TriNet Announces Third Quarter Fiscal 2014 Results

SAN LEANDRO, Calif., Nov. 4, 2014 /PRNewswire/ -- TriNet Group, Inc. (NYSE: TNET), a leading provider of a comprehensive human resources solution for small to medium-sized businesses, today announced financial results for the third quarter of 2014. Highlights include:

  • Total revenues for the third quarter increased 24% to $556.0 million and Net Service Revenues increased 22% to $127.8 million from the same period last year.
  • Total Worksite Employees (WSEs) at September 30, 2014 increased 25% from September 30, 2013, to approximately 273,000.
  • Net income for the third quarter was $0.7 million, or $0.01 per diluted share, compared to a net loss of $7.7 million, or $(0.60) per diluted share, in the same period last year.
  • Adjusted Net Income for the third quarter was $20.2 million, or $0.28 per diluted share on a pro forma basis, compared to Adjusted Net Income of $9.3 million, or $0.13 per diluted share, in the same period last year.
  • Adjusted EBITDA for the third quarter was $41.5 million, a 50% increase from the same period last year.

"Our third quarter results highlight the unique value delivered by our bundled HR solution and continued strong execution of our strategic plan," said Burton M. Goldfield, TriNet's President and CEO.  "The momentum generated in the first half of the year has continued into the third quarter as our growing professional salesforce drives client adoption of our solutions across our target verticals.  With a strong sales engine, disciplined operating strategy and proven solution offering, we believe we're well positioned to drive robust returns in a large, underpenetrated market of small and medium-sized businesses facing increasing HR complexities."

Results for the third quarter of 2014 reflect the 25% growth in WSEs as TriNet continued to leverage its growing salesforce to increase penetration of targeted customer verticals.  TriNet's total revenues increased 24% to $556.0 million, while Net Service Revenues increased 22% to $127.8 million in the third quarter of 2014.  Net Service Revenues consisted of professional service revenues of $86.9 million and Net Insurance Service Revenues of $40.9 million.  Net Insurance Service Revenues consisted of insurance service revenues of $469.1 million, less insurance costs of $428.2 million.  Professional service revenues increased 15% and Net Insurance Service Revenues increased 41% over the third quarter of 2013. TriNet ended the third quarter of 2014 with 391 Total Sales Representatives, up from 301 at the end of the third quarter of 2013.

At September 30, 2014, TriNet had cash and equivalents of $98.0 million and total debt of $550.2 million.

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 the outlook for the full 2014 fiscal year. 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/10054271. For those who would like to join the call but have not pre-registered, they can do so by dialing +1 (412) 902-6510 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: 10054271.

About TriNet
TriNet is a leading provider of a comprehensive human resources solution for small to medium-sized businesses, or SMBs. We enhance business productivity by enabling our clients to outsource their human resources, or HR, function to one strategic partner and allowing them to focus on operating and growing their core businesses. Our HR solution includes services such as payroll processing, human capital consulting, employment law 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 proprietary, cloud-based technology platform, which allows our clients and their employees to efficiently conduct their HR transactions anytime and anywhere.

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 Results."

Forward-Looking Statements
This press release contains, and statements made during the above referenced conference call will contain, forward-looking statements including, among other things, TriNet's expectations regarding the growth of its salesforce and its customer base; its ability to generate returns through penetration of the SMB market; and future total revenues, Net Service Revenues, professional service revenues, insurance service revenues, Net Insurance Service Revenues, expenses, net income, Adjusted Net Income and Adjusted EBITDA. 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 any 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 the market acceptance of outsourcing the HR function, and the anticipated benefits associated with the use of a bundled HR solution; our ability to continue to expand our direct sales force and the efficacy of our sales and marketing efforts; our ability to gain new clients, and our clients' ability to grow and gain more employees; our ability to effectively acquire and integrate new businesses; the effects of seasonal trends on our results of operations; changes to and our ability to comply with laws and regulations, including both those applicable to the co-employment relationship as well as those applicable to our clients' businesses and their employees; the implementation of the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act, and its application to the co-employer relationship; our ability to effectively manage our growth; the effects of increased competition and our ability to compete effectively; 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 Securities and Exchange Commission, including our Quarterly Report on Form 10-Q filed with the Commission on August 6, 2014, which could cause actual results to vary from expectations. Except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.

