Q3 2019 Earnings Call

Good morning, My name is Marcellus and I will be your conference operator today.

I would like to welcome everyone to the Insperity third quarter 2019 earnings Conference call.

At this time all participants are in listen only mode. After the speakers presentation will be a question and answer session to ask questions. During the session you'll need to press star one on your telephone if you require any further assistance to press star zero.

At this time I would like to introduce today's speakers, joining us or Paul somebody chairman of the board and Chief Executive Officer, and Douglas Sharp.

Senior Vice President of Finance, Chief Financial Officer, and Trevor Treasurer.

At this time I'd like to turn the call over to Douglas Sharp Mr. For please go ahead.

Thank you. We appreciate you joining us this morning.

Let me begin by outlined in our plan for this morning's call.

First of all is going to discuss our third quarter results and how we're positioned for growth as we head into 2020.

I will then discuss further details behind Q3 results and in particular focus on our health care costs.

I will also provide our updated full year 2019 guidance and provide high level comments on our gross profit outlook for 2020.

We will then in the call with the question answer session.

Before we begin I would like to remind you that Mr shore body or myself may make forward looking statements during today's call, which are subject to risks uncertainties and assumptions.

In addition, some of our discussion may include non-GAAP financial measures.

For more detailed discussion other risks and uncertainties that could cause actual results to differ materially from any forward looking statements.

And reconciliations of non-GAAP financial measures. Please see the company's public filings, including the form 8-K filed today, which are available on our website.

At this time I'd like to turn the call over to Paul.

Thank you all for joining us.

Our reported results today include a year to date increase in revenues up 13% net income up 18% and he P.S. up 21% over 2018.

These numbers would be considered solid for most companies however, they're not commensurate with our outstanding performance over the last five years.

These results include third quarter performance below our expectations.

Driven primarily by a second consecutive quarter with elevated large claims in our medical plan into a small degree by lower growth than expected and paid worksite employees.

Doug and I will explain exactly what happened and what this means to our going forward plan.

The bottom line conclusion from our analysis of the drivers of our recent results indicate our growth plan remains solid and we expect to maintain our industry, leading double digit unit growth into 2020.

And we believe we did not have a systemic issue in our medical plan that would compound into next year.

I'll begin with a discussion of our growth drivers and how we arrive at our expectations going forward.

I'll also highlight results from our recent client survey and the traction we're gaining on our traditional employment solutions bundle workforce acceleration, Doug will follow with comments about the recent quarter, including specifics regarding our medical plan and provide updated guidance for the year.

We began 2019 with an expectation for growth in paid Worksite employees, a 15% based upon our starting point in January and our budget for each of the three growth drivers, including new sales client retention and growth in the client base. We now expect end the year at 13.

Percent growth in paid Worksite employees approximately half of this shortfall is due to lower growth than the net change in our client base and the other half due to fewer worksite employees paid from new sales from what we budgeted and forecasted as the year played out.

Client retention has been and is expected to be substantially on plan continuing near historic highs.

In the second and third quarters, we were surprised by the lower than expected net change in existing employees within the client base in the last month of each quarter. As we mentioned last quarter, we had substantially fewer seasonal full time employees added in June compared to previous years.

Since we had substantially fewer adds in June we expected substantially fewer departures in September although that we were correct conceptually we were often magnitude and experienced a shortfall from our forecast in September .

In the bigger picture, our client base remains optimistic about their businesses and are continuing efforts to hire accordingly.

Tight labor market has made it more difficult to find employees, making net gains in the client base less predictable. However in this environment, our HR services become even more valuable to clients and prospects, which is a plus for retention in sales.

Our paid Worksite employee number from new sale.