...Welcome to the TriNet presentation. With me on to my left, I have both Kelly Tuminelli, the company's CFO. We've got Mike Simonds, the company's CEO, and right here in the front row, we've got Alex Bauer, the Head of Investor Relations. So thanks to all of you for participating. So pretty informal session. You know, I've got a list of things that I'd like to cover, but, you know, why don't we just start, you know, for those who aren't that familiar with the company, just a really brief overview of what you do. PEO is kind of a unique model for many, so why don't I give you a minute to do that, and then we'll get into the Q&A?
Yeah. Thanks, David.
Sure.
I appreciate it, and thanks for having us.
Oh.
Excited about it. Yeah, PEO, not necessarily a household word, but basically what we do is we take on the people processes for small to mid-size businesses, so that those business owners, those management teams, those companies can really focus on, you know, what they're in business to do, and growth. That's generally not worrying about payroll, it's not worrying about health insurance, workers' compensation. It's not worrying about necessarily all the complexities around employment law and compliance in an increasingly sort of distributed workforce. So we kind of come in through a co-employment construct under the PEO that enables us to get very efficient and to gain operating leverage in serving 20,000+ small, businesses.
Great. So you know, what's great to have you here, Mike, is that you just started recently-
Right.
Right? So, you know, why don't you just take a few minutes at the top of the conversation here just to give us a sense of, you know, your just initial impressions.
Yeah.
Like, you know, maybe why you took the job and kind of your initial thoughts. So it's been probably, what? Two or three months maybe now.
Yeah, just a little over three months-
Yeah
... into the role, and much of that time, I'd say the majority of it, has been getting around the country, spending time with colleagues, and spending time with our customers and increasingly with partners in the marketplace. And we can talk about you know, sort of new avenues, I think, that are out there for growth through channels. And, you know, in those conversations with colleagues, I'd say one of the biggest observation, and I tell you, David, it comes through so loud and clear, is the degree to which people are passionate around small business at TriNet.
And so, I mean, literally, you walk into Dublin, the receptionist has a story, and I've heard it a couple of times, about a small business and how TriNet stepped up in that case through COVID, to help a small business not only survive, but kind of come out stronger on the other end. I would pair that. My observation is like, TriNet's a is a reasonably sized group with pretty considerable resources, but still operates with an entrepreneurial mindset. And so I think it's- it is the connectivity to small business that drives some of that, but the pace the willingness to move through decisions quickly, to try new things, that's really, really encouraging to see.
It's, you know, as you come in and you sort of think about where are the opportunities, and we can talk about that, where we can-
Mm-hmm
... continue to improve and grow, to have that as a foundation, the customer focus and that kind of operating at pace and the entrepreneurial bent, I think is really exciting.
So, you know, in true Burton style, you know, and you know, he left, you know, kind of timed it right, you know, in conjunction with the 1Q report, you had to revise the guidance, right?
Yeah.
You know, the 2024 guidance. It was really just based on higher healthcare utilization. And really, I guess to this point, just like you and everyone in the industry, everyone's experiencing higher utilization, but also no real improvement in hiring, right, in the base. That's been a pretty consistent message, I think, throughout the industry. But on the other hand, sales execution is improving, right?
Right.
Which is definitely, I think, underlying it, you know, there's a positive here, despite, you know, kind of the macro things that are headwinds. So, you know, perhaps you can provide some incremental context around, you know, what you're seeing in the marketplace. And why don't I just throw that out as a broad question, and then I have some specific questions underneath that.
Yeah.
I don't know which one of you guys wanna-
Maybe I'll start-
Take that
... with growth, and you wanna talk a little bit about healthcare and some of the trends that we're seeing-
Sure
... on that front, Kelly. And also, I just wanna say hello to Burton.
Yeah
... 'cause I'm sure, David, he's watching today. He's a huge fan and supporter. And I actually, we talked about the customer focus and the pace that TriNet operates, and that's, I think, that's a real quiet credit to Burton.
Right.
