Q4 2020 TriNet Group Inc Earnings Call
Yes.
Alright.
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On a conference specialist by pressing the star key followed by zero.
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Please note this event is being recorded.
I would now like to turn the conference over to Alex Bauer Investor Relations. Please go ahead.
Thank you operator, good afternoon, and welcome to <unk> 2024.
Fourth quarter conference call.
Joining me today, Burton Goldfield, President and CEO, and Kelly to modality, Chief Financial Officer.
Prepared remarks will premium recorded we will begin with an overview of our fourth quarter operating.
Well he will then review our financial results.
Let me call for the Q&A session.
Again. Please note that today's discussion will include our 2021 first quarter and full year guidance and other statements that are not historical in nature.
Victor the nature or dependent on deferred to future events or other conditions, such as our expectations estimates predictions strategies beliefs or other statements that might be considered forward looking.
These forward looking statements are based on management's current expectations and assumptions that are inherently subject to risks uncertainties and changes in circumstances that are difficult to predict and that may cause actual results to differ materially from statements being made today or in the future debt.
This may be required by law do not undertake to update any of these statements in light of new information future events or other income.
We encourage you to review our most recent public filings with the FCC moving the 10-K form 10-Q filings for more detailed discussion of risks uncertainties and changes in circumstances that may affect future results or the market price first line.
In addition, our discussion today will include non-GAAP financial measures, including our forward looking guidance for net insurance margin adjusted EBITDA margin and adjusted net income per diluted share.
Reconciliations of our non-GAAP financial measures to our GAAP financial results. Please see our earnings release or our 10-K filing for our fourth quarter and full year of 2020, respectively. Both of which are available on our website or through the SEC website, a reconciliation of our non-GAAP forward looking guidance to the most directly comparable GAAP measures.
Also available on our website or in our earnings release.
With that I will turn the call over to Burton for his opening remarks Burton.
Thank you Alex <unk> proved to be the most challenging year of my professional career. It also proved to be a year, where trying to its mission and strategy were especially valued by our customers.
We started 2020 by delivering strong financial performance and volume growth in the first quarter.
Momentum in our business was strong.
Everything changed with COVID-19, and the subsequent marked downs.
We rapidly adjusted to the new environment and leveraged our deep understanding of the verticals we serve.
This knowledge allows us to quickly address the issues faced by our customers. During this very difficult time.
Additionally, a unique program the Tri net created during COVID-19, once the recovery credit program.
The recovery credit program is our effort to share with our customers the excess cost savings we generated from under utilized health services primarily in April.
This program has been very well received and provided a significant benefit to our customer base.
Our vertical strategy and customer selection process is intended to build the dynamic growing customer base.
Throughout the pandemic, we have been amazed by the inherent resiliency of our customers who in aggregate actually grew their employee base during the second half of 'twenty 'twenty.
We highlighted this customer hiring during our Q3 earnings call and this growth accelerated in the fourth quarter.
Customer hiring has always been a key contributor to our financial model.
Our fourth quarter financial performance reflected the contribution from customer hiring and underscored. The overall success of our vertical go to market strategy.
During the fourth quarter, we grew GAAP total revenues, 4% year over year to one $1 billion, while GAAP earnings per share declined 52% year over year to 32 per share.
The decline in our fourth quarter GAAP EPS was in part due to our accrual for the recovery credit program for.
For the full year, we grew GAAP total revenues, 5% year over year to $4 billion, and we grew GAAP EPS, 34% year over year to $3 99 per share.
Finally, we finished the year with approximately 332000 ws fees down on 2% year over year.
Sequentially, we grew <unk>, 4% during the fourth quarter when compared to the third quarter of 2020.
This remarkable fourth quarter growth is attributed to our efforts in service of our customers the strength and durability of our customers' installed base.
And the economic support provided by the government.
Covid introduce significant volatility in the economy and in the equity markets bolstered by the strength of our business model and customers. We took advantage of the volatility and repurchased $178 million in stock during 2020 at <unk>.
On average price of $53 and <unk> 85 per share.
As we look back over the past year, we are pleased with our execution, we understand the importance of the continued evolution of our service model to increase the overall value to our customers in both good and challenging economic times.
