Insperity Announces Second Quarter Results

HOUSTON--(BUSINESS WIRE)--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, 2021:

• Q2 average number of WSEEs paid and revenues up 7% and 19%, respectively
• Q2 net income and diluted EPS of $25.2 million and $0.65, respectively
• Q2 adjusted EBITDA and adjusted EPS of $60.2 million and $0.91, respectively
• YTD net income and diluted EPS of $87.1 million and $2.24, respectively
• YTD adjusted EBITDA and adjusted EPS of $164.4 million and $2.72, respectively

Second Quarter Results

The average number of worksite employees (“WSEEs”) paid per month in Q2 2021 increased 7% to 243,270 WSEEs. WSEEs paid from new sales and net gains from hiring in our client base drove the accelerated growth above the high end of our expectations. Client retention remained at our historical high levels, averaging 99% for the quarter. Revenues in Q2 2021 increased 19% to $1.2 billion on the 7% increase in paid worksite employees and a 12% increase in revenue per WSEE, which includes a 6% increase in pricing and the non-recurrence of the 2020 FICA deferral credits and customer comprehensive service fee credits.

“We are pleased with our strong results and successful execution of our plan over the first half of this year,” said Paul J. Sarvadi, Insperity chief executive officer and chairman. “Over the balance of 2021, we expect to invest and build upon our strong momentum in order to capitalize on our exceptional market opportunity in the years ahead.”

Gross profit for Q2 2021 totaled $199.6 million and included the growth in paid worksite employees and revenue per worksite employee above targeted levels and favorable results from our workers’ compensation program. The 9% decline in gross profit from Q2 of the prior year was primarily attributable to unusually low benefit costs in Q2 2020 due to the deferral of care at the onset of the pandemic. In Q2 2021, higher benefit costs were driven by increased utilization of our health plan, including care previously deferred during the height of the pandemic and COVID-19 related vaccination, testing and treatment costs. The impact of these higher benefit costs was partially offset by improved results in our payroll tax area, as state unemployment tax rates received during Q2 came in lower than our estimates and also included the receipt of $11 million of federal payroll tax refunds related to prior years.

Operating expenses increased 12% over Q2 2020, however increased just 8% when excluding performance-based compensation. Second quarter 2021 operating costs reflected continued growth investments, including an increase in marketing costs associated with lead generation activity and our SalesForce implementation. While we have reinstituted travel for certain employees and events, these costs, along with other personnel and G&A costs continue to be managed at historically low levels as the economy and our growth recovers from the pandemic.

For the second quarter of 2021, reported net income and diluted earnings per share (“EPS”) were $25.2 million and $0.65, respectively. Adjusted EBITDA decreased 35% to $60.2 million and adjusted EPS decreased 41% to $0.91. The year over year earnings comparisons to the second quarter of 2020 reflect unusually low benefits costs in that period due to low utilization of our health plan during the onset of the pandemic.

“We are pleased with our performance throughout the uncertainty of the pandemic, continuing our profitability and reestablishing our growth momentum,” said Douglas S. Sharp, Insperity senior vice president of finance, chief financial officer and treasurer. “This has positioned us to continue to invest in our long-term growth while providing strong return to our shareholders, including the recent increase in our dividend and our ongoing share repurchase program.”

Year-to-Date Results

Revenues for the first six months of 2021 increased 11% to $2.5 billion on a 2% increase in paid worksite employees and a 9% increase in revenue per WSEE. Gross profit for the first six months of 2021 decreased 1% to $451.0 million. Operating expenses increased 12% to $332.0 million over the 2020 period.

For the six months ended June 30, 2021, reported net income and diluted EPS were $87.1 million and $2.24, respectively. Adjusted EPS decreased 16% over the first six months of 2020 to $2.72. Adjusted EBITDA decreased 15% over the first six months of 2020 to $164.4 million.

Net income per WSEE per month decreased 26% from $82 in the 2020 period to $61 in the 2021 period. Adjusted EBITDA per WSEE per month decreased 17% from $138 in the 2020 period to $115 in the 2021 period.

Cash outlays in the first six months of 2021 included the repurchase of approximately 438,000 shares of stock at a cost of $38.5 million, dividends totaling $32.8 million and capital expenditures of $20.7 million. Adjusted cash totaled $213 million at June 30, 2021 and $130 million remains available under our $500 million credit facility.

