HealthEquity, Inc.

Good afternoon. Welcome to HealthEquity's first quarter fiscal year 2022 earnings conference call. My name is Richard Putnam, Investor Relations for HealthEquity, and joining me today is John Kessler, President and CEO, Dr. Steve Neileman, our Vice Chair and Founder of the company, Tyson Murdoch, the company's Executive Vice President and CFO, and Ted Bloomberg, our Executive Vice President and Chief Operating Officer. Before I turn the call over to John, I have two important reminders. A press release announcing our financial results for the first quarter of fiscal year 2022 was issued after the market closed this afternoon. The metrics reported in that press release include contributions from our wholly owned subsidiary WedgeWorks and accounts it administers. The press release also includes definitions of certain non-GAAP financial measures that we will reference today. A copy of today's press release, including reconciliations of these non-GAAP measures 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 reflect management's view as of today, June 7, 2021. 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 the 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 Form 10-K 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. At the conclusion of our prepared remarks, we will turn the call over to the operator to provide instructions and to host our Q&A. I'll now turn the mic over to our CEO, John Kessler.

Thank you, Richard. Well done. Hello, everyone, and thank you for joining us on this somewhat brisk, very late spring afternoon. Today, we are announcing strong results for health equity's fiscal first quarter of fiscal year 2022, which ended on April 30th. And we are also raising guidance for the full 2022 fiscal year. I will discuss our Q1 results and acquisition activity during the quarter. Ted will review operations and progress on wage works integration. And Tyson will review the financial details of the quarter and provide detail on our updated guidance for fiscal 22 based on the results that we are reporting today. Steve Nealman is here and will join in on the Q&A. Looking first to the five key metrics that drive our business and that we've been reporting on for a long time, health equity benefited from the initial economic reopening trends that helped drive year-over-year growth in HSA members and in assets, while commuter and yield headwinds continue to impact total accounts and revenue. Revenue of $184.2 million fell 3% versus the largely pre-pandemic first quarter of last year, and that was due to lower year-over-year custodial yields and commuter revenue, which were partially offset by HSA member growth, asset growth, and other CDB growth. Adjusted EBITDA of $59.0 million was similarly down from the first quarter last year of $63 million. Total accounts ended the quarter at $12.8 million, which does not include the nearly 700,000 commuter accounts that remain in suspense. HSA members at quarter's end reached $5.8 million, up 9% year over year, and HSA assets at quarter's end reached a record $15 billion, up an even larger 31% from a year ago. That's a lot of percent. As Ted will detail, Team Purple started fiscal 22 with very promising sales results, including a fiscal first quarter record of 115,000 new HSAs, up 11% from 104,000 new HSAs opened in Q1 last year. HSA investments grew by over $770 million in the quarter as members and their employers continue to contribute and invest. Investing HSA members grew 51% year over year, with more of our members connecting health and wealth. And the average balance of HSA members grew an incredible 20% year over year, and even 4% sequentially from the fiscal year end, despite a restart of spending. In addition to these strong organic results, in Q1, health equity reached agreements to put roughly $600 million to work, driving additional growth this year and for years to come through the acquisitions of Loom, a further, and a fifth third bank's HSA portfolio. Loom is supporting the post-pandemic, so I want to talk a little about each of those. Loom is supporting the post-pandemic reboot of our commuter benefits, helping clients launch hybrid workplace strategies as offices reopen. Longer term, we think that Loom and commuter benefits in general will really be the tools clients use to shrink employee commuting's carbon footprint. Further, and fifth-third, we'll enhance health equity's market leadership and scale in our core and growing HSA business. adding approximately 0.7 million HSAs and more than 2 billion of custodial assets upon their respective closings later this year. These figures are, of course, not included in the numbers that we reported today. Further, we'll strengthen the network partner strategy that has helped fuel health equity's HSA growth from its very beginning. With significant new partners, increased commitment to the Blue Cross and Blue Shield system, and new API-based platform capabilities, to support flexible branding and deeper integration of HealthEquity into our partners' offerings. It will also add VBA to HealthEquity's total solution for clients, partners, and members. The first quarter, in addition to delivering very promising sales and operating results and really important long-term acquisition activity, delivered evidence of pandemic headwinds beginning to turn into tailwinds. Healthcare card spend reached pre-pandemic levels for the first time during the latter half of Q1 with formerly lagging categories such as medical office visits showing strong growth. New sales opportunities and RFP volume and the value of client wins all rose year over year in Q1 in line with new HSA opening growth that we reported today. Bond yields rose and yield curve steepened with both 10-year treasuries and the 10-year versus three-month spread adding more than 50 basis points during our Q1, and that perhaps portends a rebound in health equities custodial yield in the future. To fully capitalize on that trend, we are expanding our roster of principal guaranteed partners, what we heretofore called deposit partners, to include new insurers as well as banks and credit unions, increasing competition for our managed assets and choice for our HSA members. heretofore, that's a fancy word. Leading employers announced plans. Oh, and finally, leading employers announced plans to reopen their urban offices after Labor Day, consistent with our assumption of a start to commuter recovery in the second half of the year. So in total, in Q1, while pandemic effects still weighed on our financial performance, the team delivered strong sales. We committed to acquisition investments with significant long-term growth benefits. and there was compelling evidence of headwinds becoming tailwinds to growth for fiscal 22 and beyond. With that, I will turn the call over to Ted to review operations and integration.

Ted. Thanks, John. Good afternoon, everybody. As John mentioned, our selling season is off to a great start. First quarter new HSA sales were up 11% year over year and 29% versus the first quarter of fiscal 2020. we're seeing evidence that business opportunities are returning and that the stalled and deferred deals from last year are coming back to the market. RFPs, which only represent a portion of our pipeline, are up 13% year over year, with bundled RFPs, meaning more than one product, up 15% year over year. In the small and medium sized market, our sales opportunities are up even more, owing both to our marketing efforts and the strong relationships we have with our distribution partners. Cross-style activities also continue to bear fruit, as 30 enterprise partners have agreed to add new services by 1-1-22 so far this year, and 13 distribution partners have added new health equity services to their shelves. On the integration front, we have a lot going on. The team completed another four platform migrations in Q1, and we are on track to complete the migrations and decommission work connected to the WageWorks platforms by the middle of fiscal 2023, which is ahead of schedule despite our recently announced acquisitions and execution on the COBRA subsidy, both of which leverage many of the same talented team members. While we have migrated 17 of the largest platforms and realized $65 million of synergies to date, there remain a number of small and midsize migrations to complete to realize the remaining $15 million of the $80 million in permanent run rate synergies promised. As John mentioned, we are well positioned to become the leading HSA provider once the further and fifth-third deals are closed. Planning efforts are underway to achieve $15 million of cost and revenue synergies within three years of close on the further transaction, and we believe likely more after that as we fully integrate our technology platforms. Additionally, our cross-selling pipeline with Loom is beginning to fill with promising opportunities. Last but not least is a huge shout out to the entire organization for the tireless efforts required to execute against the recent COBRA subsidy regulations. It takes our entire village to support this effort and partner with clients to deliver this subsidy to those that are eligible. There is still much to do, but we have started fiscal 2022 quickly and on the right foot thanks to the continued efforts of Team Purple. Now I will turn it over to Tyson to review our financial results.