Insperity, Inc. (NYSE:NSP) Q3 2017 Earnings Conference Call - Final Transcript

Nov 01, 2017 • 10:00 am ET

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Insperity, Inc. (NYSE:NSP) Q3 2017 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good morning. My name is Jesse, and I'll be your conference operator today. I would like to welcome everyone to the Insperity Third 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) At this time, I would like to introduce today's speakers. Joining us are Paul Sarvadi, Chairman of the Board and CEO; Richard Rawson, President; and Douglas Sharp, SVP of Finance, CFO and Treasurer.

At this time, I would like to turn the call over to Douglas Sharp. Mr. Sharp, please go ahead.

Executive
Douglas Sharp

Yes, 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 third quarter 2017 financial results. Paul will then comment on our recent results and our plan as we head into 2018. I will return to provide our financial guidance for the fourth quarter. 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 record third quarter results. Adjusted EPS increased 46% over Q3 of 2016 to $1.14 and adjusted EBITDA increased 38% to $43 million, both significantly above the high end of our forecasted ranges. Through the first nine months of 2017, we are ahead of our initial budget, having generated a 26% increase in adjusted EPS over 2016 to $3.80.

As for the details. Average paid worksite employees increased 10.5% over Q3 of 2016. The worksite employee growth resulted from new client sales driven by a 12% increase in the average number of trained Business Performance Advisors and client retention of 99% during the quarter. Double digit worksite employee growth continued in spite of a headwind from the disruption caused by the recent hurricanes in Texas and Florida. Additionally, we experienced an overall net loss associated with employee hiring and terminations by our client base during the quarter compared to a net gain in Q3 of 2016.

Gross profit increased 19% over Q3 of 2016 on the 10.5% worksite employee growth as our direct cost programs trended favorably and pricing allocations exceeded forecasted levels. Benefit costs, and in particular health care claims, came in significantly below our forecast. Additionally, workers' compensation costs continued to develop favorably as a result of effective safety and claims management services. The elimination of double taxation of FICA and FUTA associated with the SBEA law came in at an expected level of approximately $1 million.

Third quarter operating expenses were managed below forecasted levels, outside of an additional accrual for incentive compensation tied to our outperformance during the quarter and charitable activity (ph) associated with Hurricane Harvey relief efforts. We continued to invest in our growth, including an increase in a number of Business Performance Advisors and in our technology, including our new Insperity Premier HCM platform.

Now as a result