So it's been great to have him as an advisor here. You know, in terms of growth, so first quarter sales up 50% plus. Easier comparison than we're gonna face in the quarters to come, but all that being said, I mean, it's really good to see the absolute level of sales pick up. And I think, you know, a couple of things. Inside of TriNet, I think it's about the investment that we've made in our direct sales team.
Mm-hmm.
And so growing out the number of mature sales reps up 28% year-over-year at the end of the first quarter, pretty much an equivalent growth in productivity, and I think that's really key for us. So it's certainly about adding sales people, like sort of the quantity, but it's the quality and the retention. And I feel like on both of those fronts, we've got you know considerable runway where we can continue to invest in distribution, in the leadership down to the local level. I think there's opportunities to penetrate the verticals we play in more deeply over time. So I think about the growth potential as really encouraging. We've made those investments in the direct.
I think, beginning to think about new channels, we're starting to see a little bit of success, for instance, in the brokerage channel. I think there's a lot of reasons to feel like, with the right investments, and kind of focus, that that can become a really important supplement to our direct channel over time. A little bit of my background is in that space, and so I'm pretty encouraged. In general, we're still not seeing the hiring within the customer base, as you referenced. If you look at the history of TriNet, or even take maybe the last 10 years as a public company, our clients grow faster than the overall small business environment.
It's run at, you know, 8%-12% as a very comfortable range, and we're sitting in an environment where it's closer, closer to flat.
Mm-hmm.
Maybe, Kelly, you want to talk a little bit about what's happening from a healthcare point of view?
Yeah. No, happy to. I mean, the only other thing I'd add on hiring is, you know, to Mike's point, we were a little net negative. We're encouraged as we go into the second quarter. We're, you know, tracking to our plan from a net positive hiring. We generally get a seasonality benefit in the second quarter, but we're encouraged by the growth in our customer base that we're seeing so far. From a healthcare perspective, in the first quarter, we definitely saw healthcare trending up. I don't think we're unique in the industry. I think this is what everyone's seeing across the board, as you mentioned, David.
Mm-hmm.
But one unique thing about TriNet's model that Mike didn't touch on at the beginning was the fact that we actually reprice a cohort of our-
Right
... book every single quarter. You know, we, we do take risk on insurance, so we take a above the deductible layer level of risk, up to a stop-loss layer. But, you know, as a part of that, we get access to a lot more data than others, and are able to see these trends coming and start... You know, when Mike and I started seeing some of this in the February, March timeframe, we were able to adjust modestly some of our July 1 renewals. We're facing our two largest renewal quarters, which is October 1 and January 1, and we'll reflect these trends that we're seeing in the market in those renewals appropriately. I don't think that's unique to us.
Mm-hmm.
It is a trend we're seeing in the overall industry.
Is your historical experience that by virtue of repricing in the second quarter and the fourth quarter, right? Are those your two big quarters?
Really third-
Or 1 and 4.
Or fourth and first.
1 and 4.
Yeah.
Does that imply that we can, you know, the insurance margin, at least historically speaking, the ability to reprice kind of gives you enough of a buffer to manage that through the balance of the year? Is that a fair assumption?
Yeah. I mean, I think we're comfortable with the guidance that we gave at the end of the first quarter. You know, clearly, we did bring it down based on-
Mm
... first quarter experience, but we are reflecting kind of those anticipated renewals as a part of that guidance overall.
Right. And if I could just, you know, so just to make sure that everyone understands, when you say net hiring, you're talking about hiring net of gross sales. Is that... and retention, is that-
Correct.
Okay.
Really just the change in our existing installed base.
Base. Got it.
Yep.
Okay. And, you know, you know, Mike, and I was gonna get to this later, but since you mentioned it, you know, you do have a lot of experience in the brokerage channel. Can you characterize what kind of opportunity there is, you know, incrementally for the company, since that is an area that you've got a really strong background in? How well suited do you think the PEO model is to that?
Yeah.
'Cause your bigger competitors obviously have a different model than that, so-
Right.
Right. So-
Yeah
... interested to hear that.
