Insperity - Earnings Call - Q1 2018
April 30, 2018
Transcript
Speaker 0
Good morning. My name is Beth, and I will be your conference operator today. I would like to welcome everyone to the Insperity First Quarter twenty eighteen Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
At this time, I would like to introduce today's speakers. Joining us are Paul Sabadhi, Chairman of the Board and Chief Executive Officer Richard Rawson, President and Douglas Sharp, Senior Vice President of Finance, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Douglas Sharp. Mr. Sharp, please go ahead.
Speaker 1
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 record first quarter twenty eighteen 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 2018 guidance. We will then end the call with a question and answer session where Paul, Richard and I will be available. Now before we begin, I would like to remind you that Mr. Sarvati, Mr. Rawson or myself may make forward looking statements during today's call, which are subject to risks, uncertainties and assumptions.
In addition, some of our discussion may include non GAAP financial measures. For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward looking statements and reconciliations of non GAAP financial measures, please see the company's public filings, including the Form eight ks filed today, which are available on our website. Now let's discuss the details behind our strong first quarter results in achieved which record highs of 1 point dollars 4 in adjusted EPS, a 53% increase over 2017 and adjusted EBITDA of $84,000,000 an increase of 34%. These better than expected results were driven by outperformance in both worksite employee and gross profit growth. Average paid worksite employees increased 12.2% over 2017, above the high end of our forecasted range.
This quarter's growth was driven by both a high level of client retention during our heavy Q1 client renewal period and continuing strong sales. Client attrition totaled only 8% during the quarter, an improvement over Q1 of the prior year, and now our fourth year in a row where attrition has come in substantially lower than our previous historical first quarter trend of 11% to 13%. Worksite employees paid from new sales increased by 23% over the 2017 on a 15% increase in the average number of trained Business Performance Advisors. Additionally, net hiring by our client base improved over recent historical trends. An increase of 25% in gross profit over 2017 was driven by the 12% worksite employee growth and favorable results achieved in each of our direct cost areas, particularly in the benefits area in which cost per covered employee declined slightly from 2017 compared to a budgeted increase of approximately 2%.
As for our first quarter operating expenses, we continue to make planned investments in our growth, including growth in the number of business performance advisors and new sales offices, our high touch, high-tech service offering and our technology infrastructure security and development. We managed these investments and other G and A costs below budgeted levels. We additionally paid out the one time tax reform bonuses to employees and accrued for additional incentive compensation tied to our outperformance. Our effective tax rate in Q1 came in at 23% and as expected was favorably impacted by the recent Tax Reform Act. Also 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.
For the remaining quarters, we are estimating a tax rate of 28%, which then equates to a full year rate of 26%. As for our balance sheet and cash flow, we ended the quarter with $87,500,000 of adjusted cash and have two forty five million dollars available under our line of credit. During the quarter, we repurchased 131,000 shares of stock at a cost of $8,600,000 and paid $8,400,000 in cash dividends. Now at this time, I'd like to turn the call over to Paul.
Speaker 2
Thank you, Doug. Today, I'd like to provide some commentary on three topics, including number one, our substantial outperformance in Q1 and the strong momentum we've established number two, the key drivers of our growth acceleration, giving us confidence in our plan for the balance of the year and number three, our strategic initiatives forming our new five year plan. This quarter was exceptional as nearly all the key metrics in our business model were positive. The first quarter of every year sets the foundation for the full year in our cumulative residual income business model. This incredibly strong Q1 in 2018 paves the way for a fourth consecutive year of growth in adjusted EBITDA at very impressive rates.
Adjusted EBITDA grew at 31%, 2826% in 2015, 2016 and 2017 respectively. And our guidance for this year has now been increased to a range of 23% to 25% on this metric. This clearly demonstrates our capability to perform consistently as a high growth company and capitalize on our dynamic market opportunity. This strong quarter was the result of a very successful year end transition in new and renewing accounts. This strength was evident in new sales, client retention and pricing and allowed us to start the year with tremendous momentum.
New sales in the first quarter came in at 118% of budget and 19 ahead of last year, filling the pipeline for paid worksite employee growth in Q2. Sales efficiency actually increased slightly in spite of accelerating our growth rate in the number of trained Business Performance Advisors to 15% over the same period. This is certainly a credit to our sales training, sales management and marketing efforts. As Doug mentioned, client retention was exceptional in Q1 as we came through the heavy renewal period at 8% attrition below last year's level of 8.3%. This puts us on track for another excellent full year retention number in the range of the last few years of 84% to 86%.