The recent rollout of our connect 360 service model demonstrates our commitment to always evolve and improve.
Standing still with our products and services is not an option as we endeavor to enhance the delivered value of our solution to these amazing customers.
Our approach in targeting specific industries through vertical was Asian allows us to define new attributes to our product and service model that will benefit our customer base. Our focus is on the following industry verticals technology financial services.
<unk>.
Life Sciences professional services nonprofit and mainstream these verticals are attractive partners because they are comprised of the most dynamic smbs in the U S economy. Many of the Smbs within these industries combined strong growth prospects.
Ex.
With operational complexity and a prioritization around an exceptional employee experience.
For our customers and prospects Tri net often proves to be a strong partner for solving their unique issues, while operating in attractive benefit solution for their employees by providing an exceptional bundled PEO solution, we deliver HR.
Expertise.
Risk mitigation payroll and a differentiated benefits offering.
This is all enabled through our industry, leading technology platform.
On the COVID-19, pandemic hit and the economy stalled Tri net quickly moved into action.
We leveraged our team and our scale in service of our customers.
<unk> demonstrated that we are invested in their success, we werent a vendor we werent a point solution, we were and remain a company that is uniquely positioned to help smbs succeed based on the breadth and depth of our relationship.
The two most important examples of how we leveraged our team and our scale for the benefit of our customers and Smbs alike. We're our COVID-19 micro site, a public single location, where we provide our educational updates and outreach.
Each app.
And our recovery credit program with the onset of the pandemic, we quickly launched our COVID-19, Tri net business and preparedness Center.
Which can be found on our homepage and available to all this site has functioned as an efficient outreach channel, where we can provide critical information regarding the cares act and PPP loan and loan forgiveness information.
And for our customers, we provide alternative health care solutions and guidance through the difficult employee related choices that they face such as layoffs versus furloughs.
The site provides a broad range of information available to all the.
Behind the scenes our customer service team is assisting our customers through any and all specific issues our customers must address in a timely fashion in an effort to provide financial support during this difficult period, we created the unique.
<unk> recovery credit program as the pandemic utilization dropped even as incremental no.
COVID-19 related costs increased due to the structure of our risk based health plans, we realized significant excess cost savings and we had immediate access to those savings through on I, creating the recovery credits.
Portion of these sales.
Things were used for the benefit.
Okay.
We believe.
Steve It was important to get these dollars to our customers when they needed. It most we have demonstrated to our customers that we are in and valuable business partner delivering a level of service typically available only to much larger entities.
To me this defines a partnership where ultimately we play a vital role in helping them to pursue their vision and help them to succeed and rapidly changing business climate.
Once our customer base stabilized after the second quarter. We saw these customers begin to hire at an incredible rate.
These smbs hired 68% more new employees in the second half of 2020 than they did in the second half of 2019 further even when lay offs in the second quarter and negative change in existing has included in.
The calculation the outcome was net positive.
With respect to Ws CES.
Another way are customers actually grew in 2020 versus 2019 as you recently saw we launched connect 360, our effort to further evolve and improve our customer experience we know.
That 60% of our customers want to speak directly to our knowledgeable individual versed in this specific issue they needed resolved.
75% of our customers want to reduce the time it takes to get to resolution connect 360 is designed to get our HR experts on the line with our customers faster 2020 has demonstrated that we put our customers at the center of <unk>.
Everything we do.
We beta tested the design of connect 360, we listen to our customers, we learn from them and we continue to adjust our service model in accordance with their feedback we.
We are confident that this evolution of the customer experience will be a long term positive innovation.
Early in the fourth quarter, we again demonstrated our commitment to putting our customers at the center of everything we do by hosting our first annual Tri net people Force conference.
Over a three day period Tri net people force tackle the key challenges such as business resiliency day.
<unk> equity and inclusion in the workplace.
Healthcare, including cost management and employee access.
Legislative updates and access to government programs and stimulus and finally, an economic outlook for the small and medium businesses and post conference surveying, 98% of the attendees indicated that they would attend again next year.
