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Healthequity Inc
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Please go ahead, Mr. Putnam.
Thank you, Jackson. Good afternoon. Welcome to Health Equity 's Third Quarter FY2022 Earnings Call. My name is Richard Putnam, I do Investor Relation for Health Equity. 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 on 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. And that's the conclusion of our prepared remarks. We will turn the call over to the operator to provide instructions and to host our Q&A. And I will turn the call over to our CEO, Jon Kessler. Jon.
Thank you, Richard and hello, everyone and thank you for joining us. Today, we're reporting results for Health Equity 's fiscal third quarter, which ended on October 31st. Core HSA sales account, asset -- accounts and assets continued the strong growth pattern that we have seen throughout fiscal '22, while ancillary consumer directed or benefits or CDB administration slowed and weighed on operating performance. I will dive into both of 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 5 key metrics that drive HealthEquity's business. Q3 revenue of $180 million was up slightly from a $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, we're plus 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 and 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 both during the pandemic impacted Fiscal 2021 than ever before, and has now delivered record organic HSA openings and asset growth during the first 3 quarters of Fiscal 2022. Team Purple delivered a fiscal third quarter record of 151,000 new HSA s, up 45% from 104,000 new HSA s opened in Q3 of last year. In three quarters of fiscal '22, 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 '21, and 29% more than during the same period in the pre -pandemic fiscal '20. The migration of Fifth Third Bank's HSA s added another 160,000 HSA s 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, we're up a remarkable 43% with 74% growth in investors -- invested assets from a year ago.
Health Equity members average the HSA account balance grew a robust, it did work 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 compared very favorably to the most recent industry data. Devenir estimate 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 2 years ago to drive core HSA growth, and that is precisely what's happened.
However, CDB s 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, but Q3 results from administration of FSA s, COBRA, and Commuter accounts were particularly impacted and resulted in lower-than-expected interchange and service revenue, with the overall revenue down $5 to $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 what we anticipated from seasonal factors and the final user loose deadline for calendar 2020 and 2019 FSA. Improvement from here is going to 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 '21 will do so for calendar '22, which leads 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 current conditions led to more COBRA eligibility and 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. But with employers taking only very tentative steps towards returning to office, Q3 COMMUTER fees were still lower even than in the year-ago period. And finally, our decision to walk away f rom 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. So scale d CDB capabilities are spurring core HSA growth, which is strong in its own right. And the team looks forward to turning the page on CDB integration and the pandemic's various impacts on revenue.
We're going to 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 in portfolio M&A and through product innovation. I already mentioned the record sales results in the transition of Fifth Thirds 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 -- we've commitment to the Blue Cross Blue Shield Association and its health plans and adds technology to help partners embed Health Equity more deeply into their products. In fact, you're going to see -- you should expect to see real examples of deeper integration of Health Equity 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. FY2023 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, but 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, and we've also agreed with Further sellers to terminate our agreement to buy the Veeva accounts, which was an ancillary and severable component of the overall Further acquisition. And that frees up $45 million of corporate cash for core growth opportunities. I will 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, John. 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. It was service revenue declined, partially offsetting growth and 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 at FSA s, 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 second quarter. 16% growth in average HSA cash with yield more than offset a 36 basis points decline in the yield on HSA cash from the comparable quarter of 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 continue 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 in 34% margin in the same quarter last year. Consistency of those numbers is an indication of the Health Equity 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 '22, revenue was $553.3 million, up 1% compared to the first 9 months of last year. GAAP net loss was $11.5 million or $0.14 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 34% adjusted EBITDA margin for the first 3 quarters of this fiscal year. Turning to the balance sheet. As of October 31, 2021, we had $649 million of cash and cash equivalents, was $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 reduction and rollover of secured debt during fiscal '22, the tenor of our outstanding debt has been dramatically extended, reducing risks 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 '22 to include revenue for Fiscal '22 to range between $750 million and $755 million, non-GAAP net income to be between $108 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, and adjusted EBITDA to be between $230 million and $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 we'd like to continue conservative spend patterns that we saw in Q3 for the remainder of this year. Guidance also includes the addition of Further which closed at beginning of Q4 and also reflects a ramp up in service costs associated with on-boarding new clients and members for both Further and Health Equity as a whole.
Our guidance assumes a rate on HSA cash with yield of approximately 175 basis points for the full fiscal 2022 year, and includes the migration of Further assets to Health Equity, 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 Health Equity 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 costs 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 '22 assumes a projected statutory income tax rate of approximately 25% and a diluted shares 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 talk, and today's results are mixed. And I mean that it's not quite literally like a blender. I mean, it truly. Our core HSA outcomes were very strong and 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. [Operator Instructions] 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 er and there was [inaudible 00:19:45] on the details, I was hoping you could just circle back and provide a little bit more color on what happened with the interchange. And then you said you expect the dynamic to shift in you're cautiously optimistic for next year. So what are the dynamics that are happening there? Thanks.
