Good day, and welcome to HealthEquity Second Quarter Fiscal 2015 Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Frode Jensen, General Counsel. Mr. Jensen, the floor is yours.

Thank you, Alan. Good afternoon, and welcome. Please be advised that today's discussion includes forward-looking statements including predictions, expectations, estimates, and other information that might be considered forward-looking. Throughout today's discussion, we will present some important factors relating to our business, which could affect these forward-looking statements. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today. As a result, we caution you against placing undue reliance on these forward-looking statements and would encourage you to review our final [ph] prospectus filed with the SEC on August 1, 2014 for a discussion of these factors and other risks that may affect our future results or the market price of our stock. Finally, we are not obligating ourselves to revise our results or publicly release any updates to these forward-looking statements in light of new information or future events. With that, I'll turn the call over to Jon Kessler. Jon?

Thank you, Frode, and thanks, everyone, for participating in today's call. We met many of you in the process leading up to our IPO just over a month ago. But for those new to HealthEquity, I'd like to provide a brief summary of what we do, highlight some of the strengths in our business model and discuss briefly our results for the quarter. HealthEquity helps solve the problem of growing importance to American families, paying for healthcare. More than 2 million consumers are taking control of medical bills and building health savings for life by using HealthEquity's proprietary cloud-based health savings account platform, obtaining reliable, affordable coverage from our network of health plan partners and employer partners, and utilizing consumer health tools from our ecosystem of solution providers. HealthEquity's 400-plus team members include expert advisors available every hour of everyday to serve, educate and help our members make critical healthcare savings and decisions. Our business model combines scalability, high level of visibility into the future revenue, proven profitability and a distinct competitive advantage through our technology network -- I'm sorry our technology, our network and our ecosystem partners. This compelling combination drives our business and is reflected in the strong consistent growth we delivered in the second quarter of fiscal '15. The following 4 key metrics drove our performance: first, revenue of $20.9 million increased 39% year-over-year; second, adjusted EBITDA of $6.9 million grew 48% year-over-year; third, the number of HSAs, for which we act as custodian, which we refer to as our HSA members, reached 1.1 million at the end of the second quarter, up 48% year-over-year -- I'm sorry, 46% year-over-year; and finally, assets under management, or AUM, at the end of the second quarter, was $1.8 billion, a 41% increase year-over-year. These 4 metrics, revenue, adjusted EBITDA, HSA numbers and AUM, all saw accelerated growth during the first half of fiscal '15 compared to the same period 1 year ago. We're pleased with that the team has accomplished, but we're really excited about the long-term opportunities ahead. We plan to take advantage of those opportunities by first, penetrating our existing network of roughly 200 network partners. We together provide health coverage to more than 30% of the under 65 privately-insured consumers in the United States. Second, by adding new network partners and driving profits from existing HSA members as they build health savings. And third, by evaluating opportunities to build out our partner and member base through strategic acquisitions. Underlying all of this opportunity are the strong secular trends, which we expect to drive growth in HSAs and HSA-style plan. I'd like to turn the call over to Steve Neeleman, our Founder and Vice Chairman, to discuss significant industry research on these trends published during the second quarter. Steve?

Thanks, Jon. Towers Watson [ph] and the National Business Group on Health recently report entitled, The New Healthcare Imperative, Driving Performance Connecting to Value, sheds additional light on HealthEquity's growth opportunity. This report, based on the 10th annual employer survey on purchasing value in healthcare, focuses on the actions of high performing companies, meaning those who have been most successful in managing health benefit costs versus their industry peers. In addition to the current trends in the healthcare benefit programs of U.S. employers with at least 1,000 employees. I want to share a few of the key takeaways from our review of this report. Number one, 98% large employers that responded in this report remain committed to providing subsidized benefits for their full-time employees. Second, Towers [ph] found that pending -- that the pending implementation of the ATA Cadillac [ph] tax is strongly influencing the thinking of large employers. In fact, 60% of these employers say this excise tax is already impacting their strategy We believe that the Cadillac tax is an important factor driving employers to HSAs. Towers also found that up to 30% of large employers expect to offer only HSA style account-based plans, also known as full replace strategies, in the near future, and among high-performing companies, 24% are already full replace with HSA style plans. These same high-performing employers are also more likely to offer consumer tools like coverage for telemedicine and e-vists, as well as financial incentives for participating in wellness programs. Previous research has shown that employees with HSAs are more likely to use these tools. The HealthEquity ecosystem, which we believe is the only one of its kind in the industry, helps our partners drive this kind of positive change. We believe the data points highlighted in this report are representative of the overall trends occurring in the healthcare industry. Large employer remain committed to providing subsidized benefits and HSA style plans will play a major role in the future. We believe HealthEquity is well positioned to capitalize on this trend. I would now like to turn the call over to Darcy Mott, our Executive Vice President and CFO, who will review the details of our second quarter results. Darcy?

