Douglas S. Sharp - SVP, CFO, and Treasurer Paul J. Sarvadi - Chairman and CEO Richard G. Rawson - President and Managing Director.

James Macdonald - First Analysis Securities Corp Jeff Martin - Roth Capital Partners Michael Baker - Raymond James & Associates.

Good morning, my name is Lisa, and I will be your conference operator today. I would like to welcome everyone to the Insperity Third Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. (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; Richard Rawson, President; and Douglas Sharp, Senior Vice President of Finance, Chief Financial Officer and Treasurer. At this time, I would like to turn the 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 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. 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 third quarter 2014 financial results.

Richard will discuss the Q3 gross profit results and our fourth quarter outlook. Paul will then add his comments about the third quarter and our plan for the remainder of 2014. I will return to provide our financial guidance for the fourth quarter. We will then end the call with a question-and-answer session.

Now let me begin today's call by discussing our third quarter results. Today, we reported third quarter earnings of $0.33 per share which were $0.09 per share above the midpoint of our forecasted range. Adjusted EBITDA totaled $23 million and exceeded the midpoint of our forecast by 20%.

As for our key metrics average paid worksite employees increased 2.6% sequentially to a 131,545 for the quarter. Just below the low end of our forecasted range of 131,750 to 132,250. Gross profit per worksite employee per month averaged $255 above both the Q3 forecasted range of $243 to $245 and a $251 reported in Q3 of 2013.

Favorable results were largely due to our lower than expected deficit in our benefit cost center. Operating expenses totaled $86.4 million which was in line with our forecast.

We ended the quarter with a $119 million of working capital after repurchasing 197,000 shares at a cost of $6 million and paying dividend totaling $4.8 million during the quarter. Now let’s review the details of our third quarter results.

Revenues increased 4% over Q3 of 2013 to $560 million on a 2% year-over-year increase in average paid worksite employees. As for the components of our average worksite employee growth, client retention which averaged 99% and worksite employees pay from sales were generally in line with our Q3 forecast.

We experienced net hiring in our client base during two of the three months in the quarter with the average below our forecast but slightly higher than Q3 of the prior year. As you are probably aware we are currently in the middle of our annual fall sales campaign and are approaching our year-end renewal season.

And Paul will update you on our progress in these areas in a few minutes. Now for our key pricing metric, gross profit per worksite employee per month came in at $255 which was $10 above the midpoint of our forecasted range. And as I just mentioned the upside was largely due to favorable results achieved in our benefit cost center.

Benefit cost per covered employee per month increased by just 1.3% over Q3 of the prior year to $919 even when including $11 of incremental taxes associated with the affordable care act. Workers compensation cost totaled 0.68% of non-bonus payroll in line with our Q3 forecast.

Actuarial loss estimates resulted in $400,000 reduction in previously reported loss reserves in the third quarter of 2014. And this compares to $1.9 million reduction in Q3 of the prior year. Payroll taxes as a percentage of total payroll were 6.3% which is similar to that reported in Q3 of 2013.

Gross profit contribution from our strategic business units came in at forecast, and increased approximately 20% from $15 per worksite per month in Q3 of 2013 to $18 in Q3 of this year. Richard will provide further details behind our Q3 gross profit results and expected trends over the remainder of the year in a few minutes.

So let’s move on to Q3 operating expenses which totaled 86.4 million in line with our Q3 forecast. Operating expenses were flat when excluding costs associated with the HCM product development, healthcare reform, and an incentive compensation accrual which is largely tied to our operating result targets set going into the year.

Year-to-date operating expenses excluding a Q2 impairment charge and the items just mentioned has increased by only 1.2% over 2013. Now as a comparison to our additional budget coming into the year, total operating expenses excluding the impairment charge were approximately $10 million below budget.

Savings were achieved in various areas including corporate headcount, marketing cost, and G&A cost. Year-to-date combined marketing and G&A cost have increased less than 1% over 2013 and corporate headcount increased by just 3% as we worked to hold down operating cost while we accelerate unit growth to targeted levels.

