Q4 2022 TriNet Group Inc Earnings Call
Good day and welcome to the Tri net fourth quarter 2022 earnings Conference call. All participants will be in a listen only mode. So do you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now.
To turn the conference over to Mr. Alex Bauer Investor Relations. Please go ahead Sir.
Thank you operator, good afternoon. My name is Alex Bauer and I am trying to head of Investor Relations. Thank you for joining us and welcome to Tri net 2022 fourth quarter conference call I'm joined today by our CEO Burton M Goldfield, and our CFO Kelly to Minnelli.
Where we begin I would like to address our use of forward looking statements and non-GAAP financial measures. Please note that today's discussion will include our 2000 and twenty-three first quarter and 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 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 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 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 filing which are available on our website or through the SEC website.
With that I will turn the call over to Burton Burton. Thank.
Thank you Alex Tri net strong Q4, and full year financial performance was driven by our differentiated solutions and vertical market focus our opportunity remains attractive despite near term challenges for U S businesses the SMB market.
<unk> Underpenetrated by P E OS Tri net six fewer than half of our new opportunities in direct competition with other P. He owes the PEO model is attractive for Smbs as it provides scale to complex business problems using a V.
Gary a bowl cost model. This model also navigates the constantly changing legal and regulatory environment, including diverging federal state and local regulations and try and its target market remote workforces are prevalent.
Hiring and managing these remote workforces represent a significant challenge for our customers.
And it focuses on the right business, where our unique value is core to our customers' success in an industry that is trending towards undifferentiated offerings trying it stands alone with our vertical strategy, our market leading scale and strong.
Capital structure enabled us to complete two important acquisitions. These acquisitions had a significant impact on the acceleration of our digital transformation and diversification of our product offerings. In addition to investing in these.
Acquisitions, we aggressively return capital to shareholders, we believe our stock represents significant value, especially when measured against the long term opportunity for Tri net <unk>.
Turning to our financial performance professional service revenues grew 9% year over year in the fourth quarter and for the full year professional service revenues grew 18% year over year in the fourth quarter total revenues were flat year.
Over a year and in line with the top end of guidance. However, when you add back the impact from our industry, leading 20 twenty-two credit program total revenues would have grown by 4% in the fourth quarter for the full year total revenues grew 8%.
St year over year to $4.9 billion, the largest total revenue achievement in our history, while we acknowledge our challenge with respect to volume in 2022 total revenues and professional service revenues grew well in excess of our.
Average W. S E count the significant revenue growth occurred even after accounting for inorganic revenue.
Our outperformance is directly attributable to our vertical strategy and customer selection process. Our focus on total lifetime value of a customer has driven us to build products and services are appreciated by our core verticals. These include technology.
<unk> financial services and life Sciences, the variables that impact total lifetime value include client growth rate importance of choice in high quality medical benefits adoption of this full suite of capabilities, including both our.
Our service and advanced technology.
All of which lead to a longer 10 year with Tri net.
Our core verticals have historically delivered a value in excess of 10 times that of a non core client. We believe that our approach is sustainable unique and we will continue to deliver profitable growth over time in fact, the next great company is being <unk>.
Created today, we're trying that has the opportunity to support their growth and enable their people in the fourth quarter. We are pleased with our GAAP earnings per share of 78 cents and our adjusted net income per share of $1 11, both.
Outperforming our guidance in 2022 GAAP earnings per share came in at $5.61 and adjusted net income per share came in at $7.07. We once again generated strong cash flow from operations during the year.
Year. This enabled tri net to deploy over $700 million in 2022 against our capital priorities without issuing additional debt.
Looking forward based on trying to its current valuation and long term outlook share repurchase remains a priority dependent on market conditions in 2023, we intend to deploy an additional $500 million towards our.
Repurchase program, our capital deployment and this increase to our repurchase program underscores the repeatability predictability and cash generative outcome of our business model trying to had finished the quarter with approximately 349.
And the Ws sees in our PEO down 4% year over year try nets Ws seat count is driven by three factors new clients and their ws, he's coming to Tri net retention of existing clients and Ws CS and net hiring.
By our clients in the install base.
Beginning with new clients, we experienced significantly improved sales productivity on a per rep basis by optimizing processes throughout the year.
However in the aggregate we were unable to take full advantage of our new client opportunity in 2022 due to a lack of sales capacity looking to 2023 in spite of the current economic conditions I am optimistic we will accelerate new say.
