Good afternoon, and welcome to the TriNet Fourth Quarter and Full Year 2020 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Alex Bauer of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to TriNet’s 2020 fourth quarter conference call. Joining me today are Burton M. Goldfield, our President and CEO, and Kelly Tuminelli, our Chief Financial Officer. Our prepared remarks were prerecorded. Burton will begin with an overview of our fourth quarter operating performance. Kelly will then review our financial results. We’ll then open up the call for the Q&A session. Before we begin, please note that today’s discussion will include our 2021 first quarter and full-year guidance, 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 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. And in addition, our discussion today will include non-GAAP financial measures, including our forward-looking guidance for net insurance margin, adjusted EBITDA margin and adjusted net income per diluted share. A reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release or our Form 10-K filing for our fourth quarter and full year of 2020 respectively, both of which are available on our website or through the SEC website. A reconciliation of our non-GAAP forward looking guidance to the most directly comparable GAAP measures is also available on our website or in our earnings release. With that, I will turn the call over to Burton for his opening remarks, Burton?

Thank you, Alex. 2020 proved to be the most challenging year of my professional career. It also proved to be a year we're trying its mission and strategy were especially valued by our customers. We started 2020 by delivering strong financial performance and volume growth in the first quarter. Momentum in our business were strong, everything changed with COVID-19 and the subsequent lockdowns. We rapidly adjusted to the new environment and leveraged our deep understanding of the verticals we serve. This knowledge allowed us to quickly address the issues faced by our customers during this very difficult time. Additionally a unique program that TriNet created during COVID-19 was the recovery credit program. The recovery credit program is our effort to share with our customers the excess cost savings we generated from underutilized health services primarily in April. This program has been very well received and provided a significant benefit to our customer base. Our vertical strategy and customer selection process is intended to build the dynamic growing customer base. Throughout the pandemic we have been amazed by the inherent resiliency of our customers who in aggregate actually grew their employee base during the second half of 2020, we highlighted this customer hiring during our Q3 earnings call and this growth accelerated in the fourth quarter. Customer hiring has always been a key contributor to our financial model, our fourth quarter financial performance reflected the contribution from customer hiring and underscored the overall success of our vertical go-to-market strategy. During the fourth quarter we grew GAAP total revenues four percent year-over-year to $1.1 billion while GAAP earnings per share declined 52% year-over-year to $0.32 per share. The decline in our fourth quarter GAAP EPS was in part due to our accrual for the recovery credit program. For the full year we…

Thank you, Burton. First, I’ll review our fourth quarter and full year financial results before providing 2021 guidance. Overall, I’m very pleased with the results we accomplished during the fourth quarter, particularly given the backdrop of the COVID-19 pandemic. During the fourth quarter, GAAP total revenues increased 4% year over year and Professional Service revenues grew 3% year over year. GAAP total revenues outperformed the top end of our guidance range by two points as our WSC volume outperformed as our clients grew their employee base and the mix of our WSCs, which remained at nearly 80% with COVID [ph] workers served three points of higher benefit participation over first quarter 2019 along with the associated revenues. This outperformance was partly offset by a 3% decline in average WSCs to $327,000 in addition to a $24 million accrual for the recovery credit program which reduced our revenue by 2%. Net service revenues in the quarter decreased 2% year-over-year in line with fourth quarters’ lower average WSC volume outperforming the top end of our guidance range by 10 points. For the first quarter we delivered a net insurance margin of 8.7% versus our Q4 guided range of 4% to 8%. In the quarter our health utilization approached a more normalized level by the end of December with direct COVID costs representing approximately 4% of total claims costs offsetting what would have otherwise been favorability and utilization. This early quarter experience with slightly favorable to the expectation discussed on our third quarter call. In addition our worker's compensation portfolio performed well adding an incremental 1% to this quarter's net insurance margin to $239 million contribution from prior period developments. In the first quarter we delivered an adjusted EBITDA margin of 25%, 4 points above the top end of our guidance largely driven…

