TRINET GROUP, INC. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36373

TRINET GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		95-3359658
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One Park Place,	Suite 600
Dublin,	CA	94568
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (510) 352-5000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock par value $0.000025 per share	TNET	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes o No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares of Registrant’s Common Stock outstanding as of October 18, 2021 was 65,749,724.


TABLE OF CONTENTS

TRINET GROUP, INC.

Form 10-Q - Quarterly Report

For the Quarterly Period Ended September 30, 2021

TABLE OF CONTENTS


	Form 10-Q Cross Reference	Page
Glossary		3
Cautionary Note Regarding Forward-Looking Statements		4
Unaudited Condensed Consolidated Financial Statements	Part I, Item 1.	29
Condensed Consolidated Statements of Income and Comprehensive Income		29

Condensed Consolidated Balance Sheets		30
Condensed Consolidated Statements of Stockholders' Equity		31
Condensed Consolidated Statements of Cash Flows		32
Notes to Condensed Consolidated Financial Statements		33
Note 1. Description of Business and Significant Accounting Policies		33
Note 2. Cash, Cash Equivalents and Investments - Unrestricted and Restricted		35
Note 3. Investments		35
Note 4. Financial Instruments and Fair Value Measurements		36
Note 5. Accrued Workers' Compensation Costs		38
Note 6. Long-term Debt and Revolving Credit Agreements		39
Note 7. Commitments and Contingencies		40
Note 8. Stock Based Compensation		40
Note 9. Stockholders' Equity		41
Note 10. Income Taxes		42
Note 11. Earnings Per Share		43

Management’s Discussion and Analysis of Financial Condition and Results of Operations	Part I, Item 2.	6
Quantitative and Qualitative Disclosures About Market Risk	Part I, Item 3.	27
Controls and Procedures	Part I, Item 4.	28
Legal Proceedings	Part II, Item 1.	44
Risk Factors	Part II, Item 1A.	44
Unregistered Sales of Equity Securities and Use of Proceeds	Part II, Item 2.	44
Defaults Upon Senior Securities	Part II, Item 3.	44
Mine Safety Disclosures	Part II, Item 4.	44
Other Information	Part II, Item 5.	44
Exhibits	Part II, Item 6.	45


GLOSSARY			Table of Contents

Glossary of Acronyms and Abbreviations

Acronyms and abbreviations are used throughout this report, particularly in Part I, Item 1. Unaudited Condensed Consolidated Financial Statements and Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.




2021 Credit Program			A 2021 program potentially provide credits to certain 2021 customers, subject to certain predefined conditions and based on the existence of certain pandemic related excess health care cost savings.
2018 Term Loan			Our $425 million term loan A that we entered into in June 2018
AFS			Available-for-sale


CARES Act			Coronavirus Aid Relief and Economic Security Act

CEO			Chief Executive Officer
CFO			Chief Financial Officer
COBRA			Consolidated Omnibus Budget Reconciliation Act
COPS			Cost of providing services

COVID-19			Novel coronavirus


D&A			Depreciation and amortization expenses
EBITDA			Earnings before interest expense, taxes, depreciation and amortization of intangible assets

EPS			Earnings Per Share
ERISA			Employee Retirement Income Security Act
ESAC			Employer Services Assurance Corporation

ETR			Effective tax rate

FFCRA			Families First Coronavirus Response Act
G&A			General and administrative
GAAP			Generally Accepted Accounting Principles in the United States


HR			Human Resources



IRS			Internal Revenue Service
ICR			Insurance cost ratio
ISR			Insurance service revenues


LIBOR			London Inter-bank Offered Rate


MD&A			Management's Discussion and Analysis of Financial Condition and Results of Operations



OE			Operating expenses

PEO			Professional Employer Organization
PFC			Payroll funds collected

PPP			Paycheck Protection Program, a loan program administered by the U.S. Small Business Administration
PSR			Professional service revenues
Recovery Credit			2020 Program to provide clients with one-time reductions against fees for future services
Reg FD			Regulation Fair Disclosure
ROU			Right-of-use
RSA			Restricted Stock Award
RSU			Restricted Stock Unit
SBC			Stock Based Compensation
S&M			Sales and marketing
S&P			Standard & Poor's
SD&P			Systems development and programming
SEC			U.S. Securities and Exchange Commission
SMB			Small and medium-size business


U.S.			United States

WSE			Worksite employee
YTD			Year to date


FORWARD LOOKING STATEMENTS AND OTHER FINANCIAL INFORMATION			Table of Contents

Cautionary Note Regarding Forward-Looking Statements

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 support the economic recovery of our clients and SMBs; our ability to respond appropriately to the impact of COVID-19 on our business and our clients' businesses; the impact on our prospects, clients and business of our Connect 360 service model, the impact of our TriNet Financial Services Preferred product, and our 2nd annual TriNet PeopleForce conference; the effect that our offering of $500 million of our 3.50% senior notes and of our replacement of our existing revolving facility with our new $500 million revolving facility will have on our business; the timing and strategies we employ with respect to corporate investments and capital expenditures; expectations regarding medical utilization rates by our WSEs; the impact of the COVID-19 pandemic on regulations and government programs; the impact of our 2020 Recovery Credit program and our 2021 Credit Program and their suitability for generating client loyalty and retention; our ability to modify or develop service offerings to assist clients affected by COVID-19; the impact of our vertical approach; our ability to leverage our scale and industry HR experience to deliver vertical service offerings; the impact of our plans to continue to grow our client base; planned improvements to our technology platform; our ability to drive operating efficiencies and improve the client experience; the impact of our client service initiatives; the volume and severity of insurance claims and the impact of COVID-19 on those claims; metrics that may be indicators of future financial performance; the relative value of our benefit offerings versus those SMBs can independently obtain; the principal competitive drivers in our market; our plans to retain 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, including due to COVID-19; 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; 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, 2020 filed with the SEC on February 16, 2021 (our 2020 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 Item 7 of our 2020 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 our Form 10-Q filings for the quarters ended March 31, 2021 June 30, 2021, and those appearing in our other periodic filings with the SEC, and including risk factors associated with: the economic, health and business disruption caused by the COVID-19 pandemic; the impact of the COVID-19 pandemic on our clients and prospects, insurance costs and operations; the impact of the COVID-19 pandemic on the laws and regulations that impact our industry and clients; our ability to mitigate the business risks we face as a co-employer; our ability to manage unexpected changes in workers’ compensation and health insurance claims and costs by worksite employees; the effects of volatility in the financial and economic environment on the businesses that make up our client base and the concentration of our clients in certain geographies and industries; the impact of failures or limitations in the business systems we rely upon; the impact of our 2020 Recovery Credit program and 2021 Credit Program; adverse changes in our insurance coverage or our relationships with key insurance carriers; our ability to improve our technology to satisfy regulatory requirements and meet the expectations of our clients and manage client attrition; our ability to effectively integrate businesses we have acquired or may acquire in the future; our ability to effectively manage and improve our operational processes; our ability to attract and retain qualified personnel; the effects of increased competition and our ability to compete effectively; the impact on our business of cyber-attacks and security breaches; our ability to secure our information technology infrastructure and our confidential, sensitive and personal information; our ability to comply with constantly evolving data privacy and security laws; our ability to manage changes in, uncertainty regarding, or adverse application of the complex laws and regulations that govern our business; changing laws and regulations governing health insurance and employee benefits; our ability to be recognized as an employer of worksite employees under federal and state regulations; changes in the laws and regulations that govern what it means to be an employer, employee or independent contractor; our ability to comply


FORWARD LOOKING STATEMENTS AND OTHER FINANCIAL INFORMATION			Table of Contents

with the laws and regulations that govern PEOs and other similar industries; the outcome of existing and future legal and tax proceedings; fluctuation in our results of operation and stock price due to factors outside of our control, such as the volume and severity of our workers’ compensation and health insurance claims and the amount and timing of our insurance costs, operating expenses and capital expenditure requirements; our ability to comply with the restrictions of our credit facility and meet our debt obligations; and the impact of concentrated ownership in our stock. Any of these factors could cause our actual results to differ materially from our anticipated results.

