Q3 2020 Insperity Inc Earnings Call
And that will be conference operator today I.
I would like to welcome everyone to the integrity, they quite like tiny tiny earnings conference call.
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Please be advised today's conference is being recorded if you require any further systems. These specified derail. Thank you at this time I would like to introduce todays speaker is joining us I pulled her body chairman of the board and Chief Executive Officer, and Douglas Sharp.
<unk>, Vice President of Finance, Chief Financial Officer and Treasurer.
Now I'd like to turn the call over to Douglas sharp.
So Sean Please go ahead.
Thank you. We appreciate you joining us let.
Let me begin by outlining our plan for this morning's call first.
First I'm going to discuss the details behind our third quarter 2020 financial results.
Paul will then comment on the key drivers behind our Q3 results our outlook for the remainder of 2020 and some general comments on 2021.
I'll return to provide our financial guidance for the fourth quarter and an update to the full year 2020 guidance well.
He will then end the call with a question and answer session.
Now before I begin I would like to remind you that mr. sarvadi ri make make or make 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 a more detailed discussion of the 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.
Now, let's discuss our third quarter results in which we achieved 91 cents in adjusted earnings per share a 21% increase over Q3 of 2019.
Adjusted EBITDA of $58 million, a 13% increase.
These results reflect outperformance in worksite employee growth and pricing relative to our expectations into some uncertain and challenging business environment.
And the upside in our direct cost programs brought about by the dynamics of the pandemic.
And the structure and ongoing management of these programs.
As for our growth metric the average number of paid Worksite employees in Q3 of 2020 increased by 1.7% sequentially over the Q2 period to 231750, which was above the high end of our expected range.
Now you may recall that employee layoffs in our client base drove a 6% reduction in paid worksite employees from the outset of the pandemic in March through the low point in May of this year.
Stan Worksite employees have grown sequentially as employees returning to work and being hired by our clients have outpaced any further layoffs.
Additionally, client retention for both Q2 and Q3 has remained at our historical level of 99%.
And Worksite employees continued to be added from new client sales.
Given these recent positive trends, we now expect paid worksite employees to return to near pre pandemic levels by the end of this year.
Now, let's move on to gross profit, which increased by 8% over Q3 of 2019.
Worksite employee volume and pricing above targeted levels combined with upside in our benefit and workers compensation programs.
Resulted in significantly higher than expected gross profit.
This quarter, it's been a big costs included some favorable development from Q2, a period of highly unusual claim activity due to the impact of the shutdown odors.
In addition, health care utilization began trending toward more normalized levels in the third quarter, although not to the degree of our expectations.
Going forward, we expect further normalization along with the resumption of some deferred care and COVID-19 testing and treatment cost you.
The extent and timing of which is still uncertain.
Our workers compensation program continues to perform well due to ongoing management of safety practices and claims.
Recent favorable claims development has been associated primarily with periods prior to the pandemic any favorable impact from the reduction in severity of workers compensation claims associated with the work from home status of many of our clients employees.
Would likely favorably impact our costs in future periods as this claim experience develops over time.
As for our pricing, we charge our clients a comprehensive service fee inclusive of our HR services and direct cost programs.
We entered 2020 with certain pricing targets said prior to the outset of the pandemic.
And we continue to manage towards these budgeted targets.
As you may recall certain savings from resulting from the disruption caused by the pandemic were negotiated with our vendors and we are passed along to our clients in the form of a comprehensive service fee credit.
As reflected in our Q2 financials.
Now turning to operating expenses Q3 operating expenses included continued investment in our growth including costs associated with a 10% increase in the average number of trained business performance advisors.
Other corporate employee head count has remained level over the past three quarters due to the effort and effectiveness of our staff in the face of increased HR service demands from within our client base.
Cost savings have been realized in other areas of the business, including travel training and other DNA costs as we manage through the current business environment.
The Q3 year over year increase in total operating expenses of 15% was impact was impacted by increased stock based compensation costs.
This increase was driven by a few items first our outperformance in the level of paid worksite employees and earnings during the pandemic.
Second the shift in the waiting to performance stock Awards from a performance cash awards for 2020 to further align our employees interest with shareholders. During these challenging times.
Third the acceleration of expense for employees meeting retirement eligibility requirements under recent modifications to our plan.
