Q1 2024 TriNet Group Inc Earnings Call
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Operator: Good morning, and welcome to the TriNet First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode.
Good morning, and welcome to the Tri net first quarter 'twenty 'twenty four earnings conference call all participants.
Recipients will be in listen only mode should you need assistance.
Operator: Should you need assistance, please signal a conference specialist 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 press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Alex Bauer, Investor Relations. Please go ahead.
Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Alex Bauer Investor Relations.
Please go ahead.
Yeah.
Alex Bauer: Thank you, Operator. Good morning.
Alex Bauer: Thank you operator, good morning, My name is Alex Bauer and I am trying to head of Investor Relations. Thank you for joining us and welcome to try and it's 2024 first quarter conference call I'm joined today by our President and CEO, Mike Simonds and our CFO Kelli to Minnelli before we begin I would like to address two items.
Alex Bauer: My name is Alex Bauer, and I am TriNet's Head of Investor Relations. Thank you for joining us, and welcome to TriNet's 2024 First Quarter Conference Call. I am joined today by our President and CEO, Mike Simonds, and our CFO, Kelly Tuminelli.
Alex Bauer: Before we begin, I would like to address two items. First, for the first time, we are presenting our financial results pre-market on a Friday. Please note that the change this quarter was due to our internal calendar and our desire to reach the broadest audience possible.
Alex Bauer: First for the first time, we are presenting our financial results pre market on a Friday. Please note that the change this quarter was due to our internal calendar and our desire to reach the broadest audience possible.
Alex Bauer: Second, I'd like to address our use of forward-looking statements and non-GAAP financial measures. Please note that today's discussion will include our 2024 second quarter and full-year financial outlook and other statements that are not historical in 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. 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 those being made today or in the future.
Alex Bauer: Second I'd like to address our use of forward looking statements and non-GAAP financial measures. Please note that today's discussion will include our 2020 for second 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.
Alex Bauer: 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.
Alex Bauer: 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.
Alex Bauer: 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.
Alex Bauer: We encourage you to review our most recent public filings with the SEC, including our 10-K and 10-Q filings for a more detailed discussion of the risks uncertainties and changes in circumstances that may affect our future results or the market price for stock in.
Alex Bauer: In addition, our discussion today will include non-GAAP financial measures, including our forward looking guidance for adjusted net income per diluted share.
Alex Bauer: For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release, 10-Q filings, or our 10-K filing, which is available on our website or through the SEC website. With that, I'll turn the call over to Mike. Mike?
Alex Bauer: 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.
Alex Bauer: With that I'll turn the call over to Mike Mike.
Mike Simonds: Thank you, Alex, and thank you to our shareholders, analysts, colleagues, customers, and all others joining us this morning. I am excited to lead my first earnings call as CEO of TriNet and will center my initial comments on 2TOP. First, thoughts on our first quarter performance, and second, my initial impressions after working alongside our customers and my TriNet colleagues over the past 10 weeks. Reflecting on our first quarter performance, TriNet continued to execute well in the areas most within our control, most notably new sales, retention, and expense management.
Mike Simonds: Thank you Alex and thank you to our shareholders analysts colleagues customers and all others. Joining us. This morning I am excited to lead my first earnings call as CEO of Tri net and will centre. My initial comments on two topics first thoughts on our first quarter performance and second my initial impression.
Mike Simonds: After working alongside our customers and might try and EE colleagues over the past 10 weeks, reflecting on our first quarter performance try not continued to execute well in the areas most within our control most notably new sales retention and expense management. We maintained our recent strong sales momentum in group 50.
Mike Simonds: We maintained our recent strong sales momentum and grew 50 percent year-over-year in the first quarter, historically our largest sales quarter of the year. Our strong first quarter sales performance reflected a broad team effort across our organization. We are delivering a differentiated offer to the market and a strong onboarding experience for our new customers. At TriNet, we work hard to understand the evolving needs of small to mid-sized organizations in the industry verticals we target, and we apply that insight to deliver services and access to benefits designed with their unique needs in mind. Owning our own technology allows us to operate with this unique vertical focus and do so while capturing the benefits of scale.
Mike Simonds: <unk> percent year over year in the first quarter historically, our largest sales quarter of the year, our strong first quarter sales performance reflected a broad team effort across our organization. We are delivering a differentiated offer to the market and a strong onboarding experience for our new customers are trying.
Mike Simonds: We work hard to understand the evolving needs of small to midsized organizations in the industry verticals, we target and we apply that insight to deliver services and access to benefits designed with their unique needs in mind owning our own technology allows us to operate with this unique vertical folk.
Mike Simonds: Yes, and do so while capturing the benefits of scale our investment in expanded distribution, both the growth and maturation of our sales consultants and the growing momentum with channel partners allowed us to capitalize on our differentiated offering in fact in the first quarter, we benefited from both.
Mike Simonds: Our investment in expanded distribution, both the growth and maturation of our sales consultants, and the growing momentum with channel partners, allowed us to capitalize on our differentiated offering. In fact, in the first quarter, we benefited from both a 28 percent year-over-year growth in tenured reps and a similar percentage productivity improvement among those same mature reps. Of course, our unique offering helps us not only win new business but retain our existing customers as well.
Mike Simonds: A 28% year over year growth in tenured reps and a similar percentage productivity improvement amongst those same mature reps of course, our unique offering helps us not only win new business, but retain our existing customers as well.
Mike Simonds: With a strong multi-year positive trend in the Net Promoter Score, our retention improved by over two points versus the first quarter a year ago. As a result of our strong new sales and retention, we nearly achieved positive sequential core worksite employee growth in the first quarter. This is an important achievement to highlight.
Mike Simonds: With a strong multi year positive trend in net promoter score our retention improve by over two points versus the first quarter a year ago.
Mike Simonds: As a result of our strong new sales and retention, we nearly achieved positive sequential core worksite employee growth in the first quarter. This is an important achievement to highlight Tri net came very close to replacing first quarter attrition with new sales additions and when we think.
Mike Simonds: TriNet came very close to replacing first quarter attrition with new sales additions. And when we think about opportunities for accelerating our growth at TriNet in the coming years, offsetting attrition with new sales is a large and obvious objective to target. And one I think we should expect to consistently achieve.
Mike Simonds: Opportunities for accelerating our growth at Tri net in the coming years offsetting attrition with new sales is a large and obvious objective to target and one I think we should expect to consistently achieve.
Mike Simonds: Once new sales are offsetting attrition, positive CIE, which is natural growth within our existing customer base, becomes entirely upside. Furthermore, we would expect to achieve this objective while maintaining our pricing and expense discipline, just as we did this past quarter and in previous years. I do want to emphasize this last point.
Mike Simonds: Once new sales is offsetting attrition positive C. I E, which is natural growth within our existing customer base becomes entirely upside. Furthermore, we would expect to achieve this objective, while maintaining our pricing and expense discipline just as we did this past quarter and in previous years.
Mike Simonds: I do want to underscore this last point as we embark on this effort we will maintain our financial discipline, we will not be trading on disciplined pricing for growth and we will remain focused on driving efficiency in all parts of our operations.
Mike Simonds: As we embark on this effort, we will maintain our financial discipline. We will not be trading undisciplined pricing for growth, and we will remain focused on driving efficiency in all parts of our operations. While I was pleased with our operational performance and how our offering is responding in the market, the broader economic environment still remains challenging for SMBs. We saw this economic reality impact us in two ways, through our customers' hiring and normalization of insurance costs. In the aggregate, net customer hiring was slightly negative, performing similarly to last year's first quarter and to many of the hiring trends we've experienced since 2022.
Mike Simonds: While I was pleased with our operational performance and how our offering is resonating in the market the broader economic environment still remains challenged for F. N. B's. We saw this economic reality impact us in two ways through our customers hiring and normalization of insurance costs.
Mike Simonds: In the aggregate net customer hiring was slightly negative performing similarly to last year's first quarter and to many of the hiring trends we've experienced since 2022.
Mike Simonds: Ultimately, we firmly believe that pursuing business in our chosen core verticals with disciplined pricing is the right long-term approach, and as hiring improves, particularly in the technology industry, TriNet should receive outsized benefits from our differentiated model. Secondly, the broader market continues to experience health cost increases. We, too, saw an increase in health costs in the first quarter. Additionally, we experienced some claims variability within the quarter.
Mike Simonds: Ultimately, we firmly believe that pursuing business in our chosen core verticals with disciplined pricing is the right long term approach and as hiring improves, particularly in the technology industry Tri net should receive outsized benefits from our differentiated model.
