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WageWorks, Inc. (NYSE:WAGE)

Q4 2013 Earnings Conference Call

February 20, 2014 05:00 pm ET

Executives

Joe Jackson – Chief Executive Officer

Rich Green – Chief Financial Officer

Lisa Sheldon – Investor Relations

Analysts

David Scharf – JMP Securities

Chris Kennedy – William Blair

Frank – SunTrust Robinson Humphrey

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2013 WageWorks, Inc. Earnings Conference Call. My name is Denise and I’ll be your operator for today. (Operator instructions.) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Lisa Sheldon, Investor Relations. Please proceed.

Lisa Sheldon

Thank you, Operator. Good afternoon and thank you for joining us today to review WageWorks Q4 2013 financial results. With me on the call today are Joe Jackson, Chief Executive Officer; and Rich Green, Chief Financial Officer. After prepared remarks we will open up the call to a question-and-answer session.

During this call we may make statements related to our business that will be considered forward-looking statements under federal securities laws, including projections of future operating results for Q1 2014 and our fiscal year ending December 31, 2014; our selling efforts and the anticipated benefit from those efforts; anticipated benefit of the modifications to the use it or lose it rule relating to healthcare flexible spending accounts; expected benefits from our channel partnerships and from portfolio purchases; the demand for consumer directed benefits; market trends in the industries for which we compete; anticipated benefits of exchange opportunities; our expectations and beliefs concerning how these trends will affect our operating results; and our strategic operational plans, objectives, and goals.

These statements are based on management’s current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially from those set forth in such statements. Important factors such as risks related to regulations affecting our industry; our ability to successfully identify, acquire or integrate additional portfolio purchases, or acquisition targets or channel partners; capitalize on exchange opportunities and risks related to employer and employee adoption of tax-advantageous benefit plans could cause actual results to differ materially from those in the forward-looking statements.

These factors are addressed in the earnings press release that we issued today under the section captioned “Forward-Looking Statements” and elsewhere in our quarterly reports on Form 10(q) for the period ended September 30, 2013. Given these uncertainties you should not place undue reliance on these forward-looking statements. These statements reflect WageWorks’ views only as of today and should not be relied upon as representing WageWorks’ views as of any subsequent date. WageWorks expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements made herein. You should review WageWorks’ SEC filings carefully and with the understanding that actual future results may be materially different from what WageWorks expects.

Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation to the most directly comparable GAAP financial measure is available on our Q4 2013 Earnings Press Release which can be found at www.wageworks.com in the Investor Relations section. Also, please note that our webcast of today’s call will be available on our website in the Investor Relations section.

With that I’d like to turn the call over to WageWorks’ Chief Executive Officer Joe Jackson. Joe?

Joe Jackson

Thank you, Lisa, and I’d like to start by thanking all of you for joining us today. Our Q4 was a strong close to an outstanding year for WageWorks. During 2013 we added a substantial number of new employer clients and employee participants. We had a record enterprise, SMB and cross-selling season and we further improved our outstanding client renewal rates.

We completed two portfolio purchases, established additional channel partnerships and initiated new relationships with private exchanges. Our open enrollment season went very well and we saw a positive response from employers and participants to our new marketing initiatives designed to educate eligible employees on the value of consumer-directed benefits.

These initiatives, along with the recently announced carry over provision for flexible spending accounts led to increased enrollments in all of our healthcare products. As we entered 2014 we believe we are extremely well-positioned to capture the significant opportunity we see ahead of us.

Turning to our results, total revenue for the quarter was $55 million, an increase of 18% over the prior-year period. Our Q4 organic growth rate was strong at approximately 9% and this reflects a difficult compare as we had some AFLAC revenue in Q4 2012.

Non-GAAP adjusted EBITDA was also strong at $13.5 million, an increase of 30% over the prior-year period. This is after ramping up our Q4 expenses to support the new plan year even more than usual due to the addition of Ceridian and the Towers Watson One Exchange Active business. We also increased our marketing efforts in Q4 to drive FSA awareness and participation after the exciting change to the use it or lose it rule.

