Small Cap TriNet Group Inc (TNET): The Best of the Recent HR Software IPOs? PCTY & WDAY

The IPO of small cap HR software stock TriNet Group Inc (NYSE: TNET) jumped around 20% in its fist day of trading today, meaning its worth taking a closer look at the stock along with the performance of potential peers like Paylocity Holding Corp (NASDAQ: PCTY) and Workday Inc (NYSE: WDAY) which also had recent IPOs while Paycom Software, a profitable cloud-based human-capital management software firm based in Oklahoma City, has recently filed to go public. However, its important to also remember that the HR software solutions space is pretty crowded already with various offerings.

What is TriNet Group Inc?

Small cap TriNet Group provides HR solutions to small to mid-sized businesses, allowing them to focus on what they do best. Specifically, the company's bundled HR products, strategic services and software simplify HR and are tailored by industry with bundled HR products covering the core services of payroll, benefits, risk & compliance, an HR team and a cloud platform. At the end of last year, TriNet had over 8,900 clients in a variety of industries and managed more than $17 billion in payroll and insurance premiums a year.

As for potential small cap HR software peers who also recently had IPOs, Paylocity Holding Corp is a leading provider of cloud-based payroll and human capital management software solutions for medium-sized organizations; and Workday Inc is a leading provider of enterprise cloud-based applications for human capital management, payroll, financial management, time tracking, procurement and employee expense management.

What You Need to Know or Be Warned About TriNet Group Inc

On Thursday, small cap TriNet Group rose 19.38% to $19.10 for a market cap of $291.45 million after shares debuted at $16, the midpoint of its expected range of $15 to $17. The company sold 15 million shares to raise $240 million while underwriters were granted a 30-day option to purchase up to 2,250,000 shares of common stock from stockholders affiliated with General Atlantic LLC.

In mid-March, Burton Goldfield, TriNet Group's CEO, appeared on CNBC's Mad Money to explain why his company is better or different from the competition. He commented:

We're a one stop solution. We'll navigate the affordable care act and HR services and 105 different benefit plans.

He then explained that the TriNet Group has three important components:

We have 300 hr people around the country. We tell our owners if you get into a problem with HR, you learn five words: "Sound series, I'll call Trinet." That's not a software provider. The second piece is a software backbone. We process 17 billion in payroll. We do 5 million transactions a month. Accessible through iPhone apps. Personal time off. Time in accounting. Expense management. That's the software piece and finally those benefit plans which are tightly integrated into the backbone. So the bundle solution is all three pieces.

Cramer did ask about the 20% attrition rate, but the CEO commented:

You know what, we keep clients about five years and some of those clients either get acquired or run out of business. Our most famous client today is What's App. What's App started with five employees and now they have 55. They're still a Trinet client.

He also noted that Obamacare is wonderful for TriNet Group – no doubt because of the constant rewriting of the law and the response employers are taking to those rewrites e.g. changing managers and supervisors to hourly positions.

On the financial front and according to its latest S-1 filing, TriNet Group has reported revenues of $719,383M (2009), $906,190M (2010), $840,390M (2011), $1,019,061M (2012) and $1,644,275M (2013) along with net income of $17,818M (2009), a net loss of $8,827M (2010) and net income of $14,762M (2011), $31,832M (2012) and $13,147M (2013). However, investors should take a closer look at TriNet Group's liabilities:

Liabilities and stockholders' deficit
Current liabilities:
Accounts payable		$	5,250			$	7,315
Accrued corporate wages			15,896				26,264
Deferred income taxes			33,960				16,535
Current portion of notes payable and borrowings under capital leases			9,803				6,669
Other current liabilities			10,232				9,078
Worksite employee related liabilities			399,501				767,624
Total current liabilities			474,642				833,485
Notes payable and borrowings under capital leases, less current portion			291,531				812,208
Workers compensation liabilities			39,327				45,309
Deferred income taxes			18,026				8,888
Other liabilities			6,881				5,210
Total liabilities			830,407				1,705,100

 

Nevertheless, the CEO had also told Cramer:

I believe in growth with predictable profitability. We have exceptional cash flow and we will grow consistently over the next many years to come.

Share Performance: TriNet Group Inc vs. PCTY & WDAY

Finally, here is a look at the performance or technical charts that do exist for TriNet Group, Paylocity Holding Corp and Workday Inc:

The Bottom Line. Although investing in recent IPOs is not for the risk adverse, small cap TriNet Group could at least be worth some further scrutiny.