HealthEquity - Earnings Call - Q3 2025

Executive Summary

• HealthEquity delivered strong Q3 FY25 operational performance: revenue rose 21% YoY to $300.4M, non-GAAP EPS increased 30%+ YoY to $0.78, and Adjusted EBITDA grew 24% to $118.2M, while GAAP EPS fell to $0.06 due to a $30M one-time legal settlement and elevated service costs tied to fraud remediation and card migration.
• Mix continued to shift positively: custodial revenue surged 41% YoY and card-driven interchange grew 15% YoY as members increasingly transacted on-platform; gross margin expanded to 66% vs 64% last year, despite ~$8M of event-driven service costs in the quarter.
• KPIs tracked well: HSAs rose 15% YoY to 9.5M, Total HSA Assets grew 33% YoY to $30.0B with invested HSA assets up 58%; Total Accounts reached 16.5M.
• Guidance: FY25 revenue $1.185–$1.195B, GAAP EPS $0.99–$1.08, non-GAAP EPS $3.08–$3.16, Adjusted EBITDA $470–$480M; initial FY26 revenue $1.275–$1.295B and Adjusted EBITDA margin 41.5–42.5% on ~3.4–3.5% HSA cash yield assumptions.
• Near-term stock catalysts: positive legislative momentum (HOPE Act) expanding TAM, interchange strength, mix shift to enhanced custodial rates, and visible FY26 margin expansion; offset by residual Q4 seasonality in service costs and normalization of interchange growth.

What Went Well and What Went Wrong

What Went Well

• Custodial yield/mix and interchange strength: custodial revenue grew 41% YoY to $141.0M; interchange rose 15% YoY to $40.3M as members used the HealthEquity card more versus off-platform reimbursements.
• Margin expansion despite event-driven costs: gross profit was $197M (66% of revenue) vs 64% last year; Adjusted EBITDA up 24% YoY to $118.2M (39% margin).
• KPI growth: HSAs +15% YoY to 9.5M; invested HSAs +21% YoY; HSA assets +33% YoY to $30.0B; new HSAs from sales 186k in Q3 (+14% YoY).
• Quote: “Team again delivered double-digit year-over-year growth across most key metrics, including revenue… adjusted EBITDA… HSA assets”.
• Quote: “We now project custodial HSA cash yield ~3.1% for fiscal ’25… and introduced FY ’26 EBITDA margins of ~41.5–42.5%”.

What Went Wrong

• GAAP EPS impact from legal settlement: GAAP EPS dropped to $0.06 due to a $30M WageWorks lease termination settlement; non-GAAP EPS was $0.78 excluding this.
• Elevated service costs: ~$8M excess service expense tied to fraud remediation and largest phase of card processor consolidation pressured gross profit in the quarter; modest carryover expected into Q4.
• Seasonality and normalization: management flagged typical Q4 peak service costs and prudence on forward interchange growth after a strong year-to-date performance.

Transcript

Operator (participant)

Good afternoon, and welcome to the HealthEquity third quarter 2025 earnings conference call. Please note this event is being recorded. I would now like to turn the conference over to Richard Putnam. Please go ahead.

Richard Putnam (Head of Investor Relations)

Thank you, Nick. Hello, everyone. Welcome to HealthEquity's third quarter of fiscal year 2025 earnings conference call. My name is Richard Putnam, Investor Relations for HealthEquity. And joining me today is Jon Kessler, President and CEO, Dr. Steve Neeleman, Vice Chair and Founder of the company, James Lucania, Executive Vice President and CFO, Scott Cutler, recently appointed Successor President and CEO beginning in January. Before I turn the call over to Jon, I have a couple of reminders. First, a press release announcing the financial results for third quarter of fiscal 2025 was issued after the market closed this afternoon. These financial results include the contributions of our wholly owned subsidiaries and accounts they administer. The press release includes definitions of certain non-GAAP financial measures that we will reference here today.

You can find on our Investor Relations website a copy of today's press release, including reconciliations of these non-GAAP measures with comparable GAAP measures and a recording of this webcast. That website is ir.healthequity.com. Second, our comments and responses to your questions today reflect management's view as of today, December 9th, 2024, 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 risk 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, the market price of our stock, as detailed in our latest annual report on Form 10-K and in subsequent periodic reports filed with the SEC. We assume no obligation to revise or update these forward-looking statements in light of new information or future events. Now, over to Mr. Jon Kessler.

Jon Kessler (President and CEO)

Thank you, Richard. Well done as always. Hi, everybody, and happy holidays. I will briefly discuss Q3's momentum and key metrics, and then we've got a cavalcade of stars. Steve will describe post-election paths to health account expansion. You're going to want to hear about that. Jim will detail Q3 financial results, raised FY 2025 guidance, and preview FY 2026. I know you're going to want to hear about that. And then we're privileged to have Scott Cutler here with us with a few words of introduction. Let's get to it. In Q3, the team again delivered double-digit year-over-year growth across most key metrics, including revenue, which was +21%, adjusted EBITDA +24%, and HSA assets +33%. HSA members grew 15%, driving total accounts up 8%. HealthEquity ended Q3 with 16.5 million total accounts, including 9.5 million HSAs, holding $30 billion in HSA assets, which is a lot.

In fact, HSA assets increased $7.4 billion year-over-year, and we grew the number of our HSA members who invest by 21% year-over-year, helping to drive invested assets up 58% to $13.6 billion. If you subtract that from 30, you know that HSA cash reached $16.4 billion. With sales and digital member education in action, I wanted to say, like, firing on all cylinders, but there was a lawyer problem with that, so I didn't say that. I'm not even sure what the lawyer problem was. In any case, Team Purple opened 186,000 new HSAs organically in the quarter, and that's 14% more than Q3 last year. Our HSA members added $0.5 billion in assets compared to a $0.6 billion decline in Q3, which is typically a lighter quarter organically.

In fact, average HSA balance has grown by double digits over the past 12 months, which is awesome for our members and awesome for our mission. Net CDBs were up 0.1 million quarter-over-quarter, though flat year-over-year, which is a reminder of the impact of CDB comps on CDB comps (clearly reading the wrong thing) of runoff of national emergency accounts. This will be the last time I will have to say that, not only because it's my last earnings call, but because we are lapping those comps. We face a monster year-over-year new HSA sales comp in Q4. It's a monster. We had an incredible Q4 last year. But the team's performance over the first three quarters of fiscal 2025 gives it a really good chance to break the full-year record for new HSAs, which would be incredible.

