Q3 2023 TriNet Group Inc Earnings Call
Good afternoon.
Welcome to the Tri net third quarter 2023 earnings conference call.
All participants will be in a listen only mode.
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I would now like to hand, the conference over to Alex Bauer head of Investor Relations. Please go ahead Sir.
Thank you operator, good afternoon. My name is Alex Bauer and I am trying to its head of Investor Relations. Thank you for joining us and welcome to <unk> 2023 third quarter Conference call I'm joined today by our CEO Burton M Goldfield and their CFO Kelli to Minnelli before we begin I would like to address our use of <unk>.
We're looking statements and non-GAAP financial measures. Please note that today's discussion will include our 2023 fourth 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 are.
<unk> 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.
Early 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 S. E C, 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.
Lease 10-Q filings or our 10-K filing which are available on our website or through the S. E. C website with that I will turn the call over to Burton Burton. Thank you Alex during the third quarter I am pleased that our first half positive trends accelerated into the back half of 'twenty 'twenty.
Three we successfully executed against a key set of corporate priorities. We delivered financial results are largely in line with our guidance outperforming in both cost control and earnings growth GAAP earnings per share grew 34% year.
Over a year to align with business trends, we leveraged our investment in technology and increased our service levels, while reducing our overall spend notably in the third quarter, we realized outsized year over year growth in new sales. This represents a further acceleration.
Ration of our sales results over Q2 based on the existing pipeline I expect this trend in year over year growth in new sales to continue into the fourth quarter. Our differentiated service model has paid off with improved retention in 'twenty.
23, we are now forecasting our retention rate to be in line with our all time best retention rate. Additionally, it should therefore come as no surprise that our N. P. S scores are commensurate with our higher retention rates, we achieved see quench.
So W. S C growth in Q3, and we are forecasting additional sequential growth in Q4. Despite continued headwinds in customer hiring importantly, delivering on our key digital transformation milestones has enhanced our core capabilities.
<unk>. This positive impact is felt by our larger customer base due to our growing W. S. C count and finally, we executed a 1 billion dollar buyback transaction, including a tender offer which has already proven to be accretive to E. P. S.
And we believe this trend will continue despite the uncertain economic and geopolitical environment Triad continues to focus on execution and delivering results. This is what our investors have come to expect from trying it whether we are discussing operating expenses.
Is or insurance cost Tri net manages its cost prudently we have sufficient flexibility in our operations to adjust our expenses consistent with the current demands from our business and each quarter, we re price insurance for a cohort of.
Our customers, which enables us to react to insurance cost trend changes.
If and when they occur.
Finally, we finished the third quarter with 336000, Ws sees representing sequential growth quarter over quarter I am, particularly pleased with the continued strength in our new sales historically, the third quarter has been a slower.
<unk> quarter for Tri net not this year as try and its value proposition has resonated with the market.
Third quarter, new sales a C V accelerated 42% year over year. This continued the momentum from our strong second quarter results, our new sales growth was driven by excellent execution and the tight partnership between sales and marketing.
Referrals from dedicated customers have provided significant increased leads and marketing is incubating, the weeds, which delivers prospects ready to engage with Tri net our sales team is executing and we're seeing improved close rates as a result.
Last quarter I discussed our overall growth in mature sales reps, while still highlighting the need to grow capacity that need persists, but we are making progress during the third quarter. We grew overall rep count by approximately 5% sequentially resolve.
Elting in year to date total sales force growth of approximately 19%. It is important to note that our current sales pipeline is the strongest in our company history the visibility into both our Q4 and January 'twenty 'twenty four new sales pipe.
<unk> along with the increased sales capacity adds to my confidence around year over year acceleration in a C V growth for Q4, and the first quarter of 'twenty 'twenty four.
Turning to the topic of retention, we now expect to realize as six point year over year improvement in our retention rate, which is better than our previous expectations. We believe tri net offers great value for S. M B's in our core verticals and our net.
Promoter score supports this belief with our first half N. P. S scores in hand, we saw a significant improvement when compared with the prior period. This continues a multi year trend of N. P. S improvement, which reflects our delivery of the best possible surge.
Office to our customers finally to close out our volume discussion customer hiring in the third quarter continued to be inconsistent amongst our verticals. This trend is similar to the last five quarters and validates the value of our deliver.
Our it and diversified targeted customer strategy. This diversification enables us to grow during challenging times, notably we saw hiring in life Sciences fin serve and main street with technology Stillwagon within.
G. The hiring trend on a net basis was modestly weaker than last quarter. We saw small reductions in work forces across all customer sizes with the bulk of the weakness captured in the software industry, while near term challenges the tech growth remain.
And place my long term view of this key vertical remains optimistic and constructive in September in an effort to garner greater insight into the overall health of the SMB market, we analyze the proprietary results of our commissioned Harris.
[noise] poll of Smbs in general we saw a shift to optimism in the S. M. B space, 82% of leaders are more confident in their ability to weather the macroeconomic environment over the next year at 23 point improvement from last year.
F N B's in the first half of the year took the necessary actions to weather the current economic climate and our investing in future initiatives specific to technology over 85% of the leaders indicated they were planning investments in products market expansion.
And the word technology. However for the same period, only 36% of Tac S. M. B leaders indicated that they plan to hire new workers irrespective of that sentiment, we expect to grow our installed base by adding new customers and keeping them.
Longer through our differentiated customer service the economy will ultimately rebound customers will hire and we will benefit from this growth.
I'd like to pivot and discuss try nets technology strategy I have always believed that owning your own technology is imperative and we are now clearly benefiting from our long term technology investment or acquisition of Xenophon was the most prominent example of.
This evolution I have discussed how owning an H R. I S platform enables tri net to offer the full barbell of HCM services to S. M. B's at one end of the barbell is the low touch low cost H R. I S and at the other end the P E O com.
Strapped Tri net has pursued a strategy of filling in the barbell with additional products and services to provide further value for our customers. Our ultimate goal is to serve our customers throughout their business life cycle during the third quarter, we accomplished three.
Objectives on the path to realizing this vision first for P. O customers Tri net has long offered the most robust health plan offerings in the SMB market. We are acutely aware of how challenging the selection of benefits can be for Ws sees.
Earlier this month, we announced the Tri net entered into a strategic partnership with healthy healthy is an AI based solution that helps transform the employee benefits experience by optimizing benefits. So action for the unique needs of each W. S.
Second through the acquisition of Zenna fits we gained access to an industry leading benefits administration tool purpose built for Smbs last year, we pared the Ben admin tool with our P. O to launch Tri net I O M. This quarter, we lever.
