Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by today's conference is scheduled to begin shortly.
That's on your line will again be placed on who thank you for your patience.
[music].
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there'll be a question answer session.
If he would like to ask a question. During this time simply press Star then but number one on your telephone keypad. If you would like to withdraw your question you me pressed accounting.
At this time I would like to introduce today's speakers joining us our Paul Sarvadi German if the board and Chief Executive Officer, and Douglas Sharp Senior Vice President Finance, Chief Financial Officer and Treasurer.
At this time I'd like to turn the call over to Douglas Sharp Mr. Sharp. Please go ahead.
Thank you. We appreciate you joining us this evening.
Let me begin by outlining our plans for this evenings call.
First I'm going to discuss the details of our fourth quarter and full year 2019 financial results.
Well then recap the 2019 year discuss the major initiatives are 2020 plan.
I would turn to provide our finance financial guidance for the first quarter in full year 2020.
Well then in the call with the question and answer session.
Now before we begin I would like to remind you that there that Mr. Sarvadi ROI 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 of risks and uncertainties that could cause actual results could 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.
Now, let's discuss the details behind our fourth quarter results.
We reported Q4, adjusted EBITDA of $41 million, an adjusted EPS of 57 cents.
Slightly above the midpoint of our forecasted range.
Average paid worksite employees increased by 10% over Q4 2018.
Gross profit increased slightly as higher benefit costs were partially offset by improved pricing.
As you might recall, our Q4 for class forecast included higher benefit costs.
For the possibility of continued elevated large claim activity coming off of Q2 in Q3's activity.
During Q4, the number of large claims continued to decline from the high point in Q2.
However remained elevated when compared to the periods prior to Q2 2019.
And we once again performed an in depth analysis of the large claim activity.
Similar to Q3, a detailed review of the Q4 claims continue to indicate that the large claims were associated with a very small number of participants.
Claims were largely from different participants as opposed to ongoing claims from the same group a participants in prior periods.
And then review of the clients associated with these large claims did not indicate a concentration associated with new clients Cobra participants or a particular region.
In addition, the overall demographics of our plane continue to trend favorably.
So while our analysis does not point to a systemic issue in our health plan that is driving these elevated large claims.
The fact is we have now experienced three consecutive quarters of elevated activity.
In my discussion of full year 2019 results and 2020 guidance I will outline how we have incorporated this large claim activity into our 2020 plan.
And the action steps, we have taken to help mitigate this risk.
Now moving on to operating costs, our fourth quarter adjusted operating expenses increased 4% over Q4, 2000 $18 million to $134 million.
And included continue investment in our growth technology, and product and service offerings, partially offset by lower cash and stock based incentive compensation costs.
Consistent with the plans pay for performance structures.
Our effective tax rate in Q4 was 26% and net interest expense net debt interesting <unk> expense was slightly higher than expected.
Due primarily to utilization of cash and debt for our capital expenditures share repurchase and dividend programs.
Now before I turn the call over to Paul Let me summarize our full year 2019 operating result.
Adjusted EPS increased 11% to $4.15.
And adjusted EBITDA increased 4% over 2000 $18 million to $250 million.
Average paid worksite employees increased by 13% over 2018, and this growth was driven by 12% increase the average number of trained business performance advisors.
And client retention of 85%.
Slightly offset by lower net worksite employee gains in our client base.
Gross profit increased 7% on a 13% worksite employee growth.
And included a negative impact of the elevated large health care claim activity.
This claim activity largely drove a 4% benefit cost trend in 2019.
Compared to two to two the 2% to 3% forecasted trend at the outset as a year.
In fact for the full year 2019, the proportion of our costs related to individual claimants exceeding two earned $50000.
Increased 26% over the 2018 period.
This included 27 claimants over $1 million at a total cost of approximately $37 million.
More than doubled the amount experienced in 2018.
Now we're happy to report that beginning in January of this year, we added a new feature to our health plan.
While our health insurance coverage with our National carrier is provided under policies or service contracts that are fully insured.
