Good day and welcome to the HealthEquity's First Quarter 2016 Financial Results Conference Call. Please note this event is being recorded and I would now like to turn the conference over to Mr. Frode Jensen, General Counsel. Please go ahead, Mr. Jensen.

Thank you very much. Good afternoon and welcome. My name is Frode Jensen and I am the General Counsel of HealthEquity. Please be advised that today's discussion includes forward-looking statements, including predictions, expectations, estimates or 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 statements made today. As a result, we caution you against placing undue reliance on these forward-looking statements. We encourage you to review the risk factors detailed in our annual report on Form 10-K filed with the SEC in March of this year and any subsequent periodic or current reports 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 am now turning the call over to Jon Kessler. Jon?

Thanks, Frode, and thanks everyone for joining us today. Fiscal 2016 is off to a solid start. During the first quarter, the company saw continued momentum across the four key metrics that drive our business which are revenue, adjusted EBITDA, HSA membership and Assets Under Management or AUM. Revenue grew 48% compared to the first quarter of fiscal 2015. Adjusted EBITDA of $10.8 grew at an even faster rate of 59% compared to the year ago period. HSA membership reached 1.5 million, up 46% year-over-year and AUM reached 2.5 billion, up 50% year-over-year. Based on the first quarter performance, we are raising our full year outlook for both revenue and EBITDA, which Darcy will detail in his remarks. Before I turn it over to Steve, please allow me to make three summary observations on the results for the first quarter. First, HealthEquity continue to gather momentum. Year-over-year growth in revenue, HSA membership and AUM accelerated during the quarter compared to the quarter period a year ago. Second, the business continues to gain operating leverage with year-over-year adjusted EBITDA growth again exceeding top-line growth on a percentage basis. Adjusted EBITDA margin for the quarter up 36% compared to 34% for the first quarter of fiscal 2015. And third, the team extended its record of strong starts to sales cycle. HealthEquity added 53,000 new HSA members during the first quarter compared to 43,000 in the year ago period and AUM growth of 182 million during the quarter was 141% higher compared to the year ago period as HSA members transferred more assets from competitors to HealthEquity during the first quarter than in any prior period. Finally, I’d like to spotlight the growth in long-term investing by our HSA members. HealthEquity exists to build health savings while cash AUM grew 48% year-over-year in…

Thank you, Jon. As we’ve explained in previous calls, HealthEquity has a unique engagement asset with our members that we are just beginning to monetize. Our members logged on to the HealthEquity platform 14 million times in fiscal 2015. During an average month, 28% of all members logged and 13% contacted our member education specialists. We want to use every contact and everything we know about each member to drive better health saving and spending decisions, greater use of the tools and content offered by our network and ecosystem partners and to lift our business. Jon spoke about the rapid growth of investing among our HSA members. To drive this behavior, HealthEquity implemented proprietary logic that identifies HSA members who are most likely to benefit from investing. We then engage these members across multiple touch points including in our member service center, on our website and mobile app, through email alerts, and in onsite member education settings. We have also previously described engagement efforts to drive the use of our ecosystem including tele medicine, wellness, cost and quality transparency. In doing so, we are leveraging the over 1300 data pipes HealthEquity has built with our network and ecosystem partners. I’d like to share a few more examples of our team’s success in this area using data from the 12 months period ending April 30th 2015. First, we engage members likely to benefit from our yield plus offering and HealthEquity advisor tools. Enrollment in these products jumped by over 450% and 200% respectively. We engage members likely to contribute more to their HSAs and saw their average monthly contributions increase by 18%. And then by targeting consumers enrolled in individual HSA style plans of one of our large health plan network partners, we reduced the cost of acquiring new HSA members with funded accounts by over 70%. By continuing to build on a profitable foundation of consumer engagement messaging, we can accelerate our work to help members build the health savings and to better serve our network and ecosystem partners and to drive improve the economics for HealthEquity. I would now like to turn this time over to Darcy Mott, our Executive Vice President and CFO, who will review the details of our first quarter results. Darcy?

