Title

Presentation

TriNet Group, Inc. beats earnings expectations. Reported EPS is $2.48, expectations were $1.84.

Operator: Good day, and welcome to the TriNet Group, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Alex Bauer, Head of Investor Relations. Please go ahead. .

Alex Bauer: Thank you, and good afternoon, everyone. Joining me today are Irving Tan, WD’s Chief Executive Officer; and Kris Sennesael, WD’s Chief Financial Officer. Before we begin, please note that today’s discussion will contain forward-looking statements based on management’s current assumptions and expectations which are subject to various risks and uncertainties. [Technical Difficulty] Good morning, everybody. Sorry for the technical [indiscernible]. My name is Alex Bauer. I’m Head of TriNet’s Investor Relations. Thank you for joining us, and welcome to TriNet’s first quarter conference call and webcast. I am joined today by our President and CEO, Mike Simonds; and our CFO, Mala Murthy. Before we begin, I would like to preview this morning’s call.

First, I will pass the call to Mike for his comments regarding our first quarter performance. Mall will then review our Q1 financial performance in greater detail, we comment on our 2026 financial guidance and outlook. Please note that today’s discussion will include our 2026 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 EBITDA margin and adjusted net income per diluted share. For reconciliations of our non-GAAP financial measures to our GAAP financial results, Please see our earnings release, 10-Q filings or our 10-K filing, which are available on our website or through the SEC website.

Please also note that going forward, these filings may be released up to 48 hours after our earnings release. With that, I will turn the call over to Mike. Mike?

Michael Simonds: Thank you, Alex, and good morning, everyone. I’m pleased with our start to 2026. In the first quarter, the TriNet team kept our clients as our first priority, navigating a volatile business and geopolitical environment. For today’s call, I’ll start with our first quarter performance, then highlight the actions we’re taking to drive growth; and finally, discuss the potential impacts of AI, a widely discussed subject during the quarter. Our strong first quarter adjusted earnings per share up 25% over prior year reflect our disciplined approach to both repricing health fees and managing our expenses. Health fee repricing over the last year created a headwind for new sales and retention, including our January 2026 renewal, where attrition was about 2 points worse than prior year.

Our pricing addressed both heightened medical cost trend and a cohort of underpriced business. With our January renewals complete, all cohorts within our customer base are now priced in line with more historical practices. And despite the impact of our January repricing, we expect overall 2026 retention to be better than full year 2025. We’re already seeing a tangible improvement here in the second quarter where attrition due to health pricing has already declined by 30%, a trend we expect to continue throughout 2026. New sales grew modestly year-over-year in the first quarter. The increasingly volatile business environment pressured March close rates. For sales opportunities in the post proposal stage, we saw the time to close extend by about 15%.

However, given pipeline visibility, our pricing position relative to the market and several sales initiatives that are coming online which I’ll talk about in just a minute. We expect a solid full year sales growth for 2026. On insurance, performance improved as we benefited from stable health cost trends and disciplined pricing resulting in an 84% insurance cost ratio. A feature of our model is our ability to quickly respond to changes in insurance outcomes. We responded quickly to rising cost trends, and we’ll do so again if and when trends moderate. We remain disciplined on expenses, aligning the business to its current scale, automating processes and advancing our talent optimization strategy. As a result, we delivered strong earnings and profitability in Q1 and we believe earnings are now tracking to the top half of our annual guidance.

Our strong operating performance enables us to invest further in our products and services through acquisition, partnerships and internal build efforts, we’re extending our value prop on issues our clients care about. These new capabilities, in combination with our investment in sales capacity, represent important steps in our return to sustainable growth. During the quarter, we completed the acquisition of Cocoon, an industry-leading employee leave management application aligned with our compliance-first approach. Cocoon should integrate seamlessly into our platform and address a significant customer pain point. With an automated leave of absence solution, we expect improved NPS scoring and increased retention along with further competitive differentiation in our PEO and ASO offerings.