We retain an obligation to pay the carrier for the cost of the claims.
Under this new feature, though we will no longer have financial responsibility to the carrier for the portion of our participants claim costs that exceed $1 million in any calendar year.
So this feature will provide us with the financial cap for individual significant large claim.
It's important to note that this new cap, it's not designed to protect against a step up in the frequency of large claims below a $1 million.
Which was the primary driver the increased cost we experienced in 2019.
However, we believe that putting in this cat may have slightly dampened the effect of large claims in 2019.
And is a prudent stepped in managing the overall risk in our health plan.
The premium cost of this new feature is based on the number of health care participants per month.
It is not expected to negatively impact our overall gross profit per worksite employee in 2020.
Now adjusted operating expenses increased 11% over 2018 and included the 12% increase in the average number of trained business performance advisors and the opening of nine new sales offices.
We also continued to invest in our product and service offerings, including our workforce acceleration solution.
And in our technology platforms data privacy and security.
Now the solid balance sheet combined with our strong cash flow allowed us to continue to provide strong return to our shareholders in 2019.
Through our dividend and share repurchase programs.
We repurchased a total of 2.1 million shares during 2019.
At a cost up to around $3 million.
Additionally, we increased our dividend rate by 50% in February of 2019, and paid out a total of $49 million in dividends.
We ended the year with $108 million of adjusted cash and $230 million available under our credit facility.
No at this time I'd like to turn the call over to Paul.
Thank you Doug and thank you all for joining us today.
Considering the unusual and unexpected challenges we faced over the last half a 2019 I.
I would like to provide some depth and color around exactly what took place.
And how we have responded decisively with a plan to regain our growth and profitability momentum over the course of 2020.
I'll also highlight the important progress we made on three strategic initiatives that we expect will contribute substantially too quick rebound ended the success of our long term plan.
These initiatives included an emphasis on pricing our flagship workforce optimization solution.
Gaining traction in our workforce acceleration traditional employment offering and the development of a data science and data analytics strategy for Insperity.
First let me drill down on obstacles, we faced in the fourth quarter in client retention benefit plan dynamics and new client sales.
This will provide some clarity around the year end transition and the starting point for January that set the stage for our 2020 operating plan.
As we entered the fourth quarter, we believe we were well positioned for an effective fall campaign.
The strong pipeline for new sales and we were confident the strong client retention we've experienced over the last several years would continue.
The last five years, we demonstrated a significant improvement we drew reducing January client attrition from over 9% of the prior December paid worksite employees to 7.8% in 2015 and less than 6% from 2016 through 2019.
This improvement resulted in a step up in full year client retention from approximately 80% before these improvements so around 85% the last several years.
This January Worksite employees lost from client attrition came in at 7.3% 180 basis points above January 2019, which was 5.5%.
This was the primary driver to the lower than expected starting point and paid worksite employees for 2020.
In addition, new sales were not enough to offset the attrition, but we'll get to that subject in a few minutes.
The client attrition difference of 180 basis points was the result of an increase in client terminations in our larger account segments, including emerging growth in mid market clients.
The two primary reasons given for these terminations were mergers and acquisitions.
And cost or value considerations.
[noise] Worksite employees, leaving Insperity due to client M&A transactions increased in our emerging growth in mid market segments.
Accounting for approximately 47% of the difference above expect determinations.
Cost are valued considerations comprised another 42% and the remaining 11% difference was spread to a variety of other reasons.
We actually improved client retention in our core accounts with less than 100 Worksite employees. So our emphasis going forward, we'll focus on what we can do to improve results in our emerging growth in mid market segments.
There was a silver lining regarding this attrition.
This group of terminating clients had a gross profit contribution 12% be low.
The average of our client base due to a combination of lower pricing allocations compared to their direct cost including benefits.
This is particularly important when considering the second challenge we face in Q4 as Doug mentioned, although the number of large healthcare claims declined each of the subsequent quarters since the sudden spike in Q2, we continued to see an elevated number of large claims compared to previous levels.
