TNET - Earnings call transcript Q3 2017

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Operator

Good afternoon, and welcome to the TriNet Group, Inc.

Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. to Investor conference Relations. like Bauer, to now Director, Executive would turn over the Alex I Please ahead. go

Alex Bauer

Thank you, operator. TriNet’s XXXX Good afternoon, everyone, quarter call. and conference third welcome to

CEO; M. Joining are Financial Goldfield, and Richard our Officer. me Beckert, Burton President today Chief our and

remarks our begin an Our more financial our results were overview Richard performance. Burton and operating in quarter financial prerecorded. will of will prepared with third then review detail.

the call for Q&A then will open up We session. the

XXXX and may future. made being any statements our more price most you inherently in our statements quarter SEC from new that such might uncertainties undertake and in that a subject other our historical as to refer today’s or We encourage light depend actual predictions, do estimates, information, discussion other Before filings that assumptions of guidance upon events statements we as begin, today that by statements update these otherwise. conditions these of include in and may be the please law, strategy to note These stock. we detailed our events in uncertainties will not of future affect that forward-looking. future Except risks be cause or differ with discussion our public nature, nature materially or or may are to or fourth results for considered are not future results are to or risks, expectations, of market predictive the statements to recent review required forward-looking or the

Net net our EBITDA measures, adjusted forward will today discussion Service In income. addition, our financial non-GAAP and including outlook adjusted non-GAAP Revenues, for include

the that, will GAAP please measures most financial outlook over website. website. comparable earnings With our his on SEC to forward is available measures turn the Burton, through the A I on our to non-GAAP call company’s of website of reconciliations to non-GAAP remarks. for reconciliation financial our or results, our our release available directly see the For GAAP opening

Burton M. Goldfield

am employee quarter third to third pleased for and I by to year-over-year shift increased Professional outperformed again the revenue benefited grew Thank in Net Revenue the the $XXX our three with from in of $XXX you, business a GAAP performance. products. to In mix quarter due our our to vertical higher per $XXX Net XX% quarter revenue year-over-year grew increased million. we revenue to per fees our $XX Service and we Alex. forecast X% Revenue million. Professional quarter service XX% revenue X% million Service service our month year-over-year Insurance in due year-over-year the Net quarter, to Insurance million. pricing Service the service factors.

employees Net number in worksite the to Service First, an increase of quarter in Insurance plans. the our improved due Revenue in participating

to employees our in worksite choices as in the our market. continued attractive Our they other plans found than enroll offerings more

on claims Instead, I will lower when review finally, in call benefited in administrative cost cost additional in Second, X% Revenue the Net cost quarter continued experience operational trend. historical Insurance more In forecasted our planned. Insurance that half, lower to savings. Net the to benefited compensation. claims than Service revert expected. workers’ insurance provide third both than We and our And health from better-than-expected total color our experience Revenue our later administrative first performance. came come in I cost-savings Service the our had in would from

our time I net We to share have end and continued GAAP quarter for the on to of income to given migrated the share. am third strategy, more QX per which per add TriNet objectives they productivity $X.XX and expand best in the of The view to delivered succeed, intuitive this TriNet provide point. payroll, to TriNet Services, at and experience. TriNet $X.XX offerings, products. competitive launching Nonprofit. addresses TriNet mobile grow next integrate grow platform six larger component will third our expert both and a be Main guidance clients, along features business quarter product Main compensation property and medium joins to Sciences employee intuitive market top of compliance We Main and a user Financial functionality waves enabling a with legacy large sell effort Street’s goal expect prospects with and adjusted and the us central vertical targeting us small the a especially improved majority fifth year-over-year as offers to allows product map the Main product technology is of management and comprehensive pleased our We Street. broader more The users. as better Street our months. of launched we and enables of Street Life our cost-effective client’s both benefits with Our third-party with interface, functionality includes operating needs our more exceeded during migration focus our that XXX% improved Since efficiently cohort additional TriNet expanding XXXX. ambitious industries allowing of We our upgrade possible into clients per hospitality, which and Main robust in by online our grew the Overall, an EPS workers’ share, our support, TriNet the SOI attendance, TriNet of to product Main product’s complex. Street the performance, ecosystem in segment $X.XX product and API-first is with financial TriNet price July, functionality vertical Street TriNet the FY Technology, overall including introduced and growing a our our retail. portfolio, critical

we We have release Street’s occurring and their so, completed TriNet doing better year-end, by functionality. in migration with be the renewals the with XXXX. those of majority the of quarter clients aligned expect Main a In with first to benefits remainder

return benefit is clients let the We of potential of demonstrate me a offerings. scale that of associated the beginning scale. key cost-savings of increased initiatives topic component with model. our our insurance administrative our to of believe to for our several our business Leveraging our Finally, are the

generated administrative several the managing health cost-savings months, in Over insurance significant TriNet our last relationships.