The other major highlight of the first quarter was the gross profit outperformance due to solid pricing coupled with all three primary direct costs coming in below expectations. The ongoing management of these programs provides cost stability for clients and a management fee contributing to Insperity's gross profit. So we have the benefit of strong momentum, which we expect to translate into continued growth acceleration over the balance of the year. In our model, the front end of the ship is the number of trained BPAs. Historically, the growth rate in worksite employees follows the growth rate in trained business performance advisors within a year or so, subject to a plus or minus from our mid market division.
We finished the first quarter with 500 total BPAs and recent sales activity levels and efficiency rates give us confidence that core sales engine is likely to continue to perform very well. Since attrition rates are typically less than 1% per month from April through the year end, we would expect growth acceleration over this period. Our mid market division in our model is considered an opportunity for a premium to our growth rate, but on the flip side, the loss of large clients can also be a drag on the growth rate. You may recall that last year we had our largest client acquired by a larger company midyear, eliminating the need for our service and this caused a drag on our growth rate of approximately 1.5% for 2017. This year, we expect the opposite effect as we are seeing some real traction in our mid market sales effort.
Our pipeline of mid market accounts already sold and in the queue to be paid in Q2 and Q3 is very strong. When you layer in these additions, we expect worksite employee growth rates of 14% to 15% over the last half of the year. So for the full year, we're comfortable raising our guidance for worksite employee growth from a range of 11.5% to 13.5% to 13% to 14% bracketing the high end of our previous range. Another reason for our confidence is the market receptivity we have seen in the introduction of Insperity Premier, our HCM technology platform designed to facilitate the co employment relationship. This industry leading technology has been very well received by clients and prospects, helping to retain current clients and win new business.
Now that the platform is in place, we will be releasing new features and functionality to continue to set the bar in providing technology that drives desired outcomes when combined with our HR expertise and our software with a service model. Our 2018 roadmap will highlight the power of our co employment solution while delivering industry leading HCM flexibility. Soon we will introduce a series of usability improvements, making it faster and easier to accomplish key responsibilities, including a task box, bringing forward workflow notifications and approvals, collecting the most urgent and important tasks right to the default home dashboard. In addition to our recently rolled out fingerprint and facial recognition login on the mobile app, we will also provide an expanded number of personal preferences, such as adding a photo to the profile and selecting a preferred landing page. We will also introduce self-service configuration capabilities and an interactive employee directory leveraging our Org plus technology.
This powerful data visualization engine will allow clients and managers to view a wide array of information within an organization chart from payroll and time of tenants data to performance and benefits information. The point is Insperity Premier is already an amazing HCM platform, but with our development capability, combined with the collaborative client and worksite employee interactions, our customer experience will only get better and better over time, cementing our client relationships. These technology advancements are strategic investments that not only improve the customer experience, but also play a key role in our efforts to gain efficiency in serving clients and controlling operating expenses. Last quarter, I mentioned we completed a five year plan over three years from 2015 through 2017 and formulated a new plan late last year. This quarter, we have communicated this plan to leadership across the company and we are aligned around our theme of One Insperity.
Our five major initiatives, which we expect to drive our desired results over this period are growth acceleration, operational excellence, technology leadership, risk optimization and talent development. As you can tell from our first quarter results and our revised guidance, we are well underway on these stated priorities, especially growth acceleration, operational excellence and technology development. What's less apparent is the progress we're making on the last two initiatives. A major element in our five year plan is our expansion into the traditional employment solution space. We intend to offer workforce administration as the most comprehensive traditional employment solution in the marketplace, mirroring what we have accomplished in the co employment space.
We believe offering workforce administration side by side with our workforce optimization offering and right upfront in the sales process will be a growth accelerator for Insperity. As we continue to ramp up our efforts in this area, we believe our business model will be enhanced in several ways, including increased sales efficiency, greater contribution to gross profit and higher client retention. In addition, traditional employment solution sales will not come with the same type and level of risk as our co employment offerings. This is central to our risk optimization strategy within our five year plan. Most critical initiative in our five year plan is to continue the recruiting, development and retention of top talent to support our substantial growth.
