Insperity Announces Strong Third Quarter Results

  • Q3 EPS of $0.33 and adjusted EBITDA of $22.6 million
  • Gross profit contribution from Strategic Business Units up 20%
  • $35 million returned to stockholders year-to-date through share repurchases and dividends

HOUSTON--()--Insperity, Inc. (NYSE: NSP), a leading provider of human resources and business performance solutions for America’s best businesses, today reported results for the third quarter and nine months ended Sept. 30, 2014. For the third quarter, the company reported net income of $8.4 million and diluted earnings per share of $0.33. Adjusted EBITDA totaled $22.6 million for the third quarter.

“We are pleased with our recent financial results and the growth acceleration that has unfolded over the past two quarters,” said Paul J. Sarvadi, Insperity chairman and chief executive officer. “A continuation of these trends, combined with a successful year-end transition, would result in double-digit unit growth in 2015.”

Third Quarter Results

Revenues for the third quarter of 2014 increased 3.8% over the third quarter of 2013 due to a 1.8% increase in the average number of worksite employees paid per month and a 2.0% increase in revenues per worksite employee per month. The average number of paid worksite employees increased 2.6% sequentially over the second quarter of 2014. Gross profit increased 3.5% compared to the third quarter of 2013 to $100.8 million. Benefits costs per covered employee increased 1.3%, less than expected, contributing to an increase in the average gross profit per worksite employee per month, from $251 in the third quarter of 2013 to $255 in the third quarter of 2014. Included in gross profit in the third quarter of 2014 is an $18 per worksite employee per month contribution from our Strategic Business Units, compared to $15 per worksite employee per month in the third quarter of 2013.

Operating expenses increased to our forecasted level of $86.4 million and included $5.7 million in additional costs associated with the development of our Human Capital Management product, health care reform and an additional accrual for incentive compensation based on better than expected operating results. Excluding these items, operating expenses were flat compared to the third quarter of 2013.

Year-to-Date Results

For the nine months ended Sept. 30, 2014, the company reported adjusted net income of $21.4 million and adjusted diluted earnings per share of $0.84. These earnings exclude after-tax costs of $1.6 million or $0.06 per share related to a second quarter non-cash impairment charge associated with the reorganization of our Employment Screening business. Reported net income for the nine months ended Sept. 30, 2014 was $19.8 million, or $0.78 per diluted share. Adjusted EBITDA totaled $61.5 million for this same period.

Year-to-date revenues were $1.8 billion, an increase of 3.7% over the 2013 period. Gross profit for the nine months ended Sept. 30, 2014 decreased to $302.4 million. The average gross profit per worksite employee per month decreased 1.9%, to $261 in the 2014 period from $266 in the 2013 period.

Adjusted 2014 year-to-date operating expenses, excluding the impact of the impairment charge, increased to $265.5 million from $253.9 million in the 2013 period. Adjusted year-to-date operating expenses increased by just 1.2% when excluding an additional $8.7 million of costs associated with the development of our Human Capital Management product, health care reform, and the additional accrual for incentive compensation based on better than expected operating results.

“As a result of our focus on operating expense control throughout 2014, we now expect approximately $16 million in cost savings from our initial 2014 forecast,” said Douglas S. Sharp, senior vice-president of finance, chief financial officer and treasurer. “We intend to continue to focus on operating expense control throughout 2015 to align with unit growth and customer mix.”

Cash outlays in the first nine months of 2014 included the repurchase of 693,262 shares of stock at a cost of $20.8 million, dividends totaling $14.0 million and capital expenditures of $11.0 million. Working capital at Sept. 30, 2014 was $119.1 million.

Insperity will be hosting a conference call today at 10 a.m. ET to discuss these results, give guidance for the fourth quarter and answer questions from investment analysts. To listen in, call 877-651-0053 and use conference i.d. number 17729875. The call will also be webcast at http://ir.insperity.com. The conference call script and company guidance will be available at the same website later today. A replay of the conference call will be available at 855-859-2056, conference i.d. 17729875. The webcast will be archived for one year.

Insperity, a trusted advisor to America’s best businesses for more than 28 years, provides an array of human resources and business solutions designed to help improve business performance. Insperity® Business Performance Advisors offer the most comprehensive suite of products and services available in the marketplace. Insperity delivers administrative relief, better benefits, reduced liabilities and a systematic way to improve productivity through its premier Workforce Optimization® solution. Additional company offerings include Human Capital Management, Payroll Services, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Financial Services, Expense Management, Retirement Services and Insurances Services. Insperity business performance solutions support more than 100,000 businesses with over 2 million employees. With 2013 revenues of $2.3 billion, Insperity operates in 57 offices throughout the United States. For more information, visit http://www.insperity.com.

