Good day, and thank you for standing by, and welcome to HealthEquity First Quarter 2023 Earnings Call. I would now like to hand the conference over to your host today, Richard Putnam..

Thank you, Justin. Good afternoon, welcome to HealthEquity's first fiscal year 2023 earnings conference call. My name is Richard Putnam. I do Investor Relations here for HealthEquity and joining me today is Jon Kessler, President and CEO; Dr.

Steve Neeleman our Vice-Chair and Founder of the Company; Tyson Murdock, the company's Executive Vice President and CFO; and Ted Bloomberg, Executive Vice President and Chief Operating Officer. Before I turn the call over to Jon, I have two important reminders.

First, a press release announcing our financial results for the first quarter of fiscal year 2023 was issued after the market closed this afternoon. The financial results in this press release includes contributions from our wholly-owned subsidiary WageWorks and accounts it administers.

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 and the comparable GAAP measure 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 questions today reflect management's view as of today June 6, 2022, and 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 the forward-looking statements made today. These forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from the statements made here today.

We caution against placing undue reliance on these forward-looking statements and we also encourage you to review the discussion of these factors and other risks that may affect our future results, as well as our market price of our stock detailed in our latest Annual Report on Form 10-K and any 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, we will open up the call for Q&A with the help of our operator. I'll now turn the call over to our CEO, Jon Kessler..

Thank you, Richard. Well done as always. Hello, everyone, and thanks for joining us this lovely afternoon. Today, we are announcing a strong start to HealthEquity’s fiscal '23 with results for the first quarter ended April 30. I will discuss our Q1 results and then I've got my three amigos with me here.

Ted will review operations, Tyson will review the financial details of the quarter and provide updated guidance, and Steve will be here for Q&A. I guess that makes me El Guapo, anyways everyone has their own El Guapo. Looking first to the five key metrics that drive our business.

Revenue grew 12% to $205.7 million versus $184.2 million in the first quarter of last year, which reflects our recent acquisitions and growth and accounts and assets.

Adjusted EBITDA of $58.3 million was down 1% from the first quarter last year of -- which was $59.0 million as we exited Q4 busy season with higher than normal service staffing levels as -- that we discussed in March and lower year-over-year custodial yields versus the year ago.

HSA members reached $7.4 million, up 26% year-over-year, including 12% organically and HealthEquity HSA members grew their assets to a record $20.3 billion at quarter's end, up an even larger 35% from a year ago. Total accounts grew to 14.5 million at quarter's end.

As Ted's going to detail, Team Purple started fiscal '23 with very strong sales results, including a fiscal first quarter record of 159,000 new HSA's, up 38% from 115,000 new HSA's opened in Q1 of last year.

HSA investments grew a net $650 million in the quarter and HSA members grew 36% year-over-year, even with the substantial market headwinds that we're all aware of as members and their employers continue to contribute and invest. The average balance of HSA members is up a healthy 7% year-over-year, notwithstanding the above headwinds.

Also in Q1, we welcome members from Health Savings Administrators, which is the 11th largest or was the 11th largest HSA administrator on Devenir's 2021 lead tables in its year-end market report.

And adding as reported by Devenir, Health Savings Administrators assets to HealthEquity would place HealthEquity at the top of the league table in terms of both account and asset market share, that’s good.

As Tyson will detail, custodial yields in Q1 were stronger than previous guidance, driven by our members continuing to place more of their HSA cash in our enhanced rates product and by monetary tightening by central banks so far this year to contain inflationary pressures.

HealthEquity and our team members are subject to those pressures as well of course, but we expect the incremental revenue from higher yields will drive increased profit and reduce leverage, even as we invest in our platform for future growth. I will now turn the call over to Ted to review operations..

Thanks, Jon. I'm happy to report sales are continuing their record-setting pace. You just heard from Jon, net sales were up 38%, compared to last year's first quarter, driven by organic growth rates and strong performance in the mid-market space.

Our partner sales efforts are paying off and we have been the beneficiary of healthy hiring trends among our clients. The work we've done over the last two years on our engagement messaging has helped us become an ally to our clients as they seek to fight cost pressures, while increasing the value and attractiveness of their employee benefits.

With peak season behind us, our hard working Purple Army is wrapping our arms around our members, clients and partners and developing new ways of servicing them.

We're making investments as part of our commit to Purple program to meet our constituents where they are, such as expanding our chat capabilities, deploying self-service tools that are resonating with our members, and making it easier to start or deepen our relationship with us.

In client service, process improvements and self-service are driving down average issue resolution time year-over-year. And on the broker side, we have developed a relationship model for top offices that allows them a single point of contact for anything they might need or request from brokers that we were able to deliver this quarter.

We know that Purple service is the best salesperson and we will continue to invest here. Those service improvements have been enabled by our aggressive approach to integrations over the past few years, migrating clients and members from over a dozen platforms to a core three for HSA, COBRA and CDB.

These efforts helped us achieve $80 million in run rate synergies, allowed us to invest back into the business even during a low interest rate environment and provided an improved customer experience.

The team is now focused on doing the same for our Further acquisition, consolidating teams and platforms to ensure a Purple experience and achieving synergies and cost savings along the way. As mentioned previously, we exited busy season more heavily staffed than usual. The work to address this is now substantially complete.

Finally, we're innovating on the product side as well. For example, as employers adjust to the new normal and build return to office programs, we are right there with them promoting a variety of lifestyle accounts an employer-sponsored plans that allow them to attract and retain talent in a competitive job market with unique and innovative offerings.

We are well positioned to offer more of these accounts, because we have a long track record of delivering both, pre-tax and post-tax benefit in an engaging and simple way. There is much more work to be done, but we are pleased with our progress.

A huge thank you to the HealthEquity team for what you have accomplished and all that you will accomplish moving forward. Now, I'll turn it over to Tyson for a closer review of the financials..

Thanks, Ted. I will review our first quarter GAAP and non-GAAP financial results, a reconciliation of GAAP measures to non-GAAP measures is found in today's press release.

First quarter revenue increased 12% benefiting from a record fiscal '22 selling season, recent acquisitions, a better-than-expected rate environment and as members increased spending. Service revenue increased 2% to $104.3 million, representing 51% of total revenue in the quarter.

The increase is primarily attributable to growth in HSA and the addition of the Further acquisition partially offset by a decrease in CDB service revenue.

Custodial revenue grew 26% to $59.4 million in the first quarter, compared to $47 million in the prior year first quarter as 28% growth in average HSA cash and 47% growth in average HSA investments more than offset a 10 basis point decline in the annualized yield on HSA cash.