Thanks, Steve. Today, I will discuss our quarterly results on both a GAAP and non-GAAP basis. Our non-GAAP operating metrics include adjusted EBITDA and pro forma non-GAAP EPS. We define adjusted EBITDA as adjusted earnings before interest taxes, depreciation and amortization and other certain non-cash statements of operations items. We define pro forma non-GAAP EPS as net income per diluted share calculated on a pro forma basis to give effect to the conversion of all of our outstanding preferred stock into common stock, which occurred on August 4, 2014, in connection with our IPO, as this such conversion occurred at the beginning of each period presented. Revenue for the second quarter was $20.9 million, an increase of 39% compared to the same period last year. Account fee revenue for the second quarter represented 50% of total revenue at $10.5 million, an increase of 46% compared to the same period last year. Custodial fee revenue for the second quarter increased 28%, compared to the same period last year, even though average cash AUM increased by 35% over the same period. The difference is due to an average yield in the second quarter of 1.52% compared to 1.65% in the same period last year. Investment AUM as a percentage of total AUM continues to increase and was 13% of total AUM at the end of the second quarter compared to 11% 1 year ago. Card fee revenue increased 40% for the second quarter compared to the same period last year. Gross profit was $11.8 million in the second quarter compared to $8.3 million last year, an increase of 41%. Gross profit margin of 56% in the second quarter was consistent with last year's second quarter. Income from operations of $5.1 million during the quarter -- during the second quarter increased 40% year-over-year…

Thank you, Darcy, and thank you, Steve. In closing, I'd like to offer 2 thoughts. The first is a very loud and vocal thank you to all of our, what we call, purple people. That means not only our team members here at HealthEquity, but our network partners and our ecosystem partners all over the country. To us purple means remarkable, and it is through their remarkable work and dedication that we've gotten this far and just as importantly that we have a bright future ahead of us. In addition, I'd like to encourage all of you going forward to be vocal in expressing how we can do better at what we do, both our service in the marketplace as well as our ability to serve you as investors through information and otherwise. We're a company based on feedback and on response to our customers, and we believe that the same should be true with regard to our investors. With those comments, we'd like to open the floor for questions.

[Operator Instructions] And we'll go first to Lisa Gill with JPMorgan.

I just had a couple of questions. First off, great quarter. My first question, which is around the gross margins in the quarter. Obviously, you're seeing some leverage I would assume to account, or is there any other key driver starting in the quarter around gross margins?

Lisa, the gross margins in the second quarter were fairly consistent with what they were in our first quarter. And so, I would just say that it's fairly consistent from our performance as we've had before. As you know and as we've talked about the seasonality on a go forward basis, we would expect that those margins in the third and fourth quarter will be reflective of those seasonality comments that we made.

Okay, great. And then, I think, Steve, you talked about kind of 3 key drivers in terms of driving the business around network partners -- new network partners and building the acquisition. I just really had 2 questions there. One, had you added any incremental partners during the quarter? And then secondly, can you maybe just give us an update as to how you're looking at the acquisition landscape right now?

Sure, Lisa. This is Jon. Why don't I take those 2 questions in turn. The first question you asked was about -- essentially about new network partners in the quarter. And I guess, I'd like answer it this way. As has been the case historically, our member and partner growth is a mix. And in every quarter, we bring on new partners as well as new members from existing partners. We believe, however, that as we're in the middle of our on-boarding season that the right point for us to talk about specific new wins and the like is after the close of our fiscal year in January. That having been said, we brought on a number of new network partners and who are in implementation now, and that number is increasing every week, especially at this time of year.

And then, Jon, maybe it was you that made comment, I apologize, but I thought it was Steve. But I think, you also talked maybe about the third being -- building from an acquisition standpoint, you talked about having north of $100 million on your balance sheet completing the IPO. Can you just update us as to your thoughts around your acquisition strategy and then I'll stop there?

Certainly. So, without intending to or desiring to comment on any specific discussions, we are always looking at acquisition opportunities. We -- you should expect that we will continue to do so. Certainly, we are right now actively looking at several specific opportunities, and we do see that as a very valuable way to grow the business. That having been said, we're going to be patient about this, and look at things carefully and we will do them when they make sense.

