TriNet Group, Inc. (NYSE:TNET) Q2 2025 Earnings Call Transcript

TriNet Group, Inc. (NYSE:TNET) Q2 2025 Earnings Call Transcript July 25, 2025

TriNet Group, Inc. beats earnings expectations. Reported EPS is $1.15, expectations were $1.

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

Alex Bauer: 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 second quarter conference call and webcast. I’m joined today by our President and CEO, Mike Simonds; and our CFO, Kelly Tuminelli. Before we begin, I would like to preview this morning’s call. I’ll first pass the call to Mike, where he will comment on our second quarter performance and discuss our progress on our strategy and medium-term outlook. Kelly will then review our Q2 financial performance in greater detail. Please note that today’s discussion will include references to our 2025 full year financial outlook or medium-term 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 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 or will be available on our website or through the SEC website. With that, I will turn the call over to Mike. Mike?

Michael Quinn Simonds: Thank you, Alex. In a quarter marked by significant market and economic volatility, TriNet delivered financial and operating performance consistent with our expectations, which allows us here at the end of the second quarter to reiterate our full year outlook. While there are several areas we are working quickly to improve, overall, I’m pleased with our results and with the execution of our plans to reposition TriNet for long-term profitable growth. Our first priority is to deliver strong service and retain our customers as we reprice our benefits offering to account for the sustained health care cost trends being experienced across the market. We are on track with these efforts. Second, we are investing in our distribution capabilities and benefits offering in advance of the fall selling season, targeting improved momentum on the new business front.

Importantly, even as we improve our service, distribution and offering, we continue to deliver prudent expense management and gain efficiencies, freeing up resources to reinvest in the business, and building confidence in our team’s ability to execute. The challenging market and economic environment resulted in weaker business sentiment once again, impacting sales conversion rates and customer hiring. This reality underscores the importance of the investments we’re making to differentiate our offering and go-to- market approach heading into our fall selling season. I’ll touch on our progress with these changes in just a minute. Before I go deeper into our financial and operating performance, I want to reiterate our strategy, which frames how I talk about our business.

Through the execution of our medium-term strategy, we intend for total revenues to achieve a compounded annual growth rate of 4% to 6% and our adjusted EBITDA margins to expand to 10% to 11%, which taken together will ultimately drive annualized value creation of 13% to 15% through earnings growth supplemented by share repurchases and dividends. Beginning with revenues, our second quarter was in line with our plan, and we continue to expect full year 2025 total revenues to be in the range of $4.9 billion to $5.1 billion. The key drivers for revenue growth remain health plan fee increases, strong customer retention and new sales growth emerging later in the year. While our full year forecast assumes net customer hiring will remain low throughout 2025, it’s worth noting we did see improvement in customer hiring this quarter, up about 0.5 percentage point over prior year.

This second quarter is our most impactful customer hiring quarter, and this is the first Q2 in several years where we’ve seen year-over- year improvement. The second quarter also represents a modest 3-quarter positive trend in year-over-year CIE. We will watch closely to see if this positive trend continues in the coming quarters. Kelly will speak to some of the underlying drivers of CIE in her remarks. In terms of insurance revenues, we made further progress with our health plan fee increases during the quarter. We are balancing our need to reprice and improve our insurance cost ratio with our focus on retention and supporting our customers through this challenging environment. As a point of reference, during the second quarter, we realized an average increase in health fees per enrolled member of roughly 9% when compared to prior year.

This is after planned design buy-downs, which clients use to manage the fee increases and effectively reduces risk to TriNet. On a risk-adjusted basis, we are achieving the pricing levels needed to improve our insurance cost ratio as planned. As I noted on our last call, we achieved our pricing targets with strong retention for our April 1 renewal. Similarly, our July 1 renewals have gone well. Thanks to the strong execution of my colleagues, retention remains above our historical average, both in our year-to-date results and in our outlook. As you might expect, combined with an uncertain economic environment, our health plan fee increases have created a headwind for sales when compared with last year. That said, the quality of the new customers coming on is strong with a higher percentage falling into our targeted verticals and with sustainable insurance and professional services pricing.