HSA Asset growth benefited from a strong selling season and multiple HSA portfolio and other acquisitions completed since the first quarter of last year. The annualized interest rate yield was 169 basis points on HSA cash during the first quarter of this year.

This yield is a blended rate for all HSA cash during the quarter and represents a better-than-expected yield. The HSA Asset table of today's press release provides additional details. You will notice a slight change in our presentation and that we longer break out HSA cash with and without yield.

We have completed all HSA asset migrations related to WageWorks for the all HSA cash as instruments providing yield. Interchange revenue grew 21% to $42 million, representing 20% of total revenue in the quarter.

The interchange revenue increase was primarily due to strong sales and M&A during the past year, driving growth in average total accounts, as well as a modest increase in spend per account across our platforms in the quarter. Gross profit was $111.2 million, compared to $103.1 million in the first quarter of last year.

Gross margin was 54% in the quarter. We previously discussed, the service cost included $5 million to $7 million of expense primarily incurred in Q1, due to maintained elevated service -- servicing capacity in Q1 in response to record sales volumes, portfolio acquisitions, platform migration activity and pandemic-related attrition and other risks.

Operating expenses were $118.5 million or 58% of revenue, including amortization of acquired intangible assets and merger integration expense, which together represented 16% of revenue. Loss from operations was $7.3 million.

Net loss for the first quarter was $13.6 million or a loss of $0.16 per share on a GAAP EPS basis, compared to a net loss of $2.6 million or $0.03 per share in the prior year. Our GAAP, non-GAAP net income was $22.7 million for the first quarter of this year, compared to $31 million a year ago.

Non-GAAP net income per share was $0.27 per share, compared to $0.38 per share last year. Adjusted EBITDA for the quarter was $58.3 million and adjusted EBITDA margin was 28%.

Turning to the balance sheet as of April 30th, 2022, we had $161 million of cash and cash equivalents with $929 million of debt outstanding, net of issuance costs with no outstanding amounts drawn on our $1 billion line of credit.

Based on where we ended the first quarter and our current view of benefits and economic -- and the economic environment, we are providing the following revision to our guidance for fiscal '23.

Revenue for fiscal '23 to range between $827 million and $837 million, non-GAAP net income to be between $103 million and $111 million, resulting in non-GAAP diluted net income between $1.23 and $1.32 per share based upon an estimated 84 million shares outstanding for the year and adjusted EBITDA to be between $249 million and $259 million.

Today's guidance includes our most recent estimate of service, custodial, and interchange revenue based on results to-date. Our guidance assumes a yield on HSA cash of approximately 170 basis points and includes only the actions that Fed has taken to-date and excludes any additional broadly anticipated Fed actions for the remainder of this year.

Changes in rates before the end of our fiscal year will only benefit the HSA cash that is in short-term floating-rate vehicles in fiscal '23, but may have a much greater impact on fiscal '24 and beyond as we roll over fixed rate contracts and place new HSA cash coming in from open enrollment at the end of the year.

While we don't give quarterly guidance, looking forward to the second quarter, we want to remind you that the second quarter last year included non-recurring revenue items related to pandemic relief legislation. First, we will not have COBRA subsidy work in Q2 this year.

Second, we are not expecting Q2 interchange revenue growth comparable to last year when our members were using rollover FSA dollars in advance of the expiration of pandemic relief. We continue to be conservative in our commuter outlook with limited return to work modeled into our guidance.

We have seen three straight quarters of modest increases in commuter accounts, but remain cautious about modeling in an aggressive rebound.

Our guidance today also includes the impact of inflation on our service cost and increase in expense for resumption of travel by our sales team and a modest inflationary increase in engineering and security costs. The outlook for fiscal '23 assumes a projected statutory income tax rate of approximately 25% and diluted share count of 84 million.

As we have done in recent reporting periods, our full-year guidance includes a detailed reconciliation of GAAP to the non-GAAP metrics provided in the earnings release and a definition of all such items is included at the end of the earnings release.

In addition, while the amortization of acquired intangibles is being excluded from non-GAAP net income the revenue generated from those acquired tangible assets is not excluded. And with that, I'll turn the call back over to Jon for some closing remarks..

Thank you, Tyson well done. HealthEquity finds itself in a -- I think, a far better position today than it did a few quarters ago as -- and that's a function of the hard work of the team, as well as in previous interest rate, pandemic and integration headwinds starting to become tailwinds for the business.

You know, as I watch CNBC or whatever, the current macro environment might be forcing other technology-driven growth companies to scale back for HealthEquity and us -- in this team, it really gives us the opportunity to lean in and that's what we're going to do.

So with that, let's open the call up to questions, operator?.

Thank you. [Operator Instructions] And our first question comes from Anne Samuel from JPMorgan. Your line is now open..

Hi, good afternoon, guys. Congrats on a great quarter..

Thank you..

I was hoping, if you could touch a little bit on the enhanced rates product.

Just wondering how much of the higher yield was just due to better penetration there? And then maybe what are some of the drivers of that penetration of enhanced yields coming in better than you expected?.

Why don't I -- I'm going to just start with Tyson there on commentary on the higher yields we saw in the quarter and then turn to Ted for some commentary on the movement on enhanced rates..

Yes. Hey, Anne. The higher yields really relate to the variable component of the HSA cash that we have. And so when you think about the Fed increases since we last reported of about of 50 basis points, that's really the increase on top of just the goodness we saw for Q1 and that's really what that is.

From an enhanced rate perspective, we -- I'll let -- I'll turn that over to Ted let him talk a little bit about penetration there.

Ted?.

Sure. Hi, Anne. We've been undergoing a series of different efforts in order to educate our members and clients and other constituents about the availability of the enhanced rates program and all of those are conspiring to put us in pretty good shape to hit that year-end 20% target for cash in enhanced rates.

Some of that engagement on the website, in the app when you call us some of it is how we talk to clients and partners about how they can offer it and a lot of it is new sales where the enhanced rate offering is the default.

So those are sort of the three big tools that we're using in order to try to achieve that goal of 20% of our cash in enhanced rates by the end of the year..

That's really helpful. Thank you. And then, Jon, you commented a little bit on the macro environment, things have obviously changed somewhat since your last call when you talked about labor shortages driving HSA adoption.

I know you're not planning on making any changes at your company, but are you seeing anything maybe within your customers around adoption? Thanks..