<unk> and the related Ws sees in our core verticals well in excess of the past few years.
This will be accomplished through a concerted effort and investment in additional sales capacity incremental marketing contribution and continued results from the newly implemented scalable processes, notably trying it experienced dramatic growth in new sales in January .
We grew new HCV and Ws sees by 35% year over year, driven by our improved execution.
This result is a key indicator of sales performance in 2023, because January is the ideal time to switch medical plans and restart W. Twos.
How's hiring is underway to achieve continued growth and strong sales leadership is in place throughout the U S. Marketing's impact on January sales was also notable with strong lead generation enhance brand recognition and advanced propensity.
<unk> to buy instrumentation utilize to yield impressive results turning to retention, which is the second factor contributing to ws see volume our retention in 2022 was lower than the historic average the shifting macroeconomic.
Buyer meant over the last several years contributed to this outcome our customers stayed longer and added employees quicker, which led to twice the number of large customers in our book versus our historic average ultimately as we articulated in the first quarter of last year.
We saw a number of these large customers leave partially due to M&A activity as I stated previously this large company attrition trend has abated and average customer size has normalized as I look to 2023 I am very.
And then our customer retention will increase and return to our historical experience or better my belief is informed by a significantly increased retention rate in January .
Additionally, we made investments in our customer experience function throughout 2022 I expect these investments to contribute to both higher retention and referrals going forward I want to thank our service team for focusing on the Kpis and consist.
<unk> exceeding our aggressive average speed to answer and first call resolution metrics. During 2022 and early result of this enhanced customer service is reflected in our N. P. S score, where we have seen a significant improved.
We fundamentally believe that in the SMB HCM industry. It is imperative to provide high quality customer service, along with an industry, leading technology experience. This is an and and not an or.
Lastly, net hiring by our clients, which we referred to as change in existing or see I E is the third factor contributing to WSI volume because of our industry unique exposure to the most dynamic smbs that high.
During by our customers is an important driver of volume.
However, try and its customer selection only indirectly influences Cie outcome in 2022 net hiring by clients was a tale of two halves in the first half hiring continued at record pace consistent with that of what we.
We experienced in the second half of 'twenty 'twenty and throughout 2021 the hiring we saw during this period was stronger than in prior years in the second half as interest rates increased and the economy slowed hiring cool dramatically, especially.
<unk> in the fourth quarter, where we saw flat net hiring across our installed base. In fact, we saw hiring cool further in January 2023 or.
2023 guidance reflects what we believe to be a very conservative assumption for hiring this assumption at the low end would reflect a 10 year low hiring rate by our install base other than 'twenty, 'twenty, which was due to the pandemic in Stark contrast.
As to our low end guidance, we surveyed our customers regarding their 2023 hiring plans, we found a surprising amount of optimism, especially from customers with 100 or fewer employees. These customers, which represent about two thirds of our volume.
Expect to grow their employee count in 2023 on average 10%.
We are watching this state of carefully and as the next few months evolve our customer base will inform us about this resiliency.
To close out the WSI discussion during 2023 we expect to grow new business significantly, we expect to improve retention to normalized or better levels and we have a conservative assumption for hiring.
In our installed base, which reflects the uncertain economic environment.
We understand the challenging economic environment, we face in 2023, but as we look to 'twenty 'twenty four and beyond it is our belief that we should be growing ws sees at high single to low double digit rates with respect to M&A in 'twenty.
'twenty two we made two important acquisitions, xenophilia and Clarus, R&D, which accelerate both our digital transformation and product expansion, we believe that our PEO must own its own technology platform software and <unk>.
Product development to take advantage of their true potential in this industry.
<unk> technology is exceeding our expectations and validates our thesis that this is an accelerator of our digital transformation.
In the short time since the Zen if its acquisition, we delivered a fully integrated broker benefits solution.
This fills an important product gap between an H R. I S software solution and a full PEO.
Try nets offering in this area is unmatched for the subset of customers, where the PEO combined with brokered benefits fits the future of Tri net is a cloud based company offering H R. I S and PEO side by side.
A dynamic tri net customer will seamlessly move between exceptional H R. I S software and the industry, leading PEO as their complexity and growth dictates and additional exciting acquisition. We completed in 2022 is clarice R&D.
Claris offers R&D tax credit services for Smbs Claris further expands our product and service offering for both H R. I S and PEO clients, we see a significant opportunity to create value for our large cohort of eligible.
