TriNet Group, Inc.

Good afternoon and welcome to the TRINET second quarter 2023 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 telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Alex Bauer, Head of Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon. My name is Alex Bauer, and I am Trinet's Head of Investor Relations. Thank you for joining us, and welcome to Trinet's 2023 Second Quarter Conference Call. I am joined today by our CEO, Burton M. Goldfield, and our CFO, Kelly Tuminelli. Before we begin, I would like to address our use of forward-looking statements and non-GAAP financial measures. Please note that today's discussion will include our 2023 third quarter and full-year financial 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. 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-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 adjusted net income per diluted share. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release, 10Q filings, or our 10K filing, which are available on our website or through the SEC website. With that, I will turn the call over to Burton. Burton?

Thank you, Alex. We drove strong financial results in the second quarter. I am pleased to report that we exceeded our key performance indicators with respect to new sales, customer retention, customer satisfaction, and expense control, trying to achieve financial results that were in line or exceeded our guidance by delivering differentiated solutions to our select verticals. We were rewarded in Q2 with annual contract value growth, or ACV, up 26% year over year. This represents a year-over-year acceleration in new customers putting their trust in TriNet and adopting our solution in the second quarter. The Q1 trend, where ACV growth was up 20% year over year, has been surpassed in Q2. Over the past year, we have focused on enhancing our service capabilities. Our enhanced service delivered a sizable increase in our Net Promoter Score, or NPS. We are now forecasting a more than four-point year-over-year improvement in retention when comparing fiscal year 23 to fiscal year 22. Additionally, customer net hiring or CIE was net positive in the quarter as June came in strong. Overall, I am pleased with our execution in the second quarter and our prospects for the remainder of 2023 and beyond. This momentum supports our confidence that TriNet offers tremendous value. As such, I am pleased to announce that our board has authorized an incremental $1 billion to our already existing share repurchase program. You will hear more about this program from Kelly. Total revenues grew 1% year over year at the top end of our guidance, while professional service revenues declined 3% at the lower end of our guidance. Gap earnings per share increased 2% year over year, outperforming the top end of guidance by $0.42. Adjusted net income per share increased 1% year over year, outperforming the top end of our guidance by $0.34. We finished the second quarter with 334,000 WSEs, representing 2% sequential growth quarter over quarter. We are pleased with our second quarter sequential WSC volume growth. As noted earlier, we saw positive contributions from each of the underlying drivers to WSC volume growth, including new sales, retention, and CIE. We achieved strong second quarter new sales performance. New ACV grew 26% year over year. Direct sales capacity increased materially based on hiring and improved sales rep retention. Our cohort of experienced direct reps grew 19% year over year. We are benefiting today from this growth in capacity, but will benefit even more during the fall selling season as this trend of increased mature reps continues. The application of significant new technology is also adding to the trend of accelerated ACV growth. We are the industry leader with respect to applying technology across all our business functions, and sales is no different. Trinet has always gone to market with our vertical strategy. However, technology is now helping us to refine our customer targeting process. We have deepened our understanding of our verticals through the application of our proprietary customer lifetime value analysis, or CLTV. CLTV has provided our sales team with an improved prospect targeting roadmap based on highly specific attributes. While CLTV gives us a deeper understanding of who our target customer is, our marketing team incorporated a number of machine learning tools to better understand the prospect's intent to buy. Qualified leads are only passed to sales when intent to buy is strong. There is less wasted time by reps on opportunities that ultimately won't close. The outcome is these leads close at a very high rate. Additional efforts around optimization have led to positive results in terms of speed to quote and reduction in paperwork, which has created more time for sales reps to interact with prospects. We have found that prospects who understand the value of all our products and services up front, beyond just price, have a higher propensity to buy and a greater CLTV. Earlier this year, we acknowledged that our sales capacity was constrained. We also said that our new sales would benefit this year and next from a maturing sales force. As we have passed the midpoint of 2023, I am pleased to say that we have made progress on both fronts. Our first half sales momentum and enhanced sales capacity allows us to forecast a second half year-on-year ACV growth rate that will exceed our already impressive first half growth rate. My added confidence in this momentum is bolstered by what we currently see in our July ACV performance. As of today, July is forecasted to be dramatically higher than last year and exceed our internal plan. Turning to retention, we are seeing a strong year-over-year improvement. The factors that drove strong first quarter retention performance continued into the second quarter. Our customers benefited from our industry-leading service experience, which is evidenced by our outstanding first contact resolution and average speed to answer and is reflected in our NPS score. We continue to offer value-added services that are differentiating the customer experience. We are now raising our 2023 customer retention forecast to reflect a four-point year-over-year improvement in retained WSEs. It takes the effort of over 3,000 Trinetters every day to help our SMB customers navigate the complexities of running a business in today's world. I want to take this opportunity to thank the amazing Trinet team. Moving to CIE in the second quarter, we saw customer hiring turn positive for the first time since the third quarter of 2022. In Q2, all but one of our verticals saw net hiring. The exception was technology, which was modestly negative, yet improved over recent quarters. Tech companies with fewer than 50 employees net hired in Q2. We saw a broad net positive CIE result from this specific smaller company cohort. However, the trend of larger tech companies contracting their workforces persisted during the quarter, albeit at a much slower rate than Q1. We are encouraged by the net hiring growth we saw in the second quarter. However, we remain conservative in our customer hiring outlook throughout the rest of 2023. Our conservatism is based on the uneven performance we've experienced over the past four quarters with respect to CIE. Before I pass the call over to Kelly, I want to reiterate Trinet had a strong second quarter where we exceeded our KPIs with respect to new sales, customer retention, customer satisfaction, and expense management. We are well positioned for the balance of the fiscal year 2023. Kelly? Thank you, Burton.