TriNet : Announces Second Quarter 2022 Results - Form 8-K

TriNet Announces Second Quarter 2022 Results

9% Growth in Total Revenues to $1.2 Billion

17% Growth in Professional Service Revenues to $182 million

Net Income per Diluted Share of $1.35 and Adjusted Net Income per Diluted Share $1.72

DUBLIN, Calif. - July 26, 2022-TriNet Group,Inc.(NYSE:TNET),a leading provider of comprehensive human resources solutions for small and medium-size businesses,todayannouncedfinancialresultsforthe secondquarter endedJune 30, 2022. The second quarter highlights below include non-GAAP financial measures which are reconciled later in this release.

Second quarter highlights include:

•Total revenues increased 9% to $1.2 billion as compared to the same period last year.

•Professional service revenues increased 17% to $182 million as compared to the same period last year.

•Net income was $85 million, or $1.35 per diluted share, compared to net income of $91 million, or $1.37 per diluted share, in the same period last year.

•Adjusted Net Income was $108 million, or $1.72 per diluted share, compared to Adjusted Net Income of $104 million, or $1.56 per diluted share, in the same period last year.

•Adjusted EBITDA was $162 million, compared to Adjusted EBITDA of $154 million, in the same period last year.

•Finished the second quarter with over 610,000 Users across our PEO and HCM products.

•Average PEO WSEs increased 6% as compared to the same period last year, to approximately 351,000.

•Average HCM Users for the period was approximately 253,000.

•At June 30, 2022, TriNet had cash and cash equivalents of $336 million and total debt of $495 million.

"TriNet's strong second quarter financial results, delivered in the context of an increasingly difficult macroeconomic environment, reflect the strength of our customer base and our operational discipline," said Burton M. Goldfield, TriNet's President and CEO. "In the quarter, we were able to leverage three important dynamics and highlight TriNet's value to the market. First, our customers who reside in our core verticals continued to grow and add employees. Second, we started to realize the promise of the combined TriNet and TriNet Zenefits offerings as customers optimized their HR needs and moved between the two products. Finally, the Supreme Court Dobbs' ruling extended regulatory complexity to health care increasing the value of TriNet's benefits offering."

Mr. Goldfield added, "In this period of economic uncertainty and regulatory complexity, TriNet will continue to strive to act in the best interests of all of our stakeholders. We are listening to our customers, and we are leveraging our scale to create products and services that best fit their needs. We are positioned well for a strong second half, and we believe the long term secular trends remain supportive for TriNet."

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Third Quarter and Full-Year 2022 Guidance

In addition to announcing our second quarter 2022 results, we provide our third quarter and full-year 2022 guidance. Non-GAAP financial measures are reconciled later in this release. Percentages reflect the increase or (decrease) from the prior year quarter and prior year end.

Q3 2022	Full Year 2022
Low	High	Low	High
Total Revenues	7	%	8	%	8	%	9	%
Professional Service Revenues	18	%	20	%	17	%	18	%
Insurance Cost Ratio	88.5	%	90.0	%	87.0	%	86.0	%
Diluted net income per share of common stock	$	0.46	$	0.66	$	4.10	$	4.68
Adjusted Net Income per share - diluted	$	0.87	$	1.08	$	5.60	$	6.20

Quarterly Report on Form 10-Q

We anticipate filing our Quarterly Report on Form 10-Q ("Form 10-Q") for the first half of 2022 with the U.S. Securities and Exchange Commission (SEC) and making it available at http://www.trinet.com today, July 26, 2022. This press release should be read in conjunction with the Form 10-Q and the related Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Form 10-Q.

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 second quarter results for 2022 and provide second quarter and full-year financial guidance for 2022. 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: https://dpregister.come/sreg/10169096/f3ac8bao. For those who would like to join the call but have not pre-registered, they can do so by dialing [phone] 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 website for approximately one year. A telephonic replay will be available for two weeks following the conference call at [phone] conference ID: 7851836.

About TriNet

TriNet provides small and medium-size businesses (SMBs) with full-service HR solutions tailored by industry. To free SMBs from HR complexities, TriNet offers access to human capital expertise, benefits, risk mitigation and compliance, payroll, all enabled by industry leading technology capabilities. TriNet's suite of products also includes services and software-based solutions to help streamline workflows by connecting HR, Benefits, Employee Engagement, Payroll and Time & Attendance. From Main Street to Wall Street, TriNet empowers SMBs to focus on what matters most-growing their business and enabling their people. TriNet, incredible starts here. For more information, visit TriNet.com or follow us on Twitter.

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 titled "Non-GAAP Financial Measures."

