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Why Is Insperity (NSP) Down 10.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Insperity (NSP - Free Report) . Shares have lost about 10.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Insperity due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Insperity Q3 Earnings Beat Estimates, 2018 View Up

Insperity reported mixed third-quarter 2018 results wherein the company’s earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Adjusted earnings per share of 96 cents beat the consensus mark by 14 cents and increased 68.4% year over year on worksite employee growth in the mid-teens, effective management of pricing, direct cost programs and operating costs and lower effective tax rate. The reported figure surpassed the guided range of 80-84 centsper share.

Total revenues of $925.1 million lagged the consensus estimate by $15 million but increased 16.3% year over year. The top line benefited from a 15.2% increase in average number of worksite employees paid per month and 0.9% increase in revenues per worksite employee per month. Average number of worksite employees paid per month was 215,051 and revenueper worksite employee per month came in at $1,434.

In the reported quarter, worksite employee growth was driven by strength across sales, higher client retention (totaled over 99%) and rise in net hiring of worksite employees by the company’s client base.

Operating Results

Gross profit of $166.05 million increased 18.6% from the year-ago quarter on the back of 15% worksite employee growth, effective pricing and management of direct cost programs. Gross margin climbed to 17.9% from 17.6% in the prior-year quarter. Gross profit per worksite employee per month increased 2.8% year over year to $257.

Adjusted EBITDA was up 42.8% year over year to $61.57 million. Adjusted EBITDA per worksite employee per month increased 23.4% to $95. (same reason as EPS)

Adjusted operating expenses increased 8.2% year over year to $117.92 million due to the continuous investment in growth, technology and product and service offerings. The company’s growth-related investments resulted in the opening of six sales offices in 2018, along with a 16% increase in the average number of Business Performance Advisors. Adjusted operating expenses per worksite employee per month declined 6.3% to $183.

Operating income increased 61.5% year over year to $48.13 million. Operating income per worksite employee per month increased 41.5% to $75.

Balance Sheet & Cash Flow

Insperity exited third-quarter 2018 with adjusted cash, cash equivalents and marketable securities of $166.50 million compared with $110.07 million at the end of the prior quarter. Long- term debt of $104.4 million was flat sequentially.

The company generated $53 million of net cash from operating activities in the reported quarter. Capital expenditures were $7.5 million.

In the first nine months of 2018, Insperity repurchased almost 212,000 shares for $16.2 million and paid dividends totaling $25.2 million.

Q4 Guidance

For fourth-quarter 2018, Insperity projects adjusted earnings in the range of 63-67 cents per share, indicating a year-over-year increase of 15-22%. Adjusted EBITDA is anticipated to increase 14-19% to a range of $44-$46 million. Average worksite employees (WSEs) are expected in a range of 219,800 to 221,700, indicating 16-17% growth.

2018 Guidance

Insperity raised its guidance for 2018. The company now projects adjusted earnings between $3.69 per share and $3.73 per share, indicating growth of 51-52%, above the previously guided range of $3.49-$3.53 per share. 

Adjusted EBITDA is projected to grow 33-34% to a range of $236-$238 million. The prior guided range was $225 million to $229 million.

Average WSEs are expected to be in the 208,300 to 209,200 bracket, indicating 14-14.5% growth. The earlier expected range was between 207,400 and 209,200.

Effective tax rate is anticipated to be around 26%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 9% due to these changes.

VGM Scores

At this time, Insperity has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Insperity has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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