<unk>, our learnings and enhanced our I O M solution as we refined our broker strategy, we renegotiated certain relationships, which benefited tri net zenna fits revenue this quarter, but more importantly, this strategy sets us up to broaden the market.
Operator: Good afternoon, and welcome to the TriNet Third Quarter 2023 earnings conference call. Our participants will be in a listen only mode. And should you need any assistance during the call? Please signify conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may also note that this event is being recorded today.
But sure to include a much larger third party broker network.
Said, another way by leveraging our advanced Ben admin capabilities, we're launching a new broker channel, which will greatly expand our sales capacity and market opportunity.
Lastly, try in its entire product and service offering is wing to our digital transformation during the third quarter Tri net successfully completed the migration of 100% of our applications to the cloud. This is another example for our customers of our steadfast.
Alex Bauer: I would now like to hand the conference over to Alex Bauer, Head of Investor Relations. Please go ahead, sir. Thank you, operator.
Alex Bauer: Good afternoon. My name is Alex Bauer, and I am TriNet's Head of Investor Relations. Thank you for joining us and welcome to TriNet's 2023 Third Quarter conference call.
Dedication to delivering top tier service and unwavering reliability, the investment and focus on technological evolution, including AI security interoperability and usability will result in the following benefit.
Alex Bauer: I am joined today by our CEO, Burton M Goldfield in their CFO, Kelly Tuminelli. Before we begin, I would like to address our use of forward-looking statements and non-gap financial measures. Please note that today's discussion will include our 2023 Fourth Quarter and full-year financial outlook in other statements that are not historical nature or 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.
Alex Bauer: 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 10K and 10Q 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.
Fits to our customers.
Industry defining usability not only for administrators and employees, but for their families continuous availability, including seven by 24 support enhanced business continuity and further strengthening of our data security.
This is particularly exciting to me because I am seeing the many years of architectural work now resulting in concrete results.
These include the next generation of exciting capabilities, along with longer term cost containment with.
With this in mind, we believe our stock represents significant long term value.
During the third quarter Tri net successfully executed $1 billion of share repurchase, including a public tender offer at $107 per share I am extremely proud of the Tri net team for delivering this successful transaction, including the.
Alex Bauer: In addition, our discussion today will include non-gap financial measures, including our forward-looking guidance for adjusted net income per diluted share. For reconciliation of our non-gap financial measures to our gap financial results, please see our earnings release, 10Q filings, or a 10K filing, which are available on our website or through the SEC website.
Issuance of a bond and the share buyback. This has been a transformational quarter for Tri net and I would be remiss not to thank every single Tri net colleague for their focus on our amazing customers with that I will pass the call over to Kelly for a review of our.
Burton Goldfield: With that, I will turn the call over to Burton. Burton? Thank you, Alex. During the third quarter, I am pleased that our first half positive trends accelerated into the back half of 2023. We successfully executed against a key set of corporate priorities. We delivered financial results largely in line with our guidance outperforming in both cost control and earnings growth. Gap earnings per share grew 34% year over year. To align with business trends, we leveraged our investment in technology and increased our service levels while reducing our overall spend.
Financials Kelly thank.
Thank you Barton and a quarter that saw rising long term interest rates and an overall challenging business environment train. It successfully executed a series of capital actions grew our sales and nimbly manage our operations as we've discussed throughout the year, we believe that training stock offered significant value when measured.
Against alternative capital actions, given our long term view of our growth and opportunity.
During the third quarter, we took action, we repurchased $1 billion in stock at $107 a share through a $640 million tender offer and a $360 million share repurchase from our largest investor while training is a strong cash generator a transaction the size necessitated additional.
Burton Goldfield: Notably in the third quarter, we realized outsize year-over-year growth in new sales. This represents a further acceleration of our sales results over Q2. Based on the existing pipeline, I expect this trend in year-over-year growth in new sales to continue into the fourth quarter. Our differentiated service model has paid off with improved retention in 2023. We are now forecasting our retention rate to be in line with our all-time best red tension, and Ray.
Chanel funding.
We successfully issued 400 million dollar bond into a volatile interest rate market and we expanded our bank lending group upsizing, our credit facility by 200 million to total $700 million. This rebalancing of our capital structure brings us within our targeted leverage ratios, while maintaining a proof.
Cash buffer and access to additional liquidity, we know our product and services are resonating in the market. During the third quarter. We grew new sales a C D by 42% year over year as I've talked about throughout the year, we are managing our expenses prudently and allocating capital to drive growth.
Burton Goldfield: Additionally, it should therefore come as no surprise that our NPS scores are commensurate with our higher retention rates. We achieve sequential WSC growth in Q3, and we are forecasting additional sequential growth in Q4 despite continued headwinds in customer hiring. Importantly, delivering on our key digital transformation milestones has enhanced our core capabilities. This positive impact is felt by a larger customer base due to our growing WSC count. And finally, we executed a $1 billion buyback transaction, including a tender offer, which is already proven to be a creative to EPS, and we believe this trend will continue.
Even as we drove strong new sales our operating expenses in the quarter declined year over year taken altogether Tri net successfully executed several important initiatives positioning the company for future growth.
Now, let's turn to our financial review of Q3, and our fourth quarter outlook in the third quarter total revenues declined 2% slightly below our guidance total revenue in the quarter was impacted by the workforce reductions in our tech vertical which impacted our overall health participation rates by approximately one person.
This reduced our insurance services revenue regarding volume we finished the third quarter with approximately 336000, worksite employees down 5% year over year and up 1% sequentially average ws seat count for the quarter was over 333000.
Burton Goldfield: Despite the uncertain economic and geopolitical environment, TriNet continues to focus on execution and delivering results. This is what our investors have come to expect from TriNet. Whether we are discussing operating expenses or insurance costs, TriNet manages its cost prudently. We have sufficient flexibility in our operations to adjust our expenses consistent with the current demands from our business, and each quarter we reprice insurance for a cohort of our customers, which enables us to react to insurance cost trend changes if and when they occur.
Sit down 5% year over year, but up 2% sequentially consistent with previous quarters, our third quarter WSI volumes were lower year over year, largely due to the cumulative impact of lower customer hiring and workforce reductions in the last half of 2022 and three the third quarter F. 2023.
Customer hiring in the third quarter remained mixed with many of our vertical think Rev technology, our largest vertical along with nonprofit and professional services some workforce reductions slightly skewed towards larger clients.
