TriNet Group, Inc.

Good morning and welcome to the TRINET third quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. 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 morning. My name is Alex Bauer, and I'm Trinet's Head of Investor Relations. Thank you for joining us, and welcome to Trinet's 2024 Third Quarter Conference Call. I'm joined today by our President and CEO, Mike Simons, and our CFO, Kelly Timonelli. 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 2024 fourth quarter and full year financial outlook and other statements that are not historical in nature, are 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 more detailed discussion of the risks, uncertainties, and 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 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-K filing, which are available on our website or through the SEC website. With that, I'll turn the call over to Mike.

Good morning. Thank you, Alex, and my thanks to all of you for joining us on today's call. While there are a number of very positive things happening across our business, increases in health care costs adversely impacted our overall financial performance this quarter, and so I'd like to start my comments there. As context, throughout 2024, the market has experienced a significant and broad-based increase in healthcare costs. In looking at our own experience, similar to what many in the market are reporting, the overall number of claims is largely consistent with our expectations However, the average cost per claimant driven by severity and overall inflation is higher than what we assumed in our pricing. Over the last several months, we've taken a number of actions to both improve our results in the short term and importantly, enhance our capabilities moving forward. First, earlier this year, we broke out the insurance services group into a singularly focused team reporting to me and brought in a strong and experienced leader in Tim Nimmer to head it up. Tim's background includes chief actuary and head of pricing and underwriting roles at two of the largest global firms in healthcare. Already, Tim has strengthened our insurance services team with the addition of new actuarial talent. Second, we consolidated our data and analytics from around Trinet into a single team to ensure our performance data is strong and consistent throughout the customer lifecycle, and that our new business and renewal pricing processes are disciplined and supported by data that is high quality and visible. Third, with strong talent, improved data, and a more disciplined process in place, we thoughtfully increased our healthcare pricing over the past several months, assuming a continued elevated trend in 2025. Utilizing our new rate level, we released our October 1st renewals for the largest cohort of our customers, approximately 39% of our annualized healthcare fees. With strong execution across our insurance services, customer relationship, and service delivery teams, I'm pleased to say that the renewal went very well. we achieved the targeted double-digit increases with strong retention of our customers. In fact, we are now forecasting record customer retention for full year 2024. We are currently engaged on our January 1st renewals, which represent another 29% of our healthcare fees. Again, pricing here will reflect current elevated healthcare costs with no relief assumed in 2025 to trend. Given the fact we will have repriced more than two-thirds of our healthcare fee base by the start of next year, and assuming 2025 healthcare costs continue to grow at the current elevated rate, we expect our 2025 insurance cost ratio to stabilize at or near our current full-year 2024 outlook. Looking out to the mid and long-term, I believe our accelerated investment in risk management, talent, tools, and processes will reduce the volatility of our insurance cost ratio while maximizing profitable growth. We believe the earnings power of our business with a stable annual insurance cost ratio in our long-term range of 87 to 90% is considerable. and this management team is committed to achieving it, even if it means trading off customer and WSE growth in the short term. Turning now to a discussion of results outside of our ICR, we should start with the broader environment for SMBs in the verticals we target. Slower economic growth, higher interest rates, and a generally cautious outlook resulted in a third quarter of no net hiring amongst our customer base. While the headline jobs reports have been generally positive from the BLS over the last year, our experience has differed materially. Growth in several sectors, including government, construction, and healthcare, are fueling aggregate headlines, while our core verticals of technology, life sciences, financial services, and other professional services have been muted. It's worth noting that the long-term average CIE in our targeted verticals is 8 to 12% versus flat here in 3Q. Given that CIE growth comes with very low acquisition and incremental service cost, the impact of historically low CIE is meaningful to both top and bottom line. Again, Like with a stable ICR in our targeted range, even a partial reversion over time to our historical CIE represents significant earnings upside in future periods and is another reason we believe our business is such a good one. However, given we find ourselves in this low growth environment, we are exercising particular discipline with respect to our expenditures. Expenses declined 1% in the quarter as we focused on process and technology improvements. I'm quite encouraged by the momentum we're building on these fronts, making investments that drive efficiency while improving the customer experience. And frankly, we have much more potential to improve, creating value for customers, colleagues, and shareholders. Recognizing this potential will require making clear and disciplined choices and our team continues to work through these methodically. And while there is more we will share with fourth quarter results, a few things are clear. First, our core PEO business operates in a very attractive market, uniquely blending services and strong technology to deliver exceptional value to SMBs. You can expect us to sharpen our focus on our core business, playing only where we believe we can win a leading share of our customers. Second, the current healthcare environment is a short-term headwind, but we firmly believe that the growing cost and complexity of employee benefits only strengthens demand for what we do. Look for us to bet on benefits, investing to extend our risk management, offering, and customer experience. I firmly believe we can deliver greater predictability in ICR while creating separation from PEO competitors who see insurance as simply a pass-through. Benefits is our targeted SMB customer's number one concern, and we will address it in a differentiated way. Finally, we have the opportunity to accelerate our investment in technology and talent to improve our platform and service delivery while growing overall expenses at a considerably slower rate than revenue. Like I said, there's considerable work still to do, but I'm excited by the engagement of our broader leadership team and look forward to updating you on the outcome of our work on our 4Q earnings call. In summary, we are taking the challenge of healthcare cost trend head on. both through our pricing and risk management actions. We're managing our expenses aggressively in the current low growth environment within our customer base. And importantly, we have our eyes on the future and the steps we will take to create a more focused, more differentiated, more efficient company capable of sustainable, profitable growth. With that, I'll pass the call to Kelly for her financial review.

