Good day, and welcome to the TriNet Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Alex Bauer, Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning. My name is Alex Bauer, TriNet's Head of Investor Relations. Thank you for joining us, and welcome to TriNet's Fourth Quarter Conference Call and Webcast. I'm 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 fourth quarter and full year performance. Mala will then review our Q4 and full year financial performance in greater detail and conclude with our 2026 financial guidance and outlook. Please note that today's discussion will include our 2026 full year financial outlook, our midterm 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 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. With that, I will turn the call over to Mike.

Thank you, Alex, and thank you all for joining us this morning. 2025 was a challenging year across the SMB landscape marked by elevated medical cost inflation and muted hiring activity. Against that backdrop, I'm proud of how the TriNet team stayed focused on our clients and executed with discipline against our strategy. As a result of that execution, we delivered solid financial performance. We finished the year at the top end of our earnings guidance and generated 16% growth in free cash flow. We significantly improved the quality of our pricing processes successfully completing a comprehensive health fee renewal across our customer base, strengthening our risk position heading into 2026, and we made meaningful progress against our most important initiatives improving client service, strengthening our go-to-market execution and driving greater operational efficiency. We're making progress on what we control, repositioning TriNet for durable long-term growth and staying focused on our clients. And in an environment like this, health care inflation at levels not seen in more than 2 decades and the slowest hiring market since 2020 our client need us more than ever. [indiscernible] typically delivers a mid- to high-teens ROI to SMBs by leveraging our scale and technology to lower HR and benefits expense. However, beyond cost, we help our clients manage risk while acting as a trusted adviser in a time of change, something an increasingly big number of our clients are dealing with today. For example, we worked with one technology client, a sector dealing with significant disruption to help restructure their 160-person organization. We helped them reduce costs by more than 20%, flattened the management structure, prioritized critical skills and implement a compensation framework aligned with their long-term objectives. This is the positive impact TriNet can have on an SMB and while we can't control…

Thank you, Mike. Our fourth quarter and full year financial performance reflected the difficult macro business environment we faced throughout 2025. Over the last 2 years, the U.S. economy has experienced high medical cost inflation and low job growth, and TriNet could not escape the impact of these factors. Entering 2025, we committed to reprice our health fees, so pricing reflected the current cost environment and TriNet would return to its long-term targeted insurance cost ratio range. We took these pricing actions to address a cohort that had been significantly underpriced. Although we were measured in our healthy repricing, spreading it over multiple cycles, it still required trend plus increases to our customers and the impact on new sales and retention was considerable. In the face of this challenging backdrop, TriNet stayed focused and disciplined in execution and delivered bottom line financial results at the top end of our full year guidance, along with strong cash flow growth on a year-over-year basis. As we look ahead to 2026, we expect the challenging SMB macro business environment to persist, new sales growth throughout 2026 and retention to improve as the year progresses. To lay out my comments, I'm going to first recap Q4 and 2025, provide the rationale for our 2026 guidance and conclude with initial thoughts on TriNet 2.5 months in. With that, let's dive into our 2025 financial performance and 2026 outlook in greater detail. Total revenues declined 2% year-over-year in the fourth quarter. And for the full year, total revenues declined 1%, in line with our full year guidance. Total revenues in the year benefited from insurance and professional service revenue pricing. Those gains were offset by declining WSE volumes. We finished the year with approximately 323,000 total WSEs, down 10% year-over-year. As a reminder, total WSEs include…

[Operator Instructions] And this morning's first question comes from Jared Levine with TD Cowen.

To start here, Mala, can you discuss your guidance philosophy, including how it might differ versus your predecessor here, just given it is your first earnings and initial fiscal year guide here?

