Investor Presentation April 30, 2018

Transcription

1 Investor Presentation April 30, 2018

2 Safe Harbor Statement The statements contained herein that are not historical facts are forward-looking statements within the meaning of the federal securities laws (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). You can identify such forwardlooking statements by the words expects, intends, plans, projects, believes, estimates, likely, possibly, probably, goal, opportunity, objective, target, assume, outlook, guidance, predicts, appears, indicator and similar expressions. Forward-looking statements involve a number of risks and uncertainties. In the normal course of business, Insperity, Inc., in an effort to help keep our stockholders and the public informed about our operations, may from time to time issue such forward-looking statements, either orally or in writing. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies, or projections involving anticipated revenues, earnings, unit growth, profit per worksite employee, pricing, operating expenses or other aspects of operating results. We base the forward-looking statements on our expectations, estimates and projections at the time such statements are made. These statements are not guarantees of future performance and involve risks and uncertainties that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Therefore, the actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are: (i) adverse economic conditions; (ii) regulatory and tax developments and possible adverse application of various federal, state and local regulations; (iii) the ability to secure competitive replacement contracts for health insurance and workers compensation insurance at expiration of current contracts; (iv) cancellation of client contracts on short notice, or the inability to renew client contracts or attract new clients; (v) vulnerability to regional economic factors because of our geographic market concentration; (vi) increases in health insurance costs and workers compensation rates and underlying claims trends, health care reform, financial solvency of workers compensation carriers, other insurers or financial institutions, state unemployment tax rates, liabilities for employee and client actions or payroll-related claims; (vii) failure to manage growth of our operations and the effectiveness of our sales and marketing efforts; (viii) the impact of the competitive environment in the PEO industry on our growth and/or profitability; (ix) our liability for worksite employee payroll, payroll taxes and benefits costs; (x) our liability for disclosure of sensitive or private information; (xi) our ability to integrate or realize expected returns on our acquisitions; (xii) failure of our information technology systems; (xiii) an adverse final judgment or settlement of claims against Insperity; and (xiv) disruptions to our business resulting from the actions of certain stockholders. These factors are discussed in further detail in Insperity s filings with the U.S. Securities and Exchange Commission. Any of these factors, or a combination of such factors, could materially affect the results of our operations and whether forward-looking statements we make ultimately prove to be accurate. Except to the extent otherwise required by federal securities law, we do not undertake any obligation to update our forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events. 2

3 Review of Insperity

4 Insperity s Mission Helping businesses succeed so communities prosper. 4

5 How Does Insperity Work? Co-employment Model Traditional Employment Model Service Agreement Client Client Employee Relationship Employee Relationship Employee Relationship Employees Employees Clients outsource entire HR function to a single strategic partner Client enters into agreement with Insperity to establish a relationship between themselves, their employees and Insperity Insperity absorbs HR responsibilities and risks, empowering clients to focus on operating and growing their core business Expands market opportunity beyond core PEO model Address clients who are not ready for coemployment and may prefer more flexibility and autonomy in their HCM strategy Meet prospects at their point of need and address distinct elements of their HCM strategy 5

6 Who is Insperity? Insperity Provides a Comprehensive HR Solution for Small Businesses 6

7 Who is Insperity? (cont d) Insperity Provides a Complete Suite of Tailored HR Solutions for MidMarket Businesses 7

8 What is Insperity s Market Opportunity? Insperity Competes in a Large, Fragmented and Highly Attractive Market Total workforce (1) Small-to-MidMarket business (2) workforce (1) 34% ~115 million employees ~71 million employees 5% 29% 95% 5% 32% Firms < 5 employees Firms 5-99 employees Firms 100-4,999 employees Firms 5,000+ employees (1) U.S. Census Bureau Data; Insperity management estimates. (2) Represents businesses with less than 5,000 employees. Traditional employment Co-employment Total addressable market of approximately 71 million employees, of which only approximately 4 million are currently served through a co-employment model 8

9 Who Does Insperity Target? Insperity is Focused on Being a Trusted Advisor to the Best Small-to-MidMarket Businesses Business Success Struggling Thriving High Employment Risk Low 9

10 Who are Insperity s Clients? Insperity Currently Provides Workforce Optimization Solutions for ~7,300 Clients Retail trade 4% Engineering, accounting, legal 8% Other 6% Not-for-profit and similar organizations 5% Computer and information sciences 18% Wholesale trade 9% Construction 4% Manufacturing 11% Medical services 7% FY 2017 Average Paid Worksite Employees ( WSEs ): 182,696 Finance, Insurance, Real Estate 14% Management, administration, consulting 14% 10

11 How Does Insperity Serve Its Target Market? Insperity's Solutions Address a Diverse Set of Client Types and Needs Small Business Core Emerging Growth MidMarket Overview Likely newly formed, require HR function on an as needed basis Small business with less than 50 employees; requires HR function to evolve Typically a growing organization struggling with HR complexity as their employee base grows Established organization; requires customizable HR function WSEs < ,000 Approach Essential Collaborative Integrated Strategic Customization Low Low / Medium Medium / High High Engagement Responsive Dedicated Proactive Engaged 11