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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 within the meaning of Section 21 of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among other things, TriNet's expectations and assumptions regarding: TriNet's financial guidance for the second quarter and full-year 2021 and the underlying assumptions, and the extent, length and growth impact of economic reopening efforts. Forward-looking statements are often identified by the use of words such as, but not limited to, "ability," "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "guidance," "impact," "intend," "may," "plan," "predict," "project," "seek," "should," "strategy," "target," "value," "will," "would" and similar expressions or variations. Examples of forward-looking statements include, among others, TriNet's guidance and expectations regarding future financial performance, the potential impact of the strategic initiatives executed by TriNet during the first quarter, TriNet's expectations regarding client hiring rates, the financial impact of our tender offer, and the impact of our newly expanded product offerings on future growth in TriNet's installed base. 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. Investors are cautioned not to place undue reliance upon any forward-looking statements.

Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements include: the economic, health and business disruption caused by the COVID-19 pandemic; the impact of the COVID-19 pandemic on our clients and prospects, insurance costs and operations; the impact of the COVID-19 pandemic on the laws and regulations that impact our industry and clients; our ability to manage unexpected changes in workers' compensation and health insurance claims and costs by worksite employees; our ability to mitigate the business risks we face as a co-employer; the effects of volatility in the financial and economic environment on the businesses that make up our client base and the concentration of our clients in certain geographies and industries; loss of clients for reasons beyond our control; the short-term contracts we typically use with our clients; the impact of regional or industry-specific economic an health factors on our operations; the impact of failures or limitations in the business systems we rely upon; the impact of our 2020 Recovery Credit program and 2021 Credit Program; adverse changes in our insurance coverage or our relationships with key insurance carriers; our ability to improve our services and technology to satisfy regulatory requirements and meet the expectations of our clients and manage client attrition; our ability to effectively integrate businesses we have acquired or may acquire in the future; our ability to effectively manage and improve our operational processes; our ability to attract and retain qualified personnel; the effects of increased competition and our ability to compete effectively; the impact on our business of cyber-attacks and security breaches; our ability to secure our information technology infrastructure and our confidential, sensitive and personal information; our ability to comply with constantly evolving data privacy and security laws; our ability to manage changes in, uncertainty regarding, or adverse application of the complex laws and regulations that govern our business; changing laws and regulations governing health insurance and employee benefits; our ability to be recognized as an employer of worksite employees under federal and state regulations; changes in the laws and regulations that govern what it means to be an employer, employee or independent contractor; our ability to comply with the laws and regulations that govern PEOs and other similar industries; the outcome of existing and future legal and tax proceedings; fluctuation in our results of operation and stock price due to factors outside of our control, such as the volume and severity of our workers' compensation and health insurance claims and the amount and timing of our insurance costs, operating expenses and capital expenditure requirements; our ability to comply with the restrictions of our credit facility and meet our debt obligations; and the impact of concentrated ownership in our stock. Any of these factors could cause our actual results to differ materially from our anticipated results.

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Further information on risks that could affect TriNet's results is included in our filings with the SEC, including under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, 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 [phone]. 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	Renee Brotherton
TriNet	TriNet
[e-mail]	[e-mail]
[phone]	[phone]

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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,
(in millions, except per share and Operating Metrics data)	2022	2021	% Change	2022	2021	% Change
Income Statement Data:
Total revenues	$	1,200	$	1,100	9	%	$	2,418	$	2,160	12	%
Operating income	119	121	(2)	323	259	25
Net income	85	91	(7)	230	192	20
Diluted net income per share of common stock	1.35	1.37	(1)	3.58	2.87	25
Non-GAAP measures (1):
Adjusted EBITDA	162	154	5	404	317	27
Adjusted Net income	108	104	4	276	215	28
Operating Metrics:
Insurance Cost Ratio	84	%	85	%	(1)	%	82	%	84	%	(2)	%
Average WSEs	351,366	332,719	6	347,306	327,007	6
Total WSEs at period end	357,855	339,935	5	357,855	339,935	5
Average HCM Users	252,565	N/A	N/A	252,969	N/A	N/A

(1) Refer to Non-GAAP measures definitions and reconciliations from GAAP measures under the heading "Non-GAAP Financial Measures".

(in millions)	June 30, 2022	December 31, 2021	% Change
Balance Sheet Data:
Working capital	$	374	700	(47)	%
Total assets	3,044	3,309	(8)
Debt	495	495	-
Total stockholders' equity	763	881	(13)

Six Months Ended June 30,
(in millions)	2022	2021	% Change
Cash Flow Data:
Net cash provided by (used in) operating activities	$	125	$	(190)	(166)	%
Net cash used in investing activities	(191)	(135)	41
Net cash provided by (used in) financing activities	(385)	43	(995)
Non-GAAP measure (1):
Corporate Operating Cash Flows	293	240	22

(1) Refer to Non-GAAP measures definitions and reconciliations from GAAP measures under the heading "Non-GAAP Financial Measures".

