TriNet Group Inc (TNET) 2016 Q2 法說會逐字稿

Good afternoon, and welcome to the TriNet second-quarter 2016 earnings conference call.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to Alex Bauer, Head of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone and welcome to TriNet's 2016 second quarter conference call. Joining me today are Burton M. Goldfield, our President and CEO, and Bill Porter, our Chief Financial Officer. Burton will begin with an overview of our second-quarter operating and financial performance. Bill will then review our financial results in more detail. Bill, Burton and I will then open up the call for the Q&A session.

Before I hand the call over to Burton, please note that today's discussion will include our Q3 and 2016 guidance and other forward-looking statements, such as predictions, expectations, estimates, strategy or other information, that may be considered forward-looking. These forward-looking statements are subject to risks, uncertainties, and assumptions that may cause actual results to differ materially from statements being made today. We do not undertake to update any of these statements in light of new information or future events. We encourage you to review our most recent public filings with the SEC for more detailed discussion of these risks and uncertainties 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 outlook for non-GAAP net service revenues, adjusted EBITDA, and adjusted net income. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see the Company's earnings release, available on our website or through the SEC website.

A reconciliation of our non-GAAP forward outlook to the most directly comparable GAAP measures is not included, because material items that affect these measures, such as the timing and amount of insurance service revenue and insurance costs in the case of net service revenues, and the income tax impact and number of shares granted in market price needed to quantify stock-based compensation expense in the case of adjusted EBITDA and adjusted net income are not ascertainable at this time without unreasonable effort and/or cannot be reasonably predicted. With that, I will turn the call over to Burton for his opening remarks.

Thank you, Alex. I am pleased with our second-quarter performance. We delivered strong financial results, and made further progress on a number of business objectives.

During the second quarter, we grew net service revenues 22% year over year to $149 million. Professional service revenues increased 12% year over year to $110 million. This year-over-year increase was attributable to our increase in WSEs, and a 3% increase in average professional service revenue per WSE, which is driven by our unique vertical product strategy.

Net insurance service revenues grew 63% year-over-year to $40 million. Our Q2 adjusted net income came in at the top end of our guidance, at $0.27 per share. We finished the quarter with 325,466 work site employees, up 8% year-over-year. As I reflect upon our second-quarter financial results, I am pleased by the performance of our net insurance service revenues, including the fact that medical claims came in as expected.

We continue to make operational progress with insurance services. We are innovating our products under the leadership of our Senior Vice President of Insurance Services. This will expand, as well as better align our offerings, with our clients' specific needs.

Our Chief Actuaries for both medical and worker's comp are contributing to our ability to better forecast and price our insurance offerings. As indicated by our improving financial performance, we believe these actions are beginning to pay off. I am very excited about what the insurance services team is working on.

Additionally, we are looking forward to delivering our enhanced technology platform. It will improve the client experience, with both our online interface and our mobile app. This platform is central to our vision of being an industry leader, exemplified by our industry vertical product strategy. This platform will drive operational efficiencies and scale, resulting in continued revenue growth and profitability.

Our investment in technology is central to our transformation to a world-class products company. With two vertical products in the market today, TriNet Life Sciences and TriNet not-for-profit, we have seen the benefit of highly tailored product offerings that closely match our clients' specific needs. The market is ready for this innovation, and the competitive environment continues to provide an opportunity to further grow our market share, and deliver a unique service to our customers.

I am happy to once again report that of the TriNet quotes to new prospects in the second quarter, less than 25% were against a direct PEO competitor. I remain extremely excited about TriNet, our future, and our market.

The question you might ask is, what makes TriNet the best available choice? TriNet is better serving the needs of our clients as a multi-product company. We offer a variety of highly differentiated offerings to our vertical markets at various price points. It is simply not one-size-fits-all.

Our solution delivers four distinct pillars of value. HR, technology, benefits, and compliance, each tailored to industry needs. In the end, we want our clients to make an informed decision about our product, to understand its fit to their business needs, and be pleased with the value they receive.

At the beginning of Q3 we took the next step in the verticalization of our direct channel, by appointing national vertical Vice Presidents. These individuals are accountable for the entire sales performance of their assigned industry verticals and report directly to the Senior Vice President of Sales. This important development creates clear, management oversight of the verticals, and an efficient reporting structure, which enables us to better measure and grow our vertical businesses.

It should be obvious by now that our vertical strategy is core to TriNet's market approach. Let me discuss how we assess a new vertical opportunity. First, we complete an extensive market analysis around the total available market, commonly known as the TAM. By speaking with existing customers and prospects in that vertical, we understand their needs, and how they will respond to our four pillars of value.

The customer challenges must be significant enough to warrant our industry vertical product at the associated price. An example that satisfies these conditions is hospitality. During Q1 of 2017, we will launch our hospitality vertical product. The hospitality total available market, or TAM, is $3 billion.

It is clear from speaking with hospitality companies, they face a highly complex operating environment, which is regulated at the federal, state, and local levels. Their technology requirements include significant interfaces to point-of-sale applications, and time and attendance tracking for both hourly and salaried workers. These are often working at multiple locations.

The vertical also experiences significant labor turnover, creating on-boarding and operational headaches for the business owners. This group is particularly impacted by the Affordable Care Act. TriNet's vertical approach is uniquely suited to solving this complexity on the behalf of our clients. Our multi-state HR solution, paperless on-boarding, integrated time and attendance system, ACA compliant benefits, and workplace safety programs, provide immediate value for this vertical.

While it is still very early in the commercialization of our vertical product strategy, we are encouraged with the results. In the second quarter, our vertical products delivered 15% more revenue per head than our legacy non-vertical product. This is the result of the additional functionality vertical clients receive.

We expect to launch two additional vertical products before year-end. With that, I'd like to turn the call over to Bill for our financial review.

Thanks Burton. As we review the financials, I will focus on the non-GAAP numbers, and go into the GAAP numbers where appropriate. During the second quarter, net service revenues increased 22.3% year-over-year to $149.2 million, at the high end of our guidance range. Total WSE count was 325,466, up 7.6% year over year, or flat since the end of the first quarter.

Professional service revenues for the second quarter increased 12.1% year-over-year to $109.6 million. This year-over-year increase was attributable to our increase in WSEs, and a 3% increase in average professional service revenue per WSE, which is driven by our unique vertical product strategy.

Net insurance service revenues for the second quarter increased 63.5% year-over-year to $39.6 million. As you may recall, during the second quarter last year, we experienced a significant increase in large medical claims. While we did see an increase in seasonal medical claims as expected, we did not see a recurrence of the high volume of large medical claims that occurred in Q2 last year.

Total adjusted EBITDA for the second quarter increased 72.2% year over year to $42.6 million, compared to $24.7 million. Adjusted net income for the second quarter increased 85.7% year over year, to $19.5 million or $0.27 per share, compared to $10.5 million or $0.15 per share in the same quarter last year. Our GAAP effective tax rate was 42.9% for the second quarter and our Q2 pro forma tax rate was 42.5%.

During the second quarter, we generated $2.1 million in operating cash flow, and spent $9.9 million on CapEx, representing 6.6% of net service revenues during Q2. Q2 operating cash flow was impacted by the timing of collateral payments and higher estimated tax payments, as we become a more significant cash taxpayer. Our operating cash flow for the first half of 2016 is in line with the first half of 2015.

We finished the second quarter with total cash of $166.7 million, and working capital of $129.5 million. We spent $16.4 million to repurchase stock during the second quarter. We retired $12.7 million of debt, in addition to our scheduled amortization in the second quarter, and finished the quarter with total debt of $476.8 million, representing a debt-to-EBITDA ratio of 3 times trailing 12 months EBITDA.

On July 29, we refinanced $135 million of debt maturing in July 2017, in a net -- leverage neutral transaction. The new debt matures in July of 2019. Our $342 million Term Loan A outstanding at June 30, 2016 and our revolving credit facility were not modified.

Turning to our outlook. We expect our third quarter net service revenues in the range of $150 million to $155 million which represents growth of 15% year over year, adjusted EBITDA in the range of $39 million to $44 million, and adjusted net income in the range of $18 million to $20 million or $0.24 to $0.28 per share.

Based on our first-half performance and our outlook for the remainder of 2016, we are raising and tightening our net service revenue range to $625 million to $635 million, tightening our adjusted EBITDA range to $175 million to $180 million, reflecting a forecasted adjusted EBITDA margin of 28% to 29%, and tightening our adjusted net income range to $83 million to $87 million, or $1.13 to $1.19 per share. And now, I will turn the call back over to Burton.

Thank you, Bill. I am pleased with our first-half performance. We are building a world class products company, to address the needs of small and mid size businesses, by enhancing the client experience. I look forward to providing you with updates, as we make further advances, productizing our current verticals, and launching new verticals. This concludes our formal remarks, and now I'd like to turn the call over to the operator for the Q&A session.

(Operator Instructions)

Our first question comes from Tien-tsin Huang with JPMorgan.

Good results here. Just wanted to ask first on the WSE, as usual, how did that come in versus plan? Looks like it was flat sequentially. I know a lot of changes with the strategy, but what was that versus your expectation?

Yes, thanks, Tien-tsin and it was pretty much at our expectation. There's certainly been an impact of the medical pricing over the course of the year, and it relates to both attrition and headwind for new sales. Obviously we're through that cycle after October.

But the good news is that even with the flat WSE count, the professional service revenue has grown about 2.4% since the beginning of the year. So I think the value is being perceived and received within these verticals, and I think we're through the challenging part of it, as it relates to the net new sales. So my expectation is there will be some growth in the back half of the year in terms of the revenue to match our forecast, and I'm much less concerned at this point on the WSE specific count.

Got you, so a combination of attrition and new sales. Anything to call out with same-store change, in terms of the health of your clients?

Tien-tsin, this is Bill. Its been, I think, steady growth pretty much in the first half. Not as good as last year, but fairly steady. So nothing to really call out on change in existing.

Okay, good to know. One more just on the sales force, the headcount. I think that it's a little below what your target for this year, it's certainly below where we were last quarter, which was a little inflated. So any change in thinking around sales force headcount target for the year, given the vertical strategy?

I still believe we'll be at about where we ended last year. We continue to replace non-productive reps with the vertical-specific talent, so that's an ongoing process. We're looking for more great talent. There's open racks, but no change in thinking. We should end up roughly in the same neighborhood as the end of last year, as I reported earlier.

Great. Thanks for the update.

Our next question comes from Timothy McHugh with William Blair.

I know you usually guide just for the total net revenue, but given your comment about the impact of WSE growth so far this year, how are we thinking about service fee revenue growth on the back half of the year? Just trying to think about the financial implication, as you continue to work through repricing that healthcare versus what you're expecting for kind of the net insurance revenue?

Yes, Tim we're not going to try to delve into the different components. I'd say that our WSE count is obviously factored into our revenue forecast, and as Burton said, we do expect to see some growth, but we aren't going to try to parse the difference between net insurance and net service. There's going to be ebbs and flows based on how the business develops, over the second half of the year.

Okay, and on the sales force comment, so did you let people go, or were you just slower in replacing, or was turnover higher? I guess, just what the sequential decline, what was behind it?

So the sequential decline generally there is a drop. If you note the Q2 call last year, after Q1, which is a very strong selling season, if people are very much behind, they either elect to go, or they might be asked to go. We didn't feel the same pressure to ramp up as quickly to hit the half-year mark as we did last year, where I made the commitment on the growth. So no real change year-over-year, as it relates to that at the end of Q1 and we're looking for the right people to continue to grow it.

Okay, so last year, because before, you used to talk about wanting to have everyone in there before your training sessions in July, I think it was. And so just the differences, I guess you didn't feel like you had a commitment this year, so you weren't as focused on it? Or you weren't as I guess nailed down to a number?

We are being more careful, I guess, there's an advantage, but there's also an advantage to being pretty focused on hiring the right people. So the difference is, Tim, we're looking at the national TAM, and finding the right people who understand those verticals, and putting them in the verticals. I don't feel the same pressure I did a year ago to give you that June 30 number.

Okay. Thank you.

But we should be in, again, we should be in the same range at the end of the year, not overly concerned about it. And look, as long as you're on that topic, I'm also very focused on productivity, as it relates to the rep productivity, so there's a bunch of things we're doing along that line. Frankly, the reduction in the massive hiring has allowed the managers to have more windshield time with the new reps, and help them close deals.

Number two is the training that we're doing this year versus last year is significantly different and better. And then finally, from a productivity standpoint, there is not a real comparison between the channels and the alliances partner program last year and this year. So as I talked about, we've ramped that up as well. So although the quota carrying non-duplicative sales rep count is about the same, there's some additional horsepower as it relates to how we're going to market.

Okay, great, and can I just ask, Bill the tax rate you're assuming in the guidance, is it 43%?

Yes, effectively, we haven't changed it, Tim. Our pro forma rate has been 42.5%, and that's what we're continuing to assume.

Okay, thanks.

Our next question is from David Grossman with Stifel Nicolaus.

Thank you. So I just want to make sure I understand the mechanics of the repricing of the portfolio. So I think we started in October or so of 2015, so would that imply that when we get to the fourth calendar quarter this year, that in fact we'll be facing a more normal comparison? Or is it somewhat cumulative, so that's really not the case? I'm just trying to understand the dynamic.

Yes, David. So the first increase was Q1 of this year, in terms of that's when the higher premium increase went into effect. So the last increase will be in October for Q4. And when we complete Q4, the entire book will have received that 200 basis point increase to normalize with our claims experience that we saw last year. So that's -- and effectively the largest quarters are Q1 and Q4, based on when our clients start and when they renew. So really, it's Q1 and Q4, and has less of an impact, but some in Q2 and Q3.

So then we would expect them to have some residual impact in the fourth quarter on the WSE growth year-over-year, right? As a result of that?

Correct. But you can see as you look at the statistics that our premium year-over-year has gone up 7% on an insurance fees per average work site employee, and the costs are going up at 5%. So the good news is we're actually seeing impact of the pricing, as it's expected on the book. And I think when that is finished, I think the little bit of the headwind goes away, and we see more normalized expectations for growth rate.

Right, okay, great. Thanks for that. And then Burton, if I got the numbers right, it looks like the sales force productivity went up quite a bit year over year in the quarter, and obviously that reflects the growth dynamic within the base. So is there any numbers that you could ferret out of there, to help us better understand what's real productivity as opposed to just not hiring as many new people as you ramp into the mid year sales event?

So look I don't think that -- it's too hard to derive, because the real effect you're seeing there is the not hiring of new reps, which generates zero heads, David. So across the board, the good news is that half of our reps have more than two years' experience so the maturation of the sales force is a very positive indicator. I do expect to continue to hire, so it will ebb and flow.

But as time goes on, particularly with the different industries and vertical products, we'll be able to break that out a little bit better. But it varies widely by industry and by product, and then if you add tenure and you add the lack of hiring the net new reps, it's pretty complex. I don't think there's an easy way for you to derive it. As I've said in the past, if we dump the 100 new reps in there and you use them as your denominator, productivity looks terrible. If you keep them out, it looks good. But I don't have that specifics.

David, the only thing I would add is that we're really looking at professional service revenue per WSE as a metric, so it's total revenue that we're looking to grow, and compare the productivity of the reps on. It's not just the volume of WSEs.

Okay. And just lastly, how should we, are you seeing anything, as it relates to the Affordable Care Act? I guess we had a deadline in March, and another one at the end of June. Is there anything you're seeing in the pace of your backlog build or the pace of new sales, that would suggest that there's going to be any speed bump at all as it relates to hitting those deadlines, and how the comps play out? Or is it pretty much a non-event from your perspective?

No, I would say the December renewals are a positive event David. As we have talked about in the past, a lot of companies were able to renew early last December to avoid the ACA-compliant plans. They can no longer avoid it, particularly the 50 to 100s, particularly in states like California and New York. So I would say on the margin there's an increase in quotes and activity in those two markets very specifically, and there's an opportunity to add value in a lot of those customer bases. As you know, we're looking for people to raise their hand. It's not necessarily about the ultimate outcome of the insurance, but it is about having the opportunity to talk about this comprehensive solution.

Thanks. One more quick one, Bill. Is there any change in how we should think about interest expense in the back half of the year, versus the first half, with the refinancing?

No, David, the rate is just marginally better in that new $135 million term loan A, but effectively, for your purpose, you should think about it the same.

Great. All right, thanks again.

The next question comes from George Tong with Piper Jaffrey.

With fees going up about 7% in your insurance services product, can you discuss how retention rates and new client conversion rates are responding to the change?

Sure, George. So as Burton mentioned, the higher rates has had an impact on both increased attrition, and it has been a head wind for our sales teams during the first half of 2016, and that was somewhat expected, based on what we needed to do. And we're always going to have to reprice the book to risk, so unfortunately, its been a bit of a head wind. We do think as we normalize and get through the year, that gets behind us, and then it's net neutral for 2017, which is really what we're building a lot of this product growth for.

I guess is there a way to specifically quantify how retention rates and conversion rates are changing?

No, I don't think so. It's all factored into our revenue guidance, and you can see that we have an outlook for Q3 of 15% revenue growth. So we think that's right down the middle of the fairway, and we're factoring in the puts and takes of what the impact is on both attrition and net new sales.

Got it. Your claims costs are going up about 5%. Can you talk about whether you're experiencing a continuation of the overall trends you saw last year, in terms of higher frequencies of large medical claims? And are there any other notable trends emerging outside of large medical, such as run rate claims and pharma claims?

No, it's a good question. So in total, what we have seen, is we have seen a reduction in the higher rate of large medical claims that we experienced last year, and we have seen run rate trend increase, but it's increased in line with what we thought. So we would have expected that we would not see -- continue to see a continued recurrence of the large medical claims, and we haven't, but we have seen medical trend increase, within the bounds that we were expecting. In Q2, we normally see a higher seasonal impact, and we did for run rate medical trend and medical claims. And for your question on pharmacy, pharmacy has been pretty much coming in line. We haven't at this point seen a significant impact from some of the high cost pharma that you read about. So in general, our pharmacy trend has been in line, but we watch it pretty carefully.

Got it, and then lastly, could you elaborate on what percentage of your services, what would consider fully verticalized, and where you hope to take that mix over the next two to three years?

We're very early on, as Burton mentioned, in the commercialization. We have two vertical products that are outstanding right now. We're going to release two more in the second half of 2016, and then we'll come out with the hospitality product in Q3. So I'd say we're still in the first or second inning, as opposed to further along in the game, and I think we've got a lot ahead of us, and we're making good progress, but it's a lot of work.

Great, thanks very much.

And the thing I would add to that is, we're going to continue to invest in these verticals over the next couple of years, and bring out new verticals on a regular basis.

Thank you.

Our next question comes from Jason Kupferberg with Jefferies.

This is Amit Singh, for Jason. Just wanted to start off first with, if you could give the organic year-over-year revenue growth in the second quarter, excluding Teleborder? And tied with that, as the WSE growth has -- year-over-year WSE growth has trended down over the last two quarters, as you look for revenue growth beyond this year, historically you had talked about that 15% organic revenue growth. Is that still the internal assumption that going forward we should be able to see that type of organic growth?

So Amit, on the organic revenue, Teleborder is not significant, so our Q2 revenue growth is essentially all organic. This is a value-added product, but it's just being introduced into the product suite, and has not had any significant impact on the organic growth rate. And as we look to 2017 and beyond, I think we're putting in all of the right pieces, so that we can generate good organic growth, both from a value perspective on price, as well as the features that our clients really are looking for. But we aren't at a stage where we want to start to predict 2017. But I don't think there's anything fundamentally different as we look at the market, or look at our opportunities than we've mentioned in the past.

All right, great, and then if you could provide an update on the overall reinsurance of medical worker's comp claims or anything else that -- any other internal stats that probably help you better help as a better leading indicator of what is to come next quarter for claims?

Sure, so again, as we mentioned in our prepared remarks, I think we're getting continued insight from the Chief Medical and Chief Worker's Comp Actuaries, as they're working well with our outside actuaries to help us give better insights, and to help us better forecast and see trends developing a little earlier on in the business. So those are factored in.

Historically, we have seen, and are forecasting in our outlook, Q3 as a higher claims quarter than the first quarter or the fourth quarter, so that's factored in, and that's something that's built into our outlook. But I think we're continuing to find ways to improve our ability, to see trends earlier, and the earlier we can see them the better we can adjust our business.

In terms of reinsurance, we haven't found anything and we've done some comprehensive reviews of looking at various reinsurance constructs. And nothing we've examined to date has been able to reduce the volatility at an effective, what we think is a very effective cost. So there are no silver bullets at this stage, and our insurance team and our Senior VP of Insurance is continuing to look at different ways and different constructs to manage risk, but at this stage, it's not going to be strictly in the form of a reinsurance contract.

Thank you very much.

Our next question comes from Danyal Hussain with Morgan Stanley.

I wanted to clarify, the 3% price benefit in professional service. So is that just a price increase that you rolled through effectively to all your verticalized clients, or only the ones that renewed for the quarter? And maybe you can just give us a sense for how we should expect that benefit to roll through the rest of the year, whether it should increase or not?

Yes, Daniel this is let me just explain, so as we look and compare an existing client we have in that industry vertical, who is on our historical platform, and then we compare that with a new client that is on that specific vertical product, that's where we are seeing, in Q2, the 15% revenue premium, compared to someone who is not on that vertical product. So there's clearly value, new clients are seeing, and that's what is showing up in the revenue premium.

As we mentioned on our Q1 call, we also saw a very similar increase with the same comparison in Q1, where it was 16%. It is a small component still of our total book, so it's not going to have a weighted average impact on pricing, but I think we're giving you indicators as we continue to roll out these vertical products, that there's the opportunity to match value with -- delivered with price, and that has a good indication for the future. But I don't expect that's going to be running into a -- that's not going to drive price increase that you're seeing in the second half of the year alone.

And specifically to the comment around the 3% increase in average professional service revenue per WSE, that is across each and every WSE in the book, and some of that is related to the verticalization, some of that is related to new clients and overall pricing. So there are many factors in there, but I was particularly pleased and very focused on the average service revenue per head, because if that drops, that indicates significant pricing pressure.

Okay, thank you. And then just the clarification on guidance. It looks like you took up revenue quite a bit more than your beat for the quarter, but less so on EBITDA and on EPS. So just wondering if there are any incremental costs that you're factoring in the back half? Thanks.

No, it's a good insight, Danyal. So what we're seeing in the second half is, you're going to continue to see us invest in rolling out the vertical products, and improving the technology platform. And so you'll see an increase in, we're expecting an increase in research and development.

Also in the second half, you're going to see us ramp our efforts as we increase the amount of time we have to do the SOX remediation work, and to get the audit underway. So that's really going to drive G&A in the second half. So it's a combination of those two items, where you're seeing the expenses increase, offsetting some of the revenue growth that you're seeing in the second half.

Okay, and if I could just ask one more clarifying question on the reinsurance. It sounded like you said, Bill, that you're not going to be looking for, I guess what you would term a strict reinsurance contract, that you're looking for something else. Is that decision already made in stone, or are you still talking to some of these reinsurers?

No, the evaluation there was just a recent review of looking at what the current proposals are. So we're not stopping analysis and looking for different ways to reduce volatility, but at this stage, for the comprehensive constructs we've seen, we just haven't seen anything that's cost effective. So I would not expect at this stage that we'll have something in place for the rest of this year, but the team, the insurance team is continuing to look at ways to manage risk. It just may not be in the form of a simple contract, even though that's something that will continue to be evaluated.

Okay, thank you very much.

Our next question is from Ato Garrett with Deutsche Bank.

One more question about reinsurance. With your previous full-year guidance, you stated that you had a cushion in place, so that would allow you to purchase reinsurance. But given your comments about reinsurance not really looking like an imminent solution, or that you are going to buy, do you think you'd still be able to see some upside to guidance in your new guidance, if you don't go with reinsurance?

So Ato, I'll just recharacterize to say that we had the flexibility within our forecast to absorb a potential contract, and that could either come in the form of premiums that we would pay to an outsider, or we would have the ability to absorb claims, if we were quote, performing self-insurance ourselves. So either way, I think we have built that into our forecast. And as we go through the year, time will tell really how the claims experience will play out, compared to what our forecast is. So I think that it's a little too early to try to say that there is excess one way or the other in our forecast.

Okay, great. And you mentioned earlier that the Sarbanes audit is still underway, and I think you called out some costs of $7.3 million I believe, last quarter. Do you have that cost figure for this quarter?

There wasn't a significant amount of work done in the second quarter, as we transitioned our outside teams, and we had talked about that in April. So teams are in place, and there's a lot of work that's been going on internally, and now we're just seeing external costs start to come in, in the third quarter and the fourth quarter, to make sure we get everything done that we expect we will get done for the rest of this year.

Got it and also, I know you mentioned the impact of your increased pricing on overall fashion, in that you'd seen some increase in turnover, and a little bit more difficulty with the new client sales based at a higher price point. I was wondering, can you point out any end markets wherein that difficulty has been particularly strong, or if that's been less of a challenge for any particular end markets? Or just getting a broader sense of how your trends have varied by end market?

I don't think there's anything in particular that I could call out by end market. I think it's generally across the board, and we'll have to see. Again, as we finish off Q4, I think that normalizes.

Okay, but any particular pockets of strength in terms of your revenue in the quarter?

No, I think in general, it's -- the impact was pretty much across our whole book, so I can't call out anything specific.

Great, thank you.

This concludes our question-and-answer session, as well as today's conference. We thank you for attending today's presentation. You may now disconnect your lines.