The statements contained herein that are not historical facts are forward-looking statements within the meaning of the federal securities laws (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). You can identify such forward-looking statements by the words “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “possibly,” “probably,” “goal,” “opportunity,” “objective,” “target,” “assume,” “outlook,” “guidance,” “predicts,” “appears,” “indicator” and similar expressions. Forward-looking statements involve a number of risks and uncertainties. In the normal course of business, Insperity, Inc., in an effort to help keep our stockholders and the public informed about our operations, may from time to time issue such forward-looking statements, either orally or in writing. Generally, these statements relate to business plans or strategies, projected or anticipated revenues, earnings, unit growth, profit per worksite employee, pricing, operating expenses or other aspects of operating results. We base the forward-looking statements on our expectations, estimates and projections at the time such statements are made. These statements are not guarantees of future performance and involve risks and uncertainties that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Therefore, the actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are: (i) adverse economic conditions; (ii) regulatory and tax developments and possible adverse application of various federal, state and local regulations; (iii) the ability to secure competitive replacement contracts for health insurance and workers’ compensation contracts at expiration of current contracts; (iv) increases in health insurance costs and workers’ compensation rates and underlying claims trends, health care reform, financial solvency of workers’ compensation carriers, other insurers or financial institutions, state and federal unemployment tax rates, liabilities for employee and client actions or payroll-related claims; (v) failure to manage growth of our operations and the effectiveness of our sales and marketing efforts; (vi) changes in the competitive environment in the PEO industry, including the entrance of new competitors and our ability to renew or replace client companies; (vii) our liability for worksite employee payroll, payroll taxes and benefits costs; (viii) our liability for disclosure of sensitive or private information; (ix) our ability to integrate or realize expected returns on our acquisitions; (x) failure of our information technology systems; and (xi) an adverse final judgment or settlement of claims against Insperity. These factors are discussed in further detail in Insperity’s filings with the U.S. Securities and Exchange Commission. Any of these factors, or a combination of such factors, could materially affect the results of our operations and whether forward-looking statements we make ultimately prove to be accurate.

Except to the extent otherwise required by federal securities law, we do not undertake any obligation to update our forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.

 
Insperity, Inc.
Summary Financial Information
(in thousands, except per share amounts and statistical data)
           
September 30, December 31,
2014 2013
(Unaudited)
Assets:
Cash and cash equivalents $ 179,458 $ 225,755
Restricted cash 57,222 51,928
Marketable securities 45,953 46,340
Accounts receivable, net 244,814 210,009
Prepaid insurance 30,613 10,638
Other current assets 12,851 12,053
Income taxes receivable 2,740 409
Deferred income taxes

-

  8,185  
Total current assets 573,651 565,317
 
Property and equipment, net 82,765 86,415
Prepaid health insurance 9,000 9,000
Deposits 97,386 85,578
Goodwill and other intangible assets, net 14,808 18,434
Other assets 1,748   1,816  
Total assets $ 779,358   $ 766,560  
 
Liabilities and Stockholders’ Equity:
Accounts payable $ 3,255 $ 2,678
Payroll taxes and other payroll deductions payable 105,026 165,604
Accrued worksite employee payroll cost 211,028 173,801
Accrued health insurance costs 26,351 5,103
Accrued workers’ compensation costs 59,393 52,930
Accrued corporate payroll and commissions 26,474 21,611
Other accrued liabilities 23,008   14,960  
Total current liabilities 454,535 436,687
 
Accrued workers’ compensation costs 73,009 68,905
Deferred income taxes 3,806   7,696  
Total noncurrent liabilities 76,815 76,601
 
Stockholders’ equity:
Common stock 308 308
Additional paid-in capital 136,972 135,653
Treasury stock, at cost (151,091 ) (138,688 )
Accumulated other comprehensive income, net of tax 24 29
Retained earnings 261,795   255,970  
Total stockholders’ equity 248,008   253,272  
Total liabilities and stockholders’ equity $ 779,358   $ 766,560  
 
