Insperity, Inc.

Good evening, my name is Cindy and I'll be your conference operator today. I would like to welcome everyone to this priority quarter for earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press store addenda number one on your telephone keypad. If you would like to withdraw your question, press the pound key. At this time, I would like to introduce today's speakers. Joining us are Paul Sarpati, Chairman of the Board and Chief Executive Officer, and Douglas Sharpe, Senior Vice President of Finance, Chief Financial Officer and Treasurer. At this time, I'd like to turn the call over to Douglas Sharpe. Mr. Sharpe, please go ahead.

Thank you. We appreciate you joining us. Let me begin by outlining our plan for this evening's call. First, Paul will recap the 2020 year and discuss the major initiatives of our 2021 plan. Then I will discuss the details of our fourth quarter and full year 2020 financial results and provide our financial guidance for the first quarter and full year 2021. We will then end the call with a question and answer session. Now before we begin, I would like to remind you that Mr. Cervati or I 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 more detailed discussion of the risks and uncertainties that could cause actual results that differ materially from any forward-looking statements, and reconciliations of non-GAAP financial measures, please see the company's public filings, including the Form 8-K file today, which are available on our website. At this point, I'll turn the call over to Paul.

Thank you, Doug, and thank you all for joining our call. My comments today will address three areas of interest for Insperity stockholders. First, I will discuss our strong Q4 and full year 2020 results, highlighting our success throughout the pandemic. Second, I will address our year-end transition into 2021 and the trends driving our game plan for this year. I'll finish my remarks with comments about the longer term and our efforts to begin a new five-year run of unit and earnings growth for Insperity. Our financial results for 2020 were quite impressive, with less than a 1% decline in worksite employees and a year-over-year increase of 15% in adjusted EBITDA especially in light of the significant challenges faced throughout the year. Ultimately, the financial impact of shutdown-related layoffs in our client base was more than offset by lower direct costs due to behavioral changes in response to the pandemic. These results continue to demonstrate the resiliency of our small business client base, the value of our HR services, and the strength of our business model in client selection and risk management. The highlight for the year was the way our Insperity employees immediately responded to challenges and delivered vital support to clients, worksite employees, and their families. The dedicated service and personal touch from our people caring for clients dramatically reinforced our tagline, HR that makes a difference. Another highlight was our success transitioning to remote selling and increasing our capabilities throughout the year. For both the full year and the fourth quarter, we achieved 81% of our pre-COVID budget in booked sales. We believe this is excellent considering how the budget increases each quarter throughout the year, especially in Q4 where we typically budget over 35% of our annual booked sales. Another exceptional point in looking back at 2020 is the pricing strength that continued throughout the year. This is particularly important in keeping up with long-term trends and direct costs going forward. It's also important to point out we were able to continue our technology development roadmaps for future improvements while also completing many projects made necessary by legislative and regulatory changes. Overall, I'm very pleased with our accomplishments in 2020. and the agility we displayed as an organization. These efforts positioned the company for a successful year-end transition going into 2021 and a solid plan for the new year. Our year-end transition refers to the seasonal churn in our client base between the large number of new accounts added from the fall selling campaign and client attrition in January and February from the concentration of renewals that occur at this time of year. This is especially important since the transition sets the starting point in paid worksite employees for the new year in our recurring revenue business model. The bottom line to this year-end transition is we had an excellent year in paid worksite employees from fall campaign bookings and retention of all accounts in all segments with one notable exception that I'll discuss in a minute. The paid worksite employees added in January from previously booked new accounts was down only 6% from 2020, which is excellent considering last year was pre-COVID. When you add in accounts scheduled for first payroll in February, we expect to be down only 2% in worksite employees from new accounts for the full year end transition period compared to last year. Our year end retention was equally impressive under these conditions as paid worksite employees subtracted from terminating accounts was even with last year among our smallest accounts and improved by double digits in our core emerging growth and mid-market segments. This validates the value we delivered last year and bodes very well for our growth going forward. The one exception in this year-end transition is the unexpected loss of our largest account we've ever had in our enterprise segment that paid 6,800 Worksite employees in December. We expected this account to renew for 2021. However, we were notified in mid-November they were taking the HR function back in-house. This account was a U.S. subsidiary of a large international firm that started with us with only 60 employees six years ago. We served this company very well and delivered the platform that supported their exceptional growth from an average of 240 employees in 2015 to 4,800 in 2020. This account is actually a great success story for Insperity, which we expect to use in future marketing efforts. We also learned a tremendous amount we can leverage in the future regarding serving fast-growing enterprise customers. Also, it's important to note the gross profit contribution per worksite employee in our pricing model goes down as the account size goes up. So even though this account represented about 2% of our worksite employees in 2020, it represented only 1% of our gross profit contribution. This account grew into a one of a kind for us as our remaining enterprise