Insperity Announces Record First Quarter Results

  • Q1 adjusted EPS up 105% over 2014 to $0.86
  • Q1 adjusted EBITDA increases 74% over 2014 to $42.3 million
  • Q1 gross profit increases 22% on 10% revenue growth

HOUSTON--()--Insperity, Inc. (NYSE: NSP), a leading provider of human resources and business performance solutions for America’s best businesses, today reported first quarter adjusted EBITDA of $42.3 million, a 73.8% increase over the first quarter of 2014. Adjusted net income was $21.6 million and adjusted diluted earnings per share were $0.86, a 104.8% increase over the first quarter of 2014. Reported first quarter GAAP net income and earnings per share were $13.8 million and $0.54, respectively.

The number of worksite employees paid at the end of the quarter increased 10% over the first quarter of 2014. This increase was the result of improved new client sales and client retention. Net hiring in the client base declined slightly when compared to the 2014 period.

“These record results demonstrate the earnings power of our business model as unit growth accelerated to double digits with effective client selection,” said Paul J. Sarvadi, Insperity chairman and chief executive officer. “The combination of targeted growth, proactive management of risk and operating leverage drove this third consecutive quarter of outperformance.”

Adjusted EBITDA increased 73.8% over the first quarter of 2014 on a 22.3% increase in gross profit.

“Our successful year-end transition included a 23% reduction in client attrition from the 2014 period, positively impacting worksite employee growth and average pricing during the quarter,” said Douglas S. Sharp, senior vice president of finance, chief financial officer and treasurer. “This higher average pricing, combined with low health care costs from the effective management of health plan design and lower COBRA participation, drove the better-than-expected gross profit results.”

Cash outlays in the first three months of 2015 included the repurchase of 113,050 shares of stock at a cost of $5.7 million, dividends totaling $4.8 million and capital expenditures of $2.4 million. Adjusted working capital increased by $18.3 million during the quarter to $91.4 million at March 31, 2015.

2015 Guidance

The company also announced its updated guidance for 2015, including guidance for the second quarter of 2015.

          Q2 2015         Full Year 2015
       
Average WSEEs 141,000

-

142,400 144,000

-

146,400
Year-over-year increase 10%

-

11% 10%

-

12%
 
Adjusted EPS $0.36

-

$0.40 $2.15

-

$2.24
Year-over-year increase 71%

-

90% 48%

-

54%
 
Adjusted EBITDA (in millions) $20.0

-

$22.0 $112.0

-

$116.0
Year-over-year increase 38%

-

52% 33%

-

38%
 

Definition of Key Metrics

Average WSEEs - Determined by calculating the company’s cumulative worksite employees paid during the period divided by the number of months in the period.

Adjusted EPS - Represents diluted net income per share computed in accordance with GAAP, excluding the impact of non-cash impairment and other charges, stockholder advisory expenses and stock-based compensation. Note that beginning in 2015, the company began excluding stock-based compensation when reporting Adjusted EPS.

Adjusted EBITDA - Represents net income computed in accordance with GAAP, plus interest expense, income taxes, depreciation, amortization, stock-based compensation, non-cash impairment and other charges and stockholder advisory expenses.

Insperity will be hosting a conference call today at 10 a.m. ET to discuss these results, provide guidance for the second quarter and an update to full year guidance, and answer questions from investment analysts. To listen in, call 877-651-0053 and use conference i.d. number 24866062. The call will also be webcast at http://ir.insperity.com. The conference call script 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. 24866062. The webcast will be archived for one year.

Insperity, a trusted advisor to America’s best businesses for more than 29 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 Software, 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 2014 revenues of $2.4 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 benefits or other consequences of such plans or strategies, or projections involving 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 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) the impact of the competitive environment in the PEO industry on our growth and/or profitability; (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; (xi) an adverse final judgment or settlement of claims against Insperity; and (xii) disruptions to our business resulting from the actions of certain stockholders. 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)

 

March 31,
2015

December 31,
2014

(Unaudited)
Assets:
Cash and cash equivalents $ 228,588 $ 276,456
Restricted cash 45,152 44,040
Marketable securities 28,840 28,631
Accounts receivable, net 259,778 175,116
Prepaid insurance 36,660 21,301
Assets held for sale 13,495

