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

Q1 2019 Insperity Inc Earnings Call

KINGWOOD May 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Insperity Inc earnings conference call or presentation Monday, April 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, President & 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 Calandra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Insperity First Quarter 2019 Earnings Conference 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.

And 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 first quarter 2019 financial results. Paul will then comment on the key drivers behind our Q1 results and our plans for the remainder of the year. I will return to provide our financial guidance for the second 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 discussions of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements and reconciliations of non-GAAP financial measures, please see the company's public filings, including the Form 8-K filed today, which are available on our website.

Now let's discuss the details behind another strong quarter in which we achieved record highs of $1.98 and adjusted EPS of 40% increase over Q1 of 2018 and adjusted EBITDA of $101 million, an increase of 21%. These results were driven by worksite employee growth in the mid-teens and effective management of pricing, direct cost programs and operating costs.

Average paid worksite employees increased 15.3% over Q1 of 2018, slightly above the midpoint of our forecasted range. This quarter's growth was driven by both the enrollment of new clients coming off of our successful 2018 fall sales campaign and a low level (sic) [high level] of client attrition during our heavy Q1 client renewal period. Client attrition totaled only 7.9% during the quarter, which is consistent with the prior year. Additionally, we experienced net hiring by our client base during the quarter, although at lower levels than that experienced in Q1 of 2018.

Gross profit increased by 14% over Q1 of 2018 and included favorable results achieved in our workers' compensation and benefit cost areas and stronger pricing. A slight decrease in gross profit per worksite employee per month from the $340 reported in Q1 of 2018 to $335 in Q1 of 2019 was expected due to the low benefit cost reported in the prior period. First 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 new sales offices.

We have also continued to invest in service personnel with client growth and in our client-facing back-office and cyber security technology. As Paul will discuss further in a few minutes, recent technology investments included spend associated with the robust data analytics tool to leverage our significant amount of HR data as we further enhance our service offering. Operating leverage in other areas of the business resulted in a decrease in adjusted operating expense per worksite employee per month from $214 in Q1 of 2018 to $209 in Q1 of 2019.

Our effective tax rate in Q1 came in at 12%, slightly below our forecasted rate of 13.5%. And keep in mind that our Q1 tax rate is typically lower than our full year rate due to the tax benefit associated with the vesting of long-term incentive stock awards during the quarter. For the remaining quarters, we continue to estimate a tax rate of 29%, which then equates to a full year rate of 22%.

As for our balance sheet and cash flow, we ended the quarter with $141 million of adjusted cash. This is up from $129 million at December 31, 2018, after the repurchase of 230,000 shares of stock at a cost of $29 million and the payment of $12 million in cash dividends, further reflecting the strong cash flow inherited in our business model.

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, President & CEO [3]

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Thank you, Doug, and thank you all for joining us. Today, I'll provide comments covering 3 topics: first, I'll provide some color surrounding our strong first quarter results and our subsequent increase to our guidance for the year; second, I'll provide an update on progress of our -- of 2 of our key 2019 initiatives; and I'll finish with the discussion of the sustainability of the outstanding results we've been delivering over the last several years.

Our excellent first quarter was set up by strong Q4 sales converting to paid worksite employees and continuing our historical highs in client retention. This year-end transition during our heaviest renewal period went very well, driving an increase of more than 15% year-over-year in this key unit growth metric.

In our model, high levels of retention for the first 2 months of the year sets the stage for the full year due to the concentration of renewals at year-end. The number Doug reported for Q1 of 7.9% attrition is the same as Q1 of 2018. Our full year 2018 retention, ultimately, came in at a historically high level of 86%. So with the solid Q1, we are on track for another good year in this metric.

Now new sales in Q1 came in at 112% of budget, with both core and mid-market outperforming expectations. Activity was strong with a 17% increase in business profiles or opportunities to bid our services, driven by a 10% increase in trained Business Performance Advisors. The size and maturity of our sales organization, combined with our mid-market sales success, is now allowing us to grow the number of worksite employees at a faster rate than the growth rate of the number of BPAs. This more efficient growth model, as we continue -- this is a more efficient growth model as we continue to get leverage in the sales side of our business. We expect to continue to ramp up the number of BPAs as we open up 9 new offices this year, targeting an average increase in trained BPAs of 13% for the full year.

