Q4 2023 TriNet Group Inc Earnings Call
Participants
Alex Bauer; VP, IR; TriNet Group, Inc,
Burton Goldfield; Former President & CEO; TriNet Group, Inc.
Mike Simonds; President & CEO; TriNet Group, Inc.
Kelly Tuminelli; EVP & CFO; TriNet Group, Inc.
Kevin McVeigh; Analyst; UBS Group AG
Kyle Peterson; Analyst; Needham & Company, LLC
Jared Levine; Analyst; TD Cowen
Andrew Nicholas; Analyst; William Blair & Company, L.L.C.
Andrew Polkowitz; Analyst; JPMorgan Chase & Co.
David Grossman; Analyst; Stifel Financial Corp.
Presentation
Operator
Good day and welcome to the TriNet fourth quarter 2023 earnings conference call. (Operator Instructions) Please note this event is being recorded. I'd now like to turn the conference over to Alex Bauer, Head of Investor Relations. Please go ahead.
Alex Bauer
Thank you, operator. Good afternoon. My name is Alex Bauer, and I am TriNet's Head of Investor Relations. Thank you for joining us, and welcome to TriNet's 2023 fourth quarter conference call. I am joined today by our current President and CEO, Burton M. Goldfield, our CFO, Tuminelli; and our future President and CEO, effective tomorrow, Mike Simonds.
Before we begin, I would like to address our use of forward-looking statements and non-GAAP financial measures. Please note that today's discussion will include our 2024 first quarter and full year financial outlook and other statements that are not historical in nature, our predictive in nature or dependent 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 10-K filing, which are available on our website or through the SEC website. And with that, I will turn the call over to Burton. Burton?
Burton Goldfield
Thank you, Alex. For fiscal year 2023, including the fourth quarter was highlighted by strong and accelerating new sales growth near record customer retention and prudent expense management. I am particularly pleased with these results, given we successfully executed in the areas that are under our direct control by emphasizing our value proposition, expanding our sales force and improving our go-to-market efforts. Fourth quarter new sales growth exceeded our forecast and my high expectations. We successfully executed on our plan to enhance customer service, which resulted in near record customer and WSE retention rates across all customer sizes with a difficult 2023 economic environment, we responded by managing our expenses prudently and made every dollar of investment counts given our strong execution across all facets of our business, we believe our stock in 2023 represented significant long-term value. We bought back over $1.1 billion in TriNet stock. As you know, by now today, I announced my retirement as CEO of TriNet effective midnight tonight as CEO of TriNet for over 15 years. My overarching vision was to build an enduring company, one that thrives for decades and one that is fundamentally different. I view this as a very high standard, but more importantly, it is actionable by every colleague at TriNet. This standard impacts who we hire, how we train and invest in our colleagues' growth and development, the balance of short term versus long-term investment to achieve our strategic plans for the future, and most importantly, how we treat our customers and partners, providing them unparalleled value and a vision for a long term relationship.
Trinet introduced to the PEO industry, a vertical go-to-market strategy where we focused our sales and services on six core dynamic industries, technology, financial services, professional services, life sciences, nonprofits and Main Street. This remains a hugely successful approach to the market and has given TriNet a customer base consisting of the most dynamic SMBs in the US economy. Because of this approach and the effectiveness of our execution, we have been able to attract dynamic salespeople, keep them longer and ultimately grow our team.
During the fourth quarter, we leveraged our go-to-market approach, benefited from our larger, more mature sales force, and we delivered new sales ACV growth, up 55% year over year. I am pleased to report that this drove 2023 full year new sales ACV growth to 32% year over year. More importantly, our sales momentum continued into January 2024, where we realized the best new ACV performance in our company's history. New sales in the month of January grew by 56% when compared to the previous year. I look forward to continued new sales momentum, which is not only driven by strong sales execution, but also exceptional service and a very strong brand. Enduring companies are associated with strong brands. And at TriNet, we have built the strongest brand in the PEO industry in recent Harris Poll showing TriNet aided awareness was 82%, the highest in our company's history. But for me, it is not enough to have brand awareness. I have always wanted TriNet to be viewed as a trusted advisor for our customers. I was pleased to find that in the same Harris Poll showing TriNet's reputation is the strongest in our industry. Trinet brand triggered the highest positive emotional response of all the key players in the PEO. industry. Said differently, our strategy is working and I am very proud. We have come a long way with our brand and TriNet is in an excellent position to leverage this brand now and in the future, just this week, we were informed by Newsweek that we were ranked number one in the Excellent 1,000 Index for 2024. The global companies listed in this index exhibited a firm commitment to best practices in business and financial growth. Newsweek partnered with the best practice Institute to conduct this index. I am particularly proud of this recognition and it highlights TriNet success in balancing employee satisfaction, R&D investment, ethical impact and customer excellence. Among other factors. Trinet will always work to keep our customers at the center of everything we do. We are continually evolving and enhancing our service model, striving to ensure that our customers are being served in a fashion that exceeds their expectations.
