TriNet Group, Inc. (NYSE:TNET) Q1 2024 Earnings Call Transcript

TriNet Group, Inc. (NYSE:TNET) Q1 2024 Earnings Call Transcript April 26, 2024

TriNet Group, Inc. misses on earnings expectations. Reported EPS is $2.16 EPS, expectations were $2.46. TriNet Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the TriNet First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Alex Bauer, Investor Relations. Please go ahead.

Alex Bauer: Thank you, operator. Good morning. My name is Alex Bauer and I am TriNet’s Head of Investor Relations. Thank you for joining us and welcome to TriNet’s 2024 first quarter conference call. I am joined today by our President and CEO, Mike Simonds; and our CFO, Kelly Tuminelli. Before we begin, I would like to address two items. First, for the first time, we are presenting our financial results pre-market on a Friday. Please note that the change this quarter was due to our internal calendar and our desire to reach the broadest audience possible. Second, I’d like to address our use of forward-looking statements and non-GAAP financial measures. Please note that today’s discussion will include our 2024 second quarter and full year financial 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 net income per diluted share.

For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release, 10-Q filings or our 10-K filing, which are available on our website or through the SEC website. With that, I’ll turn the call over to Mike. Mike?

Mike Simonds: Thank you, Alex, and thank you to our shareholders, analysts, colleagues, customers and all others joining us this morning. I am excited to lead my first earnings call as CEO of TriNet and will center my initial comments on two topics. First, thoughts on our first quarter performance, and second, my initial impressions after working alongside our customers and my TriNet colleagues over the past 10 weeks. Reflecting on our first quarter performance, TriNet continued to execute well in the areas most within our control, most notably, new sales, retention and expense management. We maintained our recent strong sales momentum and grew 50% year-over-year in the first quarter, historically, our largest sales quarter of the year.

Our strong first quarter sales performance reflected a broad team effort across our organization. We are delivering a differentiated offer to the market and a strong onboarding experience for our new customers. At TriNet, we work hard to understand the evolving needs of small to mid-sized organizations in the industry verticals we target and we apply that insight to deliver services and access to benefits designed with their unique needs in mind. Owning our own technology allows us to operate with this unique vertical focus and do so while capturing the benefits of scale. Our investment in expanded distribution, both the growth and maturation of our sales consultants and the growing momentum with channel partners allowed us to capitalize on our differentiated offering.

In fact, in the first quarter, we benefited from both a 28% year-over-year growth in tenured reps and a similar percentage productivity improvement amongst those same mature reps. Of course, our unique offering helps us not only win new business, but retain our existing customers as well. With a strong multi-year positive trend in Net Promoter Score, our retention improved by over two points versus the first quarter a year ago. As a result of our strong new sales and retention, we nearly achieved positive sequential core worksite employee growth in the first quarter. This is an important achievement to highlight. TriNet came very close to replacing first quarter attrition with new sales additions. And when we think about opportunities for accelerating our growth at TriNet in the coming years, offsetting attrition with new sales is a large and obvious objective to target.

And one, I think we should expect to consistently achieve. Once new sales is offsetting attrition, positive CIE, which is natural growth within our existing customer base becomes entirely upside. Furthermore, we would expect to achieve this objective while maintaining our pricing and expense discipline just as we did this past quarter and in previous years. I do want to underscore this last point. As we embark on this effort, we will maintain our financial discipline, we will not be trading undisciplined pricing for growth, and we will remain focused on driving efficiency in all parts of our operations. While I was pleased with our operational performance and how our offering is resonating in the market, the broader economic environment still remains challenged for SMBs. We saw this economic reality impact us in two ways, through our customers’ hiring and normalization of insurance costs.

In the aggregate, net customer hiring was slightly negative, performing similarly to last year’s first quarter and to many of the hiring trends we’ve experienced since 2022. Ultimately, we firmly believe that pursuing business in our chosen core verticals with disciplined pricing is the right long-term approach. And as hiring improves, particularly in the technology industry, TriNet should receive outsized benefits from our differentiated model. Secondly, the broader market continues to experience health cost increases. We too saw an increase in health costs in the first quarter. We experienced some claims variability within the quarter, and while Kelly will provide more details in a minute, I would stress that we have a strong model in place to manage risk and we are uniquely advantaged.

