Good morning. My name is Regina, and I will be your conference operator today. I would like to welcome everyone to the Insperity Fourth Quarter 2012 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; Richard Rawson, President; 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.

Thank you. We appreciate you joining us this morning. Before we begin, I would like to remind you that any statements made by Mr. Sarvadi, Mr. Rawson or myself that are not historical facts are considered to be forward-looking statements within the meanings of the federal securities laws. Words such as expects, intends, projects, believes, likely, probably, goal, objective, outlook, guidance, appears, target and similar expressions are used to identify such forward-looking statements and involve a number of risks and uncertainties that have been described in detail in the company's filings with the SEC. These risks and uncertainties may cause actual results to differ materially from those stated in such forward-looking statements. Now let me take a minute to outline our plan for this morning's call. First, I'm going to discuss the details of our fourth quarter and full year 2012 financial results. Richard will discuss our Q4 and full year 2012 gross profit results and our expectations for 2013. Paul will recap the 2012 year and then discuss the major initiatives of our 2013 operating plan. I will provide our financial guidance for the first quarter and full year 2013. We will then end the call with a question-and-answer session. Now let me begin today's call by discussing our fourth quarter results. Today, we reported adjusted fourth quarter earnings of $0.47 per share, above both the implied EPS from the midpoint of our range of $0.45 in Q4 2011 earnings of $0.42 per share. Adjusted Q4 earnings exclude 2 special items, including an after-tax impairment charge of $0.10 per share associated with a 2006 acquisition, and $0.03 per share related to the accounting treatment associated with $1 per share special dividend. As far as Q4 key metrics, paid work-site employees averaged 129,345 for the quarter, just below the low-end…

Thank you, Doug. This morning, I will fill you in on the details of our fourth quarter and full-year gross profit results. Then I will update everyone on our gross profit outlook for 2013 and I will conclude my remarks with comments about health care reform. As Doug just reported, our fourth quarter gross profit per work-site employee per month was $241, which was $2 per work-site employee per month above the midpoint of our range. The gross profit consisted of $191 of average markup, $39 of surplus and $11 from the adjacent businesses. Now let me give you the details of each component. The average markup and the adjacent business contributions were right on forecast. Meaning, that the additional -- $2 additional gross profit per work-site employee per month came from the surplus component. Now this $2 per work-site employee per month of additional surplus came from, number one, $3 higher contribution from the payroll tax cost center; and number two, $6 higher contribution from the workers' compensation cost center, partially offset by number three, an additional $7 deficit from the benefits cost center. So here's the breakdown for each cost center. The extra $3 per work-site employee per month from the payroll tax cost center came primarily from higher allocations related to higher bonuses that were paid to work-site employees in December. The extra $6 per work-site employee per month from the workers' compensation cost center also came from same higher allocations due to the year-end bonuses and better-than-expected claim settlements during the quarter. The benefits cost center's extra $7 deficit was due to lower allocations of $4 per work-site employee per month and $3 per work-site employee per month of higher cost. The lower allocations are the result of participants selecting the lower cost, higher deductible health…

Thank you, Richard. Today my comments will fall into 3 categories: First, I will comment on our 2012 financial and nonfinancial highlights; second, I will describe specific inputs into our starting point for paid work-site employees and the resulting plan for 2013; and third, I'll provide some color surrounding investments we expect to make throughout 2013, including expanding the number of business performance advisors, opportunities related to healthcare reform and growth of our Adjacent Businesses. We are very pleased with our 2012 financial results in a period of a high level of uncertainty throughout the year. Our adjusted earnings per share increase of 26% year-over-year on 9% revenue growth is strong performance in any environment. Adjusted EBITDA exceeded $100 million for the first time in our company history, and continued to demonstrate the strong cash flow dynamic of our recurring revenue business model. We also had an excellent year, laying the groundwork for a very bright future for Insperity. The most significant accomplishment was completing our business transformation, establishing Insperity as a leading HR and business performance solutions provider. We began this effort over 2 years ago, and each of the fundamental components that are necessary to broaden our reach and accelerate our growth are in place. Over this period, we established an array of business performance solution to help businesses run better, grow faster, and make more money. These targeted solutions complement our Workforce Optimization service and are also sold on a standalone basis to extend our reach in the small to medium-sized business community. We have established a powerful new brand in the marketplace that leverages our key strengths in HR and business performance, consistent with our positioning as a premium service provider. We also retrained our entire sales force, established a business performance advisor role and completed…

