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Insperity Inc (NYSE:NSP)
Q3 2020 Earnings Call
Nov 2, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Laura and I will be your conference operator today. I would like to welcome everyone to the Insperity Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] Thank you.

At this time, I would like to introduce today's speakers. Joining us are Paul Sarvadi, Chairman of the Board and Chief Executive Officer; and Douglas Sharp, Senior Vice President of Finance, Chief Financial Officer and Treasurer.

At this time, I'd like to turn the call over to Douglas Sharp. Mr. Sharp, please go ahead.

Douglas S. Sharp -- Senior Vice President-Finance, Chief Financial Officer and Treasurer

Thank you. We appreciate you joining us. Let me begin by outlining our plan for this morning's call. First, I'm going to discuss the details behind our third quarter 2020 financial results. Paul will then comment on the key drivers behind our Q3 results, our outlook for the remainder of 2020 and some general comments on 2021. I will return to provide our financial guidance for the fourth quarter and an update to the full year 2020 guidance. We'll then end the call with a question-and-answer session.

Now before we begin, I would like to remind you that Mr. Sarvadi or I may make forward-looking statements during today's call, which are subject to risks, uncertainties and assumptions. In addition, some of our discussion may include non-GAAP financial measures. For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements and reconciliations of non-GAAP financial measures, please see the company's public filings, including the Form 8-K filed today, which are available on our website.

Now, let's discuss our third quarter results in which we achieved $0.91 in adjusted earnings per share, a 21% increase over Q3 of 2019 and adjusted EBITDA of $58 million, a 13% increase. These results reflect outperformance in worksite employee growth and pricing relative to our expectations in this uncertain and challenging business environment and upside in our direct cost programs brought about by the dynamics of the pandemic and the structure and ongoing management of these programs.

As for our growth metric, the average number of paid worksite employees in Q3 of 2020 increased by 1.7% sequentially over the Q2 period to 231,750, which was above the high-end of our expected range. Now you may recall that employee layoffs in our client base drove a 6% reduction in paid worksite employees from the outset of the pandemic in March through the low point in May of this year. Since then, worksite employees have grown sequentially as employees returning to work and being hired by our clients have outpaced any further layoffs. Additionally, client retention for both Q2 and Q3 has remained at our historical level of 99% and worksite employees continue to be added from new client sales. Given these recent positive trends, we now expect paid worksite employees to return to near pre-pandemic levels by the end of this year.

Now let's move on to gross profit, which increased by 8% over Q3 of 2019. Worksite employee volume and pricing above target levels, combined with upside in our benefit and workers' compensation programs, resulted in significantly higher-than-expected gross profit. This quarter's benefit costs included some favorable development from Q2, a period of highly unusual claim activity due to the impact of the shutdown orders. In addition, healthcare utilization began trending toward more normalized levels in the third quarter, although not to the degree of our expectations.

Going forward, we expect further normalization along with the resumption of some deferred care in COVID-19 testing and treatment costs, the extent and timing of which is still uncertain. Our workers' compensation program continues to perform well due to ongoing management of safety practices and claims. Recent favorable claims development has been associated primarily with periods prior to the pandemic. And any favorable impact from the reduction in severity of workers' compensation claims associated with the work-from-home status of many of our clients' employees would likely favorably impact our costs in future periods as this claim experience develops over time.

As for our pricing, we charge our clients a comprehensive service fee, inclusive of our HR services and direct cost programs. We entered 2020 with certain pricing targets set prior to the offset of the pandemic. And we continued to manage toward these budgeted targets. As you may recall, certain savings resulting from the disruption caused by the pandemic were negotiated with our vendors and were passed along to our clients in the form of a comprehensive service fee credit as reflected in our Q2 financials.

Now turning to operating expenses, Q3 operating expenses included continued investment in our growth, including costs associated with a 10% increase in the average number of trained business performance advisors. Other corporate employee head count has remained level over the past three quarters due to the effort and effectiveness of our staff in the face of increased HR service demands from within our client base. Cost savings have been realized in other areas of the business, including travel, training and other G&A costs, as we manage through the current business environment. The Q3 year-over-year increase in total operating expenses of 15% was impacted by increased stock-based compensation costs.

