Cuộc họp công bố kết quả kinh doanh Quý 3/2026 của TriNet (TNET): ICR cải thiện, doanh số tăng tốc

Thông tin trọng tâm

• TriNet Group, Inc. (NYSE: TNET) đã báo cáo doanh thu quý 3 năm 2026 đạt 1,2 tỷ USD, giảm 5% so với cùng kỳ năm ngoái, do số lượng nhân viên tại nơi làm việc (WSE) giảm đã bù trừ một phần cho mức định giá trong mảng bảo hiểm và dịch vụ chuyên nghiệp.
• Tỷ lệ chi phí bảo hiểm đã cải thiện 1 điểm phần trăm so với cùng kỳ năm ngoái lên 89%, nằm trong phạm vi mục tiêu dài hạn 87%-90% của công ty. Ban lãnh đạo hiện kỳ vọng tỷ lệ cả năm sẽ ở mức thuận lợi trong khoảng dự báo, tương ứng 88,5%.
• EPS pha loãng theo GAAP quý 3 đạt 0,65 USD, trong khi thu nhập ròng điều chỉnh trên mỗi cổ phiếu pha loãng là 0,94 USD. EBITDA điều chỉnh đạt tổng cộng 89 triệu USD, tương ứng với biên lợi nhuận 7,6%.
• Số lượng WSE cuối kỳ giảm 11% so với cùng kỳ năm ngoái xuống còn khoảng 295.000, bao gồm khoảng 269.000 WSE đồng sử dụng lao động. Ban lãnh đạo cho rằng sự sụt giảm này phần lớn là do việc định giá lại chương trình bảo hiểm sức khỏe trong quý 1.
• Giá trị hợp đồng hàng năm của doanh số bán mới đã tăng trưởng ở mức một chữ số tầm trung trong quý 3. Ban lãnh đạo dự báo mức tăng trưởng ở vùng cao của khoảng một chữ số trong quý 4, nhờ sự hỗ trợ từ năng lực bán hàng bổ sung và kênh môi giới.
• TriNet duy trì dự báo cho năm 2026. Doanh thu đang tiến về mức thấp của phạm vi 4,75 tỷ USD - 4,9 tỷ USD, trong khi biên EBITDA điều chỉnh và EPS điều chỉnh đang tiến về mức cao của các phạm vi tương ứng.

Kết quả tài chính chính

TriNet đã hoàn trả 33 triệu USD cho cổ đông thông qua mua lại cổ phiếu và chi trả cổ tức trong quý. Công ty đã mua lại khoảng 281.000 cổ phiếu với giá 19 triệu USD và chi trả cổ tức hàng quý là 0,29 USD/cổ phiếu.

Kết quả kinh doanh và hoạt động

Tỷ lệ giữ chân khách hàng đã phục hồi sau khi việc định giá lại phí bảo hiểm sức khỏe trong quý 1 gây áp lực lên việc gia hạn hợp đồng của khách hàng. Với việc gia hạn hợp đồng trong quý 3 đã hoàn tất và phần lớn việc gia hạn quý 4 đã được sắp xếp, ban lãnh đạo dự kiến tỷ lệ giữ chân khách hàng cả năm sẽ cải thiện khiêm tốn và đạt mức cao hơn kỳ vọng ban đầu, vốn tương đương với mức trung bình lịch sử của TriNet là khoảng 80%.

Động lực bán hàng mới được tăng cường. Giá trị hợp đồng hàng năm của doanh số bán mới quý 3 đã tăng ở mức một chữ số tầm trung so với cùng kỳ năm ngoái sau khi đi ngang trong quý 2. Ban lãnh đạo kỳ vọng mức tăng trưởng ở vùng cao của khoảng một chữ số trong quý 4. Chương trình phát triển Ascend đã giúp mở rộng số lượng cố vấn bán hàng trên thị trường hơn 10%, trong khi hơn 110 người tham gia bổ sung vẫn đang trong quá trình đào tạo.

Kênh môi giới đóng góp mạnh mẽ vào tăng trưởng doanh số quý 3. TriNet đang đầu tư vào công nghệ, quy trình và nhân tài địa phương để gia tăng doanh số đến từ môi giới và hỗ trợ duy trì khách hàng.

TriNet cũng mở rộng hệ sinh thái dịch vụ nhân sự của mình. Gần 60% các cuộc trò chuyện do WSE khởi tạo đã được giải quyết bằng TriNet Assistant vào cuối quý 3. Công ty cho biết số lượng hồ sơ tồn đọng lâu năm đã giảm hơn 60%, trong khi thời gian xử lý nghỉ phép giảm 75%.

