Insperity Announces Third 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 third quarter ended Sep. 30, 2019:
Q3 revenue increased 13% on worksite employee growth of 12% Q3 net income and adjusted EBITDA decreased 29% and 17% to $26 million and $51 million, respectively, on elevated benefit costs Q3 diluted EPS and adjusted EPS decreased 27% and 22% to $0.63 and $0.75, respectively YTD diluted EPS and adjusted EPS up 21% and 17%, to $3.18 and $3.57, respectively YTD repurchase of 1.5 million sharesThird Quarter Results
Revenues increased 13% over the third quarter of 2018 to $1.04 billion on a 12% increase in the average number of worksite employees (“WSEEs”) paid per month. Sequentially, the average paid number of worksite employees increased 4% over the second quarter of 2019.
“While Q3 large medical claim activity in our plan was disappointing, our expectations for long-term trends in sales, pricing and direct costs remain solid,” said Paul J. Sarvadi, Insperity chief executive officer and chairman. “Our fall campaign is off to an excellent start with a 13% increase in trained BPAs and a 23% increase in business profiles supporting our expectation of continuing double-digit growth in 2020.”
Gross profit increased 3% over the third quarter of 2018 to $170.5 million and included higher than expected benefits costs. Higher healthcare costs were driven primarily by large claim activity, which declined from the second quarter of 2019, but remained elevated from historical and expected levels. Other areas of gross profit, including pricing, workers’ compensation costs and payroll taxes combined to a slightly favorable outcome. Operating expenses increased 15% over the third quarter of 2018, slightly below forecasted levels, and included continued investments in our growth, technology and product and service offerings.
As a result of the elevated benefit costs, third quarter 2019 net income and diluted earnings per share (“EPS”) of $25.9 million and $0.63 represented decreases of 29% and 27%, respectively, compared to the third quarter of 2018. Adjusted EPS was $0.75, a 22% decrease over the third quarter of 2018. Adjusted EBITDA decreased 17% over the third quarter of 2018 to $51.2 million.
Year-to-Date Results
For the nine months ended Sep. 30, 2019, net income increased 18% over the first nine months of 2018 to $130.7 million, and diluted EPS increased 21% to $3.18. Adjusted EPS increased 17% over the first nine months of 2018 to $3.57. Adjusted EBITDA increased 9% over the first nine months of 2018 to $209.3 million.
Revenues for the first nine months of 2019 increased 13% to $3.2 billion, on a 14% increase in the average number of WSEEs paid per month over the 2018 period. Gross profit for the first nine months of 2019 increased 10% to $571.0 million. Operating expenses increased 10% to $412.1 million over the 2018 period and adjusted operating expenses increased 13% over the 2018 period.
Net income per WSEE per month increased 3% from $60 in the 2018 period to $62 in the 2019 period. Adjusted EBITDA per WSEE per month decreased 4% from $104 in the 2018 period to $100 in the 2019 period.
Cash outlays in the first nine months of 2019 included the repurchase of approximately 1,481,000 shares of stock at a cost of $153.7 million, dividends totaling $36.8 million and capital expenditures of $41.4 million. Adjusted cash, cash equivalents and marketable securities at Sep. 30, 2019 were $130.9 million.
“Our long-term outlook for growth and profitability remains strong,” said Douglas S. Sharp, Insperity senior vice president of finance, chief financial officer and treasurer. “With high levels of cash flow generation and a strong balance sheet, we continue to be positioned to invest in our growth, while providing exceptional returns to shareholders through our share repurchase and dividend programs.”
2019 Guidance
The company also announced its updated guidance for 2019, including the fourth 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.
