Q2 2024 Insperity Inc Earnings Call

Jenny: Good morning, my name is Jenny and I will be your conference operator today. I would like to welcome everyone to the Insperity second quarter 2024 earnings conference call.

Operator: I would like to welcome everyone to the Inspirity second quarter 2024 earnings conference call. Currently, all participants are in a listen-only mode, and we will open for questions following the presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker Change: Currently all participants are in a listen-only mode and we will open for questions following the presentation. If anyone should require operator assistance during the conference please press star zero on your telephone keypad. Please note this conference is being recorded.

Operator: Please note this conference is being recorded.

Operator: At this time, I would like to introduce today's speakers.

Operator: 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.

Speaker Change: At this time, I would like to introduce today's speakers.

Speaker Change: 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. Mr. Sharp, please go ahead.

Douglas Sharp: At this time, I would like to turn the call over to Douglas Sharp. Mr. Sharp, please go ahead. Thank you, and we appreciate you joining us.

Douglas Sharp: Let me begin by outlining our plan for this morning's call. First, I'm going to discuss the details behind our second quarter 2024 financial results. Paul will then come in on our recent accomplishments, including an update on the implementation of our Workday Strategic Partnership solution and on our outlets for the remainder of the year. Our return to provide our financial guidance for the third quarter and an update to the full year guidance.

Unknown Executive: Let me begin by outlining our plan for this morning's call. Paul will then comment on our recent accomplishments, including an update on the implementation of our Workday strategic partnership solution and on our outlook for the remainder of the year. 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. For 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. And in a few minutes, Paul will comment on the current business environment, impacting our prospects and clients, and the sales and marketing efforts in place to sell into this environment.

Douglas 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 second quarter 2024 financial results.

Unknown Executive: Gross profit increased by 16% as a 1% decline in paid work out employees was more than offset by continued strong pricing and lower benefit costs when compared to Q2 of 2023, which included a spike in health care costs, including $14 million associated with the implementation of our Workday Strategic Partnership. Our year-to-date operating expenses now include $19 million associated with this strategic partnership. During the quarter, we paid out $23 million in cash dividends and repurchased 151,000 shares of stock at a cost of $14 million.

Speaker Change: Paul will then comment on our recent accomplishments, including an update on the implementation of our Workday strategic partnership solution and on our outlook for the remainder of the year.

Speaker Change: I will return to provide our financial guidance for the third quarter and an update to the full year guidance. We will then end the call with a question and answer session.

Douglas Sharp: We will then end the call with a question-and-answer session.

Douglas 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, which are subject to risk, uncertainties, and assumptions. In addition, some of our discussion may include non-GAAP financial measures.

Speaker Change: 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.

Douglas Sharp: For more detailed discussion of the risks and uncertainties that could cause actual results of different materially from any forward-looking statements and reconciliations of non-GAAP financial measures, please see the company's public following, including the Form 8-K filed today, which are available on our website. Now, let's discuss our second quarter results in which we report a 34% increase in adjusted EPS over Q2 of 2023 to 86 cents, above the high end of our forecasted range. And we report a 29% increase in Q2 adjusted EBITDA to $66 million. The earnings outperformance compared to our expectations was primarily driven by lower than expected benefit costs, continued strong pricing, and lower operating expenses.

Speaker Change: 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 8K filed today, which are available on our website.

Speaker Change: And we report a 29% increase in Q2 adjusted EBITDA to $66 million.

Speaker Change: The earnings outperformance compared to our expectations was primarily driven by lower-than-expected benefit costs, continued strong pricing, and lower operating expenses.

Douglas Sharp: As for our growth metric, the average number of paid workside employees increased sequentially over Q1 to approximately 307,000. The increase included net growth in our client base, although at a level significantly lower than Q2 of 2023 and lower than our expectations for the typical summer hiring period. Client retention remained at an expected 99% for the second quarter. Workside employees paid from new sales, although at a similar level as Q2 of 2023, came into low expectations.

Speaker Change: The increase included net growth in our client base, although at a level significantly lower than Q2 of 2023, and lower than our expectations for the typical summer hiring period.

Speaker Change: Client retention remained at an expected 99% for the second quarter.

Douglas Sharp: And in a few minutes, Paul will comment on the current business environment impacting our prospecting clients and the sales and marketing efforts in place to sell into this environment. Gross profit increased by 16% as a 1% decline in paid workside employees was more than offset by continued strong pricing and lower benefit costs when compared to Q2 of 2023, which included a spike in health care costs. The combination of our other direct cost areas, including workers' compensation and payroll taxes, were generally in line with our forecast. Q2 operating expenses were managed below plan, increasing 13% over Q2 of 2023, including $14 million associated with the implementation of our Workday strategic partnership.

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: Q2 operating expenses were managed below plan, increasing 13% over Q2 of 2023, including $14 million associated with the implementation of our Workday Strategic Partnership.

Douglas Sharp: Our unit of data operating expenses now include $19 million associated with the strategic partnership, along with the ongoing investment in our long-term growth and our service and technology offerings. The second quarter of 2024's effective tax rate came in at 28%, which was above Q2 of 2023's rate at 25%. We continue to provide returns to our shareholders, to our regular dividend program and the repurchase of our shares. During the quarter, we paid out $23 million in cash dividends and repurchased 151,000 shares of stock at a cost of $14 million. We ended Q2 with $211 million of adjusted cash and an increase of $40 million over the December 31, 2023 balance, and we had $280 million available under our credit facility.

Speaker Change: Our year-to-date operating expenses now include $19 million associated with this strategic partnership, along with the ongoing investment in our long-term growth and our service and technology offerings.

Speaker Change: We continue to provide returns to our shareholders through our regular dividend program and the repurchase of our shares.

Speaker Change: During the quarter, we paid out $23 million in cash dividends and repurchased 151,000 shares of stock at a cost of $14 million.

Speaker Change: We ended Q2 with $211 million of adjusted cash, an increase of $40 million over the December 31, 2023 balance. And we had $280 million available under our credit facility.

Paul Sarvadi: At this time, I'd like to turn the call over to Paul. Thank you, Doug, and thank you all for joining our call. Today, I'll begin with comments on our solid second quarter and first half financial results in a challenging environment in the small and medium-sized business marketplace. I'll follow up with our plans to capitalize on our market opportunity over the second half of the year, and I'll finish with an update on progress on our Workday strategic partnership and the prospects for growth next year and beyond. Our Q2 financial performance was strong, exceeding the high end of our expected range in adjusted EBITDA and EPS, even while coming in at the low end of our range for paid work side employee growth.

Unknown Executive: We ended Q2 with $211 million of adjusted cash, an increase of $40 million over the December 31, 2023 balance, and we had $280 million available under our credit facility. Now, at this time, I'd like to turn the call over to Paul.