Now this increase was driven by a few items: first, our outperformance in the level of paid worksite employees and earnings during the pandemic; second, the shift in the weighting to performance stock awards from the performance cash awards for 2020 to further align our employees' interest with shareholders during these challenging times; third, the acceleration of expense for employees meeting retirement eligibility requirements under recent modifications to our plan; and fourth, a comparison to prior year's quarter in which earnings and related performance-based compensation were adversely impacted by large healthcare claim activity. Now operating expenses excluding stock-based compensation and depreciation and amortization increased just 4.6% over Q3 of 2019.

Now, as far as our financial position and liquidity, it remains strong as we manage through the pandemic conditions, continue investments in our growth and provide returns to our shareholders. Adjusted cash has increased from $108 million at December 31, 2019 to $213 million at September 30th, while repurchasing 1.3 million shares of stock at a cost of $91 million, paying now $47 million in cash dividends and investing $69 million in capital expenditures to-date during 2020. Borrowings increased by $100 million over the nine months and $130 million remains available under our credit facility.

Now at this time, I'd like to turn the call over to Paul.

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

Thank you, Doug. And thank you all for joining us. Today, I'll provide comments on three topics, starting with some thoughts on our significant outperformance in the recent quarter. I will then discuss how the primary drivers to our business model reacted to the pandemic, resulting in the opportunity implied by the guidance we are providing today to attain double-digit growth in adjusted EBITDA this year. I'll finish with some comments on our view of these factors going forward, which will ultimately drive our outlook for 2021.

We are certainly pleased with our execution in the third quarter, which resulted in a variety of factors contributing to better-than-expected results. The resiliency of our client base supported by our dedicated service providers combined with solid sales and retention to drive a nice rebound in sequential growth in our key metric paid worksite employees. Net gain in worksite employees from within our client base exceeded our expectation as client hiring of furloughed and new employees occurred sooner and at a faster pace.

As Doug mentioned, client retention continued at historical levels of 99%, despite the economic pressure on small businesses in the current environment. In addition, our booked sales since the pandemic have been approximately 70% of our pre-pandemic sales budget, which we believe is solid performance in a virtual selling environment. In the third quarter, paid worksite employees from previously booked sales was 92% compared to the same period last year, demonstrating continued demand for our services and strong execution in enrolling new clients.

Another highlight of the quarter was our strong pricing of both new and renewing accounts in service fees and allocations for direct costs, including our benefit programs. The matching of price and direct cost is critical to our model and exceeding our targets in this area is important as direct cost affected by the pandemic normalize.

We've also been able to continue to grow and develop our BPA team through this quarter. During this period, we virtually trained over 350 BPAs in our Level 1, 2 and 3 and our certified Business Performance Advisor programs. Our trained BPA count increased 10% over the same period last year, positioning us well for our fall selling season. This quarter, we were also able to divert some operating expense savings to develop client testimonial videos and increase advertising to support our fall selling season and our retention campaign. These videos captured the emotion we were hoping for demonstrating the value of a sophisticated HR function in a crisis.

We were also able to continue important technology development beyond responding to the many compliance needs that emerged earlier this year. We are extending our People Analytics platform, which has been very well-received by our mid-market and enterprise clients to our emerging growth segment just in time for our critical renewal period. We are continuing to make strides improving in Insperity Premier, our proprietary human capital management system, rolling out a new time and attendance user interface and using new behavioral analytics tool to guide road maps making premier easier and more efficient for clients.

The bottom line for the third quarter was that we experienced the ideal combination of higher volume and pricing and lower direct and operating costs. Each of these elements contributed to our strong outperformance in the quarter. So we have responded quickly and effectively to the unusual events we've experienced in 2020 meeting client needs and achieving better-than-expected growth and profitability. We've also kept our eye on the long-term making progress on many important initiatives.