Customers with the Clarice product.
These are exciting times for the PEO industry I believe there will be long term growth due to strong secular tailwind such as regulatory complexity access to health care and remote work, we view Tri net stock price through the lens of the secular tailwind.
As well as innovation and operational improvements Tri net has made in 2022, we believe that Tri net stock offers tremendous long term value. We acted on that view by repurchasing over $500 million of Tri net stock in 2000.
'twenty two should our stock continued offer similar value in the coming year, we have another $500 million available to us to deploy.
With that I will pass the call to Kelly for her review of our financials and guidance Kelly. Thank.
Thank you Barton.
China once again delivered strong financial results during the fourth quarter, while navigating an increasingly uncertain economic environment. Our industry unique vertical strategy has resulted in a dynamic and valuable customer base, which demonstrated in 2022 is not immune to broader economic forces.
During the first half of 2022, the economy was robust and our customer base continue to hire at record pace. We also experienced higher attrition during 2022 as several large companies left partly driven by late cycle M&A as the second half and folded the economy slowed.
First impacting dynamic industries, such as technology with our concentration here. We saw this slowing during the fourth quarter when our customer hiring sled tests slightly negative taken in aggregate, while pleased with our financial performance. We ended 2022 with lower volumes than forecast.
As at Burton discussed for 2023 we are optimistic that our customer retention will normalize and we believe we can accelerate new business growth and are seeing positive signs in these areas in January despite the tougher economic conditions, we are committed to delivering financial returns and.
Applying capital in an efficient and effective manner that our shareholders have come to expect from us even as we support our new business growth initiatives product and technology development and continued improvements in our customer service experience.
Now, let's review our financials during the fourth quarter total revenues were flat year over year in line with the top end of our guidance range for the full year. We grew total revenues by 8% also in line with the top end of our guidance the performance in total revenues for the fourth quarter and the full year.
Was driven by growth in rate as we had continued high benefit participation by our Ws seas. We also saw continued growth from mix as we added customers in our white colored verticals and our customers bought more of our products and services.
Finally, Trinity <unk> contributed roughly one point of growth for the fourth quarter and full year in the fourth quarter as discussed on our October earnings call. We contributed $50 million to our 2022 credit program, which lowered total revenue growth by four points that brings our total contribution of <unk>.
$75 million to our credit programs for the full year and lowered total revenue growth by just over one point professional service revenue in the quarter grew 9% year over year in line with our guidance for the full year professional service revenue grew by 18% in line with the top end of guidance.
This growth in professional service revenue for the full year was driven by a few factors first HRS revenue contributed 7% to year over year growth.
Right contributed 6% third mix contributed 2% to growth as more of our customers purchased more of our services and we saw continued shifts to our white colored verticals and average WSI volume for the year contributed approximately 2% to growth for the fourth quarter.
Our insurance cost ratio was approximately 88% lower than our forecasted range for the quarter of 93% to 97% for the full year. Our insurance cost ratio was approximately 84% also lower than our latest guidance range for the year of 85% to 86%.
The lower insurance cost ratio for the quarter and year was largely driven by lower overall health utilization than forecast as well as a mix shift by our customers to lower cost regions.
Workers compensation contributed to the lower insurance cost ratio in the quarter and year as both claims frequency and severity remained subdued along with some favorable prior period development, both the health and workers' comp trends had benefited from the remote work trend.
Regarding operating expenses in the quarter the year over year growth of 25% with substantially driven by our acquisition of benefits midway through the first quarter of 2022, we will begin to lap those expenses in the second quarter of 2023 and has integrated most functions at this time when we purchase.
<unk> benefits, we knew it would not be accretive in the first few years and we understood that there would be sizeable integration and acquisition costs incurred in 2022, some of which will continue into 2023.
As Burton mentioned earlier, we've been pleased with the technology and the capabilities. It will bring as we fill in the product suite between our HRS and <unk> solutions.
Other notable expense item during Q4 was a $12 million charge for remaining lease obligations for office space. We have vacated moving on to earnings per share fourth quarter net income per diluted share exceeded the top end of our guidance by 71 to 78 tenths down 24% year over year.
The fourth quarter earnings out performance versus our guidance was driven by lower than forecast insurance costs, along with some minor expense favorability.
The decline versus prior year reflects expenses, including acquisition and integration expenses incurred due to the acquisition of the benefits. This brought full year GAAP net income per diluted share to $5.61 up 11% versus 2021 fourth.
