Insperity Announces Record First Quarter Results

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    HOUSTON–(BUSINESS WIRE)–Insperity,
    Inc.
    (NYSE: NSP), a leading provider of human
    resources and business performance solutions
    for America’s best
    businesses, today reported results for the first quarter ended Mar. 31,
    2019:

    • Q1 WSEE growth of 15% on strong sales and client retention
    • Q1 net income and EPS up 53% and 57%, to $76 million and $1.85,
      respectively
    • Q1 adjusted EPS up 40% to $1.98
    • Q1 adjusted EBITDA up 21% to $101 million

    First Quarter Results

    First quarter 2019 net income and diluted earnings per share of $76.3
    million and $1.85 represented increases of 53% and 57%, respectively,
    compared to the first quarter of 2018. Adjusted EPS was $1.98, a 40%
    increase over the first quarter of 2018. Adjusted EBITDA increased 21%
    over the first quarter of 2018 to $101.4 million.

    Our record first quarter results reflect the strength of our business
    model and continued excellent execution of our strategic plan,” said
    Paul J. Sarvadi, Insperity chairman and chief executive officer. “These
    results further demonstrate the sustainability of our rapid growth and
    profitability experienced over the last several years into 2019.”

    Revenues increased 14% over the first quarter of 2018 to $1,153.0
    million on a 15% increase in the average number of worksite employees
    (“WSEEs”) paid per month. The continued double-digit worksite employee
    growth was the result of the enrollment of new clients coming off a
    successful 2018 fall sales campaign and a high level of client retention
    during our heavy first quarter client renewal period. Additionally, we
    experienced net hiring in our client base during the first quarter of
    2019, although at lower levels than experienced during the first quarter
    of 2018.

    Gross profit increased 14% over the first quarter of 2018 to $226.7
    million, and included favorable workers’ compensation and benefit cost
    trends and stronger pricing. Operating expenses increased 5% over the
    first quarter of 2018, while adjusted operating expenses increased 12%
    to $141.3 million, and included continued investments in our growth,
    technology and product and service offerings.

    Worksite employee growth in the mid-teens, combined with effective
    management of pricing, direct cost programs and operating costs,
    produced adjusted EBITDA and cash flow at record levels,” said Douglas
    S. Sharp, senior vice president of finance, chief financial officer and
    treasurer. “We ended the first quarter with $141 million of adjusted
    cash, up from $129 million at December 31, 2018, after the repurchase of
    230,000 shares at a cost of $29 million and the payment of our regular
    cash dividend totaling $12 million.”

    2019 Guidance

    The company also announced its updated guidance for 2019, including the
    second quarter of 2019. Please refer to the accompanying financial
    tables at the end of this press release for the reconciliation of
    non-GAAP financial measures to the comparable GAAP financial measures.

             
          Q2 2019       Full Year 2019
           
    Average WSEEs paid 232,500 234,500 238,400 242,600
    Year-over-year increase 14.0% 15.0% 14.0% 16.0%
     
    Adjusted EPS $0.81 $0.86 $4.55 $4.80
    Year-over-year increase 19% 26% 21% 28%
     
    Adjusted EBITDA (in millions) $55 $58 $276 $289
    Year-over-year increase 18% 24% 15% 21%
     

    Definition of Key Metrics

    Average WSEEs paid – 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 stock-based
    compensation and costs associated with a one-time tax reform bonus paid
    to corporate employees.

    Adjusted EBITDA – Represents net income computed in accordance with
    GAAP, plus interest expense, income taxes, depreciation and amortization
    expense, non-cash stock-based compensation and costs associated with a
    one-time tax reform bonus paid to corporate employees.

    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 the full year guidance, and answer questions from investment
    analysts. To listen in, call 877-651-0053 and use conference i.d. number
    2122429. 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. 2122429. The webcast will be archived for
    one year.

    About Insperity

    Insperity, a trusted advisor to America’s best businesses for more than
    33 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 Traditional Payroll and
    Human Capital Management, Time and Attendance, Performance Management,
    Organizational Planning, Recruiting Services, Employment Screening,
    Expense Management, Retirement Services and Insurance Services.
    Insperity business performance solutions support more than 100,000
    businesses with over 2 million employees. With 2018 revenues of $3.8
    billion, Insperity operates in 74 offices throughout the United States.
    For more information, visit http://www.insperity.com.