Speaker Change: Now at this time, I'd like to turn the call over to Paul.

Paul: Thank you, Doug, and thank you all for joining our call. Today I'll begin with comments on our solid second quarter and first half financial results in a challenging environment in the small and medium-sized business marketplace.

Paul J. Sarvadi: I'll follow up with our plans to capitalize on our market opportunity over the second half of the year, and I'll finish with an update on progress on our Workday strategic partnership and the prospects for growth next year and beyond. Our strong pricing and direct cost management produced upside at the gross profit line and combined with lower operating expenses to achieve financial outperformance over last year and our guidance. Our client survey information indicated a high level of optimism going into the second quarter and the potential for at least stabilization of these metrics. However, prospect and client decision making reflected a higher level of uncertainty in Q2, and net hiring in our client base weakened further than expected.

Paul: I'll follow up with our plans to capitalize on our market opportunity over the second half of the year, and I'll finish with an update on progress on our Workday Strategic Partnership and the prospects for growth next year and beyond.

Paul Sarvadi: Our strong pricing and direct cost management produced upside at the growth profit line and combined with lower operating expenses to achieve financial outperformance over last year and our guidance. Our 1% decline in paid work side employees over the same period last year was primarily the result of our large account attrition at year end we discussed last quarter, combined with the continuing effects through Q2 of the challenging economic environment in the small business community. Last quarter, we reported details indicating stress in the small business marketplace from a variety of economic issues, including interest rates and inflation.

Paul: Our strong pricing and direct cost management produced upside at the gross profit line and combined with lower operating expenses to achieve financial outperformance over last year and our guidance.

Paul: Our 1% decline in paid worksite employees over the same period last year.

Paul Sarvadi: This was evident from our real-time internal data reflecting nominal net hiring activity, low levels of overtime pay, and a relatively low level of commissions paid to the sales personnel at client companies, which we believe reflects a weak economic climate. Our client survey information indicated a high level of optimism going into the second quarter and the potential for at least stabilization of these metrics. However, prospect and client decision making reflected a higher level of uncertainty in Q2, and net hiring in our client base was further than expected. Now, in recent quarters and as we have seen before during periods such as we have seen, an increased level of hesitancy and hiring and buying decisions by the small to medium size businesses.

Speaker Change: This was evident from our real-time internal data reflecting nominal net hiring activity, low levels of overtime pay, and a relatively low level of commissions paid to the sales personnel at client companies, which we believe reflects a weak economic climate.

Speaker Change: Our client survey information indicated a high level of optimism going into the second quarter and the potential for at least stabilization of these metrics.

Speaker Change: Now in recent quarters, and as we have seen before during periods such as these, we have seen an increased level of hesitancy in hiring and buying decisions by the small to medium sized businesses.

Paul Sarvadi: This also often leads to more aggressive sales tactics and pricing in the marketplace, further lengthening the sales cycle. Now, even in the face of these headwinds over the first half of the year, we had what I believe is a significant level of success in sales. Both paid workside employees from previously booked sales and new booked sales over the first half of the year are in line with levels for the same period last year. These comprise the approximately 90% of targeted booked sales and paid workside employees from sales for the first half of 2024. Even though we have a 4% increase in BPAs out in the marketplace, I believe these are solid sales results against the backdrop of the uncertain economic and political climate.

Speaker Change: This also often leads to more aggressive sales tactics and pricing in the marketplace, further lengthening the sales cycle.

Speaker Change: Now, even in the face of these headwinds over the first half of the year, we had what I believe is a significant level of success in sales.

Unknown Executive: These comprise approximately 90% of targeted booked sales and paid work-out employees from sales for the first half of 2024. Even though we have a 4% increase in BPAs out in the marketplace, I believe these are solid sales results against the backdrop of the uncertain economic and political climate. Our client retention has continued to be strong in Q2. However, nominal net hiring within our client base, combined with lower than targeted paid worksite employees from previously booked sales, has caused a lower starting point for paid worksite employees as we head into the second half of 2024.

Speaker Change: These comprise approximately 90% of targeted booked sales and paid worksite employees from sales for the first half of 2024.

Speaker Change: Even though we have a 4% increase in BPAs out in the marketplace, I believe these are solid sales results against the backdrop of the uncertain economic and political climate.

Paul Sarvadi: Our client retention has continued to be strong in Q2; however, nominal net hiring within our client base, combined with the lower than targeted paid workside employees from previously booked sales, caused a lower starting point for paid workside employees as we head into the second half of 2024. The lower starting point for the second half will have an expected dampening impact within our residual income business model. We now expect lower average unit growth for the balance of the year, and the shift out one quarter before significant sequential workside employee growth would be reestablished.

Speaker Change: Our client retention has continued to be strong in Q2, however, nominal net hiring within our client base, combined with the lower than targeted paid worksite employees from previously booked sales,

Speaker Change: The lower starting point for the second half will have an expected dampening impact within our residual income business model.

Speaker Change: We now expect...

Speaker Change: Lower average unit growth for the balance of the year and a shift out one quarter before significant sequential worksite employee growth would be re-established.

Paul Sarvadi: The more important dynamic for consideration is the outlook for growth into next year and beyond. We believe we're very well positioned to have a strong second half and sales and retention, which lays the foundation for potential growth acceleration in 2025. Our confidence going into the second half comes from applying the learnings from the recent difficult period to improve sales and retention to reignite growth, even with no help from net hiring in the client base.

Speaker Change: The more important dynamic for consideration is the outlook for growth into next year and beyond.

Paul Sarvadi: We have four significant initiatives that we believe will enhance performance for the all important fall selling and retention period over the balance of the year. First, our implementation of BPA assigned accounts through our account-based experienced marketing and sales strategy I mentioned last quarter and the corresponding training. This initiative retooled our sales motion and mobilized our entire BPA team for the balance of the year. This was a bit of a distraction in the second quarter, but now represents a new level of opportunity to improve performance going forward. Secondly, our marketing success over the first half of the year generated more marketing-assisted discovery calls and booked sold employees than the first half of last year, even in this challenging business environment.

Speaker Change: We have four significant initiatives that we believe will enhance performance for the all-important fall selling and retention period over the balance of the year.

Speaker Change: First, our implementation of BPA-assigned accounts.

Speaker Change: This initiative retooled our sales motion and mobilized our entire BPA team for the balance of the year. This was a bit of a distraction in the second quarter, but now represents a new level of opportunity to improve performance going forward.

Unknown Executive: Secondly, our marketing success over the first half of the year generated more marketing-assisted discovery calls and booked-sold employees than the first half of last year, even in this challenging business environment. Third, we have completed a thorough evaluation of the sales and retention dynamics across the different segments of our client base. This has led to different approaches for each segment to incentivize prospects, current clients, and sales staff over the balance of the year.

