Good afternoon and welcome to the TriNet Fourth Quarter and Full-Year 2021 Earnings 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. Please go ahead.

Thank you, operator. Good afternoon and welcome to TriNet’s 2021 fourth quarter conference call. My name is Alex Bauer, and I am joined today by CEO, Burton M. Goldfield; and our CFO, Kelly Tuminelli. Before we begin, I would like to say a few words about forward-looking statements and our use of non-GAAP financial measures. Please note that today's discussion will include our 2022 first quarter and full-year financial outlook and other statements that are not historical in nature, are predictive in nature, or depend upon or refer to future events or conditions such as our expectations, estimates, predictions, strategies, beliefs, or other statements that might be considered forward-looking. These forward-looking statements are based on management's current expectations and assumptions and are inherently subject to risks, uncertainties, and changes in circumstances that are difficult to predict and that may cause actual results to differ materially from statements being made today or in the future. Except as may be required by law, we do not undertake to update any of these statements in light of new information, future events, or otherwise. We encourage you to review our most recent public filings with the SEC, including our 10-K and 10-Q filings, for more detailed discussions of the risks, uncertainties, and changes in circumstances that may affect our future results or the market price of our stock. In addition, our discussion today will include non-GAAP financial measures, including our forward-looking guidance for adjusted net income per diluted share. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release, 10-Q filings or 10-K filing, which are available on our website or through the SEC website. With that, I will turn the call over to Burton. Burton?

Thank you, Alex. In terms of financial and operating performance, TriNet’s fourth quarter was an exceptional quarter, capping off an exceptional year. 2021 was the strongest year in TriNet’s history and pivotal for our company. In the fourth quarter, we delivered 16% year-over-year total revenues growth, and for the full year, we grew total revenues by 13%. We converted our strong organic revenue growth into tremendous earnings growth as we remain disciplined while managing our cost structure and systematically pricing our customers to risk. As a result, in the fourth quarter, we tripled our GAAP EPS to $1.03 and more than doubled our adjusted net income per share to $1.13. For the year, GAAP earnings per share came in at $5.07, up 27%, while adjusted net income per share came in at $5.64, up 27%. Strong cash generation in the quarter added to our already healthy balance sheet and our board has increased our share repurchase authorization by $300 million. So as of today, we have repurchase capacity of more than $500 million. TriNet finished 2021 with approximately 365,000 WSCs, up 10% year over year. This WSC count represents an all-time high for our company. Our growing resilient customer base comprised of SMBEs in our core verticals of technology, life sciences, financial services, professional services, non-profits, and select Main Street SMBs were critical in driving TriNet’s financial performance. These clients continued to hire at an accelerated rate. This hiring is similar to the prior quarter, Q3 2021. Furthermore, we realized increasing new sales volume and retention came in in line with our Q4 internal expectations. At the start of the pandemic, the management team and I evaluated the changing market dynamics. We executed bold moves, including increasing investments in our verticalized customer acquisition strategy, and customer service approach, strengthening our…

Thank you, Burton TriNet’s fourth quarter results capped off a year of extremely robust growth and financial performance. We finished the year with a strong revenue and earnings growth, our highest ever WSE count, and significant operating cash flow, which enabled us to announce both the acquisition of Zenefits and an increase in our share repurchase authorization to over $500 million. We are well-positioned to pursue our strategy and sustain our growth. During the fourth quarter, total revenue increased 16% year-over-year, outperforming the top end of our guidance range by 2 percentage points. For the full year, we grew total revenue by 13%, also exceeding guidance. The outperformance in total revenue for the fourth quarter and the full year was driven by growth in WSEs from strong hiring within our installed base, as well as an increase in net new sales. And we also had continued high health participation by our WSEs. Professional service revenues in the quarter grew 23% year-over-year, exceeding the top-end of our guidance range by 3 percentage points. For the full year, professional services revenue grew by 17%, also above the top end of guidance. This growth in professional services revenue for the fourth quarter and full year was driven by a few factors. First, our year-over-year average volume growth of 10% for the quarter and 5% for the year reflected strong hiring, driven primarily by our technology, life sciences, and financial services verticals. Second, professional services revenue benefited from 10% growth in rate for the quarter and 9% for the full year. Like last quarter, rate growth saw a meaningful contribution from our efforts to achieve a minimum price with our smallest customers to align with the cost to serve those clients. We are near the end of our efforts to raise minimum and now…

