Hello, everyone, and welcome to Trinet's fourth quarter 2024 financial results, medium-term outlook. My name is Lydia, and I'll be your operator today. After the prepared remarks, there'll be an opportunity for you to ask questions. If you'd like to participate in the Q&A, you can do so by pressing star followed by one on your telephone keypad. I'll now hand you over to Alex Bauer to begin. Please go ahead.

Thank you, operator. Good morning. My name is Alex Bauer, Trinet's head of investor relations. Thank you for joining us, and welcome to Trinit's fourth quarter conference call and webcast. I am joined today by our President and CEO, Mike Simons, and our CFO, Kelly Tuminelli. Before we begin, I would like to preview this morning's call, which will be a bit longer than usual, as we will provide a strategy update along with our earnings-related content and outlook. I will first pass the call to Mike for a few introductory comments regarding our strategy and medium-term outlook, as well as our fourth quarter and full-year performance. Kelly will then review our Q4 and full-year financial performance in greater detail and provide our 2025 financial guidance and outlook. Mike will then return to review in greater detail our strategy and medium-term outlook, including our value creation targets, leaving plenty of time for Q&A. Please note that today's discussion will include our 2025 full-year financial outlook, our medium-term 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 10K and 10Q 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 margin and adjusted net income or diluted share. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release, 10Q filings, or our 10K filing, which are 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, and thank you all for joining us today. It's a privilege for me to speak with you at this important time for Trinet, our customers, and for our shareholders. I'll be celebrating my first anniversary with Trinet shortly. It's been an eventful year and I've learned a great deal. While we've had to navigate a challenging environment with low customer hiring and elevated healthcare costs, it's given me the chance to see the strength of our business model firsthand. It starts with my thousands of colleagues, united around a strong sense of purpose, helping small businesses attract and retain great talent, gain efficiency, stay compliant, and focus on their core business. This team, enabled by a proprietary technology platform, provides the most comprehensive set of benefits and HR outsourcing services available in the market to SMBs. Having spent much of my career before Trinet working on just one part of this puzzle, employee benefits, I can tell you it is a beautiful thing to see it all come together in a seamless fashion, to see our scale put to work for the benefit of the small and mid-sized business. Our customers value our integrated approach to such a degree that even when we need to raise prices, as we have given healthcare cost trends, we still enjoy very strong retention and a high net promoter score. We have a strong, durable business. The current environment also helped highlight opportunities for us to improve as well. Some of these we addressed in 2024, including strengthening our insurance and revenue leadership, centralizing and improving our data and analytics capabilities, and removing lower value spend from our expense base. Some opportunities are bigger, and they require disciplined choices on where to invest. As you know, we spent time last year on a rigorous strategic review. I'm excited to share the outcome of that review with you later in the call and outline how we're becoming a more focused company, how we will grow revenues, expand margins, and ultimately create value for our shareholders on a 13% to 15% sustained rate. 2025 will be a year of transition. We will work in a measured way to reprice our insurance cost ratio back into our targeted range and exit 2025 in a much improved position. While we expect strong retention, the size of health care price increases will modestly increase attrition, and dampen new sales compared to the first half of 2024. We will also exit our SaaS-only HRIS business in 2025. While the technology acquired through Zenefits remains strategically important, HRIS is a market where we don't have a clear path to winning and it has become a distraction from our core. Our guidance for 2025 reflects the transition Trinet is going through. And our goal this morning is to convey both the importance of this transition and what we believe is an achievable outlook for substantial shareholder value creation over the coming few years. With that, I'm going to pass the call to Kelly to review our fourth quarter and full-year performance, as well as 2025 guidance. Kelly?