Jayson Do you want to get started on this one?
Yeah. Anne, thanks for the question. 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 to 2020 accounts more quickly than we had thought. And so not only does that affect service fee, but it also affects the interchange because there's less of a balance for them to spend. And we saw the spend and the revenue related interchange increasing pretty dramatically in the Q2, Q1 time frame, and so the thought was this, that that would persist more so than it did. And so as we saw that come down in the months during Q3, that really had us -- 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. So that's really one of the biggest challenges there on the interchange side. Jon, anymore thoughts down on that?
No. I think you hit it.
Great. That's really helpful. Thank you.
Thank you.
Actually, I will add one thing, which is to say the cautiously optimistic part is, it was -- what you really -- a way to summarize what we just said is that we had very strong impact, particularly in Q2 that were in part the fact that you had the unique situation where you were running off 2 years of balances. And so the third quarter is what remains and then into December is what remains, and of course, January and part of the new year. But as we look into the new fiscal year, that will be impacted by people's decisions that are being made now, with regard to elections. And while we're looking at early returns on that, and we'll have more to say when we provide a fiscal '23 outlook later, we're optimistic that we're going to see some snapback there relative to the elections that people were making or not making, back during some of the darker days of the pandemic a year ago, and so forth. So that's why we -- that's the cautiously optimistic.
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 title town.
Well, unfortunately, the stock's getting beat up in the aftermarket and I know you just covered some of the reasons for the mixed results. Maybe you could spend a minute and just talk to us about custodial revenue and the outlook for that line item. The three-year jumbo CD rate just hasn't budged at all. It doesn't seem like there's a lot of new loan demand. And so it just begs the question -- in your comment, you said you think this might finally trough out next year, but I have to wonder about that. And the second part of the question, and this will be the only thing, is just you spent a lot of money on Further and where I guess trying to see where the positive impact of that is in the results going forward. That's my question, sir.
Okay. Those are great. Why don't -- how about, I'll hit the first one on rates and 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 commented a little bit on our thinking forward. If you recall, Greg, when this cycle began, we pointed out that we have 3 years worth of ladder And the benefit of having that ladder is that it gave us time. So we have, notwithstanding the fact that -- I mean, this quarter is 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. And so Fiscal '23 will be the third year of that cycle. We've commented previously that our historical laws in terms of the rates we received are the lowest that we've ever gotten is around 150 basis points or 152 basis points after the 2008 crisis, after our ladder had unwound there. And we're heading into that same territory and we've commented elsewhere that that's likely where we would be. But I think what we're adding that commentary today is that we feel much more comfortable than, for example, we did three months ago. That's the bottom, and we don't -- we're not perfect predictors any better than anyone else.
But I want to tell you why. Because first of all, is not because we have some magic ball or we're baking into our thinking, thought for rate, for overnight rate hikes or the what have you. We, As you know, we 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 has done two -- is doing two things for us. The first is, it's helped generate higher yields and higher spreads, and second of all, it just creates more competition for money and effectively reduces our need to place to the marginal bank, if that makes any sense. And it's for those reasons that we think we're in a better position from what the terms of our placements are going to be going into -- both going into fiscal '23 and then at the end of fiscal '23 into '24, that we're feeling quite a bit more sure - footed and optimistic, that 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. So that's the basis for our thinking.
We're not looking at -- I want to be clear, we're not looking out there and saying, "Well, economist X says that there're going to be full rate increases next year or whatever they say. And That's going to make it all better. " That would be nice, from the perspective of our business. But what we're really looking at is, we're looking at the offers that we're getting from our banks as we go into place, as we're into placement season although obviously we have some wood to chop there, and we're also looking at the fact that competing against those offers in effect, is the uptake from our members of our enhanced rate [inaudible 00:27:26]. That's again, both has, as its name implies, enhanced rates. And also again, just reduces our need to hit the marginal bid. And then that helps us out quite a bit. Hopefully that was helpful. And the second question was about uh, Further, and Tyson why don't you start there?
Yeah. I was going to make one other comment on the rates thing as well, Greg. I think this is important to know. When you think about contracts and 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. So there is that turn now. We're still working against that average in the higher placements from 2 or 3 years ago, of course, for FDIC, but those are different now, they're higher. So I want you to know that. And then on the Further business, this is, again, an HSA - centric business. The blues plans are going to be very important, how -- our ability to be able to penetrate those plans like we've done with other health plans is really one of the ideas that I think were worked very well for us over time. 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. And 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 gave us the scale there. So 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 Health Equity business in the long run. And I think that's a very important part of that further deal. When I think about its impact 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 cant put a bunch of margin in there for Q4 off the revenue. But we talked about earlier in the year, a $60 million revenue run rate for that business on a 20% EBITDA margin business and then $15 million in synergies, I think we tracked it out over the long term. And so, 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 [inaudible 00:29:49] we made in guidance. But over time, I think there is 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 of a lot of ways to think about how to run an HSA type business relative to how that's been run. So there's that opportunity for us. I don't know, Ted, you want to comment -- 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 Veeva portion of the transaction, which is -- easiest way to think about it, rough number is the 10% of the transaction. So that should help you get a sense of what we're aiming for next year. But again, early days, haven't even completed a monthly close on Further yet, but I share Tyson 's long-term optimism. That similar to what we did with [Indiscernible], is we're going to be able to take this business and integrate it, grow it, realize some synergies from it, and expand it's margin over time.