Our operations teams were also very busy in Q3, completing the final wave of single-card processor consolidation while battling a sophisticated and persistent fraud actor. These fraud activities led to excess one-time service expense, which Jim will detail, a top seasonal spend for new partner and client implementations and hiring and training and testing for a successful open enrollment season, which is now very much underway. You should feel confident, though, that the underlying trend of service cost reduction through remarkable digital experience continues, with AI transforming more member contacts and claims interactions and mobile wallet integration supplanting more plastic. If you have a HealthEquity card and it's not in your mobile wallet, you got to do it. Time to do it. Anybody knows, Jim?

James Lucania (EVP and CFO)

Not yet.

Jon Kessler (President and CEO)

Because you don't spend any of it.

James Lucania (EVP and CFO)

Nope.

Jon Kessler (President and CEO)

Okay. All right. We need to work on that. Richard, have you done it?

Richard Putnam (Head of Investor Relations)

No.

Jon Kessler (President and CEO)

Steve? Steve's done it.

Steve Neeleman (Vice Chair and Founder)

Absolutely.

Jon Kessler (President and CEO)

I know Steve's done it.

Steve Neeleman (Vice Chair and Founder)

Only for my LPFSA.

Jon Kessler (President and CEO)

Okay. All right. I've done it. It's awesome. You should do it too. Speaking of busy, with election day behind us, Steve and the advocacy team are now supporting multiple efforts to expand Americans' access to personal, portable health accounts. Let's hear about it. Steve Neeleman.

Steve Neeleman (Vice Chair and Founder)

Thank you, Jon, as always. Fantastic kickoff, man. We're going to miss it. Anyway, we now see three approaches to expanding access to personal, portable health accounts. These include bipartisan legislation, budget reconciliation by the Republican majority, and rulemaking by the new administration. The Bipartisan HOPE Act, formerly known as HR 9394, would enable all Americans with ACA-qualified health insurance that isn't HSA-compatible, including all Medicare recipients, to save and invest tax-free for medical expenses, and it encourages employers to contribute to the savings of low and middle-class income employees. Introduced in August by three Democrats and three Republicans, the HOPE Act now has the endorsement of the House Problem Solvers Caucus, which includes 32 Democrats and 27 Republicans. HOPE has also been endorsed by diverse interests, including the American Benefits Council, whose members include 430 of the nation's largest employers, a few labor organizations, and the U.S. Chamber of Commerce, which is the country's largest business organization.

Another path is budget reconciliation. This has been used by Democratic and Republican majorities in recent years to pass wide-ranging tax and spending bills because it is not subject to filibuster, and the next Congress is likely to produce multiple reconciliation bills. Also, the HSA Modernization Act and the Bipartisan HSA Improvement Act, which were both passed by the House Ways and Means Committee in the current Congress, are examples of HSA expansion the majority can attach to a reconciliation bill. These two bills would expand HSA access to working seniors on Medicare. It would also include expansion to VA beneficiaries and Americans with Indian Health Service coverage. It would also provide for HSA funding from unspent FSAs and HRAs. It would raise annual HSA contribution limits, as well as making spending from HSAs more flexible and consumer-friendly.

Finally, the incoming administration can use its rulemaking authority within existing HSA law to expand access to the accounts, for example, by further expanding the wellness and preventative care that HSA-compatible plans may cover outside of the required deductible, or recognizing the actual value of insurer contributions to HSAs offered with plans on the ACA exchanges, and also approving HSA-compatible plan designs and Medicare Advantage. These are all ways that they can do that. The administration may also expand HSA eligibility to wellness and fitness expenses. Finally, Americans with access that have HSAs make healthcare more affordable and exhibit more of the healthy behaviors that reduce healthcare costs. Moreover, personally owned, portable, and investable health accounts are widely popular among young and old, liberal and conservative.

So we are quite optimistic about legislative and regulatory action to expand access, and we'll continue to support it through advocacy, expert advice, and credible research. I'll now turn the time over to Jim for our results and guidance. Jim, take it away.

James Lucania (EVP and CFO)

Yep. Thanks, Steve. Thanks, Jon. I will briefly highlight our fiscal 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. As a reminder, the results presented here reflect the reclassifications of our income statement we described in our fiscal year 2024 10-K, both for fiscal 2024 and 2025 for comparison. Third quarter revenue increased 21% year-over-year. Service revenue was $119.2 million, up 4% year-over-year, reflecting growth in total accounts, HSA investor accounts, and invested assets, and lower average unit service revenue as product mix continues to shift toward lower headline fee HSAs. Custodial revenue grew 41% to $141 million in the third quarter. The annualized yield on HSA cash was 3.17% for the quarter as a result of higher replacement rates and continued mix shift to enhance rates.

Interchange revenue grew 15% to $40.3 million, again, notably faster than account growth as members increased contributions and distributions and conducted more payments on HealthEquity's card and platform versus requesting cash reimbursement for payments made off-platform. Gross profit was $197 million, with 66% of revenue in the third quarter this year, up from 64% in the third quarter last year. As Jon mentioned, in addition to seasonal factors, gross profit during the quarter was reduced by approximately $8 million of excess service costs incurred to protect members from and reimburse those impacted by sophisticated fraud activity and to assist members during the final and largest phase of our card processor consolidation. While the seasonal ramp-up continues as a result of the sales successes Jon discussed, we believe these event-driven costs are largely behind us and expect only modest carryover into Q4.

Net income for the third quarter was $5.7 million, or $0.06 per share on a GAAP EPS basis, and included the $30 million one-time settlement of the WageWorks lease termination lawsuits that we disclosed on Form 8-K in November. Non-GAAP net income was $69.4 million, or $0.78 per share versus $0.60 per share last year, which excludes that one-time cost. Adjusted EBITDA for the quarter was $118.2 million, up 24% compared to Q3 last year, and adjusted EBITDA as a percentage of revenue was 39%, up from 38% in the third quarter last year, but of course was impacted by the event-driven service costs I referenced earlier. Turning to the balance sheet as of quarter end, October 31st, 2024, cash on hand was $322 million as we generated $264 million of cash flow from operations in the first nine months of fiscal year 25.

