Insperity Inc (NSP) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the first quarter 2008 earnings conference call with Richard Rawson, President; Paul Sarvadi, Chairman of the Board and Chief Executive Officer; and Douglas Sharp, Chief Financial Officer. I'll be your coordinator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Douglas Sharp. Please proceed.

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, intends, projects, believe, likely, probably, goal, objective, outlook, guidance, appears, targets, 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.

Now, let me take a minute to outline our plan for this morning's call. First I'm going to discuss our first quarter financial results. Richard will discuss trends in our direct costs including benefits, workers' compensation and payroll taxes and the impact of such trends on our pricing. Then Paul will add his comments about the quarter, our outlook for the remainder of the year and how we expect to be positioned going into 2009. I will return to provide financial guidance for the second quarter and the remainder of 2008. We will then end the call with a question-and-answer session.

Now, let me begin by summarizing the financial highlights from the first quarter, beginning with a significant year-over-year increase to the bottom line. We reported a 70% increase in first quarter earnings per share to $0.51, our highest ever quarterly earnings. These results, which were also above our expectations, were driven by positive outcomes in each of our key metrics. The average number of work site employees paid increased just over 8% for the quarter. Gross profit per work site employee per month, averaged $254 for the quarter, up from $216 reported in Q1 of 2007, and at the high end of our expected range. In addition, operating expenses came in at the low end of our expectations. As far as share repurchase activity, we repurchased 584,000 shares during the first quarter and currently have approximately 1.6 million shares remaining for repurchase under our authorization.

Now let's review the details of our first quarter results. As I just mentioned, the average number of paid work site employees per month increased just over 8% compared to the first quarter of 2007 from 104,881 to 113,541, just below the low end of our expectations. In a few minutes, Paul will provide the details behind our first quarter unit growth including sales, client retention, and net change within the existing client base, and comment on our outlook for the remainder of 2008.

First quarter revenues increased 12% over 2007 to $456 million as a result of the 8% increase in the average paid work site employees, and a 3% increase in revenue per work site employee per month. Looking at first quarter revenue contribution and growth by region, the Southeast region, which represents 10% of total revenue, grew by 14%, the Northeast region, which represents 21% of total revenue, grew by 19%, the Central region, which represents 15% of total revenue, grew by 14%. The West region which represents 20% of total revenue grew by 5%, and the Southwest region, which represents 33% of total revenue, grew by 11%.

Moving to gross profit, gross profit per work site employee per month for the quarter was $254, up significantly from the $216 reported in Q1 of 2007. You may recall that last year's first quarter was negatively impacted by higher than expected health care costs. This year was quite the opposite as we experienced positive developments in our benefits area. We entered Q1 of 2008 forecasting an increase in the gross profit per work site employee per month to this range of 250 to 254, when factoring in the expected positive impact of lower health care administrative costs and plan design changes, higher payroll tax surpluses and continuing favorable trends in our workers' compensation program. We then successfully managed both our pricing allocations and direct costs to come in at the high end of the forecasted range.

As for the specifics, benefit costs per covered employee per month declined on a year-over-year basis by about 1%, and on a sequential basis from Q4 of 2007 by approximately 3.4%, to an average of $681 for the quarter. Richard will discuss the details in a few minutes but suffice it to say that we are very pleased with the impact of our recent efforts on both this quarter's costs and forecasted costs for the remainder of the year.

Workers' compensation costs were 0.66% of non bonus payroll for the quarter, slightly above our forecast of 0.60%. This overage was not due to claim costs which continue to trend favorably but rather to the lowering of a discount rate that we use to calculate the present value of expected future claim payments. The recent significant decline in the interest rates resulted in a greater than expected impact to this quarter's costs. As for this quarter's reserve adjustment, updated actuarial loss estimates resulted in a $2.6 million reduction in previously reported loss estimates. Richard will provide more details on our continuing favorable claim results in a few minutes.

We generated a higher than expected surplus in the payroll tax area in Q1, as higher payroll averages and bonuses of work site employees were applied to the spread between our pricing allocation and payroll tax costs. Payroll taxes as a percentage of total payroll costs declined from 8.93% in Q1 of 2007, to 8.68% in Q1 of this year as a result of lower state unemployment tax rates and the higher payroll averages and bonuses of work site employees.

