Insperity (NSP) 2 Aug 222022 Q2 Earnings call transcript

Good afternoon. My name is Matthew and I will be your conference operator today. I would like to welcome everyone to the Insperity Second Quarter 2022 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. like the I'd Douglas over time, Sharp. this to call turn to At Mr. ahead. please Sharp, go

We you. joining Thank you appreciate us.

Let me call. for this begin by outlining our plan evening's

to second and the I provide for going full-year XXXX our the return the QX I'm to to our the our an the behind behind First, the outlook year. and over will discuss key drivers guidance financial of third then will our results. update results comment remainder quarter on financial guidance. details quarter I

We end answer call a session. with will the then question and

we Now uncertainties call, risks, you make which or I forward before Mr. may to subject and begin, remind assumptions. would like I today's are that to looking during statements Sarvadi

years. In addition, of financial discussion some our may include measures non-GAAP

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

Now, in employee worksite was XX% of which of number in the in paid let's average over EPS year. and paid EBITDA QX forecasted on our we quarter XX.X% with XX% adjusted QX a this the results, second in sequential adjusted range a XX% increase increase of achieved growth growth end our of X.X% employees. worksite strong discuss above increase high a

the quarter, new labor QX hiring Our growth strong market for from employees momentum was client continued worksite above client paid XX% driven by our our averaging the and clients high forecast. by sales despite tight retention,

of in contributions worksite exceeded areas. our significantly favorable on our employee each direct and growth cost gross outperformance the from quarter profit Second forecast

we intended a may the the budgeting benefits entered pandemic. surrounding recall approach As as year care health that you in for cost an with environment to trend, area, uncertain take we our XXXX conservative our

came trend budgeted levels. quarter First in cost near

forecasted cost was gross care combined levels. our and strategy, As to than expectations. lower expected costs execution our COVID-related of health for QX, utilization, profit with a the above combination below health pricing And contribution of both the when

compensation of longer workers claims rising safety well perform reserves to higher on environment. interest rate given a ongoing and management our rate and the Our continue result a discount program term of slightly also practices as

We from also experienced a as payroll favorable anticipated expectations rates area to unemployment our remain our tax tax contribution levels. compared State below

relative our operating investments for Now and employee second marketing in spend high growth, worksite salesforce. ongoing national expenses, of including including planned technology capacity our our implementation to reflects quarter initiatives, our growth our service the

adjustments retention of our we the of given to targeted levels management recruiting made market staff the goals. our labor During compensation quarter, and also corporate current and the ongoing dynamics

related meetings, experienced we to costs Lastly, in year. pandemic events increase and and expenditures compared slowdown client during corporate low the travel associated prior with the an in prospect the training

investments, the our for making month resulted in in per decline While overall leverage from operating expense cost worksite XXXX. these structure QX $X in a employee

Our providing financial we in our strong continue shareholders. while invest remains our growth as and returns to position liquidity to

recently increased and stock of repurchased cash shares in XX% of in adjusted million million out million paying rate under a We $XX we quarter, dividends. the of $XXX QX regular the cost debt During $XX XXX,XXX million $XXX credit ended dividend of with at by facility. our cash amended

million years to borrowing $XXX our and During million. was capacity from for credit the increased five quarter, renewed facility $XXX

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

you thank for our Insperity's I'll all And of stakeholders. Doug. call. on you, Thank Today topics three joining comment interest for

and of performance other growth second impressive results. continuing highlights our our address quarter strong I'll First,

in setting color finish considering the our Next, raised plan, economic recently year I'll by some and up I'll over outlook key our discuss some this providing year launched and the back driving our uncertainty initiatives half around of five air. guidance XXXX.

three all our a of and Our sales, paid second second in and base. to sales quarter effort retention XX% drivers, continued client hiring service our continuing including row. quarter in resulted nearly labor the hiring employees the Excellent in new worksite client growth client from for within account growth in tight results the market teams and included momentum success in

client is New greater carrying strong level acceleration exceeded in the potential retention. significant sales to for and is teams gross results these sales X% a of also workforce over And to related the years. consistency the book increased adds somewhat half the relationships budget beginning sales with year. core same has enhance This XX% of second fewer workforce pipeline our achieved development silver the any this strategy our mid-market importantly, life going quarter Mid-market workforce achieve efficiency turnover their and optimization into increase lead Both several business, for lower over also XX% take bullet profit in continued model. has tremendous with BPA Workforce sales second most of by internal sales our long-term second BPAs. as potential optimization core over newer our the the and efficiency benefits last effectiveness train risk a into acceleration next period as for we sales which business momentum a year. the improve Sales strong in book customer quarter. to without created co-employment were

