TriNet 10Q 2022 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

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

For the transition period from to

Commission File Number: 001-36373

TRINET GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)


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

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

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


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

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

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

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


Large accelerated filer	x	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	☐

		Emerging growth company	☐

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

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

The number of shares of Registrant’s Common Stock outstanding as of October 19, 2022 was 62,230,133.


TABLE OF CONTENTS

TRINET GROUP, INC.

Form 10-Q - Quarterly Report

For the Quarterly Period Ended September 30, 2022

TABLE OF CONTENTS


	Form 10-Q Cross Reference	Page
Glossary		3
Cautionary Note Regarding Forward-Looking Statements		5
Unaudited Condensed Consolidated Financial Statements	Part I, Item 1.	30
Condensed Consolidated Statements of Income and Comprehensive Income		30

Condensed Consolidated Balance Sheets		31
Condensed Consolidated Statements of Stockholders' Equity		32
Condensed Consolidated Statements of Cash Flows		33
Notes to Condensed Consolidated Financial Statements		34
Note 1. Description of Business and Significant Accounting Policies		34
Note 2. Cash, Cash Equivalents and Investments - Unrestricted and Restricted		37
Note 3. Financial Instruments and Fair Value Measurements		37

Note 4. Accrued Workers' Compensation Costs		40

Note 5. Commitments and Contingencies		40
Note 6. Stock Based Compensation		41
Note 7. Stockholders' Equity		42
Note 8. Income Taxes		43
Note 9. Earnings Per Share		43
Note 10. Acquisition s		43

Management’s Discussion and Analysis of Financial Condition and Results of Operations	Part I, Item 2.	7
Quantitative and Qualitative Disclosures About Market Risk	Part I, Item 3.	28
Controls and Procedures	Part I, Item 4.	29
Legal Proceedings	Part II, Item 1.	47
Risk Factors	Part II, Item 1A.	47
Unregistered Sales of Equity Securities and Use of Proceeds	Part II, Item 2.	47
Defaults Upon Senior Securities	Part II, Item 3.	47
Mine Safety Disclosures	Part II, Item 4.	47
Other Information	Part II, Item 5.	47
Exhibits	Part II, Item 6.	48



TRINET	2	2022 Q3 FORM 10-Q


GLOSSARY			Table of Contents

Glossary of Acronyms and Abbreviations

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




2018 Term Loan			Our $425 million term loan A executed in June 2018 and repaid in 2021
2021 Credit Program/ 2022 Credit Program			Our 2021 and 2022 programs, respectively, to provide eligible clients with credits, subject to certain predefined conditions and based on certain pandemic related excess health care cost savings achieved.
2021 Credit Agreement			Our credit agreement dated February 26, 2021, including our $500 million revolving line of credit.

2029 Notes			Our $500 million senior unsecured notes maturing in March 2029
AFS			Available-for-sale


CARES Act			Coronavirus Aid Relief and Economic Security Act

CEO			Chief Executive Officer
CFO			Chief Financial Officer
Clarus R+D			Clarus R&D Solutions, LLC
COBRA			Consolidated Omnibus Budget Reconciliation Act
COPS			Cost of providing services

COVID-19			Novel coronavirus


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

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

ETR			Effective tax rate

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


HCM			Human capital management
HR			Human Resources



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


LIBOR			London Inter-bank Offered Rate


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



OE			Operating expenses

PEO			Professional Employer Organization
PFC			Payroll funds collected

PPP			Paycheck Protection Program, a loan program administered by the U.S. Small Business Administration
PSR			Professional service revenues
R&D			Research and Development
Recovery Credit			2020 program to provide clients with one-time reductions against fees for future services
Recovery Credit Programs			Collectively, our 2020 Recovery Credit, 2021 Credit Program and 2022 Credit Program
Reg FD			Regulation Fair Disclosure
ROU			Right-of-use
RSA			Restricted Stock Award
RSU			Restricted Stock Unit
SBC			Stock Based Compensation
S&M			Sales and marketing
S&P			Standard & Poor's



TRINET	3	2022 Q3 FORM 10-Q


GLOSSARY			Table of Contents


SD&P			Systems development and programming
SEC			U.S. Securities and Exchange Commission
SMB			Small and medium-size business


U.S.			United States

WSE			Worksite employee
YTD			Year to date
Zenefits			YourPeople, Inc. (dba Zenefits) and its subsidiaries



TRINET	4	2022 Q3 FORM 10-Q


FORWARD LOOKING STATEMENTS AND OTHER FINANCIAL INFORMATION			Table of Contents

Cautionary Note Regarding Forward-Looking Statements

For purposes of this Quarterly Report on Form 10-Q (Form 10-Q), the terms “TriNet,” “the Company,” “we,” “us” and “our” refer to TriNet Group, Inc., and its subsidiaries. This Form 10-Q contains statements that are not historical in nature, are predictive in nature, or that depend upon or refer to future events or conditions or otherwise contain forward-looking statements within the meaning of Section 21 of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by the use of words such as, but not limited to, "ability," “anticipate,” “believe,” “can,” “continue,” “could,” “design,” “estimate,” “expect,” “forecast,” “hope,” "impact," “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “strategy,” “target,” "value," “will,” “would” and similar expressions or variations intended to identify forward-looking statements. Examples of forward-looking statements include, among others, TriNet’s expectations regarding: our continued ability to support the economic recovery of our clients and SMBs; our ability to respond appropriately to the impact of COVID-19 on our business and our clients' businesses; the impact of the Zenefits and Clarus R+D acquisitions on our business including our ability to diversify our overall service offerings and grow the Zenefits client base; the effect that our stock repurchases, issuance of senior notes and of our 2021 Credit Agreement will have on our business; the timing and strategies we employ with respect to corporate investments and capital expenditures; expectations regarding medical utilization rates by our WSEs; the impact of our Recovery Credit program and our 2021 and 2022 Credit Programs; the impact of our PEO vertical approach; our ability to leverage our scale and industry HR experience to deliver vertical service offerings; the impact of our plans to continue to grow our client base; planned improvements to our technology platform; the implementation of our Enterprise Resource Planning system and its impact on our internal financial controls and operations; our ability to drive operating efficiencies and improve the client experience; the impact of our client service initiatives; the volume and severity of insurance claims and the continuing impact of COVID-19 on those claims; metrics that may be indicators of future financial performance; the relative value of our benefit offerings versus those SMBs can independently obtain; the principal competitive drivers in our market; our plans to retain clients and manage client attrition; our investment strategy and its impact on our ability to generate future interest income, net income, and Adjusted EBITDA; seasonal trends and their impact on our business, including due to COVID-19; fluctuations in the period-to-period timing of when we incur certain operating expenses; the estimates and assumptions we use to prepare our financial statements; and other expectations, outlooks and forecasts on our future business, operational and financial performance.

Important factors that could cause actual results, level of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements are discussed above and throughout our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 14, 2022 (our 2021 Form 10-K), including those appearing under the heading “Risk Factors” in Item 1A, and under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2021 Form 10-K, as well as those appearing under the heading “Risk Factors” and under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q or any other form 10-Q filed with the SEC in 2022, and those appearing in our other periodic filings with the SEC, including risk factors associated with: the economic, health and business disruption caused by the COVID-19 pandemic; the impact of the COVID-19 pandemic on our clients and prospects, insurance costs and operations; the impact of the COVID-19 pandemic on the laws and regulations that impact our industry and clients; our ability to manage unexpected changes in workers’ compensation and health insurance claims and costs by worksite employees; our ability to mitigate the business risks we face as a co-employer; the effects of volatility in the financial and economic environment on the businesses that make up our client base and the concentration of our clients in certain geographies and industries; loss of clients for reasons beyond our control; the short-term contracts we typically use with our clients; the impact of regional or industry-specific economic and health factors on our operations; the impact of failures or limitations in the business systems we rely upon; the impact of our client Recovery Credit Programs, including our 2021 and 2022 Credit Programs; adverse changes in our insurance coverage or our relationships with key insurance carriers; our ability to improve our services and technology to satisfy regulatory requirements and meet the expectations of our clients and manage client attrition; our ability to effectively integrate businesses we have acquired or may acquire in the future; our ability to effectively manage and improve our operational processes; our ability to attract and retain qualified personnel; the effects of increased competition and our ability to compete effectively; the impact on our business of cyber-attacks and security breaches; our ability to secure our information technology infrastructure and our confidential, sensitive and personal information; our ability to comply with constantly evolving data privacy and security laws; our ability to manage changes in, uncertainty regarding, or adverse application of the complex laws and regulations that govern our business; changing laws and regulations governing health insurance and employee benefits; our ability to be recognized as an employer of worksite employees under federal and state regulations; changes in the laws and regulations that govern what it



TRINET	5	2022 Q3 FORM 10-Q


FORWARD LOOKING STATEMENTS AND OTHER FINANCIAL INFORMATION			Table of Contents

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 operations and stock price due to factors outside of our control, such as the volume and severity of our workers’ compensation and health insurance claims and the amount and timing of our insurance costs, operating expenses and capital expenditure requirements; our ability to comply with the restrictions of our credit facility and meet our debt obligations; and the impact of concentrated ownership in our stock. Any of these factors could cause our actual results to differ materially from our anticipated results.

Forward-looking statements are not guarantees of future performance but are based on management’s expectations as of the date of this Form 10-Q and assumptions that are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from our current expectations and any past results, performance or achievements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

The information provided in this Form 10-Q is based upon the facts and circumstances known as of the date of this Form 10-Q, and any forward-looking statements made by us in this Form 10-Q speak only as of the date of this Form 10-Q. We undertake no obligation to revise or update any of the information provided in this Form 10-Q, except as required by law.