Yes. I mean, in the first quarter, we saw very strong hiring and that was a driver of our HSA sales. So, I don't have a crystal ball, but I can read the same papers and stuff that you do. As Ted says I am what to say. And so with efforts to slow the pace of the economy, we obviously all can look at that and decide for ourselves what it means.

But I think for HealthEquity, there are a couple of points, the first is that HSAs and CDBs are a win-win. The more employees contribute to these products, employee save money and our client save money, because their -- those amounts that are contributed aren't subject to payroll tax.

And then, of course, in the case of HSAs, it's -- the products themselves are part of a broader effort to keep cost under control. And so if, for example, we have recession that focus employers and employees on cost-cutting, we think we have a great tool.

And within that context, one of the things that we think is relevant is that, because our revenues are to a significant degree a function of our custodial yields and alike.

I mean, you can kind of think about that as a form of pricing power, that is to say those and our interchange will -- aren't really determined by the need to raise rates or renegotiate with clients or the alike. And so that's I think a pretty helpful factor for us.

To the extent that we were to go into a period that would be both declining growth rates, but persistent inflation that seems like a good situation. So, that's -- those are the things we think about for the business..

Very helpful. Thanks, guys..

Thank you, Anne..

And thank you. And our next question comes from Greg Peters from Raymond James. Your line is now open..

Hey, Greg..

Good afternoon. The three Amigos and El Guapo, I love the reference. I guess, in the spirit of that reference, I'd like to continue to focus on the plethora of net new HSAs.

So you just commented on the market conditions, I was wondering if you could talk about the other drivers of net new HSA's, which would be retention and then what the competitors that you're in the market competing against how they're performing relative to, because it seems like you might be picking up market share?.

Ted, you want to?.

Sure, I'll start and then you jump in. Greg, I think I alluded to it briefly in my comments, we were definitely the beneficiary. We're the beneficiary of robust hiring by our clients. In Q1, which really helped and being the market leader per Devenir we probably have the biggest sales to catch that wind.

And then, we've talked in the past about how one of the differentiators for HealthEquity is our distribution network, our tremendous partnerships with health plans, the health plan relationships we have acquired when we bought Further, and the tremendous work that the team has done to sort of build closer partnerships with those distribution partners, health plans and others, we think gives us a durable advantage in driving HSAs and we've seen the results of that.

So, kudos to the teams that manage those relationships. And then, we've gotten smarter where to focus and kind of how to fish where the fish are and kudos to our sales leadership team for driving those efforts.

And so we feel like we're spending time where we can win and that's I alluded in my comments to the middle market, which is one place where we've really seen some growth. I don't have a ton to say about, Jon, maybe you do about competitors this early in the year. It's just a little bit hard for us to tell.

Just like you we sort of leverage Devenir to get a sense of an analytical sense of how our competitors are doing. Anecdotally, our strong competitors remain our strong competitors..

Yes, I don't have much to add to that other than I would be remiss if I didn't throw a tiny bit of cold water in the sense that we don't expect that we're going to grow HSA sales for the year.

While we don't give guidance on this topic, it's not within our range of expectations to grow them 38% for the full-year relative to what was a fantastic year last year. Hiring was clearly a big factor.

We had some folks that were like late -- sort of late breakers particularly from our partners as we got new partners up enrolling and kind of working some of the kinks out and so forth.

So we would not want you to go crazy and we're not going to go crazy on projecting that number out to the full-year, or the subsequent years, but it's a great way to start here..

Okay. Well, message delivered, we won't go crazy. The second question or the follow-up question would be, in your comments, I think Ted, you said it, but you were talking about the service revenue results or maybe I'm sorry, maybe it was Tyson and you're talking about the service revenue was affected in part by a decrease in CDB service revenue.

And I was wondering if you could unpack what happened with service revenue in the first quarter, not only from an absolute number perspective, but from a margin perspective..

Yes.

Tyson, you want to, do this one?.

I do, yes. So, yes, good question, Greg. Thanks, I mean one of the thing is to point out, I mean, that HSA service revenue grew relative to the growth we're just talking about. So that was an area of alignment that we expected.

Just really quick on the margin side, I did talk about the margin headwind again that we had in Q1 that will maybe flow a little bit in the Q2. So there was -- there's kind of that including that year-on-year view, as we just had a huge year coming out of that January timeframe. And then the real plenty of your question is on the CDB part.

And, again, this is just a factor what we talked about when we were -- we talked about revenue before COBRA uptake is lower, due to fewer people know in the pool and less uptake, right, in FSA HRA pricing, it could be a little bit down just relative to all the migrations and things that we've done and so those would be the main reasons why that's occurring.

A lot of that through getting through integration has now been stabilized and we're getting a lot better data and views of the business. And so, really working and making a lot of progress in the areas of how we think about pricing and so forth..

Hey, I can't help myself, but just as a follow-up on that point.

Tyson, you mentioned the second quarter guidance, you don't have the benefit from the legislation last year that was about $10 million of additional COBRA revenue, is that correct?.

Yes. Good point. I mean that was the main quarter by far and that was -- that we've called that out of $10 million, there is maybe a little bit in the following quarter as well. Either side in most of the cost in there too, so that's a great point for people to make sure that they think about when they're modeling out our Q2..

Just I can't help myself, the margin on that $10 million.

Is it consistent with the reported quarter average for the second quarter or was there something unusual on that?.

It's -- I can probably take that -- well go ahead Ted --.

Well, no, I was just going to say we haven't necessarily ever talked about that, I think, Jon, I don't know what you're going to say, but I don't necessarily have a comment on how to think about that..

That's what I was going to say. I'm trying to say, okay his voice. He's at home, not feeling so good. So we're trying to save his voice little bit. Thanks, Greg..

Yes..

You have plethora of questions..

Indeed..

Thank you. And our next question comes from George Hill from Deutsche Bank. Your line is now open..

I guess, I have to make the plethora of pinatas reference now. So, I guess, Jon, I guess, I just kind of start off with anything that you guys would start to call out is we're starting to see the earliest parts of the 2023 selling season.

I guess, anything that should look different from the last two years or so given kind of how different the last two years looked?.

I think, you know, probably the biggest thing that I would note is -- it's a little bit of a continuation from last year and then I'll ask Steve and Ted if they have commentary, but which was last year we had with regard to new logos and the like, which I think is where your question is.

The kind of market that is below the largest enterprises, but bigger than small business which comes mostly from our partners was very strong.