2021 Guidance

The company also announced its updated guidance for 2021, including the third quarter of 2021. 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 2021			Full Year 2021
Average WSEEs paid^(a)	253,800	—	256,100	247,100	—	249,500
Year-over-year increase	9.5%	—	10.5%	5.5%	—	6.5%
Adjusted EPS	$0.74	—	$0.93	$4.00	—	$4.59
Year-over-year increase (decrease)	(19)%	—	2%	(14)%	—	(1)%
Adjusted EBITDA (in millions)	$52	—	$62	$258	—	$288
Year-over-year increase (decrease)	(10)%	—	8%	(11)%	—	0%
(a) Q3 2021 guidance for average WSEEs paid represents 4.3% to 5.3% sequential growth compared to Q2 2021.

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.

Conference Call and Webcast

Insperity will be hosting a conference call today at 5 p.m. ET to discuss these results, and the guidance discussed in this press release, and answer questions from investment analysts. To listen in, call 877-651-0053 and use conference i.d. number 1411119. 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. 1411119. The webcast will be archived for one year.

About Insperity

Since 1986, Insperity’s mission has been to help businesses succeed so communities prosper. Offering the most comprehensive suite of scalable HR solutions available in the marketplace, Insperity is defined by an unrivaled breadth and depth of services and level of care. Through an optimal blend of premium HR service and technology, Insperity delivers the administrative relief, reduced liabilities and better benefit solutions that businesses need for sustained growth. With 2020 revenues of $4.3 billion and more than 80 offices throughout the U.S., Insperity is currently making a difference in thousands of businesses and communities 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 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 “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “possibly,” “probably,” “could,” “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, in an effort to help keep our stockholders and the public informed about our operations, from time to time, we may 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, average number of worksite employees, benefits and workers’ compensation costs, or other operating results. We base the forward-looking statements on our current expectations, estimates and projections. We caution you that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions 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;
• vulnerability to regional economic factors because of our geographic market concentration;
• failure to comply with covenants under our credit facility;
• our liability for worksite employee payroll, payroll taxes and benefits costs;
• 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;
• cancellation of client contracts on short notice, or the inability to renew client contracts or attract new clients;
• the ability to secure competitive replacement contracts for health insurance and workers’ compensation insurance at expiration of current contracts;
• regulatory and tax developments and possible adverse application of various federal, state and local regulations;
• 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;
• an adverse final judgment or settlement of claims against Insperity;
• disruptions of our information technology systems;
• our liability or damage to our reputation relating to disclosure of sensitive or private information as a result of data theft, cyberattacks or security vulnerabilities;
• failure of third-party providers, data centers or cloud service providers; and
• our ability to integrate or realize expected returns on our acquisitions.

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, 2021			December 31, 2020
Assets
Cash and cash equivalents	$	455,387		$	554,846
Restricted cash		46,128			45,522
Marketable securities		34,597			34,529
Accounts receivable, net		595,836			392,746
Prepaid insurance		17,143			10,164
Other current assets		47,070			39,461
Income taxes receivable		5,128			—
Total current assets		1,201,289			1,077,268
Property and equipment, net		219,611			216,256
Right of use leased assets		66,463			60,663
Prepaid health insurance		9,000			9,000
Deposits		211,512			194,231
Goodwill and other intangible assets, net		12,707			12,707
Deferred income taxes, net		442			9,603
Other assets		7,060			4,548
Total assets	$	1,728,084		$	1,584,276
Liabilities and stockholders' equity
Accounts payable	$	4,063		$	6,203
Payroll taxes and other payroll deductions payable		262,975			377,960
Accrued worksite employee payroll cost		529,881			334,836
Accrued health insurance costs		29,064			32,685
Accrued workers’ compensation costs		49,845			48,186
Accrued corporate payroll and commissions		63,901			44,277
Other accrued liabilities		62,960			60,777
Total current liabilities		1,002,689			904,924
Accrued workers’ compensation cost, net of current		192,703			195,239
Long-term debt		369,400			369,400
Operating lease liabilities, net of current		69,736			64,289
Other accrued liabilities, net of current		6,294			6,292
Total noncurrent liabilities		638,133			635,220
Stockholders’ equity:
Common stock		555			555
Additional paid-in capital		94,396			95,528
Treasury stock, at cost		(635,627	)		(626,984	)
Retained earnings		627,938			575,033
Total stockholders’ equity		87,262			44,132
Total liabilities and stockholders’ equity	$	1,728,084		$	1,584,276