Our marketing programs continue to be effective helping to drive consistency in our sales effort. Marketing source discovery calls increased 30% in Q1 and were 2.8x more efficient converting to sales than self-generated leads. Digital, loyalty programs and channel partners are the 3 most productive programs. In addition to these 3 staples of our marketing plan, we are adding an authority marketing program and new targeted advertising to our mix.

Authority marketing leverages the expertise we have at Insperity in a variety of ways from social media and blogs to the use of the recently released book, Take Care of Your People. Our goal with this initiative is to cast a wider net and reach prospects in a different way, starting the conversation on a higher level.

Our new advertising focuses on the value of an effective people strategy as a force multiplier in business success. These 2 marketing initiatives are designed to continue to ramp up lead flow to support our growing sales team and establish our new tagline, HR that makes a difference.

Net hiring within the client base in Q1 continued, however, at a slightly slower pace than the period last year. Other metrics we follow closely, including average pay increases, overtime as a percentage of base pay and commissions paid to the sales staff of our clients, continue to show strength compared to historical levels, although slightly down from recent highs.

Another important data point for the health of the small- and medium-sized business marketplace is owner sentiment. In personal interaction at our largest annual client entertainment event in early April, we found a decidedly positive tone around current business conditions and the outlook for 2019. Although this was anecdotal rather than a scientific survey, this included a wide geographic representation from among a wide spectrum in terms of types of companies.

From a growth perspective, we're operating in an environment with strong sales and retention combined with solid economic climate in the small- and medium-sized business community. Now first quarter results were also solid in the management of pricing, direct cost and operating expenses. Effective management of these factors drive our ability to grow adjusted EBITDA at a higher rate than the unit growth as we did once again this quarter.

So we are increasing our guidance for the year simply due to an excellent start in the first quarter and updating the corresponding trends we are seeing in the business. Two of our key initiatives for 2019 are WX, or Workforce Acceleration, ramp up and the introduction of our new HR analytics tool, integrating Visier into Insperity Premier.

Our WX initiative was launched at our sales convention in January, and our early read on the sales pipeline is encouraging. Our BPAs are embracing the introduction of the 2 optional bundles, WO and WX, early in the sales process, which allows for a more natural process to recommend WX in the event the prospect is not qualified or is just not ready for Workforce Optimization. We expect the increase in WX sales activity to continue to ramp up throughout the balance of the year and begin converting to sales at a higher rate, as BPAs get more add back selling this new bundle.

Last quarter, we announced a beta test with selected clients of our new HR data analytics engine. We view this powerful new tool as a game changer in highlighting our unique capability to provide instant insights coupled with consultative support from capable HR experts to help clients act on this information. We believe this software with a service approach is a tremendous competitive advantage for Insperity, and this new total drives home the point. We are continuing training of our HR professionals this quarter on the use of the tool and the information to support clients.

This predictive data analytics capability is built into our Insperity Premier HCM platform, a first for the Visier offering. In addition, Insperity clients have no setup, administration, data management or additional costs as this new capability just shows up with single sign-on and seamless navigation within Premier. This adds substantial and demonstrable value to our offering and reinforces our premium service positioning.

Late in the first quarter, we've been adding the data analytics discussion to the technology demo for prospective mid-market clients. Our plan for monetizing this new technology is through increasing our win rate in sales of mid-market accounts and improving retention, increasing the lifetime value of clients within this segment. We are very excited about the early reaction from prospective enterprise and mid-market clients from anecdotal response to our HR analytics demo. Comments and immediate action taken by these prospects to move the sales process forward have been very encouraging.

These 2 initiatives are important because they contribute to our potential to continue the impressive run we are on in growth and profitability. After 4 years in a row increasing our adjusted EBITDA by more than 25%, a natural question is how sustainable are these strong results.

There are 4 pillars to our business model supporting the sustainability of our high performance: consistent predictable growth, management of pricing cost, operating leverage in the sheer size of our market opportunity. Our proven capability to generate consistent predictable double-digit unit growth is the platform for sustaining this level of performance.

This competency comes from the combination of a professional, dedicated service organization, delivering on our promises and achieving exemplary retention results and a high-performance sales organization hiring, training and supporting BPAs to drive sales success at targeted levels.

We've also proven over many years our proficiency at managing employment cost and effectively matching pricing to clients to achieve target levels of profitability, while providing a more stable cost environment for clients. This is also a central element to the sustainability of the high performance of our business model.