And fourth a comparison to prior year's quarter, which earnings and relate to performance based compensation were adversely impacted by large health care claim activity.
Operating expenses, excluding stock based compensation and depreciation and amortization increased just 4.6% over Q3 of 2019.
Now as far as our financial position and liquidity remains strong as we manage through the pandemic conditions continue investments in our growth and provide returns to our shareholders.
Adjusted cash has increased from $108 million at December 31, 2019.
$213 million at September Thirtyth, while repurchasing 1.3 million shares of stock at a cost of $91 million.
Hanging out $47 million in cash dividends and investing $69 million in capital expenditures to date during 2020.
Borrowings increased by $100 million over the nine month and $130 million remains available under our credit facility.
Now at this time I'd like to turn the call over to Paul.
Thank you Doug and thank you all for joining us.
Today I'll provide comments on three topics starting with some thoughts on our significant outperformance in the recent quarter I will then discuss how the primary drivers to our business model, we acted to the pandemic, resulting in the opportunity implied by the guidance, we're providing today to attain double digit growth in adjusted EBITDA.
This year.
I'll finish with some comments on our view of these factors going forward, which will ultimately drive our outlook for 2021.
We are certainly pleased with our execution in the third quarter, which resulted in a variety of factors contributing to better than expected results there.
The resiliency of our client base supported by our dedicated service providers combined with solid sales and retention to drive a nice rebound in sequential growth in our key metric paid worksite employees.
Net gain and Worksite employees from within our client base exceeded our expectation as client hiring of furloughed and new employees occurred sooner and at a faster pace.
As Doug mentioned client retention continued at historical levels of 99%.
Despite the economic pressure on small businesses in the current environment.
In addition, our booked sales since the pandemic had been approximately 70% of our pre pandemic sales budget, which we believe is solid performance in a virtual selling environment.
In the third quarter paid Worksite employees from previously booked sales was 92% compared to the same period last year, demonstrating continued demand for our services and strong execution in enrolling new clients.
Another highlight of the quarter was our strong pricing of both new and renewing accounts in service fees and allocations for direct costs, including our benefit programs.
The matching of price and direct cost is critical to our model and exceeding our targets. In this area is important as direct cost effected by the pandemic normalized.
We've also been able to continue to grow and develop our BP 18 through this quarter. During this period, we virtually trained over 350 BP ace in our level, one two and three and our certified business performance advisor programs.
Our train VPA count increased 10% over the same period last year positioning us well for our fall selling season.
This quarter, we were also able to divert some operating expense savings to develop client testimonial videos and increased advertising to support our fall selling season, and our retention campaign.
These videos captured the motion we were hoping for demonstrating the value of a sophisticated HR function in a crisis.
We were also able to continue important technology development beyond responding to the many compliance needs that emerged earlier this year.
We are extending our people analytics platform, which has been very well received by our Midmarket and enterprise clients to our emerging growth segment just in time for our critical renewal period.
We are continuing to make strides improving insperity premiere, our proprietary human capital management system Rolling out a new time and attendance user interface and using new behavioral analytics tool to guide roadmaps, making premier easier and more efficient for clients.
The bottom line for the third quarter was that we experienced the ideal combination of higher volume and pricing and lower direct operating costs. Each of these elements contributed to our strong outperformance in the quarter.
So we have responded quickly and effectively to the unusual events, we've experienced in 2020 meeting client needs and achieving better than expected growth and profitability. We've also kept our eye on the long term, making progress on many important initiatives.
Now that we have three quarters under our belt and our estimate for Q4, we can evaluate how our business model has reacted during the pandemic when the pandemic yet we did not expect our business model would have the potential to generate double digit growth in adjusted EBITDA that we have within the guidance.
We are providing today.
The effects for the pandemic on our business model ran the full gamut from obvious expected negatives to completely unexpected positive.
It's worth taking a moment to summarize these factors that drive the model since as we all know too well. This pandemic is not over and it appears the effects.
We will carry into 2021.
For example, one would think a pandemic a health issue would increase health costs.
However, what we've seen is that rising cobot cases created the need to protect hospital capacity.
And limit elective procedures, which combined with people's behavioral tendency to avoid hospitals as much as possible health care expenses expenses have actually declined significantly in the short term.
[noise] longer term health care costs may be elevated due to the deferral of care or cost associated with treatment of covance or vaccines to this point, we have not seen these cost increases.
