Good day, and welcome to the TriNet First Quarter 2020 Conference Call. [Operator Instructions]. I would now like to turn the conference over to Alex Bauer with Investor Relations. Please go ahead..

Thank you, Operator. Good afternoon, everyone, and welcome to TriNet's 2020 First Quarter Conference Call. Joining me today are Burton Goldfield, our President and CEO; Richard Beckert, our Chief Financial Officer; and Michael Murphy, our Chief Accounting Officer. Our prepared remarks were prerecorded.

Burton will begin with an overview of our first quarter operating and financial performance. Richard will then review our financial results in more detail. Finally, Michael will provide our forward-looking guidance. We will then open up the call for the Q&A session.

Unique to this conference call, the four of us are in 4 different locations, observing our COVID-19 shelter-in-place mandates. We will make our best efforts to have a Q&A session executed as seamlessly as possible.

Before we begin, please note that today's discussion will include our 2020 second quarter and full year guidance 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 that are inherently subject to risks, uncertainties and changes in circumstances that are difficult to predict 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 non-GAAP net service revenues, adjusted EBITDA margin and adjusted net income per share. The impact from COVID-19 has led us to revise our forward-looking guidance.

Our second quarter forward-looking guidance is especially impacted by COVID-19, leading to a wider-than-typical guidance range. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release or our 10-Q filing for our first quarter, which is 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. With that, I will turn the call over to Burton for his opening remarks..

TriNet Business Resiliency and Preparedness Center. This web-enabled resource serves as an efficient distribution center for all TriNet COVID-19 communications and content. It allows our customers as well as our noncustomer SMBs to access relevant and timely information.

Over the past 2 weeks, we have seen, on average, just under 1,000 daily visits to the site. Our 7x24 customer service team has been crucial as it allows customers to reach out to us on their schedule to tap our expertise and resources.

Since the beginning of April, the team has been logging on average of just under 500 COVID-19-related cases per day, roughly a 10% increase in our historic customer caseload. Two of the most frequent topics of inquiry have been assistance with the SBA loan applications and options around health care for their employees.

The passage of the CARES Act, and specifically, the Payroll Protection Program administered through the SBA has been a key driver of customer inquiry. Our investment in infrastructure and specifically workforce analytics has paid off.

It has enabled us to provide customers with timely and properly formatted payroll information necessary to complete the loan applications. Additionally, we are delivering the subsequent tracking of required payroll data under the terms of the PPP loans.

We have also leveraged the COVID homepage to host a series of well-received, how-to vignettes, walking customers through the loan process. Thus far, just under half of our customers have accessed the relevant SBA loan data. As expected, customers have also been inquiring about options related to health care coverage.

TriNet has proactively addressed this issue with improved access to affordable health care. We have actively communicated carrier plan changes, such as waived co-pays and cost sharing, lab testing, telemedicine and more to our customers. With respect to telemedicine, we have seen a doubling of visits without significant increases in wait times.

We have also modified our sponsored plans to ensure we are best supporting furloughed WSEs, and WSEs that have moved to part-time employment. Finally, we are facilitating access to short-term medical plans for furloughed and laid-off workers, representing an affordable alternative to COBRA.

With respect to TriNet Q1 financial results, I am pleased with our strong first quarter. These results reflect TriNet's return to growth, coupled with disciplined financial management. Notwithstanding these Q1 results, the economic environment has changed, and as such, Richard will go through these results in greater detail.

However, I do want to highlight two items from Q1. Our net insurance margin and our average worksite employee growth. Regarding net insurance margin, we delivered 14% in the first quarter, largely due to health cost savings.

We believe health cost savings will persist in the coming quarters due to the trade-off between incremental COVID costs and lower costs attributable to the decline in elective procedures and overall health utilization.

It is important to once again state that TriNet prices to risk, the health cost savings we saw in Q1 and expect to see in the coming quarters are result of an unexpected drop in health utilization rather than higher-than-expected prices.

