HealthEquity Inc. (HQY) Q1 2023 Earnings Call Transcript

HealthEquity Inc.  (NASDAQ: HQY) Q1 2023 earnings call dated Jun. 06, 2022

Corporate Participants:

Richard Putnam — Investor Relations

Jon Kessler — President and Chief Executive Officer

Ted Bloomberg — Executive Vice President and Chief Operating Officer

Tyson Murdock — Executive Vice President and Chief Financial Officer

Stephen D. Neeleman — Founder/Vice Chair

Analysts:

Anne Samuel — J.P. Morgan — Analyst

Greg Peters — Raymond James — Analyst

George Hill — Deutsche Bank — Analyst

Stephanie Davis — SVB Securities LLC — Analyst

Glen Santangelo — Jefferies — Analyst

Unidentified Participant — — Analyst

Sandy Draper — Guggenheim — Analyst

Mark Marcon — Baird — Analyst

Allen Lutz — Bank of America — Analyst

David Larsen — BTIG — Analyst

Thomas Kelliher — RBC Capital Markets — Analyst

Presentation:

Operator

Good day and thank you for standing by, and welcome to HealthEquity First Quarter 2023 Earnings Call.

I would now like to hand the conference over to your host today, Richard Putnam.

Richard Putnam — Investor Relations

Thank you, Jeffson. Good afternoon and welcome to HealthEquity’s first fiscal year 2023 earnings conference call. My name is Richard Putnam. I do Investor Relations here for HealthEquity and joining me today is Jon Kessler, President and CEO; Dr. Steve Neeleman, our Vice Chair and Founder of the company; Tyson Murdock, the company’s Executive Vice President and CFO; and Ted Bloomberg, Executive Vice President and Chief Operating Officer.

Before I turn the call over to Jon, I have two important reminders. First, a press release announcing our financial results for the first quarter of fiscal year 2023 was issued after the market closed this afternoon. The financial results in this press release include contributions from our wholly-owned subsidiary WageWorks and accounts it administers. The press release also includes definitions of certain non-GAAP financial measures that we will reference today. A copy of today’s press release, including reconciliations of these non-GAAP measures and comparable GAAP measure and a recording of the webcast can be found on our Investor Relations website, which is ir.healthequity.com.

Second, our comments and responses to your questions today reflect management’s view as of today, June 6, 2022 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 risks and uncertainties that may cause our actual results to differ materially from the statements made here today. We caution 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, as well as our market price of our stock detailed in our latest Annual Report on Form 10-K and any 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. At the conclusion of our prepared remarks, we will open up the call for Q&A with the help of our operator.

I’ll now turn the call over to our CEO, Jon Kessler.

Jon Kessler — President and Chief Executive Officer

Thank you, Richard. Well done as always. Hello, everyone and thanks for joining us this lovely afternoon. Today, we are announcing a strong start to HealthEquity’s fiscal ’23 with results for the first quarter ended April 30. I will discuss our Q1 results and then I’ve got my three amigos with me here. Ted will review operations, Tyson will review the financial details of the quarter and provide updated guidance, and Steve will be here for Q&A, I guess that makes me El Guapo. Anyways everyone has their own El Guapo.

Looking first to the key metrics that drive our business. Revenue grew 12% to $205.7 million versus $184.2 million in the first quarter of last year, which reflects our recent acquisitions and growth in accounts and assets. Adjusted EBITDA of $58.3 million was down 1% from the first quarter last year, which was $59.0 million, as we exited Q4 busy season with higher than normal service staffing levels as that we discussed in March and lower year-over-year custodial yields versus the year ago. HSA members reached $7.4 million, up 26% year-over-year, including 12% organically and HealthEquity HSA members grew their assets to a record $20.3 billion at quarter’s end, up an even larger 35% from a year ago.

Total accounts grew to $14.5 million at quarter’s end. As Ted is going to detail team Purple started fiscal ’23 with very strong sales results, including a fiscal first quarter record of 159,000 new HSAs, up 38% from 115,000 new HSAs opened in Q1 of last year. HSA investments grew a net $650 million in the quarter and HSA members grew 36% year-over-year, even with the substantial market headwinds that we’re all aware of as members and their employers continue to contribute and invest. The average balance of HSA members is up a healthy 7% year-over-year, notwithstanding the above headwinds.

Also, in Q1, we welcome members from health savings administrators, which is the 11th largest or was the 11th largest HSA administrator on Devon years 2021 league tables in its year-end market report and adding as reported by Devon year, health savings administrators assets to health equities were place HealthEquity at the top of the league table in terms of both account and asset market share. That’s good. As Tyson will detail custodial yields in Q1 were stronger than previous guidance, driven by our members continuing to place more of their HSA cash in our enhanced rates product and by monetary tightening by central banks, so far this year to contain inflationary pressures. HealthEquity and our team members are subject to those pressures as well, of course, but we expect the incremental revenue from higher yields will drive increased profit and reduce leverage, even as we invest in our platform for future growth.

I will now turn the call over to Ted to review operations.

Ted Bloomberg — Executive Vice President and Chief Operating Officer

Thanks, Jon. I’m happy to report sales are continuing their record setting pace. You just heard from Jon, net sales were up 38% compared to last year’s first quarter, driven by organic growth rates and strong performance in the mid-market space. Our partner sales efforts are paying off and we have been the beneficiary of healthy hiring trends among our clients, the work we’ve done over the last two years on our engagement messaging has helped us become an ally to our clients as they seek to fight cost pressures while increasing the value and attractiveness of their employee benefits. With peak season behind us, our working Purple Army is wrapping our arms around our members, clients and partners and developing new ways of servicing them. We’re making investments as part of our commit to Purple program to meet our constituents where they are, such as expanding our chat capabilities, deploying self-service tools that are resonating with our members and making it easier to start or deepen our relationship with us.

In client service, process improvements and self-service are driving down average issue resolution time year-over-year and on the broker side, we’ve developed a relationship model for top offices that allows them a single point of contact for anything they might need or request from brokers that we were able to deliver this quarter. We know that Purple service is the best salesperson and we will continue to invest here. Those service improvements have been enabled by our aggressive approach to integrations over the past few years, migrating clients and members from over a dozen platforms to a core three for HSA COBRA and CDB. These efforts helped us achieve $80 million in run rate synergies, allowed us to invest back into the business even during a low interest rate environment and provided an improved customer experience. The team is now focused on doing the same for our further acquisition, consolidating teams and platforms to ensure Purple experience and achieving synergies and cost savings along the way.

As mentioned previously, we exited busy season more heavily staffed than usual. The work to address this is now substantially complete. Finally, we’re innovating on the product side as well. For example, as employers adjusted the new normal and build return to office programs, we are right there with them promoting a variety of lifestyle accounts, an employer-sponsored plans that allow them to attract and retain talent in a competitive job market with unique and innovative offerings. We are well positioned to offer more of these accounts because we have a long track record of delivering both pre-tax and post tax benefit and an engaging and simple way. There is much more work to be done, but we are pleased with our progress. A huge thank you to the HealthEquity team for what you have accomplished and all that you will accomplish moving forward.

Now, I will turn it over to Tyson for a closer review of the financials.

