HealthEquity, Inc. (HQY) Earnings Call Transcript & Summary

All right. I think it is 8:30. I think it is time to get going on our show here. So thank you all for coming. For those of you who don't know me and I don't think there's many, but I'm Richard Putnam. I do Investor Relations for HealthEquity. And we are so pleased to have you with us here today. Before I turn over the mic, I've got housekeeping items. Food, rest are all down this aisle. Restrooms are on the left-hand side, food's on the right-hand side. And also, we have -- you'll see a number of HealthEquity people around. Those with the purple lanyards are here to help you find where to go. So if you're looking for a restroom, looking for food, if you want a diet soda, whatever you want, they're here to help you with that. Those with the white lanyards are here to answer questions about the company and are happy to answer anything that you might ask them. They may tell you -- no, they won't say no comment. But they might say, go ask Richard that question, and I'm happy to see if I can answer it for you. All right. The last thing is we need to make sure we -- no, one more back. Here, yes. Our safe harbor language, our comments and responses to your question today reflects management's view as of today, February 22, 2024, and will contain forward-looking statements as defined by the SEC, including predictions, expectations, estimates or other information that might be considered forward-looking. We encourage you to review the risk factors detailed in our latest annual report on Form 10-K and any subsequent periodic reports. With that, I am going to turn the mic over to Mr. Jon Kessler.

Thank you, Richard. So you'll be pleased to hear that I'm going to be brief. First of all -- I'm wearing the same sweater. First of all, genuinely, thank you for joining us here on the Wasatch front. It's -- this office today is sort of more of a conference center, but it's a beautiful one. And it's been made more welcoming, more beautiful, more purple in the value sense by the team that has worked on this. And so Richard mentioned the groups that folks who are in purple lanyards, and what I'd want you to understand, those of you who are our guests today that we don't have an event planning staff. We have one event planner, Tanya Gaines. She's awesome. So when you see people who've done the work to make this happen or go to the experience upstairs, the regular jobs don't stop, but people have put their time into this. And I genuinely -- as I kind of drove up earlier in the week and saw what's going on, felt humbled at all the work. So I think there may be many, but I hope you join me in a round of applause and thanks for all these folks. So last night, we announced results of what we around here call our growth season. And those included record numbers for our fourth quarter of new HSAs, of HSA growth on net, record asset growth, all organic and heck, even CDBs managed to seek out a positive number. And I really couldn't be prouder of what the team delivered, how it delivered this year. I'm sure we'll talk about that. But you already know that because you read it already and what we're really here to talk about is the future. This is where I've gone off-script and Tia has no idea what to do. Ten years ago, we -- well, as I think most folks here know, we do not do Investor Days often. This will be our, I guess, our third. Ten years ago, we laid out a goal and that -- and we laid out a goal publicly to you around the growth of profitability and revenue. And we did that to try and build some credibility that this was a trustworthy public company. And over the course of 3 years, the team nailed that goal. Then 5 years ago, just before COVID, we all met in New York. NASDAQ gave us a free room. Very nice of them. Thank you, NASDAQ if you're here listening. And we laid out a second goal. We said we were going to focus on market share growth. And parenthetically, we're still focused on market share growth. But at the time, we said that we would deliver outsized market growth every year, and we laid out the strategy to do that. And again, the team nailed it. And today -- or I guess last night, we announced another long-term goal, which I think reflects the maturation of the company and our ability to walk and chew gum at the same time, which is while we will continue to take market share year after year after year, we've also announced that over the course of the next 3 years, we intend to double, I'm not supposed to say non-GAAP EPS. I'm supposed to say -- how am I supposed to say it? Net income, some magic words that mean non-GAAP EPS. Non-GAAP net income per share. I think that's what Michael Newton, who's somewhere in this room has instructed me to say. And the number that we -- that is our headline EPS that you are all used to see. And we're going to do that while at the same time growing and, at the same time, investing very heavily in building the people of our future, the technology of our future, the products of our future, and you're going to see that today. And I am confident that the team can do this not just because this is now the first -- what's our guidance, $995 million, let's call it, first billion-dollar company in consumer empowerment in health care. I'm confident in it not just because the team has delivered over and over again, but I'm particularly confident in it because the reason that the teams is doing this is the same reason that we've been working all along. And that comes back to see, it worked. That comes -- I'm back on script now, it's okay. That comes back to -- she's looking at me like it's not okay. It comes back to the mission of the organization. And what is so incredible about this company is over the course of the 15 years that I've been here and the 7 or 8 before, the company's basic mission is unchanged, and it is exactly these words. And the other night, we had a teammate event where Steve was running around as Steve will. And he had those -- the purple $5 bills with a little purple. And if you could say the mission right and say our values right, you got a purple $5. I got one. I got one of the purple $5s. And so I'm confident because people know why they're doing what they're doing here. They don't have to guess about what leadership believes, what the Board believes. And ultimately, I think what you all believe. I understand -- we all understand that everyone is here to -- we all got to make a buck. We ought to support our families. But we all get -- this is America, we get choices about what we do. They have a consequence and we get choices. And the fact that you have chosen to kind of partner with us, I might say, if I can be so bold on this ride is I hope you feel good about it. We feel incredibly humbled about it. And as you're going to see today, we're going continue working on this. We're going to continue at this. We're going to continue empowering consumers because we truly believe and we know when you listen to the calls, we talk to every day, you listen to what comes through in chats, you look at the data that you'll see some of today, right? We know that we are helping save and improve lives in our own kind of modest way. So today, here's how it's going to go. This is the last you'll hear from me until the Q&A. Yay. We're going to have a brief discussion about kind of the market opportunity and our place in it, and that's going to be led by Tia. She's going to click her own slides, I think. It's probably wise. And then you're going to hear from a number of our other leaders talking about each of the 3 pillars of our strategy moving forward. First, to deliver remarkable experience. In this company, we talk about remarkable. Historically, we talked about remarkable service. Today, it's about remarkable experience because we have the technology, the know-how and the platform to deliver remarkable experience. Second, deepening partnerships. From a business perspective, the crown jewel of this company is also deeply embedded in its values, and that's, that we will partner with anyone who will like even talk to us if that partnership helps us reach more Americans, helping them connect health and wealth, helping empower them as consumers. So leg 2 is about deepening our partnerships. And then lastly, driving meaningful outcomes for our members. And I don't just mean financial outcomes, I mean also health outcomes, welfare and wellness outcomes and so forth, and you'll hear a little about that too. And then once we've got you good and softened up, the finance team will do its thing, and then Steve and I and others will return for Q&A. So that's the plan. And with that, I want to introduce Tia Padia. Where are you, Tia? There you are. Tia is our Chief Marketing Officer, is incredible. She's wearing different -- she has 2 outfits clearly, at least.

I have more than one, more than one sweater.

Take it away.

Thank you, Jon. All right. Thank you, everybody. Thank you so much for being here and spending your time with us. This has really been a pleasure to plan for you and to think about this event. And here we are today. So as Jon mentioned, I'm Tia Padia. I'm the Executive Vice President and Chief Marketing Officer when I'm not Jon's clicker. I've been leading our marketing, and that includes our brand, communications and some go-to-market functions for the past 2.5 years. And I bring about 2 decades of largely financial services experience in the areas of marketing, product, sales, and go-to-market functions. A little bit about why I joined HealthEquity, which you'll hear, and all of the presenters will start off a little bit about their story and what place means to them. But for me, I joined HealthEquity because of its empowering commitment to help every family regardless of their financial situation. I come from very humble beginnings and have seen the power and the impact of improving financial literacy, giving workers tools and the kind of difference that, that can make in a family's future. So today, my portion of the conversation is also short, not as short as Jon's, but it's my privilege to outline our long-range view of what success means to [ err ] and also the strategy that we have to help HealthEquity achieve all of that. As Jon mentioned, HealthEquity's mission is to save and improve lives by empowering health care consumers. And Jon does and Steve does, walk around giving out purple $5s, anybody who can recite that. So thankfully, our CEO can. Our catalyst for that empowerment is an integrated HSA. It's a personal portable tax-advantaged health account that is intelligently connected to the member's health care benefits ecosystem. A little bit of exciting stuff. I'm so excited I get to present this slide. But those of you who saw our release last month will recognize some of this. Last year marked the 20th anniversary of HSAs and the accounts have been a success story for American health care. Today, there's about 35 million HSAs with just over about $100 billion in HSA assets. And we believe that 30% of families with commercial health insurance do have an HSA at this moment. We also had, Jon mentioned, we released our sales results from last year. I'm very excited to share that we opened 949,000 new HSAs, and that is an account growth of 700,000 HSAs for this year. Based on what Devenir projected for account growth this year, we believe that's about 33% of the market share. So we have a plan, right? When we think about how we're growing our accounts today and how that's coming together for us, we're going to have our presenters outline our strategy for how all of that will come together for us. But that's rooted in the core of who we are and how we've always grown. It's not a massive departure for [ them. ] Our mission is the same, our purpose is the same. And ultimately, our goal is to make HSAs just as popular as 401(k)s by the year 2030, which is something that you'll hear from us. So how do we do that? Presenters will go into this in more detail, but I'm going to outline our growth strategy for you here just very briefly. When we talk about growth, we think about it as 3 Ds. You'll hear us talking about our 3 Ds. So the first one is our deepen partnerships. As Jon mentioned, this is our crown jewel. This is about how we're using advanced technology to connect and extend what we believe is our competitive advantage of an intelligent connected ecosystem with over 200 partnerships. The key business outcomes associated with this deepened partnerships, one, in the way that we talk about it internally is that it drives new logo growth. It also supports, it's the underlying current behind all of the experiences that we developed and is what enables this remarkable experiences and the great outcomes that we talk about later. It also powers sales and marketing productivity because we get leverage from these partners as well as we go to market together. Steve Lindsay and Eli Rosner are going to talk about this one in a lot more detail. I know that's one area that you're going to be really interested in hearing about. The second pillar is about delivering remarkable experiences. So people know us for remarkable service. We talk about Purple service, we talk about our values and how we're rooted and really being available for people and helping each individual in the way that they need to be served. This delivering remarkable experience is an extension on that service. It's taking it into the future. It's digitizing and scaling that what used to be, back in the day, one-on-one interactions and bringing those to scale in a way that's intelligent and connected in a way that consumers expect to be interacting with an organization today. When we think about the key business outcomes that are associated with remarkable experiences, this one, of course, is you'll see a lot of discussion around margin expansion. So there's a very obvious example here, and I've heard many people talk about our expedited claims, for instance. We're making things easier and faster for people and that also brings down our cost to serve. But it's more than reducing cost to serve. Delivering remarkable experiences is creating delightful experiences. It's improving customer satisfaction, it's increasing utilization. And when our members are using their services, they're also adding account balances and they're using their cards. And so this is a really special one for us and that it's really getting at the heart of who we are and our service and expanding that into new ways. The third pillar and final one is about driving member outcomes. As you can tell, I'm having a hard time deciding which one is my favorite one to highlight because they're so great. So the driving member outcomes is one that's really the core of why we're here to begin with. We're here to make a difference in people's lives. We're here to improve their financial outcomes, to improve their health care outcomes. And this is the pillar that's really thinking about how do we do that in the future. This one also has a lot more of our aspirational development, and I know you'll all be excited to hear about later from Shuki, our Head of Innovation. When we think about these driving member outcomes, and we think about the application for our business outcomes, it is about volume growth. This is us attracting new members to our services. It's about delighting them, so we're increasing our satisfaction, our retention, our cross-sell, and that's at the member level that extends into the client level as well. When you learn about employer who says that employers are most happy when their employees are happy, so we make things easy for their employees, then we've delighted them already. And so delivering these remarkable experiences and driving the member outcomes are things that have accelerating effect on our client loyalty, our client cross-sell. And because our partnerships want to have happy clients, we delight our clients, we grow through our partnerships as well. And so each one of these pillars is very connected here today. You'll hear more about these driving member outcomes and seeing what that looks like for us in the future as well. So as you can see, our growth pillars are distinct, it's hard to separate them though, because they feed off of each other, they accelerate each other. Everything from building a remarkable experiencing -- experience, which drives our partnerships and delivers those outcomes that we're looking for. One note, you heard me mention that all of our presenters today will share aspects of our products, so you'll see product demonstrations throughout our presentations today. Those product demonstrations reflect a spectrum of readiness. So there's many product demonstrations that you're going to see that are already out in market. Some of them are coming very soon or they might be in a pilot phase right now, and some of them are a little bit more aspirational. So as the presenters are presenting, they will help you. They'll indicate so you can understand which is which. But we're just so excited to have you here. Thank you so much for coming. And with that, Steve Lindsay and Eli Rosner are going to join me up on stage and talk about deepening partnerships. Thank you.

Here we go. Hi, everyone. I'm Steve Lindsay, also known as the other Steve, little Steve, the second Steve. I'm the Executive Vice President of Sales and Relationship Management and have been at HealthEquity for 18 years now. My main area of focus is on account growth. And I've also been obsessed over market share growth for the last 18 years. So yes, I'm very excited about the results that were just announced last night and then again by Tia here now. It's a lot of work by a lot of people. We've achieved a lot of milestones over the years. And I'm proud of those. It takes a whole team to do it. As I've reflected on that and look back, it's funny now to think back many years ago, back in the early years when our big hairy audacious goal was hitting 10,000 HSAs and $2 million in total sales. A lot's changed since then. Eli, what do you think about that BHAG from 18 years ago?

Well, the numbers speak for themselves so I guess great progress and great -- the company is in the state of great momentum. So I'm Eli Rosner. I'm the Chief Technology Officer of the company. Steve has been here 18 years. I've been here 7 quarters. So I think I'm going to have to change the unit of measure to years. Next month is going to be 2 years and Jon said he's going to be here for 2 years. My team is accountable for delivering all the products and the solutions that Steve's team and others are delivering to our customers. Back to you, Steve.

