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:
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."
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.
Full Year 2020
Average WSEEs paid
Year-over-year increase (decrease)
Adjusted EBITDA (in millions)
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.
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.
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:
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.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2020
December 31, 2019
Cash and cash equivalents
Accounts receivable, net
Other current assets
Income taxes receivable
Total current assets
Property and equipment, net
Right of use leased assets
Prepaid health insurance
Goodwill and other intangible assets, net
Deferred income taxes, net
Liabilities and stockholders' equity
Payroll taxes and other payroll deductions payable
Accrued worksite employee payroll cost
Accrued health insurance costs
Accrued workers' compensation costs
Accrued corporate payroll and commissions
Other accrued liabilities
Income taxes payable
Total current liabilities
Accrued workers' compensation cost, net of current
Operating lease liabilities, net of current
Total noncurrent liabilities
Additional paid-in capital
Treasury stock, at cost
Total stockholders' equity (deficit)
Total liabilities and stockholders' equity (deficit)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
(in thousands, except per share amounts)
Payroll taxes, benefits and workers' compensation costs
Salaries, wages and payroll taxes
General and administrative expenses
Depreciation and amortization
Total operating expenses
Other income (expense):
Income before income tax expense
Income tax expense
Less distributed and undistributed earnings allocated to participating securities
Net income allocated to common shares
Net income per share of common stock
Revenues are comprised of gross billings less WSEE payroll costs as follows:
Less: WSEE payroll cost
KEY FINANCIAL AND STATISTICAL DATA
Statistical data (per WSEE per month):
Revenues per WSEE per month are comprised of gross billings per WSEE per month less WSEE payroll costs per WSEE per month follows:
(per WSEE per month)
Non-GAAP Financial Measures
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.
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.
Represents net income computed in accordance with GAAP, plus:
• interest expense,
• income tax expense, and
• depreciation and amortization expense.
Represents EBITDA plus:
• non-cash stock-based compensation.
Adjusted Net Income
Represents net income computed in accordance with GAAP, excluding:
Represents diluted net income per share computed in accordance with GAAP, excluding:
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)
Less: Bonus payroll cost
% Change period over period
Following is a reconciliation of cash, cash equivalents and marketable securities (GAAP) to adjusted cash, cash equivalents and marketable securities (non-GAAP):
Cash, cash equivalents and marketable securities
Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions
Following is a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP):
Following is a reconciliation of net income (GAAP) to adjusted net income (non-GAAP):
Total non-GAAP adjustments
Adjusted net income
Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS (non-GAAP):
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)
Full Year 2020
$32 - $42
$102 - $127
13 - 17
39 - 49
55 - 69
183 - 218
$65 - $79
$215 - $250
Diluted net income per share of common stock
$0.83 - $1.10
$2.60 - $3.27
$1.02 - $1.29
$3.19 - $3.86
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