Tyson Murdock — Executive Vice President and Chief Financial Officer

Thanks, Ted. I will review our first quarter GAAP and non-GAAP financial results. A reconciliation of GAAP measures to non-GAAP measures is found in today’s press release. First quarter revenue increased 12% benefiting from a record fiscal ’22 selling season, recent acquisitions, a better than expected rate environment and as members increased spending. Service revenue increased 2% to $104.3 million, representing 51% of total revenue in the quarter. The increase is primarily attributable to growth in HSA and the addition of the further acquisition, partially offset by a decrease in CDB service revenue.

Custodial revenue grew 26% to $59.4 million in the first quarter, compared to $47 million in the prior year first quarter as 28% growth in average HSA cash and 47% growth in average HSA investments, more than offset a 10 basis point decline in the annualized yield on HSA cash. HSA asset growth benefited from a strong selling season and multiple HSA portfolio and other acquisitions completed since the first quarter of last year. The annualized interest rate yield was 169 basis points on HSA cash during the first quarter of this year. This yield is a blended rate for all HSA cash during the quarter and represents a better than expected yield. The HSA asset table of today’s press release provides additional details. You will note a slight change in our presentation and that no — that we no longer break out HSA cash with and without yield. We have completed all HSA asset migrations related to WageWorks for the all HSA cash instruments providing yield.

Interchange revenue grew 21% to $42 million, representing 20% of total revenue in the quarter. The interchange revenue increase was primarily due to strong sales in M&A during the past year, driving growth in average total accounts, as well as a modest increase in spend per account across our platforms in the quarter. Gross profit was $111.2 million, compared to $103.1 million in the first quarter of last year. Gross margin was 54% in the quarter. We previously discussed the service cost included $5 to $7 million of expense, primarily incurred in Q1 due to maintain the elevated servicing capacity in Q1 in response to record sales volumes, portfolio acquisitions, platform migration activity and pandemic related attrition and other risks. Operating expenses were $118.5 million or 58% of revenue, including amortization of acquired intangible assets and merger integration expense, which together represented 60% of revenue. Loss from operations was $7.3 million. Net loss for the first quarter was $13.6 million or a loss of $0.16 per share on a GAAP EPS basis compared to a net loss of $2.6 million or $0.03 per share in the prior year. Our GAAP, non-GAAP net income was $22.7 million for the first quarter of this year, compared to $31 million a year ago. Non-GAAP net income per share was $0.27 per share, compared to $0.38 per share last year. Adjusted EBITDA for the quarter was $58.3 million and adjusted EBITDA margin was 28%.

Turning to the balance sheet as of April 30, 2022, we had $161 million of cash and cash equivalents, with $929 million of debt outstanding, net of issuance costs with no outstanding amounts drawn on our $1 billion line of credit. Based on where we ended the first quarter and our current view of benefits and the economic environment, we are providing the following revision to our guidance for fiscal ’23. Revenue for fiscal ’23 to range between $827 million and $837 million. Non-GAAP net income to be between $103 million and $111 million, resulting in non-GAAP diluted net income between $1.23 and $1.32 per share based upon an estimated 84 million shares outstanding for the year and adjusted EBITDA to be between $249 million and $259 million.

Today’s guidance includes our most recent estimate of service custodial and interchange revenue based on results today. Our guidance assumes a yield on HSA cash of approximately 170 basis points and includes only the actions that that has taken to date and excludes any additional broadly anticipated Fed actions for the remainder of this year. Changes in rates before the end of our fiscal year will only benefit the HSA cash that has been short-term, floating-rate vehicles in fiscal ’23 but may have a much greater impact on fiscal ’24 and beyond as we roll over fixed rate contracts and place new HSA cash coming in from open enrollment at the end of the year.

While we don’t give quarterly guidance, looking forward to the second quarter, we want to remind you that the second quarter last year included non-recurring revenue items related to pandemic relief legislation. First, we will not have COBRA subsidy work in Q2 this year. Second, we are not expecting Q2 interchange revenue growth comparable to last year when our members were using rollover FSA dollars in advance of the expiration of pandemic relief. We continue to be conservative in our commuter outlook with limited return to work, modeled into our guidance. We have seen three straight quarters of modest increases in commuter accounts, but remain cautious about modeling in an aggressive rebound.

Our guidance today also includes the impact of inflation on our service cost and increase in expense for the resumption of travel by our sales team and a modest inflationary increase in engineering it’s really costs. The outlook for fiscal ’23 assumes a projected statutory income tax rate of approximately 25% and a diluted share count of 84 million. As we have done in recent reporting periods, our full year guidance includes a detailed 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 intangibles is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is not excluded.

And with that I will turn the call back over to Jon for some closing remarks.

Jon Kessler — President and Chief Executive Officer

Thank you, Tyson, well done. HealthEquity finds itself I think a far better position today than it did a few quarters ago as — and that’s a function of the hard work of the team, as well as previous interest rate, pandemic and integration headwinds starting to become tailwinds for the business. And as I watch CNBC or whatever, the current macro environment might be forcing other technology driven growth companies to scale back for HealthEquity and in this team. It really gives us the opportunity to lean in and that’s what we’re going to do.

So with that, let’s open the call up to questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from Anne Samuel from J.P. Morgan. Your line is now open.

Anne Samuel — J.P. Morgan — Analyst

Hi. Good afternoon, guys. Congrats on a great quarter.

Jon Kessler — President and Chief Executive Officer

Thank you.

Anne Samuel — J.P. Morgan — Analyst

I was hoping if you could touch a little bit on the enhanced rates product. I was wondering how much of the higher yield, which is due to better penetration there. And then maybe what are some of the drivers of that penetration of enhanced yields coming in better than you expected.

Jon Kessler — President and Chief Executive Officer

I’m going to just start with Tyson there on commentary on the higher yields we saw in the quarter and then turn to Ted for some commentary on the movement on enhanced rates.

Tyson Murdock — Executive Vice President and Chief Financial Officer

Yeah. Hi, Anne. The higher yields really relates to the variable component of the HSA cash that we have. And so when you think about the Fed increases since we last reported was about 50 basis points, that’s really the increase on top of just the goodness we saw for Q1 and that’s really what that is. From enhanced rate perspective, we — I’ll turn that over to Ted and let him talk a little bit about penetration there.

Ted Bloomberg — Executive Vice President and Chief Operating Officer

Sure. Hi, Anne, we’ve been undergoing a series of different efforts in order to educate our members and clients and other constituents about the availability of the enhanced rates program and all of those are conspiring to put us in pretty good shape to hit that year end 20% target for cash in enhanced rates. Some of that member engagement on the website, in the app, when you call us, some of it is how we talk to clients and partners about how they can offer it and a lot of it is new sales where the enhanced rate offering is the default. So those are sort of the three big tools that we’re using in order to try to achieve that goal of 20% of our cash enhanced rates by the end of the year.

Anne Samuel — J.P. Morgan — Analyst

That’s really helpful. Thank you. And then, Jon you commented a little bit on the macro environment. Things have obviously changed somewhat since your last call when you talked about labor shortages driving HSA adoption. I know you’re not planning on making any changes to your company, but are you seeing anything, maybe within your customers around adoption? Thanks.

