TNET - Earnings call transcript Q3 2018

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Operator

Good day, and welcome to the TriNet Group Inc’s Third Quarter 2018 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Alex Bauer. ahead. go Please

Alex Bauer

and call. everyone TriNet’s third XXXX Good welcome conference quarter afternoon to

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

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

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

conditions, not other of are fourth and note to made and to our required difficult changes cause predict may as be we including in beliefs, statements update by considered being may in XX-Q you or most are subject Before uncertainties discussion inherently these expectations to public XXXX future full-year based our today’s in predictive please the new estimates, information, light circumstances any from be and might or law, future results do are that We events in review or forward-looking nature, These today historical to our predictions, that depend undertake future. current quarter statements are recent we with statements guidance to risks, events Except materially filings not strategies, that in actual encourage our such of as forward-looking. XX-K and on begin, or include SEC, will otherwise. that the or statements filings. are and differ other and upon that to assumptions nature, or statements management’s expectations, and refer

our affect the uncertainties that of more changes detailed and our market stock. in results may discussion a future For or in price of risks circumstances the

adjusted for service will including financial today measures, margin net our non-GAAP revenues, forward-looking EBITDA non-GAAP guidance In adjusted adjusted and addition, income. our discussion net EBITDA, include

website. to most website through are our SEC filing both financial over guidance our measures A on to the measures our will quarter GAAP For please available our the earnings non-GAAP With our or his or for Burton available to financial on turn XXXX, remarks. of call our opening website. our I results, which GAAP forward-looking XX-Q comparable release also directly that, reconciliation see our for third non-GAAP of is reconciliations of the of

Burton M. Goldfield

Alex. you, Thank

pleased our third We We customers existing the earnings generated with strong target products during the and financial performance new PEPM are right our line. bottom growth revenue quarter. and continue at and we price, and the driving solid as right services both to with

we X% shift year-over-year proving importance service its for they our employees. the Given In professional Revenues revenue secure our total across our revenues white-collar grew the are in for grew Net we TriNet’s Professional quarter, clients. in $XXX million. be an service offerings important million, towards $XXX benefited third verticals. how million. the of to offerings SMB XX% are quarter by Service TriNet economy, and competition mix increasing GAAP clients X% our grew QX, industry-specific strength and to the at $XXX believe the year-over-year increased our year-over-year from client revenues and to a talent revenues reflects to as We In maintain HR competitive, growth to seek

compensation in insurance grew again, X% service while revenues change benefited to one insurance also in by performance. favorable the with We XX% for revenues net quarter year-over-year lower carriers, expected economic service health quarter. net from service costs $XXX workers’ of million insurance our arrangement the to grew revenues and $XXX than million, year-over-year the

to finished $X.XX over Throughout grew share per per to per earnings quarter XXXX, year-over-year. $X.XX of and utilization our grow impact value and per GAAP a realizing share. with growing white-collar proposition. has down been professional worksite our XX% and verticals. of revenues our service this mix increased XX% X% to total seen mix QX financial revenues year-over-year the We The employees, increased entire shift our share shift we’ve QX income adjusted XXX,XXX share, by client PEPM to Our net

to industry expertise, allows benefits, the as strategy needs and market to understand mobile compliance, HR each relates of TriNet it serve risk and payroll vertical Our access. and

continue also long-term drive investments strategic necessary growing while We to make earnings quarter. future in the to growth,

TriNet, For media, company, social, and value and the comprehensive its multifaceted to a TriNet can all example, awareness that in deliver our designed radio our a campaign targeted spans QX, to of out-of-home businesses. medium-sized small television, we rebranding launched digital, with raise marketing of audience, and offerings

determination thousands the that campaign country. ingenuity of brand the entrepreneurship, behind Our form our of backbone SMBs highlights and new

dedication Our New from incredible. tagline, is SMBs, impact reach of Wall passions, of Street drive to affirming "Incredible our starts to nation’s October. month An their their delivering in York reinvigorated and the short of and campaign here", Main now example entire happening celebrates nothing the running of Street, marketing for right their our City,

Terminal this pass each and will you have XXX invasion commuters where Central seen campaign, through approximately Grand station TriNet’s through Grand with billboards TriNet throughout average advertising passed have XXX,XXX of month, you day. Central, If an

for program, marketing sales with coordinated in We our rebranding is and our teams. which are campaign excited our support of

early still the the pleased we While today. in with campaign, results are

while financial approach verticals, financial the delivering our strategic long-term our As to we our Richard? to we now continue of expect white-collar call solid a to pass on benefiting performance. go-to-market will mix look forward, I to continuing Richard review from for the focus and over and performance. investments disciplined shift

