Insperity, Inc.

Good afternoon. My name is John and I will be your conference operator today. I would like to welcome everyone to the Insperity's second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. At this time, I would like to introduce today's speakers. Joining us are Paul Sarvadi, Chairman of the Board and Chief Executive Officer, and Jim Allison, Executive Vice President of Finance, Chief Financial Officer and Treasurer. At this time, I'd like to turn the call over to Jim Allison. Mr. Allison, please go ahead.

Thank you. We appreciate you joining us today. Let me begin by outlining our plan for this afternoon's call. First, I'm going to discuss the details behind our second quarter 2026 financial results. Paul will then comment on the progress of our margin recovery plan and our game plan to regain worksite employee growth momentum. I will return to provide financial guidance for the third quarter and full year 2026. We will then end the call with a question and answer session. Before we begin, I would like to remind you that Paul 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 to differ materially from any such forward-looking statements and reconciliations of non-GAAP financial measures to their comparable GAAP measures, please see the company's public filings, including the Form 8-K filed today, which are available on our website. Today we reported adjusted EPS for the second quarter of $0.34 per share and adjusted EBITDA of $36 million. Both results exceeded the midpoint of our expected range, and they represent a year-over-year increase of 31% and 13%, respectively. We believe these results reflect the significant progress we have made in our ongoing Margin Recovery Plan. As a reminder, Our margin recovery plan includes three key components. First is our ongoing pricing and client retention strategy, which we intend to continue through the end of the year. Second is our benefits plan design changes and UnitedHealthcare contract changes, both of which became effective at the beginning of the year. The third key component is a robust focus on operating expense management. The financial impact of this plan is evident in our second quarter results. We believe the impact will continue to build over the course of the year, consistent with our goals of producing a significant profit recovery in 2026 and laying the foundation for further earnings growth in 2027. The average number of paid worksite employees in Q2 was 305,764. which was above the high end of our expected range and represents a modest 1.1% decrease versus Q2 2025. The worksite employee outperformance was primarily driven by higher than expected net hiring within the client base, which helped mitigate the expected impact of our margin recovery plan on sales and client retention. For Q2, client retention and worksite employees from new clients were both in line with our forecast. Paul will provide more color around our worksite employee results in a few minutes. Total gross profit in Q2, 2026 decreased by 3% to 217 million. Gross profit per worksite employee decreased by 1% to $237 per month, which was in line with our expectations and with a slight improvement over the 2% decrease reported in Q1 2026. For Q2, our margin recovery plan produced improvements in the matching of price and cost in our benefits area. Those improvements were largely masked by the year-over-year change in workers' compensation costs, which were impacted by lower actuarial reserve adjustments related to prior policy years. Benefits cost per covered employee increased by 5.2% over Q2 of 2025, consistent with our expectations and first quarter results. While underlying benefits cost trends remain high in the healthcare marketplace, our 2026 results have been impacted favorably by a client mix change influenced by our pricing and client retention strategy, along with the plan design changes and United Healthcare contract changes that became effective at the beginning of the year. As I mentioned last quarter, we expect the United Healthcare contract change to help temper the seasonality of our quarterly earnings patterns starting this year with less expected earnings early in the year and more expected earnings later in the year. This is primarily the result of the pooling level change from $1 million per member per year down to $500,000. The new pooling limit includes a higher fixed premium that is charged evenly on a per-employee per month basis or PEPM basis throughout the year, while the related favorable impact on claims costs is expected to be significantly weighted toward the later quarters of the year with the largest impact in Q4. With regards to workers' compensation costs, we have seen relative stability in our current period costs compared to our expectations. However, favorable adjustments in actuarial reserves related to prior policy years declined in Q2 2026 versus Q2 2025. This is reflective of a market-wide increase in claims severity, with elevated health care cost trends being a significant contributor. The lower level of actuarial adjustments was generally in line with our expectations. At the halfway point of the year, we are pleased with the execution of our margin recovery plan, our pricing and client mix results, and the relative stability of our benefits costs so far. At the same time, we continue to be vigilant regarding the range of potential outcomes for benefits costs over the remainder of the year, which I will discuss later in the call. In conjunction with our margin recovery plan, total operating expenses decreased by 8% to $211 million in Q2 2026 due primarily to lower headcount-related costs and stock compensation costs, partially offset by increased advertising expenses to drive leads into our sales pipeline. Q2 cash operating expenses decreased by 6% versus Q2 2025. With beta clients being live on HR scale in Q2 2026, we saw a reduction in certain investment costs and the transition of client onboarding and service-related costs from product investment into operational costs. As a result, our total investment in the development of HR scale for Q2 declined to $8 million, of which $5 million was capitalized. During the quarter, we continued to return capital to our shareholders through our regular dividend program, paying $23 million in dividends. We ended the quarter with $95 million of adjusted cash compared to $36 million at the end of Q1. During the quarter, we borrowed $50 million under our credit facility for working capital purposes. primarily to address normal fluctuations associated with the timing of funding of our direct cost programs. At this time, I'd like to turn the call over to Paul.