Our insurance services team drive associated successfully down TriNet’s leveraged our cost scale programs. fixed certain insurance to with

we additional of in effective and/or in in of partners. competitive this, certain to as For will as we align one Because quarter, our QX major our will like changing opportunities term, of a arrangements carriers Longer other closely point economic major with example, more believe services provide for well that XXXX. with changes the our additional additional we we price cost-savings are fourth look arrangement more our expect for clients. carrier

in our background, By by within benefit component insurance trends. a that significant programs national way is credit our pricing depends from realized industry of Another certain our clients. XXXX insurance of we carriers provided cost-savings a to the fee or on

to cost-savings, our in can fees. value plan However, accrue the reduced that we’re trying form create clients to we administrative realize improved benefits of or

our or of achieved to investment strength clients clients Given have experiencing my tangible These from TriNet’s maintain team’s benefits scale. growing fee provided a through derived administrative the we savings, our financial are Whether in I credit. the confidence qualified the benefit of recently in our clients our over the pass of Richard? growth our technology, is With to financial to the that, shareholders. while committed its for his maximizing for our will Richard TriNet leveraging scale benefit review call profitable performance. of ability for

Richard Beckert

you, Thank Burton.

where GAAP numbers and appropriate. As on focus discuss the we non-GAAP the review the numbers financials, I will

year-over-year third the to the X% the During quarter, again X% XXX,XXX, impacted attrition, our to average quarter, Net quarter year-over-year. was revenue third to million. increased WSE $XXX our We finished the including In SOI the down million. X% attrition GAAP count by third over was quarter WSE year-over-year. worksite for $XXX with third Revenue increased XX% migration. attributable XXX,XXX increased year-over-year Average Services over down count employees,

expect compared the adjusted enrollment quarter the increased to $X.XX contributed or Adjusted forecast to to which million risk. from last million compared trend as year. end increased year, year-over-year $X.XX services revenue is continue slight Professional couple share We same Increased to to the When SOI benefited quarters compared third and the year. pricing to to $XX away the service mix blue from $XXX quarter average $XX impacted million the contributed completed. share share last net the XX% for improved million. or XX% per $X.XX Insurance in prior Service to performed during increased pricing year-over-year Service increased to shift to over year-over-year experience, period. X% better $X.XX quarter guidance. EBITDA lower the growth compensation last to quarter professional revenue in million year-over-year XXX% which increased Revenue migration million third and increased X% or net workers’ per of year-over-year Net $XX same to quarter income guided Revenue for compared realized benefited from the for came beyond our the above GAAP Professional negatively $X.XX million $XX the the below top next than quarter $XX due or third Net share and per our was incremental gray million. service $XX same Insurance $XX per and vertical. income health growth, XX% revenue by Total in our forecast cost $X.XX WSEs. positive of insurance

the equity third was our for primarily tax Our employee-based GAAP quarter tax GAAP rate was tax was The accounting rate effective by for QX effective and in XX.X%. tax XX.X% forma decrease the the income QX rate treatment compensation. pro driven

of approximately operating the EBITDA. During cash We change spent last CapEx, representing same net the with capital Net closed our debt quarter. million cash $XXX spent generation of million $XX during $XX repurchase cash flow operating trailing quarter in million. total and total million year benefited working stock cash Revenue increased and nearly $XX from of $XXX generated with we of In X% We ratio $XXX income of versus X.Xx in the the quarter XX-month debt-to-EBITDA million the $X of Service the and net million. third quarter, XXX,XXX in shares cash flow representing finished quarter, $XX the million third in of to We taxes. million, and quarter

with As provided fee clients recently credit. XXXX certain Burton a discussed, we

based XXXX fee quarter be The guidance. be revenue on XXXX fee has year, scale of with TriNet to scale from offering. drove segment by the credit, as credit bringing of the will included during credit we of during fourth the Through of and forward first insurance treated base. credited sales credits last The benefited our our our our cost in XXXX. benefits will down providing installed as the results quarter is and credit XXXX administrative are associated clients amount fourth revised we to clients some quarter our our the Over to