Ted, can I just ask a clarification on what you just said? Is it that 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?
I think that is the Veeva business was about 10% of the business Greg, that's -- we're paying about 10% less than we had publicly announced we're paying, and that's what we said saying that in the 8-k. So I think that's a reasonable estimate with the asterisk that Q4 is always a relevant low margin quarter for both our business and Further [inaudible 00:31:36]
Got it. Thank you for the answers.
And thank you. And our next question comes from Sean Dodge from RBC Capital Markets. Your line is now open.
Thank you, Sean.
Hello, Jon. 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? And then a quick education on mechanically how that rollout looks different than that you've got to get the employers to sign off on and then the employees to opt into. And maybe some idea what the timeline or the ramp s looks like for the enhanced rates.
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 in the 50 basis points to 75 basis points neighborhood. In terms of the adoption approach -- and actually a little bit of that gets eaten up by the fact that you were also paying enhanced rates to members. But in terms of the adoption process, the answer depends a little bit, and this will be a multi-year process. We're still note, 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, and so that just came over. And that did help us in terms of if you think back to the earliest days of our business and negotiating with one bank with very little assets and all of it on the comm. We didn't have to do that here because we had money to start with. But it is a process that's going to take time. And ultimately, it's the member that elects into the enhanced rates product. But there are a couple of ways that can happen. 1. is that is their initial election, for lack of a better term, unless they take a different action, it's the default, if they're new; or 2. 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 -- this is something where our employers have some flexibility as well. But I think what you're going to see over the course of the next few years, is that a larger and larger percentage of our, for lack of better term, 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 and it had 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 hopeful. That is like -- a way to think about it is that it's -- the pace of adoption is going to reflect soaking up of our new cash needs over the course of time.
Okay. That's very helpful. Thank you.
And thank you. And our next question comes from George Hill from Deutsche Bank. Your line is now open.
Yeah. Good evening, guys. And Jon, 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? And then, my two quick follow-ups, which would be for both Jon and Tyson, would be, Jon, do you have any feedback yet on what the adoption of [inaudible 00:36:06] look like at the end of this open enrollment season going into the next calendar year? And then Tyson, to a degree to which you're willing to talk about it, if we're able to frame how we should think about the big headwinds and tailwinds for fiscal '23, as you see them right now. I'm not going to ask you for guidance, but if you could just 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 something up here. 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 I won't regurgitate everything we've just said about enhanced rate, but really, really that shift, that mix shift is the biggest tailwind that we see. When you think about balances continue to grow, we look at the outside balanced growth that we had relative to market, and just the acquired assets that we get as well. So we're really positioning ourselves to have a lot more assets and a better way to place them, and that is really going to be the long term. Again, like I said before, the probability of the business in my mind, has changed inherently. We're positioning ourselves to take advantage of what I see in the news this morning, if the rates are going to shift up. And they will eventually and we've already started seeing that as we've competed those rates against the various partners that we work with. So we're expecting those rates to eventually rise, and it sounds like they may do so even sooner.
When I think about the real headwinds for the business. I think that employment can cut both of ways when you think about how you think about how COBRA is utilized versus how you think about FSA s are utilized. And so you get that big swirled waters of the CDBs, which that's not necessarily the growth area of the business, but what it does do is it really helps us to cross-sell. And so the deals that I sign now are always, for the most part, multiple deals with multiple types of accounts supporting HSA growth. We're able to provide something to HR benefit offices, so where they're not managing multiple vendors and that's really powerful for Ted and Tim in the sales team. And then the other headwind that we have is just trying to manage through how we think about what the pandemic does to spend, and how people spend.
And even to go back to the first question, how we -- are there some places where we maybe don't want a particular client, where its not profitable and where it doesn't necessarily work for the platforms that we're going to go forward on. And 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 act integration. You know that we're making and we feel like we're making the business healthier as a result of that. I will mention a couple of other ones, you obviously got the child care accounts that are headwind and those types of things. But those are some of the things that I think of on those two, like in the first and the last question.
I'll kind of hit the middle one on in a way, it builds on -- not very much so, builds on 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 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 backward looking from Kaiser and others. But, what I'm particularly enthusiastic about, in that regard, is, it turns out looking backwards, 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. And now this year, we'll see what the total market ends up looking like, and what all the enrollment numbers that come in for the next couple of weeks here to look like. But as I've always said, the best indicator of my next quarter sales is my last quarter sales. And my last quarter sales were really good, and so in terms of consumer enrollment as well as overall. And so I guess my general view, George, is we try to manage the business towards the long-term opportunity. And the long-term opportunity is the same one that you and I and Darcey and Steve talked about.
