Q3 2022 TriNet Group Inc Earnings Call
Good day and welcome to the China third quarter 2022 earnings conference call.
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I would now like to turn the conference over to Alex Bauer head of Investor Relations. Please go ahead.
Good afternoon. My name is Alex Bauer I am trying to its head of Investor Relations. Thank you for joining us and welcome to Tri net 2022 third quarter conference call I'm joined today by our CEO Burton M Goldfield, and our CFO Kelli to Minnelli before we begin I would like to address our youth.
Forward looking statements and non-GAAP financial measures. Please note that today's discussion will include our 2022 fourth quarter full year financial outlook and other statements that are not historical in nature are predictive in nature or depend upon or refer to future events or conditions, such as our expectations estimates predictions.
<unk> 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 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 occur.
Our future results or the market price of our stock. In addition, our discussion today will include non-GAAP financial measures, including our forward looking guidance for adjusted net income per diluted share for reconciliations of our non-GAAP financial measures to our GAAP financial results. Please see our earnings release 10-Q filings or 10-K.
Filings, which are available on our website or through the SEC website.
With that I will turn the call over to Burton Burton. Thank.
You, Alex I am very pleased with our third quarter financial results try and its clients once again persevered and manage through this difficult economic environment, which drove our third quarter performance trying to partners with the best Smbs in America too.
Dress business complexities, such as cost containment and evolving regulatory environment and changing workforce dynamics. This relationship provides customers with a world class H R. I S platform access to high quality benefits.
And HR products and services generally unavailable to Smbs.
As a result, we enabled this unique set of businesses to navigate the current business environment and succeed as they succeed trying that in turn grows during the third quarter total revenues grew 8% year over year in line with the top.
Top end of our guidance.
The Tri net product is particularly relevant in an unpredictable economic environment as smbs look for ways to convert fixed cost into variable cost models.
These same smbs are asking their employees to do more with less they recognize that their employees value the tri net products more than ever with respect to our access to benefits and support for employees and their families try and its vertical focus is.
Unique in our industry and is a key element of our business and financial model. We are very disciplined in our customer selection by focusing on our core verticals throughout the United States in economic environments. Like we are currently experiencing.
Being we select the strongest of prospects with respect to their industries and their financial strength.
As a result of this process. We believe we have the strongest cohort of customers in the SMB space. This allows us to deliver continued robust predictable and repeatable financial performance, we therefore remain <unk>.
Optimistic about Tri net future and continue to invest in our long term growth potential.
We are integrating trying it zenna fades, while improving the overall experience of both our PEO and H R. I S solutions in the third quarter, our GAAP EPS increased 5% year over year to $1.22 there.
This result outperformed the top end of our guidance our adjusted net income per share grew 25% to $1.64 also outperforming our guidance our third quarter earnings performance benefited from lower than forecasted.
The insurance cost growth I am pleased to announce that consistent with the value we place on our partnership with our customers. We once again anticipate launching an additional credit program in the fourth quarter.
Kelly will share more information regarding this industry, leading program, which anticipates a return of capital to our customers in.
In response to the rapidly changing business environment, our customers are leveraging our unique trusted advisor relationship by requesting more products and services I am pleased with the significant progress that Tri net team has made in reducing the cycle.
Time with respect to delivering net new products to our customers.
Last February we acquired Tri Ed Zenna, Feds and I spoke about the impact of adding Tri Ed <unk> to our suite of products, enabling us to offer a strong SaaS based H R. I S solution, along with our P. E O solution there.
S. H R. I S solution provides an upgrade path for our large PEO clients as well as a product that appeals to a broader S. M B Tam.
<unk> delivers a differentiated offering with the H R. I S product at one end of the barbell and the PEO at the other.
Tri net xenophilia is an industry, leading low touch easy to use software offering purpose built for smbs.
<unk> PEO is a knowledge intense comprehensive offering which leverages the co employment legal construct.
Between our two offerings and in response to customer demand Tri net will continue to fill the gap with high value products available to both our PEO and H R. I S clients simultaneously during.
During the third quarter, we added two high value product lines to address customer needs.
We launched Tri net and rich and we acquired Clarice R N D.