Our business model also has operating leverage built in, as approximately 55% of our expenses are variable, increasing along with our growth, while the other 45% are fixed or semi-variable. Investments in growth, service, technology or compliant can be readily managed to balance growth and profitability.

Our vast market opportunity is the fourth pillar, allowing for continuing exemplary high growth and profitability. Over 60% or 70 million people in the United States work for companies in our addressable market. Demand for our services has been growing in recent years, and Insperity is in a unique position to capitalize on this opportunity.

At this time, I'd like to 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 second quarter and begin with an update to our full year 2019 forecast.

As Paul just mentioned, we continue to forecast our full year growth in average paid worksite employees in a range of 14% to 16%, consistent with first quarter's growth in the mid-teens. We are increasing our full year's earnings guidance based upon the outperformance in Q1 and the execution of our growth and operating plan over the remainder of the year. While the first quarter's results included some upside from favorable direct cost trends, we intend to take our typical approach to conservatively forecast in our benefits and workers' compensation costs over the remainder of the year.

We are now forecasting full year 2019 adjusted EBITDA in a range of $276 million to $289 million, an increase of 15% to 21% over 2018. This is an improvement of approximately $6 million over our initial outlook of 12% to 19% adjusted EBITDA growth. We are forecasting full year 2019 adjusted EPS of $4.55 to $4.80, a 21% to 28% increase over 2018. And this is up from our initial guidance of 17% to 25% growth, with the low end of our updated guidance slightly exceeding our initial budget.

As for the second quarter, we are forecasting 14% to 15% growth in average paid worksite employees over Q2 of 2018. We are forecasting adjusted EBITDA of $55 million to $58 million, an increase of 18% to 24% over Q2 of 2018 and down sequentially from Q1 due to the typical seasonality in our gross profit.

Q2 adjusted EPS is projected in a range of $0.81 to $0.86, an increase of 19% to 26% over Q2 of the prior year. In conclusion, we are encouraged by a strong start to our year, and we look forward to updating you on our progress throughout 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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(Operator Instructions) And your first question comes from the line of Jim MacDonald.

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

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Could you talk a little bit about the relative contribution of the workers' comp benefits and pricing to the improved gross profit?

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

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Well, as we reported last quarter our pricing came in nicely for the year and we did have a little bit of benefit from both workers' comp and benefits. You always have some movement up and down on certain factors in there. Payroll taxes came in a little higher. But generally speaking, it was just a good quarter all around, and on the gross profit side slightly better than expected.

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

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Okay. And on the BPAs, could you kind of give us an update of where we are now in terms of trained BPAs and total BPAs and kind of where you're going? And then I'll get back in the queue?

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

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Sure. Yes, first quarter of the year, of course, we have our sales convention and you do a little bit of a housecleaning, if you will, on the BPA count. But in the first quarter, we're basically where we intend to be. We're on the total BPA count in that little -- around 550 or 560, and then trained BPAs are always about 90% of that. We will ramp up over the course of the year to where our average for the year, we're expecting around 13% increase year-over-year.

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Operator [6]

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And your next question comes from the line of Jeff Martin.

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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [7]

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Paul, could you elaborate on the timing of the rollout of the HR data analytics engine? It sounds like you're taking that to the mid-market and you're nearing the commercialization state. But just kind of want to get a sense of how that plays out through the course of this year?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [8]

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Sure, Jeff. That's -- it's been going really well. We picked a group of beta accounts of different sizes, went through conversations and demos and explanations of specific insights that came out of their information. That all kind of happened in the first quarter. We were able to glean out of that some of the training we wanted to extend across our team and a lot of that training has started. It will continue through May. So as we get toward the end of the second quarter, we should have low biz out to a more substantial number of our enterprise clients. We'll start at that group and work on through the balance of the year, setting tasks with individual clients, all the way through our mid-market segment. I do expect throughout the course of this year, all of our mid-market accounts will have this type of discussion.

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

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Okay. Any early stab at what kind of impact this could have on retention? And I assume mid-market has an ability to improve retention there as a result of this effort?

