TNET - NYSE

Thank you, operator. Good morning, and thank you for joining us for TriNet's 2024 Second Quarter Earnings Conference Call. I'm Alex Bauer, and I am TriNet's Head of Investor Relations. I'm joined today by our President and CEO, Mike Simonds; and our CFO, Kelly Tuminelli. Before we begin, I would like to address our use of forward-looking statements and non-GAAP financial measures. Please note that today's discussion will include our 2024 third 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 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 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 all available on our website or through the SEC website. With that, I will turn the call over to Mike. Mike?

Thank you, Alex, and thank you, everyone, for joining us. I am pleased to share that TriNet delivered a strong second quarter with a number of positive factors contributing to our results. This morning, I'll share my thoughts on our financial and operating performance as well as provide some additional observations regarding TriNet and the growth opportunity ahead of us now five months into my role. Starting with the market context, the environment for small and midsized businesses remains challenged. SMBs continue to navigate high-interest rates, softening end markets and persistent high healthcare cost inflation. They're hiring new people, but doing so cautiously. They're working very hard to retain their existing talent avoiding the costs associated with turnover and they're seeking to drive productivity. In short, they're signaling more clearly than ever that their people matter. And while on the topic of people, I do want to pause and recognize the thousands of my colleagues at TriNet who put our customers at the center of everything they do, helping us create exceptional value for SMBs, while delivering strong performance for our shareholders. Thanks to their efforts, we made progress in the quarter against our intermediate-term goal of exceeding the volume lost from attrition with the gains from new sales. Our marketing team strengthened the top of our funnel through targeted campaigns highlighting our compelling value proposition, a value proposition which includes outstanding customer service, access to high-quality benefits and real cost savings derived from our bundled approach. Our sales team pursued those leads and delivered a good quarter with our sales roughly in line with a strong prior year and up 30% through the first half of 2024. Given our sizable market opportunity and the strength of our offering, we continue to further invest in our field teams. We finished the second quarter with 15% more reps year-over-year, and we expect to grow the distribution team further, approaching 20% year-over-year growth before heading into our fall selling season. And, as we grow our sales team, we are increasingly investing in their productivity, looking to retain and develop the very best in the industry. For our services team, the ultimate performance measure is whether our customers stay with us for longer. And on this measure, our team is performing exceptionally well. Customers are benefiting from our proprietary technology, access to high-quality benefits priced to their risk and our exceptional service model. During the second quarter, our full year 2024 forecasted retention rate continued to improve, nudging closer to our record 2023 performance. I'm not comfortable yet declaring that we will repeat our record 2023 retention performance, however, I am pleased that we find ourselves in this improved position. Strong retention is helping offset slower net hiring within the customer base. Customers in the quarter continued to hire, albeit at slower rates than forecasted. One encouraging CIE data point I'd note is that so far in 2024, we have now booked five consecutive months of positive yet modest customer hiring, a first since 2022. In this environment, pricing