TRINET GROUP INC

ICR is a performance measure calculated as the ratio of insurance costs to insurance service revenues. We believe that ICR promotes an understanding of our insurance cost trends and our ability to align our relative pricing to risk performance.

We purchase workers' compensation and health benefits coverage for our WSEs. Under the insurance policies for this coverage, we bear claims costs up to a defined deductible amount. Our insurance costs, which comprise a significant portion of our overall costs, are significantly affected by our WSEs’ health and workers' compensation insurance claims experience. We set our insurance service fees for workers’ compensation and health benefits in advance for fixed benefit periods. As a result, any increases in insurance costs above our projections, will be reflected as a higher ICR, and result in lower net income. Any decreases in insurance costs below our projections, will be reflected as a lower ICR and result in higher net income.

Under our fully-insured workers' compensation insurance policies, we assume the risk for losses up to $1 million per claim occurrence (deductible layer). The ultimate cost of the workers’ compensation services provided cannot be known until all the claims are settled. Our ability to predict these costs is limited by unexpected increases in frequency or severity of claims, which can vary due to changes in the cost of treatments or claim settlements.

Under our risk-based health insurance policies, we assume the risk of variability in future health claims costs for our enrollees. This variability typically results from changing trends in the volume, severity and ultimate cost of medical and pharmaceutical claims, due to changes to the components of medical cost trend, which we define as changes in participant use of services, including the introduction of new treatment options, changes in treatment guidelines and mandates, and changes in the mix, cost of providing treatment and timing of services provided to plan participants. These trends change, and other seasonal trends and variability may develop. As a result, it is difficult for us to predict our insurance costs with accuracy and a significant increase in these costs could have a material adverse effect on our business.

ICR increased for the year ended December 31, 2024 as compared to 2023, primarily driven by higher insurance costs outpacing the growth in ISR. Insurance costs increased due to more severe medical service utilization in all categories (inpatient, outpatient and professional services), higher rates paid for those services, as well as pharmacy costs including specialty drugs, particularly medications for diabetes and obesity. During the year ended December 31, 2024, this was partially offset by favorable prior period development in workers' compensation.

Total Revenues

Our revenues consist of PSR, ISR and interest income. PSR represents fees charged to clients for processing payroll-related transactions on behalf of our PEO and ASO clients, access to our HR expertise and technology, employment and benefit law compliance services, other HR-related and tax credit filing services and fees charged to access our cloud-based ASO services. ISR consists of insurance-related billings and administrative fees collected from PEO clients and withheld from WSEs for workers' compensation insurance and health benefit insurance plans provided by third-party insurance carriers.

Monthly revenues per co-employed Average WSE is a measure we use to monitor our PEO pricing strategies. This measure increased 1% in 2024 compared to 2023.

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

•Rate - the combined weighted average percentage changes in service fees for each vertical service and changes in service fees associated with each insurance service offering,

•Mix -the change in composition of co-employed Average WSEs within our verticals combined with the composition of our enrolled co-employed WSEs within our insurance service offerings and the composition of products and services our clients receive, such as PEO Platform Users,

•HRIS - cloud services revenue, which includes our new ASO services revenue, and

•Interest income.

PSR

ISR - % represents proportion of insurance service revenues to total revenues

*Total revenues generated from PEO services only, excluding interest income

The increase in total revenue for the year ended December 31, 2024 was primarily driven by higher co-employed Average WSEs and rate increases, partially offset by lower health plan enrollment.

Professional Service Revenues

Our PEO and ASO clients are primarily billed on a fee per WSE or HRIS User per month per transaction. Our vertical approach provides us the flexibility to offer our PEO clients in different industries with varied services at different prices, which we believe potentially reduces the value of solely using Average WSE and Total WSE counts as indicators of future potential revenue performance.

PSR from PEO Services customers and HRIS services clients was as follows:

We also analyze changes in PSR with the following measures:

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

•Mix - the change in composition of co-employed Average WSEs across our verticals and the composition of products and services our clients receive, including PEO Platform Users, and

•HRIS - cloud services revenue, which includes our new ASO services revenue.

