HealthEquity, Inc. (HQY) Q1 2019 Earnings Conference Call Transcript

HealthEquity, Inc. (HQY -1.63%)
Q1 2019 Earnings Conference Call
June 4, 2018, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to HealthEquity's First Quarter 2019 Earnings Conference Call. Please note that this event is being recorded.

I would now like to turn the conference over to Richard Putnam, Investor Relations. Go ahead. Mr. Putnam.

Richard Putnam -- Investor Relations

Thank you, Mark. Good afternoon to everyone. Welcome to HealthEquity's First Quarter Earnings Conference Call. With me today, we have Jon Kessler, President and CEO; Dr. Steve Neeleman, Founder and Vice Chair of the company; Darcy Mott, our Executive Vice President and CFO; and Bill Otten, our Executive Vice President of Sales.

Before I turn the call over to Jon, I would like to remind those participating with us that there is a copy of today's earnings release and accompanying financial information posted on our Investor Relations website at ir.healthequity.com. We also refer to you the usual Safe Harbor statements concerning the forward-looking statements included in today's earnings release, and that will also be made on this conference call with you. They include predictions, expectations, estimates, and other information that might be considered forward-looking. Throughout today's discussion, we will present some important factors relating to our business, which should -- which could affect those forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from statements made today. As a result, we caution you against placing undue reliance on these forward-looking statements.

We encourage you to review the discussion of these factors and other risks that may affect our future results or the market price of our stock, detailed in our annual report on Form 10-K, filed with the SEC on March 28, 2018, along with any other subsequent periodic or current reports filed with the SEC. We are not obligating ourselves to revise or update these forward-looking statements in light of new information or future events. With that out of the way, I'll turn the call over to Mr. Jon Kessler.

Jon Kessler -- President and Chief Executive Officer

Thank you, Richard. Well done. And thank you, everyone, for joining us on this beautiful late spring afternoon for a discussion of the results of our fiscal first quarter of 2019.

Q1 marks the beginning of a new annual sales cycle, and that is gonna be the focus of our prepared remarks. I will speak to Q1 operating results against our key performance metrics. Darcy will provide a more detailed review of our financial results and guidance. And in between the two of us, Bill Otten, HealthEquity's Executive Vice President of Sales, will describe some of the things we are doing to keep our commitment to outpace market growth this year and into the future. Steve Neeleman is here and will join us during the Q&A following our prepared remarks.

Looking first to the four key metrics that drive our business, HealthEquity continued the trend of outperformance on year-over-year measures of profitability and custodial assets on top of robust revenue and HSA member growth. Revenues of $69.9 million were up 26% year-over-year. Adjusted EBITDA of $29.6 million was up an even larger 32% year-over-year. Similarly, HSA members at quarter's end reached 3.5 million, up 24% year-over-year, and custodial assets at quarter's end grew to $6.9 billion, up an even larger 31% from a year ago.

Turning to sales, the team got off to a fast state. HealthEquity opened 98,000 new HSAs in the quarter, the most it has ever opened in Q1, and up 27% over the previous record set in the same period last year. Custodial assets grew by $84 million, and were hampered somewhat by declining equity and bond values during the period. These figures do not include any portfolio acquisition activity. During the quarter, however, we were able to enter into an agreement to acquire an additional small portfolio from a credit union, and that acquisition is on track to convert to our platform during this quarter, and will be included in next quarter's results. This is the first transaction and partnership to leverage the steps that we've taken in recent months to enable credit unions to participate in HealthEquity's depository partner program, and we are genuinely pleased to be supporting the credit union movement in a mutually beneficial way.

Custodial cash increased 24% year-over-year at $5.5 billion, and custodial investments grew at an even faster 75%. And again, that's despite broader market indices that declined between 6% and 8% during the fiscal quarter. So, we think that we continue to substantially outpace the market and our larges competitors, and believe that we are off to a really good start for fiscal '19.

Last year, on our first quarter call, we introduced you to Bill Otten, our EVP of Sales. Bill outlined last year our sales strategy to continue to grow and outpace the market, and he is again with us here today to provide an update on our sales initiatives and some early insight on the new selling season. Mr. Otten.

Bill Otten -- Executive Vice President of Sales

Thank you, Jon. On last year's first quarter earnings conference call, I outlined our strategy to continue HealthEquity's record of market share gains. It's a three-pronged effort. Number one, to play on a bigger portion of the HSA field; number two, increase uptake rates within existing health plan and employer partners; and three, deliver the right information and messaging to our members at the right time to help them connect health and wealth. Today, I can report, and HealthEquity's results this quarter and over the past year show, significant progress in each of those efforts.

First, our efforts to increase the portion of the HSA yield or footprint that we can compete on required building a sales force and support infrastructure that focused on midmarket employers and building out a broader solution offering that would help us to compete for HSAs more effectively through other benefit channels to reach this segment. Our sales force has grown 45% from where it was when I started a year ago, which includes experienced representatives and leaders in the field throughout the country, with more to come as we refine the model. We backed them by standing up a dedicated lead generation team, our first in HealthEquity. And operating under the banner of connecting health and wealth, we are spinning out targeted digital lead marketing to keep those reps busy.

Today, we have a broader solution set for this segment, one that responds to its unique needs. In addition to HSA, HealthEquity now offers FSA and HRA administration to regional employers, whether through a health plan, partner, or not. Later this year, we expect to add other administrative services for regional employers. And of course, the launch of HealthEquity retirement services, our 401(k) plan manager for regional employers, gives HealthEquity a whole new way to talk about health and wealth, and a whole new audience among retirement plan advisors and consultants, an audience we are quickly learning how to reach. So, we're playing on a bigger field with a broader message than any other time in HealthEquity's history.

Our second [00:07:54] tap on the market is to drive uptake, or penetration rates, within our existing partners. We stood up a dedicated team of account executives, focused on growing our largest relationships, and circulating best practices throughout our partner base. In FY18, the team focused on HealthEquity's roughly largest -- 100 largest employer partners, and, as previously reported to you, delivered an increase in HSA uptake rates within that group from 24% to 35% during this open enrollment cycle. During this new selling cycle, we're expanding that effort to include about 200 of our largest employer partners, and sharing knowledge with the account teams of our health plan partners so they can be experts as well. While we cannot promise the same dramatic impact, we do believe that as employers continue to fine-tune their HSA offering and education, more employees will opt in to enjoy the value and benefits of HSAs.

Our third mandate was to sharpen the message to help drive members to optimally use their HSAs. When employers select HealthEquity, there's choosing an expert that knows how to drive deep, ongoing HSA engagement and education that meaningfully increases their employees' wealth, and makes a meaningful impact on their healthcare costs. One recent example of the impact we can have comes from our partnership with one of the nation's premiere public institutions of higher learning. Specifically, we suggested several plan design enhancements; we deployed our plan comparison tool to provide personalized contribution enrollment guidance; and we collaborated on a year-round effort to help their members better understand and build long-term savings within their health savings accounts. The results were impressive. In less than a year, the number of investors has grown 56%, and the total custodial assets invested more than doubled, growing 110%.

We are uniquely positioned to make a very positive impact on HSA members, their employers, and health plan providers in connecting health and wealth as never before. One final point about this example. When members contribute more to their HealthEquity accounts through payroll, they save, but so do their employers. This is because such contributions reduce the employer's payroll tax base, so the employer in this case was immediately and materially rewarded for its efforts. We still have a lot of work to do in broadening our market coverage, deepening our engagement and penetration rates with our partners, and helping build member health savings, but as Jon said, we're off to a great start.

Now I'll turn the call over to Darcy for comments on the quarter's financial results and our outlook. Darcy?

Darcy Mott -- Executive Vice President and Chief Financial Officer

Thanks, Bill. We will -- I will discuss our results on both a GAAP and a non-GAAP basis. A reconciliation of non-GAAP results that we discuss here to their nearest GAAP measurement is provided in the press release that was published earlier today. I will first review our first quarter financial results of FY19, and then I'll provide an update to our guidance for the full fiscal year '19.