Actually increased the overall trend as other offsets like telemedicine in some level of deferrals care continues.
In addition, many experts, including the CDC are anticipating that the precautions currently being taken to reduce the spread of cove. It could substantially reduce the incidence of flu this year.
[noise], an obvious negative factor, we experienced from the pandemic related to lock down was the economic effect on small and medium size businesses.
Which affects us in the form of layoffs in our client base.
We saw a drop in paid worksite employees of approximately 6% in two months followed by a steady rebound over the following four months supported by fiscal stimulus and easing restrictions.
In retrospect, the cares act is specifically the paycheck protection program was effective in mitigating some level of layoffs further we believe our quick and effective support of our clients to take advantage of these programs played a role in fewer layoffs occurring and a faster rebound.
The effects of the shutdown also highlighted one specific advantage in our business model.
Which is our client selection strategy due to our risk based client selection process. We have a very small percentage of our client base and industries most affected by the pandemic and shutdowns.
Such as entertainment hospitality travel and restaurants.
Another surprise somewhat due to our client selection strategy.
Has been the nominal business closings, we have experienced in our client base, although we expected to see an increase our strategy of targeting the best small and mid size businesses across a wide range of industries prove to provide some insulation from this factor as we saw no significant increase in business failures.
Another dramatic effect, we experienced was the increased workload as many issues arising from the pandemic landed in the HR Department as I mentioned last quarter client interactions increased 300% and the average length of time of these interactions doubled this fivefold increase in workload has diminished some.
What but remains elevated.
On the flipside Lockdowns led to working from home in our case. This resulted in improved productivity and our dedicated staff performed heroically in response to the increased demand for our services.
Alright experience leads us to believe working from home is effective for ongoing routine activities. However, innovation and collaboration may suffer in the longer term.
A hybrid scenario of working from home and coming into the office may provide optimal productivity efficiency and innovation going forward.
Another upside in our model from the Lockdowns and work from home environment across our client base is a substantial decrease in the incident rate of workers compensation claims. This impact is yet to be reflected in our cost, let's and should benefit future periods to some degree.
However, these lower cost may be offset by co bid related claims that may be covered by workers compensation in some states.
An additional upside surprise to me has been our effectiveness continuing to sell in a virtual environment.
With a service offering is comprehensive and complex as ours.
We now know the range of sales efficiency under these conditions and as we integrate face to face meetings back into the mix, we could see a longer term efficiency gain.
One final observation is the success, we've had during the pandemic and retaining clients, even as financial considerations Gray prevailed on our client base. Our services simply were invaluable and clients have continued our premium services, despite the need to tighten their belts.
So now that we have a better understanding of the factors driving our business model during a pandemic what does that mean as we look ahead to 2021.
Well first it means planning will be independent will be dependent on these factors and drivers that are likely to ebb and flow based upon the state of the pandemic, we will be monitoring these new inputs very closely and we will finalize the budget later than usual to include the most recent information.
Making estimates at an early stage makes little sense in view of the number and range of possibilities, especially when considering the timing and degree of severity of the pandemic or the actions that may occur to mitigate its effects.
For example, cobot cases are on the rise now, but one or more vaccines may be available by 2021 or in anticipated economic downturn from additional lockdowns may occur. Additionally, small businesses may be bolstered by additional fiscal stimulus.
What we have learned is there are many moving parts and offsets in our business model in this environment. If the pandemic intensifies, our direct costs may be below our historical trends as we experienced this year, but growth may suffer Conversely, if the pandemic is mitigated or under control direct costs may.
Be elevated but growth may accelerate as an offset.
What I do know with the degree of certainty today is we have an amazing organization with the necessary curiosity and brainpower to provide the agility and capability to manage through a crisis and come out with impressive results for shareholders clients and other stakeholders.
This year, we have demonstrated the depth and breadth of our competence and level of care for our clients to execute on matters within our control along with an inspiring ingenuity and resourcefulness to respond to unexpected events.
We are certainly pleased with our 2020 results to date and our outlook for the balance of the year and we look ahead with confidence in the future whatever we face next year. This time I would like to pass the call back to Doug. Thanks, Paul now.
Now, let me provide our guidance for the fourth quarter and an update for the full year 2020.
As you are aware that continues to be uncertainty as to the duration and the conditions of the pandemic and the traject trajectory of the economy.