    Forward-Looking Statements

    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:

    • adverse economic conditions;
    • regulatory and tax developments and possible adverse application of
      various federal, state and local regulations;
    • the ability to secure competitive replacement contracts for health
      insurance and workers’ compensation insurance at expiration of current
      contracts;
    • cancellation of client contracts on short notice, or the inability to
      renew client contracts or attract new clients;
    • vulnerability to regional economic factors because of our geographic
      market concentration;
    • 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;
    • failure to manage growth of our operations and the effectiveness of
      our sales and marketing efforts;
    • the impact of the competitive environment and other developments in
      the human resources services industry, including the PEO industry, on
      our growth and/or profitability;
    • our liability for worksite employee payroll, payroll taxes and
      benefits costs;
    • our liability for disclosure of sensitive or private information;
    • our ability to integrate or realize expected returns on our
      acquisitions;
    • failure of our information technology systems;
    • an adverse final judgment or settlement of claims against Insperity;
      and
    • 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.

    CONDENSED CONSOLIDATED BALANCE SHEETS

    (Unaudited)

     
    (in thousands)     March 31, 2019     December 31, 2018
     
    Assets
    Cash and cash equivalents $ 398,936 $ 326,773
    Restricted cash 44,705 42,227
    Marketable securities 53,599 60,781
    Accounts receivable, net 421,297 400,623
    Prepaid insurance 24,928 8,411
    Other current assets     36,616       27,721  
    Total current assets 980,081 866,536
    Property and equipment, net 116,131 117,213
    Right of use leased assets 50,259
    Prepaid health insurance 9,000 9,000
    Deposits 177,105 172,674
    Goodwill and other intangible assets, net 12,723 12,726
    Deferred income taxes, net 145 8,816
    Other assets     5,534       4,851  
    Total assets     $ 1,350,978       $ 1,191,816  
     
    Liabilities and stockholders’ equity
    Accounts payable $ 7,854 $ 10,622
    Payroll taxes and other payroll deductions payable 308,062 261,166
    Accrued worksite employee payroll cost 363,862 329,979
    Accrued health insurance costs 45,832 35,153
    Accrued workers’ compensation costs 47,973 45,818
    Accrued corporate payroll and commissions 27,562 60,704
    Other accrued liabilities     49,244       28,890  
    Total current liabilities 850,389 772,332
    Accrued workers’ compensation cost, net of current 186,624 187,412
    Long-term debt 144,400 144,400
    Operating lease liabilities, net of current 50,371
    Other accrued liabilities, net of current           9,996  
    Total noncurrent liabilities 381,395 341,808
    Stockholders’ equity:
    Common stock 555 555
    Additional paid-in capital 33,833 36,752
    Treasury stock, at cost (376,097 ) (357,569 )
    Retained earnings     460,903       397,938  
    Total stockholders’ equity     119,194       77,676  
    Total liabilities and stockholders’ equity     $ 1,350,978       $ 1,191,816  
       

    Insperity, Inc.

    CONSOLIDATED STATEMENTS OF OPERATIONS

    (Unaudited)

     
    Three Months Ended
    March 31,
    (in thousands, except per share amounts)     2019   2018   Change
    Operating results:    
    Revenues(1) $ 1,153,010 $ 1,014,372 13.7 %
    Payroll taxes, benefits and workers’ compensation costs     926,293     814,652     13.7 %
    Gross profit 226,717 199,720 13.5 %
    Salaries, wages and payroll taxes 83,380 87,186 (4.4 )%
    Stock-based compensation 6,040 3,135 92.7 %
    Commissions 6,952 6,066 14.6 %
    Advertising 5,031 3,565 41.1 %
    General and administrative expenses 33,162 29,852 11.1 %
    Depreciation and amortization     6,691     5,213     28.4 %
    Total operating expenses     141,256     135,017     4.6 %
    Operating income 85,461 64,703 32.1 %
    Other income (expense):
    Interest income 3,245 1,456 122.9 %
    Interest expense     (1,681 )   (1,070 )   57.1 %
    Income before income tax expense 87,025 65,089 33.7 %
    Income tax expense     10,736     15,098     (28.9 )%
    Net income     $ 76,289     $ 49,991     52.6 %
    Less distributed and undistributed earnings allocated to
    participating securities
        (1,031 )   (585 )   76.2 %
    Net income allocated to common shares     $ 75,258     $ 49,406     52.3 %
     
    Net income per share of common stock
    Basic $ 1.86 $ 1.20 55.0 %
    Diluted $ 1.85 $ 1.18 56.8 %
    ____________________________________
    (1)   Revenues are comprised of gross billings less WSEE payroll costs as
    follows:
             
    Three Months Ended March 31,
    (in thousands)           2019     2018
       
    Gross billings $ 6,871,670 $ 5,923,356
    Less: WSEE payroll cost           5,718,660       4,908,984
    Revenues           $ 1,153,010       $ 1,014,372
       

    Insperity, Inc.

