Earnings Call Transcript - TNET Q2 2024

Alex Bauer, Head of Investor Relations

Thank you, operator. Good morning, and thank you for joining us for TriNet's 2024 Second Quarter Earnings Conference Call. I'm Alex Bauer, and I am TriNet's Head of Investor Relations. I'm joined today by our President and CEO, Mike Simonds; and our CFO, Kelly Tuminelli. Before we begin, I would like to address our use of forward-looking statements and non-GAAP financial measures. Please note that today's discussion will include our 2024 third quarter and full year financial outlook and other statements that are not historical in nature, are predictive in nature, or depend upon or refer to future events or conditions such as our expectations, estimates, predictions, strategies, beliefs or other statements that might be considered forward-looking. These forward-looking statements are based on management's current expectations and assumptions and are inherently subject to risks, uncertainties and changes in circumstances that are difficult to predict and that may cause actual results to differ materially from statements being made today or in the future. Except as may be required by law, we do not undertake to update any of these statements in light of new information, future events or otherwise. We encourage you to review our most recent public filings with the SEC, including our 10-K and 10-Q filings, for 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 net income per diluted share. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release, 10-Q filings or our 10-K filing, which are all available on our website or through the SEC website. With that, I will turn the call over to Mike. Mike?

Mike Simonds, CEO

Thank you, Alex, and thank you, everyone, for joining us. I am pleased to share that TriNet delivered a strong second quarter with a number of positive factors contributing to our results. This morning, I'll share my thoughts on our financial and operating performance as well as provide some additional observations regarding TriNet and the growth opportunity ahead of us now five months into my role. Starting with the market context, the environment for small and midsized businesses remains challenged. SMBs continue to navigate high-interest rates, softening end markets and persistent high healthcare cost inflation. They're hiring new people, but doing so cautiously. They're working very hard to retain their existing talent avoiding the costs associated with turnover and they're seeking to drive productivity. In short, they're signaling more clearly than ever that their people matter. And while on the topic of people, I do want to pause and recognize the thousands of my colleagues at TriNet who put our customers at the center of everything they do, helping us create exceptional value for SMBs, while delivering strong performance for our shareholders. Thanks to their efforts, we made progress in the quarter against our intermediate-term goal of exceeding the volume lost from attrition with the gains from new sales. Our marketing team strengthened the top of our funnel through targeted campaigns highlighting our compelling value proposition, a value proposition which includes outstanding customer service, access to high-quality benefits and real cost savings derived from our bundled approach. Our sales team pursued those leads and delivered a good quarter with our sales roughly in line with a strong prior year and up 30% through the first half of 2024. Given our sizable market opportunity and the strength of our offering, we continue to further invest in our field teams. We finished the second quarter with 15% more reps year-over-year, and we expect to grow the distribution team further, approaching 20% year-over-year growth before heading into our fall selling season. And, as we grow our sales team, we are increasingly investing in their productivity, looking to retain and develop the very best in the industry. For our services team, the ultimate performance measure is whether our customers stay with us for longer. And on this measure, our team is performing exceptionally well. Customers are benefiting from our proprietary technology, access to high-quality benefits priced to their risk and our exceptional service model. During the second quarter, our full year 2024 forecasted retention rate continued to improve, nudging closer to our record 2023 performance. I'm not comfortable yet