Thank you, Jim, and thanks to everyone for joining our call. Today, I'll discuss our successful execution of our margin recovery strategy year to date, followed by our plans to lay the groundwork over the second half of the year to regain growth momentum moving into 2027. This includes an update on our refined sales motion, HR scale progress, and AI initiatives which we believe will advance sales and retention efforts. Our top priority for 2026 is margin recovery, and we are pleased that our Q2 results reflect the meaningful progress achieved in the first half of the year. This outcome was driven by exceptional collaboration across the company to address the healthcare claims trend and related margin pressure we experienced in 2025. Executing this effort required company-wide cooperation, clear communication, and disciplined implementation of new pricing strategies, product offering enhancements, and the adjustment of many sales, client retention, and benefits processes. These pricing and process changes created some initial challenges and as expected sales and retention finished at the lower end of our typical ranges in the first half of this year. Against that backdrop where some companies experience significant volume reductions, our modest 1% year-over-year decline in worksite employees paid clearly demonstrates the resilience of our organization and the value of our services including the breadth, depth and level of care delivered throughout this process. The first half of this year also reflects strategic improvements that we believe can have a long-term impact of improving sales and retention while also supporting our efforts to reduce risk. In particular, we now provide more benefit options for current and prospective clients through our expanded insurance agency operation when it provides a better solution for the client. While some clients choose to keep their own plan through a third-party broker, Our insurance agency operation is also seeing success offering plans in our sales process, which may continue the recent trend of clients selecting a client-sponsored plan. At the end of Q2, 7% of our client base obtained their benefits outside of the Insperity plan, including 14% of new clients added within the past 12 months. Demand for our insurance agency solutions continues to grow. and we're ramping up our capacity to capitalize on this opportunity. That said, we continue to expect that the bulk of our clients will choose to participate in the Insperity Plan and there could be some movement in and out of the Insperity Plan from year to year. So while we believe sales and retention efforts for the first half of this year were executed well, the results were tempered by the impact of the margin recovery pricing priority and significant change management. growth factor in our model, net change in employment in the client base stabilized in Q2 and exceeded our forecast after showing some volatility in Q1. Each quarter we conduct a survey to compare actual hiring, pay rates, overtime and commissions to client sentiment for the upcoming quarter. The data and client sentiment coming out of Q2 reflect a positive outlook for their own companies for the remainder of the year. Client confidence remains resilient in a cautious economic environment, with 63% of surveyed clients expecting their businesses to perform better in 2026 than in 2025. Clients remain more optimistic about their own businesses and industries than the broader economy, supporting continued demand for our HR solutions that help them manage uncertainty while pursuing growth. Talent availability and workforce planning remain key client challenges. The hiring environment remains stable with increased overtime utilization and strong commission growth in Q2. Looking forward, roughly one-quarter of clients surveyed expect to hire in Q3 and more than one-third anticipate workforce growth in 2026. As we look ahead to the balance of the year, we plan to continue our margin recovery efforts At the same time, we believe sales motion changes across all three of our premium HR solutions are becoming more fully adopted and confidence is growing across the sales organization. We believe this sales motion progress combined with our HR scale ramp up and AI agent rollout positions us well to advance sales and retention efforts over the balance of the year. A Q2 highlight was the formal launch of HR scale Successfully onboarding and processing payroll for our beta clients and ramping up marketing and sales activity. We entered Q3 with sold HR scale accounts totaling nearly 8,000 