Paul Sarvadi: We have a new national brand campaign ready to launch that we believe will differentiate and spare it in the marketplace and increase sales opportunities over the balance of the year. Third, we have completed a thorough evaluation of the sales and retention dynamic across the different segments of our client base. This has led to different approaches for each segment to incentivize prospects, current clients, and sales staff over the balance of the year. And last but not least, our new strategic partnership with Workday has the potential to contribute to our sales and retention efforts ahead. Yesterday, we reached the six-month point from signing our strategic partnership agreement with Workday.

Unknown Executive: Yesterday, we reached the six-month point from signing our strategic partnership agreement with Workday. We completed a thorough evaluation of our progress with a face-to-face meeting of senior leadership from both firms last week in California. Our go-to-market plan and the establishment of our deployment enablement team are well on the way. The Insperity corporate tenant deployment effort is on track, and we expect to begin using the Workday platform early next year.

Speaker Change: Yesterday we reached the six-month point from signing our strategic partnership agreement with Workday. We completed a thorough evaluation of our progress with the face-to-face meeting of senior leadership from both firms last week in California.

Paul Sarvadi: We completed a thorough evaluation of our progress with the face-to-face meeting of senior leadership from both firms last week in California. We are excited with the progress to date and the commitment and investment being made by both firms to go to market together with a co-branding, co-marketing, and co-selling gain plan. All four of the key initiatives, including our corporate tenant for disparities, internal use of Workday, the client tenant, which will be embedded into our PEO solution for the larger client target market, our go-to-market plan, and the establishment of our deployment and enablement team, are well on the way.

Speaker Change: We are excited with the progress to date and the commitment and investment being made by both firms to go to market together with a co-branding, co-marketing, and co-selling game plan.

Speaker Change: Our Go-To-Market Plan and the establishment of our Deployment Enablement Team are well on the way.

Paul Sarvadi: The disparity corporate tenant deployment effort is on track, and we expect to begin using the Workday platform early next year. The application tenant is being built, and we plan to begin the next round of testing shortly. We are continuing to build our out integrations for key systems. Administrative training is ongoing, and employee training is scheduled to commence in Q4. We believe that our experience through the deployment of the corporate tenant will provide disparity valuable insights into the deployment and servicing of our clients on the future PEO client tenant. We are making excellent progress on the PEO client tenant design and deployment efforts.

Speaker Change: The Insperity corporate tenant deployment effort is on track and we expect to begin using the Workday platform early next year.

Unknown Executive: The application tenant is being built, and we plan to begin the next round of testing shortly. We are continuing to build out integrations for key systems. Administrative training is ongoing, and employee training is scheduled to commence in Q4.

Speaker Change: The application tenant is being built and we plan to begin the next round of testing shortly.

Speaker Change: We are continuing to build out integrations for key systems, administrative training is ongoing, and employee training is scheduled to commence in Q4.

Unknown Executive: We believe that our experience through the deployment of the corporate tenant will provide Insperity valuable insights into the deployment and servicing of our clients on the future PEO client tenant. We are making excellent progress on the PEO client-tenant design and deployment efforts. We've used the learnings from the delivery of our initial foundation tenant to further shape our proposed solution design. The joint solution product definition is taking shape, and we're well down the road on the design and development of the solution.

Speaker Change: We believe that our experience through the deployment of the corporate tenant will provide Insperity valuable insights into the deployment and servicing of our clients on the future PEO client tenant.

Speaker Change: We are making excellent progress on the PEO client-tenant design and deployment efforts.

Paul Sarvadi: We've used the learnings from the delivery of our initial foundation tenant to further shape our proposed solution design. The joint solution product definition is taking shape, and we're well down the road on the design and development of the solution. We plan to continue to build out our client implementation support strategy and train our providers to deliver services through the platform. We're continuing to refine our pricing model for the solution to appropriately represent the value to our clients. The product implementations and system integration efforts required to enable the joint solution are well underway, and our teams are tracking progress against our project plans.

Speaker Change: We've used the learnings from the delivery of our initial foundation tenant to further shape our proposed solution design. The joint solution product definition is taking shape and we're well down the road on the design and development of this solution.

Unknown Executive: We plan to continue to build out our client implementation and support strategy and train our providers to deliver services through the platform. The product implementations and system integration efforts required to enable the joint solution are well underway, and our teams are tracking progress against our project plans. We have started the pre-selection process to identify beta clients that could be a good fit for migration to the new joint solution and support our product design process.

Speaker Change: We plan to continue to build out our client implementation and support strategy and train our providers to deliver services through the platform. We're continuing to refine our pricing model for the solution to appropriately represent the value to our clients.

Speaker Change: The product implementations and system integration efforts required to enable the joint solution are well underway and our teams are tracking progress against our project plans. We have started the pre-selection process to identify beta clients that could be a good fit for migration to the new joint solution and support our product design process.

Paul Sarvadi: We have started the pre-selection process to identify beta clients. It could be a good fit for migration to the new joint solution and support our product design process. We have begun sharing leads between both companies and are continuing to refine our processes to act on these qualified opportunities. We established a campaign to formally introduce the disparity workday, co-selling relationship directly to the sales teams to educate each other on our sales motions. The goal is to drive an increased volume of leads exchanged over the next few months to test our system as we head into the very active year-end selling season.

Unknown Executive: We have begun sharing leads between both companies and are continuing to refine our processes to act on these qualified opportunities. We established a campaign to formally introduce the Insperity Workday co-selling relationship directly to the sales teams to educate each other on our sales processes. The goal is to drive an increased volume of leads exchanged over the next few months to test our system as we head into the very active year-end selling season.

Paul Sarvadi: We believe there's an incredible amount of opportunity related to leveraging each company's sales investments efficiently. Insperity can meet the needs of many of these prospective clients, now even before the joint solutions available. Workday has products peripheral to their core HEM system that make a lot of sense for our current and prospective clients as well. We are working hard to put each other in the room with prospective clients that are actively searching and see value from these offerings. We are continuing to advance our client deployment and development strategy.

Unknown Executive: We believe there's an incredible amount of opportunity related to leveraging each company's sales investments efficiently. Insperity can meet the needs of many of these prospective clients now, even before the joint solution is available. Workday has products peripheral to their core HCM system that make a lot of sense for our current and prospective clients as well. We are working hard to put each other in the room with prospective clients that are actively searching and see value in these offers.

Paul Sarvadi: In Q3, we will begin the design of customer onboarding playbooks for both new implementations and for existing PEO client migration to the new solution. Another significant outcome of the first six months in the recent senior leadership meeting is the effort over the balance of the year to integrate the go-to-market plan into both companies' 2020-25 business objectives.

