Please go ahead, Mr. Putnam.
Thank you, Justin. Good afternoon. Welcome to HealthEquity's third quarter fiscal year 2022 earnings call. My name is Richard Putnam. I do investor relations here for HealthEquity. 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, our 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 third quarter of fiscal year 2022 was issued right after the market closed this afternoon. The metrics reported in the press release include the contributions from our wholly owned subsidiary, WageWorks, and the accounts that it administers. The press release also includes definition of certain non-GAAP financial measures that we will reference here today.
A copy of today's press release, including reconciliations of these non-GAAP measures with comparable GAAP measures, and a recording of this 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, December 6, 2021, 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 statements made here today.
We caution you against placing undue reliance on these forward-looking statements, and we also encourage you to review the discussion of these factors and other risks that may affect our future results or the market price of our stock that are detailed in our latest annual report on Form 10-K 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. At the conclusion of our prepared remarks, we will turn the call over to the operator to provide instructions and to host our Q&A. I'll now turn the call over to our CEO, Jon Kessler.
Thank you, Richard, and hello, everyone, and thank you for joining us. Today, we are reporting results for HealthEquity's fiscal third quarter, which ended on October 31st. Core HSA sales, accounts and assets continued the strong growth pattern that we have seen throughout fiscal 2022, while ancillary consumer-directed or benefits or CDB administration slowed and weighed on operating performance. I will dive into both aspects of Q3 results, and Tyson will review the financial details of the quarter and provide updated guidance for the full fiscal year 2022. Steve and Ted will join us as we take time for your questions. Let's start with the five key metrics that drive HealthEquity's business. Q3 revenue of $180.0 million was up slightly from $179.4 million in the third quarter of last year.
Adjusted EBITDA of $61.1 million was flat year-over-year. 13.3 million total accounts at quarter's end were +6% versus a year ago, and as in recent periods, total accounts exclude commuter accounts in suspense. HSA members at quarter's end reached 6.2 million, up 14% from a year ago, including 11% organic growth, plus new HSA members from the transition of Fifth Third's portfolio just before the end of the quarter. HSA assets at quarter's end reached $16.4 billion, up 32% from a year ago, including 28% organic growth and approximately $490 million in Fifth Third assets transition.
Spurred by total solution and cross-sales, HSA has captured a greater share of HSA growth during the pandemic impacted fiscal 2021 than ever before, and has now delivered record organic HSA openings and asset growth during the first three quarters of fiscal 2022. Team Purple delivered a fiscal third quarter record of 151,000 new HSAs, up 45% from 104,000 new HSAs opened in Q3 of last year. Through three quarters of fiscal 2022, the team has welcomed 446,000 new HSA members across its diverse sales channels. That's 41% more than in the same period in fiscal 2021, and 29% more than during the same period in the pre-pandemic fiscal 2020.
The migration of Fifth Third Bank's HSAs added another 160,000 HSAs on top of the strong sales results, and HSA assets grew a total of nearly $1 billion during the quarter, and that includes assets, of course, transferred from Fifth Third. Investing HSA members at quarter's end were up a remarkable 43%, with 74% growth in invested assets from a year ago. HealthEquity members' average HSA account balance grew a robust 16%, evidence that members continue to catch the vision of long-term health savings and to connect health and wealth. HealthEquity's organic and total year-over-year HSA and HSA asset growth in Q3 compare very favorably to the most recent industry data. Devenir estimates 6% account and 26% asset growth market wide for the year ended June 30th.
HealthEquity delivered 14% account and 32% asset growth year-over-year in Q3. Comparison with Q3 reports from publicly traded HSA peers tell the same story, saying that the team continues to take market share, as we have done every year for more than a decade now. Our formula for doing this, as you know, is simple. It's a total HSA solution at scale, bundling the services that our clients want, proprietary technology delivering the ecosystem connectivity that our partners demand, and Purple service and education that our members deserve. As you know, HealthEquity acquired WageWorks market-leading CDB capabilities and client footprint two years ago to drive core HSA growth, and that is precisely what's happened. However, CDBs have proven more sensitive to near-term external factors than we expected.
We believe that most of these factors will recede as the pandemic's effect on the economy continues to wane. Q3 results from administration of FSAs, COBRA, and commuter accounts were particularly impacted and resulted in lower than expected interchange and service revenue, leading overall revenue down $5 million-$10 million versus our expectations as implied in prior guidance. Let me speak about each of these. Interchange was the biggest surprise. Year over year, interchange revenue grew just 8% in Q3, down from 23% growth in Q2. FSA spend on our debit cards and platform in Q3 slowed more than was anticipated from seasonal factors and the final use or lose deadline for calendar 2020 and 2019 FSA. Improvement from here is gonna depend on the choices of members during open enrollment and on enrollments from new sales that we've made this year.
We anticipate that members who did not add to their balances for calendar 2021 will do so for calendar 2022, which leaves us cautiously optimistic as we head into the new fiscal year. Service fees from COBRA administration experienced a similar reversal after Q2 gains. In addition to the end of one-time revenue from administration of the federal COBRA subsidy, which we did expect and did discuss with you last quarter, COBRA uptake itself fell off more than we expected when the subsidy ended. Tight labor markets and high churn conditions led to more COBRA eligibility in less accounts, but not necessarily additional fees. Commuter accounts and fees had a small uptick sequentially for the first time since the start of the pandemic, and that is good and welcome.
With employers taking only very tentative steps towards return to office, Q3 commuter fees were still lower even than in the year ago period. Finally, our decision to walk away from certain legacy CDB administrative engagements for one-off services that our go-forward platform will not support will ultimately help streamline and simplify the business, but hurt short-term service revenue nonetheless. Scaled CDB capabilities are spurring core HSA growth, which is strong in its own right. The team looks forward to turning the page on CDB integration and the pandemic's various impacts on revenue. We're gonna do that first and foremost by focusing even more on the expanding revenue generation capabilities around our fast-growing high-margin HSAs, through sales execution, through portfolio M&A, and through product innovation. I already mentioned the record sales results in the transition of Fifth Third's HSA portfolio completed in Q3.
After the quarter ended, we announced the closing of our acquisition of the HSA business of Further, which brings with it approximately 580,000 HSAs and $1.9 billion in HSA assets. Further, as you know, expands our HSA partnership footprint and commitment to the Blue Cross Blue Shield Association and its health plans, and adds technology to help partners embed HealthEquity more deeply into their products. In fact, you're gonna see, you should expect to see real examples of deeper integration of HealthEquity HSAs with partners in the coming quarters. This morning, we announced an agreement to acquire a portfolio of $1.3 billion in HSA assets from Health Savings Administrators, a leader in marketing HSAs to individual investors and to small employers.
I'm pleased to report that initial member uptake of our innovative enhanced rates offering is beating our expectations, which will support custodial yields going forward and the inherent profitability of HSAs. FY 2023 will be the third year of the downward custodial yield cycle that began around the onset of the pandemic, and of which you're all familiar. We're cautiously optimistic that it will be the last. While tightly focusing on the HSA core, we are streamlining elsewhere. Migration of business from duplicative legacy CDB platforms acquired with WageWorks will be completed substantially in Q4 and entirely in the new year. I mentioned earlier the decision to discontinue one-off services that won't help us grow. We've also agreed with Further sellers to terminate our agreement to buy the VEBA accounts, which was an ancillary and severable component of the overall Further acquisition.
That frees up $45 million of corporate cash for core growth opportunities. I'll now turn the call over to Tyson for additional detail on Q3 and year-to-date operating performance and updated guidance for the current fiscal year. Mr. Murdock.