For the full year 2013 we reported total revenue of $219.3 million, representing an increase of 24% over 2012. We delivered organic growth for the full year of approximately 11.5%, an acceleration from 2012. Non-GAAP adjusted EBITDA for the full year was $56.5 million, an increase of 36% over the prior-year period. All three of these metrics exceeded our stated ranges.

As of January 31st we now have over 29,000 employer clients and total employee participants grew year-over-year to 3.2 million. During 2013 we added a meaningful number of new marquee logos to our client base. In addition, our organization successfully onboarded a record number of new clients and we were able to very effectively navigate through our busy season which resulted in this January being our best service performance to date.

The modification to the use it or lose it rule is having a positive impact on employee participation in those employers who adopted the carryover provision for their 2013 plan year. We had over 1200 employer clients adopt a carryover for 2013 and believe the resulting double-digit increase in enrollments from these employers is a nice prelude to what we can expect to see a year from now. We are working with all our employer clients so that they can take advantage of the carryover provision for 2014. We’re making very good progress, seeing very positive interest and expect to see a more meaningful benefit to our revenue from the amended carryover rule in 2015.

With regard to our Ceridian channel partnership, last October we began the process of transitioning approximately 1500 direct healthcare and approximately 175,000 participants from Ceridian’s existing account administration platform to WageWorks. We saw a meaningful percentage of these clients come onboard for a 1/1/14 start and are planning additional waves of Ceridian clients to transition throughout this year. The vast majority of those will be onboard during the first half of this year.

We continue to expect the annual organic revenue impact at the full run rate to be between $9.5 million and $11.5 million. In addition, we have trained the Ceridian sales force on our products and services and believe they are ready for the 2014 sales season. We continue to be very excited about this agreement and channel partnerships like these are a key component of our long-term growth strategy.

I’ll also take this time to update you on private exchanges. Again, we handle the administration of HSAs and HRAs for One Exchange Active, Towers Watson’s offering for active fulltime employees. While it will not be our policy to provide specific enrollment numbers we were pleased with what we saw from the enrollments that took place in January. Additionally, private exchanges like One Exchange Active are expanding our overall market and provide a significant long-term growth opportunity. You should expect to see us sign other exchanges throughout the year and carry this momentum through 2014 into 2015.

Our Q4 and annual results reinforce the strength of our position within an expanding market. We are seeing the benefits from the strategic investments we’ve made to expand our sales force and broker network, further develop channel partnerships, make portfolio purchases and increase overall awareness of the value that consumer-directed benefits provide. You should expect that we will continue to invest in these strategic initiatives in 2014.

Before I comment on our 2014 guidance I wanted to provide you with our thoughts on our long-term operating model. As many of you know, at the conclusion of each year our management team reviews the prior year’s performance in order to create a three-year outlook based upon what we’ve seen in the industry.

As a result of that we have updated our target operating models’ four key metrics as follows: from a revenue perspective we still anticipate a 15% to 25% overall annual revenue growth rate but now believe 9% to 14% will come from organic means based on the long-term business drivers we have outlined. That’s up from 7% to 12% previously.

Gross margin is expected to increase from a range of 62% to 66%, to 63% to 67%. Operating margin is expected to increase from a range of 12% to 17%, to 13% to 18%. And we also increased our range on EBITDA margins from 24% to 30%, to now 26% to 32% as we continue to drive scale.

As we enter 2014 we have strong visibility into our full-year revenue and adjusted EBITDA. We believe for the full year 2014 revenue will be between $238.5 million and $241.5 million. EBITDA will be in the range of $65 million to $68 million. Additionally, we expect our 2014 organic growth rate to be between 9.5% to 10.5%. Further, we expect our organic growth rate to accelerate in the back half of the year as the majority of the Ceridian accounts are onboarded.

As a reminder, our current outlook does not include the impact of any portfolio purchases and we will continue executing on our stated strategy of making one to three of these a year. We see promising opportunity for continued industry consolidation, have a solid pipeline and a strong track record of successfully integrating acquired companies.