Jon Kessler — President and Chief Executive Officer

Yeah. I mean in the first quarter, we saw very strong hiring and that was a driver of our HSA sale. So I don’t have a crystal ball, but I can read the same papers and stuff that we do as Ted says I want to say. And so with efforts to slow the pace of the economy, we obviously welcome and look at that and decide for ourselves what it means, but I think for HealthEquity, there are a couple of points. The first is that HSAs and CDBs are win-win. The more employees contribute to these products, employees save money and our clients save money because those amounts that are contributed aren’t subject to payroll tax and then of course in the case of HSA is it’s the products themselves are part of a broader effort to keep cost under control and so if, for example, we have recession that focus employers and employees on cost cutting, we think we have a great tool and and within that context, one of the things that we think is relevant is that because of our revenues are to a significant degree a function of our custodial yields and the like and you can kind of think about that as a form of pricing power. That is to say, those and/or interchange will — aren’t really determined by the need to raise rates or renegotiate with clients or the like. And so that’s I think a pretty helpful factor for us to the extent that we were to go into a period that would be both declining growth rates, but persistent inflation, that seems like a good situation. So that’s, those are the things we think about the business.

Anne Samuel — J.P. Morgan — Analyst

Very helpful. Thanks, guys.

Jon Kessler — President and Chief Executive Officer

Thank you, Anne.

Tyson Murdock — Executive Vice President and Chief Financial Officer

Thank you, Anne.

Operator

And thank you. And our next question comes from Greg Peters from Raymond James. Your line is now open.

Greg Peters — Raymond James — Analyst

Great. Good afternoon. The three Amigos and El Guapo, love the reference. I guess in the spirit of that reference, I’d like to continue to focus on the plethora of net new HSAs. So I — you just commented on the market conditions. I was wondering if you could talk about the other drivers of net new HSAs which should be retention and then what the competitors that you’re in the market competing against, how they’re performing relative to, because it seems like you might be picking up market share. Thank you, Jon.

Ted Bloomberg — Executive Vice President and Chief Operating Officer

Sure, I’ll start and then you jump in. Greg, I think I alluded to it briefly in my comments, we’re definitely the beneficiary, we’re the beneficiary of robust hiring by our clients in Q1, which really helped and being the market leader per Devenir, we probably have the biggest sales to catch that wind. And then we’ve talked in the past about how one of the differentiators for HealthEquity is our distribution network, our tremendous partnerships with health plans, the health plan relationships we have acquired when we bought further and the tremendous work that the team has done to sort of build closer partnerships with those distribution partners, health plans and others, we think it gives us a durable advantage in driving HSAs we’ve seen the results of that. So, kudos to the teams that manage those relationships. And then we’ve gotten smarter where to focus and kind of how to fish where the fish are and kudos to our sales leadership team for driving those efforts. And so we feel like we’re spending time where we can win and that’s I alluded in my comments to the middle market, which is one place where we’ve really seen seen some growth. I don’t have a ton to say about Jon maybe you do about competitors this early in the year is just a little bit hard for us to tell. We, just like you, we sort of leverage Devenir to get a sense of — an analytical sense of how our competitors are doing. Anecdotally, our strong competitors remain our strong competitors.

Jon Kessler — President and Chief Executive Officer

And I don’t have much to add to that other than I would be remiss if I didn’t throw a tiny bit of cold water in the sense that we don’t expect that we’re going to grow HSA sales for the year. While we don’t give guidance on this topic, it’s not within our range of expectations to grow them 38% for the full year relative to what was a fantastic year last year. Hiring was clearly a big factor. We had some folks that were like late — sort of late breakers particularly from our partners as we got new partners up enrolling and kind of work in some of the kinks out and so forth. So we would not want you to go crazy and we’re not going to go crazy on projecting that number out to the full year or the subsequent years, but it’s a great way to start here.

Greg Peters — Raymond James — Analyst

Okay. Well, our message delivered, we won’t go crazy. The second question or the follow-up question would be, in your comments, I think, Ted, you said it — that you were talking about the service revenue results or maybe — I’m sorry, maybe it was Tyson. And you’re talking about the service revenue was affected in part by a decrease in CDB service revenue. And I was wondering if you could unpack what happened with service revenue in the first quarter, not only from an absolute number perspective, but from a margin perspective.

Jon Kessler — President and Chief Executive Officer

Yeah. Tyson, you want to do this?

Tyson Murdock — Executive Vice President and Chief Financial Officer

I do. Yeah. So good question, Greg. Thanks. I mean one of the things to point out immediately is that HSA service revenue grew relative to the growth we’re just talking about. So that was an area of alignment that we expected. Just really quick on the margin side, I did talk about the margin headwind again that we had in Q1 that will maybe global, a little bit in the Q2, so there was — there is kind of that and keeping that year-on-year view, as we just had a huge year coming out of that January timeframe and then the real point of your question is on the CDB part and again this is just a factor of what we talked about, when we were — we’ve talked about revenue before. COBRA uptake is lower due to fewer people I know in the pool and that’s uptake, right and FSA, HRA pricing could be a little bit down, just relative to all the migrations and things that we’ve done, and so those would be the main reasons why that’s occurring. A lot of that to getting through integration has now been stabilized and we’re getting a lot better data and views on the business instead of really working and making a lot of progress in the areas of how we think about pricing and so forth.

Greg Peters — Raymond James — Analyst

Hey, I can’t help myself, but just as a follow-up on that point, Tyson. You mentioned the second quarter guidance, you don’t have the benefit from the legislation last year that was about $10 million of additional COBRA revenue, is that correct?

Tyson Murdock — Executive Vice President and Chief Financial Officer

Yeah, good point. I mean that was the main quarter by far and that was — that we’ve called that out of $10 million, there is maybe a little bit in the following quarter as well on either side and most of the cost of is in there too, so that’s a great point for people to make sure that they think about when they’re modeling out our Q2.

Greg Peters — Raymond James — Analyst

Just I can’t help myself, the margin on that $10 million, i it consistent with the reported quarter average for the second quarter or was there something unusual on that?

Jon Kessler — President and Chief Executive Officer

It’s — I can probably take that. Well, go ahead and tell.

Tyson Murdock — Executive Vice President and Chief Financial Officer

Well, no, I was just going to say we haven’t necessarily ever talked about that. I think Jon, I don’t know what you’re going to say, but I don’t necessarily have a comment on how to think about that’s.

Jon Kessler — President and Chief Executive Officer

That’s what I was going to say. I’m trying to say okays his voice. He is at home, not feeling so good. So we’re trying to save his voice a little bit.

Tyson Murdock — Executive Vice President and Chief Financial Officer

Thanks, Greg.

Greg Peters — Raymond James — Analyst

Yeah.

Tyson Murdock — Executive Vice President and Chief Financial Officer

You had a plethora of questions.

Jon Kessler — President and Chief Executive Officer

Indeed.

Operator

Thank you. And our next question comes from George Hill from Deutsche Bank. Your line is now open.

George Hill — Deutsche Bank — Analyst

I guess I have to make the plethora of open yard is reference now. So I guess — Jon, I guess, I just kind of start off with anything that you guys will start to call out is we’re starting to new CD or earliest parts of the 2023 selling season. I guess, anything that should look different from the last two years or so given kind of how different the last two years looked?