Thank you, Mike. Our fourth quarter performance reflected a continuation of many trends we experienced during 2024. While we saw some encouraging signs, business hiring remained slow as SMBs continued to navigate high interest rates and funding costs along with muted demand. While new customers value our services, these sales were down year over year as they were priced to reflect the elevated insurance cost environment. We also drove record retention for 2024 even as we renewed business at higher rates. Mike will spend more time going through our strategy refresh in detail, but a key reaffirmation from it was that our customers benefit from differentiated service coupled with purpose-built technology. Given this, we are narrowing and intensifying our focus on PEO and will exit the HRIS software-only business. The underlying Zenefits technology will remain the core of our digital transformation and the backbone of our nascent ASO product called HR Plus. This offering pairs our strong service model with our HRAS technology. We have scrutinized operating expenses including staffing and our office footprint. This review led to a restructuring charge of $49 million related to exiting our HRAS business and capturing those future savings. With that, let's dive into our financial performance in greater detail. Total revenues grew 1% year-over-year in the fourth quarter and for the full year, both in line with our guidance. Note that we have reclassified interest income as revenue as it's an integral outcome of our core business operations which didn't change the year-over-year revenue growth percentage. Total revenues performance for the year was largely driven by a consistent average number of co-employed WSEs, a low single-digit rate increase, partly offset by a shift in vertical mix, which reduced average admin fees and benefit participation levels. Customer hiring remained low in our technology vertical, but we did see some pockets of improvements, most notably in financial services. We finished the year with approximately 361,000 total WSEs, up 4%. As a reminder, total WSEs include platform users who are accessing our platform as well as co-employed WSEs receiving the full benefit of our PEO services. We ended the year at 330,000 co-employed WSEs, down 2%. The decline in co-employed WSCs was largely the result of hiring within the installed base remaining just over 1% for the year and new sales just below total attrition. As I said at the outset, fourth quarter new sales performance came in line with our forecast while pricing new business appropriately for the current and expected health cost environment. Professional services revenue in the fourth quarter declined 4%, largely due to lapping the 2023 rollout of an annual client-based technology fee. We are suspending this fee and do not expect to be charging it going forward. For the year, professional services revenue increased 1%. Our PEO revenue in the year grew 3%. This included a modest pricing uplift and the in-year benefit from the client technology fee, as well as a 19% decline in our combined HRAS and ASO revenue. As we exit the HRAS SaaS-only portion of the business, these revenues will decline meaningfully in 2025, partly offset by increased revenue from customers who buy ASO services. The cessation of the technology fee and the exit of the HRAS business are both included in our 2025 guidance. Insurance revenues grew 2% in the fourth quarter, consistent with the year healthcare participation rates within our co-employed base were slightly lower, partly offset by rate increases. Insurance revenue for 2024 grew 1%. We expect to see the benefit of our renewals on insurance revenues build throughout the course of 2025. Insurance costs in the fourth quarter grew 12%, reflecting the trend this year of higher health cost inflation and utilization. Our normal seasonal pattern was slightly amplified as our pooling limits reset in October with more high-cost claimants. The pattern of workers' comp claims was different this year than in prior years. For the year, workers' count claims were generally in line with historical trends. Rather than being distributed across the second and fourth quarters, the benefit from favorable prior period developments this year was heavily weighted to the second quarter. This contributed to the higher ICR this quarter. For the year, total insurance costs grew 8 percent. Our fourth quarter insurance cost ratio came in at 95 percent within our guidance range and we finished 2024 with an approximately 90% ICR, also in line with our updated outlook. Excluding our $49 million restructuring charge, operating expenses in the fourth quarter were down 1% year-over-year and down 2% for the full year. Total intangible impairments were $25 million. The largest portion of that was $23 million from our decision to exit the HRAS software-only business. The other components of the charge include $14 million linked to right sizing of our onshore team to reflect efficiencies, as well as the opportunity to leverage highly skilled global talent, $7 million related to site rationalization efforts, and $3 million mainly for outside support and other items related to these efforts. Of the $49 million charge, $17 million of it is cash. These actions collectively will allow us to sharpen the focus of our organization on our value-creating initiatives, unlock capital to reinvest in growth, and better position the company to deliver enhanced financial performance over the medium term. We will continue to manage expenses tightly and we expect our 2025 expenses to be lower than 2024, excluding the restructuring charge. We do anticipate some trailing restructuring costs in 2025, albeit much smaller than in 2024. Fourth quarter, gap net loss per share was $0.46, and full year gap earnings per diluted share was $3.43. Gap earnings per diluted share were reduced by the restructuring charge. Our adjusted earnings per diluted share, which excludes restructuring, was $0.44 in the quarter and $5.32 for the year. Trinet remained a strong cash-generative business in 2024 despite operating headwinds. For the year, we generated $279 million in net cash provided by operating activities and $201 million in free cash flow. In accordance with emerging accounting practices, we modified the presentation of our statement of cash flows by moving cash flows related to WSE activities from operating cash flows to financing cash flows. Net cash provided by operating activities now reflects what we previously provided within our MD&A as net cash provided by operating activities corporate. We generated $60 million in adjusted EBITDA in the fourth quarter and $485 million in adjusted EBITDA for the year. Over the course of the year, we leveraged that cash generation to fund dividends and repurchase approximately 1.8 million shares, deploying $219 million to shareholders. We also paid down $109 million of our revolving credit facility and exited 2024 with a debt-to-adjusted EBITDA ratio of two times at the upper end of our targeted 1.5 to 2 times range. change. In 2025, our capital return priorities remain unchanged. We will continue to deliver value to shareholders by investing in our value creation initiatives, funding dividends and share repurchases, and maintaining an appropriate liquidity buffer. Now let's turn to our 2025 outlook, where we've made a few changes compared to last year. First, we are moving from quarterly to annual guidance to better align guidance with how we forecast and manage our business. There's seasonality in both how our customers buy and how our business performs, and we spend a disproportionate amount of time discussing the seasonality of our business, distracting from long-term focus of profitable growth. Next, we're adding adjusted EBITDA margin as a guidance metric to help investors better understand how we are forecasting operating expense growth. For 2025, we expect total revenues to be in the range of $4.9 billion to $5.1 billion. Given the current economic backdrop, we are expecting slight volume decreases in 2025, resulting from three factors. One, our new sales assumption is down over 2024, with most of the decline occurring in Q1 due to our more prudent pricing approach reflecting elevated health cost trends. Two, we anticipate attrition moving up one to two points, but still below our previous historical norms, as we place appropriate price increases with our existing customers. And three, we assume CIE growth to remain at low single-digit growth rates similar to 2024 levels. as the year progresses we expect total revenues to grow as pricing firms with the volume backdrop we expect professional services revenues to range from 700 million to 730 million the drivers of this range are first the overall volume decline which has an approximately 35 to 40 million dollar impact on our 2025 revenues compared to 2024. Second, the discontinuation of an annual per client technology fee, which contributed $22 million in revenue in 2024. This fee was introduced in late 2023 and charged again during 2024. We have discontinued it after assessing customer feedback. Third, our exit from the HRAS business, where we expect SAS only revenues to decline as customers convert to ASO or transition to another partner. We expect this choice to reduce revenues between 15 and 20 million dollars as we start building our base of ASO. Finally, we assume a modest single-digit price increase, contributing 25 to 30 million dollars, partly offsetting the revenue declines I just mentioned. We expect our insurance cost ratio to be in the range of 92% to 90%. As the year progresses, we expect revenue to build and position us to exit 2025 with an improving seasonally adjusted ICR. In 2025, we expect our adjusted EBITDA margin to be approximately 7 to 9%. Prudent expense management remains a key objective, particularly as we reinvest in value creation initiatives. We expect lasting efficiency improvements to come from the expense actions we are taking. The 2025 contraction in our adjusted EBITDA margin includes two short-term factors. First, the midpoint of our guided insurance cost ratio is above our targeted range of 87 to 90 percent and second we expect to carry our hris expense base through the wind down of that business before right sizing those expenses for those sas only customers who elect not to move to hr plus we will continue to support them through 2025. lastly given the strong capital deployment for the last two years our cash and investment balances are lower we've also experienced an overall decline in rates from recent highs. Both those factors together have lowered the interest income we are expecting in 2025 versus 2024 by $25 to $30 million. As Mike said, 2025 will be a transition year for Trinet as we become more focused on our core value proposition with more efficient operations. This brings our expected gap earnings per diluted share to be in the range of $1.90 to $3.40, and adjusted earnings per diluted share to be $3.25 to $4.75. With that, I will pass the call to Mike to discuss our value creation initiatives.

