OREANDA-NEWS. Insperity, Inc. (NYSE:NSP), a leading provider of human resources and business performance solutions for America’s best businesses, today reported second quarter net income and diluted earnings per share of $9.7 million and $0.45, respectively, which represent increases of 33% and 55% compared to the second quarter of 2015. Adjusted EBITDA was $25.6 million, a 13% increase over the second quarter of 2015. Adjusted net income was $12.9 million, an increase of 19% over the second quarter of 2015, and adjusted diluted earnings per share were $0.60, a 43% increase over the second quarter of 2015.

“Our second quarter results and outlook for the last half of 2016 validate that the execution of our strategic plan is producing exceptional growth and profitability,” said Paul J. Sarvadi, Insperity chairman and chief executive officer. “This performance combined with our competitive position and ability to grow our team of Business Performance Advisors gives us confidence as we look ahead to 2017.”

Second Quarter Results

Revenues for the second quarter of 2016 increased 13% over the second quarter of 2015 on a 14% increase in the average number of worksite employees paid per month. The worksite employee growth was the result of strong new client sales driven by a 15% increase in the number of trained Business Performance Advisors, and continuing high level of client retention, which averaged over 99% during the second quarter.

As expected, gross profit increased 9% over the second quarter of 2015 reflecting client and product mix changes and the seasonality associated with payroll taxes and benefit plan selection. Operating expenses increased 6% and declined on a per worksite employee per month basis from $215 in the second quarter of 2015 to $198 due to recent cost savings initiatives and the inherent leverage of our cost structure.

“Year-to-date adjusted EBITDA increased from $77 to $90 per worksite employee per month, 17% over 2015, as we have effectively managed worksite employee growth and gross profit in combination with our operating costs,” said Douglas S. Sharp, senior vice president of finance, chief financial officer and treasurer. “This high level of unit profitability combined with our double digit worksite employee growth has resulted in a 34% increase in adjusted EBITDA over the first six months of 2015.”

Year-to-Date Results

For the six months ended June 30, 2016, reported 2016 net income was $42.4 million, or $1.98 per diluted share, and adjusted diluted earnings per share increased 74% to $2.23.

Revenues for the first six months of 2016 totaled $1.5 billion, an increase of 14% over the 2015 period. Gross profit for the six months ended June 30, 2016 increased 12% to $263.3 million. Operating expenses decreased 2% to $194.2 million in 2016, while adjusted operating expenses increased only 4% to $193.9 million. Adjusted EBITDA increased 34% to $86.8 million.

Cash outlays in the first six months of 2016 included the repurchase of 3.1 million shares of stock at a cost of $149.1 million, dividends totaling $10.0 million and capital expenditures of $12.6 million.

2016 Guidance

The company also announced its updated guidance for 2016, including the third quarter of 2016.

               
      Q3 2016       Full Year 2016
                               
Average WSEEs     170,000   —   170,700       166,000   —   168,000
Year-over-year increase     14.0%   —   14.5%       14%   —   15%
                               
Adjusted EPS     $0.72   —   $0.78       $3.50   —   $3.60
Year-over-year increase     26%   —   37%       60%   —   64%
                               
Adjusted EBITDA (in millions)     $30.0   —   $32.0       $141.0   —   $145.0
Year-over-year increase     6%   —   13%       28%   —   32%
                               

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.

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

               
Insperity, Inc.
Summary Financial Information
(in thousands, except per share amounts and statistical data)
               
        June 30,     December 31,
        2016     2015
        (Unaudited)      
Assets:              
Cash and cash equivalents       $ 271,573       $ 269,538  
Restricted cash       41,226       37,418  
Marketable securities       1,881       9,875  
Accounts receivable, net       245,012       200,665  
Prepaid insurance       26,545       7,417  
Other current assets       18,554       17,135  
Income taxes receivable       6,690       —  
Total current assets       611,481       542,048  
Property and equipment, net       67,671       61,759  
Prepaid health insurance       9,000       9,000  
Deposits       135,431       140,162  
Goodwill and other intangible assets, net       13,338       13,588  
Deferred income taxes, net       7,562       16,976  
Other assets       2,012       1,379  
Total assets       $ 846,495       $ 784,912  
Liabilities and stockholders’ equity:              
Accounts payable       $ 3,546       $ 5,381  
Payroll taxes and other payroll deductions payable       141,213       205,393  
Accrued worksite employee payroll cost       277,376       161,917  
Accrued health insurance costs       26,920       13,643  
Accrued workers’ compensation costs       43,294       39,053  
Accrued corporate payroll and commissions       24,375       39,103  
Other accrued liabilities       24,823       20,250  
Income taxes payable       —       2,971  
Total current liabilities       541,547       487,711  
Accrued workers’ compensation costs       135,681       124,746  
Long-term debt       104,400       —  
Total noncurrent liabilities       240,081       124,746  
Stockholders’ equity:              
Common stock       277       308  
Additional paid-in capital       4,428       144,701  
Treasury stock, at cost       (205,018 )     (205,325 )
Retained earnings       265,180       232,771  
Total stockholders’ equity       64,867       172,455  
Total liabilities and stockholders’ equity       $ 846,495       $ 784,912  
                       
