Hello and welcome to HealthEquity's third quarter of fiscal year 2024 earnings conference call. My name is Richard Putnam. I do Investor Relations for HealthEquity. Joining me today is Jon Kessler, 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 Jon, I have two important reminders. First, a press release announcing the financial results for our third quarter of fiscal 2024 was issued after the market closed this afternoon. These financial results include the contributions from our wholly owned subsidiaries and accounts that they administer. The press release also includes definitions of certain non-GAAP financial measures that we will reference today. A copy of today's press release, including reconciliations of these non-GAAP measures with comparable GAAP measures and a recording of this webcast can be found on our Investor Relations website, which is ir.healthequity.com. Second, our comments and responses to your questions today reflect management's view as of today, December 5, 2023, 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. 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 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. Now, over to Jon.

Thank you, Richard. Your emphasis on the word caution, maybe you feel like you know more than you let on, but I know you know a lot. So hello, everyone, and thank you for joining us and happy holidays. I will discuss performance against Q3 key metrics and management's view of current conditions. Richard doesn't know anything more than he's letting on, by the way. Jim will detail Q3 financial results, and then he will provide our raised guidance for fiscal 2024 and an initial outlook for fiscal 2025. And Steve, of course, is here for Q&A. In Q3, the team delivered double-digit year-over-year growth in revenue, which was plus 15%. Adjusted EBITDA grew double that at 30%. HSA assets grew 12% year-over-year and HSA members again also at fiscal quarter end grew 8%. Total accounts grew 5%. HealthEquity ended Q3 with 8.3 million HSA members, $22.6 billion in HSA assets and 15.3 million total accounts. Turning to sales. The team added 163,000 new HSA members in the third quarter, which narrowed the year-on-year gap relative to last year to 4% as we begin to lap the strong job growth and quit rates from Q1 and Q2. New logo growth driven by a strong performance of our team as well as our expanded network partner footprint helped HSA growth in Q3, just as it has throughout fiscal 2024 to date. HSA assets ended Q3 at $2.4 billion higher than a year ago, reflecting not only account but also balance growth. Sequentially, invested HSA assets declined during the fiscal quarter by $0.6 billion due to negative market action and total assets, therefore, declined by the same amount. Members continue to invest their HSA balances, however, partially offsetting market declines. Year-over-year, 12% more of our HSA members became investors, helping to drive up invested assets by 21%. In fact, invested assets now account for nearly 40% of HSA assets. As you know, we believe that our members, our mission and our long-term financial performance all benefit from the continued growth of investing in HSAs. We also continue to see more members choose enhanced rates for their HSA cash, leading to a higher or longer custodial yield and we believe, less cyclicality. While custodial fee growth drove Q3 revenue and margin performance, the team also delivered modest progress on the service line. Service costs actually declined year-over-year and sequentially despite higher volumes, of course, to help drive modest margin expansion. Interchange revenue grew strongly year-over-year and on a sequential basis and is now following its pre-COVID seasonal pattern as we expected, with strength in Q1, followed by a softness in Q2 and especially in Q3. We expect sequential strengthening again in Q4. Our new CFO will detail our raised outlook for fiscal 2024 and preview fiscal 2025 in addition to providing more detail on Q3 results. Double-digit revenue growth and margin expansion is a pretty good first half. However, Jim would be quick to point out that HealthEquity's current trajectory is years in the making. The team raised the trajectory of HSA growth by adding capabilities at scale through WageWorks, it grew the value of each HSA by pioneering affordable and accessible HSA investing and creating the enhanced rates program for HSA cash. It increased market responsiveness and resiliency by integrating with network, client and ecosystem partners at a return, and it enabled accretive allocation of your capital by uncovering HSA portfolio acquisitions, including BenefitWallet, which upon completion will be our largest such transaction ever. Today, the team is innovating the value drivers of tomorrow, applying cloud, API, data science and SAI technology to HealthEquity's mission to save and improve lives by empowering healthcare consumers. With that, I will turn it over to Jim.