Fortunately, we experienced considerable pricing strength throughout 2019 in both new and renewing accounts.
One of our key initiatives last year was an emphasis on pricing our workforce optimization services. Our success in this initiative contributed substantially to starting 2020 in a better position to offset the direct cost increase from the health plan.
When you weigh in the positive effect from the lower price clients terminating at year end to our enhanced overall pricing.
We are starting this year in a position to be able to match the expected direct cost trend, including benefits with just a modest level of targeted increases over the course of the year.
Now, let me address our fall campaign sales effort, which also faced some headwinds.
We were above 95% of workforce optimization sales goals for the first two must have the campaign through October.
We also had enough prospect business profiles or opportunity submit our services.
To have confidence that we would reach our objectives, finishing the year with historical closing right.
However November sales came in lower than expected.
And with the holidays falling in the middle the last two weeks of the year. Our sales leadership responded immediately we developed a plan to regain sales momentum and meet the goal by implementing an incentive plan and extending the campaign through January.
Now each year. The typical fall sales campaign pattern include strong sales in November and December as the pipe full pipeline is converted to close sales.
This is usually followed by a relatively low sales budget in January when we hold our annual sales convention.
This year, however, we needed a very strong January more than three times, the norm to make up for the shortfall.
I'm pleased to report these efforts were successful in getting all hands on deck and turning the ship around very quickly our January sales results more than recovered the sales shortfall and we exceeded our fall sales campaign goal remarkably we also boosted future sales activity with a 28% increase in disc.
Recalls and a 40% increase in business profiles.
Now in our business sold accounts do not roll into our financial results until the accounts and the corresponding sold employees are enrolled and their first player a payroll is run, thereby becoming paid worksite employees.
So the result of hitting the ball campaign goals later than normal shifts the timing it which employs roll into the financial results. This further accentuates the lower starting point and therefore overall growth rate in 2020.
However, we're now in good position to regain our growth momentum and see growth acceleration as 2020 unfolds.
Plan for this years to continue to grow the number of trained business performance advisors at 11% moderating from the fourth quarter, Hi of last year, 14%. This should improve the mix of new BP ace compared to more experienced continued staff, which we expect will result in an improvement in overall sales efficiency.
We also have a new and exciting opportunity to improve sales efficiency as a result of our 2019 initiative around data science and analytics.
Early last year, we established a key long term initiative for the company to add to and organize our resources to focus on the potential for data science and analytics to improve our business.
Over the year, we developed a methodology strategy and technology stack necessary to implement account based marketing applying a day to different driven approach to validating a capitalizing on our vast market opportunity.
The potential improvement from this methodology is dramatic.
Instead of the traditional approach filling the funnel at the top end spending substantial time effort and money to close one out of 10 clients.
This approach is far more effective and efficient targeting ideal prospects and engaging them just when they're looking for solution that we provide.
We've been able to take a subset of our clients that joint Insperity over the last couple of years and combine our current client company profile data with publicly available data from before they became a customer.
We utilized over 20000 inputs or relevant characteristics related to each client company to the produced the most concise client profile, we have ever developed including both demographic and psychographic elements.
Through this technology methodology and with the help of the strong team we've been able to compare this profile I guess, the entire U.S. small and medium size business marketplace and determine the actual total addressable market at whatever fit percentage you want to apply at any given time.
The first benefited this is confirming our actual total addressable market opportunity for Insperity for years, we have estimated for the best available sources, approximately 600000 prospects fitting our assumed client profile.
Now out of the 7 million small and midsized businesses in United States. This analysis shows that there are over 1.7 million companies at a 50% fit against these 20000 data identifiers.
We can now confirmed that this analysis shows more than 600000 prospects with a 75% fit lining up with our previous estimate.
More importantly, we can actually identify these companies market by market that fit this precise demographic and Psychographic profile now this is where it gets interesting.
