HealthEquity, Inc Q4 2026 Earnings Call Transcript

HealthEquity, Inc (NASDAQ: HQY) Q4 2026 Earnings Call dated Mar. 17, 2026

Presentation

Operator

Good afternoon, and welcome to the HealthEquity Fourth Quarter and Full-Year 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Richard Putnam. Please go ahead.

Richard Putnam — Head of Investor Relations

Thank you, Gary. Hello, everyone. Thank you for joining us this afternoon. This is HealthEquity’s Fourth Quarter Fiscal 2026 Earnings Conference Call.

My name is Richard Putnam. I do Investor Relations for HealthEquity. Joining me today are Scott Cutler, President and CEO; Dr. Steve Neeleman, Vice Chair and Founder of the company; and James Lucania, Executive Vice President and CFO.

Before I turn the call over to Scott for our prepared remarks, we note that the press release announcing our fourth quarter financial results was issued after the market closed this afternoon and that it includes certain non-GAAP financial measures that we will reference here today. You can find a copy of today’s press release, including reconciliations of these non-GAAP measures with comparable GAAP measures on our Investor Relations website, which is ir.healthequity.com.

Our comments and responses to your questions reflect management’s view as of today, March 17, 2026 and they 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 our results. These forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from statements made here today. We caution against placing undue reliance on these forward-looking statements, and we encourage you to review the discussion of these factors and other risks that may affect our future results or the market price of our stock as detailed in our latest Annual Report on Form 10-K, was filed just today and 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.

With that out of the way, let’s go to Scott.

Scott Cutler — President and Chief Executive Officer

Thanks, Richard, and we welcome everybody for joining us today.

I’ll begin with our fiscal 2026 results and the strategic progress positioning us for fiscal ’27. Steve will address the regulatory environment and Jim will walk through our financials and raised fiscal 2027 outlook.

Fiscal 2026 was a year of accelerating earnings power for HealthEquity as we delivered strong execution, significant margin expansion and record HSA sales. We’re proud of the team’s execution and the progress we’re making building this platform for the long term. In the fourth quarter, we delivered 23% adjusted EBITDA growth and more than 500 basis points of adjusted EBITDA margin expansion, while adding a record 550,000 HSAs, resulting in more than 1 million new HSAs from sales for the year, bringing total accounts to 17.8 million and HSA Assets to more than $36 billion.

Revenue grew 7% year-over-year, and net income increased 89% to $49.7 million. Non-GAAP net income increased 33% and non-GAAP net income per diluted share grew 38%, reflecting meaningful margin expansion. What you see in these results is the operating leverage inherent in the HealthEquity platform as assets, engagement and automation scale. We also returned more than $300 million to our shareholders through our share repurchase program in fiscal 2026, reducing diluted shares outstanding by approximately 3%.

At the center of our strategy is a flywheel, helping members save spend and invest for healthcare. As engagement deepens across each dimension, the model becomes more valuable and more efficient. Greater engagement drives spending, balances and long-term earnings power. We advanced each component in fiscal 2026. On save, total HSA Assets increased 14% to more than $36 billion, reinforcing the long-term value embedded in the platform. Importantly, asset growth continues to outpace account growth, reflecting higher balances per member and deeper engagement.

On spend, we expanded the way members can use their HSAs by launching our marketplace. Beyond HSAs, our platform also supports flexible spending accounts and commuter benefits, giving employers a single destination to administer the full spectrum of consumer-directed benefits. And on the invest component, HSA investors grew 10% year-over-year and invested assets now represent more than 50% of total HSA Assets. Importantly, about 95% of HSA members still do not reach contribution limits and over 90% have not yet invested, creating significant opportunity for engagement-driven growth.

Member engagement increasingly happens through our mobile platform. We now have more than 3.6 million downloads of our app, reflecting the growing adoption of digital-first healthcare. That shift will only accelerate as younger consumers enter the system, expecting to manage healthcare and finances digitally. Another advantage that becomes clear over time is the compounding value of our member cohorts. Each year, we add new HSA members who grow balances, increase engagement and become more valuable as their accounts mature. Some of the most valuable accounts on our platform today are those opened more than a decade ago.

The scale of our distribution is reflected in one simple fact. We added over 1 million new HSAs from sales in a year when the U.S. economy added just 181,000 jobs. That is a powerful reflection of the demand for HSAs. That level of growth reflects the deeply integrated proprietary compliant platform, with more than 200 network partners in over 100,000 clients, supported by a member-first secure mobile experience. Built over years, that advantage compounds as accounts mature and HSA Assets grow, resulting in increased revenue and cash flow for us, which in turn funds our continued investment in innovation, security and AI.

We’re also expanding HSA distribution into a large new retail healthcare channel. Our direct HSA enrollment platform expands access beyond employer-sponsor plans, enabling individuals to open and fund HSAs through our mobile and web experience. That is especially relevant for consumers selecting Bronze plans on ACA exchanges where we see a meaningful new retail distribution opportunity. As millions of households evaluate coverage options, our retail capabilities position us to capture incremental adoption. More broadly, healthcare affordability pressures continue to drive adoption of consumer-directed healthcare.

As we previously shared, a third-party study across nearly 1 million employees from several of our largest employer clients found that higher HSA adoption correlated with significantly lower per employee healthcare costs, while employees save more on premiums and taxes and grew their HSA balances. HSAs are becoming core infrastructure for how Americans plan and pay for healthcare. With that structural tailwind, trust remains foundational.