               
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,
        2016     2015     Change     2016     2015     Change
Operating results:                                      
Revenues (gross billings of $4.163 billion, $3.703 billion, $8.727 billion and $7.643 billion less worksite employee payroll cost of $3.456 billion, $3.075 billion, $7.217 billion and $6.316 billion, respectively)       $ 707,332       $ 627,838       12.7 %     $ 1,509,740       $ 1,327,317       13.7 %
Direct costs:                                      
Payroll taxes, benefits and workers’ compensation costs       594,073       523,619       13.5 %     1,246,465       1,093,238       14.0 %
Gross profit       113,259       104,219       8.7 %     263,275       234,079       12.5 %
Operating expenses:                                      
Salaries, wages and payroll taxes       55,998       50,234       11.5 %     114,013       106,982       6.6 %
Stock-based compensation       4,761       4,041       17.8 %     8,336       6,464       29.0 %
Commissions       4,335       4,103       5.7 %     8,616       8,407       2.5 %
Advertising       6,712       6,883       (2.5 )%     9,759       10,064       (3.0 )%
General and administrative expenses       21,254       20,838       2.0 %     45,038       45,430       (0.9 )%
Depreciation and amortization       4,176       4,590       (9.0 )%     8,447       9,875       (14.5 )%
Impairment charges and other       —       1,313       —       —       11,120       —  
Total operating expenses       97,236       92,002       5.7 %     194,209       198,342       (2.1 )%
Operating income       16,023       12,217       31.2 %     69,066       35,737       93.3 %
Other income (expense):                                      
Interest income       293       84       248.8 %     592       191       209.9 %
Interest expense       (650 )     (124 )     424.2 %     (1,287 )     (224 )     474.6 %
Income before income tax expense       15,666       12,177       28.7 %     68,371       35,704       91.5 %
Income tax expense       5,953       4,863       22.4 %     25,965       14,603       77.8 %
Net income       $ 9,713       $ 7,314       32.8 %     $ 42,406       $ 21,101       101.0 %
Less distributed and undistributed earnings allocated to participating securities       (229 )     (179 )     27.9 %     (962 )     (521 )     84.6 %
Net income allocated to common shares       $ 9,484       $ 7,135       32.9 %     $ 41,444       $ 20,580       101.4 %
Basic net income per share of common stock       $ 0.45       $ 0.29       55.2 %     $ 1.98       $ 0.83       138.6 %
Diluted net income per share of common stock       $ 0.45       $ 0.29       55.2 %     $ 1.98       $ 0.83       138.6 %
                                                           
 
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,
        2016     2015     Change     2016     2015     Change
                                       
Statistical Data:                                      
Average number of worksite employees paid per month       163,521       143,131       14.2 %     160,956       140,545       14.5 %
Revenues per worksite employee per month(1)       $ 1,442       $ 1,462       (1.4 )%     $ 1,563       $ 1,574       (0.7 )%
Gross profit per worksite employee per month       231       243       (4.9 )%     273       278       (1.8 )%
Operating expenses per worksite employee per month       198       215       (7.9 )%     201       236       (14.8 )%
Operating income per worksite employee per month       33       28       17.9 %     72       42       71.4 %
Net income per worksite employee per month       20       17       17.6 %     44       25       76.0 %
(1)   Gross billings of $8,485, $8,623, $9,036 and $9,064 per worksite employee per month, less payroll cost of $7,043, $7,161, $7,473 and $7,490 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,
        2016     2015     Change     2016     2015     Change
                                       
Payroll cost (GAAP)       $ 3,455,077       $ 3,074,892       12.4 %     $ 7,217,142       $ 6,315,874       14.3 %
Less: Bonus payroll cost       213,224       257,367       (17.2 )%     795,537       775,870       2.5 %
Non-bonus payroll cost       $ 3,241,853       $ 2,817,525       15.1 %     $ 6,421,605       $ 5,540,004       15.9 %
                                       