Thanks, Eli. Okay. So you've heard from Jon and Tia about the opportunity ahead of us to accelerate growth amid a growing market. Eli and I hope to bring to life some of what we mean when you hear us talk about deepening partnerships. Deepening partnerships is about how we use our competitive advantage of our smart integrated ecosystem and more than 200 network partners to drive new logo win rates, unit growth, retention, and profitability. It's founded on a win-win commitment. The premise being that as partners, we can win bigger together than alone by creating more value together. Consider this. Our health plan partners value retention and growth. Several of our Blue health plan partners revealed that clients with an integrated HealthEquity HSA have higher retention rates than those who don't. Given that potential impact, you can imagine the natural motivation that a health plan has to engage their sales and account management teams to integrate existing and new clients with HealthEquity. It goes beyond health plans, too. You'll hear another example later today in which we grow 401(k) contributions while also growing HSA contributions with one of our partners, Vanguard. You can see the value equation kind of coming together, right, measurable economic value for our partner while driving account growth at HealthEquity, and not to mention, member and client value increases as well along the way. It's a win-win. It's why we have sales teams from health plans, 401(k) administrators, referral and reseller partners and others selling and passing leads to HealthEquity consistently. It creates this virtuous cycle of growth that has led us now to serve more than 15 million customers. That number has grown every year I've been here. And as that number grows, our value grows alongside it. The more customers we serve, the more our partners want to work with us and the more clients they bring to us. The more clients that we serve, the greater economic value to us and to our partners. And that's the beauty of our model. Today, 3 out of 4 of our sales come through a partner channel. Having a partner that wants to help us sell and retain business, now that's music to my years. But it hasn't always been that way. The consumer-directed benefits market has shifted over the years. I'd call out 3 trends that have driven the success we're enjoying now through our partner channels, our customers' buying patterns and our ability to capitalize on them. First, many health plans and other partners have shifted to a partner CDB distribution model for going in-house or white-labeled solutions due to their inability to scale and innovate at the rate of competitors. Last year, we re-onboarded 3 distribution partners that we believe will drive long-term growth. They've introduced us to many client opportunities and have already produced 45,000 new health savings accounts. Partners drive new client sales, which continue producing new accounts and assets over time. For example, one of our Blue's partners, Arizona, has been a health plan partner with us since 2009. They decided to bring an in-house solution to market a few years back but have since decided to terminate that relationship, that solution and focus on growing together with HealthEquity. We have a mutually beneficial relationship today that allows Arizona to focus on their core business while trusting us to take care of their CDBs. This partnership represents about 45,000 accounts across 800 employers. The next trend is the growing comfort and expectation of data sharing for ease of use within a controlled and secured data environment. Members, clients, brokers, and others have this expectation but see different applications of this capability. As consumers, we all expect interactions to be easy, personalized, even seamless. For example, an employer offers incentives for healthy living. A member accessing preventative care or hitting their monthly step count goal target receives a contribution into their HSA. Claims, wearables, and HRIS integration all make this incentive program seamless for the member and effective for driving the employer's desired outcomes. The third trend is the increasing number of partners associated with each deal. Historically, new clients were driven by integrated health plans and brokers. Today, we're seeing an increased demand for multi-partner integrations. Brokers favor CDB providers capable of integrating with their preferred partners, as it allows the broker to differentiate their program and grow. In the enterprise segment, we see demand from multi-partner multi-platform integrations. It's driven by the value members and clients receive from multiple integrated partners. Across all segments, more partners associated with the deal gives us a better chance of winning and retaining because the associated members and clients receive greater value. We call these multi-threaded deals. Consider a member affiliated with an employer tied to both an integrated health plan and an integrated 401(k) plan. The member will receive educational support nudges from both providers that drive contributions into both the 401(k) and the HSA. We've seen firsthand the power of these integrations to drive member contributions into the retirement plan and into the health savings account. And positive effects of HSAs on retirement readiness have been broadly reported. HealthEquity has invested significantly in boosting our data security and privacy and added many tech and policy controls to ensure proper data usage. In return, our partners have been increasing the breadth of data, the frequency of data exchange and even the types of partners exchanging data. For HealthEquity, it's creating more value for our partners while driving better member outcomes. When we consider how much data exchange is occurring and how many partners will be sharing data, employers and partners want to work with someone they trust or at least someone who they trust, trust. And as much as it pains me as the sales guy to say this but that trust is not going to come from a sales cold call. They rely on their partners, including brokers to guide and recommend those they trust and their partners rely on us to stay trustworthy. The last win loss study that we concluded at the end of our enterprise selling season confirmed this. Nearly 80% of our employers surveyed said that their broker influenced their decision a lot or completely. And that's typical. It's common to see that most clients have already done their research, either on their own or through their brokers before ever engaging with us in a sale. According to Gartner, buyers complete 70% of the sales journey before wanting to talk to a sales rep, and 75% of B2B buyers prefer an entirely rep-free experience. We believe that our historical success proves that our partner growth strategy works. The trust generated and shared via partners will continue to be a key to our growth. Eli will speak more to investments. We're making to deepen trust and inspire vision on what can be together with our partners. It suggests that the partner growth strategy will continue to drive growth. We've also learned along the way and have seen some new opportunities, like what if we expanded the type of partners that we integrate with. And what if every family in America could be attached to one or even better many of our partners? Imagine the value we can provide to members and clients if all benefits were fully integrated with each other and seamlessly into the lives of our members. To make this a reality, we intend on selling more CDB-related products to more customers via more partners than ever before. That's why in the past couple of years, we've made a concerted effort to grow the number and type of partnerships that we have. It's also why we continue to digitize how we go to market alongside them. The digital selling model helps us scale to sell more faster and meets many of our customers right where they are with regard to their buying preferences. It demands a standardized experience, one that allows the partner to know just what to expect with transparency all along the way. These are all necessary components for scaling our sales and relationships to bring more to market faster profitably. One example of this transformation is illustrated by our broker portal and small group digital sales model. Today, brokers drive more than half of our small group sales. They demand more information faster. They want to know what their clients are experiencing, which enhancements are coming when, and they want to be able to buy digitally. We're improving our broker portal so that brokers can self-serve information related to our product enhancements and access material needed to position HealthEquity's services on our behalf to track their clients' progress and, in the future, even open accounts directly for their clients. This type of innovation allows us to scale our growth through partners, increasing unit sales growth while also serving broader markets. The small and micro markets would be inaccessible without the scale that we get by working through our partners. The last thing I'll point to is a trend of our own devices. It's our management's ability to see the road ahead, anticipate customer needs and innovate. And before I hand the mic over to Eli, I just want to share this long-timer's view of just how impressed I am with Eli and his team. It's really remarkable to see the contribution that they're making at accelerating growth that we've experienced historically by infusing technology and innovation into our robust partner leverage growth model to make it even better. Eli?

Thank you, Steve. So what Steve has outlined in terms of our ecosystems and partnerships is really critical to our success because we're transitioning to play a more central role in the ecosystem of health care to become a benefits hub. Our objectives are really simple. We want to deliver more value to the clients and the members faster and in a seamless manner. So let's dive a little bit and see how we actually got here. Our current capabilities enabled this thing due to strategic investment that we cultivated over time. Two key factors distinguish us from the competitors. First, we're committed to integrating into our customers' ecosystem; and second, we actively incorporate external innovations and we bring them in. So not all the innovation is coming from within HealthEquity. Some of it is coming from our partners. And that's really important because we're giving our customers some flexibility. You put those 2 features together, this provides a competitive edge that is sustainable by giving our partners incentives to deepen the partnership with us and pursue joint market opportunities. So the implementation of this strategy provides a sustainable competitive advantage to the company, but it requires deep trust, capital and investment and deep technical expertise, we believe makes it really difficult to emulate by our competitors. The benefits are significant when you get there. Firstly, it reduces the time that it takes to integrate and the cost as well. And secondly, it expedites innovation to market. So you will see more solutions here enabling us to deliver more value to our clients and members. However, reaching this point wasn't instantaneous. It required a strategic and deliberate capital allocation model over time and an unrelenting commitment to data privacy and security. Over the past 5 years, we have shifted our technology capital allocation towards building enduring capabilities. Initially, resources were allocated towards building systems to acquire companies and integrating them into our ecosystem. Knowing that M&A is going to continue to be an integral part of our strategy, we focused on building systems that enable integration. Now we've transitioned, as you see on the chart, our focus more towards innovation and enhancing our product capabilities. And today, our investment focus leans heavily towards growth and innovation, fostering a competitive edge that's difficult and challenging to emulate. We're well on our way to enable -- towards enabling this strategy growth. So let's dig deeper into the 3 investment areas that you see on the screen. First and foremost, privacy and data security, essential to any company that's entrusted with customers' data, especially around finance and health care. Second, it's a unified data hub. So we built a unified data hub harnessing the power of the public cloud that's running in the cloud. And some of the solutions you're going to see later today actually use these data platform. You'll see expedited claims from Kamesh, you're going to see performance analyzer from Shuki. They're all leveraging this data hub that we have built and is running today in Azure. And we have implemented the connective tissue. It's real-time, standardized and bidirectional API connectivity, which is the focal point of our discussion today. Our APIs, if you think about data as the cargo that's been transferred between software programs, API is the vehicle that takes them from one place to another. It's a connective tissue. So I'm sure that some of you think, well, if we had a technology buzzword bingo card, we'll be yelling bingo. But that's not the point. The point is that everybody today is on everybody's lips, APIs, cloud, generative AI, everybody is looking into that. And we, as a company, when you see the solutions come in later on the samples, we have jumped on it and we've taken things for -- in 90 days from concept to production. Shuki's going to talk more about that. So -- but before I double-click on the APIs, I do want to talk a little bit about data because we've made a deliberate strategic investment in building data. At the top -- so let me go to this slide. At the top of this slide, we're talking about the difference between a closed and an open ecosystem. It's a big difference. In an open ecosystem, HealthEquity, we connect to our customers and we connect with them organically. We don't force them to come to us. We go to them with standard connectivity, so we can accelerate this connectivity between us and every partner and creating a bigger value for everybody in the loop. Another benefit is that the customer has flexibility to change any of the providers in our open model. We can help the customer have more control and freedom to work and do more in different -- and they can choose different partners. So we have different solutions for the same capabilities, but they have the optionality and the flexibility to choose the partner they want to work with. It wasn't possible overnight. And part of our evolution from being a service provider to proactively providing education is to what we're doing now, delivering remarkable experiences. How it's possible is reflected here in our evolution. Collaborating with our partners, we're moving from basic data sharing with partners to establishing a bidirectional data exchange. What this achieves, you've heard the ease of use from Steven, that's what we're getting by doing that. This evolution allows us to enrich our data by integrating data from other sources. And it's a wealth of information that we're exchanging with our partners, and we're enhancing the value proposition of the combined data hub that we're creating. We believe this capability is truly transformative, and it's empowering us to anticipate needs, making a firm decision, be prescriptive and provide personal recommendations that we're all used to get what is the next best action. And this capability is available within our products and create partner value by delivering relevant advice in context. One of the cases of this capability can be observed in a partnership that we have with a leading health name partner. Blue Cross Blue Shield of Massachusetts created BlueFit. It's a consumer health plan to provide comprehensive coverage through a digital experience. BlueFit is designed around HSA, and it rewards members by making progress on health, wellness and financial literacy goals. We reported this program to investors in 2022, and we've continued to see growth. At this point today, it's reported that 95% of the subscribers have earned an incentive. In the upcoming sessions, you're going to witness more the power of leveraging cloud capabilities alongside AI, generative AI, machine learning, with APIs serving as the connective tissue, facilitating those data exchanges. In those sessions, we'll demonstrate our commitment to delivering remarkable experience and driving member outcome. However, let's zoom on the APIs because it serves as the primary catalyst, the vehicle that drives all these data between our partners. We're designing our API infrastructure to scale and facilitate bidirectional, that's deal and real-time connectivity. It's a big deal. The approach culminates in the creation of a data hub. It's a repository merging HealthEquity data enriched with data from various partners. And it provides unparalleled access to rich data access using their APIs. We've been on this journey towards advanced capabilities for quite some time now. And along the way, we have strengthened our competitive position and enhanced our ability to collaborate with partners to expand distribution, close product gaps and create revenue-generating opportunities. Here's an example of potential integration with an insurance partner. Consider the scenario of a member who has a supplemental insurance policy alongside their workplace benefit. The member is hospitalized due to an accident. They're absolutely focused on a situation in hand, which leaves other areas that are unintended, including how to administer the claim and so forth. HealthEquity will be able to assist both the member and the insurance company by reminding members the benefits or, even better, submitting the claims on the member's behalf automatically to the provider right at the point where they need it in context. Health Identity identifies eligible claim activity, and we help by passing the digital version of the claim and a proof of qualified claim so that our partner can process it electronically. The ultimate outcome is that member receives timely contextual information and assistance. Insurance partner, it enhances the value proposition and the services and reduces processing time. And for HealthEquity, we participate in the transaction, revenue-generating opportunity. This is a true win-win-win situation. As Steve highlighted earlier, our partners seek a strategic ally who's capable of alleviating their burdens, reducing costs and providing them a competitive advantage. Historically, we live with these manual processes and human-led partnerships, which is a common approach around the providers that we have today. To easily integrate into our partner's ecosystem, we have developed standard connectors, standard connectors. And we're launching them throughout this year for HealthEquity so we can easily integrate at a fraction of the time and the cost. These connectors are readily available out of the box, and they serve as standardized interfaces for all the ecosystem participants. And that is how we will scale and strengthen and acquire more partnerships. Here's an example about a payroll provider. Today, we're on the marketplace platinum partner of that specific payroll provider. And you can find our solution on their app store. We're in the process of developing integration with that payroll provider so that mutual clients can connect and share data with their platform. Those new data connectors can help us continue to grow through the partnerships and deliver greater value to our shared clients, as much but much more in the most cost efficient and in a timely manner. We believe that our connectors will drastically shorten the integration cycle time and reduce costs associated with onboardings. Numbers matter. Using a standard approach, integrating a partner like I mentioned, like an existing payroll provider could cost between $2,000 to $4,000. Now however, with the connectors that we're building, we can slash over 70% of that cost and reduce the cost and the cyle time of the integration. In tangible terms, we're integrating roughly 200 employees every year through -- just through a payroll provider. And we're seeing double-digit growth this year-over-year. This translates to millions of dollars in savings for HealthEquity. Those integrations alone are yielding more than $0.5 million a year in savings. But it's only one type of integration. We're doing many of those. This example demonstrates the value prop and underscores one of our [ dual ] competitive advantages. Let me emphasize the real-time connectivity, which is a big deal. It's a pivotal aspect of our strategy -- of the API strategy. Real-time connectivity means that we can provide recommendations and insights precisely when our customers require them within the relevant context. For instance, imagine a member in a store seeking to determine if the insurance she has covers a medical device or checking the status of a claim before making a significant purchase, getting information right there and then. In short, we're transitioning from receiving information from partners with claims, eligibility in a [ batch ] mode on a weekly, on a monthly basis to instantaneous data exchange. This ensures that members grappling with real site scenarios have access to critical information when they need it, empowering them to make informed decisions on the spot. Let me conclude by emphasizing the key takeaways. Firstly, we believe our investments create a competitive advantage. Constructing a real-time API platform with robust security measures and the capacity to scale [ millions ] of transactions daily demands extensive expertise and capital investment. We're well on our way to completing both, positioning us uniquely in the market, creating a sustaining competitive edge. Secondly, our innovations and ecosystem yield tangible economic benefits, including reduced data exchange cost, expedited provider payments, enhance visibility into cost control mechanism and swift access to funds for provider payments amongst the rest. These benefits resonate strongly with health plans, employers and members alike. For HealthEquity, these investments manifest in 2 key financial outcomes: a, driving unit sales growth and enhancing the customer value through the expanded distribution of our offering, enriching the experience for the user base; and two, decreasing the cost of serving accounts, thus optimizing operational efficiency and enhancing service delivery. Thank you very much for listening.

