EX-99.1 2 tnet-063017xexhibit991.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1 
TriNet Announces Second Quarter 2017 Results
7% Growth in GAAP Total Revenues and 35% Growth in Net Service Revenues for the Second Quarter
225% Growth in GAAP Net Income and 88% Growth in Adjusted Net Income for the Second Quarter

SAN LEANDRO, Calif. — July 31, 2017 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, 2017.
Second quarter highlights include:
GAAP Total revenues increased 7% to $800.5 million, while Net Service Revenues increased 35% to $201.0 million, each as compared to the same period last year.
Total WSEs at June 30, 2017 increased 1% from June 30, 2016, to approximately 329,000.
Average WSEs was flat at approximately 324,000 as compared to the same period last year.
GAAP Net income was $40.0 million, or $0.56 per diluted share, compared to net income of $12.3 million, or $0.17 per diluted share, in the same period last year.
Adjusted Net Income was $36.7 million, or $0.52 per diluted share, compared to Adjusted Net Income of $19.5 million, or $0.27 per diluted share, in the same period last year.
Adjusted EBITDA was $72.4 million, a 70% increase from the same period last year.

"We made notable progress in executing our strategic plan and delivered strong financial performance during the second quarter," said Burton M. Goldfield, TriNet's President and CEO.  "Building on our differentiated solutions, our 2017 strategic plan is aimed at strengthening our vertical product offering, elevating our long-term growth profile and further improving on our profitable business model.  Looking ahead, we are confident this focus will continue to strengthen our unique value proposition and increase the intrinsic value of our organization to the benefit of our shareholders.”
GAAP Total revenues for the second quarter of 2017 increased 7% from the second quarter of 2016 to $800.5 million, while Net Service Revenues increased 35% from the second quarter of 2016 to $201.0 million. Net Service Revenues consisted of professional service revenues of $108.6 million and Net Insurance Service Revenues of $92.4 million. Net Insurance Service Revenues consisted of insurance service revenues of $691.9 million, less insurance costs of $599.5 million. Professional service revenues for the second quarter of 2017 decreased 1%, and Net Insurance Service Revenues increased 133%, compared to the second quarter of 2016.
At June 30, 2017, TriNet had cash and cash equivalents of $233.9 million and total debt of $440.7 million.

Quarterly Report on Form 10-Q

We anticipate filing our Quarterly Report on Form 10-Q (“Form 10-Q”) for the three and six months ended June 30, 2017 today, July 31, 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.

 
 
 
1


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/10109554. 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: 10109554.
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 plan, its ability to complete its technology platform consolidation, its ability to strengthen its vertical product offerings, its ability to elevate its long-term growth profile, and its ability to improve on its business model and the success of its 2017 strategic plan, which is aimed at improving its value proposition for customers and intrinsic value to the benefit of shareholders. 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.

 
 
 
2



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.

 
 
 
3

FINANCIAL HIGHLIGHTS
 

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,
 
Percent Change
(in thousands,
except per share and operating metrics data)
2017
 
2016
 
2017
 
2016
 
Q2 2017 vs. 2016
YTD 2017 vs. 2016
Income Statement Data:
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
$
800,541

 
$
745,846

 
$
1,608,151

 
$
1,478,785

 
7
%
9
%
Operating income
56,835

 
26,367

 
106,322

 
52,269

 
116
 
103
 
Net income
39,951

 
12,282

 
68,688

 
23,859

 
225
 
188
 
Diluted net income per share of common stock
0.56

 
0.17

 
0.97

 
0.33

 
229
 
194
 
Non-GAAP measures (1):
 
 
 
 
 
 
 
 

 
 
 
Net Service Revenues (1)
201,006

 
149,173

 
399,974

 
312,423

 
35
 
28
 
Net Insurance Service Revenues (1)
92,364

 
39,580

 
171,211

 
90,427

 
133
 
89
 
Adjusted EBITDA (1)
72,372

 
42,602

 
135,715

 
84,755

 
70
 
60
 
Adjusted Net income (1)
36,691

 
19,466

 
68,268

 
38,999

 
88
 
75
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Metrics:
 
 
 
 
 
 
 
 
 
 
 
 
Total WSEs payroll and payroll taxes processed (in millions)
7,958

 
7,811

 
17,774

 
17,213

 
2
%
3
%
Total WSEs at period end
329,095

 
325,466

 
329,095

 
325,466

 
1
 
1
 
Average WSEs
324,194

 
322,881

 
325,999

 
321,152

 
 
2
 
(1)
Refer to Non-GAAP Financial Measures section below for definitions and reconciliations from GAAP measures.
 