Our affected income tax rate for Q3 was approximately 42% which was in line with our forecast and up slightly from the 41% rate in Q3 of 2013. Now for our year-to-date cash flow, adjusted EBITDA has totaled approximately $61.5 million.

Cash outlays included a return of $35 million to shareholders through the repurchase of 693,000 shares at a cost of approximately $21 million and cash dividends of $14 million. Capital expenditures have totaled $11 million through the first nine months of this year. At this time I'd like to turn the call over to Richard..

Thank you, Doug. This morning I will comment briefly on the details of our positive third quarter gross profit results and then I'll give you our gross profit outlook for the balance of 2014 and a big picture view of 2015.

Doug just reported that our gross profit per worksite employee per month for the third quarter was $255, $10 per worksite employee better than our forecast. The gross profit consisted of $185 of average markup, $52 of direct cost surplus, and $18 from our strategic business units.

Now let me give you the breakdown of the $10 per worksite employee per month additional contribution to gross profit. The average markup was $1 per worksite employee per month lower than our forecast. The surplus was $11 per worksite employee per month better than our forecast, and the contribution from our strategic businesses was right on forecast.

Now the $11 per worksite employee per month additional surplus came from the combination of $2 per worksite employee per month decrease in the surplus from the payroll tax cost center, a $1 per worksite employee per month decrease in the workers compensation cost center, and a $14 per worksite employee per month improvement in the deficit of the benefits cost center.

The shortfall in the payroll tax cost center was because the new business added during the quarter came in a little later than forecasted which always causes a short-term decline in the surplus until those worksite employees taxable wage -- unemployment wage limits are met.

The $14 per worksite employee per month significant improvement in the benefits cost center was the combination of a $5 per worksite employee per month lower than expected allocation, completely offset by a $19 per worksite employee per month lower healthcare cost.

The lower allocations continue to be impacted by worksite employees enrolling in lower cost and higher deductible plans which then translates into lower expense for us as evidenced by this quarter's results. The $19 per worksite employee per month lower cost was driven by several factors that we have been expecting to ultimately reduce our cost.

They are number 1, continued success in reducing the number of COBRA participants enrolled in our plan which is down 25% over last year. Number 2, continued migration of worksite employees to higher deductible plans and number 3, a reduction in overall large claims for the quarter.

Lastly, the gross profit contribution from our strategic business units came in on forecasted $18 per worksite employee per month, which is $3 per worksite employee per month better than Q3 of 2013.

The success of these small but growing businesses continues to support our long-term strategy of adding a third contributor to gross profit, enhancing our cross-selling opportunities, and increasing our customer base. In summary, we are very pleased with the third quarter's gross profit results.

So let me tell what we see for the fourth quarter beginning with the markup component of gross profit. Based on our third quarter and year-to-date average markup along with our pipelines for Q4, we expect the average markup for Q4 to be relatively flat. Now as for the surplus component of gross profit let's begin with the payroll tax cost center.

The surplus in this cost center should be slightly better than Q3 surplus, consistent with our historical pattern. Switching to the workers compensation cost center, we are continuing to see changes to the cost drivers of the workers compensation macro environment that I mentioned in our last quarterly conference call.

To refresh your memory they are number 1, significant increases in the cost of compounded medications used for injured workers. Number 2, a number of the states that we do business in have increased their monthly lost wage benefit payment to injured workers.

And number 3, people are continuing to work later in life then they used to and when an aging worker gets injured it takes them longer to heal and get back to work thus increasing both the cost of medication, and the extension of loss time wage payments.

As you know our practices for managing the workers compensation program and associated reserve have always been conservative and that is reflected in the cost reported this year and in our outlook.

On October the 1st we began a new policy year and we historically start each new policy year by making a conservative estimate of the expected cost and adjust quarterly based on actual experience and success for claim settlement.

