Business Wire | Aug 3, 2020 04:30PM EDT

Insperity Announces Second Quarter Results

Aug. 03, 2020

HOUSTON--(BUSINESS WIRE)--Aug. 03, 2020--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 ended Jun. 30, 2020:

* Q2 net income and diluted EPS up 82% and 93% to $52 million and $1.33, respectively * Q2 adjusted EPS up 86% to $1.54 * Q2 adjusted EBITDA up 62% to $92 million * YTD net income and diluted EPS up 9% and 15% to $114 million and $2.91, respectively * YTD adjusted EBITDA and adjusted EPS up 22% and 15% to $193 million and $3.24, respectively

Second Quarter Results

For the second quarter 2020, net income and diluted earnings per share ("EPS") of $52 million and $1.33 represented increases of 82% and 93%, respectively, compared to the second quarter of 2019. Adjusted EPS was $1.54, an 86% increase from the second quarter of 2019. Adjusted EBITDA was $92.0 million, a 62% increase from the second quarter of 2019.

The average number of worksite employees ("WSEEs") paid per month decreased by 1.8%, due primarily to layoffs in the client base associated with the COVID-19 pandemic. The average number of paid worksite employees of 227,894 in the second quarter of 2020 was near the high end of our expected range as worksite employees paid from new client sales were approximately 20% above forecast, client retention remained near our second quarter historical level of 99% and the level of worksite employees laid off, returning to work and general hiring were all favorable.

Revenues of $993.4 million decreased 5% from the second quarter of 2019 due to the combination of the decline in paid worksite employees, payroll tax deferrals and credits associated with the CARES and Families First Acts totaling $45 million and comprehensive service fee credits provided to our clients totaling approximately $12 million.

"We are pleased with our overall Q2 results and the resiliency of our business in the face of the COVID-19 disruption. Insperity employees performed admirably, demonstrating the value of an agile and sophisticated HR function and helping our best of class small and medium sized client base navigate these unusual challenges," said Paul J. Sarvadi, Insperity chief executive officer and chairman. "We believe the value clients received from our services throughout this period will drive increased demand for premium HR services in the years ahead."

Gross profit increased by 27% over the second quarter of 2019 to $220.2 million. The year over year comparison was substantially impacted by favorable benefits and workers compensation cost trends. Lower than expected benefit costs were primarily associated with lower healthcare utilization including the deferral of elective procedures, some of which is expected to be offset in subsequent quarters with the resumption of deferred care and future COVID-19 costs. Lower workers' compensation costs were primarily attributable to the effective management of claims incurred in prior periods and largely unrelated to the pandemic. The payroll tax deferrals and credits associated with the CARES and Families First Acts had no impact on gross profit, while the comprehensive service fee credits provided to our clients reduced gross profit by approximately $12 million.

Operating expenses increased 9% over the second quarter of 2019. Corporate employee headcount, excluding sales, remained level over the first half of this year, while the HR demands on our staff have increased with the pandemic, its impact on the economy, and a myriad of HR-related issues including diversity, equity and inclusion. Second quarter compensation costs included an acceleration in the timing of a portion of annual incentive compensation to reward our employees during this period of increased service demands and included continued investments in future growth, with a 15% increase in the average number of trained Business Performance Advisors. These expenditures were partially offset by savings in other areas, including lower travel, training and business promotion costs.

Year-to-Date Results

For the six months ended June 30, 2020, net income increased 9% over the first six months of 2019 to $113.9 million, and diluted EPS increased 15% to $2.91. Adjusted EPS increased 15% over the first six months of 2019 to $3.24. Adjusted EBITDA increased 22% over the first six months of 2019 to $193.2 million.

Revenues for the first six months of 2020 increased 1% to $2.2 billion, on a 2% increase in the average number of WSEEs paid per month over the 2019 period. Gross profit for the first six months of 2020 increased 13% to $454.3 million. Operating expenses increased 7% to $296.1 million over the 2019 period.

Net income per WSEE per month increased 8% from $76 in the 2019 period to $82 in the 2020 period. Adjusted EBITDA per WSEE per month increased 20% from $115 in the 2019 period to $138 in the 2020 period.

Cash outlays in the first six months of 2020 included the repurchase of approximately 879,000 shares of stock at a cost of $61.2 million, dividends totaling $31.1 million and capital expenditures of $39 million.

