TriNet Group, Inc. (TNET) on Q4 2021 Results - Earnings Call Transcript
Operator: Good afternoon and welcome to the TriNet Fourth Quarter and Full-Year 2021 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Alex Bauer. Please go ahead.
Alex Bauer: Thank you, operator. Good afternoon and welcome to TriNet’s 2021 fourth quarter conference call. My name is Alex Bauer, and I am joined today by CEO, Burton M. Goldfield; and our CFO, Kelly Tuminelli. Before we begin, I would like to say a few words about forward-looking statements and our use of non-GAAP financial measures. Please note that today's discussion will include our 2022 first quarter and full-year financial outlook and other statements that are not historical in nature, are predictive in nature, or depend upon or refer to future events or conditions such as our expectations, estimates, predictions, strategies, beliefs, or other statements that might be considered forward-looking. These forward-looking statements are based on management's current expectations and assumptions and are inherently subject to risks, uncertainties, and changes in circumstances that are difficult to predict and that may cause actual results to differ materially from statements being made today or in the future. Except as may be required by law, we do not undertake to update any of these statements in light of new information, future events, or otherwise. We encourage you to review our most recent public filings with the SEC, including our 10-K and 10-Q filings, for more detailed discussions of the risks, uncertainties, and changes in circumstances that may affect our future results or the market price of our stock. In addition, our discussion today will include non-GAAP financial measures, including our forward-looking guidance for adjusted net income per diluted share. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release, 10-Q filings or 10-K filing, which are available on our website or through the SEC website. With that, I will turn the call over to Burton. Burton?
Burton Goldfield: Thank you, Alex. In terms of financial and operating performance, TriNet’s fourth quarter was an exceptional quarter, capping off an exceptional year. 2021 was the strongest year in TriNet’s history and pivotal for our company. In the fourth quarter, we delivered 16% year-over-year total revenues growth, and for the full year, we grew total revenues by 13%. We converted our strong organic revenue growth into tremendous earnings growth as we remain disciplined while managing our cost structure and systematically pricing our customers to risk. As a result, in the fourth quarter, we tripled our GAAP EPS to $1.03 and more than doubled our adjusted net income per share to $1.13. For the year, GAAP earnings per share came in at $5.07, up 27%, while adjusted net income per share came in at $5.64, up 27%. Strong cash generation in the quarter added to our already healthy balance sheet and our board has increased our share repurchase authorization by $300 million. So as of today, we have repurchase capacity of more than $500 million. TriNet finished 2021 with approximately 365,000 WSCs, up 10% year over year. This WSC count represents an all-time high for our company. Our growing resilient customer base comprised of SMBEs in our core verticals of technology, life sciences, financial services, professional services, non-profits, and select Main Street SMBs were critical in driving TriNet’s financial performance. These clients continued to hire at an accelerated rate. This hiring is similar to the prior quarter, Q3 2021. Furthermore, we realized increasing new sales volume and retention came in in line with our Q4 internal expectations. At the start of the pandemic, the management team and I evaluated the changing market dynamics. We executed bold moves, including increasing investments in our verticalized customer acquisition strategy, and customer service approach, strengthening our tech platform, and identifying inorganic opportunities to expand our total addressable market. Additionally, we benefited from consistently lower than forecast insurance cost ratios as the utilization of health services remained suppressed. We were able to positively impact customer retention by creating innovative, customer-centric programs, such as our industry-leading recovery credit programs. These programs return funds to customers at a time when it was needed most during the height of the COVID-19 pandemic. These programs were possible because of our approach to designing the risk construct of our plans and pricing our customers to risk. We believe our approach is unique in the industry, and there is no doubt that it allowed us to positively impact our customers in a very unique way. Turning to 2022 in the future, we have positioned TriNet for the next phase of growth beyond the pandemic. I want to spend the rest of my time today expanding on this by addressing what I am seeing in the market based on our direct experience with over 16,000 SMBs and the evolving customer lifecycle and how TriNet will continue to impact future growth of SMBs through our combined PEO/HCM offering. I am passionate about the American small and midsize businesses, and I believe the future of the SMB market is brighter than it has ever been. I am confident the SMB market growth that we have experienced firsthand will continue for the foreseeable future. However, SMBs are seeing no relief from increasing regulatory complexities and the acquisition and retention of key talent remains a challenge. The landscape surrounding the state of the workforce and the way we work in America has changed inexorably during the COVID-19 pandemic. Employees