HealthEquity, Inc. (NASDAQ:HQY) Q3 2023 Earnings Conference Call December 6, 2022 4:30 PM ET
Company Participants
Richard Putnam – Investor Relations
Jon Kessler – President and Chief Executive Officer
Tyson Murdock – Executive Vice President and Chief Financial Officer
Stephen Neeleman – Founder and Vice Chairman
Conference Call Participants
Stephanie Davis – SVB Securities LLC
Anne Samuel – JPMorgan Chase & Co.
Gregory Peters – Raymond James & Associates, Inc.
Glen Santangelo – Jefferies LLC
Scott Schoenhaus – KeyBanc Capital Markets Inc.
Stanislav Berenshteyn – Wells Fargo Securities, LLC
Cynthia Motz – Goldman Sachs Group, Inc.
George Hill – Deutsche Bank AG
Mark Marcon – Robert W. Baird & Co.
Allen Lutz – Bank of America Merrill Lynch
Alexander Draper – Guggenheim Securities, LLC
Thomas Kelliher – RBC Capital Markets
David Larsen – BTIG
Operator
Good day, and welcome to the HealthEquity Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [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
Thank you, Sarah. Happy holidays to everybody, and welcome to HealthEquity’s third quarter fiscal year 2023 earnings conference call. My name is Richard Putnam. I do Investor Relations for HealthEquity. Joining me today is Jon Kessler, President and CEO; Dr. Steve Neeleman, Vice-Chair and Founder of the Company; and Tyson Murdock, the Company’s Executive Vice President and CFO.
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 2023 was issued after the market closed this afternoon. The financial results in the press release include the contributions from our wholly-owned subsidiary, WageWorks and accounts it administers. The press release also includes definitions of certain non-GAAP financial measures that we will reference 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, 2022 and will contain forward-looking statements as defined by the SEC, including predictions, expectations, estimates, or other information that might be considered forward-looking. There are many important factors relating to our business, which could affect the forward-looking statements made today. These forward-looking statements are subject to risks and uncertainties that may cause the actual results to differ materially from the 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 which are detailed in our latest Annual Report on Form 10-K and also subsequent periodic reports filed with the SEC. We assume no obligation to revise or update these forward-looking statements in light of new information or future events.
At the conclusion of our prepared remarks, we will open up the call for Q&A, and Sarah will help us with that process.
So let’s get started by turning the call over to our CEO, Jon Kessler.
Jon Kessler
Thank you, Richard. Hello, everyone, and thanks for joining us this afternoon. Today, we are announcing strong results for HealthEquity’s fiscal 2023 third quarter. We are raising our full-year outlook for fiscal 2023 and we are providing an early view [that’s preview] to fiscal 2024. I’ll discuss Q3 operating results. Tyson will review the financial results in detail and provide updated guidance. And Steve is here for Q&A. Let’s start with reviewing the five key metrics that drive our business.
Revenue of $216.1 million in the quarter grew 20% versus the third quarter of last year. Thanks to strong growth in HSA members, their assets and improving custodial yields and the inclusion of the acquired further business. Adjusted EBITDA of $73.4 million also grew 20% versus the third quarter of last year, reflecting revenue growth. Total accounts grew to $14.5 million, up 9% compared to last Q3. HSA members reached $7.7 million, up 23% year-over-year, and HealthEquity HSA members grew their assets to $20.2 billion at quarters end, which was also up 23% from a year-ago.
Team Purple continued its strong FY2023 sales effort, adding 170,000 HSAs, up 13% from 151,000 new HSAs opened in Q3 last year. Organic account growth of 12% over the last year as well ahead of the market’s 9% growth reported in Devenir’s mid-year assessment, which was published in September. As we complete open enrollment, we are particularly excited about what appears to be a strong showing from our network partners and conversion of enterprise cross-sell opportunities, as well as increasing usage by our enterprise clients of our MaxEnroll engagement prop.
Continued volatile market conditions contributed to a sequential decline in HSA invested assets of $333 million in a quarter, even while HSA investing members grew 23% year-over-year and continued to fund their HSA investments. The average HSA balance of our members increased slightly year-over-year.
Custodial revenue growth was very strong with higher than expected custodial yields in the quarter, driven by robust adoption of HealthEquity’s enhanced rates offering and the actions of Federal Reserve. We continue to build our enhanced rates partnerships, which will allow us to further grow HSA cash balances in that product adding to yields in the future.
Today’s results and the guidance Tyson will detail in a moment, include the softness in CDB administration services that we highlighted last quarter. Year-to-date service fees from CDBs themselves declined in fiscal 2023 versus the same period in fiscal 2022. However, with commuter growth and partially recovering some of the FSA revenue attrition we saw earlier in the year in Q3, we are reporting a sequential and year-over-year increase in service fees. Excluding COBRA accounts, CDB accounts grew 3% and we remain optimistic that our CDB services can continue to grow.
With that, I will turn the call over to Tyson for more details. Tyson?
Tyson Murdock
Thank you, Jon. I’ll 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 increased 20% year-over-year led by robust custodial revenue growth. Service revenue was $108.6 million, up $5.8 million or 6% year-over-year. Q3 service revenue growth included an uptick in commuters returning to work and a small increase in FSA and continued softness in COBRA revenue, as Jon mentioned.
Please note that we made an adjustment in how we calculate COBRA accounts resulting in a $0.2 million sequential reduction in COBRA contribution to total accounts, but with no material impact on revenue or expense. Custodial revenue grew 52% to $74.6 million in the third quarter, benefiting from growth in average HSA cash combined with an uptick in annualized yield on HSA cash, partially offset by a decrease in average HSA investments.
The annualized interest rate yield on HSA cash was 200 basis points during the third quarter of this year, and 183 basis points year-to-date compared to 172 and 176 respectably for last year. This yield is a blended rate for all HSA cash during the quarter and represents a better than expected deal due to rate hikes benefiting the variable rate portion of our HSA cash combined with higher enhanced rate balances in the quarter. HSA assets payable of today’s press release provides additional details. Interchange revenue grew 16% to $32.9 million compared to $28.2 million in the same quarter last year. Year-over-year growth in Q3 benefited from growth in average total accounts with cards and increased spend per account.
Gross profit was $126.9 million compared to $103.3 million in the third quarter of last year. Gross margin was 59% in the third quarter this year versus 57% in the year-ago period, benefiting from increased custodial revenue and reflecting the efforts we discussed last quarter to control service costs and improve margins. Operating expenses were $121.3 million or 56% of revenue, including amortization of acquired intangible assets and merger integration expenses, which together represented 14% of revenue. Operating income was $5.5 million in the third quarter compared to a loss of $0.4 million in the third quarter last year. Net loss for the third quarter was $1.6 million, or a loss of $0.02 per share on a GAAP EPS basis compared to a net loss of $5 million or $0.06 per share in the prior year.
