TriNet Group, Inc.

Good day and welcome to the TRINET second quarter 2025 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 morning. My name is Alex Bauer, Trinit's Head of Investor Relations. Thank you for joining us and welcome to Trinit's second quarter conference call and webcast. I'm joined today by our President and CEO, Mike Simons, and our CFO, Kelly Timinelli. Before we begin, I would like to preview this morning's call. We'll first pass the call to Mike, where he will comment on our second quarter performance and discuss our progress on our strategy and medium term outlook. Kelly will then review our Q2 financial performance in greater detail. Please note that today's discussion will include references to our 2025 full year financial outlook or 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. 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 EBITDA 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 our 10-K 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. Mike?

Thank you, Alex. In a quarter marked by significant market and economic volatility, Trinet delivered financial and operating performance consistent with our expectations, which allows us here at the end of the second quarter to reiterate our full-year outlook. While there are several areas we are working quickly to improve, overall, I'm pleased with our results and with the execution of our plans to reposition Trinet for long-term profitable growth. Our first priority is to deliver strong service and retain our customers as we reprice our benefits offering to account for the sustained healthcare cost trends being experienced across the market. We are on track with these efforts. Second, we are investing in our distribution capabilities and benefits offering in advance of the fall selling season, targeting improved momentum on the new business front. Importantly, even as we improve our service distribution and offering, we continue to deliver prudent expense management and gain efficiencies, freeing up resources to reinvest in the business and building confidence in our team's ability to execute. The challenging market and economic environment resulted in weaker business sentiment once again, impacting sales conversion rates and customer hiring. This reality underscores the importance of the investments we're making to differentiate our offering and go-to-market approach heading into our fall selling season. I'll touch on our progress with these changes in just a minute. Before I go deeper into our financial and operating performance, I want to reiterate our strategy which frames how I talk about our business. Through the execution of our medium-term strategy, We intend for total revenues to achieve a compounded annual growth rate of 4% to 6% and our adjusted EBITDA margins to expand to 10% to 11%, which taken together will ultimately drive annualized value creation of 13% to 15% through earnings growth supplemented by share repurchases and dividends. Beginning with revenues, our second quarter was in line with our plan, and we continue to expect full year 2025 total revenues to be in the range of $4.9 to $5.1 billion. The key drivers for revenue growth remain health plan fee increases, strong customer retention, and new sales growth emerging later in the year. While our full year forecast assumes net customer hiring will remain low throughout 2025, It's worth noting we did see improvement in customer hiring this quarter, up about half a percentage point over prior year. The second quarter is our most impactful customer hiring quarter, and this is the first Q2 in several years where we've seen year over year improvement. This second quarter also represents a modest three quarter positive trend in year over year CIE. We will watch closely to see if this positive trend continues in the coming quarters. Kelly will speak to some of the underlying drivers of CIE in her remarks. In terms of insurance revenues, we made further progress with our health plan fee increases during the quarter. We are balancing our need to reprice and improve our insurance cost ratio with our focus on retention and supporting our customers through this challenging environment. As a point of reference, during the second quarter, we realized an average increase in health fees per enrolled member of roughly 9% when compared to prior year. This is after plan design buy downs, which clients use to manage the fee increases and effectively reduces risk to Trinet. On a risk adjusted basis, we are achieving the pricing levels needed to improve our insurance cost ratio as planned. As I noted on our last call, we achieved our pricing targets with strong retention for our April 1st renewal. Similarly, our July 1st renewals have gone well. Thanks to the strong execution of my colleagues, retention remains above our historical average, both in our year-to-date results and in our outlook. As you might expect, combined with an uncertain economic environment, our health plan fee increases have created a headwind for sales when compared with last year. That said, the quality of the new customers coming on is strong, with a higher percentage falling into our targeted verticals and with sustainable insurance and professional services pricing. We remain confident that as we move through the second half, new sales will begin to improve on a year-over-year basis. Part of this confidence is based on the encouraging results of market testing with our new health plan offering. Our new benefit bundles leverage our broad and growing set of carrier partnerships and plan designs paired with our proprietary data to create new combinations that meet customer needs for coverage and price and have the important added benefit of simplifying the sales process. I mentioned that our carrier partnerships are growing. We regularly look at the health insurance options in each of our markets and target the leading carriers, with the best plans and the strongest networks. As we head into our fall selling season, we are adding attractive new options in markets which represent strong growth opportunities. Our growing confidence in new sales is also based on the expansion of our go-to-market approach. We've established preferred broker programs with several national partners where we have aligned on new sales and retention targets, as well as created dedicated quoting, sales, and service teams. Beyond our national partnerships, we also increased our outreach, simplified the onboarding process, and enhanced compensation for local brokers. As a result of these efforts, we are beginning to see encouraging growth in the number of local brokers using our platform. For our direct channel, we are launching new AI enabled prospecting tools and have made several improvements to simplify and streamline the selling process for our reps. Our average median tenure continues to grow as we've had good success retaining our most tenured people. Finally, perhaps some of you have noted our new marketing campaign, Your Path, Our Purpose, which highlights a number of TriNet's amazing clients and the work we do in enabling them to grow their business. We have a great story to tell and it's gratifying to see the positive response in both our direct and brokerage channels. Overall, we are in a much improved go-to-market position as we enter the fall selling season, and indeed, we are already seeing strength in new business proposals for 3Q. Returning to our medium-term strategy, the second feature is achieving our target margin of 10 to 11%, and on this front, I'm pleased with both our disciplined approach to managing our insurance cost ratio and continued strong expense management. As mentioned earlier, we are achieving our health plan fee targets. Investments we've made in insurance expertise, improved forecasting, and more disciplined process management are paying off. We've observed more than six quarters of stable, albeit heightened, health care claim cost increases, and our confidence in the adequacy of our fee levels continues to strengthen. We are on track to deliver our forecasted 2025 insurance cost ratio and carry momentum into 2026, bringing us back into our long-term targeted range of 87 to 90%. Our other major lever for achieving our margin target is expenses, and for the second straight quarter, expenses declined year over year and outperformed our forecast. We continue to benefit from our application of technology to our business processes and from our talent optimization. On the talent front, next month we open our new Atlanta office. This office is central to our effort to build a stronger hybrid in-office culture supportive of talent development and enhanced collaboration, all happening in the middle of one of the fastest growing regions in the US. We are excited about TriNet's future and this office represents a significant investment in that future and our ability to invest even while improving margins overall. Our strong expense management and in-line insurance cost ratio allowed us to continue our history of deploying capital through dividends and share repurchases while still investing in growth. In summary, having reached the midpoint of 2025, I'm pleased with our increasingly predictable results and stronger execution. We are on track to introduce our product and go-to-market improvements for our fall selling season. We continue to price to risk, balancing the needs of our customers with our goal of returning our ICR to our target range. And we continue to optimize our business, gaining efficiencies while investing in talent and technology for the future. With that, let me pass the call to Kelly for her financial review. Kelly?