Thank you, Jon. First, let me say, it's been a pleasure to join the HealthEquity team and have the opportunity to meet many of our investors over the past three months. The results we're reporting today are directly linked to the commitment our team makes every day to deliver Purple service to our clients and members. I'll highlight our third quarter GAAP and non-GAAP financial results. As always, we provide a reconciliation of GAAP measures to non-GAAP measures in today's press release. Third quarter revenue increased 15% year-over-year. Service revenue was $107.5 million, down 1% year-over-year. Custodial revenue grew 43% to $106.6 million in the third quarter. The annualized interest rate on HSA cash was 258 basis points for the quarter. Interchange revenue grew 7% to $35.1 million. Gross profit as a percentage of revenue was 64% in the third quarter this year, up from 59% in the third quarter last year. Net income for the third quarter was $14.7 million or $0.17 per share on a GAAP EPS basis. Our non-GAAP net income was $52.2 million or $0.60 per share for the third quarter, up versus $0.38 per share last year. While higher interest rates, increased custodial yields and generated additional interest income, they also increased the rate of interest we pay on the remaining $287 million term loan A to approximately 6.7%. Adjusted EBITDA for the quarter was $95.6 million, and adjusted EBITDA as a percentage of revenue was 38%, more than 440 basis point improvement over the same quarter last year. For the first nine months of fiscal 2024, revenue was $737.2 million, up 17% compared to the first nine months of last year. GAAP net income was $29.3 million or $0.34 per diluted share. Non-GAAP net income was $140.5 million or $1.62 per diluted share, up 69% compared to the same period last year. And adjusted EBITDA was $270.3 million, up 36% from the prior year, resulting in adjusted EBITDA as a percentage of revenue of 37% for the first nine months of this fiscal year. Turning to the balance sheet. As of October 31, 2023, cash on hand was $334 million, boosted by $57 million of cash flow generated from operations in Q3 and $166 million year-to-date. The company had $874 million of debt outstanding net of issuance costs. We continue to have a $1 billion undrawn line of credit available, and we anticipate using both cash and drawing on the line of credit in fiscal 2025 in connection with the closing of the BenefitWallet HSA acquisition. These strong results, combined with expectations for our Q4 busy season, allow us to raise fiscal 2024 guidance as follows: revenue in a range between $985 million and $995 million; GAAP net income in the range of $34 million to $39 million or $0.39 to $0.45 per share. We expect non-GAAP net income to be between $181 million and $188 million, resulting in non-GAAP diluted net income between $2.08 and $2.16 per share based upon an estimated 87 million shares outstanding for the year. We expect adjusted EBITDA to be between $350 million and $360 million. Our fiscal 2024 revenue increase is primarily based on revised expectations for the average yield on HSA cash to approximately 245 basis points for fiscal 2024. Our guidance also reflects the expectation of higher average interest rates on HealthEquity's variable rate debt versus last year, primarily offset by the reduced amount of variable rate debt outstanding. As we have discussed, moving to positive GAAP net income impacts our GAAP tax rate slightly this year. Based on our current full-year guidance, we expect the GAAP tax rate for fiscal 2024 slightly below 40%. Before we launch into Q&A, let me give another plug for our Investor Day scheduled for February 22 at our offices in Draper, Utah. We expect to share information about HealthEquity's multiyear strategic initiatives to deliver remarkable experience, deepen partner relationships and drive health and financial outcomes and the impacts we anticipate these initiatives may have on our business model and financial performance over the next several years. You will see product innovations being shared with our clients and partners as well as a deep dive into our plans to accelerate the transition to enhanced rates. We're nearing capacity, so if you want to be there and you do want to be there. You will need to register quickly. Please see our IR website or contact Richard. With that, we know you have a number of questions. So let's go right to our operator to kick off Q&A.

Thank you. Our first question today comes from Greg Peters with Raymond James. Please go ahead.