Richard Beckert

Thank Burton. you,

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

workers’ WSEs. to XX% average reduced $XXX Professional revenues Professional over improved Average year-over-year. with year-over-year. pricing service million. revenues by the one service total services revenues to insurance with increased finished shift X% a quarter employees, total These carriers, X% for favorable trend down economic benefiting Revenues In was quarter We performance. to million. its our year-over-year benefited XXX,XXX, over quarter third the client third continued our recent third $XXX of the towards revenues offset third change X% and of quarter we $XX white-collar the worksite down year-over-year third carriers, the net healthcare increased change of from revenues than benefit verticals. for GAAP of a service were quarter increased count $XXX million. $XX with mix the $XXX benefits for from insurance by to X% XXX,XXX the quarter, arrangement During FY service X% WSE revenues million. increased arrangement year-over-year fourth service Service to XX% Net million, costs year-over-year Net one the year-over-year received in the increased since of and compensation which received lower announced our and economic insurance XXXX. million, million to Insurance net expected was revenues $XXX

effective equity Reform GAAP due to tax tax the a of Our employee XXXX rate Tax and shipment compensation. was primarily XX%, Legislation

same Adjusted service in the increased an the quarter, per million to from or to for year. quarter the last $XX rate in share income $XX year-over-year adjusted which OpEx. the $XX $X.XX non-GAAP insurance third was per EBITDA share period, increased during of share, XX% $XX For to performance quarter to Adjusted same income $XX offset of GAAP to per quarter XX%. EBITDA X% for XX% million our by the net share EBITDA XX%. $X.XX compared margin compared net $XX last to Adjusted million increased million net million or compared in revenues, tax prior-year $X.XX the million year-over-year per or benefited or year-over-year was quarter the increased year. $X.XX partially

the quarter. third the on in million investment $XXX million would corporate third incremental of with We to contributed total quarter of third these cash $XXX discussed cash in million our total versus included fourth in and used marketing our during investment Historically, $XXX capital $XX our working with million, second As XXXX. call, quarter the and OpEx second the quarter the respectively, earnings of the quarter. ended continued purchase This million million and capital working closed cash investments campaign invested our have both $XXX and in process our quarter We calculations. been cash of $XXX improvements strategy. in of bench

activities cash we $X paid of payroll flow quarter, from third operating comprised the of million primarily positive WSE-related generated obligations. tax out $XX corporate and During million,

from XXX,XXX a approximately $XX $XX total approximately quarter, repurchase authorized in to of quarter-end. third the share million result, leaving spent $XX million inflow approximately for stock operations cash of as repurchase were We shares As million.

Turning to guidance. our fourth non-GAAP and quarter will provide outlook. both GAAP I

we of of to quarter, growth $XXX EBITDA year. to $XX to million million, million fourth net revenues Adjusted to million an the range the XX%. the up for GAAP representing X% of to quarter, revenue year-over-year to million year-over- expect the margin of the range in X% $XXX For flat in range EBITDA be expected to $XX XX% adjusted is and range of $XXX million, representing in service X% $XXX

share, expect per net per in $X.XX $X.XX We to and share. QX adjusted $X.XX range earnings range to the income share GAAP in per the QX of share of $X.XX per

As QX our share a XXXX. devaluation tax to GAAP the deferred benefit the of per due during reminder, Act Tax of $X.XX under exceeded and per liabilities earnings XXXX, Jobs Cuts share

guidance our full-year forecast which to representing EBITDA $XXX and XXXX range. bottom a expect XXXX our to of million, previous compared represents growth previous one million a to XX%, raised $X.XX, be margin net raised per billion, to previous now point to full-year adjusted now an of X% end year-over-year We in to the XX%. of when to million, to when represents $XXX full-year which earnings X% We our range EBITDA our $X.X increase of guidance Turning guidance. million range to year-over-year GAAP compared increase range range to revenue We revenues We guidance. XX% $XXX guidance. GAAP $X.XX guidance to share our of service growth $XXX $X.XX adjusted two is approximately the to at

income when we to to range to net $X.XX $X.XX, adjusted previous compared raising guidance. are Regarding a $X.XX increase share, our per our guidance

to For for that, forma modeling rate turn remarks. closing XXXX, call tax his XX%. of are will the pro over I a FY Burton we With

Burton M. Goldfield

strong remains Thank all-time you, small high. growth at economic Richard. an optimism business and U.S. remains

the for Our and the XX tightest resonating clients Against in market over this our competing years. marketplace. labor strong products backdrop, are in are growing in talent economic

focus to approach target profitable continue and right on customers the the disciplined right products we support at go-to-market right to price services. growth We the as our with

value tailor and needs I verticals, to With the more specific As and our forward we solutions operator. would adept look to addressing our to more that, the return call XXXX become like of clients. Operator? to the to we offer will continue our to targeted

Operator

Thank you. [Operator Instructions].

