Insperity, Inc.

Good evening. My name is Catherine and I will be your conference operator today. I would like to welcome everyone to the Inspirity third quarter 2021 earnings conference 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'd like to ask a question during this time, please press star and then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. At this time, I'd like to introduce today's speakers. Joining us are Paul Cervati, 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, I'm going to discuss the details behind our third quarter 2021 financial results. Paul will then comment on the key drivers behind our Q3 results and our plan over the remainder of the year, our return to provide our financial guidance for the fourth quarter, and some high-level thoughts on 2022. We will then end the call with a question and answer session. Now, before we begin, I would like to remind you that Mr. Servati 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 a 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 filed today, which are available on our website. Now let's discuss our third quarter results. We achieved 89 cents in adjusted earnings per share and $60 million of adjusted EBITDA above the midpoint of our forecasted ranges and driven by the quick rebound to double-digit worksite employee growth from the pandemic lows experienced in the prior year. As for our growth metric, the average number of paid worksite employees increased by 11% over Q3 of 2020, above the high end of our forecasted range of 9.5% to 10.5%. This was a sequential increase of 6% over Q2 of 2021. The accelerated worksite employee growth was driven by net gains from hiring in our client base exceeding our targets, worksite employees paid from new sales and third-quarter client retention of 99%. In a few minutes, Paul will provide an update on our recent sales activity, including some early insight into our fall campaign sales efforts. Now, along with worksite employee growth, our revenue per worksite employee, which reflected a 4% increase in pricing and a non-recurrence of the 2020 FICA deferral, also exceeded our expectations. In addition to the strong pricing, our workers' compensation program and payroll tax areas produce favorable Q3 results. Our benefits program continues to reflect the dynamics associated with the pandemic. This includes the increase in healthcare utilization over the course of this year, including elective care that was previously deferred, COVID-19-related vaccination, testing, and treatment costs, and slower claims payment processing by our carrier associated with these claims. These factors have obviously impacted the gross profit and earnings comparisons when compared to the third quarter of 2020. Q3 cash operating expenses increased 9% over the prior year, slightly below forecasted levels. We continue to invest in our growth plans, including an increase in marketing spend in Q3 as we headed into our fall selling season, and incremental costs related to our Salesforce implementation. We have reinstituted travel for certain employees and events. However, these costs, along with other G&A costs, continue to be managed at historically low levels. Our financial position and liquidity remain solid as we continued investment in our growth while providing strong return to our shareholders. During the quarter, we repurchased 106,000 shares of stock at a cost of $11 million, bringing our year-to-date repurchases up to 544,000 shares at a cost of $50 million. Additionally, over the course of the first three quarters of this year, we have paid out $50 million in cash dividends and invested $24 million in capital expenditures. We ended Q3 with $228 million of adjusted cash and $370 million of debt. Now, at this time, I'd like to turn the call over to Paul.

