HealthEquity's (HQY) CEO Jon Kessler on Fiscal Year-End 2019 Sales Metrics - Earnings Call Transcript

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About: HealthEquity (HQY)
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Earning Call Audio

HealthEquity, Inc. (NASDAQ:HQY) Fiscal Year-End 2019 Sales Metrics Conference Call February 6, 2019 5:00 PM ET

Company Participants

Richard Putnam – Investor Relations

Jon Kessler – President and Chief Executive Officer

Darcy Mott – Executive Vice President and Chief Financial Officer

Steve Neeleman – Vice Chairman and Founder

Conference Call Participants

Greg Peters – Raymond James

Donald Hooker – KeyBanc

Anne Samuel – JP Morgan

Jamie Stockton – Wells Fargo Securities

Mohan Naidu – Oppenheimer

Allen Lutz – Bank of America

Sandy Draper – SunTrust

Stephanie Demko – Citi

Mark Marcon – R.W. Baird

Operator

Welcome to HealthEquity Year-End Sale Metrics Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Richard Putnam, Investor Relations. Go ahead, Mr. Putnam.

Richard Putnam

Thank you, Mariel, and thank you for joining us this afternoon. Good afternoon, and welcome to HealthEquity's fiscal year-end 2019 sales metrics conference call. My name is Richard Putnam. I do Investor Relations for HealthEquity. My way of introduction, we have Jon Kessler, President and CEO; Dr. Steve Neeleman, our Vice Chairman and Founder of the company; Darcy Mott, the company’s Executive Vice President and CFO participating with us on the call today.

Before I turn the call over to Jon, I’d like to remind you of a couple of things. First, a copy of today's press release is available for reference on our investor relations website at ir.HealthEquity.com. And second, we remind you that today’s discussion will include forward-looking statements as defined by the SEC, which include predictions, expectations, estimates or other information that might be considered forward-looking. In connection with these forward-looking statements, there are many important factors relating to our business, which could affect the forward-looking statements.

These forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from the statements made here today. As a result, we caution you against placing undue reliance on these forward-looking statements, and we also encourage you to review the discussion of these factors and other risks that may affect our future results or market price of our stock detailed in our latest annual report on Form 10-K and the subsequent 10-Qs and other reports filed with the SEC. Finally, we assume no obligation to revise or update these forward-looking statements in light new information or future events.

And with that reminders out of the way, I'll turn the call over to Jon.

Jon Kessler

Thank you, Richard. It gets better every time. Hi, everyone, and thank you for joining us this afternoon to discuss sales results for HealthEquity’s fiscal year 2019, which ended just a week ago on January 31st. We are pleased to report results that are better than our initial estimates and set HealthEquity up to deliver strong revenue growth in fiscal 2020. I have some prepared remarks on today's results. Darcy will update FY 2019 guidance and offer a first look at FY 2020 based on these results and Steve is here to join us for Q&A.

HealthEquity’s vision is that health savings and HSAs will be as much a part of the American families saving strategy by 2030 as 401(k)s and other retirement accounts are today. The team has shared this vision for a long time and 2030 is still a ways away. So over the years, we've set milestone goals and celebrated achieving them. There was a hundred million then a billion then 2 billion and then less than three years ago as we were closing the books on fiscal 2016 HealthEquity surpassed 4 billion of custodial assets. Those steps in total took 10 years from when HealthEquity first became an HSA custodian.

After a little celebration, the team committed to help HSA Members add another 4 billion, but to do it much more quickly in under three years or by the end of fiscal 2019 and here we are. Steve, Darcy and I are truly, truly pleased to report to the team and to you that fiscal 2019 sales results that include our HSA Members reaching that $8 billion goal, extending the team's long winning streak and putting us in position to continue outpacing the market. This is a big deal for us. Before getting into the details of our HSAs and custodial assets, I'd like to review the network partner and employer results, which we first released at JP Morgan’s Healthcare Conference last month.

Let's start with network partner growth. Many HSA Members reach HealthEquity through our health and benefit plan providers whom we call Network Partners, which is why these partners are so important to our growth. We reported at JP Morgan that HealthEquity now had 140 Network Partners. That figure reached 141 with the announcement of a new partnership by Principal Financial, which is one of the nation's top 10 defined contribution retirement plan record keepers and the largest manager of defined benefit pension plans in the United States. 141 network partnerships is up from 124 year ago and 87 two years ago as HealthEquity model for reaching new employers and HSA Members continues to grow in both breadth and diversity.

Most notably, we saw real progress this year in an element of our outreach strategy to the retirement sector, which we began talking with you about 18 – roughly 18 months ago. The addition of Vanguard, Nationwide and now Principal to HealthEquity’s roster of network partnerships is visible evidence to you that these efforts are working. Meanwhile, our Health Plan partnership footprint remains we believe the strongest in the industry, even among health plans that have introduced white label offerings are those with in house HSA operations. The HealthEquity team in the field continues to find win-win partnership opportunities and that's because there's value in working with a market leader like HealthEquity. The team did a great job of promoting that value in fiscal 2019.

Turning to employer growth. As we discussed at JP Morgan, we believe the confluence of full employment, record profits and corporate tax cuts let employers to make fewer big changes in their benefit plans this year. Yet the number of employers, who partner with HealthEquity still grew to 45,000 from 40,000 a year ago. We believe that 5,000 net new employers speaks to a few things. First, the effort and professionalism of HealthEquity and its Network Partner team members in the field – please give me just a second. Second to the professionalism of our Network Partners in the field and what they do. And lastly to the ongoing momentum of the HSA market. Sorry about that everyone. I don't have a teleprompter like those people who did their speeches last night.

Now, let's discuss HSA member growth and new HSA member account openings this year. HealthEquity reached nearly 4 million HSA Members in fiscal 2019 growing HSA Members 17% year-over-year. Excluding acquisitions, the team opened 674,000 new HSAs in fiscal 2019, up from 669,000 in fiscal 2018 and 668,000 in fiscal 2017. So HealthEquity opened up more new HSAs this year than in any of our history – any in our history and these are organic sales over and above ongoing efforts to acquire competitive portfolios, which added another 5,000 HSAs this year.