Next, we announced partnerships powering TriNet Global and TriNet IT. TriNet Global powered through our partnership with multiplier delivers global workforce visibility, compliance build workflows and localized support, enabling our clients to expand internationally with confidence. TriNet IT powered through our partnership with electric AI, embeds device and asset management into HR workflows, reducing IT effort, lowering costs and improving security. We remain on track to deliver our new benefit bundles, simplifying the buying process and aligning the right set of plans with client needs. As benefit bundles are released during the second quarter, we expect to benefit from their impact during the fall selling season. Alongside these investments in our offering, we continue to invest in our go-to-market capacity.

Our broker strategy is increasingly driving deal flow and sales opportunities. Broker RFPs grew by nearly 12% year-over-year in Q1, and we’re seeing Q2 broker RFPs accelerate off that number. We improved our broker experience with automated trusted adviser status and enhanced renewal access. In addition, we grew our most senior and productive sales reps by 10% year-over-year in Q1. Our ASCEND program graduates its first class, which will represent over 10% of our sales focus this fall. And with more than 100 trainees in the pipeline by year-end, we believe we can sustainably grow our sales force in 2027, both in terms of number and in terms of quality. In summary, we’re improving our product, services and go-to-market capabilities. We’ve brought health fees in line with risk and increase the accuracy of our pricing processes going forward.

As a result, we expect improved conversion rates on new business and higher retention rates in the client base. We’re moving quickly on numerous fronts, which is a testament to my colleagues across the company. Increasingly, their efforts are being enabled by investments in AI, which brings me to the last topic I wanted to touch on before turning things over to Mala. We certainly understand that AI is an important topic for all of our stakeholders, and we see AI’s impact across 2 dimensions. First, its impact on TriNet’s operation sales service model and second, the external impacts on our client base and industry. Starting internally, this March, we launched TriNet Assistant, an AI tool giving our customers and colleagues access to our HR expertise whenever and wherever needed.

Already TriNet Assistant is proving its impact. We just navigated tax season. Historically a period that sees a significant spike in inbound volume. Between March 31 and April 16, inbound volumes typically increase on average by 12%. TriNet Assistant successfully handled much of that demand driving a 6% reduction in inbound contacts through the busy period, delivering timely, accurate responses and improving overall service productivity. TriNet assistant will continue to evolve, broaden and become more effective with increased utilization. Similar examples of AI have emerged in our product development processes where 30% of code and 50% of our test cases are now AI generated and moving directly into peer review for production deployment. Sales agents are supporting our prospecting, quoting and closing processes.

AI is supporting our colleagues on client engagements, capturing notes, suggesting answers and automating correspondence. As we have talked about on this call for the past few years, TriNet has operated with excellent client-facing technology, but many manual processes behind the scenes. The runway for AI to drive real improvement in client outcomes and efficiency is substantial, and we’re excited about the capacity it creates for our colleagues to focus on what matters most, working directly with our clients. The ability to apply judgment, build relationships, manage risk is where my colleagues stand out and where I believe the resilience of our business model lies. During the first quarter, there’s been robust discussion about the long-term threats of AI.

TriNet sits at the intersection of employers, employees and government where AI supports rather than replaces the human responsibilities we take on behalf of our customers, things like handling payroll, human resources, insurance, taxes, compliance and more. Our customers aren’t just buying software or knowledge. They’re transferring risk and liability to TriNet. Further, they’re buying real and human expertise to step in at high stakes moments, ensuring employees get paid when problems occur that health care coverage is there when needed and having someone in their corner when regulators inquire. As for AI’s impact on SMBs, it’s early and still very uncertain. We believe SMBs will be impacted differently across the various industry verticals.

