Good morning. My name is Tom, and I will be your conference operator today. I would like to welcome everyone to the Insperity Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 morning's call. First, I'm going to discuss the details behind our second quarter 2025 financial results. Paul will then comment on our second quarter results, the ongoing implementation of our Workday strategic partnership and our outlook for accelerated growth and improved profitability in 2026. I will return to provide our financial guidance for the third quarter and full year 2025. 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 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. This morning, we reported second quarter EPS of $0.26 and adjusted EBITDA of $32 million. These results fell slightly under the low end of our forecasted range by $0.03 per share and $1 million, respectively, primarily due to a continuation of higher-than-expected benefits costs. I will provide additional details in just a minute. Our unit growth was within our forecasted range with an average number of paid worksite employees increasing 0.7% over Q2 of 2024 to 309,115. Our sales force demonstrated resiliency and solid productivity in a market that continued to face many economic uncertainties. Worksite employees paid from new sales increased by 2% over Q2 of 2024, reflecting an increase in sales efficiency from a team that is smaller and more tenured…

Thank you, Jim, and thank you all for joining our call. Despite our reported Q2 results and the lower guidance for this year, we remain confident in our outlook for accelerated growth and improved profitability in 2026. This is due to several reasons I'll cover today, starting with the growth momentum recently achieved and the drivers we expect to continue growth acceleration over the balance of the year and into 2026. I'll also cover our updated HR solution portfolio announced yesterday and our excellent progress on Insperity HRScale, our new joint offering being developed through our strategic partnership with Workday. I'll finish with the robust plan we are executing over the balance of the year and continuing into next year, leading to our positive outlook. The highlight of the first half of 2025 is the resilience, agility and focus on sales and retention amid a complex and shifting market landscape. We successfully addressed the evolving uncertainty experienced by small- and medium-sized businesses resulting from macroeconomic tariff and policy developments in the first half of the year and challenges from -- stemming from specific insurance carrier publicity issues in Q2. Even though year-over-year growth in paid worksite employees was 0.7% in each of the first 2 quarters, an underlying increase of more than 3% occurred from the low point in February through the end of July. All 3 growth drivers, including sales, client retention and net hiring with the existing client base contributed to this growth acceleration and were stronger than last year. Booked sales also showed relative strength in the face of some significant headwinds, which we accomplished with 11% fewer trained Business Performance Advisors, selling a slightly greater number of worksite employees than in the same period last year. This sales efficiency improvement of 13% in Q2 validated the…

Thanks, Paul. Now let me provide an update to our full year 2025 outlook. As Paul discussed, we have started to see some modest worksite employee growth acceleration in recent months. In addition, there are indications that clarity around tax policy has buoyed small business economic sentiment. At the same time, we remain cautious about the level of net hiring in the existing client base. For the full year, we are now forecasting worksite employee growth of 1% to 2% over 2024. Given the higher benefits cost trends experienced in the first half of the year and more broadly seen in the marketplace at large, we are raising our forecasted range of benefits cost per covered employee by 75 to 100 basis points for the full year. We anticipate that the benefits cost trend will taper down from the 9% we have experienced in the first half of the year for 2 primary reasons. First, year- over-year comparisons in the first half of 2025 were impacted by last year's favorable claims development, and that impact should subside in the second half of the year. In addition, we continue to see favorable changes in our planned demographics and planned migration that historically have helped to favorably impact benefits cost trends. We continue to expect that operating expenses will decline slightly sequentially in each of the remaining quarters. For the full year, we expect that operating expenses will be an overall reduction compared to 2024. This includes planned spending on the implementation of the Workday strategic partnership, which we expect to total approximately $58 million in 2025 versus $57 million in 2024 and additional marketing spend for our fall sales campaign. For purposes of adjusted EPS, we are forecasting an effective tax rate of 29% for the full year 2025. The effective…

[Operator Instructions] And your first question this morning is coming from Andrew Nicholas from William Blair.