We will continue to focus on leveraging our dynamic corporate culture, which drives our resiliency to overcome obstacles and the strong execution we have seen over recent years. Over the last three years, we've returned nearly $400,000,000 to shareholders through dividends and share repurchases, and our ranking and total shareholder return among our peer group is number one. Our primary objective in our new five year plan is to continue this pattern of success into an extended period of outstanding results and exceptional total shareholder returns. At this time, I'd
Speaker 1
like to pass
Speaker 2
the call back to Doug.
Speaker 1
Thanks, Paul. Now before we open up the call for questions, I'd like to provide our financial guidance for the second quarter and an update to our full year 2018 forecast, which includes top and bottom line growth significantly above our initial budget. As Paul just mentioned, we are now forecasting full year growth of average paid worksite employees in a range of 13% to 14%. This is up from our initial guidance of 11.5% to 13.5% due to the strong start to 2018 and continuing sales momentum. We are forecasting Q2 worksite employee growth in a range of 12% to 13% and continued acceleration over the remainder of the year based on the number and sales efficiency of our trained Business Performance Advisors and continued success in our mid market area.
We are increasing our earnings guidance based upon the outperformance in Q1 and an improvement in our outlook over the remainder of 2018 driven by the higher worksite employee growth rate. While the first quarter's results included some upside from favorable direct cost trends, we intend to take our typical approach to conservatively forecasting our benefit and workers' compensation costs over the remainder of the year. Our forecasted operating expenses include those costs associated with our initial 2018 operating plan, along with incremental costs tied to being ahead of our plan, which include a higher number of business performance advisors, higher sales commissions on more paid worksite employees and higher incentive compensation costs tied to our outperformance. We are now forecasting full year 2018 adjusted EBITDA in a range of $218,000,000 to $223,000,000 an increase of 23% to 25% over 2017 and up approximately $20,000,000 over our initial guidance. As for Q2, we are forecasting adjusted EBITDA of $41,000,000 to $43,000,000 which as expected is down sequentially from Q1 due to the typical seasonality in our gross profit.
We are forecasting full year 2018 adjusted EPS of $3.36 to $3.44 a 37% to 40% increase over 2017. Q2 adjusted EPS is projected in a range of $0.59 to $0.63 an increase of 44% to 54% over Q2 of the prior year. In conclusion, we are very encouraged by our 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.
Speaker 0
Our first question comes from the line of Jim MacDonald, Versa Analyst. Your line is open.
Speaker 3
Yes. Great quarter, guys.
Speaker 1
Yes. Thanks.
Speaker 3
Yes. Good morning. So just trying to get a feel. It sounded like, Doug, that your increased guidance is mostly related to the strength in hiring, not assuming the direct cost programs will continue at the rate that they did in the first quarter.
Speaker 1
That's correct. Yes. As I just mentioned in my prepared remarks, the updated guidance and some increase for the remainder of the year over our initial budget is driven by the worksite employee growth. We have gone back to our typical approach of conservatively forecasting the benefits comp areas.
Speaker 3
So are you assuming the benefits cost growth is going to go back to like 2% then for the rest of the year?
Speaker 1
Yes, generally speaking. Correct.
Speaker 3
And then could you give us a little more on what the workers' comp release was in the first quarter? And you talked about your pricing initiatives maybe in those two areas, that would be helpful.
Speaker 1
Yeah. So we actually, you know, had a really good quarter, as it relates to our workers' compensation. The the claims, you know, we're obviously our reserves and everything are recorded through the actuary. And when the quarter ends up where the claims experience was actually lower than what they forecasted the settlement, the claims to be, it always picks up. And in this particular case, it was about $5,700,000 for the quarter.
And
Speaker 3
the pricing initiatives?
Speaker 1
Yes. On the pricing side, we saw strength in, obviously, our allocations for our markup component of our gross profit. Also, our benefits allocations were strong as well.
Speaker 3
Great. And I guess one more for me and I'll get off here. You talked about some wins already in the mid market that are coming online. Any view of the timing of when some of the bigger ones are coming going to be feathered in?
Speaker 2
Yes. We have a few coming in of the smaller mid market ones coming in, in the second quarter here. But we expect the bulk of what's in the queue now to be early in Q3.
Speaker 4
Your
Speaker 0
next question comes from the line of Jeff Martin, Roth Capital Partners. Your line is open.
Speaker 4
Thanks. Good morning guys and impressive results. Thank you, Thanks. Was curious if you could elaborate on the workforce administration side. It seems like that's taking a little bit more prominent role versus historically.