Burton Goldfield: Finally, we finished the third quarter with 336,000 WSCs representing sequential growth quarter over quarter. I am particularly pleased with the continued strength in our new sales. Historically, the third quarter has been a slower sales quarter for TriNet. Not this year, as TriNet's value proposition has resonated with the market. Third quarter, new sales ACV accelerated 42% year-over-year. This continued the momentum from our strong second quarter results. Our new sales growth was driven by excellent execution and the tight partnership between sales and marketing.
<unk> service revenue declined 2% in line with the lower end of our guidance.
The decline in professional services revenue was largely driven by subdued net customer hiring and a slight mix shift away from our technology vertical.
Our HRS cloud services did provide a revenue benefit in the quarter as we optimize certain broker agreements on our path for expanding our P O brokered benefits product.
Insurance service revenues declined 1% year over year, largely due to lower than forecast participation rates and lower volume, which were partially offset by annual inflationary rate increases that.
The decline in our technology vertical is the primary reason for our decline in participation rates, while utilization increased year over year paid claims in the month of September were lower than what we had laid out in our Q3 guidance driving a two point benefit to our insurance cost ratio versus prior expectations.
Burton Goldfield: Referrals from dedicated customers have provided significant increased leads and marketing is incubating the leads, which delivers prospects ready to engage with TriNet. Our sales team is executing and we are seeing improved close rates as a result. Last quarter, I discussed our overall growth in mature sales reps while still highlighting the need to grow capacity. That need persists, but we are making progress. During the third quarter, we grew overall rep count by approximately 5% sequentially resulting in year-to-date total sales force growth of approximately 19%.
While our ICR remained strong we continue to observe underlying health cost inflation driven by growth in provider prices and higher pharmaceutical costs.
With respect to workers' comp, we continue to see strong overall performance driving an approximately one point benefit to our ICR with a much smaller contribution this quarter from prior period development.
As a result, our insurance cost ratio was 84% about three points lower than the high end of our guidance.
Burton Goldfield: It is important to note that our current sales pipeline is the strongest in our company history. The visibility into both our Q4 and January 2024 new sales pipelines, along with the increased sales capacity adds to my confidence around year-over-year acceleration in ACV growth for Q4 and the first quarter of 2024. We have an improvement in our retention rate, which is better than our previous expectations. We believe TriNet offers great value for SMBs in our core verticals and our net promoter score supports this belief.
Turning to operating expenses in the third quarter, we demonstrated our commitment to managing our expenses as efficiently as possible, while still focusing our incremental spend on supporting new sales and customer service.
We also saw the minimization of certain benefits acquisition and integration related expenses, which taken together resulted in an overall year over year decline in operating expenses of 7% in the quarter.
The expense reduction builds on our trajectory to achieve breakeven profitability for HRS product in 'twenty 'twenty four interest earned from our investments and operating cash continued to benefit from the current interest rate environment.
During the quarter, we generated $18 million in interest income, which after netting with the interest expense resulted in $8 million of other income I should note that given the issuance of our 400 million dollar note and the 200 million dollar drawdown from our credit facility in future quarters, we've reduced.
Burton Goldfield: With our first half NPS scores in hand, we saw a significant improvement when compared with the prior period. This continues a multi-year trend of NPS improvement which reflects our delivery of the best possible service to our customers. Finally, to close out our volume discussion, customer hiring in the third quarter continued to be inconsistent amongst our verticals. This trend is similar to the last five quarters and validates the value of our deliberate and diversified targeted customer strategy.
Our expectations of significant net interest income our strong expense management lower health utilization and strong net contribution from interest income translated to solid earnings performance in the quarter, we earned $1.63 and GAAP net income per share and we earned $1 <unk>.
91 cents and adjusted net income per share.
Please note that our EPS result does include an approximately two set net benefit in the quarter from our successfully executed tender offer during.
Burton Goldfield: This diversification enables us to grow during challenging times. Notably, we saw hiring in life sciences, thin serve, and main street with technology still lagging. Within technology, the hiring trend on a net basis was modestly weaker than last quarter. We saw small reductions in workforces across all customer sizes with the bulk of the weakness captured in the software industry. While near-term challenges to tech growth remain in place, my long-term view of this key vertical remains optimistic and constructive.
During the quarter, we generated $131 million of corporate operating cash flow and ended the third quarter with $245 million in unrestricted cash and investments on our balance sheet. The sequential decline in our cash was driven by the funding for our tender offer and share repurchase.
Now, let's turn to our financial guidance for the fourth quarter, we are forecasting year over year total revenues to be in the range of flat to up 4% given three quarters of performance and our fourth quarter guidance. We are forecasting our full year 2023 revenues to be in the range of flat to up 1%.
Burton Goldfield: In September, in an effort to garner greater insight into the overall health of the SMB market, we analyzed the proprietary results of our commissioned Harris poll of SMBs. In general, we saw a shift to optimism in the SMB space. 82% of leaders are more confident in their ability to weather the macro-economic environment over the next year, a 23-point improvement from last year. SMBs in the first half of the year took the necessary actions to weather the current economic climate and are investing in future initiatives.
This represents a one point reduction to our previous full year guidance.
We expect professional services revenue in the quarter to be in the range of down 2% to up 1% for the full year, we expect professional services revenue to be in the range of flat to up 1%. This revised full year guidance reflects the Q3 achievement tightening up our pre.
This range.
For the fourth quarter, we expect our insurance cost ratio in the range of 92% to 88%, reflecting both the seasonality of our insurance performance and expected health cost inflation give.
Burton Goldfield: Specific to technology over 85% of the leaders indicated they were planning investments in products, market expansion, and the word technology. However, for the same period, only 36% of tech SMB leaders indicated that they planned to hire new workers.
Given our fourth quarter guidance and our strong cumulative performance through the third quarter, we now forecast our full year ICR to be in the range of 85.5% to 84.5% representing a one point improvement to the high end of our previous guidance.
Our fourth quarter estimate of GAAP net income per diluted share is in the range of 26 cents to a dollar while our fourth quarter estimate for adjusted earnings per diluted share is in the range of 59 cents to $1.33.
Burton Goldfield: Irrespective of that sentiment, we expect to grow or install base by adding new customers and keeping them longer through our differentiated customer service. The economy will ultimately rebound, customers will hire, and we will benefit from this growth.
Our fourth quarter earnings guidance includes the full impact from our share repurchase transactions on our diluted share count for.
For full year 2023 our estimate of GAAP net income per diluted share is in the range of $5.43 to $6.27, which represents a 53 cent increase from our previous guidance at the midpoint.
Burton Goldfield: I would like to pivot and discuss TriNet's technology strategy. I have always believed that owning your own technology is imperative and we are now clearly benefiting from our long-term technology investment. TriNet has pursued a strategy of filling in the barbell with additional products and services to provide further value for our customers.