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

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Yes. It's really -- it's hard to tell because it's brand-new, but there's no question about it. Once you have this type of information, you're going to want it. So whether you have access to it some other way, that would be pretty hard to do and costly. So intuitively, it should really benefit retention in this key segment. And that's -- we believe in that enough, that's what we're counting on our monetizing this really from the retention and in selling new business. It also is true that the longer you're with us the more data you have then and the more information and insights you have to run your business. I mean we connected the system for our own corporate staff, the 3,200, 3,300 people we have here at Insperity, and it's been interesting for us as well. So we know it's valuable. And we think we're going to see retention benefit and bringing on new larger accounts.

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

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Okay. That's helpful. And then last question is more for Doug on the gross profit for worksite employee per month. Should we expect that to trend down slightly year-over-year for each quarter compared to 2018? A little help with the guidance there would be useful.

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [12]

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Yes. The way the typical seasonality works in that gross profit per employee metric is, I'll talk about the fact that sequentially it's down from -- second quarter is down from Q1. With the third quarter being -- it's generally been fairly consistent with Q2, but Q4 is when it -- Q4 is typically lower than Q3 because that's when you're picking up more the medical costs due to the plans and the participants in each of the plans that we have, so.

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

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Right. But relative to, say, second quarter this year relative to second quarter last there, should we expect that to trend down a little bit using Q1 as a guidance?

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [14]

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Yes. Correct.

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Operator [15]

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(Operator Instructions) And your next question comes from Mark Marcon.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [16]

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I think it was a good quarter. I'm wondering if you can talk a little bit about what you're seeing with regards to the employee growth within your client base. You mentioned it's a little bit slower than it was a year ago. How should we think about that? What are you seeing in terms of overtime and sales commission?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [17]

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Sure. We went ahead and budgeted for the year for a little bit lower contribution from -- in terms of growth from within the existing client base. And we saw that come to fruition in the quarter, but it's not much. It's not a lot, but it's kind of what we were expecting and glad we kind of build that in. But as far as the other underlying metrics in terms of what we should expect going forward, everything looks still quite strong. Over time, as a percentage of base pay is running around 11%, average commissions that we paid to the sales staff of clients, which was strong if it's over 6%. I think the highest we've ever seen is 12%. It's running 10.5%-or-so. And so that's very strong. Compensation on a year-over-year basis all-in 4.5%, a little over that. So those are really strong.

And then once we use that data, the next thing you look at is really business owner sentiment. And I think early in the first quarter, the sentiment was a little bit of uncertainty, I think, around government shutdown and other things that were going on. A lot of talk about what the economy maybe doing or maybe coming. And I think a lot that's passed. The sentiment we had from our large client entertainment event that we had in April, it was really the most positive I've heard it pretty much ever. So we think we're in a strong position for -- certainly for the balance of this year and moving full steam ahead.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [18]

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Great. And then could you talk a little bit about what you're seeing from a regional perspective in terms of any differences, any areas that where you're seeing an acceleration with regards to PEO acceptance?

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

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Not really on a geographic basis. I mean we do just see generally stronger demand, acceptability of the idea. The industry is growing at a decent rate. We're growing at a higher rate than I guess the average of the industry. So we're growing at rates that are part of our game plan and where we want to be. But I do think that demand has been strong. And just such a huge market opportunity, really no end in sight to keep growing.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [20]

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Okay. Great. And then one thing that perhaps is confusing to some is your net revenue increased 13.7% on a 15.3% increase in WSEEs. Can you talk a little bit about the dynamics around that?

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

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Well, last year we -- you had a very strong quarter from a benefits perspective. And so you've got kind of a comparison going on in there at that net revenue line that is really not meaningful in the big picture. So if you look at where we're targeting for the full year, I'm at measure. On the -- for the total adjusted EBITDA, it's -- business working as it typically does. We grow our units in the mid-teens. You're going to grow your adjusted EBITDA at higher rates. And as you can see from the guidance today, we're looking at a range for the full year of 15% to 21%, which, of course, is up from 12% to 19% in our original budget.

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [22]

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Another thing, Mark, impacting the revenue line item is, we're seeing some migration in participants taking higher deductible health plans in today's environment. So when they're picking that higher deductible health plans, obviously, the pricing allocations are lower, but that's part of the reasons why our health care cost trends are lower too. In addition, I think, we're effectively managing that area. So you've got those type of costs running through the revenue line item, but just keep -- bear that in mind also.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [23]

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I really appreciate that, Doug. And then with regards to just the Workforce Administration as it relates to rolling that out to the core. What are you seeing there? How do you think that's going? What's your anticipation for the year? Is that based on the earlier results?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [24]

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Yes. I think -- yes, we're going to be watching closely. The first quarter was did the activity begin? Did we get a step-up in activity? We got that. So now you're looking at sustaining and, actually, continuing to see that ramp up. More pervasive across or prevalent across the BPA team. That's where we'll be looking at for the second quarter. And we'll be starting to watch conversion rates more closely here in the second quarter. But what I'm really after is, by the time we get to the fourth quarter, our fall campaign, I wanted really working on all cylinders. We want to have the metrics we can by the time we get to the fall campaign so we can set really concrete objectives across the organization is what our expectation should be.