Thanks, Steve. Today I will discuss our results on both a GAAP and a non-GAAP basis. Our non-GAAP operating metrics include adjusted EBITDA and non-GAAP earnings per diluted share. We define adjusted EBITDA as adjusted earnings before interest, taxes, depreciation and amortization, non-cash stock-based compensation expense and other certain non-operating items. Non-GAAP earnings per diluted share is calculated by adding back to net income of stock-based compensation expense net of tax and dividing the result by diluted weighted average shares outstanding. I’d like to spend my time on the call today reviewing the financial results for the first quarter of fiscal 2016 and discuss our outlook for the rest of fiscal – of the rest of the fiscal year. As Jon mentioned revenue for the first quarter of fiscal 2016 was $29.9 million, an increase of 48% compared to the first quarter of fiscal 2015. As we have mentioned previously, we report our revenue in three categories, account fees, custodial fees, and card fees. Revenue grew substantially across all three categories in the quarter. Account fee revenue was 48% of total revenue in the quarter at $14.4 million representing an increase of 39% compared to Q1 of 2015. Custodial fee revenue for the quarter represented 28% of total revenue at $8.4 million. This represented an increase of 55% compared to the year ago period. Card fee revenue represented 23% of total revenue in the quarter at $6.8 million, an increase of 59% compared to the last year. Jon also highlighted that our investment AUM as a percentage of total AUM continue to increase. At the end of the first quarter of fiscal 2016, investments AUM represented 14% of our total AUM and compared favorably to 12% at the end of the same quarter in fiscal 2015. Gross profit for the…

Thanks, Darcy. So, we are obviously feeling very confident about the start that we’ve had to the year and I’d like to close by pointing out that that confidence is a function of the hard work of our fellow team members here in Draper and around the country, of our employer and health plan network partners, of our ecosystem partners and of course of our HSA members themselves who are slowly but steadily building health savings using our platform, making smart healthcare financial decisions and getting more comfortable in the world in which we live with regard to consumer directed healthcare. We look forward to continuing to delivering results and continuing to invest in the business and with that, I’ll shut up and open the floor for questions.

[Operator Instructions] And we will take our first question from Lisa Gill with J.P. Morgan.

Good afternoon and thank you for all the detail. I just had a couple of follow-up questions. First, Jon, can you talk about, in the quarter, you talked about transfer of assets, was that all business that that you’ve won or do you continue to win business post that January 31 timeframe?

Lisa, it’s a little of both, primarily this is – our rollovers and alike represent business that was won in the period that ended in January. But it often takes time for other custodians to get the money over. In addition, we saw some large rollovers. So those are individuals themselves moving money as their employer opens an account with us and alike whether that was from the prior period or from the new period, it’s a little bit of both. But, obviously, the sales cycle that we had in the last fiscal year had an extraordinary impact and you are still seeing that impact in the first quarter in terms of transfers.

And then I was wondering if there is any update on your ecosystem partners out in the marketplace, has there been anything notable that that you’ve added to your ecosystem since the last earnings call?

Well, we continue to add across a number of areas, Lisa. Certainly, there have been a number of additions this year in remote health, tele-health which is grown in popularity and certainly it’s something that employers and health plans are talking about this year and as well there are new solutions in that area. So that’s one area I would highlight where we’ve kind of filled out the roster as it where of ecosystem partners and certainly another is around different models of wellness-related engagement where there are just a lot more players and our ability to quickly build pipes across multiple players, it really gives us some real advantages and that’s showed itself in this quarter with – as new players have popped up or have gained the interest of our network partners, we’ve been able to respond pretty quickly.

Great. And then my last question, just would be, I know with assets over the last several quarters and that’s around M&A, you talked initially when you took the company public around opportunities for some M&A activity, do you – maybe just want to give us an update as to how you see the competitive market right now? And do you see potential targets out in the marketplace? Or has pricing changed at all? Any color would be really helpful.

Yes, thanks for the question, Lisa. I think in short, we recognize that in order to continue pushing the envelope as far as the growth of the business, we are going to be continuing to invest in the business and we are fortunate to have both on the balance sheet and in income statement itself the capacity to do that. Obviously, is a big piece of that. The way we look at it is, there are really two kinds of M&A that we are looking at. The first is, competitive M&A and there, we are going to look at opportunities primarily as ways to bring high and fairly predictable IRR to our shareholders and where there are deals to be done that, deliver that results, we are going to do them and that’s what we said for a while. Obviously, the implication being that we hadn’t seen anything that quite gets there for us. The second type of M&A that we look at is really around the growth of the business in terms of capability and there our focus, as we’ve said before is on targets that really help us do more with our ecosystem than we can do today. And so that’s kind of where we are going to continue to look and that’s where you should expect to see us continue to do transaction activity. We’ll get there. We are, by nature, somewhat conservative people and as a result, there is certainly probably things that we could pursue that we are not going to pursue because the business models aren’t really compatible with what we try and deliver to our investors which is consistent in growing revenue and profitability. But, we will get there.