In closing, this was another strong quarter for WageWorks that capped off an excellent year. 2014 looks to be more of the same. Our addressable market continues to expand, our 2014 new sales pipeline is already strong, and we will continue to execute on our growth initiatives and drive scale.

I know I’ve said it before but when you look at the opportunities ahead of us in our industry, whether it is the increasing popularity of consumer-directed benefit accounts, growth in private exchanges, or the new carryover provision for flexible spending accounts, I continue to believe that with the team we have in place and our ability to execute that WageWorks is just getting started.

With that I will now turn the call over to Rich Green. Rich?

Rich Green

Thanks, Joe. I’ll start by providing details on our strong financial performance during Q4 and full year 2013 and then I’ll discuss our financial guidance for Q1 and full year 2014.

Total revenue for Q4 was $55 million, an increase of 18% over the same period last year, exceeding our guidance. Healthcare revenue was $32.9 million for the quarter, an increase of 11% compared to Q4 2012. Commuter revenue was $15.2 million for Q4, an increase of 12% over the same period last year. Other revenue was $6.9 million, an increase of 93% compared to the same period last year and driven primarily by the Benefit Concepts acquisition.

Let’s turn to costs and margins. We will review our numbers on a GAAP basis and where applicable on a non-GAAP basis. The non-GAAP numbers for Q4 exclude stock-based compensation expense, amortization of acquired intangibles, contingent consideration gain, and the related tax impact of these items. A GAAP to non-GAAP reconciliation can be found in the tables of our press release which is available on our website.

Gross profit for Q4 was $33 million and represented a gross margin of 60% compared with 64% gross margin in Q4 2012. The change in gross margin is directly attributable to what we discussed with you last quarter. Specifically we said that we’d be ramping our expenses in Q4 relating to our call center, claims personnel and card production in preparation for an even larger active open enrollment season.

I’d also like to comment that seasonally our Q4 has the lowest gross margins as we incur expenses as I just mentioned ahead of the revenue in the following year but will not have an impact on the future quarters since we manage these expense down through the first quarter of the following year.

Operating expenses totaled $25.1 million in Q4 compared to $24.6 million in the same period last year. In Q4 2013 we had approximately $1.9 million in amortization and changes in contingent consideration, versus $3.4 million in Q4 2012. Overall, our Q4 operating expenses increased year-over-year due to costs associated with the recent acquisitions, new relationships like the Ceridian and Towers Watson One Exchange Active, and ongoing investments to drive growth and innovation in the business.

As a result our income from operations on a GAAP basis for Q4 was $7.9 million, representing an operating margin of 14% - an increase compared with the GAAP operating income of $5.3 million or an operating margin of 11% for the same period last year.

Our non-GAAP income from operations was $10.4 million for Q4 representing a non-GAAP operating margin of 19%. For the same period last year, non-GAAP income from operations was $7.7 million representing a non-GAAP operating margin of 17%. Our GAAP net income was $5.3 million or $0.15 per share based upon 36.3 million diluted shares in Q4 2013. This compares to GAAP net income attributable to common stockholders of $2.7 million or $0.09 per share based upon 31.9 million diluted shares in Q4 2012.

On a non-GAAP basis, our net income was $6.2 million for Q4 2013 which assumes a tax rate of 40% compared to a non-GAAP net income of $4.2 million for Q4 2012 which assumes a tax rate of 41%. Non-GAAP net income per diluted common share was $0.17 for Q4 2013 and $0.13 for Q4 2012 based upon 36.3 million and 31.9 million shares outstanding respectively.

Non-GAAP adjusted EBITDA for Q4 was $13.5 million and exceeded our guidance. This compares to $10.4 million in Q4 2012 and represents a 30% increase over the previous year’s period.

Now I’ll recap our full year results. Total revenue was $219.3 million, a 24% increase over 2012 and ahead of our expectations. Organic growth for the full year was approximately 11.5%, an acceleration from the prior year. Healthcare revenue increased 20% to $135.1 million. Commuter revenue increased 15% to $59.6 million, and other revenue increased 96% to $24.6 million.