Revenue for the first quarter grew 26% year-over-year to $69.9 million. Breaking down the revenue into our three categories, we continued to see growth in each of service, custodial, and interchange revenue during the quarter. Service revenue grew 10% year-over-year to $24.8 million in the first quarter. Consistent with the strategy we had outlined over the last five years, service revenue as a percent of total revenue declined to 36% in the quarter, down from 41% of total revenue that it represented in the first quarter last year, as the custodial revenue stream has become more predominant. Service revenue growth was attributable to a 24% year-over-year increase in average HSAs during the quarter, partially offset by an 11% decrease in service revenue for average HSA. Remember, HSA service fees are paid primarily by employers on behalf of their employees. And so, by bringing these down over time, we deliver more value and help our network partners deliver more value to their customers. It's working, and we are going to keep doing it. As we indicated last quarter, we expect the decrease in service revenue per HSA to be toward the high end of our historical 5% to 10% guidance for FY19.

Custodial revenue was $28.4 million in the first quarter, representing an increase of 47% year-over-year. Driving factors for this growth were a 31% growth in total custodial assets and a higher annualized interest rate yield on custodial cash assets of 2.04% during the quarter.

Interchange revenue grew 22% in the first quarter to $16.6 million, compared to $13.6 million in the first quarter last year. Interchange revenue benefited from the 24% year-over-year increase in average HSAs in the quarter compared to the first quarter last year, with a slight decrease in average spend per HSA.

Gross profit for the first quarter was $44.4 million, compared to $33.7 million in the prior year, increasing the gross margin level to 63% in the quarter from 61% in the first quarter last year. A higher gross margin was the result of increasing mix to custodial revenue. We expect that the mix shift will continue over time and will continue to drive gross margin expansion as accounts mature and their balances grow.

Operating expenses were $23.8 million, or 34% of revenue, compared to $17.8 million, or 32% of revenue in the first quarter last year. We expect to continue to invest in sales and technology throughout FY19. Income from operations was $20.5 million in the first quarter, an increase of 29% year-over-year, and generated an income from operations margin of 29% during the quarter. We generated net income of $22.6 million for the first quarter of FY19 compared to $14 million in the prior year. Our GAAP diluted EPS for the first quarter of FY19 was $0.36 per share, compared to $0.23 per share for the prior year. Excluding stock compensation net of tax and the tax impact of stock option exercises, our non-GAAP net income and net income per share for the first quarter of FY19 were $19 million and $0.31 per share. Our non-GAAP adjusted EBITDA for the quarter increased 32% to $29.6 million compared to $22.4 million in the prior year. Adjusted EBITDA margin for the quarter was 42%.

Turning to the balance sheet, as of April 30, 2018, we had $270 million of cash, cash equivalents, and marketable securities, with no outstanding debt.

Turning to guidance for FY19, based on where we ended the first quarter of FY19, we are raising our revenue guidance for FY19 to a range between $278 and $284 million. We expect non-GAAP net income to be between $64 million and $68 million, non-GAAP diluted net income per share between $1.00 and $1.06 per share, and adjusted EBITDA between $107 and $111 million. Our non-GAAP diluted net income per share estimate is based on an estimated diluted weighted average shares outstanding of approximately 64 million shares for the year. The outlook for FY19 assumes a projected statutory income tax rate of approximately 24%.

Before I turn the call back to Jon, I would like to highlight two items reflected in our guidance. First, now that all of the new custodial transfers are completed, we expect our interest rate on the custodial cash asset to be at or near the 2.04% reported in this quarter for the rest of FY19. Second, as we've done in recent reporting periods, our full year guidance includes a detailed reconciliation of GAAP and non-GAAP metrics. This includes management's estimates of depreciation and amortization of prior capital expenditures and anticipated stock compensation expenses. But this does not include a forecast for stock option exercises for the remainder of the fiscal year.

With that, I'll turn the call back over to Jon for some closing remarks.

Jon Kessler -- President and Chief Executive Officer

Nailed it, Darcy. Thank you. Our remarks today have focused on sales and account management, and I'd like to close by thanking HealthEquity team members representing us in the field, as well as to thank the field teams of our network partners. Our account executives genuinely work their tails off at a difficult job with huge emotional vicissitudes -- that's right, vicissitudes -- every day. That's ups and downs. I had to look it up. Darcy, Steve, and I, if it were up to us, they would all be sporting purple blazers every work day. It is not up to us, but all of us as investors should be, and we certainly are, tremendously thankful at how fortunate we are to have what we believe to be the smartest, most experienced, and longest-tenured team in our business at the point of the spear. So, with that, I say to everyone in the field, thank you, and I open up the call to your questions, so long as they are not boneheaded, or uncool, or dry. Dry?

Bill Otten -- Executive Vice President of Sales

Boring.

Jon Kessler -- President and Chief Executive Officer

Boring. Boring is out. None of those. For those who don't get that reference, maybe google it. But in any event, Operator, we'll take questions.

Questions and Answers:

Operator

Ladies and gentlemen, if you have a question at this time, please press the * and then the number 1 key on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press the # key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated.

And our first question comes from the line of Greg Peters of Raymond James. Your line is now open.

Greg Peters -- Raymond James -- Analyst

Good afternoon, Team Purple. Can you hear me?

Jon Kessler -- President and Chief Executive Officer

We can. Everyone else jumped off when they heard the boring thing, and you're here, so get at it.

Greg Peters -- Raymond James -- Analyst

I'm kind of intimidated about the boneheaded, uncool, and dry comment. So, hopefully I'll be able to kick off your -- all right, well, I'm gonna give it a shot here. So, I want to spend a minute, and I'll ask one question and one follow-up, because I know there's a big line of Q&A. Can we spend a minute and talk about some of the pressures that you guys have over the course of this year that will pressure your adjusted EBITDA margin? Because it seems to be on a nice linear path upwards, and I know there's investments that you're making and other operational issues that create headwinds there. And I thought maybe this would be a good opportunity to just walk us through some of those issues.

Jon Kessler -- President and Chief Executive Officer

Darcy?

Darcy Mott -- Executive Vice President and Chief Financial Officer

Sure. One thing that has kind of -- as we've talked about this, we have adopted ASC 606 as of February 1st, the beginning of our fiscal year, as most companies had to do in this current year. It really doesn't have any impact on our revenues, per se, as a revenue recognition standard. But it does have an impact on our sales and marketing expense, and most particularly, our commission expense on some sales. In the past, we have paid commission expense to our sales people as the accounts come in the door, and it's on a cash basis, and we accrue it when they come in and when the accounts arrive. And so, we've had a little bit of unevenness in that, particularly in our fourth quarter, when we've recognized a large increase in sales commissions expenses, because that's when a big portion of our annual accounts come in the door.

With the implementation of ASC 606, what we did is we went back in time as reasonably practical, and we capitalized about $17.5 million of commission expenses, and we put it on our balance sheet in other current assets -- in other assets, a small portion of it being other current assets. That asset will now be amortized over the life of those HSAs relative to when they came on board, and it'll be spread over a 15-year life. What that has a tendency to do is that it will smooth out our sales expense throughout the year. And so, the $6.9 million that we recorded in sales and marketing expenses in the first quarter, you'll see that that will be at least at that level, and then it'll grow with a little bit of an upward bend as we go through the year. But you won't -- it'll stay pretty stable, and you won't see the big increase that we normally have had in the fourth quarter.

Along with that and included in that number is the amortization of the 606 commission expenses, which will be $2 million or less in the current year. But the pickup that we will get from EBITDA is probably about $4 million of the cash that we would have paid out for those commissions in the current year that now will get capitalized and spread into future periods. And so, we have a pickup there. But in addition to that and independent of that, we have determined previously, as Bill has mentioned in his remarks, that we have grown our -- not only our sales and marketing team, but also the expenditures that we're doing to go more directly to our employers, and to expand our base, and to be able to get more HSA sales throughout the marketplace. And so, we think that even though we got some uplift from the ASC 606 adoption, we have also determined independently from that that we're going to invest in our sales opportunities and expand.

So, I think that's one area of pressure self-imposed, so to speak, on our EBITDA margin. As you know, they're very healthy, and we think that they long-term can become even healthier if we'll take some time now to spend a little bit more money not only on our sales and marketing efforts, but also on our technology platform. We've always continued to invest in our technology platform to be able to differentiate and to have a platform that is the best in the industry for not only managing health savings accounts, but also helping our members to navigate it better and have the tools that will help them become better savings in the future.

