For purposes of this Quarterly Report on Form 10-Q (Form 10-Q), the terms “TriNet,” “the Company,” “we,” “us” and “our” refer to TriNet Group, Inc., and its subsidiaries. This Form 10-Q contains 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. Forward-looking statements are often identified by the use of words such as, but not limited to, "ability," “anticipate,” “believe,” “can,” “continue,” “could,” “design,” “estimate,” “expect,” “forecast,” “hope,” "impact," “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “strategy,” “target,” "value," “will,” “would” and similar expressions or variations intended to identify forward-looking statements. Examples of forward-looking statements include, among others, TriNet’s expectations regarding: our ability to successfully diversify our overall service and technology offerings to support SMBs throughout their lifecycle; our plans and ability to grow our client base; the impact of our ongoing efforts to ensure that our billing practices best match the services we provide and the expectations of our customers and the impact on our WSE count; our expectations regarding medical utilization rates by our WSEs and the impact of inflation on our insurance costs; the effect that our stock repurchase program will have on our business; the impact of our obligations pursuant to our Senior Notes; our ability to leverage our scale and industry HR experience to deliver vertical focused offerings; the impact of planned improvements to our technology platform and HRIS software and whether they will meet the needs of our current clients and attract new ones; the implementation of our ERP system and its impact on our internal financial controls and operations; our ability to improve operating efficiencies; the impact of our client service initiatives and whether they enhance client experience and satisfaction; our continued ability to provide access to a broad range of benefit programs on a cost-effective basis; our expectations regarding the volume and severity of insurance claims and insurance claim trends; the effectiveness of our risk strategies for, and management of, workers' compensation, health benefit insurance costs and deductibles, and EPLI risk; the metrics that may be indicators of future financial performance; the relative value of our benefit offerings versus those SMBs can independently obtain; the impact that our benefit offerings have for SMBs seeking to attract and retain employees; the principal competitive drivers in our market; the impact of our plans to improve our sales performance, grow net new clients and manage client attrition; our investment strategy and its impact on our ability to generate future interest income, net income, and Adjusted EBITDA; seasonal trends and their impact on our business; fluctuations in the period-to-period timing of when we incur certain operating expenses; the estimates and assumptions we use to prepare our financial statements; our belief we can meet our present and reasonably foreseeable cash needs and future commitments through existing liquid assets and continuing cash flows from corporate operating activities; and other expectations, outlooks and forecasts on our future business, operational and financial performance.
Important factors that could cause actual results, level of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements are discussed above and throughout our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 15, 2024 (our 2023 Form 10-K), including those appearing under the heading “Risk Factors” in Item 1A, and under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2023 Form 10-K, those appearing under the heading “Risk Factors” in Part II, Item 1A of this Form 10-Q and under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q, and those appearing in the other periodic filings we make with the SEC, and including risk factors associated with: our ability to manage unexpected changes in workers’ compensation and health insurance claims and costs by WSEs; our ability to mitigate the unique 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; loss of clients for reasons beyond our control and the short-term contracts we typically use with our clients; the impact of regional or industry-specific economic and health factors on our operations; the impact of failures or limitations in the business systems and centers we rely upon; the impact of discontinuing our discretionary credits on our business and client loyalty and retention; changes in our insurance coverage or our relationships with key insurance carriers; our ability to improve our services and technology to satisfy client and regulatory expectations; our ability to effectively integrate businesses we have acquired or may acquire in the future; our ability to effectively manage and improve our operational effectiveness and resiliency; 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, breaches, disclosures and other data-related incidents; our ability to protect against and remediate cyber-attacks, breaches, disclosures and other data-related incidents, whether intentional or inadvertent and whether attributable to us or our service providers; our ability to comply with 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;
TRINET
5
2024 Q3 FORM 10-Q
FORWARD LOOKING STATEMENTS AND OTHER FINANCIAL INFORMATION
changing laws and regulations governing health insurance and employee benefits; our ability to be recognized as an employer of worksite employees and for our benefits plans to satisfy all requirements under federal and state regulations; changes in the laws and regulations that govern what it means to be an employer, employee or independent contractor; the impact of new and changing laws regarding remote work; our ability to comply with the licensing requirements that govern our solutions; the outcome of existing and future legal and tax proceedings; fluctuation in our results of operations and stock price due to factors outside of our control; our ability to comply with the restrictions of our 2021 Credit Agreement and meet our debt obligations; the impact of concentrated ownership in our stock by Atairos and other large stockholders; and our ability to manage risks associated with our international operations. Any of these factors could cause our actual results to differ materially from our anticipated results.
Forward-looking statements are not guarantees of future performance but are based on management’s expectations as of the date of this Form 10-Q 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 results, performance or achievements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
The information provided in this Form 10-Q is based upon the facts and circumstances known as of the date of this Form 10-Q, and any forward-looking statements made by us in this Form 10-Q speak only as of the date of this Form 10-Q. We undertake no obligation to revise or update any of the information provided in this Form 10-Q, except as required by law.
The MD&A of this Form 10-Q includes references to our performance measures presented in conformity with GAAP and 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 plans. Refer to the Non-GAAP Financial Measures within our MD&A for definitions and reconciliations from GAAP measures.
Website Disclosures
We use our website (www.trinet.com) to announce material non-public information to the public and to comply with our disclosure obligations under Reg FD. We also use our website to communicate with the public about our Company, our services, and other matters. Our SEC filings, press releases and recent public conference calls and webcasts can also be found on our website. The information we post on our website could be deemed to be material information under Reg FD. We encourage investors and others interested in our Company to review the information we post on our website. Information contained in or accessible through our website is not a part of this report.
Our Company is the sole owner of the trademark “TriNet” and other trademarks appearing in this report. Our Company does not intend to use or display trade names or trademarks owned by others in a manner that would imply any form of association with any of those companies.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Overview
TriNet is a leading provider of comprehensive and flexible HCM solutions designed to address a wide range of SMB needs as they change over time. Our flexible HCM solutions free SMBs from HR complexities and empower SMBs to focus on what matters most - growing their business and enabling their people.
TriNet offers access to human capital expertise, benefits, payroll, risk mitigation and compliance, 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, payroll, time and attendance, and employee engagement. Clients can use our industry tailored PEO services and technology platform to receive the full benefit of our HCM services enabling their WSEs to participate in our TriNet-sponsored employee benefit plans. Clients can alternatively choose to use our self-directed, cloud-basedHRIS software solution and add HR services such as payroll and access to benefits management as needed. By providing PEO and HRIS services, we believe that we can support a wider range of SMBs and create a pipeline of HRIS clients that may be able to benefit from and transition to TriNet’s higher-touch PEO services at future points in their business lifecycle. In order to better serve TriNet’s customers throughout their business lifecycle, we are investing in our technology platform so that it can accommodate both PEO and HRIS customers.
Operational Highlights
Our consolidated results for the nine months ended September 30, 2024 reflect our continuing efforts to serve our clients, attract new clients and invest in our platform.
So far in 2024, we:
•improved PEO sales performance and customer retention,
•continued to grow total revenues with disciplined expense management in light of rising insurance costs,
•repurchased approximately 1.46 million shares of our common stock through our existing stock repurchase program,
•initiated a common stock dividend of $0.25 per share in April and July 2024 and declared common stock dividends of $0.25 per share to be paid in October 2024,
•welcomed Mike Simonds as our new President and CEO, and
•opened a new business and technological innovation center in Hyderabad, India.
Total WSEs and Average WSEs include incremental WSEs that were charged a platform user access fee and incremental additional service recipients. These were identified as a result of our ongoing effort to ensure that our billing practices best match the expectations of our customers. For details, refer to the heading "Operating Metrics – Worksite Employees (WSEs).”
Our total revenues increased 1% compared to the same period in 2023, driven by higher Average co-employed WSEs and rate increases, partially offset by lower HRIS revenue.
During the third quarter of 2024, our Average WSEs and Total WSEs increased 7% and 6%, respectively, compared to the same period in 2023, primarily due to additional PEO Platform Users and additional service recipients identified as a result of our ongoing effort to ensure that our billing practices best match the expectations of our customers.
Our ICR was 6 points higher compared to the same period in 2023, driven by a shift in more severe medical service utilization, higher rates paid for outpatient services, and increasing specialty drug utilization. Our increase in ICR for the nine months ended September 30, 2024 set forth in the table below was partially offset by favorable workers' compensation prior period claims development during the second quarter of 2024.
Higher insurance costs and interest expense, partially offset by higher revenues and lower operating expenses, resulted in decreases of net income and Adjusted Net income of 52% and 46%, respectively, as compared to the same period in 2023.