It's a great question, David, and if I took one step back to where Kelly was, I'd start with, you know, benefits and healthcare is becoming, it already was, but it's becoming ever more a critical issue.
Mm-hmm
... for small businesses. And so the ability to compete and draw talent in a pretty fluid workforce with a lot of people working for employers all over the country, small businesses have to be able to compete to draw in that talent, and they've got to deal with a very significant, you know, after the payroll, typically the second largest cost item is-
Mm
... gonna be the insurance and the benefits. So when you think about TriNet, we do take risk. We have been able, if you look at the history, even in challenged periods from a healthcare cost trend, it's still been a positive value creator for TriNet, even in those difficult times, and part of that is being able to stay a bit ahead of the curve-
Mm
... from a pricing point of view. When I sort of take that reality and think about the brokerage channel, the reality is like, start with, like, are you creating a lot of value for small businesses? And I think we're in a spot where we're creating a lot of value for small businesses, and so brokers are gonna look to make recommendations and to find solutions that create that value. The second is, though, how you go to market through the brokerage channel is just gonna be different.
Mm.
So you know, beginning to think through, okay, what's the in the life cycle of the customer, all the way through from sort of introducing the concept through the RFP, through the onboarding process, through the ongoing service, and ultimately through an off-boarding process at some point, how is what's the role that the broker's gonna play? How does your process and how does your technology really enable that sort of a seamless experience, not just for that small business, but for their advisor as well? And those are some things that we've started to do, but I think we've got some real opportunities to invest and expand.
When you think about the coverage that, you know, leading SMB health and welfare brokers have in the market, I mean, it, it's multiples of, you know, what other channels are able to do in terms of reach.
Interesting. Any kind of... Can you quantify that all for us? Like, have you guys done some work around just how much incremental exposure you get?
Yeah, early days, but in general, you're gonna find, you know, the vast majority of how small businesses procure healthcare is not gonna be on a direct basis-
Right
... it's gonna be through an independent advisor. Increasingly, those independent advisors are being consolidated, and so you're finding more efficient ways to get to a pretty broad reach into that SMB market.
Interesting.
Right. And from an in-force perspective, David, less than 10% of our business is from the broker channel.
Mm.
So that gives you a gauge for-
Right
... the upside opportunity we have if we're-
Right
... gonna expand that.
... So, you know, since we're on, you know, growth, you know, let's just stick with that 'cause I had a couple of questions on that. So, you know, since we're on just kind of this broader notion of growth, you know, TriNet historically has been indexed to the East Coast seaboard and the Western Coast seaboard, if you will. And it was always curious to me why you could never penetrate the middle part of the country, and since there's... I'm sure the small business distribution is fairly significant, you know, in the middle part of the country. And I always thought in my own mind it was because you couldn't get the right payer or provider networks to, you know, link in with you in those markets.
But maybe that's different now that you're talking about a broker channel, and maybe it's part of its distribution. So maybe you could speak a little bit to kind of how you're viewing, 'cause you—there's a huge white space-
Mm.
you know, geographically, that you don't really cover yet, and
Mm.
Your competitors do, and clearly, they have advantages in their model because they convert payroll customers to, you know, PEO customers, so it's a little bit of a different model.
Mm.
But that being said, maybe speak to-
Yeah
Kind of what you can do differently, you know, to expand geographically.
Yeah. Yeah, I mean, I think the first thing I'd say is, you know, there's-- we sort of think of our very directly addressable market as being 12-15 million potential work site employees, of which we've got about 350,000. And so even on the coast, to your point, that those are our biggest markets, there's still a lot of room-
Mm-hmm
-to grow in those coasts. But I take your point. I think it's a good one. There's geography, particularly in the middle of the country. You hit on two things, so look for us to continue to invest in our benefits and insurance capabilities. So that includes things like getting more granular by MSA through the country, really understanding what the best networks are, what the best discounts that are in place, who are the right partners for us, investing in, you know, the process and the talent to go secure those partnerships. And I do agree that, you know, you don't need necessarily to have, you know, one size fits all direct approach. You know, you have potential partners in the brokerage community and in through other referral networks that you can open up and get to scale faster.