We remain confident that as we move through the second half, new sales will begin to improve on a year-over-year basis. Part of this confidence is based on the encouraging results of market testing with our new health plan offering. Our new benefit bundles leverage our broad and growing set of carrier partnerships and plan designs paired with our proprietary data to create new combinations that meet customer needs for coverage and price and have the important added benefit of simplifying the sales process. I mentioned that our carrier partnerships are growing. We regularly look at the health insurance options in each of our markets and target the leading carriers with the best plans and the strongest networks. As we head into our fall selling season, we are adding attractive new options in markets which represent strong growth opportunities.

Our growing confidence in new sales is also based on the expansion of our go-to-market approach. We’ve established preferred broker programs with several national partners where we have aligned on new sales and retention targets as well as created dedicated quoting, sales and service teams. Beyond our national partnerships, we also increased our outreach, simplified the onboarding process and enhanced compensation for local brokers. As a result of these efforts, we are beginning to see encouraging growth in the number of local brokers using our platform. For our direct channel, we are launching new AI-enabled prospecting tools and have made several improvements to simplify and streamline the selling process for our reps. Our average median tenure continues to grow as we’ve had good success retaining our most tenured people.

Finally, perhaps some of you have noted our new marketing campaign, your path, our purpose, which highlights a number of TriNet’s amazing clients and the work we do in enabling them to grow their business. We have a great story to tell, and it’s gratifying to see the positive response in both our direct and brokerage channels. Overall, we are in a much improved go-to-market position as we enter the fall selling season and indeed, we are already seeing strength in new business proposals for 3Q. Returning to our medium-term strategy. The second feature is achieving our target margin of 10% to 11%. And on this front, I’m pleased with both our disciplined approach to managing our insurance cost ratio and continued strong expense management. As mentioned earlier, we are achieving our health plan fee targets.

The investments we made in insurance expertise, improved forecasting and more disciplined process management are paying off. We now have — we’ve observed more than 6 quarters of stable, albeit heightened health care claim cost increases and our confidence that the adequacy of our fee levels continues to strengthen. We are on track to deliver our forecasted 2025 insurance cost ratio and carry momentum into 2026, bringing us back into our long-term targeted range of 87% to 90%. Our other major lever for achieving our margin target is expenses. And for the second straight quarter, expenses declined year-over- year and outperformed our forecast. We continue to benefit from our application of technology to our business processes and from our talent optimization.

On the talent front, next month, we opened our new Atlanta office. This office is central to our effort to build a stronger hybrid in-office culture, supportive of talent development and enhanced collaboration, all happening in the middle of one of the fastest-growing regions in the U.S. We are excited about TriNet’s future, and this office represents a significant investment in that future and our ability to invest even while improving margins overall. Our strong expense management and in-line insurance cost ratio allowed us to continue our history of deploying capital through dividends and share repurchases while still investing in growth. In summary, having reached the midpoint of 2025, I’m pleased with our increasingly predictable results and stronger execution.

We are on track to introduce our product and go-to-market improvements for our fall selling season. We continue to price to risk, balancing the needs of our customers with our goal of returning our ICR to our target range. And we continue to optimize our business, gaining efficiencies while investing in talent and technology for the future. With that, let me pass the call to Kelly for her financial review. Kelly?

Kelly Lee Tuminelli: Thank you, Mike. We’re pleased to see second quarter earnings in line with expectations. We are successfully repricing our benefit offerings, positioning us to return to our targeted ICR range in 2026. Like first quarter, these repricing efforts, coupled with the uncertainty in the economy created a headwind for sales and retention. It’s important to note that we’re still on track to achieve our historical retention rate of 80% or better. We remain disciplined in our expense management, while balancing the need to invest in initiatives to grow our business profitably as outlined in our medium-term strategy. As we look to the second half, we’re positioned to improve go-to-market efforts and achieve our full year earnings guidance.

Total revenue was flat in the second quarter on a year-over-year basis. Total revenue performance in the quarter was supported by insurance repricing and interest income. Interest income was higher than originally forecasted, driven by increased balances attributable to the timing of tax refunds. Timing of these refunds are intermittent and difficult to predict. Customer hiring was slightly better than our overall estimate and supportive of total revenues. However, overall WSE volume declined due to customer attrition that was higher than new sales proving to be an overall headwind to revenue growth. We finished the quarter with approximately 339,000 total WSEs, down 4% year-over-year and 309,000 co-employee WSEs, down 8%. The decline in co-employed WSEs was driven by reduced new sales when compared with the prior year and higher overall attrition with the incremental attrition driven largely due to healthy increases.

