TriNet Group, Inc. (TNET) Earnings

Management highlights

### Core Strategic Progress & Customer Retention - 18 months of health fee pricing work has aligned customer renewal rates with market trends, delivering improved Q2 results: total attrition improved 36% year-over-year, with pricing-related attrition down 58% year-over-year and service-related attrition down 47% year-over-year. - Net Promoter Score (NPS) for customer service remained at improved levels from the prior quarter. The company targets long-term retention rates several points above its historical 80% average. ### AI & Acquisition Investment Updates - TriNet Assistant, the firm's new AI customer service tool launched in spring 2026, resolves 50% of customer-initiated chat sessions (covering payroll, benefits, and workforce management inquiries), reducing service case volume for employee teams while earning strong customer satisfaction ratings. Additional AI product improvements are in development. - Integration of leave-of-absence solution provider Cocoon is on track: the first customer cohort has been migrated, with the second and third cohorts expected to complete migration by the end of 2026, in preparation for January's peak new customer onboarding season. ### Sales & Distribution Updates - Q2 new sales were flat year-over-year, with sequential monthly improvement through the quarter after early Q2 softness that carried over from March; sales momentum has returned entering the second half. - Retention of senior sales reps (with over 4 years of experience) improved 7% year-over-year; senior rep productivity rose 13% year-over-year, and senior reps are on average 5x more productive than first-year reps. - The new Ascend sales training and hiring program has hired over 100 new reps nationally, with the first cohort of ~20 reps entering production in Q3 2026. Ascend is expected to graduate new cohorts quarterly through 2027, growing the senior rep pool over time. Total sales headcount is expected to grow year-over-year starting in Q3 2026, and end 2026 20% higher than the end of 2025. - The broker channel grew to 32% of total new sales by the end of Q2 2026, with broker RFPs up 54% year-over-year, driven by new retention-based incentive alignment for partners. ### Fall 2026 Selling Season Product Improvements - Expanded the benefits plan library to cover a wider range of price points, and deployed AI to match client coverage and cost needs with appropriate bundled plan offerings for the fall selling season. - Launched an enhanced, more structured, responsive, and scalable health plan pricing engine in July 2026, to improve proposal quality, speed, and consistency, and strengthen pricing stability over time.

Guidance

- Full-year 2026 total revenue guidance is maintained at $4.75 billion to $4.9 billion, trending at or slightly below the midpoint of the range due to lower than expected insurance service revenue. - Professional services revenue guidance is raised to a range of $647 million to $663 million, reflecting stronger than forecast first-half performance. - Full-year 2026 insurance cost ratio (ICR) guidance is lowered (improved) to a range of 88.5% to 89.5%, incorporating most first-half favorable performance including one-time recovery benefits. Second half ICR is expected to be higher than first half ICR due to normal seasonal utilization trends, including completed deductibles and pooling limit resets. - Adjusted EBITDA margin guidance is raised to a range of 8.5% to 9%. - GAAP earnings per diluted share guidance is updated to a range of $2.85 to $3.35. - Adjusted diluted earnings per share guidance is raised to a range of $4.50 to $5.10. - Management expects full-year sales growth, driven by second half sales growth, and expects year-over-year retention improvement to continue through the second half of 2026. - ASO's 2026 net headwind to guidance is tracking toward the more favorable end of the original $10 million to $15 million forecast range.

Segment performance

Total Q2 2026 revenue was $1.2 billion, a 5% year-over-year decline driven by lower Work Site Employee (WSE) volumes, partially offset by higher pricing across insurance and professional services. The firm ended the quarter with 300,000 total WSEs, down 12% year-over-year and flat sequentially, and 274,000 co-employed WSEs, down 11% year-over-year. - Professional Services: Revenue was $159 million, an 8% year-over-year decline that outperformed forecast, contributing ~13.25% of total Q2 revenue. Outperformance stemmed from firm pricing, favorable state tax revenue reporting methodology, and incremental revenue from the Cocoon acquisition. - Insurance Services: Revenue declined 4% year-over-year (driven by lower WSE volumes, offset by pricing gains). Insurance costs declined 8% year-over-year, bringing the Q2 insurance cost ratio (ICR) to 86%, a 400 basis point year-over-year improvement. Half of the improvement came from favorable prior year reserve development and half from a one-time recovery of previously expensed insurance administrative costs. - Administrative Services Only (ASO): Continued to perform in line with expectations, delivering double-digit year-over-year growth in Q2 2026. - Interest Revenue: $12 million, a 33% year-over-year decline in line with forecast, driven by expected lower cash balances from certain tax credit activity. Overall Q2 GAAP earnings per diluted share was $1.15, adjusted net income per diluted share was $1.55, adjusted EBITDA was $128 million (10.9% adjusted EBITDA margin), and free cash flow grew 18% year-over-year to $67 million.

