There are 4 pillars to our business model supporting the sustainability of our high performance: consistent predictable growth, management of pricing cost, operating leverage in the sheer size of our market opportunity. Our proven capability to generate consistent predictable double-digit unit growth is the platform for sustaining this level of performance.
This competency comes from the combination of a professional, dedicated service organization, delivering on our promises and achieving exemplary retention results and a high-performance sales organization hiring, training and supporting BPAs to drive sales success at targeted levels.
We've also proven over many years our proficiency at managing employment cost and effectively matching pricing to clients to achieve target levels of profitability, while providing a more stable cost environment for clients. This is also a central element to the sustainability of the high performance of our business model.
Our business model also has operating leverage built in, as approximately 55% of our expenses are variable, increasing along with our growth, while the other 45% are fixed or semi-variable. Investments in growth, service, technology or compliant can be readily managed to balance growth and profitability.
Our vast market opportunity is the fourth pillar, allowing for continuing exemplary high growth and profitability. Over 60% or 70 million people in the United States work for companies in our addressable market. Demand for our services has been growing in recent years, and Insperity is in a unique position to capitalize on this opportunity.
At this time, I'd like to pass the call back to Doug.
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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [4]
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Thanks, Paul. Now before we open up the call for questions, I'd like to provide our financial guidance for the second quarter and begin with an update to our full year 2019 forecast.
As Paul just mentioned, we continue to forecast our full year growth in average paid worksite employees in a range of 14% to 16%, consistent with first quarter's growth in the mid-teens. We are increasing our full year's earnings guidance based upon the outperformance in Q1 and the execution of our growth and operating plan over the remainder of the year. While the first quarter's results included some upside from favorable direct cost trends, we intend to take our typical approach to conservatively forecast in our benefits and workers' compensation costs over the remainder of the year.
We are now forecasting full year 2019 adjusted EBITDA in a range of $276 million to $289 million, an increase of 15% to 21% over 2018. This is an improvement of approximately $6 million over our initial outlook of 12% to 19% adjusted EBITDA growth. We are forecasting full year 2019 adjusted EPS of $4.55 to $4.80, a 21% to 28% increase over 2018. And this is up from our initial guidance of 17% to 25% growth, with the low end of our updated guidance slightly exceeding our initial budget.
As for the second quarter, we are forecasting 14% to 15% growth in average paid worksite employees over Q2 of 2018. We are forecasting adjusted EBITDA of $55 million to $58 million, an increase of 18% to 24% over Q2 of 2018 and down sequentially from Q1 due to the typical seasonality in our gross profit.
Q2 adjusted EPS is projected in a range of $0.81 to $0.86, an increase of 19% to 26% over Q2 of the prior year. In conclusion, we are encouraged by a strong start to our year, and we look forward to updating you on our progress throughout the year.
Now at this time, I'd like to open up the call for questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions) And your first question comes from the line of Jim MacDonald.
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James Robert MacDonald, First Analysis Securities Corporation, Research Division - MD [2]
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Could you talk a little bit about the relative contribution of the workers' comp benefits and pricing to the improved gross profit?
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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [3]
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Well, as we reported last quarter our pricing came in nicely for the year and we did have a little bit of benefit from both workers' comp and benefits. You always have some movement up and down on certain factors in there. Payroll taxes came in a little higher. But generally speaking, it was just a good quarter all around, and on the gross profit side slightly better than expected.
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James Robert MacDonald, First Analysis Securities Corporation, Research Division - MD [4]
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Okay. And on the BPAs, could you kind of give us an update of where we are now in terms of trained BPAs and total BPAs and kind of where you're going? And then I'll get back in the queue?
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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [5]
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Sure. Yes, first quarter of the year, of course, we have our sales convention and you do a little bit of a housecleaning, if you will, on the BPA count. But in the first quarter, we're basically where we intend to be. We're on the total BPA count in that little -- around 550 or 560, and then trained BPAs are always about 90% of that. We will ramp up over the course of the year to where our average for the year, we're expecting around 13% increase year-over-year.
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Operator [6]
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And your next question comes from the line of Jeff Martin.
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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [7]
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Paul, could you elaborate on the timing of the rollout of the HR data analytics engine? It sounds like you're taking that to the mid-market and you're nearing the commercialization state. But just kind of want to get a sense of how that plays out through the course of this year?
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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [8]
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Sure, Jeff. That's -- it's been going really well. We picked a group of beta accounts of different sizes, went through conversations and demos and explanations of specific insights that came out of their information. That all kind of happened in the first quarter. We were able to glean out of that some of the training we wanted to extend across our team and a lot of that training has started. It will continue through May. So as we get toward the end of the second quarter, we should have low biz out to a more substantial number of our enterprise clients. We'll start at that group and work on through the balance of the year, setting tasks with individual clients, all the way through our mid-market segment. I do expect throughout the course of this year, all of our mid-market accounts will have this type of discussion.