Our full year 'twenty twenty-three estimate for adjusted earnings per diluted share is in a range of $6.90 to $7.55. This represents a 58% increase from our previous guidance at the midpoint.
Our revised full year earnings per share guidance benefited from three items.
<unk> 19 cents net EPS contribution from our tender offer on the high end and improved outlook on both health and workers compensation and an outperformance in operating expenses as we manage our cost structure to reflect the current operating environment.
We are encouraged by our execution, our strong financial and operating performance is ultimately the outcome, we want keeping their focus on servicing our customers, bringing in new customers and keeping our customers longer.
Burton Goldfield: Our ultimate goal was to serve our customers throughout their business life cycle. During the third quarter, we accomplished three important objectives on the path to realizing this vision. First, for PEO customers, TriNet has long offered the most robust health plan offerings in the SMB market. We are acutely aware of how challenging the selection of benefits can be for WSEs.
Now I'll return the call to Burton for his final remarks Burton.
Thank you Kelly, we delivered a strong third quarter, where the areas within our control new sales retention and expenses all performed well.
Our customer base appears to be addressing their challenges and are prepared to navigate the volatile operating environment. This volatility is the outcome of increased global conflict, a polarized domestic political environment and higher interest rates caused.
Burton Goldfield: Earlier this month, we announced that TriNet entered into a strategic partnership with Healthy. Healthy is an AI-based solution that helps transform the employee benefits experience by optimizing benefits selection for the unique needs of each WSE.
<unk> continued uncertainty as a company with over 3600 employees, we have colleagues and their families impacted and traumatized by these unfolding events. We are focused on the wellbeing of our colleagues customers and investors the importance of what we do for our cause.
Burton Goldfield: Second, through the acquisition of benefits, we gained access to an industry-leading benefits administration tool purpose-built for SMBs. Last year, we paired the Ben Admin tool with our PEO to launch TriNet IOM. This quarter, we leveraged our learnings and enhanced our IOM solution. As we refined our broker strategy, we renegotiated certain relationships which benefited TriNet's revenue this quarter. But more importantly, this strategy sets us up to broaden the market aperture to include a much larger third-party broker network.
Customers remains top of mind, and we will continue to put them at the center of everything we do op.
Operator.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you're using a speakerphone please pick up your handset before pressing the keys.
And to withdraw a question please press star two.
Burton Goldfield: Set another way by leveraging our advanced Ben Admin capabilities, we are launching a new broker channel which will greatly expand our sales capacity and market opportunity. Lastly, TriNet's entire product and service offering is linked to our digital transformation. During the third quarter, TriNet successfully completed the migration of 100% of our applications to the cloud. This is another example for our customers of our steadfast dedication to delivering top-tier service and unwavering reliability.
At this time, we will take our first question, which will come from Tien Tsin Huang from JP Morgan. Please go ahead.
Sure.
Hey, Tien tsin.
Great to talk to you and Kelly as well just on the the ECB really strong written up 47%.
Help us with that.
Does that translate to.
Revenue and volume.
As we look ahead, and maybe just underline again for us.
Balanced between sales productivity getting better versus <unk>.
Change in demand environment in your mind.
Maybe a little bit more color. Thank you yeah. So great question, Tien Tsin and were actually up in ACB, 42% in Q3 year over year, we've talked about this acceleration over the past couple of quarters.
Burton Goldfield: The investment and focus on technological evolution, including AI, security, interoperability, and usability will result in the following benefits to our customers, customers, industry defining usability, not only for administrators and employees, but for their families. Continuous availability, including 7 by 24 support, enhanced business continuity and further strengthening of our data security. This is particularly exciting to me because I am seeing the many years of architectural work now resulting in concrete results. These include the next generation of exciting capabilities along with longer-term cost containment.
Have grown the sales force under excellent leadership, and we're up about 5% sequentially, but 19% year over year. So do you take the 42% ACB growth you recognize there's a capacity increase of 19%, we're getting a higher close rates.
Better quality leads for marketing and a very strong pipeline so across the board I'm pretty excited or I wouldn't have had the strong conviction around Q4 continuing.
As you realize with the complexity of executing a small business today.
We are offering has tremendous value, whether it's around cost control fixed versus variable cost, whether it's around reducing complexity.
Burton Goldfield: With this in mind, we believe our stock represents significant long-term value. During the third quarter, TriNet successfully executed $1 billion of share repurchase, including a public tender offer at $107 per share. I am extremely proud of the TriNet team for delivering this successful transaction, including the issuance of a bond and the share buyback.
Or whether it's around assisting with remote workers and driving productivity within the small businesses, which they sorely need Tri net is there to help.
Good.
Thank you for that.
And I see more advertising as well maybe that you I think on the follow up question maybe for Kelly.
Burton Goldfield: This has been a transformational quarter for TriNet, and I would be remiss not to thank every single TriNet colleague for their focus on our amazing customers.
Fourth quarter revenue flat.
Sure.
Maybe decompose a little bit.
The mix between volume rate and mix.
How might that look versus what we saw in the third quarter.
Kelly Tuminelli: With that, I will pass the call over to Kelly for a review of our financials. Kelly? Thank you, Burton. In a quarter that saw rising long-term interest rates and an overall challenging business environment, TriNet successfully executed a series of capital actions, grew our sales, and nimbly managed our operations. As we've discussed throughout the year, we believe that TriNet's stock offered significant value when measured against alternative capital actions given our long-term view of our growth and opportunity.
Yeah I appreciate the question Tien Tsin as we're looking in the fourth quarter.
Kelly Tuminelli: During the third quarter, we took action. We repurchased $1 billion in stock at $107 a share through a $640 million tender offer, and a $360 million share repurchase from our largest investor. While TriNet is a strong cash generator, a transaction this size necessitated additional funding. We successfully issued a $400 million bond into a volatile interest rate market, and we expanded our bank lending group up sizing our credit facility by $200 million to total $700 million. This rebalancing of our capital structure brings us within our targeted leverage ratios while maintaining a prudent cash buffer and access to additional liquidity.
Really what we've seen all year is kind of the low.
Low single digit contribution from rate.
And.
Majority of what we expect to see in the fourth quarter is is predominantly volume related hopefully.
Okay.
Thank you.
Yes.
Our next question will come from Kyle Peterson with Needham. Please go ahead.
Hey, Kyle.
Hey, good afternoon, thanks for taking the questions guys.
I wanted to start off on CAE it sounded like that.
