Jared Levine

Jared Levine asked Mala Murthy about her guidance philosophy, including how it might differ from her predecessor, given it's her first earnings call and initial fiscal year guide. He also asked Mike Simonds about bookings expectations for 2026, specifically if the expected 20% growth in sales capacity is a reasonable expectation for bookings growth, and if there are any productivity impacts to consider.

Answer

Mala Murthy (EVP and CFO) explained her guidance philosophy is based on 2025 business momentum, OpEx discipline, revenue drivers, and transparent assumptions on macro factors like CIE and medical trends. Mike Simonds (President and CEO) stated that sales improved year-over-year in 2025, with a good January 2026, and he expects growing momentum in new sales and retention. He highlighted the productivity of tenured reps and the positive impact of Ascend graduates, indicating a positive direction for volume growth.

Jared Levine asked about TriNet's 2026 guidance philosophy, including how it might differ from the previous CFO, and inquired about bookings expectations for 2026, specifically regarding the projected 20% capacity growth and potential productivity impacts.

Answer

Mala Murthy, EVP and CFO, explained her guidance philosophy is based on 2025 business momentum, revenue drivers, and execution on Mike Simonds' priorities, while also considering exogenous macro factors. Mike Simonds, President and CEO, confirmed sales improvements and a positive outlook for volume growth, driven by stronger retention of senior reps and contributions from Ascend graduates.

Jared Levine inquired about the insurance cost ratio (ICR), specifically asking if there were any one-time impacts in Q3 2025 and the assumptions for returning to the long-term ICR guide in FY2026, including any expected deceleration in healthcare cost trends. He also asked for an update on sales headcount expectations for FY2025 and plans for growth in FY2026.

Answer

Kelly Tuminelli (CFO) confirmed no notable one-time impacts on the ICR in Q3. Mike Simonds (CEO) stated that assumptions for 2026 ICR remain conservative regarding healthcare trends, expecting only a slight tick lower than current elevated levels. Mike Simonds also detailed improvements in salesforce median tenure and retention of productive reps, noting a smaller aggregate salesforce currently due to a pause in aggressive hiring, but anticipating growth in absolute numbers in 2026 as new trainees become productive.

Jared Levine inquired about the trends in top-of-funnel sales activity and client decision-making since Q1, asking about the relative impacts from macro uncertainty versus healthcare cost inflation. He also asked about sales headcount trends and whether the company still targets modest growth for the year.

Answer

President & CEO Mike Simonds acknowledged that both macro factors and pricing increases have lengthened the sales cycle at the proposal stage. He expressed confidence that new health plan offerings and go-to-market capabilities will improve new business momentum in the second half. Regarding headcount, Simonds noted that while absolute rep numbers are slightly down, strong retention of tenured, more productive reps provides sufficient capacity for the key fall selling season.

Jared Levine inquired about the demand environment, asking what underpins the confidence in improving sales performance despite macro uncertainty, and also asked for an update on the HRIS platform wind-down and efforts to retain those clients with the ASO offering.

Answer

President and CEO Michael Simonds attributed confidence in future sales to a strong pipeline, a more disciplined pricing strategy compared to the prior year, investments in sales force productivity, and new initiatives planned for the fall. Regarding the HRIS transition, Mr. Simonds noted that the upsell rate to the ASO product is tracking in line with or slightly ahead of plans. CFO Kelly Tuminelli confirmed that while the financial headwind assumption for 2025 remains unchanged, they are pleased with the client conversion rates so far.

Jared Levine asked about the specific duration of the 'medium-term' financial targets, the mix of volume and pricing in the 4-6% revenue growth outlook, and the drivers behind the 2025 Insurance Cost Ratio (ICR) guidance being slightly higher than prior commentary. He also inquired about any further strategic changes.

Answer

CEO Michael Simonds explained that the 'medium-term' timeline was left flexible to adapt to 2025's performance. He expressed high confidence in managing the ICR back to its target range over the next three years, which will be a key revenue driver, with volume growth expected to contribute more significantly after 2025. Simonds clarified that while the ICR guide is slightly higher, there's no material change in underlying trends, and the issue is confined to a specific 15% of the business. He affirmed the company is confident in its current strategic plan with no additional major changes planned.