Mike Simonds: Secondly, the broader market continues to experience health cost increases we too saw an increase in health costs in the first quarter, we experienced some claims variability within the quarter and while Kelly will provide more details in a minute I would stress that we have a strong model in place to manage.
Mike Simonds: And while Kelly will provide more details in a minute, I would stress that we have a strong model in place to manage risk, and we are uniquely advantaged in our ability to reprice as necessary for these costs, with cohorts available each quarter. Finally, before passing the call to Kelly, I want to finish my prepared remarks by sharing two initial impressions from my first couple of months at TriNet. First, TriNet operates in a very attractive market. Since joining the company, I've spent considerable time with customers and channel partners. Without exception, these visits confirm that the challenges facing small to medium-sized businesses are very real.
Mike Simonds: Risk and we are uniquely advantaged in our ability to reprice as necessary for these costs with cohorts available each quarter.
Speaker Change: Finally, before passing the call to Kelly I want to finish my prepared remarks by sharing two initial impressions from my first couple of months of Tri net fares.
Speaker Change: First triad operates in a very attractive market.
Kelly: Since joining the company I've spent considerable time with customers and channel partners without exception. These visits confirmed that the challenges facing small to medium sized businesses are very real whether they're working to attract great talent deal with cost inflation or stay in compliance with an ever more complex.
Mike Simonds: Whether they're working to attract great talent, deal with cost inflation, or stay in compliance with an ever more complex regulatory landscape, the need for what we do is significant, and it's growing. With this as a backdrop, it's not surprising that PEO industry awareness has never been higher. And I'm pleased to report that recent third-party survey work confirms that TriNet's brand in our target market is now amongst the most recognizable in the HCM space.
Kelly: <unk> regulatory landscape the need for what we do is significant and it's growing with.
Kelly: With this as a backdrop, it's not surprising that P. E O industry awareness has never been higher and I'm pleased to report that recent third party survey work confirms that try nuts brand in our target market is now amongst the most recognizable in the H C. M space, our product is resonating as evidenced by our <unk>.
Mike Simonds: Our product is responding, as evidenced by our sales and retention performance, and ultimately, in this attractive market, we can and will do more to grow and capture share. My second impression relates to what I found within TriNet. Thus far, I've had the opportunity to meet with literally thousands of my colleagues across the country. This has been an energizing experience, to say the least.
Sales and retention performance and ultimately in this attractive market, we can and will do more to grow and capture share.
Kelly: My second impression relates to what I found within triad thus.
Kelly: Thus far I've had the opportunity to meet with literally thousands of my colleagues across the country. This has been an energizing experience to say the least.
Mike Simonds: TriNetters have not been shy with their recommendations and feedback, and I was so pleased to hear a great many ideas on how we can improve our processes, better leverage technology, and expand our offering for the benefit of our customers. Ultimately, the overwhelming theme which emerged was a genuine passion for serving our customers. The customer is truly at the center of everything we do, and it shows. It was one of the great legacies of my predecessor.
Kelly: Try and others have not been shy with their recommendations and feedback and I was so pleased to hear a great. Many ideas on how we can improve our processes better leverage technology and expand our offering for the benefit of our customers.
Kelly: Ultimately the overwhelming theme, which emerged as a genuine passion for serving our customers. The customer is truly at the center of everything we do and it shows one of the great legacies of my predecessor, I share. These two impressions with you the growth opportunity for P O and the engagement of my colleagues.
Mike Simonds: I share these two impressions with you, the growth opportunity for PEO and the engagement of my colleagues, because over the next few quarters, TriNet will embark on a review of our strategy with the intent of further aligning our considerable resources with the biggest opportunities for profitable growth. To successfully embark on this review and ultimately to execute, you need employees ready, willing, and able to deliver on the underlying drivers of the plan. I believe we have that team here at TriNet, and I'm excited about what we will accomplish together. Now, I'll pass the call to Kelly for the financial review. Kelly? Thank you, Mike.
Kelly: Because over the next few quarters Tri net will embark on a review of our strategy with the intent of further aligning our considerable resources with the biggest opportunities for profitable growth.
Kelly: To successfully embarked on this review and ultimately to execute you need colleagues ready willing and able to deliver on the underlying drivers of the plan I believe we have that team here at Tri net and I'm excited about what we will accomplish together now I'll pass the call to Kelly for the financial review Kelly.
Kelly: Thank you Mike in the first quarter train out once again excelled in the areas within our control on new sales as measured by annual contract value or a C. D grew 50% year over year, which resulted in a significant number at new ws. He's joining trained our customer relationship and customer success.
Kelly Lee Tuminelli: Hey Mike, in the first quarter, TriNet once again excelled in the areas within our control. New sales, as measured by annual contract value or ACV, grew 50% year-over-year, which resulted in a significant number of new WSEs joining TriNet. Our customer relationship and customer success teams worked diligently to provide customers with incredible service, and the result was strong retention. When you combine our net new WSEs in Q1 with our attrition, we nearly offset our Q1 attrition with new WSEs, representing significant progress on this front. As Mike said, when we think about accelerating growth at TriNet, offsetting attrition with new sales is an obvious objective to target. We again demonstrated financial discipline and managed our expenses prudently with only modest inflationary increases.
Kelly: S teams worked diligently to provide customers with incredible service and the result was strong retention when you combine our net AWS sees in Q1 with our attrition, we nearly offset our Q1 attrition with new Ws sees representing significant progress on this front as.
Speaker Change: As Mike said, when we think about accelerating growth at train at offsetting attrition with new sales is an obvious objective to target, we again demonstrated financial discipline and manage our expenses prudently with only modest inflationary increases we made choices and reinvested our cost savings into our business for growth during the <unk>.
Kelly Lee Tuminelli: We chose to reinvested our cost savings into our business for growth. During the quarter, we encountered two headwinds, one a continuation of recent trends and the other an emerging trend. First, continuing a multi-year trend, customer hiring came in slightly negative, again pulled down by our technology vertical, specifically in January. While we continue to have success selling into the technology vertical, customer hiring within tech remains constrained.
Speaker Change: Quarter, we encountered two headwinds one a continuation of recent trends any other and emerging trend first continuing a multiyear trend customer hiring came in slightly negative again pulled down by our technology vertical specifically in January while we continue to have success selling into the technology vertical.
Speaker Change: Call customer hiring within Tac remains constrained the second headwind. We faced was an increase in insurance cost trends in Q1, which drove our insurance cost ratio to the low end of our first quarter guidance range in the quarter, we saw broad increasing utilization and cost inflation, reflecting trends seen.
Kelly Lee Tuminelli: The second headwind we faced was an increase in insurance cost trends in Q1, which drove our insurance cost ratio to the low end of our first quarter guidance range. In the quarter, we saw a broad increase in utilization and cost inflation, reflecting trends seen across the healthcare industry. Within the quarter, paid claims in January and February skewed much higher than in March. It's unclear to us whether March represents an ongoing trend.
Across the health care industry within the quarter paid claims in January and February skewed much higher than in March.
Speaker Change: It's unclear to us whether March represents the ongoing trend.
Kelly Lee Tuminelli: During March, a significant ransomware attack impacted Change Healthcare, one of the largest claim processors in the U.S. It's possible that the reduced paid claims in March were partially the result of this incident. Because of this incident, we did not reflect the March favorability in our ending reserves.
During March our significant ransomware attack impacted change health care, one of the largest claim processors in the U S. It's possible that the bridge is paid claims in March was partially the result of this incident because of this incident, we did not reflect the March favorability in her and taking reserves, we will learn more in the coming months.
Kelly Lee Tuminelli: We will learn more in the coming months, and with several upcoming investor conferences, we will have opportunities to share more as our experience develops. Now, let's turn to our first quarter financial performance. In the quarter, total revenues grew 1% in line with our guidance and was muted from overall customer hiring headwinds. We finished the first quarter with approximately 352,000 worksite employees and approximately 332,000 co-employed WSEs, up 1% year over year. Average co-employed WSEs also followed the same trend.
Speaker Change: And with several upcoming Investor conferences, we will have opportunities to share more as experience develops.
Speaker Change: Now, let's turn to our first quarter financial performance in the quarter total revenues grew 1% in line with our guidance and was muted from overall customer hiring headwinds. We finished the first quarter with approximately 350000 worksite employees and approximately 332000 co employed W. S.
Speaker Change: Up 1% year over year.