On security, we continue to make measurable progress. In the fourth quarter, fraud reimbursements totaled approximately $0.3 million, putting our exit run rate at 0.1 basis points for the quarter, well below our target of 1 basis point of total HSA Assets annually. Our team executed the highest performance level, reducing fraud cost to approximately 1.1 basis points during the fiscal year, placing HealthEquity in the top percentile among comparable portfolios in the Visa network.

We have also made meaningful progress improving card authorization performance, directly improving the member experience at checkout. Importantly, we are strengthening account protection while simplifying the member experience. Early-stage fraud detection has improved. False positives have declined and authorization rates continue to strengthen. At the same time, passkey authentication is eliminating traditional passwords, enhancing security while simplifying account access, protecting members while preserving interchange economics. In a category where trust is everything, we are proving security and seamless experience can scale together.

With that foundation in place, we have begun building the next-generation healthcare financial operating system and AI is central to that evolution. AI will enable us to move from a phone and manual-based service experience to a place where members are guided to resolve issues in real time across multiple channels. With 17.8 million accounts and more than $36 billion in assets, we have the data density, transaction velocity and integration footprint to deploy AI tools for our members responsibly.

With millions of members and a growing flow of healthcare spending moving through the platform, our data scale enables AI applications that smaller platforms cannot easily replicate. AI will allow us to scale member engagement while lowering the cost to serve across the platform. We are embedding AI in three ways. First, elevating the member experience. As mentioned previously, our expedited claims solution has begun delivering faster reimbursements to members. HSAnswers and HealthEquity Assist are evolving into intelligent, contextual support tools that guide members from voice to agentic chat and digital channels.

Second, driving operational efficiency. We are already seeing impact as AI-driven automation reduces service costs while improving resolution speed. Over time, we expect AI-enabled self-service to help members resolve more needs directly within defined workflows, reducing reliance on live service interactions. Third, unlocking personalization at scale. Over time, we expect members to be able to use our AI applications to optimize contributions, identify tax savings opportunities and make more informed spending and investing decisions.

AI is becoming an earnings engine for HealthEquity, improving member experience while helping lower costs to serve an increased lifetime value per account over time. Additionally, that same intelligence will continue to extend beyond service in how members discover and access healthcare programs and products. That growing flow of healthcare spending creates an opportunity to help members discover and access services directly through our platform.

Across the entire industry, Americans spend more than $40 billion from HSA accounts last year on qualified healthcare. More importantly, they more than replenished those funds by contributing more than $55 billion growing their HSA balances. As more healthcare spending moves through the platform, we see additional opportunities to bring more value to our members over time. In the fourth quarter, we launched our marketplace, with early offerings focused on weight loss programs, hormone replacement therapy and healthcare wearables.

Globally, these categories are experiencing rapid consumer adoption with an estimated total market spend of more than $100 billion. Over time, we expect to expand our marketplace with additional products, programs, services and partners. Our marketplace expands engagement inside the HSA while introducing new recurring revenue streams and increasing the share of healthcare spend flowing through our platform. Early adoption has been encouraging, with strong initial retention rates among participating members.

We’re also seeing an increasing number of merchants highlighting HSA and FSA eligibility at checkout as a way to increase conversion and drive sales, reinforcing the growing role of tax-advantaged healthcare spending. All of this reinforces the operating leverage visible in our results. We enter fiscal 2027 as a three-year member of the exclusive Rule of 50 club. Members of this exclusive club deliver the sum of revenue growth and adjusted EBITDA margin in excess of 50%. This is a designation typically associated with category-leading companies, and it is even more rare to see them sustained for longer periods of time.

Based on guidance that Jim will provide in detail in a moment, we intend to make it four years in a row. That’s the power of this model as engagement, assets and automation scale, earnings scale with them. As more Americans save, spend and invest through HSAs, our flywheel strengthens, accounts grow, assets deepen, engagement expands and operating leverage follows. With scale distribution, growing assets, expanding engagement in an AI-enabled platform, HealthEquity is building the financial infrastructure for how Americans will pay for healthcare.

With that, I’ll turn it over to Steve to walk through the policy landscape. Steve?

Stephen D. Neeleman — Founder and Vice Chairman

Thank you, Scott.

The policy environment for HSAs is the most constructive it has been in two decades. And we believe we are at a genuine inflection point, with healthcare affordability at the center of the conversation. Last year’s Working Families Tax Cuts Act, also known as One Big Beautiful Bill, expanded HSA eligibility to American selecting Bronze plans offered on ACA exchanges. This law is the most significant structural change to the HSA market since the accounts were created.

For the first time, millions of households purchasing coverage through the exchanges can pair their plans with an HSA and access the same triple tax advantages that employer-sponsored participants have long benefited. This is a meaningful democratization of a tool that has historically skewed towards employer-covered workers. We continue to work closely with our health plan partners to simplify the process to enroll Bronze plan members into HSAs.

Beyond the ACA exchange expansion, we are encouraged by the broader legislative momentum. The current administration has put forth a healthcare proposal that includes HSAs as a core component and several members of Congress have introduced legislation aimed at further expanding HSA eligibility. We are actively engaged with policymakers on both sides of the aisle to share what we see in the real world, how HSAs reduce per employee healthcare costs, grow member savings and give families genuine control over their healthcare spending. With HSAs, employers do not need to choose between saving money on benefits and ensuring healthcare financial security for their employees. They can have both.

