Q4 2023 Insperity Inc Earnings Call

Operator: morning. My name is Paul, and I will be your conference operator today. I would like to welcome everyone, and so forth.

Good morning, My name is Paul and I will be your conference operator today I would like to welcome everyone to the inspire <unk> fourth quarter 2023 earnings conference call.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation if.

Paul J. Sarvadi: Question and answer session will follow at the formal, No, time. Thank you for joining us. Chairman of the Board of Trustees, Thank you. We appreciate you joining us. I'm sure you've seen the exciting news announcing our strategic partnership with Workday released this morning. Our call today will be largely focused on this strategic partnership and how it fits into our long-term plan. However, we will begin by discussing the results of our fourth quarter and full year 2023 results and end the call with a discussion of our outlook for 2024, which includes the strategic partnership with Workday. Now, before I begin, I would like to remind you that Mr. Sarvadi or I may make forward-looking statements during today's call, which are subject to risks, uncertainties, and assumptions. In addition, some of our discussion may include non-GAAP financial measures.

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 Chair of the board 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 turn the call over to Douglas Sharp Mr. Sharp. Please go ahead.

Douglas S. Sharp: Thank you. We appreciate you joining us I'm sure you've seen the exciting news announcing a strategic partnership with Workday released this morning.

Douglas S. Sharp: Our call today will be largely focused on the strategic partnership and how it fits into our long term plan.

Douglas S. Sharp: However, we will begin by discussing the results of our fourth quarter and full year 2023 results and end the call with a discussion of our outlook for 2024, which includes the strategic partnership with Workday.

Douglas S. Sharp: 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.

Douglas S. Sharp: In addition, some of our discussion may include non-GAAP financial measures.

Douglas S. Sharp: For a more detailed discussion of the risks and uncertainties that could cause actual results that differ materially from any forward-looking statements and reconciliation of non-GAAP financial measures, please see the company's public filings, including the Form 8K filed today, which are available on our website. Now, let's discuss our fourth-quarter results, in which we achieved 75 cents in adjusted EPS and 56 billion dollars of adjusted EBITDA, both above our expectations. Our growth in paid worksite employees continues to be impacted by macroeconomic headwinds, particularly the significant decline in our hiring base over the past year. In fact, minimal hiring in our client base experienced over the first half of 2023 turned into a low level of net reductions in the latter half.

Douglas S. Sharp: 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.

Douglas S. Sharp: Now, let's discuss our fourth quarter results in which we achieved 75 cents in adjusted EPS and $56 billion of adjusted EBITDA.

Douglas S. Sharp: It's above our expectations.

Douglas S. Sharp: Our growth in paid Worksite employees continued to be impacted by macroeconomic headwinds, particularly the significant decline in our hiring base over the past year.

Douglas S. Sharp: In fact had minimal hiring and our clients client base experienced over the first half of 2022 three turned into a low level of net reductions in the latter half.

Douglas S. Sharp: This contributed to paid worksite employee growth in Q4 of 2.5%, slightly below the low end of our forecasted range. In a few minutes, Paul and I will comment further on the outcome of our recent sales campaign and the heavy client renewal period leading into our 2024 growth outlook. Fourth quarter gross profit exceeded our expectations on higher pricing and lower benefit costs and payroll tax. However, the Q4 year-over-year comparison represents a decline in gross profit due to the unusually low benefit cost in Q4 2022. Operating expenses increased 5% over Q4 of the prior year, in line with our forecast and including a planned increase in business performance advisors and service personnel and continued investment in our technology. Net interest income was consistent with the prior year.

Douglas S. Sharp: This contributed to paid Worksite employee growth in Q4 of 2.5%.

Douglas S. Sharp: Slightly below the low end of our forecasted range.

Douglas S. Sharp: In a few minutes, Paul and I will comment further on the outcome of our recent sales campaign and heavy client renewal period, leading into our 2024 growth outlook.

Douglas S. Sharp: Fourth quarter gross profit exceeded our expectations on higher pricing and lower benefit costs and payroll taxes.

Douglas S. Sharp: The Q4 year over year comparisons represent the decline in gross profit due to the unusually low benefit costs in Q4 2022.

Douglas S. Sharp: Operating expenses increased 5% over Q4, the prior year in line with our forecast and included our planned increase in business performance advisors and service personnel.

Douglas S. Sharp: And continued investment in our technology.

Douglas S. Sharp: Net in net interest income was consistent with the prior year.

Douglas S. Sharp: Our Q4 effective income tax rate came in at 19% and was favorably impacted by lower state taxes and R&D tax credits. Now, let me recap our full year 2023 results. We earned $354 million of adjusted EBITDA and adjusted EPS of $5.52. As for the drivers, we achieved 6% growth in average paid worksite employees despite a significant decline in net hiring in our client base due to macroeconomic headwinds. These same headwinds contributed to declines in client retention to an annual rate of 83% and worksite employees paid from new sales. Gross profit per worksite employee per month, our key pricing and direct cost metric, was $277 in 2023, just slightly below our budget, despite elevated healthcare costs in Q2. These results demonstrated our ability to effectively execute our pricing strategy while managing our direct costs over the full year. Operating expenses increased 7.5% in 2022 and included key investments in our long-term growth plans.

Douglas S. Sharp: Q4 effective income tax rate came in at 19% and was favorably impacted by lower state taxes and R&D tax credits.

Speaker Change: Now, let me recap our full year 2023 results, we earned $354 million of adjusted EBITDA and adjusted EPS of $5.52.

Douglas S. Sharp: As to the drivers we achieved 6% growth in average paid worksite employees. Despite the significant decline significant decline in net hiring in our client base due to macroeconomic headwinds.

Douglas S. Sharp: These same same headwinds contributed to declines in client retention to an annual rate of 83% and worksite employees paid from new sales.

Douglas S. Sharp: Gross profit per Worksite employee per month are key pricing and direct cost metric was $277 in 2023, just slightly below our budget despite elevated healthcare costs in Q2.

Douglas S. Sharp: These results demonstrated our ability to effectively execute our pricing strategy, while managing our direct costs over the full year.

Douglas S. Sharp: Operating expenses increased seven 5% over 2022 and included key investments and I've learned term growth plans in.

Douglas S. Sharp: In addition to a 12% increase in the number of Business Performance Advisors, we increased our service capacity and continue to invest in our technology, including the implementation of Salesforce across both our sales and service organizations. The current inflationary environment drove higher compensation for our corporate employees and other operating expenses, such as travel costs. We continue to produce strong cash flow and end the year with a solid balance sheet while continuing to invest in the business and provide strong returns to our shareholders. We invested $40 million in capital expenditures in 2023 and returned $216 million to stockholders through dividends and our share repurchase programs. We repurchased a total of 1.3 million shares at a cost of $132 million.

Douglas S. Sharp: In addition to a 12% increase in the number of business performance advisors, we increased our service capacity and continued to invest in our technology include.

Douglas S. Sharp: Including the implementation of sales force across both our sales and service organizations.

Douglas S. Sharp: The current inflationary environment drove high drove higher compensation of our corporate employees and other operating expenses such as travel cost.

Douglas S. Sharp: We continued to produce strong cash flow and ended the year with a solid balance sheet, while continuing to invest in the business and providing strong returns to our shareholders.

Douglas S. Sharp: We invested $40 million in capital expenditures in 2023.

Douglas S. Sharp: And returned $216 million to stockholders through dividends and our share repurchase programs.

Douglas S. Sharp: We repurchased a total of 1.3 million shares at a cost of $132 million. We also paid out $84 million in cash dividends, which included a 10% increase in our regular dividend rate in may of 2023.

Paul J. Sarvadi: We also paid out $84 million in cash dividends, which included a 10% increase in our regular dividend rate in May of 2023. We ended 2023 with $171 million of adjusted cash and continued to have $370 million outstanding under our credit facility. Now, at this time, I'd like to turn the call over to Paul. Thank you, Doug, and thank you all for joining our call. Today is a pivotal day in the 38-year history of Insperity with the announcement of our exclusive strategic partnership with Workday. In my view, this could be a game-changer in the marketplace and, at the same time, significantly elevate the potential trajectory of our company, driving long-term growth, profitability, and value creation for Insperity. The focus of my comments today will be to explain the nature of this agreement, including how and why I believe it is so monumental.

Douglas S. Sharp: We ended 2023 with $171 million of adjusted cash and continue to have $370 million outstanding under our credit facility.

Douglas S. Sharp: Now at this time I'd like to turn the call over to Paul.

Paul J. Sarvadi: Thank you Doug and thank you all for joining our call.

Paul J. Sarvadi: Today is a pivotal day and the 38 year history of inspire D with the announcement of our exclusive strategic partnership with Workday in my view this could be a game changer in the marketplace and at the same time significantly elevate the potential trajectory of our company driving long term growth.

Paul J. Sarvadi: Profitability and value creation for its birdie.

Douglas S. Sharp: The focus of my comments today will be to explain the nature of this agreement, including how and why I believe this is so monumental I'll also provide context around how this relationship plays into our long term strategy and our outlook for 2024 based upon our 2023 performance and the business economic.

Paul J. Sarvadi: I'll also provide context around how this relationship plays into our long-term strategy and our outlook for 2024 based upon our 2023 performance in the business economic environment. Let's begin with the nature of this strategic partnership and why it has the potential to be so significant for Insperity and Workday, and, most importantly, small and mid-sized companies in the marketplace. Through this strategic partnership, Workday and Insperity are committed to jointly developing, marketing, selling, and supporting the preeminent solution for targeted small and medium-sized businesses that combines Workday's HR technology with Insperity's HR services into a new exclusive Insperity PO offering. We expect to offer this unique combined solution to the target market for significantly less upfront capital cost, ongoing expense, complexity, and implementation time than currently available to those businesses. By addressing these issues, we believe this new solution has the potential to be competitively disruptive.

Douglas S. Sharp: <unk>.

Douglas S. Sharp: Let's begin with the nature of this strategic partnership and why it has the potential to be so significant for inspired <unk> and workday and most importantly, small and mid sized companies in the marketplace.