accounts represent less than 3% of our worksite employee base with no account exceeding 2000 employees today. So our growth plan for 2021 includes a lower starting point in paid worksite employees for Q1, followed by growth acceleration over the balance of the year, driven by the current trends in sales retention and growth in our client base. We expect to build on the sales momentum from the fall campaign and our recent virtual sales convention. We are beginning this year with some very positive underlying trends in our sales effort as we extend best practices in remote selling across the business performance advisor team. First, even though the number of proposals for our flagship workforce optimization solution in the fourth quarter was down 13% from the same period in the prior year, the number of accounts sold was up 2% due to a 17% improvement in our closing rate. Secondly, as we enter the new year, we reset our BPAs into performance tiers that they achieved through their production in the prior year. We build the overall budget for the new year off these individual production levels to set expectations for the year ahead. Over the past year, we had significant movement up through the tiers, demonstrating the success of our long-term plan of growing and training the BPA sales team. This has been occurring to some degree in recent years. However, the impact is expected to be larger this year, as fewer of these BPAs with improving performance are flowing into management roles. As a result, we expect a sales efficiency gain this year just from the higher percentage of BPAs that are in the higher tiers. This maturity of our sales organization allows for sales growth and momentum without hiring as many new BPAs. We also are continuing to hold most of our meetings with prospects remotely through Zoom meetings. We expect as the pandemic moderates, our sales opportunities will increase and mixing in face-to-face meetings may have a positive effect on sales efficiency. Relative to our outlook for our two other growth drivers, we expect to continue to drive high levels of client retention over the balance of the year. However, the full year number will be weighed down by the large account that recently terminated. We expect growth in the client base to be on par with the underlying trends we experienced in the last half of last year in new hires and regular terminations. This analysis excludes COVID-related furloughs and those employees that later returned to work. This level of growth in the client base implied for 2021 would be an improvement from last year, however, still the lowest we've experienced in recent prior years. Our plan for profitability for this year factors in some pressure at the gross profit line from normalization of healthcare claims, an uptick in unemployment cost, and following our normal practice in estimating workers' compensation expense, where we start the year with a conservative estimate, and hopefully we'll earn some upside from our efforts in safety and claims settlement over the course of the year. We are comfortable that our strong pricing over the last 18 months or so has effectively met our targets for matching price and cost in these programs. We expect to earn an appropriate fee within our historical range for managing these programs. Our priorities for our operating plan for 2021 are focused on initiatives needed to regain our growth momentum post-COVID. Our goal is to lay the groundwork over the balance of this year for consistent, predictable, double-digit unit and earnings growth like we experienced from 2015 to 2019. We expect to continue to invest in growing the BPA team, however, mostly in the last half of the year as we benefit from the tier movement in the first half. We are continuing to refine our marketing efforts to targeted prospects to drive lead generation of accounts more likely to be a good fit for Insperity. We made good progress on this front, increasing our digital spend in the fourth quarter and increasing the percentage of booked accounts coming from our marketing programs to 55%. We expect to continue to invest in technology developments, to support our client base and implement Salesforce to improve our already best-in-class sales and service results. Salesforce is a significant and important investment for the company, which we believe will provide an enhanced platform to support our continuous improvement and service excellence standards. Ultimately, we expect to capture more data and more information more easily, providing the opportunity to leverage and optimize the use of our data to the benefit of our clients. Applying the Salesforce analytics and AI against our data on a consolidated platform will give us the best view we've ever had across all products, prospects, and customers. One final observation important to note is the step up in interactions with our clients initially caused by the pandemic. Our total inquiries per week from our clients more than doubled last April, and has not receded to previous levels. I believe this new level of ongoing interaction and support of our clients is one of the primary reasons for the double-digit improvement in retention we are experiencing across most of our client segments. Our clients are relying more heavily on our services and experiencing HR that makes a difference from our unique premium service models. In addition, we are beginning this year with 8% more clients than we had a year ago, while our average account size is down by about 1.5 worksite employees, largely due to the pandemic. In our view, it's evident demand for our service is substantial, and the small business community is positioned for a rebound. In summary, I believe we're in an excellent position for 2021 to set the stage for growth acceleration this year and for sustained growth in the long term. This reminds me of 2014 when we were putting the finishing touches on our refined sales motion with our BPAs and improving our mid-market sales and service models to improve retention. Those refinements led to a strong five-year run beginning in 2015, nearly doubling the size of the company, tripling the adjusted EBITDA, and increasing the valuation of the company five-fold. I'm certainly not promising a repeat of those impressive results or guiding to those growth levels. However, I do believe we are in a position to take our learnings and improvements from this challenging past year and set up another impressive run of unit and earnings growth for Insperity. At this point, I'd like to pass the call back to Doug. Thanks, Paul.