 

Contacts:


Investors:

Media:

Alex Bauer

Jock Breitwieser

TriNet

TriNet

Investorrelations@TriNet.com

Jock.Breitwieser@TriNet.com

(510) 875-7201

(510) 875-7250

 

TriNet, Ambitions Realized and the TriNet logo are registered trademarks of TriNet. All other trademarks, service marks, registered trademarks, or registered service marks are the property of their respective owners.

 


TriNet Group, Inc. and Subsidiaries


CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except share and per share data)


(Unaudited)











Three Months Ended September 30,



Nine Months Ended September 30,




2014



2013



2014



2013


Professional service revenues


$

86,864



$

75,641



$

251,999



$

195,952


Insurance service revenues



469,087




372,476




1,337,870




966,667


Total revenues



555,951




448,117




1,589,869




1,162,619


Costs and operating expenses:

















Insurance costs



428,184




343,464




1,209,536




866,593


Cost of providing services (exclusive of depreciation and amortization of intangible assets)



32,575




27,556




100,252




74,042


Sales and marketing



37,396




31,367




104,225




79,387


General and administrative



13,766




14,593




40,785




39,821


Systems development and programming costs



6,776




5,052




19,235




15,140


Amortization of intangible assets



12,743




15,442




39,559




35,926


Depreciation



3,265




3,356




9,725




8,908


Total costs and operating expenses



534,705




440,830




1,523,317




1,119,817


Operating income



21,246




7,287




66,552




42,802


Other income (expense):

















Interest expense and bank fees



(18,462)




(19,902)




(49,174)




(32,091)


Other, net



179




75




257




309


Income (loss) before provision for (benefit from) income taxes



2,963




(12,540)




17,635




11,020


Provision for (benefit from) income taxes



2,238




(4,800)




9,149




3,880


Net income (loss)


$

725



$

(7,740)



$

8,486



$

7,140


Net income (loss) per share:

















Basic


$

0.01



$

(0.60)



$

0.13



$

0.14


Diluted


$

0.01



$

(0.60)



$

0.13



$

0.13


Weighted average shares:

















Basic



69,134,908




12,835,295




51,654,608




11,501,581


Diluted



72,954,352




12,835,295




55,003,651




15,196,398


 

TriNet Group, Inc. and Subsidiaries


CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands)


(Unaudited)









September 30,



December 31,



2014



2013


Assets

(unaudited)






Current assets:








Cash and cash equivalents

$

97,952



$

94,356


Restricted cash


14,538




15,267


Prepaid income taxes


32,973




3,331


Deferred income taxes


68




68


Prepaid expenses


9,636




7,849


Deferred loan costs and other current assets


5,273




5,238


Worksite employee related assets


697,047




772,437


Total current assets


857,487




898,546


Workers compensation receivable


38,142




25,381


Restricted cash and investments


62,454




36,968


Property and equipment, net


32,353




25,690


Goodwill


288,857




288,857


Other intangible assets, net


94,461




134,020


Deferred income taxes


7,621




1,000


Deferred loan costs and other assets


11,930




24,276


Total assets

$

1,393,305



$

1,434,738


Liabilities and stockholders' deficit








Current liabilities:








Accounts payable

$

11,422



$

7,315


Accrued corporate wages


31,538




26,264


Deferred income taxes


73,121




16,535


Current portion of notes payable and borrowings under capital leases


20,694




6,669


Other current liabilities


12,736




9,078


Worksite employee related liabilities


690,703




767,624


Total current liabilities


840,214




833,485


Notes payable and borrowings under capital leases, less current portion


529,542




812,208


Workers compensation liabilities


67,273




45,309


Deferred income taxes





8,888


Other liabilities


5,189




5,210


Total liabilities


1,442,218




1,705,100


Commitments and contingencies








Series G convertible preferred stock, $.0001 per share stated value (aggregate liquidation preference of $59,306); no shares authorized, issued and outstanding at September 30, 2014; 5,391,441 shares authorized, issued and outstanding at December 31, 2013





59,059


Series H convertible preferred stock, $.0001 per share stated value (aggregate liquidation preference of $60,000); no shares authorized, issued and outstanding at September 30, 2014; 4,124,986 shares authorized, issued and outstanding at December 31, 2013