HealthEquity’s scale and close partnerships position us well to convert this policy momentum into growth. When legislative changes create new eligible populations, our more than 200 network partners and 100,000 clients allow us to move quickly, educating and enrolling newly eligible members and helping them realize the full financial benefit of HSAs. Importantly, our strategy does not depend on any single legislative outcome. The secular trends towards consumer-directed healthcare are well underway across employers, retail consumers and policymakers. Policy tailwinds accelerate that trend. I believe these efforts, along with our strategy brings us closer to realizing the original mission we have for HealthEquity to save and improve lives by empowering healthcare consumers.

Now, I’ll turn it over to Jim to discuss the financials. Jim?

James Lucania — Executive Vice President and Chief Financial Officer

Thanks, Steve. I’ll review our fourth quarter and full-year fiscal 2026 GAAP and non-GAAP financial results as a reconciliation of the GAAP to non-GAAP measures is included in today’s press release.

Starting with the fourth quarter, revenue increased 7% year-over-year to $334.6 million. Service revenue grew 2% year-over-year to $127.1 million. Custodial revenue increased 12% to $161.4 million. And the annualized yield on HSA cash was 3.57% for the quarter, reflecting higher replacement rates and a continued mix shift of HSA cash toward enhanced rates. We ended the year with 58% of HSA cash and enhanced rates contracts. Interchange revenue grew 6% to $46.1 million, outpacing our 4% total account growth.

Gross profit was $228.1 million, resulting in 68% gross margin, up from 61% in the fourth quarter last year, an expansion of more than 700 basis points. This reflects reduced fraud costs and continued service efficiency as Scott detailed earlier. Service costs declined $17 million year-over-year as fraud reimbursements totaled just $0.3 million in the fourth quarter. As Scott mentioned, our investments in security, AI service technologies and our member-first secure mobile experience is delivering greater functionality and member satisfaction at a lower cost to serve.

Net income for the fourth quarter was $49.7 million, or $0.58 per share, up 93% compared to the fourth quarter last year. Net income margin was 15%. Non-GAAP net income increased 33% to $81.8 million and non-GAAP net income per share grew 38% to $0.95. Adjusted EBITDA was $132.9 million, up 23% compared to the fourth quarter last year. Adjusted EBITDA margin expanded over 500 basis points to 40% in the fourth quarter.

Turning to the balance sheet. As of January 31, 2026, cash on hand was $319 million as we generated $457 million of cash flow from operations in fiscal 2026. Debt outstanding was approximately $957 million, net of issuance costs, after paying down another $25 million of the revolver during the quarter. We repurchased approximately $82 million of our outstanding shares during the quarter and over $300 million during fiscal 2026. We have approximately $178 million remaining on our previously announced share repurchase authorization. Our capital allocation priorities remain consistent, invest in organic growth, maintain optimal balance sheet flexibility to pursue industry consolidation opportunities and return capital to shareholders.

For fiscal 2026, we exceeded our guidance. Revenue was $1.313 billion, up 9.5% compared to last year. GAAP net income was $215.2 million or $2.46 per diluted share, with a net income margin at 16%. Non-GAAP net income was $349.8 million, or $4 per diluted share. Adjusted EBITDA was $566 million, up 20% from the previous year, representing a 43% adjusted EBITDA margin for the fiscal year.

Before I detail our raised guidance and assumptions, let me briefly update you on the interest rate forward contracts we discussed on prior calls. The first of these forward rate locks matured in connection with expiring basic rates contracts during the fourth quarter and allowed us to place funds in our enhanced rates program at above market rates. We expect the remaining interest rate forward contracts and additional contracts that we may enter to further derisk potential interest rate volatility on future HSA cash deposit contracts that flow into our enhanced rates program.

At the end of the quarter, we had forward contracts on U.S. treasury bonds, with a notional amount of approximately $2.4 billion tied to contract maturities between March 2026 and January 2028 and a blended rate lock of 3.92%, not including the negotiated premium that we receive above the five-year treasury benchmark on our enhanced rates placements. We expect to execute additional forward interest rate hedges depending on market conditions.

We ended fiscal 2026 with an average yield of 3.53% on HSA cash assets and expect the average yield on HSA cash will be approximately 3.8% for fiscal 2027. Our custodial yield assumptions take into account forward hedges for their maturing contracts in fiscal 2027 and the projected HSA cash deployments, which are detailed in today’s release. We also consider a range of forward-looking market indicators, including the secured overnight financing rate and mid-duration treasury forward curves. These indicators are, of course, subject to change and are not perfect predictors of future market conditions, but they provide a consistent framework for how we set our outlook.

Given our momentum in new account sales and assets, we’re raising our guidance for fiscal 2027. This increase reflects strong execution to date, increased visibility into our fiscal 2027 trajectory. We now expect revenue between $1.405 billion and $1.415 billion. GAAP net income is expected to be between $239 million to $246 million, or $2.78 to $2.85 per share. We expect non-GAAP net income to be between $392 million and $400 million, or $4.56 and $4.65 per share based upon an estimated 86 million shares outstanding for the year. Finally, we expect adjusted EBITDA to be between $618 million and $628 million.