Unknown Executive: Another significant outcome of the first six months in the recent senior leadership meeting was the effort over the balance of the year to integrate the go-to-market plan into both companies' 2025 business objectives. So, in summary, we are pleased with the first half of 2024 results against a more difficult than expected business environment. We're energized about our plans for the second half to reignite our growth into next year, and we remain excited about the possibilities for the long term, including our workday strategic partnership. At this point, I'd like to pass the call back to Doug.

Paul Sarvadi: So, in summary, we are pleased with the first half 2020-24 results against a more difficult and expected business environment. We're energized about our plans for the second half to reignite our growth into next year, and we remain excited about the possibilities for the long term, including our Workday strategic partnership.

Douglas Sharp: At this point, I'd like to pass the call back to Doug. Thanks, Paul. We now expect earnings for the full year 2020-24 to be above the midpoint of our prior guidance based upon the combination of our outperformance in Q2, partially offset by slightly lower earnings expectations over the second half of the year. As Paul just mentioned, we now expect our prospect and client base to be impacted by the ongoing uncertainty in both the economic and political environment.

Douglas Sharp: Given these factors combined with the starting point going into the second half of 2024, we have lowered our full year outlook to average paid workside employees in a range of 307,400 to 310,600, which is a slight decline of 0.5% to 1.5% compared to 2023. The earnings impact from this lower workside employee guidance over the last half of 2024 is expected to be mostly offset by strong pricing, favorable benefit cost trends, and operating expense savings. During the first half of this year, our pricing and benefit costs have been slightly favorable when compared to our initial budget.

Unknown Executive: Given these factors, combined with the starting point going into the second half of 2024, we have lowered our full-year outlook to average paid worksite employees in a range of $307,400 to $310,600, which is a slight decline of 0.5% to 1.5% compared to 2023. The earnings impact from this lower worksite employee guidance in the last half of 2024, primarily in the areas of salaries and G&A. We will continue to focus on our efforts and plan spending on the implementation of the Workday Strategic Partnership. We are now forecasting adjusted EBITDA in a range of $261 million to $290 million. In Q3, we are forecasting paid worksite employees down from 1.5% to 2.5% compared to Q3 of 2023.

Douglas Sharp: We expect these factors to continue over the remainder of the year. As a result of our lower workside employee outlook, we have planned on operating expense savings from our prior forecast, primarily in the areas of salaries and GNA.

Douglas Sharp: We will continue to focus on our efforts and plans spending on the implementation of the Workday Strategic Partnership. Based on these factors, we are now forecasting full year 2024 adjusted EPS in a range of $3.33 to $3.88, with the midpoint up from our previous guidance of $3.17 to $3.90. We are now forecasting the adjusted EBITDA in a range of $261 million to $290 million.

Douglas Sharp: As for Q3, we are forecasting paid, workside employees down from 1.5% to 2.5% compared to Q3 of 2023. As for Q3 earnings, we are now forecasting the adjusted EBITDA in a range of $32 million to $45 million and adjusted EPS from 21 cents to 45 cents. Earnings comparisons to Q3 of 2023 are significantly impacted by low benefit costs in that prior period and the planned investments in the Workday strategic partnership in 2024.

Operator: Now, at this time, I'd like to open up the call for questions. Thank you very much. We are now opening up for questions. If you would like to ask a question, please press star 1 on your phone keypad now. A confirmation term will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For any participants using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment whilst we pull for questions. Thank you.

Speaker Change: From the key for any participants using speaker equipment, it might be necessary to pick up your handset before you push the keys. Please wait a moment, whilst we poll for questions.

Speaker Change: Thank you. Your first question is coming from Andrew Nicholas of William Blair.

Andrew Nicholas: Your first question is coming from Andrew Nicholas of William Blair. Andrew, your line is live.

Speaker Change: Andrew Your line is live.

Speaker Change: Yeah.

Andrew Nicholas: Hi. Good morning. Thank you for taking my questions.

Andrew Nicholas: Hi, Good morning, Thank you for taking my questions.

Unknown Attendee: Hi, good morning. Thank you for taking my questions. I wanted to start by talking a bit about the Worksite Employee Guidance Change. Is there a way to maybe break out the lower second half? Outlook between reduced expectations for net client hiring versus, on the new business side or sales execution front? If you could maybe unpack that a little bit further, that'd be helpful. Sure, Andrew.

Douglas Sharp: I wanted to start by talking a bit about the work that employee guidance change. Is there a way to maybe break out the lower second half, outlook between reduced expectations for net client hiring versus softness on the new business side or sales execution? If you could maybe unpack that a little bit further, that'd be helpful. Sure, Andrew. Thanks for the question. Good question. The biggest impact on the outlook for a unit growth for the balance of the year is the starting point. We also, though, did continue to reduce any benefit from the client hiring because that's been evident that the level of uncertainty is high, and I expect that to continue at least through the election period.

Andrew Nicholas: Good morning, just to start by talking a bit about the worksite.

Speaker Change: Ploy guidance change.

Speaker Change: Is there a way to maybe break out the lower second half outlook.

Speaker Change: Outlook between reduced expectations for net client hiring versus <unk>.

Speaker Change: Softness.

Speaker Change: On the new business side or or sales execution.

Unknown Executive: Sure, Andrew. Thanks for the question. It's a good question.

Speaker Change: Brian.

Unknown Executive: The biggest impact on the outlook for unit growth for the balance of the year is the starting point. We also, though, did continue to reduce any benefit from client hiring because it's evident that the level of uncertainty is high, and I expect that to continue at least through the election period. So, uh, but the biggest issue is kind of the recent activity in the client base that caused the number to be lower at the start.

Douglas Sharp: But the biggest issue is kind of the recent activity in the client base that caused the number to be lower at the start. And of course, there were two contributors to that, even though we had what I believe is very effective sales in this environment. The starting point is affected by lower than desired, lower than hitting our target number for paid work side employees. But the biggest issue was that starting point in June, which reflected significant less hiring, especially as the quarter evolved compared to last year.

Unknown Executive: And of course, there were two contributors to that. You know, even though we had what I believe is, you know, very effective sales in this environment, the starting point was affected by, you know, lower than desired, lower than hitting our target number for paid worksite employees. But the biggest issue was that starting point in June, which reflected significantly less hiring, especially as the quarter evolved compared to last year.

Douglas Sharp: Understood.

Unknown Attendee: And then, Paul and Doug, I mean, in your prepared remarks, you touched very briefly, I think, on the competitive environment and how different firms or PEOs can be more aggressive when it's harder to close some of these deals. I'm just wondering if that, I think, you had talked about that last quarter as well. But has that changed?