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 Regulation Fair Disclosure (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.


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

Overview

TriNet is a leading provider of HR expertise, payroll services, employee benefits and employment risk mitigation services for SMBs. We deliver a comprehensive suite of services that help our clients administer and manage various HR-related needs and functions, such as compensation and benefits, payroll processing, employee data, health insurance and workers' compensation programs, and other transactional HR needs using our technology platform and HR, benefits and compliance expertise. We empower SMBs to focus on what matters most - growing their business.

We leverage our scale and industry HR experience to deliver our service offerings for SMBs in specific industry verticals. We believe our vertical approach is a key differentiator for us and creates additional value for our clients driven by service offerings that are tailored to address industry-specific HR needs. We offer six industry-tailored vertical services: TriNet Financial Services, TriNet Life Sciences, TriNet Main Street, TriNet Nonprofit, TriNet Professional Services, and TriNet Technology.

Operational Highlights

Our consolidated results for the nine months ended September 30, 2021 reflect our continuing efforts to serve our existing clients throughout the COVID-19 pandemic and to support the economic recovery of SMBs. We will continue to monitor and evaluate developments relating to the COVID-19 pandemic and will work to respond appropriately to the impact of COVID-19 on our business and our clients' businesses.

During the nine months ended September 30, 2021 we:

•continued to grow total revenues as we achieved the highest Total WSEs in our history,

•established our 2021 Credit Program to benefit our eligible clients,

•hosted the 2nd annual TriNet PeopleForce, our showcase customer and prospect conference focused on business transformation, agility and innovation for small and medium-size businesses,

•introduced TriNet Financial Services Preferred, a new top-tier version of our HR solution that addresses the critical HR needs of businesses in the financial services industry,

•launched 'Connect 360', an innovative service model intended to better meet client needs, and

•completed a $500 million senior notes offering, repaid and terminated our outstanding term loan, and replaced our existing revolving credit facility with a new $500 million revolving credit facility.


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Performance Highlights

Our results for the third quarter ended September 30, 2021 when compared to the same period of 2020 are noted below:

Q3 2021


	$1.1B			$105M			86%
	Total revenues			Operating income			Insurance cost ratio
	18	%	increase	133	%	increase	(3)	%	decrease

	$77M			$1.16			$87M
	Net income			Diluted EPS			Adjusted Net income *
	133	%	increase	142	%	increase	123	%	increase

	347,502			351,267
	Average WSEs			Total WSEs
	9	%	increase	10	%	increase

*	Non-GAAP measure. See definitions below under the heading "Non-GAAP Financial Measures".

We continued to achieve quarter-over-quarter revenue growth, reflecting our higher Average WSEs, rate increases and the $48 million decrease in the Recovery Credit recognized in 2021 compared to 2020.

During the third quarter of 2021, our Average WSEs increased 9% and total WSEs increased 10% compared to the same period in 2020, primarily as a result of continued hiring in our installed base.

Increased medical services utilization in the third quarter of 2021, combined with increased volume due to WSE growth, resulting in higher insurance costs compared to the same period in 2020.

The growth in total revenues, partially offset by increases in insurance costs and operating expenses, resulted in increases in our net income and Adjusted Net Income of 133% and 123%, respectively.

Our results for the nine months ended September 30, 2021 when compared to the same period of 2020 are noted below:

YTD 2021


	$3.3B			$364M			84%
	Total revenues			Operating income			Insurance cost ratio
	11	%	increase	8	%	increase	1	%	increase

	$269M			$4.03			$302M
	Net income			Diluted EPS			Adjusted Net income *
	8	%	increase	10	%	increase	10	%	increase

	333,839
	Average WSEs
	3	%	increase

*	Non-GAAP measure. See definitions below under the heading "Non-GAAP Financial Measures".


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Results of Operations

The following table summarizes our results of operations for the third quarter and nine months ended September 30, 2021 when compared to the same periods of 2020. 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 2020 Form 10-K.


	Three Months Ended September 30,								Nine Months Ended September 30,
(in millions, except operating metrics data)	2021			2020			% Change		2021			2020			% Change
Income Statement Data:
Professional service revenues	$	156		$	126		24	%	$	465		$	403		15	%
Insurance service revenues	992			849			17		2,843			2,568			11
Total revenues	1,148			975			18		3,308			2,971			11
Insurance costs	851			759			12		2,400			2,137			12
Operating expenses	192			171			12		544			496			10
Total costs and operating expenses	1,043			930			12		2,944			2,633			12
Operating income	105			45			133		364			338			8
Other income (expense):
Interest expense, bank fees and other	(5)			(8)			(38)		(15)			(16)			(6)
Interest income	3			2			50		6			9			(33)


Income before provision for income taxes	103			39			164		355			331			7
Income taxes	26			6			333		86			81			6
Net income	$	77		$	33		133	%	$	269		$	250		8	%


Cash Flow Data:
Net cash used in operating activities									(16)			$	(40)		(60)
Net cash used in investing activities									(145)			(151)			(4)
Net cash provided by financing activities									20			77			(74)

Non-GAAP measures (1):



Adjusted EBITDA	$	132		69			91		$	449		$	413		9
Adjusted Net income	$	87		39			123		$	302		$	274		10
Corporate Operating Cash Flows									$	334		$	308		8

Operating Metrics:
Insurance Cost Ratio	86		%	89		%	(3)	%	84		%	83		%	1	%
Average WSEs	347,502			317,737			9	%	333,839			322,595			3	%
Total WSEs	351,267			320,604			10		351,267			320,604			10

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

The following table summarizes our balance sheet data as of September 30, 2021 compared to December 31, 2020.


(in millions)	September 30, 2021		December 31, 2020		% Change
Balance Sheet Data:
Working capital	$	645	$	290	122	%
Total assets	3,069		3,043		1
Debt	495		370		34
Total stockholders’ equity	809		607		33


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Non-GAAP Financial Measures

In addition to financial measures presented in accordance with GAAP, we monitor other non-GAAP financial measures that we use to manage our business, 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, and - stock based compensation expense.	• Provides period-to-period comparisons on a consistent basis and an understanding as to how our management evaluates the effectiveness of our business strategies by excluding certain non-cash charges such as depreciation and amortization, and stock-based compensation recognized based on the estimated fair values. We believe these charges are either not directly resulting from our core operations or not indicative of our ongoing operations. • Enhances comparisons to prior periods and, accordingly, facilitates the development of future projections and earnings growth prospects. • Provides a measure, among others, used in the determination of incentive compensation for management. • We also sometimes refer to Adjusted EBITDA margin, which is the ratio of Adjusted EBITDA to total revenues.
Adjusted Net Income	• Net income, excluding the effects of: - effective income tax rate (1), - stock based compensation, - amortization of other intangible assets, net, - non-cash interest expense (2), and - the income tax effect (at our effective tax rate (1) of these pre-tax adjustments.	• Provides information to our stockholders and board of directors to understand how our management evaluates our business, to monitor and evaluate our operating results, and analyze profitability of our ongoing operations and trends on a consistent basis by excluding certain non-cash charges.
Corporate Operating Cash Flows	• Net cash provided by (used in) operating activities, excluding the effects of: - Assets associated with WSEs (accounts receivable, unbilled revenue, prepaid expenses and other current assets) and - Liabilities associated with WSEs (client deposits and other client liabilities, accrued wages, payroll tax liabilities and other payroll withholdings, accrued health benefit costs, accrued workers' compensation costs, insurance premiums and other payables, and other current liabilities).	• Provides information that our stockholders and management can use to evaluate our cash flows from operations independent of the current assets and liabilities associated with our WSEs. • Enhances comparisons to prior periods and, accordingly, used as a liquidity measure to manage liquidity between corporate and WSE related activities, and to help determine and plan our cash flow and capital strategies.

(1) Non-GAAP effective tax rate is 25.5% for 2021 and 2020, which excludes the income tax impact from stock-based compensation, changes in uncertain tax positions and nonrecurring benefits or expenses from federal legislative changes.