Virus R&D is an industry, leading expertise driven fintech solution for simplifying the R&D tax credit process for Smbs.
This proprietary cloud based software platform, coupled with deep subject matter expertise delivers its solution in an efficient and scalable manner providing.
Providing the leading technology and service offering at scale for Smbs, both to our PEO and H R. I S clients is a core tenant of the Tri net value proposition.
Tri net we'll be introducing claris R&D and this tax credit opportunity to all eligible customers adoption of this product could have significant positive financial impact on these customers.
Claris, R&D and Tri net share a culture of creating value and free cash flow for our customers.
Given the uncertain economic environment, we believe that Tri net and Clarus solutions will prove very attractive for customers and prospects alike.
Since its founding in 2016, Clarus has secured approximately $250 million in tax credits for its customers. Combining these tax credits with our existing Tri net credit programs nearly $500 million and say.
<unk> will be returned to our customers by early next year. This does not include the approximate $1.9 billion in P. P. P loan forgiveness, we help tri net customers secure.
It should be apparent that tri net is more than just HR tri net fills a critical role in the growth and success of our customers, which further deepens our partnership.
A critical role that Tri net can play in their success is to leverage our expertise scale and balance sheet to optimize cash flow for smbs, which is a critical part of their growth and survival to illustrate this arc.
Customer notch said Tri net has proven to be a valuable partner for notch Inc. Tri net has helped ease our HR burden as our work force has become more distributed across multiple states and countries.
<unk> Nez Tri net has also proven itself in the financial credit opportunities. They've provided we participated in the business recovery credit program, which helped us more easily navigate the uncertainty during the early stages of Covid trying to add.
Puts our customers at the center of everything we do which makes it so pleasing to hear notch describe the many ways Tri net has had a positive impact we will continue to rely on our 30 plus years of working closely with Smbs are customers will inform our.
Product roadmap as we add incremental value that they require we will stay agile in this rapidly changing world through extensive collaboration with our customers. We were able to create trying that enrich a new product when the Supreme Court issue.
They're dobbs ruling we recognized an opportunity to create an innovative product to help business owners solve the unexpected problem of access to medical services for their employees trying it and rich represents the best of Tri net thought leadership.
Collaboration and innovation are enriched product line enables smbs the opportunity to offer unique benefits not typically available to smbs trying that administers the benefits for customers and manages all.
<unk> reimbursements and compliance.
Net and ranch was initially launched with two products enrich access which allows tri net customers to offer tax optimized travel reimbursements for medical care.
And enrich adopt which offers reimbursements for expenses incurred during the adoption process.
In September we added a third product in rich learn enrich learn allows for tax optimize reimbursements for expenses by S. M. B employees to advance their education. Additionally, in response to Hurricane E N.
We launched our fourth product as part of the enrich product line in rich disaster relief.
Again disaster relief allows for tax optimize reimbursement for expenses incurred by S. M. B employees impacted by a federally declared disaster for example S. M. B employers can now offer reimbursement for temporary.
Living or home repair expenses as a result of a qualified event. This greatly reduces the stress and financial pressures for employees. Each of these enrich products leverages the scale of Tri net to bring value.
<unk> added offerings to Smbs, which are otherwise unavailable or difficult for an S. M b to administer <unk>.
It is very early in the launch of Tri net in rich we are encouraged by the reception from customers.
We believe Tri net and rich will be one more avenue for creating customer loyalty and improving customer retention.
In early September Tri net held our industry, leading conference people force, where our S. M. B thought leadership was on full display people force is an incredible branding event, where we present relevant topical content to our customers and.
Prospects. This creates a form for our tri net team to engage and positively impact S. M. B's our brand is strong and relevant just this morning trying it was named an honorary in fast company's 2022.
Brands that matter Awards people force also demonstrates the increasing role marketing plays in driving new business to Tri net a significant portion of our new business leads in 2022 were generated and qualified by marketing.
These were subsequently passed through our sales team improving our overall sales effectiveness, we expect to further grow marketing's contribution to new business, particularly as we finish the work to unify their top of ours.
Sales funnel across all of our HCM products I look forward to discussing this further in the future Tri net remains committed to identifying the right customers for our solutions, we will continue to innovate creating value for our customers and in doing.