Q4 2019
Full Year 2019
Average WSEEs paid
244,000
—
246,200
235,700
—
236,300
Year-over-year increase
10%
—
11%
12.7%
—
13.0%
Adjusted EPS
$0.50
—
$0.61
$4.08
—
$4.20
Year-over-year increase (decrease)
(28)%
—
(12)%
9%
—
12%
Adjusted EBITDA (in millions)
$38
—
$44
$247
—
$253
Year-over-year increase (decrease)
(20)%
—
(8)%
3%
—
6%
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 9 a.m. ET to discuss these results, provide guidance for the fourth 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 9756178. 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. 9756178. 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 78 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)
September 30, 2019
December 31, 2018
Assets
Cash and cash equivalents
$
243,439
$
326,773
Restricted cash
45,251
42,227
Marketable securities
60,880
60,781
Accounts receivable, net
483,890
400,623
Prepaid insurance
22,161
8,411
Other current assets
26,438
27,721
Income taxes receivable
11,684
—
Total current assets
893,743
866,536
Property and equipment, net
134,956
117,213
Right of use leased assets
58,185
—
Prepaid health insurance
9,000
9,000
Deposits
176,632
172,674
Goodwill and other intangible assets, net
12,717
12,726
Deferred income taxes, net
157
8,816
Other assets
6,732
4,851
Total assets
$
1,292,122
$
1,191,816
Liabilities and stockholders’ equity
Accounts payable
$
5,373
$
10,622
Payroll taxes and other payroll deductions payable
180,617
261,166
Accrued worksite employee payroll cost
411,457
329,979
Accrued health insurance costs
33,239
35,153
Accrued workers’ compensation costs
48,927
45,818
Accrued corporate payroll and commissions
39,414
60,704
Other accrued liabilities
42,185
28,890
Total current liabilities
761,212
772,332
Accrued workers’ compensation cost, net of current
190,390
187,412
Long-term debt
239,400
144,400
Operating lease liabilities, net of current
60,132
—
Other accrued liabilities, net of current
—
9,996
Total noncurrent liabilities
489,922
341,808
Stockholders’ equity:
Common stock
555
555
Additional paid-in capital
46,401
36,752
Treasury stock, at cost
(496,917
)
(357,569
)
Retained earnings
490,949
397,938
Total stockholders’ equity
40,988
77,676
Total liabilities and stockholders’ equity
$
1,292,122
$
1,191,816
Insperity, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands, except per share amounts)
2019
2018
Change
2019
2018
Change
Operating results:
Revenues(1)
$
1,043,388
$
925,126
12.8
%
$
3,239,714
$
2,861,793
13.2
%
Payroll taxes, benefits and workers’ compensation costs
872,842
759,072
15.0
%
2,668,716
2,341,475
14.0
%
Gross profit
170,546
166,054
2.7
%
570,998
520,318
9.7
%
Salaries, wages and payroll taxes
79,264
70,552
12.3
%
237,340
226,486
4.8
%
Stock-based compensation
6,517
5,769
13.0
%
20,813
14,656
42.0
%
Commissions
8,034
6,818
17.8
%
22,727
19,863
14.4
%
Advertising
4,895
3,846
27.3
%
17,474
13,996
24.8
%
General and administrative expenses
29,773
25,294
17.7
%
92,801
82,565
12.4
%
Depreciation and amortization
7,330
5,642
29.9
%
20,929
16,335
28.1
%
Total operating expenses
135,813
117,921
15.2
%
412,084
373,901
10.2
%
Operating income
34,733
48,133
(27.8
)%
158,914
146,417
8.5
%
Other income (expense):
Interest income
2,574
2,028
26.9
%
8,621
5,291
62.9
%
Interest expense
(2,122
)
(1,174
)
80.7
%
(5,442
)
(3,352
)
62.4
%
Income before income tax expense
35,185
48,987
(28.2
)%
162,093
148,356
9.3
%
Income tax expense
9,326
12,780
(27.0
)%
31,389
37,598
(16.5
)%
Net income
$
25,859
$
36,207
(28.6
)%
$
130,704
$
110,758
18.0
%
Less distributed and undistributed earnings allocated to participating securities
(284
)
(503
)
(43.5
)%
(1,546
)
(1,546
)
—
Net income allocated to common shares
$
25,575
$
35,704
(28.4
)%
$
129,158
$
109,212
18.3
%
Net income per share of common stock
Basic
$
0.64
$
0.86
(25.6
)%
$
3.19
$
2.64
20.8
%
Diluted
$
0.63
$
0.86
(26.7
)%
$
3.18
$
2.63
20.9
%
____________________________________(1)
Revenues are comprised of gross billings less WSEE payroll costs as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)
2019
2018
2019
2018
Gross billings
$
6,555,865
$
5,810,779
$
19,804,549
$
17,284,477
Less: WSEE payroll cost
5,512,477
4,885,653
16,564,835
14,422,684
Revenues
$
1,043,388
$
925,126
$
3,239,714
$
2,861,793
Insperity, Inc.
KEY FINANCIAL AND STATISTICAL DATA
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
Change
2019
2018
Change
Average WSEEs paid
240,939
215,051
12.0
%
232,825
204,895
13.6
%
Statistical data (per WSEE per month):
Revenues(1)
$
1,444
$
1,434
0.7
%
$
1,546
$
1,552
(0.4
)%
Gross profit
236
257
(8.2
)%
272
282
(3.5
)%
Operating expenses
188
183
2.7
%
197
203
(3.0
)%
Operating income
48
75
(36.0
)%
76
79
(3.8
)%
Net income
36
56
(35.7
)%
62
60
3.3
%
____________________________________(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
September 30,
Nine Months Ended
September 30,
(per WSEE per month)
2019
2018
2019
2018
Gross billings
$
9,070
$
9,007
$
9,451
$
9,373
Less: WSEE payroll cost
7,626
7,573
7,905
7,821
Revenues
$
1,444
$
1,434
$
1,546
$
1,552
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 MeasureNon-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.