worksite employees, including over 5,000 already live on the platform and approximately 3,000 moving through implementation. This is a good start, and we believe we are building momentum with HR scale. The early demand generation signs are encouraging, and we're starting to see the benefit of broader market activity. The pipeline continues to move forward with progress across both client migration opportunities and new prospects. As a reminder, HR Scale, our joint solution with Workday, is one of the most significant transformations at Insperity, designed to effectively enhance our PEO solution set for mid-market companies ranging from 150 We believe this addition of HR-scale positions in Sparity distinctively within the marketplace and serves as a new driver for sales and retention of larger clients. This significantly expands our total addressable market, advances our growth model, and provides greater visibility for future growth. Our sales, marketing, service, product, and partner teams are all working in sync. and our go-to-market activity is now rolling out across a wide array of marketing channels including events, partnerships, webinars, social media and more. The referral and broker channels also gaining traction. We're seeing opportunities from these sources enter the pipeline and upcoming education sessions should help partners better understand and communicate the HR scale story. On the operational side, the focus is clear, strong implementations Stable client experiences that enhance time to value and the ability to scale with quality. We also have an ongoing dialogue with Workday to continue developing the product roadmap for HR scale and strengthen our go-to-market plan. So we continue to be excited about the HR scale opportunity. We're building demand, strengthening partner engagement, advancing the pipeline, and improving implementation readiness with the foundation in place to support this strategic growth initiative. We also expect our AI strategy will add value to the strategic HR services, technology, and expertise provided by Insperity. We continue to see growing receptivity to AI both within Insperity and across the client base, reinforcing our belief that AI can amplify human expertise, strengthen service delivery, and improve productivity. AI adoption and targeted use cases are accelerating, creating significant opportunities across Insperity from sales and marketing to client services and technology development. In many areas, we believe AI will prove to be transformational for Insperity. Client AI adoption is also accelerating with 63% of surveyed clients reporting that they are either piloting AI or integrating it into their business strategy, and only 8% reporting no plans to use AI. Insperity's AI strategy is focused on practical business impact enabling our employees to better serve our clients, improving client access to insights and solutions, accelerating product development, and helping clients prepare their workforce for an AI-enabled future. Insperity's proprietary Compass AI engine is maturing into a scalable enterprise AI platform, providing a foundation that connects data and business knowledge across the organization. Our HR 360 agent is already helping clients and worksite employees access answers, resources, and service support more efficiently, and we are working to expand its functionality to deliver conversational reporting and faster business insights. We plan to introduce conversational reporting using demographic and transactional data, shifting from static reports to real-time insights for better decision-making without the need for users to have advanced We expect this functionality, combined with the expertise of our staff, will reinforce the way Insperity provides sophisticated HR support to help HR 360 clients succeed in a new world fueled by AI and can serve as a value driver in our discussions with clients and prospects. We believe as our refined sales motion becomes fully adopted and confidence grows within the HR 360 and HR core sales organizations, Combined with the catalyst effect of HR scale and our AI initiatives, we have the opportunity for strong sales and client retention over the balance of the year. So we believe we are on track to achieve both of our 2026 highest priorities of margin recovery and laying the foundation for regaining growth momentum. We expect success in these two areas would lay the foundation for balancing growth and profitability in 2027 and delivering shareholder value in the years ahead. At this point, I'd like to pass the call back to Jim.

