TriNet Group Q1 2025 Earnings Report

TriNet Group EPS Results

• Actual EPS: $1.99
• Consensus EPS: $1.67
• Beat/Miss: Beat by +$0.32
• One Year Ago EPS: $2.18

TriNet Group Revenue Results

• Actual Revenue: $1.29 billion
• Expected Revenue: $319.36 million
• Beat/Miss: Beat by +$972.64 million
• YoY Revenue Growth: N/A

TriNet Group Announcement Details

• Quarter: Q1 2025
• Date: 4/25/2025
• Time: Before Market Opens
• Conference Call Date: Friday, April 25, 2025
• Conference Call Time: 8:30AM ET

TriNet Group (NYSE:TNET) provides comprehensive and flexible human capital management services for small and medium size businesses in the United States. The company offers multi-state payroll processing and tax administration; employee benefits programs, including health insurance and retirement plans; workers compensation insurance and claims management; employment and benefits law compliance; and other HR related services. It also provides technology platform, an online and mobile tool that allows users to store, view, and manager HR information and administer various HR transactions, such as payroll processing, tax administration and credits, employee onboarding and termination, employee performance, time and attendance, compensation reporting, expense management, and benefits enrollment and administration, as well as incorporated workforce analytics and allows professional employer organization clients to generate HR data, payroll, compensation, and other custom reports. The company serves clients in various industries, including technology, professional services, financial services, life sciences, and not-for-profit. It sells its solutions through its direct sales organization. TriNet Group, Inc. was incorporated in 1988 and is headquartered in Dublin, California.

TriNet Group Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good day, and welcome to the TriNet Group Inc. First Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. Please note that this event is being recorded. I would now like to turn the conference over to Alex Head of Investor Relations.

[Operator]

Please go ahead.

[Alex Bauer, VP - IR at TriNet Group]

Thank you, operator. Good morning. My name is Alex Bauer, TriNet's Head of Investor Relations. Thank you for joining us, and welcome to TriNet's first quarter conference call. I'm joined today by our President and CEO, Mike Simons and our CFO, Kelly Tuminelli.

[Alex Bauer, VP - IR at TriNet Group]

Before we begin, I would like to preview this morning's call. I will first pass the call to Mike where he will comment on our first quarter performance and discuss our progress on our strategy and medium term outlook. Kelly will then review our Q1 financial performance in greater detail. Please note that today's discussion will include our 2025 full year financial outlook, our medium term outlook and other statements that are not historical in nature or predictive in nature or depend upon or refer to future events or conditions such as our expectations, estimates, predictions, strategies, beliefs or other statements that might be considered forward looking. These forward looking statements are based on management's current expectations and assumptions and are inherently subject to risks, uncertainties and changes in circumstances that are difficult to predict and that may cause actual results to differ materially from statements being made today or in the future.

[Alex Bauer, VP - IR at TriNet Group]

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, changes in circumstances that may affect our future results or the market price for 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, please see our earnings release, 10 Q filings or 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.

[Alex Bauer, VP - IR at TriNet Group]

Mike?

[Mike Simonds, President & CEO at TriNet Group]

Thank you, Alex. Our first quarter financial and operating performance once again highlighted the strength and durability of TriNet's business model. We delivered financial results that were in line with our expectations and that put us on a path to achieving our annual guidance. And that was in spite of an increasingly uncertain economic environment. As the quarter progressed, we saw a decline in SMB business confidence.

[Mike Simonds, President & CEO at TriNet Group]

This weaker business sentiment flowed through to TriNet in the form of low net customer hiring and as a contributing factor to lower new sales conversion rates. Despite the external challenges, I am encouraged by the resilience of our business model evidenced by our strong customer retention, and I'm pleased with the accelerating pace of execution at TriNet, work that is positioning us for future success. For this call, I'll use our strategy which we covered last quarter to frame the discussion of our financial and operating performance. As a reminder, through the medium term, we intend to accelerate total revenues growth, achieving a compounded annual growth rate of 4% to 6%, expand our adjusted EBITDA margins to 10% to 11% and ultimately drive total annualized value creation of 13% to 15% through EPS growth supplemented by share repurchases and dividends. Starting with revenues for the first quarter growth was 1% and in line with our plan.