We’re pleased with how we exited fiscal 2026, expect to make additional progress on growth and margin expansion in fiscal 2027. Our outlook reflects continued revenue growth, sustained margin expansion and disciplined investment in technology, security and sales and marketing. Our guidance also assumes continued capital return and a strong balance sheet. We expect to make additional share repurchases under the remaining $178 million repurchase authorization and may further reduce borrowings on our revolver during fiscal 2027. With continued strong cash flows and available revolver capacity, we will maintain ample flexibility for portfolio acquisitions should attractive opportunities arise.

Our guidance assumes GAAP and non-GAAP income tax rate of approximately 25% and a diluted share count of 86 million, including common share equivalents. As in prior periods, our fiscal 2027 guidance includes a reconciliation of GAAP to the non-GAAP metrics and the definition of all non-GAAP metrics can be found in today’s earnings release. While we exclude the amortization of acquired intangible assets from non-GAAP net income, the revenue generated from those acquired intangible assets is included. As a reminder, we plan to provide fiscal 2028 guidance following fiscal year 2027.

Operator, please open the line for questions.

Question & Answers

Operator

[Operator Instructions] Our first question today is from Mark Marcon with Baird. Please go ahead.

Mark Marcon

Hey. Good afternoon. Congratulations on the strong quarter and the raised guidance. I wanted to ask two questions. One, I thought the gross margin expansion was very impressive. If we strip out the fraud costs and adjust for that in the year ago, you still ended up having significant gross margin expansion despite the fact that you ended up having a lot of implementations in the fourth quarter. And you only have 3.7 million or 3.6 million downloads out of the 10.6 million that you potentially could have. So, I’m wondering like how should we think about the gross margin potential going forward, particularly as you continue to roll out the AI initiatives and get more and more of the account holders to download the app and streamline their interactions?

Scott Cutler — President and Chief Executive Officer

Was that your one question? You said you had two.

Mark Marcon

That’s one, and then there’s another.

Scott Cutler — President and Chief Executive Officer

Okay. I see you have a follow-up. Yeah. So, on the gross margin expansion, look, we are incredibly proud with the work, obviously, that we did in driving down fraud costs, reflected in tremendous progress there. We’re at or below our target run rate there. I think the other thing you’re highlighting is also the progress that we’ve made on the service cost per account. And we’re driving those operational efficiencies through technology changes, use of AI, automating many of the manual and phone-based interactions that we have today while also improving service. We know that we’re at the very beginning of our journey on AI, Mark, as we’ve talked about. But our team is maniacally focused on delivering a consistent end-to-end experience for our members and to be able to do that more efficiently.

So, I really think that we’ve got tremendous opportunities to continue to drive that gross margin expansion with a particular focus on the way that we deliver our service. And again, when we think about the opportunities there, it’s obviously in how we serve our members but it’s also in a lot of the processes that we have with clients. And that’s not something that we focused on as much last year and is going to be a big area for us just to be more efficient in terms of how we integrate with new clients, how we onboard new members that are coming in through our client relationships. And again, I expect us to make meaningful progress again this year on that.

Mark Marcon

That’s great. And just a quick follow-up. It’s early in terms of expanding the platform in terms of having curated whether it’s weight loss or hormone or devices. But what are you seeing just in terms of the level of engagement with the early users that have started to procure some of the services through the platform? What’s the engagement gone up like? And what are you seeing in terms of the cash that they’re actually putting into the system as they reenrolled?

Scott Cutler — President and Chief Executive Officer

So, we’re still very early in that, and we’ve only got really three programs in weight loss and in hormone replacement and then in the wearables category. The metrics that we’re going to be driving, obviously, starts with just engagement on the mobile platform. I don’t think I answered your question on mobile, but driving our members into the mobile experience, we think, is the place where they start engagement. And then we want to be able to provide seamless opportunities where they’re spending money on the programs that make sense and makes sense for us to be able to introduce on it.

And so what we’re looking at is really members that sign up for those programs, if it’s a program that persists over a longer period of time, for example, in weight loss, we want to make sure that they stay in that program, they choose to stay in that program. And so you’ll be looking at traditional metrics like churn. We’ve been really pleased with the number of members that have signed up in those programs, the number of members that have stayed in those programs. And again, we’ve only got a couple of months of cohorts to look at that, but we’re very pleased with that progress. And then now over time, we’re going to be introducing, again, other programs, other partners, other services.

And again, the limited programs that we have today represent, as I said in my prepared comments, a market opportunity of over $100 billion of spend on things that consumers are already spending those dollars on. So, we are very optimistic about the progress that we are seeing. And again, as you think about that relative to the guide that we have given, we have not incorporated a material marketplace revenue in our guide for this next year. So if we perform and if that performs well, we would hope for that to become a material part of our revenue going forward.

Richard Putnam — Head of Investor Relations

Thanks, Mark.

Mark Marcon

Perfect. Thank you so much.

Operator

The next question is from Stan Berenshteyn with Wells Fargo. Please go ahead.

Stan Berenshteyn — Analyst, Wells Fargo

Hi. Thanks so much. A couple of questions. First, maybe I missed this, I had some issues logging in. But do you have any comments related to the conversion you’re getting out of the ACA cohort, if you can comment on that and what the cadence there is? Thank you.