Now that we have three quarters under our belt and our estimate for Q4, we can evaluate how our business model has reacted during the pandemic. When the pandemic hit, we did not expect our business model would have the potential to generate double-digit growth in adjusted EBITDA that we have within the guidance we're providing today. The effects for the pandemic on our business model ran the full gamut from obvious expected negatives to completely unexpected positives. It's worth taking a moment to summarize these factors that drive the model since, as we all know too well, this pandemic is not over and it appears the effects will carry into 2021. For example, one would think the pandemic a health issue would increase health costs. However, what we've seen is that rising COVID cases created the need to protect hospital capacity and limit elective procedures, which combined with people's behavioral tendency to avoid hospitals as much as possible, healthcare expenses have actually declined significantly in the short-term.

Longer-term healthcare costs may be elevated due to the deferral of [Phonetic]care or cost associated with treatment of COVID or vaccines. To this point, we have not seen these cost increases to actually increase the overall trend as other offsets like telemedicine and some level of deferral of care [Phonetic] continues. In addition, many experts, including the CDC, are anticipating that the precautions currently being taken to reduce the spread of COVID could substantially reduce the incidence of flu this year.

An obvious negative factor we experienced from the pandemic related to lockdowns was the economic effect on small and medium-sized businesses, which affects us in the form of layoffs in our client base. We saw a drop in paid worksite employees of approximately 6% in two months, followed by a steady rebound over the following four months, supported by fiscal stimulus and easing restrictions. In retrospect, the CARES Act and specifically the Paycheck Protection Program was effective in mitigating some level of layoffs. Further, we believe our quick and effective support of our clients to take advantage of these programs played a role in fewer layoffs occurring and a faster rebound.

The effects of the shutdown also highlighted one specific advantage in our business model, which is our client selection strategy. Due to our risk-based client selection process, we have a very small percentage of our client base in industries most affected by the pandemic and shutdowns such as entertainment, hospitality, travel and restaurants. Another surprise somewhat due to our client selection strategy has been the nominal business closings we have experienced in our client base. Although we expected to see an increase, our strategy of targeting the best small and mid-sized businesses across a wide range of industries proved to provide some insulation from this factor as we saw no significant increase in business failures.

Another dramatic effect we experienced was the increased workload as many issues arising from the pandemic landed in the HR department. As I mentioned last quarter, client interactions increased 300% and the average length of time of these interactions doubled. This five-fold increase in workload has diminished somewhat, but remains elevated. On the flip side, lockdowns led to working from home. In our case, this resulted in improved productivity and our dedicated staff performed heroically in response to the increased demand for our services. Our experience leads us to believe working from home is effective for ongoing routine activities. However, innovation and collaboration may suffer in the longer-term. A hybrid scenario of working from home and coming into the office may provide optimal productivity, efficiency and innovation going forward.

Another upside in our model from the lockdowns and work-from-home environment across our client base is a substantial decrease in the incident rate of workers' compensation claims. This impact is yet to be reflected in our cost, but -- and should benefit future periods to some degree. However, these lower costs may be offset by COVID-related claims that may be covered by workers' compensation in some states.

An additional upside surprise to me has been our effectiveness, continuing to sell in a virtual environment with a service offering as comprehensive and complex as ours. We now know the range of sales efficiency under these conditions. And as we integrate face-to-face meetings back into the mix, we could see a longer-term efficiency gain. One final observation is the success we've had during the pandemic in retaining clients even as financial considerations prevailed on our client base. Our services simply were invaluable and clients have continued our premium services despite the need to tighten their belts.

So now that we have a better understanding of the factors driving our business model during a pandemic, what does that mean as we look ahead to 2021? Well, first, it means planning will be dependent on these factors and drivers that are likely to ebb and flow based upon the state of the pandemic. We will be monitoring these new inputs very closely and we'll finalize a budget later than usual to include the most recent information.