Jon Kessler -- President and Chief Executive Officer

Greg, I'll just -- I'll add one comment to that, which is, we felt -- we've always said to you that we want to have the opportunity to increase profit margins, but we're willing to spend where -- particularly it entails marketing, where we can generate attractive returns for shareholders. And this is a case where we can't. And so, it's fortunate that coincident with ASC 606, that the result is we get sort of the best of both worlds. We get increased margins and we get incremental increase, what we're spending in current cash on sales and marketing activities. And that latter point is really the result of the fact that we feel pretty excited about what we saw last year and what we've seen in the pipeline so far this year. And that's reflected in the Q1 results. And we feel like it's a good bet to increase the headcount that we have out in the field.

And as Bill has talked about some of the other things that we're doing, both with our -- with new prospects, and then also on the account executive side, working to share expertise with our existing customers to drive uptake. So, this is a case where you've said to us, as have others, that if you think it's worth it, go ahead and spend. And we think it's worth it, so that's what we're doing. And that again reflects a view on our part that there is incremental opportunity out there to go get and to get in a way that's really valuable to shareholders.

Greg Peters -- Raymond James -- Analyst

And just a follow-up on that point, especially regarding the build-out of the sales initiative. You obviously are thinking about your business more than just in a one-year or three-year outlook. But obviously, you've put together a plan that I'd imagine is going to include a lot of investment over sales and marketing over the next several years. And I'm just wondering how you think about budgeting that and how you're making sure that you're getting an appropriate return on your investment there.

Jon Kessler -- President and Chief Executive Officer

Well, one -- I'll say one challenge that I think your question points to is the good side of recurring revenue is that it recurs. The flip side is that none of it happens until you've made the sale, and even then, it happens in small amounts. So, for the most part, the incremental spending that we are doing in the current year will not have an impact on current year revenues. There'll presumably be some impact as we get later in the year. But a lot of that ramp will really come next year, so similarly, what you're seeing this year in part is a result of the ramping that we began to do last year. And so, that's something we have to keep in mind. But as you say, within that context, we look at these dollars sort of from an IRR perspective. Ultimately, we're looking at what's our return over a reasonable period of time? How do we make sure we manage the business so these are truly incremental dollars?

We're not mixing inadvertently sales activities with service activities, so that at some point, you really don't know what your incremental profitability is. And those are things we're pretty careful about. It's the same analysis that we do in the context of M&A, I suppose, but with always a little less clarity about the results. But that's kind of how we look at it. We really try not to say, well, we have to have payback this year for sales and marketing expense. But we certainly want to see a payback soon, and we want to see it meet the thresholds that we know that our investors have for their capital and more. So, that's kind of how we look at it.

Greg Peters -- Raymond James -- Analyst

Okay. Thank you for that answer. And the second topic I wanted to just briefly have you comment on would be around the custodial revenue aspect of your business and the competitive conditions in the marketplace. It seems like there's a growing number of your competitors that have earned or won the non-bank custodial designation. And I'm just curious if you're thinking about that in the context of your continuing growth, if there might be any pressure on the rates that you're getting from your bank partners, etc., as we think about this going forward?

Jon Kessler -- President and Chief Executive Officer

Yeah. Well, I will say this. Demand for deposits has gotten extraordinarily healthy, certainly in the last six to 12 months, and you see that in the rates that we're getting and so forth. I guess generally, here's the way that I think about your question. I mean, we pioneered this custodial model. It's been more than a dozen years now. And it's now being adopted, as you say, by a number of our competitors. And we think that's good for the industry. We thought it was the right model then. Others have had different views over time, but it seems like people are kind of coming around. And but over the period of time, Greg, we haven't been sitting around -- and I know you know this -- sitting around doing nothing.

We've built, I think, really sophisticated and proprietary both technology and business process that really, the goal of which is to deliver certainty and precision to our depository partners, clarity to the regulators involved in all this, and most importantly, security for our account members. And we've built an ecosystem of depository relationships that it includes -- now includes the mention in my upfront comments, credit unions as well as banks. And these are long-term partnerships on which these institutions can rely and build asset portfolios around on their end. We've created liquid products for members that want higher interest rates but with the convenience of card swipe, as I think you know. And of course, sort of on the investment side, we've tried to really lead the industry in bringing HSA-focused investment advice to members, adopting low-cost fund lineups, being absolutely transparent about fees, while others kind of screen for exemptions from rules that would have required that.

So, I guess the way we'd look at it, Greg, is we will keep looking for ways to add more value than the next guy to the relationships that we bring to our entire ecosystem, whether that's our members on one end of that, or our depository partners on the other. And I think we've done that successfully to date. We listened very carefully to what our depository partners are looking for, and we try to get it to them as much as we can. So, that's kind of gonna continue to be our competitive advantage there, I think.

Greg Peters -- Raymond James -- Analyst

Excellent. Can you just update me, what was the number of depository partners you had at the end of the first quarter?

Jon Kessler -- President and Chief Executive Officer

It's 12 or 13, right in there.

Greg Peters -- Raymond James -- Analyst

Okay, perfect. Thank you very much for your answers.

Jon Kessler -- President and Chief Executive Officer

Thanks, Greg.

Operator

Thank you. And our next question comes from the line of Anne Samuel from JPMorgan. Your line is now open.

Jon Kessler -- President and Chief Executive Officer

Hey, Anne.

Anne Samuel -- JPMorgan -- Analyst

Hi, guys. Hi, thanks for taking my question. You spoke of the acquisition of a small credit union portfolio. As you move throughout the year, how are you thinking about incremental opportunities for M&A, and how that market looks?

Jon Kessler -- President and Chief Executive Officer

As we've said all along, we're just gonna kind of be opportunistic about this. We don't have a quota or anything along those lines, but we do have an active pipeline, and we genuinely believe that we are an acquirer of choice, both because we kind of know how to do this, we've done it a number of times now, and also because of our record from a service perspective, and our ability to deliver some innovation to the members and the employers and the like tends to mean that it puts the seller of the portfolio in a favorable light. The other thing that I note that we kind of added here is a little more ability to be granular with regard to our depository partner program, so that if it's of interest, that -- no pun intended -- that our sellers of these portfolios can become participants in our depository partners program, and that can meet some of their needs in many ways better than the HSA business might have.

So, that's kind of like how we're looking at it. We certainly will continue to try and do these portfolio acquisitions. They work great. They're -- as you know, Anne, they deliver, we think, very, very nice returns to our shareholders, grow our base, leverage the technology and operational footprint we already have. And we like them. We like serving more people and helping more people build out savings. And this is one way to expand that footprint, so we'll keep doing it. But we don't have a quote or the like, and certainly, our guidance doesn't reflect incremental acquisition activity.

Anne Samuel -- JPMorgan -- Analyst

Great. That was gonna be my next question, so thanks very much, guys.

Jon Kessler -- President and Chief Executive Officer

Yes, ma'am.

Operator

Thank you. And our next question comes from the line of Jamie Stockton with Wells Fargo. Your line is now open.

Jon Kessler -- President and Chief Executive Officer

Hey, Jamie.

Jamie Stockton -- Wells Fargo -- Analyst

Hey, good evening. Thanks for taking my question.

Jon Kessler -- President and Chief Executive Officer

Good evening.

Jamie Stockton -- Wells Fargo -- Analyst

I guess maybe the -- good evening. So, the first one -- in Bill's comments, I think you made a reference to HRAs and FSAs and the potential to add other services. It seemed like maybe that was a little more overt than what I've heard previously. And I'm just curious if you have any color on, hey, this other stuff is this part of our business today, but we really think that it could grow disproportionately to become a bigger part over time. Are we starting to hear maybe some initial hints of that from you guys?

Bill Otten -- Executive Vice President of Sales

Sure, yeah. Thanks, Jamie. Really what I was referring to in my comments is we're starting to bring some of the services that we've traditionally offered in the upper end of our market, the large clients, down to more of the midmarket clients, where we've specifically focused on a smaller set of services. So, we're -- it's too early to tell right now. We've just started doing it recently. But certainly the interest is there to bring some of those services down-market -- as I've mentioned, the FSA and the HRA product.