The trends you guys saw in the third quarter or were little mixed you know some verticals better than others.
And does the guy.
Actor in any improvement or deterioration or are you guys kind of expecting things to stay fairly consistent based on what you're seeing so far in October.
Yes, why don't I take it and then I'll, let Burton add anything that he wants to add from a color perspective, you know and.
And in terms of customer hiring in the quarter, we did see weakness and it was really predominantly on Tac I think three of our verticals grew at three of our verticals trial from a hiring pure hiring perspective.
Kelly Tuminelli: We know our product and services are resonating in the market. During the third quarter, we grew new sales ACV by 42% year-over-year. As I've talked about throughout the year, we are managing our expenses prudently and allocating capital to drive growth. Even as we drove strong new sales, our operating expenses in the quarter declined year-over-year. Taking all together, TriNet successfully executed several important initiatives positioning the company for future growth.
But it was really predominantly in cat.
We're looking out and thinking about guidance for the rest of the year, we did lower our Cie assumption.
And are assuming kind of that.
You know call it on an annualized basis very low single digit.
Alright, that's a that's really helpful and then.
Kelly Tuminelli: Now let's turn to our financial review of Q3 and our fourth quarter outlook. In the third quarter, total revenues declined 2%, slightly below our guidance. Total revenue in the quarter was impacted by the workforce reductions in our tech vertical, which impacted our overall health participation rates by approximately 1%. This reduced our insurance services revenue. New. Regarding volume, we finished a third quarter with approximately 336,000 worksite employees down 5% year over year and up 1% sequentially.
Follow up on the capital return are going to see the tender get executed.
Seems like that's a successful transaction, but I guess, maybe if you guys could provide more color I know last quarter, you guys kind of mentioned you're considering.
And maybe doing a dividend at some point, but how should we think about capital return moving forward and kind of how you guys are thinking about dividends versus buybacks.
Great.
I appreciate the question.
We're really pleased with what we were able to do in the quarter around capital actions. Obviously it occurred a little bit later in the quarter. So the impact on the current quarter was relatively small about two cents we expect it.
Kelly Tuminelli: Average WSE count for the quarter was over 333,000, also down 5% year over year but up 2% sequentially. Consistent with previous quarters, our third quarter WSE volumes were lower year over year, largely due to the cumulative impact of lower customer hiring and workforce reductions in the last half of 2022 and three the third quarter of 2023. Customer hiring in the third quarter remained mixed. With many of our verticals in growth, technology are largest vertical along with nonprofit and professional services, so workforce reductions slightly skewed towards larger clients.
They contribute about flu.
The full year 2023 EPS.
As we're looking forward I do want to reiterate for all of our investors.
The tenants that we're working on that one we agreed that it's appropriate for us to target returning approximately 75% of our free cash flow to our investors on an annualized basis as we think about what the form of that is.
Yeah, we do believe a recurring dividend is a useful addition to our capital return strategy.
Kelly Tuminelli: Professional service revenue declined 2% in line with the lower end of our guidance. The decline in professional services revenue was largely driven by subdued net customer hiring in a slight mixed shift away from our technology vertical. Our HRIS cloud services did provide a revenue benefit in the quarter as we optimize certain broker agreements on our path for expanding our PEO broker benefits product. Insurance service revenues declined 1% year over year, largely due to lower than forecast participation rates and lower volume which were partially offset by annual inflationary rate increases.
We'll evaluate that as we move into 2024 and provide guidance there are.
We have been using the time since our last earnings call to really get feedback from our investors and we will definitely consider that as we think about our approach, but it really would be premature to talk about a level or anything like that because we have not made a formal decision.
Got it that makes sense and that's helpful color, Thanks, guys nice quarter.
Thank you so much.
And our next question will come from Andrew Nicholas with William Blair. Please go ahead.
Hey, Andrew afternoon.
Hey, Burton.
Kelly Tuminelli: The decline in our technology vertical is the primary reason for decline in participation rates. While utilization increased year over year, paid claims in the month of September were lower than what we had laid out in our Q3 guidance driving a 2-point benefit to our insurance cost ratio versus prior expectations. While our ICR remains strong, we continue to observe underlying health cost inflation driven by growth in provider prices and higher pharmaceutical costs.
A couple of questions on <unk>.
The close rate and Salesforce productivity that I wanted to ask.
Maybe first is there any sense that you have from talking to your sales force were the primary drivers of those increased close rate.
Are you seeing that.
Primarily going up against kind of greenfield opportunities or our win rate elevated.
Competitively just kind of.
Interest in unpacking that a little bit further.
Kelly Tuminelli: With respect to workers comp, we continue to see strong overall performance driving an approximately 1-point benefit to our ICR with the much smaller contribution this quarter from prior period development. As a result, our insurance cost ratio was 84% about 3-point slower than the high end of our guidance.
So that's a great question first and.
Foremost, we have a tremendous amount of referrals and from a driver standpoint, I would say complexity, which is the multi state issue cost control and that varies depending on customer, but that's a big driver and then its risk reduction as you get into it.
Kelly Tuminelli: Turning to operating expenses in the third quarter, we demonstrated our commitment to managing our expenses as efficiently as possible while still focusing our incremental spend on supporting new sales and customer service. We also saw the minimization of certain benefits acquisition and integration-related expenses which taken together resulted in an overall year over year decline in operating expenses of 7% in the quarter. The expense reduction builds on our trajectory to achieve break even profitability for our HRIS product in 2024.
These challenging environment as you get into some more challenging situations from an employment standpoint on your second question over all close rates are up the sales force is maturing and they are growing but I would be remiss, if I really didnt dig into.
The fact that our investments in technology to deliver an exceptional product are paying off and what I mean by this is and the HR world Theres been a lot of change over the last couple of years. A few examples of the PPP loans came out of nowhere you have the ER Tc.
Kelly Tuminelli: Interest earned from our investments in operating cash continued to benefit from the current interest rate environment. During the quarter, we generated $18 million in interest income which after netting with interest expense resulted in $8 million of other income. I should note that given the issuance of our $400 million note and the $200 million drawdown from our credit facility, in future quarters we've reduced our expectations of significant net interest income. Our strong expense management, lower health utilization, and strong net contribution from interest income translated to solid earnings performance.
Tax credit issue, which is another complexity and I believe that it requires you to own your own technology and invest in the future and that has paid off from us now.
I do not believe that a commoditized PEO platform shared by hundreds of other P. E. OS is an enduring strategy.
And I don't believe a differentiate yourself and the industry, especially when you're putting sensitive customer data into these platforms and then relying on somebody else to make investments. So I believe that the platform is distinguishing itself.
