Q1 2024 Insperity Inc Earnings Call

Speaker Change: [music].

Yes.

Operator: Good morning, my name is Jenny, and I will be your conference operator today. I would like to welcome everyone to the Inspirity first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode, and the floor will be open for questions after the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note this conference is being recorded. At this time, I would like to introduce today's guests. Joining us are Paul Sarvadi, 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.

Jenny: Good morning, My name is Jenny and I will be your conference operator today I would like to welcome everyone to the inspires T first quarter 'twenty 'twenty four earnings conference call.

Jenny: At this time all participants are in a listen only mode and the floor will be opened for questions. After the presentation.

Jenny: If anyone should require operator assistance during the conference. Please press star zero on your phone keypad. Please note. This conference is being recorded at this time I would like to introduce today's speakers joining us are Paul Salvati, Chairman of the board and Chief Executive Officer, and Douglas Sharp.

Jenny: <unk>, 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. Let me begin by outlining our plan for this morning's call. First, I'm going to discuss the details behind our first quarter 2024 financial results. Paul will then comment on our recent accomplishments, including the progress we have made in implementing our Workday strategic partnership solution. I will return to provide our financial guidance for the second quarter and an update on our full year guidance. We will then end the call with a question and answer session.

Douglas S. Sharp: Thank you we appreciate you joining us.

Douglas S. Sharp: Let me begin by outlining our plan for this morning's call.

Douglas S. Sharp: First I'm going to discuss the details behind our first quarter 2024 financial results.

Douglas S. Sharp: Paul will then comment on our recent accomplishments, including the progress we have made in implementing our workday strategic partnerships partnership solution.

Paul J. Sarvadi: I will return to provide our financial guidance for the second quarter and an update to the full year guidance.

Paul J. Sarvadi: We will then end the call with a question and answer session.

Douglas S. Sharp: Now, before I begin, I would like to remind you that Mr. Sarvadi or I may make forward-looking statements during today's call that are subject to risks, uncertainties, and assumptions. In addition, some of our discussion may include non-GAAP financial measures for more detailed discussions of the risks and uncertainties that could cause actual results that differ materially from any forward-looking statement, and Reconciliations 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 first quarter results, in which we reported earnings above the high end of our guidance. We reported Q1 adjusted EBITDA of $142 million and adjusted earnings per share of $2.27.

Speaker Change: Now before I begin I would like to remind you that Mr. Sovaldi or I may make forward looking statements during today's call.

Douglas S. Sharp: These results reflect the average number of paid worksite employees within the range of our forecast, continued strong pricing, and lower than expected benefit costs and operating expenses in line with our budget. As for our growth metric, the average number of paid worksite employees in Q1 was approximately 304,000, a decline of less than 1% when compared to Q1 of 2023. As you may recall from our prior earnings call, this slight decline was expected due to net layoffs in our client base over the second half of 2023 into January of 2024 and the loss of a handful of large accounts during our year-end transition.

Speaker Change: Which are subject to risks uncertainties and assumptions.

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

Speaker Change: For more detailed discussions 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.

Speaker Change: Please see the company's public filings, including the form 8-K filed today, which are available on our website.

Douglas S. Sharp: Additionally, we experienced a 42% decline in net hiring in our client base in Q1 of 2024 when compared to the first quarter of 23, but worksite employees paid from sales were at a similar level compared to Q1 of 2023, and when combined with client retention, came in at the forecasted level. Gross profit increased by 4% over Q1 of 2023, due to strong pricing through our year-end transition of new and renewing accounts, combined with a lower-than-expected benefit cost trend.

Speaker Change: Now, let's discuss our first quarter results in which we reported earnings above the high end of our guidance. We reported Q1, adjusted EBITDA of $142 million and adjusted earnings per share of $2 27.

These results reflect the average number of paid worksite employees within the range of our forecast continued strong pricing.

Speaker Change: Lower than expected benefit cost and operating expenses in line with our budget.

Speaker Change: As for our growth metrics. The average number of paid Worksite employees. In Q1 was approximately 304000, a decline of less than 1% when compared to Q1 of 2023.

Speaker Change: As you may recall from our prior earnings call. This slight decline was expected due to net layoffs in our client base over the second half of 2023 into January of 2024.

Speaker Change: And the loss of a handful of large accounts during our year end transition.

Speaker Change: Additionally, we experienced a 42% decline in net hiring in our client base in Q1 of 2024, when compared to the first quarter of 'twenty three.

Speaker Change: Worksite employees paid from sales was at a similar level compared to Q1 of 2023 and when combined with client retention came in as forecasted levels.

Speaker Change: Gross profit increased by 4% over Q1 of 2023, our strong pricing through our year end transition of new and renewing accounts combined with a lower than expected benefit cost trend.

Douglas S. Sharp: This lower Q1 benefit cost was associated with a favorable adjustment to our reserves at the end of 2023 based primarily on subsequent claims runoff through the end of February of 2024. Regarding the last month of Q1, we believe the timing of claim payments under our plan in March was affected by the industry-wide impact of the cybersecurity breach that changed health care. Upon a detailed review of our claims data and discussions with our insurance carrier, we believe we have appropriately reserved additional amounts for Q1 2024 claims incurred but not yet reported due to the impact of this breach.

Speaker Change: This lower Q1 benefit costs was associated with a favorable adjustment to our reserves at the end of 2023 based primarily on subsequent claims run off through the end of February of 2024.

Speaker Change: Regarding the last month of Q1, we believe the timing of claims payments under our plan in March were affected by the industry wide impact of cyber security breach of change healthcare.

Speaker Change: Upon a detailed review of our claims data and discussions with our insurance carrier. We believe we have appropriately reserved additional amounts for Q1 2024 claims incurred but not yet reported due to the impact of this breach.

Douglas S. Sharp: The combination of our other direct cost areas, including workers' compensation and payroll taxes, was generally in line with our forecast. Q1 operating expenses were also managed at budgeted levels, increasing 12% over Q1 of 2023. Operating expenses reflected our continued investment in our growth and our service and technology offerings, including approximately $5 million of costs related to the initial phase of implementation of our Workday strategic partnership. First quarter's effective tax rate came in at 29%, which was higher than our Q1 2023's rate of 23% and our forecasted rate of 26 percent.

Speaker Change: The combination of our other direct cost areas, including workers' compensation and payroll taxes were generally in line with our forecast.

Speaker Change: Q1 operating expenses were also managed to budgeted levels, increasing 12% over Q1 of 2023.

Speaker Change: Operating expenses reflected our continued investment in our growth and our service and in technology offers offerings, including approximately $5 million of costs related to the initial phase of implementation of our workday strategic partnership.

Speaker Change: First quarter's effective tax rate came in at 29%, which was higher than our Q1 of 2020 three's rate of 23% and our forecasted rate of 26%.

Douglas S. Sharp: This was primarily due to changes in our stock price that resulted in a less tax benefit on employee stock awards vesting at the end of February. However, we now believe that our financial position and liquidity remain strong as we continue to invest in our long-term growth plans while providing returns to our shareholders. During the quarter, we repurchased 233,000 shares of stock at a cost of $23 million and paid out $21 million in cash dividends. We ended Q1 with $206 million of adjusted cash, an increase of $35 million over the December 31, 2023 balance, and we continue to have $280 million available under our credit facility.

Speaker Change: This was primarily due to changes in our stock price that resulted in less tax benefit on employee stock awards vesting at the end of February.

Speaker Change: Now, we believe that our financial position liquidity remains strong as we continue to invest in our long term growth plans, while providing returns to our shareholders.

Speaker Change: During the quarter, we repurchased 233000 shares of stock at a cost of $23 million and paid out $21 million in cash dividends.

Speaker Change: We ended Q1 with $206 million of adjusted cash an increase of $35 million over the December 31, 2023 balance and.

Speaker Change: And we continue to have $280 million available under our credit facility.

Speaker Change: 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. Today, I'll begin with comments on our solid first quarter performance, including initiatives supporting our plans for future growth. Second, I'll provide insights into our view of the economic climate and the reactions within the small and mid-sized business community. Third, I'll provide an update on the initiation of our new strategic partnership with Workday and provide a glimpse into our upcoming Investor Day.

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

Paul J. Sarvadi: Today I'll begin with comments on our solid first quarter performance, including initiatives supporting our plans for future growth.

Paul J. Sarvadi: Second I'll provide insights from our view as the economic climate and the reactions within the small and midsized business community third I'll provide an update on the initiation of our new strategic partnership with Workday and provide a glimpse into our upcoming Investor day.