Thank you, Kelly, and thank you all for accommodating a longer call this quarter. I'm excited to share our strategy and medium-term outlook. And I should also thank many of you for sharing your thoughts and questions with me over my first year. Many of you share my enthusiasm for our large market opportunity and Trinet's value proposition. You've also asked some very good questions about our lack of consistent growth, sustainability of margins, and the pros and cons of taking insurance risk. We undertook a thorough review of our strategy beginning last June to answer these and other important questions about our business. I'm going to walk you through the choices we've made, the data that underpins them, and the positive outcomes we're targeting for shareholders, customers, and colleagues. Our plan targets three straightforward financial objectives. Grow revenues, expand margins, and deliver on our capital management priorities. With disciplined execution, these actions support a value creation opportunity of 13% to 15% per year for our shareholders, using 2024 as a baseline. I won't spend a lot of time on it now, but it is important to start with the strong position Trinet enjoys today. We serve over 15,000 PEO customers and 360,000 worksite employees, and we are the premium brand in the space, delivering the leading technology experience with a high-touch service model. Our market opportunity is large and our industry is growing. 59 million people in the U.S. are employed by companies with 500 or fewer employees. PEOs serve just 7% of that market, and the industry is growing 7.5% per year on a sustained basis. And we believe this growth can accelerate as there are three major secular tailwinds for our business model. First, rising health care costs are a big issue that is not going away, and we believe the scale and risk-taking in our model creates real value for SMBs. More on this in a moment. Next, over 40% of the SMB workforce is now full-time remote, which only makes it more complicated to onboard, benefit, and administer HR. Layer in the regulatory burden for the SMB with employees across multiple states, and our value proposition becomes even more compelling. Against that backdrop of a growing industry and increasing SMB demand, Trinet's lack of consistent growth stands out and for us, it underscores the need for us to change. Our plan is to grow revenues at four to six percent per year over the medium term. We've identified concrete ways to further differentiate ourselves from competitors on product, direct sales, and in the brokerage channel. Note that our 4% to 6% revenue growth assumes customer hiring remains somewhat muted, and I'll touch on that more in a moment. Let's start with our benefits offering and address one of the important questions many of you have asked. Why take insurance risk? Our benefits offering is enabled by our business model. We take insurance risk. This comes with puts and takes, particularly evident in the current cost environment. In our view, the positives win out over the long term, both for our customers and for our shareholders. Taking risk affords us greater access to claims data and puts us at the table with our carrier partners in designing and pricing our offerings. However, leveraging data and carrier partnerships also requires an investment in the right expertise and the right technology. On the people side, in mid-2024, we carved out our insurance services group reporting directly to me. We brought in a new head of insurance services and added outstanding actuarial talent as On the technology side, we are working to solve a long-standing problem at Trinet. Our benefits platform is efficient but rigid, with limited flexibility to tailor solutions to a customer's need. For example, to hit a lower price point for a cost-sensitive customer, a primary lever has been discounting. Going forward, using the Zenefits technology and dedicated change teams we're building the capability to efficiently tailor offerings while most of our competitors do not take risk and pass through standard healthcare products and pricing we are partnering with carriers to provide options that meet customers specific benefit objectives we are driving towards having our first wave of these new offerings in the market by our fall selling season. These options, paired with the strong enrollment, decision support, and administration capabilities of our platform, will further differentiate us in the market. Our increasingly tenured salespeople and growing employee benefit brokerage channel will use that differentiation to drive new business, which is a good segue to changes we're making in our go-to-market approach. We grew our sales force by 14% in 2024 and planned to grow it modestly again here in 2025, targeting under-penetrated geographies and experienced rep hires. We're also making changes to increase average tenure in our sales force. Given our expansion and some self-inflicted struggles we've had in recent years, our median tenure is just over 21 months, lower than that of our peers. A rep with four years of experience produces more than four reps in their first year at Trinet. Our strategy for keeping reps longer starts with leadership, and we were pleased to bring in a new leader with a proven track record in building strong, career-oriented direct and channel teams in the SMB market. We are redesigning our sales compensation and rewards programs to align incentives with longevity, investing in professional development, and building out physical offices to help strengthen our field culture and enhance collaboration. As we develop outstanding expertise in our sales team, our direct sales will benefit. In addition, benefit brokers will be more likely to do business with Trinet, preferring to refer their clients to tenured and experienced salespeople. And the opportunity in the benefit broker channel is big. As I shared earlier, PEOs only serve 7% of the SMB market. In contrast, employee benefit brokers bring health care to nearly 70%, or 41 million WSEs in the SMB market. The industry, including Trinet, have gone back and forth between partnering and competing with brokers. Many of our peers own their own brokerages today. Moving forward, our priority will be to collaborate versus compete. We're adding functionality to our platform to allow brokers access and insight on the clients they bring to Trinet. We are aligning incentives and establishing