are exhibiting greater agency over where they want to physically work; employers are accommodating these requests. This trend creates added complexity such as filing payroll taxes and ensuring HR compliance in multiple jurisdictions. Other new employment trends such as the Great Resignation are adding additional challenges. This is reshaping the competitive landscape for talent and therefore also the business landscape. My perspective is that rather than being the Great Resignation, what we are experiencing today is the Great Reevaluation. People feel more empowered to take stock of their situation and evaluate what they want out of life. This has created a greater willingness to make a career change. TriNet is in a unique position to help SMBs with the cultural, technological, and compliance-related support to allow our customers to be the beneficiaries of these reevaluations as they aggressively compete for this talent. The strong employment growth in our installed customer base reaffirms that TriNet customers have successfully competed for talent and grown their organizations during this difficult period. Ultimately, TriNet strives to serve our customers throughout their entire business life cycle. This includes bringing them in earlier and keeping them longer. Importantly, a customer's life cycle is rarely a simple process of growing from small to medium to large, as measured by employee count or gross revenue. Moving to a multi-state workforce, changes in growth rates or funding strategies and difficulty in hiring specific talent are examples of the types of complexities that SMB has experienced. I believe that TriNet PTO construct has a unique advantage over all other SMB, HCM product offerings for a particular set of SMBs. The component legal construct, including our assumption of certain liabilities continues to be a powerful growth and risk mitigation lever for SMBs who adopt this model. However, as customers grow, there’s a heightened interest in transitioning from the PEO model because of either their scale or their global aspirations. Last month, in January, TriNet saw this dynamic materialize at a higher rate than we have historically seen based on the changes in the growth and complexity that occurred during the pandemic. On one hand, I celebrate their success but on the other hand, I can no longer accept valued customers growing out of us without a compelling alternative solution. Two wonderful customers embody this dynamic Beyond Meat and Tonal. Beyond Meat e is an innovative alternative protein company. The company went public in 2019 and enjoys a market capitalization in excess of $3 billion. Beyond Meat grew tremendously with TriNet but in recent years, their business scaled sharply and their workforce expanded internationally. As such, Beyond Meat left TriNet. Having grown together for nearly 10 years, we wish them nothing but future success. Tonal is a fast-growing digital fitness company, innovating the workout experience by leveraging technology for both the machine and the user experience. Tonal’s rapid growth and expansion necessitated a more customized platform to accommodate a global workforce. We were so pleased to have grown with Tonal over the last six years and facilitate their growth. As Beyond Meat and Tonal move on, I want to reiterate my gratitude for our wonderful partnership over so many years. These relationships and a desire to serve these customers longer by providing a broader set of capabilities led directly to the pending acquisition of Zenefits, expected to close in the first quarter. Zenefits is a leading cloud native human capital management software solution for SMBs. Through a centralized and highly scalable platform with modern consumer-like user interface, Zenefits is a complete HCM suite. The addition of this HCM software product to TriNet will allow us to address the opportunity to increase our ability to serve our addressable market, as well as providing optionality to our existing customers throughout their life cycle. Ultimately, we view HCM software and the PEO offering as complementary with an opportunity to further leverage our scale in service of our customers. To be clear, this scale can be measured in different ways, but it’s directly related to a combined customer base exceeding 23,000 clients and a workforce of more than 600,000 at the completion of the acquisition. Over time, we will work to evolve our platform to provide seamless, configurable access, allowing our customers greater optionality with respect to the services we offer. We will be in a position to address clients earlier in their life cycle and provide services as they continue to grow. Importantly, the Zenefits acquisition will enable us to more effectively go after the entire SMB TAM. The combination of TriNet and Zenefits should generate product and go-to-market synergies across the near, medium, and longer term. In the near-term, we will leverage our complementary marketing funnels and brand reach to present the best solution that meets the prospects needs. We believe we will benefit from this efficient go-to-market approach as we align prospects by product fit. We will leverage technology throughout the process, which should yield higher close rates. This is complementary to the current Zenefits go-to-market strategy that leverages technology and will thrive when it scale. In fact, they offer an easy to use user interface and a self-directed implementation. In the medium term, we see real opportunities as we align product capabilities to better serve our customers throughout their lifecycle. For example, Zenefits offers a robust digital benefit broker solution, an exceptional