Six Months Ended June 30,
 
Percent
(in thousands, except operating metrics data)
2017
 
2016
 
Change
Cash Flow Data:
 
 
 
 

 
Net cash provided by operating activities
104,113

 
43,667

 
138
%
Net cash used in investing activities
(9,256
)
 
(6,975
)
 
33
 
Net cash used in financing activities
(45,141
)
 
(36,230
)
 
25
 

(in thousands)
June 30, 2017
 
December 31, 2016
 
Percent
Change
Balance Sheet Data:
 
 
 
 
 
 
Cash and cash equivalents
$
233,883

 
$
184,004

 
27

%
Working capital
168,681

 
156,771

 
8

 
Total assets
1,758,695

 
2,095,143

 
(16
)
 
Notes and capital leases payable
440,805

 
459,054

 
(4
)
 
Total liabilities
1,667,182

 
2,060,553

 
(19
)
 
Total stockholders’ equity
91,513

 
34,590

 
165

 


 
 
 
4

FINANCIAL STATEMENTS
 

TRINET GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands, except share and per share data)
2017
2016
 
2017
2016
Professional service revenues
$
108,642

$
109,593

 
$
228,763

$
221,996

Insurance service revenues
691,899

636,253

 
1,379,388

1,256,789

Total revenues
800,541

745,846

 
1,608,151

1,478,785

Insurance costs
599,535

596,673

 
1,208,177

1,166,362

Cost of providing services (exclusive of depreciation and amortization of intangible assets)
50,825

44,034

 
107,275

89,739

Sales and marketing
45,940

43,800

 
95,131

92,508

General and administrative
28,224

18,951

 
53,526

46,601

Systems development and programming
11,415

6,457

 
22,455

12,846

Amortization of intangible assets
1,316

5,005

 
2,666

9,985

Depreciation
6,451

4,559

 
12,599

8,475

Total costs and operating expenses
743,706

719,479

 
1,501,829

1,426,516

Operating income
56,835

26,367

 
106,322

52,269

Other income (expense):
 
 
 
 
 
Interest expense and bank fees
(4,857
)
(5,038
)
 
(9,605
)
(10,080
)
Other, net
271

163

 
422

121

Income before provision for income taxes
52,249

21,492

 
97,139

42,310

Income tax expense
12,298

9,210

 
28,451

18,451

Net income
$
39,951

$
12,282

 
$
68,688

$
23,859

Other comprehensive income, net of tax
68

74

 
80

425

Comprehensive income
$
40,019

$
12,356

 
$
68,768

$
24,284

 
 
 
 
 
 
Net income per share:
 
 
 
 
 
Basic
$
0.58

$
0.17

 
$
1.00

$
0.34

Diluted
$
0.56

$
0.17

 
$
0.97

$
0.33

Weighted average shares:
 
 
 
 
 
Basic
69,029,749

70,728,934

 
68,770,976

70,625,000

Diluted
71,167,177

72,319,992

 
71,101,716

72,022,065

 
 


 
 
 
5

FINANCIAL STATEMENTS
 

TRINET GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
June 30, 2017
December 31, 2016
Assets
 
 
Current assets:
 
 
Cash and cash equivalents
$
233,883

$
184,004

Restricted cash and cash equivalents
14,589

14,569

Prepaid income taxes
14,716

42,381

Prepaid expenses
13,013

10,784

Other current assets
2,172

2,145

Worksite employee related assets
898,596

1,281,471

Total current assets
1,176,969

1,535,354

Workers' compensation collateral receivable
27,063

31,883

Restricted cash, cash equivalents and investments
150,939

130,501

Property and equipment, net
66,827

58,622

Goodwill
289,207

289,207

Other intangible assets, net
28,408

31,074

Other assets
19,282

18,502

Total assets
$
1,758,695

$
2,095,143

Liabilities and stockholders’ equity
 

 
Current liabilities:
 

 
Accounts payable
$
26,599

$
22,541

Accrued corporate wages
38,196

30,937

Notes and capital leases payable, net
36,648

36,559

Other current liabilities
13,735

12,551

Worksite employee related liabilities
893,110

1,275,995

Total current liabilities
1,008,288

1,378,583

Notes and capital leases payable, net, noncurrent
404,157

422,495

Workers' compensation loss reserves
151,837

159,301

Deferred income taxes
91,828

92,373

Other liabilities
11,072

7,801

Total liabilities
1,667,182

2,060,553

Commitments and contingencies
 
 
Stockholders’ equity:
 
 
Preferred stock


Common stock and additional paid-in capital
557,183

535,132

Accumulated deficit
(465,146
)
(499,938
)
Accumulated other comprehensive loss
(524
)
(604
)
Total stockholders’ equity
91,513

34,590

Total liabilities and stockholders’ equity
$
1,758,695

$
2,095,143




 
 
 
6

FINANCIAL STATEMENTS
 

TRINET GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended June 30,
(in thousands)
2017
2016
Operating activities
 
 
Net income
$
68,688

$
23,859

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
16,496

17,919

Stock-based compensation
13,706

13,905

Changes in operating assets and liabilities:
 
 
Restricted cash and cash equivalents
(31,982
)
(21,041
)
Prepaid income taxes
27,665

(2,863
)
Prepaid expenses and other current assets
(2,601
)
(5,033
)
Workers' compensation collateral receivable
4,820

(10,599
)
Other assets
91

238

Accounts payable
4,002

2,488

Accrued corporate wages and other current liabilities
8,299

(719
)
Workers' compensation loss reserves and other non-current liabilities
(5,061
)
25,792