So creating value for our shareholders with that I will pass the call to Kelly for a review of our financial performance and outlook Kelly.
Thank you Burton.
<unk> third quarter operating and financial performance once again demonstrated the durability and repeatability of our business model through.
Through three quarters of the year, we are positioned to finish 2022 strong.
During the third quarter, our financial performance once again outperformed our guidance, we took significant actions to expand train its value proposition across our H R. A S. N P O product offerings by both acquiring claris, R&D and launching and expanding our training and rich product line.
Once again, we generated strong corporate operating cash flow during the quarter during the third quarter total revenues increased 8% year over year to $1.2 billion in line with the top end of guidance, our third quarter growth in total revenues was driven by both insurance and professional service revenues we see.
The third quarter with almost 352000, worksite employees flat year over year with an average ws seat count for the quarter at nearly 332000 and up 1%.
In the quarter was impacted by slower new sales growth as we remain disciplined in our customer selection, particularly as we guard against potential risks from an economic slowdown elevated ws. He attrition concentrated in larger accounts when compared to the prior year, and finally third quarter customer hiring which saw.
<unk> on a year over year basis to rate slightly below our pre pandemic levels moving onto professional service revenues in the quarter professional service revenues grew 21% year over year to $189 million, beating the top end of our guidance by one point the strong performance in professional service revenue.
It was driven by an 8% increase from rate and a 3% contribution from mix as we saw a small shift towards our white card verticals mix also included one month's worth of Claris R&D revenue, which was less than one point, China xenith it generated $12 million in HCM cloud services.
<unk> contributing approximately eight points to our year over year growth insurance revenue grew 6% in the quarter, reflecting both wage and healthy growth.
This was driven by both volume and by a shift to more comprehensive plans when compared to the prior year. Our benefits participation rate remains strong we experienced continued lower utilization during the third quarter, which drove our insurance cost ratio to 82.8% versus our forecasted range as.
88, 5% to 90% for the quarter kind of linked to the quarter, we expected healthy utilization trends to increase throughout the third quarter. However, they did not increase to the level of our expectation. Furthermore, we are seeing a new ws see trend specifically a reduction in enrollments have ws sees.
And the higher cost Tri state area, and we're seeing enrollment shift to lower cost regions Workers' comp was once again strong in the third quarter workers' comp revenue growth outperformed our forecast driven by volume and wage growth, while workers' comp costs declined year over year as a portion of our workforce has continued.
To work remotely as a result of our strong performance. We are planning to launch another credit program contingent on the fourth quarter results turning to operating expenses during the third quarter expenses grew 30% year over year, the largest contributor to our growth in expenditures was the operation of train.
Xena Feds and it's integration related expenses, we also invested in service technology, our product offerings as well as brand to continue to ensure our products and services are leading the industry.
Finally, we experienced compensation related expense growth reflective of recent labor cost adjustments as we turn to a review of our earnings. We are once again pleased with our bottom line performance, especially as we absorb the incremental training benefits operating expenses and investment ultimately.
We view these investments as critical for delivering our unique product and services across the H R. I S. N P O solutions, our revenue growth combined with our lower than forecast insurance cost ratio drove our strong earnings performance. We recorded a onetime 17 million dollar mark to marketed.
<unk> as we have and are anticipating repositioning our invested assets in light of the current interest rate environment.
Third quarter GAAP net income per diluted share increased 5% year over year to $1.22 or 56 cents higher than the top end of our guidance adjusted net income per diluted share in the third quarter was $1.64 or 56 cents higher than our original top end of sky.
We had 143 million of corporate operating cash flow during the quarter continuing our strong trend as a result, we ended the third quarter with $454 million in cash on our balance sheet, we feel very comfortable that we can continue to drive our growth priorities and <unk>.
<unk> allocate our capital for example in the third quarter, we executed against our capital priorities through the acquisition of Claris R&D as well as our investment in our product and services, we still have $184 million remaining in our share repurchase authorization and repurchase will remain.
Our capital priority for China.
Now with three quarters completed, let's turn to our fourth quarter and full year outlook. Our outlook combines three quarters of strong financial and operating performance with our fourth quarter expectations offset by our anticipated credit program.