And we'll go next to Peter Costa with Wells Fargo Securities.

Sort of following on Lisa's question, but more specifically to one of the new accounts you picked up last year, WellPoint. Can you talk specifically about how the on-boarding of that account is rolling out so far this year and next year? And then, what your expectations are for that going forward?

Sure. Thank you, Peter, for the question. And then I'll give the response and then invite Steve to add some color as well. He is out there in the marketplace. But, we -- as you say, we did bring on WellPoint at the new network partner last year. WellPoint as you know, Peter, is a complex plan in 14-odd states plus national accounts. Our initial work with WellPoint has focused on their National Accounts group, which is not surprising given that that's where they are most competitive with other national health plans. And I guess, I would say that, that work has resulted in new employer groups and new members coming at a brisk pace. We expect good things from the WellPoint relationship both for the remainder of this year and certainly on a go-forward basis. And at a strategic level, we continue to have a great relationship with the leadership at WellPoint, and I think CII and the benefits of the partnership.

Is there any way to more specifically quantify the timing of some of that business coming on?

I don't have a clever way for you to do that, Peter. I guess, what I would generally say, Peter, is that, ultimately -- and I'd say this is true with all of our partnership relationships, we and WellPoint are going to respond to the needs of the market, and as the market continues to grow in terms of its focus on the HSA and HSA-style plans, you will see a greater uptick in that relationship.

Okay. Looking at your custodial fees, they look a little stronger this quarter than in the past. If you look at seasonally between 1Q and 2Q last year, the custodial fees per account improved, but only by about $0.17. This quarter, they improved by about $0.37. Is there something specifically going on there? Or is that just timing of account balances and the accounts coming on? Or is the spread starting to improve for you guys?

Darcy, would you like to address that?

Yes. We -- as you know, we had several depository accounts. We have rolled off some older depository accounts and added some new ones that had a little slightly uptick in the rate that we get from them. But overall, it is exactly, as you say, it's a function of average balances -- average cash balances. We have grown both the investment balances and the average cash balances, so we picked up a little bit of increase from investment fees that we're getting off as the growth that's occurred there. But from a rate standpoint, we've averaged this year in the range of 150 -- 1.5% on our average cash balances and we expect that to continue for the rest of this fiscal year.

I would say one other thing, which is just generally in evaluating these numbers on either a year-over-year or quarter-over-quarter basis, one thing that's important to keep in mind is to do that in the context of the overall growth rate in terms of number of accounts. Given how high that growth rate is, inherently it's the case that a significant component of our base consists of young accounts. And as we've said elsewhere, accounts are least profitable at the outset and growing profitability over time, both reflective of higher custodial fees, but also in certain cases, lower servicing cost. And so we continue to have an account base that is very, very young, which from our perspective is very, very favorable in terms of the long-term profitability in the business. But it is an important factor if you look at any of these comparisons.

Great. And then the last question, just looking at your pro forma EPS guidance for the year, you're already at $0.13 so far in pro forma GAAP EPS and the bottom end of your range is $0.16, but if I look at sort of the bottom end of your EBITDA, I sort of get to $0.04 -- more coming as opposed to just $0.03? Is the $0.16 just sort of abundance of caution or is there course below the line that we should be aware of? Or -- how are you thinking about that?

Darcy?

Yes. So, that's a good term, abundance of caution, but as we talked about the seasonality, what happens in our third and fourth quarter as we've discussed, we add some expenses in both the third and fourth quarter. And as we anticipate we get closer and we start bringing on partners and we know how many accounts there are those costs can ramp-up a little bit faster than what you might otherwise expect. And so in some regards, the more accounts that we're going to bring on January, the more expenses that we're going to incur in that third and fourth quarter. So, you're right, the $0.16 to $0.18 range is on that lower end, just giving ourselves some room for some of those unexpected that may occur in that fourth quarter.

And even some of that is below the line of EBITDA perhaps? Or is there anything specific below the line of EBITDA?

So all of these expenses specifically are in our service delivery, which is the cost of sales and therefore the gross margin. And then the other one that we've talked about is the sales commissions expenses that all get paid and accrued in January -- in the month of January, which is in our fourth quarter for those accounts that come on board in January.

But, I think again, and this is apropos [ph] of my earlier comments, recognizing the volume that's coming on. We're going to be prudent in terms even as you look at CapEx, and CapEx can be expressed in a number of ways, we're going to be prudent and make sure that everything is in place to handle growth and volume as it comes. So, I think what we've tried to do from a guidance perspective on EPS is to just be prudent best as we can.