Thank you, Jon. I will review our third quarter GAAP and non-GAAP financial results. A reconciliation of GAAP measures to non-GAAP measures is found in today's press release. Third quarter revenue, as Jon indicated, was up less than 1% year-over-year, with service revenue declines partially offsetting growth in custodial and interchange revenue. Service revenue declined 2% to $102.8 million, representing 57% of the total revenue in the quarter. Service revenue in the third quarter was aided by 10% growth in average HSA accounts, offset by CDB service revenue declines in FSAs, commuter, and COBRA services. Lower CDB revenue and continued success in our bundling and cross-selling efforts led to lower service revenue per account. Custodial revenues grew 1% to $49 million in the third quarter compared to $48.5 million in the prior year's third quarter.
16% growth in average HSA cash with yield more than offset a 36 basis point decline in the yield on HSA cash from the comparable quarter last year. The annualized interest rate yield was 172 basis points on HSA cash with yield during the third quarter of this year. This yield is a blended rate for all HSA cash with yield during the quarter. As Jon mentioned, our HSA members continued to invest their balances, which resulted in 81% growth in average HSA investments with yield. The HSA assets table of today's press release provides additional details. Interchange revenue grew 8% to $28.2 million, representing 16% of total revenue in the quarter. As Jon indicated earlier, FSA spend decreased as 2019 and 2020 rollover FSA accounts were depleted and closed faster than we expected.
Gross profit was $103.3 million compared to $104.6 million in the third quarter of last year. Gross margin was 57% in the quarter. Operating expenses were $103.7 million or 58% of revenue. Amortization of acquired intangible assets and merger integration expenses together represented 18% of revenue. Net loss for the third quarter was $5 million or a loss of $0.06 per share on a GAAP EPS basis. Our non-GAAP net income was $29 million for the third quarter of this year compared to $32.2 million a year ago. Non-GAAP net income per share was $0.35 per share compared to $0.41 per share last year.
Adjusted EBITDA for the quarter was $61.1 million, and adjusted EBITDA margin was 34% compared to $61.1 million and 34% margin in the same quarter last year. Consistency of those numbers is an indication of the HealthEquity team's focus on improving the efficiency of our operations and carefully managing costs toward the ongoing profitability of the business. For the first nine months of fiscal 2022, revenue was $553.3 million, up 1% compared to the first nine months of last year. GAAP net loss was $11.5 million or $0.14, fourteen cents loss per diluted share.
non-GAAP net income was $93.2 million or $1.12 per diluted share, and adjusted EBITDA was $185.6 million, up 1% from the prior year, resulting in a 34% adjusted EBITDA margin for the first three quarters of this fiscal year. Turning to the balance sheet, as of October 31, 2021, we had $649 million of cash and cash equivalents, with $930 million of debt outstanding net of issuance costs, with no outstanding amounts drawn on our line of credit. The cash balance, of course, still includes $455 million of cash that was used to close the Further acquisition on November 1st.
As a result of the sale of unsecured debt and a reduction in rollover of secured debt during fiscal 2022, the tenor of our outstanding debt has been dramatically extended, reducing risk and giving us the flexibility to invest in growth opportunities. The new debt will obviously increase interest expense by about $4 million a quarter. Based on where we ended the third quarter and our current view of the economic environment, we are revising our guidance for fiscal 2022 to include revenue for fiscal 2022 to range between $750 million and $755 million. Non-GAAP net income to be between $108 million and $112 million, resulting in non-GAAP diluted net income between $1.30 and $1.35 per share based upon an estimated 83 million shares outstanding for the year.
Adjusted EBITDA to be between $230 million-$235 million. Today's guidance includes our most recent estimate of service, custodial, and interchange revenue based on results to date. Our guidance includes a more conservative outlook for service and interchange revenue to reflect fewer commuter and FSA accounts and lower balances through calendar 2022, and to reflect continued conservative spend patterns that we saw in Q3 for the remainder of this year. Guidance also includes the addition of Further, which closed at the beginning of Q4 and also reflects a ramp-up in service costs associated with onboarding new clients and members for both Further and HealthEquity as a whole.
Our guidance assumes a rate on HSA cash with yields of approximately 175 basis points for the full fiscal year 2022, and includes the migration of Further assets to HealthEquity depository and insurance partners at prevailing rates. Guidance also includes the benefit of $75 million of run rate synergies achieved from WageWorks to date. As we finalize the placement of HSA cash assets into depository contracts, we will be able to provide initial interest rate guidance for fiscal year 2023. This outlook also includes certain costs HealthEquity expects to incur as a result of President Biden's executive order on ensuring adequate COVID safety protocols for federal contractors, referred to as the federal contractor mandate. As you may know, the federal contractor mandate is more stringent than the wider OSHA mandate.
The federal contractor mandate brings with it significant cost for compliance, assurance, and for recruitment and training of team members to replace those who can neither provide proof of vaccination nor eligibility for exemption under the president's order. The outlook for fiscal 2022 assumes a projected statutory income tax rate of approximately 25% and a diluted share count of 83 million as we have had fewer equity awards exercised this year than expected. 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 intangible assets is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is not excluded.
With that, I will turn the call back over to Jon for some closing remarks.
Thank you. We've always tried to humanize these calls with plain thought, and today's results are mixed. I mean that if not quite literally like a blender. Our core HSA outcomes were very strong. The very is written in capital letters, so that's why I'm saying it like that, but also because it's true. Our ancillary CDB services performance was not very strong. We're taking action on both results to deliver the long-term growth, profitability, and visibility that we know you rightly expect. We truly welcome your tough questions on our results and on our plan. Let's get to it. Operator?
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by. We compile the Q&A roster. Our first question comes from Anne Samuel from JP Morgan. Your line is now open.
Hi, guys.
Anne, happy holidays.
Happy holidays, and thanks so much for taking the question. You guys went a little fast there, and there was a ton of details. I was hoping maybe you could just circle back and provide a little bit more color on what happened with the interchange. Then you said you expect the dynamic to shift and you're cautiously optimistic for next year. You know, what are the dynamics that are happening there? Thanks.
Tyson, you want us to get started on this one?
Yeah. Anne, thanks for the question. Yeah, the interchange revenue and the interchange spend was the leading lagger. Again, on the HSA side, we have a lot more accounts. I feel really good about what we've done there, and especially with even interchange there. But on the FSA side, we've seen a decline in those 2019 and 2020 accounts more quickly than we had thought. Not only does that affect service fee, but it also affects the interchange because there's less of a balance for them to spend. You know, we saw the spend and the revenue related to interchange increasing pretty dramatically in the Q2, Q1 timeframe. The thought was that that would persist more so than it did.
As we saw that come down in the months during Q3, that really had us, you know, that put us in a place where we needed to shift Q4 as well because Q4 obviously is a higher spend quarter when you think about December use it or lose it in January when the accounts are replenished. That, that's really one of the biggest challenges there on the interchange side. Jon, any more thoughts to add on that?
No, I think you hit it.
Great. That's really helpful. Thank you.
Thank you.
Thank you, Anne.
Well, actually, I have one thing, which is to say the cautiously optimistic part is it was the way to summarize what we just said is that we had very strong impacts, particularly in Q2, that were in part the fact that you know that you had this sort of unique situation where you were running off two years of balances. So the third quarter is kind of what remains, and then into December is what remains. Of course, January would be part of the new year. As we look into the new fiscal year, you know, that will be impacted by people's decisions that are being made now with regard to elections.
You know, while we're looking at early returns on that, and we'll have more to say when we provide a fiscal 2023 outlook later, we're optimistic that we're gonna see some snap back there relative to the elections that people were making or not making, you know, back in, you know, during some of the darker days of the pandemic, you know, a year ago, and so forth. So that's why we. That's the cautiously optimistic part.
That's great. Thanks, guys.
Thank you. Our next question comes from Greg Peters from Raymond James. Your line is now open.
Good afternoon.