Thanks, Paul. Now before we open up the call for questions, I'd like to provide our initial 2013 financial guidance. As Paul discussed earlier, our forecasted unit growth takes into account the lower January starting point. We expect client retention to return to historical levels over the course of the year and are conservatively budgeting for slightly less net hiring by our client base than last year. Our unit growth guidance also considers a 25% increase in the number of business performance advisors at initial sales efficiency levels, combined with the improving sales efficiency on our more experienced BPAs. In considering these factors, we expect to begin the year with average work-site employees paid in a range of 123,250 to 123,750 for Q1. Thereafter, we expect sequential growth between 3% and 4% for the remaining quarters of 2013 to end the year around 138,000 work-site employees. This results in average paid work-site employees in the range of 129,500 to 130,500 for the full year. As for gross profit per work-site employee per month, based upon Richards earlier comments, we expect to be in a range of $257 to $260 for the full year. The expected improvement over the $253 achieved in 2012 is due to slightly higher service fees, health care pricing and gross profit contribution from our adjacent businesses. Consistent with prior years, we are initially budgeting lower surpluses in our payroll tax and workers' compensation areas. As for the quarters, we are forecasting Q1 gross profit per work-site employee per month from $287 to $291. The quarterly pattern of -- the quarterly pattern for the year is expected to be similar to 2012. We expect gross profit to be higher in Q1 because of the surplus we generate on a higher level of payroll taxes prior to work-site…

[Operator Instructions] Our first question will come from the line of Jeff Martin with Roth Capital Partners. Our next question will come from the line of Jim Macdonald with First Analysis.

So could we dig in a little more to the sales issue? I mean, 6,000 sequential draft seems pretty large. I mean, you talked about 3,400 from 3,600 from sort of the MidMarket extra losses, but then with the sales campaign going so well, it just seems like a particularly large drop. I guess you've explained it, but it -- I think as we thought we had the MidMarket in hand, what can we do about it?

Yes. Well, we -- like I said, I spent a few days with the MidMarket sales group, and there are a lot of things we can do about the closing rate, and that's where we fell short. As we came in to the fall, we had a very nice pipeline of MidMarket prospects and we just were unable to convert them. So we've got lots in-store to work on that for the coming year. But where the shortfall really comes from for this year was those termed accounts in the larger customer base that were very cost-sensitive. We looked at our -- we can look at that group as a whole and look at exactly how they're priced. And as I mentioned, their gross profit contribution is about $215 -- $216, I guess, $216 or so compared to our average. So we also sent out a consultant to do a full investigation of what happened on those accounts, and they literally were basically cost-sensitive accounts that right at year end decided they needed to make a change. And so the point I was making in my script was, we just didn't quite have the size of our core sales staff large enough to overcome that and especially without MidMarket sales hitting their level. So it's almost like a problem that appeared after the solution is already in place because we've already started ramping up the sales staff. So that's why this thing will be fairly short-lived.

So where did these -- what did the MidMarket accounts do to save cost? I mean, you have a pretty attractive health offering and they're going to need health offerings, so what was their solution? Is it different PEO or a different type of solution?

It was a -- it was about the same mix as we've seen in the past of some going to take it back in-house, and some going to other PEOs and then some using kind of a hybrid or finding some other bundled solutions but not a full solution and just not having as much as they used to have. So we reflected a cost-cutting mindset that we saw right there at year end.

And just you mentioned that your customers are specifically affected by the fiscal cliff. Could you just kind of remind me why you think that would be the case?

Well, if you look at the most successful small and medium-sized business owners, they're in a situation where all the regulation that's coming out affects their businesses directly, both the regulation, and then on top of that, health care reform, which is really huge. But at the same time, the tax increases that came at year end also play indirectly for those individuals. And were significant enough to cause some actions. There's some steps to take place. We saw that significantly at bonuses at year end with people doing tax planning, and a large bonus deal this year for those owners and management.

And that was another question I had. You're bonuses are up dramatically in Q4. Are they going to be presumably down in Q1? So was there sort of a big shifting there that also impacts results?

Not a lot. We do make some fees on bonuses because you're processing transactions and so forth. And certainly, bonuses will be substantially lower. But that wasn't a big contributor to the change.

I just had one more general question and I'll get back in the queue. But you mentioned starting up a health exchange. Would you do that by yourself or with United Health, and the cost of that could be large, I believe. So maybe you could talk about what would be involved in starting up your own exchange?