increase traction solution Both sales ago. considerable and workforce business XX% period year. strong in workforce to XX% from of same over to the this one traditional the acceleration achieve over an year were also with beginning acceleration this up are same using quarter, period We employment last our

applies seen efficiency and services. gain sales traditional So co-employment the have employment to both we

or for the to over and XX% profiles, closing and workforce XX% business workforce optimization The same respectively second bid rates opportunities year. of last over by improved acceleration both period quarter

service our teams company retention efforts, the an client above quarter those across teams support also Another support highlight which second the job client high were of impressive quarter. done and was this quite continuing period. others growth These hiring during client teams the handling XX%. that have The excellent levels also

we concern increases. rate driver QX, labor on some and this growth the tight entered market interest we business forecasted the over to conservatively of beginning due As owner

the client the hiring with at quarter. base first throughout second rates However, the consistent continued quarter

of sales of the new other we Base small last companies. we up gives is to validating is over The commissions the regular on business staff pay ago XX% client company same XX% base. metric within Over the clients up monitor of are HR paid sales over commissions. pipeline the insight as and solid at increases, year, into commissions and employees. Now time the some mid-sized department us our and a including client base approximately X% have, client year also up metrics compensation period for pay same over the time

We a seeing considering a are contributing is even inflation, strong commission which increase factor.

client metrics to at point, not an anything in identified So slowdown. we've pointing our imminent this

against significant This worksite quarter strong news contributor is factors. a impacts good uncertainty pricing employee related of to backdrop our was that and and our profit some per Another results pandemic to variables forecast. direct of very cost gross the these exceeding the

operating from We during a ban increase well a as increased expenses in the business areas lows. significant despite quarter expenses have in these activity pandemic also managed as travel and

opportunities in the strong we technology, continue make support marketing the we've to compensation growth and experienced see We strategic straight ahead. and to investments

up level increased success of begin achieving our staffing a a already and early the our internal achieving staff. was organization grow higher and service on resources teams realignment have to completed our hiring the objectives had in BPA our recruiting Another highlight of ramping focused quarter We of internal some and success.

July our So enter in served momentum, XX,XXX platform. XXX,XXX of on strong the the and achieving strong employees acceleration significant year workforce milestone after second with then additional employees quarter, a we of second half worksite client

a in to numbers XX% both this enough year. in higher this sales we match is moved rest to total the be upon early second the and is BPAs it's also of element element half to also appropriate an XXXX. going of on increase to to advertising year to invest our track in intend over service business implementation. BPAs for dollars as recent million by of the The internal reach growth and to levels. infrastructure the critical of marketing achieve significant on salesforce up at the ahead capitalize and ramping and also convert year-end efficiency Now critical our very organization, service on for and to marketing into year QX of key starting activity the of next activity to sales the hiring first opportunity to ensure organization to and continuing salesforce. we continue successful training Ramping is balance pace. to and continue the strong in the efforts the improve additional We're company a most and the staff sales we We're several targeted sales middle important hit balance a The year, utilization Based of look plan. will the a factor forward. next of balance throughout up the working year, promotion on the XXX initiative our drive point earlier year the effectiveness. and to This salesforce and with We're drive to improvement

five-year quarter, our strong recently at conservatism economic very and the due our one both growth EBITDA I run Last current ranges for potential midpoint year Our This growth plan the new The occurred some growth includes reflects plan XXXX. of and implies profitability. to of to XXXX exceed approximately today XX% from guidance released adopted for XX%. to worksite five-year outlook last that five-year adjusted employee updated the a our of in discussed uncertainty.

period annual XX%. compound that adjusted Our was EBITDA rate employees and growth over worksite over XX.X% paid in was

Quarterly an XX% than Our more was increased the total that increased price average even over more share at and period. year, return each of to fivefold. XXX% remarkable shareholders dividends

growth adjusted plan five-year rate in higher year's rates course, annual an the and year XX% of new year especially last our five-year achieve the and current run compound of beginning XX% years. compound with lower in above always potential and good the versus first believe will year. individual has Of a to worksite plan such start that's growth to a strong have growth worksite rate to in rate for start. this last guidance employee our annual This growth rate at implemented a implies annual employees the new the run, the We of XX% EBITDA

operating acceleration the growth the leverage XX% side operating annual EBITDA contribution potential see the from introduces to workforce We of leverage, in adjusted gross on added run. rate sales this at believe potential last for to We of profit is X% BPA exceed growth the this our combined business on which also to increases our plan. only with possibility with achieving compounded

to the plan. Recently, the ultimate of Federation the a reported may lowest pressure put of years. Independent success there course, the almost environment confidence a in the macroeconomic business that businesses particularly XX level Of are drop factors, in National owner number on of

