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| 8-K - 8-K - INSPERITY, INC. | a03312018-8xkearningsrelea.htm |
Exhibit 99.1
Insperity Announces Record First Quarter Results
HOUSTON – Apr. 30, 2018 – 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, 2018:
• | Revenues up 15% on worksite employee growth of 12% |
• | Gross profit up 25% on strong pricing and direct cost trends |
• | Net income up 40% to $50.0 million |
• | Adjusted EBITDA up 34% to $83.8 million |
• | EPS up 39% to $1.18; adjusted EPS up 53% to $1.41 |
First Quarter Results
First quarter 2018 net income and diluted earnings per share of $50.0 million and $1.18 represented increases of 40% and 39%, respectively, compared to the first quarter of 2017. Adjusted diluted earnings per share were $1.41, a 53% increase over the first quarter of 2017. Adjusted EBITDA increased 34% over the first quarter of 2017 to $83.8 million.
“We are pleased to report these outstanding record results reflecting our dynamic business model and strong execution all across the company,” said Paul J. Sarvadi, Insperity chairman and chief executive officer. “Our key drivers to growth and profitability are in place setting up a fourth consecutive year of impressive earnings growth for 2018.”
Revenues increased 15% over the first quarter of 2017 to $1.0 billion on a 12% increase in the average number of worksite employees paid per month. The continued double-digit worksite employee growth was the result of strong new client sales driven by an increase in the number of trained Business Performance Advisors, a continuing high level of client retention, and an improvement in the net hiring of worksite employees by our client base. Worksite employees paid from new sales increased 23% over the first quarter of 2017 on a 15% increase in the average number of trained Business Performance Advisors. Client attrition totaled only 8% during the heavy first quarter client renewal period, an improvement over the first quarter of 2017.
Gross profit for the first quarter of 2018 increased 25% over the first quarter of 2017 to $199.7 million. This increase was driven by the 12% worksite employee growth, lower cost trends in our benefits and workers’ compensation programs and solid pricing. Operating expenses increased 28% over the first quarter of 2017 to $135.0 million, including one-time bonuses related to tax reform and additional accruals for incentive compensation tied to our outperformance during the quarter.
Net income and adjusted EBITDA per worksite employee per month increased 25% and 19%, respectively, over the first quarter of 2017 to $85 and $143, respectively.
The first quarter 2018 effective income tax rate of 23% was impacted by the enactment of tax reform in late 2017 and the benefit associated with the vesting of long-term incentive plan shares during the quarter.
“Our double-digit worksite employee growth, combined with the effective management of pricing and direct cost programs, continued to produce adjusted EBITDA at record levels,” said Douglas S. Sharp, senior vice president of finance, chief financial officer and treasurer. “This strong cash flow positions us to continue to invest in the growth of our business while also providing excellent shareholder returns.”
2018 Guidance
The company also announced its updated guidance for 2018, including the second quarter of 2018. 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 2018 | Full Year 2018 | ||||||
Average WSEEs | 202,000 | — | 203,700 | 206,400 | — | 208,400 | |
Year-over-year increase | 12% | — | 13% | 13% | — | 14% | |
Adjusted EPS | $0.59 | — | $0.63 | $3.36 | — | $3.44 | |
Year-over-year increase | 44% | — | 54% | 37% | — | 40% | |
Adjusted EBITDA (in millions) | $41 | — | $43 | $218 | — | $223 | |
Year-over-year increase | 23% | — | 29% | 23% | — | 25% | |
Definition of Key Metrics
Average WSEEs - 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 6688618. 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. 6688618. The webcast will be archived for one year.
Insperity, a trusted advisor to America’s best businesses for more than 32 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 Human Capital Management, Payroll Services, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Expense Management Services, Retirement Services and
Insurance Services. Insperity business performance solutions support more than 100,000 businesses with over 2 million employees. With 2017 revenues of $3.3 billion, Insperity operates in 68 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) adverse 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 insurance at expiration of current contracts; (iv) cancellation of client contracts on short notice, or the inability to renew client contracts or attract new clients; (v) vulnerability to regional economic factors because of our geographic market concentration; (vi) 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; (vii) failure to manage growth of our operations and the effectiveness of our sales and marketing efforts; (viii) 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; (ix) our liability for worksite employee payroll, payroll taxes and benefits costs; (x) our liability for disclosure of sensitive or private information; (xi) our ability to integrate or realize expected returns on our acquisitions; (xii) failure of our information technology systems; (xiii) an adverse final judgment or settlement of claims against Insperity; and (xiv) 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.
