Trinet Group, Inc 10-Q for FY2023 Q3

Trinet Group, Inc. (TNET)

10-Q 2023-10-25 For: 2023-09-30

Added on April 09, 2026

About this 10-Q

Trinet Group, Inc filed this 10-Q on October 25, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).

Headline figures

Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.22B; down 1.5% from $1.24B a year earlier
Net income: $94M; up 22.1% from net income of $77M a year earlier
Diluted EPS: $1.63; up 33.6% from $1.22 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		5
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		40
Note 6. Commitments and Contingencies		41
Note 7. Stock Based Compensation		41
Note 8. Stockholders' Equity		42
Note 9. Income Taxes		43
Note 10. Earnings Per Share		43


Management’s Discussion and Analysis of Financial Condition and Results of Operations	Part I, Item 2.	7
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.	44
Risk Factors	Part II, Item 1A.	44
Unregistered Sales of Equity Securities and Use of Proceeds	Part II, Item 2.	44
Defaults Upon Senior Securities	Part II, Item 3.	44
Mine Safety Disclosures	Part II, Item 4.	44
Other Information	Part II, Item 5.	44
Exhibits	Part II, Item 6.	46





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, as amended, supplemented or modified from time to time, most recently August 16, 2023.

2021 Revolver			Our $700 million revolving line of credit included in our 2021 Credit Agreement
2029 Notes			Our $500 million senior unsecured notes maturing in March 2029

2031 Notes			Our $400 million senior unsecured notes maturing in August 2031
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, or otherwise receiving services from 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			$116M			84%
	Total revenues			Operating income			Insurance cost ratio
	(2)	%	decrease	(3)	%	decrease	1	%	increase

	$94M			$1.63			$109M
	Net income			Diluted EPS			Adjusted Net income *
	22	%	increase	33	%	increase	5	%	increase

	333,286			335,741			210,863
	Average WSEs **			Total WSEs **			Average HRIS Users
	(5)	%	decrease	(5)	%	decrease	(15)	%	decrease

*	Non-GAAP measure. See definitions below under the heading "Non-GAAP Financial Measures".
**	Total WSEs includes approximately 4,600 additional service recipients and Average WSEs includes approximately 1,500 additional service recipients, in each case identified as a result of our ongoing effort to ensure that our billing practices best match the expectations of our customers. For details, refer to the heading "Operating Metrics – Worksite Employees (WSEs).”


	$3.7B			$382M			83%
	Total revenues			Operating income			Insurance cost ratio
	—	%	flat	(14)	%	decrease	1	%	increase

	$308M			$5.20			$365M
	Net income			Diluted EPS			Adjusted Net income *
	—	%	flat	8	%	increase	(3)	%	decrease

	329,257			335,741			219,058
	Average WSEs **			Total WSEs **			Average HRIS Users
	(6)	%	decrease	(5)	%	decrease	(13)	%	decrease

*	Non-GAAP measure. See definitions below under the heading "Non-GAAP Financial Measures".
**	Total WSEs includes approximately 4,600 additional service recipients and Average WSEs includes approximately 1,500 additional service recipients, in each case identified as a result of our ongoing effort to ensure that our billing practices best match the expectations of our customers. For details, refer to the heading "Operating Metrics – Worksite Employees (WSEs).”


	Three Months Ended September 30,								Nine Months Ended September 30,
(in millions, except operating metrics data)	2023			2022			% Change		2023			2022			% Change
Income Statement Data:
Professional service revenues	$	185		$	189		(2)	%	$	567		$	565		—	%
Insurance service revenues	1,037			1,052			(1)		3,110			3,094			1
Total revenues	1,222			1,241			(2)		3,677			3,659			—
Insurance costs	874			872			—		2,594			2,547			2
Operating expenses	232			249			(7)		701			669			5
Total costs and operating expenses	1,106			1,121			(1)		3,295			3,216			2
Operating income	116			120			(3)		382			443			(14)
Other income (expense):
Interest expense, bank fees and other	(10)			(22)			(55)		(23)			(33)			(30)
Interest income	18			5			260		57			8			613


