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 June 30, ~~2019~~2020

☐ 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~~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 July ~~18, 2019~~20, 2020 was ~~69,935,199.~~67,295,561.



TABLE OF CONTENTS

TRINET GROUP, INC.

Form 10-Q - Quarterly Report

For the Quarterly Period Ended June 30, ~~2019~~2020

TABLE OF CONTENTS



	Form 10-Q Cross Reference	Page
Glossary		3
Unaudited Condensed Consolidated Financial Statements	Part I, Item 1.	26
~~Condensed Consolidated Balance Sheets~~		2632
Condensed Consolidated Statements of Income and Comprehensive Income		2732
Condensed Consolidated Balance Sheets		33
Condensed Consolidated Statements of Stockholders' Equity		2834
Condensed Consolidated Statements of Cash Flows		2935
Notes to Condensed Consolidated Financial Statements		3036
Management’s Discussion and Analysis of Financial Condition and Results of Operations	Part I, Item 2.	59
Quantitative and Qualitative Disclosures About Market Risk	Part I, Item 3.	2531
Controls and Procedures	Part I, Item 4.	2531
Legal Proceedings	Part II, Item 1.	4449
Risk Factors	Part II, Item 1A.	446
Unregistered Sales of Equity Securities and Use of Proceeds	Part II, Item 2.	4449
Defaults Upon Senior Securities	Part II, Item 3.	4449
Mine Safety Disclosures	Part II, Item 4.	4449
Other Information	Part II, Item 5.	4449
Exhibits	Part II, Item 6.	4550



GLOSSARY

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.



AFS	Available-for-sale
ASC	Accounting standards codification
ASU	Accounting standards update
CARES Act	Coronavirus Aid, Relief and Economic Security Act
CEO	Chief Executive Officer
CFO	Interim Chief Financial Officer
COPS	Cost of providing services
COVID-19	Novel coronavirus
D&A	Depreciation and Amortization
EBITDA	Earnings before interest expense, taxes, depreciation and amortization of intangible assets
EPS	Earnings Per Share
ERISA	Employee Retirement Income Security Act of 1974
ETR	Effective tax rate
FASB	Financial Accounting Standards Board
FFCRA	Families First Coronavirus Relief Act
G&A	General and administrative
GAAP	Generally Accepted Accounting Principles in the United States
HR	Human Resources
IRS	Internal Revenue Service
ISR	Insurance service revenues
LIBOR	London Inter-bank Offered Rate
MCT	Medical cost trend
MD&A	Management's Discussion and Analysis of Financial Condition and Results of Operations
NIM	Net Insurance Margin
NISR	Net Insurance Service Revenues
NSR	Net service revenues
OE	Operating expenses
PFC	Payroll funds collected
PPP	Paycheck protection loan program
PSR	Professional service revenues
~~ROU~~Recovery Credit	~~Right-of-use~~Program to provide clients with one-time reductions against fees for future services
Reg FD	Regulation Fair Disclosure
RSA	Restricted Stock Award
RSU	Restricted Stock Unit
SBC	Stock Based Compensation
S&M	Sales and marketing
SD&P	Systems development and programming
SEC	Securities and Exchange Commission
SMB	Small to midsize business
U.S.	United States
WSE	Worksite employee



FORWARD LOOKING STATEMENTS AND OTHER FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements and Other Financial Information

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 ~~consolidated~~ 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: the impact of the COVID-19 pandemic; the impact of our Recovery Credit program and its suitability for generating client loyalty and retention; our ability to modify product and 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 product and service offerings; the growth of our customer base; planned improvements to our technology platform; our ability to drive operating efficiencies and improve the customer experience; the impact of our customer service initiatives; the volume and severity of insurance claims and the impact of COVID-19 on 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 and the impact of COVID-19 on those trends; 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 throughout our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 13, 2020 (our 2019 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 2019 Form 10-K, the risks appearing under the heading “Risk Factors” in Part II, Item 1A of this Form 10-Q and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on April 28, 2020 (our 1Q20 Form 10-Q), as well as in our other periodic filings with the SEC, and including risk factors associated with: the impact of the COVID-19 pandemic on our business and the business of our 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; the impact of the concentration of our clients in certain geographies and industries; the impact of failures or limitations in the business systems we rely upon; adverse changes in our insurance coverage or our relationships with key insurance carriers; our ability to manage our client attrition; our ability to improve our technology to satisfy regulatory requirements and meet the expectations of our clients; 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 from cyber-attacks and security breaches; 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 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 AND OTHER FINANCIAL INFORMATION

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.

Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements are discussed throughout our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 14, 2019 (2018 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 2018 Form 10-K, as well as in our other periodic filings with the SEC. Examples of forward-looking statements include, among others: risks associated with changes in, uncertainty regarding, or adverse application of the complex laws and regulations that govern our business; our ability to be recognized as an employer of worksite employees under federal and state regulations; our ability to mitigate business risks associated with our co-employment relationship with our worksite employees; our ability to secure private and confidential client and worksite employee data and our information technology infrastructure against cyber-attacks and security breaches; our ability to manage unexpected changes in workers’ compensation and health insurance claims by worksite employees; fluctuation in our results of operation and stock price as a result of numerous factors, many of which are outside of our control, such as the volume and severity of our workers’ compensation and health insurance claims and the amount and timing of our insurance costs, operating expenses and capital expenditure requirements; failures or limitations in the business systems we rely upon; our ability to improve our technology to meet the expectations of our clients; our ability to properly manage our internal controls over financial reporting; our ability to effectively integrate businesses we have acquired and new businesses we may acquire in the future; the effects of volatility in the financial and economic environment on the businesses that make up our client base; our ability to effectively manage and improve our operational processes; market acceptance of our vertical strategy; our ability to manage our sales force effectively; the ability of our products and services to compete effectively in our industry; the concentration of our clients in certain geographies and industries; the outcome of existing and future legal proceedings; changes in our income tax positions or adverse outcomes from on-going and future audits; adverse changes in our insurance coverage or our relationships with key insurance carriers; our ability to manage our client attrition; our ability to comply with the restrictions of our credit facility and meet our debt obligations; the impact of concentrated ownership in our stock; and the effects of increased competition and our ability to compete effectively. These and other factors could cause our actual results to differ materially from our anticipated results. 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 in our Key Financial and Operating Metrics section 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 issues. 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.



RISK FACTORS

Risk Factors

Other than the inclusion of the additional risk factor below, and those previously disclosed under the heading “Risk Factors” in our 1Q20 Form 10-Q; there have been no material changes in our risk factors disclosed in Part 1, Item 1A. of our 2019 Form 10-K.

The unprecedented economic, health and business disruption caused by the COVID-19 pandemic is impacting our business and could result in a material adverse effect on our business, results of operation and/or financial condition.

The outbreak of the novel coronavirus (COVID-19) pandemic and the measures being taken at every level of government to prevent its spread have resulted in an economic slowdown and an unprecedented disruption to our business and the businesses of our small and mid-size business clients. We cannot predict or control all of these disruptions, and any such disruptions may have a material adverse effect on our financial condition and results of operations.

Actual and potential impact on clients and prospects

The change in the economic environment is starting to have, and will continue to have, an adverse economic impact on our small and mid-size business clients and potential clients. We have seen, and continue to see, affected businesses freeze and furlough headcount, terminate employees, partially or completely shut down business operations, and business failures. Impacted businesses may also face liquidity issues, reduced budgets, or an inability to pay for our services or the same level of our services. In the second quarter of 2020, our revenue growth rate slowed, new sales growth lowered and we experienced higher WSE attrition than in prior periods. In addition, we created our Recovery Credit program during the second quarter of 2020 and we expect that the current economic environment will make it difficult for us to achieve WSE and service fee increases in future periods. We currently expect that the rate of growth of total revenues, professional service revenues and insurance service revenues will decrease in future periods as a result of the foregoing and that operating expenses as a percentage of revenue will increase. Any of the foregoing issues have the potential to result in a material adverse effect on our revenues and margins, our financial condition and results of operations, and/or on our ability to attract and retain customers. See the risk factor titled “Our SMB clients are particularly affected by volatility in the financial and economic environment, which could harm our business” in our 2019 Form 10-K for more details.

Stay-at-home, quarantine and other similar orders have been widely issued across the United States, including in all or nearly all of the locations where our clients and potential clients are located. Although many orders have been lifted or modified, new orders have been issued or may in the future be issued. We cannot predict the length of such measures in any given location. To the extent that these regions become hot spots for COVID-19 the length of these measures may be extended and measures that are lifted may be reinstated, which could have a further negative impact on the businesses of our clients and potential clients and result in a material adverse effect on our business.

Actual and potential impact on insurance costs

The spread of COVID-19 has changed how and when our WSEs incur group health insurance expenses. As a result, we have experienced and expect to continue to experience higher than normal volatility and variability in the amounts that we pay for group health insurance expenses incurred by WSEs within our deductible layer under our risk-based health insurance policies. We attribute this to changing trends in the volume and severity of medical and pharmaceutical claims, including COVID-19 testing and treatment costs. This variability arises from changes to the timing and components of medical cost trend (MCT), defined as changes in participant use of services, the introduction of new treatment options, changes in treatment guidelines and mandates, and changes in the mix, unit cost and timing of services provided to plan participants. As a result of the impact of COVID-19, future health claims costs are less predictable than recently experienced. Actual claims patterns and cost trends during the pandemic may differ significantly from our historical experience. As a result, we cannot predict how the COVID-19 pandemic will affect the volume and severity of insurance claims and our MCT. Because we assume the risk of variability in future health claims costs for our enrollees under our risk-based health insurance policies, this unpredictability could result in higher than expected insurance costs, which could have a material adverse effect on our business.



