Q2 2025 TriNet Group Inc Earnings Call

Good day and welcome to the TriNet second quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: After today's presentation, there will be an opportunity to ask questions to ask a question. You may press star then 1 on your telephone keypad to withdraw your question. Please press star. Then to please note this event is being recorded. I would now like to turn the conference over to Alex Bower head of investor relations. Please go ahead.

Alex Bower: Thank you, operator. Good morning. My name is Alex Bower trying its head of investor relations. Thank you for joining us. And welcome to Trinidad's. Second quarter conference call and webcast. I'm joined today by our president and CEO, Mike Simons, and our CFO Kelly, Tim and Ally.

Speaker Change: Before we begin, I would like to preview this morning's call. We'll first pass the call to Mike where he will comment our second quarter, performance and discuss our progress on our strategy and medium-term Outlook.

Alex Bower: Kelly will then review, our Q2 financial performance in Greater detail

Alex Bower: Built that today's discussion will include references to our 2025 full year Financial Outlook. Our medium-term Outlook and other statements that are not historical in nature. Are predictive in nature or depend upon or refer to future events or conditions such as our expectations, estimates predictions strategies beliefs or other statements. That might be considered forward-looking

Alex Bower: These forward-looking statements are based on Management's, current expectations, and assumptions. And our inherently subject to risks, uncertainties, and changes in circumstances that are difficult to predict. And that may cause actual results to different material from statements being made today or in the future.

Alex Bower: 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.

In addition, our discussion today will include non-gaap Financial measures including our forward-looking guidance for adjusted ibida and adjusted net income per diluted share.

Alex Bower: For reconciliations of our non-gaap financial measures to our gaap financial results. Please see our earnings release 10q filings or 10K filing which are or will be available on our website or through the SEC website.

Speaker Change: With that, I will turn the call over to Mike Mike.

Mike Simons: Thank you, Alex.

Mike Simons: In a quarter Mark by significant market and economic volatility, try not delivered financial and operating performance consistent with our expectations. Which allows us here at the end of the second quarter to reiterate our full year outlook.

Mike Simons: While there are several areas, we are working quickly to improve overall. I'm pleased with our results and with the execution of our plans to reposition TriNet for long-term profitable growth.

Mike Simons: Our first priority is to deliver strong service and retain our customers, as we re-price our benefits offering to account for the sustained. Health care, cost Trends. Being experienced across the market. We are on track with these efforts.

Second. We are investing in our distribution capabilities and benefits offering in advance of the Fall selling season.

Targeting improved. Momentum on the new business front.

Mike Simons: Importantly, even as we improve our service distribution and offering we continue to deliver prudent expense management and gain efficiencies freeing up resources to reinvest in the business and building confidence in our teams ability to execute.

Mike Simons: The challenging market and economic environment, resulted in weaker business, sentiment, once again, impacting sales conversion rates and customer hiring.

Mike Simons: This reality, underscores the importance of the Investments, we're making to differentiate our offering and go to market approach heading into our fall selling season.

I'll touch on our progress with these changes in just a minute.

Mike Simons: Before I go deeper into our financial and operating performance, I want to reiterate our strategy which frames how I talk about our business.

Mike Simons: Through the execution of our medium-term strategy.

we intend for total revenues to achieve a compounded, annual growth rate of 4 to 6% and our adjusted Evita margins to expand to 10 to 11, which taken together will ultimately Drive annualized value, creation of 13 to 15% through earnings growth, supplemented by share repurchases, and dividends

Mike Simons: Beginning with revenues our second quarter was in line with our plan and we continue to expect full year 2025 total revenues to be in the range of 4.9 to 5.1 billion.

Mike Simons: The key drivers for Revenue, growth remain, Health Plan fee, increases strong, customer retention and new sales growth emerging later in the year.

Mike Simons: While our full year forecast assumes net, customer hiring will remain low throughout 2025.

Mike Simons: It's worth noting we did see Improvement in customer hiring this quarter up about half a percentage point over prior year. The second quarter is our most impactful, customer hiring quarter and this is the first Q2 in several years where we've seen year-over-year Improvement.

Mike Simons: This second quarter also represents a modest 3/4 positive trend in year-over-year cie.

Mike Simons: We will watch closely to see if this positive trend continues in the coming quarters.