For the full year operating expenses were $105.4 million compared to $93.7 million in 2012 resulting in income from operations on a GAAP basis for the full year of $32.0 million, an increase compared to the GAAP operating income of $18.9 million in 2012.

Non-GAAP income from operations was $44.9 million, representing a non-GAAP operating margin of 21%. This is an increase compared to non-GAAP income from operations of $31.7 million or a non-GAAP operating margin of 18% for 2012.

For the full year 2013 our GAAP net income was $21.7 million or $0.62 per share on a diluted basis compared to GAAP net income attributable to common stockholders of $11.9 million or $0.33 per diluted share in 2012, based upon 35.3 million and 24.4 million shares outstanding respectively.

Non-GAAP net income was $26.3 million which assumes a tax rate of 40% compared to a non-GAAP net income of $17.4 million for 2012 which assumes a tax rate of 41%. Non-GAAP net income per diluted common share was $0.74 for the full year 2013 and $0.58 for 2012 based upon 35.3 million and 30.0 million shares outstanding respectively.

Non-GAAP adjusted EBITDA for the full year 2013 was $56.5 million compared to $41.4 million in 2012 and represents an increase of 36%. We’re extremely pleased with the leverage we were able to achieve in the business as we grow and scale our operations and continue to realize the ongoing efficiencies from our portfolio purchases.

Now moving to the balance sheet, cash and cash equivalents totaled $360 million as of December 31, 2013, compared to $309.1 million as of September 30, 2013, and $305.8 million as of December 31, 2012. In 2013 we generated approximately $61.7 million in cash from operating activities compared to $56.1 million in cash from operating activities in 2012.

Now I’ll turn our thoughts to the Q1 and full year 2014 guidance starting with Q1. We expect total revenue to be in the range of $61.6 million to $62.2 million; GAAP net income per diluted share of $0.13 to $0.15; and non-GAAP net income per diluted share of $0.20 to $0.22. \

Our expectation of non-GAAP net income per diluted share for Q1 excludes stock-based compensation expense, the amortization of acquired intangibles, contingent consideration expense and the related tax impact of these items. GAAP and non-GAAP income per diluted share assume a tax rate of approximately 40% and weighted average shares outstanding of approximately 36.7 million. Non-GAAP adjusted EBITDA for Q1 2014 is expected to be in the range of $16.7 million to $17.3 million.

For the full year 2014 we expect total revenue to be in the range of $238.5 million to $241.5 million. GAAP net income attributable to common stockholders per diluted share is expected to be in the range of $0.50 to $0.58. Non-GAAP net income per diluted share is expected to be in the range of $0.79 to $0.87, and again, our expectation of non-GAAP net income per diluted share for the full year excludes stock-based compensation expense, the amortization of acquired intangibles, contingent consideration expense, and again the related tax impact of these items.

GAAP and non-GAAP net income per diluted share assume a tax rate of approximately 40% and the weighted average shares outstanding are expected to be approximately 37.2 million shares. Non-GAAP adjusted EBITDA for the full year of 2014 is expected to be in the range of $65 million to $68 million.

So in summary we’re extremely pleased with our Q4 and full year 2013 performance and believe we are well-positioned for continued success going into 2014 and beyond. So with that, Operator, I’ll turn it over to you so we can get to the questions and answers.

Question-and-Answer Session

Operator

(Operator instructions.) Our first question comes from David Scharf with JMP Securities. Please proceed.

David Scharf – JMP Securities

Good afternoon, thanks for taking my questions. Joe, I wonder if you can speak a little bit more about the late use it or lose it call that came from Treasury at the end of the year. In regards to the 1200 employers who actually took advantage of the carryover was your sense that at the end of the day the news just came too late in the year for as many HR Departments to kind of get the wheels set in motion as they probably would have liked? I mean when we’re looking at the 2014 enrollment period is there any reason why any of your installed base of clients wouldn’t’ take advantage of this?