[Mike Simonds, President & CEO at TriNet Group]

We continue to expect revenue for full year 2025 to be in the range of 4,900,000,000.0 to $5,100,000,000 with the key drivers being healthcare price increases and strong customer retention with new sales growth expected to emerge later in the year. Net customer hiring is expected to remain low throughout 2025 an assumption that seems increasingly likely given the economic environment. I'm encouraged by the progress we're making with our benefit price increases. Our results to date suggest we are effectively balancing repricing and cost ratio improvement with a prudent focus on retention all while supporting our customers in a challenging environment. Between our 10/01/2024 and Jan one twenty five renewals, we've renewed nearly two thirds of our books since resetting our cost trend assumptions.

[Mike Simonds, President & CEO at TriNet Group]

Looking forward, our April 1 cohort has been successfully renewed and we're currently working with customers that renew on July 1. At this point all our indicators suggest we are on track to achieve the planned rate increases while maintaining retention above our historical average. We are seeing the benefits of our strong service delivery and our investments in insurance talent and a more disciplined pricing process are paying off. Regarding new sales in the quarter we're pleased with the customers we've added. This is a high quality cohort of customers with contracts priced appropriately to their risk and has stand to benefit from our strong offering including our technology and service model.

[Mike Simonds, President & CEO at TriNet Group]

Pricing to our view of current insurance cost trends created a sales headwind versus a year ago which when paired with a more uncertain macro environment led to lower sales conversion rates and new sales declining year over year. Absent a significant economic slowdown I expect sales results to improve as we move through 2025 and continue executing on our strategic initiatives. We have a motivated sales team and important deliverables lined up for our fall selling season. First, we expect to launch our first set of benefit plan bundles. As a reminder, our benefit plan bundles use our broad set of carrier partnerships paired with our proprietary data to create new plan bundles that meet customer needs for actuarial value and price while simplifying the offering and sales process.

[Mike Simonds, President & CEO at TriNet Group]

This product innovation is made possible by our differentiated operating model. Our combined scale and risk taking provides us with a seat at the table with carriers and allows us to innovate in ways our increasingly tenured and productive sales force can leverage. Turning to our go to market approach, we're making progress towards scaling our benefits brokerage channel. This new channel approach is a comprehensive undertaking. TriNet is using our proprietary technology and redesigning a number of our processes in order to reduce friction and improve both the broker and the customer experience.

[Mike Simonds, President & CEO at TriNet Group]

We're pleased to have engaged several national insurance brokerages in a co development effort. We believe TriNet's innovative benefit bundles will prove to be compelling for health and welfare brokers as they aim to provide their SMB customers with the best possible solutions delivered in a more simplified and streamlined way. Our progress in putting TriNet on a path to sustainable customer and revenue growth through new sales and retention goes beyond product and broker investments. We will continue to provide details in coming quarters on the meaningful milestones ahead driving up rep tenure and productivity as well as improving our customer experience. The final element of revenue growth is CIE, net hiring within our installed base and our first quarter result was largely in line with our muted expectations.

[Mike Simonds, President & CEO at TriNet Group]

In sum total revenues were up 1% in the quarter and absent severe economic disruption I believe a strong second half will set us up for accelerating revenue growth in 2026. We will have completed the most aggressive portion of our repricing and begun to reap the benefit of our distribution and product investments with growth accelerating towards our medium term expectation of 4% to 6%. A second component of our strategy is margin expansion and we're making progress on this dimension as well. Expenses in the quarter declined year over year. This is a meaningful achievement given we are concurrently investing in our strategic initiatives.

[Mike Simonds, President & CEO at TriNet Group]

Though we've got plenty of work ahead I'm encouraged with our progress in constructing a scalable high quality operating platform. Margin expansion over the medium term will also be supported by improvements in our insurance cost ratio. On that front our first quarter performance was in line with our expectations. As I mentioned, price increases are taking hold and medical claims trends though still elevated have stabilized for several months now. As claim trends stabilize we are increasingly confident with the adequacy of our pricing.