Thank you, Doug, and thank you all for joining our call today. I plan to cover three topics to provide insight to investors into the tremendous opportunity ahead for Insperity. First, I'll highlight the drivers of our recent results, which point to strong demand for our services and excellent execution of our strategy. Second, I'll explain how the recent trends and our expectations for Q4 set up potential for growth acceleration in a strong 2022. And last, I'll emphasize the macro picture I believe may drive high levels of adoption of our services for the longer term. Our recent growth acceleration to 11% in paid worksite employees over last year, was caused by our three primary drivers hitting on all cylinders, namely new client sales, client retention, and net gain in employment within our client base. Our clients continue to add worksite employees in this quarter at a strong pace despite the tight labor market. One of the many advantages of being an Insperity client is gaining a competitive advantage in hiring new employees. Insperity provides a combination of big company benefits, and HR support with compensation analysis and the recruiting effort critical in a competitive labor market. Our services appear to be helping our clients attract and retain employees, which adds value to our client companies and contributes to our growth. In addition to the strong net gain in employment in the client base, we saw an 18% improvement in paid worksite employees from sales of new accounts and a 16% improvement in fewer employees lost from client attrition over the same period last year. Now, in our business model, two of the most important metrics driving our growth potential are sales efficiency and client retention. Booked sales of new accounts in the third quarter was excellent, with approximately the same number of business performance advisors as last year, selling 20% more clients and 34% more worksite employees than in the same period in 2020. This level of sales by the same number of BPAs demonstrates a significant increase in sales efficiency over last year. Several factors are contributing to an increase in sales efficiency, including remote selling and technology improvements, more marketing leads, and some success with our fast track program focused on early sales wins for new BPAs. However, the most significant factor in increasing sales efficiency is the maturing of our sales force. This was a significant factor in our decision at the start of the year to hold total BPA count steady for at least the first half of the year. A simple way to understand the impact of the maturity of the BPA team is to look at the number and percentage of trained BPAs with less than 18-month experience, 18 to 36 months experience, and those with greater than 36 months experience. Generally, the group in the middle with 18 to 36 months experience has approximately the average sales efficiency. The mature group, significantly higher than that number, and the new BPAs are significantly lower than the average. Now, we've been growing the number of trained BPAs at an average rate of approximately 13% per year from 2016 through 2020, resulting in an increase in the total trained BPAs by 80%. Over much of that period, the number of BPAs with over three years' experience increased slowly, but the number of new BPAs increased at a rate that kept the average sales efficiency relatively constant, other than the pandemic effect. The growth in the number of BPAs with greater than three years experience has increased dramatically now that we are over five years from the beginning of the ramp up. This significant increase in the number of BPAs with greater than 36 months experience and the corresponding increase in overall sales efficiency creates a new opportunity for us. In the past, we focused on growing at higher rates by continuing to grow the BPA team over 10% each year. However, the increased tenure of our BPAs gives us the opportunity to pursue our targeted double-digit growth in worksite employees without increasing the total number of BPAs at double-digit levels. This is a perfect time for this opportunity when the labor market is tight, and we want to continue to be selective in adding new BPAs to the team. Based upon our recent success in the tight labor market, we're reassessing the ramp-up timing and for total BPA growth for the balance of this year and 2022. Another highlight from the recent quarter was continuing to increase workforce acceleration sales. Year-to-date sales of this offering have more than doubled compared to the same period in 2020. Mid-market sales are also an important part of our story. We started this year refilling the pipeline after a successful Q4 sales period last year, So sales were lower during the first half, but the pipeline's back in line, and we believe momentum is in the right direction for a strong finish this year. Our client retention has been continuing at historically high levels in Q3 and throughout the year, with the only exception being the loss of our largest client ever back in January. The departure of that 6,800 employee client in January is somewhat masking the excellent client retention for this year. Since we have no clients that even have that size, we have no similar event on the horizon. So continuing these underlying improved client retention rates strongly supports our growth expectations. On the service side of the business, we're continuing to see deeper levels of service interaction with clients since the pandemic started. There's a heightened need for HR support on issues from return to work, vaccination policies and practices, diversity and inclusion, the tight labor market, and maintaining and developing the desired corporate culture. The expertise of our highly qualified and dedicated staff is a great competitive advantage that our clients are experiencing. We believe the number of quality, impactful interactions has been a driver of improved client retention. As we look ahead to the fourth quarter and year-end transition, we're in a solid position As a reminder, we have our strongest selling period every year in the fourth quarter due to prospects wanting to make a change at year end. Since the number of new accounts is the highest every year at this time, we have the highest number of client renewals every December through February. So every year we have a fall selling and retention campaign from September through December. This year we're off to a great start, including a kickoff in September, bringing the company together in a unique way. We held local meetings across the country at Topgolf and connected virtually to deliver the message of our plan for this year. Activity in both sales and the renewal side of the campaign are on track. However, the ultimate success is only determined when we see the full results of the campaign after year end. Now, we're in a unique position this year for our starting point in paid worksite employees and the likelihood of significant double-digit growth to start 2022. Our strong selling and retention momentum, combined with year-over-year comparison in January to last year's large client loss, means the growth rate could be exceptional. The early picture for 2022 includes this strong possibility of double-digit growth combined with the expectation of some normalization of pandemic-driven costs, including benefits, unemployment taxes, and some operating expenses. Our business model and normal years of double-digit worksite employee growth include some leverage at the gross profit and operating expense lines, driving adjusted EBITDA up substantially. We would expect this to occur in 2022 as well, however, may be masked somewhat by the pandemic and other one-time gross profit contributions when comparing to the prior couple years. The strength of the underlying growth plan combined with the strong demand for our services provides a clear and compelling macro picture. We believe we're in the early stages of a rapid growth period for our services, driven by a potentially higher adoption rate for PEO services. Several factors, including post-COVID validation of the need for a sophisticated HR function, changes in workplace and employee expectations, and the difficulty these factors have on small and medium-sized businesses are driving prospects our way. We also believe we're well positioned to capitalize on this opportunity with the most comprehensive service in the marketplace, a proven business model, and a highly dedicated team of focused professionals. At this point, I'd like to pass the call back to Doug.