Should we generate a net insurance margin in excess of our annual historical experience, when health utilization returns, we will look to return any cost savings to the TriNet installed customer base. Michael Murphy, who will be our acting CFO upon Richard's departure, will later provide greater detail regarding our net insurance margin forecast.

Turning to WSE count. In the first quarter, average worksite employee count grew by 8%. That growth was largely the result of effective customer service and our customer selection process, which drove improved customer retention.

Our customer selection process and specifically our vertical focus, even during the current economic environment, continues to pay dividends. This focus is an important aspect of our business model and has resulted in our CIE metric having a lower correlation to changes in the U.S. unemployment rate.

When compared with the broader SMB market, our installed base is overweight in attractive growth verticals, such as technology, financial services and life sciences. As such, our current WSE volume as of last week is in the range of 300,000 to 305,000 WSEs, for a net attrition rate of 10% since March 31.

We typically don't provide an intra-quarter volume update, but given the current circumstances, we felt it prudent to provide this data this quarter. During this period, our Main Street vertical has had an attrition rate twice that of our white collar verticals. Notably, the TriNet book of business is now nearly 80% in the white-collar vertical.

To service these critical customers, TriNet moved decisively to protect and enhance our business. In mid-March, we executed our business continuity plan, and transitioned our team to a work-from-home structure. Within 1 week, TriNet was serving over 18,000 customers remotely.

We successfully transitioned 97% of our workforce of almost 3,000 colleagues to effectively working remote. This is an achievement I am personally very proud of. Thank you to the entire TriNet team for successfully working remote, while continuing your passion around our amazing customers and company.

TriNet established a cross-functional control tower to address the changing regulatory and customer landscape as well as financial and operating constructs. In late March, we further strengthened our liquidity.

Informed by our collective experience during the 2008 financial crisis, we felt it was prudent to maximize our already strong liquidity and draw down our revolving lines of credit. We now have over $700 million in cash available to us, strengthening our already strong balance sheet.

Finally, we continue to prudently invest in our strategic initiatives, such as developing the modularity of our offering, automation and creating further efficiencies. In the long run, TriNet and our customers will benefit from these continued investments.

TriNet's future is about attracting and retaining the right customers in our core verticals, a unique strategy in our industry that supported our momentum in the first quarter. Presently, our focus is on helping our customers navigate this complex economic and rapidly changing regulatory environment.

We are united in our mission, which has never been more relevant, and we are playing a crucial role in helping our SMB customers survive COVID-19. With that, I will turn the call over to Richard for the financial review.

Richard?.

Thank you, Burton. As we review the financials, I will focus on the GAAP and non-GAAP numbers where appropriate. As Burton noted, we were quite pleased with our first quarter financial and operational performance, as it demonstrated our return to growth, paired with disciplined financial management.

During the first quarter, GAAP total revenues increased 12% year-over-year to $1 billion, and net service revenues grew 13% year-over-year to $283 million. We finished the first quarter with approximately 337,000 worksite employees, showing 6% year-over-year growth.

Average WSE count for the first quarter was approximately 336,000, an 8% year-over-year increase. Professional service revenues for the first quarter increased 15% year-over-year to $156 million.

Professional service revenues in the quarter outperformed our forecast by approximately $10 million due to improved WSE retention, continued strong hiring from our installed base, and new sales.

Insurance service revenues for the first quarter increased 12% year-over-year to $892 million, and net insurance service revenues increased 10% year-over-year to $127 million. The strength in net insurance service revenues was driven by lower Q1 costs, particularly in March.

Our first quarter GAAP effective tax rate was 25%, higher than recent quarters, as we did not receive a benefit from the tax treatment of employee equity compensation. For the quarter, our non-GAAP tax rate was 25.5%.