In verticals where AI adoption is highest, such as technology, client hiring has not changed materially over the past 2 years, suggesting AI is creating as much opportunity as it’s replacing. There also seems to be a growing correlation between AI adoption and faster new business formation as small businesses do what they always do, move quickly to innovate and take advantage of new opportunities. Rest assured that TriNet will be there to capture our share of this market. So in summary, AI is undoubtedly driving change, but given our business model, we see AI as a positive opportunity to serve more SMBs and serve them better. Overall, we are off to a strong start, successfully navigating a difficult operating and business environment. Pricing is normalizing, expenses are managed and we’re trending toward the favorable end of our 2026 financial guidance.

We see significant AI opportunities across our operations and product and we are pursuing them. There’s more work ahead but momentum is building, and we look forward to updating you as the year progresses. With that, I’ll pass the call to Mala. Mala?

Mala Murthy: Thank you, Mike. While the macro environment in the first quarter was uneven, TriNet’s solid financial results were driven by disciplined pricing, better-than-expected insurance performance and strong execution. Over multiple cycles, we repriced our health fees in a disciplined and measured way. The impact on new sales and retention was considerable. I’m pleased to say that our trend plus price increases concluded with our January 1 renewal, and our retention outlook is improving. Furthermore, in the first quarter, we saw health costs materialize lower than forecast, which, when combined with our disciplined pricing, drove improved ICR performance. Our discipline extended to expense management. We made difficult decisions in the quarter, which resulted in meaningful run rate cost savings.

Expenses are increasingly aligned with the scale of our business, and capital has been made available for investment and for shareholders. As our acquisition of Cocoon shows, we have capital available for acquisitions, supportive of our product and services. With that, let’s dive into our fourth quarter financial performance in 2026. Total revenues were $1.2 billion, declining 5% year-over-year in the first quarter as expected. Total revenues in the quarter were supported by insurance and professional service revenue pricing, which were offset by declining WSE volumes. We finished the quarter with approximately 299,000 total WSEs, down 12% year-over-year. As a reminder, total WSEs include platform users or those users who are accessing our platform as well as co-employee WSEs or those users receiving the full benefit of our PO services.

We ended the first quarter with approximately 273,000 total co-employed WSEs, down 12%, largely due to the cumulative impact of our repricing actions. Retention improved in February and March as we expected. Our full year retention forecast remains on track. We see year-over-year improvements beginning in Q2 and lasting through Q4, supported by more normal health pricing distribution beginning with our April 1 renewal, a trend we expect to continue through the year. Regarding customer hiring in the first quarter, [indiscernible] was slightly negative, better than our forecast. Professional Services revenue in the first quarter was $189 million, declining 10%, in line with our forecast. The largest impact to professional service revenue was from lower coemployed WSEs, which was offset partially by low single-digit pricing.

We saw continued strength from our ASO business. ASO ARR has doubled year-over-year, remaining on track to become a meaningful contributor to professional service revenue growth. We were also pleased with our success in upselling PO2 ASO customers and retaining PO customers in our ASO. As we expand ASO we expect this upsell and retention dynamic to increase in importance. And finally, the headwind from the change in reporting methodology for state tax-related revenue in 1 state, was offset by difficult to predict normal changes in other states. As a result, we no longer expect this to be a headwind to our 2026 professional service revenue. Interest revenue in the first quarter was $14 million, a decline of 22% versus the prior year and in line with our forecast.

The expected reduction of cash balances with certain tax credits drove the decline. Turning to Insurance. Insurance Services revenue declined 4% in the first quarter, primarily driven by lower overall WSEs offset by pricing. When divided by average co-employee WSEs, insurance service revenue grew 9.6%, reflecting our repricing efforts. Insurance costs in the first quarter declined by 9% year-over-year. And when divided by average co-employed WSEs, grew just 3.7%. As a result, our first quarter insurance cost ratio came in at 84% and over 4 points year-over-year improvement. Half of our 4-point improvement was expected and the result of our repricing efforts. The other half of the improvement was attributable to favorable development from 2025.