Kelly Tuminelli: In the quarter, we earned $1.63 in gap net income per share, and we earned $1.91 in adjusted net income per share. Please note that our EPS result does include an approximately two cent net benefit in the quarter from our successfully executed tender offer. During the quarter, we generated $131 million of corporate operating cash flow, and ended the third quarter with $245 million in unrestricted cash and investments on our balance sheet. The sequential decline in our cash was driven by the funding for our tender offer and share repurchase.
I asked about the close rates there are up across the board, but notably our close rates are up 50%. If we do a technology demo. So we are distinguishing ourselves with technology and the service goes right along with the technology. So theres some momentum and as you realize.
Position is one thing, but momentum is entirely different thing.
Interesting.
That's all helpful. And then maybe I can kind of take a step back and ask a bigger question around kind of pricing and aggressiveness and how you think about risk seems like looking at ICR you been awfully profitable in the insurance services.
Kelly Tuminelli: Now let's turn to our financial guidance. For the fourth quarter, we are forecasting year-over-year total revenues to be in the range of flat to up 4%. Given three quarters of performance and our fourth quarter guidance, we are forecasting our full year 2023 revenues to be in the range of flat to up 1%.
Revenue line here for several years in a row.
Kelly Tuminelli: This represents a one-point reduction to our previous failure guidance. We expect professional services revenue in the quarter to be in the range of down 2% to up 1%. For the full year, we expect professional services revenue to be in the range of flat to up 1%. This revised full year guidance reflects the Q3 achievement tightening up our previous range. For the fourth quarter, we expect our insurance cost ratio in the range of 92% to 88% reflecting both the seasonality of our insurance performance and expected health cost inflation.
You think about that line.
I don't want to ask about margins on a go forward basis as much as I wanted to ask if you could potentially use that profitability to be more aggressive on pricing and potentially use that as a lever to grow worksite employees faster or if the.
Inclination from from your perspective Burton.
Can I try to stay around levels that you've been at the last four years and if that comes with a little bit slower worksite employee growth so be it.
So we will always price to risk we have exceeded the net insurance margin and targeting that margin and then it continued to try to get to that margin.
Kelly Tuminelli: Given our fourth quarter guidance and our strong cumulative performance through the third quarter, we now forecast our full year ICR to be in the range of 85.5% to 84.5% representing a one-point improvement to the high end of our previous guidance. Our fourth quarter estimate of gap net income per deleted share is in the range of 26 cents to a dollar, while our fourth quarter estimate for adjusted earnings per deleted share is in the range of 59 cents to a dollar 33.
We are using more sophisticated tools and obviously as you approach that margin, which is less than today. It gives you some incremental price advantage. So there's no effort to drive a higher NIM. It is just having the.
<unk> in the book of business, having visibility into the claims to drive towards the targeted NIM that we had so I.
Kelly Tuminelli: Our fourth quarter earnings guidance includes the full impact from our sherry purchase transactions on our deleted share count. For full year 2023, our estimate of gap net income per deleted share is in the range of $5.43 to $6.27, which represents a 53 cent increase from our previous guidance at the midpoint. Our full year 2023 estimate for adjusted earnings per deleted share is in a range of $6.90 to $7.55. This represents a 58 cent increase from our previous guidance at the midpoint.
I think the answer to your question is as the technology advances and we get more sophisticated in as much as that price drives incremental growth so be it because the goal has always been to price to our targeted them.
That's very helpful. And then if I could just ask one more if you don't mind I'm sure think within benefits and HR I ask you you had a little bit of a structural change going on in terms of.
The technology that you you can offer to support that channel.
Kelly Tuminelli: Our revised full year earnings per share guidance benefited from three items. Around 19 cents net EPS contribution from our tender offer on the high end, an improved outlook on both health and workers' compensation and an outperformance in operating expenses as we manage our cost structure to reflect the current operating environment.
What could that mean in terms of the opportunity set here and how different is it from what you've historically done in that channel I generally think of of triad as being more oriented towards.
Selling direct.
But just kind of curious about that kind of strategic shift in and how it sets you up going forward. Thank you.
Kelly Tuminelli: We are encouraged by our execution, our strong financial and operating performance is ultimately the outcome we want, keeping our focus on servicing our customers, bringing in new customers and keeping our customers longer.
No great question. So we've talked for a couple of quarters about how impressed we are with the benefits administration capabilities, which came with benefits. It opened our eyes to the fact that by binding that then admin tool directly with the PEO.
Burton Goldfield: Now, I'll return to call to Burton for his final remarks. Burton, thank you, Kelly. We delivered a strong third quarter where the areas within our control, new sales, retention and expenses all performed well.
We have seen some interesting results. We have started to open that up to a broker community. So this would be an additional channel not in and it would be an and not an or and as we've talked about we believe there is a deep.
Burton Goldfield: Our customer base appears to be addressing their challenges and are prepared to navigate the volatile operating environment. This volatility is the outcome of increased global conflict, a polarized domestic political environment, and higher interest rates, causing continued uncertainty. As a company with over 3600 employees, we have colleagues in their families impacted and traumatized by these unfolding events. We are focused on the well-being of our colleagues, customers and investors. The importance of what we do for our customers remains top of mind and we will continue to put them at the center of everything we do.
And vast market for Tri net we're still less than 50% of our quotes are against another PEO. So we have a plan a full mentality. We believe a select set of brokers could really help get this product to a completely different set of customers.
And we're in the early stages, so that isn't built into the model today, we are starting to leverage that Ben admin tool on a more fulsome basis right now, it's a small amount of our business, but what I think you'll see over the next couple of quarters as we implement the full suite.
Operator: Operator?
Operator: We will now begin the question and answer session. To ask a question, you may press star, but one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. And to withdraw a question, please press star the two.
<unk> the idea of bringing your own benefits and also enjoying the full breadth and depth of the PEO solution will become a reality.
Thanks, Martin appreciate it no.
Tindrion Hong: At this time, we will take our first question, which will come from Tindrion Hong from JP Morgan. Please go ahead. Hey, Tindrion. It's great to talk to you and Kelly as well. Just on the ACV, it's really strong, we're not 47 percent.
No I appreciate the questions.
Yeah.
And our next question will come from Jared Levine with TD Cowen. Please go ahead.
Thank you bird with the <unk> 22 earnings you express confidence that growing Ws sees a high single digit rates, starting FY 'twenty four.
By the fact, you have lowered expectations for FY2023 a few points since that is mid single digits WSB growth for FY 'twenty for reasonable at this point, you know assuming fairly stable retention rates.