RISK FACTORS

In addition, COVID-19 stay-at-home orders and social distancing practices have caused, and we expect will continue to cause, fluctuations in the use of medical services as some enrollees defer or cancel elective procedures and outpatient medical, dental and vision services. Reduced use of medical services in the second quarter led to decreases in our MCT, resulting in higher than normal net insurance revenue during the period. We cannot predict the rate at which the use of medical services will increase and return to normal levels in subsequent quarters once COVID-19 stay-at-home orders are lifted and social distancing practices are eased, and as provider networks adapt to providing services during the pandemic. For example, the use of medical services may increase slowly if enrollees do not feel safe regardless of government intervention or positive developments in the pandemic, or a future rebound in the use of medical services may slow as regional hot spots change, and we cannot predict these outcomes. As we set our insurance service fees for health benefits in advance for a fixed benefit period, if actual MCT exceeds our projections, this would result in lower net insurance revenues, which could have a material adverse effect on our business. For details on how the volume and severity of insurance claims and MCT impact our insurance costs, see Critical Accounting Judgments and Estimates in Part II, Item 7. MD&A, in our Form 10-K, and see the risk factor titled “Unexpected changes in workers’ compensation and health insurance costs and claims by worksite employees could harm our business” in our 2019 Form 10-K. In response to COVID-19, many states have adopted standards intended to extend workers’ compensation coverage to claims based on a diagnosis of COVID-19. Most states have focused on providing coverage for first responders and frontline healthcare workers. Some have gone further to include other essential workers. In California, employees are presumed to be covered by workers’ compensation if their COVID-19 diagnosis is made within a specified time period. Our insurance costs are affected by our WSE’s workers’ compensation insurance claims experience, and any law or legal standard that increases the number of covered workers’ compensation claims under our insurance policies could have a material adverse effect on our insurance costs and financial condition. See the risk factor titled “Unexpected changes in workers’ compensation and health insurance costs and claims by worksite employees could harm our business” in our 2019 Form 10-K for more details.

In addition, as our clients reduce their headcount, we expect to see an increase in employment related litigation against our clients and us. Although we provide employment practices liability insurance (EPLI) coverage for our clients through insurance policies that we obtain from a third-party EPLI carrier, the retention amount under these policies is shared by both the client and TriNet. If our clients experience an increase in employment related litigation, our costs under these EPLI policies may rise, which could have a material adverse effect on our business.

Actual and potential impact of the laws affecting our industry and clients

Every level of government is enacting new laws and programs to help the economy, employers and employees. For example, the FFCRA and the CARES Act were signed into law in March 2020, creating numerous new programs, including a paycheck protection loan program (PPP), mandatory employee leave requirements, payroll tax deferral and tax credit programs and other employment- and employment tax-related incentives. The Paycheck Protection Program Flexibility Act (PPPFA) was signed into law in June 2020, modifying and expanding the original PPP program. Many states have also passed laws to address the impact of COVID-19, and many local governments have enacted ordinances for the same reason. Congress has subsequently discussed several potential amendments to the FFCRA, CARES, PPPFA, as well as proposals for other laws intended to address the impact of COVID-19. New COVID-19 laws, and amendments of existing COVID-19 laws, may be passed at the federal, state and local level at any time. We are spending, and will continue to spend, significant time and resources to comply with new and amended laws and to provide the benefits created by these laws for our clients and WSEs, where applicable. Most of these laws and programs have not been, and we do not anticipate will be, enacted with the PEO industry in mind. As a result, we cannot guarantee we will be able to support any of these laws and programs in a timely and cost effective manner or at all, which could reduce or eliminate the attractiveness of our products and services and/or affect the ability of our clients and WSEs to fully realize the benefits of these laws and programs. In addition, since many of these laws do not specifically address the PEO industry and regulators are unfamiliar with the PEO industry, we expect to experience unpredictable and inconsistent application, interpretation and enforcement of these laws and regulations, which could have a material adverse effect on our business.

In addition, many of these laws are complex and require interpretation from various federal and state agencies to implement. Government agency interpretations, at any level of government, can increase the unpredictability and inconsistent application, interpretation and enforcement of these laws. For example, implementation of the PPP loan program and the tax credit programs offered under the FFCRA and CARES Act involves substantial input and interpretation from the U.S. Small Businesses Administration (SBA), the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS), respectively. We have experienced delays in, and have been required to change our approach to, our support for various COVID-19 programs created by these laws in the past due to guidance from the SBA, DOL, IRS and other government agencies, and we expect to experience future delays and changes. Any government agency interpretation may delay, reduce or eliminate our ability to support any of these COVID-19 assistance programs, which could have a material adverse effect on our business.



RISK FACTORS

See the risk factor titled “Our business is subject to numerous complex laws, and changes in, uncertainty regarding, or adverse application of these laws could negatively affect our business” in our 2019 Form 10-K for more details.

Actual and potential impact on human resources and cyber security

In response to local laws and guidance intended to reduce the spread of COVID-19, in mid-March we closed our offices across the country and implemented remote working. Remote work increases our risk of experiencing a material cyber-attack or other security-related incident. There is also an increased risk that our colleagues and WSEs will experience COVID-19 related scams, such as malware and phishing scams. See the risk factor titled “Cyber-attacks or other security-related incidents could result in reduced revenue, increased costs, liability claims, regulatory penalties, and damage to our reputation” in our 2019 Form 10-K for more details. In addition, responding to the COVID-19 pandemic has diverted, and will continue to divert, the time and attention of our management and service teams. Certain of our employees and their immediate families have been, and others will likely become, ill as a result of COVID-19, or are otherwise impacted by other measures such as school closures, which may affect our service levels. As a result, our ability to provide products and services in the same way and in the same timeframe that our clients have come to expect may be negatively impacted.

Actual and potential impact of the risks described above

Any of the risks above could have a material adverse effect on our business, results of operations or financial condition. However, the extent to which such COVID-19 related risks will impact our business remains uncertain and will depend on a variety of factors that are changing on a day-to-day basis and that we may not be able to accurately predict, such as the duration and scope of the pandemic, the disruption of the national and global economy caused by the pandemic, the length of the economic downturn, the laws, programs and actions that governments will take in response to the pandemic, the extent to which our clients businesses contract or fail during the pandemic, the extent to which new laws intended to help small and mid-size businesses can be supported by the PEO industry, the extent to which our own operations are impacted by office closures, remote work and/or infections. and how quickly and to what extent normal economic and operating conditions can resume. Any of these factors could exacerbate the risks and uncertainties identified above or that are set forth in our 2019 Form 10-K, and result in a material adverse effect on our business, financial condition and results of operations.

Our newly created Recovery Credit program could fail to achieve the business goals for which it was designed, which could result in a material adverse effect on our business, results of operation and/or financial condition.

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 will receive one-time reductions against fees for future services, accounted for as a discount, to be received over the next two years. The ultimate amount of the Recovery Credit eligible clients will receive is dependent on future net insurance performance. Our Recovery Credit program is designed to promote client loyalty, incentivize client retention, and to differentiate TriNet from its peers in the PEO industry and in other competing HR services industries.

Although we have designed our Recovery Credit to address these objectives, we cannot predict how the program will ultimately be received by our clients and SMB prospects and we may not achieve the loyalty, retention and product differentiation impact that we expect. For example, our competitors may create similar programs or offer other competing incentives that resonate more with our clients and prospects, reducing some or all of the expected benefits of our Recovery Credit program. As a result of the Recovery Credit, we recognized a reduction in total revenues of $56 million for the second quarter of 2020. If our Recovery Credit program fails to generate the business impact for which it was designed, for any reason, our financial performance will be negatively affected, which could result in a material adverse effect on our business, financial condition and results of operations. For more details on our Recovery Credit program, refer to Note 1 in this Form 10-Q.



MANAGEMENT'S DISCUSSION AND ANALYSIS

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 products and services, ~~which allows our clients to administer~~that facilitates the administration and ~~manage~~management of various HR-related functions for our clients, including 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 also leverage our scale and ~~industry-specific~~industry HR experience to ~~design~~deliver product and service offerings for SMBs in specific industries. We believe our ~~industry-specific~~ approach, which we call our vertical approach, is a key differentiator for us and creates additional value for our clients by allowing our product and service offerings to address ~~the common~~ HR needs in different client industries. We offer six industry-tailored vertical products, TriNet Financial Services, TriNet Life Sciences, TriNet Main Street, TriNet Nonprofit, TriNet Professional Services, and TriNet Technology.

Operational Highlights

Our consolidated results for the second quarter and the first half of 2019 reflect our continued progress in attracting new customers to our industry-oriented (vertical) products, serving our existing customers and improving our brand awareness through marketing.

Our customers are our focus, and we are investing in our processes to ensure a stronger customer experience. We expect this investment will further enhance our value to our customers, support retention and provide further efficiency and scale for our operations. We started this work in 2018 and expect this to continue in the near-term.

During the first half of ~~2019 we:~~2020, the outbreak of the novel coronavirus (COVID-19) pandemic, stay-at-home mandates and social distancing practices nationwide resulted in an economic slowdown and an unprecedented disruption to our business and the businesses of our small and mid-size business clients. In response to this pandemic, we have taken following actions:

launched our COVID-19 Preparedness Center, which provides ongoing and timely webinars, information, resources and offerings to clients and other SMBs to help them navigate the rapidly changing and complicated COVID-19 business landscape,

facilitated access to alternative health plan options in addition to COBRA,

enacted new programs in response to the FFCRA and CARES Act to enable new payroll tax deferral and tax credit programs and other employment and non-employment tax-related incentives for our clients,

helped our clients navigate the various small business relief loan programs through informational webinars and PPP loan application support initiatives, and

implemented and extended our remote working and office closures around the country for non-essential activities.