Yes. Thank you for the question, Jared. The way I think about our guidance philosophy is based on a few drivers. So let me go through it. The first is, obviously, we have to look at what is happening in the business in 2025 and how is the momentum in that business changing as we go through the year and how we exit the year, right? Because that's obviously what sets us up partly for 2026. And if you look at the results we printed, Jared, I would say to you, certainly, we have had WSE declines as we have articulated. However, if you look at the progress we have made as we have gone through the year on ICR, that is an important data point in fact that we have considered as we have gone into 2026. The second thing I would say is the OpEx discipline that we have shown all year is definitely something that also we are continuing to make progress on, and we can talk about the various drivers of that later on in the call. But that is also something that is informing as I think about guidance. And then most importantly, there are the drivers of our revenue as we exit '25 and go into '26. Definitely, we have talked about the different components that is driving our revenue momentum as we go into 2026, Jared. There is the last significant repricing that we have done in January that certainly has an impact on attrition early on in the year, therefore, WSE as we roll through the year. But the second -- and we are pleased with our ASO growth. That will continue to show momentum. The thing that we are absolutely focusing on with urgency is around executing all of Mike's priorities, right, whether it be go-to-market execution, whether it be retention, focus on NPS and continue to show pricing discipline that we have shown in 2025. So if I summarize it all, I would say the way I'm thinking about the setup for guidance is around how we exit the year in terms of things we control. Second is, what are we actually doing from an execution perspective on our various priorities and investments, again, on the controllable side. And then, of course, we have been relatively transparent with you in our guidance assumptions on macro factors, exogenous factors between CIE and medical trends that candidly are informing the bookends of our guidance. So that is exogenous. We are going to continue to monitor that very carefully. But that is something that is absolutely informing our range of guidance.

Great. And then, Mike, in terms of bookings expectations for '26, I did hear you call out you expect to grow capacity at some point in the year, I think, around 20%. Is that a reasonable expectation for how bookings should grow for '26 in terms of what you're targeting? Or are there any kind of puts and takes with productivity impacts to also be mindful of? Just any color there would be helpful.

Jared, I appreciate the question. We did see sales improving on a year-over-year basis as we were kind of coming through that variance of the gap to the prior year closing as we went through '25, and it was very encouraging to see a very good January and uptick over the prior year, and that's certainly our outlook. Like Mala said, I think on the things we control, and I'd say the 2 that really are going to drive are volume growth, new sales and retention and we do feel like our line of sight is to growing momentum on both of those fronts. So having stronger than we've experienced in recent years, retention of our senior folks, we talked about a fourth year rep generates 4 first year reps worth of production and pairing those up with our Ascend graduates that are coming in, that bodes very well for us. So the exact percent growth is going to be a factor -- there are a lot of factors that play into that, but the direction of travel is a positive one, having already started to post some growth here in 2026.

And the next question comes from Ross Cole with Needham & Company LLC.

I'll be asking on behalf of Kyle Peterson. I was wondering if you could talk a little bit more about insurance pricing and the impact of attrition in new sales?

Ross, happy to help there. So we came into 2025 knowing that we had a pretty sizable need to move health fee pricing up. And I think it's important, there's really sort of 2 factors there. The first, of course, is what's happening in the broader industry and health care cost trend being quite elevated. So we needed to price forward for those expected cost increases. The second, as we talked about, a pretty sizable cohort of business acquired in the '23, early '24 time period and knowing that we had priced that business too low and needed to catch up on that front. So those clients needed both the catch-up and the trend pricing on top of that. So as we took a measured approach but worked it through in '25 and as Mala said, through the Jan 1 renewal here in '26, we're encouraged that the health fee component in the ICR overall showed some improvement in the fourth quarter. And in the guidance that we put out for next year, the midpoint shows some additional improvement there. That pricing having completed the catch-up as we look to 4/1, it's more encouraging that we're sort of done with the second part, and we can focus really on just pricing for what we think the aggregate increase that the whole market is feeling. So as we've communicated with clients, the 4/1 increase is our next big cohort that comes online. We're encouraged by the receptiveness there and the competitiveness there. We're encouraged by the retention projection we have on that 4/1, kind of much more sort of closer to normalized distribution of sort of the percent increase in health fees across our WFE base. And again, barring any sort of unusual occurrence where the already elevated macro jumps, it feels like we're in for a sort of more in line set of increases and therefore, improving retention through the year.