across our offering has remained aligned with the value we provide and consistent with our customers' risk. We also continue to find ways to improve our processes and operate more efficiently, resulting in a reduction in operating expenses in the quarter. So, taken together, solid sales, great retention, pricing discipline and well-managed expenses created another very good quarter and demonstrated once again that TriNet is a strong cash-generative business. Through the first half, we used our cash to repurchase nearly $135 million of stock and pay out $25 million in dividends through July, returning nearly $160 million in capital to shareholders. We believe TriNet's stock at its current price represents significant long-term value, given our strong operating performance and our long-term growth prospects. And frankly, I am very optimistic about TriNet's future. While the SMB business environment is difficult at the moment, our business is demonstrating its resiliency. I'm now five months into my role, and I still have plenty to learn, but it's very clear to me that TriNet's business model is exceptional, and we have a very real growth opportunity in front of us. We've built a premium brand amongst the SMB community and the attractive verticals we target. Our service model fosters loyalty with our customer base. Our risk-taking approach to insurance allows us to platform still somewhat nascent to innovate and create value for customers and shareholders. And finally, we own our own technology. And therefore, control the customer experience and the runway to further quality and efficiency gains. We continue to do the strategy work I mentioned after 1Q, identifying the best areas for us to focus on in our pursuit of profitable growth. And while there's still work to be done, certainly, one of the areas will be accelerated innovation and our approach to benefits. What the market is experiencing here in 2024 with elevated healthcare inflation is reinforcing that SMBs should not try to solve for healthcare on their own. These SMBs are coming to us for help and we believe the growing cost and complexity of healthcare is a long-run tailwind for our business. Real opportunities exist to improve our data and analytic capabilities, innovate our benefits portfolio and broaden our channels to capture this opportunity. On this point, we continue to round out and strengthen our leadership team with the recent additions of Tim Nimmer, Head of Insurance Services, and Shea Treadway, our new Chief Revenue Officer. Both were attracted to TriNet, in large part because of our compelling long-term growth prospects as well as the people-focused culture here. With Tim, I believe we have a leader who can both help us better manage the risk we take associated with our offering and foster a strong commercial culture to help drive growth. Tim comes to TriNet with deep knowledge and experience having led pricing, underwriting and innovation functions for two of the largest firms globally in the health insurance space. Shea brings to TriNet extensive SMB distribution experience at significant scale across multiple channels, including direct and intermediated with a deep knowledge of insurance products and employee benefits brokerage. With Shea, we take another step towards deepening our knowledge of multichannel distribution and digital transformation, areas which are critical for broadly and efficiently targeting the SMB market. Shea and Tim are joining a talented and motivated leadership team intently focused on strengthening our value prop, growing our business for the benefit of customers and shareholders and fostering an inclusive and vibrant company culture necessary for us to achieve our goals. So in summary, I'm pleased with a strong quarter and the resiliency of our business and I'm so excited about the growth opportunity ahead. For more on the quarter, I will now turn the call over to Kelly. Kelly?

