* Third quarter EPS up 65% on 19% revenue growth * Gross profit increases 24% * Year-to-date net income increases 74%
HOUSTON, Nov. 1 /PRNewswire-FirstCall/ -- Administaff, Inc. (NYSE:ASF), a leading provider of human resources services for small and medium-sized businesses, today announced results for the third quarter and nine months ended Sept. 30, 2006. The company reported a 68.6% increase in third quarter net income from $7.2 million in the 2005 period to $12.1 million in the 2006 period. Diluted earnings per share increased from $0.26 in the 2005 period to $0.43, the highest quarterly earnings in the company's history.
"Our excellent third quarter and year-to-date results demonstrate solid execution of our proven business model," said Paul J. Sarvadi, Administaff chairman and chief executive officer. "High demand for our services from a growing target market and our consistently outstanding performance provide a promising outlook for growth and profitability in 2007 and beyond." Third Quarter Results Revenues for the third quarter of 2006 increased 18.7% over the 2005 period to $338.4 million, due to a 13.3% increase in the average number of worksite employees paid per month and a 4.7% increase in revenues per worksite employee per month.
Gross profit increased 23.5% over the third quarter 2005 to $71.9 million due to: (i) the growth in worksite employees; (ii) an increase in the markup on the company's HR services; and (iii) better-than-expected results from direct cost programs. The average gross profit per worksite employee per month increased to $234 in the 2006 period from $214 in the 2005 period. Operating expenses for the quarter increased 16.8% to $55.6 million, and included an additional accrual for incentive compensation tied to improved year-to-date operating results.
Operating income for the third quarter of 2006 increased 53.7% to $16.3 million, with an average operating income per worksite employee per month of $53 compared to $39 in the 2005 period.
Year-to-Date Results For the nine months ended Sept. 30, 2006, the company reported a 74.0% increase in net income to $33.2 million compared to $19.1 million in the same period in 2005. Diluted earnings per share increased to $1.17 from $0.72 in the 2005 period.
Year-to-date revenues were $1.0 billion, a 20.0% increase over the 2005 period, which resulted from a 14.3% increase in the average number of worksite employees paid per month and a 5.0% increase in revenues per worksite employee per month. Gross profit for the nine months ended Sept. 30, 2006 increased 23.5% to $208.1 million. The average gross profit per worksite employee per month was $232, a 7.9% increase over the 2005 period.
Year-to-date operating expenses increased 16.6% to $163.4 million. On a per worksite employee per month basis, operating expenses increased 2.2% over the 2005 period to $183. The resulting operating income for the nine months ended Sept. 30, 2006 was $44.7 million compared to $28.3 million in the 2005 period. Operating income per worksite employee per month increased 38.9% to $50.
"Continued double-digit unit growth, pricing strength and direct cost containment have given us the opportunity to further invest in growth, service and product initiatives, while still achieving 74% year-to-date earnings growth," said Douglas S. Sharp, vice-president of finance, chief financial officer and treasurer. "These initiatives, including an increase slightly above our targeted 250 average trained sales representatives in the third quarter, have us well positioned for another strong fall selling season." Working capital has increased by approximately $20.2 million since Dec. 31, 2005, to $113.5 million. During the third quarter, Administaff repurchased 280,000 shares of its stock for approximately $9.9 million. This follows the repurchase of 300,000 shares at a cost of approximately $12.8 million, and the payoff of the company's $32.3 million mortgage during the second quarter of 2006.
2006 Outlook
Administaff also provided its outlook for the fourth quarter.
Fourth Quarter Average worksite employees paid per month 105,500 - 106,000
Gross profit per worksite employee per month $235 - $238
Operating expenses (in millions) $57.8 - $58.3
Net interest income (in millions) $2.6 - $2.8
Effective income tax rate 36.7%
Average outstanding shares (in millions) 28.1 In addition to the guidance provided above, the company will discuss its preliminary outlook for 2007 key metrics during its 10 a.m. ET conference call.
Conference Call Administaff will be hosting a conference call today at 10 a.m. ET to discuss these results, provide guidance and answer questions from investment analysts. To listen in, call 800-435-1261 and use passcode 20234469. The call will also be webcast at http://www.administaff.com/ . To access the webcast, click on the Investor Relations section of the Web site and select "Live Webcast." The conference call script will be available at the same Web site later today. A replay of the conference call will be available at 888-286- 8010, passcode 62776356, for two weeks after the call. The webcast will be archived for one year.