I wanted to first ask about Workday. I appreciate all the updates there and also the new kind of branding of all the solutions. I'm just curious in terms of -- with the beta timing now seemingly locked in, just wondering if you could speak to maybe a line of sight for 2026 financial impact or anything on that front that you could share to give us a sense for how much could benefit profitability and growth next year?

Yes. Thank you for the question, Andrew. I appreciate that. And we are super excited about our progress in that direction, but it's a little early to lock down and to precisely predict the actual revenue and profitability impact. We are starting with the beta group that I'm really excited to announce today has a target date early in the year. We will have -- our next step is to have 2, what I'll call, waves of additional client groups being added throughout the year next year, a group of new clients that I'll even call new beta clients because that's kind of the way we need to look at that. And then another group of current clients that will be identified and will roll in sometime later in the year. But we also have just now received all of the information that we need for the pricing elements. And that is also super important, and it was -- as I mentioned in my remarks, it exceeded our expectations on how different elements are valued. Frankly, the value of the service component was even higher than expected. And the ability for the clients to look at the different pieces of what we're offering and our ability to price those accordingly, including upfront fees, ongoing service fees, ongoing technology support fees, fees for adding technology elements over time, there's a lot of pieces to it. And now we are in the process and will happen over this next quarter, we will lock down what would be called our -- I guess, I'd call it like a recommended pricing for clients at different sizes, different levels, et cetera. And then we'll be able to more closely determine what we will actually apply in pricing to these groups of clients that are being such an important part of our launch path. And obviously, we won't -- we will give advantages to those clients to come on. But the reality is this is validating our long-term plan for really solving our success penalty of having companies grow out of our business model and having a great new avenue for new clients that are much larger coming into the company. So we'll be working on how this will be modeled in the future because I know that's an issue for you all as well. But we still have to go through some other processes to start to give some direction on that.

Understood. Maybe switching gears a little bit to the WSEE dynamics. It sounds like there is some progress at least from the low point in February. I wanted to ask specifically about the net client hiring piece. Is that something that you've seen improve sequentially over the last couple of months? Is there anything that you could say about regional or vertical dynamics there? And is there an expectation that, that continues to improve over the course of the next couple of quarters?

Yes. So the good news is that we have seen underlying hiring at a higher level than what has been happening. Now some of what happens this time of year is a natural summer help element and other things. But we can -- in our analysis, we see that underlying there, there is movement in the right direction. It's still well below historical levels. But I also believe the confidence level we're already hearing and seeing even post the legislation I really feel like we're about to see a release there. Now we haven't budgeted a lot of that in to our model going forward the balance of the year. But we do believe that things are already better. Out of that -- this first half of the year, there was only 1 month that was somewhat of a negative. So that's good. That's moving in the right direction, and we're going to do all we can to help our customers continue to grow.

Your next question is coming from Tobey Sommer from Truist.

At this juncture, do you think that the original $150 million investment is still the right number -- and do you, at this juncture, have better visibility into how much of that Workday associated expense will go away entirely and fall back to the bottom line?

So Tobey, thanks for the question. I do think that the $150 million expense, when we put that out there, I think largely our focus was on the cost, not only to get to go live, but to think about kind of the -- what was going to hit the income statement. I do think we're going to get to a point where we do see that there's going to be a product development road map beyond launch, but we also believe that we're going to be at a point where those expenses become capitalizable as we get closer to launch. So I would say over the 5-year period, the overall investment in the product is likely to continue to be a little bit over the $150 million, but I also think that the impact on the income statement will reduce pretty significantly. At the same time, I think it's important to recognize that when we move into this launch phase, the beta phase, I would call it, you expect that you're going to have to muscle through some level of kind of working issues with the beta clients. One of the reasons you're going through this process is to make sure that you're building out very smooth processes and stuff. But we're not expecting that those are going to be perfect in that first beta launch. So we do think that from an operating cost standpoint, there's a little muscle and through that will happen in those early phases and then that there will be growing operating efficiency on that front over the first several years of the launch.

