Earnings call transcript Q2 2023

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Operator

Good morning. My name is Janie and I will be your conference operator today. I would like to welcome everyone to the Insperity Second Quarter 2023 Earnings Conference Call. Currently, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. this being note Please Instructions] conference recorded. is [Operator

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

Joining Paul Vice Executive Officer; Chief us, and Officer and Board are Financial Douglas Sarvadi, Chairman Sharp, Treasurer. Executive and President Finance, the of of Chief

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

Douglas Sharp

Thank you. us. joining you We appreciate

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

call and XXXX our the our a financial session. to third over return I'm discuss details on And to behind with update the second will comment going full and quarter of quarter Paul results. question-and-answer financial remainder then year quarter plan will the the the I the guidance. then First, will our we an the guidance year. for provide to end

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

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

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

from million reported we costs. second EBITDA for forecasted financial healthcare quarter adjusted shortfall let's of sales, Now, our earnings $XX discuss on higher results effectively in due EPS substantially We our pricing other our the ‘XX however, $X.XX areas the business, of experienced which in executed to service, and plan adjusted and quarter. of the

combination just in than by sales on QX as employees and retention average of target. in paid our of our hiring a over guidance increased client of expected. paid X.X% growth clients below our As midpoint metric, worksite the of from employees lower came the for XXXX, came Worksite slightly which was net by number

area, and we favorable And our experienced we compensation traditional levels. tax a profit, we achieve employment pricing outcome. to workers Moving program, continue with combined payroll offering gross to above target

than being behavioral our expected. drugs, a driver the approximately person $X for in the as the However, came due over $XXX,XXX activity to to claim for this remaining of higher primarily the both the XX% costs severity Large claims expected healthcare was health in The and claims higher of we This increase $XX loss million including related costs, diabetes limit. pharmacy of up costs, weight accounted large step million per significant experienced primary pharmacy due higher to a and Claim drugs. up Insurance to in with and approximately And of use increase. drugs specialty an higher utilization than costs. XX% of number

consecutive claim Now, my more has of been our rare course than quarter the activity over history. persisting over large one

we activity continued improvements trend. few cost benefit a in the and incorporates cost earning activity a are that on additional to these pricing forecasting from side, high year, normal the on high remain we up results first and earning the we top a mitigate earnings remainder Our updated cases, of considering pricing will of further XXXX, estimate both of large X.X% range and with on elevated. return When more over range benefit trend achieved, prior the side. year of X%. half impact of this the of comments our pharmacy over to And guidance to now provide intend a X% anticipate our Paul our claim our will level for of factors pricing adjust the potential costs On increased along the low we cost minutes. In trends to the that have

of the service Now XXXX, QX and in sales, the on continued costs. included environment our and of over X% inflationary investment impact increased our operating moving to technology expenses, costs and

Our we QX advisors, as million selling performance balances. good our putting growth XX% on and higher in season. position fall us investment of the a XXXX rates a business $X increased in approach over by high invested interest increase of Net number includes interest income

also rate Second rate. tax quarter full was XX%, is which effective we as forecasting now are our year

Our in financial shareholders. strong, remain and returns position to liquidity growth we and providing while investment continue our our

aggressive a cash We of the During XX,XXX million shares activity as repurchase conditions. by repurchase ended morning, cash this we million dividends. And million shares QX market we our and to adjusted increased paid X announced $XX repurchased with authorization quarter, in and at than stock more have debt. of depending share typical on $XXX cost $XX billion out our intend $XXX of of be million and

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

Paul Sarvadi

you, Doug, three for the I'd provide all our like on Today, thank joining call. comments topics. Thank you to and following

comment I'll the in execution drivers performance long-term second our First, across key on quarter excellent the and results business.

