Insperity, Inc. (NYSE:NSP) Q1 2017 Earnings Conference Call - Final Transcript

May 01, 2017 • 10:00 am ET


Insperity, Inc. (NYSE:NSP) Q1 2017 Earnings Conference Call - Final Transcript


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Good morning. My name is Carol, and I will be your conference operator today. I would like to welcome everyone to the Insperity First Quarter 2017 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) Thank you.

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'd like to turn the call over to Douglas Sharp. Mr. Sharp, please go ahead.

Douglas Sharp

Thank you. We appreciate you joining us this morning. Let me begin by outlining our plan for this morning's call. First, I'm going to discuss the details of our first quarter 2017 financial results. Paul will then comment on the key drivers behind our Q1 results and our plans for the remainder of the year. I will return to provide our financial guidance for the second quarter with an update to the full year 2017 guidance. 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's discuss the details behind our first quarter results, where we achieved a record high $1.84 in adjusted EPS on continued double-digit worksite employee growth. Average paid worksite employees increased 10% over Q1 of 2016, driven by both the high level of client retention during our heavy Q1 client renewal period and continuing strong sales. Client attrition totaled only 8.3% for the quarter. This is now our third year in a row where attrition has come in lower than our previous historical first quarter trend of 11% to 13%.

On the other hand, net hiring by the client base, which is the uncontrollable component of our growth, continued to be weak, declining by 30% from the first quarter of 2016.

In addition to strong year-end sales and client retention, we successfully managed our pricing to slightly higher-than-budgeted levels. Q1 benefit costs came in higher than expected, primarily due to large claim activity, while favorable results were achieved in our payroll tax and workers' compensation areas. As for our first quarter operating expenses, we continue to make planned investments in our growth, including a 13% increase in the number of total Business Performance Advisors and investments in our technology infrastructure, security and development.

Operating leverage and budgeted savings in other areas of the business resulted in a decline in operating expense for worksite employee per month from $204 in Q1 of 2016 to $202 in Q1 of this year. Our effective tax rate in Q1 came in at 33.2% was favorably impacted by the tax benefit associated with divesting of restricted stock awards. For the remaining quarters, we continue to estimate a tax rate of 38%, which then equates to a full year rate of 36%. So after putting all the pieces