Summary Financial Information
(in thousands, except per share amounts and statistical data)
March 31, 2018 | December 31, 2017 | |||||||
(Unaudited) | ||||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 354,641 | $ | 354,260 | ||||
Restricted cash | 41,137 | 41,137 | ||||||
Marketable securities | 1,928 | 1,960 | ||||||
Accounts receivable, net | 336,548 | 333,981 | ||||||
Prepaid insurance | 35,679 | 10,782 | ||||||
Other current assets | 28,385 | 26,991 | ||||||
Income taxes receivable | 2,695 | 9,824 | ||||||
Total current assets | 801,013 | 778,935 | ||||||
Property and equipment, net | 97,060 | 95,659 | ||||||
Prepaid health insurance | 9,000 | 9,000 | ||||||
Deposits | 166,140 | 159,515 | ||||||
Goodwill and other intangible assets, net | 12,741 | 12,762 | ||||||
Deferred income taxes, net | — | 4,283 | ||||||
Other assets | 5,513 | 3,541 | ||||||
Total assets | $ | 1,091,467 | $ | 1,063,695 | ||||
Liabilities and stockholders’ equity: | ||||||||
Accounts payable | $ | 5,517 | $ | 6,447 | ||||
Payroll taxes and other payroll deductions payable | 276,573 | 303,247 | ||||||
Accrued worksite employee payroll cost | 281,474 | 267,402 | ||||||
Accrued health insurance costs | 46,795 | 26,075 | ||||||
Accrued workers’ compensation costs | 43,788 | 42,974 | ||||||
Accrued corporate payroll and commissions | 27,785 | 52,595 | ||||||
Other accrued liabilities | 27,697 | 27,741 | ||||||
Total current liabilities | 709,629 | 726,481 | ||||||
Accrued workers’ compensation cost | 171,773 | 166,493 | ||||||
Long-term debt | 104,400 | 104,400 | ||||||
Deferred income taxes, net | 2,833 | — | ||||||
Total noncurrent liabilities | 279,006 | 270,893 | ||||||
Stockholders’ equity: | ||||||||
Common stock | 555 | 555 | ||||||
Additional paid-in capital | 22,648 | 25,337 | ||||||
Treasury stock, at cost | (257,898 | ) | (256,363 | ) | ||||
Retained earnings | 337,527 | 296,792 | ||||||
Total stockholders’ equity | 102,832 | 66,321 | ||||||
Total liabilities and stockholders’ equity | $ | 1,091,467 | $ | 1,063,695 | ||||
Insperity, Inc.
Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
(Unaudited)
Three Months Ended March 31, | ||||||||||
2018 | 2017 | Change | ||||||||
Operating results: | ||||||||||
Revenues (gross billings of $5.923 billion and $5.016 billion, less worksite employee payroll cost of $4.909 billion and $4.133 billion, respectively) | $ | 1,014,372 | $ | 882,664 | 14.9 | % | ||||
Direct costs: | ||||||||||
Payroll taxes, benefits and workers’ compensation costs | 814,652 | 723,318 | 12.6 | % | ||||||
Gross profit | 199,720 | 159,346 | 25.3 | % | ||||||
Operating expenses: | ||||||||||
Salaries, wages and payroll taxes | 87,186 | 62,457 | 39.6 | % | ||||||
Stock-based compensation | 3,135 | 4,503 | (30.4 | )% | ||||||
Commissions | 6,066 | 4,476 | 35.5 | % | ||||||
Advertising | 3,565 | 3,972 | (10.2 | )% | ||||||
General and administrative expenses | 29,852 | 26,192 | 14.0 | % | ||||||
Depreciation and amortization | 5,213 | 4,254 | 22.5 | % | ||||||
Total operating expenses | 135,017 | 105,854 | 27.6 | % | ||||||
Operating income | 64,703 | 53,492 | 21.0 | % | ||||||
Other income (expense): | ||||||||||
Interest income | 1,456 | 465 | 213.1 | % | ||||||
Interest expense | (1,070 | ) | (623 | ) | 71.7 | % | ||||
Income before income tax expense | 65,089 | 53,334 | 22.0 | % | ||||||
Income tax expense | 15,098 | 17,706 | (14.7 | )% | ||||||
Net income | $ | 49,991 | $ | 35,628 | 40.3 | % | ||||
Less distributed and undistributed earnings allocated to participating securities | (585 | ) | (781 | ) | (25.1 | )% | ||||
Net income allocated to common shares | $ | 49,406 | $ | 34,847 | 41.8 | % | ||||
Basic net income per share of common stock | $ | 1.20 | $ | 0.85 | 41.2 | % | ||||
Diluted net income per share of common stock | $ | 1.18 | $ | 0.85 | 38.8 | % | ||||
Insperity, Inc.
Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
(Unaudited)
Three Months Ended March 31, | ||||||||||
2018 | 2017 | Change | ||||||||
Statistical Data: | ||||||||||
Average number of worksite employees paid per month | 195,683 | 174,354 | 12.2 | % | ||||||
Revenues per worksite employee per month(1) | $ | 1,728 | $ | 1,687 | 2.4 | % | ||||
Gross profit per worksite employee per month | 340 | 305 | 11.5 | % | ||||||
Operating expenses per worksite employee per month | 230 | 202 | 13.9 | % | ||||||
Operating income per worksite employee per month | 110 | 102 | 7.8 | % | ||||||
Net income per worksite employee per month | 85 | 68 | 25.0 | % | ||||||
(1) Gross billings of $10,090 and $9,589 per worksite employee per month, less payroll cost of $8,362 and $7,902 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 Ended March 31, | |||||||||||
2018 | 2017 | Change | |||||||||
Payroll cost (GAAP) | $ | 4,908,984 | $ | 4,132,992 | 18.8 | % | |||||
Less: Bonus payroll cost | 830,861 | 615,258 | 35.0 | % | |||||||
Non-bonus payroll cost | $ | 4,078,123 | $ | 3,517,734 | 15.9 | % | |||||
Payroll cost per worksite employee per month (GAAP) | $ | 8,362 | $ | 7,902 | 5.8 | % | |||||
Less: Bonus payroll cost per worksite employee per month | 1,415 | 1,177 | 20.2 | % | |||||||
Non-bonus payroll cost per worksite employee per month | $ | 6,947 | $ | 6,725 | 3.3 | % | |||||
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.
March 31, 2018 | December 31, 2017 | |||||||
Cash, cash equivalents and marketable securities (GAAP) | $ | 356,569 | $ | 356,220 | ||||
Less: Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions | 254,202 | 271,547 | ||||||
Client prepayments | 14,863 | 23,603 | ||||||
Adjusted cash, cash equivalents and marketable securities | $ | 87,504 | $ | 61,070 | ||||
Adjusted cash, cash equivalents and marketable securities excludes funds associated with federal and state income tax withholdings, employment taxes and other payroll deductions, as well as client prepayments. Insperity management believes adjusted cash, cash equivalents and marketable securities is a useful measure of the company’s available funds.
Three Months Ended March 31, | |||||||||||
2018 | 2017 | Change | |||||||||
Operating expenses (GAAP) | $ | 135,017 | $ | 105,854 | 27.6 | % | |||||
Less: | |||||||||||
One-time tax reform bonus | 9,306 | — | — | ||||||||
Adjusted operating expenses | $ | 125,711 | $ | 105,854 | 18.8 | % | |||||
Operating expenses per worksite employee per month (GAAP) | $ | 230 | $ | 202 | 13.9 | % | |||||
Less: | |||||||||||
One-time tax reform bonus per worksite employee per month | 16 | — | — | ||||||||
Adjusted operating expenses per worksite employee per month | $ | 214 | $ | 202 | 5.9 | % | |||||
Adjusted operating expenses represent operating expenses excluding the impact of the one-time tax reform bonus. Insperity management believes adjusted operating expenses is a useful measure of the company’s operating costs, as it allows for additional analysis of the company’s operating expenses separate from the impact of these items.