           
Insperity, Inc.
Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
(Unaudited)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2014     2013     Change 2014     2013     Change
Operating results:
Revenues (gross billings of $3.362 billion,
$3.236 billion, $10.231 billion and $9.736
billion, less worksite employee payroll
cost of $2.802 billion, $2.696 billion,
$8.469 billion and $8.037 billion,
respectively) $ 560,303 $ 539,869 3.8 % $ 1,761,923 $ 1,698,979 3.7 %
Direct costs:
Payroll taxes, benefits and workers’
compensation costs   459,486     442,460   3.8 %   1,459,477     1,395,706   4.6 %
Gross profit 100,817 97,409 3.5 % 302,446 303,273 (0.3 )%
Operating expenses:
Salaries, wages and payroll taxes 49,384 43,797 12.8 % 148,245 137,697 7.7 %
Stock-based compensation 2,701 2,749 (1.7 )% 8,346 8,351 (0.1 )%
Commissions 3,790 3,609 5.0 % 10,753 10,349 3.9 %
Advertising 4,885 4,273 14.3 % 18,182 19,243 (5.5 )%
General and administrative expenses 20,295 20,567 (1.3 )% 64,143 62,592 2.5 %
Depreciation and amortization 5,302 5,302

-

15,827 15,692 0.9 %
Impairment charge  

-

   

-

 

-

  2,485    

-

  100.0 %
Total operating expenses   86,357     80,297   7.5 %   267,981     253,924   5.5 %
Operating income 14,460 17,112 (15.5 )% 34,465 49,349 (30.2 )%
Other income (expense):
Interest, net 9 26 (65.4 )% 80 155 (48.4 )%
Other, net   34     (1 )

-

  20     (2,668 ) (100.7 )%
Income before income tax expense 14,503 17,137 (15.4 )% 34,565 46,836 (26.2 )%
Income tax expense   6,118     7,055   (13.3 )%   14,725     20,093   (26.7 )%
Net income $ 8,385   $ 10,082   (16.8 )% $ 19,840   $ 26,743   (25.8 )%
Less distributed and undistributed earnings
allocated to participating securities   (243 )   (289 ) (15.9 )%   (576 )   (769 ) (25.1 )%
Net income allocated to common shares $ 8,142   $ 9,793   (16.9 )% $ 19,264   $ 25,974   (25.8 )%
Basic net income per share of
common stock $ 0.33   $ 0.39   (15.4 )% $ 0.78   $ 1.05   (25.7 )%
Diluted net income per share of common
stock $ 0.33   $ 0.39   (15.4 )% $ 0.78   $ 1.04   (25.0 )%
 
           
Insperity, Inc.
Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
(Unaudited)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2014     2013     Change 2014     2013     Change
 
Statistical Data:
Average number of worksite employees paid
per month 131,545 129,248 1.8 % 128,703 126,445 1.8 %
Revenues per worksite employee per month(1) $ 1,420 $ 1,392 2.0 % $ 1,521 $ 1,493 1.9 %

Gross profit per worksite employee per month

255 251 1.6 % 261 266 (1.9 )%
Operating expenses per worksite employee per
month 218 207 5.3 % 231 223 3.6 %
Operating income per worksite employee per
month 37 44 (15.9 )% 30 43 (30.2 )%
Net income per worksite employee per month 21 26 (19.2 )% 17 23 (26.1 )%
 

(1)

  Gross billings of $8,519, $8,346, $8,832 and $8,555 per worksite employee per month, less payroll cost of $7,099, $6,954,
$7,311 and $7,062 per worksite employee per month, respectively.
 

Insperity, Inc.

Summary Financial Information (continued)

(in thousands, except per share amounts and statistical data)

(Unaudited)

     

GAAP to Non-GAAP Reconciliation Tables

       
Three Months Ended Nine Months Ended
September 30, September 30,
2014    

2013

    Change

2014

    2013     Change
 
Payroll cost (GAAP) $ 2,801,722

$

2,696,330

3.9 %

$

8,468,804

$ 8,036,532 5.4 %
Less: Bonus payroll cost   204,405  

192,868

6.0 %  

947,751

  706,795 34.1 %
Non-bonus payroll cost $ 2,597,317

$

2,503,462

3.7 %

$

7,521,053

$ 7,329,737 2.6 %
 
Payroll cost per worksite
employee per month
(GAAP) $ 7,099 $ 6,954 2.1 % $ 7,311 $ 7,062 3.5 %
Less: Bonus payroll cost per
worksite employee per
month   518   498 4.0 %   818   621 31.7 %
Non-bonus payroll cost
per worksite employee
per month $ 6,581 $ 6,456 1.9 % $ 6,493 $ 6,441 0.8 %
 
Non-bonus payroll cost represents payroll cost excluding the impact of bonus payrolls paid to the
company’s worksite employees. Bonus payroll cost varies from period to period, but has no
direct impact to the company’s ultimate workers’ compensation costs under the current program.
As a result, Insperity management refers to non-bonus payroll cost in analyzing, reporting and
forecasting the company’s workers’ compensation costs.
 
