As you know, since you just said you have been involved in that, typically it takes a year or more to plan and then — and also a significant amount of time to actually configure it’s an 18-month or more process to go onto what we’ll be offering. And our goal is what we’ve learned from how we do it and how the system works, how we’re going to build this interface between the two to make it work well. We want to be able to bring those customers on for a lot less of capital cost, a lot less time, a lot less complexity and similar to how we bring on customers now. that is powerful and I believe will make an incredible the incredible benefit to the target market.
Operator: Thank you. The next question is coming from Tobey Sommer from Truist. Tobey, your line is live.
Tobey Sommer: Thank you, a lot to digest today. So, exciting a second day for you at Insperity. Could you talk about the genesis of how you came together with Workday and arrived at this conclusion? And maybe, what it means for you, Paul, it sounds like, you’ve been a clearly a lifer at Insperity, and this is the equivalent of signing up for another big chunk of years to keep going to get to the other side of this and see sort of experience all the benefits that it can drive. I’ll pause there and let you address that.
Paul Sarvadi: Yes. I could tell you that I’ve had this on my mind for a number of years, many years. But I waited for the right time to have this conversation at the very highest level of workday. And what I waited for was for us to be in a position to be absolutely ready for us to become a client for our 4,300-employee company. And I have to say that my first phone call to them was, I think back in late October, early November, another couple phone calls. We had our first face-to-face meeting in the middle of December. But we had — we already had work groups that worked issues about feasibility before we even had that mid-December meeting. at that meeting, it was obvious the cultural connection and fit, and the potential advantage to both firms, and even more so both companies with the customer focus to understand what a powerful solution we could provide for these underserved companies in this space.
And from that day forward, it has been 24/7 to get to the point, where we know we can do this, and we have worked through and even ended up signing an agreement. It’s been an incredible thing. And it does, as you mentioned it is a powerful new starting point for what I believe has been an incredible run already for Insperity. We’re a great company with a great business model, great foundation, but what this really does is leverage the strengths of both companies in a powerful way for clients. What that means to me as a founder, as a large investor of this company, this guy’s the limit here. And I’m sorry, I’m being hit a little bit dramatic here, but this is so powerful and I’m — I can’t wait to work on it day by day to get us where it can take us.
Tobey Sommer: And if we pull back the aperture and sort of look at once you’ve got this up and running, does it open up new customer sets to Insperity? Or when you get to the other side, do you envision remaining a premium service provider focused on primarily white collar, small and medium-sized businesses?
Paul Sarvadi: No, I do believe it does expand the market for both firms, both sides of company. But what’s really interesting also is that both of these companies are premium brands in their space. And the target customer, not only fits a demographic profile, of course, theirs is at the high end of the — or at the larger companies. Ours is the smaller companies in the middle is the target for this joint solution. But oh man, I lost my thought. What did I say? What’s that? Oh, but yes, so the demographic profile is not the end of the game. What’s really interesting is the psychographic profile of our target market, the way we both go to market and who we’re trying to target as our customers. That psychographic profile is also a tight fit. So, we are both premium services and this we believe is going to be the preeminent solution in the space. And so again, this does — this expands the target market for both firms.
Tobey Sommer: If I could turn it to get a sneak one in here just on ’24, in terms of healthcare trends pricing and opportunity. What are you seeing unfolding, because we’ve heard an awful lot of moving parts from managed care companies and hospitals with activity levels running, running pretty high?
Douglas Sharp: Yes. I mean, obviously, drug costs that are increasing quite a bit, particularly those specialty drugs. Obviously as part of our budgeting, we have constant conversation with UnitedHealthcare and seeing what they’re looking at both in, on the drug side and the medical side. As you would expect, we also have to contemplate large claim activity. So, sort of start at the top, we talked about in my prepared remarks, a trend of 4.5% to 6% trend. Well, remember that trend is on top of what we would feel was probably an elevated trend in 2023 with that Q2 significant level of large claim activity. As far as large claims, we expect them to still be somewhat elevated relative to history prior to 2023. So not quite as high.
We don’t expect as 2023, but still we expect an elevated level of large claims in that forecast of 4.5% to 6% trend. Okay? But we have definitely also considered the more utilization of the specialty drugs along with the increased cost in those drugs. But I think the other thing to point out is we exited ’23, even with the Q2 elevated costs with pricing and costs aligned. That’s what our objective is all about. We’re in a good position going into this year to maintain that for all of our direct costs. So, we let them feel like we’re in good shape there. And I think that’s one of the reasons why in the guidance sections of my script and my prepared remarks, we think our budget for this year for ’24 at a total gross profit per employee level, we’re starting a year looking somewhat similar to 2023.