The current political environment, and the timing and details of any further government stimulus as this uncertainty.
We have taken this into account when providing our financial guidance over the remainder of 2020.
And we will be considering these factors in our budgeting process for the upcoming year.
We typically do not provide formal guidance for the upcoming year at this time and therefore, we will consider any further developments in these areas.
And the outcome of our year end selling and renewal season, when providing 2021 guidance in our next earnings call.
Now based upon the details that Paul just shared we continue to expect sequential worksite employee growth over the remainder of 2020.
For the fourth quarter, we are forecasting average paid worksite employees in a range of 236500 to 238500.
Sequential increase of 2% to 3% over Q3 of 2020.
This equates to an expected decrease in average paid worksite employees up only 1% for the full year 2020.
In the face of significant challenges for the small business community caused by the pandemic and its impact on the economy.
With an improved outlook for Q4, Worksite employee growth our current pricing strength.
In a range around expectations in our direct cost programs, particularly our benefits program.
We're now forecasting Q4, adjusted EBITDA EBITDA of $21 million to $30 million.
And adjusted EPS of 20 cents 38 cents.
When combined with our Q3 outperformance we are raising our full year 2020 earnings guidance and now forecasting adjusted EBITDA of $271 million to $281 million.
An increase of 8% to 12% when compared to 2019.
As for full year 2020, adjusted EPS, we are now forecasting a range of $4.35 to $4.53.
Up from our previous guidance of $3.67 to $4.04.
Now at this time I'd like to open up the call for questions.
Thank you Sir at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
If you would like to Redouble. Your question you can pass depend upon.
Well pause for just a moment barbecue and Eva.
Presenters. Your first question will come from the line of Josh Vogel from Sidoti and company. Your line is now likely to happen.
Thank you good morning, guys. Thanks for taking my questions.
Good morning, good morning.
Paul just a question around some of your comments, obviously you're seeing.
A lot of effectiveness in selling in a virtual environment.
As we move forward, though you want to reintegrate face to face meetings, and Mexico needs and efficiency gains, but just curious if there's an opportunity here for you to potentially pared down the real estate footprint longer term given the success in selling virtually.
Yes, Thats something we will certainly consider for the long run as we evaluate how work actually changes and what needs come out of that.
But remember we have both our sales and service teams distributed throughout the country to be close to our customer base.
But again, we will have to evaluate how those needs may change into the future.
Okay, great and.
Your comments around having limited exposure to the hardest hit sectors are just curious.
If we dissect that your client base.
What percent is within like entertainment, hospitality and restaurants and travel.
It's really really nominal I mean less than 2%.
We generally stay away from types of industries that have high turnover rates as which is a significant employer risk.
And a lot of times restaurants and.
Other types of companies that have been.
Hardest hit just aren't in our target customer base and so we actually just benefited from that.
Because that was part of our model before all this came about.
Okay, great and obviously pretty successful in pricing I was just curious if you can get a little bit more detail around.
What was behind that 4.4% year over year improvement.
And did you lose any clients over pricing.
No. We you know we always lose some clients over what I'd call value that can.
How customers may look at what they're paying and what they're getting in their own analysis of that that's kind of.
We out of the turnover, we haven't clients every year, it's typically about 3% of the total debt.
Have a cost value related type of decision.
But.
No we didn't see any change in that this year, even though we were driving pricing at 4.4% is.
The full comprehensive service fee, which includes other changes like our markup for the services, we're providing plus the pricing for art to the allocations for direct costs like benefits workers compensation papers and payroll taxes et cetera.
So.
Our strategy coming into the year was to drive our pricing a higher too to match cost.
Actually to build in the cost that we have seen from Ohio.
Higher large claim activity last year, we have done that that's built in now and we feel like were very good shape.
We have we realize that there is a lower trends right now coming in the benefit plan from.
Effects of the pandemic, but we expect that over time to be more in line over the longer period with the.
Normal trend and so we've been pricing to make sure we.
Have accounted for that as things normalize.
Thank you. Thank you next question will come from the line of Tobey Sommer from Telus Acuity. Your line is now like go ahead. Please.
Thank you Paul I was wondering if you could comment on.
Your thought process and sort of level of optimism about the company's ability to return to double digit work.
Worksite employee growth and perhaps you could compare that to how you felt three.
Three or six months ago.