We will continue to monitor and evaluate the COVID-19 pandemic and will work to respond appropriately to the impact of COVID-19 on our business and our clients' businesses.

In addition, during the first half of 2020:

we continued to grow our revenues, although the rate of growth slowed in the second quarter,

experienced a decrease in insurance costs from an ~~improvement~~unprecedented reduction in ~~retention as~~the utilization of health services from mid-March 2020,

created our Recovery Credit program in the second quarter to assist our eligible clients, resulting in a ~~result of our customer service initiatives,~~reduction in revenue recognized, and

~~benefited from our clients growing their WSEs,~~

~~saw an increase in new sales which delivered additional revenue growth,~~

exercised continued ~~to experience a change~~discretion in our ~~client mix with customers increasing their participation, or enrollment, in our insurance services offerings, and~~corporate spending.

~~delivered profitable growth.~~

Our efforts to build a successful and enduring company include building and leveraging a strong national brand presence. Our branding strategy, Incredible Starts Here, is being augmented with our current campaign: People Matter. We place our customers at the center of what we do, including placing our customers at the center of our marketing.



MANAGEMENT'S DISCUSSION AND ANALYSIS

Performance Highlights

~~Our results for~~These operational achievements drove the financial performance improvements noted below in the second quarter and ~~the~~ first half of ~~2019 are as follows (percentages, increases or reductions represent changes~~2020 when compared to the same periods of ~~2018):~~2019:

Q2 ~~2019~~2020

$935M $55M $231M
Total revenues Operating income Net Service Revenue *
10 % increase (28 )% decrease 5 % increase

$46M $0.64 $50M
Net income Diluted EPS Adjusted Net income *
(22 )% decrease (20 )% decrease (21 )% decrease

*
Non-GAAP measure as defined in the section below.



	$948M			$173M			$335M
	Total revenues			Operating income			Net Service Revenue *
	1	%	increase	215	%	increase	45	%	increase

	$126M			$1.87			$136M
	Net income			Diluted EPS			Adjusted Net income *
	174	%	increase	192	%	increase	172	%	increase

*	Non-GAAP measure as defined in the section below.

Our results for WSEs in the second quarter of 2020 when compared to the same period of 2019 were:

323,957 318,874 $9.1B
Total WSEs Average WSEs Payroll and payroll tax payments
2 % increase 2 % increase 9 % increase



313,701			313,104
Average WSEs			Total WSEs
(2	)%	decrease	(3	)%	decrease

During the second quarter of ~~2019, we continued~~2020, our total revenues grew by 1% primarily due to ~~achieve year-over-year improvement~~the change in our WSE and revenue growth. The growth year-over-year reflects improvement in our new sales performance and customer retention by customers that choose to benefit from all of our service offerings. Increased hiring and enrollments by our customers and a change in mix of WSEs ~~also contributed to~~and rate increases achieved in the ~~growth. We continue to price to the value~~first quarter of ~~our services~~2020 and ~~for our insurance offerings, to our expected risk. Operating income, adjusted net income and net income decreased due primarily to increases in insurance costs as a result~~second half of ~~an increase in medical cost trend and health plan participation or enrollment, and increased operating expenses as a result of our growth initiatives and initiatives to improve client service,~~2019, partially offset by ~~a 10% increase in total revenues.~~

~~Average~~lower average WSEs ~~(defined as average monthly WSEs paid during~~and the ~~period) for~~Recovery Credit recognized. In the second quarter of ~~2019 increased 2%~~2020, we recognized a $56 million reduction in total revenues for the Recovery Credit, allocated proportionally to PSR and ISR. The Recovery Credit is a program designed to assist the economic recovery of our existing SMB clients, by providing one-time reductions against fees for future services, starting in the fourth quarter of 2020.

As a result of the stay-at-home orders and social distancing practices in various states and counties, we experienced a decrease in the utilization of medical services from mid-March through April, before approaching more typical levels by the end of the second quarter. This decrease in utilization drove lower insurance costs and as a result, NSR, net income, and adjusted net income grew by 45%, 174% and 172%, respectively.

YTD2020



	$2.0B			$293M			$618M
	Total revenues			Operating income			Net Service Revenue *
	7	%	increase	114	%	increase	28	%	increase

	$217M			$3.13			$235M
	Net income			Diluted EPS			Adjusted Net income *
	99	%	increase	105	%	increase	96	%	increase

*	Non-GAAP measure as defined in the section below.

Our results for WSEs, including furloughed WSEs, in the first half of 2020 when compared to the same period ~~in 2018 driven by lower client attrition in our Main Street vertical, improved new sales and increased WSE hiring by our clients.~~

~~Our pricing strategy and change in mix~~ of ~~WSEs over the last year contributed to our growth of both PSR and ISR.~~

~~We continue to enhance our investment strategy to invest available liquid funds to improve our net income and to fund our corporate initiatives.~~

~~YTD~~2019 were:

$1.9B $137M $482M
Total revenues Operating income Net Service Revenue *
9 % increase (7 )% decrease 9 % increase

$109M $1.53 $120M
Net income Diluted EPS Adjusted Net income *
(3 )% decrease (1 )% decrease (2 )% decrease

*
Non-GAAP measure as defined in the section below.



325,024
Average WSEs
3	%	increase

315,817 $20.7B
Average WSEs Payroll and payroll tax payments
1 % increase 11 % increase

610



MANAGEMENT'S DISCUSSION AND ANALYSIS

Key Financial ~~and Operating~~ Metrics

The following key financial ~~and operating~~ metrics should be read in conjunction with our condensed consolidated financial statements and related notes included in this Form 10-Q.


	Three Months Ended June 30,							Six Months Ended June 30,							Three Months Ended June 30,						Six Months Ended June 30,
(in millions, except per share and WSE data)	2019		2018		% Change			2019		2018		% Change			2020		2019		% Change		2020		2019		% Change
Income Statement Data:
Total revenues	$	935	$	850	10		%	$	1,869	$	1,711	9		%	$	948	$	935	1	%	$	1,996	$	1,869	7	%
Operating income	55		76		(28	)		137		147		(7	)
Net income	46		58		(22	)		109		112		(3	)		126		46		174		217		109		99
Diluted net income per share of common stock	0.64		0.80		(20	)		1.53		1.55		(1	)		1.87		0.64		192		3.13		1.53		105
Non-GAAP measures⁽¹⁾:
Net Service Revenues	231		220		5			482		440		9			335		231		45		618		482		28
Net Insurance Service Revenues	104		105		(2	)		219		196		11			214		104		106		341		219		56
Adjusted EBITDA	85		99		(16	)		193		190		1			199		85		134		344		193		78
Adjusted Net Income	50		63		(21	)		120		121		(2	)		136		50		172		235		120		96
Operating Metrics:
Total WSEs payroll and payroll taxes processed	$	9,110	$	8,371	9		%	$	20,732	$	18,690	11		%
Average WSEs	318,874		313,845		2			315,817		314,203		1
Total WSEs at period end	323,957		318,921		2			323,957		318,921		2

(1) Refer to Non-GAAP Financial Measures section below for definitions and reconciliations from GAAP measures.



(in millions)	June 30, 2020	December 31, 2019	% Change
Balance Sheet Data:
Working capital	364	228	60	%
Total assets	2,802	2,748	2
Debt	614	391	57
Total stockholders’ equity	616	475	30

Non-GAAP measure⁽¹⁾:

(1) Refer to Non-GAAP Financial Measures section below for definitions and reconciliations from GAAP measures.

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 ~~in order~~ to maintain and grow our business.

The presentation of these non-GAAP financial measures is used to enhance the understanding of certain aspects of our financial performance. ~~They are~~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.



MANAGEMENT'S DISCUSSION AND ANALYSIS



Non-GAAP Measure	Definition	How We Use The Measure
Net Service Revenues	• Sum of professional service revenues and Net Insurance Service Revenues, or total revenues less insurance costs.	• Provides a comparable basis of revenues on a net basis. Professional service revenues are presented net of client payroll costs whereas insurance service revenues are presented gross of insurance costs for financial reporting purposes. • Acts as the basis to allocate resources to different functions and evaluates the effectiveness of our business strategies by each business function. • Provides a measure, among others, used in the determination of incentive compensation for management.
Net Insurance Service Revenues	• Insurance revenues less insurance costs.	• Is a component of Net Service Revenues. • Provides a comparable basis of revenues on a net basis. Professional service revenues are presented net of client payroll costs whereas insurance service revenues are presented gross of insurance costs for financial reporting purposes. Promotes an understanding of our insurance services business by evaluating insurance service revenues net of our WSE related costs which are substantially pass-through for the benefit of our WSEs. Under GAAP, insurance service revenues and costs are recorded gross as we have latitude in establishing the price, service and supplier specifications. • We also sometimes refer to Net Insurance ~~Service~~ Margin (NIM), which is the ratio of Net Insurance Revenue to Insurance Service Revenue.
Adjusted EBITDA	• Net income, excluding the effects of: - income tax provision, - interest expense, - depreciation, - amortization of intangible assets, and - ~~stock-based~~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 Net Service Revenue.
Adjusted Net Income	• Net income, excluding the effects of: - effective income tax rate ⁽¹⁾, - ~~stock-based~~stock based compensation, - amortization of intangible assets, - non-cash interest expense ⁽²⁾, and - the income tax effect (at our effective tax rate ⁽¹⁾) of these pre-tax adjustments.	• Provides information to our stockholders and board of directors to understand how our management evaluates our business, to monitor and evaluate our operating results, and analyze profitability of our ongoing operations and trends on a consistent basis by excluding certain non-cash charges.