As I discussed on our last earnings call, our Net Promoter Score saw significant year-over-year improvement. And for 2023, we realized the second highest customer retention rate in company history across all customer sizes throughout my years.
At TriNet, I've stressed the importance of technology innovation and the importance of owning our own technology. This is strategically important so that TriNet is in control of our future as the market continues to evolve, there are few examples of organizations in any industry that have fallen behind the technology curve, and we have been able to maintain predictable growth and profitability at TriNet Technology is the bedrock that provides scale in service of our exceptional customer base. It enhances the accuracy, expediency and breadth of value our service team delivers with the acquisition of Zenefits. We accelerated our commitment to technology innovation, specifically around API integration, benefits, administration and advanced payroll constructs that are flexible and easy to adopt. Trinet is well on the path, developing a unified platform with an advanced data model that can serve our customers throughout their business life cycle, including PEO. and HRIS. I am proud of the many acquisitions over the years and particularly proud of the colleagues from these acquisitions who still today are an integral part of TriNet value. This trend started with Gevity in 2009 and many of our current senior leaders came from this acquisition 15 years ago. This is the embodiment of an enduring company where colleagues can grow and prosper personally and professionally by committing to our mission. Trinet is exceptionally well positioned as a tech-enabled business services company with growth, predictability, profitability and strong free cash flow. This can only be provided by a company with dynamic technology complemented by extraordinary service delivered by an incredible team, all of this is to say I am confident that TriNet best days are ahead. I feel the Company is in an excellent position with strong momentum to facilitate my retirement with today's announcement of Mike Simonds is TriNet's next CEO. TriNet took another extraordinary step on our journey as an enduring company. Mike brings extensive SMB market and insurance experience as well as strong credentials across all facets of management. I'm confident Mike is the right leader for TriNet as we enter into the next phase of our growth. I will still be here working with the company through the end of March 2025 to ensure a smooth transition. With that, I will pass the call to Mike, so he can share a few words with you. Mike?
Mike Simonds
Thank you, Burton for your extraordinary leadership at TriNet. These past 15 years, yours are going to be big shoes to fill. And I very much appreciate your commitment to stay on as an adviser to ensure a seamless transition. I've spent much of my career working with insurance benefits and HR technology and certainly have always appreciated TriNet.
Excellent reputation in the market, the more time I spend conversation with the company and others in the market. My excitement grew about this business, strong brand and culture, excellent cash generation and a large market opportunity still in front of us by primary focus initially will be supporting the team as we onboard the customers associated with our record January as well as getting out to meet with colleagues, customers, marketplace partners and our investors. I look forward to opening up a dialogue with all of you in the coming weeks and months. Now I'll pass it on to Kelly to take you through our financial results and guidance. Kelly?
Kelly Tuminelli
Thanks, Mike. I know I speak for our colleagues in welcoming you to training during 2023 TriNet continue to excel in the areas we control. We accelerated new sales growth. We kept customers longer, and we manage our expenses prudently while still investing in our growth and digital transformation.
As it relates to capital, we publish our financial policy and capital allocation approach to our investors. We issued $400 million of bonds and renegotiated and borrowed on our revolving line of credit, and we repurchased over $1.1 billion of our stock. This execution reflects the continued maturation of the company's financial management we built towards these actions over several years, having negotiated borrowing terms, issuing long-term debt and enhancing our forecasting capabilities. To top it off, we just announced today the initiation of a quarterly dividend of $0.25 per share. The initiation of our dividend signifies two things for TriNet. One, we manage a business that generates significant and predictable corporate cash flows, which enable the funding of a dividend and to with that dividend, we now have diversified capital return options for shareholders consistent with our financial policy.