Our non-GAAP net income was $32.4 million for the third quarter this year compared to $28.9 million a year-ago. Non-GAAP net income per share was $0.38 per share compared to $0.35 per share last year. Higher interest rates also increased the rate of interest we pay on the remaining $343 million term loan A with the current effective rate of 6.38%. Adjusted EBITDA for the quarter was $73.4 million, and adjusted EBITDA margin was 34%. For the first nine months of fiscal 2023, revenue was $627.9 million, up 13% compared to the first nine months of last year.
GAAP net loss was $25.9 million or $0.31 per diluted share. Non-GAAP net income was $83.2 million or $0.99 per diluted share, and adjusted EBITDA was $198.7 million, up 7% from the prior year, resulting in 32% adjusted EBITDA margin for the first nine months of the fiscal year.
Turning to the balance sheet. As of October 31, 2022, we have $210 million of cash and cash equivalents with $927 million of debt outstanding net of issuance costs. This includes the $343 million of variable rate debt. There are no outstanding amounts drawn on our $1 billion line of credit.
We are providing the following updates to our guidance for fiscal 2023. We are increasing our revenue estimates for fiscal 2023 to range between $850 million and $860 million. We expect our GAAP net loss to be in a range of $34 million to $27 million. We are increasing non-GAAP net income to be between $106 million and $114 million, reflecting increased interest expense, partially offsetting the benefit of higher operating income, resulting in non-GAAP diluted net income between a $1.26 and $1.35 per share based upon an estimated 84 million shares outstanding for the year.
We are raising our adjusted EBITDA estimate to be between $261 million and $271 million. Today’s guidance includes our most recent estimate of service, custodial and interchange revenue and expenses based on results today. On service revenue, today’s guidance reflects continued solid performance of core HSA offering offsetting the full-year impact of FSA and COBRA service fee headwinds observed year-to-date.
We remain cautious on increased commuter uptake. Based on the strong sales outlook, Jon discussed and continuing labor market tightness, today’s guidance assumes incremental service cost during Q4 comparable to those experienced last year. On custodial revenue, today’s guidance assumes a full-year yield on HSA cash of approximately 190 basis points based upon current conditions and expected HSA cash placements in the fourth quarter.
Our guidance for this year does not assume additional increases or decreases in the overnight Fed funds rate or other changes in macroeconomic policy for the remainder of the fiscal year. Our guidance reflects the continued shift of our HSA members building and moving HSA assets to investments. Nonetheless, with current rates rising, our market-driven formula push the interest rate that we pay our members on their HSA cash balances up 5 basis points for the upcoming fourth quarter this year. We expect increases of a similar magnitude will continue over time under current conditions. In the same vein, today’s guidance reflects additional interest expense for HealthEquity’s variable rate debt for the remainder of fiscal 2023 based on current conditions without factoring in additional overnight Fed funds rate hikes for the remainder of the year.
We assume a projected statutory income tax rate of approximately 25% and a diluted share count of $84 million. We are also providing the following initial guidance for fiscal year 2024. We expect revenue to be between $950 million and $970 million. We expect margin will expand with adjusted EBITDA growing to approximately 33% to 34% of revenue in fiscal 2024. This initial guidance is based on an estimated HSA cash yield of 225 basis points based on our view of interest rate conditions during that period.
Today’s guidance does not include any additional portfolio acquisitions in fiscal 2023 or 2024, and reflects anticipated inflationary impacts on costs, including continued higher interest rates paid HSA members and healthcare usage rates reported in this quarter, and included in our fiscal 2023 guidance.
As we’ve done in recent reporting periods, our full fiscal 2023 guidance includes a 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 intangibles is not excluded. However, a reconciliation of our adjusted EBITDA outlook for the fiscal year ending January 31, 2024 to net income is most directly comparable GAAP measure is not included because our net income outlook for this future period is not available without unreasonable efforts as we are unable to predict the ultimate outcome of certain significant items excluded from this non-GAAP measure, such as depreciation and amortization, stock-based compensation and income tax provision or benefit.
With that, I will turn it over to Jon. Thanks.
Jon Kessler
Part at the end is good. It was good. I’d like to close the formal part of this by thanking our individual contributors both at HealthEquity and from our clients and partners that have to date delivered a Team Purple open enrollment season, are finishing that up and getting ready to deliver an equally impressive onboarding season in January. It’s their work that has set us up for what we expect to be a very busy and productive end of this year and as Tyson has indicated a very healthy next year. And so I thought it was appropriate just to say thank you.
With that, let’s open the call up to questions. Operator?
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Stephanie Davis with SVB Securities. Please go ahead.
Jon Kessler
Hi, Stephanie.
Stephanie Davis
Hey, guys. Thanks so much for taking my questions. Appreciate it. I was a little surprised to see preliminary guidance this soon, one; and two, see the preliminary guidance factors in what feels like a relatively conservative yield assumption. So I was hoping you could tell us a little bit more about the decision process and what weighs into all of that?
Jon Kessler
Tyson, do you want to speak to the reason to do guidance?
Tyson Murdock
Yes. Hey, Stephanie, good to hear from you. We wanted to get guidance out a little bit earlier this year just to give people a view into next year based on the conversations that we’ve had about placements and those type of things. One thing to keep in mind directly to your question on yield is, we’re estimating that based on our current view of what the consensus says about the macro economy. And the other thing, Stephanie, that’s important to keep in mind on that is that we’re going to have a lot less variable cash – HSA cash as well. So there won’t be as much impact from that. It’s kind of been a very different year in fiscal 2023 with the Fed rate movements moving that yield up and then subsequently having us raise guidance based off of that. We’re doing it a little bit different this year with regards to the fact that there’s less of that cash there because we’ve been able to place it due to the demand and then also just considering the way that we’re actually doing guidance, we’re trying to get a wholesale view on the year.
Stephanie Davis
So thinking about the kind of delta and guidance philosophy between FY2024 versus FY2023, is it safe to just assume that you’re not assuming as much potential upside? Or is there anything else to call out an enhanced rate floating, all the other toggles have been so beneficial this year?
Jon Kessler
Well, I mean, if you look at it from a midpoint-to-midpoint perspective, Stephanie, we’re forecasting double-digit topline growth and profitability on an EBITDA basis that’s like twice as fast – with EBITDA growing twice as fast as that give or take. And…
Stephanie Davis
I know it’s like a pump bringing this up and being like it’s not high enough guys. What is that?
Jon Kessler
Right, right. So like – I’m kind of like – we felt like this will be the first time we’ve ever given guidance ahead of the year. The reason that we’re doing that is as Tyson suggested is, one, because we have a great deal of confidence in the year; two, because we have great deal of visibility; and three, to set a baseline. And we’ll have plenty of opportunities to take more bites at this apple and we’ll see how both, obviously, our sales season finishes up. In the past, we’ve, I think, generally underpredicted our sales season which is sort of how we do things, as you know. But we’ll see how our sales season finishes up. We’ll see how things like FSA enrollment finishes up. Obviously, we’ll see what happens in the broader economy. But we thought that set a pretty darn healthy baseline for going into fiscal 2024.
