Q3 2021 Insperity Inc Earnings Call

November 1, 2021

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Your conference.

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[music].

Good evening my name is Catherine.

Operator today.

I would like to welcome everyone to <unk>.

Quarter 2021 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session if.

If you'd like to ask a question. During this time. Please press star and then the number one on your telephone keypad if.

If you would like to withdraw your question press the pound key.

At this time I'd like to introduce today's speakers joining us are Paul Salvati, Chairman of the board and Chief Executive Officer, and Douglas Sharp Senior Vice President of Finance, Chief Financial Officer and Treasurer.

At this time I would like to turn the call over to Douglas Sharp Mr. Sharp. Please go ahead.

Thank you. We appreciate you joining us let.

Let me begin by outlining our plan for this evening's call.

First I'm going to discuss the details behind our third quarter 2021 financial results.

Paul will then comment on the key drivers behind our Q3 results and our plan over the remainder of the year.

I'll return to provide our financial guidance for the fourth quarter and some high level thoughts on 2022.

We will then end the call with a question and answer session.

Now before we begin I would like to remind you that Mr. <unk> body or I may make forward looking statements during todays 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 material materially from any forward looking statements and reconciliations of non-GAAP financial measures. Please see the companys public filings, including the form 8-K filed today, which are available on our website.

Now, let's discuss our third quarter results, we achieved 89 and adjusted earnings per share and $60 million of adjusted EBITDA above the midpoint of our forecasted ranges and driven by the quick rebound to double digit worksite employee growth from the pandemic close <unk>.

Peering spin the prior year.

As for our growth metric the average number of paid Worksite employees increased by 11% over Q3 of 2020 above.

Above the high end of our forecasted range of nine and a half that 10, 5%.

This was a sequential increase of 6% over Q2 of 2021.

The accelerated Worksite employee growth was driven by net gains from hiring in our client base exceeding our targets.

We're excited employees paid from new sales in third quarter client retention of 99%.

In a few minutes Paul will provide an update on our recent sales activity, including some early insight into our fall campaign sales efforts.

Now along with Worksite employee growth, our revenue per Worksite employee, which reflected a 4% increase in pricing and the non recurrence of the 2020 FICA deferral also exceeded our expectations.

In addition to the strong pricing our workers compensation program and payroll tax areas produced favorable Q3 results.

Our benefits program continues to reflect the dynamics associated with the pandemic.

This includes the increase in health care utilization over the course of this year, including elective care that was previously deferred.

COVID-19 related vaccination testing and treatment costs.

And slower claims payment processing by our carrier associated with these claims.

These factors have obviously impacted the gross profit and earnings comparisons when compared to the third quarter of 2020.

Q3 cash operating expenses increased 9% over the prior year slightly below forecasted levels.

We continue to invest in our growth plans, including an increase in marketing spend in Q3, as we headed into our fall selling season.

And incremental costs related to our Salesforce implementation.

We have reinstituted travel for certain employees and events. However, these costs along with other G&A costs continue to be managed at historically low levels.

Our financial position and liquidity remains solid as we continued investment in our growth, while providing strong return to our shareholders.

During the during the quarter, we repurchased 106000 shares of stock at a cost of $11 million.

Bringing our year to date repurchases up to 544000 shares at a cost of $50 million.

Additionally over the course of the first three quarters of this year, we have paid out $50 million in cash dividends and invested $24 million in capital expenditures.

We ended Q3 with $228 million of adjusted cash and $370 million of debt.

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

Thank you Doug and thank you all for joining our call today.

I plan to cover three topics to provide insight to investors into the tremendous opportunity ahead for <unk> <unk>.

First I'll highlight the drivers of our recent results, which point to strong demand for our services and excellent execution of our strategy.

Second I will explain how the recent trends and our expectations for Q4 set up potential for growth acceleration and a strong 2022.

And last I'll emphasize the macro picture I believe may drive high levels of adoption of our services for the longer term.