Given our lower insurance cost ratio year to date, we are anticipating the launch of a 50 million dollar credit program contingent on fourth quarter Health performance. Our credit program will be reflected as a reduction to insurance revenue lowering total revenues and therefore, increasing our insurance cost ratio.
As a result, we are lowering our expected full year insurance cost ratio by one point.
Xena fits remains on track this year to contribute gross revenue of between 40 and $45 million and we expect a modest contribution from Claris R&D, we continued to execute appropriate court cost management as we invest in our train is and if its integration and acquisition and we expect to realize.
Benefits from the rising interest rate environment on our cash balances and investment portfolio. Finally, our execution of our capital priorities through the repurchase of shares continues to support earnings per share as we are lifting full year EPS, even with the impact from our new credit program, turning to our fourth quarter 'twenty two.
Turning to guidance, we expect total revenue growth to be in the range of down 2% to flat year over year four points lower as a result of the fourth quarter credit program set another way it would have been up 2% to 4% without the credit program impact, we expect fourth quarter professional search.
This revenue growth to be in the range of 7% to 10% year over year, our fourth quarter professional service revenue growth outlook includes many of the same factors that have driven our growth to date, we are forecasting $11 million to $12 million of training Zenna fits HCM cloud services revenue, we expect P O.
Customer hiring to continue but at a slower growth rate than our historical average and we will add incremental revenue from claris R&D.
In the fourth quarter, we expect an insurance cost ratio of between 93% to 97%, reflecting the impact from our anticipated credit program.
Our fourth quarter estimate of GAAP net income per diluted share is in the range at negative 47 cents to seven cents per share, reflecting the cost impact from this and if its acquisition integration activities that are underway and the impact from the credit program controlling for the one time impacts from the acquisition.
Zenna Feds, we believe our fourth quarter adjusted net income per diluted share will be in the range of zero to 50 cents per share regarding our full year 2022 guidance given our strong financial performance through the first three quarters and our fourth quarter expectations, our revised full year guidance contained.
A few changes we are forecasting our year over year total revenue growth to be in the range of 7% to 8% down one point from our previous guidance due to the credit programs impact on insurance revenue, we are leaving our professional service revenue growth range of between 17 and 18% unchanged from our previous.
This guidance, reflecting the diversification of our professional service revenue and strength in pricing.
We are now anticipating an insurance cost ratio of 85% to 86%. This is a one point improvement from our previous full year guidance, reflecting both our performance year to date on workers' compensation and health as well as our updated expectation for healthy utilization offset by the credit program.
As we turn to earnings we are adjusting our full year earnings guidance. We now expect our full year GAAP net income per diluted share to be in the range of $4 30 to $4.85 an increase of 19 cents at the midpoint. We are also raising our full year adjusted.
Net income per diluted share guidance by 25, since the midpoint to $5 90 to $6.40.
In summary, China has delivered strong financial performance and was a proactive allocator into player of capital and a dynamic here, which has seen us transition from strong pest pendant growth to more uncertain economic conditions, we have continued to execute by investing in our product and services.
Making strategic acquisitions.
With the intent to drive value for our customers, while positioning us for future growth with that I will return the call to Burton for his closing remarks Burton.
Thank you Kelly that third quarter was highlighted by strong financial results and the progress we have made on executing our strategy. We are committed to our verticals, our customer selection process and our customers and in doing so we have the interests of all.
All of our stakeholders at heart, we recognize that uncertain economic times or in front of us and we believe that our customer base and business model has enduring value in such times operator.
We will now begin the question answer session.
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The first question today comes from Tien Tsin Huang with Jpmorgan. Please go ahead.
Hey, Thank you so much.
Hi, Burton Kelly and Alex I wanted to.
Thank you for all the details and there's a lot to get through just on the.
On the WSB.
Growth and I understand Burton youre being more selective that was clear can.
Can you continue to do that and and posted positive growth in WCS here is this a good level to consider or could we see something.
The volatility in the short run is as you go through that that was my first question and I'll ask my second together just on the rate side and the rate was a big contributor.
For the quarter here, what's the outlook on rates as you're focusing on this WC.
You know focus I'm curious with together with right. If if we could feel some volatility with less volatility in the retention.