The company repaid $25 million of revolver borrowings during the quarter, leaving approximately $1.1 billion of debt outstanding net of issuance costs. The company also purchased $60 million of its outstanding shares during the quarter under the previously announced $300 million authorization, leaving $240 million remaining. Today's fiscal 2025 guidance reflects the carry forward of our strong sales trajectory, operational efficiencies resulting from our technology investments, and current forward interest rate curves. We expect revenue in a range between $1.185 billion and $1.195 billion. GAAP net income in a range of $88 million-$96 million, or $0.99-$1.08 per share, and includes the $30 million settlement mentioned earlier. We expect non-GAAP net income to be between $274 million and $281 million, or $3.08 and $3.16 per share, based upon an estimated 89 million shares outstanding for the year.

Finally, we expect adjusted EBITDA to be between $470 million and $480 million. We now expect the average yield on HSA cash will be approximately 3.1% for fiscal 2025. As a reminder, we base custodial yield assumptions embedded in guidance on projected HSA cash deployments and rollovers, a schedule of which is contained in today's release, as well as analysis of forward-looking market indicators such as the Secured Overnight Financing Rate and mid-duration Treasury forward curves. These are, of course, subject to change and not perfect predictors of future market conditions. Seasonally, our fourth quarter is usually our highest service cost quarter of the year as our busy onboarding season peaks. Our guidance also includes additional expected share repurchases under the $300 million repurchase authorization. We expect both to return capital to shareholders and reduce revolver borrowings in the remaining quarter of the fiscal year.

With continued strong cash flows and available borrowings on our revolver, we will maintain ample capacity for portfolio acquisitions should they become available. We assume a non-GAAP income tax rate of approximately 25% and a diluted share count of 89 million, including common share equivalents. Based on our current full-year guidance, we now project a GAAP tax rate for fiscal 2025 at about 20%. As we've done in previous reporting periods, our full fiscal 2025 guidance includes a reconciliation of GAAP to the non-GAAP metrics provided in the earnings release, and a definition of all such items is included at the end of the earnings release. In addition, while the amortization of acquired intangible assets is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is included. We're also providing the following initial guidance for fiscal year 2026.

We expect revenue to be between $1.275 billion and $1.295 billion. We expect margins will expand with adjusted EBITDA growing to approximately 41.5%-42.5% of revenue in fiscal 2026. This initial guidance is based on an average HSA cash yield range of 3.4%-3.5%. Based on our outlook of interest rate conditions, current forward interest rate curves for the year ahead and the continued mix shift from basic rates to enhanced rates. The reconciliation of our adjusted EBITDA outlook for the fiscal year ending January 31st, 2026, to net income, its most directly comparable GAAP measure is not included because our net income outlook for this future period is not available without unreasonable efforts. We're unable to predict the ultimate outcome of certain significant items excluded from this non-GAAP measure, such as stock-based compensation expense and income tax provision or benefit.

Jon Kessler (President and CEO)

I feel like all these introductions are to other people who people want to. This is the closest any of us are ever going to get to hosting the Oscars. So thanks, Jim. It's now my pleasure, genuinely so, to introduce Scott Cutler, whom, as you know, or who, as you know—he did that to me—who, as you know, will succeed me as President and CEO on January 6th. Given that Scott is still at work managing a smooth transition at StockX, we are super grateful that he is in the office, in the saddle, joining today's call to introduce himself to you. Scott?

Scott Cutler (Successor President and CEO)

Thanks, Jon. Thanks, everybody. It's great to join Team Purple. I am humbled, honored, thrilled to be joining HealthEquity at this time, certainly feeling some big sneakers from Jon in this transition, pun intended, Jon. I'm excited about three things in joining Team Purple right now. First, I am inspired by the mission of the company, which was infused into every conversation throughout this process, to save and improve lives by empowering healthcare consumers. I'm excited to work alongside Steve fulfilling this mission. Second, I'm excited to be joining the leading company in this space and continuing to strive to deliver outperformance in the market. Third, I'm excited to be joining the team in this next stage of growth at a time when the future holds so much opportunity for tech innovation.

My career journey has been defined by digital and technology transformation across various industries, and HealthEquity will be the next chapter in industry in that journey. I'm looking forward to continuing to drive our tech-enabled 3D strategy. First, delivering remarkable experiences. This is using data science and technology to digitize our remarkable Purple service and education while securing members' assets and information. Second, is deepening partnerships, using more advanced technologies to connect and extend the competitive advantage of our intelligent integrated ecosystem with our network partners. And third, driving member outcomes by combining proprietary technology, data science, and integrated partnerships to empower members to make better health and financial decisions. I really want to thank Jon, Steve, and Team Purple for welcoming me and their support in this transition process.

I'm excited to be working with the team to deliver on our commitments to partners, clients, and members, to our investors, to each of you. I look forward to meeting many of you in upcoming conferences and reporting to you our progress towards our outlined objectives.

Jon Kessler (President and CEO)

Thanks, Scott, and a nice start on the puns. Well done. The comedy may continue. Let's go to Q&A. Operator?

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. In the interest of time, we ask that you please limit yourself to one question. For additional questions, please rejoin the question queue. And our first question today will come from Gregory Peters with Raymond James. Please go ahead.

Gregory Peters (Managing Director)

Good afternoon, everyone.

Jon Kessler (President and CEO)

Good afternoon. Let's have it. Let us have it, man. Come on.

Gregory Peters (Managing Director)

Let me have it. Well, I have one question in seven parts. Jon, that will give you an opportunity to give me, along with, I'm sure, a number of the other sell-side analysts, a hard time for the remainder of the hour. Welcome aboard, Scott. My one question in several parts is the big picture is the revenue guidance on fiscal year 2026. If I'm not mistaken, it's probably a little bit below consensus and reflects high single-digit year-over-year growth. So maybe you could give us some color on the several parts that are comprising the fiscal year 2026 guidance.

Jon Kessler (President and CEO)

You want to take this one first?

James Lucania (EVP and CFO)

Sure. Well, yeah, I think on the main point, the key part of the guide is our expectation on the custodial yield, right? 3.4%-3.5%. I think it's the logical build. You have the refresh of our HSA cash maturity schedule. You see what's maturing. You see where the five-year is today and a reasonable premium to that placed in a combo of enhanced and basic rates. So the pickup on those maturing assets is not as big. So call it sort of roughly $4 billion being replaced in the next year for round numbers at today's rates, and you're rolling off roughly 3.2% average rate. So I think you can do that. You can do that math and comfortably get inside our range there. And I think on the other main line, we are significantly outperforming in the interchange line. Big step up in spend per account, right?