The MD&A of this Form 10-Q includes references to our performance measures presented in conformity with GAAP and other non-GAAP financial measures that we use to manage our business, to make planning decisions, to allocate resources and to use as performance measures in our executive compensation plans. Refer to the Non-GAAP Financial Measures within our MD&A for definitions and reconciliations from GAAP measures.

Website Disclosures

We use our website (www.trinet.com) to announce material non-public information to the public and to comply with our disclosure obligations under Regulation Fair Disclosure (Reg FD). We also use our website to communicate with the public about our Company, our services, and other matters. Our SEC filings, press releases and recent public conference calls and webcasts can also be found on our website. The information we post on our website could be deemed to be material information under Reg FD. We encourage investors and others interested in our Company to review the information we post on our website. Information contained in or accessible through our website is not a part of this report.

Our Company is the sole owner of the trademark “TriNet” and other trademarks appearing in this report. Our Company does not intend to use or display trade names or trademarks owned by others to imply any form of association with any of those companies.



TRINET	6	2022 Q3 FORM 10-Q


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

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

Executive Summary

Overview

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

We leverage our scale and industry HR experience to deliver our PEO service offerings tailored for SMBs in specific industry verticals. We believe our PEO vertical approach is a key differentiator for us and creates additional value for our PEO clients driven by addressing their industry-specific HR needs. We offer six industry-tailored PEO vertical services: TriNet Financial Services, TriNet Life Sciences, TriNet Main Street, TriNet Nonprofit, TriNet Professional Services, and TriNet Technology. We continue to introduce new product solutions that enhance our offerings. Through our acquisition of Zenefits, we now also offer a self-directed, cloud-based HCM software product and other HR related services for all SMBs without using a co-employment model.

Acquisitions

In February 2022, we acquired Zenefits, a leading cloud HR platform which provides innovative and intuitive HR, benefits, payroll and employee engagement software purpose-built for SMBs. We believe the acquisition of Zenefits and its cloud-based HCM software allows us to diversify our product and service offerings to all SMBs without using a co-employment model, and enables us to dynamically service SMBs throughout their lifecycle and expand the SMBs we serve.

In September 2022, we acquired Clarus R+D, an industry leading, service and expertise driven fintech solutions company that simplifies the R&D tax credit process for SMBs. We believe the acquisition of Clarus R+D and its cloud-based software platform, coupled with the deep expertise of its professional services team, allows us to better serve our existing SMB clients and expand our service offerings for all SMBs.

Operational Highlights

Our consolidated results for the nine months ended September 30, 2022 reflect our continuing efforts to serve our existing clients and attract new customers while continuing to support the economic recovery of SMBs from the COVID-19 pandemic.

During the nine months ended September 30, 2022 we:

•continued to grow total revenues,

•completed the acquisition of Clarus R+D, expanding our service offerings for all SMBs,

•hosted the 3rd annual TriNet PeopleForce, our showcase client and prospect conference focused on business transformation, agility and innovation for small and medium-size businesses,

•launched Enrich, an innovative product line that will allow clients to expand the benefits they offer to their employees,

•established our 2022 Credit Program to benefit our eligible clients, resulting in a $25 million reduction in insurance service revenues recognized in the second quarter of 2022,

•completed the acquisition of Zenefits, diversifying our product and service offerings, and

•completed a tender offer to repurchase $316 million in shares of TriNet common stock.



TRINET	7	2022 Q3 FORM 10-Q


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Performance Highlights

Our results for the third quarter and nine months ended 2022 when compared to the same periods of 2021 are noted below:

Q3 2022


	$1.2B			$120M			83%
	Total revenues			Operating income			Insurance cost ratio
	8	%	increase	14	%	increase	(3)	%	decrease

	$77M			$1.22			$104M
	Net income			Diluted EPS			Adjusted Net income *
	—	%	flat	6	%	increase	20	%	increase

	351,888			351,839			247,375
	Average WSEs			Total WSEs			Average HCM Users
	1	%	increase	—	%	flat

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

The revenue growth as compared to the third quarter of 2021 reflects our higher Average WSEs, insurance and service fee rate increases and the addition of HCM cloud services following the acquisition of Zenefits in February 2022 and Clarus R+D in September 2022.

Our ISR growth as compared to the third quarter of 2021 was driven by higher rates and average WSEs. This growth was partially offset by higher insurance costs driven by higher medical services utilization in the third quarter of 2022, combined with increased volume due to higher average WSEs. These factors caused our insurance cost ratio to decrease as compared to the third quarter of 2021.

The growth in total revenues was offset by increases in insurance costs, operating expenses, and realized losses on investment securities, which resulted in net income being flat compared to the third quarter of 2021. Excluding the impacts of transaction and integration costs from our acquisitions of Zenefits and Clarus R+D, Adjusted Net Income increased 20%.

YTD 2022


	$3.7B			$443M			82%
	Total revenues			Operating income			Insurance cost ratio
	11	%	increase	22	%	increase	(2)	%	decrease

	$307M			$4.81			$378M
	Net income			Diluted EPS			Adjusted Net income *
	14	%	increase	19	%	increase	25	%	increase

	348,833			251,707
	Average WSEs			Average HCM Users
	4	%	increase

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



TRINET	8	2022 Q3 FORM 10-Q


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Results of Operations

The following table summarizes our results of operations for the third quarter and nine months ended September 30, 2022 when compared to the same periods of 2021. For details of the critical accounting judgments and estimates that could affect our Results of Operations, see the Critical Accounting Judgments and Estimates section within the MD&A in Item 7 of our 2021 Form 10-K.


	Three Months Ended September 30,								Nine Months Ended September 30,
(in millions, except operating metrics data)	2022			2021			% Change		2022			2021			% Change
Income Statement Data:
Professional service revenues	$	189		$	156		21	%	$	565		$	465		22	%
Insurance service revenues	1,052			992			6		3,094			2,843			9
Total revenues	1,241			1,148			8		3,659			3,308			11
Insurance costs	872			851			2		2,547			2,400			6
Operating expenses	249			192			30		669			544			23
Total costs and operating expenses	1,121			1,043			7		3,216			2,944			9
Operating income	120			105			14		443			364			22
Other income (expense):
Interest expense, bank fees and other	(22)			(5)			340		(33)			(15)			120
Interest income	5			3			67		8			6			33


Income before provision for income taxes	103			103			—		418			355			18
Income taxes	26			26			—		111			86			29
Net income	$	77		$	77		—	%	$	307		$	269		14	%


Cash Flow Data:
Net cash provided by (used in) operating activities									$	76		$	(16)		(575)	%
Net cash used in investing activities									(205)			(145)			41
Net cash provided by (used in) financing activities									(392)			20			(2,060)

Non-GAAP measures (1):



Adjusted EBITDA	$	173		132			31	%	$	577		$	449		29	%
Adjusted Net income	$	104		87			20		$	378		$	302		25
Corporate Operating Cash Flows									$	436		$	334		31

Operating Metrics:
Insurance Cost Ratio	83		%	86		%	(3)	%	82		%	84		%	(2)	%
Average WSEs	351,888			347,502			1	%	348,833			333,839			4	%
Total WSEs	351,839			351,267			—	%	351,839			351,267			—	%
Average HCM Users (2)	247,375			N/A			N/A		251,707			N/A			N/A

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

(2) For the nine months ended September 30, 2022, reflects HCM Users from February 15, 2022, the date on which we acquired Zenefits, to the end of the period.

The following table summarizes our balance sheet data as of September 30, 2022 compared to December 31, 2021.


(in millions)	September 30, 2022		December 31, 2021		% Change
Balance Sheet Data:
Working capital	$	444	$	700	(37)	%
Total assets	3,079		3,309		(7)
Debt	496		495		—
Total stockholders’ equity	856		881		(3)



TRINET	9	2022 Q3 FORM 10-Q


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Non-GAAP Financial Measures

In addition to financial measures presented in accordance with GAAP, we monitor other non-GAAP financial measures that we use to manage our business, to make planning decisions, to allocate resources and to use as performance measures in our executive compensation plan. These key financial measures provide an additional view of our operational performance over the long-term and provide information that we use to maintain and grow our business.

The presentation of these non-GAAP financial measures is used to enhance the understanding of certain aspects of our financial performance. It is not meant to be considered in isolation from, superior to, or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.


Non-GAAP Measure	Definition	How We Use The Measure



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

(1) Non-GAAP effective tax rate is 25.5% for 2022 and 2021, which excludes the income tax impact from stock-based compensation, changes in uncertain tax positions and nonrecurring benefits or expenses from federal legislative changes.

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



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MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Reconciliation of GAAP to Non-GAAP Measures

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2022			2021			2022			2021
Net income	$	77		$	77		$	307		$	269
Provision for income taxes	26			26			111			86
Stock based compensation	16			13			46			37
Interest expense, bank fees and other (1)	22			5			33			15
Depreciation and amortization of intangible assets	17			11			46			42
Amortization of cloud computing arrangements	1			—			3			—
Transaction and integration costs	14			—			31			—
Adjusted EBITDA	$	173		$	132		$	577		$	449
Adjusted EBITDA Margin	14.0		%	11.5		%	15.7		%	13.6		%

(1) Interest expense, bank fees and other includes $17M of realized investments losses on sales and impairments related to AFS securities.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021
Net income	$	77	$	77	$	307	$	269
Effective income tax rate adjustment	—		—		4		(4)
Stock based compensation	16		13		46		37
Amortization of intangible assets, net	5		1		13		11
Non-cash interest expense	1		—		1		3
Transaction and integration costs	14		—		31		—
Income tax impact of pre-tax adjustments	(9)		(4)		(24)		(14)
Adjusted Net Income	$	104	$	87	$	378	$	302

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


	Nine Months Ended September 30,
(in millions)	2022		2021
Net cash provided by (used in) operating activities	$	76	$	(16)
Less: Change in WSE related other current assets	(101)		(50)
Less: Change in WSE related liabilities	(259)		(300)
Net cash provided by (used in) operating activities - WSE	$	(360)	$	(350)
Net cash provided by operating activities - Corporate	$	436	$	334



TRINET	11	2022 Q3 FORM 10-Q


MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents

Operating Metrics

Worksite Employees (WSE)

Average WSE growth is a volume measure we use to monitor the performance of our PEO services. Average WSEs increased 1% when comparing the third quarter of 2022 to the same period in 2021, primarily due hiring in our Technology and Life Science verticals, partially offset by slower hiring and attrition in our Main Street and Financial Services verticals as compared to 2021.