Well, Jim, this is Richard. We have spent quite a bit of time in that project. Remember I talked about this task force that we have, and one of the groups in the task force is working on that particular program all by itself. Oddly enough, there are some opportunities out there that I think could work for us. But we're still in the research phase, and so don't want to start making commitments about what we are or what we're not going to do until we've got it all put in place a little bit later on in the year, because business owners by the time we get to July are going to be needing to have answers for their work-site employees because these exchanges, theoretically, are supposed to go and be open for business to start enrolling on October 1, and I'm still not sure if that's even possible. But having said that, we're going to be prepared with our full array of opportunities for the business owners by the time we get to the summer.

Yes, we have a variety of options. But I think it's important for you to understand, when you think about what an exchange does, which is to bring together plans from various providers, line them up side by side and help customers choose from among them and make a choice and implement a plan, that's what we do. We do that already. So in terms of the mechanics of what you actually do to make that happen, we do that. Now would it be on a different platform? We're proud to be working with some other outsiders and we have various options for different size of accounts, but we're well down the path to be prepared to do that if the need and the opportunity arises.

Our next question will come from the line of Tobey Sommer with SunTrust.

Paul, just wanted to see if you could elaborate a little bit more on what your assessment is of why the customers left and see if there's a change in the value that they're looking for?

Sure. Now we -- that's a good question and obviously, that's one we would be all over, it's why we've spent a lot of time over the last 4 weeks or so really digging in on that. And comparing to previous information that we look at with customers as they depart, with exit interviews, so on and so forth. And in some ways it's unfortunate there's not a lot of difference there. You basically you had cost-sensitive accounts that felt like they were in a position in their own economic environment that they needed to try to come up with another way to literally save dollars. So it wasn't very exotic. That's what happened. Now we also had, of course, the usual number of companies that, I call it, our success penalty that sold at year end and moved to somebody else. We actually were able to sell one of those, the new company, and bring extra's on [ph]. So we had some of that. We also had some companies that were in more desperate financial shape, either going into bankruptcy or near. And obviously, those with credit reasons, we had to let go. But no, it's as plain as I laid it out in the script. We just had a higher number of larger accounts that were cost-sensitive, and at year-end, there's kind of a sour tone and they departed.

When I think about your initiatives on the expense side, how do you think about your ability to moderate or accelerate those throughout the year? And how would you -- what kind of milestones or signs would you look for to step on the gas pedal or the brake?

Sure. Well, what we are really looking for right now and all over is making sure that, that business performance advisor count ramps on up. I'm not talking about the training count. We already have more than 300 hired. That number needs to get to about 320 or so to have the training count be at that 300 number. And then we're going to be looking very closely at the sales efficiency of the 240 or so that were here at year end and the new 60 that are here, and making sure that all gets managed well. Very excited about that because we just had a successful Fall Campaign, so those 240 went through the whole new training system, the whole new selling system and they were successful. So they are ramping up. They're at the bottom of that nice curve that moves up for sales efficiency as you succeed. And then the other factor that's interesting is that our new BPAs, the new ones don't have the old system to get rid of. They get to come in and learn the new system and go out, so I'm very excited to see how new BPAs are able to perform with the new selling system.

My last question is, how much in earnings did the adjacent business unit -- business cost in 2012, and what's your assumption for '13? And the reason I ask is that with a 37% growth in seats, I'm wondering about the timeline of potential conversion from a drag to breakeven and ultimately, profitability.

Yes, just in a general sense, and Doug has specific numbers, but I'm going to -- we had talked in terms of a drag of about $0.25 coming from all these businesses we've established, et cetera. And now you have to look at the ABUs that were in place last year, and those are going to be less of a drag next year than they were. But we also added the Payroll Service and some financial service offerings late in the year, and they are going to cost a little bit. And so we're expecting this year to be that year -- should be about the same as a budget. We budgeted that to be about the same, we're hoping to blow that number away. But at the beginning of the year, we believe in budgeting fairly conservatively on each component.

And of course, when you look at, which is really the way that we're really measuring these guys right now, is in their gross profit contribution. And we do see a nice step-up coming, even though it sounds like a couple of bucks per work-site employee per month for the year. Well, that's several million dollars of gross profit contribution, and that's been our game plan all along, was to bring those adjacent businesses to a point that they could materially contribute at the gross profit line because they're such high-margin businesses. So we're seeing some real positive there.

Right. Doug, do you have the numbers for the EPS impact in '12 and what it's model for '13?