Remember that we consider that a service revenue. You'd expect it to normally grow with account growth ex-COBRA, which doesn't have a card. But this year, we're really outperforming that. And so I think it's sort of prudent for us to be cautious about future contributions and spend in that line. We're seeing contributions up. We're seeing spend up. We're seeing average ticket up. We're seeing usage of the card versus reimbursements up. And I think it's sort of reasonable to expect that to dial back down in the forward year. And then don't forget, we've had tremendous, tremendous market action this year that you can't just annualize and roll forward into the next year. So bringing all of those drivers back into expected normalized growth, I think will come out to something close to what we just guided you to.

Jon Kessler (President and CEO)

Yeah, and I would just add, just conceptually, we always talk about outgrowing the market and then outgrowing our top line and bottom line. I think here what we've tried to do is what we always do with this first guide. We've only been doing the first guide for, what, three years?

James Lucania (EVP and CFO)

Three years.

Jon Kessler (President and CEO)

We started it during COVID. We always have this challenge that is what we try to do is we guide at this point to what we see. So what Jim is, and I think that's particularly true this year because I'm not going to write checks that I can't cash, that I'm not going to be around to deal with. I messed up the metaphor, but you know what I'm saying. So when you really look at it, the yield is yield. We've given you the data that you can compute it and based on Q3. If you do the math, you're going to understand our range pretty well. If someone wants to ask about that, we can walk through it.

That really leaves, I think, two variables that Jim highlighted that we're going to learn more about it, and I'll maybe add a third. But the first is actual average cash, right? Over the course of this last year, we've wobbled a bit in terms of an item that is difficult to forecast, which is the amount of cash that goes into investments versus not. Right now, we have a rich market, and the result of that, in my mind, has been some excess flow relative to our expectations. And that was certainly true earlier in the year. I think maybe a little less so late in the last quarter. But nonetheless, that's something that's very hard for us to forecast. And so what we'd rather do is let's give it a little time before we give our first true guidance.

The second thing that Jim mentioned is interchange. We've had a tremendous year on interchange, at least up through three quarters this year. It's a function of a lot of little things, but as many good things are. The team has really worked on this. Ultimately, what we'd rather see is, and we can, is let's see how January goes as part of the fourth quarter and whatnot. That will give the team an opportunity to refine. I think if I throw in on top of those two things, just total account growth, where you all can make your assessments, I think you should be able to get to a place that you feel is totally reasonable for fiscal 2026.

James Lucania (EVP and CFO)

Thanks, Greg.

Jon Kessler (President and CEO)

Was that one part of the multi-part, or was that the multi-part? I think that was the multi-part.

Gregory Peters (Managing Director)

Thanks for the answer. Good luck, Jon.

Jon Kessler (President and CEO)

Thank you.

Operator (participant)

Next question today will come from Stan Berenshteyn with Wells Fargo. Please go ahead.

Stan Berenshteyn (Senior Equity Research Analyst)

All right. Thanks for taking my questions. Jon, of course, wishing you the best in retirement. I just want to say your insights and jovial flair that you brought to the earnings calls will be missed. I do have the two follow-up questions, actually, on what Jim just discussed. Well, first, as it relates to the custodial revenue, as we think about next year, I believe there are some WageWorks assets there. And I'm just curious, is the pacing of the reset for fiscal year 2026 assets in any way different than what we've seen this past year? And the follow-up is, I'll just throw in right now. The follow-up is, if we think about interchange revenue, you just touched on that. It wasn't surprising to see, I guess, a sequential decrease in revenue, 10% quarter on quarter, but gross margin went up, I think, over 400 basis points.

Can you just talk about what drove the significant increase in the gross margin line? Thanks.

Jon Kessler (President and CEO)

Okay. Yeah. Let me take the first part first. Yes, well, obviously, there are some WageWorks assets that were placed more in the middle of or will be replaced more in the middle of 2026 than a typical year. Obviously, 2025, we had a big slug of BenefitWallet cash that came in. This is not quite a normal year of placements either. One thing that we are definitely taking advantage of is seeing those big $3.5 billion slugs of maturities in the next couple of years. We will take the opportunity and have taken the opportunity to pull forward some of those repricings. When the market gives us that opportunity, we sort of treat that as a hedge without having to purchase a hedge from all of the banking side of all of your houses.

So we have taken advantage of that, and we will continue to take advantage of that if the market gives us that opportunity. So expect to see some of those maturities pulled forward and therefore reinvested earlier than the maturity date. So I think that derisks, as we've talked about many times, this is $7 billion maturing over the next two fiscal years in very large slugs. That is one of our largest market risks. It's not that it's hard to move the corpus that's invested. The yield on that is pretty well known, right? But the five-year Treasury, on any point in time, 24 months out, I don't have a clue what that's going to be. And if I can be—you have a clue. Well, it's like the first clue in the Scooby-Doo, but it's not the last clue.

James Lucania (EVP and CFO)

Definitely not the last clue. All I know is whatever I forecast that rate to be or the forward curve forecast that rate to be, it's going to be wrong, so to the extent we can pull forward some of that, we'll do that. And we're going to keep pushing that transition to enhanced rates forward over time, but yeah, I'd like to get to that finish line as fast as possible, and sorry.

Jon Kessler (President and CEO)

You want me to take the second part?

James Lucania (EVP and CFO)

Yeah, sure. The gross margin.

Jon Kessler (President and CEO)

Yeah, so fundamentally, I mean, the thing that is driving higher gross margin in the aggregate is the mix shift to HSAs, fundamentally. We've been saying that for quite a while, and it's been true for quite a while. I think if I focus in on this quarter, as both of us commented on in the text, there are some things that caught us a little bit. That's also why we guide the way we guide, is because, as we've said many times, there's kind of only one tail there, but fundamentally, what's happening is that two things are happening simultaneously. You've got the HSAs outgrowing the rest of the business, and HSAs are becoming more valuable, period, and that's a function of enhanced rates. It's a function of coming out of the COVID period, etc., and that process still has a ways to go.

We said early on that we thought that we would bring EBITDA margins into the 40s, and our fiscal 2026 guide implies exactly that.

Stan Berenshteyn (Senior Equity Research Analyst)

Thanks, Jon.

Operator (participant)

Your next question will come from Glen Santangelo with Jefferies. Please go ahead.

