Trinet Group, Inc 10-Q for FY2023 Q1

Trinet Group, Inc. (TNET)

10-Q 2023-04-26 For: 2023-03-31

Added on April 09, 2026

About this 10-Q

Trinet Group, Inc filed this 10-Q on April 26, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).

Headline figures

Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.25B; up 2.3% from $1.22B a year earlier
Net income: $131M; down 10.3% from net income of $146M a year earlier
Diluted EPS: $2.17; down 1.8% from $2.21 a year earlier

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Delaware		95-3359658
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One Park Place,	Suite 600
Dublin,	CA	94568
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock par value $0.000025 per share	TNET	New York Stock Exchange


Large accelerated filer	x	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	☐

		Emerging growth company	☐


	Form 10-Q Cross Reference	Page
Glossary		3
Cautionary Note Regarding Forward-Looking Statements		6
Unaudited Condensed Consolidated Financial Statements	Part I, Item 1.	29
Condensed Consolidated Statements of Income and Comprehensive Income		29

Condensed Consolidated Balance Sheets		30
Condensed Consolidated Statements of Stockholders' Equity		31
Condensed Consolidated Statements of Cash Flows		32
Notes to Condensed Consolidated Financial Statements		33
Note 1. Description of Business and Significant Accounting Policies		33
Note 2. Cash, Cash Equivalents and Investments - Unrestricted and Restricted		36
Note 3. Financial Instruments and Fair Value Measurements		36

Note 4. Accrued Workers' Compensation Costs		39
Note 5. Long-term Debt and Revolving Credit Agreements		39
Note 6. Commitments and Contingencies		40
Note 7. Stock Based Compensation		41
Note 8. Stockholders' Equity		41
Note 9. Income Taxes		42
Note 10. Earnings Per Share		42


Management’s Discussion and Analysis of Financial Condition and Results of Operations	Part I, Item 2.	8
Quantitative and Qualitative Disclosures About Market Risk	Part I, Item 3.	27
Controls and Procedures	Part I, Item 4.	28
Legal Proceedings	Part II, Item 1.	43
Risk Factors	Part II, Item 1A.	43
Unregistered Sales of Equity Securities and Use of Proceeds	Part II, Item 2.	43
Defaults Upon Senior Securities	Part II, Item 3.	43
Mine Safety Disclosures	Part II, Item 4.	43
Other Information	Part II, Item 5.	43
Exhibits	Part II, Item 6.	44





2021 Credits			Our announced 2021 credits, which provided eligible clients with discretionary credits, subject to certain predefined conditions.
2022 Credits			Includes both of our announced 2022 credits, each of which provides eligible clients with discretionary credits, subject to certain predefined conditions.
2021 Credit Agreement			Our credit agreement dated February 26, 2021

2021 Revolver			Our $500 million revolving line of credit included in our 2021 Credit Agreement
2029 Notes			Our $500 million senior unsecured notes maturing in March 2029
AFS			Available-for-sale


CARES Act			Coronavirus Aid Relief and Economic Security Act

CEO			Chief Executive Officer
CFO			Chief Financial Officer
Clarus R+D			Clarus R+D Solutions, LLC
COBRA			Consolidated Omnibus Budget Reconciliation Act
Colleague			TriNet’s internal employees (as distinguished from WSEs and HRIS Users)
COPS			Cost of providing services

COVID-19			Novel coronavirus


D&A			Depreciation and amortization expenses
EBITDA			Earnings before interest expense, taxes, depreciation and amortization of intangible assets

EPS			Earnings Per Share
ERISA			Employee Retirement Income Security Act
ESAC			Employer Services Assurance Corporation

ETR			Effective tax rate

FFCRA			Families First Coronavirus Response Act
G&A			General and administrative
GAAP			Generally Accepted Accounting Principles in the United States


HCM			Human capital management
HR			Human Resources
HRIS			Human resources information system
HRIS User			A client employee who is not co-employed by a TriNet PEO (for example, employees of a TriNet Zenefits client)



IRS			Internal Revenue Service
ICR			Insurance cost ratio
ISR			Insurance service revenues


LIBOR			London Inter-bank Offered Rate


MD&A			Management's Discussion and Analysis of Financial Condition and Results of Operations