Thank you, Kelly. I am proud of the entire TriNet team and their efforts to rapidly adjust to the challenging environment created by the pandemic. Throughout the past year we demonstrated the strength of our vertical strategy and the value proposition we deliver to SMBs. Our customer selection and our efforts to deepen our relationship with these SMBs allowed us to deliver sequential volume growth in the fourth quarter as we benefited from their robust hiring activity. Our customers are continuing to hire and we are seeing promising signs in the quarter blah, blah, blah. Our customers are continuing to hire and we're seeing promising signs in the current quarter with regard to new sales especially in the tech vertical which remain strong. We are encouraged by the rollout of the vaccinations and remain optimistic that we will see a gradual improvement in the business environment as the year unfolds. In the meantime, we will continue to do what we do best, leveling the playing field for SMBs with regard to superior HR services allowing them to attract and retain the right talent and grow their businesses. Operator?

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Tien-Tsin Huang with JPMorgan. Please go ahead.

Thank you so much. I really appreciate the all the details giving on the prepared remarks. I wanted to ask on the recovery credit program of course just you're thinking here in terms of ROI and the impact to the P&L and KPIs like churn, update on visibility here can you give us a little bit more on the ROI that you're expecting. Can you hear me?

Yeah Tien-Tsin, this is Burton and thanks for the question. I'm really proud of this program we are very much invested in our customer’s success and their success is our success and we hope by providing this stimulus when they need it most they will continue to prosper and grow even in this environment so we have 4 different cohorts which you are aware. We completed the first cohort finalizing the second and communicating with the third so the bottom line is the first cohort was very positive, exceeded our expectations and the others are coming up. I think ultimately what we're trying to do is making clear that we are unique in the way we're approaching this problem and that we are part of their success so that we want to differentiate ourselves. It's a phenomenal model and we've already demonstrated our success through the vertical strategy and this was one more example where we could use that recovery credit to show them that we're in this with them alongside of them as a true partner as opposed to a vendor.

Yes, it's very, very smart it was going to fun tracking it, as my follow-up then for you Burton, just on the sales I appreciate again the information you gave there. The tech sale has been good so just thinking how the recovery in general of new sales might shape up, you feel like there's some pent-up demand and then just a matter of getting to the COVID vaccine and getting to a new rhythm around sales. I'm just curious how you're thinking about what that recovery might look like -- second half of the year.

No. That's a great question. So I'm going to take it two ways. First, I'm encouraged by new sales performance. We said it in the prepared remarks. We're seeing strength across the verticals and particularly tech which you just mentioned. The performance relative to the second and third and fourth quarters we're seeing improvement, but not as much as I'd like it to be. However, as you know the year-over-year comparisons get a lot easier due to and on because they're all post COVID-19. So I expect relatively to have significant improvement. But to your question of how the economy is performing what I would go back to is this technology vertical. We're seeing strong funding in the vertical. And one statistic I'll give you Tien-Tsin is 50% of the net new ACV we generated in January in the tech vertical is either brand new startups or companies receiving an additional round of funding. So they've got a round of funding they're going to grow and they came to TriNet as their partner. So there are segments of the economy that are doing really well and I am expecting that if we can get post-vaccine the economy in general will do well particularly in the verticals that we're serving.

Yeah. Hope that is the case. Thanks for the update.

The next question is from Kevin McVeigh with Credit Suisse. Please go ahead.

Great. Thanks so much. And thanks for all the details. Hey, I'm wondering, could you give us a sense of because to credit we can assume to help with a lot of different ways. What type of retention were you thinking about as we work our way through the year 2021 and how did that kind of correlate to 2020 and maybe more historical trends?

I definitely appreciate the question. As we’re looking at retention into 2021, I'll comment on 2020 for one, it's been the best retention year that TriNet really has ever had. So we're looking at retention in 2021 and in a very good place as well. Just given the fact that we have the recovery credit and we're aligning with our customers and we approved a $128 million so far. And it just puts us in a really good spot for retention for the year.

It’s helpful. I mean Kelly or Burton, the one-time items kind of the data technology, the restructuring, should we expect some cost savings from that going forward? And is there any way to think about what that would be?

The way we think about it, I mean we took the fourth quarter as an opportunity to invest in a few different things, technology enhancements, other process improvements as well as our go to market strategy. And while I view those process one time in nature, I really as we look forward with best OpEx growth just in general in the lines that we saw and investing in things like our Connect 360 program and which is grow up as in the same way that you grow.