Therefore for now, we’ll forecast an expense of 0.70% of non bonus payroll, slightly higher than our third quarter's results. As for the allocation side of this cost center, we are seeing slight increases in workers compensation insurance rates in many states due to the same factors that I just referenced.

Therefore we have begun to increase our allocations per new and renewing business. Now, let me tell you what we anticipate happening in the benefits cost center for the balance of 2014. On the expense side of the benefits cost center we continue to see an improvement in our year-over-year trend in the medical portion of our UnitedHealthcare plan.

For the third quarter, the cost increase was only 1.3% over the prior year. The factors that I mentioned a few minutes ago that caused our results to be better than expected should continue to positively affect our cost in Q4 and beyond. Therefore we are lowering our expense forecast for Q4 to a similar increase of 1.5%.

From a pricing perspective we plan to continue increasing our allocations at acceptable levels for both new and renewing business.

When you combine all of the forecasted direct cost surpluses in the range of possible benefits expense outcomes and the normal pattern related to deductibles and co-pays, we should generate a net surplus of $28 to $30 per works on employee per month for the fourth quarter.

Our last contribution to gross profit comes from our strategic business units, which have both a recurring revenue and gross profit strength.

Even though we have ongoing cross selling efforts and continued success from our channel opportunities, we will maintain a conservative forecast of $18 per worksite employee per month or gross profit contribution for the fourth quarter.

To summarize our outlook for Q4 we would expect our gross profit per worksite employee per month would be in the range of $230 to $234. Now looking up to 2015, we will be monitoring the mark up component of our service fee to see how our mix of business changes. As for the surplus component of gross profit we see more positives than we do negative.

For example, state unemployment tax rate should decline from 2014 levels which should translate into a nominal improvement in the payroll tax cost center surplus. Second, although we have experienced increase cost in the workers compensation cost center, we expect allocation increases to partially offset these cost increases.

Third we recently announced an extension through 2017 of our health insurance contract with UnitedHealthcare. In the new contract beginning January 1, 2015, when we achieve specific membership levels our administrative fees will be lower than our previously negotiated contract.

Fourth, we made nominal plan design changes and added a couple of lower cost higher deductible plans that cover worksite employees can select from. All of these items should help us to have lower healthcare cost trends than the small business marketplace as well as contribute to a potentially better gross profit result than we experienced in 2014.

At this time I’d like to turn the call over to Paul..

Thank you, Richard. We’ve been working throughout this year to position Insperity for a breakout year in 2015, to demonstrate the growth and profitability potential of our long term strategic plan. Today I would like to provide an update on the three critical initiatives underway which will drive our results for 2015 to achieve this objective.

First I will address the unit growth acceleration we are experiencing as a result of improving sales. Second, I will provide some color around our fall selling and retention campaign which is critical in determining our starting point and ultimate growth rate for next year.

And third, I will discuss our continuing efforts to align operating cost to allow for operating leverage as we ramp up our growth rate. We had some recent success driving our most important growth metric which is the number of paid worksite employees using our co-employment solution.

If you look at Q2, Q3, and our forecast for Q4, you will see a nice trend in sequential unit growth acceleration from 1.6% to 2.6% and 3.5% respectively. This growth acceleration is the result of improving sales.

We achieved a 100% of our budget for sales in the third quarter exceeding 10,400 employees sold up 38% sequentially over Q2 and 29% over the same period last year. These results included a record number of mid-market worksite employees sold, exceeding 3000 for the quarter.

Sales efficiency increased by 32% from 0.69 to 0.91 sales per sales person per month. Year-to-date sales are 106% of forecast and 15% over 2013. Core sales are 93% of budget year-to-date and our mid-market success in Q3 made up the difference in exceeding the total year-to-date sales forecast.

In addition core sales activity metrics are showing some serious momentum as business performance advisors gain experience. In Q3 the number of discovery calls increased 28% and the number of business profiles which are opportunities to bid our services was up 34% over last year on a number of core BPAs of approximately 290 in both period.

