Insperity, Inc. (NSP) Q4 2014 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. My name is Ryan, and I will be your conference operator today. At this time I would like to welcome everyone to the Insperity Fourth Quarter 2014 Earnings Conference Call. All lines have been placed on mute in order to prevent any background noise [Operator Instructions]. Thank you. At this time, I would like to introduce today's speakers. Joining us are Paul Sarvadi, Chairman of the Board and Chief Executive Officer; Richard Rawson, President; and Douglas Sharp, Senior Vice President of Finance, Chief Financial Officer and Treasurer. At this time, I would like to turn our call over to Douglas Sharp. Mr. Sharp, please go ahead.

Thank you. We appreciate you joining us this morning. Before we begin, I would like to remind you that any statements made by Mr. Sarvadi, Mr. Rawson or myself, that are not historical facts are considered to be forward-looking statements within the meaning of the Federal Securities Laws. Words such as expects, could, should, intends, projects, believe, likely, probably, goal, objective, outlook, guidance, appears, target and similar expressions are used to identify such forward-looking statements and involve a number of risks and uncertainties that have been described in detail in the company's filings with the SEC. These risks and uncertainties may cause actual results to differ materially from those stated in such forward-looking statements. In addition non-GAAP reconciliations are available in today’s press release. Now let me take a minute to outline our plan for this morning's call. First, I'm going to discuss the details of our fourth quarter and full year 2014 financial results. Paul will then recap the 2014 year and discuss the major initiatives of our 2015 plan. I will return to provide our financial guidance for the first quarter and full year 2015. We will then end the call with a question-and-answer session where Paul, Richard and I will be available. Now let me begin today's call by discussing our strong fourth quarter results. In general we experienced a continued acceleration in the growth of worksite employees and favorable gross profit and operating results. These results combined with our year-end sales and client retention results pointing towards a strong 2015. For the fourth quarter we were reported adjusted EBIDA of $22.6 million which was an increase of 22% over Q4 2013 and 15% above the midpoint of our forecasted range. We reported adjusted earnings per share of $0.35, an increase of 46% over Q4 2013 and 35% over our forecast. Adjusted Q4 2014 earnings excluded two special items an after-tax impairment charge of $0.03 per share and $0.5 per share related to the accounting treatment associated with $2 per share special dividend. Our revenue increased 7% over Q4 2013 to $596 million, an 5% year-over-year increase in average day worksite employees. Q4 average paid worksite employees increased 4% sequentially over Q3 to 136,764 for the quarter which was above the high end of our forecasted range about 136,250. As for the components of our worksite employee growth, we exceeded Q4 forecast for all three drivers including worksite employees paid from new sales, net hiring in our client base and client retention which averaged over 99% for the quarter. These positive trends continued throughout our all-important fall selling season and year end renewal period which Paul will comment on in a few minutes. Gross profit increased by 13% over Q4 2013 on the 7% revenue growth. These results significantly exceeded our expectations as we experienced favorable results in each of our direct cost areas with significant upside in the benefits areas due to continued favorable healthcare cost trends. The increase in adjusted EBITDA of 22% on the 13% gross profit growth demonstrates our continued management of operating expenses which included a 12% reduction in advertising cost and 3% reduction in G&A cost from Q4 of the prior year. Our effective income tax rate for Q4 was 37.5% below our forecasted rate of 42% due primarily to the recently passed R&D tax credit, lower than expected full year non-deductible cost and higher than estimated captive insurance company which lowers our effective state tax rate. These items which slowed through Q4 resulted in a full year 2014 effective tax rate of 41% slightly less than our initial forecasted rate of 42%. As for the full year 2014, we earned $84 million in adjusted EBITDA and $1.19 of adjusted EPS exceeding our initial budget full year revenues increased by 4.5% over 2013 to $2.4 billion. Improvement in sales and net hiring our client base and stable client retention resulted in accelerating quarterly sequential growth throughout the year from 1.6% in Q2 to 2.6% in Q3 to 4% in Q4. Even though we experienced weak unit growth early in the year, we effectively managed direct cost and operating expenses to produce better than expected bottom line results for the year. We managed our operating cost to $12 million below our initial budget with savings achieved in corporate headcount, marketing cost and G&A cost. This is reflected in a 7% reduction in advertising cost, stock based compensation remain relatively flat and G&A and depreciation cost up only about 1% over 2013. As for our balance sheet and cash flow we generated $65 million of free cash flow after $19 million of capital expenditures, over $90 million with returned to shareholders in the form of dividends and share repurchases. Cash dividends included both our regular quarterly dividend which was increased to $0.19 per share in May of 2014 and $2 per share special dividend in December, those totaling $69.5 million. We repurchased 693,000 shares during the year at a cost of $21 million. We ended the year with approximately $73 million of working capital is the appropriate way to evaluate our net cash available for corporate use. Also we just recently renewed our line of credit for an additional five years and increased the availability to a $125 million providing further resources to invest in the growth of our business. At this time I would like the turn the call over to Paul.