Now let's move on to operating expenses. As you may recall from our previous conference call, we forecasted an increase in operating expenses to approximately $69 million for Q1, when considering among other things the recent sales office expansion, and mid-market and HRTools initiatives. Operating expenses actually came in below our expectations at $68.6 million. As for the details, salaries and wages increased by 15% due primarily to the addition of sales and service personnel including those associated with our mid-market initiative. This is reflective of our decision to continue to execute our long-term growth plan. Sales and service head count is up 10 to 11% over the first quarter of 2007, we increased the total number of sales reps to 320 by the end of the quarter, and averaged 277 trained reps, a 10.4% increase over the first quarter of 2007.

Stock based compensation increased by about $1 million due the full effect of the three year vesting of annual restricted share grants and a lower turnover rate of key personnel than previously estimated. Sales commission increased by 6%, slightly below our work site employee growth. Advertising increased by $1.7 million, due to both an acceleration of marketing initiatives into Q1 of this year as compared to 2007 and an increase in the level of such expenditures. This is consistent with our plan to increase sales lead activity to offset slightly lower closing rates in a weaker economy. We are still forecasting a full year increase in advertising costs of approximately 19%. Depreciation and amortization remained flat which is consistent with the relatively flat level of capital expenditures over the past few years. G&A costs increased by 18% and included costs associated with our sales office expansion, and consulting costs related to our HRTools initiative.

Now let's review several key balance sheet and cash flow items. We generated $24 million of EBITDA during Q1, cash outlays during the quarter included share repurchases of $15.1 million, cash dividends of $2.9 million, and capital expenditures of $4.8 million. Working capital which is also a good measure of our liquidity, declined from $97 million at December 31, 2007, to $83 million at March 31, 2008. The reclassification of certain marketable securities from short term to long-term assets accounted for approximately $8 million of this decline. So let me take a minute to explain.

Our portfolio of marketable securities totaled approximately $88 million at March 31, and included $54 million in tax exempt money market funds, $30 million of tax exempt municipal auction rate securities and $4 million of municipal bonds. Our investments are all high credit quality and unrelated to subprime mortgages or home equity loans, nor do they include any collateralized debt obligations. As for our auction rate securities, approximately $8 million of these securities are preferred shares of a closed end bond fund that is considered temporarily illiquid and therefore has been reclassified to a long-term asset. So the take-away here is that our liquidity has not been significantly impacted by the recent issues in the credit market and is more than enough to execute our plans.

Now I'd like to briefly comment on the acquisition we announced earlier today. We recently acquired USDatalink, an employment screening services company. We're excited about the acquisition on several fronts including the opportunity to acquire a quality service offering, lower our cost to serve our PEO clients and generate revenue growth outside of the PEO relationship.

So in summary, we are very pleased with our first quarter activity and results. We continue to execute our long-term growth strategy while providing significant shareholder return through share repurchases and cash dividends. At this time, I'd like to turn the call over to Richard.

Thank you, Doug. This morning I'm going to discuss the details of our excellent first quarter gross profit results. Then I will update you on the pricing and direct cost trends that we are seeing and how they will affect gross profit per work site employee per month for the balance of 2008. As many of you know, our gross profit comes from the markup that we earn on our HR Services combined with the surplus that is generated when our direct cost pricing allocations exceed the corresponding direct cost. Doug just reported that our gross profit per work site employee per month was $254 which was at the top end of our forecasted range of $250 to $254. These results came from achieving $198 per work site employee per month of markup and generating a surplus of $56 per work site employee per month or 4.2% of our total markup. We had a decline in the average markup per work site employee per month in Q1 primarily driven by slight reductions in pricing for renewing business. On the brighter side, our new business sold increased almost $5 per work site employee per month over the first quarter of last year.

Now, this quarter's better than expected surplus came primarily from the payroll tax cost center. Last fall, we knew what most of the state unemployment tax rates would be for 2008 and we adjusted our pricing accordingly to maintain our targeted spread for this year. The first quarter's spread is typically the largest of the four quarters and when there are more payroll dollars subject to payroll taxes than forecasted, then you automatically get more surplus dollars. This is exactly what we experienced this quarter. From the benefits cost center, we had benefits costs of $681 per covered employee per month which was slightly less than our expectations and was directly related to the plan design changes that we implemented in January.