Growth in the number of HSA Members who invest continue to outpace member growth overall. Investing HSA Members grew by 34% year-over-year. The percentage of HealthEquity members who invest reached 4.1% at fiscal year end, up from 3.6% a year ago. It's still a small percentage, which reflects the opportunity ahead as more consumers grasp the full potential of HSAs to grow savings tax efficiently. Finally, our active HAS metric that we introduced this year continues to evolve. Active HSA members grew 13% year-over-year, even while HealthEquity continued to support HSA Members, who cannot contribute today.

And now custodial assets, HealthEquity ended fiscal 2019 with nearly $8.1 billion in custodial assets, an increase of more than $1.3 billion, or 19%, versus a year ago that occurred despite market volatility impacting the value of invested custodial assets and obviously with only modest contributions from portfolio acquisition. On a per account basis, custodial asset balance has increased by 2% versus a year ago despite the fact that HealthEquity added more new accounts, which generally have lower balances than ever before.

Within the overall growth of custodial assets, HealthEquity members were particularly successful at starting and growing their invested balances. Custodial investments grew to $1.7 billion, which is a 30% year-over-year growth. This occurred despite market volatility as the S&P 500 index fell more than 4% during the same period. As we've said many times, helping HSA Members to invest is good for our business. It's central to our mission. Investors typically carry higher cash balances. In addition to their investment balances, their HSAs grow more rapidly. They are sticky and happy customers and investment is additive to cash. For example, custodial cash grew 17% year-over-year to $6.4 billion at fiscal year end.

So we're very pleased with the rapid growth at custodial assets and balances and there are two reasons for that. The first is that rise in custodial assets drive profitability as we've discussed before and the second and most important reason is that rising balances mean that our HSA Members are building health savings and that's what HealthEquity is careful. What about our commitment to outpace market growth. Based on the statements that have been made to date by major competitors, we're confident that HealthEquity met its commitment to you to once again gain market share this year. As information on HSA market grows, this cycle comes in from various sources. We'll have more to say about our performance versus competitors and the market as a whole.

Now I'd like to turn the call over to Darcy to discuss the implications of all this for fiscal 2019 and for fiscal 2020. Darcy?

Darcy Mott

Thanks, Jon. Our last full year guidance for fiscal year 2019 given in December in connection with our third quarter earnings report was as follows. Revenue in the range of $281 million to $285 million, non-GAAP net income in the range of $68 million to $72 million, non-GAAP diluted EPS in the range of $1.06 to $1.13 and adjusted EBITDA in the range of a dollar – of $110 million to $114 million. We are now providing the following guidance for our fiscal year ended January 31, 2019. Revenue in the range of $284 million to $287 million, non-GAAP net income in the range of $72 million to $75 million, non-GAAP diluted EPS in the range of $1.13 to $1.17 and adjusted EBITDA in the range of $115 million to $118 million. The revised guidance reflects that successful season of winning new and expanding existing depository contracts as well as strong service margins. Q4 operating expenses appear to have been less than expected primarily in technology and development.

The ramp up of the investments we mentioned in December has taken a bit longer than expected, but will happen. While we have yet to close the books for fiscal year 2019, the results that Jon just discussed, leave management confident to provide the revised ranges. We will of course report year end results next month. We also feel sufficiently confident to provide early guidance for fiscal year 2020 revenue, which we expect to be in the range of $333 million to $339 million. As you know, HealthEquity business provides – business model provides investors with significant visibility to future results of operations. Due to the strong work of our team with depository partners, we expect our yield on custodial cash for this next year to approach 2.4%.

Our revenue guidance assumed service fees expressed on a per HSA basis well as we have managed for many years, declined by 5% to 10% tied to our tiered pricing for partners who deliver additional accounts and design plans that drive asset growth. We also expect more of our members to invest their balances as they grow. As I mentioned during our Q3 earnings report in December, we have identified a number of promising investments for fiscal year 2020. These include investments to support the opportunities with retirement plan partners, Jon mentioned, and the work we are doing to expand our offerings across employer sizes, which support the direct sales expansion we had discussed with you for some time.

We are also increasing investments in security, privacy and in platform infrastructure led by our technology and security teams. However, even taking these investments into consideration, we expect to be able to deliver adjusted EBITDA margins to fiscal year 2020 at or near those implied by the upwardly revised guidance for fiscal year 2019 I have just provided. We have not yet closed the books on fiscal year 2019 and are still adjusting our fiscal year 2020 operating plans to reflect the fiscal year 2019 results. We will be in a better position to provide non-GAAP net income EPS and more definitive adjusted EBITDA guidance when we report fiscal year 2019 financial results next month.

With that, I'll turn the call back over to Jon.

Jon Kessler

Thank you, Darcy. Before going to questions, I'd like to take a moment to thank those who are truly responsible for the results we’re reporting today. And that includes our sales executives around the country, our marketing and sales support superstars including folks out in Kansas City, who are getting – going to get the weather that we have right now in about 10 hours, our hard traveling account executives, our service managers, our implementation specialists, all of whom spend even more time on the road than Steve and Darcy and I do, our technology and operations and delivery teams here in Draper, our member services team and Draper and of course down in price, Utah, who welcome new members and get them off on the right foot and finally, a big thank you to HealthEquity’s network partners made up of our health plans, our retirement plans and other benefit plan providers as well as our employer partners for all they do to support their members in building health savings and connecting health and wealth. As a direct result of your hard work, HealthEquity closed fiscal 2019, setting new highs for the number of network partners, employers, HSA Members and custodial assets, and nearly 4 million families are doing something positive about healthcare in America. They're building health savings.

With that, we welcome your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Greg Peters from Raymond James. Your line is now open.

Greg Peters

Thank you. Good afternoon.

Jon Kessler

Hi, Greg.

Greg Peters

Hey, Jon, Steve and Darcy and Richard. I wanted to start off with a question around your network partners. Given the fact that there's some competitors out there that have white label solutions, et cetera, I'm curious about the pressures you face as you're going out to pitch new network partners and how competitive it actually is.

Jon Kessler

It's a great question. I'll offer some comments and then throw it to Steve as he experiences this firsthand as well. You know, Greg, the way we look at it is there are different models for how to go to market and the one that we are most comfortable with is one in which we can show our stuff and our stuff is being within this market I think fairly acknowledged industry experts. And that starts with the fact that that Steve has been writing and published on this book for, I don’t know what are we on the 13th year now. And that's what we want to be able to do. We are not in the business of selling software or selling outsourced services. We're in the business of helping people, connect health and wealth and build health savings.