Here, we are excited to build on the success of this first conference as we look forward to 2021, we believe that we are well positioned.
In a recovery we are Inc.
Distribution of vaccines, and we are optimistic that we will see a gradual improvement in business activity as the year progresses.
Because of the unique circumstances brought on by the pandemic I want to provide.
Included through 2020 news.
And by the effects of the pandemic.
For our field sales force the quick transition to remote selling.
And was a significant change.
This is a team that aspires to be the trusted advisors to our prospects and the face to face interaction had been an important part of the process.
I look forward to the day when our team can.
Spend quality time with the amazing Smbs that our Tri net prospects for these prospects the extraordinarily difficult operating environment with business owners to be far more concerned with the front of the house rather than the back of the house if either one of these.
Disruptions occurred in a single year it would represent a significant headwind to new sales growth having both occur in 2020 created an unprecedented hurdle, which was difficult to mitigate on the positive side the PEO Valley.
Proposition resonated strongly in 2020, with our customers prospects and the Smbs more broadly.
As an industry demonstrated to smbs the scale available to them not just as it relates to benefit pricing in payroll, but to critical console patients and HR support as we look to 2021 I am encouraged by several ASP.
<unk> of our business.
First in the face of the pandemic Tri net was there for our customers and our efforts have only helped us deepen our relationships.
We provided meaningful guidance to our customers during a highly uncertain period, and we created the recovery credit program to help our customers when they need it most as we market to new prospects. We highlight that we are more.
And then just the vendor, but the partner they can count on today and over the long term in all economic environments second I believe we are seeing green shoots in the first quarter sales are still down when compared to 2020. However January.
Is indicating that the GAAP between new sales and our pre pandemic experience is beginning to narrow one vertical where we are seeing particular strength is technology. In fact, we are expecting new sales in the vertical to grow year over year.
In the first quarter, even in the face of the continuing pandemic in 2021 versus the non pandemic quarter in Q1 2020.
The tech industry remains flushed with capital and we have started to see vcs redeploy that capital.
Looking at our January Tech sales according to our collected statistics over 50% of the new annual contract value in the tech vertical is being derived from companies who are either newly funded startups, where early stage companies who.
I have received an additional round of funding.
This investment activity suggests a strong 2021 for the tech industry and our January performance highlights that we continue to build the dynamic duo.
Terrible install base.
Our team is focused and energized and we are working to deliver strong year over year new sales.
Look forward to updating you on our first quarter progress in a couple of months.
Through our disciplined approach to customer selection.
<unk> displayed by our vertical strategy.
Our installed base has weathered the pandemic far better than we could have expected.
We are more committed than ever to serving this installed base while growing it further throughout 2021.
With that let me pass the call over to Kelly to discuss our financial results Kelly. Thank you Burton.
First I'll review, our fourth quarter and full year financial results.
We're providing 2021 guidance.
Morale and very pleased with the results they accomplished during the fourth quarter, particularly given the backdrop of the COVID-19 pandemic during the fourth quarter GAAP total revenues increased 4% gross per year and professional service revenues grew 3% year on full year GAAP.
GAAP total revenues outperformed the top end of our guidance range by two points as our <unk> volume outperformed as our clients for their employee base and the mix of our debt <unk>, which remained at nearly 80% white collar workers drove three points of higher benefit participation over fourth quarter 2019.
Along with the associated revenues.
This outperformance was partly offset by a 3% decline in average debt seems to 327000. In addition to a $24 million of cool for the recovery credit program, which reduced our revenue by 2%.
Net service revenues in the quarter decreased 2% year over year in line with fourth quarter's lower average debt. The OFC volume outperforming the top end of our guidance range by 10 points.
For the fourth quarter, we delivered a net insurance margin of eight 7% versus our Q4 guidance range at 4% to 8%.
In the quarter, our health utilization approach a more normalized level by the end of December with direct COVID-19 costs, representing approximately 4% of total claims costs offsetting what would have otherwise been favorability in utilization.
Early quarter experience was slightly favorable to the expectation discussed on our third quarter comp and.
In addition, our workers' compensation portfolio performed well, adding an incremental 1% to this quarter's net insurance margin to three 9 million contribution from prior period development.