Average co employed Ws sees followed the same trend change in existing or see I E was an additional headwind as it came in negative in the quarter negative C. I E was elevated in January when we saw the improvement and modest customer net hiring in February and March.
Kelly Lee Tuminelli: Change in existing, or CIE, was an additional headwind as it came in negative in the quarter. Negative CIE was elevated in January, while we saw an improvement in modest customer net hiring in February and March. Our overall WSE growth affirmed our investment in our go-to-market capabilities, driving new sales, and in service areas, driving retention. As we continue to build sales capacity, we believe we can achieve consistent new sales volume growth in excess of our attrition in the intermediate term.
Speaker Change: Our overall ws seat growth affirmed our investment into our go to market capabilities, driving new sales and in service areas driving retention as we continue to build sales capacity. We believe we can achieve consistent knee sales volume growth in excess of our attrition in intermediate term professional services.
Kelly Lee Tuminelli: Professional services revenue grew 4% in line with our guidance. Professional services revenue growth was driven by volume, normal rate increases, and was offset slightly by mix, given the reduction in hiring in certain verticals who pay for higher levels of services. Insurance revenue grew 1% year-over-year, as healthcare participation rates were slightly lower than Q1 2023. However, annual inflationary rate increases offset our slightly lower participation rates. Insurance costs grew 6% year-over-year, reflecting higher healthcare and pharmacy utilization.
Speaker Change: <unk> grew 4% in line with our guidance professional services revenue growth was driven by volume normal rate increases and was offset slightly by next given the reduction in hiring in certain verticals, who pay for higher levels of services insurance revenue grew 1% year over year as health care participation rates were.
Speaker Change: Slightly lower than Q1, 'twenty twenty-three annual inflationary rate increases offset or slightly lower participation rates insurance costs grew 6% year over year, reflecting higher health care and pharmacy utilization, it's safe to say that Ws CS are no longer delaying care as they had during the pandemic.
Kelly Lee Tuminelli: It's safe to say that WSEs are no longer delaying care as they had during the pandemic, and we have returned to a more normal healthcare utilization and higher cost environment. As for our workers' compensation, results were in line with our forecast and remained strong overall. This brought our insurance cost ratio to 86.4% at the low end of our first quarter guidance. Now, let's turn to operating expenses. We continue to demonstrate financial discipline.
Speaker Change: And we have returned to a more normal health care utilization and higher cost environment.
Speaker Change: Related to our workers compensation results were in line with our forecast and it remained strong overall this brought our insurance cost ratio to 86.4% at the low end of our first quarter guidance.
Speaker Change: Now, let's turn to operating expenses.
Speaker Change: We continue to demonstrate financial discipline, our operating expenses grew a modest 2% year over year as we reinvested cost savings back into our business to support our sales and marketing function and drive new sales and customer retention.
Kelly Lee Tuminelli: Our operating expenses grew a modest 2% year over year as we reinvested cost savings back into our business to support our sales and marketing function and drive new sales and customer retention. The 2% growth does exclude the non-recurring gap accounting remeasurement and acceleration of stock compensation related to our former CEO's retirement, which was approximately $5 million. During the quarter, we benefited from the sustained higher rate environment in interest income on investments and our operating cash.
Speaker Change: A 2% growth does exclude the nonrecurring GAAP accounting remeasurement and acceleration of stock compensation related to our former Ceos retirement, which was approximately $5 million.
Speaker Change: During the quarter, we benefited from the sustained higher rate environment in interest income on investments and our operating cash the income generated was slightly more than our interest expense during the quarter stemming.
Kelly Lee Tuminelli: The income generated was slightly more than our interest expense during the quarter. Summing it up, we are reporting $1.78 in GAAP net income per diluted share and $2.16 of adjusted net income per diluted share for the quarter. We had $201 million of corporate operating cash flow during the quarter and ended the first quarter with $298 million in unrestricted cash on our balance sheet.
Speaker Change: Summing it up we are reporting $1.78 and GAAP net income per diluted share and $2.16 of adjusted net income per diluted share for the quarter.
Speaker Change: We had 201 million F corporate operating cash flow during the quarter and ended the first quarter with 298 million in unrestricted cash on our balance sheet now, let's turn to our financial guidance.
Kelly Lee Tuminelli: Now let's turn to our financial guidance. In the second quarter, we're forecasting total revenues to be in the range of down 1% to up 1%. We expect continued strength in new sales and modest CIE growth. In the second quarter, we expect to see modest CIE growth as companies typically hire full-time recent graduates and summer internships, yet we do expect it to be muted from historical averages.
In the second quarter were forecasting total revenues to be in the range of down 1% to up 1%. We expect continued strength in new sales and modest Cie growth in the second quarter, we expect to see modest Cie growth as companies typically higher for full time recent graduates and summer internships.
Speaker Change: Yeah, we do expect it to be muted from historical averages.
Kelly Lee Tuminelli: Given this expected employment dynamic, we forecast professional services revenue in the range of down 2% to up 4%. Turning to our insurance cost ratio, we're forecasting our ICR in the range of 90 percent to 87 percent. The 90 percent would imply a continuation of first quarter trends, while the 87 percent implies modest improvement. Finally, we're forecasting GAAP net income per diluted share to be in the range of $0.68 to $1.17 and adjusted net income per diluted share to be in the range of $1 to $1.50.
Speaker Change: Given this expected employment dynamic we forecast professional services revenue in the range of down 2% to 4%.
Speaker Change: Turning to our insurance cost ratio, we're forecasting our I see are in the range of 90% to 87% to 90% would imply a continuation of first quarter trends, while the 87% implies modest improvements.
Speaker Change: Finally, we're forecasting GAAP net income per diluted share to be in the range of 68 cents to one dollar and 17 cents and adjusted net income per diluted share to be in the range of $1 to $1.50 given our expectations for Q2 financial performance and first quarter results.
Kelly Lee Tuminelli: Given our expectations for Q2 financial performance and first quarter results, we are leaving our full year revenue guidance unchanged. Total revenues are expected to be in the range of down 1% to up 4%. Professional services revenue is expected to grow between 1% and 5%. Our insurance cost ratio is now expected to be in the range of 89.5% to 87.5%, reflecting our first quarter experience. Given the resetting of our insurance cost ratio guidance, we now expect GAAP net income per diluted share to be in the range of $3.94 to $5.46, and adjusted net income per diluted share to be in the range of $5.25 to $6.80.
Speaker Change: We are leaving our full year revenue guidance unchanged total revenues are expected to be in the range of down 1% to up 4% professional services revenue is expected to grow between 1% and 5% our insurance cost ratio is now expected to be in the range of 18.
Speaker Change: Nine 5% to 87.5%, reflecting our first quarter experience given the resetting of our insurance cost ratio guidance. We now expect GAAP net income per diluted share to be in the range of $3.94 to $5.46 and adjust.
Speaker Change: Net income per diluted share to be in the range of $5.25 to $6.80.
Kelly Lee Tuminelli: In summary, we're pleased with our first quarter performance. We're operating well, building on our new sales success and our strong continued customer retention while exercising expense discipline and investing for growth. We've experienced a different insurance cost environment over the past few years, and we're prudently managing through this changing environment. We remain very positive about our ability to generate great outcomes for our customers, employees, and shareholders. With that, I'll turn the call over to the operator to open up the call for questions. Operator?
Speaker Change: In summary, we're pleased with our first quarter performance, we are operating well building on our new cell success, and our strong continued customer retention, while exercising expense discipline and investing for growth. We are experiencing a different insurance cost environment over the past few years and we are prudently managing through this changing environment, where you are.
Speaker Change: Main very positive in our ability to generate great outcomes for our customers employees and shareholders with that I'll turn the call over to the operator to open up the call for questions operator.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Tianxin Wang with J.P. Morgan. Please go ahead.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you.
Speaker Change: You May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Tien Tsin Huang with JP Morgan. Please go ahead.
Speaker Change: Okay.
Tianxin Wang: Thank you. Thank you. Good morning.
Speaker Change: Thank you thank you and good morning.
Mike Simonds: Maybe I just want to, Mike, ask you a picture question here and thanks for your reviews. Any surprises in your 10-week listening tour with clients and employees that's worth sharing with us beyond what you said up front? And I'm curious, I think I heard strategy review or strategic or business review. Can you elaborate on what that means? Is this a comprehensive review or is it focused on certain areas, maybe tech, or expenses? Sounds like sales is in a good place, but you tell us. Thank you.