Fourth quarter adjusted net income per diluted share also exceeded guidance by 61 cents to one dollar and 11 cents down 2% year over year. This brought full year adjusted net income per share to $7.07 up 25% versus 2021 outperforming.
The top end of guidance by 67 cents.
During the fourth quarter, we repurchased $139 million worth of stock, including $109 million on a targeted $250 million tender offer.
The tender was Undersubscribed I was pleased at investors confidence in our longer term stock price. This brought our total repurchases to $519 million for the year comprised of two tender offers as well as open market purchases or capital priorities have not changed and we will continue to invest.
For growth, we have confidence in our business and believe that our current share price. Our stock provides significant value given the board share repurchase reauthorization that Burton just mentioned if it remains similarly undervalued, we intend to repurchase up to $500 million in 2023.
Subject to market conditions.
Now, let's turn to our 2023 first quarter and full year outlook, where I will provide both GAAP and non-GAAP guidance in.
In the first quarter of 2023 we expect total revenue growth to be in the range of 1% to 2% year over year and professional service revenue growth to be in the range at 4% to 6% year over year, our revenue growth guidance remains muted and reflects our expectation that the fourth quarter trend.
We saw in customer hiring or see I E will persist into the first half of 2023.
In Q1, we are planning for health care utilization to return closer to our priced for historical experience. This will result in an insurance cost ratio of between 83% to 86, 5%, reflecting our seasonally higher ratios at the beginning of each year. This brings our estimate of <unk>.
First quarter GAAP net income per diluted share to be in the range of one dollar and 33 cents to one dollar and 82 cents per share and first quarter adjusted net income per diluted share to be in the range of $1.70 to $2.20 per share.
Regarding our full year 2023 guidance, we're forecasting our year over year total revenue to be in a range of down 2% to up 2% with our professional service revenue expected to grow between 1% and 5% year over year.
We expect our insurance cost ratios to follow seasonal patterns and reflect historical utilization rates with favorable cost ratios in the first and second quarters as members worked through deductibles.
We then expect a return to higher insurance cost ratios in the third and fourth quarters as deductibles are exhausted as well as when pooling limits reset in October with this trend, we expect our full year insurance cost ratio to be in the range of $87, 5% to 89%.
Insurance cost ratio projection is about three to five points higher than our 'twenty 'twenty. Two result, reflecting health care utilization returning to a range closer to our expected pricing higher utilization levels and higher provider costs, given the inflationary environment. We will watch this closely.
Throughout 2023 to assess any refinements needed as we determine quarterly pricing changes.
As a rule of thumb every one point movement in our 2023 expected ICR will translate into approximately 50 cents in adjusted EPS, given our slightly lower share count since 2022.
Regarding our expectation around operating expenses are expected remaining costs associated with the integration and acquisition of benefits and Claris R&D include a number of time based compensation awards technology integration and rebranding amongst other things we anticipate the remaining 20 twenty-three.
Vision and integration costs to be $25 million to $30 million with none extending beyond 2023.
Given these anticipated trends, we expect full year GAAP net income per diluted share to be in the range of $3 30 to $4.08 per share and adjusted net income per diluted share to be in the range of $4.85 to $5 65 per share our.
Our guidance includes share repurchases to offset normal dilution arising from stock compensation. Our guidance does not include any other intended repurchases under our current authorization due to the variability of repurchase timing and price.
With that I will return the call them Burton for his closing remarks Burton. Thank you Kelly I am pleased with Tri net 2022 financial and operating performance, especially in light of the challenging economic backdrop for much of 2022, we believe.
We will grow new business meaningfully year over year in 2023 we will keep our customers longer by supporting them in the ways that they require in this new business environment I want to thank the entire Tri net team, but specifically call out our sales force.
For an exceptional performance in January 2023 try and its future is a cloud based company offering H R. I S. N P E O side by side, a technology enabled business services company. Unlike any other in our industry.
Three we will further differentiate ourselves by offering the smbs in our target verticals and industry, leading user experience, coupled with an efficient service offering and access to the finest benefits with that I look forward to your questions.
Operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Okay.
And the first question will come from Tien Tsin Huang with Jpmorgan. Please go ahead.
Thank you and good afternoon.
Hey, Burton thanks for going through all the.
The information including January as.