    KEY FINANCIAL AND STATISTICAL DATA

    (Unaudited)

     
    Three Months Ended March 31,
          2019     2018     Change
           
    Average WSEEs paid 225,525 195,683 15.3 %
    Statistical data (per WSEE per month):
    Revenues(1) $ 1,704 $ 1,728 (1.4 )%
    Gross profit 335 340 (1.5 )%
    Operating expenses 209 230 (9.1 )%
    Operating income 126 110 14.5 %
    Net income 113 85 32.9 %
    ____________________________________
    (1)   Revenues per WSEE per month are comprised of gross billings per WSEE
    per month less WSEE payroll costs per WSEE per month follows:
             
    Three Months Ended March 31,
    (per WSEE per month)           2019     2018
    Gross billings $ 10,157     $ 10,090
    Less: WSEE payroll cost           8,453       8,362
    Revenues           $ 1,704       $ 1,728
     

    Insperity, Inc.

    Non-GAAP Financial Measures

    (Unaudited)

     
    Non-GAAP financial measures are not prepared in accordance with GAAP
    and may be different from non-GAAP financial measures used by other
    companies. Non-GAAP financial measures 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 to their
    most directly comparable GAAP financial measures as provided in the
    tables below.
           
    Non-GAAP Measure     Definition     Benefit of Non-GAAP Measure
    Non-bonus payroll cost     Non-bonus payroll cost is a non-GAAP financial measure that excludes
    the impact of bonus payrolls paid to our WSEEs.

     

    Bonus payroll cost varies from period to period, but has no direct
    impact to our ultimate workers’ compensation costs under the
    current program.

        Our management refers to non-bonus payroll cost in analyzing,
    reporting and forecasting our workers’ compensation costs.

     

    We include these non-GAAP financial measures because we believe
    they are useful to investors in allowing for greater transparency
    related to the costs incurred under our current workers’
    compensation program.

    Adjusted cash, cash equivalents and marketable securities Excludes funds associated with:

    • federal and state income tax withholdings,

    • employment taxes,

    • other payroll deductions, and

    • client prepayments.

    We believe that the exclusion of the identified items helps us
    reflect the fundamentals of our underlying business model and
    analyze results against our expectations, against prior period, and
    to plan for future periods by focusing on our underlying operations.
    We believe that the adjusted results provide relevant and useful
    information for investors because they allow investors to view
    performance in a manner similar to the method used by management and
    improves their ability to understand and assess our operating
    performance.
    Adjusted operating expense Represents operating expenses excluding the impact of the following:

    • costs associated with a one-time tax reform bonus paid to
    corporate employees.

    EBITDA Represents net income computed in accordance with GAAP, plus:

    • interest expense,

    • income tax expense, and

    • depreciation and amortization expense.

    Adjusted EBITDA Represents EBITDA plus:

    • non-cash stock based compensation, and

    • costs associated with a one-time tax reform bonus paid to
    corporate employees.

    Adjusted Net Income Represents net income computed in accordance with GAAP, excluding:

    • non-cash stock based compensation, and

    • costs associated with a one-time tax reform bonus paid to
    corporate employees.

    Adjusted EPS     Represents diluted net income per share computed in accordance with
    GAAP, excluding:

    • non-cash stock based compensation, and

    • costs associated with a one-time tax reform bonus paid to
    corporate employees.