health benefits administration platform that were both created with the SMB in mind. We believe these will augment and complement trying its own strong health and welfare offerings. In the long term, the combination of TriNet and Zenefits creates the opportunity for TriNet to become the leading technology solutions provider for SMB human capital management, with and without the PEO construct. Our vision for TriNet and Zenefits is to eventually offer HCM and PEO side by side with the same cloud-based technology stack. We intend to leverage technology from both companies and meet the diverse needs of all of our customers. This vision includes the use case where a dynamic TriNet customer can move between HCM software-only and the PEO construct as their complexity and growth dictates. With the acquisition of Zenefits, TriNet is doing what no other HCM software solution is doing, combining a contemporary software product with an already scaled and successful PEO legal construct and service model. At TriNet, people matter is about putting human back into human capital management with the customer at the center of everything we do. We are excited to welcome the Zenefits team to TriNet. They bring additional innovation and entrepreneurial spirit to our company. We have strategically positioned TriNet for our next phase of growth. We look forward to updating you on these initiatives over time. With that, I will pass the call to Kelly for a review of our financials and our 2022 guidance. Kelly?
Kelly Tuminelli: Thank you, Burton TriNet’s fourth quarter results capped off a year of extremely robust growth and financial performance. We finished the year with a strong revenue and earnings growth, our highest ever WSE count, and significant operating cash flow, which enabled us to announce both the acquisition of Zenefits and an increase in our share repurchase authorization to over $500 million. We are well-positioned to pursue our strategy and sustain our growth. During the fourth quarter, total revenue increased 16% year-over-year, outperforming the top end of our guidance range by 2 percentage points. For the full year, we grew total revenue by 13%, also exceeding guidance. The outperformance in total revenue for the fourth quarter and the full year was driven by growth in WSEs from strong hiring within our installed base, as well as an increase in net new sales. And we also had continued high health participation by our WSEs. Professional service revenues in the quarter grew 23% year-over-year, exceeding the top-end of our guidance range by 3 percentage points. For the full year, professional services revenue grew by 17%, also above the top end of guidance. This growth in professional services revenue for the fourth quarter and full year was driven by a few factors. First, our year-over-year average volume growth of 10% for the quarter and 5% for the year reflected strong hiring, driven primarily by our technology, life sciences, and financial services verticals. Second, professional services revenue benefited from 10% growth in rate for the quarter and 9% for the full year. Like last quarter, rate growth saw a meaningful contribution from our efforts to achieve a minimum price with our smallest customers to align with the cost to serve those clients. We are near the end of our efforts to raise minimum and now expect this to be largely incorporated in our overall rates and rate strategy going forward. Professional services revenue also benefited by 2% during the quarter versus Q4 2020 as last year's recovery credit accrual did not recur. For the fourth quarter, our insurance cost ratio was 88.7% lower than our forecasted range for the quarter of 92% to 94%. For the full year, our insurance cost ratio was 85.6%, also slightly lower than our forecasted range for the year of 86.5% to 87%. The lower insurance cost ratio versus our estimate was largely due to two factors. First, elective procedures remained suppressed versus forecasted due to the continued impact from the COVID-19 Delta variant early in the quarter and the emergence of the Omicron variant later in the quarter. While we did see a moderate spike in COVID testing and direct care claims during the quarter, these costs were more than offset by lower utilization. Second, we benefited from additional workers’ compensation revenue given strong client growth, as well as wages and bonuses increasing for our WSEs. Regarding our operating expenses, we were modestly lower than our expectations for Q4 and continue to grow at a lower rate than our revenue, leveraging the scale of our operations. Now to earnings per share, fourth quarter net income per diluted share exceeded guidance by $0.63 to $1.03, more than tripling year-over-year. This brought our full-year GAAP net income per diluted share to $5.07, up 27% versus 2020. Fourth quarter adjusted net income per diluted share exceeded guidance by $0.53 to $1.13, more than doubling year-over-year. This brought full-year adjusted net income per share to $5.64, also up 27% versus 2020. Our exceptional operating performance generated over $400 million in corporate operating cash flows and $565 million of adjusted EBITDA for the full year. This left us with over $600 million in corporate cash and positions us with an even stronger balance sheet poised to take advantage of strategic opportunities. Our capital priorities remain unchanged. We invest in our business for both organic and inorganic growth to take advantage of opportunities to grow TriNet, and we return cash to shareholders to maintain an efficient balance sheet. Both the announcement of the Zenefits acquisition and the $300 million increase to our share repurchase