In our ability to reprice as necessary for these costs, with cohorts available each quarter. Finally, before passing the call to Kelly, I want to finish my prepared remarks by sharing two initial impressions from my first couple of months at TriNet. First, TriNet operates in a very attractive market. Since joining the company, I’ve spent considerable time with customers and channel partners. Without exception, these visits confirm that the challenges facing small to medium-sized businesses are very real, whether they’re working to attract great talent, deal with cost inflation or stay in compliance with an ever more complex regulatory landscape, the need for what we do is significant and it’s growing. With this as a backdrop, it’s not surprising that PEO industry awareness has never been higher, and I’m pleased to report that a recent third-party survey work confirms that TriNet’s brand in our target market is now amongst the most recognizable in the HCM space.

Our product is resonating, as evidenced by our sales and retention performance and ultimately, in this attractive market, we can and will do more to grow and capture share. My second impression relates to what I found within TriNet. Thus far, I’ve had the opportunity to meet with literally thousands of my colleagues across the country. This has been an energizing experience to say the least. TriNetters have not been shy with their recommendations and feedback, and I was so pleased to hear a great many ideas on how we can improve our processes, better leverage technology and expand our offering for the benefit of our customers. Ultimately, the overwhelming theme which emerged is a genuine passion for serving our customers. The customer is truly at the center of everything we do and it shows one of the great legacies of my predecessor.

I share these two impressions with you, the growth opportunity for PEO, and the engagement of my colleagues, because over the next few quarters, TriNet will embark on a review of our strategy with the intent of further aligning our considerable resources with the biggest opportunities for profitable growth. To successfully embark on this review and ultimately to execute, you need colleagues ready, willing and able to deliver on the underlying drivers of the plan. I believe we have that team here at TriNet, and I’m excited about what we will accomplish together. Now I’ll pass the call to Kelly for the financial review. Kelly?

Kelly Tuminelli: Thank you, Mike. In the first quarter, TriNet once again excelled in the areas within our control. New sales, as measured by annual contract value or ACV grew 50% year-over-year, which resulted in a significant number of new WSEs joining TriNet. Our customer relationship and customer success teams worked diligently to provide customers with incredible service, and the result was strong retention. When you combine our net new WSEs in Q1 with our attrition, we nearly offset our Q1 attrition with new WSEs, representing significant progress on this front. As Mike said, when we think about accelerating growth at TriNet, offsetting attrition with new sales is an obvious objective to target. We, again, demonstrated financial discipline and manage our expenses prudently with only modest inflationary increases.

We made choices and reinvested our cost savings into our business for growth. During the quarter, we encountered two headwinds. One, a continuation of recent trends, and the other, an emerging trend. First, continuing a multi-year trend, customer hiring came in slightly negative, again, pulled down by our technology vertical specifically in January. While we continue to have success selling into the technology vertical, customer hiring within tech remains constrained. The second headwind we faced was an increase in insurance cost trends in Q1, which drove our insurance cost ratio to the low end of our first quarter guidance range. In the quarter, we saw a broad increase in utilization and cost inflation, reflecting trends seen across the healthcare industry.

Within the quarter, paid claims in January and February skewed much higher than in March. It’s unclear to us whether March represents the ongoing trend. During March, a significant ransomware attack impacted change healthcare, one of the largest claim processors in the U.S. It’s possible that the reduced paid claims in March was partially the result of this incident. Because of this incident, we did not reflect the March favorability in our ending reserves. We will learn more in the coming months and with several upcoming investor conferences, we will have opportunities to share more as experience develops. Now, let’s turn to our first quarter financial performance. In the quarter, total revenues grew 1% in line with our guidance and was muted from overall customer hiring headwinds.

We finished the first quarter with approximately 352,000 worksite employees and approximately 332,000 co-employed WSEs, up 1% year-over-year. Average co-employed WSEs followed the same trend. Change in existing or CIE was an additional headwind as it came in negative in the quarter. Negative CIE was elevated in January, while we saw the improvement in modest customer net hiring in February and March. Our overall WSE growth affirmed our investment into our go-to-market capabilities, driving new sales and in service areas driving retention. As we continue to build sales capacity, we believe we can achieve consistent new sales volume growth in excess of our attrition in the intermediate term. Professional services revenue grew 4% in line with our guidance.

