Insperity Announces Second Quarter Results

Insperity, Inc. (NYSE: NSP), a leading provider of human resources and business performance solutions for America’s best businesses, today reported results for the 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.

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.

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