Thank you, Eli and Steve. We appreciate it. We have a few minutes now for some questions from the audience. Anybody? Greg has got his hand up first.

Greg Peters with Raymond James. Thank you very much for your presentation. Two questions. One, first for you, Steve. You said in broker portal, 55% of small group sales are running through brokers. Is there some sort of advantage you have inside of that broker portal versus some of your peers? Or is there a way to engender yourself so the brokers are more inclined to promote your products versus a competitor's? And then I have a follow-up question for Eli.

I don't know that we're given. Steve, do you want to talk a little bit about the portal?

Yes, yes. So I think that 55% of our small group sales are coming through brokers. It's not so much that they're coming through the broker portal as much as they're coming through brokers. We're innovating around the broker portal to make it even better and differentiated to your -- to the point that kind of you're headed toward. Today, however, we differentiate ourselves through the partners -- through the integrated health plan partnerships that we have. In a lot of cases, health plans work with kind of their favorite brokers. Brokers know their favorite health plans, and as a result, that combination, that kind of triumvirate of an integrated HealthEquity HSA, relationships that we've built now over decades with brokers is a lot of what differentiates us in addition to then just a long-standing track record of service that they appreciate transparency along the way.

You shut my mic off, I thought. They like to do that to me. Eli, I was trying to follow along. You gave an example of the 70% cost savings with the 1 customer, the $500,000. I feel like there's a lot of intense competition for selling your products into small employers. And I'm just trying to take that example and see how it manifests itself in win rates for you guys, because I feel like your peers, your competitors are offering other discounts to get there, to get the wins. So maybe help bridge the gap for me on that. Does that make sense?

You have a comment, Richard, because we were talking about cutting 70% of the cost, not giving discounts. Is that what you're referring to?

Yes, 70%.

70%. So the point I mentioned probably didn't do a great job was that by using the standardized connectors and the API that we've created, we're slashing 70% of the cost that it cost to integrate to an employer. And as a matter of fact, to your point, for small employers, that's a really, really big deal. It's a bigger deal then for the bigger employees who have more of an IT power and so forth.

Thanks, Eli. Next question from Scott.

Scott Schoenhaus from KeyBanc. Steve, you mentioned that 3/4 of your sales currently come through partner channels. Can you give us a sense of where that was maybe a year ago, 2 years ago? And where your target is? Is this 100% target for you guys?

Great question. Our partner growth model has been producing at rates where it's hovered between kind of this 2/3 and a little bit more than 75%, but around that same area. And we like that. We think that's a right spot because there is this combination of not only selling with and through partners but there are a lot of opportunities to sell direct as well. And so I think it's part of the strength of our sales force, their experience, their networking relationships, it does enable sales even beyond what we sell through partners. One of the things that our partners appreciate is that kind of that chutzpah, that like proactive approach to selling. Because of our integrated relationships and partnerships, when we sell direct, what we're typically doing is bringing that client into an integrated health plan relationship or other partner relationship that we have. And it's just another part, another element of the win-win relationship and value prop that we've got with partners.

Thanks, Steve. Next question from Mark.

Mark Marcon from Baird. Steve, a question for you. Just in terms of the network partnerships, how much has -- how many -- what sort of growth have you had in terms of the number of network partners like if you went back 3 years ago, 4 years ago, was it 100? Was it 120? Then can you also break down roughly what percentage of the partners are insurance brokers versus health plans versus payroll processors? Just any sort of distinction in terms of the types of partners that you have? And most importantly, since it's a big competitive advantage that you've highlighted, where do you think your competitors stand in terms of the number of their network partners?

Yes, great question. Richard -- yes. Richard [indiscernible] the 3 questions. My limit is like 1.5 so I'll do my best here to remember. First, looking back, our partnerships have grown over the years, for sure. As I look back, we had last years ago than we have today, for sure, I think Jon, Steve, Darcy, Jim have kind of reported on that generally. But I think where I would focus is probably your next question, right, and kind of around that, which is what's the nature of those partnerships. So it's kind of the breakdown. And generally speaking, right, we look for partners. Our strategy in building partnerships is primarily on which partners are going to help us drive more accounts and more assets fastest because there's a win-win opportunity there. Secondarily, it's how do we extend the value to our existing clients and prospective customers by partnering with others to add in capabilities that again are going to differentiate our offering in a way that still drives growth, both in accounts and assets. To that end, I think the differentiation between partners is potentially less relevant. But to answer your question, certainly, the majority of our partnerships are health plan partnerships. Our payroll partnerships and record-keeper partnerships, some of the others that we've mentioned, are as a percentage of the total are lesser than health plans and growing.

Okay. I think we've got time for 1 more question. Stephanie, you're going to have to wait because -- we got one question back here with Sean.

Sean Dodge, RBC. Steve, what are the economics like on a partner sale versus something that you all would kind of develop internally? Is there a big difference? And I guess, is that not the right way to think about it because going through partners is giving you access to sales that you may not otherwise be able to get?

I mean, I think you're -- Sean, thanks for that. I think you're going in the right direction, right? That's how we think about it as well. So it's -- certainly, I mean, if you break it down, as the sales guy does, right, in terms of qualified lead-gen flow, amount of time that I'm spending on creating the opportunity and closing it, if I've got the help of a partner who has an established relationship of trust, recommending HealthEquity, my velocity is going to be much higher, my probability of winning and frankly, retaining that business is much higher. So I think there's a preference generally to work with and through our partners for that reason.

Stephanie, last question. They cut the mic out.

So it's very rare that I get to see a head of sales and a head of tech on stage. So I want to hear...

They actually like each other, by the way.

I don't know Steve, he does look like your friend.

He's not a hugger.

So little Steve, first question. How much are you seeing improved win rates? Or are you leading in your sales process with look at these integration capabilities, look at the bidirectional APIs and data? And Eli, when you are going through some of your innovation spend and you're looking at where you want to take the platform, how much of that is informed by what Steve is telling you from his clients ask versus you kind of going alone and predicting what they want?

Sure. So maybe I'll start and then you go? It's easy. So we have -- in the 2 years that I've been here, I'm sure the company has done it well before, but we have doubled down on our efforts to listen to the market, gathering the voice of the customer. For example, we have created a client advisory board. We had the inaugural meeting late last year, and we had 1 just yesterday and that service is a significant voice of the customers. We learn, we get feedback. Those are roughly 20 of our largest clients. Second of all, we've established a 90-day innovation process that we collaborate with our clients. So together, we get together for a few days. We do a design thinking session, and we choose an idea to convert to converge on and then we go and through 90 days, we deliver a product to market. When you see the expedited claims, it was done by gaining feedback from Angelique's team who's going to talk to you as well as several of our customers. So our road map is heavily influenced by listening to what Steve brings from the market in as well, obviously, as our market capabilities and market research.

You're going to...

I mean, she asked me a question. I was going to try to respond. Yes, quickly, along the same line. So what do we lead with was, in essence, the question, what do we lead with as a sale? Do we lead with an integrated partnership or what? And typically, what we do is we'll lead with an element of the 3 Ds that Jon described. But as Eli described, we're going to listen to the customer. We gather a lot of insights from customers and then cater our message to them very specifically and kind of personalize it for them about what's going to matter most and how we can help bring that to bear in a differentiated way.

Thank you, both, Steve and Eli. Let's give them a little round of applause. We're grateful for them. They'll be around all day today so if you want to corner them with some other questions, you're more than welcome to. Now we're going to talk about delivering remarkable experiences with Angelique and Kamesh.

Good morning, everyone. Thanks so much for joining us today. I am Angelique Hill. I'm the Executive Vice President of Operations here at HealthEquity. And that means I lead our contact centers for all of our customer types, partners, large accounts, small accounts, member services, implementations, as well as our back-office operations. I've had the pleasure of being here now for approaching 14 years at HealthEquity. And I'm joined by my friend, Kamesh.

Hello, everyone. This is Kamesh Tumsi. I am SVP and Head of Product at HealthEquity. So my team of product managers, general managers and I are responsible for product strategy, vision, digital experiences and ultimately, the P&Ls of all our product lines. So with over 25 years of experience in product, I'm mostly focused on tech and fintech. I'm truly excited to lead some of the product transformation here.

Great. Thanks, Kamesh. So you just heard from Steve and Eli how integrated partnerships increase sales velocity and customer value. Now we'll discuss how these integrated partnerships fuel remarkable experiences that delight our customers, drive down servicing costs and open new revenue sources. Remarkable service has been at our core since the very beginning. It's one of the reasons I joined this company. We've evolved from providing a one-to-one service interaction to education at scale to where we are now, which is providing and supporting a full digital experience. Slide, no, not slide, other slide. Notes for Angelique, please. Throw me a bone or I can continue my comedy routine. Awesome. And back. This is a fun game. Today's experience aligns with how customers engage. They expect mobile-first experiences and real -time insights to power their decisions. For our members, it means more opportunities to self-service on the go. And for us, it reduces cost to serve, supports new account growth and client retention as well as cross-sell. We talk a lot about what's changed in the last 5 years and we've seen tremendous growth of our business shifting consumer demands and new technologies. Together, these have made it both necessary and possible to accelerate digital transformations. What this means to you is that the service we delivered in the past is now digital, and that delivers greater customer and shareholder value. HealthEquity has tripled revenues the last 5 years and we expect to continue growing revenue. In a traditional call center, you have a one-to-one model, and there's a much more linear relationship between customers acquired and service cost. The shift to a one-to-many model allowed us to use our economies of scale to improve the marginal profit of each account by both increasing revenue and decreasing costs. So first, let's talk about costs. As you know, service expense continues to be our single largest cost of revenue at roughly 84% of our total costs. We are a profitable business but there's definitely opportunity to improve. Each year, you see late Q4 and early Q1 erode the year's gains due to increased member and client activity during our peak or growth season. It's also when we get the most accounts so it makes complete sense, right? My team hears me refer to this as the cost bubble. And what we need to do as an organization is continue to pop this bubble to spread out the cost and improve our overall margins. When we double-click on these service expenses, you'll see that member service expense is about 22% of the service cost line item. And we've made some advances in this area in the past 3 years. First, moving to a remote workforce allowed us to reduce staffing costs. We also began automating high-volume transactions. And once we completed the WageWorks platform integrations, we had greater capacity to invest in digital experiences. Our customers immediately loved it, who wouldn't? Because this is how we, as consumers ourselves, expect to engage in our lives as is. Here's an example of self-help tools driving member satisfaction while reducing costs. We, of course, track trends in the way that our members are using our portals and navigating through there. We build self-guided portal walk-throughs to help them move through that process with key interactions. We study what they search for and their -- and develop prompts to address their unanswered questions and help them get the most out of their accounts. Today, we see 69% of our members engaging with these self-help tools in the portal. Similarly, we expanded our chat program over the years from being human-led to bot-driven and soon to be AI bot-driven. Our chat programs effectively answer roughly 50% of inquiries that otherwise would have gone to a live agent. Self-help is a win for everyone all the way around, right? Customers get what they want when they want it, and we get to lower service costs by deflecting agent interactions. Now let's talk about revenue. What's really cool here is that you've heard me talk about efforts to minimize the seasonal open enrollment growth volume, but what we're really doing is building service leverage. Channels that previously only delivered service are now driving revenue. For example, those same self-help portals that I just mentioned helped drive the education that drove $1.5 billion into our early enhanced rates adoption. Those same chat experiences deflecting calls are helping members drive contributions. And the call capacity we freed up in our small business client service team is now allowing us to cross-sell through our service agents. Today, our experience spans many customer interaction channels, drives customer satisfaction and expands the value of each customer. Let me show you an example of how this comes together in our future experience. So if you watch the screen here, what you're seeing is we have a member who's at the dentist's office. She swiped her card and it got declined. So she's calling the call center, trying to pay her bill, but we sent her a text saying, "Hey, Susie Q, we can see that your card isn't activated. Let's get that activated right now." We activate it and she's able to swipe her card. The next example here is our ability to provide qualified medical expense education. You'd be surprised how many account holders of all of our accounts do not understand what they can use these accounts for. It's very high inquiry type. So our ability to deliver that up as well as direct them, you'll see, to the HSA or the FSA store also helps turn that into a revenue opportunity at the same time. So as you can see, using digital tools allows us to immediately serve our members' needs, make it easy to work with us and provide creating new value for them in ways they didn't really imagine. Here you go, Kamesh.

Thanks, Angelique. So being here for a little over a year, it's really fun to see the transformation, right? And to Angelique's point, we have the benefit of the perfect confluence of a number of things coming together, right? So rising customer expectations, maturing technologies, strong cash flow, and the ability for us to invest and innovate. The first example that I'm going to talk about is digital card issuance. Digital card issuance is a great example where HealthEquity meets the customers' demands and their rising expectations. But at the same time, we're able to reduce the cost of card issuance. Today's consumers literally demand everything on the go, instant gratification. They don't want to be weighed down by the weight of plastic or card. They want everything in this device, right? Over the last years, we've also seen consumers consolidate all their payments into fewer cards. And they've also increased the use of digital wallet to make those payments. So this last year at HealthEquity, we began moving customers with multiple cards onto a single stacked card that has enhanced security through a chip and also advanced intelligence so we are able to identify which account to use for which specific type of transaction, right? So whether the member is at the commuter line trying to buy a transit ticket or whether they are checking out some medicines at the pharmacy store, the card is the same card, but it knows, it has the intelligence to figure out which account to withdraw the funds from. Later this year, we expect all of this functionality through that single stacked card be available through the digital wallet that's all on the phone. And digital issuance is beneficial not just for the consumers in terms of providing a seamless experience on the go, but for HealthEquity, it also reduces the cost. Now how is this offering from HealthEquity different from what's out there in the marketplace? Number one, it has this integrated multi-product suite all available on a single stacked card with enhanced security. Number two, later this year, we will add the support to -- for members to request a card digitally. So that helps us solve one of the biggest friction points for new members and new enrollees because they don't want to wait for a physical plastic before they can start spending. And competitors have portions of this experience, right? But no single competitor really has everything that HealthEquity offers, including instant issuance that we will be soon offering. Now speaking of integrated products, right, let's talk about flexible spending accounts for a moment. The instant access and the ability to access the FSA account on the go is extremely important for FSA members because they access their accounts much more frequently, and they're mostly on the go when they want to try to access their account. And two of the biggest pain points we've heard from FSA members is, one, they really simply forget to re-enroll, right? And two, they end up leaving unused funds on the table at the end of the year. Now as a result of this, FSA account holders churn more than the HSA account holders. But what we've done here is we've used the power of education and payment integration with some online stores to really solve both the problems. First, let's talk about the power of education. So in the most recent enrollment year, just using basic education, basic reminders and really reminding members the value of FSA, we were able to increase the re-enrollment rates by about 8 percentage points from 68% to 76%. Now the second pain point, our integration with online stores like FSA store, as shown here, makes it really easy for our members to actually purchase FSA-eligible items through literally a few clicks, right? So as you can see here, all the member does is click on a link, add the items in the FSA store, and then we actually integrate by providing the payment details, the shipping address, the name on all the other details. So literally somebody can actually complete the entire checkout process in a few clicks. So this is not just a great consumer experience. It addresses their pain point. But for us, it opens up a very, very strong incremental revenue line. Now we are not stopping here, right? We are now addressing one of the biggest pain points that members have with their FSA accounts. This is the whole process of reimbursement, right? So the whole process of submitting receipts and getting reimbursed and waiting for that is the biggest friction point in -- with FSA members. And this whole reimbursement process also drives a significant amount of cost related to processing and answering calls related to claim status. We are piloting an AI-driven product where we are completely automating this reimbursement and substantiation process, and I'll show you a quick demo of that. So here, what you can see is a member at the grocery store shopping for a couple of items, right? So in the -- in this case, they are shopping for eye drops and some grocery. Once the purchase is complete, the members quickly submit their -- all they have to do is take a picture of the receipt. And you can see the 2 items here. One is the eye drops, which is eligible. The other 1 is not an eligible FSA item, which is a grocery item. So all they do is click the picture, submit a receipt and using AI technology, OCR and other API integration, what we're able to do is we are able to not only fill in the claim but also figure out which items are eligible, right? So the entire claim submission process and substantiation process is done by a few clicks. This process greatly improves the experience but also reduces friction and also drives down the cost for us related to claims processing and constantly answering calls related to claim status. Again, the key theme here is win-win-win for all of us. We've shared a few handful experiences now that impact the member, and Angelique is going to share similar examples on how it impacts the client experience.