Jon Kessler — President and Chief Executive Officer

I think probably the biggest thing that I would note is it’s a little bit of a continuation from last year, and then I’ll ask Steve and Ted, if they have commentary, but which was — last year, we had with regard to new logos and the like, which I think is where your question is the kind of market that is below the largest enterprises, but bigger than small business which comes mostly from our partners was very strong and one of the factors that we mentioned, I think we mentioned in last quarter or certainly somewhere between now and then now that I think has contributed to that strength pulling through into this year. It has been — the demand for HSA is from job seekers and so people who are in with they have an HSA, there’s a lot of movement across companies, there’s a lot of people in the benefits universe who still think about like the only way to use an HSA in a qualified plan or qualified plan it has like a kind of a lower cost health plan as opposed to you can create — it’s very flexible instruments, you can create a very rich benefit and of course it’s a little bit count to me, it reminds me of of what happened in the early years of 401k where the benefits world was like, well, people like pensions better than 401ks except that as people got comfortable with how to use a 401k. If that wasn’t an option for them, they thought that was strange and so that’s probably the one trend I would highlight that I’ve noticed as we’ve worked through. And Steve?

Stephen D. Neeleman — Founder/Vice Chair

Yeah. I mean, in addition to what Jon said I think I’ve been very impressed with the further team for example, I mean, actually these folks renewing them for a long time. I think it was probably 15 years ago we sort of talking to the team up there in Minnesota. Now we are team and we love them and for them to have done the work that they’ve done over the years with I think about 10 Blues partners and we’re actually going to be spending some time with them to bring — fully integrate, then we’ve had some of them obviously by Zoom, but they also do you can it’s kind of get to know them, maybe a baseball, maybe not, who knows, but we’re going to spend some time with them and just to see the work they’ve done that is really, really impressive. I mean I think because we started a HealthEquity now almost 20 years ago working with health plans is one of our key distribution channels. Because we don’t need people who do have work with health plans, unless we are own by one. They know [Indecipherable], but we found that these folks really do know what they’re doing. So that’s been I think another great addition to our team as we look forward to growth.

George Hill — Deutsche Bank — Analyst

Yep. And Jon, maybe a quick follow-up and this is going to be a little bit of a mandarin follow-up. McKinsey had a survey out last week, all about employer-sponsored health benefits. And one of the few data points in the report that kind of jumps out is — unusual is, over the last few years, you’ve actually seen tremendous growth in customer satisfaction of HDHPs, of which HSAs play an important role.

I guess the question I’m trying to get to is like — can you talk about the HSA is the tip of the spear, I think like when you think of an HDHP the things that beneficiaries probably going to interact with the most, I would think would be their HSA and kind of your focus — yeah, I’m trying to focus on — yeah. I am trying to focus on increasing penetration into employer sponsors that have already selected the HDHP plan, like what can you do to drive the percentage of people inside the employers sponsors who want to choose — I guess that like all the — yeah.

Jon Kessler — President and Chief Executive Officer

Maybe just to say, first of all, I think you’ve got a big piece of the answer in that. Remember, for most individuals who are enrolled in an HSA qualified plan, financially speaking, their primary interaction with that plan is the HSA, meaning to say they’re not going to hit their ductile in any given year. But for people who haven’t interacted, meaning there’s a real opportunity to use the positive experience and help folks grow. And so maybe you can Ted talk a little bit about what we are doing next.

Ted Bloomberg — Executive Vice President and Chief Operating Officer

Yeah. And thanks, Jon. I’ll be brief. I alluded to this, perhaps to nuance, to fashion in my comments about sort of the engagement capability that we’ve built.

That’s really code for communication and education, right, multichannel, omnichannel, right? And we spent the last two or three years really investing in helping employers help their employees understand this benefit. As Jon pointed out, the early days at former Canada everyone knew it was. It’s still — we’re still pretty — we’re still kind of in those early innings. And whether you call us on the phone, whether you interact with us through the app, whether you interact with us through the desktop, if you read the materials we send, you were always talking about kind of the next best thing for you to be doing, whether it’s engaging an HSA if you’re not, whether it’s investing — saving more if you’re not saving at all, whether it’s investing if you’re saving a lot.

And we’ve dedicated a real resource to becoming — because what we found is that our clients want us to partner with them on that. And so we’re having a lot of success there, and we — even though we still think it’s pretty early days. So we agree with you that the opportunity to more deeply penetrate HSA participation and then how folks use the accounts is a real opportunity for us, especially as we have so many clients to offer it.

George Hill — Deutsche Bank — Analyst

Okay. That wasn’t a highly coherent question, but I appreciate the direction in which you guys took it. Thank you.

Ted Bloomberg — Executive Vice President and Chief Operating Officer

Thank you, sir.

Operator

Thank you. And our next question comes from Stephanie Davis from SVB Securities. Your line is now open.

Stephanie Davis — SVB Securities LLC — Analyst

Hey guys, thank you for taking my question and congrats on the solidified return to [indecipherable] breathing, that’s quite a bit. When I think about the health savings administrator acquisition, how should we think about that $1.3 billion AUM getting layered in? Is it going to be a quick switchover? Or is there a longer process to unlock these custodial revenues given they’re the largest part of the assets revenue contribution?

Jon Kessler — President and Chief Executive Officer

Yeah. I think the important thing to understand about the HSAA as we sometimes refer HS-administrator assets is that the vast majority of them, and I’m talking about 85%, 90% are invested. And what we liked about HSA administration capabilities and members of the team was their knowledge and skill at working for example, within the individual market, where it’s still a small market but where people are — as you might imagine, they’re much more focused on investing than anyone — than the average employee in the group market and so forth. So those assets — to directly answer your question, those assets were moved over in Q1 and they are included in the quarter-end totals of course.

And the investment, thanks to the solid work of our team as well as our partners from HSAA, and our — and very candidly our partners from the intermediary investment custodians and managers, the bulk of those funds were — in fact, virtually all of those funds were moved over in kind. So that is a source of growth on the investment side and is contributing to our — now to our income from investing as well as some service fee income.

Stephanie Davis — SVB Securities LLC — Analyst

So taking that one level further, what level of custodial revenue contribution are you assuming from the acquisition this year? And could we see a little bit of an uptick as it gets layered into some of your newer contracts?

Jon Kessler — President and Chief Executive Officer

I guess, Stephanie, the answer, and if I don’t understand your question exactly. Maybe could you repeat it one more time because maybe I’ll get it the second time.

Stephanie Davis — SVB Securities LLC — Analyst

So for the HSAA deal, what level of custodial revenue contribution are you assuming for the year? And are we assuming a tailwind then that could happen for next year to further add to this?

Jon Kessler — President and Chief Executive Officer

So the — since the bulk of the revenue in HSAA is invested, meaning it’s in mutual funds and the like, we’ve assumed our — actually, what we’ve done there is, if I recall, and it works out to about the same thing. But we’ve maintained all of HSA’s pricing. And looking at Ted to make sure that’s right. And so — and the result is that custodial yields from those assets will be similar to our custodial yields overall, meaning kind of in that roughly 30 basis point neighborhood, and that’s reflected in that.

Stephanie Davis — SVB Securities LLC — Analyst

So it’s not like I get any sort of better rates or something like that because of the material?

Jon Kessler — President and Chief Executive Officer

No. No. No. There is a — I will say there is a small — it’s maybe $100-and-some-odd million that is in HSA cash and the uptake of enhanced rates among that group who was very solid in the kind of 90% range.

And again, our guidance does reflect that those assets have been deployed.

Stephanie Davis — SVB Securities LLC — Analyst

All right. Fantastic. Thank you, guys.

Jon Kessler — President and Chief Executive Officer

Thank you, Stephanie.

