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Edited Transcript of NSP earnings conference call or presentation 29-Jul-19 2:00pm GMT

Q2 2019 Insperity Inc Earnings Call

KINGWOOD Oct 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Insperity Inc earnings conference call or presentation Monday, July 29, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Douglas S. Sharp

Insperity, Inc. - Senior VP of Finance, CFO & Treasurer

* Paul J. Sarvadi

Insperity, Inc. - Co-Founder, Chairman & CEO

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Conference Call Participants

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* James Robert MacDonald

First Analysis Securities Corporation, Research Division - MD

* Jeffrey Michael Martin

Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst

* Mark Steven Marcon

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Tobey O'Brien Sommer

SunTrust Robinson Humphrey, Inc., Research Division - MD

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Presentation

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Operator [1]

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Good morning. My name is Jay, and I'll be your conference operator for today. I would like to welcome everyone to the Insperity Second Quarter 2019 Earnings Call. (Operator Instructions)

At this time, I would like to introduce today's speakers. Joining us are Paul Sarvadi, Chairman of the Board and Chief Executive Officer; and Douglas Sharp, Senior Vice President of Finance, Chief Financial Officer and Treasurer.

At this time, I'd like to turn the call over to Douglas Sharp. Mr. Sharp, please go ahead.

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [2]

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Thank you. We appreciate you joining us this morning. Let me begin by outlining our plan for this morning's call. First, I'm going to discuss the details behind our second quarter 2019 financial results. Paul will then comment on the key drivers behind our Q2 results and our plans for the remainder of the year. I will return to provide our financial guidance for the third quarter and an update to the full year 2019 guidance. We will then end the call with a question-and-answer session.

Now before we begin, I would like to remind you that Mr. Sarvadi or myself 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.

For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements and reconciliations of non-GAAP financial measures, please see the company's public filings, including the Form 8-K filed today, which are available on our website.

Now let's discuss our second quarter results in which we achieved $0.83 in adjusted EPS, a 22% increase over Q2 of 2018, and adjusted EBITDA of $56.7 million, also an increase of 22%.

As for the details, average paid worksite employees increased 14% over Q2 of 2018 resulting from new client sales driven by an 11% increase in the average number of Business Performance Advisors. Client retention averaged just above 99% during the quarter, near our historical high level. Net gains in our client base were lower than expected, particularly during the month of June, as a result of less hiring of full-time and seasonal employees by our clients. During the second quarter, net gains in our client base were down by 15% from Q2 of 2018 even though the client base is significantly larger.

Gross profit increased by 12% over Q2 of 2018 and included higher-than-forecasted benefit costs, partially offset by favorable results in our workers' compensation program and higher pricing. The higher benefit costs resulted from large health care claim activity in which these claims were approximately 22% of total health care claims during Q2 compared to normal and recent historical levels of 18% to 20%. Now while the higher-than-expected large claim activity may happen in a quarter from time to time with a plan of our size, a detailed analysis of the underlying Q2 claims data, benefit plan participant data and plan migration still indicates a full year 2019 expected benefit cost trend of only 2% to 2.5%.

Second quarter adjusted operating expenses increased 12% and included continued investments in our growth, including costs associated with the increase in the number of Business Performance Advisors and the opening of 8 new sales offices over the past 4 quarters. We have also continued to invest in service personnel with client growth and our client-facing back-office and cybersecurity technology.

Our effective tax rate in Q2 came in at 28%, similar to our estimate for the latter half of this year, equating to an estimated full year rate of 22%.

As for our balance sheet and cash flow, we ended the second quarter with $131 million of adjusted cash. This is up from $129 million at December 31, 2018, after the repurchase of 315,000 shares of stock at a total cost of $39 million, of which 85,000 shares were repurchased in Q2 at a cost of $10 million. Additionally, we have paid $25 million in cash dividends during the first half of 2019, and this reflects our continued focus on providing shareholder return as we invest in the long-term growth of our business.

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

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [3]

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Thank you, Doug. Today, I plan to cover 3 topics of interest to shareholders. I'll start by highlighting significant developments in Q2; second, I'll cover our plans for the balance of the year to continue our momentum; third, I'll discuss our strong competitive position supporting our long-term strategy.