Kelly Tim: Kelly will speak to some of the underlying drivers of cie and her remarks.

Kelly Tim: Progress with our health plan fee increases during the quarter.

Kelly Tim: We are balancing our needs to reprice and improve our insurance cost ratio with our focus on retention and supporting our customers through this challenging environment.

As a point of reference, during the second quarter, we realized an average increase in health fees per enrolled member of roughly 9% when compared to Prior year.

Kelly Tim: This is after plan design, buy Downs, which clients use to manage the fee increases and effectively reduces risk to China.

Kelly Tim: On a risk adjusted basis. We are achieving the pricing levels needed to improve our insurance costs ratio as planned.

Kelly Tim: As I noted on our last call, we achieved our pricing targets with strong retention for our April 1st renewal.

Kelly Tim: similarly, our July 1st renewals have gone well,

Kelly Tim: Thanks to the strong execution. Of my colleagues retention remains above our historical, average, both in our year to date results and in our Outlook

Kelly Tim: As you might expect combined with an uncertain economic environment.

Kelly Tim: Our health plan fee increases have created a headwind for sales when compared with last year.

Kelly Tim: That said, the quality of the new customers coming on is strong with a higher percentage falling into our targeted, verticals and with sustainable insurance, and Professional Services pricing.

Kelly Tim: We remain confident that as we move through the second half new sales, will begin to improve on a year-over-year basis.

Kelly Tim: Part of this confidence is based on the encouraging results of Market testing with our new Health Plan offering

Kelly Tim: Our new benefit, bundles leverage, our Broad and growing set of carrier Partnerships and plan designs.

Kelly Tim: Paired with our proprietary data, to create new combinations that Meet customer needs for coverage and price, and have the important added benefit of simplifying the sales process.

Kelly Tim: I mentioned that our carrier Partnerships are growing.

Kelly Tim: We regularly look at the health insurance options in each of our markets and Target the leading carriers.

Kelly Tim: With the best plans and the strongest Networks.

Kelly Tim: As we head into our fall selling season, we are adding attractive new options in markets, which represent strong growth opportunities.

Kelly Tim: Our growing confidence in new sales is also based on the expansion of our go to market approach.

Kelly Tim: we've established preferred broker programs with several National Partners where we have aligned on new sales and retention targets as well as created dedicated quoting Sales and Service teams,

Beyond our national Partnerships. We also increased our Outreach, simplified, the onboarding process and enhanced compensation for local brokers.

As a result of these efforts, we are beginning to see encouraging growth in the number of local Brokers using our platform.

Kelly Tim: For our direct Channel. We are launching new, AI enabled, prospecting, tools and have made several improvements to simplify and streamline the selling process for our reps.

Kelly Tim: Our average median, tenure continues to grow as we've had good success retaining. Our most tenured people

finally, perhaps some of you have noted, our new marketing campaign, your path, our purpose,

Kelly Tim: Which highlights a number of China's, amazing clients and the work we do and enabling them to grow their business.

Kelly Tim: We have a great story to tell and it's gratifying to see the positive response in both our direct and brokerage channels.

Overall.

We are in a much. Improved go to market position as we enter the fall selling season and indeed, we are already seeing strength in new business, proposals for 3Q.

Kelly Tim: Returning to our medium-term strategy. The second feature is a target margin of 10 to 11% on. And on this front, I'm pleased with both our disciplined approach to managing our insurance costs ratio, and continued, strong expense management.

As mentioned earlier, we are achieving our health plan fee targets.

Kelly Tim: The Investments we've made in Insurance expertise improved forecasting, and more disciplined Process Management are paying off.

Kelly Tim: We now have, we have observed more than 6 quarters of stable, albeit heightened Healthcare claim cost increases and our confidence in the adequacy of our fee levels continues to strengthen.

Kelly Tim: We are on track to deliver our forecasted 2025 insurance cost ratio and carry momentum into 2026. Bringing us back into our long-term. Targeted range of 87 to 90%.

Kelly Tim: Line year-over-year and outperformed our forecast.

We continue to benefit from our application of technology to our business processes and from our talent optimization,

Kelly Tim: On the talent, front. Next month, we open our new Atlanta office.

Kelly Tim: This office is Central to our effort to build a stronger, hybrid in-office culture, supportive of talent development, and enhanced collaboration all happening in the middle of 1 of the fastest growing regions in the US.