Yes, I mean, It goes back what Paul mentioned earlier. It's about $0.25 drag or so in 2012 and we expect a similar drag. But if you look at 2 different components on the businesses that we've had, the recurring-type ABUs, we expect about a $0.05 improvement on those and then a $0.05 investment on the new ones, which are the Financial Services, the new payroll product that came out mid to late last year and then on the financial service product, the Reveal software that we've announced.

And the HCM...

And the HCM, right.

The major movement, very promising.

Our next question will come from the line of Mark Marcon with Robert W. Baird. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: I was wondering what's the percentage now of the clients that are in the MidMarket?

Well, we were up to about 19. I think at this point, it is, I think, 17. But -- yes, that's right. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: And within sales, what's the -- the business process advisors, how many of them are dedicated to the MidMarket?

Right. We have 8 business performance consultants. In the MidMarket, we use that term to describe them and differentiate them from business performance advisors. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Okay, okay. And then with regards to the -- we have the starting base, and in terms of the -- achieving the sequential growth, does it imply any sort of ramp up in terms of productivity levels within the core BPAs?

In the core BPAs, you'll have some ramp-up in their sales efficiency that will offset the lower sales efficiency at the new folks. But it's very modest. Strictly -- and we all know how these numbers work. When you grow your sales about 25%, you're going to get a lot more sales. So it's a -- we think it's a more than a doable forecast for that component. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Can you remind us how many BPAs you had at the beginning of 2012?

Yes, we had -- for most of the year, we were right around the 250 number. And basically, this -- in the Fall Campaign this year, the slightly smaller sales staff produced more than -- or actually produced the same amount of sales as the group the year prior, so -- in the new selling system. So I was really pleased with how that worked out. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: And with regards to the new Affordable Care Act, and there are certain provisions of that, that go into effect even starting this year, how does that -- how are they -- how would a smaller company view themselves from the perspective of -- and this is something that a number of investors have been asking about. Is this -- if you're part of a PEO, do you suddenly become -- if you had 20 employees and you weren't subject to the Affordable Care Act but you joined a PEO and you now become part of an organization with 120,000 employees, that you are now subject to it or how should we think about that?

Well, yes. Here's how we should actually think about that. When you think about customers that are in our universe, the Workforce Optimization, there are customers providing benefits, want to provide benefits, they're the best small businesses in the country, they are competing to hire and keep the best people. So whether they have to provide it or don't have to provide it is really a nonissue. They want to provide it. But the real issue for them is, does this open up any new options or new ways to provide the coverage that is going be better for them? And what we're prepared to do, and Richard's group has done an amazing job on getting prepared for this, but we believe we're going to be able to offer more of a continuum of solutions for companies that, both in the Workforce Optimization solution and outside, to where you can mix in either brokerage solutions or being involved in our large plans depending on which is better for that particular customer. So we think it opens up a lot of opportunity for us to do more for more customers.

I think the other item that's important to be aware of is that, while there is no specific requirement for those that have less than 50 full-time equivalents, and by the way, that has still not been defined yet, so...

You mean, full-time equivalent....

Full-time equivalent employees, right. But the other thing is this whole topic of cost, you haven't heard people talk about yet because it is the -- if you use the colloquialism, it's the light at the end of the tunnel. And it's not light, it's a train. The whole health care reform is requiring the transition to community-rating kind of concept. And what that does is that forces all of -- in this particular bill, it forces all of the way that the insurance companies rate their prospect, if their covered people goes to a new rating system, whereby people are going to get -- a number of people are going to get really nice decreases, and a number of people are going to get really huge increases. So if you're forced into that environment, you're going to be, as a small business owner, seeing increases in the 30- to 40-plus percent beginning in 2014. And of course, in our situation, because of our plan and how it works, they won't be having to experience that kind of a situation. So it's not just about offering it or not. It's about the cost of offering it and what that's really going to mean.

I think one other factor that's really significant here is that the amount of data and information and reporting that a business is going to have to do to comply with the Health Care Reform Act is really significant. It has to do with the things they're not even calculating today or a data they're not even collecting today. And that's one of the reasons we've created, we've developed this executive briefing. A PowerPoint presentation and information that we're going to train our advisors on this month when they come in for the convention, so that we can offer that to small and midsized business owners, so that they can get briefed on what the requirements are going to be. And basically, we're going to be able to lay out an option where you can handle all this complexity, all this compliance and all this cost, or you can just sign up with Insperity. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Great. And then when we take a look at your client base in terms of roughly 73% getting the health care coverage, do you have any clients that don't participate in the health care? I'm assuming that 73% is basically 3 out of every 4 employees at your clients opt for the health care.