Glen Santangelo (Managing Director)

Oh, yeah. Thanks for taking my question. And Jon, good luck in retirement. I did want to ask you and Steve about this HOPE Act. I mean, essentially, could you give us a sense for maybe how big the TAM is for HSA accounts today? And then, Steve, based on your understanding of the HOPE Act, how much you think that TAM expands? And then, Jon, I don't know if you've had any conversations with anyone on the Hill. I don't know how you sort of handicap the likelihood of this moving forward or how you expect this to sort of play out in the new administration in 2025. Thanks.

Jon Kessler (President and CEO)

Steve, why don't you get started on this one?

Steve Neeleman (Vice Chair and Founder)

Sure. Thanks, Glen. Yeah. So I mean, look, as we've watched this for the last 20 years, we have a pretty good handle on where the TAM of HSA is headed. And we've always said that we think at market maturity, Glen, it'll be around 60 million-65 million accounts. It's kind of in that same range of where you see employer-sponsored retirement accounts land. But there's over 100 million households in the United States, 120 million households. And so we've really tried to dig in and say, who could benefit from personal portable accounts that can't, either because they're in a government plan. I have a good buddy of mine that used to fly Black Hawk helicopters and, after 20 years in the military, came out and took his first kind of private sector job at age 45, and they offered him an HSA, and he couldn't have it. It's ridiculous.

And so because he was disqualified because he has access to military coverage. So long story short, as we think that this will increase the TAM from where we think, even if HSAs keep growing, because there are some differences, we can talk about HSAs and what the legislators have proposed with the HOPE Act. There's some slight differences, not the least of which is that any ACA creditable coverage can have a HOPE account, whereas with an HSA, you have to be in this high deductible plan. But we think it could increase the TAM by as much as 40 million-45 million households in these, which would be really exciting for people that are on Medicare, even Medicaid, Tricare, Indian Health Service, etc. And then there's just a bunch of union plans and things like that that do not offer high deductible plans.

Exchanges, there's a lot of people that go into exchanges and think, "Oh, I'm going to jump into an HSA too," but because of the way the plan's set up on an exchange, they can't have an HSA. So that's kind of the big picture. We think it takes the TAM from the total addressable market of these personally owned portable investable accounts from 60 million-65 million accounts to over 100 million. Jon, did you want to add something else? And we can talk a little bit about kind of the sausage-making out there that's going on that we're seeing. But did you want to add anything?

Jon Kessler (President and CEO)

Why don't you comment on that? Go ahead.

Steve Neeleman (Vice Chair and Founder)

Yeah. So I mean, look, we were thrilled in the middle of the August recess. Six legislators came together, and they introduced the bill. And they had been working on it for a couple of years. They were certainly talking to the industry and saying, "What can we do to get more people covered?" Because out-of-pocket expenses are real. The average deductible for a family, Glen, in a PPO plan that is not HSA qualified is about 3 grand. It's real money to an American family when the median household income in this country is about 70,000. It's a lot of money, $3,000. The median, I'm sorry, the average deductible for someone in a high deductible plan, HSA qualified plan, is about 5 grand. So it's higher, but still, $3,000, $5,000, a lot of money for people. And so legislators know that. They know out-of-pocket expenses are very, very costly.

And so they've been looking for different ways to do this. And so they came together. They talked to their colleagues in Congress. They talked to people on the other side of the aisle. And so when the House introduced, these House members introduced the bill back in August, we were pretty pleased. And then it's been kind of neat to see more and more have added. I think there's now over 20 bipartisan legislators. It's right down the middle, Republicans and Democrats that are supporting this thing. And then they did a vote in the House Problem Solvers Caucus, about 60 legislators there that weighed in. And again, very bipartisan group. They're right in the middle, which when you look at the count numbers in Congress, and we're basically even with a few folks that are waiting to see if they can get appointed that have given up their seats.

I mean, it's kind of a 50/50 split. That means when you get a block of 60 legislators in the middle that actually want to get some stuff done, it's pretty encouraging, and then we're starting to see a lot of other groups come in, as I mentioned in my prepared remarks, like American Benefits Council and some labor groups and things like that, that are coming in saying, "Hey, we think this is a great idea," so with that type of momentum, then the question is, well, how do you get this done, and there's going to be some stuff that'll start moving. Obviously, you need to seat the new Congress in January, and then it's where can you find a bill that can help tens of millions of Americans that hopefully will not break the budget, and that's where we think the HOPE Act can fit that bill.

They still need to go through a scoring process and finalize that. But the score should be lower than what we've seen in some of the other HSA expansion stuff just because of the nature of the HOPE account. But I think that hopefully gives you a little bit of an overview. I'm happy to take another question. Or Jon, I'd certainly defer to you since you've been in the middle of that sausage factory as a young graduate.

Richard Putnam (Head of Investor Relations)

Jon was making a point.

Jon Kessler (President and CEO)

Richard doesn't want me to talk anymore about this, but I'm going to.

Richard Putnam (Head of Investor Relations)

Tell him to pass the close.

Jon Kessler (President and CEO)

I am, but I want to say I'm going to say something different, okay? But you're right. This is totally selling through the close. Well put. Something that the inverse of what Steve just said is what happens when somebody, out-of-pocket expenses, which every commercial plan in the United States has, right, which Medicare has, etc., etc., right? And they don't have access to one of these kinds of accounts. The answer is, for every dollar that you're paying out of pocket, you almost have to earn two, right, when you get through with the federal taxes, the state taxes, the payroll taxes, Social Security taxes, right? It will say, "Take a bite." And that's one of the reasons why the pain of out-of-pockets without access to these accounts or without using them well seems so disproportionate because you actually have to earn so much more to do it.

It's just crazy that we would not be giving people this access. And it's time to do it. And so that sort of emotional visceral, "What if we don't do this?" Right? Plus Steve's very tactical, he's really gotten into this, very tactical kind of, "How do we do it?" is kind of the thing that led me to make, I think, pretty positive comments about this last quarter, which I believe this quarter even more so, so.

Thank you, Glen.

Operator (participant)

Your next question today will come from Allen Lutz with Bank of America. Please go ahead.

Allen Lutz (Senior Equity Research Analyst)

Good afternoon. Thanks for taking the questions. Jon, going to miss the one-liner, so congrats on the retirement. One question for Steve. Going back to the potential Medicare expansion, can you remind us just how that could theoretically work for HealthEquity? How should we think about your exposure to employers with Medicare populations as well as your exposure to health plan populations that have access to Medicare? Trying to understand how is the selling process to this type of population different or the same relative to your current customer base? Thanks.