"Our strong financial position and liquidity continued to improve over the first half of 2020 in the face of the challenges and dynamics surrounding the pandemic," said Douglas S. Sharp, Insperity senior vice president of finance, chief financial officer and treasurer. "We ended the quarter with $269 million of adjusted cash and $130 million available under our $500 million credit facility, while continuing to invest in our business for the long-term."

2020 Guidance

The company also announced its updated guidance for 2020, including the third 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.

Q3 2020 Full Year 2020



Average WSEEs paid ^(a) 227,500 - 230,000 228,500 - 233,200

Year-over-year decrease (5.6)% - (4.5)% (3.0)% - (1.0)%



Adjusted EPS ^(b) $0.37 - $0.54 $3.67 - $4.04

Year-over-year decrease (51)% - (28)% (12)% - (3)%



Adjusted EBITDA (in millions) ^ $29 - $38 $235 - $255(b)

Year-over-year increase (43)% - (26)% (6)% - 2%(decrease)

____________________________________

(a) Q3 2020 guidance for average WSEEs paid represents flat to 1% sequential growth compared to the second quarter of 2020.

Q3 2020 guidance for Adjusted EPS and Adjusted EBITDA reflects an expected shift in the timing of health care utilization during the pandemic from Q2 2020 into the latter half of 2020. This shift is(b) primarily the result of the deferral of non-essential procedures, including costs associated with participants with chronic conditions that missed treatments. As a result, the 2020 quarterly earnings pattern varies significantly from 2019.

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 5 p.m. ET to discuss these results, provide guidance for the third 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 3865667. 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. 3865667. The webcast will be archived for one year.

About Insperity

Insperity(r), 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(r) 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.

Insperity, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands) June 30, 2020 December 31, 2019



Assets

Cash and cash equivalents $ 459,399 $ 367,342

Restricted cash 45,216 49,295

Marketable securities 31,952 34,728

Accounts receivable, net 473,935 465,779

Prepaid insurance 23,494 10,418

Other current assets 34,651 43,493

Income taxes receivable - 3,691

Total current assets 1,068,647 974,746

Property and equipment, net 177,762 147,706

Right of use leased assets 57,421 56,886

Prepaid health insurance 9,000 9,000

Deposits 186,044 184,013

Goodwill and other intangible assets, net 12,708 12,714

Deferred income taxes, net - 3,956

Other assets 6,151 5,975

Total assets $ 1,517,733 $ 1,394,996



Liabilities and stockholders' equity

Accounts payable $ 2,885 $ 4,565

Payroll taxes and other payroll deductions 219,492 277,248 payable

Accrued worksite employee payroll cost 409,068 401,859

Accrued health insurance costs 29,714 21,180

Accrued workers' compensation costs 48,618 52,868

Accrued corporate payroll and commissions 41,507 52,612

Other accrued liabilities 60,742 58,713

Income taxes payable 28,537 -

Total current liabilities 840,563 869,045

Accrued workers' compensation cost, net of 197,501 193,609 current

Long-term debt 369,400 269,400

Operating lease liabilities, net of current 60,815 58,863

Deferred income taxes, net 712 -

Other accrued liabilities, net of current 4,104 -

Total noncurrent liabilities 632,532 521,872

Stockholders' equity:

Common stock 555 555

Additional paid-in capital 54,783 48,141

Treasury stock, at cost (592,313) (544,102)

Retained earnings 581,613 499,485

Total stockholders' equity 44,638 4,079

Total liabilities and stockholders' equity $ 1,517,733 $ 1,394,996

Insperity, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, Three Months Ended June 30, Six Months Ended June 30,except pershare amounts) 2020 2019 Change 2020 2019 Change

Operating results:

Revenues^(1) $ 993,366 $ 1,043,316 (4.8) % $ 2,222,849 $ 2,196,326 1.2 %

Payroll taxes,benefits andworkers' 773,117 869,581 (11.1) % 1,768,578 1,795,874 (1.5) %compensationcosts

