Terrific.
Zoom.
That's TriNet. It's a terrific way to close out the day, so we're TriNet. We've got relatively new CEO Mike Simonds. Simonds is right. I'm Kevin McVeigh, part of the UBS research efforts on TriNet. We have Alex Bauer here with us. Typically, and again we closed out kinda last year with Burton, so it's nice to almost close out this year with you, Mike. Maybe since you're relatively new to TriNet, maybe a little bit about yourself. I think it'd be helpful. You know, it's, you know, you're filling some pretty good shoes and doing a nice job with it. But a little bit about yourself, what drew you to TriNet opportunity, and then we'll talk about TriNet more specifically. But since your first time with us, maybe a little bit of background and what kind of drew you to the opportunity.
Yeah. Thanks, Kevin. I appreciate you inviting me. Excited about it. And yeah. So I'm coming up on ten months.
Yep.
At TriNet here. I kind of have built a career prior to TriNet in the employee benefits business on the insurance side. I knew TriNet by reputation. It's been terrific just getting to know so many of our colleagues and getting to spend time with our customers. We target the SMB market. We target verticals that are higher growth, tend to be higher income, tend to value employees, and target lower employee turnover. So our value proposition around being a sort of a premium provider, taking risk, which enables us to do some different things on the benefits side, has been a pretty good fit.
And in terms of, you know, if you think about the go-to-market motion, and we've done a lot of this over the course of the day just because I think the nuances of the TriNet model and Insperity relative to maybe ADP, Paychex, maybe talk to that a little bit, in terms of competitive positioning. And, you know, I think one thing that maybe you don't get enough credit for is I think your retention's higher than what folks think. And I think to your point, that kinda talks to the caliber of the client, the duration of the client. So, you know, talk about the competitive positioning a little bit amongst the other, you know, publicly traded peers, if you would. And then a little bit on the retention.
Then I wanna talk about the client mix a little bit because I think it's really impactful in terms of you know, particularly the areas where you lean, whether it's financial services, things like that, that help you kinda manage some of the claims risk, which we'll.
Yeah.
Get into a little bit too.
Yeah. And that's, it's a great question about sort of what's the competitive mix and how does TriNet differentiate what's sort of our value proposition in the go-to-market. I think it's just like it's worth saying, Kevin, as you know, it's like this is a fantastic market from in terms of like the addressable size of the market, the penetration, you know, 10%-12% of what it could be. I think things like healthcare cost trends and the complexity of healthcare. It's very painful in the current moment. But that pain for small businesses just makes our value proposition as a PEO that much stronger. A small business trying to sort healthcare today and into 2025 and 2026, you know, they need help.
And that's what we do by, you know, bringing large employer benefits, sophistication, bargaining power into really a bunch of their HR support, including benefits. And so we really like the market. We see sort of tailwinds around healthcare cost and around complexity, the distributed workforce post-COVID. You're now dealing with payroll taxes in multiple states. Even small firms will have employees in six, seven different states working remotely. That all sort of underpins what we try to do as a PEO. And for us, like I said, we really do target a segment of the SMB market. It's a big segment, but it's a little bit different than some of the other competitors. We do sort of focus in on the smaller end of the market. So we're looking at average customers that run sort of 20-30. You know, we serve much, much larger.
But new customers coming on at that size, they tend to be higher growth. Net hiring in a normalized environment's really important to our model. And for us, it is about being a premium provider. We're typically not the least expensive offer out there. But through the acquisition of Zenefits, which I'm sure we'll talk about, I think having proprietary technology and having, you know, really strong, highly engaged colleagues that we are just uniquely focused on the PEO space allows us to bring something that's differentiated into the market.
I think you made an important point on the pricing. Maybe we'll talk to it a little bit. You're not the lowest, right? But it's, I think, the service and kinda the tailored plans that help kinda drive the retention, some of the pricing that you enjoy. So maybe give us an example of, you know, go-to-market motion. You know, I deal with a lot of the kind of hedge fund clients we deal with actually use TriNet.
