HealthEquity, Inc. (NASDAQ:HQY) Q2 2020 Earnings Conference Call - Final Transcript

Sep 03, 2019 • 05:00 pm ET

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HealthEquity, Inc. (NASDAQ:HQY) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] And our first question is from Anne Samuel with JP Morgan. Your line is open.

Analyst
Anne Samuel

Hi guys, thanks for taking the question. On Wage, it looks like the first six months of the year saw a little bit of a revenue decline on a year-over-year basis. I'm just wondering how we should think about what the back-half guide implies in terms of growth. And then what kind of baseline are you targeting for that business moving forward?

Executive
Jon Kessler

Okay, thanks, Anne. Appreciate the question. So as you say, if looking at the first six months that WageWorks reported, revenues were down about 7% year-over-year. And as WageWorks said, that is primarily due to renewal issues -- lack of renewals I suppose, primarily in FSA and COBRA, and within the book of business that WageWorks manages, which was previously associated with ADP, before ADP exited this consumer direct benefits business. Our view -- what our guidance reflects is that in the second half that there will be a little bit more of a pronounced decline.

And the source of that -- and you can do the math to get there -- and the source of that is really threefold. The first is that -- the first is when I mentioned that is to say the 7% kind of company saw in the first half. Second is, during the first half, there was still run out of that business and that run out produced revenue, but it's pretty much kind of played out now. And so the company won't see that. And then lastly, of course, WageWorks unlike HealthEquity, the HSA business is very much tied to third-party custodians, and the company's revenue from those products on the custodial side is very much tied to in a very immediate way changes in the overnight fed funds rate. And as you know, one of the things about our model is to provide a lot more stability than that. And so -- but it will -- as Darcy said, the guidance doesn't reflect synergies, timing, etc. So on a standalone basis, Wage would have seen some revenue loss from the rate cut that occurred, I believe in July and presumably from any further rate cuts that might happen this year and that many expect. So those are the three factors that led us to a forecast that assumes a little bit more pronounced decline than the company saw in the first half.

Analyst
Anne Samuel

That's very helpful, thanks. And then I guess maybe just a follow up to that. As we think about the synergy portion, you know, you said it's not included in the guidance, but I think you initially had said that you expect some of that to come on pretty quickly. So how should we think about, you know, the cadence of some of those synergies being recognized? Thanks.

Executive
Jon Kessler

Yeah, I'll comment and then and then throw over to Ted a little bit. So as Darcy said, it sounds like he was heard