NSP Insperity Inc

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  

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Investor Relations Contact:Douglas S. SharpSenior Vice President of Finance,Chief Financial Officer and Treasurer(281) 348-3232Investor.Relations@Insperity.com

News Media Contact:Suzanne HaugenPublic Relations Manager(281) 312-3543Media@Insperity.com