Total WSEs can be used to estimate our beginning WSEs for the next period and, as a result, can be used as an indicator of our potential future revenues, insurance costs and COPS.

Anticipated revenues for future periods can diverge from the revenue expectation derived from Average WSEs or Total WSEs due to pricing differences across our HR solutions and services and the degree to which clients and WSEs elect to participate in our solutions during future periods. In addition to focusing on growing our Average WSE and Total WSE counts, we also focus on pricing strategies, benefit participation and service differentiation to expand our revenue opportunities. We report the impact of client and WSE participation differences as a change in mix.

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

HCM Users

Average HCM Users is a volume measure we use to monitor the performance of our cloud-based HCM services. Average HCM Users for the third quarter and nine months ended September 30, 2022 was 247,375 and 251,707, respectively.

Insurance Cost Ratio (ICR)

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

We purchase workers' compensation and health benefits coverage for our colleagues and WSEs. Under the insurance policies for this coverage, we bear claims costs up to a defined deductible amount. Our insurance costs, which comprise a significant portion of our overall costs, are significantly affected by our WSEs’ health and workers' compensation insurance claims experience. We set our insurance service fees for workers’ compensation and health benefits in advance for fixed benefit periods. As a result, increases in these insurance costs above our



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projections, reflected as a higher ICR, result in lower net income. Conversely, decreases in these insurance costs below our projections, reflected as a lower ICR, 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. These trends change, and other seasonal trends and variability may develop. As a result, it is difficult for us to predict our insurance costs with accuracy and a significant increase in these costs could have a material adverse effect on our business.


	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2022			2021			2022			2021
Insurance costs	$	872		$	851		$	2,547		$	2,400
Insurance service revenues	1,052			992			3,094			2,843
Insurance Cost Ratio	83		%	86		%	82		%	84		%

ICR decreased for the third quarter as the increase in ISR in 2022 more than offset the increase in insurance costs that resulted from increased medical services utilization and COVID-19 testing, treatment and vaccination costs.

ICR decreased for the nine months ended September 30, 2022 due to the increase in ISR, resulting from higher Average WSEs, rate increases and the expiration of our credit programs created in prior years. This was partially offset by the reduction in revenue recognized for the 2022 Credit Program recognized in the second quarter of 2022.

ICR for the third quarter and nine months ended September 30, 2022 also benefited from favorable prior year development on our accrued workers' compensation costs, primarily due to lower than expected claim frequency as WSEs have shifted to remote work during the pandemic.

While medical services utilization has increased in 2022, ICR remains below pre-pandemic levels, as access to medical systems was constrained earlier in 2022 in regions where increases in hospitalizations due to a surge in COVID-19 cases reduced preventative and elective procedures.

Total Revenues

Our revenues consist of professional service revenues (PSR) and insurance service revenues (ISR). PSR represents fees charged to clients for processing payroll-related transactions on behalf of our clients, access to our HR expertise, employment and benefit law compliance services, other HR-related services and fees charged to access our cloud-based HCM services. Starting in the third quarter of 2022, PSR includes revenues from Clarus R+D. 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 the second quarter of 2022, we recognized a $25 million reduction to revenue under our 2022 Credit Program. This amount reflects estimated credits that will be paid to eligible clients under this program, based on the expected performance of our health insurance costs in 2022, and is currently limited to $25 million. These credits are recorded as a reduction to ISR and are payable within 12 months to eligible clients as of June 30, 2022. To the extent we experience higher than expected health insurance costs during the remainder of 2022, this estimate, and our actual payment, may be reduced.



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Monthly total revenues per Average WSE is a measure we use to monitor the success of our PEO pricing strategies. This measure increased 6% during the third quarter of 2022 compared to the same period in 2021.

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

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

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

•Mix - the change in composition of Average WSEs within our verticals, the composition of our enrolled WSEs within our insurance service offerings, the composition of products and services our clients receive, including Clarus R+D,

•Credit - the weighted average change in amounts recognized for the Recovery Credit, 2021 Credit Program and 2022 Credit Program, and

•HCM - incremental HCM cloud services revenue from our acquisition of Zenefits in February 2022.

PSR

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

The growth in total revenues for the third quarter and the nine months ended September 30, 2022 was primarily driven by growth in rate, the addition of HCM cloud services following the acquisition of Zenefits, and higher average WSEs.



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Operating Income

Our operating income consists of total revenues less insurance costs and OE. Our insurance costs include insurance premiums for coverage provided by insurance carriers, reimbursement of claims payments made by insurance carriers or third-party administrators, and changes in accrued costs related to contractual obligations with our workers' compensation and health benefit carriers. Our OE consists primarily of our corporate employees' compensation related expenses, which includes payroll, payroll taxes, SBC, bonuses, commissions and other payroll-and benefits-related costs.

The table below provides a view of the changes in components of operating income for the third quarter and nine months ended September 30, 2022, as compared to the same periods in 2021.


(in millions)
$105		Third Quarter 2021 Operating Income
	+93	Higher total revenues primarily driven by rate increases and higher average WSEs
	-21	Higher insurance costs primarily as a result of higher medical services utilization and higher volume driven by higher average WSEs.
	-57	Higher OE primarily as a result of higher compensation and consulting expenses to support initiatives to improve client experience, enhance service offerings, and improve processes, together with incremental expenses, including transaction and integration costs from our acquisition of Zenefits and Clarus R+D.
$120		Third Quarter 2022 Operating Income


(in millions)
$364		YTD 2021 Operating Income
	+351	Higher total revenues primarily driven by higher average WSEs, rate increases and the expiration of credit programs we created in prior years to benefit our customers, which reduced revenue by $42 million in the prior year, partially offset by our 2022 Credit Program.
	-147	Higher insurance costs primarily as a result of higher medical services utilization and higher volume driven by the growth in WSEs.
	-125	Higher OE primarily as a result of higher compensation and consulting expenses to support initiatives to improve the client experience, enhance service offerings, and improve processes, together with incremental expenses, including transaction and integration costs, from our acquisition of Zenefits and Clarus R+D.
$443		YTD 2022 Operating Income



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Professional Service Revenues

Our PEO clients are primarily billed on a fee per WSE per month per transaction. Our vertical approach provides us the flexibility to offer our clients in different industries with varied services at different prices, which we believe potentially reduces the value of solely using Average WSE and Total WSE counts as indicators of future potential revenue performance. Our HCM cloud services clients are primarily billed a monthly fee per user, with certain fees earned on a per transaction basis. Revenues earned from our other products, including Clarus R&D and TriNet Enrich, are captured in Professional Service Revenue. Clarus R&D customers are primarily billed upon the completion and delivery of an R&D study, while TriNet Enrich customers are billed a monthly fee per user.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021
PEO Services	$	177	$	156	$	535	$	465
HCM Cloud Services (1)	12		—		30		—
Total	$	189	$	156	$	565	$	465

(1) Represents revenue since our acquisition of Zenefits on February 15, 2022.

We also analyze changes in PSR with the following measures:

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

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

•Mix - the change in composition of Average WSEs across our verticals and the composition of products and services our clients receive, including Clarus R+D and TriNet Enrich

•Recovery Credit - the weighted average change in amounts recognized for the Recovery Credit program, and

•HCM - incremental HCM cloud services revenue from our acquisition of Zenefits in February 2022.



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The growth in PSR for the third quarter and the nine months ended 2022 was driven by a growth in rate, the addition of Zenefits and higher Average WSEs. We continued to experience a favorable change in our vertical mix of WSEs, as SMBs in our Technology and Professional Services verticals, who generally utilize more services, had more WSE growth than other verticals. Our new HCM Cloud Services revenue also contributed to the increase.

Insurance Service Revenues

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

We use the following measures to analyze changes in ISR:

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

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

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

•Credit - the weighted average change in amounts recognized for the Recovery Credit, 2021 Credit Program and 2022 Credit Program.

The growth in ISR for the third quarter and the nine months ended September 30, 2022 was primarily driven by higher Average WSEs, rate increases and the decrease in the Recovery Credit and 2021 Credit Program. This was partially offset by the $25 million reduction in revenue recognized in the second quarter under our 2022 Credit Program.



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Insurance Costs

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

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

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

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

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

Medical services utilization increased in the third quarter and the nine months ended September 30, 2022 as enrollees returned to outpatient medical, dental and vision care and elective procedures. The higher utilization was partially offset by reductions in some regions due to a surge of COVID-19 cases, which constrained access to medical systems from mid-December 2021 through January 2022 and in June 2022. As a result, our medical services utilization for the quarter remained below pre-pandemic levels. The decrease in utilization in December 2021 also contributed to positive claims development as our accrued health costs were paid during the first half of 2022.

The increase in medical services utilization, combined with increased COVID-19 testing, treatment and vaccination costs, caused the increase in rate. The increase in volume was primarily driven by higher Average WSEs.



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Operating Expenses

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

We had approximately 3,500 corporate employees as of September 30, 2022 primarily located across the U.S. Our corporate employees' compensation-related expenses represent a majority of our operating expenses. Compensation costs for our corporate employees include payroll, payroll taxes, SBC, bonuses, commissions and other payroll- and benefits-related costs. Compensation-related expense represented 61% and 60% of our OE in the third quarters of 2022 and 2021 and 65% and 62% in the nine months ended September 30, 2022 and 2021, respectively.

