Q1 2021 TriNet Group Inc Earnings Call
Pardon me, ladies and gentlemen, and trained at first quarter 2021 earnings call will begin shortly so please continue to stay on the line again the Tri net call will begin shortly so please continue to stay on the line.
[music].
Good afternoon, and welcome to the Tri net first quarter 2021 earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be and opportunity to ask questions.
Ask a question you May press Star then one on your Touchtone phone.
To withdraw your question. Please press Star then two 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, everyone and welcome to China 2021, first quarter Conference call. Joining me today are Burton M Goldfield, our president and CEO and Kelly to Minnelli, our Chief Financial Officer.
Our prepared remarks were prerecorded Burton will begin with an overview of our first quarter operating performance. Kelly will then review our financial results. We will then open up the call for the Q&A session. Before we begin. Please note that today's discussion will include our 2021 second quarter and full year guidance and other statements that are not historical.
Nature are predictive in nature or depend upon or refer to future events or conditions, such as our expectations estimates predictions strategies beliefs or other statements and might be considered forward. Looking these forward looking statements are based on management's current expectations and assumptions and are inherently subject to risks.
Uncertainties and changes in circumstances and our.
And difficult to predict and that may cause actual results to differ materially from statements being made today or in the future.
Except as maybe required by law, we do not undertake to update any of these statements in light of new information future events or otherwise.
We encourage you to review our most recent public filings with the SEC, including our 10-K and 10-Q filings for a more detailed discussion of the risks uncertainties and changes in circumstances that may affect our future results or the market price for stock and.
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 per.
For reconciliations of our non-GAAP financial measures to our GAAP financial results. Please see our earnings release, our 10-Q filing or 10-K filing for our first quarter of 2021 and full year of 2020, reconciliations respectively. Both of which are available on our website or through the SEC website.
Conciliation of our non-GAAP forward looking guidance to the most directly comparable GAAP measures is also available on our website with that I will turn the call over to Burton for his opening remarks Burton. Thank.
Alex the first quarter of 2021 saw a continuation of many of the positive trends that tri net experienced throughout 2020.
Our strong customer base showed resilience as well as significant growth in the first quarter of 2021.
I am proud of the Tri net team and their ability to help our customers navigate the current economic climate, we continue to put our customers at the center of everything we do and in the first quarter. We were again rewarded with strong operating.
And financial performance during the first quarter, we grew GAAP total revenues, 1% year over year to approximately $1 $1 billion.
And Im, especially pleased with this revenue growth as the year over year comparison was positive against a pre pandemic quarter in 2020.
Furthermore, this revenue growth was supported by our installed base of customers, who have committed to try and net and high retention rates and grew with us during the first quarter ex.
Strap awaiting off our Q1 trend and the continued reopening of the U S economy I would expect continued outsized hiring in our install base throughout 2021 GAAP earnings per share grew 15% year over.
Per year to $1.51 per share on.
Our revenue growth, coupled with the reduced healthcare cost and expense management drove our first quarter GAAP EPS growth. Finally, we finished the first quarter with approximately 326000 wmc's down 3% year.
Year over year, and down 2% sequentially versus the fourth quarter of 2020, these year over year and sequential metrics reflect lower churn than what we've seen and a typical January but also lower contribution from new sales when compared.
Baird to our pre pandemic experience, we are increasingly optimistic as we look out on the balance of 2021 and the lower churn or higher retention rate. We saw on January was in part driven by our 2020 recovery Craig.
And it program in fact, we lost less than 1% of the customers who participated in the 2020 recovery credit program.
Furthermore, the strength and resilience of our customer base was key to our first quarter volume and business performance and our customer base hired the most new employees during a first quarter and our 30 plus year company history.
Adding together the higher retention with the strong customer hiring three of our core verticals technology financial services and life Sciences significantly outperformed our other verticals. This outperformance even includes.
Absorbing and incremental percentage point of uncontrollable attrition from mergers and acquisitions and our technology vertical this increased M&A activity and technology reflects a vibrant industry already on the rebound.
Turning to new sales during the quarter, we closed some of the sales gap from our pre pandemic sales performance, but still have an opportunity for improvement.
As inferred from our forward looking guidance.
<unk> found in our earnings release, we expect new sales momentum to build during the year as we look forward to the second quarter and the balance of 2021, we are encouraged by how the economic reopening and recovery has positively impacted try and.
Although we do not guide to WMC cow I am confident in the growth of WSI and <unk> during the second quarter. We look forward to updating you as the year progresses for nearly a decade, we targeted our sales and.
