Good morning. My name is Jim, and I'll be your conference operator today. I would like to welcome everyone to Insperity third quarter 2018 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. 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 S. Sharp, Senior Vice President of Finance, Chief Financial Officer, and Treasurer. At this time, I'd like to turn the call over to Douglas S. Sharp. Mr. Sharp, please go ahead.
Thank you. We appreciate you joining us this morning. Let me begin by outlining our plan for this morning's call. First, I'm going to discuss the details behind our third quarter 2018 financial results. Paul will then comment on our recent results and our plan as we head into 2019. I will return to provide our financial guidance for the fourth quarter and an update to our full year 2018 guidance. We will then end the call with a question and answer session. Before we begin, I would like to remind you that Mr. Sarvadi or myself 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. Let's discuss the details behind our strong third quarter results. We once again achieved record high operating results, reporting $0.96 in adjusted EPS, a 68% increase over Q3 of 2017, and adjusted EBITDA of $62 million, an increase of 43%. These results were driven by an acceleration of worksite employee growth into the mid-teens and effective management of pricing, direct cost programs, and operating costs. As for some of the details, average paid worksite employees increased 15% over Q3 of 2017, accelerating off of Q2's growth of 13%.
This quarter's growth was driven by continued strong sales, a high level of client retention, and net hiring by our clients. As for our sales efforts, worksite employees paid from new sales in our core client segment increased by 26% on a 16% increase in the average number of Business Performance Advisors. When combined with the recent success in our mid-market segment, including the enrollment of our largest account to date, total worksite employees paid from new sales increased by over 50% compared to Q3 of 2017. Additionally, client retention during the third quarter totaled over 99% as we remain on track to hit the recent historical highs of 85%-86% for the full year 2018. We also experienced a slight increase in net hiring by our client base over Q3 of the prior year.
The worksite employee growth, combined with effective pricing and management of our direct cost areas, drove a 19% increase in gross profit over Q3 of 2017. These results included a 2% increase in benefit costs per covered employee and workers' compensation costs as a percentage of non-bonus payroll, generally in line with Q3 of 2017. The resulting gross profit for worksite employee per month increased from $250 in Q3 of 2017 to $257 in Q3 of this year. Q3 adjusted operating expenses increased 8% over Q3 of 2017 as we leveraged various areas of the business while continuing to invest in our growth, technology, and product and service offerings. In addition to the increase in the number of Business Performance Advisors, we have opened six new sales offices thus far in 2018.
We have also continued to invest in service personnel with client growth, particularly with the recent success in the mid-market area, our client-facing back office and cybersecurity technology, and our traditional employment offering. Our effective tax rate in Q3 came in at 26%, which we continue to expect to be our 2018 full year rate. These Q3 results coming off of a strong first half of the year has resulted in significant top and bottom-line growth for the three quarters ending September 30th. Gross profit has increased 21% on a 14% increase in the average number of worksite employees. When combined with just a 13% increase in adjusted operating expenses, adjusted EBITDA has increased 38% to $192 million. Finally, when combined with a lower effective tax rate, adjusted EPS has increased 61% to $3.06.
As for our balance sheet and cash flow, we ended the quarter with $167 million of adjusted cash and have $245 million available under our line of credit. Through the three quarters ending September 30th, we repurchased 212,000 shares of stock at a cost of $16 million and paid $25 million in cash dividends. We have repurchased an additional 186,000 shares at a cost of $20 million during the month of October under our corporate Rule 10b5-1 plan. At this time, I'd like to turn the call over to Paul.
Thank you, Doug. Good morning, and thank you all for joining us to discuss these truly outstanding record results for Insperity. We are continuing to see strong execution of our business plan across the entire organization, driving these extraordinary outcomes. Today, my comments will address three topics driving value creation at Insperity. First, I'll discuss our growth acceleration and strong profitability reflected in our recent results. Second, I'll cover the focus of our fall selling and retention campaign and our confidence level as we look forward to 2019. Finally, I'll comment on our dynamic business model that we continue to refine, which is producing consistent, predictable, outstanding performance. I will be brief in my comments regarding the recent quarter because frankly, the numbers are so strong they speak for themselves.