On the pricing side we have continued to see migration of employees out of the United Healthcare Choice Plus 250 plan which reduces our allocation but it also reduces our ultimate cost. Last but not least is the contribution from our workers' compensation cost center. The number of claims reported this policy period to date is exactly the same number as last year's comparable period. This continues to be impressive when you consider that we've had an 8% growth in the number of paid work site employees that incur those claims. These positive results are directly related to the great job our safety professionals in the field continue to do. The severity rate of those claims that were filed through the end of the first quarter is down 22% over the same period of -- as last year, continuing to demonstrate the effectiveness of our claims management personnel. We had nice surplus from our workers' compensation program as expected. These excellent metrics were offset by the $1 million of higher costs related to the discount rate calculation that Doug referred to a few minutes ago. In summation, we're very pleased with our first quarter results.

Now, let me share with you what we see for the second quarter and beyond beginning with pricing. We believe that renewals for the second quarter will be easier than last quarter, therefore we expect the markup component of our service fee to increase slightly each quarter for the balance of the year. This would result in an average markup of $200 per work site employee per month for the full year. In addition, we anticipate an increase in the surplus component of gross profit to increase from our initial range of 33 to $38 per work site employee per month for the full year, to a new range of $39 to $43 per work site employee per month. Here's how.

The surplus generated from the payroll tax cost center typically declines each quarter throughout the year. The better than expected results in Q1 should carry forward throughout 2008 and add an additional $1 of per work site employee per month to the surplus.

Now let's discuss the workers' compensation cost center. We also expect to see a nice contribution to the surplus component of our gross profit from this cost center for the balance of the year but it will be dampened if interest rates stay at their current levels. So for now, we're going to estimate our cost to be about 0.65% of non bonus payroll for the remainder of the year. As for pricing, we are maintaining the same levels as last quarter.

The benefits cost center is where we expect to see further contribution to gross profit for 2008. Last quarter I mentioned that we have three factors that should positively affect the benefits cost center for 2008. As part of our historical strategy for managing this cost center, we made a couple of plan design changes that took effect January the 1st. Our second factor is continued migration of covered work site employees moving from the United Healthcare Choice Plus 250 plan to lower cost, higher deductible plans. The third factor that reduces costs is the reduction in the administrative fees which we had previously negotiated with United Healthcare beginning in 2008.

Well, as you can see from our first quarter results, our plans are developing very nicely. Therefore, we now believe that our total benefits costs per covered employee should only increase about 2.5% over 2007. We have continued to increase our allocations on the pricing side to match normalized trend increases and reduce the deficit in this cost center. This combination of allocation increases and reduced costs should add an additional 4 to $5 per work site employee per month to our surplus for 2008. Additionally, we just renegotiated our employment practices liability insurance policy for a direct cost savings of about $600,000 or 10% over last year's policy costs. This is significant to us when you consider that we have grown the base of employees covered by this policy by more than 8%. Premiums for this type of policy increase as the exposures increase.

Now, these great results come from the success that we have in managing employment practices liability claims and reducing liabilities for our clients. In summation, we should see our gross profit per work site employee per month increase to a new range of 239 to $243 per work site employee per month for the full year of 2008. At this point, I'd like to turn the call over to Paul.

Thanks, Richard. Today, my goal is to provide some insight into the resiliency of our business model and our opportunity for growth and profitability throughout a weak economic cycle. I will discuss the transition we experienced in the first quarter and the acceleration in sales that we are driving as the platform for future growth. And I'll conclude my remarks with the discussion of what we expect as an economic rebound emerges later this year or into 2009.

Our first quarter results clearly demonstrate the value of our recurring revenue stream business model. As I mentioned on our last call in February, we had just seen the effects of the economic slowdown reach our client base in the form of lower commissions, indicating lower sales for our clients, products and services. We saw hiring and layoffs become dead even and we had an increase in client attrition at year-end to 9.6% in January. Now, this did not sound like the backdrop that would produce the first quarter results you've seen today.

In fact, this quarter was our all-time record for earnings per share at $0.51. We also had 12% year-over-year revenue growth on 8% unit growth. We continued to invest in growing the sales and service staff, developing new products, and the purchase of a new division to offset costs and add a revenue stream. These results are in sharp contrast to many other companies in the business services sector and validate that Administaff has much lower economic sensitivity. Our first quarter growth was driven by the combination of solid client retention numbers for February and March, continued enrollment of accounts sold in our fall campaign, and no loss or gain from the net effect of layoffs and new hires in the client base.