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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [9]
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Okay. Any early stab at what kind of impact this could have on retention? And I assume mid-market has an ability to improve retention there as a result of this effort?
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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [10]
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Yes. It's really -- it's hard to tell because it's brand-new, but there's no question about it. Once you have this type of information, you're going to want it. So whether you have access to it some other way, that would be pretty hard to do and costly. So intuitively, it should really benefit retention in this key segment. And that's -- we believe in that enough, that's what we're counting on our monetizing this really from the retention and in selling new business. It also is true that the longer you're with us the more data you have then and the more information and insights you have to run your business. I mean we connected the system for our own corporate staff, the 3,200, 3,300 people we have here at Insperity, and it's been interesting for us as well. So we know it's valuable. And we think we're going to see retention benefit and bringing on new larger accounts.
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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [11]
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Okay. That's helpful. And then last question is more for Doug on the gross profit for worksite employee per month. Should we expect that to trend down slightly year-over-year for each quarter compared to 2018? A little help with the guidance there would be useful.
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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [12]
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Yes. The way the typical seasonality works in that gross profit per employee metric is, I'll talk about the fact that sequentially it's down from -- second quarter is down from Q1. With the third quarter being -- it's generally been fairly consistent with Q2, but Q4 is when it -- Q4 is typically lower than Q3 because that's when you're picking up more the medical costs due to the plans and the participants in each of the plans that we have, so.
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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [13]
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Right. But relative to, say, second quarter this year relative to second quarter last there, should we expect that to trend down a little bit using Q1 as a guidance?
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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [14]
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Yes. Correct.
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Operator [15]
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(Operator Instructions) And your next question comes from Mark Marcon.
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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [16]
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I think it was a good quarter. I'm wondering if you can talk a little bit about what you're seeing with regards to the employee growth within your client base. You mentioned it's a little bit slower than it was a year ago. How should we think about that? What are you seeing in terms of overtime and sales commission?
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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [17]
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Sure. We went ahead and budgeted for the year for a little bit lower contribution from -- in terms of growth from within the existing client base. And we saw that come to fruition in the quarter, but it's not much. It's not a lot, but it's kind of what we were expecting and glad we kind of build that in. But as far as the other underlying metrics in terms of what we should expect going forward, everything looks still quite strong. Over time, as a percentage of base pay is running around 11%, average commissions that we paid to the sales staff of clients, which was strong if it's over 6%. I think the highest we've ever seen is 12%. It's running 10.5%-or-so. And so that's very strong. Compensation on a year-over-year basis all-in 4.5%, a little over that. So those are really strong.
And then once we use that data, the next thing you look at is really business owner sentiment. And I think early in the first quarter, the sentiment was a little bit of uncertainty, I think, around government shutdown and other things that were going on. A lot of talk about what the economy maybe doing or maybe coming. And I think a lot that's passed. The sentiment we had from our large client entertainment event that we had in April, it was really the most positive I've heard it pretty much ever. So we think we're in a strong position for -- certainly for the balance of this year and moving full steam ahead.
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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [18]
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Great. And then could you talk a little bit about what you're seeing from a regional perspective in terms of any differences, any areas that where you're seeing an acceleration with regards to PEO acceptance?
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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [19]
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Not really on a geographic basis. I mean we do just see generally stronger demand, acceptability of the idea. The industry is growing at a decent rate. We're growing at a higher rate than I guess the average of the industry. So we're growing at rates that are part of our game plan and where we want to be. But I do think that demand has been strong. And just such a huge market opportunity, really no end in sight to keep growing.
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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [20]
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Okay. Great. And then one thing that perhaps is confusing to some is your net revenue increased 13.7% on a 15.3% increase in WSEEs. Can you talk a little bit about the dynamics around that?
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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [21]
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Well, last year we -- you had a very strong quarter from a benefits perspective. And so you've got kind of a comparison going on in there at that net revenue line that is really not meaningful in the big picture. So if you look at where we're targeting for the full year, I'm at measure. On the -- for the total adjusted EBITDA, it's -- business working as it typically does. We grow our units in the mid-teens. You're going to grow your adjusted EBITDA at higher rates. And as you can see from the guidance today, we're looking at a range for the full year of 15% to 21%, which, of course, is up from 12% to 19% in our original budget.
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Douglas S. Sharp, Insperity, Inc. - Senior VP of Finance, CFO & Treasurer [22]
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Another thing, Mark, impacting the revenue line item is, we're seeing some migration in participants taking higher deductible health plans in today's environment. So when they're picking that higher deductible health plans, obviously, the pricing allocations are lower, but that's part of the reasons why our health care cost trends are lower too. In addition, I think, we're effectively managing that area. So you've got those type of costs running through the revenue line item, but just keep -- bear that in mind also.