Gross profit 220,249 173,735 26.8 % 454,271 400,452 13.4 %

Salaries,wages and 90,710 74,696 21.4 % 177,211 158,076 12.1 %payroll taxes

Stock-based 10,694 8,256 29.5 % 17,246 14,296 20.6 %compensation

Commissions 7,475 7,741 (3.4) % 15,935 14,693 8.5 %

Advertising 5,720 7,548 (24.2) % 10,553 12,579 (16.1) %

General andadministrative 24,755 29,866 (17.1) % 59,608 63,028 (5.4) %expenses

Depreciationand 7,908 6,908 14.5 % 15,510 13,599 14.1 %amortization

Totaloperating 147,262 135,015 9.1 % 296,063 276,271 7.2 %expenses

Operating 72,987 38,720 88.5 % 158,208 124,181 27.4 %income

Other income (expense):

Interest 369 2,802 (86.8) % 2,248 6,047 (62.8) %income

Interest (2,219) (1,639) 35.4 % (4,581) (3,320) 38.0 %expense

Income beforeincome tax 71,137 39,883 78.4 % 155,875 126,908 22.8 %expense

Income tax 19,286 11,327 70.3 % 41,932 22,063 90.1 %expense

Net income $ 51,851 $ 28,556 81.6 % $ 113,943 $ 104,845 8.7 %

Lessdistributedandundistributed (276) (309) (10.7) % (724) (1,183) (38.8) %earnings allocated toparticipatingsecurities

Net incomeallocated to $ 51,575 $ 28,247 82.6 % $ 113,219 $ 103,662 9.2 %common shares



Net income per share of common stock

Basic $ 1.34 $ 0.69 94.2 % $ 2.93 $ 2.55 14.9 %

Diluted $ 1.33 $ 0.69 92.8 % $ 2.91 $ 2.54 14.6 %

____________________________________

(1) Revenues are comprised of gross billings less WSEE payroll costs as follows:

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2020 2019 2020 2019



Gross billings $ 6,355,683 $ 6,377,014 $ 13,792,437 $ 13,248,684

Less: WSEE payroll 5,362,317 5,333,698 11,569,588 11,052,358 cost

Revenues $ 993,366 $ 1,043,316 $ 2,222,849 $ 2,196,326

Insperity, Inc.

KEY FINANCIAL AND STATISTICAL DATA

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 Change 2020 2019 Change



Average 227,894 232,010 (1.8) % 232,954 228,768 1.8 %WSEEs paid

Statisticaldata (per WSEE per month):

Revenues^ $ 1,453 $ 1,499 (3.1) % $ 1,590 $ 1,600 (0.6) %(1)

Gross 322 250 28.8 % 325 292 11.3 %profit

Operating 215 194 10.8 % 212 201 5.5 %expenses

Operating 107 56 91.1 % 113 90 25.6 %income

Net income 76 41 85.4 % 82 76 7.9 %

____________________________________

(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 June Six Months Ended June 30, 30,

(per WSEE per month) 2020 2019 2020 2019

Gross billings $ 9,296 $ 9,162 $ 9,868 $ 9,652

Less: WSEE payroll cost 7,843 7,663 8,278 8,052

Revenues $ 1,453 $ 1,499 $ 1,590 $ 1,600

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 Definition Benefit of Non-GAAP MeasureMeasure

Non-bonus payroll cost is a non-GAAP financial measure that excludes Our management refers to non-bonus payroll the impact of bonus cost in analyzing, reporting and payrolls paid to our forecasting our workers' compensation WSEEs. costs.

Non-bonus payrollcost Bonus payroll cost We include these non-GAAP financial varies from period to measures because we believe they are useful period, but has no to investors in allowing for greater direct impact to our transparency related to the costs incurred ultimate workers' under our current workers' compensation compensation costs program. under the current program.

Excludes funds associated with:

Adjusted ? federal and statecash, cash income taxequivalents withholdings,andmarketable ? employment taxes,securities ? other payroll deductions, and

? client prepayments.



Represents net income computed in accordance We believe that the exclusion of the with GAAP, plus: identified items helps us reflect the fundamentals of our underlying business ? interest expense, model and analyze results against ourEBITDA expectations, against prior periods, and to ? income tax expense, plan for future periods by focusing on our and underlying operations. We believe that the adjusted results provide relevant and ? depreciation and useful information for investors because amortization expense. 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 Represents EBITDA plus: performance. Adjusted EBITDA is used by ourAdjusted lenders to assess our leverage and abilityEBITDA ? non-cash stock-based to make interest payments. compensation.



