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TriNet Group, inc (TNET) Q3 2021 Earnings Call Transcript

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TriNet Group, inc (NYSE: TNET)
Q3 2021 Earnings Call
Oct 25, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the TriNet Third Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Alex Bauer, Investor Relations. Please go ahead.

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Alex Bauer -- Investor Relations

Thank you, operator. Good afternoon and welcome to TriNet's 2021 third quarter conference call. Joining me today are Burton M. Goldfield, our President and CEO; and Kelly Tuminelli, our Chief Financial Officer. Our prepared remarks were pre-recorded. Burton will begin with an overview of our third quarter operating performance. Kelly will then review our financial results. We will then open-up the call for the Q&A session.

Before we begin, please note that today's discussion will include our 2021 fourth quarter and full-year guidance, and other statements that are not historical in nature or predictive in nature or depend upon or refer to future events or conditions such as our expectations, estimates, predictions, strategies, beliefs, or other statements that might be considered forward-looking. These forward-looking statements are based on management's current expectations and assumptions, and are inherently subject to risks, uncertainties and changes in circumstances that are difficult to predict, and that may cause actual results to differ materially from statements being made today or in the future. Except as may be required by law, we do not undertake to update any of these statements in light of new information, future events, or otherwise. We encourage you to review our most recent public filings with the SEC, including our 10-K and 10-Q filings for a more detailed discussion of the risks, uncertainties, and changes in circumstances that may affect our future results or the market price of our stock.

In addition, our discussion today will include non-GAAP financial measures including our forward-looking guidance for adjusted net income per diluted share. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release, our 10-Q filing or our 10-K filing for our third quarter and full year of 2020 reconciliations, respectively, both of which are available on our website or through the SEC website.

With that, I will turn the call over to Burton for his opening remarks. Burton?

Burton M. Goldfield -- President and Chief Executive Officer

Thank you, Alex. TriNet's third quarter operating and financial performance was once again exceptionally strong. This continues a multi-quarter trend which sets us up for a solid performance in the fourth quarter. On today's call, I would like to discuss three important topics. First, I am very pleased with our Q3 financial performance, to which I will provide highlights. Next, I will discuss positive factors impacting the PEO construct in general, as well as TriNet specifically. The PEO construct is particularly well positioned to address systemic changes to the nature of work due to the pandemic. Additionally, ongoing legal and regulatory challenges impacting SMBs are efficiently supported using this model. And finally, I will highlight our inaugural environmental, social and governance report released this afternoon. This report provides visibility into the central role ESG plays in TriNet's corporate culture and how we consider the needs of all of our stakeholders.

During the third quarter, TriNet delivered a premier HR experience and our customers continue to grow dramatically as they have throughout the COVID-19 pandemic. While the Bureau of Labor and Statistics recorded slowing job growth relative to expectations in the third quarter, TriNet saw our customers at new hires at a rate substantially higher than our forecast. Our operating and financial performance was highlighted by strong professional service revenues growth and strong WSE volume growth.

During the third quarter, we grew total revenues 18% year-over-year to $1.1 billion. Additionally, when we compare our 2021 third quarter total revenues growth to that of the 2019 third quarter total revenues growth, total revenues grew 18%. This comparison highlights the strong underlying performance of TriNet's business throughout the COVID-19 pandemic. Professional service revenues delivered year-over-year growth of 24%. The growth in professional service revenues was attributable to the following items. WSE volume growth, especially in our core white-collar verticals, technology, financial services, and life sciences and strong growth in PEPM rate. The percentage increase also benefited from a recovery credit program accrual taken in Q3 of 2020, which did not repeat in Q3 2021. Kelly will address these highlights later in greater detail.

Third quarter GAAP earnings per share grew 142% year-over-year to $1.16 per share. I am very pleased with our Q3 earnings performance. We beat our GAAP EPS guidance by $0.44 and when compared to our third quarter of 2019 GAAP EPS, a pre-pandemic quarter, we grew our earnings per share by 49%, again, demonstrating both our overall growth and our growth in profitability throughout the pandemic.