Speaker Change: Maybe just wanted to ask you a big picture question here and thanks for your reviews any any surprises in your.
Speaker Change: 10 week listening tour with.
With with clients employees, that's worth sharing with us beyond what you what you said upfront and I'm curious can you I think I heard strategy P. G strategy review.
Speaker Change: Our strategic our strategy review can you elaborate on what that means is this a comprehensive review or is it focused on certain areas maybe tech expenses. It sounds like sales is in a good place, but you tell us. Thank you.
Mike Simonds: Yeah, good morning, and thanks. A great question. And, you know, no real surprises thematically; I would just say sort of the things that jump out of me, and I hit a couple of them in the prepared remarks, but certainly the degree to which this focus on small business and supporting our customers really permeates the culture here at TriNet. It's just encouraging to see, I expected to see that coming in, the degree to which it comes through. I think it's really important.
Speaker Change: Yeah, Good morning, and thanks, Tien Tsin, great question and.
Speaker Change: No real surprises.
Fanatically I would just say sort of the things that jumped out of me and I hit a couple of them in the prepared remarks, but certainly the degree to which this focus on small business and supporting our customers really permeates our culture here at China, and it's just encouraging to see I expected to see that coming in to the degree to which that.
Speaker Change: It comes through I think is really important.
Mike Simonds: One, because it helps us deliver the kinds of emerging growth momentum results that you're seeing. And two, as we lean into the second part of your question about the strategic review, we've got an organization that's hungry to grow and serve more of those F&B customers over time. And, you know, I guess, in terms of the review, I would stress right up front, we have a lot of good things happening.
Speaker Change: One because it helps us deliver the kinds of.
Speaker Change: Emerging growth momentum results that you're seeing too is just as we lean into the second part of your question about the strategic review, we've got an organization that's hungry.
Speaker Change: And serves more of those SMB customers over time.
Speaker Change: And.
Speaker Change: I guess in terms of the review I would stress right upfront, we have a lot of good things happening and from my Vantage point I don't see you know big issues are the need for significant reset I think it's just with me coming in as you would expect.
Mike Simonds: And from my vantage point, I don't see, you know, big issues of the need for significant reset. I think it's just with me coming in, as you would expect, it's a fresh set of eyes to examine where we're focused today and make some choices around where we can really, put our considerable resources behind the biggest, opportunities for profitable growth and I you know I think and you'd know but a lot of companies the challenge is where to find growth and for us I think it's it's really about picking amongst the very best of you know where we can put those resources and I I do very much have a growing sense of confidence that we can accelerate our growth by making a few disciplines strategic choices and then I think importantly as we grow I think we can leverage that scale to drive both quality and cost efficiency as part of this so I'm 10 weeks in you'll learn more over the coming quarters as I get to work with the team but again I'm very bullish on the prospects here.
Speaker Change: Fresh set of eyes to examine where were focused today and make some choices around where we can really.
Speaker Change: Put our considerable resources behind the biggest.
Opportunities for profitable growth and I, you know I think and you know, but a lot of companies are challenges where to find growth and for us I think it's really about picking amongst.
Speaker Change: The very best of where we can put those resources I do very much have a growing sense of confidence that we can accelerate our growth by making a few disciplined strategic choices and I think importantly, as we grow I think we can leverage that scale to drive both quality and cost.
Speaker Change: Efficiency as part of this so 10 weeks and you'll learn more over the coming quarters, if I get to work.
Speaker Change: With the team, but again I'm very bullish.
Kelly Lee Tuminelli: Thank you for that. It's helpful. Just on my quick follow-up, on the new sales, the ACV up 50%, I think TriNet's had a string of good new sales results here. Quality, can you maybe comment? Kelly, maybe it's for you, just the quality of the new sales, the ACV, what's coming in, anything to say around the PEO fund?
Speaker Change: On the prospects here.
Speaker Change: Yes, no. Thank you for that that's helpful. Just my quick follow up and just on the new sales the ACB up 50%.
Speaker Change: I think China has had a string of.
Speaker Change: Good new sales results here.
Speaker Change:
Speaker Change: Quality can you maybe comment.
Speaker Change: Kelly maybe for you just the quality of the new sales ACB either.
Kelly: Coming in I mean anything to say around the PEO find or even on the HRS side.
Kelly Lee Tuminelli: Great question. And I'll maybe hit a couple of things up front, and then Kelly, maybe on the specific quality front. I'll tell you, in general, thanks for highlighting it, 50% ACV growth in the quarter. And it really, I think, speaks to two, of course, related things. And the first is that our offering is really responding in the market. You know, we are unique in that we target a select set of verticals, and we get really close and understand what their unique needs are.
Kelly: Great.
Kelly: <unk> and Al maybe you get a couple of things upfront and then Kelly maybe specific.
Kelly: Quality front.
al: In general I, Thanks for highlighting it 50% ACB growth in the quarter and it really I think speaks to two.
al: Of course related things in the first is that our offering is really resonating in the market. You know we are unique in that we target a select set of verticals and we get really close and understand what their unique needs are and so building a service model on top of proprietary technology that really targets there.
Kelly Lee Tuminelli: And so, building a service model on top of proprietary technology that really targets those verticals, we're seeing that offer really resonate in the market. And, importantly, www.trinet.com And then, alongside that, that direct team, we are building out our channel organization, and we've seen the channels like insurance brokers go from, you know, albeit a small base to becoming a more important part of delivering that sales growth. So an offering that resonates, paired with that expanded capacity, I think that bodes well, not just in terms of the quality of sales in the quarter but the outlook as we look at the balance of 2024 as well.
al: These verticals, we're seeing that offer really resonate in the market and I think importantly in pair that with the expanded distribution capacity that we've been investing in so.
al: Mentioned that 28% growth in our tenured sales team those sales folks are not only do we have more of them, but they are more productive.
al: And then alongside that that direct team.
al: We are building out our channel organization and we've seen the channels like insurance brokers go from albeit a small base to becoming a more important part.
al: Delivering that sales growth, so an offering that resonates paired with.
al: That expanded capacity I think that bodes well not just in terms of the quality of sales in the quarter, but the outlook as we look at the balance of 2024 as well.
Kelly Lee Tuminelli: I'd say just in terms of quality, before I turn it over to Kelly, what is really important to me, and I hit it in the prepared remarks, is that we maintain our discipline as we grow, so ensuring that we don't chase growth with short-term price decisions. We're always going to take that balanced perspective as we go. And maybe, Kelly, you've got something to add to that. I mean, the only thing I would really add, Tenjin, is when I look across all the verticals, all the verticals are up. You know, and that's really just a testament to the increased tenured sales reps, et cetera, and channel expansion. Customer size is slightly larger, but not significantly so definitely still hitting those.
al: I'd say just in terms of quality before I turn it over day, Kelly I would say.
Really important to me and I hit it in the prepared remarks is that we maintain our discipline as we grow and so ensuring that we don't chase growth with short term price decisions, we're always going to take a balanced perspective as you all may be telling you.
Speaker Change: I mean, the only thing I would really add and Jim.
Speaker Change: As you know when I look across all the verticals all the verticals.
And that's really just a testament to that increase.
Speaker Change: Rats at Iraq and channel expansion.
Speaker Change: Size slightly larger, but not significant and definitely.
Speaker Change: Sure.
Speaker Change: Great. Thank you both.
Operator: The next question is from Kyle Peterson with Needham. Please go ahead.
Speaker Change: The next question is from Kyle Peterson with Needham. Please go ahead.
Kyle David Peterson: Great. Good morning, guys. Thanks for taking the questions. I wanted to start off on, you know, insurance costs and some kind of repricing. Just, you know, if you could remind us of, you know, kind of the seasonality of when some of the existing book reprices on the insurance side and just some of the initiatives and ways you guys are kind of responding to the normalization of insurance costs, that would be helpful.
Kyle David Peterson: Great. Good morning, guys. Thanks for taking my questions I wanted to start off on insurance costs and kind of repricing them. Just if you can remind us on kind of the seasonality of when some of the existing.
Kyle David Peterson: Book.
Prices on the insurance side and just some of the initiatives and ways. You guys are kind of responding to a normalization of insurance costs that would be helpful.
Mike Simonds: Kyle, I appreciate the question. Thanks for asking it.
Kyle David Peterson: Yeah.
Speaker Change: Appreciate the question. Thanks for thanks for asking that what do you think about your first question was around repricing and we have a unique model. Unlike others in that we do re price a portion of the book every quarter.
