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 third quarter and nine months ended Sept. 30, 2012. For the third quarter, the company reported net income of $11.5 million and diluted earnings per share of $0.45. For the nine months ended Sept. 30, 2012, the company reported net income of $31.0 million and diluted earnings per share of $1.20.

“We are pleased with our excellent third quarter and year-to-date financial results achieved while implementing a new growth strategy for Insperity,” said Paul J. Sarvadi, Insperity chairman and chief executive officer. “Now that all of the major elements of our business transformation are in place, we can focus our efforts and resources on the growth acceleration.”

Third Quarter Results

Revenues for the third quarter of 2012 increased 8.5% over the third quarter of 2011 due to a 7.5% increase in the average number of worksite employees paid per month and a 1.0% increase in revenues per worksite employee per month. Gross profit increased 13.1% over the third quarter of 2011 to $98.4 million. The average gross profit per worksite employee per month increased $13, or 5.3%, to $258 in the third quarter of 2012 from $245 in the 2011 period, primarily due to lower benefits costs.

Operating expenses increased 8.7% to $79.3 million compared to the third quarter of 2011. The 2012 quarter included higher salaries and wages due in part to higher incentive compensation accruals resulting from improved operating results. Operating expenses per worksite employee per month increased 1.0% to $208 in the 2012 quarter compared to $206 in the 2011 quarter.

Year-to-Date Results

Year-to-date revenues were $1.6 billion, an increase of 9.8% over the 2011 period. Gross profit for the nine months ended Sept. 30, 2012, increased 10.3% to $288.7 million. The average gross profit per worksite employee per month increased $5, or 2.0%, to $258 in the 2012 period from $253 in the 2011 period.

Year-to-date operating expenses increased 7.2% over the first nine months of 2011 to $237.1 million. This increase was primarily due to costs associated with the Insperity ChampionshipTM professional golf tournament, which was moved into the first nine months of the year, and higher salaries and wages, partially offset by the non-recurrence of expenses related to our 2011 rebranding initiative. On a per worksite employee per month basis, operating expenses decreased 0.9% to $212 in the 2012 period from $214 in the 2011 period.

Adjusted EBITDA plus stock-based compensation increased 23.5% to $73.2 million compared to the first nine months of 2011, excluding $7.5 million in costs associated with two non-operational items in 2011. Cash outlays included the repurchase of 514,628 shares at a cost of $13.8 million, dividends of $12.6 million and capital expenditures of $12.0 million. Working capital at Sept. 30, 2012, was $140.0 million, an increase of $13.4 million over Dec. 31, 2011.

“Effective execution of our 2012 operating plan has resulted in both year-to-date earnings and cash flow exceeding our initial expectations,” said Douglas S. Sharp, senior vice-president of finance, chief financial officer and treasurer. “These results, combined with a solid balance sheet, provide for further investment in our long-term growth and value creation for our shareholders.”

Insperity will be hosting a conference call today at 10 a.m. ET to discuss these results, give guidance for the fourth quarter and answer questions from investment analysts. To listen in, call 877-651-0053 and use conference i.d. number 38163123. The call will also be webcast at http://ir.insperity.com. The conference call script and company guidance 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. 38163123, for one week. The webcast will be archived for one year.

Insperity, a trusted advisor to America’s best businesses for more than 26 years, provides an array of human resources and business solutions designed to help improve business performance. InsperityTM 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 OptimizationTM solution. Additional company offerings include Human Capital Management, Payroll Services, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Financial Services, Expense Management, Retirement Services and Insurance Services. Insperity business performance solutions support more than 100,000 businesses with over 2 million employees. With 2011 revenues of $2 billion, Insperity operates in 56 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) continued effects of the economic recession and general 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) changes in the competitive environment in the PEO industry, including the entrance of new competitors and our ability to renew or replace client companies; (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 Adjacent Business strategy, including acquisitions; and (x) an adverse final judgment or settlement of claims against Insperity. 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)

       

