Trinet Group (NYSE:TNET) reported first-quarter financial results on Thursday. The transcript from the company's first-quarter earnings call has been provided below.

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Access the full call at https://events.q4inc.com/attendee/214291011

Summary

Trinet Group reported a strong Q1 2026 with a 25% increase in adjusted EPS due to disciplined health fee repricing and expense management.

The company completed its health fee repricing, expecting improved retention and sales growth, supported by new initiatives like the Cocoon acquisition and partnerships for global and IT services.

TriNet sees AI as a significant opportunity, with AI tools like TriNet Assistant improving operational efficiency and customer engagement.

Despite a 5% decline in total revenue to $1.2 billion, the insurance cost ratio improved to 84% due to effective pricing and lower health costs.

The company maintains its 2026 revenue guidance of $4.75 to $4.9 billion, with adjusted EBITDA margin and EPS targets aligning with the favorable end of their guidance.

Full Transcript

OPERATOR

Good day and welcome to the TriNet Group, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in listen only mode. Should you need assistance, please do a conference specialist by pressing the star key. Follow a zero after today's presentation there will be an opportunity to ask questions. To ask a question, you press star then one on your telephone keypad. To withdraw your question, please press Star then two. 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. Thank you and good afternoon everyone. Joining me today are Irving Tan, WD's chief executive officer and Chris Senecal, 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. Thank you. Please stand by. The conference will resume. The speakers are live. I have connected speakers. Good morning everybody. Sorry for the technical snafu. 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 Simons 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. Mala will then review our Q1 financial performance in greater detail and 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 or 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, 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 per diluted share. For reconciliations of our non GAAP financial measures to our GAAP financial results, please see our earnings release, 10Q filings or 10K 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 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 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 will 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 built 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 Advisor 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 increased 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 two dimensions. First, its impact on Trinet's operations 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 two 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 changes, 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 Murthy (Chief Financial Officer)

Mala Mala 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 1st 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 first quarter financial performance and 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 WSE 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 PEO services. We ended the first quarter with approximately 273,000 total co employee 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 distributions beginning with our April 1st renewals, a trend we expect to continue through the year. Regarding customer hiring in the first quarter, CIE (Customer Information Exchange) 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 co employee wses which was offset partially by low single digit pricing. We saw continued strength from our ASO business. ASO Annual Recurring Revenue 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 PO to ASO customers and retaining PO customers in our aso. As we expand aso, we expect the sub sell and retention dynamic to increase in importance. And finally, the headwind from the change in reporting methodology for state tax related revenue in one 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 employee WSEs grew just 3.7%. As a result, our first quarter insurers cost ratio came in at 84% and over 4 point 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 right sized the business for its current size and executed our ongoing talent optimization and automation strategies 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 three. 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 27.5 cent dividend in the quarter. Furthermore, we announced a 5% dividend increase to $0.29 per share. We also leverage 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 standalone 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 six 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 to $4.9 billion. Our professional services revenue guidance remains in the range of approximately 625 to $645 million and our ICR remains in the range of 90.75% to 89.25%. As I discussed earlier, Q1 ICR 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 and A.

OPERATOR

Yes, thank you. We will now be in the question and answer session. To ask a question, you press Star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. Anytime your question has been addressed and you would like to withdraw it, please press Star then two. At this time, we will pause momentarily to assemble our roster. And the first question comes from Jared Levine with TD Cowan. Thanks. To start here, I wanted to double click on the demand environment in terms of some of those sales cycles being impacted the month of March. Was there any kind of broad flavor in terms of industry, vertical, more global clients or clients with, you know, significant customer concentrations in the Middle east in terms of that demand impact or was it fairly broad based there? Hey, good morning, Jared, it's Mike. Yeah, fairly broad based. We saw it a little bit more as you moved up market. Those tend to be a little bit elongated anyway. But that's where it was, 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, keep watching it here in the, in the second quarter. But there's a lot of, you know, as we look at the pipeline, the, the demand is strong. It may just be a bit on the decisiveness part. Got it. And then wanted to also touch on Cocoon here. So I guess, Mike, I guess part one here. Can you discuss the revenue opportunity you see here, whether that's, you know, cross sells with a separate skew or, you know, overall platform pricing increases. And then Malik, can you just double click in terms of that revenue contribution for FY26 here? Yeah, 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 and 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 leave 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 leave, as many on the phone would know, has just become increasingly complicated given distributed workforce and a pretty active regulatory environment at the state and local level. So excited about this as a, as another nice investment in our strategy around driving up NPS and retention and 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 to you on revenue.

Jared Levine (Equity Analyst)

Yeah, Jarrod, I won'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 offerings. 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, you know, as we move into 2027 and beyond.

Tyler Baron

Great, thank you. Thanks Jared. Thank you. And the next question comes from Toby Sommer with Truist. Good morning. This is Tyler Baron. Sean for Toby, just going back to the cocoon, was this an opportunistic acquisition and should we or should we expect turn it to look to do more M&A throughout the year? Good morning, Tyler. Thanks for the question. Yeah, I would say we started with we knew this is something that our clients really wanted and so we were out on more from a commercial partnership opportunity. It led to. Yeah, 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 sort of think of it across three pretty simple buckets. The first is capabilities and Cocoon falls into that. And you know, 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'd think of those on the, on the relative small size like we've seen here with Cocoon. And. 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 yeah, where there are opportunities we'd look for tend to be sort of small to midsize and bolt ons. Yeah. The thing I would also add, Tyler, is as we've 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 stay disciplined on. That makes sense. And then just on the free cash flow conversion up to 66% versus 49 in the prior year quarter. Can you just talk through some of the drivers of that improvement?