Total WSEs and Average WSEs include incremental WSEs that were charged a platform user access fee and incremental additional service recipients. These were identified as a result of our ongoing effort to ensure that our billing practices best match the expectations of our customers. For details, refer to the heading "Operating Metrics – Worksite Employees (WSEs).”
The following table summarizes our results of operations for the third quarter and nine months ended September 30, 2024, when compared to the same periods of 2023. For details of the critical accounting judgments and estimates that could affect our Results of Operations, see the Critical Accounting Judgments and Estimates section within the MD&A in Item 7 of our 2023 Form 10-K.
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions, except operating metrics data)
2024
2023
% Change
2024
2023
% Change
Income Statement Data:
Professional service revenues
$
184
$
185
0
%
$
584
$
567
3
%
Insurance service revenues
1,053
1,037
2
3,143
3,110
1
Total revenues
1,237
1,222
1
3,727
3,677
1
Insurance costs
949
874
9
2,772
2,594
7
Operating expenses
230
232
(1)
694
701
(1)
Total costs and operating expenses
1,179
1,106
7
3,466
3,295
5
Operating income
58
116
(50)
261
382
(32)
Other income (expense):
Interest expense, bank fees and other
(15)
(10)
50
(47)
(23)
104
Interest income
15
18
(17)
49
57
(14)
Income before provision for income taxes
58
124
(53)
263
416
(37)
Income taxes
13
30
(57)
67
108
(38)
Net income
$
45
$
94
(52)
%
$
196
$
308
(36)
%
Cash Flow Data:
Net cash used in operating activities
(276)
(43)
542
Net cash used in investing activities
(25)
(57)
(56)
Net cash used in financing activities
(217)
(523)
(59)
%
Non-GAAP measures (1):
Adjusted EBITDA
109
172
(37)
425
557
(24)
Adjusted Net income
59
109
(46)
247
365
(32)
Corporate Operating Cash Flows
213
386
(45)
%
Operating Metrics:
Insurance Cost Ratio
90
%
84
%
6
88
%
83
%
5
Average WSEs (2)
355,948
333,286
7
351,856
329,257
7
Total WSEs (2)
356,137
335,741
6
356,137
335,741
6
Average HRIS Users
183,410
210,863
(13)
%
189,929
219,058
(13)
%
(1) Refer to Non-GAAP measures definitions and reconciliations from GAAP measures under the heading "Non-GAAP Financial Measures".
(2) Total WSEs and Average WSEs include incremental WSEs that were charged a platform user access fee and incremental additional service recipients. These were identified as a result of our ongoing effort to ensure that our billing practices best match the expectations of our customers. For details, refer to the heading "Operating Metrics – Worksite Employees (WSEs).”
The following table summarizes our balance sheet data as of September 30, 2024 compared to December 31, 2023.
In addition to financial measures presented in accordance with 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,
- amortization of cloud computing arrangements, and
- transaction and integration costs.
• Provides period-to-period comparisons on a consistent basis and an understanding as to how our management evaluates the effectiveness of our business strategies by excluding certain non-recurring costs, which include transaction and integration costs, as well as certain non-cash charges such as depreciation and amortization, and stock-based compensation and certain impairment charges recognized based on the estimated fair values. We believe these charges are either not directly resulting from our core operations or not indicative of our ongoing operations. • Enhances comparisons to the prior period and, accordingly, facilitates the development of future projections and earnings growth prospects. • Provides a measure, among others, used in the determination of incentive compensation for management. • We also sometimes refer to Adjusted EBITDA margin, which is the ratio of Adjusted EBITDA to total revenues.
Adjusted Net Income
• Net income, excluding the effects of:
- effective income tax rate (1),
- stock based compensation,
- amortization of intangible assets, net,
- non-cash interest expense,
- transaction and integration costs, and
- the income tax effect (at our effective tax rate (1) of these pre-tax adjustments.
• Provides information to our stockholders and board of directors to understand how our management evaluates our business, to monitor and evaluate our operating results, and analyze profitability of our ongoing operations and trends on a consistent basis by excluding certain non-cash charges.
Corporate Operating Cash Flows
• Net cash provided by (used in) operating activities, excluding the effects of: - Assets associated with WSEs and TriNet Trust (accounts receivable, unbilled revenue, prepaid expenses, other payroll assets and other current assets) and - Liabilities associated with WSEs and TriNet Trust (client deposits and other client liabilities, accrued wages, payroll tax liabilities and other payroll withholdings, accrued health insurance costs, accrued workers' compensation costs, insurance premiums and other payables, and other current liabilities).
• Provides information that our stockholders and management can use to evaluate our cash flows from operations independent of the current assets and liabilities associated with our WSEs and TriNet Trust.
• Enhances comparisons to prior periods and, accordingly, used as a liquidity measure to manage liquidity between corporate and WSE and TriNet Trust related activities, and to help determine and plan our cash flow and capital strategies.
(1) Non-GAAP effective tax rate is 25.6% for 2024 and 2023, which excludes the income tax impact from stock-based compensation, changes in uncertain tax positions, and nonrecurring benefits or expenses from federal legislative changes.
Average WSE change is a volume measure we use to monitor the performance of our PEO business. Our PEO clients generally change their payroll service providers at the beginning of the payroll tax and benefits enrollment year; as a result, we have historically experienced our highest volumes of new PEO clients joining and existing clients terminating in the month of January. PEO client attrition, new PEO client additions and changes in employment levels within our installed PEO client base all impact our Average WSEs and Total WSEs as we move through a calendar year.
We support WSEs from the date on which their co-employment with TriNet commences through the end of their co-employment with TriNet and also after their co-employment period. We define WSEs to include co-employees and other individuals receiving PEO services, such as individuals who receive COBRA benefits post co-employment or are subject to partnership tax reporting as well as individuals who utilize our PEO platform on behalf of TriNet PEO clients. As part of an ongoing effort to ensure that our billing practices best match the expectations of our customers, in the third quarter of 2023 we determined that certain individuals such as those described above and certain co-employees were not previously or consistently counted in Total WSEs and Average WSEs. This resulting adjustment is reflected in Total WSEs for both September 30, 2024 and 2023, and increased Average WSEs by approximately 5,500 for the third quarter of 2024 and 5,400 for the nine months ended September 30, 2024. We intend to continue our ongoing effort to ensure that our billing practices best match the services we provide and the expectations of our customers and in the future we may identify additional individuals that should be included in Total WSEs and Average WSEs.
In December 2023, we implemented a platform user access fee to charge clients for those users of our PEO platform that may not be co-employed by us and to charge clients for co-employees for whom payroll may not be regularly run. In addition to co-employees for whom payroll may not be regularly run, such as partners in a partnership, this also includes individuals authorized by our clients to access and use the PEO platform for functions such as bookkeeping and benefits management. The amount of the fee is comparable to the fee we charge for users of our HRIS platform. While the amount of revenue we recognized for this service to date has not been significant, these users of the PEO platform for whose access we charged this fee increased our reported Total WSEs by approximately 22,100 as of September 30, 2024 and Average WSEs by approximately 19,900 for the third quarter of 2024 and 18,700 for the nine months ended September 30, 2024.
The effect of this new fee is that we are now receiving revenue from two types of users on our PEO platform, those that are co-employed in our PEO business and those that are utilizing our PEO platform, albeit in a more limited capacity. The table below illustrates how those two components comprise our Total WSE and Average WSE metrics.
Three Months Ended September 30, 2024
Nine Months Ended September 30,
% Change
2024
2023
2024
2023
Q3 2024 vs. Q3 2023
YTD 2024 vs. YTD 2023
Average WSEs
355,948
333,286
351,856
329,257
7
%
7
%
Co-Employed
336,013
333,286
333,182
329,257
1
1
PEO Platform Users
19,935
N/A
18,674
N/A
N/A
N/A
Total WSEs
356,137
335,741
356,137
335,741
6
6
Co-Employed
333,997
335,741
333,997
335,741
(1)
(1)
PEO Platform Users
22,140
N/A
22,140
N/A
N/A
N/A
Average WSEs increased 7% when comparing the third quarter of 2024 to the same period in 2023, primarily due to the additional co-employed and PEO platform users described above. From a vertical perspective, declines in our Technology, Professional Services and Life Sciences verticals were largely offset by increases in our Main Street, Financial Services and Non-Profit verticals.
Total WSEs can be used to estimate our beginning WSEs for the next period and, as a result, can be used as an indicator of our potential future success in generating revenue, growing our business and retaining clients. Total WSEs increased 6% when compared to the same period in 2023, primarily due to the additional PEO platform Users WSEs described above.