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


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Reconciliation of GAAP to Non-GAAP Measures

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2021			2020			2021			2020
Net income	$	77		$	33		$	269		$	250
Provision for income taxes	26			6			86			81
Stock based compensation	13			11			37			31
Interest expense, bank fees and other	5			8			15			16
Depreciation and amortization of intangible assets ¹	11			11			42			35
Adjusted EBITDA	$	132		$	69		$	449		$	413
Adjusted EBITDA Margin	11.5		%	7.1		%	13.6		%	13.9		%

(1) Amount includes impairment of customer relationship intangibles and amortization of cloud computing arrangements included in operating expenses.

The table below presents a reconciliation of Net income to Adjusted Net Income:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Net income	$	77	$	33	$	269	$	250
Effective income tax rate adjustment	—		(4)		(4)		(3)
Stock based compensation	13		11		37		31
Amortization of other intangible assets, net ¹	1		1		11		4
Non-cash interest expense	—		1		3		1
Income tax impact of pre-tax adjustments	(4)		(3)		(14)		(9)
Adjusted Net Income	$	87	$	39	$	302	$	274

(1) Amount includes impairment of customer relationship intangibles.

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


	Nine Months Ended September 30,
(in millions)	2021		2020
Net cash used in operating activities	$	(16)	$	(40)
Less: Change in WSE related other current assets	(50)		(103)
Less: Change in WSE related liabilities	(300)		(245)
Net cash used in operating activities - WSE	$	(350)	$	(348)
Net cash provided by operating activities - Corporate	$	334	$	308


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Operating Metrics

Worksite Employees (WSE)

Average WSE growth is a volume measure we use to monitor the performance of our business. Average WSEs increased 9% when comparing the third quarter of 2021 to the same period in 2020, primarily due to increased hiring in our installed base across all verticals in 2021, led by our Technology vertical. Our Recovery Credit program was designed to assist in the economic recovery of SMBs and to promote client loyalty and incentivize client retention. In the third quarter and nine months ended September 30, 2021, most of the hiring in our installed based was from clients that benefited from this program.

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 growing our business and retaining clients.

Anticipated revenues for future periods can diverge from the revenue expectation derived from Average WSEs or Total WSEs due to pricing differences across our HR 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 our revenue opportunities. We report the impact of client and WSE participation differences as a change in mix.

In addition to focusing on retaining and growing our WSE base, we continue to review acquisition opportunities that would add appropriately to our scale. We continue to invest in efforts intended to enhance client experiences and manage attrition, through operational and process improvements.

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 colleagues and 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, increases in these insurance costs above our projections, reflected as a higher ICR, result in lower net income, and decreases in these insurance costs below our projections, reflected as a lower ICR, result in higher net income.


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

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. 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)	2021			2020			2021			2020
Insurance costs	$	851		$	759		$	2,400		$	2,137
Insurance service revenues	992			849			2,843			2,568
Insurance Cost Ratio	86		%	89		%	84		%	83		%

ICR decreased for the quarter due to the increase in insurance service revenues, resulting from higher Average WSEs, rate increases and the decrease in the Recovery Credit recognized, exceeding the increase in insurance costs.

ICR increased slightly for the nine months ended September 30, 2021 due to the increase in medical services utilization in 2021, combined with COVID-19 testing, treatment and vaccination costs, which together resulted in higher insurance costs. This was partially offset by the increase in insurance service revenues. While medical services utilization has increased in 2021, the ICR remains below pre-pandemic levels, as access to medical systems was constrained in certain regions due to the increase in hospitalizations arising from the COVID-19 Delta variant, reducing preventative and elective procedures.

Total Revenues

Our revenues consist of professional service revenues (PSR) and insurance service revenues (ISR). PSR represents fees charged to clients for processing payroll-related transactions on behalf of our clients, access to our HR expertise, employment and benefit law compliance services, and other HR-related services. ISR consists of insurance-related billings and administrative fees collected from clients and withheld from WSEs for workers' compensation insurance and health benefit insurance plans provided by third-party insurance carriers.

In April 2020, we created our Recovery Credit program to assist in the economic recovery of our existing SMB clients and enhance our ability to retain these clients. Eligible clients received one-time reductions against fees for future services, accounted for as a discount, to be received over the following 12 months.

As of June 30, 2021, we have fully recognized the $145 million maximum amount for the Recovery Credit and no further reduction to revenue will be recognized. The reduction in total revenue under the Recovery Credit program was estimated each period based on the timing of when eligible clients received the Recovery Credit and the ultimate amount of the total Recovery Credit. We did not recognize any reduction in total revenues in the third quarter of 2021 for the Recovery Credit, compared to a reduction of $48 million recognized in the third quarter of 2020.


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

We recognized a $25 million reduction to revenue under our 2021 Credit Program in the first quarter of 2021. This amount reflects estimated credits that will be paid to eligible clients under this program, based on the expected performance of our health insurance costs in 2021, and is currently limited to $25 million. These credits are recorded as a reduction to ISR and are payable within 12 months to eligible clients as of March 31, 2021. To the extent we experience higher than expected health insurance costs during the remainder of 2021, this estimate may be reduced. There was no change in this estimate in the third quarter.

Monthly total revenues per Average WSE is a measure we use to monitor the success of our pricing strategies. This measure increased 8% during the third quarter of 2021 and the nine months ended September 30, 2021 compared to the same periods in 2020.

We also use the following measures to further analyze changes in total revenue:

•Volume - the percentage change in period over period 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 Average WSEs within our verticals combined with the composition of our enrolled WSEs within our insurance service offerings, and

•Credit - the weighted average amounts recognized for the Recovery Credit and 2021 Credit programs.

PSR

ISR - % represents proportion of ISR to total revenues

The growth in total revenues for the quarter was primarily driven by higher Average WSEs and growth in rate, combined with the $48 million decrease in the Recovery Credit recognized in 2021. The growth in total revenues for the nine months ended September 30, 2021 was primarily driven by higher Average WSEs and growth in rate,


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

combined with the $87 million decrease in the Recovery Credit recognized in 2021. This was partially offset by the $25 million reduction in revenue recognized for the 2021 Credit Program in the first quarter of 2021.

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, reimbursement of claims payments made by insurance carriers or third-party administrators, and changes in accrued costs related to contractual obligations with our workers' compensation and health benefit carriers. Our OE consists primarily of our corporate employees' 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 quarter and nine months ended September 30, 2021, as compared to the same periods in 2020.


(in millions)
$45		Third Quarter 2020 Operating Income
	+173	Higher total revenues primarily driven by higher Average WSEs, rate increases and the $48 million decrease in the Recovery Credit recognized.
	-92	Higher insurance costs primarily as a result of higher medical services utilization and higher volume driven by the growth in WSEs.
	-21	Higher OE primarily as a result of increased sales and marketing expense, higher payroll tax and assessments, together with higher compensation and consulting expenses to support initiatives to improve client experience, enhance service offerings, and improve processes.
$105		Third Quarter 2021 Operating Income


(in millions)
$338		YTD 2020 Operating Income
	+337	Higher total revenues primarily driven by higher Average WSEs, rate increases and the $87 million decrease in the Recovery Credit recognized. This was partially offset by the $25 million reduction in revenue recognized for the 2021 Credit Program in the first quarter of 2021.
	-263	Higher insurance costs primarily as a result of higher medical services utilization, compared to the prior year period, which had significantly lower than typical medical services utilization due to stay-at-home orders and social distancing practices due to the COVID-19 pandemic.
	-48	Higher OE primarily as a result of increased sales and marketing expense, higher payroll tax and assessments and D&A, together with higher compensation and consulting expenses to support initiatives to improve client experience, enhance service offerings, and improve processes.
$364		YTD 2021 Operating Income


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Professional Service Revenues

Our clients are billed on a fee per WSE per month per transaction. Our vertical approach provides us the flexibility to offer our 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.

We also analyze changes in PSR with the following measures:

•Volume - the percentage change in period over period Average WSEs,

•Rate - the weighted average percentage change in fees for each vertical,

•Mix - the change in composition of Average WSEs across our verticals, and

•Recovery Credit - the weighted average amounts recognized for the Recovery Credit program.