Right, yes. Actually, when you look at the number that are eligible, it's the -- the coverage is over 90%. The thing that report every quarter is just the pure math of that month of the number that we've got on the plan. But...

And some are ineligible because of part-time or temporary, some are new and aren't eligible...

Yes, some of them are -- and the rest of them are covered under a spouse's plan or whatever.

Or military coverage, or...

Right. So I don't know if that answers your...

So we really don't... Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: That answers the question. And then I would imagine that your medical loss ratio is more favorable. Is there any opportunity to -- with your medical loss ratio being what it is, that you could actually utilize that in terms of negotiating even better rates with UnitedHealthcare?

Well, I think the answer to the question is, the way that our plan operates, it's a -- it is called -- it's a fully insured plan with a partial self-funding treatment from an accounting perspective. So our plan includes the -- all of the cost of the claims is the basic part of the plan that we're responsible for and then we negotiate with the carriers for administrative fees and other things. So the real opportunity is -- I mean, we just posted a year where our trend for health care, the total book of business that we've got on $900 million of health care expense this year was 3.5%. So I mean, it doesn't need to get any lower than that because I don't think there's too many people that are walking around the streets talking about a 3.5% increase in health care cost for 2013 and beyond. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: No, it's terrific. I was just wondering, I was under the impression that there might be the potential for UnitedHealthcare to actually use your population in terms of calculating their medical loss ratio. And given that yours is superior, presumably that there's an arbitrage there and that they might be able to capture some of that.

Yes. No, no, they're not able to do that because it's our nickel.

Our next question will come from the line of Michael Baker with Raymond James. Michael J. Baker - Raymond James & Associates, Inc., Research Division: In terms of your work=site employee base, what percentage are with employers with less than 10 employees?

A very small. Michael J. Baker - Raymond James & Associates, Inc., Research Division: Okay, that's helpful. And then with the private exchange, can you give us a sense of what part of the market you think that works best with as it relates to the small business dynamic and their needs?

Well, I think that -- I think the answer to that question is still unknown. And so as a result, maybe in 1 year from now, we might be able to, Michael, be able to answer that question. But in the meantime, we've got to be prepared to have that as a solution so that for those that decide to go that route can use it. I think the other thing that's pretty important to realize here about this exchange and all of that kind of stuff is that, if you'll recall the work-site employee base that we have, the average compensation is about $60,000 a year. And so they are not going to fit in the -- be able to go into the exchange to get a subsidy from the Federal government because of their base wage. So I think -- and as we answer some of these questions for you all, they're going to be different than what like the Darden's restaurant group is going to be dealing with or Sear's are going to be dealing with. So it's different.

I think the other way you have to think about it though, and I think this is important. You have to think about customers in a life cycle. Customers may need to be in an exchange when they're not very profitable, they're small and young and trying to make it. And then they -- maybe you can grow out of that as they get -- not just in size but in profitability, and can afford more better and do more things to hire and attract key people. So we want to be able to provide the full spectrum of possibilities. I want to be able to analyze their options side-by-side with them and help them choose what their best option is. Michael J. Baker - Raymond James & Associates, Inc., Research Division: Would one of the potential implications be moving away from the bundled pricing on the PEO side as people consider shifting from one or making adjustments or doing hybrids?

I think we can look at possibly some tiered pricing within the co-employment model. We can look at pricing in a brokerage solution that's in an exchange within the bundled price. There's a lot of different options out there. And these are the things that -- and this is why we're investing another nickel of share in health reform because it's moving fast. Michael J. Baker - Raymond James & Associates, Inc., Research Division: And as you guys kind of dug around and done your work, is there -- what's the potential that it actually gets pushed back? My understanding is the National Association of Insurance Commissioners, there was some cry out to the administration. What do you think the probability of that happening is?

It's hard for me to tell, Michael. We -- my gut says, and it has said all along, that I just don't think that the country is going to be ready to handle all these stuff in less than 6 months. I mean, it's not January 2014. The current rules say that you got to have these exchanges in place to start enrolling people in October. And I just -- I know what we're going through and what's -- and being involving for us to be ready for all these kind of different eventualities. And I think we're a little bit more efficient than the federal and state governments, so...

I will now turn the call back over to Mr. Sarvadi for any closing remarks.

Well, once again, we thank everybody for participating today and for your interest in following the company. So thank you, and we'll see you next quarter.

Ladies and gentlemen, this does conclude today's conference. Thank you all for joining, and you may now disconnect.