Represents net incomeAdjusted computed in accordanceNet Income with GAAP, excluding: ? non-cash stock-based compensation.



Represents diluted net income per shareAdjusted computed in accordanceEPS with GAAP, excluding: ? non-cash stock-based compensation.

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

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, 2020 2019 2020 2019except per WSEEper month) $ WSEE $ WSEE $ WSEE $ WSEE



Payroll cost $ 5,362,317 $ 7,843 $ 5,333,698 $ 7,663 $ 11,569,588 $ 8,278 $ 11,052,358 $ 8,052

Less: Bonus 453,121 662 451,828 649 1,504,089 1,076 1,442,406 1,051 payroll cost

Non-bonus payroll $ 4,909,196 $ 7,181 $ 4,881,870 $ 7,014 $ 10,065,499 $ 7,202 $ 9,609,952 $ 7,001 cost

% Change period 0.6 % 2.4 % 14.7 % 0.8 % 4.7 % 2.9 % 15.3 % 0.7 %over period

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

(in thousands) June 30, December 2020 31, 2019



Cash, cash equivalents and marketable securities $ 491,351 $ 402,070

Less:

Amounts payable for withheld federal and stateincome taxes, employment taxes and other payroll 190,909 234,553 deductions

Client prepayments 31,470 59,612

Adjusted cash, cash equivalents and marketable $ 268,972 $ 107,905 securities

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

Three Months Ended June 30, Six Months Ended June 30,(in thousands, exceptper WSEE per month) 2020 2019 2020 2019

$ WSEE $ WSEE $ WSEE $ WSEE



Net income $ 51,851 $ 76 $ 28,556 $ 41 $ 113,943 $ 82 $ 104,845 $ 76

Income tax expense 19,286 28 11,327 16 41,932 30 22,063 16

Interest expense 2,219 3 1,639 2 4,581 3 3,320 2

Depreciation and 7,908 12 6,908 11 15,510 11 13,599 11 amortization

EBITDA 81,264 119 48,430 70 175,966 126 143,827 105

Stock-based 10,694 16 8,256 11 17,246 12 14,296 10 compensation

Adjusted EBITDA $ 91,958 $ 135 $ 56,686 $ 81 $ 193,212 $ 138 $ 158,123 $ 115

% Change period over 62.2 % 66.7 % 21.6 % 6.6 % 22.2 % 20.0 % 21.2 % 5.5 %period

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

Three Months Ended June Six Months Ended June 30, 30,

(in thousands) 2020 2019 2020 2019



Net income $ 51,851 $ 28,556 $ 113,943 $ 104,845

Non-GAAP adjustments:

Stock-based compensation 10,694 8,256 17,246 14,296

Total non-GAAP 10,694 8,256 17,246 14,296 adjustments

Tax effect (2,899) (2,345) (4,650) (3,090)

Adjusted net income $ 59,646 $ 34,467 $ 126,539 $ 116,051

% Change period over 73.1 % 20.2 % 9.0 % 31.5 %period

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

Three Months Ended June Six Months Ended June 30, 30,

2020 2019 2020 2019



Diluted EPS $ 1.33 $ 0.69 $ 2.91 $ 2.54

Non-GAAP adjustments:

Stock-based compensation 0.27 0.20 0.44 0.35

Total non-GAAP 0.27 0.20 0.44 0.35 adjustments

Tax effect (0.06) (0.06) (0.11) (0.08)

Adjusted EPS $ 1.54 $ 0.83 $ 3.24 $ 2.81

% Change period over 85.5 % 22.1 % 15.3 % 34.4 %period

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

(in millions, except per share amounts) Q3 2020 Full Year 2020 Guidance Guidance



Net income $8 - $15 $120 - $134

Income tax expense 3 - 5 44 - 50

Interest expense 2 8

Depreciation and amortization 8 31

EBITDA 21 - 30 203 - 223

Stock-based compensation 8 32

Adjusted EBITDA $29 - $38 $235 - $255



Diluted net income per share of common $0.21 - $0.38 $3.07 - $3.44stock

Non-GAAP adjustments:

Stock-based compensation 0.22 0.82

Total non-GAAP adjustments 0.22 0.82

Tax effect (0.06) (0.22)

Adjusted EPS $0.37 - $0.54 $3.67 - $4.04

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CONTACT: 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