Right.
So maybe what's so unique about that, and I think one other thing that highlights it too is and you know, I just referenced Burton 'cause it, you did a nice job. But you would say in certain instances or certain plans, companies couldn't go out and procure on their own.
Right.
And I think that's one of the real differentiators for you folks. So maybe talk to that go-to-market motion, maybe with a little more vertical specificity.
Sure. You know, if you're in a high growth, one of our verticals, high-tech financial services like you mentioned, you wanna compete with very large, very well-established firms. And when you go into the small-case commercial market, the benefit plans that are available to you are just different than what you could get if you were a scaled enterprise player. And so our ability to sort of around the geographies and the verticals put together benefit bundles, carriers, plan designs, I think is something that's pretty unique and something that we're actually leaning into. It was one of the first things as I joined the company was to carve out the insurance services group. We brought in some new talent. Tim Nimmer, who is Chief Actuary, head of underwriting pricing for Aetna and prior for Aon, kinda runs that insurance services group.
And he's added some new talent. So we're gonna lean into getting better and smarter about kind of the value proposition from a benefits point of view to that discerning buyer. And I think that helps us with strong service build. Yeah, I would agree. Very strong retention. We're sort of enjoying, I think, a record retention here for TriNet.
Mike, I think, to your point, you've been on board 10 months. And maybe we'll weave this into benefits. Let's talk about Zenefits first 'cause I think it's important. Not only, you know, you talked about, I think, the average client size scaling a little bit. As Zenefits help Zenefits help that process in number one. And then number two, I think Zenefits allowed you to probably more efficiently re-architect your tech stack, right?
Right.
which was something, quite frankly, that maybe some of your other public peers weren't able to do. So maybe talk to how important that. I think that deal's three years already, which I can't believe.
Yeah.
But maybe talk to that a little bit 'cause I think it was right around the holiday times. I think it happened out in just on Christmas Eve, right? In 2021, something like that. So, maybe talk to that a little bit 'cause I think part of it obviously, there was the technical, technological aspect of it, but there was also the go-to-market motion that allowed you to flex up market a little bit more. And.
Yeah.
Maybe talk to that a little bit.
Yeah. No, you're exactly right. I mean, the primary rationale for that acquisition before my time, but I'm the beneficiary of it.
Sure.
Was bringing modern technology into the organization. And in particular, you know, good around most of what you need to do to execute on a PEO, particularly good around benefits. And that was the background of Zenefits. So again, it sort of plays to our competitive strategy around that comp sort of part of the offer. But yeah, that's been our strategy is amazing technology and even better people that have come with that acquisition that really elevated our engineering game, elevated our product game. And so we've been sort of module by module, not a sort of a big bang switchover, but been bringing that technology into the core of our customer base. I think that's helping us. And we have a long runway still to go, take a lot of manual and complex processes, simplify them down, and automate them.
You know, this year, I think you may have noted expenses were very flat over the course of the year despite sort of inflationary pressure. You know, I think we've got a runway still to manage expenses while reinvesting. And I think that technology is a big piece of it. So I get pretty excited about this sort of repetitive cycle of getting more efficient, improving the experience for customer, taking the gains from that efficiency, and redeploying it into the things that are gonna differentiate us and help us grow going forward.
Makes a lot of sense. I always say kind of, you know, disruption can be opportunities for your folks. And when I think about the evolution of the PEO sector over time, you know, and, through multiple decades, there's been kinda certain transformational events, whether it was Obamacare.
Right.
Whether it was COVID. Maybe talk to that a little bit. I think one of the things that impressed us all the more was, you know, there was Obamacare, which I think drives some meaningful adoption, but then when they kind of legislated out the individual mandate, you still saw relatively resilient to the model. So maybe talk about, you know, kinda the importance of those changes, the kind of.
Yeah.
Sub-function change in COVID. And then, you know, is there anything you see near term? You know, 'cause again, I think any type of change is good for the business.
Right.
From a regulatory perspective, and it's still relatively early with the new administration.
Right.
