>>> Insperity Inc (NSP) Q1 2021 Earnings Call Transcript
NSP earnings call for the period ending March 31, 2021.
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Insperity Inc (NYSE:NSP)
Q1 2021 Earnings Call
May 3, 2021, 5:00 p.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good afternoon. My name is Paul and I'll be your conference operator today. I would like to welcome everyone to the Insperity First Quarter 2021 Earnings Conference Call. [Operator Instructions]
At this time, I would like to introduce today's speakers. Joining us are Paul Sarvadi, Chairman of the Board and Chief Executive Officer; and 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.
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Douglas S. Sharp -- Senior Vice President Finance, Chief Financial Officer and Treasurer
Thank you. We appreciate you joining us. Let me begin outlining our plan for this evening's call. First, I'm going to discuss the details behind our first quarter 2021 financial results. Paul will then comment on the key drivers behind our Q1 results and our plan for the remainder of the year. I will return to provide our financial guidance for the second quarter and an update to the full year guidance. We will 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 first quarter results. We achieved $1.82 in adjusted earnings per share, a 7% increase over Q1 of 2020. Adjusted EBITDA increased 3% to $104 million. These results reflect the average number of paid worksite employees in line with our expectation, pricing above targeted levels, upside in each of our direct cost programs and ongoing management of our operating costs. As for our growth metrics, as expected, the average number of paid worksite employees in Q1 of 2021 declined by 2% compared to Q1 of 2020 and included the loss of one large enterprise account that we referred to in our previous earnings call.
Excluding this account, paid worksite employees would have been relatively flat sequentially from Q4 of 2020 to Q1 of this year. It's also important to note that during the challenges of the pandemic over the past year, we've increased the number of clients by 8%. This was however offset by a reduction in the average size of our clients due to pandemic-related layoffs.
Now, as most of you are aware, the year-end transition from 2020 to 2021 in which we enroll new clients from our fall sales campaign and renew approximately 45% of our existing clients is important to our 2021 starting point and, therefore, our full year growth expectations. We are pleased to report a successful year-end transition. Worksite employees paid from new client sales were in line with our budget and we're 93% of Q1 of 2020, a period prior to the onset of the pandemic.
First quarter client attrition also came in on budget, including the loss of the large enterprise account. Excluding this one account, attrition totaled 9%, an improvement over Q1 of 2020's attrition of 11%. As for the third component of our growth, the strength of our clients in the gradually improving operating environment helped drive net hiring by our existing clients above budgeted levels.
Now let's move on to gross profit, which increased by 7% over Q1 of 2020 on the 2% decline in worksite employees. This increase included higher than expected contributions from each of the three primary direct cost programs as a result of both solid pricing and lower costs. On the pricing side, we exceeded our targets on both the HR service fee component and each component of our direct cost pricing allocations. As for the cost side beginning with benefits, we continue to see a gradual return to normal levels of healthcare utilization coming off of the earlier stages of the pandemic. However, when combined with COVID-related vaccine, testing and treatment costs, overall cost came in slightly below our expectations.
Our workers' compensation program continues to perform well, due primarily to our client selection and ongoing management of safety practices and claims. When combined with some favorable impact from the reduction of claims due to the work-from-home status of many of our clients' employees, Q1 workers' compensation costs also came in below budget.
As for the payroll tax area, you may recall that at the time of our previous earnings call in which we first provided 2021 guidance, we had not yet received all state unemployment tax rates. This was not typical as the delay was due to various states still determining how pandemic-related unemployment would impact their 2021 employment rates.
During Q1, we received our tax rates from most states and collectively these rates came in below our projections. This resulted in a higher than expected contribution to gross profit in the quarter. In addition, the Q1 upside resulted from lower on -- Q1 upside resulting from the lower SUTA rates during the quarter, we received a $6 million federal payroll tax refund related to the prior year. This also contributed to higher gross profit.
Now, as for operating expenses, we continue to balance managing costs relative to the ongoing pandemic, while also investing in our current and long-term growth plans. We continue to grow our sales force at targeted levels with a 7% increase in the average number of trained business performance advisors. We also increased our marketing spend related to lead generation activity and incurred costs related to our sales force implementation. We upheld other corporate headcount relatively flat and managed other areas, including travel related costs and historically low levels as the economy and growth recovers from the pandemic. In total, operating expenses increased 13% over Q1 of 2020, however were flat when excluding performance-based compensation.