The second quarter included continued solid execution of our 2019 operating plan contrasted with 2 significant challenges from factors outside our direct control. New sales, client retention, expansion and product development all progressed on plan, while lower net hiring in our client base and frequency and severity of large health care claims presented impediments. Despite these challenges, our business model demonstrated substantial resiliency, and our earnings outlook is on track for the year.

New sales were 101% of forecast over the first half of the year as sales efficiency stayed the same despite an 11% increase in the average number of Business Performance Advisors. This demonstrates our success in hiring and training new Business Performance Advisors, which is the key driver for future growth.

Our marketing success is continuing to support our growth and expansion. In the second quarter, total worksite employees sold for marketing leads increased 25% over the same period last year. Total visitors to our website increased 13%, while organic search traffic was up 22%. In addition, consistent with our 2019 goal of extending our authority in the HR space, unique visitors to our blog was up 25%.

Client retention was above 99% in the quarter, continuing to demonstrate the value of our unique offering to small and medium-sized businesses and our ability to sustain excellent service levels in a high-growth mode. This is particularly impressive considering we are in our fifth consecutive year with double-digit growth in worksite employees.

Our office expansion plan is marching on as we open new offices in L.A., Portland, Austin, Tampa and San Diego in the first half of this year. We expect 5 more new offices in the second half, including Las Vegas, Chicago, Sacramento, New Jersey and Providence. Our product development plans are also progressing nicely as we gained sales momentum in our traditional employment solution, workforce Acceleration, and an increase in WX sales activity from Q1 translated into a solid increase in closed accounts at targeted prices in Q2.

We also continued our rollout of our new HR analytics engine within our technology platform, Insperity Premier, by training our HR professional services staff and introducing the new technology to enterprise and mid-market accounts. This new capability has been very well received by current clients and has added energy to the sales process for potential clients.

So while all these key components of our plan for this year performed admirably over the first 2 quarters, 2 issues in the second quarter presented challenges. First, in the month of June, we experienced substantially less hiring within our client base than we expected based upon relevant history. Interestingly, the reason for this appears to be difficulty finding qualified talent rather than any slowdown in demand. Our recruiting team identified some trends -- recent trends resulting from the unusual combination of the unemployment rate at a 49-year low and more job openings than people looking for work. Competition for employees is substantial and many candidates are receiving multiple offers and have their pick of opportunities. Companies have responded by accelerating the hiring process with many candidates receiving offers within 24 hours of an interview. In addition, candidates are turning down offers because they've accepted counteroffers from their current employers. As a result, the ratio of recruiter interviews to hires is tracking at 14:1, which is much higher than previous years at 7:1.

Now even though a tight labor market can make the net hiring in our client base a bit choppy, it's an overall positive for our business. Through Insperity, clients have the benefits and services they need to compete against big companies in hiring and retaining employees. This is certainly an advantage our prospective clients are seeking today.

A second issue that presented in the second quarter was an unusually high incident and severity rate of large health care claims. As we have discussed on many occasions, the predictability of the cost of our health plan is excellent on an annual basis, which is how health plans are typically managed. However, it's somewhat random over the course of any given year whether a concentration of large claims may occur within one particular quarter. This is what we believe happened in the second quarter this year. We've analyzed our underlying plan trends, including large claim activity, plan utilization and plan demographics. Based on that analysis, we expect large claims to normalize and overall benefit cost trend to remain relatively low for the remainder of 2019.

Both issues, lower worksite employees from net hiring and a higher percentage of large claims have direct impact on earnings in our model. However, our business model demonstrated considerable resiliency as other positives, from managing pricing, direct cost and operating expenses, have offset these unfortunate occurrences. Fewer worksite employees from client hiring has adjusted our expectation for the full year to the low end of our previous worksite employee growth range at approximately 14%. We also expect to be in the range of our previous guidance for the full year in earnings despite the higher-than-expected large claims we experienced in Q2.

Now for the balance of the year, we are full steam ahead executing our growth and expansion plan to continue the strong momentum we have experienced several years in a row. The key metric to follow to continue our strong growth momentum is the number of Business Performance Advisors we have in the marketplace. We ended Q2 with a 13% increase year-over-year in this metric, and we expect to continue hiring and training BPAs over the last half of 2019. We expect to have approximately 620 BPAs in Q4, a 14% increase, which sets the stage to continue solid, double-digit growth in 2020.