Similar to our Q1 experience, we faced a difficult Q2 sales comparison as we were operating in a much different expected health cost environment last year, and we’ve sharpened our pricing discipline to reflect higher observed trends. Retention of coemployed WSEs was lower this quarter by approximately 1.5 points when compared to the prior year. Given our repricing efforts, we are pleased with our overall retention rates and we remain on track to beat our historical retention benchmark. As Mike noted, we experienced growth in CIE in the quarter. Historically, we’ve seen strong seasonal customer hiring in the second quarter as customers hire recent college grads or staff up for the summer months. And this year, we saw that trend once again. Unique to this year, our existing customers reduced the number of gross reductions in force across their employee base.

The combination of hiring with customers holding on to more of their employees resulted in improved net hiring across nearly all of our core verticals with technology, financial services and nonprofit standing out. So again, while we’re encouraged to see some improvement with customer hiring, total CIE in the quarter was about half a normal pre- COVID quarter. And given the broader environment, we are maintaining our current full year CIE forecast of very low single-digit contribution. Professional services revenue in the second quarter declined 8% year-over-year largely due to 2 main reasons, including lower WSE volumes as well as the discontinuation of a specific client level technology fee. Professional services revenue was supported by mid- single-digit pricing strength.

HRIS fees and ASO revenues, including those resulting from HRIS conversions, decreased slightly year- over-year as the company transitions away from a SaaS-only solution. The ASO conversion rate exceeded initial forecast indicating ongoing demand for services that partially mitigated the impact of reduced PEO volume. Total insurance revenue grew 1% in the second quarter. We are seeing the impact from our benefit repricing efforts as revenue per average enrolled member has increased by approximately 9% year-over-year. We expect sustained positive results from these repricing actions in the second half of the year, positioning us to achieve our targeted ICR range in 2026. Total insurance costs grew in the second quarter to 3%. As a result, our second quarter insurance cost ratio came in at a little over 90%.

The ICR was slightly higher than we were originally expecting during the quarter, driven by a higher proportion of older health claims submitted this quarter that were incurred in early 2024, which was an anomaly relative to historical lag periods. We also faced an approximately $20 million or 2-point ICR headwind when compared to the last year from an outsized workers’ comp reserve release in Q2 2024. With the mix of our current book and smaller remaining reserves, we expect fewer major reserve releases moving forward. Taken all together, we’re encouraged by the trends we’re seeing that position us well to return to our targeted ICR range in 2026. Second quarter operating expenses were down 2% year-over-year. We continue to manage expenses tightly as we benefited from further automation and our workforce strategy.

While we prudently manage expenses, we continue to reinvest a portion of the savings into our medium-term strategic initiatives driving growth and improving our customer experience while also investing in process efficiencies. Second quarter GAAP earnings per diluted share was $0.77, and our adjusted earnings per diluted share was $1.15. During the quarter, we continued with strong cash generation. We generated $105 million in adjusted EBITDA, representing an adjusted EBITDA margin of 8.5%. Operating activities in the first half generated $170 million in net cash and $136 million in free cash flow. Our first half 2025 free cash flow conversion ratio was 51% and in line with our 2025 plan. As we look over the medium term, our business will benefit from operating leverage.

As earnings accelerate through revenue growth and our ICR returns to our targeted range, we expect our free cash flow conversion rate to improve to our 60% to 65% target. Now turning to capital actions. In the quarter, we paid a $0.275 dividend per share, representing a 10% increase year-over-year. In total, we’ve deployed just over $117 million to shareholders through the first half or 87% of free cash flow ahead of our annual 75% target. Earlier in July, we did repay our outstanding balance of $90 million on our credit line, getting us closer to our targeted leverage ratio of 1.5x to 2x adjusted EBITDA. Our capital return priorities for 2025 remain consistent. We aim to deliver shareholder value through continued investment in our value creation initiatives, funding dividends and share buybacks and maintaining a suitable operating liquidity buffer.