And so what we're finding in the marketplace is where that's the priority of our partners, we do very, very well. Conversely, where the priority is more, I'm going to say defensive, oh, I have to do this because someone else does it. I'm selling socks, so I want to sell shoes, that kind of thing. There's just less of an interest, frankly, in the underlying quality of what is being offered and in delivering differentiated expertise. And I think that's why you've seen us take the lead very quickly in the newer field on the retirement side because what I think these firms have recognized very early on is that they are not experts in what we do. And that a big piece of what they're getting with partnering with us is partners in the field, who can help them be experts and demonstrate that expertise whether to an employer, to a financial advisor, to an individual member on the phone. And so when folks are at this for the same reasons that we're at it, as you might expect, we do very, very, very well. And so that's kind of the way we think about it. Steve?

Steve Neeleman

Hey, Greg. Hope Tampa is warmer than Salt Lake. We're going to be there in a couple of weeks. The only thing I'd add is that I think that as we notice, there's less than 20% of American families have access to an HSA now, especially when you include the non-commercial group. I mean, it's still a very small part of the market or an HSA. And so I think there's room for a lot of different solutions. Some of the health plans, network partners may say, look for a small part of our population, we want a do it yourself type thing and they'll offer a branded solution. We can do branding, but I think some of our competitors will come in and say what about the individual and a small market, but what we continue to see is it the sophisticated buyers on the employer side, they really do want best-of-class and they do not believe that best-in-class can really be accomplished by having a health plan building around HSAs is because they – health plans don't do HSAs. That's not what they do. They do health benefits.

And so if they want best-of-class, they're going to come to HealthEquity. And maybe a less sophisticated buyer, someone that's between benefits that just wants to buy an individual plan for a year or two that may be less important to them. But when you're talking about large sophisticated employers, especially the ones that are now looking at our offerings, which are on the retirement side, they want best supplies. I think that's the way we see it.

Greg Peters

Thanks. Thanks for those two answers. And I just as a follow up, the principal relationships seem to be an interesting opportunity. And I guess I'm trying to sort of quantify what kind of possibility that has for your company as they're a leader in the 401(k) and 403(b) market. And I'm curious how that will bleed over into the benefits side of an employer group plan.

Steve Neeleman

What's really interesting about principle from my perspective, first of all, we've actually had a long relationship with Principal. We acquired HSAs from Principal, that's got to be seven or eight years ago now. It's been awhile. And it's never been I think for either organization on the front burner until now. And what's interesting about it is that this is an example of where you see organizations that have very generous benefit programs including Defined Benefit Pension Programs or 403(b) or the like that are saying oh here's a way to do something generous on the healthcare side. And so, that's what's driven the interest. And so we'll see – I think there are other players who kind of apply that world that that we're talking to maybe with a slightly different industry vertical focus, but that's an interesting.

As we said when we started doing this with the retirement partnerships, each one is going to have a little bit of a different bench. And I – as you quite correctly recognize, I think the bench here is, it's responsive to the fact that you can do incredible things in terms of both reducing the costs of healthcare today and saving more faster and keeping more of what you save by connecting health and wealth. And the people – it's a little bit along the lines of we've said before that that a public sector and so forth or some of our best customers because the consumers in these segments really know how to think about a retirement plans. And when people think about it, they come to the conclusion that an HSA is the way to go. So we’re – we – I think that that your question has its own answer. Yes, it will be an interesting partnership. And we're prepared to, as Darcy suggested, devote resources to it. And just as we are to Vanguard, Nationwide and others and we really like that each of these has its sort of own angle to it and we think that's a great way to approach it.

Greg Peters

Perfect, thanks for the color.

Steve Neeleman

Thanks, Greg. I appreciate it.

Operator

Our next question comes from Donald Hooker from KeyBanc. Your line is now open.

Jon Kessler

Hey, Don.

Donald Hooker

Great, good afternoon. So a question on kind of an update, I guess you gave the update on the cash yield of 2.4%. I think you – I think I heard correctly.

Jon Kessler

Yes.

Donald Hooker

How much of – how much roughly, you probably don't want to say this, be too precise here, but how much, what portion of your custodial cash is sort of priced at market, if you will, versus sort of carried yields that are sort of yet to rise to market levels if you understand my question?

Jon Kessler

I think I do. I'm going to throw to Darcy to start that one.

Darcy Mott

Yeah, I'm not sure that I do understand exactly what you mean.

Donald Hooker

Well, yeah I just…

Darcy Mott

Please…

Donald Hooker

Either, I understand there is a rollover every three or four years and I just wondering how up to date if there are sort of more assets the rollover and then in next year and year after how much differential there is in the yields that you're commanding on your custodial cash now versus where you think the market is for the incremental dollar?

Darcy Mott

Right. So we estimate that about a third of our portfolio and will place new money for about a third of our portfolio either in a way of replacement contracts or new cash contracts that we're placing. And so that's been fairly consistent for year-on-year. When we build our ladder out of our expiring depositories we try to blend them out over some period, so we don't end up with a whole bunch of expirations in one time.

So generally we place money in three, four, five-year tranches, sometimes even shorter to kind of blend out that laddering. And so there's still two thirds of our portfolio that end would placed contracts that were a year old at least, right. And so industry changes, they'll find themselves out of it over the next few years.

Donald Hooker

Okay. That's fine. And then maybe, I know you've done a lot of work over the past 12 to 24 months with developing new depository relationships. Can you update us in terms of kind of how many institutions you’re deposited at? Is that growing? Are you sort of satisfied with that?

Darcy Mott

Yes, I think that we're up to 13 or 14 now, maybe even 15 depository relationships. And every year, particularly in the December, January timeframe, we always go back to our existing choice and then we always try to add two or three more. And we found in the last couple of years, even as interest rates have increased that our depository phase has a lot of interest. And we have – we can be pretty selective. So there's been plenty of demand for our deposits because they are so sticky and because of the way they behave.

Donald Hooker

Okay, great.

Operator

Thank you. Our next question comes from Anne Samuel from JP Morgan. Your line is now open.

