Trinet Group, Inc 10-Q for FY2021 Q2

Trinet Group, Inc. (TNET)

10-Q 2021-07-26 For: 2021-06-30

Added on April 09, 2026

About this 10-Q

Trinet Group, Inc filed this 10-Q on July 26, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).

Headline figures

Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.1B; up 16.0% from $948M a year earlier
Net income: $91M; down 27.8% from net income of $126M a year earlier
Diluted EPS: $1.37; down 26.7% from $1.87 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		4
Unaudited Condensed Consolidated Financial Statements	Part I, Item 1.	31
Condensed Consolidated Statements of Income and Comprehensive Income		31

Condensed Consolidated Balance Sheets		32
Condensed Consolidated Statements of Stockholders' Equity		33
Condensed Consolidated Statements of Cash Flows		34
Notes to Condensed Consolidated Financial Statements		35
Note 1. Description of Business and Significant Accounting Policies		35
Note 2. Cash, Cash Equivalents and Investments - Unrestricted and Restricted		37
Note 3. Investments		37
Note 4. Financial Instruments and Fair Value Measurements		38
Note 5. Accrued Workers' Compensation Costs		40
Note 6. Long-term Debt and Revolving Credit Agreements		41
Note 7. Commitments and Contingencies		42
Note 8. Stock Based Compensation		42
Note 9. Stockholders' Equity		43
Note 10. Income Taxes		44
Note 11. Earnings Per Share		45

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.	29
Controls and Procedures	Part I, Item 4.	30
Legal Proceedings	Part II, Item 1.	48
Risk Factors	Part II, Item 1A.	47
Unregistered Sales of Equity Securities and Use of Proceeds	Part II, Item 2.	49
Defaults Upon Senior Securities	Part II, Item 3.	49
Mine Safety Disclosures	Part II, Item 4.	49
Other Information	Part II, Item 5.	49
Exhibits	Part II, Item 6.	50




2021 Credit Program			A 2021 program potentially provide credits to certain 2021 customers, subject to certain predefined conditions and based on the existence of certain pandemic related excess health care cost savings.
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



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			2020 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			$121M			$91M
	Total revenues			Operating income			Net income
	16	%	increase	(30)	%	decrease	(28)	%	decrease

	$1.37			$104M
	Diluted EPS			Adjusted Net income *
	(27)	%	decrease	(24)	%	decrease

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


	$2.2B			$259M			$192M
	Total revenues			Operating income			Net income
	8	%	increase	(12)	%	decrease	(12)	%	decrease

	$2.87			$215M
	Diluted EPS			Adjusted Net income *
	(8)	%	decrease	(9)	%	decrease

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


	Three Months Ended June 30,								Six Months Ended June 30,
(in millions, except operating metrics data)	2021			2020			% Change		2021			2020			% Change
Income Statement Data:
Professional service revenues	$	156		$	121		29	%	$	309		$	277		12	%
Insurance service revenues	944			827			14		1,851			1,719			8
Total revenues	1,100			948			16		2,160			1,996			8
Insurance costs	798			613			30		1,549			1,378			12
Operating expenses	181			162			12		352			325			8
Total costs and operating expenses	979			775			26		1,901			1,703			12
Operating income	121			173			(30)		259			293			(12)
Other income (expense):
Interest expense, bank fees and other	(5)			(4)			25		(10)			(8)			25
Interest income	1			2			(50)		3			7			(57)


Income before provision for income taxes	117			171			(32)		252			292			(14)
Income taxes	26			45			(42)		60			75			(20)
Net income	$	91		$	126		(28)	%	$	192		$	217		(12)	%


Cash Flow Data:
Net cash used in operating activities									(190)			$	(130)		46
Net cash used in investing activities									(135)			(121)			12
Net cash provided by financing activities									43			122			(65)

Non-GAAP measures (1):
Net Service Revenues	$	302		$	335		(10)	%	$	611		$	618		(1)	%
Net Insurance Service Revenues	$	146		$	214		(32)		$	302		$	341		(11)
Net Insurance Margin	15		%	26		%	(42)		16		%	20		%	(20)
Adjusted EBITDA	$	154		199			(23)		$	317		$	344		(8)
Adjusted Net income	$	104		136			(24)		$	215		$	235		(9)
Corporate Operating Cash Flows									240			315			(24)

Operating Metrics:
Average WSEs	332,719			313,701			6	%	327,007			325,024			1	%
Total WSEs	339,935			313,104			9		339,935			313,104			9


(in millions)	June 30, 2021		December 31, 2020		% Change
Balance Sheet Data:
Working capital	$	554	$	290	91	%
Total assets	2,978		3,043		(2)
Debt	495		370		34
Total stockholders’ equity	744		607		23