Thank you, Mike. Second quarter results reflect solid execution across our business. We performed well and delivered revenue at the high end of our guidance range. Sales were good and roughly in line with our prior year. Our insurance performance was within expectations in total. Health costs in Q2 remain elevated over last year's experience, in line with our forecast and consistent with broader trends in the industry. Workers' comp performance was favorable and exceeded our expectations. Our workers' comp program management remains strong, including our ability to price, reserve and manage our claims. And expenses declined year-over-year as we prudently managed our resources across the business. Taken all together, we generated strong earnings and good cash flows, and we returned a significant amount of capital to shareholders through share repurchases as well as our dividend. Now let's go a little deeper on our second quarter financial performance. In the quarter, total revenues grew 1%, in line with the top end of our guidance, supported by improved retention and modest customer hiring. We finished the second quarter with approximately 354,000 worksite employees, up 6% year-over-year and approximately 336,000 co-employed WSEs, up 1% year-over-year. In the quarter, retention outperformed our forecast as our investments in customer service continue to pay off. And our value proposition is resonating with solid new sales performance. We remain committed to investing in our sales force capacity and maturing our sales reps to capture more of our growing funnel. Finally, we benefited from modest customer hiring or CIE, which helped drive our overall 1% year-over-year growth in co-employed WSEs. Professional service revenue grew 5%, exceeding our high guidance by 1 point, largely driven by our volume growth and rate improvement. Insurance revenue grew 1% year-over-year. Consistent with our first quarter, healthcare participation rates were slightly lower and were partially offset by annual inflationary rate increases. Insurance costs grew 6% year-over-year. Insurance cost growth again reflected higher healthcare and pharmacy cost inflation. However, these health cost trends were partially offset by strong workers' comp performance. At this point, we do not expect any further uncertainty stemming from the March cyberattack on Change Healthcare as claims lags have normalized across April and May. The broader trends of higher utilization and cost inflation, however, do remain and are apparent across the health insurance industry. Related to workers' compensation, our results include positive prior period development of approximately $20 million. As TriNet's overall net workers' compensation reserves have declined over the years given the business mix, I would expect this to lessen over time. Taken all together, this broader insurance cost ratio at 88%, in line with our second quarter guidance. Now let's turn to operating expenses. We continue to exercise expense discipline in the quarter, resulting in a 6% year-over-year decline. We are proactively managing our expenses, reducing our back office while making targeted investments in growth and automation. Interest income on investments and our operating cash continued to positively contribute to our results in the second quarter. The income generated offset our interest expense, providing a net $1 million benefit to other income. So taken all together, we reported $1.20 in GAAP earnings per diluted share and $1.53 of adjusted net income per diluted share, both exceeding the top end of our guidance ranges. We had another strong quarter of cash generation to support our business and capital allocation. In the quarter, we delivered $136 million of adjusted EBITDA. And through the first half, we generated $130 million of corporate operating cash flows. We returned $159 million to investors so far this year by repurchasing over 1.2 million shares during the first half of 2024 and paying $25 million in dividends through July. Our capital return priorities remain unchanged. As we generate cash throughout the year, we will continue to deliver value to our shareholders by investing in our business for growth and using our cash flows to fund dividends and additional share repurchases. Now let's turn to our third quarter and full year outlook. For the third quarter, we expect total revenues to be flat to up 3% and professional service revenues to be in that same range. Our underlying assumptions in support of our revenue guidance include our expectation for modest growth in new sales, continued strong customer retention and a limited contribution from CIE due to seasonal factors. Turning to our insurance cost ratio for the third quarter. We are forecasting an ICR of 88% to 91%. Finally, we're forecasting GAAP net income per diluted share to be in the range of $0.70 to $1.20, and adjusted net income per diluted share to be in the range of $1 to $1.50. Turning to the full year, we are leaving our full year guidance unchanged, as our current forecast falls within that range. To remind you of that guidance, for revenues, we continue to expect total revenues in the range of down 1%, to up 4% year-over-year and for professional service revenues to grow in the range of 1% to 5%. We still believe our insurance cost ratio will fall between 87.5% to 89.5%. The low end of the range at 87.5% would reflect health cost growth rates in the mid-single digits, primarily driven by a moderation of inpatient utilization. If health cost inflation remains in the high single-digit range, consistent with our first half experience, we would expect our ICR to be closer to 89.5%. With respect to our earnings guidance, we continue to forecast GAAP net income per diluted share in the range of $3.94 and $5.46, and adjusted net income per diluted share in the range of $5.25 to $6.80. When we report our Q3 earnings, we expect to refine our fourth quarter outlook at that time with another quarter behind us. As you can see, TriNet has delivered strong financial results and resiliency given the backdrop of rising health care costs. We have a great business, which is well positioned for growth as customer hiring resumes. We have returned capital to shareholders in line with our financial policy, and we have a positive outlook for the balance of the year. With that, I will pass the call to the operator for the Q&A portion. Operator?