 
 
Three Months Ended Nine Months Ended
September 30, September 30,

2014

2013

Change

2014 2013 Change
 
Operating expenses (GAAP)

$

86,357

$

80,297

7.5

%

$ 267,981 $ 253,924 5.5 %
Impairment charge  

-

 

-

-

  2,485  

-

100.0 %
Adjusted operating expenses

$

86,357

$

80,297

7.5

%

$ 265,496 $ 253,924 4.6 %
 

Adjusted operating expenses represent operating expenses excluding the impact of impairment charges.

 
 
 
Three Months Ended Nine Months Ended
September 30, September 30,

2014

2013

Change

2014 2013 Change
 
Net income (GAAP)

$

8,385

$ 10,082

(16.8

)%

$ 19,840 $ 26,743 (25.8 )%
Income tax expense

6,118

7,055

(13.3

)%

14,725 20,093 (26.7 )%
Interest expense

104

88

18.2

%

281 264 6.4 %
Depreciation and amortization  

5,302

  5,302

-

  15,827   15,692 0.9 %
EBITDA

19,909

22,527

(11.6

)%

50,673 62,792 (19.3 )%
Impairment charges

-

-

-

2,485 2,679 (7.2 )%
Stock-based compensation  

2,701

  2,749

(1.7

)%

  8,346   8,351 (0.1 )%
Adjusted EBITDA

$

22,610

$ 25,276

(10.5

)%

$ 61,504 $ 73,822 (16.7 )%
 
EBITDA represents net income computed in accordance with generally accepted accounting
principles (“GAAP”), plus interest expense, income tax expense, depreciation and amortization
expense. Insperity management believes EBITDA and adjusted EBITDA are often useful
measures of the company’s operating performance, as they allow for additional analysis of the
company’s operating results separate from the impact of taxes and capital and financing
transactions on earnings.
 
 
Three Months Ended Nine Months Ended
September 30, September 30,

2014

2013

Change

2014 2013 Change
 
Net income (GAAP)

$

8,385

$ 10,082

(16.8

)%

$ 19,840 $ 26,743 (25.8 )%
Impairment charges,
net of tax   -   - -   1,566   2,679 (41.5 )%
Adjusted net income

$

8,385

$ 10,082

(16.8

)%

$

21,406

$ 29,422 (27.2 )%
 
 
Three Months Ended Nine Months Ended
September 30, September 30,

2014

2013

Change

2014

2013 Change
 
Diluted net income per share of
common stock (GAAP) $ 0.33 $ 0.39 (15.4 )% $ 0.78 $ 1.04 (25.0 )%
Impairment charges,
net of tax   -   - -   0.06   0.10 (40.0 )%
Adjusted diluted net income
per share of common stock $ 0.33 $ 0.39 (15.4 )% $ 0.84 $ 1.14 (26.3 )%
 

Adjusted net income and adjusted diluted net income per share of common stock represent net income and diluted net income per share computed in accordance with GAAP, excluding the impact of the impairment charge related to Employment Screening reporting unit in 2014 and the impairment charge related to The Receivables Exchange in 2013. Insperity management believes adjusted net income and adjusted diluted net income per share are useful measures of the company’s operating performance in this period, as they allow for additional analysis of the company’s operating results separate from the impact of the impairment.

Non-bonus payroll, EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted net income per share of common stock are not financial measures prepared in accordance with GAAP and may be different from similar measures used by other companies. Non-bonus payroll, EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted net income per share of common stock should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Insperity includes non-bonus payroll, EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted net income per share of common stock in this press release because the company believes they are useful to investors in allowing for greater transparency related to the costs incurred under the company’s workers’ compensation program and the company’s operating performance during the periods presented. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measures as provided in the tables above.

Contacts

Insperity, Inc.
Investor Relations Contact:
Douglas S. Sharp, (281) 348-3232
Senior Vice President of Finance,
Chief Financial Officer and Treasurer
or
News Media Contact:
Jason Cutbirth, (281) 312-3085
Senior Vice President of Marketing
jason.cutbirth@insperity.com

Contacts

Insperity, Inc.
Investor Relations Contact:
Douglas S. Sharp, (281) 348-3232
Senior Vice President of Finance,
Chief Financial Officer and Treasurer
or
News Media Contact:
Jason Cutbirth, (281) 312-3085
Senior Vice President of Marketing
jason.cutbirth@insperity.com