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Insperity Announces First Quarter Results
[May 04, 2020]

Insperity Announces First Quarter Results


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, 2020:

  • Q1 revenue increased 7% on worksite employee growth of 5.5%
  • Q1 diluted EPS and adjusted EPS of $1.58 and $1.70, respectively
  • Q1 net income and adjusted EBITDA of $62 million and $101 million, respectively

First Quarter Results

Revenues increased 7% over the first quarter of 2019 to $1.23 billion on a 5.5% increase in the average number of worksite employees ("WSEEs") paid per month. This quarter's growth reflected a higher than expected level of WSEEs paid from new sales coming off of the successful extension of our fall sales campaign, offset by lower growth in our client base.

"We are pleased with our solid first quarter results, but more importantly, our company-wide response to the COVID-19 pandemic in support of our small to medium size business clients. Small businesses, their employees and families have been deeply affected in every stage of this ongoing health and economic crisis. The Insperity mission of helping small businesses has never been more critical. We have and will continue to stand shoulder-to-shoulder helping businesses navigate these challenges and lead the recovery in the months ahead," said Paul J. Sarvadi, Insperity chief executive officer and chairman. "Our outlook for the challenging year of 2020 reflects the relative strength and resiliency of our client base and our unique position in the marketplace. We will help our clients meet their objectives including taking care of their people and emerging from this crisis stronger than ever."

Gross profit increased by 3.2% over the first quarter of 2019 to $234.0 million. The year over year comparison was impacted by a favorable benefit cost trend in Q1 of the prior year. However, we effectively managed overall gross profit for Q1 of this year above budgeted levels, as both benefits and workers' compensation programs were favorable. Large healthcare claim activity continued to decline from the peak level we experienced during the second quarter of 2019 and the underlying claim cost trend was below our expectations. Operating expenses increased 5% over the first quarter of 2019, slightly below budgeted levels, as continued investments in our growth, including a 13% increase in the average number of trained Business Performance Advisors were partially offset by savings in other areas.

For the first quarter 2020, net income and diluted earnings per share ("EPS") of $62 million and $1.58 represented decreases of 19% and 15%, respectively, compared to the first quarter of 2019. Adjusted EPS was $1.70, a 14% decrease from the first quarter of 2019, and included an increase in the effective tax rate from 12% in the first quarter of 2019 to 27% in the first quarter of 2020. Adjusted EBITDA remained consistent with the first quarter of 2019 at $101.3 million.

During the quarter, we repurchased a total of 878,000 shares at a cost of $61 million. We also paid $16 million in cash dividends under our regular dividend program and invested $16 million in capital expenditures.

"We expect our resilient business model to continue to generate strong cash flow in spite of the current economic environment associated with the COVID-19 pandemic," said Douglas S. Sharp, Insperity senior vice president of finance, chief financial officer and treasurer. "We ended the quarter in a strong financial position with $167 million of adjusted cash and $130 million available under our $500 million credit facility."

2020 Guidance

The company also announced its updated guidance for 2020, including the second quarter of 2020. 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 2020

 

Full Year 2020

 

 

 

 

 

 

 

 

Average WSEEs paid

220,400

-

229,700

 

221,400

-

233,200

Year-over-year increase (decrease)

(5)%

-

(1)%

 

(6)%

-

(1)%

 

 

 

 

 

 

 

 

Adjusted EPS

$1.02

-

$1.29

 

$3.19

-

$3.86

Year-over-year increase (decrease)

23%

-

55%

 

(23)%

-

(7)%

 

 

 

 

 

 

 

 

Adjusted EBITDA (in millions)

$65

-

$79

 

$215

-

$250

Year-over-year increase (decrease)

15%

-

39%

 

(14)%

-

-


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.

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

Insperity will be hosting a conference call today at 5 p.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 3074809. 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. 3074809. The webcast will be archived for one year.

About Insperity

Insperity, a trusted advisor to America's best businesses for more than 34 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 2019 revenues of $4.3 billion, Insperity operates in 83 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;
  • impact of the COVID-19 pandemic, or other future pandemics, including the scope, severity and duration of the pandemic; government responses; regulatory developments; and the related disruptions and economic impact to our business and the small and medium-sized businesses that we serve;
  • 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.