I think Tyson was just agreeing [inaudible 00:41:08] back then, and Ted, but that we talked about what's now many years ago. I mean, it's almost a decade ago, which is these accounts are going to steadily grow, we're going to end up when we're done with about as many HSAs as there are 401ks out there. Their balances are going to start small. But over time they're going to grow, and you can see that happening. And as a result of that, you end up with a business that has sustainably high margins and has a good long-stay runway to it. And some steps that we take to make sure that we're in position to see that growth turn out to be top one. So obviously you saw that in this quarter, with respect to what Tyson calls some of the CDB swirl. But we're going to keep taking those steps and whether that's building enhanced rates or solidifying our footprint in the Blue system with Further, whether it's what we've done today with the HCA administrators to build on some of them momentum that our individual product has had and very small group products for some of the kind of more investment oriented small groups, with doctors and lawyers and the like.
Where HSA administrators is focused or whatnot, we're going to keep doing the things that position us to take market share in HSAs. So that as that market expands, in revenue terms, in asset terms, in account terms, we're going to look up, and if we keep doing that year-over-year, we're going to be just fine and our shareholders, our long-term shareholders are going to be just fine. And perhaps more importantly than all of -- whether we're fine or our shareholders are fine, we're going have done a lot of good for a lot of people in terms of connecting, health, and wealth. So that's 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.
And thank you. And our next question comes from Donald Hooker from KeyBanc. Your line is now open.
Hey, Don.
Hey, good afternoon. So I guess you guys are really seeing just an amazing growth in the percentage of HSA asset invested and that's always been difficult to model. And is there some reason -- is that -- it almost feels like that's accelerating a little bit. And I was wondering, can you talk a little bit about trends or 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?
We've worked on this for a long time. And Ted, I think this is a great one for you to hit in terms of what the -- our product and education teams have done over the course of the last couple of years to really accelerate this trend and drive the industry in its direction.
Sure. Happy to jump in. And 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, educating you in multichannel ways, both with marketing in the actual product itself and then in member services when you call, just sharing with you what's the next best thing for you to be doing. Just 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 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 has been a huge operational focus for us. I think one of the places that has really shown up, and you just identified is in the percentage of members investing. We're seeing it in other places too, and in the number of members that are raising their contributions and the number of members that are spending through their FSAs. So I think we're in the middle innings here. 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 industry.
My follow-up, and this is probably impossible to answer, but I'll ask it anyhow and see if there's a way -- is there a way to think about it, is there a natural threshold there? Any updates? I know in the past we've talked about this, but any updated thoughts? Is there some -- what is the typical natural threshold for cash and investments?
The typical -- my dog wants to chime in a little bit on this. But we talked about this a little bit before that -- and 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 their near-term expenses. And so it's important to note that even among our max contributors, there are also spenders. And that's -- by the way, one of the reason that you haven't seen really any drop off in HSA spend -- interchange that is, even as balances have grown, I commented on that a little bit in the stir. So people tend to build up enough cash to cover their annual deductible or some number, maybe for some folks, it's their annual out-of-pocket maximum, so if you look at our longer-term accounts, and we have done that, what you'll see is, that that cash balance kind of tops off somewhere between $3,000 and $5,000. And then they continue to grow the investing side.
It's not that there's a switch, lift or whatever. But that's kind of, I think, a way to think about the typical behavior of an investor. Is that when you look at and you can see this even in the further -- I'm sorry, HSA administrators business that's been very focused on individual investors and these very small groups of folks who were totally onto this, where you see your average total balance of 15 to 20 grand, of which give or take 3 quarters is invested and 1 quarter is cash with -- and so I think that's where you would expect it to end up.
Okay. Thank you.
And our next question comes from Scott Schoenhaus from Stevens. Your line is now open.
Hey, Jon, Tyson and Richard. Happy holidays. So I understand the moving parts around the more conservative guidance, just wanted to continue this conversation on HSA. What's driving new 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 Wage legacy customers, I believe there was 70,000 employer/clients and roughly 20 million employees that they touched. So what's driving the organic growth where you're seeing the sales strength from and where do you stand on the wage, 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 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 going to start with Steve Neeleman and then Ted, maybe you can comment on the cross-sell metrics.