In the fourth quarter, we delivered an adjusted EBITDA margin of 25% four points above the top end of our guidance largely driven by the volume growth and insurance capability.
Offsetting our very favorable net service revenues, we had between 20 and $25 million on expenses.
We wouldn't anticipate recurring in 2021. These incremental expenses came from a number of places, including settling and accruing for the audits on payroll tax share is with taxing authorities expenses associated with data and technology automation.
Covid related and business reorganization restructuring expenses as well as incremental consulting spend related to our gross strategy.
We spent $43 million to repurchase approximately 619000 shares of stock during the fourth quarter our flow.
Quarter effective tax rate was 16% and.
In the quarter the rate was lower due to the tax treatment of employee equity compensation, which we now recognize the tax benefit when invested.
GAAP net income per share decreased 52% to 30%.
<unk> 68 per share in the same quarter last year and exceeded the top end of our guidance by four.
Just a reminder, that the continue to call for the recurring credit program.
Fourth quarter EPS by 2007 cents a share and our results were also dampened by the fourth quarter expenses that we would not anticipate recurring which I mentioned a moment ago.
Adjusted net income per share decreased 48% to 30% compared to 84 per share in the same quarter last year, which exceeded the top end of guidance by 12%.
Turning to our 2020 full year financial results. Our performance was significantly impacted by COVID-19, and our response to the pandemic on the downside as Burton discussed depending on negatively affected new sales and debt the OSC retention, which impacted our volume and revenue growth the positive to our results.
The pandemic also changed how Wsb's utilized health services, which resulted in significant insurance cost savings in response to the significant insurance savings training created an accrued the recovery credit program beginning in the second and continuing true the third and fourth quarters, we accrued 128 million.
In total freight recovery credit program, representing a 3% impact or headwind to 2020, GAAP total revenue growth.
Despite these headwinds to revenue growth in 2020 week group GAAP total revenues, 5% to $4 billion and we grew net service revenues by 14% year over year to $1 1 billion.
Even after accruing for the recovery credit program. The 2020 net insurance margin was 14, 6% for 2020 abroad, and the utilization of health care services by Ws seen since the onset of the pandemic resulted in insurance cost savings remaining lower than forecast and driving net insurance margin.
Higher than expected.
Total adjusted EBITDA increased 9% to $468 million with an adjusted EBITDA margin at 44%. Our 2020 GAAP effective tax rate was 24% benefiting from timing differences in recognizing tax expense on equity compensation GAAP.
Net income and adjusted net income both increased 28% to $272 million or $3 99 per share and $303 million or $4 41 per share respectively. Finally, we spent $178 million in 2020.
To repurchase approximately $3 3 million shares of stock as of December 31, 2020, we still had $358 million available under our current authorization turning to our 2021 first quarter and full year outlook I will provide both GAAP and non-GAAP guidance.
Before I provide guidance I would like to share a few thoughts on the current state of the capital markets any implications for training.
We believe the current capital markets remain historically accommodated and requiring that we opportunistically examined the use of more permanent longer duration debt capital within our capital structure.
Shifting to your longer term capital may slightly reduce our earnings per share it could create an efficient avenue to raise financing for gross initiatives, such as M&A as well as other corporate purposes, as well as the kind of hedge against potential future interest rate increases.
During the fourth quarter, we had repaid our outstanding borrowings under the credit facility. So our current capital structure includes a secured term loans.
Of which $370 million remains outstanding of term loan and our Undrawn $250 million secured credit facility. Both mature in June of 2023, as I mentioned last quarter, our priorities for capital deployment, our first organic growth, which we're seeing traction given the signs the pandemic will ease in <unk>.
On 'twenty, one and beyond.
Acquisitions, we will continue to pursue acquisitions that are complementary to our current focus such as PBS that are in attractive geographies or markets or technology that could enhance our business model and third share repurchase first asset duration, then opportunistically as we evaluate the best avenues for cash.
Capital against versus efficiency, we will continue to keep these priorities in mind as we evaluate our market opportunities now turning to guidance. Both the high end and low end of our guidance is informed by how we think the COVID-19 pandemic vaccination efforts and economic recovery will play out over.