joint go-to-market approaches. While building trust in this channel doesn't happen overnight, I'm excited about the momentum we've already established. As I noted earlier, our medium-term revenue forecast of 4-6% does not assume customer hiring returns all the way to historical norms. Our base case assumes a gradual ramp in CIE back from low single digit to mid single digit over the next few years. Should we see CIE above that, we would see upside in our overall revenue and margin improvement as well, given the low cost of acquisition and incremental servicing cost for CIE. Of course, we have leveraged much more in our immediate control to improve margins, and next I'd like to highlight the two most important ones. The first is risk management and improving our insurance cost ratio. We are confident we can return our ICR to our target range over the medium term. On this page, we provide our health cost ratio, which excludes workers' compensation. As you can see, the health care issue is largely confined to business written in 2023 and the first half of 2024, representing 15% of our book. The remaining 85% of the customer base sits in the middle of our targeted range. range. Because our health cost ratio issue is confined and we do not have a systemic mispricing of risk, I'm very confident we can manage our way back to our target range. We took meaningful steps with our October 1st and January 1st effective renewals and will continue to work through our customer base in a balanced way over the course of 2025. I fully expect to exit the year in a much better place relative to our target. In addition to ICR, the other significant lever to drive margin improvement is operating expense. A few big elements will move the needle. First, technology, especially investments in AI and digital, will lower cost while improving the customer experience. When I arrived at Trinet, we had already begun to reduce our significant tech debt and we've accelerated those efforts. For example, we process over 2.5 million customer service cases per year, and over the medium term, we believe we can automate more than 20% of these interactions. Talent strategy is another big area. This is about having the right people in the right places for where our business is going, and giving them the support and the tools to do their job efficiently. We expect the net effect of these efforts will help keep operating expense growth within a 1 to 3% range per year on average. Importantly, there will be a flywheel effect as we create efficiencies. We will not only keep overall expense growth in check, we will also grow the share of OPEX that goes into new capabilities, from 12% last year to between 20% and 25% in the medium term. This gives us the room to innovate and improve the value we bring to customers. Naturally, delivering on our growth and margin objectives will translate into strong, free cash flow growth. Cash generation is one of the reasons we love our business model, And over the next few years, we expect to convert approximately 60% to 65% of adjusted EBITDA to free cash flow. That's cash we can reinvest in the business or return to shareholders, as we've done in recent years, returning over $2 billion since 2020 through repurchases. Our capital allocation strategy remains largely unchanged. We will continue the dividend we initiated in 2024, and we expect it to grow with earnings over time. We expect to continue to repurchase shares. And while we will remain opportunistic with respect to M&A, we do not anticipate significant transactions in the medium term and believe our policy of returning 75% of free cash flow on average to shareholders remains a good target. Overall, we expect this plan will create compelling value for investors in the range of 13 to 15 percent per year on average. Our investments in offering and go-to-market will drive 4 to 6 percent revenue growth. We will achieve 10 to 11 percent margins through strong insurance risk management and expense efficiencies. We believe we can convert between 60 and 65 percent of our adjusted EBITDA to free cash flow in support of our capital allocation strategy, which translates into 12 to 14 percent EPS growth and 13 to 15 percent value creation when you take the dividend into account. Now, I'm mindful we are communicating our strategy on the same call that we're providing short-term guidance for 2025, which on most dimensions is below our medium-term outlook. I want to share a little more about the cadence of improvement to help you bridge from our 2025 guidance to our medium-term outlook. The changes we are making build momentum through the year and set us up to exit 2025 on an improved trajectory. There are three primary factors driving this. The first is repricing. We began this effort in the second half of 2024, and it takes about four quarters for the full impact of repricing the 2023 and first half 24 cohorts to be seen in the P&L. That means we'll see some benefit of repricing in the second half of 2025, but more meaningfully in 2026 and beyond. Next is Salesforce productivity. It takes time to recruit and hire sales reps that meet our standards and get them fully up to speed. That said, we have large cohorts of salespeople entering their third and fourth years with Trinet and we expect this experience along with benefit offering improvements will begin to drive sales increases during the fall selling season with significant improvements for january 2026. finally the exit of the hris business lowers our base of revenue by 15 to 20 million in 2025 and recall that while hris revenue goes away relatively quickly it takes a bit longer to take out the expense as we will continue to service the solution through full transition of our customers. In 2025, there's a modest EBITDA margin drag related to this dynamic that will not persist into 2026. HRIS was a low margin and shrinking on a pro forma basis. Fully exiting this business will be accretive to margins. In conclusion, I'd like to finish back where I started this call we are in the midst of a transition year here at trinet but i couldn't be more excited or confident in where we're headed with our large growing market strong customer value proposition and a straightforward and disciplined strategy in place we are well positioned to restart revenue growth expand our margins and create value for our shareholders with that we now look forward to taking your questions. Operator?

