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Insperity Inc. (NSP - Snapshot Report) reported first-quarter 2013 earnings per share of 51 cents, in line with the Zacks Consensus Estimate. The quarter’s earnings were 5.6% lower than 54 cents reported in the year-earlier quarter. The year-over-year decline was mainly due to higher investments for expanding the Business Performance Advisors group and implementing health care reform strategy. However, this was partially offset by higher gross profit per worksite employees.

Revenues

Insperity’s first quarter revenues of $611.8 million increased 2.8% from $595.2 million in the year-ago quarter and were slightly below the Zacks Consensus Estimate of $615.0 million. The year-over-year improvement was attributed to a 1.2% increase in average paid worksite employees.

Operating Results

Gross profit increased 5.0% from the year-ago quarter to $108.1 million. Gross margin was 17.7%, up from 17.3% in the year-ago quarter. The improvement was led by higher gross profit per worksite employee per month.

Total operating expenses surged 7.7% year over year. Operating margin was 3.6% compared with 3.9% in the year-ago period. Earnings before interest, tax and depreciation (EBITDA) was $27.3 million, down from $27.6 million in the year-ago quarter.

Insperity reported net income of $12.8 million or 51 cents per share compared with $13.5 million or 54 cents in the year-ago quarter.

Balance Sheet & Share Repurchase

Insperity exited the first quarter with cash, marketable securities and restricted cash of $326.2 million, down from $328.6 million in the previous quarter. Accounts receivable increased 5.7% sequentially to $201.2 million.

During the quarter, the company repurchased 472,211 shares worth $13.5 million and paid dividend of $4.3 million.

Guidance

Insperity expects gross profit per worksite employee in the range of $253.0–$255.0 for the second quarter of 2013 and in the range of $260.0–$263.0 for fiscal 2013. The sequential decrease is mainly due to seasonality.

The company expects operating expenses in the range of $87.75–$88.5 million for the second quarter and in the range of $340.5–$342.5 million for fiscal 2013.

For fiscal 2013, the company expects earnings per share in the range of $1.51–$1.61, given a tax rate of 40.0% and diluted shares outstanding of 25.6 million.

Conclusion

Insperity provides human resources (HR) as well as business solutions to small and medium business (SMBs) to help them perform better. Insperity’s first quarter results were disappointing with the top line missing the Zacks Consensus Estimate and the bottom line matching the same. Though second quarter guidance seems weak on seasonality, we are encouraged by a better visibility into fiscal 2013.

We believe that management’s initiatives to expand the number of Business Performance Advisors and implement health care reform strategy will help it achieve its fiscal 2013 guidance.

In an internal survey, Insperity found that most of the SMBs are willing to add employees in order to expand business activities. This will have a positive impact on Insperity’s fundamentals.

A debt-free balance sheet, share repurchases and dividend payouts are positive, but increasing expenses, stiff competition from Automatic Data Processing Inc. (ADP - Snapshot Report), Paychex Inc. (PAYX - Snapshot Report) and Manpower Group Inc. (MAN - Analyst Report) are concerns.

Currently, Insperity has a Zacks Rank #3 (Hold).

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