-

Other current assets 21,080 17,649
Deferred income taxes

-

  6,316  
Total current assets 633,593 569,509
Property and equipment, net 59,115 84,345
Prepaid health insurance 9,000 9,000
Deposits 119,340 117,634
Goodwill and other intangible assets, net 14,232 14,457
Deferred income taxes 3,588

-

Other assets 1,753   1,725  
Total assets $ 840,621   $ 796,670  
Liabilities and Stockholders’ Equity:
Accounts payable $ 3,061 $ 4,674
Payroll taxes and other payroll deductions payable 176,667 176,341
Accrued worksite employee payroll cost 223,564 192,396
Accrued health insurance costs 25,589 18,329
Accrued workers’ compensation costs 47,225 45,592
Accrued corporate payroll and commissions 23,068 32,644
Other accrued liabilities 25,347 22,444
Deferred income taxes 6,944

-

Income taxes payable 280   4,031  
Total current liabilities 531,745 496,451
Accrued workers’ compensation costs 95,775 92,048
Deferred income taxes

-

  4,075  
Total noncurrent liabilities 95,775 96,123
Stockholders’ equity:
Common stock 308 308
Additional paid-in capital 140,963 137,769
Treasury stock, at cost (151,599 ) (148,465 )
Accumulated other comprehensive income, net of tax 5 3
Retained earnings 223,424   214,481  
Total stockholders’ equity 213,101   204,096  
Total liabilities and stockholders’ equity $ 840,621   $ 796,670  
   

Insperity, Inc.

Summary Financial Information (continued)

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

(Unaudited)

 

Three Months Ended
March 31,

2015   2014   Change
Operating results:

 

Revenues (gross billings of $3.940 billion and $3.588 billion, less worksite employee

payroll cost of $3.241 billion and $2.951 billion, respectively)

$ 699,479 $ 636,999 9.8 %
Direct costs:
Payroll taxes, benefits and workers’ compensation costs 569,619   530,823   7.3 %
Gross profit 129,860 106,176 22.3 %
Operating expenses:
Salaries, wages and payroll taxes 56,748 51,032 11.2 %
Stock-based compensation 2,423 2,400 1.0 %
Commissions 4,304 3,246 32.6 %
Advertising 3,718 4,941 (24.8 )%
General and administrative expenses 24,055 22,732 5.8 %
Depreciation and amortization 5,285 5,234 1.0 %
Impairment charges and other 9,807  

-

 

-

Total operating expenses 106,340   89,585   18.7 %
Operating income 23,520 16,591 41.8 %
Other income (expense):
Interest, net 7 47 (85.1 )%
Other, net

-

  (26 ) (100.0 )%
Income before income tax expense 23,527 16,612 41.6 %
Income tax expense 9,740   7,048   38.2 %
Net income $ 13,787   $ 9,564   44.2 %
Less distributed and undistributed earnings allocated to participating securities (355 )

(282

) 25.9 %
Net income allocated to common shares $ 13,432   $ 9,282   44.7 %
Basic net income per share of common stock $ 0.54   $ 0.37   45.9 %
Diluted net income per share of common stock $ 0.54   $ 0.37   45.9 %
   

Insperity, Inc.

Summary Financial Information (continued)

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

(Unaudited)

 
Three Months Ended
March 31,
2015   2014   Change
 
Statistical Data:
Average number of worksite employees paid per month 137,959 126,289 9.2 %
Revenues per worksite employee per month(1) $ 1,690 $ 1,681 0.5 %
Gross profit per worksite employee per month 314 280 12.1 %
Operating expenses per worksite employee per month 257 236 8.9 %
Operating income per worksite employee per month 57 44 29.5 %
Net income per worksite employee per month 33 25 32.0 %
 

(1) Gross billings of $9,521 and $9,469 per worksite employee per month, less payroll cost of $7,831 and $7,788 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
March 31,
2015 2014 Change
 
Payroll cost (GAAP) $ 3,240,982 $ 2,950,568 9.8 %
Less: Bonus payroll cost   518,503   521,341 (0.5 )%
Non-bonus payroll cost $ 2,722,479 $ 2,429,227 12.1 %
 
Payroll cost per worksite employee per month (GAAP) $ 7,831 $ 7,788 0.6 %
Less: Bonus payroll cost per worksite employee per month   1,253   1,376 (8.9 )%
Non-bonus payroll cost per worksite employee per month $ 6,578 $ 6,412 2.6 %
 

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.