[Mike Simonds, President & CEO at TriNet Group]

As we exit 2025 we expect to have positive momentum returning to our long term ICR range of 87% to 90%. Our margin performance in Q1 drove strong cash generation and consistent with our strategy we deployed capital for the benefit of our shareholders. We recently announced a 10% increase in our dividend and repurchase stock taking advantage of the recent pullback and supported by our confidence in the momentum we're building as a company. I am pleased by the accelerating pace of execution and early successes across our portfolio of initiatives. We are positioning ourselves to launch new commercial initiatives in time for the fall selling season.

[Mike Simonds, President & CEO at TriNet Group]

We are controlling expenses while reinvesting in our business and we're delivering exceptional service to our customers in a challenging business environment. Our decisions to narrow our focus to our core high value add HR solutions is bringing clarity and helping speed our decision making. At the same time, we recognize we are operating in a dynamic environment and may need to adapt and adjust staying focused on our customers and our medium term commitments. There's growing momentum at TriNet and I expect as the year progresses shareholders will see our initiatives translate into positive commercial, operating and financial outcomes. With that, let me pass the call to Kelly for her financial review.

[Mike Simonds, President & CEO at TriNet Group]

Kelly?

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

Thank you, Mike. We performed in line with our overall expectations during the first quarter putting us on track to meet our full year financial guidance. The strength of our business model provided the stability to navigate the environment being prudent with expenses and still investing in our business, continuing to bring solutions to SMBs at times when they need them the most. One of the priorities we laid out in February was repricing our installed customer base to better reflect the inflationary environment in health care costs. As we shared at the time there were select cohorts that needed to be substantially repriced.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

We feel confident in our progress there and our first quarter ICR performance was in line with expectations. New sales in the first quarter were down year over year as these repricing efforts created a temporary new business headwind. Along with the repricing dynamic, we had a difficult prior year comparison to a period in which pricing ultimately proved too low for the cost trends that emerged. Although retention came in a point below expectations due to higher health fee increases in a challenging external environment, our strong service model and differentiated customer experience kept us on track to achieve annual retention above our historical 80% benchmark. Now let's dive into our financial performance in greater detail.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

Total revenue grew 1% year over year in the first quarter. Total revenue performance in the quarter was largely driven by insurance repricing and stronger than expected interest income. Customer hiring was slightly below our forecast and came in worse than the first quarter of twenty twenty four driven by the main street and professional services verticals. We finished the quarter with approximately 340,000 total WSCs down 3% over the same quarter last year and 311,000 co employed WSCs down 6%. As a reminder, total WSCs include platform users who are accessing our platform as well as co employed WSCs receiving the full benefit of our PEO services.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

The decline in co employed WSEs was driven by reduced new sales when compared to the prior year. We faced a difficult Q1 sales comparison as we were operating in a much different health plan pricing environment last year We've sharpened our pricing discipline to reflect current trends. Retention ticked lower this quarter by approximately one point of beginning co employed WSEs when compared to the prior year. Given our repricing efforts, we're pleased with our overall retention rates. First, in aggregate, those clients that left in Q1 had an insurance cost ratio that was notably higher than the companies that stayed Second, we're on track to exceed our historical retention benchmark and our full year EPS forecast remains intact.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

Professional services revenue in the first quarter declined 2% largely due to the decline in volume as well as the discontinuation of a specific client level technology fee. Professional services revenue was supported by the timing of pseudo payments and low single digit improvement in admin pricing. HRIS fees and ASO revenues, which included conversion from HRIS were modestly down year over year. We continue to transition away from our SaaS only solution and we're pleased with the pickup in ASO conversion. Insurance revenue grew 1% in the first quarter.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

We expect to see the benefit of renewal pricing per WSE build through the course of 2025. Insurance costs in the first quarter grew 4% reflecting a continuation in trends experienced last year. As a result, our first quarter insurance cost ratio came in at 88.4% within our forecast and on track to be within our full year range. Operating expenses in the quarter were down 6% year over year. While we continue to reinvest a portion of our savings back into our value creation initiatives, We managed expenses tightly and benefited from continued automation efforts and lower overall compensation expense as our workforce strategy took hold.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