Paul Sarvadi: And then Paul and Doug, I mean, in your prepared remarks, you touch very briefly, I think, on the competitive environment and how different firms or PEOs can be more aggressive when it's harder to close some of these deals. I'm just wondering if that, I think you had talked about that last quarter as well, but has that gotten... Maybe worse or more competitive versus last quarter. And how would you characterize your own aggressiveness or participation in that kind of activity? Yes, first of all, no, I don't think it's any more than it has been. It's been that way for a little while.

Brian: More aggressive when it is harder to close some of these deals I'm. Just wondering if that I think you had talked about that last quarter as well, but has that gotten.

Brian: Maybe worse or more competitive versus last quarter, and how would you characterize your own aggressiveness or participation in that kind of activity.

Speaker Change: Yes first of all no I don't think it's any more than it has been it's been that way for a little while I would say probably the last.

Paul Sarvadi: I would say probably last, you know, got started to get more aggressive about a year ago. Got more aggressive. As you got into year end and then throughout this year, it's been pretty much the same. We have continued to win our share of the accounts. And, you know, I would say that, you know, we've been effective in especially, you know, we know which accounts fit us best. And so we do the work to make sure that those accounts are the ones that bring in, but, you know, we're winning the same percentage of our accounts that we have in that comparison.

Speaker Change: Starting to get more aggressive about a year ago got more aggressive as you got into year end and then throughout this year, it's been pretty much the same.

Speaker Change: We have continued to win our share of the accounts and.

Speaker Change: Would say that.

Paul Sarvadi: competitive environment. So it's really been more the overall activity level that affected the volume more than anything. And that's kind of natural. We also, you know, have more hesitation in making a final decision that we've seen. We also actually had some accounts that have been sold that kind of defer their starting point. So, you know, all that ways into, you know, your immediate workside employee count. Very helpful. Thank you.

Douglas Sharp: And then, if I could just squeeze one more in on the guidance and maybe the conservatism of guidance from here. Looks like, you know, you lower the work that employee outlook, but we're able to maintain the, if not, not to improve the EBITDA and EPS outlook. And so I'm just wondering if there's any less conservatism in the healthcare piece of the business as an offset. Or if that's primarily a function of some of the cost actions and salary and DNA savings that you mentioned, dug in your script. Thanks again. Well, I think it's a combination of two.

Unknown Executive: Well, I think it's a combination of two, but if you look on the health care side, it's two things. It's the higher pricing that we've been getting relative to our initial targets. So that's as much a piece of it as the cost side of things. And, you know, we see that continuing. Our intent is always to be conservative on that number, as you know, because that's, I feel like, we're still conservative in that number and what we recorded at the end of the second quarter for our IBNR.

Douglas Sharp: But if you look on the healthcare side, it's two things. It's the stronger pricing that we've been getting relative to our initial targets. So that's as much a piece of it is the cost side of things. If you remember, going into the year, I commented on an initial medical healthcare cost trend in the four and a half to six percent range or so. If you look through the first half of the year, it's been trending at the low end of that range, maybe in a slight little bit less than the low end. And you know, we see that continuing.

Speaker Change: 5% to 6% range or so.

Speaker Change: If you look through the first half of the year, it's been trending at the low end of that.

Speaker Change: Range, maybe even slightly little bit less than the low end.

Speaker Change: And we see that continuing.

Speaker Change: That sort of trend continuing over the remainder of the year.

Douglas Sharp: That sort of trend continuing over the remainder of the year. Our intent, as always, is to be conservative on that number, as you know, because that's, you know, that's where you can have a little bit more volatility from quarter to quarter. We came off of, if you remember, we came off of the first quarter with some of the experiences behind this Change Healthcare thing. And we, I think we appropriately reserved for any delays and processes in the result of that issue that came up. Um. I feel like, you know, we're still conservative in that number and what we recorded at the end of the second quarter for our IB&R.

Speaker Change: Our intent is always to be conservative on that number as you know because thats.

Speaker Change: That's where you can have a little bit more volatility from quarter to quarter.

Speaker Change: We came off of if you remember we came off of.

Speaker Change: The first quarter with some of the experiences behind this change healthcare thing and we.

Speaker Change: I think we appropriately reserved for any delays in processes and the result of that of that issue that came up.

Douglas Sharp: So, overall, you know, we always want to be in 10 going into the year, conservative in our estimates, both on the healthcare side and the workers' comp side. But it has been trending favorably over the course of the year thus far, and even with what we feel as a level of conservatism, we still feel like it ought to trend towards the lower end of my initial range. I would just add that the nature of our business, there's never a time where we would ever be aggressive on such a number. It makes sense in the business when we're to be conservative in our outlook relative to the benefits.

Unknown Executive: So overall, You know, we always want to be in the 10 going into the year conservative in our estimates, both on the health care side and the workers comp side. But it has been trending favorably over the course of the year thus far, and Yeah, I would just

Unknown Executive: Yeah, I would just add that in the nature of our business, there's never a time where we would ever be aggressive on such a number. It makes sense in the business when we're to be conservative in our outlook relative to the benefit.

Douglas Sharp: Thank you very much.

Operator: Thank you very much. Your next question is coming from Mark Marcon of Robert W. Baird & Company. Mark, your line is live.

Mark Marcon: Your next question is coming from Mark Marcon of Robert W. Bed and Company.

Paul Sarvadi: Mark your line of life. Good morning, and thanks for taking like questions. So two sets of questions. The first set revolves around the Workday partnership. Paul, I'm wondering if you can talk a little bit about the quality of the leads that you're currently seeing, just the level of cooperation, and really appreciate the update with regards to how much you've been spending so far on Workday. I'm wondering if you've got any updates now that you've got greater clarity with regards to the year in terms of how much you're going to spend this year and what your preliminary thoughts are for next year.

Paul Sarvadi: And lastly, related to Workday, are you going to incorporate Workday in terms of your new campaign, which you mentioned you're going to be launching.

Speaker Change: Would you you mentioned youre going to be launching.

Speaker Change: Great. Thanks for the question so.

Paul Sarvadi: Thanks for the question. So, as I was mentioning in my remarks, we just hit that six-month point, and we had a leadership meeting to evaluate where we are, where we're going, what to really put the hammer down on, etc. And definitely, it's very encouraging as to moving forward on all of the fronts that we envisioned in this strategic partnership. Everything moved as fast as I wanted to. No, nothing ever moves like that. But we definitely, as I mentioned, this effort to communicate with both sales organizations; that's what drives the quality of the lead flow. And so that process has already begun and has already shown some very good signs.

Speaker Change: As I was mentioning in my remarks, we just hit that six month point and we had a leadership meeting to evaluate where we are where we're going what to really put the hammer down on et cetera.

Speaker Change: And definitely.

Speaker Change: It was very encouraging.

Speaker Change: As to moving forward on all of the fronts that we envisioned in this strategic partnership.