MANAGEMENT'S DISCUSSION AND ANALYSIS



Corporate Operating Cash Flows	• Net cash provided by (used in) ~~provided by~~ 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.

Reconciliation of GAAP to Non-GAAP Measures

The table below presents a reconciliation of Total revenues to Net Service Revenues:

The table below presents a reconciliation of Insurance service revenues to Net Insurance Service Revenues:



MANAGEMENT'S DISCUSSION AND ANALYSIS

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

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

The table below presents a reconciliation of net cash used in operating activities to corporate operating cash flows:

Six Months Ended
June 30,
(in millions) 2019 2018
Net cash used in operating activities $ (162 ) $ (543 )
Change in WSE related other current assets 52
(1 )
Change in WSE related liabilities 217
652
Corporate Operating Cash Flows
$ 107
$ 108



	Six Months Ended June 30,
(in millions)	2020			2019
Net cash used in operating activities	$	(130	)	$	(162	)
Change in WSE related other current assets	74			52
Change in WSE related liabilities	371			217
Corporate Operating Cash Flows	$	315		$	107



MANAGEMENT'S DISCUSSION AND ANALYSIS

Results of Operations

Worksite Employees (WSE)

Average WSE growth is a volume measure we use to monitor the performance of our business. The COVID-19 pandemic and the measures taken at every level of government to prevent its spread resulted in an economic slowdown and an unprecedented disruption to the businesses of our clients. Average WSEs ~~increased~~decreased 2% in the second quarter of 2020, compared to the same period in 2019, due to higher than normal WSE attrition as impacted businesses, particularly in our Main Street vertical, reduced hiring, terminated and/or furloughed employees and partially or completely shut down business operations, and due to lower than normal new sales growth. Average WSEs increased 1%3% in the first half of ~~2019,~~2020, compared to the same ~~periods~~period in ~~2018. In~~2019, as a result of new sales and hiring by our installed base clients in the second ~~quarter and first~~ half of 2019 ~~we experienced reduced attrition due to our customer service initiatives, combined with stronger new sales performance in our Nonprofit vertical~~ and ~~continued hiring within our installed base, especially in our Technology vertical.~~first quarter of 2020, offset by client attrition.

Total WSEs can generally 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. Total WSEs decreased 7% from March 31, 2020 due to the economic impact of COVID-19 discussed above.

Consistent with prior periods, Average and Total WSEs include furloughed WSEs, which include unpaid employees receiving benefits who still receive a paycheck and employees working reduced hours. We have experienced an increase in furloughed WSEs in April, declining through June, as clients have sought to reduce costs while retaining talent during the COVID-19 pandemic. We generally earn lower revenue from furloughed WSEs. Average and total furloughed WSEs were approximately 8,000 and 5,000, respectively, for the second quarter of 2020.

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, product participation and product differentiation to expand our revenue opportunities. We report the impact of client and WSE participation differences as a change in mix.

We are focused on retaining and growing our WSE base ~~including pursuing strategic acquisitions where appropriate, while improving~~and continue to review acquisition opportunities that would add appropriately to our ~~customer experience and continuing to manage attrition.~~scale. We ~~continued~~continue to invest in our efforts to enhance our customers' and WSEs' experiences, through operational and process improvements and manage attrition that we ~~have started to realize improved retention in some~~believe we will experience as a result of ~~our verticals.~~the COVID-19 pandemic.



MANAGEMENT'S DISCUSSION AND ANALYSIS

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 will receive one-time reductions against fees for future services, accounted for as a discount, to be received over the next two years. As a result of the Recovery Credit, we recognized a reduction in total revenues of $56 million for the second quarter of 2020, allocated proportionally to PSR and ISR.

The reduction in revenue is estimated each period based on the timing of when eligible clients will receive the Recovery Credit and the ultimate amount of the total Recovery Credit. The ultimate amount of the Recovery Credit eligible clients will receive is dependent on future net insurance performance. To the extent future net insurance performance is better or worse than expected, the ultimate amount of the Recovery Credit will increase or decrease. We will continue to recognize a reduction to revenues for the Recovery Credit for the life of the program, which we have currently planned to be for a year.

Monthly total revenues per Average WSE is a measure we use to monitor the success of our product and service pricing strategies. This measure increased 8%3% during the second quarter of ~~2019 compared to the same period in 2018,~~2020 and ~~increased 9%~~4% in the first half of ~~2019,~~2020, compared to the same ~~period~~periods in ~~2018.~~2019.

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

The changes in total revenues attributed above to rate and mix during the second quarter and of first half of 2019, when compared to the same periods in 2018, were primarily driven by increases in insurance services fees and health plan enrollment in our insurance service offerings.



MANAGEMENT'S DISCUSSION AND ANALYSIS

The growth in total revenues for the second quarter of 2020, when compared to the same period in 2019, was primarily driven by higher health plan enrollment in our insurance service offerings and rate increase achieved in the first quarter of 2020 and second half of 2019. This was partially offset by lower average WSEs during the second quarter of 2020 and the reduction for the Recovery Credit recognized in the quarter. The growth in total revenues for the first half of 2020, when compared to the same period in 2019, was primarily driven by rate increase achieved in the first quarter of 2020, higher health plan enrollment in our insurance service offerings and WSE growth in our Technology and Financial Services verticals. This was partially offset by the reduction for the Recovery Credit recognized in the second quarter of 2020.

The change in the U.S. economy due to COVID-19 is having a negative impact on our SMB customers and prospects. Affected businesses, particularly in our Main Street and Professional Services verticals, are furloughing and terminating employees and reducing hiring. These actions by our customers, combined with business shutdowns and failures negatively impacted our revenue volume growth in the second quarter of 2020, partially offsetting the growth achieved in the first quarter of 2020. We expect these conditions to continue in subsequent quarters. The adverse economic environment will also challenge our ability to achieve WSE and rate increases in subsequent quarters. As a result of the adverse economic environment and the reduction to revenues for the Recovery Credit, we expect reduced growth in PSR, ISR and total revenues in subsequent quarters.

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.



MANAGEMENT'S DISCUSSION AND ANALYSIS

The tables below provide a view of the changes in components of operating income for the second quarter and first half of ~~2019,~~2020, as compared to the same periods in ~~2018, respectively.~~2019.



(in millions)
$7655			Second Quarter ~~2018~~2019 Operating Income
	+8513		Higher total revenues primarily as a result of ~~an increase in ISR fees and~~increased health plan ~~enrollment.~~enrollment in our insurance service offerings and rate increase achieved in the first quarter of 2020 and second half of 2019, partially offset by the Recovery Credit recognized.
	~~-74~~+91	~~Higher~~	Lower insurance costs, despite increased health plan enrollment, primarily due to lower utilization of medical services by WSEs as a result of ~~an increase~~the stay-at-home orders in ~~medical cost trend~~various states and ~~health plan participation, or enrollment.~~counties.
	~~-32~~+14	~~Higher~~	Lower OE primarily as a result of ~~growth in the number of our corporate employees and costs associated with initiatives to improve customer experience and our growth~~expense discipline initiatives.
$55173			Second Quarter ~~2019~~2020 Operating Income



(in millions)
$~~147~~137			YTD ~~2018~~2019 Operating Income
	+~~158~~127		Higher total revenues primarily as a result of ~~an increase in ISR fees and~~increased health plan ~~enrollment.~~enrollment in our insurance service offerings, together with WSE growth and rate increases achieved in the first quarter of 2020, partially offset by the Recovery Credit recognized.
	~~-116~~+9	~~Higher~~	Lower insurance costs, ~~primarily~~despite increased health plan enrollment, due to lower utilization of medical services by WSEs as a result of ~~an increase~~the stay-at-home orders in ~~medical cost trend~~various states and ~~health plan participation, or enrollment.~~counties.
	~~-52~~+20	~~Higher~~	Lower OE primarily as a result of ~~growth in the number of our corporate employees and costs associated with initiatives to improve customer experience and our growth~~expense discipline initiatives.
$~~137~~293			YTD ~~2019~~2020 Operating Income



MANAGEMENT'S DISCUSSION AND ANALYSIS

Professional Service Revenues

Our clients are billed either based on a fee per WSE per month per transaction or on a percentage of the WSEs’ payroll. For those clients (primarily Main Street clients) that are billed on a percentage of WSEs' payroll, as our clients' payrolls increase or decrease, our fees also increase. As such, payroll and payroll taxes processed, which includes recurring payrolls and non-recurring bonus payrolls, benefits, and associated payroll taxes may also be an indicator of our PSR growth.increase or decrease, respectively.

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.~~

The ~~increase~~decrease in PSR for the second quarter ~~and first half~~ of ~~2019~~2020, as compared to the same ~~periods~~period in ~~2018,~~2019, reflects lower Average WSEs, as clients furloughed employees and reduced hiring and headcount in response to the ~~result of~~economic slowdown, particularly in our Main Street vertical ~~pricing strategy~~ and an ongoing change in the mix of our WSEs. ~~During~~The Recovery Credit represents our effort to assist our eligible clients by providing one-time reductions against fees for future services. This was partially offset by rate increases achieved in the ~~second~~first quarter of ~~2019~~2020 and ~~first~~second half of 2019, we continued to experience WSE growth especially in our Professional Services and Technology verticals, while our Main Street vertical continued to shrink, but at a reduced rate when compared to the same periods in 2018.2019.



MANAGEMENT'S DISCUSSION AND ANALYSIS

The increase in PSR for the first half of 2020, when compared to the same period in 2019, reflects the result of WSE growth particularly in our Technology and Financial Services verticals, and rate increases achieved in the first quarter of 2020. This was partially offset by the Recovery Credit recognized in the second quarter of 2020.