Thanks, Paul. Let me provide our guidance for the fourth quarter and an update for the full year 2021. We are forecasting Q4 average paid worksite employee growth of 11% to 12% over Q4 of 2020, a slight acceleration from the double-digit growth rate achieved in Q3. When combined with our outperformance in the three previous quarters, we are now forecasting full-year worksite employee growth of about 7% above our previous guidance of 5.5% to 6.5%. We are forecasting a 19% to 48% increase in Q4 adjusted EBITDA to a range of $45 million to $56 million today. and a 24% to 65% increase in adjusted EPS to a range of 61 cents to 81 cents. The midpoint of these ranges is consistent with our prior forecast as we have largely assumed an offset of the higher works on employee levels with a range of outcomes in our benefits program where some uncertainty related to the pandemic remains. Now when combining our Q4 earnings outlook with our outperformance over the previous three quarters, We now expect full year 2021 adjusted EPS to be in a range of $4.25 to $4.46, and adjusted EBITDA of $271 million to $282 million. Now, we typically do not provide formal guidance for the upcoming year at this time. We will consider any further developments in the macro environment and the outcome of our year-end selling and renewal season when finalizing our 2022 budget and providing guidance in our next earnings call. However, I will share some thoughts when it comes to framing next year. As for worksite employee growth, our starting point to 2022 is dependent upon the outcome of our year-end transition of sold and renewing accounts and sets the table for our four-year growth. As Paul just mentioned, we are positioned well to see an acceleration of our worksite employee growth into Q1. Growth over the remainder of the year would be dependent upon continuing our sales momentum as we capitalize on the favorable market opportunity, keeping client retention at recent levels, and continued net hiring in our client base, although possibly at a lower level than 2021 given the tight labor market. Our gross profit will be driven by the worksite employee growth and the effective pricing and management of our direct cost programs. As you are probably aware, the pandemic over the past couple of years has created an elevated level of gross profit and some moving pieces in this area. While some uncertainty remains related to the pandemic, we currently expect 2022 to return to more normalized levels. For example, during the first half of 2021, we earned a higher than forecasted level of gross profit contribution from our payroll tax area. as most states did not increase their 2021 SUTA rates at the expected level assumed in our pricing. Over the last half of 2021, we appropriately adjusted our pricing in this area and were generally expected to continue to target a similar gross profit contribution per worksite employee in 2022. Also, as a reminder, 2021 gross profit included payroll tax refunds related to prior periods which will obviously not recur in 2022. As for our benefits program, the pandemic has caused considerable noise and uncertainty over the past couple of years. The general view is the expectation for COVID costs to moderate and healthcare utilization to return to more normalized levels, however, still with an elevated level of uncertainty continuing into next year. Therefore, we would continue to expect a wider than normal range of potential outcomes. We will continue our strategy of matching price and cost trends over the long term and not overreact to short-term variables. As for our operating costs, while we have not yet finalized our budget, there are a few things to keep in mind as we move into 2022. First of all, considering our recent growth acceleration, we would generally expect leverage in our operating costs. As for some specific areas of spend, our corporate personnel costs will likely include growth in BPAs and service personnel. Our ability to reach targeted hiring levels in these areas will be dependent upon effective recruiting and retention of employees given the tight labor markets. This factor is also expected to impact our corporate personnel costs as we manage compensation levels in a period of changing market dynamics. Additionally, we expect to return to more face-to-face sales and service meetings, which would likely impact our travel costs. And as you are aware, we will continue to incur costs related to our ongoing implementation of Salesforce. So in conclusion, we are working towards a successful 2021 year end and a strong start to 2022. And look forward to providing you with more details of our 2022 plan during next quarter's call. Now, at this time, I'd like to open up the call for questions.