Great. Thanks so much. That's right, Kamesh. We talked about members and we also have clients that we're serving, right? So working with clients over the years has taught me that the best way to improve the client experience is to make things easy for their employees, right? We've talked about that. No one wants the noise coming into the people team office. But we've also been working on modernizing the client experience for several years. I'll share 2 recent examples where we focused on high-volume peak season activities and how we used data science and journey mapping to identify the best way to automate and proactively anticipate what needs to happen in a better fashion. So doing this serves us very well, right? It helps us manage the costs with staffing our peak times, reduces turnaround times and improves client satisfaction and retention rates. Our RA and COBRA renewal automation projects, improved renewals while also reducing costs in our call center, our implementation teams and our client services teams. Each year for the January, which is our main renewal month, we process about 3,600 clients who have many, many plans underneath each of them for each year. And about 82% of that renewal volume comes in within an 8-week window. It's very fun. And as you might expect, there's a lot of challenges with that. Our volume spikes, attrition becomes risky, and some customers might want to throw in pricing renegotiation, which adds more time and process. Last year, we fully automated the process for RA renewals. We made a slight improvement in renewal rates and retention and reduced processing time by 40%. And you can see a little bit of what this looks like here, but basically, we proactively reach out automatically process a lot. And the goal is to have everyone set up for members with cards in hand, cards funded and no need to call to ask us about where is my money. We employed a similar process to COBRA. We made annual health plan rate renewals for COBRA clients seamless with a slick new tool versus what was a very clunky spreadsheet. This significantly decreased turnaround time for processing all of the eligible rates to the carriers. We saw about 80% of our COBRA clients that provide us rates using the renewal tool during the 2023 season, which again, reduces phone calls when we're getting things done in a few days instead of a few weeks.

Thanks, Angelique. Standardizing the onboarding and renewal process is a first step towards automating our entire experience. And our eventual goal is for clients to manage the entire account opening, onboarding, implementation, reporting in a complete self serve manner, right? So again, you've heard the broker portal that Steve and Eli mentioned is a huge first step towards that process. So in addition to actually easing the account opening, the broker portal reduces the friction in the ongoing servicing, in the implementation process. For example, one of the biggest requests we get from brokers is for custom reporting and dashboards and metrics. So using the broker portal, it's extremely easy because they just log in and they can self-serve with all their requests. There are many, many more such examples of how we are using partner integrations, APIs, the power of data to provide a seamless experience, and I'm happy to share more examples in our Q&A. And in summary, we are and we plan to be the #1 HSA provider in the market using the power of data, partner integrations, APIs, digital experiences. We plan to improve the client and member experience, reduce the cost to serve, increase margin and open up new revenue sources as well as create a lot of customer value. Thank you.

Thank you. Thank you, Kamesh and Angelique. We have a few minutes. Mike or Greg, you're putting your hand up first again. All right. We'll go over here to Glen first.

Glen Santangelo from Jefferies. It certainly seems like you -- the company is investing in a lot of tools to improve that client experience and lower costs, and it sounds like it's clearly gaining traction. But as a group, how much visibility do you have into Optum and Fidelity and what your competitors are doing? And what do you hear from your broker partners in terms of how your competitors are sort of responding to the changes that you're making?

What's Fidelity and UnitedHealth are doing?

Yes. I mean, absolutely. I think having that outside in-view, whether it's coming from clients or having an eye on the customer -- competitors is definitely a part of our road map planning process. I think there's definitely some of the things that we are doing are first to market. I don't know if there's a specific integrated broker portal the way we are envisioning, right? And whether it's reducing our cost through claims, I can tell you, we are among the first ones to do that. And we also talked about the instant digital access card. I don't think anybody has that full integrated product suite and the instant digital issuance that we will have. So definitely a lot of examples where we are first to market. But obviously, we don't know all the specific details of all the tools that all our competitors have.

Okay. Greg?

Okay. Greg Peters, Raymond James. Angelique, in your presentation, you mentioned bots and AI bots. Where are you in deploying that technology? And what kind of cost savings do you think you can deliver to the company over time?

Yes. So one of the things that I have been very excited about this year is late last year, we put together a multiyear service technology road map. We've brought in talent in our IT department to help support that folks with experience deploying this, particularly in the service center, but also in the areas of robotic automation. So we are in the process right now. We have a number of enhancements coming out this year, such as natural language IVR. And you mentioned the chat. The chat has been highly effective. We've really curated the content with a very high CSAT. So we see lots of opportunity. And I know that we -- there's many, many layers to it, but I expect to see an acceleration of this really kicking off this year and over the next several years with this road map, lots of opportunity.

Thank you. Any other questions? Allen.

Allen Lutz, BofA. I guess one for either of you. What percent of CDB consumers have downloaded the HealthEquity app? I know a lot just get the debit card and then that's the only way they use HealthEquity. But I'm curious, has the use of the HealthEquity app increased over the past couple of years? And then what percent of members have a digital card today?

So I'll take that. So we know a very high percent of our users use digital means to interact with us, right? Predominantly, we have a much higher penetration on the web side of things. And one of the things that we are heavily investing on is the mobile side. So I would say roughly 60%, 70% of all active accounts are accessed digitally. It may not necessarily be through the mobile app, but that's what we are trying to get to increase adoption as well. So a lot of adoption on the web portal. To your second question on the digital card, we don't have a digital card live today. As I said, we have a stacked card with all the accounts that we just released. And very soon, this year we'll enable members to access that same card digitally through their digital wallet. Now that sets up the foundation for us to actually be able to not even offer plastic cards for those members who are very savvy and who can actually just get by with the digital card and they can add it to the wallet. And that's coming soon.

Thanks, Kamesh. Next question from George.

Quick one, George Hill, Deutsche Bank. Just it's interesting as you put the digital app into people's hands like the phone-based app versus the card, it gives you the ability to stack a lot of other functionality on top of just the transaction processing capability. I guess could you spend a minute talking about how do you envision the future of the app and what are the most attractive pieces of functionality, both from like a customer service perspective. And I'd say, like from a data utilization, maybe even like a [ VVC ] perspective, that you can kind of stack in and load into the app as you increase in and engage with beneficiaries digitally?

They want the product road map, Kamesh.

That's right.

That's the short answer to the question, yes.

Yes, I think we've shared a couple of examples, right? So once you have more and more people using the app, then you can really take the power of the mobile app, things like the camera, the location, the notifications, right, which is not easily native to a web or a desktop computer. So 1 example that I showed was just with 2 clicks, you can add items to the cart. The payment information is integrated and then you buy FSA-eligible items without even providing your payment credentials, without even providing your shipping address because that's all integrated. So we think when we have a pretty large base of members, right, 15-plus million members or accounts, right? You're absolutely right, a lot of opportunity to provide those value-added services as we increase engagement and, at the same time, reduce cost because then notifications, reminders, right, they all become much, much more actionable and it reduces the phone call.

Our next question from Stephanie and then we'll come back, you were at first last time.

Are you just going to play us off of each other? So this is -- I mean, this is probably more reflective that I'm a difficult person than anything else, but I end up getting multiple HealthEquity cards issued to me over the past few months when I was starting my new shop. And it made me think that because they're chip cards, they're probably pretty expensive for you guys to keep shipping out to me. So what percentage of your cost structure involved shipping out those cards or putting out those different ways or having humans available to onboard new cards and approve them? And where are we on the road map of maybe getting rid of that part of the cost structure as you go to that digital card?

Yes, I'll take that. So you heard me mention about our service costs, right? 83% and 22% roughly is the actual member services cost. Well, plastics, paper that we mail, those are the things, for example, sitting in the remainder of that 83%. The team members, you talked about, we need to ship them. Well, we have to have people set up the client in the system, and that's part of the automation I talked about with the RA renewals. A card is getting assigned at that time with the right eligible expenses and branding and things of that nature. So those all fall into all those other bodies and humans as well as those hard costs, COBRA mailings, all of that resides in those service costs to give you an idea of where that sits. And we were really excited to get those chip cards out. And there's value in them. They mitigate and help prevent fraud, which is not a rampant issue by any means, but it's still a cost that we have to manage to and allows us to continue to get other -- it's also a contactless card. So there'll be some conversion processes. We did the first platform. The second one is coming. And then that's when we kind of light up the race, if you will, to getting to a point where as Kamesh said, a plastic, we're not going to automatically ship a plastic, right? Because a lot of people are going to prefer to have it electronically and have access to their dollars within a few days of being onboarded here and not have to wait for that plastic. So that's coming when we talk about the instant issuance further down the line after we get the mobile wallets rolled out and finish our conversion of all of our platforms over to a single processor. So around the corner.

Angelique, our next question and maybe the last question before we take a little break is from Sean.

You talked about the transitioning from bots to AI bots. What does the AI kind of bring incrementally? Is it just there's so much variation in how people were asking questions that a lot of the bot chats kind of defaulted to a human and this solves that? Or is it just kind of open up a much broader range of, I don't know the answers and capabilities?

So our chat journey started with old school, [ Jane Doe ] sitting here, one-to-one, answering your response. And what we invested in over the last probably about 12 to 18 months pretty heavily is curating the content and we track, the quality of the CSAT and the comments from the members, was this the information you expected? And as we layer AI onto that, our ability to most accurately respond to that question and deflect an actual call will only continue to improve. We've been tracking that to understand the success of our chat. I don't know about you but sometimes I get really frustrated as a consumer with chat, and I personally did not want to have that experience for our members. And we found, by really watching how their members are commenting about did we answer the question, and having a human right now curating that content, we can move into AI helping curate that content. We'll continue to watch our call deflection rates ideally continue -- well, I guess, deflection, we want that to go up. But we're seeing the benefit of the investment by a human and we're going to layer AI on that and just be able to expand. We also, as an aside, I'll say we have launched -- we're about to launch across all of our client platforms, we now have client chat, which also is going very well. So we'll be layering the AI across all of those chat platforms.

Thank you, Angelique and Kamesh. One more round of applause for them. Thank you. We're going to take a little bit of a break. There's some food and drinks and sodas back there. We also have more over here. I also wanted to have you take a few minutes and go up to see the immersive experience if you haven't had a chance to do that yet. We'll try and be back here at 20 after the hour. All right. Thank you. [Break]

We're good. There we go. All right. We need everybody to come sit down. We're ready to start talking about driving member outcomes. For driving member outcomes, we have Shuki and Kelly. You guys want to come on up? Oh, Shuki's leaving. That's not a good sign. Shuki, we need you here. All right, there he is. He disappears on 1 side and shows up on the other. All right. So let's go ahead and jump in. Everybody, you might want to grab your seats real quick because we're starting.

Hello. I am Kelly Koster, and I'm not going to do that again. I'm Kelly Koster, and I'm the Senior Director of Product Marketing and Sales Enablement. So I have the pleasure of bringing all these amazing experiences that you're seeing here today to market, researching industry and competitive intelligence and equipping our sales team for success. I've been here at HealthEquity for 6 years now. I got here via Luum, the commuter company that HealthEquity acquired almost 3 years ago.

Hello, everyone. Hello? Can you hear me? Good. So hello, everyone. My name is Shuki Licht. I'm the VP for Innovation and Head of Technology here at HealthEquity. I recently joined to HealthEquity about 9 months ago. I came from Finastra, one of the largest fintech in the world, leading the AI technology and being the Chief Innovation Officer there. People are always asking me, what is innovation? What do you mean by saying you're the head of innovation? It depends really about the company that you are working for. Here at HealthEquity, it comes with 3 things that describe our innovation. First is applied innovation. How we can take very fast idea to product and concept to cash? We are doing that in 90 days. One of the example that Kamesh shared with you is the claims AI. We can use AI technology to improve the member experience and get reimbursement and claim processing in few minutes instead of a few days. The second pillar of innovation is about collaboration and co-innovate, how we can co-innovate and co-create new value and new solution into the market with our clients, partners, members, whoever part of our partnership. An example that I'm going to show today is about transparency. We talked about it yesterday with the people from the Congress. How we can use transparency and getting different data sources from other providers to give a better solution to our members and increase our assets. The third one is igniting innovation, how we cannot just innovate in the product but also helping the marketing, sales and, of course, supported by legal, privacy and security to bring an ignite innovation across the organization, we want to have people that innovate.