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:

The growth in ISR for the second quarter ~~and first half~~ of ~~2019,~~2020, as compared to the same ~~periods~~period in ~~2018,~~2019, primarily resulted from ~~changes~~higher health plan enrollment and rate increases achieved in ~~rate due~~the first quarter of 2020 and second half of 2019. This was partially offset by lower average WSEs, as clients reduced hiring and headcount in response to ~~higher insurance service fees per plan participant~~the economic slowdown, and ~~changes~~by the Recovery Credit recognized.

The growth in ~~mix due~~ISR for the first half of 2020, as compared to the same period in 2019, primarily reflects the result of WSE growth particularly in our Technology and Financial Services verticals and higher health plan enrollment. This was partially offset by the Recovery Credit recognized in the second quarter of 2020.



MANAGEMENT'S DISCUSSION AND ANALYSIS

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.

We use the following measures to analyze changes in insurance costs:

~~The increase in insurance cost rates during~~During the second quarter and first half of ~~2019, was primarily driven~~2020, as a result of the COVID-19 pandemic, we experienced higher than normal volatility and variability in the amounts that we pay for group health insurance expenses incurred by ~~an increase in~~WSEs within our deductible layer under our risk-based health insurance policies. Stay-at-home orders and social distancing practices decreased the utilization of medical ~~cost trend, partially offset~~services from mid-March through April as enrollees deferred or cancelled elective procedures and reduced outpatient medical, dental and vision services. Utilization began to approach more typical levels by ~~lower administrative costs. We continued to experience favorable prior year development on our accrued workers' compensation costs~~the end of ~~$11 million for~~ the second ~~quarter and $16 million~~quarter. The decrease in utilization of medical services drove the reduction in rate for ~~the first half of 2019, primarily due to lower than expected claim severity. The 4% increase in insurance costs attributed to the change in mix during~~ the second quarter and first half of ~~2019 is consistent with~~2020.

Historically, health claims costs have tended to increase throughout the ~~change~~year as the utilization of medical services above each WSE's deductible causes our insurance costs to increase. While medical services utilization dropped significantly in ~~ISR mix which was a result~~the second quarter of ~~higher health plan enrollment.~~2020 due to COVID-19, we expect the utilization of medical services in subsequent quarters to increase as enrollees resume deferred or canceled non-essential elective procedures, outpatient medical, dental and vision services and provider networks adapt to providing services during the pandemic.



MANAGEMENT'S DISCUSSION AND ANALYSIS

Net Service Revenues

NSR provides us with a comparable basis of revenues on a net basis, acts as the basis to allocate resources to different functions and helps us evaluate the effectiveness of our business strategies by each business function.

~~NISR margin~~NIM increased significantly for the second quarter ~~decreased by 1% due to increased insurance costs~~ and ~~the~~ first half of ~~2019 remained consistent~~2020 primarily due to lower utilization of medical services combined with ~~the same periods in 2018.~~



MANAGEMENT'S DISCUSSION AND ANALYSIS

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 manage our ~~operating expenses~~OE and allocate resources across different business functions based on a percentage of NSR, which has ~~increased~~decreased to ~~76%~~48% in the second quarter of ~~2019~~2020 from ~~65% in~~76% when compared to the same period in ~~2018~~2019 and ~~increased~~decreased to ~~72%~~53% in the first half of ~~2019~~2020 from ~~67% in~~72% when compared to the same period in 2019. The current percentages of ~~2018.~~OE to NSR is lower than our historical experience and was primarily driven by the significant increase in NSR due to lower utilization of medical services, combined with expense discipline initiatives.

~~We expect our~~During the second quarter and the first half of 2020, we experienced operating expense decrease of 8% and 6% when compared to the same periods in 2019. During the second quarter and the first half of 2020, the percent of OE to total revenues was 17% and 16%, compared to the 19% and 18% in the same periods in 2019. While expense discipline initiatives will continue, we expect the ratio of OE to total revenues to increase ~~for~~in subsequent quarters as the ~~foreseeable future from our continued efforts~~rate of growth of total revenues decrease and we continue to invest in projects to improve our customer ~~experience,~~ and ~~our systems and processes. These expenses may fluctuate as a percentage of our total revenues from period-to-period depending on the timing of when expenses are incurred.~~WSE experience.



MANAGEMENT'S DISCUSSION AND ANALYSIS

We analyze and present our OE based upon the business functions COPS, S&M, G&A and SD&P and depreciation and amortization. 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.

~~COPS increased in~~ ~~the second quarter and the first half of 2019, when compared to the same periods in~~ ~~2018, primarily due to increased headcount to support initiatives to improve the customer experience, enhancing our product offerings and process improvement initiatives.~~

~~S&M increased in~~ ~~the second quarter and the first half of 2019, when compared to the same periods in~~ ~~2018, driven by increase in headcount, advertising expenses for our People Matter campaign, and commissions expense related to our growth in new sales.~~



MANAGEMENT'S DISCUSSION AND ANALYSIS



(in millions)
$345		YTD 2019 Operating Expenses
	-3	COPS decreased in the first half of 2020, driven by reduced consulting costs, travel and entertainment expenses.
	-7	S&M decreased in the first half of 2020, as we reduced marketing spend, conference expenses, travel and entertainment expenses.
	-4	G&A decreased in the first half of 2020, as we reduced compensation related expenses and consulting costs.
	-7	SD&P decreased in the first half of 2020, primarily due to a decrease in compensation related expenses.
	+1	D&A remained consistent in the first half of 2020.
$325		YTD 2020 Operating Expenses

We break out the change in expenses that make up our OE in the chart below:



MANAGEMENT'S DISCUSSION AND ANALYSIS

Other Income (Expense)

Other income (expense) consists primarily of interest and dividend income from investments and interest expense under our credit facility.

~~Interest income~~ increased to $7 million in the second quarter of 2019 and $13 million for the first half of 2019 from $3 million and $5 million in the same periods in 2018, respectively, as a result of a change in our investment strategy initiated in the second quarter of 2018 to improve our interest income.

~~We intend to continue to execute our investment strategy, which we expect will improve our~~The decrease in interest income, ~~net income, and our Adjusted EBITDA.~~

Provision for Income Taxes



~~MANAGEMENT'S DISCUSSION AND ANALYSIS~~

Liquidity and Capital Resources

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:



MANAGEMENT'S DISCUSSION AND ANALYSIS

Working capital for ~~WSE-related assets and liabilities~~WSEs related activities

We designate funds to ensure that we have adequate current assets to satisfy our current obligations associated with ~~WSEs.~~WSEs and the Recovery Credit liability. We manage our WSE payroll and benefits obligations through collections of payments from our clients which generally occurs 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 ~~claims payments.~~payments to carriers.

Working capital for corporate purposes

Corporate working capital as of June 30, 2020 increased $136 million from December 31, 2019, driven by a $424 million increase in corporate unrestricted cash and cash equivalents, offset by a $234 million draw down under our revolving credit facility, and an increase in our corporate accounts payable and other current liabilities, including income taxes payable.

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 that our existing corporate cash and cash equivalents and positive working capital will be sufficient to meet our working capital and capital expenditure needs for at least the next 12twelve months. ~~Corporate working capital as of June 30, 2019 increased compared to December 31, 2018.~~

~~Capital Resources~~

~~Sources of Funds~~

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, our borrowing capacity under our revolving credit facility and the potential issuance of debt or equity securities.



MANAGEMENT'S DISCUSSION AND ANALYSIS

~~We also have available a $250 million revolving credit facility. The total unused portion of the revolving credit facility was $234 million as of June 30, 2019.~~

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

Operating Activities

Components of net cash ~~used in~~provided by (used in) operating activities are as follows:

Year-over-year ~~fluctuation~~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, ~~and collateral funding~~settlement of the Recovery Credit liability, 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 ~~remained flat when comparing~~in the first half of ~~2019~~2020 increased, when compared to the same period in ~~2018.~~2019, due to the increase in our net income and the timing of our corporate income taxes payments.



MANAGEMENT'S DISCUSSION AND ANALYSIS

Investing Activities

~~Net cash~~Cash used in investing activities infor the ~~first half~~periods presented below primarily consisted of ~~2019 decreased, when compared to~~purchases of investments and capital expenditures, partially offset by proceeds from the ~~same period of 2018, due to the decrease in purchases~~sale and maturity of investments.

We invest a portion of available cash in investment-grade securities with effective maturities less than five years that are classified on our ~~condensed~~ balance sheets as ~~investments. As of June 30, 2019, we had approximately $193 million in corporate investments.~~

investments (unrestricted). We also invest funds held as collateral to satisfy our long-term obligation towards workers' compensation ~~liabilities in U.S. long-term treasuries.~~liabilities. These investments are classified on our ~~condensed~~ 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 June 30, 2020, our investments had a weighted average duration of 1.07 years and an average S&P credit rating of AA+.

As of June 30, ~~2019,~~2020, we held approximately ~~$1.3 billion~~$1,780 million in cash, cash equivalents and investments, of which ~~$0.9 billion~~$637 million was ~~restricted.~~unrestricted cash and cash equivalents and $204 million was unrestricted investments. Refer to Note 2 in this Form 10-Q for a summary of these funds.

Capital Expenditures

Net cash ~~used in~~provided by (used in) financing activities in the first half of ~~2019~~2020 and ~~2018~~2019 consisted of our debt and equity-related activities.



