PR Newswire | Jul 27, 2020 04:21PM EDT

HR

07/27 15:20 CDT

TriNet Announces Second Quarter 2020 Results and the Acquisition of Little Bird HR1% Growth in GAAP Total Revenues and 45% Growth in Net Service Revenues for the Second Quarter 2020174% Growth in GAAP Net Income and 172% Growth in Adjusted Net Income for the Second Quarter 2020Acquires Little Bird HR, a Private PEO Based in the Greater New York Area & East Coast Regions DUBLIN, Calif., July 27, 2020

DUBLIN, Calif., July 27, 2020 /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 second quarter ended June 30, 2020. The second quarter highlights below include non-GAAP financial measures which are reconciled later in this release.

Second quarter highlights include:

* Total revenues increased 1% to $0.9 billion and Net Service Revenues increased 45% to $335 million, as compared to the same period last year. * Net income was $126 million, or $1.87 per diluted share, compared to net income of $46 million, or $0.64 per diluted share, in the same period last year. * Adjusted Net Income was $136 million, or $2.03 per diluted share, compared to Adjusted Net Income of $50 million, or $0.70 per diluted share, in the same period last year. * Adjusted EBITDA was $199 million, representing an Adjusted EBITDA Margin of 59%. * Average Worksite Employees (WSEs) decreased 2% as compared to the same period last year, to approximately 314,000. * Total WSEs decreased 3% compared to the same period last year, to approximately 313,000.

Acquisition of Little Bird HR:

* TriNet acquired Little Bird HR, a privately held PEO specializing in benefits and human resource solutions for the educational institution industry in the Greater New York area & East Coast regions.

"During the second quarter, we successfully executed our strategy while navigating the COVID-19 crisis and its impact on our customers," said Burton M. Goldfield, TriNet's President and CEO. "Our financial performance reflects the strength of our business model, strategy, execution, and, most importantly, the resilience of our customers. I am also pleased to announce the acquisition of Little Bird HR. This acquisition reflects our ability to identify attractive verticals and industries where our value proposition is particularly well-suited."

"I am very proud of the entire TriNet organization for their dedication, hard work and perseverance in helping our customers navigate through these unprecedented times," Goldfield continued. "I am equally proud of the many resilient customers we serve every day. As we partner with them in addressing the challenges ahead, we are committed to leveraging all of our resources to enable them to pursue their business goals and secure their future success."

TriNet's total revenues for the second quarter of 2020 increased 1% from the second quarter of 2019 to $0.9 billion, while Net Service Revenues (Total revenues less insurance costs) for the second quarter of 2020 increased 45% from the second quarter 2019, to $335 million. Net Insurance Service Revenues consisted of insurance service revenues of $827 million, less insurance costs of $613 million. Professional service revenues for the second quarter of 2020 decreased 5%, and Net Insurance Service Revenues for the second quarter of 2020 increased 106%, each as compared to the second quarter of 2019.

At June 30, 2020, TriNet had cash and cash equivalents of $637 million and total debt of $614 million.

Quarterly Report on Form 10-Q

We anticipate filing our Quarterly Report on Form 10-Q ("Form 10-Q") for the first half of 2020 with the SEC and making it available at http://www.trinet.com today, July 27, 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/10145318. 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: 10145318.

About TriNet

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

Use of Non-GAAP Financial Measures

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

Forward-Looking Statements

This press release contains, and statements made during the above referenced conference call will contain, statements that are not historical in nature, are predictive in nature, or that depend upon or refer to future events or conditions or otherwise contain forward-looking statements within the meaning of Section 21 of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among other things, TriNet's expectations and assumptions regarding: its ability to execute its strategic operational plan, including its vertical strategy and process and common platform improvement initiative, its ability to successfully leverage its scale, and its ability to deliver profitable growth. Forward-looking statements are often identified by the use of words such as, but not limited to, "ability," "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "impact," "intend," "may," "plan," "project," "seek," "should," "strategy," "target," "value," "will," "would" and similar expressions or variations. These statements are not guarantees of future performance, but are based on management's expectations as of the date hereof and assumptions that are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from our current expectations and any past or future results, performance or achievements. Investors are cautioned not to place undue reliance upon any forward-looking statements.

Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements include: the impact of the COVID-19 pandemic on our business and financial performance, and on the business and financial performance of our clients and customers; the impact of our acquisition activities and out 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 June 30, Six Months Ended June 30,

(in millions, except per share and WSE data) 2020 2019 % 2020 2019 % Change Change

Income Statement Data:

Total revenues $ 948 $ 935 1 % $ 1,996 $ 1,869 7 %

Operating income 173 55 215 293 137 114

Net income 126 46 174 217 109 99

Diluted net income per share of common stock 1.87 0.64 192 3.13 1.53 105

Non-GAAP measures^ (1):

Net Service Revenues 335 231 45 618 482 28

Net Insurance Service Revenues 214 104 106 341 219 56

Adjusted EBITDA 199 85 134 344 193 78

Adjusted Net income 136 50 172 235 120 96

Operating Metrics:

Average WSEs 313,701 318,874 (2) % 325,024 315,817 3 %

Total WSEs at period end 313,104 323,957 (3) 313,104 323,957 (3)



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

(in millions) June 30, December 31, % 2020 2019 Change

Balance Sheet Data:

Working capital 364 228 60 %

Total assets 2,802 2,748 2

Debt 614 391 57

Total stockholders' equity 616 475 30

Six Months Ended June 30,

(in millions) 2020 2019 % Change

Cash Flow Data:

Net cash used in operating activities $ (130) $ (162) (20) %

Net cash used in investing activities (121) (25) 384

Net cash provided by (used in) financing 122 (77) (258)activities

Non-GAAP measures^ (1):

Corporate operating cash flows 315 107 194



(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 June 30, Six Months Ended June 30,

(in millions except per share data) 2020 2019 2020 2019

Professional service revenues $ 121 $ 127 $ 277 $ 263

Insurance service revenues 827 808 1,719 1,606

Total revenues 948 935 1,996 1,869

Insurance costs 613 704 1,378 1,387

Cost of providing services 60 63 124 127

Sales and marketing 45 52 91 98

General and administrative 35 36 68 72

Systems development and programming 9 13 18 25

Depreciation and amortization of intangible assets 13 12 24 23

Total costs and operating expenses 775 880 1,703 1,732

Operating income 173 55 293 137

Other income (expense):

Interest expense, bank fees and other (4) (6) (8) (11)

Interest income 2 7 7 13

Income before provision for income taxes 171 56 292 139

Income taxes 45 10 75 30

Net income $ 126 $ 46 $ 217 $ 109

Other comprehensive income, net of income taxes 3 1 5 1

Comprehensive income $ 129 $ 47 $ 222 $ 110

Net income per share:

Basic $ 1.88 $ 0.65 $ 3.16 $ 1.56

Diluted $ 1.87 $ 0.64 $ 3.13 $ 1.53

Weighted average shares:

Basic 67 70 69 70

Diluted 68 71 70 71

TRINET GROUP, INC.CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions) June 30, 2020 December 31, 2019

Assets

Current assets:

Cash and cash equivalents $ 637 $ 213

Investments 76 68

Restricted cash, cash equivalents and investments 735 1,180

Accounts receivable, net 5 9

Unbilled revenue, net 352 285

Prepaid expenses, net 50 52

Other current assets 80 64

Total current assets 1,935 1,871

Restricted cash, cash equivalents and investments, 204 212noncurrent

Investments, noncurrent 128 125

Property, equipment and software, net 82 85

Operating lease right-of-use asset 46 55

Goodwill 289 289

Other intangible assets, net 13 15

Other assets 105 96

Total assets $ 2,802 $ 2,748

Liabilities and stockholders' equity

Current liabilities:

Accounts payable and other current liabilities $ 101 $ 31

Revolving credit agreement borrowings 234 -

Long-term debt 22 22

Client deposits and other client liabilities 146 44

Accrued wages 411 391

Accrued health insurance costs, net 145 167

Accrued workers' compensation costs, net 62 61

Payroll tax liabilities and other payroll 426 901withholdings

Operating lease liabilities 13 17

Insurance premiums and other payables 11 9

Total current liabilities 1,571 1,643

Long-term debt, noncurrent 358 369

Accrued workers' compensation costs, noncurrent, net 141 144

Deferred taxes 63 61

Operating lease liabilities, noncurrent 43 48

Other non-current liabilities 10 8

Total liabilities 2,186 2,273

Stockholders' equity:

Preferred stock - -

Common stock and additional paid-in capital 719 694

Accumulated deficit (108) (219)

Accumulated other comprehensive income 5 -

Total stockholders' equity 616 475

Total liabilities and stockholders' equity $ 2,802 $ 2,748

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

Six Months Ended June 30,

(in millions) 2020 2019

Operating activities

Net income 217 109

Adjustments to reconcile net income to net cash provided by operatingactivities:

Depreciation and amortization 32 27

Amortization of ROU 8 10

Accretion of discount rate on lease liabilities 1 -

Stock based compensation 20 20

Changes in operating assets and liabilities:

Accounts receivable, net 4 3

Unbilled revenue, net (67) (36)

Prepaid expenses, net 2 (18)

Accounts payable and other current liabilities 69 (11)

Client deposits and other client liabilities 102 10

Accrued wages 20 25

Accrued health insurance costs, net (22) 9

Accrued workers' compensation costs, net (2) (13)

Payroll taxes payable and other payroll withholdings (475) (256)

Operating lease liabilities (10) (9)

Other assets (32) (30)

Other liabilities 3 (2)

Net cash used in operating activities (130) (162)

Investing activities

Purchases of marketable securities (222) (65)

Proceeds from sales and maturities of marketable securities 119 65

Acquisitions of property and equipment (18) (25)

Net cash used in investing activities (121) (25)

Financing activities

Repurchase of common stock (100) (62)

Proceeds from issuance of common stock 5 6

Awards effectively repurchased for required employee withholding taxes (6) (10)

Proceeds from revolving credit agreement borrowings 234 -

Repayment of debt (11) (11)

Net cash provided by (used in) financing activities 122 (77)

Net decrease in cash and cash equivalents, unrestricted and restricted (129) (264)

Cash and cash equivalents, unrestricted and restricted:

Beginning of period 1,456 1,349

End of period 1,327 1,085

Supplemental disclosures of cash flow information

Interest paid 7 9

Income taxes paid, net 6 33

Supplemental schedule of noncash investing and financing activities

Payable for purchase of property and equipment 2 8

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

? 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.