Quá trình tích hợp Cocoon tiếp tục diễn ra đúng tiến độ, với nhóm khách hàng đầu tiên đã được chuyển đổi thành công. TriNet cũng nhấn mạnh việc áp dụng sớm TriNet Global và TriNet IT, cùng với việc ra mắt TriNet Recruit và TriNet Spend.

Triển vọng của Ban lãnh đạo

TriNet giữ nguyên dự báo cho cả năm 2026 nhưng làm rõ xu hướng của các kết quả thực tế nằm ở khoảng nào trong các phạm vi dự báo.

Ban lãnh đạo cho biết các hợp đồng mới và gia hạn tiếp tục được định giá hướng tới mức cao trong phạm vi mục tiêu tỷ lệ chi phí bảo hiểm 87%-90% của TriNet do xu hướng chi phí chăm sóc sức khỏe vẫn duy trì ở mức cao.

Rủi ro và các lĩnh vực cần theo dõi

• Lãi suất cao hơn và áp lực kinh tế vĩ mô diện rộng tiếp tục là rào cản đối với sự phát triển của các doanh nghiệp vừa và nhỏ. Các mảng dịch vụ chuyên nghiệp của TriNet không ghi nhận mức tuyển dụng ròng nào trong quý 3.
• Tổng số lượng WSE vẫn thấp hơn 11% so với năm trước, tiếp tục gây áp lực lên doanh thu sau đợt định giá lại trong quý 1.
• Xu hướng chi phí chăm sóc sức khỏe vẫn ở mức một chữ số tầm cao. Ban lãnh đạo kỳ vọng lạm phát ngành dược phẩm sẽ tăng khi các loại thuốc đặc trị và liệu pháp GLP trở nên phổ biến hơn.
• Theo tính mùa vụ, quý 4 là quý có tỷ lệ chi phí bảo hiểm cao nhất của TriNet do hạn mức khấu trừ quỹ chung được thiết lập lại và các WSE nhìn chung đã sử dụng nhiều hơn mức khấu trừ của họ.
• Ban lãnh đạo lưu ý về biến động bồi thường có thể xảy ra vào cuối năm. Biến động thuận lợi có thể mang lại kết quả tỷ lệ chi phí bảo hiểm tốt hơn một chút so với dự kiến, nhưng tác động cũng có thể theo chiều hướng tiêu cực.
• Chi phí chăm sóc sức khỏe trên mỗi thành viên gia tăng đang tạo áp lực giảm nhẹ lên tỷ lệ tham gia chương trình bảo hiểm sức khỏe, trong đó một số khách hàng có thể chuyển sang các chương trình có mức khấu trừ cao hơn, tự bảo hiểm hoặc bảo hiểm cấp vốn cố định (level-funded).

Tóm tắt phần Hỏi & Đáp với chuyên viên phân tích

Ban lãnh đạo cho biết cơ hội bán hàng tháng 1 hỗ trợ đà tăng trưởng tiếp tục sang năm 2027, mặc dù công ty không đưa ra dự báo cụ thể cho năm 2027. Công ty kỳ vọng chương trình Ascend và kênh môi giới sẽ tiếp tục gia tăng năng lực bán hàng.

Về tỷ lệ giữ chân khách hàng, ban lãnh đạo cho biết sự điều chỉnh phí bảo hiểm phù hợp hơn, năng lực định phí bảo hiểm tốt hơn và hệ thống xếp hạng chi tiết hơn đang giúp cân bằng giữa việc giữ chân khách hàng với mức tăng chi phí chăm sóc sức khỏe dự kiến. Trong trung hạn, TriNet mục tiêu vượt mức trung bình giữ chân khách hàng lịch sử là khoảng 80%.

Ban lãnh đạo giải thích rằng mức tăng ngầm định của tỷ lệ chi phí bảo hiểm trong quý 4 phản ánh tính mùa vụ bình thường chứ không phải là sự suy giảm về hiệu quả hoạt động cốt lõi. So sánh cả năm cũng bao gồm lợi ích một lần khoảng 50 điểm cơ bản được ghi nhận trong quý 2.

TriNet không chỉ rõ khi nào tăng trưởng WSE sẽ quay trở lại. Ban lãnh đạo xác định đây là cột mốc quan trọng tiếp theo sau khi khôi phục tỷ lệ chi phí bảo hiểm về phạm vi mục tiêu, cải thiện tỷ lệ giữ chân khách hàng và đưa doanh số bán mới tăng trưởng trở lại.

Toàn văn Biên bản Cuộc họp Báo cáo Kết quả Kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

Operator

Good morning, and welcome to the TriNet Group, Inc. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Alex Bauer, Head of Investor Relations. Please go ahead, sir.......