Kelly Tim: we are excited about trying out future and this office represents a significant investment in that future and our ability to invest even while improving margins overall,

Kelly Tim: Our strong expense management and inline insurance cost ratio allowed us to continue our history of the deploying Capital through dividends and share repurchases while still investing in growth.

In summary, having reached the midpoint of 2025. I'm pleased with our increasingly predictable results and stronger execution.

Kelly Tim: We are on track to introduce our product and go to market improvements for our fall selling season.

Kelly Tim: We continue to price the risk balancing, the needs of our customers, with our goal of returning, our icr to our target range.

Kelly Tim: And we continue to optimize our business gaining efficiencies, while investing in talent and technology for the future.

Kelly Tim: With that, let me pass the call to Kelly for her financial review.

Kelly Tim: Kelly.

Kelly Tim: Thank you, Mike.

Kelly Tim: We're pleased to see second quarter earnings in line with expectations. We are successfully repricing. Our benefit offering positioning us to return to our targeted, icr range in 2026

Kelly Tim: Like first quarter, these repricing efforts coupled with the uncertainty in the economy, created a headwind for sales and retention.

It's important to note that we're still on track to achieve our historical retention rate of 80% or better.

We remain disciplined in our expense management. While balancing the need to invest in initiatives, to grow our business profitably as outlined in our medium-term strategy.

As we look to the second half, we're positioned to improve. Go to market efforts and a full year earnings guidance.

Kelly Tim: Total revenue was flattened the second quarter on a year-over-year basis.

Kelly Tim: Total revenue performance in the quarter was supported by insurance repricing and interest income.

Kelly Tim: Interest income was higher than originally, forecasted driven by increased balances attributable to the timing of tax refunds.

Timing of these refunds are intermittent and difficult to predict.

Kelly Tim: Customer hiring with slightly better than our overall estimate and supportive of total revenues. However overall WSC volume declined due to customer attrition that was higher than new sales, proving to be an overall headwind to revenue growth.

We finished the quarter with approximately 339,000, total wsc's down 4% year-over-year and 309,000 co-employee wsc's down 8%.

Kelly Tim: The decline in co-employee wsc's was driven by reduced new sales. When compared with the prior year and higher overall, attrition with the incremental attrition driven largely due to health fee increases

Kelly Tim: Similar to our q1 experience. We faced a difficult Q2 sales comparison as we were operating in a much different expected, Health cost environment last year and we've sharpened our pricing discipline to reflect higher observed trends,

Retention of comp employee wsc's was lower this quarter by approximately 1 and a half points when compared to the prior year.

Given our repricing efforts. We are pleased with our overall retention rates and we remain on track to beat our historical retention benchmark.

Kelly Tim: As Mike noted, we experienced growth in cie in the quarter historically, we've seen strong seasonal, customer hiring in the second quarter.

Kelly Tim: As customers hire recent College grads or staff up for the summer months. And this year, we saw that Trend once again.

Unique to this year are existing customers, reduce the number of gross reductions in force across their employee base.

Kelly Tim: The combination of hiring with customers holding on to more of their employees resulted. In improved net hiring across nearly all of our core verticals with technology financial services and nonprofit standing out.

Kelly Tim: So again while we're encouraged to see some improvement with customer hiring total cie in the quarter was about half a normal pre-covid contribution.

Kelly Tim: 8% year-over-year, largely due to 2 main reasons, including lower WSC volumes, as well as the discontinuation of a specific client level technology fee.

Kelly Tim: Professional Services Revenue was supported by mid single digit, pricing strength, hras fees, and ASO revenues including those resulting from hras. Conversions decreased slightly year-over-year as the company, transitions away from a SAS, only solution,

Kelly Tim: ASO conversion rate, exceeded initial forecasts, indicating ongoing demand for services, The partially mitigated, the impact of reduced peo volume

Kelly Tim: Total insurance Revenue grew 1% in the second quarter.

Kelly Tim: We are seeing the impact from our benefit repricing efforts as Revenue per average enrolled member has increased by approximately 9% year-over-year.

We expect sustained positive results from these repricing options in the second half of the Year. Positioning us to achieve our targeted, icr range in 2026

Kelly Tim: Total insurance costs grew in the second quarter to 3%.