12 How is Insperity Different? Breadth of Services Bundled Solutions Providers Point Solutions Providers Other Bundled Insurance Brokers Payroll Processors HR Software Complete HR Solution for Small Business MidMarket Service Offerings High Touch / High Value Solution High Quality Risk Management and Cost Stability Cloud Technology 12

13 How is Insperity Different? Depth of Services Insperity Sits at the Nexus of Business, Software and Insurance Services Business Services Advisory Services Software Services Insurance Services 13

14 How is Insperity Different? The Level of Care Insperity Offers a High-Touch Service on a High-Tech Platform Built upon Insperity s extensive HR knowledge base, the Insperity Premier platform is a cloud-based human capital management system that maximizes the power of Workforce Optimization, our industry-leading co-employment solution. 14

15 How Does Insperity Go-to-Market? Key Components of Strategy Business Performance Advisors ( BPAs ) Quarterback for our services Trusted advisor to the local business community Guiding clients to the right solutions; execute bundle plus strategy Channel Partners Partners in Professional Services, Insurance and Banking Leverage partners for leads/referrals Rewards Program Re-engage clients Build value in the Insperity/Client relationship Gain referrals Cross-selling Leverage investments in core sales & marketing Increase prospect awareness of our other business products and services (BPS s) offerings 15

16 How Does Insperity Go-to-Market? (cont d) National Sales and Service Infrastructure Bellevue Minneapolis Kansas City Milwaukee Chicago Denver St. Louis Indianapolis Columbus San Francisco Los Angeles San Diego Phoenix Austin San Antonio Houston Dallas/Ft. Worth Boston New York Philadelphia New Jersey Maryland Washington D.C. Raleigh Charlotte Atlanta Nashville Orlando Ft. Lauderdale 2017 Revenue Contribution by Region Southeast 12% Northeast 26% Central 17% West 22% Southwest 23% Sales (60 Offices, 29 Markets) Service Center (4 Locations) Corporate Headquarters 16

17 How Does Insperity Price Its Workforce Optimization Service Employee Benefits Employer Payroll Taxes Workers Compensation Employer Liability Management Human Resources Management Recruiting and Selection Training and Development Policies and Practices Payroll Administration Government Compliance Performance Management Direct Placement Recruiting Employment Screening Retirement Services Time and Attendance Expense Management Organizational Planning Insurance Services Payroll Services Financial Services Human Capital Management Total Service Fee (quoted as a % of Employee s Wages) = Separate Allocation = Separate Allocation = Separate Allocation = Separate Allocation HR Services Fee Bundle Plus / Add-on Services with discounted pricing for Workforce Optimization customers 17

18 Financial Results

19 Key Financial Metrics Average Paid Worksite Employees Average Paid Worksite Employees Average Trained BPAs 220, , , , , , , , , , , E* *Amount represents midpoint of Financial guidance issued on April 30, 2018

20 Key Financial Metrics Adjusted EBITDA (1) ($ in millions) $250 $220 $200 $178 $150 $110 $141 $100 $50 $0 % of Gross Profit E* 25.1% 28.7% 31.0% 33.1% 20 *Amount represents midpoint of Financial guidance issued on April 30, (1) Please see reconciliation to GAAP measure in the Appendix. Adjusted EBITDA represents EBITDA adjusted to add back stock-based compensation expense, non-cash impairment and other charges, one-time tax reform bonus and costs associated with stockholder advisory expenses

21 Key Financial Metrics Adjusted EBITDA (1) Per Worksite Employee Per Worksite Employee Per Month $95 $89 $85 $81 $75 $65 $63 $71 $55 $45 $35 $ E* 21 *Amount represents midpoint of Financial guidance issued on April 30, (1) Please see reconciliation to GAAP measure in the Appendix. Adjusted EBITDA represents EBITDA adjusted to add back stock-based compensation expense, non-cash impairment and other charges, one-time tax reform bonus and costs associated with stockholder advisory expenses.

22 Key Financial Metrics Adjusted EPS (1) Per Worksite Employee Per Month $3.50 $3.40 $3.00 $2.45 $2.50 $2.00 $1.79 $1.50 $1.10 $1.00 $0.50 $ E* 22 *Amount represents midpoint of Financial guidance issued on April 30, (1) Please see reconciliation to GAAP measure in the Appendix. Adjusted EPS represents EPS adjusted to add back stock-based compensation expense, non-cash impairment and other charges, one-time tax reform bonus and costs associated with stockholder advisory expenses.