Three Months Ended March 31, | |||||||||||
2018 | 2017 | Change | |||||||||
Net income (GAAP) | $ | 49,991 | $ | 35,628 | 40.3 | % | |||||
Income tax expense | 15,098 | 17,706 | (14.7 | )% | |||||||
Interest expense | 1,070 | 623 | 71.7 | % | |||||||
Depreciation and amortization | 5,213 | 4,254 | 22.5 | % | |||||||
EBITDA | 71,372 | 58,211 | 22.6 | % | |||||||
Stock-based compensation | 3,135 | 4,503 | (30.4 | )% | |||||||
One-time tax reform bonus | 9,306 | — | — | ||||||||
Adjusted EBITDA | $ | 83,813 | $ | 62,714 | 33.6 | % | |||||
Net income per worksite employee per month (GAAP) | $ | 85 | $ | 68 | 25.0 | % | |||||
Income tax expense per worksite employee per month | 26 | 34 | (23.5 | )% | |||||||
Interest expense per worksite employee per month | 2 | 1 | 100.0 | % | |||||||
Depreciation and amortization per worksite employee per month | 9 | 8 | 12.5 | % | |||||||
EBITDA per worksite employee per month | 122 | 111 | 9.9 | % | |||||||
Stock-based compensation per worksite employee per month | 5 | 9 | (44.4 | )% | |||||||
One-time tax reform bonus per worksite employee per month | 16 | — | — | ||||||||
Adjusted EBITDA per worksite employee per month | $ | 143 | $ | 120 | 19.2 | % | |||||
EBITDA represents net income computed in accordance with generally accepted accounting principles (“GAAP”), plus interest expense, income tax expense, depreciation and amortization expense. Adjusted EBITDA represents EBITDA plus costs associated with a one-time tax reform bonus paid to corporate employees and non-cash stock-based compensation. Insperity management believes EBITDA and adjusted EBITDA are often useful measures of the company’s operating performance, as they allow for additional analysis of the company’s
operating results separate from the impact of these items and Adjusted EBITDA is used by our lenders to assess our leverage and ability to make interest payments.
Three Months Ended March 31, | |||||||||||
2018 | 2017 | Change | |||||||||
Net income (GAAP) | $ | 49,991 | $ | 35,628 | 40.3 | % | |||||
Non-GAAP adjustments: | |||||||||||
Stock-based compensation | 3,135 | 4,503 | (30.4 | )% | |||||||
One-time tax reform bonus | 9,306 | — | — | ||||||||
Total non-GAAP adjustments | 12,441 | 4,503 | 176.3 | % | |||||||
Tax effect | (2,886 | ) | (1,495 | ) | 93.0 | % | |||||
Adjusted net income | $ | 59,546 | $ | 38,636 | 54.1 | % | |||||
Three Months Ended March 31, | |||||||||||
2018 | 2017 | Change | |||||||||
Diluted net income per share of common stock (GAAP) | $ | 1.18 | $ | 0.85 | 38.8 | % | |||||
Non-GAAP adjustments: | |||||||||||
Stock-based compensation | 0.07 | 0.11 | (36.4 | )% | |||||||
One-time tax reform bonus | 0.22 | — | — | ||||||||
Total non-GAAP adjustments | 0.29 | 0.11 | 163.6 | % | |||||||
Tax effect | (0.06 | ) | (0.04 | ) | 50.0 | % | |||||
Adjusted diluted net income per share of common stock | $ | 1.41 | $ | 0.92 | 53.3 | % | |||||
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 non-cash stock-based compensation and costs associated with a one-time tax reform bonus paid to corporate employees. Insperity management believes adjusted net income and adjusted diluted net income per share of common stock are useful measures of the company’s operating performance in this period, as they allow for additional analysis of the company’s operating results separate from the impact of these items.
Non-bonus payroll cost, adjusted cash, cash equivalents and marketable securities, adjusted operating expenses, 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 cost, adjusted cash, cash equivalents and marketable securities, adjusted operating expenses, 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. 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.
The following is a reconciliation of GAAP to non-GAAP financial measures for second quarter and full year 2018 guidance (in millions, except per share amounts):
Q2 2018 Guidance | Full Year 2018 Guidance | |||||
Net income (GAAP) | $21 - $22 | $120 - $124 | ||||
Income tax expense | 8 - 9 | 43 - 44 | ||||
Interest expense | 1 | 4 | ||||
Depreciation and amortization | 5 | 22 | ||||
EBITDA | 35 - 37 | 189 - 194 | ||||
One-time tax reform bonus | — | 9 | ||||
Stock-based compensation | 6 | 20 | ||||
Adjusted EBITDA | $41 - 43 | $218 - $223 | ||||
Diluted net income per share of common stock (GAAP) | $0.50 - $0.54 | $2.85 - $2.93 | ||||
Non-GAAP adjustments: | ||||||
One-time tax reform bonus | — | 0.22 | ||||
Stock-based compensation | 0.13 | 0.47 | ||||
Total non-GAAP adjustments | 0.13 | 0.69 | ||||
Tax effect | (0.04 | ) | (0.18 | ) | ||
Adjusted EPS | $0.59 - $0.63 | $3.36 - $3.44 | ||||
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