Kelly Tim: As a result, our second quarter insurance cost ratio came in at a little over 90%.

Kelly Tim: The icr was slightly higher than we were originally expecting. During the quarter driven by a higher proportion, of older Health claims submitted this quarter that were incurred in early 2024, which was an anomaly relative to historical lag periods.

Kelly Tim: We also faced an approximately, 20 million or 2 point. Icr headwind, when compared to the last year from an outside workers, comp Reserve release in Q2 2024.

Kelly Tim: With the mix of our current book and smaller remaining reserves. We expect fewer major Reserve releases moving forward.

Kelly Tim: Taking all together. We're the trends. We're seeing that position us. Well, to return to our targeted, icr range in 2026,

Kelly Tim: Second quarter, operating expenses were down 2% year-over-year.

Kelly Tim: We continue to manage expenses tightly as we benefited from further Automation and our Workforce strategy.

Kelly Tim: What we prudently manage expenses. We continue to reinvest a portion of the savings into our medium-term strategic. Initiatives driving growth and improving our customer experience while also investing in process efficiencies.

Kelly Tim: Second quarter Gap, earnings per diluted share with 77 cents and our adjusted earnings per diluted share was $1.15 cents.

Kelly Tim: During the quarter, we continued with strong cash generation.

Kelly Tim: We generated 105 million in adjusted IBA representing an adjusted debit on margin of 8.5%.

Kelly Tim: Operating activities in the first half generated 170 million in net cash and 136 million in free cash flow.

Kelly Tim: our first half 2025 free cash flow conversion ratio was 51% and in line with our 2025 plan,

As we look over the medium-term, our business will benefit from operating Leverage.

As earnings accelerate through Revenue growth in our icr returns to our targeted range. We expect our free cash flow conversion rate to improve to our 60 to 65% Target,

Now, turning to Capital actions in the quarter, we paid a 27 and a half cent dividend per share. Representing a 10% increase year-over-year.

Kelly Tim: In total, we've deployed just over 117 million dollars to shareholders through the first half or 87% of free cash flow ahead of our annual 75% Target.

Earlier in July, we did repay, our outstanding balance of $0 million on our credit line, getting us closer to our targeted, leverage ratio of 1 and a half to 2 times adjusted debe.

Kelly Tim: Our Capital return priorities for 2025, remain consistent. We aim to deliver shareholder value through continued investment in our value creation initiatives, funding dividends and share BuyBacks and maintaining a suitable operating liquidity buffer

Kelly Tim: Turning to the 2025 Outlook based on second quarter performance, the full year guidance remains unchanged and earnings are currently tracking modestly above the midpoint of the projected range.

Kelly Tim: As a reminder for 2025, we expect total revenues to be in the range of 4.95 billion to 5.14 billion. We expect Professional Services Revenue to range from 700 to 730 million. Our insurance cost ratio to be in the range of 90 to 92% and our adjusted. EBA on margin to be from just under 7% to approximately 8.5%.

Kelly Tim: We expect Gap earnings per deleted, share to be in the range of 1.90 to $3.40 and adjusted earnings per diluted share to be $3.25 to $4.75.

In conclusion, we had a good second quarter.

Kelly Tim: We had 2 of normal and largely offsetting impacts to earnings.

Kelly Tim: Strong, interest revenue and older Health claims.

Setting these items aside, we're confident that our earnings are tracking modestly above the midpoint of our range.

Kelly Tim: We are advancing initiatives designed to enhance our offerings, all aimed at driving profitable growth. Efficiencies and returning us to our targeted insurance cost ratio range by 2026.

Kelly Tim: We are well positioned for the second half of the year and I'm proud of the continued execution by our dedicated colleagues.

Kelly Tim: With that, I'll pass the call to the operator for Q&A.

We will now begin the question and answer session to ask a question. You may press star then 1 on your telephone keypad,

Kelly Tim: if you are using a speaker phone,

Kelly Tim: Please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question please press star then to

Kelly Tim: At this time, we will pause momentarily to assemble our roster.

Speaker Change: Our first question comes from Jared Levine with TD Cohen, please go ahead

Jared Levine: Thank you, I guess to start here. Can you discuss how top of funnel activity? And pace of perspective. Client. Decision-making is trended. Since 1 Q, including your thoughts on relative impacts from the macro uncertainty versus the healthcare cost inflation.

