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TriNet Announces Third Quarter 2020 Results

·20 min read

1% Growth in GAAP Total Revenues and 2% Decline in Net Service Revenues for the Third Quarter 2020

38% Decline in GAAP EPS and 31% Decline in Adjusted EPS for the Third Quarter 2020

58% Growth in GAAP EPS and 60% Growth in Adjusted EPS Year to Date 2020

DUBLIN, Calif., Oct. 26, 2020 /PRNewswire/ -- TriNet Group, Inc. (NYSE: TNET), a leading provider of comprehensive human resources solutions for small and medium-size businesses(SMBs), today announced financial results for the third quarter ended September 30, 2020. The third quarter highlights below include non-GAAP financial measures which are reconciled later in this release.

(PRNewsfoto/TriNet Group, Inc.)
(PRNewsfoto/TriNet Group, Inc.)

Third quarter highlights include:

  • Total revenues increased 1% to $975 million and Net Service Revenues decreased (2)% to $216 million, as compared to the same period last year.

  • Net income was $33 million, or $0.48 per diluted share, compared to net income of $55 million, or $0.78 per diluted share, in the same period last year.

  • Adjusted Net Income was $39 million, or $0.56 per diluted share, compared to Adjusted Net Income of $58 million, or $0.81 per diluted share, in the same period last year.

  • Adjusted EBITDA was $69 million, representing an Adjusted EBITDA Margin of 32%.

  • Average Worksite Employees (WSEs) decreased 4% as compared to the same period last year, to approximately 318,000.

  • Total WSEs decreased 3% compared to the same period last year, to approximately 321,000.

"We are pleased with our third quarter financial performance as it reflects both our resilient customer base and our commitment to putting our customers at the center of everything we do," said Burton M. Goldfield, TriNet's President and CEO. "Our third quarter results exceeded our forecast, reflecting the benefit of our scale, in terms of our financial strength, service model, and technology platform all used in support of our customers' success during these challenging times."

Mr. Goldfield continued, "Last week in a public display of our commitment to our customers, we hosted our first annual TriNet PeopleForce conference. This conference is our forum to provide SMBs with real insights and recommendations for the challenges they face. We look forward to building on the success of this conference, leveraging our thought leadership, and positioning our organization for a return to growth as the economy recovers."

TriNet's total revenues for the third quarter of 2020 increased 1% from the third quarter of 2019 to $975 million, while Net Service Revenues (Total revenues less insurance costs) for the third quarter of 2020 decreased 2% from the third quarter 2019, to $216 million. Net Insurance Service Revenues consisted of insurance service revenues of $849 million, less insurance costs of $759 million. Professional service revenues for the third quarter of 2020 decreased 3%, and Net Insurance Service Revenues for the third quarter of 2020 decreased 1%, each as compared to the third quarter of 2019.

At September 30, 2020, TriNet had cash and cash equivalents of $563 million and total debt of $609 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, 2020 with the SEC and making it available at http://www.trinet.com today, October 26, 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/10147910. 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: 10147910.

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 listed "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 financial performance, and on the business and financial performance of our clients and customers; the impact of our acquisition activities and our ability to successfully integrate any acquisition into our operations; 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

Renee Brotherton

TriNet

TriNet

Investorrelations@TriNet.com

Renee.Brotherton@TriNet.com

(510) 875-7201

(408) 646-5103

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)

2020


2019


% Change


2020


2019


%
Change

Income Statement Data:














Total revenues

$

975



$

969



1


%


$

2,971



$

2,838



5


%

Operating income

45



68



(34)




338



205



65



Net income

33



55



(40)




250



164



52



Diluted net income per share of common stock

0.48



0.78



(38)




3.66



2.31



58



Non-GAAP measures (1):














Net Service Revenues

216



221



(2)




834



703



19



Net Insurance Service Revenues

90



91



(1)




431



310



39



Adjusted EBITDA

69



93



(26)




413



286



44



Adjusted Net income

39



58



(33)