The course of the year the high end of guidance Bradley assumes a return to economic normalization earlier in the year, including a recovery in sales to pre pandemic levels continued growth in the installed base and reduce direct COVID-19 costs offset by a recovery in healthy utilization with some delayed or deferred.
Services being made up later in the year.
The low end of guidance, probably assumes a return to economic normalization occurs later in the third quarter with direct COVID-19 costs remaining elevated while we see a broad rebound in help utilization as both providers and the USC become more comfortable utilizing health services during the pandemic.
Neither are high or low scenarios assume shut down at the magnitude experienced in 2020 debt, but suppressed health utilization and drive unemployment.
Nor do they assume a significant bounce back in health care utilization to make up for the procedures avoided during 2020 for our pro forma tax rate, we continue to gain and 25, 5% given our current expectation of our state rates finally, given the acceleration of our share repurchases in 2020, our full year 2000.
'twenty one forecast assumes approximately 67 million diluted shares for the first quarter of 2021, we expect GAAP revenue year over year growth of 2% to 4% and professional service revenue to be in the range of down per percent down 3% year over year accounting for the lower WSI.
The starting base at the beginning of the year versus the beginning of first quarter 2020.
In the quarter, we expect to accrue approximately one percentage of revenue for a recovery credit program.
Guarding net insurance margin, but FERC casting a Q1 margin of between 12, 5% to 14, 5% hit.
Historically, the first quarter is a seasonally strong quarter. We do expect continued direct COVID-19 costs, plus a return to a more normalized health care utilization, but do you anticipate the utilization numbers to start low and increased throughout 2021 as the Covid pandemic abates we're.
We're forecasting our Q1 2021, adjusted EBITDA margin to be in the range of 44% to 48%. We expect Q1 GAAP earnings per share to be in the range of $1 10.
To $1 34 per share were down 16% to up 2% year over year, and we expect adjusted earnings per share to be in the range of $1 16 to.
<unk> to $1 39 per share or down 18% to down 1% for full year 2021 guidance, we're forecasting year over year GAAP revenue growth to be 8% to 11% and professional service revenue growth to be between six and 8% year over year as we grow throughout the year.
Given the dynamics, we articulated earlier, we expect our 2021 net insurance margin to be in the range of 10% to 11%.
Our full year 'twenty adjusted EBITDA margin is expected to be in a very strong range of 37% to 40%.
GAAP earnings per share are expected to be in the range of $2 79.
To $3 31 or down 30%.
17% year over year with adjusted net income per share expected to be in the range of $3 35 to $3 90 or.
We're down 25% to down 12% year over year, both down due to the extremely favorable 2020 that benefited from the overall underutilization of healthcare. Please note that our adjusted EBITDA margin and earnings per share guidance ranges do not reflect any potential changes to our current capital.
Share with that I will turn the call to Burton for his closing remarks Burton. Thank you Kelly I am proud of the entire Tri net team and their efforts to rapidly adjust to the challenging environment created by the pandemic throughout the past year, we demonstrated the <unk>.
Trends of our vertical strategy and the value proposition, we deliver to smbs.
Our customer selection and our efforts to deepen our relationship with these smbs allowed us to deliver sequential volume growth in the fourth quarter as we benefited from their robust hiring activity.
Our customers are continuing to hire and we are seeing promising signs in the quarter level of block.
Okay.
Our customers are continuing to hire and we are seeing promising signs in the current quarter with regard to new sales, especially in the tech vertical which remained strong we are encouraged by the rollout of the vaccinations and remain optimistic.
Stick that we will see a gradual improvement in the business environment as the year unfolds in the meantime, we will continue to do what we do best leveling the playing field for Smbs with regard to superior HR services, allowing them.
On to attract and retain the right talent and grow their businesses.
Operator.
We will now begin the question and answer session to.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Tien Tsin Huang with Jpmorgan. Please go ahead.
Thank you so much really appreciate it.
Although details you gave free here on the prepared remarks I wanted to ask on the <unk>.
The recovery credit program of course.
You're thinking here.