<unk> efforts on our core verticals, including technology financial services professional services life Sciences nonprofit and main street and doing so we have built a group of dynamic customers, who represent the innovative spirit of our mirth.
As small and medium sized businesses.
We remain confident in the effectiveness of our vertical strategy.
The true value of this customer base revealed itself during the pandemic.
While we worked tirelessly in service of our customers our customers responded by continuing their relationship with Tri net while managing through the economic shock beginning in June of 2020 as the pandemic related and lockdown started to ease.
Our installed base began to hire workers a trend that has continued unabated since that date.
As noted the first quarter of 2021 so on Tri net customers higher the most new employees in any first quarter and Tri net history the value proposition remains particularly strong.
Prior to the pandemic, our customers experienced fierce competition for talent.
Tri net provides them with an advantage through our differentiated service and benefits offering as the economy improves throughout 2021 and business reopening accelerate across America, we expect our installed base to leverage our solution while.
Continuing to hire and compete for scarce talent in.
And the first quarter the technology vertical was the hiring growth leader. We also experienced strong hiring from the financial services and life Sciences verticals.
And the economic reopening and recovery has highlighted the tri net is much more than a vendor to our customers. And example of this relationship is the creation of our 'twenty 'twenty recovery credit program.
This recovery credit program is our effort to share with our customers. The access cost savings we generated from underutilized health services, primarily in April of 2020 through the first quarter of 2021, we have accrued.
And a total of $140 million from the 2020 recovery credit program beginning in the fourth quarter of 2020, we have been busy returning these funds to our customers.
In fact in the first quarter, we returned $27 million to our customer base as a result of the 2020 recovery credit program, well over 50% of our installed base, who have renewed with Tri net are now signed to annual contracts.
And this has the impact of stabilizing our installed base, increasing our predictability and.
And improving the renewal dialogue with our customers.
During the first quarter, we again saw significantly lower health costs as.
As a result of this performance we once again put all of our stakeholders first and established a new 2021 credit program for this program, we accrued an incremental $25 million that 2021 credit.
Program is structured differently from our recovery credit program. It is our expectation that health costs will rebound over the course of 2021, which has already been captured in our forecast as such the amount of the 2021 credit program.
Available to our customers will be contingent upon the full year performance of our health costs.
Kelly will provide more details later ultimately we believe the primary and long term outcome for 2021 credit program and the 2020 recovery credit program will be measured by greater customer satisfaction and retention fine.
As the economic reopening and recovery take hold we expect new sales to continue to improve throughout 2021 as.
As we previously noted when the pandemic began and the Lockdowns proliferated beginning in March of 2020.
Our new business growth dropped significantly from our pre pandemic levels, our prospects became far more concerned with the front of their business versus the back office of their business or the survivability of their business rather than their HR served.
In response, we had to change our approach to new sales as well as account for social distancing, which became the norm.
As we reflect on our first quarter 2020, one new sales performance. We finally saw the gap with our pre pandemic performance begin to shrink.
We continue to add customers and our core verticals as we highlighted how being with Tri net is so much more than a vendor relationship and as we look forward to the rest of 2021, we expect to build new sales growth through the balance of the year.
As business activity re accelerates.
In summary, I am pleased with our financial performance.
Our vertical strategy has once again become validated through the durability of the customer base and our customers continued record hiring and growth in the first quarter, our 2020 recovery credit program achieved and acceptance rate of well over 50%.
Across the fourth quarter of 'twenty, and 'twenty and first quarter of 2021 contributing to retention and resolving and a more predictable customer base new sales are recovering, but we still have opportunities for improvement consistent with our guidance.
<unk> outlined in our earnings release, we expect sales to improve throughout the year ultimately try and it has demonstrated its commitment to our customers throughout the pandemic and beyond and we believe we can leverage that commitment to drive growth in the future.
I will now turn the call over to Kelly for a review of our financial performance Kelly.
Burton I'll review, our first quarter financial results before discussing second quarter and full year 2021 guidance.
With respect to our first quarter financial performance and very pleased with our results. We again benefited from our recent trends and strong performance from our installed base, coupled with reduced health costs.
During the first quarter GAAP total revenues increased 1% year over year and professional service revenues were down 2% year over year, reflecting 3% lower ending Debbie lessees.
GAAP total revenues came in slightly below our guidance as we accrued $37 million and the first quarter $12 million for the existing recovery credit program started in 2020, and and an additional $25 million for our new 2021 credit program.