a I'll for to future focus on unexpected on healthcare target needs, corresponding vast the the market company quarter. claims into needs with comments discuss the is the and workplace, of I'll Second, changing year large in our our Insperity despite outlook how the the beyond the market. opportunity next recent in changes with capitalize positioned finish on and

and within the service pricing, Our and outlook toward strong were long- growth drivers most All our term positive key client contribute areas control, future. for important success sales, and for our retention. more a QX these and in profitability new

Our consultant an book history sales their in workforce worksite were experienced optimization book of quarters both our team outstanding solid and one effort sold. team. mid-market and deal This in strongest performance sales business by count in employees driven

BPAs a was coming quarter. made the book substantial sales, into priority activity, driving sales In was which addition progress our by to excellent

BPAs half number pipeline last prospective of significantly into calls making increase as higher the over of year, QX nearly our client go XX% of discovery XX% year. Our we the stronger second

or other in the sales of traction well to and highlights booked and continuing One organization, was quarter the acceleration of gain budget across the workforce WX, sales. coming above

is of Historically, is incentives, and BPA large BPAs to last the and has the over turnover. frustration opportunity XX provides At regarding of and complexity level exciting is for test in this in months, both of the the this WX WX sales sale the higher WX validating WX ultimate lowered rate the as up WO over year one for learning as the relatively to to has begin considerably complex this resulted and adoption assumptions sales tiers. tenured is a rates turnover sales appears lower training the a The ramp cause few X new success sale our reasons and the BPAs we less be This number for the of can of optimization One accomplished. Tier training the level Tier period. XX half earlier of and workforce from of closes for X BPA. to early turnover and opportunity less months assess period first WX. adoption to potential

efficiency with the which first be in BPAs expected to year-to-date, year. mix, different high the economic in sales down somewhat of half climate is number Now the new of the is and a

for create But to X refined to are only improve encouraging upgrade efficiency the X compensation behavior, over to sales incentive sooner time. client they if lower Tier the base Not efficiency turnover sales Our we exactly by continues. programs this opportunity drive sales WX a Tier want going strong provide BPAs and an WO also to forward. BPA

Retention in considering how higher the highlight our In contribute results. our to another is XX% was particularly forward minutes will client retention of quarter than strong allocations was cost a pricing month QX will reflected critical execution offset quarter. service trends. I'll at the trend pricing and plans strong high on This this cost levels. also quarter QX. historically claim and also in each going this expected Our few address

few our appropriate client our has resulted the changing service efforts training in needs. corporate and success staff ratios to recruiting in over client Our of quarters last support

we plans So through solid forward. company. half footing first is believe execution the sound going our on of we've for year, the growth of business experienced across the And the

our As ago choice. we set leadership and a changes compete we more needs This was and new and the the established we fundamental to on division and a a up clear of are look the medium an in ahead, role therefore small executive us than employer company of new roll a team. businesses year the sized as for workplace, to to future seeing

and breadth our and the Vice corporate Johnson development Kathy President, focused services organizational on strategic position is of leadership clients. organization planning and strategic, and Executive in development care industry depth led the for by to Our of provided continue our level

to This team Examples and of of locations, changes to wages engagement development. financial and work is and wellness adjustments to mode changing support focused inclusion psychological include on demands employee and drivers access including resources environment, generational payroll everything physical mental, and purposeful offerings. employee to data wellness to to to the and critical and for and from intelligence flexibility, artificial personal transformation analytics HR these

these the clients’ of half planning and we over many year are We I innovation our with changing needs. areas positioned focus believe are the and sized to upgrades areas, demands last in to best companies these well the market the our in changes to support attract marketplace. meet These cultural competitive succeed to retain and medium the tight needs to employer small remain in people. in labor require and of

working provider our employee the dynamic these with businesses, platform of clients of provide Insperity into experience as efforts the these choice issues with combined the on and appropriate Our positions benefits, history for future. to

execution, outlook long-term strategic by and believe ongoing and remains planning that our driven we So strong very development. enhanced effective