Thank you, Doug. Today I will cover three significant topics for Insperity. First I will provide some color around the activities that drove our recent growth acceleration and our excellent results. Secondly, I will explain how these results validate our long-term strategic plan and set the stage for a very strong 2015. Finally, I will discuss how we expect to capitalize on the growing demand our expanded target market for our services as a result of the broader platform for growth which is now in place at Insperity. Our interim results were driven by several elements of our sales system kicking as high gear. As I said it before the critical factors to grow this business includes the number of trained business performance advisors and their sales efficiency. Midmarket sales impact business, client retention and the growth of our strategic business shift; all these factors were strong in the last half of 2014 and contributed to our solid results. On our last conference call I explained the significance in our business model of a successful year-end transition in sales and client retention on our annual unit growth rate. In each of the last two periods 2012 to ’13 and 2013 to ’14 the size of the sales force and their sales efficiency were not enough to offset year-end client attrition. This led to low single-digit annual unit growth in the following year in spite of solid growth from March to December of this year. This year-end transition is quite a different story and the effect on our business model is evident. Since the beginning of the fourth quarter through January, we experienced a 36% increase in paid worksite employees from sale and a 17% improvement in client retention over the same period year-ago. As expected this combination has created a step-up in worksite employees from our Q4 average as opposed to the losses we experienced in last two years, which set this up for double-digit unit growth this year. The most important progress we made in Q4 was validating the sales motion of our broader platform for growth. We averaged 305 trained business performance advisors in the fourth quarter and their sales efficiency was 1.11 sales per sales person per month. Our sales organization was approximately the same site as last year but the with year seasoning and training under their belt, they produced a 47% increase in discovery calls, a 57% increase in business profile and the 30% increase in new client. In addition, we have seen a significant reduction in sales force turnover to a record low of 26% which was another major objective of the new selling system. This improvement certainly validates we have the sales model ready to expand. We expect to increase the number of business performance advisors in 2015 at a steady pace and we will open five new sales offices this year including one in Philadelphia and one in Seattle, both of which are new markets for the company. Midmarket sales effectiveness was also a positive part of the story last year as we achieved a 146% of budget which was an increase of 85% in sales over the prior year. This sales increase was particularly helpful this year to offset client terminations from what we call our success penalty when we lose a client due to the sale of their company to a larger firm. In spite of this success penalty from a high level of M&A activity last year our total client retention results were excellent. Historically 10% to 12% of the worksite employee base terminated their contract in the December to February year-end period in the last two years we were close to 12% and this year we expect to end up at 10% or better. Another element of our growth strategy performing well is our strategic business unit at the synergy from the complimentary business performance solutions we now offer. In addition to helping to sale more of our premium co-employment solutions throughout the year we experienced 19% growth in the gross profit contribution from this portfolio in 2014. We are continuing to gain traction from this strategy as evidenced by our attachment rate of additional business performance solution to new work force optimization customers. 40% of new work force optimization client sold in 2014 purchased one or more of our strategic business unit offerings at the time of their initial purchase. Our current base of work force optimization client are also buying additional services from our expanded offerings as the attachment rate on all work force optimization client served in 2014 exceeded 50% for the first time. In addition, last year we more than doubled the number of total customers brought into our ecosystem by selling other business performance solutions to customers that were not quite ready for a full co-employment solution, this encompasses to another one of our goals and the strategy leveraging more than 20,000 face-to-face meanings with business units this year into a high percentage -- higher percentage of paying customers that maybe up sold overtime. So all of these growth initiatives combined to reestablish momentum at a solid pace but one of an area of emphasis played a critical role in recent results and reserves from discussion. Last year, we prioritized and incented a company wide effort to reduce operating expenses to right size the cost infrastructure to position the company for better operating leverage going forward. As Doug mentioned, over the course of the year where we were successful and taking cost out of the variety of areas and holding staffing levels, the lows of Q4 unit growth rate. The combination of these lower costs and the growth acceleration resulted in a return to EBITDA growth rates in Q4 that the business model is designed to produce. So starting the New Year with a lower cost base and with a successful year-end transition behind us, the table is set for a very strong 2015. Based on our starting number of paid worksite employees in January, we expect our unit growth to be about 10% in the first quarter and 10% to 12% for the full year and these unit growth rates are business model has historically produce strong rates to a growth in EBITDA and EPS. We are confident in our outlook for 2015, but even more importantly we are encouraged about what these recent results mean for our long-term strategic plan. We completed our dynamic transformation of our business by providing one product to a perfect big customer at just the right time to providing a wide array of business performance solution to meet the needs of just about anyone we call on whenever we call them. This shares required an entirely new selling motion integrating cost selling and taking a very different approach with our cost pay making this change took more time and more integrations than we expected, but our recent results validate we have completed this transition and is on to the basic walking and tackling to simply growing the sales force to drive results. This new platform for growth is much larger and more diverse and has much greater potential for the future. This platform includes multiple unique solutions for companies with over 100 employees which essentially doubles our target market for potential worksite employee. This in fact will include a wide array of services that allows for our customer for like strategy to meet customers where they are and grow with them throughout the lifecycle new business. This is platform and sale system gets a much wider net to reach far more customers with multiple products and serve them for a much longer period of time. Overall, our strategy was not a plan for incremental growth, but the establish of platform to become a much larger business in the future, this platform incorporates products, channels and market segments we can continue to develop and penetrate for long-term sustainable growth for many years to come. Our recent results validate the merit of this strategic plan. The model is now place to add business performance advisors at a low double-digit rate year after year in a key consistent predictable growth in units, EBITDA and EPS. The difference in this new model from the old is the unit growth rate premium we can achieve to a mid-market sales and the additional EBITDA premium we expect from our strategic business units as they grow. The demand for our wide array of services is strong and building the value of our premium co-employment services evidence. As breadth, depth and level of customer care of our offerings continues to produce the highest gross profit per employee in the marketplace which validates our premium service offering. As we look ahead, we also hope to benefit there is a nice tailwinds we expect from the economy, outperform and small business efficiency which passed new Congress and sign by the President near year-end. Our recent survey result show a decent level of optimism in the small to medium size business community and the developing need for new employee, overtime pay as a percentage of base pay was nearly 12%, which is historically high enough to encourage hiring of new employee. The effective healthcare reform on businesses will be cascading down state-by-state and company-by-company over the next several years, at this point the bubble of additional operating expense as a result of healthcare reform is behind us and the opportunity to help businesses deal with this change is in front of us. We believe healthcare reform will continue to be a reason for customers to seek on aspiratory which will support our growth. We’d also had a very welcome surprise in December at the small business efficiency act which we’ve been trying to pass since 1994, finally became the law of the land. This law provides federal recognition of the PEO industry and the co-employment relationship we help to create in 1986. This will also eliminate a double payment of taxes which occurs on any new client coming into a PEO relationship at any time of the year other than January 1st. We believe the pass of this bill will be significant with prospective clients and their advisors and allow us to save tax expense which translates into better pricing or margin. At any event the bill validates our industry may lead to greater acceptance in the marketplace. So in summary, we are excited about the recent results and with the underlying trends suggest for 2015 and the years ahead. We’re executing well against our strategic plan and our broad platform for growth and profitability is in place. At this point, I’d like to pass the call back to Doug to go over our guidance for 2015.