Mala Murthy (Chief Financial Officer)

Yeah, so I 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, you know, we had lower cash tax payments with the advantages we had from the the recent tax legislation. 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.

Daniel

Thank you. Thank you. And the next question comes from Andrew Nicholas with William Blair. Hi, good morning guys. 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 could dive deeper on what that means for the cadence of performance in the remaining quarters of the year.

Mala Murthy (Chief Financial Officer)

Yeah, what I would say, Daniel, is as we explained in our prepared remarks, you know, we saw a significant improvement in our year over year icr. You know, about half of that was expected. The other half of that really is from the favorable development pertaining to 2025. And you know, just to double click on that, the rival 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 had considered that as we finished up the year, as we moved through Q1 of this year that actually played favorably relative to what we had assumed and what our outlook was at at the end of 2025. The reason I double clicking on that is I would say that is a one time 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 Insurance Cost Ratio (ICR) as follows. The reason we said that we are tracking to the top the more favorable end of our Insurance Cost Ratio (ICR) guidance. The more favorable half of our Insurance Cost Ratio (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, you know, 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.

Mike Simons (President and CEO)

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 (Worksite Employees) declines this year now that we've lapped the repricing actions and whether that's still yet to come and if so, when? Yeah, 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 1st renewal and having gotten all of our cohorts relatively in line. And so 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 Trinet Assistant, the things that we are doing to improve the quality of our delivery and the value we're delivering to our client. We see that retention improving and improving and this is important in a sustainable way. Second piece that we control is sales. We 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 our really good tenured senior people and having our sending well trained folks coming out into the market this year and building, you know, 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 retention, a full year, year over year growth metric which is encouraging to us. And so you take, take those two, put them together Daniel, with a 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. Thanks for taking my questions. Thanks Daniel. Thank you. And once again Please press star then 1 if you would like to ask a question. And the next question comes from Kyle Peterson with Needham and company. Hi, this is Ross Cole on for Kyle. Thank you for taking my question. I was wondering if you could double click on Professional Services a little bit for the quarter and then you know your outlook for the year. It seems like, you know, 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 us for the rest of the year. Thank you.

Mala Murthy (Chief Financial Officer)

Yeah, 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, you know, 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. A couple of other components within that is one is we did expect some headwind for the year from our SUDA margins. You know that is essentially neutral. That is relatively modest in the overall scheme of our overall psr. You know it's in the essentially the benefit is in the single digit million dollar range. So again it's relatively modest. And you know we've 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 beat on the State Unemployment Tax Act (SUTA) piece because of, you know, the developments we talked about in our prepared remarks.

Ross Cole

Great, thank you. Thank you. And the next question comes from Brendan Biles with JP Morgan. Hey team, thanks so much for having me. Hopefully you can hear me okay.

Brendan Biles (Equity Analyst)

Yes. 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 two 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 one on too is on the AI companies, new AI entrepreneurship, just a little bit more about that market. How TriNet showing up the trend you're seeing in AI related startups or startups that have been accelerated by AI, that'd be great. Thank you so much. Thanks Brendan. Two excellent questions. So I'll take the second one. First. On the startups 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 startups a little bit later than in the cycle than when they're hitting like the Bureau of Labor Statistics (BLS) as a new business start. So I'd be looking out say six months, nine 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 tri net is going to make a lot of 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 in outcomes and I wish I could but I could never sit here and tell you we've cracked the code there and I 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 two years. One of the first things we did was really invest in our insurance services group. We brought in Tim Nimmer, who has run actuarial and underwriting functions for some of the largest healthcare organizations on the planet. We've invested in further talent beyond that, 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. 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 in a sustainable way that makes sense. Thanks so much, Tim. Thank you. Thank you. And the next question comes from David Grossman, the Stifel. Good morning. Thank you. You know, Mike, maybe you could just reflect, you know, given, you know, the repricing of the book and the, and the, you know, kind of impact it's had on wcs. You know, assuming the insurance markets are fairly efficient, where do these people go, you know, if in fact, you know, you're now, you know, appropriately pricing the risk, where do those clients end up going, you know, when they leave? Yeah. Good morning, David. And obviously we spend a good amount of time understanding why a client's 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 and it being due to health fee increases has grown to be a very significant amount of the attrition and that's pretty quickly reversed itself as we've gotten here to 4.1 in our outlooks going forward. So that sort of speaks to the why, the where 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 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. You know, 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, across that base. I guess the last thing David is like you definitely see this. The problem of you know, what is now two years of elevated healthcare cost range we haven't seen in a long period of time. That is something that everybody, that's the carriers are dealing with it, other PDOs 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. So do you think if you know, the you know, kind of the healthcare cost dynamic improves, do you think that becomes a net tailwind for people to re engage with the peo just more generally speaking? I think that's a reasonable thesis. Got it. Okay. And then just now that you've had a little time to you know, 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 you know, increasing RFPs, what, what do you think is resonating most with the brokers specific to TriNet versus other alternatives that they may have? You know, I think the number one thing is a really good broker cares first and foremost about the experience and the value their client's going to get. So where we can get repeated at bats and where, where a broker has referred business and they've seen the 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 healthcare through an independent broker or agent. It has a really nice scale effect 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 advisor to their client. 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 you know, that's kind of the part of the story that we're at now. Great. And if I could just sneak one more in for Mala. Should we think about the expense rate going forward, the 1Q result less the restructuring action is, you know, that hundred million dollars a good reference point for the balance of the year.

David Grossman

Morning, David. I would just stay with the what we had said at 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.

Mala Murthy (Chief Financial Officer)

Okay, got it. Great. Thanks very much. Thanks, David. Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to Mike Simons for any closing comments. Thanks Keith. 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's 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. 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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