, up 23% compared to the fourth quarter last year. Adjusted EBITDA margin expanded over 500 basis points to 40% in the fourth quarter. Turning to the balance sheet, as of 01/31/2026, cash on hand was $319,000,000, as we generated $457,000,000 of cash flow from operations in fiscal 2026. Debt outstanding was approximately $957,000,000 net of issuance costs, after paying down another $25,000,000 of the revolver during the quarter. We repurchased approximately $82,000,000 of our outstanding shares during the quarter and over $300,000,000 during fiscal 2026. We have approximately $178,000,000 remaining on our previously announced share repurchase authorization. Our capital allocation priorities remain consistent: invest in organic growth, maintain optimal balance sheet flexibility to pursue industry consolidation opportunities, and return capital to shareholders. For fiscal 2026, we exceeded our guidance. Revenue was $1,313,000,000, up 9.5% compared to last year. GAAP net income was $215,200,000, or $2.46 per diluted share, with a net income margin at 16%. Non-GAAP net income was $349,800,000, or $4.00 per diluted share. Adjusted EBITDA was $566,000,000, up 20% from the previous year, representing a 43% adjusted EBITDA margin for the fiscal year. Before I detail our raised guidance and assumptions, let me update you on the interest rate forward contracts we discussed on prior calls. The first of these forward rate locks matured in connection with expiring basic rates contracts during the fourth quarter and allowed us to place funds in our enhanced rates program at above-market rates. We expect the remaining interest rate forward contracts, and additional contracts that we may enter, to further de-risk potential interest rate volatility on future HSA cash deposit contracts that flow into our enhanced rates program. At the end of the quarter, we had forward contracts on U.S. Treasury bonds in a notional amount of approximately $2,400,000,000 tied to contract maturities between March 2026 and January 2028, and a blended rate lock of 3.92%, not including the negotiated premium that we receive above the five-year Treasury benchmark on our enhanced rates placements. We expect to execute additional forward interest rate hedges depending on market conditions. We ended fiscal 2026 with an average yield of 3.53% on HSA cash assets and expect the average yield on HSA cash will be approximately 3.8% for fiscal 2027. Our custodial yield assumptions take into account forward hedges for the maturing contracts in fiscal 2027, and the projected HSA cash deployments, which are detailed in today's release. We also consider a range of forward-looking market indicators, including the secured overnight financing rate and mid-duration Treasury forward curves. These indicators are, of course, subject to change and are not perfect predictors of future market conditions, but they provide a consistent framework for how we set our outlook. Given our momentum in new account sales and assets, we are raising our guidance for fiscal 2027. This increase reflects strong execution to date and increased visibility into our fiscal 2027 trajectory. We now expect revenue between $1,405,000,000 and $1,415,000,000. GAAP net income is expected to be between $239,000,000 to $246,000,000, or $2.78 to $2.85 per share. We expect non-GAAP net income to be between $392,000,000 and $400,000,000, or $4.56 to $4.65 per share, based upon an estimated 86,000,000 shares outstanding for the year. Finally, we expect adjusted EBITDA to be between $618,000,000 and $628,000,000. We are pleased with how we exited fiscal 2026 and expect to make additional progress on growth and margin expansion in fiscal 2027. Our outlook reflects continued revenue growth, sustained margin expansion, and disciplined investment in technology, security, and sales and marketing. Our guidance also assumes continued capital return and a strong balance sheet. We expect to make additional share repurchases under the remaining $178,000,000 repurchase authorization and may further reduce borrowings on our revolver during fiscal 2027. With continued strong cash flows and available revolver capacity, we will maintain ample flexibility for portfolio acquisitions should attractive opportunities arise. Our guidance assumes GAAP and non-GAAP income tax rates of 25% and a diluted share count of 86,000,000, including common share equivalents. As in prior periods, our fiscal 2027 guidance includes a reconciliation of GAAP to the non-GAAP metrics, and a definition of all non-GAAP metrics can be found in today's earnings release. While we exclude the amortization of acquired intangible assets from non-GAAP net income, revenue generated from those acquired intangible assets is included. As a reminder, we plan to provide fiscal 2028 guidance following fiscal year 2027. Operator, please open the line for questions.

We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Our first question today is from Mark Marcon with Baird. Please go ahead.