Thank you, Kelly. As I said at the beginning, 2021 was the strongest year in TriNet’s history and pivotal for our company. We have taken action to position TriNet for the next decade of our growth. I am confident we have a compelling and differentiated vision for the future of PEO and HCM offerings rooted in our deep history with the best SMBs in America. With the acquisition of Zenefits, TriNet is doing what no other HCM software solution is doing. Combining a contemporary software solution with an already scaled and successful PEO legal construct and service model. At TriNet, people matter is about putting human back into human capital management with the customer at the center of everything we do. Over the past three years, which spans the pandemic, we have delivered exceptional earnings growth, top line performance and cash flow. We are committed to our disciplined pricing approach, which drove our profitable growth, and we will not compromise on this approach. Our resulting financial strength positioned us to opportunistically acquire Zenefits, which will now be part of the next chapter for TriNet, a chapter that includes the pursuit of the whole SMB TAM. Although 2022 sees us facing a year where presumably medical utilization normalizes, I could not be more excited about what the New Year brings strategically to TriNet. In the quarters ahead, we will further expand and share our vision for TriNet’s future. I am excited to welcome Zenefits colleagues to TriNet that and thank the TriNet colleagues for all their hard work and dedication that allowed us to deliver the best year in TriNet’s history. Operator?

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

Thank you. Thank you, guys, for all the – hey, Burton. Good afternoon, and, Kelly, good afternoon. Good –thanks for all the details we’ll have to go through. One question on the outlook and then one on benefits, if you don't mind. So on the outlook with – can you maybe share a little bit more on your volume and rate assumption here? I hear you loud and clear on the higher attrition assumption. Just trying to gauge how much of that is conservatism versus something that you're actually seeing on the ground today.

Appreciate the question, Tien-Tsin. This is Kelly. I’ll take it. When I think about attrition and volume forecast, clearly it’s all baked in. Probably 40% of our attrition for the year happens in the first quarter, and we get an indication of it in advance. So I feel good about the volume forecasts that we have as we're building our revenue forecast. So I think it's pretty solid.

Okay. Okay. Yeah. No, I figure because with the enrollment season, I think I figured you'd get a little bit of visibility here. Okay. And then maybe for you, Burton, on just on Zenefits, I hear the TAM for SMB. I'm curious really about the integration and the cultural differences between the two companies and how you anticipate meshing the two companies together from an integration standpoint. Any thoughts on that, that you can share?

Yeah, absolutely. Absolutely, recognizing Tien-Tsin that it's not done yet. But, look, I see several opportunities. First and foremost, they will be operated separately. But what I see is new opportunities to drive sales for both TriNet CEO and Zenefits. Our brand is enjoying the highest recognition and the highest percent propensity to buy in my history here, according to Harris Poll. And the opportunity with leads coming in and efficiently sorting those leads so that the right product is delivered to the right customer at the right time makes me very optimistic about the near-term future to leverage our brand to provide leads to both companies. I think as you move forward, as I said in my prepared remarks, what gets me particularly excited is the idea of having a totally integrated platform that would allow customers to take a journey and no two customer journeys are the same where they could go from PEO to ASO and back depending on the complexity, the need for our single employer plan, the need for the transfer of risk to TriNet, but using the same UI, the same backend payroll engine, the same reporting engine and really have that capability. So you could serve a broader range of customers for a far longer period of time by taking them in earlier when it's not as complex and holding them longer as they so choose to bring in their own medical plans, etcetera.