Joe Jackson

Well first of all no, I wouldn’t understand why everybody wouldn’t take advantage of it. With regard to 2013 you’re right – basically the carryover provision or the guidance on that was given on October 31st, which for probably the vast majority of employers is already kind of right in the middle of your open enrollment season. So you’re right, that made it probably very difficult for people to change directions in that period of time to adopt the change for the 2013 year. Like I said we had approximately 1200 employers, albeit mostly small employers take advantage of the carryover for 2013.

The resulting increase in FSA participation on those 1200 as I mentioned was in the double digits, which we were very pleased with and more to your point considering the short notice that people had to communicate the change. So that was very positive from our standpoint.

As we now move into 2014 as you can imagine we are on the reach out to all of our employer clients to make sure that we get to as many of them as possible to take advantage of the carryover provision for the 2014 open enrollment season going into 2015. We’re also reaching out to a number of clients we have that have midyear start dates, so for example June of this year.

So again, we’ve made it very easy through our website for employers to adopt the change to the carryover provision. All they have to do is basically tick a box on a website, press enter and the form comes directly to us. We’re getting approval forms every day and we’ll continue to throughout the year and it would be our objective to ensure that as many employers as we can possibly get signed up for the provision of 2014. And from the early returns I think we’ll see just that.

David Scharf – JMP Securities

Got it. And can you help maybe quantify what the participation rates among these 1200 mostly small employers were? I know you referenced a double-digit increase in enrollments. I’m just trying to get a sense for if we’re talking about a base of 25% participation going to 30%, how we ought to think about that.

Joe Jackson

Well, I’d answer that probably in a couple different ways. I still stand behind my comments that I’ve made really since the change has been made, which is I think what we will see in a much shorter period of time that we had originally planned is moving from that 1 in 5 to 2 in 5 participation rate. And I think over time based upon what we’re seeing I’m fairly bullish that we’ll start to see 3 in 5 in play over the next few years.

From the 1200 we just saw in the short period of time, like I said we’ve seen a double-digit increase in enrollment just from those 1200. And to further quantify that I was always told double digits go from 10 to 99 but if you were going to say 20 you’d say 20. So you know, you can anticipate it’s probably somewhere between 10 and 19 but probably in the teens. I mean it’s a good number.

David Scharf – JMP Securities

Got it. Staying on the theme of use it or lose it but shifting also to competition, you’ve remarked obviously the strength of the sales cycle and the conversions, both enterprise and SMB. But I’m just curious – is there any evidence or any potential that with use it or lose it largely out of the way in processing these accounts that this business effectively becomes more attractive? I mean is there any sense that some of the competitors who may have viewed FSA tax advantage account processing is just sort of a tangential service, like the carriers – that they may actually sort of double down and might invest more in their offerings?

Joe Jackson

Well, I can say we haven’t seen any real change in the landscape of competitors over the last twelve months. I think the increased awareness of consumer-directed benefits, whether it’s FSAs or HRAs or HSAs kind of bode well for these consumer-directed benefit accounts to continue to grow and grow significantly going forward.

I think from the standpoint of existing competitors, you mentioned carriers, etc. could they double down and take a more aggressive role in this business? They could. I still always go back to it’s not really their core business. This is our core business; this is what we do 24 hours a day and this is why I think we’re the best at it. I think new people coming into the market, I think that’s a challenge because we’ve invested millions of dollars to create the platform and the adjudication engine that we operate today.

I think we’ve got some uniqunesses in how we do it that obviously from my perspective feel that we do the best job at it. So I don’t think from a new player coming into the market that it’s just running a platform and getting into it or doing some development and trying to be good at the administration of these accounts – I think that would be a tall task. But like I said, I haven’t seen the landscape competitively really change in the last twelve months.

David Scharf – JMP Securities

Got it. Hey Joe, shifting to the exchanges, I’m just curious – the expense guidance that’s embedded in your 2014 outlook, does that include any anticipated spending for new exchanges you anticipate signing and any developmental costs? Or would that all be incremental if and when they’re announced?

