Q1 2022 Insperity Inc Earnings Call
[music].
Good morning.
Jay and I'll be your conference operator today I would like to welcome everyone to the spirit. He first quarter 2022 earnings conference call.
At this time I would like to.
To introduce today's speakers joining us are Paul Sorry Party 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.
Please go ahead.
Thank you. We appreciate you joining us let me begin by outlining our plan for this morning's call.
First I'm going to discuss the details behind our first quarter 2022 financial results.
Paul will then comment on the key drivers behind our Q1 results and our plan over the remainder of the year.
I'll return to provide our financial guidance for the second quarter and an update to the full year guidance.
Will then end the call with a question and answer session.
Now before I begin I would like to remind you that Mr. Sorry 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 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 strong first quarter results in which we exceeded both our worksite employee growth and earnings expectations.
We achieved adjusted EBITDA of $119 million, a 14% increase over Q1 of 2021 and.
And adjusted earnings per share of $1 99.
These results reflect growth in the average number of paid worksite employees above the high end of our forecasted range.
<unk> seen above targeted levels effective management of our direct cost programs and operating leverage.
As for our growth metrics. The average number of paid Worksite employees increased by 19.5% over Q1 of 2021.
As most of you are aware of the yearend transition from 2021 to 2022, and which we enroll new clients from our fall sales campaign and renew approximately 45% of our existing clients was important to our 2022, starting point and therefore, our full year growth.
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We are pleased to report a very strong year end transition as demonstrated by a three 6% sequential increase in the average number of paid Worksite employees from Q4 of last year to Q1 of this year.
As for the drivers of this growth Worksite employees paid from new client sales increased 37% over the first quarter of 2021.
First quarter client attrition was near our historical low totaling only eight 5%.
And an improvement over Q1 of 2021 attrition at 12%.
And our clients continue to experience a robust hiring in spite of the current tight labor market.
First quarter gross profit was bands above forecast on the outperformance in the Worksite employee growth.
Pricing above targeted levels and a favorable contribution from our direct cost areas.
As for our payroll tax area, while unemployment levels have fluctuated over the course of the pandemic.
Our state unemployment tax rates have remained below anticipated levels, resulting in a favorable contribution to gross profit.
Our workers compensation program continues to perform well as a result of our ongoing management of safety practices and client.
Workers' compensation costs also include the favorable impact from the reduction in the number of claims due to the work from home status of many of our clients' employees.
Q1 benefit costs came in at expected levels, while benefit pricing allocation exceeded our targets.
We continue to take what we believe is a conservative approach in estimating our benefit cost trend at budgeted levels for the full year and what appears to be in an improving although still uncertain environment.
Now, let's put the gross profit comparison to Q1 of 2021 in which we achieved 14% growth keep in mind that this is affected by the additional payroll tax surplus in the first quarter of 2021.
Including the receipt of prior period payroll payroll tax refund and.
The quarterly fluctuations in health care costs related to the pandemic last year.
Now as for our operating expenses, our Q1 spend reflects the initiatives in our five year plan discussed in our previous earnings call.
This spending includes investments in our service capacity relative to our Worksite employee growth.
National marketing initiative and technology, including the ongoing implementation of Salesforce.
We implemented a new quarterly incentive program for our BPA is during the quarter to drive further improvements in sales efficiency.
We also made targeted adjustments to the compensation levels of our corporate staff given the current labor market dynamics.
And our ongoing management of recruiting and retention goals and while making these investments the overall leverage in our cost structure.
<unk> been a 7% decline in operating expense per Worksite employee from Q1 of 2021.
Now our financial position and liquidity remained strong as we continue investment in our growth and provide returns to our shareholders.
During the quarter, we repurchased 308000 shares of stock at a cost of $27 million.
And pay down $17 million in cash dividends.
We ended Q1 with $153 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 my comments today will address three key areas for <unk> stakeholders.
First I'll provide specifics regarding the momentum drivers behind our strong Q1 results.