Thanks, Jon. And thanks, Scott. Obviously, last year was a tough year just with the COVID and everyone, hitting the pause button. We've been really encouraged. I think it's been -- you've seen that the numbers, it's amazing when I look at these numbers we just reported. There was some acquisitions in there, but still, to see $960 million during the quarter of new growth and a 14% account growth. And so we think these are great leading indicators, and I can tell you, in the RFP world, we felt really good about where the season started shaping up towards the end. Some of the larger employers who are 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, this was prior to everyone getting back and things like that. And yet the small groups, we're still closing a lot of deals right now. And if you ever -- we're not going to let Cheuvreux do this by the way. But if you would ever listen to on ourselves hurdles, you would get a lot of energy. And there's -- and people were saying that they really do feel like especially in this small mid-size businesses that are still, I mean, one of the questions that was asked earlier was, how do we finish up our open enrollments season. We haven't yet.
This is a very busy time for groups that are still rolling people in. And so a lot of energy, I think it's been pretty well illustrated in our numbers we reported that the HSAs are growing and there's some mixed results on the CDBs, largely because some are rolling off, but I can tell you every time that we bring on an employer and they have a bundle full of CDBs, then 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. And so I think that's one of the reasons why you're seeing some of the FSA s and things like that going down but I would -- a lot of energy, Scott, is the way I would classify that. Ted, how would you add to that since this whole is part of your world as well?
Yeah, thanks, Steven. 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 is, we're very pleased with our cross-sell progress thus far. We don't really break out the metrics, but I think a couple of things we've shared in the past and I will just reiterate our number one, our close rate in a cross-sell opportunity versus de novo opportunity is 2x to 3x as high, because the client knows us and they are accustomed to our service. And that goes both directions, whether -- depending at no matter which legacy client base the employer was a part of. And then the second is, last year, the vast majority of our cross-sell, you can imagine why don't you rob banks, because that's where the money is. We focus all of our cross-sell efforts on enterprise to get started. And that's where we saw some early wins. And 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 and medium-size employers.
And Steve alluded to a place where as we've 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. So I think we're getting -- this was our second selling season, being able to offer a credible bundle and we're getting better at being able to do it. And we look forward to more progress and I think the last point I would make is that there's still a ton of white space for us. We have hundreds of our top 500 enterprise clients, only have one product with us, right? And thousands of our small to medium-size clients only have one product with us. So the opportunity should nourish us for a long time. We just have to continue to unlock it and thus far, we're experiencing a trajectory that I think makes this happen.
They've been piling on. I may make one other point here, which is Ted talked about cross-sell whitespace. 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 whitespace is shaping up. Our largest competitors are the largest health plan in the U.S., which has its walled garden and the largest investment retirement plan management U.S., which has its walled garden. And there are things that are good about walled garden. But the nice thing about us is, if you're an employer, we're going to work with you whomever. We are not part of their lock-in strategy, but even better. If you are a partner of ours, you know that you're looking at both of those, and you're trying to compete? That means you want to work with the best you can, and that's us. And 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 the comments and we will see a little more of this in the next few quarters. But 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. And or in the language APIs, HSAs can be consumed in so many different ways. And 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 Line, so it's true in [inaudible 00:55:54]. And in other channels that we haven't even thought of yet, as HSAs continue to mature and penetrate consciousness. So I think that's another thing that has begun to help us in this cycle, but that will be a big helper as we continue to try and sustain market share growth year after 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 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 utilization may have been a bit lower than expected. And then do you have any thoughts on Omicron? Is that going to have an impact or not? Do you think just any color there will be helpful.
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. So 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 run off had occurred, and during -- while Delta was going and really raging, we felt very confident about where spend trends were. And it turned out that that was a bit of a false signal in the sense that that um uh, you know that wasn't followed up as this quarter began and when Q3 began. So 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, not withstanding these challenges that we've talked about, was still up 8% year-over-year. And so that is to say, HSA interchange was up substantially more than that. And so I think that's an interesting dynamic that we need to continue to look at.
But it is fair to say that as we enter Q4, certainly we don't know any better than anyone else what the effect of Omicron is going to be. I'm not sure why they skipped Nu, but they did. And it may have some impact, but 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, but we're also taking the lesson that our HSA spenders are clearly more resilient to changes in economic conditions as well as well as less likely to be impacted by sort of in the weeds regulatory items, than our FSA spenders. And also that -- in other CDB spenders. But also that our HSAs spenders can also -- 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 the annual enrollment for most firms, they can't do it until now.
And it won't have effect until January. so those are lessons that really reflect the point that that I made in the earlier -- in the initial commentary. That is, we're going to spend our money growing where we know the growth is and where we know we can deliver profitability and visibility to you. And we're going to deliver to our clients what they need in order to buy those HSAs. But We're that's one way we can reduce uncertainty as by growing that core faster than the employee business.
Great. Thanks very much.
Yes, sir.
Our next question comes from Glen Santangelo, from Jefferies, your line is now open. Welcome back.
Oh, yeah. Thanks for taking my questions. It's good to be back. I just want to follow up, Jon, on some comments that you made. It sounds like 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. And I heard your comments on COBRA maybe fell off more than expect in the FSA business. 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. And so maybe when I put it in context of the $7.5 million revenue shortfall or I think I calculated, I don't know, on $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.
