Q3 2023 Insperity Inc Earnings Call
[music].
Good morning, My name is Jenny and I will be your conference operator today I.
I would like to welcome everyone to the inspires T third quarter 2023 earnings conference call.
The moment all participants are in a listen only mode. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
At this time I would like to introduce today's speakers joining us are Paul Salvati, Chairman of the board and Chief Executive Officer, and Douglas Sharp Executive Vice President of Finance, Chief Financial Officer and Treasurer.
At this time I'd like to call the turn the call over to Douglas Sharp Mr. 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 third quarter 2023 financial results.
Paul will then comment on the quarter and our plan over the remainder of the year.
I'll return to provide our financial guidance for the fourth quarter and an update to our full year guidance.
Then in the call with a question and answer session.
Now before we begin I would like to remind you that Mr. So body or I may make look forward.
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 third quarter 2023 financial results in which we significantly exceeded our earnings expectations.
Continued worksite employee growth combined with strong pricing favorable direct cost trends and effective management of operating costs resulted in a 19% increase in Q3, adjusted EPS to $1 46.
An 18% increase in adjusted EBITDA at the $94 million.
That's where our growth metrics. The average number of paid worksite employees increased by 4% over Q3 of 2022.
In spite of a continued slowdown in hiring by our client base and a more challenging sales environment.
Client retention remained strong averaging 99% for the quarter.
At this point in the year, we are focused on our fall sales campaign, which generally convert to paid worksite employees in the first couple of bonds for the subsequent year.
Paul will provide some comments on our recent sales activity in a few minutes.
Moving to gross profit, we continued to exceed our pricing objectives and achieve favorable results in our workers compensation program through the effective management of claims.
As for our health care claims excuse me you may recall that Q2's costs were negatively impacted both the number and severity of large health care claims.
And to a lesser extent higher pharmacy cost.
Accordingly at that time, our earnings guidance over the second half of 2023 incorporated two scenarios.
Our lower earnings scenario generally assumed a large claim activity continued at Q2s level for the remainder of the year.
While the higher earnings scenario assumed a return to lower more normalized activity.
We are pleased to report that Q3 pharmacy costs came in at forecasted levels.
The severity of large claims declined significantly.
These factors contributed to favorable development of Q2's claim activity.
Our positive Q3 earnings.
Now when we look at the full year of 2023, we're now forecasting a full year benefit cost trend to be slightly low slightly below the low end of our previous estimate of 7% to eight 5%.
This includes what we believe is a conservative Q4 forecasted cost trend that is generally consistent with our previous guidance. Despite the favorable Q3 health care cost results.
Moving to operating expenses, we continue to invest in our sales service and technology.
Our growth investments included a 13% increase in the number of business performance advisors, which we believe puts us in a good position as we head into 2024.
Our operating costs also reflected the impact of the inflationary environment on our costs.
And were partially offset by a lower incentive compensation accrual and a shift in the timing of the quarterly marketing spend when compared to the 2022 areas.
Interest income earned on our investments and operating continue operating cash continued to benefit from the current interest rate environment.
And we believe that our financial position and liquidity remains strong as we continued investment invest in our growth, while providing returns to our shareholders.
During the quarter, we took the opportunity to be more aggressive than our typical share repurchase activity.
We repurchased 873000 shares of stock during Q3 at a cost of $86 million.
It paid out $21 million in cash dividends.
We ended Q3 with $190 million of adjusted cash and $370 million of debt.
Now at this time I would like to turn the call over to Paul.
Thank you Doug and thank you all for joining our call.
Today I'd like to provide commentary on the following three topics.
Again with highlights behind our strong Q3 financial and operating performance secondly.
Secondly, I'll provide an update on the economic environment in the small to medium sized business community, which is the backdrop of our fall selling and retention campaign opportunity.
I'll finish with some thoughts regarding the outlook for 2024 and beyond.
This recent quarter was a welcome rebound in our financial results from Q2, with 4% unit growth driving five 5% gross profit growth and over 18% growth in adjusted EBITDA and EPS.
We're pleased with these results considering some marketplace challenges continuing to deepen within the small to medium sized business community and I'll discuss this more in a few minutes.
The most direct impact on our results from this environment as a net hiring within our client base, which reflected a continued slow down we've seen throughout the year for the first time in several years client net hiring was flat this quarter.
The net gain in our client base declined significantly when compared to Q3 2022.
Client retention and the number of Worksite employees paid from new client sales remained consistent compared to the same period last year.
In addition to the low lower large health claim cost Doug mentioned, our pricing and cost management were the strong drivers of our outperformance.
This reflects solid execution across the company and contributed to a strong quarter and our outlook for the long term.
Another highlight was our increased service capacity and client satisfaction levels as utilization of many of our HR services increased our hiring and training results over the last year have improved our service efficiency ratios to handle growth and resulted in a notable increase in our <unk>.
Net promoter scores.
During the third quarter, we completed the implementation of our Salesforce CRM system across our service organization. We now have the entire company on a common platform that provides the opportunity for more timely precise and efficient client service interaction and potentially greater client satisfaction.
We can see in our service utilization metrics, the changing needs of clients in the current environment. Many HR services that are used more in a slower growth environment increased significantly over last year. This included support for Worksite employee terminations such as separation agreements.
Support for employment practices and unemployment related claims.
These services have been at historically low levels in the past couple of years. So this increase is expected in a more neutral hiring environment and further demonstrates our ability to bring value to clients in any economic environment.
Book sales for the third quarter were mixed with strong performance in workforce acceleration, our traditional employment service offering while our workforce optimization core and mid market book sales were below our expectations are.
Our workforce acceleration book sales reflect adoption of this offering across the sales organization and has helped our newest ppas experienced earlier success. This has led to lower turnover rates, which has excellent potential to drive sales efficiency going forward now.
Now in early September we had a successful national kickoff to our fall selling and retention campaign and increased marketing efforts to continue to drive sales activity levels are discovery call activity was a strong point in Q3 up double digits, which we expect to be a solid indicator for Q4.
Sales now.
Now I'd like to provide some data points and survey results from our client base, reflecting decisions and sentiments in the small and medium sized business community that we see across the country.
This provides a picture of how we believe the challenging economic climate related to interest rates inflation and the labor market are affecting many of these businesses.
I mentioned net hiring within the client base was flat this past quarter and additional underlying data is consistent with this metric.
Lower pay increases overtime pay and commissions paid to the sales staff of our clients.
All were flat some economic pressure.
Average pay increases dropped to a low point of approximately 3% for the first time in several years overtime pay was below the 10% level, which historically aligns with the lower need to hire personnel.
Commissions, we pay on behalf of our clients to their salespeople.
Which provide some insight into the pipeline for new business and the client base was well below the 6% level, which typically indicates employment growth.
Now our quarterly survey of the client base, which provides insight into the client sentiment.
Included a ranking of top four concerns for their organization.