So our results were a little better than expected, but one quarter does not make a trend. We passed the prior year favorability into our full year outlook, and we are encouraged by the general direction of our ICR. In the first quarter, operating expenses, which exclude insurance costs and interest expense, grew by 6% year-over-year. Operating expenses were impacted by a $14 million restructuring charge as we rightsize the business for its current size and executed our ongoing talent optimization and automation strategy, including AI implementation. For the first quarter, GAAP earnings per diluted share were $1.90 and adjusted net income per diluted share was $2.48. Our earnings were supported by strong cash generation. During the first quarter, we generated $186 million in adjusted EBITDA, representing an adjusted EBITDA margin of 15.2%.

We generated $149 million in net cash provided by operating activities and $123 million in free cash flow. Free cash flow benefited from the 2025 tax law changes and timing of cash tax payments. Our capital priorities remain investing in our business for growth. M&A and returning capital to shareholders via share repurchases and dividends. The first quarter saw us leverage our strong cash generation and deliver on all 3. We returned $71 million to shareholders across share repurchases and dividends. We repurchased approximately 1.3 million shares for $58 million and we paid a $0.275 dividend in the quarter. Furthermore, we announced a 5% dividend increase to $0.29 per share. We also leveraged our cash generation to acquire Cocoon. Cocoon is an industry-leading leave of absence software suite, which addresses a key TriNet customer pain point.

From a financial perspective, Cocoon as a stand-alone product is expected to be modestly dilutive to 2026 adjusted earnings per diluted share and neutral to 2027 adjusted earnings per share. The primary benefit of the Cocoon acquisition will come from increased PEO client retention. — product integration is expected to be completed in 6 months with TriNet reaping the full benefit in 2027 from an improved customer experience and more efficient workflow. Turning to our 2026 outlook. We are reiterating our full year guidance. Revenue is performing in line with our forecast and our stronger than forecast Q1 insurance performance has had the effect of shifting our full year earnings expectations to the top half of our guidance range, assuming no significant uncontrollable event.

For 2026, we continue to expect total revenues to be in the range of $4.75 billion to $4.9 billion. Our professional services revenue guidance remains in the range of approximately $625 million to $645 million, and our ICR remains in the range of 90.75% to 89.25%. The — as I discussed earlier, Q1 IPR outperformed our plan by about 2 points as a result of prior period positive developments from 2025. We do not expect to receive more benefit from the prior year. We believe it is prudent to maintain our full year range, and we acknowledge that our full year ICR is tracking to the lower half of our guidance range. Our adjusted EBITDA margin stays in the range of 7.5% to 8.7% and GAAP earnings per diluted share are in the range of $2.15 to $3.05 and adjusted earnings per diluted share in the range of $3.70 to $4.70.

In conclusion, I’m encouraged by our first quarter results. We remain disciplined with our pricing and completed our repricing efforts. Health costs came in lower than forecast in the quarter. and our strong first quarter has us tracking to the top half of our full year earnings guidance. Finally, the macroeconomic environment does remain volatile, but we are optimistic on our future and remain prudent with our investment in that future. With that, I will pass the call to the operator for Q&A. Operator?

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Operator: [Operator Instructions] And the first question comes from Jared Levine with TD Cowen.

Jared Levine: To start, I wanted to double-click on the demand environment in terms of some of those sales cycles being impacted in the month of March, was there any kind of broad flavor in terms of industry vertical, more global clients or clients with significant customer concentrations in the Middle East in terms of that demand impact? Or was it fairly broad-based there?

Michael Simonds: Jared, it’s Mike. Yes, fairly broad-based. We saw a little bit more as you move upmarket. Those tend to be a little bit elongated anyway, but that’s where it was more sensitive. And again, it was good strong start to the quarter slowed or got extended towards the end of the quarter. And we’re just going to kind of keep watching it here in the second quarter. But there’s a lot — as we look at the pipeline, the demand is strong. It may just be a bit of the decisiveness part.