In terms of ROI on the impact to the P&L on the Kpis like churn.
Date on visibility here can you give us a little bit more on the other line, but youre expecting.
Can you hear me Tien Tsin. This is Burton and good day.
Thanks for the question.
I'm really proud of this program, we're very much invested on our customer success and their success is our success.
And we hope by providing this stimulus when they need it most they will continue to prosper and grow even in this environment.
So we have four different cohorts and as Youre aware, we completed the first cohort finalizing the second and communicating with the third so the bottom line in the first cohort was very positive exceeded our expectations.
On the and the others are coming up I think ultimately what we're trying to do is make it clear that we are unique in the way. We're approaching this problem and we are part of their success.
We want to differentiate ourselves, it's a phenomenal model and we've already demonstrated our success through the vertical strategy and this was on one more example, where we could use that recovery credit just show them.
We are index with them alongside of them as a true partner as opposed to other vendor.
Yes, no that's very true.
Gross tomorrow, or it's going to be fun tracking it.
Follow up then for you Brian just on the sales.
I appreciate all the again the information you gave there the tech sales being good.
So just thinking on how the recovery in general of new sales might shape up.
Do you feel like there is some.
Pent up demand and is it just a matter of.
Getting to the due to the vaccine and getting to a new rhythm around sales I'm, just curious how youre thinking about what that recovery might look like.
But that was taken out earlier.
No Thats a great question, so I'm going to take it two ways first I'm encouraged by new sales performance, we said it in the prepared remarks.
We're seeing strength across the verticals and particularly tech, which you just manage it.
On the performance relative to the second and third and fourth quarters.
Being an improvement, but not as much as I'd like it to be.
However, as you know the year over year comparisons get a lot easier Q2 and on because they're all post COVID-19, So I expect relatively to have significant improvement.
To your question of how the economy is per.
We're forming what I would go back to is this technology vertical.
We're seeing strong funding in the vertical and one statistic I'll give you tons and is 50% of the net new ways CV, we generated in January and the tech vertical is either brand new startups or companies receiving an additional round of funding.
So they got on around the funding theyre going to grow and they came to tri net as their partner.
So there are segments of the economy that are doing really well and I am expecting that if we can debt post vaccine.
In general, we'll do well, particularly in the verticals that were service.
Yes hooked on this the case, thanks should update.
The next question is from Kevin Mcveigh with Credit Suisse. Please go ahead.
Great. Thanks, so much and thanks for all the detail.
Could you just think service.
Okay.
So credit Suisse.
Thanks, a lot.
Different ways, what type of retention on <unk>.
Just thinking about as we work our way through the year 'twenty one.
Yes on the quarterly 2020 in maybe more historical trends.
Okay definitely appreciate the question.
Just wondering looking at retention.
In line I'll comment on 2020 per one it's been the best retention area, that's free and that really has ever.
So.
We're looking at retention in 2021.
On a very good.
Price as well just given the fact that we have the recovery credit and we're aligning with our customers.
Create a $128 million thus far.
And.
Yeah.
It does.
It puts us in a really good spot for retention for the year.
Yes.
That's helpful.
Kelly or Burton.
The one time on on trended data technology and restructuring.
Or should we expect some cost savings from that going forward and is there any way to think about what that was.
Good day.
The way, we think about it and we took the fourth quarter as an opportunity to invest in a few different.
Technology enhancements and other.
Process improvements as well as on that market strategy.
And while I view those as well.
One time in nature.
We look forward expense.
Opex growth.
Generally in the line.
And investing in payments.
The key program.
As far as Opex in the same way.
<unk>.
Okay.
Thanks, so much.
The next question is from Andrew Nicholas with William Blair. Please go ahead.
Hi, good afternoon.
Wanted to start.
With a little bit more detail on the connect 360 rollout.
I'm wondering if you could speak to some of the initial feedback you've gotten from clients on the change I think this is something you're trying to rollout late last year in certain markets.
And then relatedly kind of longer term what debt shift in service model could mean share tri net in terms of driving scale and potentially stronger profitability.
Hey, Andrew This is Burton good question. So kinect three fixed fee is about evolving the service model to serve our customers in a way that gave one of the service.
