Trinet Group, Inc 10-Q for FY2021 Q1

Trinet Group, Inc. (TNET)

10-Q 2021-04-26 For: 2021-03-31

Added on April 09, 2026

About this 10-Q

Trinet Group, Inc filed this 10-Q on April 26, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).

Headline figures

Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.06B; up 1.1% from $1.05B a year earlier
Net income: $101M; up 11.0% from net income of $91M a year earlier
Diluted EPS: $1.51; up 15.3% from $1.31 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
Unaudited Condensed Consolidated Financial Statements	Part I, Item 1.	28
Condensed Consolidated Statements of Income and Comprehensive Income		28

Condensed Consolidated Balance Sheets		29
Condensed Consolidated Statements of Stockholders' Equity		30
Condensed Consolidated Statements of Cash Flows		31
Notes to Condensed Consolidated Financial Statements		32
Note 1. Description of Business and Significant Accounting Policies		32
Note 2. Cash, Cash Equivalents and Investments - Unrestricted and Restricted		34
Note 3. Investments		34
Note 4. Financial Instruments and Fair Value Measurements		35
Note 5. Accrued Workers' Compensation Costs		37
Note 6. Long-term Debt and Revolving Credit Agreements		38
Note 7. Commitments and Contingencies		39
Note 8. Stock Based Compensation		39
Note 9. Stockholders' Equity		40
Note 10. Income Taxes		40
Note 11. Earnings Per Share		41

Management’s Discussion and Analysis of Financial Condition and Results of Operations	Part I, Item 2.	6
Quantitative and Qualitative Disclosures About Market Risk	Part I, Item 3.	26
Controls and Procedures	Part I, Item 4.	27
Legal Proceedings	Part II, Item 1.	42
Risk Factors	Part II, Item 1A.	42
Unregistered Sales of Equity Securities and Use of Proceeds	Part II, Item 2.	42
Defaults Upon Senior Securities	Part II, Item 3.	42
Mine Safety Disclosures	Part II, Item 4.	42
Other Information	Part II, Item 5.	42
Exhibits	Part II, Item 6.	43




2021 Credit Program			A program that, subject to certain predefined conditions, is designed to take certain pandemic related excess health care cost savings and provide credits to certain 2021 customers.
2018 Term Loan			Our $425 million term loan A that we entered into in June 2018
AFS			Available-for-sale


CARES Act			Coronavirus Aid Relief and Economic Security Act

CEO			Chief Executive Officer
CFO			Chief Financial Officer
COBRA			Consolidated Omnibus Budget Reconciliation Act
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


HR			Human Resources



IRS			Internal Revenue Service
ISR			Insurance service revenues


LIBOR			London Inter-bank Offered Rate

MD&A			Management's Discussion and Analysis of Financial Condition and Results of Operations
NIM			Net Insurance Margin
NISR			Net Insurance Service Revenues
NSR			Net service revenues
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
Recovery Credit			Program to provide clients with one-time reductions against fees for future services
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			Worksite employee
YTD			Year to date


FORWARD LOOKING STATEMENTS AND OTHER FINANCIAL INFORMATION			Table of Contents


	$1.1B			$138M			$309M
	Total revenues			Operating income			Net Service Revenues *
	1	%	increase	15	%	increase	9	%	increase

	$101M			$1.51			$111M
	Net income			Diluted EPS			Adjusted Net income *
	11	%	increase	15	%	increase	14	%	increase

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


321,295			326,216
Average WSEs			Total WSEs
(4)	%	decrease	(3)	%	decrease


	Three Months Ended March 31,
(in millions, except operating metrics data)	2021			2020			% Change
Income Statement Data:
Professional service revenues	$	153		$	156		(2)	%
Insurance service revenues	907			892			2
Total revenues	1,060			1,048			1
Insurance costs	751			765			(2)
Operating expenses	171			163			5
Total costs and operating expenses	922			928			(1)
Operating income	138			120			15
Other income (expense):
Interest expense, bank fees and other	(5)			(4)			25
Interest income	2			5			(60)


Income before provision for income taxes	135			121			12
Income taxes	34			30			13
Net income	$	101		$	91		11	%


Cash Flow Data:
Net cash used in operating activities	(175)			$	(282)		(38)
Net cash used in investing activities	(3)			(94)			(97)
Net cash provided by financing activities	56			185			(70)

Non-GAAP measures (1):
Net Service Revenues	$	309		$	283		9	%
Net Insurance Service Revenues	$	156		$	127		23
Net Insurance Margin	17		%	14		%	2
Adjusted EBITDA	163			145			12
Adjusted Net income	111			97			14
Corporate Operating Cash Flows	131			119			10

