Q2 2021 TriNet Group Inc Earnings Call
<unk> historical in 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 that 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 that are difficult to predict and that may cause actual results to differ materially from statements being made today or in the future.
Except as may be required by law, we do not undertake to update any of these statements in light of new information future events.
<unk> or otherwise we encourage you to review our most recent public filings with the SEC, including our 10-K 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 of our stock.
In addition, our discussion today.
<unk> will include non-GAAP financial measures, including our forward looking guidance for adjusted EBITDA margin and adjusted net income per diluted share for reconciliations of our non-GAAP financial measures to our GAAP financial results. Please see our earnings release, our 10-Q filing for our 10-K filing for our second quarter and full year of.
2020, reconciliations respectively, both of which are available on our website or through the SEC website.
With that I will turn the call over to Burton for his opening remarks Burton.
Thank you Alex simply put Tri net second quarter operating and financial performance was exceptional.
<unk> strong setting us up for a solid back half of 'twenty 'twenty 1.
These results reflect the resilience of our business and the continued execution by our team throughout the COVID-19 pandemic.
Solid financial growth robust operating performance.
<unk> and strong customer retention were highlights of the second quarter of 2021, specifically, we delivered strong financial results highlighted by our professional service revenues growth.
Our WSI volume grew 9% year over year.
Based on our approach to customer selection.
We achieved historically strong retention and our client base continued strong hiring throughout Q2.
New sales grew 9% year over year as measured by annual contract value positioning.
Well for a second half rebound.
And we launched our new Tri net financial services preferred product.
By the end of the quarter, we saw health services utilization trend towards a more normalized pre pandemic right.
During the <unk>.
Quarter, we grew total revenue, 16% year over year to $1.1 billion.
The year over year revenue performance was measured against the first full pandemic quarter, which included an accrual for the recovery credit program. Additionally.
When we compare the total revenues in the recent quarter to that of the second quarter of 2019 total revenues grew 18%. This reflects the strong underlying performance of our business throughout the COVID-19 pandemic.
Our revenue growth highlights that our value proposition continues to resonate with our target customer base and was further supported by a 29% year over year growth in professional service revenues the growth in professional service revenues.
Was attributable to our strong volume growth, especially in our core white collar verticals.
We are now supporting the largest number of Worksite employees and Tri net company history for our technology financial services.
<unk> and life science verticals during the quarter the growth in professional service revenues saw large contribution from rate.
Kelly will go into greater detail, describing this quarter's unique drivers of rate.
The year over year compare also benefited.
From the recovery credit program accrual taken in Q2 of 2020 overall I am very pleased with the performance of our professional service revenues as it positively reflects our customer selection process strong value proposition customer return.
Tension and customer growth. Additionally, this professional service revenues creates a flywheel that will drive revenues for the second half of 2021, our health plan enrollment also played an important role in these results. We now have the most.
Most ws sees enrolled in our health plans in our history.
This exceeds our previous pre pandemic peak Tri net is focused on price choice and user experience to drive. This historically high number of Ws sees enrolled in our medical plan.
Our clients have responded to this focus by adopting these advantageous medical plans to attract and retain exceptional employees Ulf.
Ultimately our year over year revenue growth as well as our revenue growth compared to the same quarter of prepaying.
<unk> 2019 reflects the durability and vitality of our customers.
The fate of our products and services to this customer base and our steadfast commitment to evolving our offering and standing with our customers in this rapidly.
Emmick changing business and regulatory climate.
Importantly, we expect to continue to grow our revenue at strong rates through the second half of 2021, which is reflected in our revised guidance, which Kelly will address.
GAAP earnings per.
Lee or declined 27% year over year to $1.37 per share as a reminder, during the second quarter of 2020, our earnings per share was positively impacted by the precipitous decline in health services utilization that.
Per share line led to significant health cost savings, which benefited our Q2.2020 earnings.
I am very pleased with this past quarter's earnings performance not only because of the results, but because of how the earnings were generated we outperformed the.
That's at the end of our GAAP earnings per share guidance by <unk> 63 per share. This beat was driven by strong volume performance supported by continued health cost savings, even though the health cost savings moderated as the quarter progressed.
Additionally.
When you compare our most recent quarter's GAAP EPS versus that of the second quarter of 2019, a pre pandemic quarter, we more than doubled our earnings per share.
We finished the second quarter with approximately 340000 WSI.