OE			Operating expenses

PEO			Professional Employer Organization
PFC			Payroll funds collected

PPP			Paycheck Protection Program, a loan program administered by the U.S. Small Business Administration
PSR			Professional service revenues
R+D			Research and Development
Recovery Credit			Our 2020 Recovery Credit to provide eligible clients with one-time reductions against fees for future services
Recovery Credits			Collectively, our Recovery Credit, 2021 Credits, and 2022 Credits
Reg FD			Regulation Fair Disclosure
ROU			Right-of-use
RSA			Restricted Stock Award
RSU			Restricted Stock Unit
SBC			Stock Based Compensation
S&M			Sales and marketing
S&P			Standard & Poor's


SD&P			Systems development and programming
SEC			U.S. Securities and Exchange Commission
SMB			Small and medium-size business


U.S.			United States

WSE			A worksite employee who is co-employed by a TriNet PEO
YTD			Year to date
Zenefits			YourPeople, Inc. (dba Zenefits) and its subsidiaries


FORWARD LOOKING STATEMENTS AND OTHER FINANCIAL INFORMATION			Table of Contents


	$1.2B			$169M			82%
	Total revenues			Operating income			Insurance cost ratio
	2	%	increase	(17)	%	decrease	2	%	increase

	$131M			$2.17			$150M
	Net income			Diluted EPS			Adjusted Net income *
	(10)	%	decrease	(2)	%	decrease	(11)	%	decrease

	327,107			328,299			231,347
	Average WSEs			Total WSEs			Average HRIS Users
	(5)	%	decrease	(6)	%	decrease	(9)	%	decrease

*	Non-GAAP measure. See definitions below under the heading "Non-GAAP Financial Measures".


	Three Months Ended March 31,
(in millions, except operating metrics data)	2023			2022			% Change
Income Statement Data:
Professional service revenues	$	205		$	194		6	%
Insurance service revenues	1,041			1,024			2
Total revenues	1,246			1,218			2
Insurance costs	852			823			4
Operating expenses	225			191			18
Total costs and operating expenses	1,077			1,014			6
Operating income	169			204			(17)
Other income (expense):
Interest expense, bank fees and other	(7)			(5)			40
Interest income	18			1			1,700


Income before provision for income taxes	180			200			(10)
Income taxes	49			54			(9)
Net income	$	131		$	146		(10)	%


Cash Flow Data:
Net cash provided by (used in) operating activities	(77)			214			(136)
Net cash used in investing activities	(23)			(213)			(89)
Net cash provided by (used in) financing activities	200			(353)			(157)

Non-GAAP measures (1):



Adjusted EBITDA	$	223		242			(8)
Adjusted Net income	$	150		168			(11)
Corporate Operating Cash Flows	169			193			(12)

Operating Metrics:
Insurance Cost Ratio	82		%	80		%	2	%
Average WSEs	327,107			343,245			(5)	%
Total WSEs	328,299			348,349			(6)	%
Average HRIS Users (2)	231,347			253,766			(9)	%


(in millions)	March 31, 2023	December 31, 2022		% Change
Balance Sheet Data:

Working capital	394	$	338	17	%
Total assets	3,736	3,443		9
Debt	791	496		59
Total stockholders’ equity	825	775		6


Non-GAAP Measure	Definition	How We Use The Measure



Adjusted EBITDA	• Net income, excluding the effects of: - income tax provision, - interest expense, bank fees and other, - depreciation, - amortization of intangible assets, - stock based compensation expense, - amortization of cloud computing arrangements, and - transaction and integration costs.	• 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-recurring costs, which include transaction and integration costs, as well as certain non-cash charges such as depreciation and amortization, and stock-based compensation and certain impairment charges recognized based on the estimated fair values. We believe these charges are either not directly resulting from our core operations or not indicative of our ongoing operations. • Enhances comparisons to the prior period and, accordingly, facilitates the development of future projections and earnings growth prospects. • Provides a measure, among others, used in the determination of incentive compensation for management. • We also sometimes refer to Adjusted EBITDA margin, which is the ratio of Adjusted EBITDA to total revenues.
Adjusted Net Income	• Net income, excluding the effects of: - effective income tax rate (1), - stock based compensation, - amortization of intangible assets, net, - non-cash interest expense, - transaction and integration costs, 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.
Corporate Operating Cash Flows	• Net cash provided by (used in) operating activities, excluding the effects of: - Assets associated with WSEs (accounts receivable, unbilled revenue, prepaid expenses and other current assets) and - Liabilities associated with WSEs (client deposits and other client liabilities, accrued wages, payroll tax liabilities and other payroll withholdings, accrued health benefit costs, accrued workers' compensation costs, insurance premiums and other payables, and other current liabilities).	• Provides information that our stockholders and management can use to evaluate our cash flows from operations independent of the current assets and liabilities associated with our WSEs. • Enhances comparisons to prior period and, accordingly, used as a liquidity measure to manage liquidity between corporate and WSE related activities, and to help determine and plan our cash flow and capital strategies.