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 Third Quarter Conference Call and Webcast. I'm joined today by our President and CEO, Mike Simonds; and our CFO, Mala Murthy. Please note that today's discussion includes our 2026 full year financial outlook and statements that are not historical or predictive or depend upon or refer to future events or conditions such as our expectations, estimates, predictions, strategies or beliefs.

Forward-looking statements, which are based on management's current expectations and assumptions are inherently subject to risks, uncertainties and changes in circumstances. We caution you not to place undue reliance on these statements. Actual results may differ materially from those expressed or implied. 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.

Our discussion today will also include non-GAAP financial measures, including our forward-looking guidance for adjusted EBITDA margin and adjusted net income per diluted share. We encourage you to review our most recent public filings with the SEC, including our 10-K and 10-Q filings as well as our earnings release, each of which is available on our website or through the SEC website for both reconciliations of our non-GAAP financial measures to our GAAP financial results and 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. With that, I will turn the call over to Mike. Mike?

Michael Simonds

Thanks, Alex, and good morning, everyone. I'm pleased with our progress in the third quarter and encouraged by the momentum we are building across the business. At the beginning of the year, we laid out a straightforward path for returning TriNet to profitable growth. First, we need to progress our health fee repricing and return to a sustainable insurance cost ratio. Next, we needed to improve retention, strengthening the value we deliver to our clients. Finally, we needed to increase new sales, supported by a larger, more productive sales force and strong broker channel.

During the third quarter, we made progress across each of these priorities. After completing our repricing efforts, insurance performance has improved. And once again in Q3, it was better than forecast and within our target ICR range. Professional services revenue was in line with expectations, and we maintained discipline around both pricing and investment. As a result, we are very confident in our full year outlook, which Mala will discuss in greater detail. Importantly, our improved financial performance is occurring as we invest meaningfully in capabilities supporting our other 2 priorities, retention and new sales.

Let me start with customer retention, where we're encouraged by our progress. Improving retention is one of the most important building blocks in returning our WSE base to growth. We started 2026 planning for full year WSE retention that was in line with our long-term historical average. As a result of our health plan repricing, retention in Q1 was lower than we expected. With Q2 and Q3 renewals complete and Q4 renewals largely behind us as well, our full year forecast for retention has fully recovered from the difficult start, and we now believe we will finish with a modest improvement in retention for the full year.

TriNet's value proposition, a powerful combination of technology and proactive service has now become the driver of customer retention. Our philosophy here is simple. We've built an exceptional foundation around HR expertise, benefits, payroll, compliance and service. Increasingly, we can complement that foundation by bringing customers additional capabilities, either by building them ourselves, partnering with companies that we believe offer differentiated solutions or through acquisition. You're beginning to see that strategy take shape.

Over the past year, we've made meaningful progress improving our customer experience through AI, including our homegrown tool, TriNet Assistant. We started with a focus on WSEs and at the end of the third quarter, nearly 60% of WSE-initiated chats are being resolved using AI, freeing our colleagues to solve more complex requests with greater speed. Two areas where we've seen quick wins are our backlog of older cases, which declined by over 60% and leave of absence turnaround times, which have dropped by 75%. During the third quarter, we expanded TriNet Assistant support to customer administrators. As we roll out additional use cases, we expect to further improve customer satisfaction and service productivity, where we find companies with unique solutions that integrate with the people processes we administer, we're creating partnerships.

One example is TriNet Global. Many of our customers are sourcing talent globally and often identify candidates outside the United States before having the infrastructure necessary to employ them. TriNet Global addresses that need, extending the value of the TriNet relationship. A second example is TriNet IT. Managing a distributed workforce means managing remote employee technology. TriNet IT expands the solutions available to customers and addresses this adjacent business need. While early, we're seeing adoption of both offerings, which are now integrated into our broader sales efforts. And just 2 weeks ago, we expanded this strategy with the launch of TriNet Recruit and TriNet Spend, addressing new hire applicant tracking and expense management, respectively.

We're excited about the potential these deep integration partnerships have for supporting our clients and strengthening our overall value proposition. Where owning a capability provides meaningful strategic value, we will invest directly. Cocoon is a great example. Leave of absence has historically been complex for employers. We acquired Cocoon because we believe its best-in-class solution can meaningfully strengthen our customer experience. The integration remains on track with our first cohort already migrated, including our heaviest users of leaves. Strategically, Cocoon strengthens an important HR workflow, differentiates our offering and demonstrates how targeted acquisitions can deepen the value we deliver across the customer life cycle.

Together, TriNet Assistant, Cocoon, TriNet Global, IT, Recruit and Spend illustrate the ecosystem we're building around our core. Each addresses a real problem our SMB customers face and each provides TriNet with another opportunity to strengthen the customer relationship. To give a client example, Diana Sacchi, Chief Human Resources Officer at Grameen America, is expanding her relationship with TriNet through Cocoon and TriNet Recruit. She's adopting these capabilities with the goal of strengthening Grameen's HR processes and improving her team's efficiency.