The top four we're managing operating costs driving sales external economic uncertainty in the labor market, especially the quality of the applicants.
We also asked survey participants their top HR concerns the top three concerns all cited by over 50% of those surveyed.
We're retaining employees keeping employee engagement high and building are maintaining a strong culture right behind those three was managing health care costs.
Now throughout our history. This type of challenging backdrop translates into quite an opportunity for <unk>. These days for cause consultative HR services increased demand for our comprehensive HR service solutions and highlight our competitive advantage.
Historically, we've seen competition becomes somewhat desperate for sales growth were net hiring within the client base falls this low and we've seen some of that over the last quarter.
As the premium service provider in the marketplace, we are well able to compete on short term promotional tactics from competitors, but they cannot match the breadth and depth of our services and the level of care, we provide our clients and worksite employees at their greatest time of need over the first two weeks of this quarter.
Our sales leadership did a deep dive evaluating.
Evaluating Q3 workforce optimization sales drivers, including input from <unk> and potential clients. This provided sufficient information to take specific action, which led to an immediate boost to fall campaign sales and retention efforts. This.
This boost came in the form of a dramatic increase in sales activity, including both closing business and new opportunities to quote potential clients.
Attitudes and energy levels across the company also benefited reflecting the inspiring culture of rising to the occasion to take advantage of this specific opportunity.
So we believe we're well positioned for a successful fall selling and retention campaign.
Which is important to achieve a starting point in paid worksite employees to start the new year.
As we look ahead to 2024 and beyond.
We continue to be excited about the vast market opportunity and strong demand for our services in the marketplace.
Excuse me.
We're also in a strong position in staffing levels and both sales and service to capitalize on this opportunity.
But next year, it's too early to provide any specific guidance, but there are general considerations for growth and profitability to weigh in mind.
Historically, our lead indicator for future growth has been the growth rate in business performance advisors combined with expected sales efficiency gains based upon their tenure as Doug mentioned, our continuing investment into BPA growth was a highlight this quarter coming in at 13%. So over the next year, we believe we're in excellent.
Unknown Executive: [inaudible] I don't know, I don't know, I don't know, I don't know At this point in the year, we are focused on our fall sales campaign, which generally convert to paid workside employees in the first couple of months of the subsequent year.
Physician for new client sales.
Retention has been solid all year and our focus on this measure across the company provides confidence into next year on this key growth driver.
The other growth factor to consider is the economic climate ahead, and the effect on net hiring in our client base historically in an average year, we expect our client net high contribution of 4% to 6% and our growth rate of Worksite employees.
This year the contribution to our growth from net hiring was below the low end of that range.
Although we believe that hiring will eventually revert to historical levels. A number of factors are posing obstacles that may make this a more gradual.
In addition to the interest rates inflation and the labor market effect. We've seen recently 2024 is an election year that historically adds some uncertainty now based upon these growth factors and assuming a successful year end transition.
I see next year similar to this year full year growth rate of mid single digits, but the opposite on timing instead of higher single digits early in the year and lower single digits towards the year like this year I see lower single digits early in high single digits towards the end of the year on our way back to our historical target of double.
Digit unit growth.
Now beyond unit growth the most important factors in our outlook for profitability, our trends and our pricing direct cost and operating expenses our pricing strength continued this quarter with the recovery in direct cost. We believe we are in a strong position to achieve pricing and direct cost alignment targets going forward.
Our operating expenses have included some significant investments over the last couple of years, including BPA growth and sales incentive plans, increasing service capacity and implementing Salesforce CRM.
Although we continue to expect investments going forward, we believe that historical operating leverage of our business model will begin to re emerge. So as I look ahead to next year and beyond I expect the level of growth and profitability to ultimately return to historical levels, our historical business model.
Performance includes five year periods with double digit compound annual growth rates of 10% to 12%.
In Worksite employees, driving mid teens growth rates in gross profit and rates above 20% in adjusted EBITDA and EPS.
Now we have had historical five year periods.
That included a year like this year, where we absorbed the growth challenge from client net hiring and or a profitability challenge from a direct cost aberration. We are in the second year of our current five year plan in our eyes remain on the objectives similar to historical levels.
There are two reasons for my level of confidence the clients, we serve and the dedicated team of people we have it and Sperry are positioned in the marketplace as a premium provider to the best small to medium sized businesses in the country has allowed us to observe the resiliency and innovation that are key to addressing economic challenges and creating <unk>.
Douglas Sharp: Paul will provide some comments on our recent sales activity in a few minutes. Moving to Gross Profit, we continued to exceed our pricing objectives and achieved favor results in our workers' compensation program through the effective management of claims. As for our healthcare claims, you may recall that Q2's costs were negatively impacted both the number and severity of large healthcare claims and to a lesser extent higher pharmacy costs. Accordingly, at that time, our earnings guidance over the second half of 2023 incorporated two scenarios.
Get opportunities. In addition, our corporate team has demonstrated the capability to achieve extraordinary results and they are focused on the appropriate strategies and objectives that provide consistent value to our clients and help their businesses succeed at this point I'd like to pass the call back to Doug.
Thanks, Paul now, let me provide our updated guidance, which includes an improvement in our Q4 forecast over our previous expectations in the areas of gross profit and operating expense management.
Douglas Sharp: A lower earnings scenario generally assumed the large claim activity continued at Q2's level for the remainder of the year. While the higher earnings scenario assumed a return to lower, more normalized activity. We are pleased to report that Q3's pharmacy costs came in at forecastive levels and a severity of large claims declined significantly. These factors contributed to favorable development of Q2's claim activity and our positive Q3 earnings. Now, when we look at the full year 2023, we are now forecasting a full year benefit cost trend to be slightly low, slightly below the low end of our previous estimate of seven to eight and a half percent.
Partially offset by slightly lower paid worksite employees.
As to the details we are now forecasting 6% worksite employee growth for the full year 2023.
A slightly lower growth outlook from our previous expectations as a result of Q3s average paid worksite employees coming in at the low range of our prior guidance.
Additionally, we are expecting net hiring by our client base.
To continue declining through Q4.
We have revised our earnings guidance based upon our year to date results, including the strong Q3 earnings.
And our updated Q4 outlook, which includes the expectation of an improvement in profitability from pricing direct cost programs and operating expense management to more than offset the slightly lower paid worksite employee expectations were.
Douglas Sharp: This includes what we believe is a conservative Q4 forecasted cost trend that is generally consistent with our previous guidance despite the favorable Q3 healthcare cost results. Moving to operating expenses, we continue investing our sales, service, and technology. Our growth investment includes a 13 percent increase in the number of business performance advisors, which we believe puts us in a good position as we head into 2024. Our operating costs also reflected the impact of the inflationary environment on our costs.
We are now forecasting full year 2023, adjusted EBITDA in a range of 340 million to $360 million.
And adjusted EPS in the range of $5 20.