Maybe give us some perspective on where it is today and where you see it is a couple of years down the road.
Speaker 2
Yes. It's really exciting for us, and it is a central element of our you know, next five year plan. However, we are, you know, very carefully implementing this because, you know, you have this fabulous growth engine that's in place in gin and and you don't wanna do anything to upset that So we we are continuing to, you know, improve the actual infrastructure of what's in workforce administration. Sometime over this next quarter, we will, you know, roll out kind of the new and improved version, if you will, that's been the result of of all the research and the and the market testing we've done over the past, you know, six or nine months.
So once we get that out there, we'll start really, you know, pressing the the accelerator down, but it's it's kind of already has a life of its own. You know, since we got the sales team out there, the BPAs have the ability to present both side by side. That's really honing in the co employment discussion really nicely. And we are bringing we had, you know, like, 200% increase in number of sales of workforce administration, and that's without us, you know you know, pushing the hammer on it yet. So we're we're kinda gingerly moving forward, but we're, you know, about to get to that point where we will accelerate that implementation.
And, you know, our hope is that that raises, you know, all the ships that are on the water. Co employment sales go up. Other solutions are added to either one of the two bundles and giving the customer the option, whichever is the right starting point that we would recommend for that given customer really opens up our target market even larger. And we think that's going to be a nice accelerator for the business.
Speaker 4
And as that model evolves, how do you plan to talk about it or disclose it or give metrics? Is there going to be collaboration on that front? Will you break it out? How will you shape it with investors and analysts?
Speaker 2
Yeah. Remains remains to be seen right this second. We're we're are, you know, talking about that now, and, you know, we always like to, you know, make sure we have exactly the right metrics that we can, you know, provide you so that, you know, you guys can build your models and be on the same page we are. So, you know, we need another quarter or two before we, you know, really hone in on that and and, we'll be introducing some new things as we go forward on that front as it becomes more significant to the model.
Speaker 4
Okay. And then my other question is around the Business Performance Advisors. Am I understanding this correctly that you are further accelerating the ramp in hires there? Because you've been accelerating it for the past couple of years. Just wanted to make sure I frame that perspective correctly.
Speaker 2
Yes. Again, we're I've been talking about this for a couple of years now about modulating, you know, moving this up and trying to optimize the rate of of growth in business performance advisers. And we we came through the first quarter, not only where we hit at year end, but a lot of times, our biggest turnover time of the year for BPAs is typically the when we have the sales convention and you kind of make that decision to people, are they making it? Are they coming into the convention, etcetera? And you kinda have a a little bit of turn more turnover in the first quarter than you do the rest of the year.
But this year, you know, we're just the the team out there, the sales management, doing a fabulous job, and people are succeeding. Success breeds success. It's momentum. And we just didn't have much of a falloff in trained in trained BPAs or not as much as you would normally have in the first quarter. So that, again, gives us the lower that turnover is for the right reasons, then your sales efficiency can keep moving.
It's always amazing to move sales efficiency up when you're growing when you're accelerating the growth in number of your BPAs. So we're gonna keep moving that number up little by little, know, making sure that all the other elements that make that, you know, you know, make that really profitable or in place. You know, the marketing programs, you have enough marketing going on to support the sales team and and, you know, having the right number of managers and offices open and all that kind of stuff. So a lot of, you know, a lot of items, a lot of drivers within that growth model. And, you know, so we're just, like I said, just kinda tweaking them along and continue to move up a little bit.
Speaker 1
Yeah. I was gonna say, you know, it's really it starts with the with the sales training programs that we have that we have refined and and improved over the past several years. And as Paul said, you know, having business performance advisers being able to be become more successful earlier on, demonstrates that that those training and development programs are actually work. And and we're seeing the fruit of all of that effort that's been going on for quite some time.
Speaker 4
That's great. Congratulations again.
Speaker 1
Thank you. Your
Speaker 0
next question comes from the line of Mark Marcon, R. W. Baird. Your line is open.
Speaker 5
Let me add my congratulations. Absolutely terrific job. I was wondering if you could talk a little bit more about the workforce administration just in terms of how you envision that being sold relative to say workforce optimization and the full PEO model. Would you Is it gonna be an alternative? Are you gonna present them side by side?
How how do you envision that, you know, working as it as it relates to, you know, what the what the BPAs would lead with?