Thanks, Paul. Our updated outlook for 2026 reflects our solid worksite employee and financial performance in Q2, the progress of our margin recovery plan and the expected continuation of certain operating expense savings that we experienced in Q2. With regard to paid worksite employees, We continue to analyze and revise our strategies to achieve our margin recovery goals while also focusing on regaining worksite employee growth momentum. We believe that our plan to emphasize long-term value drivers in discussions with clients and prospects could positively influence sales and retention results as we approach the fall sales and retention season. In addition, we expect net client hiring to reflect some improvement in small business economic sentiment and the hiring environment, partially offset by seasonal summer help reverting in Q3. As a result, we are now forecasting paid worksite employees in a range of 305,000 to 307,000 for the full year 2026, which represents a decrease of 1% to 1.6% from 2025. Moving to margin recovery, We are pleased with the progress we have made to date and we continue to forecast some additional improvement as we execute the plan throughout 2026. Our pricing results are progressing in line with our plan and we continue to see that profitability of terminating clients has been significantly lower than the profitability of those we are retaining, producing a favorable change in client mix. With regards to operating expenses, we continue to expect year-over-year reductions throughout 2026, driven primarily by lower headcount and partially offset by some increase in marketing spend and growth in the number of business performance advisors. HR-scale operating expenses are expected to be generally in line with our budget. As I mentioned earlier, our benefits cost trends have been relatively stable so far this year. but we are maintaining a wider range of potential outcomes in the second half of the year relative to our historical norms due to the elevated healthcare cost trends that remain in the marketplace. As a result, we are forecasting adjusted EBITDA in a range of $185 million to $225 million for the full year of 2026, an increase of 41% to 72% over 2025. Adjusted EPS is forecasted in a range of $1.88 to $2.43, an increase of 83% to 136% over 2025. We expect our full-year effective tax rate for adjusted EPS purposes to be 36%. The effective tax rate for GAAP purposes could fluctuate from that based on the level of non-deductible expenses as a proportion of pre-tax income. We expect our weighted average shares outstanding to be approximately $38.6 million for the full year. As for Q3 2026, We expect the average number of paid worksite employees to be in a range of 305,500 to 307,500, a decline of 1.7% to 2.3% from Q3 2025. We are forecasting adjusted EBITDA in a range of 14 million to 41 million, an increase of 40% to 310% over Q3 2025. Adjusted EPS is forecasted in a range of minus 9 cents to positive 41 cents, an increase of 55% to 305% over Q3 2025. As many of you know, our quarterly earnings pattern is typically highest in Q1 and then declines each quarter thereafter, primarily due to the seasonality related to state unemployment taxes and benefits costs. While these influences remain intact, we expect the seasonality of our 2026 quarterly earnings pattern to be less pronounced for two primary reasons. First, our pooling level change with UnitedHealthcare from $1 million per covered member per year down to $500,000 resulted in a significantly higher premium charged evenly on a PEPM basis throughout the year. while the related favorable impact on claims cost is expected to be significantly weighted toward the later quarters in the year with the largest impact in Q4. In addition, as we execute our margin recovery plan throughout 2026, the cumulative impact is expected to be more pronounced in the second half of the year and provide a solid foundation heading into 2027. At this time, I'd like to open up the call for questions.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, please press star one if you have a question or comment. First question comes from Andrew Nicholas with William Blair. Please proceed.