Jon Kessler -- President and Chief Executive Officer

Yeah. And I mean, Jamie, I think partly where your question's going is just -- we certainly have -- this is an area where we've been doing research for some time. And we have a view as to what the employers and benefits advisors and the like in this part of the market really want to see, particularly for those employers that are not on a trajectory to go full replace HSA. And we think we can do a great job of delivering that. And one of the nice things about it is it allows us to meet health savers at different places on sort of that continuum of health savings. So, someone using a flex account is a health saver. They're just earlier on in that process. And we can help them, just as we might help the person who's looking for investment advice, and bring some of that same consumer focus to that product. So, that's I think something we've done for a long time at the high end of our business, but we're now bringing that into the middle market. And then, as Bill suggested, we do have some other things in the pipe. But we're not gonna tell you what they are today because it's not our WWDC, it's Apple's. We don't want to step on theirs, you know what I mean?

Jamie Stockton -- Wells Fargo -- Analyst

There you go. And maybe just one other question. On the custodial revenue, on the flip side, if we think a bout cogs for that revenue line, we've obviously seen rates go up a fair amount. Can you just talk through how you guys think about the rate that you're gonna have to pay to the account holders on the cash and how that might evolve over time?

Darcy Mott -- Executive Vice President and Chief Financial Officer

Yeah. The way we view this is that it'll be market driven. Remember that these are HSA balances that have an average of less than $2,000.00 in it. So, think of it for somebody who's using this actively, they're paying medical bills out of it. They might be building their savings a little bit. But it's kind of like an interest rate you would pay on a checking account. Most -- what we do, and all of our competitors of note, have a tiered rate schedule, whereas if they do become a saver and they want to keep more cash, then they'll get a little bit more yield on their cash. And we'll see how that goes. We'll pay attention to it closely in the marketplace. And we've been in this space before 10 years ago when interest rates -- when the fed rate was over 5%, or 11 years ago, I guess. There was a higher interest rate paid. But as rates came down, I think people learned that these are fairly inelastic. But we'll be fairly cognizant of watching for any demand there as it relates to interest that we pay.

Jamie Stockton -- Wells Fargo -- Analyst

Okay, that's great. Thank you.

Operator

Thank you. And our next question comes from the line of Mark Marcon from RW Baird. Your line is now open.

Mark Marcon -- RW Baird -- Analyst

Good afternoon, and congratulations on a terrific start to the year. I was wondering, could you provide a little bit more color with regards to the source of the account wins? They came on -- this was a record first quarter. How much of that was from like new employer partners versus existing accounts that basically had broader adoption? Anything that you could give is fair. And what does that portend for the next few quarters, do you think, prior to the big fall selling season?

Darcy Mott -- Executive Vice President and Chief Financial Officer

Yeah. Normally in our first, second, and third quarters, Mark, as you know, most of our growth in the accounts that occurs comes from our health plan channels or our partners that are bringing us access to the smaller employers, and so generally, that's what that would be. We did have one employer, who normally we would get in the enrollment cycle in the December/January timeframe, that came onboard for about 10,000 accounts, and we got that in the quarter. So, if you took all of that out, then the rest of it was probably still pretty healthy, but came from our normal smaller employers and our health plans. Now, as Bill said, as we continue to work with these smaller employers, we probably expect to see over time that we'll start getting more of those throughout the year than just always at the yearend enrollment. But I don't think we've seen anything noteworthy in that regard this year. But we did have one employer that was probably more of a yearend type employer that came onboard.

Mark Marcon -- RW Baird -- Analyst

Great. And then with regards to the sales initiatives, can you talk a little bit more there and with regards to what the opportunity from the nearer-term perspective seems to be in terms of broadening the scope of services that you're providing to the smaller employers in terms of including HRAs and FSAs and some other administrative services that'll be named later? How should we think about that in terms of broadening the addressable market that you can immediately go after, and that the sales force is capable of reaching?

Jon Kessler -- President and Chief Executive Officer

Yeah, a couple of thoughts. I mean, first of all, as Bill said, and I'll put an even finer point on it, this is about reaching a portion of the market where we just weren't on the field. And Bill commented on this a year ago. And --

Mark Marcon -- RW Baird -- Analyst

I'm just trying to figure out how big that field is, Jon.

Jon Kessler -- President and Chief Executive Officer

Yeah, well, it's fair enough. I mean, it's -- the answer is obviously, if it had been huge from the outset, we'd have been there. But what we thought was that these accounts were being or would be soaked up -- as these parts of the market started to grow, they'd be soaked up by the health plan channels. It's just that the data told us otherwise. And so, that's kind of -- so, that's the first point I'd make. And again, I think we'll have to see in terms of size and so forth.

The second point I'd make, though, is when you think about the other services we're providing, what I want you to realize is the purpose of providing those services isn't really from our perspective to expand our TAM. I mean, we believe that the core market we're in is still in its relatively early innings, and we can find no other market, frankly, with the same growth opportunities as our core market. But what we are very cognizant of is that it's helpful in terms of driving our core business to offer some other services. And that's always been true. It's just more true as we enter a greater diversity of market settings. So, I think it's fair to think a little bit about TAM and so forth, maybe some of this stuff over the next few years has an impact on service fees or what have you. But the core objective really is to put the company in a position to win when it comes to the HSA market, which is all of these related services has the largest potential, is growing the quickest, and we think is the most durable in terms of the relationships that you establish with consumers.

So, that's the way to think about all of this, is it's all about positioning to grow that core business. And even when we think about what we're doing, for example, in the 401(k) space. We're not getting into the business of 401(k) plan record keeping. We're trying to be in the business of managing an employer's 401(k) and HSA products so that the complete picture of health and retirement savings can be presented to members, because we know if that's the case, those members are gonna use the HSA more, and they're gonna use it as it is intended to be used. So, even there, while absolutely there's some revenue produced on the other side, our real goal there is -- we know that if you present the complete picture to the consumer, we know what the consumer does.

So, everything we're doing is really about, I think, growing the core and growing our business, our market presence within the core better than anybody else. And that's the commitment we've made to you. So, I think for those who might say, oh, I suppose the bad news is I'm not suggesting there's a bunch of additive TAM. The good news is, there isn't a need for a bunch of additive TAM. We are extremely confident in the long-term prospects of the core market we're in.

Mark Marcon -- RW Baird -- Analyst

What I was getting to, the additional TAM, was more along the lines of the smaller type accounts that you weren't previously going after.

Jon

Yeah.

Mark Marcon -- RW Baird -- Analyst

But I do appreciate that you're focused on the core with the HSAs --

Jon Kessler -- President and Chief Executive Officer

Well, and I think that's right. I mean, there, I say think of it this way. If you were a small employer and your -- we might have thought years ago, or even three or four years ago, that unless we were partnered with your carrier, we couldn't get to you. And it turns out, that's just not the case. That is to say that this is one area where we have done proprietary research over a long enough period of time that we now know that you as an employer can be receptive to what we're doing. And in particular, that is in part because you as an employer and your benefits advisor want to be able to shop that health plan relationship every year. And as you know, Mark, that the HSAs are pretty sticky in terms of how you move them from provider to provider, just the mechanics of doing it. And so, in fact, if you actually look at it, the smaller an employer is, the less likely they are to have purchased the HSA through their health plan. And that was a very counterintuitive result for us, but that really triggered our investment in this area.

So, thinking about the opportunity here, keep in mind that these are markets that relative -- whereas a large group, certainly in the enterprise segment, we start to hear people say, well, about half the employers at least offer an HSA, and so there isn't as much green field, etc., etc. Here, your penetration rates are still very low. Now, there are barriers to penetration, not the least of which is that it's still the case that there's a little bit of an issue where these products have lower premiums, and to some extent, you're fully insured. And so, there's a little bit less of an interest on the part of the brokers and whatnot in selling them. That remains true, and so do the carriers. But nonetheless, they're growing. And so, we think that this end of the market is less penetrated certainly than the enterprise. And therefore, the green field opportunities are bigger. And what's also nice is that more often than not, with the smaller groups, if they go HSA, everyone's going HSA. And so, you're getting full replaced. And so, that's pretty valuable for us too.

So, look, I don't have a direct answer for you in terms of what the actual result will be because I don't have a crystal ball about the pace of penetration by segment. But we certainly think the opportunity's there, and we're delighted that this is an opportunity that we can now attack from not just -- really from three directions now. We can attack it from the perspective of health plans, as we always have. We can attack it by providing a bundle of services directly and in partnership with advisors and the like. And we can attack it from the retirement end through the work that Bill talked about that we're increasingly doing with financial advisors. So, we think that's pretty cool, and we'll see how it goes.