Douglas S. Sharp: Through this strategic partnership work day in and Sperry are committed to jointly developing marketing selling and supporting the preeminent solution for targeted small and medium size businesses that combines workdays HR technology within spare these HR services into.

Douglas S. Sharp: Our new exclusive in spare D. P O offering we expect to offer this unique combined solution to the target market for significantly less upfront capital cost ongoing expense complexity and implementation time than currently available to those businesses by addressing these issues.

Douglas S. Sharp: We believe this new solution has the potential to be competitively disruptive.

Douglas S. Sharp: We believe that our joint solution will provide the target market of growing small and mid sized businesses with as few as hundred employees with a new scalable capability with the potential to greatly enhance their likelihood degree and speed of success.

Paul J. Sarvadi: We believe that our joint solution will provide the target market of growing small and mid-sized businesses with as few as 100 employees with a new scalable capability with the potential to greatly enhance their likelihood, degree, and speed of success. The complementary strengths of both firms directed toward this target market creates a powerful opportunity. Historically, Workday disrupted the marketplace by providing a best-in-class HCM technology solution and began at the high end of the market, targeting the Fortune 500. They have been tremendously successful, and we believe they are the industry leader and premium brand in the space. Now as Workday has expanded down the market, the reality is the smaller the company, the more they need HR services to implement and get the full value from their solution and be successful. This is where we believe Insperity is an excellent fit for Workday. Now, Insperity disrupted the marketplace by providing a best-in-class HR service solution and began at the other end of the market, serving companies with as few as 10 employees.

Douglas S. Sharp: The complementary strengths of both firms directed toward this target market creates a powerful opportunity.

Douglas S. Sharp: Historically workday disrupted the marketplace by providing a best in class HCM technology solution and began at the high end of the market targeting the fortune 500, they have been tremendously successful and we believe they are the industry leader and premium brand in the space that was workday has expanded down market.

Douglas S. Sharp: But the reality is the smaller the company the more they need HR services to implement and get the full value from their solution and be successful. This is where we believe in spirit. He is an excellent fit for workday.

Douglas S. Sharp: Now asperity disrupted the marketplace by providing a best in class HR service solution and began at the other end of the market serving companies with as few as 10 employees. We have also been tremendously successful and we believe we are the industry leader in the premium brand in our space.

Paul J. Sarvadi: We have also been tremendously successful, and we believe we are the industry leader and the premium brand in our space. As Insperity has expanded into new markets, the reality is the larger the company, the more they need more sophisticated technology to get the full value from our solution and be successful. This is where we believe Workday is an excellent fit for Insperity. Now, in our history, we have built a deeply integrated and highly effective system to manage a PEO and comply with unique legislative, regulatory, and industry-specific requirements. We have historically used our proprietary HR technology platform for all our clients, from the smallest to the largest.

Douglas S. Sharp: As a disparity is expanded up market. The reality is the larger the company the more they need more sophisticated technology to get the full value from our solution and be successful. This is where we believe workday is an excellent fit for its birdie.

Douglas S. Sharp: Over our history, we have built a deeply integrated and highly effective system to manage a P O and comply with the unique legislative regulatory and industry specific requirements. We have historically used our proprietary HR technology platform for all our clients from the smallest to the largest.

Paul J. Sarvadi: Now the process over the last couple months, evaluating the feasibility of developing this new solution, highlighted the sophistication and quality of our own Insperity PEOHCM platform. We intend to continue using this platform for smaller clients and those that otherwise are not ready or don't fit the new joint solution. So, Insperity and Workday are becoming strategic partners focused on three major objectives. First, we'll be developing and embedding an instance of Workday as the client-facing HR technology within our workforce optimization offering to create a new joint solution for the target market. Second, we are establishing a deployment and enablement team within the Insperity Service Organization with the help of Workday. We believe our speed of implementation for our PEO clients distinguishes us compared to the HCM space.

Douglas S. Sharp: Now the process over the last couple of months evaluating the feasibility of developing this new solution highlighted the sophistication and quality of our own asperity P. O HCM platform, we intend to continue using this platform for smaller clients and those that otherwise are not ready or don't fit the new joint solution.

Douglas S. Sharp: So in Sperry and workday are becoming strategic partners focused on three major objectives first we will be developing and embedding an instance of workday as the client facing HR technology within our workforce optimization offering to create the new joint solution for the target market.

Douglas S. Sharp: Second we are establishing a deployment and enablement team within the inspire any service organization with the help of Workday, we believe our speed of implementation for our PEO clients distinguishes us compared to the HCM space. Our goal for this team is to provide implementations and support for the new solution.

Paul J. Sarvadi: Our goal for this team is to provide implementations and support for the new solution in a similar efficient and effective manner as we do today. Third, we are initiating a go-to-market strategic plan for Insperity and Workday to address this target market, including co-branding, co-marketing, and co-selling. We believe there are opportunities for each company to benefit from these aspects of our strategic partnership even before the new solution is launched. Now, let me focus on how and why this strategic partnership could be such a game-changer for Insperity. This partnership has the potential to dramatically improve all three of our most significant drivers of our financial model, new sales, client retention, and pricing of our services. Importantly, this is an exclusive agreement with Workday within the PEO industry. The exclusivity period extends for at least five years beyond the launch of the joint solution.

Douglas S. Sharp: In a similar efficient and effective manner as we do today.

Douglas S. Sharp: Third we are initiating a go to market strategic plan for in Sperry and workday to address this target market, including co branding co marketing and co selling we believe there are opportunities for each company to benefit from these aspects of our strategic partnership even before the new solution is launched.

Douglas S. Sharp: Now, let me focus on how and why this strategic partnership could be such a game changer for its birdie.

Douglas S. Sharp: This partnership has the potential to dramatically improve all three of our most significant drivers of our financial model, new sales client retention and pricing of our services and importantly, this is an exclusive agreement with workday within the PEO industry. The exclusivity extends for at least.

Douglas S. Sharp: Five years beyond the launch of the joint solution I believe this provides <unk> with a significant new competitive advantage and influences all three of these key drivers of our business.

Paul J. Sarvadi: I believe this provides Insperity with a significant new competitive advantage and influences all three of these key drivers of our business. I believe the effect on sales can begin immediately, primarily due to a step-up in leads we expect through an automated process and the ultimate potential for prospects to upgrade to Workday HCM once the new solution is launched. Workday currently makes a substantial marketing investment to attract potential customers interested in improving their HR technology. Their successful marketing programs generate a substantial number of qualified leads for their target market of larger firms, but, as is typical in significant marketing programs, they generate thousands of leads from prospects outside their primary target, including smaller firms. Now, we believe these leads that do not meet Workday's criteria for direct sales due to the size of the prospect are in the heart of our target market and are similar to the leads we generate with our own marketing spend.

Douglas S. Sharp: I believe the effect on sales can begin immediately primarily due to a step up in Leeds, we expect through an automated process and the ultimate potential for prospects to upgrade to workday HCM once the new solution is launched.

Douglas S. Sharp: Workday currently makes a substantial marketing investment to attract potential customers interested in improving their HR technology, they're successful marketing programs generate a substantial number of qualified leads for their target market of larger firms, but as is typical in significant marketing programs they generate.

Douglas S. Sharp: Thousands of leads from prospects outside their primary target, including smaller firms that we believed these leads that did not meet workdays criteria for direct sales due to the size of the prospects are in the heart of our target market and are similar to the leads we generate with our own marketing spend this.

Paul J. Sarvadi: This means that Workday can optimize their marketing spend by passing these leads off to Insperity, creating a pipeline for potential new business for Workday in the future. Our initial high-level view of these potential referrals indicates the possibility of increasing the number of qualified leads substantially beyond the level we generate with our own marketing efforts. We believe this could considerably increase the sales activity for our more than 750 business performance advisors. Another important aspect of this strategic partnership is focused on helping customers select the right solution to help them succeed. Insperity will reciprocate by referring larger prospects to Workday that fit their solution best at the time we first interact with them in our sales process or once the current client's needs are beyond our solution. Ultimately, the second potential driver for sales would be the new solution once launched with the full force of the strategic partnership go-to-market plan. However, we also anticipate prioritizing current clients upgrading to the new solution.

Douglas S. Sharp: This means that work they can optimize their marketing spend by passing these leads off doonesbury, creating a pipeline for potential new business for workday in the future.

Douglas S. Sharp: Our initial high level view of these potential referrals indicates the possibility of increasing the number of qualified leads substantially beyond the level, we generate with our own marketing efforts. We believe this could considerably increase the sales activity for our more than 750 business performance advisors.

Douglas S. Sharp: Another important aspect of this strategic partnership is focused on helping customers select the right solution to help them succeed and severity will reciprocate, referring to larger prospects to workday that fit their solution best at the time, we first interact with them in our sales process or once the current.

Douglas S. Sharp: <unk> needs are beyond our solutions.

Douglas S. Sharp: Ultimately the second potential driver for sales would be the new solution once launched with the full force of the strategic partnership go to market plan. However, we also anticipate prioritizing current clients upgrading to the new solution, therefore coming onto our current workforce optimize optimization service now.

Paul J. Sarvadi: Therefore, coming on to our current Workforce Optimization Service now is a step to get in line for being on the workday more efficiently and cost-effectively once the new solution is available. The second driver of our financial model that we believe will be enhanced by this strategic partnership is client retention. The workday features and functionality in this new jointly developed solution could significantly influence client retention of our largest accounts. Now, historically, we have considered losing large accounts.

Douglas S. Sharp: Is a step to get in line for being on workday more efficiently and cost effectively once the new solution is available.

Douglas S. Sharp: The second driver to our financial model that we believe will be enhanced by this strategic partnership is client retention. The workday features and functionality and this new jointly developed solution could significantly influence client retention of our largest accounts that historically, we have considered losing large accounts we helped grow.

Paul J. Sarvadi: We helped grow significantly as our success penalty. Many times, we have brought small companies to our workforce optimization solution and helped them grow from 20 or 30 employees to 1,000 or more on their way to becoming highly successful firms. Examples of this are HelloFresh, Netflix, and, believe it or not, Workday.

