HealthEquity, Inc.

Hello, everyone, and welcome to the conference. Please note, today's conference is being recorded. I'd now like to turn the call over to Richard Putnam. Please go ahead.

Thank you, Rocco. Hello, everyone. Welcome to HealthEquity's second quarter of fiscal year 2024 earnings call. My name is Richard Putnam, investor relations for HealthEquity. Joining me today on the call is John Kessler, president and CEO, Dr. Steve Nealeman, vice chair and founder of the company, the company's CFO, Tyson Murdoch, and its soon-to-be CFO, James Lucania. Before I turn the call over to John, I have two important reminders. A press release announcing the financial results for our second quarter of fiscal 2024 was issued after the market closed this afternoon. These financial results include the contributions from our wholly-owned subsidiaries and accounts that they administer. 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, September 5th, 2023, and will contain forward-looking statements as defined by the SEC, which include 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. We caution against placing undue reliance on these forward-looking statements, and we also encourage you to review the discussion of these factors and other risks that may affect our future results or the market price of our stock, as they are 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. One more note before turning this over to John, with Jim now on board, we have rescheduled our Draper Investor Day to February 22nd. We're hoping for another great year of snow for those who want to ski on the greatest snow on earth, and we hope you all will join us either in person or virtually. Over to you, John.

Okay. Hi, everyone, and thank you for joining us. I will discuss Q2 key metrics and management's view of current conditions, and Tyson will touch on Q2 results before detailing our raised guidance for fiscal 24. And Steve is here for Q&A. In Q2, the team delivered double-digit year-over-year growth in revenue, which was plus 18%, and adjusted EBITDA, which was plus 31%. HSA assets grew 13% and HSA members grew 9%. Total accounts grew 3%, muted by the previously discussed change in COBRA methodology. Health equity ended Q2 with 8.2 million HSA members, 23.2 billion in HSA assets, and 15 million total accounts. The team added 156,000 new HSA members in its fiscal second quarter, which is healthy but down from the record-setting Q2 last year. As in Q1, comparison to last year's blistering job growth and high turnover, as well as fewer HSA transfers from small banks, were offset by robust new logo growth driven by an expanded network partner footprint and HR departments seeking out win-wins. The team also added $883 million in HSA assets in Q2. I wanted to say a whopping $883, but I wasn't allowed to, so I didn't say that. That's compared to a $272 million increase in the year-ago period, which would not be as whopping, reflecting not only count growth but also balance growth. Despite inflation, average HSA balances at health equity grew both sequentially and year-over-year, in part due to investments. 11% more of our HSA members became investors year over year, helping to drive up invested assets by 23%. Remarkably, invested assets now account for 40% of HSA assets. We continue to see more members choose enhanced rates for their HSA cash, leading to higher for longer custodial yields and, we believe, less cyclicality in the future. Interest rates in Q2 also gave a boost to variable rate HSA cash and CDB client health funds. While custodial fee growth drove Q2 performance, the team also delivered modest progress on service fees, the bulk of which come from ancillary CDB administration products. Service revenue rose 3% year over year in line with total accounts. Service costs grew just 2% year over year and declined sequentially by more than $4 million. As we discussed last quarter, rapid improvement in service tech continues to drive more interactions to chat and automated responses. The run out of remaining tailwinds from the COVID-19 national emergency may obscure a bit the progress that we're making when we get to the second half, but we see the results we've delivered here in Q2 as well as in the first quarter as evidence of positive trajectory on service revenue and margin. Finally, interchange revenue. which resumed its seasonal pattern as expected with strengthened Q1 followed by a more subdued performance in Q2. We think the HSA market Health Equity now leads can grow by about 10% annually for years to come, thanks to steady account growth and faster asset growth as accounts mature, which in turn expands margin opportunity. Team Purple can extend its long record of outperformance by doing what it did well in this second quarter. Before turning the call over, I would like to publicly thank Mr. Tyson Ty Murdock for his unwavering service to health equity's mission, vision, and values over the past five and a half years. And in particular, for focusing his team on a strong finish and a smooth transition over these past few months. Tyson's a class act, and you would do well to keep an eye out for the opportunity in whatever he chooses to do next. As Richard noted at the top of the call, Jim Lucania, who will take over as CFO effective tomorrow, is with us today. Jim will be active on the conference circuit this fall, beginning tomorrow, actually. And, of course, will preside at Health Equities Investor Day in Utah in February, as Richard mentioned. Tyson.