HealthEquity, Inc.

Q3 2021 Earnings Conference Call


spk_0: good good afternoon and welcome everybody to help equities third quarter of fiscal year twenty twenty one earnings conference call my name is richard putnam investor relations for help equity joining me today at john kessler president and ceo doctor steve neeleman vice chair and founder the company darcy not the company's he vp and cfl whoa titan murdoch r a vp and deputy fi fo and had bloomberg are a vp and chief operating officer before i turned the call over to john i have to important reminders first press release announcing our third quarter earnings including definitions of certain non gap 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 nine gap measures with comparable gap measures and a recording of this webcast can be found on our and us relations website which is i are that help equity dot com second our comments and responses to your question today reflect management's view as up today december seventh twenty twenty and will contain forward looking statements as defined by the fcc colluding predictions expectations as to month or other information that might be considered for lucky there are many important factors relating to our business which could affect the forward looking statements made today the for looking statements are subject to risk and uncertainty 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 the for looking statements and we also encourage you to review the discussion of these factors and other with the may affect our future results or the market price of our stock detailed in our latest annual report important and k and subsequent periodic reports filed with the
spk_1: yeah feet
spk_0: we assume no obligation to revise or update before looking statements in light of new information or food or future events and at the conclusion of are prepared remarks will turn the call over to jimmy are operator to provide instructions and to host or q and a with on now turn the mike over to our ceo john kessler
spk_2: thanks richard hi everyone have got all script hear about just start by saying have it's a tough backdrop of the team is really firing on all cylinders right now to deliver that that profitable and growing invisible business that that you are expect from during a fiscal third quarter to the purple delivered sequentially improve financial results exceeded our expectations given the difficult backdrop of more progress on integration and strong sales driven by our total solutions that were raising our pull your outlook and feel confident enough to offer a very early look at the drivers for fiscal twenty two i'm not a disgusting three performance including key metrics or perspective on f y twenty one sales heading into january and way towards integration states can offer a perspective on what the outgoing and incoming administration and congress can do to support healthcare consumers tyson's going to detail financial results and and darcy will cover revive kites we got had here with us for q and a so we got up for our basketball team out for starting team plus i'm i'm like six man as you might expect let's not always as as well as we always do with key metrics revenue of one hundred seventy nine million dollars is up fourteen percent year over year reflecting organic growth and the lapping a weight works in august which is tempered by the pandemics continued impact on custodial yields and our members use of computer benefits and healthcare cards during the panda we estimate that lower can be a benefit utilization and healthcare card spend them on their own excluding interest rate created about ten million dollars of headwind during the quarter but just leaped up sixty one million is up ten percent year over year and adjust the but a margin of thirty four percent was steady sequentially despite the beginner of the enrollment season ramp as i will discuss in a moment we believe there is more to come over time five point five million a to face at quarters and are plus nine percent year over year plus eleven percent organically that is excluding the impact of migration related closures that we talked about last quarter hundred and four thousand newly opened a to save his we believe a solid figure given that dearth of newly hired benefits eligible for throughout the economy during the quarter twelve point five million total accounts or flat year over year with growth in a to say up same cobra off selling the decline of about us you a zero point six million in commuter accounts they are currently in stuff last but definitely not least a to say assets reach twelve point four billion up nineteen percent year over year and up two hundred and twenty nine million sequentially while investment asset values provided some tailwind continued contribution from members in response to hails equities engagement in education efforts we believe really is what drove this growth as you know for and particularly january will truly revealed a result of sales activity and f y twenty one i don't want to minimize the grill challenges that we face as many hr departments have pushed off initiative some really do remain in crisis mode and course work from home with a drag on for nearly all of us that having been and showing new hiring by our clients which normally provides the base of new account growth is slow about 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 executive managing health equities five hundred largest employer clients he did ninety seven percent retention rate network twenty one and that's despite all of our platform migration activity because platform for migration has proven to be less a source of attrition and more an opportunity to demonstrate the clients what remarkable purpose me up for what remarkable service means and purple in action the enterprise sales team appears to have delivered it's best performance in several years driven by impressive win rates in cross selling to existing clients but i'll on to buy some strong new logo with in fact thanksgiving week was the first since the summer that the enterprise and didn't have a with as pretty late so that's good we thought previously about the growth in bundled are of piece from our total solution strategy is translated into steady growth in the average number of health equity services used by manage clients over the course of their y twenty one that's been trained in the third quarter began appearing in our mid sized commercial clients and with twelve 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 or smaller employers enough halfway twenty two and finally open enrollment interactions with members and importantly prospective members have already more than doubled year over year as clients have embraced the hundred percent virtual open romans whole set that had mentioned last quarter in this includes live and on demand content interactive tool social media of course twenty four satellites support for our members in prospective members during open in rome the team continues to close and implement f y twenty one business and the enterprise and new partner sales pipeline for f y twenty two is already starting to take shape with some nice wins for employer for employers with benefit years beginning in march and april already signed so that's the metrics and sales let's talk about integration progress on integration also continues as of the end of the third quarter health equity conceived approximately fifty five million of ongoing annual synergies against sixty three million of cumulative one time integration expense a pretty good return and a team is on track to achieve a toll total of eighty million of ongoing annual synergies against cumulative one time expenses of approximately one hundred million by the end of fiscal twenty two as legacy platforms are retire indeed the team reaches f y twenty one goal of and platform migrations with more on tap before fiscal year and see that indeed really at strengthening of note ninety seven percent of all health equity a to save and a to say assets are now on the health equity custodial platform in queue for will deliver the for first installment of health equities unified portal experience to our clients and then a dozen major new portal features over the next twelve months
spk_3: with change a foot in washington we think most americans want practical steps to control the pandemic and help families manage it follow steve is here to describe some of the opportunities for a to save and cbs to contribute that congress is considering feet