Combined these items reduced GAAP revenue by 3%.
2021 credit accrual differs from our 2020 recovery credit program first this contra revenue accrual is allocated against insurance revenue only.
Disbursement of this accrual is contingent upon the full year performance of our health costs.
It is our expectation that health costs will rebound in the second half.
If class do rebound greater and what we're currently anticipating the accrual will be reduced proportionately in line with the excess costs up to $25 million.
If costs do not increase greater than what we're forecasting.
These funds will be made available to a portion of our customers.
In the quarter average ws fees declined 4% to 321000 compared to a pre pandemic first quarter 2020.
As Burton discussed we once again benefited from our customer selection as our installed base continue to hire.
We did see some volume headwind of nearly 1% as our technology vertical experienced higher than normal M&A activity.
Finally, we believe we have fortified our installed base for 2021 through our 2020 recovering credit program.
Net service revenue and the quarter increased 9% year over year, largely driven by the outperformance of our net insurance margin.
And the first quarter, we delivered and net insurance margin and just over 17% versus our first quarter guided range of 12, and a half to 14, 5% net.
Net insurance margin outperformed and the quarter as we benefited from larger positive claims development as our fourth quarter reserves were paid during the first quarter.
Given the higher paid claims activity in December we had assumed higher levels of incurred but unpaid health costs and.
Fact, COVID-19 testing and vaccination costs were slightly higher than our forecast. However, once again these higher than forecasted COVID-19 related costs were more than offset by reduced overall health services utilization as we saw the paid claims activity in January and February play out.
This underutilization enabled us to set aside $25 million for our 2021 credit program.
And the first quarter, we delivered an adjusted EBITDA margin of 53% five points above the top end of our guidance.
We spent approximately $60 million to repurchase approximately 744000 shares of stock and the first quarter and.
In addition, we reshaped our debt structure during the quarter issuing longer dated debt and a favorable 3.5% interest rates are.
Our first quarter effective tax rate was 25% in the quarter the rate was lower due to the timing differences from the tax treatment of employee equity compensation and.
GAAP net income per share increased 15% to one dollar and 51 cents compared.
Compared to one dollar and 31 cents per share and the same quarter last year.
Feeding the top end of our guidance range by <unk> 17 cents and.
Adjusted net income per share increased 18% to one dollar and 66 cents compared to $1.41 per share and the same quarter last year, which exceeded the top end of guidance by 27.
Overall, we view the first quarter is a really good start to 2021 as our core performance funded both the customer credit and allowed us the ability to lock in longer duration debt.
Turning to our 2021 second quarter and full year outlook.
I will provide both GAAP and non-GAAP guidance. Please.
Please recall that the initial accrual and second quarter of last year for our 2020 recovery credit program represented approximately 6% at the GAAP total revenues and professional service revenues for the period.
For the second quarter of 2021, we expect GAAP revenue growth of 12% to 14% year over year and professional service revenue growth to be and the range of 10% to 14% year over year.
Note that in the second quarter, we expect to accrue just $5 million for our 2020 recovery credit program.
The second quarter will be the final quarter, where we accrue any meaningful amount for the 2020 recovering credit program.
And as such the total amount accrued for this program and made available to customers will be $145 million.
Regarding net insurance margin, we are forecasting a second quarter margin of between approximately 10 and 11%.
In the quarter, we expect COVID-19 related cost to continue primarily comprised of testing and vaccine administration as well as a normalization of health care utilization. Additionally.
Additionally, please recall that our adjusted EBITA margin and earnings per share and the second quarter of 2020 benefited significantly from the reduced health costs as health behaviors changed and response to COVID-19 protocols last year.
We do not anticipate that recurring.
We are forecasting our second quarter 2021, adjusted EBITDA margin to be and the range of 35% to 39%.
We expect second quarter GAAP earnings per share to be and the range at 59 to 74 cents per share or down versus last year due to last year's significant underutilization of health costs.
And finally, we expect second quarter adjusted earnings per share to be and the range at 70 to 86 cents per share.
Turning to our full year guidance, given our very strong first quarter performance, we are making a few changes and.
As I discussed earlier, we do expect health costs to rebound and the second half of 2021 in light of that we believe our full year guidance is partly derisked by the fact that our 2021 credit program will be adjusted downwards by up to $25 million should we experience additional health care.
Costs above our current expectations.
Are there more the strong hiring and retention of our core verticals has improved our outlook and we've pulled up the bottom and if our guidance range.