The $5 60.
As Paul mentioned, a few moments ago. Our efforts are now focused on our sales campaign and heavy client renewal period, which are important to our starting point for paid worksite employees in 2024.
We look forward to updating you on these results in our next earnings call and we will provide our 2024 guidance at that time.
Douglas Sharp: And we're partially all set by a lower incentive compensation accrual and a shift in the timing of the quarterly marketing spend when compared to the 2022 periods. Interesting come earn on our investments in operating cash, continue to benefit from the current interest rate environment. And we believe that our financial position and liquidity remains strong as we continue to invest in our growth while providing returns to our shareholders. During the quarter, we took the opportunity to be more aggressive than our typical share repurchase activity. We repurchased 873,000 shares of stock during Q3 at a cost of $86 million and paid out $21 million in cash dividends. We ended Q3 with $190 million of adjusted cash and $370 million of debt.
Now at this time I would like to open up the call for questions.
Thank you very much we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your phone keypad now a confirmation tone will indicate your line is Nicky you May press star two if he would like to remove your question from Nikki for anyone using speaker equipment it may be necessary.
To pick up your handset before you pass the keys.
<unk> pose one minute lusby poll for questions.
Thank you. Your first question is coming from Andrew Nicholas of William Blair Angie Your line is live.
Thank you and good morning, Doug and Paul I wanted to first ask on the sales environment I think.
Doug you mentioned, a more challenging sales environment. Paul I think you mentioned that and also the competitors are being a bit more aggressive can you just flush that out a little bit how are you seeing that kind of play out day to day and.
Paul Sarvadi: 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'd like to provide commentary on the following three topics.
Also how willing are you to react to maybe more aggressive pricing from competitors to maintain clients versus wind clients and maybe how that decision.
Paul Sarvadi: I'll begin with highlights behind our strong Q3 financial and operating performance. Secondly, I'll provide an update on the economic environment in the small to medium sized business community, which is the backdrop of our fall selling and retention campaign opportunity. I'll finish with some thoughts regarding the outlook for 2024 and beyond. This recent quarter was a welcome rebound in our financial results from Q2 with 4% unit growth, driving 5.5% gross profit growth and over 18% growth in adjusted EBITAN EP.
Decision process changes, depending on whether it's retaining or adding a new one thank you.
Sure happy to address that you know in our industry, we always have a level of competition.
You know, we always have a decent.
Percentage of Greenfield as well, but in the competitive environment.
It ebbs and flows and it is typical when the net gain from the client hiring in the base kind of goes down it's kind of like.
Paul Sarvadi: We're pleased with these results, considering some marketplace challenges continuing to deepen within the small to medium sized business community, and I'll discuss this more in a few minutes. The most direct impact on our results from this environment is in net hiring within our client base, which reflected a continued slowdown, we've seen throughout the year for the first time in several years, client net hiring was flat this quarter. The net gain in our client base declined significantly when compared to Q3 2022, while client retention and the number of workside employees paid from new client sales remained consistent compared to the same period last year.
When the Lake goes down the stumps show up.
And so what happens is you do have.
An increase in the competitive environment.
When the focus becomes on your net gain from your new sales against year client attrition. So it does increase some and that was consistent what we've seen over the course of the year.
And for some that they get pretty desperate.
We'll we'll look at price differently now we are of course, the premium service provider in the space and we provide.
Paul Sarvadi: In addition to the lower large health claim cost Doug mentioned, our pricing and cost management were the strong drivers of our outperformance. This reflects solid execution across the company and contributed to a strong quarter and our outlook for the long term. Another highlight was our increased service capacity and client satisfaction levels as utilization of many of our HR services increased. Our hiring and training results over the last year have improved our service efficiency ratios to handle growth and resulted in a notable increase in our net promoter scores.
Level of comprehensive services that support clients in any economic environment, and especially its important when there is a changing economic environment or some added pressures in the environment.
So it puts us in a position to.
Be able to really accentuate the difference that we have and the breadth and depth of our services and the level of care, but we also don't.
Don't just ignore the pricing sensitivity in the marketplace and it's part of our corporate culture to jump in and help customers. When they are going through difficult times. So this doesn't really bother us when that happens.
Paul Sarvadi: During the third quarter, we completed the implementation of our Salesforce CRM system across our service organization. We now have the entire company on a common platform that provides the opportunity for more timely, precise and efficient client service interaction and potentially greater client satisfaction. We can see in our service utilization metrics the changing needs of clients in the current environment, many HR services that are used more in a slower growth environment increase significantly over last year.
But we are responsive.
Use a targeted approach.
As you know in any economic environment, some companies are doing better than than they do in other periods.
It's never an across the board.
Solution, we look at it more in terms of targeting and making sure that we're competing effectively so frankly, it did motivates us in a different way.
We evaluated that.
Third quarter environment, and we were able to make some very.
Paul Sarvadi: This included support for workside employee terminations such as separation agreements and support for employment practices and unemployment related claims. These services have been at historically low levels in the past couple years, so this increase is expected in a more neutral hiring environment and further demonstrates our ability to bring value to clients in any economic environment. Book sales for the third quarter were mixed with strong performance in workforce acceleration, our traditional employment service offering.
Specific strategic competitive.
<unk>.
That we're really excited about how thats already added a boost to our fall campaign efforts.
That's really helpful. Thank you and then for my follow up I, just wanted to double back to benefit costs sounds like pharma was largely in line with what you had expected, but I think correct me if I'm wrong still relatively elevated is the expectation that that kind of remains elevated particularly.
Some of the diabetes drugs out there and DLP, one just kind of how youre thinking about pharma costs more specifically looking ahead to 'twenty four because it sounds like the larger claims activity on the other side.
Paul Sarvadi: While our workforce optimization core and mid market book sales were below our expectations. Our workforce acceleration book sales reflect adoption of this offering across the sales organization and has helped our newest BPAs experience earlier success. This has led to low return over rates which has excellent potential to drive sales efficiency going forward. Now, in early September, we had a successful national kickoff to our Paul Selin retention campaign and increased marketing efforts to continue to drive sales activity levels.
Has died down some.
Yes, I think overall.
The use of these specialty drugs continues as we've all seen out there in the marketplace and so we don't expect.
Sudden drop of the utilization of those drugs.
So so therefore, yes, we are considering that trend.
To stay at similar levels as we've recently experienced I think you also have to take into account the pricing side of things in that.
Paul Sarvadi: Our discovery call activity was a strong point in key three up double digits, which we expect to be a solid indicator for Q4 sales. I'd like to provide some data points and survey results from our client base, reflecting decisions and sentiments in the small and medium size business community that we see across the country. This provides a picture of how we believe the challenging economic climate related to interest rates, inflation and the labor market are affecting many of these businesses.
We've been able to exceed our pricing targets.
And obviously, we're putting in pricing targets to take care of this.