Thank you very much.

Your next question is from Andrew Nicholas with William Blair. Please go ahead.

Hi. Good afternoon. I wanted to start with a little bit more detail on the Connect 360 rollout. I'm wondering if you could speak to some of the initial feedback you've gotten from clients on the change. I think this is something you started to rollout late last year in certain markets and then relatedly kind of longer term what that shift in service model could mean for China in terms of driving scale and potentially stronger profitability?

So Andrew this is Burton, good question. So Connect 360 is about evolving the service model to serve our customers in the way that they want to be serviced. You are correct. We launched the beta version back in November. We learned from the beta version by listening to the customers' feedback and we made changes where we needed it to be. Ultimately it's all about servicing these customers and given our performance throughout the pandemic. I believe we've built a reservoir of goodwill and trust with these customers. Ultimately, we want to be able to add incremental services and evolve the model so that we can serve a broad range of customers within the verticals that we're serving. But we are never going to sit still. We are always going to be evolving and enhancing our service model our technology and our offerings around ensuring success. This is one example of that. We took the year with the pandemic to work on projects like this and we’re excited about where it ultimately takes us using that scale that you just mentioned in service of these customers.

Got it. It makes sense. And then into my follow up you seem the New Year some pretty major players move into the pool employer market for 401(k) plan. I think some have been noting some really strong initial growth. So I'm just curious what impacts test have had if any on your business today and then how do you expect kind of that change in regulation to impact the industry broadly going forward and just kind of wondering if it removes one aspect of the value frac or it’s not a big enough driver of new business to really move the needle.

We have good participation in our 401(k) program and it's nice if there is alternatives out there. It's not going to move the needle from a revenue standpoint. But the integration of the 401(k) into our offering has been well received. It's a very low cost program and it gives the employees an option that they did not have been part of our plan. If other plans come up we're perfectly happy with them using those plans as well.

The next question is from David Grossman with Stifel. Please go ahead.

Hey, Burton. Maybe we can just circle back to the comments you made about the acceleration of hiring in the base and some of the statistics that you gave us and just to level set I think you said that if you back out the clients that left during the year in total the base grew year-over-year in 2020 versus 2019 did I hear that or am I getting that wrong.

No. That is correct. So our clients that are still with us grew between 2019 and 20, that is absolutely correct. And overall if you look at the total book there was dramatic growth in the second half of the year over the second half of 2019. And David, that's the story of the quarter from my standpoint. We did a lot of great things, but I think the customer selection, the vertical strategy, and the performance of this group of clients was fantastic.

And do you have any sense for you know I know it's really hard because it's such a bizarre year. But how much of it was the kind of the cessation of hiring furloughing and all that stuff that happened at the front end of the pandemic and then combined with the stimulus. I mean are you able at all to share it out what's fundamental strength versus just timing and the cyclical factors that impact the year?

I spent a lot of time on it. That's why I wanted to give you a color around the technology vertical which I have a deep, deep telemetry into and the new customer formation or new company formation. I also dug in to the follow on rounds of funding of existing tech companies, then subsequently became trying to customers, but the hiring was broad based across all of our verticals. So I would say a lot of it has to do with the change in customer selection over the last couple of years and the type even in Main Street the type of Main Street customers we're taking on today is very different than what we took on four years ago. But I'll let Kelly take a shot at it that sort of you're on the key question, these are great clients and there it's just a pleasure to support them because they're fighting like hell.

Yeah. The only color I’d add to that is the strongest verticals in the quarter were life sciences, technology, Main Street and professional services to Burton’s point on a full year basis any of the reductions or layoffs were more than offset in total by the hiring in the second half. The only vertical that was down on a full year basis is Main Street.

Okay. And that's when you say down it may down on this adjusted basis, right?

Down from a hiring perspective. So they laid off more in the second quarter than they rehired in the second half but all other verticals on a full year basis were up.

Got it. Okay. Great. Thank you for the incremental color. And then, Burton you decided to make a change in the sales organization late last year perhaps you could expand on what areas you think you can drive the most improvement with that change? Is it WSC growth? Is it revenue per WSC? Is it geographic? Just trying to get a better sense of what you're hoping to accomplish with that move.