declaring that we will repeat our record 2023 retention performance, however, I am pleased that we find ourselves in this improved position. Strong retention is helping offset slower net hiring within the customer base. Customers in the quarter continued to hire, albeit at slower rates than forecasted. One encouraging CIE data point I'd note is that so far in 2024, we have now booked five consecutive months of positive yet modest customer hiring, a first since 2022. In this environment, pricing across our offering has remained aligned with the value we provide and consistent with our customers' risk. We also continue to find ways to improve our processes and operate more efficiently, resulting in a reduction in operating expenses in the quarter. So, taken together, solid sales, great retention, pricing discipline and well-managed expenses created another very good quarter and demonstrated once again that TriNet is a strong cash-generative business. Through the first half, we used our cash to repurchase nearly $135 million of stock and pay out $25 million in dividends through July, returning nearly $160 million in capital to shareholders. We believe TriNet's stock at its current price represents significant long-term value, given our strong operating performance and our long-term growth prospects. And frankly, I am very optimistic about TriNet's future. While the SMB business environment is difficult at the moment, our business is demonstrating its resiliency. I'm now five months into my role, and I still have plenty to learn, but it's very clear to me that TriNet's business model is exceptional, and we have a very real growth opportunity in front of us. We've built a premium brand amongst the SMB community and the attractive verticals we target. Our service model fosters loyalty with our customer base. Our risk-taking approach to insurance allows us platform still somewhat nascent to innovate and create value for customers and shareholders. And finally, we own our own technology. And therefore, control the customer experience and the runway to further quality and efficiency gains. We continue to do the strategy work I mentioned after Q1, identifying the best areas for us to focus on in our pursuit of profitable growth. And while there's still work to be done, certainly, one of the areas will be accelerated innovation and our approach to benefits. What the market is experiencing here in 2024 with elevated healthcare inflation is reinforcing that SMBs should not try to solve for healthcare on their own. These SMBs are coming to us for help and we believe the growing cost and complexity of healthcare is a long-run tailwind for our business. Real opportunities exist to improve our data and analytic capabilities, innovate our benefits portfolio and broaden our channels to capture this opportunity. On this point, we continue to round out and strengthen our leadership team with the recent additions of Tim Nimmer, Head of Insurance Services, and Shea Treadway, our new Chief Revenue Officer. Both were attracted to TriNet, in large part because of our compelling long-term growth prospects as well as the people-focused culture here. With Tim, I believe we have a leader who can both help us better manage the risk we take associated with our offering and foster a strong commercial culture to help drive growth. Tim comes to TriNet with deep knowledge and experience having led pricing, underwriting and innovation functions for two of the largest firms globally in the health insurance space. Shea brings to TriNet extensive SMB distribution experience at significant scale across multiple channels, including direct and intermediated with a deep knowledge of insurance products and employee benefits brokerage. With Shea, we take another step towards deepening our knowledge of multichannel distribution and digital transformation, areas which are critical for broadly and efficiently targeting the SMB market. Shea and Tim are joining a talented and motivated leadership team intently focused on strengthening our value proposition, growing our business for the benefit of customers and shareholders and fostering an inclusive and vibrant company culture necessary for us to achieve our goals. So in summary, I'm pleased with a strong quarter and the resiliency of our business and I'm so excited about the growth opportunity ahead. For more on the quarter, I will now turn the call over to Kelly. Kelly?