Making estimates at an early stage makes little sense in view of the number and range of possibilities, especially when considering the timing and degree of severity of the pandemic or the actions that may occur to mitigate its effects. For example, COVID cases are on the rise now, but one or more vaccines may be available by 2021 or an anticipated economic downturn from additional lockdowns may occur. Additionally, small businesses may be bolstered by additional fiscal stimulus.

What we have learned is there are many moving parts and offsets in our business model in this environment. If the pandemic intensifies, our direct costs may be below our historical trends as we experienced this year, but growth may suffer. Conversely, if the pandemic is mitigated or under control, direct costs may be elevated, but growth may accelerate as an offset.

What I do know with the degree of certainty today is, we have an amazing organization with the necessary curiosity and brainpower to provide the agility and capability to manage through a crisis and come out with impressive results for shareholders clients and other stakeholders. This year we have demonstrated the depth and breadth of our competence and level of care for our clients to execute on matters within our control, along with inspiring ingenuity and resourcefulness to respond to unexpected events. We are certainly pleased with our 2020 results today and our outlook for the balance of the year and we look ahead with confidence in the future whatever we face next year.

At this time, I'd like to pass the call back to Doug.

Douglas S. Sharp -- Senior Vice President-Finance, Chief Financial Officer and Treasurer

Thanks, Paul. Now let me provide our guidance for the fourth quarter and an update for the full year of 2020. As you're aware, there continues to be uncertainty as to duration and the conditions of the pandemic and the trajectory of the economy. The current political environment and the timing and details of any further government stimulus add to this uncertainty. We have taken this into account when providing our financial guidance over the remainder of 2020 and we will be considering these factors in our budgeting process for the upcoming year. We typically do not provide formal guidance for the upcoming year at this time and, therefore, we'll consider any further developments in these areas and the outcome of our year-end selling and renewal season [Phonetic] when providing 2021 guidance in our next earnings call.

Now based upon the details that Paul just shared, we continue to expect sequential worksite employee growth over the remainder of 2020. For the fourth quarter, we are forecasting average paid worksite employees in a range of 236,500 to 238,500, a sequential increase of 2% to 3% over Q3 of 2020. This equates to an expected decrease in average paid worksite employees of only 1% for the full year 2020 in the face of significant challenges for the small business community caused by the pandemic and its impact on the economy.

With an improved outlook for Q4 worksite employee growth, our current pricing strength and a range around expectations in our direct cost programs, particularly our benefits program, we're now forecasting Q4 adjusted EBITDA of $21 million to $30 million and adjusted EPS of $0.20 to $0.38. When combined with our Q3 outperformance, we're raising our full year 2020 earnings guidance and now forecasting adjusted EBITDA of $271 million to $281 million, an increase of 8% to 12% when compared to 2019. As for full year 2020 adjusted EPS, we are now forecasting a range of $4.35 to $4.53, up from our previous guidance of $3.67 to $4.04.

Now at this time, I'd like to open up the call for questions.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Presenters, your first question will come from the line of Josh Vogel from Sidoti & Company. Your line is now live. Go ahead, please.

Josh Vogel -- Sidoti & Company -- Analyst

Thank you. Good morning, guys. Thanks for taking my questions.

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

Good morning.

Douglas S. Sharp -- Senior Vice President-Finance, Chief Financial Officer and Treasurer

Good morning.

Josh Vogel -- Sidoti & Company -- Analyst

Paul, just a question around some of your comments. Obviously you're seeing a lot of effectiveness in selling in a virtual environment. As we move forward though, you want to reintegrate face-to-face meetings and that could lead to efficiency gains. But just curious if there's an opportunity here for you to potentially pare down the real estate footprint longer-term given the success in selling virtually.

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

That's something we'll certainly consider for the long run. And as we evaluate how work actually changes and what needs come out of that, but remember we have both our sales and service teams distributed throughout the country to be close to our customer base. But, again, we will have to evaluate how those needs may change into the future.

Josh Vogel -- Sidoti & Company -- Analyst

Okay, great. And your comments around having limited exposure to the hardest hit sectors, so I'm just curious if we dissected your client base, what percent is within like entertainment, hospitality and restaurants and travel?