Sept. 30,2012

            Dec. 31,2011 (Unaudited) Assets Cash and cash equivalents $ 202,218 $ 211,208 Restricted cash 46,069 44,737 Marketable securities 51,702 56,987 Accounts receivable 203,108 170,933 Prepaid insurance 23,739 21,300 Other current assets 8,133 11,488 Income taxes receivable — 2,902 Deferred income taxes   940     3,233   Total current assets 535,909 522,788   Property and equipment, net 92,927 92,944 Prepaid health insurance 9,000 9,000 Deposits 60,588 54,960 Goodwill and other intangible assets, net 27,131 28,433 Other assets   4,879     4,134   Total assets $ 730,434   $ 712,259     Liabilities and Stockholders’ Equity Accounts payable $ 3,088 $ 5,085 Payroll taxes and other payroll deductions payable 107,932 168,652 Accrued worksite employee payroll expense 174,264 130,317 Accrued health insurance costs 22,522 9,427 Accrued workers’ compensation costs 48,369 46,548 Accrued corporate payroll and commissions 21,819 22,383 Other accrued liabilities 13,975 13,814 Income taxes payable   3,987     —   Total current liabilities 395,956 396,226   Accrued workers’ compensation costs 63,463 60,054 Deferred income taxes   10,768     10,772   Total noncurrent liabilities 74,231 70,826   Stockholders’ equity: Common stock 309 309 Additional paid-in capital 136,688 135,871 Treasury stock, cost (138,784 ) (134,647 ) Accumulated other comprehensive income, net of tax 70 24 Retained earnings   261,964     243,650   Total stockholders’ equity   260,247     245,207   Total liabilities and stockholders’ equity $ 730,434   $ 712,259      

Insperity, Inc.Summary Financial Information (continued)(in thousands, except per share amounts and statistical data)(Unaudited)

       

Three months endedSept. 30,

           

Nine months endedSept. 30,

     

2012

     

2011

Change

2012

     

2011

Change

Operating results:

Revenues (gross billings of $3.068 billion, $2.835 billion, $9.339 billion and $8.454 billion, less worksite employee payroll cost of $2.556 billion, $2.363 billion, $7.712 billion and $6.973 billion, respectively)

$ 511,953 $ 471,821 8.5 % $ 1,626,386 $ 1,481,105 9.8 % Direct costs: Payroll taxes, benefits and workers’ compensation costs  

413,533

   

384,792

 

7.5

%

 

1,337,668

   

1,219,276

 

9.7

%

Gross profit 98,420 87,029 13.1 % 288,718 261,829 10.3 % Operating expenses: Salaries, wages and payroll taxes 44,032 39,494 11.5 % 127,402 117,558 8.4 % Stock-based compensation 2,429 2,109 15.2 % 7,385 6,455 14.4 % Commissions 3,358 3,399 (1.2 )% 10,299 9,750 5.6 % Advertising 3,680 5,235 (29.7 )% 17,001 18,280 (7.0 )% General and administrative expenses 21,122 18,912 11.7 % 61,694 57,828 6.7 % Depreciation and amortization   4,659     3,786   23.1 %   13,336     11,335   17.7 % Total operating expenses   79,280     72,935   8.7 %   237,117     221,206   7.2 % Operating income 19,140 14,094 35.8 % 51,601 40,623 27.0 % Other income (expense): Interest income, net 142 245 (42.0 )% 462 829 (44.3 )% Other, net   (3 )   (7,501 ) (100.0 )%   141     (7,497 ) (101.9 )% Income before income tax expense 19,279 6,838 181.9 % 52,204 33,955 53.7 % Income tax expense   7,827     2,739   185.8 %   21,247     14,329   48.3 % Net income $ 11,452   $ 4,099   179.4 % $ 30,957   $ 19,626   57.7 % Less net income allocated to participating securities  

(334

)

 

(120

)

178.3

%

 

(898

)

 

(582

)

54.3

%

Net income allocated to common shares $ 11,118   $ 3,979   179.4 % $ 30,059   $ 19,044   57.8 % Basic net income per share of common stock $ 0.45   $ 0.16   181.3 % $ 1.20   $ 0.75   60.0 %

Diluted net income per share of common stock

$

0.45

 

$

0.16

 

181.3

%

$

1.20

 

$

0.74

 

62.2

%

   

Insperity, Inc.Summary Financial Information (continued)(in thousands, except per share amounts and statistical data)(Unaudited)

        Three months endedSept. 30,             Nine months endedSept. 30,      

2012

     

2011

Change

2012

     

2011

Change

  Statistical data:

Average number of worksite employees paid per month

127,096

118,226

7.5

%

124,418

115,097

8.1

%

Revenues per worksite employee per month (1)