Unknown Executive: that we envisioned in this strategic partnership. There were ways we could have thrown more mud up against the wall quicker with leads that would be less qualified.

Paul Sarvadi: There were ways we could have thrown more mud up against the wall quicker with leads that would be less qualified, but I believe the work that we've done together really puts us in a strong position to do the, you know, a level of piloting over the next month or two, and then some stronger volume of activity over the balance of the year. That allows the companies to put into our 2025 plan. Target. And that's critical. As you know, people always respond to what's in their game plan. Now we started this agreement; you know, it just barely in time to build things into our plan, but beyond the opportunity to build them into work-based planning.

Unknown Executive: But I believe the work that we've done together really puts us in a strong position to do the level of piloting over the next month or two and then some stronger volume of activity over the balance of the year that allows the companies to put into our 2025 plan. How this is going to work together where the two companies are going after this target market to take both companies' product sets into the market together.

Paul Sarvadi: It was, you know, going to be; it was hard to predict some of those things in the first place. So we are well down that road. Now, and very excited about how this is going to work together where the two companies are going after this target market with a plan that both of us are working to take both companies' product sets into the market together. And in preparation for this joint solution that we believe is going to be a hand-in-glove fit. And for a significant portion of that marketplace in a disruptive manner, relative to lower cost, quicker timing of deployment and enablement, and getting the value out of this solution being embedded into our PEO opportunity that we bring into the marketplace.

Speaker Change: To take both companies product sets into the market.

Unknown Executive: And in preparation for this joint solution that we believe is going to be a hand and glove fit for a significant portion of that marketplace in a disruptive manner relative to lower cost, quicker timing of deployment and enablement, and getting the value out of this solution being embedded into our PEO, and the opportunity that we're bringing to the marketplace. So we're very encouraged about that, and I don't have time to talk about it because I don't have the opportunity to talk about it today.

Speaker Change: Together.

Speaker Change: And in preparation for this joint solution that we believe is going to be a.

Unknown Executive: I just want to take a moment to mention that, [inaudible] you know, conversion rates yet, things of that nature. So we didn't build a lot of benefit from this into our results for the year, but there's quite a bit of upside potential simply because of the account size and the ability to co-sell them. So we're excited about it, but we're being cautious about the timing for that. Arrangement

Speaker Change: Hand in glove fit for a significant portion.

Speaker Change: Of that.

Speaker Change: Marketplace in a disruptive manner relative to lower cost quicker.

Speaker Change: Timing of deployment and enablement and getting the value out of.

Speaker Change: This solution being embedded into our.

Speaker Change: PEO.

Speaker Change: Opportunity that we're bringing into the marketplace. So we're very encouraged about that and.

Paul Sarvadi: So we're very encouraged about that. And, you know, I don't have, you know, conversion rates yet, things of that nature. So we didn't build a lot of benefit of this into our results for the year, but there's quite a bit of upside potential. So simply because of the account size and the ability to post sell them. So we're excited about it, but being cautious about the timing for that. But we would not, after a flash in the pan, were after a long term arrangement that continually provides growth for both firms in this target market.

Speaker Change: I don't have.

Speaker Change:

Paul Sarvadi: And will you want to comment about kind of investments? I'm sorry, go ahead. What was that? I was wondering if they were going to, if Workday was going to be incorporated into the campaign, but appreciate the discussion with regards to investments as well. So, as I mentioned, you know, we talked about our different segments. And so there, you know, there will be, and there is an ongoing effort of communication that introduces and then reinforces and supports. The introduction of partnership, especially to the higher end and even kind of our emergent growth customers. So yes, there's some aspects of that.

Unknown Executive: So, as I mentioned, you know, we talked about our different segments.

Paul Sarvadi: I don't; you will not see that in the national campaign at this point. It's too early for that. But, you know, that dynamic is something we'll be talking about for next year.

Speaker Change: Campaign at this point.

Speaker Change: It's too early for that.

Speaker Change: That dynamic is something we'll be talking about for next year.

Speaker Change: Okay. Thank you very much. Your next question is coming from Jeff Martin of Roth Capital Partners, Jeff Your line is live.

Douglas Sharp: Okay, thank you very much.

Jeff Martin: Your next question. is coming from Jeff Martin of Roth Capital Partners.

Douglas Sharp: Jeff, your line is live. Good morning, and as a follow-up to that, I think Doug was about to introduce the investment for maybe balance this year and the next year, so I'll follow up on that. Yeah, so if you recall coming into this year, we were estimating our costs from both our internal resources that are fully dedicated to this partnership, along with our costs associated with the utilization of Workday resources in the neighborhood of about $60 million for this year. As I just reported through the first through the second quarters, second quarter, it's in the area of 19 million dollars or so.

Jeff Martin: Thanks, Good morning, and as a follow up to that I think Doug was about to introduce the investment for maybe the balance of this year and into next year. So I'll follow up on that.

Speaker Change: Yeah. So if you recall.

Speaker Change: Into this year.

Speaker Change: We were estimating our costs.

Speaker Change: From both our internal resources that are fully dedicated to this partnership along with.

Speaker Change: Our costs associated with the utilization of Workday resources.

Unknown Executive: in the neighborhood of over about $60 million for this year. As I just reported through the first through the second quarters, second quarter, it's in the area of $19 million or so. So we look forward to the remainder of this year through the third and the fourth quarters. We feel like that like the investment is still in that same ballpark of $60 million or so. We didn't quantify in specific dollars next year's investment. However, we did say that the majority of the

Douglas Sharp: So we look forward to the remainder of this year through the third and the fourth quarters. We still like that, like the investment is still in that same ballpark of $60 million or so. We didn't quantify in specific dollars next year's investment. However, we did say that the majority of the full investment is weighted heavier in the first couple of quarters. I'm sorry, first couple of years. So, as you look at it in 2025, well, it's up to $60 million we're investing this year. It should be generally in that same ballpark. A couple.

Unknown Executive: A couple. And then, so for my primary questions, I'm curious where you are with the implementation of the Workday solution internally. I know that's something that you were starting with to familiarize the entire organization with Workday. And then, secondly, can you give us an update on healthcare benefits trends specific to maybe pharmacy costs, plan changes that you implemented versus last year? And then, finally, just general, you know, frequency trends.

Douglas Sharp: And then, so for my primary questions, curious where you are with the implementation of the Workday solution internally. I know that's something that you were starting with. It's familiarized both the entire organization with Workday.

Douglas Sharp: And then secondly, can you give us an update on healthcare benefits trends specific to maybe pharmacy costs, plan changes that you've implemented versus last year, and then finally just general frequency trends. Yeah, so the first part of your question I can handle. That on our game plan for implementation and moving all of our corporate staff onto Workday. And as I mentioned in my prepared remarks, we are on track for early next year as planned. And you know, we are even in the process now of having people leadership trained in certain ways so we can, in the fourth quarter, be training the whole staff to be moving on to the system.