Douglas S. Sharp: So significantly as our success penalty many times, we brought small companies on our workforce optimization solution and help them grow from 20 or 30 employees to 1000 or more on their way to being highly successful firms. Examples of this are hello fresh Netflix.

Douglas S. Sharp: And believe it or not workday when a client grows to this level and they terminate the relationship we could need 50 or more of our typical new small business clients to replace them.

Paul J. Sarvadi: When a client grows to this level and terminates the relationship, we could need 50 or more of our typical new small business clients to replace them. We experienced this success penalty to agree this year, which I will discuss in a few minutes. We expect the new solution will better position us to meet the needs of our larger clients, which we believe will allow us to retain these clients for a longer period that is more in line with Workday's exceptional retention track record. We anticipate in the future, when we ultimately graduate a current client on the new solution to their own instance of Workday, our new enablement and implementation team may also facilitate the transition and provide ongoing support, and Insperity may even continue to provide other HR solutions.

Douglas S. Sharp: We experienced this success penalty to agree this year, which I will discuss in a few minutes.

Douglas S. Sharp: We expect the new solution will better position us to meet the needs of our larger clients, which we believe will allow us to retain these clients for a longer period that is more in line with workdays exceptional retention track record.

Douglas S. Sharp: We anticipate in the future when we ultimately graduate a current client on the new solution to their own instance of workday, our new enablement and implementation team may also facilitate the transition and provide ongoing support and in spirit. He may even continue to provide other HR solutions. So we believe.

Paul J. Sarvadi: So we believe our customer for life strategy will be enhanced by this strategic partnership by providing a solution that should reduce large client terminations and better position us to capitalize on our historical success rate in the future by continuing to provide services even after a client leaves our workforce optimization solution. Now, in addition to a potential improvement in new sales and client retention, I believe this strategic partnership may have a meaningful effect on our third key driver of our business model, pricing our services. The ability to increase pricing to match the enhanced value of the new solution is a significant opportunity, as our prospects often compare their own future expected costs as an employer to our comprehensive service fee to make their buying decision. We've identified several potential improvements in this area that would be made possible by this new strategic partnership. However, they are preliminary and proprietary, so I will not go into detail today.

Douglas S. Sharp: Our customer for life strategy will be enhanced by this strategic partnership by providing a solution that should reduce large client terminations and better position us to capitalize on our historical success penalty in the future by continuing to provide services, even after our client leaves our workforce optimization solution.

Douglas S. Sharp: Yeah.

Douglas S. Sharp: Now in addition to a potential improvement in new sales and client retention I believe this strategic partnership may have a meaningful effect on our third key driver to our business model pricing or services the ability to increase pricing to match the enhanced value of the new solution is a significant opportunity.

Douglas S. Sharp: As our prospects often compare their own future expected costs as an employer to our comprehensive service fee to make their buying decisions.

Douglas S. Sharp: We've identified several potential improvements in this area made possible by this new strategic partnership. However, they are preliminary and proprietary so I will not go into detail today.

Paul J. Sarvadi: So the power of this strategic partnership with Workday for Insperity is the long-term potential to significantly drive three of our most important key success factors, new sales, client retention, and pricing. Now, both companies are investing in our strategic partnership. I would like to explain the Insperity investment necessary to launch this partnership and create this new PEO solution combining Workday HCM technology with Insperity Workforce Optimization Service. Our new investment is currently expected to be approximately $150 million over a five-year period, more heavily weighted in the first two years.

Douglas S. Sharp: So the power of this strategic partnership with Workday Foreign Sperry is the long term potential to significantly drive three of our most important key success factors new sales client retention.

Douglas S. Sharp: And pricing.

Douglas S. Sharp: Now both companies are investing in our strategic partnership I would like to explain the disparity investment necessary to launch this partnership and create this new PEO solution combined combining workday HCM technology within Sperry workforce optimization services, our new investment is currently expected to be approximately.

Douglas S. Sharp: And really $150 million over a five year period more heavily weighted in the first two years. The investment includes workday subscriptions for a certain number of Worksite employees on this new solution over the term of the contract significant development to create the solutions staffing and training of new deployment and enablement.

Paul J. Sarvadi: The investment includes workday subscriptions for a certain number of worksite employees on this new solution over the term of the contract, significant development to create the solution, staffing and training a new deployment and enablement organization, and funding a go-to-market strategy to ramp up sales and sales support staff. The investment also includes Insperity becoming a Workday customer for our corporate staff, which is ideal for our 4,300-employee company with We believe it's an important foundational step to have our entire staff on Workday to be ready to support our clients as we launch our new solution. We expect this investment will cause a drag on adjusted EBITDA and earnings per share for a couple years. However, we believe the potential to capitalize on the opportunity to elevate the trajectory for long-term growth and profitability in the future is significant. I personally weighed this decision heavily with the appropriate level of consideration.

Douglas S. Sharp: Organization and funding our go to market strategy ramping up sales and sales support staff.

Douglas S. Sharp: The investment also includes in spirit, becoming a workday customer for our corporate staff, which is ideal for our 4300 employee company with dynamic future growth. We believe it's an important foundational step to have our entire staff on workday to be ready to support our clients as we launch our new solution.

Douglas S. Sharp: We expect this investment will cause a drag on adjusted EBITDA and earnings per share for a couple of years. However, we believe the potential to capitalize on the opportunity to elevate the trajectory for long term growth and profitability in the future is significant.

Speaker Change: Recently weighed this decision heavily with the appropriate level of consideration as I sit here today is chairman and CEO cofounder and a significant shareholder in Sperry I am convinced this is the right decision for.

Speaker Change: For the next couple of years, adjusted EBITDA and earnings per share may not be the most important measures as they have been in the past the progress and milestones achieved in developing launching and implementing our strategic partnership with workday will be important measures as well.

Paul J. Sarvadi: As I sit here today as chairman, CEO, co-founder, and a significant shareholder of Insperity, I am convinced this is the right decision. For the next couple of years, adjusted EBITDA and earnings per share may not be the most important measures as they have been in the past. The progress and milestones achieved in developing, launching, and implementing our strategic partnership with Workday will be important measures as well. Now, let me put this decision into context with our 2023 results and our outlook for 2024. We had a solid year last year in a more difficult economic climate in the small business community.

Speaker Change: Now let me put this decision in the context with our 2023 results and our outlook for 2024, we had a solid year last year in a more difficult economic climate in the small business community. This was reflected most noticeably in the net change in employment within our client base slowing from a solid net gain in the first half of the year.

Speaker Change: To net reductions over the last half and into January.

Douglas S. Sharp: Another factor that weighs into our starting point for paid Worksite employees as we move into 2024 is the year end transition, including client retention from our heavily heavy renewal period, our retention was strong except for our mid market client attrition, which included our success penalty on seven of.

Paul J. Sarvadi: This was reflected most noticeably in the net change in employment within our client base, slowing from a solid net gain in the first half of the year to net reductions over the last half and into January. Another factor that weighs into our starting point for paid worksite employees as we move into 2024 is the year-end transition, including client retention from our heavy renewal period. Our retention was strong, except for our mid-market client attrition, which included our success penalty on seven of our large accounts.

Douglas S. Sharp: Our large accounts.

Douglas S. Sharp: This economic backdrop in our target market also affected decision, making in the sales process, which was most apparent in the third quarter, we reacted well to this dynamic and had significantly stronger fourth quarter book sales.

Douglas S. Sharp: The full year was not as strong in our core BPA sales as we had originally expected. However, we exceeded our target in mid market sales.

Douglas S. Sharp: After a thorough evaluation of last year. There are two areas that we believe would have made the year significantly stronger.

Paul J. Sarvadi: This economic backdrop in our target market also affected decision-making in the sales process, which was most apparent in the third quarter. However, we reacted well to this dynamic and had significantly stronger fourth-quarter booked sales. The full year was not as strong in our core BPA sales as we had originally expected, but we exceeded our target in mid-market sales. After a thorough evaluation of last year, there are two areas that we believe would have made the year significantly stronger, even in a tougher environment.

Douglas S. Sharp: Even in a tougher environment. The first one is the number of leads to produce more sales opportunities, which is frequently the answer for new sales and a more difficult economic environment. The second area that we believe would make a significant difference as a systemic change that would address our success penalty related to the retention of our larger account.

Douglas S. Sharp: Now the new strategic partnership with Workday as timely due to the potential to provide a step up in the volume of sales opportunities and improved large account retention substantially beyond the level, we could achieve on our own.

Douglas S. Sharp: Even without the new partnership we believe our progress last year, including growing the sales organization validating new marketing efforts and staffing up our service team positions the company well for growth acceleration over the coming year.

Paul J. Sarvadi: The first one is the number of leads to produce more sales opportunities, which is frequently the answer for new sales in a more difficult economic environment. The second area that we believe would make a significant difference is a systemic change that would address our success penalty related to the retention of our larger accounts. Now the new strategic partnership with Workday is timely due to the potential to provide a step-up in the volume of sales opportunities and improve large account retention substantially beyond a level we could achieve on our own. Even without the new partnership, we believe our progress last year, including growing the sales organization, validating new marketing efforts, and staffing up our service team, positions the company well for growth acceleration over the coming year.

Douglas S. Sharp: One last point I'd like to make relative to this significant investment decision is our historical use of capital commitment that has provided an exceptional return to shareholders.

Douglas S. Sharp: Over the last 10 years, our significant growth combined with our highly capital efficient business model generating sufficient cash to allow us to repurchase approximately 20 million shares for just under $1 billion as Doug mentioned last year alone, we repurchased one 3 million shares at a cost of 132 million.

Douglas S. Sharp: Making this investment of an estimated $150 million in this context does not represent any change in our prioritization of return to shareholders. Rather it represents our view of the opportunity to significantly increase returns over the long term.

Douglas S. Sharp: I would like to thank and sparing <unk> and workday teams that made this strategic partnership happen the ability of our two teams to evaluate the opportunity and Expediently and effectively reach agreement on the strategic partnership is evidence of the line corporate culture connection between the two firms this adds to my confidence in.