Turning quarter reflect Net fourth range to both our to guidance. to provide we an million $XX Revenue decided to have in In and costs. Service will the insurance provide transparency outlook. non-GAAP our effort model, our greater up to I down X% or movement in GAAP quarterly business widen

our impact of forecast Our includes arrangement economic also health new one beneficial plans. from the with the

quarter, For XX%. the million, range to to we range $XXX of the X%, million of million, X% X% million of represents Service growth to $XXX revenue fourth which represents in of to $XXX in forecast and year-over-year $XXX growth Net year-over-year which GAAP the Revenue

the margin to to $XX representing expect adjusted of in million EBITDA the fourth We EBITDA XX%. an $XX quarter range adjusted XX% of million,

$X.XX and of GAAP in income of or $XX to the share, to or the Our expect be range per to range $X.XX $XX income fourth share. adjusted net is million per $X.XX $XX to fourth expected million $X.XX quarter million $XX net in we million to quarter

guidance. Turning year to full our

now million, approximately three to We forecast quarters of to range we the forecast in growth Service to year-over-year which of of represents of Revenue XX%. our representing to fourth million X% GAAP and performance X%. $X.XX Given growth quarter of billion, $XXX $X.XX $XXX the billion Net XX% year-over-year revenue guidance,

$XXX year-over-year XX% adjusted FY and growth XX%. an approximately range XX% in to to For margin million we of XXXX, expect $XXX the EBITDA of EBITDA to XX% representing of million,

or $XXX of expect expected our or Our adjusted $X.XX And the be range $X.XX of share. we net income FY million $X.XX to $X.XX is net million million per $XXX range per share. to in to $XXX XXXX GAAP income million in $XXX to the to

Burton report full XXXX practice, call third quarter financial provide quarter when fourth closing This As now remarks. to the we for results. is I XXXX will pass guidance overview. our results we and will year his concludes the back for our

Burton M. Goldfield

Thank you, Richard.

position Chief Before TravelClick, like will newly and who, responsible the SMB be minute our verticalized software blend leadership solution-based teams’ third I coupled a sales industry, responsible most experience business solutions Barrett’s pleased growth base to Revenue to and revenue makes Vice years clients. well a customers. announced, cloud team. hospitality served take President with execution, for concluding acquisition joined This was a XX the of Welcome, with has over addition created Officer. would where and with am him Barrett and global enterprise skills, Barrett. as Barrett both acquiring Again, Executive new quarter. installed TriNet of of I for this including expertise, strategy TriNet with to the our for formally clients our broad as very XX from with to Vice our managing call, he President Boston, IBM. strong sales in as retention performance in years executive recently previously as long-term Senior Barrett as has the relationships leader and Inc., welcome

Our clients our maximizing our deliver profitable leveraging the to business on our centered of while is for growth scale for model ability our benefit shareholders.

fronts with me making that, progress results. let the now in drive on for call We the Q&A the session. growth and need execute to turn strategy continue they to forward. are operator We our good showing to over And these are our against going profitability to and

Operator

Tien-tsin [Operator comes Our Huang JPMorgan. Instructions] from first question with

Tien-tsin Huang

question maybe you bigger I to there fee for in just ask expect what And of on pricing. get idea What’s Is do to results credit. higher higher wanted return or retention to the participation? that? the maybe sort the get picture a on –

term? far, experience admin and term the does cost-savings, long pricing short your change it insurance your so the the in claims philosophy given and Just

Burton M. Goldfield

from we Tien-tsin, question. show And can of in clients To this building service clients. me, for this the are first, is Burton. second The service I Thanks is functionality; so third enhancements enhancements; is is: much point ways about, scale with value vantage those clients. those partnering I’ve about the our increase additional pricing. is talked and as and technology my three

do for to down, trying as is clients by work both the few pricing. to long-term that’s to the wanted a We’ve with future and show each that TriNet, I done of what leveraging administrative benefit with scale. the areas the and those So gone has enhanced, functionality well partnering the cost insurance the that for was the it be of of the service folks technology, existing was talked about been share quarters three as in

with outreach well the scale and So, believe idea in so received client this the far, commensurate of service building we has it’s entire been of base.

Richard Beckert

thing, rate And growth if again I QX, yet our can in saw just X%. add of one we

an So that we or cost price see don’t as insurance issue.