23 Return To Investors From Cash Flow and Debt ($ in millions) Adjusted EBITDA Share repurchases Dividends $200 $175 $176 $178 $150 $141 $125 $110 $100 $75 $67 $66 $50 $39 $25 $21 $21 $ * 2017** 23 * 2016 share repurchases includes a Dutch Auction Tender Offer that was completed in January 2016 resulting in the repurchase of 6 million shares at a cost of $23.75 per share, plus transaction costs. The tender offer was funded with approximately $40 million of cash and $104 million of debt. ** 2017 dividends includes a $1 per share special dividend paid in Q

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25 Appendix

26 Q Highlights ($ in millions, except Adj. EPS and WSEs) Q Q % Change Avg. paid WSEs 195, , % Revenue $1,014.4 $ % Gross profit $199.7 $ % Adj. EBITDA (1) $83.8 $ % Adj. EPS (1) $1.41 $ % Ended Q with total working capital of $91.4 million (1) Please see reconciliation to GAAP measures provided in the Appendix. Adjusted EBITDA represents EBITDA adjusted to add back stock-based compensation expense and a one-time tax reform bonus. Adjusted EPS represents EPS adjusted to add back stock-based compensation expense and a one-time tax reform bonus. 26

27 2018 Full Year and Q2 Guidance FY 2018 Guidance Q Guidance Average paid WSEs 206, , , ,700 Implied y-o-y growth in average paid WSEs 13% - 14% 12% - 13% Adj. EBITDA (1) $218 - $223 $41 - $43 Implied y-o-y growth in Adj. EBITDA 23% - 25% 23% - 29% Adj. EPS (1) $ $3.44 $ $0.63 Implied y-o-y growth in Adj. EPS 37% - 40% 44% - 54% Note: Financial guidance referenced above issued on April 30, (1) Adjusted EBITDA represents EBITDA adjusted to add back stock-based compensation expense and a one-time tax reform bonus. Adjusted EPS represents EPS adjusted to add back stock-based compensation expense and a one-time tax reform bonus. 27

28 Adjusted EBITDA Reconciliation (in millions) FY 2015 FY 2016 FY E* Net income (GAAP) $39.4 $66.0 $84.4 $122.0 Interest expense Income tax expense Depreciation and amortization EBITDA Stock-based compensation Stockholder advisory expenses Impairment charges (1) Hurricane Harvey donations One-time tax reform bonus Other - - (0.2) - Adjusted EBITDA $110.0 $141.2 $177.7 $220.5 Note: Insperity management believes Adjusted EBITDA is often a useful measure of the company s operating performance, as it allows for additional analysis of the company s operating results separate from the impact of these items. Adjusted EBITDA should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. (1) Impairment charges consists of impairment and other charges of $10.5 million related to the sale of two aircraft in *Based on the midpoint of the guidance issued on April 30, 2018.

29 Adjusted Net Income (in millions) FY 2015 FY 2016 FY2017 FY2018E* Net income (GAAP) $39.4 $66.0 $84.4 $122.0 Impairment and other charges (1) Stock-based compensation Stockholder advisory expenses Hurricane Harvey donations One time tax reform bonus Other - - (0.2) - Total pretax non-gaap adjustments Tax effect on non-gaap adjustments (10.3) (6.2) (9.4) (7.5) Enactment of U.S. tax reform - - $2.5 - Tax effect of disaster credit - - (0.7) - Adjusted net income (2) $54.5 $76.7 $103.0 $143.4 Note: Insperity management believes Adjusted Net Income is often a useful measure of the company s operating performance, as it allows for additional analysis of the company s operating results separate from the impact of these items. Adjusted Net Income should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. (1) Impairment charges consists of impairment and other charges of $10.5 million related to the sale of two aircraft in (2) Beginning in FY 2015, the company began excluding stock-based compensation expense when reporting Adjusted Net Income. 29 *Based on the midpoint of the guidance issued on April 30, 2018.

30 Adjusted EPS Reconciliation FY 2015 (3) FY 2016 (3) FY 2017 FY 2018E* EPS (GAAP) $0.79 $1.54 $2.01 $2.89 Impairment and other charges (1) Stock based compensation Stockholder advisory expenses Hurricane Harvey donations One-time tax reform bonus Other - - (0.01) - Total pretax non-gaap adjustments Tax effect on non-gaap adjustments (0.20) (0.15) (0.22) (0.18) Enactment of U.S. tax reform Tax effect of disaster credit - - (0.20) - Adjusted EPS (2) $1.10 $1.79 $2.45 $3.40 Note: Insperity management believes Adjusted EPS is often a useful measure of the company s operating performance, as it allows for additional analysis of the company s operating results separate from the impact of these items. Adjusted EPS should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. (1) Impairment charges consists of impairment and other charges of $10.5 million related to the sale of two aircraft in (2) Beginning in FY 2015, the company began excluding stock-based compensation expense when reporting Adjusted EPS. (3) Adjusted to reflect the two-for-one split of our common stock effected on December 18, 2017 as a stock dividend. 30 *Based on the midpoint of the guidance issued on April 30, 2018.