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TriNet Announces Third Quarter 2017 Results

SAN LEANDRO, Calif., Nov. 2, 2017 /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, 2017.

Third quarter highlights include:

  • GAAP Total revenues increased 6% to $819.3 million, while Net Service Revenues increased 28% to $205.9 million, each as compared to the same period last year.
  • GAAP Net income was $42.8 million, or $0.60 per diluted share, compared to net income of $14.6 million, or $0.20 per diluted share, in the same period last year.
  • Adjusted Net Income was $40.3 million, or $0.56 per diluted share, compared to Adjusted Net Income of $20.8 million, or $0.29 per diluted share, in the same period last year.
  • Adjusted EBITDA was $80.3 million, a 77% increase from the same period last year.
  • Total WSEs at September 30, 2017 decreased 3% from September 30, 2016, to approximately 325,000.
  • Average WSEs decreased 2% as compared to the same period last year, to approximately 324,000.

"We delivered strong financial results during the third quarter as we continued to execute our strategic operational plan," said Burton M. Goldfield, TriNet's President and CEO. "By pairing our technology platform with our deep industry-specific knowledge, we are developing tailored vertical products that provide our clients with an exceptional HR experience. We remain focused on leveraging our scale for the benefit of our clients, while maximizing our ability to deliver profitable growth for our shareholders."

GAAP Total revenues for the third quarter of 2017 increased 6% from the third quarter of 2016 to $819.3 million, while Net Service Revenues increased 28% from the third quarter of 2016 to $205.9 million. For the third quarter of 2017, Net Service Revenues consisted of professional service revenues of $112.5 million and Net Insurance Service Revenues of $93.4 million. Net Insurance Service Revenues for the third quarter of 2017 consisted of insurance service revenues of $706.8 million, less insurance costs of $613.4 million. Professional service revenues for the third quarter of 2017 increased 2%, and Net Insurance Service Revenues increased 85%, in each case, compared to the third quarter of 2016.

At September 30, 2017, TriNet had cash and cash equivalents of $263.5 million and total debt of $431.6 million.

Quarterly Report on Form 10-Q

We anticipate filing our Quarterly Report on Form 10-Q ("Form 10-Q") for the three and nine months ended September 30, 2017 today, November 2, 2017, and it will be available at www.trinet.com. 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 full year 2017. TriNet encourages participants to pre-register for the conference call. Callers who pre-register will be given a unique PIN to gain immediate access to the call and bypass the live operator. To pre-register, go to: http://dpregister.com/10111852. 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: 10111852.

About TriNet

TriNet is a leading provider of a comprehensive human resources solutions for small to midsize businesses, or SMBs. We enhance business productivity by enabling our clients to outsource their human resources, or HR, function to a single strategic partner, which allows them to focus on operating and growing their core businesses. Our HR solutions include services such as payroll processing, human capital consulting, employment regulation 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 allows our clients and their employees to efficiently conduct their HR transactions anytime and anywhere. For more information, please visit http://www.trinet.com.

Use of Non-GAAP Financial Measures

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

Forward-Looking Statements

This press release contains, and statements made during the above referenced conference call will contain, statements that are not historical in nature, are predictive in nature, or that depend upon or refer to future events or conditions or otherwise contain forward-looking statements including, among other things, TriNet's expectations regarding: its ability to execute its strategic operational plan, its ability to successfully leverage its scale and its ability to deliver profitable growth. These statements are not guarantees of future performance, but are based on management's expectations as of the date hereof and assumptions that are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from our current expectations and any past or future results, performance or achievements.

Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements include: risks associated with changes in, uncertainty regarding, or adverse application of 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 maintain the security of our information technology (IT) infrastructure against cyber-attacks and security breaches; our ability to manage unexpected changes in workers' compensation and health insurance claims by worksite employees; unexpected changes in the state and federal unemployment tax rates applicable to our clients; fluctuation in our results of operation 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; failures or limitations in our business systems; our ability to remediate the material weaknesses in our internal controls over financial reporting; our ability to effectively acquire and integrate new businesses; the effects of volatility in the financial and economic environment on small and mid-sized businesses; our ability to effectively manage our growth; the effects of increased competition and our ability to compete effectively; market acceptance of our vertical strategy; 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 relationships with key vendors, in particular our benefit and workers' compensation carriers; our ability to manage client attrition; and our ability to comply with the restrictions of our credit facility and meet our debt obligations.

Further information on risks that could affect TriNet's results is included in our filings with the U.S. Securities and Exchange Commission (SEC), including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the SEC, 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
September 30,


Nine Months Ended
September 30,


Percent Change

(in thousands,
except per share and operating metrics data)

2017


2016


2017


2016


Q3 2017
vs. 2016


YTD 2017
vs. 2016

Income Statement Data:












Total revenues

$

819,293


$

770,457


$

2,427,444


$

2,249,242


6%


8%

Operating income

62,759


28,972


169,081


81,241


117


108

Net income

42,836


14,581


111,524


38,440


194


190

Diluted net income per share of common
stock

0.60


0.20


1.57


0.53


200


196

Non-GAAP measures (1):












Net Service Revenues (1)

205,896


161,035


605,870


473,458


28


28

Net Insurance Service Revenues (1)

93,366


50,542


264,577


140,969


85


88

Adjusted EBITDA (1)

80,283


45,399


215,998


130,154


77


66

Adjusted Net income (1)

40,297


20,800


108,565


59,798


94


82













Operating Metrics:












Total WSEs payroll and payroll taxes
processed (in millions)

8,061


7,703


25,835


24,916


5%


4%

Total WSEs at period end

325,138


333,778


325,138


333,778


(3)


(3)

Average WSEs

324,043


331,652


325,347


324,652


(2)



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


Nine Months Ended
September 30,


Percent

(in thousands, except operating metrics data)

2017


2016


Change

Cash Flow Data:






Net cash provided by operating activities

158,951


80,699


97%

Net cash used in investing activities

(14,763)


(17,411)


(15)

Net cash used in financing activities

(65,063)


(68,998)


(6)







(in thousands)

September 30,
2017


December 31,
2016


Percent
Change

Balance Sheet Data:






Cash and cash equivalents

$

263,527


$

184,004


43%

Working capital

186,842


156,771


19

Total assets

1,836,925


2,095,143


(12)

Notes and capital leases payable

431,690


459,054


(6)

Total liabilities

1,705,066


2,060,553


(17)

Total stockholders' equity

131,859


34,590


281


TRINET GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)




Three Months Ended
September 30,


Nine Months Ended
September 30,

(in thousands, except share and per share data)

2017


2016


2017


2016

Professional service revenues

$

112,530


$

110,493


$

341,293


$

332,489

Insurance service revenues

706,763


659,964


2,086,151


1,916,753

Total revenues

819,293


770,457


2,427,444


2,249,242

Insurance costs

613,397


609,422


1,821,574


1,775,784

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

49,989


50,142


157,264


139,881

Sales and marketing

44,407


41,470


139,538


133,978

General and administrative

28,505


22,477


82,031


69,078

Systems development and programming

11,182


8,124


33,637


20,970

Amortization of intangible assets

1,300


4,662


3,966


14,647

Depreciation

7,754


5,188


20,353


13,663

Total costs and operating expenses

756,534


741,485


2,258,363


2,168,001

Operating income

62,759


28,972


169,081


81,241

Other income (expense):








Interest expense and bank fees

(5,425)


(5,597)


(15,030)


(15,677)

Other, net

770


313


1,192


434

Income before provision for income taxes

58,104


23,688


155,243


65,998

Income tax expense

15,268


9,107


43,719


27,558

Net income

$

42,836


$

14,581


$

111,524


$

38,440

Other comprehensive income, net of tax

151


(125)