Mr. Peters.
Yes.
Hello from Titletown.
Yeah. Well, unfortunately, the stock's getting beat up in the aftermarket. I know you just covered some of the reasons, you know, for the mixed results. Maybe you could spend a minute and just talk to us about, you know, custodial revenue and the outlook for that line item. The three-year jumbo CD rate just hasn't budged at all, and it doesn't seem like there's a lot of new loan demand. I'm just, you know, it just begs the question. In your comment, you said you think this might finally trough out next year, but, you know, I have to wonder about that.
The second part of the question, and this will be the only thing, is just you spend a lot of money on Further and, you know, we're, I guess, you know, trying to see where the positive impact of that is, you know, in the results going forward. That's my question, sir.
Okay. Those are great. How about I'll hit the first one on rates? Tyson, why don't you, and Ted, if you'd like to add into the second one on Further. So with regard to rates, both Tyson and I comment a little bit on our thinking forward. If you recall, Greg, when this cycle began, we pointed out that we have three years worth of sort of ladder, and the benefit of having that ladder is that it gave us time. We have, notwithstanding the fact that, I mean, this quarter is sort of an example of that, notwithstanding the fact that we're 35 basis points down in terms of yields.
Our custodial revenues, of course, were actually higher and our overall EBITDA was flat year-over-year. Fiscal 2023 will be the third year of that cycle. We've commented previously that our historical lows in terms of the rates we receive are, you know, the lowest that we've ever gotten is around 150 basis points. I think it's 152 after the 2008 crisis, after kind of our ladder had unwound there. You know, we're kind of heading into that same territory. We've commented elsewhere that, you know, that's likely where we would be.
I think what we're adding to that commentary today is that we feel much more comfortable, for example, than we did three months ago, that that's the bottom. Again, we're not perfect predictors any better than anyone else. I want to tell you why, because first of all, it is not because we have some magic ball or we're baking into our thinking, you know, about four overnight rate hikes or what have you. We, as you know, do not bake those things into our thinking. It's really because of exactly what we've said over the last couple of quarters, which is that the introduction of our enhanced rates product is doing two things for us.
The first is it itself generates higher yields and higher spreads. Second of all, it just creates more competition for money and effectively, you know, reduces our need to place, you know, to the marginal bank, if that makes any sense. It's for those reasons that we think we're in a better position from sort of what the terms of our placements are gonna be going into both going into fiscal 2023 and then at the end of fiscal 2023 into 2024, that we're feeling quite a bit more sure-footed and optimistic that, you know, we can meet the promises that we have more or less made to you over the course of time with regard to the likely shape of these yields.
That's the basis for our thinking. I wanna be clear. We're not looking out there and saying, "Well, you know, Economist X says that there are gonna be four rate increases next year," or whatever they say, and so that's gonna make it all better. That would be nice from the perspective of our business. What we're really looking at is we're looking at the offers that we're getting from our banks as we're into placement season. Though obviously we have some wood to chop there. We're also looking at the fact that competing against those offers, in effect, is the uptake from our members of our enhanced rates product.
That's again both has as its name implies enhanced rates and also again just reduces our need to hit the marginal bid. That helps us out quite a bit. Hopefully that was helpful. The second question was about
Further.
Further. Tyson, why don't you start there?
Yeah. I was gonna make one other comment on the rates thing as well, Greg. I think this is important to know. It, you know, when you think about contracts on placements we were making earlier in the year versus now, those rates are higher, whether you're talking about FDIC or even an enhanced rates program. They're higher now than they were then. There is that turn. Now, you know, we're still working against that average in the higher placements from two or three years ago, of course, right, for FDIC. Those are different now. They're higher. I want you to know that. Then, you know, on the Further business, this is, you know, again, an HSA-centric business, right? The Blues plans are gonna be very important.
Now, you know, our ability to be able to penetrate those plans like we've done with other health plans is really, you know, one of the ideas that I think will work very well for us over time. You know, the other thing with Further is it really gave us the jump on enhanced rates because a big part of the assets that we placed got us to scale there. Scale is what matters when you think about how to put together a program like that. It's hard to do without scale, and so it gave us the scale there. There's obviously not just the yield associated to those particular assets, but the impact that it has on the inherent profitability of the overall HealthEquity business in the long run. I think that's a very important part of that Further deal.
When I think about its impact, you know, on the immediate quarter and right now, it doesn't have as much impact because it's going through its Q4 enrollment busy season, so of course, margins are at a low point for that business, so I can't put a bunch of margin in there for Q4 off the revenue. But you know, we talked about earlier in the year, you know, a $60 million revenue run rate for that business on a 20% EBITDA margin, you know, business, and then a, you know, $15 million in synergies. I think we track to that over the long term. You know, from a starting point of a Q4 seasonal starting point, that's not great when you do the math on the numbers. You can see that, especially based on the guidance we made.
Over time, I think there's a lot of opportunity for us to create a lot of efficiencies for that business, whether it's in the technology side, how it's run. It's carved out of a much larger organization. I think we have a lot of ways to think about how to run an HSA-type business relative to how that's been run. There's that opportunity for us. I don't know. Ted, do you wanna comment, make any more comments on that?
No, I think, Tyson, you have it. The only thing I would add relative to the numbers that Tyson just alluded to is we did announce today that we're not completing the VEBA portion of the transaction, which is, you know, easiest way to think about it, rough numbers is 10% of the transaction. That should kind of, you know, help you get a sense of what we're aiming for for next year. Again, early days haven't even completed a monthly close on Further yet. I share Tyson's long-term optimism that similar to what we did with Wage, we're gonna be able to take this business and integrate it, grow it, realize some synergies from it, and expand its margin over time.
Ted, can I just ask clarification on what you just said? Is it the cancellation is 10%, so if you use $60 million and $20 million of EBITDA, I should take 10% off both those numbers as we think about Further going forward for the cancellation. Is that right?
Yeah. I think that the VEBA business was about 10% of the business, Greg. We're paying about 10% less than we had publicly announced we were paying, and that's what we said today in the 8-K. I think that's a reasonable estimate with the, you know, with the asterisk that Q4 is always a relatively low margin quarter for both our business and for Further, it would be the same.
Got it. Thank you for the answers.
Ian, thank you. Our next question comes from Sean Dodge from RBC Capital Markets. Your line is now open.
Well, thanks.
Sean.
Good afternoon. Hello. Jon, I guess going back to your comments around the enhanced rates product, can you give us a sense of the yield differential you can earn on that versus the more traditional FDIC insured placements? Then just maybe a quick kind of education on mechanically how that rollout looks. Is that something that you've got to get the employers to sign off on and then the employees to opt into? You know, I guess maybe some idea of what the timeline or the ramp looks like for the enhanced rates.
Yeah. The spread there is. It does depend a little bit, but let's just say we commented elsewhere that the benefit of enhanced rates adoption in current terms is kind of in the 50-75 basis points neighborhood. In terms of the adoption approach, and I'd say a little bit of that gets eaten up by the fact that you're also paying enhanced rates to members. In terms of the adoption process, the answer depends a little bit. This will be a multiyear process. We're still, you know, very much at the beginning of it, but very encouraged by what we're seeing.
As Tyson mentioned with regard to the Further business, Further came over with a material amount of this already baked in. You know, that just came over. That did help us in terms of you know, if you think back or if one were to think back to the earliest days of our business and you know, negotiating with one bank with you know very little assets and all of it kind of on the come, we didn't have to do that here because we had money to start with. It is a process that's going to take time. Ultimately, it's the member that elects into the enhanced rates product. There are a couple of ways that can happen.
One is, that is, their initial election, sort of, for lack of a better term, unless they take a different action. It's the default if they're new or it can happen when they come onto our site or what have you. They can be presented with that option and elect to it. But of course, we also are, you know. This is something where our employers have some flexibility as well.