Over time, we believe this broader set of capabilities can support both sales and retention by making the TriNet relationship increasingly valuable to clients.

The final major factor for us to return to volume growth is new sales, and we made encouraging progress during the third quarter. New sales ACV for Q3 grew mid-single digits year-over-year, representing further improvement in our sales trajectory. In fact, that trajectory is continuing as we are currently forecasting high single-digit new sales ACV growth in the fourth quarter. This growth is an important step as we've spent much of the last 2 years building the foundation for sustainable, repeatable sales growth.

Our experienced sales consultants remain an extraordinarily important part of our distribution model, and we continue to retain that group.

At the same time, our Ascend program provides us with a repeatable process for developing the next generation of productive TriNet sales consultants. The objective isn't simply to increase headcount, but to build a sales organization with the right combination of capacity, tenure, productivity and expertise. Our broker channel represents another increasingly important growth vector, and we are beginning to realize a return on this investment. In Q3, broker new sales ACV was a strong contributor to our third quarter sales growth.

Importantly, we believe there remains a significant opportunity ahead. We want TriNet to become an increasingly valuable long-term partner to the broker community.

That requires us to consistently deliver for both the broker and their client. We're investing in better technology, processes and local talent to support our aspirations in this channel. Importantly, we also have aligned incentives to encourage both new sales and strong retention. The growing level of RFP activity and new client wins tell us our value proposition is resonating with much more runway ahead for future expansion. That brings me back to where we started.

At the beginning of 2026, we were very clear about what we had to improve. And through the third quarter, we've made tangible progress.

Pricing is aligned with broader market trends, retention is improving. Our investments in technology, service and capabilities are strengthening the overall TriNet value proposition. New sales returned to growth. Our sales organization is now adding capacity and broker activity continues to grow. As we enter the final quarter of 2026 and begin looking forward towards 2027, our focus is on translating these improvements into sustainable, predictable growth. With that, I'll turn it over to Mala. Mala?

Mala Murthy

Thank you, Mike. The third quarter saw a continuation of several first half themes. We benefited from disciplined pricing, better-than-expected insurance results, improved new sales and strong retention. The broader economy remains mixed. The move higher in interest rates and other macroeconomic challenges was a headwind to SMB growth. Like the broader economy, our professional services verticals saw no net hiring in the quarter. Even so, we exited the third quarter well positioned for a strong finish to 2026. With that, let's dive into our third quarter financial performance.

Total revenues in the third quarter were $1.2 billion, declining 5% year-over-year in the third quarter, impacted by lower WSE volumes when compared to last year, offset in part by insurance and professional service revenue pricing. The impact of our first quarter repricing efforts on our WSE count and total revenues persisted throughout the third quarter. We finished the quarter with approximately 295,000 total ending WSEs, down 11% year-over-year. As a reminder, total WSEs include platform users or those users who are accessing our platform as well as co-employed WSEs or those users receiving the full benefit of our PEO services.

We ended the third quarter with approximately 269,000 total ending co-employed WSEs, down 11% year-over-year. Our expectations for full year retention forecast have modestly improved. Health care pricing cited as a reason for attrition declined in both share and absolute terms, driving that improvement. On CIE, third quarter is often weak due to seasonal workers departing, and we saw that again this year. Professional services revenue in the third quarter was $157 million, down 7% year-over-year, in line with our forecast. We once again saw favorability in our reporting methodology for state tax-related revenue and benefited from Cocoon results.

ASO remains in line with expectations, with professional service revenue impacted by lower co-employed WSEs. Interest revenue in the third quarter was $13 million, a decline of 24% versus the prior year. Like the first half, the expected reduction of cash balances for certain tax credits drove the bulk of the year-over-year decline. Higher-than-forecasted interest rates contributed to a modest outperformance in interest revenue relative to our expectation.

Turning to Q3 Insurance Services performance. Insurance service revenue declined 4% year-over-year, primarily driven by lower overall WSEs, offset by pricing, while insurance costs declined by 5%.

As a result, our third quarter insurance cost ratio came in at 89%, a 1 point year-over-year improvement and within our target ICR range. We continue to see health cost trends in the high single digits and in line with broader market trends. Q3 pharma cost trends remained below forecast, but were higher than the first half, indicating some normalization of cost trends. Medical costs benefited from inpatient procedures remaining below forecast.

It's important to reiterate that while our pharma cost inflation this year has been lower than forecast, we do not view this as a change in long-term trend given the probable future introduction of high-cost drugs.