The increase in PSR for the year ended December 31, 2024 was primarily driven by higher co-employed Average WSEs and increases in rate. The decrease in HRIS revenue compared to the prior periods was due to a decrease in HRIS Users in 2024 and an acceleration of revenue in 2023 related to a termination agreement in a broker partner which did not recur in 2024.

Insurance Service Revenues

ISR consists of insurance services-related billings and administrative fees collected from PEO clients and withheld from WSE payroll for health benefits and workers' compensation insurance provided by third-party insurance carriers.

We use the following measures to analyze changes in ISR:

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

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

The increase in ISR for the year was primarily driven by rate increases and higher co-employed Average WSEs, partially offset by lower health plan enrollment.

Interest Income

Interest income primarily includes interest income earned from cash held for our PEO and ASO clients as a result of the requirement of our clients to prefund their payroll and related taxes and other withholding liabilities before payroll is processed or due for payment.

The decrease in interest income for the year was primarily driven by lower cash and investment holdings during 2024 as compared to 2023 as well as decreases in interest rates in the second half of 2024.

Insurance costs include insurance premiums for coverage provided by insurance carriers, payments for claims costs and expenses for other risk management and administrative services, reimbursement of claims payments made by insurance carriers or third-party administrators below a predefined deductible limit, and changes in accrued costs related to contractual obligations with our workers' compensation and health benefit carriers.

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

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

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

The increase in insurance costs for the year was primarily due to more severe medical service utilization, higher rates paid for all categories of service (inpatient, outpatient and professional services) and increased specialty drugs utilization, particularly medications for diabetes and obesity. This trend was partially offset by favorable workers' compensation prior period claims development.

Expenses

Expenses include COPS, S&M, G&A, SD&P, D&A, collectively referred to as OE, as well as IE.

We had approximately 3,600 colleagues as of December 31, 2024 primarily across the U.S. but also in India and Canada. Compensation costs for our colleagues include payroll, payroll taxes, SBC, bonuses, commissions and other payroll- and benefits-related costs. Compensation-related expense represented 63% and 66% of our expenses in 2024 and 2023, respectively.

Transaction and integration costs associated with our 2022 acquisitions of Zenefits and TriNet Clarus R+D are included in G&A for 2023. These costs include advisory, legal, and employee retention costs tied to ongoing employment.

In the fourth quarter of 2024, we began implementing a realignment of our strategy designed to simplify and strengthen TriNet’s operational focus. As part of these restructuring efforts, we incurred higher asset impairment and severance expenses than in 2023.

In 2024, we experienced expense growth of 5% compared to 2023. This increase was primarily driven by severance costs and non-cash impairment charges related to our restructuring efforts as well as higher interest expense related to our debt instruments issued in 2023. The ratio of expenses to total revenues was 20% in 2024 and 2023.

% represents portion of compensation related expense included in expenses

We analyze and present our expenses based upon the functional categories of COPS, S&M, G&A, SD&P, D&A and IE. 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.

The primary spend type drivers to the changes in our expenses are presented below:

Our ETR was 23% and 25% for 2024 and 2023, respectively. The decrease in the rate was primarily attributable to an increase in tax benefits related to excludable income for state tax purposes and tax credits, offset by a decrease in tax benefits for stock based compensation.

Liquidity and Capital Resources

Liquidity

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations. Our principal source of liquidity for operations is derived from cash provided by operating activities. We rely on cash provided by operating activities to meet our short-term liquidity requirements, which primarily relate to the payment of corporate payroll and other operating costs, and capital expenditures. Our cash flow related to WSE payroll and benefits is generally matched by advance collection from our PEO clients. To minimize the credit risk associated with remitting the payroll and associated taxes and benefits costs, we require PEO clients to prefund the payroll and related payroll taxes and benefits costs.

Included in our balance sheets are assets and liabilities resulting from transactions directly or indirectly associated with WSEs, including payroll and related taxes and withholdings, our sponsored workers' compensation and health insurance programs, and other benefit programs. Although we are not subject to regulatory restrictions that require us to do so, we distinguish and manage our corporate assets and liabilities separately from those current assets and liabilities held by us to satisfy our employer obligations associated with our WSEs.