	Three Months Ended March 31,
(in millions)	2023		2022
Net cash provided by (used in) operating activities	$	(77)	$	214
Less: Change in WSE related other current assets	(178)		(9)
Less: Change in WSE related liabilities	(68)		30
Net cash provided by (used in) operating activities - WSE	$	(246)	$	21
Net cash provided by operating activities - Corporate	$	169	$	193


(in millions)
$204		First Quarter 2022 Operating Income
	+28	Higher total revenues primarily driven by rate increases and a full quarter of HRIS revenue, partially offset by lower Average WSEs.
	-29	Higher insurance costs primarily as a result of higher medical services utilization and health cost inflation partially offset by lower Average WSEs.
	-34	Higher OE primarily as a result of higher compensation expenses to support a full quarter of supporting the HRIS product as well as initiatives to improve client experience, enhance service offerings, and improve processes, together with higher sales and marketing expenses.
$169		First Quarter 2023 Operating Income


(in millions)
$191		Q1 2022 Operating Expenses
	+8	COPS increased, driven primarily by additional hiring and incremental costs related to a full quarter of our HRIS services product.
	+24	S&M increased, driven primarily by advertising costs, broker commissions, additional hiring and higher compensation to support sales.
	-4	G&A decreased, driven primarily by lower transaction and integration expenses.
	+1	SD&P was consistent with the prior year as we continue to invest in our systems and processes.
	+5	D&A increased due to the amortization of intangible assets recognized for the Zenefits and Clarus R+D acquisitions.
	$225	Q1 2023 Operating Expenses


	March 31, 2023						December 31, 2022
(in millions)	Corporate		WSE		Total		Corporate		WSE		Total
Current assets:
Cash and cash equivalents	$	707	$	—	$	707	$	354	$	—	$	354
Investments	89		—		89		76		—		76
Restricted cash, cash equivalents and investments	21		995		1,016		22		1,241		1,263
Other current assets	84		733		817		78		555		633
Total current assets	$	901	$	1,728	$	2,629	$	530	$	1,796	$	2,326




Total current liabilities	$	507	$	1,728	$	2,235	$	192	$	1,796	$	1,988

Working capital	$	394	$	—	$	394	$	338	$	—	$	338


TABLE OF CONTENTS



TRINET	2	2023 Q1 FORM 10-Q



TRINET	3	2023 Q1 FORM 10-Q



TRINET	4	2023 Q1 FORM 10-Q


	Three Months Ended March 31,
(in millions except per share data)	2023		2022
Professional service revenues	$	205	$	194
Insurance service revenues	1,041		1,024
Total revenues	1,246		1,218
Insurance costs	852		823
Cost of providing services	78		70
Sales and marketing	69		45
General and administrative	43		47
Systems development and programming	17		16
Depreciation and amortization of intangible assets	18		13
Total costs and operating expenses	1,077		1,014
Operating income	169		204
Other income (expense):
Interest expense, bank fees and other	(7)		(5)
Interest income	18		1
Income before provision for income taxes	180		200
Income taxes	49		54
Net income	$	131	$	146
Other comprehensive income (loss), net of income taxes	3		(8)
Comprehensive income	$	134	$	138

Net income per share:
Basic	$	2.18	$	2.23
Diluted	$	2.17	$	2.21
Weighted average shares:
Basic	60		65
Diluted	60		66


	March 31,		December 31,
(in millions, except share and per share data)	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	707	$	354
Investments	89		76
Restricted cash, cash equivalents and investments	1,016		1,263
Accounts receivable, net	15		19
Unbilled revenue, net	371		375
Prepaid expenses, net	85		71
Other payroll assets	302		122
Other current assets	44		46
Total current assets	2,629		2,326
Restricted cash, cash equivalents and investments, noncurrent	155		153
Investments, noncurrent	142		151
Property and equipment, net	31		24
Operating lease right-of-use asset	29		31
Goodwill	462		462
Software and other intangible assets, net	155		163
Other assets	133		133
Total assets	$	3,736	$	3,443
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other current liabilities	$	130	$	98
Revolving credit agreement borrowings	295		—