Steve Neeleman (Vice Chair and Founder)

Hey, thanks, Allen. That's a great question. So we get questions every day in our service center about the 65-year-old that inadvertently enrolled in Medicare Part A because Medicare told him he needed to or she needed to to maintain their Medicare rates. But it turns out they really didn't need to, and now they're making contributions into an HSA, and they're dual-enrolled, so they're ineligible. And so there'd be an immediate savings to be able to say, "Hey, look, we can rectify that situation." And really, that would remain true. I mean, they could roll—we could say, "Let's get those dollars into a HOPE account." Or even with the HSA expansion efforts to pass the House Ways and Means Committee next year, that would help those working seniors that are in Medicare. That was included in the bill that was passed through the House Ways and Means Committee.

So in either one of those avenues, we feel confident we could ramp up pretty quickly to take care of those folks. As far as broader distribution, as you know, HealthEquity, we're very lucky and blessed to have the largest group of partners, health plan partners in the United States. We've talked a lot about these in the past. Many, many hospital systems and hospital system-owned health plans and the Blue Shield Association were, these are some of our closest partners. And most of these are nonprofits. Most of these folks do have Medicare populations, pretty significant Medicare populations. In fact, I would tell you that most of our health plans, if you ask them, "What is your fastest-growing book of business?" At least one of them in the top couple would be Medicare, MA, and the like. And so we would use our same distribution channel, which is fantastic.

We would go to them and say, "Look, we think we built a great chassis to sell more commercial products, and now we've got HOPE accounts are now part of the equation or the expanded Medicare HSAs that we've mentioned, and let's go after this." And so as a company that thinks about this, thought leader, I mean, our people are thinking about it every day. We have to be very thoughtful about spending money until this legislation's passed. But I can tell you there's a lot of thinking about it, that's for sure.

Jon Kessler (President and CEO)

Thanks, Steve. Thanks, Allen.

Operator (participant)

And your next question today will come from Anne Samuel with JPMorgan. Please go ahead.

Anne Samuel (Executive Director)

Hi, guys. Thanks for the question. I was hoping, I know you're not providing guidance at this point, but was hoping maybe you could just speak qualitatively to how your selling season wrapped up, and was there anything notably different this year versus prior years? Thanks.

Jon Kessler (President and CEO)

Yeah. So let me say, first of all, let me just repeat first in a comment. I mean, careful observers will note that this is the first time I've ever made a comment in 50+ of these things about a future sales number. I did it obliquely. Obliquely. Is that the right word? Obtusely? I don't know. One of those words. Obliquely. One of those. But I did it. And I think that does reflect the view that we feel. If you had asked us at the beginning, well, you did at the beginning, or maybe it was Mark Marcon who did, but somebody asked us at the beginning of the year how we felt about the year-on-year sales comp, we said it was a very tough comp. And to be in a position to beat it and perhaps to beat the record from two years ago is pretty good.

I think if I look at within sales, there are a couple of things I would point out. I think the biggest is that the opportunity that we saw this year was, and it goes back to the question that was asked earlier about margin growth, was, given the success that we are having at increasing the value of an HSA, and now that's kind of real and it's there, as well as kind of the related products that we've talked about that are starting to be in market and starting to get some traction, we felt like we could be particularly aggressive about HSA pricing, particularly not just in enterprise, but at kind of upper-middle market and so forth, and frankly, with distribution, with the brokers and the like and who have been great partners to us, and we were.

Conversely, where we have lower margins, right, which is some of our CDB products, we held the line. And as you know, in some cases, increased prices. And so I think that's the right answer. We want to sell what we think is durable business that's going to be good for the company, good for our mission, and so forth for a long period of time. And so that's probably the first and most important trend that we saw. And the result of that is we saw a lot more activity. You may recall last year, kind of middle market was a little bit soft for us, and enterprise did well. We saw a lot more upper-middle market, middle market activity. And that's good.

Enterprise is probably not quite as strong as last year because I think everyone's kind of trying to be as competitive as they can in enterprise land. And again, there are areas where we're going to hold the line where it's a standalone business that kind of doesn't make sense for us. But again, I think the big picture is increasingly adjusting our pricing as well as other aspects of what we're offering to compare profitability. The last thing I'll say here is that we were really happy to be in a position where we could start talking with our clients and showing our clients, and in some cases, selling and incenting our clients on our new product pipeline. And so we can talk a little more about that if someone wants to.

But that not only, I think, has made a difference for us, but the goal in this sales cycle was to get to a place where we're starting to get a little revenue next year from this stuff, where we had really good, like some people call bell cow clients. I'm not sure that sounds, it doesn't sound as good as it is. A bell cow is actually pretty good. And pilot. Pilot implies money. Yeah. That's not good. Early adopters. Early adopters. There you go. Thank you. And you've always been here for me, or at least for the last five, six quarters. And so look, that's, I think, really valuable and is useful for us this year, but I think will be even more so next year.

Thanks, Anne.

Operator (participant)

And your next question today will come from George Hill with Deutsche Bank. Please go ahead.

George Hill (Managing Director and Equity Research Analyst)

Yeah. Good evening, guys.

Jon Kessler (President and CEO)

You got to watch out. This operator, he's like, "You talk and that's it." Nick's on this. So if it doesn't come out at the beginning, it ain't coming out apparently.

George Hill (Managing Director and Equity Research Analyst)

Yeah. But Jon, did you guys change the hold music? That's not really my core question, but it sounded like the waiting music before the call started was changed. I thought you guys used to do a Spanish guitar thing.

Jon Kessler (President and CEO)

I mean, it's interesting you mention this because I personally have lobbied for Snoopy for a long time. And there's a company, I won't name them, but that is oftentimes affiliated with Snoopy that is now one of our enhanced rates partners. And maybe we can get that for next quarter.

George Hill (Managing Director and Equity Research Analyst)

Okay. Well, Jon, first of all, I will wish you well. I'll say, "Scott, welcome aboard." And I hope that you keep the flavor of this call the same. And I might pepper you with an SB Dunks question every call and again. And if there's a pair of StrangeLove Dunks lying around at StockX on your way out the door, I'm a size 9 1/2. Two quick questions.

Jon Kessler (President and CEO)

He's writing that down, George. 9.5.