spk_4: think john last year before the pandemic approximately eighty two thousand of our current and potential members attended help equity open enrollment events including in person and live online sessions this year over three hundred and fifty thousand have attended our lives and on demand events with life support we think americans are starting to understand that hs days 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've been reporting since the pandemic began the consumer spending and healthcare is down here of year consumers have billions of dollars in emphasize with use or lose provisions many have been unable or unwilling to get care during a pandemic and and your current rules most cases they must use their farms by the end of the year to avoid forfeitures this means consumers and the healthcare system could lose billions of dollars had access to care and truth consumers will need that money they return this week of shelter in place orders in california and elsewhere worsen the problem regulators can and our view should immediately extend the use or lose period for expiry of essays through the pandemic emergency period similar to the extension that was passed for pain for tell a health services with in high deductible plans during the pandemic extending the use or lose deadline for f essays would have little or no cost to taxpayers as unused fsh funds revert to sponsoring employers and not the traitor we believe these rules should apply not only to help care of essays but for childcare essays as well because americans have not been able to go to work and therefore they should not lose defines they have set aside for their child care rules around how childcare episodes can be used during a pandemic emergency courage 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 you sanitizers masks and other pp eat to prevent the spread of covered nineteen their cost isn't fs day or a to say qualified with that a doctor's authorization doctor fallacies advice apparently isn't enough for the tax man hr eighty four fifty 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 the help unemployed americans pay for their health care premiums and tell they are unable to get back to work during the global financial crisis in two thousand and eight congress acted quickly to make cobra printing is more affordable we agree with many and congress whose side signed on to support doing so during the pandemic emergency period attorney data says the commonwealth fund and the employer benefits research institute estimates that seven point seven american workers lost employer sponsored coverage at the start of the pandemic coverage under the ac a exchanges or cobra costs money hs days 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 of contributions to fund these costs by extending the hs a contribution deadline for tax years two thousand and nineteen two thousand twenty two thousand twenty one until the end of the pandemic emergency period congress can also expand consumers ability to use a to save for a see a call an insurance premiums by dropping the current requirement now 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 hsh because they weren't in a qualified h as a plan pre pandemic or are unable to choose a qualified a to say plan now without a pocket costs continue to rise and deductibles across all plan types generally higher than a to say minimum deductibles any help and coverage should allow consumers to use in a to say to pay for their out of pocket health care expenses on a tax free basis democrats or republicans who proposed widening a to say eligibility to include more of these plans we should fix this issue now for the future by permanently allowing individuals with any ac a qualifying coverage the a or try care traditional medicare medicare advantage medicaid aid healthcare sharing ministry's or indian tribal health services to make and or received contributions to nature say you can cause naive but we believe that the nearly fifty fifty 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
spk_0: i when allah life tyson walk us through the numbers titan thank you steve i will review our third quarter gap and non gaap financial results a reconciliation of gap measures to non gaap measures is found in today's ashley's or fiscal third quarter financed results as you know include the operations of wage works which is acquired in august of last year so are we have officially lap the acquisition keep in mind that q three last year have two months of wage work in the results of the series let's combine results for the full court third quarter revenue grew over on organically each of our three categories service revenue grew to one hundred and four point six million representing fifty eight percent of total revenue in the quarter and ninety percent year over year growth increases primarily attributable to twenty one percent growth and average total accounts including those from the way to attack acquisition and you fails to studio revenue grew to forty eight point five million in the third quarter representing twenty seven percent of revenue in the quarter and three percent your your graph the space thirty five bases point decline analyze you i to say cash with yield it average age of a castle feel grew twenty one percent an average a to say investments with yields to fifty seven percent year over year yeah new like interest rate yield was two hundred and eight basis points on each if they cash with yield the shield of the blended rape brawl each of the cash with field during the quarter the h if off the table of today's press release provides additional details as previously mentioned we have migrated ninety seven percent of the a to they offered to the help that with help equity custodial platform interchange revenue grew to twenty six point two million representing fifteen percent of total revenue in the quarter and seventeen percent year over year growth increased his time at the increase is primarily attributable to growth and average total a cow sounds and a negotiated more favorable interchange share partially offset by reduced and across our platforms in the quarter gross profit reach one hundred and four point six million compared to ninety six million in the third quarter of last year gross margin was steady sequentially at fifty eight percent in the quarter operating expenses were ninety three point one million or fifty two percent of revenue including amortization of acquired intangible assets and merger integration answers was together represent fifteen percent of revenue income from operations was eleven point five million dollars compared to my
spk_5: nine point nine million and the per your net income for the third quarter was one point eight million or two cents per share on a gap pps basis compared to a loss of twenty one point three million or of us have thirty cents per share in the prior year are non gaap net income was thirty two points you mind for the quarter compared to thirty point three million a year ago
spk_0: i'm a six percent increase non gaap net income per share with forty one cents per share compared to forty three cents per share last year
spk_5: adjusted even for the quarter increase ten percent to sixty one point one million dollars and adjusted even a margin was steady sequentially at thirty four percent operating to the impact of coven
spk_0: or the first nine months of fiscal twenty one revenue was five hundred and forty five forty five point four million up sixty five percent compared to the first nine months of last year gap net income was three point five million or five cents per diluted share non gaap and income was mandatory point one million or dollar twenty five per diluted share
spk_5: and adjusted either were one hundred eighty four point one million of thirty six percent from the prior year resulting in thirty four percent margin for the first nine months of desk for year
spk_6: on the balance sheet as of october thirty one two thousand and twenty we had two hundred and ninety nine million dollars cash equivalents with one billion of term a that outstanding and know out and announced on on on of credit i will now passed my kid our of you are to guidance rc thank you tyson as you know our results and guidance for f y twenty one remained sensitive to the covered nineteen pandemic and the timing of economic recovery
spk_4: as tyson just discussed we continue to see improvement economic trends that remain cautious about the impact of a surgeon covered and how quickly employers will open the doors to their businesses especially in large cities based upon our third quarter operating results and the economic progress to date we are increasing our guidance for for fiscal year twenty twenty one
spk_6: specific variables will impact our performance you the remainder of fiscal year twenty twenty one include but are not limited to members access to and spending on health care and their use of transit parking and other commuter benefits the mothers pace of recovery and employment may negatively impact the average number of our average total accounts and conversely perhaps spur up taking cobra another benefit continuation products