First quarter GAAP earnings per diluted share was $1.71 and our adjusted earnings per diluted share was $1.99 TriNet continued its strong cash generation. In the first quarter we generated $162,000,000 in adjusted EBITDA representing an adjusted EBITDA margin of 12.6%. Operating activities generated 95,000,000 in net cash and 79,000,000 in free cash flow or approximately half of our adjusted EBITDA. Our strong cash generation afforded us the ability to take advantage of the volatility in our stock after our fourth quarter earnings report and repurchase approximately 1,200,000.0 shares. In addition to share repurchase, we paid a $0.25 dividend and announced a 10% increase to our next dividend.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

In total, we deployed a little over $100,000,000 to shareholders in the first quarter. In 2025, our capital return priorities remain unchanged. We will continue to create value for our shareholders by investing in our value creation initiatives, funding dividends and share repurchases while maintaining an appropriate liquidity buffer. Now let's turn to our 2025 outlook. For the year, given first quarter performance, we are tracking within our previously disclosed range and are affirming our full year guidance.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

As a reminder for 2025 we expect total revenue to be in the range of $4,950,000,000 to $5,140,000,000 We expect professional services revenue to range from $700,000,000 to $730,000,000 Our insurance cost ratio to be in the range of 92% to 90% and our adjusted EBITDA margin to be from just under 7% to approximately 8.5%. Finally, we expect 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 our laser focus on those items critical for TriNet success, we delivered a strong first quarter and strong start to the year. Despite the uncertainty introduced by the difficult economic environment, we are on track to achieve our annual guidance and we will keep our focus on serving our customers and executing our strategy. With that, I will pass the call to the operator for q and a.

[Operator]

We will now begin the question and answer session. Our first question comes from Jared Levine from Cowen. Please go ahead.

[Jared Levine, Analyst at Cowen]

Thank you. Yes, I wanted to start in terms of double clicking on the demand environment. So you did mention the kind of increasing macro uncertainty did impact sales conversions over the quarter here. So I guess what drives the confidence on that improving sales performance from here despite this increasing uncertainty? Is that more so a dynamic of easing comps and the maturation of the sales force?

[Jared Levine, Analyst at Cowen]

Or anything else to kind of note there?

[Mike Simonds, President & CEO at TriNet Group]

Good morning, Jared. It's Mike. Appreciate the question. I think you actually hit it there at the tail end. I mean, it's a combination here when we look at the comp year over year, and Kelly made the point earlier, the way we're thinking about health care pricing in this period versus a year ago is pretty markedly different.

[Mike Simonds, President & CEO at TriNet Group]

So that's going to have a bit of an impact on the sales conversion rate on a year over year basis. And then you pair that with the uncertainty in the environment, which we saw pick up towards the end of the quarter. What our confidence, though, is based on a few things. One is just the pipeline itself. And so the demand environment is still there.

[Mike Simonds, President & CEO at TriNet Group]

And again, it is kind of environments like these, where small businesses are looking for, really scalable solutions. And sometimes that's scaling up and sometimes that's scaling down. We bring that sort of variable cost model to play. Part of it, too, is we continue to invest in the productivity, and we're picking up some tenure in the sales force and then some of the initiatives that we're bringing into the market for the fall selling season. So all that kind of comes together.

[Mike Simonds, President & CEO at TriNet Group]

And you don't want to get too predictive given it's a little bit of a volatile macro. But on the things that we can control, there is definitely a building set of momentum on the new business front for us.

[Jared Levine, Analyst at Cowen]

Great. And then in terms of the HRIS wind down here, can you give an update on your efforts to retain those clients with the ASO offering? And then any change in expectations of a 15,000,000 to $20,000,000 year on year headwind for FY 2025?