274



177



55



Operating Metrics:














Average WSEs

317,737



330,970



(4)


%


322,595



320,868



1


%

Total WSEs at period end

320,604



331,584



(3)




320,604



331,584



(3)





(1)

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

(in millions)

September
30, 2020


December
31, 2019


%
Change


Balance Sheet Data:







Working capital

342



228



50


%

Total assets

2,867



2,748



4



Debt

609



391



56



Total stockholders' equity

620



475



31




Nine Months Ended September 30,

(in millions)

2020


2019


% Change

Cash Flow Data:







Net cash used in operating activities

$

(40)



$

(211)



(81)


%

Net cash used in investing activities

(151)



(30)



403



Net cash provided by (used in) financing activities

77



(109)



(171)



Non-GAAP measure(1):







Corporate operating cash flows

308



146



111





(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 per share data)

2020

2019

2020

2019

Professional service revenues

$

126


$

130


$

403


$

393


Insurance service revenues

849


839


2,568


2,445


Total revenues

975


969


2,971


2,838


Insurance costs

759


748


2,137


2,135


Cost of providing services

68


59


192


186


Sales and marketing

45


47


136


145


General and administrative

38


27


106


99


Systems development and programming

9


9


27


34


Depreciation and amortization of intangible assets

11


11


35


34


Total costs and operating expenses

930


901


2,633


2,633


Operating income

45


68


338


205


Other income (expense):





Interest expense, bank fees and other

(8)


(6)


(16)


(17)


Interest income

2


5


9


18


Income before provision for income taxes

39


67


331


206


Income taxes

6


12


81


42


Net income

$

33


$

55


$

250


$

164


Other comprehensive income, net of income taxes



4


1


Comprehensive income

$

33


$

55


$

254


$

165


Net income per share:





Basic

$

0.49


$

0.80


$

3.69


$

2.35


Diluted

$

0.48


$

0.78


$

3.66


$

2.31


Weighted average shares:





Basic

67


70


68


70


Diluted

68


71


69


71


TRINET GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)


(In millions)

September 30, 2020


December 31, 2019

Assets




Current assets:




Cash and cash equivalents

$

563



$

213


Investments

61



68


Restricted cash, cash equivalents and investments

832



1,180


Accounts receivable, net

6



9


Unbilled revenue, net

375



285


Prepaid expenses, net

53



52


Other current assets

89



64


Total current assets

1,979



1,871


Restricted cash, cash equivalents and investments, noncurrent

205



212


Investments, noncurrent

141



125


Property, equipment and software, net

80



85


Operating lease right-of-use asset

42



55


Goodwill

294



289


Other intangible assets, net

19



15


Other assets

107



96


Total assets

$

2,867



$

2,748


Liabilities and stockholders' equity




Current liabilities:




Accounts payable and other current liabilities

$

42



$

31


Revolving credit agreement borrowings

234




Long-term debt

22



22


Client deposits and other client liabilities

209



44


Accrued wages

455



391


Accrued health insurance costs, net

160



167


Accrued workers' compensation costs, net

60



61


Payroll tax liabilities and other payroll withholdings

434



901


Operating lease liabilities

11



17


Insurance premiums and other payables

10



9


Total current liabilities

1,637



1,643


Long-term debt, noncurrent

353



369


Accrued workers' compensation costs, noncurrent, net

142



144


Deferred taxes

64



61


Operating lease liabilities, noncurrent

41



48


Other non-current liabilities

10



8


Total liabilities

2,247



2,273


Stockholders' equity:




Preferred stock




Common stock and additional paid-in capital

730



694


Accumulated deficit

(115)



(219)


Accumulated other comprehensive income

5




Total stockholders' equity

620



475


Total liabilities and stockholders' equity

$

2,867



$

2,748


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



Nine Months Ended September 30,

(in millions)

2020

2019

Operating activities



Net income

$

250


$

164


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



Depreciation and amortization

49


41


Amortization of ROU

12


14


Accretion of discount rate on lease liabilities

2



Stock based compensation

31


29


Changes in operating assets and liabilities:



Accounts receivable, net

5


5


Unbilled revenue, net

(90)


(61)


Prepaid expenses, net

(1)


(17)


Accounts payable and other current liabilities

10


(16)


Client deposits and other client liabilities

163


(28)


Accrued wages

63


53


Accrued health insurance costs, net

(7)


21


Accrued workers' compensation costs, net

(2)


(16)


Payroll taxes payable and other payroll withholdings

(467)


(340)


Operating lease liabilities

(15)


(13)


Other assets

(46)


(34)


Other liabilities

3


(13)


Net cash used in operating activities

(40)


(211)


Investing activities



Purchases of marketable securities

(278)


(109)


Proceeds from sales and maturities of marketable securities

166


113


Acquisitions of property and equipment

(27)


(34)


Other

(12)



Net cash used in investing activities

(151)


(30)


Financing activities



Repurchase of common stock

(135)


(84)


Proceeds from issuance of common stock

5


6


Awards effectively repurchased for required employee withholding taxes

(11)


(14)


Proceeds from revolving credit agreement borrowings

234



Repayment of debt

(16)


(17)


Net cash provided by (used in) financing activities

77


(109)


Net decrease in cash and cash equivalents, unrestricted and restricted

(114)


(350)


Cash and cash equivalents, unrestricted and restricted:



Beginning of period

1,456


1,349


End of period

$

1,342


$

999





Supplemental disclosures of cash flow information



Interest paid

$

11


$

15


Income taxes paid, net

83


48


Supplemental schedule of noncash investing and financing activities



Payable for purchase of property and equipment

$

1


$

4


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

Net Insurance Service Revenues

Net Insurance Margin

Adjusted EBITDA

Adjusted Net Income

Corporate Operating Cash Flows



(1)

Non-GAAP effective tax rate is 25.5% and 26% for the third 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
September 30,


Nine Months Ended
September 30,

(in millions)

2020

2019


2020

2019

Total revenues

$

975


$

969



$

2,971


$

2,838


Less: Insurance costs

759


748



2,137


2,135


Net Service Revenues

$

216


$

221



$

834


$

703


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)

2020

2019


2020

2019

Insurance service revenues

$

849


$

839



$

2,568


$

2,445


Less: Insurance costs

759


748



2,137


2,135


Net Insurance Service Revenues

$

90


$

91



$

431


$

310


Net Insurance Service Revenue Margin

11

%

11

%


17

%

13

%

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


Three Months Ended
September 30,


Nine Months Ended

September 30,

(in millions)

2020

2019


2020

2019

Net income

$

33


$

55



$

250


$

164


Provision for income taxes

6


12



81


42


Stock based compensation

11


9



31


29


Interest expense and bank fees

8


6



16


17


Depreciation and amortization of intangible assets

11


11



35


34


Adjusted EBITDA

$

69


$

93



$

413


$

286


Adjusted EBITDA Margin

32

%

43

%


49

%

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)

2020

2019


2020

2019

Net income

$

33


$

55



$

250


$

164


Effective income tax rate adjustment

(4)


(5)



(3)


(12)


Stock based compensation

11


9



31


29


Amortization of intangible assets

1


1



4


4


Non-cash interest expense

1


1



1


1


Income tax impact of pre-tax adjustments

(3)


(3)



(9)


(9)


Adjusted Net Income

$

39


$

58



$

274


$

177


GAAP weighted average shares of common stock - diluted

68


71



68


71


Adjusted Net Income per share - diluted

$

0.56


$

0.81



$

3.99


$

2.49


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)

2020

2019

Net cash used in operating activities

$

(40)


$

(211)


Change in WSE related other current assets

(103)


(65)


Change in WSE related liabilities

(246)


(292)


Net cash used by operating activities - WSE

$

(349)


$

(357)


Net cash provided by operating activities - Corporate

$

309


$

146





Cision
Cision

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SOURCE TriNet Group, Inc.