As well that was really good to hear I wanted to ask just so as we're thinking about the fiscal 'twenty three year here Youre looking for 1% to 5% professional services revenue growth can you.
Maybe share some of the assumptions behind that maybe across rate volume mix that kind of thing and how it might be different.
First just wanted to I know, there's a lot of moving pieces, but just trying to bring it back up to the high level at the peak level.
Great.
I'll be happy to take that and when I think about it.
Functions, we have underlying there we're really pleased with January sales, so one of them.
And thinking about volume overall pleased with sales we won't get discretion.
Is going to do better than it did in the prior year, but the wildcard there is really.
E.
So.
That's really the driver of volume with that.
Yes.
Modest single digit rate increases and we will have.
Once more.
In the year for 2023 and have a full year of Claris R&D, which we closed on September 1st So those are some of the <unk>.
You're saying that you're kind of breaking out between the volume and.
Right.
Yes.
It is thank you for that.
My quick follow up then I know.
The new sales and the retention improving.
Both of these sound quite confident that I'm curious if we can think about just the cost to get there or are you doing anything different.
In terms of investing in the dollar cost of.
Getting retention up and picking up the new sales it sounds like it's working so far in January so just trying to understand the cost.
To get there. Thank you.
Oh absolutely.
So I'll start so to break it down well Theres a couple of things going on first.
Secular trend towards the Peo's moving from fixed cost to be.
Variable costs I'm hearing that our prospects like our transparency.
Talked for a couple of quarters about the marketing efforts and they are driving significant incremental business and that's in terms of more waves qualified leads and its becoming a real advantage. The third thing is and you kind of hit on it which is that.
We have invested in customer service, so referrals are up year over year and they close at a very high rate and then finally the execution on a per rep basis is up so I'll invest the new ramps to continue or hopefully continue the same trend throughout the year.
Yeah, Tien tsin, the thing I would add to that is we talked a lot in earlier in the year in 2020, Q about what we invested in our sales process to improve that.
Sales productivity.
Productivity and now it's time to really make sure we've got the capacity to be able to take advantage of those.
We're going to fund it through efficiencies within the company.
<unk> will grow in a single digit rate, but we will fund that through.
Other expenses and really focus on growth.
Perfect.
It'll be fun too.
To track the performance. Thank you guys. Thank you both thank you.
The next question will come from Jared Levine with Cowen. Please go ahead.
Thank you in terms of the demand environment have you seen any change in the pace of prospective client decision, making what whether within the PEO or is that business since you last reported.
So thanks for the question I'll take that two different directions.
We're speaking to our customers on a regular basis as well as our prospects and.
At the end of the day they are struggling in the current economy. They do see a real advantage to the PEO model, where the variable cost model works much better than a fixed cost model in an uncertain environment, we have not seen a delay in the decision process from.
A qualified lead first meeting to the close.
And our close rates right now.
I can tell you is since we're doing a lot more enrichment upfront, meaning understanding the propensity to buy is it because we're targeting the right prospects that close is it the efficiency of the sales organization or a change in the economic environment with business.
Great and then interest income was up pretty notably in <unk> can you shed some light on your interest income expectations that were embedded within that fiscal 'twenty three revenue guys excuse me EPS Scott.
Yes happy to do that Jared we are we did reposition part of our portfolio in the third quarter, you saw us taking a little bit of capital losses during the third quarter.
We're taking advantage and really what we're assuming interest rates stay at about the level that they're at right now and our short term portfolio.
Okay. If I can sneak in one more real quickly on <unk>. What are you assuming for revenue contribution for 'twenty, three and how should it margin for FY2023 compare to what you experienced in 'twenty two.
Benefits.
Contributions roughly $50 million is the expected revenue contribution from benefits for for 2023, so up single digit level from this year.
In terms of the margin.
We hadn't anticipated benefits to be accretive in the second year of owning them.
But we are improving that.
<unk> finished all of the integration activities, we will be spending between 25 and $30 million for both of us benefit from Claris R&D and.
Acquisition and integration costs, including <unk>.
Branding and a few other we have to retention plans that will run out throughout the year as well.
Great. Thank you.
Thank you.
Again, if you have a question. Please press Star then one our next question will come from Andrew Nicholas with William Blair. Please go ahead.
Hi, good afternoon.
Hey, Burton.
First question I, just I just wanted to dive in a little bit to the first question.
Kind of what's embedded in professional services guidance.
Burton you kind of broke down the drivers are.
