TriNet Announces Third Quarter 2017 Results
SAN LEANDRO, Calif., Nov. 2, 2017 /PRNewswire/ -- TriNet Group, Inc. (NYSE: TNET), a leading provider of comprehensive human resources solutions for small to midsize businesses, today announced financial results for the third quarter ended September 30, 2017.
Third quarter highlights include:
-- GAAP Total revenues increased 6% to $819.3 million, while Net Service
Revenues increased 28% to $205.9 million, each as compared to the same
period last year.
-- GAAP Net income was $42.8 million, or $0.60 per diluted share, compared
to net income of $14.6 million, or $0.20 per diluted share, in the same
period last year.
-- Adjusted Net Income was $40.3 million, or $0.56 per diluted share,
compared to Adjusted Net Income of $20.8 million, or $0.29 per diluted
share, in the same period last year.
-- Adjusted EBITDA was $80.3 million, a 77% increase from the same period
last year.
-- Total WSEs at September 30, 2017 decreased 3% from September 30, 2016,
to approximately 325,000.
-- Average WSEs decreased 2% as compared to the same period last year, to
approximately 324,000.
"We delivered strong financial results during the third quarter as we continued to execute our strategic operational plan," said Burton M. Goldfield, TriNet's President and CEO. "By pairing our technology platform with our deep industry-specific knowledge, we are developing tailored vertical products that provide our clients with an exceptional HR experience. We remain focused on leveraging our scale for the benefit of our clients, while maximizing our ability to deliver profitable growth for our shareholders."
GAAP Total revenues for the third quarter of 2017 increased 6% from the third quarter of 2016 to $819.3 million, while Net Service Revenues increased 28% from the third quarter of 2016 to $205.9 million. For the third quarter of 2017, Net Service Revenues consisted of professional service revenues of $112.5 million and Net Insurance Service Revenues of $93.4 million. Net Insurance Service Revenues for the third quarter of 2017 consisted of insurance service revenues of $706.8 million, less insurance costs of $613.4 million. Professional service revenues for the third quarter of 2017 increased 2%, and Net Insurance Service Revenues increased 85%, in each case, compared to the third quarter of 2016.
At September 30, 2017, TriNet had cash and cash equivalents of $263.5 million and total debt of $431.6 million.
Quarterly Report on Form 10-Q
We anticipate filing our Quarterly Report on Form 10-Q ("Form 10-Q") for the three and nine months ended September 30, 2017 today, November 2, 2017, and it will be available at www.trinet.com. This press release should be read in conjunction with the Form 10-Q and the related Notes to Condensed 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 quarterly results and its outlook for the third quarter and full year 2017. 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: http://dpregister.com/10111852. For those who would like to join the call but have not pre-registered, they can do so by dialing +1 (412) 317-5426 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 site for approximately one year. A telephonic replay will be available for one week following the conference call at +1 (412) 317-0088 conference ID: 10111852.
About TriNet
TriNet is a leading provider of a comprehensive human resources solutions for small to midsize businesses, or SMBs. We enhance business productivity by enabling our clients to outsource their human resources, or HR, function to a single strategic partner, which allows them to focus on operating and growing their core businesses. Our HR solutions include services such as payroll processing, human capital consulting, employment regulation compliance and employee benefits, including health insurance, retirement plans and workers' compensation insurance. Our services are delivered by our expert team of HR professionals and enabled by our technology platform, with online and mobile tools, which allows our clients and their employees to efficiently conduct their HR transactions anytime and anywhere. For more information, please visit http://www.trinet.com.
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 of the tables titled "Non-GAAP Financial Measures."
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 including, among other things, TriNet's expectations regarding: its ability to execute its strategic operational plan, its ability to successfully leverage its scale and its ability to deliver profitable growth. 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.
Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements include: risks associated with changes in, uncertainty regarding, or adverse application of complex laws and regulations that govern our business; our ability to be recognized as an employer of worksite employees under federal and state regulations; our ability to maintain the security of our information technology (IT) infrastructure against cyber-attacks and security breaches; our ability to manage unexpected changes in workers' compensation and health insurance claims by worksite employees; unexpected changes in the state and federal unemployment tax rates applicable to our clients; fluctuation in our results of operation as a result of numerous factors, many of which are outside of our control, such as the volume and severity of our workers' compensation and health insurance claims; failures or limitations in our business systems; our ability to remediate the material weaknesses in our internal controls over financial reporting; our ability to effectively acquire and integrate new businesses; the effects of volatility in the financial and economic environment on small and mid-sized businesses; our ability to effectively manage our growth; the effects of increased competition and our ability to compete effectively; market acceptance of our vertical strategy; the outcome of existing and future legal proceedings; changes in our income tax positions or adverse outcomes from on-going and future audits; adverse changes in our relationships with key vendors, in particular our benefit and workers' compensation carriers; our ability to manage client attrition; and our ability to comply with the restrictions of our credit facility and meet our debt obligations.