Thanks Paul. In providing 2015 guidance, now that our expanded business model is fully functioning and gaining momentum, we believe that it’s important for our investors to focus on the key metrics that reflect this new model. Therefore, we will focus our guidance on three annual metrics; average paid worksite employees, adjusted EBITDA and adjusted EPS. So beginning with the full year, as Paul just mentioned, we are forecasting a 10% to 12% increase in average paid worksite employees over 2014 resulting in a range of 144,000 to 146,400 average paid worksite employees for 2015. When combined with our expected client mix pricing, direct cost trends and operating expense leverage we are forecasting an increase in adjusted EBITDA from $84 million in 2014 to a range of $101 million to $105 million or 20% to 25% increase over 2014. We define adjusted EBITDA by adding back stock based compensation any non-cash impairment charges and interest income. We are forecasting 2015 adjusted EPS which we define by adding back stock-based compensation and any non-cash impairment charges of $1.82 to $1.92. This is an expected increase of 26% to 32% over 2014 adjusted EPS of $1.45 when adding back the $0.26 per share associated with the 2014 stock-based compensation. Previously, we have not presented adjusted EPS including the add back for stock based compensation however we plan to do so going forward given that this treatment is in line with how our peers present adjusted EPS, and we believe is the appropriate metric for our business. As for the first quarter based largely upon the positive impact seen in January and early February from our successful year end selling and renewal season, we are forecasting a 9.5% to 10% increase in average paid worksite employees over Q1 of 2014 resulting in a range 138,300 to 138,900. We are forecasting a range of adjusted EBITDA $33.5 million to $35 million for Q1, or a 37% to 44% increase over the first quarter of 2014. The Q1 adjusted EPS is projected in a range of $0.65 to $0.68. As some of you are aware, Q1 results are typically higher than subsequent quarters due to seasonality in our gross profit and in particular our payroll tax benefit areas. Recent favorable trends in these areas are contributing to our expectations of 51% to 59% adjusted EPS growth over Q1 of 2014. In conclusion we are very encouraged by our recent results and 2015 plan. And we look forward to updating you on our progress throughout the year. Now as this time I’d like to open up the call for questions.