Great. Then also in terms of CIE, could you talk a little bit more about what you're seeing in terms of hiring trends?

Yes. When it comes to CIE, what we are seeing interestingly is, at least in our book of business, hiring continues to remain suppressed. What we are also seeing is terminations and layoffs are relatively stable. So it's those kinds of factors that is informing our CIE assumptions embedded in our guidance for 2026. It's sort of in line low single digits, in line with what we saw in 2025.

The next question comes from Andrew Nicholas with William Blair.

The first kind of line of questioning here is just on retention. I think you said from 85% to 80% this year. But I think you also mentioned that quite a bit of that was tied to the price increases. I guess -- I'm curious, first, were the other kind of typical reasons for attrition relatively consistent year-over-year? And second, is there any way to think about retention outside of kind of that mispriced cohort from '23 and '24. Just curious if you're seeing moderation outside of that cohort that we might be able to attribute to industry-wide terms?

Andrew, yes, exactly. I think you've got it. If you look at the attrition that we experienced. You can kind of look at it on 2 dimensions and sort of triangulate it on look at the percent health fee increases that a client is seeing when you get to some of the outsized increases that are necessary for that cohort, that is absolutely where we saw a higher percent attrition coming through. The second thing we sort of use to get smart on reasons for termination is the offboarding survey work that we do. And we look at all those different reasons that you would expect and health fee sort of pretty dramatic increase in health fee as a driver for the termination and again, correlating back to where that fee increase was more outsized. To your specific question, when you look at things like the value delivered through the platform, the service quality, we've actually, through the year, seen a very sort of heartening and consistent decline in those return reasons. And I think that correlates to the survey work that we do on Net Promoter Score and being at an all-time high last year. And so I actually think once you sort of get through this catch-up component, keeping up with trend, that is absolutely a challenge, but that's a challenge that everyone in the market is experiencing right now. And it feels like, again, as we look to 4/1 and we look to the rest of the year, health fee will certainly be a big part of the conversation, but increasingly, the overall value propositions come to the fore. And with the investments that we're making there and the sort of the momentum we built around service delivery, I think that the team is executing at a pace that we've not seen in a while. That's very encouraging for us in terms of like how the back half of the year look from a retention point of view.

Yes. If I add one comment to what Mike just said. If we think about the drivers of attrition, it is, again, something that we monitor actually fairly granularly what are the different reasons. Certainly, price was a very key factor over the last few quarters. We are already seeing encouraging signs of a significant reduction in price being quoted as the reason for the satisfaction as we look into Q2, et cetera. And we already have some early visibility into that. So then it really comes down to the other usual factors that drive attrition, right? It is between their own business conditions, et cetera, which, as you know, are not a surprise given the macroeconomic uncertainties that persist, especially for SMBs. So I would say to you, if I think about price alone relative to all of the other factors, yes, in the surveys we do, it is showing improvement.

That's helpful. And then for my follow-up, I wanted to ask on the ASO services growth that you mentioned, I think double-digit expectations in growth for '26. Can you speak to the sources of that growth? How much of that is HRIS or SaaS-only clients transitioning there versus existing clients maybe upgrading into it or I should say, as they get larger moving to an ASO versus a brand-new client coming into the model via the ASO chain?

Yes. So the big driver of the growth in '25 was the conversion of that SaaS-only business. And as you always do, you have to set some set of assumptions that you put into your financial plan and ultimately, your guidance and -- but we were surprised to the upside on the rate of conversion into the ASO. And I think that sort of underpins a strategy here, which is really good technology with really good people providing service on top of it. As we look into '26, we largely will have completed very early in the year, the exit of the SaaS business. And so the growth that comes into ASO as we work through the year is going to be obviously good solid retention, but the growth will come from new sales. And so seeing a good, strong fourth quarter from sales, I think we like our pipeline here in the first quarter, it's still a relatively small contributor to the aggregate picture here for us but over time, we see this as a really good additional arrow in the quiver and a growth driver. It gives our reps a place to pivot to and the PEO may not be a perfect fit. And also as we build out relationship in the brokerage channel gives us more chances and a broader set of opportunities to build those relationships and open that channel up as well.