Tien-Tsin question comes from Huang with go ahead. Please Our JPMorgan. first

Tien-Tsin Huang

Thanks lot. a

that the I the Grand guess, insurance pretty to placed, got my to revenues got I’ve they’re I Just wanted attention a stuff. to pay – upfront say so of side. lot question on Central been is say. My myself, well to seeing question ads in

better. Can three three workers You maybe comp prioritize factors mentioned or and the least way, quantify health upside, being those you some the repricing, in at the us? that cost us mix for the for maybe them drove

Burton M. Goldfield

I think rather them. would prioritize I

the therefore, The that’s that to if the and coming a remainder flow first the that for million, the if single or In you say biggest. say in is and you’ll flow prior saw point comp, piece so line the bottom QX, the year, quarter, $X the the would in the end, any then that’s that at was workers’ I at rest. full plus the to we Q, we around around period look see at, have adjustment and we so cost, you that time lower can X% look at cost. in minus is

Tien-Tsin Huang

retention – – on a terms employee I mix Great, of competitive I’ve any had, surprises than in a good and that had what’s but guess white-collar, little maybe what employees. your what’s expected. bit you that’s or to the new perhaps, shift that know, or the heard we to lighter just Then sales and front what helpful.

Burton M. Goldfield

Yes.

So, you my as Tien-Tsin, And us the a let unique. it professional can color was me of little pleased work bit up side allowed give see, X%. perspective, I to employees drive you are with from revenue service obviously,

all clients continuing We’re the verticals all certainly across offering. to sell that value

growth double-digit and with make enrollment at quarter. XX,XXX. that year-over-year X% XX% base, that pleased another in both One the life particularly we meaning, of things is health year-over-year up I’ll the X% client point is the third over in about just And I’m sciences grew the client, verticals. our is technology continued interesting by

fundamentals belief So, about very it’s the a target businesses and strong, for think the market, my there’s in I still in the although markets, the economy I’m U.S. underlying America. volatility small in tailwind are equity is excited

Tien-Tsin Huang

you. Thank Great.

Operator

comes question Please Stifel next Financial. Our from with Grossman ahead. David go

David Grossman

afternoon. you. Thank Good

Burton M. Goldfield

Dave. Hey,

David Grossman

products like is underlying I to wondering if how mainstream growth disclose the to you just don’t you alluded – go just the growing I’m could back back quarter, components the you of white-collar, know and versus makeshift, year-over-year? in can maybe think, is, both should color fourth sequential based quarter? in and But what unit And the to you you any dynamic we see that on sequentially mix. that to give whether us growth still on whether expect the

Burton M. Goldfield

So, from let’s – Street, Main there, and you first can Rich. me take about let talk it

the to vertical Main delivers, the year-over-year. that So risks. appreciate value proposition has and continue and David pursuing focus growth, Main benefits. more we’re HR compliance I refined believe PEPM Street that that up return we on Main transaction Street also Street entire to about TriNet is to getting on price who prospects including And excellence, BNO year-over-year

So years, our in couple we’re every customer, Street applying other now verticals put place over including Main approach we last of the that and the disciplined verticals. with to prospects the

be vertical a I that Street TriNet. believe will So, and to grow for strong Main continue

Richard Beckert

that. add Yes, to if could I just

you year less what years, in have in white-collar where see continued we prior also, the between mix blue-collar. and difference this and think more I

you’re then so improve. to PEPM continuing that And see

see, You to because size, in your so you be tend that as a smaller well. also they of can that PEPM in and way therefore, little drive

of them that back we’re disciplined go-to-market from workers have both pricing away and helped very those the we for leading then risk and David, us are and right things, are and comp through we So premium profiles. – way a

and all clearing as we take from we’ll over next we’ll on the think year. of back to half therefore, growth those see So we the time, things, exit year continue

Operator

Please comes with Our from go McHugh question William next Tim ahead. Blair.