But I think what you're gonna see over the course of the next few years is that a larger and larger percentage of our, for lack of a better term, you know, new cash needs are getting soaked up by the election of both new money and existing money into the enhanced rates product. It's a good product. It has some trade-offs, but it's a very good product for the members and a very good product for us, and allows us to keep other costs low and deliver outstanding service. I hope that's kind of helpful. A way...
That is a way to think about it is that it's the pace of adoption is going to reflect sort of a soaking up of our new cash needs over the course of time.
Okay. That's very helpful. Thank you.
Yeah.
Ian, thank you. Our next question comes from George Hill from Deutsche Bank. Your line is now open.
Yeah. Good evening, guys. Jon and Tyson, thanks for taking the question. I have a couple. I'll try to keep them real quick. Tyson, I guess the first one was, did you detail how much CDB revenue that you guys walked away from, both in the quarter, and then on an annualized basis? I guess my two quick follows, which would be for both Jon and Tyson, would be, Jon, do you have any feedback yet on what the adoption of HDHPs looked like, at the end of this open enrollment season going into the next calendar year? Tyson, to the degree to which you're willing to talk about it, if you're able to frame how we should think about the big headwinds and tailwinds for fiscal 2023 as you see them right now.
I'm not gonna ask you for guidance, but if you could just kind of flesh out how you see the big moving pieces, I think that would be super helpful.
Why don't we start with your last question, and we'll work our way backwards. Tyson?
Yeah. That's a good question. Just, I'm pulling some up here. You know, I think when you think about what headwinds
Really do become tailwinds or vice versa. I mean, we've been talking a lot. I won't regurgitate everything we've just said about enhanced rates, but really that shift, that mix shift is the biggest, you know, tailwind that we see. When you think about balances continuing to grow, look at the outsized balance growth that we have relative to market and just the acquired assets that we get as well. We're really positioning ourselves to have a lot more assets and a better way to place them, and that is really gonna be the long term. Again, like I said before, I mean, the profitability of the business in my mind has changed inherently.
We're positioning ourselves to take advantage of what I see, you know, in the news this morning, if the rates are gonna shift up, and they will, you know, eventually. We've already sort of seen that as we've competed those rates against the various partners that we work with. We're expecting those rates to eventually rise, and it sounds like they may do so even sooner. You know, when I think about the real headwinds for the business, you know, I think that employment can cut both ways when you think about how COBRA's utilized versus how you think about or FSAs are utilized.
You get that, the kind of swirled waters of the CDBs, which, you know, that's not necessarily the growth area of the business, but what it does do is it really helps us to cross-sell. The deals that I sign now are always, you know, for the most part, multiple deals with multiple types of accounts supporting HSA growth, where we're able to provide something to HR benefit offices to where they're not managing multiple vendors. That's really powerful, for Ted and the team and the sales team.
Then, you know, the other kind of headwind, you know, that we have is just trying to manage through how we think about what the pandemic does to spending and how people spend and, really, you know, kind of even to go back to the first question, how we sort of, you know, are there some places where we maybe don't want a particular, client, where it's not profitable and where it doesn't necessarily work for the platforms that we're gonna go forward on. Those are very, very small relative to our overall base of revenue, but those are decisions that now at the end of the long WageWorks acquisition, you know, integration, you know that we're making and we feel like we're making the business healthier as a result of that.
You know, I'll mention a couple other ones. You obviously got the childcare accounts that are a headwind and those type of things. Those are some of the things that I think would think of on kind of those two, like the first and the last question.
Yeah. I'll kinda hit the middle one in a way it builds on Tyson's, the first part of Tyson's answer. When I look at our sales over the first three quarters and HSA openings over the first three quarters, and look at the source of those, what I see is a market that is, you know, recovering from a tough year last year. You see more evidence of how tough last year was in the reports that have come out, which are sort of backward-looking from Kaiser and others. What I'm particularly enthusiastic about in that regard is in a tough.
It turns out, looking backward, in a tough year, we took more market share than anyone ever has before, than we have or anyone has as far as I know before. Now this year, I mean, we'll see what the total market ends up looking like and what all the enrollment numbers that come in you know, in the next couple of weeks here look like. You know, as I've always said, the best indicator of my next quarter sales is my last quarter sales. My last quarter sales were really good. In terms of consumer enrollment as well as overall, I guess my general view, George, is we try to manage, as you know, we try to manage the business towards the long-term opportunity.
The long-term opportunity is the same one that you and I and Darcy and Steve talked about. I think Tyson was just a gleam in our eye back then, and Ted that we talked about many years ago, I mean, almost a decade ago, which is these accounts are gonna steadily grow. We're gonna end up, when we're done, with about as many HSAs as there are 401Ks out there. Their balances are gonna start small, but over time, they're gonna grow, and you can see that happening. As a result of that, you end up with a business that has sustainably high margins and, you know, has a good long runway to it.
We are, you know, some steps that we take to make sure that we're in position to see that growth turn out to be tough ones. Obviously you saw that in this quarter with respect to what Tyson called some of the CDB swirl. We're gonna keep taking those steps and whether that's building enhanced rates or solidifying our footprint in the Blues system with Further, whether it's what we've done today with the Health Savings Administrators to kinda build on some of the momentum that our individual product has had and small and very small group product, for some of the kinda more investment-oriented small groups, the doctors and lawyers and the like, where Health Savings Administrators is focused or whatnot.
We're gonna keep doing the things that position us to take market share in HSA so that as that market expands in revenue terms, in asset terms, in account terms. We're gonna look up, and if we keep doing that year over year, we're gonna be just fine, and our shareholders, our long-term shareholders, are gonna be just fine. More, and perhaps more importantly than all of whether we're fine or our shareholders are fine, we're gonna have done a lot of good for a lot of people in terms of connecting health and wealth. I, that's kind of the way I look at it. I know that sounds like a little bit of blather, but it actually reflects my view of both next year and the year after that and the year after that.
Jon, I appreciate all the commentary. Thank you.
Thank you.
Thank you. Our next question comes from Donald Hooker from KeyBanc. Your line is now open.
Hey, Don.
Hey, good afternoon. I guess you guys are really seeing just amazing growth in the percentage of HSA assets invested, and that's always been difficult to model. Is there some reason? It almost feels like that's accelerating a little bit. I was wondering, can you talk a little bit about trends? Are you doing anything different to drive your HSA members to invest more into stocks and bonds, or how should we think about that going forward?
Well, we've worked on this for a long time. Ted, I think this is a great one for you to hit in terms of what our product and education teams have done over the course of the last couple years to really accelerate this trend and drive the industry in this direction.
Sure. Happy to jump in. I think it's this topic for sure, but it's also all of the various ways that you can, as an employee of one of our clients, optimize your benefits, and we're investing heavily in getting you to do that, right? Educating you in multi-channel ways, both with marketing in the actual product itself and then in member services when you call, just kind of sharing with you what the next best thing for you to be doing is, whether it's spend your FSA dollars so you don't lose them, or, "Hey, we noticed you built up a little stack of cash in your HSA. Why don't you start thinking about investing?" Or, "We noticed you're not contributing as much as you should be.
Why don't you contribute more?" Education's been a huge operational focus for us. I think one of the places that it's really shown up, and that you just identified, is in the percentage of members investing. We're seeing it other places too, you know, in the number of members that are raising their contributions, in the number of members that are spending through their FSAs. You know, I think we're kind of in the middle innings here. You know, we've built a pretty strong program over the last couple of years, but there's still a lot more that we can do across the board, but notably in this area.