Turning to the 2025 outlook. Based on second quarter performance, the full year guidance remains unchanged and earnings are currently tracking modestly above the midpoint of the projected range. As a reminder, for 2025, we expect total revenues to be in the range of $4.95 billion to $5.14 billion. We expect professional services revenue to range from $700 million to $730 million. our insurance cost ratio to be in the range of 90% to 92% and our adjusted EBITDA margin to be from just under 7% to approximately 8.5%. Finally, we expect GAAP earnings per diluted share to be in the range of $1.90 to $3.40, and adjusted earnings per diluted share to be $3.25 to $4.75. In conclusion, we had a good second quarter. We had 2 abnormal and largely offsetting impacts to earnings, strong interest revenue and older health claims.

Setting these items aside, we’re confident that our earnings are tracking modestly above the midpoint of our range. We are advancing initiatives designed to enhance our offerings, all aimed at driving profitable growth efficiencies and returning us to our targeted insurance cost ratio range by 2026. We are well positioned for the second half of the year, and I’m proud of the continued execution by our dedicated colleagues. With that, I’ll pass the call to the operator for Q&A.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Jared Levine with TD Cowen.

Jared Marshall Levine: I guess to start here, can you discuss how top of funnel activity and pace of prospective client decision-making has trended since 1Q, including your thoughts on relative impacts from the macro uncertainty versus the health care cost inflation?

Michael Quinn Simonds: Jared, thanks for the question. I appreciate it. I do think both of those factors were in play here in the first half in terms of new sales. We look at that funnel as you will, with various stages. And we’ve seen when it gets to the point of more sort of a pack detailed proposal, and it’s in the hands of the client. That’s where we’ve seen a lengthening in that sales cycle year-over-year. So that’s been certainly a contributor to it. The second piece is, as you mentioned, the professional and health fee pricing. And in general, I would just make sure that everybody realizes while we certainly have increased the outlooks and the application through our pricing process is really — we are still finding ourselves very much in the market.

We’re not putting prices out there that are terribly different than competition. It’s simply the year- over-year compare, the orientation that we had around health care fee increases and relative to competition is just materially changed. As we look forward, and I think this is really the important part at the funnel and how pricing is showing up relative to competition as we look at the capabilities now going into the market through the fall selling season. We’re really encouraged that we’re going to start to see an improvement in the year-over-year variances on the new business front.

Jared Marshall Levine: Great. And then in terms of sales headcount, good to hear that you’ve seen some traction in terms of retention on the tenured reps here. But I guess, how is sales headcount trending through 2Q here? And are you still targeting modest growth for the year?

Michael Quinn Simonds: Yes, great question. And really important, when you think about the productivity of our reps at 24 and really at 36 months is materially different. And the team has done a great job putting changes in place, and we’ve seen really good retention of those really valuable reps. That’s ultimately in the short to midterm. What’s going to drive capacity for us. And so I really don’t have capacity concerns here as we go into the important second half selling season. We did use the sort of the tail of last year and the first half of this year to retool how we go about our profiling, recruiting and training program. We’ve rolled out new approaches to that. We are now ramping up new rep hiring. I think we have a lot more confidence that those investments we’re making in new talent coming into the business today, we’ll see many more of them reach that 36-month mark.

So in aggregate, in absolute numbers, we’ve got a little bit fewer reps on the street today than we had a year ago. However, the capacity is in a very good place on the retention of senior reps, and I am very confident about the quality of the class that’s coming on here, and it’s going to help us through the ’26 and ’27 years.

Operator: Our next question comes from Andrew Nicholas with William Blair.

Andrew Owen Nicholas: Mike, you just alluded to it a little bit in the answer to your first question. But just on the competitive environment, it sounds like you’re relatively close to where others are from a pricing perspective. Are you seeing any actions or postures from competitors that are different versus last year in terms of how aggressive they are on price or what they’re doing to kind of win deals relative to what you’ve seen in the past?

