[Management View]
HealthEquity reported strong Q1 FY2026 results, with revenue up 15% YoY and adjusted EBITDA growing 19%. Key drivers included expanding HSA membership, rising invested assets, and robust custodial fee performance. Management emphasized progress in fraud reduction, AI-driven operational efficiencies, and digital engagement. Strategic priorities include leveraging legislative opportunities to expand the HSA market and enhancing member security through mobile authentication.

[Outlook]
The company raised FY2026 guidance, projecting revenue of $1.285–$1.305 billion, GAAP net income of $173–$188 million, and adjusted EBITDA of $530–$550 million. Management anticipates stable interest rates, continued operational improvements, and further share buybacks. Legislative changes could expand the HSA market by 20 million families, presenting significant growth opportunities.

[Financial Performance]
- Revenue: $244.6 million (+15% YoY)
- Adjusted EBITDA: $140.2 million (+19% YoY), margin improved to 42% from 41%
- Net Income: $53.9 million (GAAP), $85.8 million (non-GAAP)
- Total Accounts: 17 million (+7% YoY), including 9.9 million HSAs (+9% YoY)
- HSA Assets: $31 billion (+15% YoY), with invested assets up 24%
- Service Revenue: $119.8 million (+1% YoY); Custodial Revenue: $156.5 million (+29% YoY); Interchange Revenue: $54.6 million (+14% YoY)
- Fraud Costs: Reduced to $3 million from $11 million in Q4 FY2025

[Q&A Highlights]

**Question 1:** What caused the slowdown in HSA selling conditions, and how do you view the macro environment?
**Answer:** New HSA sales were 150,000, down from 194,000 last year but above 134,000 in Q1 FY2024. Management attributes this to tough comps and softer macroeconomic conditions but remains optimistic about the enterprise pipeline. Historically, economic downturns have driven stronger selling seasons as employers seek cost-saving solutions.

**Question 2:** Can you clarify the fraud cost guidance and its impact on EBITDA?
**Answer:** Fraud costs were $3 million in Q1, aligning with internal expectations. Management aims to reduce fraud costs to one basis point of total assets by year-end. The current guidance already incorporates these expectations, with no additional upside factored in.

**Question 3:** How does the proposed legislation expand the HSA market, and what is the net impact?
**Answer:** The legislation could expand the market by 20 million families, including Medicare Part A participants and exchange users. This is a net 20 million increase, not cumulative with other provisions. The changes would simplify employer offerings and drive broader adoption.

**Question 4:** How are mobile app adoption and security enhancements progressing?
**Answer:** The app has 1.2 million downloads, with plans to require mobile authentication for all active members by fall. This initiative aims to enhance security and engagement, with fraud costs expected to normalize as adoption increases.

**Question 5:** Has fraud impacted enterprise customer retention?
**Answer:** No fallout has been observed. Retention rates are in the high 90s, and enterprises view the enhanced security measures positively. Management continues to prioritize trust-building through robust fraud prevention.

**Question 6:** What is the impact of AI-driven initiatives on service costs?
**Answer:** AI tools like expedited claims adjudication and chat agents are reducing costs and improving member experiences. These initiatives align with a broader strategy to modernize service delivery and meet the expectations of a digital-first workforce.

**Question 7:** How does the legislation affect HSA contributions for lower-income individuals?
**Answer:** The proposed doubling of contribution limits for lower-income individuals could drive higher adoption. Median household income for account holders is $72,000, suggesting broad applicability. Employers are encouraged to design plans that support lower-income employees.

**Question 8:** What is the outlook for CDB account growth?
**Answer:** Growth is driven by bundled product offerings, with strong performance in FSAs and HRAs. Commuter benefits have stabilized, while COBRA accounts are being rationalized for profitability.

**Question 9:** How are forward treasury contracts being used to manage custodial yield volatility?
**Answer:** The company locked in five-year treasury rates at 4% for $500 million in maturing contracts, reducing reinvestment risk. This approach balances yield optimization with risk management.

**Question 10:** What is the adoption of the Assist portfolio and HPA initiatives?
**Answer:** Analyzer and Navigator tools are gaining traction, helping enterprises optimize plan design and drive HSA adoption. HPA initiatives address high-deductible plan concerns, encouraging broader enrollment.

[Sentiment Analysis]
Analysts were generally positive, focusing on fraud reduction, legislative opportunities, and AI-driven efficiencies. Management conveyed confidence in operational improvements and market expansion, with a proactive approach to addressing challenges.

[Quarterly Comparison]
| Metric | Q1 FY2026 | Q1 FY2025 | YoY Change |
|-------------------------|-----------|-----------|------------|
| Revenue | $244.6M | $212.7M | +15% |
| Adjusted EBITDA | $140.2M | $117.8M | +19% |
| Net Income (GAAP) | $53.9M | $45.2M | +19% |
| Total Accounts | 17M | 15.9M | +7% |
| HSA Assets | $31B | $27B | +15% |

[Risks and Concerns]
1. Macroeconomic uncertainty could impact new account growth.
2. Fraud costs, while reduced, remain above target levels.
3. Legislative changes are subject to political processes and may not materialize.
4. Interest rate volatility could affect custodial yield management.

[Final Takeaway]
HealthEquity delivered robust Q1 FY2026 results, driven by HSA growth, strong custodial revenue, and operational efficiencies. Management's focus on fraud reduction, AI-driven cost savings, and legislative advocacy positions the company for sustained growth. While macroeconomic and regulatory uncertainties persist, the raised guidance and strategic initiatives underscore confidence in achieving long-term objectives.