Tim McHugh

Thanks.

what guess Street part growing declining? I – Main Main is that. Stream year-over-year, on follow-up is a Just as

Burton M. Goldfield

So, Main that sales. Burton comment talked our about, new Street the

old So the you come base they that install still circle us as and they a piece was around. of have leaving due

was the year-over-year. average first on which Our the of pressure new there but three picking sales Main first in quarters the down Street half, downward are drove up, year,

Tim McHugh

a remarks, of And sales, was couple think part there the quarters. prepared I just on the that of last new

still I the quarter, gave didn’t how of new – last two you you the versus think overall this quarters? that if would talked been it catch you’ve contrast the a kind I sales what color. Is momentum about

Burton M. Goldfield

expand to year-over-year. continues It

We continue to before. see the as same mix

annual to our grow. continues value So contract

time, said, half to yet, the believe able we should there digits. we of the be next We’re installed pretty track we on we think we’re single base, we as as comfortable, will move grow but high that be we back year. Clearly, over not into

Tim McHugh

expect any trying to WSEs expect other we to or back didn’t ask, be sequential would I of get back to growth – to any get be sorry, I be then sequential And you think be where when growth – Okay. in sense this point? or would and touch or sense year-over-year expectation at year-over-year showing the question you’re you growth, would to what would your of

Richard Beckert

people were year, the doing was because a lot sequential understand the that impact to Yes. we of wanted we migration having. Earlier growth, the

to We next move will lot end the part think with more do the and So and really, we year. we a kind year-over-year growth. but into be we up slightly, how first that that year deemphasize to of of traditional it gone have the back will how

up moving forward, So we we’re sales setting with talked as ourselves about. Burton think new

right We’re starting elements. to hit the all

with we the currently have with the are the happy risk. we’re that between we blue-and We’re white-collar, happy pricing how mix

Tim McHugh

Okay. then guess… And I

Burton M. Goldfield

services Let WSE revenue in even me you professional to quarter, volume that sales new X% for double-digit with I is second. the and just the a add fact that growth one ACV, will up X% point to was decline.

Tim McHugh

you on of that’s the margin, shift insurance structural guess, And kind insurance, this in arrangement. Okay. that then one I net year, said

don’t healthcare lower item. cost, is permanent a think the of I have kind You which

the prior You adjustments. would then period extrapolate and

updated is should and sense reasonable, last we those margin insurance pieces trying Just forward? that get medium-term two any think the thoughts on are you net a carry of to

Burton M. Goldfield

All right.

the think to is higher which year. the which XX% So, given, started much to year think we we’ll the above range. than XX% the QX, we in XX% I XX%, think guidance what the about way it, we’re lower Clearly, is end have XX%, we when

XX% In there should about repeat point is prior of a period itself. range, that – be fact there the adjustment should not

Tim McHugh

if And going to carry the is were healthcare I better-than-expected that And guess, to how that? we contributing cost much forward?

Burton M. Goldfield

goalpost, the that’s that’s kind So I next beyond. willing year just think to point time much give I as No. about give right? the about we’re this point at and of you is in that

Tim McHugh

Okay. Thank you.

Operator

Please Kevin comes question next ahead. with from Our McVeigh Credit go Suisse.

Kevin McVeigh

in just XXXX? or on right, Hey, was million was a $XX you. follow-up benefit that it heard a will economic from the that that XXXX XXXX. thank Great, $X If change like Does It’s million that. I benefit there something $XX back it mean million was in there’s another kind a of in arrangement.

Richard Beckert

year. XXXX, QX for $XX in this was million That

Kevin McVeigh

Okay.

Richard Beckert

said So, that Year-over-year, the not so That – that had will it’s $XX it improvement, that’s to in came a have our arrangement statement, at million. base. fee allows right. true moving XXXX economic about we in forward. we year-over-year What back but more allows still the

Kevin McVeigh

And you of of I given sense that third. Got anything to today, similar been at the that of we’re of kind are? ratio a as has out to kind again, to keep there kind can start thirds, almost you’re get just But mean, trying until does that’s where there XX, where professional, the that is settles? similar outperformance, this XX-XX, it. it quite the look XXXX, to relationship insurance historically, one kind two outsized that. of the just or normalize not they

Burton M. Goldfield

Right.

earlier, So, was prior as I we there of adjustments period about anticipate forward. don’t one that had point said going

to we all we the to the thing we’re probably with leverage on the that company. only would continue So, going have fall that’s say, financial

in come other whether margin us to continue they allow or over elements, to So, our that or OpEx cost time. grow

