TriNet Group, Inc.

Dave, and welcome to the TriNet Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to Alex Bauer, Investor Relations. Please go.

Thank you, Operator. Good afternoon, everyone, and welcome to Trinet's 2020 Second Quarter Conference Call. Joining me today are Burton M. Goldfield, our President and CEO, and Mike Murphy, our Chief Financial Officer. Our prepared remarks were pre-recorded. Burton will begin with an overview of our second quarter operating and financial performance. Mike will then review our financial results in more detail and provide our forward-looking guidance. We will then open up the call for the Q&A session. Before we begin, please note that today's discussion will include our 2020 third quarter and full year guidance 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. Acceptance 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-K and 10-Q filings for a more detailed discussion of the risks, uncertainties, and changes in circumstances that may affect our future results or the market price of our stock. In addition, our discussion today will include non-GAAP financial measures, including our forward-looking guidance for non-GAAP net service revenues, adjusted EBITDA margin, and adjusted net income per share. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release or our 10Q filing for our second quarter, which is available on our website or through the SEC website. A reconciliation of our non-GAAP forward-looking guidance to the most directly comparable GAAP measures is also available on our website. With that, I will turn the call over to Burton for his opening remarks.

Thank you, Alex. As a result of COVID-19 and the subsequent economic downturn, the second quarter proved to be a complex operating environment. I am pleased with our financial results, which are attributable to our strategy, execution and the resiliency of our customers. In the second quarter, We grew GAAP total revenues 1% year over year to $948 million. Net service revenues grew 45% year over year to $335 million. Professional service revenues decreased 5% year over year to $121 million. During the second quarter, Insurance service revenues increased 2% year-over-year to $827 million. In the quarter, insurance service revenues outperformed due to better-than-expected retention and a health plan participation rate exceeding 70%. This is the highest recorded Health Participation Rate we have experienced. It is largely due to a mixed shift in the TriNet customer base. Net Insurance Service revenues increased 106% year-over-year to $214 million. The growth in our Net Insurance Service revenues was the result of significantly lower insurance costs. The drivers behind the decline in insurance costs were one time in nature and driven by lower health utilization as a result of the decrease in medical services partially offset by COVID cases. The cost savings in the second quarter were significant and we intend to leverage these savings for the benefit of our customers. Our press release on July 16th Announcing the return of certain administrative fees to our customers in the form of a fee credit is one example of these savings. Additionally, we are creating a recovery credit program which we expect will have an even larger impact on our customers moving forward. This program will support our incredible customers as we jointly commit to our ongoing relationship. Later in the call, Mike will share additional details regarding this innovative and impactful program that we're announcing here today. Our Q2 GAAP earnings per share grew 192% year over year to $1.87 per share. Q2 adjusted net income per share also grew 190% to $2.03 per share. From a cost perspective, we were able to actively manage our operating expenses during the quarter. This is a direct result of previously described investments in process improvements over the last 18 months. However, We continue to invest in these types of initiatives, including modularity and automation. Additionally, these initiatives resulted in a significant improvement in our second quarter installed base net promoter score polling. We realized a 33% improvement in our NPS score, accelerating a multi-quarter trend. I am very proud of this improvement in customer satisfaction and I am thankful to our colleagues for their commitment to our customers in this difficult time. We finished the quarter with approximately 313,000 worksite employees down 3% year over year. Our ending second quarter WSE count exceeded our forecast. In late April, When we reported our first quarter earnings, we provided an intra-quarter WSC count, which was between 300 and 305,000 WSCs. In hindsight, that volume count proved to be our intra-quarter low. In May and June, with states reopening, and the positive effects of the Paycheck Protection Program being felt are installed base stabilized. The rate of customer attrition, layoffs and furloughs all declined resulting in the Trinet customer base being comprised of nearly 80% white collar workers. Incredibly, our customers returned to positive change in existing in June predominantly in our white-collar verticals. In the quarter, despite the difficult operating and economic environment, our cash flow remained strong. We spent $60 million repurchasing 1.4 million shares in accordance with our capital management strategy. As previously mentioned, We experienced our highest level of health enrollment rates in Q2 at over 70%. We found that customers who secure their health benefits through TriNet are likely to stay longer with us. Along with health benefits, the challenges our customers face as a result of COVID-19 highlight the importance of our technology and service model. For the last several years, we have been investing in our technology and service model. A result of this investment is our omni-channel service model where we can efficiently service customers how, when, and where they want to be served. Whether it's a high touch interaction with experts, a call center transaction, or a chat box, we are there to respond to and address our customers' needs 24 hours a day. Additionally, our mobile app is highly rated and well utilized. We regularly produce content which addresses various employment benefits and government program related issues. Much of our content is posted on our COVID Trinet Business Resiliency and Preparedness Center So far, we have posted 11 webinars with over 20,000 attendees. Several webinars targeted the PPP loan process. As an example, to date, we've produced four webinars on just PPP, garnering over 10,000 views. Presently, our PPP-related efforts have pivoted to helping our customers generate the reports necessary to achieve PPP loan forgiveness. Given the critical support provided by this program, we are hopeful the government will continue to support SMBs through the remainder of this pandemic. TriNet's customers are the small and medium-sized businesses that are supporting our country through this crisis. Customers like Re3D. Re3D is a manufacturing startup which provides affordable 3D printers for the global market. The Re3D printer Gigabot is easily transportable, can use recycled plastic, and allows its users to build products Reeve 3D is currently hiring full-time engineering, sales, and manufacturing employees. Over the past several months, in response to COVID-19, Reeve 3D leveraged their internal R&D to design and prototype PPE and other life-saving devices. The company mobilized its global customer base to produce necessary healthcare equipment onsite, filling regional supply gaps while eliminating shipping delays. Working with customers like Re3D is an example of the important role Trinet plays in helping these amazing customers have a positive impact on our world. We understand, however, Many of our customers are still facing significant challenges as they navigate this uncertain and difficult environment. For example, our Main Street vertical has been hit the hardest with layoffs, furloughs, and customer attrition. As we look forward, uncertainty around the economic environment continues. may be more drawn out than originally predicted. With respect to new sales, we see continued interest in Trinet's products and services. The sales paradigm has shifted significantly with meetings being held remotely. This has elongated the decision-making process. However, average deal size in the first half has nearly doubled year over year as we pivoted to larger customers. We expect to continue to make new sales through the balance of 2020, although at a significantly lower rate than in previous years. That said, we do expect to leverage our improved customer satisfaction to drive growth through referrals as the economy rebounds. Finally, we continue to pursue inorganic growth where it makes sense. For us, that means exploring opportunities to expand into new geographies or into attractive verticals. As you saw today, we announced the acquisition of Little Bird. Little Bird represents our ability to identify industries where our value proposition is particularly well-suited. Through this acquisition, we are expanding our footprint in an attractive area of our nonprofit vertical while adding significant industry expertise. While the financial and volume impacts from this acquisition are limited, we are excited about this deal as it represents an expansion into one of our core verticals with a large, attractive market opportunity. The entire TriNet team welcomes Little Bird to our company. With that, I will turn the call over to Mike for the financial review. Mike? Thanks, Burton.