And one of the factors that we've mentioned, I think we've mentioned it last quarter or certainly somewhere between now and then now that I think has contributed to that strength pulling through into this year. It's been the demand for HSA is from job seekers.

And so, people who are in -- if they had an HAS, there's a lot of movement across companies, there’s a lot of people in the benefits universe, who still think about like the only way to use in HSA and a qualified plan or -- qualified plan just like kind of a lower cost health plan as opposed to, you can create, it's very flexible instruments, you can create a very rich benefit and of course it's a little bit come to me -- it reminds me of what happened in the early years of 401(k) where the benefits world was like, well, people like pensions better than 401(k)s except that as people got comfortable how to use a 401(k).

If that wasn't an option for them. They thought that was strange and so that's probably the one trend I would highlight that I've noticed as we've worked through it.

Steve?.

Yes, I mean, in addition to what Jon said, I think I've been very impressed with the Further team for example..

Yes, that's a good point..

These folks, you know, we knew them for a long time I think it was probably 15-years ago we sort of talking to the team up there in Minnesota. Now we are a team and we love them.

And for them to have done the work that they've done over the years with I think about 10 -- who is my partners and we're actually going to be spending some time with them to bring -- fully integrate them. We haven't -- we've met some of them obviously by Zoom, but they also do you can get to know maybe baseball game, maybe not.

Who knows, but we're going to spend in time with them and just to see the work they done is really, really impressive. I mean, I think because we started HealthEquity now almost 20-years ago, working with health plans is one of our key distribution channels.

We kind of thought we're the only people who knew how to work with health plans, unless we owned by one in our developed plan, but we found that these folks really do know what they're doing. So, that's been I think another great addition to our team and as we look forward to growth..

Yes. And Jon, maybe a quick follow-up. And this is going to be a little bit of a meandering follow-up.

McKinsey had a survey out last week, all about employer-sponsored health benefits and one of the few data points in the report that kind of jumps out as unusual is over the last few years you've actually seen tremendous growth in customer satisfaction of HDHP's of which HSA is play an important role.

I guess the question I'm trying to get here was like, can you talk about the HSA is the tip of the sphere as I think it's like when you think of HDHP is the things that are beneficiary is probably going to react with interact with the most. I would think would be their HSA and kind of your focus..

I think you've -- I think, you've got the answer..

Yes, well, I’m trying to focus on -- yes, like increasing penetration into employers sponsors that have already selected the HDHP plan like what can you do to drive the percentage of people inside the employer sponsor who want to choose. I guess that like, I mean, something all the --yes..

Maybe just to say, first of all, I think you've got a big piece of the answer in that. Remember for most individuals, who are enrolled and HSA qualified plan financially speaking their primary interaction with that plan is the HSA meaning to say they're not going to hit their ductile in any given year.

But for people who haven't interacted meaning there is a real opportunity to use the positive experience and help folks grow and so maybe you can Ted talk about what we're doing there..

Yes, I think, Jon, I'll be brief, I alluded to this press too fashion in my comments about sort of the engagement capability that we've built.

That's really code for communication and education right multichannel, omnichannel right and we've spent the last two or three years really investing in helping employers help their employees understand this benefit. As Jon pointed out, the early days at former Canada everyone knew it was.

It’s still -- we're still pretty so kind of in those early innings. And whether you call it on the phone, with the interact with us through the app with the interact with us desktop.

If you read the materials we send you, we’re always talking about kind of the next best thing for you to be doing whether it’s engaging in an HAS, if you're not whether it's investing -- saving more if you're not saving at all whether it's investing if you're saving a lot.

And we've dedicated a real resource to be coming, because what we found is there our clients want us to partner with them on that and so we're having a lot of success there and even though we still think it's pretty early days. So we agree with you that the opportunity to deep -- more deeply penetrate HSA participation.

And then how close you use the accounts is a real opportunity for us, especially as we have so many clients that offer it..

Okay. That wasn't a highly coherent question, but I appreciate the direction, which you guys took it. Thank you..

Thank you, sir..

Thank you. And our next question comes from Stephanie Davis from SVB Securities. Your line is now open..

Hey, guys. Thank you for taking my question and congrats on the solidified return to beating and raising -- quite a bit..

Thank you..

When I think about the health savings administrator acquisition, how should we think about that $1.3 billion of AUM getting layered in? Is there going to be a quick switch over, or is there a longer process to unlock these custodial revenues given there the largest part of the assets revenue contribution?.

Yes. I think the important thing to understand about the HSAA as we sometimes refer it, HSA administrator assets is that the vast majority of them, and I'm talking about 80%, 90% are invested.

And what we liked about HSA administrations capabilities and members of the team was their knowledge and skill at working for example, within the individual market where it’s still a small market. But where people are as you might imagine they are much more focused on investing than anyone than the average employees and group market and so forth.

So those assets -- to directly answer your question, those assets were moved over in Q1 and they are included in the quarter end totals, of course, and the investment. Thanks to the solid work of our team, as well as our partners from HSAA and are and very candidly, our partners from the intermediary investment custodians of managers.

The bulk of those funds were in fact virtually all of those funds were moved over in time. So that is a source of growth on the investment side. And it’s contributing to our -- now to our income from investing, as well as some service fee income..

So taking that one level further what level custodial revenue contribution are you assuming from the acquisition this year? And could we see a little bit of an uptick as it gets layered into some of your newer contracts?.

Yes. I guess, Stephanie, the answer, if I don't understand your question exactly. Maybe could you repeat it one more time, because maybe I'll get it at the second time..

So for the HSAA deal, what level of custodial revenue contribution are you assuming for the year? And are we assuming a tailwind then that could happen for next year to further add to this?.

So, since the bulk of the revenue in HSAA is invested, meaning it's in mutual funds and the like, we've assumed are actually, what we've done there is, if I recall and it works out to about the same thing, but we've maintained all of HSA's pricing and --.

Got it..

Looking at it to make sure that's right. And so and the result is that the custodial yields from those assets will be similar to our custodial yields overall meaning, kind of, in that roughly 30 basis point neighborhood and that's reflected in --.

Okay, so it's not a get any sort of better rates or something like that because --.

No, no, no. There is this -- I will say there is a small, it's maybe 100 and some odd million that is in HSA cash and the uptake of enhanced rates among that group, who is very solid in the high to 90% range. And, again, our guidance does reflect those assets have been deployed..

All right. Fantastic, thank you guys..

Thank you. Stephanie..

Thank you. And our next question comes from Glen Santangelo from Jefferies. Your line is now open..