Second I'll comment on how this momentum and our key initiatives provide confidence in raising our guidance for the balance of 2022 and I'll finish by providing some color around the extraordinary shareholder return opportunity of our recently launched five year plans.
Our strong Q1 performance was the result of continuing momentum in all our growth drivers, namely new client sales retention and client hiring.
Our dramatic 37% increase in Worksite employees paid from our successful conversion of booked sales from our fall campaign into new clients.
And near historical high retention from our successful campaign combined with continued strong hiring in our client base to drive nearly 20% unit growth.
New book sales in the first quarter continued the strong momentum with both core and mid market sales coming in over 120% of sales budget book.
Book sales came in 28% higher than the comparable period last year with 3% fewer business performance advisors, demonstrating significant increase and sales efficiency over 30%.
In the first quarter Bpa's tiered levels were determined based upon final 2021 sales levels sales management was successful last year in increasing the number of BPA at tier three or above by 18%. This movement in our most experienced and productive BPA.
It was a significant contributor to the sales efficiency gains.
This strong sales momentum also flowed over into book sales of our traditional employment solution workforce acceleration coming in at 126% of sales budget and 140% increase over the comparable period last year.
The traction we gained in this initiative is evident increasing the revenues on this service 39% over the same period one year ago.
Several key initiatives are behind these strong sales results, including recent marketing success capitalizing on increased demand in the marketplace for our sophisticated HR solutions.
Worksite employees sold for marketing programs were up 29% over Q1 of 2021.
Inbound leads converted into book sales increased 34% and Worksite employees booked from these inbound leads more than doubled.
Sales efficiency for marketing assisted deals booked in the quarter increased 36% contributing to the overall sales efficiency improvement.
Another key driver of these impressive sales results is the recent implementation of a new quarterly bonus component of BPA compensation.
BPH now have quarterly targets based upon their respective peer levels.
And earn a bonus for achieving and exceeding these targets.
This first quarter showed immediate signs of validation of this approach in generating excitement extra effort and strong results.
Another highlight of the quarter was the excellent client satisfaction and retention from the fall campaign that continued throughout the quarter.
Our service team and all of those that support them across the country have done an outstanding job serving clients in meeting their needs in the face of this considerable growth.
Client net hiring was also impressive in Q1, despite the tight labor market. Our clients are continuing to do well in the battle to recruit and retain employees with the support of our services.
Demand for employees continues to be high driving wage increases within our client base over 7% and overtime was above 11% of base pay.
Commissions and bonuses paid to employees at client locations also provide some insight to the sales success in the small to medium sized business community and the efforts to compensate to retain staff.
Both measures were significantly higher in the first quarter than we have seen historically.
At the same time business on our confidence has been weakening somewhat with inflation concerns moving to the top of the owners significant issues list and the recent NFIB survey at this point the real time metrics, we have as the HR department for over 11000 businesses across the country do.
Notwithstanding the slowdown in hiring so for now it appears to be more of a general concern small business owners have about the future.
Another welcome highlight for this quarter was the contribution from gross profit drivers, including slightly higher surpluses than forecasted due to effective management of price allocations and cost.
The noise, we've experienced in the health care plan during the pandemic appears to have waned somewhat and we believe our conservatism in pricing allocations and cost estimation is appropriate.
As Doug mentioned, we also saw significant operating leverage in the quarter, which is also an important factor in our business model. So all in the first quarter was an excellent start to 2022 now as we look ahead to the balance of the year our confidence in raising guidance is due to our expectation of many of these recent <unk>.
Positive trends to continue.
We expect our growth to be fueled by our higher starting point in paid Worksite employees.
BPA performance at their current tears and continued strong retention.
We were cautious about client hiring continuing at recent levels due to the tightness of the labor market and business owner concerned about inflation. The economy, we still expect some client hiring but we believe it's prudent to build in a lower rate going forward.
Our confidence in our res profitability expectations is based upon the combination of this higher growth and our gross profit contribution and operating leverage trends. This profitability is consistent with how our model has performed in historical periods of high Worksite employee growth.