So we have accomplished step 1 in setting up 2015 by establishing growth momentum in paid worksite employees. In fact since our low point in this metric in February this year, we are up over 8% in just eight months which validates our ability to grow the business at substantially higher rates than our recent year-over-year growth rates would imply.

As I mentioned last quarter, in order to achieve growth rates we want in 2015, the most important factor is to not give up the gains we have had and expect over the balance of the year as we go from Q4 into Q1 of 2015.

In each of the last two years we fell back considerably in paid worksite employees from the year-end transition of new and renewing accounts.

Fully understanding why this occurred is important for our investors to understand for two reasons; first, this will answer why Insperity experienced single-digit year-over-year growth rates over the last two years.

But more importantly will help to understand why we expect much higher growth rates going forward more in line with our long-term historical track record of double-digit growth rate.

Nearly every year since our inception we have held the fall selling campaign to capitalize on the national inclination for small and medium size businesses to transition to our workforce optimization services at the start of a new year.

Because of this we have a higher percentage of our base of customers renewing their one year agreements at that time than any other time of the year. We typically see approximately 10% to 12% of the worksite employee base terminate their contract in the January-February timeframe.

This is 50% to 60% of the approximately 20% annual attrition rate we have experienced historically. Each year requires a successful fall selling campaign to offset the level of attrition that is concentrated at year-end.

The single most important driver of growth in our business is the number of business performance advisors out in the field calling out prospects and right behind that would be the sales efficiency which reflects the maturity of the sales force.

The size and efficiency of our sales team is most critical in the fall in order to offset the attrition coming at year-end. If attrition is closer to 10% than 12%, then you don’t need quite as many BPAs or quite as high a level of sales efficiency to offset the attrition.

When you are successful in this year in transition you are able to sustain the growth rates achieved throughout the year when attrition rates are much lower.

In each of the last two year-end transitions, attrition was at the high end of the range at 12% and we simply did not have enough trained BPAs at a level of maturity to offset the attrition at year-end. This resulted in the set back in each of the last two year-end transitions which gave back growth gains we had achieved during each of those years.

So the important factors for investors in Insperity today as we look ahead to 2015 is our outlook for this fall campaign and the likelihood of new sales at a high enough level to offset the expected attrition. The recent sales success and the momentum I’ve described today puts us in a much better position than any recent period.

As we stand today, we have three times the number of sold worksite employees in the queue to be paid in the coming months than we did at the same point last year.

The number of BPAs combined with the increasing activity and improving sales efficiency rates that come with an additional year of maturity points towards very successful fall selling campaign. Our outlook for client retention for the year-end is also encouraging but tempered with the level of M&A activity I mentioned last quarter.

The effective client selling or merging their businesses into a larger firm creates a success boundary for us unless we are able to engage with the larger firm for our services. Even with this level of M&A activity we are ahead on expected attrition for which we have notices compared to the same day last year.

However it’s still too early to tell if the year-end attrition will be closer to 10% experienced in 2010 and 2011 or 12% experienced in 2012 and 2013.

It’s also too early to tell whether fall campaign sales will be sufficient in the enrollment of these new clients will offset year-end attrition but we are in a much better place this year to build on the growth acceleration that has occurred to this point.

So we are cautiously optimistic we will enter 2015 with a substantially higher growth rate than the last two years which is step 2 at demonstrating the growth and profitability potential of our long-term strategy.

The third component of our game plan to position Insperity for a strong 2015, has been our work to align operating expenses with the size of our overall customer base and the mix of customers selecting our new lower price, lower cost offering.

So far due to this effort to control expenses we expect a total of 60 million in savings for this year from our original 2014 operating expense forecast. Equally if not more important is the effect of these savings on the starting point for next year’s operating budget.