? Sum of professional service revenues and Net Insurance Net Service Revenues Service Revenues, or total revenues less insurance costs. ? 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.

? Is a component of Net Service Revenues.



? Provides a comparable basis of revenues on a net basis. Professional service revenues are presented net of client payroll costs whereas insurance service revenues are presented gross of insurance costs for financial reporting purposes. Promotes anNet Insurance Service Revenues ? Insurance revenues less insurance costs. understanding of our insurance services business by evaluating insurance service revenues net of our WSE related costs which are substantially pass-through for the benefit of our WSEs. Under GAAP, insurance service revenues and costs are recorded gross as we have latitude in establishing the price, service and supplier specifications.



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

? 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.

? Net income, excluding the effects of: - income tax provision, ? Enhances comparisons to prior periods and, accordingly, facilitates theAdjusted EBITDA - interest expense, development - depreciation, of future projections and earnings growth prospects. - amortization of intangible assets, and - stock-based compensation expense.

? 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.

? Net income, excluding the effects of: ? Provides information to our stockholders and board of directors to understand - effective income tax rate^(1), how - stock-based compensation, our management evaluates our business, to monitor and evaluate our operatingAdjusted Net Income - amortization of intangible assets, results, - non-cash interest expense^(2), and analyze profitability of our ongoing operations and trends on a consistent - the income tax effect (at our effective tax basis by rate^(1)) of these pre-tax adjustments. excluding certain non-cash charges.

? Provides information that our stockholders and management can use to evaluate ? Net cash (used in) provided by operating our activities, excluding the effects of: cash flows from operations independent of the current assets and liabilities - Assets associated with WSEs (accounts associated receivable, unbilled revenue, prepaid expenses with our WSEs. and other current assets) andCorporate Operating Cash Flows - Liabilities associated with WSEs (client deposits, accrued wages, payroll tax liabilities and other payroll withholdings, accrued health benefit costs, accrued ? Enhances comparisons to prior periods and, accordingly, used as a liquidity workers' compensation costs, insurance premiums and measure to other payables, and other current liabilities). manage liquidity between corporate and WSE related activities, and to help determine and plan our cash flow and capital strategies.



Non-GAAP effective tax rate is 25.5% and 26% for the first quarter of 2020 and (1)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 ServiceRevenues:

Three Months Ended Six Months Ended June 30, June 30,

(in millions) 2020 2019 2020 2019

Total revenues $ 948 $ 935 $ 1,996 $ 1,869

Less: Insurance costs 613 704 1,378 1,387

Net Service Revenues $ 335 $ 231 $ 618 $ 482

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

Three Months Ended Six Months Ended June 30, June 30,

(in millions) 2020 2019 2020 2019

Insurance service revenues $ 827 $ 808 $ 1,719 $ 1,606

Less: Insurance costs 613 704 1,378 1,387

Net Insurance Service Revenues $ 214 $ 104 $ 341 $ 219

Net Insurance Service Revenue Margin 26 % 13 % 20 % 14 %

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

Three Months Ended Six Months Ended June 30, June 30,

(in millions) 2020 2019 2020 2019

Net income $ 126 $ 46 $ 217 $ 109

Provision for income taxes 45 10 75 30

Stock based compensation 11 11 20 20

Interest expense and bank fees 4 6 8 11

Depreciation and amortization of intangible assets 13 12 24 23

Adjusted EBITDA $ 199 $ 85 $ 344 $ 193

Adjusted EBITDA Margin 59 % 36 % 56 % 40 %

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

Three Months Ended Six Months Ended June 30, June 30,

(in millions, except per share data) 2020 2019 2020 2019

Net income $ 126 $ 46 $ 217 $ 109

Effective income tax rate adjustment 1 (5) 1 (6)

Stock based compensation 11 11 20 20

Amortization of intangible assets 1 2 3 3

Income tax impact of pre-tax adjustments (3) (4) (6) (6)

Adjusted Net Income $ 136 $ 50 $ 235 $ 120

GAAP weighted average shares of common stock - diluted 68 71 69 71

Adjusted Net Income per share - diluted $ 2.03 $ 0.70 $ 3.39 $ 1.68

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

Six Months Ended

June 30,

(in millions) 2020 2019

Net cash used in operating activities $ (130) $ (162)

Change in WSE related other current assets 74 52

Change in WSE related liabilities 371 217

Corporate Operating Cash Flows $ 315 $ 107

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SOURCE TriNet Group, Inc.