Yeah, thanks for taking my questions. I just had a couple of quick rate questions as it relates to the guidance for the balance of the year.

Obviously, there is no future rate increases in that guidance, is it still fair to say that there is about a $1 billion in cash that are tied to short-term, sort, of variable rate, so we can think about do our own math in terms of the potential impact of any future rate increases on the guidance?.

Yes..

That's right. Okay, perfect..

Yes..

And then maybe if I could just ask a little bit more of a difficult question, I know you don't want to look out to fiscal '24 at this point. But everybody's noticing right? Obviously, the five year and the 10-year treasuries are just above 3% starting to see five year CD rates start to breach 3%.

So could you without, sort of, speculating on which way rates go right? Could you just do a quick look back to January of 2020 and remind us where those placement rates are, so we can make an assumption that if rates did not move from right here and you were able to reinvest at these sort of placement rates like what sort of lift, we get on that third of the portfolio, so we can start to think about do our own assumptions and think about fiscal '24?.

Yes. So the way to think about it is that our average placement rates for deposits, going back to the period.

If I look at like fiscal calendar ‘20 which is, I'm sorry fiscal ‘20 calendar effectively calendar ‘19 that ended in January of 2020, we reported an average custodial yield of around 249 basis points give or take a basis point and that -- since that was up from the prior year, it reflected placement rates that were above that at the time.

And so I think while we don't give out individual placement rates, as you know, I mean that's, it should suggest that at that point in time, which kind of represented the -- I think the closest we got to rate normalization in the last cycle. We were, obviously placing individual deposits above that rate.

And this time around, you have the enhanced rates product there. And so, and as we've discussed before, enhanced rates does as its name implies earn a premium for our members and also premium for us in excess of that.

And so you might expect this time around as things kind of move along to even see a little bit of an increase on relative to what we were seeing at the end of calendar '19 and so forth.

So, that's kind of order of I guess not order of magnitude, but directionally what you would expect, and as well as the baseline you might look at which would be some number of, that's kind of anchor to our fiscal '20 reported custodial yield would be a way to look at it..

Okay, perfect. That's helpful..

You want to add anything to that, Tyson or correct me or whatever..

No, that was good..

Okay.

And Jon, maybe I just wanted to quickly ask about the FSA business in terms of, are you seeing any normalization in terms of the seasonal spending patterns there? I know with some of the government regulation, sort of, changing, we saw some abnormal behavior is that starting to normalize seasonally now?.

Yes. This is an important question in terms of getting the quarters right, and Tyson referenced it in his prepared remarks. Q1 FSA spend was pretty much what we would expect which was nice to see versus the past several quarters of either much higher or much lower than we expected. And thus far, the same is frankly true in Q2.

And so we -- but, importantly -- so I guess the answer is yes. We see things looking much more normal in terms of spend per account and that kind of thing for FSAs.

I think the other point to mention there and I think you've got this, but it's worth noting that want to make sure that our listeners do as you model year-over-year in the second quarter as Tyson suggests, we won't have the benefit of the incremental spend that occurred in Q2 of fiscal '22.

That was people basically running up against the federal government's, kind of, end of the rollover -- the excess rollover period that was part of the -- earlier part of the pandemic emergency and so we saw extra spend in that quarter.

As a result, effectively that ended up being some of it ended up being pulled forward from Q3, but a lot of it was just people have the money in their accounts. And they spent it and so that's something to think about, on a quarter-to-quarter basis, but big picture.

And so, what we expect to see this year as much more normal as opposed to that bullish that you saw in Q2 of last year..

Okay, very helpful. Thank you..

Yes, sir..

Thanks, Glen..

Glen is the invisible source..

And thank you. And our next question comes from Stan Bernstein from Wells Fargo. Your line is now open..

Hi. Thank you for taking my questions..

Hey, Stan..

Hey, howdy. So maybe a first a clarification question on something you mentioned in the prepared remarks regarding the Further acquisition, I think you called out a potential source of synergies.

Are there any dollar figures you're targeting there that you can quantify maybe time to recognize those savings?.

Yes. We announced at the time of the transaction that we thought we would see about $15 million in synergies, we also said at the time that they would be back loaded over the course of a couple of years.

And in fact that's the case that is to say our fiscal '23 initial guidance and the current revised guidance don't reflect much in the way of Further synergies and the reason for that is, that the bulk of these synergies really come from the pace or say the eventual bringing together of the Further operating platform and the HealthEquity operating platform and we are taking that slowly really out of respect for two factors.

One is that our health plan partner clients on the Further side. There's we want to make sure that they know exactly what we're doing and that there is some trust built there and we have the ability to gather from them some things that are important to them that we can incorporate in our process.

And, secondly, Further, as we've discussed before has some technical capabilities that we think are extremely useful, particularly as we begin to embed as we talked about earlier in the year as we embed more features and more element or embed our product, I should say more deeply into our partners' products and vice versa.

There are other folks who sell white label and that's all nice, but really what were -- there’s real value is not just in the label, it’s in meeting the consumer when it's relevant and that's done by embedding the product more deeply.

And so we are trying to -- as we've tried to bring some of those capabilities over a little more quickly and you've seen us talk a little bit of products on that. But from a pure synergy perspective, you won't see that in fiscal '23. You'll see it out in '24 into '25. And so I think I've answered both the order of magnitude as well at the time..

You did. You did. Thank you. And maybe one quick follow-up, maybe just revisiting the sales pipeline. So past couple of years obviously, the story has been about multi-product sales or vendor consolidation trends. Just more broadly it seems to me like benefit managers are becoming a bit more cost sensitive.

I'm just curious, is there something you're seeing on your end with your sales force and to the extent that you are seeing? How are you navigating this any impact of the win rate would be helpful..

Yes. I'll offer a couple of thoughts. And then, Ted see if you want to add anything. So, first point is from this perspective, I think the first quarter was in some ways, really good news for us our largest product is of course HSA and it's not only our largest, but our -- it's our growth engine.

And when you look at the portion of -- I mean the good news, of course, the bulk of HSA revenues don't come from fees paid by clients or members in that direct way that I think you're asking.

But even among those that do we, if you look on a year-over-year basis, right? Fees are essentially equal in fact they're up just a smirch, which is a departure from prior years.

And that reflects both, A, being able to hold price where it's appropriate, but also being more efficient about where we should be charging fees and where we shouldn't, so that's I think the first point to make and it's a very important one.