Operating Metrics:
Average WSEs	321,295			336,348			(4)	%
Total WSEs	326,216			336,846			(3)


(in millions)	March 31, 2021		December 31, 2020		% Change
Balance Sheet Data:
Working capital	$	520	$	290	79	%
Total assets	3,005		3,043		(1)
Debt	494		370		34
Total stockholders’ equity	653		607		8


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 presented 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 service 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 presented 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.
Net Insurance Margin	• Net Insurance Margin (NIM) is the ratio of Net Insurance Services Revenues to insurance service revenues.	• Provides a comparable basis of Net Insurance Service Revenues relative to insurance service revenues. Promotes an understanding of our pricing to risk performance.
Adjusted EBITDA	• Net income, excluding the effects of: - income tax provision, - interest expense, bank fees and other, - 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 either not directly resulting from our core operations or not 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. • We also sometimes refer to Adjusted EBITDA margin, which is the ratio of Adjusted EBITDA to Net Service Revenue.


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.
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 periods 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)	2021		2020
Net cash used in operating activities	$	(175)	$	(282)
Less: Change in WSE related other current assets	(85)		(110)
Less: Change in WSE related liabilities	(221)		(291)
Net cash used in operating activities - WSE	$	(306)	$	(401)
Net cash provided by operating activities - Corporate	$	131	$	119


(in millions)
$120		First Quarter 2020 Operating Income
	+12	Higher total revenues, primarily as a result of increased health plan enrollment in our insurance service offerings, together with rate increases, partially offset by lower Average WSEs, the $12 million reduction recognized under our Recovery Credit and the $25 million reduction recognized under our 2021 Credit Program.
	+14	Lower insurance costs primarily as a result of lower utilization of medical services and lower Average WSEs, partially offset by higher health plan enrollments.
	-8	Higher OE primarily as a result of increased compensation to support initiatives to improve client experience, enhance service offerings, and improve processes.
$138		First Quarter 2021 Operating Income


						PSR


						Net insurance service revenues - % represents proportion of Net Insurance Service Revenues to total Net Service Revenues


TABLE OF CONTENTS


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents


(in millions)
$163		Q1 2020 Operating Expenses


	+3	G&A increased, driven primarily by increases in compensation related expenses.
	+4	SD&P increased, driven primarily by higher consulting expenses as we continue to work to improve our client experience and our systems and processes.
	+1	D&A remained consistent to the first quarter of 2020.
$171		Q1 2021 Operating Expenses


	March 31, 2021						December 31, 2020
(in millions)	Corporate		WSE		Total		Corporate		WSE		Total
Current assets:
Cash and cash equivalents	$	500	$	—	$	500	$	301	$	—	$	301
Investments	71		—		71		57		—		57
Restricted cash, cash equivalents and investments	15		1,066		1,081		15		1,373		1,388
Other current assets	68		440		508		59		355		414
Total current assets	$	654	$	1,506	$	2,160	$	432	$	1,728	$	2,160




Total current liabilities	$	134	$	1,506	$	1,640	$	142	$	1,728	$	1,870

Working capital	$	520	$	—	$	520	$	290	$	—	$	290


	Three Months Ended March 31,
(in millions except per share data)		2021		2020
Professional service revenues		$	153	$	156
Insurance service revenues		907		892
Total revenues		1,060		1,048
Insurance costs		751		765
Cost of providing services		64		64
Sales and marketing		46		46
General and administrative		36		33
Systems development and programming		13		9
Depreciation and amortization of intangible assets		12		11
Total costs and operating expenses		922		928
Operating income		138		120
Other income (expense):
Interest expense, bank fees and other		(5)		(4)
Interest income		2		5
Income before provision for income taxes		135		121
Income taxes		34		30
Net income		$	101	$	91
Other comprehensive (loss) income, net of income taxes		(1)		2
Comprehensive income		$	100	$	93

Net income per share:
Basic		$	1.53	$	1.32
Diluted		$	1.51	$	1.31
Weighted average shares:
Basic		66		68
Diluted		67		69


	March 31,		December 31,
(in millions, except share and per share data)	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	500	$	301
Investments	71		57
Restricted cash, cash equivalents and investments	1,081		1,388
Accounts receivable, net	5		18
Unbilled revenue, net	340		246
Prepaid expenses, net	58		63
Other current assets	105		87
Total current assets	2,160		2,160
Restricted cash, cash equivalents and investments, noncurrent	184		210
Investments, noncurrent	130		138
Property, equipment and software, net	75		79
Operating lease right-of-use asset	51		51
Goodwill	294		294
Other intangible assets, net	17		18
Other assets	94		93
Total assets	$	3,005	$	3,043
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other current liabilities	$	84	$	50