~~MANAGEMENT'S DISCUSSION AND ANALYSIS~~



	Six Months Ended June 30,
(in millions)	2020			2019
Financing activities
Repurchase of common stock, net of issuance	$	(101	)	$	(66	)
Draw down from revolving credit facility	234			—
Repayment of borrowings	(11		)	(11		)
Cash provided by (used in) financing activities	$	122		$	(77	)

In February ~~2019,~~2020, our board of directors authorized a $300 million incremental increase to our ongoing stock repurchase program initiated in May ~~2014, primarily~~2014. We use this program to return value to our stockholders and to offset dilution from the issuance of stock under our equity-based incentive plan and employee ~~stock~~ purchase plan.



MANAGEMENT'S DISCUSSION AND ANALYSIS

During the first half of ~~2019,~~2020, we repurchased ~~1,175,609~~2,167,401 shares of our common stock for approximately ~~$62~~$100 million through our stock repurchase program. As of June 30, ~~2019,~~2020, approximately ~~$313~~$435 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 share repurchase program.

In response to economic uncertainties resulting from COVID-19, in March 2020 we drew down $234 million from our revolving credit facility to enhance our short-term cash reserves. The revolving credit facility is payable by June 2023 or earlier at our discretion. Refer to Note 6 in this Form 10-Q for further information.

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.

Off-Balance Sheet Arrangements

There have been no additional material changes in our off-balance sheet arrangements discussed in Part II, Item 7. Management's Discussion and Analysis of our ~~2018~~2019 Form 10-K.

~~During the first quarter of 2019, we adopted ASC Topic 842. Refer to Note 1 in Item 1 of this Form 10-Q for disclosure of the changes related to this adoption.~~ There have been no ~~additional~~ material changes to our critical accounting policies as discussed in our ~~2018~~2019 Form 10-K.



QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND CONTROLS AND PROCEDURES

Quantitative and Qualitative Disclosures About Market Risk

Our exposure to changes in interest rates relates primarily to our investment portfolio and outstanding floating rate debt. Changes in U.S. interest rates affect the interest earned on the Company’s cash, cash equivalents and investments and the fair value of the investments, as well as interest costs associated with our debt.

OnIn June 2019, we entered into an interest rate collar derivative transaction with no upfront premium. We use this derivative to hedge against interest rate risk on a portion of our outstanding floating rate debt. We have designated this derivative as a cash flow hedge. Our primary objective in purchasing and holding this derivative is to reduce our volatility of net earnings and cash flows associated with changes in the benchmark interest rate in our interest rate payments. We do not enter into any derivatives for trading or other speculative purposes.

We performed a sensitivity analysis to determine the impact a change in interest rates would have on the cash flows of the collar assuming a 100 basis point parallel shift in the current LIBOR rate. Based on the terms and remaining settlements as of June 30, ~~2019,~~2020, a hypothetical 100 basis point increase in one-month LIBOR across all maturities would not result in any cash receipts by the Company, while a hypothetical 100 basis point decrease in one-month LIBOR across all maturities would ~~not result in any cash payments by the Company while a hypothetical 100 basis point increase in one-month LIBOR across all maturities would~~ result in cash ~~receipts~~payments of $6 million.

Our cash equivalents consist primarily of money market mutual funds, which are not significantly exposed to interest rate risk. Our AFS marketable securities 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 asby investing our investment ~~policy defines~~portfolio in instruments that meet the minimum credit quality, liquidity, diversification and other requirements ~~for eligible investments.~~of our investment policy. Our AFS marketable securities consist of highly liquid, investment-grade securities. The risk of rate changes on investment balances was ~~not~~ significant at June 30, 2020 and not significant at December 31, 2019.

At June 30, 2020, we had total long-term debt and revolving credit agreement borrowings (total debt) of $614 million. A 100 basis point increase in market interest rates would cause interest expense on our debt as of June 30, 2020 to increase by $5 million over the next twelve months of the aggregate long-term debt and revolving credit agreement borrowings. A 100 basis point decrease in market interest rates would cause interest expense on our debt as of June 30, 2020 to increase by $1 million over the next twelve months of the aggregate long-term debt and revolving credit agreement borrowings. The increase is due to the collar floor terms of our interest rate collar derivative.

At December 31, 2019, we had total outstanding long-term debt of ~~$402~~$391 million. A 100 basis point increase or decrease in market interest rates would cause interest expense on our debt as of ~~June 30,~~December 31, 2019 to increase by $8$3 million or to decrease by ~~$15~~$4 million ~~on an annualized basis,~~over the next twelve months of the loan, respectively.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have, with the participation of our Chief Executive Officer (CEO) and our Interim Chief Financial Officer (CFO), evaluated the effectiveness of our disclosure controls and procedures as of June 30, ~~2019,~~2020, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

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 June 30, ~~2019,~~2020, 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

See accompanying notes.



FINANCIAL STATEMENTS

($0.000025 par value per share; 750,000,000 shares authorized; 67,292,864 and 69,065,491 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively)

See accompanying notes.



FINANCIAL STATEMENTS

See accompanying notes.



FINANCIAL STATEMENTS

See accompanying notes.



FINANCIAL STATEMENTS

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 to midsize 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:

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

We operate in ~~one~~1 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 six months ended June 30, ~~2019~~2020 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 88. Financial Statements and Supplementary Data of our Annual Report on Form 10-K for the year ended December 31, ~~2018 (2018~~2019 (2019 Form 10-K).



~~FINANCIAL STATEMENTS~~

~~Reclassifications~~

~~Certain prior year amounts have been reclassified to conform to current period presentation. Effects on the cash flow statement due to reclassifications are summarized below:~~

Six Months Ended June 30, 2018
(in millions) As previously reported Reclassified amounts As revised
Operating activities
Accounts receivable $ —
$ 11
$ 11
Unbilled revenue —
35
35
Prepaid income taxes 2
(2 ) —
Prepaid expenses and other current assets (23 ) 23
—
Prepaid expenses —
(9 ) (9 )
Workers' compensation collateral receivable (6 ) 6
—
Accounts payable and other current liabilities (14 ) (14 ) (28 )
Client deposits —
(24 ) (24 )
Accrued wages —
(28 ) (28 )
Accrued corporate wages (5 ) 5
—
Accrued health insurance costs —
(13 ) (13 )
Accrued workers' compensation costs —
(8 ) (8 )
Workers' compensation loss reserves and other non-current liabilities (4 ) 4
—
Payroll taxes payable and other payroll withholdings —
(588 ) (588 )
Worksite employee related assets 4
(4 ) —
Worksite employee related liabilities (652 ) 652
—
Other assets —
(45 ) (45 )
Other liabilities —
(1 ) (1 )

~~Effects on the consolidated statements of income and comprehensive income due to reclassifications are summarized below:~~

Three Months Ended Six months ended
June 30, 2018 June 30, 2018
(in millions) As previously reported Reclassified amounts As revised As previously reported Reclassified amounts As revised
Depreciation $ 8
$ (8 ) $ —
$ 16
$ (16 ) $ —
Amortization of intangible assets 2
(2 ) —
3
(3 ) —
Depreciation and amortization of intangible assets —
10
10
—
19
19
Interest expense, bank fees and other, net (4 ) 4
—
(8 ) 8
—
Interest expense, bank fees and other —
(7 ) (7 ) —
(13 ) (13 )
Interest income —
3
3
—
5
5
Other comprehensive income, net of tax —
1
1
—
—
—
Comprehensive income 58
1
59
112
—
112



~~FINANCIAL STATEMENTS~~

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect certain reported amounts and related disclosures. ~~Significant estimates include:~~

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

Performance Obligation: Recovery Credit

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 will receive one-time reductions against fees for future services, accounted for as a discount, over the next two years. This option to renew future services at a discount represents a material right and is accounted for as a new 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 and the ultimate amount of the total Recovery Credit. The ultimate amount that clients will receive is dependent on future net insurance performance.

Client Deposits and Other Client Liabilities

Client deposits and other client liabilities represents our contractual commitments and payables to clients, including indemnity guarantee payment received from clients, prefund by clients for their payroll and related taxes and other withholding liabilities before payroll is processed or due for payment, as well as service fee consideration received for unsatisfied performance obligations of $56 million.

We recognize WSE payroll and payroll tax liabilities in the period in which the WSEs perform work. When clients' pay periods cross reporting periods, we accrue the portion of the unpaid WSE payroll where we assume, under state regulations, the obligation for the payment of wages and the corresponding payroll tax liabilities associated with the work performed prior to period-end. These estimated payroll and payroll tax liabilities are recorded in accrued wages. The associated receivables, including estimated revenues, offset by advance collections from clients and an allowance for credit losses, are recorded as unbilled revenue. As of June 30, 2020, advance collections included in unbilled revenue were $49 million.

Our investments are primarily classified as available-for-sale and are carried at estimated fair value.

Unrealized gains and losses are reported as a component of accumulated other comprehensive income, net of deferred income taxes. The amortized cost of debt investments is adjusted for amortization of premiums and accretion of discounts from the date of purchase to the earliest call date for premiums or the maturity date for discounts. Such amortization is included in interest income as an addition to or deduction from the coupon interest earned on the investments. We use the specific identification method to determine realized gains and losses on the sale of available-for-sale securities. Realized gains and losses are included in interest income in the accompanying consolidated statements of income and comprehensive income.

We assess our investments for credit impairment. We review several factors to determine whether an unrealized loss is credit related, such as the financial condition and future prospects of the issuer. To the extent that a security’s amortized cost basis exceeds the present value of the cash flows expected to be collected from the security, an allowance for credit losses will be recognized. If management intends to sell or will more likely than not be required to sell the security before any anticipated recovery, a write down will be recognized in earnings measured as the entire difference between the amortized cost and the then-current fair value.

