Insperity – 2021 Q3 Earnings Results
Insperity released its earnings for 2021 Q3 on 1 November 2021. It continued to deliver steady and solid results, and its share price has quadrupled since its low in March 2020. The average number of paid WSEEs per month has returned to double-digit growth of 11% year-over-year, driving a total revenue growth of 20% year-over-year. Net income grew 36% year-over-year. Additionally, Insperity continued to repurchase 106 thousand shares, averaging at $103.8 per share, bringing their year-to-date repurchases up to 544 thousand shares (or ~1.5% of total shares).
Here are our key points from the earnings results and earnings call for 2021 Q3!
In 2021 Q3, the average number of paid WSEEs per month increased by 11% y/y, or by 6% q/q, to 258 thousand WSEEs. The growth in paid WSEEs was above the high end of the expectations of 9.5% to 10.5%. This growth was driven by both WSEEs paid from new client sales, and net gains from hiring in their client base. Additionally, client retention remained at their historical high levels, averaging 99% for 2021 Q3.
Furthermore, with approximately the same number of Business Performance Advisors (BPAs), there was a 20% increase in clients selling and 34% increase in paid worksite employees compared to the same period in 2020, indicating a significant increase in sales efficiency over last year. Several factors are contributing to an increase in sales efficiency, including remote selling and technology improvements, more marketing leads, and some success with their Fast-Track program focused on early sales wins for new BPAs.
However, the most significant factor in increasing sales efficiency is the maturing of their sales force. The management said that the BPAs with greater than 36 months experience have higher average sales efficiency. Now, the number of BPAs with greater than 36 months experience has increased significantly, resulting in a correspondingly increased sales efficiency, creating a new opportunity for Insperity. The increased tenure of the BPAs gave Insperity the opportunity to pursue their targeted double-digit growth in worksite employees without increasing the total number of BPAs at double-digit levels.
Total revenue in 2021 Q3 increased by 20% y/y to $1.2 billion, driven by an 11% increase in paid WSEEs and an 8% increase in revenue per WSEEs. The increase in revenue per WSEE reflected a 4% increase in pricing and the non-recurrence of the 2020 FICA deferral credits instituted as part of the CARES Act.
Gross profit for 2021 Q3 was $199 million, an increase of a lower 7% y/y primarily attributable to the higher than anticipated paid WSEEs and pricing, but offset by higher healthcare or benefits costs.
In 2021 Q3, healthcare utilization and COVID-19 related costs continued to increase as anticipated, as the utilization of elective healthcare was deferred during the height of the COVID-19 pandemic. Additionally, this was partly due to slower claims payment processing by their carrier associated with these claims.
Operating expenses increased by only 2% y/y, and included a decrease in stock-based compensation from a change in their annual incentive plan.
The cash operating expenses (which exclude the stock-based compensation (SBC)) increased by 9% y/y. The higher operating expenses reflected their investment in growth including an increase in marketing costs associated with lead generation activity, and their SalesForce implementation, combined with ongoing operating expense management.
Due to low operating expense growth relative to gross profit growth, operating income increased by 38% to $39.6 million in 2021 Q3.
Adjusted earnings before interest, tax, depreciation and amortization (adjusted EBITDA) for 2021 Q3 was $60.1 million, or a 4% increase y/y, driven by a double-digit growth of WSEEs. Of note, adjusted EBITDA is EBITDA with non-cash SBC expenses added back.
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