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, 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) (b)		$29		—		$38		$235		—		$255
Year-over-year increase (decrease)		(43)%		—		(26)%		(6)%		—		2%

____________________________________

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

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 payable		219,492				277,248
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 current		197,501				193,609
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, except per share amounts)		Three Months Ended June 30,											Six Months Ended June 30,
		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 and workers’ compensation costs		773,117				869,581				(11.1)	%		1,768,578				1,795,874				(1.5)	%
Gross profit		220,249				173,735				26.8	%		454,271				400,452				13.4	%
Salaries, wages and payroll taxes		90,710				74,696				21.4	%		177,211				158,076				12.1	%
Stock-based compensation		10,694				8,256				29.5	%		17,246				14,296				20.6	%
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 and administrative expenses		24,755				29,866				(17.1)	%		59,608				63,028				(5.4)	%
Depreciation and amortization		7,908				6,908				14.5	%		15,510				13,599				14.1	%
Total operating expenses		147,262				135,015				9.1	%		296,063				276,271				7.2	%
Operating income		72,987				38,720				88.5	%		158,208				124,181				27.4	%
Other income (expense):
Interest income		369				2,802				(86.8)	%		2,248				6,047				(62.8)	%
Interest expense		(2,219)				(1,639)				35.4	%		(4,581)				(3,320)				38.0	%
Income before income tax expense		71,137				39,883				78.4	%		155,875				126,908				22.8	%
Income tax expense		19,286				11,327				70.3	%		41,932				22,063				90.1	%
Net income		$	51,851			$	28,556			81.6	%		$	113,943			$	104,845			8.7	%
Less distributed and undistributed earnings allocated to participating securities		(276)				(309)				(10.7)	%		(724)				(1,183)				(38.8)	%
Net income allocated to common shares		$	51,575			$	28,247			82.6	%		$	113,219			$	103,662			9.2	%
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 cost		5,362,317				5,333,698				11,569,588				11,052,358
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 WSEEs paid		227,894				232,010				(1.8)	%		232,954				228,768				1.8	%
Statistical data (per WSEE per month):
Revenues(1)		$	1,453			$	1,499			(3.1)	%		$	1,590			$	1,600			(0.6)	%
Gross profit		322				250				28.8	%		325				292				11.3	%
Operating expenses		215				194				10.8	%		212				201				5.5	%
Operating income		107				56				91.1	%		113				90				25.6	%
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 30,								Six Months Ended June 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 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.
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)		2020								2019								2020								2019
		$				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 payroll cost		453,121				662				451,828				649				1,504,089				1,076				1,442,406				1,051
Non-bonus payroll cost		$	4,909,196			$	7,181			$	4,881,870			$	7,014			$	10,065,499			$	7,202			$	9,609,952			$	7,001
% Change period over period		0.6		%		2.4		%		14.7		%		0.8		%		4.7		%		2.9		%		15.3		%		0.7		%

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, 2020				December 31, 2019
Cash, cash equivalents and marketable securities		$	491,351			$	402,070
Less:
Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions		190,909				234,553
Client prepayments		31,470				59,612
Adjusted cash, cash equivalents and marketable securities		$	268,972			$	107,905

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,
		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 amortization		7,908				12				6,908				11				15,510				11				13,599				11
EBITDA		81,264				119				48,430				70				175,966				126				143,827				105
Stock-based compensation		10,694				16				8,256				11				17,246				12				14,296				10
Adjusted EBITDA		$	91,958			$	135			$	56,686			$	81			$	193,212			$	138			$	158,123			$	115
% Change period over period		62.2		%		66.7		%		21.6		%		6.6		%		22.2		%		20.0		%		21.2		%		5.5		%

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)		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 adjustments		10,694				8,256				17,246				14,296
Tax effect		(2,899)				(2,345)				(4,650)				(3,090)
Adjusted net income		$	59,646			$	34,467			$	126,539			$	116,051
% Change period over period		73.1		%		20.2		%		9.0		%		31.5		%

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

		Three Months Ended June 30,								Six Months Ended June 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 adjustments		0.27				0.20				0.44				0.35
Tax effect		(0.06)				(0.06)				(0.11)				(0.08)
Adjusted EPS		$	1.54			$	0.83			$	3.24			$	2.81
% Change period over period		85.5		%		22.1		%		15.3		%		34.4		%

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 Guidance		Full Year 2020 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 stock		$0.21 - $0.38		$3.07 - $3.44
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

View source version on businesswire.com: https://www.businesswire.com/news/home/20200803005558/en/

Investor Relations Contact:

Douglas S. Sharp

Senior Vice President of Finance,

Chief Financial Officer and Treasurer

(281) 348-3232

[email protected]



News Media Contact:

Suzanne Haugen

Public Relations Manager

(281) 312-3543

[email protected]

Source: Insperity, Inc.

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