Kelly? Thank you, Mike. Our third quarter results reflect a continuation of many of the trends we've experienced in 2024. We've accelerated actions across our business in response to this challenging environment. In doing so, we're leveraging the strength of our business model. We adjusted pricing over the last several months and delivered sales roughly in line with our prior year, which were up 40% over the levels achieved in Q3 2022. We passed through this revised pricing to the largest cohort of our customer base on October 1st, and even so, we're now forecasting record retention. Unfortunately, we saw no meaningful contribution from customer hiring, and yet we delivered revenue in line with the lower end of our guidance range. We are operating in one of the most challenging health cost environments in years as provider costs, claims, severity, and pharmaceutical costs all accelerated versus recent trends and our historical experience, which outpaced our 2023 and early 2024 pricing. As a result of these trends, our insurance cost ratio for the third quarter was towards the higher end of our ICR range, and our full year forecast was also adjusted to reflect continuing higher costs. Given our pricing actions, our initial view on 2025 reflects a stabilizing insurance cost ratio similar to our current full year expectation for 2024. We will refine this estimate as we get through our peak selling and renewal season. We exercise prudent expense management and saw our expenses decline year over year. We are actively managing our resources across the business, balancing cost savings with reinvestment in key areas. We retain the flexibility to reinvest our business and return capital to shareholders. To sum up the quarter, we took expedient action to address elevated health cost trends and are successfully passing through appropriate rate increases and are still on track for record retention for the year. Now let's turn to our third quarter financial performance in more detail. In the quarter, total revenues grew 1%. We finished the third quarter with approximately 356,000 worksite employees, up 6% year over year, and approximately 334,000 co-employed WSCs down 1% year over year. In the quarter, client retention was strong and outperformed our forecast as our investments in customer service continued to pay off. Retention is now on pace to exceed our best historical annual retention rate. I'm particularly pleased with this given higher benefit renewals being passed through to help offset the higher claims experience. Consistent with last quarter, sales were again flat compared to the prior year. This was a positive outcome and reflected a significant increase over 2022 levels. Finally, CIE or customer hiring was just barely positive in the quarter. The modest positive CIE experienced in July and August was almost completely offset by workforce reductions in September with each of our verticals declining during the month of September. Now let's drill down a little. Our professional service revenue was flat to our prior year. Last year, we benefited from a one-time item related to a payment acceleration and cessation of a broker relationship on our HRIS platform. Without that item, our growth would have been 2%. Insurance revenue grew 2% year over year, consistent with our first half trends, healthcare participation rates within our co-employed WSE base, were slightly lower and were partially offset by annual inflationary rate increases. Insurance costs grew 9% year over year. Insurance cost growth again reflected higher healthcare and pharmacy costs. Taken all together, this brought our insurance cost ratio to 90% in line with the bottom half of third quarter guidance range. Now let's turn to operating expenses, an area we've been very focused on and quite a bright spot for our company. We continued managing the business in a prudent and disciplined fashion, resulting in a 1% year-over-year decline in operating expenses. We are proactively reducing our back office costs while making targeted investments in growth and automation. We believe robust expense management and prioritization will be critical to free up resources to reinvest in our business while delivering strong margins and attractive cash flows. Interest income on operating cash and investments offset