We also have key initiatives that support these expectations, including a clear focus on sales efficiency effective pricing and growing our service organization.
This quarter, we're implementing some new incentives to our sales management compensation, which we believe will continue the sales efficiency improvements and new business pricing priorities.
In addition, the marketing and business development team applied the learnings from the successful fall marketing campaign in 10 markets to enrich the spring program further expanding into all of the disparity markets. We recently launched a fully integrated marketing program and all 41 markets in an effort to continue this momentum.
We are also going live this quarter on our Salesforce implementation across our growth organization, which we believe will improve our efficiency going forward, we expect to implement the implementation across the rest of the company early next year.
Another important initiative, we have over the balance of this year is an aggressive corporate recruiting plan to add both service and sales staff. We've also felt the effects of the tight labor market and they have made enhancements that we believe will allow us to achieve staffing targets to support our growth and client retention priorities. So.
It's apparent we are off to an excellent start for our first quarter of our five year plan and our guidance implies strong first year. In 2022 also our key initiatives are laying the groundwork to capitalize on the growth and profitability outlook. We see ahead.
This new five year plan has extraordinary potential beyond what we have seen in previous successful five year runs for example from 2014 to 2019, our compound annual growth rate in paid Worksite employees was over 12% and an adjusted EBITDA was over 24%.
Our total return to shareholders was even more remarkable at 434% over that period quarterly dividends increased an average of 27% each year and the share price increased more than fivefold.
This was not surprising over that period, because our business model is designed to produce double digit unit growth slightly higher gross profit growth.
And some operating leverage producing adjusted EBITDA growth north of 20%.
Historically this double digit growth has been fueled by increasing the number of BPA is at a double digit pace. For example in the period I. Just described the compound annual growth rate for BPA growth was 12%.
The five year plan. We just launch has three significant distinctions that I believe can drive adjusted EBITDA growth rates even higher.
First distinction is the marketplace demand I've described over the last several quarters the impact of the pandemic and all the after effects drove home the importance and the direct connection between the sophisticated HR function and business survival and success.
We have seen this reaction in our clients prospects and those who invest in small to medium sized businesses.
This increase in demand and receptivity as the initial region, we thoroughly developed and implemented this plan I believe it has significant industry specific wave we can capitalize on over the next five years.
The other two distinct differences are within our business model first the traction we have with our traditional employment solution workforce acceleration has the potential to add to gross profit in a way we have not seen before small increases in gross profit per worksite employee in our model drive significant increases.
And adjusted EBITDA. This source of gross profit also is not health care cost dependent and if it were to grow significantly could help to mitigate our overall volatility.
Workforce acceleration has the potential to improve our sales efficiency lower BPA turnover and enhance our customer for life strategy for long term client retention.
The second distinctive difference in our business model for this five year plan is the sales efficiency gain we have begun to see and we will strive to further improve this creates the potential for us to grow faster with the BPA growth rate below the unit growth rate, which would add operating leverage we have not seen before.
So I see the potential if we are successful on this five year plan to grow faster and to gross profit per worksite employee and have more operating leverage than our last run.
This could mean significantly higher adjusted EBITDA growth, which we believe could create extraordinary returns to shareholders.
Asperity is laser focus across the company on the 10 critical success factors expected to drive home the goals of this new five year plan, we are off to a great start and hopeful for a bright future for all <unk> stakeholders at this point I'd like to pass the call back to Doug.
Thanks, Paul now, let me update our guidance, which we are raising our 2022 growth and earnings expectations.
Upon our outperformance in Q1, and an improvement in our growth and profitability outlook over the remainder of the year.
We are now forecasting 15, 5% to 17, 5% Worksite employee growth for the full year an improvement over our initial guidance of 14, 5% to 16, 5% growth.
This expected increase was based upon a higher starting point going into Q2, continuing sales momentum maintaining client retention at our budgeted high levels.
And continuing net hiring by our clients however, slightly below recent trends given the potential impact of a further tightening in the labor market and inflationary pressures on the business environment.