[Operator Instructions] And this morning's first question from Tien-Tsin Huang with JPMorgan.

Hey, thank you. Good morning for the details. Thanks for the details here. Just on the sales front coming in line, which is good. I know that -- I think you mentioned 15% growth in sales, headcount, aiming to grow 20%. When do you expect the productivity there to come through and translate into higher sales results? Is there a timetable that we should expect here?

Hey, good morning, Tien-Tsin. It's Mike. I appreciate the question. And yeah, we're definitely -- first, I'd just say, encouraged with the sales momentum up about 30% on a year-to-date basis. And when we think about sort of how are we meeting the market with the relative strength of our offering, I'd say, seeing that contraction in the first half. And then also, I would say, having retention number be as positive as it is. And as you know, that the combination of the two is what we're really after and we keep making progress towards that goal of having the volume that we bring in on a new sales basis match what we are losing through attrition. So, encouraged by the momentum. Like you said, I think that's a function certainly of the growth in salespeople 15% more, I think by the time we get into the busiest part of the selling season here in the next month or two, that number will perhaps float up to about 20%. I would say we see room to continue to grow as we look at our verticals, look at the geos that we're in, in terms of sales capacity, but productivity has been a big part of the story here this year. And I would see that as continuing to be a big and probably bigger driver going forward as we get through the busy part of selling season through the [indiscernible] as we get into 2025. So there's a lot of work that's going on, including having their entire sales and customer relationship management team together in person next week on the tools that we're equipping them with, the sales process that we are using, the product enhancements that we're taking into the market. So, there will be a balance between capacity and productivity with a lean towards productivity as we get through the coming, say, four to six quarters.

Okay. Great. No, that's helpful to hear. Thanks for that, Mike. Just maybe one more for me, Mike. Just you mentioned accelerated innovation with approach to benefits. Can you maybe elaborate on what that means? It sounds like maybe leveraging better tools. I know you made some nice hires here as well to go after the benefit side of things. So, anything else to share?

Yeah, that's right. And Kelly talked about it in her prepared remarks. We're certainly dealing with accelerated healthcare inflation. And while that's a problem to work through for our customers as we price to risk and for us as we help them manage the cost and the complexity of healthcare, short term, we've got to work through that. If you think about it more from a long-term point of view, that growing sustained cost increased complexity that's coming with the strategies that we've put in place to help manage that cost and still deliver good value down to the consumer, that's a tailwind for us at TriNet. And to be a small business that's trying to deal with that kind of cost and complexity, that's not going away as we look out into 2025. We see the opportunity to continue to innovate things in what you're talking about. So exactly that. I think we made some key hires. I think we'll continue to invest in capability around the data that we have availability, the insight that we can drive, the tools that we provide. Some really good innovation towards the tail end of last year around decision support down to the WSE level, helping them make the right choices for them and their family. And I think relative to competition, TriNet is a little bit unique. We like to take some risk, do it in a disciplined way. That affords us a little bit more creativity. So, we sort of see this opportunity to take what is already a strength for TriNet and build on it, create a little bit more separation around a particularly acute pain point when it comes to healthcare and benefits.

That's great. Thank you.

Thanks.

Thank you. And the next question comes from Kyle Peterson with Needham.

Great. Good morning. Thanks, guys, for taking my question. I just wanted to start off on professional services revenue. It seems like that was one of the better organic growth quarters we've seen in a little while here on a year-over-year basis. So, I just wanted to see if you guys could provide any more color on kind of what is driving that. Is this mostly sales force productivity and new clients? Or is there a contribution from some of the platform piece stuff? Or any more color there would be helpful.

Yeah, good morning. Appreciate the question. I think we had actually a couple of them, but we're continuing what we were just talking about, continue to see a really strong retention. That ends up being really consequential to us. A strong retention, gradual increase in fees, reflecting kind of the inflation that's out there that's coming through. We have continued to innovate. I mentioned the benefit of decision support tools. We're finding that is creating value for our clients, that creates a little bit of a few upside opportunity for us. So, I wouldn't sort of point to any one thing, but in generally sort of see these things culminating, yeah, a little bit of nice upside to the professional services revenue.

Got it. That's helpful. And then, I guess just a follow-up on CIE. It seems like some of the commentary and trends seem optimistic, but still kind of modest. I guess on a seasonally-adjusted basis in the second half of the year, are you guys assuming things are relatively similar to the first half? Or are you guys projecting any improvement from what you guys have seen year-to-date?

Yeah. Kyle, it's a great question, particularly given the uncertainty in the economy that we're facing in right now. When we went into the year, we had assumed CIE in roughly the mid-single-digit. What we've seen so far is modest CIE, but we're pleased that we've seen five straight months of net positive CIE. We're cautious as we look at the rest of the year. So, the way we're thinking of the rest of the year really is, one, third quarter generally had some seasonal headwinds just because we have seasonal hiring that lessens, and we've got interns that are going back to school, a few things like that. But our outlook for the rest of the year is really low-single-digit.