Jared Levine: Got it. And then I wanted to also touch on Taco here. So I guess, Mike, I guess, part 1 here. Can you discuss the revenue opportunity you see here, whether that’s cross-sells with a separate SKU or overall platform pricing increases in the model. Can you just double-click in terms of that revenue contribution for FY ’26 here?

Michael Simonds: Yes, absolutely. And just I would start by saying welcome to the Cocoon team that is likely listening in this morning. We are delighted to have a very talented group of colleagues join us in a really industry-leading product. We went out commercially and decided Cocoon would be the right fit for us and the discussion led to this strategic outcome. . It’s — the primary benefit, as Mala had in her prepared remarks, is really about delivering better outcomes on these to our PEO clients first. And so teams are very heads down on integrating that into our client base. We know it’s a significant opportunity in terms of improving our Net Promoter Score and ultimately, our retention. We’ve, as many on the phone would know, has just become increasingly complicated given a distributed workforce and a pretty active regulatory environment at the state and local level.

So excited about this as another nice investment in our strategy around driving up NPS and retention. We will, on the heels of that be putting it into our ASO offering as a managed service as well. I do think — it’s a high-demand service. So I do think it’s going to be additive to what’s already some pretty heady growth that we’re seeing on the ASO side. And maybe Mala, I’ll turn it to you on revenue.

Mala Murthy: Yes. Jared, I wouldn’t go into further details on that. Just suffice it to say that the revenue contribution to this year is very, very modest. What we are more focused on, as Mike alluded to in his comments is really how do we integrate this product into our overall offering. And we are really looking forward to see the impact of that in improving our NPS and therefore, retention and really hope to capture that in terms of our revenue tailwind as we move into 2027 and beyond.

Operator: And the next question comes from Tobey Sommer with Truist.

Tyler Barishaw: This is Tyler Barishaw on for Tobey. Just going back to the Cocoon. Was this an opportunistic acquisition? And should we — or should we expect TriNet to look to do more M&A throughout the year?

Michael Simonds: Tyler, thanks for the question. Yes, I would say — we started with — we knew this is something that our clients really wanted. And so we were out more from a commercial partnership opportunity that led to — yes, I would describe it as a strategic opportunity for us. I would say, though, stepping back into the broader part of your question, we feel very fortunate to have such a strong franchise and such a cash-generative business that gives us a lot of flexibility. And our priority is to invest organically in our teams and in our technology to drive growth. But inorganic is a lever that we can pull as well. And I’d sort of think of it across 3 pretty simple buckets. The first is capabilities and Cocoon falls into that.

And there may be future opportunities. The SaaS market right now is a little bit depressed and there’s some potentially some good opportunities there. I think of those on the relative small size like we’ve seen here with Cocoon. And then it’s about scale and capability in first the PEO and then our small but growing ASO business. And is there an opportunity to bring in some scale there that also maybe matches up with a vertical or a geography where they’ve got strength and we’ve got a relative soft spot. So primary focus is organic investment in growth. But yes, where there are opportunities, we’d look for — tend to be sort of small to midsize and bolt-ons.

Mala Murthy: Yes. The thing I would also add, Tyler, is — as we have said before, we’ll stay disciplined in terms of how any of these opportunities align with us both strategically but also importantly, in terms of its financial profile, we’ll state disciplined on that.

Tyler Barishaw: Makes sense. And then just on free cash flow conversion, up to 66% versus 49% in the prior year quarter. Can you talk through solving the drivers of that improvement?

Mala Murthy: Yes. I’d point to essentially a couple of different drivers, right? One is you saw our adjusted EBITDA improved year-over-year. So that certainly has an impact. But the primary driver of our improved conversion is the fact that we had lower cash tax payments with the advantages we have from the one big beautiful bill. So that really is the primary — the bigger driver of our improved free cash flow conversion. I would say even without that, even excluding that, we did actually improve our free cash flow conversion year-over-year slightly.