We are forecasting Q2 paid worksite employee growth of 18% to 19% over Q2 of 2021.
We also now expect 2022 gross profit to be higher than our initial budget based upon the Q1 outperformance.
And the recent positive trends in both pricing and direct cost.
We continue to be mindful of the ongoing uncertainty associated with the pandemic and therefore continue to forecast the benefit cost trend over the remainder of the year in line with our initial budget.
While we expect to get some further upside from the payroll tax and workers' compensation areas keep in mind that outperformance in the payroll tax area is largely concentrated in Q1 as we earn a surplus prior to worksite employees, reaching their state unemployment tax wage limits.
Our forecasted operating costs continue to reflect our 2022 plan of investing in our five year plan initiatives.
With the expectation of achieving overall operating leverage at our expected worksite employee growth rates.
And we are now estimating that 2022 effective income tax rate of 28%.
So when taking into account. These factors, we have raised and narrowed our range of 2022 adjusted EBITDA from our initial guidance of 251 million to $311 million.
Two our updated guidance of 285 million to $327 million.
As for full year 2022, adjusted EPS, we are now forecasting a range of $4 31 to $5 nine.
Up from our previous guidance of $3 74 to $4 86.
As for Q2, we are forecasting adjusted EBITDA in a range of 60 million to $73 million and adjusted EPS from <unk> 88 to $1 12.
Which takes into account our typical our typical quarterly earnings pattern.
As you May recall, our Q1 results are typically higher than subsequent quarters as we earn a higher level of payroll tax surplus.
Hard to Worksite employees, reaching their taxable wage limits.
Benefit costs are typically 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.
Thank you and as a reminder, if you would like to ask a question. Please press <unk>.
The number one on your telephone keypad.
To withdraw your question. Please press the pound key.
Thank you. Our first question comes from the line of Andrew Nicholas of William Blair. Your line is open.
Hi, Good morning, Thank you for taking my questions.
First one is just on kind of the sales force productivity.
Obviously, it seems to be increasing in a relatively strong rate I'm wondering how much of that is a consequence of a longer 10 year or longer average tenure in our sales force and maybe kind of within that have you seen any change in retention levels or I guess the opposite being.
Attrition within your sales force obviously, it is a tight labor market, you're seeing that in your client base as well just wondering how youre thinking about retaining that talent and how big of a component that is to productivity growth yes.
Yes. Thanks for the question it is a very important.
Aspect of our effort to improve sales efficiency and within the numbers I talked about today, you can kind of see the picture there because we had about 30% or 30% improvement or increase in sales efficiency.
And we had an 18% increase in the.
Number of Ppas that are in tier level, three and above so.
That's a big chunk of debt.
Natural effect of sales efficiency gained from more.
Experienced.
BPA growth.
Now the other balance of that the other 12% came from a combination of other things.
The marketing results that were so strong in terms of bringing qualified.
Leads in for example.
But also the recent compensation tweak that we put in place.
It allows for.
Each BPA within their tiers to have <unk>.
Targeted objectives, each quarter and earned bonuses each quarter, but it also drives them to try to work hard to get to the next tier level, where the bonuses are higher for being in that tier. So we just have a lot of things that are.
You know.
Really I would say Theyre just tracks that lead to improved sales efficiency and this is a perfect time for that because the overriding thing that is allowing all of these to gain traction earlier I think is just the <unk>.
Demand, we see in the marketplace at large and the doors that are open to go see prospects.
The opportunity for BPA is to have enough repetition.
I think the other factor that's key is the way that we have really optimize the remote selling element.
And we'll be mixing back in.
Face to face visits at the right time to.
Further enhance the closing rate. So those are all factors in.
This is why we're really excited about.
The longer term great strides already in sales efficiency, but many things that we believe.
We will continue that trend.
That's very helpful. Thank you and then maybe as a follow up to the last part of your answer.
In terms of the new sales momentum.
Are you seeing any material difference in kind of the competitive nature of the market or.