We have kept the number of corporate staff nearly flat this year while growing the business 8% and we carefully reallocate positions to prioritize our investment in HCM Technology and healthcare reform. We also have budgeted for an increase in the total number of BPAs to around 340 as we exit the year to continue to emphasize growth into next year.

In the coming weeks we will work to a specific budget for operations for 2015. I can definitely say where you are in the best position of long time to see operating leverage as we grow into the coming year. So in conclusion we are very encouraged with the execution we have seen year-to-date in accelerating our unit growth.

We are excited about where we are in our fall selling and retention campaign, and our opportunity to carry our growth momentum into next year. And we are confident our emphasis on operating expense savings throughout this year has laid the ground work for operating leverage as we grow.

Our objective is to continue these positive trends and these three key initiatives throughout the year-end. We are successful as we expect we will be well positioned for a breakthrough in 2015 to demonstrate the growth and profitability potential of our long-term strategic plan. At this point I’d like to pass the call back to Doug. .

Thanks Paul. I’d like to now provide our guidance for the fourth quarter. We are forecasting the 3% to 4% sequential increase in average paid worksite employees over Q3 to a range of 135,750 to 136,250 for Q4.

And as Richard mentioned we now expect gross profit per worksite employee per month to be in the range of $230 to $234 for Q4 which is a slight increase over the prior year. As for our Q4 operating expenses, we are forecasting a range of $83 million to $83.5 million, which is a $3 million sequential decrease from Q3.

We are estimating 25.3 million average outstanding shares and an effective income tax rate of 42% for Q4. In summary, our updated key metrics guidance implies a range of 2014 full earnings per share of $1.08 to $1.11 and adjusted EBITDA of $81 million. The midpoint of this updated guidance is now near our initial forecast coming in for the year.

As Paul mentioned, we are now focused on closing out a successful fall sales campaign and year-end renewal period such as an improvement in our starting point for unit growth combined with the lower operating expense levels exiting 2014 will point to a strong operating results in 2015.

We will be providing detailed 2015 guidance in our next earnings call. At this time I'd like to open up the call for questions..

(Operator Instructions) And our first question comes from Jim MacDonald from First Analysis your line is open..

Yeah, good morning guys..

Good morning Jim..

So can we talk about the 10,400 new sales and when those are expected to start, is there anything different this year or more starting in December 1st versus January 1st because of the ACA or any changes this year or when are those expected to start?.

Well you know normally at this time of the year you have people kind of to further start until Jan 1.

We still see most of them there but we still have some coming in as the year progresses and we have such a full pipeline of core sales opportunities, it's still a little hard to tell if we are going to have a surge in December relative to the ACA that wouldn’t surprise me but we are not counting on it..

Okay.

And can we talk about the ACA in general, what are you seeing, what are customers saying about the ACA how is your positioning?.

Yeah, we are definitely getting into doors to have the opportunities for discussion based on a variety of factors. One being that the employer reporting responsibilities are going into effect on January 1st for certain customers.

We also have as you are probably aware that on a state-by-state basis various elements of pricing and plan changes, etc are going into effect. There is a lot of the small business sector that are -- their renewals have been shifted into this fourth quarter. So there is a lot of activity there.

And it is helping us increase our opportunities and with our favorable management of the benefit plan, that Richard referred to, our extension with UnitedHealthcare, we are comparing very favorably and we are excited about where that leads us..

Okay. And switching gears to the markup, and the 185 markup.

Can you talk a little bit about that keeps trending down as there -- is that due to the higher mix of midmarket employees or some of the new bundles you have and can we expect that go -- you know start trending back up again?.

Well there are combination of things that are affecting that number. Mostly it’s the offering of new lower price but also lower cost offerings. So the mix of both midmarket and what I call product mix work for synchronization versus optimization will have some pressure on that number.

But as you know, the midmarket customers have always had a lower gross profit per worksite employee but at least the same and many times a better operating income or worksite employee.

