Insperity, Inc. (NYSE:NSP) Q2 2018 Earnings Conference Call - Final Transcript

Aug 01, 2018 • 10:00 am ET

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Insperity, Inc. (NYSE:NSP) Q2 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good morning. My name is Lei, and I will be your conference operator today. I would like to welcome everyone to the Insperity Second Quarter 2018 Conference Call. All lines have been placed in 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; 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.

Executive
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 am going to discuss the details behind our second quarter 2018 financial results. Paul will then comment on the key drivers behind our Q2 results and our plans for the remainder of the year. I will return to provide our financial guidance for the third quarter and an update to the full year 2018 guidance. We will then end the call with a question-and-answer session.

(Forward-Looking Cautionary Statements)

Now let's discuss the details behind our strong second quarter results. We once again achieved record high operating results reporting $0.68 in adjusted EPS, a 66% increase over Q2 of 2017 and adjusted EBITDA of $46.6 million, an increase of 40%. These results were driven by continued double-digit worksite employee growth and effective management of gross profit and operating costs.

As for some of the details, average paid worksite employees increased 13% over Q2 of 2017 to 203,950, above the high end of our forecasted range and accelerating off of Q1's growth of 12%. This quarter's growth was driven by continued strong sales, a high level of client retention and improvement in net hiring by our clients.

As for our sales efforts, we have been successful in exceeding our goal on the hiring of Business Performance Advisors to drive growth in our core client segment and have experienced increased sales activity in our MidMarket segment.

Client retention during the quarter totaled over 99%, consistent with Q2 of 2017 and we are on track to hit the recent historical highs of 85% to 86% for the full year 2018.

Gross profit increased 18% over Q2 of 2017 and was driven by the 13% worksite employee growth, improved pricing and effective management of our direct cost areas. This is reflected in an increase in gross profit per worksite employee per month from $241 in Q2 of 2017 to $253 in Q2 of this year.

Q2 adjusted operating expenses increased 12% over Q2 of 2017, declining on a per worksite employee per month basis from $199 in the prior year to $198 in Q2 of 2018. This is reflective of planned investments in our growth, including the hiring of Business Performance Advisors and service personnel, and in technology development, while we leverage other areas of the business. Our