Administaff is the nation's leading professional employer organization (PEO), serving as a full-service human resources department that provides small and medium-sized businesses with administrative relief, big-company benefits, reduced liabilities and a systematic way to improve productivity. The company operates 41 sales offices in 22 major markets. For additional information, visit Administaff's Web site at http://www.administaff.com/ .
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 forward-looking statements by the words "expects," "intends," "plans," "projects," "believes," "estimates," "likely," "possibly," "probably," "goal," "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, Administaff, 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 current expectations, estimates and projections. 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) changes in general economic conditions; (ii) regulatory and tax developments and possible adverse application of various federal, state and local regulations; (iii) changes in our direct costs and operating expenses including, but not limited to, increases in health insurance premiums and workers' compensation rates and underlying claims trends, financial solvency of workers' compensation carriers and other insurers, state unemployment tax rates, liabilities for employee and client actions or payroll-related claims, changes in the costs of expanding into new markets, and failure to manage growth of our operations; (iv) the effectiveness of our sales and marketing efforts; (v) changes in the competitive environment in the PEO industry, including the entrance of new competitors and our ability to renew or replace client companies; (vi) our liability for worksite employee payroll and benefits costs; and (vii) an adverse final judgment or settlement of claims against Administaff. These factors are discussed in further detail in Administaff'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.
Administaff, Inc. Summary Financial Information
(in thousands, except per share amounts and statistical data) September 30, December 31,
2006 2005
(Unaudited)
Assets
Cash and cash equivalents $107,185 $137,407
Restricted cash 34,858 27,580
Marketable securities 81,763 57,973
Accounts receivable 118,580 98,411
Prepaid expenses and other current assets 16,983 13,882
Income taxes receivable 1,768 ---
Deferred income taxes 1,816 3,308
Total current assets 362,953 338,561 Property and equipment, net 81,861 83,620
Prepaid insurance 11,000 11,000
Deposits 45,018 56,375
Goodwill and other intangible assets 4,957 5,018
Other assets 678 865
Total assets $506,467 $495,439 Liabilities and Stockholders' Equity
Accounts payable $3,392 $4,979
Payroll taxes and other payroll
deductions payable 80,489 101,293
Accrued worksite employee payroll expense 101,352 78,393
Accrued health insurance costs 4,013 3,495
Accrued workers' compensation costs 36,391 30,212
Accrued corporate payroll and commissions 14,422 17,801
Other accrued liabilities 8,840 7,453
Current portion of long-term debt 573 1,700
Total current liabilities 249,472 245,326 Long-term debt 1,316 33,190
Accrued workers' compensation costs 37,321 32,692
Deferred income taxes 4,257 1,802
Total noncurrent liabilities 42,894 67,684 Stockholders' equity:
Common stock 309 309
Additional paid-in capital 135,108 119,573
Treasury stock, cost (58,073) (45,614)
Deferred compensation expense --- (2,931)
Accumulated other comprehensive
income (loss), net of tax (130) (153)
Retained earnings 136,887 111,245
Total stockholders' equity 214,101 182,429
Total liabilities and
stockholders' equity $506,467 $495,439 Administaff, Inc. Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
(Unaudited) Three months ended Nine months ended
September 30, September 30,
2006 2005 Change 2006 2005 Change Operating results:
Revenues
(gross billings
of $1.990 billion,
$1.622 billion,
$5.813 billion
and $4.756 billion,
less worksite
employee payroll
cost of $1.652 billion,
$1.337 billion,
$4.776 billion and
$3.892 billion,
respectively) $338,421 $285,202 18.7% $1,036,835 $864,062 20.0%
Direct costs:
Payroll taxes,
benefits and
workers'
compensation
costs 266,557 227,031 17.4% 828,762 695,528 19.2%
Gross profit 71,864 58,171 23.5% 208,073 168,534 23.5%
Operating expenses:
Salaries,
wages and
payroll taxes 30,393 25,471 19.3% 88,057 73,436 19.9%
Stock-based
compensation 1,011 360 180.8% 2,368 1,765 34.2%
