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, 2020:

• Q3 net income and diluted EPS of $20 million and $0.51, respectively
• Q3 adjusted EPS up 21% to $0.91
• Q3 adjusted EBITDA up 13% to $58 million
• YTD net income and diluted EPS of $134 million and $3.43, respectively
• YTD adjusted EBITDA and adjusted EPS up 20% and 16% to $251 million and $4.15, respectively
• Share repurchase authorization expanded by one million shares

Third Quarter Results

For the third quarter of 2020, reported net income and diluted earnings per share (“EPS”) were $20 million and $0.51, respectively. Adjusted EPS increased 21% over the 2019 period to $0.91. Adjusted EBITDA increased 13% to $57.6 million. The difference between GAAP EPS and Adjusted EPS was primarily caused by performance driven stock-based compensation.

“These excellent results reflect outperformance in worksite employee growth and pricing relative to our expectations in the midst of an uncertain business environment. These developments, together with favorable results in our direct cost programs, more than offset the impact of layoffs within our client base brought about by the pandemic,” said Paul J. Sarvadi, Insperity chief executive officer and chairman. “We expect the strength of our business model, the dedication of our staff, and the resiliency of our client base to be important factors as we look ahead with confidence into 2021.”

The average number of worksite employees (“WSEEs”) paid per month in Q3 2020 increased 1.7% sequentially over the Q2 period to 231,750 WSEEs, which was above the high end of our expected range. A continued improvement over the course of the pandemic from the low point experienced in May 2020 was driven by (1) WSEEs hired or returning to work outpacing layoffs, (2) client retention for both Q2 and Q3 remaining at our historical level of 99% and (3) the addition of WSEEs from solid new client sales throughout the pandemic.

“We are pleased with our recent sequential growth and expect paid worksite employees to return to near pre-pandemic levels by the end of the year,” said Douglas S. Sharp, Insperity senior vice president of finance, chief financial officer and treasurer. “Additionally, strong execution in pricing, effective management of our direct cost programs and operating expenses, and the dynamics of the pandemic on our business has driven our recent substantial outperformance.”

Average pricing increased 4.4% over the 2019 period, which more than offset the 3.8% year-over-year decline in average paid WSEEs driven by the pandemic. However, total revenues decreased 3% from Q3 2019 to $1.0 billion, due to the FICA deferral program instituted as part of the CARES Act.

Gross profit increased by 8% over Q3 2019 to $185.0 million. This greater than expected increase resulted from the higher than anticipated paid WSEEs and pricing, combined with significant favorable results in benefits and workers’ compensation costs. Lower than expected benefit costs were primarily associated with favorable claims development from less healthcare utilization. Lower workers’ compensation costs were primarily attributable to the effective management of claims incurred in periods prior to the pandemic.

Operating expenses increased 15% over Q3 2019 and included a 10% increase in the number of trained Business Performance Advisors. In spite of an increased workload from the pandemic, we have held other corporate headcount flat and achieved cost savings in other areas, including travel, training and other general and administrative costs. An increase in stock-based compensation was driven by our recent outperformance in the level of paid WSEEs and earnings. Operating expenses, excluding stock-based compensation and depreciation and amortization, increased by 5% over Q3 2019.

Year-to-Date Results

For the nine months ended September 30, 2020, reported net income and diluted EPS were $134.0 million and $3.43, respectively. Adjusted EPS increased 16% over the first nine months of 2019 to $4.15. Adjusted EBITDA increased 20% over the first nine months of 2019 to $250.8 million.

Revenues for the first nine months of 2020 were flat at $3.2 billion, as the improvement in the average number of paid WSEEs from the low point in May 2020 has resulted in the year-to-date average paid WSEEs per month being essentially unchanged compared to the 2019 period. Gross profit for the first nine months of 2020 increased 12% to $639.3 million. Operating expenses increased 10% to $452.3 million over the 2019 period.

Net income per WSEE per month increased 3% from $62 in the 2019 period to $64 in the 2020 period. Adjusted EBITDA per WSEE per month increased 20% from $100 in the 2019 period to $120 in the 2020 period.

Cash outlays in the first nine months of 2020 included the repurchase of approximately 1,337,000 shares of stock at a cost of $91.2 million, dividends totaling $46.5 million and capital expenditures of $68.8 million. Adjusted cash totaled $213 million at September 30, 2020 and $130 million remains available under our $500 million credit facility.

Share Repurchase Expansion

Insperity’s board of directors has authorized an expansion of its stock repurchase program by an additional one-million shares, and as a result will have approximately 1.2 million shares available for repurchase. Purchases may be made from time to time in the open market or in privately negotiated transactions. The company may also adopt Rule 10b5-1 prearranged stock trading plans designed to facilitate Insperity’s repurchase of its common stock during times it would not otherwise be in the open market due to self-imposed trading blackout periods or possible possession of material nonpublic information.

2020 Guidance

The company also announced its updated guidance for 2020, including the fourth quarter of 2020. 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.

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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.

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

Insperity will be hosting a conference call today at 10 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 3497681. 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. 3497681. The webcast will be archived for one year.

About Insperity

Insperity®, a trusted advisor to America’s best businesses for more than 34 years, provides an array of human resources and business solutions designed to help improve business performance. Offering 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, Retirement Services and Insurance Services. With 2019 revenues of $4.3 billion, Insperity supports more than 100,000 businesses with over 2 million employees nationwide. 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, benefits and workers’ compensation costs, 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;
• impact of the COVID-19 pandemic, or other future pandemics, including the scope, severity and duration of the pandemic; government responses; regulatory developments; and the related disruptions and economic impact to our business and the small and medium-sized businesses that we serve;
• 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.

Any forward-looking statements are made only as of the date hereof and, unless otherwise required by applicable securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Following is a reconciliation of payroll cost (GAAP) to non-bonus payroll costs (non-GAAP):

Following is a reconciliation of cash, cash equivalents and marketable securities (GAAP) to adjusted cash, cash equivalents and marketable securities (non-GAAP):

Following is a reconciliation of operating expenses (GAAP) to adjusted operating expenses (non-GAAP):

Following is a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP):

Following is a reconciliation of net income (GAAP) to adjusted net income (non-GAAP):

Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS (non-GAAP):

Following is a reconciliation of GAAP to non-GAAP financial measures for fourth quarter and full year 2020 guidance:

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