Analyzing the pattern of behavior of our clients before they became customers has provided information to determine intent.
Looking for the services we provide.
And engagement actually interacting with us or competitors.
These activities are patterns of behavior can also be compared to the universe of prospects at any given time for example.
When we ran this analysis early this year at a 90% fit there were over 190 perfect fit prospects.
With that just under 16000, showing intent at that time.
Although we're early in the process.
The opportunity for us to direct our highly trained business performance advisors to precisely the right prospects at the right time has tremendous potential to improve sales efficiency. Now. This data driven approach is especially relevant to a premium service model like ours, where the client profile is very important for.
Both growth and profitability.
We expect to use this data driven methodology to drive growth retention and operate a rational effectiveness in 2020 and beyond.
Now the third strategic when we had in 2019 was gaining traction and the sale of our workforce acceleration traditional employment option. Our goal for last year was to extend the adoption of this strategy across our BP 18 throughout the country.
This approach includes introducing both co employment and traditional employment solutions early in the sales process. The objective is to ultimately convert some percentage of the nine out of 10 prospects that either don't qualify or not ready for workforce optimization into workforce acceleration clients.
We made considerable progress last year with 573, BPH, bringing in business profiles for workforce acceleration over 265 different BPAC actually made eight traditional employment sale and total sales for the year exceeded 13500 employ.
Please.
This initiative is definitely gaining traction.
Our goal for the sales, though is to ultimately represent approximately one third of the value to insperity compared to workforce optimization clients.
Importantly, these sales come without the benefit plan risk contribute to improving gross profit and represent a feature opportunity to up sell to the full co employment service improving overall sales efficiency.
The results we had in 2019 combined with continued momentum we expect in 2020.
Work.
Should make a welcome contribution of incremental gross profit this year more importantly, the progress we made in this area last year represents an important strategic gain for our long term plan.
So we have certainly experience some challenges in 2019 that interrupted our momentum in contrast to the exceptional track record we demonstrated over the five preceding years.
And our residual income business model and interruption in growth and profitability. Unfortunately resets the starting point, which is what we're facing this year.
As a result, we're expecting 6% to 8% unit growth for the year and paid Worksite employees more in line with the industry growth rate, we expect to start the first quarter at the low end of this range and anticipate growth acceleration as the year progresses.
Another element of a reset of this nature is the pressure on the operating plan. In this case, we have limited our projected operating cost to the run rate from the end of last year and adding only the most important investments that contribute to regaining the momentum and getting back on course with our long term plan as soon as possible. These investments include growing to be.
18, opening seven offices into new markets.
We also will continue investment in technology development to continue our leadership in this area.
We expect this break and momentum to be short lived so we've determined this was the best course of action and Doug is included this in the guidance he'll provide momentarily.
Explained what happened and how we've responded decisively with a plan to regain momentum as we move through this year what I've not explained is why these challenges occurred.
We identified a variety of factors anecdotally each of which may have individually played a role in sales or retention. However, we were unable to validate any overriding theory in the data.
Through this analysis. However, we found and we'll continue to identify opportunities for incremental improvements.
But the bottom line is in 2019, we did not execute.
Up to the high standards, we have historically achieved and we have responded accordingly.
Despite the execution issues if not for the elevated large claims we would have exceeded our original 2019 budget for adjusted EBITDA of 276 million.
We believe insperity isn't the best position ever to capitalize on a vast an exciting market opportunity.
And we expect the same dedicated employees and positive corporate culture that drove five straight years of exceptional results will demonstrate amazing resiliency in the months ahead.
Our corporate culture is underpinned by nine core values that have been the foundation of a proven track record of overcoming challenges with these statements in mind will focus on the fundamentals necessary to accelerate our growth we cover our profitability in the late lay the groundwork to reach our goal to return to double digit growth in 2021.
At this point I'll pass the call back over to Doug.
Thanks, Paul now, let me provide our 2020 guidance beginning with the full year.