Anything you'd think about just the puts and takes more from an industry perspective?
Yeah. I mean, I think, I think you're right on the last point. So it's a little early to say, but certainly optimistic. And it, it feels as though at a federal level, a more sort of favorable business climate from a regulatory point of view, that's very good news. We've had depressed sort of, net client hiring in our customer base. Like you had said, it's sort of high single digits to low double in a good, healthy year because of the segments we target. It's been pretty flat. So anything that sort of is, is conducive to growth and investment in our customer base is very, very good. We, we grow along with them. And that growth, that net hiring growth, comes with very little acquisition costs and just modest incremental service costs. So that's, it's very healthy new business as it starts to come in.
I will say, like having spent my career in regulated business, when you have periods of, you know, less action at the federal level from a regulatory, certain states come in quickly to fill that gap. And so you just have sort of this interesting dynamic where the overall climate may be more conducive, but you may actually end up with more state-level complexity, which again is actually a tailwind for our business. So post-COVID, you have even small employers that are dealing with rules, regulations in multiple jurisdictions. They've got this distributed workforce. And again, it's like they gotta manage all that on their own. In the PEO construct, we can help them do it. So I think there are some things that, you know, the timing's very uncertain, but sort of line up as tailwinds for our business on a go-forward basis.
Interesting. You mentioned you mentioned the state level because I think when you think about the initial kind of founding of PEO, if you would, it was kinda concentrated in Florida, Texas, California, and it feels like the states overall generally become much more conducive to the PEO model.
Right.
which I think helps you.
I think that's right.
You know, and.
Yeah. The, you know, the other thing is a super interesting question, Kevin, is like a second-order impact. So you mentioned the impact of Obamacare and some of the legislation. And that did serve as a catalyst. I think there's a second order, which is a lot of that legislation meant sort of required minimum loss ratios. And carriers responded in the small group commercial with capping broker commissions. And so what we've seen is a lot of consolidation in the health brokerage market. And as these brokerage firms get larger and more sophisticated, what they're concluding is because of those dynamics, the small business is not as profitable a part of their portfolio, which I think over time creates a real opportunity for us at TriNet and for the PEO business, which heretofore has been sort of a sometimes co-op, sometimes compete.
I think, you know, at least for us over time, we're not in the brokerage business. I think increasingly see employee benefits brokerage enabled by some of the changes that were regulatory in nature as a good grower for us.
That's helpful. I mean, and maybe switching gears a little bit, Mike, 'cause the DNA of the revenue's kinda shifted a little bit. You know, historically, we've always considered it kinda two-thirds service, one-third insurance. I'd say over the last five to seven years, it's been a little more balanced, 50/50. Feels like it's shifting back to services a little bit. So, you know, one thing we try to highlight to investors is you've obviously done a really, really nice job managing some of the, you know, insurance costs, which, you know, I know they've increased a little bit recently.
But it might be helpful for the audience to go back to kinda 2018 where, you know, I think there was a real focus on maybe a little bit more profitability that helped kinda the revenue growth despite kinda relatively flat WSEs.
Right.
Heading into COVID and kinda coming out of COVID, one thing we always gave you full credit for was being really thoughtful as to what the margin was through COVID because you were clearly over-earning.
Right.
I don't mean that in a negative way. You were being balanced in terms of managing that margin given, you know, what was just a really unprecedented time.
Right.
So maybe talk to that a little bit and then kind of where we are today.
Yeah. I think for us, we've learned a lot through the period. If you think about not just health insurance, but all the insurance that we're on risk for, we target between an 87% and a 90% insurance cost ratio. And you're right. During COVID, you know, people were delaying care. You just saw much less inflation coming through in the healthcare claims. And so we were below that ratio. And so we were sort of intentionally in our renewals, being thoughtful and working to bring that insurance cost ratio a bit more back into that range. You know, hindsight's 20/20, but we certainly saw healthcare cost inflation start to take off last year, and it sort of accelerated through the early part of this year.