Now let's discuss the details behind our fourth quarter results. We reported Q4 adjusted EPS of 49 cents and adjusted EBITDA of $38 million. These results reflect outperformance in the level of paid worksite employees compared to our expectations in the continued uncertain and challenging business environment. Upside in our direct cost programs brought about by the structure and the ongoing management of these programs and some dynamics related to the pandemic and continued management of our operating costs. As for our growth, we continued the sequential increase in paid worksite employees since the low point in May of 2020 when the impact of the pandemic caused many of our clients to furlough or permanently lay off their employees. Our recovery in the level of paid worksite employees since this period was driven by the return to work of many of these employees and effective selling and client retention. Q4 average paid worksite employees increased 3% sequentially over the Q3 period, coming off the 2% sequential increase in Q3 over Q2. During Q4, all three growth drivers exceeded our expectations. Gross profit increased by 3.5% over Q4 of 2019, despite 1.8% fewer paid worksite employees due to improved pricing and the higher than expected contributions from our benefit and workers' compensation programs. During Q4, total benefit costs returned closer to pre-pandemic levels as lower healthcare utilization was largely offset by COVID-19 testing and treatment costs. However, previously deferred care costs did not materialize at the forecasted level. Our workers' compensation program continued to perform well due to ongoing management of safety practices and claims, and to a lesser degree, a favorable net impact from the reduction of workers' compensation claims associated with the work-from-home status of many of our clients' employees. Now, turning to operating expenses, we continue to manage costs commensurate with the current operating environment while also investing in our long-term growth plan. Operating expenses, excluding stock-based compensation and depreciation and amortization, increased just 5% over Q4 of 2019. Fourth quarter operating expenses included costs associated with a 9% increase in the average number of trained business performance advisors and the opening of six new sales offices throughout 2020. We held other corporate employee headcount flat over the past year, due in a large part to the effort and the effectiveness of our staff in the face of increased HR service demands from within our client base. Cost savings continue to be realized in other areas of the business, both through effective management and because of pandemic-related cancellations or shutdowns. These areas include G&A costs, such as travel and training, and costs associated with certain sales and marketing events. The Q4 year-over-year increase in total operating expenses of 19% was impacted by increased stock-based compensation costs. This increase was driven primarily by our outperformance in the level of paid worksite employees and earnings in the face of the significant challenges brought about by the pandemic. Now turning to our full year 2020 operating results, adjusted EBITDA increased 15% over 2019, $289 million, and adjusted EPS increased 12% to $4.64. The average number of paid worksite employees for the full year 2020 declined by less than 1% in a very challenging environment. Worksite employees paid from new sales declined by only 1.5% from 2019, largely on the success of our remote selling. Client retention averaged 82% due to the resiliency of our clients and our quick and effective response to assist our clients with our premium level of HR services. These same factors contributed to our clients' ability to return a significant amount of their initially furloughed staff to a full-time status and clients in certain industries adding to their employee base over the course of the year. Post-profit increased 10% over 2019 as improved pricing and the favorable impact of our benefit and workers' compensation programs more than offset the slight decline in paid worksite employees and the comprehensive service fee credits provided to our clients during Q2. Lower healthcare utilization brought about by the pandemic resulted in 2020 benefit costs for covered employee being relatively flat compared to 2019. This compares to our original pre-pandemic 2020 budget, which anticipated a cost increase of approximately 3%. Now, as you may recall, we were targeting benefit pricing increases slightly above the 2020 budgeted cost trend to address increased costs associated with 2019's elevated large claim activity. We ended 2020 slightly exceeding these pricing targets. Now, operating expenses, excluding stock-based comp and depreciation and amortization, increased by just 5.5% in 2020 over 2019, as growth, product, and technology investments were partially offset by cost savings in the other areas that I mentioned a few minutes ago. Total operating expenses increased 12% over 2019 and included the increase in stock-based comp tied to our outperformance. Our execution combined with the dynamics of the pandemic produced strong cashflow over the course of 2020. We ended the year with a solid balance sheet while continuing to invest in the business and providing strong return to our shareholders. We invested $98 million in capital expenditures during the year to support our recent and future growth and returned $161 million to shareholders through our dividend and share repurchase programs. We repurchased a total of 1.4 million shares during 2020 at a cost of $99 million, increased our dividend rate by 33% in February, and paid out a total of $62 million in dividends. We ended the year with $212 million of adjusted cash and $130 million available under our $500 million credit facilities. Now, let me provide our 2021 guidance, which incorporates wider than usual growth and earnings ranges given the ongoing uncertainty in the macro environment. As for our growth metric, we are forecasting a 2% to 6% increase in the average number of paid worksite employees for the full year 2021. We expect to begin this year with a 1.5% to 2.5% decline in Q1 when compared to the pre-pandemic 2020 period. The sequential decline from Q4 of 2020 includes the loss of the large account, which Paul just mentioned. Now, subsequent to Q1, our growth is expected to be driven by the recent growth and tenure in the number of trained business performance advisors, continuing solid core client retention, and modest net hiring in our client base brought about by gradual improvement in the business environment. Our range of forecasted growth is largely dictated by the timing and degree of such an improvement and its impact on the three drivers of our growth. As for our gross profit area, you may recall that