Worksite employee related assets
382,875

425,815

Worksite employee related liabilities
(382,885
)
(426,094
)
Net cash provided by operating activities
104,113

43,667

Investing activities
 
 
Acquisitions of businesses

(300
)
Purchases of marketable securities

(14,959
)
Proceeds from maturity of marketable securities
11,469

24,998

Acquisitions of property and equipment
(20,725
)
(16,714
)
Net cash used in investing activities
(9,256
)
(6,975
)
Financing activities
 
 
Repurchase of common stock
(29,510
)
(16,459
)
Proceeds from issuance of common stock on exercised options
5,586

2,220

Proceeds from issuance of common stock on employee stock purchase plan
2,441

2,304

Awards effectively repurchased for required employee withholding taxes
(4,507
)
(1,485
)
Repayment of notes and capital leases payable
(19,151
)
(22,810
)
Net cash used in financing activities
(45,141
)
(36,230
)
Effect of exchange rate changes on cash and cash equivalents
163

24

Net increase in cash and cash equivalents
49,879

486

Cash and cash equivalents at beginning of period
184,004

166,178

Cash and cash equivalents at end of period
$
233,883

$
166,664

 
 
 
Supplemental disclosures of cash flow information
 
 
Interest paid
$
8,006

$
8,091

Income taxes paid (refunded), net
(169
)
21,374

Supplemental schedule of noncash investing and financing activities
 
 
Payable for purchase of property and equipment
$
1,580

$
1,581



 
 
 
7

NON-GAAP FINANCIAL MEASURES
 

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.


 
 
 
8

NON-GAAP FINANCIAL MEASURES
 

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.

 
 
 
9

NON-GAAP FINANCIAL MEASURES
 

Reconciliation of GAAP to Non-GAAP Measures

The table below presents a reconciliation of Total revenues to Net Service Revenues:
 
Three Months Ended
June 30,
 
Change
2017 vs. 2016
 
 
Six Months Ended
June 30,
 
Change
2017 vs. 2016
 
(in thousands)
2017
 
2016
 
$
%
 
2017
 
2016
 
$
%
Total revenues
$
800,541

 
$
745,846

 
$
54,695

7
%
 
$
1,608,151

 
$
1,478,785

 
$
129,366

9
%
Less:  Insurance costs
599,535

 
596,673

 
2,862

 
 
1,208,177

 
1,166,362

 
41,815

4
 
Net Service Revenues
$
201,006

 
$
149,173

 
$
51,833

35
%
 
$
399,974

 
$
312,423

 
$
87,551

28
%
The table below presents a reconciliation of Insurance service revenues to Net Insurance Service Revenues:
 
Three Months Ended
June 30,
 
Change
2017 vs. 2016
 
 
Six Months Ended
June 30,
 
Change
2017 vs. 2016
 
(in thousands)
2017
 
2016
 
$
%
 
2017
 
2016
 
$
%
Insurance service revenues
$
691,899

 
$
636,253

 
$
55,646

9
%
 
$
1,379,388

 
$
1,256,789

 
$
122,599

10
%
Less:  Insurance costs
599,535

 
596,673

 
2,862

 
 
1,208,177

 
1,166,362

 
41,815

4
 
Net Insurance Service Revenues
$
92,364

 
$
39,580

 
$
52,784

133
%
 
$
171,211

 
$
90,427

 
$
80,784

89
%

The table below presents a reconciliation of Net income to Adjusted EBITDA:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2017
 
2016
 
2017
 
2016
Net income
$
39,951

 
$
12,282

 
$
68,688

 
$
23,859

Provision for income taxes
12,298

 
9,210

 
28,451

 
18,451

Stock-based compensation
7,499

 
6,508

 
13,706

 
13,905

Interest expense and bank fees
4,857

 
5,038

 
9,605

 
10,080

Depreciation
6,451

 
4,559

 
12,599

 
8,475

Amortization of intangible assets
1,316

 
5,005

 
2,666

 
9,985

Adjusted EBITDA
$
72,372

 
$
42,602

 
$
135,715

 
$
84,755

The table below presents a reconciliation of Net income to Adjusted Net Income and Adjusted Net Income per share - diluted:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2017
 
2016
 
2017
 
2016
Net income
$
39,951

 
$
12,282

 
$
68,688

 
$
23,859

Effective income tax rate adjustment
(8,863
)
 
76

 
(10,890
)
 
469

Stock-based compensation
7,499

 
6,508

 
13,706

 
13,905

Amortization of intangible assets
1,316

 
5,005

 
2,666

 
9,985

Non-cash interest expense
602

 
849

 
1,224

 
1,624

Income tax impact of pre-tax adjustments
(3,814
)
 
(5,254
)
 
(7,126
)
 
(10,843
)
Adjusted Net Income
$
36,691

 
$
19,466

 
$
68,268

 
$
38,999

GAAP Weighted average shares of common stock - diluted
71,167

 
72,320

 
71,102

 
72,022

Adjusted Net Income per share - diluted
$
0.52

 
$
0.27

 
$
0.96

 
$
0.54


 
 
 
10