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TriNet Announces First Quarter 2019 Results

9% Growth in GAAP Total Revenues and 14% Growth in Net Service Revenues for the First Quarter

17% Growth in GAAP Net Income and 20% Growth in Adjusted Net Income for the First Quarter

DUBLIN, Calif., April 29, 2019 /PRNewswire/ -- TriNet Group, Inc. (NYSE: TNET), a leading provider of comprehensive human resources solutions for small to midsize businesses, today announced financial results for the first quarter ended March 31, 2019. The first quarter highlights below include non-GAAP financial measures which are reconciled later in this release.

First quarter highlights include:

  • Total revenues increased 9% to $934 million and Net Service Revenues increased 14% to $251 million, each as compared to the same period last year.
  • Net income was $63 million, or $0.89 per diluted share, compared to net income of $54 million, or $0.75 per diluted share, in the same period last year.
  • Adjusted Net Income was $69 million, or $0.98 per diluted share, compared to Adjusted Net Income of $58 million, or $0.80 per diluted share, in the same period last year.
  • Adjusted EBITDA was $108 million, a 18% increase from the same period last year.
  • Total WSEs remained flat compared to the same period last year, at approximately 317,000.
  • Average WSEs decreased 1% as compared to the same period last year, at approximately 313,000.

"We delivered strong financial results during the first quarter as we benefited from the strategic investments we've made in our platform, people and processes over the past year," said Burton M. Goldfield, TriNet's President and CEO. "Our sales team successfully introduced our unique value proposition to a diverse group of new clients, and we saw early benefits to retention as a result of our process improvement initiatives.  By leveraging our scale to deliver a level of HR typically only available to large enterprises, we are empowering small and medium size companies to focus on growing their businesses, attracting and retaining talent in a tight labor market, while we deliver profitable returns for our shareholders."

TriNet's total revenues for the first quarter of 2019 increased 9% from the first quarter of 2018 to $934 million, while Net Service Revenues (Total revenues less insurance costs) for the first quarter of 2019 increased 14% from the first quarter of 2018 to $251 million. Net Insurance Service Revenues consisted of insurance service revenues of $798 million, less insurance costs of $683 million. Professional service revenues for the first quarter of 2019 increased 6%, and Net Insurance Service Revenues for the first quarter of 2019 increased 26%, each as compared to the first quarter of 2018.

At March 31, 2019, TriNet had cash and cash equivalents of $251 million and total debt of $407 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, 2019 with the SEC and making it available at www.trinet.com today, April 29, 2019. This press release should be read in conjunction with the Form 10-Q and the related Notes to Condensed 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 results and its outlook for the second quarter and 2019. 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/10130359.  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: 10130359.

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 us, 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 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: risks associated with changes in, uncertainty regarding, or adverse application of the complex laws and regulations that govern our business; our ability to be recognized as an employer of worksite employees under federal and state regulations; our ability to mitigate business risks associated with our co-employment relationship with our worksite employees; our ability to secure private and confidential client and worksite employee data and our information technology infrastructure against cyber-attacks and security breaches; our ability to manage unexpected changes in workers' compensation and health insurance claims by worksite employees; fluctuation in our results of operation and stock price as a result of numerous factors, many of which are 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; failures or limitations in the business systems we rely upon; our ability to improve our technology to meet the expectations of our clients; our ability to properly manage our internal controls over financial reporting; our ability to effectively integrate businesses we have acquired and new businesses we may acquire in the future; the effects of volatility in the financial and economic environment on the businesses that make up our client base; our ability to effectively manage and improve our operational processes; market acceptance of our vertical strategy; our ability to manage our sales force effectively; the ability of our products and services to compete effectively in our industry; the concentration of our clients in certain geographies and industries; the outcome of existing and future legal proceedings; changes in our income tax positions or adverse outcomes from on-going and future audits; adverse changes in our insurance coverage or our relationships with key insurance carriers; our ability to manage our client attrition; our ability to comply with the restrictions of our credit facility and meet our debt obligations; the impact of concentrated ownership in our stock; and the effects of increased competition and our ability to compete effectively.

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

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
March 31,


%


(in millions, except per share and WSE data)

2019


2018


Change


Income Statement Data:







Total revenues

$

934



$

861



9

%


Operating income

82



71



17



Net income

63



54



17



Diluted net income per share of common stock

0.89



0.75



19



Non-GAAP measures (1):







Net Service Revenues

251



220



14



Net Insurance Service Revenues

115



91



26



Adjusted EBITDA

108



91



18



Adjusted Net income

69



58



20



Operating Metrics:







Average WSEs

312,760



314,561



(1)



Total WSEs

316,906



316,715





 

(in millions)

March 31,
2019


December 31,
2018


% Change


Balance Sheet Data:







Cash and cash equivalents

$

251



$

228



10

%


Working capital

226



221



2



Total assets

2,345



2,435



(4)



Long-term debt

407



413



(1)



Total liabilities

1,939



2,060



(6)



Total stockholders' equity

406



375



8



 


Three Months Ended
March 31,


%


(in millions)

2019


2018


Change


Cash Flow Data:







Net cash used in operating activities

$

(142)



$

(536)



(73)

%


Net cash (used in) provided by investing activities

(11)



2



(661)



Net cash used in financing activities

(47)



(19)



145



Non-GAAP measures (1):







Corporate operating cash flows

78



45



73













(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 share and per share data)