Thank you. Please press star followed by the number one if you'd like to ask a question and ensure your devices are muted locally when it's your turn to speak. If you change your mind or your question's already been answered, you can withdraw your question by pressing star followed by the number two. Our first question comes from Jared Levine with TD Cowan. Please go ahead. Your line is open.

Thank you. I guess to start here, let's touch on the medium-term financial targets. I guess the first part here, where are you defining in terms of duration for the medium-term? And then can you discuss on the underlying components of that four to six revenue growth between volume and pricing increases?

Yeah, good morning, Jared. Thanks for the question. It's Mike. And if I just took a quick step back, we thought it was really important to give the market and investors a sense of not just where we're going to be in 2025, but as we look out over the coming years past that. What's the rate of improvement that we see in terms of value creation? And we did take a little bit of time to lay out the plans and the steps we're taking. There's a lot of confidence in our ability to step through that. But, you know, when we thought about exactly naming the duration, we feel like we're going to learn a lot as we go through 2020 2025 you know what's the exact rate of improvement on those controllables inside of trinet as well as those um external as well and so you know we've left it a little bit open in terms of the exact you know sort of that duration of the medium term but i can tell you if you think about the elements the plans kind of get to the second part of your question our confidence is a little bit different for reasons i think that are pretty intuitive so if i took uh the insurance cost ratio, our confidence is quite high there, that we can manage that through our new business and renewal pricing over, say, the next three years back into the middle part of that targeted range. When we take a volume driver like CIE, our confidence is much less certain given that there's a lot that happens externally. And so we've put in there kind of a very modest improvement, not all the way back to historical CIE norms. And we also provided more transparency to the market by giving you some sensitivity analysis around that. So I think it bodes well in terms of your question in that the repricing of insurance back into that middle of the range will be a substantial part of the revenue increase. But we also see volume, particularly as we get past 2025, starting to be a meaningful contributor over the long term.