During the quarter, we initiated a Company-wide focus on client retention as part of our annual incentive plan for 2008. This initiative includes the formation of teams to tackle specific areas targeted for improvement, including segmentation, pricing strategy, cost, value communication, customer touch program and the renewal process. We also have enlisted the entire staff to innovate through a reward program established for client retention improvement ideas. Early returns are good with both February and March attrition below historical levels at 2.1% and 1.3% respectively. The outlook for the second quarter also looks positive for continuing this improvement.

During the first quarter, we had a 9% increase in paid work site employees from the sale of new accounts. This is consistent with the 10% increase in the number of trained sales personnel. The most significant highlight from the sales operation since the first of the year is the dramatic move in the total number of sales personnel. This time last year we had 290 total reps, with just over 250 trained. Today we have 336 salespeople, which is an increase of more than 15%. As these new sales staff roll into trained sales -- into the trained salesperson count, we expect to see substantial sales growth.

Last quarter I mentioned our efforts to upgrade staff for our clients and fill our own open positions, taking advantage of layoffs at large firms. Our success in hiring new reps this quarter is directly related to this strategy. The first quarter was also a transition period for the sales organization. In recognition of the change in the economic climate, special training was conducted at the annual sales convention in February. This proved to be very timely as sales in January were off substantially and contributed to coming in just shy of expectations for our first quarter unit growth. The sales message was adjusted and activity levels were increased and sales followed. Each month, sales levels have increased since January, up to budgeted numbers most recently in April.

We are also seeing nice early results from our mid-market improvement efforts, client feedback from our new service model has improved dramatically and three new sales are scheduled for enrollment in the second quarter. From our perspective, we have absorbed the year end client attrition related to the weakened economy and now have absorbed the one quarter transition in sales that also occurs with an economic slowdown.

The last element to consider is layoffs and new hires in the client base. Last quarter we provided specific year-over-year unit growth guidance for 2008 of 8 to 9%, assuming no gain or loss from the net effect of new hires or layoffs. In the Q&A session last quarter, I provided a range of 5 to 6% unit growth if layoffs began to exceed new hires. So let's revisit and update this 5 to 9% unit growth range looking at current economic indicators we follow in our client base.

During the quarter, we got exactly what we expected from the employment picture as the net effect from this unit growth driver was flat, no loss and no gain from hiring in the client base. In addition, we have seen some rebound in commissions paid to the sales staff of our client which indicates their pipeline for new business has improved in the first quarter from the fourth quarter of 2007. As I mentioned last quarter, year-over-year increases in commissions paid had dropped from an 8 to 12% range in previous quarters, to less than 4% in Q4. This number has improved to approximately 7% by the end of Q1. Overtime as a percentage of base pay has fallen slightly but remains strong at nearly 10%. This indicates capacity is still stretched and hiring in our client base could resume if sales continue to improve. Average pay increases for the same employees year-over-year is up a modest 4% or so, which includes the full effect of pay increases and promotions.

When you weigh in these factors, we don't see an immediate threat of layoffs exceeding new hires for an extended period. However, month to month, there is some risk. So where does that leave our unit growth range of 5 to 9%? Well, at this stage we believe we can narrow the range for the rest of 2008 to 6 to 8%, factoring the current starting point for work site employees and a net gain of 700 to 1400 employees from month to month, beginning in May. If layoffs exceed new hires and we have modest sales growth, we would be closer to 6% for the full year. If we have continued solid sales and no loss or gain from the employment picture, we'll be closer to the 8% number. When you add the 6 to 8% unit growth to the solid gross profit outlook Richard mentioned, you can clearly see the strength of our business model in spite of a weak economy. We will continue to invest in growing the sales and service staff, developing our HRTools product set and remain opportunistic for strategic acquisitions. When you add in the operating expense picture, we continue to expect profitability and earnings in the range we originally forecasted for the full year.

Now, I believe it's worthwhile to look beyond the immediate term and consider our positioning for 2009. We are poised for growth acceleration, driven by several factors. First and foremost is the acceleration of trained sales staff. Historically, double-digit growth in trained reps produces double-digit growth in paid work site employees within 12 months. Secondly, any systemic improvement in client retention has an immediate positive impact on growth and profitability. I believe our focused effort in this regard will pay substantial dividends in years to come, based upon the ideas we have generated and the changes we are implementing. Thirdly, our technology improvement scheduled for delivery to our clients in early 2009 represent the significant increase in functionality and features which we have historically been able to translate into stronger pricing and growth. And finally, our efforts are directed toward accelerating growth prior to an economic rebound, which leaves the benefit of a better labor market as icing on the cake.