Good afternoon, Jon, Steve, Jim, and Richard. I'll start with the first question regarding the state of the market in relation to M&A. I understand you are planning to close BenefitWallet in the first half of next year. However, another large competitor has mentioned the possibility of monetizing their HSA asset through a sale. Can you share your perspective on your appetite for additional M&A and how you view the behavior of other market players in this environment?

Thank you, Greg, for your question. First, I want to highlight that we are seeing a trend of market consolidation around a few strong players, and we are pleased to be leading that group after working hard for it. During this period, we have refined our approach to deploying shareholders' capital in competitive transactions. We are fortunate to be in a position where we can effectively evaluate potential opportunities without needing complex financial maneuvers. Our dealings, like BenefitWallet, show that we focus on structuring transactions that benefit both the seller and our shareholders in terms of timing and accretion. This puts us in a good spot for any upcoming transactions. Furthermore, while we will share more at Investor Day, external forecasts and our guidance suggest that the company will continue to generate significant operational cash flow and free cash flow, which are both expected to increase. This is an ideal environment for us to deploy capital in ways that yield genuine returns for our earnings and, ultimately, our shareholders. We also have an advantage from our long-standing efforts in the market, allowing us to understand why certain opportunities arise, giving us insight into valuations compared to our competitors. So, if any actions occur, possibly as soon as mid to late next year, it won't be because we overlooked anything. We will have evaluated every opportunity carefully and made informed decisions based on price and potential outcomes, as we have done in the past. We welcome such rumors, as they represent great chances for our shareholders, and we will assess them prudently.

That makes sense. I have a follow-up question, assuming that Richard, the enforcer will permit it.

Can I ask you a favor? Let's do one, but I want to acknowledge that we have heard more concerns. We don't want you to be upset. So, let's go ahead and proceed.

Perfect. Just you made a comment in your opening remarks about how the enhanced yield product will give you a higher for longer custodial yield. One of the popular questions that comes inbound is how your custodial yield might perform if interest rates will start to go down. So, maybe you can help us explain what you meant by that comment. That's my last question.

Well, let me first ask Jim to address this question.

Yes, I can provide some insights. The initial outlook we shared is based on our expectations about future interest rates, which the market has anticipated will decrease next year. This is reflected in our projections. We do expect a slight headwind related to our client-held funds, specifically the short-term deposits and overnight cash, which will impact our yield next year. However, we are observing reinvestment rates that are significantly higher than the maturing cash rates. Therefore, we are able to increase average HSA yields even in a declining short-term interest rate environment.

Okay. In your comment, you mentioned that the enhanced yield allows for higher rates to last longer. I apologize, but I have run out of questions. Thank you.

I'm guessing there might be another one about this topic. So, we're happy to go into more. Who's next?

The next question is from Stan Berenshteyn with Wells Fargo. Please go ahead.

Hi, thanks for taking my questions. First, regarding the preliminary guidance, how should we consider the BenefitWallet assets that are coming in? Can you provide an estimate of when these tranches will arrive? To what extent will we see benefits throughout the year? Additionally, do you incur any fees when these assets move into your custodial accounts?

Sure. I can address that. Starting with the second part of your question, in previous transactions, we've had a scenario where a third-party custodian requires payment. We experienced this in the WageWorks transaction, and it applies here as well. In this instance, the seller is responsible for the fees, and we have agreed to cover, if I'm correct, $20 million of those fees as part of the purchase price. This does not affect our projections for future income or our income statement; it's purely an accounting matter related to the purchase price. Regarding the first part of your question, the way to consider this is that, as Jim mentioned briefly in his opening remarks, we will incur additional service expenses as our busy season extends into the early part of the fiscal year while we prepare to integrate these accounts. It wouldn't make sense to fully reduce our operations and then have to increase them again. There will be some added service costs, and by the second quarter, we expect to see a positive outcome as we start onboarding these accounts. Our guidance reflects the understanding that these transitions will happen during that period. By the latter half of the year, we expect to be operating at our target level. As we've noted in other discussions, this process tends to accumulate benefits quickly. I hope that clarifies things. There is some uncertainty involved, as is common, but that's our current outlook.