This new pharmacy trend. So overall as we go through renewing existing account selling new accounts, we feel like we've got the appropriate matching between price and cost relative to this new.
Paul Sarvadi: I mentioned that hiring within the client base was flat this past quarter and additional underlying data is consistent with this metric lower pay increases over time pay and commissions paid to the sales staff of our clients, all reflects from economic pressure. Average pay increases dropped to a low point of approximately 3% for the first time in several years. Over time pay was below the 10% level, which historically aligns with the lower need to hire personnel commissions we pay on behalf of our clients to their sales people, which provides some insight into the pipeline for new business in the client base was well below the 6% level, which typically indicates employment growth.
Pharmacy trend phenomenon.
I would also say that that pharmacy trend is more likely to moderate some next year because it's a year into this increase of activity in these particular drugs.
Once you get that year under the belt.
You don't expect it to increase the same amount as last time. So according to the input we're getting from those that consult with us on this we think we've really.
Yeah.
Aligned our pricing well too.
With cost trends.
Makes sense. Thank you very much.
Thank you very much. Your next question is coming from Mark Marcon of Bad Mark Your line is live.
Paul Sarvadi: Our quarterly survey of the client base, which provides insight into the client sentiment included a ranking of top four concerns for their organization, the top four were managing operating cost, driving sales, external economic uncertainty and the labor market, especially the quality of the applicants. We also asked survey participants to their top HR concerns, the top three concerns all cited by over 50% of those survey were retaining employees, keeping employee engagement high and building or maintaining a strong culture right behind those three was managing health care costs.
Good morning, and.
Nice to see the rebound with regards to our to the gross profit here in the third quarter.
Paul and Doug I was wondering if you could to an even deeper dive with regards to the <unk>.
Cost trends that youre seeing on the healthcare side, how you are anticipating that unfolding.
For next year.
How are you thinking about the price increase and also on <unk>.
Base level apples for apples and also how youre thinking about it in terms of any sort of plan design changes.
Paul Sarvadi: Now throughout our history, this type of challenging backdrop translates into quite an opportunity for disparity. These needs for consultative HR services increase demand for our comprehensive HR service solutions and highlight our competitive advantage. Historically, we've seen competition becomes somewhat desperate for sales growth when net hiring within the client base falls this low and we've seen some of that over the last quarter. As the premium service provider in the marketplace, we are well able to compete on short term promotional tactics from competitors, but they cannot match the breadth and depth of our services and the level of care we provide our clients and work side employees at their greatest time of need.
Would be the net impact and I'm, particularly curious just because we've heard some commentary from some of the other players.
<unk> talked about you know higher health care costs.
Lower utilization.
Rates among their clients and among the employees trying.
Trying to think through like how and your vast experience this would end up.
No.
Spilling through too.
So utilization as well as you know our ability to win clients, particularly.
If some of the other competitors are being a little bit more price competitive.
Yeah. So let me try to address as a broad.
Wide question and it does.
Paul Sarvadi: Over the first two weeks of this quarter, our sales leadership did a deep dive evaluating Q3 workforce optimization sales drivers, including input from BPAs and potential clients. This provided sufficient information takes specific action, which led to an immediate boost to fall campaign sales and retention efforts. This boost came in the form of a dramatic increase in sales activity, including both closing business and new opportunities to quote potential clients. Attitude and energy levels across the company also benefited, reflecting the disparity culture of rising to the occasion to take advantage of a specific opportunity.
It is something we spend of course, a lot of time and effort on an ongoing basis.
Literally in the depths of every driver.
These costs and you do have to look I'm glad your question includes both the cost and the pricing side, because that's really the nature of our business is to make sure that we align.
The pricing with what costs are expected to be and.
The other specific thing to US is we're coming off of a year with somewhat of a unusual.
Period of large.
Both severity and frequency of large claims she got away all of that in.
Paul Sarvadi: So we believe we're well positioned for a successful fall selling and retention campaign, which is important to achieve a starting point. And paid work site employees to start the new year. As we look ahead to 2024 and beyond, we continue to be excited about the vast market opportunity and strong demand for our services in the marketplace. Excuse me. We're also in a strong position in staffing levels in both sales and service to capitalize on this opportunity.
But the main message that you should take away today.
Is that.
With that receding in fact, I mentioned this last quarter that if in fact.
Those severe claims continued through the year that we were likely to not quite be in alignment into next year and it might take to midyear or so for that to take place. We're not in that situation. We had you can see from the rebound even though we have forecasted in conservatively.
Paul Sarvadi: For next year, it's too early to provide any specific guidance, but there are general considerations for growth and profitability to weigh in mind. Historically, our lead indicator for future growth has been the growth rate in business performance advisors combined with expected sales efficiency gains based upon their tenure. As Doug mentioned, our continuing investment into BPA growth was a highlight this quarter coming in at 13%. So over the next year, we believe we're an excellent position for new client sales.
Right.
We are confident today as I said in my remarks.
That alignment on that on the pricing side with these cost trends we feel good about.
So to the degree that we've had some dampening effect to gross profit this year from benefits.
We don't see that into next year.
However, that's only one component of it.
Whole direct cost picture and so.
Paul Sarvadi: Client retention has been solid all year and our focus on this measure across the company provides confidence into next year on this key growth driver. The other growth factor to consider is the economic climate ahead and the effect on net hiring in the client base. Historically, in an average year, we expect a client net hiring contribution of 4 to 6% in our growth rate of work site employees. This year, the contribution to our growth from net hiring was below the low end of that range.
Not at a point of being that specific about next year, but in terms of the big picture.
Our comfort on the gross profit level is better.
And then what we went through this year and we will.
Digging in on details.
On price and cost in all of our components as we plan into next year and we'll be providing specifics of course on our next call for guidance, Yes, I think another.
And you're probably aware of is the inflationary environment.
Is there.
Paul Sarvadi: Although we believe net hiring will eventually revert to historical levels, a number of factors are posing obstacles that may make this more gradual. In addition to the interest rates inflation and the labor market effect we've seen recently, 2024 is an election year that historically adds some uncertainty. Based upon these growth factors and assuming a successful year end transition, I see next year similar to this year in full year growth rate of mid single digits, but the opposite on timing.
Our contract carrier contract negotiations and pharmacy negotiations Thats, just where we are today in the current environment that we're working on and obviously, we're going to be considering that in our pricing.
That's terrific.
Can you talk a little bit about what you're seeing just from a geographic perspective.
You know in terms of the hiring impact.
And I'm, specifically curious you know one of your competitors.
And particularly in California with tuck in professional services, there was a bit of a slowdown with regards to hiring wondering if youre seeing the same thing and.
Paul Sarvadi: Instead of higher single digits early in the year and lower single digits toward the end like this year, I see lower single digits early and high single digits toward the end of the year on our way back to our historical target of double digit unit growth. Now beyond unit growth, the most important factors in our outlook for profitability are trends in our pricing, direct costs and operating expenses. Our pricing strength continued this quarter with the recovery and direct cost.