The growth in PSR for the quarter was driven by higher Average WSEs, a growth in rate and the decrease in the Recovery Credit recognized. The growth in rate was weighted to our smaller customers, and included an increase in fees for other services, including COBRA administration. We continued to experience a favorable change in our vertical mix of WSEs, as a return to hiring in certain industries was partially offset by attrition in other industries. The growth in PSR for the nine months ended September 30, 2021 was primarily driven by higher Average WSEs, rate growth and the decrease in the Recovery Credit recognized.


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Insurance Service Revenues

ISR consists of insurance services-related billings and administrative fees collected from 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 Average WSEs,

•Rate - the weighted average percentage change in fees associated with each of our insurance service offerings,

•Mix - all other changes including the composition of our enrolled WSEs within our insurance service offerings (health plan enrollment), and

•Credit - the weighted average amounts recognized for the Recovery Credit and 2021 Credit programs.

The growth in ISR for the quarter and nine months ended September 30, 2021 was primarily driven by higher Average WSEs, rate increases and the decrease in the Recovery Credit recognized. The growth in the nine months ended September 30, 2021 was partially offset by the $25 million reduction in revenue recognized in the first quarter for the 2021 Credit Program.


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Insurance Costs

Insurance costs include insurance premiums for coverage provided by insurance carriers, payments for claims costs and other risk management 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 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 WSEs within our insurance service offerings (health plan enrollment).

During the third quarter and nine months ended September 30, 2020, stay-at-home orders and social distancing practices due to the COVID-19 pandemic decreased the medical services utilization as enrollees deferred or cancelled elective procedures and reduced outpatient medical, dental and vision services. Medical services utilization increased in the third quarter and nine months ended September 30, 2021 as enrollees returned to outpatient medical, dental and vision care and elective procedures, with some regional volatility due to the surge of the COVID-19 Delta variant.

The increase in medical services utilization in 2021, combined with COVID-19 testing, treatment and vaccination costs, caused the increase in rate in the third quarter and nine months ended September 30, 2021. This was partially offset by larger positive claims development as our accrued health costs as of December 31, 2020 were paid during the nine months ended September 30, 2021.


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Operating Expenses

OE includes cost of providing services (COPS), sales and marketing (S&M), general and administrative (G&A), systems development and programming (SD&P), and depreciation and amortization expenses (D&A).

We had approximately 2,700 corporate employees as of September 30, 2021 in 12 offices across the U.S. In the third quarter of 2021, we continued to exit expiring leases due to our evolving remote work practices and policies. Our corporate employees' compensation-related expenses represent a majority of our operating expenses. Compensation costs for our corporate employees include payroll, payroll taxes, SBC, bonuses, commissions and other payroll- and benefits-related costs. Compensation-related expense represented 60% and 64% of our OE in the third quarters of 2021 and 2020 and 62% and 65% in the nine months ended September 30, 2021 and 2020, respectively.

During the third quarter and the nine months ended September 30, 2021, we experienced OE increases of 12% and 10%, respectively, when compared to the same periods in 2020. During the third quarter and the nine months ended September 30, 2021, the percent of OE to total revenues was 17% and 16%, compared to the 18% and 17% in the same periods in 2020.

% represents portion of compensation related expense included in operating expenses


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

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 year-over-year change.


(in millions)
$171		Q3 2020 Operating Expenses
	-7	COPS decreased, driven primarily by lower compliance costs, partially offset by increased compensation.
	+11	S&M increased, driven primarily by increased compensation and costs related to TriNet PeopleForce.
	+14	G&A increased, driven primarily by increased payroll tax and assessments, compensation and corporate insurance.
	+3	SD&P increased, driven primarily by higher consulting and technology services expenses as we continue to work to improve our client experience and our systems and processes.

	$192	Q3 2021 Operating Expenses


(in millions)
$496		YTD 2020 Operating Expenses
	-1	COPS was consistent with the prior year.
	+11	S&M increased, driven primarily by increased compensation and costs related to TriNet PeopleForce.
	+22	G&A increased, driven primarily by increased payroll tax and assessments, compensation and technology services expenses to improve our client experience, our systems and processes, and to enhance our service offerings.
	+9	SD&P increased, driven primarily by increased consulting, compensation and technology services expenses as we continue to work to improve our client experience and our systems and processes.
	+7	D&A increased, driven primarily by the impairment of customer relationship intangibles.
$544		YTD 2021 Operating Expenses


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

The primary drivers to the changes in our OE are presented below:


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Other Income (Expense)

Other income (expense) consists primarily of interest and dividend income from investments, interest expense under our previous credit facility and interest on our 3.50% Senior Notes due 2029 (our 2029 Notes) issued in February 2021.

Interest income for the quarter was consistent with the prior period. Interest income for the nine months ended September 30, 2021 decreased primarily due to lower average market interest rates.

Interest expense, bank fees and other for the quarter decreased due to interest expense on payroll tax compliance costs incurred in the third quarter of 2020. Interest expense, bank fees and other for the nine months ended September 30, 2021 was consistent with the prior period.

Income Taxes

Our effective tax rate (ETR) was 25% and 14% for the third quarter of 2021 and 2020, respectively, and 24% for the nine months ended September 30, 2021 and 2020. The increase when comparing the quarter rates for 2021 with the same period in 2020 was primarily due to a decrease in excludable income for state tax purposes and a decrease in tax benefits related to stock-based compensation.


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Liquidity and Capital Resources

Liquidity

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. We believe that we have sufficient liquidity and capital resources to satisfy future requirements and meet our obligations to our clients, creditors and debt holders.

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 as follows:


	September 30, 2021						December 31, 2020
(in millions)	Corporate		WSE		Total		Corporate		WSE		Total
Current assets:
Cash and cash equivalents	$	525	$	—	$	525	$	301	$	—	$	301
Investments	155		—		155		57		—		57
Restricted cash, cash equivalents and investments	17		1,023		1,040		15		1,373		1,388
Other current assets	76		405		481		59		355		414
Total current assets	$	773	$	1,428	$	2,201	$	432	$	1,728	$	2,160




Total current liabilities	$	128	$	1,428	$	1,556	$	142	$	1,728	$	1,870

Working capital	$	645	$	—	$	645	$	290	$	—	$	290

Working capital for WSEs related activities

We designate funds to ensure that we have adequate current assets to satisfy our current obligations associated with WSEs, the Recovery Credit liability and 2021 Credit Program liability. We expect the Recovery Credit and 2021 Credit Program aggregate liability of $64 million as of September 30, 2021 to be settled over the following 12 months. 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, 2021 increased $355 million from December 31, 2020, primarily driven by a $224 million increase in corporate unrestricted cash and cash equivalents and a $98 million increase in corporate investments.

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 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.


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Cash Flows

The following table presents our cash flow activities for the stated periods:


	Nine Months Ended September 30,
(in millions)	2021						2020
	Corporate		WSE		Total		Corporate		WSE		Total
Net cash provided by (used in):
Operating activities	$	334	$	(350)	$	(16)	$	308	$	(348)	$	(40)
Investing activities	(133)		(12)		(145)		(63)		(88)		(151)
Financing activities	20		—		20		77		—		77
Net increase (decrease) in cash and cash equivalents, unrestricted and restricted	$	221	$	(362)	$	(141)	$	322	$	(436)	$	(114)
Cash and cash equivalents, unrestricted and restricted:
Beginning of period	352		1,291		1,643		291		1,165		1,456
End of period	$	573	$	929	$	1,502	$	613	$	729	$	1,342

Net increase (decrease) in cash and cash equivalents:
Unrestricted	$	224	$	—	$	224	$	350	$	—	$	350
Restricted	(3)		(362)		(365)		(28)		(436)		(464)

Operating Activities

Components of net cash provided by operating activities are as follows:


	Nine Months Ended September 30,
(in millions)	2021		2020
Net cash used in operating activities	$	(16)	$	(40)
Net cash used in operating activities - WSE	(350)		$	(348)
Net cash provided by operating activities - Corporate	334		308

The year-over-year change in net cash used in operating activities for WSE purposes was primarily driven by timing of client payments, payments of payroll and payroll taxes, settlement of the Recovery Credit, and insurance claim activities. We expect the changes in restricted cash and cash equivalents to correspond to WSE cash provided by (or used in) operations as we manage our obligations associated with WSEs through restricted cash.