Appreciate that. On the margin profile of the business, I kind of want to ask a question that allow you to incorporate your -- what you've learned about pricing opportunities without necessarily giving us the numbers. Paul, do you feel like at the end of this exercise, and we can call it 2 years from now, 3 years from now, whatever we're like kind of up and humming, that the margin profile on a per worksite employee basis as well as margin profile at the corporate level on the income statement is better than it has been historically, the same or lower?

I believe this is my opinion based on what I understand in terms of the progress we're making and even this new information we have, but I would expect it to be better. And we are literally seeing validation of the premise of this investment. And what I mean by that is, obviously, retention is your lowest cost new business. And that retention step-up that I see from this effective execution over the next few years is going to be significant in my view. Now in addition to that, though, specific to margin, you're looking at bringing on much larger clients at pricing that is even higher than I presumed in just the penciling of the possibilities. Now it will take a little time to ramp up to that as we develop the solution and -- but I see that happening as well. And so like I say, it's the trifecta for our business model. It's growing the company faster in bigger chunks at a time at higher prices. That means our historical operating leverage that we've had because the technology is better, I think that ultimately enhances our business model as well. It's just at an early stage for us to lock some of that stuff down. But I appreciate the question. And I will just say that, that's exactly what I see ahead and what we're working to accomplish.

Your next question is coming from Jeff Martin from ROTH Capital Partners.

I wanted to dive in a little bit to the launch of the joint marketing here. I mean it just -- it seems like you're going to be spending a good portion of your time and resources in 2026 on getting these beta clients launched and things smooth out, bringing on some new clients. But how do you look at the joint marketing go-live versus the ability to sell and turn those clients on in a time frame that makes sense?

Yes. So if you think about the typical scenario for a company who's having these types of needs, let me just remind you what we have validated is there's a deep need in this target marketplace for both services, HR services, having a better HR function, a strategic HR function that's really working and the technology to help make that happen efficiently and effectively. And so if you are such a client out there today, in order to move that direction, the amount of time that it takes, the amount of investment it takes, the amount of complexity, it's all very difficult, takes a long time. And most companies have a mixed bag or a hodgepodge of components that they're trying to make all this happen. And we're bringing them a rifle to nail this down and have ultimate scalability on both the service and the technology side. Insperity HRScale is the perfect name for this. Now if I'm one of those prospects and I look at -- wait a minute, you're telling me that Insperity and Workday are totally committed investing significantly to having this solved for me long term. Hey, I want on. I want on that ship. And if it takes me even 18 months from now, that's how long it would take me try to do it myself and piecemeal this thing together and it would cost more, and it would be a lot harder. And I don't really have the people to make that happen myself anyway. I'm telling you this is what we're seeing in the marketplace. And I'm fully -- you can hear me, I'm excited about the fact that we get -- we've been talking to prospects already. They connect immediately conceptually to having these 2 great companies help them solve this for the long term. And to be a part of it and to get in this queue, I think, is going to be a desirable thing for these prospects. Now that we're going to be able to lock down how we can price and offer the right kind of incentives to be a part earlier, maybe be the early adopters. That's great. That's an excellent step in addition to that. But I just believe we see the demand out there and the need. I wouldn't even call it demand because they don't know the solution is out there yet, but the need for what we're bringing to the table is clear and the value of it -- perceived value of it, we believe, is going to be high. So that's why being out there now, having our team already out there having these conversations and being able to get this on people's plate to put in their plan for the future is very appropriate, even though we're launching the beta group early next year.

Great. And then one other here, if I could. I think you said the sales force BPA count is down 11% year-over-year. Sales efficiency drove a 13% sales efficiency ratio, which is encouraging. How are you thinking about growth in the BPA base over the next 12 to 24 months as this joint solution becomes really more prominent in the sales effort?