Are you seeing better win rates coming against other competitors I'm. Just curious if this is primarily execution on on a large runway for growth or if there are some competitive takeaways in higher win rates as a consequence of some of those other items you mentioned.
Thank you.
Another very good question and I'll just tell you. This is more an intuitive answer than it is.
Supported by.
A lot of detailed information but.
What what I see happening is that.
The result of the pandemic period and all of these after effects really drove home.
The need.
You need both for survival and to.
To really succeed to have a very sophisticated HR function.
What's unique about <unk> is that we are the premium service in the marketplace differentiated by the breadth of our services the depth of our services and the level of care those three things add up to an incredibly sophisticated HR function. So I believe that we have are.
Competitive advantage, it's always been there is highlighted in a dramatic way right now because that type of service is what companies really want and need and I think thats, an uphill climb for a lot of other companies in our space that have.
They have good services to.
Either reduce cost or to reduce administrative effort those are good things too, but that really sophisticated complete.
HR function is really something that we are.
We're a category of one.
Thank you.
Next question comes from the line of Tobey Sommer of Truest. Your line is open.
Thanks, Paul.
I was wondering if you could give us an update on <unk>.
How the benefit trends progressed during during the quarter posted homochrome.
Or at least the first Homochrome variant and whether you think that the effects of that are sort of clearly visible to you or we still have a couple of months of data to be collected from United.
A real clear picture about how that unfolded.
Yeah, Let me, let Doug give you some details more details about it but from my perspective, what we've seen is pretty clear that you had the two variants that drove up COVID-19 related cost we talked a lot about that last period.
And al.
We trended off of those high results just to be conservative.
And we've seen some waning as I've discussed in.
The.
Covid related areas, but we're also just cautious about the potential for acute.
Issues and other things that are longer term effects from the pandemic that can still come in so we're just going to continue to be conservative about that but.
Pass it on to Doug there, Yeah, I think as you're probably aware tobey.
You know in the fourth quarter, we had the convergence of the Delta and the beginnings of one micron.
As we moved into the first quarter, you still have some hangover effect of OMA corn at least through the month of January .
Probably part of February as a result of that increased testing some increase vaccination.
During those months I think since then we have seen it wane a little bit.
As it relates to that.
And so I think thats good news.
But as we look forward for the remainder of the year I think there is.
Still uncertainty as to whether utilization.
Utilization, whether it would be.
Sure that was previously deferred.
Particularly elective surgeries or things like that have to have some catch up that replace.
Yes that replace the <unk>.
Waning effect of.
Covid and Covid costs.
Places or not will there be some upside.
We're hopeful that there will be but I think it's prudent right now with still quite a bit of a level of uncertainty to continue to forecast that our initial budgeted levels on the cost side, but the other important takeaways on the pricing side. So.
So were we.
We're doing an effective job of pricing.
You know at least really through the whole pandemic stage, we've talked about this in past quarters, how we spoke through the pandemic.
Over the long term over the two years 2020 , one our pricing.
Was fairly matched with the.
With those two periods on the benefit cost side and as we move forward into 2022, our first quarter pricing and cost levels were matched very well.
I think we are positioned.
For the remainder of the year if in fact.
The utilization does it replace COVID-19 costs that we don't have another wave on the Covid side.
We are hopeful that there could be some upside it's just too early to tell.
Okay. Thank you I appreciate all the color and then I wanted to ask a question about your.
Your total addressable market and how you think about that.
Several years ago, you started offering.
<unk> co employment options and now the pandemic.
As you said a lot about knockoff effect highlighted the value of.
The PEO service, how do you think about your addressable market and whether or not it's sort of grown because certainly the.
Volume growth in <unk> is pretty remarkable.
Yes, that's a great question Tobey, we still see clearly within the data that we're able to evaluate that theirs.
Over 600000, what I'd call perfect fit clients that fit the demographic and Psychographic profile of 11000 clients. We have so we see a huge market.
We have.
A long time to keep penetrating but what's exciting to me is now we also.