Jared Levine: Good morning, Jared. Thanks for the question. I appreciate it. I, I do think both of those factors were in play here in the first half. In terms of, at new sales, we looked at

Jared Levine: That funnel as you would with various stages. And we've seen when it gets to the point of more, you know, sort of grass tax.

Jared Levine: Detailed proposal and it's in the hands of the client. That's where we've seen a lengthening in that sales cycle, uh, year-over-year. So that's been, certainly a contributor to it.

Jared Levine: um the second uh piece is as you mentioned, the professional and healthy pricing and in general, you know I I would just make sure that everybody realizes

Jared Levine: You know while we certainly have um increased the the outlooks and the uh applications out to our pricing processes. We're really we are still finding ourselves very much in the market. Um, we're not putting prices out there that we're that are terribly different, uh, than competition. It's simply that the year-over-year compared the orientation that we had, um, around Healthcare fee increases and, and relative to competition. It's just materially changed as we look forward. And I think this is really the important part at the funnel and how pricing is showing up relative to the competition. As we look at the capabilities that are now going into the market, through the fall selling season. We're really, uh, encouraged that we're going to start to see an improvement in the year-over-year. Variances on the new business front.

Speaker Change: Great. And then in terms of sales, headcount, good to hear that, you've seen some Traction in terms of uh, retention on the uh, tenure reps here. But I guess how is sales headcount trending through 2 Q here? And are you still targeting modest growth for the year?

Speaker Change: Yeah, great question and really important when you think about the productivity of our reps at 24 and really at 36 months, it's materially uh different. And uh the team's done a great job putting changes in place and we've seen really good retention of those really valuable reps. That's ultimately in the short to midterm. Uh what's going to drive capacity? Um, for us. And so I really don't have capacity concerns here as we go into the important, second half uh, selling season. We did use the, the sort of the tale of last year in the first half of this year to retool. Um, how we go about our profiling recruiting and training program. We've rolled out new approaches to that. We are now ramping up our, um, new rep hiring. I think we have a lot more confidence that those Investments, we're making in new talent coming into the business today. We'll see many more of them Reach that 36 month Mark. So in Aggregate and absolute

Speaker Change: 26 and 27 years.

Speaker Change: Great. Thank you.

Speaker Change: Thanks Jared.

Our next question comes from Andrew. Nicholas with William. Blair, please go ahead.

Andrew Nicholas: Thank you for taking my questions. Uh, Mike, you just alluded to it a little bit in, in the answer to your first question, but just on on the competitive environment, it sounds like you're relatively close to where others are from a pricing perspective. Are you seeing any uh, actions or postures from competitors that are different versus last year in terms of how aggressive they are on price or or what they're doing to to kind of win deals relative to to what you've seen in the past?

Speaker Change: Good morning, Andrew. Thanks for the questions. And, you know, when you have the macro that we've got with a little bit more uncertainty, uh, in it, in terms of the economic Outlook, you know, certainly it's going to be a competitive market out there as people do compete for the business that does you know make decisions in the period but I wouldn't say anything abnormal and and I do think it's it's worth noting right try not to a little bit different from most um scaled peos in that. Uh We've invested pretty um pretty significantly. In our Insurance Services Group added um a good amount of talent and improved our our discipline in the application of our improved forecasting. And we do that on a quarterly basis.

Speaker Change: Right. And we've talked about that before, but I think it's an important point. It, it certainly means that there's a cohort of customers that were taking our very, you know, sort of most up-to-date point of view on Healthcare and applying that through our feed, um, at renewal time each quarter, but we also do that with new business. So every 90 days or adjusting our new business pricing and Outlook. And so, when you're in an accelerated cost environment, I think China's going to get there a little quicker in terms of adequately pricing, our health fees I think as we're now starting to see more stability albeit at a heightened level of cost inflation. I think we sort of see the market coming in closer to where we're seeing things on a go for basis. So I think it's actually a pretty constructive um, environment here as we're heading into the second half of 2026.

Speaker Change: Great, that's helpful. And then maybe Kelly if if you could speak a little bit more to healthcare Trends in the quarter, I I heard you on.