Got it. And then in terms of the ICR, can you give us an update in terms of the cost trends there in terms of how those trending? Did you see any further acceleration? I think on the prior earnings call, you kind of pointed out of the preliminary view for 25 around 90% or so. The current guide you just provided right now is right around 91%. Anything kind of different now versus last quarter in terms of this FY25 view?

Yeah, it's a great question. And we did sort of give our best view about 100 days ago around where we thought, you know, 2025 was lining up and feeling like it was going to be relatively similar to how 2024 would end. And we sort of finished around 90%. We've put out guidance today that put this kind of maybe 100 basis points to the midpoint of the guide this year. And in general, I'd say, you know, not a lot of material change. There is just going to be a little bit of things that we learn as we go through it. But I would just take a step back here and say, you know, a year into the role, our insurance capability is meaningfully better. We've carved that group out. We've brought in strong leadership, actuarial talent, and just the granularity that we have on our forecast around medical costs, pharmaceutical costs, trends, and where our customers are positioned relative to their risk is just much, much better than it was a year ago. And as we went through the prepared remarks, it's really good, and hopefully investors take comfort in the fact that we don't have a broad issue to solve for in terms of that insurance cost ratio. It's a confined part of the book, about 15%. And again, that builds confidence that we're just getting better and better at sort of understanding how risk is materializing and how we can manage it on a proactive basis.

And if I could sneak in one more here, any other potential strategic changes planned over the near term or the potential for additional strategic changes over the medium term here?

I think we're in a really good spot. And like we talked about, we're sort of fully cognizant that 2025 is a transition year and our guidance reflects the facts that it's a transition year, but our team, and I define team broadly, as we went through this strategic review, a broad group of leaders engaged on this. We looked at a lot of different opportunities. We asked ourselves really tough questions and questions that, frankly, many of you have been asking me over the last year and came out of it with a renewed sense of optimism around that SMB market, the value that we create with a comprehensive set of HR outsourcing solution, and just the tailwinds that we have for this business. So I think as we work our way through 2025, treat our customers extremely fairly in the HRIS business as we exit and upsell to ASO, I think we're in a really good spot with the right plan, the right set of businesses, and the right channels opening up to drive growth over the long term great thank you thank you our next question comes from kyle peterson with needham and company please go ahead great uh thanks uh good morning guys um i know you guys are shifting uh you know from quarterly to to the annual guide here but uh i just wanted to see if

you guys could give us a little bit of help here to think about the seasonality, particularly in the first quarter of this year. I know typically that's a good quarter seasonally for, you know, insurance costs as some of these deductibles reset. But then I know there's some repricing puts and takes. So I guess, is there any color you guys could give us on how, you know, this year's seasonality should unfold compared to historical levels, at least kind of how you guys see things today?

Yeah, Kyle, it's Kelly. I'd be happy to take that and good to hear from you. You know, as we think about seasonality, you know, Mike mentioned a few things around what we're doing from a repricing perspective that should put us at a great spot to end the year and jump into 2026. But we did provide some seasonal charts. You know, while it has varied a little bit from year to year, the way that we think about it is roughly, if you pick a point on a full year guide, typically like the first quarter tends to be, you know, on average about two points worse and the fourth quarter tends, or better rather, and the fourth quarter tends to be about two points worse you know and so it averages out that way the other thing though from a seasonality perspective I'd like to remind you is because of um part of our professional service revenue comes from processing you know unemployment fees etc the PSR tends to be a little bit more

front-loaded in the first quarter because of different varying state wage bases and things like that so hopefully that's helpful okay um yeah that's um that it that is very helpful here and then um as a follow-up uh just want to see how should we think about uh in wse's for the year i know with the the tech fee going away i know there's a tailwind to wse's last year i'm assuming that'll kind of reverse this year, but if you could remind us on, you know, what that impact will be and, you know, how we should think about it, at least based on the CIE assumptions in the guide, that'd be great.

Yeah, it's a great question, and that probably is one of the bigger impacts on our overall professional service revenue guide for the year, so we are anticipating WSEs to be down year over year, and it's really a combination of a couple factors. One, we want to make sure we're pricing our products based on the risk that we see in the market right now. We are assuming a double-digit health cost increase and want to make sure that we're anticipating that so we can get our ICR back into the range in the future, and so that is going to have a drag in the first quarter, for sure. Then as we think about it, our CIE assumption is pretty similar to 2024. So like I said in the prepared remarks, we were up about 1%, a little over 1% in 2024, and we're not expecting much improvement over that. Then when it comes to attrition, We had a record year last year. It was great. Really good retention year. But we are anticipating that to take up about one to two points with traffic, so we put a little bit of pressure on volume as well. So that's going to create about a $35 million to $40 million headwind on professional service revenue for the year.