Thank you, Shuki, and yes, you do keep us very busy. Today, Shuki and I are talking about driving member outcomes. This strategic pillar is especially meaningful to me because it's at the heart of who we are, and it's 1 of the top 3 reasons that our clients choose to work with us. Driving member outcomes is about leveraging connectivity and technology to deliver real-time actionable insights to members that empower better health and financial decisions. For our members, those outcomes can be greater HSA-eligible plan enrollment, higher contributions and investing, and on the health side, accessing preventative care and taking their medications. We believe that these outcomes produce durable financial benefits in new unit growth, increasing customer value and driving asset accumulation while accelerating the other aspects of our integrated partnerships, including new logo sales and client retention. Let's start with a simple example to illustrate the power of member outcomes to get us warmed up, and then we'll build on that. A well-known e-commerce company knew that its HSA benefit had the potential to boost benefits affordability, both for the company and for their employees, but it was not getting much traction. So to drive better results, they partnered with us to modernize their plan design, including a competitive seed. First, they reduced their HSA plan premiums by $25 per paycheck and then they added a default employee HSA contribution of $25 per paycheck, therefore tapping into behavioral economics while adding no financial burden to their employees. The results, 95% of their HSA members are contributing. They're making better health decisions and they're reporting high satisfaction rates. All of this while costing the company 11% less than those members that are enrolled in their PPO plan. What's even better is they use the savings that they realized from their HSA plan to further invest in wellness and health benefits for their employees. There is real value here for members to take action, for employers to promote our services and societal impact as well. And the good news is that there is a path to driving action. Here at HealthEquity, we have observed the power of member education to drive positive financial actions, which translates into accounts and assets for HealthEquity. First, clients opting into our annual open enrollment education this year saw an 11% lift in enrollment results. Second, our onboarding educational programs are effective at driving new contributors and increasing contribution amounts for those who are already contributing. And third, our educational series that's related to savings, investing and enhanced rates has driven strong custodial assets and investment adoption. We're continuing to improve these educational programs to extend their reach and in the future, to make them even more impactful by using AI and the power of our real-time connections to empower members to take the next best action. When we think about how we deliver the same type of value at scale and hyper-personalized, it's important to consider what's happening in the market to focus our efforts and to create the greatest value. As a former educator, it pains me to say this but education will only take us so far. The real leverage comes from making it really easy for members and from how the employers design their benefits plans. A well-designed benefits portfolio will improve financial resilience, it will drive down employees' health care costs and support retirement readiness. As you saw in that prior case study, employers use HSA-eligible plans and HSA contribution levers to drive down their overall cost while improving quality and access to care. We're seeing more of this type of scenario, which may be largely attributed to 2 major trends. We will discuss how capitalizing on each of these trends improves member outcomes while also creating opportunity to drive financial value to HealthEquity. The first trend is affordable, comprehensive benefits. It is no secret that consumers today are battling a higher cost of living and struggling to pay for their basic living expenses, let alone save for the future. 401(k) record keepers report that the top reason for early withdrawals and emergency loans is to cover medical expenses. And what's more, most consumers are strained to cover even a $400 unexpected expense. As a result, there's a growing use of third-party medical credit cards to cover these expenses, and some with interest rates as high as 27%. Employers believe that they're responsible for solving these issues, as do their employees, which is a challenge. Employers are faced with a more challenging benefit situation than ever before. Employees demand more benefits, the cost of benefits is at an all-time high and the cost of labor continues to soar. More companies are seeking a bespoke combination of benefits that addresses very specific needs of their employee populations, but they have to do so at a manageable cost. Employers go this by improving financial literacy and designing benefits and incentives to encourage healthy financial habits. By connecting into the employer's ecosystem, we can help bring these solutions together for the employer and their workers and support overall benefits utilization and the incentives that are attached to them. How might we help employers maximize the utility of their entire benefit suite while keeping costs low? How might we incent employees to take positive health and financial actions and improve outcomes and drive down overall plan costs.

Thank you, Kelly. These are very good questions. We have an opportunity to help employers drive down their overall plan costs while helping individual members make better personalized decision. We heard from our client advisor board just yesterday, this is the priority for them. We will do that using AI to produce a prescriptive recommendation at the member level. And then we will push this recommendation through our system. For example, a customer decided they would like to improve the financial resilience of their new retired population. I appreciate if we can move to the next one. Okay. I apologies. To provide -- today, we provide a recommendation based on benchmarking data and our own collective expertise. Soon, we will begin scaling this reporting capability to provide greater insight and recommendation to the customer on demand, along with the mechanism for the customer to add to them using HealthEquity systems. In the future, we plan to use AI for generative benefits design, to recommend an optimal plan design, to address customer needs. Particularly speaking, this near-retired population needs to set up a saving vehicles, maximize their contribution and begin investing. All of these behaviors drive positive outcomes for the member. They also help the employer reach their objective for driving financial resilience. And for us, they mean new accounts and assets grow. Let me show you how this will look like in our employer analyzer.

Thanks, Shuki. Before we jump into the actual demo, I just want to take a moment to say that we understand the importance of maintaining rigorous data privacy governance, and we're committed to continuing to invest in both the technology and the processes to support data security, consumer privacy and responsible AI use.

Yes. This is really important to call out. We are working very heavily with the data governance, privacy and compliance team. We have built the control to align HealthEquity to industry data standards and comply with application regulation. So let's keep this in mind when we dive here. And now let's start the demo. Here, what you see on the screen are 4 things: one, I'm going to show you dashboard we segment-specific insights; second one, recommended action with estimated impact; third, ability to deploy action directly within the tool; and fourth, post-campaign analysis and benchmarking. First, what we see is a dashboard that shows different KPIs that's relevant to these clients. For example, we can see the average investment balance. We can see, for example, that in the last 3 months, we have an increase of 10% of the investment. Second, we are using machine learning to try to segment our members from investors, to saver, to spender and also to unengaged. It's very uncommon to see such an high level of unengaged [indiscernible] members. The machine learning identifies that almost 30% for this client, the members are unengaged. This is something that I want to show you later how we can improve. This information, we can start to realize, to take an insight and to understand what the action that we need. Another area that we are sharing with these clients are the different ways to see how the trends going through the year. As you can see, there's different ways to see the spenders and the saver. One of the things that we see here from insights perspective is there is a lot of activity and expenses in the falls and in the summer. It's something that it will be hard for the members to catch up later in the year. And this is something that the clients need to take an action right now. We are showing more and more KPIs that are showing trends about enrollment per year, the last year. All this information helping the members and the clients to be more optimized or things that they are doing. But we are not stopping here. This is not our competitive advantage. Let me show you where is our competitive advantage. We are using machining learning and AI to try to scoring and clustering in more deep things about our members, from health care affordability, from cost savings, from benefits literacy and workplace wellness. All these things are generated by AI to give a different scale that no one has -- are measuring today in the market. We are the first company that will try these numbers to go with. I see there's a very low numbers about affordability. Let's jump in and see what is going on and what's happened here. As you can see in the screen, there are 4 types of reasons why we got such a low affordability: the first one is recent spend. What it means? We are using machine learning to predict what will be the next expenses and spending by the members. We are using what are historical data, as you mentioned, all this data going through our system, and we try to figure out what will be the spend in the coming months. As you can see, 66% the AI recognized that we will have members that will struggle to pay their expenses. This is a very big number compared to people that have a better secure. When we go to deductible, the situation is much worse. We have more than 80% of the members that will struggle to pay if the case that they need to go to ERs now or going to other places. This is something that we need to do something with it. Think about it. You have in your deductible like $3,000, people don't have enough money in their HSA to pay it. The AI start to give recommendation. Using generative AI, we recommend to the clients what they need to do, what are the changes that we need to do and what are the actions. They click and see different ways to help them, maybe to increase the match, maybe to start to send campaign management to the members to do things right now, not to wait for the end of the year. It's a real time, be directional, insight and action. We click next steps. The system also gives to the client a way to see if we will take this action, what will happen. We see that if we will take the action the AI recommend, we can grow by 10% of our population. The generative AI generates a very nice email better than what I can generate. We can use this e-mail, the client can use it, change it, make it more personalized and just take an action. And the campaign is sending for the specific population, most of the action. We got congratulations, the HSA campaign, and everything is good. What the system is also give us, as you can see here, is what happens with our campaigns. So you start to see how the campaigns are starting to influence your members. How these campaigns starting to get your things better and better, moving future. So we are not just looking back what happens from insight, we are taking the action, we recommend the action, and we also can see from [ AB ] testing if this recommendation works and then it start to be a very interactive tool for the members. The last thing that I want to show you, and again, I have like 6 hours so I will stop here, is that we can talk about benchmarking. One of the top one things that we heard from our clients, they want to compare themselves to others, other clients in their category, in their industry. We're using machine learning to try to use the hundreds of attributes to compare me as the client to other in my group. Why? Because I want to be in the top programmer. In this case, yes, I have the balance for investment. So my members have the same investment, but take a look about that. In my peer group, 12% are investing, only 7% on my side. So the balance is good, but the investment is by far. There's a lot of things for me to improve. And this is something that the clients pay today for consulting, pay today for yearly review. We are giving them in real time, give them right now, benchmarking, on the flight. And then you can start compare more and more things. And as I mentioned, you can go again and again, and go more and more deep. This is something that I'm very, very excited about it. I need to continue. Okay. So -- I'm sorry, all of these things are possible because of the deep trust partners due to enhancement, you heard from Eli and Kamesh. Why is so special and why is so unique to HealthEquity? First, we have the power of ecosystem. The second is the size and the scale of our business. This is why I so believe in this company, about the scale and the size that we can start to introduce this tool. And on one side, we have clients that will start to continue to give us more information, we can give them insight. On the other side, we are engaged with 16 -- almost 16 million or 15 million members. So we can in real time start to have this conversation with them and change their life. Using this tool, we can help influence better overall plan design for the employer and also acquire employers to target specific population to drive the outcomes they are looking for. And as we stated earlier, this outcome are generally aligned with ours. It's better usage for health saving accounts. It's, of course, we're keeping more money in the account in investing assets so they can grow over time.

Thank you, Shuki. This is a really cool tool. We just shared a more extensive demo with the Client Advisory Board yesterday and received great feedback on how it empowers, benefits administrators to optimize their overall plan design, stay competitive and find cost-saving opportunities. They also saw how it could help them improve overall utilization and produce board and executive level materials to secure and defend funding. We shared a couple of other capabilities with the Client Advisory Board to address the affordability gap as well. First, is an example of an ecosystem partner that we're bringing to members to address health care costs and the acute financial strain of an unexpected expense. We're partnering with a provider of health payment accounts that allows employees to access a 0 interest credit line for medical expenses and pay it back seamlessly through payroll deductions. This allows members to access care when they need it without incurring high credit expenses or impacting their credit score. And the benefit to us is that because it is offered through a partner, we are not taking on any of the credit risk, but we're still offering greater value to our clients and opening a new fee-based revenue stream. This concept was well received by our client advisory board to address the financial risk of lower wage earners adopting an HSA-eligible plan. And it was highly recommended by one of our client advisory board members, who happens to actually be here in the audience with us today, waving back there, for being a safety net for their employees. The second example is already in market and being used by employers to drive positive actions across their benefits offerings. It's well known that preventative care drives down overall health care costs, and many employers want to incent positive health behaviors. A common example is for HealthEquity to connect an HSA to a wellness program and make deposits for things like exercise and accessing preventative care. Our own HealthEquity plan does this for us. It's called CDH Change, and our team members can earn dollars for their HSA through healthy behaviors. And some people are very, very competitive about it. Employers desire a seamless experience for their employees. The second trend that we'll talk about today is intelligent spending. It's a confluence of consumerism, the need for affordability and legislation. The rising cost of health care is coupled with higher cost of living is squeezing families to cover even the most basic care. And the issue is compounded by the fact that health care is the only industry where consumers contract for goods and services without ever knowing the price. And there is huge price variability among providers. Congress recognized the risk and consumer impact and pass a bill that helps consumers know the cost of a covered item or service before receiving care. Nearly 3/4 of employers say that finding more transparency in PBM pricing and contracting is a priority and 58% say that they want to see additional reporting and better provider quality measurement standards. This has opened a huge opportunity for consumers to price compare before committing to care and for plans to drive down overall health care plan costs. So our challenge is how might we empower consumers to make well-informed health care decisions, including quality of care, access and pricing and ultimately drive down the cost of health care.

Yes. This is a real challenge, the transparency. And I can talk about myself personally. Few years, I found an issue in my heart. And every year, I need to go to MRI. Believe it or not, every time I found a different price of how much it cost an MRI, and sometimes in the same location. And when I joined to HealthEquity, with the team, we start to think, "Hey, is there a better way to understand the price upfront? How much held?" And then we start to understand and we heard also in the Congress. It's not something that I'm just struggling with it. It's the entire community and all the members of ours in the United States. So we went and built a solution, we call it Intelligent Spending, and you can see that on the screen. That Intelligent Spending is do, one, important things, we educate the members how much they overspent. As you can see on the screen, the system using AI technology identified that these members already been overspend like $2,500 just in the last 8 months. As a personal, as I mentioned, this is not weird numbers. This is the actual numbers. What the members can do through the mobile for HealthEquity, if you can click, appreciate it, to start the video is that you can see this information. This information, again, camping for the campaign that I show you from the employer analyzer, you got it for specific and click on that and see what are the reasons for this opportunity. You would like to learn and educate. Click on this button and you start to get receipt by receipt, claim by claim, what are the reasons and where this can improve. You can see things like this persona went to out of network instead to in networks. So we are talking about how to help them maximize the benefits. They go to urgent care instead to go to telemedicine. People are -- we found that 80% of the population like to go first to ER instead first to go telemedicine, urgent care, they go immediately to ER, see how much they overspend and also ways to improve pricing. So once we educate the members and they start to get this campaign, we had another tool that we called Price Comparison. This is the place that the members start to change their behaviors. They can click, for example, MRI. By the way, this is not my MRI, but it's the identical. I click on the ZIP code, I live in Alpharetta, Georgia. And I'm getting in real time all the prices that I can find this specific MRI. And again, you see different price. I can search by distance, price, quality of the service. I just scroll in very -- just going for 1 out of 19, but believe me, if I will start to scroll, you will start to see [ on to 1,000 ] level. This is a moment for overspending, education and also taking action and return. We are looking across the claim data. We land at a significant portion of the population, and I just mentioned this. Over to you, Kelly.

Thank you, Shuki. Some very exciting innovation on the horizon for HealthEquity to continue to drive member outcomes. To connect some dots from prior conversations today, the trends you heard about from Steve and Eli about the increased number of partners willing to integrate with us and the type of data that they exchange. These are creating the opportunities for these new member capabilities, ensuring that we have strong data and privacy controls both through technology and internal policies and procedures is vital to maintaining our partners' trust. These investments are worth it to us because deepening the power of our connected ecosystem is critical to driving member outcomes and vice versa. And it's creating a durable competitive advantage for us while unlocking financial growth. We accelerate our go-to-market by bringing other products and services to our members, as is the case with the health payment account example that I shared earlier. This provides faster member and client value and accelerates our revenue. We drive new accounts and asset growth through traditional tools such as employee education and more impactful tools like the Performance Analyzer, which enables employers to optimize plan design and target actions. We expose the financial value of an HSA-eligible plan and health savings to both employers and their employees. In the future, we expand revenue and value to our customers when we bring these new services to market, and we increase the customer lifetime value over time. The personalized recommendations drive contributions and assets into the program and the investment integrations drive long-term account growth. Thank you for your time today. We are proud of our efforts to drive member outcomes, and we're excited for the innovation ahead to empower consumers to make better health and financial decisions.

Appreciate it. Very good. We've got time for maybe 3 or 4 more questions. And the hand goes up.