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

It's really, really nominal, I mean, less than 2%. We generally stay away from types of industries that have high turnover rates, which is a significant employer risk. And a lot of times restaurants and other types of companies that have been hardest hit just aren't in our target customer base. And so, we actually just benefited from that, because that was part of our model before all this came about.

Josh Vogel -- Sidoti & Company -- Analyst

Okay, great. And obviously pretty successful in pricing, I'm just curious if you can get a little bit more detail around what was behind that 4.4% year-over-year improvement. And did you lose any clients over pricing?

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

No. We always lose some clients over, what I'd call, value that how customers may look at what they're paying and what they're getting in their own analysis of that. That's kind of we -- out of the turnover we have in clients every year, it's typically about 3% of the total that have a cost value related type decision. But, no, we didn't see any change in that this year even though we were driving pricing, that 4.4% is the full comprehensive service fee, which includes other changes like our markup for the services we're providing, plus the pricing for our -- to the allocations for our direct costs like benefits, workers' compensation, even payroll taxes, etc.

So, our strategy coming into the year was to drive our pricing higher to match cost and actually to build in the cost that we have seen from higher large claim activity last year. We have done that that's built in now. And we feel like we're in very good shape. We have -- we realize that there's a lower trend right now coming in the benefit plan from the effects of the pandemic, but we expect that over time to be more in line over the longer period with a normal trend. And so we've been pricing to make sure we have accounted for that as things normalize.

Operator

Thank you, sir. Your next question will come from the line of Tobey Sommer from Truist Securities. Your line is now live. Go ahead, please.

Tobey Sommer -- Truist Securities -- Analyst

Thank you. Paul, I was wondering if you could comment on your thought process and sort of level of optimism about the company's ability to return to double-digit worksite employee growth and perhaps you could compare that to how you felt three or six months ago now that you have some experience operating in the pandemic.

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

Thank you, Tobey. Yes, we are -- that double-digit unit growth is kind of in our blood is what we live for. And the market opportunity is so great, the demand for our services is awesome. There's really no reason we shouldn't be able to get to that. And the way our model works is, if you grow the BPAs at the right rate at double-digit growth, then you have the sales efficiency at the right rate and you keep your retention properly. Then ultimately you have over a 12 to 18-month period, you have double-digit unit growth. That's affected somewhat by inputs, plus or minus from midmarket performance, which is a little choppier.

But at this point, that's kind of how we're planning. We're planning for how soon can we get back to double-digit unit growth sometime next year and how soon can we do it. Of course, the focus right now is have an effective fall sales campaign in both selling and retention to optimize the starting point for the year. It looks like we end this year around where we started. So the pandemic reduced worksite employee 6%. We've come back almost all the way by then the year we think we're about even. So if we can start the year at that point, it's almost like a mulligan, like a do-over [Phonetic]. And we should be able to ramp up as we hit the second and certainly the third quarter, ramp back up to double-digit growth.

Now that's all pending some of these other considerations. If there are shutdowns that are pretty severe, then you can -- that will delay when you can get back to that growth. But I think we're in a good point of being able to balance the inputs, we've learnt pretty fast, we're going to really dig in on that learning over the next quarter and put these things into our budget and into -- more into operation kind of taking best practices from across the company and making sure those are in full effect as the new year begins. And we believe that will have us on track to get back to how we like to do things around here in terms of growing worksite employees double-digit.

Tobey Sommer -- Truist Securities -- Analyst

Thank you. If I could ask a numbers question of Doug, and then I'll get back in the queue. If I look at the net effect kind of COVID-related benefit costs and other things that have been altered, how much of a benefit might 2020 reap? Not so much -- maybe relative to some historic norm or 2019 just so we can use that for our own inputs as we think about how to model next year ahead of your guidance?

