HealthEquity Inc Aktie

Good day, and welcome to the HealthEquity First Quarter 2027 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. Richard Putnam. Please go ahead, sir.

Thank you, Chuck. Hello, everyone. Thank you for joining us this afternoon, HealthEquity's first quarter fiscal 2027 earnings conference call. My name is Richard Putnam, I do Investor Relations for HealthEquity. And joining me today are Scott Cutler, President and CEO; Dr. Steve Neeleman, Vice Chair and Founder of the Company; and James Lucania, Executive Vice President and CFO.

A press release announcing our first quarter financial results was issued after the market closed this afternoon and includes certain non-GAAP financial measures that we will reference. You can find a copy of today's press release, including reconciliations of these non-GAAP measures with comparable GAAP measures on our Investor Relations website, ir.healthequity.com.

Our comments and responses to your questions reflect management's view as of today, May 28, 2026, and will contain forward-looking statements as defined by the SEC, including predictions, expectations, estimates and other information that might be considered forward-looking. There are many important factors relating to our business, which could affect our results. These forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from statements made here today. We caution against placing undue reliance on these forward-looking statements, and we encourage you to review the discussion of these factors and other risk that may affect our future results or the market price of our stock as 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.

With that, let's go over to Scott.

Thank you, Richard, and welcome, everyone. Our first quarter results demonstrate disciplined execution against our mission and the strength of HealthEquity's financial model. We delivered higher profitability, expanded adjusted EBITDA margin to 46% and are raising our fiscal 2027 guidance.

The execution of our strategy alongside accelerating growth is reinforcing confidence in the long-term growth outlook for the business. That confidence is reflected in our raised fiscal 2027 guidance and disciplined capital allocation, including our decision to increase our share repurchase authorization by $1 billion.

Healthcare affordability remains among the biggest financial challenges families face, while rising healthcare costs are driving a structural shift among employers that continues to expand the overall market. Against that backdrop, this quarter's results reflect our ability to empower healthcare consumers while driving operational leverage and durable growth across the business.

HealthEquity is not simply an administrator. We operate a scaled healthcare financial platform that connects accounts, assets, payments, investing, marketplace, digital engagement, investment advisory capabilities and service. Our strategy is to make that platform the healthcare financial operating system for members and clients, expanding the value of each relationship while improving efficiency as we scale.

In the quarter, we outpaced industry account growth, grew assets, deepened engagement, and applied technology and AI to improve service speed, strengthen security and lower cost to serve. At a high level, our growth is driven by 2 forces working together: growth in accounts and assets, and expansion in lifetime value of each member relationship. Together, these supports durable compounding as accounts mature.

Let me start with account growth. The structural challenge of healthcare affordability continues to support demand for HSAs and healthcare financial solutions. As more costs shift to consumers, employers and members need better ways to prepare for, manage and pay for healthcare. We believe this dynamic supports long-term category growth. The HSA remains the entry point to a long-duration financial relationship.

In the first quarter, total HSA assets grew 19%. New HSAs from sales grew 15%, introducing 172,000 new HSAs to our platform. Importantly, we bent the growth curve with total HSA growth of 8%, outperforming Devenir's reported market growth of 6% for calendar year 2025. We are encouraged by the early momentum in our selling season. Client retention remains strong, and we continue to see opportunities to win new clients and expand existing relationships.

Our data and analytics capabilities are an important differentiator as clients look for ways to improve adoption, increase contributions and manage healthcare costs over the long term. While account growth remains an important entry point, it is only one driver of our business. That brings me to engagement.

Members are engaging more deeply as they save, spend and invest. That engagement expands the value of each relationship over time. Marketplace is an emerging driver of engagement. Marketplace is helping more than 10,000 members access health-related programs and products. This month, we expanded into diagnostics and men's health. We expect marketplace to become an increasingly meaningful contributor to the lifetime value of each member.

On investing, HSA investors grew 18% and invested assets held by our HSA members grew 38%. With only about 10% of HSAs using the full tax benefits of investing industry-wide, this represents a substantial long-term opportunity. As a reminder, investors tend to hold larger balances, exhibit higher engagement, have higher average contributions and spending over time.

Over the past year, we've significantly expanded digital engagement with mobile monthly active usage increasing by 90% year-over-year. And in the quarter, over 2/3 of marketplace transactions occurred through our mobile app, underscoring our long-term strategy to deliver an engaging, secure and trusted digital experience that meets members where they are.

Together, account growth, asset growth, engagement, marketplace and investing support a flywheel that expands value per member and strengthens the durability of our revenue engine.

The third part of the story is efficiency. We're applying technology and AI to improve the member experience, strengthen security and lower cost to serve. We view AI as an operational amplifier. In the quarter, AI-driven tools reduced manual handling of member and client service e-mails by 25%, improving response times and lowering workload. In certain targeted workflows such as card servicing and claims inquiries, AI-enabled automation reduced manual efforts by more than 90% and accelerated processing times by up to 50%.

AI-enabled self-service and automation contributed to more than 50,000 fewer card-related service center contacts. Fraud remained below target, card acceptance improved and fraud costs declined nearly 90% compared with the first quarter of last year. For members, that means fewer calls and faster access; for clients, less administrative complexity; for HealthEquity, a more scalable operating model.

As we scale, revenue driven by assets and transaction activity enhances durability and visibility. As accounts mature, they become more economically meaningful, reducing reliance on new account volumes in any single year. Taken together, these dynamics reflect our evolution beyond administration to a healthcare financial operating system that helps members and clients address healthcare affordability while expanding value per member and improving efficiency over time.

With that, I'll turn it over to Jim to walk through our first quarter financial results, the drivers of our margin expansion and our raised fiscal 2027 outlook.

Thanks, Scott. Hi, everyone. I'll review our first quarter 2027 fiscal year GAAP and non-GAAP financial results. Reconciliations of GAAP to non-GAAP measures are included in today's press release.

First quarter revenue increased 7% year-over-year. Service revenue was a record $122.9 million, up 3% year-over-year, supported in part by marketplace activity. Custodial revenue grew 11% to a record $174.3 million.

Annualized yield on HSA cash was 3.84%, reflecting higher replacement rates, increased participation in enhanced rates and a one-time breakage fee from a depository partner that exited a custodial cash contract early. Excluding this one-time revenue, our annualized yield on HSA cash would have been 3.78%. Interchange revenue grew 5% to $57.4 million, reflecting higher member spend and transaction activity.

Gross profit was a record $256.3 million or 72% of revenue compared to 68% in the first quarter last year. Service costs included approximately $0.3 million of fraud reimbursements to members, down from approximately $3.2 million in the first quarter last year, reflecting improved fraud prevention and detection capabilities and higher adoption of our secure mobile tools.

Net income was $69.4 million or $0.82 per diluted share on a GAAP basis. Non-GAAP net income was $105.1 million or $1.24 per diluted share. Adjusted EBITDA was $164.5 million, up 17% year-over-year. Adjusted EBITDA was 46% of revenue compared to 42% in the first quarter last year.

Turning to the balance sheet. We ended the quarter with $265 million in cash, generated $98 million of operating cash flow and had approximately $943 million of debt outstanding net of issuance costs.

During the quarter, we accelerated our share repurchase program, buying approximately $123 million of our outstanding shares. This week, the Board increased our share repurchase authorization by $1 billion. We expect to remain an active buyer of our shares while the market continues to, in our opinion, undervalue our consistent revenue growth and margin expansion.

Before discussing our raised guidance, I want to briefly address the HSA cash maturity schedule included in today's earnings release. We have $3.2 billion of remaining HSA cash contracts maturing in fiscal 2027 weighted toward the back half of the year. We also have forward treasury contracts outstanding that effectively lock in 5-year treasury rates at approximately 3.9% net of costs on $3.5 billion of maturities across fiscal years 2027 through 2029.

With current 5-year treasury yields higher than our average locked forward rates, we remind you that the purpose of this program is to reduce volatility and narrow the range of potential outcomes tied to movements in the 5-year treasury benchmark. Because these forward contracts are tied to future depository contract maturities, we'll have greater visibility into the economics of custodial cash placements into enhanced rates contracts. We'll continue to evaluate additional forward hedges as appropriate.

We now expect average yield on HSA cash will be approximately 3.85% during fiscal 2027. As a reminder, our custodial yield assumptions are based on projected HSA cash deployments and rollovers, schedule of which is contained in today's release as well as analysis of forward-looking market indicators such as the secured overnight financing rate and mid-duration treasury forward curves. These indicators are subject to change and may not accurately predict future market conditions.

Our raised fiscal 2027 guidance reflects the expected carryforward of the trajectories for revenue and margins for the remainder of this year, including technology and security investments to drive operational efficiencies, marketplace adoption and expansion, and reduced volatility of yield placements this year, benefiting from our rate lock program.

For fiscal 2027, we now expect revenue between $1.41 billion and $1.42 billion, GAAP net income of $242 million to $248 million or $2.88 to $2.95 per share; non-GAAP net income of $292 million -- sorry, $392 million to $398 million or $4.66 and $4.73 per share based upon an estimated 84 million shares outstanding for the year. Adjusted EBITDA between $625 million and $633 million.

We continue to invest in protecting our members' assets and data while providing them with a remarkable experience. Our guidance also reflects expected capital allocation activity, including additional share repurchases under the expanded authorization and potential reductions in revolver borrowings during the fiscal year. With continued strong cash flows and revolver availability, we expect to maintain ample capacity for portfolio acquisitions should attractive opportunities become available.

We assume a GAAP and the non-GAAP income tax rate of approximately 25%. And as in prior periods, our fiscal 2027 guidance includes a reconciliation of GAAP to the non-GAAP metrics provided in the earnings release and definitions of these items are included at the end of the earnings release. In addition, while amortization of acquired intangible assets is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is included.

And with that, operator, please open the line for questions.

[Operator Instructions] And our first question for today will come from Stan Berenshteyn with Wells Fargo.

First on marketplace, I would just love your thoughts on the strategic reinvestment there. Just, I don't know, not to make this a multiple choice question here, but what's the gating function for you to start investing in sales and marketing to drive marketplace? Is it broader app adoption? Is it more products within marketplace? Like what's the gating function there?

Yes. There's really no gating function because it's not a channel that's dependent on marketing spend like other e-commerce sites would be. So it actually starts with engagement, Stan. So in driving that, we need to get people into the mobile experience. Marketplace is available in mobile and on the portal experience. We want to drive engagement to our monthly active users and then to be able to expose those members to the marketplace opportunities.

And so as we look at where we're at, Q4 was just a proof of concept on marketplace. Q1 was about scaling the foundations, which included expanding the footprint of how visible it is across the interface enhanced capabilities around martech, which is really just marketing to our existing members, and then adding new programs. We added TRT and diagnostics into the marketplace.

And so again, as we look at how that grows over time, it really is how we are converting our active members that are captive to HealthEquity into the marketplace experience. And so that really is just, again, driven by, first and foremost, getting them into the digital experience.

Got it. That's helpful. For the follow-up, so maybe on services, it was nice to see progress on services gross margins. Obviously, you have some easy comps there versus last year. But excluding those, can you just update us on the progress you're seeing in AI automation and the efficiencies they're unlocking and maybe how that may progress through the balance of this year?

Yes. We're really pleased with the progress that we've made around improving our service cost per account, which is really the metric that we're driving across our teams. And we're driving that, first and foremost, by reducing contacts. And reducing contacts is purely a reflection of the quality of the product experience that we're delivering principally to our members and making sure that those experiences are seamless and that their ability to get a response can be driven by more self-service and automation.

And so when we look at the gains that we have experienced over the last year, we're seeing call reductions associated with reduced fraud, call reductions associated with no longer needing your password because you've adopted passkey, automating journeys like replacing a card, checking a balance, and then increasingly more claims automation. So collectively, the reduction of contacts, the automation of those contacts is what drives efficiencies.

And we actually still believe while we've made great progress year-over-year that we have so much more to go. And that opportunity is going to continue to be unlocked by more and more of those journeys and those experiences in self-service in real time, in a digital experience as well as just improving the overall quality of the service that we provide.

The next question will come from Gregory Peters with Raymond James.

I wanted to kind of stick on the AI theme. And you talked about some of the substantial progress that you've reported as a result of AI adoption. And I was just curious how this might manifest itself like in when I'm looking in your statement of cash flows, looking at the software and capitalized software development costs. Because I guess, Scott, at some point, I would anticipate that this investment phase in AI would yield some savings on the expense side in that area or category.

Greg, you mean in tech and dev?

Yes.

Yes. Okay. So a couple of things. As we introduce more AI into these journeys, we're obviously seeing the cost reduction associated with that. The offset can be token usage and our use of compute to be able to drive that. Now while we are seeing that increase of costs associated with token use in our company, we're keeping that within the framework of our percentage of revenue associated with tech and dev, which we believe across all of our lines, sales and marketing, G&A, tech and dev, that we're going to continue to be able to drive operating efficiency even with some of that spend shift happening. So again, we think of our spend overall within the envelope of tech and dev.

And I think, again, speaking to the opportunity I highlighted in my remarks, across journeys that we're automating, we're seeing that manual process or that time to resolve being reduced by 90% the effort associated with the member getting resolution being able to be resolved automatically seamlessly self-service. So these are significant improvements in the member journey.

I'd say the other 2 areas that I would highlight where we're barely in the first inning, I'd say, first pitch is really in client integrations. So that's kind of that second bucket within the service costs. And in the back office and claims automation, where we have millions of claims over the course of the year, we're still at the very beginning of that journey introducing AI in those areas. So we're very excited about what we're seeing.

Yes. I'm going to pivot for my follow-up question just to the balance sheet and capital management initiatives, including the stock repurchase. One of the line items I track and pay attention to is the cash and cash equivalents that you guys are holding at the company quarter-to-quarter and year-to-year.

And even as the company has grown both with accounts and revenue and earnings, you're not seeing a corresponding increase in the demand or the necessary need to hold on to more cash at the holdco level to cover costs. So I was wondering maybe if you could sort of bridge the gap on what the cash requirements are. Maybe they're coming down because of these improved efficiencies, but that's sort of what I wanted to focus on for my second question.

Yes. Maybe I can take that one. Yes, like we're -- regulated entities are pretty light at HealthEquity. So like there's not this -- and we're not a bank, right? So this requires like massive capital requirement that you'd expect to grow with assets that just doesn't exist in the company as it's currently formed. Like our trust company had capital requirements and our registered investment adviser will have some capital requirements. But yes, you shouldn't think of it like a financial or an insurance company with this massive regulatory capital that would grow significantly with scale.

I think in the history, the company has sort of sat with lots of excess cash, and there's less of a need to do so going forward. But yes, it's probably the lowest cash number that you've seen in a little bit, but just read into that as a function of -- we haven't had to drive every last dollar of discipline out of the cash, but have the ability to do so. Obviously, we repurchased more shares than we planned, and that's why we had the flexibility to do that without having to borrow.

The next question will come from Allen Lutz with Bank of America.

One for Jim, to follow up on Stan's question on the service cost line item here. So it was much better than I think the Street expected. And even if you back out about $3 million of fraud from last year, it was still down. The service costs were down about $6 million year-over-year. Is there anything that's one-time in that -- in the first quarter here? And as we think about the trajectory for the rest of the year, how should we think about taking that $6 million and kind of applying it as an improvement. Is there anything we should contemplate as we think about the improvement you're seeing within that line item?

Yes. Thanks for that question. Yes. So if you read the details in the Q, we do highlight one particular area and whether it's one-time or not, we will see. But relative that to what we guided to, our medical claim usage utilization for our teammates was way down and below -- like below our expectations. So we have pushed that beat back out into the forecast. So in talking to our outside adviser, talking to our contacts at the various payers, this appears to be a phenomenon seen across the market, and we are not declaring victory on that, right? I don't have any particular intel that says my 2,800 people are miraculously much healthier than they were 3 months ago when we had the last medical claims forecast.

So just in the service line alone, that was about $2 million of the year-over-year improvement. And that just feels seasonal to me. So our current expectation is that that cost is going to come back. So we pushed that beat back out into the forecast. And hopefully, that proves to be conservative, but this sort of -- nothing has changed in the cost assumptions that the actuaries are telling our corporate clients to expect. Yes, ourselves included. Yes.

Okay. And then as a follow-up...

And the rest is real beat. The rest is real year-over-year efficiency. Yes, super strong.

Perfect. And then for my follow-up here, around the marketplace, you mentioned more than 10,000 members utilizing that, which I think is could be low millions of revenue. Can you remind us, is that marketplace revenue in the guide as of the update here?

Yes. So Jim, you can speak to the guide. Thanks.

Yes. So that current -- like that exit rate is reflected in our outlook now. And then Scott can speak to the rest of that question.

Yes. So Allen, when we look at that, yes, so we're -- we crossed over well over 10,000 actually. But I think when you look at it and you look at it over time in building that model from a member perspective, it's going to be what member -- how many members are transacting in the marketplace, what are they transacting in, do they stay in those programs? And so if you look at the 5 things that we have in the program today, men's and women's health, metabolic through GLP, ordering diagnostics, each of those have a different revenue profile and a fee profile associated with that.

And I think we're still very pleased with what we're seeing at launch and quite frankly, the week-on-week growth of participating members in the marketplace that we're experiencing. Just last week, when we launched diagnostics and men's health, we saw a very rapid uptake in the absence of any marketing rhythm against it, just introducing new tiles into the marketplace, which again gives us a significant amount of confidence that even the adoption curve of our early products in marketplaces are being followed by other programs as we add them into the marketplace.

Your next question will come from Sean Dodge with BMO Capital Markets.

Maybe just on the app downloads now. And Scott, you talked about the flywheel effect of all this starting to kind of have. With the new app users, when you think about the app and how it mitigates customer service costs, it increases engagement, also provides you the conduit for the marketplace. If we add all of those things up, is there a way to kind of quantify like how does an app user compare economically, both in terms of kind of like the revenue benefits and the cost benefits? How does an app user compare economically to a non-app user?

Yes. So it's not exact, but in terms of like right now, there are a few features in the app that allow you to, for example, activate a card with a push of a button, as an example. As the app develops over time, and this is one of our key product priorities is bringing together all of our products into one single app, powered by AI, powered by personalization, including self-service across all of our different service functions and be able to do that digitally. And so that will come at a lower cost because you're able to self-serve a lot of those things.

But going to engagements, engagement is a really important part of driving lifetime value. So when you look at 2/3 of our transactions happening on app in the marketplace, that's an example of driving lifetime value. As you look at our ability to drive investors and certainly the significant growth that we had in investors on a year-over-year basis is really driven by enrollment through the app at enrollment to be able to get you to sign up and become an investor very early on. And as we introduce new experiences in that flow on the app, we saw improvements there.

And so I see it as both a service and a revenue benefit. The revenue, again, being more of the engagement flywheel for all of that means and all of the different areas where we drive lifetime value and then service being able to introduce AI, self-service, education and help right into the app experience. And again, when we can do that, it's also part of that flywheel because if you're going to the app for self-service, then you're actually seeing the other things that we can offer and provide. So that, in a nutshell, is the digital strategy.

Okay. That's great. And then maybe just going back to the marketplace. So you said well over 10,000 members now. I know you said there's some variation in terms of what people can participate in the different programs. Is there anything you can share more specifically around like how much revenue is marketplace contributing now? And then the 3 initial programs you launched, the Oura Ring, the GLPs and the HRC, is there one of those in particular you're kind of seeing most traction with?

Yes. So we're not breaking out marketplace revenue at this time. And I think it will be a while before it's material relative to our overall revenue. It will actually show up in service revenue. I think of our 3 earliest programs. Metabolic health through access to weight loss is the most active program. The economics in terms of administrative fee per member, $90 to $100 per member per month, participating in that program, that's our most robust program. So you just do the member math on that as long as they stay on, that's a very active program.

I will say, even though it's new, adding in men's health through TRT just in a week, we're seeing actually very significant daily adoption already at a very aggressive growth curve. And that, while not as large of an economic opportunity, is maybe more of a longer-term subscription. That will likely be longer lasting than potentially weight loss and the economics of that are north of $50 per participating member per month.

Again, as we develop this over time, we will have other areas in marketplace. For example, we are part of and we'll be launching Oura Ring 5 next week, which we're excited about, and we're receiving a per transaction charge associated with that.

Diagnostics as another example, a different program, different economics, you're signing up for an annual subscription, and then it's going to be a function of that annual subscription and that renewal. So again, on a blended basis, what we're looking for is putting in front of our members very valuable products and programs and services that are very much informed by what we know they're already spending dollars on.

The next question will come from Scott Schoenhaus with KeyBanc.

I want to focus on account growth. Clearly, you're taking market share. Any color from where we stood last quarter on the Bronze accounts, what you're seeing in the marketplace, what you're seeing in terms of taking market share in that category and what their contributions are here early on?

Yes. I'd say the Bronze opportunity is still very early. The market expansion has been real. You've actually seen Bronze adoption be significantly higher given expiring subsidies. But that being said, the materiality of Bronze right now in terms of both accounts or contribution of revenue is very low. We expect them to come in over time. A portion of our 172,000 new accounts came through the retail channel that we would associate with that Bronze opportunity. So that's how we think about it.

Relative to the overall market, I think what we are very pleased with is bending the curve and the growth rate of the business overall, represented by HSA account growth. So to be able to see quarter-on-quarter acceleration there, if you spent any time looking at the Devenir report, 60% of new account growth in the industry last year came from the top 2 players. Most other players not really seeing growth. And so it is a winner-take-most in terms of growth and who is capturing that growth in the industry. So we're very pleased with what we see there.

I'd say the other factor that we see, and I commented on it, is that we are seeing a very active enterprise sales pipeline, which you will see later on in the year as those -- as we finish integration and go into open enrollment, but it's the largest pipeline of enterprise sales that we've seen in years. And I think we're very encouraged by both our win rate and what we're selling to those new clients in terms of the vision of this flywheel and product experience to those prospective new clients.

That's fantastic on the pipeline side. Okay. And then my follow-up is we're talking about this mix shift on the consumer marketplace. Given this growth that you're seeing and eventually this mix shift, where do you see service gross margins expanding to given that there's a high degree of incremental margins that flow through from the consumer marketplace?

Well, so marketplace has no real cost of acquisition or cost to serve. And so most of that flows through. But I think Jim and I repeatedly say there's no such thing as service gross margin. Our service costs which go against all of the things that we do go against all of revenue, not just service revenue. So just a bit of a clarification associated with how we think about that. But the incremental margin on a marketplace transaction obviously is very, very high because there is no marketing cost of acquisition or cost to serve.

The next question will come from Steven Valiquette with Mizuho Securities.

I guess for us, just coming back to the healthcare utilization questions for a moment, I guess, from a -- aside from your commentary about the low healthcare utilization trends of the internal HealthEquity employees in the quarter, I guess, with more of a growing view in the investment community that we could see just a slowdown in overall U.S. healthcare utilization for the full year calendar '26 versus calendar '25, can you just remind us how that would sort of flow through your financials and your guidance, either positive or negative? I think the most visible variable in my view would just be less flowing out of HSAs to pay medical bills, which would be positive. But just curious any other moving parts we should be thinking about if that's the start.