Anticipated revenues for future periods can diverge from the revenue expectation derived from Average WSEs or Total WSEs due to pricing differences across our HCM solutions and services and the degree to which clients and WSEs elect to participate in our solutions during future periods. In addition to focusing on growing our Average WSE and Total WSE counts, we also focus on pricing strategies, benefit participation and service differentiation to expand the value we provide to our clients and our resulting revenue opportunities. We report the impact of client and WSE participation differences as a change in mix.
We continue to invest in efforts intended to enhance client experience, improve our new sales performance, and manage client attrition, through product development as well as operational and process improvements. As we continue our work in combining our PEO platform and our HRIS SaaS capabilities into a single platform, these various types of TriNet users will all be served from the same platform. In addition to focusing on retaining and growing our WSE base, we continue to review acquisition opportunities that would expand our product offering and provide further scale.
HRIS Users
Average HRIS Users is a volume measure we use to monitor the performance of our cloud-based HRIS services. Average HRIS Users for the third quarter of 2024 and 2023, was 183,410, and 210,863, respectively. Average HRIS Users for the nine months ended September 30, 2024 and 2023, was 189,929, and 219,058, respectively. This decline is primarily driven by client attrition outpacing new client additions in addition to decreased staffing by HRIS clients similar to SMB trends that we have observed in our PEO business.
Insurance Cost Ratio (ICR)
ICR is a performance measure calculated as the ratio of insurance costs to insurance service revenues. We believe that ICR promotes an understanding of our insurance cost trends and our ability to align our relative pricing to risk performance.
We purchase workers' compensation and health benefits coverage for our WSEs. Under the insurance policies for this coverage, we bear claims costs up to a defined deductible amount. Our insurance costs, which comprise a significant portion of our overall costs, are significantly affected by our WSEs’ health and workers' compensation insurance claims experience. We set our insurance service fees for workers’ compensation and health benefits in advance for fixed benefit periods. As a result, any increases in insurance costs above our projections, will be reflected as a higher ICR, and result in lower net income. Any decreases in insurance costs below our projections, will be reflected as a lower ICR and result in higher net income.
Under our fully-insured workers' compensation insurance policies, we assume the risk for losses up to $1 million per claim occurrence (deductible layer). The ultimate cost of the workers’ compensation services provided cannot be known until all the claims are settled. Our ability to predict these costs is limited by unexpected increases in frequency or severity of claims, which can vary due to changes in the cost of treatments or claim settlements.
Under our risk-based health insurance policies, we assume the risk of variability in future health claims costs for our enrollees. This variability typically results from changing trends in the volume, severity and ultimate cost of medical and pharmaceutical claims, due to changes to the components of medical cost trend, which we define as changes in participant use of services, including the introduction of new treatment options, changes in treatment guidelines and mandates, and changes in the mix, cost of providing treatment and timing of services provided to plan participants. These trends change, and other seasonal trends and variability may develop. As a result, it is difficult for us to predict our insurance costs with accuracy and a significant increase in these costs could have a material adverse effect on our business.
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2024
2023
2024
2023
Insurance costs
$
949
$
874
$
2,772
$
2,594
Insurance service revenues
1,053
1,037
3,143
3,110
Insurance Cost Ratio
90
%
84
%
88
%
83
%
ICR increased for the third quarter and nine months ended September 30, 2024 as compared to the same periods in 2023, primarily driven by higher insurance costs outpacing the growth in ISR. Insurance costs increased due to more severe medical service utilization, higher rates paid for outpatient services, as well as increased specialty medications for diabetes and obesity. During the nine months ended September 30, 2024, this was partially offset by favorable prior period development in workers' compensation.
Total Revenues
Our revenues consist of PSR and ISR. PSR represents fees charged to clients for processing payroll-related transactions on behalf of our PEO and HRIS clients, access to our HR expertise and technology, employment and benefit law compliance services, other HR-related and tax credit filing services and fees charged to access our cloud-based HRIS services. ISR consists of insurance-related billings and administrative fees collected from PEO clients and withheld from WSEs for workers' compensation insurance and health benefit insurance plans provided by third-party insurance carriers.
Monthly revenues per co-employed Average WSE is a measure we use to monitor our PEO pricing strategies. This measure increased by 1% during the third quarter of 2024 compared to the same periods in 2023.
We also use the following measures to further analyze changes in total revenue:
•Volume - the percentage change in period over period co-employed Average WSEs,
•Rate - the combined weighted average percentage changes in service fees for each vertical service and changes in service fees associated with each insurance service offering,
•Mix - the change in composition of co-employed Average WSEs within our verticals combined with the composition of our enrolled co-employed WSEs within our insurance service offerings and the composition of products and services our clients receive, including TriNet Clarus R+D and PEO Platform Users, and
ISR - % represents proportion of insurance service revenues to total revenues
*Total revenues generated from PEO services only
The increase in total revenue for the third quarter and nine months ended September 30, 2024 was primarily driven by higher co-employed Average WSEs and rate increases, partially offset by lower HRIS revenue and slightly lower health plan enrollment.
Operating Income
Our operating income consists of total revenues less insurance costs and OE. Our insurance costs include insurance premiums for coverage provided by insurance carriers, expenses for claims costs and risk management and administrative services, and changes in accrued costs related to contractual obligations with our workers' compensation and health benefit carriers. Our OE consists primarily of our colleagues' compensation related expenses, which includes payroll, payroll taxes, SBC, bonuses, commissions and other payroll-and benefits-related costs.
The table below provides a view of the changes in components of operating income for the third quarter and nine months ended September 30, 2024, as compared to the same periods in 2023.
(in millions)
$116
Third Quarter 2023 Operating Income
+15
Higher total revenues primarily driven by higher Average WSEs and rate increases from our PEO services, partially offset by lower HRIS revenue.
-75
Higher insurance costs primarily driven by higher health insurance utilization and cost inflation.
+2
OE decreased due to lower spend in transaction and integration costs as well as lower conferences and events expenses, partially offset by higher consulting costs.
$58
Third Quarter 2024 Operating Income
(in millions)
$382
YTD 2023 Operating Income
+50
Higher total revenues primarily driven by higher Average WSEs and rate increases from our PEO services, partially offset by lower health plan enrollment.
-178
Higher insurance costs primarily driven by higher health insurance utilization and cost inflation.
+7
OE decreased due to lower spend in transaction and integration, advertising and legal fees, partially offset by higher stock based compensation and consulting costs.
Our PEO and HRIS clients are primarily billed on a fee per WSE or HRIS User per month per transaction. Our vertical approach provides us the flexibility to offer our PEO clients in different industries with varied services at different prices, which we believe potentially reduces the value of solely using Average WSE and Total WSE counts as indicators of future potential revenue performance.
PSR from PEO Services customers and HRIS cloud services clients was as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2024
2023
2024
2023
PEO Services
$
174
$
168
$
552
$
527
HRIS Cloud Services
10
17
32
40
Total
$
184
$
185
$
584
$
567
We also analyze changes in PSR with the following measures:
•Volume - the percentage change in period over period co-employed Average WSEs,
•Rate - the weighted average percentage change in fees for each vertical,
•Mix - the change in composition of co-employed Average WSEs across our verticals and the composition of products and services our clients receive, including TriNet Clarus R+D and PEO Platform Users, and
•HRIS - incremental HRIS cloud services revenue.
PSR for the third quarter was flat compared to prior period. The increase in PSR for the nine months ended September 30, 2024 was primarily driven by higher co-employed Average WSEs and rate increases. The decrease in HRIS revenue compared to the prior periods was primarily due to an acceleration of revenue in 2023 related to a termination agreement in a broker partner which did not recur in 2024.
ISR consists of insurance services-related billings and administrative fees collected from PEO clients and withheld from WSE payroll for health benefits and workers' compensation insurance provided by third-party insurance carriers.
We use the following measures to analyze changes in ISR:
•Volume - the percentage change in period over period co-employed Average WSEs,
•Rate - the weighted average percentage change in fees associated with each of our insurance service offerings, and
•Mix - all other changes including the composition of our enrolled co-employed WSEs within our insurance service offerings (health plan enrollment).
The increase in ISR for the third quarter and nine months ended September 30, 2024 was primarily driven by higher co-employed Average WSEs and rate increases.
Insurance Costs
Insurance costs include insurance premiums for coverage provided by insurance carriers, payments for claims costs and expenses for other risk management and administrative services, reimbursement of claims payments made by insurance carriers or third-party administrators below a predefined deductible limit, and changes in accrued costs related to contractual obligations with our workers' compensation and health benefit carriers.