Kelly Lee Tuminelli: When I think about your first question was around repricing, and, you know, we have a unique model, unlike others, in that we do reprice a portion of the book every quarter. In terms of the largest quarters, really, October 1st and January 1st are the two largest quarters, each roughly a third, with July 1 being the smallest and April being, you know, kind of the third. So, we do have an opportunity to reflect on the experience as we're seeing it.
Speaker Change: And in terms of that.
Speaker Change: Our largest quarters really October 1st and January 1st our largest partners each roughly a third well.
Speaker Change: In July one.
Speaker Change: And I'll ask it in April.
Speaker Change: Third.
Speaker Change: So we do have an opportunity to reflect it.
Kelly Lee Tuminelli: Now, we really only have, you know, what I mentioned, two months' worth of experience that was slightly elevated. March, we didn't give it, we had lower claims, but we really didn't give it any credibility, just given the disruption with the changed healthcare cyber attack. So, we're watching. Luckily, we've got an opportunity with a couple conferences coming up where, you know, we'll give the market any updates if things change dramatically. But, you know, I feel good about our risk selection, our risk assessment, and in terms of renewal levels, you know, really we're anticipating kind of high single-digit, low double-digit.
Speaker Change: As we're slowly and we really only have what I mentioned two months worth of experience it was slightly elevated.
Speaker Change: March we didn't and we had lower claim we really didn't add any credibility just given the disruption and change healthcare cyber attack. So we're watching Luckily we've got an opportunity.
Just coming up that will give the market any update.
Speaker Change: Change dramatically, but.
Speaker Change:
Speaker Change: We feel good about our risk selection our risk assessment.
Speaker Change: And in terms of renewal levels, you know really.
Speaker Change: We were anticipating.
Speaker Change: Yeah.
Kyle David Peterson: Got it. That's really helpful.
Speaker Change: Got it that's really helpful. And then just a follow up and Mike maybe if you could share some of our thoughts.
Mike Simonds: And then just to follow up, Mike, maybe if you could share some of your thoughts on capital allocation. I know you guys have given some pretty detailed thoughts in the past year. Business still continues to spin off quite a bit of cash, but maybe if you could share some priorities between them, whether it's buybacks, dividends, or M&A, that would be helpful.
Mike Simonds: Thoughts on capital allocation I know you guys have given some pretty detailed thoughts kind of in the past year.
Mike Simonds: Business still continues to spit off quite a bit of cash, but you know maybe if you could kind of oh sure some priorities between whether it's buybacks dividend or M&A.
Speaker Change: That'd be helpful.
Mike Simonds: And thanks for highlighting that. I mean, we deliver a lot of value to customers. The things that we do are really important to them, and in creating those values, we've got a really healthy cash generative model here. And, as I know the team has done pretty consistently, our first priority when we think about capital allocation is the growth of the business and ensuring that we're putting the things in place that's going to enable us to deliver for customers and grow over time.
Speaker Change: Sure. Thanks, Scott.
Speaker Change: Got it.
Speaker Change: You're highlighting it I mean, it's a.
Speaker Change: We deliver a lot of value to customers. The things that we too are really important to them and in creating those values. We've got a really healthy cash generative model here and as I know the team has done a pretty consistently our first priority. When we think about capital allocation is the growth of the business and ensuring that we're putting in.
Speaker Change: Things in place that's going to enable us.
To deliver for customers and grow over time, and hopefully that message is coming through.
Mike Simonds: And hopefully, that message is coming through. We're still creating, over and above the growth requirements, good cash flow, and the financial targets that we've talked about around returning 75% of free cash flow back to shareholders and doing so now with a new tool in the toolbox. So we, I think this week paid our first dividend, so it's good to be moving forward on that front. And then, of course, share repurchases as well.
Speaker Change: We're still creating over and above the growth requirements, good cash flow and the financial.
Speaker Change: <unk> targets that we've talked about around returning 75% of free cash flow back.
Speaker Change: Back to shareholders and doing so now with a new tool in the toolbox. So we can get this week paid our first dividend. So it's good to be moving forward on that front and then of course share repurchases as well that is an important part of our model is starting with the customer, creating a lot an exceptional amount of value.
Mike Simonds: And that is an important part of our model, starting with the customer, creating a lot, an exceptional amount of value for them, doing so on an increasing basis, and then finding ways to ensure that we're creating great value for our shareholders as well.
Speaker Change: For that I'm doing so on an increasing basis and then.
Speaker Change: Finding ways to ensure we're creating great value for our shareholders.
Kyle David Peterson: Got it. Thanks for the refresher. Thanks, guys.
Speaker Change: Got it.
Speaker Change: Thanks for the refresh alright, thanks, guys.
Speaker Change: Okay.
Speaker Change: Yeah.
Operator: The next question is from Andrew Nicholas with William Blair. Please go ahead.
Speaker Change: The next question is from Andrew Nicholas with William Blair. Please go ahead.
Andrew Owen Nicholas: Hi, good morning. I wanted to double back on healthcare utilization and the guidance range first. Kelly, I think you said the second quarter margin assumption. Transcripts provided by Transcription Outsourcing, LLC. The March experience falls kind of on that spectrum; I'm just trying to understand to the extent that March is not something that you believe in because of the breach, where as January and February would kind of trend, both in terms of the second quarter guidance but also for the full year.
Andrew Owen Nicholas: Hi, good morning.
I wanted to double back on on health care utilization and our guidance range first.
Andrew Owen Nicholas: Kelly I think you said the second quarter our margin.
Andrew Owen Nicholas: Margin assumption.
Andrew Owen Nicholas: Assumed at the low end a continuation of current trends and I think it was at 13% or I guess would be 87% of it assumes modest improvement.
Andrew Owen Nicholas: Where where does March the.
Andrew Owen Nicholas: The March experience fall kind of on that spectrum I'm, just trying to understand to the extent that March is not something that you believe in because of the breach where we're like January and February would would kind of trend. Both in terms of the second quarter guidance, but also for the full year. If that's that's possible yes.
Kelly Lee Tuminelli: Yeah, in January and February, we definitely saw a little bit of an elevation in paid claims and, you know, continued to watch the experience as we went into March. March was significantly favorable. And, you know, we just couldn't give it much credibility because we didn't know what the backup in claims was with Change Healthcare.
Andrew Owen Nicholas: In February we definitely saw a little bit of elevation.
Andrew Owen Nicholas: Paid claims and are continuing to watch.
Andrew Owen Nicholas: The experiences we went into March March was significantly favorable.
Andrew Owen Nicholas: And we.
Andrew Owen Nicholas: We just couldn't get that much credibility, we didn't know what the backup and claims excellence.
Andrew Owen Nicholas: Excellent health care so we.
Kelly Lee Tuminelli: So we really did just use a projection method and booked our IDNR, not taking into account the favorability that we saw in March. You know, and we're just going to watch it come through. So when I look at the second quarter, we do have a level of seasonality. Usually, the first quarter is our most favorable. And then we see it kind of trail down throughout the year. So the second quarter just reflects that, you know, kind of the level of health care claims we would expect to see at that time of year. But, you know, we're always going to take kind of a conservative approach.
Andrew Owen Nicholas: We really did see some protection.
Andrew Owen Nicholas: And booked already and are not taking into account a favor ability that we saw in March.
Andrew Owen Nicholas: And we're just going to watch watch it come true so when I look at second quarter, we do have a level of seasonality usually first quarter is our most favorable.
Andrew Owen Nicholas: And then we see it kind of trail down throughout the year. So second quarter just reflects.
Andrew Owen Nicholas: Yeah.
Andrew Owen Nicholas: Level health care claims, we would expect to see.
Andrew Owen Nicholas: At that time of year, but you know what.
Andrew Owen Nicholas: We're always going to take kind of a conservative view.
Kelly Lee Tuminelli: Okay, thank you. And then, kind of sticking with guidance for the full year, you know, on my math, it looks like really just the only change. Also, kind of within that, it sounds like the attrition to new sales gap is narrowed maybe even a little bit earlier than expected. So under the hood, is that maybe being offset by a little bit worse GIE, or if you could just kind of unpack that. Full Year Guidance Reduction, or at the midpoint, a little bit further between those two parts.
Speaker Change: Okay. Thank you and then just sticking with guidance on the full year you know on my math it looks like.
Speaker Change: Really the only change to guidance is on the ICR.
Speaker Change: If you could confirm that and then.