Kelly Tuminelli, CFO

Thank you, Mike. Second quarter results reflect solid execution across our business. We performed well and delivered revenue at the high end of our guidance range. Sales were good and roughly in line with our prior year. Our insurance performance was within expectations in total. Health costs in Q2 remain elevated over last year's experience, in line with our forecast and consistent with broader trends in the industry. Workers' comp performance was favorable and exceeded our expectations. Our workers' comp program management remains strong, including our ability to price, reserve and manage our claims. And expenses declined year-over-year as we prudently managed our resources across the business. Taken all together, we generated strong earnings and good cash flows, and we returned a significant amount of capital to shareholders through share repurchases as well as our dividend. Now let's go a little deeper on our second quarter financial performance. In the quarter, total revenues grew 1%, in line with the top end of our guidance, supported by improved retention and modest customer hiring. We finished the second quarter with approximately 354,000 worksite employees, up 6% year-over-year and approximately 336,000 co-employed WSEs, up 1% year-over-year. In the quarter, retention outperformed our forecast as our investments in customer service continue to pay off. And our value proposition is resonating with solid new sales performance. We remain committed to investing in our sales force capacity and maturing our sales reps to capture more of our growing funnel. Finally, we benefited from modest customer hiring or CIE, which helped drive our overall 1% year-over-year growth in co-employed WSEs. Professional service revenue grew 5%, exceeding our high guidance by 1 point, largely driven by our volume growth and rate improvement. Insurance revenue grew 1% year-over-year. Consistent with our first quarter, healthcare participation rates were slightly lower and were partially offset by annual inflationary rate increases. Insurance costs grew 6% year-over-year. Insurance cost growth again reflected higher healthcare and pharmacy cost inflation. However, these health cost trends were partially offset by strong workers' comp performance. At this point, we do not expect any further uncertainty stemming from the March cyberattack on Change Healthcare as claims lags have normalized across April and May. The broader trends of higher utilization and cost inflation, however, do remain and are apparent across the health insurance industry. Related to workers' compensation, our results include positive prior period development of approximately $20 million. As TriNet's overall net workers' compensation reserves have declined over the years given the business mix, I would expect this to lessen over time. Taken all together, this broader insurance cost ratio at 88%, in line with our second quarter guidance. Now let's turn to operating expenses. We continue to exercise expense discipline in the quarter, resulting in a 6% year-over-year decline. We are proactively managing our expenses, reducing our back office while making targeted investments in growth and automation. Interest income on investments and our operating cash continued to positively contribute to our results in the second quarter. The income generated offset our interest expense, providing a net $1 million benefit to other income. So taken all together, we reported $1.20 in GAAP earnings per diluted share and $1.53 of adjusted net income per diluted share, both exceeding the top end of our guidance ranges. We had another strong quarter of cash generation to support our business and capital allocation. In the quarter, we delivered $136 million of adjusted EBITDA. And through the first half, we generated $130 million of corporate operating cash flows. We returned $159 million to investors so far this year by repurchasing over 1.2 million shares during the first half of 2024 and paying $25 million in dividends through July. Our capital return priorities remain unchanged. As we generate cash throughout the year, we will continue to deliver value to our shareholders by investing in our business for growth and using our cash flows to fund dividends and additional share repurchases. Now let's turn to our third quarter and full year outlook. For the third quarter, we expect total revenues to be flat to up 3% and professional service revenues to be in that same range. Our underlying assumptions in support of our revenue guidance include our expectation for modest growth in new sales, continued strong customer retention and a limited contribution from CIE due to seasonal factors. Turning to our insurance cost ratio for the third quarter. We are forecasting an ICR of 88% to 91%. Finally, we're forecasting GAAP net income per diluted share to be in the range of $0.70 to $1.20, and adjusted net income per diluted share to be in the range of $1 to $1.50. Turning to the full year, we are leaving our full year guidance unchanged, as our current forecast falls within that range. To remind you of that guidance, for revenues, we continue to expect total revenues in the range of down 1%, to up 4% year-over-year and for professional service revenues to grow in the range of 1% to 5%. We still believe our insurance cost ratio will fall between 87.5% to 89.5%. The low end of the range at 87.5% would reflect health cost growth rates in the mid-single digits, primarily driven by a moderation of inpatient utilization. If health cost inflation remains in the high single-digit range, consistent with our first half experience, we would expect our ICR to be closer to 89.5%. With respect to our earnings guidance, we continue to forecast GAAP net income per diluted share in the range of $3.94 and $5.46, and adjusted net income per diluted share in the range of $5.25 to $6.80. When we report our Q3 earnings, we expect to refine our fourth quarter outlook at that time with another quarter behind us. As you can see, TriNet has delivered strong financial results and resiliency given the backdrop of rising health care costs. We have a great business, which is well positioned for growth as customer hiring resumes. We have returned capital to shareholders in line with our financial policy, and we have a positive outlook for the balance of the year. With that, I will pass the call to the operator for the Q&A portion.

Operator, Operator

And this morning's first question comes from Tien-Tsin Huang with JPMorgan.

Tien-Tsin Huang, Analyst

Thank you. Good morning. I appreciate the details provided. Regarding sales, it's encouraging to see them align as expected. I believe you mentioned a 15% growth in sales, and you're targeting a 20% growth in headcount. When do you anticipate seeing that productivity reflected in higher sales results? Is there a timeline we should be aware of?