Ladies and gentlemen, just as a reminder, if you'd like to ask a question, please press star and then the number one on your telephone keypad. Your first question comes from the line of Andrew Nicholas with William Blair.

Hi, good afternoon. Thank you for taking my questions. The first question I had was just trying to drill in a little bit more on the healthcare book and utilization trends in the quarter. I wonder if you could describe kind of the utilization activity relative to your expectations in third quarter and and maybe more specifically on a go-forward basis, what you're assuming at the bottom and top end of your guidance range for the fourth quarter on the utilization front, realizing that there's a lot of uncertainty here.

Yeah, I would just say that, you know, for the year, it's kind of gone along as we expected because we built in kind of a wider range of potentiality And we expected more COVID-related costs, which have come in relative to vaccinations and treatment costs, et cetera. And the question is always about how much of the other underlying utilization goes on and whether it offsets some of the added cost. And then we also had, over the course of this year, the timing of payment by the carrier started to be you know, a little longer. So we're more toward the high end of our expectation for the year to date. And we've considered, you know, just building that over the year. Of course, our gross profit has considerably been higher for the year anyway with some of the other moving parts. But, you know, generally speaking, we think that we're really on track with where we are between both pricing and cost on the benefit program. And, you know, You know, we know there's some noise in the benefits side, but we see it calming down, you know, over the course of the balance of the year, and certainly as you look further on, you know, the real question is just what do you do about matching price and cost in total, and we're in great shape on that front.

Got it. Thank you. And then changing gears a little bit for my follow-up, You talked, Paul, about some pretty good sales productivity gains. I think broadly speaking, it sounds like sales momentum is pretty positive. Is there any way, you talked on the macro drivers of maybe increased PEO adoption here over the next couple of years. Is there any kind of color you can give us on maybe what are the major drivers of those three or maybe kind of rank order some of the bigger drivers? drivers as you're seeing it kind of come through the Salesforce now. And what I mean by that is, you know, is the value prop post-COVID bringing new people to Insperity, or are there other things specific to this environment that seem to be coming up more frequently than others? Thank you.

Sure. Yeah, thank you for the question. Yeah, it really is just incredible timing between elevated demand, and I think ongoing demand for our services, lining up with our increased selling capacity from five years of effort growing the sales force by 80% in seasoned salespeople over that period. So the demand that we're seeing is really coming out of those factors I described in the discussion. primarily that post-COVID validation of the need for a sophisticated HR function. There's so many things that are going on in running a business today that now deal directly with how are you communicating with your people, how are you implementing new policies and practices, how are you basically managing and building your corporate culture in your small and mid-sized business so you can accomplish your goals and objectives. And, you know, now we've got the tight labor market on top of that. That is a big part of what I think is going to happen over the next several years. And that's one of the driving reasons for people to become clients of Insperity. So there's just a lot of factors that are driving demand up. And, you know, we're just really well positioned to capitalize on the market opportunity. And I expect it's going to be, you know, going on for quite some time.

Your next question comes from the line of Jeff Martin with Roth Capital Partners.

Thanks. Good afternoon, Paul and Doug. Hi, Jeff. Hi, Jeff. Wondering if you could give us an update with respect to service personnel utilization. I believe the past couple of calls you've talked about elevated volumes or elevated engagement time with clients. Is that still persisting? Is it more normalizing? And what does that do in terms of utilization of your service personnel?