Income before provision for income taxes	124			103			20		416			418			—
Income taxes	30			26			15		108			111			(3)
Net income	$	94		$	77		22	%	$	308		$	307		—	%


Cash Flow Data:
Net cash provided by (used in) operating activities									(43)			76			(157)
Net cash used in investing activities									(57)			(205)			(72)
Net cash used in financing activities									(523)			(392)			33

Non-GAAP measures (1):



Adjusted EBITDA	$	172		173			(1)		$	557		577			(3)
Adjusted Net income	$	109		104			5		$	365		378			(3)
Corporate Operating Cash Flows									386			436			(11)

Operating Metrics:
Insurance Cost Ratio	84		%	83		%	1	%	83		%	82		%	1	%
Average WSEs (2)	333,286			351,888			(5)	%	329,257			348,833			(6)	%
Total WSEs (2)	335,741			351,839			(5)	%	335,741			351,839			(5)	%
Average HRIS Users (3)	210,863			247,375			(15)	%	219,058			251,707			(13)	%


(in millions)	September 30, 2023		December 31, 2022		% Change
Balance Sheet Data:

Working capital	$	150	$	338	(56)	%
Total assets	2,966		3,443		(14)
Debt	1,091		496		120
Total stockholders’ equity	10		775		(99)


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, other payroll assets 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 insurance 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.


	Nine Months Ended September 30,
(in millions)	2023		2022
Net cash provided by (used in) operating activities	$	(43)	$	76
Less: Change in WSE related other current assets	(134)		(101)
Less: Change in WSE related liabilities	(295)		(259)
Net cash used in operating activities - WSE	$	(429)	$	(360)
Net cash provided by operating activities - Corporate	$	386	$	436


(in millions)
$120		Third Quarter 2022 Operating Income
	-19	Lower total revenues primarily driven by lower average volume from our PEO services and lower health plan enrollment, partially offset by rate increases.
	-2	Flat insurance costs as higher health cost rates were offset by lower health plan enrollment and lower volume due to lower Average WSEs.
	+17	Lower OE primarily as a result of lower spend in consulting, facilities, and tax and licenses, partially offset by higher conference and event expenses.
$116		Third Quarter 2023 Operating Income


(in millions)
$443		YTD 2022 Operating Income
	+18	Higher total revenues primarily driven by rate increases and that no reduction in revenue was recognized in 2023 related to our 2022 Credits, partially offset by lower Average WSEs.
	-47	Higher insurance costs primarily as a result of higher health cost rates, partially offset by lower Average WSEs.
	-32	Higher OE primarily as a result of higher compensation, S&M and technology spend to improve client experience, enhance service offerings, and improve processes, including a full nine months of supporting the HRIS product, together with higher sales and marketing expenses to support sales efforts. This was partially offset by lower spend in consulting and facilities.
$382		YTD 2023 Operating Income


TABLE OF CONTENTS



TRINET	2	2023 Q3 FORM 10-Q



TRINET	3	2023 Q3 FORM 10-Q



TRINET	4	2023 Q3 FORM 10-Q


(in millions)
$249		Q3 2022 Operating Expenses
	-5	COPS decreased, driven primarily by lower spend in tax and licenses, corporate insurance, and office expenses.
	+3	S&M increased, driven primarily by higher conferences and events expenses and higher compensation from the growth in our sales force, partially offset by lower advertising expenses.
	-12	G&A decreased, driven primarily by lower transaction and integration expenses as well as lower consulting, facilities and recruiting expenses.
	-3	SD&P decreased, driven primarily by lower compensation and consulting expenses.
	—	D&A was consistent with the prior period.
	$232	Q3 2023 Operating Expenses


(in millions)
$669		YTD 2022 Operating Expenses
	+6	COPS increased, driven primarily by higher compensation expense to support WSEs and incremental costs related to our HRIS cloud services, partially offset by lower corporate insurance and office expenses.
	+35	S&M increased, driven primarily by higher compensation from the growth in our sales force, higher conference and events expenses and higher broker commissions
	-11	G&A decreased, driven primarily by transaction and integration expenses as well as lower costs in consulting, facilities and recruiting expenses.
	-5	SD&P decreased, driven primarily by lower compensation and consulting expenses.
	+7	D&A increased, due to the amortization of intangible assets recognized for the Zenefits and Clarus R+D acquisitions.
$701		YTD 2023 Operating Expenses