Operator: And the next question comes from Andrew Nicholas with William Blair.

Unknown Analyst: This is Daniel on for Andrew today. I wanted to turn back to the strong outperformance on ICR in the quarter. And then extrapolating that forward, how we should think about the conservatism of the guide maintenance. I know you pointed toward the lower half there, but maybe you can dive deeper on what that means for the cadence of performance in the remaining quarters of the year.

Mala Murthy: Yes. What I would say, Daniel, is, as we explained in our prepared remarks, we saw a significant improvement in our year-over-year — about half of that was expected. The other half of that really is from the favorable development pertaining to 2025. And just to double click on that, the driver of that is, as we went into the second half towards the end of the year, we saw some volatility in how claims ran off — and we have considered that as we finished up the year. As we moved through Q1 of this year, that actually plays favorably relative to what we had assumed and what our outlook was at the end of 2025. The reason I’m double clicking on that is I would say that is a onetime benefit that we saw in the quarter in addition to the favorability in year-over-year that we were already expecting.

And therefore, think about the full year ICR as follows: the reason we said that we are tracking to the top, the more favorable end of our ICR guidance, the more favorable half of our ICR guidance is essentially passing through that benefit in prior period development that we saw in Q1. I’d say on the base run rate, the rest of the performance, I would say, for now, we are keeping expectations as we had in our February guidance. It’s still early in the year. As you know, and as we have found from our experience with claims costs things happen. And so we are keeping pretty close watch on it. And we will update our guidance and update you all as we traverse through the year.

Unknown Analyst: Okay. Understood. And then maybe turning to the WSE front. It sounds like the first quarter decline was roughly aligned with expectations for the quarter. But can you help us frame when you expect to see the trough in WSE declines this year now that we’ve lapped the repricing actions and whether that’s still yet to come? And if so, when? .

Michael Simonds: Yes, I appreciate the question, Daniel. I just would start by saying we absolutely see a real growth opportunity here, and that’s our focus, particularly now that we’ve cleared a pretty big milestone for us with the January 1 renewal and having gotten all of our cohorts relatively in line. And so you take that — you take what Mala talked about really good outlook for improving retention. That’s our biggest lever as we go through the year. And as we think about the actions we’ve taken, we just talked about the benefits of Cocoon. We talked earlier about trying to assistant. The things that we are doing to improve the quality of our delivery and the value we’re delivering to our clients. We see that retention improving and improving, and this is important in a sustainable way.

Second piece that we control is sales. We’ve talked about that. I’m actually really encouraged by the brokerage channel and the volumes that we’re seeing coming through there 12% up in RFPs in the first quarter. Second quarter is building considerably higher off of that. And then just having — keeping a really good tenured senior people and having our ascend well-trained folks coming out into the market this year and building — by the end of the year, we’ll have absolute capacity up in the low double-digit range year-over-year and have done that again in a sustainable, high-quality way. So — we’re optimistic about — just like with the retention, a year-over-year growth metric, which is encouraging to us. And so you take those 2 and put it together, Daniel, with the CIE expectation that we’re just going to hold that very muted levels, and that gives us growing confidence that we can stabilize WSE count here for the balance of the year.

And then as we look out from there ultimately drive growth but drive growth in a really sustainable way.

Operator: [Operator Instructions] And the next question comes from Kyle Peterson with Needham & Company.

Ross Cole: This is Ross Cole on for Kyle. I was wondering if you could double-click on professional services a little bit for the quarter and then your outlook for the year. it seems like it came in about around what we expected for this quarter. Do you see this also reaching the higher end of the guidance? Or maybe you can just kind of walk us through how you’re seeing this for the rest of the year.