We are now forecasting our year over year GAAP revenue growth to be 9% to 11% lifting the bottom end of our range by one point our professional service revenue forecast is now 8% to 10% year over year growth and increase of two percentage points.
The increase and our professional service revenue growth forecast as a result of strong hiring growth retention and our core verticals and resilient pricing.
We expect our 2021 net insurance margin to remain in the range of 10% to 11% and.
And we will closely be watching the developments and trends given our expected increase in utilization of health services and the second half of the year.
Our full year 2020 adjusted EBITDA margin is now expected to be in the range of 38% to 40% up one point on the bottom and at the range. We now expect GAAP EPS to be and the range of $2.86 to $3.31 an increase of seven.
On a low and the range while the high end of the range remains unchanged. This reflects our strong core performance, which is funding the 2021 credit program as well as covering the increased cost associated with our recently completed debt offering.
Adjusted net income per share is now expected to be and the range at $3.42 to $3.90 or down 23% to down 12% year over year.
The new adjusted net income per share guidance reflects a 7% increase to the bottom end of the guidance range.
With that and we'll return the call to Burton for his closing remarks Burton.
Thank you Kelly in summary, our long term commitment to our vertical strategy resulted in a vibrant and resilient installed base of customers our customers hire new employees at record rates and we continued our strong financial performance with <unk>.
Once again leveraged our unique business model and financial performance to offer another credit program for the benefit of all our stakeholders as the vaccination process takes hold and the economy continues to reopen we will continue executing our vertical strategy.
<unk> and build momentum and our business.
We are well positioned to return to volume growth in 2021 on.
Operator.
We will now begin the question and answer session.
Ask the question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing Nicky.
And I draw. Your question. Please press Star then two.
Our first question today comes from Tien Tsin Huang with Jpmorgan.
Thank you. Thanks, so much from here the remarks, maybe I'll start Burton.
Hey, good afternoon and to you guys.
And I want to ask you about new sales I'm curious if you are.
And if youre thinking or your targets for new sales for the calendar year has changed versus 90 days ago I know the prior outlook to assume some different ranges of outcomes around <unk>.
New sales, but as the rhythm of sales.
Thinking around that changed at all as insurance still sort of the holdup smbs to make a move.
And make a change there.
So I think about it every day tens and we started to close that gap from the pre pandemic.
Order, which was very encouraging as far as I can tell.
I can't tell you when we return to normal.
And which includes selling in front of our prospects I'm very happy with the rollout and the vaccines and.
And I love the way the model is showing during the pandemic.
As reflected by not only closing the gap, but retention rates et cetera, but you know me well enough to know them pretty impatient and.
And I'm glad that the gap is shrinking, but I want to be selling more to those right customers and the right verticals.
At the right price, so I'm cautiously optimistic and I'm highly focused and this area.
Got you, yes, we will keep.
We will keep tracking on that.
Yeah, maybe I'll ask my quick follow up on on.
The net insurance margin outlook here.
Q1, like you said was way better than expected full year is unchanged. The recovery does this new credit makes a lot of sense I'm curious just a line of sight on.
On utilization and health care utilization for the rest of the year.
And as that thinking changed debt at all I know you have some cushion with the.
And with the credit, but I'm just.
Another question around visibility on the utilization side. Thank you.
Well good to hear from you Tien tsin as I'm thinking about utilization and kind of what we saw in the month of March.
We did see things like normal Doctor visits come back we did see lower utilization in terms of the flu and respiratory things probably due to social distancing, but we also saw higher utilization as I mentioned in my prepared remarks.
Both testing and vaccines.
We're cautious as we're looking forward because we're not sure how big that bounce back will be and we think our guidance really reflects that and that level of caution and and it's just prudent this early in the year.
Okay.
Okay. Thank you Kevin and thank you Brendan.
Thank you.
Our next question comes from Kevin Mcveigh with credit Suisse.
Great. Thank you so much and congratulations on the results.
Thank you Kevin and thank you very welcome Burton.
Well done for share.
Hey, as you're thinking about the retention.
Folks that are leveraging the credits versus non is there any way to maybe think about the brackets.
Overall retention and then what the experiences for folks that are taking the credit versus not.
Kevin I'll take that and when I'm looking on people that participated.
The customers that participated I think Burton mentioned in his prepared prepared remarks debt.
Over 50% of our renewal base has participated fully in our recovery credit program and needs less than 1% of those have traded so we have had a noticeable difference in terms of attrition between does that fully participated and the recovery of credit and and those that didn't.
And that answer your question.