	September 30, 2023						December 31, 2022
(in millions)	Corporate		WSE		Total		Corporate		WSE		Total
Current assets:
Cash and cash equivalents	$	170	$	—	$	170	$	354	$	—	$	354
Investments	75		—		75		76		—		76
Restricted cash, cash equivalents and investments	21		812		833		22		1,241		1,263
Other current assets	86		689		775		78		555		633
Total current assets	$	352	$	1,501	$	1,853	$	530	$	1,796	$	2,326




Total current liabilities	$	202	$	1,501	$	1,703	$	192	$	1,796	$	1,988

Working capital	$	150	$	—	$	150	$	338	$	—	$	338


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions except per share data)	2023		2022		2023		2022
Professional service revenues	$	185	$	189	$	567	$	565
Insurance service revenues	1,037		1,052		3,110		3,094
Total revenues	1,222		1,241		3,677		3,659
Insurance costs	874		872		2,594		2,547
Cost of providing services	74		79		231		225
Sales and marketing	75		72		214		179
General and administrative	51		63		154		165
Systems development and programming	15		18		49		54
Depreciation and amortization of intangible assets	17		17		53		46
Total costs and operating expenses	1,106		1,121		3,295		3,216
Operating income	116		120		382		443
Other income (expense):
Interest expense, bank fees and other	(10)		(22)		(23)		(33)
Interest income	18		5		57		8
Income before provision for income taxes	124		103		416		418
Income taxes	30		26		108		111
Net income	$	94	$	77	$	308	$	307
Other comprehensive income (loss), net of income taxes	(2)		7		(3)		(4)
Comprehensive income	$	92	$	84	$	305	$	303

Net income per share:
Basic	$	1.65	$	1.23	$	5.23	$	4.85
Diluted	$	1.63	$	1.22	$	5.20	$	4.81
Weighted average shares:
Basic	57		62		59		63
Diluted	58		63		59		64


	September 30,		December 31,
(in millions, except share and per share data)	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	170	$	354
Investments	75		76
Restricted cash, cash equivalents and investments	833		1,263
Accounts receivable, net	21		19
Unbilled revenue, net	404		375
Prepaid expenses, net	75		71
Other payroll assets	226		122
Other current assets	49		46
Total current assets	1,853		2,326
Restricted cash, cash equivalents and investments, noncurrent	154		153
Investments, noncurrent	143		151
Property and equipment, net	16		24
Operating lease right-of-use asset	24		31
Goodwill	462		462
Software and other intangible assets, net	169		163
Other assets	145		133
Total assets	$	2,966	$	3,443
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other current liabilities	$	109	$	98


Client deposits and other client liabilities	73		106
Accrued wages	458		437
Accrued health insurance costs, net	183		174
Accrued workers' compensation costs, net	51		54
Payroll tax liabilities and other payroll withholdings	804		1,087
Operating lease liabilities	15		15
Insurance premiums and other payables	10		17
Total current liabilities	1,703		1,988
Long-term debt, noncurrent	1,091		496
Accrued workers' compensation costs, noncurrent, net	122		128
Deferred taxes	5		8
Operating lease liabilities, noncurrent	30		41
Other non-current liabilities	5		7
Total liabilities	2,956		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 September 30, 2023 and December 31, 2022)
Common stock and additional paid-in capital	953		899
($0.000025 par value per share; 750,000,000 shares authorized; 50,507,590 and 60,555,661 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively)
Accumulated deficit	(935)		(119)
Accumulated other comprehensive loss	(8)		(5)
Total stockholders' equity	10		775
Total liabilities & stockholders' equity	$	2,966	$	3,443