Hey, good afternoon. Congratulations on the strong quarter and the raised guidance. I wanted to ask two questions. One, I thought the gross margin expansion was very impressive. If we strip out the fraud costs and adjust for that in the year ago, you still ended up having significant gross margin expansion despite the fact that you ended up having a lot of implementations in the fourth quarter. And you only have 3.7 or 3,600,000 downloads out of the 10.6 that you potentially could have. So I am wondering, how should we think about the gross margin potential going forward, particularly as you continue to roll out the AI initiatives and get more and more of the account holders to download the app and streamline their interactions.

Is that your was that your one question?

You said you had two. That is one, and then there is another.

Oh, okay. I see a follow-up. Yeah. So on the gross margin expansion, look, we are incredibly proud of the work, obviously, that we did in driving down fraud costs, reflected in tremendous progress there. We are at or below our target run rate there. I think the other thing you are highlighting is also the progress that we have made on the service cost per account, and we are driving those operational efficiencies through technology changes, use of AI, automating many of the manual and phone-based interactions that we have today, while also improving service. We know that we are at the very beginning of our journey on AI, Mark, as we have talked about, but our team is maniacally focused on delivering a consistent end-to-end experience for our members and to be able to do that more efficiently. So I really think that we have got tremendous opportunities to continue to drive that gross margin expansion with a particular focus on the way that we deliver our service. And again, when we think about the opportunities there, it is obviously in how we serve our members, but it is also in a lot of the processes that we have with clients. And that is not something that we focused on as much last year, and it is going to be a big area for us, just to be more efficient in terms of how we work with new clients, how we onboard new members that are coming in through our client relationships. And, again, I expect us to make meaningful progress again this year on that.

That is great. And just a quick follow-up. It is early in terms of expanding the platform in terms of having curated, whether it is weight loss or hormone or devices. But what are you seeing in terms of the level of engagement with the early users that have started to procure some of the services through the platform? What has the engagement gone up like? And what are you seeing in terms of the cash that they are actually putting into the system as they reenrolled?

So we are still very early in that. And we have only got really three programs in weight loss and in hormone replacement and then in the wearables category. The metrics that we are going to be driving obviously starts with just engagement on the mobile platform. I do not think I answered your question on mobile, but driving our members into the mobile experience, we think, is a place where they start engagement. And then we want to be able to provide seamless opportunities where they are spending money on the programs that make sense and make sense for us to be able to introduce on it. And so what we are looking at is really members that sign up for those programs. If it is a program that persists over a longer period of time, for example, in weight loss, we want to make sure that they stay in that program, they choose to stay in that program, and you will be looking at traditional metrics like churn. We have been really pleased with the number of members that have signed up in those programs, the number of members that have stayed in those programs. And, again, we have only got a couple of months of cohorts to look at that, but we are very pleased with that progress. And then over time we are going to be introducing again other programs, other partners, other services. And again, the limited programs that we have today represent, as I said in my prepared comments, a market opportunity of over $100,000,000,000 of spend on things that consumers are already spending those dollars on. So we are very optimistic about the progress that we are seeing. And again, as you think about that relative to the guide that we have given, we have not incorporated a material marketplace revenue in our guide for this next year. So if we perform and if that performs well, we would hope for that to become a material part of our revenue going forward. Thanks, Mark.

The next question is from Stan Berenshteyn with Wells Fargo. Please go ahead.

Hi, thanks so much. A couple of questions. First, maybe I missed this. I had some issues logging in. But do you have any comments related to the conversion you are getting out of the ACA cohort? If you can comment on that and what the cadence there is.

Yeah, so I will talk about it and Steve can talk about how that is evolving. You know, as we said from the very beginning, this represents about a 10% expansion to the overall market in terms of potential accounts that could be added. We have said that those accounts will come over time. We really only started to see those accounts come in starting in January, associated with that enrollment season. Again, these are going to come into the market differently than associated with an employer, meaning that we will be looking to our plan partners to be able to go to market efficiently like we do, and it is also opened up via a retail one-to-one offering. We have the most attractive match for members that are signing up through that retail channel. We want to encourage them to do that, and we still see significant opportunity ahead because we are just very early stages of those that are moving to bronze plans for one, which we are seeing momentum there. And then two, just the awareness that historically these plans have not been tied or associated with qualification for an HSA and that member needs to be able to know that they are eligible. And so again, going at that with our plan partners is the way we are going to go about it. Again, we saw really great progress again in January with respect to how those are coming in. Steve, would you add to that?