Insperity, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)	Three Months Ended June 30,								Six Months Ended June 30,
	2021			2020			Change		2021			2020			Change
Operating results:
Revenues^(1)	$	1,185,371		$	993,366		19.3	%	$	2,472,206		$	2,222,849		11.2	%
Payroll taxes, benefits and workers’ compensation costs		985,817			773,117		27.5	%		2,021,207			1,768,578		14.3	%
Gross profit		199,554			220,249		(9.4	)%		450,999			454,271		(0.7	)%
Salaries, wages and payroll taxes		94,362			90,710		4.0	%		197,437			177,211		11.4	%
Stock-based compensation		13,781			10,694		28.9	%		25,603			17,246		48.5	%
Commissions		8,251			7,475		10.4	%		15,970			15,935		0.2	%
Advertising		8,975			5,720		56.9	%		14,297			10,553		35.5	%
General and administrative expenses		29,211			24,755		18.0	%		60,847			59,608		2.1	%
Depreciation and amortization		9,751			7,908		23.3	%		17,798			15,510		14.8	%
Total operating expenses		164,331			147,262		11.6	%		331,952			296,063		12.1	%
Operating income		35,223			72,987		(51.7	)%		119,047			158,208		(24.8	)%
Other income (expense):
Interest income		1,436			369		289.2	%		1,979			2,248		(12.0	)%
Interest expense		(1,975	)		(2,219	)	(11.0	)%		(3,574	)		(4,581	)	(22.0	)%
Income before income tax expense		34,684			71,137		(51.2	)%		117,452			155,875		(24.6	)%
Income tax expense		9,530			19,286		(50.6	)%		30,376			41,932		(27.6	)%
Net income	$	25,154		$	51,851		(51.5	)%	$	87,076		$	113,943		(23.6	)%
Less distributed and undistributed earnings allocated to participating securities		(37	)		(276	)	(86.6	)%		(193	)		(724	)	(73.3	)%
Net income allocated to common shares	$	25,117		$	51,575		(51.3	)%	$	86,883		$	113,219		(23.3	)%
Net income per share of common stock
Basic	$	0.65		$	1.34		(51.5	)%	$	2.26		$	2.93		(22.9	)%
Diluted	$	0.65		$	1.33		(51.1	)%	$	2.24		$	2.91		(23.0	)%
(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)	2021		2020		2021		2020
Gross billings	$	7,637,851	$	6,355,683	$	15,688,273	$	13,792,437
Less: WSEE payroll cost		6,452,480		5,362,317		13,216,067		11,569,588
Revenues	$	1,185,371	$	993,366	$	2,472,206	$	2,222,849

Insperity, Inc.
KEY FINANCIAL AND STATISTICAL DATA
(Unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
	2021		2020		Change		2021		2020		Change
Average WSEEs paid		243,270		227,894	6.7	%		238,220		232,954	2.3	%
Statistical data (per WSEE per month):
Revenues^(1)	$	1,624	$	1,453	11.8	%	$	1,730	$	1,590	8.8	%
Gross profit		273		322	(15.2	)%		316		325	(2.8	)%
Operating expenses		225		215	4.7	%		232		212	9.4	%
Operating income		48		107	(55.1	)%		83		113	(26.5	)%
Net income		34		76	(55.3	)%		61		82	(25.6	)%
(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 30,				Six Months Ended June 30,
(per WSEE per month)	2021		2020		2021		2020
Gross billings	$	10,466	$	9,296	$	10,976	$	9,868
Less: WSEE payroll cost		8,842		7,843		9,246		8,278
Revenues	$	1,624	$	1,453	$	1,730	$	1,590