Volume growth.
It seems like across all three of those factors. There is there is room for improvement or some conservatism I'm just I'm trying to get a sense for how much of that improvement is baked into the guide is or are you kind of extrapolating from the improvement that you saw in new sales and retention rates in January .
Or is it.
Is that kind of.
The top end of the guide just trying to figure out how much of that is baked in Britain.
Yes. It is.
Great question, let me start and I'll turn it over to Kelly.
A significant amount of the new business comes in in the first quarter because of new W. Twos restarting medical plans et cetera. So the trend of the first quarter really determines the year. So some of my excitement or both.
This is about the new sales.
Is because of the performance in January . So you are correct. There also the largest single months of attrition, which impacts retention. Obviously is January one because the converse happens if somebody is going to start a new plan with the new company. They leave at the end of the year.
With retention up in January .
With new sales significantly up in January that sort of where I am comfortable with the overall guidance. Both at both ends honestly. The biggest variable is the change in existing there really is a tale of two worlds there.
When I when I talk to my customers when I send them surveys they still expect to grow significantly in 2023. This is not what I'm, saying so from my vantage point the variability in the guidance is based on E mail.
But I'll turn it to Kelly, Yeah, I'll I'll, just build on what Burton said, Andrew when I think about the Cie component.
The top end of our guidance really includes a couple of points lower than our 10 year historical average so looking at the last 10 years, even if I could.
2020, and 2021, which were extraordinary and either way on Cie. One was extraordinary low one was extraordinarily high.
We're at we're forecasting at the top in a few points lower than the historical average at the bottom and we're forecasting positive cie, but really at about half of what our historical average has been.
That's really helpful. Thank you and.
Maybe a couple more and I hate to spend too much time on guidance, but I do want to talk about the IPR a little bit more I mean in the last couple of years you've started it much.
Higher level.
I guess lower spread depending on how you look at that that metric just curious what we'll give you more conviction at the outset of the year that you can be a little bit more profitable in that business in 'twenty three relative to kind of your starting point in the last handful of years.
Yeah.
Really when I think about the insurance cost ratio, we do continue to price to risk we watch trends as we come.
We're leaning into the year, we've seen favorability on our workers' comp book, just given the trends remote work.
Adding health there is still a level of uncertainty associated with it.
And providers.
Renegotiating price nurse cost et cetera et cetera.
But.
We're comfortable with the range just given the fact that we set pricing.
Many months in advance as we're evaluating those trends and we'll continue to watch it so we've seen utilization come up absolutely.
Didn't come up as much in 2022, as we had changed pricing, we're really trying to refine that and give our clients the best offering possible, but making sure that we're covering it. So you know it's our best view at this point in time.
Great. Thank you and then if I could just ask one more.
I wanted to go back to.
Burton you in your prepared remarks, you talked about and an ability to take advantage of the opportunity because of the lack of sales capacity I'm just kind of wondering what would you. How would you describe kind of getting to that point is it higher than expected attrition within your own sales force.
Or was it may.
Maybe not not anticipating as much explosive growth in your end market.
Maybe you've seen over the past couple of years, just trying to figure out.
Got to that point and maybe what what your conviction is on the ability to turn that around thank you yes.
Yeah no problem. So good question look again, there is a secular trend towards PEO. So the opportunity is strong we've talked about the UN penetrated market I talked about that and what we were really looking for last year was to get.
To a level of sales productivity that we can continue to invest in net new salespeople that can be successful now theres a lot of things that go into that part of it is the ability to generate qualified leads brand recognition penetration by vertical leadership and sales.
In the field the ability to quote properly upfront and probably five other things that I'm not mentioning by the end of the year. It became clear that sales productivity was it at a level that if January was successful we could start to turn on the spigot for net new Ram.
Apps and believe that we had a model, which would provide them with a strong territory and opportunity and by the way. This is not going outside of our core verticals I am not now going into business I Didnt want before this is our core verticals geographic penetration good leadership.
And hopefully a repeatable model as we hire reps and are able to keep an acceptable level of productivity. We will continue the hiring throughout 2023.
Thank you again.
Thank you.
Again, if you have a question. Please press Star then one our next question will come from David Grossman with Stifel. Please go ahead.
Thank you.
Go ahead David.
Hi.
I think I've said this during the prepared remarks that I may have missed it but what is the rate.
Contribution to 2023 growth versus.