We have investments within our unrestricted and our restricted accounts. Unrestricted investments are recorded on the balance sheet as current or noncurrent based upon the remaining time to maturity, and investments subject to restrictions are classified as current or noncurrent based on the expected payout of the related liability.



FINANCIAL STATEMENTS

Our accounts receivable represents outstanding gross billings to clients, net of an allowance for estimated credit losses. We require our clients to prefund payroll and related liabilities before payroll is processed or due for payment. If a client fails to fund payroll or misses the funding cut-off, at our sole discretion, we may pay the payroll and the resulting amounts due to us are recognized as accounts receivable. When client payment is received in advance of our performance under the contract, such amount is recorded as client deposits. We establish an allowance for credit losses based on the credit quality of clients, current economic conditions, the age of the accounts receivable balances, historical experience, and other factors that may affect clients’ ability to pay, and charge-off amounts against the allowance when they are deemed uncollectible. The allowance was insignificant at June 30, 2020 and December 31, 2019.

We sponsor and administer a number of fully insured, risk-based employee benefit plans, including group health, dental, and vision as an employer plan sponsor under section 3(5) of the ERISA. In the six months ended June 30, ~~2019, the~~2020, 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 ~~independent~~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 June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, prepayments ~~included in~~and miscellaneous receivables offsetting accrued health insurance costs were ~~$39~~$48 million and ~~$33~~$39 million, respectively. When the prepaid amount is in excess of our recorded liability the net asset position is included in prepaid expenses. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, accrued health insurance costs ~~included in~~offsetting prepaid expenses were ~~$51~~$53 million and ~~$50~~$52 million, respectively.

~~Derivative Instruments~~Recent Accounting Pronouncements



~~FINANCIAL STATEMENTS~~

We determine if a new contractual arrangement is a lease at contract inception. If a contract contains a lease, we evaluate whether it should be classified as an operating or a finance lease. If applicable as a lease, we record our lease liabilities and ROU assets based on the future minimum lease payments over the lease term and only include options to renew a lease in the minimum lease payments if it is reasonably certain that we will exercise that option. For certain leases with original terms of twelve months or less we recognize the lease expense as incurred and we do not recognize lease liabilities and ROU assets.

~~Recent Accounting Pronouncements~~

June 30, 2019
(in millions) As reported Balance Using Previous Standard Increase (Decrease)
Balance sheet
Assets
Operating lease right-of-use assets $ 60
$ —
$ 60
Liabilities
Operating lease liabilities 17
—
17
Operating lease liabilities, noncurrent 55
11
44
Equity
Accumulated deficit (229 ) —
(229 )



~~FINANCIAL STATEMENTS~~

NOTE 2. CASH, CASH EQUIVALENTS AND INVESTMENTS

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:~~

June 30, 2019 December 31, 2018
(in millions) Cash and cash equivalents Available-for-sale marketable securities Total Cash and cash equivalents Available-for-sale marketable securities
Certificate
of
deposits
Total
Cash and cash equivalents $ 219
$ —
$ 219
$ 228
$ —
$ —
$ 228
Investments —
76
76
—
54
—
54
Restricted cash, cash equivalents and investments

Insurance carriers' security deposits 14
—
14
15
—
—
15
Payroll funds collected 519
—
519
783
—
—
783
Collateral for health benefits claims 75
—
75
75
—
—
75
Collateral for workers' compensation claims 63
1
64
66
1
—
67
Collateral to secure standby letter of credit —
—
—
—
—
2
2
Total restricted cash, cash equivalents and investments 671
1
672
939
1
2
942
Investments, noncurrent —
117
117
—
135
—
135
Restricted cash, cash equivalents and investments, noncurrent

Collateral for workers' compensation claims 195
5
200
182
5
—
187
Total $ 1,085
$ 199
$ 1,284
$ 1,349
$ 195
$ 2
$ 1,546

~~NOTE 3. INVESTMENTS~~

All of our investment securities that have a contractual maturity date greater than three months are classified as AFS. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of our investments as of June 30, 2019 and December 31, 2018 are presented below.

June 30, 2019 December 31, 2018
(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 $ 35
$ —
$ —
$ 35
$ 33
$ —
$ —
$ 33
Corporate bonds 94
1
—
95
99
—
—
99
U.S. government agencies and government-
sponsored agencies
5
—
—
5
7
—
—
7
U.S. treasuries 58
1
—
59
46
—
—
46
Exchange traded fund 1
—
—
1
1
—
—
1
Other debt securities 4
—
—
4
9
—
—
9
Total $ 197
$ 2
$ —
$ 199
$ 195
$ —
$ —
$ 195



FINANCIAL STATEMENTS

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



	June 30, 2020						December 31, 2019
(in millions)	Cash and cash equivalents		Available-for-sale marketable securities		Total		Cash and cash equivalents		Available-for-sale marketable securities		Certificate of deposits		Total
Cash and cash equivalents	$	637	$	—	$	637	$	213	$	—	$	—	$	213
Investments	—		76		76		—		68		—		68
Restricted cash, cash equivalents and investments:
Payroll funds collected	566		—		566		1,018		—		—		1,018
Collateral for health benefits claims	18		86		104		98		—		—		98
Collateral for workers' compensation claims	63		—		63		62		—		—		62
Other security deposits	2		—		2		2		—		—		2
Total restricted cash, cash equivalents and investments	649		86		735		1,180		—		—		1,180
Investments, noncurrent	—		128		128		—		125		—		125
Restricted cash, cash equivalents and investments, noncurrent
Collateral for workers' compensation claims	41		163		204		63		148		1		212
Total	$	1,327	$	453	$	1,780	$	1,456	$	341	$	1	$	1,798



FINANCIAL STATEMENTS



(in millions)
$176		Q2 2019 Operating Expense
	-3	COPS decreased in the second quarter of 2020, driven by reduced consulting costs, travel and entertainment expenses.
	-7	S&M decreased in the second quarter of 2020, as we reduced marketing spend, travel and entertainment expenses.
	-4	SD&P decreased in the second quarter of 2020, primarily due to a decrease in compensation related expenses.
$162		Q2 2020 Operating Expenses


(in millions)	June 30, 2019		June 30, 2020
One year or less	$	81	$	112
Over one year through five years	103		312
Over five years through ten years	7		9
Over ten years	7		20
Total fair value	$	198	$	453



	$935M			$55M			$231M
	Total revenues			Operating income			Net Service Revenue *
	10	%	increase	(28	)%	decrease	5	%	increase

	$46M			$0.64			$50M
	Net income			Diluted EPS			Adjusted Net income *
	(22	)%	decrease	(20	)%	decrease	(21	)%	decrease

*	Non-GAAP measure as defined in the section below.



323,957			318,874			$9.1B
Total WSEs			Average WSEs			Payroll and payroll tax payments
2	%	increase	2	%	increase	9	%	increase



	$1.9B			$137M			$482M
	Total revenues			Operating income			Net Service Revenue *
	9	%	increase	(7	)%	decrease	9	%	increase

	$109M			$1.53			$120M
	Net income			Diluted EPS			Adjusted Net income *
	(3	)%	decrease	(1	)%	decrease	(2	)%	decrease

*	Non-GAAP measure as defined in the section below.



315,817			$20.7B
Average WSEs			Payroll and payroll tax payments
1	%	increase	11	%	increase



(in millions)	June 30, 2019		December 31, 2018		% Change
Balance Sheet Data:
Cash and cash equivalents	$	219	$	228	(4	)	%
Working capital	236		221		7
Total assets	2,318		2,435		(5	)
Long-term debt	402		413		(3	)
Total liabilities	1,879		2,060		(9	)
Total stockholders’ equity	439		375		17


(1)	Non-GAAP effective tax rate is 25.5% and 26% for ~~2019~~2020 and ~~2018,~~2019, which excludes the income tax impact from ~~stock-based~~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.


	June 30, 2019						December 31, 2018						June 30, 2020						December 31, 2019
(in millions)	Corporate		WSE		Total		Corporate		WSE		Total		Corporate		WSE		Total		Corporate		WSE		Total
Current assets:
Cash and cash equivalents	$	219	$	—	$	219	$	228	$	—	$	228	$	637	$	—	$	637	$	213	$	—	$	213
Investments	76		—		76		54		—		54		76		—		76		68		—		68
Restricted cash, cash equivalents and investments	14		658		672		15		927		942		15		720		735		15		1,165		1,180
Other current assets	50		438		488		36		386		422		48		439		487		45		365		410
Total current assets	$	359	$	1,096	$	1,455	$	333	$	1,313	$	1,646	$	776	$	1,159	$	1,935	$	341	$	1,530	$	1,871

Total current liabilities	$	123	$	1,096	$	1,219	$	112	$	1,313	$	1,425	$	412	$	1,159	$	1,571	$	113	$	1,530	$	1,643

Working Capital	$	236	$	—	$	236	$	221	$	—	$	221
Working capital													$	364	$	—	$	364	$	228	$	—	$	228