Scott Cutler — President and Chief Executive Officer

Yeah. So I’ll talk about it, and Steve can talk about how that’s evolving. As we said from the very beginning, this represents about a 10% expansion to the overall market in terms of potential accounts that could be added. We have said that those accounts will come over time. We really only started to see those accounts come in starting in January associated with that enrollment season. Again, these are going to come into the market differently than associated with an employer, meaning that we’ll be looking to our plan partners to be able to go to market efficiently like we do. And it’s also opened up via a retail one-to-one offering.

We have the most attractive match for members that are signing up through that retail channel. We want to encourage them to do that. And we still see significant opportunity ahead because we’re just at the very early stages of those that are moving to Bronze plans for one, which we’re seeing momentum there. And then two, just the awareness that historically, these plans have not been tied or associated with qualification for an HSA and that member needs to be able to know that they’re eligible. And so, again, going at that with our plan partners is the way we’re going to go about it. Again, we saw really great progress again in January with respect to how those are coming in.

Steve, would you add to that?

Stephen D. Neeleman — Founder and Vice Chairman

I think you captured most of it. Stan, we’re in early innings. As you know, the law was not signed until July 4th. And at that point, all the plans have been filed. And so they were already named. It was really hard to find out when people ended up on the exchanges in November, December, January, if they were even HSA qualified. Obviously, we have a head start on that now. And so the goal, like I pointed out, is just make it really simple. One of the first things HealthEquity did when we came out as a company was to make it easy for people in the employed markets to enroll in HSAs. I mean, most of our competitors were way behind us.

You’d have to go sign up for the high-deductible plan with your employer and then your employer say, now go find yourself an HSA provider and it was non-integrated. So, we became the leader in the HSA space by integrating the benefits that you get from your employer. And of course, our competitors followed suit and that’s not that much of innovation.

We’re seeking to do the same kind of stuff in the exchange markets where if somebody enrolls in a Bronze plan, it remain super simple. It will be integrated, get the account open and then the key is to — we have that relationship with that member to start helping them understand how to optimize that count, fund it, spend through the account, use the marketplace, things like that. Early innings, but we’re encouraged and now at least we have a little bit of a running head start because the law did not pass after the plans were filed, if that makes sense.

Stan Berenshteyn — Analyst, Wells Fargo

That’s helpful. And then a quick one here for Jim, just to give them some airtime as well. Just big picture, I know you mentioned Rule of 50. You have another tailwind from asset resets that’s going to impact next year presumably. You have a lot of cash that you’re going to be generating. What are your plans in terms of reinvestment in the business? And do they change as you think about having that tailwind pretty much sunset after next year? Thanks.

James Lucania — Executive Vice President and Chief Financial Officer

Yeah, no, I mean I think as we sort of highlighted, there’s no real change in our capital allocation philosophy. You’re effectively seeing us using our free cash flow both to repurchase shares and to chip away at the line of credit that we borrowed for the BenefitWallet deal. So, no real change there. And you’re right, yeah, we’ve got $4 plus billion that is going to reprice this year. Yeah, agreed, sort of not as much influential on this year’s potential growth than it will be for next year. But we fund the business first, right? And then it’s with what’s left is what we’re repurchasing shares and chipping away at the debt with what’s left.

Stan Berenshteyn — Analyst, Wells Fargo

Great. Thank you.

Richard Putnam — Head of Investor Relations

Thanks, Stan.

Operator

The next question is from George Hill with Deutsche Bank. Please go ahead.

Unidentified Participant

Yeah. Hi. It’s Maxi [Phonetic] on for George. Thanks for taking the question. Could you talk about are there any early trends showing that members are reallocating HSA dollars towards GLP-1 and marketplace offerings? And how might that influence custodial revenue and asset allocation behavior over time? Thanks.

Scott Cutler — President and Chief Executive Officer

Thanks, Maxi. Yeah. So the early trends, again, we launched it in Q4. We’ve got three programs. We’ve had a significant number of our members sign up to those programs. As I said, it’s going to be important as they sign up. They continue to stay into those programs and that we expand the marketplace offerings over time. And so it’s not just GLP or weight loss programs. It’s HRT and wearables. And so like I said, we’re going to be driving that to become a material part of our revenue that will show up in service revenue, again over time. And what we see as our opportunity is that we’re really connecting those dollars that are already being spent out of HSAs on these types of programs, bringing it into the platform experience.

And the other trend that we’re really excited about, and this is why we believe so strongly in the spend flywheel is the behavior that we see is that when people spend on marketplace and when they spend dollars, they contribute those dollars and more. So they end up becoming larger savers, which is also an economic flywheel. We know also, and we’ve made great progress about moving from savers to spenders to also investors and an investor actually spends and saves more. So, moving our members through that continuum is really important to driving contributions, which has always been a flywheel to the business. So the early trends are very positive. And again, we expect that program to expand over time.

Richard Putnam — Head of Investor Relations

Thanks, Maxi.

Operator

The next question is from Steven Valiquette with Mizuho Securities. Please go ahead.

Steve Valiquette — Analyst, Mizuho Securities

Thanks. Good afternoon, everybody. Just a quick question really kind of on the macro and the unemployment trends and how you’re sort of thinking about that and the guidance for the fiscal ’27 that you just provided? Just any color and your thoughts on how you’ve factored that in, that would be helpful. Thanks.