We appreciate that. Thanks, Jon.

Thank you, Lisa.

We will take our next question from Peter Costa with Wells Fargo.

Hi guys. Congratulations on the good quarter. I’d like to get into a little bit more details about – to your revenue per HSA has been very consistent for a while now and yet the makeup of that revenue per account has changed in this quarter and the account fees were a little bit weaker whereas the card fees and the custodial fees were very strong. Can you kind of explain to structurally why that happened this quarter and sort of what –how we should think about that?

Darcy?

Sure, thanks, Pete. So, year-over-year, Q1 compared to Q1 of the prior year, our accounts fees on total per custodial count were down about 6% and as we’ve mentioned previously, there is a couple of reasons for that as we brought on new partners as of our January quarter, some of those and even the existing partners that had tier levels where they may have decreased their account rate, which will happen over the normal course. But additionally, sometimes we’ll bring on a new contract and where that employer is able to guarantee us a significant amount of AUM via their contributions, then we’ve been able to give them a little bit more rate on the account fee which obviously has a impact on the custodial fees. So there is more AUM. So that’s a little bit of the trade-off that we deal with and that’s the reason for the decrease on a per unit basis in the account fees year-over-year.

So that I should think about it is because employers are incentivizing people to use HSAs more by contributing more money into their HSAs that’s creating the dynamic where the account fee is a little lower and the AUM is a little higher based on how you sell the products to those employers.

Correct.

Okay, great. Okay, and then can you tell us, you didn’t update us on the tax rate going forward? It was 38.5% before, is that still the number you are targeting at this point on tax rate?

Yes, that we are still targeting that, we got a little bit benefit for some R&D credit in the first quarter. So it’s a little bit less than that, but, I think for the year, we are going to be in that 38 to 38.6 range.

Okay, and then, yield on average cash AUM? What was that?

It was 1.56% for the quarter.

1.56%?

Yes, on cash.

Just a little bit more on Lisa’s question about where those assets are coming from that are being transferred to you. You talked about being the biggest you’ve ever seen this quarter and you talked about that last quarter as well. Is that net assets coming to you or is that just the transfers in are much larger and I know you are taking many accounts, but I wanted to understand, or it’s just because HSA balances in general are growing or because you are taking share from others? A –Jon Kessler: Yes, so, we had a total increase in AUM of $182 million and I would say that, a significant portion in the $90 million range was transfers that have occurred. Some of those were accounts, we actually got the accounts in January. And so, if they were a rollover and these individuals had dollars in other HSAs then we would do the bulk transfer enroll their existing balances in and we happen to get that in the first quarter. So, it’s a significant enough amount that we highlighted in the first quarter. But these are coming from some of our competitors who have had these HSA assets before and now they’ve come to us via the bulk transfers and that’s about half of what the increase was for the quarter.

Was it clear they were coming more from your network partners who are health plans or more from your network partners who are employers? A –Jon Kessler: I don’t think we’ve thought about it in terms of that distribution though. I guess what…

Generally employers? A –Jon Kessler: Yes, I guess, it’s probably a little bit more on the employer side. The reason we like these is, and I can’t resist calling the work of our – the team that does this transferring an HSA is not simple. We offer some modest incentives and thank yous to the members for doing it. And that works to our advantage in some respect and that the accounts are very sticky, but, the effort on – in terms of both our team and the members themselves as well as the employers involved is material. And so, the fact that we saw this kind of number, we really think that this is fantastic because, if you think about it as we’ve discussed before, a typical new HSA will have only $700, $800 in the first year. But, when you see more new HSAs with transfer dollars in them, that’s a good thing. That increases the yearly profitability of the accounts. It’s also worth noting though that we had as much transfer activity we had, we also had an extraordinary quarter in terms of contributions meaning, just members contributing into the accounts. And so, look, I think, across the board from an AUM perspective, it was a good quarter for savings, is kind of a way to look at it.