Unknown Executive: We are on track for early next year as planned, and, you know, we are having people leadership trained in a certain way so we can, in the fourth quarter, be training the whole staff to be moving on to the system.

Douglas Sharp: Yeah, so, you know, if you remember last year, our pharmacy trends were elevated. You, particularly dealing with the specialty drugs like the Olympics and the little butchers, etc. So we had an elevated trend, obviously, last year. That's for this year. We've seen more of normalization this year. I wouldn't say all the way back; obviously, those drugs are still being used, but we feel like it's less than 10% or so that that pharmacy trend this year. Last year, it was about 17%. So you can see that trend has come down; some of the comparisons, you know, year-over-year comparisons, but that's what we're seeing, and that's what we're modeling in for this year.

Speaker Change: Thus far this year.

Speaker Change: We've seen it.

Speaker Change: More of a normalization this year end.

Speaker Change: I wouldn't say all the way back obviously those those jobs are still being used but we.

Unknown Executive: I wouldn't say all the way back. Obviously, those drugs are still being used, but we feel like it's less than 10 percent or so that that pharmacy trend this year. Last year, it was, and we are modeling in for this year.

Speaker Change: We feel like it's less.

Speaker Change: Less than 10% or so that that pharmacy trend this year last year. It was.

Speaker Change: About 17%. So you can see that trend has come down some of the comparisons year over year comparisons but.

Speaker Change: That's what we're seeing and that's what we're.

Speaker Change: Our modeling in for this year.

Douglas Sharp: Thank you. Thank you very much.

Speaker Change: Thank you.

Speaker Change: Thank you very much.

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

Tobey Sommer: Your next question is coming from Tobey Sommer of Truist Securities.

Speaker Change: Next question is coming from Tobey Summer of Truest Securities Tobey Your line is live.

Jack Wilson: Tobey, Your Line is Life. Yeah, hey, good morning.

Jack Wilson: Yeah, hey, good morning. This is Jack Wilson on for Toby, maybe just a little bit of a follow up on on work day in the fall selling season. So it sounds like it will not be in the national campaign. Could it still be a material driver of sequential growth in early 2025? Or is that still sort of too early to see it?

Paul Sarvadi: This is Jack Wilson on for Tobey. Maybe just a little bit of a follow-up on Workday and the fall of selling the season. So it sounds like it will not be in the national campaign. Could it still be a material driver of sequential growth in early 2025, or is that still sort of too early to see it? No, it absolutely can be, and I want to be conservative about its difficult for me to be conservative talking about the work day relationship and its potential because it is enormous. The timing of that potential is a little bit harder to predict, and it's a little more chunky because they're bigger accounts.

Paul Sarvadi: So hey, if it's just barely effective, it can still affect our January One numbers. So I'm hopefully at least some effective, although we didn't really build that into the picture yet for the balance of the year because most of these larger accounts wouldn't start until January anyway. So I'm very excited about what the opportunities are. We're working together extremely well, and we are now working things down into the operational level so that this will, you know, you're starting to turn on the faucet. We've done all the plumbing, and now we're turning on the faucet. But you don't turn it on all the way when you start; you turn it on a little, make sure there's no leaks anywhere, and then you start to crank it up.

Unknown Executive: So I'm hopeful we have at least some effective controls, although we didn't really build that into the picture yet for the balance of the year because most of these larger accounts wouldn't start until January anyway.

Unknown Executive: I'm very excited about what the opportunities are. We're working together extremely well. And we are now working things down into the operational level so that we will know you're starting to turn on the faucet. We've done all the plumbing. And now we're turning on the faucet, but you don't turn it on all the way. When you start, you turn it on a little, make sure there are no leaks anywhere, and then you start to crank it up.

Paul Sarvadi: So that's exactly what's going to be happening over the balance of the year. We're, at the very minimum, going to learn a lot about how to make this super impactful in 25. However, I believe we're going to see certainly see some good activity levels. You know, following up leads and, you know, in our world that usually converts into adding, adding business. So, you know, we are getting closer and closer to where the timing of when we're going to launch the new offering fits within the range of anybody considering getting on to work. They remember for most companies it takes, you know, 12, 18 months, you know, just to even get on.

Unknown Executive: So that's exactly what's going to be happening over the balance of the year. We're at the very minimum. We're going to learn a lot about how to make this super impactful in twenty five. However, I believe we're going to see, certainly see some good activity levels.

Tobey Summer: Over the balance of the year.

Speaker Change: We're at the very minimum we're going to learn a lot.

Speaker Change: How to make this super impactful in 'twenty five.

Speaker Change: However, I believe we're going to see.

Speaker Change: Certainly see some good activity levels.

Speaker Change: <unk>.

Speaker Change: Following up leads and.

Speaker Change: In our world that usually converts into adding adding business. So.

Speaker Change: We are getting closer and closer to where the timing of when we're going to launch the new offering fits within the range of anybody considering getting on to workday remember for most companies. It takes.

Speaker Change: 12 to 18 months.

Speaker Change: Just to even get on so we're getting near that range and that's when we.

Paul Sarvadi: So we're getting near that range, and that's when, you know, we will be definitely co-selling and helping the customer make sure they're going the right direction that suits them. And that's what we'll be doing in 25, and we will be doing that to a degree in this fall period.

Speaker Change: We will be definitely co selling and helping the customer make sure. They are going the right direction that suits them and that's what we'll be doing in 'twenty five and we will be.

Paul Sarvadi: Okay, thank you for that color there.

Unknown Attendee: Okay, thank you for that color there. And then maybe a quick one on the guide. So, just quick math looks like the midpoint of EBITDA is about 2 million higher than the prior guide. Is it possible to quantify the moving pieces in that?

Unknown Executive: [inaudible]

Douglas Sharp: And then just maybe a quick one on the guide. So just quick math looks like the mid point of EBITDA is about sort of two million higher than the prior guide.

Douglas Sharp: Is it possible to quantify the moving pieces in that? Yeah, I mean the pieces are, of course, that the workside employee count is lower because of the starting point primarily. And that's why it kind of shifts out when that growth acceleration begins in the fourth quarter instead of the third, where we were. But, and when you have that volume difference, that obviously is a drag. But that's being offset mostly, you know, all but you know, we beat the quarter by six million. The years only going up to the negative four is due to that volume.

Douglas Sharp: And that volume is quite a bit more than that. That was offset by the lower benefit trend and mainly the pricing side, which has also been strong. And then also, you know, if we have a lower level of workside employees, we manage expenses to match that. And so some of that also helped in there.