Risks & headwinds

- The operating environment remains challenging, and persistently high single-digit health cost inflation is expected to continue, which could pressure margins if not offset by pricing actions. - Future pharmaceutical cost inflation is expected to rise due to the probable future introduction of new high-cost drugs, even though Q2 pharma cost inflation was lower than forecast due to biosimilar adoption and stabilized GLP-1 usage. - Second half insurance claims experience is expected to see normal seasonal lumpiness and volatility, which is factored into updated guidance. - Forward-looking statements are inherently uncertain, and actual results may differ materially from current expectations due to unforeseen changes in market conditions, customer behavior, and industry trends, as detailed in the firm's SEC filings.

Analyst Q&A

• Q: Why is management confident second half sales will return to growth despite flat Q2 sales, even with improved senior rep productivity and retention? /

  A: Early Q2 had elongated customer decision-making that carried over from Q1, but sequential monthly improvement through Q2 and strong early July results show emerging momentum. The total sales rep headcount is now inflecting to growth, and the broker channel has delivered very strong growth, with broker RFPs up 54% year-over-year at end-Q2 (up from 12% year-over-year growth at end-Q1). Investments in the Ascend sales training program, senior rep retention, and broker channel expansion give management confidence in second half sales growth. (337 characters)

• Q: Why doesn't second half ICR show year-over-year improvement despite completed repricing efforts, and are there one-time factors to note? /

  A: First half ICR saw significant outperformance, with half of the year-over-year improvement coming from one-time items and prior period reserve development. While current medical cost trends are slightly more favorable than originally assumed, they remain at persistent high single-digit levels. Guidance accounts for expected historical second half seasonal ICR increases driven by utilization patterns, deductibles being met, and pooling limit resets, and the updated guidance range already anchors to first half favorable performance. (398 characters)

• Q: What is driving the large increase in broker RFPs, and when should we expect WSE growth to turn positive? Where do departing clients typically go? /

  A: The broker channel growth is resonating because Trinet has added dedicated local talent aligned with broker producers, and built end-to-end support from prospecting to renewal that positions Trinet as a partner to brokers. Improved retention has slowed WSE decline, and pricing gains will outpace WSE decline to deliver revenue growth as the next milestone. WSE growth will turn positive after that, driven by full delivery of growth investments in distribution, benefits, and service. Most pricing-related departures go to open market multi-vendor solutions, while most service-related departures go to other PEO competitors. (452 characters)

• Q: How is Trinet improving senior sales rep retention, and how will success be measured for the upcoming fall selling season? /

  A: Senior rep retention has improved by making it a top strategic focus, adjusting incentives, investing in frontline and regional management to build stronger culture, and reducing sales friction with improved tools and support. New Ascend program trainees are assigned to senior reps to handle administrative work, reducing rep burden. The core metrics of success for the fall season will be growth in new sales from both the direct sales and broker channels, improvement in RFP conversion rates, and sustained retention gains from aligned pricing and improved service. (385 characters)

• Q: How is Trinet leveraging AI across the business, and can it improve client selection for new sales? /

  A: AI is currently used to build AI-powered customer health scores that aggregate customer interaction data and sentiment to proactively identify at-risk clients, improving proactive service and retention. AI is also used to match clients to appropriate benefit bundles for the fall selling season, and to power TriNet Assistant for customer self-service. AI improves sales prospecting tools by giving reps better client information to improve win rates, and can upskill service teams by handling routine inquiries. While AI-powered client selection for new business is a plausible future use case, it is not yet material to current new business results. (474 characters)