TriNet Group, Inc. Price & Performance (TNET)

These forward looking statements are based on management's current expectations and assumptions and are inherently subject to risks, uncertainties and changes in circumstances that are difficult to predict and that may cause actual results to differ materially from statements being made today or in the future. Except as may be required by law, we do not undertake to update any of these statements in light of new information, future events or otherwise. We encourage you to review our most recent public filings with the SEC including our 10 ks and 10 Q filings for a more detailed discussion of the risks uncertainties and changes in circumstances that may affect future results are the market price of our stock. In addition, our discussion today will include non GAAP financial measures. Including our forward looking guidance for adjusted EBITDA margin and adjusted net income per diluted share. For reconciliations of our non GAAP financial measures to our GAAP financial results, 10 Q filings or our 10 ks filing which are or will be available on our website or through the SEC website. With that, I will turn the call over to Mike. [indiscernible] Thank you, Alex, and thank you all for joining us today.

It's a privilege for me to speak with you at this important time for TriNet our customers, for our shareholders. I'll be celebrating my first anniversary with TriNet shortly It's been an eventful year and I've learned a great deal. While we've had to navigate a challenging environment, with low customer hiring and elevated healthcare costs, it's given me the chance to see the strength of our business model [indiscernible] It starts with my thousands of colleagues, united around a strong sense of purpose, helping small businesses attract and retain great talent, gain efficiency, stay compliant, and focus on their core business. This team enabled by a proprietary technology platform provides the most comprehensive set of benefits and HR outsourcing services available in the market to SMBs. Having spent much of my career before TriNet working on just one part of this puzzle, employee benefits, I can tell you it is a beautiful thing to see it all come together in a seamless fashion. To see our scale put to work for the benefit of the small and mid sized business. Our customers value our integrated approach to such a degree that even when we need to raise prices, as we have given healthcare cost trends, we still enjoy very strong retention, and a high net promoter score.

We have a strong, durable [indiscernible] The current environment also helped highlight opportunities for us to improve as well. Some of these we addressed in 2024 including strengthening our insurance and revenue leadership centralizing and improving our data and analytics capabilities, and removing lower value spend from our expense base, Some opportunities are bigger and they require disciplined choices on where to invest. As you know, we spent time last year on a rigorous strategic review. I'm excited to share the outcome of that review with you later in the call. And outline how we're becoming a more focused company how we will grow revenues, expand margins, and ultimately create value for our shareholders on a 13% to 15% sustained rate. 2025 will be a year of transition We will work in a measured way to reprice our insurance cost ratio back into our targeted range and exit 2025 in a much improved position. While we expect strong retention, the size of healthcare price increases will modestly increase attrition, and dampen new sales compared to the first half of twenty twenty four. We will also exit our SaaS only HRIS business in 2025. While the technology acquired through Zenefits remains strategically important, HRIS is a market where we don't have a clear path to winning and it has become a distraction Our guidance for 2025 reflects the transition TriNet is going through.

And our goal this morning is to convey both the importance of this transition, and what we believe is an achievable outlook for substantial shareholder value creation over the coming few years. With that, I'm going to pass the call to Kelly to review our fourth quarter and full year performance as well as 2025 guidance. [indiscernible] Thank you, Mike. Our fourth quarter performance reflected a continuation of many trends we experienced during 2024. While we saw some encouraging signs, business hiring remained slow as SMBs continued to navigate high interest rates and funding costs along with muted demand. [indiscernible] While new customers value our services, these sales were down year over year as they were priced to reflect the elevated insurance cost environment. [indiscernible] also drove record retention for 2024 even as we renewed business at higher rates. Mike will spend more time going through our strategy refresh in detail, but a key reaffirmation from it was that our customers benefit from differentiated service coupled with purpose built technology. Given this, we are narrowing and intensifying our focus on PEO and will exit the HRIS software only business. The underlying Zenefits technology will remain the core of our digital transformation and the backbone of our nascent ASO product called HR plus This offering pairs our strong service model with our HRIS technology.

We have scrutinized operating expenses, including staffing and our office foot [indiscernible] This review led to a restructuring charge of $49,000,000 related to exiting our HRIS business and capturing those future savings. [indiscernible] let's dive into our financial performance in greater detail. Total revenues grew 1% year over year in the fourth and for the full year.

Both in line with our guidance. Note that we have reclassified interest income as revenue as it's an integral outcome of our core business operations which didn't change the year over year revenue growth percentage. Total revenues performance for the year was largely driven by a consistent average number of co employed WSEs, a low single digit rate increase, partly offset by a shift in vertical mix, which reduced average admin fees and benefit participation levels. Customer hiring remained low in our technology vertical, which but we did see some pockets of improvements, most notably in financial services. We finished the year with approximately 361,000 total WSEs up 4%.