Now let's dive into our fourth quarter and full year financial performance in greater detail. Total revenues grew 2% year over year for the fourth quarter and 1% for the year, in line with our guidance range. Total revenues performance for the year was largely characterized by the offsetting impacts from lower average WSE volumes and higher rate and mix contributions are lower. Overall average WSE volumes was due to workforce reductions in some verticals of our installed customer base and a lack of hiring and others throughout 2023. This was a result of the challenging economic environment, particularly in the technology sector, professional service revenues in the quarter and for the full year were flat year over year, in line with our guidance, consistent with our total revenues performance, professional services revenues were impacted by lower volumes, largely driven by the lack of customer hiring, offset by modest rate increases in HR. HRS s performance.
Our HRH's performance for the year was driven by three factors. First the renegotiation of certain broker arrangements during the third quarter. Second, our success at lifting price to properly reflect the value of our HRPF services provided. And finally, our HRH's performance benefited from a full year of revenue in 2023 when compared with the timing of our acquisition in February of 2022.
Regarding WSE volume, we finished the year with approximately [348,000] WSEs, slightly down year over year. This reflected a continuation of the trends we experienced throughout 2023. We saw net positive contributions from new sales. Customer hiring was significantly lower than historical levels, but modestly positive and retention remained strong. Last quarter, we introduced a broader WSE definition, which reflects those receiving PEO services and using the value of our PEO platform as we build our new platform and think through the opportunities to drive revenue by delivering value to an even broader base. We will continue to work through our existing categorizations and adjust as appropriate. We do earn revenue on each of these WSEs at varying levels as we refine our processes and expand our product offerings the incremental service fees we receive on these WSEs will be additive to PSR. The recategorization of WSEs added just under [12,000] to our final tally. On a legacy apples to apples comparison, we finished the fourth quarter with [336,000] WSEs, down 4% year over year and flat sequentially.
For the fourth quarter, our insurance cost ratio was approximately 87% lower than our forecasted range for the quarter of 88% to 92%. For the full year, our insurance cost ratio was 84.3%, slightly lower than our latest guidance range for the year of 84.5% to 85.5%. The lower insurance cost ratio in the quarter reflected an uptick in health care utilization, particularly in November, more than offset by favorable workers' compensation prior period claims development. This Workers' Compensation trend was consistent with our full year experience Turning to operating expenses in the quarter, we continued to prudently manage our expenses in response to the challenging economic environment. We saw that our plant hiring would remain choppy throughout the quarter. And therefore, we began to scale back or cancel some of our discretionary hiring and project spending while still ensuring we were investing in critical go-to-market capabilities.
The recalibration of our expense run rate strengthens our cash flow position as we wait for our clients to resume hiring. As such, for the fourth quarter, operating expenses declined 6% year over year and for the full year, operating expenses grew a modest 2%.
Now let's move on to earnings per share. Fourth quarter GAAP net income per diluted share exceeded the top end of our guidance by $0.31 to $1.31, up 68% year over year. Our fourth quarter earnings outperformance versus our guidance was driven by expense favorability and the Workers' Compensation performance I just discussed. This brought full year GAAP net income per diluted share to $6.56, up 17% when compared to 2022.
Fourth quarter adjusted net income per diluted share also exceeded the high end of guidance by $0.27 to $1.60, up 44% year over year. This brought our full year adjusted net income per share, $7.81, up 10% versus 2022, exceeding the top end of guidance by $0.26.
Turning to capital allocation. Today, we announced the institution of a quarterly dividend of $0.25. The record date will be April 1, payable on April 22. With the institution of our new dividend, TriNet capped off an extraordinary year.
As it relates to our capital allocation strategy, our capital priorities remain unchanged. We will always invest in our business for growth. We will explore accretive M&A, and we will return capital to shareholders through both share repurchases and our newly instituted dividend.
During 2023, we publicly articulated our financial policy, which included our commitment to manage our business at a leverage ratio of 1.5 to 2 times adjusted EBITDA and return up to 75% of free cash flow to investors. For the year, we generated $539 million in corporate operating cash flow, an 8% year-over-year increase, and we generated $697 million in adjusted EBITDA representing 1% year-over-year growth. In summary, we exit 2023 in a strong financial position.