I think for us, what we will always do is prioritize just predictability on that insurance cost ratio. So, like I said, one of the first things we did was carve out the insurance services group and really invest in the quality of the talent. We've sort of spent some time redesigning process and putting a bit more discipline in the full sort of pricing through renewal processes. At the end of the day, it's not to try to create outsized gains from that part of the business. To your point, I mean, at the end of the day, we wanna grow the number of customers. We wanna grow the number of WSEs. We wanna actually give more predictability to our customers primarily, but certainly to investors as well around that insurance cost ratio.
That helps, and just along those lines too, it's probably helpful to remind the audience, you know, the pricing isn't one time, right?
Yeah.
So if you go through the renewal process just directly, I think there's, you know, two or three times where you capture, you know, meaningful, you know, reset of pricing and go to the market. So maybe remind us where we are in that.
Yeah. And I think it's just like if you're not familiar with the PEO model, it's a really important point. So one thing that we do at TriNet is as customers come on, they go into quarterly renewal cycles. And so everyone has an annual contract, but the cohorts come through. There's a cohort that comes through to be repriced. And that allows us to adjust, you know, as we see changes in the external sort of cost environment. We had a big cohort go through October 1st. We've just gone through another one getting ready for January 1st. So it gives us that ability to adapt.
And what's really, you know, amazing, I think, coming into this from the outside is if you're a carrier, you really just have the insurance product, and you're repricing the insurance product, and your customer's making a decision based on that. In the PEO context, the insurance is just part of the bundle. And when you're providing the payroll, you're providing the HR support, you're providing the compliance support, and you're providing the benefits, you know, the stickiness of that customer is just very different. And so their willingness, you know, again, assuming that you're being predictable about it and it's justified, our ability to sort of place the necessary rate increases and maintain high retention has been a real big benefit of the model.
Yeah. Listen, I think one thing that's important, right? The core of what you're doing is helping companies deliver a solution that they would be unable to.
Right.
Deliver on their own, right?
Exactly.
So if they were to go to try to procure that, and they have a pretty good sense of what, where the market sits, and, you know, also might be worthwhile just to revisit because, you know, as we were scaling up on the sector a long time ago, obviously, but the kind of natural inclination was it's healthcare. Well, it's not only healthcare, could be workers' compensation.
Right.
It could be all different types of insurance that you're providing. It's really client discretion in terms of what they wanna take from the offerings you're providing.
That's right. That's right. Yeah. And it's, it's both kind of the like to your point, it's the breadth of the offering. It's also sort of the integration of the offering. So you may be able to procure, you know, 60% of the bundle of services that TriNet provides with separate vendors. Actually having them work together on an integrated basis is a real challenge. And if you think about, you know, you've got 45 employees, you probably have an HR staff of one or two. You want them focused on a lot of other things besides making sure that, you know, payroll and withholdings and benefits and deductions and that all those things are happening sort of seamlessly behind the scenes.
Again, switching back to kinda your transition over again. You've been here about 10 months or so. If you think about kinda your expectations coming in, you mentioned earlier you kinda change out the actuary, things like that. Anything on the go-to-market? And is it the technology that's allowing you to do that in a more thoughtful way or?
Yeah.
You know, the market shift? Just what's helped drive some of those decisions?
Yeah. I'm really excited about the distribution because we do operate in this underpenetrated market. Our biggest competitor, you asked about it, and we have, you know, very good competitors in the PEO and multi-vendor kinda solutions. The reality is like inertia. That's our biggest competitor. It's just getting a small business that's got a million things to go on to sort of sit down, understand the concept of the PEO, invest the time. 'Cause once we get to that point, we're gonna be able to create a lot of value for that small business. So I'm excited about a few things. One is we've grown our sales reps by about 15% year over year. And what's really exciting about that is once you have them, the real magic starts to happen at 36 and 48 months of tenure. And we're about 18-plus months into growing the sales force.