As a reminder, total WSEs include platform users, who are accessing our platform as well as co employed WSEs receiving the full benefit of our PEO services. We ended the year at 330,000 co employed WSEs down 2%. The decline in co employed WSEs was largely the result of hiring within the installed base remaining just over 1% for the year and new sales just below total attrition. As I said at the outset, fourth quarter new sales performance came in line with our forecast while pricing new business appropriately for the current and expected health cost environment. Professional services revenue in the fourth quarter declined 4%, largely due to lapping the 2023 rollout of an annual client based technology fee. Are suspending this fee and do not expect to be charging it going forward. For the year, professional services revenue increased 1%. Our PEO revenue in the year grew 3% included a modest pricing uplift and the in year benefit from the client technology fee as well as a 19% decline in our combined HRIS and ASO revenue. [indiscernible] As we exit the HRAS SaaS only portion of the business, these revenues will decline meaningfully in 2025, partly offset by increased revenue from customers who buy ASO services.

The cessation of the technology fee and the exit of the HRIS business are both included in our 2025 guidance. Insurance revenues grew 2% in the fourth quarter, Consistent with the year, healthcare participation rates within our co employed base were slightly lower, partly offset by rate increases. Insurance revenue for 2024 grew 1%. [indiscernible] expect to see the benefit of our renewals on insurance revenues built throughout the course of 2025. Insurance costs in the fourth quarter grew 12% reflecting the trend this year of higher health cost inflation and utilization. Our normal seasonal pattern was slightly amplified as our pooling limits reset in October with more high cost claimants. The pattern of workers' comp claims was different this year than in prior years. For the year, workers' comp claims were generally in line with historical trends. Rather than being distributed across the second and fourth quarters, benefit from favorable prior period developments this year was heavily weighted to the second quarter. This contributed to the higher ICR this quarter. For the year, total insurance costs grew 8%. Our fourth quarter insurance cost ratio came in at 95%, within our guidance range and we finished 2024 with an approximately 90% ICR also in line with our updated outlook.

Excluding our $49,000,000 restructuring charge, operating expenses in the fourth quarter were down 1% year over year and down 2% for the full year. Total intangible impairments were $25,000,000 largest portion of that was $23,000,000 from our decision to exit the HRAS software only business. $14,000,000 linked to rightsizing of our onshore team to reflect efficiencies, as well as the opportunity to leverage highly skilled global talent. Dollars 7,000,000 related to site rationalization efforts, and $3,000,000 mainly for outside support and other items related to these efforts.

Of the $49,000,000 charge, $17,000,000 of it is cash. These actions collectively will allow us to sharpen the focus of our organization on our value creating initiatives. Unlock Capital to reinvest in growth, and better position the company to deliver enhanced financial performance over the medium term. We will continue to manage expenses tightly. And we expect our 2025 expenses to be lower than 2024 excluding the restructuring charge. We do anticipate some trailing restructuring costs in 2025 albeit much smaller than in 2024. Fourth quarter GAAP net loss per share was $0.46 and full year GAAP earnings per diluted share was $3.43 GAAP earnings per diluted share Our adjusted earnings per diluted share which excludes restructuring, was $0.44 in the quarter and $5.32 for the year. TriNet remained a strong cash generative business in 2024 despite operating headwinds. For the year, we generated $279,000,000 in net cash provided by operating activities and $2.00 $1,000,000 in free cash flow. Accordance with emerging accounting practices, we modified the presentation of our statement of cash flows by moving cash flows related to WSE activities from operating cash flows to financing cash flows. Net cash provided by operating activities now reflects what we previously provided within our MD and A as net cash provided by operating activities corporate. [indiscernible] We generated $60,000,000 in adjusted EBITDA in the fourth quarter and $485,000,000 in adjusted EBITDA for the year.

Over the course of the year, we leveraged that cash generation to fund dividends and repurchase approximately 1,800,000.0 shares deploying $219,000,000 to shareholders. [indiscernible] We also paid down $109,000,000 of our revolving credit facility and exited 2024 with a debt to adjusted EBITDA ratio of two times at the upper end of our targeted 1.5 to two times range. In 2025, our capital return priorities remain unchanged. [indiscernible] We will continue to deliver value to shareholders investing in our value creation initiatives, funding dividends and share repurchases and maintaining an appropriate liquidity Now let's turn to our 2025 outlook, where we've made a few changes compared to last year. First, are moving from quarterly to annual guidance to better align guidance with how we forecast and manage our business. There's seasonality in both how our customers buy and how our business performs. We spend a disproportionate amount of time discussing the seasonality of our business distracting from long term focus of profitable growth. Next, we're adding adjusted EBITDA margin as a guidance metric to help investors better understand how we are forecasting operating [indiscernible] For 2025, we expect total revenues to be in the range of $4,900,000,000 to 5,100,000,000.0 Given the current economic backdrop, are expecting slight volume decreases in 2025, resulting from three factors.