And the next question comes from Tobey Sommer with Truist.

This is Tyler Barishaw on for Toby. Could you discuss the assumptions that get you to the high end or the low end of your insurance ratio guidance?

Yes. So if we think about the insurance ratios itself, first thing to note is we showed improvement in that ratio as we rolled through Q4 with, as we noted in our prepared remarks, our Q4 ICR in particular, actually low better, more favorable on a year-over-year basis compared to 2024. As we think about how that informs 2026, we have essentially at our midpoint of guidance assumed a continuation of those trends. And to be crystal clear, that is testament to the capabilities that we have developed internally from an actuarial perspective and from a -- just a knowledge-based perspective about our book of business, about our claims. We are in a much different place today than we were a year plus ago. And so that's what is informing our midpoint of guidance. As we have said, also informing the range is the fact that we expect medical trends to be similar to 2025. What that means is on the medical side, we are talking about high single-digit inflation. On the pharmaceutical side, we are talking about low double-digit inflation, and that is informed by really greater utilization of specialty and cancer-type drugs that we are seeing in our book. In terms of the range, number one, we have tightened the range, right? So again, that reflects the growing grasp and control we have on ICR. And we have tightened the range relative to what we had in 2025 at the start of '25 by 50 basis -- where we land on that range is really dependent on how candidly medical trends do. If you think about the more favorable end of the range, that would assume better trends, if you will, from an inflation perspective. And if you think about the more unfavorable end of the range, it would assume that there is a degradation.

Super helpful. And then on WSE growth in the quarter, can you discuss how it played out kind of on a month-to-month basis? Were any months better or worse than others? Was it consistent throughout the quarter?

Yes. That is not something we give you more color on from a month-to-month basis. What I would generally say is if you think about the seasonality of -- you would typically expect to see early in the year -- in the first quarter, generally more of a decline in WSEs typically as they would offboard. But other than that, we don't really -- and then we ramp back up as we go through the year. But beyond that, we don't give you any month-to-month color.

And what I would add is we kind of took a step back and looked at the whole year, like Mala was saying, we sort of look at the trajectory of our business from the forecasting for the plan and for guidance for '26. It moved, it oscillated a little bit around that low single-digit number, but we didn't see a discernible trend either month-to-month or quarter-to-quarter that would suggest there'd be a better pick, either more favorable or less favorable as we went into 2026.

[Operator Instructions] And the next question comes from Andrew Polkowitz with JPMorgan.

My first question, I wanted to ask about pricing. So obviously, you're done with the catch-up period post January 1. So I wanted to ask, if you look ahead into the April cohort, how does your pricing look relative to your peers? Are there still peers that are catching up, so effectively doing both parts of the reprice, the cost trend plus catch-up? Or would you characterize the pricing environment is more in line with kind of how you're approaching it?

Andrew, I think you're exactly right. So we come through that catch-up period. It is very good to have that largely behind it for those cohorts, which, to your point, I don't want to go too far and the reality is like health care trend remains quite elevated, which is a challenge for our clients and it's a challenge for us, and it's a challenge for the whole market. I do feel as though the investments that we've made in our insurance services group, the processes we put in place has put us in a spot where the application of that sort of elevated set of expertise to our quarterly pricing process has us moving pretty quick relative to the rest of the market. And I think we saw that in the impact on some of our volumes, but also the stabilization here in 4Q and improvement in the ICR. I think it is a reasonable thing to say, as we look forward to 4/1, I feel confident we're very much in line with the market. And to the extent there are players that have a little bit more catch-up work still to do, then that would position us favorably.

Okay. Great. Very clear. And just for my follow-up question, I wanted to know if you could sort of characterize the drivers of the sales improvement you're expecting to see in '26 between broker channel, improving rep tenure and then, of course, the Ascend program?