Our corporate operating cash flows in the nine months ended September 30, 2021 increased, when compared to the same period in 2020, due to the increase in our net income and the timing of our payments of corporate obligations.


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Investing Activities

Cash used in investing activities for the periods presented below primarily consisted of purchases of investments and capital expenditures, partially offset by proceeds from the sale and maturity of investments.


	Nine Months Ended September 30,
(in millions)	2021		2020
Investments:
Purchases of investments	(348)		(278)
Proceeds from sale and maturity of investments	232		166
Other	—		(12)
Cash used in investments	$	(116)	$	(124)

Capital expenditures:
Software and hardware	$	(25)	$	(26)
Office furniture, equipment and leasehold improvements	(4)		(1)
Cash used in capital expenditures	$	(29)	$	(27)
Cash used in investing activities	$	(145)	$	(151)

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 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, 2021, 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, 2021, we held approximately $2.1 billion in restricted and unrestricted cash, cash equivalents and investments, of which $525 million was unrestricted cash and cash equivalents and $322 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, 2021 and 2020, 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.


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Financing Activities

Net cash provided by financing activities in the nine months ended September 30, 2021 and 2020 consisted of our debt and equity-related activities.


	Nine Months Ended September 30,
(in millions)	2021		2020
Financing activities
Repurchase of common stock, net of issuance	$	(101)	$	(141)
Draw down from revolving credit facility	—		234
Payment of long-term financing fees	(2)		—
Payment of debt issuance costs	(7)		—
Proceeds from issuance of 2029 Notes	500		—
Repayment of borrowings	(370)		(16)
Cash provided by financing activities	$	20	$	77

During the nine months ended September 30, 2021, we repurchased 1,155,707 shares of our common stock for approximately $94 million through our stock repurchase program. As of September 30, 2021, approximately $264 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 2021, we issued $500 million aggregate principal amount of our 2029 Notes. $370 million of the proceeds was used to repay and terminate the 2018 Term Loan A. The remaining funds will be used for general corporate purposes. Refer to Note 6 in the condensed consolidated financial statements and related notes included in this Form 10-Q for further information.

In February 2021, concurrently with the closing of the 2029 Notes offering, we entered into a new $500 million revolving credit facility under a new credit agreement (our 2021 Credit Agreement). The 2021 Credit Agreement includes a $100 million letter of credit sub-facility and a $40 million swingline sub-facility. We also have the option to incur incremental credit facilities of up to the greater of $450 million and 100% of EBITDA for the most recent period of four fiscal quarters for which financial statements have been delivered. Such incremental facilities are subject to obtaining additional commitments from lenders.

Capital Resources

Sources of Funds

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 clients. To minimize the credit risk associated with remitting the payroll and associated taxes and benefits costs, we require clients to prefund the payroll and related payroll taxes and benefits costs.

We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through existing liquid assets and continuing cash flows from corporate operating activities.

Covenants

The Indenture governing the 2029 Notes 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; 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.


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

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 at September 30, 2021.

Critical Accounting Policies, Estimates and Judgments

There have been no material changes to our critical accounting policies as discussed in our 2020 Form 10-K.

Recent Accounting Pronouncements

There have been no material changes to our recent accounting pronouncements as discussed in our 2020 Form 10-K.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND CONTROLS AND PROCEDURES			Table of Contents

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, 2021 and December 31, 2020.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND CONTROLS AND PROCEDURES			Table of Contents

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have, with the participation of our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021, 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, 2021, 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, 2021, 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.


FINANCIAL STATEMENTS			Table of Contents

TRINET GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions except per share data)	2021		2020		2021		2020
Professional service revenues	$	156	$	126	$	465	$	403
Insurance service revenues	992		849		2,843		2,568
Total revenues	1,148		975		3,308		2,971
Insurance costs	851		759		2,400		2,137
Cost of providing services	61		68		191		192
Sales and marketing	56		45		147		136
General and administrative	52		38		128		106
Systems development and programming	12		9		36		27
Depreciation and amortization of intangible assets	11		11		42		35
Total costs and operating expenses	1,043		930		2,944		2,633
Operating income	105		45		364		338
Other income (expense):
Interest expense, bank fees and other	(5)		(8)		(15)		(16)
Interest income	3		2		6		9
Income before provision for income taxes	103		39		355		331
Income taxes	26		6		86		81
Net income	$	77	$	33	$	269	$	250
Other comprehensive (loss) income, net of income taxes	(2)		—		(3)		4
Comprehensive income	$	75	$	33	$	266	$	254

Net income per share:
Basic	$	1.17	$	0.49	$	4.08	$	3.69
Diluted	$	1.16	$	0.48	$	4.03	$	3.66
Weighted average shares:
Basic	66		67		66		68
Diluted	67		68		67		69

See accompanying notes.


FINANCIAL STATEMENTS			Table of Contents

TRINET GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


	September 30,		December 31,
(in millions, except share and per share data)	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	525	$	301
Investments	155		57
Restricted cash, cash equivalents and investments	1,040		1,388
Accounts receivable, net	8		18
Unbilled revenue, net	305		246
Prepaid expenses, net	73		63
Other current assets	95		87
Total current assets	2,201		2,160
Restricted cash, cash equivalents and investments, noncurrent	176		210
Investments, noncurrent	167		138
Property, equipment and software, net	78		79
Operating lease right-of-use asset	44		51
Goodwill	294		294
Other intangible assets, net	7		18
Other assets	102		93
Total assets	$	3,069	$	3,043
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other current liabilities	$	70	$	50

Long-term debt	—		22
Client deposits and other client liabilities	120		134
Accrued wages	555		309
Accrued health insurance costs, net	162		172
Accrued workers' compensation costs, net	54		59
Payroll tax liabilities and other payroll withholdings	567		1,095
Operating lease liabilities	12		11
Insurance premiums and other payables	16		18
Total current liabilities	1,556		1,870
Long-term debt, noncurrent	495		348
Accrued workers' compensation costs, noncurrent, net	137		138
Deferred taxes	21		22
Operating lease liabilities, noncurrent	43		49
Other non-current liabilities	8		9
Total liabilities	2,260		2,436
Commitments and contingencies (see Note 7)
Stockholders' equity:
Preferred stock	—		—
($0.000025 par value per share; 20,000,000 shares authorized; no shares issued or outstanding at September 30, 2021 and December 31, 2020)
Common stock and additional paid-in capital	790		747
($0.000025 par value per share; 750,000,000 shares authorized; 65,743,170 and 66,456,663 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively)
Retained earnings (Accumulated deficit)	18		(144)
Accumulated other comprehensive income	1		4
Total stockholders' equity	809		607
Total liabilities & stockholders' equity	$	3,069	$	3,043

See accompanying notes.


FINANCIAL STATEMENTS			Table of Contents

TRINET GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Total Stockholders' Equity, beginning balance	$	744	$	616	$	607	$	475
Common Stock and Additional Paid-In Capital
Beginning balance	776		719		747		694
Issuance of common stock from exercise of stock options	1		—		1		—
Issuance of common stock for employee stock purchase plan	—		—		5		5
Stock based compensation expense	13		11		37		31

Ending balance	790		730		790		730

Retained Earnings (Accumulated Deficit)
Beginning balance	(35)		(108)		(144)		(219)
Net income	77		33		269		250

Repurchase of common stock	(20)		(35)		(94)		(135)
Awards effectively repurchased for required employee withholding taxes	(4)		(5)		(13)		(11)
Ending balance	18		(115)		18		(115)

Accumulated Other Comprehensive Income
Beginning balance	3		5		4		—
Other comprehensive (loss) income	(2)		—		(3)		5
Ending balance	1		5		1		5
Total Stockholders' Equity, ending balance	$	809	$	620	$	809	$	620

See accompanying notes.