Interestingly, and employee forecasted of business and earnings interest of job These despite slowdown rates, market paid XX% the and of expect not of be and the XX% where However, build five interest surveyed in over XX% annual the rates fill. are This hiring metrics to company EBITDA interesting chart owner This worksite our of rates. economic can presentation and growth middle of despite labor client and we at XXXX concerns respectively the environment lower compound lower unusual you level the inflation inflation if today, unprecedented. ending see reported this in could pandemic a they openings, not In our tight of balance confidence. certainly period. and a if experience combination with half. year cautious is you released the to higher dynamic Adjusted look year first client

our the business demonstrate five deal results years times. over resilience with changing model last in considerable versatility these uncertain Now, to and and

people At of time. So out to confident to respond and this I'd call come culture to critical in and remain a corporate Doug. challenges our as like point, we our success pass our the and our ability drivers to back on

Thanks, Paul.

growth the and we upon year let our year. improvement of me update the growth an first and based the outperformance our which Now profitability expectations in of the in outlook once again remainder XXXX over are and half guidance, earnings our raising our

XX.X% XX.X% growth full forecasting XX.X% our employee to improvement and to of worksite the now year XX.X%. over prior are guidance We for

client upon based second We point is sales at and into recent going maintaining continuing of retention year momentum higher the the levels. expect increase our forecast starting over our prior half a

continue market base economic growth QX of our market labor non-control is our growth the these when net component the very intend hiring employee pandemic. As and for strong uncertainty lower a a considering to year base, factors, from will worksite paid a the the growth, cautionary QX in implied labor the the guidance assumes given and recovered periods, slowdown. gain full client be When which our are slightly to the in XX% XXXX surrounding we to of due XX% to for as to we experiencing comparison tight

also of the for networks mind our employees QX, fourth QX following paid sold in quarter As in typically enrolled are in keep the in year.

we of the in for forecast expect of trends the As to than gross direct and pricing outperformance our guidance, now growth, be our positive and earnings profit prior our the in year the based on half higher recent first XXXX costs.

its be of continue costs. impact associated We with and to on uncertainty care our mindful ongoing health the the pandemic

in the which been of such previous new lower negatively than has experience the of cost, year. our the half particularly As last severity to variance, impacted second country continues far, variant, delta so QX variance as XXXX

our been not including health earlier far but we higher indicating the patterns seen plan, utilization during to periods, We any related deferred care might are within deferred which monitoring acuity levels have have care. care, thus also

the are price costs provider and business. our inflationary We impact new also as renewing our this and mindful closely health on we monitor possible will of plan,

for given ongoing higher on and upside costs, the extent, the QX further As costs expected program, on rates environment, the lower our we administrative of our reserves. impact claim working expect of renewal lesser remote compensation workers policy a to interest our management

As operating to particularly growth, for costs, in invest corporate the of further in outperformance in growth worksite our the we our plan service personnel, area. with employee

the made and and in tight towards have recent hiring of QX forecasted the in half considerable Consistent with and travel significant in our achieving costs market increase improvement this and due lodging. to labor goals. progress airfare the in also devoted have personnel pandemic We the first our year, in pricing effort we conditions additional of retaining the

expected like high current inflationary make outweighed on money in Finally, demand few This and invest environment a our of workers is our And forecast in and to on provider interest by interest the debt. rising costs. rates impact our overnight compensation our income services given Increase on we I'd in have to expense we the is activities interest expected program. results the in comments the to our model. business continue marketing rates inflation our held higher for technology. of care in on deposits on be on impact considered our higher in investments health of costs the

costs Additionally, favorably slightly will we discounting higher reserves expect impacted at that interest our by workers compensation be rates. long-term

our employee Lastly, Therefore, inflation our new we and of in consider to which renewing particularly inflation factor comprises pricing expect impact to operating XX% we costs, pay associated with operating expenses. compensation, of business. our intend about total this corporate

a XXXX our we $XXX of taking mentioned, from have to to when guidance and million. of the our and worksite for raised $XXX adjusted EBITDA other into updated our growth $XXX So outlook to account factors million just range of employee previous million narrowed $XXX guidance improved million

range of forecasting for now EPS adjusted previous $X.XX of year adjusted we a in to And adjusted of to forecasting range million range a $X.XX.For $X.XX a $XX QX, up are from our million $X.XX As from the are $XX and to QX. XXXX we $X.X. full EBITDA EPS, $X.XX,