Feels a little weird to not get out to Greg for the first question, right? So when I think about this dashboard that you guys have created, it looks a lot like when ADP and Paychex start to go and get a dashboard introduced a few years ago, and they got a much higher level of engagement with their clients. So it became something that instead of checking once a quarter, they will check once a day, once a week. Same thing. I think about the transparency tool, you're probably checking the app a lot more if you have that. What are you planning on doing with those eyeball times?

It's part of our strategy to increasing the share of the wallet to make sure that we are building -- and by the way, just to give you a -- I don't want to get to numbers, but one of the hard moment for me and when we start to talk with our partners, et cetera, partners love our solution because they saw much better engagement, like a 20x more engagement on our solution. If it's the way portable or the digital mobile, et cetera, through our system. We believe that this kind of solution would not just improve and give the drive outcomes that are super important transparency and health and et cetera, but also helping to have a better engagement to what you had. And then think about the infinity loop, more partners, more solution. More solution, more engagement, and we can start to grow and grow about our story. And this is where I believe in the end of the day, we will find ourselves, growing and growing with more solutions. I think one thing I came from a -- for small startups when I was young. And one of the challenges that we had there that we don't have any clients, and we haven't had any chance to understand what the market needs. I think what's special here at HealthEquity because we have so many amazing clients, they are just telling us on a daily basis what they need. We see the members are calling to our service and tell us, this is our problem. So we know exactly what they need, and we know exactly how to select which fintechs or health tech can help us to help them and bring this their engagement cycle.

Thank you, Shuki. Are there questions? You guys did such a great job. They don't dare ask anymore. Oh, Allen's got one there.

As it relates to the price transparency tool, do you have access all network rates in there? I'm curious what coverage ratio do you have there? Just curious if that's 100%. If there's some payers that aren't opting in? Just curious what you're seeing there.

We are today engaged with several partners. If it's fine, I will not mention the name, and each one of them have a different cover. The cover is very high. We are very sensitive about the quality of the data and the privacy and the security. So this is where we are standing now, just to make sure the security and privacy, everything in place. But for your question, it's -- we see very high cover. Don't tell anyone. I'm using this tool from my own because it's not yet in production, but I'm using to my own personal [indiscernible] and it seems very accurate compared to what I was thinking about. There's things to improve there. Once we will assure about the quality. And as I mentioned, privacy and security, we will take it to production.

Shall we end? Again, Shuki and Kelly, a big round of applause. Thank you very much. We appreciate it. Now for the guys that you've been pestering with questions for many, many years. Well, they're kind of new. But anyway, the finance team is about ready to come up on -- we're going to turn the time over to Jim Lucania, our CFO, if he's ready.

All right. Hi, everybody. I think most of you know me by now, Jim Lucania, CFO of HealthEquity. I just want to take -- make a couple of quick introductions to 2 key members of the finance team. And then I'll come back at the end and tie everything together as the finance team usually does. So I'm going to introduce you to Danny Hurst, who is our Corporate Controller; and Abhinav Dendukuri is our Corporate Treasurer. Danny is going to take a few minutes to walk through an upcoming change in our income statement presentation that should give you a little more clarity to the components of revenue and expenses that have and that don't have any exposure to market interest rates. So these reporting changes are a second deposit on our commitment to provide you with as much transparency and clarity as possible to model the business performance using the core drivers, which are accounts, custodial assets and custodial yield. Then Abhinav is going to walk you through the roll forward of our HSA cash maturity schedule that I know many of you love, that we unveiled last month in San Francisco, and he'll provide some more details around the enhanced rates product. And in the interest of time, we'll hold all the Q&A until the end. So make a note of your questions, we can discuss them after the presentation. So take it away, Danny.

Thanks, Jim. Hi, everyone. My name is Danny Hurst. I am the Corporate Controller. I joined HealthEquity 10 years ago and have been the Controller for the last 3 years. As you look at how we plan for financial success and reporting that success to you, we believe we can provide a bit more clarity. To that end, we are shifting certain components of our revenue reporting lines and associated cost to serve with a small change in allocation of overhead expenses for upcoming fiscal year 2024 earnings release and Form 10-K. I need to go back one, actually. As you know, we describe our revenue in 3 buckets: custodial, service and interchange. Custodial revenue is a combination of revenue generated through interest earned on custodial cash and record-keeping and investment advisory service fees earned from members with invested assets on our platform. Key drivers for the investment advisory and record-keeping fees are the number of investor accounts and balances in those accounts. The majority of custodial revenue is driven by the yield earned on HSA cash and client-held funds. Service revenue generally captures everything else, including charges per account, service charges per account and transaction-related fees. Interchange revenue reflects the fees generated through members spending on our platform. We separately report interchange revenue in its own line because of the relative magnitude of this revenue stream. The drivers for service and interchange revenue are primarily the number of accounts on our platform, whether they be HSAs or CDBs. When we report earnings next month, we will modify custodial revenue to include only revenue generated by the yield on HSA cash and client-held funds, and we will combine the record-keeping and investment advisory service fees into service revenue. With the added disclosure of our HSA cash maturity schedule and the more granular reporting of yield depending custodial revenue, you should now be able to more easily and precisely model the portion of our revenue that is correlated to market interest rates and the portions that are not. We have provided a bridge for you in this slide to show how FY '23 was reported under the historical classifications to the updated classifications. The cost of revenue associated with these changes, including record keeping and investment advisory costs, will be included, too, as part of service costs. The change in reporting, let's say got you one more on my talk track. And then on the final slide, I have provided the historical recast of the -- over here -- of the last 2 years -- there we go -- for the update -- just for trend analysis to give you what the last 2 years would have been under the new format. All right. Most of the prior presentation sessions today, including the Client Advisory Board, experiential component upstairs, have focus on the drivers of service and interchange revenue, growing partners, clients and member accounts. Abhinav is now going to discuss the drivers and reporting of our custodial revenue. Abhinav, over to you.

Thank you, Danny. Like Tia , I have a couple of jackets myself. Thanks to the higher interest rates. Hello everyone, I'm Abhinav Dendukuri, Corporate Treasurer for HealthEquity. I've been with HealthEquity for about a year now. And I had the privilege of meeting the HealthEquity team for the first time when I was negotiating one of the insurance partner agreements, which is now part of our Enhanced Rates program. Since joining the company, we have doubled our Enhanced Rates program capacity by adding 3 new insurance partners. I'm also super excited about the robust pipeline of large, high-quality insurance companies that are waiting to partner with HealthEquity. Last month, we unveiled this cash maturity schedule, and today, we roll that forward to the end of the fiscal year. Let me note a few important things on this slide for you. First and foremost, as we mentioned yesterday, we ended the fiscal year with $15 billion in HSA total cash assets. And remember, these do not include the BenefitWallet assets that are expected to fund later this year. Second, you get the first look into the fiscal year '28 deposits, and it's a pretty typical year of deposit for us. We'll also continue to see the Beyond bucket grow as lion's share of BenefitWallet assets and our new account growth spurs the Enhanced Rates program. And last, but not the least, under most economists forward curve expectations, fiscal year '25, '26 and '27 maturing yields are well below the new money rates that we expect for these maturing deposits. So let's double-click into each of these in the context of overall custodial cash management. But first, let me share with you why we're so excited about the Enhanced Rates program. Enhanced Rates has been and will continue to reduce our variable rate exposure, improve the stability of our custodial use and increase the overall custodial yields itself across multiple business cycles. Let's dive deeper into each piece. First, our insurance partners allow us to make daily cash inflows and outflows. And like basic rates where we have variable rate contracts to manage daily liquidity, insurance partners allow us to have implicit liquidity in our contracts. The result of that is we're able to reduce the variable rate exposure that we have in our Basic rates program of about 10% down to 0 in Enhanced Rates. Second, with Enhanced Rates, we have improved stability of our custodial yields through extension of duration and through the implicit repricing mechanism that exists in these contracts. With Enhanced Rates, we've extended out the duration to approximately 4.5 years compared to 2.5 years for our Basic rates contracts. The term commitment remains around the 5-year mark. But while Basic rates reprices at the end of the repricing -- at the end of the term, which is typically 5 years, Enhanced Rates spreads this out by repricing 10% each year. The result of this is improved custodial yields. And this has shown even in our back testing regression analysis, where we observed lower standard deviations of expected returns for our Enhanced Rates program. And lastly, with Enhanced Rates, we expect higher highs and even higher lows. The average Basic rates custodial yields are approximately treasuries plus 10 basis points. Compare that to where Enhanced Rates average custodial yields are, and you see about treasuries plus approximately 75 basis points. These are some of the reasons why Enhanced Rates is now our flagship custodial cash program and has grown to over 30% of our total HSA cash deposits. Most of this growth has come from 2 sources: new accounts opened on our platform and acquired accounts from portfolio acquisitions. Beginning later this fiscal year, we will begin transferring HSA cash in maturing Basic rates contracts into Enhanced Rates unless the member in these contracts affirmatively opt to remain in Basic rates. With this new initiative and continued tailwinds from our account growth and new acquisitions such as BenefitWallet, we expect to see a mix shift of about 10% from Basic rates into Enhanced Rates for the next 3 fiscal years. In closing, with the new cash maturity schedule, our forward guidance to you around our custodial yield and our mix expectations between Basic rates and Enhanced Rates, we're providing you with tools and transparency to better understand and value our custodial revenues. Now back to Jim.

Can you hear me? All right, here we go. Thanks both to Danny and to Abhinav. So you've seen a lot. You've heard a lot. Hopefully, you learned a lot today. So I'm going to kick off the Q&A session with the first big question. I'm going to ask the first question. As a shareholder, what's in this for me? So as Jon noted at the very beginning of today's session, HealthEquity has demonstrated a track record of calling our shot and then executing. So the team has given you many tools today to understand our growth levers, measure the success of our mission and model our future financial performance. So I'm going to share with you how I think about these tools and the multiple paths that they provide us to achieve our multiyear objectives, which really boil down to just one thing, and it's increasing shareholder value. So first, we'll get some housekeeping out of the way, as you saw in the press release from last night. And as we summarized here, we're increasing our guidance for fiscal 2024, which ended 3 weeks ago. We're raising both the bottom end and the top end of the ranges. And second, we're affirming the previously provided initial outlook for fiscal 2025. We expect to provide more detailed guidance when we finish our '24 audit and report earnings next month. And now finally for what many of you have been waiting for, some new information from finance. We're excited to share a 3-year goal of doubling our non-GAAP net income per share over the next 3 fiscal years. So these are the factors that we believe will help us achieve this goal. So first, you heard Abhinav provide more detail around what we've been sharing for some time that we expect the laddered custodial strategy and continued migration of HSA cash to Enhanced Rates will provide at least 3 more years of average yields on our HSA cash, assuming today's forward curve. We believe that these rising yields, along with continued growth in accounts and balances will drive material increases in custodial revenue, dropping to income at relatively strong margins. The realignment of our P&L that Danny walked through now isolates custodial revenue as the only income statement line with a material long-term correlation to outside market interest rates, namely 5-year treasuries as our benchmark. Factoring in our HSA cash maturity table, you should now have all the tools to model our custodial revenue into the future, more precisely based on each of your respective long-term views on neutral rates. So next, we'll discuss the other 2 revenue lines. Interchange revenue is highly correlated to our overall account growth. So we assume that both our member spending behaviors and unit economics will remain relatively stable. So interchange revenue should vary primarily with our continued ability to grow new accounts. Service revenue growth is also driven by total account growth. In recent years, this volume growth opportunity has been partially offset by a decline in average service revenue per account. So as we've discussed in the past, an opportunity to earn higher custodial yields adds to some market pressures to reduce our per member service fees. So while we believe this pressure will continue, we're aiming to bend the curve in this decline over our 3-year period. You heard from my colleagues a number of new product enhancements designed both to strengthen our leadership position in our marketplaces, but also to enhance opportunities for new service revenue streams. And then finally, on service cost. Our objective hasn't really changed in this area. We aim each year to reduce our unit cost to serve an account. So while still delivering Purple service, remarkable experiences to our members, clients and partners. So in the past, we achieved these goals through traditional process reengineering, scaling, utilizing our outsourced service partners where it makes sense, managing our people cost to the best of our abilities in the Lean Six Sigma sense of just seeking continuous improvement. And sometimes, we got it right, sometimes we missed the mark, but the mission remains the same. Unit costs have been coming down and they must continue to come down. So with the changing preferences of our clients and our members, new technology advancements in the marketplace and the early returns of the stepped-up technology investments redeployed from merger integration activities, we're thinking about continuous improvement in new ways. We're redefining Purple service in new ways, utilizing chat, increasing member and client self-service capabilities online and through mobile, driving electronic communication over paper, increasing straight-through processing overall process times, utilizing both traditional robotic process automation and increasingly through AI tools. And we're leveraging stack cards and soon, mobile wallet to eliminate more plastic and postage in paper. Most of these enhancements have the benefits of improving our member satisfaction scores, reducing call volumes in our service centers and manual interventions in our back office operations, ergo reducing service costs. So we're attacking the same problems with new tools and meeting our customers where they are today and not where they were in the past. So boiling it down to brass tacks. As you've seen, we have multiple tools and pathways to achieve the 3-year goal to double non-GAAP net income per share. Can we tell you precisely how we're going to get there? Of course, not. But we believe we'll continue growing our top line in the low double digits, and we'll continue expanding our margins. Thank you.

[ Abhinav ], Danny, appreciate it. George had his hand up first. You guys are going to be on the hot seat here. I think there's a lot of people that want to ask you some questions here.

You brought a bunch of Wall Street people here, Rich and you're surprised that they want to ask the CFO questions. Jim, George Hill from DB. Thanks, again. I think I'm probably going to ask the #1 question that most people in my seat are going to ask, which is, I can't model as fast as you can walk through the slides. But to the degree to which you can, can you break down the key assumptions and deconstruct the long-term growth algorithm for us a little bit? You talked about the low double-digit top line growth. I assume that the assumptions around membership growth have not changed. You kind of gave us the map on the cash that gets replaced, so we can model kind of what looks like the easy comp on yields. You talked about expense leverage. I guess 2 things you didn't get to are below the line and inorganic? And is there any contribution that we should expect there? And again, as it relates to the big moving pieces in the growth algorithm to which you can frame any of those up with numbers would be great?

Sure. Yes. No, I will not build your model for you on the stage here, but...

I was just going to say that -- that was a better question than Greg ever has come up. 15-part question. So that was very well done.