Top up 9% year over year, and up 4% sequentially versus the first quarter of 2021.
Our strong volume performance is attributable to the themes we saw emerge in the first quarter. We continue to have strong retention in the second quarter.
In the last 2 years, we created 2 unique to our industry credit programs in which we used our health care cost savings to help drive longer term relationships with our customers. These programs highlighted our commitment to our customers and our customers.
Warning us by staying longer our customer selection process has resulted in a customer base comprised of dynamic and durable companies are strategic decision years ago to pursue a certain set of customer attributes in specific.
A real Nichols is paying dividends.
Continuing a trend that began last year this customer base hire new employees in the second quarter at historically high rates. We believe these hiring trends can continue into the second half although not.
Not likely at the same historically high rates.
Finally under new sales leadership sales.
Contributed positively with 9% year over year growth in annual contract value. This growth occurred in our core verticals, adding to our already strong.
<unk> <unk> customer base.
I am optimistic that the post pandemic bottom is in and we will see a recovery in new sales growth throughout the second half. Additionally, during the second quarter, we announced the arrival of our new Chief product Officer.
Under her leadership.
Drawn I expect to further extend our customer commitment to an evolving value added customer experience. An example of this evolution is that we launched our Tri net financial services preferred product in the second quarter, we have always provided our financial services.
Ships tumors with excellent service top tier benefits and support for partnerships and other entities. This enhanced offering seeks to extend these capabilities. After having served nearly 5000 different financial services customers. We.
Cut side, our deep financial industry knowledge and unique customer insight to launch this new exciting product. This product is designed to enable financial services firms to deliver premier employee experience efficiently manage HR administration.
We have planned comply with a complex set of employment related risk and regulations financial services firms. However have not escaped the pandemics impact. Many are now faced for the first time with the added complexity of distributed.
Remote workforces as employees choose to work from different locations Tri net financial services preferred is well position to address this emerging complexity on behalf of our customers. This value will be delivered by both new technology.
At Orlando and evolved service model, having nearly tripled our financial services customer base since 2014 and currently at our all time high in financial services Ws Seas, we look forward to driving continued.
<unk> strong growth through adoption of our financial services preferred product sales and marketing are more critical than ever to our organizations growth as.
As we look to the second half we expect to see a continued recovery in new sales buttressed.
By the powerful collaboration between our sales and marketing teams.
The pandemic, new business generation pivoted to channels, where engagement and viewership increased on.
Our marketing team anticipated this new reality with enhanced web.
Web capabilities through the first half of 2021, new HCV originated by marketing is up 18% year over year. The vast majority of this business was driven through our omni channel marketing efforts as economic.
And face to face activity accelerates, we expect marketing to augment our efforts with increased program activity. Historically Tri net has benefited most from face to face selling with prospects referred to us our sales team is highly effective.
<unk> and cultivating strong referral networks by bringing together customers prospects and salespeople and closing this business at faster and higher rates in June the successful rollout of the COVID-19 vaccines in California, and New York empowered political leadership.
To reopening of states, which represent 2 of our core markets and responds Jonathan Komp, our new sales leader has spearheaded a staged return to face to face selling we are excited for sales and marketing to reestablish our in person.
Person program activity in support of our referral business in the second quarter, we announced our largest and most prominent company program Tri net people force a 4 day virtual and in person conference focused on business transformation agility.
Alrighty and innovation for small and medium sized businesses.
Is scheduled to begin on September 13.
Force has become our showcase event, where our people products and services are on full display for prospects and customers when we say.
We put our customers at the center of everything we do there is no better event than people force for a prospect to see Tri net inaction.
This year's event will be a hybrid in person from New York City and virtual from anywhere we are excited about the potential sales.
Impact from people force and we expect our sales and marketing teams to leverage this event to drive new business throughout our fall selling season as I reflect on our second quarter performance and look to the second half of 2021 I am proud.
<unk> of our entire team and what they've accomplished we are delivering strong financial results and outstanding operating performance. Our execution has resulted in revenue earnings and volume growth in the quarter moving.
[noise] ahead, we continue to take necessary steps.
<unk> that thoughtfully accelerate these efforts and I look forward to updating you on our progress I will now turn the call over to Kelly for a more detailed financial update Kelly. Thank.
Thank you Burton.
Our second quarter financial results before discussing third quarter.