Joe Jackson

Well again, I think each exchange… First of all that would be included within our operating expense for the full year assuming not only our relationship with Towers who’s been a terrific partner but for others as well, so I think that would be included. Most of what we do on the exchange side now, the great thing about it is it doesn’t involve a lot of development, it doesn’t involve a lot of investment because basically we’re administrating accounts just like we do today.

We can tailor and make it specific, things like branding and things like that of an exchange or a client, we can do that. We’ll have the capability of in essence being able to provide kind of a white label experience to participants through an exchange if required. So it’s not a significant amount of expense development to set it up. It’s much like you say, a lot of it is incremental.

David Scharf – JMP Securities

Okay, and then a last question on the exchange and then I’ll get back into queue. I know you’re not going to comment on specific enrollment number but for kind of the three beta employers, and Towers being one of them, can you give us a sense for I guess the participation for HRAs? I mean did everyone who signed up for any benefit plan for these three employers all get an HRA that you would be administering?

Joe Jackson

Well again, that’s kind of a difficult question to answer. I would answer it by saying we’re very pleased with the enrollments that came through. With regards to specific numbers and accounts, and I’ve talked to several people kind of at the beginning of the year, David, about it, and the way I kind of answer it is look, Towers Watson is the captain of this ship on that exchange and it’s their deal. It’s their exchange. We’re a role player in it, a very happy role player and I just kind of stand behind what they say with regards to enrollments and the excitement they have about the future of the exchange.

David Scharf – JMP Securities

Got it, thanks very much.

Joe Jackson

Sure.

Operator

(Operator instructions.) Our next question comes from Chris Kennedy with William Blair. Please proceed.

Chris Kennedy – William Blair

Good afternoon, thanks for taking the question. I guess about the long-term operating model, you raised your organic growth but you kept your revenue growth stagnant? Does that say anything about the portfolio acquisition opportunity or can you just kind of talk about that?

Joe Jackson

Yeah, that’s a good question, Chris. No, it really doesn’t say anything to it at all. I mean as we get bigger the 15% to 25% becomes a bigger number. And like I said, with the portfolio purchases that are out there in kind of the range of $5 million to $15 million in revenue that I’ve kind of described before, that remained effectively stagnant. So no, I think the way we’ve looked at it is we feel comfortable on an ongoing basis to be a kind of 15% to 25% grower.

And I think the thing we’re really excited about and looked at is looking at what we saw the potential, not only for 2013 and ’14 but 2015 and ’16 and beyond of what we thought our organic growth rates would be. And that’s why we felt comfortable taking that up a couple of percentage points from 7% to 12%, to 9% to 14%. I wouldn’t read in that there’s any hidden message there for portfolio purchases at all because there isn’t.

Chris Kennedy – William Blair

Okay, great. And then the change in the organic growth outlook – I mean is that exchanges, is it via core FSA, a modification of use it or lose it? Can you just kind of help frame that?

Joe Jackson

Yeah. So the one thing I would say is we’ve looked at what I think is a convergence of events that really start to take place towards the end of this year where I think you’ll see very strong employer adoption of the carryover provision, and I think that will continue over the next few years. Private exchanges and more and more employers over time I think taking advantage and moving towards that defined contribution model I think positions the exchange business well to continue to grow.

I look at the success that we’ve had from a new sales perspective, having the year before had a record year, last year had a record year and then kind of look at our pipeline now which is stronger than it was at this point last year. So I think all those things combined, along with the kind of strong enrollments that we saw this year gave us the confidence to take that up a couple of points.

And even if you look at 2014 we’ve guided at this point 9.5% to 10.5% and it really doesn’t constitute what I would call any slowness in the organic growth rate. It’s just a matter of timing. And if you look at the AFLAC and Ceridian transactions the AFLAC transaction concluded in April of 2012. We started talking to clients in May and we moved basically all 5000 of those clients in January.