Professional services revenue growth was driven by volume, normal rate increases and was offset slightly by mix given the reduction in hiring in certain verticals who pay for higher levels of services. Insurance revenue grew 1% year-over-year as healthcare participation rates were slightly lower than Q1 2023. Annual inflationary rate increases offset our slightly lower participation rates. Insurance costs grew 6% year-over-year, reflecting higher healthcare and pharmacy utilization. It’s safe to say that WSEs are no longer delaying care as they had during the pandemic and we have returned to a more normal healthcare utilization and higher cost environment. Related to our workers’ compensation, results were in line with our forecast and remained strong overall.

This brought our insurance cost ratio to 86.4% at the low end of our first quarter guidance. Now let’s turn to operating expenses. We continue to demonstrate financial discipline. Our operating expenses grew modest 2% year-over-year as we reinvested cost savings back into our business to support our sales and marketing function and drive new sales and customer retention. The 2% growth does exclude the non-recurring GAAP accounting remeasurement and acceleration of stock compensation related to our former CEO’s retirement, which was approximately $5 million. During the quarter, we benefited from the sustained higher rate environment in interest income on investments and our operating cash. The income generated was slightly more than our interest expense during the quarter.

Summing it up, we are reporting $1.78 in GAAP net income per diluted share and $2.16 of adjusted net income per diluted share for the quarter. We had $201 million of corporate operating cash flow during the quarter and ended the first quarter with $298 million in unrestricted cash on our balance sheet. Now let’s turn to our financial guidance. In the second quarter, we’re forecasting total revenues to be in the range of down 1% to up 1%. We expect continued strength in new sales and modest CIE growth. In the second quarter, we expect to see modest CIE growth as companies typically hire for full time recent graduates and summer internships, yet we do expect it to be muted from historical averages. Given this expected employment dynamic, we forecast professional services revenue in the range of down 2% to up 4%.

Turning to our insurance cost ratio, we’re forecasting our ICR in the range of 90% to 87%. The 90% would imply a continuation of first quarter trends, while the 87% implies modest improvements. Finally, we’re forecasting GAAP net income per diluted share to be in the range of $0.68 to $1.17 and adjusted net income per diluted share to be in the range of $1 to $1.50. Given our expectations for Q2 financial performance and first quarter results, we are leaving our full year revenue guidance unchanged. Total revenues are expected to be in the range of down 1% to up 4%. Professional services revenue is expected to grow between 1% and 5%. Our insurance cost ratio is now expected to be in the range of 89.5% to 87.5%, reflecting our first quarter experience.

Given the resetting of our insurance cost ratio guidance, we now expect GAAP net income per diluted share to be in the range of $3.94 to $5.46 and adjusted net income per diluted share to be in the range of $5.25 to $6.80. In summary, we are pleased with our first quarter performance, we are operating well, building on our new sales success and our strong continued customer retention, while exercising expense discipline and investing for growth. We are experiencing a different insurance cost environment over the past few years and we are prudently managing through this changing environment. We remain very positive in our ability to generate great outcomes for our customers, employees and shareholders. With that, I’ll turn the call over to the operator to open up the call for questions.

Operator?

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Tien-Tsin Huang with JPMorgan. Please go ahead.

Tien-Tsin Huang: Thank you. Thank you. Good morning. Maybe just wanted Mike ask you a big picture question here and thanks for your reviews. Any surprises in your 10-week listening tour with clients, employees that’s worth sharing with us beyond what you said upfront. And I’m curious, I think I heard strategy review, not strategic or strategy review. Can you elaborate on what that means? Is this a comprehensive review or is it focused on certain areas, maybe tech expenses? Sounds like sales is in a good place, but you tell us. Thank you.

Mike Simonds: Yes. Good morning and thanks, Tien-Tsin. Great question. And no real surprises thematically, I would just say sort of the things that jump out of me and I hit a couple of them in the prepared remarks, but certainly, the degree to which this focus on small business and supporting our customers really permeates the culture here at TriNet. And it’s just encouraging to see, expected to see that coming in the degree to which that it comes through, I think is really important. One, because it helps us deliver the kinds of emerging growth momentum results that you’re seeing. And two, which is as we lean into the second part of your question about the strategic review, we’ve got an organization that’s hungry to grow and serves more of those SMB customers over time.