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

Instructions] question William [Operator coming Your Blair. Andrew first Nicholas from is from

live. is line Your

It your quarter. Hi, in by book afternoon. to expectations. little start relative more my I a favorably bit Thanks sounds this on healthcare questions. came good cost asking for taking wanted to like

previously? you embedded for Just same curious, terms to respect did you the quarter characterize would as guidance make any with as for your and second as conservative third in of the what's guidance expectations changes being fourth half or in those

say current to slight as at some Yes, the with second the deferred the improvement made some with hospitalizations, levels, less second far ongoing we some through less to I as seen would the relative changed respect of of severity last of and we're to with year, nothing I point. as variance, we the materially to the this quarter. care forecast the wouldn't approach but half not say relates But improvement obviously would material of half the we've it acuity our year seen say, I expert variance. caution

Yes, anything. one I that having to be improvement, just some no that's with add changing would quarter time just drastically

for agree bigger question about kind follow-up. picture there. my ask just around risks then wanted a sense, And I Makes the to of recession.

mentioned about I Insperity and prepared the but in slowdowns potential a several you economic pay remarks All your do increases think times to seen resilience that you of over much think Commission time. activity you positively, how do you haven't quantify the broadly, industry slowdown of that to helpful. challenging your could way for that you. that certainly in what various if be any industry Thank environment, of environment feel like a can business mean more kind there's the us economic pieces trending navigate

question. of the of but kind the of I the the through for we've really frame This in an different we've demonstrated versatility kind is of some course what in pandemic was the and and respond. of my example trying prepared gone to remarks, I'll period difficult Thanks resiliency to and lot ability a times

So we're we're our metrics the our the But behavior way. for clients base very now. important It's would comes that seeing dramatically changing that well indicate prepared from right in what I now client our of something for within think right we in to is an aren't seeing anything HR that perspective. note whatever

the we but prudent change the the thought and potential going budget, change. for a lower that's sentiment continuing, of dialog level, about amount is hiring So in of it's to because on

the So the metrics we we're anything but with in like seeing felt not sentiment change.

is in the conservative expect year. prudent year we the of first so recession quarters. level don't balance the over that or hiring or a half activity. look economic of as client to that continue of say, a had at least and there be and have and the to bigger the will of Is recession in picture a same We the there the coming we you we know, But be slowdown two

that on of state board. is happening the don't filling and that layoffs market normally across we're changes among of the this the having labor biggest have. occurring You further see even us stage. sentiment indicated in reporting We still And other know, the business how information words, the that effect in openings at the a recession, course, still difficulty and that change owners in business they

dialog use are So things to when we're you in with but direction. change our and and HR growth are going not at a we just department clients phase that to heavily stage, opposite able in

services you serve our ready So department just forward. comes no use and different to what and HR matter we're clients

you. Thank

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

Your line is live.

hearing you. sales maybe force you that that measures Thank wouldn't from sort know productivity improvement you could further or improvements those you threshold the if of and in the that dramatically. have With to a pretty are managing that where you've could that helpful. you expect been sense be will improving that do go, that experienced What and learning it a you're, respect those contextualize maybe you have

say full before, success great newer be said about and cell of Tobey. you, made people we've with Other are also we're and the How sales we've are of of seeing But we've early Zoom some in effect by and like to I have to coming some in No, BPAs in early I've we've that still that in. really meet face in efficiency we're aligning I willing things that compensation, from. phone. everything then so some the would in improvements of can made strides increase significant we're demand how bonuses gaining number some think the opposed services, the going market changes to as Thank to contacts some face you the and made. trying know terms seen some that being bigger these for phase built picture of that call things

out for from we're some So still coming I've we're coming made, a happened, also marketplace but there's in to room we seeing out off believe that of said more. benefits think I things but really are we've benefiting large good some the start the have of improvement changes them I

I like would follow that. to up And on

good about but some asking that. and XXXX more context say sensitivity in time repeat would the hopefully than puts takes. just you be had and I Do not worse if pandemic economic You was tours the driven business pointed the of gave think perform economic us economic If the the counters. better question we or

be into I Well, we more there even I more more we I than economic and efficient. think things would, difficult do is are lot of that are that if think period, us a were effective a helping

I So down to better than us previous two perform expect did period. we would

Thank you.

Martin Roth Capital. next coming Jeff is question Your from from

line live. is Your

hope a of Thanks. or covered the lower side Hi, doing under dive How shift the the much less utilization. little well COVID pretty you're Paul. seeing is that that related more. the you relates And Most of cost side much into Doug, just improvement it bit benefit expense to and you're versus seeing

the side COVID see being utilization track also, to or hopefully, care both but seeing going the direction we're cost utilization board We're rightfully an the about this so acuity, on we're we're conservative whether think just increases ease but coming continue seeing. trying of is in this and the we're more that. this the quarter but into I conserve there in next think deferred from utilization point the we quarter last were and across at conservative I and that any what is we're

was of on And And great. you of context Okay, on recruiting little around BPA early also you increased could on of and a efforts, investment then service touch us your, some trends. if just give side. your I curious BPA results the particularly bit then retention the could

you've high need the people some saw side quarter end strong We the that even on number service the internally bringing the early we feeling of quality that high them good. to about a growth, and into got resources I, We such and right capacity. so this month because service again. recruiting we've we're on great have Yes really organization that had added of the really had reorganized from our success quarter nice and some for we that's

at high rates. continue to expect to grow We

though level the that So to feel also of to right on sure that then of from over support BPAs were nice the in the we're was a make higher bringing And working real X% the had strong up quarter the BPAs the that forward. quarter BPAs up the the got quarter want BPAs the ramp for total had end feel actually machine down average to end, going and we've the quarter. we've number we significantly, train we total and good higher beginning at of even about of

very feel employee in, that increase hitting of driving higher the worksite the this BPA working I is comfortable that So of growth, our X% target shape plan of in to toward over the we're view view year for really element rate an in in long-term and of growth balance a XX% good clearly or

you. Thank

Baird. Marcon next from Your question

live. Your line is

questions. Andre for this on Childress Thank you taking is our Marcon. Hi, for

is could So a first with changing question wins, whether you change of quarters, and really on any rate? the be over higher any are what is, there with closing for of my then workforce has source that been largest think And drivers you dynamics acceleration past the the few that of driving improved touch competitive product. the better kind

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in that improve nice for-- seeing there's it's to things the direction. improving the still specific that there, but marketplace very us right we're to room I see and think So that in there's move

change on the And been of has if source industry could you kind in there the touch competitive or of in dynamics any there. wins the and

landscape, your there's you there always first out apologize the it's to competitive that now. there, competition tell got but part of been out I forgot question, Yes. on I

I nicely. think moving I whole forward all of industry, the is think

services feel that any talked So we demand seeing contending and and five-year marketplace. really the the we're the that level don't that is the class see higher we've marketplace, for the on model a trend is capitalize right our competitive there of invalidates of of we in specific really And issues But about run. clients or we're and very we're we're with fit that in and is level over best trying when have front, think we what service we're of solution. that premium to like this higher those that target appropriate changed, obvious being target in front the products

seeing those and So, to the to of full looking our move we business company of in really that help the company people we is businesses some helps competing to trying insurance and the care If next basic their small on benefit just want level the, of care people. take to really somebody they're their get really few they're end grow. because lot That's take about, just but still what is doing of if well that's what and to save a with prospects times others get up to or and they'll do services else. a bucks

Great.

the Sounds service like of resonating. is the proposition premium really value

It you're you Just guys of half some the seeing up that the spend you're marketing one discuss higher what successful efforts with Can spend that are front. being like more the back and kind on where year. quick you doing, sounds very of initiatives follow the are up. the the really in ramping of

there. tested very did saw plan success that that believe you specifically in absolutely. market, marketing Yes, market. marketing nice Last spring. We across we we we year where XX optimal some what and each I designed to be markets, for was then And thought would it see all some this localized efforts every

effective. makes what to So to we're ensure the it be proven of perfect we've sales just basically sense taken activity. And that level we have

a of great balance we sure year. make to the want You have

back conference I now the hand Thank Q&A remarks. go closing will ahead. for That you. concludes our session. Paul to Sarvadi Please

of some over seeing we you Well, we you and expect out over results call effective the today thank marketplace to for on very the the want the again, just and much. year half all quarter. forward being continue have to Thank last somewhere once to the look to of you in