We're starting to see, you know, some of those reps. And over the course of 2025 and into 2026, they're gonna be hitting those key sort of productivity thresholds because the PEO is a complex concept. So you need repetitions. You need to build your, you know, your local ecosystem out. So I'm really excited about that. Like I mentioned, when you've got tenured salespeople, they're just gonna have more credibility with the employee benefits brokers that we target. I think that's a way to speed the sales cycle and do it in a sustainable way. And yeah, I think the technology absolutely helping us just get better and better at identifying leads, figuring out who's gonna be a good fit for PEO, yes, but for TriNet in particular, so that we just get more efficient in terms of our cost of acquiring new customers.
That makes a lot of sense, you know, particularly given, I think, to your point, some of the technology. You know, I think one of the things you've talked about, as the model's kinda started to shift a little bit is potential alliances, things like that. You know, if you think about, you know, again, I think you were able to really efficiently reset your tech stack through Zenefits. But if you think about, you know, it might be tough to comment on what Insperity did. But, you know, in terms of different types of alliances, how do you think about that potential as.
Yeah.
As another growth driver for the business?
Yeah. I think part of the value of owning your own technology is, like I said, is like integrating the service delivery and the technology together. And I think we've actually sort of captured some of those cost synergies. There's a lot more that we can do over time on that front. First and foremost, it's actually not the cost synergy. It's the customer experience. They don't wanna be calling. They don't wanna be chatting. And so kinda baseline digital automation layering in. We're starting to see the AI use cases because, you know, as we do the work to make sure that our data is housed in one place, you got one source of truth, and it's clean. There's all kinds of interesting things that we can do there.
But yeah, I mean, I think it's in general, when you've sort of taken it module by module and built it, one of the very nice things it enables you to do is actually unbundle over time as the customer grows. Because when you're an SMB-focused company like we are, very successful SMBs become medium-sized businesses and enterprise-sized businesses. And so at some point, they're gonna outgrow that PEO model. But the reality, as you knew, Kevin, is they don't know how to outgrow the whole model at the same time.
Right.
It's pieces and parts. And so again, when you've got a modular and modern technology stack, it, I think, it's opening the possibility of beginning without the clunkiness we have today to sort of unbundle and keep a longer customer relationship over time.
Right. The more efficient, the interoperability, the longer.
Yeah. Exactly. Exactly.
You mentioned a point earlier, but I think it's important. You know, the average ramp on the sales force could be 36 - 48 months to function the complexity of the PEO.
Yeah.
Maybe talk to how much 'cause I think technology, particularly through GenAI, whether that's kinda onboarding clients, you know, ingesting benefit plans, you know, the back office on the call center, the front office, you know, where are we in that journey? And, and, you know, 'cause we think, again, that could be another, you know, I think our view, more holistically across the sector is maybe not necessarily step function change from a revenue perspective, but clearly, you know, potential real margin benefit.
Yeah.
And then, the debate becomes what do you do with that? But you know, talk to that because again.
Yeah.
I think, you know, this, it's a very much more complex delivery than traditional, you know, payroll. And it's not to minimize any of the other go-to-market motions, but the healthcare is much more personal, much more complex. The plans are more difficult to.
That's right.
Aggregate and implement. And so maybe talk to that a little bit.
Yeah. I mean, I think first is like you have to have a firm sort of discipline around your data set. And so I mentioned insurance. Well, actually, even before that, one thing we did back in the first quarter was we consolidated our entire data and analytics team. And we actually sort of had some pretty remarkable talent, but it was distributed in pockets around the organization. And so you ended up with different definitions in the data set. And so one of the precursors of actually being really effective from digital and certainly with the GenAI piece is like data's kinda the foundation that it's built on. So we've already started to make some really good steps in that direction. I think you're exactly right. There's some marginal adds on the distribution effectiveness.
I don't think it's step change at this point. I think our use cases that we're most excited about are the ones that are about improving the service and the quality because we do operate in a really complex environment. So most all of our use cases are human-in-the-loop at this point. But instead of spending, you know, 15 minutes or 20 minutes researching what the paid leave law in the municipality of San Francisco is for a particular WSE, you know, that answer's being served up to our colleague to make it more accurate, quicker, faster. They can serve more people over time. So I think, you know, we're at the kind of first phase of a multi-phase opportunity for us. But I get pretty excited about it because there is a lot of complexity.