Further information on risks that could affect TriNet's results is included in our filings with the U.S. Securities and Exchange Commission (SEC), including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the SEC, 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 (510) 875-7201. 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 Fatima Afzal
TriNet TriNet
Investorrelations@TriNet.com Fatima.Afzal@TriNet.com
(510) 875-7201 (510) 875-7265
TriNet, Ambitions Realized and the TriNet logo are registered trademarks of TriNet.
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 Nine Months Ended Percent Change
September 30, September 30,
(in thousands, 2017 2016 2017 2016 Q3 2017 YTD 2017
except per share and operating metrics data) vs. 2016 vs. 2016
-------------------------------------------
Income Statement Data:
Total revenues $819,293 $770,457 $2,427,444 $2,249,242 6% 8%
Operating income 62,759 28,972 169,081 81,241 117 108
Net income 42,836 14,581 111,524 38,440 194 190
Diluted net income per share of common 0.60 0.20 1.57 0.53 200 196
stock
Non-GAAP measures (1):
Net Service Revenues (1) 205,896 161,035 605,870 473,458 28 28
Net Insurance Service Revenues (1) 93,366 50,542 264,577 140,969 85 88
Adjusted EBITDA (1) 80,283 45,399 215,998 130,154 77 66
Adjusted Net income (1) 40,297 20,800 108,565 59,798 94 82
---------------------- ------ ------ ------- ------ --- ---
Operating Metrics:
Total WSEs payroll and payroll taxes 8,061 7,703 25,835 24,916 5% 4%
processed (in millions)
Total WSEs at period end 325,138 333,778 325,138 333,778 (3) (3)
Average WSEs 324,043 331,652 325,347 324,652 (2) -
------------ ------- ------- ------- ------- --- ---
(1) Refer to Non-GAAP Financial Measures section below for definitions and reconciliations from GAAP measures.
Nine Months Ended Percent
September 30,
(in thousands, except operating metrics data) 2017 2016 Change
-------------------------------------------- ---- ----
Cash Flow Data:
Net cash provided by operating activities 158,951 80,699 97%
Net cash used in investing activities (14,763) (17,411) (15)
Net cash used in financing activities (65,063) (68,998) (6)
------------------------------------- ------- ------- ---
(in thousands) September 30, December 31, Percent
2017 2016 Change
--- ---- ----
Balance Sheet Data:
Cash and cash equivalents $263,527 $184,004 43%
Working capital 186,842 156,771 19
Total assets 1,836,925 2,095,143 (12)
Notes and capital leases payable 431,690 459,054 (6)
Total liabilities 1,705,066 2,060,553 (17)
Total stockholders' equity 131,859 34,590 281
-------------------------- ------- ------ ---
TRINET GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except share and per share data) 2017 2016 2017 2016
---------------------------------------------- ---- ---- ---- ----
Professional service revenues $112,530 $110,493 $341,293 $332,489
Insurance service revenues 706,763 659,964 2,086,151 1,916,753
------- ------- --------- ---------
Total revenues 819,293 770,457 2,427,444 2,249,242
-------------- ------- ------- --------- ---------
Insurance costs 613,397 609,422 1,821,574 1,775,784
Cost of providing services (exclusive of depreciation and amortization 49,989 50,142 157,264 139,881
of intangible assets)
Sales and marketing 44,407 41,470 139,538 133,978
General and administrative 28,505 22,477 82,031 69,078
Systems development and programming 11,182 8,124 33,637 20,970
Amortization of intangible assets 1,300 4,662 3,966 14,647
Depreciation 7,754 5,188 20,353 13,663
----- ----- ------ ------
Total costs and operating expenses 756,534 741,485 2,258,363 2,168,001
---------------------------------- ------- ------- --------- ---------
Operating income 62,759 28,972 169,081 81,241
Other income (expense):
Interest expense and bank fees (5,425) (5,597) (15,030) (15,677)
Other, net 770 313 1,192 434
---------- --- --- ----- ---
Income before provision for income taxes 58,104 23,688 155,243 65,998
Income tax expense 15,268 9,107 43,719 27,558
------ ----- ------ ------
Net income $42,836 $14,581 $111,524 $38,440
---------- ------- ------- -------- -------
Other comprehensive income, net of tax 151 (125) 231 300
Comprehensive income $42,987 $14,456 $111,755 $38,740
-------------------- ------- ------- -------- -------
Net income per share:
Basic $0.62 $0.21 $1.62 $0.55
Diluted $0.60 $0.20 $1.57 $0.53
Weighted average shares:
Basic 69,498,218 70,187,989 69,016,054 70,478,266
Diluted 71,499,591 71,964,603 71,138,743 72,126,060
------- ---------- ---------- ---------- ----------
TRINET GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands) September 30, December 31,
2017 2016
--- ---- ----
Assets
Current assets:
Cash and cash equivalents $263,527 $184,004
Restricted cash and cash equivalents 15,445 14,569
Prepaid income taxes - 42,381
Prepaid expenses 11,013 10,784
Other current assets 2,360 2,145
Worksite employee related assets 941,213 1,281,471