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 Measure	Definition	Benefit of Non-GAAP Measure
Non-bonus payroll cost	Non-bonus payroll cost is a non-GAAP financial measure that excludes the impact of bonus payrolls paid to our WSEEs.   Bonus payroll cost varies from period to period, but has no direct impact to our ultimate workers’ compensation costs under the current program.	Our management refers to non-bonus payroll cost in analyzing, reporting and forecasting our workers’ compensation costs.   We include these non-GAAP financial measures because we believe they are useful to investors in allowing for greater transparency related to the costs incurred under our current workers’ compensation program.
Adjusted cash, cash equivalents and marketable securities	Excludes funds associated with: • federal and state income tax withholdings, • employment taxes, • other payroll deductions, and • client prepayments.	We believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and analyze results against our expectations, against prior periods, and to plan for future periods by focusing on our underlying operations. We believe that the adjusted results provide relevant and useful information for investors because 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 performance. Adjusted EBITDA is used by our lenders to assess our leverage and ability to make interest payments.
Adjusted operating expenses	Represents operating expenses excluding the impact of the following: • non-cash stock-based compensation, and • depreciation and amortization expense.
EBITDA	Represents net income computed in accordance with GAAP, plus: • interest expense, • income tax expense, and • depreciation and amortization expense.
Adjusted EBITDA	Represents EBITDA plus: • non-cash stock-based compensation.
Adjusted net income	Represents net income computed in accordance with GAAP, excluding: • non-cash stock-based compensation.
Adjusted EPS	Represents diluted net income per share computed in accordance 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, except per WSEE per month)	2021						2020						2021						2020
				Per WSEE						Per WSEE						Per WSEE						Per WSEE
Payroll cost	$	6,452,480		$	8,842		$	5,362,317		$	7,843		$	13,216,067		$	9,246		$	11,569,588		$	8,278
Less: Bonus payroll cost		796,154			1,092			453,121			662			2,216,629			1,551			1,504,089			1,076
Non-bonus payroll cost	$	5,656,326		$	7,750		$	4,909,196		$	7,181		$	10,999,438		$	7,695		$	10,065,499		$	7,202
% Change period over period		15.2	%		7.9	%		0.6	%		2.4	%		9.3	%		6.8	%		4.7	%		2.9	%

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, 2021		December 31, 2020
Cash, cash equivalents and marketable securities	$	489,984	$	589,375
Less:
Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions	226,727		341,988
Client prepayments	50,420		35,328
Adjusted cash, cash equivalents and marketable securities	$	212,837	$	212,059

Following is a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP):
(in thousands, except per WSEE per month)	Three Months Ended June 30,												Six Months Ended June 30,
	2021						2020						2021						2020
				Per WSEE						Per WSEE						Per WSEE						Per WSEE
Net income	$	25,154		$	34		$	51,851		$	76		$	87,076		$	61		$	113,943		$	82
Income tax expense		9,530			13			19,286			28			30,376			21			41,932			30
Interest expense		1,975			3			2,219			3			3,574			3			4,581			3
Depreciation and amortization		9,751			14			7,908			12			17,798			12			15,510			11
EBITDA		46,410			64			81,264			119			138,824			97			175,966			126
Stock-based compensation		13,781			18			10,694			16			25,603			18			17,246			12
Adjusted EBITDA	$	60,191		$	82		$	91,958		$	135		$	164,427		$	115		$	193,212		$	138
% Change period over period		(34.5	)%		(39.3	)%		62.2	%		66.7	%		(14.9	)%		(16.7	)%		22.2	%		20.0	%

Following is a reconciliation of net income (GAAP) to adjusted net income (non-GAAP):
	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2021			2020			2021			2020
Net income	$	25,154		$	51,851		$	87,076		$	113,943
Non-GAAP adjustments:
Stock-based compensation		13,781			10,694			25,603			17,246
Tax effect		(3,643	)		(2,899	)		(6,621	)		(4,650	)
Total non-GAAP adjustments, net		10,138			7,795			18,982			12,596
Adjusted net income	$	35,292		$	59,646		$	106,058		$	126,539
% Change period over period		(40.8	)%		73.1	%		(16.2	)%		9.0	%

Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS (non-GAAP):
	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Diluted EPS	$	0.65		$	1.33		$	2.24		$	2.91
Non-GAAP adjustments:
Stock-based compensation	0.35			0.27			0.66			0.44
Tax effect	(0.09)			(0.06)			(0.18)			(0.11)
Total non-GAAP adjustments, net	$	0.26		$	0.21		$	0.48		$	0.33
Adjusted EPS	$	0.91		$	1.54		$	2.72		$	3.24
% Change period over period	(40.9)		%	85.5		%	(16.0)		%	15.3		%

Following is a reconciliation of GAAP to non-GAAP financial measures for third quarter and full year 2021 guidance:
(in millions, except per share amounts)	Q3 2021 Guidance	Full Year 2021 Guidance
Net income	$21 - $28	$123 - $146
Income tax expense	8 - 11	44 - 51
Interest expense	2	8
Depreciation and amortization	10	39
EBITDA	41 - 51	214 - 244
Stock-based compensation	11	44
Adjusted EBITDA	$52 - $62	$258 - $288
Diluted net income per share of common stock	$0.55 - $0.74	$3.17 - $3.76
Non-GAAP adjustments:
Stock-based compensation	0.27	1.13
Tax effect	(0.08)	(0.30)
Total non-GAAP adjustments, net	0.19	0.83
Adjusted EPS	$0.74 - $0.93	$4.00 - $4.59