Well, I'll ask Tyson to add on, but I think the key point to make is essentially all of the Delta between our current outlook or now current outlook and our outlook at the end of Q2 is a result of these factors in CDB. And the HSA business has performed, as you say, either at or slightly ahead of where we would have expected it to be. I think particularly as we go forward, we're feeling if I commented earlier, more sure - footed on the rate side of things. But by and large, 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?
I mean, you did some math there. So I'll just go back to that. I think that's exactly right, the CDB conversation that we've had. And 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 follow-up of those 2019/2020 FSA accounts, and obviously, Commuter still coming down year-over-year, but sequentially up just slightly. So you have that in there. And then the other kind of big piece of that math there is bolting on that Further business in Q4. Really doesn't provide a lot of margin -- provides the revenue, but not the margin, particularly in that seasonal Q4 enrollment period. So that's why you get the differential between the two pieces of math that you've done there.
I apologize. Maybe just maybe just one follow-up. And I'm sorry if I missed this, but did 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 3-year CD rates sitting at about 1.5 and the benefits from your enhanced rates program being 50 basis points to 75 basis points, we're you trying to flag that maybe as we exit fiscal '22 and heading into '23, that this should be the bottom in terms of your laddering strategy?
Jon, let me comment.
Go ahead.
I was just going to say, as I commented before, and I'll say it again, I think it's really important, is that when I think about where we replaced -- we're placing things a year ago versus now because we do have assets come forward and our Cordell goes in place with them, so we know the rates. Those rates are higher for FDIC. And then we -- I think we got a very good rate placement, when we get our placement on November 1st with the Further assets, and also the real kick off of our -- we'd already started doing enhanced rates, but the real kick off was that as we merge those Further assets in there. And so those were higher rates than they were the first part of the year. So that's -- part of that's good negotiation on the part of our treasury team. And they're doing that, competing those rates against each other.
The other is that there starts to be a little bit of light at the end of the tunnel and you see Pal(ph) this morning talking about moving up a rate shift. That's pretty exciting, I wish it was in December versus March, but it is what it is, right? It's still a long-term view on those rates coming up on assets, helps from not only next year being will be lower still because we placed at higher rates, two or three years ago, but again, you're starting to turn that corner and as John said too, we're not going to be below those all-time lows that saw as part of the last recession, but it takes multiple years to turn that around, based on the way that we ladder, it helps going down. It's slow going up, but it also increases again, like I said, 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.
Glen, just one other thing on this -- or one point of emphasis on this topic. When we talk with investors as you do, they would love it if we would give them a forward rate curve or the like. And 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 your price -- what price you are going to offer to customers this year and next year? And we're not going to do that. But that having been said, we've heard a tone of speculation on this, I go back to Greg's initial questions. And over the course of the last year or two, as CD markets have stuck where they are and so forth. And I -- 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? And 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 day. And that's what we do here. And whether it's about rates or about HSA growth or about cleaning up what 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 thank you at the end of each one. It's very confidence-filling. 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. Going back to interchange, Tyson, I think you talked about the FSA wind down for 2019 and 2020 Vintanges basically causing a shortfall in interchange. But I guess, if there's more accounts that are closing, doesn't that mean that the customers are spending more so interchange would likely be higher? That's question 1. And then question 2, they were looking forward from this level here across the Commuter, COBRA, FSA, what would need to happen for things to deteriorate from this level here? And, just expectations on what to think about is embedded in 4Q? Thanks.
Yes. I think that's a good question because where we saw that spend, but I would've suspected that maybe it would have hung over -- hung out a little bit longer, it was in that Q2 time period. And 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 doing more. So blending those two things together and then coming up with a second half forecast proved to be difficult, right? And so we saw that we still grew in our change, but it just we didn't get the tailwind that like we thought because of those. So we saw those accounts go away, maybe a few more go away, but I think where I'm optimistic is now 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 or be a little easier to forecast.
Okay. And then a follow-up on Glen 's question about the implied 4Q guide. It seems based on my math that organic growth between 4Q '22 versus 4Q '21 is going to decline somewhere in the range of 25%. So can you clarify whether or not that's accurate and then B, I know that you're spending more on technology, but what else is embedded within that decline? Thanks.
I think the one thing, and I don't know if I'm not doing the math here quickly, but I'll trust you've done some math to 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 attached the margins that we have. And so that's the job, is to improve those, to synergize them, to get them onto a single platform, single-service, single processor. All the different things that our operational team does to improve the margin related to that. And 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. And so you know, you get some of that, playing through into that. And then again, you go back to the CDB businesses and the low-hanging fruit to talk about there, is the commuter business and the fact that there's 10s of millions of dollars of missing high-margin revenue on one of our highest service fee line items in that commuter business.