Our recent growth acceleration to 11% in paid Worksite employees over last year was caused by our three primary drivers hitting on all cylinders, namely new client sales client retention and net gain in employment within our client base. Our clients continue to add worksite employees in this quarter at a strong pace.

Despite the tight labor market one of the many advantages of being an inspiring client is gaining a competitive advantage in hiring new employees.

<unk> provides a combination of big company benefits and HR support with compensation analysis, and the recruiting effort critical in a competitive labor market.

Our services appear to be helping our clients attract and retain employees, which adds value to our client companies and contributes to our growth.

In addition to the strong net gain in employment in the client base, we saw an 18% improvement in paid worksite employees from sales of new accounts and a 16% improvement in fewer employees lost some client attrition over the same period last year.

Now in our business model two of the most important metrics driving our growth potential our sales efficiency and client retention.

Booked sales of new accounts in the third quarter was excellent with approximately the same number of business performance advisors as last year, selling 20% more clients and 34% more worksite employees than in the same period in 2020.

This level of sales by the same number of BPA as demonstrates a significant increase in sales efficiency over last year.

Several factors are contributing to an increase in sales efficiency, including remote selling and technology improvements more marketing leads and some success with our fast track program focused on early sales wins for new BPA.

However, the most significant factor in increasing sales efficiency is the maturing of our sales force. This was a significant factor in our decision at the start of the year to hold total BPA count steady for at least the first half of the year.

A simple way to understand the impact of the maturity of the BPA team is to look at the number and percentage of trained BPA as with less than 18 months of experience.

18 to 36 months experience and those with greater than 36 months experience generally the group in the middle with 18 to 36 months experience has approximately the average sales efficiency the mature group significantly higher than that number and the new BPA as are significantly lower than the average.

Now we've been growing the number of trained BPA is at an average rate of approximately 13% per year from 2016 through 2020, resulting in an increase in the total trained BPA is by 80%.

Over much of that period, the number of BPA with over three years' experience increase slowly, but the number of new BPA has increased at a rate that kept the average sales efficiency relatively constant other than the pandemic effects.

The growth in the number of BPA with greater than three Years' experience has increased dramatically now that we are over five years from the beginning of the ramp up this significant increase in the number of BPA is with greater than 36 months experience and the corresponding increase in overall sales efficiency creates a new opportunity for us.

In the past, we focused on growing at higher rates by continuing to grow the BPA team over 10% each year. However, the increased tenure of our BPA is gives us the opportunity to pursue our target of double digit growth in worksite employees without increasing the total number of BPA is at double digit.

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This is a perfect time for this opportunity when the labor market is tight and we want to continue to be selective in adding new BPA as to the team.

Based upon our recent success in the tight labor market, we're reassessing the ramp up timing for total BPA growth for the balance of this year and 2022.

Another highlight from the recent quarter was continuing to increase workforce acceleration sales year to date sales of this offering have more than doubled compared to the same period in 2020 mid.

Mid market sales are also an important part of our story.

We started this year refilling the pipeline after a successful Q4 sales period last year. So sales were lower during the first half, but the pipeline is back in line and we believe momentum is in the right direction for a strong finish this year.

Our client retention has been continuing at historically high levels in Q3 and throughout the year with the only exception being the loss of our largest client ever back in January the departure of that six to 800 employee client in January is somewhat masking the excellent client retention for this year.

Since we have no clients that even half that size, we have no similar event on the horizon. So continuing these underlying improved client retention rates strongly supports our growth expectations.

On the service side of the business, we're continuing to see deeper levels of service interaction with clients since the pandemic started.

There is a heightened need for HR support on issues from returned to work vaccination policies and practices diversity and inclusion the tight labor market and maintaining and developing the desired corporate culture.

The expertise of our highly qualified a dedicated staff as a great competitive advantages of advantage that our clients are experiencing.

We believe the number of quality impactful interactions has been a driver of improved client retention.

As we look ahead to the fourth quarter and year end transition. We're in a solid position as a reminder, we have our strongest selling period every year in the fourth quarter due to prospects wanting to make a change at year end.

Since the number of new accounts is the highest every year at this time, we have the highest number of client renewals every December through February so.