We use the following measures to analyze changes in insurance costs:
•Volume - the percentage change in period over period co-employed Average WSEs,
•Rate - the weighted average percentage change in cost trend associated with each of our insurance service offerings, and
•Mix - all other changes including the composition of our enrolled co-employed WSEs within our insurance service offerings (health plan enrollment).
Insurance costs increased for the third quarter and nine months ended September 30, 2024, primarily due to more severe medical service utilization, higher rates paid for outpatient services and increased specialty drugs utilization, particularly medications for diabetes and obesity. During the nine months ended September 30, 2024, this trend was partially offset by favorable workers' compensation prior period claims development.
We had approximately 3,700 colleagues as of September 30, 2024 primarily across the U.S., India and Canada. Compensation costs for our colleagues include payroll, payroll taxes, SBC, bonuses, commissions and other payroll- and benefits-related costs. Compensation-related expense represented 69% of our OE in the third quarters of 2024 and 2023 and 71% and 69%, respectively, in the nine months ended September 30, 2024 and 2023.
Transaction and integration costs associated with our acquisitions of Zenefits and Clarus R+D are included in G&A. These costs include advisory, legal, and employee retention costs tied to ongoing employment.
During the third quarter and nine months ended September 30, 2024, OE decreased 1% when compared to the same periods in 2023. The ratio of OE to total revenues was 19% for the third quarter and nine months ended September 30, 2024.
% represents portion of compensation related expense included in operating expenses
We analyze and present our OE based upon the business functions COPS, S&M, G&A and SD&P and D&A. The charts below provide a view of the expenses of the business functions. Dollars are presented in millions and percentages represent period-over-period change.
S&M decreased primarily due to lower conferences and events expenses, partially offset by higher compensation to support our sales force.
-5
G&A decreased primarily due to lower compensation and lower facilities costs.
+2
SD&P increased primarily due to higher compensation and higher system maintenance costs related to recently implemented software.
+2
D&A increased primarily due to higher software amortization costs.
$230
Q3 2024 Operating Expense
(in millions)
$701
YTD 2023 Operating Expenses
-3
COPS decreased primarily due to lower compensation and legal fees, partially offset by higher tax and licenses expenses.
+4
S&M increased primarily due to higher compensation to support our sales force, partially offset by lower advertising costs and lower conferences and events expenses.
-14
G&A decreased primarily due to lower consulting and transaction and integration costs, partially offset by higher stock based compensation.
+3
SD&P increased primarily due to higher consulting costs, partially offset by lower technology expense.
+3
D&A increased, driven by higher software amortization costs.
The lower interest income for the third quarter and nine months ended September 30, 2024 was primarily due to holding less cash and investments as we executed on a significant amount of stock buybacks over the past year, including a public tender offer in the third quarter of 2023, and began paying quarterly dividends. The higher interest expense, bank fees and other for the third quarter and nine months ended September 30, 2024 was primarily due to the additional interest on our 2031 Notes issued in the third quarter of 2023.
Income Taxes
Our ETR was 23% and 24% for the third quarter of 2024 and 2023, respectively, and 25% and 26% for the nine months ended September 30, 2024 and 2023, respectively. The decrease in rates as compared to the same periods in 2023 was primarily due to an increase in excludable income for state tax purposes and adjustments to prior year tax expense.
Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations. Our principal source of liquidity for operations is derived from cash provided by operating activities. We rely on cash provided by operating activities to meet our short-term liquidity requirements, which primarily relate to the payment of corporate payroll and other operating costs, and capital expenditures. Our cash flow related to WSE payroll and benefits is generally matched by advance collection from our PEO clients. To minimize the credit risk associated with remitting the payroll and associated taxes and benefits costs, we require PEO clients to prefund the payroll and related payroll taxes and benefits costs.
Included in our balance sheets are assets and liabilities resulting from transactions directly or indirectly associated with WSEs, including payroll and related taxes and withholdings, our sponsored workers' compensation and health insurance programs, and other benefit programs. Although we are not subject to regulatory restrictions that require us to do so, we distinguish and manage our corporate assets and liabilities separately from those current assets and liabilities held by us to satisfy our employer obligations associated with our WSEs.
In December of 2023, TriNet created a trust for the purpose of holding funds provided by HRIS clients for the remittance to HRIS Users, tax authorities and other recipients. This trust is consolidated into our financial statements.During the first quarter of 2024, TriNet Trust assumed ownership and responsibility of certain bank accounts that hold HRIS client funds.The associated cash is reflected on our balance sheet as restricted cash and the associated liabilities are classified as accrued wages, payroll tax liabilities and other payroll withholdings, and client deposits and other client liabilities and assumed related liabilities.As of September 30, 2024, the balance of restricted cash in TriNet Trust was $81 million. Beginning in the second quarter of 2024, we include the assets and liabilities related to the TriNet Trust in the "WSE & TriNet Trust" category because the underlying cash flows of TriNet Trust are related to the same type of payroll and payroll related liabilities as our WSE cash flows.
September 30, 2024
December 31, 2023
(in millions)
Corporate
WSE & TriNet Trust
Total
Corporate
WSE & TriNet Trust
Total
Current assets:
Cash and cash equivalents
$
250
$
1
$
251
$
287
$
—
$
287
Investments
50
—
50
65
—
65
Restricted cash, cash equivalents and investments
23
757
780
22
1,247
1,269
Other current assets
92
1,432
1,524
73
884
957
Total current assets
$
415
$
2,190
$
2,605
$
447
$
2,131
$
2,578
Total current liabilities
$
250
$
2,190
$
2,440
$
332
$
2,131
$
2,463
Working capital
$
165
$
—
$
165
$
115
$
—
$
115
As of September 30, 2024, we did not have any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Working capital for WSEs and TriNet Trust related activities
We designate funds to ensure that we have adequate current assets to satisfy our current obligations associated with WSEs. We manage our WSE payroll and benefits obligations through collections of payments from our clients which generally occur two to three days in advance of client payroll dates. We regularly review our short-term obligations associated with our WSEs (such as payroll and related taxes, insurance premium and claim payments) and designate funds required to fulfill these short-term obligations, which we refer to as PFC. PFC is included in current assets as restricted cash, cash equivalents and investments.
We manage our sponsored benefit and workers' compensation insurance obligations by maintaining collateral funds in restricted cash, cash equivalents and investments. These collateral amounts are generally determined at the beginning of each plan year and we may be required by our insurance carriers to adjust our collateral balances when facts and circumstances change. We regularly review our collateral balances with our insurance carriers and anticipate funding further collateral in the future based upon our capital requirements. We classify our restricted
cash, cash equivalents and investments as current and noncurrent assets to match against the anticipated timing of payments to carriers.
Working capital for corporate purposes
Corporate working capital as of September 30, 2024 increased $50 million from December 31, 2023, primarily due to the decreases in our corporate current liabilities.
We use our available cash and cash equivalents to satisfy our operational and regulatory requirements and to fund capital expenditures. We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through existing liquid assets, continuing cash flows from corporate operating activities and the potential issuance of debt or equity securities. We hold both corporate cash and cash associated with WSEs across multiple financial institutions to reduce concentrations of counterparty risk. We believe our existing corporate cash and cash equivalents and positive working capital will be sufficient to meet our working capital expenditure needs for at least the next twelve months.
Cash Flows
The following table presents our cash flow activities for the stated periods:
Nine Months Ended September 30,
(in millions)
2024
2023
Corporate
WSE & TriNet Trust
Total
Corporate
WSE & TriNet Trust
Total
Net cash provided by (used in):
Operating activities
$
213
$
(489)
$
(276)
$
386
$
(429)
$
(43)
Investing activities
(28)
3
(25)
(56)
(1)
(57)
Financing activities
(217)
—
(217)
(523)
—
(523)
Net decrease in cash and cash equivalents, unrestricted and restricted
$
(32)
$
(486)
$
(518)
$
(193)
$
(430)
$
(623)
Cash and cash equivalents, unrestricted and restricted:
Beginning of period
$
334
$
1,132
$
1,466
$
406
$
1,131
$
1,537
End of period
$
302
$
646
$
948
$
213
$
701
$
914
Net increase (decrease) in cash and cash equivalents:
Unrestricted
$
(36)
$
—
$
(36)
$
(184)
$
—
$
(184)
Restricted
$
4
$
(486)
$
(482)
$
(9)
$
(430)
$
(439)
Operating Activities
Components of net cash used in operating activities are as follows:
Nine Months Ended September 30,
(in millions)
2024
2023
Net cash used in operating activities:
$
(276)
$
(43)
Net cash used in operating activities - WSE & TriNet Trust
(489)
(429)
Net cash provided by operating activities - Corporate
213
386
The year-over-year change in net cash used in operating activities for WSE & TriNet Trust purposes was primarily driven by timing of client payments, payments of payroll and payroll taxes and insurance claim activities. We expect the changes in restricted cash and cash equivalents to correspond to WSE & TriNet Trust cash provided by (or used in) operations as we manage our obligations associated with WSEs and HRIS Users through restricted cash.