<unk> and full year 2021 guidance with.
With respect to our second quarter financial performance I'm extremely pleased with our results.
We exceeded our volume projections, which drove top line growth. We saw continued good health performance and we delivered strong earnings.
During the second quarter total revenues increased.
16% year over year outperforming the top end of our guidance range by 2 points. The outperformance in total revenue was driven by 9% year over year growth and ending debt, the lessees and 6% year over year growth in average debt, the lessees and our highest ever health participation.
Patients by Debbie lessees.
Over your growth in total revenues include the benefit from a 5% accrual for the recovery credit program, which reduced revenues in the second quarter of 2020 as a reminder, this accrual impacted both professional service revenue and insurance service revenues.
Professional service revenues in the quarter grew 29% year over year exceeding the top end of our guidance range by 15 points. This growth was driven by the average volume growth of 6% I, just mentioned versus last year, which exceeded our expectations.
Importantly, this volume grew.
Third in our core verticals positively impacting next professional service revenues also benefited from 9% growth in rate. There were 2 unique drivers to year over year growth in rate specific to this quarter first we've updated pricing for our small customers to achieve.
The crude price.
And we had a higher volume of payrolls, this quarter, which impacted our rate calculation in practice when compared to the same period last year, we saw customers run higher numbers of bonus payroll runs, which directly added to incremental professional service fees.
And the <unk>.
The minimum growth of average Ws 6 to 332000 highlighted the durability of our customer base as our installed base continued to hire at record rates and also reflected strong retention for the second quarter, our net insurance margin or NIM as we historically have presented it was approximately.
<unk>, 15%, implying total insurance costs of approximately 85% of our insurance service revenue is this compared to our expectation of 89% to 90%, implying a NIM of 10% to 11%, although we saw an increase and help utilization as president.
Similarly, the visits resumed the insurance cost remained lower than our forecast as the level of elective procedures has not yet returned to pre pandemic levels. We also benefited in the second quarter from more favorable development of our first quarter incurred health claims our second quarter effective tax rate was 20.
Bench test that in the quarter the rate was lower due to benefits associated with a favorable adjustment of our previously disputed receivable from the IRS and an increase in tax benefits related to equity compensation, both our second quarter GAAP net income per share and our adjusted net income per share declined.
On the 2 per over year as the extraordinary under utilization of health costs due to the pandemic and second quarter of 2020 did not recur at the same level during 2021.
GAAP net income per share declined 27 per cent to $1.37 <unk>.
Compared to $1.87 per share in the same.
And your last year exceeding the top end of our guidance by <unk> 63.
And adjusted net income per share decreased 23% to $1.56 compared to $2 <unk> per share in the same quarter last year, which exceeded the top end of guidance by 70 cents.
So far this year we expense.
Same quarter $24 million to repurchase approximately 925000 shares of stock and have over $280 million of authorization remaining we also generated $240 million and corporate operating cash flows during the first half as a result of our strong operating performance ending the quarter with.
<unk> hundred $64 million in corporate cash.
Overall performance in the second quarter continued many of the positive trends, we saw emerge in the first quarter and we're positioned well for very strong full year operational and financial results now.
Now, let's turn to our third quarter and full year outlook.
For he will provide both GAAP and non-GAAP guidance before I begin. Please note that we are changing how we discuss and present the performance of our insurance business and how we calculate adjusted EBITDA margin. These changes are unrelated to the fundamentals of our business and reflect overall public company reported.
I will trends as well as our efforts to reduce our non-GAAP metrics as the company growth importantly, we are making no changes to the presentation of our financial statements.
First regarding insurance after this quarter, we will be discontinuing the use of net service revenue net insurance service revenue.
Accordingly, and the net insurance margin ratio given we are not changing our financial statements. The components will still be available in order to understand trends in insurance service revenues in insurance costs.
Second our adjusted EBITDA margin will now be calculated by dividing adjusted EBITDA by.
Revenue revenues rather than net service revenue is our plan going forward will be to provide guidance on total revenues professional service revenues expectations around insurance costs compared to insurance service revenues GAAP earnings per share and adjusted earnings per share. We believe these metrics.
Total will continue to provide clear indication to investors of our views on revenue growth and profitability. Furthermore, we will continue to publish components of adjusted EBITDA with our quarterly and annual results now on the guidance for the third quarter of 2021, we expect total revenues.