Payroll cost per worksite employee per month (GAAP)       $ 7,043       $ 7,161       (1.6 )%     $ 7,473       $ 7,490       (0.2 )%
Less: Bonus payroll cost per worksite employee per month       436       599       (27.2 )%     824       920       (10.4 )%
Non-bonus payroll cost per worksite employee per month       $ 6,607       $ 6,562       0.7 %     $ 6,649       $ 6,570       1.2 %

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,     December 31,
        2016     2015
         
Cash, cash equivalents and marketable securities (GAAP)       $ 273,454       $ 279,413

Less: Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions

       121,437       185,719

Customer prepayments

       100,728       17,037
Adjusted cash, cash equivalents and marketable securities       $ 51,289       $ 76,657

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     Six Months Ended
        June 30,     June 30,
        2016     2015     Change     2016     2015     Change
                                       
Operating expenses (GAAP)       $ 97,236       $ 92,002       5.7 %     $ 194,209       $ 198,342       (2.1 )%
Less: Impairment charges and other       —       1,313       —       —       11,120       —  
Stockholder advisory expenses       323       398       (18.8 )%     323       1,546       (79.1 )%
Adjusted operating expenses       $ 96,913       $ 90,291       7.3 %     $ 193,886       $ 185,676       4.4 %
                                       
Operating expenses per worksite employee per month (GAAP)       $ 198       $ 215       (7.9 )%     $ 201       $ 236       (14.8 )%
Less: Impairment charges and other per worksite employee per month       —       3       —       —       13       —  
Stockholder advisory expenses per worksite employee per month       1       1       —       —       2       —  
Adjusted operating expenses per worksite employee per month       $ 197       $ 211       (6.6 )%     $ 201       $ 221       (9.0 )%

Adjusted operating expenses represent operating expenses excluding the impact of impairment and other charges related to the sale of two aircraft and stockholder advisory expenses. 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     Six Months Ended
        June 30,     June 30,
        2016     2015     Change     2016     2015   Change
                                     
Net income (GAAP)       $ 9,713       $ 7,314       32.8 %     $ 42,406       $ 21,101     101.0 %
Income tax expense       5,953       4,863       22.4 %     25,965       14,603     77.8 %
Interest expense       650       124       424.2 %     1,287       224     474.6 %
Depreciation and amortization       4,176       4,590       (9.0 )%     8,447       9,875     (14.5 )%
EBITDA       20,492       16,891       21.3 %     78,105       45,803     70.5 %
Impairment charges and other       —       1,313       —       —       11,120     —  
Stock-based compensation       4,761       4,041       17.8 %     8,336       6,464     29.0 %
Stockholder advisory expenses       323       398       (18.8 )%     323       1,546     (79.1 )%
Adjusted EBITDA       $ 25,576       $ 22,643       13.0 %     $ 86,764       $ 64,933     33.6 %

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     Six Months Ended
        June 30,     June 30,
        2016     2015     Change     2016     2015     Change
                                       
Net income (GAAP)       $ 9,713       $ 7,314       32.8 %     $ 42,406       $ 21,101       101.0 %
                                       
Impairment charges and other       —       1,313       —       —       11,120       —  
Stock-based compensation       4,761       4,041       17.8 %     8,336       6,464       29.0 %
Stockholder advisory expenses       323       398       (18.8 )%     323       1,546       (79.1 )%
Total non-GAAP adjustments       5,084       5,752       (11.6 )%     8,659       19,130       (54.7 )%
Tax effect on non-GAAP adjustments       (1,933 )     (2,295 )     (15.8 )%     (3,290 )     (7,824 )     (57.9 )%
Adjusted net income (non-GAAP)       $ 12,864       $ 10,771       19.4 %     $ 47,775       $ 32,407       47.4 %
                                                           
       

 

    

 
        Three Months Ended     Six Months Ended
        June 30,     June 30,
        2016     2015     Change     2016     2015     Change
                                       
Diluted net income per share of common stock (GAAP)       $ 0.45       $ 0.29       55.2 %     $ 1.98       $ 0.83       138.6 %
                                       
Impairment charges and other       —       0.05       —       —       0.44       —  
Stock-based compensation       0.22       0.16       37.5 %     0.39       0.25       56.0 %
Stockholder advisory expenses       0.02       0.02       —       0.02       0.06       (66.7 )%
Total non-GAAP adjustments       0.24       0.23       4.3 %     0.41       0.75       (45.3 )%
Tax effect on non-GAAP adjustments       (0.09 )     (0.10 )     (10.0 )%     (0.16 )     (0.30 )     (46.7 )%
Adjusted diluted net income per share of common stock       $ 0.60       $ 0.42       42.9 %     $ 2.23       $ 1.28       74.2 %
                                                           

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 sale of two aircraft in 2015, 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 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 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.