Anne Samuel

Hi guys.

Jon Kessler

Hi, Anne.

Anne Samuel

Hi. Could you speak to maybe what drove the uptick at the end of the month versus the expectations that you laid out in early January? And then how should we think about what impact corporate tax cut had on enrollment this year? Thanks.

Jon Kessler

On the first half of the question, I mean, the short answer is nothing other than we just – as we said at your conference, we just didn't have complete data. Obviously, as we said at the conference one area of uncertainty was with equity market performance and that was – there was some benefit there over the course of the month. I mean, but you this a small – maybe as $50 million. So mostly it's just having complete data and the fact that – particularly the stuff that comes in later in the month is some of the health plan enrollments and the like that are coming in a little later. And those came in pretty strong. So that's how we ended up where we ended up.

And then to your second point, I mean, it's difficult for me. But I assume your question on the tax cut is related to its impact on corporate benefits decisions.

Anne Samuel

Yes, exactly.

Jon Kessler

Yes, it's interesting. I've had a couple of opportunities since we first started talking about that in December to interact with in group settings with benefits professionals. So as you might imagine, that statement got some reaction. And it was interesting in a number of these settings I've heard corporate benefits professionals say, you know, if you had asked me straight up, do I think it had an impact on how we behaved this year, I would've said no. But as I've started to think about it and think about the interactions that we as benefits professionals had with our finance teams, and in budgeting processes, and so forth, it was true that we had a little more slack to play with this year.

And given tight labor markets we very much wanted to deliver a message, simply wanted to make the benefits message to our team members as sort of unobtrusive as we could. And so it was interesting that that sort of people acknowledge that their initial reaction would have been, no, these macro things don't matter at all. But given some thought that they really did have an impact. And I think it's pretty clear based on what competitors have said and so forth, that it did have an impact on the broader market this year. And that's a good learning for us. What it doesn't change though is the basics of both what this market can do and its potential, and also where we can improve. In that one.

As we've discussed, nothing about this changes the fact that these products that people are seeing higher deductibles, and the HSAs, and related products are outstanding tools for consumers to get to a place where they can manage those expenses both today and for life. Nothing is changing that.

And secondly, I think, it also doesn't – in a sense that it points to where we can improve, which is I still think this is the case that there are too many people out there who think about the HSA, and related products as somehow being for healthy, wealthy, or whatever the term is, healthy, whatever it is and young, invincible, I don't know who these people are. I never was invincible. I missed it. I could see Neeleman having been invincible, but not me. And Ted probably invincible at one point, yes, but me and Darcy, probably not.

And so we just have to do a better job of articulating as an industry, not just health equity, but as an industry. And then obviously also leading it, that these products work for everyone. And in fact, they work the best for people who truth be told pay the highest, truthfully, the highest marginal tax rates on income, which are people in the middleclass. That's the way our system works. And that's why these people can benefit both today and tomorrow. And we've got to do better job of getting to the place that we've gotten to with, the Googles and the Boeings of the world and where the folks have principal got to, that these can be huge benefits for people. And the sooner we get there, the sooner they start benefiting.

Darcy Mott

I would just have one thing to the first question. As far as visibility that we had in the early January reported numbers. It's always been true for us that even if we sell our products to an employer earlier in the year until we started getting through open enrollment, unless they've gone full replaced. We try to forecast what the adoption rate will be along with the employer. But it's a really difficult thing until people actually get under the enrollment side, and start enrolling and then we start getting the final piece and they come in, late December and even early January before we actually see many of them. So at that point in time of the year we’re somewhat cautious because we haven't seen necessarily the files come in. But there's a lot of enrollments that come in even early January.

On the asset front, we've been encouraged last year and again this year by our long-standing employers who have increased penetration. We'll probably give you some statistics on this a little bit later probably when we do our yearend earnings release, with respect to how effective that was. But just early returns on that is that employers who really get this and start realizing this can be a rich benefit and encourage savings for their employees both by the employer contributions and by the employee contributions, that there was – we always get a lot of activity in January with contributions coming in. And that was true also this year. We saw some employers that increased significantly the amount of contributions they made for the month of January.

Anne Samuel

Thanks very much guys.

Jon Kessler

If you could just get your boss to move your conference to like June and maybe, I mean, I think that would be helpful.

Anne Samuel

I think we're locked into January for the foreseeable future. Thanks guys.

Darcy Mott

Thanks Anne.

Operator

Our next question comes from Jamie Stockton from Wells Fargo. Your line is now open.

Jamie Stockton

Hi, good evening. Thanks for taking my questions. I guess maybe one to follow-up on Don's earlier just Darcy with the rate outlook. It seems like if we look at where kind of the three-year treasury has been historically, that maybe you guys have gotten like a 50 basis point premium to that on average in the kind of Jumbo CDs that you're getting. And directionally that might be how people should think about where rates are headed in the long run as far as the yield you are getting on your cash. Does that sound like a reasonable expectation?

Steve Neeleman

Yes, probably. The three-year and the five-year treasuries are – I mean, it's one data point. What really happens for us and we would generally talk about this Jumbo CD rates being kind of closest proxy we can find. But what it really is incumbent upon is for our depository institutions when they get to rollover their existing agreement or entering into a new agreement with us, it really kind of plays out to what their loan portfolio is looking like and what they are trying to match it up against.

And the reason that we think we've been successful is because we can deliver to them a pretty good visibility into: one, the amount of cash that will be available, when it will be available and it's very sticky so that we can – we have mins and maxes in these agreements, but they are fairly narrow generally so that they can rely upon that money be in there. And I think that's the biggest reason that we're getting a premium maybe at some of these rates is because of historical relationships with these depositories and being able to deliver what we say we're going to be able to deliver for them. And that just worked out very well for us.

The other thing is because we have 13 to 15 and these depositories now, they have different appetites from year-to-year. And some of them are becoming stronger or more aggressive and so we're able to get oftentimes the best rate, based on what their demand is.

Jamie Stockton

Okay.

Jon Kessler

I mean, Jamie I would just add one thought to that, which is that when we came public, we talked about – we call it an investment policy, it's a little bit of a misnomer, but that permitted us to have average duration of between three and five years. And the team has done a job that's allowed us to really have the inside of that lane that is to stay right around three and obviously for certain parts of the year, below three throughout this entire period.