Speaker Change: Also kind of within that it sounds like the attrition to new sales gap.
Speaker Change: Is narrowed maybe even a little bit earlier than expected so.
Speaker Change: <unk> are under the Hood is is that maybe being offset by a little bit worse Cie or if you could just kind of unpack the full year guidance reduction right at the midpoint a little bit further between those two parts that'd be helpful.
Kelly Lee Tuminelli: Yeah, happy to, Andrew. When I look at the guidance, I think you're spot on. You know, really what we did is we reflected where we landed in the first quarter on insurance, but our outlook really hasn't changed significantly because sales are strong. We have a good view on retention. We're seeing CIE and kind of the really low single-digit range going forward. So, you know, that's all incorporated in our guidance. We did put in a little bit of expense favorability that we're seeing. So, you know, we tweaked a couple things around the margins, but generally, you're seeing the ICR from the first quarter just kind of rolling through for the full year.
Speaker Change: Yeah happy to Andrew when I look at guidance.
But on really what we did is reflected where we landed in the first quarter on insurance that our outlook really hasn't changed significantly sales are strong we.
Speaker Change: We have a good view on retention, we're assuming cie and kind of really low single digit range going forward. So and that's all incorporated in our guidance. We did put in a little bit of expense favorability that we're seeing so.
Speaker Change: Things around the margin, but generally youre seeing that that ICR for the first quarter, just kind of rolling through for the full year.
Andrew Owen Nicholas: Okay, great. And then maybe, yeah.
Speaker Change: Okay, Great and then maybe.
Mike Simonds: Yeah. Oh, you have one part on WSDs? On WSDs?
Speaker Change: Yeah.
Speaker Change: Right.
Kelly Lee Tuminelli: Yeah. From a nutrition perspective or from a retention perspective, this first quarter was our best quarter in the last 10 years. So a really, really good job by the team in terms of making sure our product resonated and retaining our customers. CIE was negative versus, you know, it was negative overall, and it was worse than our expectations. So, you know, and strong news sales came in right about where we had expected them, but with good growth at 50%.
Speaker Change: Yeah. So.
Speaker Change: From an attrition perspective or from a retention perspective.
Speaker Change: First quarter was our best quarter in the last 10 years, so really really good job by the team in terms of making sure our product resonate.
And retaining our customers.
Speaker Change: Yeah, He was negative versus what was negative overall and it was worse than our expectations. So.
Speaker Change: And strong new sales came in right about where we ended.
Speaker Change: Right.
Speaker Change: Yeah.
Andrew Owen Nicholas: Great. And then maybe I could squeeze one more in for Mike.
Speaker Change: Alright, great and then maybe if I could squeeze one more in for Mike I think.
Mike Simonds: I think you mentioned it in response to one question, and you noted a little bit in your prepared remarks, but on the broker channel in particular, if you could just kind of speak to that opportunity, momentum there, and maybe more holistically what the strategy is and how it compares to the way that TriNet has tackled the market historically. Thank you. Yeah, sure.
Speaker Change: You mentioned it in response to one question you noted a little bit in your prepared remarks, but on the broker channel in particular, if you could just kind of speak to that opportunity momentum there and maybe more holistically what the strategy is and how it compares to the way that Tri net has tackled the market is.
Mike Simonds: Yeah, sure. Thanks.
<unk>. Thank you.
Andrew Owen Nicholas: I appreciate that, Andrew. I'll build off of the point Kelly was making because it actually links to the brokerage question. When we think about health care and the ICR, you know, we look at it and spend a lot of time with our carrier partners and in broad industry studies, and we're certainly not seeing anything different than what the broad market has seen, and albeit, maybe we've seen it at a little bit of a lesser degree, I would say, than what the small case commercial market has shown over the last several quarters.
Speaker Change: Yeah sure. Thanks, Ed I appreciate that Andrew.
Speaker Change: It was a buildup of the point Kelly was making is it actually it links to the brokerage question. When we think about the health care and the ICR.
Speaker Change: We look at it it's been a lot of time with our carrier partners and in broad industry studies, and we're certainly not seeing anything different than what the broad market ive seen in albeit maybe we're seeing it.
Speaker Change: A little bit of a less degree I would say than what the small case commercial market has shown over the last several quarters.
Andrew Owen Nicholas: And while that represents a little bit of a headwind here in the quarter, I think it's worth noting that long-term health care cost inflation is actually a demand creator for us here at TriNet. A big part of what we do is help our small business customers compete, both in terms of attracting and retaining talent with great benefits and managing cost. And we can do that with scale, and scale that they don't have available to them on their own.
Speaker Change: Quarters, and while that represents a little bit of a headwind here in the quarter I think it's worth noting that long term health care cost inflation is actually a demand creator for us here at Tri net.
Speaker Change: A big part of what we do is help our small business customers compete both in terms of attracting retaining talent, great benefits and manage cost and we can do that with scale and scale that they don't have available to them on their own and I think increasingly as health care becomes a bigger part of the total cost.
Andrew Owen Nicholas: And I think increasingly, as healthcare becomes a bigger part of the total cost of ownership of a service like TriNet, and experts in that space, like insurance brokers on the health side, we have the opportunity to be increasingly relevant to them and to create economics that are favorable to the customer, to that channel, and to TriNet as well. And there's work to do to maximize that channel. There are choices that we'll have to make, but I am encouraged about the momentum that the team has created on that front.
Speaker Change: Of ownership of surface like Tri net and experts in that space like insurance brokers on the health side I think we have the opportunity to be increasingly relevant to them and to create economics that are favorable to the customer to that channel and to try that as well and there is there is.
Speaker Change: Work to do to maximize that channel others choices that will have to make but I am encouraged.
Speaker Change: About the momentum that the team has created on that fraud and to your broader question like I said.
Andrew Owen Nicholas: And to your broader question, like I said, and I would just stress again, it's just good practice to come in when you have a fresh set of eyes and look at the choices that we've made and say, are there some things that we can do? There's a lot that's going really well, and I don't see the need for huge changes in the short term. It really is about choosing among some really good options and marshaling what we already have for considerable resources to drive that growth. So I hope that's helpful, Andrew.
Speaker Change: And I would just stress again, it's just good practice to come in when you have a fresh set of eyes and look at the choices that we've made and say are there. Some things that we can do a boy there's a lot that's going really well and I don't see the need for <unk>.
Speaker Change: Huge changes in the short term it really is about choosing amongst some really good options in marshalling, what we already have for considerable resources to drive that growth right I Hope that's helpful. Andrew.
Andrew Owen Nicholas: It is thank you.
Operator: Again, if you have a question, please press star then 1. The next question is from Jared Levine with T.D. Cowan. Please go ahead. Thank you.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: The next question is from Jared Levine with T D Cowen.
Jared Levine: Ladies and gentlemen, thank you.
Jared Levine: Thank you. In terms of that two-point improvement year-on-year on WSC retention, can you go into how much of that was controllable versus uncontrollable in terms of that improvement?
Jared Levine: Thank you in terms of the two point improvement year on year on WMC retention can you.
Go into how much of that was controllable versus uncontrollable in terms of that improvement.
Mike Simonds: Yeah, Jared, thanks for the question. And as Kelly mentioned, the retention results that we saw in the first quarter were really good. And I will just take one second to recognize the remarkable team at our service organization and what they were able to accomplish, because January is our highest volume for many of our service transactions, and onboarding new customers to have service levels with the strength exhibited is just a real testament.
Jared Levine: Yes, Jerry Thanks for the question and as Kelly mentioned the retention results that we saw in the first quarter were really good at I will just take one second to recognize the remarkable team at our service organization and what they were able to accomplish because January is our high.
Jared Levine: <unk> volume for many of our service transactions and on boarding.
Jared Levine: New customers to have.
Jared Levine: Our service levels with the strength exhibited is just a real testament to that team and it has helped us deliver really strong retention not just this quarter, but over the last several and when we look.
Mike Simonds: And it has helped us deliver really strong retention, not just this quarter but over the last several. And when we look at the mix, to be honest, nothing. There's not really much that's worth reporting in terms of controllable and uncontrollable. In general, we saw their consistency and mix, what just a rising tide across the whole. Yeah, Jared, the only thing I would add to that is we're not seeing a huge uptick in business insolvencies.
Jared Levine: That's the mix to be honest nothing there's not really much that's worth reporting in terms of controllable uncontrollable.
Jared Levine: In general, we saw sort of consistency and mix.