our third quarter interest expense. In the quarter, our average cash balances were lower year over year in part due to our cumulative stock repurchase as well as dividend payments. Taking this all together, we reported 89 cents in GAAP earnings per diluted share and $1.17 of adjusted net income per diluted share, both within but below the midpoint of our guidance ranges. Regarding cash and capital, we had another solid quarter of cash generation to support our business and capital allocation. In the quarter, we delivered $109 million of adjusted EBITDA. We also generated $213 million of corporate operating cash flows year to date through the end of the quarter. By the end of next week, we will have returned $191 million to investors so far this year. In the third quarter, we repurchased 200,000 shares for a year to date total of approximately 1.5 million shares. And by the end of October, we expect to have paid $37 million in dividends. Our capital return priorities remain unchanged. As we generate cash throughout the year, we will continue to deliver value to our shareholders by investing in our business for growth and using our cash flows to fund dividends and share repurchases in line with our financial policy. Now let's turn to our fourth quarter and full year outlook. For the fourth quarter, we expect total revenues to be down 1% to up 2% and professional service revenues to be down 8% to down 5%. Underlying assumptions in support of our revenue guidance include our expectation for modest decline in new sales, continued strong customer retention, and a limited contribution from CIE. Turning to our insurance cost ratio, or ICR, for the fourth quarter we are forecasting an ICR of 96.5% to 93.5%. Our fourth quarter ICR performance is our seasonally highest quarter each year, Historically, we see a sequential Q3 to Q4 step-up in ICR of anywhere from two to five points. One key driver behind this step-up is the annual reset of our pooling limit deductibles, which occurred on October 1st. Effective 10-1 are pooling coverage resets for claims that had previously hit the $500,000 per member cap for our enrolled population. In the fourth quarter, we are back on risk for any of those claims that are continuing. This results in a forecasted gap net income per diluted share in the range of negative 19 cents to positive 31 cents and an adjusted net income per diluted share in the range of six cents to 57 cents. Turning to our full year guidance, given our third quarter actual performance and our forecasted fourth quarter performance, we are lowering and tightening our full year guidance. For revenues, given our current and projected volumes, our range reflects growth of 1% to 2% for the total revenues and flat to up 1% for professional service revenues. Given our fourth quarter forecast for insurance cost performance, we are tightening and raising our insurance cost ratio forecast to 90.3% to 89.6%. With respect to our earnings guidance, we are bracketing our full year guidance around the previous bottom end of our range, reflecting the impact from our revised insurance cost ratio forecast offset by the expense efficiencies we have been focusing on. We now expect GAAP net income per diluted share in the range of $3.70 to $4.20 and adjusted net income per diluted share in the range of $4.95 to $5.45. So in summary, we are operating in a difficult health cost environment and are reacting quickly. By leveraging our team and improved processes, we are pricing new business and our renewals to appropriately reflect the current and expected health cost environment. As a result of the actions we're taking and have already taken, our initial view on our 2025 ICR is similar to 2024. Importantly, even as we pass through pricing reflective of the current environment, our customers are choosing to stay with us in record numbers. We remain prudent managers of our shareholder capital, keeping expense growth low while investing in our business and returning capital to shareholders. With that, let's open up the call for questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star then two. Once again, it is star then one to ask a question. At this time, we will pause momentarily to assemble our roster. The first question comes from Andrew Volkowitz with JP Morgan. Please go ahead.