Again, it takes, I think, the focus to be a little bit more granular to get there. And then you mentioned it, David, I'll just hit it. I mean, I do think at TriNet we have a very different approach from some of the other players in the PEO market, and I think that's okay.
Mm-hmm.
You know, I actually... I think look for us to look for those places where TriNet's different. You know, leaning into insurance, taking risk, understanding healthcare, procuring the right partners, owning our own technology, building the technology around the verticals that we target. Look, you know, look for TriNet to continue to push and widen the difference versus to try to copy or emulate some of the other players that are out there.
Right. And just to that point, I mean, again, just as I, you know, mentioned a moment ago, since Paychex and ADP have the benefit of this large installed payroll base that they can convert, which is incredibly high margin, so incredible incentives internally to do that, and they don't self-insure the way you do, right? So the models are gonna scale differently, which I don't think is really truly understood in the marketplace. But that being said, your WSE growth, to be fair, has not been as consistent as others, right?
Right.
So maybe you could give us some initial impressions on, you know, unit growth in the model, and, you know, this is a really difficult time to talk about that 'cause so many macro dynamics, you know, are negatively impacting that. So maybe you could speak to kind of what you're seeing as an opportunity, perhaps to make that... 'Cause the growth actually has been good, it's just hasn't been consistent.
Right.
Maybe you could speak to, you know, some of the things you think you can do, maybe to change that going forward.
Yeah, I agree. Yeah, and just to the beginning part of your question, I agree, there are some large players in the PEO business, where PEO is a component part of what they do, and in some respects, a relatively smaller part of what they do. It is what we do.
Mm.
It's what we get up every day and think about, how do we get better at this SMB market? We're not gonna be in the micro business. We're not looking to be an enterprise SaaS player. We are really looking to concentrate on this model in the verticals that we're in, and do it exceptionally well. I really feel strongly that, you know, job one is, can we get our distribution in current and new channels, the differentiation in our benefits and our proprietary technology? Can we get new sales to a point where we're replacing the attrition? And kind of come at that from both angles. Grow new sales like we've been growing new sales while driving up retention to pretty near record highs.
So we're really kind of closing that gap, and why that's important to us is once you've closed that gap, then the change in existing that Kelly was describing, that all becomes upside. So when we think about unit growth, with unit being a WSE, a fair amount of that has been a little bit outside the control of TriNet. The things we can more directly control are the sales and the retention pieces. Getting to that level, and then getting back to that historical 8%-12% CIE, you can sort of see the very significant, you know, leverage to the top side. So that's really been our goal: continue the momentum on the sales side, continue to deliver the service improvement that's helping us on the retention.
So, just to be clear, when you say 8-12, you think that that is a reasonable target for the business, to hit 8%-12% CIE growth?
It feels to me... like, if you look at the history, we've been actually well to the north of that range through stretches of time.
Mm-hmm.
It's actually, you could see more towards the top end of the range, and you've seen stretches-
Right
... where we've been at the current levels, where we're kind of low single to flat, to, you know, recent quarters, slightly negative. So, I mean, we are optimists at TriNet, but I'll tell you, if you spend time with our customers, you can see some macro things improving, interest rates improving, and you could see this group coming back for sure, back into that historical-
Right. But that includes new logos, right? I mean, you're including new logos and... No, or is that just the installed?
8-12 is just same-store sales.
Sales. Really? Wow! Good luck. That's an ambitious target. Yeah. Okay. And then, just before we, before we leave the insurance margin piece, 'cause we talked about that a moment ago. So there's been some confusion, I think, about what could potentially happen, which the Change breach-
Mm.
-and the timing of claims. So my recollection is that you provided some accrual for incremental claims that may have come in after the end of the quarter for that March, I don't know, was it March, April time frame? I'm not quite sure when it was, but can you just give us a quick update on whether you've seen the incremental claims come in as a result of the breach, and just the timing's off, and-
Yeah.
how we've accrued and how we're covered, if you will?