authorization are consistent with these priorities and highlight the continued strength of our balance sheet. Turning to Zenefits, Burton walked you through the strategic intent and fit of Zenefits, including how it fits within our overall product offering and how we believe it will accelerate our efforts to serve our customers throughout their lifecycle. I want to now take you through some of the financial aspects of the acquisition. In our 10-K filed after market, you will find that our purchase price of approximately $220 million is made up of approximately $200 million in cash and $20 million in stock. Given our debt restructuring in 2021 and our strong cash generation, we will be using cash on hand to purchase Zenefits. An exciting opportunity with Zenefits is for TriNet to capitalize on our strong brand and utilize more of our marketing lead funnel. In other words, we can capture a larger portion of the SMB market than we would have otherwise. We're also excited by the opportunity for platform development and in a smaller way, leveraging back office support. We believe Zenefits will ultimately provide mid-teens return on invested capital. Before going into our 2022 outlook, I want to share some of the preliminary estimates for what we see as Zenefits contribution for 2022, recognizing we have yet to close the transaction. We expect Zenefits to contribute approximately $40 million to professional services revenue this year, assuming the transaction closes soon. As we pursue significant top line growth at Zenefits, we anticipate a moderate operating loss for the first few years. We believe the Zenefits business can be EBITDA breakeven by the third year and accretive on that basis thereafter. For 2022, we estimate Zenefits will reduce TriNet’s adjusted net income per share by between $0.20 and $0.25 or roughly $0.06 to $0.07 per quarter. This estimate may be refined after the transaction is closed and purchase accounting is completed. Finally, we estimate Zenefits integration costs to be between $40 million and $50 million before taxes in 2022. Given these costs are relatively onetime in nature, we do expect to exclude these costs from non-GAAP adjusted net income per diluted share. Now, let's turn to our 2022 first quarter and full-year outlook, which excludes the numbers I just mentioned related to the acquisition of Zenefits. I will provide both GAAP and non-GAAP guidance. Overall, when we look at 2022, we believe the fundamentals of our PEO business will remain strong. Client hiring will continue to be robust as the economy fully recovers and grows, but moderate somewhat from the record levels we saw in 2021. As Burton mentioned earlier, we are anticipating attrition in 2022 to increase versus the very favorable rates we saw in 2020 and 2021. We anticipate returning closer to a pre-pandemic range as more of our largest clients that grew significantly during the pandemic graduate from the PEO model. In addition to the graduation of our largest clients, we expect to see continued elevated levels of M&A activity and IPOs. As a result, our volume forecast incorporates our anticipation of these ongoing trends. We expect to continue to optimize service prices at or above our costs given continued product enhancements. And as a result, we expect to maintain strong margins with a more normalized insurance cost ratio. As we enter 2022, health experts have indicated the virus will become endemic. We believe this will ultimately lead to a return to a more historical insurance cost ratio range for us as routine care and elective procedures gradually resume. Turning to the first quarter of 2022, we expect total revenue growth to be in the range of 11% to 12% year-over-year and professional service revenue growth to be in a range of 16% to 17% year-over-year. This revenue growth reflects our strong finish to 2021 and the benefit of a higher ending WSE base. In Q1, we expect health care utilization to continue to remain below historical averages, especially early in the quarter as the Omicron variant peaked. This will result in a continued lower than normal insurance cost ratio of between 82% to 85% in the first quarter. This brings our estimate of first quarter GAAP net income per diluted share to be in the range of $1.71 to $2.03 per share in the first quarter adjusted net income per diluted share to be in the range of $1.89 to $2.22 cents per share. Regarding our full-year 2022 guidance, we're forecasting our year-over-year total revenue growth to be in the range of 4% to 7% with our professional services revenue expected to grow between 6% and 9%. We expect our insurance cost ratios to follow seasonal patterns with favorable cost ratios in the first and second quarters as members work through deductibles, and with higher cost ratios in the third and fourth quarters as deductibles are exhausted and pooling limits reset in October. With this trend, we expect our full year insurance cost ratio to be in the range of 88% to 89%. This ICR projection is about three points higher than our 2021 result, reflecting health care utilization returning to a range closer to historical levels. As a rule of thumb, every one point movement in our 2022 expected ICR translates into approximately $0.45 ICR translates into approximately $0.45 in adjusted EPS. Given these anticipated trends, we expect full year GAAP net income per diluted share to be in the range of $3.87 to $4.51 per share, and adjusted net income per diluted share to be in the range of $4.55 to $5.20 per share. These expected ranges assume we execute share repurchases to offset overall dilution. With that, I will turn the call to Burton for his closing remarks. Burton?