Paul J. Sarvadi: One last point I'd like to make relative to this significant investment decision is our historical use of capital commitment that has provided an exceptional return to shareholders. Over the last 10 years, our significant growth, combined with our highly capital-efficient business model, generated sufficient cash to allow us to repurchase approximately 20 million shares for just under a billion dollars. As Doug mentioned, last year alone, we repurchased 1.3 million shares at a cost of $132 million.

Douglas S. Sharp: The strategic partnership delivering this solution with the potential to greatly enhance the likelihood the degree and speed of success for this target market.

Douglas S. Sharp: I also believe these two powerful brands have made a commitment to work together strategically enhancing the likelihood degree and speed of success for this dynamic workday has fared a strategic partnership.

Paul J. Sarvadi: Making this investment of an estimated $150 million in this context does not represent any change in our prioritization of return to shareholders. Rather, it represents our view of the opportunity to significantly increase returns over the long term. I would like to thank the Insperity and Workday teams that made this strategic partnership happen. The ability of our two teams to evaluate the opportunity and expediently and effectively reach agreement on the strategic partnership is evidence of the aligned corporate culture connection between the two firms. This adds to my confidence in the strategic partnership, delivering this solution with the potential to greatly enhance the likelihood, degree, and speed of success for this target market. I also believe these two powerful brands have made a commitment to work together strategically, enhancing the likelihood, degree, and speed of success for this dynamic Workday-Insperity strategic partnership. This investment represents an incredible opportunity to elevate the long-term trajectory for growth, profitability, and value creation for Insperity and our ultimate return to shareholders into the future. At this point, I would like to pass the call back to Doug.

Douglas S. Sharp: This investment represents an incredible opportunity to elevate the long term trajectory for growth profitability and value creation for in Sperry and our ultimate return to shareholders into the future at this point I would like to pass the call back to Doug.

Doug: Thanks, Paul now before I provide the specifics behind our 2024 guidance be aware that this guidance reflects both the expected performance of our core operations as well as our estimated costs associated with the work a strategic partnership.

Doug: As Paul mentioned over the course of 2024, we will be performing.

Douglas S. Sharp: Significant development work to offer a pre eminent technology and service solutions to our mid market clients.

Douglas S. Sharp: Most calls associated with these development efforts will be reflected as an expense and not and therefore not capitalized.

Douglas S. Sharp: This will obviously have a significant impact on our forecasted 2020 for earnings.

Douglas S. Sharp: As we collaborate with workday through the first quarter to further solidify the scope of the effort for the strategic partnership our preliminary estimate of the costs that we used for this guidance may be revised.

Douglas S. Sharp: The impact of the partnership on revenues in 2024 would primarily be related to the lead flow of our workforce optimization sales in the back half of the year.

Douglas S. Sharp: Now for the details of our guidance our Worksite employee growth is largely dictated by our January 2024, starting point.

Douglas S. Sharp: Thanks, Paul. Now, before I provide the specifics behind our 2024 guidance, be aware that this guidance reflects both the expected performance of our core operations as well as our estimated costs associated with the Workday strategic partnership. As Paul mentioned, over the course of 2024, we will be performing significant development work to offer a preeminent technology and service solution to our mid-market clients. However, most costs associated with these development efforts will be reflected as expenses and, therefore, not capitalized.

Douglas S. Sharp: As Paul just mentioned our client retention rate was similar to 2023 during our heavy client renewal period, excluding the impact of a small number of large accounts.

Douglas S. Sharp: Additionally, the current macroeconomic factors and generally uncertainty in the marketplace.

Douglas S. Sharp: Led to our client base experiencing net reduction in employees over the second half of 2023 continuing into January 2024.

Douglas S. Sharp: These factors were the primary contributors to a lower starting point going into the year.

Douglas S. Sharp: And reduced our full year 2024 growth rate by about 4%.

Douglas S. Sharp: Which is about $40 million in gross profit.

Douglas S. Sharp: This will obviously have a significant impact on our forecasted 2024 earnings. As we collaborate with Workday through the first quarter to further solidify the scope of the effort for this strategic partnership, our preliminary estimate of the costs that we use for this guidance may be revised. Any impact of the partnership on revenues in 2024 would primarily be related to the lead flow of our workforce optimization sales in the back half of the year. Now for the details of our guidance, our worksite employee growth is largely dictated by our January 2024 starting point. As Paul just mentioned, our client retention rate was similar to 2023 during our heavy client renewal period, excluding the impact of a small number of large accounts.

Douglas S. Sharp: As for the remainder of the year, we are assuming gradual improvement and more certainty in the macroeconomic environment.

Douglas S. Sharp: And when combined with the higher average tenure of our Ppas and unexpected increase in lead flow. We are budgeting for an improvement in sales efficiency over the course of 2024.

Douglas S. Sharp: We continue to expect the minimal hiring by our by our clients when compare to historical levels.

Douglas S. Sharp: So considering these factors we are forecasting worksite employee growth for Q1 of 2024 to be in a range of a 1% decline to flat.

Douglas S. Sharp: And expect growth up 2% to 3% for the full year.

Douglas S. Sharp: This guidance assumes expected sequential improvement over the course of 2024.

Douglas S. Sharp: With our forecast ending the year with a paid worksite employee count that is 8% higher than December 2023.

Douglas S. Sharp: As for gross profit we are considered the pricing achieved over 2023 and during our recent sales and client renewal period.

Douglas S. Sharp: Additionally, the current macroeconomic factors and generally uncertainty in the marketplace led to our client base experiencing a net reduction in employees over the second half of 2023 and continuing into January 2024. These factors were the primary contributors to a lower starting point going into the year and reduced our full year 2024 growth rate by about 4%, which is about $40 million in gross profit.

Douglas S. Sharp: We intend to continue continue focus on pricing given the expected impact of an ongoing inflationary environment on both our direct costs, including health care costs and our operating expenses.

Douglas S. Sharp: We expect a generally stable environment in our payroll tax and workers' compensation areas.

Douglas S. Sharp: As for the benefits component of our direct costs, we anticipate a cost trend of four 5% to 6%.

Douglas S. Sharp: As for the remainder of the year, we are assuming gradual improvement and more certainty in the macroeconomic environment. And when combined with the higher average tenure of our BPAs and an expected increase in lead flow, we are budgeting for an improvement in sales efficiency over the course of 2024. We continue to expect minimal hiring by our clients when compared to historical levels.

Douglas S. Sharp: We exited in 2023 with our pricing allocations and direct cost trends aligned.

Douglas S. Sharp: And our 2024 plan is based on matching or exceeding expected changes in our direct cost.

Douglas S. Sharp: When considering these factors we expect the full year and Q1 of 2024 gross profit per worksite employee to be similar to that achieved in the 2023 periods.

Douglas S. Sharp: So considering these factors, we're forecasting worksite employee growth for Q1 of 2024 to be in a range of a 1% decline to flat, and we expect growth of 2-3% for the full year. This guidance assumes expected sequential improvement over the course of 2024, with our forecast ending the year with a paid worksite employee count that is 8% higher than December 2023. As for gross profit, we have considered the pricing achieved in 2023 and during our recent sales and client renewal period. We intend to continue to focus on pricing given the expected impact of an ongoing inflationary environment on both our direct costs, including health care costs, and our operating expenses. We expect a generally stable environment in our payroll tax and workers' compensation areas.

Douglas S. Sharp: Subsequent to Q1, we expect this metric to step down in each of the following three quarters as payroll tax wages and benefit plan deductibles are met.

Douglas S. Sharp: Now our operating expenses include costs associated with our both our core operations and the work day strategic partnership.

Douglas S. Sharp: We are roughly estimating that costs related to the partnership will be in the ballpark of $60 million in 2024, primarily in the back half of the year when including the incremental cost that Paul just mentioned plus our internal redeployed resources.

Douglas S. Sharp: As for our course of operations, our budgeted 2020 for operating costs include a full year impact.

Douglas S. Sharp: Successfully hiring sales service and support personnel in 2023 coming off of the 18% Worksite employee growth in 2022.

Douglas S. Sharp: Now this puts us in a position for a minimal hiring in our core operation in 2024.

Douglas S. Sharp: Including the hiring of fewer.

Douglas S. Sharp: As for the benefits component of our direct costs, we anticipate a cost trend of 4.5% to 6%. We will exit in 2023 with our pricing allocations and direct cost trends aligned. And our 2024 plan is based on matching or exceeding expected changes in our direct costs. When considering these factors, we expect the full year and Q1 of 2024 gross profit per worksite employee to be similar to that achieved in the 2023 period. Subsequent to Q1, we expect this metric to step down in each of the following three quarters as payroll tax wages and benefit plan deductibles are met.

Douglas S. Sharp: Hiring a fewer business performance advisors.

Douglas S. Sharp: We are forecasting to end the year with a 6% increase in BPA is over 2023 to just over 800.

Douglas S. Sharp: As for our interest income and expense our 2020 for budget assumes the current interest rates and our run rate is slightly above 2023.

Douglas S. Sharp: We are estimating a tax rate of 26% for Q1 and the full year 2024.

Douglas S. Sharp: So after putting together all of the pieces, including our current estimate of costs associated with the Workday Postured partnership.

Douglas S. Sharp: We are forecasting 2024, adjusted EBITDA in a range of $241 million to $285 million.

Douglas S. Sharp: The midpoint of this range is about $90 million below the prior year of which approximately.

Douglas S. Sharp: Now, our operating expenses include costs associated with both our core operations and the Workday strategic partnership. We are roughly estimating that costs related to the partnership will be in the ballpark of 60 million dollars in 2024, primarily in the back half of the year, when including the incremental costs that Paul just mentioned, plus our internal redeployed resources. As for our course of operations, our budgeted 2024 operating costs include the full-year impact of successfully hiring sales, service, and support personnel in 2023, coming off of the 18% worksite employee growth in 2022. Now, this puts us in a position for minimal hiring in our core operation in 2024, including the hiring of fewer business performance advisors. We're forecasting to end the year with a 6% increase in BPAs over 2023 to just over 800.

Douglas S. Sharp: Approximately $60 million is related to the partnership with workday.

Douglas S. Sharp: The remainder is primarily related to the lower starting point in paid Worksite employees.

Douglas S. Sharp: We are forecasting a full year adjusted EPS in a range of $3 <unk> to $3 88.