Strong sales momentum, continuing exemplary client retention, and a robust small business economy all contributed to growth acceleration greater than 15%, 16%, and 19% in worksite employees, revenues, and gross profit, respectively, over the same period last year. Paid worksite employees from new sales in the third quarter increased 58% over the same period last year and included the enrollment of our largest client ever. We have accelerated our growth rate in BPAs from 12% to 16% over the last couple of years, and our unit growth rate in the number of paid worksite employees has followed accordingly. New sales for the third quarter were strong, coming in at 99% of budgeted levels as sales efficiency was maintained at nearly the same level as last year in spite of the significant increase in new BPAs. This is a credit to the ongoing sales training and management we have in place.
Our marketing programs continue to provide sufficient leads to reach our sales targets. In the third quarter, marketing source leads increased 41% over last year, driven by continued success in digital channel and loyalty programs. Client retention continued at historically high levels above 99% this quarter. This is certainly a credit to our employees across the company, meeting and exceeding expectations of clients throughout the country every day. The third contributor to our growth rate is the net effect of new hires and terminations of employees within our client base. Net hiring has been a positive as all three indicators, including average pay increases, overtime, and commissions, remain very strong. Average pay for the same employees over last year is up over 4%, with hourly workers benefiting the most, with pay increases exceeding 5% for the first time in many years.
Overtime as a percentage of base pay is over 12%, confirming the need for and the difficulty in finding qualified new employees. Commissions paid to the sales staff of our clients was up over 13% in Q3, indicating strong sales in the small business sector. This dynamic feeds perfectly into strong demand for our HR services, providing better benefits and helping clients to attract and retain the best employees. Our substantial outperformance in our profitability in the quarter was about half due to higher gross profit and the other half due to lower operating expenses. These results punctuate our effective management of price and cost for our services and strong execution against our operating budget.
The combination of these factors result in a very strong third quarter, with adjusted EBITDA up 43% and sets the stage for a full year expectation of a 33% increase in this key metric. The obvious momentum we have within Insperity provides a high level of confidence as we execute our important fall selling and retention campaign and look forward to our year-end transition. We expect strong sales and client retention during this critical period where we typically experience a concentration of new and renewing accounts. We are confident in renewals of current accounts due to the benefit our clients receive from the depth of our services managing our direct costs, including payroll taxes, workers' compensation, and employee benefits. We expect the stability in these costs, coupled with no significant plan design changes, to translate into high retention during this campaign.
In addition, we are three weeks ahead of plan in communicating renewals to our client base, which gets us a head start on the process. We are confident on the sales front due to the combination of consistent, predictable sales from our core small business segment and several recent mid-market sales. We certainly have to execute well throughout the balance of the campaign. I believe we are in an excellent position to achieve our fall campaign sales targets. We have two additional priorities in this year's fall campaign that are important going forward. The first is an emphasis on optimizing pricing through a consistent, transparent approach to comparing costs for prospects in the sales process. We've recently completed a training program to help our BPAs demonstrate the value we deliver to clients and support our pricing model.
The second is boosting sales activity in our new Workforce Acceleration traditional employment bundle. This new option for prospects represents an important new revenue stream for the future of Insperity and a refinement to our business model. Assuming we stay on track and are successful in our fall campaign, we should be in good shape for our starting point in paid worksite employees for 2019. At this stage, we're comfortable in budgeting a growth rate for paid worksite employees for next year in the low to mid-teens, similar to what we achieved this year. We always use a healthy level of conservatism in our budgeting process, which will take place over the next several weeks. At this point, I would expect to end up with a budget for 2019 with growth in adjusted EBITDA and adjusted EPS at rates slightly higher than our unit growth.
Similar to this year, we will begin next year with a conservative view of gross profit and allow upside to come in as we effectively manage these costs throughout next year. For my last topic, I'd like to focus on our exemplary business model and the consistent, predictable results that are produced when execution on target. The model is designed to provide multiple ways to drive double-digit unit growth, solid unit profitability at the gross profit line, and operating leverage to produce impressive double-digit growth in adjusted EBITDA. The front of the ship for our business model at Insperity is the number of trained Business Performance Advisors in the marketplace and their sales efficiency in introducing our unique services to the best small and mid-sized companies in America.
The breadth of our services in both the co-employment and traditional employment space distinguish Insperity offerings as the most comprehensive business services platforms in the marketplace. Our industry-leading technology, coupled with our consultative expertise, delivers software with a service that drives improved business performance for our clients. Historically, the rate at which we grow the number of BPAs translates directly into our growth rate in paid worksite employees, as long as we can maintain sales efficiency. More recently, as we have succeeded in the mid-market space, we have turned this segment into a premium to our growth rate. This opens up the potential for our worksite employee growth rate to exceed the BPA growth rate by a couple points in the future. Mid-market sales have continued to build toward a more consistent contributor to our growth with a strong pipeline and improving closing rates.