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FINANCIAL STATEMENTS

TRINET GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended June 30,	Six Months Ended June 30,
(in millions except per share data)	2022	2021	2022	2021
Professional service revenues	$	182	$	156	$	376	$	309
Insurance service revenues	1,018	944	2,042	1,851
Total revenues	1,200	1,100	2,418	2,160
Insurance costs	852	798	1,675	1,549
Cost of providing services	76	66	146	130
Sales and marketing	62	45	107	91
General and administrative	55	40	102	76
Systems development and programming	20	11	36	24
Depreciation and amortization of intangible assets	16	19	29	31
Total costs and operating expenses	1,081	979	2,095	1,901
Operating income	119	121	323	259
Other income (expense):
Interest expense, bank fees and other	(5)	(5)	(11)	(10)
Interest income	2	1	3	3
Income before provision for income taxes	116	117	315	252
Income taxes	31	26	85	60
Net income	$	85	$	91	$	230	$	192
Other comprehensive loss, net of income taxes	(3)	-	(11)	(1)
Comprehensive income	$	82	$	91	$	219	$	191
Net income per share:
Basic	$	1.36	$	1.38	$	3.62	$	2.91
Diluted	$	1.35	$	1.37	$	3.58	$	2.87
Weighted average shares:
Basic	62	66	64	66
Diluted	63	67	64	67

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FINANCIAL STATEMENTS

TRINET GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions)	June 30, 2022	December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	336	$	612
Investments	120	135
Restricted cash, cash equivalents and investments	1,028	1,195
Accounts receivable, net	9	15
Unbilled revenue, net	309	324
Prepaid expenses, net	62	67
Other current assets	93	91
Total current assets	1,957	2,439
Restricted cash, cash equivalents and investments, noncurrent	149	166
Investments, noncurrent	159	168
Property, equipment and software, net	84	79
Operating lease right-of-use asset	45	42
Goodwill	430	294
Other intangible assets, net	95	6
Other assets	125	115
Total assets	$	3,044	$	3,309
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other current liabilities	$	108	$	86
Client deposits and other client liabilities	74	97
Accrued wages	568	369
Accrued health insurance costs, net	151	174
Accrued workers' compensation costs, net	54	55
Payroll tax liabilities and other payroll withholdings	597	929
Operating lease liabilities	15	11
Insurance premiums and other payables	16	18
Total current liabilities	1,583	1,739
Long-term debt, noncurrent	495	495
Accrued workers' compensation costs, noncurrent, net	127	135
Deferred taxes	22	11
Operating lease liabilities, noncurrent	45	41
Other non-current liabilities	9	7
Total liabilities	2,281	2,428
Stockholders' equity:
Preferred stock	-	-
Common stock and additional paid-in capital	861	808
Retained earnings (Accumulated deficit)	(86)	74
Accumulated other comprehensive loss	(12)	(1)
Total stockholders' equity	763	881
Total liabilities and stockholders' equity	$	3,044	$	3,309

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FINANCIAL STATEMENTS

TRINET GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,
(in millions)	2022	2021
Operating activities
Net income	$	230	$	192
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	46	45
Stock based compensation	30	24
Amortization of ROU asset, lease modification and impairment	6	6
Other	3	2
Changes in operating assets and liabilities:
Accounts receivable, net	8	10
Unbilled revenue, net	16	(100)
Other assets and prepaid expenses, net	(17)	(37)
Accounts payable and other liabilities	2	26
Client deposits and other client liabilities	(23)	(2)
Accrued wages	196	197
Accrued health insurance costs, net	(23)	(17)
Accrued workers' compensation costs, net	(9)	(7)
Payroll taxes payable and other payroll withholdings	(332)	(523)
Operating lease liabilities	(8)	(6)
Net cash provided by (used in) operating activities	125	(190)
Investing activities
Purchases of marketable securities	(157)	(267)
Proceeds from sale and maturity of marketable securities	175	149
Purchases of property and equipment	(26)	(17)
Acquisition of Zenefits, net of cash acquired	(183)	-
Net cash used in investing activities	(191)	(135)
Financing activities
Repurchase of common stock	(382)	(74)
Proceeds from issuance of common stock	5	5
Awards effectively repurchased for required employee withholding taxes	(8)	(9)
Payment of long-term financing fees	-	(2)
Payment of debt issuance costs	-	(7)
Proceeds from issuance of 2029 Notes	-	500
Repayment of debt	-	(370)
Net cash provided by (used in) financing activities	(385)	43
Net decrease in cash and cash equivalents, unrestricted and restricted	(451)	(282)
Cash and cash equivalents, unrestricted and restricted:
Beginning of period	1,738	1,643
End of period	$	1,287	$	1,361
Supplemental disclosures of cash flow information
Interest paid	$	9	$	2
Income taxes (refund) paid, net	$	37	$	45