Appreciate all of the color and detail. Thanks, Val.

Thank you. And as a reminder, if you'd like to ask a question today, it's star followed by one on your telephone keypad. Our next question comes from Andrew Nicholas with William Blair. Please go ahead. Your line's open.

Hi, good morning. Thanks for taking my question. I guess to start, I just wanted to confirm on the medium-term plan. And should we be looking at that in those kind of growth rates relative to 24 or 2025? I just want to make sure. I think you said 2024 is the baseline, but obviously it makes a decent bit of difference on the earnings growth CAGR if we're using 24 versus 25.

It is 2024. Good morning, Andrew.

Thank you. And then maybe a question on the health of the customer. how have customer conversations kind of trended over the past couple months? You know, I think depending on where you look, there are some signs of overall SMB optimism out there.

Just curious if you have any commentary on what you're hearing from clients and if there's any color you provide at the vertical level too, besides, I think, Kelly, you mentioned a little bit better financial services growth in your prepared remarks. just any more insight there would be great yeah sure so i'd say the tone of conversation as i'm spending time uh with our customers and with our channel partners is markedly improved and certainly post-election we saw that um the sense of at least um understanding a belief that things would settle in and that we'd be in a more business friendly climate i think you know pretty broadly and pretty consistently that's that's been the sentiment and that's materially um different i'd say than where we were sitting a year ago so i think there's reasons for some optimism um i think you know our plan as kelly laid out really doesn't bet on an increase in net customer hiring we're serious and there's i think a good chart in the materials but we're still sitting at is what is a very historical low to what is pretty usually a really important part of our business model that net customer hiring i think we continue to watch you know all the verticals and and we do see actually you know reasons for optimism in a few spots but actually when i take a step back and look at it it really across like sciences technology financial services um nowhere near what we would expect from a net hiring point of view which sort of speaks less to anything that's vertical in nature and more just a broad base um pressures around and a little bit of caution around finance costs, new business starts, and the relative balance from venture capital and private equity around, you know, conserving cash versus investing in growth. So a little bit more optimistic, but not seeing it in the numbers just yet.

Yeah. And the only thing I'd add to that, Andrew, is we look at the verticals overall, all, and I look at it kind of on a full-year basis, you know, I mentioned the bright spot in financial services. It's probably in the mid-single-digit level, CIE year-over-year, even though the total was, you know, just over 1%.

The other, you know, in tech, we saw significant declines last year, whereas it really seems to be leveling off and slightly positive this year, or for 2024. it's thank you and could i if i could squeeze one more in just on on the guidance um specifically related to icr guidance can you kind of walk us through how you're thinking about kind of top and bottom and what what drives you to each end and maybe conservatism broadly because it sounds like versus a couple months ago you know utilization trends haven't changed meaningfully So I just want to make sure I understand kind of what the risk is to performance below, you know, the lower end of that guy.

Sure. And maybe I'll start with it. But I think it really just is important to say we are better than we were a year ago. And so the data that we're using, the discipline in the process, the people that are running and applying that process is just our confidence continues to grow. And I am sure a year from now, we will have improved materially from there. The 90-90 is our best point of view. I would tell you, as we looked at incurred claims data over the last several months, it's encouraging to us. It's materializing in ways that are quite consistent with the assumptions that we put into the guide and put into our pricing plan. I mean, I think things that would take us towards the top end to this specific question and above that top end potentially would be to see a continued acceleration in the healthcare cost inflation trend and that's not what we're seeing over the last several months so that is that is encouraging we would need to see the curve begin to bend in terms of rate increase a rate of increase and it's too early to say that but that kind of move would put us towards a favorable end of that guy.

Thanks so much.

Next, we have a question from David Grossman with Stiefel. Please go ahead.

Thank you. Good morning. I'm wondering if I could just go higher level as we think about CIE beyond 2025. Is it still realistic and reasonable to assume that given your business model relative to two of your peers and two of the bigger peers in the market that it's probably unrealistic to think that your, you know, WC growth would really parallel theirs given the mechanics of how they grow their businesses. You know, despite all the great improvements that you've made and some of those that are still coming, I just wanted to check on that to make sure that, you know, our expectations are in line with, you know, the business model itself.