GAAP net income increased 44% year-over-year to $91 million or $1.31 per share compared to $63 million or $0.89 per share in the same quarter last year. Adjusted net income increased 41% year-over-year to $97 million, or $1.41 per share compared to $69 million, or $0.98 per share in the same quarter last year.

Adjusted EBITDA for the first quarter increased 34% year-over-year to $145 million compared to $108 million during the prior year period, for an adjusted EBITDA margin of 51%. We closed the first quarter with total cash of $521 million.

As Burton noted, we drew down the balance of our revolving line of credit for $234 million, and now have over $700 million in cash available to us between cash, cash equivalent and unencumbered short- and long-term investments. Working capital was $284 million in the first quarter versus $229 million in the fourth quarter of 2019.

Through the 3 months ending March 31, 2020, we generated $119 million of positive corporate cash flow from operating activities, and used $401 million, primarily comprised of WSE-related payroll tax obligations. As a result, total cash outflow from operations was $282 million.

We spent approximately $40 million to repurchase approximately 747,000 shares of stock in the first quarter. I will now turn the call over to Michael Murphy to provide our Q2 and updated full year guidance.

Michael?.

Thank you, Richard. Turning to our 2020 second quarter and full year outlook. I will provide both GAAP and non-GAAP guidance. Before I begin with our guidance estimates, I would like to provide some intra-quarter information we typically don't share as well as some of our assumptions to better understand our earnings guidance in light of COVID-19.

As Burton noted, our current WSE volume is in the range of 300,000 to 305,000, representing a sequential net attrition rate of 10%. Our Main Street attrition is occurring at a rate twice that of our white collar verticals. Within our Main Street vertical, approximately 18% to 20% of our Main Street attrition is comprised of furloughed employees.

Now turning to our guidance assumptions. It presumes that U.S. policymakers will continue to support employment by assistance to small businesses using legislation like the CARES Act and its Paychecks Protection Program until the economy reopens.

We also assume shelter-in-place orders will gradually be lifted at different rates around the country as access to testing, tracing and therapeutic solutions broadens in the fourth quarter. Our volume, and therefore, our GAAP revenue guidance, is informed by 2 economic outlooks, both modeled in the shape of a checkmark.

At the high end of range, we're assuming a steep economic drop, which we are currently experiencing, followed by a recovery beginning in late Q3 and growing steadily through Q4. At the low end of guidance, we are assuming the current economic drop worsens in the near term, and the recovery in Q4 is lower.

In both cases, we have assumed new sales will be low in the second and third quarters before recovering in the fourth quarter. The slope of the second half economic recovery will determine the strength of our fourth quarter new sales.

Our second quarter and full year net insurance margin guidance assumes that we will be significantly impacted by the timing and cost of health coverage as the pandemic prevents anything other than essential medical services from being provided.

As Burton noted, should we generate an annual net insurance margin in excess of our historical experience, we will look to return these cost savings to our installed base. If we do see these cost savings develop, most of the benefits should be incurred in the second quarter before we begin to accrue for the return of these savings over time.

As such, we expect to report significant timing differences in our health costs across the second quarter and the year. As a result, we are expecting our second quarter net insurance margin to be in the range of 19% to 23%. For the full year 2020, we are raising net insurance margin forecast by approximately 3 percentage points.

Now I'd like to set out our financial guidance. For the second quarter of 2020, we expect GAAP revenue to be in the range of down 11% and down 5%. And we expect net service revenues to grow in the range of up 7% to 27% year-over-year. We are forecasting an adjusted EBITDA margin range in the quarter of 39% to 49%.

We expect Q2 GAAP earnings per share to grow year-over-year in the range of 20% to 96%, and adjusted net income per share to grow year-over-year in the range of 27% to 97%. Turning to our full year 2020 guidance. We are revising our guidance lower.

For GAAP revenue, we now expect the year-over-year change to be in the range of down 8% to down 3%, changed from our previous guidance of 10% to 13% year-over-year growth. We now forecast our net service revenue to be flat to up 4% year-over-year versus our previous guidance of 6% to 10% growth.

