Insperity Announces Second 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 second quarter and six months ended June 30, 2012. For the second quarter, the company reported net income of $5.6 million and diluted earnings per share of $0.22.

For the six months ended June 30, 2012, the company reported net income of $19.5 million, a 25.6% increase over the $15.5 million earned in the 2011 period. Diluted earnings per share were $0.75, an increase of 27.1% over the 2011 period.

“We are pleased with the quarter and the first half of 2012, especially against the backdrop of a slowing economy,” said Paul J. Sarvadi, Insperity chairman and chief executive officer. “We are positioned well to continue our business transformation, including cross-selling current and new product offerings over the balance of the year.”

Second Quarter Results

Revenues for the second quarter of 2012 increased 9.8% over the second quarter of 2011 due to an 8.3% increase in the average number of worksite employees paid per month and a 1.3% increase in revenues per worksite employee per month. Gross profit increased 4.1% over the second quarter of 2011 to $87.3 million. The average gross profit per worksite employee per month decreased $10, or 4.1% to $234, compared to the second quarter of 2011. Gross profit results included better than expected results from workers’ compensation and payroll taxes, including a $2.9 million payroll-related tax credit, offset by an adjustment for higher than expected runoff of health insurance claims incurred in prior quarters.

Operating expenses increased 7.5% to $77.9 million compared to the second quarter of 2011. This increase included costs associated with the Insperity Championship TM professional golf tournament, moved from its historical fourth quarter date to the second quarter. In addition, 2012 included higher salaries and wages due in part to our adjacent businesses, partially offset by the non-recurrence of expenses related to our 2011 rebranding initiative. Operating expenses per worksite employee per month decreased 0.9% to $209 in the 2012 quarter compared to $211 in the 2011 quarter.

Year-to-Date Results

Year-to-date revenues were $1.1 billion, an increase of 10.4% over the 2011 period. Gross profit for the six months ended June 30, 2012, increased 8.9% to $190.3 million. The average gross profit per worksite employee per month increased $1, or 0.4%, to $258 in the 2012 period from $257 in the 2011 period.

Year-to-date operating expenses increased 6.5% over the first six months of 2011 to $157.8 million. This increase was primarily due to costs associated with the Insperity Championship TM professional golf tournament, which was moved into the first half of the year; higher salaries and wages due in part to our adjacent businesses; 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 1.8% to $214 in the 2012 period from $218 in the 2011 period.

EBITDA plus stock-based compensation increased 19.8% to $46.7 million compared to the first six months of 2011. In addition, the company received a $2.5 million scheduled reimbursement from its workers’ compensation program during the second quarter. Cash outlays included dividends of $8.3 million, capital expenditures of $8.3 million and the repurchase of 433,011 shares at a cost of $11.7 million. Working capital at June 30, 2012, was $133.5 million, an increase of $6.9 million over December 31, 2011.

“Our continued strong cash flow allowed us to recently increase our dividend rate and repurchase shares while continuing to invest in our long-term growth objectives,” said Douglas S. Sharp, senior vice-president of finance, chief financial officer and treasurer.

Insperity will be hosting a conference call today at 10 a.m. ET to discuss these results, give guidance for the third quarter and update the full year 2012 guidance, and answer questions from investment analysts. To listen in, call 877-651-0053 and use conference i.d. number 99087999. 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. 99087999, for one week. The webcast will be archived for one year.

Insperity, a trusted advisor to America’s best businesses for more than 25 years, provides an array of human resources and business solutions designed to help improve business performance. Insperity TM Business Performance Advisors offer the most comprehensive Workforce Optimization TM solution in the marketplace that delivers administrative relief, better benefits, reduced liabilities and a systematic way to improve productivity. Additional offerings include MidMarket Solutions TM, Performance Management, Expense Management, Time and Attendance, Organizational Planning, Recruiting Services, Employment Screening, 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)
 

 
              June 30,           December 31,
2012 2011
(Unaudited)
Assets
Cash and cash equivalents $ 180,590 $ 211,208
Restricted cash 44,580 44,737
Marketable securities 57,182 56,987
Accounts receivable 176,428 170,933
Prepaid insurance 18,152 21,300
Other current assets 8,133 11,488
Income taxes receivable

-
2,902
Deferred income taxes   2,851     3,233  
Total current assets 487,916 522,788
 
Property and equipment, net 93,491 92,944
Prepaid health insurance 9,000 9,000
Deposits 59,217 54,960
Goodwill and other intangible assets, net 27,565 28,433
Other assets   4,868     4,134  
Total assets $ 682,057   $ 712,259  
 
Liabilities and Stockholders’ Equity
Accounts payable $ 2,873 $ 5,085
Payroll taxes and other payroll deductions payable 122,590 168,652
Accrued worksite employee payroll expense 144,885 130,317
Accrued health insurance costs 9,868 9,427
Accrued workers’ compensation costs 45,320 46,548
Accrued corporate payroll and commissions 13,474 22,383
Other accrued liabilities 14,008 13,814
Income taxes payable   1,429    

-
 
Total current liabilities 354,447 396,226
 
Accrued workers’ compensation costs 63,664 60,054
Deferred income taxes   11,414     10,772  
Total noncurrent liabilities 75,078 70,826
 
Stockholders’ equity:
Common stock 309 309
Additional paid-in capital 136,762 135,871
Treasury stock, cost (139,467 ) (134,647 )
Accumulated other comprehensive income, net of tax 58 24
Retained earnings   254,870     243,650  
Total stockholders’ equity   252,532     245,207  
Total liabilities and stockholders’ equity $ 682,057   $ 712,259  
 