spk_4: across the than other variables there exists a wide range wide range of possible outcomes for the remainder of pistol twenty twenty one importantly however our guidance for a pistol twenty twenty one assumes that current trends across these and other variables continue through the remainder of the year
spk_6: under these assumptions we expect health equity will generate revenue for disco twenty twenty one in a range between seven hundred and twenty five and seven hundred and thirty one million dollars we expect our non gaap net income to be between one hundred and sixteen and one hundred and twenty one million dollars resulting in non gap deluded net income per share between a dollar fifty five and a dollar sixty one per share we expect health equities the just a diva to be between two hundred and thirty two and two hundred thirty eight million dollars for fiscal two thousand twenty one
spk_4: are non gap deluded net income per share estimate is based on an estimated deluded weighted average shares outstanding of approximately seventy five million shares for the year
spk_6: the outlook for fiscal twenty twenty one assumes a projected statutory income tax rate of approximately twenty five percent
spk_4: today's guidance include the effect of having achieved approximately fifty five million dollars in analyze run rate that synergies as of the end of the third quarter with estimated net synergies of eighty million dollars expected to be achieved by the end of f y twenty two given the current interest rate environment and recent discussions with our depository partners we are maintaining our yield guidance of approximately two point zero five percent on hs a cash with yield during full year fiscal twenty twenty one we also feel confident to provide a yield out look at this time for f y twenty two
spk_6: based on anticipated new as a cash expiring rate contracts and current market rates we expect our yield for ages a cash with yield to be between one point seven zero percent and one point eight zero percent for f y twenty two our above guidance include the detailed reconciliation of gap to the non debt metrics provided in the earnings release and a definition of all such items included at the end of the earnings release in addition while the amortization of acquired intangible assets is been excluded from non gaap net income the revenue generated from those acquired intangible assets is not included
spk_2: without altering the call back over to john for some closing remarks thanks darcy up before we got una i'd like to just take a moment to thank our three thousand plus team members are continuing as as i'm sure if we were listening on this call to work in living rooms and kitchens four years my case and a full corner the floor behind the christmas tree flat out of the bush have been doing so for months and months and at the same time and as i said at the outset of made i think tremendous progress towards a delivering
spk_7: our members of towards helping our members collect a kick out loud but i think also towards delivering the kind of business that you shareholders or once he from us so again thank you to the team and with that operator or take it away
spk_0: thank you as a reminder that the best you'll need to press star than one on your touched on telephone he would join question same the queue please press the pound key leave and i will be compiled acuity roster
spk_8: if they're stashing cousin and samuel jp morgan your of know
spk_9: i am executing the question
spk_10: you spoke about strong costs selling how something meaty to provide a little bit more color there and then you know what was the overlap look like between existing wage customers and top equity customers
spk_2: why don't you
spk_11: i'd give a little color on the cross cell activity and what we're seeing
spk_2: only not yet though
spk_12: well wealthy won't i will you can still hear me though country
spk_4: john key i think i can hear you but now we can hear you are you go or gun i had a green answer and and no one heard except my
spk_0: i work with the corner my bedroom on the luckily i got to practice so i'm melanie rios were
spk_4: we are really pleased with the quality of conversations that we're having with our existing enterprise clients and the kind of pace with which they are excited to hear more about buying service from us and i think you you know you heard kind of from high level march john an api get zapped by typing again just too much detail basically what worth he is a much higher close raid on failed opportunities that are cross which isn't a surprise and if we were surprised a little bit at the magnitude of how successful we can be adding new products to our existing clients were seeing quarter over quarter the average number of products used by or enterprise clients march upward and i need more importantly anything else we have had done for map on the size of the opportunity when you look at our top five hundred and eight and fifteen hundred clients at the product be don't currently have today and we feel like the opportunity will persist for quite some time for us to kind of ah you continue to make progress by i wanna take a job interview i get little more specific when i think it depends on line is we see significant six death wish see the numbers the penetration of our products that growing up but we also see you know a lot of runway and you know and in probably years worth of our across all opportunity to to come in terms of overlap i will ya i don't think we would share specific numbers that i think what we're finding little anecdotal eat
spk_13: there were places where our overlap saved us a little
spk_4: i'm meaning that like that if if if if an enterprise with a client of of legacy health equity and legacy wage works the opportunity to say is all this going to come under health equity service model and having the answer be yes probably help inform that ninety seven percent and to rate with shot alluded to earlier because people are like okay you don't we had problems with a wait service as long as you guys are going woodruff that we're fine enough or even able to do so so i don't think we we are revealed the exact know the exact overlap statistic i think that it's been a good guy for us
spk_14: you know in terms of in terms of consolidating services or for our profile
spk_0: that's really helpful thanks guys
spk_4: the camp
spk_15: thank you and an expression country that peters with raymond james airline is now open
spk_16: a good afternoon tim couple
spk_4: look i guess yeah i'll be the bearer of on market news ah last like shocked after market after hours stock is down about five percent and i know you don't get hung up on daily ali movements but i guess in that in that in that performance so it is aftermarket i guess i'm looking at a couple things that on might be spooking some investors first of all the guide for the full year i'm if you look at it you know it's not that we have to the we are estimates are the final arbiter of what the street looks like it doesn't look like the implied fourth quarter died might be a little bit lighter than where the street his arm and then secondly you know the a to say balances i think he said in the pro
spk_2: as release on they added forty six million dollars of new cash in the quarter
spk_4: that i just i'm trying to reconcile that number i mean yeah five point five million pounds that's you know what eight dollars i count in the quarter and that's all i can add when the about the know them the maximum number of it that dollar contributions are substantially higher and edge i don't understand that and then i'll i'll have one other areas that i don't understand to follow up with oh why don't you throw that went out so we can hit em all at the center
spk_2: of
spk_17: okay i'm done just that the not the accounts the actual account numbers the city be at the obviously the rate is that did the rate of deceleration sequentially is beginning to moderate but still we're seeing the city be account numbers decline sequentially and i think your your previous guides for
spk_18: suggestion would be that that would stabilize and go on the fourth quarter and then the hs say numbers
spk_2: i'm you know you you throw in the gross numbers but if you take out the not you know with it's it's not a strong so just you know this is that age old discussion that we always have every quarter it seems like about you know because you're closing at the same time you're opening new accounts that that up up like a couple of those now i'm gonna i'm gonna throw the guidance a question over darcy but the
spk_19: lemmy kind of
