HealthEquity, Inc.

Thank you. Good afternoon, and welcome, everybody, to HealthEquity's third quarter of fiscal year 2021 earnings conference call. My name is Richard Putnam, Investor Relations for HealthEquity. Joining me today is John Kessler, President and CEO, Dr. Steve Nielman, Vice Chair and Founder of the company, Darcy Mott, the company's EVP and CFO, Tyson Murdoch, our EVP and Deputy CFO, and Ted Bloomberg, our EVP and Chief Operating Officer. Before I turn the call over to John, I have two important reminders. First, press release announcing our third quarter earnings including definitions of certain non-GAAP financial measures that we will reference today was issued after the market closed this afternoon. Copy of today's press release including reconciliations of these non-GAAP measures with comparable GAAP measures And a recording of this webcast can be found on our investor relations website, which is ir.healthequity.com. Second, our comments and responses to your questions today reflects management's view as of today, December 7, 2020, and will contain forward-looking statements as defined by the SEC, including predictions, expectations, estimates, or other information that might be considered forward-looking. There are many important factors relating to our business which could affect the forward-looking statements made today. These forward-looking statements are subject to risk and uncertainties that may cause the actual results to differ materially from statements made here today. As a result, we caution you against placing undue reliance on these forward-looking statements, and we also encourage you to review the discussion of these factors and other risks that may affect our future results or the market price of our stock detailed in our latest annual report on port 10K and subsequent periodic reports filed with the SEC. We assume no obligation to revise or update these forward-looking statements in light of new information or future events. And at the conclusion of our prepared remarks, we'll turn the call over to Jimmy, our operator, to provide instructions and to host our Q&A. With that, I'll now turn the mic over to our CEO, John Kessler.

Thanks, Richard. And hi, everyone. You know, I've got a whole script here, but I'll just start by saying COVID's a tough backdrop, but the team is really firing on all cylinders right now to deliver the profitable and growing and visible business that you all expect from us. During the fiscal third quarter, Team Purple delivered sequentially improved financial results and exceeded our expectations given the difficult backdrop of the pandemic. More progress on integration and strong sales driven by our total solution strategy. We're raising our full year outlook and feel confident enough to offer a very early look at key drivers for fiscal 22. I'm going to discuss Q3 performance, including key metrics, our perspective on FY21 sales heading into January, and the wage works integration. Steve's going to offer a perspective on what the outgoing and incoming administrations and Congress can do to support healthcare consumers. Tyson's going to detail financial results, and then Darcy will cover revised guidance. We've got Ted here with us for Q&A, so we've got a full basketball team, the full starting team, plus I'm kind of like the sixth man, as you might expect. Let's start always as we always do with key metrics. Revenue of $179 million is up 14% year over year, reflecting organic growth and the lapping of wage works in August, which was tempered by the pandemic's continued impact on custodial yields and our members' use of commuter benefits and healthcare cards during the pandemic. We estimate that lower commuter benefits utilization and health care card spend on their own, excluding interest rates, created about $10 million of headwind during the quarter. Adjusted EBITDA of $61 million is up 10% year over year, and adjusted EBITDA margin of 34% was steady sequentially despite the beginning of the enrollment season ramp. As I will discuss in a moment, we believe there is more to come over time. 5.5 million HSAs at quarter's end are plus 9% year-over-year, plus 11% organically. That is excluding the impact of migration-related closures that we talked about last quarter. 104,000 newly opened HSAs is, we believe, a solid figure given the dearth of newly hired benefits eligibles throughout the economy during the quarter. 12.5 million total accounts were flat year over year, with growth in HSA, FSA, and COBRA offsetting the decline of about 0.6 million in commuter accounts that are currently in suspense. Last, but definitely not least, HSA assets reached $12.4 billion, up 19% year over year, and up $229 million sequentially. While investment asset values provided some tailwind, Continued contribution from members in response to health equity's engagement in education efforts, we believe, really is what drove this growth. As you know, Q4, and particularly January, will truly reveal the results of sales activity in FY21. And I don't want to minimize the growth challenges that we face, as many HR departments have pushed off initiatives, some really do remain in crisis mode, and, of course, work from home drags on for nearly all of us. That having been, and additionally, new hiring by our clients, which normally provides a base of new account growth, is slow. All that having been said, the team is excitedly preparing for what we believe will be our busiest January ever. And here are a few of the reasons why we are excited. First, relationship executives managing HealthEquity's 500 largest employer clients achieved a 97% retention rate in FY21, and that's despite all of our platform migration activity, because platform migration is has proven to be less a source of attrition and more an opportunity to demonstrate to clients what remarkable service means and purple in action. The enterprise sales team appears to have delivered its best performance in several years, driven by impressive win rates in cross-selling to existing clients, but helped along, too, by some strong new logo wins. In fact, Thanksgiving week was the first since the summer that the enterprise team didn't have a win. That's pretty late, so that's good. We've talked previously about the growth in bundled RFPs from our total solution strategy. It's translated into steady growth in the average number of health equity services used by managed clients over the course of FY21. That same trend in the third quarter began appearing in our mid-sized commercial clients, and with 12 of our network partners having added health equity services to what is already on their shelf so far this year, we hope to extend the trend to our smaller employers in FY22. And finally, Open enrollment interactions with members and, importantly, prospective members have already more than doubled year over year as clients have embraced the 100% virtual open enrollment tool set that Ted mentioned last quarter. And this includes live and on-demand content, interactive tools, social media, and, of course, 24-7 live support for our members and prospective members during open enrollment. The team continues to close and implement FY21 business. and the enterprise and new partner sales pipeline for FY22 is already starting to take shape with some nice wins for employers with benefit years beginning in March and April already signed. So that's key metrics and sales. Let's talk about integration. Progress on integration also continues. As of the end of the third quarter, health equity had achieved approximately $55 million of ongoing annual synergies against $63 million of cumulative one-time integration expense. That's a pretty good return. And the team is on track to achieve a total of $80 million of ongoing annual synergies against cumulative one-time expenses of approximately $100 million by the end of fiscal 22 as legacy platforms are retired. Indeed, the team reached its FY21 goal of 10 platform migrations with more on tap before fiscal year-end. See, that indeed really added to the strength of that. Of note, 97% of all health equity HSAs and HSA assets are now on the health equity custodial platforms. In Q4, we'll deliver the first installment of HealthEquity's unified portal experience to our clients, and then a dozen major new portal features over the next 12 months. With change afoot in Washington, we think most Americans want practical steps to control the pandemic and help families manage its fallout. Steve is here to describe some of the opportunities for HSAs and CDPs to contribute that Congress is considering. Steve.