Michael Quinn Simonds: Andrew, thanks for the question. When you have the macro that we’ve got with a little bit more uncertainty in it in terms of the economic outlook, certainly, it’s going to be a competitive market out there as people do compete for the business that does make decisions in the period. But I wouldn’t say anything abnormal. And I do think it’s worth noting, right? TriNet is a little bit different from most scale PEOs in that we’ve invested pretty, pretty significantly in our Insurance Services group added a good amount of talent and improved our discipline in the application of our improved forecasting. And we do that on a quarterly basis, right? And we’ve talked about that before but I think it’s an important point it certainly means that there’s a cohort of customers that we’re taking our very sort of most up-to-date point of view on health care and applying that through our fee at renewal time each quarter.

But we also do that with new business. So every 90 days, we’re adjusting our new business pricing and outlook. And so when you’re in an accelerated cost environment, I think TriNet is going to get there a little quicker in terms of adequately pricing our health fees. I think as we’re now starting to see more stability, albeit at a heightened level of cost inflation, I think we sort of see the market coming in closer to where we’re seeing things on a go-forward basis. So gets actually a pretty constructive environment here as we’re heading into the second half of 2026.

Andrew Owen Nicholas: Great. That’s helpful. And then maybe, Kelly, if you could speak a little bit more to health care trends in the quarter. I heard you on I think it was prior period development and that being a little bit onetime. But if you could speak to kind of what you’re seeing under the hood there in a little bit more detail, that would be helpful.

Kelly Lee Tuminelli: Yes. No problem at all, Andrew. What I would say in general on health care, we’re seeing some of the same similar trends. So from a large complex claim perspective, we did see a slight anomaly in the quarter, mainly with one specific carrier. And as I look at those and then we’ve had discussions actually with our other carriers as well, we don’t really see a backlog and see that largely as one time. So similar trends, pharma and kind of the mid-teens inflation rate and medical, high single digit, but right in line with our expectation other than the onetime claims.

Operator: Our next question comes from Kyle Peterson with Needham.

Kyle David Peterson: Great. I wanted to start out on kind of where client hiring and CIE trended throughout the quarter. It does sound like it came in a little better than you guys were originally budgeting for, which is great. But I guess, like was the improvement fairly linear and like was May better, or was May better than April and June better than May? Or was there a standout month in there, in particular, I guess that’s my main question was the trajectory there and if it was smooth or a little lumpier?

Kelly Lee Tuminelli: Great, Kyle, Happy to answer that question. When we looked at CIE, we had a similar question, honestly because we were hearing different soundbites as people were looking at labor data, et cetera. For us, it was pretty linear. So we really saw just steady CIE throughout the quarter. The bright spots really tech, particularly in like software as well as tech consulting, financial services, really more family office type things. And in nonprofit, both in schools and social advocacy organizations. So — but generally, we just saw steady Eddie a couple of hundred favorable to what our original expectations were.

Kyle David Peterson: Okay. That is really helpful and great to hear. And then I guess on the follow-up on the professional services revenue. I know there’s a lot of moving pieces there. But I guess, could you quantify the impact of some of the, whether it’s the ASO transition and/or like the Clarus divestiture. I just want to see like if you guys have like an apples-to-apples, at least for the Clarus impact, just so we can kind of see what the organic trend is there.

Kelly Lee Tuminelli: Yes. Well, when I look at professional services revenue year-over-year, probably the biggest decline in professional service revenue really relates to a client-specific level technology fee. So putting that aside, we pleased with the ASO conversion while we’re probably down about $1 million on HRIS in total, the mix is good and the conversion looks like it’s going well. And coming into the year, we really had expected about a $15 million to $20 million headwind on ASO and HRIS. And I’d really expect that to be probably about 5% better than what I initially expected there. And it’s really helping offset some of the volume impacts on PEO overall. And to answer your Clarus question specifically, I think we’re down about 2 really no Clarus revenue now, whereas we had about $2 million in the same quarter last year.

Operator: Our next question comes from Kevin McVeigh with UBS.

Kevin Damien McVeigh: Great. Congratulations, navigating a tough environment for sure. I guess I don’t know if this is Kelly or Mike but you reaffirmed the guidance again after kind of 2 beats. Is that just conservatism or maybe a little bit of shift in the back half of the year? How are you thinking about that? And then if it is a little bit of a shift, and can you dimensionalize where that sits primarily?