Stephanie Davis
Well said. Thank you, Jon.
Operator
Our next question comes from Anne Samuel with JPMorgan. Please go ahead.
Anne Samuel
Hi, guys. Thanks for taking the question, and thanks for providing the guidance. Really helpful. I was wondering if maybe you could talk about how your selling season is shaping up this year, and just what conversations with your customers are like, just given the current macro environment?
Jon Kessler
Steve, do you want to hit this one?
Stephen Neeleman
Sure. Yes. Look, I mean I was in the field yesterday with a bunch of our sales leaders and one of our partners, and I think there’s some real genuine enthusiasm the way that the year is finishing up. Just as you know, it was still unsettled over the last two or three cycles because of everything that’s going on in the economy.
Now of course, there’s concern about the upcoming recession and whether that may impact themselves. But I can tell you that both from our direct sales to clients and ourselves through our partners, our [health and partners and other partners]. And then even we mentioned a little bit in the prepared remarks about this MaxEnroll process. I think we’re really kind of excited with the way the year is trading out. And obviously, we want all the numbers. We say this every year at this time until – we’ve actually were close to January and last January, was such a bumper crop year that we’ve got a lot of work to do to even those numbers, but we’re feeling pretty good about the year.
Anne Samuel
That’s great to hear. Thanks. And then I was hoping maybe just one on the enhanced rate products. How should we be thinking about that yield relative to your overall yield? And how should we be thinking about what the contribution was to the yield that you guided? I think last year, 10% penetration gave you about 10 basis point yield?
Jon Kessler
Yes. We’ve previously said that our goal was to get to about 20% penetration by the end of the year and that we felt like we were likely to exceed that. And I still think that’s true. So it did make a contribution. And as we’ve talked about before, the enhanced rate product produces gross yield that give or take, and we’ve talked about this before, maybe a 75-ish basis point premium to what we’re seeing from our deposit products. And so I think you can kind of do a little bit of math from there. The way we look at it, though, one of the biggest – well, two thoughts. One is, we have a long way to go with this. This is going to be a benefit to – this is going to be a tailwind for us for many years to come.
As Tyson commented, we’ve added incremental partners this period to the enhanced rates product, sort of the equivalent of adding banks in the early days on the deposit side. It makes all of our placements more competitive. And that’s just a good thing, both in terms of aggregate rates, but I think also in terms of stability, as you see all this kind of variability on rates back and forth. So it helped us a little bit going into fiscal 2024, it helped us a little bit in fiscal 2023. I mean you’ll recall at the start of the year, we were – what were we guiding to at the start of the year, 150 basis points and 55 basis points. I can’t remember now.
Richard Putnam
165.
Jon Kessler
165. Thank you. That’s Richard. Sir Richard. And so it helped us along with the Fed’s actions this year. And again, whatever the Fed does, this will continue to be a nice tailwind for us for a long time to come.
Anne Samuel
That’s really helpful color. Thank you.
Jon Kessler
Thank you.
Stephen Neeleman
Thanks, Anne.
Operator
Our next question comes from Greg Peters with Raymond James. Please go head.
Jon Kessler
Mr. Peters.
Gregory Peters
Good afternoon, Team Purple and Sir Richard. I guess the first question I wanted to ask is about just the HSA total assets that you reported as of October 31, 2022. In the press release, you commented on the growth on a year-over-year basis. But if I look at the number relative to where it was at January 31, 2022, it’s not growing as fast. So maybe you can speak to the cadence of total HSA asset growth?
Jon Kessler
Yes. The primary factor that has been driving the deceleration in asset growth during the – on a sequential basis has really been – it’s something we commented on in the text, and that’s a decline in asset values over the period. So I think we actually tried to quantify that a little bit in the text. And what, I guess, I would say is remarkable and helpful is that during that period, that we haven’t seen fundamental changes in consumer contribution behavior or the like. I do think there’s been a little bit of a pullback that’s just based on exactly what you would expect when you have high inflation, you tend to have those savings rates, that kind of thing. But that is very modest. And the biggest effect that we’ve seen there is market net asset value. So those have a way of, as you well know, kind of reverting to a mean. So we’re just going to keep trying to do our thing. And I think over time, that will work itself out just fine.
Gregory Peters
Okay. And then, I guess, my follow-up question from a macro perspective. Last time rates started to move up which was some time ago. We started to see some changes in competitive behavior around their attitudes of service revenue versus custodial revenue versus interchange. And I thought I was just wondering if there’s been any noticeable change in the competitive landscape favoring custodial versus service considering the movement in rates, et cetera?
Jon Kessler
I’d like to believe, Greg, that people have gotten a lot smarter about this, recognizing that rates go up and rates go down. What I do think is the case that is that if you look at this, let’s say, three – well certainly at the start of the pandemic, right, as you’ll recall, I remember you asking a question about negative rates. Obviously, it’s not just that we’re far from that. It’s that I think it’s fair to say that the consensus of what a normalized rate environment looks like actually is probably not – it’s clearly, it ain’t zero, it ain’t one, it ain’t two. And so I think people kind of understand that a little better. And so we’re not seeing quite of the same sort of, I’m going to call it, where some people were like, “Oh, this is going to last forever. Let’s do X, Y or Z on five-year agreements. But it’s a piece of the puzzle in terms of aggregate service fees.
I also point out, too, that, as you know, but others might not, our service fee revenue today comes primarily from our CDB products. Our HSA service revenue on a year-over-year basis is growing at more or less, as I think I said in the commentary, it’s more or less the rate of account growth. CDB is where we’ve been more challenged as we discussed last quarter and the quarter before, which is not fundamentally about competition, it’s fundamentally about some of our challenges as we finished up the CDB side of the WageWorks migration.
But look, I’ve always said there’s some level of for lack of a better term elasticity between service fees and rates. But I do think people are a little bit, let’s say, I think, a little bit smarter about the fact that they have to look at normalized rates over an extended period of time as opposed to what yesterday’s Fed funds rate was.
Gregory Peters
Okay. Got it. Thanks for the answers.
Jon Kessler
Thank you.
Operator
Our next question comes from Glen Santangelo with Jefferies. Please go ahead.
Jon Kessler
Hi, Glen.
Glen Santangelo
Hey, how are you guys doing? Thanks for taking my question. Hey, Jeff, Tyson, I just wanted to unpack this 2024 guidance in a little bit more detail. If you look at sort of the third quarter results, you put up a 34% gross margin and your initial fiscal 2024 guidance is calling for an EBITDA margin of 33% to 34%. So it looks like it takes a little bit of a step back, which is a little bit surprising just given the growth in the custodial revenues and given the gross margins around that custodial business. So Tyson, I was wondering if you could unpack the margins a little bit and give us a sense for what you’re assuming in 2024 because I don’t know if it’s pricing, I don’t know if it’s a mix of business lines that maybe driving that margin one way or another? Thanks.