You have some experience operated independently.
Thank you Tobey, yes, we as you know.
That double digit unit growth is kind of in our blood is what we live for.
And the market opportunity so great the demand for our services is awesome.
Theres really no reason, we shouldnt be able to get to that and the way. Our model works is if you grow the EPA is at the right rate at double digit growth.
Many of the sales efficiency at the right rate.
And you keep your retention properly then ultimately you have over a 12 to 18 month period, you have double digit unit growth.
That's affected somewhat by.
Inputs.
Us or minus from mid market performance, which is a little choppier.
But at this point so that's kind of how were planning we're planning for how soon can we get back to double digit unit growth sometime next year.
And how soon can we do it of course the focus right. Now is have an effective fall sales campaign in both selling and retention to optimize the starting point for the year.
Looks like we had this year around where we started so the pandemic reduced worksite employees, 6%, we've come back almost all the way by the end of year, we think were about even so.
So if we can start the year at that point, it's almost like a mulligan like a do over and we should be able to ramp up as we hit the second.
Certainly the third quarter ramp back up to double digit growth now that's all pending.
Some of these other considerations you know if if.
There are shutdowns.
You know.
We are pretty severe then you.
Are you going to have that will that will delay when you can get back to that growth, but I think we're in a good point of being able to balance the inputs. We've learned pretty fast we're going to really dig in on that learning over the next quarter put these things into our budget and to into more into operation kind of.
Taking best practices from across the company and making sure those are in full effect as the new year begins.
And we're.
We believe that we will have us on track.
To get back to how.
We'd like to do things around here in terms of growing worksite employees double digit.
Thank you if I could ask a numbers question of Doug I'll get back in the queue.
If I look at the net.
Effect of a kind.
Kind of covert related benefit costs and other things that had been altered how much of a benefit might 2020 right.
Not so much maybe relative to some historic norm or 2019.
Just so we can use that for our own inputs as we think about how to model next year ahead of your guidance, yes, it's a little bit of a different difficult answer because theres a lot of puts and takes in the benefits area within the cobot arena and even outside of it what we've seen is as I mentioned in my view.
Paired remarks is that the second quarter, where you had quite a bit of the deferral of the elective procedures.
Develop out favorably relative to our initial.
Estimates of that quarter, obviously, a high degree of uncertainty and it was prudent to do so the third quarter.
Is going back towards more normalization.
If you remember we said okay. The deferred elective procedures, we expect those to come back in the second half of the year, we saw a little bit of that in the third quarter.
But we don't not to the degree that we expected now what were incorporated into fourth quarter guidance is a continued.
Return to that normalization and on top of that some.
Some increased co that treatment and testing costs into the fourth quarter. So I think we've been appropriately conservative in the in the fourth quarter guidance relative to that.
But you've got some put and takes there you've also you've got the mild flu season that we're hearing from the CDC as a result of the precautions people are taken and so.
That goes into it too and then you've got the potential growth and Cobra.
Our costs.
With the unemployment.
Unemployment.
Alright, the layoffs that have occurred throughout the year, so I'm not giving you a number because there's just so much uncertainty.
Related at all those pieces I would say going into the year, we were probably expecting a year over year benefit cost trend.
And the 333% to 4% range or so.
With the year to date.
Results that we've achieved and with the fourth quarter guidance our forecast.
Forecast, which I just discussed with you.
It probably at the end of the day, if all that proves true for 2020 would be flattish to 1% or so.
Thank you that's helpful.
Thank you Sir.
At this time I would like to remind everyone I mean only gig.
Ask a question. Please press Star then the number one on the telephone.
Did that answer your next question will come from the line of Jeff Martin from Roth Capital Partners. Your line is now like perhaps.
Thank you good morning, Paul.
Well.
Could you touch on the field effectiveness throughout.
Throughout the quarter, how did that trend I know that 70% was.
Yes, I think towards the midpoint of your expectation that you outlined.
In April or May if I recall, and then secondly in terms of your BP a growth plans I know you've talked about 10% this year and getting back to 15%, but how should we think about BP growth next year, yes.
Yes, thats good thank you Jeff.
So.
In terms of.
Of sales and how their budget works keep in mind that as the our budget gets bigger every month as the year progresses. Following the historical pattern of how our sales work so.
We had a good increase during the quarter, we were in that 70% range, which is.