Paul J. Sarvadi: Overall, we had an excellent quarter, exceeding the high end of our adjusted EBITDA range against the backdrop of an economic slowdown. Our fundamentals are solid, and we expect our plan for the balance of the year will help mitigate the effects of the economic climate on our target small to medium-sized business clients. New book sales for the Workforce Optimization Solution were strong in the first quarter.

Paul J. Sarvadi: Overall, we had an excellent quarter exceeding the high end of our adjusted EBITDA range against the backdrop of an economic slowdown our fundamentals are solid and we expect our plans for the balance of the year will help mitigate the effects of the economic climate on our target small to medium size business clients.

Paul J. Sarvadi: New books sales for workforce optimization solution were strong in the first quarter, we experienced a double digit increase over the same period last year, reflecting the growth of our BPA team and an improvement in closing rates driving sales efficiency. This.

Paul J. Sarvadi: We experienced a double-digit increase over the same period last year, reflecting the growth of our BPA team and an improvement in closing rates driving sales efficiency. This improvement reflects the experience gained over the last year by business performance advisors and effective incentives for prospective clients and the sales team. Booked sales by our mid-market business performance consultants were the highlight of the quarter. They continued their excellent performance since the last half of last year, exceeding budget.

Paul J. Sarvadi: This improvement reflects the experience gained over the last year by business performance advisors and effective incentives for prospective clients and the sales team.

Paul J. Sarvadi: Sales by our mid market business performance consultants was the highlight of the quarter. They continued their excellent performance since the last half of last year exceeding budget.

Paul J. Sarvadi: Sales of our larger accounts have become more consistent over the last year. The steady flow from BPAs funneling qualified leads into this process and our growing number of BPCs is the reason for this improvement. This is well-timed for our new Workday strategic partnership I will discuss in a few minutes. We also had a strong quarter in our traditional employment workforce acceleration business as our WX employee count on this service increased 21% over the same period last year, including a notable improvement in client retention.

Paul J. Sarvadi: Sales of our larger accounts have become more consistent over the last year. The steady flow from BPA is funneling qualified leads into this process and our growing number of BP sees as the reason for this improvement.

Paul J. Sarvadi: This is well time for our new Workday strategic partnership I will discuss in a few minutes.

Paul J. Sarvadi: We also had a strong quarter in our traditional employment workforce acceleration business as our WEX employee count on this service increased 21% over the same period last year, including a notable improvement in client retention.

Paul J. Sarvadi: Total client retention in our workforce optimization business for the first quarter was in line with last year, except for the large accounts we discussed last quarter. We also achieved an important marketing objective, exceeding our lead generation goal for the quarter. However, conversion of these leads into discovery call appointments was just under 90% of target.

Total client retention in our workforce optimization business for the first quarter was in line with last year, except for the large accounts, we discussed last quarter.

Paul J. Sarvadi: We also achieved an important marketing objective exceeding our lead generation Gulf for the quarter. However conversion of these leads into discovery call appointments was just under 90% of target.

Paul J. Sarvadi: Reaching sales activity objectives remains challenging in this environment. We have several initiatives to drive sales activity, including the launch of our account-based experience marketing and sales strategy. This approach, made possible by our investment in Salesforce, provides insights from advanced technologies to leverage the ideal client profile and buyer intent signals to improve BPA effectiveness. This is a more strategic approach to sales research, planning, and execution, focused on high-value accounts and building relationships with key decision makers. All BPAs will begin with assigned target accounts this quarter, which we believe can lead to more BPA time in front of qualified prospectors.

<unk> sales activity objectives remains challenging in this environment.

Paul J. Sarvadi: We have several initiatives to drive sales activity, including the launch of our account based experience marketing and sales strategy. This approach made possible by our investments in sales force provides insights from advanced technologies to leverage the ideal client profile and buyer intent signals to improve BPA effectiveness.

This is a more strategic approach in sales research planning and execution focused on high value accounts and building relationships with key decision makers. All BPH will begin with a signed target accounts this quarter, which we believe can lead to more BPA time in front of qualified prospects.

Paul J. Sarvadi: We have additional initiatives underway, leveraging our investment in Salesforce and AI-enabled technology to drive efficiencies, speed, quality, and insights for our teams as they serve our clients and operate and grow the business. The move to our enterprise-wide Salesforce platform, as well as our implementation of modern data engineering and analytics technologies, are well underway, allowing us to put in place a data strategy that we believe will accelerate predictive analytics, AI, and other emerging capabilities.

Paul J. Sarvadi: We have additional incentives initiatives underway leveraging our investment in sales force and AI enabled technology to drive efficiencies speed quality and insights for our teams as they serve our clients and to operate and grow the business.

Paul J. Sarvadi: The move to our enterprise wide salesforce platform as well as our implementation of modern data engineering and analytics technologies are well underway, allowing us to put in place a data strategy that we believe will accelerate predictive analytics AI and other emerging capabilities now let me provide some insight.

Paul J. Sarvadi: Now, let me provide some insight regarding the economic climate our clients are facing, evident from our client's data, our interaction directly with business owners, and our recent national survey. The key data elements we monitor to assess the small-medium-sized business climate are net hiring, wage inflation, overtime hours worked, and commissions paid to the sales staff of our clients. As Doug mentioned, net layoffs incurred in our client base over the second half of 2023 have continued through the first quarter of this year. Meanwhile, wage inflation, which peaked at nearly 7% in 2022, has continued a downward trend all the way to slightly below 2%.

Paul J. Sarvadi: Regarding the economic climate, our clients are facing evident from our clients' data.

Paul J. Sarvadi: Our interaction directly with business owners and our recent National survey.

Paul J. Sarvadi: The key elements, we monitor to assess the small and medium sized business climate, our net hiring wage inflation overtime hours worked and commissions paid to the sales staff of our clients as Doug mentioned that lay offs incurred in our client base over the second half of 2023 has continued.

Paul J. Sarvadi: The first quarter of this year wage inflation, which peaked nearly 7% in 2022 has continued a downward trend all the way to slightly below 2%.

Paul J. Sarvadi: Overtime as a percentage of regular pay is down to 9%, the lowest number in a few years. The most important metric that provides some insight into clients' sales and near-term revenues in their businesses is commissions paid to their sales organization. This metric was down to 6 percent, also the lowest number in the last couple of years.

Paul J. Sarvadi: Overtime as a percentage of regular pay is down to 9% the lowest number in a few years. The most important metric that provide some insight into client sales and near term revenues and their businesses is commissions paid to the sales organization. This metric was down 6% also the lowest number in the last couple.

Paul J. Sarvadi: For years.

Paul J. Sarvadi: Recently, we also had the opportunity to have direct discussions with a representative number of clients. While normal business owner optimism is still alive and well, comments about the effect of interest rates, inflation, and the economic slowdown were common. Our recent client survey reinforced these anecdotal comments across the broader nationwide client base. However, clients who feel their organization will perform better during 2024 than during 2023 decreased to 66% from 74% just one quarter ago. The percent of clients who expect increased staffing has dropped to 39% compared to 54% a year ago.

Paul J. Sarvadi: Recently, we've also had the opportunity to have direct discussions with the representative number of clients, while normal business owner optimism is still alive and well comments about the effect of interest rates inflation and economic slowdown were common.

Paul J. Sarvadi: Our recent client survey reinforces anecdotal comments across the broader nationwide client base clients, who feel the organization will perform better during 2024, then during 2023.

Paul J. Sarvadi: Has decreased to 66% from 74% just one quarter ago. The percent of clients. We expect to increase staffing has dropped to 39% compared to 54% a year ago.

Paul J. Sarvadi: One-third of the respondents expect the economic climate to have at least a somewhat positive impact on their organization, while 42% anticipate a negative impact. Consistent with past orders and looking forward to 2024, client optimism about their own business performance exceeds that of their expectations for the economy. Two-thirds of clients surveyed were still optimistic about their own company performance, which was similar to January.

Paul J. Sarvadi: One third of the respondents expected economic climate to have at least a somewhat positive impact on the organization, while 42% and anticipate a negative impact.

Paul J. Sarvadi: Consistent with past quarters, and looking forward to 2024 client optimism about their own business performance exceeds that of their expertise expectations for the economy. Two thirds of client survey, we're still optimistic for their own company performance, which was similar to January now.