Our full year 2020 adjusted EBITDA margin is now targeting a range between 38% and 39%, down from our original guidance of approximately 40%. GAAP earnings per share are now expected to be down 8% to down 1% year-over-year, lowered from our previous guidance of 4% to 12% growth.

Adjusted net income per share is now expected to be down 3% to up 4% year-over-year, lowered from our previous guidance of 7% to 14% growth. With that, I will return the call to Burton for his closing remarks.

Burton?.

Thank you, Michael. The SMB segment is enduring significant economic dislocation, and TriNet remains here to help. Our value proposition is especially compelling as we are leveraging our scale for the benefit of our customers in ways independent SMBs struggle to mimic. I am pleased with our first quarter results.

These results reflect TriNet's return to growth, coupled with disciplined financial management. We remain focused on our business, and we have taken the necessary steps to ensure we can thrive on behalf of all of our stakeholders. Finally, I want to say again, a special thanks to my TriNet colleagues.

I am awed by your ability to navigate this uncertain and changing environment. I am proud of how you've remained focused and kept our customers at the center of everything we do. Most importantly, I wish for your continued health and safety.

Operator?.

[Operator Instructions]. Today's first question comes from Tien-Tsin Huang of JPMorgan..

Thanks for all this detail. It's really good. Still trying to digest it. Makes sense around the net insurance margin guidance and giving back the savings.

But given all the moving pieces in the recovery assumptions that you've made, how do you plan to sort of layer those savings and take a view of when you'll be ready to give that back? I mean, is it -- could this extend into 2021 when you have a firmer picture? Because it feels like you may not know much until we get through the third or into the fourth quarter, it sounds like?.

Clearly, there are a lot of moving pieces right now. And we, in our guidance, have anticipated the current COVID environment and even a more extreme COVID environment, net of those savings, which we believe could come to us from the suspension of elective procedures and a lower utilization of services.

Of course, workers' compensation is another piece that we'll need to add to the uncertainty. We don't know when it will finally evolve, but we believe that we will have an understanding of that before the end of the year. And I think that we've -- when we know more about that, we will be able to determine when to return it.

We've done this sort of program in the past..

Okay. I trust that's the case. It looks like you had a good sales and retention trend going into mid-March here. Given the change, I know -- again, I know a lot of moving pieces, but the professional services revenue per employee, you mentioned 80% now white collar, things are evolving quickly.

How do you think that will behave relative to WSE going forward here? How should we model that professional services line relative to worksite employee growth?.

So the way we're seeing that right now is that we believe there will be a mix change in the full year, and we believe that we've contemplated in our range, which is why we've set our range at -- annual range of between minus 3% to minus 8%. And our best estimate of that mix is as we described in Burton's prepared remarks..

Got you. Got you. One quick last one. Just your ability to protect the bottom line here.

On the expense side, should things get worse or if it extends a little bit longer than what you're anticipating, how do you feel about the levers that you have available to pull on the expense front?.

Yes. We clearly have already pulled some of our initiatives and directed them to the COVID projects. We've also maintained our employee count to support our clients. We are being prudent on expenses right now, and we're comfortable we have the financial levers that we need to pull..

And our next question comes from Andrew Nicholas of William Blair..

Just to start, maybe a higher-level question. I was hoping you could speak a bit to the ability of your sales force to sell new business over the past month or so.

I would imagine not being able to meet with new clients face-to-face is a pretty big hindrance, and also the fact that I would imagine a lot of the SMB employees are focused on the day-to-day.

So any other color that you could provide outside of what you said in the prepared remarks on the selling environment and kind of the outlook over the next couple of quarters would be helpful?.

Yes. Great question. And obviously, sales will be difficult through 2020. And we're experiencing what I expect to be most sales in Q2 and Q3. From my vantage point, it has created a tremendous opportunity for us to have meaningful conversations with new prospects and existing customers. A lot of our business comes from the existing customers.