And what that speaks to is – and I think this is an asset no pun intended of the company that doesn't get recognized very much. And that is that it has really allowed us to keep our powder dry. And while at least at the moment you can look at it and say, well, there's just not that much difference between the three and the five. And that's fine. Sometimes there is, sometimes there isn't. But it's really provided a lot of flexibility for us to meet the needs of our depository partners. And I'm just constantly amazed at how much value we are able to create for our shareholders on this topic because the team has been so prudent and thoughtful about who they partner with, I mean, even the earlier question about adding partners. I mean, we could add 50 of these partners. We're not doing that, right.

And we don't because we don't need to do it to deliver the results. And we can add them slowly begin to work with them make the regulators happy, that kind of thing. It's not just the rate component of it though obviously that's the one to focus on. The team has really built up a powder house or whatever of dry powder on this topic. That was tough statement my daughter [ph], by the way.

Jamie Stockton

Maybe just one other question, John this might be for you. But acquisitions, tuck in deals, FY’19 was a pretty light year.

Jon Kessler

Yes.

Jamie Stockton

What's the environment feel like right now? What should we expect on that front over the next year or two?

Jon Kessler

Yes, so two areas. On the portfolio acquisitions, I think, what you should expect during this period is that we should be able to get done. And then, I mean, I'm saying this, recognizing the usual caveat that we don't – we're not commenting on any particular deal, but I feel like there's enough conversation that we should be able to do some of these smaller deals. I do think the fact that the Fed is on pause has been helpful as some folks suggested. It might be in reigniting some of these conversations among smaller providers. And also the fact that they can look at the lead charts and kind of see that the market has coalesced around a relatively number of providers.

And finally the push into retirement, I think, has also left some folks feeling like, hey, that's another reason why we probably aren't going to want to be in this market in the long-term.

So I think I'm feeling relatively optimistic about the pipeline that the Corp Dev team has. Actually one of the re-org things we did this year was we moved the team that does this work for the smaller deals into our sales team under Bill Otten. And so that just because the pipeline itself was really looking more like a pipeline rather than there's one deal now, and two later, and so forth. They're really out there beating the bushes. So I feel kind of good about that.

The second area that – I just want to make sure is out there is, as I talked about here in my remarks, we're able to – we are serving employers in more ways than we ever have before. And won’t say for the most part, almost entirely, we've done that through building out of capabilities internally. We acquired BenefitGuard that added some retirement capabilities. But by and large we've built these things out internally are our RA business, the COBRA product that I mentioned that we’ll launch this year, and so forth and sometimes leveraging third party platforms and the like.

But we are certainly of the view that as we do that we're learning more about what works and what doesn't. And in particular where we have opportunities to use some of these ancillary products as the employers that are buying them are moving towards HSAs, and so to effectively funnel more business into the core, and serve more people and so forth. And so we're open to that. All I really want to say there is we're absolutely open to those opportunities and we'll look at them. We’ll look at them judiciously of course. But if there are opportunities to improve our stable, or improve our product footprint, or improve our customer footprint, provided that they continue to feed the core, we're going to be open to that.

Jamie Stockton

Okay. Thank you.

Darcy Mott

Thanks Jamie.

Operator

Our next question comes from Mohan Naidu from Oppenheimer. Your line is now open.

Mohan Naidu

Thanks for taking my questions. John for you, I mean, I guess as we see the slowing down growth in new HSA membership, how do you see the market playing out? And how you see the near term growth here without any regulatory mandates?

And I guess part two is, is there anything that you guys can do proactively to change the perception on HSAs as you put it, it's not just for healthy and wealthy, at least with the employers so that they can look at plan design or some efforts to get more employees engaged and understand HSAs better.

Jon Kessler

So how about I'll take the first part and then Steve, why don't you take the second part?

Steve Neeleman

Sure.

Mohan Naidu

Fair enough.

Jon Kessler

Mohan, I mean, it's a great question. We're going to – if you sort of go roughly midpoint to midpoint on our guidance here, we're setting up for a year in which we grow revenues at a rate. The approach is 20%, but it's a little below 20%. And my view is at least for me, Jon Kessler, I'll say, that's okay. But I'm not doing the happy dance over that, meaning what I would want you to understand is I'm not satisfied with it. And I don't think I'm saying I, but I think the same is true of everyone here.

Notwithstanding the fact that we're very pleased with what we've done this year relative to the rest of the marketplace, we think there's more we can do. And you highlighted one area which is around – and that Steve will speak to in a minute. My sense is that what we're going to see over the course of the next couple of years here is an HSA market that perhaps stabilizes, maybe it'll re-accelerate a little bit. But that sort of stays in this range and that gives us the opportunity to continue to grow at higher rates and we will. But we can do more both to help our accounts mature and more quickly, obviously to get the most we can on the rate side, and so forth. And then on the ancillary stuff we've discussed.

But as you say, one of the big pieces of this, I think, fundamentally is, as and now I throw to Steve is really about helping employers see this future and then to paraphrase a movie, be the future quicker than they might otherwise do. And so Steve if you wouldn't mind speaking to that a little bit both from an employer perspective and maybe even throw in on a little DC stuff.

Steve Neeleman

Sure. Thanks Mohan. Thanks Jon. So I think that we had a course correction and I want to say about three years ago where for the first 12 years of health equity, when we would go talk to these large employers, it was all about how do you save money on your benefits. And the idea there was more people went into these types of plans that their trend would be lowered and that was a great thing, alright. But really, I mean, that would help us get maybe 20% adoption. But I think the real message that we're now doing better at and the connection with retirement speaks to this is that this is actually the best benefit you can provide to your people.

And if you want your people to be healthy, wealthy and wise and to have money to pay for their retirement in the future and to pay for their healthcare, or tax free dollars, then this is the richest benefit. And if you do an actuarial study on a well designed HSA plan and compare that to a richly funded PPO plan, this is a better benefit. And it's because people have this amazing tax advantage, where right out of the gates they have 40% more purchasing power.

Not to mention the fact that they can carry this money into retirement. I was talking to somebody today that had been a government employee for a long time, had HSA for awhile and he didn't realize that once you hit 65, this money can be spent like for okay, non healthcare spending, or it can be spent for healthcare spending tax room.