Along those lines I am wondering if you could also just talk about you know the increased penetration of the PEO concept and your success in terms of <unk>.
Newer less well developed markets and what Youre seeing and how that you know.
For boats for the long term future.
Yes, that's really great.
Paul Sarvadi: We believe we are in a strong position to achieve pricing and direct cost alignment targets going forward. Our operating expenses have included some significant investments over the last couple of years, including BPA growth and sales incentive plans, increasing service capacity and implementing sales force CRM. Although we continue to expect investments going forward, we believe the historical operating leverage of our business model will begin to reemerge. So as I look ahead to next year and beyond, I expect the level of growth and profitability to ultimately return to historical levels.
As we'd really did do some digging down on both the industry and geographic.
Elements related to and drivers of.
The floor.
Flattening of the net change within existing clients and certainly we saw areas where the.
Professional technical.
<unk> is a bigger part of the.
Of the.
Of the environment in a given location.
We saw that.
<unk> more to this flattening and that was of course in both the west coast and the northeast.
Paul Sarvadi: Our historical business model performance includes five year periods with double digit compound annual growth rates of 10 to 12% in workside employees driving mid teens growth rates in gross profit. And rates above 20% in adjusted if it's not an APF. Now, we have had historical five year periods that include a year like this year where we absorb the growth challenge from client net hiring and or a profitability challenge from a direct cost aberration. We are in the second year of our current five year plan and our eyes remain on the objective similar to historical levels.
So we saw those two regions.
Where the where where we saw the most effect there by in terms of geography now in terms of industry category, absolutely professional technical.
It was right there, but also we did see this broad and more over the last quarter or so.
And.
So I think some of the effect that I described in here, but the effective interest rates.
And inflation and.
The labor market, especially the quality of available people.
In terms of matching the requirements.
Paul Sarvadi: There are two reasons for my level of confidence. The clients we serve and the dedicated team of people we have an interest in. Our position in the marketplace as a premium provider to the best small to medium sized businesses in the country has allowed us to observe the resiliency and innovation that are key to addressing economic challenges and creating market opportunities. In addition, our corporate team has demonstrated the capability to achieve extraordinary results and they are focused on the appropriate strategies and objectives that provide consistent value to our clients and help their businesses succeed.
Those those things are having an effect.
Saw that in a deeper analysis of the <unk>.
Net pay change that's gone down now back to even below some of the average levels of 3% to 4%.
Average pay increase.
Increases dropped down a bit.
You have those other two factors I watch closely overtime pay as a percent of regular pay being down below 10%.
And then the other that is a really key factors that commission number we're paying these commissions for the sales staff of the clients that means theyre getting paid based on the sales they've made recently, that's the pipeline for new business at the client location.
Douglas Sharp: At this point, I'd like to pass the call back to Doug. Thanks, Paul. Now, let me provide our updated guidance which includes an improvement in our Q4 forecast over our previous expectations in the areas of gross profit and operating expense management. Partially offset by slightly lower paid works on employees. As for the details, we are now forecasting 6 percent works on employee growth for the full year 2023. A slightly lower growth outlook from our previous expectations is a result of two, three average paid works on employees coming in at the low range of our prior guidance.
That's down.
Pretty significantly, especially compared to recent periods in a booming periods post COVID-19. Those numbers are really high they were they have been decreasing and now gone below that.
That 6% level that we have seen historically.
As a trigger point above six they would need to hire more people below that they were able to hold fast so.
Douglas Sharp: Additionally, we are expecting net hiring by our client base to continue declining through Q4. We have revised our earnings guidance based upon our year-to-date results including the strong Q3 earnings and our updated Q4 outlook which includes the expectation of an improvement in profitability from pricing direct cost programs and operating expense management to more than all set the slightly lower paid works on employee expectations. We are now forecasting full year 2023. Adjusted EBITDA on a range of 340 million to 360 million dollars.
That is reflective.
And like I said previously in answering another question that doesn't mean, all the small business community is having that reaction, it's always a mix bag, but much of the community.
Is really having to deal with the tougher economic environment.
<unk>.
Fortunately, we're in a business where the demand for what we do.
Is heightened anytime there is changing going on or pressure going on they need help. So we are excited about the demand for our services.
Douglas Sharp: Adjusted EPS in a range of $5.20 to $5.60. As Paul mentioned a few moments ago, our efforts are now focused on our sales campaign and heavy client renewal period which are important to our starting point for paid works on employees in 2024.
And if you do have to change some of your.
<unk>.
Some of your messaging.
To fit more tightly or you have to understand our specific clients current situation to understand what part of our messaging would connect more to their current.
Douglas Sharp: We look forward to updating you on these results in our next earnings call and we will provide our 2024 guidance at that time.
Going forward plan and how we can connect to helping them in the immediate future and so.
Unknown Executive: Now at this time, I'd like to open up the call for questions. Thank you very much and we will now be conducting our question and answer session. If you would like to ask a question, please press star one on your phone keypad now. A confirmation terminal indicate your line is in the queue. You may press star two if you would like to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please pause one moment whilst we pull for questions.
It becomes a little more.
Unknown Executive: Thank you.
I wouldn't say complex, but theres more.
Thinking you do to really connect with each customer so.
But that's a good environment for us we've seen this before.
And it's.
It really gets US excited we're in a business thats designed to help businesses succeed so communities prosper and they need help in a time like this and we're excited to be right shoulder to shoulder with them.
Andrew Nicholas: Your first question is coming from Andrew Nicholas of William Blair. Andrew, your line is Live. Thank you and good morning, Doug and Paul.
Thank you very much. Your next question is coming from Tobey Sommer of true Securities Tobey Your line is life.
Thank you Paul and Doug.
Paul Sarvadi: I wanted to first ask on the sales environment. I think Doug you mentioned a more challenging sales environment, Paul. I think you mentioned that and also the competitors are being a bit more aggressive. Can you just flush that out a little bit? How are you seeing that kind of play out day to day and also, you know, how willing are you to react to maybe more aggressive pricing from competitors to maintain clients versus wind clients and maybe how that decision process changes depending on on whether it's retaining or adding a new ones.
I wanted to ask a question about the.
You're sort of expense and investment posture headed into next year.
So not really the.
The inputs to gross profit, but sort of how youre going to prosecute.
Our investments.
Investments in the sales force marketing.
Things that you can sort of more directly control.
Are you how are you thinking about that at this stage because I know you're.
You are afforded the opportunity and have planned for longer time horizons.
Paul Sarvadi: Thank you. Sure. Happy to address that. You know, in our industry, we always have a level of competition. You know, we always have a decent percentage of grain field as well, but in the competitive environment. It ebbs and flows and it is typical when the net gain from the client hiring in the base kind of goes down. You know, it's kind of like a when the lake goes down the stumps show up.
Paul Sarvadi: And so what happens is you do have kind of an increase in the competitive environment when that focus becomes on your net gain from your new sales against your client attrition. So it does increase some and that was consistent what we've seen over the course of the year. And for some, they get pretty desperate and you know, we'll we'll look at price differently. Now we are of course the premium service provider in the space and we provide a level of comprehensive services that support clients in any economic environment.
I think your average public company. Thanks.
Yes, absolutely you know we're in good shape going into next year on the operating expense side.
And in the area that you're describing are asking a question about on the sales side.
Since we have.
13% increase in the size of the staff.
Our investment and that doesn't have to be as high as it was over the last year also the last two years, we've invested more in the incentive system, which now is built into the base of our operations. So I don't see us having to make an additional investment in that area of the business.
Yes.
So we are able then to do the smart thing which is.
Make sure our investments are appropriate in the marketing area.
Paul Sarvadi: And especially it's important when there's a changing economic environment or some added pressures in the environment. So it puts us in a position to be able to really accentuate the difference that we have in the breadth, the depth of our services and the level of care. But we also, you know, don't just ignore the pricing sensitivity in the marketplace. And it's part of our corporate culture to jump in and help customers when they're going through difficult times.
Provide the activity level needed for our sales team.
As they are now of another year into their training and development there.
Sales efficiency number can go up as long as you're feeding them are good.
Volume of activity, So I love the position we're in going into next year and then in addition to that.
As I mentioned in my remarks.
I had to go through a significant.
Recovery or catch up on the on the.
Service.
Personnel across the company.
Again from the tight labor market and the fast growth and so this year has been a great opportunity to right size the staff.
Paul Sarvadi: So this doesn't really bother us when that happens, but we are responsive. We use targeted approach because as you know, in any economic environment, some companies are doing better than than they do in other periods. So it's never in a cross the board solution. We look at it more in terms of targeting and making sure that we're competing effectively. So, you know, frankly, it motivates us in a different way. We evaluated that third quarter environment and we were able to make some very specific strategic competitive choices. So that we're really excited about how that's already added a boost to our fall campaign efforts.
Be prepared better prepared for a level of growth, but that was also a big investment that I don't see repeating we can actually increase staff more in alignment with growth.
Andrew Nicholas: That's really helpful. Thank you.
As opposed to what we had over the last year and also of course, the sales force investment was a significant one.
Like I said in my remarks, it's not like we're not going to make other investments.
But not at that level, so I do see a recovery in the.
Opt.
Operating leverage on that side of the business.
As we move forward.
If I could ask a follow up how are you feeling about.
Pricing.
Tension.
Particularly I think of the health care benefit costs are expected to rise.
Douglas Sharp: And then for my follow up, I just wanted to double back to benefit costs. Sounds like Farma was largely in line with with what you had expected, but I think correct me if I'm wrong. Still relatively elevated. Is the expectation that that kind of remains elevated, particularly with some of the diabetes drugs out there in GLP1, just kind of how you're thinking about Farma cost. More specifically looking ahead to 24, because it sounds like the larger claims activity on the other side has died down some.
Next year in the <unk>.
Market sort of rate of growth.
And I'm curious in the fall selling campaign are you, how you're feeling about pricing and competition heading into next year.
Yeah, well I feel real strong about how we are.
Handling.
The matching of our allocations.
Growing forward, we've discussed that so in terms of the.
The competitive environment. This is a fun time of year for Us I love, how we are focused on.
Douglas Sharp: Yeah, I think overall the use of these specialty drugs continues as we've all seen out there in the marketplace and so we don't expect a sudden drop of the utilization of those drugs. So therefore, yeah, we're considering that trend. And to say at similar levels as we've recently experienced, I think, you know, you also have to take into account the pricing side of things and that we've been able to exceed our pricing targets, you know, and obviously we're putting in pricing targets to take care of this new pharmacy trend.
Dealing with these things in the marketplace and I'm not going to go into detail about that I just know we've got a great.
Great plan on that front and its focused is targeted and it's not an approach that affects our long term pricing, it's an approach that effects.
Allowing clients to come on board.
And almost more of a try and buy.
Approach that is very effective against what we're seeing in the marketplace. So.
Douglas Sharp: So overall, you know, as we go through renewing existing accounts, selling new accounts. We feel like we've got the appropriate matching between price and costs relative to this new pharmacy trend phenomenon. I would also say that that pharmacy trend is more likely to moderate some next year because it's a year into this increase of activity in these particular drugs and once you get that year under the belt. You don't expect it to increase the same amount as last time. So according to the input we're getting from those that consult with us on this, we think we've really, you know, aligned our pricing well to with the cost trends. Makes sense.
Again, we are more concerned about the long term matching.
And I think because we've been strong in our pricing up to this point.
Andrew Nicholas: Thank you very much.
There may be others in the marketplace. They have to respond more quickly say on the healthcare side, we've been we've been managing that.
I think very effectively.
Our big objectives.
<unk> of ours in that area is a more stable environment for the customer base. That's why this year is an example, where we took a hit.
Because of the volatility in the timing, but we keep a steady view of how this should happen over time and our customers get the benefit of that so that's another benefit of how we do this as a premium service provider that is something we can point to in that dynamic.
Mark Marcon: Your next question is coming from mark mark on a bad mark your line is life. Good morning and nice to see the rebound with regards to to the gross profit here in the in the third quarter. Fall and Doug is wondering if you could do an even deeper dive with regards to the cost trends that you're seeing on the healthcare side, how you're anticipating that unfolding for next year and how are you thinking about the price increase and also, you know, on a base level apples for apples and also how you're thinking about it.
You're referring to.
No.
Good confidence on that front as well.
Thank you very much. Your next question is coming from Jeff Martin of Roth.
Jeff Your line is live.
Thank you good morning.
Paul I wanted to see if you could expand on the efforts in the fall campaign strategy. It sounds like you've made some pretty strategic pivots there.
Sounds like it's a combination of.
Client retention as well as going after new clients is that more of a shift relative to <unk>.
Force acceleration sales trends that you are seeing versus workforce optimization or are there other things going on there.
Douglas Sharp: In terms of any sort of plan dot design changes, what would be the net, you know, impact. And I'm particularly curious just because, you know, we've heard some commentary from some of the other players that have talked about, you know, higher healthcare cost and lower utilization. And rates among their clients and among the employees trying to think through like how in your vast experience, this would end up, you know, filling through to utilization, as well as, you know, ability to win clients, particularly if, if some of the other competitors are being a little bit more price competitive.
No, it's actually kind of across the board in terms of I mentioned the efforts on the marketing side of the business driving lead flow.
Also I would say that maybe the best way to understand it is that there is three elements to driving sales success and a campaign.
It's the activity, it's the attitudes and the incentives.
And we have that triple braided cord.
And a really strong position.
As we go forward to the balance of the year and yes. It is directed at both our campaign is both a sales and retention campaign.
Douglas Sharp: Yeah, so let me try to dress as a broad of a wide question. And it does, you know, it is something we spent, of course, a lot of time and effort on an ongoing basis, is literally in the depths of every driver to these costs. And, you know, you do have to look. I'm glad your question includes both the cost and the pricing side because that's really the nature of our businesses to make sure that we align the pricing with what costs are expected to be.
And so.
I think the level of alertness across the company the level of focus and the level of enthusiasm.
Gifts gives us.
Good a good feeling about the campaign and it's important to have that level of.
All of those things when you have an environment, that's a little tougher.
And I think what I've laid out today.
What we're seeing in the current client base and in the sentiments from the survey information what we're seeing across the country. What we're seeing by industry, Hey that means that in a period like this you've got to be on the top of your game.
Douglas Sharp: And, you know, the other specific thing to us is we're coming off of a year with some somewhat of an unusual or, you know, period of large, both severity and frequency of large claims. You got to weigh all that in. But the main message that you should take away today is that with that receding, in fact, I mentioned this last quarter, that if in fact, those severe claims continued through the year that we were likely to not quite be a fixed in alignment into next year.
And.
That's what we'll be continuing to emphasize across our <unk>.
Employee base and we will.
We'll give it our very best shot and I like that kind of.
Selling and retention season that we have ahead of us.
Alright.
My follow up it's a two part question first partners.
Could you discuss BPA retention trends.
Douglas Sharp: And it might take to mid year or so for that to take place. We're not in that situation. We had, you can see from the rebound, even though we have forecasted in conservatively, we are confident today, as I said in my remarks, that alignment on the pricing side with these cost trends, we're, we feel good about. So, you know, to the degree that we've had some dampening effect to gross profit this year from benefits, you know, we don't see that into next year.
Year to date, and then hiring plans for next year and then second part is could you touch on that.
The middle market.
Sales and retention trends you've seen there.
Yes, absolutely, we really have had an excellent year on that front and the worker workforce acceleration strategy has played in well two reducing the turnover rate we.
Think that's significant.
Our turnover rate this year is significantly down.
From last year.
And that is that.
Douglas Sharp: However, that's only one component of the whole direct cost picture. And so, you know, we're not at a point of being that specific about next year. But in terms of the big picture, you know, our comfort on the gross profit level is better.
That includes that we had a significant number two promote from the BPA roll into a sales management role so even with all of that weighed in there we're in a really strong position.
Douglas Sharp: Then what we went through this year, and we'll, you know, be digging in on details on price and cost and all of our components as we plan into next year and we'll be providing specifics, of course, on our next call for guidance. Yeah, I think another thing you're probably aware of is the inflationary environment, you know, is there, you know, a contract, a carrier contract negotiations and pharmacy negotiations, that's just where we are today in the current environment that we're working in and obviously we'll be considering that in our pricing.
I see that for next year, we can probably grow that.
<unk>.
BPA staff even below our.
Eight or 9%.
Target, maybe a little on the maybe the low end of our range.
Because we have such a high number that are in that.
Ram up in their sales efficiency mode. So.
Feel good about that and how we can manage that going into next year, what was that second half of your question.
Mark Marcon: That's terrific.
It was on middle market sales and retention trends.
Paul Sarvadi: Can you talk a little bit about what you're seeing just from a geographic perspective, you know, in terms of the net hiring impacts. And I'm specifically curious, you know, one of your competitors mentioned, you know, that particularly in California with tech and professional services. There was a bit of a slowdown with regards to hiring, wondering if you're seeing the same thing and along those lines, I'm wondering if you can also just talk about, you know, the increased penetration of the PEO concept and your success in terms of, you know, newer, less well developed markets and what you're seeing and how that, you know, for for both for the long term future.
Yeah, absolutely so middle market continues to develop.
It is a smaller team, but we have been adding.
Strategically there that will probably continue to add.
Normally but it's nominal in terms of the numbers on the investment side, but.
Sure.
Our connection between our core market and mid market teams and the ongoing flow continues to.
Improve and be strong which requires us to grow that team. In addition, so that.
That will be going on throughout next year.
Thank you.
Paul Sarvadi: Yeah, that's really great. You know, we really did do some digging down on both the industry and geographic elements related to and drivers of the, of flattening of the net change within existing clients. And certainly we saw areas where the, you know, professional technical, you know, is a bigger part of the, of the environment in a given location, we saw that contribute more to this flattening and that was, of course, the, both the West Coast and the Northeast.
Thank you very much that appears to be the end of our question and answer session. As there are no more questions and Nicky I will now hand back over to Paul Sovaldi for any closing remarks.
Paul Sarvadi: So we saw those two. Two regions, you know, where the, where we saw the most effect there, by in terms of geography. Now in terms of industry category, absolutely professional technical was right there, but also, you know, we did see this broad more over the last quarter or so. And, you know, so I think some of the effect that I described in here, but, you know, the effective interest rates and inflation and the labor market, especially the, you know, quality of available people, in terms of matching the requirements.
So once again, we'd like to thank you for your participation today, we're looking forward to this fall selling and retention campaign and achieving a decent starting point for next year and on the next call. We will have all that baked into going forward scenario for 2024, and we look forward to sharing that.
With you at that time, Thank you again.
Yeah.
Thank you very much. This does conclude today's conference call. You may now disconnect. Your phone line Goodbye wonderful day.
Your participation.
Paul Sarvadi: You know, those, those things are having an effect you, we saw that in the deeper analysis of the, you know, net pay change that's gone down now back to even below some of the average levels of three to four percent, you know, for average pay increases dropped on a bit. But, you know, you have those other two factors I watched closely over time pay as a percent of regular pay being down below 10%.
Paul Sarvadi: And then the other that is a really key factors that commission number, we're paying these commissions to the sales staff of the clients. That means they're getting paid based on the sales they've made recently. That's the pipeline for new business at the client location. That's down pretty significantly, especially compared to recent periods of booming periods post COVID, those numbers were really high. They were, they've been decreasing and now gone below that six percent level that we have seen historically as a trigger point above six, they would need to hire more people below that they were able to hold fast.
Paul Sarvadi: So, you know, that is reflective. And like I said previously in an answer to another question, that doesn't mean all the small business community is having that reaction. It's always a mix bag, but much of the community is really having to deal with tougher economic environment. And, you know, fortunately we're in a business where the demand for what we do is heightened anytime there's changing going on or pressure going on, they need help.
Paul Sarvadi: So, we are excited about the demand for our services. And if you do have to change some of your some of your messaging, you know, to fit more tightly or you have to understand a specific client's current situation to understand what part of our messaging would connect more to their current going forward plan and how we can connect to helping them in the immediate future. And so, you know, it becomes a little more, I wouldn't say complex, but there's more thinking you do to really connect with each customer.