As Paul just mentioned, we are forecasting 6% to 8% growth and the average number of paid worksite employees for the full year 2020.
Our growth plan includes an 11% increase in the average number of trained business performance advisors full year client retention of 83%.
A similar level of net gains in our client base is 2019.
As for our gross profit area, we have gone through our usual budget.
Process of analyzing client mix pricing indirect costs.
Including recent health care and workers compensation claims trends.
As for the total benefit costs, including health dental life disability in other benefits, we are forecasting and overall cost trend of 2.5% to 3.5% over 2019.
The three components driving this overall increase for 2020 include the under not underlying health care claim trend.
Large claim costs and other benefit costs and administrative fees that have a relatively flat cost trend.
Now within the health plan with our National carrier, our forecast assumes a trend up 3.5% to 4.5% for the underlying claim costs when considering planned migration to lower cost options in other demographic factors.
As for our forecast for large claim activity while it is possible that the frequency of these claims revert back to levels prior to Q2 of 2019.
We have taken the more conservative approach in our 2020 forecast.
Even though we have seen a slight decline in the number of quarterly large claims since the peak in Q2 of 2019.
The upper end of our benefit cost range assumes an increase in the number of large claimants inline with our projected worksite employee growth.
The lower end of our forecasted benefit costs.
Assumes the number of large claimants generally in line with the elevated levels experienced in 2019.
As for our other direct cost areas, we are forecasting some improvement in our payroll tax area due to lower state unemployment tax rates.
We also expect to see.
To continue to see strong results in our workers compensation program.
However, consistent with previous years, we're starting the year with a higher cost estimates than 2019, and allowing for our effective safety and claims management to drive additional cost benefit throughout the year.
On the pricing side, our long term objective is to adjust pricing based on our forecasted cost trends.
We will start 2020, just below our expected cost trend because of a slight outperformance of pricing in Q4.
And a favorable step up at year end due to the turnover of new in renewing clients.
Our pricing strategy over the course of two to 2020 will target increases slightly above our expected cost trends.
And the good news is that the pricing changes should be modest and are expected to be very competitive.
We would expect this pricing strategy to improve gross profit in the latter latter half of 2020.
And position us for improved pop profitability in 2021.
If large claim activity returns to pre 2019 levels.
We could expect a substantial recovery in 2020 gross profit when compared to 2019.
Now our 2020 operating plan includes managing our operating costs to account for the lower starting point and paid worksite employees, while minimizing the impact to our long term plan.
This year's plan includes continued growth and bps days.
Opening of seven new sales offices.
Continued investment in our technology and the advance advancement of our traditional employment initiative workforce acceleration.
When combined with our growth plan and projected pricing indirect cost trends. We are forecasting 2020, adjusted EBITDA in a range of $250 million to $274 million.
As for adjusted EPS, our guidance is impacted by an increase in the estimated tax rate due primarily to less tax benefit associated with divesting of performance based and time vested restricted shares in Q1 of 2020.
We are estimating a full year 2020 effective tax rate of 28% compared to 20% in 2019.
And this differences is expected to have a 28 cents per share impact on both our Q1 and full year 2020 earnings.
After giving consideration to this we are forecasting full year 2020, adjusted EPS in a range of $3.73 to $4 in 16 cents.
Now, let's now as for our first quarter guidance based largely on our January starting point, we are forecasting 5.5% the 6.5% growth an average paid worksite employees in Q1.
As for our gross profit area keep in mind that benefit costs in Q1 of the prior year included a much lower level of large claim activity then allowed a three quarters of for 2019 in our forecast for Q1 of 2020.
This is expected to impact the Q1 2020 year over year comparison of gross profit and earnings.
We are forecasting Q1, adjusted EBITDA in a range of $98 million to a $103 million with the midpoint relatively flat with 2019.
After giving consideration to an increasing effective tax rate from 20% in Q1 of 2019 to an expected rate of 27% Q1 of 2020.
For the reasons that I just discussed we are forecasting Q1, adjusted EPS from $1.61 to $1.70.