Operator

Thank you. And our next question comes from Glen Santangelo from Jefferies. Your line is open.

Glen Santangelo — Jefferies — Analyst

Yeah. Thanks for taking my questions. I just had a couple of quick rate questions. As it relates to the guidance for the balance of the year, obviously, there’s no future rate increases in that guidance.

Is it still fair to say that there’s about $1 billion in cash that are tied to short-term sort of variable rates, so we can think about, do our own math in terms of the potential impact of any future rate increases on the guidance?

Jon Kessler — President and Chief Executive Officer

Yep.

Glen Santangelo — Jefferies — Analyst

That’s right? Okay. Perfect. And then maybe if I could just ask a little bit more of a difficult question. I know you don’t want to look out to fiscal ’24 at this point.

But everybody’s noticing right, obviously, the five-year and the 10-year treasuries are just above 3%. We’re starting to see five-year, CD rates start to breach 3%. So could you — without sort of speculating on which way rates go, right, could you just do a quick look back to January of 2020? And remind us where those placement rates are? So we can make an assumption that if rates did not move from right here and you were able to reinvest at these sort of placement rates like what sort of lift we get on that third of the portfolio so we can start to think about, do our own assumptions and think about fiscal ’24.

Jon Kessler — President and Chief Executive Officer

Yes. So a way to think about it is that our average placement rates for deposits going back to the period — if I look at like fiscal calendar ’20, which is — I’m sorry, fiscal ’20 calendar — effectively calendar ’19 that ended in January of 2020. We reported an average custodial yield of around 249 basis points, give or take 1 basis point. And that — since that was up from the prior year, it reflected placement rates that were above that at the time.

And so I think while we don’t give out individual placement rates, as you know. I mean, that should suggest that at that point in time, which kind of represented the — I think, the closest we got to rate normalization in the last cycle, we were obviously placing individual deposits above that rate. And this time around, you have the enhanced rates product there. And so — and as we’ve discussed before, enhanced rates does, as its name implies, earn a premium for our members and also a premium for us in excess of that.

And so you might expect this time around as things kind of move along to even see a little bit of an increase on — relative to what we were seeing at the end of calendar ’19 and so forth. So that’s kind of order of — I guess, not an order of magnitude, but directionally what you would expect and as well as the baseline you might look at, which would be some number that’s kind of anchored to our fiscal ’20 reported custodial yield would be a way to look at it.

Glen Santangelo — Jefferies — Analyst

Okay. Perfect. That’s helpful.

Jon Kessler — President and Chief Executive Officer

Do you want to add anything to that, Tyson, or correct me or whatever?

Tyson Murdock — Executive Vice President and Chief Financial Officer

No. That was good.

Glen Santangelo — Jefferies — Analyst

Okay. And Jon, maybe I just wanted to quickly ask about the FSA business in terms of are you seeing any normalization in terms of the seasonal spending patterns there? I know with some of the government regulations sort of changing, we saw some abnormal behavior. Is that starting to normalize seasonally now?

Jon Kessler — President and Chief Executive Officer

Yeah. This is an important question in terms of getting the quarters right, and Tyson referenced it in his prepared remarks. Q1 FSA spend was pretty much what we would expect, which was nice to see versus the past several quarters of either much higher or much lower than we expected. And thus far, the same as, frankly, true in Q2.

And so we — but importantly — so I guess the answer is yes. We see things looking much more normal in terms of spend per account and that kind of thing for FSAs. I think the other point to mention there, and I think you’ve got this, but it’s worth noting that I want to make sure that our listeners do, as you model year over year in the second quarter, as Tyson suggests, we won’t have the benefit of the incremental spend that occurred in Q2 of fiscal ’22 that was people basically running up against the federal government’s kind of end of the rollover — the excess rollover period that was part of the earlier part of the pandemic emergency. And so we saw extra spend in that quarter as a result.

Effectively, that ended up being — some of it ended up being pulled forward from Q3. But a lot of it was just people have the money in their accounts and they spent it. And so that’s something to think about on a quarter-to-quarter basis. But big picture — and so what we expect to see this year is much more normal as opposed to that bulge that you saw in Q2 of last year.

Glen Santangelo — Jefferies — Analyst

Okay. Very helpful. Thank you.

Jon Kessler — President and Chief Executive Officer

Yes, sir.

Operator

And thank you. And our next question comes from [indecipherable] from Wells Fargo. Your line is now open.

Unidentified Participant — — Analyst

Hi. Thank you for taking my questions.

Jon Kessler — President and Chief Executive Officer

Hi [indecipherable].

Unidentified Participant — — Analyst

Hey. Howdy. So maybe a first clarification question on something you mentioned in the prepared remarks. Regarding the Further acquisition, I think you called out a potential source of synergies.

Are there any dollar figures you’re targeting there that you can quantify may be time to recognize those savings?

Jon Kessler — President and Chief Executive Officer

Yes. We announced at the time of the transaction that we thought we would see about $15 million in synergies. We also said at the time that they would be backloaded over the course of a couple of years. And in fact, that’s the case.

That is to say our fiscal ’23 initial guidance and the current revised guidance don’t reflect much in the way of Further synergies. And the reason for that is that the bulk of these synergies really come from the pace or say, the eventual bringing together of the Further operating platform and the HealthEquity operating platform. And we’re taking that slowly really out of respect of two factors. One is that our Health Plan partner clients on the Further side, there’s — we want to make sure that they know exactly what we’re doing and that there’s some trust built there.

And we have the ability to gather from them some things that are important to them that we can incorporate in that process. And secondly, Further, as we’ve discussed before, has some technical capabilities that we think, are extremely useful, particularly as we begin to embed as we talked about earlier in the year, as we embed more features and more element or a better product, I should say, more deeply into our partners’ products and vice versa. There are other folks who sell white label, and that’s all nice. But really, what were the real value is not just in a label, it’s in meeting the consumer when it’s relevant, and that’s done by embedding the product more deeply.

And so we are trying to — as we’ve tried to bring some of those capabilities over a little more quickly, and you’ve seen us talk a little bit about products on that. But from a pure synergy perspective, you won’t see that in fiscal ’23. You’ll see it out in ’24 and into ’25. And so I think I’ve answered both the order of magnitude as well as the time.

Unidentified Participant — — Analyst

You did. And maybe one quick follow-up. Maybe just revisiting the sales pipeline. So past couple of years, obviously, the story has been about multiproduct sales, vendor consolidation trends.

Just more broadly, it seems to me like benefit managers are becoming a bit more cost sensitive. I’m just curious, is this something you’re seeing on your end with your sales force and to the extent that you are seeing it. How are you navigating this? Any impact to the win rate will be helpful.

Jon Kessler — President and Chief Executive Officer

I’ll offer a couple of thoughts, and then, Ted, I’ll see if you want to add anything. So first point is, from this perspective, I think the first quarter was, in some ways, really good news for us. Our largest product is, of course, HSA, and it’s not only our largest products. It’s our growth engine.

And when you look at the portion of — I mean the good — of course, the bulk of HSA revenues don’t come from fees paid by clients or members in that direct way that I think you’re asking. But even among those that do, we — if you look on a year-over-year basis, right, fees are essentially equal. In fact, they’re up just a switch which is a departure from prior years, and that reflects both being able to hold price where it’s appropriate, but also being more efficient about where we should be charging fees and where we shouldn’t. So that’s, I think, the first point to make, and it’s a very important one.