In the third quarter, operating expenses, which exclude insurance costs and interest expense, increased by 2% year-over-year, largely reflecting additional Cocoon costs as well as strategic investments. As a reminder, based on our first half performance, we accelerated investments into our distribution efforts, benefits offerings and service model. These investments will incorporate AI throughout and are slated for the current fiscal year.

Our effective tax rate in the quarter declined 13 points year-over-year to 19% as we had success capturing additional nonrecurring R&D tax credits related to our platform development.

Turning to earnings. Third quarter GAAP earnings per diluted share were $0.65 and adjusted net income per diluted share was $0.94. Our business remains a strong cash-generative business, which supports our investment priorities and business execution. During the third quarter, we generated $89 million in adjusted EBITDA, representing an adjusted EBITDA margin of 7.6%. We grew net cash provided by operating activities by 11% to $80 million and generated free cash flow of $53 million. Our balance sheet remains strong.

Given the recovery in our adjusted EBITDA, our gross debt to adjusted EBITDA ratio over the trailing 12 months now rounds up to 2x, returning us to our targeted range.

Given our outstanding debt is fixed rate, our interest expense has not been impacted by higher interest rates. Our capital priorities remain reinvesting in our business for growth, M&A and returning capital to shareholders via share repurchases and dividends. In the third quarter, we leveraged our cash generation to return $33 million to shareholders across share repurchases and dividends. We repurchased approximately 281,000 shares for $19 million, and we paid a $0.29 dividend in the quarter.

Turning to our full year guidance. We are leaving our guidance unchanged, and I will share where we believe we are trending within our provided ranges.

For total revenues, our range is $4.75 billion to $4.9 billion. We believe total revenues are trending towards the bottom end of our full year guidance range, reflecting the WSE headwind incurred in the first quarter as we repriced a segment of our customers. On professional services revenues, our range is $647 million to $663 million. We are trending towards the high end of that range. Our ICR range remains 89.5% to 88.5%, with a onetime benefit of approximately 50 basis points in Q2 as well as improved performance this year.

We believe we are now tracking to the low end of the range or 88.5%.

I should also note that we continue to price new and renewal business by targeting the higher end of our 87% to 90% range. Our adjusted EBITDA margin range remains 8.5% to 9%, with us currently trending towards the high end of the range. GAAP earnings per diluted share are in the range of $2.85 to $3.35, with adjusted earnings per diluted share in the range of $4.50 to $5.10. Based on our performance year-to-date and our Q4 forecast, we believe our adjusted earnings per share are tracking at the high end of our guidance range.

As we look forward to the fourth quarter and 2027, we have positioned TriNet well to build on our growing momentum. We remain disciplined with our pricing, which properly reflects current inflationary cost trends, and we are making progress on our key strategic priorities. We continue to prudently and opportunistically invest in our business, and we are well positioned to finish the year strong. With that, I will pass the call to the operator for Q&A. Operator?

Operator

[Operator Instructions]

And today's first question comes from Jared Levine with TD Cowen.

Phần hỏi đáp

Jared Levine

I want to start in terms of sales. So it was good to hear the acceleration in 3Q and expecting further acceleration in 4Q. I guess based on kind of the current pipeline demand environment, how are you feeling about 1Q sales, particularly as you add more sales headcount here in the next few months here?

Michael Simonds

Jared, it's Mike. Thanks for the question. Appreciate it. And yes, no, encouraging momentum building, as you recall, second quarter sales were roughly flat, mid-single-digit growth here in 3Q. I think we're in a spot we can feel pretty confident about high single digits in 4Q. And to your specific question, as we look at the pipeline for January, there's a lot of work to do over the coming 6, 7 weeks, but certainly, we're in a spot to sort of build on that momentum that we've seen emerge in the second half of the year.

And I think what's nice is not just to see the sales growth coming, but to see it coming as a result of the investments we've made over the last 18 months that give us some confidence that it's here and it's sustainable. So it's things like the Ascend program, which is now the first 2 cohorts have rolled out. And so that's contributing to 10-plus percent growth in our sales consultants in the market here through the selling season.

It's also having more than 110 of those Ascend participants currently in-house. And so we've got a good line of sight to cohorts that will roll out and help us continue to grow the sales force in 2027 as well.

And then, of course, we talked a lot about the broker channel, and we talked about the pipeline that was building early in the year, and now that's materialized into being a really strong contributor to our sales growth here in the quarter. And encouragingly, as we look at the brokers across the MSAs across the country, we know we're just kind of getting started, and there's a lot of runway to build really good, strong relationships based on quality business that drives new sales, but also retention over time.

Jared Levine

Got it. And I wanted to dig in on the updated ICR guidance here. So it does imply for 4Q here, even to get to the low end of that range there, the 88.5% here, an increase in ICR for 4Q. Anything to call out in terms of onetime impacts or maybe some conservatism in terms of why that implied, I guess, degradation in ICR implied in that 4Q guidance here? And any other kind of considerations to be mindful of as we think about 4Q ICR would be helpful.