One, our new sales assumption is down over 2024 with most of the decline occurring in Q1 to our more prudent pricing approach reflecting elevated health cost trends. Two, we anticipate attrition moving up one to two points but still below our previous historical norms. As we place appropriate price increases, with our existing customers. And three, we assume CIE growth to remain at low single digit growth rates similar to 2024 levels.

As the year progresses, we expect total revenues to grow as pricing firms. With the volume backdrop, we expect professional services revenues to range from $700,000,000 to $730,000,000 The drivers of this range are first, the overall volume decline which has an approximately $35,000,000 to $40,000,000 impact on our 2025 revenues compared to 2024.

Second, the discontinuation of an annual per client technology fee which contributed $22,000,000 in revenue in 2024. This fee was introduced in late twenty twenty three and charged again during 2024.

Third, our exit from the HRIS business, we expect SaaS only revenues to decline as customers convert to ASO, or transition to another partner. We expect this choice to reduce revenues between $15,000,000 and $20,000,000 as we start building our base of ASO. Finally, we assume a modest single digit price increase We expect our insurance cost ratio to be in the range of 92% to 90%. The year progresses, we expect revenue to build and position us to exit 2025 with an improving seasonally adjusted ICR. [indiscernible] In 2025, we expect our adjusted EBITDA margin to be approximately 7% to 9% Prudent expense management remains a key objective particularly as we reinvest in value creation initiatives. We expect lasting efficiency improvements to come from the expense actions we are taking. The 2025 contraction in our adjusted EBITDA margin includes two short term factors.

First, the midpoint of our guided insurance cost ratio is above our targeted range of 87% to 90%. And second, we expect to carry our HRIS expense base through the wind down of that business before rightsizing those expenses. For those SaaS only customers who elect not to move to HR plus [indiscernible] will continue to support them through 2025. Lastly, given the strong capital deployment for the last two years, our cash and investment balances are lower. We've also experienced an overall decline in rates from recent highs. [indiscernible] Both those factors together have lowered the interest income we are expecting in 2025 versus 2024 by $25,000,000 to $30,000,000 As Mike said, 2025 will be a transition year for TriNet as we become more focused on our core value proposition more efficient operations. This brings our expected GAAP earnings per diluted share to be in the range of $1.9 to $3.4 and adjusted earnings per diluted share to be $3.25 to $4.75 With that, I will pass the call to Mike to discuss our value creation initiatives. [indiscernible] Thank you, Kelly.

And thank you all for accommodating a longer call this quarter. Excited to share our strategy and medium term outlook. And I should also thank many of you for sharing your thoughts and questions with me over my first year. Many of you share my enthusiasm for our large market opportunity and TriNet's value proposition. You've also asked some very good questions about our lack of consistent growth, sustainability of margins, and the pros and cons of taking insurance risk. We undertook a thorough review of our strategy beginning last June to answer these and other important questions about our business. I'm going to walk you through the choices we've made the data that underpins them, and the positive outcomes we're targeting for shareholders, customers and colleagues. Our planned targets three straightforward financial objectives: grow revenues, expand margins and deliver on our capital management priorities. With disciplined execution, these actions support a value creation opportunity of 13% to 15% per year for our shareholders using 2024 as a baseline. I won't spend a lot of time on it now, but it is important to start with the strong position TriNet enjoys today. We serve over 15,000 PEO customers and three worksite employees, and we are the premium brand in the space delivering the leading technology experience with a high touch service model.

Our market opportunity is large and our industry is growing. 59,000,000 people in The U. S. Are employed by companies with 500 or fewer employees. PEOs serve just 7% of that market. And the industry is growing 7.5% per year on a sustained [indiscernible] And we believe this growth can accelerate as there are three major secular tailwinds for our business model First, rising healthcare costs are a big issue that is not going away. And we believe the scale and risk taking in our model creates real value for SMBs more on this in a moment, Next, over 40% of the SMB workforce is now full time remote, [indiscernible] only makes it more complicated to onboard, benefit and administer HR. Layer in the regulatory burden for the SMB with employees across multiple states and our value proposition becomes even more compelling. Against that backdrop, of a growing industry and increasing SMB demand, TriNet's lack of consistent growth stands out. And for us, it underscores the need for us to change. Our plan is to grow revenues at 4% to 6% per year over the medium term. We've identified concrete ways to further differentiate ourselves from competitors on product, direct sales and in the brokerage channel.