Paul J. Sarvadi: Now, let me shift to the exciting update about our newest significant catalyst for growth, our exclusive Workday Strategic Partnership. My enthusiasm for this opportunity was evident on our last call, and after the first three months working together and gathering client feedback, has been reaffirmed. Our view of this strategic partnership as a potential game-changer in the marketplace and, at the same time, significantly elevating the trajectory of our company, driving long-term growth, profitability, and value creation for Insperity has been strengthened.

Paul J. Sarvadi: Now, let me shift to the exciting update about our newest significant.

Paul J. Sarvadi: Catalysts for growth are exclusive workday strategic partnership my enthusiasm for this opportunity was evident on our last call and after the first three months working together and gathering client feedback has been reaffirmed.

Paul J. Sarvadi: Our view of this strategic partnership as a potential game changer in the marketplace and at the same time significantly elevating the trajectory of our company driving long term growth profitability and value creation for Sperry has been strengthened as a reminder, through our this strategic partnership work gain and severity are committed to jointly.

Paul J. Sarvadi: As a reminder, 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. We expect to offer this unique combined solution to the target market for less upfront capital costs, ongoing expense, complexity, and implementation time than currently available to those businesses. We believe this new solution has the potential to be competitively disruptive. Insperity and Workday are now strategic partners focused on four major objectives. All four of these priorities are off and running after just the first few months of working together.

Developing marketing selling and supporting the preeminent solution for targeted small and medium sized businesses that combines workdays HR technology within severities HR services, we expect to offer this unique combined solution to the target market for less upfront capital costs ongoing expense.

Paul J. Sarvadi: Complexity and implementation times and currently available to those businesses. We believe this new solution has the potential to be competitively disruptive.

Paul J. Sarvadi: And Sperry to work, they're non strategic partners focused on four major objectives.

Paul J. Sarvadi: All four of these priorities are off and running after just the first few months working together.

Paul J. Sarvadi: First, a foundational step for this strategic partnership to be effective is Insperity becoming a Workday customer for its corporate staff, which is ideal for our 4,300-employee company with dynamic future growth. We believe it's important to have our entire staff on Workday to be ready to support our clients as we launch this new solution. Our Corporate Workday Tenant Project Plan is progressing on schedule. A significant milestone for this to be started and completed effectively is the completion of the initial Corporate HR Data Workbook in order to build the foundation tenant to use in configuration sessions.

First the foundational step for this strategic partnership to be effective is in severity, becoming a workday customer for our corporate staff, which is ideal for US are 4300 employee company with dynamic feature growth. We believe it is important to have our entire staff on workday to be ready to support our clients as we launch this new solution.

Our corporate Workday tenant project plan is progressing on schedule with significant.

Paul J. Sarvadi: A significant milestone for this to be started and completed effectively is the completion of the initial corporate HR data work book in order to build the foundation tenant to use and configuration sessions. This was submitted to work day in the development site is up and running.

Paul J. Sarvadi: This was submitted to Workday, and the development site is up and running. Second, we are developing and embedding an instance of Workday as the client-facing HR solution within our Workforce Optimization offering to create this new joint solution for the target market of larger accounts. Now, this new Insperity Workday client tenant instance is a significantly more complex implementation.

Paul J. Sarvadi: Second we are developing and embedding an instance of workday is the client facing HR technology within our workforce optimization offering to create this new joint solution for the target market of larger accounts.

Paul J. Sarvadi: Now this newest Verde workday clients candidates. This is a significantly more complex implementation.

Paul J. Sarvadi: It's challenging to even describe how much work and detailed planning has already happened on this project. We are very pleased significant progress has been accomplished in defining the master plan for this project, and the teams are working together extremely well. Third, we're establishing a deployment and enablement team within the Insperity service organization with the help of Workday. Our goal for this team is to deliver implementations and provide support for the new solution in a similar efficient and effective manner as we do today. We're also off to a great start establishing this Insperity Enablement Team. A significant number of our service professionals have already completed training programs to establish a foundation for this program.

Paul J. Sarvadi: It is challenging to even describe how much work and detailed planning has already happened on this project. We are very pleased significant progress has been accomplished detailing out the master plan for this project and the teams are working together extremely well third we're establishing a deployment and enablement team within the <unk> service organization.

Paul J. Sarvadi: With the help of Workday our goal for this team is to deliver implementations and provides support for the new solution in a similar efficient and effective manner as we lead today.

Paul J. Sarvadi: We're also off to a great start establishing this disparity enablement team a significant number of our service professionals have already completed training programs to establish a foundation for this team.

Paul J. Sarvadi: The fourth major objective of this strategic partnership is to develop a market plan for Insperity and Workday to address this target market, including co-branding, co-marketing, and co-selling. The most significant effort accomplished since the launch has been the organization, staffing, and alignment of teams to ensure the success of the strategic partnership and the go-to-market plan. We're very pleased with the demonstrated commitment reflected in the leadership of both companies' roles and responsibilities to make this partnership dynamic and effective for both companies.

Paul J. Sarvadi: The fourth major objective of this strategic partnership is a go to market plan for its parity and workday to address this target market, including co branding co marketing and co selling the.

Paul J. Sarvadi: The most significant effort accomplished since the launch has been the organization staffing and alignment of teams to ensure the success of this strategic partnership and the go to market plan. We're very pleased with the demonstrated commitment reflected in the leadership of both companies roles and responsibilities to make this partnership.

Paul J. Sarvadi: Quick and effective for both companies.

Paul J. Sarvadi: The first three months of establishing the framework for this strategic partnership has not been without challenges is this type of relationship is new to both companies. However, the corporate culture match between the two firms.

Paul J. Sarvadi: The first three months establishing the framework for this strategic partnership have not been without challenges, as this type of relationship is new to both companies. However, the corporate culture match between the two firms continues to reaffirm my confidence in our opportunity for long-term success. My confidence is also supported by the client-centric nature of this strategic partnership and the potential to deliver a highly scalable HR technology and service solution to a significantly underserved market.

Paul J. Sarvadi: <unk> to reaffirm my confidence around our opportunity for long term success.

Paul J. Sarvadi: Our confidence is also supported by the client centric nature of this strategic partnership and the potential to deliver a highly scalable HR technology and service solutions to a significantly underserved market die.

Paul J. Sarvadi: Dialogue with clients and prospects about this solution has also been exceptional. We were able to have personal interaction with over 200 business owners at our recent client events, and the energy from these discussions was encouraging. We're very excited about our upcoming Investor Day coming up on May 16th at our corporate office and available remotely online. The focus of this event will be an update on the fundamental drivers of our powerful business model and the specific ways we expect our new Workday Strategic Partnership to be a catalyst to improve the likelihood, degree, and speed of our success into the future. At this point, I'd like to pass the call back to Douglas.

Paul J. Sarvadi: Dialogue with clients and prospects about this solution has also been exceptional we were able to have personal interaction with over 200 business owners at our recent client at our recent client event and the energy for these discussions was encouraging.

Paul J. Sarvadi: We're very excited about our upcoming Investor day coming up on May 16th at our corporate office and available remotely online. The focus of this event will be an update on the fundamental drivers to our powerful business model and the specific ways. We expect our new workday strategic partnership to be a catalyst to improve the likelihood of degree.

Paul J. Sarvadi: And speed of our success into the future at this point I'd like to pass the call back to Doug.

Douglas S. Sharp: Thanks, Paul. Now let me provide our Q2 guidance and an update to our four-year 2024 guidance. While we outperformed our earnings guidance in Q1, we are forecasting adjusted EBITDA over the remainder of the year consistent with our initial guidance. We are now thinking that uncertainty and weakness in the macroeconomic environment could persist over the remainder of the year.

Doug: Thanks, Paul now, let me provide our Q2 guidance and an update to our four year 2020 for guidance.

Doug: While we outperformed our earnings guidance in Q1, we are forecasting adjusted EBITDA over the remainder of the year consistent with our initial guidance.

Doug: We are now thinking uncertainty and weakness in the macroeconomic environment could persist over the remainder of the year.

Douglas S. Sharp: Based upon these factors and our starting point going into Q2, we have reduced our 2024 outlook for worksite employee growth to a range of flat to 2%. However, we expect the impact of this lower growth rate on our full-year earnings to be mostly offset by continued strong pricing and slightly lower direct costs and operating expenses. We are now forecasting four-year 2024 adjusted EBITDA in a range of $254 million to $293 million.

Doug: Based upon these factors and our starting point going into Q2, we have reduced our 2020 for outlook for Worksite employee growth to a range of flat to 2%.

Doug: However, we expect the impact of this lower growth rate on our full year earnings to be mostly offset by continued strong pricing and slightly lower direct cost and operating expenses.