Did I apologize I missed that and then.
Kelly as you think about the margins at the lower and.
Is 10% the floor in terms of as you would think about the progression of the quarters, where would it have to be the full year before you reverse any of that so in terms of.
And from a doubt buy side perspective can we think it is 10%.
For a floor or would have to see how the full year played out before you would revisit.
And those accruals.
I think we're going to be prudent and we're going to watch and the year or is it to value I would say I. Appreciate the question, but we did set 10% as the low end of our guidance for sure.
Super Thank you so much.
Thank you Kevin.
Our next question comes from Andrew Nicholas with William Blair.
Hi, good afternoon.
Good afternoon.
And I understand the current environment is a bit unprecedented from a health care utilization perspective, but I'm wondering.
Given you've now instituted a second credit program.
Do you expect this to become a more permanent aspect of your pricing strategy going forward and if you could kind of walk us through that thought process for why that would or would not make sense.
And 2022 and beyond and that'd be really helpful.
It seems like the program and it's 2021 form will help limit some of the variability you experienced on the on the.
<unk> margins from which I would imagine would be.
A positive development.
Could the company going forward. So just your thoughts there would be great.
Yeah, Great question so.
Transparency and value creation for our customers is a real critical aspect of our model, which as you know is pretty unique in our industry.
And you mentioned a couple of the key points is lack of volatility et cetera, but the bottom line is our first program the recovery credit program demonstrated to our customers the depth of our partnership and the foundation for the long term relationship and it was expressed and a clear benefit.
And as Kelly told you over 50% of our Ws CS are employed by customers, who have committed to the annual contracts through the program and of those customers less than 1% of the trade. So it worked out and exceeded my expectations.
As you look at it going forward. This was a way for Tri net stakeholders to benefit from the recovery credit program and I am going to continue to look for innovative ways that we can differentiate ourselves by partnering with the customers.
Makes sense. Thank you and then from my follow up changing gears a little bit.
Hoping you could help us get a better sense for how youre thinking about the impact of of the past year on the workers' comp book.
How much of what I would assume was much.
A much lighter claims activity in 2020, how much of that has already been accrued for and if not when would you expect that to flow through.
And the form a prior period adjustments. Thank you.
I appreciate the question Yeah, we did see favorable performance and workers comp in 2020 on those.
Certainly.
As we're looking forward I think we price our workers comp appropriately given given the environment and given our expectation for la.
And and we will continue to watch the trends and see how it how it comes out I think you've noticed though from.
A portion of prior period development coming through maybe a little bit smaller this quarter than we've seen and in past years.
Great. Thanks again.
Thank you.
And again, if you have a question. Please press Star then one.
Our next question will come from Sam, England with bearing Burke.
Hi, guys. Thanks for taking the questions. So first of all and I was just wondering as we come out of the pandemic. How you think about walking trends might impact by Tri net and the industry in general and as.
<unk> been something that's driven some of the new inquiries that you are saying.
Yeah, Great question. So I believe we are emerging from the COVID-19 pandemic and a solid position.
And that our customers will continue to hire additional employees to support their business and growth plans. Many of those employees will be remote and there is tremendous complexity, particularly if you cross state lines as it relates to hiring and retaining those.
Employees that complexity is suited particularly well for our business model because we can make sure that theyre paid right. The taxes are paid right and they have great benefits and all 50 states. So I believe that the combination of the model itself as well as.
And as our long term commitment to this vertical strategy and the hiring thats occurring.
Well for the future.
Great. Thanks, and then the follow up I was just wondering how you're thinking about the M&A environment in 2020, one and then also longer term debt.
Pandemic getting impacted.
<unk> willingness to sell businesses and some thoughts around that would be great.
Yes, Sam this is Kelly I will take that one.
One one thing I noted you know on the M&A front I think it is still a robust M&A environment and I think Burton and his prepared remarks talked about the M&A for the tech sector and that it had about a 1% impact on our WMC count.
And due to our robust M&A market.
How we're thinking about M&A, specifically, it really hasn't changed in terms of capital prioritization first we're gonna look it at organic growth second we will look at M&A, but it's got its debt our strategy and the type of business or geography, where we want to be and.
And lastly, we will participate and share repurchase opportunistically and at least to cover off dilution.
Great. Thanks very much.
Thank you.
Our next question comes from David Grossman with Stifel.
Thank you and good afternoon.
Hi, Dave.
Hey, Burton.
I was hoping maybe you could shed a little more light on.
On the WSI dynamic.
Thank you.