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 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 total revenues.
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 June 30,						Six Months Ended June 30,
(in millions)	2021			2020			2021			2020
Net income	$	91		$	126		$	192		$	217
Provision for income taxes	26			45			60			75
Stock based compensation	13			11			24			20
Interest expense, bank fees and other	5			4			10			8
Depreciation and amortization of intangible assets ¹	19			13			31			24
Adjusted EBITDA	$	154		$	199		$	317		$	344
Adjusted EBITDA Margin	14.0		%	21.0		%	14.7		%	17.2		%


(in millions)
$173		Second Quarter 2020 Operating Income
	+152	Higher total revenues primarily driven by higher Average WSEs, rate increases and the $51 million decrease in the Recovery Credit recognized.
	-185	Higher insurance costs primarily as a result of more typical medical services utilization, compared to the prior year period, which had lower than typical medical services utilization due to stay-at-home orders and social distancing practices due to the COVID-19 pandemic.
	-19	Higher OE primarily as a result of increased payroll tax compliance costs and D&A, together with higher compensation and consulting expenses to support initiatives to improve client experience, enhance service offerings, and improve processes.
$121		Second Quarter 2021 Operating Income


(in millions)
$293		YTD 2020 Operating Income
	+164	Higher total revenues primarily driven by higher Average WSEs, rate increases and the $39 million decrease in the Recovery Credit recognized. This was partially offset by the $25 million reduction in revenue recognized for the 2021 Credit Program in the first quarter of 2021.
	-171	Higher insurance costs primarily as a result of more typical medical services utilization, compared to the prior year period, which had lower than typical medical services utilization due to stay-at-home orders and social distancing practices due to the COVID-19 pandemic.
	-27	Higher OE primarily as a result of increased payroll tax compliance costs, technology services and D&A, together with higher compensation and consulting expenses to support initiatives to improve client experience, enhance service offerings, and improve processes.
$259		YTD 2021 Operating Income


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)
$162		Q2 2020 Operating Expenses
	+6	COPS increased, driven primarily by increased compensation, partially offset by a decrease in rent expense.

	+5	G&A increased, driven primarily by increased payroll tax compliance costs and technology services expenses to improve our client experience, our systems and processes, and to enhance our service offerings.
	+2	SD&P increased, driven primarily by higher consulting expenses as we continue to work to improve our client experience and our systems and processes.
	+6	D&A increased, driven primarily by the impairment of customer relationship intangibles.
	$181	Q2 2021 Operating Expenses


(in millions)
$325		YTD 2020 Operating Expenses
	+6	COPS increased, driven primarily by increased compensation, partially offset by decreased consulting and rent expenses.

	+8	G&A increased, driven primarily by increased compensation, payroll tax compliance costs and technology services expenses.
	+6	SD&P increased, driven primarily by increased compensation and consulting expenses as we continue to work to improve our client experience and our systems and processes.
	+7	D&A increased, driven primarily by the impairment of customer relationship intangibles.
$352		YTD 2021 Operating Expenses


	June 30, 2021						December 31, 2020
(in millions)	Corporate		WSE		Total		Corporate		WSE		Total
Current assets:
Cash and cash equivalents	$	464	$	—	$	464	$	301	$	—	$	301
Investments	131		—		131		57		—		57
Restricted cash, cash equivalents and investments	15		943		958		15		1,373		1,388
Other current assets	80		451		531		59		355		414
Total current assets	$	690	$	1,394	$	2,084	$	432	$	1,728	$	2,160




Total current liabilities	$	136	$	1,394	$	1,530	$	142	$	1,728	$	1,870

Working capital	$	554	$	—	$	554	$	290	$	—	$	290


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions except per share data)	2021		2020		2021		2020
Professional service revenues	$	156	$	121	$	309	$	277
Insurance service revenues	944		827		1,851		1,719
Total revenues	1,100		948		2,160		1,996
Insurance costs	798		613		1,549		1,378
Cost of providing services	66		60		130		124
Sales and marketing	45		45		91		91
General and administrative	40		35		76		68
Systems development and programming	11		9		24		18
Depreciation and amortization of intangible assets	19		13		31		24
Total costs and operating expenses	979		775		1,901		1,703
Operating income	121		173		259		293
Other income (expense):
Interest expense, bank fees and other	(5)		(4)		(10)		(8)
Interest income	1		2		3		7
Income before provision for income taxes	117		171		252		292
Income taxes	26		45		60		75
Net income	$	91	$	126	$	192	$	217
Other comprehensive (loss) income, net of income taxes	—		3		(1)		5
Comprehensive income	$	91	$	129	$	191	$	222

Net income per share:
Basic	$	1.38	$	1.88	$	2.91	$	3.16
Diluted	$	1.37	$	1.87	$	2.87	$	3.13
Weighted average shares:
Basic	66		67		66		69
Diluted	67		68		67		70