At this time, I'd like to pass the call back to Doug to provide our specific guidance for the second quarter and the balance of the year.

Thanks, Paul. At this time, I'd like to provide financial guidance for the second quarter and an update to our full year forecast. But before we get into the details I'd like to point out that we are essentially reiterating our guidance for the full year. Based upon the factors discussed by Paul a few moments ago and in particular taking into account the expected range of possibilities from a slowing economy on our sales and hiring within our client base, as he mentioned we are revising our forecasted unit growth to a range of 6 to 8% for the full year. This revised forecast assumes average paid work site employees in a range of 115,500 to 116,000 for the second quarter, and net additions of 700 to 1400 each month for the latter half of the year. This results in a forecasted range of 117,000 to 119,000 average paid work site employees for the full year.

As Richard mentioned, we now expect full year guidance for gross profit per work site employee per month to be in a range of $239 to $243. This is an increase from our initial range of $235 to $240 based upon our improved outlook in our direct cost programs in spite of the higher workers' compensation costs resulting from the decline in interest rates. As for the second quarter, we expect gross profit per work site employee per month to be between $235 and $238, also slightly higher than initially expected. As for operating expenses, we now expect to be in a range of $274 million to $277 million for the full year, with the high end of the range including additional incentive compensation tied to achieving higher unit growth and gross profit goals. The increase from our previous guidance of approximately $1.2 million is directly related to operating costs associated with our recently announced acquisition of USDatalink.

While we are hopeful that we can transition the PEO background check activities from our current vendors before the end of the year, we have conservatively not included these savings in our 2008 forecast. However, we have included revenues from services currently being performed by USDatalink to their existing client base and we expect the operations to be slightly accretive to our 2008 earnings. As for the second quarter, operating expenses are expected to be in a range of $67.25 million to $67.75 million. This is below Q1 operating expenses due primarily to an anticipated sequential decline in cash compensation and G&A costs. As a reminder, first quarter operating expenses included higher corporate payroll taxes and expenses associated with our annual sales conference employee incentive trip. We continue to forecast net interest income in a range of $9.5 to $10.5 million for the full year. As an expected increase in cash balance this should offset the recent decline in interest rates. We are forecasting a range of $2.3 million to $2.5 million for the second quarter. As for average outstanding shares we are now forecasting 25.7 million for Q2 and for the full year, and we are estimating an annual effective income tax rate of 35.7%. So at this time I'd like to open up the call for questions.

Thank you. (OPERATOR INSTRUCTIONS) Your first question will come from the line of Michael Baker with Raymond James.

Thanks. Just had a question with respect to United. United Health continues to face some service issues and I'm wondering if that had any impact on retention?

No, Michael. We have just continued to have great service experience. We are such a large customer for United Healthcare and most of their service issues were out in the California market that dealt with the conversion from them going from the Pacific Care platform to the United platform. And I would say that -- I mean, from all of the qualitative feedback that we've had, it's just been very nominal. So we may have lost a few because of that but we just didn't see that much taking place.

I appreciate the color. And then I just had a question for Doug in terms of the sequential downtick in D&A looked more pronounced than kind of what we have seen in the past. If you could provide some sense of what drove that and give us a sense for how that might trend for the year?

I think for the full year, it's fairly consistent, with 2008, our estimate for the full year with the previous years. We did have some assets become fully amortized going from the fourth of last year to the first of this year. However, we do have some capital expenditures coming online still and I think the bottom line is for the full year we expect to be relatively consistent.

Thank you.

Your next question will come from the line of Tobey Sommer from SunTrust Robinson.

Thank you. I had a question about your sales force growth which seems to be pretty impressive in terms of the hired figure at 15%. What is the distribution of them? Is your new sales office initiative absorbing kind of the bulk of that increase or are you also flushing out some of your recent office openings over the last couple years?

Well, as you know, we're pretty aggressive in our office openings over the course of last year. We still have four new office openings this year. But it's a mix between adding to those new offices and then filling out our other current offices and making sure we're fully staffed to take advantage of this climate in terms of having really better candidates available for us. We've had just a great run in hiring and also in training. This first quarter has been very exciting, our office has been full of new sales staff and the quality level looks fantastic. So we're very excited about that going forward.