-------------------------------- ------- ---------
Total current assets 1,233,558 1,535,354
Workers' compensation collateral receivable 39,931 31,883
Restricted cash, cash equivalents and investments 160,207 130,501
Property and equipment, net 68,470 58,622
Goodwill 289,207 289,207
Other intangible assets, net 27,108 31,074
Other assets 18,444 18,502
------ ------
Total assets $1,836,925 $2,095,143
------------ ---------- ----------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $28,995 $22,541
Accrued corporate wages 31,814 30,937
Notes and capital leases payable, net 36,718 36,559
Other current liabilities 14,321 12,551
Worksite employee related liabilities 934,868 1,275,995
------------------------------------- ------- ---------
Total current liabilities 1,046,716 1,378,583
Notes and capital leases payable, net, noncurrent 394,972 422,495
Workers' compensation loss reserves 157,999 159,301
Deferred income taxes 90,845 92,373
Other liabilities 14,534 7,801
------ -----
Total liabilities 1,705,066 2,060,553
----------------- --------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock - -
Common stock and additional paid-in capital 567,971 535,132
Accumulated deficit (435,739) (499,938)
Accumulated other comprehensive loss (373) (604)
---- ----
Total stockholders' equity 131,859 34,590
-------------------------- ------- ------
Total liabilities and stockholders' equity $1,836,925 $2,095,143
------------------------------------------ ---------- ----------
TRINET GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
(in thousands) 2017 2016
------------- ---- ----
Operating activities
Net income $111,524 $38,440
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 26,177 27,810
Stock-based compensation 21,406 20,169
Changes in operating assets and liabilities:
Restricted cash and cash equivalents (45,570) (31,409)
Prepaid income taxes 42,448 386
Prepaid expenses and other current assets (961) (5,253)
Workers' compensation collateral receivable (8,048) (11,374)
Other assets 925 438
Accounts payable 5,505 4,538
Accrued corporate wages and other current liabilities 2,331 4,548
Workers' compensation loss reserves and other non-current liabilities 3,574 33,510
Worksite employee related assets 340,767 525,841
Worksite employee related liabilities (341,127) (526,945)
-------- --------
Net cash provided by operating activities 158,951 80,699
Investing activities
Acquisitions of businesses - (300)
Purchases of marketable securities - (14,959)
Proceeds from maturity of marketable securities 14,447 25,790
Acquisitions of property and equipment (29,210) (27,942)
------- -------
Net cash used in investing activities (14,763) (17,411)
Financing activities
Repurchase of common stock (39,347) (43,747)
Proceeds from issuance of common stock on exercised options 8,678 3,584
Proceeds from issuance of common stock on employee stock purchase plan 2,441 2,304
Awards effectively repurchased for required employee withholding taxes (8,100) (2,672)
Proceeds from issuance of notes payable - 57,978
Payments for extinguishment of debt - (57,563)
Repayment of notes and capital leases payable (28,735) (27,506)
Payment of debt issuance costs - (1,376)
Net cash used in financing activities (65,063) (68,998)
Effect of exchange rate changes on cash and cash equivalents 398 90
--- ---
Net increase in cash and cash equivalents 79,523 (5,620)
Cash and cash equivalents at beginning of period 184,004 166,178
------- -------
Cash and cash equivalents at end of period $263,527 $160,558
------------------------------------------ -------- --------
Supplemental disclosures of cash flow information
-------------------------------------------------
Interest paid $12,186 $11,651
Income taxes paid (refunded), net (138) 27,650
--------------------------------- ---- ------
Supplemental schedule of noncash investing and financing activities
-------------------------------------------------------------------
Payable for purchase of property and equipment $2,450 $1,363
---------------------------------------------- ------ ------
Non-GAAP Financial Measures
In addition to financial measures presented in accordance with GAAP, we monitor other non-GAAP financial measures that we use to manage our business, make planning decisions, allocate resources and 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 useful information that we use in order 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, 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
---------------- ---------- ----------------------
Net Service Revenues -- Sum of professional service revenues -- Provides a comparable basis of
and Net Insurance Service Revenues, or revenues on a net basis.
total revenues less insurance costs. Professional service revenues are
represented 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 revenues less insurance -- Is a component of Net Service
costs. Revenues.