So every year, we have a fall selling and retention campaign from September through December.

This year, we're off to a great start, including a kickoff in September bringing the company together in a unique way we held local meetings across the country at top golf and connected virtually to deliver the message of our plan for this year.

Activity in both sales and the renewal side of the campaign are on track. However, the ultimate success is only determined when we see the full results of the campaign after year end now.

Now we're in a unique position this year for our starting point in paid Worksite employees and the likelihood of significant double digit growth to start 2022, our strong selling and retention momentum combined with year over year comparison in January to last year's large client loss means the growth rate could be.

Exceptional.

The early picture for 2022 includes this strong possibility of double digit growth combined with the expectation of some normalization of pandemic driven cost, including benefits unemployment taxes and some operating expenses.

Our business model in normal years of double digit Worksite employee growth include some leverage at the gross profit and operating expense lines driving adjusted EBITDA up substantially we would expect this to occur in 2022 as well however may be masked somewhat by the pandemic and other one time gross profit contributions when.

Bearing to the prior couple of years the.

The strength of the underlying growth plan combined with the strong demand for our services provides a clear and compelling macro picture. We believe we are in the early stages of a rapid growth period for our services driven by a potentially higher adoption rate for PEO services, several factors, including post COVID-19 validation of the need for it.

Instigated HR function changes in workplace and employee expectations and the difficulty. These factors have on small and medium sized businesses are driving prospects our way.

We also believe we are well positioned to capitalize on this opportunity with the most comprehensive service in the marketplace, a proven business model and our highly dedicated team of focused professionals at this point I'd like to pass the call back to Doug.

Thanks, Paul Let me provide our guidance for the fourth quarter and an update for the full year 2021.

We are forecasting Q4 average paid worksite employee growth of 11% to 12% over Q4 of 2020, a slight acceleration from the double digit growth rate achieved in Q3.

When combined with our outperformance in the three previous quarters. We are now forecasting full year worksite employee growth of about 7% above our previous guidance of five five to six 5%.

We are forecasting a 19% to 48% increase in Q4, adjusted EBITDA to a range of 45 million to $56 million.

And a 24% to 65% increase in adjusted EPS to a range of <unk> 61 to 81.

The midpoint of these ranges is consistent with our prior forecast as we have largely assumed an offset of the higher worksite employee levels.

With a range of outcomes in our benefits program, where some uncertainty related to the pandemic remains.

And when combining our Q4 earnings outlook with our outperformance over the previous three quarters. We now expect full year 2021, adjusted EPS to be in a range of $4 25.

The $4 46.

And adjusted EBITDA of 271 million to $282 million.

Now, we typically do not provide formal guidance for the upcoming year. At this time, we will consider any further developments in the macro environment and the outcome of our year end selling and renewal season, when finalizing our 2022 budget and providing guidance in our next earnings call. However, I will share some thoughts when it come.

Comes to framing next year.

As for Worksite employee growth, our starting point. The 2022 is it dependent upon the outcome of our year end transition of <unk>.

Old and renewing accounts and sets the table for our full year growth.

As Paul just mentioned, we are positioned well to see an acceleration of our worksite employee growth into Q1.

Growth over the remainder of the year would be dependent upon continuing our sales momentum as we capitalized on the favorable market opportunity keep.

Keeping client retention at recent levels.

And continued net hiring in our client base, although possibly at a lower level than 2021, given the tight labor market.

Our gross profit will be driven by the worksite employee growth and the effective pricing and management of our direct cost programs.

As youre, probably aware of the pandemic over the past couple of years has created an elevated level of gross profit and some moving pieces in this area.

While some uncertainty remains related to the pandemic. We currently expect 2000 22022 to return to more normalized levels.

For example, during the first half 2021, we earned a higher than forecasted level of gross profit contribution from our payroll tax area.

As most space did not increase their 2021 suite of rates at the expected level assumed in our pricing.

Over the last half of 2021, we have appropriately adjusted our pricing in this area.

We would generally expect it to continue to target a similar gross profit contribution per worksite employee in 2022.