That's helpful. Thank you. Could you provide a brief update on the services gross margin? It seems like you're making some progress. Can you share any information on the adoption of your tech-based communications with your members and whether you are seeing any tangible improvements in the gross margin?

Jim discussed the overall progress on gross margin. If we examine service expenses, our ability to maintain a strong position relative to volume growth supports your point, especially as we face challenges like rising wages. I've noted elsewhere that we analyze this on a month-over-month basis. Our goal is not just to transition from voice to chat, but also to shift from live assistance to automated solutions where members see significant value. There are many opportunities for this. We continue to see progress each quarter. We've never claimed this to be a quick fix, but it presents a significant chance to reduce costs in service delivery while enhancing the experience for members through digitization. This approach, particularly in relation to generative AI, is very effective. We believe this trend will persist, and our application of it works well because it's not always straightforward and members' inquiries can vary widely. Nonetheless, we aim to provide accurate responses.

Thanks Stan.

Thank you. The next question is from Allen Lutz with Bank of America. Please go ahead.

Thanks for taking the questions and welcome, Jim. A couple on the financial side. So, I just want to ask on the 3% custodial yield guidance for next year, how much of those contracts have already been set? And then, one follow-up related to the financials. Is BenefitWallet fully incorporated into the fiscal 2025 guide? And then I have a follow-up.

That sounds like three, that's three.

Our expectation regarding the costs associated with the ramp-up, transition, and migration, as well as the advantages of having accounts on our platform, are included in the 2025 guidance. These assets will be invested at market rates, which will increase the average rate earned on HSA yield. Therefore, BenefitWallet contributes to both revenue and the higher yield we are projecting.

Regarding your question about placements, the calculations have changed with enhanced rates, allowing us to make placements throughout the year. While it's somewhat less relevant now, one way to think about it is that we primarily make placements when money is moved, specifically when rates are cut. Approximately a third of these placements occur during the year-end bulk, mainly in fiscal Q4 and calendar Q4, while two-thirds happen during the rate change periods. However, I want to emphasize that enhanced rates offer us the flexibility to spread this out a bit more. Thus, in the long run, you will need to adjust to the idea that we won't just be waiting for a specific rate on a given day, as that will no longer be as impactful for these placements.

Thank you. The next question comes from David Larsen with BTIG. Please go ahead.

Hi. Congratulations on an excellent quarter. Can you maybe just talk a little bit about expectations for yield longer term? Obviously, I wouldn't ask for guidance for fiscal 2026. But since it takes three years to recontract your book of business, let's say, rates hold steady or decline slightly next year, maybe they declined slightly in fiscal 2026. Could your yield still go up, which would obviously benefit custodial in fiscal 2026?

Jim, do you want to hit this one?

Simple answer is yes. Obviously, it depends how far rates decline. But yeah, I think you said if rates remain stable, then yes, we'd expect the average rate to continue. There are strong tailwinds in that number.

The key issue is that one of the things that we really do get benefit of if you think about it. I appreciate your point about three years, but think about like the duration contracts, you think about what we're going to be replacing next year, those duration contracts next year will be the first ones that we're replacing, right, that are pandemic era. So the stuff that's being repriced is going to be repriced very favorably. And beyond that, if I take current market projections about where rates will be in a year or what have you as sort of consistent with your question, we will still be placing new money at rates well above our current guide of 3%. And so, those will continue to be, I think, pretty significant tailwinds for yield for quite some time actually. Again, without wanting to give particular guidance, I mean those are the key factors, and it's what you can replace money at relative to what you had at that before and what you're placing new money at. And both of those appear to be tailwinds for quite a while under any current reasonable scenario over the course of the next several years.