This is important in driving sales efficiency, which is one of the most significant factors within our business model, driving both growth and lowering cost of sales. The next major element of our model is the matching of price and direct cost in order to achieve targeted levels of gross profit per employee. Our track record in this area has allowed us to provide a tremendous advantage to our clients in the form of optimized pricing and stabilized employment cost. This level of depth of our services has also allowed us to earn the highest gross profit per employee in our industry. This is important because each worksite employee is also a unit of employment risk in our co-employment model. When we are successful matching price and the corresponding direct cost, we're able to grow gross profit at a slightly higher rate than our unit growth.
Our model also contemplates operating leverage from fixed and semi-variable costs that escalate at a rate slower than our unit growth. Sales, service, and technology costs generally escalate more in line with unit growth, while administrative and infrastructure costs offer operating leverage. When you put all these factors together, adjusted EBITDA can grow at a substantially higher rate than our unit growth, similar to what we are seeing this year. Our growth rate in adjusted EBITDA has exceeded 26% for the last three years and is expected to be over 30% this year, demonstrating the capability of our business model to perform at a very high level over an extended period of time.
Now, while the financial elements of our business model are certainly impressive, the most amazing aspect of our business model is that it allows our employees to provide a unique level of care to our small and mid-market clients, their employees, and families. Insperity has over 3,100 corporate employees dedicated to helping businesses succeed so communities prosper. Helping clients have the best possible place to work in order to attract and keep the best employees is critically important today and always a driver to business success. This week, Insperity was recognized as the number 1 best place to work in Houston by the Houston Business Journal for the fourth year in a row. This is no small feat in the nation's fourth-largest city in the country.
This represents the 145th time we've received this type of recognition in cities across the country since we began participating in these programs. It is important for Insperity to walk the walk as a best place to work to demonstrate our capability to help clients do the same. In summary, Insperity is continuing to execute and perform at a very high level, and we are optimistic we are on track to continue strong performance into 2019. At this time, I'd like to pass the call back to Doug.
Thanks, Paul. Before we open up the call for questions, I'd like to provide our financial guidance for the fourth quarter, an update to our full year 2018 guidance, and some comments on our general outlook as we head into 2019. We expect strong sales and client retention to continue over the remainder of 2018, driving a further acceleration in worksite employee growth. We are now forecasting fourth quarter average paid worksite employee growth to be in a range of 16%-17%, up from Q3's growth of 15%. This would result in growth for the full year in a range of 14%-14.5%, up from 10% in 2017. We are increasing our 2018 earnings guidance based upon the strong year-to-date results and an improvement in our outlook over the remainder of the year, driven by the higher worksite employee growth rate.
Q4 adjusted EPS is projected in a range of $0.63-$0.67, an increase of 15%-22% over Q4 of 2017. This would result in an increase of approximately 52% in adjusted EPS for the full year 2018 to a range of $3.69-$3.73. As for adjusted EBITDA, we are forecasting a range of $44 million-$46 million for the fourth quarter, which is a 14%-19% increase over Q4 of 2017. This puts us on target for a 33% increase in adjusted EBITDA for the full year 2018 over 2017 to approximately $237 million. Adjusted EBITDA per worksite employee per month is a key metric for our business, as it is a measure of our ability to effectively manage pricing, direct costs, operating expenses, and risk while growing worksite employees at targeted levels.
We have experienced a consistent improvement in this metric over the past five years, from $54 in 2014 to $81 in 2017, and are now forecasting $95 in 2018. In conclusion, we are pleased that 2018 is shaping up to be a year of record earnings and are now focused on closing out a successful fall sales campaign and client renewal period to position us for a strong 2019. As we continue to execute our strategic plan, our initial budget will be for continued worksite employee growth in the low to mid-teens, with slightly higher adjusted EBITDA growth on improved pricing, effective management of direct costs, and continued operating leverage. We will be providing detailed 2019 guidance on our next earnings call, and we look forward to talking to you then. At this time, I'd like to open up the call for questions.
All right. At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Jim Macdonald of First Analysis. Your line is open.
Yeah. Good morning, guys. Great quarter.
Thank you.
Thank you.
Thanks for giving us the high-level thoughts on 2019. Maybe you can also talk a little bit about, with the new tax laws, any difference in seasonality you expect this year? Any difference in the year-end being such a critical thing? Any changes in cadence that you can talk about, do you expect?