Douglas S. Sharp: With the strategic partnership development kicking off in the first quarter. We are forecasting Q1, adjusted EBITDA in a range of $121 million to $137 million and adjusted EPS in a range of $1 94 to $2 to $2.24.

Douglas S. Sharp: Now before we open up the call for questions, we'd like to announce our intention to hold an investor and analyst day in the second half of May this year.

Douglas S. Sharp: To further discuss our exciting strategic partnership with workday and how it fits into our long term plans.

Douglas S. Sharp: As for our interest income and expense, our 2024 budget assumes the current interest rates and a run rate slightly above 2023. We're estimating a tax rate of 26% for Q1 and the full year 2024. So after putting together all of the pieces, including our current estimate of costs associated with the Workday Partnership, we are forecasting 2024 adjusted EBITDA in a range of $241 million to $285 million. The midpoint of this range is about $90 million below the prior year, of which approximately $60 million is related to the partnership with Workday.

Douglas S. Sharp: We will and we will announce the specific date at a later time.

Douglas S. Sharp: Now, let's open up the question and answers.

Speaker Change: Thank you at this time, we'll be conducting a question and answer session.

Speaker Change: To ask a question. Please press star one on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press Star two if you would like to remove your question from the queue.

Douglas S. Sharp: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, please press star one on your phone at this time.

Douglas S. Sharp: If you wish to ask a question.

Douglas S. Sharp: Please hold while we poll for questions.

Douglas S. Sharp: On the first question today is coming from Andrew Nicholas from William Blair, Andrew Your line is live.

Andrew Owen Nicholas: Hi, good morning, Thanks, Doug.

Andrew Owen Nicholas: Doug and Paul for taking my questions.

Andrew Owen Nicholas: I'll start with the workday partnership a ton of detail in the prepared remarks, so admittedly still digesting a lot of it but just for a point of clarification.

Douglas S. Sharp: The remainder is primarily related to the lower starting point for paid worksite employees. We are forecasting a full year adjusted EPS in a range of $3.02 to $3.88. With strategic partnership development kicking off in the first quarter, we are forecasting Q1 adjusted EBITDA in a range of $121 million to $137 million and adjusted EPS in a range of $1.94 to $2.24. Now, before we open up the call for questions, we'd like to announce our intentions to hold an Investor and Analyst Day in the second half of May this year to further discuss our exciting strategic partnership with Workday and how it fits into We will announce the specific date at a later time. Now, let's open up the questions and answers. Thank you. At this time, we will be conducting a question and answer session, if you'd like to ask something. Star 1, You may press start to remove participants using the speaker www.insperityinc.com and Star Wars.

Andrew Owen Nicholas: In terms of the target market you mentioned the target market a couple of times. There is it are we to take this to mean it applies to <unk>.

Andrew Owen Nicholas: Clients that are over a certain size I think at some point you said 100 employees or can you just kind of flush out where like the legacy workforce.

Andrew Owen Nicholas: Optimization product is expected to two and and where the new workday collaboration.

Andrew Owen Nicholas: As expected to begin realizing that it's not an.

Andrew Owen Nicholas: An explicit number but conceptually just help us kind of bifurcate.

Speaker Change: The opportunity yeah, absolutely. That's that's a great question and let me provide some clarification there.

Speaker Change: As you are aware today, our target market as clients with as few as 10 employees and we've had clients with as many as 5000.

Douglas S. Sharp: And what we have experienced as I mentioned about our success penalty is when clients are either fast growing and or grow to a certain size.

Douglas S. Sharp: Our.

Unnamed Analyst: Hi, good morning. Thanks Doug and Paul for taking my questions. I'll start with the Workday partnership. There is a ton of detail in the prepared remarks, so admittedly still digesting a lot of it, but just, For a point of clarification, in terms of the target market, you mentioned the target market a couple of times there. Is it, are we to take this to mean it applies to clients that are over a certain size? I think at some point you said a hundred employees, or can you just kind of flesh out where the legacy workforce optimization product is expected to end and where the new workday collaboration is expected to begin? Realizing that it's not an explicit number, but conceptually just help us kind of bifurcate the opportunities. Yeah, absolutely.

Douglas S. Sharp: HCM technology is is tremendous but it's really more designed for small business is at the lower end of the sky Willie for the.

Douglas S. Sharp: Maybe 100 or less or up to two or 300. It. It's it's still great, but when companies get to a certain point are growing in a certain way.

Douglas S. Sharp: They actually need more workflow and other elements more features and functionality that workday provides better than anyone else in the world and so putting our incredible service.

Douglas S. Sharp: <unk> is also critical for those companies all the way up to thousands of employees they need sophisticated HR department, helping them not only use the software, but helping them use the output from the software to run the company better and more effectively. So we believe that this is going to be.

Paul J. Sarvadi: That's a great question, and I'll provide some clarification there. As you're aware today, our target market is clients with as few as 10 employees, and we've had clients with as many as 5,000. And what we have experienced, as I mentioned about our success penalty, is when clients are either fast-growing or grow to a certain size, you know, our... HCM technology is tremendous, but it's really more designed for small businesses at the lower end of the scale, really for the, you know, maybe 100 or less, or, you know, up to 200 or 300. It's still great. But when companies get to a certain point or growing in a certain way, they actually need more workflow and other elements, more features, and functionality that Workday provides better than anyone else in the world.

Douglas S. Sharp: An excellent solution.

Douglas S. Sharp: For growing companies as small as 100 employees that fit that profile and then all the way up to the very high end of whatever we've.

Douglas S. Sharp: Developed before.

Douglas S. Sharp: And of the thousands of employees. So that's a great target market for this and what it really means is that all.

Douglas S. Sharp: From our.

Douglas S. Sharp: Perspective, we're actually going to have a product that fits better for the higher end of our market even opens us up a little bit.

Douglas S. Sharp: And for our partner.

Douglas S. Sharp: Workday has now an opportunity to go to go to a new market down market from anything they've ever gone before and now.

Paul J. Sarvadi: And so putting, you know, our incredible service, which is also critical for those companies all the way up to, you know, thousands of employees, they need a sophisticated HR department helping them not only use the software but using the output from the software to run the company better and more effectively. So we believe that this is going to be an excellent solution for growing companies as small as 100 employees that fit that profile and then all the way up to the very high end of whatever we've developed before, you know, into thousands of employees. So that's a great target market for this.

Douglas S. Sharp: Clients in this target market are going to have.

Douglas S. Sharp: That opportunity beyond this service.

Douglas S. Sharp: And have the best of both worlds.

Douglas S. Sharp: At a very earlier stage in their in their process and journey of growing their business.

Speaker Change: Got it and I think Paul you outlined the potential for this partnership to improve all three of the financial drivers of the key financial drivers new sales client retention pricing I recognize the benefits how should we think about.

Speaker Change: The potential for this to cannibalize some of the mid market business and is that how that went into your decision.

Paul J. Sarvadi: And what it really means is that, from our perspective, we're actually going to have a product that fits better for the higher end of our market, and it even opens us up a little bit. And for our partner, Workday now has an opportunity to go to a new market downmarket from anything they've ever gone before; clients in this target market are going to have that opportunity beyond this service and have the best of both worlds at a very earlier stage in their process and journey of growing their business. I got it.

Speaker Change: To come to this agreement.

Paul J. Sarvadi: Yeah, I really don't see that as an issue of kind of in any way shape or form obviously part of our success penalty as companies moving to.

Speaker Change: A different technology solution and this stems that tied in a huge way or.

Douglas S. Sharp: <unk> per share delays it for a significant length of time.

Douglas S. Sharp: And as I mentioned in the script, even if at some point if they do want their own instance, we're more than happy to make sure that that's the correct move for them, but in the future we'll be able to provide services to that company. It will just change our relationship with them they'll still be a customer for life.

Paul J. Sarvadi: And I think, Paul, you outlined the potential for this partnership to improve all three of the financial drivers of the key financial drivers, new sales, client retention, and pricing. I recognize the benefits, but how should we think about, you know, the potential for this to cannibalize some of the mid-market business and, you know, how that went into your decision to come to this agreement. Yeah, I really don't see that as an issue in any way, shape, or form. Obviously, part of our success penalty is companies moving to, you know, a different technology solution. And, you know, this stems that tide in a huge way or at least for sure delays it for a significant length of time.

Douglas S. Sharp: Customer of ours.

Douglas S. Sharp: They want us to provide the enablement and deployment services and ongoing support.

Douglas S. Sharp: And they possibly may be one other HR services as well that they are.

Douglas S. Sharp: Then using with US. So this definitely extends at retention in a dramatic way.

Speaker Change: Yes, I guess I guess, what I'm trying to get at is I realize on retention like from a client retention percentage perspective that that would be helpful. But I'm wondering if if someone transitioning maybe a little bit earlier than they previously had hertz.

Paul J. Sarvadi: And as I mentioned in the script, even if, at some point, they do want their own instance, we're more than happy to make sure that that's the correct move for them. But in the future, we'll be able to provide services to that company. It will just change our relationship with them.

Douglas S. Sharp: Retention for like a revenue retention perspective, I realize that we're still pretty early in in getting this all set up but that was the Genesis of my question no. When they go on this new solution it actually increases our revenues so.

Paul J. Sarvadi: They'll still be a customer for life, a customer of ours, provided they want us to provide the enablement and deployment services and ongoing support. And they possibly may want other HR services as well that they've been using with us. So this definitely extends that retention in a dramatic way.

Douglas S. Sharp: Our customers now in fact, we will be going out to our customer base, explaining this the new solution Thats coming help them figure out you know the comparison between what theyre using today and what they have the potential to use and we will prioritize who will be in the queue to be moving.

Paul J. Sarvadi: Yeah, I guess what I'm trying to get at is if I realize that retention, like from a client retention percentage perspective, that that would be helpful. But I'm wondering if someone transitioning maybe a little bit earlier than they previously had hurts retention from like a revenue retention perspective. I realize that we're still pretty early in getting this all set up, but that was the genesis of my question.

Douglas S. Sharp: From one service to the other but when someone goes from our current service to the new service it will increase revenues and to retain the business.