<unk> growth of 15% to 17% year over year and professional service revenues growth.
To be in the range of 15% to 20% year over year as a reminder, in the third quarter of last year, we accrued $48 million for.
<unk> to 'twenty recovery credit program, which represented approximately 5% of GAAP total revenues and professional service revenues for the period. This revenue range is an increase over our prior guidance along with the expectation of stronger performance in the second half.
Nadir of 2021.
20th new sales hiring within our installed base on the slowing from first half levels and continued strong retention.
Regarding our insurance costs, we are expecting our third quarter.
$9.5 per cent and 91, 5% of insurance service revenues.
Our.
This assumes.
We are returning to normal levels of health utilization, but that there isn't a sizeable snapback and electric procedures, nor escalation of expenses from delayed care over what we would consider normal during an non pandemic here.
Our guidance expect third quarter GAAP earnings per share to be in the range of 48.
To 72 cents per share and we expect.
Third quarter adjusted earnings per share to be in the range of 62 to 87 per share.
Returning to our full year guidance given our first.
First half performance, we are raising our full year guidance.
We continue to expect health cost to normalize in the second half of 'twenty 'twenty..1 we did experience a moderation in our health cost savings late.
Good quarter, and we expect that trend to continue as a reminder, we believe our full year guidance remains partly de risked by the fact that our 2021 credit program will be adjusted downwards by up to $25 million should we experience additional health costs above our current expectation.
And Furthermore, we continue to realize strong hiring and retention in our core verticals, which has improved our full year outlook. We are now forecasting our year over year GAAP revenue growth to be 10% to 12% lifting the range by 1 percentage point with the strong growth to date.
<unk> and our continued optimism given the 2021 recovery our professional service revenues forecast is now for 13% to 15% year over year growth an increase of 5 points.
The increase in our professional service revenue growth forecast as a result of continued strong hiring growth.
<unk> tension in our core verticals and resilient pricing, we expect our 2021 insurance revenues to remain strong while we would anticipate insurance costs to improve on a full year basis to roughly 87 and a half per cent to 88.5 per cent of insurance service revenues.
Rick we were closely watching the developments and trends given our expected increase in utilization of health services and potential to accelerate elective procedures in the second half of the year.
With all these factors taken together, we now expect GAAP earnings per share to be in the range of $3.60.
The $4.03 or down 10% to up 1% year over year, the new GAAP EPS range represents an increase to the top end of the range of 72 cents.
Adjusted net income per share is now expected to be in the range of $4.25 to $4.70.
<unk> are down 4 to up 6% year over year, the new adjusted net income per share guidance reflects an 80% increase to the top end of our guidance range with that I will return the call to Burton for his closing remarks Burton. Thank you Kelly in summary.
So very pleased with our second quarter performance, which demonstrates our commitment to putting our customers at the center of everything we do and focusing on leveraging our business model to drive value for all of our stakeholders. We are emerging from COVID-19 in a very strong.
Hi emission through our customer selection and vertical model, we have attracted a unique installed customer base, which is hiring at record rates at the same time, our new sales are starting to pick up and we expect to build sales momentum throughout the second half given.
On the improving momentum in our business coupled with our strong first half performance I am pleased that we are raising our guidance for 2021, our outlook is very positive as we build on our success and move forward in executing our plan and are recovering.
And because those pandemic economy.
Operator.
Thank you and we will now begin the question and answer session to ask a question you may present stars in Marlin, you touched on food.
Using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
On our first question today will come from Tien Tsin Huang with Jpmorgan. Please go ahead.
Hey, Thanks, so much just had a great day like with you guys. Just a couple of questions 1 for your burden once again.
The new sales top line.
Dan Thanks for sharing that.
Okay.
And but for a lot of the industry recovers.
Anything you can say in terms of where that came in that he planned where do you see that.
Moving to burden as you get back to a little bit more normalized sales I know you have the big events coming back in.
How does it imperative.
2019 levels.
There's a little bit more on the on the ACB growth there.
So thanks for the question Tien Tsin.
We're emerging from Covid in a really strong position. This is the quarter I was looking for as I assume you could tell from my remarks, yes.
I believe is.
We have the right focus on the verticals the right customer base and the continued customer selection. So sales is recovering as I said the bottom is in and my visibility this high levels of activity and we're seeing people beginning to make those decisions debt.
Been deferred frankly.
Lee for so long.
So the bottom line is.