And I guess, in terms of the review, I would stress right upfront, we have a lot of good things happening. And from my vantage point, I don’t see big issues of the need for significant resets. I think it’s just — with me coming in, as you would expect, it’s a fresh set of eyes to examine where we’re focused today and make some choices around where we can really put our considerable resources behind the biggest opportunities for profitable growth. And I think — and you’d know, but a lot of companies, the challenge is where to find growth. And for us, I think it’s really about picking amongst the very best of where we can put those resources. And I do very much have a growing sense of confidence that we can accelerate our growth by making a few disciplined strategic choices.

And I think importantly, as we grow, I think we can leverage that scale to drive both quality and cost efficiency as part of this. So I’m 10 weeks in, you’ll learn more over the coming quarters as I get to work with the team. But again, I’m very bullish on the prospects here.

Tien-Tsin Huang: Yes. Thank you for that. That’s helpful. Just on my quick follow-up and just on the new sales, the ACV up 50%. I think China has had a string of good new sales results here. Quality, can you maybe comment — Kelly, maybe it’s for you, just the quality of the new sales, ACV, the — and what’s coming in? Anything to say around the PEO front or even on the HRIS side?

Mike Simonds: Great question. And I’ll maybe hit a couple of things upfront and then Kelly maybe to the specific quality front. In general, thanks for highlighting a 50% ACV growth in the quarter and it really, I think speaks to two, of course, related things. And the first is, our offering is really resonating in the market. We are unique in that we target a select set of verticals and get really close and understand what their unique needs are. And so building a service model on top of proprietary technology that really targets those verticals. We’re seeing that offer really resonate in the market. And I think importantly, compare that with the expanded distribution capacity that we’ve been investing in. So I mentioned the 28% growth in our tenured sales team, those sales folks are — not only do we have more of them, but they are more productive.

And then alongside that direct team, we are building out our channel organization and we’ve seen the channels like insurance brokers, go from, albeit a small base to becoming a more important part of delivering that sales growth. So an offering that resonates paired with that expanded capacity, I think that bodes well, not just in terms of the quality of sales in the quarter, but the outlook as we look at the balance of 2024 as well. I’d say just in terms of quality, before I turn it over to Kelly, I would say, really important to me and I hit it in the prepared remarks is that we maintain our discipline as we grow. And so ensuring that we don’t chase growth with short-term price decisions, we’re always going to take that balanced perspective as we go.

And maybe, Kelly, you’ve got something to add to that.

Kelly Tuminelli: I mean, the only thing I would really add Tien-Tsin is, when I look across all the verticals, all the verticals are up. And that’s really just a testament to the increased tenured sales reps, et cetera, and channel expansion. Customer size slightly larger, but not significant. So definitely still hitting the core.

Tien-Tsin Huang: Great. Thank you both.

Operator: The next question is from Kyle Peterson with Needham. Please go ahead.

Kyle Peterson: Great. Good morning, guys. Thanks for taking the questions. I wanted to start off on insurance costs and kind of repricing. Just if you could remind us on kind of the seasonality of when some of the existing book reprices on the insurance side and just some of the initiatives and ways you guys are kind of responding to the normalization of insurance costs, that would be helpful.

Kelly Tuminelli: Yes. Kyle, appreciate the question. Thanks for asking it. When I think about your first question was around repricing and we have a unique model unlike others in that we do reprice a portion of the book every quarter. And in terms of the largest quarters, really October 1 and January 1, our two largest quarters, each roughly a third, with like July 1 being the smallest and April being kind of the third. So we do have an opportunity to reflect the experience as we’re seeing it. And we really only have, what I mentioned, two months’ worth of experience that was slightly elevated. March, we didn’t give we had lower claims, but we really didn’t give it any credibility just given the disruption with the changed healthcare cyber-attack.

So we’re watching. Luckily, we’ve got an opportunity with a couple conferences coming up that we’ll give the market any updates if things change dramatically. But I feel good about our risk selection, our risk assessment and in terms of renewal levels, really we’re anticipating kind of high-single-digit, low-double-digit.