to is competence and at this estimate of start plan both growth impeded or in the best year not benefits year. claims to this compounded claim the our place all, of by perspective, quarter annual is The the large on our with year's included. Our and effect put projected level quarter five rates the recent pricing in proper cost at look to

including rate for of cost year. the range to full we've is estimated Our the X.X% annual estimated compound X.X%, benefits wide potential claims growth

rate Our over X.X%. allocations compound same is growth for annual period the benefits

cost management marketplace, demonstrate the our to healthcare achieving increases time. compared Now cost over these aligning, pricing rates goals effective with our and

historical strategy long-term are our and pricing has cost trends well. Our performed solid,

pricing the moderate with Now in add incremental we over amount marketplace believe in to of to going of believe we'll year which solid this already be us approximately trends, we put to plan and should ahead trends we to our for allocation a year, time, to ahead next we've and target align in appropriately And to our initiated our we X% align cost X.X%, of cost position increases. XXXX line a the is pricing running we're beyond, pricing to forward. have look like past. and continue strategy able When

five in unexpected instance, are large we've current we our history, plan claims. successfully quarters had change our our our growth Throughout which strategy experienced and we've in long-term from achieve two our goals. year managed results time, such and continued and We this time each this to quarter's of year not In to do situation profitability.

plan, the the on our on stay the year. over to drivers most important balance company of focus the For is growth

focus investment of Our continuing the hiring additional BPA marketing the sales includes the in balance year. training to drive over and and

execution these organization our and our will believe client retention to remain the goals, history to drive have strategies. on able ready, continue superior also We continue us to shareholders. and we returns service confident willing pricing and well future in ability to our solid We which and achieve position of performance

to point, Doug our to this to like At guidance. I'd specific pass call back the provide

Douglas Sharp

Thanks Paul.

let provide year for and an full guidance Now, for me XXXX. our QX the update

are of includes costs outside worksite around favorable continue gross remainder our we over trends Our the of slightly expenses. in and operating benefit pricing range area, assumptions guidance areas expect and a and year, this of employees profit updated earnings possible lower our to paid and outcomes of forecasting other the

we primarily that are halfway growth now assumption and guidance employees And over we previous for are QX’s lower hiring light this now to hiring the of forecasting slightly base. year employee worksite rein X% than than growth average through in due lower a details, outlook X.X% the little since a lower XXXX, the our in is continues lower The result for worksite paid the of year. remainder tighter more client a our As to coming year. the an full

are to year-over-year forecasting growth employee QX, for we X% of worksite As X.X%.

our to of our XXXX. hiring is of to year due QX lower in than this less XXXX compared growth of significantly Now assumption full forecast QX

this two worksite of quarters XXXX However, sequential guidance QX. the continuing employee growth and reflects improving over year-over-year remaining in growth

earnings of discussed. around previously the our growth upon worksite results as outlook updated costs first range half benefit XXXX guidance in through revised employee have for We our expectations and based our our

of $XXX So after forecasting in adjusted $X.XX $XXX putting million in pieces, the we're now full EBITDA XXXX to range range to year of $X.XX. adjusted EPS the a together million and

adjusted million for million and from EPS forecasting $X.XX. range earnings, adjusted in As QX $X.XX to we EBITDA a of are to $XX $XX

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

Operator

Instructions] [Operator

Your Nicholas first Andrew is from Blair. question William coming of

Andrew Nicholas

side the you Thank to first, could you benefits a I on bit benefits Is hoping anything on side. little to cost just or plus the cost noise? some color management and provide in to explain pinpoint the $XXX,XXX it there I underwriting more was trend, that on ask wanted risk good the would that or particularly approach terms approach the morning. help of is

like do risk the And Or of then, I bigger for on the picture you. this kind quarter? guess quarters appetite your healthcare kind of this Thank question to maybe any ramifications long-term is change side?