And as for our quarterly earnings pattern keep in mind that our Q1, earning results are typically higher than subsequent quarters. In particular, we typically earn a higher level of payroll tax surplus prior to worksite employees, reaching their taxable wage limits.
And benefit costs are lower in Q1 and step up over the remainder of the year as deductibles are met.
Now at this time I'd like to open up the call for questions.
[noise] [noise] at this stage I would like to remind everyone again in order to ask the question. Please press star one on your telephone keypad.
Our first question comes from that I have Jim Macdonald from first analysis. Your line is open.
Hi, Good morning, guys are good afternoon I guess.
Uh huh.
Can you talk about.
The larger client losses, we haven't seen those in a while where there any notable Mike large thousand person thousand company losses anything like that.
So, yes, as I mentioned that the of the.
The difference in what we would have expected was in our larger emerging growth and mid market customers and.
Really the only surprising thing was that the M&A activity that we saw you do lose some for that that's kind of part of helping our customers succeed.
And having them accomplish what they set out to do so it was interesting the M&A activity seem to move deeper into the into the client base than previous years.
We didn't have our largest customer leave or anything like that but we did have.
Higher frequency of those large customers leave.
From that M&A activity the balance of it was that was about half of the of the difference than above what we would have expected.
Another 40% of 42% were for cost type considerations.
Okay and.
So you probably given that the benefits trends have been raising prices more than you did last year do you think that impacted.
Your.
Your year end performance.
You know it could you know when we really got into the details of what happened kind of case by case.
There are just and we look we do a really deep investigation of variety of I don't know 20, some reason codes of.
Well what customers tell us.
We wouldn't really an overriding theme there were a lot of.
Different things.
No benefits cost in the marketplace were lower.
No there were just a lot at different detail items that might be an issue but.
Oh it didn't just jump out at is that you know we drove costs and caused this much attrition, obviously driving cost wouldn't do it driving price would do anything with M&A activity.
And on those other ones the fact that the.
The ones that went away where are our price sensitive customers already they were lower price compared to the cost.
So across the board.
If you look at our core market, we actually improved retention last year. So I don't think our pricing policy was it was the root cause.
Okay.
Yes, and just on the [noise].
On the benefits somebody in three cars erode seem I mean, you keep.
Suggesting that there is no trends and things, but I mean, it just seems like Thats never I mean, two quarters that in a row hasn't happened before so it's.
It seems like three quarters of the sort of there's got to be something go [laughter]. Yes. It's really you know what we said last quarter of course was that.
Well, let me backup step in our history.
Well, we've had spikes and then the very next quarter kind of fell back in line or at least fell back enough in line that it.
Then jump out.
But what we've seen now is this spike and then a slow painful.
Declined or slower decline that we just have to bake in there now for going forward, but.
[music].
Dialogue with United.
It's.
You know where reverting back toward the enormous just taken awhile.
Your next question comes from to my enough, Jeff Martin from Roth Capital Partners. Your line is open.
Thanks, Good afternoon guys.
Yes.
Was wondering if you could.
Help us think how to think about the growth acceleration throughout the year you're.
You see growth guidance is five enough and to 6.5% for Q1.
How much will that accelerate to by Q4 do you think.
Well you know the our target at this point of course is get back to double digit growth in January next year. So you know you're going to ramp up you got to 6% to 8%.
Range that Weve provided you obviously need to be at the high end that ranges you get where the bat back after the year.
Keep in mind, you to once you get toward that part of the year.
We'll be focused on really selling the fall campaign to get the starting point up for January lot of those customers won't role until Dan, but you know you should be looking at that range and be at at the threshold of.
Of headed toward 10% for.
Or buffered next year.
And within your guidance for that.
How much contribution from the middle market do you factored in.
Oh, it would be more in line with what we had last year.
As opposed to the year before when Midmarket really outperformed.
We sell the same a number of accounts in mid market last years, we did the year before but the average size was smaller we didnt have a super jumbo in there.