When you look beyond that I think generally our approach to navigating this point is that the bigger source of savings for benefits managers in what we do is in the products itself, it's not in our fees, right? It's in enhanced enrollment, in more contributions, in people using all of the other things that we integrate with more effectively, because our clients are working with us and with our integrated partners rather than with a more generic service that might be offered by a firm that's just in the retirement space, or just in the -- been admin and payroll processing space or just event and so that discussion tends to that tends to dominate.

Of course, we'll be as aggressive as we need to be with regard to fees and so forth, but I think that's the heart of the discussion is that the real opportunity for savings is in the product itself. Not in the fees you pay us.

Ted, you want to add to that at all?.

Yes.

The only things I'm going to add is it -- through our health plan distribution, the cost of the services that we provide is a relatively modest component of the total cost of the decisions being made in choosing health care provider and not only that choosing a high-deductible health plan or finding ways to have more of your teammates choose that health plan is actually a cost savings opportunity, regardless of what the HSA fees are to Jon's point.

So, I think that our distribution helps insulate us a little bit from cost pressures. And I would also say, well, yes, there is always going to be cost questions or cost pressures or competitive cost environment.

I think that that the benefit of offering the bundle that was our primary hypothesis when we bought WageWorks three years ago has kind of been proven out probably in excess of our expectations.

People do want to consume multiple services and not only that even if some of the consuming multiple services the broker, the consultant, the health plan who selling it wants to send you multiple pieces of business even if each individual piece is not the whole bundle.

And so I think that having the bundle may able to offer it in a thoughtful way is probably a trend is stronger than a nickel or a dime here in there on a product price..

Got it. Thank you..

Thanks, Stan..

Thank you. And our next question comes from Sandy Draper from Guggenheim. Your line is now open..

Thanks very much and good afternoon. So you could say I haven't changed my ability to be very slow on hitting star one, so I'm always late in the queue. Most of my questions have been asked, but maybe just I think a quick clarification -- not clarifications it's confirm.

So it sounds like for the health savings administrators, the bulk of those assets were more towards investments. I just wanted to confirm and less on the cash, is that correct interpretation.

What you were saying?.

Yes, yes..

Okay. Got it. So then that leads into my second.

As I think about triangulating where cash balances are, where spending patterns are thinking about an inflationary environment have you seen any indication that -- and I don't know how you parse this out our people saying, hey, for the past two or three years, I was saving a lot in my HSA wasn't paying not sell back maybe because what I think only the doctor.

But now, I'm going back to the doctor and I'm going back to doctor and gases $5 a gallon and other things. I need to pay myself back, are you seeing any signs of while people still contributing they're actually going to start taking more money out because of inflationary pressures.

Just trying to think about how that sort of plays out and how that may impact cash balances with the obvious offset of potentially stronger interchange revenue? Thanks..

Yes. I mean, we haven't but the logic of what you're seeing as we did in the first quarter, but I think the logic of what you're saying is pretty sound, so generically the immediate impact of recession is higher savings rates, right? The immediate impact of inflation is people spend, right.

That's the way, it's a little bit counterintuitive except it's worked over and over and over and over and over again and it's in every macro textbook.

So I would expect that some version of what you're describing ends up being true and that as a result, for example, maybe the case that we won't see on net as healthy average cash balance growth as we did last year, but maybe we'll see a little healthier spend and of course we would over the long-term rather have the balanced growth, but I think there's I guess again -- without having seen it in the data yet.

I can't do much other than yes. But it's quite logical -- what you're saying is quite logical. And as you kind of try to triangulate between the sort of the triangulation around investments cash and also between balances and interchange, I think it's a worthwhile factor relative to the last few years..

Great, thanks. That's my question. Appreciate, Jon..

That's a good one. That's a good one for late in the queue..

Thank you. And our next question comes from Mark Marcon from Baird. Your line is now open..

Hey, Mark..

Good afternoon. Good talk to you.

Just wondering, can you just talk a little bit more about the enhanced yield product just in terms of what sort of premium you're getting there? And then in addition to that with the Fed basically pulling back in terms of quantitative easing the tightening where -- what if you were placing funds today, like how much of a premium would you get now with your regular partners in terms of on top of what jumbo three to five year CDs you are getting?.

Sure. Why don't I try to answer those in reverse? If I -- because the deposit rates, sort of, are useful baseline.

So on the deposit side, we've commented before about the range of premium to current average rates and that ranges sort of 75 basis points on the low end 125 on the high, but of course the other important caveat there is that premium is higher when rates are rising and when rate expectations are high and it is lower when rates are falling and/or rate expectations -- or and rate expectations are for the fall.

So as you might imagine the spread at the moment if we were placing funds between where we feel we could place and what current average three and five CDs are trading are at are pretty hot.

In terms of the historical spreads not dissimilar to an earlier question to kind of what the middle of calendar 2019 looks like and so reasonable question as to whether, how much of the Fed's activity and other activity has -- already is now kind of baked into all of those expectations. I don't know the answer to that. But I don't think anyone does.

But that gives you a feel for it on the deposit side. And then generally, the commentary, we've made on the enhanced rates product is that it tends to be about a 50 basis point to 75 basis point premium relative to where we're able to place cash. So, or and so that's -- and that's we only have in terms of this formula and so forth.

We've only been dealing with it for I guess almost a year now. But nonetheless, still a little bit early on that.

But that's sort of held pretty well and you do make one point that I think is very important and that is that while one might reasonably take the view that banks and alike have a factored what their own estimate of when, where the Fed ends up and where it stops into the rates they're willing to pay on cash quantitative tightening that is to say, the reduction in the size of the Fed's balance sheet is still a little bit -- is still somewhat out there in terms of its impacts.

And the reason for that sort of boils down to the fact that it's not fully clear to anyone what the true impact will be on the price of on the yields on treasuries. And then the pricing on corporate debt and alike, so because no one's ever done before, and so we'll see how that goes. But, look, I think if I step back from all of that.

We've -- as we've said before on this call, Mark, there is a large amount of the earnings power of the business that has been missing from the business for a year or two and certainly is still missing in the current year relative to history.

And so as that comes back, that will be valuable to the business in terms, not only of incremental profits, but it will also give us incremental opportunity invest and so forth in addition to sending a significant chunk of that to bottom line..

Great. And then, couple of other questions, one would basically be and they're kind of on the opposite ends of the spectrum.

On the one hand, how should we think about wage inflation as it relates to team Purple on all of your folks have lots of opportunities? So just thinking like how should we, as we start thinking about fiscal ‘24 and puts and takes. How should we think about the servicing costs that you're going to incur.