I think you captured most of it. Stan, we are in early innings. As you know, the law was not signed until July 4, and at that point all the plans had been filed. And so then they were already named. It was really hard to find out when people ended up on the exchanges in November, December, January if they were even HSA qualified. Obviously, we have a head start on that now. So the goal, like I pointed out, is just make it really simple. One of the first things HealthEquity, Inc. did when we came out as a company was to make it easy for people in the employed markets to enroll in HSAs. I mean, most of our competitors are way behind us. You would have to go sign up for the high-deductible plan with your employer, then your employer would say, now go find yourself a HSA provider, and it was non-integrated. So we became the leader in the HSA space by integrating the benefits that you get from your employer. And, of course, our competitors followed suit, and that is not that much of innovation. We are seeking to do the same kind of stuff in the exchange markets where if somebody enrolls in a bronze plan it will be super simple. It will be integrated, get the account open, and then the key is that we have that relationship with that member to start helping them understand how to optimize that account. Fund it, spend through the account, use the marketplace, things like that. Early innings, but we are encouraged, and now at least we have a little bit of a running head start because the law did not pass after the plans were filed, if that makes sense.

That is helpful. And then a quick one here for Jim just to give him some airtime as well. Just big picture, I know you mentioned Rule of 50. You have another tailwind from asset research that is going to impact next year presumably. You have a lot of cash that you are going to be generating. What are your plans in terms of investing in the business? And do they change as you think about having that tailwind pretty much sunset after next year? Thanks.

Yeah. No. I mean, I think as we sort of highlighted, right, there is no real change in our capital allocation philosophy. You are effectively seeing us using our free cash flow both to repurchase shares and to chip away at the line of credit we borrowed for the BenefitWallet deal. So no real change there. And you are right. We have got $4-plus billion that is going to reprice this year. Agreed, not as much influential on this year's potential growth than it will be for next year. But we fund the business first, and then with what is left is what we are repurchasing shares with and chipping away at the debt with what is left.

Right. Thank you.

The next question is from George Hill with Deutsche Bank. Please go ahead.

Yes. Hi. It is Max Young for George. Thanks for taking the question. Could you talk about are there any early trends showing that members are reallocating HSA dollars toward GLP-1 marketplace offerings? And how might that influence custodial revenue and asset allocation behavior over time? Thanks.

Thanks, Max. Yeah. So the early trends, again, we launched it in Q4. We have got three programs. We have had a significant number of our members sign up to those programs. As I said, it is going to be important that they sign up, they continue to stay in those programs, and that we expand the marketplace offerings over time. And so it is not just GLP or weight-loss programs, HRT and wearables. And so like I said, we are going to be driving that to become a material part of our revenue that will show up in service revenue, again over time. And what we see as our opportunity is that we are really connecting those dollars that are already being spent out of HSAs on these types of programs, bringing it into the platform experience. And the other trend that we are really excited about, and this is why we believe so strongly in the spend flywheel, is the behavior that we see is that when people spend on marketplace and when they spend dollars, they contribute those dollars and more. So they end up becoming larger savers, which is also an economic flywheel. We know also, and we have made great progress about moving from savers to spenders to also investors. An investor actually spends and saves more. So moving our members through that continuum is really important to driving what has always been a flywheel to the business. So the early trends are very positive. And, again, we expect that program to expand over time. Thanks, Max.

The next question is from Steven Valiquette with Mizuho Securities. Please go ahead.

Thanks. Good afternoon, everybody. Just a quick question really on the macro and the unemployment trends and how you are sort of thinking about that in the guidance for fiscal 2027 that you just provided. Just any color in your thoughts and how you have factored that in would be helpful. Thanks.

Yeah, certainly we observed the macro last year, 181,000 jobs created in the United States. I think what we see out in the market, and again against that backdrop, we delivered record HSA sales. That is represented by an affordability challenge for healthcare for employers, which is to say that the cost of benefits that employers are providing are growing much faster than wages. And so the thing that we are doing with our employers is giving them data and information and products to help them drive greater adoption, greater contribution, and if they follow those recommendations, they can reduce their cost per employee per year significantly in the thousands of dollars. And so healthcare affordability is driving growth in the market maybe more so than the macro headwinds. The other thing that drives this as well is essentially how Americans are feeling and are concerned about healthcare. So healthcare affordability for most Americans is the central issue as well, which again drives towards greater adoption of HSAs as a mechanism to be prepared financially for their future health. We do not see the macro environment changing. We think it is going to continue into this year. We think the other counteracting forces there around healthcare affordability and driving greater adoption are things like we have seen this year that have enabled us to be able to drive significant performance in the business despite that weaker macro backdrop.