Mala Murthy

Yes. Jared, this is Mala. Thank you for the question. Good morning. As we think about ICR, first of all, we are really pleased with the outperformance year-to-date in ICR. Q3 was yet another good quarter of ICR outperformance. And it's as Mike outlined in his prepared remarks, one of the 3 key priorities that we were focusing on for the year. So good to see that coming online.

From a 4Q perspective, you all know that it is our seasonally highest ICR quarter every year. And it's really largely that high ICR in 4Q is largely driven by the resetting of our pooling limit deductibles and the fact that WSEs by now have largely burned through their deductibles. So that trend is definitely continuing. So that is certainly a reason for the high ICR in 4Q.

And 2 other things I would say. The fact is year-to-date, we have had a lower ICR driven by the trends that we are seeing. Our trends have been lower than forecast. So it's not that ICR in Q4 is particularly weak. It is just in relation to the year-to-date outperformance you've seen, we should look at it in juxtaposition. And the last thing I would say is we have always in Q4, thought about volatility. So we have seen volatility in claims performance in the later part of the year.

So certainly, as we thought about our forecast and guidance, Jared, we have accounted for some amount of volatility. Now look, volatility can be positive or negative. And if it works to our favor, then you could see some modest outperformance in our ICR.

Operator

And the next question comes from Andrew Nicholas with William Blair.

Unknown Analyst

This is Dan on for Andrew this morning. Starting going back a little bit on the sales front, if you can expand a little more on how you're feeling specifically about renewals this fall selling season, given the industry cost dynamics and what that means for the starting point for WSE growth in 2027. I know you mentioned some modest improvement year-over-year. But is there continued room for that retention to improve going into '27?

Michael Simonds

Dan, thanks for the question. And yes, I mean, if I take a step back, you think about the beginning of the year, pretty simple set of objectives, get ICR back in the targeted range. And it was good to see that happen in the first quarter of the year, and as Mala said, sustained here through the 3Q year-to-date numbers. To your point about sales, again, it's really key to see that growth start to emerge after a flat 2Q, and it's starting to come through nicely here in 3Q and accelerate a bit as we look at 4Q and the January pipeline.

And then to your specific question on retention, we did have a difficult start to the year as we were doing the last of our catch-up repricing on health fees. We really saw retention bounce back in 2Q. And now we're in that spot where again, with 3Q and 4Q renewals largely placed. And we feel like we can actually, despite the repricing, do a bit better than our historical average here for retention overall. And I think, again, a lot of work to do on placing January renewals. But where we sit right now would suggest, again, a continued build on that momentum that we've seen through the year.

And a lot of that is, one, having done the work to catch up to renewals. We have made some pretty substantial investments in the actuarial talent, the processes that we've improved and put in place and how we go about pricing and renewing business. We have a new rating system that allows us to be more granular in assessing the risk out there. It sort of helps us build some confidence that we're balancing the retention with the right level of forward-looking cost increases. So when does WSE growth emerge exactly? I'm not going to try to pinpoint on this call, but it's very clear that we're on the right path when it comes to managing that ICR, delivering sales growth and getting retention up to a higher level.

Unknown Analyst

Okay. Great. That's helpful. And then one more back to maybe a little bigger picture on ICR, but if you can kind of estimate the balance in this year's improvement in the metric, the balance between sort of more favorable market conditions versus the actions that have been taken internally over the past couple of years, just to kind of get a read on the sustainability of these levels going into next year and obviously progressing toward the medium-term targets, whether that's a reasonable expectation next year and beyond?

Michael Simonds

Sure. Thanks, Dan. And we've talked about a long-term target for the insurance cost ratio overall being in that 87% to 90% range. And the way that we think about it is when we're in a period like we are in right now, and I think folks on this call can really appreciate the fact that high single-digit, low double-digit type health care cost inflation for going on 3-plus years now, that's -- it's been a long time since we've seen that level of increase across the industry for this level of kind of sustained period. And it compounds, right? So it's a real pressure item to be managed and to stay on top of.

And we feel like within that 87% to 90% in a period like this with this level of inflation across the market, we're really targeting towards the top end of that range. If future cycles prove to hold, which I suspect that they will over time, as some of that health care cost inflation moderates a bit, that will give us an opportunity to price down towards maybe more of the middle part of that range.

But as we're making decisions around new business and renewal pricing in this kind of an environment, we think the right balance to strike with our clients is towards the top end of that range.