And we'll go next go to Sandy Draper with SunTrust.

Two, I guess, more bigger picture questions for maybe Jon and/or Steve. The first one is maybe, and this just sort of came up because I saw those announcements from Alcoa that they are going to be pushing a lot of their retiree onto private exchange. Just talk a little bit about what we see as the opportunities and risks for you guys to take advantage of what's going on with both the public and the private exchanges?

I'll start out and then Steve will add. I'm going to start out by simply, perhaps for those who have not heard us discuss the opportunity in exchanges and our perspective on it before, to perhaps just offer a little bit of an introduction there. For HealthEquity, the opportunity at this juncture is not administration of exchanges. There are plenty of people who are in or want to be in that business. The opportunity for us is that when you look at what consumers do in exchanges, public or private, voting with their own pocket books as it were, they overwhelmingly select plans that have higher deductibles and therefore have a greater propensity to be plans that are eligible for HSA or HSA-style accounts. And of course, the tradeoff is that they get, in exchange for that, is lower premiums. And our goal is to be there for those consumers in partnership with our health plans, in the case of public exchanges and private in some cases, and in some cases in partnership with our employer partners as well. So, we look at the kind of core, we look at exchange as an opportunity, if I use the term broadly, because exchange means people come into these plans, and when they come into these plans, that expands our market opportunity. With that, maybe Steve, you could describe a little bit of where we are today and what we see going forward.

Fantastic. So, to Jon's point, when consumers vote with their pocket books in the exchanges, they tend to buy lower premium, HSA-style plans, and that benefits us immensely because we are partnered with nearly 60 health plans throughout the country, and these health plans are the predominant products sold on exchanges. As we've presented in the past, whether it's our low point relationship or others, the local exchanges want the main brand health plans, and many of the main brand health plans are HealthEquity's partners. So as they are selling these plans, that gives us the great opportunity to partner with our health plans and we're working very closely with all of our health plan partners to present the combined solution of a low premium HSA-style plan with the HealthEquity solutions to consumers in both the public exchange marketplace and also the private exchange marketplace. The other benefit is, is that now consumers are making that choice and really understanding the benefits of putting money in this health savings accounts for their long savings opportunities. And as our business model suggests that when consumers save money thoughtfully, or certainly spend money thoughtfully, HealthEquity business model benefits because we're there to help them do that. It also allows us to expand our ecosystem because our health plan partners would like to be able to present to the consumer, not just the ability to buy a plan design, but to buy a full fleet of services including themes like wellness, telemedicine, e-visits and all of that can be plugged right into our platform. And so, the adoption of exchanges, we don't know exactly how fast this will adopt, I don't think anyone does, but we do believe we're well-positioned as it goes forward and it's really in conjunction with our health plan partners, and of course, our employment network partners too that are participating.

Great. That's really helpful. And actually, it's a perfect segue into my second question, which is around those additional tools, the consumer tools. When you think about owning building your own or versus partnering, how do you evaluate the decision of what you absolutely want to own on your platform versus maybe a partner plug-in? I know it's important the way you look at the integrated usability for the consumer and you want single sign-on, but beyond that, how do you look at, "Okay, we can partner for all these things or these are some other tools that we may need to build/buy?" What's the thought process and the engagement there?

Yes, I'll start first and then Jon may have some comments. So, the nice thing is that and this go back 12 years, as we first started the company, we envisioned a world that's now here, where you have lots of capital, financing lots of solutions to help people make better decisions. And so, we're at this wonderful juncture to be able to sit and watch this. And when we work with a large employer that may have solutions like we've mentioned, telemedicine, wellness, incentives, transparency, and that they've already partnered with those solutions, then in that case, we're going to provide a way for them to plug in quickly, so that when a member logs on to the HealthEquity website and into our ecosystem, we can message them in a way that can help them better save or spend their healthcare dollars. We do not want to go out and start to provide services that are already readily available in the marketplace. On the other hand, there are some solutions in the marketplace that are readily available. And the example of this is what we have done with our HealthEquity advisor solution for people that need help in managing their HSA investments. As the average age of the account balance on our platform is less than $2,000, and the average investment account balance is bigger than that, but certainly much lower than the average 401k balance, so in that case, we say we wanted to own the solution that could help people make better choices, and so that's an example. And so, I think the short answer is, Sandy, as we want to be able to track the usage, there may be some cases, where we feel like there's a solution that market needs is not available, we will likely to develop that or perhaps acquire it. But if there is an abundance of solutions out there that are already in use by our partners, we just want to connect people to those solutions and help them have more utilization [ph].