Tyson Murdock
Yes. I mean the first thing to really keep in mind, I mean one thing just still look at last year Q4 and just the seasonality of our business. And so when you look at – if you back into the margin for Q4 of last year, essentially 25% of EBITDA. Now we’re trending a little better because we’ve got the custodial revenue element in there, but this is really about the service costs coming into play. And I mentioned in the script that they’d be pretty much equivalent in the Q4 time period to what they were last year. As far as that increase that happens between Q3 and Q4.
So blending the quarters together, Q3 is always going to be a strong EBITDA margin quarter versus Q4 and say, particularly even Q1 of this year, we talked about some of the service costs that we had flown to that plan. And so that’s why – so when you then blend that together for that guidance for next year and you think about a 33% to 34%, it’s essentially picking up all those quarters, if you will, but still having that same seasonality trending across the respective quarters. Hopefully, that helps.
Let me just say one of the things just on the implied guide, I just wanted to make – you had said gross margin on the EBITDA margin side, it is like what 33%.
Stephen Neeleman
Yes. It’s in our guide, but now it’s like 31%, 32% for this year for FY2024. So you are looking like a 200 basis point expansion.
Tyson Murdock
Exactly. Yes. I just wanted to make sure that…
Jon Kessler
I mean, that’s the core point, we’re forecasting in this thing, give or take, depending on what midpoint whatever, somewhere between 200 and 300-point expansion in EBITDA margins. And that doesn’t seem shabby. It’s obviously the case that we – our view is that we’re going to look at how we do this fourth quarter, and that will have some impact on our – on any guidance revisions as well ultimately unit sales and all that kind of stuff. But similar to Stephanie’s question, it seems like a good start.
Glen Santangelo
Yes. I think I get it. I just make sure that I wasn’t missing anything. And Jon, just one other wanted to ask you was, for better or worse, many investors are just looking at the stock as a rate trade. I was wondering if you could maybe take a step back and give us some thoughts around these CDB businesses. Clearly, maybe they’ve been a little bit slower to recover than what you maybe would have thought. I’m just trying to get your sense for how we think about that on a go-forward basis and how those CDB businesses should impact the growth algorithm in 2024 and beyond?
Jon Kessler
Yes. Let me first say, I think that while I understand why investors may do that, particularly if they’re modeling out many years, whatever rate you apply times corpus of zero, equal zero. And mostly what this company has done over the course of time, is it has managed to grow the underlying asset base that it manages of what are ultimately a large number of very small accounts and then in terms of the cash. And so I do think that the sort of underlying – the first underlying point before you get to CDBs and all of that, is the underlying growth in what you might think of as units. In this case, units are accounts, HSAs and dollars. And those as we reported today, I think, over time, consistently grown pretty well, both just on their own terms and then relative to market.
Specific to the CDB business, we said at the beginning – first of all, we said at the beginning of the year that we were going to see softness in this business. And we talked about basically trying to grow the HSA component of the business to get to a place where by the end of the year, it was through 60% of total revenue. We’re basically there through – into this third quarter, and that growth will continue into the fourth.
So the first point I want to make on this one is, is that we are very focused on growing the HSA business, which is our core and where we’re a market leader. What I think we are on CDB is – and I tried to allude to this in the commentary is – we wanted to get this to a place where it was sort of stable where we weren’t talking about this legislative thing or that transition thing or that platform thing causing a $5 million surprise here or there. And I think that that’s the way I would look at the performance thus far.
And the next step in this, in my mind, will be to see what actually we get out of consumer enrollment in the CDB products, particularly the FSA, which is the biggest component of all of that, right, in the current open enrollment season. The assumption underlying our current look at 2024 is I’m going to say – I don’t want to say conservative, that’s not the right word, but it reflects what we’ve seen to date and – but we’ll see what we actually get.
And we’ll be able to talk about it at JPM in a few weeks and then ultimately refine our guidance accordingly. But I think that’s the next step is to see enrollment growth at the consumer level. And we’ve done some things this year that really should help us there around how we engage with consumers that kind of maybe their egg got scrambled a little bit on this one during the pandemic, but – and we’re hoping to see real benefits from that, but I want to actually see them first before I project them.
Glen Santangelo
Okay. Thanks for all the details.
Jon Kessler
Thank you.
Operator
Our next question comes from Scott Schoenhaus with KeyBanc. Please go ahead.
Scott Schoenhaus
Hi, Jon and team. Apologies, I’m fighting cold here. So apologies for the nasal voice.
Jon Kessler
To say it’s a cold, but you never know. Like that’s the problem. Everyone says it’s a cold or allergy or something. So you’re on the phone, so I guess it’s okay.
Scott Schoenhaus
I tested negative so far. We’ll see what it develops into.
Jon Kessler
We want to see it. I’m kidding.
Tyson Murdock
By the way, [indiscernible] at this point.
Jon Kessler
Yes, you want a full battery of tests.
Tyson Murdock
All right. Go ahead.
Scott Schoenhaus
And I did pick this up from my daughter at daycare so it might be RSV. But anyway, so I’m not going to ask you a question about rate. I just wanted to talk about the interchange revenue. It came down 12% sequentially. I think that’s more than normal trends. What’s driving that? What are you seeing so far in November and December? I’m just trying to kind of extrapolate the spending behavior from customers on the healthcare system. Obviously, it’s a broader talking point in healthcare, weaker or better-than-expected volumes heading into this 4Q – calendar 4Q. So any color would be appreciated.
Jon Kessler
Yes. It’s – we’re up – let me just say we’re up, I want to say, 16% or 17%, something like that year-on-year. Thank you. And so that’s good. But I think typically, Q3 is seasonally our softest quarter for interchange revenue. And that was true here. We saw a little – if you look at the different account types, there was a little more softness on the FSA side than in the HSA world.
But your – this is a tough one to predict, and it does bounce around just a little bit to the tune of a couple of hundred thousand dollars here and we’re there in either direction in a given month. So that’s kind of my thought about it. I mean ultimately, what’s going to drive interchange over the long-term is having more accounts and having people comfortable contributing to those accounts – and that’s what ultimately they’re spending, if that makes any sense. But Tyson, anything to really add to that.
Tyson Murdock
I don’t really have anything to add other than to say I think you’re doing some math on that. I don’t think it exceeded my expectations by any means. And I think it was maybe a little lighter, but I think it was well within the window of how I think about forecasting and thinks like that, Scott. So I didn’t see anything particularly other than what Jon mentioned there. I mean the commuter stuff continue to increase a little bit. So that’s always a positive sign that, that continues to kind of be a tailwind. That’s probably the last comment I’d make on it.
Scott Schoenhaus
Okay. Great. Nothing to call up. Just my last follow-up, I wanted to go into kind of the self-help story of your margins. Is the further acquisition now complete as we enter the one-year anniversary? Are there any costs that are taking the guidance at this point? And then secondly, are you still consolidating more real estate? Thanks.