FINANCIAL STATEMENTS			Table of Contents

TRINET GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine Months Ended September 30,
(in millions)	2021		2020
Operating activities
Net income	$	269	$	250
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	63		49
Amortization of ROU	8		12
Lease modification and impairment	2		—
Accretion of discount rate on lease liabilities	2		2
Amortization of premium of investments	2		—
Stock based compensation	37		31



Changes in operating assets and liabilities:
Accounts receivable, net	10		5
Unbilled revenue, net	(59)		(90)
Prepaid expenses, net	(10)		(1)

Accounts payable and other current liabilities	19		10
Client deposits and other client liabilities	(14)		163
Accrued wages	246		63
Accrued health insurance costs, net	(10)		(7)
Accrued workers' compensation costs, net	(6)		(2)
Payroll taxes payable and other payroll withholdings	(528)		(467)
Operating lease liabilities	(10)		(15)
Other assets	(34)		(46)
Other liabilities	(3)		3
Net cash used in operating activities	(16)		(40)
Investing activities
Purchases of marketable securities	(348)		(278)
Proceeds from sale and maturity of marketable securities	232		166
Acquisitions of property and equipment	(29)		(27)
Other	—		(12)
Net cash used in investing activities	(145)		(151)
Financing activities
Repurchase of common stock	(94)		(135)
Proceeds from issuance of common stock	6		5
Awards effectively repurchased for required employee withholding taxes	(13)		(11)
Proceeds from revolving credit agreement borrowings	—		234
Payment of long-term financing fees	(2)		—
Payment of debt issuance costs	(7)		—
Proceeds from issuance of 2029 Notes	500		—
Repayment of debt	(370)		(16)

Net cash provided by financing activities	20		77
Net decrease in cash and cash equivalents, unrestricted and restricted	(141)		(114)
Cash and cash equivalents, unrestricted and restricted:
Beginning of period	1,643		1,456
End of period	$	1,502	$	1,342

Supplemental disclosures of cash flow information
Interest paid	$	11	$	11
Income taxes paid, net	83		83
Supplemental schedule of noncash investing and financing activities
Payable for purchase of property and equipment	$	3	$	1

See accompanying notes.


FINANCIAL STATEMENTS			Table of Contents

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), a professional employer organization, provides comprehensive human resources solutions for small and medium-size businesses under a co-employment model. These HR 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 the co-employment relationship, we are the employer of record for certain employment-related administrative and regulatory purposes for the worksite employees (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 others, and

•workers' compensation coverage.

Our clients are responsible for the day-to-day job responsibilities of the WSEs.

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

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. 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, 2021 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, 2020 (2020 Form 10-K).

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 consolidated financial statements could be materially affected.


FINANCIAL STATEMENTS			Table of Contents

Revenue Recognition

Performance Obligations

In April 2020, we created our Recovery Credit program to assist in the economic recovery of our existing SMB clients and enhance our ability to retain these clients. Under this one-time program eligible clients will receive reductions against fees for future services, accounted for as a discount, over the following 12 months. This option to renew future services at a discount represents a material right and is accounted for as a performance obligation (Recovery Credit). This performance obligation will be satisfied when the clients have successfully renewed the services contracts and the future services are transferred.

The consideration we receive that is allocated to this performance obligation is deferred as an unsatisfied performance obligation and is included in client deposits and other client liabilities on the balance sheet. The amount of consideration we defer each period is dependent on the timing of when eligible clients will receive the Recovery Credit, which is subject to a limit on the total amount of $145 million.

The change in the balance of the Recovery Credit unsatisfied performance obligation was as follows:


	September 30, 2021
(in millions)	Three Months Ended		Nine Months Ended

Balance at beginning of period	$	63	$	92
(+) Accruals	—		17
(-) Distributions to clients	(24)		(70)
Balance at end of period	$	39	$	39

Variable Consideration and Pricing Allocation

Our contracts with clients generally do not include any variable consideration. However, 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. Credits based on the performance of our insurance costs are recorded as a reduction to insurance services revenues and included in client deposits and other client liabilities on the balance sheet. In the nine months ended September 30, 2021, we accrued $25 million under our 2021 Credit Program, payable within 12 months to eligible clients as of March 31, 2021, related to the expected performance of our health insurance costs for the year.

Accrued Health Insurance Costs

We sponsor and administer a number of employee benefit plans, 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, 2021, a majority of our group health insurance costs 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 reported losses, plus estimates for claims incurred but not paid. We assess accrued health insurance costs regularly based upon external 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 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, 2021 and December 31, 2020, prepayments and miscellaneous receivables offsetting accrued health insurance costs were $54 million and $49 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, 2021 and December 31, 2020, accrued health insurance costs offsetting prepaid expenses were $65 million and $58 million, respectively.


FINANCIAL STATEMENTS			Table of Contents

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 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 available for sale (AFS).

Our total cash, cash equivalents and investments are summarized below:


	September 30, 2021						December 31, 2020
(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	$	525	$	—	$	525		$	301	$	—	$	301
Investments	—		155		155			—		57		57
Restricted cash, cash equivalents and investments:
Payroll funds collected	863		—		863			1,228		—		1,228
Collateral for health benefits claims	24		94		118			16		82		98
Collateral for workers' compensation claims	57		—		57			60		—		60

Other security deposits	2		—		2			2		—		2
Total restricted cash, cash equivalents and investments	946		94		1,040			1,306		82		1,388
Investments, noncurrent	—		167		167			—		138		138
Restricted cash, cash equivalents and investments, noncurrent
Collateral for workers' compensation claims	31		145		176			36		174		210
Total	$	1,502	$	561	$	2,063		$	1,643	$	451	$	2,094

NOTE 3. INVESTMENTS

The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of our AFS investments as of September 30, 2021 and December 31, 2020 are presented below:


	September 30, 2021								December 31, 2020
(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Asset-backed securities	$	48	$	—	$	—	$	48	$	24	$	—	$	—	$	24
Corporate bonds	171		1		—		172		126		2		—		128
U.S. government agencies and government- sponsored agencies	18		—		—		18		27		1		—		28
U.S. treasuries	299		2		—		301		261		4		—		265

Certificate of deposit	12		—		—		12		—		—		—		—
Other debt securities	10		—		—		10		6		—		—		6
Total	$	558	$	3	$	—	$	561	$	444	$	7	$	—	$	451

Gross unrealized losses were immaterial at September 30, 2021 and December 31, 2020.


FINANCIAL STATEMENTS			Table of Contents

Unrealized losses on fixed income securities are principally caused by changes in interest rates and the financial condition of the issuer. In analyzing an issuer's financial condition, we consider whether the securities are issued by the federal government or its agencies, whether downgrades by credit rating agencies have occurred, and industry analysts' reports. As we have the ability to hold these investments until maturity, or for the foreseeable future, no decline was deemed to be other-than-temporary. Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

The fair value of debt investments by contractual maturity are shown below:


(in millions)	September 30, 2021
One year or less	$	189
Over one year through five years	335
Over five years through ten years	7
Over ten years	30
Total fair value	$	561

The gross proceeds from sales and maturities of AFS securities for the three and nine months ended September 30, 2021 and September 30, 2020 are presented below. We had immaterial gross realized gains and losses from sales of investments for the three and nine months ended September 30, 2021 and 2020.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020


Gross proceeds from sales	$	51	$	18	$	131	$	70
Gross proceeds from maturities	26		29		101		96
Total	$	77	$	47	$	232	$	166

NOTE 4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

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 balance sheet as of September 30, 2021 and December 31, 2020. There were no transfers between levels as of September 30, 2021 and December 31, 2020.

Fair Value Measurements on a Recurring Basis

The following tables summarize our financial instruments by significant categories and fair value measurement on a recurring basis as of September 30, 2021 and December 31, 2020.