Yes. I'm not sure I have too much to add to that except to say, at the end of the day, what's great about what's happening is the multiplicity of solutions that are out there that are aimed at helping consumers, in one form or another, navigate through this -- is what I said at the beginning, really important personal issue of financing healthcare and dealing with the healthcare system. And that having been said, what most of these solutions have in common as a challenge is the lack of eyeballs and the lack of relevant of being able to present themselves at a point of relevancy, that's what we deliver and deliver very well. And that is why, we make good partners to these solutions. The bill/buy partner versus multiple partner discussion, really is ultimately about what we kind of conclude will serve our members best. As Steve said, in the case of advisor, we concluded, one, that they were no readily available good solutions out there. Two, most important, that this was something our members needed -- some of them knew they needed it, others didn't, but that they absolutely need in order to be successful in this new environment. And three, that we have a capability to deploy something that relative to what's out there would be extraordinary, and so that's what we want to head into.

[Operator Instructions] And we'll go next to Mark Marcon with RW Baird.

Looking at your ending HSA account numbers, it looked like you had a little bit more sequential growth this year than you did last year, so slight acceleration from that perspective. Can you talk about if there is a propensity for additional member sign-ons that are off cycle, if that's increasing as there is a higher level of appreciation for the benefits of an HSA? Or what's driving that stronger growth off cycle?

That's a great question, Mark, thank you. And first of all, I think you're correct, that is to say that if you look at Q2 versus Q1 growth in HSA membership this year and compare it to last year, there was a significant uptick. These are small numbers. This is much more planting season than it is harvesting season. But nonetheless, within those small numbers, there was significant growth. Your question really is what does that mean? And from our perspective, primarily what that means is, that our partners and our sales team are doing the job that we expect them to do and doing it well. I don't think we have any indication that, that is occurring on a more secular basis. We don't have any identification that isn't occurring, but looking at our own data, what it tells us is that, we can feel confident that to the extent that the present is an indication of at least the near future, that we are well-positioned to capture the HSA growth and HSA-style growth that's likely to occur over the course of the remainder of the fiscal year.

Go ahead Darcy.

I was just going to add one thing that as we go through the fiscal year, through our second fiscal quarter, most of the growth that we are seeing in from our existing network partners, so either from employers that are already on board with the sort of health plans that are already on board with it. In January, that will change a little bit, because we will bring on some new employer partners that have not been with us before. So the growth that you see at the midyear, we're encouraged by that certainly, But there will be a new dynamic added to that in the January timeframe.

Great. Fully appreciate that. And -- but it sounds like, as we look at just the second quarter adds, there wasn't anything unusual that drove that, that would identifiable. It's more of the underlying trend from ...

Certainly any acceleration or any change in terms of, for example, off cycle activity where an employer chooses to do a mid-year switch or what have you, or a change in the mix that would explain that. It really is just from our perspective a function of the underlying growth in the market, combined with our positioning within the market and our expanding footprint.

Great. And with regards to the account fees, are they in a good spot?

Darcy, you want to speak to that?

Yes. I think that the account fees have been -- as we've talked before, they've been fairly consistent and we've seen no unusual changes there with respect to account fees.

Great. And just going back to your earlier comment, it sounds like the -- if we take a look at the yield on the cash balance, we're in a good spot there. There's no reason why that should decline at least in the next quarter, obviously when you go into the fourth quarter, and we have all those adds, we'll make some adjustments there, but ...

Yes, that's correct.

Great. And then just going back to Paul's question earlier. Your EBITDA guidance is consistent with the expectations. But what should we be thinking about in terms of like a tax rate for the balance of the year?

We estimate our tax rate on the full fiscal year basis. And we're anticipating a tax rate for the full FY '15 to be around 40%.

Around 40%? Okay great. Super. And with regards to the going public, the increased visibility, have you seen any sort of increased awareness from potential clients? Any sort of reflection of your increased profile?

I think I'd be in a better position to comment on that 1 more quarter out. And that it's obviously only been a few weeks, and it would be attempting to look at anecdotal evidence one way or the other and draw conclusions. But I'd prefer if we kind of held off on any view on that and give it a few more weeks to see what we think we're going to see.

And that does conclude the question-and-answer session. We thank you for your participation in today's conference call. You may now disconnect.