       
     

    Following is a reconciliation of payroll cost (GAAP) to non-bonus
    payroll costs (non-GAAP):

       
    Three Months Ended March 31,
    (in thousands, except per WSEE per month) 2019     2018
        $   WSEE     $   WSEE
       
    Payroll cost $ 5,718,660 $ 8,453 $ 4,908,984 $ 8,362
    Less: Bonus payroll cost     990,578     1,465       830,861     1,415  
    Non-bonus payroll cost     $ 4,728,082     $ 6,988       $ 4,078,123     $ 6,947  
    % Change period over period 15.9 % 0.6 % 15.9 % 3.3 %
     

    Following is a reconciliation of cash, cash equivalents and marketable
    securities (GAAP) to adjusted cash, cash equivalents and marketable
    securities (non-GAAP):

           
    (in thousands)     March 31, 2019     December 31, 2018
     
    Cash, cash equivalents and marketable securities $ 452,535 $ 387,554
    Less:
    Amounts payable for withheld federal and state income taxes,
    employment taxes and other payroll deductions 279,641 224,487
    Client prepayments     32,388       34,177
    Adjusted cash, cash equivalents and marketable securities     $ 140,506       $ 128,890
     

    Following is a reconciliation of operating expenses (GAAP) to adjusted
    operating expenses (non-GAAP):

       
    Three Months Ended March 31,
    (in thousands, except per WSEE per month) 2019     2018
        $   WSEE     $   WSEE
       
    Operating expenses $ 141,256 $ 209 $ 135,017 $ 230
    Less:
    One-time tax reform bonus               9,306     16  
    Adjusted operating expenses     $ 141,256     $ 209       $ 125,711     $ 214  
    % Change period over period 12.4 % (2.3 )% 18.8 % 5.9 %
     

    Following is a reconciliation of net income (GAAP) to EBITDA (non-GAAP)
    and adjusted EBITDA (non-GAAP):

       
    Three Months Ended March 31,
    (in thousands, except per WSEE per month) 2019     2018
        $   WSEE     $   WSEE
       
    Net income $ 76,289 $ 113 $ 49,991 $ 85
    Income tax expense 10,736 16 15,098 26
    Interest expense 1,681 2 1,070 2
    Depreciation and amortization     6,691     10       5,213     9  
    EBITDA 95,397 141 71,372 122
    Stock-based compensation 6,040 9 3,135 5
    One-time tax reform bonus               9,306     16  
    Adjusted EBITDA     $ 101,437     $ 150       $ 83,813     $ 143  
    % Change period over period 21.0 % 4.9 % 33.6 % 19.2 %
     

    Following reconciliation of net income (GAAP) to adjusted net income
    (non-GAAP):

       
    Three Months Ended March 31,
    (in thousands)     2019     2018
       
    Net income $ 76,289 $ 49,991
    Non-GAAP adjustments:
    Stock-based compensation 6,040 3,135
    One-time tax reform bonus           9,306  
    Total non-GAAP adjustments 6,040 12,441
    Tax effect     (745 )     (2,886 )
    Adjusted net income     $ 81,584       $ 59,546  
    % Change period over period 37.0 % 54.1 %
     

    Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS (non-GAAP):

       
    Three Months Ended March 31,
          2019     2018
       
    Diluted EPS $ 1.85 $ 1.18
    Non-GAAP adjustments:
    Stock-based compensation 0.15 0.07
    One-time tax reform bonus           0.22  
    Total non-GAAP adjustments 0.15 0.29
    Tax effect     (0.02 )     (0.06 )
    Adjusted EPS     $ 1.98       $ 1.41  
    % Change period over period 40.4 % 53.3 %
     

    The following is a reconciliation of GAAP to non-GAAP financial measures
    for second quarter and full year 2019 guidance:

             
    (in millions, except per share amounts)       Q2 2019
    Guidance
        Full Year 2019
    Guidance
     
    Net income $28 – $30 $167 – $178
    Income tax expense 11 – 12 48 – 50
    Interest expense 2 7
    Depreciation and amortization       7       28  
    EBITDA 48 – 51 250 – 263
    Stock-based compensation       7       26  
    Adjusted EBITDA       $55 – $58       $276 – $289  
     
    Diluted net income per share of common stock $0.68 – $0.73 $4.06 – $4.31
    Non-GAAP adjustments:
    Stock-based compensation       0.18       0.63  
    Total non-GAAP adjustments 0.18 0.63
    Tax effect       (0.05 )     (0.14 )
    Adjusted EPS       $0.81 – $0.86       $4.55 – $4.80  

    Contacts

    Investor Relations Contact:
    Douglas S. Sharp
    Senior
    Vice President of Finance,
    Chief Financial Officer and Treasurer
    (281)
    348-3232
    [email protected]

    News Media Contact:
    Suzanne Haugen
    Public
    Relations Manager
    (281) 312-3543
    [email protected]