our key metric is gross profit per worksite employee per month, which takes into account our co-employment service fee pricing, the pricing and cost management of our direct cost programs, including benefits, workers' compensation, and payroll taxes, along with contributions from our traditional employment and other products. It may be helpful to begin our discussion with the review of recent history to gain some perspective on how we are currently reviewing 2021. This metric averaged $261 in 2017, $272 in 2018, $259 in 2019, and $287 in 2020. Now let's take a few minutes to break down some of the details as we look at our expectations for 2021. Our co-employment service fee pricing is impacted by new and renewal pricing and any changes in client mix. This pricing remains strong throughout 2020 and throughout the recent sales and renewal period. And we combine with our pricing targets of the range of 2021 and a favorable client mix impact from the loss of the larger, lower-priced account. We expect our overall service fee pricing to improve over 2020. Also, you may recall that comprehensive service fee credits were provided to our clients in Q2 of 2020, which lowered the prior year's overall service fee. We expect a more normal overall benefit cost trend in 2021 when taking into account the expected increase in healthcare utilization over the course of the year and our best estimate of COVID vaccination and treatment costs. When you consider the flat cost trend in 2020, this would equate to an expected 2021 cost increase of 6%, 7%. This includes an outsized Q2 year-over-year increase given the extraordinary low claims in Q2 of 2020. Now, if you take a step back to 2019, this equates to annualized cost trends of approximately 3% from 2019 through 2021. Since we have taken a steady approach to pricing over the last two years, we believe we have effectively matched our pricing with this two-year cost trend. However, there is still a considerable amount of uncertainty around benefit utilization and COVID case count treatment and vaccines. This uncertainty contributes to a wider than normal range in our earnings guidance. As for our workers' compensation cost area, we have experienced improving cost trends over recent years from ongoing management of client selection, safety, and claims. Similar to prior years, we intend to budget 2021 conservatively and allow for these factors to possibly drive additional cost benefit throughout the year. As for the payroll tax area, we're projecting an increase in state unemployment tax rates as a result of the pandemic's impact on unemployment. Many states have issued rules to exclude COVID-related unemployment claims from the employer's 2021 SUTA rate. However, as we sit here today, the majority of these states have not yet finalized their rates. Accordingly, in an effort to estimate our 2021 rates, we have communicated with certain larger states to verify their intentions and perform detailed analysis and modeling. We have incorporated these estimated rates in our outlook And we expect this area to have a $1 reduction in gross profit per worksite employee per month for the full year 2021, and a $5 reduction in Q1 2021 due to the seasonality of our unemployment taxes. So as for the bottom line, when you combine each of these factors, we are budgeting gross profit per worksite employee at a level closer to 2018 than either the high point of 2020 or the low point of 2019. Now, as I mentioned earlier, in addition to the upside in the gross profit area in 2020, we also managed operating costs significantly below our 2020 budget. Our overall 2021 operating plan balance is maintaining certain costs at 2020 levels with investing in targeted initiatives important to our long-term growth. With the growth in the number of BPAs throughout 2020 and their increased tenure, We intend to manage the growth in the number of hired BPAs to about 4% in 2021. We intend to manage other corporate headcounts to a 2% increase. We are budgeting for a return in 2021 of a portion of marketing and business promotion costs, which were not incurred in 2020 due to the pandemic shutdown. We have also increased our lead generation budgets. As far as G&A costs, we experienced significant savings during 2020, particularly in the area of travel and training. We plan to continue to manage these costs at this lower level and will assess the opportunity and need for any increased activity as pandemic conditions improve. Now, as Paul just mentioned, an important initiative this year is the purchase and implementation of Salesforce. Our 2021 budget includes the product and estimated implementation costs associated with this effort. During the implementation phase, we will experience some duplication in costs while still using our current sales and service software. However, after implementation, any incremental costs over and above our current software solution are expected to be minimal. As for 2021, we are budgeting for approximately $6 million in incremental costs related to the Salesforce initiative. So in considering all these factors, we are budgeting for a 4% increase in cash operating costs in 2021 over 2020. As for our non-cash items, we have budgeted for a decrease in stock-based compensation when compared to 2020 due to the performance-based feature of our stock awards and a setting of new targets for the 2021 year. We have budgeted for a $10 million increase in depreciation and amortization over 2020 associated with software development costs related to the recent improvements in our payroll and HCM system, which were previously capitalized, and the recent expansion of our corporate facilities. So in conclusion, we are forecasting improved worksite employee growth of 2% to 6%, combined with lower gross profit per worksite employee and a slight increase in cash operating costs per worksite employee. Given the continued uncertainty in the macro business environment, we believe it's prudent to forecast a wider than typical range of $225 million to $275 million in adjusted EBITDA. As for adjusted EPS, we are forecasting full year 2021 in a range of $3.27 to $4.20. This assumes an estimated tax rate of 26.5%, generally consistent with our 2020 rate, and the increase in depreciation and amortization that I just discussed. We are forecasting Q1 adjusted EBITDA in a range of $84 million to $103 million and adjusted EPS from $1.37 to $1.72. As for our quarterly earnings pattern, keep in mind that our Q1 earnings results are typically higher than subsequent quarters. In particular, we typically earn a higher level of payroll tax surplus prior to worksite employees reaching their taxable wage limits And benefit costs are lower in Q1 and step up over the remainder of the year as deductibles are met. Now at this time, I'd like to open up the call for questions.