Sure, absolutely. So the they're all big contributors, some a little bit more in the immediate term, some a little bit more in the longer term. But I would say the brokerage channel is a little bit of a longer burn. We got on to that pretty early, even in early -- sort of late '24 and through '25, and we're really starting to see the fruits of those investments. So in terms of like the impact in January and in our pipeline for first quarter, that's kind of an outsized contributor to our growth. And to be honest with you, I think we're just kind of getting started in terms of how deep we can go with the key partners that we've identified and then also finding a few more key partners that are sort of well aligned to the kinds of clients and the kind of long-term relationships we're trying to build. I think there is nothing like keeping a really good experienced rep motivated. I think the things we have rolled into the market this year, the new set of integrations that expand our capabilities TriNet Assistant. We're putting more things in the bag here for our senior folks. They're sticking with us here, and that's a big driver. The Ascend program, the last one you mentioned, that's actually going to be a nice contributor in the championship selling season this year, but that will be the longer-term investment for us, and we would see that growing certainly a contributor here in '26, but more so in '27 and the years beyond.

And the next question comes from David Grossman with Stifel.

So I want to just go back to the WSE dynamic. I think I understand the algebra around the deceleration in '25 as a result of the repricing of the book. And since we have another kind of retention below normalized retention dynamic in the first quarter. I guess I'm just curious, I know you don't want to guide to WSEs for the year, but I'm just trying to understand the magnitude of the divot that we faced in the first quarter and how that impacts the year. So for example, if CIE stays relatively constant, which is, I think, the assumption in your guidance, are we going to have the same issue in '26 going into '27? Or is the go-to-market changes and improvements and efforts that you're making sufficient so that we wouldn't face the same dynamic in '27 as we're facing in '26, just algebraically, of course, looking at kind of the retention dynamic around the repricing side?

David, thanks for the question. We -- I just think it's really important to start with the retention dynamic and the work that we need to do to both catch up on a couple of those cohorts and then also price forward for trend. And you know this, David, really well, but we're not talking about just a little bit higher than normal, but like in the last couple of decades, this level of sustained health care cost inflation is pretty unique. So there's real work to be done there. It absolutely has impacted retention. We have signaled that we're sort of completing that with January 1, but I would -- I'm glad you asked the question. We're not trying to signal that there was an outside attrition event in January 1 relative to what we experienced in the back half of '25. It's just -- we just had a bit more work to do to get all the way through. Then we focus on what we can control around growing new sales, the go-to-market pieces, experiencing growth in January, having a positive outlook here for the first quarter, having a lot of things coming online that gives us more optimism about the back half of the year, that is certainly going to be a contributor. I do think the retention for one is going to be better. I do think that barring a big change in the macro, I do think the health care pricing that we'll be putting out will be absent the catch-up component and very in line with market. All those things are really positive. So with a low and I think prudent CIE assumption like you're saying, that gives us growing confidence that we're slowing the decline of the WSEs and working our way back to growth. So I think really important, David, is like working our way back to growth in a sustainable fashion, putting things in place that we can go back to again and again and again and investing in keeping our reps, growing new reps that are sort of embedded in our culture, differentiating how we do benefits driving that NPS. I think these are things that are going to serve us well beyond 2026.

Right. So just kind of to wrap it all together, Mike, with -- if the macro environment does not improve, is it reasonable to assume that we won't have that grow-over issue in WSEs in '27 versus '26?

Yes. It's -- there's so much ground to cover between now and then that it's probably not a fair question to say exactly what's going to happen. But our confidence is really quite high that the trend in general is going to be an improving one as we go through '26.

And this concludes our question-and-answer session. I would like to return the conference to Mike Simonds for any closing comments.

Thanks, Keith. Appreciate it, and I appreciate everyone taking the time to join us this morning. Hopefully, Mala and I have given you a good sense for the strong decisive actions we're taking to improve the areas that we control. And I think the growing momentum we've got on those fronts. So Alex and Mala and I will look forward to connecting with many of you in the coming weeks and months as we're out on the road. And with that, Keith, this concludes this morning's call.

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