spk_2: i'm up you might imagine i'm not really oh i don't try try not to look after hours much less talk about
spk_20: whether in whatever direction ago
spk_2: but damn you know if i look at i'm gonna just a take your questions from in the beginning and of i miss something please tell me i count on a to say is in particular net growth in agencies approached hundred thousand and we had a hundred four thousand grossly so i'm not sure oh where you are there but was quite a hundred k but it was getting up there so you know for a third quarter that's not shabby and and as i said in my prepared remarks one of the issues that is challenging freshness environment is that normally there's a sort of base of of account that will see in any given quarter is happening because our but basically because employment growth our client were hiring people and and obviously there with you can think about the timing of hiring and then the person becomes benefits eligible a month or two later
spk_21: this quarter not really represent a period where there was a lot of hiring going on out there may have been some retiring at with it but the a dude judo that him and i know it so
spk_2: you can judge whether you think that number is good or bad but it's it's there isn't a huge difference between the open and and that increased numbers in addition of on on the bees the primary issue that were battling area a computer so we had about one hundred thousand more commuter accounts in suspense this quarter or than laugh and that was roughly made up by may increase nature say and and for more modest increases elsewhere so that's that's where we are with regard to the asset side of things the answer is that people have the hundred and seventy million and turned into that and investment market growth during the quarter actually wasn't that helpful if given the timing of beginning and end and and tyson of those with math if anyone would really like but
spk_22: but but the big reason is because they they deposited gradually turns into deference to the two to one hundred and seventy million dollars
spk_2: so that seems kind of okay that's what we want people to do over the long term that how you grow your balances nutshell of he becomes sticky account holders
spk_11: so you know by large you know again it's it's as i commented at the beginning cove it's not agree backdrop for us
spk_2: but our job is to control the things we can control and and what we can control is a building a more profitable and growing business so that you know as those had went from detail wins that we can be more as far as a guide from the implications for queue for a minute a through that one to darcy and have him get
spk_12: stored on it
spk_6: if if i want to had something
spk_4: it might be a good though
spk_6: everyone argued now
spk_4: can you hear me or it now we can hear you
spk_6: i yeah i tap need that the didn't take on
spk_23: or the only been on so the midpoint of our guidance greg would imply like a hundred and eighty three million
spk_2: we think there's possibly some outside in there but we're also cautions it's up from when we just did in his corner you know we'll see how the spin coming back that's a very well for us in in how much nasty talked about getting relief on be people been able spend their ever say dollars and so yeah we're cautiously optimistic about that but that's kind of where the midpoint of our guidance comes from
spk_16: that we gave
spk_7: i mean i would just add great we have the same exact discussion i don't think it was you that ask the questions but last quarter where people work on a doing the math and dividing by the rest of the year and so forth and
spk_16: we'd you know they will i go you know you're you're gonna have a and and mid and can i buy understand why people do that but look given our approach to guidance and of you're given some of the uncertainties you can imagine why we're gonna wanna be conservative that's how we right that's how we roll at that we've always rolled and so
spk_0: but but then we tried over deliver and certainly i think for the quarter relative broadly speaking to to enlist expectations were able to do so and certainly in in certain areas relatives or unexpected fields
spk_4: got it boy i realize i maxwell my one question and power or die shows sincerely appreciate answers and thanks for the guys on custodial rather know
spk_6: different thank you and efficient as mother t jones told him said though i have no thing go to the question that i know you done to others to follow up there are on on the guidance and he just touched on on the revenue side but i think similar question on on the implied he be that guy for for you looks to be down a bit i'm year compared to what you been doing it might be a similar answered the just curious read there's anything worth calling out there as far as what my be driving the sequential even are really see expectation for sequentially but i need below the lower than than some were expecting a darcy one you up at this one
spk_4: sure i mean historically we've always in you'd go back in like our history even pre merger and posts merger que por has a lot of expenditures getting ready for our january enrollments or they will come in and so we we've we've been hiring people have we been training and we've been getting in on them
spk_0: phones and and those expenses will hit in both in service delivery and in some of our operating expenses into for and and so where were most pleased about actually is that
spk_24: as we gone through this transition and migration that when we get to where we feel is a pretty good job of maintaining you did our margin
spk_2: the go with the efficiencies in the the benefits we got from synergies despite now you know you can argue twenty million dollars or revenue impact per quarter from koeman and so now and to be able to get get margin out of that and still you know get through all of these the shortfalls in the revenue that we've had with respected no the computer business we talked about in the spend in interchange that's what's factored into all of that and applause down to it to the even online also now saying the fact we're striving to get more efficient and into maintain margin is thus began not that super helpful and a movie packages this one follow up a kind of curious on on some of these comments around the potential for extending the use it or lose it was an i say you know are not being as familiar with it just was wondering if maybe you could share a little bit more of what actually goes need to happen for that become the fruition that need an act of congress is not to employers and then probably the most importantly didn't know that mean to the model for for health equity if if we find ourselves somehow going into next year with the larger yeah apathy balances then we would have otherwise expected to see wow i'll i'll take that one and then ask if he wants to comment further up the is as you may recall the regulators felt they had the authority to extend some other deadlines as they approached earlier in the year and example being be a deadline that people had to enroll in cobra up which has been extended he ended up going to great but outside the end of the pandemic murder rate but them
spk_25: but but now i'm i'm thinking most people at the time did not think we would still be here at this point in here and and yet we are so i'm from our perspective
spk_4: this is something that the regulators can do it certainly something that's been talked about actively whether they can get their act together or it requires an act of congress to get their act together in know that's to some extent above our pay grade but i think similar to some of those other actions the practical effect is really is as i think the reason to do it from a public policy perspective is it leaves with billion dollars in healthcare system that will otherwise come out of the first and and leave those in consumers hands that will always come out of them so you know that's good for us of course it's good for us in the sense that of people have more money to stand and so forth but we we just think it's and and we're working our butts off it to make sure people know this and and that they don't assume that's going to occur and instead you know those spend the dollars were they
spk_25: i can but but if you know i am particularly with the new shut down there are people who are just don't have access to a spending as dollars usefully and so so this this seems like a very common sense thing to do were hopeful that it does get done the right thing to do and and with there be some benefits in terms of people having
spk_7: more money in those accounts to spend as as they can get back out outside one out of course