63,819


Stockholders' deficit:








Preferred stock, $.000025 per share stated value; 20,000,000 shares authorized; no shares issued and outstanding at September 30, 2014 and December 31, 2013






Common stock, $.000025 per share stated value; 750,000,000 shares authorized; 69,383,359 and 15,259,540 shares issued and outstanding at September 30, 2014 and December 31, 2013


411,449




74,160


Accumulated deficit


(460,120)




(467,209)


Accumulated other comprehensive loss


(242)




(191)


Total stockholders' deficit


(48,913)




(393,240)


Total liabilities and stockholders' deficit

$

1,393,305



$

1,434,738


 

TriNet Group, Inc. and Subsidiaries


CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


(Unaudited)








Nine Months Ended September 30,




2014



2013


Operating activities









Net income


$

8,486



$

7,140


Adjustments to reconcile net income to net cash provided by  operating activities:









Depreciation and amortization



67,754




56,313


Deferred income taxes



27,180




(9,534)


Stock-based compensation



8,251




4,360


Excess tax benefit from equity incentive plan activity






(14,281)


Accretion of workers compensation and leases fair value adjustment



(969)




(1,244)


Changes in operating assets and liabilities:









Restricted cash



(7,968)




(6,522)


Prepaid expenses and other current assets



(7,899)




(8,049)


Workers compensation receivables



(11,775)




3,624


Other assets



8,166




3,995


Accounts payable



4,826




1,598


Income tax payable/receivable



(29,057)




12,314


Other current liabilities



11,321




7,447


Other liabilities



22,196




1,968


Worksite employee related assets



75,390




(41,062)


Worksite employee related liabilities



(76,921)




44,013


Net cash provided by operating activities



98,981




62,080


Investing activities









Acquisition of businesses






(193,727)


Proceeds from sale and maturity of debt securities






500


Purchase of debt securities



(16,789)




(7,253)


Purchase of property and equipment



(17,082)




(6,314)


Net cash used in investing activities



(33,871)




(206,794)


Financing activities









Proceeds from issuance of common stock



218,572





Proceeds from issuance of common stock on exercised options



1,146




6,889


Excess tax benefit from equity incentive plan activity






14,281


Borrowings under notes payable






970,000


Repayment of notes payable



(268,425)




(450,104)


Payment of debt issuance costs



(11,060)




(24,611)


Payments of special dividend






(310,922)


Repayments under capital leases



(263)




(620)


Repurchase of common stock



(1,422)




(11,767)


Net cash provided by (used in) financing activities



(61,452)




193,146


Effect of exchange rate changes on cash and cash equivalents



(62)




(20)


Net increase in cash and cash equivalents



3,596




48,412


Cash and cash equivalents at beginning of period



94,356




63,749


Cash and cash equivalents at end of period


$

97,952



$

112,161


 

Key Operating Metrics

We regularly review certain key operating metrics to evaluate growth trends, measure our performance and make strategic decisions. Our key operating metrics were as follows:

 



Three Months Ended



Nine Months Ended




September 30,



September 30,




2014



2013



2014



2013


Net Insurance Service Revenues (in thousands)


$

40,903



$

29,012



$

128,334



$

100,074


Net Service Revenues (in thousands)


$

127,767



$

104,653



$

380,333



$

296,026


Total WSEs



272,846




218,577










Total Sales Representatives



391




301










 