Transaction and integration costs associated with our acquisition of Zenefits and Clarus R+D are included in G&A. These costs include advisory, legal, employee retention and cash consideration tied to ongoing employment. Refer to Note 6 in Part I, Item 1. Financial Statements and Supplementary Data, of this Form 10-Q for further discussion.

During the third quarter and the nine months ended September 30, 2022, OE increased 30% and 23%, respectively, when compared to the same periods in 2021. During the third quarter and the nine months ended September 30, 2022, the ratio of OE to total revenues were 20% and 18%, respectively, when compared to the same periods in 2021.

% represents portion of compensation related expense included in operating expenses



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We analyze and present our OE based upon the business functions COPS, S&M, G&A and SD&P and D&A. The charts below provide a view of the expenses of the business functions. Dollars are presented in millions and percentages represent year-over-year change.


(in millions)
$192		Q3 2021 Operating Expenses
	+18	COPS increased, driven primarily by additional hiring to support more WSEs and incremental costs related to our HCM Cloud Services.
	+16	S&M increased, driven primarily by additional hiring and higher compensation to support sales, and incremental marketing costs related to our HCM Cloud Services, and increased spending on in-person events and trade shows.
	+11	G&A increased, driven primarily by higher compensation, consulting and technology spend and $14 million of transaction and integration costs related to the Zenefits and Clarus R+D acquisitions.
	+6	SD&P increased, driven primarily by higher compensation and technology services expenses as we continue to work to improve our client experience and our systems and processes.
	+6	D&A increased due to the amortization of intangible assets recognized for the Zenefits and Clarus R+D acquisitions.
	$249	Q3 2022 Operating Expenses


(in millions)
$544		YTD 2021 Operating Expenses
	+34	COPS increased, driven primarily by additional hiring to support more WSEs and incremental costs related to our HCM Cloud Services.
	+32	S&M increased, due to increased compensation, technology spend, travel and entertainment, partially offset by reduction in broker commissions.
	+37	G&A increased, driven primarily by the $31 million of transaction and integration costs related to the Zenefits and Clarus R+D acquisitions, higher compensation and technology services expenses to improve our client experience, our systems and processes, and to enhance our service offerings.
	+18	SD&P increased, driven primarily by increased compensation and technology services expenses as we continue to work to improve our client experience and our systems and processes.
	+4	D&A increased due to the offset by the amortization of intangible assets recognized for the Zenefits and Clarus R+D acquisitions.
$669		YTD 2022 Operating Expenses



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

Other Income (Expense)

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



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Interest income, interest expense, bank fees and other for the third quarter and the nine months ended September 30, 2022 was consistent with the prior periods. Interest expense, bank fees and other for the third quarter and the nine months ended September 30, 2022 increased due to $11 million of realized losses on the sales of AFS securities and $7 million of realized non credit-related impairment losses related to the probability that management may execute further sales in the future.

Income Taxes

Our effective tax rate (ETR) was 26% and 25% for the third quarters of 2022 and 2021, respectively, and 27% and 24% for the nine months ended September 30, 2022 and 2021, respectively. The increases in the third quarter of 2022 and nine months ended 2022 when compared to the same periods in 2021 were primarily due to decreases in excludable income for state tax purposes and tax benefits related to stock-based compensation. Furthermore, our ETR in the prior periods benefited from a favorable adjustment of our previously disputed receivable from the IRS.



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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 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.

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


	September 30, 2022						December 31, 2021
(in millions)	Corporate		WSE		Total		Corporate		WSE		Total
Current assets:
Cash and cash equivalents	$	454	$	—	$	454	$	612	$	—	$	612
Investments	95		—		95		135		—		135
Restricted cash, cash equivalents and investments	21		816		837		19		1,176		1,195
Other current assets	72		507		579		91		406		497
Total current assets	$	642	$	1,323	$	1,965	$	857	$	1,582	$	2,439




Total current liabilities	$	198	$	1,323	$	1,521	$	157	$	1,582	$	1,739

Working capital	$	444	$	—	$	444	$	700	$	—	$	700

Working capital for WSEs related activities

We designate funds to ensure that we have adequate current assets to satisfy our current obligations associated with WSEs and our 2022 Credit Program liability. We manage our WSE payroll and benefits obligations through collections of payments from our clients which generally occur two to three days in advance of client payroll dates. We regularly review our short-term obligations associated with our WSEs (such as payroll and related taxes, insurance premium and claim payments) and designate funds required to fulfill these short-term obligations, which we refer to as PFC. PFC is included in current assets as restricted cash, cash equivalents and investments.

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

Working capital for corporate purposes

Corporate working capital as of September 30, 2022 decreased $256 million from December 31, 2021, primarily driven by the $158 million decrease in corporate unrestricted cash and cash equivalents which as we paid cash to repurchase our stock and acquire Zenefits and Clarus R+D.

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



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Cash Flows

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


	Nine Months Ended September 30,
(in millions)	2022						2021
	Corporate		WSE		Total		Corporate		WSE		Total
Net cash provided by (used in):
Operating activities	$	436	$	(360)	$	76	$	334	$	(350)	$	(16)
Investing activities	(199)		(6)		(205)		(133)		(12)		(145)
Financing activities	(392)		—		(392)		20		—		20
Net increase (decrease) in cash and cash equivalents, unrestricted and restricted	$	(155)	$	(366)	$	(521)	$	221	$	(362)	$	(141)
Cash and cash equivalents, unrestricted and restricted:
Beginning of period	660		1,078		1,738		352		1,291		1,643
End of period	$	505	$	712	$	1,217	$	573	$	929	$	1,502

Net increase (decrease) in cash and cash equivalents:
Unrestricted	$	(158)	$	—	$	(158)	$	224	$	—	$	224
Restricted	3		(366)		(363)		(3)		(362)		(365)

Operating Activities

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


	Nine Months Ended September 30,
(in millions)	2022		2021
Net cash provided by (used in) operating activities	$	76	$	(16)
Net cash provided by (used in) operating activities - WSE	(360)		(350)
Net cash provided by operating activities - Corporate	436		334

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

Our corporate operating cash flows in the nine months ended September 30, 2022 increased, when compared to the same period in 2021, due to our higher Net income and the timing of our payments of corporate obligations.



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Investing Activities

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


	Nine Months Ended September 30,
(in millions)	2022		2021
Investments:
Purchases of investments	(337)		(348)
Proceeds from sale and maturity of investments	390		232
Acquisition of subsidiaries	$	(219)	$	—
Cash provided by (used in) investments	$	(166)	$	(116)




Cash used in capital expenditures	$	(39)	$	(29)
Cash used in investing activities	$	(205)	$	(145)

Investments

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

We also invest funds held as collateral to satisfy our long-term obligation towards workers' compensation liabilities. These investments are classified on our balance sheets as restricted cash, cash equivalents and investments. We review the amount and the anticipated holding period of these investments regularly in conjunction with our estimated long-term workers' compensation liabilities and anticipated claims payment trend. At September 30, 2022, our investments had a weighted average duration of less than two years and an average S&P credit rating of AA+.

As of September 30, 2022, we held approximately $1.7 billion in restricted and unrestricted cash, cash equivalents and investments, of which $454 million was unrestricted cash and cash equivalents and $237 million was unrestricted investments. Refer to Note 2 in the condensed consolidated financial statements and related notes included in this Form 10-Q.

In February 2022, we acquired Zenefits for a total purchase price of $209 million, settled by the issuance of $17 million of TriNet stock to eligible selling shareholders, with the remainder paid in cash from corporate working capital. Refer to Note 10 in the condensed consolidated financial statements and related notes included in this Form 10-Q.

In September 2022, we acquired Clarus R+D for a total purchase price of $48 million. Refer to Note 10 in the condensed consolidated financial statements and related notes included in this Form 10-Q.

Capital Expenditures

During the nine months ended September 30, 2022 and 2021, 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.



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Financing Activities

Net cash provided by (used in) financing activities in the nine months ended 2022 and 2021 consisted of our debt and equity-related activities.


	Nine Months Ended September 30,
(in millions)	2022		2021
Financing activities
Repurchase of common stock	$	(392)	$	(101)
Proceeds from issuance of 2029 Notes	—		500
Repayment of borrowings	—		(370)
Payment of debt issuance costs	—		(7)
Payment of long-term financing fees	—		(2)

Cash provided by (used in) financing activities	$	(392)	$	20

In February 2022, our board of directors authorized a $300 million incremental increase to our ongoing stock repurchase program, which was initiated in May 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 purchase plan.

Also in February 2022, we announced a tender offer to purchase for cash up to $300 million in value of our issued and outstanding common stock, plus the right to accept for purchase up to an additional 2% of our outstanding shares. The tender offer expired on March 17, 2022. In accordance with the terms and conditions of the tender offer, we accepted the tender of, and purchased, 3,653,690 shares at a price of $86.50 per share, for an aggregate cost of approximately $319 million, including fees and expenses relating to the tender offer. Included in the 3,653,690 shares that we accepted for purchase were 185,971 shares that we elected to purchase pursuant to our right to purchase up to an additional 2% of our outstanding shares.

During the nine months ended September 30, 2022, we repurchased a total of 4,419,423 shares of our common stock for approximately $380 million, plus costs, through our stock repurchase program, including the completed tender offer. As of September 30, 2022, approximately $184 million remained available for repurchase under all authorizations by our board of directors. We plan to use current cash and cash generated from ongoing operating activities to fund this stock repurchase program.

In February 2021, we issued $500 million aggregate principal amount of our 2029 Notes. $370 million of the proceeds was used to repay and terminate our 2018 Term Loan. The remaining funds were used for general corporate purposes. Refer to Note 9 in Part II, Item 8. Financial Statements and Supplementary Data, of our 2021 Form 10-K for further information.

