Insperity: 2021 Q1 Earnings – 12 Key Points You Don’t Want To Miss!
Insperity released its earnings for 2021 Q1 on 3 May 2021 with a strong start to the new year. On a positive side, the performance in the quarter exceeded the management’s expectations. Year-over-year, the paid worksite employees (WSEEs) per month decreased 2.0%. However, the total revenue increased 4.7%, gross profit increased 7.4%, adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased 2.9%, and adjusted earnings per share (EPS) increased 7.1%.
Here are our 12 key points from the earnings results and earnings call for 2021 Q1!
Total revenue for 2021 Q1 increased from $1.23 billion in 2020 Q1, by 4.7% to $1.29 billion, on a 6.9% or $118 increase in revenue per WSEE due to higher average pricing, reflecting their pricing power, partially offset by an expected 2% decline in the average number of paid WSEEs.
As the management expected, the average number of WSEEs per month declined to 233 thousand, a decline of 2.0% year-over-year and 2.5% sequentially, as year-end client attrition exceeded new sales and Insperity lost one of the largest enterprise accounts as mentioned in our previous earning summary. Excluding the loss of this account, their average number of WSEEs would have been relatively flat from 2020 Q4. During the pandemic year in 2020, they had increased the number of clients by 8%, offset by a reduction in the average size of their clients due to pandemic related layoffs. The number of WSEEs from new client sales in 2021 Q1 was 93% of the equivalent period in 2020, a period prior to the pandemic. Client attrition, as a percentage of the beginning of the year WSEE count, increased from 11% in 2020 Q1 to 12% in 2021 Q1, partially due to the recent loss of a large enterprise client with 6,800 WSEEs. Excluding this large account loss, the client attrition was 9%, an improvement over 2020 Q1’s attrition of 11%.
Despite the 2% decline in WSEEs, gross profit for 2021 Q1 increased 7.4% from $234 million in 2020 Q1 to $251 million. Gross profit per WSEE per month increased by 9% or $31, from $328 in 2020 Q1 to $359, primarily due to the relative changes in higher pricing (leading to an increase in revenue per WSEE of $118), and lower increase in direct costs (of $87 per WSEE). The net increase in costs year-over-year was due to the changes in cost estimates for benefits and workers’ compensation. The health care utilization started to return to the normal levels. However, the costs were still below the management’s expectations. The workers’ compensation costs were also below budget, due primarily to their client selection and ongoing management of safety practices and claims, combined with the reduction of claims due to the “work from home” status of clients’ employees. In regards to the payroll tax, the unemployment tax rates also came in below their projections. The management expected higher COVID-19 related costs and elective healthcare procedures costs during the remainder of 2021, and possibly beyond 2021, as these costs had been deferred during the pandemic.
Operating expenses increased by 12.6% or $19 million, from $149 million in 2020 Q1 to $168 million in 2021 Q1. This increase of $19 million was mainly driven by (1) an increase in salaries of $17 million, (2) an increase in stock-based compensation of $5 million, and (3) a decrease in general and administrative expenses of $3 million. The increase in salaries was due to their continuing to grow their sales force, which was now at the targeted levels of 7% increase in the average number of trained Business Performance Advisors. Insperity also increased the marketing expenses related to lead generation activity, and incurred costs related to their SalesForce implementation. However, the corporate employee headcounts were roughly unchanged, while travel related costs were at historically low due to the pandemics. Excluding performance-based compensation (80.4% year-over-year increase in stock-based compensation), the operating expenses were flat year-over-year.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for 2021 Q1 increased 2.9% to $104 million from $101 million in 2020 Q1. This result reflects (1) the average number of paid WSEEs in line with their expectations, (2) pricing above targeted levels, (3) upside in each of their direct cost programs, and (4) ongoing management of operating costs.
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