Any forward-looking statements are made only as of the date hereof and, unless otherwise required by applicable securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Insperity, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(in thousands)

March 31, 2020

 

December 31, 2019

 

 

 

 

Assets

 

 

 

Cash and cash equivalents

$

404,728

 

 

$

367,342

 

Restricted cash

48,349

 

 

49,295

 

Marketable securities

19,508

 

 

34,728

 

Accounts receivable, net

520,745

 

 

465,779

 

Prepaid insurance

45,525

 

 

10,418

 

Other current assets

40,425

 

 

43,493

 

Income taxes receivable

-

 

 

3,691

 

Total current assets

1,079,280

 

 

974,746

 

Property and equipment, net

160,297

 

 

147,706

 

Right of use leased assets

58,461

 

 

56,886

 

Prepaid health insurance

9,000

 

 

9,000

 

Deposits

196,649

 

 

184,013

 

Goodwill and other intangible assets, net

12,711

 

 

12,714

 

Deferred income taxes, net

-

 

 

3,956

 

Other assets

6,010

 

 

5,975

 

Total assets

$

1,522,408

 

 

$

1,394,996

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

Accounts payable

$

6,240

 

 

$

4,565

 

Payroll taxes and other payroll deductions payable

268,245

 

 

277,248

 

Accrued worksite employee payroll cost

436,764

 

 

401,859

 

Accrued health insurance costs

46,841

 

 

21,180

 

Accrued workers' compensation costs

52,311

 

 

52,868

 

Accrued corporate payroll and commissions

21,610

 

 

52,612

 

Other accrued liabilities

51,729

 

 

58,713

 

Income taxes payable

4,718

 

 

-

 

Total current liabilities

888,458

 

 

869,045

 

Accrued workers' compensation cost, net of current

197,633

 

 

193,609

 

Long-term debt

369,400

 

 

269,400

 

Operating lease liabilities, net of current

61,623

 

 

58,863

 

Deferred income taxes, net

8,604

 

 

-

 

Total noncurrent liabilities

637,260

 

 

521,872

 

Stockholders' equity:

 

 

 

Common stock

555

 

 

555

 

Additional paid-in capital

46,327

 

 

48,141

 

Treasury stock, at cost

(595,487

)

 

(544,102

)

Retained earnings

545,295

 

 

499,485

 

Total stockholders' equity (deficit)

(3,310

)

 

4,079

 

Total liabilities and stockholders' equity (deficit)

$

1,522,408

 

 

$

1,394,996

 

Insperity, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended
March 31,

(in thousands, except per share amounts)

2020

2019

Change

Operating results:

 

 

 

Revenues(1)

$

1,229,483

 

$

1,153,010

 

6.6

%

Payroll taxes, benefits and workers' compensation costs

995,461

 

926,293

 

7.5

%

Gross profit

234,022

 

226,717

 

3.2

%

Salaries, wages and payroll taxes

86,501

 

83,380

 

3.7

%

Stock-based compensation

6,552

 

6,040

 

8.5

%

Commissions

8,460

 

6,952

 

21.7

%

Advertising

4,833

 

5,031

 

(3.9

)%

General and administrative expenses

34,853

 

33,162

 

5.1

%

Depreciation and amortization

7,602

 

6,691

 

13.6

%

Total operating expenses

148,801

 

141,256

 

5.3

%

Operating income

85,221

 

85,461

 

(0.3

)%

Other income (expense):

 

 

 

Interest income

1,879

 

3,245

 

(42.1

)%

Interest expense

(2,362

)

(1,681

)

40.5

%

Income before income tax expense

84,738

 

87,025

 

(2.6

)%

Income tax expense

22,646

 

10,736

 

110.9

%

Net income

$

62,092

 

$

76,289

 

(18.6

)%

Less distributed and undistributed earnings allocated to participating securities

(462

)

(1,031

)

(55.2

)%

Net income allocated to common shares

$

61,630

 

$

75,258

 

(18.1

)%

 

 

 

 

Net income per share of common stock

 

 

 

Basic

$

1.59

 

$

1.86

 

(14.5

)%

Diluted

$

1.58

 

$

1.85

 

(14.6

)%

____________________________________

(1)

Revenues are comprised of gross billings less WSEE payroll costs as follows:

 

Three Months Ended
March 31,

(in thousands)

2020

2019

 

 

 

Gross billings

$

7,436,754

 

$

6,871,670

 

Less: WSEE payroll cost

6,207,271

 

5,718,660

 

Revenues

$

1,229,483

 

$

1,153,010

 

Insperity, Inc.