No, but -- yes -- fair starting point. We've not talked about the line items below. So obviously, yes, included in that number is our upcoming or previously announced acquisition of BenefitWallet. We expect those assets will start to come over later this quarter and into the next quarter. So those, yes, are factored in. And then I think we've spoken over the last couple of quarters about where we feel the sales and marketing line? We feel like we're in a good spot as a percentage of revenue. So yes, I think those lines will continue to grow, but I think we feel like that's in a really good place. And as we've also talked about the -- on the technology line and development line, that we've sort of reached the high point as a percentage of revenue and what you're going to more see is redeployment of those dollars from merger integration to the tech and Dev line. So you'll see a little shifting of the P&L and then obviously, the merger integration line, which has come down quite significantly. We'll -- we've still got a little bit of work to do on the further migration, but you'll continue to see that line come down, yes. And then so no -- no material market shifts. Like as you see, we'll see when the Devenir report comes out. The last one said the market is adding 2 million HSAs a year. We've added 700,000 in our last year. We'll see if that 2 million assumption was a little light or not in the next few months. But no, we've not really assumed any massive curve bending, that we're just going to continue to keep winning more than our fair share to allow us to step into that goal of hitting 30% share.

[indiscernible]

No, not beyond the acquisition that we discussed. Yes.

Jim. Thanks for doing this. I appreciate the clarity. One thing that a lot of investors have been asking me about, and I'm wondering if you could shed some light on is just a little bit more about the mechanics with regards to the enhanced yield product. Just in terms of like the cash comes in the investors or from the account holders on this state, how does it end up getting deployed with these insurance partners? How do you have that flexibility? How long are those periods of flexibility? What are some of the considerations that would be a structural change that we should think about? And then the 10% that you said that gets redeployed per year, is that per contract? Or how does that work?

Yes. So I'll start with that one maybe first, right? So that's -- the objective we talked about is getting to 30% for this last fiscal year of the HSA cash and Enhanced Rates. So that's what we're refreshing, we're trying to get to 60% in the next 3 years. So 10, 10, 10. Is it going to be perfectly 10, 10, 10? Probably not, but that's the objective. But to the first question, we have an algorithm that invests clients' cash. So we're not directing every dollar in, right, sort of eliminating this -- like self-dealing, right -- like choosing the highest rate, that's not what we do, right? The algorithm deploys cash coming in and members are attached to one financial institution or another. What Abhinav was referring to is when if you are attached to Bank XYZ, that contract is maturing. What we're trying to do is move at that maturity, your dollars into enhanced rates through a sort of a negative consent concept. If you want to stay in the bank rates, you click the button, and say, "No, I want to stay in the bank product." So the bank product is never going to go away, right? It's still going to remain a large part of our portfolio. It's just going to become a smaller percentage of the portfolio going forward. So yes, it's up to Abhinav and his team to manage the total liquidity available in each of those pools so that we can manage the shift from bank to the insurance wrap product.

Jim, thank you. I like how we put the finance team up and it only give us 10 minutes for Q&A. I know, but it's -- think everyone here has dozens of questions to ask of you. I'll just focus on one. So in your comments, you talked about bending the curve for service revenue growth. So if you look over the history of HealthEquity, one of the metrics that we sort of track is just revenue -- service revenue new growth per account. And one of the features that becomes apparent is that trend has been down. So tell us why you're going to be able to bend that curve, especially with elevated interest rates and the fact that your competitors are going to be pushing service revenue -- service costs down to their customers?

Yes. So I think two factors. So one clearly is that pricing pressure of unit revenue to a customer actually lower, that's especially the case in HSA land as, of course, like we are earning more on the custodial line. The other part of that average revenue per customer is a big mix shift, right, toward HSA away from CDB. CDB is a higher revenue per -- service revenue per account product. It just is, and it's -- that's the main revenue stream of the CDB products is on the service line, very little relative custodial revenue in those products. So you're seeing the combination of the headline pricing pressure in HSA and the double of we're mixing more towards HSA, bringing that average down. And so really, how we're going to bend it is through these new products and services that can add new revenue streams. And then the final piece being, we're no longer declining in the CDB. As Jon said right at the beginning, we eked out a gain there. So bending that curve and growing the CDBs mixes up the average revenue per account.

Scott Schoenhaus from KeyBanc. Back to enhanced rates, I think you mentioned that you have a large pipeline from large insurance partners. As you execute on that pipeline and get more large insurance partners, what does that do to that premium that you guys denoted? Does it change? Does it change the average premium higher? Does it skew it higher?

Yes. So again, it's -- that's the sort of bilateral negotiations. So that where we go in that area is dependent on our ability to negotiate a strong deal with the next insurance provider that joins the stable, yes. And certainly, if that number changes, then you'll hear about it and see it, but that's sort of where we're blending out today and how we model the business.

Jim, this is Jack Wallace with Guggenheim Securities. How do you -- how should we be thinking about your exposure to the front end of the curve over the next couple of years? Right, the enhanced products give you some flexibility, but the front end is still elevated relative to the 5-year -- I believe you historically have had about $500 million of cash exposed to the front end. How does that wind down? Has it already wound down? Just kind of help us walk through that and...

Yes, I'd say it's probably already -- it's in a good place. I think we were $0.5 billion or so at Q3, and $700 million of HSA cash is where it stands today. So I think it will probably fluctuate around period-to-period because we're in this migration of -- we have to manage the bank liquidity and the insurance wrapped liquidity to get those migration timings right. So it will certainly fluctuate. And then the client-held funds side, that number you see on the balance sheet, that fluctuates quarter-to-quarter as well. But -- so there's not going to be no exposure. But as the insurance or the enhanced rate product grows, there's less need to have that overnight liquidity bucket.

Stan Berenshteyn, Wells Fargo. Question on the credit product. I think you said there's no balance sheet risk with it. It's being offered through a third party. How is it monetized? Can you just walk us through that?

Yes, There'll be a rev share component for activating and usage.

[indiscernible]. I know you didn't talk about inorganic as part of the strategy. but it has historically been a pretty big part of how we've been amassing share. And when I look at the top names in the different account holders, there's not as many large chunky transactions left that you guys can do. Is there a lower limit to what you'd be willing to spend management time on for portfolio M&A?

What do you mean by lower limit?

Is it one of those things where smaller book of portfolios will just be less attractive that you guys would rather just invest more organically?

I see what you mean. No -- I see what you mean. No, I think like that -- like we view that -- the small ball acquisitions, I view as sort of semi-organic growth, right? That's part of the growth strategy, like whether I'm paying the acquisition price, like I view that as a commission payment that unfortunately, Steve and team don't get. The other side gets for having built that HSA portfolio. So no, absolutely, right? I think we'll be focused on continuing to bring in smaller blocks. Obviously, fiscal '24, we acquired nothing which is an unusual year, and we're getting done a big deal this year, but no, it will absolutely be part of the strategy.

We have time for one more question. Anybody? All right.

Jim, just following up on the enhanced rate product. I mean you sort of highlighted in your slide, it's an extra 65 basis points above the bank product. Obviously, your members are going to want something for adopting that product. How does that extra 65 basis points get split between you and ultimately, the customer? Because I think Jon has sort of made the case that moving into enhanced rates would reduce the volatility around the movement in interest rates. But I would guess that, that product is also vulnerable to volatility of interest rates. So I'm just trying to triangulate all those things, so I can think about how it might impact the yield going forward.

Yes. No. So we certainly do share a bit of that back to the member, right? So as you -- I mean you can see it in our results that the custodial cost line or bps paid to members increases a little bit as we mix toward enhanced rates. So they're certainly sharing a piece of that of the upside there. And yes, like sensitivity to rates at both our bank rate products and our enhanced rate product that T plus 10 and T plus 7 treasury. So yes, as 5-year treasuries move, both of them move up and down together, but enhanced rates in the regression testing and the backdating analysis that the team did before making this big push into the product, we've seen enhanced rates perform better through multiple cycles or I should say this insurance-wrapped product perform better than bank deposits in these cycles. And that's why we're comfortable that we'll have higher highs and higher lows through the next business cycle.

Thank you, Jim. Let's give everybody -- let's get them a round of applause. Danny, Abhinav, Jim. Jim is not going away. He's going to come back up there, but he's going to be joined by Jon and Steve. So while we get that set up, we're going to take a quick lunch break. Lunch is down here, hit the administrative experience. In your box -- in your little gift box, there's also some air pods that you'll be able to go and click on some QRQ codes and listen to some additional stuff. So make sure you open that up and take it with you. We'll try and get back here by a few minutes before noon. All right. [Break]

Hello, everyone. I think we're about ready to get started for the main event. We have Steve Neeleman come on up. Jon Kessler, where did Jim Lucania go? He's on his way, he's coming. You get chairs, you get to sit and relax. Okay. We're going to turn this over to the audience here and see if they have any questions for Steve Neeleman, Jon Kessler, and Jim Lucania. And we got Greg and George up first. Greg?

Can I ask 20 questions in one sentence. Jon, can you -- and Jim, I know you'll opine on this. When you go beyond what you've mapped out in terms of enhanced rates 10% per year for the next couple of years? Play the tape to the end, what is it going to look like? What is HealthEquity going to look like in 5 to 7 years in terms of percentage of enhanced rates versus depository partners? And the other piece of it that I've been thinking about, and you guys know about this is one of the reasons I like the traditional depository arrangements is because of the FDIC umbrella insurance policy that you have over -- you're not taking -- the account holder doesn't have credit risk. So I worry about that when I think about your enhanced yield products. So those are the two questions in one.

Sure. So I think -- as we talked about in the presentation, so sort of 80%, 85% think of the organic dollars are going into the enhanced rate product. That's how we got up to 30% for this past fiscal year. So that will continue. So at some point in the future, if we get to sort of 80-20, but that's quite a number of years, quite a number of years out, but that's if we stay on this trajectory, that's where it will be. The sort of dollars in the bank rate product will probably continue to grow a little bit, too, if we can keep growing assets. So it's not like we're ripping cash out of the FDIC deposit, but we've made that trade-off, right? We're trading the FDIC insurance for our ability to risk manage and portfolio manage our stable of insurance partners.

Let me take the risk and compliance question?

Yes, sure.

Greg, I think let me first say, this is something that -- this point generally is something that, as a Board, we've made changes in our composition and so forth to assure that your representatives are providing appropriate oversight and that's translated into management. The way -- if I say generally, the way we've approached the point you're making is that we start with the guidelines that -- in terms of who we will have in the program, we start with the guidelines that the Department of Labor uses in terms of whom it will permit to offer similar products in the pension environment, and then we kick it up a notch. And the way we kick it up a notch is twofold. First of all, we kick it up a couple of notches in terms of ratings and so forth that we will accept. But secondly, importantly, we don't want to be a significant component of anyone's balance sheet. That's really where things can get problematic is, from my perspective, in that we don't want to be the source of risk if that makes any sense. And so what that does in practice is it takes, for example, all of the various annuity providers today that are private equity backed or the like. Apollo has Athene, et cetera. It kind of takes those off of our Board at this point. And what Cordell and Abhinav have been doing, we try never to mention Cordell because we're always worried about recruitment. But he's back there quietly sitting in the back. What they've done, I think, very well over the growth of this program is they've provided us a pretty clear view of what the premium is relative to quality and look at some level, we've just chosen to focus on quality. And we've been fortunate to have market response, but it's something we want to be aware of. We don't want our members to be taking undue risk. But we also -- this is -- it was interesting the further acquisition that we did was essentially using this program exclusively except the insurer was a state-regulated sub of the parent. So from a credit quality perspective, not ideal. And we learned a lot about how you manage that, how you manage it with the clients and so forth and have been so far quite successful. So I think if Abhinav where up on the stage, he would also give you a lengthy treatise on the stability, particularly to things like deposit events that we saw last March of these kinds of insurers relative to participants in the banking system. But as you say, at the end of the day, you have the federal government backing you there. So that's the approach we've taken. We think it's the right approach. We will keep monitoring it, and you should feel confident that it's something that your representatives on our Board monitor extremely carefully.

I've got one for Jon and Steve here. Wow, this mic seems loud. So you guys have mapped out a great, what I would call, 3- to 5-year road map. When we think about -- when I think about the company, I think you guys have like 1/3 market share in what is your core offering. You guys did the Wage transaction, which moved you into other consumer-directed benefits. Jon and Steve, what I want to think about and this kind of dovetails on Greg's question is like, what's next? Like what is the next natural adjacency or what is the next sizable market that you guys go after? You talked a little bit about the price transparency tool that you're building into the app. Benefits navigation might seem like an appropriate end market, given where you guys overlap right now, but as investors look out over the next several years, if we think about where you might largely deploy capital outside of the core businesses that you guys are already involved in, I guess, can you talk about what looks attractive from a greenfield perspective or from an M&A opportunity perspective?

Why don't I start? How does this work? Does it like when it knows -- somehow it knows I'm going to talk, and then -- is this AI? What's going on? They're just I. It's working out. Let me start and then I want you to kind of -- I think you'll -- I'm going to give the typical Jarvis side of this, and then Steve is going to give the Iron Man side of it, okay? I think if you get nothing else out of today's event, you should understand that something that knits together both everything we've talked about, plus Jim's commitments in terms of -- which are our commitments in terms of increasingly focusing on -- what am I supposed to call on, non-GAAP net income per share. You're welcome, Michael -- et cetera, is that over this period of time, we see the returns to deployment of capital in two areas. The first, as we've said before, is portfolio-type transactions, and the second is to largely internally developed innovation. We'd rather spend money working with our clients on their needs right now than thinking about kind of horizontal transactions. One big reason for that, and it's the two examples you offer, George, are perfect examples. Our conclusion is, and I'm sure this is not going to make friends with everyone, maybe everyone in this room. I think generative AI is going to eat large chunks of particularly consumer-facing software applications that -- and particularly those that kind of work through these sort of business channels. I think -- so to be more precise, I think generative AI is going to eat transparency. I think generative AI is going to eat navigation. And so when you look at what we're doing, what we're trying to do, to some extent, is say, well, the good news is we're not in those businesses. So how can we get ahead of that, solve 90% of the problem with -- or get 90% of the opportunity at 10% of the effort and 20% of the cost for our clients. And some of that will be done as we're doing -- a lot of that will be done with partners who are similarly not invested in what I might call the legacy infrastructure of those businesses. So that's all my Jarvis Debbie Downer way to say, we're going to deploy capital over this period principally to growing at the edges of the businesses we're in. That doesn't mean there won't be new revenue streams, et cetera, et cetera, right? But it does mean they're going to be very adjacent and they're going to be primarily developed through the creation of new businesses rather than kind of we go buy something and now we're in something else. But I think what Steve can hit a little bit better than I can, certainly more inspirationally than I can, is where the real interest is and where that interest kind of collides with what our passion is and so forth.