Mala Murthy

I'd also add, we won't go into providing a '27 outlook for ICR, but just a couple of additional comments to Mike. Look, trends are still in the high single-digit range. And as we said in our prepared remarks, we have seen lower than that in terms of pharma. But as we look out to pharma trends in particular and think about the use of specialty drugs as well as GLPs, we do expect that it will -- pharma trends will reassert to what we had originally been expecting.

And then the other thing is in Q2, we did have a onetime nonrecurring benefit from the settlement that we discussed, right? So let's just keep that in mind as we think about '27 and go-forward ICR in addition to the fact that, as Mike said, we are pricing to the higher end of our 87% to 90% target range.

Operator

And our next question comes from Kyle Peterson with Needham & Company.

Ross Cole

This is Ross Cole on for Kyle Peterson, and good morning. So I was wondering if you could maybe go into some of the drivers behind it. It appears there's a bit of a step down in EPS for Q4. Maybe you could explain a bit of what's driving that?

Mala Murthy

Yes. So to be crystal clear, when we gave guidance in July, where we talked about our adjusted EPS in the range of $4.50 to $5.10. And we have reiterated that guidance this morning, but we have also signaled that we are -- we expect to come in at the top end of the range at $5.10.

And what I would say is the drivers of that signaling we will be at the top end of the guidance range is really twofold. One is relative to our own expectations, we did have a beat in 3Q, driven really by a combination of factors such as outperformance in interest income, as we talked about from an ICR perspective, and we did reinvest some of that beat into incremental strategic investments. But essentially, we are -- we did have a beat relative to our own expectations.

And the second thing is from an ICR perspective, we have also signaled that we are expecting to come in at the low favorable end of the range. And our signaling of full year EPS being at the high end -- at the high end of the range really reflects the combination of those 2. So I would say to you, keep those 2 factors in mind as you look at our expectations for the fourth quarter.

Ross Cole

Great. And I was also wondering if you could maybe talk a little bit more about WSE in terms of retention and new sales growth. What are you seeing this look like in '27, if you can give any additional color there? I know you've already touched on it a little bit.

Michael Simonds

Yes. Probably a little too early to share much detail on '27. Part of the reason is we're right in the thick of it right now in terms of placing renewals from January 1 and a very large pipeline to work through in terms of new business. But as hopefully, you picked up in some of the prepared remarks. On both fronts, as we've worked our way through 2026, we've seen building favorable momentum.

And so on the case of retention, think about a long-term historical average around 80% retention at TriNet.

Despite a challenged start with our January 2026 renewals, we've kind of come all the way back to actually feeling like we're going to be a bit ahead of our expectations for the year, which were more in line with that historical norm. And frankly, our expectations are that as we continue to invest in our service model, in the capabilities that we talked about in the call today, we're sort of operating at a record high Net Promoter Score for TriNet right now and frankly, feel like we've got room to improve there.

So our expectations around retention, again, not kind of pinpoint January 27, but over the midterm are certainly higher than that historical average. And similarly, with new sales, it isn't just about getting new sales growth in the very short term. It's about getting growth that's sustainable over time. So the investments in the local talent, the investments in the capabilities that help differentiate us, just being a bit smarter about how we assess health care risks on the back of the investments we've made in insurance services,

all of those things kind of give us a growing sense of confidence that our renewals or our retention continue to improve over that medium term. And again, not to try to peg '27 or a WSE growth inflection point. But as you know on this call, that certainly, the next big milestone is now ICR is back in the range, retention improved, sales is improving is to see the gross revenue really start to come through as well, and we would expect that as a kind of next mile marker that we're on track for.

Operator

And the next question is from David Grossman with Stifel.

David Grossman

Mike, this has been an unusual year in some respects just because of all the pricing going on in your book, combined with another year of outsized health care trends. So just wondering, is there anything that we should think about going forward in the context of now that you've reset pricing in the vast majority of the book, if health care pricing stays elevated, is there anything we should be thinking about in terms of your competitive positioning now that the entire book has been repriced? Or are we -- is there really nothing different, if you will, going forward now that the book has been repriced and cost trend remains elevated?

Michael Simonds

Yes, good morning, David, I appreciate that question. And I would say it does feel like we've got another year across the market of a pretty challenging set of health care cost trend increases. And it feels good to have made a series of investments to improve how we sort of predict, assess and price for that risk at acquisition and reacquisition. And that's a constant process, right? So new rating system this year, improved processes, but there's clearly things we can do to improve our model.

So we're going to continue to just be smart and strike that right long-term balance with our clients that makes their budget more predictable and puts TriNet in a place to be competitive in the market. From a competitive set, I really wouldn't point to any dramatic change. Maybe one thing I would say is we have seen some larger private players that have been growing pretty rapidly as we're looking at our pipeline, we're seeing some pretty outsized renewals that are coming in. And so I don't think that, that's necessarily unusual or unexpected. But at some point, you got to -- you do have to catch up to where the trend is. So we're going to be very sort of thoughtful and disciplined as we go through that.