Tyson Murdock
Yes. On the further one, just to go back to other comments we’ve made, we still have – the bulk of the synergies are out a couple of years. So when we think about 2024 and 2025 and getting our arms around what they did with technology and getting that migrated over onto our platforms and some of those things landed where we really get the synergies out of it. Those things remain to be seen.
And you can see us kind of spending our way through the $55 million of M&A costs that we said would be there as well as we kind of put that in order. But there will be more synergy out in the future relative to that business. That kind of was different, it usually might see more upfront. This was more of a tail because it’s on the technological side.
Jon Kessler
And then second question was, I think was about the real estate we…
Scott Schoenhaus
When I was visiting you guys out first in December, I saw a lot of consolidation. I was wondering if there was more plans for condensing office space.
Tyson Murdock
I mean I think we’re in a good spot with what we have. We’ve got a beautiful building here in Draper and some space down in Texas and largely gotten out of most of the other of it, the stuff you see being back to EBITDA is really the stuff that relates to WageWorks, right? It’s not everything. And so you’ll see our – you can see also in our financials and you look through there that really fixed asset costs, capitalized are coming down. And we’re going to run the business in a much more vertical way and less capital is always better.
Jon Kessler
But if you’re interested, we do have some if you like to come out and check it out again, we can do a full tour. Actually, if anyone listening to this call, so there is some opportunity there.
Scott Schoenhaus
Appreciate that Jon.
Jon Kessler
We will see it.
Tyson Murdock
Thanks, Scott.
Operator
Our next question comes from Stan Berenshteyn with Wells Fargo. Please go ahead.
Stanislav Berenshteyn
Hi. Thanks for taking my questions. Appreciate the preliminary guidance you provided. Can you perhaps share with us where are you in the process of actually rolling over into new custodial terms? And when do you expect to be sufficiently completed with that process? And then I have a follow-up.
Tyson Murdock
Yes. I mean it’s a good question. When we do this throughout Q4, right, but the majority of the assets come in and that into December, January time frame when they’re actually placed. So when you think about them going into [indiscernible] for example, our enhanced rate program and actually starting to drive revenue off of that, it’s in the January timeframe that, that occurs. And then, of course, we’re signing FDIC type contracts over the course of those – the last part of December, first part of January timeframe. So we kind of get through that by the end of January when we’ve got all those assets placed and generating revenue.
Stanislav Berenshteyn
Got it. And then for my follow-up, so short-term rates are at 15-year highs, debatable whether we’ve seen peak rates at this point. But I’m sure Jon has opinions on that. But I’m just curious, are you inclined at all to increase the duration of your custodial deposits given where rates are versus prior 10, 15 years of history?
Jon Kessler
No.
Tyson Murdock
Stick to the plan.
Jon Kessler
Yes. I mean, I don’t – at this point, I don’t think duration is – I mean you’ve got an inverted curve. I don’t think duration is our friend. But even if it were the normal version, we’re basically of the view that you don’t pay us to gamble on that and shareholders don’t pay us to gamble on that. We’re trying to stay consistent, and there’s enough other moving pieces out there.
Stanislav Berenshteyn
Got it. Helpful. Thank you so much.
Jon Kessler
Thanks, Stan.
Operator
Our next question comes from Cindy Motz with Goldman Sachs. Please go ahead.
Cynthia Motz
Hi. Thanks for taking my questions and nice quarter. Thank you for the preliminary guidance for 2024. Did just want to ask a little bit more about 2024 not to beat a dead horse. But is it fair to say that basically, what you’re doing is you’re anticipating passing through maybe higher rates or some of the rates, and you want to see how it goes in terms of balancing the growth because, obviously, you want to retained customers and members and then balance it, but maybe has it gotten a little more competitive? I mean, is it fair to characterize it like that’s what you’re doing. And like when you say you’re just sort of going to look and see how it goes? Thanks.
Jon Kessler
Yes. It might be worth noting here with regard specifically to the custodial expense that what we think of as our crediting rates, I mean those are mathematically determined and meaning they’re based on what our competitors do there. We have not seen a lot of what one might call deposit beta nor did we in prior upswings. But there’s a little, and we’ve tried to reflect that in our guidance as Tyson commented, both for the remainder of 2023 and 2024. I think more broadly, I mean, what we’ve tried to do is basically reflect our view of the growth that is resulting from the sales cycle that we’re now finishing and understanding things like we’re trying to be thoughtful about what the needs of our teammates are going to be as we go into wage cycle and all that. And tried to take what I think is a various overview of what fiscal 2024 might look like and use that as a baseline. That seems like a useful again, useful thing to do.
Cynthia Motz
And then just in terms of the overall margin, so that’s what we’re seeing. There’s nothing else going on in terms of other expenses and things like that. It’s just basically the mix. I mean, obviously, it’s very strong margin improvement that I guess you – I mean, I know you’re not going to give us 2025 guidance, but I would expect that, that would continue as the mix shifts into 2025, maybe similar improvement.
Jon Kessler
I think it’s – I mean our general view has been that as we see mix shift in a number of different ways that we have an opportunity to expand margin. So I think your conclusion would be consistent with that view.
Tyson Murdock
The only thing I would add to that, too, just to make a point of it is that the contracts that will replace fiscal 2025 or not this January, but next were the contracts that were placed in zero interest rate environment, they were negotiated in the zero interest rate environment. So if rate stays steady, they stay at the averages. It will be an improvement over those contractual placements in that period. So there should be acceleration there. We’ve talked about that before. And then the other thing, Cindy, that I’ll just make a point or two since you brought it up, just on the custodial cost side.
And it is interesting because we’ve been in the zero interest rate environment for a long time. And so we saw this move that I pointed out in the script that increased the cost by 5 basis points. That undoubtedly will happen again based on that mathematical calculation where we use inputs from what our competitors are doing, and it’s right in the small print of the member agreement. And we’ll increase that rate as our competitors increase the rate. So those should be being built into models and so forth based on what we think will happen there.
Cynthia Motz
Great. Thank you very much.
Tyson Murdock
Thanks, Cindy.
Operator
Our next question comes from George Hill with Deutsche Bank. Please go ahead.
Jon Kessler
Hi, George.
George Hill
Good evening, guys. I hope you can hear me okay and I hope I’m not about to embarrass myself as I try to do math from the back of a cab. But my question is also on the fiscal 2024 guide and the rate environment. And if I’m doing the math right, your annualized custodial yield this quarter was about 2.3%. And you guys are guiding to 2.25% for fiscal 2024. So I guess, can you either walk me through the expectation of rate cadence? Or should I think of that as conservatism with respect to rates? And I have a quick follow-up.
Tyson Murdock
All right. I’ll give you the correct numbers, I’m watching metric because I’d be looking at the piece of paper. So for Q3, it was 200 basis points even for Q3 that we just reported. And then for the annualized number, Richard, was it…
Richard Putnam
190 annual, which implies a little better than like 210 for Q4.
Tyson Murdock
190 million was our guidance for the full period, right? And the full through nine months ended, it was 183 or something like that, right? So those are the yields off of this year. So that math is a little – I just set that the level set on the math. And then, of course, the guidance has been 225 for the next annualized period.
Richard Putnam
I think George was including the tip [indiscernible] plus 15%…
George Hill
Like I said, guys, math from the back of the cab. I’m sorry about that. And then Jon, I’ll give you a two-part follow-up, which is, number one, one of your larger competitors in the space seems to be targeting healthcare financial services as a growing market opportunity, while, of course, that would kind of validate HealthEquity’s market opportunity, it seems like they’re trying to jam more into their card and what it can do. So I’d love for you to talk a little bit about the competitive environment as it relates to services facing what I’d call the commercial market? And then, Jon, my joking question was going to be on the real estate that you guys are getting rid of, how close are you guys to good scale?
Jon Kessler
I actually didn’t hear that side [indiscernible] to go skiing. Yes. Well, I mean, again, we’ve got very attractive real estate. And I mean, we could [indiscernible] this thing if you needed to. We can…
Richard Putnam
You can see this now. We’re going to put a tram from the parking lot – you were talking about that earlier.
Jon Kessler
Tram, like for you, we would do that for you George. But it’s a tenant improvement is what it is. But on your first question – what was that first question.
George Hill
Competitive environment.
Jon Kessler
I think that – look, my basic view is that there’s opportunity there. There’s opportunity with regard to how we all think about like where we’re ultimately headed and we don’t do product announcements and that kind of – that’s not how we do it. But ultimately, I think you’re going to want to think about less about the card as a physical piece of plastic and more as something that’s residing in the digital wallets we’re all carrying around.
And what’s nice about that is it does open up some opportunities. That having been said, right, what we’re not going to do is our – I do see some of our competitors getting all hot and hungry for the idea of issuing what amounts to high interest revolving credit, and that does not interest us at all. In other words, I’m not – there is place for that. But I think what we want to do is get to a place where consumers can use these products, so they’re not putting these things on their consumer credit marks. And rather than provide more or less the same thing with different use plastics.
So I guess my basic view is there is opportunity there and the fact that others are talking about it, is somewhat validative of that, and that’s where – if you look at what we’re looking at in terms of sort of growth revenue streams, I’m sure we’ll have more to say about that as time goes on.
George Hill
Thank you, guys.
Jon Kessler
Thank you.
Operator
The next question comes from Mark Marcon with Baird. Please go ahead.
Mark Marcon
Hey. Good afternoon, Team Purple. There’s lots of discussion among companies about basically trying to reduce expenses, increase margins. To what extent does that end up tilting a little bit of the preference from a healthcare benefits mix over to HSAs? Are you seeing any of that this quarter? And then I’ve got a follow-up.
Jon Kessler
Steve?
Stephen Neeleman
Yes. Thanks, Mark. I think there’s always been this probably unappreciated benefit for these types of accounts, even over a 401(k) in that the money that people put in out of their own paycheck into a health savings account, reduces the employer’s cost, not for every one of their employees, but for a big chunk up in the majority of their employees by roughly 8%. So if I put $100 in my HSA, my employer saves $8 on payroll taxes and I save $8 on payroll taxes, plus I saved my fed taxes and my state taxes and I think all the two states, California and New Jersey.
Jon Kessler
The one where I live. That’s the one.
Stephen Neeleman
Jon doesn’t get his state tax deduction. But anyway, so you get to save on taxes, but then we still believe that if you look at plans that have what I would consider to be kind of mass adoption, these health savings account plans are. They just tend to have better trends than plans that are heavier benefited plans that are richer benefit. And so if you can save 2%, 3% on trend, over the course of your entire employee base plus some cash on taxes, it does make sense for you to do that.
And so that’s why in past recessions, even though you always hate the thought of folks laying off employees and then that would naturally be our growth or it could impact our growth a little bit. We have seen employers be more aggressive going towards successive plans and promoting them. And I think what’s different this year – in fact, in the last couple of years that we’ve had in the previous 18 years at HealthEquity was we didn’t really have the tools to say to employer, okay, we do this thing, let’s go after it. And then to use some of these products, we talk about MaxEnroll and our HSA optimizer and just our overall digital marketing effort. So I do think that that’s a way for employers that are feeling like, look, I still need to offer our people great benefits, but I still – but I need to watch the dollar a little bit more than I did maybe last year to go towards sets of plans.
Mark Marcon
Did that help contribute to the $170,000 that you ended up adding?
Stephen Neeleman
Well, I think it was a little earlier. I mean the recession was not really a recession yet, I guess. But I mean there’s no question that employers are trying to be thoughtful about how they’re putting people in benefits. But I think overall, the biggest driver for those $170,000 is employers are figuring out, this is actually the richest benefit in kind of an ironic way. I mean if you can do a well-designed – we’ve got this Pfizer case study that’s out there now kind of burden about it. And when they thought about this thing for 18 years before they did it, finally, they did it and they said, we’re not doing this as a takeaway, we’re doing it because you can leverage a tax code and you can leverage some other features of this to actually make it the richest benefit. And so I think that’s one or Jon, if you’d agree, but I think more and more recent growth is not, I want to save some bucks. I want to give the best benefit I possibly can…
Mark Marcon
That’s great.
Jon Kessler
I just think what is true is that we win when our clients on the benefit side need to be creative whether it’s creative to retain people or creative to manage costs or whatever, like creativity is our friend. And this is a cycle, and I expect next cycle will be such where people [indiscernible] created. And what are they really trying to do ultimately, they’re trying to deliver the most value to their teammates. And that’s what people go into benefits to do. They want to deliver real value. They don’t just want to cut off. And to Steve’s point, these are ways to do it, whether it’s promoting stuff that already exists or fiddling around with it, there’s real value here. And that’s what people are looking to do.
Mark Marcon
Great. And what does your guidance imply in terms of new adds for the fourth quarter?
Jon Kessler
I don’t think we don’t literally give sales guidance, but I guess what I would say is as Tyson commented earlier, if you look at last year, we ended up selling in the full-year, I want to say, a little over 900,000 accounts. And what – if you look at each quarter this year, while the new adds have slowed down, as you might expect, as the labor market slowed down a little bit, they’ve been on a really good pace.
So it’s probably similar to the message I would have given you on this topic at this point last year, which is – do I think that we’re going to blow through a million accounts. No, I don’t. There’s just not enough accounts out there, but we should have a very healthy year sort of kind of certainly as healthy as last year.
Mark Marcon
Perfect. Thank you.
Jon Kessler
Thanks, Mark.
Operator
Our next question comes from Allen Lutz with Bank of America. Please go ahead.