Jared Levine of TD Cowen inquired about the shortfall in sales headcount growth against the 20% target, the reasons for lower PEO booking conversions, and the outlook for Q1 health enrollment discussions.

Answer

CEO Mike Simonds acknowledged sales headcount growth was 14% but emphasized a strategic shift towards improving the productivity of more tenured reps. He attributed lower pipeline conversion rates to macro caution among prospects and TriNet's own disciplined, risk-based pricing. He confirmed that Q1 renewal discussions are proceeding similarly to Q4, as the underlying cost pressures are a market-wide phenomenon.

Jared Levine asked about Paycom's January retention performance and the retention assumptions embedded in the 2026 guidance. He also inquired about the latest thoughts on new sales office openings and whether sales leadership changes would impact the pace of expansion.

Answer

CEO and President Chad Richison stated that retention is disclosed annually and referred to prior comments on the importance of usage and value for increasing retention, expressing confidence that retention would not reverse. Regarding sales offices, Mr. Richison mentioned expanding sales teams to 10 (adding 100 salespeople) and new training programs, expecting these to create opportunities for more office openings in the future.

Jared Levine asked about Paycom's January 2026 retention performance, given its significance for the full year, and what retention assumptions are embedded in the 2026 guidance. He also inquired about the latest thoughts on new sales office openings and if the change in sales leadership would impact the pace of expansion.

Answer

CEO Chad Richison stated that retention is disclosed annually, reiterating that usage and value attainment are crucial for increasing retention, and he would be disappointed if retention reversed. He confirmed that Paycom expanded its sales teams to 10, adding 100 salespeople, who are undergoing new training. He expects these efforts to create opportunities for future office openings and to maximize success in existing offices.

Jared Levine asked if there are any initial signs of Iwant driving increasing product attach rates. He also inquired about the expectations for annualized cost savings from the recent layoff of 540 employees and how much of that would be reinvested back into the business.

Answer

Chad Richison, President and CEO of Paycom Software, confirmed that Iwant is driving increased product attach rates, as greater module utilization leads to more accessible information. He also noted Iwant eliminates navigation and training for new employees. Regarding the layoffs, Mr. Richison stated that the cost savings would be part of next year's guidance, reiterating the focus on automation and efficiency without necessarily displacing employees, and expressed that he does not expect to go through such reductions again.

Jared Levine asked if there are any initial signs of IWant driving increasing product attach rates. He also inquired about the expectations for annualized cost savings from the recent layoff of 540 employees and how much of those savings would be reinvested into the business.

Answer

Chad Richison, President and CEO, confirmed that IWant is driving increased product attach rates by providing easier access to information across more modules, eliminating the need for extensive training for new employees. He noted that new employees predominantly use IWant, and traditional users are achieving fuller value from existing modules. Regarding the layoffs, Mr. Richison stated that the cost savings would be part of next year's guidance, reiterating the company's focus on automation and efficiency, but did not provide specific figures for savings or reinvestment.

Jared Levine of TD Cowen asked about the significant sequential increase in CapEx, specifically PP&E, and when that spending might taper off. He also inquired about the productivity of the back-to-base sales from Client Relations Representatives (CRRs) year-to-date.

Answer

CEO Chad Richison and CFO Bob Foster explained the CapEx increase is for AI infrastructure to support products like iWant, as Paycom hosts its own platforms. They view it as a growth opportunity and are reinvesting margin gains, expecting the spend to be front-end loaded and transitory. On sales, Richison noted that CRRs are more successful this year than last and that iWant should help them drive full-solution adoption.

Jared Levine noted limited sequential growth in S&M spending and fewer TV commercials, asking about the advertising strategy's impact on FY25 margins. He also asked for the rationale behind Q4 having the highest expected recurring revenue growth.

Answer

CEO Chad Richison explained that Paycom is still investing in brand advertising but is also deploying more direct marketing initiatives, which can affect the timing of spend. He stated that the lighter Q1 marketing spend will be followed by higher spending in subsequent quarters. He attributed the stronger Q4 growth to factors like additional year-end payroll runs, a trend also observed in the prior year, and the fact that Q1 growth is moderated by the slower-growing forms business.