Now let's turn to our 2024. First quarter and full year outlook where I will provide both GAAP and non-GAAP guidance. In the first quarter of 2024, we expect total revenues to grow in a range of 0% to 3% year over year and professional service revenues to grow in a range of 2% to 8% year over year.
Our first quarter revenue growth guidance includes contributions from the sales growth and strong retention, offset by the limited contribution from CIE as weak customer hiring trends persist. In Q1, we are planning for health care utilization to increase over recent experience this will result in an insurance cost ratio between 82.5% to 86.5%, reflecting our seasonally lower ratios at the beginning of each year. This brings our estimate of first quarter GAAP net income per diluted share to be in the range of $1.81 to $2.55 per share and first quarter adjusted net income per diluted share to be in the range of $2.10 to $2.85 per share.
Regarding our full year 2024 guidance. We are forecasting our year-over-year total revenues to be in the range of down 1% to up 4%, with our professional service revenues to grow in the range of 1% to 5% year over year. We expect our insurance cost ratios to follow seasonal patterns and reflects favorable cost ratios in the first and second quarters as participants worked through deductibles. We then foresee a return to higher insurance cost ratios in the third and fourth quarters as deductibles are exhausted and when pooling limits reset in October, we should continue to benefit from strong Workers' Compensation performance. These trends bring our full year insurance cost ratio forecast to be in the range of 86.5% to 88.5%. This ICR projection is about 2 to 4 points higher than our 2023 results, reflecting increased healthcare utilization, higher provider costs, particularly for outpatient services and higher pharmaceutical pricing as we see continued adoption of GLP-1s. As an example, we will watch this closely throughout 2024 and assess any refinements needed as we determine quarterly pricing changes.
Regarding our expectation for operating expenses, we will continue to manage our expenses prudently. As such, we expect a modest low single digit increase in operating expenses for the year given these anticipated trends, we expect full year GAAP net income per diluted share to be in the range of $4.57 to $6.08 per share and adjusted net income per diluted share to be in the range of $5.80 to $7.35 per share. Our guidance for adjusted net income per diluted share includes a net benefit of between $0.25 and $0.30 per share at the midpoint versus a benefit of $0.13 per share last year as a result of our 2023 share repurchases. For 2024, we're assuming in our guidance a level of share repurchases that will continue to offset normal dilution arising from stock compensation. Before I pass the call back to Burton for his concluding remarks, I would like to take a moment and thank him for the leadership he has provided TriNet over the years and for the successful partnership we forged over the last 3.5 of those. We accomplished a lot in such a short period of time. Your vision for building TriNet into an enduring company redefined what PEO could be and created over $6 billion of enterprise value during your tenure. And now I speak for all TriNet colleagues when I wish you nothing but happiness in your well-deserved retirement. Burton?
Burton Goldfield
Thank you, Kelley. TriNet is a unique company made up of incredible passionate people throughout my over 15 years, leading TriNet. Our colleagues have been dedicated to solving problems for small businesses across the country, providing unparalleled service to our customers, building value for our shareholders and most of all supporting each other.
As we build this enduring company. I could not be prouder of the work that our team does every day, helping entrepreneurs to fulfill their dreams and ensuring that our country continues to be the center of innovation for the world. I am grateful to every one of our colleagues who have allowed me to lead them by channeling our combined passion in service of our customers in today's world, a diverse team of almost 4,000 committed people can do miraculous things.
As I end my last earnings call, I would like to thank my colleagues at TriNet. Thank you for what you do for our small business customers across the country every single day. I know you will continue to do this and will thrive in the future I am excited for my own future with my wife, Carol and my family, including my first grandchild. I am particularly excited to work with TriNet over the next year and watch all of you continue to grow and prosper. I am happy to take your questions now. Operator?
Question and Answer Session
Operator
(Operator Instructions) Kevin McVeigh, UBS.
Kevin McVeigh
Great. Thanks so much.
Burton Goldfield
Hey, Kevin.
Kevin McVeigh
Hey, Burton. Let me add my congratulations. I mean you've been a steward across TriNet for a long time, creating a lot of value and congratulations on your retirement here, first grandchild and just a terrific terrific job and rarely do see, CEOs go out on their own terms and it's just a terrific outcome for you. So congratulations on that.