Speaker Change: I think it was Prior period development, um, and that being a little bit 1 time, but if if you could speak to kind of what you're seeing under the hood there in a little bit more detail. That'd be helpful. Thank you.

Yeah no no problem at all. Andrew, you know what I would say in General on health care we're seeing some of the the same similar Trends. So from you know from a large complex plane perspective, we did see a slight anomaly in the quarter, you know, mainly with 1 specific

Speaker Change: Carrier. And as I look at those, um and then we've had discussions actually with our other carriers as well. We don't really see a backlog and see that largely as 1 time.

Speaker Change: So you know similar Trends uh Pharma and kind of the the mid teens uh inflation rate and medical, you know, high high single digit. Uh but right in line with our expectation other than the 1-time claims.

Speaker Change: Understood, thank you.

Kyle Peterson: Our next question comes from Kyle Peterson with nem, please go ahead.

Kyle Peterson: Great. Uh, good morning. Thanks for uh, taking the questions. Um, you know, wanted to start out on kind of where, you know, client hiring and and cie trended throughout the quarter. Uh, it does sound like it came in a little better, um, than than you guys were originally, uh, budgeting for which is great but I guess like was the Improvement fairly linear and like was, you know, may better, or was May better than April and June better than May or or was there you know a standout month in there? Uh, in particular, uh I guess that's what my main question was the the trajectory there. And if it was smooth or a little lumpier,

Speaker Change: Greg Kyle. Happy to answer that question. When we looked at cie, you know, we had a similar question honestly because we were hearing, you know, different different sound bites. As people were looking at Labor data etc for us. It was pretty linear, you know. So we we really saw just steady, you know, cie throughout the quarter um the bright spots, really Tech, you know, particularly in like software as well as Tech Consulting. Um,

Speaker Change: Things and in nonprofit, both in schools and and social advocacy organizations. Uh, so but generally, you know, we just saw steady Eddie uh, couple hundred favorable to what our original expectations were.

Speaker Change: Okay. Um, that is just really helpful and, and great to hear. And then I guess in the, the follow up on the Professional Services Revenue, I know there's a lot of moving pieces there, but I guess, could you want to find the impact of, you know, some of the, uh, whether it's the ASO transition and, or like, the, the clearest of Estates, I just want to see, like, if you guys have like an, like an Apples to Apples at least for the, the Claris impact. Just so we can kind of see what the organic trend is there.

Speaker Change: Yeah, well when I look at at Professional Services Revenue year-over-year uh probably the biggest decline in professional service Revenue, really relates to a client specific level technology fee. So putting that aside, um,

Speaker Change: we're pleased with the ASO conversion while we're probably down about a million dollars on HRS in total. Uh, the mix is good and the conversion looks like it's it's going well and coming into the year, you know, we really had expected about a 15 to 20 million dollar headwind on ASO and hras. And I'd really expect that

Speaker Change: Got to be, you know, probably about 5 5. Better than what I initially expected there.

Speaker Change: Um, and it's really helping offset. Some of the volume volume impacts on peo overall.

Speaker Change: Okay, um, it's good to hear your great and to answer your Claire's question, specifically, I think we're down about 2, you know, really, no Claris Revenue. Now whereas we had about 2 million the same quarter last year.

Speaker Change: Okay. Okay, thanks for the clarification and particular. My question is nice quarter.

Speaker Change: Again, if you

Please press star, then 1.

Speaker Change: Our next question comes from. Kevin Levy with UBS. Please go ahead.

Great. Thanks so much and congratulations, navigating a tough environment for sure.

Speaker Change: Hey, I guess I don't know if this is Kelly or Mike but

Speaker Change: You reaffirm the guidance again. After kind of 2 beats is is that you know just conservatism or or or maybe a little bit of shift in the back half of the year um how how are you thinking about that and then you know if it is a little bit of shift and and can you Dimension where that sits primarily

Speaker Change: Great. Well, Kevin, you know, we always have a, a level of seasonality within our business and so pleased with the results so far. They're just really, you know, we see ourselves Landing within the range overall and right now we're tracking to modestly above

Speaker Change: Uh the midpoint. So as I'm looking at the back half of the Year obviously we expect a level of seasonality associated with the insurance cost ratio, um, but that that's really it. I'm I'm pleased with the expensive efficiencies and I think we're on track.