Yeah, so, you know, the number of interactions and the length of time of the interactions through the pandemic period, the number of interactions tripled, the length of time doubled. And that has gone back just slightly, but is still way elevated from previous times. and it really has just reinforced how much help we can be to our clients, and they really have figured that out. And that did put some pressure on the organization in terms of how we're delivering on that front, but our folks have done a great job of organizing the way this is delivered, and really the interactions are just with a higher level inside our client base company and are very important and they're the type of interactions that our customers are really appreciating. So again, it's validating what we do for the clients. So when we look at the longer term, certainly we've got to be really conscious of our service levels. We also have, if you'll recall, we have different service strategies for different size organizations. and also for different organizations based on the intensity of their need. Some are more technology driven, and some are more hand holding. So remember, we're a software with a service delivery. And so you can manage those things effectively to make sure that you have that kind of high touch element when the client has the need. So that ability to do that has really served us well. And we will be continuing to grow that service team dramatically because we expect dramatic growth in the company. So that's kind of part of how we determine what is that right growth rate for us. We want to make sure we grow at a rate that's as fast as we can grow and keep delivering this premium service to the client base. So we expect to keep growing the staff and keep delivering the service levels that customers are now requiring.

Great. And then Paul, you usually talk a little bit more about lead generation. I know you've been doing some digital advertising and online advertising lead generation. I was just curious if we could back up maybe from a broader lead generation point of view, if you could give us an update and specifically how is workforce automation working into that lead generation formula.

Yeah, absolutely. I didn't spend much time and I appreciate the question on this call, but if you'll notice over the time as we've grown this sales organization, we've continued to increase our investment in marketing and also in the various lead generation engines. We have our loyalty program with current clients where we do all types of events and all types of Zoom meetings, interactions, et cetera, to produce leads from that front. We have a tremendous partnering initiative with what we call centers of interest. Those are folks that advise clients or small and medium-sized businesses. And we generate a tremendous amount of business from that organization. And then we also have the direct advertising, digital, very heavy, and other types of marketing to just drive those higher quality leads. And I mentioned in the remarks that that is one of the drivers of our improving sales efficiency, and we've increased that spending over the course of this year and into this fall campaign. It's definitely been producing great results. We actually had 10 markets that were newer markets that we did kind of a localized campaign. That was successful, so we spread that across the rest of the markets into this fall period. So we're very deliberate in how we implement our advertising effort. We kind of use a rifle approach where when we know something's working, we really go after that and don't use the traditional kind of shotgun approach, just trying everything all at once. So we shoot for a marketing mix that fits in each market, that drives the right level of activity. And it's all built off of, you know, we want to drive enough marketing leads to this growing sales organization so those sales efficiency numbers are at the right level.

Ladies and gentlemen, just as a reminder, if you'd like to ask a question, please press star and then the number one on your telephone keypad. Go to your next question is from the line of Mark Marcon with Baird.

Hey, good afternoon and thanks for taking my question. Wondering if you can talk a little bit about, you know, the impact of the healthcare benefits utilization, what are you seeing there, both in terms of what you think about for the fourth quarter and for next year, what the range is in terms of the benefits costs going up, but also thinking about it from the perspective of what opportunities it provides. So we're hearing from some of the healthcare carriers that are approaching companies through benefits brokers where there's, you know, there are some big increases, and that could end up potentially increasing, you know, the receptivity, you know, of some potential clients. So I'm wondering if you can talk about it both from the perspective of how we should think about it in terms of gross margin impact, but also what the opportunities are that could come from it.