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

Yeah. As you know, it's a little bit of a different -- difficult answer because there's a lot of puts and takes in the benefits area within the COVID arena and even outside of it. What we've seen is, as I mentioned in my prepared remarks, is that the second quarter where you had quite a bit of a deferral of the elective procedures develop out favorably relative to our initial estimates of that quarter. Obviously a high degree of uncertainty and it was prudent to do so.

The third quarter is going back toward more normalization. If you remember, we said, OK, the deferred elective procedures, we expect those to come back in the second half of the year. We saw a little bit of that in the third quarter, but we don't -- not to the degree that we expected. Now what we're incorporated in the fourth quarter guidance is a continued return to that normalization. And on top of that, some increased COVID treatment and testing costs into the fourth quarter. So, I think we've been appropriately conservative in the fourth quarter guidance relative to that but you've got some puts and takes there. You've also -- you've got the mild flu season that we're hearing from the CDC as a result of the precautions people are taking. And so, that goes into it too.

And then you've got the potential growth in COVID costs with the unemployment -- well, with the layoffs that have occurred throughout the year. So, I'm not giving you a number because there's just so much uncertainty related to all those pieces. I would say, going into the year, we were probably expecting a year-over-year benefit cost trend in the 3% to 4% range or so with the year-to-date results that we've achieved and with the fourth quarter guidance or forecast, which I just discussed with you. It probably at the end of the day, if all that proves true for 2020, would be flattish to 1% or so.

Tobey Sommer -- Truist Securities -- Analyst

Thank you. That's helpful.

Operator

Thank you, sir. [Operator Instructions] Presenters your next question will come from the line of Jeff Martin from ROTH Capital Partners. Your line is now live. Go ahead, please.

Jeff Martin -- ROTH Capital Partners -- Analyst

Thank you. Good morning, Paul and Doug. Hope you're well. Could you touch on the Q: Could you touch on the sales effectiveness throughout the quarter? How did that trend? I know that 70% was, I think, toward the midpoint of your expectation that you outlined in April or May, if I recall? And then, secondly, in terms of your BPA growth plans, I know you talked about 10% this year and getting back to 15%, but how should we think about BPA growth next year?

Douglas S. Sharp -- Senior Vice President-Finance, Chief Financial Officer and Treasurer

Yeah. That's good. Thank you, Jeff. So, in terms of sales and how our budget works, keep in mind that as our budget gets bigger every month as the year progresses following the historical pattern of how our sales work, so we had a good increase during the quarter. We were in that 70% range, which is, we believe is good performance in this environment. And it's -- but it is a bigger number than the second quarter because budgets go up as the year progresses. So, we also were able to maintain that 10% increase in, say, BPA growth.

And just preliminarily, as we're looking into next year, we're going to dig down on the budget and come to a final conclusion on this. But our intuition is, we really don't -- we could probably have a pause in growing the BPA team for at least six months or so and allow some efficiency gain that will come out naturally to continue to drive that double-digit growth. So, we're looking at those options for next year, but we're in such a strong position now, it really gives us some nice options. So we'll kind of see how things are playing. If we have -- if we're going into the year and there's such strong upside from other sources, we might continue the growth in BPAs to stay ahead. But like I say, we have a lot of options about going into the year. It's one of the levers we'll be able to decide what to do to optimize our performance next year.

Jeff Martin -- ROTH Capital Partners -- Analyst

Q: Okay. And then, could you give us an update on the large claim activity with the benefits cost side. I know that had been gradually trending in the right direction. Are we back to kind of levels prior to second quarter of '19?

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

No. We haven't got back. If you remember it, as we came in the year, we said we had three quarters in a row where the claims were elevated, so we were baking that into pricing. We've done that. But it's gotten a little bit harder to tell because of the COVID crisis, because now you've got large claims that relate to COVID that didn't have any to do kind of a normal large claim. So it's just gotten a little muddied there. But we aren't planning for it. If it goes back, that's upside, OK. It's kind of stayed not as elevated as it was in that second quarter when it originally spiked. But it's gotten a little harder to tell. And as far as we're concerned now, we're better off taking that in, which we have. And we've addressed that in pricing, have it matched and we're good to go going forward.

