Insperity, Inc. (NYSE: NSP), a leading provider of human resources and business performance solutions for America’s best businesses, today reported second quarter adjusted EBITDA of $22.6 million, a 55.5% increase over the second quarter of 2014. Adjusted net income was $10.8 million and adjusted diluted earnings per share were $0.42, a 110.0% increase over the second quarter of 2014. Reported second quarter GAAP net income and earnings per share were $7.3 million and $0.29, respectively.

Second Quarter Results

Revenues for the second quarter of 2015 increased 11.2% over the second quarter of 2014. The average number of worksite employees paid per month increased 11.6% during the quarter, an acceleration from the 9.2% year-over-year growth in the first quarter of 2015. All three drivers to worksite employee growth including sales, client retention and net hiring in our client base, improved over the second quarter of 2014.

“Our second quarter results reflect successful execution of our 2015 plan to accelerate growth while carefully managing operating costs,” said Paul J. Sarvadi, Insperity chairman and chief executive officer. “We expect to continue positive trends in growth and profitability over the balance of this year.”

Adjusted EBITDA increased 55.5% on a 9.2% increase in gross profit and a less than 1% increase in operating expenses over the 2014 period, reflecting planned operating leverage.

Year-to-Date Results

For the six months ended June 30, 2015, adjusted EBITDA increased 66.9% to $64.9 million and adjusted diluted earnings per share increased 100.0% to $1.28. Reported 2015 GAAP net income was $21.1 million, or $0.83 per share.

Revenues in the first six months of 2015 were $1.3 billion, an increase of 10.5% over the 2014 period on a 10.4% increase in the average number of worksite employees paid per month. Gross profit for the six months ended June 30, 2015 increased 16.1% to $234.1 million, while adjusted operating expenses increased only 3.6% to $185.7 million.

Cash outlays in the first six months of 2015 included the repurchase of 645,292 shares of stock at a cost of $33.5 million, dividends totaling $10.4 million and capital expenditures of $5.9 million.

“In spite of recently increasing our dividend rate by 16% and being more aggressive in our share buybacks, our strong cash flow has resulted in a $6.2 million increase in adjusted working capital over Dec. 31, 2014 to $79.3 million at June 30, 2015,” said Douglas S. Sharp, senior vice president of finance, chief financial officer and treasurer. “Our outlook for continued strong cash flow positions us well to execute on our strategic plan and continue our track record of significant returns to stockholders.”

2015 Guidance

The company also announced its updated guidance for 2015, including guidance for the third quarter of 2015.

     
Q3 2015 Full Year 2015
       
Average WSEEs 148,500

-

150,000 145,750

-

147,000
Year-over-year increase 13.0%

-

14.0% 11.5%

-

12.5%
 
Adjusted EPS $0.52

-

$0.56 $2.20

-

$2.29
Year-over-year increase 33.0%

-

43.0% 52.0%

-

58.0%
 
Adjusted EBITDA (in millions) $27.0

-

$29.0 $114.0

-

$117.0
Year-over-year increase 20.0%

-

28.0% 36.0%

-

39.0%
 

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 impairment and other charges, stockholder advisory expenses and stock-based compensation. Note that beginning in 2015, the company began excluding stock-based compensation when reporting Adjusted EPS.

Adjusted EBITDA- Represents net income computed in accordance with GAAP, plus interest expense, income taxes, depreciation, amortization, stock-based compensation, non-cash impairment and other charges and stockholder advisory expenses.

Insperity will be hosting a conference call today at 10 a.m. ET to discuss these results, provide guidance for the third quarter and an update to full year guidance, and answer questions from investment analysts. To listen in, call 877-651-0053 and use conference i.d. number 91929268. 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. 91929268. The webcast will be archived for one year.

Insperity, a trusted advisor to America’s best businesses for more than 29 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 Software, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Financial Services, Expense Management, Retirement Services and Insurances Services. Insperity business performance solutions support more than 100,000 businesses with over 2 million employees. With 2014 revenues of $2.4 billion, Insperity operates in 57 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) 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) the impact of the competitive environment in the PEO industry on our growth and/or profitability; (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 acquisitions; (x) failure of our information technology systems; (xi) an adverse final judgment or settlement of claims against Insperity; and (xii) 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)

 

June 30,
2015

December 31,
2014

(Unaudited)
Assets:
Cash and cash equivalents $ 167,728 $ 276,456
Restricted cash 48,887 44,040
Marketable securities 21,648 28,631
Accounts receivable, net 265,631 175,116
Prepaid insurance 16,459 21,301
Assets held for sale 12,182

-

Other current assets 15,522 17,649
Deferred income taxes 3,537   6,316  
Total current assets 551,594 569,509
Property and equipment, net 58,142 84,345
Prepaid health insurance 9,000 9,000
Deposits 114,577 117,634
Goodwill and other intangible assets, net 14,006 14,457
Deferred income taxes 3,956

