Q3 2024 Earnings Summary
- Progress on the Workday strategic partnership: The company is making excellent progress on implementing the Workday strategic partnership, with plans to deploy the joint solution in the first half of 2025. This partnership is expected to enhance client retention, particularly in the mid-market segment, and attract new clients, contributing to growth acceleration in 2025.
- Leveraging AI for operational efficiency: The company is leveraging AI to drive operational efficiencies and improve service delivery, increasing the speed and proficiency of service teams, which is expected to drive operating leverage and profitability. This focus on AI is creating positive energy around operating efficiency, which is a highlight in their cultural mindset for 2025.
- Effective expense management while investing in growth initiatives: Despite a challenging economic environment, the company has shown effective expense management, achieving savings in G&A expenses in Q3, while continuing to invest in strategic initiatives like the Workday partnership and AI. This indicates strong financial discipline and potential for improved profitability.
- Rising healthcare costs are trending towards the higher end of the historical range, driven by specialty drugs like GLP-1s and new high-cost treatments, which could pressure margins if costs outpace pricing strategies.
- Uncertainty and potential delays in the Workday partnership implementation, as management is reluctant to pin down specific launch dates, could postpone expected benefits and synergies from the partnership, impacting growth acceleration plans.
- Competitive pressures are leading the company to offer incentives to clients, which, despite being shorter-term, may impact profitability if they affect long-term pricing or margins, indicating aggressive competition in the market.
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Workday Implementation Timeline
Q: Has the timeline for Workday implementation shifted?
A: The implementation is progressing well, but no exact date is set. The corporate instance is foundational for the client side, and both are planned for the first half of next year. Timing them closely is important. -
Health Care Cost Trends
Q: How are health care trends impacting margins?
A: Health care cost trends are at the higher end of the historical range, driven by specialty drugs like GLP-1s and new high-cost treatments. We anticipated elevated costs for '24 and '25 and adjusted our pricing strategy accordingly. So far, costs are a bit better than expected, with a slight increase in utilization in Q3 but severity remains in line. -
AI Investments and Efficiencies
Q: Will AI investments offset costs in 2025?
A: We're early in leveraging AI but see significant potential to improve efficiency in sales and service. While we're investing, AI can create operating leverage going forward. It's too early to quantify bottom-line benefits, but it's a significant emphasis for 2025. -
Client Retention and Competitiveness
Q: Is the Workday partnership impacting client retention?
A: The Workday partnership is positively affecting client perceptions, especially in the mid-market. We've created short-term incentives without affecting long-term pricing, which has been favorable in a competitive market where others may be undercutting on price. We're seeing some success but need to continue effective efforts in the coming months. -
Impact of Workday on Sales
Q: Will prospects delay decisions due to Workday platform?
A: We haven't seen prospects delay decisions; clients recognize immediate benefits of our current system. As the new solution approaches, we can help them navigate the best path forward, and our go-to-market strategy next year will support this. -
Year-end Transition Expectations
Q: Do you expect a favorable year-end transition?
A: Yes, we expect it to be favorable compared to last year when we lost 7 customers, costing 8,000 employees and $40 million of adjusted EBITDA. Retaining even a few large clients can make a huge difference. We need a decent year-end with Q1 worksite employees similar to Q4 to turn positive. -
Sales Pipeline and BPA Leverage
Q: What's driving the good BPA leverage and sales growth?
A: Despite market hesitance, our team worked hard in Q3, testing incentive approaches and tweaking them for the fall campaign. We have a strong mid-market pipeline and more trained BPAs, contributing to 8% booked sales growth on 2% BPA growth. -
AI Implementation Timeline
Q: How will AI progress in 2025?
A: AI brings excitement and efficiency by providing instant, accurate information to service providers. While early, AI can positively impact operating efficiency across the organization, including sales and support. It's a key focus for 2025, but quantifying operating leverage is premature. -
Selecting Beta Clients for Workday
Q: How are you selecting clients for the Workday beta?
A: We've identified specific mid-market clients interested in participating. Starting with about 60–70, we've narrowed it down to around 30, highlighting a group for the initial beta. These clients are actively engaged in the process.