Burton Goldfield: Thank you, Kelly. As I said at the beginning, 2021 was the strongest year in TriNet’s history and pivotal for our company. We have taken action to position TriNet for the next decade of our growth. I am confident we have a compelling and differentiated vision for the future of PEO and HCM offerings rooted in our deep history with the best SMBs in America. With the acquisition of Zenefits, TriNet is doing what no other HCM software solution is doing. Combining a contemporary software solution with an already scaled and successful PEO legal construct and service model. At TriNet, people matter is about putting human back into human capital management with the customer at the center of everything we do. Over the past three years, which spans the pandemic, we have delivered exceptional earnings growth, top line performance and cash flow. We are committed to our disciplined pricing approach, which drove our profitable growth, and we will not compromise on this approach. Our resulting financial strength positioned us to opportunistically acquire Zenefits, which will now be part of the next chapter for TriNet, a chapter that includes the pursuit of the whole SMB TAM. Although 2022 sees us facing a year where presumably medical utilization normalizes, I could not be more excited about what the New Year brings strategically to TriNet. In the quarters ahead, we will further expand and share our vision for TriNet’s future. I am excited to welcome Zenefits colleagues to TriNet that and thank the TriNet colleagues for all their hard work and dedication that allowed us to deliver the best year in TriNet’s history. Operator?
Operator: We will now begin the question-and-answer session. Our first question comes from Tien-Tsin Huang with JPMorgan. You may now go ahead.
Tien Huang: Thank you. Thank you, guys, for all the – hey, Burton. Good afternoon, and, Kelly, good afternoon. Good –thanks for all the details we’ll have to go through. One question on the outlook and then one on benefits, if you don't mind. So on the outlook with – can you maybe share a little bit more on your volume and rate assumption here? I hear you loud and clear on the higher attrition assumption. Just trying to gauge how much of that is conservatism versus something that you're actually seeing on the ground today.
Kelly Tuminelli: Appreciate the question, Tien-Tsin. This is Kelly. I’ll take it. When I think about attrition and volume forecast, clearly it’s all baked in. Probably 40% of our attrition for the year happens in the first quarter, and we get an indication of it in advance. So I feel good about the volume forecasts that we have as we're building our revenue forecast. So I think it's pretty solid.
Tien Huang: Okay. Okay. Yeah. No, I figure because with the enrollment season, I think I figured you'd get a little bit of visibility here. Okay. And then maybe for you, Burton, on just on Zenefits, I hear the TAM for SMB. I'm curious really about the integration and the cultural differences between the two companies and how you anticipate meshing the two companies together from an integration standpoint. Any thoughts on that, that you can share?
Burton Goldfield: Yeah, absolutely. Absolutely, recognizing Tien-Tsin that it's not done yet. But, look, I see several opportunities. First and foremost, they will be operated separately. But what I see is new opportunities to drive sales for both TriNet CEO and Zenefits. Our brand is enjoying the highest recognition and the highest percent propensity to buy in my history here, according to Harris Poll. And the opportunity with leads coming in and efficiently sorting those leads so that the right product is delivered to the right customer at the right time makes me very optimistic about the near-term future to leverage our brand to provide leads to both companies. I think as you move forward, as I said in my prepared remarks, what gets me particularly excited is the idea of having a totally integrated platform that would allow customers to take a journey and no two customer journeys are the same where they could go from PEO to ASO and back depending on the complexity, the need for our single employer plan, the need for the transfer of risk to TriNet, but using the same UI, the same backend payroll engine, the same reporting engine and really have that capability. So you could serve a broader range of customers for a far longer period of time by taking them in earlier when it's not as complex and holding them longer as they so choose to bring in their own medical plans, etcetera.