-

Other assets 1,773   1,725  
Total assets $ 753,048   $ 796,670  
Liabilities and Stockholders’ Equity:
Accounts payable $ 2,383 $ 4,674
Payroll taxes and other payroll deductions payable 122,875 176,341
Accrued worksite employee payroll cost 228,091 192,396
Accrued health insurance costs 6,284 18,329
Accrued workers’ compensation costs 50,841 45,592
Accrued corporate payroll and commissions 25,836 32,644
Other accrued liabilities 24,801 22,444
Income taxes payable 1,652   4,031  
Total current liabilities 462,763 496,451
Accrued workers’ compensation costs 98,938 92,048
Deferred income taxes

-

  4,075  
Total noncurrent liabilities 98,938 96,123
Stockholders’ equity:
Common stock 308 308
Additional paid-in capital 142,681 137,769
Treasury stock, at cost (176,817 ) (148,465 )
Accumulated other comprehensive income, net of tax

-

3
Retained earnings 225,175   214,481  
Total stockholders’ equity 191,347   204,096  
Total liabilities and stockholders’ equity $ 753,048   $ 796,670  
     

Insperity, Inc.

Summary Financial Information (continued)

(in thousands, except per share amounts and statistical data)

(Unaudited)

 

 

Three Months Ended
June 30,

Six Months Ended
June 30,

2015   2014   Change 2015   2014   Change
Operating results:

Revenues (gross billings of $3.703 billion, $3.281

billion, $7.643 billion and $6.869 billion less

worksite employee payroll cost of $3.075 billion,

$2.716 billion, $6.316 billion and $5.667 billion,

respectively) $ 627,838 $ 564,621 11.2 % $ 1,327,317 $ 1,201,620 10.5 %
Direct costs:

Payroll taxes, benefits and workers’ compensation

costs

523,619   469,168   11.6 % 1,093,238   999,991   9.3 %
Gross profit 104,219 95,453 9.2 % 234,079 201,629 16.1 %
Operating expenses:
Salaries, wages and payroll taxes 50,234 47,829 5.0 % 106,982 98,861 8.2 %
Stock-based compensation 4,041 3,245 24.5 % 6,464 5,645 14.5 %
Commissions 4,103 3,717 10.4 % 8,407 6,963 20.7 %
Advertising 7,389 8,356 (11.6 )% 11,107 13,297 (16.5 )%
General and administrative expenses 20,332 21,116 (3.7 )% 44,387 43,848 1.2 %
Depreciation and amortization 4,590 5,291 (13.2 )% 9,875 10,525 (6.2 )%
Impairment charges and other 1,313   2,485   (47.2 )% 11,120   2,485   347.5 %
Total operating expenses 92,002   92,039  

-

198,342   181,624   9.2 %
Operating income 12,217 3,414 257.9 % 35,737 20,005 78.6 %
Other income (expense):
Interest, net (8 ) 24 (133.3 )% (1 ) 71 (101.4 )%
Other, net (32 ) 12   (366.7 )% (32 ) (14 ) 128.6 %
Income before income tax expense 12,177 3,450 253.0 % 35,704 20,062 78.0 %
Income tax expense 4,863   1,559   211.9 % 14,603   8,607   69.7 %
Net income $ 7,314   $ 1,891   286.8 % $ 21,101   $ 11,455   84.2 %

Less distributed and undistributed earnings allocated

to participating securities

(179 ) (139 ) 28.8 % (521 ) (333 ) 56.5 %
Net income allocated to common shares $ 7,135   $ 1,752   307.2 % $ 20,580   $ 11,122   85.0 %
Basic net income per share of common stock $ 0.29   $ 0.07   314.3 % $ 0.83   $ 0.45   84.4 %
Diluted net income per share of common stock $ 0.29   $ 0.07   314.3 % $ 0.83   $ 0.45   84.4 %
     

Insperity, Inc.

Summary Financial Information (continued)

(in thousands, except per share amounts and statistical data)

(Unaudited)

 

Three Months Ended
June 30,

Six Months Ended
June 30,
2015   2014   Change 2015   2014   Change
 
Statistical Data:

Average number of worksite employees paid per

month

143,131 128,274 11.6 % 140,545 127,281 10.4 %
Revenues per worksite employee per month(1) $ 1,462 $ 1,467 (0.3 )% $ 1,574 $ 1,573 0.1 %
Gross profit per worksite employee per month 243 248 (2.0 )% 278 264 5.3 %

Operating expenses per worksite employee per

month

215 239 (10.0 )% 236 238 (0.8 )%

Operating income per worksite employee per

month

28 9 211.1 % 42 26 61.5 %
Net income per worksite employee per month 17 5 240.0 % 25 15 66.7 %
 
(1)  

Gross billings of $8,623, $8,526, $9,064 and $8,994 per worksite employee per month, less payroll cost of $7,161, $7,059,

$7,490 and $7,421 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
June 30,		 Six Months Ended
June 30,
2015   2014   Change 2015   2014   Change
 
Payroll cost (GAAP) $ 3,074,892 $ 2,716,514 13.2 % $ 6,315,874 $ 5,667,082 11.4 %
Less: Bonus payroll cost 257,367   222,005   15.9 % 775,870   743,346   4.4 %
Non-bonus payroll cost $ 2,817,525   $ 2,494,509   12.9 % $ 5,540,004   $ 4,923,736   12.5 %
 

Payroll cost per worksite

employee per month

(GAAP)

$ 7,161 $ 7,059 1.4 % $ 7,490 $ 7,421 0.9 %

Less: Bonus payroll cost

per worksite employee

per month

599   577   3.8 % 920   973   (5.4 )%
Non-bonus payroll cost
per worksite employee
per month $ 6,562   $ 6,482   1.2 % $ 6,570   $ 6,448   1.9 %
     

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.