Jared Levine: Just a rising tide across the whole yeah. It's true the only thing I would add to that is we're not seeing a huge uptick and life businesses.
Jared Levine: And given sort of that that have that M&A market. It really hasn't picked up that much over last year. So those are the two things I would probably put in that.
Mike Simonds: And, you know, given sort of the tepid M&A market, it really hasn't picked up that much over the last year. So those are the two things I would probably put in the uncontrollable bucket. And we're really not seeing any notable trends.
Jared Levine: <unk> will hold back and we're really not seeing medical trend there.
Mike Simonds: Got it. And then, in terms of the demand environment, has there been any change in the pace of prospective client decision-making, and how would you characterize that new PEO deal pipeline currently relative to prior quarters?
Speaker Change: Got it and then in terms of the demand environment has there been any change in the pace of prospective client decision, making in how how would you characterize that new PEO deal pipeline currently relative to prior quarters.
Mike Simonds: Yeah, thanks. Favorable in terms of the pipeline and really from the top of the funnel through. We're really encouraged. I do think the relevancy and demand for the PEO model, and in particular for TriNet's unique approach, is in a really, really good spot. And, in general, the sort of secular pieces of demand I think are representing tailwinds, just as more and more regulations come online, you have more activism at state and municipal levels that's more that these small businesses have to comply with as they have an increasingly distributed and remote workforce, and so there's When we think about sales results in the coming quarter, it's a tougher comp year over year in 2Q, but I feel really good about the pipeline that the team has got in place.
Speaker Change: Yes. Thanks.
Speaker Change: Favorable in terms of the pipeline and really from the top of the funnel through we're really encouraged.
Speaker Change: I do think the relevancy and demand for the PEO model in particular for Tri nuts unique approach.
Speaker Change: Is it a really really good spot and in general the sort of secular.
Speaker Change: Pieces of demand I think are representing tail lines, just as more and more.
Speaker Change: Regulations come online you have more activism at state and municipal level.
Speaker Change: More of that these small businesses have to comply as they have an increasingly distributed.
Speaker Change: The moat workforces, so theres a lot that sort of plays into.
Speaker Change: To our strength.
Speaker Change: Think about sales results in the coming quarter, it's a tougher comp year over year in <unk>.
Speaker Change: I feel really good about the pipeline that the team has got in place.
Jared Levine: And if I could just sneak in one more here. In terms of the CIE assumptions for the FY24 guide, was there any change between your prior view of very low single-digit growth to mid-single-digit growth? Just want to confirm that. All right.
Speaker Change: And if I could just sneak in one more here in terms of the Cie assumptions for the FY 'twenty forgot was there any change between your prior view of very low single digits to mid single digit growth just want to confirm that.
Kelly Lee Tuminelli: Uh, only reflecting our first quarter performance, Jared, so our outlook for the future, you know, remains pretty much unchanged, you know, less than half of historical experience, but we are reflecting the first quarter negative CIE in that outlook as well. Great, thanks.
Speaker Change: Oney, reflecting our first quarter performance Jared so our outlook for the future remains pretty much unchanged, you know less than half of historical experience, but.
Speaker Change: But we are reflecting the first quarter negative cie and that outlook as well.
Speaker Change: Great. Thank you.
Operator: The next question is from David Grossman with Stiefel. Please go ahead.
Speaker Change: The next question is from David Grossman with Stifel. Please go ahead.
David Michael Grossman: Thank you. Good morning. You know, you know, Mike. I know it's still early.
David Michael Grossman: Hi, Thank you good morning.
David Michael Grossman: Mike I know, it's still early.
Mike Simonds: And as you think about the company's growth strategy, I'm sure it's multidimensional. However, when you think about the next, let's just say two-year time horizon, you see the greatest opportunity for growth, you know, is it, you know, sales, you know, headcount, and productivity are channels. Do you entertain geographic expansion as a potential opportunity? And maybe you could just provide a little more insight into how you're thinking about where you're going to see the most opportunities here in the next 24 months.
And as you think about that.
David Michael Grossman: The company's growth strategy I'm sure, it's multi dimensional however, when.
David Michael Grossman: When you think about the next let's say two year time horizon.
David Michael Grossman: You see the greatest opportunity for growth.
David Michael Grossman: The.
David Michael Grossman: Sales head.
David Michael Grossman: Head count productivity Chan.
Channels.
David Michael Grossman: Two interchange geographic expansion as a potential opportunity maybe you could just provide more insight into how you're thinking about.
Where you're going to see the most opportunity here in the next 24 months.
David Michael Grossman: Yeah, thanks, David. It's good to hear from you.
Speaker Change: Yeah. Thanks, David Good to hear from me I appreciate the question.
Mike Simonds: I appreciate the question. Can I answer with all of the above in that, you know, we really are taking a thorough look at all those dimensions? And I suspect, as you said, that we're going to focus primarily on, you know, what we are doing well today that we can really push and be exceptional. And so when I think about things that are distinctive for TriNet, I think it's likely going to be how do we make those things even more distinctive.
Speaker Change: And.
Speaker Change: Can I answer with all of the above in that we really are taking a thorough look.
Speaker Change: At all of those dimensions.
Speaker Change: I suspect.
As you said, we're going to focus primarily on what are we doing well today that we can really push and be exceptional and so when I think about.
Speaker Change: Things that are distinctive for Tri net I think likely it's going to be how do we make those things even more.
Mike Simonds: So the core PEO business and the increasing importance of benefits as a component of that, and really doubling down and understanding how we really help more SMBs solve for some of those problems. I think there's potential there to continue to leverage that piece of our offering in the market. Continue, I think, is a really good expansion in our distribution, both the direct sales team, and how do we continue to drive retention? We saw four points better retention of our sales consultants.
Speaker Change: Distinctive so our core PEO business and the increasing importance of benefits as a component of that and really doubling down and understanding how do we really help more smbs solve for some of those.
Speaker Change: I think there is a potential there to continue to lever that piece of our offering in the market continue I think.
Speaker Change: Really good expansion in our distribution both the direct sales team how do we continue to drive retention you saw four points better.
Speaker Change: Retention of our sales consultants I think.
Mike Simonds: I think, you know, my experience is really good salespeople love to win, and we're winning in the market. And so that creates a nice virtuous cycle for us with a differentiated offer. I think, you know, we are skewed towards certain parts of the US. I think there is opportunity for us to look at some geos where we can construct favorable benefits packages and build our brand in those markets and put the right sales and sales channels in place. So again, give me a little bit of time. We're 10 weeks in.
Speaker Change: My experience is really good salespeople love to win and we're winning in market and so that creates a nice virtuous cycle for us with a differentiated offer.
Speaker Change: We we are skewed towards certain parts of the U S. I think there is opportunity for us to look at some geos.
Speaker Change: We can construct favorable benefits package and build our brand in those markets.
Speaker Change: Our sales and sales channels in place so.
Speaker Change: Again.
Speaker Change: Give you a little bit of time, we're 10 weeks and we have a really strong team focused on.
Mike Simonds: We have a really strong team focused on executing for our customers and looking out to say how can we do this on a bigger scale. I would just conclude, and I mentioned it earlier, I really do see the opportunity to grow and grow profitably and then put that to work in terms of leveraging scale to drive quality and efficiency. So I would expect that to be one of the aspects of the plan as we pull it together to make TriNet unique.
Speaker Change: Executing for our customers and looking out to say how do we do this on a bigger.
Speaker Change: Spot I would just conclude and I mentioned it earlier.
Speaker Change: I really do see the opportunity to grow and grow profitably and then put that work.
Speaker Change: Put that to work in terms of leveraging scale to drive quality and efficiency. So I would expect that to be one of the aspects of <unk>.
Speaker Change: The plan as we pull it together.
Speaker Change: Try not to unique we focused not on the entire market, we're not trying to be a PEO HR provider for everyone, but for the ones. We do we really do want a standout with that focus and with our proprietary technology and then take advantage of that to really drive quality and efficiency and.
Mike Simonds: You know, we don't focus on the entire market. We're not trying to be a PEO HR provider for everyone, but for the ones we do, we really do want to stand out with that focus and with our proprietary technology and then take advantage of that to really drive quality and efficiency and so see the scale benefits come through. So I recognize there's not as much specificity as you might like, but we'll look to keep people on board over the coming quarters.
Speaker Change: Scale benefits come through so I recognize there's not as much specificity as you might like but we'll look to keep people along over the coming quarters.