So I think we're on track as we roll this out and ramp it up. And we're excited that -- other really good news to me is, as whenever you put in a new service offering, a new bundle, you want to make sure not only can you sell it and can you sell at the rates you want to and can you get the interest and the prospects, but you also want to know can you sell it at the right price. And pricing, as we're ramping up, is in line with what we set out as a target. So I like where we are.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [25]

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Great. And then with regards to client retention, you mentioned what the first quarter is. In terms of the midpoint of your guidance, where would you anticipate client retention coming out for the next 3 quarters?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [26]

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Well, as you know, the balance of the year, you generally have less than 1% a month. And so we're looking at, I think, probably a year that looks similar to last year in total, which was 7.9% or a little bit below 8% for the first quarter and then a little less than 1% a year. That's kind of how you end up at that 85% to 87% range.

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Operator [27]

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And your next question comes from the line of Tobey Sommer.

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Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [28]

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I was wondering if you could update us on what the impact has been over the last couple of years since the IRS changed the rules and allowed for a little bit easier selling throughout the year kind of where we are, how you'd learned, how to do it, if it really has been an impact that's been notably from your perspective?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [29]

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Yes. There's no question that the issue of not having a double payment on the payroll tax, which is what was avoided by passing the SBEA, Small Business Efficiency Act, especially on larger customers or any customer with a lot of higher paid people, where you had to restart the payroll taxes. It's just a big number. And we were -- in order to keep selling customers throughout the year, we were actually offsetting some of that costs, so you'd a lower margin in the first year on those accounts, those new accounts.

So with that eliminated, I think it has helped both the -- you don't have an impediment in the process that slows it down or they -- you have to do a workaround. And especially on larger accounts, I think you can just keep -- it doesn't really matter what month the company comes on. Whenever you get all the information you get, you get everybody on board, put a sensible transition plan in place. Wherever that falls in the year, really don't make any difference. So that is a positive. And we're seeing a benefit from that.

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Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [30]

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In the mid-market, is there any changes in the sales cycle in -- are you -- how you're sourcing those leads and prospects differently than your legacy customer target?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [31]

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Well, it's not a lot different. We're still trying to go after the same psychographic profile of an account. And the 90% of our leads for mid-market are coming from the BPAs in the field. So we've really got the mid-market team and the core team working together to surface those larger accounts that are more complex, have more buyers and influencers. It takes a strategic sales effort over a little bit longer period to bring these on. And so the sales team works really well together on that, with the core team surfacing the opportunities. And then our SWAT team and our mid-market going in and demonstrating what we can do for a company of that size and bringing them on.

So this is where there's a lot of steps in that process and there's a lot of meetings that go on to bring that to fruition. And any time you can remove impediments or accelerate the process or increase the enthusiasm around the offering, that's a benefit. And that's one of the reasons is demo of the HR analytics tool is just another nice way for customers to see how we can help. It's a great way for us to describe how this combination of great technology and great people, expertise HR professionals can work together to not just bring the insights, but bring plans to improve the operation, help the clients reach their objectives.

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Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [32]

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Paul, last question from me. What factors do you see as potentially driving upside to your results versus your enhanced guidance today and potentially downside as you work away through the balance of 2019?

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [33]

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Yes. So you always have -- the way we operate the business early in the year, we set our targets and objectives. And you have to earn your management fee for managing the benefit programs and the payroll taxes and the workers' compensation program. And as you manage those effectively throughout the year, you create more leverage and more profitability at the gross profit line. At the same time, we always have the risk of the benefit plan. It's not really an overall total cost risk over the year, but you can have volatility within -- from quarter-to-quarter if you have a concentration of high claims.