What you experienced in 2022 and and that can include mix also just kind of curious.
Yeah, I don't think I didn't say it in my prepared remarks, and I actually don't have that at my fingertips right here David.
But really when I think about that.
Rate is low single digit improvement year over year.
Next.
You know I think mix is about even.
We were pleased with the mix that we signed in 2022.
To strengthen our strong verticals.
And volume is a smaller contributor.
I'm, sorry, what was that on volume Kelly.
It was a smaller contributor just given the fact, we are starting off at a lower a lower base.
Right.
And then just on volume I think Burton if I heard you right you said after this you're hoping to grow.
You have that sort of WMC is high single digits or low double digits. So.
If I heard that right.
You know I don't recall the company ever really exceeding mid single digit growth in WSI is so.
I hear what Youre, saying about the sales force and productivity.
But is that enough of a loan so it really kind of achieve that kind of trouble wrong.
So David it's great question I am proud of our strong revenue and profit growth, particularly over the last five years consistently and I hear the focus on growing profitable Ws sees.
I am going to build that sales force to take advantage of the market opportunity to grow ws fees as the years go at a higher rate the message is clear.
So from my standpoint, I'm, not going to sacrifice, our revenue and profit growth and I've been pretty resolved and that over the last five years, but the message I'm trying to give you is I'm going to build that capacity. So that the WMC growth occurs in these out years.
So it just.
Sales productivity is at the level I think if I heard you right you feel comfortable that you.
Kind of achieved what you set out in 2022, which to get those sales productivity levels.
Where you could hire so.
Even with a down flat to down economies should we expect you to be adding.
Related to the sales head count in 2020.
David Let me take that.
You got kind of an expense question, we do plan on adding quota carrying sales reps at the front office to increase the capacity, we did invest a lot in our productivity and that investment has to pay off this year.
We're going to fund it through efficiency elsewhere, we're really putting all of our energies and making sure we're growing profitable ws. He's so that's really where we're heading this year, we're trying to make sure that.
Everyone's leaning in and we're going to be able to grow our business.
Right and just just one last question just to level.
Level.
This is kind of come up over the years that different points in time, but.
I believe it.
It's hard to compare.
Your model to some of the other tier one providers because youre in at risk.
Wider if you will of health care insurance so.
How do you guys look at that internally or at the board level.
When people are comparing your unit growth rate to your tier one peers given that you are at risk which is there.
Different implications in terms of how much unit volume you can pick a point in time.
I would say my board is consistent with my position David the strong revenue growth and profit growth is a long term focus of the company consistently executing and meeting and beating the plan.
And on a regular basis has been the focus so.
I am not going to sacrifice that for WMC growth, but there, but I will be taking <unk> growth to the forefront as we execute the plan over the next couple of years.
Yeah, I guess, what I'm asking burden, though is that just.
If you just look at the business model is different and so if it is different it shouldn't.
And the focus to your point is on margin, which you definitely demonstrated that.
You can operate this at risk model the last several years, but I think with that.
We're not as worried though to drive unit volume growth because of that so I was just really the question was more is there any kind of.
Rule of thumb or anything you want us to take away in terms of you know kind of what your unit growth should be relative to those two tier one peers given the differences in the model.
So I'm not comparing myself to anybody else.
I believe I'm going to answer it two ways. Hopefully this will help one is I have a vertical strategy. The markets man are not penetrated significantly and I don't see that as a limiter to my growth that's sort of number one and number two is we have.
<unk> invested heavily in the go to market strategy, whether it'd be marketing or the back office transformation as Kelly said one of the outcomes in January with all the work that we did last year and by the way the investment we made last year.
Right right and can you give us given the importance of January can you give us any.
Concrete metrics on what it looked like in terms of win rates or retention or whatever the key metrics that youre looking at.
So as I said the.
The year over year W. E N a C V annual contract growth was 35%.
As you know the first quarter is about 40% of the year's new ways CV. So that's where the question around the confidence in the year comes from.
The win rates were up.
The add backs were significant and the focus on not only our core verticals David but.
The in targeted accounts within those core verticals was significant the overall size of the customer was good right in the range that I like and overall it was pretty strong across the company. That's the east if you look at a geography east coast and West Coast.
Okay got it great well, thanks very much good luck.
You're very welcome thanks.
This concludes our question and answer session as well as our conference call for today. Thank.
Thank you for attending today's presentation and you may now disconnect.
Okay.
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Okay.
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