Kelly, I might just pile on just take a step back and say, when you think about the business, we're sort of -- if you take a long, long run view, we operate in a really attractive verticals. And again, trying to be unique in the degree of focus that we have on particularly these higher-growth verticals. So, over a long stretch of time, average CIE is in that 8% to 12% range. That's kind of the norm for us. It's kind of in the current period, like Kelly saying, to be in the very low-single-digits and still be demonstrating good, strong results. I mean it is the resiliency of the model, but it's also a reason for optimism as you look forward and to more normalization of that CIE, particularly when sales and attrition are coming closely in line, it's a pretty big opportunity. I just didn't want to miss the opportunity to highlight.

Yeah, that makes sense. Thanks for taking the questions and nice quarter, guys.

Okay. Thank you, Kyle. Operator Thank you. And the next question comes from Jared Levine with TD Cowen.

Sure. Thank you. So, if it looks like we exclude the reserve release in 2Q here, insurance cost ratio came in above the high end of the guide. Can you dig into what drove that higher than anticipated ICR as well as the affirmation of the ICR guide for the year despite the 2Q beat?

Yeah, happy to do so. Jared, it's Kelly. Let me dissect workers' comp for a moment. Regarding workers' comp, we did highlight that we had about a $20 million reserve release associated with prior period development as we did our -- as a reminder, second quarter and fourth quarter, we do a more thorough kicking of the tires on our reserve and making sure we're doing a more thorough reserve review with our external actuaries. So really, what we saw was a little bit of an outsized look. So, if I took that outsized impact in the quarter out, I'd be in the range still from a health insurance perspective. The one thing is we're looking forward to remind you as well is we do have a model where we have an opportunity to reprice on a quarterly basis. So, we are looking at our [10/1] (ph) renewals and evaluating that. And as we went into the year, we did lower our guidance related to -- or raised our guidance associated with the insurance cost ratio this quarter because of just the trends that we were seeing and those trends just continue along the same lines that we saw. So, I feel good about the guidance, as you talked about on a full year basis, and I laid out a few things in the prepared remarks in terms of what would bring us to the low end of the ICR and what would bring us to the high end of the ICR, but I think we're positioned well.

And then in terms of -- can you give us an update here in terms of the PEO demand environment? If I heard correctly, it sounds like sales head count is up 20% year-over-year, but the bookings were flat. So, are you seeing anything in terms of elongated sales cycle or anything to call out in terms of the PEO demand environment broadly here?

Yeah, Jared. It's Mike. I appreciate the question. I don't think I would call anything in particular. Overall demand environment has been good. And as we look at the pipeline heading into the busiest selling season, we're comfortably ahead in the pipeline of where we were in the prior year. It is a competitive market. I think in general, it's a competitive market, as I'm spending time with our salespeople and some of our channel partners for the reasons that we've talked about. I think there is a strong interest for PEOs. SMBs are looking for help in dealing with many of the challenges that TriNet solves for. I would say, in an inflationary healthcare cost environment, it is going to cause more shopping behavior. People are going to be disciplined. The numbers are bigger. Again, we like how we sit from a relative point of view. We do take a disciplined approach and price to risk. And the impacts that we're feeling from a healthcare point of view, every data point tells us these are broad and consistent impacts felt across the entire industry. So, there is no reason to believe that our relative position will deteriorate. I do know that we will stick to a very disciplined approach while every single player will have to get there. Will they get there at exactly the same pace? I don't know. We'll watch that pretty closely. But in terms of the pipeline, in terms of the capacity being up 15% to 20% from a rep standpoint, those are things that give us some confidence here.

Great. Thank you.

Thanks, Jared.

Thank you. [Operator Instructions] And the next question comes from Andrew Nicholas with William Blair.