Client deposits and other client liabilities	131		106
Accrued wages	416		437
Accrued health insurance costs, net	169		174
Accrued workers' compensation costs, net	54		54
Payroll tax liabilities and other payroll withholdings	1,007		1,087
Operating lease liabilities	16		15
Insurance premiums and other payables	17		17
Total current liabilities	2,235		1,988
Long-term debt, noncurrent	496		496
Accrued workers' compensation costs, noncurrent, net	127		128
Deferred taxes	9		8
Operating lease liabilities, noncurrent	36		41
Other non-current liabilities	8		7
Total liabilities	2,911		2,668
Commitments and contingencies (see Note 6)
Stockholders' equity:
Preferred stock	—		—
($0.000025 par value per share; 20,000,000 shares authorized; no shares issued or outstanding at March 31, 2023 and December 31, 2022)
Common stock and additional paid-in capital	910		899
($0.000025 par value per share; 750,000,000 shares authorized; 59,522,954 and 60,555,661 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)
Retained earnings (Accumulated deficit)	(83)		(119)
Accumulated other comprehensive loss	(2)		(5)
Total stockholders' equity	825		775
Total liabilities & stockholders' equity	$	3,736	$	3,443


	March 31, 2023		March 31, 2022
(in millions)	Three Months Ended		Three Months Ended
Balance at beginning of period	$	75	$	48

(-) Distributions to clients	(8)		(13)
Balance at end of period	$	67	$	35


(in millions)	Fair Value Level	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Investments		Restricted Cash, Cash Equivalents and Investments
March 31, 2023
Cash equivalents:
Money market mutual funds	Level 1	$	422	$	—	$	—	$	422	$	334	$	—	$	88
U.S. treasuries	Level 2	13		—		—		13		13		—		—
Total cash equivalents		435		—		—		435		347		—		88
AFS Investments:
Asset-backed securities	Level 2	42		—		(2)		40		—		40		—
Corporate bonds	Level 2	130		—		(1)		129		—		105		24
Agency securities	Level 2	34		—		(1)		33		—		4		29
U.S. treasuries	Level 2	251		1		—		252		—		75		177
Certificate of deposit	Level 2	11		—		—		11		—		—		11
Other debt securities	Level 2	7		—		—		7		—		7		—
Total AFS Investments		$	475	$	1	$	(4)	$	472	$	—	$	231	$	241


(in millions)	March 31, 2023
One year or less	$	114
Over one year through five years	324
Over five years through ten years	12
Over ten years	22
Total fair value	$	472



	Total Number of RSUs	Total Number of Shares	Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2022	1,198,561	1,198,561	$	80.75
Granted	730,146	730,146	76.85
Vested	(135,074)	(135,074)	74.20
Forfeited	(21,823)	(21,823)	82.89
Nonvested at March 31, 2023	1,771,810	1,771,810	$	79.34


	Total Number of RSUs	Total Number of Shares	Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2022	202,586	202,586	$	86.82
Granted	177,067	177,067	79.05



Nonvested at March 31, 2023	379,653	379,653	$	83.20


	Three Months Ended March 31,
(in millions, except per share data)	2023		2022
Net income	$	131	$	146
Weighted average shares of common stock outstanding	60		65
Basic EPS	$	2.18	$	2.23
Net income	$	131	$	146
Weighted average shares of common stock outstanding	60		65
Dilutive effect of stock options and restricted stock units	—		1
Weighted average shares of common stock outstanding	60		66
Diluted EPS	$	2.17	$	2.21

Common stock equivalents excluded from income per diluted share because of their anti-dilutive effect	2		1


Period	Total Number of Shares Purchased (1) (2)	Weighted Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value ($ millions) of Shares that May Yet be Purchased Under the Plans (3)
January 1 - January 31, 2023	458,106	$	73.56	456,099	$	211
February 1 - February 28, 2023	407,750	$	80.52	360,425	$	482
March 1 - March 31, 2023	341,716	$	80.12	341,347	$	455
Total	1,207,572			1,157,871



*			Document has been furnished, is deemed not filed and is not to be incorporated by reference into any of TriNet Group, Inc.’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing.


	TRINET GROUP, INC.

Date: April 26, 2023		By:	/s/ Burton M. Goldfield
			Burton M. Goldfield
			Chief Executive Officer

Date: April 26, 2023		By:	/s/ Kelly Tuminelli
			Kelly Tuminelli
			Chief Financial Officer