FINANCIAL STATEMENTS			Table of Contents


(in millions)	Level 1		Level 2		Total
September 30, 2021
Cash equivalents:
Money market mutual funds	$	2	$	—	$	2
U.S. treasuries	—		3		3
Total cash equivalents	2		3		5
Investments:
Asset-backed securities	—		48		48
Corporate bonds	—		140		140
U.S. government agencies and government-sponsored agencies	—		2		2
U.S. treasuries	—		122		122
Other debt securities	—		10		10
Total investments	—		322		322
Restricted cash equivalents:
Money market mutual funds	95		—		95
U.S. treasuries	—		1		1

Total restricted cash equivalents	95		1		96
Restricted investments:
Corporate bonds	—		32		32
U.S. government agencies and government-sponsored agencies	—		16		16

U.S. treasuries	—		179		179
Certificate of deposit	—		12		12
Total restricted investments	—		239		239
Total cash equivalents and investments and restricted cash equivalents and investments	$	97	$	565	$	662


(in millions)	Level 1		Level 2		Total
December 31, 2020
Cash equivalents
Money market mutual funds	$	2	$	—	$	2
U.S. treasuries	—		11		11
Total cash equivalents	2		11		13
Investments
Asset-backed securities	—		24		24
Corporate bonds	—		93		93
U.S. government agencies and government-sponsored agencies	—		5		5
U.S. treasuries	—		67		67
Other debt securities	—		6		6
Total investments	—		195		195
Restricted cash equivalents:
Money market mutual funds	99		—		99



Total restricted cash equivalents	99		—		99
Restricted investments:
Corporate bonds	—		35		35
U.S. government agencies and government-sponsored agencies	—		23		23
U.S. treasuries	—		198		198

Total restricted investments	—		256		256
Total investments and restricted cash equivalents and investments	$	101	$	462	$	563


FINANCIAL STATEMENTS			Table of Contents

Fair Value of Financial Instruments Disclosure

Long-Term Debt

As of December 31, 2020, our long-term debt was floating rate debt and the fair value approximated its carrying value (exclusive of issuance costs). The fair value of our floating rate debt was estimated based on a discounted cash flow, which incorporated credit spreads and market interest rates to estimate the fair value and was considered Level 3 in the hierarchy for fair value measurement.

The fair value of our 2029 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, 2021, our 2029 Notes were carried at their cost, net of issuance costs, and had a fair value of $504 million.

Derivative Instruments

As of December 31, 2020, the fair value of the interest rate collar derivative, included in accounts payable and other current liabilities, was $1 million and was classified as Level 2 in the fair value hierarchy. In conjunction with the repayment and termination of our 2018 Term Loan, the interest rate collar derivative was terminated and settled and a realized loss of $1 million was recognized in net income for the nine months ended September 30, 2021.

NOTE 5. ACCRUED WORKERS' COMPENSATION COSTS

The following table summarizes the accrued workers’ compensation cost activity for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Total accrued costs, beginning of period	$	198	$	211	$	205	$	214
Incurred
Current year	16		15		49		48
Prior years	(3)		(3)		(18)		(12)
Total incurred	13		12		31		36
Paid
Current year	(3)		(2)		(6)		(5)
Prior years	(10)		(11)		(32)		(35)
Total paid	(13)		(13)		(38)		(40)
Total accrued costs, end of period	$	198	$	210	$	198	$	210

The following summarizes workers' compensation liabilities on the condensed consolidated balance sheets:


(in millions)	September 30, 2021		December 31, 2020
Total accrued costs, end of period	$	198	$	205
Collateral paid to carriers and offset against accrued costs	(7)		(8)
Total accrued costs, net of carrier collateral offset	$	191	$	197

Payable in less than 1 year (net of collateral paid to carriers of $2 and $3 at September 30, 2021 and December 31, 2020, respectively)	$	54	$	59
Payable in more than 1 year (net of collateral paid to carriers of $5 and $5 at September 30, 2021 and December 31, 2020, respectively)	137		138
Total accrued costs, net of carrier collateral offset	$	191	$	197

Incurred losses related to prior years represents changes in estimates for ultimate losses on workers' compensation claims. For the three and nine months ended September 30, 2021, the favorable development is due to lower than expected reported claim frequency and severity for the more recent years.


FINANCIAL STATEMENTS			Table of Contents

As of September 30, 2021 and December 31, 2020, we had $43 million and $45 million, respectively, of collateral held by insurance carriers of which $7 million and $8 million, respectively, was offset against accrued workers' compensation costs as the agreements permit and are net settled of insurance obligations against collateral held.

NOTE 6. LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENTS

As of September 30, 2021 and December 31, 2020, our long-term debt consisted of the following:


(in millions)	September 30, 2021			December 31, 2020
2018 Term Loan A	$	—		$	370
2029 Notes	500			—
Principal amount	500			370
Deferred issuance costs	(5)			—
Less: current portion	—			(22)
Long-term debt, noncurrent	$	495		$	348

Annual contractual interest rate	3.50		%	1.77		%
Effective interest rate	3.67		%	1.87		%

In June 2018 we entered into a $425 million term loan A (our 2018 Term Loan) under our 2018 credit agreement (our 2018 Credit Agreement). The 2018 Credit Agreement included a $250 million revolving credit facility (our 2018 Revolver). The 2018 Credit Agreement was terminated in February 2021.

In February 2021, we issued $500 million aggregate principal of 3.50% senior unsecured notes maturing in March 2029 (our 2029 Notes). The 2029 Notes are a senior unsecured obligation of TriNet Group, Inc. and rank equally with all of its existing and future senior unsecured indebtedness. Interest payments on the 2029 Notes are due semi-annually in arrears on March 1 and September 1, beginning on September 1, 2021. The net proceeds were used to repay and terminate our 2018 Term Loan and for general corporate purposes.

We may voluntarily redeem the 2029 Notes, in whole or in part, 1) at any time prior to March 1, 2024 at (a) 100% of their principal amount, plus a “make whole” premium or (b) with the net cash proceeds received from an equity offering at a redemption price equal to 103.50% of the principal amount, provided the aggregate principal amount of all such redemptions does not exceed 40% of the original aggregate principal amount of the 2029 Notes; 2) at any time on or after March 1, 2024 at a prepayment price equal to 101.75% of the principal amount; 3) at any time on or after March 1, 2025 at a prepayment price equal to 100.875%of the principal amount; and 4) at any time on or after March 1, 2026 at a prepayment price equal to 100% of the principal amount; in each case, plus accrued and unpaid interest, if any, to but excluding, the date of redemption.

In February 2021, concurrently with the closing of the 2029 Notes offering, we entered into a new $500 million revolving facility (our 2021 Revolver) under a new credit agreement (our 2021 Credit Agreement) and the 2018 Credit Agreement was terminated. Letters of credit issued pursuant to the revolving facility reduce the amount available for borrowing under the 2021 Revolver. As of September 30, 2021, we had remaining capacity of $491 million under our 2021 Revolver.

The annual interest rate for borrowings under our 2021 Revolver is calculated based on an applicable London Interbank Offered Rate (LIBOR) tenor of our choosing, plus a margin of 1.25% to 2.00%, or, at our option, the alternative base rate (ABR), plus a margin of 0.25% to 1.00%. The applicable LIBOR or ABR margin is based on our Total Leverage Ratio, as defined in the 2021 Credit Agreement. The ABR is the highest of (a) the applicable Federal Reserve Bank of New York rate, as defined in our 2021 Credit Agreement plus 0.50% (b) the prime rate, and (c) one month LIBOR adjusted daily plus 1.00%.

In the event TriNet Group, Inc. receives a Corporate Issuer Credit Rating that is one level below investment grade rating or higher from at least two Nationally Recognized Statistical Rating Organizations, then rating based pricing applies and, for so long as rating based pricing applies, irrespective of the Total Leverage Ratio, the LIBOR margin will be 1.125% and the ABR margin will be 0.125%.


FINANCIAL STATEMENTS			Table of Contents

The indenture governing our 2029 Notes 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; 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.

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 the 2021 Credit Agreement at September 30, 2021.

NOTE 7. COMMITMENTS AND CONTINGENCIES

Contingencies

On September 29, 2020, a class action was filed in the United States District Court for the Middle District of Florida against the directors of certain TriNet subsidiaries and other TriNet employees on behalf of participants in two retirement plans available to TriNet’s eligible worksite employees, the TriNet 401(k) Plan and the TriNet Select 401(k) Plan. The complaint is similar to claims recently brought against a number of employers including PEOs and generally alleges that the defendants violated certain fiduciary obligations to Plan participants under the Employee Retirement Income Security Act of 1974 with respect to overseeing plan investment and recordkeeping fees. These claims are in the early stages, and we are unable to reasonably estimate any possible loss, or range of loss, with respect to this matter. We believe the claims are without merit.