     
March 31,
2015
December 31,
2014
 
Cash, cash equivalents and marketable securities (GAAP) $ 257,428 $ 305,087

Less: Amounts payable for withheld federal and state income taxes,

employment taxes and other payroll deductions

158,596 152,132
Customer prepayments 22,743   87,887
Adjusted cash, cash equivalents and marketable securities $ 76,089   $ 65,068
 

Adjusted cash, cash equivalents and marketable securities excludes funds associated with federal
and state income tax withholdings, employment taxes and other payroll deductions, as well as
client prepayments. Insperity management believes adjusted cash, cash equivalents and
marketable securities is a useful measure of the company’s available funds.

 
March 31,
2015
December 31,
2014
 
Working capital (GAAP) $ 101,848 $ 73,058
Less: Assets held for sale, net of current deferred tax liabilities 10,491  

-

Adjusted working capital $ 91,357   $ 73,058
 

Adjusted working capital represents working capital excluding assets held for sale that are
classified as current assets and their associated current deferred tax liabilities. Insperity
management believes adjusted working capital is a useful measure of the company’s liquidity,
as it allows for additional analysis of the company’s liquidity separate from the impact
of this item.

 
    Three Months Ended
March 31,
2015   2014   Change
 
Operating expenses (GAAP) $ 106,340 $ 89,585 18.7 %
Less: Impairment charges and other 9,807

-

-

Stockholder advisory expenses 1,148  

-

 

-

Adjusted operating expenses $ 95,385   $ 89,585   6.5 %
 

Adjusted operating expenses represent operating expenses excluding the impact of impairment
and other charges related to the valuation of aircraft held for sale and stockholder advisory
expenses.  Insperity management believes adjusted operating expenses is a useful measure of the
company’s operating costs, as it allows for additional analysis of the company’s operating
expenses separate from the impact of these items.

 
   

Three Months Ended
March 31,

2015   2014   Change
 
Net income (GAAP) $ 13,787 $ 9,564 44.2 %
Income tax expense 9,740 7,048 38.2 %
Interest expense 100 89 12.4 %
Depreciation and amortization   5,285     5,234   1.0 %
EBITDA 28,912 21,935 31.8 %
Impairment charges and other 9,807

-

-

Stock-based compensation 2,423 2,400 1.0 %
Stockholder advisory expenses   1,148    

-

 

-

Adjusted EBITDA $ 42,290   $ 24,335   73.8 %
 

EBITDA represents net income computed in accordance with generally accepted accounting
principles (“GAAP”), plus interest expense, income tax expense, depreciation and amortization
expense.  Adjusted EBITDA represents EBITDA plus non-cash impairment and other charges,
costs associated with stockholder advisory expenses and stock-based compensation.  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 these items.

 

Three Months Ended
March 31,

2015 2014 Change
 
Net income (GAAP) $ 13,787 $ 9,564 44.2 %
Impairment charges and other, net of tax 5,747

-

-

Stock-based compensation, net of tax 1,420 1,382 2.7 %
Stockholder advisory expenses, net of tax   673    

-

 

-

Adjusted net income $ 21,627   $ 10,946   97.6 %
 
Three Months Ended
March 31,
2015 2014 Change
 
Diluted net income per share of common stock (GAAP) $ 0.54 $ 0.37 45.9 %
Impairment charges and other, net of tax 0.23

-

-

Stock-based compensation, net of tax 0.06 0.05 20.0 %
Stockholder advisory expenses, net of tax   0.03    

-

 

-

Adjusted diluted net income per share of common stock $ 0.86   $ 0.42   104.8 %

 

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 non-cash impairment and other charges related to the valuation of aircraft held for sale, stock-based compensation and costs associated with stockholder advisory expenses. 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 these items.

Non-bonus payroll, adjusted cash, cash equivalents and marketable securities, adjusted working capital, adjusted operating expenses, 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, adjusted cash, cash equivalents and marketable securities, adjusted working capital, adjusted operating expenses, 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. 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