Mark Marcon -- RW Baird -- Analyst

That's great. Congratulations. One last one, just on the credit unions. Can you talk a little bit about the cost of like -- I know it's early, but in terms of when you think about buying a portfolio or getting a portfolio transitioned over, how should we think about that?

Jon Kessler -- President and Chief Executive Officer

This is one of the great things about these transactions, is -- and a lot of credit goes to our service and implementation teams in this regard, as well as our transaction team. But the process for moving these portfolios over is extremely smooth. We're able to do it in a number of months, not quarters, and in a way that is minimally disruptive to the member. It certainly provides no disruption or cost to the selling provider, and can make them feel good about the decision they're making. So, the costs are really modest. I think what's -- we have incurred some kind of one-time costs in making some adjustments in how we communicate things, and also to the way that our sort of cash program works to accommodate the specific needs of the credit union world, making sure that people understand that their deposits may be NCUA-insured, and making sure that NCUA is comfortable with what we're doing -- those kinds of things. But with those costs incurred, they're very similar.

I think the thing that is different about CUs is that they take tremendous -- I mean, and I think this is true of all institution, but particularly these. They take tremendous, tremendous pride in their relationships with not only individuals, but with local businesses. And so, we're fortunate in Utah to be in a state that has a very, very large credit union footprint, and we see that every day. And so, we think there's a real opportunity to leverage that and see how it goes. But we're proud to be both in the position of being an acquirer there, but also in the position of being a supplier of a cash for lending to credit unions as well. And so, that's something new for our industry, and certainly for us, it feels pretty good.

Mark Marcon -- RW Baird -- Analyst

Great. Thank you.

Darcy Mott -- Executive Vice President and Chief Financial Officer

Thanks, Mark. See you tomorrow.

Mark Marcon -- RW Baird -- Analyst

See you tomorrow.

Operator

Thank you. And our next question comes from the line of Stephanie Demko from Citi. Your line is now open.

Jon Kessler -- President and Chief Executive Officer

Hey, Stephanie.

Stephanie Demko -- Citi -- Analyst

Hey, guys. Congrats on another quarter, and thank you for taking my questions, especially Elon Kessler over there. So, just given the buildup that you guys have of cash on your balance sheet, kind of the shrinking size of portfolios that are available for purchase, I wanted to ask if you would ever consider acquiring an HSA platform competitor versus solely going out for HSA portfolios. And if so, how would you think about the synergy, just given a lot of these other players kind of outsource their platform, and you'd be able to leverage your in-house platform?

Jon Kessler -- President and Chief Executive Officer

Man, who's the evil genius now, Stephanie?

Stephanie Demko -- Citi -- Analyst

Been doing some noodling on it.

Jon Kessler -- President and Chief Executive Officer

As my kids say, he may be an evil genius, Dad. You're just evil. But I'm sure he's not evil, by the way, in case he or anyone from the firm is listening. Probably not. Just because he's digging holes through the center of the earth doesn't mean he's Dr. Evil. But so, I mean, the answer is -- I think that it's something -- you know, we certainly look at these kinds of businesses, and I think perhaps what you're referencing is that there have been news reports that one of the platforms that's used by some of our competitors, I suppose, is on the block, and I'm not gonna comment on specific M&A activities, of course. But the way that we would look at that is can we bring incremental functionality to our existing customers, and can we reach new customers as a result of that kind of a transaction? So, for example, if we thought that a transaction along those lines would allow us to be more valuable a partner to our health plans or to employers, or to reach new channels that might have an interest, that's certainly something that we would definitely look at, and I think pursue aggressively.

And certainly, if we did pursue something like that, we would be in as good a position as anyone, perhaps better, to be able to provide value to the would-be sellers and still deliver tremendous value to our shareholders, because we do -- certainly there would likely be a significant amount of synergies on the plus side, but I think more importantly, on the revenue side. A lot of these types of products that you see out there really haven't taken full advantage of the economics of an HSA, particularly talking about private companies where they maybe didn't have the balance sheet to do that, that kind of thing. So, certainly that's the kind of stuff we'd look at. Again, without commenting on anything in particular, if we thought it added value, if you were buying a platform just for the purposes of getting the customers, there probably is someone else who'd be willing to pay more for that platform because they thought that now would be a great time to enter the business. And I can't argue with the logic that it's a great business to be in. But that would be -- that wouldn't be as interesting to us, and certainly I would imagine that there would be better acquirers for something that was solely for the purpose of adding more customers in that circumstance.

Stephanie Demko -- Citi -- Analyst

Understood. So, without being too specific, are there any particular capabilities you can think of that would be more interesting to you?

Jon Kessler -- President and Chief Executive Officer

That is a bonehead question. Next!

Stephanie Demko -- Citi -- Analyst

All right.

Jon Kessler -- President and Chief Executive Officer

I think I'm gonna hold off on that. I mean, there are a lot of things our platform does really well. I guess I'll say only that there are always things that either competitors or quasi-competitors do better because they've had to focus on those things. I mean, that's sort of the nature and that's the beauty of competition, is it does really lead people to specialize in particular aspects of the service. And so, it wouldn't surprise me that we would find some things that would be really valuable in looking at some of the folks who sort of ply this business from more of a, let's call it services and software type perspective.

And ultimately, I'll say this. Another point is that we expect over the long period, over the long haul, that the real value of a lot of what we do from a platform perspective -- and I've said this before -- the administrative side of this is kind of table stakes at some level. What's really valuable is the ability to, as Bill said earlier, is to get information to consumers, the right message at the right time, the right content, and to use everything you know about a consumer to make that happen. And whether that information is valuable for the purposes of helping them build health savings or advance what they're doing on the retirement side, or even to use their health benefits to the fullest, to spend less today or stay healthier, those are -- that's a really, really valuable thing. And that is gonna require investment over time. And in the analytics, of course, but also in all the infrastructure and data infrastructure that's around that.

And so, the ability to do that over a wider base of business is certainly something that we would consider valuable, along with the ability to really use that breadth to push innovation in the industry. From our perspective, what we have found is innovation is our friend. We are a sort of a, for lack of a better term, specialized player. When we push innovation, it takes our competitors off their game. Not because -- they're not innovating in the wrong ways, but they just aren't quite as focused on this industry as we are. So, the ability to innovate across a wider base, all those kind of things are always valuable things we're looking for. So, all those are the kinds of things that would play in. But I'm not gonna give you a feature want list.

Stephanie Demko -- Citi -- Analyst

All right. Understood. Thank you for the color either way. And then one quick follow-up, just because we do have Bill on the line. Just given the recent discount in strategy, obviously it's early days, but is it possible to get an update on how it's kind of helping your wins in the quarter?

Darcy Mott -- Executive Vice President and Chief Financial Officer

Discount.

Jon Kessler -- President and Chief Executive Officer

Well, price discounts?

Stephanie Demko -- Citi -- Analyst

Just on the greater discount on your services.

Jon Kessler -- President and Chief Executive Officer

Sure, yeah. Well, I will tell you, Stephanie, thanks for the question. First of all, we are a value add product and service. We are not out looking to be the least expensive. However, when it comes down to competing, we also don't want to lose deals on price. So, as we're looking to bring in more employers and increase the AUM, we will get competitive where needed with Darcy's help and the pricing team. So, yes, it absolutely does help. But we don't always go in expecting to be the lowest-priced provider.

Stephanie Demko -- Citi -- Analyst

All right. Thank you so much, Team Purple. Appreciate it.

Jon Kessler -- President and Chief Executive Officer

Good. Thank you.

Operator

Thank you. And our next question comes from Steve Halper of Cantor Fitzgerald. Your line is now open.

Steve Halper -- Cantor Fitzgerald -- Analyst

Yeah, hi. Just a housekeeping item. You had a tax benefit in the quarter. What drove that? And I'm assuming -- you said 24% for the rest of the year, so I'm assuming a higher effective tax rate for the remaining three quarters. Is that fair?