And what we've done is invested in our marketing, particularly our branding, which has increased the recognition around TriNet, and TriNet's ability to have an impact on these small and medium businesses. Conversations we're having with prospects are much more detailed than they've been in the past.

People have a little bit more time, and they are more interested in understanding all the dynamics of how TriNet is using scale in service of these small and medium businesses. The pipeline is growing, and I expect, as this trend evolves, and the COVID environment abates that these conversations will continue and give us opportunities in the future..

Great. That's helpful. And then in terms of business mix, I appreciate you calling out about 80% being white collar now from a vertical perspective. Is there any more detail you can provide? I know you mentioned being overweight in tech and financial services and life sciences.

Could you break out your exposure at that level? And then also a similar question from a regional perspective, obviously, it seems like certain regions appear to be a bit harder hit than others.

So any color on regional exposure would be helpful?.

This is Rich. Let's just recount what we had said. Right now, coming into about last week, this account, we are between 300,000 and 305,000 WSEs, so down approximately 10%. What we had talked about also is inside of that number of the -- what has come out is about 1/3 of those have been furloughed.

We're actually happy and trying to help our customers furlough to the degree that the business has come back online, it is very easy to go from a furloughed employee back to being a regular employee. Think of it as just going -- being out on leave and coming back from leave. So to the degree, we have roughly 1/3 behaving in that way.

That's a positive sign. Inside of Main Street, as you can imagine, where you have hospitality, they're harder hit. And they only have about 20% of their businesses furloughed. When you ask about it from a regional standpoint, as you know, we don't give out regional information.

But what we can tell you is that inside of tech, it really is only affected in the very, very small start-ups. And in general, it's kind of mirroring across the board of how the installed base looks..

[Operator Instructions]. Our next question comes from Sam England at Berenberg..

Just a couple for me.

The first one, I just wondered with that customer attrition number that you gave, has that been accelerating throughout April? Or do you think we've sort of hit a steady state here for the time being after the initial shock sort of in mid- to late-March?.

So how we would answer that is, our business, what we really see is it's more around payroll runs. So although you see at the macro level, you see things are slowly coming across every single week the same, we didn't -- we saw it a little more lumpy around particular payroll runs.

That being said, no, we can't say that we've actually seen an acceleration. It's been fairly steady as it goes around the payroll runs.

And as I said earlier, what you see for our installed base is, since it's predominantly white collar, and we have a lesser degree of hotels, restaurants and things of that nature, a lot of this -- part of that book has already played out..

And if I can add to that as far as the guidance goes, we do anticipate in both the top and bottom of our range that our attrition will continue through Q2. And in the top end of our guidance, we would see recovery in the late Q3 into Q4, in the top end of the range -- at the bottom end of the range, we would see recovery later into Q4..

Okay. Great.

And then the next one, I just wondered what assumptions you're making about the numbers of white collar worksite employees for H2, as clients potentially get back in the office, start revisiting cost bases, et cetera, given most businesses on the white-collar side probably haven't made too many adjustments so far to their workforce?.

Yes. We don't give out volume forecasts on a general basis. The best way to think about understanding that is to look to our GAAP revenue growth. That's our -- that guide captivates the way we're thinking about volume..

And our next question today comes from Palmer Pawlusiak with Crédit Suisse..

It's Kevin. Super, super detail and obviously a pretty fluid environment. Is there any way -- and you give a lot of detail, how you're thinking about the progression of the WSEs on a quarterly basis? I'm just trying to get a sense of if we're 3% to 3.05% today.

What does that look like in kind of a Q2, Q3 and then as the rest of the year?.

Yes. As I was saying to Sam, we don't really want to -- we don't really give out volume forecasts.