Thank you. As a reminder, if you would like to ask a question, you may press star 1 on your telephone keypad. Your first question from Josh Vago. Your line is now open.

Thank you. Good afternoon, Paul. I hope you guys are doing well. The first question I have is around the Salesforce implementation. Can you just give a sense of when you think the implementation will be complete and then you can eliminate the costs?

Yeah, sure. Welcome and thanks for your questions. We expect the Salesforce implementation to go over this year and next year. And, you know, we're starting in the sales and marketing areas and then moving over into the service and balance of the company next year. So the kind of bubble of expense will be in this year and next, and after that you're kind of in our normal run rate.

All right, great. And, you know, you had some comments around, you know, utilizing client data and analytic insights. And I'm curious, is that something that you can package and price, or is it included in the client relationship?

So you cut out a little bit in the question. You want to say that one more time?

Yes, I'm sorry about that. So the client data and analytic insights that you gain through Salesforce, I'm curious, is that an ancillary product that you can into your clients, or is that something that they're just going to automatically get?

No, actually, you know, we're going to be the biggest, the customer's going to benefit from how we're able to access all the data and information on their behalf. So it really isn't productized so much for the customer. It just becomes ingrained to how we serve them and also how we target new customers and and bring them in and through the whole life cycle of being a client. You know, we expect it to be a much more cohesive experience for the customer with less effort for our service providers to achieve those high service standards that we put out for our clients. So, you know, we expect it will have a tremendous benefit internally and will translate into a better service experience for our clients.

And the next question from Mark Markin. Your line is now open.