Yeah. Good morning, David. Thanks for the question. I think if you look at the CIE, the data that we lay out sort of gives you a good sense for, you know, what we've experienced over a 10-year period. And certainly there's volatility to that, but it's, I think, a very reasonable assumption to say, you know, CIE that sits somewhere in the, you know, high single to very low double digit is a reasonable long-term assumption. What we've chosen to do in terms of building into our medium-term outlook, it's just sort of a gradual reversion towards that into sort of the mid single-digit range and provided some sensitivities if it gets better or if it gets worse to that. I really don't see a systemic reason to expect that the long run for our targeted part of the SMB market is going to sort of materially changed or shifted beyond what we've seen historically. We just didn't want to make a bet on a full reversion at this point. I think the other piece, and you and others have asked great questions here in my first year about what about new sales and bringing in volume growth by growing the customer base. And I am very excited about the work that's underway with our revenue team driving the maturity. When we went externally as part of the strategy work, we've grown our sales force materially, but we've gone up and down in terms of account. And that is a lot of new people. And so our average tenure benchmarks low relative to the industry. And that may be part of, you know, when you look at us relative to peers, some of those results. So the combination of, I think, really investing and maturing our sales team on the direct front and growing that employee benefits brokerage channel, I think has the real opportunity for us to tap into what I think is a really exciting and underpenetrated market. And it's going to take a little bit of time. That doesn't happen overnight. But, yeah, no, I would not concede the point that Trinet's growth in WSEs would lag the industry in the long term.

Okay, so structurally, you don't think there's a limitation there when you look at the differences in the models?

No, I really don't. And when you think about, just back to the medium-term guide, this is a fantastic business model, and it's durable. And so there's real growth just as we reprice this business in a measured, thoughtful way back into the targeted range. I think there's upside to our retention over time as we invest in our delivery model with technology. And then you start to layer in volume growth, again, things we can control on the new sales front. And for me, the less dependent we are on CIE in terms of delivering sustained, consistent, predictable growth, the better job we're doing. Right.

So just to that point about new sales growth, I guess you raised two points in your prepared remarks. One was conversion of HRIS to the ASO model as well as channel partners, which is something you've talked quite a bit about since you've been there. So, you know, maybe you could talk about first on the channel partners, you know, what is a realistic timeline do you think it is to really engage with that segment of the market to really start driving incremental volume? And what is it going to take really for you to penetrate that, you know, that channel to really, the broker channel that is, to really become an advocate for trying to?

Yeah, you know, I think it's encouraging that we've already got some momentum in the employee benefits brokerage channel. So it's contributing a meaningful part of our new business already today. But we do see a lot of upside. And again, as we went through the strategic review and looked at how much of the SMB market is fully benefited and fully benefited via trusted advisor on the employee benefit broker side, And that became very increasingly clear to us that, one, that's a very efficient, effective channel for us. Two, there's secular trends on the brokerage side that are very supportive of partnership with the PDO model. So the average employee benefit broker is seeing the cost to serve a small business move up dramatically. They are expected to bring benefit administration technology as part of their offering. They're expected to bring compliance support. They're expected to do all that in a capitated commission environment very often. So they're looking for answers on how to profitably serve those small businesses. I think that the PDO model and what Trinet brings with a really strong service brand is a perfect fit. But we do, it's going to take us some time, I think, to fully optimize this channel because, you know, one, you need to invest in the technology that starts treating employee benefit brokers not as referral partners, but as trusted advisors that have access and insight to the clients that they refer into China over time. And so, again, the Zenefits technology brings us a fantastic opportunity. It's really the backbone of the investments we're making to open that channel up fully and embrace benefit brokers, high-quality benefit brokers as partners. So I'm excited about how that's going to materialize. Already, momentum building over the next few years.

How much does the broker channel contribute to your new sales right now, just as a percentage round numbers?

Yeah, it varies a bit quarter to quarter, but in general, it's well into the double digits for us, and we see that growing. Although I will say that the direct channel is and will remain over the medium-term period our most important go-to-market motion.

And just one last question, like if I could, just on the ASO, you know, maybe you could just walk us through very quickly, you know, what impact that could have on your business overall given you know it's different than the PEO model and how how that flows through um to the financials if that business really gains momentum yeah we're excited about the possibility there and I'll be honest with you David it's sometimes I think we do ourselves a little bit of a disservice by putting too um too strong a name to the PEO product and the reality is the business that we're in is high value add comprehensive HR outsourcing.

And so whether that's all the way through to what a traditional PEO product looks like, where we start potentially, you know, where the risk doesn't match, unbundling some of the insured products and helping customers through their brokers, source those in open market, all the way to a strong, you know, $50, $60 PECLUM ASO offering, we really see it as sort of a continuum in that part of the market, that high value add comprehensive service so yeah no we're pretty excited about building a bit more flexibility into our processes and technology i think aso could be potentially a really exciting part of that got it all right great thanks very much for that insight and uh good luck thanks david thank you we have no further questions so i'll pass you back to mike simon for closing comments all right let me thank you all once again for taking the time to join us this morning and i know kelly and i and Alex will be spending time with many of you over the coming weeks to continue the dialogue. And thank you, Lydia, for your help this morning. And with that, we'll conclude the call.

Thank you. This concludes our call today. Thank you for joining. You may now disconnect your line.