I think that the shape of our checkmarks or the shape of our guidance between a later recovery in the bottom end of our guidance and then earlier recovery in the top end, that, combined with our GAAP guide is probably the best way you can understand how we're thinking about that..

Got it. That's helpful.

And then is there a way to just think about how many WSEs have COVID-19?.

So it's too early to tell right now. We -- the data coming in from the provider networks is incomplete, and we normally only get that data on a paid basis. So we expect to see that probably in about 3, 4 weeks' time..

And our next question comes from David Grossman with Stifel Financial..

Just first off, sorry, I didn't catch all the guidance.

Is there a chance you could just quickly run through the non-GAAP guide for the second quarter and for the year?.

Sure. So for the second quarter 2020, we've got adjusted net income per share to grow year-over-year in the range of 27% to 97%. And adjusted EBITDA for the second quarter to be in the range of 39% to 49%..

Okay.

And for the full year?.

For the full year, our adjusted EBITDA margin is targeting a range of 38% to 39%. And our adjusted net income per share is now expected to be down 3% to up 4% year-over-year..

Okay.

And your revenue was minus 8% to minus 3% for the year, right?.

Correct..

Yes..

Okay. Got it. Okay. Great. And I'm wondering if I could just go back to your comments about retention because I think you're talking about employee retention.

Is that accurate?.

This is Rich. No, we're actually talking about our WSE retention. And if you recall, we started about [indiscernible] months ago working on ways that we could improve customer satisfaction, anything from onboarding all the way through their first payroll run, and then supporting them thereafter.

What we have found is starting in the back half of last year and now clearly through all Q1, we've had much better retention building every quarter. So we're pretty happy with how the retention has been. So January being the biggest single month, we had a very strong retention quarter..

So would the -- if you still look at that 6% growth and 8% average, would you characterize retention as being really the key driver of that year-over-year growth -- acceleration in the quarter?.

In the quarter? In the quarter, that's true. Because you have January being such a large month of when people would normally leave the company because they try to tie that out with their annual between insurance and their payroll stubs..

Got it.

And I just -- and I don't know if you can answer this question, but as you think about the risk of bankruptcies and things like that, which is obviously on everybody's minds in the small business community, what have you seen in terms of -- and it's probably too early to really gauge this, but have you seen any signs of how client attrition or retention is tracking versus WSE retention? Or do they look very similar?.

Yes. So that was why we tried to give you a little color around the furloughs, and that we saw people that were leaving due to the epidemic or pandemic. 1/3 of them are being furloughed, and that's a pretty good indication that they plan on rehiring those people, and those companies aren't going under.

We only actually had one company of size that the pandemic took down, and honestly, we already knew that they were in financial trouble before the pandemic ever started. And we actually had them on a watch list and in our forecast earlier in the year that they probably would not be here due to their own issues.

So in general, it hasn't been anything other than when you look at hospitality and some of those types of subverticals were hit much harder. If you look inside the white-collar business, clearly, not nearly to that degree.

There will be a knock-on effect, and as you heard Mike say earlier, there's -- you have the shallower and the steeper checkmarks, and I think he went through that already..

Right.

So in terms of -- when you look at -- and again, it's probably way too early to really reflect on this in any detail, but do you have any sense for how -- for the few small businesses that actually got stimulus money, how it's being deployed?.

We have seen that -- we have seen some -- in some cases, they ask for a unique bank account so they can track it so that they can be in compliance. We helped them set that up. The company did a great job in doing a lot of videos and telecoms for them so that people could understand how it would work and what the rules were.

Depending on the banks, a lot of banks ask for it to be uniquely separated, and we did that with them. So we have an idea. It doesn't mean everyone did it, but there were a fair amount that did that. And we were able to do all of that for them, which I think was very helpful for a small and medium business..

Right.

But have you seen any of the resources being deployed yet and how it's being -- are they really retaining people? Or are they just bankrolling it? What are they doing with it?.

The majority of it has to go towards payroll, so that's the answer..