Yes, great question. Yes, I think you're exactly right. Like where are we seeing it a little bit? It's in -- you can see it in the interchange line right now, right? We grew interchange a little more than 5%. Like that's a little slower than it's been growing. So that's one of those lines where we'll watch it, right? We're not calling like a big behavior shift, but it may be just as simple as folks went to the doctor a little bit less, and we're seeing slight downshift in average transaction per account, slight downshift in average ticket size per account, right? So it's a trend that we'll watch. And we've reflected a little bit of interchange conservatism in the current outlook versus the last one. But again, like our base expectation is that we expect it to snap back to the prior actuarial assumption for the year.

And then, yes, you're right, if folks don't spend money, then the money stays in their accounts if they don't change their savings. So like it's probably a positive to -- a little bit of positive to balances and a little bit of positive to investment revenue, right, if the dollars are in the market as opposed to being spent at the doctor.

The next question will come from George Hill with Deutsche Bank.

It's [ Max Yah ] on for George. One of your major competitors is getting acquired by the largest insurer in the U.S. How do you see the competitive environment change post the deal? And have you seen any change in partner conversations or pipeline activity as health plans and employers evaluate the implication of more vertical integration in the space?

Yes. So I think you're speaking to the Allegis acquisition by UnitedHealth. So Allegis is a white-labeled software provider. We do not compete providing white-label products. We sell direct into our client base. We will note that what we will be watching for are those existing clients that may view that tie-up as competitive in terms of sharing data or opportunity, which could be interesting for us. And so we'll track and watch what that movement. But the acquisition itself, we view it as a result of what I just said as it being a net positive from a HealthEquity perspective in the market.

The next question will come from Destiny Jackson with JPMorgan.

This is Destiny on for Alexei Gogolev. I was excited to hear the additional programs you added to marketplace. But how are you prioritizing which marketplace categories to add next? And then as it relates to the GLP cohort, I know it's early, but any color you can give on just behavior of this group, specifically as it relates to retention and program duration?

Sure. So we prioritize what we add first informed by what our members are spending their dollars on. So we have billions of dollars of spend. And so we look at that spend. I think we look at what we're trying to accomplish in the marketplace as a curated set of products and experiences rather than commoditized products that anybody could spend that would qualify for reimbursement. And as we look at that, we think about it from a category perspective, as I've highlighted, metabolic, men's and women, dermatology, sleep, allergy, diagnostics, wearables, those are all programs that we could bring in that aren't a large number of SKUs.

And then what's also very interesting to us is the growth that we're seeing of merchants of high-quality brands selling products that could qualify for an HSA directly or be unlocked for qualification through a letter of medical necessity. And those are some really interesting brands, and we would be expecting to bring in those brands and products into the marketplace overall. So that's kind of like how we think about building out the catalog of marketplace.

And then with respect to your question around cohort performance, it's still very early. When you think about it, particularly on the metabolic side, the adoption rate overall, what we're looking at is what is the churn of those subscribing members, how long do they stay into the program. And that's another reason for us to be conservative because these are -- we're literally only months into this cohort to truly understand what they're going to perform like. But again, now that we're seeing growth, particularly on the metabolic side of growth week-on-week and we've seen week-on-week growth since we started, we're very pleased with probably how those cohorts are going to build quite aggressively over time.

The next question will come from Mark Marcon with Baird.

So most of my questions have been asked, but I just want to follow up on one element. Scott, you mentioned the pipeline is as big as it's been. I'm wondering, it's pretty early with regards to the marketplace, the mobile-first kind of approach. And so what I'm wondering is when you're approaching enterprises and medium-sized businesses now, what sort of reaction are you getting from those clients that would make the decision from an employer perspective in terms of the direction that the company is going in? Obviously, you've been winning share, but I'm just wondering, are they even more excited now? Do you think your win rate is going to be even higher on a go-forward basis? Or how are you thinking about that?

Yes. Great question. Mark, we actually do see our win rate is higher, our ability to compete and win more large logos in competition is higher than it has been before. And what I would say is the 3 top areas of focus for new customers. And this is also applied to our existing customer base. But particularly when we're pitching a new customer, it's 3 things. Number one, show us the mobile experience and show us the future road map of what that mobile experience is going to look like. And when we lay out the vision of our mobile and digital engagement across bringing our products together, AI-enabled, personalized, driving towards health and wellness behaviors, our clients are thrilled -- and our prospective clients are thrilled with the direction and the vision that we're painting from a product perspective.

Number two is data services. When we look at the integrations that we have with our plan partners as well as the data that we have across all of our enterprise base, we're able to go in very specifically with data to be able to tell our clients, this is the opportunity for cost savings that you can have and here are the 3 or 4 strategies that you could deploy to go after those cost savings, which, quite frankly, are much greater than the fees or the administrative fees that you would pay us associated with that.

And number three is security. Trust and security is at the forefront of every client. We're obviously a financial technology platform. Trust and security is very important. And so our security team is typically involved in all of those conversations, our road map, obviously, the great progress that we've made. And also, this is also supported by a white paper from Visa that actually shows that we are best-in-class in terms of the lowest fraud rates in the industry, 6x and 7x better than most industry participants, with also card approval rates 10 percentage points higher than others, which just means that a more secure platform and using your card and having that approved more than others. Those are really key features to the quality experience. And those would be the 3 things that I believe that we're winning on, but we're also differentiated against versus the competition.

Your next question will come from Brian Tanquilut with Jefferies.

Congrats on the quarter. Maybe, Scott, as I think about the broader macro backdrop here, are you seeing any change in HSA contribution levels tied to, say, consumer pressure or employment churn, especially as we think about the lower balanced accounts? And then maybe another way I would ask the question is, is the demand for HSAs -- is there a worry that at some point with utilization levels across commercial healthcare softening or decelerating, does that decrease the demand for HSAs? Or is there any sensitivity? So just curious for your thoughts on that one.

Yes. So I'll talk first about what is the dynamic that's driving HSA adoption and a reacceleration of the industry, and maybe Steve can comment on this as well, is really healthcare affordability. So healthcare affordability is the pressure that enterprises face relative to healthcare costs and driving high-deductible health plan and HSA adoption is certainly a way to get after that first point. And I'll give one more, and I'll turn it over to Steve.

Second is contributions. So if you looked at the industry report last year, we were actually able to drive contributions quite significantly greater than industry growth rate where contributions grew by 1%. We grew contributions across our book of business at multiples of that. And that's largely because of what we're doing in the digital experience to drive contribution as well as what happens with the flywheel of spend, which is when you spend, you contribute more. And so I think that, again, speaks to the industry.

Maybe, Steve, do you have anything more to add?

I think you did a great job. I mean Scott's been in the industry so far, and it's -- I think you've nailed it. The only thing I would add is, Brian, that we've seen these countercyclical times where maybe the economy is a little bit shaky and then employers like we got to save money and they all of a sudden wake up and say, why aren't we getting more people in health savings accounts. We've done some independent research. We've mentioned this before. We look at our own book of business and interviewed clients. We've got several case studies out there that show that if clients can go from 30% adoption in HSAs to 60% or 70%, they can save a lot of money per person.

But I think that's only half the story. The most important part of the story is the people that go into the HSAs have money put aside. We talked about having personal healthcare financial security for those people. And ultimately, that saves money because if people avoid care because they don't think they can pay for it, that's horrible for the whole system. It's horrible for affordability. People delay care. And so this concept that we've been preaching now for over 20 years of empowering healthcare consumers, it's right and embedded in our mission is so critical to do this. And so we actually see the opposite. When times get a little tougher for people, they kind of finally wake up and they say, what's the best way to provide the most efficient benefit for our people and so take care of medicine HSA.

And so I think this is a real opportunity for us now in this time where affordability is so critical. Costs are up, don't know what's going to happen with inflation, but we're really leaning in. And I think we've got a fantastic team we put together. And then I think to drive more account growth. And then Scott has done a fantastic job of saying, okay, once we have the account, how do we then help that person better save spend investor health that brings in the marketplace and these other initiatives. So we're, I think -- and we're just bullish on where we are right now as we ever have been in this market. I can tell you that right now.

The next question will come from Peter Warendorf with Barclays.

I just wanted to clarify on the HSA cash maturity schedule that you guys talked about, it looks like the 2027 cash number that you reported this time is a little bit lower than what was on the last quarter. Just kind of curious what's going on there and if that's maybe related to the one-time partner cost that you mentioned earlier. And yes, just what's driving that dynamic?

Yes. For the current year, it's just one last quarter is in there. So those are amounts that matured, either basic rates renewals, basic to enhance rate switches. And then yes, then the last piece is just the organic growth, right? So they're not static pools.

So if my members contribute more, the balance goes up. If they withdraw more, the balance goes down, but it's just normal activity. The maturity pull-forward was actually not in this current year, but we were able to pull-forward sort of future maturity into the current Q1.

Great. And then maybe just on accelerating repo. I mean, it seems like you guys are pulling some of that forward. I'm curious if there's anything to read through into maybe what private valuations look like and what you're seeing on the M&A front, yes, and how you just weigh repo versus maybe M&A.

Yes. So our capital allocation philosophy has not changed, and our priorities have really been buying back stock, paying down debt and being prepared for M&A. On the repurchase program itself, given our growing confidence in the long-term cash generation of the business, the accelerating growth that we're seeing, we see our capacity to put more into the repurchase program as being enhanced, and that's obviously reflected by how that program has increased.

And at the same time, it does not impact our ability to finance and to go after the right M&A opportunities as they present themselves. So we've maintained the flexibility to do both while actually being in a really strong position, not adding debt associated with that in a repurchase, but using our cash flow to do so. So that's really our capital allocation philosophy.

The next question will come from Ryan Halsted with RBC.

I wanted to go back to the Bronze account questioning. So considering the growth in enrollment in these plans, I'm just curious if you've had further discussion with your channel partners or other sort of engagement in trying to maybe capture more of that new HSA eligibility earlier, either through driving education or other ways. I appreciate that.

Sure. Yes. Thanks for the question. Yes, we've thought a lot about it. We -- one of the, I think, really remarkable things about the HealthEquity model, because we sell to all sizes of employers and even down to like 2 life employers all the way up to, obviously, some very, very big employers, is that we've always kind of thought about HSA growth from an evergreen perspective. And this even makes almost more sense in the case of Bronze plans because even though there's this big push for people to get their Bronze plans and then hopefully sign up for HSAs right around the end of the year when the portals open up and the exchanges open up, the reality is they can fund those accounts through the course of the year.

So we're always kind of thinking about what is the best channel. And so you said the our channel partner, and we're kind of thinking very deeply about that. Many, many of our Blues plans, many of our other vertically integrated plans, plan partners throughout the country are often, if not the biggest, close to the biggest providers of Bronze plans in the market. One of the challenges is people just still don't know. And so there is an education perspective to that.

To give you just a little bit of perspective, only 2% of people a year ago that bought on exchanges were in an HSA qualified plan. Now nationally, it's 30% in an HSA qualified plan just because of the Bronze stuff. There are some markets where it's 50% of people. But you got to get the word out. And so we work through the channel partners. There's brokers out there that sell a lot of these plans. There's even -- there's been a lot of talk about ICRA and stuff like that. I think they're still pretty early. So we're looking at every one of these channels. We have people that are in charge of each of those channels to really push this because, look, we don't really know how these are all going to perform at the end of the day. Maybe there's less funding. It could be even in the subchannels like maybe like an ICRA channel where there is an employer around that the funding will be comparable to what we've seen in our traditional market.

So yes, we are looking at every one of those channels. We do everything we can to get people into these accounts. It's almost like a public good, honestly. It's like a TSA. It's like if you are going to have any medical expenses and you have to pay that higher deductible that comes with the Bronze plan, you have to run that through an HSA. And all that, if you have an HSA, you can start doing things like marketplace and run through it. And so yes, we're all over it, but we also want to temper like this enthusiasm because this is a new muscle for not really HealthEquity again. We've been doing this for a long time. But it's a new muscle for consumers because they don't even know, right? It went from 2% of people in an HSA qualified plan a year ago and now it's 30%. So we're after it, but we're still trying to learn a lot from it.

Your next question will come from David Larsen with BTIG.

Steve, can you talk a little bit about the regulatory environment and the timing of it? So what happened 1/1/26 through 12/31/26? How does that change in like 1/1/27 and going forward? And then just any comments on like the stacked card product? When can you stop using plastic or paper cards?

Yes. I'll take the first half. Do you want to talk about stacked card?

Yes.

Yes. So I mean, obviously, there's a lot going on in D.C. right now. And we are always looking for these little windows of opportunity to insert like what happened last year. And so Dave, to start your question, a lot of these changes that happened in the big beautiful bill around Bronze and things like that really all kind of went into effect on January 1 of '26 with the law being passed last July. And so we've been doing a lot of work on implementing those changes.

We continue to look for opportunities to insert things that were left out of the final bill that did pass the House bill. These are things like letting people roll their HRAs and FSAs into HSAs. That makes a lot of sense. Actually quite low score when they came out of the congressional budget office scoring process. And so that wouldn't cost a lot. And there's a lot of people that would be like, yes, I'd love to convert my FSA or HRA into that. Medicare for working seniors -- sorry, HSAs for working seniors, we talked a lot about that as well.

So I think from just the congressional calendar perspective, I think right now, the big focus is to try and get this reconciliation to the 2.0 bill that the Republicans have talked a lot about. They were close, backed off. That was the one where the ballroom came out of it and all that other stuff. There's no healthcare stuff in that that we've seen. And then our understanding is if the reconciliation gets done 2.0, then there's a lot of legislators who are saying, "Hey, look, we still have 6 months of legislating to do, and we've got a lot of people to help." And so we're going to keep looking for those opportunities.

Just a little kind of cool fact. One of the bigger kind of expansions of HSAs that happened in 2006, I mean, even prior to the big beautiful bill was in the lame duck session in 2006, and it was after the House was lost in November. We were pushing hard then and they has significantly increased the amount of money that people could put in their HSAs. And it was a lame duck session. It was in the end of the year, there was a new Congress that was going to be seated and so they got it done.

But all that being said, as we've said all along, we actually think that HSAs are bipartisan more than people appreciate. When you do the surveying out there, Democrats, Republicans, independents, they all love health savings accounts. And so we're going to just keep pushing. And no matter what happens in November, we're not going away and people are going to keep hearing about why consumers need these accounts. And so thanks for the question, and we're all over it.

On the digital card, as you know, David, a few years ago, we moved to a single card processor, which allowed us to offer a stack card, which we've had in the market now for a little over a year. That product today is already -- we have what I'll call digital integrations into wallets. A lot of the digital wallets today that are very popular is already integrated. And then I think kind of like the next step is digital issuance where you could issue without plastic. And as we look at what our single app experience is going to look like and also having wallet and digital wallet integrated into that experience, that will be kind of like rolling out into the future.

And then in that world, it may not be all cards replaced that way because people do like having something to carry with them. A physical card is a strong sense of loyalty. That's why most banks still have to have physical cards. But again, from a convenience perspective, we think there is an even more efficient way to issue cards for those that just want integration into wallets. And again, functionally, we already provide that.

The next question will come from David Roman with Goldman Sachs.

Maybe just kind of, maybe Scott, I will come back to something you mentioned in your prepared remarks around 10% of the tax benefit being fully utilized by members. What are some of the actions that you can take to increase that utilization rate? And how do you think we would see that kind of flow through the performance of the business?

And then maybe I'll just ask my follow-up here, just given we're in time on the call. Jim, can you just help us think through just that putting the pieces together here on the AI investment cycle and the AI benefits. So, for example, is the service margin today depressed even though it's improving because you're deploying resources from an investment standpoint such that as you start to see the benefits, we see an even bigger uptick in the margin? How should we think about the handoff there from investment to benefit?

Yes. So I'll kind of like, again, go back to the strategy and why it matters. An investor is a bigger spender and a bigger contributor. And investment and investment balances are obviously growing significantly for the industry and for HealthEquity. The number of investors, we've also been driving. And so that growth in number of investors, which you saw 18% year-on-year, is really, again, driving towards the flywheel of the why, which is, again, bringing you from a contributor to a saver to an investor. And again, it is virtuous because they actually do hold higher cash balances and they do spend more.

The way we're doing that, again, is through the digital experience. And so really critical at enrollment that we do that. You can also see that flow through a bit because many of those as they're going through that enrollment are also signing up for robo-advisor, which is kind of like automating that investment flow for that member to make it simple and easy. And we're looking at other ways to essentially streamline how you become an investor and making sure that that fund lineup and our integration on the brokerage side gives you total flexibility to invest wherever you want to as a member.

Jim, I think you'll take part 2.

Yes. And then as for the current sort of deployment of tech, right, like the cost is primarily hitting the tech line. So you're not -- you're seeing like investment in the product solution that helps drive down service costs. The investment is in one place and the benefit is in another place. Now as the sort of future state of like widespread deployment of AI tools and token-based pricing, I do think you're going to start to see that change a bit currently and probably for some time, like the primary beneficiaries of these tools are in the technology development realm.

But as my finance team, as marketing teams are starting to use the tools for efficiency within their own departments, I think you're more likely to see us like start distributing that cost out like HEI finance or other G&A department, you need to cover your own cost of AI and then offset that with benefits. So we're just not in that world yet. But I do think the world and many of our fellow companies reporting publicly are going to head in that direction, too.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Scott Cutler for any closing remarks. Please go ahead.

Thanks, everybody, for the thoughtful discussion and questions. To close, I hope your takeaway is that our execution and performance continue to translate into strong cash generation, gives us increasing flexibility to invest in the business, return capital to our shareholders. And I think the acceleration in the growth underpins also our decision and confidence to increase our share repurchase authorization by $1 billion, reflecting our confidence in the long-term outlook for HealthEquity. So we really appreciate your interest, your support. Look forward to updating you next quarter. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, and welcome to the HealthEquity Fourth Quarter and Full Year 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Richard Putnam. Please go ahead.

Thank you, Gary. Hello, everyone. Thank you for joining us this afternoon. This is HealthEquity's Fourth Quarter Fiscal 2026 Earnings Conference Call. My name is Richard Putnam, I do Investor Relations for HealthEquity. Joining me today are Scott Cutler, President and CEO; Dr. Steve Neeleman, Vice Chair and Founder of the company; and James Lucania, Executive Vice President and CFO.

Before I turn the call over to Scott for our prepared remarks, we note that the press release announcing our fourth quarter financial results was issued after the market closed this afternoon and that it includes certain non-GAAP financial measures that we will reference here today. You can find a copy of today's press release, including reconciliations of these non-GAAP measures with comparable GAAP measures on our Investor Relations website, which is ir.healthequity.com.

Our comments and responses to your questions reflect management's view as of today, March 17, 2026 and they 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 our results. These forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from results -- from statements made here today.

We caution against placing undue reliance on these forward-looking statements, and we 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 detailed in our latest annual report on Form 10-K was filed just today 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.

With that out of the way, let's go to Scott.

Thanks, Richard, and we welcome everybody for joining us today. I'll begin with our fiscal 2026 results and the strategic progress positioning us for fiscal '27. Steve will address the regulatory environment and Jim will walk through our financials and raised fiscal 2027 outlook.

Fiscal 2026 was a year of accelerating earnings power for HealthEquity as we delivered strong execution, significant margin expansion and record HSA sales. We're proud of the team's execution and the progress we're making building this platform for the long term. In the fourth quarter, we delivered 23% adjusted EBITDA growth and more than 500 basis points of adjusted EBITDA margin expansion, while adding a record 550,000 HSAs, resulting in more than 1 million new HSAs from sales for the year, bringing total accounts to $17.8 million and HSA Assets to more than $36 billion. Revenue grew 7% year-over-year, and net income increased 89% to $49.7 million. Non-GAAP net income increased 33% and non-GAAP net income per diluted share grew 38%, reflecting meaningful margin expansion. What you see in these results is the operating leverage inherent in the HealthEquity platform as assets, engagement and automation scale.

We also returned more than $300 million to our shareholders through our share repurchase program in fiscal 2026, reducing diluted shares outstanding by approximately 3%. At the center of our strategy is a flywheel helping members save spend and invest for health care. As engagement deepens across each dimension, the model becomes more valuable and more efficient. Greater engagement drives spending, balances and long-term earnings power.

We advanced each component in fiscal 2026. On [indiscernible], total HSA Assets increased 14% to more than $36 billion, reinforcing the long-term value embedded in the platform. Importantly, asset growth continues to outpace account growth, reflecting higher balances per member and deeper engagement. On spend, we expanded the way members can use their HSAs by launching our marketplace. Beyond HSAs, our platform also supports flexible spending accounts and commuter benefits, giving employers a single destination to administer the full spectrum of consumer-directed benefits. And on the invest component, HSA investors grew 10% year-over-year and invested assets now represent more than 50% of total HSA Assets. Importantly, about 95% of HSA members still do not reach contribution limits and over 90% have not yet invested, creating significant opportunity for engagement-driven growth.

Member engagement increasingly happens through our mobile platform. We now have more than 3.6 million downloads of our app, reflecting the growing adoption of Digital First Healthcare. That shift will only accelerate as younger consumers enter the system, expecting to manage health care and finances digitally.

Another advantage that becomes clear over time is the compounding value of our member cohorts. Each year, we add new HSA members who grow balances, increase engagement and become more valuable as their accounts mature. Some of the most valuable accounts on our platform today are those open more than a decade ago. The scale of our distribution is reflected in one simple fact. We added over 1 million new HSAs from a sales in a year when the U.S. economy added just 181,000 jobs. That is a powerful reflection of the demand for HSAs. That level of growth reflects the deeply integrated proprietary compliant platform with more than 200 network partners in over 100,000 clients, supported by a member first secure mobile experience. Built over years, that advantage compounds as accounts mature and HSA Assets grow, resulting in increased revenue and cash flow for us, which in turn funds our continued investment in innovation, security and AI.

We're also expanding HSA distribution into a large new retail health care channel. Our direct HSA enrollment platform expands access beyond employer-sponsor plans, enabling individuals to open and fund HSAs through our mobile and web experience. That is especially relevant for consumers selecting Bronze plans on ACA exchanges where we see a meaningful new retail distribution opportunity. As millions of households evaluate coverage options, our retail capabilities position us to capture incremental adoption. More broadly, health care affordability pressures continue to drive adoption of consumer-directed health care.

As we previously shared, a third-party study across nearly 1 million employees from several of our largest employer clients found that higher HSA adoption correlated with significantly lower per employee health care costs, while employees save more on premiums and taxes and grew their HSA balances. HSAs are becoming core infrastructure for how Americans plan and pay for health care.

With that structural tailwind, trust remains foundational. On security, we continue to make measurable progress. In the fourth quarter, fraud reimbursements totaled approximately $0.3 million, putting our exit run rate at 0.1 basis points for the quarter, well below our target of 1 basis point of total HSA Assets annually. Our team executed the highest performance level, reducing fraud cost to approximately 1.1 basis points during the fiscal year, placing HealthEquity in the top percentile among comparable portfolios in the Visa network.

We have also made meaningful progress improving card authorization performance, directly improving the member experience at checkout. Importantly, we are strengthening account protection while simplifying the member experience. Early stage fraud detection has improved. False positives have declined and authorization rates continue to strengthen. At the same time, pass key authentication is eliminating traditional passwords, enhancing security while simplifying account access, protecting members while preserving interchange economics. In a category where trust is everything, we are proving security and seamless experience can scale together.