Sure, absolutely. You know, as Doug was saying kind of in his comments, you know, the way we look at all of our direct costs, whether it's benefits or workers' compensation or employment practices, other types of things that are in that direct cost, you know, it's not just a cost picture. It's a cost and price picture. And we're managing that to earn a management fee on managing all the costs in that area. And so on the benefits side, this year we kind of expected higher costs and, you know, a wider range in our expectation because of, the moving parts related to COVID treatment. And it has come out just slightly above even the high end of our original range. But as the year developed, we can move that range up. And so we've been tracking that well. And of course, we've continued to move our pricing up because remember, that's the other side of the equation. So in Doug's remarks, he talked about you know, the short-term period volatility, but looking more at the longer term and making sure that's balanced over time. You know, in this year, we had some benefit costs at the high end, but we had some other costs at the lower end. And we still ended up, you know, have ended up so far considerably above our original gross profit expectation. Keep in mind, Mark, that's kind of how we go after every year. We always start with a more conservative view of the year. and allow the work that we do to manage those costs, create some benefit as the year goes on. Now, on the other side of your question, you know, what will happen with benefit costs as time rolls forward, you know, we've seen basically COVID-related costs, whether it's treatment costs, vaccinations, testing costs. It's run about 4% of the total benefit cost over each quarter. And so that's what's got to kind of get built in to the ongoing trend if the utilization normalizes up to its pre-COVID levels. And so the lower utilization has been offsetting some of those costs for these prior periods. And we believe we're on track the way we've continue to move pricing. So we won't be seeing as much of a step up in price as maybe they'll be seen in the marketplace. And as you kind of inferred there, that could also be a driver of new business toward us. And we consider that to be a very important part of what we do for our customers, which is to bring some level of more level of stability to the cost increases related to health care over time. And that's what we've done for many, many years through a lot of different situations that have impacted the healthcare market. So, you know, I think that will also play well if in fact, you know, healthcare costs, you know, increase next year, the year after in the marketplace.

That's great. Can you talk a little bit about what you're seeing in terms of the acceptance of the PEO concept outside of, you know, the core states that are a little bit more mature? To what extent do you see the message spreading, and particularly the benefits in terms of dealing with this increasingly challenging regulatory environment?

Well, I can tell you that in the small and mid-sized business community, the amount of regulatory change and commentary and potential change certainly is driving a lot of conversations. And that, you know, makes, you know, it kind of drives people toward us because, you know, people throw up their hands that I just can't handle anymore. It's just more than I can manage and I need help. And so on all these issues that have been driven, you know, really by the pandemic and everything that's coming out of that, including regulatory and policy changes, It's very hard to deal with when you're also trying to make money in the business you went in in the first place. So that does play into the need for our services, allowing the business owner to focus on what they do to manage their profit opportunities. Well, that's the feeling of getting back to what they went in business to do. So they love that concept. And when you have times of increased regulation, It just really makes that loud and clear message.

Your next question comes from the line of Toby Summer with Chua Securities.

Thanks. I wanted to start out by asking you, what is the broad impact of a pickup in inflation if indeed it does last for a few years? And you can think of this from a... wage inflation standpoint, healthcare expense standpoint, so sort of is there a broad interpretation both internally and externally to think about how wage inflation and a higher rate of it would influence the business? Thanks.

Yeah, absolutely. You know, I can cover that a couple ways. First of all, you know, just for us as our company and with our own staff, et cetera, you know, we're a service company, so we're Mostly personnel expenses, of course, the biggest operating expense. So we'll have to address those issues about inflation and our own pay to employees. And we always make sure we stay in touch with proper compensation levels. So that wage pressure hits everybody. But from our business standpoint and how it affects our clients, And then how it affects our pricing is actually something that we know from the many years of experience we've been here at Insperity. And I have always found that when payroll is going up faster, when wages are increasing, it's actually a little bit easier for us to get increases in our pricing to the clients. Because even though our pricing, much of it is on a dollar per person basis, or a percentage of other factors, but our total cost to the customer is generally presented as a percentage of payroll. And if payroll goes up on average, then the percentage of payroll when we add dollars in there doesn't go up as much. So we're able to pass on increases actually easier in a period of wage inflation. Also, I think, you know, if you have inflation in general in the marketplace, you've got interest rates that go up. And in our particular case, interest rates actually affect our business model positively if they're higher, you know, relative to how our workers' comp program works and, you know, discounting of current value of long-term payouts. So there's all kinds of other factors here. We don't look at inflation as an overall negative thing for our particular business, but we sure consider it to be a difficult thing for the economy as a whole and for our clients, and we do all we can to help them through those kind of periods, helping them with compensation to get that part right, to help them keep the right people, etc. So it does add another area of HR need that companies have to seek and I think will help continue to drive business our way.