Okay. Great. And I think Richard will allow me one more maybe. So, it was nice to see the interchange revenue up, I think, 7% year-over-year. For service revenue, I think it was down maybe 1% year-over-year, but I think there's some unusual things causing that. When should we expect to see growth in service revenue sort of return to a more normalized rate? What is the driver of that? And what would you expect sort of that longer term normalized service revenue growth rate to be? Thanks very much.

You want to hit that one, Jim?

Sure, I can address that. For Q3, we maintained our position with slightly lower revenue and costs, while margins improved a bit. However, there are various factors influencing those overall figures. If we break it down by product, we're noticing a price-volume mix at play, where pricing has been challenging, particularly in RA, as buyers view this as a bundled offering. They recognize that we're generating significantly higher revenue from custodial cash and HSA cash, and we are achieving good margins from the interchange, which alleviates some pricing pressure. We're facing some headwinds in per-unit pricing and are seeing effects from the mix shift toward HSAs, which are growing at a much higher rate. HSAs tend to have the lowest fixed dollar fee since they involve a larger share of interchange and custodial revenue. As our business shifts more toward this area, we'll experience pressure on revenue and margins. You could consider this a mix of negative pricing, negative mix, and positive volume, resulting in approximately a $1 million impact on revenue.

Thanks David.

The next question is from Anne Samuel with JP Morgan. Please go ahead.

Hi, guys. Congrats on the quarter, and thanks for the question. In the past, you've kind of talked about a gradual increase for your deposits going into the enhanced rates product, but with BenefitWallet, you're going to see kind of a big jump up in that mix. Are you where you want to be now? Or should we expect that to continue to kind of increase as a percentage of the mix over time? Where are you hoping to get with that?

You should expect this to grow as a proportion of the overall mix over time. If you're open to exploring options outside of Salt Lake City, we'll provide more information to give everyone a clearer understanding as time goes on. We're very pleased with several aspects of this program. One key point is that consumer adoption has been strong on a voluntary basis. The acceptance of our initiatives by consumers has been positive. Employers who pay attention recognize that our efforts have prevented them from facing additional costs and allow us to reinvest in our business. I can't emphasize enough how impressed I am with the team's efforts to educate potential partners for this product. Our biggest concern going into this was how the traditionally conservative insurance market would respond to a product that offers many valuable features, which they haven't encountered before. Thankfully, the response has been very encouraging, particularly among high-quality networks, and that segment continues to expand. We are actively considering ways to accelerate the transition to this product, and we will discuss this further at the Investor Day, as well as its future implications.

That's really helpful then. And I guess, as we kind of think about as you get bigger and bigger with this product, is it still right to think of it as kind of a 50 to 75 basis point premium to your kind of traditional yield? Or can that change over time as well?

I think that's still probably the correct answer.

Thanks Anne.

The next question comes from George Hill with Deutsche Bank. Please go ahead.

Hey, good evening guys.

Hey, George.

Good evening. And just a couple of housekeeping questions actually for me. I guess, number one, Jon or Jim, could you guys talk about the expected EBITDA contribution from BenefitWallet in fiscal 2025. And my follow-up is, I know you guys have some lumpiness of cash rolling off to be redeployed as we look out over the next 12 to 18 months. Can you just kind of remind us on the big pieces that kind of come off being committed and get recommitted and so, we can kind of fine-tune our models around the waterfall effect of that. Thanks.

Why don't I take the first half and you take the second half, Jim?

Sure. Yeah, sure.

Okay. To think about BenefitWallet, we're expecting to see a bit more than half a year of impact, maybe around two-thirds of that this year. This transaction, like previous ones, is going to be highly beneficial, and we anticipated a boost in EBITDA margins. This has helped us accelerate our progress towards our goals as accounts mature. In regards to the first question, I would suggest doing some modeling. I remember you asked a while back if the company could return to certain EBITDA margins. Right now, we are guiding for next year between 38 and 39, and this has accelerated that process, which is a positive sign. Jim, would you like to address the second part about the timing of asset deployment?