Yes. I believe this is the first time that we're going to have what I would call operating leverage on the sales side of the business. We are going to grow the BPA base, but nominally, not near at the pace we had to in the past. Once we get this in place, we're already having good success in the mid-market space. And this is going to enhance that and allow for us to grow the business, the worksite employee growth, the unit growth more rapidly with fewer BPAs. So that's the game plan. There will be some growth pretty nominal for the balance of the year and into next year. But the efficiency gain that is evident is another reason why we are really ready to market more heavily and get more opportunities into the hands of these BPAs whose effectiveness is at a high level.

Your next question is coming from Mark Marcon from Baird.

I have a couple of questions. So Paul and Jim, thanks a lot for all the detail with regards to the health care cost. Obviously, everybody is seeing the same thing and facing the same pressures. I'm wondering if you have any preliminary thoughts with regards to -- when you look at a combination of plan design change versus pricing versus getting some more favorable treatment from UnitedHealthcare. How do you think of that combination? And how much -- and specifically, how much would come from plan design change and how much would come from pricing? I know it's early days. And perhaps if there's any sort of regional differences, how should we think about those? And then I have a follow-up with regards to Workday.

Yes. Thanks, Mark. I appreciate the question. What I would say is when you're -- when the trends are running the way that they're running, the primary way that you're going to keep up and catch up on the trends that are out there is through pricing. What you're looking to do with plan design changes and trying to influence participant and client behavior on what plans they're selecting into and other things that we're working on the contract negotiation with United. Those are designed to limit the impact of the overall cost trend. But most of it, the majority of it is through the pricing changes. You mentioned regional differences. There's always some local and regional differences. Different carriers are stronger in different parts of the country and people have their eyes set on growth targets that may vary from state to state. So the process that we look at as we're going through things is dynamic from that standpoint. But I would not say that there's a part of the country right now that is not seeing the impact of higher trends.

Mark, Mark, I would add one more thing to what Jim is saying because it is important that pricing is the appropriate methodology to balance price and cost when the claim cost is what you're addressing. Now the contract discussions, though, are really important because if there's anything structural that needs to be changed to handle how we're affected by these things in the future, that is really important. And that's a central element of what we're dealing with and what we're working on with UnitedHealthcare. And now it does have -- once you make such a change, it can have an early term benefit to the picture that you have for -- but what's most important is that you are able to structure things in a way that help to mitigate against this in the future.

Really appreciate that. And then just with regards to Workday, if I'm hearing things correctly or interpreting things correctly, it sounds like we'll have essentially 3 waves of beta. Do you think -- does that mean that when we really start marketing in a broad scale to new clients or existing clients that, that probably would occur more towards the fall of 2026. I'm just trying to get a sense for that. And then with regards to the expenses associated with Workday, from a cash perspective, would you expect -- it sounds like you're not expecting a big drop-off in terms of the expenses around that because you'd still be at the relatively early stages of onboarding clients, testing things, optimizing, et cetera. So I'm just trying to understand that element as well. I appreciate any comments on those 2 elements.

Sure. Well, first of all, on the waves, I'm not going to get out ahead of the amazing team of people that are going to great lengths to go into great detail to determine the exact times for these other 2 waves. I have my thoughts about it. I have my feelings about, but I owe it to them to go through the work and to see the plan for this. Now on the other side that you're talking, even though, yes, there's costs that are going to be incurred. Jim talked a little bit about how we -- when you're doing it this way, you got to muscle through the first one, you want to make sure that the experience of these early new customers is really good. So you're going to definitely invest to make that happen. However, all this investment that I'm not an accountant in my view, a lot of this should never be going through the income statement. It's an investment for the long term of capital, but it's running through the income statement. Now there is a time when that gets mitigated through the rules once you have a new product that you know is developed and working. So I don't know when and how that works. Jim can comment about that if he wants. But I think between the combination of revenue that we're going to have coming in, I don't know when it can be recognized either yet. So I'm not the accountant, but between revenue coming in and being able to account for the expense side, I believe, more appropriately, I think we have some nice upside coming hopefully sooner than later.