Long-term debt	—		22
Client deposits and other client liabilities	151		134
Accrued wages	488		309
Accrued health insurance costs, net	165		172
Accrued workers' compensation costs, net	59		59
Payroll tax liabilities and other payroll withholdings	668		1,095
Operating lease liabilities	12		11
Insurance premiums and other payables	13		18
Total current liabilities	1,640		1,870
Long-term debt, noncurrent	494		348
Accrued workers' compensation costs, noncurrent, net	138		138
Deferred taxes	21		22
Operating lease liabilities, noncurrent	49		49
Other non-current liabilities	10		9
Total liabilities	2,352		2,436
Commitments and contingencies (see Note 7)
Stockholders' equity:
Preferred stock	—		—
($0.000025 par value per share; 20,000,000 shares authorized; no shares issued or outstanding at March 31, 2021 and December 31, 2020)
Common stock and additional paid-in capital	758		747
($0.000025 par value per share; 750,000,000 shares authorized; 65,881,233 and 66,456,663 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively)
Accumulated deficit	(108)		(144)
Accumulated other comprehensive income	3		4
Total stockholders' equity	653		607
Total liabilities & stockholders' equity	$	3,005	$	3,043


(in millions)	March 31, 2021
One year or less	$	135
Over one year through five years	281
Over five years through ten years	5
Over ten years	24
Total fair value	$	445


(in millions)	Level 1		Level 2		Total
March 31, 2021
Cash equivalents:
Money market mutual funds	$	127	$	—	127

Total cash equivalents	127		—		127
Investments:
Asset-backed securities	—		25		25
Corporate bonds	—		89		89
U.S. government agencies and government-sponsored agencies	—		5		5
U.S. treasuries	—		77		77
Other debt securities	—		6		6
Total investments	—		202		202
Restricted cash equivalents:
Money market mutual funds	95		—		95
Certificate of deposit	—		1		1
Commercial paper	—		—		—
Total restricted cash equivalents	95		1		96
Restricted investments:
Corporate bonds	—		34		34
U.S. government agencies and government-sponsored agencies	—		18		18

U.S. treasuries	—		182		182
Certificate of deposit	—		9		9
Total restricted investments	—		243		243
Total cash equivalents and investments and restricted cash equivalents and investments	$	222	$	446	$	668



	Total Number of RSUs	Total Number of RSAs	Total Number of Shares	Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2020	1,230,071	30,026	1,260,097	$	54.04
Granted	456,421	—	456,421	83.11
Vested	(212,948)	(7,055)	(220,003)	45.14
Forfeited	(47,908)	—	(47,908)	56.14
Nonvested at March 31, 2021	1,425,636	22,971	1,448,607	$	64.48


	Total Number of RSUs	Total Number of RSAs	Total Number of Shares	Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2020	167,127	16,052	183,179	$	52.89
Granted	232,815	—	232,815	68.27
Vested	(3,010)	(16,052)	(19,062)	47.61

Forfeited	(9,459)	—	(9,459)	52.86
Nonvested at March 31, 2021	387,473	—	387,473	$	62.39


	Three Months Ended March 31,
(in millions, except per share data)	2021		2020
Net income	$	101	$	91
Weighted average shares of common stock outstanding	66		68
Basic EPS	$	1.53	$	1.32
Net income	$	101	$	91
Weighted average shares of common stock outstanding	66		68
Dilutive effect of stock options and restricted stock units	1		1
Weighted average shares of common stock outstanding	67		69
Diluted EPS	$	1.51	$	1.31

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


Period	Total Number of Shares Purchased (1)	Weighted Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (2)	Approximate Dollar Value ($ millions) of Shares that May Yet be Purchased Under the Plans (3)
January 1- January 31, 2021	349,764	$	80.78	335,791	$	331
February 1 - February 28, 2021	390,545	$	80.97	338,735	$	303
March 1 - March 31, 2021	71,920	$	81.59	69,475	$	298
Total	812,229			744,001



*			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, 2021		By:	/s/ Burton M. Goldfield
			Burton M. Goldfield
			Chief Executive Officer

Date: April 26, 2021		By:	/s/ Kelly Tuminelli
			Kelly Tuminelli

			Chief Financial Officer


Participant:
Award Number:
Date of Grant:
Number of Shares Subject to Award:


Participant:
Date of Grant:
Target Award:
Maximum Award:			200% of Target Award
Performance Period:			See ATTACHMENT I