Yes, exactly, reinvestments. You're correct. There is a significant block of wage increases in assets that will be maturing, but not primarily in the next fiscal year. We have a relatively smaller block of assets maturing in the fourth quarter of this year and throughout the next fiscal year. The following two years will see some of those larger blocks maturing. It’s more accurate to say that we are being reinvested.

Thanks George.

The next question comes from Mark Marcon with Baird. Please go ahead.

Hey, good afternoon, and thanks for taking my question, and let me add my congratulations. Just wondering if you can talk a little bit about you had good new logo sales. I'm wondering if you can talk a little bit more about what you're seeing on the enterprise side just in terms of both from a competitive perspective, but also in terms of the desire to shift part of the employee population to HDHPs, particularly in light of the accelerating healthcare costs that are coming through. And then I've got a follow up.

Sure, happy to. Hi, Mark. How are you? I expect you'll be out in February since we just experienced our first major snowstorm. In terms of progress, we have been making good strides in acquiring new enterprise clients. This has required a lot of effort and time. We have refined our marketing message and added some excellent sales team members who are working hard. Additionally, our product suite continues to evolve to meet their needs, and we are doing some impressive things. Overall, we are pleased with the progress on gaining new clients. I’m continually surprised, as I mention every year, about a fact from the Kaiser study: the average high-deductible health plan that qualifies for Health Savings Accounts (HSAs) is about $4,800 for family plans, while the average deductible for a non-HSA plan, like a PPO, is around $2,900. As these numbers converge, it doesn’t make sense for people not to enroll in HSAs. We continue to assist employers, and ideally, they let us directly communicate with their employees regarding the benefits and tax advantages of HSAs. With the narrowing deductibles, it’s hard to argue against setting one up, as employees can benefit from any contributions from their employers and gain tax savings. We're actively promoting HSAs, and our relationship management and marketing teams are doing a great job spreading this message. Our work is ongoing; some employers and sectors are slower to adopt, which indicates there’s still much potential growth. We are doing everything we can to reach out, and this time of year is beneficial for our messaging. So, I’d say we're seeing positive growth in both new logo acquisition and the efforts of our enterprise team in fostering further expansion.

That's fantastic. And then, can you just comment a little bit more about the competitive environment? I mean, obviously, that may get consolidated. But then in addition to that, there's other big players with rates going up, how should we think about service fees over the next year and things of that nature. Obviously, you're gaining more than your fair share of the market and continue to gain share. But just wondering if you can give us some more comments on that.

Yeah, Jon, how do you want to break that up?

Why don't you talk about the competition piece, and I'll hit the service fee discussion.

The competition has changed somewhat due to some consolidation. Many companies that were once strong competitors, like Wage and others we've recently added, are now part of HealthEquity, which is great. While we still face some tough competitors, the main point remains. If someone is purchasing healthcare services from a large health plan that competes with us, that health plan will strongly promote its services. We often succeed in that scenario because customers recognize that HealthEquity is dedicated to serving healthcare consumers, a focus that has driven us for 20 years. We are an independent, specialized provider excelling at HSAs, CDBs, and related services. We also face similar competitive pressures in retirement services, but our partnerships provide us with an advantage. Our partnerships with health plans have a long history and have allowed us to achieve considerable success and reach a wider audience than competitors limited to their own networks. We also have strong partners in retirement. While the competitive landscape has been consolidating, we have been enhancing our offerings, as I noted earlier regarding our product developments.