(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
September 30, 2023
Cash equivalents:
Money market mutual funds	Level 1	$	134	$	—	$	—	$	134	$	47	$	—	$	87
U.S. treasuries	Level 2	4		—		—		4		4		—		—
Total cash equivalents		138		—		—		138		51		—		87
AFS Investments:
Asset-backed securities	Level 2	45		—		(1)		44		—		44		—
Corporate bonds	Level 2	131		—		(1)		130		—		102		28
Agency securities	Level 2	40		—		(1)		39		—		11		28
U.S. treasuries	Level 2	241		—		(5)		236		—		57		179
Certificate of deposit	Level 2	7		—		—		7		—		—		7
Other debt securities	Level 2	5		—		—		5		—		5		—
Total AFS Investments		$	469	$	—	$	(8)	$	461	$	—	$	219	$	242


(in millions)	September 30, 2023
One year or less	$	117
Over one year through five years	312
Over five years through ten years	12
Over ten years	20
Total fair value	$	461


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2023		2022		2023		2022
Total accrued costs, beginning of period	$	178	$	189	$	189	$	198
Incurred
Current year	13		18		47		51
Prior years	(2)		(3)		(25)		(23)
Total incurred	11		15		22		28
Paid
Current year	(4)		(4)		(6)		(6)
Prior years	(7)		(8)		(27)		(28)
Total paid	(11)		(12)		(33)		(34)
Total accrued costs, end of period	$	178	$	192	$	178	$	192


(Dollars in millions)	Annual contractual interest rate		Effective interest rate		Principal amount		Deferred issuance costs		Less: current portion		Long-term debt, noncurrent
											September 30, 2023		December 31, 2022


2029 Notes	3.50	%	3.67	%	$	500	$	(4)	$	—	$	496	$	496
2031 Notes	7.125	%	7.290	%	$	400	$	(5)	$	—	$	395	$	—



	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	755,789	755,789	77.56
Vested	(464,051)	(464,051)	76.36
Forfeited	(89,029)	(89,029)	82.57
Nonvested at September 30, 2023	1,401,270	1,401,270	$	80.02


	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 September 30, 2023	379,653	379,653	$	83.20


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share data)	2023		2022		2023		2022
Net income	$	94	$	77	$	308	$	307
Weighted average shares of common stock outstanding	57		62		59		63
Basic EPS	$	1.65	$	1.23	$	5.23	$	4.85
Net income	$	94	$	77	$	308	$	307
Weighted average shares of common stock outstanding	57		62		59		63
Dilutive effect of stock options and restricted stock units	1		1		—		1
Weighted average shares of common stock outstanding	58		63		59		64
Diluted EPS	$	1.63	$	1.22	$	5.20	$	4.81

Common stock equivalents excluded from income per diluted share because of their anti-dilutive effect	—		1		1		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)
July 1 - July 31, 2023	2,697	$	95.20	—	$	1,446
August 1 - August 31, 2023	6,034,609	$	107.00	5,981,308	$	806
September 1 - September 30, 2023	3,365,007	$	107.00	3,364,486	$	446
Total	9,402,313			9,345,794



*			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: October 25, 2023		By:	/s/ Burton M. Goldfield
			Burton M. Goldfield
			Chief Executive Officer

Date: October 25, 2023		By:	/s/ Kelly Tuminelli
			Kelly Tuminelli
			Chief Financial Officer


			CLARUS R&D SOLUTIONS, LLC

			By: /s/ Alex Warren
			Name: Alex Warren

			Title: Chief Executive Officer and President


			MANAGEYOURPEOPLE, LLC

			By: /s/ Thomas Rose
			Name: Thomas Rose

			Title: Chief Executive Officer and President


			PAYYOURPEOPLE, LLC

			By: /s/ Thomas Rose
			Name: Thomas Rose

			Title: Chief Executive Officer and President


			TRINET HR III-B, INC.

			By: /s/ Burton M. Goldfield
			Name: Burton M. Goldfield

			Title: Chief Executive Officer and President


			TRINET HR II-A, INC.

			By: /s/ Alex Warren
			Name: Alex Warren

			Title: Chief Executive Officer and President