We are also focused on our mid-market and enterprise segment opportunities where we believe we are now delivering the same type of game-changing service that we've provided to many small businesses for many years. Our new analytics engine is allowing us to demonstrate our software with a service differentiation and meet the high level of need for strategic HR in these companies. We have the strongest pipeline in our history for these larger accounts. However, determining closing and enrollment dates are less predictable. Our average time from sale to enrollment for the last 2 years is 63 days, which is remarkable. However, there are also situations like this past quarter where a large acquisition failed to obtain a regulatory approval and has been significantly delayed.

We expect to kick off our fall sales and retention campaign for our core business in early September with excellent alignment across the organization around the objectives, strategies and tactics necessary for a successful campaign. We also expect to continue improvement in execution around sales and service in our traditional employment bundle, Workforce Acceleration. This endeavor provides a significant opportunity to leverage the size and professionalism of our BPA channel to obtain more clients from the same sales activity in the field.

Another aspect to our plan for the balance of the year is to balance our growth and profitability by making some operating adjustments to line up with our revised unit growth expectation.

Now our long-term outlook for Insperity is very positive. Our competitive position in the marketplace is stronger than ever with our industry-leading technology and unparalleled service excellence. Simply put, no one delivers more value to clients in the business services space than Insperity. We are in an ideal place to capitalize on our substantial market opportunity in both our flagship co-employment Workforce Optimization solution and our new traditional employment Workforce Acceleration bundle.

So in summary, we are continuing our consistent execution of our long-term strategic plan, and our specific operating plan for 2019 remains on track for excellent growth and profitability.

At this time, I'd like to call -- pass the call back to Doug.

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [4]

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Thanks, Paul. Now before we open up the call for questions, I'd like to provide our financial guidance for the third quarter and an update to our full year 2019 forecast.

As Paul just mentioned, we are now forecasting full year 2019 growth in average paid worksite employees in a range of 13.5% to 14.5%. This forecast assumes Q3 worksite employee growth of 13% to 13.5% and then accelerating to 14% in Q4. Our updated earnings guidance is in line with our previous guidance with some minor tweaks as we're now halfway through the year. We expect the impact of the revision to our worksite employee growth outlook and a slightly higher benefit cost trend to be offset by pricing and continued effective management of our direct cost programs and operating costs.

So we are now forecasting full year 2019 adjusted EBITDA in a range of $278 million to $286 million, an increase of 16% to 19% over 2018. This compares to our previous guidance of 15% to 21% adjusted EBITDA growth. Adjusted EBITDA per worksite employee per month, which is our measure of unit profitability, is expected to remain at our historical high of $98. We are forecasting full year 2019 adjusted EPS of $4.59 to $4.74, a 22% to 26% increase over 2018, and this compares to our previous guidance of 21% to 28% growth.

As for the third quarter, we are forecasting adjusted EPS of $1 to $1.04 and adjusted EBITDA of $67 million to $69 million. As for the Q3 year-over-year earnings growth, please note that we had significantly lower-than-expected benefit costs in Q3 of 2018.

So in summary, with our solid results for the first half of 2019 and our outlook for continued strong growth in profitability, we remain on track for another record year in earnings. And we look forward to updating you on our progress over the remainder of the year.

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

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Questions and Answers

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Operator [1]

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Our first question comes from the line of Jim MacDonald for -- from First Analysis.

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James Robert MacDonald, First Analysis Securities Corporation, Research Division - MD [2]

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So question was the sales result in the second quarter. You said it was 101% for the first half. But was the second quarter in line with your expectations? Are you seeing any impact of any recession or slowdown or beginnings of such?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [3]

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No, sir, we haven't seen any sign of a slowdown, Jim. The sales in the second quarter were good.

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James Robert MacDonald, First Analysis Securities Corporation, Research Division - MD [4]

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Anything you can say about mid-market versus the core business?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [5]

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Sure. The mid-market, it's a little newer, of course, a little choppier just because it's fewer salespeople out there and -- but the channel is really strong right now. We've got the biggest pipeline we've had, and we are above last year in sales for the year. We did have a really large account last year that came on midyear. We didn't have a repeat of that yet this year, but there's a lot of things in the hopper. So generally, very pleased with the way we're going in mid-market. And really all across the business, we're continuing to click along.