My expectation is for sequential growth in Q3, and Q4 in sales setting us up very well for the rest of the year and I am pleased with the work being done on both on the marketing side.
As well as the sales side.
Great.
So that's good to hear.
And then just on the on the plus 9 on the rate.
On.
Much of that.
Would you assign to the if anything on the minimum on this put a smaller clients I assume that was contemplated in guidance.
So the second half imply maybe a little bit of attrition and thoughts on that changed just trying to understand.
On <unk>.
Payable on how much that can carry forward.
Thanks.
Next 12 months.
No I appreciate the question Tien Tsin really.
10% rate increase about 3%.
It was raising the minimum debt.
Growth you wouldn't see the same level of growth, we probably will see it for a quarter or 2 more because we.
He delayed those rate increases due to COVID-19 and what our customers were going through so we probably will.
We'll see some level of growth over the next couple of appreciate it.
Yes.
And on that.
Next question will come from Andrew Nicholas with William Blair. Please go ahead, hey, good afternoon. Thanks for taking my question.
First question on.
None of it.
Hoping you could put some numbers to the sequential change in WMC I'm. Just wondering if there's any detail you can provide to kind of help us size how much of that growth was attributable to the client base versus maybe better than expected retention.
Just trying to get a sense for for what we.
We can kind of extrapolate going forward.
Yes, Andrew this is Kelly I'll be happy to take your question.
In general retention was around the range that we expected.
Hiring was better than we expected.
On new sales.
In line.
Got it.
Okay Alright.
I would now no debt.
Okay.
Alright. So then I guess for my follow up maybe bigger picture question.
Second quarter in a row.
With really strong upside to your expectations.
I'm just wondering at this point, maybe compared to how you are viewing the year back in December and January when Youre budgeting and doing your full year planning if theres anything in particular that comes to mind that youre planning to kind of lean into using kind of this upside are you planning to.
Ramp up marketing.
But more technology investment sales force hiring whatever it may be just wondering if that's kind of spending plans are different today than they were 6 months ago, just given all the positive momentum in the business.
Yeah I. Appreciate the question there are definitely a little more backend loaded here are a few things we are investing in.
Growth really trying to focus on growth and efficiency, we are investing in some sales and marketing efforts as well as technology improvements as we continue to roll out product.
With the sensor preferred.
And then obviously given the strong performance.
Spend on me the compensation accrual goes up a lot of that with that.
Understood. Thank you.
Thank you Andrew.
And our next question will come from Kevin Mcveigh with Credit Suisse. Please go ahead.
Great. Thanks, so much on congratulations.
Okay.
You kind of referenced record high retention couple of times on the call can you help us frame kind of where that retention fits in.
I guess, what's interesting to me that would've thought maybe that eased up a little bit as the pandemic eases.
It could be the case.
Any thoughts as we work our way through the year on the retention.
Yeah, Hey, Kevin This is Kelly I'll take that 1 given that its really guidance related and an numbers related net in terms of retention.
Yes, the way I would say is 2020 was a record year I think 2021 is a very good.
Not quite at the same record retention rate that we signed 2020, but definitely in our window of expectation and where we think our.
Guidance will land for the full year, so really our assumption within guidance is that retention is not quite as good as people are a little more comfortable making making back office decision.
<unk> net sales increased significantly on more than makes up for that.
Is that helpful is that responsive.
Got it and then Kelly any sense of.
Where that number is directionally can you give us a range maybe if that's an explicit number.
Yeah, I'd say, it's up about a point.
Okay and then.
Guess what.
Drove the decision it sounds like Theres some enhanced.
Functionality within financials.
Drove that and then.
Would you expect.
All kind of adjusted financial clients to cut over or is this a new initiative or just any thoughts.
And also on that it seems pretty interesting that youre doing a little bit deeper within our financial services.
Hey, Kevin This is Burton and thanks for the complement on upfront by the way I am really passionate about these verticals that we're in and my goal is frankly to go deeper and add more value.
More connectivity for these verticals.
And to listen to the customers as we evolve the product on throw having new product later on board, who is going to help and adding the capabilities and the attributes of our new products and it's about going deeper in the verticals that we're serving it's not about finding.
Add more verticals to serve our Tam is large enough. Our focus is why and I believe we're in the right geographies. So I wanted to double down on our customer selection I wanted to double down on the <unk> retention is so high we need to make sure that we're adding capabilities which debt.