Tien Huang: Yeah. No. It sounds compelling, definitely excited to learn more. Thanks for the update, guys. Thank you.
Burton Goldfield: Yeah.
Tien Huang: Thanks for the update.
Operator: Our next question comes from Kevin McVeigh with Credit Suisse. You may now go ahead.
Kevin McVeigh: Okay. Thanks so much. And let me add my congratulations on the transaction as well. Hey. I know this would be for Kelly or Burton, but just following up on the Zenefits, one quick question. Does the 2022 guidance include that revenue benefit from Zenefits and the dilution? Or is that something that gets adjusted after it's closed? And then, Kelly, if I heard you right, it sounded like $40 million of professional services. Is there any kind of cloud-based revenue in it today? And if so, what percentage is it?
Kelly Tuminelli: Yeah. Kevin, I'll take that for sure. Regarding guidance, if you look at our press release, all of the guidance published in the press release excludes Zenefits. So, Zenefits, my comment on roughly $0.20 to $0.25 loss would be added to that Regarding their revenue, it’s all really cloud-based SaaS revenue as a financial model.
Kevin McVeigh: And what's that been growing, Kelly? Like the $40 million, if you were to – has that been growing historically?
Kelly Tuminelli: Yeah. I'm not going to comment on their historical performance right now, but, you know, clearly, we see them as a great growth opportunity for TriNet.
Kevin McVeigh: Yeah. Without a doubt. Without a doubt. And I guess my only other question was it seems like you've seen a lot of success on the pricing side and you've been able to layer in really, really good WSE growth as well. Is that a function of, you know, it sounds like you're re-pricing the base book? I thought you did some of that when you did the last integration. Is there just more potential upside there or just any thoughts on the pricing environment? And can you give us a sense of what pricing you have in the 2022 guidance?
Kelly Tuminelli: Happy to – happy to, Kevin. When I think about what we were able to achieve, it's a little bit nuanced in the fact that I think we got mid-single-digit price increases year-over-year. But we also got an overall benefit because one of the things I've talked about for a lot of this year, Kevin, is the fact that we had smaller customers that, frankly, cost us more to service and we did reprice and put certain plant level minimums on the smaller customers to match the cost of serving them. And so that actually helped push the average up a little and make sure that, you know, all the plans really need the PEO services and risk transfer. As we're looking forward, we kind of see pricing in a similar range, mid-single-digit increase, as I'm thinking about professional service revenue particularly. And there will be other mix changes and things like that because we do have different products for different verticals. But on average, I would anticipate mid-single-digit price increase.
Burton Goldfield: And, Kevin, I just wanted to add on top of that, if you don't mind, on the risk side of the business, one thing I can promise you is that we will remain disciplined in our pricing to risk, and I'm pretty proud of what the team did this year in a fairly tumultuous year because the problem is that if you don't maintain a disciplined approach to pricing, somebody ultimately pays for that, and it’s either shareholders or the client. So, on both sides of this, I'm particularly proud of the year in terms of the growth, but equally proud of the pricing discipline.
Kevin McVeigh: Well, they should be, Burton, because it looks really, really strong, particularly as you're calibrating that risk. So congratulations.
Burton Goldfield: Thank you so much, Kevin.
Operator: Our next question comes from Andrew Nicholas with William Blair. You may now go ahead.
Andrew Nicholas: Thanks and good afternoon. The first question I wanted to ask was just on increasing new sales volumes and momentum. Burton, would you mind kind of speaking to the drivers of that? Are win rates going up against competitive bake-off? Is it about disruption post-COVID and maybe increased word of mouth and marketing? Just what, under the hood, is driving new sales volumes, and how – is that a multiyear tailwind still, in your view?
Burton Goldfield: So, look, I can talk about Q4. We continued, Andrew, to see improvement new sales during the fourth quarter. I’m particularly pleased that we saw continued year-over-year ACV growth and I think there’s more room for improvement. What I am seeing is that the productivity on a per rep basis is better. Part of it, and I mentioned it a little bit earlier in the questions, is the brand awareness and brand recognition and propensity to buy has jumped dramatically year-over-year. Whether you equate that to people force, whether you equate that to getting the message out with a very professional and excellent sales force, whether you equate to the customers we have today who use our product referring to us, in my mind, there's still a fantastic opportunity in the PEO business and it's hard to predict where it's going. But, right now, the complexity is clearly driving an interest in the PEO model.