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James Robert MacDonald, First Analysis Securities Corporation, Research Division - MD [6]

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And you mentioned you had strong results in the Workforce Acceleration. Is that -- and that started to hit the revenue even though it's sort of smaller than your core business in the second quarter. Maybe you could -- what kind of growth rates are we talking there?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [7]

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Yes. So what we're talking about -- what we're looking for there right now, as I mentioned last quarter, the goal was to really get that activity up, and we started to see the number of discovery calls and amount of activity start to increase. In the second quarter, that activity did turn into a nice uptick in closings. So we're closing the business. And the good news, it's closed at -- we closed the business at targeted prices for the new offerings. So all on track. We just need to continue to increase that activity, which of course was the plan over the course of this year and on plan on that front.

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Operator [8]

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Our next question comes from the line of Jeff Martin of Roth Capital Partners.

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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [9]

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I was wondering if you could elaborate. You mentioned a large acquisition failed to obtain regulatory approval. Does that -- has that impacted your worksite employee guidance for the balance of the year?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [10]

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Yes, sure. We -- I mean we have that in for -- coming in late in the second quarter, which was when it was scheduled, about 700 or 800 employees. And that did not get approved, and so we obviously didn't enroll the account. But we kind of just took it out for the year. There's -- the customer says it's going to happen, but at this point, it's best to -- when it happens, it happens.

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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [11]

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Right. Okay. And then in terms of the acceleration of worksite employee growth from Q3 to Q4 of this year, are there -- is there anything in particular that gives you a basis for seeing that acceleration?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [12]

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Well, certainly, with -- it's just our normal sales plan in terms of the sales per salesperson per month, number of BPAs and how that rolls in over the balance of the year. So you're going to see that acceleration just as we hit our sales numbers as the year progresses. Keep in mind that the sales budgets are higher as the year progresses. And so that's how that flows in. That's the normal way new sales flow into the model.

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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [13]

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Okay. And then in terms of talent acquisition on the BPA side, are you seeing challenges there given the tight labor market? And how are you fighting that?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [14]

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Yes. No question. I mean it is a tight labor market out there. Fortunately, we -- you basically have to really throw a lot of muscle at it, and you have to be as creative as possible. And we've got a great group of recruiters, and even though it's taking a lot more interviews and a lot more activity to bring the same number on, we have that advantage of being recognized as the best place to work, and this is a great opportunity if you're in the sales world. This is a tremendous opportunity for people. And so we get -- we certainly get our fair share, and we're capable of growing that base of Business Performance Advisors at the targeted levels. So like I said, we were at about 13% at the end of the quarter, for June, year-over-year, and we'll continue to ramp that up to around 14% over the balance of the year, and that's right where we want to be going into 2020.

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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [15]

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Okay. And then last question. Could you speak to client retention on the mid-market and enterprise level? I mean enterprise is fairly new and probably has some noise in it, but curious what you are experiencing so far this year with the mid-market client retention.

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [16]

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Yes. No, that's been very good so far. If you'll recall, for the first quarter, which is kind of your year-end transition, et cetera, we went through that period in good stead on both core and mid-market and are still targeting that kind of new normal of 85% to 86% retention for the full year. So that's a very good number for the business services world, and that fits exactly within the way we like for the model to work.

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Operator [17]

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Our next question comes from the line of Tobey Sommer with SunTrust.

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Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [18]

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I was wondering if you could tell us what your payroll data is telling you in terms of kind of quantifying the attitude and postures of your customers in the market.

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [19]

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Yes. Thank you, Tobey. And so we -- what we keep track of within our customer base, of course, is over time as a percentage of base pay, and that's been running above that 10% number that we look for. Last quarter, it was -- continued over 11%.

On the commissions front, we generally look at around 6% is really strong. We've had periods over the last year or 1.5 years or so where that number also was up over 10%. It's now closer to the 6% number, but it's still a good number. And so that's part of why we don't really see any change out there among the client base.

Now that commission number I just reported was commissions paid to the sales staff of our clients. And so that gives us a little bit insight into the sales pipeline for the customer.