Also as a reminder, 2021 gross profit included payroll tax refunds related to prior periods, which will obviously not recur in 2022.

As for our benefits program. The pandemic has caused considerable noise and uncertainty over the past couple of years.

The general view is the expectation for COVID-19 costs to moderate in health care utilization to return to more normalized levels. However, still with an elevated level of uncertainty continuing into next year.

Therefore, we would continue to expect a wider range wider than normal range of potential outcomes.

We will continue our strategy of matching price and cost trends over the long term and not overreact to short term variables.

As for our operating costs, while we have not yet finalized our budget. There are a few things to keep in mind as we move into 2022.

First of all considering our recent growth acceleration, we would generally expect leverage in our operating costs.

As for some specific areas of spend our corporate personnel costs will likely include growth in BPA and service personnel.

Our ability to reach targeted hiring levels in these areas will be dependent upon effective recruiting and retention of employees given the tight labor market.

This factor is also expected to impact our corporate personnel cost as we manage compensation levels in a period of changing market dynamics.

Additionally, we expect to return to more face to face sales and service meetings, which would likely impact our travel costs.

As you are aware, we will continue to incur costs related to our ongoing implementation of Salesforce.

So in conclusion, we are working towards a successful 2021 year end and a strong start to 2022.

And look forward to providing you with more details of our 2022 plan during next quarter's call.

Now at this time I'd like to open up the call for questions.

Ladies and gentlemen, just as a reminder, if you'd like to add.

I ask a question. Please press star and then the number one on your telephone keypad.

Your first question comes from the line.

Andrew Nicholas with William Blair.

Hi, good afternoon. Thank you for taking my questions.

First question I had was just trying to drill in a little bit more on the healthcare book and utilization trends in the quarter.

I wonder.

If you could describe kind of the utilization activity relative to your expectations in third quarter.

And maybe more specifically on a go forward basis, what youre, assuming at the bottom and top end of your guidance range for the fourth quarter on the utilization front. Realizing that there is a lot of uncertainty here.

Yes, I would just say that.

For the year, it's kind of gone along is as we.

Because we built in kind of a wider range of potentiality.

And we expected more COVID-19 related costs, which have come in relative to vaccinations and treatment costs et cetera.

And.

The question is always about how much of the other underlying utilization goes on and whether it offsets some of the added cost and then we also had over the course of this year.

Timing of payment.

By the carrier start to be.

A little longer so we're more towards the high end of our expectation for the year to date and we've considered just build on that over the year of course, our gross profit has considerably been higher for the year any way with some of the other moving parts but.

Generally speaking, we think that we're really on track with where we are between both pricing and cost on the benefit program.

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We know there's some noise in the benefit side, but we see it calming down.

Over the course of the balance of the year and certainly as you look further on the.

The real question is just what do you do about matching price and cost in total and we're in great shape on on that front.

Got it thank you and then.

Changing gears, a little bit for my follow up.

You talked to Paul about some pretty good shape.

Sales productivity gains I think broadly speaking it sounds like sales momentum is pretty positive.

Is there any way you talked on the macro drivers of maybe increased PEO adoption here over the next couple of years is there any kind of color you can give us on maybe what are the major drivers of those three or maybe kind of rank order some of the bigger.

Drivers as Youre seeing it kind of come through the sales force now and what I mean by that is.

As the value prop post COVID-19.

Bringing new people to two <unk> or are there other things.

Specific to this environment that seem to be coming up more frequently than others. Thank you.

Sure Yeah. Thank you for the question, yes. It really is just incredible timing between elevated demand and I think ongoing demand for our services.

Aligning up with our increased selling capacity from five years of effort growing the sales force by 80%.

In seasoned salespeople over that period so.

All the demand that we're saying, it's really coming out of those factors I described and the discussion.

Primarily that post COVID-19 validation of the need for sophisticated HR function.

So many things that go on in running a business today that now deal directly with how are you communicating with your people how are you.

Implementing new policies and practices.

How are you.

Basically managing.