Non-GAAP Financial Results

We use Net Insurance Service Revenues, Net Service Revenues, Adjusted EBITDA, Adjusted Net Income and, in 2014, Pro forma Adjusted Net Income per share – diluted to provide an additional view of our operational performance. Net Insurance Service Revenues, Net Service Revenues, Adjusted EBITDA, Adjusted Net Income and Pro forma Adjusted Net Income per share – diluted are financial measures that are not prepared in accordance with GAAP. We define Net Insurance Service Revenues as insurance service revenues less insurance costs, which include the premiums we pay to insurance carriers for the health and workers compensation insurance coverage provided to our clients and WSEs and the reimbursements we pay to the insurance carriers for claim payments within our insurance deductible layer. We define Net Service Revenues as the sum of professional service revenues and Net Insurance Service Revenues. We define Adjusted EBITDA as net income (loss), excluding the effects of our income tax provision (benefit), interest expense, depreciation, amortization of intangible assets, stock-based compensation expense and, in 2014, the expenses of the registered secondary offering of our common stock that was completed in September 2014. We define Adjusted Net Income as net income (loss), excluding the effects of stock-based compensation, amortization of intangible assets, non-cash interest expense and, in 2014, a debt prepayment premium paid in connection with the repayment of our second lien debt facility using proceeds from our initial public offering, as well as the expenses of the registered secondary offering of our common stock that was completed in September 2014 and the income tax effect of these pre-tax adjustments at our effective tax rate. In 2014, the effective tax rate is adjusted to 39.5% to exclude income tax on non-deductible stock-based compensation and discrete items including the cumulative effect of state law changes. Non-cash interest expense represents amortization and write-off of our debt issuance costs and, in 2014, a debt prepayment premium. We define Pro Forma Adjusted Net Income per share – diluted as Adjusted Net Income per basic share adjusted to reflect the equity structure as if our initial public offering and associated conversion of preferred stock had occurred at the beginning of the period and all option exercises that occurred during the period occurred at the beginning of the period, and then giving effect to all remaining potential shares of common stock issuable upon exercise of options or settlement of restricted stock units, to the extent dilutive.

We believe that the use of Net Insurance Service Revenues provides useful information as it presents a measure of revenues from our provision of insurance services to our clients that eliminates the cost of insurance. We believe that Net Service Revenues provides a useful measure of total revenues for the two main components of our revenues calculated on a consistent basis. We believe that the use of Adjusted EBITDA, Adjusted Net Income and Pro Forma Adjusted Net Income per share – diluted provides additional period-to-period comparisons and analysis of trends in our business, as they exclude certain one-time and non-cash expenses. We believe that Net Insurance Service Revenues, Net Service Revenues, Adjusted EBITDA, Adjusted Net Income, and Pro Forma Adjusted Net Income per share – diluted are useful for our stockholders and board of directors by helping them to identify trends in our business and understand how our management evaluates our business. We use Net Insurance Service Revenues, Net Service Revenues, Adjusted EBITDA, Adjusted Net Income and Pro Forma Adjusted Net Income per share – diluted to monitor and evaluate our operating results and trends on an ongoing basis and internally for operating, budgeting and financial planning purposes, in addition to allocating our resources to enhance the financial performance of our business and evaluating the effectiveness of our business strategies. We also use Net Service Revenues and Adjusted EBITDA in determining the incentive compensation for management.

Net Insurance Service Revenues, Net Service Revenues, Adjusted EBITDA, Adjusted Net Income and Pro Forma Adjusted Net Income per share – diluted are not prepared in accordance with, and should not be considered in isolation of, or as an alternative to, measurements required by GAAP. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. As non-GAAP measures, Net Insurance Service Revenues, Net Service Revenues, Adjusted EBITDA, Adjusted Net Income and Pro Forma Adjusted Net Income per share – diluted have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. In particular:

  • Net Insurance Service Revenues and Net Service Revenues are reduced by the insurance costs that we pay to the insurance carriers;
  • Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
  • Adjusted EBITDA does not reflect the amounts we paid in taxes or other components of our tax provision;
  • Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
  • Adjusted EBITDA and Adjusted Net Income do not reflect changes in, or cash requirements for, our working capital needs;
  • Adjusted EBITDA and Adjusted Net Income do not reflect the expenses we incurred in connection with the registered offering of our common stock during the third quarter of 2014;
  • Adjusted EBITDA, Adjusted Net Income and Pro Forma Adjusted Net Income per share – diluted do not reflect the non-cash component of employee compensation;
  • Although depreciation and amortization of intangible assets are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
  • Other companies in our industry may calculate these measures or similar measures differently than we do, limiting their usefulness as a comparative measure.

Because of these limitations, you should consider Net Insurance Service Revenues, Net Service Revenues, Adjusted EBITDA, Adjusted Net Income and Pro Forma Adjusted Net Income per share – diluted alongside other financial performance measures, including total revenues, net income (loss) and our financial results presented in accordance with GAAP.