Good afternoon. Thanks for taking my question. Can you talk a little bit more about your how you're pricing the the health care You know plans for for your clients for this year It sounds like you're expecting the cost to go up by six to seven percent, but I'm wondering how's the pricing look and in the in the case that there is a higher increase usage of you know kind of the deferred electives and how do we think about the variance there? Obviously, you've got a pretty wide range in terms of your guidance and your accounting for that, but just wondering if you can kind of set the parameters in terms of kind of high-low and how you're thinking about that.

Yeah, absolutely. I think it's important to note that you have to really look at the benefit programs over a longer term, especially because of these last couple years, 19 and 20, and Then as you look into 2021, you're coming off of that flat trend year that is, in our view, artificially flat because of the onset of the pandemic and the shutdowns and the behavior that came out of that. So the underlying trends have continued. And so that's kind of how we have baked it into the cost side. And as you know, so that kind of translates to a couple of three to three and a half percent increases back to back in 20 and then again in 21. That's why it's six to seven percent off of last year's flat level over 2019. Now, on the pricing side, as we've mentioned, you know, over the last 18 months or so, we've continued to move pricing at a level to make sure that there's a good match between And we have the appropriate level of allocation, I should say, to make sure you're covering the cost escalation. So we did that very effectively last year. And so for this year going forward, our pricing would look like possibly around the 4% level. And then customers make decisions to bring those costs down, individuals make decisions, et cetera, to bring their pricing down. But so we feel like we're really in great shape matching price and cost. Most of the kind of wider range, you know, relates to just the dynamic. It's just hard to tell how and when these COVID costs come back in or whether there, you know, are further, you know, possibly vaccination costs or, It can even go the other way with shutdowns and limiting utilization. So there's just a lot of variables in there this year. But in terms of accounting for and pricing in a proper level of trend in the bigger picture, we feel real strong. We're in good shape there.

Great. And then I'm wondering if you could talk a little bit about any sort of cap on a per-claim basis. And then with regards to the existing client base, to what extent are you baking in the potential for some of your existing clients to bring back employees that they haven't brought back yet from furlough or layoff?

Yeah, from our point of view, pretty much the return to work from furloughs, we're pretty much past that at this point. You know, people either came back to work or moved on to what I'd call a layoff. And there may be a small amount of that left, but in terms of the change and growth in the client base that we've kind of implied and budgeted in for this year, we looked to the underlying dynamic of kind of regular new hires and regular layoffs that were going on over the last half of the year and into this year and kind of built off of that. So we think that's a good conservative way to look at it. If things improve in the business climate, that may be some upside there. And then the first part of your question was about the benefits in terms of a cap. And as you may remember, we put in a million-dollar stop loss, if you will, or cooling limit in our plan with our carrier last year. And we continued that into this year. Over the course of this year, we will likely run some numbers and investigate what it's like for us on a going forward at that level and maybe some lower limit levels. But we like the way things worked out last year, and we'll continue to evaluate it and see if there's an appropriate, if there's more risk to offload, that's appropriate or if we're in the right spot.

Your next question from Jeff Martin. Your line is now open.

Thanks. Good afternoon, guys.

Hi, Jeff.

Hi. I wanted to touch on growth acceleration throughout the balance of the year. If things go to plan, what kind of, growth rate are we looking at exiting the year in terms of the worksite employee base?

Yeah, you get into, you know, high single digits or, you know, seven, eight percent or so as you get into the latter part of the year, and you're really in a good position if you can kind of have a good year-end transition where you're about even as you go across the year-end, you know, you're in a great position to ramp right up to double-digit growth. That's the plan. It reminds me, if you can think back to, that's why I kind of think about the 2014 period. We kind of did that. We went from pretty flat growth to 3% in the third quarter, 6% in the fourth, and then nine in the first the following year, and you're up to double-digit growth, and then had a really nice extended run at that level. So that's where I'm focused, where we've got these pieces in place There's a little tweaking here and there. Get Salesforce in place. You know, continue the BPA training and the remote selling and, you know, mixing in some face-to-face visits and optimizing that process. I think we're in really good shape with also the recent improvement that we've seen, kind of the way the customers are valuing our service and, you know, we had double-digit improvements in sales retention over the year-end transition in our core emerging growth and mid-market segments. So that reminds me of that period when we had a step-up in improvement and retention, and it was part of fueling that extended run of pretty high growth rates. So that's where I see us today. So you have this growth acceleration across the balance of the year and I think in pretty good shape to see that come about.