Scott Cutler — President and Chief Executive Officer

Yeah. Yeah. Certainly, we observed the macro last year, 181,000 jobs created in the United States. I think what we see out in the market and against that backdrop, we delivered record HSA sales. That’s represented by an affordability challenge for healthcare for employers, which is to say that the cost of benefits that employers are providing are growing much faster than wages. And so the thing that we’re doing with our employers is giving them data and information and products to help them drive greater adoption, greater contribution. And if they follow those recommendations, they can reduce their cost per employee per year significantly in the thousands of dollars. And so healthcare affordability is driving growth in the market, maybe more so than the macro headwinds.

The other thing that drives this as well is essentially how Americans are feeling and are concerned about healthcare. So, healthcare affordability for most Americans is the central issue as well, which again drives towards greater adoption of HSAs as a mechanism to be prepared financially for their future health. We don’t see the macro environment changing. We think it’s going to continue into this year. But we think the other counteracting forces there around healthcare affordability and driving greater adoption are things like we’ve seen this year that have enabled us to be able to drive significant performance in the business despite that weaker macro backdrop.

Steve Valiquette — Analyst, Mizuho Securities

Okay. Got it. Thanks.

Richard Putnam — Head of Investor Relations

Thanks, Steve.

Operator

The next question is from Brian Tanquilut with Jefferies. Please go ahead.

Cameron Harbilas

Hi. This is Cameron on for Brian. I guess my question was when you’re thinking about organic or engagement-driven growth, how are you thinking about that going forward and kind of that employment environment you were talking about?

Scott Cutler — President and Chief Executive Officer

Yeah. So, this kind of builds on Mark’s question at the very beginning. Driving engagement is really important to driving the flywheel of save, spend and invest. We’ll actually measure engagement by how often people are engaging on the platform. It starts principally with the mobile device and the app. And so as you can see in the numbers that we put up this year, we’ve been driving several million downloads of our app, that’s step one. Step two is what is our monthly active users of that app that goes into just the quality of the overall app experience. Is it engaging? Is there a reason to come back?

Marketplace is one of those things that gives an opportunity to come back. As we drive more engagement, again, all of the flywheels of save, spend and invest get greater. So, we’re thinking about the business at the core central feature is what is the quality of that product experience, how engaging can we make it, can we make it more routine in terms of healthcare and then can we drive greater usage? One of the great advantages that we have is since our experience is also integrated already with our plan partners is every time you go to see a doctor, every time you go have a healthcare visit, you fulfill a pharmacy prescription.

All of that is integrated into the experience. Those dollars are loaded into the mobile wallet at any point in time where you might need to withdraw those dollars tax free, you can do that. But every single time you do something that’s integrated into our experience. And that’s a really important differentiator for us relative to the competition because we have such a deep integrated experience with our plan partners and going to the market. And that’s just another way that helps drive that monthly usage and monthly engagement in the platform. And I still feel like we’re actually also in the very early innings of what that product experience is going to look like because we’re investing in that member-first experience, which is a new muscle for us.

Cameron Harbilas

Thank you.

Operator

The next question is from Peter Warendorf with Barclays. Please go ahead.

Peter Warendorf — Analyst, Barclays

Hey. Yeah, thanks for the question. I actually just wanted to talk to you about the member lives that are coming in through the Bronze plans versus traditional employee-sponsored plans. I mean, is there a difference in terms of — I know it’s early, how those members are saving or spending? I’m just trying to understand maybe the relative value for those customers versus some of the traditional ones. Thanks.

Scott Cutler — President and Chief Executive Officer

Yeah. Remember, I mean, in terms of that cohort, it’s a few months old. And so it’s so early. The early data points are encouraging in the sense that we’re seeing really strong contributions. The performance of these accounts will evolve over time. When you think about the value of any HSA, the biggest driver of value is essentially just time. And so that time component is really important. We’ll be looking at those cohorts as they come in. And so again, I think what we see in the early behavior is nice contributions and those contributions aren’t coming with an employer match, which is also quite interesting.

Again, remember that these are also coming to the market differently, meaning we might have to acquire that customer individually. We provide a bonus match for them if they contribute and those dollars stay into the account. That matches the highest of anybody in the industry. So, we’re driving that retail. And as Steve talked about, we’re in the early phases of partner integration to be able to bring more of those Bronze participants in at greater scale through our partner relationships.

Peter Warendorf — Analyst, Barclays

Great. And then quickly, can I just follow up on the competitive landscape? Over this last selling season, I mean, did you see any pressure anywhere, any kind of pricing pressure or anything like that?

Scott Cutler — President and Chief Executive Officer

The competitive landscape for us, I think, is reflected in the strength of our retention. So, we have north of 98% retention of revenue from our existing accounts this year. We’re also winning and expanding the market and taking market share greater than market growth. So, that kind of reflects our ability to both retain the existing business as well as grow in competition.

What I would say early into the sales season and we’re so early, but we’re seeing a really strong pipeline develop in large enterprises, which we didn’t see this year. We’ve already had some really nice enterprise wins that are taking business from the competitors. And so we like that. We feel really strong about our ability to continue to retain the business, again, focused on the quality of the service that we’re providing, the quality of that product experience. And so I think as you’ve seen in the last number of years, we’re growing faster than the rest of the market and we’re taking more share.