Our corporate operating cash flows in the nine months ended September 30, 2024 decreased, when compared to the same period in 2023, primarily due to the decrease in our net income and the timing of our payments of corporate obligations.
Cash used in investing activities for the periods presented below primarily consisted of purchases of investments, capital expenditures and acquisition of business, partially offset by proceeds from the sale and maturity of investments.
Nine Months Ended September 30,
(in millions)
2024
2023
Investments:
Purchases of investments
$
(161)
$
(226)
Proceeds from sale and maturity of investments
196
223
Cash used in investments
$
35
$
(3)
Acquisitions of property and equipment and software
(60)
(54)
Cash used in capital expenditures
$
(60)
$
(54)
Cash used in investing activities
$
(25)
$
(57)
Investments
We invest a portion of available cash in investment-grade securities with effective maturities less than five years that are classified on our balance sheets as investments. We consider industry and issuer concentrations in our investment policy.
We also invest funds held as collateral to satisfy our long-term obligation towards workers' compensation liabilities. These investments are classified on our balance sheets as restricted cash, cash equivalents and investments. We review the amount and the anticipated holding period of these investments regularly in conjunction with our estimated long-term workers' compensation liabilities and anticipated claims payment trend. At September 30, 2024, our investments had a weighted average duration of less than two years and an average S&P credit rating of AA.
As of September 30, 2024, we held approximately $1.4 billion in restricted and unrestricted cash, cash equivalents and investments, of which $251 million was unrestricted cash and cash equivalents and $195 million was unrestricted investments. Refer to Note 2 in the condensed consolidated financial statements and related notes included in this Form 10-Q.
Capital Expenditures
During the nine months ended September 30, 2024 and 2023, we continued to make investments in software and hardware and we enhanced our existing service offerings and technology platform. We expect capital investments in our software and hardware to continue in the future.
Financing Activities
Net cash used in financing activities in the nine months ended September 30, 2024 and 2023 consisted of our debt and equity-related activities.
Nine Months Ended September 30,
(in millions)
2024
2023
Financing activities
Repurchase of common stock, net of issuance
$
(167)
$
(1,114)
Proceeds from issuance of 2031 Notes
—
400
Payment of long-term financing fees and debt issuance costs
—
(9)
Proceeds from revolving credit agreement borrowings
—
695
Repayment of borrowings under revolving credit facility
(25)
(495)
Dividends paid
(25)
—
Cash used in financing activities
$
(217)
$
(523)
In February 2023, our board of directors authorized a $300 million incremental increase to our ongoing stock repurchase program initiated in May 2014. In July 2023, our board of directors authorized a further $1 billion incremental increase to this stock repurchase program. We use this program to return value to our stockholders and to offset dilution from the issuance of stock under our equity-based incentive plan and employee purchase plan.
On August 28, 2023, we completed a public tender offer through which we repurchased 5,981,308 shares of common stock at a price of $107.00 per share, for total consideration of approximately $640 million. On September 13, 2023, we repurchased 3,364,486 shares of common stock at a price of $107.00 per share, for total consideration of approximately $360 million, through a private repurchase from our largest stockholder, Atairos Group, Inc.
During the nine months ended September 30, 2024, we repurchased 1,455,515 shares of our common stock for approximately $154 million through our existing stock repurchase program in addition to 58,636 shares acquired to satisfy tax withholding obligations related to SBC vesting. As of September 30, 2024, approximately $279 million remained available for repurchase under all authorizations by our board of directors. We plan to use current cash and cash generated from ongoing operating activities to fund this stock repurchase program.
In February 2024, our board of directors declared a cash dividend of $0.25 per share, for a total payment of approximately $13 million, which was paid in April 2024. In June 2024, our board of directors authorized a dividend of $0.25 per share for an aggregate amount of approximately $12 million, which was paid in July 2024. In September 2024, our board of directors authorized a dividend of $0.25 per share for an aggregate amount of approximately $12 million, to be paid in October 2024.
Capital Resources
As of September 30, 2024, $500 million and $400 million aggregate principal of our 2029 Notes and 2031 Notes was outstanding, respectively. The indenture governing our 2029 Notes and 2031 Notes each includes restrictive covenants limiting our ability to: (i) create liens on certain assets to secure debt; (ii) grant a subsidiary guarantee of certain debt without also providing a guarantee of the 2029 Notes or 2031 Notes, as applicable; and (iii) consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of our assets to, another person, subject, in each case, to certain customary exceptions.
Our 2021 Credit Agreement includes a $700 million revolver. In September of 2023, we drew down $200 million of this revolver to partially fund our third quarter of 2023 share repurchases. The 2021 Credit Agreement includes negative covenants that limit our ability to incur indebtedness and liens, sell assets and make restricted payments, including dividends and investments, subject to certain exceptions. In addition, the 2021 Credit Agreement also contains other customary affirmative and negative covenants and customary events of default. The 2021 Credit Agreement also contains a financial covenant that requires the Company to maintain certain maximum total net leverage ratios.
We were in compliance with all financial covenants under our 2021 Credit Agreement, 2029 Notes and 2031 Notes at September 30, 2024.
Critical Accounting Policies, Estimates and Judgments
There have been no material changes to our critical accounting policies, estimates and judgments as discussed in our 2023 Form 10-K.
Quantitative and Qualitative Disclosures About Market Risk
Our exposure to changes in interest rates relates primarily to our investment portfolio. Changes in U.S. interest rates affect the interest earned on the Company's cash, cash equivalents and the fair value of our investments.
Our cash equivalents consist primarily of money market mutual funds, which are not significantly exposed to interest rate risk. Our investments are subject to interest rate risk because these securities generally include a fixed interest rate. As a result, the market values of these securities are affected by changes in prevailing interest rates. We attempt to limit our exposure to interest rate risk and credit risk by investing in instruments that meet the minimum credit quality, liquidity, diversification and other requirements of our investment policy. Our investments consist of liquid, investment-grade securities. The risk of rate changes on investment balances was not material at September 30, 2024 and December 31, 2023.
As of September 30, 2024, we had drawn down $175 million under our floating rate 2021 Revolver. The impact of a 100 basis point increase or decrease in market interest rates to interest expense on our 2021 Revolver as of September 30, 2024 over the next twelve months was approximately $1.8 million.
TRINET
29
2024 Q3 FORM 10-Q
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have, with the participation of our CEO and our CFO, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, our CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of such date in ensuring that (i) information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the CEO and CFO, to allow timely decisions regarding required disclosure and (ii) such information is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.
We have concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
($0.000025 par value per share; 20,000,000 shares authorized; no shares issued or outstanding at September 30, 2024 and December 31, 2023)
Common stock and additional paid-in capital
1,037
976
($0.000025 par value per share; 750,000,000 shares authorized; 49,611,791 and 50,664,471 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
TriNet Group, Inc. (TriNet, or the Company, we, our and us) provides comprehensive HCM solutions for small and medium-size businesses under both a PEO model and an HRIS services model. These HCM solutions include multi-state payroll processing and tax administration, employee benefits programs, including health insurance and retirement plans, workers' compensation insurance and claims management, employment and benefit law compliance, and other HR-related services. Through our PEO service model, we are the employer of record for certain employment-related administrative and regulatory purposes for WSEs, including:
•compensation through wages and salaries,
•certain employer payroll-related tax payments,
•employee payroll-related tax withholdings and payments,
•employee benefit programs, including health and life insurance, and
•workers' compensation coverage.
Our PEO clients are responsible for the day-to-day job responsibilities of the WSEs.
Through our HRIS services model, we provide cloud-based HCM services to SMBs that allows them to manage hiring, onboarding, employee information, payroll processing, payroll tax administration, health insurance, and other benefits, from a single cloud-based software platform. We are not the co-employer or employer of record for such employees.
We operate in one reportable segment. All of our service revenues are generated from external clients. Less than 1% of our revenue is generated outside of the U.S.