Speaker Change: Alright, that's helpful to understand I didn't didn't know how much of that increased revenue would would go work days way. Thanks a lot.

Mark: Thank you. The next question is coming from Mark to Mark Com from parents Mark Your line is live.

Mark S. Marcon: Hey, Paul and Doug.

Mark S. Marcon: I mean really exciting announcements.

Paul J. Sarvadi: No, when they go on this new solution, it actually increases our revenue. So, you know, we have our customers now, and in fact, we'll be going out to our customer base, explaining this new solution that's coming, and helping them figure out, you know, the comparison between what they're using today and what they have the potential to use. And we will prioritize who will be in the queue to be moving from one service to the other. But when someone goes from our current service to the new service, it will increase revenues and retain business. Alright, that's helpful to understand. I didn't know how much of that increased revenue would go Workday's way. Thanks a lot.

Douglas S. Sharp:

Mark S. Marcon: In terms of the in terms of the venture.

Mark S. Marcon: When do you anticipate that you would actually be able to to actually market and actually get this joint venture.

Speaker Change: You know installed with clients is this like two years out three years out how should we think about that just in terms of the timing.

Speaker Change: Yeah.

Speaker Change: We don't have the precise time calculated at this point, we do have the milestones that have to be achieved to get to that point.

Speaker Change: Over this first quarter.

Speaker Change: Our.

Speaker Change: Development teams on both sides will be working diligently.

Speaker Change: To detail out in complete statements of work et cetera to figure out the launch date now I have a range of that expectations not near the three year time period, you've just referred to but we don't have it locked down yet.

Unnamed Analyst: Hey, Paul and Doug. I mean, really exciting announcement. In terms of the venture, when do you anticipate that you would actually be able to market and actually get this joint venture? You know, installed with clients?

Speaker Change: And therefore, we're going to have the work.

Speaker Change: Investor and analyst day in May and hopefully to have a lot more information about that at this point at that point. However, we need to understand that the effect of this partnership starts today.

Paul J. Sarvadi: Is this like two years out or three years out? How should we think about that just in terms of, Yeah, you know, we don't have the precise time calculated at this point, but we do have the milestones that have to be achieved to get to that point. Over this first quarter, our development teams on both sides will be working diligently to detail out and complete statements of work, etc., to figure out the launch date. Now, I have a range of that expectation, not near the three-year time period you just referred to, but we don't have it locked down yet, and therefore, you know, we're going to have Investor and Analyst Day in May and hopefully have a lot more information about that at that point.

Speaker Change: Well before that launch date.

Speaker Change: Cause simply.

Speaker Change: I believe that.

Speaker Change: First of all our ability to.

Speaker Change: <unk> through the relationship as I mentioned about the lead flow.

Speaker Change: This is gonna be a dramatic increase in the number of opportunities we have for our sales team to sell what we have today and put people in line for what's coming on that launch date I believe companies of the mid market size.

Speaker Change: Are going to look at this and say Wow man I can come on to this solution today and be in line to even step up to the other solution. Once the launch date comes on and we will prioritize current customers to make that move.

Paul J. Sarvadi: However, we need to understand that the effect of this partnership starts today, well before that launch date. Because, simply, you know, I believe that, first of all, our ability to, you know, through the relationship, as I mentioned about the lead flow, This is going to be a dramatic increase in the number of opportunities we have for our sales team to sell what we have today and put people in line for what's coming on that launch date. I believe companies of the mid-market size are going to look at this and say, wow, man. I can come on board with this solution today and be in line to even step up to the other solution once the launch date comes around. And we will prioritize current customers to make that move.

Speaker Change: Okay, Great and then.

Speaker Change: Regarding so you mentioned three years is far too long can you give us a sense for like.

Speaker Change: And I fully appreciate the lead generation is going to start right away. The marketing is going to start away right away. The Halo effect is going to start right away.

Speaker Change: But what's on the outside but what's the longest that you would anticipate before you could actually.

Speaker Change: Bring it to market.

Speaker Change: You know I'd love to have that conversation, specifically, but between our two partners. We want it we want to have it locked down.

Speaker Change:

Speaker Change: Lets realize this is a significant development effort.

Speaker Change: Do something late this year would be.

Speaker Change: A crazy possibility.

Paul J. Sarvadi: Great, and then with regard to, you mentioned three years is far too long. Can you give us a sense for, and I fully appreciate the lead generation is gonna start right away, the marketing is gonna start right away, the halo effect is gonna start right away, but what's an outside, like what's the longest that you would anticipate before you could actually, you know, bring it to market? You know, I'd love to have that conversation specifically, but you know, between our two partners, we want it; we want to have it locked down. You know, let's realize this is a significant development effort. You know, to do something late this year would be a, you know, a crazy possibility.

Speaker Change: Another year after that that would be highly more likely so somewhere in between as is.

Speaker Change: Is the most likely but we're going to lock that down.

Speaker Change: Got it.

Speaker Change: And Paul for what it's worth I mean Barrett of Workday shop. So we it was part of that whole implementation process and understand it and I do follow workday, formerly so.

Speaker Change: Appreciate what a great partnership they could be.

Speaker Change: With regards to the solutions that youre going to end up offering and the pricing.

Speaker Change: From a solution perspective could you actually take the partnership to an even higher level in terms of offering the full suite.

Speaker Change: Obviously, all sorts of different modules, the workday offers above and beyond.

Paul J. Sarvadi: You know, another year after that, you know, that would be highly more likely. So somewhere in between is the most likely, but we're going to lock that down. Got it.

Speaker Change: Purely HCM modules.

Speaker Change: Could this become a really comprehensive business solution or.

Unnamed Analyst: And Paul, for what it's worth, I mean, Baird's a Workday shop, so I was part of that whole implementation process, understand it, and I do follow Workday formally. So I appreciate what a great partnership they could be. With regard to the solutions that you're going to end up offering and the pricing, from a solution perspective, could you actually take the partnership to an even higher level in terms of offering the full suite? There are obviously all sorts of different modules that Workday offers above and beyond purely HCM modules. Could this become a really comprehensive business solution for these fast-growing companies that you were servicing? You know, that's a great question also.

Speaker Change: These fast growing companies that you know.

Speaker Change: You were you were.

Speaker Change: Servicing.

Speaker Change: That's a great question also you know workday has an incredible financial services.

Speaker Change: Offering in the marketplace as well that is very perfectly integrated with HCM solution. We have talked about the long term I think both of our companies believe that the smaller firms that fit the target market for our new solutions are also very very good candidates for that.

Speaker Change: Our other solutions, but we got to crawl before we walk we got it.

Speaker Change: We want to get this one.

Speaker Change: Right launched and in and especially.

Paul J. Sarvadi: You know, Workday has an incredible financial services offering in the marketplace as well that is very, you know, perfectly integrated with the HCM solution. We have talked about the long term. I think both of our companies believe that the smaller firms that fit the target market for our new solution are also very, very good candidates for their other solutions. But, you know, we got to crawl before we walk.

Speaker Change: Deployed it enabled properly.

Speaker Change: Because of that.

Speaker Change: <unk> is a huge competitive advantage and a disruptor provided we get that right.

Speaker Change: We bring on our customers today with our implementation team it takes two months or less to bring on large clients.

Speaker Change: <unk> them on as more like adding.

Speaker Change: The thousand employees to our system than it is like doing a full implementation of a new.

Paul J. Sarvadi: We got to, you know, we want to get this one right, launched, and especially deployed and enabled properly because that is a huge competitive advantage and a disruptor provided we get that right. We bring our customers today with our implementation team. It takes two months or less to bring on large clients; bringing them on is more like adding, you know, the thousand employees to our system than it is like doing a full implementation of a new technology. As you know, since you just said you have been involved in that, typically, it takes a year or more to plan and then also a significant amount of time to actually configure.

Speaker Change: Technology as you know since you just said you have been involved in that typically it takes.

Speaker Change: A year or more to plan and then and and also a significant amount of time to actually configure it's a.

Speaker Change: 18 months or more process to go onto <unk>.

Speaker Change: <unk> will be offering <unk>.

Speaker Change: Our goal is.

Speaker Change: We've learned from how we do it and how the system works, how we're going to build this interface between the two to make it work well, we want to be able to bring those customers on for a lot less of capital cost a lot less time, a lot less complexity and similar to how we bring on customers now.

Paul J. Sarvadi: It's a, you know, 18-month or more process to go on to what we'll be offering, and our goal is to use what we've learned from how we do it and how the system works to build this interface between the two to make it work well. We want to be able to bring those customers on for a lot less capital costs, a lot less time, a lot less complexity, and similar to how we bring on customers now. That is powerful and, you know, I believe will make an incredible, be an incredible benefit to the target market. The next question is coming from Tobey Sommer from. We'll be here, Linus.

Speaker Change: That is powerful and.

Speaker Change: I believe will make our incredible.

Paul Sarvadi: The incredible benefit to the to the target market.

Speaker Change: Thank you. The next question is coming from Tobey Sommer from Truest Tobey your lineup lives.

Paul: Well. Thank you lots of digested is so exciting.

Tobey Sommer: Dave for you Ed in Sperry.

Tobey Sommer: Could you talk about the the Genesis.

Tobey Sommer: Of how you came together with workday and arrived at this conclusion.

Tobey Sommer: Well, thank you. Lots to digest today. So, an exciting, exciting day for you at Insperity. Could you talk about the genesis?

Paul J. Sarvadi: And.

Tobey Sommer: And in you know maybe what it means for <unk>.

Tobey Sommer: Paul It sounds like you've been a clearly a life for it in Sperry in.

Paul J. Sarvadi: of how you came together with Workday and arrived at this conclusion, and, And in, you know, maybe what it means for you, Paul, sounds like you've been a clearly a lifer at Insperity, and this is the equivalent of signing up for another big chunk of years to keep going. To get to the other side of this and see sort of experience all the benefits that it can drive. I'll pause there and let you address that. Yeah, I could tell you that, you know, I've had this on my mind for a number of years. Many years.

Tobey Sommer: This is the equivalent of signing up for another big chunk of years to keep going.

Speaker Change: To get to the other side of this and she still experience all the benefits that it can drive a I'll pause there and let you address that.