When you look beyond that, I think generally, our approach to navigating this point is that the bigger source of savings for benefits managers in what we do is in the products itself. It’s not in our fees, right? It’s in enhanced enrollment and more contributions in people using all of the other things that we integrate with more effectively because our clients are working with us and with our integrated partners rather than with a more generic service that might be offered by a firm that’s just in the retirement space or just in the ben admin, payroll processing space or just a bank. And so that discussion tends to — that tends to dominate. Of course, we’ll be as aggressive as we need to be with regard to fees and so forth.

But I think that’s the heart of the discussion is that the real opportunity for savings is in the product itself, not in the fees you pay us. Ted, do you want to add to that?

Ted Bloomberg — Executive Vice President and Chief Operating Officer

Yes. The only thing I might add is that through our health plan distribution, the cost of the services that we provide is a relatively modest component of the total cost of the decisions being made in choosing a healthcare provider. And not only that, choosing a high deductible health plan are finding ways to have more of your teammates choose that health plan is actually a cost savings opportunity regardless of what the HSA fees are to John’s point. So I think that our distribution helps insulate us a little bit from cost pressures.

And I would also say, well, yes, there’s always going to be cost questions or cost pressures or competitive cost environment. I think that the benefit of offering the bundle that was our primary hypothesis, when we bought WageWorks three years ago, has kind of been proven out probably in excess of our expectations. People do want to consume multiple services. And not only that, even if someone is consuming multiple services, the broker, the consultant, the health plan who’s selling it, wants to send you multiple pieces of business even if each individual piece is not the whole bundle.

And so I think that having the bundle and being able to offer it in a thoughtful way is probably a trend that’s stronger than $0.05 or a $0.10 here and there on a product price.

Unidentified Participant — — Analyst

Got it. Thank you.

Operator

Thank you. And our next question comes from Sandy Draper from Guggenheim. Your line is now open.

Sandy Draper — Guggenheim — Analyst

Thanks very much and good afternoon. Most of my questions have been asked, but maybe just I think a quick clarification, not clarification — it’s confirmed. So it sounds like for the health savings administrators, the bulk of those assets were more toward investments. I just wanted to confirm — and less on the cash.

Is that correct interpretation of what you were saying?

Jon Kessler — President and Chief Executive Officer

Yes, yes.

Sandy Draper — Guggenheim — Analyst

Okay. Got it. So then that leads into my second, as I think about triangulating where cash balances are, where spending patterns are, thinking about an inflationary environment, have you seen any indication that — and I don’t know how you would parse this out, are people saying, “Hey, for the past two or three years, I was saving a lot in my HSA, wasn’t paying not sell back maybe because of I wasn’t going to the doctor. But now I’m going back to the doctor, and I’m going back to doctor and gas is $5 a gallon and other things.

So I need to pay myself back. Are you seeing any signs of — while people are still contributing, they’re actually going to start taking more money out because of inflationary pressure. Just trying to think about how that sort of plays out and how that may impact cash balances with the obvious offset of potentially stronger interchange revenue?

Jon Kessler — President and Chief Executive Officer

Yes. I mean we haven’t, but the logic of what you’re saying as we did in the first quarter, but I think the logic of what you’re saying is pretty sound. So generically, the immediate impact of recession is higher savings rates, right? The immediate impact of inflation is people spend, right? That’s the way — it’s a little bit counterintuitive except it worked over and over and over and over and over again, and it’s in every macro textbook. So I would expect that some version of what you’re describing ends up being true.

And then as a result, for example, maybe the case that we won’t see on net as healthy average cash balance growth as we did last year, but maybe we’ll see a little healthier spend. And of course, we would, over the long term, rather have the balance growth. But I think there’s — I guess, again, without having seen it in the data yet. I can’t do much other than yes, but it’s quite — what you’re saying is quite logical.

And as you kind of try to triangulate between sort of the triangulation around investments, cash and also between balances and interchange, I think it’s a worthwhile factor relative to the last few years.

Sandy Draper — Guggenheim — Analyst

Great. Thanks. That’s my question. Appreciate it, Jon.

Jon Kessler — President and Chief Executive Officer

That’s a good one. That’s a good one for late in the queue.

Operator

Thank you. And our next question comes from Mark Marcon from Baird. Your line is now open.

Jon Kessler — President and Chief Executive Officer

Hey, Mark.

Mark Marcon — Baird — Analyst

Good to talk to you. Wondering, can you just talk a little bit more about the enhanced yield product just in terms of what sort of premium you’re getting there? And then in addition to that, with the Fed basically pulling back in terms of going from quantitative easing to tightening. What — if you were placing funds today, like how much of a premium would you get now with your regular partners in terms of on top of what jumbo three- to five-year CDs are getting?

Jon Kessler — President and Chief Executive Officer

Sure. Why don’t I try to answer those in reverse if I — because the deposit rates sort of are a useful baseline. So on the deposit side, we’ve commented before about the range of premium to current average rates. And that range is sort of 75 basis points on the low end, higher 25 on the high.

But of course, the other important caveat there is that premium is higher when rates are rising, and when rate expectations are high, and it is lower when rates are falling and when rate expectations are for further falls. So as you might imagine, the spread at the moment, if we were placing funds between where we feel we could place and what current average three and five CDs are trading are at are pretty high. In terms of the historical spreads, not just similar to an earlier question to kind of what the middle of calendar 2019 looks like. And so a reasonable question as to whether how much of the Fed’s activity and other activity has already — is now kind of baked into all of those expectations.

I don’t know the answer to that. But I don’t think anyone does. But that gives you a feel for it on the deposit side. And then generally, the commentary we’ve made on the enhanced rates product is that it tends to be about a 50 to 75 basis point premium relative to where we’re able to place cash.

So — or — and so — that’s — and that’s — we only have in terms of this formula and so forth. We’ve only been dealing with it for, I guess, almost a year now, but nonetheless, still a little bit early on that, but that sort of held pretty well. And you do make one point that I think is very important and that is that while one might reasonably take the view that banks and the like have factored with their own estimate of where the Fed ends up and where it stops into the rates they’re willing to pay on cash, quantitative tightening that is to say the reduction in the size of the Fed’s balance sheet is still a little bit — is still somewhat out there in terms of its impacts. And the reason for that sort of boils down to the fact that it’s not fully clear to anyone what the true impact will be on the price of — on the yields on treasuries and then pricing on corporate debt and the like.

So because no one has ever done it before. And so we’ll see how that goes. But look, I think if I step back from all of that, we’ve — as we’ve said before on this call, Mark, there is a large amount of the earnings power of the business that has been missing from the business for a year or two and certainly is still missing in the current year relative to history. And so as that comes back, that will be valuable to the business in terms not only of incremental profits, but it will also give us incremental opportunity to invest and so forth, in addition to sending a significant chunk of that bottom line.

Mark Marcon — Baird — Analyst

Great. And then a couple of other questions. One would basically be — and they’re kind of opposite ends of the spectrum. On the one hand, how should we think about wage inflation as it relates to Team Purple, all of your folks have lots of opportunities.

So just thinking like how should we — as we start thinking about fiscal ’24 and puts and takes, how should we think about the servicing costs that you’re going to incur. But then on the flip side, the benefits from scale that you’re going to — that you’re accruing here in terms of the Health Savings Associates acquisition or — the HSA assets, the Further being integrated to a greater extent the size and scale that you just have naturally even in terms of marketing presence.