Darcy Mott -- Executive Vice President and Chief Financial Officer

Yes. Well, yes to the first question, and that'll help answer the second question. The credit that we got on the tax for the first quarter is the result of stock option exercises that occurred in the first quarter, so that would be from February 1st through April 30th. And under the new accounting rules, we take the benefit of that into our provision. It used to just go to the balance sheet. Now it goes through our provision. And so, to the extent that those stock -- the gains that people got off of those stock option exercises exceeded our pre-tax income, then we took the credit, and we get the benefit of that. As I said in my comments, we do not forecast what that stock option exercises will be going forward. So, if there were zero and our pre-tax income from Q2, Q3, and Q4 were whatever it is, then we would expect the normal tax rate to be 24% on that. And so, that's how we're modeling it. That's why we do our non-GAAP EPS calculation, because it kind of backs out the necessity of trying to predict what that's going to be, because it's virtually impossible to predict.

Steve Halper -- Cantor Fitzgerald -- Analyst

Right. So, if it's zero for a quarter, do we assume 24% or 24?

Darcy Mott -- Executive Vice President and Chief Financial Officer

Yes, but it'll be blended. So, in our Q that will be filed this week, there will be reconciliation, and you'll see how much of that was a result of that, that tax benefit. And so, that will -- whatever we got in the first quarter, we get that for the rest of the year. But if you look at it on a quarter by quarter basis, we're assuming the 24% tax rate for the future quarters. That's correct.

Steve Halper -- Cantor Fitzgerald -- Analyst

Okay, great. That's what I needed. Thank you.

Jon Kessler -- President and Chief Executive Officer

Would it be fair to say, Darcy, just to be clear on this, that we give the guidance of 24%, that guidance is for the full year, inclusive of Q1, and it is ignoring the tax effect of stock options? So --

Darcy Mott -- Executive Vice President and Chief Financial Officer

Not stock options. Stock options --

Jon Kessler -- President and Chief Executive Officer

Stock options exercised.

Darcy Mott -- Executive Vice President and Chief Financial Officer

Correct. That's correct.

Jon Kessler -- President and Chief Executive Officer

So, it's not that it's 24% for the rest of the year. It's 24% for the full year, but ignoring this effect.

Steve Halper -- Cantor Fitzgerald -- Analyst

Right. So, a normalized year would have been 24%, so we assume, since you can't forecast in the quarter, so we just assume 24%, and you get that credit net at the end of the year anyway, so it'll wind up being less, because you just can't forecast it. I get it.

Darcy Mott -- Executive Vice President and Chief Financial Officer

Yes, that's exactly right.

Steve Halper -- Cantor Fitzgerald -- Analyst

Okay, thank you.

Jon Kessler -- President and Chief Executive Officer

It's another victory for opaque accounting.

Operator

Thank you. And our next question comes from the line of Donald Hooker from KeyBanc. Your line is now open.

Donald Hooker -- KeyBanc -- Analyst

Good afternoon. So, I may risk asking a boneheaded question here, but did you guys talk about how big the acquisition --

Jon Kessler -- President and Chief Executive Officer

Halper's one of the short sellers, so we got through him, so you're all good.

Donald Hooker -- KeyBanc -- Analyst

All right. So, you mentioned you did a small uptick in acquisition. I mean, I understand it's small, but were there any numbers that you supplied around what that's adding to your guidance?

Jon Kessler -- President and Chief Executive Officer

So, we haven't --

Darcy Mott -- Executive Vice President and Chief Financial Officer

No, but I'll --

Jon Kessler -- President and Chief Executive Officer

Go ahead.

Darcy Mott -- Executive Vice President and Chief Financial Officer

Yeah. It's about $10 million of AUM, and it'll be a purchase price of around $1 million. So, it's relatively small.

Donald Hooker -- KeyBanc -- Analyst

Okay, gotcha. And then as I look and think about interest rates are creeping up, what are the scenarios that would cause -- and I understand you've placed a lot of the money already that you've gotten for this enrollment year. But are there scenarios, and what is the potential for more upward creeping of interest rates during this current fiscal year? I know that's not normal, but in prior years, sometimes things come up where rates can kind of trend higher during the year. What are some the scenarios that can drive your yields on custodial cash up during the year?

Darcy Mott -- Executive Vice President and Chief Financial Officer

Yeah. Well, I mean, thanks, Don. Last year, we had an unusual circumstance where we had one of our depositories who had a variable rate contract who decided to pull out of it, and they did it midyear. And so, that money got placed elsewhere at prevailing rates at that point in time. And so, we got kind of an unusual uptick midyear last year as a result of that. Generally, that's not the case. You might see, if we got new money come in, more than the capacity of what we've got right now, and we entered into another contract, I mean, you could see a little bit of an uplift, but that's more of a rebalancing issue among our current contracts, which we typically don't do. We kind of go pretty steady as she goes.

The benefit of the rate increases or whatever will most definitely favor us when we go to enter into our new depository agreements that will come up primarily toward the end of the year in the December/January timeframe. So, we'll get pickup there, as for whatever portion of the contracts roll off and get replaced with new money, or just new money coming in, in and of itself getting placed newly. I haven't looked at it recently. There may be a couple of smaller contracts that may turn during the year, but they're not hugely significant. And most of it will occur at the end of the year.

Donald Hooker -- KeyBanc -- Analyst

Okay, gotcha.

Jon Kessler -- President and Chief Executive Officer

Yeah. I just want to put an emphasis on this point, because in years before last, this was generally pretty steady over the course of the year. We try to manage its steadiness over the course of the year. Granted, the total is bigger, so small amounts of variability, whatever. But we've given guidance in this call of kind of being around the 2.0 something number for the remainder of the year, essentially where we were in the first quarter, and we mean it. So, that's definitely something to pay attention to. And we would encourage someone who would want to draw lessons from last year to again keep Darcy's comments in mind, and say there were reasons why and reasons we talked about on these calls why we had this kind of midyear significant upsloping in these things. Now, we're prepared for that. We'd love to have that happy circumstance again, but it's not something we're expecting or forecasting. So, take us at our word on our current assessment of where rates will be.

Donald Hooker -- KeyBanc -- Analyst

Okay, thank you very much. Have a good night.

Jon Kessler -- President and Chief Executive Officer

Thanks, Don.

Darcy Mott -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Sandy Draper from SunTrust. Your line is now open.

Sandy Draper -- SunTrust -- Analyst

Great. Thanks, guys. I guess I was boneheaded with some very slow fingers in not getting into the queue here. Most of my questions have been asked and answered, but maybe just one quick one for Darcy. It makes sense that the gross margin is down on the service fees, as you're discounting there. But just thoughts in terms of longer-term trend, is that -- I would assume if you continue to see some longer-term declines in the service fee per account, you would expect to see the gross margin decline? And is there a place where you think that sort of levels out?

Darcy Mott -- Executive Vice President and Chief Financial Officer

Yeah. The way we evaluate it -- I think I talked about this before -- is that we look at that as one of the components. But we really look at the profitability of an HSA across all sources of revenue, custodial, service, and interchange. And I've always used this example. If an employer comes to me and says, "You know what? I'm going to adopt HSAs. I actually have some existing HSAs. I'm gonna move those dollars to your platform, and I'm going to make a heavy employer contribution to help fund these accounts, and I'm going to train my employees and help them figure out how -- that these are not just spending accounts. These are actually long-term savings accounts for retirement. They should be putting more money into them, and they really do a good job there. I am going to give that employer a lower account fee. I just am. And if that means that my "service margin" for those accounts looks like it went down, yet my custodial margin and my custodial revenue goes up significantly, I will do that all day long. And so, we try to evaluate it not just looking at the service revenue and the service cost component of it, and look at the account as it appears in totality.

Now, that being said, we will continue to do what we've been doing. By design, our service revenues are going to come down over time. We've used this 5% to 10% target for a long period of time, and it seems to fall within that band. And it's not because we're getting priced that way in the marketplace so much as it is -- that's the incentive that we've offered to our trading partners, to our health plans and to our employers. If you bring us more accounts, you're gonna get a lower account fee. And we will try to be -- we're always looking for better ways to service our employers in a more cost-effective and beneficial way. And there are some you can do there. But it does cost money to service these accounts because of our high touch, 24/7 call center, and being with them for, you know, if they're at the emergency room on a Saturday night and they need to figure out how they're gonna pay their bill, we'll have somebody answer the phone for them.