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 8. STOCK BASED COMPENSATION

Restricted Stock Units (RSUs) and Restricted Stock Awards (RSAs)

Time-based RSUs and RSAs generally vest over a four-year term. Performance-based RSUs and RSAs 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 2021 and 2020 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 and RSAs are generally forfeited if the participant terminates service prior to vesting.


FINANCIAL STATEMENTS			Table of Contents

The following tables summarize RSU and RSA activity for the nine months ended September 30, 2021:

Time-based RSUs and RSAs



	Total Number of RSUs	Total Number of RSAs	Total Number of Shares	Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2020	1,230,071	30,026	1,260,097	$	54.04
Granted	528,524	—	528,524	82.67
Vested	(471,212)	(18,540)	(489,752)	53.03
Forfeited	(145,569)	—	(145,569)	60.50
Nonvested at September 30, 2021	1,141,814	11,486	1,153,300	$	66.78

Performance-based RSUs and RSAs


	Total Number of RSUs	Total Number of RSAs	Total Number of Shares	Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2020	167,127	16,052	183,179	$	52.89
Granted	246,349	—	246,349	67.70
Vested	(3,010)	(16,052)	(19,062)	47.61

Forfeited	(9,459)	—	(9,459)	52.86
Nonvested at September 30, 2021	401,007	—	401,007	$	62.24

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)	2021		2020		2021		2020
Cost of providing services	$	3	$	2	$	9	$	7
Sales and marketing	1		2		5		5
General and administrative	8		6		21		17
Systems development and programming costs	1		1		2		2
Total stock based compensation expense	$	13	$	11	$	37	$	31
Total stock based compensation capitalized	$	—	$	—	$	1	$	1

NOTE 9. 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, 2021 and 2020:


FINANCIAL STATEMENTS			Table of Contents


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Shares issued and outstanding, beginning balance	65,864,116	67,292,864	66,456,663	69,065,491
Issuance of common stock from vested restricted stock units	127,704	158,041	474,222	500,291
Issuance of common stock from exercise of stock options	29,570	25,075	59,305	65,684
Issuance of common stock for employee stock purchase plan	—	—	74,070	130,532
Repurchase of common stock	(230,456)	(521,137)	(1,155,707)	(2,688,538)
Awards effectively repurchased for required employee withholding taxes	(47,764)	(56,859)	(165,383)	(175,476)
Shares issued and outstanding, ending balance	65,743,170	66,897,984	65,743,170	66,897,984

Stock Repurchases

During the nine months ended September 30, 2021, we repurchased 1,155,707 shares of common stock for approximately $94 million. We retire shares in the period they are acquired and account for the payment as a reduction to stockholders' equity. As of September 30, 2021, approximately $264 million remained available for further repurchases of our common stock under all authorizations from our board of directors under this program. This repurchase authorization has no expiration.

NOTE 10. INCOME TAXES

Our effective tax rate (ETR) was 25% and 14% for the three months ended September 30, 2021 and 2020, respectively, and 24% for the nine months ended September 30, 2021 and 2020. The increase when comparing the quarter rates for 2021 with the same period in 2020 was primarily due to a decrease in excludable income for state tax purposes and a decrease in tax benefits related to stock-based compensation.

During the nine months ended September 30, 2021, there was a decrease of $1 million in our unrecognized tax benefits. The total amount of gross interest and penalties accrued was immaterial. It is reasonably possible the amount of the unrecognized benefit could increase or decrease within the next 12 months for which an estimate of the impact on net income cannot be made.

We are subject to tax in U.S. federal and various state and local jurisdictions, as well as Canada. We are open to federal and significant state income tax examinations for tax years 2016 and subsequent years.

We previously paid Notices of Proposed Assessments disallowing employment tax credits totaling $11 million, plus interest of $4 million in connection with the IRS examination of Gevity HR, Inc. and its subsidiaries, which was acquired by TriNet in June 2009. TriNet filed suit in June 2016 to recover the disallowed credits, and the issue is being resolved through the litigation process. TriNet and the U.S. filed cross motions for summary judgment in federal district court. On September 17, 2018, the district court granted our motion for summary judgment and denied the U.S.'s motion. On January 18, 2019, the district court entered judgment in favor of TriNet in the amount of $15 million, plus interest. The U.S. filed a notice of appeal of the federal district court's decision on March 18, 2019. The U.S. filed its opening brief in the court of appeals on June 10, 2019 and we filed our answering brief on July 24, 2019 to which the government filed its reply brief on September 6, 2019. Oral arguments occurred on March 11, 2020. On November 5, 2020, the court of appeals affirmed the district court’s judgement in favor of TriNet. The April 5, 2021 deadline for the IRS to petition the Supreme Court for review passed without a petition. TriNet will pursue recovery of the judgment.


FINANCIAL STATEMENTS			Table of Contents

NOTE 11. EARNINGS PER SHARE (EPS)

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)	2021		2020		2021		2020
Net income	$	77	$	33	$	269	$	250
Weighted average shares of common stock outstanding	66		67		66		68
Basic EPS	$	1.17	$	0.49	$	4.08	$	3.69
Net income	$	77	$	33	$	269	$	250
Weighted average shares of common stock outstanding	66		67		66		68
Dilutive effect of stock options and restricted stock units	1		1		1		1
Weighted average shares of common stock outstanding	67		68		67		69
Diluted EPS	$	1.16	$	0.48	$	4.03	$	3.66

Common stock equivalents excluded from income per diluted share because of their anti-dilutive effect	—		—		1		1


OTHER INFORMATION			Table of Contents

Risk Factors

There have been no material changes in our risk factors disclosed in Part 1, Item 1A, of our 2020 Form 10-K and Part II, Item 1A, of our Form 10-Q for the quarter ended June 30, 2021.

Legal Proceedings

For the information required in this section, refer to Note 7 in the condensed consolidated financial statements and related notes included in this Form 10-Q.

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.

The following table provides information about our purchases of TriNet common stock during the quarter ended September 30, 2021:


Period	Total Number of Shares Purchased (1)	Weighted Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (2)	Approximate Dollar Value ($ millions) of Shares that May Yet be Purchased Under the Plans (3)
July 1 - July 31, 2021	64,972	$	79.95	64,690	$	278
August 1 - August 31, 2021	212,630	$	87.88	165,766	$	264
September 1 - September 30, 2021	618	$	91.51	—	$	264
Total	278,220			230,456

(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 $951 million as of September 30, 2021. The total remaining authorization for future stock repurchases under our stock repurchase program was $264 million as of September 30, 2021. 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, 2021.

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

Not applicable.


EXHIBITS			Table of Contents

Exhibits

Incorporated herein by reference is a list of the exhibits contained in the Exhibit Index below.

EXHIBIT INDEX

Incorporated by Reference

Exhibit No.

Exhibit

Form

File No.

Exhibit

Filing Date

Filed Herewith

3.1

Amended and Restated Certificate of Incorporation of TriNet Group, Inc.

8-K

001-36373

3.1

4/1/2014

3.2

Certificate of Correction of Amended and Restated Certificate of Incorporation of TriNet Group, Inc.

10-Q

001-36373

3.1

11/2/2017

3.3

Amended and Restated Bylaws of TriNet Group, Inc.

S-1/A

333-192465

3.4

3/4/2014

4.1

Registration Rights Agreement, by and between TriNet Group, Inc. and AGI-T, L.P., dated as of February 1, 2017.

8-K

001-36373

4.1

2/2/2017

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

XBRL Taxonomy Extension Schema Linkbase Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded with the Inline XBRL document)



*			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.


SIGNATURES			Table of Contents

SIGNATURES

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.


	TRINET GROUP, INC.

Date: October 25, 2021		By:	/s/ Burton M. Goldfield
			Burton M. Goldfield
			Chief Executive Officer

Date: October 25, 2021		By:	/s/ Kelly Tuminelli
			Kelly Tuminelli

			Chief Financial Officer