But then on the flipside the benefits from scale that you're going -- that you're accruing here in terms of the HealthSavings associates acquisition or health the HSA Assets, the Further being integrated to a greater extent the size and scale that you just have naturally even in terms of marketing presence?.

You've kind of just run through the nice list of -- if your question has been how do we think about margin in the out years, right? Which kind was --.

Yes..

You've just run through the puts and takes and so I'll repeat them back, but in the order that I think it's worth considering, let's start with the takes, right? You've got as you say, wages are going to rise and they just are.

And we're trying to keep up as best we can to take care of our team and I expect, but our assumption is that in the out years and you can make your own, but our assumption is that -- it's not like this is going to be a one-and-done situation. I think again secondly on takes that with is that with higher custodial yields on the put side.

Some of that comes back at you from service fee pressure feel really good about what we were able to do on the HSA side, which is where those are in the first quarter, but we'll see how it goes over time. And then lastly, I think, important on the take side below the EBITDA line.

But, nonetheless, if you know if you look at our reporting, we've increased CapEx and of course their stock comp in that rolls through over the course of the next few years.

So those are the takes on margin, right? The puts, as you say are custodial yields, the bundle and cross-selling, the growth of the underlying base both from organic growth, as well as from M&A that has brings all that scale. The real pay off in terms of winding down integration expenses, which again is below the EBITDA line.

But nonetheless, is real cash, the tech-driven efficiency and service delivery that we've started to see as a result of our investments in that area, but expect to continue and then whatever happens with commuter.

And if I’ve given the luxury of thinking about it over multiple years, I can be a little bit more optimistic than whereas obviously Tyson is being extremely cautious I think with regard to the current year.

So, all of that put together, obviously, we expect that or I’d say, we think it's reasonable to take the view that there is plenty of opportunity to grow margin in the business, as well as to continue to invest to grow top line in the business so that seems pretty good..

That's great. And then just the last one, just with regards to Further lots of things that you're doing, just how are you been perceived by the clients now within those Blue's plans. Just in terms of partnering with being able to expand geographically into really leverage this.

We're still in early days, but how are you thinking about that unfolding over the next two to three years?.

I wish you were asking next quarter, because we having our Summit with these clients, which is clearly, we've been titled blueprints, I'm sure that not the first time that pun has been used, but it's in Chicago next month, which is the home of the Blueprint and that was invented technically, but it's true home Chicago School of Architects.

And but Steve you can maybe give us, since you probably participated more than any of the rest of us on this call in discussions with, particularly with the partners. Maybe you could talk that where you think we are..

Happy to Mark, I think it is still pretty early, but generally it's been very positive. I'll tell you one of the key story, the Further team and our team now our team.

We can't say any more Further, but our collective team reported back with a net with one of our, what Blues plans happened to do business with both HealthEquity prior to the acquisition. And now HealthEquity again because Further had to go through a relationship with them and they said, why this works out perfect.

They said with less HealthEquity for -- what they did, we loved what we received from Further now we'd love them even more. So the point is that I think that, now if there's no footprint of well over 30 Blue’s prints that we're working with.

We do have scale and these folks they work pretty very well together, they go conferences together and the Blue’s Association actually happens [Multiple Speakers] which I don't know, I thought they did the reverse grain. They start to the Blue out there..

I mean, it is blue..

[Multiple Speakers] But I just think the short of it is Mark is that we're really learning how to work with these types of players. Many of the people that use work Further they now work at HealthEquity previously even worked at Blues of Minnesota.

And so they know how to meet their needs and that was kind of their model was look we want to help these Blue’s print grow. Now HealthEquity has a lot more than Blue’s print too, we've got some fantastic integrated systems all over the country that are owned by hospital systems and we were able to reach into them as well.

And so it's not just about Blue where it's about meaning any of the partners or clients, where they are in providing a unique and sophisticated solution for them, so that they can compete in our market, so that's -- I think that's the short of it.

And we just, we share with one health plan back in 2003, so remember that, that time and now we're over 100, it’s pretty exciting..

That's great, I’ll [Multiple Speakers] next quarter..

You got it..

Thank you. And our next question comes from Allen Lutz from Bank of America. Your line is now open..

Hi, Allen..

Hey, everyone. Thanks for taking the questions. I guess, on interchange that came in really strong in the quarter.

I guess looking back in the model, kind of, pre-COVID, pre-WageWorks the first fiscal quarter is sort of the high watermark of the year for interchange, I guess, question one is that what you're thinking, that's sort of what's embedded in the guide for this year? And then point two, in that $42 million is that healthcare spending back to normal? Or is there any reason to be optimistic that healthcare spend increases over the course of the year..

Tyson, you want to hit this one?.

Yes, yes, Allen, thanks for the question. I think you -- on that exacting we already answered of basically which is that it is front-end loaded. It's a lot of its biggest quarter is going to be kind of Q4 rolling out in Q1 a little bird and then sort of the use it or lose it on the FSA side it HSA is a little bit more stable.

But I would think about it that way. So if you think about kind of the softer months or quarters. They're going to be, sort of, end the summer fall timeframe with regards to people are sort of spend through some things. And are those that type of timing. And then, Jon, I guess you hit the second one..

Well, I was just going to say also don't forget that if you're doing year-on-year that last year had these unique features that really blew up Q2. But, yes things as I said earlier, if at least at the moment appear pretty normal meaning normal that is if you look at spend per account, all those kinds of things.

How much is left in accounts, et cetera, things are looking a lot more like the graphs that we would have seen immediately prior to the pandemic than like anything else, and as I think, I commented at the time of our initial fiscal '23 guidance we were looking forward to a year of not having surprises on this topic and so far so good..

Great. And then I think investors, kind of, understand the upside optionality on rates. But I guess kind of taking, kind of, the other direction there has been some concerns about employment trends in the very recent months. I guess is there anything that you're seeing within your book of business.

Regarding employment trends may be active accounts or anything that can kind of point to a slowdown in the economic environment? I guess, we're just trying to understand, kind of, if we do go into a slowdown in hiring the puts and takes of the model from here. Thanks..

Yes. Our -- I mean, the short answer is that we haven't seen anything along those lines in terms of active account type stuff.

That having -- and I think that, that statement is actually perfectly consistent with the national data, which -- if you actually look at it, the first four months of the year and also even May, were some of the steepest increases in civilian employment in the United States that have been observed, period end of sense.