During the third quarter, we grew our ending WSE count 10% year-over-year to approximately 351,000 WSEs. This also represented a 3% sequential growth versus our second quarter of 2021, demonstrating momentum across our business. This TriNet all-time high ending WSE volumetric was the continuation of recent growth trends. Our customer selection process has resulted in a customer base comprised of dynamic and durable companies. This was led by the technology vertical where we continued to see strong hiring throughout the quarter. Furthermore, our Main Street vertical has finally recovered all of its lost CIE since the onset of the pandemic, indicating further normalization in the broader economy. Finally, sales contributed positively for the second straight quarter. Our new sales growth focuses on our core verticals and is adding to our already strong and amazing customer base.

Let's talk for a minute about the PEO industry in general. As we look to the future, the PEO construct is well-positioned for continued share growth within the SMB space. Since the onset of the COVID-19 pandemic, PEO has played an important dynamic role which has reinforced for me our industry's growth potential. At the onset of the pandemic, PEO's aided business owners has together renavigated the economic uncertainty. Our ability to administer HR services from the cloud enabled customers to successfully transition their workforces to fully remote. As the economy slowed, we walked our customers through workforce management, for example, helping them balance furloughs versus layoffs. As policy makers established the PPP loan program, PEOs went to work assisting customers throughout the process.

In fact, according to NAPEO, the PEO Industry Association, PEO customers were 71% more likely to have received a PPP loan which speaks to the industry's ability to help customers source and organize the information required for the PPP application. This is an excellent example of how scale and expertise from a PEO made a significant business impact at that critical moment in the COVID crisis. At a more macro level, the same recent polling by NAPEO found that the PEO customers are 82% more likely to have their business operations back to normal or better than before the COVID pandemic. As we look to the future and learn how to co-exist with COVID-19, new operational complexities have emerged for SMBs and we as an industry and TriNet specifically are well-positioned to assist SMBs navigate these new complexities.

Last month at our second annual TriNet PeopleForce Conference, one topic repeatedly discussed was the emergence of hybrid workforces. Hybrid work defined as employees working part time on-premise and part time at home is being normalized and held as an example of a permanent change in the future of work. For SMBs, this work construct introduces new operating complexities with respect to HR services, tax and culture. TriNet is well-prepared to continue to assist SMBs in the transition to this new way of work with our multistate HR services. Our focus is to ensure that our multistate, multi-location customers remain compliant under the different state and local regulatory regimes. This move to hybrid work is spotlighting our services as the SMB market demands more of these services. As employees shift to working from home and the office, often these locations are not in the same city and sometimes not in the same state. Furthermore, many SMBs are using the pandemic to reconsider their headquarter locations. Each of these new trends introduce tax complexities among other challenges.

Taken together, resource constrained SMBs are facing significant obstacles to remain compliant. Additionally, when the headquarters change, medical plans, rates and carriers may change because many medical plans are determined by the state in which your headquarters resides. TriNet helps navigate this complexity. By enabling HR access from anywhere, TriNet is working with employers to keep employees connected. Furthermore, through our robust benefits offering, employers can demonstrate their appreciation for their employees. I look forward to the evolution of the US workforce and supporting them as they adapt to this new and incredibly exciting world.

Turning to the topic of ESG, we released our first environmental, social and governance report this afternoon. I have spoken in the past about our efforts to consider the interest of all our stakeholders. Through this report, our stakeholders will see the deep commitment made by TriNet to our work, customers, colleagues, the environment around us and our shareholders. 2021 is the perfect time for our team to showcase the work we've done. We aim to provide a new level of transparency into how we operate and view our role with respect to all stakeholders in our company. While we are pleased with our progress, we know we have more work to do to reach our ideals as articulated in this report. We view our ESG report as a public report card to establish a benchmark and we look forward to updating you on our progress against this benchmark.