spk_26: there the even has done regarding going doubt and john's gonna ride mean he knows called that are you know the money issue this notice twenty twenty dec twenty nine spring it concerning the language with you every be like a normal nepal so going to give extend the deadline for the two thousand and team plan years he gets emissions
spk_6: ringer i didn't have tended to use your grace period musical acts extend the two thousand i teach within a year than was going to go back to normal because we think he'll be back at normal then you're not back to normal and so the we do think that that the the regulators can connect on this and and the be they will and we know that movie but the ugliness rationing can use ration ago
spk_2: every pro consumer which is with is know that it's helped me consumerism so and grin no good spotters there's a bunch of momentum and tell you there's all kinds of the sponsors even sign on letters and look at new the wide rupert people everyone from american benefits council vfl see iowa know you know and national education since neural asking for this leniency not only on around around when you measure of as a dollars and you you're a cherry dollars into the gap and also on for things like covert since some new person hard yet make that they too much take it thank you enough bush and cooking george hill with dutch bank their line of november ah much good even keep a good evening guys are not know things are not acting normally it's the if i am i gonna have three questions are all wampum allow at the same time as well i guess my first one is darcy are on the rate guidance for calendar twenty one of one hundred and seventy to one hundred and eighty basis points as we think about the key calendar year do we expect that to be a linear ah kind of progression down towards the lender the we expect that be kind of a flatline numbers we go through the year and then john and steve i guess two questions for you guys on the strategic side one is in the most recent benefit selling season as a result of covered you get if you saw any new trends that are important are worth calling out and then the other one is up united appears to be stepping up their focused on helped her finance and banking did you go see anything different competitively out of them in this most recent kind of the selling see thanks yeah i'll take the second half and then up they don't mind steve i'm gonna throw back to you in terms of the employer trends first of all on the competitive side
spk_27: yeah i was actually really pleased to see
spk_2: in a united investor day them talk about this since as i recall george it was the last year the year before when somebody asked me if it was in december as well when someone said well you know they didn't mention it or they threw it off and i said great you know that they've got her number if they want to sell their business so am i to my mind it validates that there's a lot of growth opportunity here given all the irons and the fire for united in the regulated an unregulated segments of the business so but for like think probably the main way we see that isn't emanate activity
spk_4: where are you know they've always been competitive for different assets depends on the asset and so forth as an example adding them it's been widely reported although i've never seen a press release on it but but it has occurred that the they acquired a
spk_28: platform call connector care that's a little more fsh hr a focused and i think that's to to try and match what we've done in broadening the offering so that seems like
spk_4: you know from my perspective if you're in a market with no competitors that's not so good but
spk_6: there are a good competitor and and so that's that's the main thing we've seen we haven't really seen any particular different behavior in the actual like offering of products or pricing her that
spk_4: as the you want to touch on the question about the
spk_6: i ted if you have anything or touch on the question of the employer behavior during the selling season
spk_4: yeah the kids went to london is that they're generally and players are new and girls and they just one simplicity and before the reasons why the been a product done so well because it just gives them less
spk_6: that means less
spk_4: partners to have to manage and and frankly we can help now on pricing one and altogether and then i added years and question about and it's demographers question your your question from not married yet darcy and
spk_26: a poet or
spk_7: yeah and so george you ask about the the in a linear idea of the gail
spk_29: we always throughout the year based on the placement than we do in december and january and
spk_4: and usually were pretty good on out about it being linear until we get to the end of year in this case that it is generally to it'll start a little bit higher in the first part year the the delta the that will occur this year that maybe once you as much as in prior years is in august
spk_2: when we started
spk_4: and when we did the acquisition and we're starting to build capacity for ways than we had some contracts that they will get reset term kind of more in the late in the queue que three and coupon earlier than they normally would so there may be a little bit of a ah decker method will happen kind of in the second half of the year and then and then we always have a resetting in the december january the fourth quarter so it's probably a little less linear than we would normally expect matter i'm kind of go in chunks of corner by quarter throughout the year that makes any sense
spk_30: that doesn't i present color thank you
spk_4: thank you are next question comes shown god with the he capital market the i have helping they can get ft insulating and open enrollment this is the in the first even coach that at one hundred percent virtually john you mentioned in a doubling in the number and of interactions or that have taken place that for a you have any better sense now how effective those virtual interactions are and a been are going to be and and converting people vs
spk_31: need kind of more traditional emperors and approached
spk_4: had you asked are on that one sure is my mute button off government hear me okay excellent i am a likely i'm not being evaluated on mute button management of we are really bullish about of virtual away for a couple of reason that like is your first one is my though he is often standing around creepy grinning at a benefactor in for those of us going to benefits air you know that doesn't get have very hard often as with his wander through it
spk_32: and it is difficult have meaningful conversation room with a much you have your college
spk_4: our model this year it is his virtual but with live twenty four by seven online support and that adds value in a couple away the first one is i can tell you for sure that i'm not the benefit decision maker in my house full of be doctor blunder and when she is now able to watch the webinars and attend because it's it's virtual a then second if we have a question we can chat it into into the chat box in one of our town and purple number services agents can answer it on the spot and we are really bullish about them model of we've gotten tremendous feedback from i'm employers that their folks are more engaged we're seeing the odds visits to arm very of learned site up significantly but unfortunately we won't know exactly how that translates into new accounts until mid to late january but i you know the getting about the whole faunal that the top couple of the final were pretty positive on pc van of yemenia any other thing eighty on that
spk_33: well i am
spk_4: we have a little bit of a proxy in our tech sector businesses were a little more outta out there for last couple years and i would say generally ted that when we've been able to engage people this way anal and unfortunately in previous years it was more limited because you know the kind of in the thing they've been doing for forty years of can sit in the cafeteria talk to us which is still occasions drive me crazy but for that for if you think about had some of our employers and they're going to name them for obvious reasons that are more tacky and have been doing this last couple years we do have higher entry
spk_2: asian adoption rates within the populations in approaching sixty percent some cases where is the ones and on had last and so i could be selection bias right yeah the more techie they get the stuff faster in all that stuff that i seem i hope i hope the tell what's happened in other sectors is now having more rugged that that's what i would have but
spk_4: i tend to be an office and as lessons are not a gas is as had told me earlier today
spk_34: you're okay to your viewpoint on on efficiency i i know you you increase your marketing spend a little bit easier just to see gonna get the man up on it if this works like if they can we look ahead to next year