So as we manage through the pricing and cost metrics on those different products in the customer mix, we will be as Richard said, watching that very closely throughout year-end and planning our operating model around that. .

Great. I’ll let someone else ask, thanks..

(Operator Instructions). Our next question comes from Jeff Martin from Roth Capital Partners. Your line is open. .

Thanks, good morning guys. .

Good morning..

Richard you mentioned with UnitedHealthcare and the renewal once you reach certain membership levels there is potential for some administrative cost savings.

I was just wondering if you could detail what kind of levels will start to trigger and what kind of savings there is potentially?.

Actually Jeff I am not allowed to do that. .

Okay..

It’s a good question. You just have to trust me this time..

And then Doug could you give us a sense of how operating expenses transitioned, because there is there definitely are efforts to save operating expenses this year to maintain certain earnings levels.

But say we get back to 12% growth in the worksite employee base, how does operating expense come back into normal and what is the impact there on ability to leverage profitability next year?.

Yes, I mean we don’t want to get into detailed guidance for next year. I think you’d have to look at some of our historical guidance when we get in. I mean our historical results when we get back into this high single-digit, mid double-digit unit growth and see the impact on the operating expenses.

We’ve talked before and we’ve done some -- a little bit of a recent dive on the detail of our operating expenses and how they split between fixed and variable.

And the variable obviously with the sales reps that you are adding before you get the unit growth and the service reps with the unit growth and so we’ll be looking at and how we come out at year-end, what our unit growth forecasted, and how that effects the variable piece.

And I think what Paul mentioned there is really getting the leverage on the fixed side of the business which I think we’ve done a fairly good job controlling this year. Particularly in the G&A area and so that will continue to be a focus there.

So while I can’t give you any specifics on numbers, we do expect leverage overall and you’ll have to look at some of our recent results and I think that proves that out once we are hitting these double-digit unit growth numbers..

Okay and then can you give us a sense of whether the markup on the business just being effected by some of these alternative plans to the middle market clients?.

Yes, we touched on that. We have definitely seen that and we’ve had over the time we’ve had success in the third quarter over the second quarter of adding about a thousand employees into our workforce synchronization above the second quarter. That will affect that markup component of our service fee and we will drag it down a little bit.

So this $185 level that we’re seeing right now we’re going to be certainly looking at that to see how our year-end selling plays out, how much the mix goes into that workforce synchronization offering, and then make an adjustment for 2015 at the rest of the gross profit -- in other cost centers..

I would also add though that I just remind everybody that someone who selects workforce synchronization has a pure services that are included in the bundle. But they are able to buy those services on an as needed basis, paying additional fees above what they have contracted to on an ongoing basis.

And we have begun to see that customers have those same needs and we are starting to quote various projects that otherwise would have been included in workforce optimization but are now on a fee for service level. And so that’s going to chase this process a little bit.

Customers coming on workforce synchronization, then there is a time period for evaluation of what their ongoing needs are for some of the added services, and people make buying decisions but there should be -- we have a group that are now focused on quoting these projects on a fee basis and going in and executing on those and we are seeing some uptake in those..

Great, thanks guys and good luck with the fall sales campaign. .

Thank you..

Thanks. .

Our next question comes from Mark Marcon from R.W. Baird. Your line is open. Mark Marcon, your line is open. .

We cannot hear Mark. .

Okay our next question comes from Jim Macdonald from First Analysis. Your line is open..

Yeah, I guess I will follow-up while Mark gets on his phone.

Couple more questions on the COBRA impact, you said it was down 25%, how much more impact you think you can get, can you give us a feel for where you expect that to go?.

Well Jim I will tell you what I think because COBRA participation last 18 months and then there was an extinction that people can have in certain state. So I think we are going to continue to see it decline but I don’t think we are -- I think we are probably going to be at nominal.

I don’t think we will be seeing 25% increases in 2015 over 2014, decreases I mean. So, I think the decreases will be smaller incrementally as we go through 2015 compared to 2014 but still think we are going to be -- they will declining as there are other options out there that are cheaper than COBRA. .