Happy to address that, David. So in March, just, you know, Change Healthcare had a cyberattack.
Right.
You know, it is a very large claims processor and pharmacy benefit manager. We just weren't comfortable with looking at the paid claims data and coming up with an insurance pick or reserve pick based on that.
Mm-hmm.
So we did use a method to do that. Looking back, after seeing our April claims, we do believe that we were more than adequately reserved based on our March claims pick. And when I look at March and April together, you know, we're right on track to, you know, the mid to upper part of the guidance that we provided for second quarter. You know, we don't have May finalized yet, so don't have a lot of new insights on May paid claims, but I'm comfortable with the guidance that we set out. We do believe that all the Change Healthcare stuff has kinda adequately worked through the pipeline as of now.
Okay. Got it. And then, going back to just the unique characteristics of your PEO model, in terms of taking risk, and, and maybe this is a question for both of you. You both come from the insurance industry, but Mike, you're a new pair of eyes on the business. Is there anything that as you've gotten to know the business over the last couple of months, that makes you think, not that you would take more or less, less risk, but just any, any things that you think you would tweak about the model, you know, in terms of-
Yeah
... how you're taking risk and how you're marketing the plans, et cetera?
Yeah. That's actually a really good question. But I, you know, nothing jumps in terms of the level of risk-taking that, you know, time will tell, but it feels pretty comfortable. I do think that the team is thinking hard and thinking about ways we can invest to get upstream in the data. So we were talking about Change Healthcare and how that sort of transpired. We're talking about sort of elevated claims experience that we were seeing coming through in January and February.
Mm-hmm.
I think there's just a lot of value for us because of the resources that we have and our pricing patterns to just... If we could get another two weeks, if we could get another three weeks upstream, into that through partnership with our carrier, partners.
In terms of them sharing data back with you?
the level of data-
Yeah
... the quality of the data, and the timeliness and pace that the data comes in. I think all those things are nice unlocks for us and for our customers as well. We provide a lot of choice. I think that a lot of choice is good, getting better and better at how we present those choices.
Mm-hmm.
So that, you know, start with an advisor in the brokerage channel, our own direct sales team, the small business purchaser, all the way to the WSE at time of enrollment. How are we presenting the best options and making that a simpler, cleaner, experience? I think there's probably four or five dimensions. We're just continuing to invest and lean in on the benefit side. I think it can create, you know, better experience, better value for the customer.
Is that, is that a negotiation with the payer to provide that incremental data stream to you, so you could design the plans a little bit better? Is that...
Yeah, I think it's a partnership, really.
Right.
I mean, in general, it's the sort of we're all trying to do the same thing-
Mm-hmm
... which is to see things as early as we can to help a customer and to help impact, you know, outcomes ultimately for the patient, for the member.
Mm-hmm.
I think the incentives are there. I think it's getting, you know, getting the attention, getting resources on both sides aligned.
Mm-hmm
... to make, you know, to make the connects.
Right.
Yeah. I mean, to add on to what Mike said around WSE choices and really help them bend the cost curve, we have implemented recently, David, some benefit decision support technology to really, to Mike's point, simplify the enrollment experience for the WSE. Part of that over time will come sort of point of sale type information that gives them better access to understand the cost of individual procedures, you know, sites of care, things like that-
Navigation-like stuff.
... to really help them. Yeah.
Is that, is that what you're referencing?
What?
Navigation type of tools.
Navigation, AI-enabled tools-
Yeah
... that really help, both the WSE and the employer reduce the amount of, you know, with high-quality care-
Right
... that they're gonna pay out in the end, and, you know, it helps them really bend the cost curve, and that's what we're really working on, finding ways to enable that with our customers.
Right.
I think just, David, you know, like you know that space pretty well. It's not just, you know, the call quality of the data and the technology to help enable that and the service that you wrap around it. It's the context it's coming. So when it's coming through TriNet, TriNet is uniquely positioned, I think, because of the business model, where this is the company that's answering my HR questions. This is the company that's on my paycheck, that's, you know, handling my withholdings and questions with my pay stub. And so it's a relationship that's a much broader, more trusted.