Okay and then just the last question, in terms of the marketplace out there, what are your thoughts on private exchanges and we're seeing an exchange company by a portal company. Can you talk about what you see going on with the private exchanges and your outlook there and how you are approaching the market? A –Jon Kessler: Yes, as a reminder for those who may be new to this subject as it relates to HealthEquity, our basic strategy with regard to the private exchanges is to partner very closely with our health plans. I think during the quarter, we announced a partnership for example, with Ray Health with regard to some of the captive exchanges that a number of boost plans and other are doing, but our general strategy is to partner with our health plans, because they have as strong an interest as anyone in having us ride along with them into the exchanges. And what I guess I’d say is, thus far, there is far more talk about the private exchanges than there is real switching activity and I think I said this last quarter that and it remains true that we did not see – I am struggling to name one, maybe there is one of our employer network partners who went from a traditional plan offering to a straight private exchange type offering. So, I think it’s still really early days for the exchange concept. I see numbers quoted out there that clearly include lots of other stuff and what they are accounting, but, ultimately, we see this as a favorable trend basically because people voting with their own money are more likely to adopt HSA style plans and every data point that I’ve seen over and over again shows exactly that result from both the private and the public exchanges. So, ultimately, we think it’s going to be a favorable trend, but we cautioned at the time of our IPO that the level of print on this one was way ahead of the level of action and we still believe that.

Great. Thank you very much.

And we will take our next question from Sandy Draper with SunTrust Robinson Humphrey.

Thanks very much. And also congratulations on a very strong porter. A lot of my questions have been asked, maybe just a little more commentary, Steve, on the idea of the marketing to people around the investments. When you are talking to folks or, what are they really responding to? Are they just thinking about that near-term heck and make a little more money here or people really understanding do you think the long long-term benefits of building a long-term health savings account?

Thanks, Sandy. We’ve taken kind of a layering approach. I mean, it is amazing how many people, even among our members that still think these are kind of use it or lose it. And so initially we just have to help understand that they should put more money in these because it’s going to stick around. Let’s face it. I mean, FSAs were around for so long and people were so used to this money disappearing and even if it kind of hang around and like an HRA was it really their money. And so, the initial education is just to start targeting people. But what we can do is, we can target people based upon balance and if they got enough money in there and they are starting to figure out, yes, this is an accumulated account, then we layer in messaging that says, you probably have enough money to start to invest, click here and then at that point they can start to invest that money. And the remarkable thing is once they start to invest, they start to input more money into their accounts which is pretty exciting. And so, it’s kind of this layered approach first come understand this money is persistent and then it can grow and then all of a sudden you start to see – really start to testify. A –Jon Kessler: And I would only add, this is Jon, our platforms – and I am using the term platform to describe the technology as well as the people providing expertise to our members. Our platform was built to engage and whether that engagement is as one example, promoting utilization of a telemedicine service or whether that engagement is about promoting the opportunities for our members to grow their balances through investment or what have you, the fundamental, the bedrock from a technology perspective is still there, which is about using data to try and understand who might be receptive to messaging and then about using multi-modal communication whether it’s someone we are talking to on the phone, someone is visiting the website, or some other mode, using those modes to push those messages, whether again you are talking about words, or video or what have you and really, it’s about iterating to get to the best response. And that’s kind of where we believe that there is a little bit of incremental improvement we can do kind of period-after-period and hopefully we’ll get better at that. But there is still long way to go here. Obviously, the numbers of investors are still small. But we talk about it every quarter impart to signal that it’s important to us. It’s important to our mission, it’s important to our profitability and certainly something that’s very, very positive for our members and that their employers and health plans recognize as well.

Great, that’s really, really helpful commentary. Maybe second question, and looking at the guidance raise, which is always encouraging, any specific when you think about what came in better they gave you the confidence? Obviously, the quarter was good, but what were the delta points that made you decide to raise guidance?

I think that the biggest single factor was the AUM growth. We’ve talked for sometime, that the HSA growth would outpace the AUM growth just because new accounts have lower balances, but because we had such a big increase of this $90 million rollover in the first quarter, that money stays there for the entire year. So that’s one thing that kind of really moved the needle for us. We are encouraged by the growth of the – we know that first, second, and third quarter account growth, we are very pleased with the year-over-year numbers, but January from an account perspective is really the big quarter. But, it’s really that AUM growth that was so significant in the quarter, Sandy.

Great. Thanks, Darcy. And then, maybe one last question probably for Jon, on a macro level. I've heard a little bit of chatter coming out of DC about the potential to our - some people wanting to maybe get the Cadillac tax repeal that maybe sort of separate from anything around ObamaCare. One, I guess, first question, have you guys heard any of that chatter? And then second, if that does come to fruition, how much of an issue if any would that be in terms of how you think employers are thinking about high deductible plans and HSAs? Thanks.

Yes, well, there are a number of bills in Congress primarily sponsored by Democrats that would roll back various elements of the funding for healthcare reform and Cadillac tax is no exception. I’ll resist the opportunity to poke fun at what seems like kind of an ironic thing. I guess, I didn’t resist it, but, suffice it to say that, I think that the way that employers are looking at this is very much the way that they have looked at every element of healthcare reform legislation as it’s they have come which is, I think employers are probably a little bit and health plans are probably a little bit slow to sort of reckon with this is coming. Certainly, the earlier you plan, the easier it is to deal with and some of that is based on will it really happen, when it really happen and then typically these things do really happen and then employers take action. And so, I guess, our basic is Sandy, is that the growth that we are seeing today which is of the same magnitude as market growth over the past number of years doesn’t really represent acceleration in the context of the Cadillac tax. It really represents activity that’s a pre-cursor to that. So, if the tax or some other version of a cap on the total value of employer sponsored health insurance which most of these bills include were to go into place, clearly that would in all likelihood result in some market acceleration. Again, that’s more with regard to the market and specific to us or not. But our view is what we are seeing today is really more about the basic economics of HSA plans. They do what they are supposed to do, which is they are not magic, but they are very effective at reducing the rate of healthcare inflation to a manageable level. They provide individuals with more choices as well as long-term savings opportunities. And so, that’s really what’s driving things today. If we do see the Cadillac tax implemented for those who have the unfortunate experience of dealing with the alternative minimum tax, it will be very similar in that. It’s kind of a drip, drip, drip with the new employers subject to the tax each and every year and that will have its effect over time. But I think, we are not quite there yet, and we’ll all watch Washington and see what it does.

Thanks, Jon. I appreciate the comments.

We will take our next question from Mark Marcon with Baird.

Good afternoon. Let me add my congratulations. With regards to the guidance, I was wondering could you give us a sense for some of the inputs that we should factor in, whether it's the account fees, or how much – what we should think about in terms of the cash AUM effective yield, et cetera?

Yes, so, my comments on the account fees, we expect that that trend should continue for the remainder of the year.

The fee rate, Darcy.

Year-over-year from quarter-to-quarter, I think that – you are seeing that 5% to 6% decrease compared to the prior year just in the rate. But, bear in mind that the volume for us outlays the effect of the rate decrease on the accounts fees themselves. On the interest rates, last year for the full year, we did 152, we came in at 156. We expect to be in that range probably towards the upper part of that range just as we go forward.

Okay and then, obviously we saw the big rollover in terms of the AUM. On a – for the next few quarters, how should we think about the AUM growth given, past that big seasonal jump

Yes, I think that the first quarter, for that delta for the bulk transfers is just a characteristic of the first quarter. I would not expect that to occur so much in the second and third quarter and then we’ll see what happens in the fourth quarter. As we know, the fourth quarter is a big quarter for us both with respect to accounts and then into new AUMs. So, I would expect that the normal growth you would say in AUM in the second, third quarter will kind of be more consistent with past performance.

Okay, great. And then, with regards to the network partnerships, can you talk a little bit about that just in terms of what you are seeing in terms of adding – obviously, the fourth quarter was the big quarter for this, but were there any notable employer adds? Or health plan adds during this past quarter or a building of the pipeline towards that?

Yes, this is Jon. We don’t – as I think, you know, Mark, we don’t do and it’s good to talk to you by the way, we don’t do new network partner win type announcements. The reason we don’t do them is really because, realistically, the announcement is the easy part. The work is usually after that and in addition, sometimes that information isn’t known to the employees or team members of the partner. So, we tend to confine those to the end of the first quarter. That having been said, I guess, what I would say is, what you can draw from what is albeit at a small sample in the first quarter is and the fact that we had a better first quarter than last year or than any first quarter before it. As that the pipeline is filling nicely. We are consistent with that increase. We are seeing a more RFP activity than we have seen in prior years at both the employer network partner level and then particularly, within health plans as they do their thing. So, I guess, what I would say is, without getting too far into it, our view is that the sales cycle has started helpfully that the data that we presented as well as data that we haven’t presented suggest to us that we are off to a good start towards our best sales cycle ever and it’s early days, but obviously, we’ll keep it up and keep reporting on results as they come.

And, with regards to the strong growth, can you give us a feel for the organization just in terms of the areas that you focused on in terms of internally growing the organization? Obviously, your call center is growing, but how is that all progressing, because you had such a strong rate of growth?

Yes, we have been very fortunate over the years in that. From a cultural preservation and strengthening perspective, we focused very heavily on developing our internal talent wherever we can. The bulk of our new positions are filled by people who already worked here or people who are referred by people who already worked here. And that’s a metric we report on to our team members and talk about quite a bit because it relates directly to individuals’ career planning. So, that’s been quite helpful to us, particularly as we’ve looked over this period to fill more - let’s say more experience-oriented positions within our operations organization, within our technology organization, within our service organization and even in the overhead departments like Darcy and mine. And so, I guess, our view is that, recruiting has gone nicely. We’ve tried to approach the business over the years from the perspective that the people you know the best are the ones who are already here and you can invest in them far more effectively. And so that’s always been our priority, but I think that’s what we’ll continue to do and then of course, as our capabilities expand, we will obviously continue to look externally. But, that’s been a real help to us. It’s made the growth a lot more manageable than it might otherwise be both in member services of course, but really throughout the organization.

That's great to hear thank you.

And we will take our next question from Alex Paris with Barrington Research.

Hey guys. This is actually Joe filling in for Alex.

Hey, Joe.

Jon, how are you doing? Let me just start with the competition. Just to kind of get your insight, last quarter you talked about the competitive environment, but I think it was mostly around kind of the Webster acquisition of JPMorgan’s business. Maybe just on the smaller side, I am curious what you're seeing from maybe some of the smallest players in the space. Any update on that would be helpful.

The honest truth, Joe is not a hell of a lot. It maybe that, you don’t see any one of them in enough volume that it really gets attention, certainly, as the small group level, that’s where some of your takeaways are coming from, people sort of initial foray was, I’ll do this with my local bank and then health plan partners with us and comes in and says, you know what, we’ve really got a better solution that’s going to work for everybody and people move over or alternatively, they start to want to think about investments seriously and wonderful capabilities there. So, but, I can’t really pinpoint anything in the smaller providers that is really sticking out in terms of either – any moves that really matter. I guess, that’s my short answer.

Yes, no, that's fine. I appreciate that. And let me jump back to the AUM and the AUM growth. Your commentary around the way you message or the way you target them, either be it’s kind of the web portal link or some sort of targeting messaging or some conversation with you member services. I am curious what - maybe it’s all three or maybe equally but I am just curious any one versus the other driving the growth?

The answer is all three, but those are three good ones. I mean, if you want to really do something and you spend sometime focused on it, you may actually figure how to message people to do something and so, it’s really a combination of a couple things. The first is, really giving in the information, historically, I think what folks would do and I think many of our competitors still do this is, they just assume that people will move the money over, but sometimes, people will just spend it down, and that’s not a good answer for anybody including the member. So the first thing is, for example, providing transfer forms in the welcome kits, that kind of thing to make it real easy. The second thing is, when a member calls, let’s say their first time calling member services, maybe it’s a card activation, maybe it’s something else. You message and if they haven’t done a transfer, you message them about that and then of course, it’s also the log in is an outstanding opportunity where you can have a really data-driven message about the benefits and then lastly, I’d say, we’d try to provide financial incentives. So, we have a program where we will reward members who transfer funds subject to certain limitations with additional interest up to 25 bucks. That sort of can pay their closing fees somewhere else. If someone is charging a closing fee, and so, when you sort of combine education and incentive, it’s amazing what you can do. Look, I think, this is really a good thing, just for the industry. The last thing we want is, people building up savings, as we’ve talked about before it’s sort of a slow and steady wins the race and then you build up your savings and your employer makes a change and you just say, just spend that money down. That’s not what any one wants. It’s not good for the member. It’s not good for the employer. It’s not good for us as a business. So, we thought this was a great thing to focus on for this last open enrollment fees and the team within our operations organization that really was head down on it did a really nice job and that was reflected in the results.

All right. That's it. Thanks, Jon. Good quarter.

Thank you.

[Operator Instructions] We will take our next question from Steven Wardell with Leerink Partners.

Hey guys. Congratulations on the good quarter.

Thanks, Steve.

And how would you describe what’s behind the high rate of HSA member growth this quarter? And what's driving it? So is it's competitive wins what's driving competitive wins? And if it’s an increase in adoption of HSA’s clients, what's driving that? And what else is behind it?

Steve, I think the answer to both and I am not like a big bragger here, but I am going to do it for a second, just I don’t think I am, maybe I just did. But, we have an extraordinary strong - extraordinarily strong platform for helping people with this journey towards the HSA from a more conventional range where they just pay their co-pays and their deductibles and they don’t need to think about it. And towards thinking about healthcare expenses in a little more of the long-term way. That includes technology. It includes service. It includes connectivity as we’ve talked about with different parties, so that we can provide information that’s relevant to an individual help to make the right decisions at the right time. I think that platform and its advantages help us in both the areas you mentioned. Certainly, it’s the case that in terms of competitive wins, that’s the source of competitive wins, is, it’s better mousetrap. But I also think that, as our employer partners and as individuals look at the platform that it also makes them more comfortable in doing the things that they need to do, the decisions that they have to make to move individuals in this direction. So, things like plan pricing. And the reason I say that is this is the time a year for example when we do our executive interviews with some of our largest partners around their open enrollment experience, their experience of account management team and time after time what we hear about is really, is about the quality of the experience that the members are having and that relative to the expectations that were there before the employer embarked on this particular journey. So, look, I guess, my answer is that, whether you want to think about it in terms of wins outright or about employers and health plans and individuals making decisions that cause underlying market growth. I think having a platform that allows people to get there kind of provide them a safe home within the HSA environment really helps and so we think it’s feeding both of those things. Steve, anything to add to that.

I think, it’s really the result of 12 years of pushing hard on the flywheel. And as we are now starting to have some relationships with some of these larger health plans that are starting to mature and it takes two or three or four years and we’ve seen this with the ones that we brought on five or six years ago. And it just takes a lot of work to get their internal folks trained on the better solution, get to sales people, the account managers, our own team working in lock step and as we’ve talked about in previous investment presentations, kind of that leverage that comes when you’ve got people on both sides as the network partnership continuum working together. There becomes some synergies and a better transfer of knowledge, more efficient transfer of knowledge and I think that that’s why – and I’ve spoken this in the past and that’s why you see year-over-year growth within a given network partner accelerate as well.

I mean, all that having been said, Steve, we have – there is plenty of work we can do to improve. We can help our health plans more strongly influence the consumer experience which is something that is clearly very important to them at this point, given the retaililzation that’s spurring in healthcare and it’s an area that we can work together to do more with have been even more integrated experience with them. With regard to our employers, obviously, there is more we can do to help educate members about all different aspects of this thing and then lastly with our ecosystem partners I think we can continue to do work to more effectively drive the right people to the right tool at the right time. It’s certainly something that they are very interested in whether whatever sort of tool or solution or content they might be providing. So, look, where we look at it like, we are happy with where we’ve been and where we are, but we are far more excited about where we are going in terms of the growth of this opportunity for us, for our shareholders or team members and of course all of our partners.

Great, thank you.

We will take our next question from Randy Reece with Avondale Partners.

Afternoon.

Afternoon Randy.

I have two questions. First of all, it seem that with the upside in revenue gross profit you took the occasion to invest some internally, but I don't know if the variances in expenses versus my expectations were different than your plan or just minus apprehension. So, it’s particularly noting the ongoing technology and development investment which seems to be moving in a pretty fast pace. Are you stepping up spending in that area or is this pretty much in line with where you were expecting?

Yes, I think that we have intensely planned on keeping ahead of the game and investing in technology. So we’ve continued to add in that area. Are you referring primarily to the Q1 or are you asking a guidance question?

Well, I am looking as much at the Q1 result as the updated guidance where you had a little more revenue upside than you had earnings – change in earnings expectation.

Yes, and that’s exactly right. So, the earnings that we will continue to look at. We are mindful of the position we are in and we want to make sure that we are putting money into the right initiatives that will make it even a better member experience and a partner experience. And so, as we have the opportunity to do that, we will.

My second question, regards to the - Institute that was here in town last week, I heard a lot of discussion about the rising importance of consumerization people termed it and of empowering the insured with more and more information and how difficult that was going to be. I was wondering if you had – your organization had any takeaways from the conference?

I think we had exactly - we had exactly that takeaway, it was, I am going to say extraordinarily validating of the opportunity that we have to go farther in this area. And to do more to help the consumer get the right information at the right time, get the right tool at the right time. And doing that, really requires from our perspective two things. First of all, it obviously requires some credibility with the consumer and so forth, but second, it requires you to know each consumer and individualize the message. And so, as we look at areas where there are opportunities for investment, this is definitely one where we feel like we are already doing a lot, but there is a lot more opportunity because frankly there is a lot more content. Ultimately, consumers will decide which of that content is truly useful, which of those tools are useful. Those decisions won’t ultimately be made by health plan executives or hospital executives. Consumers will vote with their feet. But, our job is to understand those consumers and understand our consumers better than anybody as Steve said, and to present them with useful information and useful packaging and the better we do that, the more opportunities we are going to have to work together with our various forms of partners. So, this is, we left with exactly the impression, you did Randy and also we think this is just beginning. We are really still in the very early days of the retailization of healthcare – of health insurance, certainly in health benefits. So, I think this is a trend that’s going to be with us for a long, long time. It’s going to have profound impacts on a lot of businesses. And those that get ahead of it and can really master it will have real opportunities and invest and those that don’t will not be as happy and we intend to be happy and to make you happy.

Thank you very much.

That’s my pitch, that last bit, we intend to be happy and make you happy. That’s our business plan actually.

We will take our next question from Luke Bodin with Raymond James.

Hi, thanks. Just a quick question from a broad level. I think you had made in your opening comments remarks that you had been achieving some good reductions in acquisition cost of accounts. Maybe just a little bit more detail on kind of where are you seeing the scale as you add new members? Is it kind of just on the technology side, capacity of your member services or just higher profitable accounts?

First of all, we wish Greg, safe travel. We are getting moment-by-moment update, so please tell him hello for us and then secondly, you know, historically, what we’ve seen is a lot of leverage to operating expense and you see that in declining cost of customer acquisition as well as overall unit expense on the OpEx side, but, I think also what we are seeing is, we are also seeing a scale in a number of other areas as well. So, we’ve gotten better at maximizing, for example, our card fee dollars per account. That’s a function of putting in incremental technology that helps us move more transactions over the card rails and attract more transactions, things like some of the things Steve was talking about earlier or that I was talking about, about getting people to transfer their money. So, as well as of course account balances themselves. So, look, I think the answer is a little bit of everything. It’s not our particular goal to spend less for example on member services. Our motto is, you take the call and we’ll worry about the next one, because we really feel like at some level, that’s a rare education in sales opportunity. It is our goal to see as many of those calls be value-added calls and where things can be done electronically or otherwise more efficiently for the member and where that’s what the member wants that’s what we are going to do. But, those are the areas where we’ve seen real leverage and where we certainly expect over the near medium term. We think that will kind of continue for us. The sales channels are efficient. They are doing what they are supposed to do. OpEx is efficient, it’s doing what it’s supposed to do and then broadly speaking, we fine tune the model period-after-period to try and get the most and spend the least while still spending everything we can to produce great experience for our members.

Okay, and then just one other follow-up here. Considering just the growth in the investment side of the assets, is there any or maybe you can just talk about just the difference in profitability or margin between kind of the – what we would expect from investments versus cash volumes?

Yes, so, as you’ve seen, on our cash AUM we wheel that in this 152 to 156 range and then our net interest margin is in the 125 to 130 range. And remember this is on a lot of cash balances that when they first come in they maybe have less than $2000. As they become investors, as we tried to point out, investors or savers, they have higher cash balances which we continue to get those types of yields on and then we get additive, we are getting 30 to 40 BPS on invested dollars. So we look at as investments as being additive to our total revenue base, not really taken away from the yields that we would get on the cash portion, because they are going to have significant cash balances also. Most people who become savers, they actually keep a higher cash balance just in case of an emergency or whatever and then they add their investment portfolio on top of that. Jon, do you want to add to that?

I mean, it’s simple point that sometimes when you sort of focus on this as comparable to a retirement business that gets forgotten. I don’t care if you are a spender, you are saver, everyone has got medical bills and people use our platform to pay those bills, to track their expenses et cetera and sometimes that’s with their HSA, sometimes it’s with the linked account, et cetera, but, the stickiness of what we do really isn’t dependent on whether you are saver or spender. And so, that’s one of the nice things about our model is the ability to collect multiple revenue streams and then even within revenue streams kind of multiple layers, cash, custodial fees and then investment-related custodial fees as well as in some cases advisory revenues from the same member as that member matures. And as we look at our older account cohorts, they are extraordinarily profitable accounts, because they’ve been through that maturity process or at least have been farther through it. And again, that’s a lot of the embedded value in the base that we grow so rapidly year-after-year here is, that eventually those accounts will mature and as they do, they will become more profitable for us as well as frankly for their members themselves. And so that’s kind of the model here at HealthEquity and what we are certainly planning on and investing towards and so that’s kind of how it works.

Okay, thanks for the answers guys.

Thank you.

And with no further questions in the queue, that does conclude today’s conference. Thanks for your participation.