Sure. So I believe and you've heard me say it for years David. This is a large underpenetrated market where we believe that we can add tremendous value to a select set of verticals and industries. And I want to capture a significant portion of those. So I continue to evolve the sales and go-to-market model to be more effective at capturing that market share. So obviously efficiency is an issue but at the end of the day I want to make sure that we're capturing a significant share of the targeted market in, so it's verticals and then its geographies and I'm in the middle of making some changes. I'm seeing some great candidates but ultimately I don't feel a lot of pressure to close out the leader because I have an interim leader doing a great job who's been here for nine years. I have a great CX team and retention is good. I have a great customer base that's moving forward and I'm making some of the changes that I believe are necessary to emerge with a larger capacity or a larger ability to capture these specific clients that I'm looking for.

And do you want to point our eyes at any changes that will be forthcoming over the course of the year or is there something specific you want to highlight?

You will hear about some of the changes but think about it -- your focus on the industries that we covet. Think about it is segmentation in terms of the size of the customers and the way we approach those customers from a size standpoint. And think about it from a very targeted set of geographies that we believe are our birth right because the scale in those geographies particularly as it relates to the medical insurance is a very important part of using scale in service of those customers.

Got it. Thanks for that color. That's very helpful.

No prob.

Thank you. Just one last question if I could sneak it in. What is the likelihood -- I understand the dynamic, the credit but I'm just wondering what's the likelihood that the recovery credit program could be embedded in the model as we -- even after we've migrated to a more normalized economic and healthcare utilization environment is that possible do you want to do that and I guess just a corollary to that question is how should we think of the new normal in terms of what the target insurance margin should be once kind of all the dust settles.

It's a great question and what I say is that anything I can do to show our partnership side by side with these small and medium businesses is something I consider. This was announced as a one-time credit program but I'm seeing innovation out of my team and looking at what's the next opportunities for us to show not talk about but show what the partnership looks like in the subsequent years.

Got it. And then just in terms of the targeted insurance margin you know it's been bouncing along with all the volatility in the market. So just curious do you have a thought on -- if we think of a normalized insurance margin any thoughts about that.

Yeah. I'll take that one, you know I stated in our guidance that while we expect our first quarter margin to be higher we do expect a full year to be in the 10% to a 11% range and I believe that's an appropriate target for net interest margin to cover our cost given it’s a full employment relationship and our single employer plan.

All right. So when you're thinking kind of way beyond 2021 which is a very noisy here is that 10% to 11% is a good number to think about it going forward and beyond.

It's a good range and I think it will help us – help us grow as well.

Excuse me. The next question is from Sam England with Berenberg. Please go ahead.

Hi, guys. Thanks for taking the questions. And the first one you touched on capital allocation. Could you talk a bit more about some of its potential areas of opportunity that in turn are impact the opportunity that you see going forward, you know and you mentioned that advanced technology you know having more people on the business development side, what do you think the most internal investment will be needed?

Yeah. I appreciate the question and you know I really did talk about a variety of things around capital allocation in the past and today as well. Just to remind you, you know we will continue to invest in our business for growth. And that'll include all the things that you mentioned both you know making sure we've got the right sales force there as well as the right processes from an M&A perspective, and that leads into our second priority which is M&A. And then lastly we will repurchase stock opportunistically. But as I mentioned in the guidance we're assuming 67 million shares outstanding.

Okay, great. And you talked about that the next question. I just wondered what the current M&A environment looks like you know are you seeing a decent pipeline of potential opportunity, or you’re talking more about doing – talk on M&A rather than anything larger, but what is the environment like at the moment.

Look, M&A remains part of this long term growth strategy you saw with Little Bird while not a large deal that we will acquire companies that fit our broader vertical strategy, and we're continuing to look at targets whether they're PDOs and verticals or geographies that were attractive to us And frankly other than technology that we may acquire over time. It goes a little bit back to what I was saying to David. I want to be innovative in terms of servicing this dynamic customer base when the economy first of all recovers, but it will inexorably change as we move forward.

This concludes our question-and-answer session. And the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.