Jared Levine asked if plans for additional sales office openings in 2025 are contemplated in the current guidance. He also requested the specific revenue benefit in Q4 from the pull-forward of an extra payroll processing day from Q1.

Answer

CEO Chad Richison confirmed that any potential office openings for the year are already factored into the guidance, though specific plans have not been disclosed. He addressed the payroll day question by stating that on a normalized basis, the business strength from the second half of 2024 is continuing and accelerating into 2025.

Jared Levine, on behalf of Derrick Wood, asked about the types of headcount investments Teradata will focus on in 2026, specifically whether the company intends to ramp up sales hiring or lean into forward-deployed engineers.

Answer

President and CEO Steve McMillan explained that in 2025, the company restructured its sales team and refocused investment towards the forward-deployed engineering (FDE) model, which is deemed appropriate for delivering advanced AI solutions to customers. He also highlighted increased investment in product engineering and development, led by the new Chief Product Officer, Sumeet Arora, to enhance the overall product portfolio.

Jared Levine asked about the year-to-date upsell progress of Airbase relative to expectations and for the second half of the year. He also questioned why not all of the Q2 Adjusted EBITDA beat was passed through to the full fiscal year guidance, noting a similar dynamic in Q1.

Answer

Toby Williams, CEO and President, confirmed that Airbase upsell progress is on pace with expectations for both the first and second halves of the fiscal year, contributing to differentiation and a successful first half. Ryan Glenn, CFO, explained that while Adjusted EBITDA margins have increased each quarter, the company maintains a bias to reinvest some of the upside back into R&D and sales and marketing to drive continued growth in the back half of the year and into fiscal 2027.

Jared Levine asked about the average revenue per user (ARPU) opportunity for Paylocity's IT offerings, comparing it to the Airbase acquisition and HCM. He also sought clarity on any potential headwinds to free cash flow in FY27, following the $65 million tax benefit in FY26.

Answer

CFO Ryan Glenn stated that the IT offering's ARPU is smaller than Airbase but larger than most HCM modules, noting it's earlier in its launch cycle and involves a pricing mix. Mr. Glenn clarified that the $65 million tax benefit is a one-time fiscal 2026 benefit, which should be adjusted out for FY27, with no other significant headwinds expected for free cash flow, anticipating continued leverage.

Jared Levine from TD Cowen asked about the average revenue per user (ARPU) opportunity presented by Paylocity's IT offerings, comparing it to the Airbase acquisition's ARPU, which was previously cited as comparable to HCM at $25,000-$30,000. He also inquired about potential headwinds for fiscal year 2027, specifically regarding the $65 million tax benefit expected in fiscal 2026.

Answer

Steve Beauchamp, Executive Chairman, indicated that the IT offering's ARPU is currently smaller and earlier in its launch cycle than Airbase, but still larger than most HCM modules, falling between a larger HCM module and the Airbase ARPU. Ryan Glenn, Chief Financial Officer, clarified that the $65 million tax benefit in fiscal 2026 is a one-time item and will not recur in fiscal 2027, though other potential tailwinds from new tax legislation might exist.

Jared Levine of TD Cowen asked about the current stage of AI investments for internal operations and the timeline to see a net benefit. He also inquired about the directional trend of client retention for fiscal 2025.

Answer

Executive Chairman Steve Beauchamp described the company as being in the 'early innings' of leveraging internal AI, viewing it as a gradual, long-term driver of both client experience and margin enhancement. CFO Ryan Glenn confirmed that revenue retention remained strong at 'greater than 92%' for fiscal 2025, consistent with prior years, with no material changes in churn.

Jared Levine asked about the primary drivers of gross margin expansion (excluding float income) and the potential impact of macroeconomic uncertainty on the Airbase business.

Answer

CFO Ryan Glenn explained that gross margin improvement stems from scaling operational spend, gaining efficiencies with vendors, reducing manual effort, and strong revenue performance. Executive Chairman Steven Beauchamp added that Airbase's value proposition of efficiency resonates in any environment and that its revenue is primarily software-based, limiting sensitivity to macro trends.

Jared Levine from TD Cowen asked about client interest in Paylocity's generative AI functionalities and the potential for future monetization. He also requested an update on client retention performance through the key January period.