Mm-hmm.
And so the ability to influence and get engagement in some of these tools, I think, I think we're in a, an interesting spot.
Right. So, I want to make sure we cover this as I wanted to talk about Zenefits. So you made this strategic decision back, a couple of years ago to buy your own platform, right? And it was two-dimensional: control the technology, as well as to provide a migration path for when somebody wanted to bring their HCM platform in-house and manage it themselves when they got to that scale. So, you know, I don't know if you can provide us any updated thoughts, you know, on how that's going, how you're viewing that, any initial data points that would suggest some, I don't know how many customers have reached that point where they self-insure and have decided to stay, but-
Mm-hmm.
Just throw that out there as well. Anything you can do to kind of help us better understand how that's going.
Made the investment in Zenefits primarily around that technology, and having spent a lot of time in the benefits space, knew well kind of the quality of the benefits administration technology part of the platform. You know, I think we've been really pleased. I've been actually a little surprised at the upside around the quality of the payroll and some of the broader HCM-
Mm-hmm
-capabilities that have come with it. We actually started with benefits and sort of piece by piece, making some of that technology available and integrated into our PEO processes. We've improved and separated out the payroll, and we're working through that on the SaaS side, and we'll work our PEO customers in over the coming quarters. Doing it piece by piece versus a major switchover. So I do think owning our own technology, many of the PEOs out there, as you know, rent common platforms, and so the ability to sort of own it, control it, set the roadmap, I think is a huge advantage for us over time. With the acquisition, and Kelly can certainly speak to this, we wanted to get to profitability.
We're at that point, through repricing, and looking at cost synergies where it's positive for us. So in effect, you know, that's a very efficient way to fund a lot of your technology roadmap, is through a business that's funding itself from a profit point of view.
Mm-hmm.
I think it's a really good opportunity, and we've got teams actually working right now on what is that life cycle of the PEO customer, and is there an opportunity to sort of bundle and unbundle attributes-
Right
of that when you're all on a common platform, and you've got the ability to be a little bit more modular in the approach? So that's, that's an exciting thing for us, extending, you know, some part of that service proposition further into the life cycle is a, is a good opportunity for us. It's relatively nascent at this point, but I think it's one of those things that we're running down.
Right. And, you know, I just want to cover your—'cause one of your competitors, one of your primary competitors, cut a deal with Workday, which was confusing in some sense because Workday is typically targeting a much larger customer, right?
Yeah.
Any thoughts on the contrast between what you're doing and what your competitor may be doing?
No, not, not too much specifically. I just think in general, it's a great data point that says technology is becoming more and more important part of our business. I think it sort of underscores, you know, a little bit the strategy that we have had to own that technology and, and bring it in and put an emphasis on it. In general, I think it sort of plays a little to the idea of, hey, how does the, how does the model, the PEO model, need to evolve as a customer grows and becomes more mature in how they think about things like, you know, self-insuring, like you said, on the healthcare, side. In general, though, I really like the ability to do that on a common platform.
So you're starting the PEO in a place that you're gonna sort of take them all the way-
Right
through that life cycle. For us, I think that's pretty important.
So we're almost out of time, or we are out of time, but I just wanted to ask one quick thing because it'd be interesting to hear your comments on M&A. You know, you've done capital returns, you've done, you know, very consistent in terms of what your strategy is there and how much cash you're returning. M&A, very challenging in this business, right? Because you're buying tail risk. Any thoughts on that, you know, kind of...
Yeah, I mean, first and foremost, we see a lot of opportunity to grow organically.
Yeah.
That's gonna be our focus. We do have a really strong cash generative business, so it does present opportunities over time. Returning, returning to shareholders is a priority for us. I think M&A, we're gonna be opportunistic about that. I would look for us to probably be on the smaller side and more capabilities-
Mm-hmm
-an extension driven, than large and transformational, but-
Right
- opportunistic.
All right, good. I think we're over, but thanks again. Really great to see you guys.
Thanks, David.