Speaker 2
Right. We we we intend to we are right now. Our BPAs are out there. Our first what we call our first call brochure or discovery call brochure has both bundles in the in the graphic side by side. So we do introduce the options right up front.
However, our business performance adviser, once they gather information, they're gonna go back and make one recommendation, one bundle, and and then further customize that bundle with other business performance solutions that we provide that, you know, make it even a better fit for an individual client. So they'll they'll go back with the recommendation that they feel is right for the customer. And so, you know, over time, what we will be doing is, you know, growing both of those. And and like I've been saying, you know, the when you put them side by side and discuss it and then, you know, you you're able to talk to what are the advantages of one or the other and, you know, what what stage is that company at right now and and what level of support do they need to start with. And over time, we think there'll be a channel between, you know, people coming on in workforce administration and us working with them in that model for a while and then migrating to workforce optimization.
So we think it you know, we're hoping that it will not only increase workforce optimization sales over time, But, also, you know, you'll get out of every 10 we see, maybe you'll get two or three workforce administration sales that, you know, will roll in next year into optimization. So that's the game plan.
Speaker 5
That's great. And then with from a margin perspective, how should we think about the implications of of workforce administration becoming a bigger portion of the mix?
Speaker 2
Sure. We the way we've designed the offering to work, you know, we've kind of positioned it in the marketplace strategically based on, you know, what we put into the bundle based on what the market demand is. And then we priced it in a way so that it mirrors what we're doing in workforce optimization, the co employment model. We wanted it to be the most comprehensive business solution in the traditional employment space. But how it compares between the two, you know, we've tried to position it where it's approximately 40% of the value to Insperity to sell a workforce administration deal compared to workforce optimization deal.
And we've tried to make the same, you know, like, for example, the benefit to a BPA in terms of their commission. How valuable is the sale of WA for them? We also want it to be around 40% so that, you know, the emphasis remains on workforce optimization, but you're not gonna pass up a workforce administration sale. So I think we've we've got that right now. We do need enough repetitions and enough volume, you know, to see how that's gonna come out, and that's why it'll be a little while before we, you know, have all that pinned down and and, you know, we'll be we'll be telling you more about that.
Speaker 5
But it it sounds like
Speaker 1
Sorry. I was gonna say the good news is that from a from a risk perspective, you know, that's just there is no risk associated with those with that with that margin.
Speaker 5
Yep. And and and then it sounds like I mean, from a sales commission perspective, and I would imagine also just from a workflow perspective, if you if I'm hearing you correctly, it it should be margin neutral. Is that a a correct assumption?
Speaker 2
You know, we're I think it's too early to tell. Yeah. It's too early to tell, but we're you know, it's additive. You know, if it changes, you know you know, we we look at everything as a per worksite employee basis, and, you know, we'll we'll be looking at that as well as how, you know, right now, how we roll all those numbers together. But, you know, we think it's really significant in a lot of ways.
I'm not gonna call it a silver bullet, but it is one initiative that affects a lot of different things. Sales efficiency, you know, your profitability in in the model, your retention. There's just a lot of things that it that it can help move along.
Speaker 5
Great. And then with regards to the the just the sales efficiency, can you talk a little bit about that to the extent that you've got a good feel for it in terms of how that should end up, you know, changing with with the increased emphasis on on workforce administration? Because I think it's it's a pretty significant arrow to add to the quiver. Right.
Speaker 2
That's a good good question, and this is why we're, you know, we're carefully implementing here. And, you have other factors going on with the high growth of that organization, which normally is a drag on your sales efficiency if you weren't trying to do something new. So we've been careful about that. And as we reported here for Q1 and for last year, we you know, maintained the same level of sales efficiency we had the year prior even though you ramped up the number of BPAs. When we get to the first quarter, not only did it, you know, you ramped up a little faster, but your sales efficiency was slightly higher.
So, you know, that's just a really good sign that we're you know, all those other pieces that make that happen, which are the, you know, the, you know, the DMs, the district managers doing doing their thing really well along with, know, the sales training, really equipping the BPAs to be successful like Richard was talking about earlier and and, you know, faster. And then also, you know, having the marketing programs that are serving up qualified leads so that, you know, the way people are using their time is is more efficient. So all those factors are part of it. Now you're starting to weigh in another one, which is, you know, how we have brought in this new offering and and creating the option for both the BPA and the customer as to which bundle to start with. So, you know, we we like the way that's going now, but it's really hard to predict, you know, how much more sales efficiency will we get out of it.