Mike Simonds, CEO

Good morning, Tien-Tsin. It's Mike. Thank you for the question. We are definitely encouraged by the sales momentum, which is up about 30% year-to-date. When we assess how we are addressing the market with our strong offerings, we noticed a contraction in the first half, but our retention numbers are positive. The combination of these factors is what we are striving for, and we continue making progress towards achieving a balance where our new sales volume matches the attrition we experience. I'm optimistic about this momentum, which I attribute to a 15% increase in our sales personnel. As we approach the peak of the selling season in the next month or two, that figure could rise to around 20%. We still see opportunities for growth by exploring our verticals and geographies regarding sales capacity, but productivity has been a significant aspect of our success this year and will likely become an even bigger driver as we navigate the busy selling season and head into 2025. A lot of initiatives are underway, including bringing our entire sales and customer relationship management team together next week to focus on the tools, sales processes, and product enhancements we are introducing to the market. We will maintain a focus on balancing capacity and productivity, with a greater emphasis on productivity over the next four to six quarters.

Tien-Tsin Huang, Analyst

Okay. Great. No, that's helpful to hear. Thanks for that, Mike. Just maybe one more for me, Mike. Just you mentioned accelerated innovation with approach to benefits. Can you maybe elaborate on what that means? It sounds like maybe leveraging better tools. I know you made some nice hires here as well to go after the benefit side of things. So, anything else to share?

Mike Simonds, CEO

Yeah, that's right. And Kelly talked about it in her prepared remarks. We're certainly dealing with accelerated healthcare inflation. And while that's a problem to work through for our customers as we price to risk and for us as we help them manage the cost and the complexity of healthcare, short term, we've got to work through that. If you think about it more from a long-term point of view, that growing sustained cost increased complexity that's coming with the strategies that we've put in place to help manage that cost and still deliver good value down to the consumer, that's a tailwind for us at TriNet. And to be a small business that's trying to deal with that kind of cost and complexity, that's not going away as we look out into 2025. We see the opportunity to continue to innovate things in what you're talking about. So exactly that. I think we made some key hires. I think we'll continue to invest in capability around the data that we have availability, the insight that we can drive, the tools that we provide. Some really good innovation towards the tail end of last year around decision support down to the WSE level, helping them make the right choices for them and their family. And I think relative to competition, TriNet is a little bit unique. We like to take some risk, do it in a disciplined way. That affords us a little bit more creativity. So, we sort of see this opportunity to take what is already a strength for TriNet and build on it, create a little bit more separation around a particularly acute pain point when it comes to healthcare and benefits.

Tien-Tsin Huang, Analyst

That's great. Thank you.

Mike Simonds, CEO

Thanks.

Operator, Operator

Thank you. And the next question comes from Kyle Peterson with Needham.

Kyle Peterson, Analyst

Great. Good morning. Thanks, guys, for taking my question. I just wanted to start off on professional services revenue. It seems like that was one of the better organic growth quarters we've seen in a little while here on a year-over-year basis. So, I just wanted to see if you guys could provide any more color on kind of what is driving that. Is this mostly sales force productivity and new clients? Or is there a contribution from some of the platform piece stuff? Or any more color there would be helpful.

Mike Simonds, CEO

Yeah, good morning. Appreciate the question. I think we had actually a couple of them, but we're continuing what we were just talking about, continue to see a really strong retention. That ends up being really consequential to us. A strong retention, gradual increase in fees, reflecting kind of the inflation that's out there that's coming through. We have continued to innovate. I mentioned the benefit of decision support tools. We're finding that is creating value for our clients, that creates a little bit of a few upside opportunity for us. So, I wouldn't sort of point to any one thing, but in generally sort of see these things culminating, yeah, a little bit of nice upside to the professional services revenue.

Kyle Peterson, Analyst

Got it. That's helpful. And then, I guess just a follow-up on CIE. It seems like some of the commentary and trends seem optimistic, but still kind of modest. I guess on a seasonally-adjusted basis in the second half of the year, are you guys assuming things are relatively similar to the first half? Or are you guys projecting any improvement from what you guys have seen year-to-date?