Note that our 4% to 6% revenue growth assumes customer hiring remains somewhat muted and I'll touch on that more in a moment. Let's start with our benefits offering and address one of the important questions many of you have asked. Why take insurance risk? Our benefits offering is enabled by our business model. We take insurance risk. This comes with puts and takes. Particularly evident in the current cost environment. In our view, the positives win out over the long term both for our customers and for our shareholders.

Taking risk affords us greater access to claims data and puts us at the table with our carrier partners in designing, and pricing our offerings. However, leveraging data and carrier partnerships also requires an investment in the right expertise, and the right technology. On the people side, in mid-twenty twenty four, we carved out our insurance services group reporting directly to me. We brought in a new Head of Insurance Services and added Outse On the technology side, we are working to solve a long Our benefits platform is efficient, but rigid with limited flexibility to tailor solutions to a customer's need. For example, to hit a lower price point for a cost sensitive customer, a primary lever has been discounting. Going forward, using the Zenefits technology and dedicated change teams, we're building the capability to efficiently tailor offerings, While most of our competitors do not take risk and pass through standard healthcare products and pricing we are partnering with carriers to provide options that meet customer specific benefit objectives. We are driving towards having our first wave of these new offerings in the market by our fall selling season. These options paired with a strong enrollment decision support and administration capabilities of our platform, will further differentiate us in the market.

Our increasingly tenured salespeople and growing employee benefit brokerage channel will use that differentiation to drive new business. Which is a good segue to changes we're making in our go to market approach. We grew our sales force by 14% in 2024 and plan to grow it modestly again in 2025 targeting underpenetrated geographies and experienced rep TriNet. We're also making changes to increase average tenure in our sales force. Given our expansion and some self inflicted struggles we've had in recent years, Our median tenure is just over twenty one months. Lower than that of our peers. A rep with four years of experience produces more than four reps in their first year at TriNet Our strategy for keeping reps longer starts with leadership. And we were pleased to bring in a new leader with a proven track record in building strong, career oriented direct and channel teams in the SMB market. We are redesigning our sales compensation and rewards programs to align incentives with longevity investing in professional development, and building out physical offices to help strengthen our field culture and enhance collaboration. As we develop outstanding expertise in our sales team, our direct sales will benefit. In addition, benefit brokers will be more likely to do business with TriNet TriNet.

Preferring to refer their clients to tenured and experienced salespeople. And the opportunity in the benefit broker channel is big. As I shared earlier, PEOs only serve 7% of the SMB market. In contrast, employee benefit brokers bring health care to nearly 7% or 41,000,000 WSEs in the SMB market. The industry, including TriNet TriNet, have gone back and forth between partnering and competing with brokers. Many of our peers own their own brokerages today. Moving forward, our priority will be to collaborate versus compete. We're adding functionality to our platform to allow brokers access and insight on the clients they bring to TriNet TriNet. We are aligning incentives and establishing joint go to market approaches. While building trust in this channel doesn't happen overnight, I'm excited about the momentum we've already established. As I noted earlier, our medium term revenue forecast of 4% to 6% does not assume customer hiring returns all the way to historical norms. Our base case assumes a gradual ramp in CIE back from low single digit to mid single digit over the next few years. Should we see CIE above that, we would see upside in our overall revenue and margin improvement as well given the low cost of acquisition and incremental servicing cost for CIE.

Of course, we have leveraged much more in our immediate control to improve margins, And next, I'd like to highlight the two most important ones. The first is risk management and improving our insurance cost ratio. We are confident we can return our ICR to our target range over the medium term. On this page, we provide our health cost ratio which excludes workers' compensation. As you can see, the healthcare issue is largely confined to business written in 2023 and the first half of twenty twenty four, representing 15% of our book. The remaining 85% of the customer base sits in the middle of our targeted range. Because our health cost ratio issue is confined and we do not have a systemic mispricing of risk, I'm very confident we can manage our way back to our target range. We took meaningful steps with our October 1 and January 1 effective renewals and we'll continue to work through our customer base in a balanced way over the course of 2025. I fully expect to exit the year in a much better place relative to our target. In addition to ICR, the other significant lever to drive margin improvement is operating expense.

A few big elements will move the needle.