So.
Oh, we've we've incorporated.
Something more in line with what we had last year.
Right Okay.
And then could you give us some contrast between the large benefit claims in Q2 relative to Q4, how much does that come down and you.
You know what kind of comfort level do you have that could find some stability here and the next quarter or two and then maybe improved from there.
Well you know like we said it didnt snap back in line with the freight Q2 levels, but it's come down in frequency.
Those two quarters in a row.
And you know we felt like though it was important for us for budgeting purposes to not assume that was just going to keep happening.
With no basis for it so instead, we've assumed kind of in our worst case.
That the number these claims goes up with our unit growth.
And.
You know so Doug in the best case.
Scenario that you said was.
Yeah, we are the large claims pretty consistent with the elevated amount that we experienced in 2019, so that's or at the low end. So obviously, we don't have in there.
The number going back in reverting back to pre Q2, Q2 2019 levels in our forecast yeah, we really don't have a trending lower.
It's less falling off on the if it did.
Either those things, we you'll see.
Some outperformance on that front, just not focus at this point to to build any that in.
Yes.
Your next question comes from the line of Mark Marcon from Baird. Your line is open.
Hi, good afternoon.
If it's cost for the fourth quarter, how much how are your were they.
This fourth quarter relative to your go.
Well I think if you remember in as I mentioned in my script, knowing our fourth quarter forecast.
We considered even though the data was pointing to no systemic issues relative to the large claim activity you know we in our forecast.
Put in a similar level for the possibility of the continuing on from Q3 party fairly at that at the level, we're experiencing Q3.
The answer today the from Q4 large claim activity came in just very slightly ahead of that Oh that forecast that we incorporated into the into the Q4 numbers.
Yeah, we're going to take frequency came down some but a.
Total cost you didn't move very much.
It was around 6.5% up year over year.
I don't I don't have the percentage Mark in front of me I'm sorry.
Total total total trend was just so just over four for the year.
Okay and in terms of the number of claims that you're seeing.
At a 50000.
And above 250 barrels and then.
To give us any and for that and you know I meant.
You know clearly sounds cream over prior conversations like.
There is unusual random element.
In terms of what you've seen but there are.
There are obviously.
Industry sources that would point to higher health care cost for for higher level claims and so I'm wondering what what kirkpatrick ability to.
The higher cost claims actually.
Priests next year relative to the sheer in terms of 50 to 250000.
Hey, Thats, a big question, Mark I think well we have to rely on for that as you know the comparisons we have in our ongoing dialogue with you know our outside benefit consultant, our team internally and United.
And you know.
It's clear from there.
Discussions with them that you know if you go back we went from 2018 kind of being under.
The average of these types of claims to being over that average and now we are coming down back toward.
That that average so.
Is it possible it could be.
Nobody thinks there would be another step up increased on top of.
This huge step up we had this year a compounding type thing.
That's why even the percentage increase in claims of three three and half to 4.5% trend that we're applying is on top of this large trend from last year in total claims so.
You know we.
The team I think as is confident we've got a good handle on that in our being conservative as we look forward.
Your next question comes from the line of Tobey Sommer from Suntrust. Your line is open.
Thanks, So with respect to Worksite employee growth, what's the numeric impact of the January catch up on your annual WSE guidance.
[noise], let's say so that's kind of hot off the press is but we you know the catch up from.
The sales effort.
You know of course, it will roll in over the next 90 days, but you know it was several thousand employees.
Right. So is that a percentage point on the annual number what what does that acquaintances.
I think it's I think that's part of what we factored into roll into going up from six to the.
Seven on average for the year.
And gives you the range of six to eight even though we're starting around that six number.
Okay, and then in terms of managing the growth and trying to Reaccelerate is you talked about BP is up 11% says is going on the Gulf why not try to Jack set up to the mid teens or will pull a couple office openings out of the 2021 plan and put them into 20 to give you see be kind of more cushion and more firepower.