Douglas Sharp

look clients, was concentration Yes, selling season a think I data would I rule detail adverse situation renewal, of a new behind some large obviously is and as one When there that obviously, as board think you above, that investigate little costs, the very that far came got the the of out. that that you when has fall types year from where indicate at from one heart selection, some thing our detailed through that client cancer, attacks, higher carrier really the not that claims you've our and care that's accidents. investigated we you've the want got out you you've claims. first which of claims and of bit to not some was $XXX,XXX got was the some things across at there look It's of diligently, the health them, of the more been our provided

of type of nature claims. over And as as the really far varied and the so diversified it's

we of and I compounded think respect have our year the in of we you has still still claim of with feel maybe see with did it over five yes, what we we feel costs costs from But so forecasted think year, range of range, the target recently, healthcare particularly that thus and a like to a we above at within It managing really some I term even to in large and remainder claim, the can rates, within with Paul's pricing is play. trends, are a higher adjustment pricing the And when our was, range period costs adjustments far, tolerable a the long activity. that comments look happened and the where still over the tolerated matching been history. some

Paul Sarvadi

think half second risk. look for let kind to question ways it. me So there's you that appetite different two about the at have the address of of Because I

did this we this, at the like we and million at have coverage we First our provides and of more a have profitable a dollar it are the the we long-term you comfortable like with out as in and the provides all, XXXX, grow we large same over level. advantage term. when way we cost But shared individuals structured time, claim on price it quarter we that did when purchase know, And program limit a have structure. to to long know business align the

take we'll that, sure this a just goes to before say we'll possibilities, also as I at on do of take And like look that also year. that continue to and of every volatility some year affects an look quoted We've lowered would look by. we, that at type the other limits us We and we evaluate markets. out that in basis, public ongoing relates quarter, the this to how

pursue to continue those things. we So

still we this that. the we volatility want to can these to, continue appetite business our say by the pursue would ways but that's way, reduce to we'll certainly I occasions, caused if So to other run find

Andrew Nicholas

I bit intention back can of for increased repurchases you the especially the you have to capital Thanks comments for have to both. on and follow be in put capacity wanted I your XXXX, just my on this the flush you you there, aggressive capacity to question, think, in authorization, your and allocation, Doug, the more of into guess That's a up out Thank you? stock? helpful. light maybe type ask I buying to year

Douglas Sharp

I the a where than the of we've indicate million purchaser would but with the currently a shares. been always and authorization would our you give done some look of indication authorization, level it Well, as even at which of higher see increased think big repurchase we typically, you have to over history, X what respect to board is shares, from feeling course

much the events, you I claim large go we quarters felt elevated that we think some remained we high if quite the intact. of back were XXXX long model where to had the over activity, very aggressive business term, because

in today. I think confident we very that obviously feel

increased of authorization, activity, in still us. allow plans again, reasonable does still our long-term for place, to us should off strong opportunities coming the be So quarters are targets themselves with confidence present more this it and that aggressive,

Operator

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

Tobey Sommer

wondering you're higher about healthcare was expense expectations your us you hearing whether may what continue could from if level into I Thanks. provider, and with XXXX. healthcare the your share

concern the in it's I that think been a and of era. theme sort post people pandemic Thanks. had

Paul Sarvadi

we think a go here, from an continue just I build on bubble. ahead term heard be that our you likely things Tobey, -- higher likely do these as there did a to to than same, there's in continue they're because basis. and short And, ongoing we discussion trend, conversations Yes, pharmacy more in

to continue those do we things. So monitor

of from aligning think the period properly difficult however, quarters, multiple had and We XXXX the difficult, different this that the the we’re I trends. used year. conversation But outside claim and with our we a and advisors in covered think large the just we've price long, we, expectation since wider costs component, range our underlying for managing it's this, with company.

Tobey Sommer

with that is applicable and maybe and of I’ll maybe And sort more And away about follow new something prongs, a so. to up, BPA you price experience mid-year could then Thanks. all I a make little exciting is Paul. The retention, talk on talk it that my Or two renewing front clients? into the if dig you could only? the for sales X.X%, about Thanks, and your talked hike from benefits? about client

Douglas Sharp

Sure.

So we and in where we, are operation, day. the when and that we every look business -- are new we're trends seeing, based on every remember we're day our looking at at, pricing pricing that renewing

in immediately typical it when talk from into decided began increase an that generally so the lower us, it's single on of to at. an that building some plan most selection, high been with that And based digits, might get in will But single then about to another X.X% experience on typically raising I digits, adds double high own and we've will to adding us. digits. share that by we the cost customers clients say at employees how look speaking, they'll increases, the costs other issues get decisions X% that get how with on time, or And would but clients, make they varies trend their will are that we average, increase when their they

it's to in marketplace is So to at is, line very it what the large. higher with much be on continue drive going appears But now than we'll to we're saying what in that been. us the average

a of we're on. client with not comfortable really price on, where see base. what we're So pricing we see, And and success we of going can a in able we've we are, you to to position as strong off pass and we're we've in with got just year half come where what response And a our to raise considerably. think

So going forward. comfortable very we're with that

pipeline potential we of is set front. on I predictable behavior element, yes, building the successful to growth the about and on a appropriate the the And year-to-date. Also part, that we're So turnover excited the that we incentives at and around that consistent we I'm changed in then factor a mid-market. to mid-market the other we've has our growth appropriate that lower that seeing were for want more always WX really And the on also things way that and organization team, such now course, business, effect. And the dramatic direct it the in building the very at we're focus how that in are time. on doing core everything side, have exciting

industry. is of three in period though effect, take pieces number, of had improved efficiency, the But been as dramatically growth lower the to rate really in point cost, turnover. highest really to double when sales lower below things still I that, positive And for long-term outlook growth together, Even from cost digit all So it's you the lower growth the in company. business there's those think in these a this have addition also we've less the time have for we're when potential turnover.

effect. we're excited of second that really double dip to we're for lot we excellent do. So work But front. are on has about an positive that poised a And Still kind a where of half.

Operator

is question Baird. next of coming from Your Marcon Mark

Mark Marcon

Thank you. of Got a couple questions.

talk more -- used again, more Or basically the treating to just with expensive And higher some to pharmaceutical seems used Which going did bit higher the wondering it's like up system. find regards And heart to expensive going same are Or claims. The incidents? a is can what's hospital today more also first trend. it little little relates, then be? on type ongoing what on other healthcare Obviously, be? within significantly book bit In it is are larger of the detail attacks to a the is claims, severe had than than for there cancer, side? more words, specifically costs they you you inflation labor that will one more an incidence? some that be you I'm about

So what I'm part we're wondering if of that's seeing?

Paul Sarvadi

as But on this all and the quarter, an think we're with I not side, numbers. that's But good those exactly do heard think we carriers and trend on in think year-to-year of quarter. typical our that we our things. people is work factor talking I I factor the way but that weight being marketplace, are about designed the recently drugs on lot of that, the are the you being diabetes weren't are a more to some generally used the course that that that. of a maybe are a more not for pharmacy for more about And Well, this that with discussion weighing think outside people. for most it that's different course that fad especially because to that's some And positive takes type loss drugs don't long monitor time time run that effects and and really the through. of And may front, term there used also, drugs advisors, I what various of thing. have in And that that front, monitor originally see But point. underlying

there's in being also years an for is I needs. nervous a mental so health effect. effect has that a the of factor people a that And think has And and think, that you a increase and lot behavioral high also behavioral into of in that squeeze health cost period the if wallet of two inflation about kind a

And we those are build underlying to of saw as that things we here, it. so that see kind look most and important in, said, that

aligned, forward. the like And on said, done to pricing make going that's that. done all we've side, we've So sure stuff I