Burton Goldfield
Thank you.
Kevin McVeigh
Hey, Burton, this might be a little unfair, but what do you think has been your greatest sense of upside from when you set out 15 years ago? I mean, I can't say the stock because that's obviously been terrific. But just to have a partner you've been so early in the sector. Just any thoughts on that more for the broader audience than me because I think it just you know, there's just going to be real knowledge for as you transition into retirement?
Burton Goldfield
Well, thank you, Kevin. And look, I can retire because of this amazing team, I can retire because the culture is focused on the customer, I can retire because we weren't following anyone. We were trying to lead the industry with unique technology, the vertical strategy, the service model. And I am just it it's not about me, it's about a culture that's been created where this company is going to do great. And I would never do this if I didn't think it would continue to grow and prosper. So I think like like any CEO, what have I done well?
I haven't changed the mission or the vision every year. I haven't said go after this shiny object or that shiny object for a while. I was a little bit of a lone ranger in that technology needs to be the substrate of scale and service to the customer. So we've been investing in technology during my entire tenure. I don't have to catch up right now, but you're I really appreciate your comments. I believe that our tech-first approach with great service and scale and the leadership around this executive leadership table combined with Mike coming in the door is a great combination. I'm really proud of that. I'm proud of the team more than my individual contribution.
Kevin McVeigh
That's terrific. I'm going to leave it there to the rest are just numbers and just a tough one.
Burton Goldfield
Thank you. You're awesome, Kevin.
Kevin McVeigh
Thank you.
Operator
Kyle Peterson, Needham.
Burton Goldfield
Hey, Kyle.
Kyle Peterson
Thanks, hey, guys, good afternoon. I guess all I'll pick up with the numbers here. But what do I do touch on the guide a little bit and see kind of what you guys had assumed for SCIE. for the current year, I guess it sounds like you guys are being you're fairly conservative based on client conversations, but just wanted to see if you guys had kind of modeled in any improvement in the back half or kind of what your expectations are as we sit here today?
Kelly Tuminelli
Hi, Kyle, it's Kelly, good to hear from you. It's a great question because it's something we watch every single day on as we're thinking about CIE. overall, 2023 was the lowest CIE year China has ever had. And I think it's just you have proof of our resilient model, frankly, that we were able to still grow revenue and profits and get there as we're looking into 2024 and what we're really forecasting on the low end, the guidance is really low single digit CIE at the high end of guidance where it middle single digit CIE. And I think that is it is skewed towards the back half of the year.
Kyle Peterson
Great. That's really helpful. And then just to follow up on good to see the dividend announcement today. I just wanted to kind of pick your brain on your capital return priorities for the coming year. I guess last year was a big year, obviously, from the buyback. I guess is the dividend is going to be the big or the prominent priority today outside of offsetting dilution? Or how are you guys kind of thinking about returning capital to shareholders for the current year?
Kelly Tuminelli
Yes, Kyle, right now our guide assumes assumes related to capital return, just just the offset of dilution because due to the timing stockprice, a variety of other factors. We don't actually bake that in, but we just laid out our financial policy in the middle of the year. So our priorities really have not changed. We're going to first invest in the business to drive growth. We'll look at accretive M&A. But and as it relates to returning capital to shareholders, we will look at both share repurchase opportunistically as well as the newly instituted dividend that we're doing. So our target is on average 75% return of free cash flow to shareholders then and we'll look at the tools we've got to see what what the best approach is.
Kyle Peterson
Great. That's really helpful. I'll leave it there. Thanks, guys and Burton, congratulations on the retirement.
Burton Goldfield
Thank you so much.
Operator
Jared Levine, TD Cowen.
Burton Goldfield
Hey, Jared.
Jared Levine
Yeah, I just would like a little bit to start. Yeah, first, I wanted to say current breadth, Bert, on the retirement, but in terms of the FY 24 Guy, can you give us a little more color in terms of what you're assuming in terms of average WSE growth and kind of how to think about the cadence of WSE levels for '24?
Kelly Tuminelli
Yeah. Well, you know, as you know, we are we don't forecast our WSEs or give a future guide on on WSEs, Jared. But the way that we're thinking about the pieces of it is given the sales momentum that we've got and the strong January that as Burton talked about, we've really narrowed the gap between new sales and and customer attrition, and CA definitely helps bring that up as well with the assumption that we've got right now. So we're not really forecasting WSEs, but you can tell probably from our both our professional service revenue growth forecast as well as our assumption around total GAAP revenue, roughly assuming how that comes in with a real low single digit on the bottom end for CIE.