Hey, good morning, everyone. I wanted to ask a question. Mike, you made a comment in the call about commitment to achieving that 87% to 90% long-term ICR range, and you're committed to that, even if you have to trade off some WSC growth. I just wanted to start by asking, can you speak to how materially you see that being or how much of the book potentially would have to be cleaned up to achieve that.

Yeah, thanks, Andrew. I really appreciate the question. And certainly, you know, our first and best data point that we have is the October 1st renewals. And if you take a step back, we've made a pretty significant set of changes and investments in our risk management capability, carving out the insurance services group, bringing in Tim Nimmer, who's got a great background, particularly around healthcare. He's already made some ads on the actuarial side. So I'd say we've got a material sort of improvement in our risk management and our sort of ability to understand what we're seeing in the data and then to look forward. And our view, I'd say, is that the elevated trend we're seeing today TAB, Mark McIntyre, isn't going to abate in 25 and so we built those double digit increases in the October 1 for rules and it's Kelly went through really encouraged. TAB, Mark McIntyre, With the retention of that cohort and you know our CRM team and our service delivery teams are doing a very, very good job we've got our eye on January 1 similar to probably slightly higher renewals coming then so. I think it is one of these really good parts of the business model is that while benefits is really important and health care is important inside of benefits, what we do for customers is much broader. And that service proposition, I think, lends itself to a much stickier situation. So I think that's one of the positions as well. Our early read here is that it's actually quite good, particularly for our existing customer base. They've experienced trying that, and that puts us in good stead. You know, on a new business front, you know, we've made the same adjustments on our prospective pricing. We like a pipeline, the demand for the product. I think we are seeing a bit of pressure on conversion rates, and I think that's a little bit the environment. You know, our S&D prospects are a little cautious on hiring. I think they're a little cautious to make major changes to their HR and benefit setups as well. So that's probably the more sensitive area is the sales growth. I feel really good and confident about the existing base.

Okay. That's super helpful. Appreciate those comments. I just had one quick follow-up. I know that you guys are growing over, you know, pretty significant sales growth from last year. So the 40% on top of rookie 22 seems really strong. I'm curious as you look into next year, I know you talked about making investments in distribution last quarter. I was curious if you could give any more color just on those investments in multi-channel distribution.

Sure. Yeah, thanks. And like I mentioned, the pipeline, if we look at the pipeline for January 1, same day, year over year, we've got nice growth, double digits, 20% plus in terms of volume. That's really encouraging to us. We've grown the count. of both total and tenured reps by about 14% year over year, which is encouraging. I'd say one of our big focus areas, and I should add, we brought a new chief revenue officer in, Shea Treadway. He's been in a couple of months, deep, deep experience in building strong sales culture, as well as multi-channel distribution and employee benefits brokers. So he and the team are working hard on steps we can take to drive productivity through this bigger sales force. A big part of that will be driving retention and ultimately higher sales levels on those more experienced, more capable reps. The second piece of that is the brokerage channel, which has actually been a good add to our sales here in 2024. But as we sort of look out into the SMB market, you know, of SMBs that offer health care, which is a little bit north of 70% under 100 employees, about 90% of them get benefits through employee benefits brokers. And so building a sustainable approach to that channel is something we're pretty excited about.

Thank you very much. Appreciate the color.

Thanks, Andrew. The next question comes from Kyle Peterson with Needham. Please go ahead.

Great. Good morning, guys, and thanks for taking the questions. I wanted to start off on the 4Q guide for professional services revenue. I guess that's calling for a pretty decent-sized step down, both year-on-year and sequentially. So if you guys could provide any more color on that. you know, how much of that is maybe due to some of these, you know, workforce reductions and stuff that some of our clients had in September versus any, like, you know, whether it's just macro or other drags or just any more color on some of those headwinds and services segment would be very helpful.

Yeah, Kyle, it's Kelly. Good morning. I'll be happy to take that one. When it The first and foremost point that you need to remember is last year we had a little bit more of a one-timer. We had about $8 million or so of some revenue recognition that we got in the fourth quarter that just is not recurring this year. Secondly, we are assuming slower hiring. So as we're looking at our WSC pipeline, we're just assuming that we're not really going to get enough tick in hiring in 2024. It's going to look a lot like 2023 from that perspective. So it's really just those two things. From a sequential perspective, you know, it's just down a couple points and about flat with last year.

Okay. Yeah. Um, that is, is helpful. And then, uh, you know, just on, on timing, uh, with, uh, you know, your insurance repricing, you guys said that you guys have more than two thirds of the book repriced now. Uh, could you just, I guess, remind us, uh, you know, what timeframe we should think about the kind of the, the roughly last third is, is that, you know, over the next, one to two quarters? Like, how should we think about when the rest of the book is expected to get repriced based on renewal cycles?

Yeah, so just to clarify part of your intro there, by January 1, we'll have a little over two-thirds of the book priced. So the other renewals of the smaller cohorts are at So the fourth quarter 401 renewal. And then July. July is the smallest. April is a little bit larger.

Okay. Okay. Sounds good. So I guess you guys didn't reprice. So July would still need to reprice it. Even though it's small, it didn't reprice this past year.

Right. From a cycle perspective, we have to release our pricing to our customers about 90 days in advance. And so if you think back to earlier this year, we did make some modest changes to our July pricing as we were looking at implementing it. But given the change healthcare breach in the month of March, the data was still a little bit murky then. And so, you know, we did tweak some pricing on the margin as we were evaluating data that was coming in in January and February because those really weren't obfuscated by that. But we will have to, you know, price it to an appropriate level just given the trends that we're seeing from a severity perspective.

Okay. Thank you very much for taking my questions.

Thanks, Kyle. The next question comes from Kevin McVey with UBS. Please go ahead.

Thank you so much, and good morning. Hey, any sense, I mean, it seems like particularly the kind of CIE seems somewhat abrupt, just given the fact that kind of where we are in the, just given, I guess, the percentages. Is that right, or is there anything, I mean, I know certain verticals have been kind of weak, but they've been weak for, I think, a while. Just any thoughts, Mike, as to what kind of – was it the cost that really drove it? Just any thoughts, because it's obviously a pretty decent deceleration.

Yeah. I appreciate the question, and good morning, Kevin. I guess I would take one step back and say, in general, we really do like the verticals that we target. if you take a very broad you know 10 12 15 year perspective you know these these verticals are proven an average growth rate of sort of eight to twelve percent and so i think your question is a very good one about like what's happening in a year and then we take one kind of step back from that and it's like compared to a historical average it's a pretty sizable impact on the business and and for reasons you understand cie comes in with very low acquisition cost and and pretty low incremental servicing costs. So the impact of a flat CIE like we're experiencing today versus a historical norm of 8% to 12%, it's a pretty material impact on the top line to the bottom line as well. And like we talked about in the prepared remarks, what we're sort of seeing is like the US economy is actually TAB, Mark McIntyre, pretty robust from an employment point of view, but when you go down one click you're seeing things like manufacturing government healthcare has expressed certainly you know costs are coming from somewhere and part of that is the provider system staff and backup. TAB, Mark McIntyre, are targeted verticals we're just not seeing that growth and. all the way to the micro question of what we saw, even in the quarter, you know, a little bit of net hiring in the first couple of months in the quarter. And then in the last month actually saw it kind of gave that all back from seasonal hiring, you know, interns that are in over the summer, temporary summer help, sort of a little bit of a bigger impact than we'd seen prior. So, you know, again, we think it's prudent to have a conservative assumption going forward in the short term. on CIE, but again, like the verticals and, you know, sort of earnings power in the customer base, even with a partial reversion back to historical norms is pretty marked.