First, technology, especially investments in AI and digital, will lower costs while improving the customer experience. We I arrived at TriNet, we had already begun to reduce our significant tech debt we've accelerated those efforts For example, we process over 2,500,000 customer service cases per year, And over the medium term, we believe we can automate more than 20% of these interactions. Talent strategy is another big area. This is about having the right people in the right places for where our business is going. And giving them the support, and the tools to do their job efficiently. We expect the net effect of these efforts will help keep operating expense growth within a one, to 3% range per year On average, Importantly, there will be a flywheel effect as we create efficiencies We will not only keep overall expense growth in check, we will also grow the share of OpEx that goes into new capabilities. From 12% last year to between 2025% in the medium term. This gives us the room to innovate and improve the value we bring to customers. Naturally, delivering on our growth and margin objectives will translate into strong free cash flow growth. Cash generation is one of the reasons we love our business model.

Over the next few years, we expect to convert approximately 60% to 65% of adjusted EBITDA to free cash flow. That's cash. We can reinvest in the business return to shareholders as we've done in recent years returning over $2,000,000,000 since 2020 through repurchases. Our capital allocation strategy remains largely unchanged. We will continue the dividend we initiated in 2024 and we expect it to grow with earnings over time.

We expect to continue to repurchase shares. And while we will remain opportunistic with respect to M and A, we do not anticipate significant transactions in the medium term and believe our policy of returning 75% of free cash flow on average to shareholders remains a good target. Overall, we expect this plan will create compelling value for investors in the range of 13% to 15% per year on average. Our investments in offering and go to market will drive 4% to 6% revenue growth We will achieve 10% to 11% margins through strong insurance risk management and we believe we can convert between 6065% of our adjusted EBITDA to free cash flow in support of our capital allocation strategy, which translates into 12% to 14% EPS growth, and 13% to 15% value creation when you take the dividend into account. Now, I'm mindful we are communicating our strategy on the same call that we're providing short term guidance for 2025 which on most dimensions is below our medium term outlook. I want to share a little more about the cadence of improvement to help you bridge from our 2025 guidance to our medium term outlook. The changes we are making build momentum through the year and set us up to exit 2025 on an improved trajectory.

There are three primary factors driving this. The first is repricing. We began this effort in the second half of twenty twenty four and it takes about four quarters for the full impact of repricing the 2023 and first half twenty four cohorts to be seen in the P and L. That means we'll see some benefit of repricing in the second half of twenty twenty five but more meaningfully in 2026 and beyond. Next is sales force productivity. It takes time to recruit and hire sales reps that meet our standards and get them fully up to speed. That said, have large cohorts of salespeople entering their third and fourth years with TriNet and we expect this experience along with benefit offering improvements will begin to drive sales increases during the fall selling season with significant improvements for January 2026.

Finally, the exit of the HRIS business lowers our base of revenue by $15,000,000 to $20,000,000 in 2025. And recall that while HRIS revenue goes away relatively quickly, takes a bit longer to take out the expense we will continue to service the solution through full transition of our customers. In 2025, there's a modest EBITDA margin drag related to this dynamic that will not persist into 2026. HRIS was a low margin and shrinking on a pro form a basis. Fully exiting this business will be accretive to margins. In conclusion, I'd like to finish back where I started this call, We are in the midst of a transition year here at TriNet TriNet. But I couldn't be more excited or confident in where we're headed With our large growing market strong customer value proposition, a straightforward and disciplined strategy in place we are well positioned to restart revenue growth expand our margins and create value for our shareholders. With that, we now look forward to taking your questions. Operator?

Thank you. If you change your mind or your question has already been answered, Our first question comes from Jared Levine with T. B. Cowen, Please go ahead. Your line is open.

Thank you. I guess to start here, let's touch on the medium term financial targets I guess the first part here, what are you defining in terms of duration for the medium term? And then can you discuss on the underlying components of that four to six revenue growth Good morning, Jared. Thanks for the question. It's Mike.

If I just took a quick step back, thought it was really important to give the market and investors a sense of not just where we're going to be in 2020 as we look out, over the coming years past that, what's the rate of improvement that we see in terms of value creation. And we did take a little bit of time to lay out the plans the steps we're taking is a lot of confidence in our ability to step through that.

But when we thought about exactly naming the duration, we felt we feel like we're going to learn a lot as we go through 2020, 2025. What's the exact rate of improvement on the controllables inside of TriNet as well as those external as well. And so we left it a little bit open in terms of the exact so we're at that duration of the medium term, but can tell you if you think about the elements of the plans kind of get to the second part of question, our confidence is a little bit different for reasons I think that are pretty intuitive. So if I took the insurance cost ratio our confidence is quite high there that we can manage that through our new business and renewal pricing over say the next three years back into the middle part of that targeted range. When you take a volume driver like CIE, our conferences much less certain given that there's a lot that happens externally. And so we've put in there kind of a very modest improvement, not all the way back to historical CIE norms. And we also provided more transparency to the market by giving you some sense I think it bodes well in terms of your question in that the repricing of insurance back into that middle of the range will be a substantial part of the revenue increase, but we also see volume particularly as we get past 2025 starting to be a meaningful contributor over the long term.