Ill have.
Clients that we're offering to workforce acceleration to that where we can cast the net wider into that 600000.
Target customers and bring them in and also have customers that are on the.
Co employment model that sometimes want to move off of that can go back to the traditional employment solution. So I think our long term view and ability to bring them in and have a move up or happened move.
Move across into other services is really strong and so.
That again is part of why when I look at even this five year plan.
Really see the potential to grow our core business at all.
Historical double digit rate, but adding also the.
I should say above historical double digit rates and <unk>.
<unk>.
The traditional employment service sales add to our gross profit in a strong way so.
That's what I talked about those two distinctive.
Elements of our model that are different for this five years growing at a faster rate with love fewer BPA is having a contribution from the workforce acceleration that drives our gross profit and of course with the operating leverage both in the.
Service and sales side that means adjusted EBITDA at higher rates than our previous run.
Thank you next question comes from the line of Jeff Martin Roth Capital Partners. Your line is open.
Thanks, Good morning.
Paul I was just curious if you could talk about the concentration of the ppas and various tiers, how many or our tier three or above.
Progression timeline is there for that it sounds like.
The incentives incentives.
Changes that you've put in place are having a significant impact there.
Yes. Thank you we have.
We've talked about in the past the typical length of time for a new BPA coming on to reach.
That tier two level is about 12 to 18 month period, we want them in.
Tier one is that is what they are in early on and.
To get to tier two typically its around that 18 month two.
A couple of year period, but where we're seeing folks being able to do that earlier. So that's a good sign.
But we're looking at the entire flow and moving as many as possible.
It very much at an individual level now over the balance of this year.
We will be growing our BPA team again, starting to ramp up growth.
Expecting to get to around around 700 or so.
<unk> <unk> at the end of the year, So we get back to.
Maybe around 10% growth in the number of BPH early next year sometime.
And that that is the right rate for the sales efficiency gain to put us.
Into the mid teens double digit growth on an ongoing basis, which is our target.
To get where we want to go but a lot of this is really dependent on this focus that we have.
Moving individual bpa's up through the tiers, what's exciting about where we are now is we have.
Wheel alignment on that goal.
Throughout the sales organization not just sales management trying to do their job of moving those folks do there, but now the BPA source of connected to that to the new compensation system and really all across the company one of our 10 key success factors.
In this five year plan.
Critical success factors is.
Improvement in sales efficiency. This is so there's a tremendous focus on that across the company that I believe we will have a nice effect going forward.
Okay, Great and then I was curious if you could speak a little bit more to the mid market. It looks like it grew in line with the <unk>.
Rest of the business are there specific initiatives in the mid market that you're putting in place to have that.
And maybe compare that to over the past 12 months, what you've seen in the mid market.
The sales potential yeah I appreciate the question I am very excited about what's happening in mid market right now and it's really the fact that.
Core sales mid market and workforce acceleration are now.
A real.
Understanding across the sales organization that has three prongs that all are significant and important.
Equally committed to across the company and.
In mid market. This year, we've already off to a great start and the pipeline is way ahead of last year already because so much alignment around.
Around all three of those so our leads for mid market come out of our BPA team and now the alignment with and how they're compensated.
And how they work together on these larger accounts.
Is I think a very smooth operation now and.
Again, it's the alignment issue that I think makes the biggest difference so we're off to a great start pipelines in great shape.
Keep in mind, it's still the smaller part of the business and there is some.
There are bigger pieces, when they come and go but I really do see more consistency coming in that area of our business and that will really.
Be helpful on the sales efficiency front as well.
Thank you next question comes from the line of.
Mark Martin.
Baird Your line is open.
Good morning, and thanks for taking my questions.
Okay.
Really strong growth with regards to the Worksite employees I'm wondering can you comment on two aspects one.
What are you seeing Paul with regards to the broadening of the acceptance of the PEO concept outside of you know your biggest states to what extent are we starting to see.
Increased adoption in <unk>.
Some of the less established states.
And the response to some of your marketing efforts.