The other thing I would say is I've been on the road a lot lately talking with customers directly and with prospects. And across the board, I've been all across the country, and the optimism about business -- and I'm talking about just what it looks like for the future, but what's happening in their businesses right now has really been positive. I mean really just -- I've been searching for and having my antenna up to see if there's any negative sentiment building yet in the small business community, and I haven't heard any.

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Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [20]

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With respect to your guidance, how does customer hiring contribute to that WSEE growth? And how does that differ from '18?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [21]

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Yes. So here's what we did. In the month of June, we had a lower number of net gain in the client base than what we would have expected from looking at both the seasonality of what happens in that month with seasonal help, et cetera, and the normal growth in full-time employment. And for the entire quarter, it ran about 15% below what we ran in 2018 for the second quarter in the net gain between new hires and layoffs in the client base. Now keep in mind that's on a base that's 14% higher. So pretty significant. In fact, you're talking around 3,000 employees ending up shorter in June than what you otherwise would have expected based on the trends you would look at to estimate that number. So when you come out lower by that number on that one metric, you've got to run that through the model. It's not just going to magically appear the next day. So we, of course, did all the digging to see what would the cause of that be, and we didn't find any systemic issues about anything other than the difficulty in hiring and how it's been a little bit choppy on -- in the small business world by trying to find new employees and get them in place. So we went ahead and kind of took the most recent average for the normal months here in the first part of the year and used that in our model for the last half of the year. So you lower that expectation some. And the good news is you put all that together, you still end up at the low end of our range that we had for the full year. It's just when you have that happen in that noncontrollable area, you're going to run that through the model.

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Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [22]

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Great. Two other questions from me and I'll get back in the queue. One, can you comment about pricing generally? And then, two, you did buy back some stock in the quarter, but a significance selloff today. What are your thoughts about deploying additional capital to take advantage of that?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [23]

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Yes, absolutely. These kind of opportunities come up from time to time. We've said this before when we were kind of out on the road. If you have kind of a concentration of large claims, a lot of times that does present a buying opportunity. We did buy shares back in the quarter, and we have a significant authorization that's still out there of about 1.5 million shares and we've got plenty of cash and a nice debt facility. And so we're bullish about the company and about our shares, and that's kind of the story.

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Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [24]

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And with respect to pricing commentary?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [25]

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Yes. Sure, thank you. I knew there was another part to that question. So on the pricing side, like I said, the pricing helped to offset this large claim number that we had. And in fact, this issue was really concentrated in this large claim story. In fact, the rest of the claims in the plan were actually below trend. So the regular claims kind of offset part of the dramatic increase that came from the large claims. Then on top of that, pricing offset some of that as well. And then we had offsets in both -- some of the other direct costs and also in the operating expenses. And that's why the quarter in total came out on target with our -- in the midpoint of our range actually of our expectation in spite of the large claim. So everything else in the company besides the large claims and the net hiring base in June, everything else was spectacular, like it's been for a considerable length of time.

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Operator [26]

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(Operator Instructions) Our next question comes from the line of Mark Marcon of Baird.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [27]

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Paul, Doug, I was wondering, can you dimensionalize the large claims to a slightly greater extent in terms of like did it go from 5 to 10 or however you would dimensionalize?

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [28]

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Yes. Mark, this is Doug. So I talked about in my prepared remarks that they were about 22% of total claims versus our normal 18% to 20%, and that's under a definition of claims over $50,000 and above is how we define that. And it equates to about $15 million over and above recent trends. Now as Paul mentioned, the normal trends below that ran better than expected. So at the end of the day, the benefit/costs were lower versus our expectations, the net $15 million number, okay? And then when you offset the better pricing in the favorable areas -- other favorable areas of our direct costs and operating costs, it's helped to offset that entirely. But that gives you a little bit of flavor as to the dollar extent of the large claim activity. I think obviously, the bottom line is if you had normal large claim activity, it would have been quite a quarter. And so that definitely impacted us along with the net layoffs -- or lower net gains in the client base.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [29]

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Okay. And then just staying on the large claims, does any of that spill over into the third quarter? Or what are your expectations with regards to gross profit per worksite employee for the third quarter that's embedded in your guidance?