Hi, good afternoon. I appreciate you taking my questions. I wanted to start on HR scale. A lot of really interesting and encouraging commentary on that from Paul. Can you speak a bit more to the makeup of the employees that you have on the platform today? I think you said 5,000 and 3,000 moving through the implementation process. Where did those clients come from? What do they look like in terms of size and maybe any other color you can provide on the pipeline? Sure, that's great.

You bet. Happy to do that. And, you know, good news is we have in this pipeline that I've mentioned on the 8,000. Of course, we prioritize current clients moving first, but we also will have employees from new accounts as we go through the year. So we're very pleased about that. And we have different size clients, including, you know, some over that thousand employee level, which is excellent. So we're, you know, really on a good track you know getting those initial clients on board a variety of different types of clients you know what we're really working on is having that initial set of clients that can be that reference point for others and you know really build that on that momentum so we're just really excited we're on a good track you know it's obviously a new product and new solution and it's unique in the marketplace. So there's education going on, but there's great enthusiasm and great receptivity. So we're on a good track.

Got it. Thank you. And then I think you made some comments about different kind of new clients or even existing clients finding health care plans outside of your plan. Can you speak a bit more, one, to kind of what's driving that? and also what that does to your economics. I guess just more color on the agency operation would be great.

Yeah, this is something that we've considered over the years and we've always had some clients that either wanted to retain their own plan for a variety of reasons. And so we've always had that capability. But as we went through this higher pricing environment for and many more. And so, we really ramped up our own agency because we felt it was important to be able to provide options, as many options as possible, in a higher cost escalation environment for our clients. Now, of course, in our case, we're very pleased for them to come on our plan and it's an incredibly well-managed and a number of other people. And so, you know, planning brings a lot of advantages to the client. But if they're in a situation where their costs are going up a lot, if we can find coverage for them through our agency integrated into our offering for them in the PEO offering, hey, that's great. If it's better for them, we're happy to do that. And in that case, we're actually not taking the risk. They're not adding into the risk pool of the large plan. It doesn't matter to us which one they end up deciding to do, and we are pleased that we can offer them options and keep clients that way and get new clients that way.

I guess from an economics perspective, is it fair to say that that would mean lower costs, all else equal, on a per worksite employee basis, or is the benefit-cost trend that you guys describe as insightful? reflective of just those that are attached to the plan.

Yeah, so what I would say to that is obviously, you know, the cost associated with those plans wouldn't be in our benefits costs. We usually report those on a per covered employee basis. So, you know, to the extent that a client has their own plan. They would not be a participant in our big plan, and they wouldn't really be part of the math on the benefits cost as we report them.

The next question comes from Toby Sommer with Truist. Please proceed. Thanks.

I think you mentioned in your prepared remarks that you made more conservative assumptions than historically in healthcare in the back half of the year. As measured in EBITDA, what kind of would the EBITDA guidance have been had you stuck with historical patterns?

Well, I think that, you know, if you look back at what we have done in the past, you know, typically it's just the range of at this time of the year, the $40 million range on EBITDA is a little bigger than what we would normally have. I'd say in the past, we probably would be closer to 25 or 30 million. So we just wanted to reflect the fact that there are these escalated trends out there in the marketplace. And it seemed prudent to make sure, especially since we're seeing some favorability through a lot of the actions that were taken, just to make sure that we recognize that plus or minus, there could be a little movement off of what we've had so far.

And if I could get you to comment on how are you thinking about the importance of this year's selling season as we aim towards the fall and fourth quarter, particularly given that you've got your new platform, you've got other offerings, including letting customers have their own healthcare. What are you thinking about that, man?

Thanks. Yeah, well, I'm very excited about this effort. Of course, the business model needs a good fall selling season. That's the way the business works. both selling and retention to achieve our best starting point for the new year. Since it's a residual income business model, that starting point always makes a difference. Now this year, the point I was really happy to be able to make is that we went through quite a bit of what I call sales motion changes over this last six to eight months or so related to our margin recovery plan. And the reason I call it a sales motion change is because It's far beyond the sales organization. It was across the company when you have to make changes to pricing and to processes and offering things in different ways and legal aspects that change. A tremendous amount that had to happen. And so that's a lot of change to go on. We've made it through that. We have had enough reps over this first repetitions over this first six months to see the confidence level, see the adoption level. So things are on the right track for us to be ramping up sales and retention right as we go into our fall selling season. And we're having great success on the marketing front to target folks. we also obviously we've talked a little bit about this here but we've got HR scale that we've never had going into fall selling season so this is exciting how that affects you know it affects both you know HR scale sales but in my view it affects HR 360 larger client sales because they have two options of what's their best for them to come up so is it critical yes it always is this year you know it's exciting because we have new things we're doing that can make it better but we have to do the blocking and tackling we have to do it well and you know I'm so proud of the way our organization focused on what we had to do to do margin recovery and that's the type of effort that I've seen in getting through the change process and I believe this organization is going to do a great job on this fall selling effort and you know finish off those that second key priority for this year. Thank you.