With that, I will now turn the call over to Kelly for a more detailed financial update. Kelly?

Kelly Tuminelli -- Executive Vice President and Chief Financial Officer

Thank you, Burton. I'll review our third quarter financial results before discussing fourth quarter and full year 2021 guidance.

Our third quarter financial performance was strong. WSE volume growth exceeded projections and drove top line growth. Health performance remained benign and our operating expenses came in line with expectations, which taken together, drove bottom line outperformance.

During the third quarter, total revenues increased 18% year-over-year, outperforming the top-end of our guidance range by 1 point. The outperformance in total revenues was driven by 10% year-over-year growth in ending WSEs and 9% year-over-year growth in average WSEs and continued high health participation by RWSEs. Once again, year-over-year growth in total revenues included a 5% benefit from last year's accrual for the Recovery Credit Program, which reduced revenues in the third quarter of 2020. This prior year accrual impacted both professional service revenues and insurance service revenues.

Professional service revenues in the quarter grew 24% year-over-year, exceeding the top-end of our guidance range by 4 points. This growth was driven by a few factors. First, our year-over-year average volume growth of 9% reflected strong hiring. More than half of it came from our technology vertical. While the volume of hiring has moderated from last quarter, it was much more robust than we had predicted when we updated our third quarter guidance. We also again benefited from retaining our strong customers, but we are seeing this trending more in line with historical levels and anticipate that continuing as we emerge from the pandemic.

Second, professional service revenues benefited from 11% growth in rate. Similar to last quarter, rate growth saw a meaningful contribution from our efforts to achieve a minimum price with our smallest customers to align with the cost to serve those clients. We may benefit from this trend for one or two more quarters. For the third quarter, our insurance cost ratio was 86%, outperforming our forecasted range for the quarter of 89.5% to 91.5%. The outperformance of the insurance cost ratio versus our estimate was largely due to two factors; first, the surge of the COVID Delta variant early in the quarter once again reduced elective procedures, particularly in the Southeast. Second, we benefited from catch-up contributions related to COBRA, which reduced insurance cost ratio by approximately 0.5 point.

Related to our operating expenses, we were roughly in line with guidance that had some year-over-year shifts in our marketing spend, given the timing of PeopleForce in the third quarter this year versus fourth quarter last year. In addition to PeopleForce, we invested in additional branding to support our Finserve preferred product launch and other brand awareness and lead generation going into our busiest selling season as well as had higher sales commissions.

Our third quarter effective tax rate was 25.2%. In the quarter, we saw higher state tax remittances offset by differences arising from employee-related equity compensation. GAAP net income per share increased 142% to $1.16 compared to $0.48 per share in the same quarter last year, exceeding the top-end of our guidance by $0.44 and adjusted net income per share increased 134% to $1.31 compared to $0.56 per share in the same quarter last year, which also exceeded the top-end of guidance by $0.44.

So far this year, we have spent $94 million to repurchase approximately 1.2 million shares of stock and have over $264 million of authorization remaining. We also generated $334 million in corporate operating cash flows through the first three quarters of the year as a result of our strong operating performance ending the quarter with $525 million in corporate cash. Overall, performance in the third quarter continued many of the positive trends we saw emerge in the first half and we are positioned well for the fourth quarter.

Now let's turn to our 2021 fourth quarter and full year outlook. I will provide both GAAP and non-GAAP guidance. For the fourth quarter of 2021, we expect total revenues growth of 12% to 14% year-over-year and professional service revenues growth to be in the range of 16% to 20% year-over-year. This guidance builds on our higher base of WSEs and reflects seasonal trends in sales and attrition.

In the fourth quarter of last year, we accrued $24 million in total for our 2020 Recovery Credit Program, which reduced both fourth quarter 2020 GAAP total revenues and professional service revenues by 2%. Regarding our insurance cost ratio or ICR, we are expecting our fourth quarter ratio to be between 92% and 94%. An ICR of 94% captures a diminishing impact from the COVID-19 Delta variant and a return to more normalized health utilization, while an ICR of 92% contemplates a continuation of the status quo. The overall higher insurance cost ratio range also reflects our normal typical pattern of higher utilization in the fourth quarter, as more participants have satisfied their deductible layers and our pooling benefits have reset.

We expect fourth quarter GAAP earnings per share to be in the range of $0.17 to $0.40 per share and we expect fourth quarter adjusted earnings per share to be in the range of $0.36 to $0.60 per share.

Regarding our full year 2021 guidance, given three quarters of performance and our better than expected volume, we are raising our full year guidance. We are now forecasting our year-over-year GAAP revenue growth to be 11% to 12%, lifting the bottom-end of the range by 1 percentage point. With the strong growth to-date and our fourth quarter outlook, our full year professional service revenues forecast is now for 15% to 16% year-over-year growth, an increase of 1 point to the top-end of the range. We expect our full year 2021 insurance cost ratio to be in the range of 86.5% to 87%, a 1 percentage point improvement to the top-end of the range, as revenues are expected to remain strong while utilization remains subdued relative to historic and expected future experience.

With all of these factors taken together, we now expect GAAP EPS to be in the range of $4.20 to $4.43 or up 5% to up 11% year-over-year. The new GAAP EPS range represents an increase to the top-end of the range of $0.40. Adjusted net income per share is now expected to be in the range of $4.88 to $5.12, an increase of $0.42 versus our previous guidance and representing year-over-year growth of 10% to 15%.

With that, I will return the call to Burton for his closing remarks. Burton?

Burton M. Goldfield -- President and Chief Executive Officer

Thank you, Kelly. As a recap, Q3 was a very positive quarter for our company. We achieved strong growth in WSE volume, professional service revenues, total revenue, PEPM rate and margin expansion. This continues a multi-quarter trend, which sets us up for a solid performance in the fourth quarter.

As we wrap-up this call, it is important for me to reiterate how we continue to execute our strategy. We target the right customers in our core verticals. We deliver a premier HR experience. We offer our customers outstanding benefits, and we operate with integrity as described in our ESG report. I have always said, complexity is our friend. As a result of the pandemic, SMBs are facing more, not less complexity. TriNet is well positioned to capture more market share in the coming months and years to help SMBs address these complexities.

Finally, I would like to thank the entire TriNet team for delivering these results.

With that, I will now turn it over to the operator. Operator?

Questions and Answers:

Operator

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

Tien-Tsin Huang -- JPMorgan -- Analyst

Thank you. Thank you, Burton and Kelly. I wanted to ask first on the WSE count or on the volume side. Obviously, great results again there. Just trying to think about that result in all of your comments Burton just around the PEO with the secular growth. So with the change in existing, I know that labor market is hot, especially in tech and I know you had the recovery credit program going on as well. So I'm just trying to understand how much of this is just hot market versus something different you're doing from a tech perspective or a servicing perspective and also just to tack it on thinking about PEO in general, is there a risk that as some of these tech firms get larger that they may graduate out of the PEO and same with the higher PEPM rate in the down-market? Could that also cause an uptick in churn? Just trying to think about how to go beyond the fourth quarter and into the midterm in terms of the WSE count. Thanks. Sorry. I had a lot out there in one question.

Burton M. Goldfield -- President and Chief Executive Officer

No. Thank you, Tien-Tsin and it is a great question. It was an incredible quarter from my standpoint. The customers are thriving in this environment and your question is a good one.

What I am seeing is that the ability to offer the high-end benefits, the 401k, the flex spending accounts, the paperless onboarding. These customers, particularly tech customers are fighting for the scarce talent that's out there, the programmers, the strategy folks, and we're helping to get them on-board. So I was, as I said, in my remarks, I am thrilled with the growth of the installed customer base and I'm also happy with the net new sales. So all-in-all, in the verticals we are playing in, there is strong demand, I believe for PEO in general and TriNet specifically.