KEY FINANCIAL AND STATISTICAL DATA

(Unaudited)

 

 

Three Months Ended
March 31,

 

2020

2019

Change

 

 

 

 

Average WSEEs paid

238,014

 

225,525

 

5.5

%

Statistical data (per WSEE per month):

 

 

 

Revenues(1)

$

1,722

 

$

1,704

 

1.1

%

Gross profit

328

 

335

 

(2.1

)%

Operating expenses

208

 

209

 

(0.5

)%

Operating income

119

 

126

 

(5.6

)%

Net income

87

 

113

 

(23.0

)%

____________________________________

(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)

2020

2019

Gross billings

$

10,415

 

$

10,157

 

Less: WSEE payroll cost

8,693

 

8,453

 

Revenues

$

1,722

 

$

1,704

 

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 periods, 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 EBITDA is used by our lenders to assess our leverage and ability to make interest payments.

 

 

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.

 

 

Adjusted Net Income

Represents net income computed in accordance with GAAP, excluding:

• non-cash stock-based compensation.

 

 

Adjusted EPS

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

• non-cash stock-based compensation.

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)

2020

 

2019

$

WSEE

 

$

WSEE

 

 

 

 

 

 

Payroll cost

$

6,207,271

 

$

8,693

 

 

$

5,718,660

 

$

8,453

 

Less: Bonus payroll cost

1,050,968

 

1,472

 

 

990,578

 

1,465

 

Non-bonus payroll cost

$

5,156,303

 

$

7,221

 

 

$

4,728,082

 

$

6,988

 

% Change period over period

9.1

%

3.3

%

 

15.9

%

0.6

%

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, 2020

 

December 31, 2019

 

 

 

 

Cash, cash equivalents and marketable securities

$

424,236

 

 

$

402,070

 

Less:

 

 

 

Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions

235,203

 

 

234,553

 

Client prepayments

22,143

 

 

59,612

 

Adjusted cash, cash equivalents and marketable securities

$

166,890

 

 

$

107,905

 

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)

2020

 

2019

$

WSEE

 

$

WSEE

 

 

 

 

 

 

Net income

$

62,092

 

$

87

 

 

$

76,289

 

$

113

 

Income tax expense

22,646

 

32

 

 

10,736

 

16

 

Interest expense

2,362

 

3

 

 

1,681

 

2

 

Depreciation and amortization

7,602

 

11

 

 

6,691

 

10

 

EBITDA

94,702

 

133

 

 

95,397

 

141

 

Stock-based compensation

6,552

 

9

 

 

6,040

 

9

 

Adjusted EBITDA

$

101,254

 

$

142

 

 

$

101,437

 

$

150

 

% Change period over period

(0.2

)%

(5.3

)%

 

21.0

%

4.9

%

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

 

Three Months Ended March 31,

(in thousands)

2020

2019

 

 

 

Net income

$

62,092

 

$

76,289

 

Non-GAAP adjustments:

 

 

Stock-based compensation

6,552

 

6,040

 

Total non-GAAP adjustments

6,552

 

6,040

 

Tax effect

(1,751

)

(745

)

Adjusted net income

$

66,893

 

$

81,584

 

% Change period over period

(18.0

)%

37.0

%

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

 

Three Months Ended March 31,

 

2020

2019

 

 

 

Diluted EPS

$

1.58

 

$

1.85

 

Non-GAAP adjustments:

 

 

Stock-based compensation

0.17

 

0.15

 

Total non-GAAP adjustments

0.17

 

0.15

 

Tax effect

(0.05

)

(0.02

)

Adjusted EPS

$

1.70

 

$

1.98

 

% Change period over period

(14.1

)%

40.4

%

Following is a reconciliation of GAAP to non-GAAP financial measures for second quarter and full year 2020 guidance:

(in millions, except per share amounts)

 

Q2 2020
Guidance

 

Full Year 2020
Guidance

 

 

 

 

 

Net income

 

$32 - $42

 

$102 - $127

Income tax expense

 

13 - 17

 

39 - 49

Interest expense

 

2

 

 

9

 

Depreciation and amortization

 

8

 

 

33

 

EBITDA

 

55 - 69

 

183 - 218

Stock-based compensation

 

10

 

 

32

 

Adjusted EBITDA

 

$65 - $79

 

$215 - $250

 

 

 

 

 

Diluted net income per share of common stock

 

$0.83 - $1.10

 

$2.60 - $3.27

Non-GAAP adjustments:

 

 

 

 

Stock-based compensation

 

0.26

 

 

0.82

 

Total non-GAAP adjustments

 

0.26

 

 

0.82

 

Tax effect

 

(0.07

)

 

(0.23

)

Adjusted EPS

 

$1.02 - $1.29

 

$3.19 - $3.86

 


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