Okay the next question comes from Mark Markin with Baird. Please proceed.

Good afternoon and thanks for taking my questions. A couple just with regards to the health care side. What sort of inflation rate are you expecting? And would that be one of the primary drivers in terms of the widespread, in terms of the EBITDA guide for this year? Or are there any other factors? That's one question. And then the second question has to do with HR scale. I'm wondering if it's too early to tell how investors should think about the profitability When worksite employees are shifted to the HR scale model, I'm not sure how you've described the expense share with Workday or how investors should think about that.

Well, let me talk about that first question first. I know Jim kind of went through more detail there. I just want to make sure everybody understands that we have been through an exceptional process for margin recovery, having to do with the repricing of the base, and Jim mentioned the other things, the contract, et cetera. But, you know, we have two quarters in a row now where we have done really well. We've done the right things. That's two points, but it's not a trend until there's three points. So, you know, in my view, it's appropriate to be conservative, and, you know, we're on a really good track on that front, and we're going to keep doing the right things and watch that come to fruition. Now on the HR scale side, as we've mentioned previously, these first clients we're bringing on in favorable terms, but they're still terms that are typically at or better than being on our HR 360, even as a very large client. So we expect that to grow more into the future, but off to a good start on that pricing front as well. I know there was another aspect to that question. Jim, if you know what that was or have a comment on that, that's fine.

Yeah, I think, you know, on the health care inflation front, what I would say is, you know, there's multiple moving parts in the middle of that. And so, obviously, it's the pricing, you know, that you're giving out It's the plans that ultimately get selected by clients and then worksite employees when they're in their open enrollment process. And then, you know, there's the client mix change associated with, you know, clients that terminate versus clients that stay. And so all three of those have an influence on the overall what I'd call the net, you know, trend. We're still expecting that our trends over the remainder of the year will be favorable compared to the underlying trends that are out in the marketplace because of the plan that we're putting in place. On the HR scale front, Paul had mentioned the pricing that we're doing. I would say, adding to that, these clients do have multi-year contracts. and there are price increases embedded in that as we kind of move past the beta client phase. So they're getting a discount to kind of the normal pricing in this beta phase, but there are price increases built in. And I would say when you think about the profitability, our expectation over the next several years is that the profitability on HR scale looks as good or better than what it is on HR 360. I think there are two factors that go into that. One is increasing pricing as we get from beta to early adopter and more mature phases. And then also the level of efficiency gains that we get as we bring more clients onto the platform and service more clients.

That's great. Thank you.

Once again, if you have a question or a comment, please press star 1. The next question comes from Jeff Martin with Roth Capital. Please proceed.

Thanks. Good afternoon, Paul and Jim. Good to hear from you. Wanted to jump into the advertising strategy, sales and marketing strategy a bit more, just I'm curious if you're adopting new lead generation initiatives with respect to HR scale versus what maybe you were thinking a year ago. And could you also speak to the commitments that Workday is making with respect to the continued go-to-market strategy?

Yeah, absolutely. We have a very powerful marketing effort coming along this fall on a lot of different fronts. and it's across the board, but there's also byproduct related marketing and including a joint marketing plan between, that includes things that both Inspirity and Workday are doing and doing together, continuing through our pod relationship. So, we have a wide variety of things, including some real improvements that AI has brought to the forefront for us to really target the right customer at the right moment with the right offering. So we are in a position, I believe, that we're really going to be able to provide additional great support for the sales teams in each of our product offerings and have solid lead production.

And as a two-part question, follow up to the go-to-market strategy or the sales strategy, I believe this is the first time ever that I've heard you talk about referral partners and a broker network. Is that a new channel for you, or are you spending more effort on a referral partner network? And then my second question relates to your onboarding experience with HR scale, how you learn from the beta clients and what you're applying to that going forward, and then are you planning on increasing onboarding capacity over the next 12, 18 months. Thanks.