Jon Kessler — President and Chief Executive Officer

I mean you’ve kind of just run through the nice list of if your question has been how do we think about margin in the out years, right, which it kind of was. You’ve just run through the puts and takes. And so I’ll repeat them back but in the order that I think it’s worth considering. Let’s start with the takes, right? You’ve got, as you say, wages are going to rise, and they just are.

And we’re trying to keep up as best we can and take care of our team. And I expect — but our assumption is in the out years, you can make your own. But our assumption is that it’s not like this is going to be a one-and-done situation. I think, again, secondly, on takes is that with higher custodial yields on the put side, some of that comes back actually from service fee pressure, feel really good about what we were able to do on the HSA side, which is where those are in the first quarter.

But we’ll see how it goes over time. And then lastly, I think important on the take side, below the EBITDA line, but nonetheless, as you know, if you look at our if you look at our reporting, we’ve increased capex and, of course, their stock comp and that rolls through over the course of the next few years. So those are the takes on margin, right? The puts, as you say, are custodial yields, the bundle in cross-selling, the growth of the underlying base, both from organic growth as well as from M&A that has brings all that scale. The real payoff in terms of winding down integration expenses, which again is below the EBITDA line, but nonetheless, is real cash.

The tech-driven efficiency and service delivery that we’ve started to see as a result of our investments in that area but expect to continue and then whatever happens with commuter. And if I’m giving the luxury of thinking about it over multiple years, I can be a little bit more optimistic than whereas obviously, Tyson is being extremely cautious, I think, with regard to the current year. So all of that put together, obviously, we expect that more or I say we think it’s reasonable to take the view that there’s plenty of opportunity to grow margin in the business as well as to continue to invest to grow topline in the business. So that seems pretty good.

Mark Marcon — Baird — Analyst

That’s great. And then just the last one, just with regards to Further, lots of things that you’re doing. Just how are you being perceived by the clients now within those Blues plans just in terms of partnering with being able to expand geographically into — to really leverage this. What — we’re still in early days, but how are you thinking about that unfolding over the next two to three years?

Jon Kessler — President and Chief Executive Officer

I wish you were asking next quarter because we’re having our summit with these clients, which has cleverly been titled Blueprint. I’m sure that’s not the first time that pun has been used. But it’s in Chicago next month, which is the home of the blueprint and not where it was invented technically, but it’s true home. Chicago School of architects.

And — but Steve, you can maybe give — since you’ve probably participated more than any of the rest of us on this call in discussions with — particularly with the Further partners. Maybe you could talk a bit where you think we are.

Stephen D. Neeleman — Founder/Vice Chair

Happy to, Mark. I think it is still pretty early, but generally, it’s been very positive. I’ll tell you one little kind of cute story. The Further team and our team — now our team, we can’t say that anymore certainly —

Jon Kessler — President and Chief Executive Officer

They are the dollar and the —

Stephen D. Neeleman — Founder/Vice Chair

Our collective team reported back, they met with one of on our Blues plans that happened to do business with both HealthEquity prior to the acquisition and now with HealthEquity again because Further had developed a relationship with them. And they said, well, this works out perfect. They said we love HealthEquity for what they did. We love what we received from Further and now we love them even more.

So the point is, is that I think that — now with this dominant footprint of well over 30 Blues plan that we’re working with, we do have scale. And these folks, they work well together. They go to conferences together. The Blues Association actually happens to be increasing also in [indecipherable], which I don’t know I thought they did the rivers green, they should start doing a blue out there.

Jon Kessler — President and Chief Executive Officer

Yes. Maybe the blueprint.

Stephen D. Neeleman — Founder/Vice Chair

But I think the short of it is, Mark, is that we’re really learning how to work with these types plans. Many of the people that used to work in Further, they’re now working at HealthEquity previously even worked at Blues Minnesota. And so they know how to meet their needs. And that was kind of their model was, look, we want to help these Blues plan grow.

Now HealthEquity has a lot more than Blues plan. We’ve got some fantastic integrated systems all over the country that are owned by hospital systems. And we were able to reach into them as well. And so it’s not just about blue, it’s about meeting any of the partners or clients where they are in providing a unique and sophisticated solution for them so that they can compete in their markets.

So that’s — I think that’s the short of it. And we just — we started with one health plan back in 2003. So remember, that time. And now we’re over 100.

It’s pretty exciting.

Mark Marcon — Baird — Analyst

That’s great. I’ll be sure. Thanks again, next quarter.

Jon Kessler — President and Chief Executive Officer

You got it.

Operator

Thank you. And our next question comes from Allen Lutz from Bank of America. Your line is now.

Allen Lutz — Bank of America — Analyst

Hey, everyone. Thanks for taking the questions. I guess on interchange, that came in really strong in the quarter. I guess looking back in the model, kind of pre-COVID, pre-WageWorks.

The first fiscal quarter is sort of the high watermark of the year for interchange. I guess question one, is that what you’re thinking? Is that sort of what’s embedded in the guide for this year. And then point two, in that $42 million, is that healthcare spending back to normal? Or is there any reason to be optimistic that healthcare spend increases over the course of the year?

Jon Kessler — President and Chief Executive Officer

Tyson, do you want to hit this one?

Tyson Murdock — Executive Vice President and Chief Financial Officer

Yep. Yep. Allen, thanks for the question. I think you — on that exactly you already answered it, basically, which is that it is front-end loaded.

It’s a lot of it’s biggest quarter is going to be kind of Q4 rolling out into Q1 a little bit. And then sort of the user are losing on the FSA side, HSA is a little bit more stable. But I would think about it that way. So if you think about kind of the softer months or quarters, they’re going to be sort of in the summer fall time frame with regards to people who sort of spend through some things or those that type of timing? And then Jon, I guess, the second one.

Jon Kessler — President and Chief Executive Officer

Well, I was just going to say also, don’t forget that if you’re doing year on year that last year had these unique features that really blew up Q2. But yeah, things, as I said earlier, at least at the moment, appear pretty normal, meaning normal that is if you look at spend per account, all those kinds of things, how much is left in accounts, etc. Things are looking a lot more like the graphs that we would have seen immediately prior to the pandemic than like anything else. And as I think I commented at the time of our initial fiscal ’23 guidance, we were looking forward to a year of not having surprises on this topic.

And so far, so good.

Allen Lutz — Bank of America — Analyst

Great. And then I think investors kind of understand the upside optionality on rates. But I guess kind of taking kind of the other direction there. There’s been some concerns about employment trends in the very recent months.

I guess, is there anything that you’re seeing within your book of business regarding employment trends, maybe active accounts, or anything that can kind of point to a slowdown in the economic environment? I guess we’re just trying to understand kind of if we do go into a slowdown in hiring the puts and takes of the model from here? Thanks.

Jon Kessler — President and Chief Executive Officer

Yes. Yes. Our — I mean the short answer is that we haven’t seen anything along those lines in terms of active account type stuff. That having — and I think that that statement is actually perfectly consistent with the national data, which — if you actually look at it, the first four months of the year and also even May, were some of the steepest increases in civilian employment in the United States that have been observed, period, end of sense.