Mala Murthy: Yes. Thanks for the question. As we said in our prepared remarks, professional services revenue declined year-over-year about 10%. And I’d say there are a few puts and takes in that, that I see sort of I’m watching as it plays out through the rest of the year. So obviously, it was heavily impacted by the 12% decline in volumes. But that was partially offset by low single-digit rate benefits that we saw in PSR. I would say, if I think about how that played against our expectations, it was about in line with our expectations. The — a couple of other components within that is One is we did expect some headwind for the year from our SUDA margins, that is essentially neutral that is relatively modest in the overall scheme of our overall PSR.

It’s essentially, the benefit is in the single-digit million range. So again, it’s relatively modest. And we have talked about ASO growth. ASO ARR, as we talked about in our remarks, actually doubled in the quarter. We are really pleased with the momentum we are seeing in it and if I look at our overall ASO revenue expectations for the year, also in line, it’s coming in, in line with our full year forecast at this point in time. So if I sum it all up, what I would say to you is largely in line with our expectations with just a very, very modest speed on the SUTA piece because of the developments we talked about in our prepared remarks.

Operator: And the next question comes from Brendan Biles with JPMorgan.

Brendan Biles: First of all, like — congrats on the results. Great to see the insurance cost ratio dynamics. I’d love to take an opportunity to just kind of step back and ask you to share your learnings over the last 2 years as it relates to this whole insurance price cycle change? And what gives you confidence that in future insurance price change cycles that TriNet will be more resilient? And then my second question, if I could tack 1 on, too, is on the AI companies, new AI entrepreneurship. Just a little bit more about that market, how TriNet is showing up, the trends you’re seeing in AI-related start-ups or start-ups that have been accelerated by. That would be great.

Michael Simonds: Thanks, Brendan. Two excellent questions. So I’ll take the second one first. On the start-ups, like we hit earlier, it is pretty remarkable to see new business starts. And certainly, some of those are AI specific. And so we start to see those in our technology vertical and in markets that are really important to us. I would say that we typically will pick up start-ups a little bit later than in the cycle than when they’re hitting like the BLS as a new business starts. So I’d be looking out, say, 6 months, 9 months, 12 months from now. Certainly, we’re getting some good wins there. But I expect that that’s going to build as we go through the year and get into 2027. As those firms scale to the point where there’s enough complexity there that looking to a TriNet is going to make a lot of sense for them.

. And then on your first question, we think a lot about that one around what have we learned through this part of the cycle. And I’d start by saying, like at the end of the day, it’s a risk-taking business. So there is always going to be fluctuations and outcomes. And I wish I could, but I could never sit here and tell you we’ve cracked the code there and have found a way to kind of eliminate that volatility. I think it is all about getting better at how you’re forecasting, how you’re assessing the risk and then how you’re applying that insight at the client level through your new business and through your renewal processes. And just I’ve been here a little over 2 years. One of the first things we did was really invest in our Insurance Services group.

We brought in Tim Nemer, who has run actuarial and underwriting functions for some of the largest health care organizations on the planet. We’ve invested in further talent beyond that. We’ve actually gone through and redone our rating system. We’ve gone through and looked at how we present our health plan offer through the bundles. So all these factors go into just not fixing the problem and eliminating volatility but really sharpening our pencil and tightening that distribution curve. And I will say from experience in other companies, when you go through a cycle like this, it is really difficult to be as disciplined as we’ve done it, and it kind of gets embedded in your DNA on a go-forward basis. So I think it’s going to be important for us, not just that we’ve turned this corner, which I do believe we have on the in-force block, but that we work really hard to make sure that the business we bring in going forward is brought in a sustainable way.

Operator: And the next question comes from David Grossman with Stifel.

David Grossman: Mike, maybe you could just reflect given the repricing of the book and the kind of impact it’s had on assuming the insurance markets are fairly efficient, where do these people go. If, in fact, you’re now appropriately pricing to risk, where do those clients that are going when they leave .