And building your corporate culture, and your small and mid sized business. So you can accomplish your goals and objectives.

Now we've got a tight labor market on top of that that is a big part.

What I think is going to happen over the next several years and that's one of the driving reasons for people to become clients of <unk>. So theres just a lot of factors.

<unk> are driving demand up and.

We're just really well positioned to capitalize on the market opportunity and I expect it's going to be going on for quite some time.

Your next question comes from the line of Jeff Martin with Roth Capital Partners.

Thanks, Good afternoon, Paul and Doug.

Jeff.

Wondering if you could give us an update with respect to service personnel utilization I believe yeah.

Couple of calls you've talked about.

Elevated volumes are elevated engagement time with clients is that still persisting.

That you know more normalizing and what does that do in terms of utilization of your service personnel.

Yes so.

The number of interactions and the length of time of the interactions.

Due to the pandemic period, and the number of interactions triple the length of time doubled.

And that has gone back just slightly but it's still.

Way elevated from previous periods and it really has just reinforced how much help we can be to our clients and they really have figured that out and.

That did put some pressure on the organization in terms of.

How we're delivering on that front, but our folks have done a great job of <unk>.

Organisers the way this is delivered and really the interactions or just.

With the higher level inside our client company and are very important and.

They're the type of interactions that our customers are really appreciating. So again, it's validating what we do for the clients.

So.

When we look at the longer term.

Certainly we've got to be really conscious of our service levels. We also have.

If you'll recall, we have different service strategies for different size organizations and also for different organizations based on.

The intensity of their need some more technology, driven and some are more.

Handholding, So remember, we're a software with a service delivery.

And so.

Can manage those things effectively to make sure that.

You have that kind of high touch element.

When the client has needs so.

That ability to do that has has really served us well and we are we will be continuing to grow that service team dramatically because we expect dramatic growth in the company.

So that's kind of part of how we determine what is that right growth rate for us we want to make sure we grow at a rate that's as fast as we can grow and keep delivering this premium service to the client base. So we.

We expect to keep growing the staff and keep delivering.

The service levels at customers are now requiring.

Great and then Paul you, usually talk a little bit more about lead generation.

I've been doing.

Digital advertising and online advertising.

Lead generation and I was just curious if we get back up maybe from a broader lead generation point of view, if you could give us an update and specifically.

<unk> is workforce automation.

We're working into that lead generation formula.

Yes, absolutely I didn't spend much time and I appreciate the question.

This call but.

You'll notice over the time as we have grown the sales organization. We have continued to increase our investment in marketing and also in the various lead generation engines, we have our loyalty program with current clients, where we do all types of events and all types of.

Zoom meetings interactions et cetera to.

Produce leads from that front, we have a tremendous partnering.

Initiative with.

While we call centers of interest those are folks that advise.

Clients are small and medium sized businesses.

And we generate a tremendous amount of business from that organization and then we also have the direct advertising digital very heavy and other.

Other types of marketing to just drive those higher quality leads and I mentioned in the remarks that that is one of the drivers of our improving sales efficiency and we've increased that spending.

Over the course of this year and into this fall campaign, it's definitely.

Been producing great results.

We actually had 10 markets that were newer markets that we did.

Kind of a localized campaign that was successful so we spread that across the rest of the markets into this fall period.

So where we are.

<unk>.

We're very deliberate in how we.

Implement our advertising effort, we kind of use a rifle approach, where we know something's working we really go after that and don't use the traditional kind of shotgun approach just try and everything all at once.

We shoot for a marketing mix that fits in each market that drives the right level of activity and it's all built off of we want to drive enough marketing leads to this growing sales organization. So those sales efficiency numbers are.

At the right level.

Ladies and gentlemen, just as a reminder, if you'd like to ask a question. Please press star and then the number one on your telephone keypad.

Okay. Your next question is from the line of Mark Marcon with Baird.

Good afternoon, and thanks for taking my question.

Wondering if you can talk a little bit about.

You know the.

Impact of.

The health care benefits.

Utilization what are you seeing there.