And, obviously -- and certainly far steeper than then the run up the, sort of, boom period in the run-up to the pandemic. So, but I don't think anyone should expect that that will continue since one is, we're starting to get back to levels of employment that were pre-pandemic and we're not quite there, but we're getting close.

And, two, the government's policy is to slow the economy down and slowing economy down is going to slow hiring down.

And so, as I said earlier that the implications for our model are one is as was suggested earlier, we probably shouldn't go crazy on the year-over-year percentage increase in Q1s in HSAs and kind of be a little more modest about our expectations for the full-year.

The second is that our clients are looking for win-wins and it's worth noting here and I think this really bodes well for using all of those educational things that Ted was talking about which parenthetically, it's not like just generic capabilities.

It's a product with it doesn't -- we don't charge directly for it, but we track the revenue from it and our account executives and service delivery managers for our enterprise clients are -- they are accountable for bringing what we call max and roll into our customers at a greater substantially greater level this year than last.

And the reason I mentioned that here is to say, we know that our clients either they know where they need to know that in a world where they're seeing something they've never seen before which is a still-tight labor market plus wage pressure, right? Most of these folks were not alive in 1981 or 1980 and we're best case 1990 they were alive.

But they probably weren't working in HR and so they're seeing something they've never seen before and they're going to need tools. And we have some of those tools. And so our job is to go out there and from a sales and relationship management perspective give them those tools.

And if we do that, we'll have a good a season and that's kind of, that's what I think..

Great, thank you..

Thanks, Allen..

And thank you. And our next question comes from David Larsen from BTIG. Your line is now open..

Hi. Congrats on -- Hi. Congrats on year, hi, congrats on a very good quarter. I'll be hopefully fairly quick here, so for the interchange revenue. I'm looking at a growth rate of around 21% year-over-year.

I mean, is that what you reported? And then is both health card revenue in their utilization of services and then is commuter revenue also in there was that 21% growth all organic and was commuter and health card both up around the same amount, 21%?.

So there's a lot in that question. I'm going to let Tyson catches breadth and answer most of it all answer the piece that I can easily that's total revenue. Obviously, and there is an organic and inorganic component to that.

And so, obviously, inorganic was helpful and it's of course a mix of HSA and CDB, and yes, includes both health care and commuter. But Tyson, maybe you want to elaborate a little bit there..

I'm not sure you missed the meeting, Jon. But I just said nothing about commuter -- just I'm thinking what am I going to add.

But I would just add in the commuter side, just to kind of talk about that for a second in a way that it is very small relative to reduce the improvements, but on the interchange -- from an interchange perspective, it's a small amount of that.

It is an indicator of people utilizing it, so I have seen utilization in the card swipes going up over the course of the last, we said even in the three quarters. And so we continue to see that margin there.

So it does help from a perspective of how that's growing on the commuter side, it's a very high percentages, but a very small dollar amount and I think everything else Jon said is true..

Okay.

And then for the Enhanced Rate product, I heard that, that on about a $1 billion of invested dollars right now, when I look at your press report I'm seeing HSA cash $13 billion, HSA investments $7 billion for a total of about $20.3 billion and I'm assuming all of those are invested all of that $20.3 billion is invested earning some sort of yield, so does the Enhanced Rate product are we looking at that as a percentage of $20.3 billion or a sub-component of that..

Yes. So let me clean that up for you.

I think when you heard the $1 billion with that, but that was a response to the question about variable basically the effects of Fed funds changes and how much cash those Fed funds changes impact and the answer is they impact about $1 billion today that is deployed in variable-rate contracts that is part of HSA cash. So that was that number.

We said at the beginning of the year that Enhanced Rates was about 10% of our HSA cash number and our HSA cash number at the beginning of the year was $13 billion give or take and now it's. And so 10% of $13 billion is $1.3 billion give or take. And our goal is by the end of this year to roughly double that to get it 20%.

We're pretty confident we will, so kind of pushing $3 billion and so I hope that cleans it up for you. And if not, where that's something we can take off -- well, we can talk about in one-on-one or whatnot make sure you got it all..

No, that's fine. That's very helpful. So as we enter into fiscal '24, what I'm hearing is that $1 billion might actually turn into $3 billion.

So assuming interest rates continue to rise, the benefit from that will actually increase even more than what it has this year?.

I think, well, let me say, I think, I want to be clear, what we're saying is, with regard to the Enhanced Rates piece that piece will grow from $1.3 billion at the start of last year -- at start of this year to something around double that, and then that $1 billion that's in variable cash -- I would expect that number will be a similar next year in percentage terms, it's again, it depends on the time of year and so forth, but it's between 5% and 10% of our total cash and so to the extent, the total cash grows, it will grow too..

Okay and then just the last quick one from me. The 12% organic growth in membership was that from InCell into your existing base or is that from new account adds or both..

No my kids got me onto Reddit and apparently InCell and Reddit it is a totally different thing, so you said that, and that's what I thought of and I didn't hear the rest of the question, but no I get. So the answer is both, it’s -- that is inclusive of new organically one logos as well as growth of existing logos..

Okay, great. Thanks very much. Congrats on a good quarter..

Thank you..

Thank you. And our next question comes from Sean Dodge from RBC Capital Markets. Your line is now open..

Sean? Sorry, we missed you last week Sean..

It was actually Thomas Kelliher, so I'm on for Sean. So, not much left to take out of here, so I'm going to keep this to a quick clarification. And there are about $5 million to $7 million of incremental costs in Q1 tied to servicing capacity and those factored in the guidance.

Did you say that there might be some additional cost burn in the Q2 or how much carryover incremental will there be in Q2 and beyond?.

Tyson, you want to hit that one..

Yes. I got that kept that less than we talked about in the last release in this release, the $5 million to $7 million, I mean just a little bit of that will lead over into Q2. I'd say that the Q1 number, about 5-ish-plus million in there.

And so that's the way I would think about it just kind of bridging between those two quarters, kind of through the last part of that..

Great, thanks. I'll go ahead and leave it there. Congrats on the quarter..

Thanks Thomas. I thought you were Sean, but you're Thomas. Thank you..

Thank you. And I would now like to turn the call back over to Jon Kessler for closing remarks..

Well, I have no closing remarks prepared. So, let's consider it a win that we -- some of you asked us to like bloviate less in our answers and so we tried and we saved about 50 minutes, so let's keep it that way. Everyone have a great day and a great safe summer. Operator This concludes today's conference call. Thank you for participating.

You may now disconnect..