Allen Lutz
Hey, everyone. Thanks for taking the questions. Tyson, I guess on the OpEx side, technology and development as a percent of revenue has kind of steadily ramped. Since fiscal 2015, I think it was around 12% of revenue then. And then even pre-COVID, it was about 15%, and now it’s 21%. I guess just a level set, what exactly are the increases in tech and development being spent on? And then, I guess, is there any chance – or I guess what’s the timing around when we can see some operating leverage from that part of the business? Thanks.
Tyson Murdock
Yes. That’s a good question. Thanks for asking it. You were exactly right on the numbers going up like that, how to deal with mainly the acquisitions, right. So anything about wage and then further as well, those play a big part of that, the amortization of the capitalized development that’s in there, the security build-out that we’ve done. We have built a very good security team over the course of my tenure here and spent quite a few dollars, putting that in place. And I think it’s got a selling tool as anything. So that’s in there.
So I don’t think there’s no chance that it goes back to where it was before. And I don’t think that would be the right thing to do for the business. I do think it’s sort of leveling off. The other thing I would say in there, too, is that a lot of it has to do with stock comp coming through in the talent grab that we need to make in that particular area. And so you see that playing into that as well.
Of course, that’s getting back down to the EBITDA margin side. So you don’t see the impact of it there, but a lot of that increase will be in that area. And then really, when you think about other things that are in there, there’s not any large investment in there necessarily. There’s just the merit and the associated costs of the folks that are in there and then how much we end up capitalizing relative to what we’re building. I don’t know, Jon, anything else you want to add to this.
Jon Kessler
I mean, the only other – look, I think big picture, I mean, it’s kind of gotten about as high as it’s going to get is the way I might put it, at low 20s percent of revenue. It’s kind of funny. I mean, when we were at 2015 as I recall, one of – Allen, one of your predecessors was like, it doesn’t sound like enough for a growth company. And the way I kind of look at it is I do think when you sort of go apples-to-apples, we have increased spend in this area and the sources of increased spend, I think, are ultimately refold versus – I’m sorry, it’s security, as Tyson mentioned. I think the second is the fact that we – is the fact that we are actually investing more to innovate around the business, and you’ve seen that and what the business has done over the course of time in any number of areas, and we’ll continue to do. We talked about some earlier in this call.
And then the last thing that is worth mentioning is that in practice in the near-term anyway, the conversion to cloud on the IT side, as you’re doing it, it does have a – it does hurt you a little bit. Now over time, that works itself out and that should be a tailwind, but I think that plus kind of having kind of now getting through the amortization of acquisition-related technology spend and all that. I think you’re going to see this number start to come down as a percentage of total revenue over time without like [indiscernible] efforts.
Allen Lutz
Okay. That’s helpful. Thanks, Jon. And then there was a $9 million sequential benefit in custodial revenue. I think we talked about this last quarter. There’s a couple of different buckets that are driving that enhanced yields. And then the SOFR, LIBOR increases. And then you’re also guiding for a 5% quarter-over-quarter increase in yield from 2% to 2.10%, I believe, or 2.1%. Obviously, some of that’s going to be from the repricing. But I guess as we think about the benefit that you saw over the course of fiscal 2023, a lot of cash being deployed. How should we think about the step-up quarter-over-quarter in fiscal 2024? Is that going to be more of a kind of flattish year where the yield you get exiting the fiscal fourth quarter this year is going to be more or less the yield that you’re going to have over the course of the year. Is there anything else we should be thinking about modeling for that? Thanks.
Tyson Murdock
Well, just to make sure the guide for the year is 190 basis points. So I just wanted to make sure that’s clear. I know we put a lot of yield numbers out there. So we’re just all kind of getting level set on those. And I think when you think about Q4, right, it’s a partial quarter, and you have those placements and you have the roll off of the latter coming through there, Allen. So you do get a little bit of upside relative to those new placements on the old contracts that were there because we’re going to place at higher rates, and we’re going to place it higher advanced rates as well. So it would – you’ll have some increase there. But again, it’s built into the guide that I gave already on that one.
Jon Kessler
I think what Allen was asking is really about with the regard to fiscal 2023, we had this – relative to where we started the year, we had this pretty big step up quarter-over-quarter in yield – yield on HSA cash. And I think Allen was sort of asking about how to think about that [220 to 225].
Tyson Murdock
I see. Yes. I mean the one thing that won’t be there as well, I don’t know if it will be there or not, but we try to take this into account is the fact that we’ll have less variable cash. And I don’t – whether the Fed continues to raise rates, it will be on less variable HSA cash that’s in there. So that was one of the things that you saw continually kind of pushing that rate quarter-on-quarter. So that would – that’s your question, Allen, it would temper that because it wouldn’t be as big a base number on that Fed yield improvement, if that were to occur.
Jon Kessler
But it’s probably safe to say without stepping into your territory, Tyson, that there is still some quarterization just less dramatic than this year, and that’s going to be reflected in the fact that our view is that over time, these under any mainstream economic scenario, these yields are going to continue to go up as we’re still – we’re going to be replacing these contracts during – that came in during the pandemic and all that kind of stuff. So there is going to be some level of tilt from first quarter to fourth quarter. This won’t be as dramatic as it was this year.
Tyson Murdock
On that variable side, yes.
Jon Kessler
Thanks, Allen.
Allen Lutz
Got it. Thank you.
Operator
Our next question comes from Sandy Draper with Guggenheim. Please go ahead.
Jon Kessler
Hi, Sandy.
Alexander Draper
Hi. How are you? Not a lot left to ask here, but maybe just a balance sheet question. On the other side of the interest rate environment, you mentioned Tyson variable rate debt. Could we be thinking about, it looks like you’re on track to do, I don’t know, say, round numbers, $100 million of free cash flow this year, that would likely grow next year. Is the primary focus going to be on paying down the debt? And how should we be thinking about the cash – that free cash flow and how to bring that debt down? Thanks.
Tyson Murdock
Yes. I mean we’re going to generate a lot of cash flow over the next couple of years, right? So when you think about how that works, it is going to be one of the top items that I’ll be thinking about to pay down that debt relative to, obviously, portfolio acquisition opportunities as they come to market. But again, those maybe a little slower just given the negotiations that occur over a terminal value and things like that, Sandy.
So I got to say those two things are top of mind. I’d love to make some pay down on that TLA so we can kind of get rid of that headwind. So it’s there and not cash balance is starting to raise to a place where we may make that on it from a perspective, just get a little bit in the [indiscernible] from a terms perspective, we get to deduct about $350 million that kind of caps out there of cash to do the turns on our debt, if that makes sense. It’s in our Q, if it doesn’t. So I won’t get too close to that before we start making a pay down or an acquisition.
Alexander Draper
Got it. Thanks so much. That’s my question.
Jon Kessler
Thanks, Sandy.
Operator
Our next question comes from Sean Dodge with RBC Capital Markets. Please go ahead.
Jon Kessler
Hey, Sean.