Hey, Tien tsin, its burden and great questions. So let me take the first question first and look as you know over the last 14 years I built the company for revenue growth and profitability.
And this is not the time from my view.
<unk> point to take on customers that are not right in the middle of my swim Lane and have a good potential for long term growth. So it's a great question I believe that there is an opportunity for wallet share along with market share but.
We continue to guide towards growth and revenue growth and earnings and not focus directly on the WMC counts. So the short answer to your question is I think theres, a great opportunity to selectively grow the book.
Believe that from a and you didn't really ask but from a new sales side. The productivity is up on a per rep basis, but I'm going to continue to make sure the customers that come on board, we try and at our customers that see the broad value proposition that we offer and we will stay with us.
For a long time.
I'll turn the second question over to Kelly and then after you have a follow up on that would be great too great.
Tien tsin good to hear from you.
Regarding the rate side, I think I did highlight that we've got an 8% growth in right now rates contributed a couple of things one.
Price increases year over year.
Is really.
Low to mid single digit, but also I highlighted I think large customer attrition and as customers get larger the price per WSI is a little bit smaller.
That is contributing somewhat to the increase in rate as well is that helpful. It is no. It makes sense and then just if you don't mind just quickly on the unscented fits any any.
Any update there it looks like.
I don't know if they have the customer or user numbers correctly, but it looks like it was down a little bit sequentially I could be wrong. There just wanted to clear that clarify that it did get a few questions on that thanks.
Yeah Tien tsin.
Can I take that first and then I'll give burton has anything to add but the user count was down a little bit sequentially, but it benefits us right on track with our revenue forecast overall. So it's early days, we've had it and then a half months or so and we're happy with our revenue forecast and I expect it to be on track.
But you want to add.
Two more things tends in good traction on moving PEO clients to the HRS solution and vice versa still early days at the top of the funnel project I'm working on and it's great software that we're enhancing every single month.
So the releases have been strong.
Good to know thank you both.
Thank you.
Yeah.
The next question comes from Andrew Nicholas with William Blair. Please go ahead.
Hi, good afternoon.
I wanted to start.
Hi.
Wanted to start with a follow up to Tien Tsin is quick first question on WC trends in the quarter over quarter.
Trend, specifically I know you mentioned some slower customer hiring just wanted to clarify whether or not that is still positive.
Net and in the aggregate and then also if you could flush out your comment on but I think was a comment on reduction enrollments of Worksite employees in the Tri State area I didn't catch that fully I want to make sure I understand.
What's driving that and what the potential ramifications are.
Yeah, Andrew It's Kelly I'll be happy to take that one.
Think about the.
Let me let me take the first part of that question there for a second.
Sure I was starting to focusing on the Tri State, Let me hit on Tri State first though Tri state. That's just a trend that we've seen over time.
I think it's consistent with the distributed workforce that we're seeing more people scatter and be part of our plan.
All over from a sequential WSI perspective, and hiring trends, we are seeing positive hiring it's just really at a level in the third quarter. We saw hiring at a level that was slightly below kind of a pre pandemic average. So we are it's still positive we still are forecasting positive hiring.
We do think that has the labor market has been pretty constrained.
Just just given the competition for labor that for the small and medium size businesses, they're still trying to retain and hold talent.
So we see it as positive, but just at a slightly slower rate.
And were there any kind of chunkier client losses quarter over quarter that led to it being flat I know you've been on a pretty nice sequential uptick here over.
Since since middle of 2020, so just wanted to make sure there wasn't anything.
Sizable to call out that you had to grow over.
Well, what I would say, we did have fewer customers leave during the quarter, but unfortunately, there were a few larger customers.
Leave Tri net overall.
Im pleased with revenue growth and profitability, but as we're looking into the fourth quarter and actually even into January we are seeing better large company attrition or retention rather.
Ray's looking positive versus last year, hopefully that's helpful.
That is thank you and then if you don't mind me asking one more just on the net or the net margin insurance margin.
Another really good quarter, it's been I think this year will mark the sixth straight year of 88% or better on the ICR. Just wondering now that you have have kind of a more normal not perfectly normal, but a little bit more normal 2020 to close to being wrapped up.