Kelly Tuminelli, CFO

Yeah. Kyle, it's a great question, particularly given the uncertainty in the economy that we're facing in right now. When we went into the year, we had assumed CIE in roughly the mid-single-digit. What we've seen so far is modest CIE, but we're pleased that we've seen five straight months of net positive CIE. We're cautious as we look at the rest of the year. So, the way we're thinking of the rest of the year really is, one, third quarter generally had some seasonal headwinds just because we have seasonal hiring that lessens, and we've got interns that are going back to school, a few things like that. But our outlook for the rest of the year is really low-single-digit.

Mike Simonds, CEO

Kelly, I want to take a moment to reflect on the business. If we adopt a long-term perspective, we are positioned in very attractive sectors. We aim to be distinctive with our focused approach, especially in these higher-growth areas. Over an extended period, our average customer impact evaluation typically falls in the 8% to 12% range, which has been our standard. Currently, as Kelly mentioned, being in the low-single-digits while still achieving strong results showcases the resilience of our model. This also instills optimism for the future as we anticipate a return to more typical customer impact evaluations, particularly as sales and attrition start to align. This presents a significant opportunity that I wanted to emphasize.

Kyle Peterson, Analyst

Yeah, that makes sense. Thanks for taking the questions and nice quarter, guys.

Kelly Tuminelli, CFO

Okay. Thank you, Kyle.

Operator, Operator

Thank you. And the next question comes from Jared Levine with TD Cowen.

Jared Levine, Analyst

Sure. Thank you. So, if it looks like we exclude the reserve release in 2Q here, insurance cost ratio came in above the high end of the guide. Can you dig into what drove that higher than anticipated ICR as well as the affirmation of the ICR guide for the year despite the 2Q beat?

Kelly Tuminelli, CFO

Sure, happy to do that. Jared, it's Kelly. Let me break down the workers' compensation situation for you. We noted that we had about a $20 million reserve release due to prior period development. As a reminder, during the second and fourth quarters, we conduct a more comprehensive review of our reserves with our external actuaries. What we observed was somewhat of an unusual impact this quarter. If we remove that unusual effect, I would still be within expected ranges from a health insurance perspective. It's also important to mention that we have a model that allows us to reprice on a quarterly basis, so we are assessing our renewals. At the beginning of the year, we adjusted our guidance, increasing it related to the insurance cost ratio this quarter because of the trends we were witnessing, which have remained consistent. I feel confident about the guidance for the full year, and I outlined several points earlier regarding what could lead us to the lower or higher ends of the insurance cost ratio spectrum. Overall, I believe we are well positioned.

Jared Levine, Analyst

Can you provide an update on the PEO demand environment? It seems that while sales headcount has increased by 20% year-over-year, bookings have remained flat. Are you experiencing any extended sales cycles or anything noteworthy regarding the overall PEO demand environment?

Mike Simonds, CEO

Yeah, Jared. It's Mike. I appreciate the question. I don't think I would call anything in particular. Overall demand environment has been good. And as we look at the pipeline heading into the busiest selling season, we're comfortably ahead in the pipeline of where we were in the prior year. It is a competitive market. I think in general, it's a competitive market, as I'm spending time with our salespeople and some of our channel partners for the reasons that we've talked about. I think there is a strong interest for PEOs. SMBs are looking for help in dealing with many of the challenges that TriNet solves for. I would say, in an inflationary healthcare cost environment, it is going to cause more shopping behavior. People are going to be disciplined. The numbers are bigger. Again, we like how we sit from a relative point of view. We do take a disciplined approach and price to risk. And the impacts that we're feeling from a healthcare point of view, every data point tells us these are broad and consistent impacts felt across the entire industry. So, there is no reason to believe that our relative position will deteriorate. I do know that we will stick to a very disciplined approach while every single player will have to get there. Will they get there at exactly the same pace? I don't know. We'll watch that pretty closely. But in terms of the pipeline, in terms of the capacity being up 15% to 20% from a rep standpoint, those are things that give us some confidence here.

Jared Levine, Analyst

Great. Thank you.

Mike Simonds, CEO

Thanks, Jared.

Operator, Operator

Thank you. And the next question comes from Andrew Nicholas with William Blair.