[Mike Simonds, President & CEO at TriNet Group]

Yes, absolutely. And so as you know, Jared, we made the decision to exit the SaaS only business but wanted to do that in a very customer first way. So we're gradually moving customers off of that platform and either up into the ASO service category or into partners that are better suited to deliver to kind of particularly the smaller end of that customer base and a lower PEPM SaaS only offer. If you had to make a series of assumptions as we went through our plans for this year and I'd tell you, a quarter into it, we're driving actually right in line to maybe a tick or two higher in terms of the upsell rate into that ASO product. So early days, plenty of work to do between now and the end of the year.

[Mike Simonds, President & CEO at TriNet Group]

But I'd say consistent with kind of the plans and the set of assumptions that went into our forecast, I think that's what we're tracking.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

Yes. And Jared, I'd just add. One quarter in, we really haven't changed our assumption there, but we are pleased with the conversion rates.

[Jared Levine, Analyst at Cowen]

Great. Thank you.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

Thanks.

[Operator]

Thank you. Your next question comes from Kyle Peterson from Needham. Please go ahead.

[Kyle Peterson, Senior Analyst at Needham & Company]

Great. Good morning, guys. And I appreciate you taking the the questions. You know, want to see if we could dive into some of the the moving pieces in the guidance. I know in in aggregate, things seem to be tracking about in line.

[Kyle Peterson, Senior Analyst at Needham & Company]

But, you know, is there anything sounds like CIE was in in the ballpark, but maybe a little more conservative or tracking towards the low end. But I guess anything at a more micro level that's progressing a little better or worse than expected in the guidance and year to date performance?

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

Yes, sure. Happy to take the question, Kyle. In general and guidance, yes, a few things have moved slightly, but really we feel like we're on track for the full year overall. Insurance was roughly in line with our expectation. Expenses were maybe tick better, CIE, and and attrition was a tick worse.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

So it it really just puts us in line. Those are probably the the major drivers that moved.

[Kyle Peterson, Senior Analyst at Needham & Company]

Okay. Okay. That is really helpful. And then, I guess, on some of the commentary with net new sales and SMB confidence kind of fading a bit as the quarter progressed. I guess any color as to what you guys have seen or how you guys feel for few weeks of April has gone?

[Kyle Peterson, Senior Analyst at Needham & Company]

I know there's been a lot more, you know, volatility and uncertainty given tariffs and all that. So any, you know, update as to how this has looked, you know, quarter to date, would be really helpful.

[Mike Simonds, President & CEO at TriNet Group]

Yes. Sure, Kyle. It's Mike. Yes, it's certainly been up and down, and I think we've all experienced that. I think a couple of things, and you know this, but our mix of business is one that doesn't have a great deal of exposure directly into things like tariffs.

[Mike Simonds, President & CEO at TriNet Group]

So outside of some manufacturing in Main Street and some tech, actually, in

[Mike Simonds, President & CEO at TriNet Group]

life science

[Mike Simonds, President & CEO at TriNet Group]

manufacturing, all in, something well south of 20% of our business kind of has that exposure. So it's really more about the secondary impacts and sort of the broader business sentiment for us. And in general, like we just got a big market opportunity in front of us. And a lot of times, in fact, the majority of the times, our biggest competitor is just inertia and getting a small business owner to make the decision today to move forward with our HR solution. And so really, as you kind of look out, as long as we don't see something deteriorate materially beyond where we are today, again, looking at our pipeline, looking at some of the momentum and things that we're bringing to market, there's reasons, I think, for us to be optimistic as we come into the sort of middle and latter parts of the year and, as you know, the important fall selling season that we're going to be in a much better position.

[Mike Simonds, President & CEO at TriNet Group]

And even actually, it's worth commenting, in the first quarter, while sales are down from a volume point of view, the revenue associated with new sales in the quarter was a little bit of an upside for us. Again, these are customers that are coming in. They're priced to risk. They're really a good fit in terms of our vertical mix. And so, yes, again, some uncertainty for sure, but I think reasons for optimism.

[Kyle Peterson, Senior Analyst at Needham & Company]

Got it. That's very helpful. Thanks for taking the questions and nice results.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

Great. Thank you, Kyle.

[Operator]

Thank you. Your next question comes from Andrew Nicholas from William Blair. Please go ahead.