Jeff Martin -- ROTH Capital Partners -- Analyst

Okay. Great. And then, one last question, if I could. How should we think about the healthcare benefits costs next year relating to vaccine treatment?

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

Well, there's a lot remains to be seen about how that cost is covered. And there is a battle that will be waged off of that. Because what you have is, you have -- the government has prepaid for vaccine development and certain volume of those. And so, what happens going forward, we don't know. And we're anticipating that some costs could come into our plan. I think that's just the prudent thing to consider. How much cost we really have? No idea. And like you say, it's one of those unanswerable questions at this point.

Jeff Martin -- ROTH Capital Partners -- Analyst

Sure. Well, that helps anyway. Thanks for taking my questions.

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

You bet.

Operator

Thank you. [Operator Instructions] Your next question will come from the line of Mark Marcon from Baird. Your line is now live. Go ahead, please.

Mark Marcon -- Robert W. Baird -- Analyst

Good morning, Paul and Doug.

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

Good morning, Mark.

Mark Marcon -- Robert W. Baird -- Analyst

Nice quarter. See, can you talk a little bit about the mix of synchronization versus optimization, like which one is selling the most and what are you seeing in terms of small business versus your larger clients?

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

Sure. In the mid-market segment, we still have some that move from workforce optimization to workforce synchronization, but it's been a pretty modest rate. And when we remember mid-market is the inputs to that and we sell mid-market customers into that space, but we also promote customers into that space as they grow. And most of those customers that grow in there are on workforce optimization. And so, there is some migration which is great. It means we have another option that we're able to accommodate how companies do growing and developing. But I would say, we still sell more workforce optimization than we do even synchronization in mid-market. So, strategy is working well on that front.

Mark Marcon -- Robert W. Baird -- Analyst

Great. And what about the workforce administration? How is that selling? How -- what sort of progress are you seeing there?

Douglas S. Sharp -- Senior Vice President-Finance, Chief Financial Officer and Treasurer

Yeah. We've continued to sell in -- we've made good strides on people learning. However, I would say that this year with everything else we've had to focus on, it has taken more of a backseat. And so, we're not where we'd like to be against our budget. We're closer to 50% on that rather than the 70% on the WO budget. But not discouraged by that at all. And it literally is just a matter of how much can you do it at once in the middle of a crisis. And we'll get back on that in a more intense fashion as soon as the circumstances allow it.

Mark Marcon -- Robert W. Baird -- Analyst

Great. And then, just staying on the sales for a sec -- see, if we take a look at the performance of the BPAs, to what extent was it -- was there a discernible difference in terms of regions, particularly in terms of the core market? Just wondering was there more uptake in the established PEO markets versus nascent ones, how would you describe that?

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

Well, I would say that it was probably a little bit more directly related to where you had lockdowns that maybe were more severe, a little harder to get meetings and get proposals, etc. But it has pretty much evened out to a degree. Even in the Northeast, we've had a good strong third quarter, not so much on the West Coast. So, it does bounce around. It just depends, but we have -- I would just say in a general sense, we noticed where things were opening up, it was easier. So, there is a connection there. But I would also say that we sold deals in every market, in every situation, every circumstance. And I'm really proud of the sales team all across the board through the way they've taken on the challenge and have performed.

Mark Marcon -- Robert W. Baird -- Analyst

Great. And then, with regards to -- like this fall selling season, you've got your new marketing program going into effect. And then, I'm wondering how your -- which is going to elaborate on all the benefits that you've provided to your clients, wondering how are you thinking about placing the healthcare. Because you're going to have to give quotes. How do you -- how are you going to think about that given the uncertainties with regards to next year in terms of like what happens with large claims of vaccines, the favorable lack of deferred procedures this year. How do you factor that in or how you...