(Operator Instructions) Our first question comes from the line of Tobey Sommer from SunTrust. Your line is open.

Thank you. I am curious about the expandable more stated addressable market that you have as a result of really kind of getting momentum across the traditional bundles and the new services. Are you going to be able to wider and amplify the target market into the blue in great or is this still going to be a white collar focused portfolio services?

Our target, Tobey thanks for the question, will continue to be customers that have more successful businesses and have lower risk which has always been the essence of our target market company to have a definitive getting better agenda and understand the role people play in the success of their business. But our expanded target really comes from solving the market puzzle. As we’ve had in our history, our original focus was the kind of the 100 employees of less and there is about 29 million employees that work and knows businesses and range from basically five to 100 employees. But when you get to that next group where we automatically have people grow into mid-market and now that we have a wide set of solutions for mid-market companies both co-employment and traditional employment it opens up that next group of 100 to 2,500, maybe 5,000 employee groups and there is another 30 million or so employees that work there. So we’ve literally doubled the size of our target market by solving for mid-market. And we are now in the situation where we have I believe the most well developed midmarket sales and service model for our services in the marketplace way ahead on that. And I think that’s going to be quite a competitive advantage going forward.

Thanks Paul. Can I ask you a question about the small business efficiency act, does this specifically open up new states that maybe you didn’t like their states specific rules prior and therefore were uncomfortable and maybe didn’t think like it was worth entering? And then maybe if you could comment about what it could mean for sequential growth in your quarters within the year and maybe eventually moderating the importance of the fourth quarter selling season. Thanks. A – Paul Sarvadi: Thank you, very good question. I do believe that just a stamp of approval and the clarity that comes out from having the small business efficiency act allow for PEOs to be certified really it plays a big role in prospects potential clients, their advisors, but I do it extends to state regulators et cetera. I don’t expect that to automatically open up a market for us, but in the long-term this will be much better in continuing to develop the legal and regulatory infrastructure for our company and our industry. To your question about how it might affect growth going forward, the elimination of this of the tax related double payment that applies to new customers that come on it anytime a year other than January 01, I believe it can play a factor overtime in even in our sales effort without a quite as much focus on the year-end. And I think that’s good for the model as well. So it’s always been kind of a hurdle passage you get into the middle of the year when people recognize there is going to be a double payment of tax and even though we absorb most of it customers absorb part of it and lot of customers who differ after the year-end. So the roles and regs of going to place, this summer for a Jan 01, 2016 start and I do believe overtime will benefit from higher level of sales because of the validation more even out sales throughout the year because of the elimination of the double tax and like I mentioned in my script either better margins or lower price for the customer because of the savings from the tax.

Your next question comes from the line of Jim Macdonald, First Analysis. Your line is open.

I got kind of little bit, I might have missed this but did you talk about what your ABU contribution was in the quarter and what your loss expectations for the ABU for 2015?