I guess my follow-up, and this is probably impossible to answer, but I'll ask it anyhow and see if there's a way to think about it. Is there sort of a natural threshold there? I guess any kind of updates? I know in the past we've talked about this, but maybe any updated thoughts. What is the typical sort of natural threshold?
Yeah.
For sort of cash and investments?
The typical. My dog wants to chime in, my little dog on this. But the. We've talked about this a little bit before, you know, that. I think you see the same concept also when you look at the most mature accounts, is that, typically, what you'll see is people will build up enough cash, or liquid asset, to be able to handle kind of their near-term expenses. It's important to note that, even among our max contributors, right, they are also spenders, right? And that's, by the way, one of the reason that you haven't seen really any drop off in HSA spend, right, interchange that is, even as balances have grown. Commented on that a little bit in the script.
People tend to build up, you know, enough cash to, let's say, cover their annual deductible or, you know, some number, maybe for some folks, it's their annual out-of-pocket maximum. If you look at our longer term accounts that have kind of done that, what you'll see is that cash balance kinda tops off, you know, somewhere between $3,000 and $5,000.
Okay.
They continue to grow the investing side. It's not that like there's a switch flipped or whatever, but that's kind of, I think, a way to think about the typical behavior of an investor is that you know when you look at and you can see this even in the HSA Administrators business that's been very focused on individual investors and these very small groups of folks who are like totally onto this, right? Where you see you know your average total balance is $15,000-$20,000, of which give or take three quarters is invested and one quarter is cash. I think that's kinda where you'd expect it to end up.
Okay. Thank you.
Thank you. Our next question comes from Scott Schoenhaus from Stephens. Your line is now open.
Hi, Scott.
Hey, Jon. Hey, Jon, Tyson, and Richard. Happy holidays.
Happy holidays.
I understand the moving parts around the more conservative guidance, so just wanted to continue this conversation on HSA, what's driving the organic growth rate there. Where are you seeing the sales strength from? And can you talk about where you are in terms of the cross-selling opportunities on the WageWorks legacy customers? I believe there was 70,000 employer clients and roughly 20 million employees that they touch.
I guess, you know, what's driving the organic growth, where you're seeing the sales strengths from and where do you stand on the WageWorks legacy acquisition?
Great. Steve, why don't I ask you, our Steve, to start in terms of kind of what you see out in the market. You're out there. For those who don't know Steve Neeleman, he will go anywhere for a deal. You know, you call him up this afternoon and you say, "I need you in Charleston tomorrow morning," he'll figure out a way to get there. So, I'm gonna start with Steve Neeleman, and then Ted, maybe you can comment on the cross-sell metrics.
Thanks, Jon. Thanks, Scott. You know, obviously, last year was a tough year just with COVID and everyone kind of hitting the pause button. We've been really encouraged, and I think it's been. You've seen it in the numbers. I mean, you know, I think it's amazing when I look at these numbers we just reported. There were some acquisitions in there, but still to see $960 million during the quarter of new growth and kind of a 14% account growth. We think these are great leading indicators. I can tell you in the RFP world, you know, we felt really good about where the season started shaping up towards the end.
You know, some of the larger employers were still in pause mode a little bit at the very beginning of the year when COVID was still really raging, if you think about the sales cycle for the real big ones. You know, this was kind of prior to everyone getting vaccinated and things like that. Yet the small groups, we're still closing a lot of deals right now. We're not gonna let you ever do this, by the way, but if you were to ever listen in on one of our sales huddles, you would get a lot of energy. I mean, you know, people saying that they really do feel like, especially in the small mid-sized businesses that are still...
I mean, one of the questions that was asked earlier was, you know, how did we finish up our open enrollment season? We haven't yet. I mean, this is a very busy time for our groups that are still rolling people in, so a lot of energy. I think it's pretty well illustrated in our numbers. We reported that the HSAs are growing and, you know, there's some mixed results on the CDBs, largely because some are rolling off.
I can tell you every time that we bring on an employer and they have a bundle full of CDBs, then and we start to do our education and really start to bring people over to the light of a retained value account that doesn't go away when they change employment, they can take it into retirement and all the great things about HSAs. Sometimes we'll see initially the CDB start to go down, but the HSAs really start going up. I think that's one of the reasons why you're seeing some of the FSAs and things like that going down. A lot of energy, Scott, I guess is the way I would classify that.
Ted, how would you add to that, since it's all kind of part of your world as well?
Yeah. Thanks, Steve, and thank you for putting your shoulder behind our sales efforts like you do, and getting on more planes than most people. I think to answer specifically the cross-sell question, here's. We're very pleased with our cross-sell progress thus far. We don't really break out the metrics, but I think a couple things we've shared in the past that I would just reiterate are, number one, our close rate in a cross-sell opportunity versus a de novo opportunity is, you know, 2x-3x as high, because the client knows us and they're accustomed to our service. That goes you know, both directions, whether depending, you know, no matter which legacy client base the employer was a part of.
The second is, last year, the vast majority of our cross-sell, you can imagine, you know, why do you know, rob banks because that's where the money is. We focused all of our cross-sell efforts on enterprise to get started, and that's where we saw some early wins. What I've been most encouraged by this year is that we're starting to see that cross-sell capability descend down into employers, into small to medium sized employers. Steve alluded to a place that's where we had a lot of success this year, and it's hard to draw a straight line between cross-sell and that success. There's lots of reasons for that success, but cross-sell is certainly one of them. I think, you know, we're getting...
This was our second selling season, being able to offer kind of a credible bundle, and we're getting better at being able to do it, and we look forward to more progress. I think the last point I would make is that there's still a ton of white space for us. We have, you know, hundreds of our top 500 enterprise clients only have one product with us, right? Thousands of our, you know, small to medium sized clients only have one product with us. The opportunity should nourish us for a long time. We, you know, just have to continue to unlock it. Thus far, we're experiencing a trajectory that I think makes us happy.
At the risk of piling on, I think make one other point here, which is that Ted talked about cross-sell white space. I think, again, looking both now and long-term, I really could not have asked for realistically a better outcome in terms of how the competitive white space is shaping up. Our largest competitors are the largest health plan in the United States, which has its kinda, you know, walled garden, and the largest investment retirement plan manager in the United States, which has its walled garden. There are things that are good about walled gardens, but the nice thing about us is if you're an employer, we're gonna work with you, whomever. We are not part of their lock-in strategy.
Even better, if you are a partner of ours, right, you know that, or if you're looking at both of those and you're trying to compete, and that means you wanna work with the best you can, and that's us. I think not only is it the case that competitively the market is shaping up for that lane to be our lane and to be a very large lane, but also from a technology perspective, and I alluded to this in our comments, and you'll see a little more of this in the next few quarters. The technology is continuing to evolve in such a way, and our platform is continuing to evolve in such a way that we can embed the HSA deeper and deeper and deeper into our partners' products.
In the language of APIs, HSAs can be consumed in so many different ways. That's true in the individual market, it's true in small group, it's true in large group, it's true in retirement, it's true in health funds. It's true in Ben Admin. In other channels that we haven't even thought of yet, as HSAs continue to mature and sort of penetrate consciousness. I think that's another thing that has begun to help us in this cycle, but that will be a big helper as we kinda continue to try and sustain market share growth year after year over the next number of years.
Thank you.
Thank you. Our next question comes from David Larsen from BTIG. Your line is now open.
Larsen.
Hi. Congratulations on the growth in a number of HSA accounts. That's great. Just a couple of quick ones. Most of my questions have already been asked and answered. With the interchange revenue, was the Delta variant one of the reasons why, like, utilization may have been a bit lower than expected? And then do you have any thoughts on Omicron? Is that gonna have an impact or not, do you think? Just any color there would be helpful.
Yeah. I'll take a shot at this one, and Tyson, if you'd like to add to it. I think the main challenge that we had with Delta is it made it very difficult for us to interpret results that we were seeing. For example, when we saw very strong results in July, which was the last month of the second quarter, and for the most part, after your account runoff had occurred, while Delta was going and really raging, we felt very confident about where spend trends were. It turned out that that was a bit of a false signal in the sense that you know, that wasn't followed up as this quarter began and meaning Q3 began.
I think that to not give you too complex of an answer, it's just another factor that creates variability and difficulty in interpretation, particularly for CDB spend. What I would note, though, is HSA interchange during the quarter was rock solid, and that's one of the reasons why interchange, notwithstanding these challenges that we've talked about, was still up 8% year-over-year. You know, that is to say HSA interchange was up substantially more than that. I think you know, that's an interesting dynamic that we need to continue to look at. But I will.
It is fair to say that, you know, as we enter Q4, it certainly, you know, we don't know any better than anyone else what the effect of Omicron is gonna be. I'm not sure why they skipped Nu, but they did. It may have some impact. I think fundamentally what we've tried to do is take what we have learned over the course of the pandemic and reflect that in a reasonable forecast for interchange for Q4. We'll see what we get. We'll learn, and we'll refine.
We're also taking the lesson that our HSA spenders are clearly more resilient to changes in economic conditions as well as less likely to be impacted by sort of in the weeds regulatory items than our FSA spenders and other CDB spenders, but also that our HSA spenders can also you know they can top up their balances whenever they need to, that kind of thing. Whereas our FSA spenders are effectively, if they didn't top up their balance last December or November during annual enrollment for most firms, they can't do it until now, and it won't have effect until January. You know, those are lessons that really reflect the point that I made in the initial commentary.
That is, we're gonna spend our money growing where we know the growth is and where we know we can deliver profitability and visibility to you. We're gonna deliver to our clients what they need in order to buy those HSAs. That's one way we can reduce uncertainty is by growing that core faster than the employer business.
Okay, great. Thanks very much.
Yes, sir.
Thank you. Our next question comes from Glen Santangelo from Jefferies. Your line is now open.
Welcome back.
Yeah. Thanks.
Welcome back, Glen.
Yeah, thanks for taking my questions. It's good to be back. So I just wanted to follow up, Jon, on some comments that you made. It kind of sounds like, you know, the effects of the pandemic are greater than maybe what you would have thought are lasting longer, to use your words, on the CDB business.
I heard your comments on COBRA maybe, you know, fell off more than expected in the FSA business. You know, could you maybe put some numbers around the CDB shortfall? Because if I hear you correctly, it sounds like your HSA business is trending ahead of schedule, just listening to some of the comments to some of the previous questions. Maybe, you know, when I put it in context of the, you know, $7.5 million revenue shortfall or I think I calculated, I don't know, an 11 million-12 million dollar—$11 million shortfall on EBITDA relative to the guidance. It sounds like it's much bigger than that, maybe being offset by some of the benefit in HSA.
I'll ask Tyson to add on, but I mean, I think the key point to make is essentially all of the delta between our current our now current outlook and our outlook at the end of Q2 is a result of these factors in CDB. The HSA business has performed, as you say, about either at or slightly ahead of where we would've expected it to be. I think particularly as we go forward, we're feeling, as I commented earlier, more sure-footed on the rate side of things. But you know, by and large, I mean, I think the key point is that the delta that you just described really boils down to the various CDB factors.
Tyson, would you like to add to that?
Yeah. I mean, look, you did some math there, so I'll just go back to that. You know, I think that's exactly right, the CDB conversation that we've had. Again, the largest portion of that was really related to the interchange softness that we saw and then a little bit on service fee from the falloff of those 2019, 2020 FSA accounts. Obviously, commuter still coming down year-over-year, but sequentially up just slightly. You have that in there.
The other kind of big piece of that math there is, you know, bolting on that Further business in Q4 really doesn't provide a lot of margin, but much more, you know, it provides the revenue but not the margin, particularly in that seasonal Q4 enrollment period. That's why you get the differential between the two pieces of math that you've done there.
Yep. I apologize. Maybe just one follow-up, and I'm sorry if I missed this, but the consolidated custodial yield in the quarter, did you give that?
We have $172, is that, and then $175 guidance for the year.
Right. 172 versus 175. If we look at three-year CD rates sitting at about 1.5, right? You know, the benefits from your Enhanced Rates program, you know, being 50-75 basis points, were you kind of trying to flag that maybe as we exit fiscal 2022 and head into 2023, that this should be the bottom in terms of your, you know, your laddering strategy?
Well, Jon, let me comment.
Yeah, I would just say.
Go ahead.
I was just gonna say, you know, as I commented before, I mean, I, you know, and I'll say it again because I think it's really important, is that when I think about where we're placing, we're placing things, you know, a year ago versus now because we do have assets come forward and our, you know, Cordell goes and places them, so we know the rates. Those rates are higher for FDIC. And then we, you know, I think we got a very good rate placement when we did our placement, you know, on November first with the Further assets and also sort of the real kickoff of our. We'd already started doing enhanced rates, but the real kickoff was as we merged those Further assets in there.
Those were higher rates than they were at the first part of the year. That's, you know, part of that's good negotiation on the part of our treasury team in there doing that and competing those rates against each other. The other is that, you know, there starts to be a little bit of light at the end of the tunnel and that, you know, you see Powell this morning talking about, you know, moving up the a rate shift. That's pretty exciting. I wish it was in December versus March, but it's, it is what it is, right? It's still a long-term view on those rates coming up on assets. It helps from not only next year being, you know, will be lower still because we placed at higher rates, you know, two or three years ago.
Again, you're starting to turn that corner. As Jon said, too, we're not gonna be below, sort of those all-time lows that we saw, you know, as part of the last recession. It takes, you know, multiple years to kind of turn that around based on the way that we ladder. It helps going down. It's slow going up. It also increases, again, like I said, you know, the inherent profitability from enhanced rates and how that works is has been improved based on how we're doing that.
Okay. Thanks for taking the questions.
Yeah. I mean, Glen, just one other thing on this or one point of emphasis on this topic. I mean, when we talk with investors as you do, you know, they would love it if we would give them a forward rate curve or the like. The reason we don't do that, as you well know, is it'd be like asking another firm, could you please tell us what price you're gonna offer to customers this year and next year? We're not gonna do that. That having been said, you know, we've heard a ton of speculation on this.
I sort of go back to Greg's initial question, and over the course of the last year or two as, you know, CD markets have kind of stuck where they are and so forth. I, you know, to my mind, again, I think about I don't have to talk about, oh, it's going to get better later. As Tyson said, it is getting better now, right? It's getting better in part as a function of market conditions improving and in part as a function of the team taking action and bringing innovation to this thing. Like that's what we do here. Whether it's about rates or about HSA growth or about cleaning up what, you know, to me is some variability that doesn't help us and clouds the story, that's what we'll keep doing.
Okay, thank you.
Yes, sir.
Thank you.
I like how you say.
And our ne-
That at the end of each one. It's very confidence-building. Thank you for doing that.
Okay, great. Our next question comes from Allen Lutz from Bank of America. Your line is now open.
Thanks for taking the questions. You know, going back to interchange, Tyson, I think you talked about the FSA wind down for 2019 and 2020 vintages basically causing a shortfall in interchange. I guess if there's more accounts that are closing, does that mean that the customers are spending more, so interchange would theoretically be higher? That's question one. Question two, I guess, as we're looking forward from this level here, you know, across the commuter COBRA FSA, I mean, what would need to happen for things to deteriorate from this level here? I guess just expectations on what to think about is embedded in 4Q. Thanks.
Thanks.
Yeah. That's a good question because I think where we saw that spend, but I would've suspected that maybe it would've hung out a little bit longer was in that Q2 time period. You saw that spend down, if you will, and therefore that increase was part of that. I think the other read on it. It's hard to get a reading on it, right? Because I think the other read on it was that year-over-year, it was a bounce back from pandemic and people were out, you know, doing more. Blending those two things together and then coming up with a second half forecast, you know, proved to be difficult, right?
We saw that, you know, we still grew interchange, but it just, we didn't get the tailwind that like we thought because of those. We saw those accounts, you know, go away and maybe a few more go away. I think where I'm optimistic is now kind of the enrollment season where we go into January and people are re-enrolled into these accounts and they're topped up again and maybe we get to more normalization, if you will, over the next year. It'd be a little easier to forecast.
Okay. To follow up on Glen's question about the implied Q4 guide. You know, it seems based on my math that organic growth between Q4 2022 versus Q4 2021 is gonna decline somewhere in the range of 25%. Can you kinda clarify whether or not that's accurate? And then B, and I know that you're spending more on technology, but you know, what else is embedded within that decline? Thanks.
Well, I think the one thing in there, and I don't know, I'm not doing the math here quickly, but I trust, you know, you've done some math to kinda get directional on that. But the thing that would drive that the most is just the fact that we're putting acquisitions in the business that are acquisitions that we think we can improve margin on, but when we buy them, they don't necessarily have the types of margins that we have. That's the job, is to improve those, to synergize them, to get them onto a single platform, single service, a single processor, all the different things that our operational team does to improve the margin related to that.
I do like the deals that are portfolio acquisitions because those come in without people. They come in with just assets and yield and obviously higher margin. You get some of that playing through into that. You go back to the CDB businesses and the easy low-hanging fruit to talk about there is the commuter business and the fact that there's tens of millions of dollars of missing high margin revenue on our one of our highest service fee line items in that commuter business. I'd like to see that come back because that'll create a nice tailwind. We did see a turning point in that.
It's an insignificant turning point, but at least it went sort of the other way and started to come back. Those are kind of the two things that I think are in there. I mean, the other one that's really there too, I guess, you're making me think of some other things. These are, I know, Allen, we've talked about these things before, but you think about the custodial revenue and the margin generated by that and the 36 basis points of decline at that yield, you know, year-over-year. It's kinda mixed within all these comments, but that is fundamentally how this business is going to produce profits. When that rate starts to turn around, we'll start to produce profits. I think that, you know, again, we're getting to a point where that's starting to happen.
Got it. Thank you very much.
Thank you. Our next question comes from Stephanie Davis from SVB Leerink. Your line is now open.
Thank you. Thank you guys for taking my question.
Yes, ma'am.
It has been a really long year, Tyson. Talk to me about your learnings from this. Do you have any changes to your guidance philosophy? How should we think about your forward views then on CDB account recovery? Is this going to be kind of the level set assumption for step forward spend patterns remaining weak and commuter basically getting zeroed out and these levels until return? Is there any thought towards improvement as we go out to the funky fourth quarter?
Yeah. I think I'd go back to there are a lot of crosswinds, and you see this even in, you know, a lot of the articles you read about the Fed trying to get this straight. I mean, there are crosswinds. It's difficult to come up with forecasts.
I agree with that.
Particularly for CDBs. Not so. I mean, again, HSA, if you think about that. When I think about forecasting custodial yield on HSA, we can do that, and we can do that out, and we can see what we think enhanced rates will do for that revenue stream, and we can get a pretty good idea of being able to tell you what we think that is to within a very, you know, immaterial amount. You know, the same is true when you think about HSA service fees because they stick around. You don't have this ebb and flow of those and kind of these annual decisions that get made.
To me, the answer to getting forecasting more accurate is to grow the HSA business larger than these other services that we have, which is exactly what we're doing with acquisitions and exactly what the organic business is doing as well. I think my learning from that is that that's what I, you know, Ted and I talk about to the team. That's what the team wants to do. It fits the mission, and it will solve some of these issues that we've had with some of this swirl. Given the pandemic and everything else, it's tough to kind of get there. Yes, I have learned a lot over the last year, Stephanie.
Would it then be safe to say that you're going to focus most of the guidance on the HSA side of the world and then kind of use this as more of a level set run rate for CDB since it's so unpredictable, so you can leave those more upside?
Well, I think there's, you know, when you think about CDBs, of course, you talked about, you know, some of the things you're turning, but it's really just that commuter segment. It's 4% of revenue, right? So it's just not enough for us to talk a lot about here. It's something that I think helps us sell HSAs. I think I could say you're probably right. I'd like to focus more on how we think about HSA growth and forecasting that. Fundamentally, that's what we're trying to do.
Okay. If I can sneak in a quick one just on EBITDA for the 4Q guidance. Is there a way to tease out the deal-related impact to that fourth quarter number? And how long should it take to turn around the acquired margins? Is this something where it's just going to be one quarter and we'll see an improvement or is 4Q EBITDA how we should think about run rate?
Well, there's two things that are happening with Q4. I mean, it's really the fact that the Further business that we have doesn't drive margin, if any, in Q4 relative to the revenue number we put out there, which is, you know, $12+ million, you know, essentially on something less than $1 million of EBITDA. That's because they've got the cost going into season. When you think about that business in a Q1, Q2 timeframe, when we think about right sizing it, for example, for the fact that we won't have, you know, Aviva services in there. We know there's some cost in there associated to that part of the business that we can take out.
Just the ability, and all the learnings we've had from the WageWorks business on how to create efficiencies within the business and we're going to be able to do those. You haven't seen those as much in WageWorks because of some of the degradation of some of these CDBs, but they certainly are there, and we've been able to make those improvements. I think that kind of gives us, you know, a base to build off of. I'd say the same thing is true for that Further business.
Okay. Super helpful. Thank you.
Thanks, Stephanie.
Thank you. Our next question comes from Mark Marcon from Baird. Your line is now open.
Hey, good afternoon, and thanks for taking my questions. I'm wondering with regards to the rate discussion as we think about next year. Jon, when you were answering Peters' question, you know, you mentioned the 152 basis points and kind of the low. Wondering how do we think about that relative to the enhanced rate program? Because it sounds like, you know, one way of interpreting things would be, hey, we're gonna stay steady in terms of the effective yield for 2023. Another way to interpret things would be, hey, it probably still comes down a little bit because of, you know, we're still rolling off investments from two to three years ago.
However you could, you know, provide some sort of help in terms of thinking about that, because that's obviously gonna be important in terms of setting, you know, 2023 expectations.
Yeah. I can. What we've said in the past, and I would repeat here, is that 2023 will still be a down cycle, or part of the down cycle. It feels like it's forever, and it is. We started this process in our fiscal 2021 and 2022 and 2023. It will be the third year of that cycle. I think when all is said and done and the smoke clears, you know, our expectation remains that we will lose, you know, that we'll still have a headwind from a yield perspective.
As was the case this year, that headwind will be smaller than it was, you know, in the prior year. Then I think what I've tried to add to that is, I think we're kind of particularly with the benefit of a, the fact that the underlying sort of competitive dynamics in the deposit product market are improving and the fact that the enhanced rates uptake means that we don't have to necessarily go to the end of the rope in terms of what banks are offering. We can be a little more selective.
That you know we can kind of see that being the end, and we kind of know where that end is gonna be, which is, as I commented and you repeated, somewhere you know kind of near and perhaps better than the lows that we saw in the last post-2008 period. I guess that's the way I would interpret. I wasn't trying to suggest that we're gonna do 175 next year or that we're gonna improve from that.
I think for folks who have modeled this stock for a long time, as you have, knowing with a relatively, you know, with a great degree of confidence where we think the sort of end of that cycle is and where we think it is in time as well as in rates, it seems like a pretty valuable thing.
That absolutely is valuable. Then can you just tell us what the most recent placements were in terms of the effective yield that you were getting for those?
Yeah. We've been asked this question before, as you know, and we don't comment on it because it effectively reveals the price we're willing to take, and we would rather let banks compete for that price. I will say, it's if I think about it as in terms of premium to, as someone mentioned earlier, the three- or five-year CD, that premium, which was both the market was low and the premium was at the low end of our historical ranges, earlier in the year and at the end of last year. That premium has improved a bit over the course of the year, and even though the underlying market hasn't changed very much.
Again, I think that reflects a greater competition for our kind of money and perhaps a view on the part of the banks of what's gonna happen going forward. I don't know about that. It's gotten a little better, and that should give you enough that you can kind of interpolate.
That's great. Then there was an earlier question which I didn't get the answer to on, just on how you're thinking about HDHPs for this enrollment season, for a lot of companies that have gone through it. What are you seeing in terms of that shift?
Yeah. We'll talk about this a little more in January when we get to JP Morgan's conference and all of that. As I said earlier on in the call, I think to some extent the Q3 results are an indicator there because they do reflect firms that have earlier plan year cycles and the like, you know, the September enrollments and the like. Those were really good. You know, my general view of the market, if I sort of go back a year, the question was, well, is the market gonna grow by, you know, something closer to three million or something less than two million like it did in the pandemic period?
I was arguing that, well, first of all, I was acknowledging that I didn't know, but second of all, arguing that the broad forces that are leading to market growth are, you know, much more, I was about to say endemic than the pandemic. But they're much more, you know, they are long-lasting and decadal in nature, and they continue. I guess on that basis, I'm kind of taking the view that we're seeing what looks like a more normal enrollment cycle this year. Certainly, the fact of high employment is a net helper in that regard. But in the sense that there's just more people, not as many still.
We're still not back to pre-pandemic employment levels on the whole, but we're getting closer. The more people that join the labor force, rejoin the labor force, it's extremely helpful in that regard. I guess my basic view, Mark, is if I sort of look at it and say, we've said all over time that the market's gonna grow at a rate of, you know, 2.5-3 million accounts a year and has for a long time, and then we had this exception in calendar 2020. I think this year is gonna look a lot more like prior reality than like that exception.
That's really helpful. Then the last one for me, just with regards to at the enterprise level, you know, you've been gaining share, on the whole. How would you describe the competitive dynamics at the enterprise level, currently? You know, do you anticipate continuing your great track record of gaining share, even at the largest enterprises?
Yeah. Ted, you wanna hit this one?
Sure. You know, I think that as you would expect in any industry that looks like ours, the competition intensifies first at the enterprise level, and we're no different, and we see that. You know, this has been an interesting year from an enterprise sales perspective, in large part because of the high number of stay with incumbents. Right? You know, as many people benefits teams are continuing to be sort of burdened by return to office, COVID management, etc. They've been sort of less willing to make a decision. You know, but despite that, I think we more than held our own in the enterprise space among those pieces of business, those cases that have moved.
You know, probably similar to other people in the industry, our retention rates have been very high. We're inundated by the fact that, you know, some people are just not leaving companies. I don't think we've seen anything unexpected. We haven't seen anything, you know, crazy or shocking. There's, you know, from an enterprise competition perspective, there's not, you know, someone has come out with the iPhone 17, and we're still trying to sell the iPhone 12. It's, you know, it is sort of proceeding apace with what we would expect. You know, price competition is, you know, higher in the enterprise space than in the mid-market, small market. That's one of the reasons, you know, why, you know, that's become.
You know, we're trying to put our chips where we expect the best return. To a large extent, that's in that small market, mid-market space. With our value proposition and our brand and our reputation for service, we continue to perform or outperform in the enterprise space, even though it's been an interesting year there. Nothing crazy competitive-wise. Steve, I don't know if you have anything to add there or if you see anything worth mentioning?
No, I think that's right. One of the things we're really excited about is with the Further acquisition, you know, we've got another 10 Blues plans that we're gonna be working with. You know, I think our team's getting a lot better at working through these health plan partnerships, not just to go after the small midsize businesses, but also to go after the large employers. 'Cause a lot of the Further plans, plus our base, you know, plans of another 20 health plans or Blues plans that we brought to the table, plus a bunch of other TPAs and large health plans throughout the country. I mean, they also bring us to a lot of enterprise type employers. There's always been this push-pull in our business. I mean, going back like, oh man, 15 years.
In fact, Jon, you remember when we first started working together in 2009, I was always talking about your fantastic work with the enterprise employers, and you were talking about HealthEquity's fantastic work with the health plans. Now we're really starting to see those forces converge, where we've got this national footprint, we've got the full bundle, and we have the ability to not only deliver a full bundled solution to the health plans, but to their largest and most important clients. Jon, I guess we both got our wish. We have a full stable of health plans and a full stable of large enterprise employers. It's coming together nicely.
I was kind of having a, you know, I don't want you to think I spend a lot of time on this, but I have to admit there's an internet site that, you know, in my moments where I'm trying to distract myself, I look at, that has sort of unusual maps and I think they call it map porn. I think I can say that here. So yesterday's thing from that site was the largest employer by state. What I'm getting at is what's enterprise?
First of all, the point the chart was trying to make was that there's one employer that is the largest employer in a lot of states, and they happen to be a client of ours, and that's great, and they're a private sector employer and so forth. What was actually really interesting was in essentially all of the states in which they were not the largest employer, the large employer was not, you know, some Fortune 500 company, wasn't Amazon, it wasn't. It was a health system, a hospital system in something like 30 of the other states. It was incredible. That's a market where we do real well.
For us, you know, when we think about enterprise, it's worth remembering that we're looking at number of employees and those kind of factors, not just, you know, whereas other firms might be looking at size of the IT budget. I think particularly when you look at it that way, Steve's comment about the relationships with more Blues plans comes into focus because those are local relationships that start to matter. You know, it's not just Blues plans. When I think about Providence Health in the Northwest or St.
Luke's in Idaho or, you know, or Presbyterian in New Mexico or Sentara in Virginia, you know, these are huge local employers that are also effectively our partners in other ways. That helps us in the enterprise world too.
That's very helpful. Thank you so much.
Thanks, Mark.
Thank you. I'm showing no further questions. I would now like to turn the call back over to Jon Kessler for closing remarks.
Guys, thank you for your good questions and tough questions and for going through this with us. Really happy holidays to everybody. As Tyson mentioned and Ted alluded to on this call, these are, you know, very unusual times for us at HealthEquity and for our team because not only is it an unusual holiday with some joy at the fact that things are returning to normal, but also some trepidation with Omicron and all that. We are, as many employers are working through, certainly as a small number of federal contractors are working through federal contractor mandate. You know, far be it from us to grouse about the difficulties of doing that, given the importance of the task.
No matter how one feels about these mandates, it's our job to comply with the law, and we are doing that. I wanted to just take a moment to thank our team members who have kind of worked through this from the perspective of both thinking about it and dealing with the compliance side of it, and also, you know, very candidly, wish well those who have made a different decision, but thank our team members for helping us get ahead of that as much as we can in Q4, and, you know, have the team prepared to deliver the best possible service we can under, you know, what is a really unusual circumstance for us. We care about this a lot.
We're not going to ignore it. We can't ignore the impact on our team of losing some people due to the mandate and we're not going to. I think it's a special area of thanks for companies like ours. Everyone in the healthcare sector is affected in the same way, as you all know. Many of our partners are affected in the same way, and certainly our friends in the federal government who are a client are affected in the same way, and very much appreciate all the work that every member of our team is doing to keep the wheels turning as we go through a most unusual business season for us. Happy holidays. See everyone soon.
This concludes today's conference call. Thank you for participating. You may now disconnect.