Kyle Peterson: Got it. That’s really helpful. And then just follow-up and Mike, maybe if you could share some of your thoughts on capital allocation. I know you guys have given some pretty detailed thoughts kind of in the past year. Business still continues to spit off quite a bit of cash, but maybe if you could kind of share some priorities between whether it’s buybacks, dividend or M&A, that would be helpful.

Mike Simonds: Sure. Thanks, Kyle. And thanks for highlighting it. I mean, it deliver a lot of value to customers. The things that we two are really important to them and creating those values, we’ve got a really healthy cash generative model here. And as I know, the team has done pretty consistently. Our first priority when we think about capital allocation is the growth of the business and ensuring that we’re putting the things in place that’s going to enable us to deliver for customers and grow over time. And hopefully, that message is coming through. We’re still creating over and above growth requirements, good cash flow and the financial targets that we’ve talked about around returning 75% of free cash flow back to shareholders.

And doing so, now with a new tool in the toolbox. So we — I think this week paid our first dividend. So it’s good to be moving forward on that front and then of course, share repurchases as well. And that is an important part of our model is starting with the customer, creating a lot — an exceptional amount of value for them, doing so on an increasing basis and then finding ways to ensure we’re creating great value for our shareholders as well.

Kyle Peterson: Got it. Thanks for the refresh. Thanks, guys.

Kelly Tuminelli: Great. Thank you, Kyle.

Operator: Thank you. The next question is from Andrew Nicholas with William Blair. Please go ahead.

Andrew Nicholas: Hi, good morning. I wanted to double back on healthcare utilization and the guidance range first. Kelly, I think you said the second-quarter margin assumption assumes at the low end a continuation of current trends and I think it was at 13% or I guess at the 87%, it assumes modest improvement. Where does March — the March experience fall kind of on that spectrum? I’m just trying to understand to the extent that March is not something that you believe in because of the breach where like January and February would kind of trend both in terms of the second quarter guidance, but also for the full year, if that’s possible.

Kelly Tuminelli: Yes. January and February, we definitely saw a little bit of elevation in paid claims and continued to watch the experience as we went into March. March was significantly favorable. And we just couldn’t give it much credibility, we didn’t know what the backup in claims was with change healthcare. So we really did just use a projection method and booked our IBNR not taking into account the favorability that we saw in March. And we’re just going to watch it come through. So when I look at second quarter, we do have a level of seasonality, usually first quarter is our most favorable and then we see it kind of trail down throughout the year. So second quarter just reflects kind of the level of healthcare claims we would expect to see at that time of year, but we’re always going to take kind of a conservative view.

Andrew Nicholas: Okay. Thank you. And then kind of sticking with guidance, on the full year, on my math, it looks like really the only change to guidance is on the ICR. So I just — if you could confirm that? And then also kind of within that, it sounds like the attrition to new sales gap has narrowed maybe even a little bit earlier than expected. So you are — under the hood is that maybe being offset by a little bit worse TIE or if you could just kind of unpack the full year guidance reduction or at least at the midpoint — a little bit further between those two parts, that’d be helpful.

Kelly Tuminelli: Yes. Happy to, Andrew. When I look at guidance, I think you’re spot on. Really what we did is we reflected where we landed in the first quarter on insurance, but our outlook really hasn’t changed significantly. Sales are strong. We have a good view on retention. We’re assuming CIE in kind of the really low-single digit range going forward. So that’s all incorporated in our guidance. We did put in a little bit of expense favorability that we’re seeing. So tweaked a couple of things around the margin, but generally, you’re seeing the ICR from the first quarter just kind of rolling through for the full year.

Andrew Nicholas: Okay. Great. And then maybe…

Kelly Tuminelli: Second part on WSEs. Yes. So from an attrition perspective or from a retention perspective, the first quarter was our best quarter in the last 10 years. So really, really good job by the team in terms of making sure our product resonated and retaining our customers. But CIE was negative versus — it was negative overall and it was worse than our expectations. So — and strong new sales came in right about where we had expected them, but good growth at 50% up.

Andrew Nicholas: All right. Great. And then maybe if I could squeeze one more in for Mike. I think you mentioned it in response to one question. You noted a little bit in your prepared remarks. But on the broker channel, in particular, if you could just kind of speak to that opportunity momentum there. And maybe more holistically what the strategy is and how it compares to the way that TriNet has tackled the market historically? Thank you.