Sure. So let's see the first part of that question. I've got to the last part. I lost the first part. Jim, remember the first part?

Referral partners.

Oh, yes. Okay. So first of all, we have for throughout quite a bit of our history, we have what we call centers of influence that are referral partners of all types. And we've had a broker network for a fairly long time. and we have some good results from that. But those types of networks, a lot of times when it comes to this larger client community, this is a bigger deal for them as it is for us. And this is a unique offering into that space. So we are seeing a lot of interest from that group. And we're really working together doing some educational things as well because we think that's going to be a great referral channel. So, you know, a lot of the same folks, and we've had a good program over the years, but I think this new offering is another way to ignite that group for more lead flow.

Great. Thank you.

Once again, if there are any remaining questions, please indicate so by pressing star 1 on your touchtone phone. The next question comes from Brendan Biles with JP Morgan. Please proceed.

Hey, team. Thanks so much for having me on, and nice work with the results here. Thank you. Yeah, yeah, of course, yeah. I'd love to ask on sales and marketing spending. I saw some OPEX shift under the hood to some marketing and advertising away from stock-based compensation, which is awesome, like a kind of beat-on gap by more than... by more than adjusted. So when you think about the exciting stuff that you talked about already on the call rolling out in the fall selling season and all across the business, where would you advise us to think things should settle out in that mix shift or where you're going with kind of go to market spending and then how should we benchmark returns on that kind of spending? Thanks.

Yeah, so, you know, we have allocated more dollars into the, you know, sales and marketing effort as we go through. Not only do we have some more advertising in the second quarter of the year, but we have more allocated in the second half of the year as well as some ramp up in the number of BPAs in the forecast as well. And so we feel like we're in a spot where capturing the opportunity that's out there is a wise move. And we've always measured, thinking about sales and marketing spend relative to the customer lifetime value of a client that you're going to keep over, call it an average of six years or so, five to seven years. and so it makes a lot of sense to make that investment relative to the profitability you expect to get over the lifetime of that customer.

That's great, Jim. Thank you. That makes sense. And good to hear that those investments make sense at the moment. If I could follow up with Paul, just because you've been sounding so excited about the sales on the call, I'm loving that. Could you just advise us as to how you're telling your guys on the front line to keep the message straight in this year where you've done so much progress on the margin recovery while you still have these kind of new offerings? What's the North Star for those guys?

Well, you know, it's always that we are here to do what's best for these clients. And, you know, our mission, of course, is helping businesses succeed so communities prosper. And that's what's in the heart of our sales team, our BPAs and beyond that, our, you know, our whole company. That's kind of how we recruit people that understand what the heroes are out there in the small and mid-sized business community and what it takes for these businesses to be successful and how what they do benefits their world around them. So we're there to support them. And we have made changes this year to not only create as many great options as we can for clients, but also to help them manage through some of the complexities that are out there in the marketplace today. So their North Star is always we're here to do what's best for the client, and we can do it better than anybody else. We can help those businesses succeed. and that makes a huge difference. And so we continue to kind of beat that drum and going through the difficult period of making a lot of changes and now it's the enthusiasm phase. Now it's, hey, we see why we're doing all these things and we see what it can do for our customers. Our differentiation has been the breadth, the depth and level of care of our services and we've enhanced that throughout this process. So I believe that enthusiasm level is going to keep on moving up and it's perfect time for a great last half of the year.

I love it. I love it. Thank you so much, Tim.

Okay, we have no further questions in the queue. I'd like to turn the call back over to Mr. Sarvadi for closing remarks.

Once again, we'd like to thank everybody for participating on the call today. and we are definitely pleased about the margin recovery plan year to date, our top priority for the year and we're very excited about laying the groundwork to regain our growth momentum through the sales and marketing effort over the balance of the year and setting us up for a great 2027. So thanks again and we look forward to next quarter.

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.