So I'd like to see that come back because that will create a nice tailwind and we did see a turning point in that. It's insignificant turning point, but at least it went the other way and started to come back. So those are the 2 things that I think are in there. The other one that's really there too, I guess, you're making you think of some other things, and 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 of that yield year-on-year. And it makes certain all these comments that that is fundamentally how this business is going to produce profits. And when that rate starts to turn around, we'll start to produce profits. And I think we're getting to a point where that's starting to happen.
Got it. Thank you very much.
Thank you. And our next question comes from Stephanie Davis from SVB Leerink. Your line is now open.
Thank you and thank you guys for taking my question.
Yes, ma'am.
It has been a really long year, Tyson. So talk to me about your learnings from this. Do you have any changes to your guidance philosophy? And how should we think about your forward views then on CDB account recovery? Is this going to be the example set assumption for step forward spend patterns remaining leak and Commuter basically getting zeroed in this type of return or is there any thought towards improvement as we go out to funky fourth quarter?
Yeah. I think I'd go back to, there are a lot of crosswind and you see this even in a lot of the articles you read about the Fed trying to get this straight, and of course, there are crosswinds that it's difficult to come up with forecast, particularly preceding [inaudible 01:13:20]. Again, HSA, if you think about that? When I think about forecasting to still, you'll yield on HSA. We can do that and we can do that out. 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 immaterial amount. The same is true when you think about HSAs service fees because they stick around. And so you don't have this ebb and flow of those and kind of these annual decisions that get made. So 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. And so I think my learning from that is the fact that's what I -- Ted and I talked 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 the swirl. But given the pandemic and everything else, it's tough to tough to get there. So yes, I have learned a lot over the last year. Stephanie?
Would it then be safe to say yet you're going to focus most of the guidance on the HSA side of the world and then kind of use those as more of levels that run rate for CDB s since it's so unpredictable. But at least there's more upside?
Well, I think there's -- no, when you think about CDBs, and of course we talked about some of the things you're turning, but it's really just that Commuter segment. It's 4% of revenue, right? So it's not enough for us to talk a lot about here, but it's something that I think helps us sell HSAs. So 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, and 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 there's 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 have happened with 4Q. 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 numbers we put out there, which is +$12 million dollars essentially on something less than $! million dollars of EBITDA. That's because they've got the costs going into season. But when you think about that business in a Q1 / Q2 timeframe, when we think about rightsizing it, for example, for the fact that we won't have Veeva services in there. So we know there's some costs in there associated to that part of the business that we can take out. And just the ability and all the learnings we've had from the wage business on how to create efficiencies within the business, and we're going to be able to do those. You never seen those as much in wage 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, and I think that kind of gives us a base to build off of and besides, the same thing is true for that Further business.
Okay. Its so helpful. Thank you.
Thanks, Stephanie.
Thank you. And our next question comes from Mark Marcon from Baird. Your line is now open.
Hey, good afternoon and thanks for taking my questions. Wondering with regards to the rate discussion, as we think about next year, Jon when you were you were answering Peter's question, you mentioned the 152 bps and the low I'm wondering, how do we think about that relative to the enhanced rate program because it sounds like one way of interpreting things would be, "Hey, we're going to stay steady in terms of the effective yield for '23. " Another way to interpret things would be it probably still comes down a little bit because we're still rolling off investments from 2 to 3 years ago. However, you could provide some sort of help in terms of thinking about that, because that's obviously going to be important in terms of setting '23 expectations.
Yes. I can. What we've had in the past and I would repeat here, is that '23 will still be a downcycle, a part of the downcycle. It feels like it's forever, and it is. But we started this process in our fiscal '21 and '22 and '23. And so it will it will be the third year of that cycle. And so I think when all is said and done and the smoke clears, our expectation remains that we will lose -- that we'll still have a headwind from a yield perspective. But as was the case this year, that headwind will be smaller than it was in the prior year. And then I think what I could add to that is, I think we're particularly with the benefit of: A. The fact that the underlying 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 that we can see that being the end, and we know where that end is going to be, which is, as I commented and you repeated, somewhere near and perhaps better than the lows that we saw in the last -- the post 2008 period.
So I guess that's the way I would interpret. I wasn't trying to suggest that we're going to do 175 next year. Or that we're going to improve from that. But I think for folks who have modeled this stock for a long time, as you have, knowing with a relative -- with a greater 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. And then can you just tell us what the most recent placements were in terms of the effective yield that you are 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. But I will say if I think about it as in terms of premium to, as someone mentioned earlier, the 3 or 5 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 of -- on the part of the banks of what's going to happen going forward. I don't know about that. So it's gotten a little better and that should give you enough that you can kind of interpolate.
That's great. And then there was an earlier question which I didn't get the answer to, on how you're thinking about HDHPs for this enrollment season, for a lot of companies, they've gone through it. What are you seeing in terms of that shift?