Mike Simonds: Yes, sure. Thanks. I appreciate that, Andrew. And I’ll build off of the point Kelly was making, because it actually links to the brokerage question. When we think about healthcare and the ICR, we look at it and spend a lot of time with our carrier partners and in broad industry studies and we’re certainly not seeing anything different than what the broad market has seen and albeit maybe we’ve seeing it at a little bit of a less degree, I would say, than what the small case commercial market has shown over the last several quarters. And while that represents a little bit of a headwind here in the quarter. I think it’s worth noting that long-term healthcare cost inflation is actually a demand creator for us here at TriNet.

A big part of what we do is help our small business customers compete, both in terms of attracting, and retaining talent with great benefit and manage cost. And we can do that with scale and scale that they don’t have available to them on their own. And I think increasingly, as healthcare becomes a bigger part of the total cost of ownership of service like TriNet, and experts in that space like insurance brokers on the health side, I think we have the opportunity to be increasingly relevant to them and to create economics that are favorable to the customer, to that channel and to TriNet as well. And there’s work to do to maximize that channel. There’s choices that we’ll have to make, but I am encouraged about the momentum that the team has created on that front.

And to your broader question, like I said, I would just stress again, it’s just good practice to come in when you have a fresh set of eyes and look at the choices that we’ve made and say, are there some things that we can do. There’s a lot that’s going really well and I don’t see the need for huge changes in the short-term. It really is about choosing amongst some really good options and marshaling what we already have for considerable resources to drive that growth. So I hope that’s helpful, Andrew.

Andrew Nicholas: It is. Thank you.

Operator: [Operator Instructions] The next question is from Jared Levine with TD Cowen. Please go ahead.

Jared Levine: Thank you. Thank you. In terms of that two-point improvement year-on-year on WSE retention, can you go into how much of that was controllable versus uncontrollable in terms of that improvement?

Mike Simonds: Yes, Jared. Thanks for the question. And as Kelly mentioned, the retention results that we saw in the first quarter were really good. And I will just take one second to recognize the remarkable team and our service organization and what they were able to accomplish, because January is our highest volume for many of our service transactions and onboarding new customers to have service levels with the strength exhibited is just a real testament to that team. And it has helped us deliver really strong retention, not just this quarter, but over the last several. And when we look at the mix, to be honest, nothing, there’s not really much that’s worth reporting in terms of controllable, uncontrollable. In general, we saw sort of consistency and mix with just a rising tide across the whole.

Kelly Tuminelli: Yes. Jared, the only thing I would add to that is, we’re not seeing a huge uptick in, like, business insolvency. And given sort of the tepid M&A market, it really hasn’t picked up that much over last year. So those are the two things I would probably put in the uncontrollable bucket and we’re really not seeing notable trends there.

Jared Levine: Got it. And then in terms of the demand environment, has there been any change in the pace of prospective client decision making? And how would you characterize that new PEO deal pipeline currently relative to prior quarters?

Mike Simonds: Yes. Thanks. Favorable in terms of the pipeline and really from the top of the funnel through, we’re really encouraged. I do think the relevancy in demand for the PEO model and in particular for TriNet’s unique approach is in a really, really good spot. And in general, the sort of secular pieces of demand, I think are representing tailwinds, just as more and more regulations come online, you have more activism at state and municipal levels. That’s more that these small businesses have to comply as they have an increasingly distributed and remote workforces. So there’s a lot that sort of plays into our strength. When we think about sales results in the coming quarter, the tougher comp year-over-year in 2Q, but feel really good about the pipeline that the team has got in place.

Jared Levine: And if I could just sneak in one more here. In terms of the CIE assumptions for the FY2024 guide, was there any change between your prior view of very low-single digits to mid-single-digit growth? Just want to confirm that.

Kelly Tuminelli: Only reflects our first quarter performance, Jared. So our outlook for the future remains pretty much unchanged less than half of historical experience, but we are reflecting the first quarter negative CIE in that outlook as well.

Jared Levine: Great. Thank you.

Operator: The next question is from David Grossman with Stifel. Please go ahead.