Speaker Change: Great. And then just to

Speaker Change: delay claims from 24. I I mean, I don't typically remember something that far back.

Speaker Change: You almost maybe dimensionalized that a little bit what it was. And then if you were to think about how much impact the claims were in the quarter, versus maybe the interest income versus the professional fees, just to, to get a sense of, you know, the absolute dollars against those 3 things.

Speaker Change: Yeah, how how?

Speaker Change: when I think about,

Speaker Change: kind of reiterate, uh, the prior question, you know, or prior caller question, we always have some older claims, uh, from 2024, our lag factors do, uh, uh, multi-year, look back and evaluate that these were just outsized with 1, specific carrier, you know, some some other

Speaker Change: Another complex claims that we normally don't see in there. Definitely outsized for the quarter it by and large offset the capability and interest income, you know, so within a couple million dollars of of the the higher claims offsetting the

Speaker Change: Landing somewhere in the middle, there.

Great. Thank you.

Speaker Change: Our next question comes from David Grossman with steeple Financial, please go ahead.

Speaker Change: Uh, good morning. Uh, thank you. Uh, you know, I I'm wondering we because of last year, was somewhat of a unusual year and a lot of transitions in the business

Speaker Change: Can you review for us? Just some of the major comparison dynamics that we should think about as we go into the back half of the year, whether it be you know sales growth wsa, WSC growth, you know, margin Dynamics, Etc.

Speaker Change: Yeah. David why don't I take that and then maybe um, Mike can come in over the top with with anything. I might miss here but as we're thinking about it being a transition year, um, you know, we our original forecasts did assume wsc's are down. So you know, as we were looking at the size of the health plan increases, we had to put forward, we expected to have a level of attrition better than historical average, but um, still, you know, a couple points higher than what was really a record Year from a retention perspective.

Speaker Change: From a sales perspective, we also expected that to be a little bit down because we had a, a little more. I'd say realistic view on where health planning increases were going to be and what what we had to to do their from a new pricing perspective. Um as as I think about cie, you know, from a work site employee perspective, we were

Speaker Change: Expecting maybe slightly better and frankly that's what we're seeing still though. Our forecast assumes low single digits. Um, we did, you know, when, when we went into the year, uh, I think I I just mentioned, we were expecting hras and ASO to be about a 15 to 20 million dollar headwind on Professional Services Revenue. That's probably looking more like, you know, 10, 10 to 15 at this point in time.

Speaker Change: um,

Speaker Change: And other other changes. And then from an expense perspective, you know, we had indicated that expenses would be uh, lower year-over-year and we're kind of outpacing, the the pace of Automation and and just efficiency overall.

Speaker Change: Interesting. Come that that's when I probably didn't touch on uh we'd expected rates to be maybe a little bit lower than, uh, they're really trending right now and really hadn't anticipated. The

Speaker Change: Accrued interest related to certain tax payments so that won't be as much of a headwind year-over-year either.

Speaker Change: Anything you want to add, got it?

Yeah, no, I think you covered it. Well, you know, I think the, the key point being the execution is there, and it's encouraging. So it, it takes a little bit of time, but it's coming through. So the key quality metrics, we talked a little bit about in the opening, seeing the health fee increases come through on a per member basis. We, we finally caught that cost Trend. And so, outside of the seasonality that Kelly talked about or sort of right on track to head back into that historical range next year and then, you know, certainly the wse is down. I don't expect further degradation in terms of the year-over-year compared, I recall, we're going into our 10 ones and 1 1. Renewal that's about 70% of our Revenue. We're going to renew in the second half of the year. We had really put a more disciplined process in place with 10124 that was our first quarter. So we're kind of second time through there. And I I think that goes well in terms of striking that good balance of of retention and and staying ahead of that cost Trend. So the quality underneath the volume I'm encouraged on

Speaker Change: As we go through the second quarter and I think you'll you'll see that in the year-over-year Compares.

Speaker Change: And Mike, you know, you you touched upon this in your prepared remarks. Um just in terms of your progress in the broker Channel and I think you were if I heard you, right? You were distinguishing between national and local brokers.

Speaker Change: Yes. Do you want to talk a little bit about at least what your expectations are in the back? Half of the Year, based on what you're seeing? Is it really is this really more of a 2026

Speaker Change: Dynamic where you see, you know, kind of a a bigger contribution for Channel or is it realistic to expect that? We could see some momentum in that channel in the back half of the Year during the, you know, obviously your biggest selling season.