Michael Simonds: Yes. David, obviously, we spent a good amount of time understanding why a client is leaving and then ultimately, wherever we can, understanding where they’re going. And the probably unsatisfactory answer is there hasn’t been a big change in the distribution of where clients are going. We have seen a big change in the distribution of why. And so we’ve seen — and in Q1 is a good example, 2x the reason code for why people are leaving being due to help fee increases has grown to be a very significant amount of the attrition. And — and that’s pretty quickly reversed itself as we’ve gotten here to [indiscernible] in our outlooks going forward. So that sort of speaks to the why. . [indiscernible] to your question it really does depend.

— down market, you see people going into the open market where they’re finding more standardized plan design and rate structures is a better match for their particular risk. You do see some going into other PEOs. And the reality is different competitors have different rating approaches and they’re just going to see risk a different way. Upmarket clients may find that some sort of participating in the risk, so we see a little bit of people going into self-insured and level-funded type plans amongst some of the larger terminations. But it is a little bit distributed across that base. I guess, the last thing, David, is like — you definitely see this — the problem of what is now 2 years of elevated health care costs , we haven’t seen in a long period of time.

That is something that everybody has — the carriers are dealing with it other PEOs are dealing with it. Everyone’s got to deal with that same problem. It just leads to a lot more shopping and ultimately, it does drive some attrition.

David Grossman: So do you think if the kind of the health care cost dynamic improves. Do you think that becomes a net tailwind for people to reengage with PEO, just more generally speaking? .

Michael Simonds: I think that’s a reasonable thesis.

David Grossman: Got it. Okay. And then just now that you’ve had a little time to kind of process the changes in your go-to-market strategy. As you think about the broker channel, and I know you gave some statistics on increasing our fees. What do you think is resonating most with the brokers specific to TriNet versus other alternatives that they may have.

Michael Simonds: I think the #1 thing is a really good broker cares, first and foremost, about the experience and the value their client is going to get. So where we can get repeated at that and where a broker has referred business in, they’ve seen kind of the quality of the delivery ultimately, that’s our biggest and most important lever. And that’s why it takes a little bit of time to build real sustainable momentum in the channel is you’ve got to prove yourself. But once you do, the leverage is pretty considerable. When you think about the penetration, 95-plus percent of SMBs get their health care through an independent broker or agent. It has a really nice scale effects once you get there. . I think for us, a lot of it is just looking at our processes and including the broker appropriately as an adviser to their clients.

So unlike perhaps some other referral channels, in general, take a health insurance broker they’re going to want to stay connected at renewal time. They’re going to want to have access to and be able to help their client and where we can do that and our teams can go shoulder to shoulder, again, that’s building trust in the relationship and in the quality of the delivery. So I would have, and I’m excited to see the first step is they need to give you opportunities, and that’s the RFP growth that we’ve seen, and that’s really performing well. The second piece is we need to get wins and get enough wins within the same relationships to sort of prove the value proposition. And that’s kind of part of the story that we’re at now.

David Grossman: Great. And if I could just sneak one more in for Mala. On, should we think about the expense rate going forward the 1Q results less the restructuring action is that $100 million of a good reference point for the balance of the year. .

Mala Murthy: David, I would just stay with the — what we had said in February, right? We had said we expect our operating expense for the full year to be lower than prior year in the mid-single-digit range. And we are still staying with that as part of our overall expectations and guidance.

Operator: And this concludes our question-and-answer session. I’d like to turn the conference back over to Mike Simonds for any closing comments.

Michael Simonds: Thanks, everybody, for joining the call this morning. I hope you get a sense that we’ve had an important milestone, and we’re starting to turn a corner here at TriNet. There is a real rhythm and consistency to the actions we’re taking. It’s gratifying to start to see some of those play through. A lot of work to do, and Alex and Mala and I look forward to keeping you posted getting out in a bunch of meetings over the coming weeks and months. And with that, Keith, that concludes our call.

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

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