Got it. So it wasn't any client loss or anything like that, right? I mean, that wouldn't be factored in. This was just kind of purely employee driven? No, you got it exactly.

I mean, at the client level, you know, As far back as we were able to pull the data, this is going to be a record client retention year for us, which is credit to the team. But, yeah, just within the client base. And actually, to be honest, the layoff levels are pretty not too, too far off from what we would have seen a couple of years ago. It's just that the new hires are just not coming in at the pace that we would like to see. I think a lot of our high-growth verticals, they're We tilted the balance here a little bit towards margin expansion and a little bit from growth, and so they're being cautious on the new higher front. It's helpful. Thank you.

Thanks, Kevin. Again, if you have a question, please press star then 1. The next question comes from Andrew Nicholas with William Blair. Please go ahead.

Hi, good morning. Thank you for taking my questions. I wanted to circle back to the commentary regarding kind of balancing WSE growth and ICR and pair that with the preliminary 2025 outlook on ICR. I guess I'm trying to understand, given renewals seem to have gone quite well in terms of getting your targeted price increases, retention is good. Why is it then that you wouldn't see an uptick in the ICR sooner? Is it a function of the fact that a third of the book will not have been repriced to start the year? Is it maybe you weren't as aggressive with price increases of late to keep retention high? I'm just trying to understand what the different dynamics are, because I would think if you're able to raise price and, you know, maintain clients on the book that, that maybe you'd see a bit better outlook next year compared to, you know, the 90% that you're looking at in 24. Sure.

Maybe I'll start. And then Kelly, please jump in. Thanks for the question, Andrew. And, you know, you've hit on it and you touched it a little bit, but just, again, I think it's worth pausing for a second because it's a, it's an industry-wide phenomenon that we're experiencing. Most players that have exposure to health risk have really one shot a year, particularly in the SMB market, to make adjustments. And I think this cohort by cohort quarterly approach is a really attractive element of the way we get to market here at TriNet. And you're exactly right in terms of, okay, why wouldn't you have snapped all the way to your long-term ICR target for full year 2025? And I think The reality is very much what you're saying. You would have had to have, on January 1, the entire customer base priced to the level that we were anticipating claim trend to be at. And so it'll take a bit of time to work through that other third of the book in the year as a key contributor. And then there's a little bit else in the ICR around our workers comp line is in there as well, particularly favorable this year with some one time reserve adjustments that won't occur next year. So there's a couple of little moving pieces. But again, as we work through fourth quarter, as we see experience here in the first quarter, that's all great data that we can put in and actually put into pricing, like Kelly said, 90 days later. Kelly, anything that you would add to that?

I think you caught the bulk of it there. And yeah, good job on the reminder on workers' comp too, because we're not planning on that recurring next year.

That's very helpful. Thank you. And maybe as a follow-up to that discussion, understanding that the macro is incredibly difficult to predict and healthcare utilization over any short-term timeframe can be lumpy. I mean, how do you feel about kind of the conservatism of your outlook for the fourth quarter? What are you assuming or what do we need

um to have happen or change from kind of year-to-date levels on the claims front to to be outside or above that range just any thoughts on the conservatism of the outlook you provided thank you yeah andrew i'll be happy to start and then i'll throw it to mike if he has any other thoughts is we're looking at the fourth quarter you know that's really our best estimate on the range you know our fourth quarter has our polling recess which since one of the reasons for the experience this year really dealt with severity, the number of high cost claims is materially up year over year. And so with that pooling reset, that does create a little bit more pressure in the fourth quarter than we would see from normal seasonality there. So what would have to be right for it to not, what would we have to see different? You know, it's a pretty wide range at three points is really what I would say.