General and
administrative
expenses 14,722 12,476 18.0% 44,573 39,077 14.1%
Commissions 2,722 2,610 4.3% 8,264 7,462 10.7%
Advertising 2,819 2,956 (4.6)% 8,521 7,355 15.9%
Depreciation and
amortization 3,896 3,693 5.5% 11,620 11,099 4.7%
Total operating
expenses 55,563 47,566 16.8% 163,403 140,194 16.6%
Operating income 16,301 10,605 53.7% 44,670 28,340 57.6%
Other income
(expense):
Interest income 2,567 1,645 56.0% 8,384 4,097 104.6%
Interest expense (14) (594) (97.6)% (1,076) (1,709) (37.0)%
Other, net 13 (84)(115.5)% 125 (97) (228.9)%
Income before
income tax
expense 18,867 11,572 63.0% 52,103 30,631 70.1%
Income tax expense 6,754 4,389 53.9% 18,952 11,574 63.7%
Net income $12,113 $7,183 68.6% $33,151 $19,057 74.0%
Diluted net
income per share
of common stock $0.43 $0.26 65.4% $1.17 $0.72 62.5%
Diluted weighted
average common
shares
outstanding 28,259 27,316 28,402 26,458 Administaff, Inc. Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
(Unaudited) Three months ended Nine months ended
September 30, September 30,
2006 2005 Change 2006 2005 Change Statistical data:
Average number
of worksite
employees paid
per month 102,530 90,493 13.3% 99,459 87,030 14.3%
Revenues per
worksite
employee
per month (A) $1,100 $1,051 4.7% $1,158 $1,103 5.0%
Gross profit
per worksite
employee
per month 234 214 9.3% 232 215 7.9%
Operating expenses
per worksite
employee
per month 181 175 3.4% 183 179 2.2%
Operating income
per worksite
employee
per month 53 39 35.9% 50 36 38.9%
Net income
per worksite
employee
per month 39 26 50.0% 37 24 54.2% (A) Gross billings of $6,470, $5,976, $6,494 and $6,072 per worksite
employee per month, less payroll cost of $5,370, $4,926, $5,335 and
$4,969 per worksite employee per month, respectively.
Administaff, Inc. Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
(Unaudited) GAAP to Non-GAAP Reconciliation Tables Three months ended Nine months ended
September 30, September 30,
2006 2005 Change 2006 2005 Change Payroll cost
(GAAP) $1,651,694 $1,337,230 23.5% $4,775,737 $3,891,756 22.7%
Less: Bonus
payroll cost 120,620 71,302 69.2% 382,728 302,877 26.4%
Non-bonus
payroll
cost $1,531,074 $1,265,928 20.9% $4,393,009 $3,588,879 22.4% Payroll cost
per worksite
employee
(GAAP) $5,370 $4,926 9.0% $5,335 $4,969 7.4%
Less: Bonus
payroll cost
per worksite
employee 392 263 49.0% 427 387 10.3%
Non-bonus
payroll cost
per worksite
employee $4,978 $4,663 6.8% $4,908 $4,582 7.1% Non-bonus payroll cost represents payroll cost excluding the impact of bonus payrolls paid to the company's worksite employees. Bonus payroll cost varies from period to period, but has no direct impact to the company's ultimate workers' compensation costs under the current program. As a result, Administaff management refers to non-bonus payroll cost in analyzing, reporting and forecasting the company's workers' compensation costs.
Nine months ended
September 30,
2006 2005 Net income (GAAP) $33,151 $19,057
Interest expense 1,076 1,709
Income tax expense 18,952 11,574
Depreciation and amortization 11,620 11,099
EBITDA $64,799 $43,439 EBITDA represents net income computed in accordance with generally accepted accounting principles ("GAAP"), plus interest expense, income tax expense, depreciation and amortization expense. Administaff management believes 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 taxes and capital and financing transactions on earnings.
Non-bonus payroll and EBITDA are not financial measures prepared in accordance with GAAP and may be different from similar measures used by other companies. Non-bonus payroll and EBITDA should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Administaff includes non-bonus payroll and EBITDA in this press release because the company believes they are useful to investors in allowing for greater transparency related to the costs incurred under the company's workers' compensation program and the company's operating performance during the periods presented. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measures as provided in the tables above. DATASOURCE: Administaff, Inc.
CONTACT: investor relations, Douglas S. Sharp, Vice President, Finance, Chief Financial Officer and Treasurer, +1-281-348-3232, or , or news media, Susan Emfinger, Director, Corporate Communications, +1-281-348-3105, or , both of Administaff, Inc.
Web site: http://www.administaff.com/
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