	June 30,		December 31,
(in millions, except share and per share data)	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	464	$	301
Investments	131		57
Restricted cash, cash equivalents and investments	958		1,388
Accounts receivable, net	8		18
Unbilled revenue, net	346		246
Prepaid expenses, net	68		63
Other current assets	109		87
Total current assets	2,084		2,160
Restricted cash, cash equivalents and investments, noncurrent	179		210
Investments, noncurrent	194		138
Property, equipment and software, net	76		79
Operating lease right-of-use asset	48		51
Goodwill	294		294
Other intangible assets, net	9		18
Other assets	94		93
Total assets	$	2,978	$	3,043
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other current liabilities	$	81	$	50

Long-term debt	—		22
Client deposits and other client liabilities	132		134
Accrued wages	506		309
Accrued health insurance costs, net	155		172
Accrued workers' compensation costs, net	57		59
Payroll tax liabilities and other payroll withholdings	572		1,095
Operating lease liabilities	12		11
Insurance premiums and other payables	15		18
Total current liabilities	1,530		1,870
Long-term debt, noncurrent	495		348
Accrued workers' compensation costs, noncurrent, net	133		138
Deferred taxes	21		22
Operating lease liabilities, noncurrent	46		49
Other non-current liabilities	9		9
Total liabilities	2,234		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 June 30, 2021 and December 31, 2020)
Common stock and additional paid-in capital	776		747
($0.000025 par value per share; 750,000,000 shares authorized; 65,864,116 and 66,456,663 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively)
Accumulated deficit	(35)		(144)
Accumulated other comprehensive income	3		4
Total stockholders' equity	744		607
Total liabilities & stockholders' equity	$	2,978	$	3,043


	June 30, 2021
(in millions)	Three Months Ended		Six Months Ended

Balance at beginning of period	$	77	$	92
(+) Accruals	5		17
(-) Distributions to clients	(19)		(46)
Balance at end of period	$	63	$	63


(in millions)	June 30, 2021
One year or less	$	188
Over one year through five years	340
Over five years through ten years	7
Over ten years	30
Total fair value	$	565


(in millions)	Level 1		Level 2		Total
June 30, 2021
Cash equivalents:
Money market mutual funds	$	3	$	—	3

Total cash equivalents	3		—		3
Investments:
Asset-backed securities	—		44		44
Corporate bonds	—		132		132
U.S. government agencies and government-sponsored agencies	—		3		3
U.S. treasuries	—		138		138
Other debt securities	—		8		8
Total investments	—		325		325
Restricted cash equivalents:
Money market mutual funds	94		—		94
Certificate of deposit	—		—		—
Commercial paper	—		—		—
Total restricted cash equivalents	94		—		94
Restricted investments:
Corporate bonds	—		37		37
U.S. government agencies and government-sponsored agencies	—		16		16

U.S. treasuries	—		177		177
Certificate of deposit	—		10		10
Total restricted investments	—		240		240
Total cash equivalents and investments and restricted cash equivalents and investments	$	97	$	565	$	662


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2021		2020		2021		2020
Total accrued costs, beginning of period	$	205	$	217	$	205	$	214
Incurred
Current year	18		13		33		33
Prior years	(12)		(6)		(15)		(9)
Total incurred	6		7		18		24
Paid
Current year	(2)		(2)		(3)		(3)
Prior years	(11)		(11)		(22)		(24)
Total paid	(13)		(13)		(25)		(27)
Total accrued costs, end of period	$	198	$	211	$	198	$	211



	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	491,136	—	491,136	82.72
Vested	(343,508)	(12,797)	(356,305)	50.45
Forfeited	(94,764)	—	(94,764)	58.05
Nonvested at June 30, 2021	1,282,935	17,229	1,300,164	$	65.57


	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	246,349	—	246,349	67.70
Vested	(3,010)	(16,052)	(19,062)	47.61

Forfeited	(9,459)	—	(9,459)	52.86
Nonvested at June 30, 2021	401,007	—	401,007	$	62.24


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per share data)	2021		2020		2021		2020
Net income	$	91	$	126	$	192	$	217
Weighted average shares of common stock outstanding	66		67		66		69
Basic EPS	$	1.38	$	1.88	$	2.91	$	3.16
Net income	$	91	$	126	$	192	$	217
Weighted average shares of common stock outstanding	66		67		66		69
Dilutive effect of stock options and restricted stock units	1		1		1		1
Weighted average shares of common stock outstanding	67		68		67		70
Diluted EPS	$	1.37	$	1.87	$	2.87	$	3.13

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


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)
April 1 - April 30, 2021	132,163	$	79.12	132,163	$	287
May 1 - May 31, 2021	60,574	$	79.90	12,905	$	286
June 1 - June 30, 2021	37,904	$	72.54	36,182	$	284
Total	230,641			181,250



*			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: July 26, 2021		By:	/s/ Burton M. Goldfield
			Burton M. Goldfield
			Chief Executive Officer

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

			Chief Financial Officer