Paul J. Sarvadi: Yeah, I I can tell you that I've had this on my mind for a number of years many years.

Paul J. Sarvadi: But I waited for the right time.

Paul J. Sarvadi: To have this conversation at the very highest level of workday.

Paul J. Sarvadi: And what I waited for was for us to be in a position to be absolutely ready for us to become a client for our 4300 employee company.

Paul J. Sarvadi: But I waited for the right time to have this conversation at the very highest level of Workday. And what I waited for was for us to be in a position, to be absolutely ready, for us to become a client for our 4,300 employee company. And I have to say that, you know, my first phone call to them was, I think, back in late October or early November. Another couple of phone calls.

Speaker Change: And I have to say that my first phone call to them was I think back in late October.

Paul J. Sarvadi: Early November another couple of phone calls.

Paul J. Sarvadi: We had our first face to face meeting in the middle of December but we have.

Paul J. Sarvadi: Had we already had work groups that worked issues about feasibility before we even had that mid December meeting at that meeting it was obvious that cultural connection and fit.

Paul J. Sarvadi: We had our first face-to-face meeting in the middle of December, but we already had work groups that worked issues about feasibility before we even had that mid-December meeting. At that meeting, it was obvious the cultural connection and fit and the advantage to both firms, and even more so, both companies with the customer focus to understand what a powerful solution we could provide for these underserved companies in this space. And, you know, from that day forward, it has been 24-7 to get to the point where we know we can do this, and we have worked through and even ended up signing an agreement. It's been an incredible thing and, as you mentioned, it is a powerful new starting point for what I believe has been an incredible run already for Insperity.

Paul J. Sarvadi: And the.

Paul J. Sarvadi: Potential advantage to both firms and even more so both companies with the customer focus to understand what a powerful.

Paul J. Sarvadi: Solution, we could provide for these these underserved companies in this space and from that day forward. It has been 24 seven.

Paul J. Sarvadi: To get to the point, where we can that we know we can do this.

Paul J. Sarvadi: And we have to work through.

Paul J. Sarvadi: We ended up.

Paul J. Sarvadi: Signing.

Paul J. Sarvadi: Agreement.

Paul J. Sarvadi: It's been an incredible thing and.

Paul J. Sarvadi: You know it does as you mentioned.

Paul J. Sarvadi: It is a P.

Paul J. Sarvadi: Powerful new starting point.

Paul J. Sarvadi: For what I believe has been an incredible run already four in Sperry, We're a great company with a great business model Great Foundation, but what this really does is leverage the strengths of both companies in a powerful way for clients.

Paul J. Sarvadi: We're a great company with a great business model, and a great foundation, but what this really does is leverage the strengths of both companies in a powerful way for clients. You know, what that means to me, as a founder, as a large investor in this company, you know, this guy's the limit here. And I'm sorry, I'm being a little bit, you know, dramatic here, but this is so powerful, and I can't wait to work on it day by day to get us where we are and where it can take us. And if we pull back the aperture and sort of look at, once you've got this up and running, does it open up? New customer sets to Insperity, or when you get to the other side, do you envisage remaining a premium service provider focused on primarily white-collar services? Small, medium, and large.

Paul J. Sarvadi: What that means to me.

Paul J. Sarvadi: As a founder as a large investor of this company the Sky's the limit here.

Paul J. Sarvadi: I'm, sorry, I'm being a little bit.

Paul J. Sarvadi: You know dramatic here, but this is so powerful and I'm I can't wait to.

Paul J. Sarvadi: Work on it day by day to get Us, where we can take us.

Paul J. Sarvadi: And if we pull back to your aperture and sort of look at.

Paul J. Sarvadi: Once you've got this up and running.

Paul J. Sarvadi: Does it.

Speaker Change: I'll open up <unk>.

Paul J. Sarvadi: New customer sets chew in Sperry or when you get to the other side do you envision remaining.

Paul J. Sarvadi: Our premium service provider.

Paul J. Sarvadi: <unk> focused on primarily.

Paul J. Sarvadi: White collar.

Tobey Sommer: I do believe it does expand the market for both firms, both sides of the company. But what's really interesting is that both of these companies are premium brands in their space. And the target customer, you know, not only fits a demographic profile, of course, theirs is at the high end of the or the larger companies; ours is the smaller companies in the middle. But, oh man, I lost my thought. What did I say? What's that?

Paul J. Sarvadi: Small and medium size businesses.

Tobey Sommer: No I do believe it does expand the market for both firms both size of company, but what's really interesting also is that both of these companies are premium brands in their space.

Tobey Sommer: And the target customer.

Tobey Sommer: Not only fits a demographic profile of course Theres is at the high end of the of the or the larger companies ours is the smaller companies in the middle is the target for this joint solution.

Tobey Sommer: But.

Tobey Sommer: Oh Man I lost my thought what I would say it is.

Tobey Sommer: What's that.

Paul J. Sarvadi: Oh, but yes, so the demographic profile, you know, is not the end of the game. What's really interesting is the psychographic profile of our target market, the way we both go to market, and who we're trying to target as our customers. That psychographic profile is also a tight fit. So, you know, we are both premium services, and this, we believe, is going to be the preeminent solution in the space, and so on. You know, again, this does this expand the target market for both firms. If I could turn it to get a sneak one in here, just on 24.

Tobey Sommer: But yes, so the demographic profile.

Paul J. Sarvadi: Is not is not the end of the game, what's really interesting is the psychographic profile.

Paul J. Sarvadi: Of our target market the way, we both go to market and who we're trying to target as our customers that Psychographic profile is also a tight fit. So we are both premium services and this we believe is going to be the preeminent solution in the space.

Paul J. Sarvadi: So.

Paul J. Sarvadi: Again. This this does this expands the target market for both firms.

Speaker Change: If I could turn it to get a sneak one in here just on 24 in terms of.

Douglas S. Sharp: In terms of health care, trends, pricing, and, and, and opportunity. What are you seeing unfolding? Because we've heard an awful lot of moving parts from managed care companies and hospitals with activity levels running pretty high. Yeah, I mean, obviously, you know, you got drug costs that are increasing quite a bit, particularly those specialty drugs. Obviously, as part of our budgeting, we have constant conversation with UnitedHealthcare. And seeing what they're looking at, both on the drug side and the medical side, as you would expect, we also have to contemplate large claim activity. So, you know, if you sort of start at the top, you know, we talked about in my prepared remarks a trend of four and a half to six percent.

Paul J. Sarvadi: Health care.

Douglas S. Sharp: Trends.

Douglas S. Sharp: <unk> and.

Douglas S. Sharp: And the opportunity what.

Douglas S. Sharp: But what are you seeing unfolding because we've heard an awful lot of.

Douglas S. Sharp: Moving parts from managed care companies and hospitals with activity.

Douglas S. Sharp: Activity levels running running pretty hot.

Douglas S. Sharp: Yeah, I mean, obviously you know you've got drug costs that are increasing.

Douglas S. Sharp: Quite a bit, particularly those specialty drugs.

Douglas S. Sharp:

Douglas S. Sharp: Obviously as part of our budgeting we.

Douglas S. Sharp: We have constant conversation with United Healthcare.

Douglas S. Sharp: And seeing what Theyre looking at both of them on the drug side and the medical side.

Douglas S. Sharp: As you would expect we also have to contemplate.

Douglas S. Sharp: Large claim activity.

Douglas S. Sharp: So.

Douglas S. Sharp: Yeah.

Douglas S. Sharp: At the top we talked about in my prepared remarks, a trend of four 5%, 6% trend will remember that trend is on top of what we feel was probably an elevated trend in 2023 with a Q2.

Douglas S. Sharp: Well, remember, that trend is on top of what we would feel was probably an elevated trend in 2023 with that Q2 significant level of large claim activity. As far as large claims are concerned, we expect them to still be somewhat elevated relative to history prior to 2023. So not quite as high as we don't expect in 2023, but still, we expect an elevated level of large claims in that forecast of four and a half to six percent.

Douglas S. Sharp: Significant level of large claim activity.

Douglas S. Sharp: <unk>.

Douglas S. Sharp: As far as large claims.

Douglas S. Sharp: We expect them to still be somewhat elevated realm.

Douglas S. Sharp: Relative to history prior to 2023, so not quite as high we don't expect that 2023, but still we expect an elevated level of large claims in that forecast of 456% trend okay.

Douglas S. Sharp: Okay, but we have definitely also considered the increased utilization of specialty drugs along with the increased cost of those drugs. But I think the other thing to point out is we exited 23 even with the Q2, elevated costs with pricing and costs aligned. That's what that's what our objective is all about. We're in a good position going into this year to maintain that for all of our direct costs. So we feel like we're in good shape there. And I think that's one of the reasons why in the guidance sections of my. Scripps, and I prepared remarks.

Douglas S. Sharp: We are definitely also consider the.

Douglas S. Sharp: More utilization of the specialty drugs, along with the increased cost and those drugs.

Douglas S. Sharp: But I think the other thing to point out is we exited 23, even with the Q2 elevated costs with pricing and costs align that's what that's what our objective is all about we're in a good position going into this year to maintain that.

Douglas S. Sharp: For all of our direct costs.

Douglas S. Sharp: So we feel like we're in good shape, there and I think that's one of the reasons why in the guidance sections of <unk>.

Douglas S. Sharp: Script in my prepared remarks.

Douglas S. Sharp: We think, you know, our budget for this year for 24 at a total gross profit per employee level, we're starting the year looking somewhat similar to 2023. This question is coming from Jeff Martin from RothMG. Jeff, your line is live. Can you hear me okay?

Douglas S. Sharp: We think you know our budget for this year for 24 at a total gross profit per employee level.

Jeff Martin: We're starting the year looking somewhat similar to 2023.

Jeff Martin: Thank you.

Douglas S. Sharp: Next question is coming from Jeff Martin from Roth and Cam.

Jeff Martin: Your line is live.

Jeff Martin: All right. Yeah, go ahead. I thought I was on mute there.

Jeff Martin: Okay, Alright, yes go ahead of them.