Paul Sarvadi: So, but that's a good environment for us. We've seen this before, and it's, you know, it really gets us excited. We're in a business that's designed to help businesses succeed. We need the communities prosper, and they need help in a time like this, and we're excited to be right shoulder to shoulder with them.
Tobey Sommer: Thank you very much. Your next question is coming from Tobey Sommer of truest securities. Tobey, your line is life. Thank you, Paul and Doug. I want to ask question about your sort of expense and investment posture headed into next year. So not really the inputs to gross profit, but sort of how you're going to cross again. You sales, the investments in the sales force, marketing, you know, the things that you can sort of more directly control.
Tobey Sommer: How are you, how are you thinking about that at this stage, because I know you're, you're afforded the opportunity and have planned for longer time horizons. And I think your average public company. Thanks. Yeah, absolutely. You know, we're in good shape going in the next year on the operating expense side. And in the area that you're describing or asking a question about on the sales side. Since we have, you know, a 13% increase in the size of the staff, you know, our investment in that doesn't have to be as high as it was over the last year.
Tobey Sommer: Also, the last two years, we've invested more in the incentive system, which now is built into the base of our operations. So I don't see us having to make an additional investment in that area of the business. So we are able then to do the smart thing, which is, you know, make sure our investments appropriate in the marketing area to provide the activity level needed for our sales team. Because as they are now another year into their training and development, their sales efficiency number can go up as long as you're feeding them a good volume of activity.
Tobey Sommer: So I love the position we're in going into next year. And then in addition to that, as I mentioned my remarks, you know, we had to go through a significant recovery or catch up on the on the service personnel across the company. Again, from the tight labor market and the fast growth. And so this year has been a great opportunity to right size the staff be prepared better prepared for a level of growth.
Tobey Sommer: But that was also a big investment that I don't see repeating we can actually increase staff more in alignment with growth as opposed to what we had done last year. And also, of course, the sales force investment was a significant one. Like I said in my remarks, not like we're not going to make other investments, but not at that level. So I do see a recovery in the operating leverage on that side of the business as we move forward.
Douglas Sharp: If I could ask to follow up, how are you feeling about placing and competition, particularly I think the health care benefit costs are expected to rise next year in the market for the rate of growth. And I'm serious in the fall. And I'm just kind of feeling about pricing and competition. Yeah, well, I feel real strong about how we are handling, you know, the matching of our allocations, going forward, we've discussed that.
Douglas Sharp: So in terms of the competitive environment, this is a fun time of year for us. I love how we are focused on dealing with these things in the marketplace. And I'm not going to go into detail about that. I just know we've got a great. A great plan on that front and it's focused, it's targeted. And it's it's not an approach that affects our long term pricing. It's an approach that affects allowing clients to come on board.
Douglas Sharp: And, you know, almost more of a try and buy. I approach that is very effective against what we're seeing in the marketplace. So again, we are more concerned about the long term matching. And I think because we've been strong in our pricing up to this point, there may be others in the marketplace that have to respond more quickly, say on the healthcare side. You know, we've been, you know, we've been managing that.
Douglas Sharp: I think very effectively and a big objective of ours in that area is a more stable environment for the customer base. That's why, you know, just this year is an example where we took a hit. You know, because of the volatility and the timing, but we keep a steady view of how this should happen over time and our customers get the benefit of that. So it's another benefit of how we do this as a premium service provider that is something we can point to in that dynamic you're referring to. So, you know, good confidence on that front as well. Thank you very much.
Jeffrey Martin: Your next question is coming from Jeff Martin of Roth MKM Jeff. Your line is live. Thank you.
Paul Sarvadi: Good morning. Paul wanted to see if you could expand on, you know, the efforts of the fall campaign strategy. It sounds like you've made some pretty strategic pivots there sound like it's it's a combination of, you know, client retention as well as going after the clients and is that more of a shift relative to workforce acceleration sales trends that you've seen versus workforce optimization or other things going on there. No, it's actually, you know, kind of across the board in terms of I mentioned the efforts on the marketing side of the business driving lead flow.
Paul Sarvadi: We've also I would say that maybe the best way to understand it is that there's three elements to driving sales success in a campaign. It's the activity, it's the attitudes and the incentives and, you know, we have that triple braided cord in a really strong position of as we go forward to the balance of the year. And yes, it is directed at both our campaign is both the sales and retention campaign.
Paul Sarvadi: And so. You know, I think the level of alertness across the company, the level of focus, and the level of enthusiasm, you know, gives gives us a good, a good feeling about the campaign. And it's important to have that level of all those things when you have an environment that's a little tougher. And I think you know what what I've laid out today is, is you know what we're seeing in the current client base and in the sentiments from the survey information, what we're seeing across the country, what we're seeing by industry.
Paul Sarvadi: Hey, that means that in a period like this, you've got to be on the top of your game. And you know, that's what we'll be continuing to emphasize across our employee base. And you know, we'll give it our very best shot.
Paul Sarvadi: And I like that kind of selling and retention season that we have ahead of us.
Unknown Executive: Great. For my follow up, it's a part question.
Paul Sarvadi: First part is, could you discuss BPA retention trends year to date, and then you know hiring plans for next year, and then second part is, could you touch on the middle market and you know sales and attention trends, you've seen there. Yeah, absolutely. You know, we really have had an excellent year on that front and the work workforce acceleration strategy has played in well to reducing the turnover rate. We think that's significant.
Paul Sarvadi: Our turnover rate this year is significantly down from last year. And that is that includes that we had a significant number to promote. From the BPA role into a sales management role. So even with all of that weight in there, we're in a really strong position. You know, I see that for next year, we can probably grow the the BPA staff, even below our, you know, eight or nine percent. Target, maybe a little on the look, maybe the low end of our range, because we have such a high number that are in that ramp up in their sales efficiency mode. So, you know, feel good about that and how we can manage that going into next year.
Paul Sarvadi: What was that second half of your question? It was on middle market sales and attention. Yeah, absolutely. So middle market continues to develop, you know, it is a smaller team, but we have been adding strategically there. That will probably continue to add normally, but it's phenomenal in terms of the numbers on the investment side. But our connection between our core market and mid market teams in the ongoing flow continues to improve and be strong, which requires us to grow that team in addition.
Paul Sarvadi: So that, that will be going on throughout next year, last year. Thank you. Thank you very much.
Unknown Executive: That appears to be the end of our question. Not the session as there are no more questions in the queue.
Paul Sarvadi: I will now hand back over to Paul Sarvadi for any closing remarks. So once again, we'd like to thank you for your participation today. We're looking forward to this fall selling and retention campaign and achieving a decent starting point for next year. And on the next call, we will have all that based into a going forward scenario for 2024. And we look forward to sharing that with you at that time. Thank you again. Thank you very much.
Unknown Executive: This does conclude today's conference call. You may now disconnect your phone line. Goodbye. Wonderful day. Thank you for