Kevin McVeigh

you can that expect to of help quarter And come where just, kind then end of in us, attrition currently? the we the Got year? what in it. do And was

Burton M. Goldfield

say number. out year-over-year. give better attrition don’t would is But I We what an Yes.

risk moving it’s Kevin. investments retention, off. client pricing continue not as the in will there’s being but verticals each but we disciplined from So, my And They’re the for only I strong. absolutely we’re our that finally, we markets, volatility is process direction should believe they directly making the talked to and marketing to we next target we said and equity tremendous earlier, related about pay I’ve in And right see that as around area, customers the to as remain target. market standpoint for the proper the improvement, year. which in of

Kevin McVeigh

Understood. Thank you.

Operator

question Financial. with from is ahead. follow-up Stifel Please next David a go Grossman Our

David Grossman

you. Thank

my had growth. and want versus high pricing just over kind here. kind this you on But hope the And at between the so I is the to say, let’s play back at how button it look low double-digit I does Sorry, calibrate model unit I next over, to just at least, that of know we you to said mute return months, pricing take next can get XX the as unit expectations of single, shifting growth to to the around follow-up all? out, question, model, our XX should unit we how long dynamic leased months? to

Richard Beckert

Great.

well overall us though vertical, of that price to Burton know have health know was to the even customers way lot we revenue allows the about we comp to growth them. price. That’s we a alluded to the there’s has as even We are the book, the it and the is still our received. think WSE WSEs the right workers’ That the go-to-market price average an with pricing we’re at So, of grow our you, shrinking. the way on with less the current that that and to We way been know down. mix do in have right continued saw our a product though deliver our marketplace,

are have it think you When price has at company business, as year. that’s seeing and we a you’re positive So of of are are the started to Burton of amount to the momentum allowing we because that you over of us – things lot couple the a through year, that current talk about disproportion only verticals risk to our performing Street the propensity heard higher that for ramp we that of actually more Main time. what at look this a white-collar outperforming book white-collar than clearly

that then half of the So to year, and grow overall continued continue the will you’ll continue see to book business next back. of first through

David Grossman

white-collar the is is growing that So, right now? is single-digit range in high it… Or

Richard Beckert

Yes.

book that doing We’re of very well business. in

David Grossman

okay. right, All

Burton M. Goldfield

And I life tech called out sciences. specifically and

we the products. sixth one discreet I of in are think early challenges about the is,

So volume at quite price with significant model, where we’re in the the a some our customers type doesn’t pricing There price. right targeting other difference between of well and as Street right Main is verticals. work the

mix to it of verticals recognition the that kind X% important very is in understand is that a revenue across-the-board, up target is including Street of that it PEPM it is services growth pursuing, of our equation, it’s not a in So shift, is a a volume the we’re Main fact professional going price and vertical. the

David Grossman

to back it as last of quarter? remember your just the continue year And just the relates it. benefit the to can’t with relationship expenses, we any Is that in Got to fourth quarter fourth in there the get carriers. if… in change one I the of

Burton M. Goldfield

Yes. the it’s – benefit we’re wraparound not already forward. increase, last that just same it’s a just seeing year it’s year-over-year going It’s a effect,

David Grossman

it. Got Okay.

Okay.

quarter year, you full last So, got right? a

Burton M. Goldfield

Correct.

David Grossman

landscape, one of out? six doing competitors a one in on back segments? just competitive landscape, it plays you’re But the mode in on the of know a I doing been one it’s your shifts just that two next question, here kind better to months of an the growth at worse thoughts how Any impacting and kind thoughts TriNet? a into nine how and on one getting how just any your of terms Burton, competitive acquisition. larger mixed lot then last little has And out there Okay. there among bag post

Burton M. Goldfield

think the plenty refocus and with a top-of-the-funnel have a activity great seeing now year a very TriNet us on for U.S. single branding successful, one ultimately, as this market excited the significant has you been made So, it’s economy. of market core look, is consolidation and one there I interesting payroll pretty the everybody, a say, I’m a that to I’m about engine, campaign, platform, for verticals

don’t see competitive there’s difference in an for to growth. successful very So a companies on opportunity I few quite the based significant I be market believe very a landscape, but

David Grossman

got Thank Okay, it. you.

Operator

as as call. question-and-answer for This session, our you conference concludes today’s today’s well attending presentation. Thank

You may now disconnect.

TriNet (TNET) 29 Oct 182018 Q3 Earnings call transcript