Doug: We are now forecasting for year 2024, adjusted EBITDA in a range of 254 million to $293 million.

Douglas S. Sharp: While we have lowered our overall operating expenses from our initial budget, we expect 2024 operating costs relating to our Workday Strategic Partnership to remain in the neighborhood of $60 million. As for adjusted EPS, we are now forecasting full year 2024 in a range of $3.17 to $3.90. This revised guidance assumes an increase in our 2024 effective income tax rate from 26% to 29%, primarily due to a lower tax benefit on employee stock awards investing in Q1, as I have previously mentioned.

Doug: While we have lowered our overall operating expenses from our initial budget, we expect 2020 for operating costs relating to our workday strategic partnership to remain in the neighborhood of $60 million.

Doug: As for adjusted EPS, We are now forecasting full year 2024, and a range of $3 17 to $3 90.

Doug: This revised guidance assumes an increase in our 2024 effective income tax rate from 26% to 29% primarily due to less tax benefits on employee stock awards vesting in Q1 as I have previously mentioned.

Douglas S. Sharp: As for Q2, we are forecasting paid worksite employees to remain down by about 1% compared to Q2 of 2023. As for Q2 earnings, we are forecasting adjusted EBITDA in a range of $53 million to $66 million, and adjusted EPS from 61 cents to 83 cents. This guidance considers our typical quarterly earnings pattern, where our Q1 results are typically higher, and subsequent quarters as we earn a higher level of payroll tax surplus prior to worksite employees reaching their taxable wage limit, and benefit costs are typically lower in Q1 and step up over the remainder of the year as deductibles are met. Now, at this time, I'd like to open up the call to questions.

Doug: As for Q2, we are forecasting paid worksite employees to remain down by about 1% compared to Q2 of 2023.

Doug: As for Q2 earnings we are forecasting adjusted EBITDA in a range of $53 million to $66 million and adjusted EPS from <unk> 61 to 83.

Doug: This guidance considers our typical quarterly earnings pattern, where our Q1 results are typically higher than subsequent quarters as we earn a higher level of payroll tax surplus prior to worksite employees, reaching their taxable wage limits.

Doug: And benefit costs typically are lower in Q1 and step over step up over the remainder of the year as deductibles are met.

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

Doug: Yes.

Operator: Thank you very much. We will now be conducting our question and answer session. If you would like to ask a question, please press star 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you wish to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions. Thank you. Your first question is coming from Andrew Nicholas of William Blair. Andrew, your line is now open.

Speaker Change: Thank you very much we will now be conducting a question and answer session.

Speaker Change: I would like to ask a question. Please press star one on your phone keypad now a confirmation tone will indicate that your line is open to Keith you May Press Star two if you wish to remove your question from the queue.

Speaker Change: Using speaker equipment, it may be necessary to pick up your handset before pressing the keys. Please wait a moment, whilst we poll for questions.

Speaker Change: Your first question is coming from Andrew Nicholas of William Blair. Your line is an issue.

Andrew Owen Nicholas: Great, thank you, and good morning. I wanted to start with a couple of questions on the Workday partnership. Paul, there is a lot of really good color here as you work through that partnership for the first couple months. I guess two questions specifically. One, are there any kind of early signs of productivity or opportunity around the sales lead?

Andrew Owen Nicholas: Great. Thank you and good morning, I wanted to start with a couple of questions on the Workday partnership Paul a lot of really good color here as you work through that partnership for the first couple of months.

Andrew Owen Nicholas: I guess two questions specifically one are there any kind of early signs on the productivity or opportunity around the sales leads that workday is funneling your way and then second and I apologize if I missed it in your prepared remarks, but do you have any additional.

Andrew Owen Nicholas: Site or detail on the expected timeline now that you've done it sounds like a pretty considerable amount of planning work.

Andrew Owen Nicholas:

Andrew Owen Nicholas: The implementation and integration conversations.

Paul J. Sarvadi: Yeah, thank you for the question. That's great.

Speaker Change: Yes. Thank you for the question Thats great.

Speaker Change: Start with your second question first.

Paul J. Sarvadi: I'll start with your second question first. You know, we are not ready yet to actually pin down a detailed launch date, if you will. But we are certainly well down the road in terms of looking at all the elements of what has to happen for the launch to occur and are comfortable that it's within an acceptable time frame within the range that we had anticipated when we put the deal down. So, you know, again, this is the kind of thing that gets more and more clear literally on a week-to-week basis.

Speaker Change: We are not ready yet to actually pin down.

Speaker Change: Detailed launch date, if you will but we are certainly.

Speaker Change: Well down the road in terms of looking at all the elements of what has to happen for the launched occur and are comfortable that it's within an acceptable timeframe within the range that we had anticipated when.

Speaker Change: When we with the deal down so.

Speaker Change: Again. This is the kind of thing that gets more and more clear literally on a week to week basis and the teams are really working super.

Paul J. Sarvadi: And the teams are really working really well together, and they're making great progress at a really appropriate rate that I think is important, that both of our companies are looking at this, you know, as a product launch, so, you know, it's a different frame of reference on how we approach this. Getting to the finish line and so making sure that we do that in a way that it's a product that fully fits what we're designing but getting there as quickly as possible to take advantage of the market opportunity that's out there.

Speaker Change: Together.

Speaker Change: And they're making great progress at a really appropriate right that I think it's important.

Speaker Change: Both of our companies are looking at this as a product launch so.

Speaker Change: It's a different frame of reference on how we're approaching.

Speaker Change: Getting to the finish line and so making sure that we do that.

Speaker Change: This product is fully fits what we are.

Speaker Change: Designing but getting there as quickly as possible to take advantage of the market opportunity that's out there so.

Paul J. Sarvadi: So I can't give you a time frame yet, but we will go into more detail about what we're doing here in just a couple of weeks at our Investor Day meeting, and you'll have a better sense of that when we get through that. Now also, it's very exciting on the lead front, as I mentioned last quarter, our go-to market. Efforts will start with a whole planning process around lead flow back and forth between the two companies. The focus has really been on the process and what it takes to make sure that these are not just dumping a bunch of names from one group to the other but rather a warm handoff.

Speaker Change: I can't give you a timeframe yet, but we will go into more detail about what we're doing here in just a couple of weeks at our.

Speaker Change: At our Investor Day meeting and you'll have a better sense of that when we get through that now also its very exciting on the on the latest front as I mentioned last quarter.

Paul J. Sarvadi: So keep in mind that just lead flow, I put that in the co-marketing category, but we want people to land on sites that have some co-branding in them. We want to make sure that as leads are handled by both firms, there's a co-selling component where there's dialogue between the two companies about specific accounts and appropriate warm handoffs going on. So we're well down that road. There's also technology work that has advanced to the point where we can literally flip a switch and have this stuff going.

Speaker Change: Our go to market.

Speaker Change: Efforts would start with the whole planning process around <unk>.

Speaker Change: Lead flow back and forth between the two companies.

Speaker Change: The focus has really been on the process and.

Speaker Change: What it takes to make sure that these are not just dumping a bunch of names.

Speaker Change: One group to the other but rather a warm handoff so.

Speaker Change: Keep in mind that does lead flow I'd put that in the co marketing category, but.

Speaker Change: We want people to land sites that have some co branding in it and we want to make sure that.

Speaker Change: As leads are handled by both firms if there's a co selling components, where there's dialogue between the two companies about specific accounts and appropriate warm handoffs going on so we're well down that road. There's also technology work that has been.

Speaker Change: Advanced to get to the point, where we can literally flip a switch and have this stuff going so.

Paul J. Sarvadi: So my original plan was for this to get planned out in that first quarter or so, get implemented within that second period in a way that those leads flow, and we start to see, literally start to see sales results in the last half of the year. And I feel very good that we're on target.

Speaker Change: Our original our original plan was for this to get planned out in that first quarter or so.

Paul J. Sarvadi: Great. Thank you.

Speaker Change: Get implemented within that second period in a way that that those leads slow and we start to see literally start to see sales results in the last half of the year I feel very good that we're on target for that.

Speaker Change: Yeah.

Andrew Owen Nicholas: That's really helpful. And then, I guess, for my second question, I wanted to revert back to the core business. It does sound like net hiring expectations have come in a bit versus maybe what you expected at the beginning of the year with your initial guidance. If you could just kind of clarify or quantify that, that would be helpful. And then also, you know, what is the assumption now on the worksite employee front in terms of the back half of the year?

Speaker Change: Great. Thank you that's really helpful. And then I guess for my second question I wanted to revert back to the core business. It does sound like net hiring expectations have come in a bit.