231


300

Comprehensive income

$

42,987


$

14,456


$

111,755


$

38,740









Net income per share:








Basic

$

0.62


$

0.21


$

1.62


$

0.55

Diluted

$

0.60


$

0.20


$

1.57


$

0.53

Weighted average shares:








Basic

69,498,218


70,187,989


69,016,054


70,478,266

Diluted

71,499,591


71,964,603


71,138,743


72,126,060


TRINET GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



(in thousands)

September 30,
2017


December 31,
2016

Assets




Current assets:




Cash and cash equivalents

$

263,527


$

184,004

Restricted cash and cash equivalents

15,445


14,569

Prepaid income taxes


42,381

Prepaid expenses

11,013


10,784

Other current assets

2,360


2,145

Worksite employee related assets

941,213


1,281,471

Total current assets

1,233,558


1,535,354

Workers' compensation collateral receivable

39,931


31,883

Restricted cash, cash equivalents and investments

160,207


130,501

Property and equipment, net

68,470


58,622

Goodwill

289,207


289,207

Other intangible assets, net

27,108


31,074

Other assets

18,444


18,502

Total assets

$

1,836,925


$

2,095,143

Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$

28,995


$

22,541

Accrued corporate wages

31,814


30,937

Notes and capital leases payable, net

36,718


36,559

Other current liabilities

14,321


12,551

Worksite employee related liabilities

934,868


1,275,995

Total current liabilities

1,046,716


1,378,583

Notes and capital leases payable, net, noncurrent

394,972


422,495

Workers' compensation loss reserves

157,999


159,301

Deferred income taxes

90,845


92,373

Other liabilities

14,534


7,801

Total liabilities

1,705,066


2,060,553

Commitments and contingencies




Stockholders' equity:




Preferred stock


Common stock and additional paid-in capital

567,971


535,132

Accumulated deficit

(435,739)


(499,938)

Accumulated other comprehensive loss

(373)


(604)

Total stockholders' equity

131,859


34,590

Total liabilities and stockholders' equity

$

1,836,925


$

2,095,143


TRINET GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)




Nine Months Ended September 30,

(in thousands)

2017


2016

Operating activities




Net income

$

111,524


$

38,440

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




Depreciation and amortization

26,177


27,810

Stock-based compensation

21,406


20,169

Changes in operating assets and liabilities:




Restricted cash and cash equivalents

(45,570)


(31,409)

Prepaid income taxes

42,448


386

Prepaid expenses and other current assets

(961)


(5,253)

Workers' compensation collateral receivable

(8,048)


(11,374)

Other assets

925


438

Accounts payable

5,505


4,538

Accrued corporate wages and other current liabilities

2,331


4,548

Workers' compensation loss reserves and other non-current liabilities

3,574


33,510

Worksite employee related assets

340,767


525,841

Worksite employee related liabilities

(341,127)


(526,945)

Net cash provided by operating activities

158,951


80,699

Investing activities




Acquisitions of businesses


(300)

Purchases of marketable securities


(14,959)

Proceeds from maturity of marketable securities

14,447


25,790

Acquisitions of property and equipment

(29,210)


(27,942)

Net cash used in investing activities

(14,763)


(17,411)

Financing activities




Repurchase of common stock

(39,347)


(43,747)

Proceeds from issuance of common stock on exercised options

8,678


3,584

Proceeds from issuance of common stock on employee stock purchase plan

2,441


2,304

Awards effectively repurchased for required employee withholding taxes

(8,100)


(2,672)

Proceeds from issuance of notes payable


57,978

Payments for extinguishment of debt


(57,563)

Repayment of notes and capital leases payable

(28,735)


(27,506)

Payment of debt issuance costs


(1,376)

Net cash used in financing activities

(65,063)


(68,998)

Effect of exchange rate changes on cash and cash equivalents

398


90

Net increase in cash and cash equivalents

79,523


(5,620)