Answer

Executive Chairman Steven Beauchamp highlighted strong adoption of the new AI chatbot and other embedded features, stating the near-term focus is on differentiation and efficiency rather than direct monetization. President and CEO Toby Williams expressed satisfaction with the service and implementation teams' performance during the busy year-end period, indicating a positive start to the quarter.

Jared Levine inquired about the extent to which the Airbase acquisition expands Paylocity's Total Addressable Market (TAM) and asked about the materiality of revenue from the partner Marketplace.

Answer

President and CEO Toby Williams described the Airbase acquisition as a significant TAM expansion into the office of the CFO. Executive Chairman Steven Beauchamp added that Airbase offers a more meaningful revenue-per-customer opportunity than any previous module. Regarding the Marketplace, Mr. Williams emphasized its strategic value for client satisfaction and channel partner referrals, which drive over 25% of new business.

Jared Levine asked if PEO Worksite Employee (WSE) growth in Q1 was in line with expectations and what drives confidence in accelerating growth to meet the midpoint of the full-year guide. He also inquired about the performance of the PEO July 1 enrollment period, specifically regarding changes in participation rates, enrollment rates, or buy-down behavior.

Answer

CFO Peter Hadley confirmed that PEO WSE growth was broadly in line with, or slightly above, expectations for Q1. He attributed confidence in future acceleration to bookings-driven assumptions and investments in the team, noting no anticipated ramp in PEO pays per control. President and CEO Maria Black stated that the PEO team executed well during the July 1 enrollment period. She highlighted that health benefits remain a norm for targeted higher-wage industries, with participation rates reaching their highest levels in four years, indicating a slight uptick and substantiating the PEO's value proposition.

Jared Levine inquired about the current demand environment, specifically noting any differences across employer size segments or core offerings. He also sought confirmation on Paycor's ex-float recurring revenue growth for the first quarter and full fiscal year.

Answer

President and CEO John Gibson stated that demand remains consistent with historical trends, with activity increasing and RPO bookings up double digits. CFO Bob Schrader confirmed Paycor's recurring revenue is expected to be a double-digit grower for the full year, with Q1 performance aligning with expectations. Gibson added that disaggregating Paycor's specific growth is challenging due to strategic business segmentation and asset co-mingling.

Jared Levine asked for an update on the demand environment, noting any differences across employer size segments or core offerings, and sought confirmation on Paycor's recurring revenue growth expectations for the year, specifically if it remains in the low double digits.

Answer

President and CEO John Gibson stated that demand remains consistent with historical trends, with activity up and RPO bookings showing solid double-digit growth, including good traction in the micro segment. CFO Bob Schrader clarified that Paycor's full-year recurring revenue is expected to be a double-digit grower, with Q1 performance in line with expectations. Mr. Gibson added that Paycor's retention is at historical levels, and due to business segmentation post-integration, disaggregating specific Paycor growth numbers is challenging, with the focus being on overall segment performance.

Jared Levine asked about Paychex's partnership with benefits brokers and how it might evolve with Paycor, and also inquired about any recent changes in the demand environment.

Answer

CEO John Gibson highlighted that the broker referral program grew by double digits and that a major strategic partner program refresh, incorporating best practices from both Paychex and Paycor, will launch in the coming weeks for brokers, CPAs, and banks. He stated that underlying PEO demand remains strong with double-digit bookings, and while Q3 demand was slightly softer than the prior year, the year-to-date view shows a stable environment with no signs of recession.

Jared Levine of TD Cowen asked for more detail on the professional services revenue outlook, which contributed to a reduction in the total revenue ex-float guidance, seeking reasons for the change and confidence in future visibility.

Answer

Executive VP & CFO Jeremy Johnson and Chairman & CEO David Ossip explained that the trend is a positive indicator, driven by greater success with the SI partner strategy. As SIs lead more implementations (45% of new projects vs. 35% last year), more of that services revenue is recognized by the partners instead of Dayforce. They view this as a leading indicator of future recurring revenue success, as it expands implementation capacity.

Jared Levine asked for details on the recently announced efficiency plan, specifically which expense lines would benefit, the size of associated charges, and the amount of savings planned for reinvestment.

