TriNet Announces Third Quarter 2017 Results

Contacts:

Investors:

Media:

Alex Bauer

Fatima Afzal

TriNet

TriNet

Investorrelations@TriNet.com

Fatima.Afzal@TriNet.com

(510) 875-7201

(510) 875-7265

Three Months Ended
September 30,

Nine Months Ended
September 30,

Percent Change

(in thousands,
except per share and operating metrics data)

2017

2016

2017

2016

Q3 2017
vs. 2016

YTD 2017
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
stock

0.60

0.20

1.57

0.53

200

196

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
processed (in millions)

8,061

7,703

25,835

24,916

5%

4%

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)

—

Nine Months Ended
September 30,

Percent

(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,
2017

December 31,
2016

Percent
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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
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 
     of intangible assets)

49,989

50,142

157,264

139,881

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)

September 30,
2017

December 31,
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)

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 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 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 costs.

• Is a component of Net Service 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:

- income tax provision,
- interest expense,
- 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 not directly resulting from our core operations or 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.

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.

Three Months Ended
September 30,

Change
2017 vs. 2016

Nine Months Ended
September 30,

Change
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%

Three Months Ended
September 30,

Change
2017 vs. 2016

Nine Months Ended
September 30,

Change
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%

Three Months Ended
September 30,

Nine Months Ended
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

Three Months Ended
September 30,

Nine Months Ended
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