Right. And then in terms of the sales kind of distribution geographically speaking, I was wondering if you could comment specifically on what the California market is like? It seems to be one that has been impacted relatively significantly from a real estate decline perspective. Thanks.

Sure. We do look at the geographic climate in terms of economy and certainly the Southwest is stronger than the rest, largely driven by the energy sector. But in terms of our sales effort, I think our business model, which focuses on aggregating the best small businesses from within our targeted industry categories, is one that continues to provide advantages even in a tougher marketplace, because, in any market, especially California, such a large market, there are always strong small businesses that are doing well or that are trying to really improve during a tough economic time and those are perfect candidates for our service. So we've had a good sales effort going on across all the markets in spite of the weak economy.

Thanks. And then I'll ask the last question, I'll get back in the queue. Based on the new guidance for gross profit per work site employee per month, how much of that is related -- how much of the surplus I guess this year that's embedded in the guidance is related to all of the positive impacts that come from the health care plan redesign with United? Thanks.

Kind of hard to break those three out exactly but I'll tell you that, like the first quarter, was largely driven by the payroll tax component which we anticipated and mentioned over the last year continually. But I think it's also important to point out that the workers' compensation components affected this year by the lower interest rates and so the other two areas not only are performing well but even offset a little bit of a decline in contribution from the workers' comp area.

When you look specifically at the medical side, Tobey, when we set the plan design changes in place last year, we anticipated that the value from the calculations we looked at, we anticipated that the value proposition would reduce the trend to about or by about 5%. And so that's what we're seeing. When we looked at the end of last year, when we looked at our pricing increases, we were expecting normalized trends in the 8 to 9% and if you back off of 5% of that for just strictly plan design changes, that takes you down to about a 4% year-over-year trend. And then utilization comes into play and all that and so that's why we're seeing lower utilization in the plan and that's why our trend is increases, looks like it's going to be lower than what we originally expected in the 2.5% range for the year.

So on the pricing side, you're trying to make sure that you don't get too far out of whack there, because it takes a long time if you let that spread, gets too far away, it takes a long time for it to turn itself around and we're just not going to allow that to happen.

And the last component of the reduction in benefit costs versus the prior year is we're in a new three-year contract with United and we negotiated lower administrative costs over the next three years. So that began in January of this year. That factor should be ongoing over the next three years.

Thank you.

Your next question will come from the line of Mark Marcon with Robert Baird.

Hi, it's Mark Marcon. Good morning, everybody.

Good morning.

Just wondering, with regards to workers' comp, can you tell us -- I think you mentioned it but I missed it. The workers' comp accrual reversal for this quarter.

2.3 million for the quarter.

Okay. Great. And then can you talk a little bit about the improvements in terms of the mid-market? Sounds like you're seeing better retention there. What specifically -- you've talked in the past about some of the plans that you had for improving the service level. Can you talk a little bit more about what's actually been implemented and the feedback you're getting?

Sure. We're very excited about the changes we implemented. Last year we did a deep dive to really dig in and understand this target and try to make our service a more hand in glove fit for this target customer base and we have implemented some very interesting things. First and foremost on the service side was establishing a high level, single point of contact, a new role called an account executive, that literally just manages the implementation of the service plan with the client. And we've gotten great results out of that in terms of the dialogue we've had with clients as we have moved our current clients over to this new model and we're not -- we're not near fully transitioned yet in that respect but also all the new accounts that have come on, it has really added a level of touch with these clients that is being well-received.

We also are doing much more to make sure we're connected properly with our mid-market client and the multiple contacts that have a view of what it means to have a good service relationship with Administaff. So we're doing a better job of managing the multiple relationships and making sure we're meeting the expectations of the larger number of decision makers at these sized clients. I think there have been a lot of other improvements across the Company to support our mid-market customer differently in terms of escalation on issues and responsiveness and these things are really starting to pay some dividends.

So what percentage of your revenue is now being derived from these mid-market accounts?

In the 11.5% or so. I really expect to see over the next 12 months or so that we'll start to see some recognizable improvements in terms of market share coming out of mid-market. If these trends continue.

Okay. And it sounds like in the last couple of months the stick rate's been really good.

Yes, we've had a really nice couple months of client retention. The year-end retention number or attrition number was high.

Yes.