 
Insperity, Inc.
Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
(Unaudited)
 
              Three months ended                     Six months ended          
June 30, June 30,
2012           2011 Change 2012           2011 Change
 
Operating results:
Revenues (gross billings of $3.039 billion,
$2.731 billion, $6.271 billion and $5.619
billion, less worksite employee payroll cost
of $2.520 billion, $2.258 billion, $5.156
billion and $4.610 billion, respectively) $ 519,256 $ 472,903 9.8 % $ 1,114,433 $ 1,009,284 10.4 %
Direct costs:
Payroll taxes, benefits and workers’
compensation costs   431,962     389,062   11.0 %   924,135     834,484   10.7 %
Gross profit 87,294 83,841 4.1 % 190,298 174,800 8.9 %
Operating expenses:
Salaries, wages and payroll taxes 40,047 38,467 4.1 % 83,370 78,064 6.8 %
Stock-based compensation 2,801 2,556 9.6 % 4,956 4,346 14.0 %
General and administrative expenses 18,494 17,023 8.6 % 40,572 38,916 4.3 %
Commissions 3,506 3,255 7.7 % 6,941 6,351 9.3 %
Advertising 8,566 7,539 13.6 % 13,321 13,045 2.1 %
Depreciation and amortization   4,465     3,601   24.0 %   8,677     7,549   14.9 %
Total operating expenses   77,879     72,441   7.5 %   157,837     148,271   6.5 %
Operating income 9,415 11,400 (17.4 )% 32,461 26,529 22.4 %
Other income:
Interest income, net   176     304   (42.1 )%   464     588   (21.1 )%
Income before income tax expense 9,591 11,704 (18.1 )% 32,925 27,117 21.4 %
Income tax expense   3,970     4,963   (20.0 )%   13,420     11,590   15.8 %
Net income $ 5,621   $ 6,741   (16.6 )% $ 19,505   $ 15,527   25.6 %
Less net income allocated to participating
securities   (162 )   (199 ) (18.6 )%   (564 )   (463 ) 21.8 %
Net income allocated to common shares $ 5,459   $ 6,542   (16.6 )% $ 18,941   $ 15,064   25.7 %
Basic net income per share of common stock $ 0.22   $ 0.25   (12.0 )% $ 0.75   $ 0.59   27.1 %
Diluted net income per share of
common stock $ 0.22   $ 0.25   (12.0 )% $ 0.75   $ 0.59   27.1 %
 
 
Insperity, Inc.
Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)

(Unaudited)
 
              Three months ended                 Six months ended        
June 30, June 30,
2012         2011 Change 2012         2011 Change
 
Statistical data:
Average number of worksite
employees paid per month 124,219 114,656 8.3 % 123,079 113,533 8.4 %
Revenues per worksite employee

per month (1)
$ 1,393 $ 1,375 1.3 % $ 1,509 $ 1,482 1.8 %
Gross profit per worksite employee
per month 234 244 (4.1 )% 258 257 0.4 %
Operating expenses per worksite
employee per month 209 211 (0.9 )% 214 218 (1.8 )%
Operating income per worksite
employee per month 25 33 (24.2 )% 44 39 12.8 %
Net income per worksite
employee per month 15 20 (25.0 )% 26 23 13.0 %

(1)
    Gross billings of $8,156, $7,938, $8,491 and $8,249 per worksite employee per month, less payroll cost of $6,763,
$6,563, $6,982 and $6,767 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 Six months ended
June 30, June 30,
2012 2011 Change 2012 2011 Change
 
Payroll cost (GAAP) $ 2,520,058 $ 2,257,602 11.6 % $ 5,156,187 $ 4,609,865 11.9 %
Less: Bonus payroll cost   204,042   164,612 24.0 %   571,865   469,461 21.8 %
Non-bonus payroll cost $ 2,316,016 $ 2,092,990 10.7 % $ 4,584,322 $ 4,140,404 10.7 %
 
Payroll cost per worksite
employee per month (GAAP) $ 6,763 $ 6,563 3.0 % $ 6,982 $ 6,767 3.2 %
Less: Bonus payroll cost per
worksite employee per month   548   478 14.6 %   774   689 12.3 %
Non-bonus payroll cost per
worksite employee per month $ 6,215 $ 6,085 2.1 % $ 6,208 $ 6,078 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 ended Six months ended
June 30, June 30,
2012             2011 Change 2012             2011 Change
Net income (GAAP) $ 5,621 $ 6,741 (16.6 )% $ 19,505 $ 15,527 25.6 %
Income tax expense 3,970 4,963 (20.0 )% 13,420 11,590 15.8 %
Interest expense 88

-

-

 
176

-

-

 
Depreciation and amortization   4,465   3,601 24.0 %   8,677   7,549 14.9 %
EBITDA 14,144 15,305 (7.6 )% 41,778 34,666 20.5 %
Stock-based compensation   2,801   2,556 9.6 %   4,956   4,346 14.0 %
$ 16,945 $ 17,861 (5.1 )% $ 46,734 $ 39,012 19.8 %
 

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.

Non-bonus payroll and EBITDA are not financial measures prepared in accordance with GAAP and may be different from similar measures used by other companies. Non-bonus payroll and EBITDA 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 and EBITDA 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.

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