Now, our financial position and liquidity remained strong as we continued with our investment in our growth and provide returns to our shareholders. During the quarter, we repurchased 340,000 shares of stock at a cost of $30 million, paid out $15 million in cash dividends and invested $12 million in capital expenditures. We ended Q1 with $197 million of adjusted cash and $370 million of debt.
Now at this time, I'd like to turn the call over to Paul.
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Thank you, Doug. And thank you all for joining our call. Today, I'll start with some comments on our strong first quarter results and the momentum driving our outperformance leading us to raise our forecast for the year. I'll follow with our view of the small and medium-sized business marketplace, including recent trends in hiring and business owner sentiment we're seeing in our client base. I'll finish my comments with how we believe we are on a solid path for a return to double-digit growth and profitability.
We're pleased with our strong first quarter results and the excellent execution driving many key metrics in the business from sales and retention to pricing and direct cost. In addition, hiring momentum within the client base has accelerated and appears that small and medium size business community is primed for growth.
This quarter, our paid worksite employees from prior bookings reflected our solid fall campaign sales and came in at 93% at the same period in 2020, which was largely pre-pandemic. As a reminder, sales booked in a given quarter generally become paid worksite employees in the subsequent quarter as new clients and their worksite employees are enrolled, paid and then flow into revenues.
Our sales team is off to an impressive start to the year achieving 102% of our budgeted bookings in this quarter. The number of trained business performance advisors was up 7% and this team increased discovery calls by 16% and business profiles by 21%. The number of new clients sold also increased 16% over the same period last year, which is notable since most of Q1 last year was pre-pandemic. However, the average number of worksite employees per client was down, reflecting the pandemic-related downsizing that's occurred over the last year and also a light quarter for our mid-market sales.
First quarter booked sales in mid-market were below budget, largely due to a strong fourth quarter that exhausted the pipeline. However, the pipeline is rebuilding rapidly with a 27% increase in leads and a 13% increase in proposal opportunities over last year. Some of these have already converted to sold accounts, but it was too late for them to be in the first quarter.
So I'm particularly encouraged by recent activity and the strong workforce optimization sales pipeline across the board. And we're also seeing an increase in activity related to WX, our workforce acceleration traditional employment solution initiative. Over the last year, as we responded to the challenges of the pandemic, WX took somewhat of a backseat to our flagship workforce optimization co-employment offering due to our focus on transitioning to remote selling. We took this opportunity in the fourth quarter to tweak the product and pricing and tested these changes in specific markets. We reintroduced WX to the entire BPA team during our virtual sales convention early this year and impressive results followed. WX proposals increased 90% over the same period last year and book sales more than doubled in both the number of accounts and employees sold.
Our WX initiative is an important long-term plan to increase sales efficiency, providing a traditional employment HR bundle alternative at a lower price point is designed to capitalize on the investment we've already made in our team of more than 650 BPAs across the country that are calling on more than 40,000 small businesses each year.
WX is an HR solution with excellent technology and a unique level of service intended to offer a starting point in improving the HR function for a company that's not quite ready for our comprehensive workforce optimization service. Our goal over time is to convert some portion of the nine out of 10 prospects that we do not sell WO into WX clients and ultimately upgrade them to WO, increasing our sales efficiency. We expect to build upon this new momentum and continue our progress over the balance of the year.
Our workforce optimization client retention was also a highlight this quarter, improving by 15% over last year, excluding the large client loss discussed last quarter. The strong underlying trends in this metric across our segments during the year end transition and through the first quarter add to our confidence in our growth plans.
Our performance in the gross profit area has been excellent throughout the pandemic despite the many moving parts and changing dynamics. The typical mix change in accounts that occurs from Q4 to Q1 during our heavy sales and renewal campaign added to our strong pricing performance, which has been a theme throughout this period. The clients that left in this quarter were lower priced and contributed less to gross profit on average than the balance of our book of business, resulting in a slightly more favorable gross profit outlook.