If there is any different way for us to think about kind of the <unk>.
Insurance margin expectation longer term, particularly as you're being highly selective on the client front I was just wondering if if you've considered a kind of a structural uptick there if we should build that into our models. Thank you.
Yeah. It's a great question, Andrew I mean, I think our philosophy has remained the same so we still run a single employer plan for the benefits of all of our employees.
We try to price to risk.
And to make sure that we're continually looking at that and when we have had a benefit we share that with our customers and it's kind of in line with our model. So our philosophy really has not changed there what we thought from a trend perspective in the quarter is we did see.
Most categories frankly of inpatient and outpatient go up year over year, it's up maybe in mental health, which obviously that that's actually a really good sign given the increases in mental health costs that we saw during <unk>.
And it just didn't go up quite to the level of our expectations. So we're going to continue to watch it but we aren't planning on.
Prudent pricing continued risk management disciplines.
Moving with trends as we see them evolve.
Thank you.
The next question comes from Jared Levine with Cowen. Please go ahead.
Thank you how would you characterize the overall demand environment and are there any differences between the PEO demand environment versus more of the cloud.
Yeah.
Hey that that's a great question on the PEO environment as I said in the prepared remarks, we're seeing companies looking to go from a fixed cost model with a larger inside team to a variable cost model, where they can attach a cost per employee.
And that will adjust up or down based on the demand over the next year or two there is certainly some reticence and what's going to happen over the next 18 months as I'm sure you understand in the the.
The HR Ias model, what I am seeing is it is not growing as quickly as Kelly pointed out we still have positive change in existing in the PEO model I don't have the exact numbers on the HCM model, but I can tell you it is growing.
Last quickly than the clients on the PEO model.
From an overall standpoint, the the customer base remains strong I think that the days of very rapid hiring or over for the short term, which in some ways helps from a retention standpoint, as Kelly mentioned a minute ago. So overall a pretty strong.
On both sides.
And I believe the tail will be told early in the new year as new customers come on board and they finalize their business plans for 2023.
Okay, Great and then any incremental color you can share on how those outsized large client losses impacted <unk> average WSB growth.
Yeah, well, we don't forecast or really disclose the components of WMC growth Jared, but I appreciate the question.
Okay, and then quickly sneak in one more here on the sales.
Currently.
The staffing levels of the sales force, including a differences between the PEO and benefits business.
But they remain relatively stable. They are two separate sales forces we have grown on the the Tri net zenovich side. The sales team over the last couple of months and they're starting to get some great traction as I said.
The upgrades to the product have been exciting and notable including integrations with third party products on the PEO side, what I can say, particularly about are very important for our fall selling season is that the pipeline is strong.
The conversion rates are higher year over year marketing is being leveraged to enrich the qualified leads.
But having said all that I'm cautious about the broader environment, but I am certainly excited for January .
Alright, thank you.
Thank you.
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The next question comes from Kevin Mcveigh with Credit Suisse. Please go ahead.
Great. Thank you Hey are you seeing any difference in the attachment rate.
In terms of the type of plans people are.
Standing up for whether it's changes in workers comp or the type of insurance just given some of the macro sensitivity that we're starting.
Yeah, Kevin Great question.
Have seen.
Nothing really notable honestly, we have seen some employees.
Uh huh.
Go to slightly richer plans, but not really a notable change yet we would really expect to see that probably more as you come towards January and we have a larger chunk of open enrollment.
Earning workers comp just given the relatively benign.
Situation, we've been in with less people driving it sat around workers' comp pricing has actually been pretty good so.
I'm pleased pleased with renewals, we've been able to achieve.
Workforce.
Nothing no no real changes to our program overall.
Got it and then Kelly.
I think you said, the SaaS HCM with somewhere around <unk> <unk>.
11, and $12 million of revenue any sense I think that's what the guidance was if that was right and he said how that scales for the full year and then some.
Some point do you start disclosing that separately as a separate line item and if so when do you think that'll be.
Yeah, you know, we want to really get a full year and China's benefits under our belt and we'll evaluate disclosures.
Definitely appreciate the suggestion then.
Around giving it a different type of visibility and I'm Super excited about the acquisition of Claris R&D as well because that definitely brings more value to our PEO and HCM customers you know anyone that creates intellectual property or does.