We believe is good performance in this environment and is but it is a bigger number than the second quarter because budgets go up as the year progresses.
So.
We also were able to maintain that 10% increase in sales.
Okay growth.
And just preliminarily as we're looking into next year.
We're going to dig down on the budget and come to a final conclusion on this but our intuition is we really don't we could probably have a pause in growing the.
18 for.
At least six months or so and allow some efficiency gain that will come out naturally too.
Continue to drive that double digit growth.
So we're looking at those options for next year, but we're in such a strong position now.
It really gives us some nice options.
So we'll kind of see how things are playing.
If we have.
If we're going into the year end there is such strong upside from other sources, we might continue that growth in bps to stay ahead, but like I say, we have a lot of options about going into the year. It's one of the levers will be able to.
Decide what to do with to optimize our performance next year.
Okay, and then could you give us an update on the large claim activity, but the benefits cost side I know that had been gradually trending in the right direction, though we are we back to kind of levels prior to second quarter of 19.
No we haven't gone back if you'll remember if we as we came into the year.
We said, we had three quarters in a row, where the claims were elevated so we were baking that into pricing we've done that.
But it's gotten a little bit harder to tell because of the covert crisis because now you've got a large claims that relate to covert that didn't have anything to do with kind of a normal large claims. So it's just gotten a little muddied there but.
We are planning for it.
If it goes back that's upside okay.
It's kind of stayed.
Not as elevated as it was in that second quarter. When it was originally spiked but.
It's gotten a little harder to tell and.
As far as we're concerned now we're better off baking that in which we have and we've.
Addressed that in pricing habit matched and we're good to go going forward.
Okay, Great and then one last question if I could how.
How should we think about the health care benefits costs next year relating to vaccine treatment.
Well you know there's a lot remains to be seen about how that cost is covered and there.
Theres.
There is a battle that will be wage so for that.
As what you have is you had.
Our government has prepaid.
For vaccine development and.
Certain volume of those and so what happens going forward, we don't know and.
We're anticipating that some cost could come into our plan I think thats just a prudent thing to consider how much cost we really have no idea.
And like to say, it's one of those.
Unanswerable questions at this point.
Sure well that helps anyway, thanks for taking the questions you bet.
Thank you.
At this time I would like to remind everyone. If I get to ask a question. Please press Star then the number one on your telephone keypad.
Your next question comes from the line of Mark to market from Baird. Your line is now I smell like go ahead. Please.
Good morning, Paul and Doug Harned Mark.
Nice quarter.
Can you talk a little bit about the mix of synchronization versus optimization like which one is selling the most and what are you seeing in terms of small business versus versus your larger clients.
Sure in the mid market segment, we still have some that move from.
Workforce optimization to workforce synchronization.
But it's been a pretty modest rate.
And.
When we remember mid market is the inputs to that or we sell midmarket customers into that space, but we also promote customers into that space as they grow and most of those customers growing their on workforce optimization.
And so there is some migration, which is great. It means we have another option, we are able to accommodate how companies to growing and developing but I would say, we still sell more workforce optimization than we do even synchronization in mid market. So.
Our strategy is working well on that front.
Great and what about the workforce administration how's that selling now lets her progress are you seeing there.
Yes, we've we've continued to sell in our we've made good strides on people learning.
However, I would say that this year.
With.
Everything else we've had to.
Focus on it.
It has taken more of a back seat.
And so were not where we'd like to be against our our budget.
Closer to 50% on that rather than the 70% on the w. over budget.
But.
No not discouraged by that at all it literally is just a matter of how much can you do at once in the middle of a crisis.
And we'll get we'll we'll get back on that in a more intense fashion.
As soon as.
You know as soon as the circumstances allow it.
Okay, and then just staying on sales for SEC. The if we take a look at the performance of the beeps yeas to what extent was it was there a discernible difference in terms of regions.
Particularly in terms of the core market. Just wondering was there more uptake in the in the established yield markets versus nascent ones, how how would you describe that.
Well I would say that it was probably a little bit more directly related to.
You know to where you had.
Lockdowns that maybe were more severe a little harder to two.
You know to get meetings and get.
Proposals et cetera.
It's pretty much EBITDA out to a degree even the northeast we've had a good had a good strong.
Third quarter, not so much on the west coast.
So it does it does bounce around it just depends.