spk_35: how big are like class saber word canada
spk_2: efficiency contributor could this be if if you do state maybe not one hundred percent little bit better than causes and have been in the past
spk_36: sure sure i can take that i think couple different answers the for the first one is it's a it's a moderate
spk_4: savings minutes for probably seven digit number but not a massive seven digit number of but we're trying to reinvest that back into the quality of the experience any interaction and working really hard to show the types of result if he just needed to be some of our early adopters to other clue
spk_2: lyons said we get
spk_4: young more partnerships are more access and that's been working pretty well one example to be able to communicate thoughtfully with both existing account holders and an employer and also prospective account holders and an employer and we've been able to demonstrate
spk_2: the effectiveness of that the we've been able to partner with on players to to drive to drive that further and so in a week we think that it there is nurse a modest cost efficiencies that we're excited to take over mostly trying to be was reinvest those into into a better experience of people can engage of more fully cabinet to get last points really and that's really important at the end of the day the purposes of pushing towards virtual education is not to save money here it's to grow the business and that's really what we're a matter guide okay understood they didn't think thank you and it doesn't doesn't stand it either with us securities your line of now open the time they so much
spk_36: and just maybe the first one but her tutor for numbers are darcy mention may be about twenty million ah of revenue impact from covered you can look at that way that thought her john say something about fill my in that quarter if i remember correctly and take it with sixty nine last quarter i'm just trying to one sort of the arab
spk_4: in the think about it ran how the and is accept his ex interest rate impact that twenty into is inclusive a different okay okay got it that helps
spk_2: and then and and with a net can that comparable with the sixteen last quarter so we should pick that there actually was a little bit of other sequential improvement but the guidance may reflect with spiking that there may be of the we may see some reversal of that yeah want to make sure yeah for that correctly so darcy what take down yeah that's correct a tan and sixteen or similar numbers are said that's correct
spk_37: okay it great big dipper difficult it will we want to be you know when we're talking about this impact in we do you want to be careful about it
spk_2: we're trying to give you as accurate as we can a sense of of where the business would be in a more normal environment and that's why we've kind of provided the detail of of impact with regard to commuter and and and and most of that either number most of that number is computer can and and spend stem came back a little bit obviously but frankly not as far back as we would like it we got some benefits in other areas commuter obviously has not sort of his ways guys at helpful my ah my follow his arm i can't remember what if he'd given guns of when you think the the integration expenses sort of one down obviously
spk_36: and it's working that the the models working you're you're you're converting on ah on the technology platform to the customer like it's like itself is clearly money well spent but just trying to think about and turned the longer term counselor when that number winds down gaffe a very important question i can take this one
spk_7: we have committed i think you'll recall sandy from the the actually at the beginning i think we set that we would have these expenses running through fiscal twenty three but but with the acceleration of synergies time it's also true that that we are confident that
spk_38: this this sort of car out for integration expanse is gonna end in fiscal twenty two and and the fiscal twenty two number in front of aggregate you sort of do the math to get up two hundred million will be substantially lower than a fiscal twenty one with we are starting to wind this down and the the the primary expenses in fiscal twenty two are really around the actual kind of shutting down of platforms and the remaining migrations and that kind of thing
spk_39: whereas in in
spk_40: and and then what's what's gonna be left after that or with that where the timing is a little uncertain but we're going to operate as though we're going to get done in twenty two is that physical twenty two is there some sort of residual
spk_2: shareholder litigation related stuff and real estate stuff from from the wayside
spk_41: that that the timing of which is a little bit out of our hands up but our have been included in the number that we've quoted in terms of cost all along and if we can get those gunning twenty two great if not
spk_42: will the think about how we wanna talk about those on the income statement but there's not going to be and a one time integration adjustment on the income statement after fiscal twenty two
spk_2: great until really helpful bank
spk_43: sir
spk_2: thank you learn as question cousins that he davis that as the be the link your line of held them hi guys guys on the corner they give or take my questions thank you just i'm a strategic question for you you him may have got a rain we can talk month and up and down the market you plasma competitor buying a platform
spk_44: where are you on your and than a priority and
spk_45: and how how narrowly focused are we on the the idea of buying
spk_2: the book the business as opposed to maybe jay z's ah it's a really good question thank you for asking let me first say that investors should understand that one of the things that has occurred this quarter and practices that we've added more gunpowder to the depot or whatever the right man is you can show how much i know that been running away to gunpowder i i i had a gun
spk_46: while stop it
spk_2: not anymore
spk_47: i'm from miami everyone's got a gun but not anymore
spk_2: and up so and so you know what will we were looking at nearly three hundred million dollars cash on that on the ballot she obviously we're adding cash or recorder and your the ratio the debt ratio is now you a well under control and i think importantly not mean there aren't that many businesses out there that i'm aware of that that you know take some of these these body blows with with with covered and you are delivering not just profits but good profits when we didn't i know i'm i'm riffing a little bit but you know what their lot of companies out there that that some of their profit is like well you know employees are we were the health plan is a is got a surplus and we're taking that into income we didn't do that we we rebated that you are our employees into free and i should even say employees are teammates and que three and i'm so in a bottom line is that all the say that i think the the opportunity we have a substantial of the that the question that you're asking is how we're thinking about deployment of that am our than or whatever and bob on a say first that our our primary focus remains on a competitive assets of what we are looking at those very carefully so for example the item i represent earlier question
spk_38: about the
spk_2: an asset that that you and eight body that's not an asset we need it and an asset that we we would have had a look at that in terms of what does it add to the growth opportunity the business and they they were looking at it a little differently in terms of being an alternative to have to buy
spk_38: a to build up so you know that something that we're not gonna do and even with portfolio as if we have a model and we follow it when it works it works
