Insperity, Inc. (NYSE:NSP) Q4 2016 Earnings Conference Call - Final Transcript

Feb 13, 2017 • 10:00 am ET

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Insperity, Inc. (NYSE:NSP) Q4 2016 Earnings Conference Call - Final Transcript

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Operator
operator

Good morning. My name is Christina and I will be your conference operator today. I would like to welcome everyone to the Insperity Fourth Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions) At this time I would like to introduce today's speakers. Joining us are Paul Sarvadi, Chairman of the Board and Chief Executive Officer; Richard Rawson, President; and Douglas Sharp, Senior Vice President of Finance, Chief Financial Officer, and Treasurer. At this time I would like to turn the call over to Douglas Sharp. Mr. Sharp, please go ahead.

Executive
Douglas Sharp

Thank you. We appreciate you joining us this morning. Let me begin by outlining our plans for this morning's call. First, I'm going to discuss the details of our fourth quarter and full year 2016 financial results. Paul will then recap the 2016 year and discuss the major initiatives of our 2017 plan. I will return to provide our financial guidance for the first quarter and full year 2017.

We will then end the call with a question-and-answer session where Paul, Richard, and I will be available. (Forward-Looking Cautionary Statements) Now let me begin today's call by discussing our fourth quarter results which included strong bottom line results, driven by continued double-digit worksite employee growth, effective management of our direct cost programs, and operating leverage.

Adjusted EPS increased 76% over Q4 of 2015 to $0.58 and adjusted EBITDA increased 37% to $23 million. Our fourth quarter results were driven by a 13% increase in average paid worksite employees over Q4 of 2015. Client retention remained strong, averaging -- again averaging over 99% for the quarter. Net hiring by the client base continued to be weak compared to our historical levels and, in fact, was overall a negative for the quarter.

Gross profit increased by 14% over Q4 of 2015 with both benefit and workers' compensation costs managed to favorable trends. Q4 adjusted operating expenses increased by 10% and included our continued investment in growth with an 11% increase in the number of Business Performance Advisors. We continued to produce operating leverage in various areas of the business, as demonstrated by a decrease in adjusted operating expense per employee per month from $191 in Q4 of 2015 to $186 in Q4 of this year.

Our Q4 effective income tax rate was 33.5%, which was lower than expected, due primarily to credits associated with software development activity. The full-year 2016 effective income tax rate came in at 37%. During the quarter, we repurchased approximately 253,000 shares of our stock at a cost of $17.7 million, in addition to our ongoing dividend program as we continue to focus on return to our shareholders.

Now before I turn the call over to Paul, let me summarize our record-high full-year 2016 operating results. Adjusted EPS increased 64% to $3.59 and adjusted EBITDA increased 28% over 2015 to $141 million. Average paid worksite employees increased 14%