And so, there are service costs that are associated with that. And we try to always be smarter and do it a little bit better, but if a little bit of that margin sacrifices because we're helping people build their health savings, then we'll continue to do that.

Jon Kessler -- President and Chief Executive Officer

I'd just add there, Sandy, I mean, we were -- I was quite pleased with the team's performance in terms of -- certainly on a sequential basis, of the sort of service cogs. And we talked about earlier in the year that we felt we'd gotten off to a really good start with regard to service levels during January. They were outstanding, and I think that's something that's probably helped Bill in the field, so. I mean, it's always good when people's immediate service experience with you has been really good. And we just had really good service levels in January. But that also meant that we had more people than we probably needed at that point. And the team did a nice job of kind of keeping the best, but not just keeping bodies around to keep bodies around. So, that reflects itself in actual service cost.

And at the same time, if you look at revenues holistically, this is the second first quarter in a row where revenue in totality on a unit basis is going up. And so, the result of all that is if you look at EBITDA per unit or what have you, that number's getting wider and wider. And that seems like a good thing. So, we're not gonna get too hyped up over one component of revenue or cost, but it is worth noting that one of the things that contributed to a really strong margin performance this quarter was on the service side, the team followed up January with an excellent first quarter from a service perspective, but also from a cost control perspective.

Sandy Draper -- SunTrust -- Analyst

Got it. That's really helpful, and that certainly makes a lot of sense, looking at the account on a totality basis. So, maybe one final one. And it's maybe for you, Jon, or for Bill. This one, I know you don't like to call out specifically competitors. But when you think about the competitive landscape in buckets, has there been any change in terms of when you think about who you're seeing more or less in terms of the payers with their own HSA providers, other stand-alone players, the more broader benefits, back office type groups? Has there been any significant change in terms of sort of the different broad groups of who's competing more or less effectively?

Jon Kessler -- President and Chief Executive Officer

You want to hit the buckets, Bill, and give your observations?

Bill Otten -- Executive Vice President of Sales

Sure. So, I would say we're not seeing anybody that we haven't seen in the past before. We do see different competitors that come at it from a different approach, depending on what their area of expertise is. But no, I can't say that we're seeing any additional competitor that's doing anything that they weren't doing last year.

Sandy Draper -- SunTrust -- Analyst

Got it. Thanks.

Bill Otten -- Executive Vice President of Sales

You bet.

Operator

Thank you. And our next question comes from the line of Mohan Naidu of Oppenheimer. Your line is now open.

Jon Kessler -- President and Chief Executive Officer Hey, Mohan.

Mohan Naidu -- Oppenheimer -- Analyst

Hey Jon, thanks for taking my questions. Maybe I'll add a dry one here for Steve. You're awfully silent. Is there anything to expect from D.C. from the sort of bills that are supposed to happen but never seem to happen?

Steve Neeleman -- Founder and Vice Chair

Mohan, thanks for the question. I will say we're pleased with the direction of the discussion. By account, we think there's been at least a couple of dozen bills that these are coming from both sides of the aisle, but now are supported to help these accounts, so I think we're kind of beyond that period of time where there seemed to be kind of Republican versus Democrat division when it came to supporting health savings accounts. But now, that being said, we can't guarantee any of this is gonna go through. Those things we talked of late, that there's gonna be one last push for kind of the ACA reform. And we know that if that comes, that there will be a lot of HSA expansion opportunities, and those kind of focus on the big three we've talked about for a long time, which is increasing the amount that people could put into their HSAs up to really double what they can now or even more, the out of pocket max, and then allowing for these chronic care provisions.

And then also, HSAs for working seniors. I mean, it's been way too long that seniors who are still working can't contribute to their HSAs. And so, look. We're positive where it's gone. We love the fact that every piece of significant -- every bill that gets out -- that's getting out there has HSA expansion. Now we're just waiting for it to occur, so. If you've got any more insight, let us know. But we're following it closely.

Mohan Naidu -- Oppenheimer -- Analyst

Thanks a lot, Steve. That's all I have.

Steve Neeleman -- Founder and Vice Chair

Thank you, Mohan.

Operator

Thank you. And our next question comes from the line of Allen Lutz, Bank of America. Your line is now open.

Allen Lutz -- Bank of America Merrill Lynch -- Analyst

Thanks for the questions, and congrats on the quarter, guys.

Jon Kessler -- President and Chief Executive Officer

Thanks, Allen. Welcome.

Allen Lutz -- Bank of America Merrill Lynch -- Analyst

Thank you. So, question for Jon and Bill. This is a market growth question. Your custodial cash is basically growing at the same rate that it was last year. But the market's expected to slow, implying you guys are taking more share than last year. So, I guess, A, is that the case? And then, B, if portfolio acquisitions are slowing, where are you guys growing faster than you were last year?

Jon Kessler -- President and Chief Executive Officer

So, I mean, I think that the first part of your question is, are we taking share? And the short answer is, yes. One way to look at that is if you looked at -- and this is using the Devonear data, and so, take it for what it is. But we added -- looking at the last calendar year, added roughly, I don't know, $1.7 or $1.8 million -- billion in assets, according to Devonear. And our nearest competitor added $1.2 or $1.23, or something like that, and it went down pretty quickly from there. So, clearly we are out there taking share, whether that's expressed in terms of accounts or assets, and that's a good thing.

I don't think we said that the pace of acquisition is gonna slow, either organic or accretive, or acquisitive, but just that we're not gonna try and price things into the business on an acquisition basis to meet some kind of quota in the regard. So, I guess I'd leave Bill to comment on where we try to take share from, except I'm hoping the answer is everybody.

Bill Otten -- Executive Vice President of Sales

Allen, that's a great question. And Jon is absolutely right. We are out there fighting the good fight every day. But one of the areas that we're also able to get account growth is with the existing employers we have now. As we said before, we've been able to spend time with those large employers and get them to roll out more education programs, increase adoption. And so, while we're out there fighting for all the new business we can get every day, we're also spending time with our existing clients to make sure that they're getting the levels of adoption that they want and we want.

Allen Lutz -- Bank of America Merrill Lynch -- Analyst

Got it. That's helpful. And then a follow-up on rising interest rates. I think you guys have said the average duration is in this three to four-year ballpark. I guess since year-to-date, interest rates at the front end of the curve have really moved up quickly, have you guys thought about when you're renewing these contracts, getting into shorter duration contracts so you could more quickly benefit from rising interest rates? And if you have, have you started to do that yet?

Darcy Mott -- Executive Vice President and Chief Financial Officer

Yeah. One thing that we've tried to do from the get-go since these kind of come in sporadically throughout the year is to -- and it used to be that we had a lot fewer depositories, and so it was a little more difficult. But we really are trying to deliver consistent, steady results to the marketplace that are not only somewhat predictable, but also that they ladder out so we don't get spikes at one point in time, and it won't take some short-term benefit that is gonna help us in the short-term. So, when we ladder it out, we are going to continually ladder it out over generally a five-year period, and so that we don't get hit with one duration, or a short duration, or a long duration in any one particular quarter or period. We just think that's a healthy view of how to look at this and how to place funds out over a period of time. And we like the steadiness of it, so we'll take advantage of it when it arises. But when we place new money, we'll ladder it out, and we'll do what we think is best for the business, but also try to deliver that consistency on the revenue line.

Jon Kessler -- President and Chief Executive Officer

Yeah. I mean, I just want to make sure you're thinking about this one right. Our average -- our, for lack of a better term, investment policy in this regard is that we could have an average duration of between three and five years. In practice, while the ladder may go out that far, our average duration tends to be right around the shortest end of that, three years, and in fact, depending on the time of year, can even be a little shorter than that, just because of the fact that funds aren't deployed evenly over the course of the year. And so, we've kind of done that job of coming in to the extent we can. It's certainly something we think about. That is to say that we really want to deliver stability more than anything else in this regard. There's not -- I don't think you're looking for us to deliver that last five basis points in exchange for more volatility. And there are lots of other ways one could play that than this. So, that is kind of our goal, and it is the way we think about it.

But we're kind of at the short end in terms of average duration of where we can be under our current policy, and depending on the way -- we mostly think about that in terms of what our liquidity needs are, and all that kind of stuff. But certainly, if stability was served by coming in even further, we'd look to amend the investment policy, and we'd probably tell you we were doing that.