Richard Putnam — Head of Investor Relations

Thanks, Peter.

Operator

The next question is from Allen Lutz with Bank of America Securities. Please go ahead.

Unidentified Participant

Hey. This is Dev [Phonetic] on for Allen. Thanks for taking my question. I guess the first one, again, I just want to circle back to the service margins, which have trended nicely. I think you’ve talked about some of those drivers in the past, but just good to get an update on the cost makeup there as more users shifted to the digital app. Could you just give us color on the breakdown between kind of the technology component, human labor, plastic cards in that COGS line item? And then how much more there is to do there in terms of automating maybe in the near term?

Scott Cutler — President and Chief Executive Officer

Yeah. Great. So when you think about the service costs overall, really think of it in three buckets, almost equally divided. A third being member services, a third being client services and a third being back office. On the member service, that’s largely associated with the context that are coming in through the service center. Majority of those contacts today are coming in by phone and we’re increasingly looking at many of those journeys to automate those with agentic and real-time responses that don’t require a phone interaction. Again, most of our interactions today are by phone. And so we’re moving into that agentic digital response very quickly. And that’s a lot of the things that we started on last year. We’re going to continue and that’s where there’s significant opportunity for AI.

On the client side, also, as I talked about, that’s the other third. That’s automating a lot of the file and file integration and process that we have in terms of onboarding and serving our existing clients. And then the other third would be the back office. As we think about AI across all of those journeys, it’s really taking those things that can be automated that are repeatable, where data can help us do that. And many of those things, for example, on the member services side are fairly simple questions. I’ve lost a card. I want to replace a card. I don’t know my password. If you download passkey, you don’t need that interaction anymore. I want to check my balance. We want to automate as many of those responses so that when we need to have human interaction, we can respond with empathy. It may be more detail oriented and incredibly valuable in terms of that remarkable service experience that we strive to deliver.

Richard Putnam — Head of Investor Relations

Thanks, Dev.

Unidentified Participant

Yeah. That’s very helpful. And then just one more. It seems like kind of the AI and the impact on the labor market is a point of concern. And just curious how that is layering in, if at all, to the opportunities and activity level in M&A that you’re seeing. Would just love an update on what you’re seeing in the market and how the landscape for opportunities M&A in 2026 early on here look relative to the last couple of years?

Scott Cutler — President and Chief Executive Officer

I don’t think there’s any correlation between the massive adoption of AI and consolidation in this industry. I think we’re deploying AI across every function in the business. We see significant opportunity in cost and productivity enhancements. But I don’t think it has any correlation to the M&A market. And the reason for that is that when you look at the long tail of where HSA Assets are held, it’s held by banks that might be focused on a deposit. It might be a retirement company that’s focused on retirement assets, that’s the long tail of this market. And I don’t see AI as being a driver or an accelerator to that.

Richard Putnam — Head of Investor Relations

Thanks, Dev.

Operator

The next question is from David Larsen with BTIG. Please go ahead.

David Larsen — Analyst, BTIG

Hi. Congratulations on the good quarter. One of the questions I get asked from investors is, okay, if interest rates decline, isn’t that going to pressure your custodial revenue growth. So if interest rates were to decline by 50 basis points, say, in the back half of this year, when would that manifest in the form of like slightly lower custodial yield growth? Would that take like three years to manifest? Thank you.

Scott Cutler — President and Chief Executive Officer

Go ahead, Jim. Do you want to take that?

James Lucania — Executive Vice President and Chief Financial Officer

Yeah. Sure. I mean, like — so obviously, the movement of cash into the enhanced rates program would significantly slow down that movement. So, I guess I don’t think about it that way. What would directly impact us, is if short rates go down, the cash that we have deposited overnight, which is about $1.5 billion would be directly impacted. Now, that is not particularly meaningful to the total quantum of cash that we deposit. But you should really just think of it as whatever is being replaced at that point in time that we haven’t hedged yet is going to be placed at 50 basis points lower than it would have been placed today or that the forward curve says it’s going to be.

The forward curve is strongly, deeply sloped up into the right. So, that is reflected in our guidance. That would be reflected in our long-term view. That rates are going up, not down. The rates that matter to us, the five-year rates. The short rates, our forward curve is expected to go down. That’s also factored into our guidance. So the outlook sort of includes current expectations on rates. All things equal, we like higher rates than lower rates, but it’s becoming less of an issue.

Now, we’re at almost 60% at year-end in enhanced rates. It doesn’t take rocket science to look at the maturity curve and just say, hey, we’re going to be pushing 80% in enhanced rates in the relatively near future. And then we’re going to sort of call end of job on this basic rates to enhance rates migration. And then what you should expect to earn in the HSA cash yield is the move — the 10-year moving average of the five-year treasury. So, like any movement within the year is only going to potentially have one-tenth of the impact on the entire portfolio because that’s how those contracts generally reprice, sort of one-tenth of it reprices each year at current rates.

So, you need a prolonged downward shift in yields or in rates, I should say, to really move that average. You’re going to get a very slow moving average once we’re complete with this migration. And that was the entire purpose of this. Like the extra alpha was nice, but the purpose of this migration was to reduce the standard deviation of these returns. And what I would love for you all to believe when we’re done is that custodial revenue is actually just monthly recurring revenue, no different than my other lines. Will I get you all the way there? That remains to be seen, but that was the purpose of this enhanced rates migration strategy.

