Insperity Announces Record First Quarter Results

HOUSTON–(BUSINESS WIRE)–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  

Contacts

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

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

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