George Hill (Managing Director and Equity Research Analyst)

I like it. Like I said, 9 1/2. Jim, as it relates to the $8 million impact that you cited related to the fraud impact, so am I just reading the financials right? That you guys basically absorbed that and reported gross profit numbers in the quarter, so numbers effectively would have been higher. And then, Jon and Steve, on the expansion into the Medicare space, one of the things I think about when I look at that space is I assume you guys are talking about the traditional Medicare A plus B business and not the MA business, as a lot of those guys kind of offer a lot of their own cards. So the question would be, do you see this as something supplemental? Is it something that would be portable in addition to those benefits that tend to expire at year-end?

Or is there an opportunity to work with the carriers to provide something that looks enhanced? Because I'm sure that you guys know what's going on with pending legislation better than I do. And I'll drop it right there. Thank you.

Jon Kessler (President and CEO)

Why don't you take the first question, and I'll take the second?

James Lucania (EVP and CFO)

Yes. And well done sneaking in two questions there.

Jon Kessler (President and CEO)

Yeah, that was good.

James Lucania (EVP and CFO)

Yeah. Let me just, yeah, clarify on the $8 million. That was excess service costs across the board, so sort of ahead of our expectations. Yes, it was absorbed into the number. But that is not just related to the fraud activity that we mentioned, but also sort of elevated member contacts. Yes, some of that related to fraud, but also some of that related to, as Jon mentioned, this was our largest wave of the card migration. We put new chip cards, mobile wallet-ready cards into many, many, many plans. And of course, perhaps we should have anticipated some of that incremental volume that would come our way just as the normal noise of a big operational project like that. But we did not.

The two pieces there, I just want to highlight that that's $8 million of just excess service costs related to both of those items.

Jon Kessler (President and CEO)

Yeah. And on your second question, I think you're kind of getting to the fun of this, which is it does go back a little bit to the question about distribution. So one of the values, in my view, of having the stacked card infrastructure now entirely in place is let's say you have an MA product that what comes with it is $200 of out-of-pocket assistance, right? Well, now we can put that alongside of, if we had HOPE, we'd put that alongside of a HOPE account. Or it might be the case that that 200 bucks could be 300 bucks if it were contributed into the HOPE account, right? Because it's not just money for anything kind of a thing. So I think that there's opportunity in MA as well as in conventional Medicare for these kind of products.

We're trying to position the infrastructure to support both those opportunities.

James Lucania (EVP and CFO)

Thanks, George.

Operator (participant)

And your next question today will come from Mark Marcon with Baird. Please go ahead.

Mark Marcon (Senior Research Analyst)

Hey, good afternoon, everybody. Jon, we're going to absolutely miss you. Best wishes in retirement. Scott, welcome aboard. Heard great things about you from the colleagues that I work with that have worked with you in the past. So looking forward to working with you. Question relates to the guidance. Specifically, Jim or Jon, could you discuss a little bit about what your expectations are that go into the 2026 guidance with regards to account growth? And are there any things that are changing? It sounds like the selling season went really well. And so I'm wondering what could potentially change that trajectory? Has there been any? Is client retention staying strong? Has there been any negative impact with regards to the fraud activity? Any color that you could provide there in terms of what drives the HSA growth for next year?

Jon Kessler (President and CEO)

Yeah. So let's just start with HSA retention. We feel real good about where we are going into fiscal 2026 here. There's not a shoe that we're not dropping here. On the CDB side, this is sort of the flip side of incremental price increases that have now had their ability to work through the system and some of what I said earlier. There, I think as we go through fiscal 2026, I think we could see some healthy churn. Anytime there's churn, CEOs always say it's healthy. And in this case, that's largely true. And so I think there's some of that, but there's nothing. I don't think there's any sort of. I think the gist of your question is, is there a big shoe to drop there? I don't think so.

And that's why if you kind of look at, it's one of the reasons that margin gets substantially healthier next year. I mean, you're looking at, as I said, in the middle of the range here, 42% EBITDA margins. And then, I guess, to your point, we don't see much in the way of trailing costs from the incidents that we've seen, nor have they really impacted our sales cycle. Although, I mean, I don't have a counterfactual in front of me. So I'm sure that there has been some, there are probably some cases where these have had an impact on either retention or sales. I know they've had an impact on our team. They've worked their butt off. But so I think things are looking, I think when you see the account totals coming into 2026, I think you'll, I'm hoping, certainly our forecast is that you'll feel good about them.

We will be a little bit on the lookout for some attrition in the CDB side simply because we have raised price.

James Lucania (EVP and CFO)

Thanks, Mark.

Operator (participant)

Your next question today will come from David Roman with Goldman Sachs. Please go ahead.

David Roman (Managing Director)

Thank you. Good afternoon, everyone. Jon, I'm sorry I won't have an opportunity to work with you more, but appreciate all your help as we've gotten up to speed here and look forward to following the stock going forward and seeing whatever it is you do next. And maybe as I just kind of transition here, I know there's a lot of questions about the 2026 guidance. Excuse me. But maybe you could talk through a little bit more detail how we should think about capital allocation, both internal and external, as you roll forward here. You've obviously done some acquisitions like the WageWorks one and a few others over time that have paid benefits here to the company. You've seen a big year here of increases in operating expenses across technology and development as well as sales and marketing.

So how should we think about kind of your resource prioritization and how that fits into the growth rates you've laid out here for 2026 and beyond?

Jon Kessler (President and CEO)

Yeah. I mean, I'll just say first and then throw to Jim that your question reminded me of something that we could have stressed, which is our fiscal 2026 does not assume M&A activity because that isn't how we do it. Either large ball, small ball, whatever size ball. But that doesn't mean we won't try, so.

James Lucania (EVP and CFO)

Yeah. Exactly. And we've talked about many times before that sales and marketing, we try to operate in an envelope, and it's been operating in an envelope of 8-ish% of revenue, a little bit light of that thus far this year. Tech and dev, we've talked about 22-ish% being the high watermark. We're spending quite a bit lower than that. And last quarter, we talked about, "Hey, we'd actually like that to be a little bit more." But it takes time to ramp resources and some timing of project start. So you shouldn't expect anything materially different from that going forward. And then on, yeah, sort of capital allocation, sort of Jon alluded to it and I did in the remarks, right? We're obviously returning capital to shareholders currently. We've got an authorization in place. We are paying down the revolver.