We are in a good position to meet our objective of managing price and cost to earn an appropriate management fee for administering our direct cost programs and taking some risk, although there is still some continuing uncertainty around benefits and unemployment cost. So, our first quarter established a strong start to the new year and we believe the underlying trends point toward growth acceleration and higher expectations for profitability for the full year.
Another reason for our confidence is in the momentum in client hiring driving a recent uptick in the average number of worksite employees per client. As we entered the new year, our average size client was down approximately 8% in the number of worksite employees after trimming back during the pandemic. We are now seeing a measurable recovery in this metric and a high degree of optimism from our small business client base.
Our client survey released today reflected small and medium-sized company owners and CEOs with a high rate of optimism and focused on driving growth in the near-term. When asked how optimistic you are with the outlook for your business this year, 86% were very or somewhat optimistic compared to 48% late last year and 72% in late 2019.
Further, 81% of those surveyed expect organizational performance to be better than last year and 53% expect to add employees and 35% expect to increase compensation. Only 3% expect to reduce staff and only 1% expect to decrease compensation. This optimism and these expectations were not the result of coming off a bad year. In fact, when asked about last year's results, 71% said they were better or as expected and only 10% said their results were worse than expected, which we believe reflects the quality of our client base and the success of our strategy to target the best, small and mid-sized businesses.
We also asked about top concerns and found driving growth to be the number one issue with external uncertainty around the economy, pandemic or political issues falling to second. It's also telling that the top three HR issues on their minds were maintaining or building a strong culture, recruiting and retaining talent and employee wellbeing.
We also monitor many HR data points that demonstrate whether clients are acting on or are justified in their optimism, including actual hiring, compensation changes, over time and commissions we pay on behalf of clients giving us some insight into recent client sales trends. Most notable this quarter was commission up over 11% from the same period last year, a double-digit increase for the second consecutive quarter. We generally see when commissions are up over 6% from the prior year, hiring and compensation increases subsequently trend upwards. Nothing brings out optimism in business owners more than strong sales momentum.
Anecdotally, I can also further validate the client/owner sentiment for many opportunities I had recently interacting directly with our clients. The theme of these interactions was somewhat surprised and relieved with strong performance last year, optimism about 2021 and gratitude for how Insperity supported them through the pandemic.
One of the many interesting outcomes from the intense period of HR needs from our clients last year was their discovery of the breadth and depth of our services and the level of care from our dedicated employees that has been there all along. The results of this increase in awareness and understanding of how we can help their businesses succeed has been a continuation of an elevated level of service interactions directly with owners and top leaders in our client companies and the heightened appreciation for our services.
We are capitalizing on this with an emphasis on referrals and new advertising and marketing messages to drive sales. So as we look ahead to the balance of this year and into next, considering our strong start to this year and trends we have seen so far, we believe we are on a solid path to return to double-digit growth and profitability.
Current trends in sales retention and hiring in the client base, combined with the comparison to Q2 2020 shutdown-related layoffs, has us on track to move from minus 2% year-over-year growth in the first quarter to 5% to 6% growth in the second quarter. Our guidance for the full year implies the back half of 2021 growth rates in the high single-digits, which positions us to return to double-digit growth in 2022 with an effective fall campaign.
On a final note, during the first quarter, we announced the retirement of Jay Mincks, our Executive Vice President of Sales and Marketing, after an inspiring 31-year career with Insperity. Jay played a pivotal role in the growth and development of Insperity and his deep commitment to the success of the sales organization and the company will leave a tremendous legacy. On behalf of the Board of Directors, I want to extend our deep appreciation to Jay for his dedication and contributions to the success of Insperity over these many years, and we wish him the very best in his well-earned retirement.
At this point, I'd like to pass the call back to Doug.
Douglas S. Sharp -- Senior Vice President Finance, Chief Financial Officer and Treasurer
Thanks, Paul. And let me provide our guidance for the second quarter and an update for the full year 2021. Based upon the details that Paul just shared, including our successful start to the year and some improvement in the overall level of uncertainty, we have raised and narrowed our range of growth and earning expectations for 2021. We are now forecasting 4% to 6% worksite employee growth for the full year, an improvement over our initial guidance of 2% to 6% growth. This increase is based upon a higher starting point going into Q2, the recent improvement in hiring trends and continuing momentum in sales and client retention.