Thank you.

Thanks, Andrew.

The next question comes from Jared Levine with TD Cowan. Please go ahead.

Thank you. I just wanted to double-click in terms of the sales headcount growth. Previously, you were targeting about 20% growth for this fall selling season, Joseph. Can you just discuss kind of what results in you not getting to that 20% growth target and update thoughts on sales headcount growth here over the near term?

Yeah, thanks, Jared. We definitely talked about that 20%. I don't think there's a lot of magic to sort of being in the 14% range other than to say they're really pleased with the quality of the folks that we've brought on. I think, and actually we've talked about this, The productivity lever for us is becoming increasingly important. I feel like the pipeline is robust. We're covering the market reasonably well. Having more tenured, more experienced sales reps in place to take advantage of that prospect pipeline as it comes through and drive the better conversion rate is, I would say, increasingly our focus going forward.

And then in terms of the PO bookings, you did call out some impact in terms of the pipeline conversion. What would you primarily attribute to that? Is that macro uncertainty? Is it the elevated health cost pricing that we're seeing there?

Just like you said, I mean, the demand for what we do is very high. Again, like very much 20% plus same day year over year as we look through championship season here for us. And by the way, and we've talked about this as well, a lot of the short-term pain of healthcare is a long-term tailwind for our business model. And so we've got real work to do here to reprice the book. But at the end of the day, the kinds of costs and the kinds of complexity facing small businesses as they're trying to offer competitive benefits is only getting tougher, which only drives the demand for what we do. I'd say It is the cautionary decisioning that the lengthening of sales cycle is a key driver for us. And the other piece, and we talked a little bit about this, but we have actually made some pretty material changes by breaking out the insurance services group, adding some considerable talent, centralizing data and putting in more discipline, I would say process both at new and at renewal. And so I think we're getting better at our risk management we are going to price the risk. And so you heard it a little bit in my prepared remarks, does every player adjust as quickly and bring the same sort of level of risk management expertise? I can't really speak to that. But for us, it's kind of prudent to assume there's going to be a little bit of conversion rate pressure for that reason.

And then just lastly here, real quickly, in terms of the 1Q discussions around health enrollment, in terms of those pricing discussions, is it Do you feel like it's setting up pretty similar here to how it's going in 4Q, where you're maintaining still really healthy retention, or any kind of differences that you're seeing in terms of these 1Q health enrollment discussions?

Nothing that's emerging different at this point. You know, we do inspect pretty closely the major health carriers as they're sort of talking about the results and what they're seeing, very much in line with what we're seeing a number of folks that we would be competing with in the market are working with carriers that are, again, seeing the very same dynamics that we're seeing. So I think it's because it's a market-wide phenomenon that gives us a little bit of extra confidence that the prices that we're seeing are not outsized relative to market, and we're not an outlier.

Yeah, and Jerry, the thing I would add to that, too, is, you know, we do price every individual customer to its risk. as best we see it based on a number of factors. So the dispersion of price increases does vary on a customer-by-customer basis, just depending on the risk. We usually do provide some pretty detailed claims information so they understand the basis for the renewal and really try to engage with our customers on anything that they can do as well preventatively. to make sure that they can control their claims costs. So, you know, that is part of the value that we bring to our customers to really help them manage what, you know, outside of salary, one of the biggest costs of their business.

Got it. Thank you.

Thanks, Jared. The next question comes from David Grossman with Stifel. Please go ahead.