With that foundation in place, we have begun building the next-generation health care financial operating system and AI is central to that evolution. AI will enable us to move from a phone and manual-based service experience to a place where members are guided to resolve issues in real time across multiple channels. With 17.8 million accounts and more than $36 billion in assets, we have the data density, transaction velocity and integration footprint to deploy AI tools for our members responsibly. With millions of members and a growing flow of health care spending moving through the platform, our data scale enables AI applications that smaller platforms cannot easily replicate. AI will allow us to scale member engagement while lowering the cost to serve across the platform.

We are embedding AI in 3 ways. First, elevating the member experience. As mentioned previously, our expedited claims solution has begun delivering faster reimbursements to members. HSA Assets and HealthEquity Assist are evolving into intelligent, contextual support tools that guide members from voice to agentic chat and digital channels.

Second, driving operational efficiency. We are already seeing impact as AI-driven automation reduces service costs while improving resolution speed. Over time, we expect AI-enabled self-service to help members resolve more needs directly within defined workflows, reducing reliance on live service interactions.

Third, unlocking personalization at scale. Over time, we expect members to be able to use our AI applications to optimize contributions, identify tax savings opportunities and make more informed spending and investing decisions. AI is becoming an earnings engine for HealthEquity, improving member experience while helping lower costs to serve an increased lifetime value per account over time. Additionally, that same intelligence will continue to extend beyond service and how members discover and access health care programs and products. That growing flow of health care spending creates an opportunity to help members discover and access services directly through our platform.

Across the entire industry, Americans spend more than $40 billion from HSA accounts last year on qualified health care. More importantly, they more than replenished those funds by contributing more than $55 billion growing their HSA balances. As more health care spending moves through the platform, we see additional opportunities to bring more value to our members over time.

In the fourth quarter, we launched our marketplace with early offerings focused on weight loss programs, hormone replacement therapy and health care wearables. Globally, these categories are experiencing rapid consumer adoption with an estimated total market spend of more than $100 billion. Over time, we expect to expand our marketplace with additional products, programs, services and partners. Our marketplace expands engagement inside the HSA while introducing new recurring revenue streams and increasing the share of health care spend flowing through our platform. Early adoption has been encouraging with strong initial retention rates among participating members.

We're also seeing an increasing number of merchants highlighting HSA and FSA eligibility at checkout as a way to increase conversion and drive sales, reinforcing the growing role of tax-advantaged health care spending. All of this reinforces the operating leverage visible in our results.

We enter fiscal 2027 as a 3-year member of the exclusive [ Rule of 50 Club ]. Members of this exclusive club deliver the sum of revenue growth and adjusted EBITDA margin in excess of 50%. This is a designation typically associated with category-leading companies, and it is even more rare to see them sustained for longer periods of time. Based on guidance that Jim will provide in detail in a moment, we intend to make it 4 years in a row. That's the power of this model as engagement assets and automation scale, earnings scale with them.

As more Americans save spend and invest through HSAs, our flywheel strengthens, accounts grow, assets deepen, engagement expands and operating leverage follows. With scale distribution, growing assets, expanding engagement in an AI-enabled platform, HealthEquity is building the financial infrastructure for how Americans will pay for health care.

With that, I'll turn it over to Steve to walk through the policy landscape. Steve?

Thank you, Scott. The policy environment for HSAs is the most constructive it has been in 2 decades. And we believe we are at a genuine inflection point with health care affordability at the center of the conversation. Last year's Working Families Tax Cuts Act, also known as One Big Beautiful Bill, expanded HSA eligibility to American selecting Bronze plans offered on ACA exchanges. This law is the most significant structural change to the HSA market since the accounts were created.

For the first time, millions of households purchasing coverage through the exchanges compare their plans with an HSA and access the same triple tax advantages that employer sponsor participants have long benefited. This is a meaningful democratization of a tool that has historically skewed towards employer-covered workers. We continue to work closely with our health plan partners to simplify the process to enroll Bronze plan members into HSAs.

Beyond the ACA exchange expansion, we are encouraged by the broader legislative momentum. The current administration has put forth a health care proposal that includes HSAs as a core component and several members of Congress have introduced legislation aimed at further expanding HSA eligibility. We are actively engaged with policymakers on both sides of the aisle to share what we see in the real world, how HSAs reduce per employee health care costs, grow member savings and give families genuine control over their health care spending. With HSAs, employers do not need to choose between saving money on benefits and ensuring health care financial security for their employees. They can have both.

HealthEquity's scale and close partnerships position us well to convert this policy momentum into growth. When legislative changes create new eligible populations or more than 200 network partners and 100,000 clients allow us to move quickly, educating and enrolling newly eligible members and helping them realize the full financial benefit of HSAs. Importantly, our strategy does not depend on any single legislative outcome. The secular trends towards consumer-directed health care are well underway across employers, retail consumers and policymakers. Policy tailwinds accelerate that trend. I believe these efforts, along with our strategy brings us closer to realizing the original mission we have for HealthEquity to save and improve lives by empowering health care consumers.

Now I'll turn it over to Jim to discuss the financials. Jim?

Thanks, Steve. I'll review our fourth quarter and full year fiscal 2026 GAAP and non-GAAP financial results. A reconciliation of the GAAP to non-GAAP measures is included in today's press release.

Starting with the fourth quarter. Revenue increased 7% year-over-year to $334.6 million. Service revenue grew 2% year-over-year to $127.1 million. Custodial revenue increased 12% to $161.4 million. And the annualized yield on HSA cash was 3.57% for the quarter, reflecting higher replacement rates and a continued mix shift of HSA cash toward enhanced rates. We ended the year with 58% of HSA cash and enhanced rates contracts. Interchange revenue grew 6% to $46.1 million, outpacing our 4% total account growth.

Gross profit was $228.1 million, resulting in 68% gross margin, up from 61% in the fourth quarter last year, an expansion of more than 700 basis points. This reflects reduced fraud costs and continued service efficiency, as Scott detailed earlier. Service costs declined $17 million year-over-year as fraud reimbursements totaled just $0.3 million in the fourth quarter. As Scott mentioned, our investments in security, AI service technologies and our member first secure mobile experience is delivering greater functionality and member satisfaction at a lower cost to serve.

Net income for the fourth quarter was $49.7 million or $0.58 per share, up 93% compared to the fourth quarter last year. Net income margin was 15%. Non-GAAP net income increased 33% to $81.8 million and non-GAAP net income per share grew 38% to $0.95. Adjusted EBITDA was $132.9 million, up 23% compared to the fourth quarter last year. Adjusted EBITDA margin expanded over 500 basis points to 40% in the fourth quarter.

Turning to the balance sheet. As of January 31, 2026, cash on hand was $319 million as we generated $457 million of cash flow from operations in fiscal 2026. Debt outstanding was approximately $957 million net of issuance costs after paying down another $25 million of the revolver during the quarter. We repurchased approximately $82 million of our outstanding shares during the quarter and over $300 million during fiscal 2026. We have approximately $178 million remaining on our previously announced share repurchase authorization.

Our capital allocation priorities remain consistent: invest in organic growth, maintain optimal balance sheet flexibility to pursue industry consolidation opportunities and return capital to shareholders.

For fiscal 2026, we exceeded our guidance. Revenue was $1.313 billion, up 9.5% compared to last year. GAAP net income was $215.2 million or $2.46 per diluted share with a net income margin at 16%. Non-GAAP net income was $349.8 million or $4 per diluted share. Adjusted EBITDA was $566 million, up 20% from the previous year, representing a 43% adjusted EBITDA margin for the fiscal year.

Before I detail our raised guidance and assumptions, let me briefly update you on the interest rate forward contracts we discussed on prior calls. The first of these forward rate locks matured in connection with expiring basic rates contracts during the fourth quarter and allowed us to place funds in our enhanced rates program at above market rates. We expect the remaining interest rate forward contracts and additional contracts that we may enter to further derisk potential interest rate volatility on future HSA cash deposit contracts that flow into our enhanced rates program.

At the end of the quarter, we had forward contracts on U.S. treasury bonds with a notional amount of approximately $2.4 billion tied to contract maturities between March 2026 and January 2028 and a blended rate lock of 3.92%, not including the negotiated premium that we receive above the 5-year treasury benchmark on our enhanced rates placements. We expect to execute additional forward interest rate hedges depending on market conditions.

We ended fiscal 2026 with an average yield of 3.53% on HSA cash assets and expect the average yield on HSA cash will be approximately 3.8% for fiscal 2027. Our custodial yield assumptions take into account forward hedges for their maturing contracts in fiscal 2027 and the projected HSA cash deployments, which are detailed in today's release. We also consider a range of forward-looking market indicators, including the secured overnight financing rate and mid-duration treasury forward curves. These indicators are, of course, subject to change and are not perfect predictors of future market conditions, but they provide a consistent framework for how we set our outlook.

Given our momentum in new account sales and assets, we're raising our guidance for fiscal 2027. This increase reflects strong execution to date, increased visibility into our fiscal 2027 trajectory. We now expect revenue between $1.405 billion and $1.415 billion. GAAP net income is expected to be between $239 million to $246 million, or $2.78 to $2.85 per share. We expect non-GAAP net income to be between $392 million and $400 million or $4.56 and $4.65 per share based upon an estimated 86 million shares outstanding for the year. Finally, we expect adjusted EBITDA to be between $618 million and $628 million.

We're pleased with how we exited fiscal 2026, expect to make additional progress on growth and margin expansion in fiscal 2027. Our outlook reflects continued revenue growth, sustained margin expansion and disciplined investment in technology, security and sales and marketing. Our guidance also assumes continued capital return and a strong balance sheet. We expect to make additional share repurchases under the remaining $178 million repurchase authorization and may further reduce borrowings on our revolver during fiscal 2027. With continued strong cash flows and available revolver capacity, we will maintain ample flexibility for portfolio acquisitions should attractive opportunities arise.

Our guidance assumes GAAP and non-GAAP income tax rate of approximately 25% and a diluted share count of $86 million, including common share equivalents. As in prior periods, our fiscal 2027 guidance includes a reconciliation of GAAP to the non-GAAP metrics and the definition of all non-GAAP metrics can be found in today's earnings release. While we exclude the amortization of acquired intangible assets from non-GAAP net income, the revenue generated from those acquired intangible assets is included. As a reminder, we plan to provide fiscal 2028 guidance following fiscal year 2027.

Operator, please open the line for questions.

[Operator Instructions] Our first question today is from Mark Marcon with Baird.

Congratulations on the strong quarter and the raised guidance. I wanted to ask 2 questions. One, I thought the gross margin expansion was very impressive. If we strip out the fraud costs and adjust for that in the year ago, you still ended up having significant gross margin expansion despite the fact that you ended up having a lot of implementations in the fourth quarter. And you only have 3.7 million or 3.6 million downloads out of the 10.6 million that you potentially could have.

So I'm wondering like how should we think about the gross margin potential going forward, particularly as you continue to roll out the AI initiatives and get more and more of the account holders to download the app and streamline their interactions?

Was that your one question? You said you had 2.

That's one, and then there's another.

Okay. I [indiscernible] a follow-up. Yes. So on the gross margin expansion, look, we are incredibly proud with the work, obviously, that we did in driving down fraud costs reflected in tremendous progress there. We're at or below our target run rate there. I think the other thing you're highlighting is also the progress that we've made on the service cost per account. And we're driving those operational efficiencies through technology changes, using AI, automating many of the manual and phone-based interactions that we have today while also improving service.

We know that we're at the very beginning of our journey on AI, Mark, as we've talked about but our team is maniacally focused on delivering a consistent end-to-end experience for our members and to be able to do that more efficiently. So I really think that we've got tremendous opportunities to continue to drive that gross margin expansion with a particular focus on the way that we deliver our service.

And again, when we think about the opportunities there, it's obviously in how we serve our members but it's also in a lot of the processes that we have with clients. And that's not something that we focused on as much last year and is going to be a big area for us just to be more efficient in terms of how we integrate with new clients how we onboard new members that are coming in through our client relationships. And again, I expect us to make meaningful progress again this year on that.

That's great. And just a quick follow-up. It's early in terms of expanding the platform in terms of having curated whether it's weight loss or hormone or devices. But what are you seeing just in terms of the level of engagement with the early users that have started to procure some of the services through the platform? What's the engagement gone up like and what are you seeing in terms of the cash that they're actually putting into the system as they reenrolled?

So we're still very early in that, and we've only got really 3 programs in weight loss and in hormone replacement and then in the wearables category. The metrics that we're going to be driving, obviously, starts with just engagement on the mobile platform. I don't think I answered your question on mobile, but driving our members into the mobile experience, we think, is the place where they start engagement. And then we want to be able to provide seamless opportunities where they're spending money on the programs that make sense and makes sense for us to be able to introduce on it.

And so what we're looking at is really members that sign up for those programs, if it's a program that persists over a longer period of time, for example, in weight loss, we want to make sure that they stay in that program, they choose to stay in that program. And so you'll be looking at traditional metrics like churn. We've been really pleased with the number of members that have signed up in those programs, the number of members that have stayed in those programs. And again, we've only got a couple of months of cohorts to look at that, but we're very pleased with that progress.

And then now over time, we're going to be introducing, again, other programs, other partners, other services. And again, the limited programs that we have today represent, as I said in my prepared comments, a market opportunity of over $100 billion of spend on things that consumers are already spending those dollars on. So we're very optimistic about the progress that we're seeing. And again, as you think about that relative to the guide that we have given, we have not incorporated a material marketplace revenue in our guide this next year. So if we perform and if that performs well, we would hope for that to become a material part of our revenue going forward.

The next question is from Stan Berenshteyn with Wells Fargo.

A couple of questions. First, maybe I missed this slide, I've had some issues logging in. But do you have any comments related to the conversion you're getting out of the ACA cohort? If you can comment on that and what the cadence there is.

Yes. So I'll talk about it, and Steve can talk about how that's evolving. As we said from the very beginning, this represents about a 10% expansion to the overall market in terms of potential accounts that could be added. We have said that those accounts will come over time. We really only started to see those accounts come in starting in January associated with that enrollment season. Again, these are going to come into the market differently than associated with an employer, meaning that we'll be looking to our plan partners to be able to go to market efficiently like we do.

And it's also opened up via a retail one-to-one offering. We have the most attractive match for members that are signing up through that retail channel. We want to encourage them to do that. And we still see significant opportunity ahead because we're just at the very early stages of those that are moving to Bronze plans for one, which we're seeing momentum there. And then two, just the awareness that historically, these plans have not been tied or associated with qualification for an HSA and that member needs to be able to know that they're eligible. And so again, going at that with our plan partners is the way we're going to go about it. Again, we saw really great progress again in January with respect to how those are coming in.

Steve, would you add to that?

I think you captured most of it. [indiscernible] in early innings. As you know, the law was not signed until July 4. And at that point, all the plans have been filed. And so they were already named. It was really hard to find out when people ended up on the exchanges in November, December, January, if they were even HSA qualified. Obviously, we have a head start on that now. And so the goal, like I pointed out, is just make it really simple.

One of the first things HealthEquity did when we came out as a company was to make it easy for people in the employed markets to enroll in HSAs. I mean most of our competitors are way behind us. You'd have to go sign up for the [indiscernible] plan with your employer and then your employer [indiscernible] now go find yourself an HSA provider and it was nonintegrated. So we became the leader in the HSA space by integrating the benefits that you get from your employer. And of course, our competitors followed suit and that's not that much of innovation.

We're seeking to do the same kind of stuff in the exchange markets where if somebody enrolls in a bronze plan, it remain super simple. It will be integrated, get the account open and then the key is to -- we have that relationship with that member to start helping them understand how to optimize that count, fund it, spend through the account, use the marketplace, things like that. Early innings, but we're encouraged and now at least we have a little bit of a running head start because the law did not pass after the plans were filed, if that makes sense.

That's helpful. And then a quick one here for Jim, just to give them some airtime as well. Just big picture, I know you mentioned [ rule of 50 ]. You have another tailwind from asset resets that's going to impact next year, presumably. You have a lot of cash that you're going to be generating. What are your plans in terms of reinvestment in the business? And do they change as you think about having that tailwind pretty much sunset after next year?

Yes. No, I mean I think as we sort of highlighted, there's no real change in our capital allocation philosophy. You're effectively seeing us using our free cash flow both to repurchase shares and to chip away at the line of credit that we borrowed for the BenefitWallet deal. So no real change there. And you're right, yes, we've got $4-plus billion that is going to reprice this year. Yes, agreed sort of not as much influential on this year's potential growth than it will be for next year. But we fund the business first, right? And then it's with what's left is what we're repurchasing shares and chipping away at the debt with what's left.

The next question is from George Hill with Deutsche Bank.

Yes. It's Maxey on for George. Could you talk about are there any early trends showing that members are reallocating HSA dollars towards GLP1 marketplace offerings? And how might that influence custodial revenue and asset allocation behavior over time?

Thanks, Maxey. Yes. So the early trends, again, we launched it in Q4. We've got 3 programs. We've had a significant number of our members sign up to those programs. As I said, it's going to be important as they sign up. They continue to stay into those programs and that we expand the marketplace offerings over time. And so it's not just GLP or weight loss programs, it's HRT and wearables. And so like I said, we're going to be driving that to become a material part of our revenue that will show up in service revenue, again over time.

And what we see is our opportunity is that we're really connecting those dollars that are already being spent out of HSAs on these types of programs, bringing it into the platform experience. And the other trend that we're really excited about, and this is why we believe so strongly in this [indiscernible] flywheel is the behavior that we see is that when people spend on marketplace and when they spend dollars, they contribute those dollars and more. So they end up becoming larger savers, which is also an economic flywheel.

We know also, and we've made great progress about moving from savers to spenders to also investors and an investor actually spends and saves more. So moving our members through that continuum is really important to driving contributions, which has always been flywheel to the business. So the early trends are very positive. And again, we expect that program to expand over time.

The next question is from Steven Valiquette with Mizuho Securities.

Just a quick question really kind of on the macro and the unemployment trends and how you're sort of thinking about that and the guidance for the fiscal '27 that you just provided? Just any color and your thoughts on how you've factored that in, that would be helpful.

Yes. Yes. Certainly, we observed the macro last year, 181,000 jobs created in the United States. I think what we see out in the market and against that backdrop, we delivered record HSA sales. That's represented by an affordability challenge for health care for employers which is to say that the cost of benefits that employees are providing are growing much faster than wages.

And so the thing that we're doing with our employers is giving them data and information and products to help them drive greater adoption, greater contribution. And if they follow those recommendations, they can reduce their cost per employee per year significantly in the thousands of dollars. And so health care affordability is driving growth in the market, maybe more so than the macro headwinds.

The other thing that drives this as well is essentially how Americans are feeling and are concerned about health care. So health care affordability for most Americans is the central issue as well, which again drives towards greater adoption of HSAs as a mechanism to be prepared financially for their future health. We don't see the macro environment changing. We think it's going to continue into this year. But we think the other counteracting forces there around health care affordability and driving greater adoption are things like we've seen this year that have enabled us to be able to drive significant performance in the business despite that weaker macro backdrop.

The next question is from Brian Tanquilut with Jefferies.

This is Cameron on for Brian. I guess my question was when you're thinking about organic or engagement-driven growth, how are you thinking about that going forward and kind of that employment environment you were talking about?

Yes. So this kind of builds on Mark's question at the very beginning. Driving engagement is really important to driving the flywheel of save, spend and invest. We'll actually measure engagement by how often people are engaging on the platform. It starts principally with the mobile device and the app. And so as you can see in the numbers that we put up this year, we've been driving several million downloads of our app, that's step one. Step 2 is what is our monthly active users of that app that goes into just the quality of the overall app experience. Is it engaging? Is there a reason to come back? Marketplace is one of those things that gives an opportunity to come back. As we drive more engagement, again, all of the flywheels of save, spend and invest get greater.

So we're thinking about the business at the core central feature is what is the quality of that product experience? How engaging can we make it? Can we make it more routine in terms of health care and then can we drive greater usage? One of the great advantages that we have is since our experience is also integrated already with our plan partners is every time you go to see a doctor, every time you go have a health care visit, you fulfill pharmacy prescription. All of that is integrated into the experience. Those dollars are loaded into the mobile wallet at any point in time where you might need to withdraw those dollars tax free, you can do that.

But every single time you do something that's integrated into our experience. And that's a really important differentiator for us relative to the competition because we have such a deep integrated experience with our plan partners and going to the market. And that's just another way that helps drive that monthly usage and monthly engagement in the platform. And I still feel like we're actually also in the very early innings of what that product experience is going to look like because we're investing in that member-first experience, which is a new muscle for us.

The next question is from Peter Warendorf with Barclays.

I actually just wanted to talk to you about the member lives that are coming in through the Bronze plans versus traditional employee-sponsored plans. I mean is there a difference in terms of -- I know it's early, how those members are saving or spending? I'm just trying to understand maybe the relative value for those customers versus some of the traditional ones.

Yes. Remember, I mean, in terms of that cohort, it's a few months old. And so it's so early. The early data points are encouraging in the sense that we're seeing really strong contributions the performance of these accounts will evolve over time. When you think about the value of any HSA, the biggest driver of value is essentially just time. And so that time component is really important. We'll be looking at those cohorts as they come in. And so again, I think what we see in the early behavior is nice contributions and those contributions aren't coming with an employer match which is also quite interesting.

Again, remember that these are also coming to the market differently, meaning we might have to acquire that customer individually. We provide a bonus match for them if they contribute and those dollars stay into the account. That matches the highest of anybody in the industry. So we're driving that retail. And as Steve talked about, we're in the early phases of partner integration to be able to bring more of those branch participants in at greater scale through our partner relationships.

Great. And then quickly, can I just follow up on the competitive landscape? Over this last selling season, I mean did you see any pressure anywhere, any kind of pricing pressure or anything like that?

The competitive landscape for us, I think, is reflected in the strength of our retention. So we have north of 98% retention of revenue from our existing accounts this year. We're also winning and expanding the market and taking market share greater than market growth. So that kind of reflects our ability to both retain the existing business as well as grow in competition.

What I would say early into the sales season, and we're so early, but we're seeing a really strong pipeline develop in large enterprises, which we didn't see this year. We've already had some really nice enterprise wins that are taking business from the competitors. And so we like that. We feel really strong about our ability to continue to retain the business, again, focused on the quality of the service that we're providing, the quality of that product experience. And so I think as you've seen in the last number of years, we're growing faster than the rest of the market, and we're taking more share.

The next question is from Allen Lutz with Bank of America Securities.

This is Dave on for Allen. I guess the first one, again, I just want to circle back to the service margins, which have trended nicely. I think you've talked about some of those drivers in the past, but just good to get an update on the cost makeup there as more users shifted the digital app. Could you just give us color on the breakdown between kind of the technology component, human labor, plastic cards in that COGS line item? And then how much more there is to do there in terms of automating maybe in the near term?

Yes. Great. So when you think about the service costs overall, really think of it in 3 buckets, almost equally divided. 1/3 being member services, 1/3 being client services and 1/3 being back office. On the member service, that's largely associated with the context that are coming in through the service center, majority of those contacts today are coming in by phone and we're increasingly looking at many of those journeys to automate those with agentic and real-time responses that don't require a phone interaction. Again, most of our interactions today are by phone. And so we're moving into that agentic digital response very quickly. And that's a lot of the things that we started on last year. We're going to continue and that's where there's significant opportunity for AI.

On the client side, also, as I talked about, that's the other 1/3. That's automating a lot of the file and file integration and process that we have in terms of onboarding and serving our existing clients. And then the other 1/3 would be the back office.