The table below sets forth a reconciliation of GAAP insurance service revenues to Net Insurance Service Revenues:

 


Three months ended


Change


Nine months ended


Change


September 30,


2014 vs. 2013


September 30,


2014 vs. 2013


2014


2013


$


%


2014


2013


$


%


(in thousands, except percentages)

Insurance service revenues

$

469,087


$

372,476


$

96,611


26%


$

1,337,870


$

966,667


$

371,203


38%

Less:  Insurance costs


428,184



343,464



84,720


25%



1,209,536



866,593



342,943


40%

Net Insurance Service Revenues

$

40,903


$

29,012


$

11,891


41%


$

128,334


$

100,074


$

28,260


28%

 

The table below sets forth a reconciliation of GAAP total revenues to Net Service Revenues:

 


Three months ended


Change


Nine months ended


Change


September 30,


2014 vs. 2013


September 30,


2014 vs. 2013


2014


2013


$


%


2014


2013


$


%


(in thousands, except percentages)

Total revenues

$

555,951


$

448,117


$

107,834


24%


$

1,589,869


$

1,162,619


$

427,250


37%

Less:  Insurance costs


428,184



343,464



84,720


25%



1,209,536



866,593



342,943


40%

Net Service Revenues

$

127,767


$

104,653


$

23,114


22%


$

380,333


$

296,026


$

84,307


28%

 

The table below sets forth a reconciliation of GAAP net income to Adjusted EBITDA:

 



Three Months Ended



Nine Months Ended




September 30,



September 30,




2014



2013



2014



2013




(in thousands)


Net income (loss)


$

725



$

(7,740)



$

8,486



$

7,140


Provision for (benefit from) income taxes



2,238




(4,800)




9,149




3,880


Stock-based compensation



3,181




1,495




8,251




4,360


Interest expense and bank fees



18,462




19,902




49,174




32,091


Depreciation



3,265




3,356




9,725




8,908


Amortization of intangible assets



12,743




15,442




39,559




35,926


Secondary offering costs



858




-




858




-


Adjusted EBITDA


$

41,472



$

27,655



$

125,202



$

92,305


 

The table below sets forth a reconciliation of GAAP net income to Adjusted Net Income:

 



Three Months Ended



Nine Months Ended




September 30,



September 30,




2014



2013



2014



2013




(in thousands)


Net income (loss)


$

725



$

(7,740)



$

8,486



$

7,140


Effective income tax rate adjustment



1,068




-




2,183




-


Stock-based compensation



3,181




1,495




8,251




4,360


Amortization of intangible assets



12,743




15,442




39,559




35,926


Non-cash interest expense



13,602




11,145




21,088




12,442


Debt prepayment premium



-




-




3,800




-


Secondary offering costs



858




-




858




-


Income tax impact of pre-tax adjustments at 39.5%



(12,002)




(11,092)




(29,055)




(20,828)


Adjusted Net Income


$

20,175



$

9,250



$

55,170



$

39,040


 

The table below sets forth a reconciliation of GAAP weighted average shares of common stock – basic to pro forma weighted average shares of common stock - diluted and Adjusted Net Income per share – diluted (in thousands, except per share amount) as if the equity structure had been in place at the beginning of the periods presented:

 


Three Months Ended



Nine Months Ended



September 30,



September 30,



2014



2013



2014



2013


GAAP Weighted average shares of common stock - basic


69,135




12,835




51,655




11,502


Effect of IPO, conversion of preferred stock and exercise of stock options during the period included above


(31)




(1,700)




(36,587)




(800)


Adjustments as if the equity structure had occurred at the beginning of the periods:
















Conversion of preferred stock





38,066




38,066




38,066


Common stock issued in connection with IPO





15,000




15,000




15,000


Common stock issued in connection with stock option exercises


280




3,699




1,058




4,125


Dilutive effect of outstanding stock options and restricted stock units


3,623




2,829




2,917




2,352


Pro forma weighted average shares of common stock - diluted


73,007




70,729




72,109




70,245


















Adjusted Net Income

$

20,175



$

9,250



$

55,170



$

39,040


Pro forma adjusted net income per share - diluted

$

0.28



$

0.13



$

0.77



$

0.56


 

SOURCE TriNet Group, Inc.

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