Speaker Change: Versus maybe what you expected at the beginning of the year with your initial guidance. If you could just kind of clarify or quantify that that would be helpful. And then also.

Speaker Change: What what is the assumption now on the Worksite employee front.

Speaker Change: In terms of the back half of the year I think even at the low end.

Andrew Owen Nicholas: I think even at the low end of your revised worksite employee growth guidance, there's a decent amount of sequential improvement baked in for the second half. So, you know, is that a function of some of those warm leads converting from workday? Is it an expectation that the macro environment stabilizes or even improves some? Any additional context on the kind of macro assumptions embedded in the worksite employee guidance would be helpful. Thank you for that question.

Speaker Change: Of your revised Worksite employee growth guidance, there is a decent amount of sequential improvement.

Speaker Change: In the second half so.

Speaker Change: Is that a function of some of those warm leads converting from from workday is it an expectation that the macro environment stabilizes or even improve some any any additional context on kind of macro assumptions embedded in the worksite employee guidance would be thankful. Thank you for that question. It really is more of a simple <unk>.

Paul J. Sarvadi: It really is more the simple fact of the way the business model actually works in terms of how sales flow throughout the year. Each quarter, our sales meet our budget. You know, what we sell every quarter goes up, and the retention goes up throughout the year, you know, once you get past that first quarter, which we've already got past. We have really built in, you know, this Outlook that I discussed that we're seeing in the client where even though they're optimistic on the sentiment side, they are not doing what aligns with that optimism. They have battened down the hatches. We built that into our going forward that we're not expecting to see in an election year. That is just a backdrop.

Speaker Change: Back to the way the business model actually works in terms of how sales flow throughout the year each quarter, our sales or our budget.

Speaker Change: What we sell every quarter it goes up and the retention goes up.

Speaker Change: Throughout the years once you get past that first quarter, which we are yet passed so.

Speaker Change: We have really built in.

Speaker Change: This.

Speaker Change: The outlook that I discussed that we're seeing in the client base, where even though there.

Speaker Change: Optimistic on the sentiment side, they are not doing well.

Speaker Change: Right.

Speaker Change: Lines with that optimism they they have battened down the hatches and so.

Speaker Change: We built that into our going forward that you know, we're not expecting to see in an election year.

Speaker Change: That is a backdrop.

Paul J. Sarvadi: We're not assuming. You know, any benefit to speak of. And actually, I'm not really, you know, budgeting a huge upside from even the legal department because I just don't think it's prudent. Take aim now. Strategy like that and build stuff in when you don't really have it done, I'm optimistic about that, but this forecast is really based on some benefit from that, but more just the continued execution of this BPA team that is further down there, their effectiveness already, evidenced in their sales efficiency in the first quarter, and the work that we're doing to make sure we have good lead flow.

Speaker Change: We're not assuming.

Speaker Change: Any benefit to speak of from the net change in existing client base.

Speaker Change: And actually I'm, not really budgeting here.

Speaker Change: A huge upside from even the LIFO because I just don't think it's prudent to take a new strategy like that and build stuff and when you don't really haven't done it yet.

Speaker Change: I'm optimistic about that but this forecast is really based on.

Speaker Change: Some benefit from that.

Speaker Change: But more just the continued execution of this BPA team that.

Speaker Change: As further down there.

Speaker Change: On their effectiveness already.

Speaker Change: Evidenced in their sales efficiency in the first quarter and the work that we're doing to make sure we have good lead flow.

Paul J. Sarvadi: You know, our leads, as I mentioned, from our own marketing efforts were strong in the quarter. Some of that backdrop of the economic climate, you know, affected some of the appointment settings, so we're working other ways to make sure we are effective in that area, especially that ABX system that we've got, which actually assigns specific accounts and works with www.insperityinc.com to target high-value accounts that are more likely to be more ready to visit. So, that should help you with that. What happens in our business model is sales increase throughout the year, but retention is low for the balance of the year, so that's what's really driving the quarter-to-quarter movement.

Speaker Change: Leads I've mentioned from our own marketing efforts were strong in the quarter some of that backdrop of the economic climate affected some of their appointment setting. So we're working on other ways to make sure. We are effective in that area, especially that AVX system more that.

Speaker Change: <unk> got two actually assign specific accounts and work specific relationships.

Speaker Change: To target high value accounts that are more likely to be.

Speaker Change: More ready to to visit and to <unk>.

Speaker Change: Tension to find the solution.

Speaker Change: So that should help you with that approach what happens in our business model as sales increase throughout the year retention is low the balance of the year. So that's what's really driving the quarter to quarter growth.

Andrew Owen Nicholas: Very helpful. I'll get back in the queue. Thank you.

Speaker Change: Very helpful I'll get back in the queue. Thank you.

Operator: Thank you very much. Your next question is coming from Tobey Sommer of Truist. Tobey, your line is live.

Speaker Change: Thank you very much. Your next question is coming from Tobey Summer of Truest Tobey Your line is live.

Tobey O'Brien Sommer: Thank you. How do you compare and contrast the seemingly mixed signals conveyed by higher mid-market client turnover around the year-end transition with what you've described as sort of enhanced new sales momentum in that category over the last few quarters?

Tobey O'Brien Sommer: Thank you.

Tobey O'Brien Sommer: How do you compare and contrast.

Tobey O'Brien Sommer: Seemingly mixed signals conveyed by.

Tobey O'Brien Sommer: Higher mid market client turnover around the year end transition.

Tobey O'Brien Sommer: With what you've described as sort of enhanced new sales momentum in that category over the last few quarters.

Paul J. Sarvadi: Yeah, I think if you go back to kind of our discussion from last quarter, it was, you know, seven large accounts that moved at the end of the year. Four of those moved specifically for technology reasons, and so it's our success penalty, and another two of those were due to, you know, just the...

Speaker Change: Yes, I think if we go back to kind of our discussion from last quarter was.

Speaker Change: Seven large accounts that moved at the end of the year.

Speaker Change: Four of those moves specifically for technology reasons.

Tobey O'Brien Sommer: And so it's our success penalty and another two of those were due to just the.

Paul J. Sarvadi: The business is being sold, so your question of comparing the two doesn't really connect that well. We know that we're providing a powerfully good service to an underserved community now. And we believe that once we have this new option for, this new solution for, these clients in this category, it's going to secure them for a much longer period of time.

Tobey O'Brien Sommer: The business is being sold.

Tobey O'Brien Sommer: So.

Tobey O'Brien Sommer: Your question of contracting the two don't really connect that well, we know that we're providing a powerfully good service to an underserved community now.

Tobey O'Brien Sommer: And we believe that once we have this new option for this new solutions new option for these clients in this category.

Tobey O'Brien Sommer: It's going to secure them for a much longer period of time.

Paul J. Sarvadi: And in fact, you know, I really have this mindset around ultimate scalability in both technology and service. That's what we're about to bring to the market. And, you know, even the dialogue with all these customers over the first quarter. You know, we've got prospects in the pipeline that are already, not only is their interest elevated, but we'll talk more about this in a couple weeks, some of the interaction with... Not just the business owner or the chief financial officer, but even the technology people and the HR people within these larger accounts. Their energy around the potential of this solution is very high.

Tobey O'Brien Sommer: And in fact, I really have this mindset around ultimate scalability in both technology and service that's what we're about to bring to the market.

Tobey O'Brien Sommer: Even the dialogue with all of these customers over the first quarter.

Tobey O'Brien Sommer: We've got prospects in the pipeline that are already.

Tobey O'Brien Sommer: They're not only their interest is.

Tobey O'Brien Sommer: Elevated but.

Tobey O'Brien Sommer: We'll talk more about this in a couple of weeks some of the interaction with.

Tobey O'Brien Sommer: Not just the business owner or the Chief financial officer, but even the technology people and the HR people within these larger accounts.

Tobey O'Brien Sommer: Their energy around the potential of this solution is very high.

Tobey O'Brien Sommer: No.

Paul J. Sarvadi: So, I know we've piqued the interest among the few that we've gotten out to put this in front of, but, you know, I see this as a really dramatic change in our ultimate goals, both sales and retention of accounts in that target.

Tobey O'Brien Sommer: No we've peaked the interest.

Tobey O'Brien Sommer: I'll just among the few that we've gotten outbid.

Tobey O'Brien Sommer: Put this in front of us.

Tobey O'Brien Sommer: But.

Tobey O'Brien Sommer: I see this as of <unk>.

Tobey O'Brien Sommer: Really dramatic change in our ultimate.

