Insperity Beats on Q4 Earnings; Down Y/Y

Zacks

Insperity Inc. (NSP) reported adjusted earnings of 24 cents per share which came ahead of the Zacks Consensus Estimate by a penny. However, on a year-over-year basis, earnings were down 48.9%.

Quarter Details

Although Insperity’s fourth-quarter revenues of $557.1 million increased 4.6% on a year-over-year basis, it lagged the Zacks Consensus Estimate of $561 million. The year-over-year improvement was attributed to higher average paid worksite employees. The company reported average client retention of 99% during the quarter. However, net hiring from its clients was low.

Insperity’s gross margins were down 141 basis points from the year-ago quarter to 16.2% primarily due to higher-than-anticipated healthcare costs.

The company’s operating expenses increased 7.1% from the year-ago quarter’s costs related to training of Business Performance Advisors and the reform strategy regarding healthcare related costs. Operating margins came in at 1.2% compared to 2.9% in the year-ago period primarily due to higher operating expenses.

Insperity’s adjusted net income decreased from $11.9 million or 47 cents per share reported in the year-ago quarter to $6.2 million or 24 cents per share.

Insperity exited the fourth quarter with cash, marketable securities and restricted cash of $277.7 million compared to $259.6 million in the previous quarter. The company has paid dividends of $17.4 million and repurchased shares worth $17.2 million during fiscal 2013.

Guidance

Insperity expects gross profit per worksite employee per month in the range of $247–$241 for first-quarter 2014 and $248–$258 for fiscal 2014. The company expects operating expenses in the range of $90.5–$91.5 million for the first quarter and $362.5 – $367.5 million for fiscal 2014.

For fiscal 2014, Insperity expects its earnings per share in the range of $1.16 to $1.60, below the Zacks Consensus Estimate of $1.70 per share.  

Conclusion

Insperity provides human resources as well as business solutions to small and medium business to help them perform better. The company reported mixed fourth-quarter results wherein the top line lagged the Zacks Consensus Estimate, but the bottom line scraped past the same. Margins were also impacted by higher-than-expected expenses.

Nonetheless, we believe management’s initiatives to expand the number of Business Performance Advisors and implement healthcare reform strategy will be beneficial in the long run. Moreover, the company’s software-as-a-service and other adjacent business services are also gaining traction which are expected to improve the 2014 results.

A debt-free balance sheet, share repurchases and dividend payouts are positives, but increasing expenses, stiff competition from Automatic Data Processing Inc. (ADP), Paychex Inc. (PAYX) and Manpower Group Inc. (MAN) are concerns.

Currently, Insperity has a Zacks Rank #3 (Hold).

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