The only thing that comes to mind on your question there is really just that we are seeing things kind of even out relative to the Small Business Efficiency Act that was passed a few years ago and finally implemented. We're seeing just a more consistency, both in sales and in our core business and mid-markets. Hopefully over time, you won't have as much of a year-end emphasis as there was throughout the first 30 years of our existence. Other than that, I don't see a lot that would change things going forward. I like the fact that we see a lot more consistency throughout the year in the selling effort. Of course, we have selling campaigns going pretty much all year now, a spring and a summer and a fall campaign. I think that's a good sign for the future.
Just one more. Maybe you could give us a little more detail on the gross profit improvement in the quarter. It sounded like workers' compensation was similar to last year, so maybe what drove the majority of the gross profit improvement?
I think if you look at the different areas of gross profit, our pricing and payroll tax area, workers' comp area, all those were pretty much on target. In the benefits area, our benefit cost came in slightly lower than what we had forecasted, we got
little bit of improvement in that area. I'd point you out, as it relates to really the bottom line results in excess of our guidance, we're driven in all three areas. I mean, the worksite employee growth being above towards the higher end of the range, what I just talked about in the gross profit area. The operating expenses also being less and managing those below our budget for the quarter. It's really from throughout the income statement that drove the results.
Mm-hmm. Great. Thanks.
Your next question comes from the line of Tobey Sommer of SunTrust. Your line is open.
Thanks. I was wondering if you could talk to us about what the opportunity is for kind of the non-co-employment model to influence your growth into 2019 and beyond, and how you see it increasing your total addressable market. Thanks.
Thank you, Tobey. Yes. Our new Workforce Acceleration bundle is the most comprehensive HR services bundle in the marketplace. We are introducing it in a large way during this fall campaign to get the right level of activity around it. We can really hone in on activity rates and closing rates and those kind of things. We can make it even a more important part of next year's plan. It's really important to us because going forward, it really expands our addressable market. Every year that we are out in the marketplace, we see approximately 35,000 business owners face to face, and we close about 3,000 or so of them in our co-employment model. The rest of those companies that we see face to face are very good prospects for Workforce Acceleration.
We are working with our sales team to really go in in tandem and explain both options right up front, then slot them into the right option that's best for them. What we see is from the same effort, the investment we make in our more than 550 Business Performance Advisors out in the marketplace, that we're able to take their same time and effort that they spend, and instead of just getting the co-employment sale, also getting a couple of Workforce Acceleration traditional employment bundle sales. We believe that over time, we can make the value of those other sales worth a third to half of the value of a Workforce Optimization sale.
You can just run those numbers out, you can see that it can be very impactful and allow us to keep growing, casting a wider net, then bringing on these customers in the traditional employment bundle that may move up into Workforce Optimization over time. Or even the customers that we have that sometimes leave the co-employment model are selecting our Workforce Acceleration as an option and staying in our family and continuing to generate revenue and profitability. Tobey, are you still there? I guess he's gone. I'm just going to check.
All right. Your question comes from the line of Jeff Martin of Roth Capital Partners. Your line is open.
Thanks. Hi, Paul. Hi, Doug.
Hey, Jeff. How are you?
I'm doing well, thanks. Paul, I was intrigued by your comment about the worksite employee growth should exceed the BPA growth in the near future. I assume a lot of that is the acceleration initiative, but also was curious, what are your hiring plans for BPAs next year? Could you expand upon that comment about the worksite employee growth rate exceeding the BPA growth rate? Thanks.
Sure. Yeah, that's kind of our next step in the plan. Now that we have our mid-market sales effort beginning to be more consistent and predictable, we believe we can grow the units at a couple of points higher than the rate at which we grow the BPAs. As we sit here today, we haven't worked through all the detailed budgeting for next year yet. Today, if I had to put my thumb up and say what I think we're going to do for next year, we'll be in the range of probably 13%-15% growth in the BPAs. We've ramped it up quite a bit, so there's a bubble in there.
I think we're going to allow it to moderate back a little bit and see if we can grow through the mid-market and the sales efficiency gain we get from that, grow at a couple points above the rate at which we grow the BPAs. That will allow us to have a more cost-efficient growth model and continue this impressive level of adjusted EBITDA growth above the rate at which we grow both the units, the BPAs, and the gross profit. That's kind of the game plan as we sit here today. We'll be working through all that, and we're in a good position because if we want to grow it a little faster, we can do that.