It doesn't mean, a thing can actually access that so it goes beyond tax and we're super excited about that but haven't made a decision around the disclosures that we'll keep you posted on that.
Great and just could you remind me was it $11 million the revenue was that what you're modeling for.
The fourth game like that like I said on a full year basis, we're still in the original 40 to 45 range from a full year perspective for the 10 and a half months.
And what I disclosed in the prepared remarks were 11 to 12 million for the fourth quarter.
Thank you so much great. Thank you.
Yeah.
The next question comes from David Corak.
Paul Please go ahead.
Thanks, David.
Hey, Burton.
So I'm wondering if I could just ask a couple of follow up questions to a couple of questions that have been asked already.
The first one was.
I know you talked about the different factors that impacted <unk> growth in the quarter.
And just going back to the attrition to client attrition without getting into numbers.
What what drove that where these clients such as termed out because its size was it.
Clients that had told you last year, they would be leaving and it just happened in the back half of the year, just trying to understand the fundamental dynamic behind that.
David It's a great question.
We work with our clients very closely as we looked at what the right opportunity is for them.
I wouldn't say, there's any one reason every client has a different reason for leaving a PEO model I do not believe.
This was really a switched if he he owes it was truly a going in in house for the most part and you know sometimes it has to do with international Workforces and large growth as well.
The end of the day I do think fourth quarter is looking a little bit stronger from a large customer.
Retention perspective, as well as January .
Right and the retention credit Kelly I think you said $50 million. So is that all impact is that a 100% of that impact in the fourth quarter or do we start to see impact.
Accounting basis than in the first and second quarter of next year as well yeah. David We have designed the program. So all of that will reduce fourth quarter insurance services revenue.
So it's all a fourth quarter hit and it wouldn't be distributed in the beginning of 2023.
Got it.
Then if you listen to what the payers are saying they are anticipating passing through inflation.
Inflation kind of 2021 and 2022 inflation next year in terms of premiums. So is that the way to think about it for you guys in terms of grade for the insurance business that we would expect rates to go up commensurate with the kind of six 7%.
No rate increase that the parents are talking about.
What we're really we are absolutely getting input from each of them as you likely know they negotiate.
They negotiated rates with their providers kind of on a rolling basis, and we don't have visibility into the individual provider negotiations, but usually they signed three year contracts and and they expire over time. So we're getting insight from them with what we expect medical cost inflation and then that's really what we build into our rates.
Able, but as we do price to risk. We also evaluate changes in the composition of each individual client as we said the renewal rates too.
Right, but on a same stores basis. So the same risk basis like for like we would expect.
The higher than normal rate increases on the premiums is that is that a person.
I you know, we will try to trend it with our expected future claims cost and medical cost inflation. So you know I think that the numbers that you mentioned that the payers are saying is pretty much around what our expectation would be.
Got it and then you know burden I think you said that news new sales per rep were up but you were cautious about you know kind of.
The macro environment I'm, just trying to reconcile those comments to kind of understand where at the end of October right. You know kind of towards the tail end of the the sales season here. So just trying to kind of better frame your comments and just understand.
What that says about bookings you know going into next year.
Yeah. Good question, David So activity is up close rates are up the pipeline is strong but they also have to get clothes. So they're they're not we're certainly not done for January I'm optimistic about January is the selling season, particularly juxtaposed against what's happening.
In the install base as far as Oh.
I believe that the large customer attrition is abating theyre not growing at the percentage they used to so overall I'm optimistic for January but I.
I need the signed contracts in house to make that a reality, but bottom line is good pipeline and good momentum.
Got it and just one last kind of cleanup questions here.
Unclear Claris R&D.
Any is it a material revenue contributor or is it is a small dollars.
Yeah, David I'll take that one for the month that we owned it we closed claris R&D on September 1st we recognized about $1 million in revenue. So as you would expect you know the RTC tax credits are going to roll down a little bit that we have more of an opportunity with our P O Brooklyn offering and solution.
So I really expect about that level on a monthly basis.
So a 12 million dollar annual run rates, a fair number to use yes.
Got it alright, guys. Thanks very much good luck.
Thanks, David.
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