And so just getting them to understand that, I think, is the course correction we've been making. And so when our account executive team and we have been really happy with and we've talked about this in recent calls about what our AEs have been able to do when they actually get in. And they're not talking to maybe the mid level benefit person, but they're talking to a Senior VP over benefits, or someone in the executive team and they can say, we're not here to help you save money per se, that'll – that will be a byproduct. We're here to have you offer a better benefit to your people to help them be more engaged. And then we do net promoter scores and on the benefits before and after people that enroll in these things. And so I think that's the biggest thing is to help them understand their offering more better benefits. And then over time we'll have some cost savings. And we're getting more successful with that.

We've commented in the past on how when we can kind of get our tentacles in with these employers and help them understand that that all of a sudden they'll start making some tweaks in the plan design, they'll start tweaking the messaging and then pretty soon, there are people adopting at better rates and putting more money in their health savings accounts, right. And even asking the question, where does the marginal dollar go? The next dollar that I've got my match for my 401(k), I've funded part of the money in my HSA, where should I put that next dollar? Well, it's better for the employer and the employee if they put that next dollar in the HSA because of the tax benefits around payroll taxes, but also because of the double tax benefit on the spent.

Now just quick transition to DC, that's a message we think the legislators need to hear. They don't know. I mean these folks just don't know that they have the opportunity to tweak things a little bit when it comes to preventative care. We talked about this for a long time now. Expanding preventative care coverage under the deductible, talked about the Medicare beneficiary has been able to continue to contribute as go into Medicare. And these other types of features we've talked about.

So we're continuing to pound that drum. We feel like every single day we get new converts to the cause and that's not just on the right or the left side of the aisle from both sides where people go wow I never realized there was that feature. So that's what we're doing. And we're never going to rest until every American has an HSA.

Jon Kessler

I will tell you Mohan the most – what is funny about the distinction between what we do and what the commentary is here is the commentary tends to focus on account numbers and appropriately so. But if you think about it, what we've said is we think we can realize the vision for this marketplace or certainly our goal is to realize that vision by 2030.

So just rough and tough as 10 years from now, right? The number of accounts could grow by 10% or 11% each year essentially what it did this year and we would go from 20 million to 60 million accounts, which you know is about how many active 401(k)s that are out there.

That's great. I mean, that's going to happen. The real issue is people understanding how to use these accounts and what they're really for. And the employer, the individual, the consultant, the broker, the retirement specialist, the columnist who's writing for the Ron Lieber, who writes a great column for the Times, everyone understanding that these are extremely valuable long-term savings vehicles that let you as Darcy says, pay for your healthcare, out of pocket, tax free for life and that everyone should be using them in that way.

I think it's totally appropriate that people focus on the account numbers, right? It's really at some level, if you look at where our energy goes, I mean obviously we work on growing our account base very, very hard and we want to grow it faster than the market because that's evidence of what we're trying to do. But then the work on helping each individual and each employer and so forth see this not as a spending account but as a long-term savings vehicle.

Even if it's a long-term save savings vehicle just for the safety net. It's really important work and that's going to be the key from my perspective to the long-term growth of this business.

Unidentified Analyst

Jon and Steve thank you so much for those insights. I'll keep it to that.

Steve Neeleman

Thank you.

Jon Kessler

Thank you.

Operator

Our next question comes from Allen Lutz from Bank of America. Your line is now open.

Allen Lutz

Great, thanks for taking the questions. Darcy as you think about the flat EBITDA margins in fiscal 2020, is there anything other than partnership investments that's worth calling out? And can you talk about the scope of what you're investing in and how long you think it'll take before its margin accretive? And then lastly, is this just a fiscal 2020 investment or is it something that's going to have a larger and longer tail-end? Thanks.

Darcy Mott

Sure. We've talked about additional clarifications. We talked about infrastructure, security, privacy. Just as things become more and more complex and making sure that we're making the appropriate investments to have integration. The value of that Health Equity has offered for a long, long time has been to be able to integrate between your health plan, your employer and other benefits that can impact your HSA particularly. And whatever those plan design features may be and so our architecture could be able to respond to that quickly, we feel that we need to just make some more investments in that to keep that ahead of the game.

And so that's a big chunk of what we're doing. Security issues are always on the forefront and people protecting their assets. And we've taken some great steps in the past to help, make sure that we are doing that. But we're spending a little bit more there and then on some of our engagement opportunities as both Steve and Jon were talking about, getting these individuals to realize that they should be using this as a savings account versus spending account requires some engagement with them at the individual levels. So we're spending in some marketing activities along that line and also with our direct to employer initiatives to speak to them and to help them understand these.

So those are the kinds of things that we're investing in. We're getting up near to 40% margins and I think our guidance mid-point is EBITDA for FY19 we'll be in 40% or the low-40%. We think those are pretty healthy margins and so we think that we could still maintain them and still make some of these investments that we're not going to degrade the margin in any significant way that we can maintain them pretty well.

So these investments will be over a number of years but we still are committed to providing a high degree of profitability to our investors.

Steve Neeleman

And we'll have more to say on this topic as the year goes on. It's still a little bit early, but we want it to make the point because we promised you in the past that we would make this point.

Allen Lutz

Got it and then one follow up for Jon, you mentioned you gained market share again this year and some of your peers also reported pretty strong results recently. Is anything evolving about the competitive landscape where the bigger guys are just getting bigger and maybe the smaller guys are getting forced out a little bit? Can you talk about any trends you're seeing related to the competitive landscape?

Jon Kessler

I think in short, we're beating our largest competitors more than they're beating us. And, I think the smaller competitors are having a little bit of a harder time and I'm not sure what to say beyond that, except that I think it's also probably the case that those who are investing in a platform and also in being closer to the customer are seeing what's happening in a rapidly evolving market more quickly and are adapting to it more quickly.

And I think those are – even if someone in their company is, those that are farther away from the customer are just not seeing that as quickly and you can see that in how they approach the market.

Allen Lutz

Great. Thank you.

Steve Neeleman

Thanks Allen.

Operator

Our next question comes from Sandy Draper from SunTrust. Your line is now open.