I truly appreciate what’s happening with our product. We’re engaging in some exciting discussions with clients and developing new features that focus on empowering consumers to make informed choices about these products. Additionally, we're aiding employers in understanding their workforce's behavior, not only in financial aspects but also regarding health, such as whether employees are utilizing the preventive services included in their plans. Compared to most of our competitors, we offer more and do so without imposing strict rules on the rest of the ecosystem. This has consistently been our strength, and I believe we will continue to excel in this area. Regarding pricing, as Jim mentioned earlier, we are now navigating an environment where effective custodial yields are expanding and balances are increasing. From an employer's standpoint, one of the first areas they consider for cost adjustments is the fees they are responsible for. Over time, we’ve implemented various strategies to stabilize these fees effectively. In the current quarter, we are seeing approximately a 5% decline in total accounts year-over-year, with half of that attributed to a change in mix and half to actual fee reductions. The mix will fluctuate — for example, whether we sell more HRAs versus FFCAs next year is uncertain — but we will adapt to the fee aspect. We aim to be conservative yet realistic in our fee assumptions because we don’t want to lose business over them; we believe in fair fee treatment while recognizing that our core product offers numerous revenue opportunities. In the realm of our ancillary products, like COBRA, we previously encountered profitability issues but have ongoing initiatives that will improve our position moving forward. We're open to raising fees when it makes sense, especially in competitive areas like HSAs. The variety in our distribution strategy provides stability, as it leads to a diverse client base where larger enterprises tend to have assets that allow for better underwriting compared to smaller employers. This diversity contributes to fee variability, alongside our retail sector. In summary, our guidance reflects a cautious approach that's consistent with the numbers we’re reporting, particularly regarding price and mix impacts. Overall, it's a reasonable trade-off for the significant advantages we’re witnessing, which translates into greater profitability for our products.

Thanks Mark.

The next question comes from Jack Wallace with Guggenheim. Please go ahead.

Hey, how's it going? Congrats team Purple, another great quarter.

Thank you.

I've got a couple of model monkey questions for you. I just wanted to make sure we're clearing up the yield understanding here. First one on when cash gets deployed, is it on a five-year duration? Or is it three years or three years the duration to the book on average?

Historically, the answer has been yes to all of the above, with contracts typically being for three, four, or five years. However, you should generally use five years as the baseline for modeling our investment product.

Thanks. That's helpful.

Using five-year treasury as your baseline rate.

Excellent. And then for the fourth quarter this year, it looks like there's an implied sequential step down in the daily cash AUM yield. Is that just related to some of the cash that's exposed to the front end of the curve? Or is there something else going on there? Just thinking about also the comment earlier about a third of the AUM that gets repriced, so to speak, in December. I would think that would have a positive impact versus a negative.

Yeah. I don't think there's a step down in Q4, I could be wrong. Maybe if, Jim, if you have the numbers in front of you, it's not.

No, there's nothing that stands out. You might be referring to the client-held funds short, and we may see some dollars coming down as a result of the treatment we discussed last quarter. However, we are not expecting any significant changes in the short rate.

We can follow up with you later to ensure you have the correct calculations. For next year, the HSA cash rate is expected to be higher in the fourth quarter compared to the year-to-date figures. Regarding CHF in the fourth quarter, we know what the short rates will be, so there's not much to discuss on that topic.

Thank you.

Thanks Jack.

This concludes our question-and-answer session. I'd like to turn the call back to Jon Kessler for closing remarks.

I didn't realize we were finished. Wow. I wanted to mention that I tried to get Jim in his opening remarks to say that Investor Day would exceed expectations, but he wouldn't. I'm hoping to create some excitement about that. If you want to feel better about our prospects, you should attend our Investor Day. If you can't make it, we will be at some conferences in January. Additionally, we have various investment activities coming up. This is an exciting time for us, and I attribute this to our team, as well as our clients and partners. I'm very pleased with the level of cooperation we're experiencing with our employers and health plan retirement plans, and the collaboration within our team is strong right now. We are tackling a lot of complex issues behind the scenes to prepare the company for growth not just in the coming year, but for many years ahead. You may not see all our efforts, but there is a significant amount of work taking place. Not everything goes as planned, but we get it all done, thanks to the hard work of our people. I just wanted to take a moment to express my gratitude for that.

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

Thank you.