Kelly Lee Tuminelli: Great. Well, Kevin, we always have a level of seasonality within our business. And so pleased with the results so far. They’re just really — we see ourselves landing within the range overall. And right now, we’re tracking to modestly above the midpoint. So as I’m looking at the back half of the year, obviously, we expect a level of seasonality associated with the insurance cost ratio. But that’s really it. I’m pleased with the expense efficiencies, and I think we’re on track.

Kevin Damien McVeigh: Great. And then just the lay claims from ’24, I mean, I don’t typically remember something that far back. Can you help us maybe dimensionalize that a little bit, what it was? And then ready to think about how much impact the claims were in the quarter versus maybe the interest income versus the professional fees just to get a sense of — the absolute dollars against those 3 things.

Kelly Lee Tuminelli: Yes. Happy to talk about it. When I think about the lag claims, just to kind of reiterate the prior question or prior color question, we always have some older claims from 2024. Our lag factors do multiyear look back and evaluate that. These were just outsized with 1 specific area or some other complex lines that we normally don’t see in there definitely outsized for the quarter. It by and large offset the favorability in interest income. So within a couple of million dollars of the higher claims offsetting the higher interest income, we view those both as pretty much anomalous. From a professional services revenue perspective, we were right on track with our expectations. So I know we were a little bit above where I saw analyst consensus models for PSR. But in terms of the range that we gave, $700 million to $730 million, we see ourselves kind of landing somewhere in the middle there.

Operator: Our next question comes from David Grossman with Stifel Financial.

David Michael Grossman: I’m wondering, because of last year was somewhat of an unusual year and a lot of transitions in the business, can you review for us just some of the major comparison, the dynamics that we should think about as we go into the back half of the year, whether it be sales growth, WSE growth, margin dynamics, et cetera?

Kelly Lee Tuminelli: David, why don’t I take that? And then maybe Mike can come in over the top with anything I might miss here. But as we’re thinking about it being a transition year, we — our original forecast did assume WSEs are down. So as we were looking at the size of the health plan increases we had to put forward, we expected to have a level of attrition better than historical average but still a couple of points higher than what was really a record year from a retention perspective. From a sales perspective, we also expected that to be a little bit down because we had a little more, I’d say, realistic view on where health planning increases were going to be and what we have to do there from a new pricing perspective.

As I think about CIE, from a worksite employee perspective, we were expecting maybe slightly better. And frankly, that’s what we’re seeing. Still though, our forecast assumes low single-digit. We did — when we went into the year, I think I just mentioned we were expecting HRIS and ASO to be about a $15 million to $20 million headwind on professional services revenue, that’s probably looking more like $10 million, $10 million to $15 million at this point in time and other changes. And then from an expense perspective, we had indicated that expenses would be lower year-over-year, and we’re kind of outpacing the pace of automation and just efficiency overall. Interest income, that’s one I probably didn’t touch on, we expected rates to be maybe a little bit lower than they’re really trending right now and really hadn’t anticipated the accrued interest related to certain tax payments.

So that won’t be as much of a headwind year-over-year either. Anything you want to add, Mike?

Michael Quinn Simonds: Yes. No, I think you covered it well. I think the key point being the execution is there, and it’s encouraging. So it takes a little bit of time but it’s coming through. So the key quality metrics we talked a little bit about in the opening, seeing the health fee increases come through on a per member basis. We finally caught that cost trend. And so outside of the seasonality that Kelly talked about, we’re sort of right on track to head back into that historical range next year. And then certainly, the WSE is down. I don’t expect further degradation in terms of the year-over-year compare recall, we’re going into our [ 10-1 and 1/1s ] renewals, that’s about 70% of our revenue we’re going to renew in the second half of the year.

we had really put a more disciplined process in place with the [ 10-1 ’24 ]. That was our first quarter. So we’re kind of second time through there, and I think that bodes well in terms of striking that good balance of retention and staying ahead of that cost trend. So the quality underneath the volume I’m encouraged on as we go through the second quarter, and I think you’ll see that as the year-over-year compares.