Both in terms of what you think about for the fourth quarter and for next year.

What the range is in terms of the benefits cost going up.

But also thinking about it from the perspective of what opportunities it provides.

So we're hearing from some of the healthcare carriers that are approaching you know companies through benefits brokers, where there is there are some big increases in that could end up potentially increasing the receptivity.

Some potential clients. So I'm wondering if you could talk about it both from the perspective of how we should think about it in terms of gross margin impact and but also what the opportunities are that could come from it.

Sure absolutely.

As Doug was saying kind of in his comments.

Ill.

The way, we look at all of our direct cost, whether it's benefits or workers compensation or employment practices. Other types of things that are in that direct cost.

It's not just cost picture to cost and price picture and we're managing that to earn a management fee on managing all the costs in that area.

So on the benefit side this year, we kind of expected higher costs in.

A wider range of our expectation because of.

Okay.

Moving parts related to Covid treatment and it has come out just slightly above even the high end of our original range, but as the year developed we can move that range up.

So we've been tracking that well and of course we've.

Continue to move our pricing up because remember that's the other side of the equation. So.

And does remarks, he talked about the short term period volatility, but looking more at the longer term and making sure that's balanced over time.

This year, we had.

Some benefit costs at the high end, but we had some other cost at the lower end and we still ended up have ended up so far considerably above our original gross profit expectations keep in mind, Mark that's kind of how we go after every year, we always start with a more conservative view of the year and allow.

The work, we do to manage those costs create some benefit as the year goes on.

On the other side of your question.

What will happen with benefit cost.

As time Rolls forward, we've seen basically COVID-19 related cost, whether it's treatment cost vaccinations.

Testing costs.

It's run about 4% of the total benefit cost.

Over the each quarter and so that's what's got to kind of get built in to the ongoing trend.

If the utilization normalize as up to its pre COVID-19 levels.

And so there's that.

The lower utilization has been offsetting some of those cost for these prior periods.

We believe we are on track the way we've continued to move pricing. So we won't be seeing as much of a of a step up in price is maybe there'll be seen in the marketplace and as you kind of inferred there that that could also be a driver.

New business toward us and we consider that to be a very important part of what we do for our customers, which is to bring some level of more level of stability to the cost increases related to healthcare over time and that's what we've done for many many years through a lot of different situations that have impacted.

<unk> the healthcare market.

No.

That will also play well.

If in fact health care cost increase next year the year after in the marketplace.

That's great and can you talk a little bit about what youre seeing in terms of the acceptance.

PEO concept outside of the core.

States that are a little bit more mature like to what extent do you see.

The message spreading and particularly the benefits in terms of dealing with this.

<unk> challenging regulatory environment.

Well I can tell you that in the small and midsized business community the amount of regulatory change in commentary and potential change certainly is driving a lot of conversation.

That makes.

Yeah.

Drives people toward us because.

People throw up their handset I just can't handle any more it's just more than I can manage and I need help and so.

On all of these issues that have been driven really by the pandemic and everything thats coming out of that.

Including <unk>.

Regulatory and policy changes its very hard to deal with when you're also trying to.

Make money in the business you went in the first place so.

That does play into that.

The need for our services, allowing the business salary to focus on what they do to manage the profit opportunities.

Or that's the feeling of getting back to what they went in business to do so they love that concept and when you have times of increased regulation.

It just really makes that loud and clear message.

Your next question comes from the line of Tobey Sommer with <unk> Securities.

Thanks, I wanted to start out by asking you.

What is the broad impact of them.

Pick up in inflation.

Indeed, it does last for a few years.

And you can think of this from a <unk>.

Wage inflation standpoint health care expense standpoint sort of.

Is there a broad interpretation, both internally and externally to think about how waging slack wage inflation in a higher rate of it would influence the business.

Yeah, absolutely I can cover that a couple of ways first of all just for us as our company and with our own staff et cetera.

Service company so.

Mostly personnel expenses of course, the biggest operating expense so there.

We will have to address those issues about inflation in our own.

Pay to employees and we always.