Cash and cash equivalents at beginning of period

184,004


166,178

Cash and cash equivalents at end of period

$

263,527


$

160,558





Supplemental disclosures of cash flow information




Interest paid

$

12,186


$

11,651

Income taxes paid (refunded), net

(138)


27,650

Supplemental schedule of noncash investing and financing activities




Payable for purchase of property and equipment

$

2,450


$

1,363

Non-GAAP Financial Measures

In addition to financial measures presented in accordance with GAAP, we monitor other non-GAAP financial measures that we use to manage our business, make planning decisions, allocate resources and as performance measures in our executive compensation plan. These key financial measures provide an additional view of our operational performance over the long term and provide useful information that we use in order 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.

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 not directly resulting from our core operations or indicative of our ongoing operations.


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


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

Adjusted Net Income

• Net income, excluding the effects of:

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

• Provides information to our stockholders and board of directors to understand how our management evaluates our business, to monitor and evaluate our operating results, and analyze profitability of our ongoing operations and trends on a consistent basis by excluding certain non-cash charges.



(1)

We have adjusted the non-GAAP effective tax rate to 40.5% for 2017 from 42.5% for 2016, due to a decrease in state income taxes from an increase in excludable income for state income tax purposes. These non-GAAP effective tax rates exclude the income tax impact from stock-based compensation and changes in uncertain tax positions.



(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,


Change
2017 vs. 2016


Nine Months Ended
September 30,


Change
2017 vs. 2016

(in thousands)

2017


2016


$


%


2017


2016


$


%

Total revenues

$

819,293


$

770,457


$

48,836


6%


$

2,427,444


$

2,249,242


$

178,202


8%

Less: Insurance costs

613,397


609,422


3,975


1


1,821,574


1,775,784


45,790


3

Net Service Revenues

$

205,896


$

161,035


$

44,861


28%


$

605,870


$

473,458


$

132,412


28%

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


Three Months Ended
September 30,


Change
2017 vs. 2016


Nine Months Ended
September 30,


Change
2017 vs. 2016

(in thousands)

2017


2016


$


%


2017


2016


$


%

Insurance service revenues

$

706,763


$

659,964


$

46,799


7%


$

2,086,151


$

1,916,753


$

169,398


9%

Less: Insurance costs

613,397


609,422


3,975


1


1,821,574


1,775,784


45,790


3

Net Insurance Service Revenues

$

93,366


$

50,542


$

42,824


85%


$

264,577


$

140,969


$

123,608


88%

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


Three Months Ended
September 30,


Nine Months Ended
September 30,

(in thousands)

2017


2016


2017


2016

Net income

$

42,836


$

14,581


$

111,524


$

38,440

Provision for income taxes

15,268


9,107


43,719


27,558

Stock-based compensation

7,700


6,264


21,406


20,169

Interest expense and bank fees

5,425


5,597


15,030


15,677

Depreciation

7,754


5,188


20,353


13,663

Amortization of intangible assets

1,300


4,662


3,966


14,647

Adjusted EBITDA

$

80,283


$

45,399


$

215,998


$

130,154

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 thousands)

2017


2016


2017


2016

Net income

$

42,836


$

14,581


$

111,524


$

38,440

Effective income tax rate adjustment

(8,264)


(960)


(19,154)


(491)

Stock-based compensation

7,700


6,264


21,406


20,169

Amortization of intangible assets

1,300


4,662


3,966


14,647

Non-cash interest expense

622


1,559


1,846


3,183

Income tax impact of pre-tax adjustments

(3,897)


(5,306)


(11,023)


(16,150)

Adjusted Net Income

$

40,297


$

20,800


$

108,565


$

59,798

GAAP Weighted average shares of common stock - diluted

71,500


71,965


71,139


72,126

Adjusted Net Income per share - diluted

$

0.56


$

0.29


$

1.53


$

0.83

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SOURCE TriNet Group, Inc.