Douglas S. Sharp -- Senior Vice President-Finance, Chief Financial Officer and Treasurer

And that's a good question, Mark. Our view of that is, the only way you can do this properly is to really play the long game on benefit trends and the things that drive those trends and try to do your best to evaluate any short-term interruptions to the trend, either on the favorable or unfavorable side. So, part of our goal with our clients is to give a much more stable environment to them than they would otherwise have outside of our relationship. So, sometimes we actually take a hit on behalf of the clients, you might have noticed that in 2019. And then, sometimes it works to our benefit like it had so far this year in 2020.

But we have continued to keep our eye on the long-term trend in benefits. And there's a difference in what affects the long-term versus what happens in the short-term. So, we do a lot of work and triangulate on that with our carriers and our outside consultant and our really stellar internal team that keep track of all that. And we make sure that we're matching price to the long-term trend.

The other thing, I think, we've done more recently that people just need to be reminded of is that we did purchase coverage for the largest claims over $1 million. And you do have, in the marketplace today, things that were claims -- certain things that drive some of those really large claims and turns out we didn't realize that the COVID's one of those things that can drive some of those large claims or when there is comorbidities, etc. So, that's also part of the plan, a part of how you kind of manage the long-term trend.

Operator

Thank you, sir. You have a follow-up question coming from the line of Tobey Sommer from Truist Securities. Your line is now live. Go ahead, please.

Tobey Sommer -- Truist Securities -- Analyst

Thank you. Could you contextualize the 4.4% pricing in the quarter relative to historical trend what you've seen? Because it seems like a pretty good number to me. Thanks.

Douglas S. Sharp -- Senior Vice President-Finance, Chief Financial Officer and Treasurer

Yeah, it's -- I mean, it is a good number, but it's -- I would say, it's modestly over kind of what we normally do. In a normal year, you're going to have some price increases on benefits more around a 2.5% or 3% when it's all-in after your benefit increase may be higher than that but people will actually buy down their plan to buy changing benefit -- benefits, elections or choosing a lower cost plan. So, this is an all-in number that's taken a lot of factors, but I think you'd see that typically more in a 3% to 3.5% and 4.5%. So that shows that we did some catch-up to make sure that if large claims continued at the pace we saw last year that we would be covered in the normal trend and we are.

Tobey Sommer -- Truist Securities -- Analyst

Thank you very much.

Operator

Thank you. [Operator Instructions] Your next question -- I'm sorry, your follow-up is question coming from the line of Mark Marcon from Baird. Your line is now live. Go ahead, please.

Mark Marcon -- Robert W. Baird -- Analyst

Just a quick question with regards to stock comp. Can you talk a little bit more about the change that happened this quarter and how we should think about it on a go forward basis?

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

Yeah. I think, as I mentioned, the two factors that drove the increase this past quarter was; one, the outperformance both on the worksite employees' side and on the earnings side because our stock-based comp plans are based upon performance and particularly those two metrics recently. And then, the comparison as to last year's quarter -- third quarter, and if you remember last year's fourth quarter we still had some elevated large claim activity and our stock-based comp was quite low relative to that and how it impacted the earnings number. And again, with the stock-based comp tied to that, the accrual last year was pretty low. So, just generally speaking, I would expect the fourth quarter, if we continue to perform the way we're performing this year if things go as expected with our guidance, another probably healthy increase in the stock-based comp relative to the fourth quarter of last year.

Operator

Thank you, sir. And there are no further questions at this time. I would like to turn the call over back to Mr. Sarvadi for the closing remarks.

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

Well, once again, we'd like to thank everybody for joining us today. And we look forward to putting the finishing touches on this year and putting our outlook for 2021 together and informing you about our expectations next quarter. So I wish everybody a great holiday season and hope to see you out on the road. Thank you.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Douglas S. Sharp -- Senior Vice President-Finance, Chief Financial Officer and Treasurer

Paul J. Sarvadi -- Management Director, Chairman and Chief Executive Officer

Josh Vogel -- Sidoti & Company -- Analyst

Tobey Sommer -- Truist Securities -- Analyst

Jeff Martin -- ROTH Capital Partners -- Analyst

Mark Marcon -- Robert W. Baird -- Analyst

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