Thank you, John. Last year, before the pandemic, approximately 82,000 of our current and potential members attended Health Equity Open Enrollment events, including in-person and live online sessions. This year, over 350,000 have attended our live and on-demand events with live support. We think Americans are starting to understand that HSAs and other consumer-directed benefit accounts are part of the solution to healthcare affordability and long-term savings through this pandemic and beyond. And there's evidence that Congress and the incoming administration may come to the same conclusion. For example, we have been reporting since the pandemic began that consumer spending in healthcare is down year over year. Consumers have billions of dollars in FSAs with use or lose provisions. Many have been unable or unwilling to get care during the pandemic, and under current rules and in most cases, they must use their funds by the end of the year to avoid forfeitures. This means consumers and the healthcare system could lose billions of dollars. As access to care improves, consumers will need that money. The return this week of shelter-in-place orders in California and elsewhere worsened the problem. Regulators can, And in our view, should immediately extend the use or lose period for expiring FSAs through the pandemic emergency period, similar to the extension that was passed for paying for telehealth services within high deductible plans during the pandemic. Extending the use or lose deadline for FSAs would have little or no cost to taxpayers as unused FSA funds revert to sponsoring employers and not the Treasury. We believe these rules should apply not only to healthcare FSAs, but for childcare FSAs as well, because Americans have not been able to go to work, and therefore, they should not lose the funds they have set aside for their childcare. Rules around how childcare FSAs can be used during the pandemic emergency period should also be relaxed to allow consumers to have more flexibility to keep working and take care of their kids. Also, incredibly, While we must all use sanitizers, masks, and other PPE to prevent the spread of COVID-19, their cost isn't FSA or HSA qualified without a doctor's authorization. Dr. Fauci's advice apparently isn't enough for the tax man. HR 8450, sponsored by three Republicans and three Democrats, would change this. However, this is a common sense measure that shouldn't require an act of Congress. We need to help unemployed Americans pay for their health care premiums until they are unable to get back to work. During the global financial crisis in 2008, Congress acted quickly to make COBRA premiums more affordable. We agree with many in Congress who have signed on to support doing so during the pandemic emergency period. Now turning to HSAs, the Commonwealth Fund and the Employer Benefits Research Institute estimate that 7.7 American workers lost employer-sponsored coverage at the start of the pandemic. Coverage under the ACA exchanges or COBRA costs money. HSAs are part of the solution to affordability since they can be used to pay these premiums on a pre-tax basis. But since none of us anticipated this crisis, Congress and our regulators should act to permit catch-up contributions to fund these costs by extending the HSA contribution deadline for tax years 2019, 2020, and 2021 until the end of the pandemic emergency period. Congress can also expand consumers' ability to use HSAs for ACA qualifying insurance premiums by dropping the current requirement that links this ability to eligibility for unemployment insurance which, as we all know, has run out for many Americans. Finally, there are many consumers who can't make use of HSAs because they weren't in a qualified HSA plan pre-pandemic or are unable to choose a qualified HSA plan now. With out-of-pocket costs continuing to rise and deductibles across all plan types generally higher than HSA minimum deductibles, any health plan coverage should allow consumers to use an HSA to pay for their out-of-pocket health care expenses on a tax-free basis. Democrats and Republicans have proposed widening HSA eligibility to include more of these plans. We should fix this issue now for the future by permanently allowing individuals with any ACA qualifying coverage, VA or TRICARE, traditional Medicare, Medicare Advantage, Medicaid, health care sharing ministries, or Indian tribal health services to make and or receive contributions to an HSA. You can call us naive, but we believe that the nearly 50-50 results in November in the House, the Senate, and in the presidential election create an environment where moderate voices could have more sway and practical measures have a greater chance for adoption. Our teams in Washington are engaged and working hard to make this happen. I will now let Tyson walk us through the numbers. Tyson.