Yeah. That's a good question you know weve of the what we find ourselves as we meant we had a 14% increase and.
Train BP Ace in the fourth quarter and we you know we feel like we can have a decent efficiency increase as they mature through this year.
And Ken let it.
Slowly come down some to that 11% number and that will will have a favorable boost to growth. We feel good about that if you added a lot more BP A's Oh on top of the of the growth. We expect for this year. You know you you have all the added cost.
Upfront.
And we felt like.
You know balancing everything this was the appropriate plan.
We have another question from Jim Macdonald from first analysis. Your line is open.
Yeah, I just want to you know sometimes in the fourth quarter.
You got.
People you know on their high deductible plans kind of using heavily I don't think you mentioned whether that was an issue in the fourth quarter or not just wanted to check on that.
Yeah, I think that's always a part of your fourth quarter, you expect people to.
Have have reached their even the high people on high deductible plans may times have reached their limits.
But I think that's factored into our normal seasonality and I wouldn't call. It out has an unusual.
Occurrence for this recent fourth quarter.
Okay, just wanted to check on that thanks. Thank you.
We have a follow up question from Mark Marcon from Baird. Your line is open.
On and the Midmarket clients.
[laughter] to what extent today, the ones that weren't acquired when they look for cost pressures that they go to other picosure, what do they end up doing.
Yeah. That's good question, you know and any analysis when we looked at the whole book of business.
The same percentage of of customers.
We ended up at.
At competitors as we had last year, that's I think one year was 40%, 41% the previous year and 40% this year.
Of course is 40% of a higher number. So yeah. You know some more went to competitors, but you still had about a 60 40 between kind of taken things back in house compared to go to another PEO.
And from a pricing perspective, Paul would what was the like how much higher where the prices relative to what it would have cost.
Were they would have said.
Stay or how do we think about Scott and yeah. Those are those are the.
The battles in the trenches that you go through that and you kind of have to try to figure that out well, we'll reassess all that you know it was hand to hand combat through the fall on a case by case basis, and we do make you know pricing concessions to keep customers like everybody does.
What are the things we highlight is maybe we can have some process improvement to.
See those customers earlier.
I'll start them out at a little bit lower price, so that maybe we don't get into that.
That intensively debate or.
We have our process work better so that were quicker to react so does it take as long.
To to get to an ultimate price and.
Bring in competition or whatever else or what other options. There considering so those are things that we're looking at that you do in a deep brief.
And you know we've got the teams look at that will be tuna now what all that up and I'll probably report about the improvements we make in mid market is that as the year progresses.
You have one last follow up question from Tobey Sommer from Suntrust. Your line is open.
Thanks, If you could you refresh me on what your assumed contribution as a WSE growth from net hiring in the customer base and how that figure compares to the higher levels you've seen in recent years.
Yeah.
So.
I mentioned that it was fairly consistent with 2019 and that's a percentage we generally look at that in our assumptions as a percentage of the base at the end of the prior years. So.
You know as a percentage of the December numbers.
In the two years, it's it's very consistent.
And so in spite of the fact that we had tight labor market in 2019 period.
We're unsure obviously what does that factor, it's gonna how that's going playing in 2020, but we assumed a similar low level. Because historically you know 2019 was a lower level of contribution in that particular area than weve received in prior years, particularly when the economy has been strong like it has been.
Right. So what was that number dog in 19.
Awesome.
Didn't really provide that number we just trying to give you the the feel for but.
I was just generally speaking it was of course lower than we expected and lower than the prior year.
Due to the difficulty in fine paper to to fill the jobs and so weve continued that same consideration into into 2020.
[noise] [noise] [noise], we no longer have any questions on Q I would like to turn the call over it back to Mr. Sarvadi. Please go ahead Sir.
Well once again, we thank you all for participating on the call today, we look forward to save you out at conferences or when we get out on the road and we look forward to talking to you again next quarter. Thank you very much.
This concludes today's conference call. Thank you all for joining you may now disconnect.
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