$

1,343

$

1,330

1.0

%

$

1,452

$

1,430

1.5

%

Gross profit per worksite employee per month

258

245

5.3

%

258

253

2.0

%

Operating expenses per worksite employee per month

208

206

1.0

%

212

214

(0.9

)%

Operating income per worksite employee per month

50

40

25.0

%

46

39

17.9

%

Net income per worksite employee per month

30

12

150.0

%

28

19

47.4

%

 

(1) Gross billings of $8,047, $7,992, $8,340 and $8,161 per worksite employee per month, less payroll cost of $6,704, $6,662, $6,888 and $6,731 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 endedSept. 30,             Nine months endedSept. 30,      

2012

     

2011

Change

2012

     

2011

Change

  Payroll cost (GAAP) $ 2,556,114 $ 2,362,941 8.2 % $ 7,712,302 $ 6,972,806 10.6 %

Less: Bonus payroll cost

  156,723   174,668 (10.3 )%   728,589   644,129 13.1 % Non-bonus payroll cost $ 2,399,391 $ 2,188,273 9.6 % $ 6,983,713 $ 6,328,677 10.4 %  

Payroll cost per worksite employee per month (GAAP)

$

6,704

$

6,662

0.6

%

$

6,888

$

6,731

2.3

%

Less: Bonus payroll cost per worksite employee per month

 

411

 

492

(16.5

)%

 

651

 

621

4.8

%

Non-bonus payroll cost per worksite employee per month

$

6,293

$

6,170

2.0

%

$

6,237

$

6,110

2.1

%

 

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.

        Three months endedSept. 30,             Nine months endedSept. 30,      

2012

     

2011

Change

2012

     

2011

Change

Net income (GAAP) $ 11,452 $ 4,099 179.4 % $ 30,957 $ 19,626 57.7 % Income tax expense 7,827 2,739 185.8 % 21,247 14,329 48.3 % Interest expense 89 19 368.4 % 265 19 — Depreciation and amortization   4,659   3,786 23.1 %   13,336   11,335 17.7 % EBITDA 24,027 10,643 125.8 % 65,805 45,309 45.2 % Stock-based compensation 2,429 2,109 15.2 % 7,385 6,455 14.4 % Non-operational items   —   7,496 (100.0 )%   —   7,496 (100.0 )% Adjusted EBITDA $ 26,456 $ 20,248 30.7 % $ 73,190 $ 59,260 23.5 %  

EBITDA represents net income computed in accordance with generally accepted accounting principles (“GAAP”), plus interest expense, income tax expense, depreciation and amortization expense. Insperity management believes EBITDA is often a useful measure of the company’s operating performance, as it allows for additional analysis of the company’s operating results separate from the impact of taxes and capital and financing transactions on earnings.

       

Three Months EndedSept. 30,

           

Nine Months EndedSept. 30,

     

2012

     

2011

Change

2012

     

2011

Change

  Net income (GAAP) $ 11,452 $ 4,099 179.4 % $ 30,957 $ 19,626 57.7 % Non-operational items, net of tax   —   4,493 (100.0 )%   —   4,493 (100.0 )% Adjusted net income $ 11,452 $ 8,592 33.3 % $ 30,957 $ 24,119 28.4 %          

Three Months EndedSept. 30,

           

Nine Months EndedSept. 30,

     

2012

     

2011

Change

2012

     

2011

Change

  Diluted net income per share of common stock (GAAP)

$

0.45

$

0.16

181.3

%

$

1.20

$

0.74

62.2

%

Non-operational items, net of tax

  —   0.17 (100.0 )%   —   0.17 (100.0 )%

Adjusted diluted net income per share of common stock

$

0.45

$

0.33

36.4

%

$

1.20

$

0.91

31.9

%

 

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 the two non-operational items (loss on aircraft exchange and California settlement), net of tax. Insperity management believes adjusted net income is a useful measure of the company’s operating performance in this period, as it allows for additional analysis of the company’s operating results separate from the impact of these items.

Non-bonus payroll, 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, 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. Insperity includes non-bonus payroll, EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted net income per share of common stock in this press release because the company believes they are useful to investors in allowing for greater transparency related to the costs incurred under the company’s workers’ compensation program and the company’s operating performance during the periods presented. 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.