<unk> per point of wide focus deeper in something like Taser and I also want to double down on enabling our channel both marketing and sales to go deeper within these verticals and serve them in a way that they haven't been served before.
Helpful. Thank you Barton.
Yeah.
Thank you.
And once again, if you'd like to ask a question. Please press Star then 1 on.
Our next question will come from further England with Bloomberg. Please go ahead.
Hey, guys. Thanks for taking the questions. The first 1 you talked about volume growth, especially within the 1.
The article's.
Around the sort of mix shift do you think that will be permanent.
Or is there still some blue collar business that youre expecting to return as we sort of exit the pandemic what are your broader thoughts on on where mix will balance. The next 2 to 3 years.
Hey, Sam this is burton thanks.
Thanks for the question.
From my Vantage point, the main street vertical has not recovered.
Loss that they had in both layoffs and furloughs like our other verticals, but it is coming back to almost even as to what it was prior to the pandemic.
<unk> color.
I also believe there's a tremendous amount of pent up demand in these verticals.
And there's a lot of pent up demand in main street.
Scenario. This may end up coming through is the hiring as people become available will increase in main street I don't believe it will go in the direction.
On that our technology and financial services is on but I do believe that you will see some change in existing at a more normalized rate for main street I also see a tremendous amount of new quotes to the select groups that we quote in main street. So I believe there is upside.
Main street that we have not seen yet and could be upside that goes into next year.
Great. Thanks, very much on and then the second 1 could you just talk a bit about the M&A environment at the moment.
How the asbestos sort of pipeline or frequency of potential acquisitions do you are saying is developing.
<unk>.
And on it.
Great.
I'll take that 1.
Our focus on M&A really hasn't changed it's still our second highest capital priority.
We're still looking towards geographies or verticals that.
And our net technology that fit their client base or other tuck in type acquisitions, but valuations are really elevated right now and we want to make sure that the acquisitions were targeting are going to be accretive to our shareholders. So that's the lens, we're going to continue to use them and definitely be select.
It really as we looked at that.
Great. Thanks very much.
Thank you Sue.
And our next question will come from David Grossman with Stifel. Please go ahead.
Thank you good afternoon.
Congratulations.
The net result.
<unk>.
Yes, Thanks, David.
I'm wondering if maybe I'm sorry, Mike.
My line cut out when you were answering <unk> question about <unk>.
The 9% rate increase so with a 3% from raising the minimum on this.
Smaller clients and 6% from.
A lot more payrolls that were higher than expected number of payroll and payroll.
Special reports at year end.
Okay.
Yes, the way I would look at it is.
The 9% really yeah about 3% was our smaller clients 1.
On a 2% was really that the extra on payrolls and May really reflected may and June reflecting the strong performance of our clients have seen today.
That's really on more of a 5% underlying underlying rate increase.
Oh I got it okay.
And.
And then the balance of the difference between guidance on was the volume growth is that the way to think about that.
The NAV increased plus 6% volume growth.
Yeah.
It's pretty much there was a little bit of noise around timing between first and second quarters.
Quarters in terms of the mix.
On insurance service revenues and our professional service revenue that was about a 3% variance year over year, just as we were looking at that mix shift as well.
Got it.
And.
Just could I have the hotel or just a moment.
And.
The net insurance margin, obviously running well above the guidance.
10 to 11, if you will.
And I know that.
Inflation rates are down on.
Electric procedures are down.
Is there anything that you're seeing on that business.
I want to make you rethink what that May look like in 'twenty, 2 and 'twenty 3 and you have to get into specifics about those years, but.
Or is it really just too early to know or are you seeing some just fundamental changes on the business.
Would make you think that.
You could do better than that because as you know.
Business hasn't run at 10 to 11 for quite a while.
Yeah, yeah on the entity.
E D.
David we raised our guidance this quarter on on the 2021 view.
Insurance is a competitive environment out there as well when you do re price every year based on our expectation on medical cost trends and.
The realization will continue to work with our clients to try to keep their increases down.
As you know we work on things like for example, we issued.
<unk>.
It relates to new products.
In May health advocate to really help our WSI.
And you'd be able to manage their health utilization and get the best service for the lowest cost for them, which really will help their employers are already or medical increases so.
We expect to be competitive we hope that will drive we plan on that driving growth as well.