Douglas Sharp: So there's, you know, still, you know, we're hopeful to see upside from what we're the guidance is, but we believe this is the appropriate guidance based on, you know, where we're starting the last half of the year.

Douglas Sharp: I appreciate the time.

Douglas Sharp: Thank you very much.

Mark Marcon: And our next question is coming from Mark Markon of Robert W.

Mark: And our next question is coming from Mark Mark on of Robert W. Baird and company Mark Your line is life.

Mark Marcon: Bed and company mark your line of life. I was wondering if you could talk a little bit more about, you know, the strong gross margin, gross profit per workside employee, you know, during this past quarter. Were there any accrual reversals or anything along those lines that benefited? And then, more importantly, you mentioned that, you know, clients are hesitant, but pricing is actually stronger, and I was wondering if you could just, you know, talk a little bit about what's driving the improved pricing that you're getting relative to plan. Yeah, I mean, as far as you're coming with respect to any adjustments, obviously, I think you recall going back to this Change Healthcare breach.

Mark: I was wondering if you could talk a little bit more about.

Unknown Attendee: I was wondering if you could talk a little bit more about, you know, the strong gross margin and gross profit per worksite employee during this past quarter. Were there any accrual reversals or anything along those lines that benefited? And then, more importantly, you mentioned that, you know, clients are hesitant, but pricing is actually stronger. And I was wondering if you could just, you know, talk a little bit about what's driving the improved pricing that you're getting relative to plan.

Mark: The strong gross margin gross profit per Worksite employee.

Mark: During this past quarter.

Mark: Were there any accrual reversals or anything along those lines that benefited and then more importantly.

Speaker Change: You mentioned that you know clients are hesitant, but pricing is actually stronger and I was wondering if you could just.

Speaker Change: Talk a little bit about what's driving the improved pricing that you're getting relative to plan.

Mark: Yeah.

Speaker Change: Far as.

Speaker Change: Your comment.

Speaker Change: With respect to any adjustments.

Speaker Change: Obviously, I think you recall going back to this change healthcare breach.

Speaker Change: <unk>.

Douglas Sharp: It was appropriate for us when that was going on to make a very conservative estimate on IBR because obviously, when that happens, there's a change in the payment process. But by our insurance carrier to the participants because the whole flow of information from the provider to the insurance carrier, it's ever was impacted by that. And so we feel like in the end of the first quarter, we've made an appropriate conservative IBNR adjustment to take that into account, going into the second quarter. It proved that it was definitely conservative, but to the extent where we could, it was appropriate to reduce that reserve.

Speaker Change: It was appropriate for us when that was going on to make a very conservative estimate on <unk>, because obviously when that happens there's a change in the payment process.

Unknown Executive: We feel like at the end of the first quarter, we made an appropriate conservative IBNR adjustment to take that into account. Going into the second quarter, it proved that it was. There was a reserve adjustment on the medical side as it relates to that particular issue that hit second quarter earnings.

Douglas Sharp: So the claims that ran off and were paid in the second quarter came off lower than what we initially estimated really the impact of that breach to be.

Douglas Sharp: Okay. So yes, you'll, there was a reserve adjustment on the medical side as it relates to that particular issue that hits the second quarter earnings.

Douglas Sharp: Okay. Yeah, the second part of the pricing on the pricing side. Yeah, it really is going well. And keep in mind pricing in our world, of course, is the total price of what we do that includes our markup and all the direct allocations, correct cost related allocations, etc. And every month, of course, we have new and renewing business. So, you know, we're continuing to have very effective pricing efforts on both sides, new and renewing, but we're also able to be aggressive where we want to be to continue to, you know, deal with the economic climate.

Unknown Executive: Yeah, it really is going well. And keep in mind that pricing in our world, of course, is the total price of what we do that includes our markup and all the direct allocations, correct cost-related allocations, etc. And every month, of course, we have new and renewing business. So, you know, we're continuing to have very effective pricing efforts on both sides, new and renewing business. But we're also able to be aggressive where we want to be to continue to deal with the economic climate.

Douglas Sharp: And as we mentioned last, really a couple quarters ago, and reinforce last quarter, you know, we're able to do things to be aggressive. You know, with more of a try-and-buy approach for new customers coming on to be more competitive with the marketplace, but even so, continually maintaining our position as the premium service offering in the marketplace. We do more than anybody else, you know. Our breadth, depth, and level of care that we offer to the customer is a differentiating factor. It's worth more money, but we have to make sure that that premium is within a range that is acceptable; customers will make that move.

Unknown Executive: And as we mentioned last, really a couple quarters ago, and reinforced last quarter, we're able to do things to be aggressive, you know, with more of a try and buy approach for new customers coming on, to be more competitive with the marketplace, maintaining our position as the premium service offering in the marketplace. We do more than anybody else. You know, the breadth, depth, and level of care that we offer to the customer is a differentiating factor.

Unknown Executive: It's worth more money, but we have to make sure that that premium is within a range that is acceptable. Customers will make that move, and we've been able to do that well in terms of, you know, working with the sales team and our pricing and review group to make all that work.

Douglas Sharp: And we've been able to do that well in terms of working with the sales team and our pricing and review group to make all that work. That's great. Is how would you characterize pricing relative to, say, a year ago just in terms of the services that you're providing? Is that up a few percent, or how would you frame that if you're stripping out the past? Yeah, so listen on the renewing business, you know, definitely up as our strategic plan is, and then on new business, you know, actually, you know, about the same, just a hair, a hair hire maybe.

Unknown Attendee: That's great. How would you characterize pricing relative to, say, a year ago, just in terms of the services that you're providing? Is that up a few percent, or how would you frame that? If you're stripping out the past. Yeah, so listen.

Unknown Executive: You know, definitely up as our strategic plan is.

Douglas Sharp: Great.

Douglas Sharp: Thank you. Thank you very much.

Paul J. Sarvadi: Thank you very much. Well, we appear to have reached the end of the question and answer session. I will now turn the call over to Mr. Sarvadi for his closing remarks.

Operator: Well, we appear to have reached the end of the question-and-answer session.

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

Paul Sarvadi: I will now turn the call over to Mr. Salvotti for closing remarks. Well, thank you. Once again, we want to thank everyone for participating today, and we are super excited about the last half of this year and how we're positioned in the game plan that we have, the specific initiatives. That we believe will drive us toward reigniting our growth plan. We're excited about our work day relationship and how that has evolved to this point and what that means for us going forward. So once again, thank you for participating. We look forward to our next dialogue next quarter.

Speaker Change: Toward.

Mark: Reigniting our growth plan.

Mark: Excited about our workday relationship and how that has evolved to this point and what that means for us going forward. So once again. Thank you for participating we look forward to our next dialogue.

Speaker Change: Next quarter. Thank you.

Operator: Thank you.

Operator: Thank you very much.

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