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TriNet Announces Third Quarter 2019 Results

11% Growth in GAAP Total Revenues and 4% Decline in Net Service Revenues for the Third Quarter

8% Growth in GAAP Net Income and 6% Growth in Adjusted Net Income for the Third Quarter

DUBLIN, Calif., Oct. 24, 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 third quarter ended September 30, 2019. The third quarter highlights below include non-GAAP financial measures which are reconciled later in this release.

Third quarter highlights include:

  • Total revenues increased 11% to $969 million and Net Service Revenues decreased 4% to $221 million, each as compared to the same period last year.

  • Net income was $55 million, or $0.78 per diluted share, compared to net income of $51 million, or $0.71 per diluted share, in the same period last year.

  • Adjusted Net Income was $58 million, or $0.81 per diluted share, compared to Adjusted Net Income of $55 million, or $0.75 per diluted share, in the same period last year.

  • Adjusted EBITDA was $93 million, an 8% increase from the same period last year.

  • Total WSEs increased 4% compared to the same period last year, at approximately 332,000.

  • Average WSEs increased 4% as compared to the same period last year, at approximately 331,000.

"During the third quarter, we continued to accelerate the momentum in our business as we successfully delivered our value proposition into our installed base and to new customers," said Burton M. Goldfield, TriNet's President and CEO. "We did experience higher insurance costs during the quarter, and we have already taken steps to mitigate their impact to 2020. With the current momentum in our business coupled with the steps we've taken, we believe we are well positioned to continue to deliver profitable growth for our shareholders."

TriNet's total revenues for the third quarter of 2019 increased 11% from the third quarter of 2018 to $969 million, while Net Service Revenues (Total revenues less insurance costs) for the third quarter of 2019 decreased 4% from the third quarter of 2018 to $221 million. Net Insurance Service Revenues consisted of insurance service revenues of $839 million, less insurance costs of $748 million. Professional service revenues for the third quarter of 2019 increased 8%, and Net Insurance Service Revenues for the third quarter of 2019 decreased 17%, each as compared to the third quarter of 2018.

At September 30, 2019, TriNet had cash and cash equivalents of $216 million and total debt of $397 million.

Quarterly Report on Form 10-Q

We anticipate filing our Quarterly Report on Form 10-Q ("Form 10-Q") for the nine months ended September 30, 2019 with the SEC and making it available at http://www.trinet.com today, October 24, 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 third 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/10135972. 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: 10135972.

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 solutions include 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

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 September 30,


Nine Months Ended September 30,

(in millions, except per share and WSE data)

2019


2018


% Change


2019


2018


% Change

Income Statement Data:















Total revenues

$

969



$

875



11


%


$

2,838



$

2,586



10


%


Operating income

68



62



9




205



209



(2)




Net income

55



51



8




164



163



1




Diluted net income per share of
common stock

0.78



0.71



11




2.31



2.25



3




Non-GAAP measures (1):















Net Service Revenues

221



228



(4)




703



668



5




Net Insurance Service Revenues

91



109



(17)




310



305



1




Adjusted EBITDA

93



88



8




286



277



3




Adjusted Net income

58



55


6




177



176



1




Operating Metrics:















Total WSEs payroll and payroll taxes
processed

$

9,381



$

8,669



8


%


$

30,113



$

27,360



10


%


Average WSEs

330,970



318,129



4




320,868



315,512



2




Total WSEs at period end

331,584



317,496



4




331,584



317,496



4





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

(in millions)

September 30,
2019


December 31,
2018


% Change


Balance Sheet Data:







Cash and cash equivalents

$

216



$

228



(5)


%

Working capital

253



221



15



Total assets

2,245



2,435



(8)



Long-term debt

397



413



(4)



Total liabilities

1,768



2,060



(14)



Total stockholders' equity

477



375



27




Nine Months Ended September 30,

(in millions)

2019


2018


% Change

Cash Flow Data:







Net cash used in operating activities

$

(211)



$

(476)



(56)


%

Net cash used in investing activities

(30)



(169)



(82)



Net cash used in financing activities

(109)



(62)



76



Non-GAAP measures (1):







Corporate operating cash flows

146



184



(21)




(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
September 30,

Nine Months Ended
September 30,

(in millions, except share and per share data)

2019

2018

2019

2018

Professional service revenues

$

130


$

119


$

393


$

363


Insurance service revenues

839


756


2,445


2,223


Total revenues

969


875


2,838


2,586


Insurance costs

748


647


2,135


1,918


Cost of providing services

59


58


186


166


Sales and marketing

47


52


145


132


General and administrative

27


33


99


95


Systems development and programming

9


12


34


36


Depreciation and amortization of intangible assets

11


11


34


30


Total costs and operating expenses

901


813


2,633


2,377


Operating income

68


62


205


209


Other income (expense):





Interest expense, bank fees and other

(6)


(5)


(17)


(17)


Interest income

5


3


18


7


Income before provision for income taxes

67


60


206


199


Income tax expense

12


9


42


36


Net income

$

55


$

51


$

164


$

163


Other comprehensive income, net of tax



1



Comprehensive income

$

55


$

51


$

165


$

163







Net income per share:





Basic

$

0.80


$

0.73


$

2.35


$

2.32


Diluted

$

0.78


$

0.71


$

2.31


$

2.25


Weighted average shares:





Basic

69,612,362


70,556,877


69,740,956


70,353,597


Diluted

70,972,874


72,599,944


71,069,852


72,388,598


TRINET GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)


(In millions)

September 30,
2019


December 31,
2018

Assets




Current assets:




Cash and cash equivalents

$

216



$

228


Investments

67



54


Restricted cash, cash equivalents and investments

585



942


Accounts receivable, net

9



11


Unbilled revenue, net

366



304


Prepaid expenses, net

63



48


Other current assets

69



59


Total current assets

1,375



1,646


Restricted cash, cash equivalents and investments, noncurrent

198



187


Investments, noncurrent

128



135


Property & equipment, net

86



79


Operating lease right-of-use asset

57




Goodwill

289



289


Other intangible assets, net

17



21


Other assets

95



78


Total assets

$

2,245



$

2,435


Liabilities and stockholders' equity




Current liabilities:




Accounts payable and other current liabilities

$

33



$

45


Long-term debt

22



22


Client deposits

28



56


Accrued wages

405



352


Accrued health insurance costs, net

156



135


Accrued workers' compensation costs, net

63



67


Payroll tax liabilities and other payroll withholdings

389



729


Operating lease liabilities

17




Insurance premiums and other payables

9



19


Total current liabilities

1,122



1,425


Long-term debt, noncurrent

375



391


Accrued workers' compensation costs, noncurrent, net

146



158


Deferred taxes

64



68


Operating lease liabilities, noncurrent

52




Other non-current liabilities

9



18


Total liabilities

1,768



2,060


Stockholders' equity:




Preferred stock




Common stock and additional paid-in capital

676



641


Accumulated deficit

(200)



(266)


Accumulated other comprehensive income

1




Total stockholders' equity

477



375


Total liabilities and stockholders' equity

$

2,245



$

2,435


TRINET GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


Nine Months Ended
September 30,

(In millions)

2019


2018

Operating activities




Net income

$

164



$

163


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




Depreciation and amortization

41



36


Noncash lease expense

14




Stock-based compensation

29



31


Changes in operating assets and liabilities:




Accounts receivable, net

5



12


Unbilled revenue, net

(61)



(3)


Prepaid expenses, net

(17)



(26)


Other assets

(34)



(54)


Accounts payable and other current liabilities

(16)



(18)


Client deposits

(28)



(17)


Accrued wages

53



34


Accrued health insurance costs, net

21



(7)


Accrued workers' compensation costs, net

(16)



(5)


Payroll taxes payable and other payroll withholdings

(340)



(616)


Operating lease liabilities

(13)




Other liabilities

(13)



(6)


Net cash used in operating activities

(211)



(476)


Investing activities




Purchases of marketable securities

(109)



(223)


Proceeds from sale and maturity of marketable securities

113



87


Acquisitions of property and equipment

(34)



(33)


Net cash (used in) provided by investing activities

(30)



(169)


Financing activities




Repurchase of common stock

(84)



(47)


Proceeds from issuance of common stock from employee stock purchase plan

4



3


Proceeds from issuance of common stock from exercised options

2



6


Awards effectively repurchased for required employee withholding taxes

(14)



(15)


Proceeds from issuance of notes payable, net



210


Payments for extinguishment of debt



(204)


Repayment of debt

(17)



(15)


Net cash used in financing activities

(109)



(62)


Net decrease in unrestricted and restricted cash and cash equivalents

(350)



(707)


Cash and cash equivalents, unrestricted and restricted:




Beginning of period

$

1,349



1,738


End of period

$

999



$

1,031






Supplemental disclosures of cash flow information




Interest paid

15



13


Income taxes paid, net

48



33


Supplemental schedule of noncash investing and financing activities




Payable for purchase of property and equipment

4



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
September 30,


Nine Months Ended
September 30,

(in millions)

2019

2018


2019

2018

Total revenues

$

969


$

875



$

2,838


$

2,586


Less: Insurance costs

748


647



2,135


1,918


Net Service Revenues

$

221


$

228



$

703


$

668


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


Three Months Ended
September 30,


Nine Months Ended
September 30,

(in millions)

2019

2018


2019

2018

Insurance service revenues

$

839


$

756



$

2,445


$

2,223


Less: Insurance costs

748


647



2,135


1,918


Net Insurance Service Revenues

$

91


$

109



$

310


$

305


Net Insurance Service Revenue Margin

11

%

14

%


13

%

14

%

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


Three Months Ended
September 30,


Nine Months Ended
September 30,

(in millions)

2019

2018


2019

2018

Net income

$

55


$

51



$

164


$

163


Provision for income taxes

12


9



42


36


Stock based compensation

9


12



29


31


Interest expense and bank fees

6


5



17


17


Depreciation and amortization of intangible assets

11


11



34


30


Adjusted EBITDA

$

93


$

88



$

286


$

277


Adjusted EBITDA Margin

43

%

38

%


41

%

41

%

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


Three Months Ended
September 30,


Nine Months Ended
September 30,

(in millions, except per share data)

2019

2018


2019

2018

Net income

$

55


$

51



$

164


$

163


Effective income tax rate adjustment

(5)


(6)



(12)


(16)


Stock based compensation

9


12



29


31


Amortization of intangible assets

1


1



4


4


Non-cash interest expense

1




1


4


Income tax impact of pre-tax adjustments

(3)


(3)



(9)


(10)


Adjusted Net Income

$

58


$

55



$

177


$

176


GAAP Weighted average shares of common stock - diluted

71


73



71


72


Adjusted Net Income per share - diluted

$

0.81


$

0.75



$

2.49


$

2.43


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


Nine Months Ended
September 30,

(in millions)

2019

2018

Net cash used in operating activities

$

(211)


$

(476)


Change in WSE related other current assets

65


51


Change in WSE related liabilities

292


609


Corporate Operating Cash Flows

$

146


$

184


Cision
Cision

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