You are correct, we launched a beta version back in November we learn from the beta version by listening to the customers feedback and we made changes where we needed it to be ultimately, it's all about servicing these customers and given our performance throughout the pandemic I believe we build on.
<unk> goodwill on trucks with these customers ultimately, we want to be able to add incremental services and evolve the model. So that we can serve a broad range of customers within the verticals that were service, but we're never going to sit still we're always going to be evolving.
<unk> and enhancing our service model current technology, and our offerings around insurance et cetera. So this is one example of that we took this year with the pandemic.
To work on projects like this.
We are excited about where it ultimately takes on using that scale that you just mentioned in service of these customers.
Got it makes sense.
And then for my follow up.
We've seen with the new year, some pretty major players moving into the pool employer market for 400 on Kay brands.
I think some have been noting some really strong initial growth.
Just curious what impact perhaps they've had.
Any on your business to date.
And then how you would expect kind of that change in regulation to impact the PEO industry broadly going forward just kind of wondering if it remains one aspect of the PEO value prop.
Big enough driver of new business to really move the needle.
We have good participation and our 401 K program and it's nice if theres alternatives out there, it's not going to move the needle from a revenue standpoint, but the integration of the 401 K program into our offering has been well received.
It's a very low cost program.
It gives the employees an option that they did not have being part of our plan. If other plants come up we're perfectly happy with them using those plans as well.
I understood. Thank you.
Yes. Thank you.
The next question is from David Grossman with Stifel. Please go ahead.
Thank you.
And on.
Thank you David.
Burton.
Maybe we could just circle back to the comments you made about.
On the acceleration of hiring in the base and some of the statistics that you gave us.
And just to level set I think he said that if you back out the clients that left during the year.
Total base grew year over year 'twenty versus value chain did I hear that right or am I getting that wrong.
That is correct.
Our clients that are still with us.
Grew between 19 and 20 that is absolutely correct.
And overall, if you look at the total book it was dramatic growth in the <unk>.
Second half of the year over the second half of 2019, and David Thats. The story of the quarter from my standpoint, we did a lot of great things, but I think a customer selection the vertical strategy and the performance of this group of clients.
With fantastic.
And do you have any sense for.
I know, it's really hard because it's such a bizarre year, but.
How much of it was.
Kind of the cessation of hiring furloughing and all that stuff that happened at the front end will come to the pandemic and then combined with the stimulus I mean are you able at all to share about.
Whats fundamental strength versus just timing in the cyclical factors by the impact of the year.
I spent a lot of time on it Thats why I wanted to give you a color around the technology vertical which I have the deep deep telemetry into.
And the new customer formation of New company formation I also dug into the follow on rounds of funding of existing Tech companies that then subsequently became tri net customers.
But the hiring was broad based across all of our vertical.
So I would say a lot of it has to do with a change in customer selection over the last couple of years.
On the tight EBIT on main street the type of main street customers were taking on today is very different than what we took on four years ago, but I'll, let Kelly take a shot at that sort of you on the key question. These are great clients.
There, it's just a pleasure to support them because theyre fight like Hell, yes, the only color I'd add to that is the strongest verticals in the quarter were life Sciences technology, Mainstreet and professional services.
On a.
A full year basis, any debt reduction or lay offs were more than offset in total by the hiring in the second half the only vertical that was down on it on a full year basis at main street.
Okay.
When you say down you mean down on this adjusted basis right down from a hiring perspective, so they laid off more in the second quarter than they will be higher than the second half debt all other vertical on a per liter basis.
Got it okay.
Great. Thank you for the incremental color and then.
First when you decided to make a <unk>.
Change in the sales organization late last year.
Perhaps you could expand on.
What areas you think you can drive the most improvement with that change.
Is it <unk> growth.
Revenue per WMC is it geographic.
Trying to get a better sense.
Of what Youre, hoping to accomplish with that move.
Sure so.
I believe and I know.
You've heard me say for years, David This is a large under penetrated market, where we believe that we can add tremendous value to a select set of verticals on industries and I want to capture a significant portion of those so I continue to evolve the the sales.