And obviously — and certainly far steeper than the run-up — the sort of boom period and the run-up to the pandemic. So — but I don’t think anyone should expect that that will continue since one, we’re starting to get back to levels of employment that were pre-pandemic, and we’re not quite there, but we’re getting close. And two, the government’s policy is to slow the economy down. And slowing the economy down, it’s going to slow hiring down.

And so as I said earlier, the implications for our model are: one, as was suggested earlier, we probably shouldn’t go crazy on the year-over-year percentage increase in Q1 in HSAs and kind of be a little more modest about our expectations for the full year. The second is that our clients are looking for win-wins. And it’s worth noting here, and I think this really bodes well for using all of those educational things that Ted was talking about, which parenthetically, it’s not like just generic capabilities. It’s a product with does — we don’t charge directly for it, but we track the revenue from it.

And our account executives and service delivery managers for our enterprise clients are — they are accountable for bringing what we call MAX and Roll into our customers at a greater — substantially greater level this year than last. And the reason I mentioned that here is to say we know that our clients either they know or they need to know that in a world where they’re seeing something they’ve never seen before, which is a still tight labor market plus wage pressure, right? Most of these folks were not alive in 1981 or 1980. And — or best case in 1990, they were live, but they probably weren’t working in HR. And so they’re seeing something they’ve never seen before, and they’re going to need tools and we have some of those tools.

And so our job is to go out there and from a sales and relationship management perspective, give them those tools. And if we do that, we’ll have a good season. And that’s kind of — that’s what I think.

Allen Lutz — Bank of America — Analyst

Great. Thank you.

Operator

Thank you. And our next question comes from David Larsen from BTIG. Your line is now open.

David Larsen — BTIG — Analyst

Hi. Congrats on the very good quarter. I’ll be hopefully fairly quick here. So for the interchange revenue, I’m looking at a growth rate of around 21% year over year.

I mean, is that what you reported? And then is both healthcare revenue in there, utilization of services, and then is commuter revenue also in there? Was that 21% growth all organic? And was commuter and healthcare both up around the same amount, 21%?

Jon Kessler — President and Chief Executive Officer

So there’s a lot in that question. I’m going to let Tyson catch his breath and answer most of it. I’ll answer the piece that I can easily. That’s total revenue, obviously, and there’s an organic and inorganic component to that.

And so obviously, inorganic was helpful. And it’s, of course, a mix of HSA and CDB and yes, includes both healthcare and commuter. But Tyson, maybe you want to elaborate a little bit there.

Tyson Murdock — Executive Vice President and Chief Financial Officer

I’m not sure you missed anything, Jon, but I would just say this commuter — that’s not — I’m thinking, what am I going to add. But I would just say on the commuter side, just to kind of talk about that for a second in a way that it is very small relative to — we do see improvements, but on a — from an interchange perspective, it’s a small amount of that. It is an indicator of people utilizing it. So I have seen utilization in the card swipes going up over the course of the last — we said in three quarters, and so we continue to see that march in there.

So it does help from a perspective of how that’s growing on the commuter side, it’s a very high percentages, but a very small dollar amount. And I think everything else Jon said is true.

David Larsen — BTIG — Analyst

Okay. And then for the enhanced rate product, I heard that that’s on about $1 billion of invested dollars right now. When I look at your press report, I’m seeing HSA cash, $13 billion, HSA investments, $7 billion for a total of about $20.3 billion. And I’m assuming all of those are invested, all of that $20.3 billion is invested earning some sort of yield.

So does the enhanced rate product, are we looking at that as a percentage of $20.3 billion or a subcomponent of that?

Jon Kessler — President and Chief Executive Officer

Yes. So let me clean that up for you. I think when you heard the $1 billion with — that was a response to the question about variable, basically the effects of Fed funds changes and how much cash those Fed funds changes impact. And the answer is they impact about $1 billion today that is deployed in variable-rate contracts that is part of HSA cash.

So that was that number. We said at the beginning of the year that enhanced rates was about 10% of our HSA cash number and our HSA cash number at the beginning of the year was — that was about $13 billion, give or take. And now it’s — and so 10% of $13 billion is $1.3 billion, give or take. And our goal is by the end of this year to roughly double that to get at 20%.

We’re pretty confident we will. So kind of pushing $3 billion. And so I hope that cleans it up for you. And if not, that’s something we can take off.

Well, we can talk about in one-on-one or whatnot, make sure you got it all.

David Larsen — BTIG — Analyst

No. That’s fine. That’s very helpful. So as we enter into fiscal ’24, what I’m hearing is that $1 billion might actually turn into $3 billion.

So assuming interest rates continue to rise, the benefit from that will actually increase even more than what it has this year.

Jon Kessler — President and Chief Executive Officer

I think — well, let me say, I think I want to be clear, what we’re saying is with regard to the enhanced rates piece, that piece will grow from $1.3 billion at the start of last year — at the start of this year to something around double that. And then that $1 billion that’s in variable cash, I would expect that number will be similar next year in percentage terms. Again, it depends on the time of year and so forth, but it’s between 5% and 10% of our total cash. And so to the extent that total cash grows, it will grow, too.

David Larsen — BTIG — Analyst

Okay. And then just the last quick one for me. The 12% organic growth in membership, was that from in sells into your existing base? Or is that from new account adds or both?

Jon Kessler — President and Chief Executive Officer

My kids got me on to Reddit and apparently Incell and Reddit is a totally different thing. So you said that and that’s what I thought of, and I didn’t hear the rest of the question. But no, I did. So the answer is both.

It’s — that is inclusive of new organically won logos as well as growth of existing logos.

David Larsen — BTIG — Analyst

Okay. Great. Thanks very much. Congrats on a good quarter.

Jon Kessler — President and Chief Executive Officer

Thank you, sir.

Operator

Thank you. Our next question comes from Sean Dodge from RBC Capital Markets. Your line is now open.

Jon Kessler — President and Chief Executive Officer

We missed you last week, Sean.

Thomas Kelliher — RBC Capital Markets — Analyst

This is actually Thomas Kelliher. I’m on for Sean. So yes, not much look to pick out here. So I’m going to keep this to a quick clarification.

There are about $5 million to $7 million of incremental cost in Q1 tied to servicing capacity, that is factored in the guidance. Did you say that there might be some additional costs going into Q2? Or how much carryover incremental would that be in Q2 and beyond?

Jon Kessler — President and Chief Executive Officer

Tyson, do you want to hit that one?

Tyson Murdock — Executive Vice President and Chief Financial Officer

Yeah. I got that. I kept that last time we talked about it in the last release and this release, the 5% to 7%, I mean just a little bit of that leak over into Q2. I’d say for the Q1 number, about $5-ish plus million in there.

And so that’s the way I would think about it just kind of bridging between those two quarters, kind of through the last part of that.

Thomas Kelliher — RBC Capital Markets — Analyst

Thanks. I’ll go ahead and leave it there. Congrats on the quarter.

Jon Kessler — President and Chief Executive Officer

Thanks, Thomas. I thought you were Sean, but you’re Thomas. Thank you.

Operator

Thank you. And I would now like to turn the call back over to Jon Kessler for closing remarks.

Jon Kessler — President and Chief Executive Officer

Well, I have no closing remarks prepared. So let’s consider it a win that we — some of you asked us to like less blue via less than our answers. And so we tried and we’ve saved about 15 minutes. So let’s keep it that way.

Everyone, have a great day and a great safe summer.

Operator

[Operator Closing Remarks]