Speaker Change: New sales and retention. We're looking to sort of build high quality sticky uh, customer base over time.

Speaker Change: With uh, Distributors that really sort of understand our value proposition, uh, and the quality that we're trying to deliver. So I think in particular, we're seeing it in the, the growth in um,

and proposals that we're producing for that channel, that's already moving up.

Speaker Change: On the local level. That's where we start to see the number of Brokers using. Um our platform is, has started to increase. We're sort of in the mid single digits, in year-over-year, increase on that front already so that's quite encouraging.

I think in terms of playing all the way through to to wse and Professional Service Revenue growth certainly that's going to be tail end of the year and and the January effect as we really start to see those the closed business coming through in the financials, but I I'd expect that uh, momentum starts to build here. Actually, in the second half of the year.

Speaker Change: Got it. And and then just you know, lastly on I think there's already been some questions on. Does the CIA growth um,

Speaker Change: I I'm just trying to recall I I think sorry. I got cut off to a call for a few minutes, so maybe I missed this but uh, it sounds like the second quarter seasonality is related to Summer hiring it did I hear that correctly and and if so, you know what, what, exactly can we, you know, conclusions can we draw from me being slightly ahead of plan because I think

Speaker Change: Public. Contrary to some of the other, you know, small business, you know, kind of employment trends that are out in the marketplace that we've seen that um or maybe the bar was really low. I it could be that as well. I'm just trying to better understand whether there's much to read into the fact that CIU was slightly better and I know and and also maybe in the context of that response maybe you could talk a little bit whether or not it's Unique to try to, you know, you're over indexed obviously to, you know, Bay Area hiring in the in the tech sector and maybe that's just got less worse. So just again, trying to understand that dynamic.

Speaker Change: Yeah David it's a great question and as we're looking at you know kind of peeling apart the underlying data associated with cie um you're right from the standpoint of it, it is a low compared um you know it's about the cie was favorable to our expectations by a couple hundred so we're not talking a huge number and that's why our our Outlook is still low single digit. But really what we saw wasn't as much of seasonal hiring, but really just fewer layoffs.

Speaker Change: and so, as we look at kind of the pieces of who's hiring and who's reducing, we're seeing a trend of kind of fewer people being let go, which I think is a

Speaker Change: A positive trend overall. And we did see that sort of steady through April May and, and June, um, regarding you know, verticals, uh, both financial services and Tech were pretty strong on a percentage basis. Um, also nonprofit, but it is a smaller vertical for us, so it didn't have as much of an impact on the total number. Uh, from a cie perspective, the the hiring in Main Street it was a little lower than that, but still it's a little bit bigger vertical so it made up more but I would say probably half the hiring in Main Street was more seasonally related with things like hospitality

Speaker Change: And then I'm sorry I have 1 other thing. I just wanted to ask are the are the outsized larger claims related to the change Healthcare situation. Where, you know, processing those, you know, just getting caught up to where we you know where it should be and you're some older claims are coming in or because I know you said it was related to 1 carrier. I'm just wondering if that's it or whether it's just totally unrelated.

Speaker Change: Yeah. You know David we sort of had that hypothesis as we were looking into it as well but we really haven't found any evidence to indicate that. Um, so you know, we we did want to make sure that we spent the requisite amount of time with each of our carriers to really kick the tires around backlogs and processing times and any differences that we needed to to to pick up on. But since it was really isolated to 1 of our carriers, I I feel pretty good about you know it it it is an anomaly in the quarter for the most part, it was about a third larger than we would normally see which is definitely

Speaker Change: Outsized from from what we would see in in any month.

Speaker Change: Got it. All right, great. Thanks very much. Good luck in the second half.

Speaker Change: Great. Thanks. David.

Speaker Change: This concludes our

Speaker Change: To turn the conference back over to Mike Simons for any closing remarks.

Mike Simons: Thanks Megan. And thanks everyone for joining uh, encouraged by the results here at the midpoint. And hopefully, you know, you you uh, pick up a sense of Confidence from us in the building momentum.

Mike Simons: In the business. Uh and we very much look forward to keeping you posted in the coming quarter. So Megan with that, you can conclude the call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect