TriNet Group Inc

NYSE:TNET

Earnings Call Transcript 2018-Q2

[Operator]

Good day. And welcome to the TriNet's 2018 Second Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note today's event is being recorded.

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

[Alex Bauer, Executive Director, IR]

Thank you, operator. Good afternoon everyone. And welcome to TriNet's 2018 second quarter conference call. Joining me today are Burton M. Goldfield, our President and CEO; and Richard Beckert, our Chief Financial Officer.

Our prepared remarks were pre-recorded. Burton will begin with an overview of our second quarter operating and financial performance. Richard will then review our financial results in more detail. We will then open up the call for the Q&A session.

Before we begin, please note that today's discussion will include our 2018 second quarter and full year guidance and other statements that are not historical in nature, are 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 uncertainties, risks 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 these risks and uncertainties in 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 non-GAAP net service revenues, adjusted EBITDA, adjusted EBITDA margin and adjusted net income. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release or our 10-Q filing for our second quarter of 2018, both of which are available on our website or through the SEC website.

A reconciliation of our non-GAAP forward-looking guidance to the most directly comparable GAAP measures is available on our website.

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

[Burton Goldfield, President & CEO]

Thank you, Alex. Our strong second quarter financial results, reflected successful execution of our vertical market strategy as well as the early benefits of the investigations we made in our technology, management team and products. We grew total revenues, 6% year-over-year to $850 million and we grew our net service revenues by 10% year-over-year to $220 million.

Professional service revenues grew 6% year-over-year to $115 million. Professional services revenues benefited from our efforts to target the right customers with the right products and services at the right price which held drive our PEPM. We grew insurance service revenues by 6% year-over-year to $735 million, while net insurance service revenues grew 14% year-over-year to $105 million. Net insurance service revenues in the quarter benefited from improved workers compensation performance and administrative cost savings.

Our Q2 GAAP earnings per share grew 43% year-over-year to $0.80 per share. And our Q2 adjusted net income per share increased 67% to $0.87 per share. We finished the quarter with 319,000 worksite employees up quarter-over-quarter. Our ending WSEs outperformed our expectations on the strength of new sales and strong hiring within our installed customer base across all industries.

New sales continued its positive momentum as we benefited from the efforts of our sales leadership; improve sales force retention, and the value of our products. With our platform migrations firmly behind us, my focus will be on year-over-year WSE volume growth in conjunction with strong financial performance. We will accomplish this growth by selling our vertical products and services in a disciplined manner into the large market opportunity. TriNet's market opportunity is in part driven by the challenges presented by juggling HR, payroll risk and regulatory compliance in a constantly changing business environment.

Additionally, with low unemployment employers are trying to attract and retain valuable employees with competitive benefits and a more robust HR experience. TriNet delivered solutions to face these challenges for each of our nearly 16,000, US-based clients on a daily basis, so they can focus on growing their business.

Now more than ever TriNet's comprehensive bundled solutions offer our clients relief through our four primary pillars of value. First, we deliver HR processes through our technology platform and client experience teams which includes multi-state payroll processing and tax administration. Additionally, we serve as our clients HR system of record providing real-time access to HR data and performing HR transactions online and through our mobile apps.

Second, our HR expertise delivered through our industry products and service offerings helped support our clients in an industry specific manner on everything from recruiting on-boarding, performance management, human capital consulting and much more.

Third, we provide access to a variety of benefits offerings and services from health and worker's compensation insurance to retirement products that address the needs of specific industries and clients. And finally our employer risk management expertise helps client stay on the right side of employment regulations and provides guidance and compliance assistance as well as offering workplace risk consultation and Employment Practices Liability services.

Beginning in 2016, we launched our platform consolidation initiative. We completed the project earlier this year so that we now deliver our bundled solution to all 319,000 TriNet WSEs from a single common technology platform. The common platform now allows us to serve our clients from a single payroll engine which is already driving improved efficiencies, for example, we have doubled our actual output compared to before we began our platform consolidation.

Finally, we now have a single CRM system which has unified our client interaction model and we believe will continue to improve our client experience. Our consolidation to a single technology platform enables us to focus our investment, to improve scale, efficiencies and deliver better value to our clients for our vertical products. Finance industry differentiating, vertical go-to-market strategy allows us to focus on specific industries characterized by attractive market sizes, operating complexity and risk profiles, by offering vertical products into these targeted industries, we increase the relevance of our products and services to our clients.

This allows us to price our product at varying price points aligned with each of these tailored service offerings, TriNet's vertical product strategy is a differentiated approach amongst our competitors who otherwise offer a one-size-fits-all industries product. During the second quarter, we launched TriNet professional services, our sixth vertical product designed to address the unique HR needs of professional services firms such as consulting, advertising and other expertise driven organizations.

TriNet professional services are delivered by a team of TriNet HR experts that specialize in working with professional services firms. This solution is supported by our technology platform which powers business success with improved operational efficiency, cost management and risk mitigation. In addition, on July 1st the IRS designated a TriNet subsidiary as a certified professional employer organization which now allows us to provide a CTEO solution for those clients seeking that option.

In the second quarter, we delivered strong year-over-year new sales volume growth. And as I look forward, I am excited for our sales and client services teams to continue to build on our first-half momentum, with a platform consolidation completed and continued operational improvements in front of us. My focus is to drive TriNet's growth in a disciplined manner.

With that I will pass the call over to Richard for a review of our financial performance, Richard.

[Richard Beckert, CFO]

Thank you Burton, as we review the financials I will focus on the GAAP and non-GAAP numbers were appropriate. During the second quarter, GAAP total revenue increased 6% year-over-year to $850 million, net service revenues increased 10% year-over-year to $220 million. We finished the second quarter with approximately 319,000 worksite employees, down 3% year-over-year. Average WSE count for the second quarter was approximately 314,000 down 3% year-over-year.

Professional service revenue for the second quarter increased 6% year-over-year to $115 million. Professional service revenues continued its recent trend by benefiting from improved pricing and a mix shift away from blue and gray verticals. These benefits were offset by reduced average WSEs. Insurance service revenues for the second quarter increased 6% year-over-year to $735 million, and net insurance service revenues increased 14% year-over-year to $105 million.

Net insurance service revenues benefited from favorable worker's comp and health experience, administrative cost savings and our previous announced change to the economic arrangement with one of our carriers. Our GAAP effective tax rate was 19% primarily due to the 2017 tax reform legislation, and the tax treatment of employee equity compensation. For the quarter, our non-GAAP tax rate was 26%. GAAP net income increased 45% year-over-year to $58 million, or $0.80 per share compared to $40 million or $0.56 per share in the same quarter.

Adjusted net income increased 73% year-over-year to $63 million, or $0.87 per share, compared to $37 million, or $0.52 per share in the same quarter last year. Adjusted EBITDA for the second quarter increased 36% year-over-year to $99 million, compared to $72 million during the prior year period for an adjusted EBITDA margin of 45%. Adjusted EBITDA benefit from second quarter operating expense being lower than originally expected. We expect to see our investment in OpEx increase in the second half of this year.

We close the second quarter with total cash of $202 million, and working capital of $188 million versus $330 million and $247 million respectively in the first quarter of 2018. During the second quarter, we implemented our new corporate cash investment strategy by investing $162 million of corporate cash. Most of these investments are classified as long-term assets. Historically, this cash used to purchase these investments would have been included in our total cash and working capital calculations.

During the second quarter, we generated $108 million of positive corporate cash flow from operating activities, and paid out $651 million primarily comprised of WSE related payroll tax obligations. As a result, total cash outflows from our operations were $543 million. Please refer to the liquidity section of our current Form 10-Q filed with the SEC today for a more in-depth presentation of our cash flow.

In the second quarter, our cash flow from operating activities was predominantly impacted by the timing of corporate income tax payments, and timing of vendor payments. We spent $22 million to repurchase approximately 435,000 shares of stock in the second quarter, leaving $106 million authorized for share repurchase as of quarter end.

During the second quarter, TriNet received a one notch upgrade from Moody's to be BA2 with a stable outlook and from S&P to BB minus with a positive outlook. In the quarter, we refinanced our existing term loans with $425 million of a new five-year Term Loan A and we established the $250 million five-year revolver, a significant expansion of our previous $75 million revolver.

Turning to our 2018 full year and third quarter outlook. I will provide both GAAP and non-GAAP guidance. For our full year 2018 guidance, we are forecasting GAAP revenues in the range $3.5 billion to $3.6 billion which represents year-over-year of 7% to 10%, unchanged from our previous guidance. We expect full year net service revenue in the range of $841 million to $868 million, which represents year-over-year growth of 4% to 7%, unchanged from our previous guidance.

We are now forecasting adjusted EBITDA for 2018 to be in the range of $311 million to $321 million, representing a 37% adjusted EBITDA margin, a one point increase when compared to our previous guidance. We still expect full year GAAP earnings per share in the range of $2.33 to $2.46. Regarding adjusted net income per share, we are raising our guidance range to $2.59 to $2.72, a $0.09 when compared to our previous guidance.

For FY2018, we are modeling a pro forma tax rate of 26%. Before moving to our third quarter guidance, I'd like to note two items. First, in the second half of 2017 we realized favorable workers comp and health experience, benefited from administrative cost savings and change the economic arrangement with one of our carriers. While we benefited from these developments in Q2 of 2018, we now face these positive developments in our 2018 second half year-over-year compare. Second, as previously discussed, we are forecasting an increase of OpEx spend during the second half of 2018 as we invest in our operational improvements and marketing campaigns.

For the third quarter, we expect GAAP revenue in the range of $854 million to $867 million, representing the year-over-year growth of 4% to 6%, and net service revenues in the range of $191 million to $206 million, or down 7% to flat year-over-year. Adjusted EBITDA is expected to be in the range of $55 million to $70 million for the quarter, representing adjusted EBITDA margin range of 29% to 34%. We expect Q3 GAAP earnings per share in the range of $0.34 to $0.52 per share and Q3 adjusted net income per share in the range of $0.43 to $0.60 share.

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

[Burton Goldfield, President & CEO]

Thank you, Richard. I am pleased with the ongoing efforts of our sales and client services teams and the traction we are seeing with new clients. The economic environment remains strong and our target market is substantial, leveraging our vertical strategy and enhanced technology platform, we are executing well as we position ourselves for the next phase of growth. Because of our discipline approach to executing our go-to-market strategy and our prudence in managing our costs, we are well positioned to deliver solid financial performance for the remainder of 2018.

With that I'd like to return the call to the operator. Operator?

[Operator]

[Operator Instructions]

Our first question today comes from Vasu Govil with Morgan Stanley. Please go ahead.

[Vasu Govil, Morgan Stanley]

Hi, thanks for taking my questions. A couple of quick ones. I guess first just on the net insurance margins that were really strong this quarter probably the highest in recent history. And I know you, Richard; you called out a few drivers there. But just wondering if the increase in reserves related to the flu season last quarter also had some benefit there. And if there was any seasonality that drove the net insurance margins higher this quarter and because of which we should expect it to trend back to your annual guide in the back half.

[Richard Beckert, CFO]

Hi, thanks for the question. So, yes, we did release a prudent reserve for the flu that we had anticipated. The other thing to recall is Q4 last year; we started with the NPT plan. We had anticipated that to be more fluid across the year and we were able to receive a bigger portion of that in Q2. So there was a little bit of a disproportion. For the full year though, we still plan on delivering the $0.30 that we had planned along with that plan change.

So that's all beneficial to us. And the last part of your question, we don't see - a little bit of a change we saw a little uptick last quarter that's reflected in the bottom end of guidance for Q3. So that's why you see the bottom end of guidance come down. So you right, it's a very strong Q2, 14%. We see Q3 trending back more towards the middle of the 11% to15% that we had talked about.

[Vasu Govil, Morgan Stanley]

Got it .And if I could just ask another one. I know Burton called out really strong sales growth in the quarter but could you give us the number? I think last quarter you guys had said double digits or I think you'd even given a number asked. What I was just wondering if you could get the new sales growth in the quarter. And then now we've seen two quarters of declining worksite employee count year-over-year but pretty solid professional services revenue per WSE. So just want to ask how sustainable that growth? I know you've previously called out benefit from mix and pricing but maybe you could provide us some granularity on how much further one way there is on both of those drivers.

[Burton Goldfield, President & CEO]

Yes. Thank you for the question. It's Burton. On the sales productivity again double-digit growth. First of all, sales force retention is improving as the sales reps become more senior. Their productivity is going up and second is sales count is trending higher or hiring quality individuals that are going through the first six months, and generating net new orders for the company. So I'm very pleased with the direction and the acceleration in the sales productivity.

Your second question was there --was what would --could you repeat the follow-up?

[Vasu Govil, Morgan Stanley]

Yes.

[Burton Goldfield, President & CEO]

Oh yes - WSE count, yes, that's a great question. So we ended the quarter up quarter-over-quarter in WSE account. This was very significant because it was the end of the migration of the SOI clients to the TriNet platform. We had originally forecasted that growth in the back half of the year. We saw it in Q2. The average volume was less as you noted. The reason for this is that the attrition occurred at the beginning of the quarter from the SOI platform and the net new WSEs came on at the end of the quarter. So the average was down but sequentially from the end of Q1 to the end of Q2 we grew WSEs.

Now I'm still focused on quality revenue growth, but this is a significant change which I had expected, it came a little bit earlier. I also want to say that not every client or every WSE is the same which is the reason that we're compensating our reps on annual contract value. There's a lot of momentum, and I will be focusing going forward on year-over-year growth because to me year-over-year growth represents the progress against our own market opportunity.

So that's what's really important to me. The quarter-over-quarter growth was the best stage of the migration of SOI. That's behind me, we showed the quarter end growth and the sequential growth puts us in a good position to start focusing on year-over-year growth.

[Vasu Govil, Morgan Stanley]

Great, that's a lot of good color. And just lastly on the benefit from mix and pricing on the professional services revenue for WSE like how much further one way do we have there?

[Richard Beckert, CFO]

You're asking the question on how much more price leverage do we have.

[Vasu Govil, Morgan Stanley]

Yes, just pricing and mix have been two good drivers for like the professional services revenues for worksite employee and like is that sustainable?

[Richard Beckert, CFO]

As we said before, there's a lot of price elasticity in the market. And we know that our vertical strategy allows us to leverage that and our direct selling with people that understand specific spaces, really allow them to sell the value. So we continue to see improvement in our price points in the marketplace. And we don't see that changing anytime soon.

[Operator]

The next question today comes from Timothy McHugh with William Blair. Please go ahead.

[Timothy McHugh, William Blair]

Yes, thanks. Just wondering if you could just give more color on the description of improving new business, I think last quarter you talked 50%, how I guess any more color I guess in terms of the growth. And how are you designing that metric, I don't think I have a full grasp of what exactly it means, thanks.

[Richard Beckert, CFO]

So we are continuing to see an acceleration of sales as Burton had said. We will not give up the exact amount going forward, but we're seeing acceleration in the double-digit range. So as we ended the quarter as Burton said, we're happy and your follow-up on just how do we, we just literally look at WSEs year-over-year and revenue year-over-year and clients year-over-year, so it's a pretty straight forward metric. And we're actually growing in all those all three of those.

[Timothy McHugh, William Blair]

Okay, and the thing about you mentioned client hiring, I guess on a same-store basis, how significant is that from a growth driver perspective if we - I guess even if you didn't grow your client base how much is that adding?

[Richard Beckert, CFO]

So we call it changing existing, we don't give out that exact number. We would tell you we had a strong quarter and changing existing and so we were happy with that, we saw it across all verticals which are also a positive. And we - there's a lot to be said about the product we have out there, and the general economy.

[Burton Goldfield, President & CEO]

Yes. Tim, I would add to that, that I'm really pleased with the customer base and the growth of our existing customers, particularly there's insight I have into our tech vertical as an example. Our clients in this vertical are adding employees. And frankly across all of our focus verticals there has been a growth in the install base, change in existing, but I particularly see it in the tech vertical with our excellent client base.

[Timothy McHugh, William Blair]

Okay and last one, just - I get the comment about timing and expenses but if the gross margin and really cost of services is one of the line items that I guess came in a lot lower than I would have thought. What, can you talk about why or what's driving that I guess?

[Richard Beckert, CFO]

And I think if you just take a part our business, right now as we said we had a strong quarter in our insurance area. And that was because of the financial arrangement we had last year and we're seeing that pay off and lot came in Q2. We anticipated it coming in over the back half of the year. Then you see that just reflected, so that's actually a great thing we de-levered our full-year guidance. So we're happy with that, when you look at the cost-to-serve, part of that falls and they're part of --it's a lot of the other hard work that our teams are doing and we're passing on the admin fee.

And the last pieces, we are spending more money as we re-engineer the company in the back half of the year. You'll see our costs actually go up year-over-year in certain parts of our business, which is why you're seeing this whole margin even though we're ahead currently. So it's all investing in future growth.

[Operator]

The next question comes from David Grossman was Stifel. Please go ahead.

[David Grossman, Stifel, Nicolaus]

Thank you, good afternoon. Maybe we could just follow-up on just that 2Q dynamic and how it impacts the balance of the year, just to make sure we all have that straight. So just to make sure that we have all the different moving pieces here, it sounds like the new minimum premium plan that went into effect in the fourth quarter, had a disproportionate impact on insurance margins in the second quarter which will then have a diminished impact in the second half of the year.

And on top of that you talked about investment spending that would be more back half weighted, which I think you had talked about previously. So when you bundle those things together is that where you come up with both lower margins in the back half of the year, as well as a sequential decline in revenue because you won't get the same net benefit on the insurance side on the top line as well or am I missing something in there?

[Richard Beckert, CFO]

No, so recall that in Q4 we started that. So we'll have the wraparound in Q4. And Q3, you should think of it that was actually pulled forward a quarter into Q2 just because of the way the - we could see how the actuals were coming in. And then to your point on we expect the OpEx to continue to ramp for our operational excellence. And remember, we'll be investing heavier in marketing for our Q4 and Q1 selling season.

[David Grossman, Stifel, Nicolaus]

Got it, and then is there any other thing any or anything else affecting the revenue in the third quarter? And can you perhaps help us, is the revenue impact from pulling that revenue forward the difference between the 14% net margin and change and the 11% which is the midpoint area?

[Richard Beckert, CFO]

That's correct. You'll see it. For the most part, you have that but if you look again as we continue to grow and you heard Burton talk about how we ended last quarter, you'll start to see the WSEs impact and that revenue will come back around, it's just slower, revenue being a backward-looking indicator. So we feel pretty good about where we ended through the first half for our full year forecast.

[David Grossman, Stifel, Nicolaus]

Right and since Burton, I think you mentioned that you grew WSEs ahead of plan in the quarter which is consistent with kind of where you had been guiding. So now that we grew sequentially end of quarter, do you feel comfortable that we're now back on that path so that we would see continued sequential growth for the balance of the year?

[Burton Goldfield, President & CEO]

So a great question. I want to follow-up on your earlier one, I think you're thinking about the insurance issue properly, as we talked about with a minimum premium plan, it was going to deliver an extra $0.30, it's going to do exactly about that, we got it in Q2. We expected it to spread over Q3 and Q4. So your thoughts on the insurance side are absolutely correct. From the WSE count, correct, we ended the quarter up over Q1.

We did that by working through the migration and replacing related to attrition. The comment earlier about our PEPM being up some of that has to do with the replacing part of it. And we're starting to see the new sales accelerate, and we're getting the right price to risk as well as attractive PEPM. I expect as we move forward through the rest of the year, we will start to see an acceleration in the WSE count, but my focus is going to be on year-on-year WSE count because of the cyclical nature of the business and the seasonality.

So to me the market capture is related to and the market growth is related to the year-over-year growth of WSEs. And I expect to get back to the year-over-year growth. So put the platform behind us, get a single platform, build the sales capability and get back to year-over-year WSE growth. My expectation continues, we got the WSE growth. In Q2, I expected it in the back half of the year Q3 or Q4; you'll see it flattish to up as we go through the year because not a lot of it sold through back half of the year. But my expectation is that you'll start to see that up sequentially as well as year-over-year.

[David Grossman, Stifel, Nicolaus]

Right. I mean-- I mean just to be clear though I mean, I think if you just-- if you are flattish I think-- wouldn't you still be down year-over-year and end of quarter? Or am I not understanding-- how that's currently?

[Richard Beckert, CFO]

And there's going to be some historical, as you know, there's just historical different quarters come and go. So, I think Burton's point as we exit the year, we're feeling stronger and stronger about where the platform sits, and how our vertical strategy is working. And so as we execute forward you'll start to see them.

[David Grossman, Stifel, Nicolaus]

Right. And then just kind of more broadly about the business you know that we're kind of-- I think at a much more stable place, can you help us understand because obviously the worksite employee growth is fairly deceiving given all the changes in your business, and some of the forced attritions. So, I think the last couple quarters you've been saying that your non-blue-gray business had been growing at or above market rates which I think was kind of a 10 percent-ish double-digit I just checking in and to make sure are we still pretty much at that place or is that accelerated or decelerated?

[Richard Beckert, CFO]

It's doing quite well on those other spaces. So, yes we're happy with the performance.

[David Grossman, Stifel, Nicolaus]

Okay. And then just one last thing-- and I know the things-- so many things have changed in the business, but just to understand the selling process and the new sales hires, is that-- July used to be when we would bring the new folks on and we would get a new cohort, if you will, of salespeople, is that really given all the changes in the way the sales force has being managed more at the vertical level, is that really that significant any more or should we not really think of that as being as much of annual event as it was historically?

[Burton Goldfield, President & CEO]

It's absolutely an annual event. In fact, we are in the middle of our sales kickoff and there's energy and excitement with both the senior reps and the new reps, and obviously as we start to accelerate sales now two quarters in a row, you can imagine that the energy is there and my expectation is that growth will continue.

[Richard Beckert, CFO]

Just to add on that. A big part of the year is our ability to retain reps. We are far ahead of where we were last year with retention. So if you look at the absolute number of people that this is now their second year or more is much higher than it was in previous years. And we front-end loaded some of the hiring for the year, so there are actually a lot of people that have been on board for a couple months and not just coming in July.

[David Grossman, Stifel, Nicolaus]

Got it. And then just one last question is really on client retention. I know that you guys have not only put into place processes to improve sales force retention, but also client retention, but that's another statistic that kind of gets lost because of the kind of-- again the changes in the underlying SOI business. So, is there any metrics or statistics you could help us maybe better understand whether client retention at least the clients you want to retain has improved and how much of that's improving on a year-over-year basis?

[Richard Beckert, CFO]

Yes. We don't share externally what our attrition rate is; we have said historically it is around 20%. Inside the company this year, we are actually paying all employees on the attrition rate. With the addition of Olivier in his function now. We have a lot of new processes that are in place to help keep attrition down, and you can-- you'll see over time, we believe our attrition will continue to fall, and we think our Net Promoter scores will continue to increase.

Those are both changes on how we pay people and we think we've seen a benefit especially as the year has developed.

[Operator]

The next question comes from Tien Tsin Huang with JP Morgan. Please go ahead.

[Tien Tsin Huang, JPMorgan]

Thank you. Good afternoon. Just want to follow-up to your answer to David's questions on WSE. I am curious if -- if you've seen any sort of change in market growth or market dynamics between all the new different competitors. It seems like there's been some mixed results from the bigger players. Do you still see double-digit growth amongst the big guys and is that still something you're aiming for longer-term?

[Richard Beckert, CFO]

We still see mainly 75% of the time that we're not competing directly with them in the marketplace, and that hasn't changed this quarter, again. So, I don't think there's any real change in that. We do continue to plan on being able to grow high-single digits, low double-digits going forward out over time. The market continues to expand over the economy. We've seen our change in existing expand well for us.

[Tien Tsin Huang, JPMorgan]

Good. It seems like there is some good underlying activity, just wanted to make sure there hasn't been any change. And just on the admin cost side and of those mentioned a couple times, any update there in terms of how that might behave here coming quarters or the next 12 months?

[Richard Beckert, CFO]

We're continuing to look at our admin cost as we leverage our size with different carriers. We're always in negotiations as we look out over time. I think one of the things that I've seen the positive change is our discussions now are further and further out into the future. So when we look at our headlights, a lot of our dialogue is about Q1 of next year and Q2 of next year. So much more driving process, and Ed's team has done a very good job in continuing to work with them. And we've had some very good relationships that have been built just in the 14 months back I have been here.

[Burton Goldfield, President & CEO]

And, Tien, it is a marked difference. We are deep into 2019 right now which is different than prior years.

[Tien Tsin Huang, JPMorgan]

Now that's healthy to hear. One more quick one just on the workers' comp front. Has there been any change on the approach towards workers comp since I guess it will perform a little bit better?

[Richard Beckert, CFO]

No. I think I would just say that you will recall when we were going through the SOI migration; that was a time when we did look at our book of business and repriced it to risk. That's all been behind us. We've also allowed us because of the change in our book with -- some of our reserves have come down over time and you'll see that in the Q. So that's kind of a permanent thing that we've been able to see just because of a cleaner book of business.

[Operator]

At this time, this will conclude today's question-and-answer session, as well as today's conference call. We want to thank you very much for attending today's presentation. You may now disconnect your lines.