And go to market model to be more effective at capturing that market share.
Obviously, our efficiency as an issue, but at the end of the day I want to make sure that we're capturing a significant share of the targeted market and so its verticals and then its geographies.
And I'm in the middle on making some changes I'm seeing some great candidates.
But ultimately I don't feel a lot of pressure to close out the leader because.
On an interim leader doing a great job who's been here for nine years I have a great CX team and retention is good I have a great customer base, that's moving forward.
And on making some other changes that I believe are necessary to emerge with a larger capacity or a larger ability to capture these specific clients that I'm looking for.
And do you want to point out our eyes set on any changes that will be forthcoming over the course of the year or is there something specific you want to highlight.
Look.
Youll hear about some of the changes, but think about it in terms of a tighter focus on the industries that we cover it think about it is segmentation in terms of the size of the customers and the way we approach those customers from a size standpoint.
And think about it from a very targeted set of geographies that we believe are our birth right because the scale in those geographies, particularly as it relates to the medical insurance is a very important part of using scale in service of those customers.
Got it okay. Thanks for that color that's very helpful.
And then I guess, just one last question if I could sneak it in is.
What is the likelihood I understand the dynamics behind the Genesis of the.
The credit, but I'm, just wondering what's the likelihood that.
Covered credit program could be.
Better than the model.
As we even after we migrate to a more normalized economic and health care utilization environment is that possible. If you wanted to do that.
Yes, just a corollary to that question is how should we think of that.
New normal in terms of what the target insurance margins should be once kind of all the dust settles.
It's a great question and what I'd say is that anything I can give you to show our partnership side by side with the small and medium businesses and something I consider this was in dialysis as a one time credit program.
We're seeing innovation out of my team and looking at what's the next opportunity is for us to show not talked about but show what the partnership looks like in the subsequent years.
Got it and then just in terms of the targeted insurance margin.
<unk>.
<unk> along with all the volatility in the markets. So just curious do you have a thought on if we think of a normalized insurance margins.
Thoughts about that.
Yes, I'll take Atlanta.
I stated in our guidance.
While we expect our first quarter margin to be higher and we do expect a full year to be in that 10% to 11% range and I believe that's an appropriate target for net insurance margin to cover our costs given.
At co employment relationship and our single employer plan.
Alright, so when youre thinking on Kelly beyond 2021, which is a very noisy here.
On to 11.
Good.
Number to think about it going forward payout.
It's a good range and I think it will help us help us grow as well.
Got it great. Thanks very much.
Thanks, David excuse.
Excuse me. The next question is from Sam England with <unk>. Please go ahead.
Hey, guys. Thanks for taking the question. The first one you touched on capital allocation could you talk a bit more about some other potential areas of income.
That opportunity on that.
What you see going forward and you mentioned that technology, adding more people on the business development side.
I'd like to entitle them back we needed.
Yes, I appreciate the question.
Really did talk about a variety of things around capital allocation in the past and today as well.
Just to remind you.
We'll continue to invest in our business for growth on that will include all of the things that you mentioned.
And making sure we've got the right sales force there as well as the right profit is from an M&A perspective.
And that leads into our second priority, which is M&A.
And then lastly, we will repurchase stock opportunistically, but as I mentioned in the guidance, we're assuming 67 million shares outstanding.
Okay great.
The next question I, just wondered what the current M&A environment look like.
Are you seeing a decent.
Pipeline of potential opportunities that you've talked more about doing so I'll talk on M&A, rather than anything larger debt.
The environment.
Look M&A remains part of this long term gross strategy you saw with little bird, while not a large deal that we will acquire companies that fit our broader vertical strategy and we're continuing to look at targets, whether they're <unk>.
Verticals or geographies that were attractive to us.
And frankly other technology that we may acquire over time, Inc.
It's a little bit back to what I was saying to David I want to be innovative in terms of servicing this dynamic customer base when the economy first of all recovers, but it will inexorably change as we move forward.
Okay, great. Thanks, very much guidance I'll leave at that.
Thank you.
This concludes our question and answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.
Yes.
Okay.
Yes.
True.
[music], Inc.
Net.
Yeah.