Capital Resources

As of September 30, 2022, $500 million aggregate principal of our 2029 Notes was outstanding. The Indenture governing the 2029 Notes includes restrictive covenants limiting our ability to: (i) create liens on certain assets to secure debt; (ii) grant subsidiary guarantees of certain debt without also providing a guarantee of the 2029 Notes; and (iii) consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of our assets to, another person, subject, in each case, to certain customary exceptions.

Our 2021 Credit Agreement includes a $500 million revolving credit facility. At September 30, 2022, we had $495 million available under our 2021 Credit Agreement. 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 at September 30, 2022.



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Critical Accounting Policies, Estimates and Judgments

Other than the inclusion of the following additional item that required significant estimation or judgment, there have been no material changes in our critical accounting policies as discussed in our 2021 Form 10-K.

Business Combinations

Under the acquisition method of accounting we generally recognize the identifiable assets acquired and the liabilities assumed in an acquiree at their estimated fair values as of the date of acquisition. We measure goodwill as the excess of the fair value of consideration transferred over the net of the estimated fair values of the identifiable assets acquired and liabilities assumed. Refer to Note 10 in Part I, Item 1. Financial Statements and Supplementary Data, of this Form 10-Q.

The acquisition method of accounting requires us to exercise judgment and make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the estimated fair values of identifiable intangible assets, deferred tax asset valuation allowances, liabilities related to uncertain tax positions, and contingencies. This method also allows us to refine these estimates over a one-year measurement period to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to retroactively adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could materially decrease net income and result in lower asset values on our consolidated balance sheet.

These significant estimates are inherently uncertain as they relate to future economic conditions, future cash flows that we expect to generate from the acquired assets and customer behavior. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.

Recent Accounting Pronouncements

There have been no material changes to our recent accounting pronouncements as discussed in our 2021 Form 10-K.



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

Quantitative and Qualitative Disclosures About Market Risk

Our exposure to changes in interest rates relates primarily to our investment portfolio. Changes in U.S. interest rates affect the interest earned on the Company's cash, cash equivalents and the fair value of our investments.

Our cash equivalents consist primarily of money market mutual funds, which are not significantly exposed to interest rate risk. Our investments are subject to interest rate risk because these securities generally include a fixed interest rate. As a result, the market values of these securities are affected by changes in prevailing interest rates. We attempt to limit our exposure to interest rate risk and credit risk by investing in instruments that meet the minimum credit quality, liquidity, diversification and other requirements of our investment policy. Our investments consist of liquid, investment-grade securities. The risk of rate changes on investment balances was not material at September 30, 2022 and December 31, 2021.



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

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have, with the participation of our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Based on the evaluation of our disclosure controls and procedures as of September 30, 2022, our CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of such date in ensuring that (i) information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the CEO and CFO, to allow timely decisions regarding required disclosure and (ii) such information is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

We have concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

Changes in Internal Control Over Financial Reporting

During the quarter ended June 30, 2022, we substantially completed the implementation of our new Enterprise Resource Planning (ERP) system, including a new general ledger and subledgers. This has resulted in changes to certain back-office processes and procedures which, in turn, have resulted in material changes to our system of internal control over financial reporting. The ERP system, among other things, is intended to provide efficiencies through automation and standardization of certain manual business processes and functions as an important component of our internal control over financial reporting.

There were no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2022, 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.



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FINANCIAL STATEMENTS			Table of Contents

TRINET GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions except per share data)	2022		2021		2022		2021
Professional service revenues	$	189	$	156	$	565	$	465
Insurance service revenues	1,052		992		3,094		2,843
Total revenues	1,241		1,148		3,659		3,308
Insurance costs	872		851		2,547		2,400
Cost of providing services	79		61		225		191
Sales and marketing	72		56		179		147
General and administrative	63		52		165		128
Systems development and programming	18		12		54		36
Depreciation and amortization of intangible assets	17		11		46		42
Total costs and operating expenses	1,121		1,043		3,216		2,944
Operating income	120		105		443		364
Other income (expense):
Interest expense, bank fees and other	(22)		(5)		(33)		(15)
Interest income	5		3		8		6
Income before provision for income taxes	103		103		418		355
Income taxes	26		26		111		86
Net income	$	77	$	77	$	307	$	269
Other comprehensive income/(loss), net of income taxes	7		(2)		(4)		(3)
Comprehensive income	$	84	$	75	$	303	$	266

Net income per share:
Basic	$	1.23	$	1.17	$	4.85	$	4.08
Diluted	$	1.22	$	1.16	$	4.81	$	4.03
Weighted average shares:
Basic	62		66		63		66
Diluted	63		67		64		67

See accompanying notes.



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FINANCIAL STATEMENTS			Table of Contents

TRINET GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


	September 30,		December 31,
(in millions, except share and per share data)	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	454	$	612
Investments	95		135
Restricted cash, cash equivalents and investments	837		1,195
Accounts receivable, net	9		15
Unbilled revenue, net	363		324
Prepaid expenses, net	63		67
Other current assets	144		91
Total current assets	1,965		2,439
Restricted cash, cash equivalents and investments, noncurrent	151		166
Investments, noncurrent	142		168
Property, equipment and software, net	90		79
Operating lease right-of-use asset	38		42
Goodwill	462		294
Other intangible assets, net	103		6
Other assets	128		115
Total assets	$	3,079	$	3,309
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other current liabilities	$	122	$	86


Client deposits and other client liabilities	54		97
Accrued wages	413		369
Accrued health insurance costs, net	165		174
Accrued workers' compensation costs, net	55		55
Payroll tax liabilities and other payroll withholdings	677		929
Operating lease liabilities	15		11
Insurance premiums and other payables	20		18
Total current liabilities	1,521		1,739
Long-term debt, noncurrent	496		495
Accrued workers' compensation costs, noncurrent, net	129		135
Deferred taxes	29		11
Operating lease liabilities, noncurrent	41		41
Other non-current liabilities	7		7
Total liabilities	2,223		2,428
Commitments and contingencies (see Note 5)
Stockholders' equity:
Preferred stock	—		—
($0.000025 par value per share; 20,000,000 shares authorized; no shares issued or outstanding at September 30, 2022 and December 31, 2021)
Common stock and additional paid-in capital	878		808
($0.000025 par value per share; 750,000,000 shares authorized; 62,229,506 and 65,968,224 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively)
Retained earnings (Accumulated deficit)	(17)		74
Accumulated other comprehensive loss	(5)		(1)
Total stockholders' equity	856		881
Total liabilities & stockholders' equity	$	3,079	$	3,309

See accompanying notes.



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FINANCIAL STATEMENTS			Table of Contents

TRINET GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021
Total Stockholders' Equity, beginning balance	$	763	$	744	$	881	$	607
Common Stock and Additional Paid-In Capital
Beginning balance	861		776		808		747
Issuance of common stock from exercise of stock options	—		1		1		1
Issuance of common stock for employee stock purchase plan	—		—		5		5
Issuance of common stock for the acquisition of Zenefits	—		—		17		—

Stock based compensation expense	17		13		47		37

Ending balance	878		790		878		790

Retained Earnings (Accumulated Deficit)
Beginning balance	(86)		(35)		74		(144)
Net income	77		77		307		269

Repurchase of common stock	(1)		(20)		(383)		(94)
Awards effectively repurchased for required employee withholding taxes	(7)		(4)		(15)		(13)
Ending balance	(17)		18		(17)		18

Accumulated Other Comprehensive Income
Beginning balance	(12)		3		(1)		4
Other comprehensive income/(loss)	7		(2)		(4)		(3)
Ending balance	(5)		1		(5)		1
Total Stockholders' Equity, ending balance	$	856	$	809	$	856	$	809

See accompanying notes.



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FINANCIAL STATEMENTS			Table of Contents

TRINET GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine Months Ended September 30,
(in millions)	2022		2021
Operating activities
Net income	$	307	$	269
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	72		63
Amortization of ROU asset, lease modification and impairment	15		10
Stock based compensation	46		37
Deferred income taxes	1		—
Provision for doubtful accounts	1		—
Loss from sales and impairments of investments	18		—
Loss from dispositions of assets	3		—
Other	2		4
Changes in operating assets and liabilities:
Accounts receivable, net	10		10
Unbilled revenue, net	(38)		(59)
Other assets and prepaid expenses, net	(83)		(44)
Accounts payable and other liabilities	5		16
Client deposits and other client liabilities	(43)		(14)
Accrued wages	40		246
Accrued health insurance costs, net	(10)		(10)
Accrued workers' compensation costs, net	(5)		(6)
Payroll taxes payable and other payroll withholdings	(252)		(528)
Operating lease liabilities	(13)		(10)


Net cash provided by (used in) operating activities	76		(16)
Investing activities
Purchases of marketable securities	(337)		(348)
Proceeds from sale and maturity of marketable securities	390		232
Purchases of property and equipment	(39)		(29)
Acquisition of subsidiaries, net of cash acquired	(219)		—
Net cash used in investing activities	(205)		(145)
Financing activities
Repurchase of common stock	(383)		(94)
Proceeds from issuance of common stock	6		6
Awards effectively repurchased for required employee withholding taxes	(15)		(13)

Payment of long-term financing fees and debt issuance costs	—		(9)
Proceeds from issuance of 2029 Notes	—		500
Repayment of debt	—		(370)
Net cash provided by (used in) financing activities	(392)		20
Net decrease in cash and cash equivalents, unrestricted and restricted	(521)		(141)
Cash and cash equivalents, unrestricted and restricted:
Beginning of period	1,738		1,643
End of period	$	1,217	$	1,502

Supplemental disclosures of cash flow information
Interest paid	$	18	$	11
Income taxes (refund) paid, net	$	60	$	83
Supplemental schedule of noncash investing and financing activities
Payable for purchase of property and equipment	$	7	$	3
Payable for acquisition of subsidiaries	$	4	$	—

See accompanying notes.



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FINANCIAL STATEMENTS			Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

TriNet Group, Inc. (TriNet, or the Company, we, our and us), a professional employer organization, provides comprehensive human resources solutions for small and medium-size businesses under a co-employment model. These HR solutions include multi-state payroll processing and tax administration, employee benefits programs, including health insurance and retirement plans, workers' compensation insurance and claims management, employment and benefit law compliance, and other HR-related services. Through the co-employment relationship, we are the employer of record for certain employment-related administrative and regulatory purposes for the worksite employees (WSEs), including:

•compensation through wages and salaries,

•certain employer payroll-related tax payments,

•employee payroll-related tax withholdings and payments,

•employee benefit programs, including health and life insurance, and others, and

•workers' compensation coverage.

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

With our acquisition of Zenefits, we also provide cloud-based HCM services to small and medium-size businesses that allows them to manage hiring, onboarding and managing employee information, payroll processing and payroll tax administration, health insurance, and other benefits, from a single cloud-based software platform. We are not the co-employer or employer of record for such users.

With our acquisition of Clarus R+D Solutions, we also provide a cloud-based software platform for R&D tax credit qualification and application process services to SMBs.

We operate in one reportable segment. All of our service revenues are generated from external clients. Less than 1% of our revenue is generated outside of the U.S.

Basis of Presentation

These unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Rules and Regulations of the Securities and Exchange Commission. Certain information and note disclosures included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, that are normal and recurring in nature, necessary for fair financial statement presentation. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the operating results anticipated for the full year. These financial statements should be read in conjunction with the audited Consolidated Financial Statements included in Part II, Item 8. Financial Statements and Supplementary Data of our Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K). Certain prior year amounts have been reclassified to conform to current period presentation.

Use of Estimates

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

These estimates are based on historical experience and on various other assumptions that we believe to be reasonable from the facts available to us. Some of the assumptions are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our consolidated financial statements could be materially affected.



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FINANCIAL STATEMENTS			Table of Contents

Revenue Recognition

Performance Obligation: Cloud HCM Services

We receive fees through our cloud-based platform for providing subscription agreements to our human resource management software platform and related services. Software fees for the premium software and services are derived on a per user per month. Certain software fees are earned on a per transaction basis.

We satisfy our performance obligation by providing access to our cloud-based software-as-a service over time, and processing transactions for usage-based contracts. Revenues associated with this performance obligation are reported as professional services revenue. For non-usage-based fees, the period of time over which we are performing is commensurate with the contract term because that is the period during which we have an obligation to provide the service. The performance obligation is recognized on time elapsed basis, by month for which the services are provided, once enablement/implementation is complete. For usage-based fees, revenue is recognized in the month in which we provide the usage to the customer. Certain contracts have options to purchase additional user rights, which are recognized in the period the additional rights are delivered.

Payment terms and conditions vary by contract type, although our standard terms require immediate payment upon invoicing, or within 30 days if contractually agreed upon. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts do not include a significant financing component.

Recovery Credit

The change in the balance of the Recovery Credit unsatisfied performance obligation, included in client deposits and other client liabilities on the balance sheet was as follows:


	September 30, 2022
(in millions)	Three Months Ended		Nine Months Ended
Balance at beginning of period	$	1	$	23
(+) Accruals	—		—
(-) Distributions to clients	(1)		(23)
Balance at end of period	$	—	$	—

Variable Consideration and Pricing Allocation

Our contracts with clients generally do not include any variable consideration. However, from time to time, we may offer credits to our clients considered to be variable consideration. Incentive credits related to contract renewals are recorded as a reduction to revenue as part of the transaction price at contract inception and are allocated among the performance obligation based on their relative standalone selling prices. Credits based on the performance of our insurance costs are recorded as a reduction to insurance services revenues and included in client deposits and other client liabilities on the balance sheet. In the three months ended June 30, 2022, we accrued $25 million under our 2022 Credit Program, payable within 12 months to eligible clients as of June 30, 2022, related to the expected performance of our health costs for the year.

Accrued Health Insurance Costs

We sponsor and administer a number of employee benefit plans, including group health, dental, and vision as an employer plan sponsor under section 3(5) of the ERISA. In the nine months ended September 30, 2022, most of our group health insurance costs related to risk-based plans. Our remaining group health insurance costs were for guaranteed-cost policies.

Accrued health insurance costs are established to provide for the estimated unpaid costs of reimbursing the carriers for paying claims within the deductible layer in accordance with risk-based health insurance policies. These accrued costs include estimates for reported losses, plus estimates for claims incurred but not paid. We assess accrued health insurance costs regularly based upon external actuarial studies that include other relevant factors such as current and historical claims payment patterns, plan enrollment and medical trend rates.



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FINANCIAL STATEMENTS			Table of Contents

In certain carrier contracts we are required to prepay the expected claims activity for subsequent periods. These prepaid balances by agreement permit net settlement of obligations and offset the accrued health insurance costs. As of September 30, 2022 and December 31, 2021, prepayments and miscellaneous receivables offsetting accrued health insurance costs were $55 million and $54 million, respectively. When the prepaid amount is in excess of our recorded liability the net asset position is included in prepaid expenses. As of September 30, 2022 and December 31, 2021, accrued health insurance costs offsetting prepaid expenses were $77 million and $79 million, respectively.



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FINANCIAL STATEMENTS			Table of Contents

NOTE 2. CASH, CASH EQUIVALENTS AND INVESTMENTS - UNRESTRICTED AND RESTRICTED

Under the terms of the agreements with certain of our workers' compensation and health benefit insurance carriers, we are required to maintain collateral in trust accounts for the benefit of specified insurance carriers and to reimburse the carriers’ claim payments within our deductible layer. We invest a portion of the collateral amounts in marketable securities. We report the current and noncurrent portions of these trust accounts as restricted cash, cash equivalents and investments on the consolidated balance sheets.

We require our clients to prefund their payroll and related taxes and other withholding liabilities before we process our clients' payroll. This prefund is included in restricted cash, cash equivalents and investments as payroll funds collected, which is designated to pay pending payrolls, payroll tax liabilities and other payroll withholdings.

We also invest available corporate funds, primarily in fixed income securities which meet the requirements of our corporate investment policy and are classified as available for sale (AFS).

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


	September 30, 2022						December 31, 2021
(in millions)	Cash and cash equivalents		Available-for-sale marketable securities		Total			Cash and cash equivalents		Available-for-sale marketable securities		Total
Cash and cash equivalents	$	454	$	—	$	454		$	612	$	—	$	612
Investments	—		95		95			—		135		135
Restricted cash, cash equivalents and investments:
Payroll funds collected	642		—		642			1,012		—		1,012
Collateral for health benefits claims	29		105		134			25		98		123
Collateral for workers' compensation claims	58		—		58			58		—		58

Other security deposits	3		—		3			2		—		2
Total restricted cash, cash equivalents and investments	732		105		837			1,097		98		1,195
Investments, noncurrent	—		142		142			—		168		168
Restricted cash, cash equivalents and investments, noncurrent
Collateral for workers' compensation claims	28		120		148			29		137		166
Other security deposits	3		—		3			—		—		—
Total	$	1,217	$	462	$	1,679		$	1,738	$	538	$	2,276



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FINANCIAL STATEMENTS			Table of Contents

NOTE 3. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The following tables summarize our financial instruments by significant categories and fair value measurement on a recurring basis as of September 30, 2022 and December 31, 2021 and the amortized cost, gross unrealized gains, gross unrealized losses, fair value of our AFS investments:


(in millions)	Fair Value Level	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Investments		Restricted Cash, Cash Equivalents and Investments
September 30, 2022
Cash equivalents:
Money market mutual funds	Level 1	$	777	$	—	$	—	$	777	$	685	$	—	$	92
U.S. treasuries	Level 2	3		—		—		3		—		—		3
Total cash equivalents		780		—		—		780		685		—		95
AFS Investments:
Asset-backed securities	Level 2	43		—		(2)		41		—		41		—
Corporate bonds	Level 2	141		—		(1)		140		—		114		26
Agency securities	Level 2	25		—		(1)		24		—		2		22
U.S. treasuries	Level 2	239		—		(1)		238		—		72		166
Certificate of deposit	Level 2	11		—		—		11		—				11
Other debt securities	Level 2	8		—		—		8		—		8		—
Total AFS Investments		$	467	$	—	$	(5)	$	462	$	—	$	237	$	225


(in millions)	Fair Value Level	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Investments		Restricted Cash, Cash Equivalents and Investments
December 31, 2021
Cash equivalents:
Money market mutual funds	Level 1	$	97	$	—	$	—	$	97	$	4	$	—	$	93
U.S. treasuries	Level 2	22		—		—		22		21		—		1
Total cash equivalents		119		—		—		119		25		—		94
AFS Investments:
Asset-backed securities	Level 2	49		—		—		49		—		49		—
Corporate bonds	Level 2	167		1		(1)		167		—		137		30
Agency securities	Level 2	17		—		—		17		—		2		15
U.S. treasuries	Level 2	285		1		(1)		285		—		106		179
Certificate of deposit	Level 2	11		—		—		11		—		—		11
Other debt securities	Level 2	9		—		—		9		—		9		—
Total AFS Investments		$	538	$	2	$	(2)	$	538	$	—	$	303	$	235

Fair Value of Financial Instruments

We use an independent pricing source to determine the fair value of our securities. The independent pricing source utilizes various pricing models for each asset class, including the market approach. The inputs and assumptions for the pricing models are market observable inputs including trades of comparable securities, dealer quotes, credit spreads, yield curves and other market-related data.

We have not adjusted the prices obtained from the independent pricing service and we believe the prices received from the independent pricing service are representative of the prices that would be received to sell the assets at the measurement date (exit price).



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FINANCIAL STATEMENTS			Table of Contents

The carrying value of the Company's cash equivalents and restricted cash equivalents approximate their fair values due to their short-term maturities.

We did not have any Level 3 financial instruments recognized in our balance sheet as of September 30, 2022 and December 31, 2021. There were no transfers between levels as of September 30, 2022 and December 31, 2021.

Sales and Maturities

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


(in millions)	September 30, 2022
One year or less	$	162
Over one year through five years	267
Over five years through ten years	10
Over ten years	23
Total fair value	$	462

The gross proceeds from sales and maturities of AFS securities for the three and nine months ended September 30, 2022 and September 30, 2021 are presented below. We had $11 million of gross realized losses and immaterial gross realized gains for the three and nine months ended September 30, 2022 and immaterial gross realized gains and losses from sales of investments for the three and nine months ended September 30, 2021.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021


Gross proceeds from sales	$	177	$	51	$	219	$	131
Gross proceeds from maturities	49		26		181		101
Total	$	226	$	77	$	400	$	232

Unrealized Losses on AFS Investments

Unrealized losses on fixed income securities are principally caused by changes in market interest rates and the financial condition of the issuer. In analyzing an issuer's financial condition, we consider whether the securities are issued by the federal government or its agencies, whether downgrades by credit rating agencies have occurred, and industry analysts' reports. Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

As of September 30, 2022, management recorded an impairment loss of $7 million on fixed income securities due to the probability that management could sell these securities before they recover in value. None of this impairment was credit-related. After this recognized impairment, gross unrealized losses related to AFS investments in an unrealized loss position were $5 million. Gross unrealized losses were immaterial at December 31, 2021.

Fair Value of Long-Term Debt

The fair value of our 2029 Notes was obtained from a third-party pricing service and is based on observable market inputs. As such, the fair value of the senior notes is considered Level 2 in the hierarchy for fair value measurement. As of September 30, 2022, our 2029 Notes were carried at their cost, net of issuance costs, and had a fair value of $409 million and $500 million as of September 30, 2022 and December 31, 2021, respectively.



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FINANCIAL STATEMENTS			Table of Contents

NOTE 4. ACCRUED WORKERS' COMPENSATION COSTS

The following table summarizes the accrued workers’ compensation cost activity for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021
Total accrued costs, beginning of period	$	189	$	198	$	198	$	205
Incurred
Current year	18		16		51		49
Prior years	(3)		(3)		(23)		(18)
Total incurred	15		13		28		31
Paid
Current year	(4)		(3)		(6)		(6)
Prior years	(8)		(10)		(28)		(32)
Total paid	(12)		(13)		(34)		(38)
Total accrued costs, end of period	$	192	$	198	$	192	$	198

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


(in millions)	September 30, 2022		December 31, 2021
Total accrued costs, end of period	$	192	$	198
Collateral paid to carriers and offset against accrued costs	(8)		(8)
Total accrued costs, net of carrier collateral offset	$	184	$	190

Payable in less than 1 year (net of collateral paid to carriers of $2 at September 30, 2022 and December 31, 2021, respectively)	$	55	$	55
Payable in more than 1 year (net of collateral paid to carriers of $6 at September 30, 2022 and December 31, 2021, respectively)	129		135
Total accrued costs, net of carrier collateral offset	$	184	$	190

Incurred losses related to prior years represents changes in estimates for ultimate losses on workers' compensation claims. For the three and nine months ended September 30, 2022, the favorable development is due to lower than expected development on the average size of reported claims.

As of September 30, 2022 and December 31, 2021, we had $43 million for both periods of collateral held by insurance carriers of which $8 million for both periods was offset against accrued workers' compensation costs as the agreements permit and are net settled of insurance obligations against collateral held.

NOTE 5. COMMITMENTS AND CONTINGENCIES

Contingencies

On September 29, 2020, a class action was filed in the United States District Court for the Middle District of Florida against the directors of certain TriNet subsidiaries and other TriNet employees on behalf of a putative class of participants in two retirement plans available to TriNet’s eligible worksite employees, the TriNet 401(k) Plan and the TriNet Select 401(k) Plan. The complaint is similar to claims recently brought against a number of employers including PEOs and generally alleges that the defendants violated certain fiduciary obligations to Plan participants under the Employee Retirement Income Security Act of 1974 with respect to overseeing plan investment and recordkeeping fees. On October 21, 2022, the court issued an order declining to certify a class with respect to claims against the TriNet 401(k) Plan, but certified a class with respect to claims against the TriNet Select 401(k) Plan. At this time, we are unable to reasonably estimate any possible loss, or range of loss, with respect to this matter. We believe the claims are without merit.



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FINANCIAL STATEMENTS			Table of Contents

We are and, from time to time, have been and may in the future become involved in various litigation matters, legal proceedings, and claims arising in the ordinary course of our business, including disputes with our clients or various class action, collective action, representative action, and other proceedings arising from the nature of our co-employment relationship with our clients and WSEs in which we are named as a defendant. In addition, due to the nature of our co-employment relationship with our clients and WSEs, we could be subject to liability for federal and state law violations, even if we do not participate in such violations. While our agreements with our clients contain indemnification provisions related to the conduct of our clients, we may not be able to avail ourselves of such provisions in every instance. We have accrued our current best estimates of probable losses with respect to these matters, which are individually and in aggregate immaterial to our consolidated financial statements.

While the outcome of the matters described above cannot be predicted with certainty, management currently does not believe that any such claims or proceedings will have a materially adverse effect on our consolidated financial position, results of operations, or cash flows. However, the unfavorable resolution of any particular matter or our reassessment of our exposure for any of the above matters based on additional information obtained in the future could have a material impact on our consolidated financial position, results of operations, or cash flows.

NOTE 6. STOCK BASED COMPENSATION

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

Time-based RSUs and RSAs generally vest over a four-year term. Performance-based RSUs and RSAs are subject to vesting requirements and are earned, in part, based on certain financial performance metrics as defined in the grant notice. Actual number of shares earned may range from 0% to 200% of the target award. Performance-based awards granted in 2022 and 2021 are earned based on a single-year performance period subject to subsequent multi-year time-based vesting with 50% of the shares earned vesting in one year after the performance period and the remaining shares in the year after. The performance-based awards granted in 2019 were previously cancelled. RSUs and RSAs are generally forfeited if the participant terminates service prior to vesting.

The following tables summarize RSU and RSA activity for the nine months ended September 30, 2022:

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, 2021	1,008,927	5,744	1,014,671	$	68.74
Granted	925,713	—	925,713	87.52
Vested	(446,135)	(5,744)	(451,879)	69.44
Forfeited	(160,524)	—	(160,524)	75.94
Nonvested at September 30, 2022	1,327,981	—	1,327,981	$	80.72

Performance-based RSUs


	Total Number of RSUs	Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2021	255,224	$	67.16
Granted	245,808	85.78
Vested	(49,916)	52.86

Forfeited	(25,110)	85.10
Nonvested at September 30, 2022	426,006	$	78.53

Zenefits Restricted Stock

In connection with the acquisition of Zenefits (See Note 11), unvested Zenefits restricted stock at the closing of the acquisition were converted to the right to receive a pro-rata share of the total consideration, payable in cash quarterly over 18 months subject to continued service. Unpaid amounts are generally forfeited if the employee terminates service prior to vesting. As of September 30, 2022, the unpaid amount was $8 million.



TRINET	41	2022 Q3 FORM 10-Q


FINANCIAL STATEMENTS			Table of Contents

Stock Based Compensation

Stock based compensation expense for stock-based awards made to our employees pursuant to our equity plans were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021
Cost of providing services	$	3	$	3	$	10	$	9
Sales and marketing	2		1		5		5
General and administrative	9		8		28		21
Systems development and programming costs	2		1		3		2
Total stock based compensation expense	$	16	$	13	$	46	$	37
Total stock based compensation capitalized	$	—	$	—	$	1	$	1

NOTE 7. STOCKHOLDERS’ EQUITY

Common Stock

The following table shows the beginning and ending balances of our issued and outstanding common stock for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
Shares issued and outstanding, beginning balance	62,087,303	65,864,116	65,968,224	66,456,663
Issuance of common stock from vested restricted stock units	199,171	127,704	496,051	474,222
Issuance of common stock from exercise of stock options	21,750	29,570	94,139	59,305
Issuance of common stock for employee stock purchase plan	—	—	73,808	74,070
Issuance of common stock for the acquisition of Zenefits	—	—	193,221	—
Repurchase of common stock	—	(230,456)	(4,419,423)	(1,155,707)
Awards effectively repurchased for required employee withholding taxes	(78,718)	(47,764)	(176,514)	(165,383)
Shares issued and outstanding, ending balance	62,229,506	65,743,170	62,229,506	65,743,170

Stock Repurchases

In February 2022, our board of directors authorized a $300 million incremental increase to our ongoing stock repurchase program. This repurchase authorization has no expiration. On March 17, 2022, we completed a tender offer through which we repurchased 3,653,690 shares of common stock at a price of $86.50 per share, for total consideration of approximately $319 million, which includes costs directly attributable to the purchase.

During the nine months ended September 30, 2022, we repurchased a total of 4,419,423 shares of common stock for approximately $380 million, plus costs, including shares repurchased through our tender offer.

We retire shares in the period they are acquired and account for the payment as a reduction to stockholders' equity. As of September 30, 2022, approximately $184 million remained available for further repurchases of our common stock under all authorizations from our board of directors under this program.