[Andrew Nicholas, Equity Research Analyst at William Blair]

Hi. Good morning. Thanks for taking my question. Wanted to first touch on healthcare utilization trends and just generally what you're seeing under the hood. It seems like largely in line with your expectations in the first quarter, but, you know, you've seen some of the managed care providers cite weakness in certain pockets of the market.

[Andrew Nicholas, Equity Research Analyst at William Blair]

So just any any additional granularity you could provide there and And maybe on price trends broadly, I think, Mike, last time we spoke, you spoke to, like, low double digit increases stabilizing, just making sure that's still your viewpoint.

[Mike Simonds, President & CEO at TriNet Group]

Yeah. Sure thing. Good morning, Andrew. And you're right. I'll let Kelly speak to some of the underpinnings on the health care side.

[Mike Simonds, President & CEO at TriNet Group]

Two things I'd highlight. So, first, keep in mind that our insured is the average working age insured. And so some of the things that you've seen in the external market are really more, older age and government program specific. And that sort of leads to the second point, which is low double digit sort of year over year health care cost trends have really sort of stabilized. So it's we're a little over two quarters here of kind of tabletop flat year over year inflation in terms of what we're experiencing.

[Mike Simonds, President & CEO at TriNet Group]

And while that's settled in at a higher rate, and is sticking, that's really important to us because that's the underlying assumption that's going into our renewal and new business pricing. And it really helps build confidence that, that ICR trajectory, that we sort of laid out in our plans and forecast, that we can achieve that with some confidence. And should we see and eventually, we will see that trend come down from the low double digits. If it comes down a little bit faster, then that's a little bit of a tailwind for us. But in terms of like what's happening and what sort of is persisting in the cost trend, don't know, Kelly, if you've got anything you want to add to that.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

Andrew, happy to add a little bit of color. When we think about differences between medical and prescription, both are in the double digit range when we look year over year, but very low double digit for medical, but, a little bit higher on prescription. The thing that we're seeing, though, is on the prescription side, we are seeing it tail down a little bit. So the rate of acceleration of costs is coming down a little bit. We're watching it, but,

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

you know,

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

that that's what it is. In terms of what's underneath that, you know, more people are taking more scripts. And but on average, the cost per script is coming down a little bit.

[Andrew Nicholas, Equity Research Analyst at William Blair]

Great. Thank you for for the response. That was thorough and and helpful. For my follow-up, I just wanted to ask about the cost of providing services line or your COGS line. You know, pretty sizable decrease in absolute dollars year over year, and and it sounds like you're you're gaining efficiencies throughout the organization.

[Andrew Nicholas, Equity Research Analyst at William Blair]

But I was just wanting to to kinda better understand that line in particular. How much of that is benefits related versus some of the efficiency programs you have in place and and maybe how sustainable that kind of level of of COGS line is for this year? Thank you.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

Yes. No, happy to take that one, Andrew. When we laid out the strategy, we talked about over the medium term expenses growing modestly, but a couple points lower than we would expect from a a revenue growth perspective. I'm really proud of the team for, you know, really focusing on making sure that we're providing the right level of service, that's going to drive the right NPS score, but we're really focused on those areas that matter the most. We have been working on automation.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

We went into the year expecting kind of low single digit CIE and knew we were going to have to really manage expenses tightly so that we could still work on margins and make sure we had acceptable margins. So we're on track and actually a little bit better than I had planned for the first quarter. But the one thing I do want to hit on that, though, is we are still investing. So we've got dedicated teams that are working on a set of strategic priorities, including skilled service delivery, which will help us continue to not only just get efficiencies but make sure we're really delivering the value to our clients.

[Andrew Nicholas, Equity Research Analyst at William Blair]

Very helpful. Thank you.

[Operator]

Thank you. Your next question comes from Kevin McVeigh from UBS. Please go ahead. Your next question comes from Kevin McQuade from UBS. Please go ahead.

[Operator]

Kevin, your line is unmuted. Please proceed with your question. As there is no response from the line of the current participant, we'll move on to the next question. And before we move on to the next question, a reminder to everyone to register for a question, you may press star then one on your touch tone phone. The next question comes from Andrew Polkowitz from JPMorgan.