Okay. Got it. Thanks.

Thanks, Steven.

Yeah. So this kind of builds on Mark's question at the very beginning. Driving engagement is really important to driving the flywheel of save, spend, invest. We will actually measure engagement by how often people are engaging on the platform. It starts principally with the mobile device and the app. And so as you can see in the numbers that we put up this year, we have been driving several million downloads of our app. That is step one. Step two is we observe monthly active users of that app. That goes into just the quality of the overall app experience. Is it engaging? Is there a reason to come back? Marketplace is one of those things that gives an opportunity to come back. As we drive more engagement, again, all of the flywheels of save, spend, and invest get greater. So we are thinking about the business at the core central feature as what is the quality of that product experience? How engaging can we make it? Can we make it more routine in terms of healthcare, and then can we drive greater usage. One of the great advantages that we have is since our experience is also integrated already with our plan partners, every time you go to see a doctor, every time you go have a healthcare visit, you fulfill a pharmacy prescription, all of that is integrated into the experience. Those dollars are loaded into the mobile wallet. At any point in time where you might need to withdraw those dollars tax-free, you can do that. Every single time you do something, that is integrated into our experience. And that is a really important differentiator for us relative to the competition because we have such a deep integrated experience with our plan partners in going to the market, and that is just another way that helps drive that monthly usage and monthly engagement in the platform. And I still feel like we are actually also in the very early innings of what that product experience is going to look like because we are investing in that member-first experience, which is a new muscle for us.

The next question is from Peter Warrandorf with Barclays. Please go ahead.

Hey, thanks for the question. Actually just wanted to talk to you about the member lives that are coming in through the bronze plans versus traditional employee-sponsored plans. I mean, is there a difference in terms of, I know it is early, how those members are saving or spending? Just trying to understand maybe the relative value for those customers versus some of the traditional ones. Thanks.

Yeah. Remember, in terms of that cohort, it is a few months old. And so it is so early. The early data points are encouraging in the sense that we are seeing really strong contributions. The performance of these accounts will evolve over time. When you think about the value of any HSA, the biggest driver of value is essentially just time. And so that time component is really important. We will be looking at those cohorts as they come in. And so, again, I think what we see in the early behavior is nice contributions, and those contributions are not coming with an employer match, which is also quite interesting. Again, remember that these are also coming to the market differently, meaning we might have to acquire that customer individually. We provide a bonus match for them if they contribute and those dollars stay in the account. That match is the highest of anybody in the industry. So we are driving that retail, and as Steve talked about, we are in the early phases of partner integration to be able to bring more of those bronze participants in at a greater scale through our partner relationships.

Great. And then quickly, can I just follow up on the competitive landscape? Over this last selling season, did you see any pressure anywhere, any kind of pricing pressure, anything like that?

The competitive landscape for us, I think, is reflected in the strength of our retention. So we have north of 98% retention of revenue from our existing accounts this year. We are also winning and expanding the market and taking market share greater than market growth. So that kind of reflects our ability to both retain the existing business as well as grow in competition. What I would say early into the sales season, and we are so early, but we are seeing a really strong pipeline develop in large enterprises, which we did not see this year. We have already had some really nice enterprise wins that are taking business from the competitors. And so we like that. We feel really strong about our ability to continue to retain the business, again focused on the quality of the service that we are providing and the quality of that product experience. And so I think, as you have seen in the last number of years, we are growing faster than the rest of the market, and we are taking more share. Thanks, Peter.

I do not think there is any correlation between the massive adoption of AI and consolidation in this industry. I think we see significant opportunity in cost and productivity enhancements across every function of the business, but I do not think it has any correlation to the M&A market. And the reason for that is that when you look at the long tail of where HSA assets are held, it is held by banks that might be focused on a deposit. It might be a retirement company that is focused on retirement assets. That is the long tail of this market. And I do not see AI as being a driver or accelerator to that. Thanks, Deb. Next question is from David Larsen with BTIG. Please go ahead.

Hi, congratulations on the good quarter. One of the questions I get asked from investors is, okay, if interest rates decline, is not that going to pressure your custodial revenue growth? So if interest rates were to decline by 50 basis points, say, in the back half of this year, when would that manifest in the form of slightly lower custodial yield growth? Would that take, like, three years to manifest? Thank you.

Go ahead, Jim. You want to take that?