Make sure we stay in touch with proper compensation levels.

So that wage pressure.

Hits, everybody, but from our business standpoint, and how it affects our clients and then how it affects our pricing is actually something that we know from the many years of experience. We've been here at <unk> and I have always found that win.

Payroll is going up faster when wages are increasing.

It's actually a little bit easier for us to get increases in our pricing to the clients.

Because even though our pricing much of it is on a dollar per person basis.

Or <unk>.

Percentage of other.

Other factors, but our total cost to the customer is generally presented as a percentage of payroll and payroll goes up on average than the percentage of payroll when we add dollars in there doesn't go up as much so.

We're able to pass on increases.

Actually easier in a period of wage inflation.

Also I think you have inflation in general in the marketplace, you've got interest rates debt go up.

And in our particular case interest rates actually affect our business model positively if theyre higher.

Relative to how our workers comp program works.

Discounting of of current value of long term payouts and so there's all kinds of other factors here. So.

We don't look at.

Inflation is overall.

Negative thing for our particular business, but we sure consider it to be a difficult thing for the economy as a whole.

And for our clients and we do all we can to help them through those kind of periods.

Helping them with compensation to get that part right to help them keep the right people etcetera. So it does add another.

Area of HR need that companies have.

Have to seek and.

I think will help continue to drive business our way.

Thanks, I wanted to ask from a longer term perspective.

Anything about the.

The prospect of being able to grow.

Worksite employees slightly.

Lately less than would have been required historically to.

To get into that double digit.

BPA excuse me salespeople to grow them more slowly.

<unk> in the double digits.

It changes the growth algorithm.

I realize we have some noise around trends in health care expenses post pandemic that may.

It's not fully normalized yet.

How should we think about.

That change.

Sort of algorithm that you've outlined historically.

Yes, it's really exciting because it's a big win.

Either way, but we are working on deciding which way we want to go with that new capability. So we can in fact grow double digit unit growth with single digit growth in BPA as at the efficiency that we're seeing once this has occurred.

Question and of course, if you grow BPA is at a lower rate than you save in operating expense. So there is there's more leverage there that you didn't have previously.

The other alternative is to grow faster.

Then we have instead of growing.

BPA as at 10% to 12% and Worksite employees at 10% to 12% you could grow BPA is a 10% to 12% and grow worksite employees that 15% to 18%.

Do you want to do that will that depends but it's certainly a great situation to be in when we are also seeing a rising demand and adoption rate for our services. So it makes that potentiality.

A really exciting opportunity. So that's kind of what we'll be working on is as we.

Work through this fall campaign and year end and plan into next year and over the longer term, but it just is.

Like I've said for many years, if you think about the retention.

The improvement we had about five years ago, and then we've had another retention improvement fairly recently those are dramatic and how it affects our business.

And the other one that's always been interesting for so long is trying to improve sales efficiency and obviously there are people working on that everyday all day everyday and we have for years, but we are now at that point, where we've seen.

Significant move and that will have a dramatic effect on our business.

Depending on how we take.

Take advantage of that into the future.

Your final question comes from the line of Josh Vogel with Sidoti and company.

Thank you good afternoon, everyone.

I apologize I've been bouncing back and forth between a couple of calls so if you're repeating any of this for my benefit I appreciate it.

When looking at your guidance up 11% to 12% year over year Worksite employees and you know just considering your strong performance I was just curious in that number what do you expect is going to come from gains within the existing base.

Versus.

Extended head count within the existing base versus new clients coming on board.

So at this time of year, it's always important to note that a lot of the new sales.

Don't actually enroll and pay until next year.

So that's normal for our fall campaign.

And also though your retention is pretty high in those months because companies don't leave very much during that period either.

We have figured.

That we've had really strong net gain in the client base.

To this point in the year and.

Toward the last couple of months of the year, you don't generally want to factor too much in there because some of that.

Can also kind of be deferred into next year. So.

We're real comfortable where we are for this fourth quarter, but the exciting news is really looking into the into January of next year and we're successful fall campaign will put us.