Yeah. No. It sounds compelling, definitely excited to learn more. Thanks for the update, guys. Thank you.

Yeah.

Thanks for the update.

Our next question comes from Kevin McVeigh with Credit Suisse. You may now go ahead.

Okay. Thanks so much. And let me add my congratulations on the transaction as well. Hey. I know this would be for Kelly or Burton, but just following up on the Zenefits, one quick question. Does the 2022 guidance include that revenue benefit from Zenefits and the dilution? Or is that something that gets adjusted after it's closed? And then, Kelly, if I heard you right, it sounded like $40 million of professional services. Is there any kind of cloud-based revenue in it today? And if so, what percentage is it?

Yeah. Kevin, I'll take that for sure. Regarding guidance, if you look at our press release, all of the guidance published in the press release excludes Zenefits. So, Zenefits, my comment on roughly $0.20 to $0.25 loss would be added to that Regarding their revenue, it’s all really cloud-based SaaS revenue as a financial model.

And what's that been growing, Kelly? Like the $40 million, if you were to – has that been growing historically?

Yeah. I'm not going to comment on their historical performance right now, but, you know, clearly, we see them as a great growth opportunity for TriNet.

Yeah. Without a doubt. Without a doubt. And I guess my only other question was it seems like you've seen a lot of success on the pricing side and you've been able to layer in really, really good WSE [ph] growth as well. Is that a function of, you know, it sounds like you're re-pricing the base book? I thought you did some of that when you did the last integration. Is there just more potential upside there or just any thoughts on the pricing environment? And can you give us a sense of what pricing you have in the 2022 guidance?

Happy to – happy to, Kevin. When I think about what we were able to achieve, it's a little bit nuanced in the fact that I think we got mid-single-digit price increases year-over-year. But we also got an overall benefit because one of the things I've talked about for a lot of this year, Kevin, is the fact that we had smaller customers that, frankly, cost us more to service and we did reprice and put certain plant level minimums on the smaller customers to match the cost of serving them. And so that actually helped push the average up a little and make sure that, you know, all the plans really need the PEO services and risk transfer. As we're looking forward, we kind of see pricing in a similar range, mid-single-digit increase, as I'm thinking about professional service revenue particularly. And there will be other mix changes and things like that because we do have different products for different verticals. But on average, I would anticipate mid-single-digit price increase.

And, Kevin, I just wanted to add on top of that, if you don't mind, on the risk side of the business, one thing I can promise you is that we will remain disciplined in our pricing to risk, and I'm pretty proud of what the team did this year in a fairly tumultuous year because the problem is that if you don't maintain a disciplined approach to pricing, somebody ultimately pays for that, and it’s either shareholders or the client. So, on both sides of this, I'm particularly proud of the year in terms of the growth, but equally proud of the pricing discipline.

Well, they should be, Burton, because it looks really, really strong, particularly as you're calibrating that risk. So congratulations.

Thank you so much, Kevin.

[Operator Instructions] Our next question comes from Andrew Nicholas with William Blair. You may now go ahead.

Thanks and good afternoon. The first question I wanted to ask was just on increasing new sales volumes and momentum. Burton, would you mind kind of speaking to the drivers of that? Are win rates going up against competitive bake-off? Is it about disruption post-COVID and maybe increased word of mouth and marketing? Just what, under the hood, is driving new sales volumes, and how – is that a multiyear tailwind still, in your view?

So, look, I can talk about Q4. We continued, Andrew, to see improvement new sales during the fourth quarter. I’m particularly pleased that we saw continued year-over-year ACV growth and I think there’s more room for improvement. What I am seeing is that the productivity on a per rep basis is better. Part of it, and I mentioned it a little bit earlier in the questions, is the brand awareness and brand recognition and propensity to buy has jumped dramatically year-over-year. Whether you equate that to people force, whether you equate that to getting the message out with a very professional and excellent sales force, whether you equate to the customers we have today who use our product referring to us, in my mind, there's still a fantastic opportunity in the PEO business and it's hard to predict where it's going. But, right now, the complexity is clearly driving an interest in the PEO model.