Thomas Kelliher
Hey. This is Thomas Kelliher on for Sean. Thanks taking the question. So first one, I know there’s nothing factored into fiscal 2024 guidance, and you just touched on it a little bit. But as you all think about HSA account growth over the next year or two, do you expect M&A could still be a meaningful driver? Or are most of the bigger near-term opportunities for consolidation kind of off the table at this point?
Jon Kessler
No. I think that M&A still has a role to play, and we continue to have very active discussions. Obviously, this is – as we talked about earlier in the year, this is an environment where we want to be disciplined about what we do, and it can be harder for a buyer and seller to come to an agreement. But I think the counter way to that is that sellers can look at where they stand on the league tables and understand apropos of the investment discussion, a few questions ago, whether it’s CapEx or OpEx, they also understand what they’re putting in the business and versus what we are and what other leading players are. And so there’s that to it, too.
And I think – so I guess my basic view is if I had to guess about our use of cash, I would guess that we’d be more likely to be utilizing cash on acquisition opportunities that have high returns for you all and the shareholders. And certainly, if we can, that’s what we want.
Thomas Kelliher
All right. That’s helpful. Thanks. And then a question on the investment accounts. Have you seen any changes in like adoption or interest there, given you’ve got other options like the enhanced field product, I guess, maybe versus your internal expectations? Or we’re thinking about it in a different way. Are you making any more of an effort around education on the merits of one versus the other?
Jon Kessler
We don’t – we’re very careful not to give guidance to our members or advice to our members with regard to, should I be in investments, should I be in cash and that kind of thing. So we do give advice with regard to – through our register best advisor with regard to if you’re in investments, what you should be in. And generally, we are – we will do a lot in terms of education to help people understand the long-term value of being in investments.
I guess my view is that if I look at HSA behavior relative to the behavior of other types of investment accounts that are out there during this year’s period of where we’ve had – there hasn’t really been a great place to hide in terms of your stocking broadly speaking, equity is fixed income, et cetera. My view is that our members have held up remarkably well.
Ultimately, we’re looking at – first of all, in terms of the aggregates, I mean, we’re looking at 23% asset growth. If you look at average account balance, average account balance at HealthEquity has actually grown by a little bit on a year-over-year basis, notwithstanding the fact that both that within our industry more broadly, certainly, that has not been the case for Devenir. And then if you look at, again, much more broadly at freighters or pay balances. I think it’s fair to say that those folks would be very happy with their – with flat year-over-year or slightly up year-over-year account balances. So I’m pretty pleased with the predictability of behavior that we’ve seen around the products.
Tyson Murdock
Thanks, Thomas.
Thomas Kelliher
All right. Thanks.
Operator
Our next question comes from David Larsen with BTIG. Please go ahead.
Jon Kessler
Hi, David.
David Larsen
Hey. How are you? Can you please talk about health card revenue and also commuter revenue? How is that trending this quarter relative to expectations and what’s baked in the guidance? And I think sort of the peak headwind year, there was like a – there is about a $30 million headwind for those two businesses. Just any color around how that’s trending relative to your expectations? Thanks a lot.
Tyson Murdock
I mean, I think overall, they’re in the range of how we think about forecasting them. They’re definitely not exceeding our expectations in the event, but their stuff is kind of slowly coming back through, and I’m not going to really ever think about getting ahead of that again. I think it kind of is what it is. It’s becoming a very small part of the business when you think about low single-digit contribution even though it is a high margin from a perspective of the product.
And from a card perspective, we’re talking about this a little earlier in the Q&A, probably a little late in Q3. But again, within the range of reasons we’re talking about a few hundred thousand dollars a month for us where it’s just kind of a little bit below expectations. So I don’t know what to make of that. It’s hard to forecast any way because it’s transactional. And so I think it was, again, in the realm of reasonable was in Q4 is interesting because that’s the user to lose a quarter, and so you kind of see what people do and then that’s the heaviest quarter of spend.
And I guess the last thing I’d say is, I think – and Jon has already mentioned this, again more on the FSA side versus the HSA side. The HSA side seems to be very steady – people use that in a much more steady way because it’s a longer-term account. You get the volatility on the FSA side when you kind of get the reactionary things to whether it be legislation or use it release it.
David Larsen
Thanks very much. And then in terms of wage synergies, I think the guidance had called for $80 million in annual synergies. Where are you at that $80 million? And how much sort of incremental benefit are you expecting for next year for fiscal 2024?
Tyson Murdock
I mean, we’ve done the work. We hit the number. We reported that $80 million. So as far as like the contribution, it’s in there and it’s full run rate through. So that $80 million is there. What I would say, too, is there’s – when you think about revenue, there’s not a revenue synergy as part of the $80 million. So when you think about the bundled sales approach and the fact that we’re selling HSAs up in the $900,000 range over the last years versus down $700,000 range. There’s a macro element to that. There’s also the strategy change that came from wage.
So that’s a benefit of that along with other things that just to get from scale, whether it be better rates on interchange, whether it be other things that we can get relative the scale, including, I think, the enhanced rate partnerships and having enough cash to really go out and get multiple partners in that area, too. So there’s a lot of synergies that aren’t quantified there.
But as far as the $80 million, we’re done with that. And we’re also done with the spend as well relative to the wage deal and you see the further spend, which was a much smaller number working its way through, but decreasing. And so therefore, the cash that comes from that, the business generates more cash, thanks to the decreasing merger and integration spend.
David Larsen
Okay. As a unified product, your go-to-market strategy, I think, is probably more effective, it’s certainly more sales. That’s great. And then just my last question. In terms of like the overall interest rate environment, I think the federal funds rate is at about 3.8% right now. If you look at the Fed’s projections, they were calling for around 4.8% by the end of like calendar 2023. That’s 100 basis points up. We’re at 6% core inflation. They want to get it to 2%.
So my view is interest rates might go up well above 100 basis points next year. Any thoughts around that, just broadly speaking? And then let’s say we do end up at around 5% as the federal funds rate. Does that mean your yield is going to be 500 basis points at some point in time? Thanks
Jon Kessler
Well, you’re getting into fiscal 2025 guide. The consistent message there were, as we said before on this call, is we’ll be replacing those contracts that were negotiated in that zero interest rate environment with whatever the rates are at that time. So if they’re higher at that time, not this January, but next, that’s going to be great for the business. And if there continues to be high for 2026, 2027, 2028, eventually, you’ve got to do the math and things. You’re not necessarily wrong, it’s just math, right? But it works its way through the latter both ways, up and down. So it’s a reasonable thing to talk about. It’s just – it’s not really there.
David Larsen
Okay. Appreciate it. Thank you.
Jon Kessler
Thanks, David.
Operator
This concludes our question-and-answer session. I’d like to turn the conference back over to Jon Kessler for any closing remarks.
Jon Kessler
Well, we managed to do that and not quite under an hour, but we’re working on it. Thanks all, and happy holidays to everyone and look forward to talking to a bunch of you in the next few days. And if we don’t, then again, please, everyone wish you a safe and hopefully, family-oriented time at the end of December. Enjoy.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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