Right. Okay. So we haven't then seen it.

I guess what I'm trying to understand is have we seen the impact of the stimulus money yet on the WSE retention? Or is it too early?.

We're just starting just within the last week or so..

Okay. And then in terms of hospitality and travel, I know it's embedded in.

And did you say that now Main Street's 20% of revenue? Did I hear that right?.

It's drifting down to that area, correct..

Okay.

How big should we think kind of now that we're into this? How big is hospitality and travel now?.

Not large. It wasn't -- low single digits of the installed base. So it was never a big part. I think we should remind everyone on the call when we went through the SOI migration, and we repriced everyone to risk, a lot of people that had maybe looking for cheap insurance had moved on.

So we sort of already took that pain for a lot of those industries that are now suffering due to the pandemic. So our book of business, you see that in our PEPM, as an example, is higher, and you just -- in how long and how well we're doing with our annual renewals.

Because the renewals also tended to be more around Main Street, left much more often than the rest of the white collar..

Got it. And then just one last thing, and it really is both on sales and backlog conversion.

So have you -- the business that you sold last year that would have come on in the March quarter, did the vast majority, since March and June, I believe, are the bigger seasonal quarters for onboarding new clients, did most of that new business come on as planned? Or did some of that -- or a large chunk of that get deferred out?.

No. That all came on as planned. The only deferral that we saw was really the very tail-end of March as a pandemic was starting to really surface. There were some transactions where people wanted to do more of a wait and see..

Got it. And then similarly, as you think about your sales cycle, I don't know, Burton, if you can think out loud in terms of -- because you do have 2 different markers out there in terms of how long this goes on for.

How we should think about -- at what point do you really start materially impacting 2021 if things don't get better and sales stay kind of where you'd expect them to be somewhat depressed?.

So we are still -- this is Mike. So we are still working on making sure that our sales force is well-trained and that they are productive. As I said in the guidance, clearly, we're going to have a very depressed Q2 and Q3, and I think that we're still focused on long-term investments and adding to the sales force carefully and prudently over time..

Well, I guess, really wasn't -- it's really a question, Michael, when -- at what point in the year does it become difficult to sell into the new year? Or are new clients starting up kind of pro rata through the year, so it really doesn't have a material impact? Just trying to get a sense for when 2021 becomes really difficult based on your inability to get people to make decisions?.

So David, I've never seen anything like this before, obviously. The model is showing tremendously well with the existing customers. The ability to get referrals will be better based on our ability to help these customers survive. The pipeline is growing, but I don't know what the drop-dead day is going to look like as far as impacting 2021.

Conversations are meaningful. People are talking on the phone. The marketing campaign is working as expected. The branding campaign, I've been absolutely thrilled with. So we'll just have to wait and see. This is the data we have today, and we're trying to be as transparent as possible..

And our next question is a follow-up from Tien-Tsin Huang from JPMorgan..

I just had one longer-term question for Burton, if you don't mind.

Just your thoughts on demand for outsourcing and PEO once we move beyond the pandemic, which hopefully sooner rather than later, but just your thoughts in general about how structurally demand might change for PEO services?.

Yes. Tien-Tsin, obviously, I'm focused on TriNet and not the overall industry. But as I've said, I'm really proud of the ability to use scale to have an impact on these small and midsized businesses. And this is across the board. It has to do with information. It has to do with digesting and disseminating legislative information.

It has to do with the loan process. It has to do with the insurance, both for existing WSEs as well as furloughed or WSEs that have left. So I am optimistic about the ability of TriNet to have an impact on its existing and future clients.

I'm particularly thrilled with the way the TriNet team has switched to this issue and addressed it meaningfully for the customer base. So it's hard to tell. But obviously, the variable cost model of a PEO may be looked at as we move forward in this particular situation..

And ladies and gentlemen, this concludes today's question-and-answer session and today's conference. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful evening..