But on the margin, there's probably a little bit of opportunity for us to add some good clients and remain disciplined through that.

David Grossman

Is there anything, again, just based on historical kind of dynamics when trends stay elevated, the impact it has on the customer and their employees in terms of participation rates, type of plans that they and anything that we should keep in mind given that you expect another high single-digit year of cost trend next year?

Michael Simonds

Yes. No, it's a great point. And actually just looking at 3Q results, there is going to be a little bit of downward pressure on participation in the health programs across the client base, just as the per member costs continue to climb. And again, it's not dramatic. It doesn't sort of drop off a cliff or anything like that, but there is a little bit of downward pressure on that piece. Some of our larger clients, another thing that we pay attention to is like as they get larger, they don't outgrow the full PEO model, but they may want to seek a self-secured plan or a level-funded plan. So being able to maintain the majority of the service value proposition, but allowing them to find the right answer in the open market, we've seen a bit of a growth in the number of renewals and new clients coming on in that kind of an open market situation as well. We'll watch the buydowns of plan design as well. At this point, we really haven't seen a dramatic shift outside the norm in terms of going into higher deductibles, things like that.

But part of our reworking of our health plan library into bundle set was to enable clients to hit price points and do it in a sustainable way. So yes, over time, we could probably expect to see a little bit of buydown activity as well.

David Grossman

Right. And just one other kind of bigger picture question. I mean, obviously, there's some meaningful differences between you and a couple of your other very large competitors in terms of the risk that you take on your health plan. So as we get past this kind of period where you're reformulating the model -- how should we think big picture about your growth in WSEs versus those competitors that really aren't taking risk? Do you have any thoughts on that?

Michael Simonds

I think because we take risk and then another dynamic, David, I know you're familiar with is we're repricing a cohort of our business every quarter. And other PEOs, I'd say the vast majority that are on a pass-through and not taking risk are getting our annual plan and renewal. It enables us to move a little bit quicker. And so we sort of see that in the repricing of our book and working through that. And then over time, and we don't see this in the short term, but over time, as that health care cost inflation moderates, that actually enables a little bit of a window for us to move a little bit more quickly to reflect some of those moderated trends in our new business and our renewal pricing as well.

So there could be that opportunity. When that shows up, I won't try to predict, but that's another opportunity for us as well.

David Grossman

Right. But structurally, you don't see that difference is really manifesting itself in a different secular growth rate relative to those models. Is that what I'm hearing?

Michael Simonds

No, I don't think so. In general, I think as long as you're at scale, over the midterm, those things are going to balance out.

Operator

And the next question comes from Tobey Sommer with Truist.

Tyler Barishaw

This is Tyler Barishaw on for Tobey. You mentioned retention modestly improving. Can you maybe just walk through some of the drivers of that?

Michael Simonds

Sure. So we got off to a little bit of a weaker start with retention as we had our last sort of most significant catch-up repricing on our health fees. And so that was on January renewals in the first quarter of this year. And we talked earlier in the year as we were talking through those results that the health fee increases when we looked at reasons for attrition that, that was far and away our biggest driver.

And as we've now got our health fees priced much more to sort of current trend as we sort of work through the year, we've seen our retention improve quite a bit, and we're sort of in a spot now with having communicated fourth quarter renewals to feel confident that we're actually going to come all the way back and finish a bit ahead of our original expectation.

I think what's important is it's certainly the first step is getting the health fees repriced and hitting that key milestone. I think importantly, when you get to that point where much more in line with market trend, then your overall service proposition really starts to come through. And so as I mentioned, operating at a TriNet sort of record level of NPS, the investments we're continuing to make to sort of grow the relationship into things like managing a global workforce, managing IT and spend categories. Those things add real value to the client.

They're deeply integrated into the HR workflow that we own, and it provides greater stickiness. So our goal is over the midterm to continue to increase our expectations around client retention beyond even what we've been able to accomplish this year.

Operator

And this concludes today's question-and-answer session. I would now like to turn the conference back over to Mike Simonds for any closing remarks.

Michael Simonds

Thank you, and I appreciate everybody dialing in this morning and for the good questions. And just maybe to finish where we started the call, a pretty straightforward path for getting TriNet back to profitable growth, and I'm pleased with the progress that we've made. Our repricing is behind us. Retention is improving. Sales have returned to growth. So hopefully, that sense of momentum came through in the report and in our discussion today, and we certainly look forward to meeting with many of you over the coming weeks. And with that, let's conclude the call. Thanks, Chris.

Operator

Thank you. The conference has now concluded. Thank you all for attending today's presentation, and you may now disconnect.