	June 30,			December 31,
(in millions, except share and per share data)	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	219		$	228
Investments	76			54
Restricted cash, cash equivalents and investments	672			942
Accounts receivable, net	10			11
Unbilled revenue, net	341			304
Prepaid expenses, net	64			48
Other current assets	73			59
Total current assets	1,455			1,646
Restricted cash, cash equivalents and investments, noncurrent	200			187
Investments, noncurrent	117			135
Property & equipment, net	89			79
Operating lease right-of-use asset	60			—
Goodwill	289			289
Other intangible assets, net	18			21
Other assets	90			78
Total assets	$	2,318		$	2,435
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other current liabilities	$	40		$	45
Long-term debt	22			22
Client deposits	67			56
Accrued wages	377			352
Accrued health insurance costs, net	143			135
Accrued workers' compensation costs, net	64			67
Payroll tax liabilities and other payroll withholdings	473			729
Operating lease liabilities	17			—
Insurance premiums and other payables	16			19
Total current liabilities	1,219			1,425
Long-term debt, noncurrent	380			391
Accrued workers' compensation costs, noncurrent, net	148			158
Deferred taxes	67			68
Operating lease liabilities, noncurrent	55			—
Other non-current liabilities	10			18
Total liabilities	1,879			2,060
Commitments and contingencies (see Note 6)
Stockholders' equity:
Preferred stock	—			—
($0.000025 par value per share; 20,000,000 shares authorized; no shares issued or outstanding at June 30, 2019 and December 31, 2018)
Common stock and additional paid-in capital	667			641
($0.000025 par value per share; 750,000,000 shares authorized; 69,991,145 and 70,596,559 shares issued and outstanding at June 30, 2019 and December 31, 2018)
Accumulated deficit	(229		)	(266		)
Accumulated other comprehensive income	1			—
Total stockholders' equity	439			375
Total liabilities & stockholders' equity	$	2,318		$	2,435



	Three Months Ended June 30,						Six Months Ended June 30,
(in millions except per share data)	2020			2019			2020			2019
Professional service revenues	$	121		$	127		$	277		$	263
Insurance service revenues	827			808			1,719			1,606
Total revenues	948			935			1,996			1,869
Insurance costs	613			704			1,378			1,387
Cost of providing services	60			63			124			127
Sales and marketing	45			52			91			98
General and administrative	35			36			68			72
Systems development and programming	9			13			18			25
Depreciation and amortization of intangible assets	13			12			24			23
Total costs and operating expenses	775			880			1,703			1,732
Operating income	173			55			293			137
Other income (expense):
Interest expense, bank fees and other	(4		)	(6		)	(8		)	(11		)
Interest income	2			7			7			13
Income before provision for income taxes	171			56			292			139
Income taxes	45			10			75			30
Net income	$	126		$	46		$	217		$	109
Other comprehensive income, net of income taxes	3			1			5			1
Comprehensive income	$	129		$	47		$	222		$	110

Net income per share:
Basic	$	1.88		$	0.65		$	3.16		$	1.56
Diluted	$	1.87		$	0.64		$	3.13		$	1.53
Weighted average shares:
Basic	67			70			69			70
Diluted	68			71			70			71



	Six Months Ended June 30, 2018
(in millions)	As previously reported			Reclassified amounts			As revised
Operating activities
Accounts receivable	$	—		$	11		$	11
Unbilled revenue	—			35			35
Prepaid income taxes	2			(2		)	—
Prepaid expenses and other current assets	(23		)	23			—
Prepaid expenses	—			(9		)	(9		)
Workers' compensation collateral receivable	(6		)	6			—
Accounts payable and other current liabilities	(14		)	(14		)	(28		)
Client deposits	—			(24		)	(24		)
Accrued wages	—			(28		)	(28		)
Accrued corporate wages	(5		)	5			—
Accrued health insurance costs	—			(13		)	(13		)
Accrued workers' compensation costs	—			(8		)	(8		)
Workers' compensation loss reserves and other non-current liabilities	(4		)	4			—
Payroll taxes payable and other payroll withholdings	—			(588		)	(588		)
Worksite employee related assets	4			(4		)	—
Worksite employee related liabilities	(652		)	652			—
Other assets	—			(45		)	(45		)
Other liabilities	—			(1		)	(1		)



	Three Months Ended									Six months ended
	June 30, 2018									June 30, 2018
(in millions)	As previously reported			Reclassified amounts			As revised			As previously reported			Reclassified amounts			As revised
Depreciation	$	8		$	(8	)	$	—		$	16		$	(16	)	$	—
Amortization of intangible assets	2			(2		)	—			3			(3		)	—
Depreciation and amortization of intangible assets	—			10			10			—			19			19
Interest expense, bank fees and other, net	(4		)	4			—			(8		)	8			—
Interest expense, bank fees and other	—			(7		)	(7		)	—			(13		)	(13		)
Interest income	—			3			3			—			5			5
Other comprehensive income, net of tax	—			1			1			—			—			—
Comprehensive income	58			1			59			112			—			112



	June 30, 2019
(in millions)	As reported			Balance Using Previous Standard		Increase (Decrease)
Balance sheet
Assets
Operating lease right-of-use assets	$	60		$	—	$	60
Liabilities
Operating lease liabilities	17			—		17
Operating lease liabilities, noncurrent	55			11		44
Equity
Accumulated deficit	(229		)	—		(229		)



(in millions)	Level 1		Level 2		Total
June 30, 2020
Cash equivalents:
Money market mutual funds	$	286	$	—	286
Total cash equivalents	286		—		286
Investments:
Asset-backed securities	—		22		22
Corporate bonds	—		83		83
U.S. government agencies and government-sponsored agencies	—		6		6
U.S. treasuries	—		86		86
Other debt securities	—		7		7
Total investments	—		204		204
Restricted cash equivalents:
Money market mutual funds	91		—		91
Commercial paper	14		—		14
Total restricted cash equivalents	105		—		105
Restricted investments:
Corporate bonds	—		31		31
U.S. government agencies and government-sponsored agencies	—		19		19
U.S. treasuries	—		199		199
Total restricted investments	—		249		249
Total cash equivalents and investments and restricted cash equivalents and investments	$	391	$	453	$	844



(in millions)	June 30, 2019⁽²⁾			December 31, 2018 ⁽³⁾
2019⁽¹⁾	$	10		$	18
2020	18			17
2021	11			11
2022	10			9
2023	9			8
2024	6			5
2025 and thereafter	19			20
Total future minimum lease payments	$	83		$	88
Less: imputed interest	(11		)	N/A⁽⁴⁾
Total operating lease liabilities	72			N/A⁽⁴⁾
Current portion	17			N/A⁽⁴⁾
Non-current portion	55			N/A⁽⁴⁾


~~(2)~~	~~Presented in accordance with ASC 842, which excludes base payments of $4 million for leases that do not yet have a commencement date.~~



					Fair Market Value
					June 30, 2020				December 31, 2019
(in millions)	Hedge type	Final settlement date	Notional amount		Other current assets		Accounts payable and other current liabilities		Other current assets		Accounts payable and other current liabilities
Derivatives designated as hedging instruments
Collar - LIBOR	Cash flow	May 2022	$	213	$	—	$	2	$	—	$	—


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2019			2018			2019			2018			2020			2019			2020			2019
Total accrued costs, beginning of period	$	236		$	250		$	238		$	255		$	217		$	236		$	214		$	238
Incurred
Current year	16			19			35			39			13			16			33			35
Prior years	(11		)	(6		)	(16		)	(13		)	(6		)	(11		)	(9		)	(16		)
Total incurred	5			13			19			26			7			5			24			19
Paid
Current year	(2		)	(2		)	(3		)	(2		)	(2		)	(2		)	(3		)	(3		)
Prior years	(15		)	(17		)	(30		)	(35		)	(11		)	(15		)	(24		)	(30		)
Total paid	(17		)	(19		)	(33		)	(37		)	(13		)	(17		)	(27		)	(33		)
Total accrued costs, end of period	$	224		$	244		$	224		$	244		$	211		$	224		$	211		$	224



	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, 2019	1,104,729		61,136		1,165,865		$	48.47
Granted	789,308		—		789,308		51.14
Vested	(356,897	)	(15,028	)	(371,925	)	42.87
Forfeited	(63,725	)	(3,611	)	(67,336	)	51.74
Nonvested at June 30, 2020	1,473,415		42,497		1,515,912		$	51.09



	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, 2019	15,752	114,857		130,609		$	49.70
Granted	183,981	—		183,981		52.86
Forfeited	—	(11,036	)	(11,036	)	47.61
Nonvested at June 30, 2020	199,733	103,821		303,554		$	51.69



	RSUs				RSAs
	Number of Units		Weighted-Average Grant Date Fair Value		Number of Units		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2018	1,737,554		$	32.83	346,792		$	49.13
Granted	724,172		60.58		—		—
Vested	(511,813	)	30.34		(31,248	)	50.61
Forfeited	(106,737	)	36.52		(11,103	)	49.35
Nonvested at June 30, 2019	1,843,176		$	44.18	304,441		$	49.11



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per share data)	2019		2018		2019		2018
Net income	$	46	$	58	$	109	$	112
Weighted average shares of common stock outstanding	70		70		70		70
Basic EPS	$	0.65	$	0.82	$	1.56	$	1.59
Net income	$	46	$	58	$	109	$	112
Weighted average shares of common stock outstanding	70		70		70		70
Dilutive effect of stock options and restricted stock units	1		3		1		2
Weighted average shares of common stock outstanding	71		73		71		72
Diluted EPS	$	0.64	$	0.80	$	1.53	$	1.55

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



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 ⁽²⁾
April 1- April 30, 2019	146,761	$	60.91	144,500	$	329
May 1 - May 31, 2019	238,763	$	62.08	161,200	$	319
June 1 - June 30, 2019	88,183	$	65.91	87,000	$	313
Total	473,707			392,700




*	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.



	TRINET GROUP, INC.

Date: July ~~25, 2019~~27, 2020		By:	/s/ Burton M. Goldfield
			Burton M. Goldfield
			Chief Executive Officer

Date: July ~~25, 2019~~		~~By:~~	~~/s/ Richard Beckert~~
			~~Richard Beckert~~
			~~Chief Financial Officer~~

~~Date: July 25, 2019~~27, 2020		By:	/s/ Michael P. Murphy
			Michael P. Murphy
			~~Chief~~Principal Financial and Accounting Officer