Because as I mentioned in our comments growing at the rate we've already grown to this point of the year.

And if you just keep things kind of solid.

In terms of the number of folks that normally departing fall campaign sales enough to kind of offset that we'll be starting the year with the.

Really nice.

More exceptional double digit growth number than we have in the past.

Simply because <unk> got the comparison to that January period, a year ago, when we lost a large client so.

In great shape to have a really exciting starting point for 2022.

And as Doug said, we'll be putting our plan together for.

For next year over that period, and we'll be able to give everybody. Some details about how how we've brought all that together on our next call.

Those are good insights thank you.

We know you pass along.

Lower state unemployment taxes to clients.

Assuming that's been well received but youre still.

Any successful in getting a 4% pricing increase I am curious what that number would have been if you werent.

Giving some concessions to your clients and also was there any way to tell whether that that move.

Really accelerated the prospect funnel in the fall sales campaign.

While we can't tell yet because we're only halfway through that but we will evaluate that once we get through the full campaign and I feel confident that that's the right thing to do anyway. When you are looking at we moved that pricing up on unemployment cost when the expectation was it was going to go up.

Based on the pandemic issues when it didn't happen.

It was the right thing to do to.

Lower that pricing.

For the last half of the year and of course, we will be getting more information about next year and what changes will take place and we'll make those same type of judgment calls for next year.

I would now like to turn the call back over to Mr. <unk>.

Any closing remarks.

Well once again, we'd like to thank everybody for being on our call today and thank you for your interest and support and we look forward to finishing a strong year and getting off to a great start for next year and providing more information when we get back together on the next call. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation you may now disconnect.

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Good evening My name is Catherine and I will be your conference operator today.

I would like to welcome everyone to the <unk> third quarter 2021 earnings Conference call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

If you'd like to ask a question. During this time. Please press star and then the number one on your telephone keypad.

I would like to withdraw your question press the pound key.

Thank you we appreciate you joining us.

Let me begin by outlining our plan for this evening's call.

First I'm going to discuss the details behind our third quarter 2021 financial results.

Paul will then comment on the key drivers behind our Q3 results and our plan over the remainder of the year.

Our return to provide our financial guidance for the fourth quarter and some high level thoughts on 2022.

We will then end the call with a question and answer session.

Now before we begin I would like to remind you that Mr. <unk> or I may make forward looking statements during todays call, which are subject to risks uncertainties and assumptions.

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

<unk> in the prior year.

As for our growth metric the average number of paid Worksite employees increased by 11% over Q3 of 2020.

Above the high end of our forecasted range of nine five to 10, 5%.

This was a sequential increase of 6% over Q2 of 2021.

The accelerated Worksite employee growth was driven by net gains from hiring in our client base exceeding our targets.

We're excited employees paid from new sales and third quarter client retention of 99%.

In a few minutes Paul will provide an update on our recent sales activity, including some early insight into our fall campaign sales efforts.

Now along with Worksite employee growth, our revenue per Worksite employee, which reflected a 4% increase in pricing and the non recurrence of the 2020 FICA deferral also exceeded our expectations.

In addition to the strong pricing our workers compensation program and payroll tax areas produced favorable Q3 results.

Our benefits program continues to reflect the dynamics associated with the pandemic.

This includes the increase in health care utilization over the course of this year, including elective care that was previously deferred.

COVID-19 related vaccination testing and treatment costs.

And slower claims payment processing by our carrier associated with these claims.

These factors have obviously impacted the gross profit and earnings comparisons when compared to the third quarter of 2020.

Q3 cash operating expenses increased 9% over the prior year slightly below forecasted levels.

We continue to invest in our growth plans, including an increase in marketing spend in Q3, as we headed into our fall selling season.

And incremental costs related to our Salesforce implementation.

We have reinstituted, a travel for certain employees and events. However, these costs along with other G&A costs continue to be managed at historically low levels.

Our financial position and liquidity remains solid as we continued investment in our growth, while providing strong return to our shareholders.

During the quarter, we repurchased 106000 shares of stock at a cost of $11 million.