If I add on to that just for a second, I would say -- and I've said this before, you've got costs coming from a couple of different categories. There are clearly third-party outside, specifically implementation costs. You also have a pretty significant amount of costs that are related to internal resources that are working on the project. And historically, when they were working on projects, they likely were working on things that were capitalizable and we are not capitalizing them right now. And then there's a third part of the costs that are going on right now, which are kind of the prebuild of operational expenses, onboarding and enablement teams, as an example, that are going to kind of transition over to working on actually setting up new customers. The difference between now and then is that we will have implementation fees that will be associated with that activity once we [ get ] to launch. So that helps.

Your next question is coming from Andrew Polkowitz from JPMorgan.

I had 2 questions. The first one, I just wanted to ask, in terms of the 3Q and 2025 outlook, what's the range of outcomes embedded from a health care cost trend perspective kind of hitting at the low and high ends of your EBITDA and EPS guidance?

We have focused obviously more on what we -- where we think we're headed for the year. The year-over-year comparison to last year will have a lot more to do with that trajectory towards that number compared to what happened last year. So we think it's going to normalize a little bit from the 9% year-to-date that we've seen in the quarter or in 2025 so far. But I personally don't get too caught up in what the actual specific quarterly trend is, but what are we aiming towards on the annual trend. And compared to our prior forecast, we're looking at 75 to 100 basis points higher than that.

Yes. I think I would just add, if you remember a quarter ago, we kind of we said that the low end of our range related to kind of a continuation of the elements that were driving costs up in that first quarter. Now the stuff related to last year, that all kind of got washed through. But when we looked at the numbers from this quarter, we said, hey, that can't be -- that high end of our range is the way it came in. And so you've got to adjust for that for the balance of the year, and that's what we did by adding the 75 to 100 additional basis points.

Okay. That's super helpful. And then my follow-up question, I wanted to ask a little bit about renegotiations with UnitedHealth. Just wanted to get some color on kind of what has been the outcomes in the past. Is it really about plan design, visibility or earlier visibility into data trends, price risk sharing? Just wanted to kind of understand what the range of potential outcomes for Insperity can be.

Well, if I just look at the big picture of our history, and Jim has been the person in the hot seat on that front for a long time and has done a great job with UnitedHealthcare. But I would say that we've gone from being just an amazing client for them and we've seen our actual administrative expense, et cetera, and our risk charges really at really low levels for what the industry sees. But we've kind of gone past that to being a very solid channel partner for them and have worked toward other aspects to the relationship to where we're more aligned on doing what we can together to grow. Now that was interrupted with some of these things happening in the marketplace at large. But I think that's what we're looking to make sure that we've got this relationship structured where both of our incentives are aligned around what we do together and that we benefit accordingly as we grow and manage these costs going forward together.

If I can add on to that, I think one of the real keys in the middle of this is when we have discussions like that around alignment, it is very often around what is the best situation for our plan participants. When we do things that are beneficial and advantageous to plan participants, not only is that a fiduciary responsibility we have, but that sets an environment that is good for us and good for UnitedHealthcare as we approach the market because it's no different than what we talk about from a cultural perspective of having a people-centric approach and a customer-centric approach. In this world, when we have a participant-centric approach, it's good for everybody. It's good for our participants. It's good for us in the long run. It's good for UnitedHealthcare in the long run.

This does conclude our question-and-answer session for today. I would now like to hand the call back to Mr. Sarvadi for closing remarks.

Once again, we would just like to thank all of you for joining us today, and we appreciate the questions and the detailed questions, and we hope we have provided information for you to see why we are so excited about the future and how we're looking forward to executing an important game plan for the balance of the year and looking forward to growth acceleration and improved profitability in 2026 and beyond. Thank you very much for participating today.

Thank you. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you once again for your participation.