Okay, and back to the comment sort of following up on what Paul said, how -- when I think one of the original concepts of the whole ABU is getting customers and then converting them into the PEO structure and Paul sort of hinted about that and about some of them adding extra services, how was your experience, have we seen any kind of examples and success in converting people from buying products to moving to the full PEO offering?.

Yes, we have and it is great to see that start to really happen where we can actually look at the broader customer base which is over 100,000 actual businesses that we serve with some products or services. And in some areas, it takes a specific game plan. For example there is a step up from someone using one our software as a service product.

It will only work for optimization, involves establishing a relationship and going through a process of understanding what other things we offer and how we can affect their operation. And so it will take a little but we definitely have seen successes that we are going to be able to capitalize on going forward.

One example though is if you look at customers that we have in our overall business that have more than 150 employees, there are now over 4200 of those customers. We added almost 300 (inaudible) of that size in the third quarter. And we only have 150 customers using the workforce optimization or synchronization co-employment model.

So that is a nice book of business that we now have a strategy for going in and harvesting and getting on to various, whether it is workforce administration or collaboration or onto one of our co-employment solution.

So a lot going on there but that is a longer-term component of the strategy of the cross selling game plan but it is nice to see progress like that in that area. .

Okay, great. Thanks. .

(Operator Instructions). Our next question comes from the line of Michael Baker from Raymond James. Your line is open. .

Yeah, thanks a lot.

I got on late so I may have missed this but I was wondering if you could give us some flavor of the pickup in demand that you are seeing in terms of size of employer given the phase in nature of the mandate?.

Well, we are seeing good demand kind of across the book of business. But you have different things happening in different segments. In the small business segment, less than 50, you have the issue of kind of the concentration of the renewals into the fourth quarter.

So that’s driving some activity in that group on customers that are larger you have the employer mandates or employer reporting coming on next year and that’s driving some activity in that segment and then of course we have some things we are doing specifically around product offerings that cast a wider net especially in the emerging growth and mid markets space.

And we’re seeing excellent demand for those service, I think we have hit the mark in terms of devising these service bundles to fit what customers are looking for. So we feel pretty good about the demand for the services, the way they are laid out and it’s kind of going across all segments but for different reasons..

Okay and then I just had a question somewhat related but you were one of the first ones to kind of hint or give a sense of price competitiveness picking up and clearly that’s played through even with one of the larger players kind of changing your insurance structure in the State of Florida.

So what I was wondering is with this kind of pickup in demand have you seen any change yet or sense any change yet around that dynamic and if you could just make some broad comments around geographical differences that you see?.

Well, I really do see something that's to me is very exciting about the business overall. And that we’ve looked for a long time hoping that there would be enough of us out there to really cause more of a broad base demand for co-employment services and outsourcing the HR function to a greater degree. And I think that trend is really taking hold.

So that’s a positive I think for everybody. I think what you’ll start to see happening now is more product differentiation and service level differentiation. More quantification of what services and what service levels have or how they have -- has an effect on price and how that turns into value for customers.

And so I think there is kind of another level of education that automatically happens in the marketplace as you have growing demand and more of a variety of offerings available. I think we are very well positioned to be a delivery to a distribution system or even for that communication because of the quality of the sales organization.

Our average age for our business performance advisors is in their 40s. Lot of our business performance advisors are former business owners. So our ability to communicate to business owners I think is unparalleled in the industry and I believe that will play well for us going forward..

Thanks for your thoughts..

We have no further questions in queue; I’d like to turn the call back to Mr. Sarvadi for closing remarks..

Well, thank you very much for participating today. We appreciate your interest. And we plan on being out on the road to visit with investors over the next quarter. So we are very helpful to have an opportunity to visit with you while we are out on the road. Thank you for participating today..

This concludes today's conference call. You may now disconnect..