Douglas S. Sharp: Okay, great. Good morning, Doug and Paul. Congratulations on the exclusive partnership of your company. A lot going on here, as everyone's echoed. But just was curious if this replaces your current technology stack, and as a result, you know, you lead to a lower future. That's a good question.

Jeff Martin: Okay great.

Jeff Martin: Good morning, Doug and Paul.

Douglas S. Sharp: Congratulations on the partnership obviously a lot going on here is everyone's that code.

Douglas S. Sharp: Just was curious if this replaces your current technology stack and as a result.

Douglas S. Sharp: Lead to lower future.

Douglas S. Sharp: Our capital expenditure.

Paul J. Sarvadi: Also, now, keep in mind, I mentioned in the remarks that our current system, which involves what we call AIMS, which is our PEO, you know, enterprise system, and then what we call Premier, which is the client-facing component, both of those that we have today are what serve all of our customers. But in the future, we expect many of our smallest customers and a small end of our client base, that solution, you know, will continue to be for them. I'm not saying that we could never have some interaction in this the way we are planning this new solution. But for the foreseeable future, we should think of that entire system continuing on the way it is for the smaller end of our client base and for all the base until we have the new solution locked. However, I think over the long run, it also means that if you look at our development, for example, on client facing, we have a huge list of what we would like to add. But no matter how long we spend doing it, we will never catch up to Workday's solution.

Speaker Change: That's a good question also now keep in mind I've mentioned in the remarks that.

Paul J. Sarvadi: Our current system, which involves what we call Ames, which is R. P O.

Paul J. Sarvadi: Sure.

Paul J. Sarvadi: Enterprise system, and then what we call Premier which is the client facing component.

Paul J. Sarvadi: So those both of those that we have today is what serves all of our customers, but in the future we expect.

Paul J. Sarvadi: Many of our smallest customers the small end of our client base that solution.

Paul J. Sarvadi: We will continue to be for them I'm, not saying that could never have some interaction in this the way we are planning this new solution, but for the foreseeable future. We should think of that entire system being continue.

Paul J. Sarvadi: Continuing on the way it is for the smaller end of our client base and for all the base until we have the new solution launched.

Paul J. Sarvadi: However, I think over the long run it also.

Paul J. Sarvadi: Means that if you look at our development for example on the client facing we have a huge list of what we would like to add.

Paul J. Sarvadi: But no matter how long we spend doing it we would never catch up to workdays solution and so what will happen is we will be able to divert resources. Once this is out there we will have some resources on the joint solution.

Jeff Martin: And so what will happen is we will be able to divert resources once this is out there. We'll have some resources on the joint solution, but our resources that can be diverted back or more staying focused on our other solutions, I do think it's going to be much more efficient for us and allow us to, you know, not have to continually be chasing those features and functionality. Great. And then I'm going to ask you a three-part question here. It's all intertwined.

Jeff Martin: But our resources that can be diverted back or more staying focused on our other solutions I do think it's going to be much more efficient for us and allow us to.

Jeff Martin: To not have to continually be chasing those.

Jeff Martin: Those features and functionality.

Speaker Change: Okay, Great and then I'm going to ask a three part question here its all intertwined but.

Paul J. Sarvadi: But just curious, you give the low end of the spectrum in terms of client size; what is the upper band of that? Two, what do you see as the biggest value proposition for clients? And then three, will clients have the option to use traditional workforce optimization versus the combined office?

Speaker Change: Just curious if you hit the low end of the spectrum in terms of clients is what is what is the upper band of that too.

Paul J. Sarvadi: Two what is the you know what do you see as the biggest value proposition for clients and then three where clients have the option to use the traditional workforce optimization versus the combined offering with workday.

Paul J. Sarvadi: Some of those questions we're going to be thinking through and talking through with our clients, with our prospects, to further lock down some of these, and I'm sure we'll be addressing some of that feedback at our Investor Analyst Day in May, but I can tell you that for companies that, for whichever reason, the size that they are now, or their growth rate, even if they're down to in the hundred employee range, but they are destined Those customers will have an opportunity to have workforce optimization at a new level with Workday HCM as the client-facing technology, and what happens for those clients is they literally get the best of both worlds. They get the leading technology and the leading HR service experience in one package, and that optimizes their ability to their likelihood degree and speed of success. I think that's the way they'll see it. It is a powerful combination.

Paul J. Sarvadi: Some of those questions, we're gonna be thinking through and talking through with our clients with our prospects.

Paul J. Sarvadi: To further locked down some of these and I'm sure we will be addressing some of that feedback.

Paul J. Sarvadi: At our Investor Analyst day in May, but I can tell you that the.

Paul J. Sarvadi: For companies that for whichever reason the size that they are now or are there growth rate.

Paul J. Sarvadi: Even if theyre down in the 100 employee range, but they are destined to be larger those customers will have an opportunity.

Paul J. Sarvadi: To have workforce optimization at a new level with.

Paul J. Sarvadi: With Workday HCM is the client facing.

Paul J. Sarvadi: Technology and what happens for those clients is they were literally get the best of both worlds they get the leading technology and the leading HR service experience in one package.

Paul J. Sarvadi: And.

Paul J. Sarvadi: That optimizes their ability to their likelihood degree in speed of success.

Paul J. Sarvadi: Think thats the way they'll see it is a powerful combination.

Paul J. Sarvadi: So, but the other thing they will be weighing out is if there's someone who wants and knows they need more technology to have a more effective people strategy. They will be able to see that going this way, for a smaller firm, many times the capital commitment, the ongoing expense, and the length of time to get there.

Paul J. Sarvadi: But the other thing they will be weighing out is if there's someone who wants and those their need more technology to have a more effective people strategy.

Paul J. Sarvadi: They will be able to see that going this way.

Paul J. Sarvadi: For a smaller firm many times the capital commitment.

Paul J. Sarvadi: The ongoing expense and the length of time to get there.

Paul J. Sarvadi: And this is important to understand, many times companies that are smaller don't literally have the HR expertise to even envision how they want to configure their solution most effectively. And so a lot of times it misses the mark for the company in our case. You know, we will be bringing that expertise to the table in a fashion where they won't have near the upfront cost, won't have the same level of ongoing subscription type costs, and you know because again this is remember we're embedding Workday into our PEO solution and so our subscription fees are based on the quantity we have and we're able to build that into our pricing you know with an appropriate you know markup for our part of what we're delivering here in that new solution so, You know, that pricing will also be embedded in the total service fee. So.

Paul J. Sarvadi: And this is important to understand some many times companies that are smaller don't literally have the HR expertise to even envision how they want to configure their solution most effectively.

Paul J. Sarvadi: And so a lot of times it misses the mark for the company.

Paul J. Sarvadi: In our case.

Paul J. Sarvadi: We will be bringing that expertise to the table in a fashion, where they won't have near the upfront cost.

Paul J. Sarvadi: We won't have the same level.

Paul J. Sarvadi: Of ongoing subscription type cost and.

Paul J. Sarvadi: Because again this is remember we're embedding workday into our PEO solution and so our subscription fees are based on the quantity, we have and we're able to build that into our pricing with an appropriate.

Paul J. Sarvadi: The markup for our part of what were delivering here in <unk>.

Paul J. Sarvadi: That new solution so.

Paul J. Sarvadi: That pricing will also be embedded in the total service fee. So.

Paul J. Sarvadi: You know, that that customer gets to be on this workday solution a lot earlier, more affordably, and more quickly. Now they also know there may be a day because we are pre-configuring a lot of the system to be able to bring people on fast. There's going to be quite a bit of customization, from configuring for specific clients who will be more like tenants on this instance of workday. But they won't have the full flexibility, and there may be other things they need in the future.

Paul J. Sarvadi: That customer gets to be on this on a workday solution of water earlier more affordably and more quickly.

Paul J. Sarvadi: Now they also though there may be a day, because we are pre configuring a lot of the system to be able to bring people on fast.

Paul J. Sarvadi: There is going to be quite a bit of.

Paul J. Sarvadi: Of customization.

Paul J. Sarvadi: Configuring for specific clients, who will be more like tenants on this instance of workday.

Paul J. Sarvadi: They won't have the full flexibility and there may be other things they need in the future so when customers get to that point.

Paul J. Sarvadi: So when customers get to that point, we believe we'll be helping them get on to their own instance of the work day and continue to be able to serve them after, in many cases. But, you know, we want what's right for the customer, and, you know, we have that happen now, only it happens sooner than it will in the future, and we're not involved in it, and we don't have a chance to maintain a relationship with the customer.

Paul J. Sarvadi: We believe we will be helping them.

Paul J. Sarvadi: Get onto their own instance of workday and continuing to be able to serve them. After in many cases.

Paul J. Sarvadi: But that we want whats right for the customer and we have that happen now only it happens sooner than it will in the future and we're not involved in it and don't have a chance to maintain our relationship with the customer.

Paul J. Sarvadi: Does that help you with those questions, Jeff? Thank you, and that does conclude today's Q&A. I would now like to turn the call back over to Mr. Sarvadi for closing. Well, once again, I just want to say how much we appreciate everybody joining us today. As I said at the beginning, it's a monumental day for us, and we're just excited about the potential to elevate the trajectory of our company, driving long-term growth, profitability, and, of course, value creation for all of us. So, thank you for participating today. We look forward to our next quarterly update to give you more discussion of the milestones and also Investor Analyst Day, which will happen in the last half of May.

Speaker Change: Does that help you on those questions Jeff.

Paul J. Sarvadi: Thank you and that does conclude today's Q&A.

Sarvadi: I would like to turn the call back over to Mr. Sovaldi for closing remarks.

Paul J. Sarvadi: Well once again I just want to say how much. We appreciate everybody joining us today as I said at the beginning it's a monumental day for us and we're just excited about the potential to elevate the trajectory of our company and driving long term growth profitability and of course value creation for all of US. So thank you for participating today, we look.

Paul J. Sarvadi: Forward to our next quarterly update to give you more discussion of the milestones and also the Investor Analyst day, which will happen in the last half of May. Thank you again.

Paul J. Sarvadi: Thank you again. Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Goodbye.

Paul J. Sarvadi: Thank you. This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.

Paul J. Sarvadi: Goodbye.