Operator: Thank you. And the next question is coming from Jeff Martin from Roth MKM. Jeff, your line is live. Jeff, your line is live.
Jeff Martin: You’re hearing me okay.
Operator: Yes, go ahead, Jeff.
Jeff Martin: All right. I was on mute there. Okay, great. Good morning, Doug and Paul. Congratulations on the exclusive partnership. Obviously, a lot going on here as everyone’s echoed. But just was curious if this replaces your current technology stack and as a result, you lead to lower future capital expenditure?
Paul Sarvadi: That’s a good question. also now, keep in mind I mentioned in the remarks that our current system, which involves what we call AIMS, which is our PEO enterprise system and then what we call Premier, which is the client-facing component. Both of those that we have today is what serves all of our customers. But in the future, we expect many of our smallest customers and the small end of our client base, that solution will continue to be for them. I’m not saying that could never have some interaction in this — the way we are planning this new solution, but for the foreseeable future, we should think of that entire system being continuing on the way it is for the smaller end of our client base and for all the base until we have the new solution launched.
However, I think over the long run, it also means that if you look at our development, for example, on the client facing, we have a huge list of what we would like to add. but no matter how long we spend doing it, we would never catch up to Workday’s solution. And so what will happen is we will be able to divert resources once this is out there, we’ll have some resources on the joint solution and our — but our resources that can be diverted back or more staying focused on our other solutions. I do think it’s going to much more efficient for us and allow us to not have to continually be chasing that those features and functionality.
Jeff Martin: Okay, great. And then I’m going to ask a three-part question here. It’s all intertwined, but just curious, you give the low end of the spectrum in terms of client size. What is the upper band of that? Two, what is the — what do you see as the biggest value proposition for clients? And then three, will clients have the option to use the traditional Workforce Optimization versus the combined offering with Workday?
Paul Sarvadi: Some of those questions we’re going to be thinking through and talking through with our clients, with our prospects to further lock down some of these. And I’m sure we’ll be addressing some of that feedback at our investor-analyst day in May. But I can tell you that the four companies that for whichever reason the size that they are now, or their growth rate, even if they’re down to in the 100-employee range, but they are destined to be larger. those customers will have an opportunity to have Workforce Optimization at a new level with Workday HCM as the client facing technology. And what happens for those clients is they will literally get the best of both worlds. They get the leading technology and the leading HR service experience in one package, and that optimizes their ability to their likelihood, degree and speed of success.
So, I think that’s the way they’ll see it is a powerful combination. So, but the other thing they will be weighing out is if there’s someone who wants and knows their need more technology to have a more effective people strategy, they will be able to see that going this way for a smaller firm, many times the capital commitment, the ongoing expense and the length of time to get there. And this is important to understand some, many times companies that are smaller don’t literally have the HR expertise to even envision how they want to configure their solution most effectively. And so a lot of times it misses the mark for the company. In our case, we will be bringing that expertise to the table in a fashion, where they won’t have near the upfront cost, won’t have the same level of ongoing subscription type costs.
And because again, this is, remember we’re embedding Workday into our PEO solution. and so our subscription fees are based on the quantity we have and we’re able to build that into our pricing with an appropriate markup for our part of what we’re delivering here in that new solution. So, that pricing will also be embedded in the total service fee. So, that customer gets to be on this, on a Workday solution, a lot earlier, more affordably and more quickly. Now, they also though there may be a day, because we are preconfiguring a lot of the system to be able to bring people on fast, there’s going to be quite a bit of customization from configuring for specific clients, who will be more like tenants on this instance of Workday. But they won’t have the full flexibility and there may be other things they need in the future.
So, when customers get to that point, we believe we’ll be helping them get onto their own instance of Workday and continuing to be able to serve them after in many cases. But that we want what’s right for the customer and we have that happen now only it happens sooner than it will in the future, and we’re not involved in it and don’t have a chance to maintain a relationship with the customer. Does that help you on those questions, Jeff?
Operator: Thank you. And that does conclude today’s Q&A. I will now like to turn the call back over to Mr. Sarvadi for closing remarks.
Paul Sarvadi: Well, once again, I just want to say how much we appreciate everybody joining us today. As I said at the beginning, it’s a monumental day for us and we’re just excited about the potential to elevate the trajectory of our company driving long-term growth, profitability, and of course, value creation for all of us. So, thank you for participating today. We look forward to our next quarterly update to give you more discussion of the milestones and also the Investor-Analyst Day, which will happen in the last half of May. Thank you, again.
Operator: Thank you. This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.