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [30]

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Yes. So as we also mentioned, we looked at all the detailed claims data relative to those large claims. And we also looked at the demographics of the plan, age, gender, geographic numbers in the plan, plan migration, et cetera. All those things are running favorably for the plan itself. And so I think we started the year saying about a 2% to 3% medical claim cost trend for 2019. First quarter came out a little bit better than what we expected. So that was a little below 2% where we are today. I mentioned now we're forecasting this to 2.5% range or so. And so still a very favorable claim cost -- benefit/cost trend that we're looking at.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [31]

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And so what would that imply with regards to the gross profit per worksite employee? And the reason why I'm asking is just trying to get a sense for what might be some of the drivers with regards to the adjusted EBITDA guidance for the third quarter particularly towards the lower end.

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [32]

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Yes. So you've got the other areas of gross profit, which is first, obviously, the pricing side and then the workers' comp program, which continues to run favorably for us. We continue to do a good job managing with our safety personnel but also in managing the claims themselves. And so we've had some favorable results there. And also in the pricing now, there is a gross profit. So at the end of the day, our gross profit per employee number relative to our updated forecast is fairly close to our budget coming into the year. And so there hasn't been any material change relative to that when you look at the puts and takes within that particular area. And then as Paul mentioned, we're also managing the operating costs going forward. So at the end of the day, the shortfall in the workers are the adjustment in the workers, and the worksite employee guidance is being offset by those factors such that we're looking at a similar bottom line relative to our previous guidance but still above the budget.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [33]

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Okay. And then last year in the third quarter, we had a tough comp because we basically ended up having that really large client that we ended up adding. Can you remind us, was it 3,000 employees or 1,300 employees? What was it again? Can you just...

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [34]

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No. It was about 2,700 employees.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [35]

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2,700 employees. Okay.

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [36]

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Yes. So that was a step-up last year in July.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [37]

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Yes. And that -- and as a result, I mean, when we take a look at the guidance as it relates to worksite employees, I mean, we're going to -- on a year-over-year basis, we're going to have some deceleration in terms of the level of growth just because the comps are a little bit tougher, right?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [38]

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Yes. Absolutely. I mean if you just look at that one step-up from a year ago and then you're going to kind of -- you get into the fourth quarter, you've kind of digested that and your year-over-year rate basically growing at the same rate of worksite employees coming in from sales offset by the attrition, you naturally move right back around 14%.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [39]

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Okay. And then the slowdown in June with regards to the net adds in terms of the people that were -- that could have been hired, was that -- was there any sort of regional pattern to that or was it across-the-board? And was it just simply the fact that it was harder to find people? Or were some of the clients been a little bit more selective with regards to what they bring on?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [40]

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So as we dug into that, I mean, we found a couple of little things, a couple hundred employees here, another hundred-or-so employees over here that were kind of differences from a year ago relating to a given customer's option on how to deal with maybe the seasonal help. That was it. So the -- 95% of what we saw was basically across the board just less people got hired. We didn't have fewer job openings. In fact, job openings are as strong as ever. So this is how we got to the end of the game saying it's just more of an inability to fill the roles more than anything we could see.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [41]

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Okay. And then are there any of your cost elements that would step up materially here in the third quarter relative to the second quarter? I'm talking about G&A or advertising. Anything along those lines that should be worth calling out?

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [42]

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I don't have those specifics in front of me, Mark.

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [43]

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Obviously...

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [44]

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Yes. I just don't have that -- those details in front of me.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [45]

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Yes. I was just trying to look at just the guidances for 8% to 12% adjusted EBITDA growth for the third quarter per your guidance relative to on the low-end worksite employee growth of around 13%. So just trying to reconcile the 2, that's all.

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [46]

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Yes. I think that is more related to last year's favorable benefits quarter, Mark. So you may want to just look back at that.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [47]

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Yes. Can you remind us of that in terms of the benefits quarter as it relates to that, like what the accrual benefit was?

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [48]

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Again, Mark, no, I don't have those details in front of me.

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Operator [49]

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(Operator Instructions) There are no further questions at this time. Mr. Sarvadi, please go ahead.

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman & CEO [50]

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All right. Well, thank you all very much for participating today, and we look forward to updating you next quarter. Thank you very much.

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Operator [51]

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This concludes today's conference call. You may now disconnect. Have a great day.