Burton M. Goldfield

Right.

So on feel as different me. a a discount insurance, opposed very was to this giving for

Tien-tsin Huang

like scale. it. of It It’s It’s said, of makes Got kind sharing I the interesting. sense. I mean, the economies philosophy question. That answers smart.

X%. to revenue, trying count professional services just follow-up, quick my WSE understand Just down up is X%, the X%.

widen see you count So pricing, about. and that spread, that professional services that? which beginning we I of spread Could talked vertical revenue? of this guess, is between even the Is just a a WSE result

Richard Beckert

SOI remarks, other in seeing lighter PEPM per being down, good his the little bit verticals. is we than Burton a as said, prepared has other the said goes That are as the Remember, verticals. in growth dollar

mix So and that of having going sales by it’s of the vertical, just the benefit seeing reps a we in change are price. philosophy

Burton M. Goldfield

TriNet. was you sure pricing impact is pretty shift, and our directionally on as the increased clients change. announced times. proposal, having Tien-tsin, for will as But exciting said morning phenomenal realize mix I’m that, So are these account tax for and well that this it, it What

see idea my will on in R&D political And things the in these more have of like out. So there. in whole there’s Sciences to point, obviously, them verticals other a from Life core we But value, this verticals them I’m focus a giving vantage pretty how and climate plays to particularly it we’re of about, help bunch in the credit that to come. years Technology, wait the excited excited, and us with partnering

Operator

question Stifel. next Our from Grossman is with David

David Grossman

trends of I book. growth. repricing one Obviously, WSE if to experiencing I’m migration in a workers’ first on just obviously the comp new impact of couple And wondering the platform guess them. here. the There’s I the SOI hit could a and lot the is the we’re pieces of moving of

this Is bell complete? of good in to to is this that the two there Or So a indication curve appreciating? next expect quarters? what is not fully a that I’m

Burton M. Goldfield

expansion, What with So David, to as we’ve margin is top growth year. and always be believe and have My that. discussed on I numerous transition occasions, revenue this year a we was a will achieve we transition goal assure to line said to annualized this next is Having that volume growth future. year the the to that into and doing foster earnings want that, future. year I revenue is in and growth and you are everything

parts. the mentioned You moving

SOI Street We are onto migrating the Main platform.

are our We risk repositioning book.

our working actively on are services. and products enhancements to We

We’ve leader organization. We hired sales implementing the are an vertical new exceptional strategy. for our

So as those line I return growth WSE a out point and in and top you to at different revenue. elements also profitability shake different out, increases expect and times, as

David Grossman

Right.

a like speaking migrated Burton, the bit end about sounds book the trying timing the SOI specifically by more little of March quarter. get just it So then, to you’re

So the pretty sequential say those it abate quarter? start significantly is a fair to to basis headwinds after March that on

Burton M. Goldfield

say I we once about the to after complete March would that So very focus the migration what am platform. single quarter the excited I is

David Grossman

accrual that to Or it of going this, fair Okay, out next the the enough, just reflected And based XXXX so year your paid in gets guidance, And getting that? understand fair. an accrue on accrual for fee that XQ? made so we credit, is that are gets I to XQ then just just mechanics is in experience?

Richard Beckert

No.

we the recorded impact in And QX in year, gave guidance already of that you that next then impact the QX. recorded of credit portion have happen is the but revenue cash for in will We that’s QX.

Operator

McHugh from question William Blair. with Timothy is Our next

Timothy McHugh

because in read out. full to I this just But I guarantee kind change Q guess is arrangement from going that the the kind fast it a the an came at-risk insurance of change business, said dynamic, I that guess, of and to... we model. talk you are relates making client this or kind of how as the I Can about guess, much it base of

Richard Beckert

Sure.

you changing minimum In said So guaranteed right? It with business, rest give $X any plan. have of we’re a about our line bit with that’s and have in XXXX. little this it’s $X.XX. So a QX, additional will we cost up premium we to it does the $X.XX all us And or widened It factored little benefit of have we in that in, guidance. volatility, a add million why already quarter. now

So been reflected all that’s there. in

Timothy McHugh

How you of can of the much market? is Okay. I client kind remind guess... this vertical – mean, me, I mean, I particular

Richard Beckert

you let update year We’ll goes as you. XX,XXX. know about more We’ll the It’s on.