[Operator]

Please go ahead.

[Andrew Polkowitz, Vice President at J.P. Morgan]

Hey, good morning everyone. Really nice results. I wanted to start by asking just about the 4Q to 1Q cutover. I understand that 1Q is typically the seasonally lower watermark for WSCs, but I was wondering if you could contextualize how much of this quarter was sort of that normal course churn versus maybe excess from the pricing environment that you guys have talked about.

[Mike Simonds, President & CEO at TriNet Group]

Yes. Thanks, and good morning. Yes, I think, a little bit I think Kelly alluded to it. We came into the year, and we've achieved record retention last year. We felt confident that sort of given where we are, given the positioning, given the investments we've made in the technology and the service delivery that we could maintain quite favorable and have done so.

[Mike Simonds, President & CEO at TriNet Group]

But I think there's about a point to Kelly's earlier conversation of health care related Attrition. Attrition. Yeah, exactly. And I think, in general, as we sort of look out over the year, you've sort of seen the bulk of the attrition that we're going to see happens in the first quarter. And the team has done a really good job of being close to customers and understanding sort of, yes, a little bit higher shopping activity in the market.

[Mike Simonds, President & CEO at TriNet Group]

But what they're finding, I think, pretty consistently is that the health care price increases, they're sizable, that we're placing. They're in line, with other options out there in the market. It's an industry wide phenomenon.

[Andrew Polkowitz, Vice President at J.P. Morgan]

Okay. Great. That's super helpful color, Mike. And then just for my one follow-up, I wanted to ask sort of about the go to market plans in the back half of the year. I know you alluded to scaling the broker channel and some co development efforts there.

[Andrew Polkowitz, Vice President at J.P. Morgan]

I just wanted to ask as far as what's baked into the outlook, how important is the scaling of the broker channel versus the maturing of your sales force that you've sort of spoken about in the past?

[Mike Simonds, President & CEO at TriNet Group]

Absolutely. And they're actually both quite important. And think about the good news is we're not sort of at a standing stop when it comes to the brokerage channel. It's about 10% to 15% when we think about health care brokers contributing to new business. And so we would see that becoming incrementally more important.

[Mike Simonds, President & CEO at TriNet Group]

But also, we did see the median tenure of our sales force tick higher here, good retention amongst our senior reps. That's a really important metric for us just because the productivity curve is so steep with each year of experience. So both, I think, are going to contribute to it. We are pretty excited, about some of the quick wins that we're developing with some of our national brokerage relationships. I think that those will be additive as we go into the second half of the year.

[Mike Simonds, President & CEO at TriNet Group]

And I think it's also really exciting because there's more material things on the road map from a technology and a process point of view that will represent upside even past the second half of this year. So we're pretty excited about it.

[Andrew Polkowitz, Vice President at J.P. Morgan]

Great. Thank you very much for taking my questions, and congrats again on the quarter.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

Thanks, Andrew.

[Operator]

Thank you. Your next question comes from David Grossman from Stifel. Please go ahead.

[David Grossman, Managing Director at Stifel Financial Corp]

Thank you. Good morning. You know, I I think you talked about, you know, ninety days ago, you know, taking that underperforming segment, excuse me, of the health care book and repricing it over multiple years and, you know, the rationale being, you know, to retain those clients that you wanted to retain because you thought there was, you know, a solid cohort of customers in in that book. Is your thinking pretty much the same where you think it's still gonna be a multi multiyear period? Or, you know, just based on the experience in the first ninety days, do you think maybe you could come in a little bit below that where, you know, you could get that book price to risk maybe a little more quickly than you had thought?

[Mike Simonds, President & CEO at TriNet Group]

David, thanks for the question. I think we're still, I'd say, on a similar track at this point. And so a little bit more attrition, a little bit more attrition, frankly, in that cohort that you were describing. When we look at things like what's the insurance cost ratio for the, attributed business versus the business that we've retained, there's a pretty big delta between the two. And we don't like to lose customers.