It kind of depends what confidence level we have on really now based on the starting point next year, which we feel pretty confident about as we sit here today, that'll give us the opportunity to make these refinements in our model and see all that play out the way we'd like to see it.
Okay. Then can you give us perspective on how much you've been pushing the Workforce Acceleration to the core market so far this year? It sounds like it's more of a rollout with this year's fall sales campaign. Just providing some relative perspective there would be helpful.
Sure. The big thing we did early in the year is complete the development of the service model. We added the locked-in relationship so that we could bring along a very robust benefits offering, along with an upgraded service levels with our service team. We really refined and put together the most comprehensive traditional employment solution in the marketplace. Over the summer months, we got enough activity to go out there and make sales, and we've actually had a significant increase percentage-wise but on a small number from the year prior. The thing we really want to test over summer was pricing. We were able to sell this new bundle at about three times the price of the old kind of payroll plus traditional employment bundle that we had called Workforce Administration last year.
That tested out fine, so we're ready then to move up the volume of activity and get all that right. That became the emphasis of this fall campaign, is for our BPAs to be introducing both Workforce Optimization and Administration and spinning off more opportunities for us to get more out of the same sales activity in the marketplace. We'll see how that goes over the fall. So far so good. We are getting activity. We're getting enough that we think we can kind of make that a part of the going forward and see where we go from there.
Great. That's very helpful. Thank you.
Your next question comes from the line of Mark Marcon of RW Baird. Your line is open.
Congratulations, just wanted to follow up with regards to the last set of questions. When you take a look at the new sales that you've had so far this year, how much of that is currently coming from non-co-employment solutions, whether it's Workforce Administration or Workforce Acceleration or any of the point solutions that you're currently selling?
It's still small, but relative to the co-employment model. I think we now have a framework where we can really layer this on and grow it and make it more substantial going forward and adding to what already is a really dynamic business model. It just offers us a new way to continue to reach the kind of performance numbers that we've had over the last several years. Mark, maybe to clear up something there. When I gave the metrics on the number of worksite employees paid for new sales of 26% in the core segment up on the 16% BPAs, those are in the PEO model, okay? Those are worksite employees.
Yeah. I appreciate that. I was just thinking about purely from a revenue perspective then.
Okay. Yeah, right now, all the other services and the traditional employment bundle, et cetera, all roll into the gross profit line. You've seen our gross profit per worksite employee continuing to go up. There's an element of that in there, and that's where we'll start to see. Once it becomes significant enough, I imagine we'll start breaking that out so we can have a little better look at that.
Great. With regards to what you're seeing from a benefits cost perspective, what's the expectation here for the fourth quarter and for next year? It sounds like your benefit plans are going to be relatively stable and the cost trends have been very nice.
Yeah, we've really done a nice job in our matching of price and cost, on the cost side, have seen I think we started out around the 3% range for medical inflation for the course of the year. A higher level on the pharmacy side and a little lower level than that on the rest of the plan. Over the year, we've seen both of them come in less, some of that from migration to lower cost plans, et cetera. So we're looking closer to the 2% for this year. We're confident enough in the going forward on that front in the matching of price and cost that we were able to not have any plan design changes going into the new year.
We think we can have moderate increases that are going to really help our customer base and not having to have plan design changes, so you don't have a lot of shifting and stuff going on in their employee base is a good thing for them, good stability for them. And I think we will continue the good performance we have on our plan into next year.
Great. Then two other questions, just in terms of relatively newer initiatives. One would basically be along the mid-market. It sounds like you're increasing your emphasis there and feel a little bit more confident. Can you describe the types of clients that you're targeting on the mid-market side, and what the largest client would look like, and just industry type of number of employees, et cetera?
Yeah, that's great. It's important to note that the targeting for our mid-market customer base isn't any different in terms of the psychographic profile, the types of businesses, whether the types of risk that we would take in that segment are going to align with the core segment. It's basically just these companies are larger, typically. We call mid-market 150 to several thousand employees. Our largest customer that we brought on was just under 3,000 employees. We have more recently kind of set up what we're calling an enterprise division for these companies that are kind of 1,000-plus employees, because there are uniquenesses there in how we connect to them and how we transition them and bring them on. We're just getting better and better at making our service model a customized fit for these really strong mid-market companies that are growing and trying to develop.
We believe that there's a very underserved market, and we figured out a great way to come alongside them and really help them execute their plan. We have seen over the last couple of years, real great improvement on the retention side. This year, after a lot of hard work, we are definitely seeing a less lumpy sales process on the sales side, where we're starting to get toward a little more consistency. We have a much larger pipeline and better visibility on the likelihood to close and doing a better job of bringing them to the finish line. That's all good, and it's time to really layer that into how the model works for the going forward.