 
June 30,
2015		 December 31,
2014
 
Cash, cash equivalents and marketable securities (GAAP) $ 189,376 $ 305,087

Less: Amounts payable for withheld federal and state income taxes,

employment taxes and other payroll deductions

106,169 152,132
Customer prepayments 19,376   87,887
Adjusted cash, cash equivalents and marketable securities $ 63,831   $ 65,068
 

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.

 
June 30,
2015		 December 31,
2014
 
Working capital (GAAP) $ 88,831 $ 73,058
Less: Assets held for sale, net of current deferred tax liabilities 9,533  

-

 
Adjusted working capital $ 79,298   $ 73,058  
 

Adjusted working capital represents working capital excluding assets held for sale that are

classified as current assets and their associated current deferred tax liabilities. Insperity

management believes adjusted working capital is a useful measure of the company’s liquidity, as

it allows for additional analysis of the company’s liquidity separate from the impact of this item.

 
Three Months Ended
June 30,		 Six Months Ended
June 30,
2015   2014   Change 2015   2014   Change
 
Operating expenses (GAAP) $ 92,002 $ 92,039

-

$ 198,342 $ 181,624 9.2 %
Less: Impairment charges and other 1,313 2,485 (47.2 )% 11,120 2,485 347.5 %
Stockholder advisory expenses 398  

-

 

-

1,546  

-

 

-

Adjusted operating expenses $ 90,291   $ 89,554   0.8 % $ 185,676   $ 179,139   3.6 %
 

Adjusted operating expenses represent operating expenses excluding the impact of impairment

and other charges related to the valuation of aircraft held for sale and stockholder advisory

expenses in 2015 and an impairment charge associated with the Employment Screening reporting

unit in 2014. 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
June 30,		   Six Months Ended
June 30,
2015   2014 Change 2015 2014 Change
 
Net income (GAAP) $ 7,314 $ 1,891 286.8 % $ 21,101 $ 11,455 84.2 %
Income tax expense 4,863 1,559 211.9 % 14,603 8,607 69.7 %
Interest expense 124 88 40.9 % 224 177 26.6 %
Depreciation and amortization 4,590   5,291   (13.2 )% 9,875   10,525   (6.2 )%
EBITDA 16,891 8,829 91.3 % 45,803 30,764 48.9 %
Impairment charges and other 1,313 2,485 (47.2 )% 11,120 2,485 347.5 %
Stock-based compensation 4,041 3,245 24.5 % 6,464 5,645 14.5 %
Stockholder advisory expenses 398  

-

 

-

1,546  

-

 

-

Adjusted EBITDA $ 22,643   $ 14,559   55.5 % $ 64,933   $ 38,894   66.9 %
 
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 non-cash impairment and other charges,
costs associated with stockholder advisory expenses and 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.

 
Three Months Ended
June 30,		 Six Months Ended
June 30,
2015 2014   Change 2015 2014   Change
 
Net income (GAAP) $ 7,314 $ 1,891 286.8 % $ 21,101 $ 11,455 84.2 %
Impairment charges and other, net of tax 789 1,566 (49.6 )% 6,572 1,566 319.7 %
Stock-based compensation, net of tax 2,429 1,778 36.6 % 3,820 3,223 18.5 %
Stockholder advisory expenses, net of tax 239  

-

 

-

914  

-

 

-

Adjusted net income $ 10,771   $ 5,235   105.7 % $ 32,407   $ 16,244   99.5 %
 
Three Months Ended
June 30,		   Six Months Ended
June 30,

2015

2014   Change 2015 2014 Change
 
Diluted net income per share of common
stock (GAAP) $ 0.29 $ 0.07 314.3 % $ 0.83 $ 0.45 84.4 %
Impairment charges and other, net of tax 0.03 0.06 (50.0 )% 0.26 0.06 333.3 %
Stock-based compensation, net of tax 0.09 0.07 28.6 % 0.15 0.13 15.4 %
Stockholder advisory expenses, net of tax 0.01  

-

 

-

0.04  

-

 

-

Adjusted diluted net income per share of
common stock $ 0.42   $ 0.20   110.0 % $ 1.28   $ 0.64   100.0 %
 

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 impairment and other charges related to the valuation of aircraft held for sale in 2015 and an impairment charge associated with the Employment Screening reporting unit in 2014, stock-based compensation and costs associated with stockholder advisory expenses. Insperity management believes adjusted net income and adjusted diluted net income per share 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, adjusted cash, cash equivalents and marketable securities, adjusted working capital, 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, adjusted cash, cash equivalents and marketable securities, adjusted working capital, 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.