Tobey O'Brien Sommer: Issue around.

Tobey O'Brien Sommer: Both sales and retention of accounts in that target.

Paul J. Sarvadi: That makes a lot of sense. But is it fair to say that the customers that churned were probably larger than the new sales?

Speaker Change: That makes a lot of sense. So is it fair to say that the customers that churned.

Speaker Change: Probably larger than the new sales.

Paul J. Sarvadi: https://www.youtube.com

Speaker Change: Achieved in recent quarters.

Speaker Change: This difference.

Paul J. Sarvadi: Yeah, on average, of course. These were accounts that we brought on at a smaller size and grew them substantially over, you know, half a dozen years or more, and they ended up, you know, two of them actually went to a workday solution and two went to But, you know, the very interesting part, I went out to talk to other clients that are large that have also fit that description, and, you know, ran into some that had actually evaluated those two and It was very interesting, we'll talk more about this in a couple of weeks, but their view of having to choose between this significant investment to deal with the scalable technology solution, and they saw that people were having to give up some important service capabilities, I feel good about it at this point, even from anecdotal feedback, but it is among those types of customers that are a good sample of those that we want to understand their thinking.

Speaker Change: On average of course these were accounts that we brought on at a smaller size and growing substantially over.

Speaker Change: Half a dozen years or more.

Speaker Change: And Brett.

Speaker Change: They ended up you know two of them actually went to a workday solution to with too.

Speaker Change:

Speaker Change: I guess it was.

Speaker Change: <unk>, but.

Speaker Change: Very interesting part of that we went out to talk to other clients that are large that are also fit that description.

Speaker Change: And ran into some that had actually evaluate those two in.

Speaker Change: It was very interesting we'll talk more about this in a couple of weeks, but their view.

Speaker Change: Having to choose between them.

Speaker Change: African investment.

Speaker Change: Deal with scalable technology solutions and thanks Sajid.

Speaker Change: Having to give up.

Speaker Change: And sport service capabilities.

Speaker Change: With us.

Speaker Change: So.

Speaker Change: New solution.

Speaker Change: Areas those could get together and those customers don't have to make that decision so I feel real.

Speaker Change: Good about it at this point even from although it is anecdotal feedback.

Speaker Change: But it is among those types of customers that are good a good sample of those that we want to understand your thinking.

Tobey O'Brien Sommer: Terrific. I just have two more questions. Could you sort of dimensionalize the change in your assumption for health care expenses throughout the year as a result of change, whatever commentary you could give. And then, Paul, from a strategic standpoint, I wanted to ask how significant could Insperity's Workday implementation be in a handful of years? And do you envision the company performing implementations for non-PEO customers? So I'm trying to get a sense of the TAM. Thanks. Yeah.

Speaker Change: Terrific I just have two more questions could.

Speaker Change: Could you.

Speaker Change: Sort of Dimensionalize the change in your assumption for <unk>.

Speaker Change: Health care expenses through throughout the year as a result of change what whatever that come.

Speaker Change: Commentary you could give and then.

Speaker Change: Paul from a strategic standpoint, I wanted to ask.

Paul J. Sarvadi: How significant could <unk> workday implementation and be in a handful of years do you envision.

Speaker Change: <unk> the company.

Paul J. Sarvadi: Performing implementations for.

Paul J. Sarvadi: Non PEO customers, so I'm trying to get a sense for the Tam.

Paul J. Sarvadi: Thanks.

Paul J. Sarvadi: Yeah, that's a great question that we're going to spend a little more time on in a couple of weeks. So I won't steal some thunder out there, but I will just tell you that there's no question in my mind when we look at that total addressable market of mid-market accounts, you know. 40 million worksite employees and more. We've always said, hey, we can attack some of that market with what we've already been doing.

Speaker Change: Yeah. That's a great question that we're going to spend a little more time on in a couple of weeks.

Speaker Change: I won't steal some thunder out there but.

Paul J. Sarvadi: I will just tell you that there is no question in my mind that.

Paul J. Sarvadi: When we look at that total addressable market.

Paul J. Sarvadi: These mid market accounts.

Paul J. Sarvadi: 40 million Worksite employees anymore.

Paul J. Sarvadi: We.

Paul J. Sarvadi: We've always said hey, we can attack some of that market with what we've already been doing.

Paul J. Sarvadi: But there is an appreciable percentage of that market now that this will be the best solution in the marketplace, and no one else will have anything like it. Like I say, it's the ultimate scalable solution in both technology and services. Some clients will get to a size where they want their own... more customized version of Workday.

Paul J. Sarvadi: But it's Angela appreciable percentage of that market now that this is this will be the best solution in the marketplace.

Paul J. Sarvadi: And no one else will have anything like it.

Paul J. Sarvadi: So because like I say, it's the ultimate scalable solution in both technology and services now.

Paul J. Sarvadi: Some clients will get to a size where they want their own.

Paul J. Sarvadi: More customized version of workday, but at that point, we will already have been there.

Paul J. Sarvadi: But at that point, we will already have been there, supporting the infrastructure. And it's going to be a very natural progression for us to be that team that not only helps them implement their new solution, which will be much more readily defined and developed because they've already been on it, and we're the ones who've been servicing it. So for us to continue to be their service provider going forward is a very natural progression.

Paul J. Sarvadi: Support infrastructure.

Paul J. Sarvadi: And it's going to be a very natural progression for us to meet that team that not only helps them <unk>.

Paul J. Sarvadi: Implement their new solution.

Paul J. Sarvadi: Which will be much more readily.

Paul J. Sarvadi: And.

Paul J. Sarvadi: Develop because they've already been on it and we're the ones that are in service.

Paul J. Sarvadi: For us to continue to be their service provider going forward is a very natural progression.

Paul J. Sarvadi: So.

Paul J. Sarvadi: You know, will we go out to the market to be an implementer for those kinds of, that's not really the strategy, we don't, could we do that? We would have that capability, but that's not the plan; the plan is to bring them onto our service and then be able to keep them much longer and have a little different version of the service when they're ready to go out into their own instance of Workday and us remain that service support that they need, you know, even though they've grown to that size.

Paul J. Sarvadi: Will we go after the market to be a handful manner for those.

Paul J. Sarvadi: Those accounts, that's not really the strategy, we could if we do that we would have that capability, but that's not the plan. The plan is to is to bring them onto our service and then be able to keep them much longer.

Paul J. Sarvadi: A little different version of the service when they are ready to go out into their own.

Paul J. Sarvadi: Instance of Workday and us remain that service support.

Paul J. Sarvadi: That they need.

Paul J. Sarvadi: Even though they've grown to that size.

Tobey O'Brien Sommer: Okay, thank you very much.

Jane: Okay. Thank you Jane.

Paul J. Sarvadi: Benefit side.

Paul J. Sarvadi: Yeah.

Jane: Yeah, Keith very much.

Jane: Our next question is coming from Jeff Martin of Roth.

Jeffrey Michael Martin: Jeff Your line is live.

Paul J. Sarvadi: Thanks. Good morning, Doug. I'll let you answer that.

Jeffrey Michael Martin: Thanks, Good morning, Doug I'll, let you answer the question and then I'll ask mine.

Douglas S. Sharp: I appreciate that. I'm sorry. Okay. No problem.

Jeffrey Michael Martin: I appreciate that.

Jeffrey Michael Martin: [laughter], Okay no problem.

Douglas S. Sharp: So what we saw on the health care side... You know, specific to Q1 was the... Upside in that particular area not only had to do with the cost side but the pricing side. So the pricing side It's been a focus of ours because of recent experience with cost trends, and we've been able to exceed our pricing targets, and so that's, That's a part of the equation. On the cost side, the upside that we got from the first quarter, you have to look at it really in two different pieces. The upside for the first quarter really had to do with our reserves at the end of last year, which, in hindsight, were conservative.

Jane: So what we saw on the healthcare side.

Jane: Specific to Q1.

Jane: Was.

Jane: B.

Jane: Upside in that particular area not only had to do with the cost side, but the pricing side the pricing side, it's been a focus of ours.

Jane: Of recent experience on cost trends and we've been able to.

Jane: Exceed our pricing targets.

Speaker Change: So that's <unk>.

Douglas S. Sharp: And we had reasons for doing that because of some of the volatility we experienced in 2023. And then we looked at subsequent claim runoffs to measure against those reserves, and yes, at the end of the day, the claim runoff was favorable relative to those reserves that were set up. And a lot of that, you're looking at claim runoff through the end of February for that. Now, we all know that in March, there was a breach that changed health care, which is sort of the intermediary between the providers and the insurance companies, and therefore, we would expect some sort of disruption in the claim payment pattern.