And that was still reflecting I think things that were going on. I mentioned that we've started to have these stewardship meetings with these customers and go through the details of where the money goes and what the costs are to do what we do and how much we make and that's all good information for them. We were only able to implement that with about 11 or so customers during that year-end renewal cycle. But since then, we are continuing to do those on a regular basis. We've also uncovered other needs they have in terms of being able to reconcile invoices and things of that nature and so we've got some plans coming up soon that we'll talk about more at our -- we'll address a little bit at our investor day, analyst day coming up on May the 8. But we're not near finished on what we're implementing to make this a great fit for our mid-market customers.

Great. And then on the benefits side, what percentage of the participants are actually participating in the plan?

Little under 74% the first quarter.

So it actually increased?

Yes, increased from the Q4 of last year a little bit.

Okay. Great. And then did you see any impact at all from this flu season in terms of the benefits costs?

No, we looked at the utilization and from what we could tell, we didn't see anything that was driving -- that was specific to that. All the health care that was an issue but that affects generally an older population and didn't really affect us very much.

Then with regards to your sales force, what sort of retention levels are you seeing now?

Well, our turnover rates are continuing to run kind of in the low 30s range and I think the one important factor, though, is it's normally up when you go from the fourth quarter to the first quarter. Our trained rep count normally goes down in the first quarter and actually we held even from the fourth to the first quarter and that's a very positive sign, both on the retention and for going forward. And I think that's been improved by the little bit of a tweak that we made in the compensation side that we mentioned a couple quarters ago. And also just -- we've got a lot of enthusiasm around our sales staff right now, our sales convention was fantastic and we've got some good momentum there. It didn't reflect that much in the first quarter actual sales, because we were transitioning the message and the -- you slow down the activity for a short time while you convert the message over and then ramp back up. But now that that transition's over, we're ready to rock and roll.

Do you think that means that for next year maybe the economy is still weak but on the flip side, you're going to have more trained salespeople, they're all going to be on message and you're also going to go up -- you'll have probably some better retention and so therefore maybe the growth in units ends up going back towards more traditional levels.

Yes, that's certainly our goal. We have seen historically, we've been at this for 22 years now and when we grow sales staff double digits, within 12 months you grow the units in double digits. Our target for this year is to get up into that 14, 15% range in trained -- increase in trained sales reps. You can't get there on the trained rep count until you get there on the total rep count. Now that we're there on the total rep count, we're pretty excited about it.

Great. Thank you.

Thank you.

Your next question will come from the line of Cynthia Houlton with RBC Capital Markets.

Hi, good morning. Just from your comments during the call you mentioned that renewals, there were some pricing pressure with renewals in the March quarter but that you felt that that would kind of reverse trend going forward. Could you just talk a little bit more about that in terms of what were -- why you think renewals on the pricing side will improve as you go out into the next quarter?

Sure. Most of the renewal pressure that we had was a result of some mid-market customers that we have still been dealing with in terms of the old contracts, when it's a single year pricing and the larger customers want a -- they want a discount when it comes time for a renewal. So the effect of this going from an average of $200 to down to $198 on the renewing business or for the full book this quarter was really the year-end clients that we did renew. And now that we're into the first quarter, we're seeing each month the customers that are renewing are actually renewing at really substantial amounts, which in terms of dollars per employee per month we're looking at the 7 to $8 range, even as recent as April. So that gives us a lot of confidence that kind of the worst is behind us now and so we're not concerned about pricing pressure going forward.

And then just a follow-up question on the hiring and firing trends. Is there kind of industry alignment and/or geographic concerns in terms of where you're seeing greater layoffs or where you saw some spike in layoffs, just any more detail on that?

I think it's consistent with what you see in the broader market. The Southwest like I said was a little stronger because of the energy sector, we have seen a little bit more in the Northeast and the West. In the Southeast, in terms of layoffs exceeding new hires. In terms of industry categories, we still see actually on the technology side better than I think expected on growth there. So health care's still growing even though I know health care companies are running into some struggles. But that's pretty much the picture. Obviously the financial side and we saw previously on the mortgage and that type of business being worse.

All right. Thank you.

That concludes the Q&A for today's conference call. I would now like to turn the call back over to Mr. Paul Sarvadi for closing remarks.

Well, thank you all once again for being with us today. We appreciate it. We look forward to anyone who would like to come to our analyst day presentation which is on May the 8th, here in Houston, Texas. We would love to have any of you come if you can be here in person. We'll also be webcasting that presentation. We invite you to participate that way as well.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.