We are forecasting Q2 paid worksite employee growth of 5% to 6% over Q2 of 2020, a period which was significantly impacted by the onset of the pandemic. We now expect 2021 gross profit to be considerably higher than our initial budget based upon our Q1 outperformance and the recent positive trends in both pricing and direct costs, although there continues to be some uncertainty as we come out of the pandemic.
Our forecast in these areas includes a slight improvement in our workers' compensation cost trend, lower unemployment tax costs upon the receipt of lower than estimated rates in Q1 and the benefit cost trend consistent with our initial budget.
Our operating costs continue to reflect our 2021 plan of balancing our growth initiatives with the ongoing management of costs as our growth accelerates. So when taking into account these factors, we are forecasting adjusted EBITDA in a range of $250 million to $280 million, up from our initial guidance of $225 million to $275 million. As for full year 2021 adjusted EPS, we are now forecasting a range of $3.83 to $4.40, up from our previous guidance of $3.27 to $4.20.
As for Q2, we are forecasting adjusted EBITDA in a range of $44 million to $49 million and adjusted EPS from $0.60 to $0.70. As a reminder, our historical earnings pattern generally results in the decline from Q1 to Q2. As Q1 results are typically higher than subsequent quarters as we are in a higher level of payroll tax surplus prior to employees reaching their taxable wage limits and benefit costs are lower in Q1 and step up over the remainder of the year as deductibles are met. Additionally, the Q2 year-over-year comparison is impacted by the onset of the pandemic in Q2 of 2020 and its favorable impact in our benefit plan in the prior year's period.
Now, at this time, I'd like to open up the call for questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question is from the line of Tobey Sommer with Truist Securities. Your line is open.
Tobey Sommer -- Truist Securities -- Analyst
Thank you. Wanted to ask you what you're hearing from customers in your survey work, etc, about what net job growth could be in the existing customer base because I can recall just two or three years ago we were getting cash almost 4 or 5 points worth of worksite employee growth off of that measure. Do you think there is an opportunity for that to come back?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Yes, Tobey, I really do. I think, what I'm hearing right now is that there's definitely a growth mindset. And there's a lot of energy and business owners are ready to move on and they're moving on. And I think there's room to recover the 8% or so decline that you had in the average employees per client over that pandemic period. So, I think, those will recover and then you'll start to get new growth as well. So, we've budgeted in the balance of the year for what we saw in the first quarter and moved things up some, not up to the levels you're talking about that we saw back in the period you were discussing, but, yeah, it's definitely we've seen an uptick now and that average number beginning to move up again. And I think there's room for that to recover.
Tobey Sommer -- Truist Securities -- Analyst
Okay. What kind of changes did you make to the traditional employment package that provided kind of such a kick-start after you did your internal presentations to sales force?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Yeah. So, what we did basically is, we looked at what was in the package that wasn't getting much utilization or wasn't really adding as much value as we thought based on what the customers were telling us. And so, we took some of those things out, made them add-ons that allowed us to reduce the price of the -- of that particular service. And by doing so, I think we just hit a price point that was more comfortable for our BPAs as they compare this set of services to our comprehensive solution. So, a lot of energy around it right now and hopefully we're going to build on that and really start to see that strategy make a difference for us.
Tobey Sommer -- Truist Securities -- Analyst
Thanks. Last one from me. Can you talk about your pricing and kind of give us context for whatever the rate of change is versus recent quarters or years? And maybe if you could also speak to the normalization of healthcare utilization and what you're hearing and seeing about acuity as well? Thanks.
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
So, on the pricing side, as you recall, coming out of 2019, we were -- or actually last half of 2019 and throughout 2020, we were a little more aggressive in pricing to make sure that we had a good balance between price and cost trend for benefits. And we were very successful throughout the course of last year in maintaining that, even though, as you know, the cost side of the benefit program was lower because was lower because of the impact of the pandemic and lower utilization.
So, we continued to build in the normal trend into our pricing and then the same has gone on for this year. So, we're back -- for this year, we're in a very normal price -- passing on price increases that fit with what that trend has implied over these last couple of years. And I think we reported that last time that's about 3.5% a year or so. So that's what we would have built in. Of course, we build in a little more than that in pricing to make sure there's a cushion there. So, the 4% is a cost side, the 3.5% per year.
