April 28, 2020

TriNet Announces First Quarter 2020 Results

12% Growth in GAAP Total Revenues and 13% Growth in Net Service Revenues for the First Quarter 2020
44% Growth in GAAP Net Income and 41% Growth in Adjusted Net Income for the First Quarter 2020

DUBLIN, Calif., April 28, 2020 /PRNewswire/ -- TriNet Group, Inc. (NYSE: TNET), a leading provider of comprehensive human resources solutions for small to medium-size businesses, today announced financial results for the first quarter ended March 31, 2020. The first quarter highlights below include non-GAAP financial measures which are reconciled later in this release.

First quarter highlights include:

  • Total revenues increased 12% to $1.0 billion and Net Service Revenues increased 13% to $283 million, as compared to the same period last year.
  • Net income was $91 million, or $1.31 per diluted share, compared to net income of $63 million, or $0.89 per diluted share, in the same period last year.
  • Adjusted Net Income was $97 million, or $1.41 per diluted share, compared to Adjusted Net Income of $69 million, or $0.98 per diluted share, in the same period last year.
  • Adjusted EBITDA was $145 million, representing an Adjusted EBITDA Margin of 51%.
  • Average Worksite Employees (WSEs) increased 8% as compared to the same period last year, to approximately 336,000.
  • Total WSEs increased 6% compared to the same period last year, to approximately 337,000.

Financing activities:

  • In March 2020, TriNet drew down the remaining $234 million on its credit facility strengthening its short-term cash reserves.

"Over the last two months, we have witnessed the devastating impact of COVID-19," said Burton M. Goldfield, TriNet's president and CEO. "Our thoughts are with all those hurt by this pandemic. As a leader in providing SMBs with comprehensive HR services, we recognize the enormity of what they are facing.  We are leveraging our resources   to help businesses navigate this difficult environment. Simultaneously, we have taken steps to secure our business, including ensuring the safety of our employees, maintaining the strength of our balance sheet, and continuing to strategically invest in our platform."

Mr. Goldfield continued, "Our strong first quarter financial results highlighted the strength of our vertical market platform and disciplined approach to client selection and cost management. While the environment has changed, our team is united in working through this crisis and positioning our company for long-term success."

TriNet's total revenues for the first quarter of 2020 increased 12% from the first quarter of 2019 to $1.0 billion, while Net Service Revenues (Total revenues less insurance costs) for the first quarter of 2020 increased 13% from the  first quarter 2019, to $283 million. Net Insurance Service Revenues consisted of insurance service revenues of $892 million, less insurance costs of $765 million. Professional service revenues for the first quarter of 2020 increased 15%, and Net Insurance Service Revenues for the first quarter of 2020 increased 10%, each as compared to the first quarter of 2019.

At March 31, 2020, TriNet had cash and cash equivalents of $521 million and total debt of $620 million.

Quarterly Report on Form 10-Q

We anticipate filing our Quarterly Report on Form 10-Q ("Form 10-Q") for the three months ended March 31, 2020 with the SEC and making it available at http://www.trinet.com today, April 28, 2020. This press release should be read in conjunction with the Form 10-Q and the related Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Form 10-Q.

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 for 2020 and provide quarterly and annual financial guidance for 2020. 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/10141687. 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: 10141687.

About TriNet

TriNet (NYSE: TNET) provides small and medium-size businesses (SMBs) with full-service HR solutions tailored by industry. To free SMBs from HR complexities, TriNet offers access to human capital expertise, benefits, risk mitigation and compliance, payroll and real-time technology. From Main Street to Wall Street, TriNet empowers SMBs to focus on what matters most—growing their business. TriNet, incredible starts here. For more information, visit TriNet.com or follow us on Twitter.

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 within the meaning of Section 21 of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among other things, TriNet's expectations and assumptions regarding: its ability to execute its strategic operational plan, including its vertical strategy and process and common platform improvement initiative, its ability to successfully leverage its scale, and its ability to deliver profitable growth. Forward-looking statements are often identified by the use of words such as, but not limited to, "ability," "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "impact," "intend," "may," "plan," "project," "seek," "should," "strategy," "target," "value," "will," "would" and similar expressions or variations. 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. Investors are cautioned not to place undue reliance upon any forward-looking statements.

Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements include: the impact of the COVID-19 pandemic on our business and the business of our clients; our ability to mitigate the business risks we face as a co-employer; our ability to manage unexpected changes in workers' compensation and health insurance claims and costs by worksite employees; the effects of volatility in the financial and economic environment on the businesses that make up our client base; the impact of the concentration of our clients in certain geographies and industries; the impact of failures or limitations in the business systems we rely upon; adverse changes in our insurance coverage or our relationships with key insurance carriers; our ability to manage our client attrition; our ability to improve our technology to satisfy regulatory requirements and meet the expectations of our clients; our ability to effectively integrate businesses we have acquired or may acquire in the future; our ability to effectively manage and improve our operational processes; our ability to attract and retain qualified personnel; the effects of increased competition and our ability to compete effectively; the impact on our business of cyber-attacks and security breaches; our ability to secure our information technology infrastructure and our confidential, sensitive and personal information from cyber-attacks and security breaches; our ability to comply with constantly evolving data privacy and security laws; our ability to manage changes in, uncertainty regarding, or adverse application of the complex laws and regulations that govern our business; changing laws and regulations governing health insurance and employee benefits; our ability to be recognized as an employer of worksite employees under federal and state regulations; changes in the laws and regulations that govern what it means to be an employer, employee or independent contractor; our ability to comply with the laws and regulations that govern PEOs and other similar industries; the outcome of existing and future legal and tax proceedings; fluctuation in our results of operation and stock price due to factors outside of our control, such as the volume and severity of our workers' compensation and health insurance claims and the amount and timing of our insurance costs, operating expenses and capital expenditure requirements; our ability to comply with the restrictions of our credit facility and meet our debt obligations; and the impact of concentrated ownership in our stock.  Any of these factors could cause our actual results to differ materially from our anticipated results.

Further information on risks that could affect TriNet's results is included in our filings with the U.S. Securities and Exchange Commission (SEC), including under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are available on our investor relations website at http://investor.trinet.com and on the SEC website at www.sec.gov. Copies of these filings are also available by contacting TriNet Corporation's Investor Relations Department at (510) 875-7201. Except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements in this press release, and any forward-looking statements in this press release speak only as of the date of this press release. In addition, we do not assume any obligation, and do not intend, to update any of our forward-looking statements, except as required by law.

Contacts:


Investors:

Media:

Alex Bauer

Fatima Afzal

TriNet

TriNet

Investorrelations@TriNet.com

Fatima.Afzal@TriNet.com

(510) 875-7201

(510) 875-7265


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 March 31,

(in millions, except per share and WSE data)


2020


2019


% Change

Income Statement Data:







Total revenues


$

1,048


$

934



12


%

Operating income


120


82



46



Net income


91


63



44



Diluted net income per share of common stock


1.31


0.89



47



Non-GAAP measures (1):







Net Service Revenues


283


251



13



Net Insurance Service Revenues


127


115



10



Adjusted EBITDA


145


108



34



Adjusted Net income


97


69



41



Operating Metrics:







Average WSEs


336,348


312,760



8


%

Total WSEs at period end


336,846


316,906



6



Total WSEs payroll and payroll taxes processed


$

13,143


$

11,622



13



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

(in millions)

March 31, 2020


December 31, 2019


% Change


Balance Sheet Data:







Working capital

284



228



25


%

Total assets

2,765



2,748



1



Debt

620



391



59



Total stockholders' equity

533



475



12






Three Months Ended March 31,

(in millions)

2020


2019


% Change

Cash Flow Data:







Net cash used in operating activities


$

(282)


$

(142)



99


%

Net cash used in investing activities


(94)


(11)



755



Net cash provided by (used in) financing activities


185


(47)



(494)



Non-GAAP measures (1):







Corporate operating cash flows


119


78



53



(1)

Refer to Non-GAAP Financial Measures section in the following pages for definitions and reconciliations from GAAP measures.


 

 

TRINET GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)



Three Months Ended March 31,

(in millions except per share data)

2020

2019

Professional service revenues

$

156


$

136


Insurance service revenues

892


798


Total revenues

1,048


934


Insurance costs

765


683


Cost of providing services

64


64


Sales and marketing

46


46


General and administrative

33


36


Systems development and programming

9


12


Depreciation and amortization of intangible assets

11


11


Total costs and operating expenses

928


852


Operating income

120


82


Other income (expense):



Interest expense, bank fees and other

(4)


(5)


Interest income

5


6


Income before provision for income taxes

121


83


Income taxes

30


20


Net income

$

91


$

63


Other comprehensive income, net of income taxes

2



Comprehensive income

$

93


$

63


Net income per share:



Basic

$

1.32


$

0.91


Diluted

$

1.31


$

0.89


Weighted average shares:



Basic

68


70


Diluted

69


71


 

 

TRINET GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions)

March 31, 2020


December 31, 2019

Assets




Current assets:




Cash and cash equivalents

$

521



$

213


Investments

65



68


Restricted cash, cash equivalents and investments

779



1,180


Accounts receivable, net

9



9


Unbilled revenue, net

380



285


Prepaid expenses, net

55



52


Other current assets

83



64


Total current assets

1,892



1,871


Restricted cash, cash equivalents and investments, noncurrent

204



212


Investments, noncurrent

130



125


Property, equipment and software, net

82



85


Operating lease right-of-use asset

52



55


Goodwill

289



289


Other intangible assets, net

14



15


Other assets

102



96


Total assets

$

2,765



$

2,748


Liabilities and stockholders' equity




Current liabilities:




Accounts payable and other current liabilities

$

63



$

31


Revolving credit agreement borrowings

234




Long-term debt

22



22


Client deposits

38



44


Accrued wages

429



391


Accrued health insurance costs, net

165



167


Accrued workers' compensation costs, net

63



61


Payroll tax liabilities and other payroll withholdings

567



901


Operating lease liabilities

16



17


Insurance premiums and other payables

11



9


Total current liabilities

1,608



1,643


Long-term debt, noncurrent

364



369


Accrued workers' compensation costs, noncurrent, net

145



144


Deferred taxes

62



61


Operating lease liabilities, noncurrent

45



48


Other non-current liabilities

8



8


Total liabilities

2,232



2,273


Stockholders' equity:




Preferred stock




Common stock and additional paid-in capital

703



694


Accumulated deficit

(172)



(219)


Accumulated other comprehensive income

2




Total stockholders' equity

533



475


Total liabilities and stockholders' equity

$

2,765



$

2,748


 


 

TRINET GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



Three Months Ended March 31,

(in millions)

2020


2019

Operating activities




Net income

91



63


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




Depreciation and amortization

15



18


Noncash lease expense

4




Stock based compensation

9



9


Changes in operating assets and liabilities:




Accounts receivable, net



1


Unbilled revenue, net

(95)



(9)


Prepaid expenses, net

(3)



(12)


Accounts payable and other current liabilities

29



9


Client deposits

(6)



(19)


Accrued wages

38



17


Accrued health insurance costs, net

(2)




Accrued workers' compensation costs, net

3



(2)


Payroll taxes payable and other payroll withholdings

(334)



(180)


Operating lease liabilities

(5)



(4)


Other assets

(28)



(30)


Other liabilities

2



(3)


Net cash used in operating activities

(282)



(142)


Investing activities




Purchases of marketable securities

(155)



(30)


Proceeds from sales and maturities of marketable securities

67



31


Acquisitions of property and equipment

(6)



(12)


Net cash used in investing activities

(94)



(11)


Financing activities




Repurchase of common stock

(40)



(38)


Proceeds from issuance of common stock



1


Awards effectively repurchased for required employee withholding taxes

(3)



(4)


Proceeds from revolving credit agreement borrowings

234




Repayment of debt

(6)



(6)


Net cash provided by (used in) financing activities

185



(47)


Net decrease in cash and cash equivalents, unrestricted and restricted

(191)



(200)


Cash and cash equivalents, unrestricted and restricted:




Beginning of period

1,456



1,349


End of period

1,265



1,149






Supplemental disclosures of cash flow information




Interest paid

3



4


Income taxes paid, net

1



1


Supplemental schedule of noncash investing and financing activities




Payable for purchase of property and equipment

1



5


 

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 that we use to manage our business, to make planning decisions, to allocate resources and to use 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 information that we use to maintain and grow our business.

The presentation of these non-GAAP financial measures is used 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.
 

• 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.
 

• Provides a comparable basis of revenues on a net basis. Professional service revenues are presented 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.
 

• We also sometimes refer to Net Insurance Margin (NIM), which is the ratio of Net Insurance Revenue to Insurance Service Revenue.

   

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, and stock-based compensation recognized based on the estimated fair values. We believe these charges are either not directly resulting from our core operations or not indicative of our ongoing operations.
 

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

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

•We also sometimes refer to Adjusted EBITDA margin, which is the ratio of Adjusted EBITDA to Net Service Revenue.

    

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),
- 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.

 

Corporate Operating Cash Flows

• Net cash (used in) provided by operating activities, excluding the effects of:
- Assets associated with WSEs (accounts receivable, unbilled revenue, prepaid expenses and other current assets) and
- Liabilities associated with WSEs (client deposits, accrued wages, payroll tax liabilities and other payroll withholdings, accrued health benefit costs, accrued workers' compensation costs, insurance premiums and other payables, and other current liabilities).

• Provides information that our stockholders and management can use to evaluate our cash flows from operations independent of the current assets and liabilities associated with our WSEs.
    

• Enhances comparisons to prior periods and, accordingly, used as a liquidity measure to manage liquidity between corporate and WSE related activities, and to help determine and plan our cash flow and capital strategies.


(1)

Non-GAAP effective tax rate is 25.5% and 26% for the first quarter of 2020 and 2019, respectively, which excludes the income tax impact from stock-based compensation, changes in uncertain tax positions, and nonrecurring benefits or expenses from federal 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 March 31,

(in millions)


2020

2019

Total revenues


$

1,048


$

934


Less: Insurance costs


765


683


Net Service Revenues


$

283


$

251


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



Three Months Ended March 31,

(in millions)


2020

2019

Insurance service revenues


$

892


$

798


Less: Insurance costs


765


683


Net Insurance Service Revenues


$

127


$

115


Net Insurance Service Revenue Margin


14

%

14

%

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



Three Months Ended
March 31,

(in millions)


2020

2019

Net income


$

91


$

63


Provision for income taxes


30


20


Stock based compensation


9


9


Interest expense and bank fees


4


5


Depreciation and amortization of intangible assets


11


11


Adjusted EBITDA


$

145


$

108


Adjusted EBITDA Margin


51

%

43

%

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



Three Months Ended
March 31,

(in millions, except per share data)


2020

2019

Net income


$

91


$

63


Effective income tax rate adjustment


(1)


(1)


Stock based compensation


9


9


Amortization of intangible assets


1


1


Income tax impact of pre-tax adjustments


(3)


(3)


Adjusted Net Income


$

97


$

69


GAAP weighted average shares of common stock - diluted


69


71


Adjusted Net Income per share - diluted


$

1.41


$

0.98


The table below presents a reconciliation of net cash used in operating activities to Corporate Operating Cash flows:


Three Months Ended
March 31,

(in millions)

2020

2019

Net cash used in operating activities

$

(282)


$

(142)


Change in WSE related other current assets

110


45


Change in WSE related liabilities

291


175


Corporate Operating Cash Flows

$

119


$

78


 

 

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SOURCE TriNet Group, Inc.