[Mike Simonds, President & CEO at TriNet Group]

But if we sort of can't get to a sort of economically lifetime value kind of equation, then that's usually what's going to happen. And so at this point, I think we're sort of staying the course. Again, a little bit of green shoots in terms of like what Kelly was talking about, where our pricing assumes no abatement in cost trend from the current low double digit level. We're seeing a little bit of reasons for optimism on the script side. No real movement on the medical side.

[Mike Simonds, President & CEO at TriNet Group]

So if some of those year over year inflation trends were to tail off a little bit, then we would see a recovery back into our targeted 87% to 90% range a little bit quicker. But I think right now, the team is doing a really good job of just balancing retention of customer over a couple of cycles. And it's a difficult environment for small businesses, and so we want to sort of meet them halfway through the process.

[David Grossman, Managing Director at Stifel Financial Corp]

Got it. And then there was, you know, you you mentioned in your prepared remarks that I think you're gonna start introducing your benefit bundles, maybe towards in the second half of the year when the selling season, know, becomes more important. And and maybe you could just, you know, give us a little bit more color on what the plan is there in terms of what the, you know, what the change the major changes are and and how you expect that to impact the sales process as we get into the selling season in the back half of the year.

[Mike Simonds, President & CEO at TriNet Group]

Yes. Sure. And there's a lot of really good work happening right now. And just a minute of context, TriNet, as you know, takes risk. And over the years working with our carrier partners, we've built out a really rich and diverse set of health care benefit plans.

[Mike Simonds, President & CEO at TriNet Group]

And then that's a good thing to have that set of choices. But in some instances, David, I'd say, particularly SMBs that have employees in a lot of different states, for instance. And as you know, with remote work, that's happening more often. Having that number of choices does introduce some complexity and probably a little less ability to hit specific budget targets without broad based discounting and really moved away from that. So what bundled and we're gonna start in some select markets here in the fall selling season.

[Mike Simonds, President & CEO at TriNet Group]

What they do is it gives clients a simpler set of plan choices to help them manage their cost. And I think it will also and I think this is actually pretty important. It will make the sales and renewal process more streamlined and simplified for our teams, which I think could help with the sales velocity in the process. Pretty excited about the work that's happening. We're going to learn a lot here in the coming months, and we'll continue to build on that.

[Mike Simonds, President & CEO at TriNet Group]

But I think it is an important part and one of a set of actions that we're taking to grow this business in a sustainable and profitable way.

[David Grossman, Managing Director at Stifel Financial Corp]

Right. And if I could just squeeze one more. Could you just give us a rough sense of what mainstream is currently as a percentage of your revenue mix?

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

You know, David, I don't have it in terms of revenue mix, but it is roughly 20% of our worksite employees for Main Street when we take a PEO.

[David Grossman, Managing Director at Stifel Financial Corp]

And so then, logically, it would be less as a percentage of revenue. Right? Is it am I understanding that right? Yeah.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

Yeah. Generally, it drives two things. One, a slightly lower PEPM, and then two, less health care participation.

[David Grossman, Managing Director at Stifel Financial Corp]

Right. Great. All right, guys. Thanks very much.

[Kelly Tuminelli, Executive VP & CFO at TriNet Group]

Great. Thanks, David. Thanks, David.

[Operator]

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mike Simons for closing remarks.

[Mike Simonds, President & CEO at TriNet Group]

Thank you, Sagar, and thank you, everyone, for joining us today on the call. Hopefully, you get a sense, for the strong start that we've got to the year and, the confidence and momentum that we're building here at TriNet, albeit in an uncertain environment. So look forward to updating you again on our progress here in about ninety days. And with that, Sigar, we can conclude today's call.

[Operator]

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

Participants

Executives

• Alex Bauer, VP - IR
• Mike Simonds, President & CEO
• Kelly Tuminelli, Executive VP & CFO

Analysts

• Jared Levine, Analyst at Cowen
• Kyle Peterson, Senior Analyst at Needham & Company
• Andrew Nicholas, Equity Research Analyst at William Blair
• Andrew Polkowitz, Vice President at J.P. Morgan
• David Grossman, Managing Director at Stifel Financial Corp