But beyond that, the execution, that level that we're at right now in terms of growing the business, selling the right accounts, renewing the right accounts at the right prices, that's all full steam ahead. And if you look back over the last few years, we come out with the budget first quarter. See what happens in the first quarter and that kind of validates your plan. And when you're ahead, you can move guidance up, which will have every year now for the last few. And then those trends are in place and absent something out of that field, either in the benefits plan or somewhere, you basically go earn the rest of that differential and that's how the model works.

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Operator [34]

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And your next question comes from the line of Jim MacDonald.

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James Robert MacDonald, First Analysis Securities Corporation, Research Division - MD [35]

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Just a quick follow-up. So we don't talk about SBUs anymore, and I guess we're talking about Workforce Administration and things like that. But maybe a little bit of an update on, is that non-PEO area growing faster than the core? If so, is it additive? Or how should we think about that and how do you think about success besides being something that leads to maybe having a pool to sell and upsell to PEO later?

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

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Yes, thanks for the question. Yes, we had a good contribution from those individual components. More of the growth from there is going to come in the bundle we put together, which is Workforce Acceleration. And so we haven't emphasized as much separate selling of separate components. We think there's much bigger upside to selling the bundle together in a concerted effort across our entire BPA sales force. So that's kind of the transition we're in. But in the meantime, that's still going on and made a nice contribution in the quarter.

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James Robert MacDonald, First Analysis Securities Corporation, Research Division - MD [37]

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And just a technical question. So what sort of CapEx do you expect for the year? And your depreciation level sort of went up last year. Do you expect that to sort of hang at these levels now?

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [38]

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Yes. I think we mentioned the CapEx for the year is about $35 million, $40 million. We also mentioned the fact that we were having to expand our campus facilities on top of that. And so yes, we would expect the depreciation, amortization to go up in line with that additional CapEx expenditure.

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Operator [39]

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And your next question comes from the line of Mark Marcon.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [40]

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Can you talk a little bit about the gross profit per worksite employee trends that you would expect over the balance of the year? Obviously, you're going up against a really tough comp here in the first quarter, but how do you see that year-over-year on the balance of the year? We recognize the seasonal pattern.

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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [41]

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Yes. I mean I think we generally -- as you know, we generally say, starting now going into the year. As Paul just mentioned, as we go through the year-end, we've renewed -- gone through a heavy renewal cycle. We got a good sort of snapshot for those accounts where our pricing is. So to a large extent that dictates the pricing, even though we're going to be renewing further accounts over the remainder of the year, but that looks very well going through the renewal period.

I would say, if you look at the direct costs, I talked about the fact that during Q1, those costs came in favorable to our budget. We talked about the difficult comparison on the benefit relative to the first quarter the last year, which was very low. But when we look over the course of the year, we're still looking at a benefit cost trend. I think we said initially, maybe 2% to 3%, but where we look today is more towards the low end of that. And the workers' comp continues, that program continues to work very effectively. That's an area where we did have some favorable results in the first quarter.

And as I mentioned in my prepared remarks, we let that sort of develop through over the remainder of the year as we are successful in closing out claims and settling claims. We got a good history of doing that. So basically in summarizing, 2019 is looking fairly consistent with the previous year. And hopefully, we could have some upside there.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [42]

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Okay. Great. And then on the WSEE tool, what are you learning with regards to your own folks that you are applying?

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

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Yes. That's good question. We -- there has been a lot of interesting observations that surface. One of the areas that I think is really, really interesting is to look at your workforce from a generational perspective and from a 10-year perspective. And one of the things it did for us was just kind of look at that big picture more in a movie than a snapshot and kind of look at what happens in the next 10 years for the company in terms of from 10-year and retirements and other things that can happen. And it makes you think about things. We have a very good program internally that's somewhat informal for mentoring and helping people develop. But I would expect that we'll see more formalization of some things. So that's an example of just something that you look and say, you maybe haven't paid that much attention. It's going on. But then when you see all the data, the information and you see where you're at, you say, hey, there's something we can do now that can be helpful. So that's an example. There are other areas too that were particularly interesting, but I think that gives you a feel for it.

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Operator [44]

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At this time, there are no further questions. I would now like to turn the call back over to Mr. Sarvadi for his closing remarks.

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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [45]

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All right. Well, once again, thank you all for joining us today and being part of the call. And we look forward to continuing to deliver on these results, and hopefully, see you out on the road or next quarter. Thank you all once again.

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Operator [46]

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This does conclude today's conference call and you may now disconnect.