Basis of Presentation and Basis of Consolidation
These unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Rules and Regulations of the Securities and Exchange Commission. The unaudited condensed consolidated financial statements include the accounts of the Company and an entity consolidated under the variable interest model. Intercompany balances and transactions have been eliminated. Certain information and note disclosures included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, that are normal and recurring in nature, necessary for fair financial statement presentation. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the operating results anticipated for the full year. These financial statements should be read in conjunction with the audited Consolidated Financial Statements included in Part II, Item 8. Financial Statements and Supplementary Data of our Annual Report on Form 10-K for the year ended December 31, 2023. Certain prior year amounts have been reclassified to conform to current period presentation.
When entering into contractual arrangements with other entities, we assess whether we have a variable interest. If we determine that we have a variable interest, we then determine whether the arrangement is with a variable interest entity ("VIE"). If the arrangement is with a VIE, we assess whether we are the primary beneficiary of the VIE by identifying the most significant activities and determining who has the power over those activities and who has the obligation to absorb the majority of the losses or benefits of the VIE. We consolidate a VIE when we have the power to direct activities that most significantly affect the economic performance of the VIE and have the obligation to absorb the majority of their losses or benefits, making us the primary beneficiary.
Periodically, we assess whether any changes in our interest or relationship with the entity affect our determination of whether the entity is a VIE and, if so, whether we are the primary beneficiary.
In December 2023, we created a trust ("TriNet Trust") for the purpose of holding HRIS clients' payroll funds for the remittance to HRIS Users, tax authorities and other recipients. TriNet Trust's assets are restricted and can only be used for payments on behalf of HRIS clients, payments on behalf of the HRIS Users, repayments of any advances from TriNet, or payments to TriNet of interest income earned on the balances of TriNet Trust. In the event of any
losses, creditors to the Trust have recourse to TriNet Trust's property and not that of TriNet overall. The risks associated with the Trust are similar to those that currently exist for the Company such as banking losses in excess of FDIC insurance levels, interest rate and market conditions.
We determined that TriNet Trust meets the definition of a variable interest entity and as the primary beneficiary we have both the power to direct TriNet Trust’s activities that most significantly affect its performance and we have the right to receive benefits from TriNet Trust, in the form of interest income. As a result, TriNet Trust is consolidated into our financial statements.During the first quarter of 2024, TriNet Trust assumed ownership and responsibility of certain bank accounts that hold HRIS client funds and assumed related liabilities.
The following table presents the assets and liabilities of TriNet Trust which are included in our consolidated balance sheet. These amounts on any particular date can vary due to timing of cash receipts and remittances.
September 30, 2024
(in millions)
TriNet Trust
ASSETS
Current assets:
Cash and cash equivalents
$
1
Restricted cash, cash equivalents and investments
81
Total current assets
82
LIABILITIES
Current liabilities:
Accrued wages
12
Payroll tax liabilities and other payroll withholdings
70
Total current liabilities
82
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect certain reported amounts and related disclosures.
These estimates are based on historical experience and on various other assumptions that we believe to be reasonable from the facts available to us. Some of the assumptions are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our condensed consolidated financial statements could be materially affected.
Revenue Recognition
Variable Consideration and Pricing Allocation
From time to time, we may offer credits to our clients considered to be variable consideration. Incentive credits related to contract renewals are recorded as a reduction to revenue as part of the transaction price at contract inception and are allocated among the performance obligations based on their relative standalone selling prices.
We allocate the total transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised services underlying each performance obligation. The transaction price for the payroll and payroll tax processing performance obligations is determined upon establishment of the contract that contains the final terms of the arrangement, including the description and price of each service purchased. The estimated service fee is determined based on observable inputs and includes the following key assumptions: target profit margin, pricing strategies including the mix of services purchased and competitive factors, and client and industry specifics.
The fees for access to health benefits and workers' compensation insurance performance obligations are determined during client on-boarding and annually through the enrollment processes based on the types of benefits coverage the WSEs have elected and the applicable risk profile of the client. We estimate our service fees based on actuarial forecasts of our expected insurance premiums and loss sensitive premium costs and amounts to cover our costs to administer these programs.
We require our clients to prefund payroll and related taxes and other withholding liabilities before payroll is processed or due for payment. Under the provision of our contracts with clients, we generally will process the payment of a client’s payroll only when the client successfully funds the amount required. As a result, there is no financing arrangement for the contracts. However, certain contracts to provide payroll and payroll tax processing services permit the client to pay certain payroll tax components ratably over periods of up to 12 months rather than as payroll tax is otherwise determined and due, which may be considered a significant financing arrangement under FASB ASC Topic 606 Revenue from Contracts with Customers. However, as the period between our performing the service under the contract and when the client pays for the service is less than one year, we have elected, as a practical expedient, not to adjust the transaction price.
In previous years, we created our Recovery Credits to assist in the economic recovery of our existing PEO clients and enhance our ability to retain these clients. These credits were based on the performance of our insurance costs and were recorded as a reduction to insurance services revenues and included in client deposits and other client liabilities on the consolidated balance sheets. As of September 30, 2024, all Recovery Credits have been distributed to clients. The change in balance for the liability for credits previously accrued is the following:
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2024
2023
2024
2023
Balance at beginning of period
$
—
$
50
$
7
$
75
(+) Accruals
—
—
—
—
(-) Distributions to clients
—
(8)
(7)
(33)
Balance at end of period
$
—
$
42
$
—
$
42
Accrued Health Insurance Costs
We sponsor and administer a number of employee benefit plans for our PEO WSEs, including group health, dental, and vision as an employer plan sponsor under section 3(5) of the ERISA. In the nine months ended September 30, 2024, the majority of our group health insurance costs were related to risk-based plans. Our remaining group health insurance costs were for guaranteed-cost policies.
Accrued health insurance costs are established to provide for the estimated unpaid costs of reimbursing the carriers for paying claims within the deductible layer in accordance with risk-based health insurance policies. These accrued costs include estimates for claims incurred but not paid. We assess accrued health insurance costs regularly based upon actuarial studies that include other relevant factors such as current and historical claims payment patterns, plan enrollment and medical trend rates.
In certain carrier contracts we are required to prepay our obligations for the expected claims activity for subsequent periods. These prepaid balances by agreement permit net settlement of obligations and offset the accrued health insurance costs. As of September 30, 2024 and December 31, 2023, prepayments and miscellaneous receivables offsetting accrued health insurance costs were $56 million and $58 million, respectively. When the prepaid amount is in excess of our recorded liability the net asset position is included in prepaid expenses. As of September 30, 2024 and December 31, 2023, accrued health insurance costs offsetting prepaid expenses were $78 million and $68 million, respectively.
Restricted Cash, Cash Equivalents and Investments
Restricted cash, cash equivalents and investments presented on our consolidated balance sheets include:
•cash and cash equivalents in trust accounts functioning as security deposits for our insurance carriers,
•payroll funds collected representing cash collected in advance from clients which we designate as restricted for the purpose of funding WSE and HRIS User payroll and payroll taxes and other payroll related liabilities, and
•amounts held in trust for current and future premium and claim obligations with our insurance carriers, which amounts are held in trust according to the terms of the relevant insurance policies and by the local insurance regulations of the jurisdictions in which the policies are in force.
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions. The ASU is effective for TriNet on a prospective basis for annual periods beginning after December 15, 2024. We are currently evaluating the provisions of this ASU.
Segment Reporting
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which will require the Company to disclose segment expenses that are significant and regularly provided to the Company’s chief operating decision maker (“CODM”). In addition, ASU 2023-07 will require the Company to disclose the title and position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources. The ASU is effective for TriNet for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We are currently evaluating the provisions of this ASU.
NOTE 2. CASH, CASH EQUIVALENTS AND INVESTMENTS - UNRESTRICTED AND RESTRICTED
Under the terms of the agreements with certain of our workers' compensation and health benefit insurance carriers, we are required to maintain collateral in trust accounts for the benefit of specified insurance carriers and to reimburse the carriers’ claim payments within our deductible layer. We invest a portion of the collateral amounts in marketable securities. We report the current and noncurrent portions of these trust accounts as restricted cash, cash equivalents and investments on the consolidated balance sheets.
We require our clients to prefund their payroll and related taxes and other withholding liabilities before payroll is processed or due for payment. This prefund, for PEO customers, as well as amounts held by our statutory trust for our HRIS Users, is included in restricted cash, cash equivalents and investments as payroll funds collected, which is designated to pay pending payrolls, payroll tax liabilities and other payroll withholdings.
We also invest available corporate funds, primarily in fixed income securities which meet the requirements of our corporate investment policy and are classified as AFS.