Kelly just reiterated what you had said in your prepared remarks about a point.
Impact from M&A, but if I look at that sequentially. It looks like WCS, we're still down sequentially, even after normalizing for that so maybe you could help us understand just kind of where we are and this dynamic of kind of puts and takes and that WMC base and.
With the recovering economic situations. There are some dynamics and you had really high retention and I'm. Just wondering why we were still down sequentially. What other factors are at play here.
Yeah, Let me take that and then I'll pass it on to Burton too.
And add anything else he wants to related to that but as we look at it sequentially, usually first quarter or January rather is when a lot of people change and they change. It is they want to keep their ws fees with one W. Two for the year, possibly but we do see probably the most churn.
And the month of January.
After that we have seen growth and.
And as I'm thinking about our sectors, we saw hiring and and Tech financial services and life Sciences is very strong. So we didn't know there was a lot of M&A activity, we still saw very strong net hiring and hopefully as the vaccine.
It comes out debt or is it more people get fully vaccinated and things open up even more and we will see other sectors follow on actually and in the first quarter and then I'll pass it to Burton.
For every single vertical except nonprofit we saw positive hiring and if that helps.
Yes, Burton you want add anything yeah, David So I would I would point you to main street, which has not recovered yet what I'd point you to is professional services fees were up and I was pleased with the revenue generated from our PSS.
And taking out the net insurance margin for me it was a strong quarter and I believe that frankly main street will recovery over time as well so the hiring and the other verticals was great main street has not recovered for us yet, but ultimately I am.
Very comfortable with where we ended Q1 is a great quarter to start from for the rest of the year, Yeah and one other thing to add to that is you may not have seen it yet, but if you look at our guidance specifically, we did raise rps up guidance by about two points and so on.
Our guidance really includes our view.
WSI is into the future and and our perspectives on hiring sales attrition and.
And I think it bodes well by being able to raise our <unk> guidance by it by 2%.
Right. So just kind of rolling all of that together, though is it really the sales dynamic.
In calendar 'twenty that created the WMC growth and 21 and the March quarter, just given again retention and it sounds like was really good and hiring was pretty good except for maybe a day and streets. So isn't that dynamic that we're seeing and the first quarter I think and of course, Arithmetically, where you ended the quarter youre going to have growth.
If you hold that for the balance of the year, but just really trying to understand is it really just the new sales dynamic last year that.
And the WC count from the beginning of the year.
At the end of the first quarter I guess.
Yeah, well typically we have seen Q1 be down lower sequentially and January and new sales did close some of the gap, but it is still lagging pre pandemic, we were actually a little bit better from a ended and WSI perspective and was in our regulators and our.
Initial guidance.
Got it and.
And then.
Just.
Going to the.
Recovery credit I, just want to make sure I understand the various dynamics there so.
It sounds like we're setting up a buffer right for some of the volatility that we typically would see it as well.
Continuing to give back and enhance retention. So I don't know if theres going to continue as normal but.
I think historically, we were thinking of what like 11% to 13% net insurance margin and.
On a normalized environment is that you want us to think about the business with the credits.
Coming and going here, and and you're out or or do you have a thought on what the more normalized level should be including.
Kind of the accrual of a recovery credit or release when appropriate.
Yeah.
Guidance for 2021 really is it 10% to 11% combined net insurance margin and we don't attempt to make money on health insurance overall, but we do price it to be able to cover our costs and our balance sheet risk.
And so you know 10 to 11 is appropriate for 2021, and we're going to continue to watch trends as we move forward, but I'm not going to give that full your further outlook and that at this point David.
Got it and just one last question.
Sorry for the third question here, but just.
And I think.
Did you say this is just a cleanup modeling question did you say three 5% interest on the new debt or do you want to just.
Maybe just can let us know what you think your interest expense will be from the year.
Yeah sure. It was a three and 5% coupon on 500 million of debt that was refinanced so and.
Terms of the guidance that we gave on a year on year basis on a quarter on quarter I should say, we built and roughly 11 and incremental associated with interest expense by being able to lengthen out that debt.
Okay, that's 11 cents year over year.
Yeah, Alright, and I love and and really versus our guidance. We gave last quarter. So we and Takeda that'll hit hit us by about <unk> 11.
So by not raising the top end and in fact was raising guidance by 11, and because we covered off the debt financing costs.
Got it got it okay, great. Thanks very much.
Hey, David.
This concludes our question and answer session as well as today's conference call. Thank you for attending today's presentation. You may now disconnect.