Jared Levine
Got it. And then in terms of the FY24 ICR guide, does that assume a health insurance margin that's in line with what was contemplating your long-term ICR target of 88% to 90%?
Kelly Tuminelli
Yeah. When we related to 2024, really probably the difference in terms of us versus the 88% to 90% is the expected continued favorability from workers' compensation. Now we are looking at definitely health care prices increasing. We're looking at increased in pharma, pharma prices, et cetera. So that is contributing significantly to the year-over-year drop because we're not anticipating a 15.7% number or 84.3% insurance cost ratio going forward. So the increase in health prices, et cetera, are really driving that piece.
Jared Levine
And if I could sneak in one more here in terms of one of your competitors last week announced a partnership with Workday. Just thoughts on that announcement in terms of that competitive advantage, minimum new client sales for organizations with 100-plus WSEs.
Burton Goldfield
So I'll take that. There is plenty of opportunity for all the competitors in this space. We are still less than 50% of quotes are against the direct competitor. And the opportunity to address that space from a TriNet standpoint is completely in our hands with our software and our vision of technology and where it's going. Other competitors are taking a very different approach to that. And I believe that our expertise, our service and our core technology will lead us to a very, very competitive place as you go up market over the next couple of years. But there's there's plenty of room for everyone, and I welcome others to address that segment of the market as well.
Jared Levine
Great. Thank you.
Operator
Andrew Nicholas, William Blair.
Andrew Nicholas
Hey, guys, good afternoon.
Burton Goldfield
Hey.
Andrew Nicholas
I wanted to extend my congratulations as well, Burton. It's been a pleasure working with you. I do want to ask a question on the quarter and the guide as though on the sales force in particular, sounds like new ACV growth is very good. January momentum continued it. How much of that are you baking in too the guidance at this point? And if there's any way to kind of translate some of those ACV growth numbers into the fresher services growth guide that would be helpful for us to make that linkage.
Kelly Tuminelli
Why don't you start?
Burton Goldfield
Yeah. So it's a great question. And there's a couple of pieces to that. First, this strategy around the sales force and sales leadership is working. We were up 19% in net new sales capacity. That's a pure capacity number efficiency is also up. So you're seeing dramatic increases year over year. January was way up as we talked about and that's against a really strong January last year. So there's a lot of momentum in the net new ACV and the onboarding of our new clients. Additionally, and attrition is way down and retention is incredibly strong right now. So we're entering the year from a very strong position. It is really nice to be ahead of the curve at the beginning of the year, which is that continued momentum from Q4. So I see this continuing to accelerate and where we feel that we need to be really conservative is in the CIEC. or the hiring in our installed base. It's an area that is less under control. It's an area that will come back. There was strong sales and tech in January, it will take a matter of time, but controlling the costs and being realistic about this, the unwinding of the net new ACV into profitability is built into the guidance. And I'll turn it over to Kelly?
Kelly Tuminelli
Yeah. I mean, I think the critical point, Andrew, is that at the level of ACV that we're seeing in January, we're really narrowing the gap that we've talked about between new sales and attrition of our customers. So, you know, to Burton's point when hiring comes back, it's going to be terrific, but we're not planning on that right now and and in terms of what's baked into our forecast, we were well aware of our January results when we created the guidance that we came through. So that is fully baked in to our professional service revenue forecast right now, but you're seeing the growth year over year. If you dig into the underlying assumptions, we're assuming low single digit price increases we're assuming expansion of products and wallet share as we're offering new things to the market. We're looking at our broker channel as another source of value there. So all of those things add up together to to make our professional service revenue growth.
Andrew Nicholas
That's really helpful. And then maybe as a follow-up to that, Kelly specifically, it sounds like you've narrowed the gap in terms of new sales relative to attrition? Is the expectation maybe not this year, but '25 and '26 GAAP can be positive and then you can layer on kind of a normal CIE. On top of that, I guess it goes to Burton's kind of medium term, in essence, single, low, double.