2019


2018

Professional service revenues

$

136



$

129


Insurance service revenues

798



732


Total revenues

934



861


Insurance costs

683



641


Cost of providing services

64



57


Sales and marketing

46



39


General and administrative

36



31


Systems development and programming

12



13


Depreciation and amortization of intangible assets

11



9


Total costs and operating expenses

852



790


Operating income

82



71


Other income (expense):




Interest expense, bank fees and other

(5)



(6)


Interest income

6



2


Income before provision for income taxes

83



67


Income tax expense

20



13


Net income

$

63



$

54


Net income per share:




Basic

$

0.91



$

0.77


Diluted

$

0.89



$

0.75


Weighted average shares:




Basic

69,909,984



70,047,752


Diluted

71,247,427



72,274,821


 

TRINET GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)





(In millions)

March 31,
2019


December 31,
2018

Assets




Current assets:




Cash and cash equivalents

$

251



$

228


Investments

56



54


Restricted cash, cash equivalents and investments

722



942


Accounts receivable, net

12



11


Unbilled revenue, net

314



304


Prepaid expenses

58



48


Other current assets

81



59


Total current assets

1,494



1,646


Restricted cash, cash equivalents and investments, noncurrent

184



187


Investments, noncurrent

133



135


Property & equipment, net

82



79


Operating lease right-of-use asset

59




Goodwill

289



289


Other intangible assets, net

19



21


Other assets

85



78


Total assets

$

2,345



$

2,435


Liabilities and stockholders' equity




Current liabilities:




Accounts payable and other current liabilities

$

55



$

45


Long-term debt

22



22


Client deposits

38



56


Accrued wages

369



352


Accrued health insurance costs, net

135



135


Accrued workers' compensation costs, net

67



67


Payroll tax liabilities and other payroll withholdings

550



729


Operating lease liabilities

16




Insurance premiums and other payables

16



19


Total current liabilities

1,268



1,425


Long-term debt, noncurrent

385



391


Accrued workers' compensation costs, noncurrent, net

156



158


Deferred taxes

65



68


Operating lease liabilities, noncurrent

54




Other non-current liabilities

11



18


Total liabilities

1,939



2,060


Stockholders' equity:




Preferred stock




Common stock and additional paid-in capital

651



641


Accumulated deficit

(245)



(266)


Total stockholders' equity

406



375


Total liabilities and stockholders' equity

$

2,345



$

2,435


 

TRINET GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)




Three Months Ended
March 31,

(In millions)

2019


2018

Operating activities




Net income

$

63



$

54


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




Depreciation and amortization

18



10


Stock-based compensation

9



9


Changes in operating assets and liabilities:




Accounts receivable

1



13


Unbilled revenue

(9)



11


Prepaid expenses

(12)



(11)


Other assets

(30)



(24)


Accounts payable and other current liabilities

9



(15)


Client deposits

(19)



(26)


Accrued wages

17



(15)


Accrued health insurance costs



(1)


Accrued workers' compensation costs

(2)



(3)


Payroll taxes payable and other payroll withholdings

(180)



(534)


Operating lease liabilities

(4)




Other liabilities

(3)



(4)


Net cash used in operating activities

(142)



(536)


Investing activities




Purchases of marketable securities

(30)




Proceeds from sale and maturity of marketable securities

31



14


Acquisitions of property and equipment

(12)



(12)


Net cash (used in) provided by investing activities

(11)



2


Financing activities




Repurchase of common stock

(38)



(8)


Proceeds from issuance of common stock

1



3


Awards effectively repurchased for required employee withholding taxes

(4)



(4)


Repayment of debt

(6)



(10)


Net cash used in financing activities

(47)



(19)


Net decrease in unrestricted and restricted cash and cash equivalents

(200)



(553)


Cash and cash equivalents, unrestricted and restricted:




Beginning of period

$

1,349



$

1,738


End of period

$

1,149



$

1,185






Supplemental disclosures of cash flow information




Interest paid

$

4



$

4


Income taxes paid, net

1




Supplemental schedule of noncash investing and financing activities




Payable for purchase of property and equipment

$

5



$

2


 


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 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.

• We also sometimes refer to Net Insurance Service Margin, 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 26% for 2019 and 2018 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)

2019


2018

Total revenues

$

934



$

861


Less: Insurance costs

683



641


Net Service Revenues

$

251



$

220


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


Three Months Ended
March 31,

(in millions)

2019


2018

Insurance service revenues

$

798



$

732


Less: Insurance costs

683



641


Net Insurance Service Revenues

$

115



$

91


Net Insurance Service Revenues Margin

14

%


12

%

 

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


Three Months Ended
March 31,

(in millions)

2019


2018

Net income

$

63



$

54


Provision for income taxes

20



13


Stock-based compensation

9



9


Interest expense and bank fees

5



6


Depreciation and amortization of intangible assets

11



9


Adjusted EBITDA

$

108



$

91


Adjusted EBITDA Margin

43

%


41

%

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)

2019


2018

Net income

$

63



$

54


Effective income tax rate adjustment

(1)



(4)


Stock-based compensation

9



9


Amortization of intangible assets

1



1


Non-cash interest expense



1


Income tax impact of pre-tax adjustments

(3)



(3)


Adjusted Net Income

$

69



$

58


GAAP Weighted average shares of common stock - diluted

71



72


Adjusted Net Income per share - diluted

$

0.98



$

0.80


 

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)

2019

2018

Net cash used in operating activities

$

(142)


$

(536)


Change in WSE related other current assets

45


15


Change in WSE related liabilities

175


566


Corporate Operating Cash Flows

 

$

78


$

45


 

Cision

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