We didn’t go to that level of detail other than we have talked about had essentially a 19% growth in gross profit contribution from the portfolio over the course of the last year. We do expect as part of this 2015 plan to have a nice contribution really all the way at the EBITDA line from that portfolio growing again in that range and the fact that now there is leverage in those businesses as well. So that was kind of part of the game plane we talked about for years that there is a point in which comes out of the water and you have certainly the recurring SPUs really starting to contribute at the EBITDA line and even the more recently established SPUs starting to trend positively. So that’s definitely a part of the game plan and working as expected.

I presume there still be from ABU but you are not going to in but should be much less than 2014 right?

Yeah exactly, like I said that you got two groups of companies that we look at they are referring the new where we experienced a bulk of loss investment in HCM et cetera, that those are turning the corner now we will lose less, but the recurring SPUs they are really starting in Jan five out of seven are making money already and they will be much better this coming year. We really not going to provide specifics on that because it’s really the whole this new platform has a lot of different moving parts and our game plan is to manage with the right growth rate, manage to the right level of adjusted-EBITDA wearing all the factors in from our historical direct cost and managing pricing and the SPU portfolio and of course managing the operating expenses to get to the right adjusted-EBITDA numbers.

And one think I may have missed it, but did you give you how you did on health cost side this quarter and maybe also impact of the ACA on your under sales in the quarter?

Yes, I mentioned a little bit and will pass to Richard just to talk a little bit about the trends et cetera on direct cost, but yes we expect to have a tailwind from the ACA and was really change in that front, as you all know at one point health reform was going to land on the marketplace almost all on one date of January 1, 2015, but with all of the changes that took place and the delays it's now really healthcare reform is cascading down state-by-state and literally company-by-company based on when the renewal dates are et cetera, that’s actually much better for us because we couldn’t get to the whole marketplace on one given date, but we have seen where the ACA and its impact on individual companies is certainly another part of the discussion, it can be a door opener. We’ve made a significant investment historically to be ready to do everything that’s required and that investment is behind us and so the benefit of the investment in terms of growth adding new customers is right in front of us. So, we believe its part of the tailwind that will help us benefit from our new platform that’s in place.

Yes and Jim, we didn’t specifically go into the details about benefits, cost and all that stuff in the fourth quarter and even in the going forward scenario, but the fact of the matter is that we actually had right negative trend in the fourth quarter. All the things that we’ve been doing throughout 2014 to put us into a position as it relates to the changes that we made with our cohort program, also our client cohort renewals and certain targeting of customers that didn’t seem to put our profile anymore -- all of those have been very successful in 2014. And so as we go into 2015, we are seeing very nominal trends or increases in our healthcare cost offset by a little bit of higher than normal workers compensation and better than expected results because of unemployment taxes are going down in 2015, compared to 2014. So it gives us a nice platform to help contribute to that adjust EBITDA number that we’re going to be targeting.

I will sneak one more and then I’ll get back in queue and how you accounted by your strength in the mid-market, could you give us any more details of how the mid-market did it year-end and going into 2015?

We had a great year last year, as mentioned 85% increase year-over-year in mid-market sales and we also did a really nice job on the retention side, the opportunity to offer multiple solutions to both current and new accounts where customer self-select into whatever model they feel their need is at the time that will process is really, really gaining some traction and we’re ready to expand our selling operation to where we can try to move that up this year. So it was very good and we’ve already kind of had a full debrief on that and worked through our plan for improvement in that area for 2015 and we’re very excited about where that segment is going.

Your next question comes from the line of Mark Marcon from R.W. Baird. Your line is open.

Good morning. I was wondering if you could talk a little bit about the gross profit for worksite employee trends that you expect for ’15. And also that was the big area of outperformance relative to the expectations for this past quarter, so just wondered if you could also give some detail in terms of the key areas that are not performing their relative to your prior expectations?

Yes, Mark, as I mentioned in from last set of questions, our expectations for gross profit in 2015 are going to be driven primarily by the positive outcome that we had in 2014 and our healthcare cost trends which are the result of the COBRA administration changes that we made at the beginning of 2014 and some other pricing adjustments that we made, we are also going to expect to see some upside our payroll tax companies center and that will be offset primarily by amount of small increase in our workers compensation cost for 2015. So, when we think about gross profit obviously it’s from one period to the next, we have the cyclicality that we’ve always experienced and that will be in there as usual. But in total it should be very comparable to prior years.