Answer

CFO Jeremy Johnson detailed that the plan would yield approximately $65 million in savings in 2025 and $80 million on an annualized basis, with about $10 million being reinvested. A one-time restructuring charge of $29.2 million was incurred in Q1. He expects to see the most leverage in G&A expenses, with continued scale benefits in product, sales, and marketing.

Jared Levine of TD Cowen questioned whether any revenue synergies from the Latham acquisition were included in the updated guidance. He also asked for the reasons behind the effective organic revenue guide down, given that the total guidance increase was less than the expected contribution from Latham.

Answer

CFO John Pence and CEO Pat Goepel clarified that no significant revenue synergies from Latham are included in the 2025 guidance, as the focus is on integration, with synergies expected in 2026 and 2027. Goepel attributed the reduction in the core business outlook to three factors: phased rollouts of large enterprise deals, the lingering impact of the HR compliance/ERTC headwind, and a slight revenue slippage from the net-margin model of AssurePay.

Jared Levine inquired about the underlying assumptions in the fiscal 2025 revenue guidance, including contributions from M&A and macro factors. He also asked about the primary drivers for the significant adjusted EBITDA margin expansion forecasted for 2025.

Answer

CFO John Pence clarified the 2025 guidance includes one pending Q4 acquisition but assumes no further M&A. He noted the main macro assumption is a headwind from falling interest rates, modeling a potential $1 million per quarter negative impact on float income. CEO Patrick Goepel added that employment growth is modeled as flat. Pence stated that margin expansion is driven by the scalability of the business, as incremental revenue from large tax deals does not carry a proportional increase in costs. Goepel also highlighted technology initiatives that are improving operational efficiency.

Jared Levine asked if the outperformance from top customers seen in 2024 is expected to continue into 2025 and what provides confidence in that outlook. He also asked about the key factors and cadence for margins in fiscal year 2025.

Answer

CEO Leonard Livschitz confirmed that growth from top 5 and top 10 clients is expected to continue, driven by strong demand in the technology, CPG, and fintech sectors, and bolstered by AI implementations and hyperscaler partnerships. Regarding margins, CFO Anil Doradla advised analysts not to model any margin compression for 2025 compared to 2024, indicating more specific color would be provided in the future.

Jared Levine inquired about improvements in short-cycle projects and advisory work over the last 90 days and sought an update on partnership-sourced revenue, including key and fast-growing partners.

Answer

CEO Balkrishan Kalra stated that strong execution in a stable business environment is driving results. CFO Michael Weiner added that Data-Tech-AI growth is fueled by advanced tech and AI initiatives. Regarding partnerships, Kalra identified hyperscalers like AWS, Microsoft, and Google, as well as ServiceNow and Salesforce, as crucial. Weiner noted that revenue from partnerships is still relatively low, presenting a significant growth opportunity.

Asked about the current scale and future potential of revenue from the Paycor marketplace, and the pipeline and competitive landscape for portfolio acquisitions.

Answer

Adam Ante stated that marketplace partner revenue is still in the low single-digits of total revenue but has good growth potential. He noted that portfolio acquisitions are opportunistic and they haven't observed any significant change in the competitive environment for such deals.

Asked about changes in gross revenue retention by segment and the nature of churn, and also inquired about the amount of ERTC revenue in Q4 and the expected headwind from it in fiscal '25.

Answer

Gross revenue retention has been fairly consistent, with the main driver of the tick down in net retention being the moderation in labor market growth, not a change in controllable churn. ERTC revenue was immaterial in Q4, and its absence in FY '25 will create about a 1-point headwind to growth.

Asked for clarification on client employment trends and the ERTC headwind for FY25.

Answer

The company noted that while Q3 had seasonal sequential growth, the trend is slowing, with a sequential decline expected in Q4 and year-over-year growth potentially turning negative. The ERTC headwind in FY25 will be smaller as the revenue base from it in FY24 is now expected to be lower.

Asked about changes in client decision-making speed and new client attach rates. Also inquired about year-over-year gross revenue retention for January and any underlying shifts in churn.

Answer

There has been no change in the overall deal cycle timeframe, though a subtle elongation was noted in the enterprise space. Module attach rates continue to tick up slightly. Gross retention in January was consistent with expectations and the full-year guidance, with no significant underlying changes.