Burton Goldfield: Can you help us with how does that translate here to revenue or volume as we look ahead and maybe just underline again for us, is it a balance between sales for 50 getting better versus King and demand environment in your mind? Maybe a little bit more color. Thank you. Yeah, so great question, Tindrion. And we're actually up in ACV 42 percent in Q3 year over year. We've talked about this acceleration over the past couple quarters.
Consistent with what you're witnessing in FY 'twenty, three and what you're anticipating for January bookings.
So look I don't control the Cie I still will not back off from trying to drive that through sales force capacity exceptional retention and we're at a level of retention is high as I've seen in my 15 years at <unk>.
Burton Goldfield: We have grown the sales force under excellent leadership and we're up about 5 percent sequentially but 19 percent year over year. So if you take the 42 percent ACV growth, you recognize there's a capacity increase in 19 percent. We're getting higher close rates, better quality leads from marketing and a very strong pipeline. So across the board, I'm pretty excited or I want to have had the strong conviction around Q4 continuing. As you realize with the complexity of executing a small business today, what we are offering has tremendous value, whether it's around cost control, fixed versus variable costs, whether it's around reducing complexity, or whether it's around assisting with remote workers and driving productivity within the small businesses which they sorely need trying it is there to help.
Tri net based on Great service and Great technology.
And as we give guidance for 'twenty four I'll give you a better answer to that but if you're asking me today, if I'm dissuaded from that the answer is no with a flat to a couple of percent Cie that becomes a significant challenge, but I also believe our diversified customer.
Tindrion Hong: Thank you for that. I know I see more advertising as well, maybe that's help to you.
Base and by the way some of the external studies that we've done where new business formation is way up I'm still optimistic about the future I am a pretty optimistic guy to begin with but I do believe we're taking the right steps to drive towards that goal whether it's.
Q1, or not I can't tell you, but I do believe that the economy will rebound a bit of help from Cie and yes that target is very doable.
Got it and then Kelly in terms of actual or what you're anticipating for FY2023 on the health insurance margin, how does that compare to your long term target of 88% to 90% and then are there any reasons why you can now performed better or worse.
Kelly Tuminelli: I think on the follow-up questions, maybe for Kelly, the fourth quarter revenue flat for maybe decomposed for us a little bit there, the mix between volume rate and mix. How might that look first of what we saw in the third quarter? Yeah, I appreciate the question, Tenjin. And as we're looking in the fourth quarter, and really what we've seen all year is kind of a low single digit contribution from rate. And so the majority of what we expect to see in the fourth quarter is predominantly volume related, hopefully that helps. Thank you.
Versus what was embedded in that long term insurance margin over the medium term here.
Yeah, well one of the things I would highlight on that Jared and within that a margin or insurance cost ratio is truly both workers' comp and health. So on the workers comp side. You know we are evaluating this but we have had the benefit this year of prior period development.
And particularly in the second quarter that was a significant benefit to our insurance cost ratio. It was less of a benefit this last quarter. It only added about one point to our margin overall, but.
Kyle Peterson: Our next question will come from Kyle Peterson with Needham. Please go ahead. Hey Kyle. Hey, good afternoon. Thanks for taking the questions, guys.
You know that that was part of the benefit we don't really expect or forecast prior period development and so that's one unusual thing I'd put that aside.
Kyle Peterson: I wanted to start off on CIE. I guess I'm like the trend to get saw in the third quarter. We're a little mixed. I guess some verticals, but in others, the guy to factor in any improvement or deterioration or you guys kind of expecting things to stay fairly consistent based on what you've seen so far in October.
As we look at the trends that we're seeing in health care. We are always trying to anticipate those and we're adjusting our renewal pricing every single quarter to reflect the trends that we're seeing.
Both upwards and downwards.
You know when to give a little bit of color on it you know we have seen pharma prices increase pretty significantly in front of me usage increased significantly but on the flip side, we've seen benefits with people using lower cost settings like rather than in hospital outpatient.
Kelly Tuminelli: Yeah, Kyle, why don't I take it and then I'll let Burton add anything that he wants to add from a color perspective. You know, in terms of customer hiring in the quarter, we did see weakness. It was really predominantly intact. I think three of our verticals grew, three of our verticals shrunk from a hiring pure hiring perspective. But it was really predominantly intact. As we're looking out and thinking about guidance for the rest of the year, we did lower our CIE assumption and are assuming kind of, you know, call it on an annualized basis, very low single digit.
You know has been a a change in terms of situs of care. So we're just going to continue to watch it target our long term overall average and we'll give you more guidance as we get into 2024 and and Jared just to give.
Give us a little bit more color.
What we are going to do is control our costs, we are going to grow our sales and we are going to retain our customers and we are at the early innings of being able to accelerate that growth.
Kelly Tuminelli: All right. That's what's really helpful. And then just follow up on the capital term to see the tender get executed and seems like that's a successful transaction. But I guess maybe you guys could provide more color. I know we'll ask where you guys can mention considering.
Great. Thank you.
Thank you.
Yeah.
This concludes our question and answer session and also concludes today's conference call. Thank you very much for attending today's presentation. You may now disconnect your lines.
Kelly Tuminelli: Maybe doing a dividend at some point, but you know, how should we think about capital return and moving forward and kind of how you guys are thinking about dividends first buybacks. Great. Kyle, you know, appreciate the question. We're really pleased with what we were able to do in the quarter around capital actions. Obviously, it occurred a little bit later in the quarter. So the impact on the current quarter was relatively small about two cents.
Kelly Tuminelli: We expected to contribute about 19 cents on the full year 2023 EPS. As we're looking forward, you know, I do want to reiterate for all of our investors, you know, the tenants that we're working on. So one, we agreed that it's appropriate for after target returning approximately 75% of our free cash flow to our investors on an annualized basis. As we think about what the form of that is, you know, we do believe a recurring dividend is a useful addition to our capital return strategy. We'll evaluate that as we move into 2024 and provide guidance there. We have been using the time since our last earnings call to really get feedback from our investors.
Kelly Tuminelli: And we'll definitely consider that as we think about our approach, but it really would be premature to talk about a level or anything like that because we have not made a formal decision.
Andrew Nicholas: Thank you so much and our next question will come from Andrew Nicholas with William Blair. Please go ahead. Hi, Andrew. Hi, Burton. A couple of questions on the closed rates and Salesforce productivity that I want to ask. Maybe first, is there any sense that you have from talking to your Salesforce where like the primary drivers of those increased closed rates? Are you seeing, is that primarily going up against kind of greenfield opportunities or win rates elevated competitively just kind of interested in unpacking that a little bit further?