Sandy Draper

Thanks very much for taking the question. I guess first Jon or Darcy, can you just, give you, you ran through the account numbers, I know Jon's you don't want to focus purely on the accounts. You ran through the account numbers and it sounded like gross in net adds I missed that, can you just go back through the numbers, when I just get sort of look at the net number. I think the add was 591 but I just want to make sure I've got all the numbers correct on my model that's just the housekeeping and I've got one follow-up broader question. Thanks.

Jon Kessler

Darcy, please confirm, but I believe you've got it. We're going to take that as a yes.

Sandy Draper

Okay. Can you keep…

Jon Kessler

Darcy may have been on mute there?

Darcy Mott

Correct? Right. I had it on mute for a second. Yes. The number you have is correct, the 591, 592 which is the math exit phase for the year and we gave you the 674 from new organic sales and 5,000 from acquisitions.

Sandy Draper

Okay, 674 that was the number that I was looking for at this stage to confirm. Okay, great. Thanks. And then I guess the second question broader, it's just when I think about Nationwide and principal and Vanguard, when you're working with them is it primarily where they already have 401(k) and financial relationships and they want to bring you into deep into penetration. Are you going out together to go after new accounts and they feel like you're in extra sales, a hook for them. I'm just trying to understand sort of a little bit better than nature as a sales relationship?

Jon Kessler

Steve's going to take this one.

Steve Neeleman

Hey Sandy, so it's actually both, nice thing is we've seen this movie before when we started bringing on the health plans over 15 years ago, very similar dynamic. You've got sales and account managers that are out there, the account manager or account executives their number one job when they wake up in the morning was to retain that business at all costs.

And here salespeople whose number one job is get new business and both of them love Health Equity on the health plan side for similar reasons that they do now on the retirement side it's because we're able to go in and when they see competitors in the market that are saying, hey, let's just combine this HSA and 401(k) solution and then you'll have one less partner to have to deal with and there's all those benefits they can say the exact same thing.

They can say, you know what we have is an integrated relationship with Health Equity and it helps both sides of the camp and so as we've done these national sales launches with these different retirement partners, it's pretty need to be out in the audience, you go and talk to the people after and you've got people coming up and giving you a cards and saying we want to meet with you, there are salespeople and the people that are coming up are account executives and it's I hate to give you an exact number, its roughly 50-50 because they got to maintain their base and they got to sell more.

Jon Kessler

That's kind of Nice, Sandy. The weather's not very good here today and I was very pleased to see our RFP manager, trudging in this morning at about quarter of nine. I was glad he made it safely, because he's a good guy and he's working hard. In any event, I mean he made this comment to me this morning, he's like, you know, the funny thing I'm finding about this is that in retirement plan world, there's mandatory rebidding because of the regulatory, the recent nature of the product these things are so, there is a real rebidding process that goes forth every couple of years specifically on each element of the retirement plan stack, the funds, the record keeping and so forth.

And so what that does is it really creates a constant flow of opportunities to talk about something new with customers. And they're not always terribly competitive, but there's always a demand for the incumbent to bring something new to the table. And so I've been really pleased with that, then I was certainly pleased that European saying that the remark that, hey, this is just the flow of activity that just continues to go on, where they want to use this to talk about something new they're doing. And I think that's a real interesting element of this among small groups, large groups, et cetera.

Sandy Draper

Great. Thanks for the answer Steve and Jon, and Darcy.

Operator

Our next question comes from Stephanie Demko with Citi. Your line is now open.

Stephanie Demko

Hey guys, thank you for taking my questions.

Steve Neeleman

Yes ma'am.

Stephanie Demko

So a quick line, this is just kind of on tone, when I had you guys and one of your peers at our December conference, it somewhat sound like the sky was falling, but now both you and your peer and your recent releases have been a little bit more upbeat. Is it safe to read through that January may have been improving environment compared to year-end?

Jon Kessler

Yes, I think that's fair. I think as I said before, December and November always feel a little bit like that time when you're having a party. And all the Jell-O shots are out and stuff. Or in Steve's case, root beer and apple cider maybe…

Steve Neeleman

Homemade root beer.

Jon Kessler

Homemade root beer and ice cream sundae, but people have shown up yet and so you're nervous. And there were a lot of these factors that we were looking at and saying, I was going to go and look, some of that was borne out. I mean, it's not like the market growth rate, it’s like so fantastic from our perspective, but I think what we certainly feel like is that we sold valuable cases this year.

And really the members themselves came through, even though the employers didn't necessarily give them a lot of new reasons to come through. The members did and that is a good sign for the market as a whole when new enrollment does come through or even in points where the employer and so forth or congress or whomever it isn't banging people over the head. So I mean I think that's a fair read through. Yes.

Steve Neeleman

The only thing I'd add is Jon, we don't agree on everything like what to put in Jell-O apparently.

Stephanie Demko

Jon, how often are you doing Jell-O shots.

Jon Kessler

That is once in the last 25 years.

Steve Neeleman

One thing we do agree on one of our favorite authors is Jim Collins and he talks about this concept of productive paranoia. I tell him we have it in stage because you never know. I mean look, we, we work every day and you never know with that big lump of accounts that come in towards the end of the year, how it's going to be. We have indicators we're doing better, I think it even looking at indicators, but we're hopefully productive apparent and will remain.

Stephanie Demko

I guess another thing on that, you guys are very cautious on the investment contributions, just given the way the market pulls back then. So how should we think about kind of the underlying change in investment contributions if you kind of scrubbed out the market correction?

Steve Neeleman

Yes, I mean a way to think about this and Darcy, please chime in. I'm going to use round numbers because after that, I don't have the exact numbers off the top of my head, but roughly speaking, we added – I'm going to say $300 million more in fiscal 2018 from investments than in fiscal 2019 give or take, I may not have that but it’s in that neighborhood somewhere. And not that direct reflection – in my mind it's a direct reflection of the impact of a different market environment. And look, fiscal 2019 on January 1 look a lot worse than that regard than it did by January 30 as we all know or January 31.

But it's still as I said on commentary. The S&P was down 4% year-over-year during our fiscal year, whereas the prior fiscal year was up quite a bit. So it had an impact. One of the things we have to think about going forward is we don't want to be in a position where either we're high fiving each other out because of something we don't control that is market's rising or that we're not planning for and then kicking ourselves in the shins for something that we also didn't control.