As we think about AI across all of those journeys, it's really taking those things that can be automated that are repeatable, where data can help us do that. And many of those things, for example, on the member services side are fairly simple questions. I've lost a card. I want to replace a card. I don't know my password. If you download passkey, you don't need that interaction anymore. I want to check my balance. We want to automate as many of those responses so that when we need to have human interaction, we can respond with empathy. It may be more detail oriented and incredibly valuable in terms of that remarkable service experience that we strive to deliver.

Yes, that's very helpful. And then just one more. It seems like kind of the AI and the impact on the labor market is a point of concern. And just curious how that is layering in, if at all, to the opportunities and activity level in M&A that you're seeing. Would just love an update on what you're seeing in the market and how the landscape for opportunities M&A in 2026 early on here look relative to the last couple of years?

I don't think there's any correlation between the massive adoption of AI and consolidation in this industry. I think we're deploying AI across every function in the business. We see significant opportunity in cost and productivity enhancements. But I don't think it has any correlation to the M&A market. And the reason for that is that when you look at the long tail of where HSA Assets are held, it's held by banks that might be focused on a deposit, it might be a retirement company that's focused on retirement assets, that's the long tail of this market. And I don't see AI as being a driver or an accelerator to that.

The next question is from David Larsen with BTIG.

Congratulations on the good quarter. One of the questions I get asked from investors is, okay, if interest rates decline, isn't that going to pressure your custodial revenue growth. So if interest rates were to decline by 50 basis points, say, in the back half of this year, when would that manifest in the form of like slightly lower custodial yield growth? Would that take like 3 years to manifest?

Go ahead, Jim. Do you want to take that?

Yes, sure. I mean, like -- so obviously, the movement of cash into the enhanced rates program would significantly slow down that movement. So I guess you don't think about it that way. What would directly impact us? Is it short rates go down? The cash that we have deposited overnight, which is about $1.5 billion would be directly impacted. Now that is not particularly meaningful to the total quantum of cash that we deposit. But you should really just think of it as whatever is being replaced at that point in time that we haven't hedged yet is going to be placed at 50 basis points lower than it would have been placed today or that the forward curve says it's going to be. The forward curve is strongly, deeply sloped up into the right. So that is reflected in our guidance. That would be reflected in our long-term view. That rates are going up, not down. The rates that matter to us, the 5-year rates. The short rates our forward curve is expected to go down. That's also factored into our guidance.

So the outlook sort of includes current expectations on rates, all things equal, we like higher rates than lower rates, but it's becoming less of an issue. Now we're at almost 60% at year-end in enhanced rates. It doesn't take rocket science to look at the maturity curve and just say, hey, we're going to be pushing 80% in enhanced rates in the relatively near future. And then we're going to sort of call end of job on this basic rates to enhance rates migration. And then what you should expect to earn in the HSA cash yield is the move -- the 10-year moving average of the 5-year treasury. So like any movement within the year is only going to potentially have 1/10 of the impact on the entire portfolio because that's how those contracts generally reprice, sort of 1/10 of it reprices each year at current rates.

So you need a prolonged downward shift in yields or in rates, I should say, to really move that average. You're going to get a very slow moving average once we're complete with this migration. And that was the entire purpose of this. Like the extra alpha was nice, but the purpose of this migration was to reduce the standard deviation of these returns. And what I would love for you all to believe when we're done is that custodial revenue is actually just monthly recurring revenue, no different than my other lines. Will I get you all the way there? That remains to be seen, but that was the purpose of this enhanced rates migration strategy.

That's very helpful. And then in my mind, like HSAs are a fantastic mechanism probably the best to improve cost trend. And since most employers are self-insured, there's enormous value in the HSAs. And with the marketplace, you're simply enhancing that overall value in my view. So Scott, I think you mentioned you had 4 programs in the marketplace. GLP-1s is one of them. What are the other 3? And then what sort of other programs would you add over time? And how much improvement in cost trend could these marketplace products provide to your clients? And have any of your clients purchased any of them?

That's just one question, right? Yes, David, a couple of things. I mean, again, when you just think about the HSA industry overall, you do have to step back and remember that 95% of members do not contribute at the [indiscernible]. 92% do not invest this product. And yet it's a triple tax advantage product. And so we want to encourage people to actually use the product. And that, again, is why we go back to the flywheel.

On Marketplace specifically, again, repeating what I said before, we have 3 programs today. The other areas that we're going to expand are going to be -- the other areas that are typically outside of what would be covered by insurance, but our programs that consumers are spending a lot of money on, but have to access license qualified physicians to be able to do that. So think of all the opportunities around labs or skin or here or products that are unlocked because of a doctor's prescription.

In the wearables space, there's all sorts of interesting opportunities in digital health of products that we can bring into the marketplace. So there's not really a limit. This is -- the marketplace opportunity is in the hundreds and hundreds of billions of dollars that consumers are already spending dollars on. It's really just a question of what makes sense for us to naturally include that product into the marketplace. And again, what will we see is that those consumers that spend in the marketplace in addition to interchange, which we already monetize, we can monetize either in a take rate or an administrative fee associated with a program. And in that case, we're driving average revenue per user up over time or per member up over time.

The next question is from Mitch Rubin with Raymond James.

This is Mitch on for Greg Peters. Congrats on the quarter and the year. I wanted to ask if you guys are seeing any meaningful differences in balances or engagement from the ACA-driven retail members relative to your traditional base?

Yes. I mean I think this is a question that we just answered before. The cohort is too early. We're only a couple of months into it. We're pleased with the contribution behavior that we've seen. But again, since it's [indiscernible], it's very difficult to say what that's going to look like over time. My expectation is they're going to perform like other cohorts that develop in value and balances and spend and investment over the years to come.

The next question is from David Roman with Goldman Sachs.

You've got Jamie on for David. I wanted to dig into the dynamic where you have HSA cash growing 3% and HSA investments growing 26%. And really, what are the implications of that going forward? And I fully understand how you monetize the HSA cash. You've talked about that extensively on this call. But as the HSA investments grow and become a bigger portion of mix, how does that show up across the different revenue lines is interchange and service more levered to the growth in investments? And what are the margin implications just given the different margin structures across those lines of revenue?

Jim, do you want to take that.

Yes, I can take that one. Yes. So you should not think of them as like the same person, right? So these are different sets of -- different parts of the cohorts that Scott was talking about earlier, different points along the journey. So in general, if you think about a higher balance or just an older account, they're going to have a certain amount of assets in cash, and they're not going to grow or shrink that amount ever, right? So all incremental contributions are going to go into the investment account, all spending is going to come out of the investment account. So like that's the marginal account that they're playing with. Yes, the cash in reality comes out of the checking account and gets replenished immediately from the investment account. But functionally, that's what's happening.

So the accounts that are growing our total cash balance are the new accounts who have not built those balances yet. So there's a large cohort of HSAs that don't do anything with their cash account. They're just 0 growth, 0 loss, 0 growth. It's the new accounts that drive cash growth. Now on the [indiscernible], like we love investment growth, obviously, look at it, it's growing massively. And so we participate in that upside, but obviously at a different rate. So our sort of recordkeeping fees and think of them as like mutual fund subaccount fees as well as the fees from our registered investment adviser, we will earn in like the mid-20s basis points on a blended basis on our invested assets, and that hits the service revenue line. So we love the growth on both sides.

This concludes our question-and-answer session. I would like to turn the conference back over to Scott Cutler for any closing remarks.

Thanks, everybody, for the thoughtful questions, for the engaging dialogue. Hopefully, the takeaway is that we're really pleased with the results for the quarter, for the year. We're optimistic about the future as assets and engagement scales, the earning power of this platform continues to expand, and we really look forward to updating you on our continued progress as we go out throughout this year. So thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Hello, everyone. My name is Alexei Gogolev. I'm Head of Vertical SaaS and Health Tech team here at JPMorgan Research. And today, I'm delighted to have top management team of HealthEquity with us. First of all, we have Scott Cutler. He will give a presentation of the company's business. And then we also have Dr. Steve Neeleman, Founder of the company; and also Jim Lucania, CFO. They will be here for Q&A. Scott, take it away.

Thanks, Alexei. Last year, this day came on day 5 of my CEO tenure. It's great to stand in front of you a year later with a team that's really focused on our execution. So today, I'd really like to start with -- to encourage you on what to underwrite. What I came to do, what we executed over the past year and what we're building next. When I stepped in, HealthEquity leadership was already -- and platform was already at scale. My mandate was to modernize that platform into a true platform company. Over the past year, we run a very focused and disciplined playbook, strengthening the foundation, driving engagement and executing with discipline to create an enduring model. Let me ground you on why this is important to Americans today.

For those that are new to HealthEquity, HealthEquity operates the leading HSA platform in the U.S., serving over 17 million consumer-directed benefit accounts and over $34 billion in HSA assets. A core advantage of our model is large, independent and deeply integrated partner network. We operate a platform with more than 200 integrated partners, creating a distribution advantage that's very hard to replicate. We focus on HSAs because they are the antidote to rising health care costs and affordability. Their tax advantage functionality for health care makes them personal, powerful, portable and can save members and their families at every stage of life for one of the largest expense categories in a household's budget.

Our objective is simple, empowering Americans to better save, spend and invest in health. That matters because HSAs are becoming more central to how health care is actually financed in this country. And to understand why that matters, let's take a step back and look at how the system is operating today. The U.S. health care system is moving in one direction, more financial responsibility shifting to individuals. As costs move to households, decision-making follows. That creates demand not just for tools that don't exist, but actually work at scale. In this environment, the best HSA experiences will shape behavior, drive engagement and influence outcomes. And that leads to the structural reality underneath everything that we do. Health care affordability is cyclical. It isn't cyclical. It's structural. Premiums and deductibles continue to outpace wages as costs shift to individuals. HSAs are the only scalable tax-advantaged instrument purpose-built to help people manage health care dollars rationally and with more control. Employers, policymakers and households are all trying to solve the same problem, which is how to pay for care without sacrificing access or outcomes. And that is the macro reality HSAs were designed for and why their relevance continues to increase. In that context, the HSA moves from a benefit to critical financial infrastructure.

So if HSAs are so important to American families and so critical to our health care infrastructure, how can we help improve access and market share? There are 2 structural levers. One is expanding access through better plan design and employer auto enrollment, and improving utilization through engagement. When access, contribution strategy, education and digital experience are aligned, engagement materially advances. The value of the HSA is realized the first time a member uses it to navigate a health care expense. We're beginning to see this dynamic emerge in the retail and bronze market, where new eligibility is bringing participants into the HSA ecosystem, while early engagement patterns are encouraging and reinforce the importance of pairing access with the right platform, and that's where HealthEquity is uniquely positioned, helping plan holders not just open an account, but use it effectively. And that's why we're positioned to win. We're not just administering accounts. We built a platform to empower members because when members engage differently, outcomes improve and the economics follow.

At our scale, improving engagement isn't just a member story, it becomes a shareholder story. And when this happens system-wide, it creates a virtuous model where better member decisions drive better economics, and here's the operating system behind that value creation.

Our business operates on a single reinforcing flywheel built around how people actually manage health care dollars. It starts with saving. Members build pretax balances for current and future health care needs through payroll contributions, employer funding and seating averaging about $1,800 a year. Members then spend on average about $1,300 a year on tax -- a year on tax-free qualified medical care. This is a critical moment. The HSA isn't just a benefit to be realized years from now at retirement, it delivers immediate practical value at the moment health care decisions are made. Spending is where engagement begins. This is also where our marketplace comes into play, helping members make higher value choices at the point of spend. Over time, confidence grows, investing becomes part of the equation and the account extends beyond a transaction into a long-term financial asset. This is one integrated system designed to compound. And importantly, the more a member spends, the more they tend to contribute, which accelerates the flywheel.

As enrollment and adoption deepens, 3 clear economic outcomes emerge. First, retention strengthens, not just in duration, but in relevance as accounts become embedded in day-to-day budgeting decisions and health care planning. Second, activity and spending increase, deepening the economics as members use the platform with greater frequency and confidence. Third, asset retention improves. Driving higher lifetime value as balances remain on the platform longer and transition toward a long-term investing behavior. Directionally, our most engaged members generate materially higher lifetime value than less engaged members. Policy and rates can be supportive tailwinds for our business as we recently saw with regulations that expanded the flexibility and practicality of HSAs, but they are not a prerequisite to our model. What matters is how those changes show up for members. As eligibility expands and expenses become clearer, people use their accounts confidently, spend more intentionally and contribute more consistently.

Important, we don't run our business assuming certain policy outcomes. We plan for variability, not dependency. At the same time, as the leading voice and consumer-directed benefits, we remain actively engaged in the policy conversation because expanding access to HSAs for all aligns with long-term health care affordability. And regardless of the policy environment, one thing doesn't change. If you're going to hold and move health care dollars at scale, trust has to be the foundation. At HealthEquity, trust is not an initiative, it is table stakes. And we've enhanced the HSA platform this year with advanced market-leading fraud detection, strong authentication and end-to-end protection. That foundation matters because engagement at scale only happens when trust is embedded in the experience. With security in place, the experience itself becomes the growth lever.

Digital transformation at HealthEquity is about empowering health care consumers. Gen Z and millennials, which today are a majority of the U.S. workforce, expect a mobile-first digital experience. This is a digital native generation that understands HSAs and is actively trying to do the right things financially, but they're navigating real uncertainty. At our scale, meeting members where there are isn't optional. It's how engagement and contribution growth happens. Digital at scale isn't about convenience, it's about confidence. It's how we translate trust into action and action into compounding value. And the intelligence that makes this experience scalable is AI.

At HealthEquity, AI is being incorporated into every functional area of our business. We've deployed AI in targeted high-impact areas like expedited claims, where AI drives triage and automation are improving resolution times for members while lowering cost to serve. Operationally, AI is helping shift interactions towards digital self-service, improving responsiveness, reducing costs and expanding margins. This is a multiyear strategy, and we're still in the early innings. But we're still already seeing measurable progress, both in member experience as well as cost to serve. As we extend it across the platform, AI adds momentum to this flywheel. It allows the model to scale without linear increases in cost while improving both member experience and operating efficiency. So when we talk about a flywheel that compounds, this is really about what's behind it.

Now let's translate that model into other areas of monetization. As members move through the flywheel, each stage generates distinct complementary revenue streams. Assets in this system drive custodial revenue. Spending through the platform generates both interchange and marketplace revenue as members are connected to solutions. Long-term engagement and investing drives service revenue. As engagement deepens, revenue quality improves, more diversified, more predictable, more durable over time. And these aren't just long-lasting relationships. These are measured in decades and not quarters. And this is really how our business continues to compound. So we're already seeing this flywheel in the data. The engagement is translating into durable platform momentum.

So first, let me talk about distribution strength. Two out of 3 new HSAs come through existing client relationships, evidence of partner trust and platform resonance. Second, digital adoption. We've surpassed 3 million member app downloads, accelerating the shift to a mobile-first experience, and we can deliver guidance the moment that decisions are made. Third, spend and everyday usage. Members are spending roughly $15 billion annually on our platform. And importantly, they're replenishing more than they're spending. That matters because it is the clearest signal that the HSA is being used today and not just being held for later. You'll see that in balances and in mix. Our members have $16.9 billion in HSA cash and $17.5 billion in invested assets with invested assets growing 29% year-over-year, evidence that as engagement deepens, members expand from saving and spending into longer-term investing behavior. These aren't just vanity metrics, they're operating signals and that the model is working and the platform is earning the right to grow.

So we're extending the HSA from a passive account into an active financial platform that sits at the center of how people manage their health care dollars. Why? Because modern health care consumerism is expanding outside the traditional system. People are choosing and paying directly for solutions like wearables, like the Oura ring, diagnostics, first care, prescription therapies like GLP-1s and hormone replacement therapy. And that behavior is shifting a growing share of health care spend outside of traditional coverage, and it's exactly why our marketplace matters. It puts health equity in the flow of both the decision and the spend, connecting members to the right solutions at the moment decisions are made and creating new durable revenue streams aligned with member value. The objective is not complexity, it's simplicity, it's engagement and it's delivering value at the point of interaction. And that's why we feel confident about where we're headed.

So health care affordability is not a temporary program. It's a long-term reality. As responsibility continues to shift to individuals, the system requires a rational way for people to manage health care dollars. HSAs are the only tool that's designed for that role. HealthEquity already operates at scale. We've invested in the platform. We're executing. The market is still early in terms of adoption and engagement. And over the past year, we've been building on our foundation of technology, engagement, trust, security on the basis of execution. The next phase is scaling that foundation, so the model compounds. We believe we're uniquely positioned to expand through cycles, through policy shifts, through changes in consumer behavior through the decades to come in health care affordability. So thank you, and we'd be happy to take your questions.

Great. Thank you very much, Scott, and we're happy to take any questions in the room. I can kick us off. And one of the big announcements, Scott and Jim yesterday was the guidance for 2027. So can you elaborate on the decision to consolidate some of the updates that you provide and then simultaneously provide the sales metrics that you look to provide later in the quarter. Any comments on how you feel investors should -- what they should take from this? Like what's the feel in the quarter on some of those metrics?

Yes, we're really excited about the momentum in the business. As everybody knows, this is a marketplace that has been growing in the mid-single digits, 5% to 6% on an account basis. We believe that we can continue to grow faster than that based on the flywheels that we outlined in this discussion. Our guidance reflects what we believe is a plan that we can execute to confidently.

As we look at other areas of opportunity, particularly as you look at the EBITDA line, what we've been able to show in execution, you can see that over multiple years is our ability to grow the top line as well as to efficiently lower costs relative to that revenue growth, which is evidenced by the EBITDA expansion that we've been executing on over the last couple of years.

As it relates to guidance on the sales side, we communicated this last year at the conference. We will be giving our sales outlook right in a few weeks after we close out our year in mid-February. So we would expect to do that shortly.

As we think about this market over the course of this year, there are 2 things that have been happening. Number one, it's obviously a macro tough job market, 600,000 jobs created in the U.S. this year, very low. But on the other side, given the trends that we're seeing in the challenge of health care affordability, what we're going to see is enterprises driving greater adoption of high deductible health plans, driving their employees towards HSAs because it reduces their costs that have been escalating much faster than wage growth. And so again, that's going to be reflected in our sales numbers that we will announce that, again, we're seeing good momentum around. And that would sort of like reflect what we guided to yesterday.

Perfect. And looking at this slide, so your guidance implies about 7% revenue growth at the midpoint. What are the components of this growth? And how should we think about longer-term revenue trajectory on an organic basis? Jim, do you need any M&A to sustain this growth at this point of market penetration?

Yes. I think at the midpoint, obviously, you guys have a consensus a little over a little over $1.3 billion for this year. So I agree that's where the guidance range is and how do we grow? We -- the vectors are adding accounts. Vectors are growing contributions to those accounts, seeing investment balances grow, seeing greater spend through the platform. So that trajectory can continue. And I think the new growth vector that Scott talked about is the marketplace. So that's the way that we can drive a different growth vector into the service revenue line of our business. But obviously, we don't provide a long-term outlook, but you don't need to tell an interest rate story to continue that growth rate.

Steve, maybe switching to you, sort of expanding on what you have been seeing overall in the selling season. This enrollment that you'll probably see is going to be quite unique. You've got millions of ACA bronze plans members now eligible for HSA. So can you talk about your strategy for capturing this new segment?

Sure. Yes. So there's a lot of countercurrents this year. Obviously, we know what the employment is going on. But we've continued to, we think, perform well in the commercial markets. And then well this is that crazy time of year where we have enrollments come in all day every day. So it will be interesting to see how it all wraps up.

Now I will say that the other countercurrent beyond just what's happening in the employer market is this bronze initiative, right? And so on July 4, Independence Day, when the President signed the big beautiful Bill, we immediately -- we've been tracking this for a long time. Obviously, we spent a lot of time in D.C., and we were there when they put the 10 provisions to expand HSAs in, and we were there when they took them out. And in fact, we had breakfast the morning that they were going to take them out and with some of the legislators and they said, yes, they're probably coming out. And then we kind of really activated a lot of not only our own members and teammates and -- but really industry partners to go back and say, look, you got to get some HSA provisions back in. So they got them back in, the 3, which, number one is anyone in a bronze or catastrophic plan is immediately HSA qualified. So their deductibles don't qualify them or disqualify them for that matter.

And then the second one was is that anyone that wants to have either free or very low-cost telemedicine with an HSA does not disqualify them. And the other one is one that I think will take a little while to roll out, but it's pretty interesting, which is direct primary care. So you could have a direct primary care arrangement where you can see a doctor for anything from like a sore throat to your preventative care. It used to be that would disqualify you from having an HSA. Now you're qualified. And so I think that's a really opportunity for synergy between kind of DTC type companies and then HSA companies like ours. And so we're looking at all these different opportunities. But the one that was kind of the most immediate was the bronze. And we knew at that point by July 4 that all of the exchanges had pretty much closed down any innovation, any changes. The ideal situation, which we will see over time is that when somebody picks a bronze or a catastrophic plan, which is immediately qualified for an HSA that they click one button and that sends a file over to us, we create the account. You all know we have the biggest network of health plans in the country. About 130 health plans last time we kept track. And so these are all vertically integrated plans or Blues plans, and we're in a very good position when it comes to that. But because it happened on July 4, we've had to approach it in a little bit different way. Alexei, we've had to say, look, as you're enrolling tens of thousands each plan into these bronze plans, we need you to begin to communicate these members. And so what we've done is, in many cases, we've worked with the plans to set up unique enrollment links. And so if somebody receives a Bronze plan, let's say, from one of our Blues plan partners, then they will get an e-mail, they'll get some kind of snail mail, they'll log into the partner's site. Click on a link and then we'll enroll the plan -- enroll them in the retail account. We've worked really hard to try and work out kinks and bugs. I mean, Scott talked a lot about the security. Obviously, we got a bunch of retail folks out there and you're not getting a file from an employer. It does raise the specter for potential fraud. We've also gone to market. Scott had it, I think, on your slide, but we're giving people a little bonus. If they put in $25, we'll match it. And so as soon as you see that kind of thing out in the market, you do have fraudsters, and we are -- we have proven to fight all those fraudsters. And so even though people have tried to do that, we've been able to do it.

So look, it's starting to come now. The exchanges, there were a couple of closing dates, and we're starting to see this flow from our partners. And we're -- our fingers are crossed just like everyone else to see how many accounts we can get open by the end of the year -- or by the end of our fiscal year, excuse me. But I can tell you that we are seeing flow in that.

And then the other thing we've done is we've tracked, are these people actually putting money in the account? Which is important. It's not just opening the account, but are they putting money in the account? And early signs are that, yes, they're funding these accounts because the most efficient way to pay for your health care, if you're in a bronze plan and you have a significant out-of-pocket is to roll it through an HSA. And so it gets back to our Save Spend and Invest kind of platform. So anyway, I know that's a longer answer than you may have asked for, but I want to give you a little bit of -- look, we're going to -- then -- one last thing I'll say is it's not over because guess what, as soon as we get through open enrollment, January 31, we're then going back to all of these exchanges, whether it's the healthcare.gov exchanges or the 16 states or whatever that have their own state exchanges. We're working with our health plan partners to make it super simple for people to do it. We'll have a few months this time before we go into close down the season. And then -- and so I think next year, we'll even see a bigger bump. And we're going to learn how to get these people to fund the accounts because there's going to be all different types of initiatives. And then we're going to continue to pound on this drug primary care and the other opportunities. And so I think the thing that encourages us the most is there's huge opportunity out there, but we just have to kind of get the message out to people.

Any questions in the room? So Scott, I wanted to come back to some of the points you've made about the backdrop that we're seeing with unemployment levels. But as that relates to HSA accounts and asset growth, like what are you seeing in terms of member engagement and overall demand for HealthEquity solutions?

Yes. I mean this is the big focus of this year, which is as we've gone to what we call a member-first secure mobile experience, we're building a product experience that's designed to be engaging. First, we need to make sure that it was secure. Second, all interactions when you want to interact, come check your balance, fund your balance, connect with us, you have to download the app. You're going to do that securely through passkey, and then we're going to get you into an engaging experience. The engagement is so important for a couple of things. Number one, obviously, awareness and education of the value of the account is really important. Across the industry, only 4% of members contribute at the maximum that's allowed. So a huge opportunity of growth for people to use these accounts as well as how is it that we can move them along the spectrum of realizing there's tax advantaged spending available to you, which is well advertised across marketplace and products and consumer products that HSA, FSA eligibility badge on a product, whether it be Amazon or Walmart or CVS or Walgreens or Peloton as well as then moving those members to become investors. And why moving along that spectrum is really important is that if you are spending on that account, and again, as I highlighted here, $15 billion spent across the HealthEquity platform on qualified medical expenditures. That amount is refilled, replenished. And so it is a flywheel to contribution. So if you're spending, you're contributing more. And if you're an investor, you're doing both more. And so it's virtuous. It's not pulling out of the revenue stream. It's adding to it. And that only is unlocked with engagement.

Now if we can get you into the vehicle of the future, which is the digital app experience, and we can get you to actively engaged on a very frequent basis, then we start to have a traffic funnel that then we can use for conversion in the marketplace. And so the marketplace is simply looking at products, programs and services that those -- our members are spending in other places, and they would be using their HealthEquity card or spending on dollars to do that and saying, what of those things can we bring into the platform and monetize that experience. So GLP-1s, HRT, Oura rings, just the beginning. We're a couple of months into this. We've seen thousands of members sign up for those programs. And now we have a revenue stream associated with connecting those members to the programs, the products, the services that they're buying in addition to the interchange. And so again -- and what we see in the data of that, which is, again, if you're buying that product or program on the HealthEquity platform, you're coming back and you're refilling your account. And so you're not just spending it down, you're actually refilling it, which again is really important to the understanding of how this flywheel works.

And on that point, as you expand your marketplace offerings, what criteria do you use to select new partners and programs? How do you evaluate economic contributions of these partnerships relative to your core HSA business activity?

Yes. So you have products that qualify for reimbursement, such as a bottle of aspirin as an example. You have programs that are available through telehealth that could wind up in a subscription and a prescription, which you need to actually go through a physician to get access to. And there are products that are available in the marketplaces that would normally not qualify for reimbursement or HSA eligibility, but for a letter of medical necessity. So all of those things can be opened up and brought into our marketplace. As we're thinking about it, we're starting with programs that -- where we think we've got a unique value proposition, which is can we provide a streamlined access through a telehealth partner. Our telehealth partner is Agile Telehealth. You go through an experience flow, connect with a licensed physician. And then if that consultation results in a prescription to a program, then that member would be paying for that program through that platform, and then we would be receiving a monthly recurring administration fee for as long as that member is in the program. And so as we think of programs, we started with GLP. It's the largest market of consumer spend. We went into women's health with HRT. And as we look at the other opportunities around skin, hair, labs, sexual health, all these opportunities where consumers are -- need to go through a physician to get access to those programs. Those are probably the most likely areas of expansion for us.

Slightly switching gears, Scott. So you made pretty significant investments in technology, including your mobile-first strategy that you talked about and the AI-driven service enhancements. Can you maybe quantify the cost savings you achieved from AI services automation to date?

Yes. So the quantification of AI and the service line is effectively represented by a couple of things. One is just are we able to grow service costs at a lower rate than revenue or account growth, which we were able to demonstrate last year. Secondly, when you look at the interactions that we have today to serve an account, which is it could be a member, for example, calling to check a balance, replace a card, lost a card, doesn't remember their password, that typically involves a call to our service center. And for many of those journeys and many of those calls, if it's repeatable, if it can be powered by data, we can augment that interaction to self-service through an agent, an AI agent at a lower cost. And so that takes from a phone-based interaction to a person to an automated interaction that is actually a better service for that member.

The other area we highlighted is claims automation, which we've highlighted for a little while. We've been one of the first to bring that to the market. We get millions of claims that can come in via a paper receipt. Traditionally, a person would look at that receipt, adjudicate those expenditures, it might take a few days to reimburse that. Today, Snap a photo, AI agent will look through that, immediately adjudicate it and that reimbursement can happen in real time. And we're moving to a higher and higher percentage of our claims that we can automate through AI. So those are a couple of examples of the opportunities around AI, but also starting from a place where today, most of our interactions today are phone-based interactions. And most of the things that we interact with our members are on today are things that can be automated.

And then on the -- building on that, so the mobile app and marketplace they've seen very strong adoption. What are the next steps for driving deeper member engagement? And how do you measure the impact these digital initiatives have on your member behavior?

So it starts with the mobile download. So we want you into the app. You're going to be required to use the app. We want you to -- obviously, you're going to authenticate through a world-class security experience that's seamless. You never even have to remember your password. You look at your phone and you're into the app experience. And so the first of that is just getting our members into the app experience. Then we want to actually look at like you would, if you're running any platform, what is the active usage or the number of visits that members are coming back to and how can we engage in a better way. We want to be able to drive those not just for the things associated with your account, but actually connect it with health behaviors. And so it's really interesting right now, like I'm tracking my sleep, I'm tracking my steps. I want that integrated into the experience. If we can integrate those activities into the experience, we can also go back to the employers and say, look at how we're engaging with our members in their health journeys to become healthier. They're spending on healthier programs. For you to the employer, this is a lower cost, less risky employee that maybe you can actually fund additional behavior and rewards or incentives through that. So again, as we look at this as a longer term, get them into the experience, get them engaged, get them engaged in health and wellness activities and actions and then turn that back around to our incredible distribution with our employer partners and show the value proposition of what an engaged member can do relative to your health care cost as an employer. That's full circle, B2B, B2C direct-to-consumer opportunities that we are unlocking.

Maybe slightly switching gears and maybe it's a question for Steve. Talking about the competitive landscape, are you seeing any changes in the level of intensity among competitors? And maybe any new entrants or perhaps existing players building up on some of the success that you've had?

We -- I think a few years ago, we did see some of these retirement firms kind of really kind of get aggressive. I think part of it was because we were out there teaching the market that, that incremental dollar after you've got your match in your 401(k) and whatever, that should go in the HSA. It's crazy to put that dollar in the 401(k). If you got to take it out later in your life, you're going to pay 40% tax on that sucker. Put in the HSA and top off your HSA. And so I think at that point, plus just the growth of the market, some of the retirement firms started to step in. Personally, I'm involved with a lot of these opportunities and talking to them. And I think that it's been pretty Steady Eddie when it comes to what they're doing. Now look, these are strong competitors, and so we're always on our game. We've continued to double down on the point that, again, we get this network of health plan partners and things like that. We did see a few years ago, people coming in kind of almost saying, look, we're going to do it yourself, use our technology to compete against HealthEquity and maybe have the health plan offer it. We've seen it go the opposite direction. We've now even recouped several health plans that did look at doing it themselves. And so look, we never are going to let down our guard because this is a great market. And you've seen our margins. They're public. We're the one company out there that's actually showing this much data. So there's always going to be entrants. There's always going to be companies that come in and say, "Wow, I want a 44% EBITDA margin in my business. But I do think that we've kind of leaned in really hard with the things that Scott just talked about. We provide a different experience. Yes, we've got an increasingly world-class -- and look, we're going to keep investing in an investment experience. People can invest their dollars. It goes into some great offerings, and we're going to keep evolving that. We've done some things there to make it better. More people are signing up for not only our core investment offering, Jim, but also for our registered investment adviser. Registered investment adviser, auto invest feature and things like that. But I still think at the end of the day, these are health savings accounts, HSAs. And so they are unique because people buy them to take care of their immediate health care needs and then a little bit longer-term health care needs. And so I think that's why you're going to keep seeing the big distribution partners in the space, whether it be large health plans, other distribution partners like that or large employers that really want to take a sophisticated approach to transform the way that people consume health care, they're going to come to HealthEquity. And we're going to do a better job. We're going to do a better job every year. I mean we've made great improvement in the fraud, big investment. We're going to be rolling out some great new stuff this year as well.

Thank you, Steve. And Jim, maybe one of the final questions for you. Sort of M&A seems to have been an area of very good return on that investment. But how are you thinking about capital allocation priorities for this year? What is your approach to share repurchases versus debt paydown, reinvestments into the business?

Yes. So nothing's really changed in our view there. I think we've got a slide in our deck on the web about sort of how we think about capital allocation. Number one thing is to fund our business. Sort of -- this is sort of in order of returns. Portfolio M&A, as you've said, has been an incredible source of extra return. We are the acquirer of choice in this space. We have been an acquirer for the entire history of the company. Most recent larger deal was BenefitWallet, very, very efficient. buyer and seller agreed on a price. And that deal, we're able to lift and shift 600,000 accounts from the target platform in 3 waves, place it on ours. We took on 0 employees of the seller. We took on 0 vendor contracts. We just acquired customer relationships. And one day, you were a BenefitWallet customer and the next day, you were a HealthEquity customer. So immediate synergy, and that's why it can deliver outsized returns. But we're also not going to force M&A transactions to the market by overpaying for it. And look, the long tail of competitors in air quotes in the HSA league table are a lot of banks, community banks and credit unions. And at the end of the day, this is a deposit relationship that they have with those members. So I'm not sure there's a price that I can pay to drive out a deposit from a bank in this current market. So it's going to take some changes or just a realization that this is a noncore product at some of these banks, and I'm either going to win those accounts organically or acquire them at a reasonable valuation. So barring deals, pretty much all of our free cash flow has been deployed towards capital return over the past year plus. We have $600 million share repurchase authorization. That was $300 million and then re-upped another $300 million. We're an active buyer of the stock. And we've been chipping away, I would say, at the debt that we borrowed to do the BenefitWallet deal. We're obviously deleveraging by growing EBITDA as well, but we're also just chipping away at the headline debt amount on our line of credit. We have a $600 million bond that's just sitting. It doesn't mature for several years. But that line of credit is effectively our M&A swing line. So it makes sense to us to continue to chip away with it, but we think we're making very good purchases of the shares at current valuation, and we'll continue to do so.

Great. Scott, Jim, Steve, thank you very much for coming. Appreciate it.

Thanks, everybody.

Good day, and welcome to the HealthEquity Third Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Richard Putnam. Please go ahead.

Thank you, Dave. Hello, everyone. Thank you for joining us this afternoon. This is HealthEquity's Third Quarter Fiscal Year 2026 Earnings Conference Call. My name is Richard Putnam. I do Investor Relations for HealthEquity. Joining me today are Scott Cutler, President and CEO; Dr. Steve Neeleman, Vice Chair and Founder of the company; and James Lucania, Executive Vice President and CFO. Before I turn the call over to Scott for prepared remarks, we note that a press release announcing our third quarter financial results was issued after the market closed this afternoon and that it included certain non-GAAP financial measures that we will reference here today.

You can find a copy of today's press release, including reconciliation of these non-GAAP measures with comparable GAAP measures on our Investor Relations website, which is ir.healthequity.com. We also note that our comments and responses to your questions today reflect management's views as of today, December 3, 2025, 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 our results. These forward-looking statements are subject to risks and uncertainties that may cause our 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 detailed in our latest annual report on Form 10-K and in 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. With that out of the way, let's go to Scott.

Thank you, Richard. Happy holidays, and welcome, everyone. I'll start with the key metrics that reflect our continued strong fiscal 2026 results and the progress we're making on our strategy. Steve will then speak to the regulatory environment, and Jim will walk through our third quarter financials and our raised outlook for fiscal year '26. The team again delivered strong year-over-year growth and margin expansion across our key metrics in Q3, including revenue up 7%, net income up 806% year-over-year, a result that Jim will explain in more detail in a moment, adjusted EBITDA up 20%, driven by gross margin of 71% and adjusted EBITDA margin of 44%. HSAs grew 6% CDB accounts up 3%, driving total accounts up 5% and HSA assets up 15%.

Behind these numbers is a clear strategy, helping our members better save, spend and invest for health and strengthening the flywheel in each of those areas. We are operating against a real affordability challenge for American families and employers. Health care costs continue to rise faster than wages and both households and enterprises are looking for more practical ways to budget for health care today while preparing for tomorrow. HSAs sit at the center of our solution to that challenge. They are a proven engine for consumer-directed health care and long-term health savings. On the better save side of the flywheel, we are helping more members build tax-advantaged health savings and making it easier for them to contribute.

HealthEquity ended Q3 with more than 17 million total accounts, including more than 10 million HSAs. We grew net CDB accounts by over 200,000 year-over-year, and Team Purple opened approximately 175,000 new HSAs from sales in the quarter. The average HSA balances grew 8% year-over-year, contributing to the 15% increase in HSA assets. We remain optimistic about new account growth in Q4. That optimism is grounded in the work we're doing with employers and partners on plan design to support HSA adoption, new employer clients, including those offering HSAs for the first time and the large new opportunity to open retail HSAs for those choosing Bronze plans on the ACA exchanges.

To support this opportunity, we launched a new direct HSA enrollment platform with a streamlined digital experience, enabling individuals to open and fund HSAs directly through HealthEquity's mobile and web platforms. This positions us well as millions of households consider Bronze plans in the months ahead. The better spend flywheel is about helping members stretch their health care dollars further and gaining greater access to health resources. Last year, more than $40 billion was spent by Americans through HSAs on eligible medical products, programs and services. We are pleased with the early momentum of the HealthEquity Marketplace platform, which is providing access to affordable health care solutions, including our first program supporting weight loss through GLP-1s.

Early adoption from subscribing members has been encouraging, and the early retention data is positive. By offering GLP-1s through the HealthEquity marketplace, members experience a coordinated journey from within the HealthEquity app and web portal to an HSA-eligible program that supports healthier outcomes and helps employers mitigate rising cost pressures. Payments made with HSAs may be tax advantaged, providing additional savings for members. Later this month, we will be expanding our marketplace further, providing greater access to health care solutions for our members. The better and best flywheel is about securing our members' assets and helping them grow health care savings for the future. Our HSA members now hold over $34 billion in HSA assets, up $4.5 billion year-over-year. The number of our HSA members who invest grew 12% and HSA invested assets grew 29% to $17.5 billion.

As more members move from saving to investing, they build long-term tax advantage health wealth that can support care needs well into retirement. We are entering our busy season well prepared to welcome new members with an enhanced member-first secure mobile experience and market-leading products and services. Our members benefit from advanced security features, including passkey technology and from our integrated network of leading health plans and our growing marketplace, all accessible through our intuitive HealthEquity app and web experience. Our investments in security are delivering strong results for our members. In the third quarter, fraud costs totaled approximately $0.3 million, well below our run rate target of 1 basis point of total HSA assets per year.

We continue to invest in additional security measures and technologies to protect our members' health savings while maintaining a simple, seamless experience in our secure mobile channel. We are proving that we can deliver industry-leading security and a remarkable experience at the same time. We are committed to continually strengthening our defenses as threats evolve. We will also see significant potential in AI. We believe AI will unlock a more personalized, efficient and empowering future for health care consumers, and HealthEquity is uniquely positioned to lead that transformation. Our expedited claims solution is already providing quicker and more accurate payments to members while reducing service costs.

HSAnswers and HealthEquity Assist, along with our work with CX leader Parloa, are building an integrated AI experience that supports members wherever they are through voice calls, support lines, chat or web-based conversations. These capabilities are designed to improve service, reduce friction and help members save, spend and invest for health. Taken together, these experience enhancements, our mobile platform, our fraud and security investments, our marketplace and our emerging AI capabilities are essential to HealthEquity's broader strategy and to the flywheels that drive our growth.

On the legislative front, our leaders in Washington continue to focus on expanding the use of HSAs to address health care affordability. Steve and our government affairs team continue to do a remarkable job of educating our legislators and their staff about the benefits of HSAs and the growing demand for greater access from American families and employers. With that, let me turn it over to Steve to walk through the policy landscape and how HSAs are being discussed in Washington.

Thanks, Scott. Let me touch on the public policy environment and how HSAs are being talked about in Washington. First is the nation's leading custodian of HSAs and one of the first companies to launch them after their enactment over 20 years ago. We are strong believers in HSAs and the role they play in empowering health care consumers, helping employers focus their health care investment and supporting a broader health system that delivers more value through lower costs and better outcomes. We are encouraged that policymakers in Washington are considering options that could make HSAs available to more Americans and to use them as a key mechanism for delivering government support to improve affordability. We support President Trump's proposal that aligns with our long-standing belief that every American should have an HSA.

At the same time, our core business is not predicting public policy or legislative outcomes, which specific bills will or won't pass, how ACA subsidies may change or which legislative mechanisms might carry them. Our mission is to save and improve lives by empowering health care consumers. We stand ready to assist policymakers who are considering ways to expand the ability of more Americans to benefit from HSAs. As we shared during our last earnings call, we were encouraged for the first time in roughly 20 years, there was meaningful expansion of HSA eligibility this summer. We view that change as a sign of growing recognition that HSAs are a powerful tool to help Americans prepare for current and future health care needs. There is a real affordability challenge affecting many American families, employers and the health care system overall.

In a recent third-party study with some of our largest employers, representing nearly 1 million employees, those employers with higher HSA adoption experienced significantly lower per employee health care costs than those with lower adoption in HSAs, while their employees save more premiums and taxes while growing their HSA balances. That is what consumer empowerment looks like in practice. Our position is straightforward: expand access to HSAs and strengthen consumer control. Our focus has been and will continue to be on helping policymakers understand how HSAs work in the real world, why they are a practical consumer-focused tool and how HealthEquity as a leader in this space can help more Americans use HSAs to better save, spend and invest for health under a variety of policy scenarios.

We are encouraged by the elevation of HSAs into the national health care discussion and view this as a very positive development. And whatever form future legislation takes, our job does not change. I'll pass it over to Jim now to discuss our financials. Jim?

Thanks, Steve. I'll review our third quarter fiscal 2026 GAAP and non-GAAP financial results. As always, we provide a reconciliation of GAAP measures to non-GAAP measures in the press release. Third quarter revenue increased 7% year-over-year. Service revenue increased 1% year-over-year to $120.3 million. Custodial revenue grew 13% to $159.1 million in the third quarter. The annualized yield on HSA cash was 3.53% for the quarter as a result of higher placement rates and continued increase in balances and the number of accounts participating in enhanced rates. Interchange revenue grew 6% to $42.8 million, again, ahead of our 5% total account growth. Gross profit of $228.1 million resulted in 71% gross margin in the third quarter, up from 66% in the third quarter last year.

Service costs declined $10 million year-over-year in the quarter, even more than the $8 million in elevated service costs that impacted the third quarter last year. The third quarter this year included approximately $0.3 million of fraud reimbursements to members. And as Scott mentioned, we are ahead of our goal to achieve a run rate of 1 basis point of total assets and fraud costs per year. Our investments in fraud prevention and detection capabilities, AI service technologies and our member-first secure mobile experience are delivering greater member functionality and satisfaction while improving margins at the same time. The actions we're taking and are expected to drive efficiency in our operations, not only this year but into fiscal '27 and beyond.

Net income for the third quarter was $51.7 million or $0.59 per share. As Scott mentioned earlier, net income is up 806% compared to the third quarter last year, which included a $30 million onetime legal settlement. The settlement was backed out of last year's non-GAAP measures, so non-GAAP net income increased 26% to $87.7 million and non-GAAP net income per share grew 29% to $1.01. Adjusted EBITDA for the quarter was $141.8 million, up 20% compared to Q3 last year, and adjusted EBITDA as a percentage of revenue was 44%, up 460 basis points compared to 39% in the third quarter last year.

Turning to the balance sheet. As of October 31, 2025, cash on hand was $309 million as we generated $339 million of cash flows from operations in the first 9 months of fiscal '26. We ended the quarter with approximately $982 million of debt outstanding net of issuance costs after paying down $25 million on the revolver during the quarter. We also repurchased approximately $94 million of our outstanding shares during the quarter, and we have approximately $259 million remaining on our previously announced share repurchase authorization. For the first 9 months of fiscal '26, revenue was $978.8 million, up 10% compared to the first 9 months of last year. GAAP net income was $165.5 million or $1.88 per diluted share. Non-GAAP net income was $268.1 million or $3.05 per diluted share. And adjusted EBITDA was $433.1 million, up 19% from the prior year, resulting in 44% adjusted EBITDA margin for the first 9 months of this year.

Before I detail our raised guidance and assumptions, let me briefly update you on the interest rate forward contracts we've discussed on prior calls. As a reminder, we expect these contracts to have little to no impact on our FY '26 income statement, and we expect they will further derisk potential interest rate volatility on future HSA cash deposit contracts. To date, we've entered into U.S. treasury bond forward contracts with a notional amount of approximately $2.3 billion, tied to basic rate contract maturities between January 2026 and August 2027 and a blended rate lock of 3.94%, not including the negotiated premium that we receive above the 5-year treasury benchmark on our enhanced rates placement. We expect to execute additional interest rate hedges depending on market conditions.

We expect the average yield on HSA cash will be approximately 3.54% for fiscal '26. As a reminder, our custodial yield assumptions are based on projected HSA cash deployments and rollovers, which are detailed in today's release. We also consider a range of forward-looking market indicators, including the secured overnight financing rate and mid-duration treasury forward curves. These indicators are, of course, subject to change and are not perfect predictors of future market conditions, but they provide a consistent framework for how we set our outlook.

Our fiscal 2026 guidance reflects the expected carryforward of current trajectories for revenue and margins over the remaining of this year along with continued investment in technology and security as we enhance our member-first secure mobile experience and deliver innovative products across the platform. We expect to continue closing fraud attack vectors and to support our members in securing their assets while investing in sales and marketing to drive HSA adoption on the ACA exchanges.

For fiscal 2026, we now expect revenue in a range between $1.302 billion and $1.312 billion, GAAP net income in the range of $197 million to $205 million or $2.24 to $2.33 per share. We expect non-GAAP net income to be between $341 million and $348 million or $3.87 and $3.95 per share based upon an estimated 88 million shares outstanding for the year. Finally, we expect adjusted EBITDA to be between $555 million and $565 million. We're pleased with how we exited the third quarter and expect to make additional progress as we finish fiscal 2026. Our guidance also assumes continued capital return and a strong balance sheet. We expect to make additional share repurchases under the remaining $259 million repurchase authorization and may reduce borrowings on our revolver during the fiscal year.

With continued strong cash flows and available revolver capacity, we will maintain ample flexibility for portfolio acquisitions should attractive opportunities arise. We assume a GAAP and a non-GAAP income tax rate of approximately 25% and diluted share count of 88 million, including common share equivalents. As in prior periods, our fiscal 2026 guidance includes a reconciliation of GAAP to the non-GAAP metrics and a definition of all the non-GAAP metrics can be found in today's earnings release. While we exclude the amortization of acquired intangible assets from non-GAAP net income, the revenue generated from those acquired intangible assets is included. We'll provide our initial outlook of fiscal 2027 at the JPMorgan Healthcare Conference in January. Now let's go to the Q&A, operator.

[Operator Instructions] Our first question comes from Stan Berenshteyn with Wells Fargo.

On the direct HSA enrollment platform being set up for qualified ACA members, what are your marketing plans there? And how should we think about the progression of your sales and marketing expenses over the coming quarters pertaining to that? And maybe just a quick follow-up. Regarding your forward contracts, do you plan to derisk any longer duration assets beyond August 2027?

Great, Stan. Thank you. I'll take the first 2, and I'll let Jim talk about the forward contract strategy. So first, as it relates to the direct HSA enrollment, we call it the new retail enrollment flow, obviously, to take advantage of the expansion provided by legislative activity over the summer. As we look at how we're going to compete for those new eligible HSA accounts, we want to make sure that, number one, the enrollment experience is seamless, frictionless and easy. And so we rolled out a new experience to make sure that we make it as easy and frictionless as it can be. So we're really pleased with that new experience flow. We also know that the new experience flow will roll into the core business as we go into the open enrollment season here.

We are -- we believe that we've got the most competitive offer in the industry with a $25 match for a new account. And so that's one of the marketing features we're using. We're going to market with integrated plan partners. And so we think with the power of our distribution platform that going to market with integrated plan partners helps to enhance the value proposition. And then last, as we look at the marketing expenditures, we've been leaning in on brand marketing, sort of upper funnel awareness and consideration as well as what I would call growth marketing initiatives from paid search to key terms as well as the appearance of an education of HSAs in social channels to be able to drive awareness around this new opportunity.

As we look at the opportunity overall, consistent with what we've talked about, we believe that this is a marathon, not a sprint. We think that these new enrollees are going to come in over time. When we look to our plan partners, they're still early in terms of having integrated marketing plans and integrated technology to be able to bring in these new enrollees. And so we're taking a longer-term look at it. I'd say the early results on some aspects are encouraging. When I look at contribution levels as one example, the average contribution level of these new retail enrollees is about $1,550 versus industry-wide, your average contribution to an HSA would be about $1,800.

So I think we're pleased with the quality of the retail members that are signing up. And again, we're going to be continuing to work with our plan partners to expand that. As it relates to the progression of the expenses, again, as we've looked at how to make sure we're going after that efficiency, as we had communicated before, we -- in terms of quarterizing the sales and marketing expenditures, we're ramping that spend here in the fourth quarter to be able to go after coincident with open enrollment. And we'll continue to lean into our brand and marketing activities and go-to-market rhythms to attract these new members. Maybe, Jim, you can talk about the forward contract strategy.

Yes, sure. So obviously, as you can see, we reached out a little bit further into the future here. In the previous quarter, we talked about -- we had hedged maturities out, the furthest out was January of '27. Obviously, during the last quarter, we stretched a bit into the summer of '27, and those deposits were -- like we have a little midyear bolus because of further migrations that came over. So there are some basic rates maturities in the middle of fiscal '28 for us.

And then, yes, I think you can sort of expect will sort of reach out into the future a little bit to chip away. But as you can see the updated maturity schedule, it's materially less that's maturing in fiscal '28 and fiscal '29. So the heavy concentration of what we've done had been on the front end.

And the next question comes from Allen Lutz with Bank of America.

I want to follow up to Stan's question around the Bronze exchange plans. Scott, you talked a little bit about going to market with integrated plan partners. Can you talk about the split between how much contribution you would expect from those plan partners? And would there be a material contribution from sort of stand-alone HealthEquity going direct? Or is the vast majority or all of the growth going to come from where HealthEquity sits with those integrated plan partners?

Yes. Thanks, Allen. I think when we look at the core business, as you know, we have a very efficient distribution channel, and we receive a majority of our business through a partner, and that could be through an integrated plan partner or a relationship that we might have with brokers. And so we're going to continue to leverage that distribution channel. I wouldn't say I know exactly what that's going to look like for the retail channel because, again, many of these are coming individually to the market one-to-one and not coming with an associated file with an employer as an example, which is what the core new member acquisition looks like on our platform.

And so that's why we've made such a significant investment in the retail experience to make sure that we're actually going to market with an attractive marketing message that we're educating the market around eligibility of bronze participants. I don't know as if all bronze participants know that the new legislation enables them to have access to an HSA. And so there's awareness around what the product is, their eligibility that again, as we're focused on our market activities, we're focused on targeting those places in those regions where we believe is the largest concentration of those potential members.

And so again, I think as we look at it, we want to make sure that, a, that we have a really strong integrated offering. And when I say integrated, it might be an offer that's got a click-through screen in that plan partners as well as our own and links directly to a sign-up on our own retail flow as well as showing up as a retail offering out to a general member. And so again, as we think about how that's going to progress, that's another reason why we think this is going to be a market that yes, it's expanded, but it's going to grow over time as both awareness and consideration and then enrollment evolve for, again, what I would call a retail member.

Really helpful. And then for my follow-up, either for Scott or for Jim, the average cash per account has been pretty consistent around $1,700 per account. As you think about all the inflation we've seen over the past 10 years or so, it seems like the minimum threshold before investing hasn't really changed much either for HealthEquity or at the industry level. As we think about all the inflation that's taken that's gone through the market over that time period, is there an opportunity to increase that minimum threshold before HSA consumers can invest? Is that something where the market is moving? Is there an opportunity? Is that something you think about? Any color would be helpful.

Yes. So if I understand you correctly, I mean, the minimum threshold typically is set by our enterprise client. We want to make sure that people are taking advantage of the save, spend and aspect of the product of the HSA. But I think as we look at and take a step back and look at the industry overall, we still have a small percentage of members that are contributing at the max that they could allow. And so there's a big opportunity to effectively drive engagement in the actual HSA product as an example. And then if you look across the industry, only about 9% of HSA account holders are investors. And that's irrespective of what a minimum threshold would be. That number hasn't moved significantly over the years.

And so on both of those things, we have strategies to drive how we can effectively try and move that. Number one, we really need to be able to educate the market as the market leader around what are the advantages of having these accounts. I think given the health care affordability crisis that all are experiencing today, we think that value proposition is very strong. In our conversations with our clients, given that the affordability is also hitting the enterprise and that the enterprise can save on their annual increases in health care costs by driving greater adoption, we think we can have great partnership with our clients in driving that education awareness of, one, sign up for a high deductible health plan; and number two, contribute so that you have more power and ownership over your dollar.

The other thing as we think about bringing people along that progression of the flywheel from save to spend, which I'm sure we'll talk about later, to invest, we recognize that an investor actually contributes significantly more than a noninvestor. And so we're actually looking at our own experience flow in the app to make sure that the setup for investing is easy, is seamless, that you know how to do that, that the investment choices and the lineup is attractive because we know a lot of people, if they could be made aware at the time of setting up an account that also to think about how that account can be used can really drive that outcome over time.

And so I guess, Allen, I would just say is it's on us to be able to drive those numbers. I think for the industry overall, raising awareness of the product, but also driving enrollment, engagement, what we think is through a great digital experience is the way that we can bend that curve over time.

And the next question comes from George Hill with Deutsche Bank.

Yes. I have 2 quick -- well, one quick one and one not so quick one. So I guess, number one, on the last earnings call, you guys had talked about seeing a slowdown in the HSA market at a high level. I guess, number one, could you kind of provide some more -- like an updated version of what you're seeing? And I'd be interested if you could comment on your conversations with employer sponsors around like is the -- will they -- we're seeing a shift like an acceleration in benefit buydowns in the commercial space. Are you seeing a greater shift towards HSAs in 2026 versus 2025, kind of like the greater rate?

And then my second question is kind of like, Scott, it's like given some of the macro news that we've seen, there would seem to be other large custodial opportunities that have the opportunity to present themselves going forward as new markets develop. Is that anything that you guys would look at or consider? And I'm kind of talking about like the Dell stuff and when we see more stuff that looks like the Dell stuff.

The what stuff, sorry? The Dell stuff. You talking about....

[Technical Difficulty] to fund 25 million children's accounts. Like is that -- like are there going to be more of these opportunities to kind of create new markets for you guys? And how are you thinking about that?

Okay. And on your first part of your question because you had a 2-part on the first part. I didn't -- you said something about seeing something, but you broke up. I just want to make sure I've got your employer sponsors.

Are you seeing -- I'll distill my question. Are you seeing employer sponsors move people towards HSAs at an accelerating rate for 2026, given that we're seeing -- because utilization is so high, we're seeing benefit buy down at a higher rate than we've seen kind of in the last decade. So is that driving an acceleration of moving beneficiaries towards HSAs? And just kind of what are you seeing in the commercial market?

Okay. Yes. So I think I've got it. So on the commercial side or what we call the client side, right now, we -- what we're really driving towards is just the realization across the entire industry that health care costs are rising significantly for the enterprise as well as the consumer. Those health care costs are rising significantly more and multiples -- faster than wages are. And so as any enterprise, and this is a CEO and a CFO level conversation, when you look at those health care costs, which is one of the most significant input costs for your organization, you have to start to think about what are the strategies that we can address that.

And so when we're talking affordability with our clients, we've been going with our analyzer product, which actually helps an enterprise to be able to compare, for example, their enrollment rates, their contribution levels, what percentage of their employees are investors, what are the balances that they hold and compare those to their industry average as well as what best-in-class would look like. What best-in-class looks like for our large enterprise clients are clients that are driving high deductible adoption or only providing that as an adoption north of 75%, 80%. And in fact, we have been working with the industry where we've done studies that have actually shown that employers that drive a strategy like that can save in the thousands of dollars per employee per year by driving that type of strategy.

So the affordability strategy right now, we think is resonating. In terms of it showing an accelerating rate, I think we're going to see that this year because we're having a lot of conversations with our clients around this. And I think we're hoping that we will see greater adoption this year over last year. And so we'll see that in open enrollment, which is happening right now. In terms of the macro news around Trump accounts or Michael Dell's contributions just the other day, I think, again, what we're seeing is that when you look at the triple tax advantaged nature of an HSA account, and the massive needs that Americans have to handle their future health care needs as well as the fact that 40% of Americans can't even afford a $400 unexpected medical cost that the need for an HSA for all Americans is quite significant.

And so this is actually why we're so active in Washington, why this topic of health care affordability is on the desk of the President as well as Senate and Congress in terms of driving solutions to address the affordability crisis. And we really do think that HSAs in terms of empowering health care consumption and preparing more Americans for their future health care needs is one of those solutions that's actually getting a lot of focus and attention in D.C. I don't know, Steve, would you add anything more to that?

I think you're right on. I mean we just -- as I mentioned in my comments, we just keep seeing the same think over and over again, when you see large populations of people going into HSAs, they spend less. And yet the people save more. I mean, obviously, you all follow our custodial asset report pretty carefully and you see how much money are in these assets. There's a lot of money and it's not our money. We get a chance to manage it for a while. It's people's money. And I just think that this concept of people having their own accounts, spending their own money is working. And so the more we kind of get that message out to employers, this study that was done just really has been done in the last month.

We're going to start spending more time with employers, helping them understand that if they can take their adoption from 30% or 40% adoption to 60% or 70%, that we're talking about thousands of dollars a year in savings per employee, which is pretty remarkable, especially in this time where people are really struggling to pay help right now. So we're all in.

The next question comes from Mark Marcon with Baird.

With regards to just the enhanced yield product, Jim, can you remind us where we are with regards to what percentage of the cash assets are currently in the enhanced yield? And where do you anticipate that, that would be by the time we get to the end of January of '27 and August of '27? That's the first question. And then, Scott or Jim, the margin improvement continues to be really impressive. How much further can we continue to improve the efficiency and the reduction in terms of the cost per account? How should we think about that because it has been quite impressive, but I'm wondering if you think there's some pricing pressures that would come from employers that would slow down that rate of increase that we're seeing on the margins.

Jim, why don't you take the enhanced rate portion, and I'll talk about margins.

Yes. So as you know, we're -- we have not provided that number on a quarterly basis. So I'm not going to say anything other than we started the year around 50-50. I would expect we'll give you an update where we end the year. And as you know, like there weren't a ton of maturities during fiscal '26. So our ability to move that number was not great for the first 3 quarters of this year. And then obviously, we would expect a nice cash inflow in January that would -- with all the new accounts and employer matches, et cetera, that would help drive that number up a bit. The target we had set was to be at 60-40 by the end of next year. And obviously, we're in very good shape to achieve that target. So I'd say stay tuned for our fourth quarter when we would give you that breakdown.

Mark, the only other thing I would add on the enhanced rate side, and then we've talked about this, when we look at the maturities that are rolling over into the enhanced rates, we do have about 90% plus adoption of enhanced rates as those things roll over. And so as we look at this progression, it really is a business as usual in terms of what that progression is going to look like. We feel very strong about how that's going to naturally just evolve as those contracts mature.

On the margin improvement side, yes, thanks for highlighting that. We're really focused on making sure that the service that we provide is a great service and that we're continuing to improve that service. And we truly do believe and know that for example, the use of more technology, more automation, we're in the early phases of deployment of AI across our service center that we can do both things, both deliver a better experience and to be able to deliver it more efficiently.

And so when I look at, for example, the early wins that we've had in AI, whether that is in claims automation, how we're trying to get more people to engage in answers or in chat and then now how we're rolling out more agentic experiences across our service center, we see significant opportunity for further efficiencies across how we serve our customers, but ultimately very much aligned to the idea that we can do it in a better way.

And so take a typical phone interaction if that phone interaction, for example, is based on data, it's a routine call. These could be things like checking a balance, replacing a card, trying to get into a password. These can be phone conversations today that might last 5 to 10 minutes that can be automated through an IVR to an agentic experience in less than a minute, resolve that issue, have that self-serve by a member. That's a better experience for the member and a much more efficient experience as well.

And so again, strategically, we look at the use of these technologies to drive that efficiency. And we still believe that we're in the early innings of what that is ultimately going to look like across services as one example.

And the next question comes from Brian Tanquilut with Jefferies.

Maybe as I think about the competitive nature of the HSA space, I mean, you guys have continually gained market share and maintain high client retention rates. So just curious, are you seeing any shift in pricing or competitive behavior, particularly as you expand to smaller employers and new exchange-based accounts? And how are you leveraging the scale and the product breadth to sustain that growth in margins in face of competition?

Yes. Thanks. I'll take that. Yes, it's a competitive market. We're pleased with our leading position in the marketplace. I think as we look at the importance of the strategy and the flywheel of better save, spend and invest for health, we truly believe that, that's a differentiator in the strategy because it's not just about acquiring assets, it's really about how do we leverage the effective use of this savings vehicle for all 3 of those strategies. So for example, on the spend side, we have $40 billion that is spent in the industry today on programs and products and services that are HSA eligible.

Increasingly, more and more places where these products are being sold are advertising the use of -- use your HSA dollars to power up your purchasing power for this program or service. What we know, and this is part of our strategy around marketplaces is that if we can provide greater, more seamless access to the spend part of the flywheel, we also know that, that member is likely to contribute more. All of this is also very much integrated into a -- for health value proposition which for us, since we're integrated with the most plan partners, and that's the entire focus of our platform, we think that drives greater differentiation for us in the marketplace.

In terms of where we see the pressure, of course, these are competitive processes. I think as we see the shift of our business go towards HSA accounts, there's obviously a different revenue profile associated with that. Pricing pressure is typically seen at the high end of the market, and that's where there's a lot of competition more on the other types of accounts. But again, we feel very well positioned given the focus that we have on the platform, being the leader in the space to be able to drive a differentiated solution.

I think when we look at our retention rates as one example of that in the high 90s percent, we're also really pleased that the quality of the service that we're providing to our clients also is showing up in the way we're able to retain clients in the business.

And the next question comes from Sean Dodge with BMO Capital Markets.

Yes. Maybe just going back to the AI and automation investments and coming at it from a little bit of a different angle. What percent of your cost structure can you address with these new capabilities or enhancements? Like high level, you're spending $320 million, $330 million a year on service costs. How much of that is labor? How much of that's like physical card costs? So like what proportion of that can you go after? And then maybe conversely, like what proportion is like technology and infrastructure spend that you really can't do much about? Or is that just not the right way of looking at it? And should we be thinking about these kind of long-term savings opportunities in a different way?

Yes. Well, first, Sean, welcome back to the fold. We're excited to have you back. So yes, so as you think about it, AI has broad application across nearly all functions of our business. And so we're deploying agentic's AI in -- again, across all of our functions. So if I would break it down into a couple of areas to get to your question. So take on the services side, we kind of look at as maybe 1/3, 1/3, 1/3 between member services, client services and then sort of like the back office type of operations. All 3 of those areas have slightly different needs and slightly different applications that AI can be deployed against.

Most of our efforts today have really been focused on the member services portion of that because that's where a significant amount of our call volume has. And when I think about that opportunity, where we're starting from, and you should go back and look at the press release that we just put out in terms of our partnership with Parloa, we're looking at a lot of those voice interactions and trying to figure out how can we improve those interactions with an agentic experience. And so Parloa, as an example, will be our partner in terms of go-to-market there.

On the client side, there's a lot of work that we do in terms of integrating files, taking large data sets in. A lot of that work, we actually believe that we can automate with AI. So those are like a couple of examples of things that, a, we have in market, we're thinking about in addition to Claims AI as an example. When we look at product and technology, slightly different, we certainly can see efficiencies that can be derived from AI in our product and tech team. But our product and tech team, we're really looking at AI to think about how is it that we can drive greater productivity enhancements. That productivity enhancements can show up in the speed and quality with which we can deploy code, but it also can be represented by the number of agents that we have deployed that are actually helping to create the next new product or the next new experience or the next new integration in a more seamless and integrated way.

I think that's also where we have -- where we've really been focused on APIs and data to expose, again, those experiences that we can roll out AI against. So as it relates to AI, we -- again, we think we're in the early innings of a longer marathon that we're optimistic because we're focused on it as a company and as each functions to find those opportunities to, again, improve the experience, do it in more efficient or a faster way.

And the next question comes from Scott Schoenhaus with KeyBanc.

I wanted to follow up on the app downloads. We're seeing close to 400,000 downloads in the month of October alone. We'll get the November reading here shortly. That's a big spike up from what you've seen throughout the rest of the year. I'm wondering how that impacts your -- not only your new clients, but obviously, your legacy clients on downloading the app and pushing them towards enhanced rates?

And then maybe to put a fine-tune on the margin expansion since October was the last month of your quarter and you saw this big spike up. Can you attribute what that -- what those app downloads during open enrollment contributed to the margins or the person in the app versus a person not in the app, what that contributed to margins for the quarter, if so?

Okay. Yes. So first, as it relates to our app strategy, it starts with really our belief of creating a member-first secure mobile experience. We've obviously made great strides this year on the security side. And I would say the security issues that we experienced early in the year was the first thing that said, "Hey, we really need to be able to provide a secure experience, and we know that we can do that best through the app." What we also know is that the app, particularly for the younger generation of workers, remember that 75% of the workforce in the next 5 years will be millennial and Gen Z. I think their expectation of a digital experience is app first or app only.

And so all of those things like inform us to say driving towards app engagement is one of the most important things that we can do in the product experience itself. We've been rolling out Passkey, which effectively for the HealthEquity app, any active members, so you want to do anything in your app, you want to sign in, log in, you want to check your balance today, you have to download the app and you have to authenticate via passkey. So that's driving the app adoption because it's required to authenticate through the platform itself. And so what I would expect is it will continue to drive app downloads.

We're seeing really great success in terms of passkey and its success rate because in that experience as well, an app download via passkey, you don't have to remember your password anymore, which again is a top call driver into our service center. So we do believe that with greater app adoption, with passkey adoption, one of our top call drivers goes away, which is I forgot my password. I wouldn't say that we have a one-to-one relationship of app downloads to margin expansion, although, again, in the example that I just provided, we're eliminating those call drivers that certainly does contribute to a lower cost to serve for those members.

And so again, I think for us, it's just a strategic priority, but it also is going to be a more efficient channel to serve members with either questions or engagement or education. And so I think for us, in looking at how many active users we have in the app, how many people are downloading it is going to be, for us, kind of a key indicator of how engaging the experience is for our member. And certainly, most of the investment that we have or a lot of the investment that we have in product and tech that's incremental is going into making that app experience, that product experience truly remarkable.

The next question comes from Steven Valiquette with Mizuho Securities.

So I guess I just want to follow up on your positive comments about remaining optimistic on the new account growth in the fiscal fourth quarter, and that's kind of grounded on the work you're doing with employers. So I certainly get all the higher demand by employers that want to reduce rising medical costs. But I guess given the last couple of quarters, you were talking about some of that macro uncertainty, soft labor markets. So I want to just -- isolate just on that part in particular.

I guess the question is, are you still worried about the soft labor market, but there's just such strong demand to control medical costs is more than offsetting that? Or are you much less worried about the macro end markets and the impact from that versus what your view was like 6 months ago? Just trying to hone in on that part of the overall outlook.

Yes. So our view on the macro hasn't changed. In fact, our story around the macro has been consistent over the course of the year. Where we see the macro showing up is effectively maybe less job growth or job churn for -- remember, only this cohort of members that bring in. We've got over 20 years of cohorts of members. The least valuable cohort is the members that are signing up this year. Typically, they're coming in new with 0 balances. So it will have no impact on our near-term financials overall in terms of what Q4 looks like or quite frankly, even over of the course of this year.

So our view on the macro is unchanged. And I think all of this is kind of balanced because while the macro might be weak, the value proposition for enterprises is quite large given the affordability challenges with health care costs rising. We also have the benefit associated with the first expansion of the HSA market through what we've talked with the Bronze plan and the retail expansion. And we're going to market in a new rhythm with a really strong value proposition. Again, that's tied to affordability that's essentially going and educating our enterprise clients around here are the strategies that you can be using to drive adoption.

So Steve, I think it's all of those things kind of combined. But again, as we look at our optimism coming into Q4, we see optimism in the quality of the enterprise pipeline that we see. We're optimistic around the retention rates with our clients that we've seen going into Q4. And Q4 is always the biggest quarter of the year always. And effectively, we drive a strategy over the course of the entire year to make Q4 selling season as strong as it can be.

And the next question comes from Greg Peters with Raymond James.

Is there any update you could provide on what you're seeing in the M&A environment for additional HSA portfolios? And could you provide us an update on how you're thinking about capital allocation in fiscal '27?

Yes. So as we think about capital allocation, unchanged. We have had a very strong cash-generating profile in the business. In fact, first 9 months of the year, exceeding what we did all of last year. As we look at what we're going to do to deploy that, we'll look at continuing stock buybacks, continue to pay back debt, and we'll look at M&A from an opportunistic perspective. And when we say opportunistic, we just really have a high bar in terms of what is going to be an acquisition that would make sense.

Certainly, portfolio acquisitions are quite attractive to us pretty much down the fairway. So we would look at those. And so again, I would say all of that remains unchanged. And I think as we look at the earnings profile of the business and the cash generation profile of the business and strength of that we're excited what we can do with respect to shareholders with cash in a disciplined and shareholder-friendly way.

And the next question comes from David Roman with Goldman Sachs.

I -- Jim, I heard -- we heard the comments that you're going to give 2017 guidance at JPMorgan in January. But just 1 dynamic that sticks out here is the magnitude of HSA is expected to reprice in '27 versus both with remaining here in 2016 and also what will occur in '28 and '29. Can you maybe just give us some parameters how to think about that repricing that's coming and in comparison to the current yield that's just sitting under 2%.

Yes. Well, yes, nothing has really changed with the story there, right? They will reprice higher. Obviously, we've hedged some of those repricing. So you have with sort of much more certainty than you've had in prior years where they're going to reprice. But as for the sort of quarterly outlook, it's not numbers that we've provided. So I can't -- sort of can't get into that. But yes, like as Scott sort of said to the earlier question, there's no risk to the actual migration, right? The basic rates to enhance rates migration, we're up to like the 30th wave of contracts migrating. So it's -- I'm not going to call it autopilot, it's work. There's notices that go out, communications to all those affected members.

But as Scott said, sort of 90-ish percent adopt in. So it's going to happen. Obviously, we do have large Q4 flows into our business. So that's always going to be part of the math. So you got to wait for the full year to get the actual impact of that. Where you have in the bag numbers for '27 is what we're going to reprice here in Q4. And to get the full benefit of what's repricing in '27, that's really a '28 revenue uplift item. So I will tell you what our yield forecast is in a few weeks at JPMorgan.

Okay. Look forward to that. And maybe just a follow-up. One of the earlier questions addressed the significant improvement you're seeing in cost to service members, and that obviously is coming through in the gross profit improvement here year-over-year. Can you maybe just go into a little bit more detail, Scott, where you are redeploying some of that top line and gross profit upside back into the business? What are some of the key investment priorities for you, both from a T&D perspective as well as headcount standpoint? And when -- how that starts to show up driving a return in the business either in fiscal '27 or thereafter?

Yes. So a couple of things. One, we're obviously showing some of that actually just dropping all the way through to the bottom line. So I would expect for us to continue to seek to do that. I think when it looks at our operating expenses as an example, I don't expect a significant change in the framework, for example, as to the percentage of revenue that we allocate towards sales and marketing and product and technology. So we want those efficiencies, but we also see that opportunity as we're also growing on the top line to be able to reinvest back in the business.

I think consistent with the earlier question that I highlighted below -- I highlighted before on the service side as it relates to gross margin, that's where we're going to continue to focus on the efficiency gains. And that's going to be through -- we highlighted some of the actions that we took earlier this year to drive those efficiencies. We've obviously had a tremendous amount of success on the efforts around reducing fraud. And even outside of that, when you look at taking out the year-over-year benefit that we had from fraud savings, but essentially just looking at how much more efficient that we can be on the service line with top line growth, we're going to continue to drive that through the deployment of AI and deployment of technology across that.

When it gets down to our product and technology side, as I look at what are our big priorities going into the year, I really think it starts with the app experience, how is it that we can create a product experience that is engaging for our members. To make that app experience great, we've got to be able to invest in the data and in the APIs to be able to expose all of that information and that data to our members in a better way. I think of the opportunity that we're going to continue to invest around service center modernization, which again is investment in technologies that will deliver experience savings.

And so as I look at how those strategies play out, I think you're also going to see us continue to make investments. We haven't talked much about it on this call on the quality of that marketplace experience. So this is the center of the flywheel around spend. And this is going to be continued investment that we have in the marketplace platform. And so what you're going to see, for example, just literally in the coming weeks is continued expansion of what that experience looks like. So the addition of programs, potentially products, how that shows up in terms of a carousel of experiences that would be in the app and the web version so that we can, again, provide a more engaging experience.

And so we think about that investment in the product experience showing up in terms of how we can potentially drive other opportunities that would show up in service revenue over time. So those are kind of a couple of highlights that we're really excited about, David.

And the next question comes from Alexei Gogolev with JPMorgan.

This is Destiny on for Alexei. You mentioned encouraging early adoption of the GLP-1 program. I just wanted to touch on what's the revenue sharing opportunity for directly referring members to the Agile platform and if this is a material revenue opportunity for the company?

Yes. So certainly, right now, it's immaterial to our current results. And I would say that we're really pleased with the uptake effort. I think as we look at why we think we're in a strong position, we have 10 million members. They're spending significantly across these platforms on product and services. So bringing those experiences into the platform itself is something that we're excited about. Over time, this would show up in service revenue, much like our marketing arrangements we have today with FSA, HSA store show up there.

We think the model is going to evolve over time, kind of a combination of the recurring administrative fee associated with members signing up to programs. You can look to other direct-to-consumer health care platforms in terms of what that looks like as well as essentially the administration fees or fees that we could get by promoting product or providing affiliate links to other platforms. So again, I think that the model is going to evolve over time, really driven by a tailwind of member adoption of these, again, programs, products and services.

And the next question comes from David Larsen with BTIG.

Can you just size the TAM expansion with the Bronze product opportunity? I think there's like 7 million people enrolled in Bronze compared to the 10 million that you have in HSAs now. It sounds like a very significant opportunity. Just any color on like how to quantify this? Maybe I think, Steve, you may have quantified this in the past.

Yes, sure. Thanks, David. Yes. So $7 million is what's in it now. And the question is what happens with these premiums going up and what's going to happen with the subsidies. And of course, you've all read all about that. We don't know the answer to that, as we said earlier. But there is a possibility. We're starting to see some people and some reports from our health plans saying that people are going from silver to bronze, which is a good opportunity because people that are in silver going down to bronze, they're probably more likely to fund the accounts because we've started to set up some of these accounts, it's very early innings, but we're starting to see account contributions being stronger than we frankly thought. People are putting money in these accounts, which is exciting.

And so look, whether all -- remember, it's 7 million people. And so our estimate is that's probably closer to a couple -- 2 million or 3 million households, if that makes sense. Question is what percentage of those with some migration from silver would the industry be able to capture? I know there's a CMS report out there that's been circulated that things they think there'll be 1.6 million people in these HSAs coming out of this open enrollment cycle, but we're going to -- we're doing everything we can to get more than our fair share of those. But it's really hard to know exactly what it's going to be like. I can tell you, though, that it's going to be one of these journeys, David, because the beautiful thing about the health savings account and helping people pay for their out-of-pocket.

Scott mentioned that crisis people have, most people except those have HSAs, obviously, don't have the ability to pay a $500 expense or a $400 expense without going into debt. HSAs totally change that game. But the beautiful thing about these is that as they start to -- let's say, the Senate for Bronze plan goes effective January 1, '26. They start to use their health insurance throughout the course of the year. we're going to be reminding them, of course, if you haven't signed up for an HSA, sign up for now because if you have an out-of-pocket, roll the money through the HSA, I will gladly take that money, help them spend it wisely and then we're going to make some transaction fees and things like that on it.

But the beautiful thing to them is they're going to save probably 30 -- 20%, 30%. It depends on what their tax rate is, it could be as high as 40% on the cost of that care. And so I would say that even though we're going to have obviously a lot better numbers in the next few months than we do today, it's going to take several months before the market really understands. I mean we've been trying to educate people on HSAs for years in the commercial market, and this is a whole new market for us. But we don't know exactly what the TAM will be. But Scott, I don't know, you looked at these numbers a lot.

And I think we're hopeful there'll be a lot more HSAs coming out of this channel than there ever was. When the law passed back in and was signed in the law back in July 4, we looked at it then at about 90% of the plans that were bronze at that moment were not HSA qualified. January 1 of '26, they'll all be HSA qualified. So there is going to be this hopefully steep but fast learning curve where we can get people to understand it.

Can you use HSA dollars to pay the premium? So can you buy the premium, like pay the premium with a tax advantage on a tax advantage basis?

There's only a couple of situations where you can use HSA dollars to pay premiums. One is if you're just unemployed. The other one is if you're formally on COBRA. But [Audio Gap] been talking about and other lawmakers, they're saying, why not roll money into HSAs, change the law. It doesn't take a lot of change, just to say you can use it for premiums more broadly speaking, and we're completely supportive of that. We -- the technology is there. Obviously, our expertise would be that, yes, the money comes in the HSA, they want to use it on premiums, let them use it on premiums or let them use it on their out of pockets, let them use it on our marketplace, you name it. So right now, you cannot unless you're unemployed and on COBRA.

This concludes our question-and-answer session. I would like to turn the conference back over to Scott Cutler for any closing remarks.

Thanks a lot. It's been a year. So I was first introduced to everybody here on our last Q3 earnings call. I joined HealthEquity knowing the company by reputation only. And I've just been so humbled and honored to be able to be side-by-side with our dedicated and passionate Purple teammates over the last year. We really have a significant opportunity ahead of us. We're going to be going after that aggressively.

We think as we can reach and influence more employers and more families turn to HSAs to address affordability and take control of their health care spending that we're going to be closer to achieving the mission that Steve set out for us so ambitiously many, many years ago. So we welcome you, our shareholders, and everybody to help continue on this journey with us. So thank you today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, and welcome to the HealthEquity Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Richard Putnam. Please go ahead.

Thank you, Gary. Appreciate it. I appreciate you hosting us today. Hello, everyone. Thanks for joining us this afternoon. As Gary said, this is HealthEquity's Second Quarter of Fiscal Year 2026 Earnings Conference Call. My name is Richard Putnam. I do Investor Relations for HealthEquity. Joining me today is also Scott Cutler, President and CEO; Dr. Steve Neeleman, Vice Chair and Founder of the company; and James Lucania, Executive Vice President and CFO.

Before I turn the call over to Scott for prepared remarks, we note that a press release announcing the financial results of our second quarter of fiscal 2026 was issued after the market closed this afternoon. These financial results include certain non-GAAP financial measures that we will reference here today. You can find a copy of today's press release on our Investor Relations website, which is ir.healthequity.com. And it will also include the reconciliations of these non-GAAP measures with comparable GAAP measures.

We also note that our comments and responses to your questions today reflect management's view as of today, September 2, 2025, 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 risks and uncertainties that may cause our 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 detailed in our latest annual report on Form 10-K and any subsequent periodic reports filed with the SEC. We assume no obligation to revise or update these forward-looking statements in light of new information.

With that out of the way, let's get on with this. Now over to Scott Cutler.

Thanks, Richard, and welcome, everybody. For the last 10 years or so, HealthEquity has traditionally reported our second fiscal quarter of the day after Labor Day. For many, this day is the first unofficial day of the fall season, which means getting kids back to school, football, leaves changing colors and the welcome relief of cooler weather. For Team Purple, it is the start of our busy growth season. But before previewing the preparations we have made for our busy season, I will discuss the key metrics reflecting a strong start to fiscal 2026. Steve will provide details on HSA expanding provisions included in the budget bill passed in July, and Jim will detail Q2 financial results and our raised outlook for fiscal year '26.

The team again delivered strong year-over-year growth and margin expansion across our key metrics in Q2, including: revenue up 9%, net income up 67%, adjusted EBITDA up 18% to an all-time quarterly company high that also included record gross margin of 71% and near record adjusted EBITDA margin of 46%. HSAs grew 6%, CDB accounts grew 4%, driving total accounts up 5% and HSA assets were up 12%. HealthEquity ended Q2 with over 17 million total accounts, including net CDB account growth of 255,000 year-over-year and just under 10 million HSAs holding over $33 billion in HSA Assets. HSA Assets increased $3.7 billion year-over-year. The number of our HSA members who invest grew by 10% year-over-year, helping to drive invested assets up 23% to $16.1 billion. HSA cash reached $17 billion. The average balances of our HSA members grew by 6% year-over-year.

From a macro perspective, after accounting for adjustments, the labor market is underperforming relative to expectations and softer than the pace of hiring in calendar 2024 and 2023. Despite this macro environment, Team Purple opened 163,000 new HSAs from sales in the quarter. Early indicators of this year's selling season show strong new enterprise wins as well as retention of our existing clients. We also continue to see signs that more SMB companies are adopting HSA-qualified health plans. Improved data analytics, combined with upsell or cross-sell opportunities are helping our sales and relationship management teams deliver market-leading tools to help employers manage health care costs that continue to grow at 2 to 3x the growth in wages. We are in a unique position to benchmark and recommend the most effective components of health plan plus HSA design, given the size of our data set and our expertise across client engagements.

Powered by our analyzer tool and expert consultants, these recommendations can maximize health plan and tax savings for the employer, while increasing health care affordability for their employees. We continue to see better benefits plan cost performance for clients with higher HSA adoption rates within our client base. We are pleased to see a number of clients utilizing health payment accounts or HPAs in connection with higher HSA adoption, providing members with an added safety net when first starting their HSA journey.

Team Purple also made great progress expanding our member-first secure mobile experience during the quarter, while reducing our cost to serve. Since launching our award-winning expedited claims, which uses AI technology to automate claims adjudication, we have processed millions of dollars in reimbursements while driving member satisfaction scores up and reducing processing costs. This is just the beginning of our AI journey and a new phase to our service modernization. We expect to further leverage Agentic AI in our voice channel to drive greater automation and enhance the member experience, accelerating service delivery to our members and accurately addressing their needs and questions while reducing call wait time. These expanded AI service capabilities can potentially accelerate our efforts to further drive down our service costs.

Over this past year, we have increased our service levels, reduced the fraud impacting our members and launched expedited claims, which all enhance the members' experience with 9% fewer teammates this year compared to a year ago. We also celebrated the completion of moving our V5 platform to be 100% cloud-based this quarter, resulting in 92% faster response times, 5x more stability to the platform and an 80% reduction in delays. We are very pleased with our team's efforts to drive down successful fraud attacks on our HSA members.

Under the direction of Sunil Seshadri, our Chief Security Officer, and his dedicated security and fraud teams, we launched a number of added security measures, including greater adoption of our member-first secure mobile experience app, which now boasts 1.7 million downloads to reduce direct fraud service costs from $3 million in Q1 to an exit run rate in Q2, near our goal of 1 basis point of total HSA Assets per year. The first phase of additional passkey authentication capabilities was rolled out during the quarter, and we anticipate that many of our members will authenticate through this passkey technology by the end of the year.

The introduction of passkey will enhance trust and improve the log-in and authentication experience across our platforms with the benefit to our members of a streamlined log-in process and no longer being required to remember passwords. We continue to see lower sequential fraud each month this year as our controls take hold and more of our members move to a secure mobile experience. We are committed to continually updating our defenses as threats evolve.

We are optimistic about the actions taken thus far and the continued strengthening and implementation of controls. These experience enhancements are part of HealthEquity's broader strategy shift to consumer experiences to secure consumer-centric -- to secure our consumer-centric mobile app. As part of the mobile-first strategy, new members who sign up through their employers' open enrollment process will be able to set up their HSA account through the HealthEquity mobile app. This process will be faster, seamless and secured with industry-leading passkey technology.

On the legislative front, the budget bill passed in early July delivered a number of wins for HSAs. Steve and our government affairs team did a remarkable job of educating our legislators and their staff about the benefits of HSAs and the growing demand for greater access to them from American families. Thank you, Steve, for your leadership in this effort. Please help us understand what this means for this year and beyond.

Thank you, Scott. It has been a busy and exciting time this summer for our team in Washington. The budget bill that was passed and signed into law in July, included key provisions that expand the use of HSAs, granting wider access to more American families. The bill expanded the market for HSA adoption by allowing direct primary care or DPC arrangements and the use of low-cost telehealth before consumers meet their deductibles.

Both of these provisions have been popular with health plans and employers to provide greater access to lower-cost health care for consumers while keeping overall cost for payers in check. Previously, DPC and low-cost telemedicine were both disqualifying plan design elements for HSA eligibility. These provisions provide employers more flexibility in plan design and greater access to affordable health care. We expect these changes will help our partners and clients drive greater HSA adoption.

The bill also significantly expands HSA eligibility for individuals and families who purchase health insurance offered on ACA exchanges. All individual bronze and catastrophic plans will be allowed to be coupled with HSAs beginning January 1, 2026. There are currently over 7 million people enrolled in bronze health plans. Approximately 90% of these plans are not eligible to open HSAs. This will change in January, and our teams are working hard to capitalize on this opportunity. Furthermore, with subsidies on the exchanges being reduced or going away, higher health care trend rates driving up premiums, the added benefit of funding out-of-pocket expenses through an HSA and the lower-cost bronze premiums, this may all lead to more people opting into these plans.

We believe HealthEquity is uniquely positioned to deliver with our network partners a streamlined enrollment process that can help bronze plans enrollees easily enroll in HealthEquity HSAs, the benefit from our industry-leading solution. In addition, targeted consumer marketing campaigns in key markets will raise awareness of new eligibility and benefits. HealthEquity is building a redesigned enrollment and onboarding experience for all HSA-qualified individuals, including the new bronze and catastrophic plan consumers. This new redesign will provide faster, secure and mobile responsive experience to sign up for an HSA and a seamless funding process.

Because of these changes in the OBBB, we believe these provisions could allow 3 million to 4 million more American families to have access to the remarkable benefits of the HSAs. This is the largest expansion of the regulatory framework for HSAs in the last 20 years. These changes will make it easier for employees to offer and promote HSAs. These provisions are a good down payment by our legislators to help all Americans have personally owned health accounts. We will, of course, continue to work hard to educate legislators and regulators on the benefits of HSAs and continue to press for a number of other HSA market expanding provisions.

We remain confident that tax-advantaged health accounts like HSAs that help consumers pay for their out-of-pocket costs are popular on both sides of the political aisle, and we will continue to advocate for all Americans to have access to them.

Now I'll pass the time over to Jim to discuss our financials. Jim?

Thanks, Steve. Before I jump into the financial review, I just want to echo Scott and personally thank Steve and our government affairs team for the awesome job they did helping our lawmakers better understand the value of HSA plans and the impact they have in making health care for American families more affordable. Great job to Steve and the team.

Now let's talk about our second quarter fiscal 2026 GAAP and non-GAAP financial results. As always, we provide a reconciliation of GAAP measures to non-GAAP measures in the press release. Second quarter revenue increased 9% year-over-year. Service revenue increased 1% to $117.9 million. Custodial revenue grew 15% to a record $159.9 million in the second quarter. The annualized yield on HSA cash was 3.51% for the quarter as a result of higher replacement rates and continued increase in balances and number of accounts participating in enhanced rates.

Interchange revenue grew 8% to $48.1 million, notably faster than the 5% total account growth as members increased both contributions and distributions with more payments on platform versus requesting cash reimbursement for payments made off platform. Gross profit of $232.6 million was a record 71% of revenue in the second quarter, up from 68% in the second quarter last year. Service costs declined year-over-year in the quarter, both on a reported basis and excluding fraud and fraud accruals. The second quarter included approximately $1.2 million of fraud reimbursements to members, and we had a net release of our fraud reserve of approximately $1 million in the quarter.

As Scott mentioned, we remain on pace to achieve our goal to exit fiscal year '26 with a run rate of 1 basis point of total assets in fraud cost per annum. We continue to invest in fraud prevention and detection capabilities and drive higher adoption of our secure mobile experience. And we believe these efforts will normalize fraud impact on service costs in the second half of fiscal year '26.

As Scott mentioned earlier, the actions taken during our first half of this fiscal year to drive efficiency in our operations. We exited the quarter with 9% fewer teammates compared to the prior year and expect to carry those savings into fiscal year '27. Net income for the second quarter was $59.9 million or $0.68 per share on a GAAP EPS basis. Non-GAAP net income was $94.6 million or $1.08 per share. Adjusted EBITDA for the quarter was $151.1 million, up 18% compared to Q2 last year, and adjusted EBITDA as a percentage of revenue was 46%, near an all-time record for us and up compared to 43% in the second quarter last year.

Turning to the balance sheet. As of July 31, 2025, cash on hand was $304 million as we generated $200 million of cash flow from operations in the first half of fiscal '26. We ended the quarter with approximately $1 billion of debt outstanding net of issuance costs after paying down $50 million of the revolver during the quarter. We also repurchased approximately $66 million of our outstanding shares during the quarter, and we have approximately $352 million remaining on our previously announced share repurchase authorizations.

One provision in the budget bill that Steve did not discuss is the immediate tax deduction for domestic research and experimental expenses beginning in fiscal year '26. Our initial analysis indicates that accelerating these tax deductions may reduce our federal cash taxes paid over the next 2 fiscal years by $65 million to $75 million. The corporate income tax provisions included under the budget bill will not materially impact our income statement, our earnings per share or our forward income tax rate guidance as the accelerated cash tax savings will be captured through deferred taxes on our balance sheet. However, this adds to our increased cash flow from operations to accelerate funding strategic growth and technology initiatives, debt paydowns and stock repurchases.

For the first 6 months of fiscal '26, revenue was $656.7 million, up 12% compared to the first 6 months of last year. GAAP net income was $113.8 million or $1.29 per diluted share. Non-GAAP net income was $180.4 million or $2.05 per diluted share. And adjusted EBITDA was $291.3 million, up 19% from the prior year, resulting in 44% adjusted EBITDA margin for the first half of this fiscal year.

Before I detail our raised guidance and assumptions, let me give you an update on the interest rate forward contracts that we discussed in June during our Q1 earnings call. As a reminder of what we said in June, we expect that these contracts will have little to no impact on our fiscal year '26 income statement. They will further derisk expected interest rate volatility on future HSA cash placement contracts as we have, in essence, pulled forward the placement rate. We have entered into treasury bond forward contracts during the quarter with a notional amount of $1.2 billion tied to basic rate contract maturities between January '26 and January '27 with an average rate lock on the 5-year treasuries of just over 4%. This obviously does not include the negotiated premium that we receive above the 5-year treasury benchmark for both our basic rates and enhanced rates deposits.

Historically, we've seen corporate spreads widen as treasury yields decrease. We anticipate doing additional derisking transactions over the remainder of fiscal year '26. We expect the average yield on HSA cash will be approximately 3.5% for fiscal '26. As a reminder, we base custodial yield assumptions embedded in guidance on projected HSA cash deployments and rollovers, the schedule of which is contained in today's release. We also consider an analysis of forward-looking market indicators such as the secured overnight financing rate and mid-duration treasury forward curves. These are, of course, subject to change and are not perfect predictors of future market conditions.

Our fiscal '26 guidance reflects the expected carryforward of the trajectories for revenue and margins for the remainder of this year, including increased technology and security investments as we enhance our member-first secure mobile experience, deliver innovative products across the platform and improve the member experience as we strive to drive our strategy of helping our members better save, spend and invest for health care. We also expect additional investments in sales and marketing efforts that Steve discussed related to bronze planned HSA expansion.

We, of course, will also be lapping last year's fraud impact on service costs in the second half as we continue to close attack vectors and help our members secure their assets. We expect revenue in a range between $1.29 billion and $1.31 billion, GAAP net income in a range of $185 million to $200 million or $2.11 to $2.28 per share. We expect non-GAAP net income to be between $329 million and $344 million or $3.74 and $3.91 per share based upon an estimated 88 million shares outstanding for the year. Finally, we expect adjusted EBITDA to be between $540 million and $560 million.

We continue to invest in protecting our members' assets and data while providing them with a remarkable experience. We're pleased with how we exited Q2 and look to make additional progress in the second half of '26 towards normalizing fraud costs to our target of 1 basis point on total HSA Assets per annum. Our guidance includes additional expected share repurchases under the remaining $352 million cumulative repurchase authorization and potential additional reductions in revolver borrowings during the fiscal year. With continued strong cash flows and available borrowings on our revolver, we will maintain ample capacity for portfolio acquisitions should they become available.

We assume a GAAP and a non-GAAP income tax rate of approximately 25% and a diluted share count of 88 million, including common share equivalents. As we've done in previous reporting periods, our fiscal 2026 guidance includes a reconciliation of GAAP to the non-GAAP metrics provided in the earnings release and a definition of all such items is included at the end of the earnings release. In addition, while the amortization of acquired intangible assets is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is included.

With that, let's go to the operator for questions.

[Operator Instructions] Our first question is from Brian Tanquilut with Jefferies.

Congrats on the quarter. Maybe just a follow-up to your comments about the fraud -- kind of like HSA fraud. Are there any milestones that we have to achieve or sticking points can address here that we're looking at as we think about the next few quarters in terms of that goal?

So I guess what I would say around the experience itself is that we've been driving towards the strategy of a member-first secure mobile experience. And the secure part is really important because, number one, we've been driving our members to an app that we introduced a year ago. We've already started rolling out passkey, which passkey is a more secure authentication method, but it also provides a better, more seamless experience for our members to be able to get on to the app. And so as we continue to roll out the app experience over the course of this year, the introduction of passkey, we think it's going to result in an improved overall experience.

And so as we look at the overall journey, it starts with the app. For us, as we look at the progress that we've made, as we highlighted just here previously, we've been making great progress under our fraud and security team, both top of funnel and bottom of funnel. We'll continue to make enhancements and improvements to the security and the fraud posture, and we're really pleased with the progress that we've been able to make where every month so far this year has seen sequential decline in the actual fraud numbers overall. But ultimately, for us, it's about an improved and more secure member experience accessing our platforms. So there's no particular milestone that would stand out. It would just be continued progress along our strategy of delivering a member-first secure mobile experience.

I appreciate it. And then if I can throw a follow-up. Just as I think about the OBBBA, obviously, HSA access was not part of the final bill. As we think down -- think through the continuing resolution coming up here or other legislative opportunities or catalysts coming up, I mean, do you foresee any incremental opportunities to get HSA reform or HSA access improvement included in any of those future legislations?

Well, let me just speak to the existing opportunity, and then I'll ask Steve to comment on the future. What we're excited about is that what was passed is the largest HSA expansion for decades. And I think what we're being prepared for as we look at more individual families available under catastrophic ACA plans, bronze plans that we are improving the actual experience. So we're redesigning our enrollment and our onboarding experience for these new types of consumers.

So we're excited about the expansion opportunity. We're going to be leaning into it with an improved experience, onboarding flow as well as marketing dollars to again prepare for a new set of customers that are now HSA eligible. So I think we're excited about what was passed, and maybe Steve can give a comment on how we look to the future.

Yes. So Brian, look, we're actually pretty -- as we've unpacked this, we're pretty excited about what was passed. And I couldn't tell from your question if you thought there wasn't HSA expansion, there clearly was.

I meant Medicare, sorry, Steve.

Medicare, okay. I didn't hear the word Medicare. So yes, Medicare wasn't in there. As we looked at it, it was probably a little bit of a smaller piece. We wanted to get that in there because there's -- they say about 25% of seniors right now that are working or people that are Medicare eligible are working still. But then if you kind of have to chop that down are the people that are in that group that actually have an HSA, it's smaller. But we're going to keep hammering away at that. We do think that there was some interest in that, there was some questions about do they want to really get into the Medicare question on this bill because it was so strictly tax focused that they thought once they start opening up Pandora's box and dealing with Medicare, it could bring in some other questions and traction and stuff like that.

That said, though, everyone realizes that if you really want to save money for Medicare because Medicare is a very expensive program, as we know. It's get people that can stay on their employer's plan, which is what would happen to stay on the plan, and then that saves money for Medicare. Because if you work for an employer that offers you -- I think it's more than 20 employees that offers you both to stay on the plan and you enroll in Medicare and then you have expenses, the employer's plan pays first. And so that's a great way to actually address the cost of Medicare.

And so as we kind of look at the next openings, whether it's another reconciliation bill probably next year or whether it's even some year-end bills that need to go through and things like that, we're going to be looking for every opportunity to expand, whether it be Medicare or some of the other provisions. But I'm telling you the ones that went in that I highlighted in my comments, whether it's direct primary care, the telemed stuff or certainly the bronze plans, we think there's a real opportunity here to go after it, and we're thrilled. As Scott said, it's the biggest expansion we've seen in 20 years. And we've been at it since day 1. And so we've been following this very closely. Thanks for your question.

The next question is from Greg Peters with Raymond James.

So I wanted to go back to your comments about how you locked in your rate for the next year. So I'm looking at your repricing schedule, and I think it's $1.3 billion comes up this year, a lot remaining and $4.1 billion next year. Should I think about that 4% relating to all of what comes due next year? And obviously, does the 4% lock or 4% plus lock that you referenced, does that relate just to the enhanced yield product? Or is that to the traditional FDIC product as well?

Yes, thanks for the question. So yes, it's both -- like you should think of it as we are locking the repricing of basic rates contracts that are maturing. So as we would expect like all of the basic rates contracts that have been maturing that the lion's share of those dollars will roll into enhanced rate at the time of their maturity. But also, as I said in the remarks, they are primarily centralized around January of '26, so Q4 of '26, fiscal '26 and January of '27. So Q4 of '27, like we are locking specific basic rates maturities in those time periods. And as we said, sort of the average across those -- the average across that was about a 4% lock on the 5-year treasury. And as you said, yes, we earn -- if we can roll those to enhance rates, we earn about a 75 basis point spread on top of that. So effectively locking $4.75 billion on assets that are yielding currently 1.7% to 2%.

Excellent. Thanks for the clarification. And as my follow-up question, I just wanted to pivot to the HSA, the net new HSAs and AUM growth that you posted in the second quarter. Just wondering if there's any timing differences. I know, Scott, you called out strong new enterprise wins and retention. Just curious if there's any nuances to the second quarter result you wanted to call out.

No, I wouldn't say there's any nuance to it. I mean I think when we look at the 163,000, we are ahead of maybe where we thought we would be given the macro environment that we've highlighted here for the last couple of quarters. I think when you look at that level relative to historical quarters, this year looks a lot like fiscal year '24. And so I think in light of the macro, I think we're leaning in aggressively. I'd say that aggressiveness is going to show up, obviously, in the marketing dollars that we're going to be spending here in Q3 and Q4 to go after the expanded opportunity that we see through the expansion that we just talked about. That's why we're investing also in improved enrollment experience.

And I think what we see from our existing client base probably reflects the macro, but I would say that we're encouraged by the signs that we've had with our enterprise sales pipeline and the retention that we've had from our existing customers, certainly coming through some of the challenges last year. So I feel good about how we're positioned to end the year or enter the busy season.

So I think from here on out, to be honest, Greg, it's simply about our execution against the market opportunity that's going to be available to us. And so we can go after that within the things that we control, which I think the most important thing is the actual product experience itself and then how we're bringing our partners to the clients that we're trying to win business from.

The next question is from Scott Schoenhaus with KeyBanc.

So clearly, the investments in driving app downloads are driving really nice gross margins. I think you mentioned 1.7 million members now have downloaded the app, which is in line with the data we track. Where do we see your ceiling here? I mean, can we expect to see 50% or more of your members using the app over the next several years? And then how should we think about the incremental margin opportunity here as you approach more broader adoption?

Yes. I don't see an incremental -- necessarily a gross margin improvement from app adoption. What we're really looking for is simply active engaged members. And so maybe similar as to you look at a 90-day active user, those that are actively engaged in the app, that's certainly what our target is. Very much in line with the mission of empowering health care consumers, we want them to be engaged. So we think the best experience that we're going to be providing over time is going to be in the app. We know that accessing any of our platforms is going to be required to download the app and go through the passkey authentication. That's going to be a better experience.

And then what we're really driving is helping that member save, spend and invest more seamlessly. And so as I look at it, it's really the improvement in the engagement and the experience. And so as you think about actual penetration, just look at the number of account holders that we have, but it's really going to be those that are active that want access to their account are going to have to download the app to be able to access their account. So when we think about the penetration rate, it's more going to be more reflective of how many active members there are against that account base.

The next question is from George Hill with Deutsche Bank.

I guess, Scott, it sounds like you talked about a disconnect between the employer market and employment trends growing slower than expectations. And at the same time, you guys kind of outperformed expectations and raised guidance. So I guess the two things I'm wondering if you can throw some numbers around are, can you talk about the order of magnitude by which kind of the employer market or employment seems to be growing slower than you guys expected to see? And then kind of what's driving the outperformance? I can probably guess the answer is there -- it's going to be all the Team Purple stuff. But like I'm really in kind of -- the disconnect here is kind of the theme of the question I want to get with, like what you're seeing on the employer side versus the outperformance of you guys?

Yes, great. I think, again, we've kind of highlighted just the macro environment overall. And I guess the HSA market is a function of new employment, job growth, people be able to move between jobs. And so when you look at the labor statistics that are showing employment growth down 40% year-to-date, year-over-year through July, I think that would say that the macro environment for job growth has been tough. And so -- but that being said, I think we've been able to lean into our sales pipeline as well as our relationships with clients and partners to be able to go to market. Again, the 163,000 new HSAs is not a record for us. It's more muted than we would love to see, but we're still actually pleased with the progress that we're making.

And so I'm not sure I see it as like a total disconnect because we certainly see and feel the macro. But what we're trying to do to offset that is focus on a great experience, I think also delivering a great service. This has obviously been a big focus of ours for the year. And I think one of the things that I'm most proud of as you look at how we're serving our customers, as you look at NPS or CSAT, we're seeing nice improvement of both of those metrics, which is those members that are contacting us, how well we're serving. We're obviously doing that more efficiently on a year-over-year basis with the use of technology and having a better product experience, which I'm really proud of, which I do think contributes to us in our leadership position.

And then, again, I think as the market leader in this space, I would hope that we would continue to outpace growth of the market overall as the market leader. And I think so far this year, I believe that's what you're seeing.

The next question is from Allen Lutz with Bank of America.

Scott, I want to follow up on George's question there. And the last comment you made about outperforming market growth. You've grown accounts by 7%, 8% year-to-date. Can you talk about how fast that you think the market is growing? And obviously, the market growth rate has evolved over the past several years. As you think about the market's growth rate today, can you talk about the -- your confidence that the market can sustain the growth rates in accounts that we're seeing this year into the next couple of years? And I guess whether or not does that include contributions from the OBBB? Just trying to get a sense of what your expectations are on market growth from here.

So yes, a couple of things. I think where is it that we see the opportunity? Obviously, we talked about expansion of the market that happened as a result of OBBB. We're going to be going after that. We're going to be going after that, as I've said, through marketing, going after maybe a different set of potential members, also through plan partners. So we're going to be going after that through marketing, broadly speaking, top-of-funnel brand recognition as well as through our traditional channels. So I think what we see is that the market is expanding. We'll see over the course of over the next several quarters, how much that expansion from OBBB shows up in terms of growth in the industry.

I think there's a couple of things that are maybe more important even than new accounts. And if you look at the industry overall and you look at contribution levels, we have lower participation across the industry for high deductible health plans. And so we're trying to introduce or lower the barrier for people to select high deductible health plans. We're doing a lot to educate our employers in a more difficult market this year to be able to manage their health care costs through smart plan design. And so our analyzer product, as an example, we're taking that to market as a really strong value proposition to employers.

What ultimately we're trying to do is to get people to contribute at the max that they're allowed. Today, in the market overall, only 4% of members contribute at the max. So large market, underpenetrated in terms of those members that participate at the max. Across the market overall, only 8% of members are investors. We see a big opportunity for our members to become investors, and we've seen strong growth from our members to become investors.

And so I think as you look at, Allen, us growing the business overall, there's a baseline of the business that comes through account growth. But if we can have a more engaged consumer, engaged member, which we think is going to come through that mobile app experience, we're going to help them save, spend and invest, which should lead to a higher contribution, higher account balances, higher investors, more engaged consumers. So I think all of those will drive growth in the industry overall above just account growth.

The next question is from Mark Marcon with Baird.

Let me add my congratulations. Really great quarter. I was wondering, when we take a look at the HSA cash, we've had a couple of quarters where it's dipped a little bit. And at the same time, obviously, HSA investments have been growing significantly. And I was wondering, to what extent would you say the dip in HSA cash is due to account holders shifting over to more investment behavior versus just dealing with higher health care inflation and therefore, dipping into their accounts? And how are you thinking about the algorithm for HSA cash growth going forward?

Yes. Thanks, Mark. I can take that one. So I mean, the answer is a little bit of all of that. So obviously, as Scott just said, we want more than 8% of our HSA members to be investors. Investors are the most engaged with the platform. They have the highest balances. So there is certainly a piece of that of HSA members realizing that value and becoming investors. So we're growing the number of investors faster than we're growing the number of accounts. And then there's also a part of that is, like you said, like there is spending. We have contributions up, we have spending up. The other side of slightly lower cash balances or slower growth in cash balances to put it better is that, that interchange continues to grow at faster than the rate of account growth.

So as Scott, I think, just summarized, the revenue growth story here is more than just how fast can we grow accounts, how fast do we grow HSA cash. It's all of the lines. We're going to grow accounts, HSA cash, invested balances and spend through the platform. So not really reading any more into it than that. And then, of course, the time of the year when cash inflows come in is at our fiscal Q4. So it is very, very lumpy. So sort of quarter-to-quarter views are to be held with the grain of sand.

The next question is from David Roman with Goldman Sachs.

I wanted to pick up on something that you said early in the prepared remarks about how to think through the implications of likely significant increases in premiums that come through next year and the potential benefit that you might see with increased HSA enrollment. And then how you contrast that with the comments you made around kind of current macroeconomic conditions. Does that kind of net us out in the same place around this mid-single-digit growth in underlying HSAs? How are you guys thinking about putting these kind of countervailing pieces together?

Yes. So in a more challenging environment, macro, I think a challenging environment for most employers is the rising cost of health care and health care premiums that for many employers have a hard time passing that along or bearing all of that. When those health care costs are going 2 to 3x faster that's a challenge for anybody running a business and running a P&L. And that's where we think our role and the elevation of our message becomes more important. And so we've been out there having a conversation to be able to say, well, how is it that you can manage your overall health care cost better? And it's by having a smart plan design that has an HSA qualified plan associated with it if you're an employer. We have plenty of case studies with employers that by doing that, they've been able to reduce that annual decline to manageable levels. I think in a more challenging environment that, that value proposition becomes a lot stronger, David. And so I think what we have found at least historically in that in more challenging macro times, the value proposition for HSAs becomes stronger.

And so I think if you look at this business over a much longer period of time, then you would also look at the macro as this is just kind of like this current moment in time. Our most valuable members are those members that have been with us for a long period of time. And so this might be just one small layer in the onion for us overall. And so how is it that we continue to grow this business faster than today's environment? It's actually having all of our cohorts of members become more active and engaged. And I do think if we can actually drive the engagement metric, we'll increase contributions, we'll increase participation. We'll educate our employers more about how this is a valuable product in good times and bad, and then we'll become closer to serving the mission that this company was started for.

And so again, I'm cautious of saying the macro environment has a long-term effect on this business. It doesn't. It's simply how all of our -- it's more a reflection of how do all of our cohorts combine over time by engaging on our platform.

The next question is from Steven Valiquette with Mizuho Securities.

So one thing I want to touch on a little bit, just to follow up a bit more on the kind of the forward contracts and the hedging. You talked about $1.2 billion notional kind of signed since the last update. Just wondering, what are the gating factors on signing more of that as far as just the pace of that? Is it more just finding other willing third parties in the other end of the contract? Or was it more -- is there still heavy-duty negotiation on that rate just over 4%? Just curious kind of how the ebb and flow of that goes, if you could provide any color.

Yes, sure. No, this is like treasury forward curves is like the most liquid market on earth. So no, there's not -- no counterparty issue, it's just sort of legging into the hedge. So we sort of view it as sort of insurance contracts. We've traded $1.2 billion in total across many transactions over the quarter. And as I said in the remarks, you should expect that, that amount will continue. Just sort of dollar cost averaging into the yield is how you should think about how we've executed that program.

The next question is from David Larsen with BTIG.

Congratulations on the nice quarter. Can you talk about the good increase in service gross margin? It looks like your costs were very good, including sales and marketing.

Yes. So I think, David, on service gross margin, yes, you'll note that, obviously, our costs on a year-over-year basis on the service side growing much slower than revenue. And I think the effort there is efforts that we have across the board on delivering our service more efficiently in terms of how we're staffing. It also goes to the quality of the service that we're providing. When we have a service that doesn't require our members to call us for difficult reasons, that lowers our cost to serve. We've also been making investments in technologies to become more efficient. And on that piece that I'm really excited about, I really feel as though we're at the very beginning of our journey there.

We talked a lot about claims automation and using AI in claims automation. We just got some awards on HSAnswers, which is leveraging chat on our homepage to be able to answer questions. And I think we're at the very beginning of our journey of automating other manual and repeatable processes through technology that should, over time, reduce that service cost even further. So in many respects, I believe that we're at the beginning of our journey of modernizing the product and modernizing the service experience with AI. And so I'm optimistic that we can continue to make improvements there.

Great. And then even though you're performing really well, the stock seems to be trading sort of sideways. I think that maybe there's some concern if like, let's say, interest rates decline by 50 basis points by the end of calendar '25 and let's say, 75 basis points or 100 basis points by the end of calendar '26, can you sort of size what impact that could potentially have on your book, like perhaps on custodial revenue? Would that impact that $4.1 billion? So the $4.75 billion could maybe go to $4 billion on that $4.1 billion for fiscal '27?

Yes. I mean I think the short answer is we're not going to get into those sort of modeling questions on the call here. But yes, I mean, obviously, our -- we replace rates to the extent we haven't hedged them. The placement rates will be done on the day that they're placed. So it matters what the 5-year treasury is on the day that assets are placed. So you can all have your own forecast on the direction of the 5-year treasury, like that is not what the forward market says the direction of 5-year treasuries are today. So again, we're not going to get into all of the speculating cases.

The next question is from Stan Berenshteyn with Wells Fargo Securities.

First, maybe for Steve, on the ACA opportunity, do you just have any initial expectations as to the $7 million opportunity that you have in front of you? How much of that can you conceivably expect to convert into an HSA next year? Any thoughts on that? And related to that, Jim, do you plan to break out the lives that you capture from the ACA plans separately from your regular HSA accounts?

Do you want to answer that first, Jim, and then I'll?

Yes. I can answer the easy question first is no. We will not separately break it out. And HSA is an HSA.

I thought your answer would be [indiscernible]. So Stan, on ours, I mean, we think -- I mean, the good news is there's pretty good data out there because there's -- the public use files not only show that there's 7 million people in these bronze plans right now, it also shows how many people are in the silver plans. But none of the -- I mean, we went through them pretty meticulously. And as I mentioned in my comments, very few, less than 10% that we could find of the bronze plans that are offered right now in market are currently HSA qualified. And then so if you -- let's say, they already were at 10% were -- I mean, you give a little bit of a haircut, but then you give it a haircut so it's down to households and then you give a little bit of a haircut based upon households that could actually pay to fund the account.

But just in case anyone on this call doesn't realize this, if you've got money to go pay for a bronze plan, you're not like typically Medicaid eligible and things like that. Otherwise, you're just going to Medicaid. I mean these are a lot of the folks that we live and work with, right? These are everyone from doctors and lawyers that have small practices that need to have coverage. They've got assets to protect. And so they'd much prefer to be covered through the ACA to Uber drivers, gig workers, things like that. These are people that have assets.

And so the question is how many of them can we capture? What's the real market? I think in households, as I said, it could be -- if you add that to the other expansions with the DTC and the telemedicine, we think it's 3 million to 4 million households right out of the gate that we can go after. Now it's going to take some work because you need to first educate these people that it's like, hey, congratulations, you got a bronze plan. And now if you have any medical expenses at all, doggone it, run it through the bronze plan.

I mean, as we've repeated several times on this call, that the way we do business is we help people save, spend and invest for health care. And obviously, we love to get those dollars accumulating. But the best way to get them to accumulate is to help people understand that if that money touches down in an HSA stand for even like a day and then rolls off to pay for something, they're going to get a 30% to 40% tax savings on that dollar right then or let's say, savings, 30% to 40% savings on that dollar. It just gives them incredibly more purchasing power to pay for their health care. And it can be for obviously typical health care things like meds or surgery or doctor visits and things like that, but it can also be for some of the things we've talked about in other settings where people are now pretty interested in. Can I go and get a GLP-1 for a good price and can I use this money?

And so we're absolutely committed to finding these people, letting them know that, yes, you're in an HSA-qualified plan. Yes, you can open and fund that account right now, even if it's a little bit later, we're going to continue our marketing efforts because we have our health plan partners that are going to be helping us with this, too, and we'll be finding these people and getting them to fund it. Health plans and the doctors and the hospitals are totally aligned with this because they want these people to be able to pay their out of pockets as well. So we're going to tap every channel we can find, and we have the broadest channel in the market to find these folks, get them to open the account and fund it.

Now all that said, I can't give you a number, and you know we're not going to. But I'm telling you, we're talking about several million. We don't know exactly how many millions we'll find out more American families that now can immediately open an HSA. And doggone it, we've been working on this for 20 years to get this type of expansion. And so I don't know, we'll be seeing, and we'll be watching it and we have resources that we will deploy. We've already deployed them as far as building out our solution, and we're going to continue getting ready on the marketing spend. And if it's successful, we'll spend more, and we'll test it. And we're going to learn a lot, and we're really excited about this opportunity, Stan. Thanks for your question.

The next question is from Matthew Inglis with RBC Capital Markets.

You kind of touched on this before, but on the AI initiatives, you've talked about the expedited claims and the Agentic AI voice channel. Can you talk about the magnitude of the cost benefits from these rollouts? How much of that is maybe already playing into the year-over-year decrease in service costs? And then outside of those, what are the other big opportunities remaining for further cost reduction through automation and AI?

Yes. Great question. So as I said, I really believe that we're just on the very beginning of our journey on AI. So we've already been able to deflect costs through claims automation using AI. We're going to be investing within the framework of our tech and dev spending on APIs and data to unlock further opportunities around AI pretty much in every function of our company. We're looking at AI solutions that can automate any process that is a repeatable process that can be run on data across AI. I think the biggest opportunity that we see is in the service center because when we look at a lot of the things that some of our members are calling on us on, a lot of those interactions, we can automate and take care of our members instantaneously through AI.

And so again, I don't think -- we're not going to provide guidance on where we think that opportunity is. But again, probably where I see the biggest opportunities within the enterprise really starts in service center, expands in terms of us becoming more efficient in our product and development in terms of our engineers be able to write code faster, more efficiently and then for us to be able to envision other areas within the company that we can do smarter. So I think overall, what should be the net benefit of that, an improved experience, an enhanced experience, a faster experience and a more efficient cost structure to do so.

This concludes our question-and-answer session. I would like to turn the conference back over to Scott Cutler for any closing remarks.

Well, hey, I want to thank everybody for really engaging conversation there. I mostly want to thank our teammates for these remarkable record results. We are thrilled about the opportunity in front of us. We have a lot of execution for the second half of the year and into next year as we reach and influence and help more of our clients and members realize the benefits associated with HSAs. I'm confident and energized to fulfill our mission of saving and improving lives by empowering health care consumers. So thank you, everybody, for participating in this conference call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.