Makes sense. Thank you. And then maybe a follow-up for Kelly, first, just to confirm there's no recovery credit in place for 2022, correct?

You are correct, Andrew. We have not made a determination to do a recovery credit program in 2022.

Okay. And then somewhat related but only a little, I guess, is it fair to assume now with the ICR that that's more of a long-term rate? I heard a bunch of color on kind of your assumptions, and I think you mentioned that you're assuming COVID becomes a bit more endemic here. Is, you know, the 88% to 89% a good kind of long-term framework for us to think about? Or is there still some noise that’s specific to 2022 for us still some noise that’s specific of 2022 for us to keep in mind? Thank you.

Yeah. Happy to answer the question, Andrew. When I think about 2022, I’d split it into right now in the first quarter, I expect a little bit of underutilization just given the continued Omicron variant and delayed elective procedures. But as I think about 2023, 2024, those periods beyond a few things, I'd point out one, we repriced to risk every single year. And so we will continue to look at experience and reprice for that risk. And given that, I would expect to be somewhere in the 88% to 90% range from an insurance cost ratio.

Great, thank you.

Our next question comes from David Grossman with Stifel Financial. You may now go ahead.

I wonder if we just – if we could just go back to Zenefits for a minute, now you're going to own two technology platforms, one, built to service the PEO model and another built as more of a software platform to be kind of not totally self-service but more or less a self-service software platform. So if you think about where – how that evolves going forward, maybe you could help us understand what the technology road map looks like? And what segments each platform serves going forward? Or is the plan really to integrate the two so that as you start on one platform and no better – no matter how large you get, you stay on the same platform regardless.

So, David, there’ll be a lot more about this after we close the acquisition. But as I mentioned before, the idea of a single user interface is single app, a single payroll engine, a single reporting engine is where I would like to go. So you can seamlessly transition from either legal model to the other and enjoy the benefits of familiar input screens, familiar reports, and the ability to take advantage of whichever legal construct you want. Because after all, at the end of the day, they're all great SMBs and with our PEO motto, we serve a select group of those SMBs and the Zenefits current platform serves another wider set of SMB. So the idea of integrating them, obviously, I've given it a lot of thought and I'm happy to talk more about it. But first I want to get the deal closed.

Got it. And then I guess going back to a comment, Kelly, you just made about really speaking to the cadence of the year. I think I understand your comment about the medical cost ratio. Is there anything else that happens on a – that impacts the growth rate because I haven't really built out a model yet, but to kind of see where the first quarter and how that impacts the implied growth for the balance of the year. But it seems obviously that it does decelerates quite a bit. So is there anything else going on in 2 or 4 that impact growth besides that cost dynamic and health care?

We would expect to grow WICs throughout the period. As I think about the pattern, like I mentioned, 40% of our attrition generally comes in the first quarter. It varies a little bit year to year, but we see the bulk of our attrition during the first quarter and then we build back up as we add new plans on the work platform. So as I think about that pattern, I anticipate us to be lower form a WSE perspective after the first quarter just like you saw last year. And then we would grow throughout the year.

Got it. And I guess just one other financial question, if I missed it, sorry. Did you mention what the tax rate you’re assuming for 2022?

We did not mention the tax rate. I wouldn't anticipate at this point that it would differ dramatically. But again, once we closed the acquisition of Zenefits we'll have to evaluate different state jurisdictions, etcetera, as we think about that going forward. But we're assuming for planning purposes, a very similar tax rate.

Got it. All right. Very good. Thank you and good luck with the acquisition.

Thanks, David.

This concludes our question-and-answer session as well as the conference. Thank you for listening to this presentation. You may now disconnect.