David Larsen — Analyst, BTIG

That’s very helpful. Thank you. And then in my mind, like HSAs are a fantastic mechanism, probably the best to improve cost trend. And since most employers are self-insured, there’s enormous value in the HSAs. And with the marketplace, you’re simply enhancing that overall value in my view. So, Scott, I think you mentioned you had four programs in the marketplace. GLP-1s is one of them. What are the other three? And then what sort of other programs would you add over time? And how much improvement in cost trend could these marketplace products provide to your clients? And have any of your clients purchased any of them? Thanks.

Richard Putnam — Head of Investor Relations

That’s just one question, right?

Scott Cutler — President and Chief Executive Officer

Yeah. So, David, a couple of things. I mean, again, when you just think about the HSA industry overall, you do have to step back and remember that 95% of members do not contribute at the max. 92% do not invest this product. And yet it’s a triple tax advantage product. And so we want to encourage people to actually use the product. And that, again, is why we go back to the flywheel. On marketplace specifically, again, repeating what I said before. We have three programs today.

The other areas that we’re going to expand are going to be — the other areas that are typically outside of what would be covered by insurance, but are programs that consumers are spending a lot of money on, but have to access license qualified physicians to be able to do that. So, think of all the opportunities around labs or skin or hair or products that are unlocked because of a doctor’s prescription. In the wearables space, there’s all sorts of interesting opportunities in digital health of products that we can bring into the marketplace. So, there’s not really a limit.

The marketplace opportunity is in the hundreds and hundreds of billions of dollars that consumers are already spending dollars on. It’s really just a question of what makes sense for us to naturally include that product into the marketplace. And again, what will we see is that those consumers that spend in the marketplace, in addition to interchange, which we already monetize, we can monetize either in a take rate or an administrative fee associated with a program. And in that case, we’re driving average revenue per user up over time or per member up over time.

Richard Putnam — Head of Investor Relations

Thanks, David.

Operator

The next question is from Mitch Rubin with Raymond James. Please go ahead.

Mitchell Rubin — Analyst, Raymond James

Hey. Good afternoon, guys. This is Mitch on for Greg Peters. Congrats on the quarter and the year. I wanted to ask if you guys are seeing any meaningful differences in balances or engagement from the ACA-driven retail members relative to your traditional base? Thanks.

Scott Cutler — President and Chief Executive Officer

Yeah. I mean, I think this is a question that we just answered before. The cohort is too early. We’re only a couple of months into it. We’re pleased with the contribution behavior that we’ve seen. But again, since it’s so early, it’s very difficult to say what that’s going to look like over time. My expectation is they’re going to perform like other cohorts that develop in value and balances and spend and investment over the years to come.

Richard Putnam — Head of Investor Relations

Thanks, Mitch.

Operator

The next question is from David Roman with Goldman Sachs. Please go ahead.

Jamie Perse

Hey. Thanks. You’ve got Jamie on for David. I wanted to dig into the dynamic where you have HSA cash growing 3% and HSA investments growing 26%. And really, what are the implications of that going forward? And I fully understand how you monetize the HSA cash. You’ve talked about that extensively on this call. But as the HSA investments grow and become a bigger portion of mix, how does that show up across the different revenue lines? Is interchange and service more levered to the growth in investments and what are the margin implications just given the different margin structures across those lines of revenue? Thank you.

Richard Putnam — Head of Investor Relations

Jim, do you want to take that?

James Lucania — Executive Vice President and Chief Financial Officer

Yeah. I can take that one. Yeah. So you should not think of them as like the same person, right? So these are different sets of — different parts of the cohorts that Scott was talking about earlier, different points along the journey. So in general, if you think about a higher balance or just an older account, they’re going to have a certain amount of assets in cash, and they’re not going to grow or shrink that amount ever, right? So, all incremental contributions are going to go into the investment account, all spending is going to come out of the investment account. So like that’s the marginal account that they’re playing with.

Yes, the cash in reality comes out of the checking account and gets replenished immediately from the investment account. But functionally, that’s what’s happening. So the accounts that are growing are total our balance are the new accounts who have not built those balances yet. So, there’s a large cohort of HSAs that don’t do anything with their cash account. They’re just zero growth, zero loss, zero growth. It’s the new accounts that drive cash growth.

Now on the — like we love investment growth, obviously, look at it, it’s growing massively. And so we participate in that upside, but obviously at a different rate. So, our sort of recordkeeping fees and think of them as like mutual fund sub-account fees as well as the fees from our registered investment adviser, we will earn in like the mid-20s basis points on a blended basis on our invested assets and that hits the service revenue line. So, we love the growth on both sides.

Richard Putnam — Head of Investor Relations

Thanks, Jamie.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Scott Cutler for any closing remarks.

Scott Cutler — President and Chief Executive Officer

Thanks, everybody, for the thoughtful questions, for the engaging dialogue. Hopefully, the takeaway is that we’re really pleased with the results for the quarter, for the year. We’re optimistic about the future as assets and engagement scales, the earning power of this platform continues to expand and we really look forward to updating you on our continued progress as we go out throughout this year.

So, thank you very much.

Operator

[Operator Closing Remarks]