spk_2: so i guess i would say generally we remain focused on for significant deployment we remain focus on couple of assets particularly those that create a real growth channels where there's relationships with third parties that we can see growing the business where the employer businesses relatively young so that there can be growth there you that kind of thing we are looking at a jason sees of but but we look at adjacent sees from the following perspective one is in terms of strengthening the core your for this in the same way that we looked at wage right so so ultimately our mission is to help consumers connect health wealth and i'm as the have commented you know everyone's kind of got a high did what we used to call high deductible everyone's got one of those now and so really we look at it in terms of how to serve that population out well it in any number different way so we're not we're not thinking about like well there's one legged stool and then we need another like of the school student and secondly i would say with regard to adjacent up well we're comfortable with the idea that the other may be some kind of talking items that make a ton of sense of were not throwing out the build option in those areas because he was you know asset prices are what they are they're pretty of their their well elevated and they're particularly elevated and you know some of these private market environment so we're not we're certainly not shying away from from the opportunity to to build her partner in some of these areas too so i guess that's a long way to say our primary focus remains competitive assets it's gonna be competitive assets were we think we can really create value for our shareholders with the purchase and we have a well develop models with you that when use it and then we are looking at a jason fees but there are jason see that see the core and were just as happy to build or partner you know as we are to buy something in those years when exploring those adjacent use a little bad i mean you probably have a better view the we do i need benefit by i know whatever i said i was gonna be ah chocolate pudding i was sort of assailants
spk_38: john you could and i'm a gun thing for a while i still be i got caught the beauty
spk_2: fun on you been talking about than and as i am in your in your selling season so guess what sort of adjacent these are they looking to consolidate under one vendor
spk_48: you know it's really interesting i quit just completed some research on this topic and i'm not gonna tell you all about it because some of the
spk_49: or ones that we want to remain proprietary but what i will say is that
spk_7: it was really interesting to me is and i think and i think hopeful for the business is that up
spk_4: employers
spk_50: it is two things one is that that the drive ins it's infringers a drive obviously for simplicity along the lines that steve talked about and in addition to that employers want they don't just one engagement they want effective engagement and i think the we're beginning to see a little bit of a discernment between like okay there's engagement on stuff people expect office employers to deliver and then there's engagement on stuff that movie they go elsewhere for and we're not the natural place and
spk_51: one thing people expect of their employers is the financial side of healthcare right
spk_2: they are buying their health insurance from employers and they expect their employers to provide assistance in helping them navigate the financial side and so i see that as a really good staying positive trend and kind of eighty points the way a little bit to where you don't we think about the product achievements a jason's he's been and importantly that fought is lot
spk_52: limited to their people in a tizzy right employers have begun to do the math and they recognize at this point that the only distinction between it in a to say plan and a comparable keep your plan is planned design it's not out of pocket exposure maybe a little different right but you know they want to get to
spk_2: the place where people are comfortable managing their portion of the costs possibility for care and they know they're not there yet and they know that the solutions that are out there are not you know don't don't fully cut the mustard and they continued one of the monitor understood that awful thing to john's building keeping well who i am a kilo shot this year it's gotten so you know who to of the city i put out the worst the hinshaw that the trouble thank you and especially as and don't happen with keeping your line is no thing great great grandson gone are the question her good a good afternoon good afternoon i'm pay one one area that hasn't been persona you guys are and it does affect your p now i guess negatively miracle on the positive in a long competence to see if the vestments it hard to discern the from there the clearly as because i know your true being off empty accounts and you're cleaning up your a to say account base but it looks like the percent of a to face with a is certainly a very sizable a for several quarters or oh now just trying to think about how are you in his are we to think about whether ten might look like going for these other sit in the near term i would maybe hurt your tino little bit long time i was it helps you that near term just wanna make sure he can i help us had had of think about that yeah adding an hour for and then i invite a darcy or tyson to speak further like but you have it exactly right
spk_6: invest the assets
spk_53: the camera their assets or account holders with investments grew by fifty percent year over year
spk_4: one or the other and and and continue to grow although there's still a very small percentage of total account holders and per greg's question from before
spk_6: we are seeing and frankly we want to see if our members invest so i guess we don't spend a lot of time thinking about the short term impact of that to the income statement
spk_4: in fact at eight we spend no time thinking about it
spk_6: we we think about the long term and the long term is investors are great customers and they're great been there doing the right thing by themselves you know that there are people who given their with preferences and so forth
spk_0: shouldn't be investing in we have some great product options for them but
spk_5: but the but for both people given the long term nature of of this product
spk_54: a longterm up to the with product they should be investing so that's that's kind of our overall mindset about it
spk_50: darcy or tyson that anything to that
spk_7: the i'd like to have just one thing in in person can jump in
spk_4: you know when we went public the percentage of agencies that time where investors with two percent and that was pretty much a industry wide a statistic that was true for not only us bad for everybody out there and i think that you know other people may have paid attention to this but i think of the efforts of health equity have actually grown they're so that we are now up over five percent and you go well as still not that much but you know what every month i look at that number one when we call the books i look at that number and it grows every single month
spk_2: and you're right the first thing that has to happen is that they get it and they actually become an investor once they become an investor then they start treating their ages saying instead of as a spending account as in and into a savings account in a long term retirement savings account so he takes a long time but it's what we've been about
spk_0: well and will continue to do and the biennale will will follow accordingly and wearing in for the long haul and you know people should have more than three thousand dollars in their agency that you should they should have more than five thousand dollars they should have way more than that
spk_6: because he will pay for their health care expenses for the rest of their life and in retirement when i have significant elder care expenses and you should be on the paper those tax reasons that of pulling a money out of your cake i mean i've pontificated on that numerous times but yes we're gonna stick and course and and and it will you know the accounts grow in the assets girl much faster than the other none cash balances do
spk_4: yeah the only two cents i would add is just when you see someone start to utilize investments and i was fucking someone this morning about that they really get when we're trying to do and so on i think about this is the my background as he could not this is it is a little bit of an investment because you don't earn as much revenue from this so maybe it's like offering free shipping or prime
spk_6: it's you know when people do that if they're sort of the and they're sort of hooked into this way and they get it and by the time they be no guns in the next twenty five years in their life they're going to have a significant amount of dollars a year to spend not the net and that bank or wherever it might be at a great savings tool to really the greatest have no credibility stability someone and of
spk_4: financial way
spk_6: super thinking for the commenter thank you and if question comes a much more than with baird your line of now open a good afternoon everybody and thanks for taking my question palm desert woman can you talk a little bit about you know how you're thinking about calendar twenty one you know i know what to normal cadences in terms of of giving games giving guidance and and fully appreciate the rate commentary but just as were in the middle of the seal see and you know what are some of the general things that people should think about and consider on with regards to how the selling seasons going on you mention the cross oh it's going well how we think about like new logos i shall we think about the differences between large enterprises vs some of the smaller employers that are out there