So I am sorry does the gross profit for worksite employees posted that’s going to be up for this coming year is it not?

Well, I would say that with all the factors that we have at this stage of the ballgame if it ends up being better than it was for 2014 it will be because of the upside that comes from better than expected experience throughout the year but moving here to the next we don’t -- we never target much of a change from the end of one year to the beginning of the next year unless we know that there is things that are going to be drive and that like we did last year going into the 2014.

So the EBITDA guidance is that you gave is not predicated on an improvement on gross profit for worksite employee?

Mark I think historically as you know when we started New Year we made fairly conservative assumptions around some of those insurance based cost areas and allow for claims activity develop over the year and hopefully present us with some upside. But the model and the way it produces at the EBITDA line is driven by the growth and operating expense leverage and no we are not incorporating into this plan some additional benefit to be better off at the gross profit line that’s what we’re doing.

So with regards to this past quarter with the gross profit coming in better the top two drivers were?

Well, the gross profit coming in better which Richard has mentioned we had better trend in the benefits area similar to what you just said about ’15 but this is better in the benefits area, little worse on the workers comp side as we expect all about all year the cash been trending a little bit negatively and then the payroll tax component and then of course there is a lot more contributed to that gross profit line now with the SDU portfolio and that continues to be a nice third contributor to the gross profit and we expect that to continue.

Okay and how are the service fees?

Service fees were solid just like we had forecasted.

Okay, great. And then with regards to the EBITDA guidance and the significant leverage there. What are the operating expense lines that we would expect to see decline over the coming year?

I think generally speaking Mark we’re looking at 10% to 12% unit growth if you look at it historically that’s where we get the leverage on the operating expense side. We talked to you before previously about how our operating cost the structure the variable versus the fix the variable being the growth in the BPAs which Paul talked about continuing to grow the BPAs going forward, service personnel will have to grow somewhat in conjunction with the worksite employee growth so we hope to get some leverage in that area also. But the leverage is going to be on the G&A side and I think on the advertising side we’re targeting more on the advertising side moving away a little bit from the brandings that we’ve done in the previous year since that’s been established at this point. And so, little bit of savings in that area. But overall it’s all about getting the leverage on those fixed cost and we have that incorporated in the 2015 budget as we would in the previous years when we were growing in the double digit unit growth ranges.

Great…

I think I would just add to that Mark you had over the course of last year we have quite an effort just to trim cost out and get the starting point into a better relative position and we kept our corporate staff growth down below the what ultimately turn into about a 5% unit growth rate at the last quarter. So you’ve already seen some leverage in the quarter that becomes a starting point for the year and we expect to continue that emphasis as the year goes on. And this is how the model is supposed to work I think this is really pertains some great things for us in the years to come.

Your next question comes from the line of Michael Baker from Raymond James. Your line is open.

Thanks a lot. Richard I was wondering if you could give us where costs trend ended up for 2014, what’s you’re looking forward for 2015?

Yes, the cost trends were let’s say they were about 2.5% is what my recollection was for the full year and we actually don’t see much difference going into 2015.

Okay, and then for Paul the question I had was at one point you were considering whether or not you needed any spend depending how the public exchange or these exchange options to smaller employers around health care evolved. Now you are indicating that that’s behind you. I am just trying to understand a little bit better where healthcare please the overall selection and why the change in stance at this point?

Really that had a better change in stance on that. We did invest in an infrastructure to support the insurance element for customers that may not want to be a part of our co-employment structure. So we have a division, we have invested it in already is now baked in to handle other options that customers may want to consider.

Well plus all the reporting, there is a whole slew of reporting that began January the 01, 2015 and we built the infrastructure and the technology in 2014 to be able to accommodate all the reporting for our customers as they go into 2015 and beyond. And no matter of fact some of the reporting is on a pro forma basis, so we can give customers a heads up about some potential issues that they might be experiencing because of the size of their employee base. So what we are referring to is that all now baked into our cost structure going forward.

I think the other question you had and that was about the potential of private exchanges et cetera as an avenue for customers and of course in the large business this is been pretty good movement that direction, we haven’t seen that move down into our target very much but we are prepared if it does. I think the cost to integrate those type of solutions has come down as there are platforms out there to rent if you would. So we’re in good position. I think health performance is on people’s mind is this absolutely have a good people discussion about the whole HR infrastructure that company has in place and should be a driver for us going forward.