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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [23]
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I really appreciate that, Doug. And then with regards to just the Workforce Administration as it relates to rolling that out to the core. What are you seeing there? How do you think that's going? What's your anticipation for the year? Is that based on the earlier results?
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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [24]
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Yes. I think -- yes, we're going to be watching closely. The first quarter was did the activity begin? Did we get a step-up in activity? We got that. So now you're looking at sustaining and, actually, continuing to see that ramp up. More pervasive across or prevalent across the BPA team. That's where we'll be looking at for the second quarter. And we'll be starting to watch conversion rates more closely here in the second quarter. But what I'm really after is, by the time we get to the fourth quarter, our fall campaign, I wanted really working on all cylinders. We want to have the metrics we can by the time we get to the fall campaign so we can set really concrete objectives across the organization is what our expectation should be.
So I think we're on track as we roll this out and ramp it up. And we're excited that -- other really good news to me is, as whenever you put in a new service offering, a new bundle, you want to make sure not only can you sell it and can you sell at the rates you want to and can you get the interest and the prospects, but you also want to know can you sell it at the right price. And pricing, as we're ramping up, is in line with what we set out as a target. So I like where we are.
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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [25]
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Great. And then with regards to client retention, you mentioned what the first quarter is. In terms of the midpoint of your guidance, where would you anticipate client retention coming out for the next 3 quarters?
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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [26]
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Well, as you know, the balance of the year, you generally have less than 1% a month. And so we're looking at, I think, probably a year that looks similar to last year in total, which was 7.9% or a little bit below 8% for the first quarter and then a little less than 1% a year. That's kind of how you end up at that 85% to 87% range.
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Operator [27]
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And your next question comes from the line of Tobey Sommer.
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Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [28]
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I was wondering if you could update us on what the impact has been over the last couple of years since the IRS changed the rules and allowed for a little bit easier selling throughout the year kind of where we are, how you'd learned, how to do it, if it really has been an impact that's been notably from your perspective?
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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [29]
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Yes. There's no question that the issue of not having a double payment on the payroll tax, which is what was avoided by passing the SBEA, Small Business Efficiency Act, especially on larger customers or any customer with a lot of higher paid people, where you had to restart the payroll taxes. It's just a big number. And we were -- in order to keep selling customers throughout the year, we were actually offsetting some of that costs, so you'd a lower margin in the first year on those accounts, those new accounts.
So with that eliminated, I think it has helped both the -- you don't have an impediment in the process that slows it down or they -- you have to do a workaround. And especially on larger accounts, I think you can just keep -- it doesn't really matter what month the company comes on. Whenever you get all the information you get, you get everybody on board, put a sensible transition plan in place. Wherever that falls in the year, really don't make any difference. So that is a positive. And we're seeing a benefit from that.
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Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [30]
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In the mid-market, is there any changes in the sales cycle in -- are you -- how you're sourcing those leads and prospects differently than your legacy customer target?
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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [31]
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Well, it's not a lot different. We're still trying to go after the same psychographic profile of an account. And the 90% of our leads for mid-market are coming from the BPAs in the field. So we've really got the mid-market team and the core team working together to surface those larger accounts that are more complex, have more buyers and influencers. It takes a strategic sales effort over a little bit longer period to bring these on. And so the sales team works really well together on that, with the core team surfacing the opportunities. And then our SWAT team and our mid-market going in and demonstrating what we can do for a company of that size and bringing them on.
So this is where there's a lot of steps in that process and there's a lot of meetings that go on to bring that to fruition. And any time you can remove impediments or accelerate the process or increase the enthusiasm around the offering, that's a benefit. And that's one of the reasons is demo of the HR analytics tool is just another nice way for customers to see how we can help. It's a great way for us to describe how this combination of great technology and great people, expertise HR professionals can work together to not just bring the insights, but bring plans to improve the operation, help the clients reach their objectives.
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Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [32]
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Paul, last question from me. What factors do you see as potentially driving upside to your results versus your enhanced guidance today and potentially downside as you work away through the balance of 2019?
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Paul J. Sarvadi, Insperity, Inc. - Co-Founder, Chairman, President & CEO [33]
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Yes. So you always have -- the way we operate the business early in the year, we set our targets and objectives. And you have to earn your management fee for managing the benefit programs and the payroll taxes and the workers' compensation program. And as you manage those effectively throughout the year, you create more leverage and more profitability at the gross profit line. At the same time, we always have the risk of the benefit plan. It's not really an overall total cost risk over the year, but you can have volatility within -- from quarter-to-quarter if you have a concentration of high claims.