So, back to your second question, Doug, if you want to talk a little bit about the trend compared to the cost and utilization?
Douglas S. Sharp -- Senior Vice President Finance, Chief Financial Officer and Treasurer
Yeah. I mean, I think what we're seeing is, the utilization is returning more to a normalized levels and we saw that a little bit in the prior quarter in going through to the first quarter, but still probably not up to -- all the way up to the expectations. I think, we expect that to continue to normalize further over the second half of the year. And we are seeing some obviously COVID costs as it relates to vaccine, treatment and testing costs, which, to some extent, offset some of that lower utilization that occurred this past quarter.
So, all things combined, obviously we went into the 2021 year and put a budget together on our expected benefit cost trend. There was reasons to be somewhat cautious with the uncertainty out there as it relates to both of those factors. I think, at the end of the day, as it relates to Q1, our benefit cost came in a little bit below that -- below our budget. But for the full year, I think we still see things trending consistent with the budget that we put together and the 2021 costs in the 6% to 7% range over 2020.
Tobey Sommer -- Truist Securities -- Analyst
Thanks very much.
Operator
The next question is from the line of Josh Vogel with Sidoti. Your line is open.
Josh Vogel -- Sidoti -- Analyst
Thank you. Good afternoon, Paul and Doug. Thanks for taking my questions. The first -- net gains from hiring were strong in Q1, you also saw 7% increase in revenue per worksite employee. Does the higher revenue per worksite employee generally reflect higher compensation? Are you seeing more hours worked in over time? I guess, it's just surprising to see net hiring gains but also such a strong increase in revenue. I'm curious, are those trends sustainable?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Yeah. I think most of that revenue per employee comes from the fact that we have some components that go up faster, like the healthcare component, faster than inflation or even than wage inflation, but there may be also be a little bit of a mix of higher paid employees because a lot of the layoffs were in lower paid employees. So you may have a mix change that affects that as well. Keep in mind, we make our money more on a per employee per month basis, so that revenue per employee doesn't really make that big a difference to us.
Josh Vogel -- Sidoti -- Analyst
That makes sense. Thank you. Building off, I guess, one of the earlier questions around pricing, your workers' comp program continues to see favorable trends and you mentioned the positive claims frequency from the work-from-home status.
And as things return more to normal and these clients' employees go back to the office setting in some -- is it fair to assume that claims [Phonetic] frequency can and will -- but also on the other side of it as clients may install a permanent work-from-home setting or go hybrid that should continue to depress claims activity? I'm just curious, does that change your strategy around pricing workers' comp or the dialogue you're having with those clients?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
I don't think it changes our strategy any. We are watching to see what goes on in terms of behavior changes in the marketplace and see if that affects things in the long run. But for the near-term, it's all priced by what type of risk there is with given roles that employees play in a company. And our whole book of business is very much more white collar than blue or even gray collar. And so, we really don't have any need to make any changes there, but we're keeping an eye on anything that may change.
Josh Vogel -- Sidoti -- Analyst
Okay, great. And two more quick ones. Just curious, are you still mostly remotely selling? And when you think about things getting back to normal, will it become a hybrid type of approach on your end or are you going to go back more exclusively to face-to-face?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
So, first of all, we are certainly still mostly through remote selling. However, we are starting to see more requests and opportunities for face-to-face visits. So we're hoping that continues because I think we are -- I know we are more effective that way if this is a trust-based sale and trust is built more effectively face-to-face. I also expect us to be very proactive in how we integrate face-to-face and remote selling into our sales motion on a going forward basis. I think it makes a lot of sense to hold our initial discovery call remotely where we can gather information and do introductory and discovery call, accomplish those objectives. I think you can accomplish those pretty effectively remotely.
And then, it also would make your face-to-face call more effective when you -- in the first time you're in the room together more specific to that client's needs. So, if you do that that way and then maybe you can close it -- maybe it face-to-face where we can do that remotely. But in any event, I think, you can squeeze the timeframe some, we did it right and we can see more prospects if this sales motion works. So we're going to be very proactive about trying to lead the client, so this is how we should do this, so it should take this amount of time between face-to-face and remote selling visits.