Thanks. I wanted to ask from a longer-term perspective, anything about the prospect of being able to grow worksite employees slightly less than would have been required historically to get into that double-digit BPA, excuse me, salespeople, to grow them more slowly than growing WSEs in the double digits. Anything that changes the growth algorithm? And I realize we have some noise around trends in healthcare expenses post-pandemic that maybe it's not fully normalized yet, but how should we think about that change on the growth sort of algorithm that you've outlined historically?

Yeah, it's really exciting because it's a big win either way, but we're working on deciding which way we want to go with that new capability. So we can, in fact, grow double-digit unit growth with single-digit growth in BPAs at the efficiency that we're seeing once this has occurred. The question is, and of course, if you grow BPAs at a lower rate then you save an operating expense. So there's leverage there that you didn't have previously. Now, the other alternative is to grow faster than we have. Instead of growing BPAs at 10% to 12% and worksite employees at 10% to 12%, you could grow BPAs at 10% to 12% and grow worksite employees at 15% to 18%. Do you want to do that? Well, that depends. But it's certainly a great situation to be in when we are also seeing a rising demand and adoption rate for our services. So it makes that potentiality a really exciting opportunity. So that's kind of what we'll be working on as we work through this fall campaign and year end and plan into next year and over the longer term. But it just is, like I've said for many years, If you think about the retention improvement we had about five years ago, and then we've had another retention improvement fairly recently, those are dramatic in how it affects our business. The other one that's always been interesting for so long is trying to improve sales efficiency. And obviously, there are people working on that every day, all day, every day. We have for years. But we are now at that point where we've seen a significant move, and that will have a dramatic effect on our business depending on how we take advantage of that into the future.

Your final question comes from the line of Josh Vogel with Sidoti and Company.

Thank you. Good afternoon, everyone. I apologize. I've been bouncing back and forth between a couple of calls. So if you're repeating any of this for my benefit, I appreciate it. When looking at your guidance, up 11% to 12% year over year, worksite employees, and just considering your strong performance, I was just curious, in that number, what do you expect is going to come from gains within the existing base versus expanded headcount within the existing base versus new clients coming on board?

So, you know, at this time of year, it's always important to note that a lot of the new sales don't actually enroll and pay until next year. So that's normal for our fall campaign. And also, though, your retention is pretty high in those months because companies don't leave very much during that period either. You know, we have figured that we've had really strong net gain in the client base to this point in the year. And, you know, toward the... last couple months of the year you know you don't generally want to factor too much in there because some of that can also kind of be deferred into next year so you know we're real comfortable where we are for this fourth quarter but the exciting news is really looking into the into January of next year and where a successful fall campaign will put us because as I mentioned in our comments growing at the rate we've already grown to at this point of the year And if you just keep things kind of solid in terms of the number of folks that normally departing, if your fall campaign sells enough to kind of offset that, we'll be starting the year with a really nice, more exceptional double-digit growth number than we have in the past, simply because you've got the comparison to that January period a year ago when we lost a large client. We're just in great shape to have a really exciting starting point for 2022. And as Doug said, we'll be putting our plan together for next year over that period. And we'll be able to give everybody some details about how we've brought all that together on our next call.

Those are good insights. Thank you. And we know you've passed along lower state unemployment taxes to clients. You know, assuming that's been well received, but you're still pretty successful in getting a 4% pricing increase. I'm curious what that number would have been if you weren't giving some concessions to your clients. And also, was there any way to tell whether that move, you know, really accelerated the prospect funnel in the fall sale campaign?

Well, we can't tell yet because we're only halfway through that. But, you know, we'll evaluate that. once we get through the full campaign. And I feel confident that that's the right thing to do anyway when you're looking at, you know, we moved that pricing up on the unemployment cost when the expectation was it was going to go up based on the pandemic issues. When it didn't happen, it was the right thing to do to lower that pricing for the last half of the year. And, of course, we'll be getting more information about next year and what changes will take place, and we'll make those same type of judgment calls for next year.

I'd now like to turn the call back over to Mr. Servati for any closing remarks.

Well, once again, we'd like to thank everybody for being on our call today, and thank you for your interest and support. We look forward to finishing a strong year and getting off to a great start for next year and providing more information when we get back together on the next call. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation.