February 28, 2017

TriNet Reports Fourth Quarter & Fiscal Year 2016 Results

12% Growth in Total Revenues and 16% Growth in Net Service Revenues for the Fourth Quarter
15% Growth in Total Revenues and 18% Growth in Net Service Revenues for 2016
63% Growth in Net Income and 21% Growth in Adjusted Net Income for the Fourth Quarter
94% Growth in Net Income and 23% Growth in Adjusted Net Income for 2016

SAN LEANDRO, Calif., Feb. 28, 2017 /PRNewswire/ -- TriNet Group, Inc. (NYSE: TNET), a leading provider of a comprehensive human resources solution for small to midsize businesses, today announced financial results for the fourth quarter and year ended December 31, 2016.

Fourth quarter highlights include:

  • Total revenues increased 12% to $811.1 million and Net Service Revenues increased 16% to $173.1 million, each as compared to the same period last year.
  • Total WSEs at December 31, 2016 increased 4% from December 31, 2015, to approximately 338,000.
  • Net income was $23.0 million, or $0.32 per diluted share, compared to net income of $14.1 million, or $0.20 per diluted share, in the same period last year.
  • Adjusted Net Income was $26.9 million, or $0.38 per diluted share, compared to Adjusted Net Income of $22.2 million, or $0.31 per diluted share, in the same period last year.
  • Adjusted EBITDA was $56.4 million, a 23% increase from the same period last year.

Full year highlights include:

  • Total revenues increased 15% to $3.1 billion and Net Service Revenues increased 18% to $646.6 million from   2015. 
  • Net income was $61.4 million, or $0.85 per diluted share, compared to net income of $31.7 million, or $0.44 per diluted share, in 2015.
  • Adjusted Net Income for 2016 was $86.7 million, or $1.20 per diluted share, compared to Adjusted Net Income of $70.7 million, or $0.97 per diluted share, in 2015.
  • Adjusted EBITDA was $186.6 million, an 23% increase from the same period last year.

"We delivered strong profitable growth in the fourth quarter and full year 2016," said Burton M. Goldfield, TriNet's President and CEO.  "I believe our vertical market strategy, emphasis on building superior bundled products and commitment to operational discipline are key ingredients to our success.  In the year ahead, we will seek to further improve our clients' overall experience, complete our platform consolidation, and profitably grow within our targeted verticals."

TriNet's total revenues for the fourth quarter of 2016 increased 12% from the fourth quarter of 2015 to $811.1 million, while Net Service Revenues increased 16% from the fourth quarter of 2015 to $173.1 million. Net Service Revenues consisted of professional service revenues of $114.3 million and Net Insurance Service Revenues of $58.8 million. Net Insurance Service Revenues consisted of insurance service revenues of $696.8 million, less insurance costs of $638.0 million. Professional service revenues for the fourth quarter of 2016 increased 7%, and Net Insurance Service Revenues increased 40%, compared to the fourth quarter of 2015.

TriNet's total revenues for the full year 2016 increased 15% to $3.1 billion, while Net Service Revenues increased 18% to $646.6 million. Net Service Revenues consisted of professional service revenues of $446.8 million and Net Insurance Service Revenues of $199.8 million. Net Insurance Service Revenues consisted of insurance service revenues of $2.6 billion, less insurance costs of $2.4 billion. Professional service revenues increased 11% and Net Insurance Service Revenues increased 37% over the full year of 2015.

At December 31, 2016, TriNet had cash and cash equivalents of $184.0 million and total debt of $458.9 million.

Earnings Conference Call and Audio Webcast

TriNet will host a conference call at 2:00 p.m. PT ( 5:00 p.m. ET) today to discuss its quarterly and annual results and provide quarterly and annual financial guidance for 2017. TriNet encourages participants to pre-register for the conference call. Callers who pre-register will be given a unique PIN to gain immediate access to the call and bypass the live operator. To pre-register, go to: http://dpregister.com/10099651.  For those who would like to join the call but have not pre-registered, they can do so by dialing +1 (412) 317-5426 and requesting the "TriNet Conference Call."  The live webcast of the conference call can be accessed on the Investor Relations section of TriNet's website at http://investor.trinet.com. A replay of the webcast will be available on this site for approximately one year. A telephonic replay will be available for one week following the conference call at +1 (412) 317-0088 conference ID: 10099651.

About TriNet

TriNet is a leading provider of a comprehensive human resources solution for small to midsize businesses, or SMBs. We enhance business productivity by enabling our clients to outsource their human resources, or HR, function to one strategic partner and allowing them to focus on operating and growing their core businesses. Our HR solution includes services such as payroll processing, human capital consulting, employment law compliance and employee benefits, including health insurance, retirement plans and workers compensation insurance. Our services are delivered by our expert team of HR professionals and enabled by our technology platform, with online and mobile tools, which allow our clients and their employees to efficiently conduct their HR transactions anytime and anywhere. For more information, please visit http://www.trinet.com.

Use of Non-GAAP Financial Measures

Reconciliations of non-GAAP financial measures to TriNet's financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled "Non-GAAP Financial Measures."

Forward-Looking Statements

This press release contains, and statements made during the above referenced conference call will contain, statements that are not historical in nature, are predictive in nature, or that depend upon or refer to future events or conditions or otherwise contain forward-looking statements including, among other things, TriNet's expectations regarding: the growth of its customer base and improvement of its clients' experience, its ability to deepen its presence across a range of industry sectors, its ability to roll out additional vertical product offerings as and when planned, its ability to make enhancements to its technology platform and complete its platform consolidation, its ability to remediate the material weaknesses in its internal controls over financial reporting, its ability to execute on its vertical market strategy and penetrate the market for HR solutions for small to midsize businesses and other expectations, outlooks and forecasts on its future business, operational and financial performance. These statements are not guarantees of future performance, but are based on management's expectations as of the date hereof and assumptions that are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from our current expectations and any past or future results, performance or achievements.

Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements include: risks associated with the market acceptance of outsourcing the HR function, and the anticipated benefits associated with the use of a bundled HR solution; changes to and our ability to comply with laws and regulations, including both those applicable to the co-employment relationship as well as those applicable to our clients' businesses and their employees; the amendment, repeal, replacement or continuing implementation of the Affordable Care Act and other health care reform, which may be more challenging in a changing political environment; our ability to maintain the security of our information technology (IT) infrastructure against cyber-attacks and security breaches; our ability to manage unexpected changes in workers' compensation and health insurance claims by worksite employees; the unpredictable nature of our costs and operating expenses, in particular our workers' compensation and health insurance costs; our ability to remediate the material weaknesses in our internal controls over financial reporting; our ability to effectively acquire and integrate new businesses; our ability to gain new clients, and our clients' ability to grow and gain more employees; our ability to effectively acquire and integrate new businesses; volatility in the financial and economic environment to small and mid-sized businesses; our ability to effectively manage our growth; the effects of increased competition and our ability to compete effectively; and our ability to comply with the restrictions of our credit facility and meet our debt obligations.

Further information on risks that could affect TriNet's results is included in our filings with the Securities and Exchange Commission ( SEC), including our Quarterly Report on Form 10-Q filed with the SEC on November 3, 2016 which are available on our investor relations website at http://investor.trinet.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Annual Report on Form 10-K for the year ended December 31, 2016. Except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, and we do not assume any obligation, and do not intend, to update any of our forward-looking statements, whether as a result of new information or otherwise.

Contacts:


Investors:

Media:

Alex Bauer

Jock Breitwieser

TriNet

TriNet

[email protected]

[email protected]

(510) 875-7201

(510) 875-7250

TriNet, Ambitions Realized and the TriNet logo are registered trademarks of TriNet.

Key Financial and Operating Metrics

We regularly review certain key financial and operating metrics to evaluate growth trends, measure our performance and make strategic decisions. These key financial and operating metrics may change over time. Our key financial and operating metrics for the periods presented were as follows:

Three Months Ended

December 31,

% Change

Year Ended
December 31,

% Change

(in thousands, except per share data)

2016

2015

2016 vs.

2015

2016

2015

2016 vs.

2015

Income Statement Data:

Total revenues

$

811,071

$

725,695

12

%

$

3,060,313

$

2,659,288

15

%

Operating income

42,717

29,609

44

123,958

78,317

58

Net income

22,966

14,095

63

61,406

31,695

94

Diluted net income per share of common stock

0.32

0.20

60

0.85

0.44

93

Non-GAAP measures (1):

Net Service Revenues (1)

173,103

148,997

16

646,561

546,912

18

Net Insurance Service Revenues (1)

58,837

41,998

40

199,806

145,625

37

Adjusted EBITDA (1)

56,400

45,723

23

186,554

151,340

23

Adjusted Net income (1)

26,896

22,152

21

86,694

70,720

23

(1) Refer to Non-GAAP Financial Measures section below for definition and reconciliation from GAAP measures.


Three Months Ended

December 31,


Year Ended
December 31,


2016


2015


2016


2015

Operating Metrics:








Total WSEs payroll and payroll taxes processed (in billions)

$

9.4



$

8.9



$

34.3



$

30.6


Total WSEs

337,885



324,399



337,885



324,399


Average WSEs

333,444



321,091



326,850



303,917



Year Ended
December 31,

(in thousands)

2016


2015

Balance Sheet Data:




Cash and cash equivalents

$

184,004



$

166,178


Working capital

156,771



112,428


Total assets

2,095,143



2,092,449


Notes and capital leases payable

459,054



493,935


Total liabilities

2,060,553



2,084,368


Total stockholders' equity

34,590



8,081






Cash Flow Data:




Net cash provided by operating activities

$

144,532



$

130,599


Net cash used in investing activities

(27,122)



(37,689)


Net cash used in financing activities

(99,371)



(60,752)


TRINET GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME


Three Months Ended
December 31,


Year Ended
December 31,

(In thousands, except share and per share data)

2016

2015

2016

2015














Professional service revenues

$

114,266


$

106,999



$

446,755


$

401,287



Insurance service revenues

696,805


618,696


2,613,558


2,258,001



Total revenues

811,071


725,695


3,060,313


2,659,288



Insurance costs

637,968


576,698


2,413,752


2,112,376



Cost of providing services (exclusive of depreciation and amortization of intangible assets)

50,563


39,112


190,444


150,694



Sales and marketing

39,736


43,019


173,714


166,759



General and administrative

22,581


20,635


91,659


69,626



Systems development and programming

10,468


5,709


31,438


27,558



Amortization of intangible assets

1,350


7,062


15,997


39,346



Depreciation

5,688


3,851


19,351


14,612



Total costs and operating expenses

768,354


696,086


2,936,355


2,580,971



Operating income

42,717


29,609


123,958


78,317



Other income (expense):








Interest expense and bank fees

(4,580)


(4,796)


(20,257)


(19,449)



Other, net

317


269


751


1,142



Income before provision for income taxes

38,454


25,082


104,452


60,010



Income tax expenses

15,488


10,987


43,046


28,315



Net income

$

22,966


$

14,095



$

61,406



$

31,695



Net income per share:













Basic

$

0.34


$

0.20



$

0.88



$

0.45



Diluted

$

0.32


$

0.20



$

0.85



$

0.44



Weighted average shares:















Basic

68,974,915


70,171,717


70,159,696


70,228,159



Diluted

70,735,975


71,805,589


71,972,486


72,618,069



TRINET GROUP, INC.
CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

December 31, 2016

December 31, 2015

Assets

Current assets:




Cash and cash equivalents

$

184,004


$

166,178

Restricted cash and cash equivalents

14,569


14,557

Prepaid income taxes

42,381


4,105

Prepaid expenses

10,784


8,579

Other current assets

2,145


1,359

Worksite employee related assets

1,281,471


1,373,386

Total current assets

1,535,354


1,568,164

Workers' compensation collateral receivable

31,883


29,204

Restricted cash, cash equivalents and investments

130,501


101,806

Property and equipment, net

58,622


37,844

Goodwill

289,207


289,207

Other intangible assets, net

31,074


46,772

Other assets

18,502


19,452

Total assets

$

2,095,143


$

2,092,449

Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$

22,541


$

12,904

Accrued corporate wages

30,937


28,963

Notes and capital leases payable, net

36,559


32,970

Other current liabilities

12,551


11,402

Worksite employee related liabilities

1,275,995


1,369,497

Total current liabilities

1,378,583


1,455,736

Notes and capital leases payables, net, noncurrent

422,495


460,965

Workers' compensation loss reserves
(net of collateral paid $22,377 and $15,129 at December 31, 2016 and 2015, respectively)

159,301


105,481

Deferred income taxes

92,373


54,641

Other liabilities

7,801


7,545

Total liabilities

2,060,553


2,084,368

Commitments and contingencies




Stockholders' equity:




Preferred stock
($0.000025 par value per share; 20,000,000 shares authorized; no shares issued and outstanding at December 31, 2016 and 2015)


Common stock and additional paid-in capital
($0.000025 par value per share; 750,000,000 shares authorized; 69,015,690 and 70,371,425 shares issued and outstanding at December 31, 2016 and 2015, respectively)

535,132


494,397

Accumulated deficit

(499,938)


(485,595)

Accumulated other comprehensive loss

(604)


(721)

Total stockholders' equity

34,590


8,081

Total liabilities and stockholders' equity

$

2,095,143


$

2,092,449

TRINET GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS



Year Ended December 31,

(In thousands)


2016





2015

Operating activities






Net income

$

61,406



$

31,695

Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation and amortization

39,175


52,817

Stock-based compensation

26,497


17,923

Excess tax benefits received from equity incentive plan activity

(4,639)


(20,670)

Deferred income taxes

41,772


14,954

Accretion of workers' compensation and leases fair value adjustment


(639)

Changes in operating assets and liabilities:




Restricted cash and cash equivalents

(41,535)


(17,991)

Prepaid income taxes

(37,715)


24,494

Prepaid expenses and other current assets

(2,991)


1,313

Workers' compensation collateral receivable

(2,679)


3,152

Other assets

262


(14,527)

Accounts payable

9,158


287

Accrued corporate wages and other current liabilities

3,247


5,616

Workers' compensation loss reserves

54,161


31,483

Worksite employee related assets

91,915


261,750

Worksite employee related liabilities

(93,502)


(261,058)

Net cash provided by operating activities

144,532


130,599

Investing activities




Acquisitions of businesses

(300)


(4,750)

Purchases of marketable securities

(14,959)


(41,939)

Proceeds from maturity of marketable securities

27,787


27,557

Purchase of property and equipment

(39,650)


(18,557)

Net cash used in investing activities

(27,122)


(37,689)

Financing activities




Repurchase of common stock

(71,604)


(48,364)

Proceeds from issuance of common stock on exercised options

5,272


7,166

Proceeds from issuance of common stock on employee stock purchase plan

4,506


5,315

Awards effectively repurchased for required employee withholding taxes

(4,145)


(799)

Proceeds from issuance of notes payable

57,978


Payments for extinguishment of debt

(57,563)


Repayment of notes and capital leases payable

(37,078)


(45,562)

Payment of debt issuance costs

(1,376)


Excess tax benefits received from equity incentive plan activity

4,639


20,670

Tax credit received for deductible IPO transaction costs


822

Net cash used in financing activities

(99,371)


(60,752)

Effect of exchange rate changes on cash and cash equivalents

(213)


(321)

Net increase in cash and cash equivalents

17,826


31,837

Cash and cash equivalents at beginning of period

166,178


134,341

Cash and cash equivalents at end of period

$

184,004



$

166,178





Supplemental disclosures of cash flow information




Interest paid

$

15,420



$

15,224

Income taxes paid, net

39,285


2,005

Supplemental schedule of noncash investing and financing activities




Payable for purchase of property and equipment

$

823



$

344

Allowance for tenant improvements


1,257

Non-GAAP Financial Measures

In addition to the selected financial measures presented in accordance with U.S. Generally Accepted Accounting Principles (GAAP), we monitor other non-GAAP financial measures to manage our business, make planning decisions, allocate resources and as performance measures in our executive compensation plan. These key financial measures provide an additional view of our operational performance over the long term and provide useful information regarding how cash is generated and utilized in order to maintain and grow our business.

These financial measures also provide useful information by eliminating the effect of certain non-cash items that can fluctuate significantly from period to period, as well as certain significant items that are not representative of our business operations such as our initial public offering (IPO) transaction costs. They enhance investors' ability to review our business from the same perspective as the management and facilitate consistent period to period comparisons by excluding items that we do not believe are indicative of our operating performance.

The presentation of the non-GAAP financial measures is to enhance the understanding of certain aspects of our financial performance. It is not meant to be considered in isolation, superior to, or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.

Non-GAAP Measure

Definition

How We Use The Measure

Net Service Revenues

• Sum of professional service revenues and Net Insurance Service Revenues, or total revenues less insurance costs.

• Provides a comparable basis of revenues on a net basis. Professional service revenues are represented net of client payroll costs whereas insurance service revenues are presented gross of insurance costs for financial reporting purposes.

• Acts as the basis to allocate resources to different functions and evaluates the effectiveness of our business strategies by each business function, and

• Provides a measure, among others, used in the determination of incentive compensation for management.

Net Insurance Service Revenues

• Insurance revenues less insurance costs.

• Is a component of Net Service Revenues, and

• Provides a comparable basis of revenues on a net basis. Professional service revenues are represented net of client payroll costs whereas insurance service revenues are presented gross of insurance costs for financial reporting purposes.  Promotes an understanding of our insurance services business by evaluating insurance service revenues net of our WSE related costs which are substantially pass-through for the benefit of our WSEs.  Under GAAP, insurance service revenues and costs are recorded gross as we have latitude in establishing the price, service and supplier specifications.

Adjusted EBITDA

• Net income, excluding the effects of:

- income tax provision,
- interest expense,
- depreciation,
- amortization of intangible assets, and
- stock-based compensation expense

 

• Provides period-to-period comparisons on a consistent basis and an understanding as to how our management evaluates the effectiveness of our business strategies by excluding certain non-cash charges such as depreciation and amortization that have fluctuated significantly over the past five years, and stock-based compensation recognized based on the estimated fair values.  We believe these charges are not directly resulting from our core operations or indicative of our ongoing operations.

• Enhances comparisons to prior periods and, accordingly, facilitates the development of future projections and earnings growth prospects, and

• Provides a measure, among others, used in the determination of incentive compensation for management.

Adjusted Net Income

• Net income, excluding the effects of:

- effective income tax rate(1),
- stock-based compensation,
- amortization of intangible assets,
- non-cash interest expense(2),
- debt prepayment premium, and
- the income tax effect (at our effective tax rate(1)) of these pre-tax adjustments.

• Provides information to our stockholders and board of directors to understand how our management evaluates our business, to monitor and evaluate our operating results, and analyze profitability of our ongoing operations and trends on a consistent basis by excluding certain non-cash charges as described above, debt payment premiums and our secondary offering costs as these are not directly resulting from our core operations or indicative of our ongoing operations.

 

 

 

(1) For purposes of our non-GAAP financial presentation, as a result of a 2015 increase in New York City tax rates and an increase in blended state rates, we have adjusted the effective tax rate to 42.5% for 2016, from 41.5% for 2015. Each of these effective tax rates exclude income tax on non-deductible stock-based compensation and discrete items including the cumulative effect of state legislative changes.

(2) Non-cash interest expense represents amortization and write-off of our debt issuance costs.

Reconciliation of GAAP to Non-GAAP Measures

The table below presents a reconciliation of total revenues to Net Service Revenues:

Three Months Ended
December 31,

Change
2016 vs. 2015

Year Ended
December 31,

Change
2016 vs. 2015

(in thousands)

2016

2015

$

%

2016

2015

$

%

Total revenues

$

811,071

$

725,695

$

85,376

12

%

$

3,060,313

$

2,659,288

$

401,025

15

%

Less:  Insurance costs

637,968

576,698

61,270

11

2,413,752

2,112,376

301,376

14

Net Service Revenues

$

173,103

$

148,997

$

24,106

16

%

$

646,561

$

546,912

$

99,649

18

%

The table below presents a reconciliation of insurance service revenues to Net Insurance Service Revenues:


Three Months Ended
December 31,



Change
2016 vs. 2015





Year Ended
December 31,



Change
2016 vs. 2015



(in thousands)


2016




2015




$


%





2016




2015




$


%



Insurance service revenues

$

696,805



$

618,696



$

78,109


13

%



$

2,613,558



$

2,258,001



$

355,557


16

%


Less:  Insurance costs

637,968


576,698


61,270


11



2,413,752


2,112,376


301,376


14


Net Insurance Service Revenues

$

58,837



$

41,998



$

16,839


40

%



$

199,806



$

145,625



$

54,181


37

%


The table below presents a reconciliation of net income to Adjusted EBITDA:










Three Months Ended
December 31,




Year Ended
December 31,

(in thousands)


2016



2015




2016




2015

Net income

$

22,966


$

14,095



$

61,406



$

31,695

Provision for income taxes

15,488


10,987


43,046



28,315

Stock-based compensation

6,328


4,932


26,497


17,923

Interest expense and bank fees

4,580


4,796


20,257


19,449

Depreciation

5,688


3,851


19,351


14,612

Amortization of intangible assets

1,350


7,062


15,997


39,346

Adjusted EBITDA

$

56,400


$

45,723



$

186,554



$

151,340

The table below presents a reconciliation of net income to Adjusted Net Income and Adjusted Net Income per share - diluted:








Three Months Ended
December 31,




Year Ended
December 31,

(in thousands)


2016



2015




2016



2015

Net income

$

22,966


$

14,095



$

61,406



$

31,695

Effective income tax rate adjustment

(855)


578


(1,346)


3,411

Stock-based compensation

6,328


4,932


26,497


17,923

Amortization of intangible assets

1,350


7,062


15,997


39,346

Non-cash interest expense

644


790


3,827


3,610

Income tax impact of pre-tax adjustments

(3,537)


(5,305)


(19,687)


(25,265)

Adjusted Net Income

$

26,896


$

22,152



$

86,694



$

70,720

GAAP Weighted average shares of common stock - diluted

70,736


71,806


71,972



$

 

72,618

Adjusted Net Income per share - diluted

$

0.38


$

0.31



$

1.20



$

0.97

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/trinet-reports-fourth-quarter--fiscal-year-2016-results-300415261.html

SOURCE TriNet Group, Inc.