Andrew Nicholas, Analyst

Hi, good morning. Thank you for taking my questions. I wanted to ask about expense control. Another kind of really good quarter on that front. Just curious, maybe, Kelly, as to the sustainability of these kind of expense levels through the remainder of the year, but even beyond. And also to the extent that CIE were to deteriorate or macroeconomic conditions were to deteriorate if there are other levers that you still have within the cost base to protect margins in that type of environment?

Kelly Tuminelli, CFO

It's a great question, Andrew. First, I want to commend the team for focusing on where we're spending money and ensuring that every shareholder dollar is invested wisely to drive growth and improve efficiency. What we've done is reduce our general and administrative costs to invest in growth, which is a consistent theme I've been discussing all year. Last year, we benefited from fully integrating our HRIS offering, so we had some unusual costs that I don't expect to happen again. To answer your question, we have opportunities to maintain operating leverage. As we grow, we will not increase our expenses at the same rate and are working on all fronts to ensure we are as efficient as possible. Ultimately, we will not limit productive investments in growth.

Andrew Nicholas, Analyst

Understood. Thank you. And then for my follow-up, separate topic altogether, is just on the worksite employee dynamic change in existing, can you speak to the verticals that you guys are focused on and whether or not there are any meaningful changes in trend or overall optimism or willingness to buy at that level, particularly interested in technology, which has obviously had some starts and stops in the past year or two? Thank you.

Kelly Tuminelli, CFO

It's a great question. And as we look across all of our verticals, I did another scan this morning to make sure we had the real underlying story there. And from a tech perspective, we've had a couple of good months in tech and the last two quarters have been modestly positive in tech. So I'm encouraged by that. Regarding the other verticals, where we're still seeing a little bit of pressure in professional services. Basically, all six of our verticals did show positive CIE for the full quarter.

Operator, Operator

Thank you. And the next question comes from Kevin McVeigh with UBS.

Kevin McVeigh, Analyst

Great. Thanks so much. Hey, this maybe for Kelly. Can you maybe disaggregate the $0.25 overperformance? I know you talked about workers' comp and SG&A. Is there a way to maybe think about how much of it was the workers' comp, SG&A or maybe anything else that drove that?

Kelly Tuminelli, CFO

Yes. We can assist you, Kevin, offline with your model by reviewing the P&L we published. In terms of insurance, it was generally in the middle of the range, influenced by expense efficiency, careful investment, and capital allocation. As you saw, we allocated nearly $135 million year-to-date on share repurchases. While this doesn't directly affect EPS, it's worth noting that we paid our second dividend on Monday, bringing the total to about $25 million. Overall, the capital narrative positively impacts EPS as well.

Kevin McVeigh, Analyst

Helpful. And then, Mike, I know you're kind of five months into the role. I always like to ask any puts and takes as you think about the business model relative to what your expectations were coming in?

Mike Simonds, CEO

Yeah, thanks, Kevin. It's, like you said, five months in, most of that time spent having a lot of conversations with customers and colleagues thinking hard about the things that we do really well today and what changes we may need to make going forward. And for me, the conclusion I reach is this is really a great business. It really is. And I think there's a lot of things happening in the market. We talked about healthcare. We talked about having our own technology and therefore, having that runway to really control that customer experience and TriNet somewhat unique in terms of the strength of that technology. And I'm encouraged. And for me, I think probably the biggest opportunity is picking the small set of really great choices. Truly the big opportunities for profitable growth and focusing the considerable amount of time and expertise that we have here at TriNet on those smaller set of ideas in pursuing them vigorously and doing it with the backdrop of such a strong business model. So, I would not expect a big change in terms of the strategic direction at TriNet, but I would expect probably a little bit more focus and specificity as we look to sort of accelerate those opportunities for profitable and sustainable growth.

Kevin McVeigh, Analyst

That's super helpful. Thank you.

Mike Simonds, CEO

Thanks.

Operator, Operator

Thank you. And the next question comes from David Grossman with Stifel.

David Grossman, Analyst

Good morning. Thank you. I have a couple of quick follow-up questions. First, Mike, when you initially joined, you mentioned plans to expand the distribution channels. It appears you've brought in someone with relevant experience in that area. Could you share what we can expect from this new hire as they begin their role and what objectives you've set for them over the next 12 to 18 months?