You know, not sure yet. It's just gonna take a little time.
Speaker 0
Your next question comes from the line of Tobey Sommer, SunTrust. Line is open.
Speaker 2
You very much.
Speaker 6
Paul, was wondering if you could talk about the expected cadence of sales throughout the quarters. Now that you've had a little bit of time to live with the IRS changes with respect to double taxation and payroll. In the context of these mid market sales of size that are going to accelerate growth, I'm wondering if any of those changes were influential in pushing them across the finish line at kind of
Speaker 2
the mid part of the year. Yeah. You know, I don't have specific cases where I can say, yeah, that made the difference. But I got to tell you, you know, we as we've been looking around here, you know, we all we've always had you talk about a cadence in sales. We've always had, you know, the really strong fall campaign selling season.
You know, we just had a district managers meeting here and, you know, several of the discussions. It was like, man, we just rolled from fall campaign into the New Year, and it still feels like fall campaign. So, you know, this issue of does this even out over the year because of the, you know, no double taxation. There may be some of that behind it, but I don't really have specific, you know, mid market accounts where we see how that made the difference.
Speaker 6
Okay. In terms of the the BPA acceleration, you know, in part because of
Speaker 2
that success they're having and they're,
Speaker 6
of course, sticking around to keep at it, what kind of rate of growth do you have in the BPAs year over year at this point? And what might you be targeting for you know, the the fall selling season in September?
Speaker 2
Yeah. Trained BPAs were, you know, up, like, 15% for the quarter, and total is is just a little higher than that, like, And K. You know, just gonna tweak it up, you know, as we can and as it as it you know, it's it's in an opportunistic fashion. We're not saying it has to be 18 by a substance or whatever. You know, we just we just know that when you you know, this time, it it's, you know, creeping up more because of retention.
And so, you know, we'll continue the hiring rate. We can as long as we can bring on BPAs, really have them trained up well, have them reach a level of efficiency in about the right time frame, and we can, you know, provide enough leads to everybody within then it makes sense as long as you know how to run your service capacity. But we're not, you know, we're not anywhere near that. We got you know, we we are also paying close attention to that because you really have to have to make all those pieces fit. There's a balance to that.
And, you know, we're not trying to grow 25%. You know, we're we're just saying that we're in a a really nice range now where you can, you know, modulate up a little bit and, get a lot of benefit at the bottom line. You know, this quarter was an example of how, you know, when you have across the the metrics, If everything is you know, comes in, you know, near the higher end of the range, it really all you know, blows out the numbers at the bottom. So, you know, it doesn't always work that way, but that's what it does.
Speaker 6
Right. I wanted to say one thing to Richard, and I'll ask the last question. Just, Richard, congratulations on a heck of a career. And they say the most important shot in golf is the next one, so good luck with yours.
Speaker 1
Thanks, Toby. I'll miss this part.
Speaker 6
And I would love to get your comments on where you think you are in terms of market share. Do you think you're gaining share based on these rates
Speaker 2
of growth? And any thoughts or color that
Speaker 6
you could put on what the expansion in the workforce administration means in terms of the company's total addressable market in terms of increasing it? Thanks.
Speaker 2
Right. You know, we look at our total addressable market of about 70,000,000 worksite employees out there when you basically size companies from, you know, five or 10 employees up to about, you know, couple 3,000, maybe 5,000 employees. And what what I think we're doing with workforce administration is just creating another option and entry point for more of that market to come in earlier than they maybe otherwise would have. Know, we I think we we can really well serve a, you know, much larger portion of that addressable market with the approach that we're taking. And so, you know, it it's both it doesn't make the addressable or the the addressable market that will be responsive to us?
I think it really increases that. And, you know, so it it flows into the pace of our growth. We've always balanced growth and profitability. But when you are growing, it can kind of be on the top end of your range or a little above the range on growth. A little extra growth really adds a lot to the model.
Speaker 0
Your next question comes from the line of Michael Baker, Raymond James. Your line is open.
Speaker 7
Yes. Thanks a lot. Congratulations, Richard. I was wondering, you quantified the workers' comp benefit in the quarter. Could you please quantify the health care one?
And then I had a follow on for Paul.
Speaker 1
Yeah. So this quarter, our we actually ended up at with about I guess it was we're about $13,000,000 Well, mean, way I'd answer that is the larger piece of the upside in the gross profit area was in the benefits area. Had again, And we had budgeted about a 2% increase as our health care trend came in as a decline of about 1.5% or so. So that was outside of the growth in the worksite employees within the gross profit benefits area.