Mark Marcon

the behaviors extent take Great. Paul, regards clients, implementing can to that some the sort the a you pricing And have to effect. from of Then effect on initial of what that with price mitigated discussion. sales? even to increase then offsetting can certain impact to out accelerate what would by the And which risks WX be healthcare a greater of modest

Paul Sarvadi

no business. risk course of it's that Yes, that's good. that there is of growing is not, in business on WX of We advantages, definitely medical the one the front,

so WX own, time close goes that. to effort nice team that as that They're as feeling do the board, is time And And of are such more lowering sales see we really what's considerably on. we So happening client do tenure. getting it drive they're adding enhancement. a their effects. to intending now forward, many their in And right And on strong base to incented goes upgrade the a has we successful turnover. is as sense what's makes we WO that to can their that's are, early And business. that

can we we're of So, we that things lot WX other discussing, these that forward be doing larger. there advantages that other are issues see of are to example, wellness, and and types in can WO tools moving more and that of post in some that for just of are I more nature, services a demanding changes the with and expect that that doing wages There for both definitely of kind financial access and was employees provided it much that deal we're be on employees things other that the and workplace for COVID. to wellness ball WX

So I think to looking WX. success we there. moving in are ahead dramatic some And forward

Douglas Sharp

some large with pricing trends. changes assuming We're the of marketplace, out to claim making when is continues. and And been adjustments much forecasts, your going line earlier, think question X.X%. our mentioned course wide the other the we marketplace the a and it's I range of the Tobey, be X% medical the with that on we pricing healthcare respect targets above very we're the activity news pricing in year, looking and that allocations to as this looking side, range at at on making our good incremental there we've the in look over this to in of

the is and that think trends, be don't our we be marketplace So pricing shouldn't outside very going a and will to consistent disadvantage. put of at

Operator

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

Jeff Martin

sooner potential increases benefit next Good that? may or price when is morning. get to going to year, you. than cost the that be early fully implemented. you wanted for be Thank Is the that think a Doug, allocation sense

Douglas Sharp

having just every that year through we've we first happens -- But strong chunk significant month. continue it been the on end year. in through the flowing And one will that's that they are then of the quarter a and transition increase Yes, of the that's or pricing component. increases so

Jeff Martin

it. Got

that Okay. And is then current environment for workforce of an position attracting optimization added terms retaining service small the that terms in the is additional in new of Or helping and an the employees, in charge? businesses product? on lumped component and initiative with

Douglas Sharp

for can you repeat me? sorry, I'm that

Jeff Martin

you going brought, where for for I that service that that if itself. is new effort? that that Kathy that's, product you Is as part curious workforce hired just specifically the offering elevated small or of was her be an offering into you are you charge to to lead built businesses optimization, if Johnson,

Paul Sarvadi

that things the good that's is and you any is up, addition. that because carefully So evaluating strategic bring to appropriate structure for that offered about, that determine development what group all this new are planning

there that because And of be to will things us, that of speak. so keep for outside own that outside people adding it’s products there's to bundle, want have to the no we will charged And so certain just sale, to don't to bundle. for be or want services they're

that be of return every we'll We'll a for the and going variety on those looking looking as things So service, improvement on investments investments. that be those at group. to make to we're every product looking financial at

Thank you much. very

the our now have We any call end the turn over Sarvadi session. question-and-answer to I Mr. will of for closing reached remarks.

Paul Sarvadi

thank participating our to Once strong year growth forward to year continued five And focus again, look second on our plan. half second we for continuing in everyone and to want of today. strong we do the our future into

Thank being So we thank of for next part once talking And you you to forward look you. a again today. quarter. this to

Operator

call. conference Thank conclude everybody. does today's you, This

day. You And your may lines Goodbye. disconnect wonderful for participation. your have this time. a Thank at you

Insperity (NSP) 1 Aug 232023 Q2 Earnings call transcript