Thank you. Good morning. I'm wondering if you could maybe help us understand what the competitive dynamic looks like in an environment like this, particularly given how an at-risk PEO kind of can perform relative to the PEOs who don't take risk. Is it an environment that would typically put you at a disadvantage? Would it put you at an advantage? Or do you think it really doesn't have much impact, given that a couple of your larger competitors are largely passing through health care?

Yeah. Good morning, David. It's Mike. Thanks for the question. At this point, TAB, Mark McIntyre:" yeah I don't know that there's a huge difference in where we are, I would say, on balance, we do like the flexibility that being on risk allows us Kelly just sort of highlighted. TAB, Mark McIntyre:" A process that we go through at renewal similar approaches taken in evaluating prospects. I am actually, though, excited about the potential here at Trinet over time. We've talked a little bit about the investments that we've made in insurance services and in risk management. We're materially better than we were at the start of the year. I see a similar level of improvement that we can put in place over the coming quarters. And I think the better we get at understanding the risk that we're taking on, being more consultative with our clients once we are on risk with them to help them manage that cost, providing a differentiated experience. I do think over time that's a capability that we can develop and exploit to the benefit of our customers and to kind of our ability to grow in a sustainable, profitable way. I don't have the data set in front of me, David, today, and sort of be able to quantify for you what that difference might be. But as I look out, I'm pretty encouraged about the potential there.

Right. And, you know, Kelly, I thought you said, if I heard you right, that you release your pricing 90 days in advance. If I heard that correctly, does that imply that the pricing for the October 1st renewals would have gone out prior to the uptick in utilization? I just want to make sure that I understood that comment and the impact that may have.

Yeah, happy to answer that, David. You know, we had, you know, when I answered Kyle's question, you know, I mentioned sort of the obfuscation from the change healthcare, and we're getting more and more data as we were about to release those prices kind of at the beginning of July. As we evaluated it, we did see trends starting to elevate, and so, you know, did click through an appropriate double-digit price increase. And we do think, you know, 20-20 hindsight, that's adequate just based on the risk of the individual clients within that renewal cohort.

And so does that imply that you would have a similar increase on the January 1st cohort then as well?

It is. Our expectation is it's similar. Yep. And, you know, we are watching and having conversations with clients right now. Just, you know, the realized level may come in slightly different because we assume like for like plans and there may be buy-ups or buy-downs that change the percentage. but it is in the ballpark of the same area.

Right. And I'm sorry, I missed some of your commentary about the fourth quarter professional services revenue. I thought you said limited CIE contribution. Is there anything else that's impacting the year-over-year growth?

Yeah, the other one, David, that I mentioned was last year we had somewhat of a one-timer, $8 million of revenue recognition associated with some certain set of fees. And that's not recurring this year.

Oh, okay. I'm sorry. I thought that was in the third quarter. Got it. And just lastly, I know workers' comp is, the tailwind is diminishing throughout the industry. Can you give us a rough sense of how much of a margin headwind workers' comp will be in 2025?

Well, we've tried to call out some of the unusual items as they've come through. You know, we can go back and look at our disclosures just to make sure that we can gather that up for you just based on what we've said publicly.

Got it. Okay, guys. Good luck. Thanks very much.

Great. Thank you, David.

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

Thank you, Drew. And I just want to quickly say to our shareholders that the best days for Trina are ahead of us. You've heard it through about prepared remarks and Q&A. Effective risk management is really important to me. We have and will continue to make the investments in this capability. And even as we're tackling the challenges of healthcare head on, We are taking necessary steps on the future to create a more focused, more differentiated, more efficient tri-net, one that I am really excited about and one that I think is very much capable of sustainable and profitable growth. So I appreciate the questions. I appreciate everyone that took the time to join us on the call today. I look forward to engaging with many of you, Kelly and I do, over the coming weeks and months. And with that, Drew, we can conclude today's call.

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