Hi, good morning. Thank you for taking my questions. I wanted to ask about expense control. Another kind of really good quarter on that front. Just curious, maybe, Kelly, as to the sustainability of these kind of expense levels through the remainder of the year, but even beyond. And also to the extent that CIE were to deteriorate or macroeconomic conditions were to deteriorate if there are other levers that you still have within the cost base to protect margins in that type of environment?

It's a great question, Andrew. And first, I want to get the kudos to the team for doing the right thing in terms of focusing on where we're spending money. Making sure that we're deploying every shareholder dollar in the right spot to be able to help drive growth and improve efficiency there. Really, what we've done is we've reduced our G&A to invest in growth, a similar theme to what I've been talking about all year. But we did -- when we look year-over-year, we had a benefit from fully integrating our HRIS offering last year. So, we did have a little bit of outsized costs last year that I wouldn't expect to recur. But we do -- to your question, we've got an opportunity to continue to drive operating leverage. And as we grow, we will not grow our expenses proportionately with that and are working kind of every lever to make sure that we're being as efficient as possible. But at the end of the day, we're not going to constrain productive investments in growth.

Understood. Thank you. And then for my follow-up, separate topic altogether, is just on the worksite employee dynamic change in existing, can you speak to the verticals that you guys are focused on and whether or not there are any meaningful changes in trend or overall optimism or willingness to buy at that level, particularly interested in technology, which has obviously had some starts and stops in the past year or two? Thank you.

It's a great question. And as we look across all of our verticals, I did another scan this morning to make sure we had the real underlying story there. And from a tech perspective, we've had a couple of good months in tech and the last two quarters have been modestly positive in tech. So I'm encouraged by that. Regarding the other verticals, where we're still seeing a little bit of pressure in professional services. Basically, all six of our verticals did show positive CIE for the full quarter.

Helpful. Thank you.

Thank you. And the next question comes from Kevin McVeigh with UBS.

Great. Thanks so much. Hey, this maybe for Kelly. Can you maybe disaggregate the $0.25 overperformance? I know you talked about workers' comp and SG&A. Is there a way to maybe think about how much of it was the workers' comp, SG&A or maybe anything else that drove that?

Yes. We can probably help you, Kevin, offline on your model just by going through the P&L that we published, but I do think insurance, when I look at insurance overall, it was kind of sort of right in the middle of the range. So, it really was driven by both expense efficiency, continued prudence from an investment perspective as well as capital allocation. We did -- as you saw, we deployed almost $135 million year-to-date on share repurchase and not that this helps EPS, but just a reminder that we paid our second dividend on Monday this week, and so we're up to about $25 million in dividends as well. So, I do think the capital story definitely helps from an EPS perspective as well.

Helpful. And then, Mike, I know you're kind of five months into the role. I always like to ask any puts and takes as you think about the business model relative to what your expectations were coming in?

Yeah, thanks, Kevin. It's, like you said, five months in, most of that time spent having a lot of conversations with customers and colleagues thinking hard about the things that we do really well today and what changes we may need to make going forward. And for me, the conclusion I reach is this is really a great business. It really is. And I think there's a lot of things happening in the market. We talked about healthcare. We talked about having our own technology and therefore, having that runway to really control that customer experience and TriNet somewhat unique in terms of the strength of that technology. And I'm encouraged. And for me, I think probably the biggest opportunity is picking the small set of really great choices. Truly the big opportunities for profitable growth and focusing the considerable amount of time and expertise that we have here at TriNet on those smaller set of ideas in pursuing them vigorously and doing it with the backdrop of such a strong business model. So, I would not expect a big change in terms of the strategic direction at TriNet, but I would expect probably a little bit more focus and specificity as we look to sort of accelerate those opportunities for profitable and sustainable growth.

That's super helpful. Thank you.

Thanks.

Thank you. And the next question comes from David Grossman with Stifel.

Good morning. Thank you. I just had a couple of really quick follow-ups. One is you -- I think, Mike, when you talked when you first joined, you talked about expanding the distribution channels. And it looks like you made a higher -- that has some experience in that area. So do you want to talk a little bit about what we should expect to see as kind of that new hire kind of ramps up and kind of what you're mandating that person to achieve over the next 12 to 18 months?