We are targeting tangible 11, but there is some level of variability.
USC on that.
Right.
And maybe Burton if you could just comment on the SCB that you signed in the quarter you mentioned several times that we have in the past the Bob.
On a conscious effort to rethink the type of customers that you wanted to sign so maybe could you give us.
Or do you under the Hood, if you will in terms of.
On the demographic of some of that ACB in terms of.
Size of customer and.
The types of services that they're taking and also maybe some insight into why in this kind of new world that we're moving and why they're choosing the PEO option.
So great question.
What I'll say to you is that the verticals we chose for years.
This has been a passion of mine and I believe David It is coming home to roost favorably they value our partnership as they grow their companies.
With the pandemic and the multistate approach, where people are not coming back to work where small companies now have employees in 3.4 and 10 states our value proposition really resonates now if you. If you have a manufacturing plant they have to come back to your manufacturing plants.
Plans to produce their product if you're in a financial services company and your valuable go that company you can pretty much live anywhere you want so the complexity has gone up exponentially and you've heard me talk about the PEO is a great place to reduce complexity around employment in your business.
So that's particularly strong the customer size is getting larger if you look at the installed base, it's coming from 2 areas 1 is record hiring.
The customers were at 10 or 11 are now in 'twenty or 'twenty, 1 the new sales is coming.
With a higher average.
On our customers, our WSI size to begin with and those customers are growing as well so in choosing the verticals, which are well funded we're seeing you didn't ask the question, but funding has not abated New company formation in technology.
<unk> and life Sciences is strong spinoffs of financial services organizations with new hedge funds are focused.
Our funds of some sort or being created on a regular basis. So what I would say is that the customer base is getting bigger.
The vertical strategy is working in that I'm, keeping blinders on to make sure that we are going deep in the verticals and with the products. Following that strategy. I believe we will continue to keep those customers longer and deliver unparalleled value that can't be.
<unk> delivered either with another PEO or by doing it in house.
And has anything changed burden in terms of the economics of breathing the PEO model on a certain scale.
Good question.
Let me, let me think about that per minute.
I think the economic.
Economics are you would need a lot more expertise in house on <unk>, if you're operating in 7 states versus having a single location.
The economics around hiring which is ridiculously hard right now to get the right people you are better off having.
<unk> 13 medical plans in 1 state versus 1 medical plan and attracting folks and also as you are well aware people have high expectations of not filling out a lot of paper work on boarding in a paperless environment and being able to access their information.
In a very timely fashion. So I do believe if youre going to go from a PEO to bringing it in house. The bar is higher today in terms of multistate user experience and complexity around reporting than it was 2 years ago. So that's probably the way I'd approach it as far as the exit.
At velocity from a PEO to in house.
Alright, and just 1 more sorry, the some of the investments I just wanted to.
Pick up on 1 thing you mentioned a moment ago as debt.
As your kind of gut sense as debt.
Benefits run out with summer.
You haven't really.
We've seen a big rebound in hiring in Uruguay in Shreveport.
The benefit is running out of the summer ending that you could in fact seen some acceleration on that business in the back.
Yes.
Fourth of the year for the last day of the year.
What the scenario is.
Will the benefits they can go to normal because we're pricing to rest. The question really is whether there will be an acceleration above the normal trend for medical benefits and from my standpoint, I don't see that happening I think it's coming close to normalize which is just fine.
Fine from my standpoint, but part of my Reticence. After Q1 is I didn't know what Q2 would look like I am very pleased with where we got to from a.
Medical cost trend in Q2, but I, probably obviously don't have a crystal ball into Q3.
Q4, I believe they will go to normalize David.
I think on your question was really around unemployment benefits correct.
And mainstreet hiring yeah.
<unk> forecast, while we talked about.
Hiring moderating.
Second part of it was just unprecedented.
On our.
Our biggest verticals so.
Our moderating of that really does assume a somewhat of a higher level of hiring 4 main street, but you do have to remember is while we're very selective in terms of our mainstream customers.
And we don't have a lot of service sector hospitality within.
And our main street vertical so you probably will see more of a rotation for those that have a higher concentration of hospitality any ball for it right.
Got it.
That's it for me thanks very much.
Thanks, David appreciate it.
And this will conclude our question and answer session also concluding.
Today's conference we'd like to thank you for attending today's presentation and at this time you may now disconnect your lines and have a great day.
Yeah.
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