There are still a lot of things that are done manually, that I think our colleagues can get freed up from so they can do what they only they can do, which is build relationships, think critically, you know, help consult with our customers.
Sure. And I guess if you think about the model longer term, like how do you think about WSE growth relative to, you know, sales force growth relative to margin profile of the business? And, you know, just any thought, thoughts around that? And, you know, as you kinda build it up from a revenue perspective, kinda new logo, cross-sell, and obviously the WSEs would factor into that as well.
Yeah. Yeah. That's right. I mean, and you know 'cause you followed us for a long time. In general, like we've done quite well, but with a pretty stagnant WSE count at TriNet for a pretty extended period of time by shifting the mix towards higher value segments, you know, to the, you know, pricing well for the insurance aspects as that inflation drives growth. You know, there's been a good growth story there, but it hasn't been about expanding the customer base. So I kind of, Kevin, I think about it pretty simple. It's like one. I would just say we're gonna price to risk on the insurance. And right now we're in an inflationary cycle. Our insurance cost ratio is a bit high relative to our targets.
We have the tools and the processes in place. We'll work that, and that's kinda something we need to do. But if I look past that, boy, you know, we do get excited about what we can do to expand the distribution, drive retention and productivity through the sales force, open up the health brokerage channel. I think that enables us to get into some new geographies where we're underpenetrated, more effectively as we look at it. And then I think, actually, the retention is strong. I think we can continue to do better on that front. I do think we still lose customers that outgrow the model a little bit because of the clunkiness of some of our processes.
As we get smoother and better, more consultative, I can see us adding quarters, and potentially years to the average tenure of the customer base over time, so I think there's a lot of angles we can get at to sort of break out of a relatively sort of flat WSE count, but do it, I think, in a prudent, disciplined way.
Sure. And just maybe a minute on the healthcare cost, Mike, just 'cause it's important. Do you think that's more non-normalization of kinda discretionary? You know, when you think about some of the drivers of that, what's been driving it? And do you know, it's a tough question, but just.
Yeah.
Maybe try to frame that a little bit more.
Yeah. I think for us, we've, and it's really important. Like we certainly use our data set, and that's a really effective one because of its granularity. But we also use our carriers and use consultant partners so that we get access to bigger data sets. And I'd say in general, you have a catch-up to your point, COVID, a lot of deferral of care, elective surgeries because things were deferred. When they do get treated, they tend to be higher cost, and so that's coming through. You just have provider renegotiations. Hospitals are experiencing the same inflation. Pretty much everybody is in the economy. But it gets lagged in the pricing in healthcare because they tend to be two and three-year contracts that get renewed, and so that's kind of working its way through.
In general, like ours, and I think this is kind of important. We're not betting on that being a bubble here in 2024. Like we've talked a lot about the fact that, you know, we would see, certainly in 2025, in our pricing decisions we're making today, we're assuming that same sort of outsized growth in healthcare cost inflation 'cause we think it's got a little bit more to play through here in the environment before it tempers.
No. Agree. Agree. I didn't open it up. Has anyone? We're almost at time. Anyone in the audience have any questions? Okay. Anything we didn't ask? I mean, listen, you folks always do a real nice job with anything you wanna highlight as we close it out here.
I know. Kevin, I think you covered it really well. It's but 10 months in, it's like I came in believing that there was a really good growth opportunity here and a really great company focused on customers, and I'm more excited about that today than I was when I joined.
Oh, so it's been a real nice transition, and, you know, there were big boots to fill, right?
That's the truth.
We've been there a long time. You know, not.
I feel like I should be like exactly.
Leaving my chair right now.
Not quite like Alex leaving, but it was close.
Not quite.
Thanks for having me.
All right. Thanks.
Pleasure.
Appreciate it, Kevin.
Thank you all.
Take care.
Thanks.