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Insperity (NSP) Q1 Earnings Top, Stock Up on Raised View

Zacks Equity Research
Updated

Insperity Inc. NSP reported first-quarter 2016 earnings (including stock-based compensation expense) of $1.53 cents per share that beat the Zacks Consensus Estimate of $1.39 and increased 91.3% on a year-over-year basis.

Insperity’s revenues of $802.4 million increased 14.7% on a year-over-year basis and handily beat the Zacks Consensus Estimate of $794.6 million.

The better-than-expected results were driven by higher average paid worksite employees (up 15%) growth and higher client retention. The company also raised its full year earnings and revenue guidance. Shares closed up 7% yesterday.

Quarterly Numbers in Details

Insperity’s gross margin in the quarter was up 10 basis points from the year-ago quarter to 18.7%.

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The company’s operating expenses (including stock-based compensation) declined 8.8% year over year to $97 million.  Operating margin was 6.6% compared with 3.4% in the year-ago period.

Insperity exited the quarter with cash, marketable securities and restricted cash of $318.8 million compared with $269.5 million as on Dec 31, 2015. The company repurchased about $3 million worth of stock in the quarter under the Dutch tender offer.

Guidance

Insperity also provided an outlook for the second quarter and raised its full year 2016 guidance.

For the second quarter of 2016, Insperity projects adjusted earnings in a range of 54-62 cents a share. Adjusted EBITDA is projected to be $24 to $27 million and average worksite employees (WSEs) are expected in a range of163,000 to 164,000, representing growth of 14 to 15%.

For full year 2016, the company projects adjusted earnings of $3.46 - $3.58 compared with $3.19 -$3.36 a share projected earlier. Adjusted EBITDA is projected to be $141 million to $145 million compared with $134 million to $141 million projected earlier. Average WSEs are expected to be 166,000 to 168,000, representing growth of 14% to 15% compared with 164,800 to 167,700, representing growth of 13% to 15%, expected earlier.

Conclusion

We believe that the company is likely to benefit from an increase in WSE. In addition, increased contribution from Strategic Business Units (SBUs) is likely to benefit it going ahead. Moreover, as workforce synchronization continues to gain traction with mid-market clients, it will likely benefit Insperity.

In December, Insperity had announced a Dutch tender offer under which the company will repurchase $125 million worth of stock. We believe that this is a positive for investors.

However, a sluggish global macro environment can lead to headcount reductions at client companies. An increase in health care costs does not bode well for Insperity as these constitute one of the major components of operating expenses. Furthermore, client attrition amid increasing competition from the likes of Automatic Data Processing Inc. ADP and TriNet Group, Inc. TNET remain concerns.

Currently, Insperity has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is BG Staffing, Inc. BGSF, sporting a Zacks Rank #1 (Strong Buy).

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INSPERITY INC (NSP): Free Stock Analysis Report
 
AUTOMATIC DATA (ADP): Free Stock Analysis Report
 
BG STAFFING INC (BGSF): Free Stock Analysis Report
 
TRINET GROUP (TNET): Free Stock Analysis Report
 
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