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 September 30,
Nine Months Ended September 30,
(in thousands, except per WSEE per month)
2019
2018
2019
2018
$
WSEE
$
WSEE
$
WSEE
$
WSEE
Payroll cost
$
5,512,477
$
7,626
$
4,885,653
$
7,573
$
16,564,835
$
7,905
$
14,422,684
$
7,821
Less: Bonus payroll cost
408,931
566
434,942
674
1,851,338
884
1,638,028
888
Non-bonus payroll cost
$
5,103,546
$
7,060
$
4,450,711
$
6,899
$
14,713,497
$
7,021
$
12,784,656
$
6,933
% Change period over period
14.7
%
2.3
%
17.4
%
1.9
%
15.1
%
1.3
%
16.8
%
2.8
%
Following is a reconciliation of cash, cash equivalents and marketable securities (GAAP) to adjusted cash, cash equivalents and marketable securities (non-GAAP):
(in thousands)
September 30, 2019
December 31, 2018
Cash, cash equivalents and marketable securities
$
304,319
$
387,554
Less:
Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions
153,761
224,487
Client prepayments
19,699
34,177
Adjusted cash, cash equivalents and marketable securities
$
130,859
$
128,890
Following is a reconciliation of operating expenses (GAAP) to adjusted operating expenses (non-GAAP):
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except per WSEE per month)
2019
2018
2019
2018
$
WSEE
$
WSEE
$
WSEE
$
WSEE
Operating expenses
$
135,813
$
188
$
117,921
$
183
$
412,084
$
197
$
373,901
$
203
Less:
One-time tax reform bonus
—
—
—
—
—
—
9,306
5
Adjusted operating expenses
$
135,813
$
188
$
117,921
$
183
$
412,084
$
197
$
364,595
$
198
% Change period over period
15.2
%
2.7
%
8.2
%
(6.2
)%
13.0
%
(0.5
)%
13.1
%
—
Following is a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP):
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except per WSEE per month)
2019
2018
2019
2018
$
WSEE
$
WSEE
$
WSEE
$
WSEE
Net income
$
25,859
$
36
$
36,207
$
56
$
130,704
$
62
$
110,758
$
60
Income tax expense
9,326
13
12,780
20
31,389
15
37,598
20
Interest expense
2,122
3
1,174
2
5,442
3
3,352
2
Depreciation and amortization
7,330
10
5,642
8
20,929
10
16,335
9
EBITDA
44,637
62
55,803
86
188,464
90
168,043
91
Stock-based compensation
6,517
9
5,769
9
20,813
10
14,656
8
One-time tax reform bonus
—
—
—
—
—
—
9,306
5
Adjusted EBITDA
$
51,154
$
71
$
61,572
$
95
$
209,277
$
100
$
192,005
$
104
% Change period over period
(16.9
)%
(25.3
)%
42.8
%
23.4
%
9.0
%
(3.8
)%
38.0
%
20.9
%
Following reconciliation of net income (GAAP) to adjusted net income (non-GAAP):
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)
2019
2018
2019
2018
Net income
$
25,859
$
36,207
$
130,704
$
110,758
Non-GAAP adjustments:
Stock-based compensation
6,517
5,769
20,813
14,656
One-time tax reform bonus
—
—
—
9,306
Total non-GAAP adjustments
6,517
5,769
20,813
23,962
Tax effect
(1,728
)
(1,505
)
(4,818
)
(6,022
)
Adjusted net income
$
30,648
$
40,471
$
146,699
$
128,698
% Change period over period
(24.3
)%
68.1
%
14.0
%
60.9
%
Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS (non-GAAP):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Diluted EPS
$
0.63
$
0.86
$
3.18
$
2.63
Non-GAAP adjustments:
Stock-based compensation
0.16
0.14
0.51
0.35
One-time tax reform bonus
—
—
—
0.22
Total non-GAAP adjustments
0.16
0.14
0.51
0.57
Tax effect
(0.04
)
(0.04
)
(0.12
)
(0.14
)
Adjusted EPS
$
0.75
$
0.96
$
3.57
$
3.06
% Change period over period
(21.9
)%
68.4
%
16.7
%
61.1
%
The following is a reconciliation of GAAP to non-GAAP financial measures for fourth quarter and full year 2019 guidance:
(in millions, except per share amounts)
Q4 2019
Guidance
Full Year 2019
Guidance
Net income
$15 - $19
$145 - $149
Income tax expense
6 - 8
37 - 39
Interest expense
3
9
Depreciation and amortization
7
28
EBITDA
31 - 37
219 - 225
Stock-based compensation
7
28
Adjusted EBITDA
$38 - $44
$247 - $253
Diluted net income per share of common stock
$0.37 - $0.48
$3.54 - $3.66
Non-GAAP adjustments:
Stock-based compensation
0.18
0.68
Total non-GAAP adjustments
0.18
0.68
Tax effect
(0.05
)
(0.14
)
Adjusted EPS
$0.50 - $0.61
$4.08 - $4.20
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