David Michael Grossman: And Mike, you touched upon this in your prepared remarks, just in terms of your progress in the broker channel. And I think you were — if I heard you right, you were distinguishing between national and local brokers. Do you want to talk a little bit about at least what your expectations are in the back half of the year based on what you’re seeing? Is it really — is this really more of 2026 dynamic where you see kind of a bigger contribution for channel? Or is it realistic to expect that we could see some momentum in that channel in the back half of the year during the — obviously, your biggest selling season?

Michael Quinn Simonds: Yes. I fully expect it will be additive here, David, in the second half of the year. So we’ve put several national agreements in place. Those are starting to build real traction. We sort of put those agreements in place. And I think it’s important just to note that it’s both new sales and retention we’re looking to sort of build high-quality, sticky customer base over time with distributors that really sort of understand our value proposition and the quality that we’re trying to deliver. So I think particularly, we’re seeing it in the growth and proposals that we’re producing for that channel that’s already moving up. On the local level, that’s where we start to see the number of brokers using our platform has started to increase.

We’re sort of in the mid-single digits and year-over-year increase on that front already. So that’s quite encouraging. I think in terms of playing all the way through to WSE and professional service revenue growth. Certainly, that’s going to be tail end of the year and the January effect is we really start to see those — the closed business coming through in the financials. But I’d expect that momentum starts to build here actually in the second half of the year.

David Michael Grossman: Got it. And then just lastly, on — I think there’s already been some questions on the CIE growth. I’m just trying to recall, I think sorry, I got cut off a call for a few minutes, so maybe I missed this. But it sounds like the second quarter seasonality is related to summer hiring. Did I hear that correctly? And if so, what exactly can we — conclusions to draw from me being slightly ahead of plan? Because I think contrary to some of the other small business kind of employment trends that are out in the marketplace that we’ve seen that, or maybe the bar was really low. It could be that as well. I’m just trying to better understand whether there is much to read into the fact that CIE was slightly better.

And I know — and also maybe in the context of that response, maybe you could talk a little bit whether or not it’s unique to try to — you’re over indexed, obviously, to Bay Area hiring in the tech sector or maybe that just got less worse. So just again trying to understand that dynamic.

Kelly Lee Tuminelli: Yes, David, it’s a great question. And as we’re looking at kind of peeling apart the underlying data associated with CIE, you’re right from the standpoint of it is a low compare. It’s about — the CIE was favorable to our expectations by a couple of hundred. So we’re not talking a huge number. And that’s why our outlook is still low single digit. But really what we saw wasn’t as much as seasonal hiring, but really just fewer layoffs. And so as we look at kind of the pieces of who’s hiring and who’s reducing, we’re seeing a trend of kind of fewer people being let go, which I think is a positive trend overall. And we did see that sort of steady through April, May and June. Regarding verticals, both financial services and tech were pretty strong on a percentage basis, also nonprofit but it is a smaller vertical for us, so it didn’t have as much of an impact on the total number from a CIE perspective.

The hiring in Main Street, it was a little lower than that, but still it’s a little bit bigger vertical, so it made up more. But I would say probably half the hiring Main Street was more seasonally related with things like hospitality.

David Michael Grossman: Perfect. And then — I’m sorry, I had one other thing I just wanted to ask, are the outsized larger claims related to the changed health care situation where processing is getting caught up to where it should be and some older claims are coming in? Or — because I know you said it was related to 1 carrier. I’m just wondering if that’s it or whether just totally unrelated.

Kelly Lee Tuminelli: Yes. David, we sort of had that hypothesis as we were looking into it as well, but we really haven’t found any evidence to indicate that. so we did want to make sure that we spend the requisite amount of time with each of our carriers to really kick the tires around backlogs and processing times and any differences that we needed to pick up on. But since it was really isolated to one of our carriers, I feel pretty good about it is an anomaly in the quarter for the most part. It was about 1/3 larger than we would normally see, which is definitely outsized from what we would see in any month.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Mike Simonds for any closing remarks.

Michael Quinn Simonds: Thanks, Meghan, and thanks, everyone, for joining. Encouraged by the results here at the midpoint and hopefully, you pick up a sense of confidence from us and the building momentum in the business, and we very much look forward to keeping you posted in the coming quarters. So Megan, with that, we can conclude the call.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.