And then in terms of do you see any potential opportunity this year given that dynamics of change that you have already spoken about in terms of that the Supreme Court strikes down the federal subsidiaries increased some uncertainty?

Our whole business is predicated on the growth in government regulation and legislation in company haven’t try to deal with things as they changed. And so we out of that make some motions when they get in the middle of it in and make changes but we are prepared group of people that deal with that every day and make sure we are ready to handle such things. Any kind of disruptive event in the marketplace like that present an opportunity and we will be ready for it.

Okay, and then in terms of your new sales on the PEO side this year compared to last year can you give us a sense of average change in size of those businesses, if you see any growing of the size service fee?

Average account size has been trending larger and I think that also is serene dippy to us result of providing wide array of business performance solution that make customers where they are and can be bundled together with our co-employment solution. So the whole array of services is more attractive to larger customers. And so we have seen some move up on that front and we expect that to continue.

And then just finally if you could give us a sense because there have been some questions and I understand you may not have what we call a first derivative linked to it but obviously given exposure in taxes, any color on what you are seeing ground level.

Are you referring to the…

Oil and gas.

The oil prices et cetera?

Yeah.

If you recall our target market is in customers that have a lower employment risk profile. So far most of the effect from lower oil prices is affecting what I would call over the whole rig shutting down scaling back those are oil field service companies and it’s not a target for us and we haven’t seen any effect from that as a result.

Your next question comes from the line of Jeff Martin Roth Capital. Your line is open.

Thanks, hi guys’ congratulations on a successful transition this year, it’s good to see. This question is for Dough, I noticed on the balance sheet there was a shift in workers compensation accruals from short-term liability to long-term liability, I was just hoping to get some insight into the mechanic for that and if there is any P&L impact?

No P&L impact at all, it’s just an estimate of those claims that are expected to be stay within one year and those beyond one year so the balance sheet re-class only. If you will look at the restricted shares, I mean restricted cash in the assets versus the short-term liability, are pretty much offset in the workers comp deposits of a long-term asset which offset to a large extent the workers comp long-term liability. So truly a balance sheet reclass…

Does the shift from short-term to long-term imply that you're expecting a longer duration average for a client?

I won’t say there is any expected significant shift. Just an estimate from year-to-year on short-term versus long-term, but then the material shift in the program itself the program is still operating very effectively and the balance sheet shows that our funding metals are more than sufficient and conservative relative to liabilities on the balance sheet.

And then Paul you mentioned Paul you mentioned hiring more business performance advisors hired significant percentage increased about two years ago, what kind of ramp are you expecting to add and is it going to be a similar size?

We only expected to this year’s ramp up to about 400 hired business performance advisors by year-end. So, we’re pretty even over the course of the year, the exciting news on that front is there are trails of rate going down to 26% which what we were hopeful that having a wider array of solutions and selling more things more often would be a more positive environment and we would be able to retain business performance advisors effectively, so far it's nice early returns on that front. I think it will be the biggest difference this year in growing the base of advisors is the ramp up in effectiveness because we’ve learned so much in this last iteration, we’re really excited about being able now to ramp them up on a pace that makes them contribute quite a bit earlier than maybe this last group that you were referring to and we ramped it up quite a bit couple of years ago. So again improve that training and direct district manager training which effects the management of those new and learning business performance advisor, so we believe we’ve got that in shape now to where it becomes the point of the shift for our growth over the long-term.

And then again just the Q1 guidance that you gave, could you provide that again real quick?

Yes, so on the units we’re forecasting 9.5% to 10% growth over Q1 of 2014 which gets us to range of 138,300 to 138,900, adjusted EBITDA between $33.5 million to $35 million or 37% to 44% increase over Q1 of ’14 and Q1 adjusted EPS in the range of $0.65 to $0.68 but we compared apples-to-apples to the adjusted EPS than Q1 in the prior year that’s about 51%, 59% increase.

And what kind of tax rate should we assume for the full year?

I think similar going into the year similar to 2014.

That is all the time we have for today, I would now like to turn our call back over to Mr. Sarvadi for closing remarks.

So once again thank you all for your interest and we look forward to -- we’re going to be out on the road quite a bit this spring to talk with investors and we hopeful to see you in -- look forward to updating our results as we go throughout the year. Thanks again for participating today.