HealthEquity, Inc.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.