Speaker 7
That's helpful. And then, Paul, maybe give us a little bit of a historical perspective on the co employment where you used to see interest by an employer top out in terms of employee size and maybe how you've seen that potentially recently change and give us a little bit of feel for why. And do you think that can go? I mean, do you still see that notion of employers at some certain size thinking that they can still take on some of this benefits responsibility so that when you're talking about the 3,000 to 5,000, that's ultimately going to be workforce administration? Or have there been underlying changes?
Or the way you deliver your model has increased comfort for a larger size, so to speak?
Speaker 2
Yeah. That's a great question. And I I do think that just in the big picture of market receptivity and kind of the adoption curve, if you will, even though it's taken a long time to get to this point, I believe that the combination of, you know, the federal law being passed and, you know, just the the growth of the industry, I really think that we're in a you know, we're kinda crossed the chasm, if you will, if you're familiar with that concept of market adoption and receptivity. But we we know we've definitely crossed the chasm. I think we're getting you know, mid market is a good place to look at the the receptivity and how it's changed.
I also think when you look at awareness and an actual, you know, preference to do businesses away from folks like private equity firms where you're, you know, able to start to have some real productive channels to bring business on. So a lot of things we're working there that I think can can help with the moment. This is really what I'm talking about about momentum. And when you have that, it's it really gets to be to be fun. Now on the issue of large customers and whether they prefer co employment or traditional, we have found ways to have our co employment model provide, you know, more flexibility than we used to.
And large customers used to feel pretty, you know, restricted or constrained in in that model, but our folks have done a great job on the service model. The feeling as a customer now as a mid market customer is very customized, very you know, they they they we know they're unique. They know we know they're unique, and we fit the service model to really help them. And so, you know, we we have large large customers choosing co employment. So it's it's kind of the same kind of dialogue.
So, you know, it's not I don't look at it as the bigger you are, the less likely you'll choose co employment. That's not what the numbers tell us today.
Speaker 7
Thanks for the update.
Speaker 2
You bet.
Speaker 0
Our last question comes from the line of Mark Marcon, R. W. Baird. Your line is open.
Speaker 5
Just had a couple of quick follow ups with regards to the benefits cost and the gross profit per worksite employee. In terms of the health care benefits costs actually declining by 1.5%, Can you talk a little bit about why that occurred? Is it just lower number of incidents, lesser severity? Just what specifically drove that? And then secondly, how should we think about the gross profit per worksite employee for the balance of the year as it relates to the guidance?
Speaker 1
Okay. Well, first of all, if we go back to the fall of last year, there was a lot of discussion and dialogue, with, with our primary carrier, UnitedHealthcare, talking about that, they were expecting a rather difficult flu season. And so we, you know, taken their guide lead, you know, tried to forecast some of that into our experience for the first quarter. And, as they reported a week or so ago, you know, it didn't happen for them. So, obviously, we were, you know, kind of in that same boat.
And so we didn't have near the utilization. We're seeing, when we look at the detailed metrics in the plan, the medical side, our trend was actually negative this quarter. The pharmacy, utilization was actually lower than what we had forecasted as well. So both of those fronts were good. When we look at all the the detailed metrics like, you know, the, what you know, in hospital days and, you know, stays and all that kind of stuff, which we use all that to help our own forecasting.
You know, it's all positive. And, and so it's just, just across the board. But, you know, it is it is what it is. And when you think about that going forward, you can't you can't bake that into a future quarter because you just you don't necessarily know how the utilization is going to play out. So we maintain a conservative approach, as Doug said, by forecasting that at the levels that we had previously when we started this year's budget.
We just let those in place for our forecast at the gross profit line for the balance of the year. If it turns out better, then great.
Speaker 2
Yeah. You wouldn't expect a negative trend for a whole year.
Speaker 1
No. No. That would no.
Speaker 2
Can't bake that in. Got
Speaker 7
it. Thank you.
Speaker 0
I will now turn the call back to Mr. Sabati for closing remarks.
Speaker 2
Once again, we just want to thank everybody for joining us today and appreciate your interest. And we look forward to continuing to produce some exceptional results, and hopefully, we'll see you out on the road. Thank you very much. Have a great day.
Speaker 0
This concludes today's conference call. You may now disconnect. Thank you.