Got it. And then in terms of the ICR can you give us an update in terms of the cost trends there in terms of how those TriNet? Did you see further acceleration? I think on the prior earnings call, you kind of pointed out of preliminary view for 2025 around 90% or so. The current guide you just provided right now is right around 91%. Anything kind of different now versus last quarter in terms of this FY 2025 view?

Yes, it's a great question. And we did sort of give our view about one hundred days ago around where we thought 2025 was lining up and feeling like it's going to be relatively similar [indiscernible] put out guidance today that put this kind of maybe 100 basis points to the midpoint of the guide this year. In general, I'd say not a lot of material change. There is just going to be a little bit of things that we learn as we go through it. But I would just take a step back, Jared, and say, a year into the role, our insurance capability is meaningfully better. We've carved that group out brought in strong leadership, actuarial talent, and just the granularity that we have on our forecast around medical costs, pharmaceutical cost trends and where our customers are positioned relative to their risk is just much, much better it was a year ago.

And as we went through in the prepared remarks, and it's really good and hopefully investors take comfort in the fact that we don't have a broad issue to solve for in terms of that insurance cost ratio. It's a It's a confined part of the book about 15%. And again, that builds confidence that we're just getting better and better at sort of understanding how risk is materializing and how we can manage it on a proactive basis.

And if I could sneak in one more here. Any other potential strategic changes planned over the near term or the potential for additional strategic changes over the medium term here?

I think we're in a really good spot. And like we talked about, I fully cognizant that 2025 is a transition year and our guidance our team and I define teams broadly. As we went through this strategic review, a broad group of leaders engaged on this We looked at a lot of different opportunities.

We asked ourselves really tough questions and questions that frankly many of you have been asked came out of it with a renewed sense of optimism around that SMB market the value that we create with a comprehensive set of HR outsourcing solution and just the tail that we have to this business. So I think as we work our way through 2025, treat our customers extremely fairly in the HRIS business as we exit and upsell to ASO. I think we're in a really good spot with the right plan, the right set of businesses and the right channels opening up to drive global over the long term.

Great. Thank you. [indiscernible] Next question comes from Kyle Peterson with Needham and Company.

Please go ahead.

Great. Thanks. Good morning, guys. I know you guys are shifting from quarterly to the annual guide here, but I just wanted to see if you guys could give us a little bit of help here to think about the seasonality particularly in the first quarter of this year. I know [indiscernible] a good quarter seasonally for insurance costs as some of these deductibles TriNet, but I know there's some repricing puts and takes. So I guess is there any color you guys could give us on how this year's seasonality should unfold compared to historical levels at least kind of how you guys see things today?

Yes. Kyle, it's Kelly. I'd be happy to take that and good to hear from you. You. As we think about seasonality, Mike mentioned few things around what we're doing from a repricing perspective that should put us at a a great spot end the year and jumped into 2026. But we did provide some seasonal charts While it has varied a little bit from year to year, way that we think about it is roughly if you pick pick a point on a full year guide, Typically, like the first quarter tends to be on average about two points worse and the fourth quarter tends or better rather.

And the fourth quarter tends to be about two points worse And so TriNet averages out that way. The other thing though from a seasonality perspective of to remind you is because of part of our professional service revenue, comes from processing unemployment fees, etcetera. The PSR tends to be a little bit more front loaded in the first quarter. Because of different varying state wage basis and things like that. So hopefully that's helpful.

Okay. Yes, that's That is very helpful here. And then as a follow-up, just want to see how much we think about [indiscernible] WSEs for the year. I know with the tech fee going away, I know there's a tailwind to WCS last year. I'm assuming that'll kind of reverse this year, but if you could remind us on what that impact will be and how we should think about it at least based on the the CIE assumptions in the guide?

Yes. It's a great question and that probably is one of the bigger impacts on our overall professional service revenue guide for the year So we are anticipating WSEs to be down year over year And it's really a combination of a couple of factors. One, we want to make sure we're pricing products based on the risks that we see in the market right now, we are assuming a double digit [indiscernible] Health cost increase and want to make sure that we're anticipating that. We can get our ICR back into the range in the future.

And so that is going to have a drag in the first quarter for sure. Then as we think about it, our CIE assumption is pretty similar to 2024. So like I said in the prepared remarks, we were up about 1% a little over 1% in 2024 TriNet we're not expecting much improvement over that. Then when it comes to attrition, had a record year last year. It was great, really good retention year.