So this is something we'll be thinking about as investments become a bigger part of the business, how we make sure that we've appropriately planned for times when they're down, but also let's not get carried away in thinking we're geniuses when a rising tide lifts all boats.

Stephanie Demko

Got it, got it. Appreciate that one. And one last one, this is probably going to be more for Darcy because it's more in kind of a guidance wheelhouse. But what sort of assumptions are you making on the attrition or growth rates or membership, just given the anthem rollout of an in-house option?

Darcy Mott

Well as you know Stephanie we cannot guide on account earlier.

Steve Neeleman

He can put the dagger in.

Stephanie Demko

So, no early thoughts on that or any sort of assumptions is baked-in?

Darcy Mott

Well the reason for that is, I mean we have a pretty good idea when we come out of January and again particularly when we look at a February and we know what relationships we have from employers and health plans and how they kind of play out through the ensuing months, why we don't forecast and because frankly it’s year out and we don't know how enrollments will be like next January that will really dictate that growth rate.

Because you know when you look at the growth rates, you can go month-by-month from April-to-April and May-to-May, but it's really January-to-January when you look at the adoption curve that will happen. And so, we'll just have to play that out as we go and so we don't really guide to that number because at this point in time, we don't know but we're hopeful that the movement into the retirement space and interest of that will help to fuel that a little bit, but we'll have to wait and see if that plays itself out.

Stephanie Demko

Got it, you are kind of expecting. Oh, no, continue.

Darcy Mott

I'm not meeting my new year's resolution about shorter answers, but let me try and at least add value. I got to tell you, this is an area where I really want to give some credit to Ted, to Marry who leads our account executive team and Joel Kapner and Gerald who lead the equivalent on the health plan side.

I mean, Ted got a chance to watch at a prior organization. A company that just got beat up relentlessly by a competitor and maybe, maybe or maybe not he never really acknowledged the threat that was there and has really brought a discipline even in the six months he's been here on this topic of reviewing where we are with every one of our large accounts and then groupings of smaller ones, highlighting that to the executive team, I think that group has just done a fantastic job of making all of us feel very secured about where we are in terms of retaining our partnership relationships.

It doesn't mean we retain them all. But this year was – last year was okay too by the way, but this year was I think very strong in terms of our visibility to where our relationships were and which of course then allowed us to focus on the growing of them versus biting our nails over it.

And the ones that we are going to retain for whatever reason, we knew that early on and okay, we plan it accordingly. But I got to say that's an area where the company has upped its game quite a bit in even just the last six months and really it's a pleasure to watch.

Stephanie Demko

All right, very helpful. Thank you guys and appreciate the productive paranoia.

Steve Neeleman

Thanks Stephanie. See you.

Operator

Our final question comes from Mark Marcon from R.W. Baird. Your line is now open.

Mark Marcon

Good afternoon. I was wondering if you could talk a little bit how your RFPs may have changed just in terms of the competitive set relative to a few years ago. And then just going back to Jon something that you'd mentioned earlier in terms of the employees stepping up and participating, what do you attribute that to? Do you think it's just an increased appreciation for the benefits or is it something that you're doing specifically, that may be a little bit better than what some other competitors are seeing how would you characterize it?

Jon Kessler

I rather than sneak to the competitors, I do think there's it's an incremental increase in the appreciation for the value of these things. I mean, obviously we have a long way to go there, but then my short answer is yes on that one.

On the first part of your question, RFPs were interesting this year. In terms of what we were seeing, I think the biggest change we saw were two changes, first as we discussed, we, we did start to get more visibility – starting to get more visibility now as we were entering new year into retirement RFPs, at least asking about HSA capabilities. You don't see at this point, joint RFPs very much, but they're asking you about the capability, which means some of the talking we're doing about this is working.

But aside from that, the other thing is as the product becomes more of a mainstream product, you do see a little bit of the services that tend to stick to it. So, more of RFPs asking about RA, meaning HSA and FSA type services, obviously we've said we'll introduce and try to bring our own brand of purple to a COBRA Administration for people between jobs and we're doing that in response to seeing it in RFP’s. So those are the kinds of things we're seeing and that's not unexpected. I remember being at one of your events, Mark two years ago where we talked about that as a plausible move for the market over the next couple of years.

Mark Marcon

Yes. You were prescient as it relates to that. I was wondering if you could also comment with regards to who you're seeing in the RFP. It's clear that there's a small handful of players that are really truly leaders. But are you seeing like a big list or is the market becoming as cognizant as investors is in terms of like who the real players are?

Jon Kessler

I actually think it's a great question Mark. It did just happened in the last week or so, we've reviewed some of our visibility work that as you can imagine we might be doing internally and I am hearing some real opportunities there. It just continues to strike me particularly as the products go more main-stream, what's happened in a funny way is the thing that the investment community has taken for granted over the last five years, that is to say that, where the products moved away from is, I don't even know what this is, I think it's part of the health plan. Isn't that right?

That realization has now crept into the mainstream and so you see people kind of asking more questions and what the product bundle with and so forth, but the visibility of who market leaders are to particularly the kind of middle market brokers, consultants and so forth. And even some of the higher-end is not where it could be and that's an immediate opportunity for us.

And we've actually made some moves internally to put some of our best resources in terms of being able to raise visibility on that case because I still – I mean the implication of your question, which is that there's still a lot of cases where the folks who are at least setting the table for decision making, don't really know who the leaders are, I think that's correct and that's an opportunity for us this year. I'm glad we've done so well, that notwithstanding, but there's some more we can do there and I think some stuff will be leaving on the table in that regard.

Mark Marcon

That's great. Thank you.

Jon Kessler

Thanks Mark.

Operator

Now I’m not showing any further questions at this time, I would now like to turn the call back over to Jon Kessler for any closing remarks.

Jon Kessler

Well thanks everyone and happy winter. And we will, as Darcy mentioned will be back at the end of March-ish, middle of March with a Q4 and then as I mentioned at the JP Morgan, but now I will mention it to everybody, we will be hosting an investor day this year, it will be what day?

Steve Neeleman

June 19.

Jon Kessler

June 19, and it will be in New York, will be at the Nasdaq, Times Square in any event we hope folks will join us. Thank you.

Steve Neeleman

Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.