In December of 2023, TriNet created a trust for the purpose of holding funds provided by HRIS clients for the remittance to HRIS Users, tax authorities and other recipients. This trust is consolidated into our financial statements. During the first quarter of 2024, TriNet Trust assumed ownership and responsibility of certain bank accounts that hold ASO client funds. The associated cash is reflected on our balance sheet as restricted cash and the associated liabilities are classified as accrued wages, payroll tax liabilities and other payroll withholdings, and client deposits and other client liabilities and assumed related liabilities. As of December 31, 2024, the balance of restricted cash in TriNet Trust was $87 million. Beginning in the second quarter of 2024, we include the assets and liabilities related to the TriNet Trust in the "WSE & TriNet Trust" category because the underlying cash flows of TriNet Trust are related to the same type of payroll and payroll related liabilities as our WSE cash flows. This trust structure will continue to be used as we transition our HRIS services to ASO services.

As of December 31, 2024, we did not have any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Working capital for WSEs and TriNet Trust related activities

We designate funds to ensure that we have adequate current assets to satisfy our current obligations associated with WSEs. We manage our WSE payroll and benefits obligations through collections of payments from our clients which generally occur two to three days in advance of client payroll dates. We regularly review our short-term obligations associated with our WSEs (such as payroll and related taxes, insurance premium and claim payments) and designate funds required to fulfill these short-term obligations, which we refer to as PFC. PFC is included in current assets as restricted cash, cash equivalents and investments.

We manage our sponsored benefit and workers' compensation insurance obligations by maintaining collateral funds in restricted cash, cash equivalents and investments. These collateral amounts are generally determined at the beginning of each plan year and we may be required by our insurance carriers to adjust our collateral balances when facts and circumstances change. We regularly review our collateral balances with our insurance carriers and anticipate funding further collateral in the future based upon our capital requirements. We classify our restricted cash, cash equivalents and investments as current and noncurrent assets to match against the anticipated timing of payments to carriers.

The following table summarizes our workers' compensation obligations, gross of collateral, as of December 31, 2024,

(1) Represents estimated payments that are expected to be made to carriers for various workers' compensation programs under the contractual obligations. These obligations include the costs of reimbursing the carriers for paying claims within the deductible layer in accordance with the workers' compensation insurance policy.

Because the liabilities of the TriNet Trust are largely driven by how much in cash has been deposited into the trust, there is generally no significant working capital in that entity.

Working capital for corporate purposes

Corporate working capital as of December 31, 2024 increased $84 million from December 31, 2023, primarily driven by a $72 million increase in corporate unrestricted cash and cash equivalents, partially offset by a $65 million decrease in the current portion of our unrestricted investment portfolio and a $54 million decrease in corporate current liabilities, mostly driven by the $34 million reduction in the current portion of our outstanding debt.

We use our available cash and cash equivalents to satisfy our operational and regulatory requirements and to fund capital expenditures. We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through existing liquid assets, continuing cash flows from corporate operating activities and the potential issuance of debt or equity securities. We hold both corporate cash and cash associated with WSEs across multiple financial institutions to reduce concentrations of counterparty risk. We believe our existing corporate cash and cash equivalents and positive working capital will be sufficient to meet our working capital expenditure needs for at least the next twelve months.

The following table summarizes our purchase obligations as of December 31, 2024,

(1) Our purchase obligations primarily consist of software licenses, consulting and maintenance agreements, and future sales and marketing events.

Cash Flows

In 2024, we changed the presentation method in our Consolidated Statements of Cash Flows to classify changes in WSE and TriNet Trust related assets and liabilities, formerly included in operating activities, as financing activities.

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

Operating Activities

The year-over-year change in net cash provided by operating activities was primarily driven by the decrease in our net income and the timing of our payments of corporate obligations.

Investing Activities

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

In 2024, we liquidated the unrestricted portion of our investment portfolio and used the funds to pay down our outstanding debt and for additional operational liquidity.

Investments

We invest a portion of available cash in investment-grade securities with effective maturities less than five years that are classified on our balance sheets as investments. We consider industry and issuer concentrations in our investment policy.