spk_4: and also just from odd an acid composition on how should we think about that trend where where people are you know getting it and and shifting more and more of the assets to investment as opposed to cash on you know how how would that end up impacting the cash balances as we go through the year there was a lot in their darcy you want to take a shot at this one ah yeah i'll start with the last part and then maybe ties him can gear up a little been talk about what we're thinking and john
spk_0: some of the things we talked about and what we expect you know with respect to relationships and and so and so forth going into calendar
spk_4: twenty one
spk_6: i know we have a list and similar things and so with respect to the cash balances i would know and market notwithstanding the fact that the investment balances have continued to grow you know people moving money can cash but in spite of that or cash balances are still growing and that you know that's a just day chevy to the model of what this is all about people even investors and still maintain a cash balance and they they get there by contributing more than a span and they can go into a certain whatever balance they feel like they they want to maintain and cash and then put the rest of it into investments and sell
spk_2: we're very encouraged by by both items one the amount of people that are getting it and moving money into investments and starting to investment to invest and also and we still continue to have positive growth in in our cash balances and and that comes from contribution to comes from then putting a little bit more aside every year the when they go through open enrollment generally they have opportunity to tell their employer how much to take out of their paycheck starting in january and we we see a big applet in january and then it moves for trapping yourself that's that's how we really view this movement know how accurately we can always predict about the movement from cast to investments we obviously grow our investments little bit faster than the cash better we still anticipate cash balances will grow hey mark i'm is a side since i was a long quest and i want to make sure i give you a more direct answers or a second partner that darcy didn't touch on no he he it and i fully appreciate the that the cash is continuing to grow and that we obviously want the investments to grow at a faster rate because that proves the long term value so fully appreciate both parts but i think i think that the other question that i was referring to a little bit and john maybe even one talk about as longer term were not given up y twenty two guidance obviously but there are some things that that that we think about going for we think that we're gonna still girl accounts we think that we're going to steal grow assets as we talk about and it at some time we think that some and that know this pandemic will be over we don't know exactly when ah and but when it does the maybe the vaccine and in and people's are coming back to work and we see a little bit more what we would call normality and are i'm in our business rain
spk_21: yeah i mean look i get some
spk_2: this is where i think up philosophically mark it's funny i mean we've had this endemic but if you look at what we said we were going to be focused on a year ago and what we are focused on it's exactly the same things
spk_55: and in truth if you look at what we said we'd be focused on at the time of the way towards acquisition or for that matter at the time of the ipo it's exactly the same thing and that's because we have the same belief in the long term opportunity and business
spk_0: and so what we are trying to do is is rather than
spk_56: oh they're they're obviously things we could do and that i thought maybe others are maybe they're not
spk_57: to to try and you know chase around anything even you know we could be spending all day and night
spk_2: trying to figure out well you know what should we do with our computer business will the answer is we should be ready when people are ready to come back to work if it turns out that at the end five percent less come back to work okay fine then we'll deal with that but for the moment the answer is we should be ready when ninety five percent of i'm ready to come back to work and and similarly with regard to raise know we were there was a lot of discussion well you know is there some change in the model etc etc the answer is we should be focused on helping people grow their balances and a building strong relationships and diverse relationships with the places we can deploy those deposits right and that's what we've been doing and and the result of that i'm kind of actually it's funny as some of you know that steve and his brother david have a a history and the airline business and one thing that i've heard from david in the past is that the thought you know if you can make money as an airline when oil prices are skyrocketing of and you can do really of you can break even then you can do real well when they're not and i would feel that way about our business if we can deliver we turned and thirty four percent he bit the margins last quarter
spk_21: that was despite
spk_2: of really missing effectively as we talk that the question twenty million dollars of a very high margin read and if we can be a good strong profitable business with improving customer metrics and all those kinds of things
spk_44: am and like this than we can be a great business in a better environment and some people will will dig that and some people will want bet on what the next quarter he is or isn't gonna be like with regard to the pandemic i'd i'd that's not a bad i know how to make so i'm not making
spk_5: i appreciate it thank you thank you thank you and an efficient clinton allen let's it bank of america now on
spk_4: hey john thanks for taking the question i guess given the lack of spending year to date is the working guide assume an elevated as as a spend vs normal years where is there a headwind expected from lockdown yeah for we were very or this is an area we were somewhat cautious honestly our weekly
spk_57: other and and i'll buy publisher to thrown the tyson beliefs as i started out as keep going
spk_2: have you know especially seeing the you know that the shutdown activity that's occurring and whatnot your week we just don't know the answer normally what we would expect is your because we talk about elsewhere people that use that balances and notwithstanding a possibility of some relief along once you've talked about me one that message me not get everybody into up folks shouldn't be waiting around and hoping it happens and of i said we're doing our best there but we do recognize that eyes of as of today anyway those of us in the that the the golden state and and perhaps elsewhere or not they're making a just a casual trips to the doctor's office which is not an done and so
spk_5: we we've been somewhat cautious about that in our guidance and and so i and i think that's appropriate so so that's kind of my answer tyson's you want to elaborate on that ago now i will i get i won't say one of the thing and for a little further obviously in january people's balances will get popped up just because they have contributions their employers that contribute the beginning of year in the case of essays and the like the bathroom bill behavior so we are anticipating increase spending in january but but nonetheless were remaining somewhat cautious relatives typical friends in light of a instantly relative that with remaining in people's accounts for the current year in in light of the current environment the surge in cases of
spk_4: i mean like how have you got one of the that was left when i was going to add is is that you know january obviously in when you think about it
spk_58: there's a marked man of spend that occurs there and of course has become people get popped up in the abuser lose it so you know
spk_7: i think the way that this works out people have that muscle memory they do that it's as use using a loser but still no given the up
spk_2: personal nature of the year there's always a little bit of caution built in there on how the whole play out and whether it will look like and has historically
spk_59: thanks tyson and then going back to the ten million commuter headwind a couple questions what person in the coffin at business or variable and then you know i know the you're obviously not going to which is conceptually what type of incremental margin
spk_7: would that business have isn't when it comes back

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