Jane: That's a part of the equation.

Jane: On the cost side.

Jane: The upside that we got from the first quarter you got to look at it really in two different pieces the upside from the first quarter really had to do with.

Jane: Our reserves at the end of last year and.

Jane: And hindsight being conservative and we have reasons for doing that because of some of the volatility we experienced in 2023.

Jane: And then we look at subsequent claim run offs to measure against those reserves and yes at the end of the day.

Jane: The claim run off.

Jane: <unk> was favorable relative to those reserves that were setup.

Jane: And a lot of that Youre looking at claim run off through the end of February for that now we all know that in March.

Jane: There was a breach at change healthcare, which is sort of the intermediary between the providers and the insurance companies.

Jane: And therefore would expect some sort of discussed this.

Jane: Russian and the claim payment pattern.

Douglas S. Sharp: We did a deep dive into the details of that. We've also had conversations with the insurance carriers, and because of that, we felt it appropriate to... provide some incremental reserve at the end of the first quarter for claims that were incurred but not reported yet as a result of that cyber security breach. Now I'll tell you that we feel like we again have made a conservative IVNR adjustment as a result of that event ending the quarter with what is our largest high BNR level ever, over the course of our history and even on a per-participant basis, being a larger number.

Jane: We did a deep dive into the details of that we've also had conversations with the insurance carriers.

Jane: And.

Jane: Because of that we felt it appropriate to.

Jane: Provide some incremental reserve.

Jane: At the end of the first quarter for.

Jane: <unk> claims that.

Jane: Or incurred but not reported yet as a result of that cyber security breach.

Jane: Now I will tell you that we feel like we again have made.

Jane: Conservative IV in our adjustment as a result of that that event.

Jane: Ending the quarter with what is our largest IV in our level over the course of our history and even on a per participant basis.

Douglas S. Sharp: So at the end of the day, we feel like we have appropriately handled the issue with the breach at Change Healthcare. And again, the upside is really coming from the reserves that we, in hindsight, were conservative, that were set up at the end of 2023.

Jane: Being a larger number so at the end of the day, we feel like we are appropriately handled.

Jane: The issue with the breach.

Speaker Change: At change healthcare.

Speaker Change: And again, the upside is really coming from.

Speaker Change: The reserves that we in hindsight, we're conservative that were set up at the end of 2023.

Douglas S. Sharp: I'll follow up with that. Yes. Thank you. So in terms of the benefit cost trend for 2024, is that unchanged versus your last commentary in Q4?

Speaker Change: Hey, guys.

Speaker Change: A follow up with that thank.

Speaker Change: Thank you.

Speaker Change: So in terms of the benefit cost trend for 2024 is that unchanged versus your last commentary in Q4 for the most part yes, I mean, I think we talked going into to walk into the year.

Douglas S. Sharp: For the most part, yeah. I mean, I talked going into the year about a benefit cost trend of four and a half to six percent. And so it's still sort of near the midpoint, still within the range, but probably a little bit down based upon our Q1 experience, but still within that range.

Speaker Change: And my last prepared remarks.

Speaker Change: Our benefit cost trend of four 5% to 6%.

Speaker Change: And so it's still sort of near the mid point.

Speaker Change: Still within the range, but probably a little bit down based upon our Q1 experience.

Speaker Change: But still within that range.

Douglas S. Sharp: Great. And then, with respect to the workday relationship, is it still the expectation that, initially, you'd be doing a lot of conversions of existing clients prior to taking on new clients? Will you be able to straddle both? And secondly, you know, how do clients perceive the value in your view? I know it's still early to do the combined solution versus doing workday independently and going without, you know, the services that you... Sure, so...

Speaker Change: Great and then with respect to the working relationship is it still the expectation that initially you'll be doing a lot of conversions of existing clients prior to taking on new clients when you'd be able to straddle both and then secondly.

Speaker Change: How do clients perceive the value in your in your view I know it's still early.

Speaker Change: During the combined solution versus doing.

Speaker Change: Workday independently and going without the services.

Speaker Change: Can you provide.

Douglas S. Sharp: Sure, so you know we are doing a tremendous amount of research and even working with some outside consultants to evaluate different aspects of this approach and, you know, again treating this as a new product launch, so appropriately gathering information from both prospects and current clients, and again looking at value perception and pricing relationships. And, you know, I think we're on a very good track to gather the appropriate information, assess it properly, and determine these launch dynamics.

Speaker Change: Sure. So we are doing a tremendous amount of research and even working with some outside consultants.

Speaker Change: <unk>.

Speaker Change: Different aspects of this approach and again treating this as a new product launch so appropriately gathering information from both prospects and current clients.

Speaker Change: And again looking at.

Speaker Change: Value perceived pricing relationships.

Speaker Change: And so I think we're on a very good track to gather the appropriate information yes.

Speaker Change: Assess it properly and determine these launch dynamics.

Douglas S. Sharp: At this stage, I think there's going to be a nice mix between current clients and even new clients coming on this year that want to upgrade once that is ready to go. The current clients that are already here, like I said, had great conversations. Yes, several, you know, on that list already, some more than happy to be our even beta test type customers. We have. The number of clients that are going to be involved in literally the configuration design effort to make sure that, you know, we've got how much is pre-configured for the whole base versus how much is customizable for clients.

Speaker Change: At this stage I think theres going to be a nice mix between.

Speaker Change: Both.

Speaker Change: Current clients or even new clients coming on this year that want to upgrade once that is ready to go.

Speaker Change: Current clients that are already here like I said had great conversations in and yes. Several you know on that list already some.

Speaker Change: More than happy to be our EBIT beta test type customers we have.

Speaker Change: A number of clients that are going to be involved in literally the configuration.

Speaker Change: <unk> effort.

Speaker Change: To make sure that we've got.

Speaker Change: How much is pre configured for all the for the whole base versus how much are this customized customizable for clients.

Douglas S. Sharp: So, you know, we're doing those things properly, but yeah, there'll be a mix, and I think there'll also be a backlog of, you know, customers that, um.., you know, are, signed up to come on the service on the new, offering so you know our launch time for the offering timed with you know when it's actually coming out and having more of a pipeline for these accounts to come on you know that's kind of the mindset that we are we are in today there's a lot of work you know to get to that point and make sure that's effective but we're we're on that track

Speaker Change: We're doing those things properly, but yes, there'll be a mix and I think they will also be a backlog of <unk>.

Speaker Change: Customers that.

Speaker Change: Our.

Speaker Change: Signed up to come on the service on the new.

Speaker Change: Offering so our launch time for the offering timed with.

Speaker Change: When it's actually coming out and having more of a pipeline for these accounts to come on that.

Speaker Change: That's kind of the mindset that we are we are in today, there's a lot of work to get to.

Speaker Change: That point and make sure thats effective, but we're on that track.

Douglas S. Sharp: And then one more, if I could, you know, the $60 million planned incremental spend in 2024. How might that progress as we move through the quarters, and then how much support staff are you anticipating hiring in advance of that? So, you know, there's a process going on.

Speaker Change: Great and then one more if I could.

Speaker Change: $60 million planned incremental spend.

Speaker Change: <unk>.

Speaker Change: In 2024, how that how might that progress.

Speaker Change: We move through the quarters and then how much support staff are you.

Speaker Change: Are you anticipating hiring in advance of that.

Douglas S. Sharp: So, you know, there's a process going on there now also, and, um..., you know, we Basically, we're on track in that very early first quarter, which is, you know, when we didn't have very much information to try to estimate this, and it came out very good. We're still very comfortable with that number for the year. And, you know, you do have to weigh in also the hiring of people versus contracting out for certain components, depending on whether it's just a surge of need for a short time or whether it's part of the ongoing picture.

Speaker Change: So there is a process going on there now also and.

Speaker Change: We.

Speaker Change: Basically.

Speaker Change: On track in that are very early first quarter, which as you know when we had but not very much information too.

Speaker Change: To try to estimate this and.

Speaker Change: It came out very good.

Speaker Change: We're still very comfortable with that number for the year.

Speaker Change: You do have to weigh in also.

Speaker Change: Hiring people versus contracting out for certain components, depending on whether it's just a surge of the need for a short time or whether it's part of the ongoing picture.

Douglas S. Sharp: So there's a lot of that type of thing going on as well, but I think the mindset between, you know, launching a new product effectively in a timely fashion and managing the investment side and the ongoing expense side has really been impressive to me already in a short time. So we feel good about how we have looked at this, and Ben Conservative in those kind of estimates, but there's a lot yet to go on, so we're not getting into that much detail about that yet.