Our total cash, cash equivalents and investments are summarized below:
September 30, 2024
December 31, 2023
(in millions)
Cash and cash equivalents
Available-for-sale marketable securities
Total
Cash and cash equivalents
Available-for-sale marketable securities
Total
Cash and cash equivalents
$
251
$
—
$
251
$
287
$
—
$
287
Investments
—
50
50
—
65
65
Restricted cash, cash equivalents and investments:
Payroll funds collected
496
—
496
1,067
—
1,067
Collateral for health benefits claims
42
111
153
31
113
144
Collateral for workers' compensation claims
48
—
48
54
2
56
Trust for our HRIS Users
81
—
81
—
—
—
Other security deposits
2
—
2
2
—
2
Total restricted cash, cash equivalents and investments
669
111
780
1,154
115
1,269
Investments, noncurrent
—
145
145
—
143
143
Restricted cash, cash equivalents and investments, noncurrent
The following tables summarize our financial instruments by significant categories and fair value measurement on a recurring basis as of September 30, 2024 and December 31, 2023 and the amortized cost, gross unrealized gains, gross unrealized losses, fair value of our AFS investments:
(in millions)
Fair Value Level
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Cash and Cash Equivalents
Investments
Restricted Cash, Cash Equivalents and Investments
September 30, 2024
Cash equivalents:
Money market mutual funds
Level 1
$
164
$
—
$
—
$
164
$
77
$
—
$
87
U.S. treasuries
Level 2
1
—
—
1
—
—
1
Total cash equivalents
165
—
—
165
77
—
88
AFS Investments:
Asset-backed securities
Level 2
40
—
—
40
—
40
—
Corporate bonds
Level 2
126
2
—
128
—
93
35
Agency securities
Level 2
28
—
—
28
—
6
22
U.S. treasuries
Level 2
225
2
—
227
—
50
177
Certificate of deposit
Level 2
2
—
—
2
—
—
2
Other debt securities
Level 2
6
—
—
6
—
6
—
Total AFS Investments
$
427
$
4
$
—
$
431
$
—
$
195
$
236
(in millions)
Fair Value Level
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Cash and Cash Equivalents
Investments
Restricted Cash, Cash Equivalents and Investments
December 31, 2023
Cash equivalents:
Money market mutual funds
Level 1
$
183
$
—
$
—
$
183
$
96
$
—
$
87
U.S. treasuries
Level 2
7
—
—
7
5
—
2
Total cash equivalents
190
—
—
190
101
—
89
AFS Investments:
Asset-backed securities
Level 2
41
—
(1)
40
—
40
—
Corporate bonds
Level 2
135
1
—
136
—
103
33
Agency securities
Level 2
40
—
(1)
39
—
10
29
U.S. treasuries
Level 2
231
1
(1)
231
—
47
184
Certificate of deposit
Level 2
2
—
—
2
—
—
2
Other debt securities
Level 2
8
—
—
8
—
8
—
Total AFS Investments
$
457
$
2
$
(3)
$
456
$
—
$
208
$
248
Fair Value of Financial Instruments
We use an independent pricing source to determine the fair value of our securities. The independent pricing source utilizes various pricing models for each asset class, including the market approach. The inputs and assumptions for the pricing models are market observable inputs including trades of comparable securities, dealer quotes, credit spreads, yield curves and other market-related data.
We have not adjusted the prices obtained from the independent pricing service and we believe the prices received from the independent pricing service are representative of the prices that would be received to sell the assets at the measurement date (exit price).
The carrying value of the Company's cash equivalents and restricted cash equivalents approximate their fair values due to their short-term maturities.
We did not have any Level 3 financial instruments recognized in our condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023. There were no transfers between levels as of September 30, 2024 and December 31, 2023.
Sales and Maturities
The fair value of debt investments by contractual maturity are shown below:
(in millions)
September 30, 2024
One year or less
$
91
Over one year through five years
318
Over five years through ten years
6
Over ten years
16
Total fair value
$
431
The gross proceeds from sales and maturities of AFS securities for the three and nine months ended September 30, 2024 and 2023 are presented below. We had immaterial gross realized gains and losses from sales of investments for the three and nine months ended September 30, 2024 and 2023.
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2024
2023
2024
2023
Gross proceeds from sales
$
31
$
30
$
93
$
115
Gross proceeds from maturities
39
19
103
108
Total
$
70
$
49
$
196
$
223
Fair Value of Long-Term Debt
The fair value of our 2029 Notes and 2031 Notes was obtained from a third-party pricing service and is based on observable market inputs. As such, the fair value of the Senior Notes is considered Level 2 in the hierarchy for fair value measurement. As of September 30, 2024, our 2029 Notes and 2031 Notes were carried at their cost, net of issuance costs, and had a fair value of $464 million and $417 million, respectively. As of December 31, 2023, our 2029 Notes and 2031 Notes were carried at their cost, net of issuance costs, and had a fair value of $443 million and $414 million, respectively.
Our 2021 Revolver is a floating rate debt. At September 30, 2024 and December 31, 2023, the fair value of our 2021 Revolver approximated its carrying value (exclusive of issuance costs). The fair value of our floating rate debt is estimated based on a discounted cash flow, which incorporates credit spreads, market interest rates and contractual maturities to estimate the fair value and is considered Level 3 in the hierarchy for fair value measurement.
The following table summarizes the accrued workers’ compensation cost activity for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2024
2023
2024
2023
Total accrued costs, beginning of period
$
154
$
178
$
175
$
189
Incurred
Current year
8
13
37
47
Prior years
6
(2)
(23)
(25)
Total incurred
14
11
14
22
Paid
Current year
(3)
(4)
(5)
(6)
Prior years
(10)
(7)
(29)
(27)
Total paid
(13)
(11)
(34)
(33)
Total accrued costs, end of period
$
155
$
178
$
155
$
178
The following summarizes workers' compensation liabilities on the condensed consolidated balance sheets:
(in millions)
September 30, 2024
December 31, 2023
Total accrued costs, end of period
$
155
$
175
Collateral paid to carriers and offset against accrued costs
(4)
(5)
Total accrued costs, net of carrier collateral offset
$
151
$
170
Payable in less than 1 year (net of collateral paid to carriers of $1 and $1at September 30, 2024 and December 31, 2023, respectively)
$
44
$
50
Payable in more than 1 year (net of collateral paid to carriers of $3 and $4 at September 30, 2024 and December 31, 2023, respectively)
107
120
Total accrued costs, net of carrier collateral offset
$
151
$
170
Incurred claims related to prior years represent changes in estimates for ultimate losses on workers' compensation claims. For the three months ended September 30, 2024, incurred losses from prior years increased primarily due to a relatively higher than expected reported claim frequency and severity for 2023 claims in comparison to 2024 claims. For the nine months ended September 30, 2024, favorable development is due to lower than expected reported claim frequency and severity for years prior to 2023.
As of September 30, 2024 and December 31, 2023, we had $26 million and $32 million of collateral held by insurance carriers of which $4 million and $5 million, respectively, was offset against accrued workers' compensation costs as the agreements permit and are net settled of insurance obligations against collateral held.
NOTE 5. COMMITMENTS AND CONTINGENCIES
Contingencies
We are and, from time to time, have been and may in the future become involved in various litigation matters, legal proceedings, and claims arising in the ordinary course of our business, including disputes with our clients or various class action, collective action, representative action, and other proceedings arising from the nature of our co-employment relationship with our clients and WSEs in which we are named as a defendant. In addition, due to the nature of our co-employment relationship with our clients and WSEs, we could be subject to liability for federal and state law violations, even if we do not participate in such violations. While our agreements with our clients contain indemnification provisions related to the conduct of our clients, we may not be able to avail ourselves of such provisions in every instance. We have accrued our current best estimates of probable losses with respect to these matters, which are individually and in aggregate immaterial to our consolidated financial statements.
While the outcome of the matters described above cannot be predicted with certainty, management currently does not believe that any such claims or proceedings will have a materially adverse effect on our consolidated financial position, results of operations, or cash flows. However, the unfavorable resolution of any particular matter or our
reassessment of our exposure for any of the above matters based on additional information obtained in the future could have a material impact on our consolidated financial position, results of operations, or cash flows.
NOTE 6. STOCK BASED COMPENSATION
Restricted Stock Units (RSUs)
Time-based RSUs generally vest over a four-year term. Performance-based RSUs are subject to vesting requirements and are earned, in part, based on certain financial performance metrics as defined in the grant notice. Actual number of shares earned may range from 0% to 200% of the target award. Performance-based awards granted in 2024 and 2023 are earned based on a single-year performance period subject to subsequent multi-year time-based vesting with 50% of the shares earned vesting in one year after the performance period and the remaining shares in the year after. RSUs are generally forfeited if the participant terminates service prior to vesting.