We also invest funds held as collateral to satisfy our long-term obligation towards workers' compensation liabilities. These investments are classified on our balance sheets as restricted cash, cash equivalents and investments. We review the amount and the anticipated holding period of these investments regularly in conjunction with our estimated long-term workers' compensation liabilities and anticipated claims payment trend. At December 31, 2024, our investments had a weighted average duration of less than two years and an average S&P credit rating of AA+.

As of December 31, 2024, we held approximately $1.9 billion in restricted and unrestricted cash, cash equivalents and investments, of which $360 million was unrestricted cash and cash equivalents. Refer to Note 2 in Part II, Item 8. Financial Statements and Supplemental Data, in this Form 10-K for a summary of these funds.

Capital Expenditures

During the twelve months ended December 31, 2024 and 2023, we continued to make investments in software and hardware as we enhanced our existing service offerings and technology platform. We expect capital investments in our software and hardware to continue in the future.

Financing Activities

Net cash used in financing activities in the years ended December 31, 2024 and 2023 consisted of our debt and equity-related activities.

In February 2023, our board of directors authorized a $300 million incremental increase to our ongoing stock repurchase program initiated in May 2014. In July 2023, our board of directors authorized a further $1 billion incremental increase to this stock repurchase program. We use this program to return value to our stockholders and to offset dilution from the issuance of stock under our equity-based incentive plan and employee purchase plan.

On August 28, 2023, we completed a public tender offer through which we repurchased 5,981,308 shares of common stock at a price of $107.00 per share, for total consideration of approximately $640 million. On September 13, 2023, we repurchased 3,364,486 shares of common stock at a price of $107.00 per share, for total consideration of approximately $360 million, through a private repurchase from our largest stockholder, Atairos Group, Inc.

During the year ended December 31, 2024, we repurchased 1,771,254 shares of our common stock for approximately $182 million through our existing stock repurchase program in addition to 110,779 shares acquired to satisfy tax withholding obligations related to SBC vesting. As of December 31, 2024, approximately $251 million remained available for repurchase under all authorizations by our board of directors. We plan to use current cash and cash generated from ongoing operating activities to fund this stock repurchase program.

In March 2023, to ensure that we maintained liquidity during the regional banking liquidity challenges, we drew down the available $495 million of capacity under our 2021 Revolver. As concerns about market liquidity subsided, we repaid $200 million in March and $295 million in April. In September of 2023, we drew down $200 million under our 2021 Revolver to partially fund our share repurchases in the third quarter of 2023 noted above. In 2024, we repaid $110 million of the outstanding balance.

In August 2023, we issued $400 million aggregate principal amount of our 2031 Notes to partially fund share repurchases in the third quarter of 2023. In August 2023, concurrently with the issuance of the 2031 Notes, we amended certain provisions of our 2021 Credit Agreement, dated February 26, 2021, as amended, to, among other things (1) increase the aggregate capacity under our 2021 Revolver from $500 million to $700 million and (2) extend the maturity date of our 2021 Revolver to August 16, 2028.

We initiated a common stock dividend of $0.25 per share in April, July and October 2024 and declared common stock dividends of $0.25 per share to be paid in the first quarter of 2025.

Capital Resources

As of December 31, 2024, $500 million and $400 million aggregate principal of our 2029 Notes and 2031 Notes was outstanding, respectively. The indenture governing our 2029 Notes and 2031 Notes each includes restrictive covenants limiting our ability to: (i) create liens on certain assets to secure debt; (ii) grant a subsidiary guarantee of certain debt without also providing a guarantee of the 2029 Notes or 2031 Notes, as applicable; and (iii) consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of our assets to, another person, subject, in each case, to certain customary exceptions.

Our 2021 Credit Agreement includes a $700 million revolver. In September of 2023, we drew down $200 million of this revolver to partially fund our third quarter of 2023 share repurchases. The 2021 Credit Agreement includes negative covenants that limit our ability to incur indebtedness and liens, sell assets and make restricted payments, including dividends and investments, subject to certain exceptions. In addition, the 2021 Credit Agreement also contains other customary affirmative and negative covenants and customary events of default. The 2021 Credit Agreement also contains a financial covenant that requires the Company to maintain certain maximum total net leverage ratios.

We were in compliance with all financial covenants under our 2021 Credit Agreement, 2029 Notes and 2031 Notes at December 31, 2024.