But we have I would just say in a general sense, we noticed with things were opening up it was it was easier. So there is a connection there, but I would also say that we sold deals in every market in every situation every circumstance and I'm really proud of the sales team all across the board.
Through the way they've.
Taken on the challenge in and have performed.
Great and then with regards to like this fall selling season.
You've got your new marketing program going into effect and then I'm wondering how your which is going to.
Leveraged on all the benefits that you've provided to your clients wondering how are you thinking about pricing the health care.
You're going to have to give quotes.
How do you how are you going to think about that given the uncertainties with regards to next year in terms of like what happens with large claims the vaccines.
You know the favorable.
Lack of.
Deferred.
Procedures. This year, how do you how do you factor that in her or her and Thats. A good question Mark and you know that our view that is the only way you can do this properly is to really play the long game on benefit trends and the things that drive those trends and try to do your best to evaluate any short term.
You know interruptions to the trend either on the favorable or unfavorable side. So.
Part of our goal with our clients is to give a much more stable environment to them than they would otherwise have outside of our relationship. So sometimes we actually take a hit.
On behalf of the clients you might have noticed that in 2019, and then sometimes it works to our benefit like it has so far this year in 2020, but we have continued to keep our eye on the long term trend and benefits.
And there is a difference in what affects the long term versus what happens in the short term. So we do a lot of work and triangulate on that with our carriers and our outside consultant and are.
Really stellar internal team that keep track of all that and we make sure that we're matching price to the long term trend.
The other thing I think we've done more recently that people just need to be reminded of is that we did purchase coverage for the largest claims claim.
Claims over $1 million and.
You do have in the marketplace today things that.
We are claims certain things that drive some of those really large claims and it turns out we didnt realize cope is one of those things that can drive.
Some of those large claims or when there is co morbidities and et cetera. So.
That's also part of the plan a part of how you kind of manage the long term trend.
Thank you Sam.
Yeah, I had a follow up question coming from the line of Tobey Sommer from truly Securities. Your line is now like go ahead.
Thank you could you contextualize of 4.4% pricing in.
The quarter relative to sort of historical trends, what you've seen because it seems like a pretty good number to me. Thanks.
Yes, it's I mean, it is a good number of.
But it's it's I would say it's modestly over kind.
Kind of what we normally do.
In a normal year, you're going to have some price increases on benefits more.
More around.
Two and a half or 3% when its all in after your benefit increase may be higher than that but people will actually buy down their plan to buy cheap.
Changing benefit.
Benefits.
Elections or.
Choosing a lower cost plan. So this is an all in number it's taken a lot of factors, but I.
I think you'd see that typically more in a three to three and a half and is four and a half so.
That shows that we did some catch up to make sure that.
Large claims continued at the pace, we saw last year that we would be covered in the normal trend and we are.
Thank you very much.
Thank you.
I remind everyone and I'll get to ask a question. Please press star one on your telephone keypad. Your next question I'm, sorry, you file a follow up question coming from the line of Mike Mike from Baird. Your line is now likely to happen.
And just a quick question with regards to start can you talk a little bit more about the change that happened this quarter and how we should think about it on a go forward basis.
Yes, I think you know as I mentioned, the two factors that drove the increase this past quarter was one the outperformance both.
Both on the Worksite employee side and on the earning side because our stock based comp plans are based upon upon performance and particularly those two metrics recently.
And then the comparison.
The last years quarter third quarter, and if you remember last year's fourth quarter, we still had some elevated large claim activity in our stock based comp was quite low.
Relative to that and how it impacted the earnings number and again with the stock based comp tied to that.
Accrual last year was pretty low so.
Just generally speaking I would expect a the fourth quarter. If we continue to perform the way we are performing this year.
If things go as expected with our guidance.
Another probably healthy increase in the stock based comp relative to the fourth quarter of last year.
Thanks, Tim.
And and there are no further questions at this time I would like to turn the call over back to Mr., Tim Boddy for closing remarks.
Well once again, we'd like to thank everybody for joining us today, and we look forward to.
Putting the finishing touches on this year in putting our outlook for 2021 together and.
And informing you about our expectations next.
Next quarter, so wish everybody a great holiday season.
And hope to see out on the road. Thank you.
Thank you so much does M&A front again, thank you everyone for participating this concludes.
Today's conference you may now disconnect. Thank thank you have a levy.
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