Kelly Tuminelli
Yeah, you get it exactly. That's really our goal is to as we've been investing in cutting back our back office to be able to invest in the front office in our sales force. We are trying to narrow that gap. So that new sales will actually more than cover attrition and CIEL will be upside.
Andrew Nicholas
All right. And then if I could just squeeze in one more on the worksite employee trend. So I know there's some noise there with the reclassification and the platform user access fee, but just under the hood, like anything that you would say at the vertical level in terms of strength or stabilization relative to prior quarters, as we think about maybe the things that are outside of your control.
Kelly Tuminelli
In terms of we saw some some favorability from seasonal hiring in certain verticals on which we're looking forward to January as well. And we are seeing a little bit of choppiness across them. But no real clear signal at this point in time. And that's why we wanted to be conservative on our CA forecast and really turned it towards the back half.
Andrew Nicholas
Understood. Thank you.
Burton Goldfield
And Andrew, just to add one more point to that, we will continue to invest significantly in the sales engine and growth of sales reps. So the way you phrased that is exactly where we're headed. We need additional capacity. The additional capacity is coming on board, not only at the same efficiency, but at a higher efficiency. And as long as that's the case, we will invest in the sales organization. We're doing that at the same time, keeping overall costs relatively flat. So Kelly and the team have done an amazing job of reallocating dollars, keeping the service levels up, keeping referrals up, but we will continue to invest significantly into the sales channel throughout 2024. As long as the results continue the way they did in January.
Andrew Nicholas
Great. Thank you and congrats again, Burton.
Burton Goldfield
Thanks.
Operator
(Operator Instructions) Andrew Polkowitz, JPMorgan.
Andrew Polkowitz
Hey, good evening, guys. First Burton, I want to say congrats to myself, but also Tengion is always admired the long run you've had. So I wanted to share his Congratulations as well as a bank must go back to work and stick to it. And we have no problem. So I wanted to start with a question on the enrollment season. So obviously, we're through that. And I was just curious on what you guys saw as far as benefits attach rates somewhat. Are there any differences or improvements versus the last year?
Kelly Tuminelli
It's a really good question. We're seeing slightly lower benefit attach rates. I think it really is a signal of what's going on in the economy right now, we're seeing a little bit of buy down on plans as well, Andrew, and but you are still seeing sort of the vertical differences that we normally see financial services has the highest benefits attach rate, Texas, probably second, when we think about it from a vertical perspective, but they're all down maybe 1 point or 2.
Andrew Polkowitz
Okay, makes sense. Thanks for that, Kelly. And then just one follow-up for me on. I wanted to ask in an obviously, really strong ACV growth. Tom, I just wanted to see what you attribute it most to. So obviously, sales force tenure has been improving for a while now and you called out better client onboarding is there anything the demand environment maybe to call out to just basically had the attribution analysis and that strong ACV growth would be great.
Burton Goldfield
It is so great question. As you pointed out, first is just pure sales capacity we have more sales reps. Second is that as we've talked about on earlier calls, the uncertainty in the business environment is driving people to the PEO solution. So complexity and uncertainty is driving people to go to this type of model.
And then finally, the vertical focus is resonating in the market and the technology backbone is providing the best service we have ever delivered in my tenure at TriNet. So referrals are up. Broker channel was up, direct sales is up and the market, I believe, will continue to give us this opportunity. And as you know, there's about 40% of the revenue or the ACV generated in Q1. So we're pretty excited about where we are today to start ahead of the curve. And that's one of the reasons I'm particularly excited about how the year pans out. Additionally, you have the retention levels at record highs because people are appreciating the solution we're delivering.
Andrew Polkowitz
That's great. And thank you for answering my questions. And again, congratulations, Burton.
Burton Goldfield
Thank you. Appreciate you.
Operator
David Grossman, Stifel.
Burton Goldfield
Hey, David.
David Grossman
Hey, Burton, congratulations. Well, it's been a fun run.
Burton Goldfield
It has. Thank you.
David Grossman
You're my oldest friends in the industry, you'll be missed.
Burton Goldfield
Hey, Mike is a lot nicer than I am and he is smarter.