Tien-Tsin Huang -- JPMorgan -- Analyst

Yeah, no, it's been smart to go up to those verticals for sure. I'll ask a quick follow-up then maybe to Kelly on the insurance cost ratio. Just if you don't mind on insurance cost ratio, 92% to 94% guidance in the fourth quarter, that's up 1 to 3 points over the prior year, but up quite a bit sequentially, I don't think it's ever been up that much sequentially, but I know that Delta and everything else is unusual. So talk to us about the visibility there. Why would that be up so much sequentially [Speech Overlap]

Kelly Tuminelli -- Executive Vice President and Chief Financial Officer

Yeah. Sure, Tien Tsin. Happy, to answer that question. Well, one thing I want to just remind you is sort of the pattern we see seasonally. We typically see seasonal weakness in the fourth quarter because people have worked through their plan, deductibles and our guidance just reflects that seasonality. We also have our pooling limits on a per employee or per member basis that actually reset at the beginning or at the end of October. And so really the -- or I'm sorry, at the beginning of October. So fourth quarter, we would have a reset of all those pooling limits. So anything over $500,000, we will be on the hook until they hit those pulling limits for high-class claimants. I do believe that we'll see a normalization of healthcare utilization. We were definitely under this quarter and we expect to see that regular normalization, but we don't necessarily contemplate a spike in it. Was that helpful?

Tien-Tsin Huang -- JPMorgan -- Analyst

Yeah. Got you. Thank you. Good results there guys.

Burton M. Goldfield -- President and Chief Executive Officer

Hey, thanks.

Kelly Tuminelli -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Our next question will come from Kevin McVeigh with Credit Suisse. Please go ahead.

Kevin McVeigh -- Credit Suisse -- Analyst

Great, thanks. And let me add my congratulations as well. Hey, can you remind us in terms of vertical mix today, how much is technology versus maybe some of the other verticals and then where the average client size sits and as you have more of a distributed workforce, does that change classifications of workers or the average PEPM per WSE, maybe just components as to what the new world looks like post-COVID, as opposed to prior as we think about the model. And then if you could maybe on retention, I know there's a lot there, but just how you're thinking about retention longer term as well.

Kelly Tuminelli -- Executive Vice President and Chief Financial Officer

Yeah. Kevin, let me take that. This is Kelly.

Kevin McVeigh -- Credit Suisse -- Analyst

Hey, Kelly.

Kelly Tuminelli -- Executive Vice President and Chief Financial Officer

In terms of tech, it is our largest vertical. So when we look at all of our verticals, it is our largest. We don't give percentages, but it's our largest single vertical. And when I think about the change in existing or hiring in the quarter, then that hiring was actually up about 7%. So just quarter-over-quarter, we saw a 7% increase in the tech vertical, just given the strength there. Our average size of client, I think we're right around 21, so it's still relatively small. You asked about a distributed workforce and does that change our pricing? We currently do not distinguish pricing based on the level of distribution of our workforce at this point in time.

And then on retention, I think that was your last question. And then I'll make sure I was responsive. But on retention, we are seeing people now focusing on the back-end of the house. They were during the period of deep COVID really not focusing on back office and trying to make sure they could keep their businesses surviving, but we are seeing a little more retention, but just really back to historical levels. I wouldn't say it's elevated.

Kevin McVeigh -- Credit Suisse -- Analyst

Thank you.

Burton M. Goldfield -- President and Chief Executive Officer

Thanks, Kevin.

Operator

[Operator Instructions] Our next question will come from Andrew Nicholas with William Blair. Please go ahead.

Andrew Nicholas -- William Blair -- Analyst

Hi, good afternoon.

Burton M. Goldfield -- President and Chief Executive Officer

Hey, Andrew.

Andrew Nicholas -- William Blair -- Analyst

Thanks for taking my questions. Just first one was just on kind of the success of the sales season to-date. I know you're kind of getting into the heart of it if you're aren't already there. And just was wondering, what's driving some of that momentum. Obviously you've touched on a bunch of different valuable portions of the PEO construct, but is your sense now that win rates versus other PEOs are going up, is it more about more awareness for the PEO model or just kind of any more color you can give on what's driving sales momentum specific to maybe industry adoption?

Burton M. Goldfield -- President and Chief Executive Officer

Absolutely, Andrew. So this is Burton. First, I believe the fall selling season is going well. So I'm excited about that. I believe we have the right approach to targeting our verticals. As we've talked about in the past, we do not run into other PEOs that often. Over 50% of the quotes that we generate and those are quotes are not competitive directly against another PEO. So I can't speak for the other PEOs. But as I said in my opening remarks, I believe this is the perfect environment for PEOs because of that remote complexity. We're investing in new sales as we build this sustainable growth. From a TriNet standpoint, I continue to be excited about the work that Jonathan LeCompte and his team are doing, and I believe we're moving toward a sustainable vision of scaled new sales. So overall, I believe we're headed in the right direction.

To specifically answer another question you had, yes, I am a big believer in brand awareness and brand sentiment and PeopleForce, which we invested heavily in helped to promote that from a TriNet standpoint. But I also believe it helps raise the visibility of the PEO model for the 4-plus million businesses that have an opportunity to avail themselves to that model, whether it will be with TriNet or another one of the PEOs out there.

Andrew Nicholas -- William Blair -- Analyst

Great, thank you. And then maybe as my follow-up a different way to ask an earlier question was just around kind of the top-end of what size category would be, amenable to a PEO structure. I'm just wondering, given all the complexity around regulatory restrictions and working remote, making it all the more complicated. Is there an argument you made that companies could potentially stay within the PEO construct longer, given how much more complex it is or do you feel like that the top-end of this range is still pretty steady relative to pre-COVID?

Burton M. Goldfield -- President and Chief Executive Officer

It's a great question. I believe that it raises the top-end that would stay with a PEO. It really depends on the complexity. As we've talked about in the past, it's not necessarily the absolute number of workers, it's the number of states that they're in, it's the number of divisions, whether they have different operating models in different states. So all-in-all, I believe that they will stay longer based on this complexity. The average size of our clients is rising. I don't have the direct analysis. Part of it is that we're focused on the bigger clients now, but I can tell you that I am actively working on multi hundred person deals to come into TriNet today and I'm working on more of those than I have in the past.

Andrew Nicholas -- William Blair -- Analyst

Great. That's really helpful. And if it's all right if I can squeeze one more.

Burton M. Goldfield -- President and Chief Executive Officer

Absolutely.

Andrew Nicholas -- William Blair -- Analyst

For Kelly, just in terms of the insurance margin guidance, that is not incorporating any claw-back of kind of recovery credit for $25 million, correct?

Kelly Tuminelli -- Executive Vice President and Chief Financial Officer

That's a great question. You are absolutely right. Given our expectation of insurance costs, we think we're well above the hurdle that would claw that back.

Andrew Nicholas -- William Blair -- Analyst

Great. Thanks a lot. Appreciate it.

Burton M. Goldfield -- President and Chief Executive Officer

Thanks, Andrew.

Operator

[Operator Instructions] Our next question will come from David Grossman from Stifel. Please go ahead.

David Grossman -- Stifel Nicolaus -- Analyst

Thank you. Good afternoon.

Burton M. Goldfield -- President and Chief Executive Officer

Hey, David.

David Grossman -- Stifel Nicolaus -- Analyst

Hey, Burton. I think this maybe came up earlier, but I just wanted to make sure I understood. When you look at the growth of the portfolio, do you have any visibility into the same store growth versus new sales, kind of give us just a sense of how that's trending this year.

Kelly Tuminelli -- Executive Vice President and Chief Financial Officer

It's a good question. We don't provide that level of visibility, but I would say most of the growth during the quarter really was hiring versus net new.