Josh Vogel -- Sidoti -- Analyst
Sure. Makes sense. And lastly, I apologize if I missed it in your prepared remarks. Did you talk about BPA hiring plans in Q2 and the balance of the year?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Yeah. I think based on where we are right now, we have in our plan to add BPAs at a pretty good clip over the balance of the year, starting in the third quarter. We're at the point today though, I think we're basically saying, go and push that button and let's start getting more BPAs as soon as possible. I think it makes sense because we're -- everything is in shape and in line for our growth acceleration. And so, now you're talking about investing in BPAs to make sure that a year from now, you're getting the right level of effectiveness for 2023.
Josh Vogel -- Sidoti -- Analyst
Yeah. Makes sense. Well, thanks for taking my questions.
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Thank you.
Operator
[Operator Instructions] The next question is from the line of Jeff Martin with ROTH Capital Partners. Your line is open.
Jeff Martin -- ROTH Capital Partners -- Analyst
Thanks. Hi, Doug. Hi, Paul. Hope you're both doing well.
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Hi, Jeff.
Douglas S. Sharp -- Senior Vice President Finance, Chief Financial Officer and Treasurer
Thank you, Jeff.
Jeff Martin -- ROTH Capital Partners -- Analyst
I wanted to -- hi, hi. Wanted to dig in on the growth acceleration that you outlined for the worksite employee base. As we move into the second half of this year and then as we transition into 2021, it appears to me as though you've got multiple levers driving that. Was just curious if you could kind of that return to more impactful among them? One, being getting back to selling workforce acceleration. Two, being the BPAs are more efficient and effective. Three, the sales efficiency numbers have ticked up nicely recently. And four, you've got improved client retention here.
I'm guessing the loyalty that's created from last year's efforts will continue to pay dividends for several years. Out of those four buckets or maybe I'm missing one, what are the most impactful to this growth acceleration in worksite employees as we move into next year?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Sure. Well, I think in the model, of course, the better your retention is the fewer new employees you have to bring in from new sales or even from growth in the client base. But -- so, we always -- that retention number improving, the underlying retention number without the large customer that went away, unusually large customer. An improvement of 15% in retention is significant. And I do believe that this has been driven by the heightened awareness and appreciation for the services we're providing, a better understanding of the breadth and depth of the services and the level of care that we've provided.
And so, I just think going through the next year end transition, I'm confident we'll do well. We don't have those large lumpy customers that can kind of disrupt that, they just don't have any -- like that at this point. So, I would say that's the first one.
But secondly, I mean, the growth machine is the sales machine. And so, it's very important that these -- so I gave you some info about the underlying metrics and the rate at which we're getting discovery calls and proposals. That's the pipeline. And the activity levels are good, attitudes are great and they're effective, very effective and we're working on how do we -- what can we do to help them more and increase their sales efficiency.
So, my expectations are built around hitting the metrics that are -- that we've been able to rely on in the past. We did tilt the budget a little bit just slightly, accelerating efficiency through the year. There is a normal pattern to that already, but we're hitting those basic metrics and not relying on an improvement in efficiency. We're always trying to work for sales efficiency gain, but I don't want to rely on that in budgeting and forecasting and leave that to the upside.
So, the other thing though that's given us confidence right now is the early boost from worksite employees in the client base that they're adding. And when I look at the underlying commissions we're paying to the sales staff of our customers, that insight into their sales pipeline is showing that they're doing well and they're acting on what they're seeing and their optimism and they're expecting to grow. So, 53% are expecting to add employees and only 3% expecting to reduce employees, that's a big number. And so, it's the hardest one to predict because you don't know how many and when and how fast you can find the right people.
But generally speaking, we just felt we had to factor in some higher level of hiring than we had factored in, in our original budget. So, all those factors are important and we're definitely in an all systems go kind of mindset and expecting growth acceleration in these subsequent quarters.
Jeff Martin -- ROTH Capital Partners -- Analyst
That's helpful insight. I appreciate it. My other question is surrounding some of your investments that you called out. Your sales force investment, I believe, is still early in a couple of year process. Wondering how that roll out is going? If you're seeing any efficiencies in the early stages out of that? And then, secondly, if you could touch on or elaborate a little more on your lead generation initiatives?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Sure. So, first of all, on the sales force implementation, we wouldn't expect to see any benefit yet because we basically just completed, what they call -- what do we call that, the bedrock phase where it's an amazing amount of work that has been done by a significant number of people across the company -- all across the company that have helped provide the information to detail out exactly how this implementation takes place and the coding has begun.
So, we're right on track where we want to be on that front and pleased to be able to report that this group were able to really deeply and detail -- at a detailed level -- put together this plan so that the whole company will be on the same page at how we look at customers, how -- all the different fields that relate to every customer and how we'll be able to all look at the same data the same way and be able to use the data much more effectively.
So, we're -- confidence is up that we're going to be able to accomplish that because this phase is so important. If you don't have the right blueprint for success, you won't be able to have that successful implementation. So we're well on our way and like where we are on that front.
So, on your question on the marketing side of the business, we did just release some new TV ads that just launched this past weekend. I think they're really great. Their help with some of the messaging about what the difference -- what a company is able to do when we're in place in that firm. And it's done in a creative way. So I'm hopeful that that overarching marketing message from a broad TV approach will provide low air cover for our BPAs out there. But that messaging is going throughout our marketing, digital and all the things that work for us to bring leads in every day.
So, our lead production is in a good place. We're always trying to do more. And we'll make some more strategic investments in that as we see fit to make sure you pour gas on the fire and take advantage of this opportunity to accelerate growth.
Jeff Martin -- ROTH Capital Partners -- Analyst
Thank you, Paul, for that. And good to see the momentum in the business.
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Thank you, Jeff.
Operator
The next question is from the line of Mark Marcon with Baird. Your line is open.
Mark Marcon -- Baird -- Analyst
Good afternoon. Congratulations on the results and the momentum that's building up. I'm wondering if you can talk just a little bit more with regards to the healthcare cost trending with initial expectations. You gave some commentary on that, but the guidance range was pretty wide in terms of like what was framed as the initial expectations. So, I'm wondering, if you could just narrow that down a little bit or give any additional color both for the remainder of this year and then how we should think about things for next year?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Well, I think the main thing to focus in on there is, of course, our position in terms of matching the price and the cost, and that's why we're very comfortable. We have built into the budget some expectation of, what you'd call, a little bit of a bubble of cost that may come from more utilization that was pent-up through the pandemic.
And although to the degree that we haven't seen -- we've seen things normalize, but we haven't seen it go beyond what you would expect. And therefore, since it's still below that normal level, it's offset some of the extra COVID costs that we've built in, but it was modest in the first quarter. So we did come out under the expectation in costs, but it's pretty modest in this -- compared to the size of the plan. There wasn't really any need to change our view of what to expect for the balance of the year. That bubble of cost, most think it's still out there, although we haven't heard anybody yet point to specific evidence of it, but it makes sense that there is pent-up utilization and possibly some deferral of care that could cause some higher cost types of care in the coming months.
So I think it pays, we should be conservative there and we are in how we've forecasted that. But in any event, we have built in our pricing to be able to accommodate that. And so, now we're at that tweaking phase again. If it's a little higher, you can build costs a little faster. If it's a little lower, well, maybe you don't have to build pricing quite as fast. So, we're just in an optimal phase for matching price and cost. Still uncertainty out there on that cost side, but I think we've been appropriately conservative.
Mark Marcon -- Baird -- Analyst
That's great. And then, can you talk just a little bit more, I mean, it sounded very hopeful with regards to how WX is doing in terms of workforce acceleration in Q1. Just can you give a little bit more specificity with regards to like, OK, how uniform was it across the various regions? Were there any distinctions between the types of BPAs that were selling it more? How much did it end up boosting their productivity by having that arrow in their quiver? To what extent is the success that they're seeing filtering through to the rest of the BPAs? How should we think about that?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Those are great questions and questions that I'm still asking over here. There is a lot of potential there. So I'm always wanting to kind of dig in, but it's kind of like you plant these seeds. And if you plant seeds in the ground, you got to dig them up to see if they're growing, you've kind of ruined it. So, you have to kind of give this kind of thing time to really develop a bit. And because we kind of took a back seat there for the COVID period and this is more of a restart, I don't have a lot of deeper information to really be able to pass on to you.