TRINET	42	2022 Q3 FORM 10-Q


FINANCIAL STATEMENTS			Table of Contents

NOTE 8. INCOME TAXES

Our effective tax rate (ETR) was 26% and 25% for the three months ended September 30, 2022 and 2021, respectively, and 27% and 24% for the nine months ended 2022 and 2021, respectively. The increase in our ETR for the three and nine months ended September 30, 2022 when compared to the same periods in 2021 was primarily due to a decrease in excludable income for state tax purposes and decrease in tax benefits related to stock-based compensation. Furthermore, our ETR in the prior year periods benefited from a favorable adjustment of our previously disputed receivable from the IRS.

During the nine months ended September 30, 2022, there was a decrease of $1 million in our unrecognized tax benefits. The total amount of gross interest and penalties accrued was immaterial. It is reasonably possible the amount of the unrecognized benefit could increase or decrease within the next 12 months for which an estimate of the impact on net income cannot be made.

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

NOTE 9. EARNINGS PER SHARE (EPS)

The following table presents the computation of our basic and diluted EPS attributable to our common stock:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share data)	2022		2021		2022		2021
Net income	$	77	$	77	$	307	$	269
Weighted average shares of common stock outstanding	62		66		63		66
Basic EPS	$	1.23	$	1.17	$	4.85	$	4.08
Net income	$	77	$	77	$	307	$	269
Weighted average shares of common stock outstanding	62		66		63		66
Dilutive effect of stock options and restricted stock units	1		1		1		1
Weighted average shares of common stock outstanding	63		67		64		67
Diluted EPS	$	1.22	$	1.16	$	4.81	$	4.03

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

NOTE 10. ACQUISITIONS

Zenefits

On February 15, 2022, the Company acquired all of the shares outstanding of Zenefits, a leading cloud HR platform which provides innovative and intuitive HR, benefits, payroll and employee engagement software purpose-built for small and medium-size businesses. We believe the acquisition of Zenefits and its cloud-based HCM software allows us to diversify our product and service offerings to all SMBs without using a co-employment model, and enables us to dynamically service SMBs throughout their lifecycle and expand the customers we serve.

The Company recorded the acquisition using the acquisition method of accounting for business combinations in accordance with ASC 805 and recognized identifiable assets acquired and liabilities assumed at their fair value as of the date of acquisition. We measure goodwill as the excess of the cash and stock consideration transferred, which we also measure at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Quarterly Report on Form 10-Q and may change over the measurement period as the analysis of the assets acquired and liabilities assumed is finalized and additional information is received. The measurement period will end no later than one year from the acquisition date.



TRINET	43	2022 Q3 FORM 10-Q


FINANCIAL STATEMENTS			Table of Contents

The purchase price was as follows:


(in millions)	Amount
Cash and stock consideration per agreement	$	220
Closing adjustments	3
Total consideration payable	223
Less: Unvested Zenefits restricted stock	(14)
Total purchase price	$	209

The purchase price consisted of cash consideration paid of $192 million and 193,221 shares of TriNet common stock with a fair value of $17 million. In accordance with the merger agreement, certain holders of Zenefits stock received cash in lieu of stock. Holders of unvested Zenefits restricted stock will receive their pro-rata share of the consideration, payable in cash quarterly over 18 months, and is generally forfeited if the employee terminates service prior to vesting. This amount will be recorded as G&A expense over the 18-month service period. Acquisition-related costs are recorded as G&A expense for the nine months ended September 30, 2022 and were not material.

The following table summarizes the fair value of the net assets acquired and preliminary allocation of the purchase price:


(in millions)	Amount
Total purchase price	$	209

Asset Acquired:
Cash	$	4
Restricted cash	5
Accounts receivable, net	4
Intangible assets	96
Operating lease right-of-use asset	9
Deferred tax asset	2
Other assets	5
Total assets acquired	125

Liabilities Assumed
Accounts payable and other current liabilities	$	9
Deferred revenue	13
Operating lease liabilities	15
Deferred taxes	18
Total liabilities assumed	55
Net assets acquired	$	70

Goodwill at acquisition	$	139
Measurement period adjustments	(3)
Goodwill at September 30, 2022	$	136

Goodwill represents future economic benefits we expect to achieve as a result of the acquisition, including revenue and cost synergies from our complementary business models. The results of Zenefits have been included in our consolidated financial statements since the closing of the acquisition. Pro forma financial information was not presented because the effect of the acquisition was not material to our results of operations and financial condition. The goodwill associated with the acquisition is not deductible for income tax purposes.



TRINET	44	2022 Q3 FORM 10-Q


FINANCIAL STATEMENTS			Table of Contents

The intangible assets acquired were as follows:


(in millions)	Amount		Estimated Useful Life
Acquired technology	$	56	6 years
Customer relationships	40		7 years
Total intangible assets	$	96

Clarus R+D Solutions

On September 1, 2022, the Company acquired all of the shares outstanding of Clarus R+D, a provider of technology enabled tax expertise and services to SMBs claiming state and federal R&D tax credits. We believe the acquisition of Clarus R+D and its cloud-based software will allow us to provide additional services to our PEO Services and HCM Cloud Services customers.

The total purchase price consisted of cash consideration paid of $48 million. Acquisition-related costs are recorded as G&A expense for the three and nine months ended September 30, 2022 and were not material to our results of operations and financial condition. In connection with the acquisition, we issued an immaterial amount of RSUs to the Clarus employees who are required to provide ongoing services to vest.

The following table summarizes the fair value of the net assets acquired and preliminary allocation of the purchase price:


(in millions)	Amount
Total purchase price	$	48

Asset Acquired:
Cash	$	3
Accounts receivable, net	3
Intangible assets	14
Total assets acquired	20

Liabilities Assumed
Accounts payable and other current liabilities	$	1
Deferred taxes	3
Total liabilities assumed	4
Net assets acquired	$	16

Goodwill at acquisition	$	32

Goodwill at September 30, 2022	$	32

Of the total consideration, $4 million remains unremitted as of September 30, 2022.

Goodwill represents future economic benefits we expect to achieve as a result of the acquisition, including revenue and cost synergies from our complementary business models. The results of Clarus R+D have been included in our consolidated financial statements since the closing of the acquisition. Pro forma financial information was not presented because the effect of the acquisition was not material to our results of operations and financial condition. The goodwill associated with the acquisition is not deductible for income tax purposes.



TRINET	45	2022 Q3 FORM 10-Q


FINANCIAL STATEMENTS			Table of Contents

The intangible assets acquired were as follows:


(in millions)	Amount		Estimated Useful Life
Acquired technology	$	9	6 years
Customer relationships	5		3 - 5 years
Total intangible assets	$	14



TRINET	46	2022 Q3 FORM 10-Q


OTHER INFORMATION			Table of Contents

Risk Factors

There have been no material changes in our risk factors disclosed in Part 1, Item 1A, of our 2021 Form 10-K.

Legal Proceedings

For the information required in this section, refer to Note 6 in the condensed consolidated financial statements and related notes included in this Form 10-Q.

Unregistered Sales of Equity Securities and Use of Proceeds

(a) Sales of Unregistered Securities

Not applicable.

(b) Use of Proceeds from Sales of Unregistered Securities

Not applicable.

The following table provides information about our purchases of TriNet common stock during the quarter ended September 30, 2022:


Period	Total Number of Shares Purchased (1) (2)	Weighted Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value ($ millions) of Shares that May Yet be Purchased Under the Plans (3)
July 1 -July 31, 2022	31,676	$	78.10	—	$	184
August 1 - August 31, 2022	46,241	$	91.43	—	$	184
September 1 - September 30, 2022	801	$	77.10	—	$	184
Total	78,718			—

(1) In May 2014, our board of directors approved a stock repurchase program pursuant to which we are authorized to repurchase our common stock in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934. From time to time, our board of directors authorizes increases to our stock repurchase program and approved an aggregate total of $1,215 million as of September 30, 2022. The total remaining authorization for future stock repurchases under our stock repurchase program was $184 million as of September 30, 2022. The program does not have an expiration date.

(2) Includes shares surrendered by employees to us to satisfy tax withholding obligations that arose upon vesting of restricted stock units granted pursuant to approved plans.

(3) We repurchased a total of approximately $0 million of our outstanding stock during the three months ended September 30, 2022.

We use our stock repurchase program to return value to our stockholders and to offset dilution from the issuance of stock under our equity-based incentive plans and employee purchase plan. We plan to use current cash and cash generated from ongoing operating activities to fund our stock repurchase program.

Defaults Upon Senior Securities

Not applicable.

Mine Safety Disclosures

Not applicable.

Other Information

Not applicable.



TRINET	47	2022 Q3 FORM 10-Q


EXHIBITS			Table of Contents

Exhibits

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

EXHIBIT INDEX

Incorporated by Reference

Exhibit No.

Exhibit

Form

File No.

Exhibit

Filing Date

Filed Herewith

3.1

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

8-K

001-36373

3.1

4/1/2014

3.2

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

10-Q

001-36373

3.1

11/2/2017

3.3

Amended and Restated Bylaws of TriNet Group, Inc.

S-1/A

333-192465

3.4

3/4/2014

4.1

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

8-K

001-36373

4.1

2/2/2017

10.1

Amended and Restated Non-Employee Director Compensation Policy

31.1

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

31.2

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

32.1*

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

101.INS

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

101.SCH

XBRL Taxonomy Extension Schema Linkbase Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

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



*			Document has been furnished, is deemed not filed and is not to be incorporated by reference into any of TriNet Group, Inc.’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing.



TRINET	48	2022 Q3 FORM 10-Q


SIGNATURES			Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	TRINET GROUP, INC.

Date: October 25, 2022		By:	/s/ Burton M. Goldfield
			Burton M. Goldfield
			Chief Executive Officer

Date: October 25, 2022		By:	/s/ Kelly Tuminelli
			Kelly Tuminelli
			Chief Financial Officer



TRINET	49	2022 Q3 FORM 10-Q

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