Timothy McHugh

WSEs assuming? XX,XXX Okay. in that, I’m

Richard Beckert

That’s at precise the why you – give QX. more end we so of Correct. a number will

Timothy McHugh

And And I is fee the to of you way the there guess... quantify clients? kind any can credits

Richard Beckert

with our customers It’s does a demonstrate allow and positive how, market. our it can viewed to share been received in not well experience we factored a out the to already of large we it positive was really that right improvement, as it We’re go number a and It through went we quantified have with us by say, admin give internally, very partnership. fee going as – a in. have we we now. touch very What allowed as as Burton and to help way. would that out Yes, us said, very that of

Timothy McHugh

after view where earlier are you – Okay. assuming insurance changed that would reversion a of year? seeing first Or kind back QX trend? guess, of this lastly, the reverting half plan, still to here, assumed of back on in you I for the last were quarter, kind below And then to you you the we revert have functions plan. around

Richard Beckert

actually clear, above we what would said the To last go be have we thought Yes. is trend. quarter, we

This quarter, quarter the trend. will fourth we’re we saying on and be

Operator

Our next Instructions] with Danyal Hussain comes [Operator from question Morgan Stanley.

Danyal Hussain

in your expectation think entirety. the I lower mentioned that admin cost I an share its think, you previously you’d clients, with

and – credit, share? is of that revenue just sharing sounds, you’re it the the that is way this some you’re Is or fee like portion keeping a right? sounds of it. economic least And So it the keeping at now

Richard Beckert

Yes. entire think of we ever we in are back. This believe said that Rich. don’t the we is would I sharing customers our flow I some do to amount are we demonstrating that.

which allows a our be what kind for importantly, as it us we larger, back we though real do more price is to able to exert base. our give benefit very and admin get More competitive that package we’ll us believe customer that And is makes customer to competitive. a flexibility, fee to continue overall set of

Danyal Hussain

Okay.

fourth So insurance normal revenue, for insurance give us fee considering one renegotiation look the cost you a of this the could percent credit a a with would like? and now quarter carrier, revised what year gross plan outlook as

Richard Beckert

in we’re X% think still XX% We that to of range range.

know at you QX so Just came in XX%.

Danyal Hussain

in question And right. how is on whether that think the it you can much point you’ve this a the already attrition demand then quarter? pick migration, of Okay, seen fourth and completed at could you’ve or quantify of terms you think up all you the in troughed whether of

Burton M. Goldfield

Burton. is this Danyal,

installed base We said, I balance the as half the in expect over migrate by year-end, QX. to and

the migrations. on of third We’re round

we and fact, the being on the today migrating aligned it base. complete the our that are by both this waves of will for And to XX,XXX expect functionality happy customer insurance over place I renewals particularly with the these weekend. and Sunday. with take I’m that And migration with happy WSEs In started over now

new So on-boarded. bottom on product. for been with I’m line is the that Street our And happy brand-new the business as is number equally pipeline had with Main pleased I’m important

Danyal Hussain

Okay, on back great. getting growth. a just WSE And then, Burton, that question to

hiring the rep – growth just the in could third give to into for place probably accelerate need expect an or later year? Could again. year sales You’d think the least at whether give how maybe then you need quarter? And play you of count that update take next this rep sales I out, an you overview you to

Burton M. Goldfield

and level help X in growth on we more sales in because significantly I the sales reps these did reps And an question. complete effort. after X job. dramatically be year. is there’s one year-over-year, their great productivity, So between productivity of level about which accelerate dramatic and focused the there in feel a rep is The call a not week they will retention what to already get as will my up strong having feeling joining to he’s increase me I’m XXXX. excited verticals, and also very the adept even lead in impact natural uplift Barrett a need

So maturity a get that from very to I with optimistic. will achieve maturity give as my complete of with once I focus believe from is that that additional look for meet it’s macro standpoint, final view based me From Barrett maturation sales and the the overall very, we stimulation and view, particularly this the of and pretty well vision away product without will TriNet any to and believe for good But then are things able us significant products, small me believe micro on changes for with the the growth for to industry be Street functionality rep tax both XXXX the our plan I just our move reps. economy. all a And migration of I the and Main forward. Rich businesses opportunity the the the our as

Operator

disconnect today’s you you This presentation our the session as for We now may question-and-answer conference. well lines. concludes and as attending your thank

TriNet (TNET) 4 Nov 172017 Q3 Earnings call transcript