We've sort of talked about before, like, "Hey, we borrowed a couple hundred plus million dollars to fund the BenefitWallet acquisition. Let's get that paid off over time with excess cash flow." And that revolver becomes a nice bucket to be able to finance the next deal of that size should it come. And then aiming for a leverage profile. Our leverage profile gets better and better each quarter as we're growing the denominator of the leverage ratio. And that leaves us ample capital if a larger opportunity were to come its way, right? I still fundamentally believe that some of these HSA portfolio acquisitions are some of the best ROI investments we can make. But we're continuing to fund the business within the envelope of cost in sales and marketing and tech and dev that we have and continuing to drive EBITDA margin enhancement along the way.

So I think that's the sum of all of those things are very positive for the story.

Jon Kessler (President and CEO)

Thanks, David.

Operator (participant)

And your next question today will come from David Larsen with BTIG. Please go ahead.

David Larsen (Managing Director and Healthcare IT and Digital Health Analyst)

I was hoping Scott Cutler could talk a little bit about what he's sort of most proud of with what he did at StockX and maybe what he thinks he can bring to HealthEquity related to those accomplishments. Thanks so much.

Scott Cutler (Successor President and CEO)

Oh, great. A StockX question. Love that. No, I mean, as I stated in my prepared remarks, I think what's excited me about my career journey has really been about leveraging technology and applying it to both different markets and different problems from financial services to consumer e-commerce. And I'll have to figure out a way to get George those sneakers. But I think what really gets me excited about the opportunity here is really just the continued use of technology. And we're probably in the most exciting time to be able to leverage technologies around data and AI, particularly for the member and the client, the partner experience. And so I, for one, am really excited about the platform, the strength of HealthEquity's market position, and also equally excited about the continued use of technology to make that service more widely available and a better service.

I mean, that in a nutshell is kind of what I was most proud about in lots of the different chapters of my career and certainly what I hope to be able to bring here. And so I'm excited about that.

Operator (participant)

Your next question today will come from Steven Valiquette with Mizuho Securities. Please go ahead.

Steven Valiquette (Managing Director and Healthcare Technology and Distribution Analyst)

Great. Thanks. Good afternoon, everyone. Jon, congrats on your retirement. And Scott, congrats on joining the company shortly here as CEO. Really, my questions here are just more on the just confirmation on the dollar amount of HSA cash custodial asset contract repricing each fiscal year. Your previous slide deck, you had $3.4 billion for fiscal 2026. Now the 10-Q shows it went down a little bit, but then fiscal 2027 went up a little bit. The yields are still about the same. But really, my question is just to try to reconcile for so as of right now, the $3.2 billion that's set to reprice in fiscal 2026, how much of that will happen sort of early in the year versus potentially later in the year just to figure out how much is baked into the guidance or will be recognized in fiscal 2026?

And then on a similar vein, when you talked earlier on the call about pulling forward some of these repricings, I'm assuming some of that might have been the fiscal 2027 maturities, unless I'm wrong. But again, just to confirm, is any of that baked into the fiscal 2026 guidance, or would that be upside relative to your initial view that you gave today on FY 2026?

Steve Neeleman (Vice Chair and Founder)

Yeah. Yeah. Thanks for that question. Yeah. Good to clarify. So yeah, seasonally, very little revenue, very little of the HSA cash would mature in a normal year early in the year. Most of it happens later in the year. This, as you rightfully say, 2026 has got some legacy WageWorks cash that was placed five years prior. So we do have a slug that matures in the middle of the year. Those are the types of things like that kind of six, nine, one-year-out type of maturities that we'd be looking to potentially pull forward to reprice, not 2+ years, not 2+ years out. Those kind of contracts would be a little tougher to modify with that long a runway. But yes, all of these expected actions would be priced into our current guidance, right? There's not a.

Jon Kessler (President and CEO)

Right. And if you kind of think about it, if you were buying, again, these are not real hedges or you'd see it that way. But if you sort of, well, let's move this up six months. Well, okay, what's going to be the true cost of that? It's going to be the present value of that six-month, what would be that six-month hedge? And where we can get a deal that's much better than that, we're going to pull the trigger on it. Where we can't, we're not. And so we baked in some assumptions that some of these dollars would come a little earlier, but they would probably come at some percentage of that cost, for lack of a better term, as a discount. So I would not be looking for a ton of up or down on this topic.

It's just what it really is, is Steve, you of all people know this one, is our goal longer term is to create more maturity, I'm sorry, more stability in this line, right? Because it really ultimately is a fee. So if we can do that by bringing things a little bit forward, then that's the reason we're doing it. It's not to get a few extra dollars.

Operator (participant)

Your next question, sorry, go ahead.

Jon Kessler (President and CEO)

Oh, go ahead.

Operator (participant)

Okay. Your next question today will come from Sean Dodge with RBC Capital Markets. Please go ahead.

Hey, good afternoon. This is Thomas Keller on for Sean. I guess first, welcome, Scott, and congratulations again on retiring, Jon. So I'll switch gears a bit here and do a quick check-in on the commuter offering. Where do we stand relative to the pre-pandemic levels there, and how should we be thinking about that business in fiscal 2026 and beyond? Thanks.

Jon Kessler (President and CEO)

I'll give a quick answer to this one. It's been pretty stable at, call it 60% of maybe 65% of its pre-pandemic revenue base, and it grows a little bit, but it's not going crazy. We'll see if some of the - we'll be happy to see the federal employees seem to be going back to work. That would be good, but that's about it. We're not going - and in truth, it's not terribly material, the delta one way or the other. It's a good business, but it's a good, especially in terms of sort of service margin, it's a really good business, but that's kind of what I'd expect.

Operator (participant)

This will conclude our question and answer session. I would like to turn the conference back over to Jon Kessler for any closing remarks.

Jon Kessler (President and CEO)

Okay. Well, that is a wrap for this B+ comedian, and I'm going to say I'm leaving the stage here, but I do not want to do so without everyone here understanding the team that has overdelivered again and again and again, and that that team is stronger and deeper than it's ever been before, and with Scott and Steve, it has leaders who are intensely committed, intensely committed to team success, and at the same time, both of these individuals, in my observation, in one case over a long time and the other case over a medium time, are genuinely personally humble about their role in that and their role being servant leadership. It's really a remarkable combination that I believe as a shareholder is going to serve this company very, very well.

So to the whole team, all Team Purple, I really want to just end by saying thank you, not for what you've done, but for what it is that I believe in my heart is going to be done in pursuit of our mission, as well as if I can say so, in pursuit of value for us, we shareholders. Is it us or we? And with that, I think that's the best way I could possibly end is by thanking the team. So thanks all and have fun.

Operator (participant)

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