But we are anticipating that to tick up about one to two points obviously puts a little bit of pressure on volume as well.

So that's going to create about a $35,000,000 to $40,000,000 headwind on professional service revenue for the year.

Okay. Appreciate all of the color and detail. Thank you.

Our next question comes from Andrew Nicholas with William Blair. Please go ahead. Your line is open.

Hi, good morning. Thanks for taking my question. I guess to start, just wanted to confirm on the medium term [indiscernible] Should we be looking at that in those kind of growth rates relative to '24 or 2025, just want to make sure, I think you said 2024 is the baseline, but [indiscernible] a decent bit of difference on the earnings growth CAGR if we're using '24 versus '25. It is 2024. Good morning, Andrew. [indiscernible] Thank you. And then maybe a question on on the health of the customer How has customer conversations kind of trended over the past couple of months I think depending on where you look, there are some signs of overall SMB optimism out there. Just curious if you have any commentary on what you're hearing from clients and if there's any color you can provide at the [indiscernible] [indiscernible] I think, Kelly, you mentioned a little bit better financial services growth in your prepared remarks just any more insight there would be great. Yes, sure. So I'd say the tone of conversation as I'm spending time with our customers and with our channel partners is markedly improved. And certainly post election, we saw that The sense of at least understanding a belief that certain things would settle in and that we'd be in a more business friendly climate, I think, Pretty broad band, pretty consistently, that's been the sentiment.

And that's materially different, I'd say, than where we were sitting a year ago. So I think there's reasons for some optimism. I think our plan, as Kelly laid out, really doesn't that on an increase in net customer hiring. We're here and there's I think a good chart in the materials, but we're still sitting at is what is a very historical low to what is pretty usually a really important part of our business model, that net customer hiring. I think we continue to watch all the verticals. And and we do see actually reasons for optimism in a few spots, but actually when I take a step back and look at it, it really across life sciences, technology, financial services, Nowhere near what we would expect from a net hiring point of view, which sort of speaks less to anything that's vertical in nature and more just a broad base pressures around and a little bit of caution around finance costs, new business starts and the relative balance from venture capital and private equity around conserving cash versus investing growth. So a little bit more optimistic but not seeing it in the numbers just yet.

Yes. And the only thing I'd add to that Andrew is we've look at the verticals overall and I look at it kind of on a full year basis, I mentioned the bright spot in financial services. Probably in the mid single digit.

Level CIE year over year even though the total was just over 1%.

The other in tech, we saw significant declines last year, whereas it really seems to be leveling off.

And slightly positive this year. Or for 2024. Yes, Creighton.

Thank you. And could I if I could squeeze one more in just on on the guidance Specifically related to ICR guidance, can you kind of walk us through how you're thinking about kind of the top and bottom and what drives you and maybe conservatism broadly because it sounds like versus a couple of months ago, utilization trends haven't changed meaningfully. So just want to make sure I understand kind of what the risk is to performance The low the lower end of that guide. Thank you.

Sure. And maybe I'll start with it. But I think it really just is important to say we are better than we were a year ago. And so the data that we're using, the discipline in the process, the people that are that are running and applying that process is, our confidence continues to grow. And I am sure a year from now, we will have improved materially from there. The 99 ks is our best point of view. I would tell you as we looked at incurred claims data over the last several months. It's encouraging to us It's materializing in ways that are quite consistent with the assumptions that we put into the guide and put into our pricing plan. I mean, the things that would take us toward the top end to this specific question and above that top end potentially would be to see a continued acceleration in the healthcare cost inflation trend that's not what we're seeing over the last several months. So that is that is encouraging. We would need to see the curve begin to bend in terms of rate increase rate of increase and it's too early to say that, but that kind of move to put us towards [indiscernible] Great.

Thanks so much. [indiscernible] Next, we have a question from David Grossman with Stifel. Please go ahead.

Thank you. Good morning. I'm wondering if I could just go go higher level as we think about CIE beyond 2025, Is it still realistic and reasonable to assume that given your business model relative to two of your peers and two of the bigger peers in the market that it's probably unrealistic to think that you're WSE growth would really parallel theirs given the mechanics of how they grow their business. Despite all the great improvements that you've made and some of those that are still coming, I just want check on that. Make sure that our expectations are in line with the business model itself.

Yes. Good morning, David. Thanks for the question. I think if you look at the CIE, the data that we lay out sort of gives you a good sense for what we've experienced over a ten year period. And certainly there's volatility to that, but it's I think a very reasonable assumption to say CIE that's a somewhere in the high single to very low double digit is a reasonable long term assumption. What we've chosen to do in terms of building into our medium term outlook is just sort of a gradual reversion towards that into sort of the mid single digit range. And provided some sensitivities if it gets better or if it gets worse to that. I really don't see a systemic reason to expect that the long run for our targeted part of the SMB market is going to sort of materially changed or shifted beyond what we've seen historically. Didn't want to make a bet on a full reversion at this point. I think the other piece and and you and others have asked great questions here in my first year about what about new sales and bringing in volume growth by growing the customer base.