That's why we're confident we're going to be able to grow the worksite employee growth above the BPA growth, which would be a great refinement to the model. To get the worksite employee growth without the cost related to having to grow the BPAs at that rate is a great refinement for the model.
That's terrific. Can you talk a little bit about the new offices? You've opened six new offices this year, just how investors should think about your potential for further penetration geographically? I would imagine that you're seeing some regional differences just based on the maturity level of the PEO concept across the country.
Yeah. We're seeing that the I really do feel like we've kind of crossed the chasm, as they say, on the PEO concept. The acceptance in the marketplace for this as a viable option has really improved. We do have a very good footprint already across the country. We cover about 75% of our target market in the offices we have now. I'd like to remind everybody that our offices are both sales and service offices combined because we do have a level of our service that we want as close to the customer as possible, face-to-face interaction when necessary, et cetera. We did open up a number of offices this year. We'll open up more than that next year. It would likely end up in our plan.
We bid off the bigger markets first in the expansion plan, you'll see some smaller markets as we go forward. There is still plenty of room to grow our BPA base at the rate we want to continue the kind of results we've had.
That's terrific. Thank you.
Your next question comes from the line of Michael Baker of Raymond James. Your line is open.
Yeah. Thanks. Just looking for additional color on what you think some of the drivers are relative to the lower cost trend. I know you kind of mentioned it earlier, but maybe some view on what you've seen in terms of transition to, I guess, you indicated the lower cost healthcare plan type, and maybe how much more room you think there is to go on that front. Plus, if you're doing anything targeted on health management, that would be helpful as well.
Sure. Well, we do a lot through our primary carrier, UnitedHealthcare, to control cost and manage the claims. It's really a deep program, really not typically available in the small business community. Ours really is a big company plan where all the levers are used to help employees get the best care at the most favorable cost, case management, all that stuff that goes on, wellness programs, just a lot of things, telemedicine, all types of things that help to reduce cost. A lot of those are working. We have seen, as one of the drivers to keeping our cost stabilized, certainly has been migration, that I mentioned, to lower cost programs. There's also been an element of overall cost control.
Our pharmacy, for example, didn't end up as high as we thought it would be as the beginning of the year started. I think there's room for that to continue to improve. I know there's pressures out there to continue to contain pharmacy costs, kind of in the marketplace at large. That would be nice if that would be a contributor. There is more room for migration. We've seen, fortunately, the migration to lower cost plans, it's just consistent quarter after quarter after quarter. A lot of it is the new business coming in, the mix change of new business coming in, lower cost plans. At this kind of growth rate, we think that can continue for quite some time.
Great. I just had another question for you, because obviously you've been captaining this ship a very long time. Maybe you could take us back a couple years to where you used to see the high end of the co-employment model tap out in terms of company's employee size, and with all the changes that you've made. I know you have that one that was very large that you brought on. Just give us a general sense of maybe how that target market has now expanded, so to speak.
Yes, certainly. What we have found is that the need is really significant in this mid-market space. I'm talking about customers in even that 1,000 to 5,000 employee range. We can bring a level of sophistication and expertise that gives them a significant lift like we have seen, like we always have done in the small business community. We're excited about how this service offering really makes a difference. To us, that's what the threshold is. If we can't really make a difference and really help that company succeed, well, that wouldn't be exciting to us. We've also seen more recently, there are quite a few of what I'd call more maybe national accounts where the potential employee base may be even way more than the 5,000, 10,000, 15,000, 20,000 employees.
They are really made up of maybe it's an agency model or maybe it's a franchise model. It's really a lot of small entities adding up to a lot of employees. We've had some success in that area as part of our mid-market effort. We're seeing other possibilities open up where we can come alongside a large national firm that faces the difficulty every day of how they support small entities that are some type of channel or delivery system for them across the country. That opens up an opportunity as well, to take our capabilities and apply it in yet another way in the marketplace.
Appreciate the update. Thanks.
There are no further questions at this time. Mr. Sarvadi, please continue for the closing remarks.
Okay. Well, thank you all for joining us today. We're excited about where we're heading for the end of this year and this fall campaign, and look forward to putting our plan together for next year. Thank you again for your interest, and we'll see you next time.
This concludes today's conference call. Thank you everyone for participating. You may now disconnect.