The following tables summarize RSU activity for the nine months ended September 30, 2024:
Time-based RSUs
Total Number
of Shares
Weighted-Average
Grant Date
Fair Value
Nonvested at December 31, 2023
1,229,202
$
80.88
Granted
568,303
122.73
Vested
(477,058)
84.57
Forfeited
(54,007)
91.44
Nonvested at September 30, 2024
1,266,440
$
96.88
Performance-based RSUs
Total Number of Shares
Weighted-Average
Grant Date
Fair Value
Nonvested at December 31, 2023
223,011
$
81.08
Granted
138,882
124.48
Vested
(14,159)
87.19
Forfeited
(15,428)
102.10
Nonvested at September 30, 2024
332,306
$
96.31
Stock Based Compensation
Stock based compensation expense for stock-based awards made to our employees pursuant to our equity plans were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2024
2023
2024
2023
Cost of providing services
$
4
$
3
$
12
$
10
Sales and marketing
3
2
9
6
General and administrative
7
9
28
24
Systems development and programming costs
1
1
4
3
Total stock based compensation expense
$
15
$
15
$
53
$
43
Total stock based compensation capitalized
$
1
$
1
$
2
$
2
NOTE 7. STOCKHOLDERS’ EQUITY
Common Stock
The following table shows the beginning and ending balances of our issued and outstanding common stock for the three and nine months ended September 30, 2024 and 2023:
Issuance of common stock from vested restricted stock units
161,229
161,125
491,217
464,051
Issuance of common stock from exercise of stock options
—
73,818
5,708
155,485
Issuance of common stock for employee stock purchase plan
—
—
75,944
104,017
Repurchase of common stock
(201,197)
(9,345,794)
(1,455,515)
(10,611,683)
Awards effectively repurchased for required employee withholding taxes
(58,636)
(56,519)
(170,034)
(159,941)
Shares issued and outstanding, ending balance
49,611,791
50,507,590
49,611,791
50,507,590
Stock Repurchases
As of September 30, 2024, there was $279 million remaining in the total authorization of $2,715 million of our ongoing stock repurchase program.
Dividends
In February 2024, our board of directors authorized a dividend of $0.25 per share for an aggregate amount of approximately $13 million, which was paid in April 2024. In June 2024, our board of directors authorized a dividend of $0.25 per share for an aggregate amount of approximately $12 million, which was paid in July 2024. In September 2024, our board of directors authorized a dividend of $0.25 per share for an aggregate amount of approximately $12 million, to be paid in October 2024.
NOTE 8. INCOME TAXES
Our ETR was 23% and 24% for the third quarter of 2024 and 2023, respectively, and 25% and 26% for the nine months ended September 30, 2024 and 2023, respectively. The decrease in rates as compared to the same periods in 2023 was primarily due to an increase in excludable income for state tax purposes and adjustments to prior year tax expense.
We are subject to tax in U.S. federal and various state and local jurisdictions, as well as Canada and India. We are open to federal and significant state income tax examinations for tax years 2019 and subsequent years.
NOTE 9. EARNINGS PER SHARE
Basic EPS is computed based on the weighted average shares of common stock outstanding during the period. Diluted EPS is computed based on those shares used in the basic EPS computation, plus potentially dilutive shares issuable under our equity-based compensation plans using the treasury stock method. Shares that are potentially anti-dilutive are excluded.
The following table presents the computation of our basic and diluted EPS attributable to our common stock:
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions, except per share data)
2024
2023
2024
2023
Net income
$
45
$
94
$
196
$
308
Weighted average shares of common stock outstanding
50
57
50
59
Basic EPS
$
0.90
$
1.65
$
3.91
$
5.23
Net income
$
45
$
94
$
196
$
308
Weighted average shares of common stock outstanding
50
57
50
59
Dilutive effect of stock options and restricted stock units
—
1
1
—
Weighted average shares of common stock outstanding
50
58
51
59
Diluted EPS
$
0.89
$
1.63
$
3.87
$
5.20
Common stock equivalents excluded from income per diluted share because of their anti-dilutive effect
For the information required in this section, refer to Note 5 in the condensed consolidated financial statements and related notes included in this Form 10-Q.
Risk Factors
Other than the risk factor below, there have been no material changes in our risk factors disclosed in Part 1, Item 1A, of our 2023 Form 10-K.
We face risks associated with our international operations
In August 2024, we opened a new office in Hyderabad, India, which increases the size and scale of our India-based workforce and operations. Historically, our business and operations have been primarily conducted in the United States. A disruption to, or our failure to successfully integrate, our operations in India involves risks. The risks associated with this and potential future international operations include:
•fluctuations in foreign currency exchange rates and global market volatility;
•difficulties and costs of staffing and managing foreign operations, including cultural and language differences and additional employment regulations, union workforce negotiations and potential disputes;
•geopolitical, economic or social instability or military conflict;
•natural disasters, terrorist attacks and other events over which we have no control;
•compliance with local laws and regulations, including privacy and security laws and regulations;
•compliance with laws governing doing business outside the United States, including foreign or domestic legal and regulatory requirements resulting in the imposition of new or more onerous sanctions and anti-corruption laws, export and import controls, trade restrictions, tariffs, duties, taxes, embargoes, exchange or other government controls;
•laws and business practices favoring local companies; and
•management of potentially adverse tax consequences from India, the United States, or both, as a result of our multi-jurisdiction operations.
Any of these risks could have an adverse impact on our ability to successfully manage our business and consequently have a material adverse effect on our business, financial condition and results of operations.
Unregistered Sales of Equity Securities and Use of Proceeds
(a) Sales of Unregistered Securities
Not applicable.
(b) Use of Proceeds from Sales of Unregistered Securities
Not applicable.
(c) Issuer Purchases of Equity Securities
The following table provides information about our purchases of TriNet common stock during the quarter ended September 30, 2024:
Period
Total Number of Shares
Purchased (2)
Weighted Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans (1)
Approximate Dollar Value ($ millions) of Shares that May Yet be Purchased Under the Plans (3)
July 1 - July 31, 2024
93,175
$
104.41
93,073
$
289
August 1 - August 31, 2024
107,426
$
95.49
56,451
$
284
September 1 - September 30, 2024
59,232
$
96.57
51,673
$
279
Total
259,833
201,197
(1) In May 2014, our board of directors approved a stock repurchase program pursuant to which we are authorized to repurchase our common stock in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934. From time to time, our board of directors authorizes increases to our stock repurchase program and approved an aggregate total of
$2,715 million as of September 30, 2024. The total remaining authorization for future stock repurchases under our stock repurchase program was $279 million as of September 30, 2024. The program does not have an expiration date.
(2) Includes shares surrendered by employees to us to satisfy tax withholding obligations that arose upon vesting of restricted stock units granted pursuant to approved plans.
(3) We repurchased a total of approximately $20 million of our outstanding stock during the three months ended September 30, 2024.
We use our stock repurchase program to return value to our stockholders and to offset dilution from the issuance of stock under our equity-based incentive plans and employee purchase plan. We plan to use current cash and cash generated from ongoing operating activities to fund our stock repurchase program.
Defaults Upon Senior Securities
Not applicable.
Mine Safety Disclosures
Not applicable.
Other Information
On August 6, 2024, Jeff Hayward, our Chief Technology Officer, adopted a new written trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (the “Hayward Plan”). The first possible trade date under the Hayward Plan is November 29, 2024, and the end date of the Hayward Plan is November 25, 2025 (subject to customary exceptions), for a duration of approximately one year and three months. The Hayward Plan calls for the sale of an amount of shares that Mr. Hayward could receive upon the future vesting of certain outstanding and expected equity awards, net of any shares withheld by us to satisfy applicable taxes. The exact number of shares to be sold pursuant to the Hayward Plan depends on the number of shares to be withheld by us and the amount of any additional equity awards that may be granted and that will vest during the duration of the Hayward Plan, among other factors. For purposes of this disclosure, without taking into account (i) any future equity awards account under the company’s equity-based incentive plans (ii) any new shares purchased under the company’s employee stock purchase plan or (iii) subtracting any shares to be withheld upon future vesting events, the aggregate number of shares currently expected to be sold pursuant to the Hayward Plan is 18,497.
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*
Document has been furnished, is deemed not filed and is not to be incorporated by reference into any of TriNet Group, Inc.’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