Speaker Change: So there's a lot of that type of thing going on as well, but I think the mindset.

Speaker Change: Between.

Speaker Change: Launching a new product effectively.

Speaker Change: <unk> fashion and managing the investment side and the ongoing expense side has really been impressive to me already in a short time.

Speaker Change: So we feel good about how we have looked at this.

Speaker Change: And then conservative in those kind of estimates, but theres a lot yet to go on so we are you know.

Speaker Change: Not that.

Speaker Change: That much detail about that yet.

Speaker Change: Okay.

Douglas S. Sharp: Okay, thank you very much. Just as a reminder, if there are any more questions, you can press star 1 on your phone keypad now, and we have a final question in from Andre Childress, who is on behalf of Mark Marcon of Baird and Company. Andre, your line is live.

Speaker Change: Okay. Thank you very much just as a reminder, if there are any more questions. You can press star one on your phone keypad.

Speaker Change: And we have a final question from Andre Childress, who is on for Mark Marcon.

Andre Childress: That company Andrea Your line is now.

Operator: Hey, hey, Paul and Doug. Thanks for taking our questions. My first question is, just as you look back at the key selling and enrollment period, what did you see from a competitive perspective, particularly on price?

Andre Childress: Hey, Paul and Doug Thanks for taking our questions. My first question is just as you look back at the key selling and enrollment period.

Andre Childress: What did you see from a competitive perspective, particularly on the pricing front.

Speaker Change: Okay.

Andre Childress: Yeah, we saw, you know, through this period, kind of like I mentioned last quarter, where, you know, when the climate is more difficult, you see more competitive approaches. And so I think a lot of that was more in the fall of last year, kind of peaked. It's still out there, but I think the way... We have looked at it and responded and, You know, has been effective. This first quarter, having a strong quarter like we did significantly, double-digit growth from last year was evidence of that. And I mentioned that it was a combination of, uh... You know, the experience factor and the growth in the number of BPAs, but then also... You know, the right incentives for both clients and the sales team.

Andre Childress: Yeah, we saw through this period and kind of like I mentioned on the last quarter.

Speaker Change: There.

Speaker Change: When when the climate is more difficult.

Speaker Change: You see more competitive approaches.

Speaker Change: And so.

Speaker Change: I think a lot of that.

Speaker Change: It was more in the fall of last year.

Speaker Change: Kind of peaked it's still out there, but I think the way.

Speaker Change: We have looked at it and responded.

Speaker Change: Has been effective this first quarter, having a strong quarter like we did significantly double digit up from last year was evidence of that.

Speaker Change: And I mentioned that was a combination of.

Speaker Change: The experience factor.

Speaker Change: And the growth in the number of BPH, but then also.

Speaker Change: <unk>.

Speaker Change: The right incentives for both clients and the sales team. So we're in a good shape on that front.

Paul J. Sarvadi: So we're in good shape on that front, but I would expect it to stay pretty competitive out there. You know, I do, as you talked about the work-day comparison, that's a different animal because it's an exclusive relationship; no one will be able to even have that. And I think that, you know, frames are offering really, really well against others. So, you know, that's more of the long-term view on that front, but for this year, you know, we're expecting it to remain competitive, and we, like our... are winning the right clients that we're after. We're in great shape on that front.

Speaker Change: But I would expect it to stay pretty competitive out there.

Speaker Change: I would do is you talked about the workday comparison.

Speaker Change: Different animals, because it's an exclusive relationship no one will be able to even have that and I think that frames, our offering really really well against others.

Speaker Change: So.

Speaker Change: That's more of a long term view on that front, but for this year I expect it to remain <unk>.

Speaker Change: Competitive in and we like our.

Speaker Change: Our winning the right clients that were after we're in great shape on that front.

Andre Childress: Great, and then as a follow-up, in your prepared remarks, you talked about various initiatives to drive BPA productivity. Could you provide an update on just how you are leveraging AI or how you plan to leverage AI across both the sales service and maybe even the R&D organization?

Speaker Change: Great and then as a follow up.

Speaker Change: In your prepared remarks, you talked about various initiatives to drive BPA productivity could you provide an update on just how you are leveraging AI or how you plan to leverage AI across both the sales service and maybe even the R&D organization. Thank you.

Paul J. Sarvadi: Yeah, absolutely. I think that the main point to take away on that front is that we are really structured and staffed and organized and working through processes. And even the technology investments we've already made have put us in a very strong position to flush out all these possibilities, and there are so many possibilities, and certain things are pretty obvious, and, you know, like I mentioned in the prepared remarks, we're talking about things that drive efficiency or provide insights and things of that nature, and you know we're on a great track to bring those forward.

Paul J. Sarvadi: Thank you. Yeah, absolutely. I think...

Speaker Change: Yeah, absolutely I think the main point to take away on that front.

Speaker Change: As we are really structured in staffed and.

Speaker Change: Organized.

Speaker Change: And working through processes.

Speaker Change: And even the technology investments we've already made.

Speaker Change: Have put us in a very strong position.

Speaker Change: Two four.

Speaker Change: Flush out all of these possibilities and there are so many possibilities and certain things are pretty obvious.

Speaker Change: Like I mentioned in the prepared remarks.

Speaker Change: We're talking about things that drive efficiency or provide insights and things of that nature.

Speaker Change: And.

Speaker Change: We're on a great track to bring those forward.

Paul J. Sarvadi: Now, we also believe that, you know, a lot of this is not there yet. We flushed out certain areas we've looked at, and we said, wow, that's going to be really good. It's not really that good yet.

Speaker Change: Now we also believe that a lot of this is not there yet.

Speaker Change: Flushed out certain areas. We've looked at we said Wow thats going to be really good it's not really factored in yet, but we're in a good position to capitalize on these things as they happen.

Paul J. Sarvadi: But we're in a good position to capitalize on these things as they happen. And, you know, it was great timing for us to put Salesforce in place, which was significant to making sure that all our internal data is in one place. That's powerful for this. And, you know, we've done a tremendous amount of work relative to implementation on modern data engineering and other analytics technologies. And I just think we're in a great position to do this, but it's not time to go into a lot of detail about that, but that's coming soon.

Speaker Change: It was great timing for us to put sales force in place, which was significant to making sure that all our internal data in one place that's powerful for this.

Speaker Change: And we.

Speaker Change: We've done a tremendous amount of work relative to implementation on modern data engineering and other analytics technologies.

Speaker Change: And I just think we're in a great position to do this but it's not time to.

Speaker Change: Go into.

Speaker Change: A lot of detail about that but that's coming soon.

Paul J. Sarvadi: Okay, thank you very much. That appears to be the end of our question and answer session. I will now turn the conference back over to Mr. Sarvadi for any closing remarks.

Speaker Change: Okay. Thank you very much that appears to be the end of our question and answer session. I will now turn the conference back over to Mr. <unk> for any closing remarks.

Paul J. Sarvadi: Well, once again, I'd like to thank everyone for being with us today for this update, and I'd like to have a special invite to all of you to be a part of our Investor Day coming up later this month. There is also an opportunity for you to be here in person and a way to go through that process on our website. There's also a link within our announcement that we put out today, but we'd love to have as many as possible, either in person or remotely, and look forward to answering a lot more questions, not only about...

Speaker Change: Well once again I'd like to thank everyone for being with US today for this update and I would like to have a special invite all of you to be a part of our investor day coming up.

Speaker Change: Later this month there is also an opportunity for you to be here in person and a way to go through that process on our website and is also a link within our.

Speaker Change: Announcement that we put out today, but we'd love to have as many as possible either in person or remotely and look forward to answering a lot more questions not only about the status of our current business model and the drivers, but how those are linked.

Paul J. Sarvadi: The status of our current business model and the drivers, but how those are linked to this new strategic partnership and our expectations about how that will directly affect our likelihood, degree, and speed of success going forward here at Insperity in delivering shareholder value. So thank you again for your participation today, and we look forward to seeing you soon.

Speaker Change: To this new strategic partnership and our expectations about.

Speaker Change: How that will directly affect our likelihood degree and speed of success going forward here and in severity and delivering shareholder value. So thank you again for your participation today and we look forward to seeing you soon.

Operator: Thank you very much, everyone. This does conclude today's conference. You may now disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.

Speaker Change: Thank you very much everyone. This does conclude today's conference you may now disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Speaker Change: Okay.

Speaker Change: Sure.