Andrew Nicholas: Makes sense. Thank you. And then maybe a follow-up for Kelly, first, just to confirm there's no recovery credit in place for 2022, correct?
Kelly Tuminelli: You are correct, Andrew. We have not made a determination to do a recovery credit program in 2022.
Andrew Nicholas: Okay. And then somewhat related but only a little, I guess, is it fair to assume now with the ICR that that's more of a long-term rate? I heard a bunch of color on kind of your assumptions, and I think you mentioned that you're assuming COVID becomes a bit more endemic here. Is, you know, the 88% to 89% a good kind of long-term framework for us to think about? Or is there still some noise that’s specific to 2022 for us still some noise that’s specific of 2022 for us to keep in mind? Thank you.
Burton Goldfield: Yeah. Happy to answer the question, Andrew. When I think about 2022, I’d split it into right now in the first quarter, I expect a little bit of underutilization just given the continued Omicron variant and delayed elective procedures. But as I think about 2023, 2024, those periods beyond a few things, I'd point out one, we repriced to risk every single year. And so we will continue to look at experience and reprice for that risk. And given that, I would expect to be somewhere in the 88% to 90% range from an insurance cost ratio.
Andrew Nicholas: Great, thank you.
Operator: Our next question comes from David Grossman with Stifel Financial. You may now go ahead.
David Grossman: I wonder if we just – if we could just go back to Zenefits for a minute, now you're going to own two technology platforms, one, built to service the PEO model and another built as more of a software platform to be kind of not totally self-service but more or less a self-service software platform. So if you think about where – how that evolves going forward, maybe you could help us understand what the technology road map looks like? And what segments each platform serves going forward? Or is the plan really to integrate the two so that as you start on one platform and no better – no matter how large you get, you stay on the same platform regardless.
Burton Goldfield: So, David, there’ll be a lot more about this after we close the acquisition. But as I mentioned before, the idea of a single user interface is single app, a single payroll engine, a single reporting engine is where I would like to go. So you can seamlessly transition from either legal model to the other and enjoy the benefits of familiar input screens, familiar reports, and the ability to take advantage of whichever legal construct you want. Because after all, at the end of the day, they're all great SMBs and with our PEO motto, we serve a select group of those SMBs and the Zenefits current platform serves another wider set of SMB. So the idea of integrating them, obviously, I've given it a lot of thought and I'm happy to talk more about it. But first I want to get the deal closed.
David Grossman: Got it. And then I guess going back to a comment, Kelly, you just made about really speaking to the cadence of the year. I think I understand your comment about the medical cost ratio. Is there anything else that happens on a – that impacts the growth rate because I haven't really built out a model yet, but to kind of see where the first quarter and how that impacts the implied growth for the balance of the year. But it seems obviously that it does decelerates quite a bit. So is there anything else going on in 2 or 4 that impact growth besides that cost dynamic and health care?
Kelly Tuminelli: We would expect to grow WICs throughout the period. As I think about the pattern, like I mentioned, 40% of our attrition generally comes in the first quarter. It varies a little bit year to year, but we see the bulk of our attrition during the first quarter and then we build back up as we add new plans on the work platform. So as I think about that pattern, I anticipate us to be lower form a WSE perspective after the first quarter just like you saw last year. And then we would grow throughout the year.
David Grossman: Got it. And I guess just one other financial question, if I missed it, sorry. Did you mention what the tax rate you’re assuming for 2022?
Burton Goldfield: We did not mention the tax rate. I wouldn't anticipate at this point that it would differ dramatically. But again, once we closed the acquisition of Zenefits we'll have to evaluate different state jurisdictions, etcetera, as we think about that going forward. But we're assuming for planning purposes, a very similar tax rate.
David Grossman: Got it. All right. Very good. Thank you and good luck with the acquisition.
Burton Goldfield: Thanks, David.
Operator: This concludes our question-and-answer session as well as the conference. Thank you for listening to this presentation. You may now disconnect.