It's great to hear from you, David. Good morning. I think -- I would just actually start by saying our primary go-to-market is and will be our direct sales team. I think it's something that sets us apart, and we talked about the investment that we've made, reallocating resources from across the business into that sales team and having spent a lot of time across the country with those folks here in the first five months. It's a very special group and one we want to continue to invest in. That being said, I think there is an opportunity to augment that. And one of those opportunities is around the brokerage channel. And again, as we sort of invest in the data, the analytics, the innovation that we can bring around benefits, that's a very, very big part of the market where employee benefits brokers have influenced. And best sales people, by the way, are building those relationships already organically in local markets. So again, not a huge change. But as our new Chief Revenue Officer comes in, he comes with a careers worth of experience, dealing with multichannel direct and intermediated distribution opportunity and the challenges that comes with managing multiple channels. So, we're pretty excited not to get about changing our focus, but adding to it, putting the processes, the technology, the tools, the corporate-level partnerships in place. It will take a little bit of time. It doesn't happen overnight, but I think we can build on some momentum that we've already started to establish there. So hopefully, that helps, David.

Yeah. No, thank you for that. And Kelly, just a couple of quick cleanup questions on the numbers. Is the only adjustment to make to the WSE count sequentially, just 18,300 platform users? Or are there any other adjustments to make to that number?

No, not at all, David. And we do break those out in the 10-Q that was filed this morning. So hopefully, you've got full transparency on the difference between the co-employee and the platform users.

Right. So, you were up basically a little less than 1 point sequentially and the CIE hiring, the modest hiring is what -- because you've been down sequentially for, I don't know, five or six quarters, something like that. And so, the first sequential growth after making that adjustment, right? Just to be clear though.

Well, the other thing to point out is just super strong retention. So, I think as we've looked at, obviously, most of our attrition occurs in the first quarter. And Mike talked about how we're trying to get sales to be able to offset the level of attrition on a quarterly basis. But I do think retention exceeded our expectations during the quarter and was a really strong, showing there, sales continue to contribute and then the modest CIE just was helpful for that.

Right. And just on the HCM users, that was down sequentially again. Is this still kind of cleansing the base? Or is there other dynamics going on there that we should expect to continue throughout the balance of the year?

Yeah, it's Mike. It's a really good question. And just to take one step back and say we're really pleased with the sort of the primary objective of the acquisition growth, which is to bring in the technology and bring in the talent to help us really modernize and give us our own technology to be able to take forward. And that's progressing really nicely. And actually some of the early uses of the technology that we brought over to the broader business is around benefits and differentiating us in market from a benefits point of view, a substantial amount of work and pipe around the payroll capacity as well. So that's a really important part of the plan for TriNet going forward. We're doing it, like you said, now on a margin positive basis, having taken the disciplined action around expenses and around pricing. I think on the price front, that will continue as we work through it. The third piece is around, okay, what's the growth outlook for this business, and we're certainly looking at the software and services and capabilities there as part of the strategic review that we're looking at. And what you can count on from us is that the choices that we make, ultimately, the businesses that we're going to really invest and get behind, those are going to be things that are going to be meaningfully impactable to our P&L. And so, I'm pretty excited about the capabilities that we've got here with that part of our business and doing it on a margin positive basis. And then, I think we've got to figure out the best path to grow.

Got it. Okay, guys, good luck. Thank you.

Thank you.

Thanks, David.

Thank you. And this does conclude the question-and-answer session. I would like to turn the conference over to Mike Simonds, CEO, for any closing comments.

Okay. Thanks, everyone, for joining us this morning. We, as always, appreciate your engagement. And I know Kelly, Alex and I will look forward to the continued dialogue over the coming weeks and months. So I hope everyone has a good rest of your day. Keith, this concludes our conference call, and thanks for your help today.