Burton Goldfield: So that's a great question. First and foremost, we have a tremendous amount of referrals and from a driver's standpoint, I would say complexity, which is the multi-state issue, cost control and that varies depending on customer, but that's a big driver and then its risk reduction. As you get into these challenging environments, you get into some more challenging situations from an employment standpoint. On your second question, overall closed rates are up, the Salesforce is maturing and they're growing, but I would be remiss if I really didn't dig into the fact that our investments in technology to deliver an exceptional product are paying off.
Burton Goldfield: And what I mean by this is, in the HR world, there's been a lot of change over the last couple years. A few examples of the PPP loans came out of nowhere. You have the ERTC tax credit issue, which is another complexity. And I believe that it requires you to own your own technology and invest in the future and that is paid off from us. Now, I do not believe that a commoditized PEO platform shared by hundreds of other PEOs is an enduring strategy and I don't believe it differentiates yourself in the industry, especially when you're putting sensitive customer data into these platforms and then relying on somebody else to make investments.
Burton Goldfield: So I believe that the platform is distinguishing itself. You asked about the close rates. They're up across the board, but notably our close rates are up 50% if we do a technology demo. So we're distinguishing ourselves with technology and the service goes right along with the technology. So there's a momentum and as you realize, position is one thing, but momentum is entirely different thing. Interesting. That's all helpful.
Burton Goldfield: And then maybe I can kind of take a step back and ask a bigger question around kind of pricing and aggressiveness and how you think about risk. Things like, you know, and looking at ICR, you've been awfully profitable in the insurance services revenue line here for several years in a row. When you think about that line, I don't want to ask about margins on a go forward basis as much as I want to ask it if you could potentially use that profitability to be more aggressive on price and potentially use that as a lever to grow works that employees faster.
Burton Goldfield: Or if the inclination from your perspective, Burton is to kind of try to stay around levels that you've been at the last four years and if that comes with a little bit slower work that employee growth, so be it, so we will always price to risk. We have exceeded the net insurance margin and I'm targeting that margin and I'm going to continue to try to get to that margin. We are using more sophisticated tools and obviously as you approach that margin which is less than today, it gives you some incremental price advantage.
Burton Goldfield: So there's no effort to drive a higher NIM. It is just having the sophistication in the book of business, having visibility into the claims to drive towards the targeted NIM that we had. So I think the answer to your question is as the technology advances and we get more sophisticated in as much as that price drives incremental growth. So do it because the goal has always been to price to our targeted NIM.
Burton Goldfield: That's very helpful and then if I could just ask one more if you don't mind. Sure, I think within Zenithead and HRIS you have a little bit of a structural change going on in terms of the technology that you can offer to support that channel. What could that mean in terms of the opportunities that year and how different is it from what you've historically done in that channel? I generally think of TriNet as being more oriented towards selling direct but just kind of curious about that strategic shift and how it sets you up going forward.
Burton Goldfield: Thank you. Now, great question. So we've talked for a couple of quarters about how impressed we are with the benefits administration capabilities which came with benefits. It opened our eyes to the fact that by binding that then admin tool directly with the PEO model, we have seen some interesting results. We have started to open that up to a broker community. So this would be an additional channel, not an ad or it would be an ad not an or.
Burton Goldfield: And as we've talked about, we believe there is a deep and vast market for TriNet. We're still less than 50% of our quotes are against another PEO. So we have a plentiful mentality. We believe a select set of brokers could really help get this product to a completely different set of customers. And we're in the early stages. So that has been built into the model today. We are starting to leverage that benadmin tool on a more fulsome basis.
Burton Goldfield: Right now, it's a small amount of our business, but what I think you'll see over the next couple quarters as we implement the full solution, the idea of bringing your own benefits and also enjoying the full breadth and depth of the PEO solution will become a reality. Thanks for it and appreciate it. Now, I appreciate the questions.
Jared Levine: And our next question will come from Jared Levine with TD Cowan. Please go ahead.
Jared Levine: Thank you, Byrd. With the 4Q22 earnings, you express confidence on growing WSC's of a high single digit rate starting FY24. You know, being mindful of the fact you have lowered CIX expectations for FY23 a few points since then, is mid-single digits WSC growth for FY24 reasonable at this point, you know, assuming fairly stable retention rate, PI, consistent with what you're witnessing in FY23 and what you're anticipating for January bookings.
Burton Goldfield: So look, I don't control the CIE. I still will not back off from trying to drive that through Salesforce capacity. Exceptional retention and we're at a service and great technology. And as we give guidance for 24, I'll give you a better answer to that. But if you're asking me today if I'm dissuaded from that, the answer is no. With a flat to a couple percent CIE, that becomes a significant challenge. But I also believe our diversified customer base.
Burton Goldfield: And by the way, some of the external studies that we've done, where new business formation is way up, I'm still optimistic about the future. I am a pretty optimistic guy to begin with, but I do believe we're taking the right steps to drive towards that goal. Whether it's Q1 or not, I can't tell you, but I do believe that the economy will rebound a bit of help from CIE. And yes, that target is very doable. Got it.
Kelly Tuminelli: And then Kelly, in terms of what you're anticipating for FY23 on the health insurance margin, how did that compare to your long-term target of 88% to 90% and then other reasons why you can now perform better or worse versus what was embedded in that long-term insurance margin over the medium term here? Yeah, well, one of the things I would highlight on that, Jared, and within that margin or insurance cost ratio is truly both workers' comp and health.
Kelly Tuminelli: So on the workers' comp side, we are evaluating this, but we have had the benefit this year of prior period development. And particularly in the second quarter, that was a significant benefit to our insurance cost ratio. It was less of a benefit this last quarter. It only added about one point to our margin overall, but that was part of the benefit. We don't really expect or forecast prior period development. And so that's one unusual thing I'd pull to the side.
Kelly Tuminelli: As we looked at the trends that we're seeing in health care, we are always trying to anticipate those and we're adjusting our renewal pricing every single quarter to reflect the trends that we're seeing, both upwards and downwards, to give a little bit of color on it. We have seen pharma prices increase pretty significantly and pharma usage increase significantly, but on the flip side, we've seen benefits with people using lower cost settings, like rather than in hospital outpatient has been a change in terms of cytos of care.
Kelly Tuminelli: So we're just going to continue to watch it target our long-term overall average and we'll give you more guidance as we get into 2024. And Jared, just to give you a little bit more color. What we are going to do is control our costs, we are going to grow our sales and we are going to retain our customers. And we are at the early innings of being able to accelerate that growth. Right. Thank you.