Mike Simonds, CEO

It's great to hear from you, David. Good morning. I would like to start by saying our primary go-to-market strategy is and will continue to be our direct sales team. This aspect sets us apart, and we've discussed the investment we've made by reallocating resources within the business to support that team. I've spent a lot of time with them across the country in the first five months, and it's a very special group we want to keep investing in. However, I believe there is an opportunity to enhance this strategy, particularly through the brokerage channel. As we invest in data, analytics, and innovation related to benefits, this is a significant market influenced by employee benefits brokers. The best salespeople are already building relationships organically in local markets. So, while there won't be a major change, our new Chief Revenue Officer brings a wealth of experience in managing multichannel direct and intermediary distribution and the associated challenges. We are excited about not just changing our focus but also expanding it by implementing the necessary processes, technology, tools, and corporate-level partnerships. This will take some time to develop, but I believe we can build on the momentum we've already started. I hope that clarifies things, David.

David Grossman, Analyst

Yeah. No, thank you for that. And Kelly, just a couple of quick cleanup questions on the numbers. Is the only adjustment to make to the WSE count sequentially, just 18,300 platform users? Or are there any other adjustments to make to that number?

Kelly Tuminelli, CFO

No, not at all, David. And we do break those out in the 10-Q that was filed this morning. So hopefully, you've got full transparency on the difference between the co-employee and the platform users.

David Grossman, Analyst

You experienced a slight increase of nearly one point sequentially, and the gradual hiring in CIE is a factor in this, especially since you've seen a decrease for about five or six quarters. This marks the first sequential growth after that adjustment, just to clarify.

Kelly Tuminelli, CFO

Well, the other thing to point out is just super strong retention. So, I think as we've looked at, obviously, most of our attrition occurs in the first quarter. And Mike talked about how we're trying to get sales to be able to offset the level of attrition on a quarterly basis. But I do think retention exceeded our expectations during the quarter and was a really strong, showing there, sales continue to contribute and then the modest CIE just was helpful for that.

David Grossman, Analyst

Right. And just on the HCM users, that was down sequentially again. Is this still kind of cleansing the base? Or is there other dynamics going on there that we should expect to continue throughout the balance of the year?

Mike Simonds, CEO

Yeah, it's Mike. It's a really good question. And just to take one step back and say we're really pleased with the sort of the primary objective of the acquisition growth, which is to bring in the technology and bring in the talent to help us really modernize and give us our own technology to be able to take forward. And that's progressing really nicely. And actually some of the early uses of the technology that we brought over to the broader business is around benefits and differentiating us in market from a benefits point of view, a substantial amount of work and pipe around the payroll capacity as well. So that's a really important part of the plan for TriNet going forward. We're doing it, like you said, now on a margin positive basis, having taken the disciplined action around expenses and around pricing. I think on the price front, that will continue as we work through it. The third piece is around, okay, what's the growth outlook for this business, and we're certainly looking at the software and services and capabilities there as part of the strategic review that we're looking at. And what you can count on from us is that the choices that we make, ultimately, the businesses that we're going to really invest and get behind, those are going to be things that are going to be meaningfully impactable to our P&L. And so, I'm pretty excited about the capabilities that we've got here with that part of our business and doing it on a margin positive basis. And then, I think we've got to figure out the best path to grow.

David Grossman, Analyst

Got it. Okay, guys, good luck. Thank you.

Mike Simonds, CEO

Thank you.

Kelly Tuminelli, CFO

Thanks, David.

Operator, Operator

Thank you. And this does conclude the question-and-answer session. I would like to turn the conference over to Mike Simonds, CEO, for any closing comments.

Mike Simonds, CEO

Okay. Thanks, everyone, for joining us this morning. We, as always, appreciate your engagement. And I know Kelly, Alex and I will look forward to the continued dialogue over the coming weeks and months. So I hope everyone has a good rest of your day. Keith, this concludes our conference call, and thanks for your help today.

Operator, Operator

Thank you. And as mentioned, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.