And I am very excited about the work that's underway with our revenue team, driving the maturity when we went externally as part of the strategy work.

We've grown our sales force materially but we've gone up and down in terms of account and we've added a lot of new people. And so our average tenure benchmark is low relative to the industry and that may be part of when you look at us relative to peers, some of those results So the combination of I think really investing and maturing our sales team on the direct front and growing that employee benefits brokerage channel, I think has the real opportunity for us to tap into what I think is a really exciting and underpen [indiscernible] But yes, no, I would not concede the point that TriNet's growth in WSEs would lag me in the Okay. So structurally, think there's a limitation there. When you look at the differences in the models.

No, I really don't. And when you think about just back to the medium term guide, This is a fantastic business model and it's durable. And so there's real growth just as we reprice this business in a measured spot way back into the targeted range. I think there's upside to our retention over time as we invest in our delivery model, with technology And then you start to layer in volume growth again, things we can control on the new sales front. And for me, the less dependent we are on CIE in terms of delivering sustained, consistent, predictable growth, the better job we're doing that's on that.

TriNet. So just to that point about new sales growth, I guess you raised two points in your prepared remarks One was conversion of HRIS to the ASO model as well as channel partners, which is something you've talked quite a bit about since you've been there. So maybe you could talk about first on the channel partners, what is a realistic timeline do you think it is to really engage with that segment of the market to really start driving incremental volume? And what is it going to take really for you to penetrate that that channel to really the broker channel that is to really become an advocate for trying to Yes. I think it's encouraging that we've already got some momentum in the employee benefits brokerage channel. So contributing a meaningful part of our new business already today. But we do see a lot of upside and again as we went through the strategic review and looked at how much of the SMB market is fully benefited and fully benefited via trusted advisor on the employee benefit broker side. It became very increasingly clear to us that one, that's a very efficient effective channel for us [indiscernible] there's secular trends on the brokerage side that are very supportive of partnership with the PEO model.

So the operations way benefit broker is seeing that Austin to serve a small [indiscernible] move up dramatically. They are expected to bring benefit in administration technology as part of their offering. They're expected to bring compliance support. They're expected to do all that in a capitated commission environment very often. So they're looking for answers on how to profitably serve those small businesses. I think the PEO model and what TriNet brings really strong service brand is a perfect fit. We do it's going to take us some time, I think, just fully optimize this channel because one, you need to invest in the technology that starts treating employee benefits brokers not as referral partners, but as trusted adviser that have access and insight to the clients that they refer into TriNet TriNet time. And so again, the Zenefits technology brings us a fantastic opportunity. It's really the backbone of the investments we're making to open that channel up.

Fully. And embrace benefit brokers, high quality benefit brokers that partners through the process. So I'm excited about how that's going to materialize. Already momentum building over the few years. How much does the broker channel contribute to your new sales right now, just as a percentage round numbers?

Yes, it varies a bit. Quarter to quarter, but in general, well into the double digits for us and we see that growing. Although I will say that the direct channel is and will remain over the medium term period are most important. Go to market motion.

Got it. And just one last question, Mike, if I could, just on the ASL Maybe you could just walk us through very quickly what impact that could have on your business overall given it's different than the PEO model and how that flows through to the financials if that business really gains momentum We're excited about the possibility there. And I'll be honest with you, David, it's sometimes I think we do ourselves a little bit of a disservice by putting TriNet too strong a name to the PEO product. And the reality is the business that we're in these high value add comprehensive HR outsourcing So whether that's all the way through to what a traditional PEO product looks like, where we start potentially where the risk doesn't match unbundling some of the insured products and helping customers through their brokers source those in open market all the way to a strong 50%, 60 a continuum in that part of the market, that high value add comprehensive service. So yes, we're pretty excited about building a bit more flexibility into our process and technology. I think ASO could be potentially a really exciting part of that.

Got it. All right. Great. Thanks very much for that insight and good luck. Thanks, David.

Thank you. We have no further questions. So I'll pass you back to Mike Simons for closing comments.

All right. Let me thank you all once again for taking the time to join us this morning. And I know Kelly and I and I Alex will be spending time with many of you over the coming weeks to continue the dialogue. And thank you, Lydia, for your help this morning. And with that, we'll complete the call.

Thank you. This concludes our call today. Thank you for joining.

You may now disconnect your line.