Okay, that's encouraging. One thing we haven't heard much of in a while is the ancillary service products that are either a lead generation source or an enhancement to the offering. How is that tracking? Could you give us maybe some qualitative and quantitative sense of how that part of the business is running right now?

Sure. We were making some good progress, especially with our workforce acceleration offering, which is our traditional employment solutions division. And when COVID hit, it was kind of all hands on deck at the core business. But shortly thereafter, as remote selling went into place and started to become effective, we started to see And then we had a very strong fourth quarter recovery in the sale of our workforce acceleration offering. And so we're kind of back on track on that front. I didn't talk about it much this time, but I'll probably include that in our next visit.

And the last question from Toby Summer. Your name is now open.

Hi, thanks. Could you discuss your sales pipeline efficiency metrics and how they're kind of evolving through the pandemic until now and what you may be toggling differently in 2021 based on what you've learned and kind of what you expect in the next few quarters?

Sure, Toby. Thank you for the question. It's really interesting right now because I think what happened through the pandemic, first of all, when it came about, because we sell a complicated service offering directly to small and medium-sized business client owners, I wondered how that was really going to work. And for us to achieve over 80% of our pre-COVID budget throughout that period was really impressive to me. and real proud of our team for adapting and being able to do that. But what we saw from the funnel metrics during that period was a significant drop-off in the number of leads, the lead flow, the inquiries coming in, and folks who were ready to talk about a new product or service. As an example, in the fourth quarter, we were 13% down at that top of the funnel metric But what we also saw is the ones who were ready to talk to us seemed to be more serious. So closing rates were a little better and got significantly better as we went through the year and even up to 17% improvement in our closing rate of the ones that we actually proposed offering. And that was a great step up. Also, what was going on was further refinement of our targeting of accounts to try to get more customers in the funnel that are more serious and closer to being ready. They're a better fit, closer to being ready for taking action. And we've made some progress there. That's where I think we have more progress to make. That's where I think Salesforce is going to really help us even refine that further and And so all those kind of come into the mix. But I also think as the economy improves or as the pandemic wanes or lightens up, you'll get more top of the funnel flow. And hopefully, you know, we're able to, you know, continue to add more at the top that fit this profile that we're working on.

Thanks. And from a client segmentation and offering perspective sort of, PEO, non-PEO services. What is growing more quickly and or more slowly, and how would you explain those differentials? What are the drivers?

Yeah, well, at this point, we're seeing this period of growth acceleration we're prepared for on the co-employment side. And on the other offerings, we're really focused on leading the way with our traditional services bundle that gets people in the tent. And we've done some optimizing through taking the information from the year end into the new year and kind of went over everything with our BPA team at our virtual convention. And so I think we're in a good place to really build that feeder system, if you will, that we've been trying to put into place. And so we're really focused on that. We do have the other items. You know, for example, our 401K offering has just been, we've had a really good year there, you know, in not only current accounts coming in, but also on the new accounts and what percentage of those came on. We did also make an important move, I think, during the pandemic. We made our recruiting services part of the deal to help the customer during this downtime, and that helped us to get some accounts and helped to demonstrate how we were supporting customers through the period. We're continuing that right now. We'll see when we reverse that back out to charging for it again. So the different offerings that we have, we use at different times to support the client's and, you know, expand that base of traditional solutions.

Thanks. Last one, could you catch us up on what client activity and success was like in the second PPP round compared to the first?

Yeah, you know, we continued. That didn't have near the visibility here that it did in the first round, but I think that's because people were you know, knew what to do, knew how to do it, and all of our reporting and stuff was ready to rock and roll. So, and keep in mind in our client base, as we spoke about earlier, we have, we don't have that big a base in the most severely hurt, you know, industries out there in the travel and, you know, restaurants, those kind of things. So, you know, I would say we had You know, a lot fewer clients get in line and take the second round, but they were certainly able to do it quickly and effectively. And for many customers, that's certainly helping.

There are no other questions at this time. And I would like to turn it back to the call over to Mr. Sarpati.

Thank you very much. And once again, thank everybody for participating on our call today. And we look forward to interacting with you through conference calls, Zoom meetings, and maybe eventually even face-to-face. So thank you again for participating.

Ladies and gentlemen, this concludes today's conference call. Thank you, everyone, for participating. You may now disconnect.