The Ceridian transaction closed last year in July and we began talking to employers kind of late August, early September. Our preference would have been to move all of those clients January 1 and had we done that we would be talking about an organic growth rate for ’14 that’s probably higher than it was in ’13. But because of the fact that a number of employers had already started their open enrollment seasons they’re resistant to a change in January – not resistant to a change to WageWorks, just the timing of the change.

And rather than, as I mentioned to you and noted a number of times, rather than kind of do a forced march of forcing employers to move – which we could have done and we might have kept them for a year but it might only have been a year; I’m always more into the client satisfaction, the retention of the clients. And I think the way that we are handling this process with our partners at Ceridian will ensure that not only we get the clients – and like I said, we haven’t come off of our range of how much revenue we expect. But we’ll get it probably throughout 2014 versus kind of at the beginning of ’14, and that’s one of the reasons why we said our organic growth rate should accelerate throughout the year as we bring more of that business on.

But a slowness or a dampening in our organic growth rate, we don’t see that at all. And I think that was reflected in the fact that we took up our target operating model from 7% to 12%, to 9% to 14%.

Chris Kennedy – William Blair

Yep, great. And then one last one if I could sneak it in – just any update on potential channel partnerships or your pipeline for that? That’d be great.

Joe Jackson

Yeah, continuing to work them. I think it will continue to be a part of our long-term growth strategy. We have a pipeline of folks that we continue to talk to and I would be optimistic that we’ll continue to sign channel partners through ’14 and ’15 and beyond.

Chris Kennedy – William Blair

Fantastic, thank you.

Joe Jackson

Sure.

Operator

Our next question comes from Tobey Sommer with SunTrust. Please proceed.

Frank – SunTrust Robinson Humphrey

Hi, this is Frank in for Toby. I wanted to ask a little bit about the competitive environment in pricing. Have you seen any major changes recently and anything visible on the horizon that you expect to change there?

Joe Jackson

Yeah, like I said earlier no real change on the competitive landscape. And then from the pricing standpoint we always look at that as well when we do our review of our target operating model and it’s really remained pretty consistent over the last few years.

Frank – SunTrust Robinson Humphrey

Okay. And any particular vertical or industry that you feel like is increasing adoption rates faster than others or slower than others?

Joe Jackson

Right. That’s a good question. Enrollments this year were kind of interesting in that they came a little later in the year. Normally we have a lot more in January 1st and I think it might have been because of that short season between Thanksgiving and Christmas. We saw enrollment files come in a little later in January which was fine. But we have seen enrollment growth as I’ve said in all of our healthcare products. What quite frankly we haven’t done is really dissected it yet by industry so it’s actually a good point and something to look at. But there was nothing that jumped out that said there was a particular industry that was either growing much faster or growing much slower, but I don’t have the specifics at this point on any particular industries that we’ve seen growth accelerating at a more rapid pace.

Frank – SunTrust Robinson Humphrey

Great, thank you very much.

Joe Jackson

Sure.

Operator

We have no further questions. I would now like to turn the call back over to management for closing remarks. Please proceed.

Joe Jackson

Okay, well thank you, Operator, and again, thank you all for joining the call. As I mentioned earlier we had a terrific quarter, an outstanding 2013 for the company. It’s not done in a silo. We have over 1000 employees that contribute every day to improving customer and participant experiences, working on client satisfaction, working on signing up new employers, working on new portfolio purchases.

So all of the growth strategies that we have I think we’re executing very well on. I think we’re poised for a very similar year in 2014. I’ve talked many times before about the convergence of a number of activities that really should help impact our open enrollment season at the end of ’14 into ’15, and I couldn’t be more proud of the group of people that work every day to make that happen on behalf of our employer clients and participants.

And also I’d be remiss if I didn’t thank all of those employers, all 29,000 of them for working with us. We know very clearly that we need them much more than they need us and we think about that every day. So Operator, thank you. Thank you all for joining the call and I look forward to talking to you here in the next quarter. Thank you.

Operator

This concludes today’s conference. You may now disconnect. Have a great day.

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