But, as we see that, we certainly -- I'm just happy we've got momentum again and it's on the radar. It was quite prevalent across the organization, I can say that, which -- that's part of what you're looking for that. People are on-board with the strategy and see how it's going to benefit them in the long run. So, that part is good and we'll pass on more detail as we get it.
Mark Marcon -- Baird -- Analyst
Great. I mean, would you say that maybe 5%, 10% of the incremental activity during the quarter was on acceleration or any sort of color that just even from a small sample size?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Yeah. I don't really have it broken out that way to give you anything that I would want you to rely on. So I'd rather wait to see it develop a little further and give you some numbers that would be a trend that you could gain a better understanding from, rather than a case of one quarter and one point in time.
Mark Marcon -- Baird -- Analyst
Got it. And then, can you talk a little bit, Paul, about just the competitive environment and how you see the investments unfolding across the industry with regards to the PEO space? Obviously you came through and really helped a lot of clients. And you've got a lot of success stories there. So, I'm wondering, and others have expressed the same thing. So now that the economy is really opening up, to what extent can you fully leverage the way that you were able to help other companies and really show the further penetration of the PEO concept across the US?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
That's a great question. And Mark, I believe the PEO option really showed well during the pandemic for all the companies out there providing the service. And you've seen better retention rates, you've seen there is definitely the demand for the services really out there. But I think where we have room to increase the rate of penetration in the marketplace is just in the building of awareness. And there's -- I think that's really the only thing between going from 7% to 8% penetration to some significantly higher number. So it's all about opportunities, it's about educating the marketplace.
And I think, as that -- the messaging is so good right now that it's worth investing in that. And I believe investment will return in number of leads at the right level of interest where you can close the business. So, there is really to me the only impediment at this point is broad awareness and it takes seeing customers one by one to actually convert them. So, there is an investment to get the awareness up and then the investment to follow through on that, but we're in a good position for that. I think the whole industry is in the same shape as there's worth investing. So maybe we'll see that awareness build and see that penetration go up substantially over the next several years. That would be our hope.
Operator
Our last question is from the line of Tobey Sommer with Truist Securities. Your line is open up.
Tobey Sommer -- Truist Securities -- Analyst
Thanks. Just had a follow-up. With respect to your -- the additional healthcare coverage that you got for sort of extraordinarily large claims, how has that experience gone and is that something you're likely to change at all on a go-forward basis?
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
So, I think it was a good decision to make. If you look at the economics, you pay a lot for it. And normally it's kind of a trick back because you don't want to have to -- you don't want it to be back because your cost go up next year. But if your results are really good, then you may be spend a little too much money on it, but you've limited risk. So, in our case, I think it's come out within the range that for the first year that you feel like it's been a good deal for both companies. So that's probably the best place to end up.
We will evaluate as we go through this year. We've bought coverage at the same level, the $1 million level for this year and we're going to evaluate whether this makes any sense to have a different attachment point at a lower level than that or not. But at this point, I think we're in pretty decent shape there and we'll look at it as we go through the year to decide what to do for next year.
Tobey Sommer -- Truist Securities -- Analyst
Thank you very much. Have a good day.
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Thank you.
Operator
And that concludes the Q&A session. I will now turn the call back to Mr. Sarvadi for closing remarks.
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Once again, thank you everybody for participating in today's call. We appreciate your interest and we look forward to communicating with you in any other type of one-on-one or a conference setting. And we're certainly here and available. If you have any questions, you can certainly give Doug a call, we're happy to set up a time tomb [Phonetic]. Thank you again.
Douglas S. Sharp -- Senior Vice President Finance, Chief Financial Officer and Treasurer
Thank you.
Operator
[Operator Closing Remarks]
Duration: 53 minutes
Call participants:
Douglas S. Sharp -- Senior Vice President Finance, Chief Financial Officer and Treasurer
Paul J. Sarvadi -- Management Director Chairman Chief Executive Officer
Tobey Sommer -- Truist Securities -- Analyst
Josh Vogel -- Sidoti -- Analyst
Jeff Martin -- ROTH Capital Partners -- Analyst
Mark Marcon -- Baird -- Analyst
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