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FINANCIAL STATEMENTS

Non-GAAP Financial Measures

In addition to the selected financial measures presented in accordance with U.S. Generally Accepted Accounting Principles (GAAP), we monitor other non-GAAP financial measures that we use to manage our business, to make planning decisions, to allocate resources and to use 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 information that we use 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 from, superior to, or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.

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, 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, such as transaction and integration costs, and 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, net, - non-cash interest expense (2), - 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-recurring costs and 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.

(1) Non-GAAP effective tax rate is 25.5% for the second quarters of 2022 and 2021, which excludes the income tax impact from stock-based compensation, changes in uncertain tax positions, and nonrecurring benefits or expenses from federal legislative changes.

(2) Non-cash interest expense represents amortization and write-off of our debt issuance costs and loss on a terminated derivative.

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FINANCIAL STATEMENTS

Reconciliation of GAAP to Non-GAAP Measures

The table below presents a reconciliation of net income to Adjusted EBITDA:

Three Months Ended June 30,	Six Months Ended June 30,
(in millions)	2022	2021	2022	2021
Net income	$	85	$	91	$	230	$	192
Provision for income taxes	31	26	85	60
Stock based compensation	18	13	30	24
Interest expense, bank fees and other	5	5	11	10
Depreciation and amortization of intangible assets ¹	16	19	31	31
Transaction and integration costs	7	-	17	-
Adjusted EBITDA	$	162	$	154	$	404	$	317
Adjusted EBITDA Margin	13.5	%	14.0	%	16.7	%	14.7	%

(1) Amount includes amortization of cloud computing arrangements included in operating expenses.

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 millions, except per share data)	2022	2021	2022	2021
Net income	$	85	$	91	$	230	$	192
Effective income tax rate adjustment	-	(4)	5	(4)
Stock based compensation	18	13	30	24
Amortization of intangible assets	5	9	8	10
Non-cash interest expense	1	1	1	3
Transaction and integration costs	7	-	17	-
Income tax impact of pre-tax adjustments	(8)	(6)	(15)	(10)
Adjusted Net Income	$	108	$	104	$	276	$	215
GAAP weighted average shares of common stock - diluted	63	67	64	67
Adjusted Net Income per share - diluted	$	1.72	$	1.56	$	4.30	$	3.20

The table below presents a reconciliation of net cash provided by (used in) operating activities to Corporate Operating Cash flows:

Six Months Ended June 30,
(in millions)	2022	2021
Net cash provided by (used in) operating activities	$	125	$	(190)
Less: Change in WSE related other current assets	9	(96)
Less: Change in WSE related liabilities	(177)	(334)
Net cash provided by (used in) operating activities - WSE	$	(168)	$	(430)
Net cash provided by operating activities - Corporate	$	293	$	240

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FINANCIAL STATEMENTS

Reconciliation of GAAP to Non-GAAP Measures for the third quarter and full-year 2022 guidance.

Low and high percentages represent increases (decreases) from the same period in the previous year and excludes transaction and integration cost percentages as there is no comparative amount in the second quarter and full year of 2021, respectively, and no percentages can be provided. Adjusted Net Income excludes transaction and integration costs for 2022.

The table below presents a reconciliation of net income to Adjusted Net Income and Adjusted Net Income per share - diluted:

Q3 2021	Q3 2022 Guidance	FY 2021	Year 2022 Guidance
(in millions, except per share data)	Actual	Low	High	Actual	Low	High
Net income	$	77	(63)	%	(46)	%	$	338	(22)	%	(11)	%
Effective income tax rate adjustment	-	8	(34)	(10)	(124)	(135)
Stock based compensation	13	37	37	50	33	33
Amortization of intangible assets	1	355	355	12	48	48
Non-cash interest expense	-	-	-	3	(63)	(63)
Income tax impact of pre-tax adjustments	(4)	151	151	(17)	96	96
Adjusted Net Income	$	87	(37)	%	(22)	%	$	376	(4)	%	6	%
GAAP weighted average shares of common stock - diluted	67	67
Adjusted Net Income per share - diluted	$	1.31	$	0.87	$	1.08	$	5.64	$	5.60	$	6.20

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