And then secondly.
When we take a look at the fee revenue per Worksite employee can you talk a little bit about what youre seeing from a pricing perspective and to what degree is your fee revenue per worksite employee.
Directly tied to the level of compensation for the employees.
Great. That's those are both good questions. So first of all on what we're seeing.
Oh.
I think I would have to say that the biggest difference in seeing this receptivity all across the country. There's two components to it one of course I mentioned in my in the.
Remarks, which was about our.
Marketing effort that we went through last fall focused on localized.
Marketing plans.
<unk> has different aspects to it.
The awareness in that market.
And so we've now done that across all.
41 markets for this spring, but you can see our revenue growth across the country, we were over 20% revenue growth in all of our regions.
So things are happening broadly why is that I think one of the biggest things that is impressive to me that gives me confidence about the future is the way that.
Investors Board members.
Whether it's venture capital or private equity.
Folks that used to be kind of stumbling block or hurdle for us to close a piece of business.
We would try to go through the selling process with the CEO and then they go to their investors and there were a lot of folks that.
It didn't like the idea of investing funds into that HR function, but now they.
The.
Awareness of how important this is and how it actually helps.
The profitability and building value in that company I think that's really made a difference across the board.
So now on the pricing side, let me just say that.
I think we're all over that and one of the other critical success factors.
And that of the 10 factors that we have the company focused on is the issue of the potential for inflation to have a dramatic effect over these.
Next several years now we also believe it's really important to make sure we're doing everything we can to.
Recruit and retain the right people.
Because that's obviously.
Important to us we can help others take care of their people. If we don't do a great job taking care of our own so we've already.
Doug mentioned in his remarks, we've already made investments.
Internally.
Compensation side.
So.
We have a tight connection between what we do on the operating side of the business and how all of that flows through to pricing. So we have a pricing plan that.
Within our both new and renewing business in that part of our organization.
Have a game plan going forward for this year that we believe is fully appropriate and reflects the fact that it is.
Marketplace there.
Price increases need to be passed on.
And also we are.
And I mentioned in my remarks that we have some sales management compensation tweaks that also.
Help them be in in concert with that same approach for this year. So I think we're in great shape on that front and the last thing I would say on that is that when wages are going up like they are.
In the marketplace.
Our increases that are passed on that are reflected as a percentage of the wages.
We can actually pass on more and it just looks and feels like less.
Because it doesn't move that percentage up very much. So we think we have a very good environment for being.
Being effective at passing appropriate increases alone.
Yes.
That's great and then can you talk a little bit more about.
Just the benefit your business.
If it cost expectations for the balance of the year are you assuming that there will be some sort of.
You know increase in terms of.
Elective surgeries that were deferred or how are you thinking about that.
Yes, I think just to kind of reiterate a little bit of Doug's comments, we when we looked at the going forward for the balance of the year, even though we're seeing some of the.
Cost drivers wane, especially related to the Cove direct COVID-19 related costs.
We felt like it was still important to stick with our core.
Cost trend that we established just a couple of months ago.
Because even if theres a waning of the Covid costs do you have the possibility.
Both our acute care cost and or.
<unk>.
Deferred cost from elective surgeries and stuff that can come through over the balance of the year. So you know another quarter out we're going to have a little bit better view into that.
If if those don't come in.
Absolutely there'll be more more upside than what we have forecasted.
I think it's only prudent to.
Be in a position to be expecting some of those things and who knows if another.
Barry It is going to come out or whatever so.
Just too early to tell and so we're sticking with the.
Higher trend that we.
Adopted early this year in our budget.
It sounds very prudent thanks, Paul thank.
Thank you.
Yes.
Thank you.
Now I'd like to turn the call over to Paul <unk> for closing remarks.
Once again I would just like to thank everybody for being on the call today.
And while we look forward to continuing the success throughout this year and in year one of our five year plan that we believe would provide extraordinary shareholder return opportunity. Thank you again for your participation and we look forward to providing information next quarter.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect have a great day.
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