David Michael Grossman: And just one quick follow-up to those comments. And when I think about earlier, you said leveraging your proprietary technology, and sorry if I'm forgetting, but where are we on the journey of integrating, you know, everybody on to the, you know, kind of this unified platform? I'm sorry if I've forgotten.
Speaker Change: Great and just one quick follow up to those comments in mind I think earlier, you said leveraging your proprietary technology and sorry, if im forgetting, but where are we on the journey of integrating.
Speaker Change: Yeah.
Speaker Change: This unified platform I'm, sorry, if I forgotten.
Mike Simonds: No, really good progress. And with the benefits acquisition, we brought in some really, I think, impressive tech that we've already begun to put to work. And we're not doing a big cutover to a new platform, in my experience. That can be very challenging for customers and for us operationally, in effect, pulling out functionality and then applying it to the core product.
Speaker Change: That.
Speaker Change: No really good progress and with the benefits acquisition, we brought in some really.
Speaker Change: I think impressive tech that we've already begun to put to work and we're not doing a big cut over to a new platform my experiences that those can be very challenging for customers and for us operationally. So we are.
Speaker Change: In fact pulling out functionality and then applying it into the core product and I've seen some really good progress on that front and while we're on the topic of the HRS business, it's worth mentioning that.
Mike Simonds: And while we're on the topic of the HRIS business, it's worth mentioning that not only are we putting the technology to work but also the talent that comes from that space. We're doing it having made some adjustments to the HRIS business, raised prices, and captured expense synergies. So now that business is really self-funded. So we're getting the benefit of the tech and the talent in a really cost-efficient way.
Speaker Change: We've.
Speaker Change: Not only are we putting to work the technology, but also the talent that comes from that space. We're doing it having made some adjustments to the HRS business raised prices captured expense synergies. So now that business is really self funded as we're getting the benefit of attack and the talent and it really cost.
Speaker Change: Efficient way and then what's the outlook for that business with well Thats part of what we'll look at them through the strategic review, but it's a great great.
Mike Simonds: And then what's the outlook for that business? Well, that's part of what we'll look at through the strategic review, but it's a great set of technologies and talent to have in-house and in the portfolio. I think we'll put it to good use.
Speaker Change: Great set of technologies and talent to have in house and in the portfolio.
David Michael Grossman: Great, thank you for that. And just one quick one for you, Kelly.
Speaker Change: Put it to good use.
Speaker Change: Great. Thank you for that and just one quick one for you Kelly.
David Michael Grossman: You know, we, or maybe Mike, maybe this is a question for you, but we haven't really been in a, you know, kind of rising utilization rate for a while here. And I think, Kelly, you mentioned the timing of when you price different cohorts in the portfolio. So, is there anything you want to highlight about what could be a derivative outcome when we go through that process? I don't know if the take rate, you know, by a vertical can slightly change when you start raising prices, but maybe you could just refresh us on what to expect or some of the potential outcomes when you start repricing the book for a rising utilization environment.
And maybe Mike maybe this is a question for you, but we haven't really been in a.
Speaker Change: Kind of rising utilization rates for a while here and I think Kelly you mentioned the timing of when you price particular cohorts in the portfolio. So.
Speaker Change: Is there anything you want to highlight about what can be.
Mike Simonds: The outcome when we go through that process.
Speaker Change: I don't know if that take rate.
Kelly: By vertical.
Kelly: Slightly change when you start raising pricing, but maybe you could just refresh us on what you expect or the some of the potential outcomes. When you start repricing the book for a rising utilization environment.
Mike Simonds: Yeah, thank you. I'll jump in. And then Kelly, please add to it if you've got things to add.
Speaker Change: Yeah, Thanks, Dave I'll jump in and then Kelly please add to it if he or she got things to add.
Mike Simonds: Yeah, I think the key point is there's nothing different in what TriNet's seeing versus what we're seeing in the data from our carrier partners more broadly when we benchmark. And if anything, I think we've been a little bit favorable over the last several quarters, inclusive of the first quarter, to what we're seeing in the U.S. market for small case commercial broadly. And that's really important because, to your question, as we make adjustments, both in new business and renewal pricing, we do not feel like we'll be disadvantaged because the trends that we have seen in our data are consistent, if not slightly favorable to the broader market. So, you know, we've got to work through it, as Kelly talked about.
Speaker Change: Yeah, I think the key point being there's nothing different in what try not seeing versus what we're seeing in the data from our carrier partners more broadly when we when we benchmark and if anything I think we've been a little bit favorable over the last several quarters inclusive of the first quarter to what.
Speaker Change: We're seeing in the U S market for small case commercial.
Speaker Change: And that's really important because to your question as we make adjustments both in new business and renewal pricing.
Speaker Change: We do not feel like we'll be disadvantage because the trends that we have seen in our data are consistent if not slightly favorable to the broader to the broader market. So.
Speaker Change: We've got to work through it as Kelly talked about the.
Mike Simonds: 10 months coming and one month coming, we don't go into those with the expectation that that's going to materially impact our conversion rates or retention rates, for instance. And I think that's because our offering is much bigger than just health insurance pricing. And so when you're showing up across HR compliance, payroll, payroll services, benefits beyond, frankly, just health care, and insurance beyond just benefits, there's a lot to that model, I think, that will drive stickiness and new customer growth.
Speaker Change: 10 months coming in one month coming we don't go into those with the expectation that that's going to materially impact our conversion rates. Our retention rates for instance, I think I think that's because our offering is much bigger than just the health insurance pricing and so when you're showing up across HR compliance payroll payroll.
Speaker Change: Services benefits beyond frankly, just the health care insurance beyond just benefits, there's a lot to that model I think that will drive stickiness and a new customer.
Mike Simonds: And I mentioned it before, but I really do think that if you look past the short term and you look to the midterm, long term, cost inflation for health care for us and with our model, that's a demand generator for us. And so I do think that over time it makes the demand for service that TriNet brings, bringing the scale that we can bring in the large employer resources into that SMB market, that's a tailwind for us. Yeah.
Speaker Change: Both.
Speaker Change: And I mentioned, it before but I really do think that if you look past the short term and you look to the midterm long term cost inflation for health care for us and with our motto model, that's a demand generator.
Speaker Change: For us and so I do think that over time. It makes the demand for surface like try that brings bringing the scale that we can bring in the large employer resources into that SMB market.
Speaker Change: Tailwind for us yeah.
Kelly Lee Tuminelli: Yeah, and we really, David, haven't seen a significant change in, you know, maybe a one-point difference in terms of enrollment as a percentage of the base overall. So you do see some level of buy-down behavior, like people going for more high-deductible plans and things like that as health care becomes a little bit more expensive, but we are working with our carrier partners to make sure that we've got the best offerings that meet their needs. And we're working with our clients to make sure that the funding strategies that they have also, you know, align with what they're trying to deliver to their employees.
Speaker Change: And we really haven't been that significant.
Speaker Change: Change and maybe it was one point difference in terms of.
Speaker Change: Oh man.
Speaker Change: As a percentage of the base overall, so you do see some level of a buy down behavior like people, calling for more high deductible plans and things like that as health care becomes.
Speaker Change: A little bit more expensive, but we are working with our carrier partners to make sure that we've got the best offerings that hit their needs and we're working with our clients to make sure that that the funding strategies that they have also.
Speaker Change: With what they're trying to deliver to their employees.
David Michael Grossman: Great. Thank you very much. Good luck.
Speaker Change: Yeah.
Speaker Change: Great. Thank you very much and good luck.
Mike Simonds: This concludes our question and answer session. I would like to turn the conference back over to Mike for any closing remarks.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mike for any closing remarks.
Mike Simonds: Thanks, Debbie. And thank you all for attending. I'll just close out our call with a big thank you to our incredible colleagues at TriNet. We continue to outperform in the areas that we control, and I'm really grateful to the team that's worked so hard over the past quarter to produce these really strong results for our customers and for our company. I'm excited to continue our good work over the remainder of the year as we continue to generate increasing value for our shareholders. Thank you very much. And with that, we'll conclude the call.
Mike Simonds: Thanks, Debbie and thank you all for attending I'll, just close out our call. It a big thank you.
Two our incredible colleagues are trying it.
Mike Simonds: We continue to outperform in the areas that we control and I'm really grateful to the team that worked so hard over the past quarter to produce these.
Mike Simonds: Really strong results for our customers and for our company I'm excited to continue our good work over the remainder of the year as we continue to generate increasing value for our shareholders. Thank you very much and with that we'll conclude the call.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.