David Grossman -- Stifel Nicolaus -- Analyst

Okay. And is that, do you think just unique to kind of where we are in terms of the pandemic, the recovery and all that stuff or do you see any signs in terms of your sales activity to-date that we may see that trend kind of change a little bit as you go into next year, just based on the pipeline and what [Indecipherable]?

Burton M. Goldfield -- President and Chief Executive Officer

Yeah, it's a good question, David. Obviously, with the large installed base and the growing change in existing that has an outsized impact on the all-time high WSE count. I don't want to take anything away from new sales because I now have two quarters in a row where they're up year-over-year. So I think it's just a phenomenal customer base. And the other thing which I said in the opening remarks, which I think is kind of cool is Main Street has recovered completely from the pandemic lows. So the WSE count in those customers is back to where it was pre-pandemic. So this is a much broader recovery at this point through TriNet's lens across all of our verticals and now I can tell you that every vertical is either flat or up from the beginning starting point of 2019 before the pandemic.

David Grossman -- Stifel Nicolaus -- Analyst

Good. And just maybe just a corollary to that last comment because I had another question just about professional services.

Burton M. Goldfield -- President and Chief Executive Officer

Sure.

David Grossman -- Stifel Nicolaus -- Analyst

So it looks like professional services, kind of flattish sequentially and similar up a little bit from the first quarter. So is that kind of that mix shift back to Main Street? Is that why that number is staying relatively flat and revenue per or professional services revenue per WSE is coming down off those kind of highs that we saw in the first quarter? Is that the phenomenon going on there?

Kelly Tuminelli -- Executive Vice President and Chief Financial Officer

Well, David, I guess the way I think about it is, last quarter we had some pretty extraordinary bonus payments and a few other one-time things that I think I talked about on the call that drove the PSR on a per WSE or per average WSE base a little bit up and said, I wouldn't really expect that to continue. We still are seeing a little bit of benefit from rate as we put some minimums in on our individual clients, smaller clients, just to align with the cost to serve those smaller clients. But I think it's more of the fact that I'd highlighted some unusual last quarter that really aren't recurring quite at the same level this quarter.

David Grossman -- Stifel Nicolaus -- Analyst

Great. And then just one other question, Burton, maybe you could address this, that you talk a lot about trying to enhance the offering that will keep people longer and that makes perfect economic sense for this model. Just wondering, do you have any different thinking, on the kind of more entry level of the market where you can offer a simpler product without taking insurance risks and you can kind of take the element of scaling out of the equation or that risk, that you could incur when you take on smaller customers. Just curious if you have any thoughts at the lower end of the market?

Burton M. Goldfield -- President and Chief Executive Officer

Absolutely, David. So we are strategizing on both of those, meaning the smaller end of the market, as well as they grow larger, to keep them longer because obviously at that point, the opportunity to help them is very important to us. So what I would say is it's all around the insurance construct and the PEO construct and from an insurance standpoint, at some point being able to support our clients other than trying at 11 [Phonetic] on non-single employer plans makes sense. I'm not announcing anything here today, but that makes sense.

And on the smaller end, being able to support those clients in a model that allows them to on ramp to the TriNet PEO model also makes sense. So we're exploring all of those things, but I will not take my eyes-off of the core customer base that is supporting us in this growth [Indecipherable]. So bunch of things to come. We have some great ideas for the first half of next year and stay tuned, but I am really thrilled with the customer base we have and the opportunity we have. We are not seeing a lot of changes in the environment from a competitive standpoint and we're going to continue to execute exactly as we talked about for quite a while now.

David Grossman -- Stifel Nicolaus -- Analyst

Thanks very much.

Burton M. Goldfield -- President and Chief Executive Officer

Yeah.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Alex Bauer -- Investor Relations

Burton M. Goldfield -- President and Chief Executive Officer

Kelly Tuminelli -- Executive Vice President and Chief Financial Officer

Tien-Tsin Huang -- JPMorgan -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Andrew Nicholas -- William Blair -- Analyst

David Grossman -- Stifel Nicolaus -- Analyst

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