Darcy Mott -- Executive Vice President and Chief Financial Officer

Yeah. And as we go through the years, as Jon said, just by definition, a three-year becomes a two-year duration as you go through the year. And so that gets shortened up on us automatically as we go through that, and then we take that into account when we replace that money.

Jon Kessler -- President and Chief Executive Officer

The other thing we are trying to do more of is -- and this does sort of implicitly affect duration -- is, one thing we really feel like we are uniquely able to deliver as among large sort of stable, sticky deposit relationships is a level of precision to our depository partners. So, we want to be able to say, now it's May, it's June. And our team is already out there talking with existing and would-be depository partners about where we think our needs may be as we get close to the end of the year -- what durations make sense, etc., and also listening to what they have to say about what they think they can generate. And that's something that we really pride ourselves on being able to be flexible that way.

And I think there are very few depositors that can really do that, where you can actually have a discussion with the bank that says, listen, here's kind of what we have. And they can say, well listen, here's kind of what we think we could go out and generate as a matching asset. And that's a very valuable discussion for both parties. It's an unusual one, and one that the team really does try to leverage. So, that's another sort of spin on this point that is an opportunity as you go out over time to basically get a little bit more, for lack of a better term, alpha on deposits.

Allen Lutz -- Bank of America Merrill Lynch -- Analyst

Thanks, guys. Congrats Again.

Jon Kessler -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Steven Wardell from Chardan Capital Markets. Your line is now open.

Jon Kessler -- President and Chief Executive Officer

The lion. How are you, Steve?

Steven Wardell -- Chardan Capital Markets -- Analyst

Hey, guys. Thanks for taking my questions. I'm great, thanks. You guys are now a few months into the selling season. Can you give us a sense of what you're hearing from the buyer's marketplace, and how this year's selling season is different from prior years, and what kind of product preferences buyers are showing?

Jon Kessler -- President and Chief Executive Officer

Bill?

Bill Otten -- Executive Vice President of Sales

Sure. Well, I can't speak to prior years before I got here. But the buyers are telling us that they want kind of a one-stop shop, and they want to deal with a provider that's gonna give them service. We hear that over and over again, that a high level of service is the most important thing that they're looking to buy. Price is always part of the equation, but as Jon mentioned before, a happy client is the best salesperson you'll ever have, and we're very fortunate to have many of those. So, we are hearing several things. Bundled services are important, upmarket, downmarket, all across the segments, and that high level of purple service that we mentioned before is also extremely important.

Jon Kessler -- President and Chief Executive Officer

I mean, I think the two words that really come to mind are accountability and education. So, accountability is sort of what Bill's talking about. I think that customers are now sufficiently sophisticated that they want to know if the people that they're dealing with actually can make decisions. And if you are provider X and you're using outsourced platform Y, and/or there's trust attorney Z who either for another organization or works way apart from you and can't spell HSA, and so on, and there's a call center that handles this, but also handles deposit calls or enrollment calls, or -- the days when that was acceptable, I think, are rapidly coming to an end. And I think that's the accountability part of it. And the education part is things like what can you do to educate my team members year-round so that, yeah, during open enrollment, we're trying to get new people in, but during the year -- and Bill referenced an example of this with the university system -- what can we do year-round to help people really optimize the value of that HSA over the long-term?

And I actually do think -- and Bill, please feel free to comment in this regard, or Steve -- I think that employers, and I'm thinking about our Key Partner Summit last week, two weeks ago. I mean, partners are really talking about this whole idea of the HSA being an absolutely critical part of how they can provide value to their employees in terms of building a very flexible savings, yes, for retirement, but also for emergency needs -- the kind of stuff that's more practical for your millennials and the like, that maybe the idea of putting away 10 grand a year for 40 years from now isn't quite as appealing. So, maybe you can speak a little bit to the energy of that from our clients.

Bill Otten -- Executive Vice President of Sales

Sure. No, no, it's a good point, Jon. Steve, really what -- you've heard us say this a few times on the call, not just today, but on prior calls too, this concept of connecting health and wealth is exactly what Jon's talking about, right? Here's -- many of the employer groups are saying they need some help linking these two things together, because the 401(k)'s been out there for a long time. People understand it. But it's really only been recently that everyone is starting to look at the HSA like a 401(k) for your retirement and an IRA for your retirement. And so, the employer groups are looking for our help. As Jon mentioned, at the Key Partner Summit, we connected with many of our largest clients. And they've asked us to come in and strategically plan with them to help them increase their adoption rate so that we can -- we had several clients there that have gone full replace, and even still, they're looking for further education to be able to increase contribution levels from their existing employees. So, I think you hit it on the head, Jon.

Jon Kessler -- President and Chief Executive Officer

What's so interesting about this, Steve, and I don't mean to go crazy on it, but is the -- I think what our employers are telling us that their members are looking for, and what we hear members looking for in dealing with members 24/7, 365 is it's less about what we would call financial advice, though we have plenty of members who reach out to us for our individualized investment advisor product. And it's more like financial planning and budgeting. And if you're trying to budget for healthcare expenses, an HSA is an incredible tool. And just understanding how to use that and how to talk people through that, that's really at some level where they're looking for help. It's not all the highfaluting pie charts with this much in bonds, and this much in stocks, and so forth. It's like, to cost one of those radio dead guys, it's like -- it's creating your snowball fund, I mean, at some level, and that kind of thing that people are looking to do.

And frankly, we're looking to improve and make more scalable the way we approach that. It's really actually pretty interesting and exciting to see some of the nuts and bolts of healthcare consumerism around understanding your bills and all that, kind of come together with the nuts and bolts of family budgeting for real people out there. And that's kind of where the market's really talking about this year more so than ever in the past.

Steven Wardell -- Chardan Capital Markets -- Analyst

Great, thank you. And so, building on one of the prior questions on today's call, so if you were to go back a year ago and talk to organizations that held HSA assets, and talk to them about potentially selling, a lot of them would have been reluctant because HSAs were so much in the spotlight a year ago. They would have held out for the highest price or tried to figure out how they could just hold onto them for longer. And that bucked the trend of the past six years of more consolidation of the sector. And so, where would you say we are now? Would you say that the sense of a year ago of holdover of these assets, who might have sold, not selling, has that faded, and are we back to an era of consolidation?

Jon Kessler -- President and Chief Executive Officer

I think on net, Steve, that there's been a little bit of a thaw. There are two offsetting factors. As you say, I think the view at the beginning of the current administration that was some -- "I'm not sure I understand this, but I hear it on the news a lot." That kind of thing, that's definitely faded away. It's been replaced to some extent by the flip side of all of the demand for our deposits is that deposits have become more valuable. And so, there's a little bit of a reluctance there. But I think on net, the conversations are much more now about when rather than if. And so, I think we'll be patient, but those transactions are gonna be there.

Steven Wardell -- Chardan Capital Markets -- Analyst

Great. Well, thank you.

Bill Otten -- Executive Vice President of Sales

Thank you, Steve.

Operator

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back over the Jon Kessler for closing remarks.

Jon Kessler -- President and Chief Executive Officer

All right. I don't have any closing remarks except thank you all very much, and we'll see everyone over the summer. And if not, we'll see everyone after Labor Day. Thank you.

Darcy Mott -- Executive Vice President and Chief Financial Officer

Take care.

Jon Kessler -- President and Chief Executive Officer

Bye-bye.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.

Duration: 89 minutes

Call participants:

Richard Putnam -- Investor Relations

Jon Kessler -- President and Chief Executive Officer

Bill Otten -- Executive Vice President of Sales

Darcy Mott -- Executive Vice President and Chief Financial Officer

Steve Neeleman -- Founder and Vice Chair

Greg Peters -- Raymond James -- Analyst

Anne Samuel -- JPMorgan -- Analyst

Jamie Stockton -- Wells Fargo -- Analyst

Mark Marcon -- RW Baird -- Analyst

Stephanie Demko -- Citi -- Analyst

Steve Halper -- Cantor Fitzgerald -- Analyst

Donald Hooker -- KeyBanc -- Analyst

Sandy Draper -- SunTrust -- Analyst

Mohan Naidu -- Oppenheimer -- Analyst

Allen Lutz -- Bank of America Merrill Lynch -- Analyst

Steven Wardell -- Chardan Capital Markets -- Analyst

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