Yeah. Sure. I mean, obviously, the movement of cash into the enhanced rates program would significantly slow down that movement. So I do not think about it that way. What would directly impact us is if short rates go down, the cash that we have deposited overnight, which is about $1,500,000,000, would be directly impacted. Now that is not particularly meaningful to the total quantum of cash that we deposit, but you should really just think of it as whatever is being replaced at that point in time that we have not hedged yet is going to be placed at 50 basis points lower than it would have been placed today or that the forward curve says it is going to be. The forward curve is strongly, deeply sloped up and to the right. So that is reflected in our guidance. That would be reflected in our long-term view that rates are going up, not down. The rates that matter to us, the five-year rates, short rates are forward curve is expected to go down. That is also factored into our guidance. So the outlook includes current expectations on rates. All things equal, we like higher rates than lower rates. But it is becoming less of an issue. Now we are at almost 60% at year end in enhanced rates. It does not take rocket science to look at the maturity curve and just say, hey, we are going to be pushing 80% in enhanced rates in the relatively near future. And then we are going to sort of call end of job on this basic rates to enhanced rates migration. And then what you should expect to earn in the HSA cash yield is the ten-year moving average of the five-year Treasury. So any movement within the year is only going to potentially have one-tenth of the impact on the entire portfolio because that is how those contracts generally reprice. Sort of one-tenth of it reprices each year at current rates. So you need a prolonged downward shift in rates, I should say, to really move that average. You are going to get a very slow moving average once we are complete with this migration, and that was the entire purpose of this. The extra alpha was nice, but the purpose of this migration was to reduce the standard deviation of these returns. And what I would love for you all to believe when we are done is that custodial revenue is actually just monthly recurring revenue, no different than my other lines. Will I get you all the way there? That remains to be seen, but that was the purpose of this enhanced rates migration strategy.

That is very helpful. Thank you. And then in my mind, HSAs are a fantastic mechanism, probably the best, to improve cost trend. And since most employers are self-insured, there is enormous value in the HSAs. And with the marketplace, you are simply enhancing that overall value in my view. So, Scott, I think you mentioned you had four programs in the marketplace. GLP-1s is one of them. What are the other three? And then what sort of other programs would you add over time and how much improvement in cost trend could these marketplace products provide to your clients? And have any of your clients purchased any of them? Thanks. That is just one question. Right?

Yeah. So one. To get so yeah. David, a couple of things. I mean, again, when you just think about the HSA industry overall, you do have to step back and remember that 95% of members do not contribute at the max. 92% do not invest this product, and yet it is a triple tax-advantaged product. And so we want to encourage people to actually use the product, and that again is why we go back to the flywheel. On marketplace specifically, again, repeating what I said before, we have three programs today. The other areas that we are going to expand are going to be other areas that are typically outside of what would be covered by insurance but are programs that consumers are spending a lot of money on but have to access licensed, qualified physicians to be able to do that. So think of all the opportunities around labs or skin or hair or products that are unlocked because of a doctor's prescription. In the wearable space, there are all sorts of interesting opportunities in digital health of products that we can bring into the marketplace. So there is not really a limit. The marketplace opportunity is in the hundreds and hundreds of billions of dollars that consumers are already spending dollars on. It is really just a question of what makes sense for us to naturally include that product into the marketplace. And again, what we see is that those consumers that spend in the marketplace, in addition to interchange, which we already monetize, we can monetize either in a take rate or an administrative fee associated with a program, and in that case, we are driving average revenue per user up over time, or per member up over time. Thanks, David.

Yeah. I can take that one. Yeah. So you should not think of them as the same person. These are different parts of the cohorts that Scott was talking about earlier, different points along the journey. So in general, if you think of a higher-balance or just an older account, they are going to have a certain amount of assets and cash, and they are not going to grow or shrink that amount ever. So all incremental contributions are going to go into the investment account. All spending is going to come out of the investment account. So that is the marginal account that they are playing with. Yes, the cash, in reality, comes out of the checking account and gets replenished immediately from the investment account, but functionally, that is what is happening. So the accounts that are growing our total cash balance are the new accounts who have not built those balances yet. So there is a large cohort of HSAs that do not do anything in their cash account. They are just zero growth.

This concludes our question and answer session. I would like to turn the conference back over to Scott Cutler for any closing remarks.

Thanks everybody for the thoughtful questions, for the engaging dialogue. Hopefully the takeaway is that we are really pleased with the results for the quarter and for the year. We are optimistic about the future. As assets and engagement scale, the earning power of this platform continues to expand, and we really look forward to updating you on our continued progress as we go throughout this year. So thank you very much.