David Grossman
Yeah, it couldn't be nearly as enthusiastic. So (multiple speakers) a chance to catch up by IKEA. Welcome as well. So I'm just I know it's getting late here, so thanks for squeezing me in. I guess I have two questions. One is there was a question asked earlier, I think about the partnership with Workday by one of your competitors. And obviously you went by buying the Zenefits platform and integrating that into your own business. And I'm just curious whether you saw this a couple of years ago or when you initiated that transaction or whether you're seeing things different today, what's changed in the marketplace that may compel somebody that as the scale and achieve adequate scale to self insure that they may decide staying with the PTO much longer today than they may have thought two years ago.
Burton Goldfield
So it's a really good question. The way I see it is the complexity of the environment. If you can continue to scale the larger customers offer them services as well as an alternative insurance construct other than just a single employer plan, which is off some when you're smaller, I believe you can keep the customers longer I think the challenge that people are finding right now is that if you're primarily people driven, it's really hard to scale. And if you combine the people-driven approach with inflation, it's hard to maintain profits. So what we've been able to do is build the platform, use the scale of the platform in service of the customers, but not have to add one new employee for every 10 new customers. So you're seeing us break out of a model where our costs are climbing as the service complexity goes up because we're tweaking the platform every single day. And we have a vision for the future of the platform. And it's not only about running payroll. It's about the knowledge base and the knowledge engine that's behind it. It's about the ability to pivot based on the complexity of each customer so that you can grow with them. And you and I have talked about it, the complexity around access controls, the complexity around union pay roll. That complexity around all types of other asked by the customers is really important. What I'm particularly excited about with Denali is the API. first strategy allows us to connect with many partners out there, not tied to a single closed platform.
David Grossman
And would you consider taking on somebody without offering help and workers' comp? Correct?
Burton Goldfield
Well, that's the base. That's the vision. Absolutely. I think that what we're focused on is the professional service revenues. And what you're seeing is in our forecast for '24, we are going to grow professional service revenues in excess of the gross revenue, which includes insurance, and that's what the barbell is about. And that's where some of this professional service revenues will come from in '24. But as you get into 25 and beyond, I absolutely believe that the right answer is to provide the insurance construct that the companies choose and have multiple insurance constructs for those clients.
David Grossman
Right. Got it. And one other thing, and it's really more probably a cyclical question, but you know, your MCR has been strong for multiple years, not right. And this is the first year that I can remember that we've faced these kinds of year-over-year declines, which is industry-wide. Of course, it's not unique to China. So is there anything that you want to remind us of that we should just keep you keep in mind as we go into 24 and 25 that deal. If we remain in this higher cost environment, things that maybe we haven't seen for years, we should just keep in the back of our minds as we look forward.
Kelly Tuminelli
David, it's a great question. As you know, we monitor very detailed health claims and to make sure we're understanding trends. And that's one of the reasons we reprice a cohort of our business every single quarter. After that, we can see the trends and bake it into our insurance cost trends, et cetera. Really as we think about things like COBRA, I think the COBRA we have today is very different than the COBRA that there was before because there's Affordable Care Act plans available to everyone out there. And so we do see less COBRA uptake then had historically seen like during the financial crisis, et cetera. But I do expect as well there to be people buying down plans just due to the significant increase in health care costs. So they will be buying plans with higher deductibles and with more of a coinsurance type relationship, et cetera, would be what I anticipate. But it's something we're watching very closely, especially with pharma costs, which obviously are getting a lot Cressier.
David Grossman
Right. And sorry, just one last thing. Just on workers' comp there, it sounds like you expect favorable experience in 2014, but did I hear that right?
Kelly Tuminelli
Yeah, we are expecting continued favorable experience in 2024 related to workers' compensation.
David Grossman
And will that be just less of a tailwind in '24 than it was in '23? Or is it a tailwind year over year?
Kelly Tuminelli
I know I think it's less of a tailwind. We had some very favorable prior period development in 2023. I do not expect that at the same level as we move into 2024, we tend to be relatively conservative and reserve covers in general as we're looking at emerging trends in our workers' comp book. But I think our Workers' Comp team is one of the best in the industries as well as working with our clients and making sure we're ensuring safe workplaces. And I think that gives us a competitive advantage as well.
David Grossman
All right. All right, guys. Well, thank you very much. Burton, good luck, and I'm sure we'll be in touch. So thanks again.
Burton Goldfield
Yes. I look forward to seeing you. Thanks. Bye-bye.
David Grossman
Bye-bye.
Operator
Thank you. This concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