-- Provides a comparable basis of
revenues on a net basis.
Professional service revenues are
represented 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.
--- -----------------------------------
Adjusted EBITDA -- Net income, excluding the effects of: -- 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 not directly resulting
from our core operations or
indicative of our ongoing
operations.
- income tax provision,
- interest expense,
- depreciation,
- amortization of intangible assets, and -- Enhances comparisons to prior
periods and, accordingly,
facilitates the development of
future projections and earnings
growth prospects.
- stock-based compensation expense.
-- Provides a measure, among others,
used in the determination of
incentive compensation for
management.
--- -----------------------------------
Adjusted Net Income -- Net income, excluding the effects of: -- 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.
- 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.
--- ----------------------------------------
(1) We have adjusted the non-GAAP effective
tax rate to 40.5% for 2017 from 42.5%
for 2016, due to a decrease in state
income taxes from an increase in
excludable income for state income tax
purposes. These non-GAAP effective tax
rates exclude the income tax impact
from stock-based compensation and
changes in uncertain tax positions.
(2) Non-cash interest expense represents
amortization and write-off of our debt
issuance costs.
Reconciliation of GAAP to Non-GAAP Measures
The table below presents a reconciliation of Total revenues to Net Service Revenues:
Three Months Ended Change Nine Months Ended Change
September 30, 2017 vs. 2016 September 30, 2017 vs. 2016
------------- ------------- -------------
(in thousands) 2017 2016 $ % 2017 2016 $ %
------------- ---- ---- --- ---- ---- ---
Total revenues $819,293 $770,457 $48,836 6% $2,427,444 $2,249,242 $178,202 8%
Less: Insurance costs 613,397 609,422 3,975 1 1,821,574 1,775,784 45,790 3
------- ------- --------- ---------
Net Service Revenues $205,896 $161,035 $44,861 28% $605,870 $473,458 $132,412 28%
-------------------- -------- -------- ------- --- -------- -------- -------- ---
The table below presents a reconciliation of Insurance service revenues to Net Insurance Service Revenues:
Three Months Ended Change Nine Months Ended Change
September 30, 2017 vs. 2016 September 30, 2017 vs. 2016
------------- ------------- -------------
(in thousands) 2017 2016 $ % 2017 2016 $ %
------------- ---- ---- --- ---- ---- ---
Insurance service revenues $706,763 $659,964 $46,799 7% $2,086,151 $1,916,753 $169,398 9%
Less: Insurance costs 613,397 609,422 3,975 1 1,821,574 1,775,784 45,790 3
------- ------- --------- ---------
Net Insurance Service Revenues $93,366 $50,542 $42,824 85% $264,577 $140,969 $123,608 88%
------------------------------ ------- ------- ------- --- -------- -------- -------- ---
The table below presents a reconciliation of Net income to Adjusted EBITDA:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------
(in thousands) 2017 2016 2017 2016
------------- ---- ---- ---- ----
Net income $42,836 $14,581 $111,524 $38,440
Provision for income taxes 15,268 9,107 43,719 27,558
Stock-based compensation 7,700 6,264 21,406 20,169
Interest expense and bank fees 5,425 5,597 15,030 15,677
Depreciation 7,754 5,188 20,353 13,663
Amortization of intangible assets 1,300 4,662 3,966 14,647
----- ----- ----- ------
Adjusted EBITDA $80,283 $45,399 $215,998 $130,154
--------------- ------- ------- -------- --------
The table below presents a reconciliation of Net income to Adjusted Net Income and Adjusted Net Income per share - diluted:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------
(in thousands) 2017 2016 2017 2016
------------- ---- ---- ---- ----
Net income $42,836 $14,581 $111,524 $38,440
Effective income tax rate adjustment (8,264) (960) (19,154) (491)
Stock-based compensation 7,700 6,264 21,406 20,169
Amortization of intangible assets 1,300 4,662 3,966 14,647
Non-cash interest expense 622 1,559 1,846 3,183
Income tax impact of pre-tax adjustments (3,897) (5,306) (11,023) (16,150)
------ ------ ------- -------
Adjusted Net Income $40,297 $20,800 $108,565 $59,798
------------------- ------- ------- -------- -------
GAAP Weighted average shares of common stock - diluted 71,500 71,965 71,139 72,126
Adjusted Net Income per share - diluted $0.56 $0.29 $1.53 $0.83
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SOURCE TriNet Group, Inc.