Sure. Thanks, George, and thank you all again. I -- when I -- we're cruising towards spending $3 trillion a year on health care in this country, $3 trillion a year. And I -- when you look at all of the estimates, people think that probably between 1/3 and 1/2 of that doesn't need to be spent, right, either because of fraud waste and abuse or because an ounce of prevention should be worth a pound of cure. And we're not getting people to do their colonoscopies and get a polypectomy, which by the way, former practicing general surgeon, all colon cancers start with a polyp. News flash. Polyps can be removed in about 5 minutes. Colon cancers and metastatic colon cancers and the sequela that come from that is a big expensive problem. And so if that's in the half of $3 trillion a year, by helping people just reminding them, go get your colonoscopy, you're 45 years old. I'm 55, time for another one. Just reminding people or get your hemoglobin A1c under control. That's one of the ways we can drive this down and we talked a little bit about that earlier. And so George, I think the answer is kind of beautiful in its simplicity, is just do more of the same. It's empower health care consumers, right? And we've been empowering them for many years by helping them understand the benefits of a tax advantage account and then we started empowering them more and teaching them how to invest. And then this remarkable thing happened. Once they realized that even though HealthEquity makes less money on investments, you all know that in this room, significantly less, when they start to invest that next marginal dollar, they start to put more money into their HSA because they realize that this isn't an FSA, right? This is persistent, it's personally owned and it's portable into retirement to my next job. And then they start putting more money in it. It creates this virtuous kind of cycle that just keeps going. And so now it's like, okay, we kind of got that going, not for everyone, but for a good portion of our population, they're starting to invest, trying to understand it and put more money in, now let's help them spend money better, let's help them understand their benefits. Let's help them understand that their employers are offering them incentive dollars to just into their HSAs or in other accounts, just to do stuff that will save and improve their life. And yet they don't do it. It's crazy. I was talking to one of the experts, I think, in the wellness world. He says that most wellness programs have like less than 10% adoption. Our CDH Change program at HealthEquity that we mentioned earlier today, 58% of HealthEquity teammates, not perfect, get some money through the CDH Change program. It's over 10x what most wellness programs have. How do we expand that out to the world? I want to read just one quick thing as I do often to our product and technology teams. We are a leader and an innovator in the high-growth category of technology-enabled service platforms that empower consumers to make health care saving and spending decisions. Our platform provides an ecosystem where consumers can access their tax advantaged health care savings, compare treatment options and pricing, evaluate and pay health care bills, receive personalized benefit and clinical information, earn wellness incentives and make educated investment choices to grow their tax advantaged health care savings. It was written 10 years ago, June...

That's the first line...

The first two sentences in the box in our prospectus S1 written June 10, filed June 10, when we started going out in our test waters meetings. Do more of it. But now the beauty of it is, is that we did the proverbial kind of COBRA or whatever, swallowing the chicken and we had this digestive process over the last 5 years with a bunch of acquisitions and COVID and all that stuff later on top of it. But now I'm telling you as someone that's been here for 20 years, I believed in my heart and soul that when Eli Rosner, where are you man? Is he in the house? When that guy back there says that, Steve, we're not going to be spending 80% or 90% of our technology spend on integration anymore. We're going to be -- it's going to -- we're going to flip the script and we're going to spend 10% or 20% or 30% on kind of maintenance and dealing with more of the maintenance stuff, and we're going to be spending a bigger chunk on actually doing what we said 10 years ago, in those first 2 lines, those 2 sentences in our S1, I believe it. That's why I'm still here. That's why I'm still here because I believe it in my heart, I believe it in my soul. And when we say we save and improve lives by empowering health care consumers, that's what keeps me coming to work every day. Or I'll go do something else.

Stan Berenshteyn, Wells Fargo. A couple of questions, business strategy. First, so you're marrying bidirectional data with your digital wallet, you have an opportunity to steer members toward qualified services products. Clearly, a value-add for members. Is there a value-add opportunity for you to monetize that steerage?

We already do. Some of -- well, everything you saw on that topic is live in production today and contributing to what is today reported. I guess, actually now it contributes -- it always has to the service line. So the short answer is, yes. The slightly longer answer is that what we have an opportunity to do is two things. First of all, increased utilization, which is a lot of what was being talked about here. And I think secondly, diversify what's being offered to whom and when. So are we going to sell -- is it -- does it pay? People say, why don't you have a data business where you go sell stuff to -- it doesn't pay. It does not have money in it for the, in Yiddish, the service involved. But by the way, did anyone catch Steve Lindsay speak in Yiddish earlier today? That was funny. And with Eli on the other side, well done. But there's an opportunity to diversify the sources available. So there are -- I'm going to use an example. There's a company that -- I was in the shower this morning, and I'm listening to CNBC and they're talking about NVIDIA and they have to go commercial, and they go to commercial and the company that I'm not going to name because we are talking to this company, but is a company that is in -- let me say, it's in the eyewear business. And like -- it's the middle of, what is it, February, and they're talking about, oh, you can spend your FSA and HSA dollars, right? What tells me is their tools for utilizing the channel of FSA, HSA, et cetera, are pretty poor. We can provide better ones. We can bring those kind of people onto our platform and continue to benefit from that. So I -- the short answer was yes, the longer answer is yes. Do I think we should be building a business based on steering people to A over B over C? Not necessarily, but I think we can build a meaningful component to the business based on the idea that there are an increasing number of paid applications that want access to consumers as they're thinking about health care and where they can bring value, we can help them do that and at the same time, help our members and at the same time, help our clients by making what they have to do more affordable.

That's helpful. Maybe just a quick follow-up on the client side. You have the benchmarking tool. Maybe I missed this, but is this an optional add-on that you're monetizing? Or is it just a differentiation that you're just pushing out to everybody?

I want you to stay tuned on that because the answer to some extent is both. We do want to get this in the hands of -- particularly as it really gets going, we do want to get it in the hands of some of our clients who have been very good to us in terms of providing feedback in its development very quickly. And we'll obviously do that at no cost. But we do believe that -- and again, if you sort of think about all this is we would not be the first company to say, "Hey, there might be an analytics business in what we do." And if you look at -- I think if you look closely at both our people ads recently and over the next few months and also look at the products, what you'll see is that we do have a view that there is an analytics opportunity both for our clients but also there are other parties. Think about some of these brokers and the like, and I'm using the word broker, but let's just say, consultants, broadly speaking, in the benefits environment who are basically blind as to what the consumer experience financially with all of their health benefits designs actually is. We can help them see. So I think there is some opportunity there in terms of what you might think of as analytics, and you'll probably be hearing more about that from us.

So thanks a lot for doing this today. obviously, really impressive in terms of the growth over the last 22 years across the organization. I'm wondering if you can talk a little bit about -- you've obviously gone through your own development. You continue to gain share within the space. Wondering if you can talk a little bit about how you think the competition is going to evolve over the next 3 to 5 years? How should we think about that in terms of who are going to be the major players? Are there -- could there be some new entrants that could come in that could disrupt things or how exactly are you thinking about that? And to what extent -- you've got all sorts of initiatives in place to not only continue your market share gains, but maybe even accelerate them. But are you -- do you see anything that might change that trajectory?

You want to give your thoughts?

Yes. Thanks, Mark. I think that, look, we've certainly seen these waves of competitors come and they'll keep coming, right? I mean we tend to be a little productively paranoid around here. That's why we don't do these more than once every 3 years because -- oh, once every 5 years, we did 3 and 10. So right? You said 3 and 10? Okay. 1, 5 and 10. So this is our third and you're right, every 5 years. Don't get your hopes up but opening the kimono is, I think, important in some respect, but it's also makes us all a little nervous, right, because everyone is looking at us, how can we do that? So the way -- just to remind everyone, start out being banks, we are competing against banks. When you look at that debt report, you'll note that the banks have left the space largely, not all of them, but a lot have and you've gotten into these more of these companies that they are more kind of middle type companies, TPAs and stuff like that. But we certainly have the 3 big name competitors. And so we're going to always have to be on our game when you've got a Fidelity coming in and trying to link it to their 401(k) offering. Jim and I were talking about this yesterday. It's -- they make a big deal about it, but it's -- we think really it's how do we kind of really drive this through that this is a health benefit, and that's who we're selling to. United is going to be United in what [ Brad Bennin ] calls their walled garden, right? They've, for years, tried to sell to other health plans, and most health plans don't like that. They can buy a health plan and that becomes a competitive issue for us. And so we got to keep our eye on that. And then we've got these technology folks that have come in and come in and said, "Look, we can help you health plan do all of what HealthEquity is doing for you, but you can somehow keep either the economics or you can keep the consumer engagement better and all that stuff." And as we pointed out earlier today with some of our blues partners and things like that, hasn't gone so well for them. And we have other health plans that have come back to us even in the last few months and said, look, we made this decision to try and do it ourselves several years ago, and it's not working out so well. The other benefit from that perspective is not only that they can just outsource it to us, and we take care of it is that now they're in these competitive RFPs when a big -- like kind of a Willis Towers Watson or Mercer, somebody comes in and bids it out and they say to a health plan, so just to give you a competitive set, we're bidding to a large logo. How many HSAs do you have? And even a big health plan, if they were doing it themselves, might have 300,000, 400,000 HSAs and they're like HealthEquity added twice that last year. They're doing it in scale. So I -- look, we will never ever say, this guy's watch or as long a I'm around, mission accomplished, because these folks are coming at us. We know that. But I do think, Mark, that if we can continue to do what we've said before, it's kind of [ how do I connect ] -- help them better than anyone else in the industry, we can ward them off. Now I will turn to Jon because he's -- Jon is a prolific studier of the industry on who he thinks would be the next kind of emerging foe other than just recycling through banks trying to get back into it, benefit enrollment companies trying to get back into it, technology companies trying to DIY it with health plans. But Jon, any other thoughts? Who do you think, Amazon? I mean, are they...

I don't know. I think 2 things. First of all, what's really remarkable is if you look at the top 20 providers today, 19 of them were in this business when I arrived at HealthEquity. okay? And that includes all of the largest ones. The names may have changed. It might be a different owner, right, but it's the same organizations. And there are a number of reasons for that. Mostly that boil down to that distribution is complex and the regulatory environment is complex. You can't -- it turns out you can spend $60 million and create -- and actually create an equivalent of -- it's incredible, by the way, you could spend $60 million and create an LLM that will be competitive with ChatGPT 3.5. You cannot spend $60 million and create an HSA competitive company, which is, I mean, the first statistic I didn't know until very recently and then I saw it, but the second I've known for a long time. That having been said, I think to understand our strategy with regard to our competitors, we fundamentally take the view that scale and a level of capital intensity are our friends. So when Nicky Brown, who works on Steve's advocacy team and goes out and works with the regulators on more kind of regulatory issues, when Nicky is talking to regulators, her stick isn't, oh, regulation is bad. It hurts our business, whatever. It's what do you want to do, let's show you how we can do it. Well, the reason we do it that way is not just to be nice people, but it's because we're -- as long as we can do it, regulation doesn't hurt us, it helps us because we have the scale to deal with it. The fiduciary rule is coming back. The fiduciary rule doesn't hurt us. It helps us relative to many of our competitors because they don't want to be involved with it, right? HIPAA helps us. The movement to AI and the development of data hubs and all of the issues around those both technology scale help us. They don't hurt us. Now do I believe that ultimately, our largest competitors, I think about United and Fidelity, they have the capacity to do the same things we do. They certainly have more money, right? Do I think that ultimately, their strategic interest is in doing precisely that? Not really. It could be and even if it was, great, right? Let's be winners together. That's fine. Right? So if I had to simplify what our competitive strategy is, ultimately, we want to do -- it turns out that empowering consumers of health care is complex and somewhat capital intensive. And that is great for a market share leader that wants to continue to grow its market share, and it happens to also conveniently enough align with our mission as well as what our clients and our members actually want us to do. So that's the way I think of it.

Next question is, Greg.

I got a follow-up. They cut off your mic for that comment. They've learned. So capital management, in your previous answer, you said you wanted to -- for dollars you wanted to invest in portfolio acquisitions, you also said you wanted to invest in new capabilities for existing customers. Yet, if we look at your financial projections and adjusted net income per share, non-GAAP, we come up with some free cash flow numbers over the next couple of years. It look pretty promising. In your balance sheet, your cash piece on your balance sheet is going to grow, and yet you don't need all that cash. So can you remind us of your views on deleveraging, paying down debt? And -- or two, what are you going to use with the excess cash that's sitting on your balance sheet that you don't need?

Yes. I think no new news to report here versus what we talked about a couple of months back. So yes, but don't forget the acquisition, the beforementioned acquisition has not happened yet. So we will be leveraging, then deleveraging, then generating significant amounts of free cash flow. So I think the short answer is sort of stay tuned in that area, but yes, of course, as we talked about in our presentation in San Francisco, we see a spectrum of uses of excess capital. We'll fund the business. We will pursue accretive acquisitions and yet paying down low interest rate debt is pretty low on the priority list once our leverage is sort of back below 2x, 1.5x, and then there's one remaining use for the capital, which is returning it. But I think there's a little time before we're going to have that discussion just given the transaction ahead of us.

Stephanie is next.

You've talked about how all the top names haven't really changed, Jon, of the different large folks running HSA portfolios. It's pretty uncommon for not just health tech, but let's just look at like all IT services and tech industries for there to be a big 4 competitors, plus a top 10. Do you think this is a unique industry and that's going to continue to persist? Or are we going to have some sort of mass consolidation coming at some point in order to go and change that dynamic?

I think it's -- I'll give an uncharacteristically short answer. I think it's an industry where you have, on the one hand, low barriers to "entry" and high barriers to success. So the result is you have this long tail of people with very small numbers of accounts, right, who have no capacity to grow beyond that. And at the same time, as I suggested earlier in my comments, scale is going to reward folks who have the capacity to either have something in one form or another, to invest in differentiation, whether that's differentiation in distribution, product, what have you. So I'm not surprised by that structure. I suspect we're going to continue to consolidate at a modest pace over the course of the next 5 years or so, and then we'll see.

Maybe just to add, Jon, I think people always say that health care and banking is local, right? And I think it mirrors a little bit the league table of the banks in this country and health care organizations in this country, a little bit. I mean it's kind of the intersection of health care and banking where we live. And that's one of the reasons why we focus so much on having these fantastic partnerships in I think over 30, maybe significantly higher than that, states where the blue plans are. We have these wonderful vertically integrated systems, right, that we help them compete against the national Aetnas and Uniteds and Cignas and things like that of the world and then we have this fantastic competition where we actually get data exchange from United and Aetna and Cigna and Kaiser and things like that. And so I appreciate the question if you compare it to other industries. But if you compare it to the industries in which we kind of live, health care and banking, I think the league table looks pretty similar. Three or four bigs and then a lot of important regional players that are serving a lot of Americans. Is that fair? Or not?

I just think you don't want to get caught in the middle. That's all. You don't want to be, with apologies to some folks in this room, being a regional money center is going to be really hard and being a -- being #5 or maybe 4, certainly 6, 7 or 8 in this business is going to be hard.

Louder, man. There's like 20 inches up there, sitting there, waiting, begging for you.

While you're thinking about the questions, just so you know, Draper isn't known for its Uber abilities. So if you're thinking about taking an Uber or a Lyft or something like that, you might want to give yourself a few extra minutes for them to get here. Any other questions? We'll be around. Happy to answer any other questions. But thank you, Jon, Steve, Jim, thank you very much. Thank you all for coming. We appreciate you taking time to be with us and enjoy the space and the Emerson exhibit as well. Thanks.