We'll talk about this a little more in January when we get to the JP Morgan conference and all of that. But as I said earlier on the call, I think to some extent, the Q3 results are an indicator there, because they do reflect firms that have earlier played in year cycles and the like, the September enrollment and the like, and those were really good. And my general view of the market, if I go back a year, the question was, well, is the market going to grow by something closer to $3 million or something less than $2 million like it did in the pandemic period? And I was arguing that, 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 much more -- I was about to say endemic, than the pandemic. But they're much more -- they are long-lasting indicator in nature and they continue. So 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 this year.
Certainly, the fact that 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 -- as everyone knows, we're still not back to pre -pandemic employment levels on the whole. But we're getting closer. And the more people that join the labor force, rejoin the labor force, it's extremely helpful in that regard. But my basic view, Mark, is, I look at it and say we've said all over time that the market's going to grow at a rate of 2.5 million to 3 million accounts in here and has for a long, long time. And then we had this exception in calendar 2020. I think this year is going to look a lot more like prior reality than like that exception.
That's really helpful. And then the last one for me. Just with regards to at the enterprise level, you've been gaining share on the whole. How would you describe the competitive dynamics at the enterprise level currently? And do you anticipate continuing your great track record of gaining share even at the largest enterprises?
Yeah, Ted, you want to hit this one?
Sure. I think that as you would expect in any industry, is looks like ours, the competition intensifies first at the enterprise level and we're no different, and we see that. I think that our competitors are -- this has been an interesting year f rom an enterprise sales perspective. In large, partly because of the high numbers stay with income. As many people benefits teams are continuing to be burdened by return to office, Covid management, etc. And so they've been less willing to make a decision. But despite that, I think we've more than held our own in the enterprise, based among those pieces of business, those cases that have moved. And then probably, similar to other people in the industry, our retention rates have been very high. It [Indiscernible] by the fact that some people are just out living it out. And so I don't think we've seen anything unexpected. We haven't seen anything crazy or shocking. There's -- from an enterprise competition perspective, there's not -- someone hasn't come out with the iPhone 17 and we're still trying to sell the iPhone 12. It is sort of preceding a pace of what we would expect.
Price competition is higher in the enterprise space than in the mid-market and small market. And that's one of the reasons why that's become -- we're trying to put our chips where we expect the best return. And so to a large extent, that's in that small market, mid-market space. But 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, nothing crazy competitive-wise. Steve, I don't know if you have anything to add there if you've seen anything worth mentioning.
No, I think that's right. One of the things we're really excited about is with the Further acquisition, we've got another 10 Blues plans that we're going to be working with. I think our team's getting a lot better at working through these health plan partnerships, not just to go after the small, mid-size businesses. But also to go after the large employers. Because a lot of the Further Plans Plus are base plans of 120 health plans, our Blues plans that we brought to the table plus a bunch of other TPAs and large health plans for other country. I mean, they also bring us to a lot of enterprise type employers. And so there's always been this push, pull on our business 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, and 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 full bundled solution to the health plans, but to their largest and most important clients. And so, Jon, I guess we both got our wish. We had a full stable of health plans and a full stable of large enterprise employers. So it's coming together nicely.
I was having -- 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 in my moments where I'm trying distract myself, I look at that has unusual maps and I think they call it Map One. I don't think I can say that here. And -- so yesterday's thing from that site was the largest employer by state. And what I'm getting at is, what's the enterprise? And 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. But what was actually really interesting was, in essentially all of the states in which they were not the large employer, the large employer was not some fortune 500 Company, wasn't Amazon, it was a health system -- a hospital system in something like 30 of the other states. Incredible. And that's the market where we do real well.
So for us, when we think about enterprise, it's worth remembering that we're looking at number of employees and those kind of factors, not just -- whereas other firms might be looking at size of the IT budget. And so I think particularly, when you look at it that way, Steve's comment about the relationships with B lues Plans comes into focus, because those are local relationships to start from at. And we're -- and it's not just Blues Plans and I think about Providence Health Care in the Northwest or St. Luke's in Idaho or Presbyterian in Mexico, or Sentara in Virginia. These are huge local employers that are also effectively our partners in other ways. That helps us near our price goal, too.
That's very helpful. Thank you so much.
Thanks, Mark.
Thank you. And 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 very unusual times for us at Health Equity 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. But we are as many employers are working through, but certainly is a smaller number, Federal contractors are working through Federal Contractors Mandate and far be it from us to grouse about the difficulties of doing that, given the importance of the past. And no matter how one feels about these mandates, it's our job to comply with them all, and we're doing that. And I wanted to just take a moment to both thank our team members who have worked through this from the perspective of really thinking about it and dealing with the compliance side of it and also very candidly thank our -- both 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 and -- in Q4 and we can have the team prepared to deliver the best possible service we can under 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. So I think it's a special area of banks for companies like ours. Everyone in the healthcare sector is affected in the same way as you all know. So many of our partners are affected in the same way. And certainly our friends in the Federal Government, or a client are affected in the same way. And on several, I 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. Happy holidays, see everyone soon.
This concludes today's conference call. Thank you for participating. You may now disconnect.