ASF Administaff, Inc.

Administaff, Inc. (NYSE: ASF), a leading provider of human resources services for small and medium-sized businesses, today reported results for the third quarter and nine months ended September 30, 2010. For the third quarter, the company reported net income of $7.2 million, a 24.0% increase over the $5.8 million earned in the 2009 period. Diluted earnings per share increased 21.7% to $0.28 from $0.23 in the 2009 period.

“These excellent results reflect our successful efforts to resume growth and increase profitability as our core business recovered from the economic downturn,” said Paul J. Sarvadi, Administaff chairman and chief executive officer. “This success has provided a solid foundation from which to launch our adjacent business development strategy, and puts us in position to return to double-digit unit growth in 2011.”

Third Quarter Results

Revenues for the third quarter of 2010 increased 5.9% over the 2009 period due to a 5.1% increase in revenues per worksite employee per month, and a 0.8% increase in the average number of worksite employees paid per month.

Gross profit increased 3.6% to $73.7 million compared to the third quarter of 2009. The average gross profit per worksite employee per month increased $7, or 3.2%, to $227 in the third quarter of 2010 from $220 in the 2009 period. This increase was attributable to a higher surplus in our direct cost programs and approximately $4 associated with the company’s two recent acquisitions.

Operating expenses, which included incremental costs associated with the acquisitions, remained flat at $61.6 million compared to the third quarter of 2009. Operating expenses per worksite employee per month declined 1.0% from $191 in the 2009 period to $189 in the 2010 period.

“Worksite employee growth has accelerated, increasing 2.9% sequentially during the third quarter, compared to a 2.3% sequential increase in the second quarter of 2010,” said Douglas S. Sharp, senior vice-president of finance, chief financial officer and treasurer. “This acceleration was primarily driven by solid execution in service and sales, resulting in continuing record high levels of client retention and increasing sales momentum.”

Year-to-Date Results

For the nine months ended September 30, 2010, the company had net income of $14.7 million, or $0.56 per diluted share, compared to $19.4 million and $0.76 in 2009. These results were primarily driven by fewer paid worksite employees during the 2010 period, due to the recent economic recession.

Year-to-date revenues were $1.3 billion, a 2.1% increase over the 2009 period. Gross profit for the nine months ended September 30, 2010, decreased 3.9% to $217.7 million. The average gross profit per worksite employee per month was $229 compared to $230 in the 2009 period.

Year-to-date operating expenses decreased 1.1% to $193.3 million. On a per worksite employee per month basis, operating expenses increased 2.0% over the 2009 period. As a result, operating income for the nine months ended September 30, 2010, was $24.4 million compared to $31.1 million in the 2009 period.

Working capital increased by $9.6 million during the first nine months of the year to $137.2 million at September 30, 2010. During this period, EBITDA plus stock-based compensation totaled $42.6 million and the company returned $18.0 million to shareholders, including dividends of $10.1 million and share repurchases of $7.9 million. In addition, the company received a scheduled return of $15.6 million in excess funding from its workers’ compensation program during the second quarter of 2010.

Administaff will be hosting a conference call today at 10 a.m. ET to discuss these results, give guidance for the fourth quarter and answer questions from investment analysts. To listen in, call 877-651-0053 and use conference i.d. number 16399473. The call will also be webcast at http://www.administaff.com. To access the webcast, click on the Investor Relations section of the website and select “Live Webcast.” The conference call script and company guidance will be available at the same website later today. A replay of the conference call will be available at 800-642-1687, conference i.d. 16399473, for one week. 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 also provides an array of additional products and services designed to improve business performance, including software solutions for time and attendance, expense reimbursement and performance management, as well as recruiting, background screening and retirement services, among others. The company operates 51 sales offices in 24 major markets. For additional information, visit Administaff’s website 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 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) changes in general 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 contracts at expiration of current contracts; (iv) increases in health insurance costs and workers’ compensation rates and underlying claims trends, health care reform, financial solvency of workers’ compensation carriers and other insurers, state unemployment tax rates, liabilities for employee and client actions or payroll-related claims; (v) failure to manage growth of our operations and the effectiveness of our sales and marketing efforts; (vi) changes in the competitive environment in the PEO industry, including the entrance of new competitors and our ability to renew or replace client companies; (vii) our liability for worksite employee payroll and benefits costs; (viii) our liability for disclosure of sensitive or private information; (ix) our ability to integrate future acquisitions; and (x) 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.

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.

   

Administaff, Inc.

Summary Financial Information

(in thousands, except per share amounts and statistical data)

  September 30, December 31, 2010 2009 (Unaudited) Assets Cash and cash equivalents $ 207,930 $ 227,085 Restricted cash 39,661 36,436 Marketable securities 43,101 6,037 Accounts receivable 151,898 122,592 Prepaid insurance and other current assets 24,383 20,801 Income taxes receivable

-

2,692 Deferred income taxes   170     2,578   Total current assets 467,143 418,221   Property and equipment, net 76,354 81,174 Deposits 59,112 67,529 Other assets   23,598     9,546   Total assets $ 626,207   $ 576,470     Liabilities and Stockholders’ Equity Accounts payable $ 2,194 $ 1,857 Payroll taxes and other payroll deductions payable 79,402 127,597 Accrued worksite employee payroll expense 163,453 93,138 Accrued health insurance costs 10,415 6,374 Accrued workers’ compensation costs 40,971 37,049 Other accrued liabilities 32,802 24,579 Income tax payable   682    

-

  Total current liabilities 329,919 290,594   Accrued workers’ compensation costs 54,291 52,014 Accrued other 1,730

-

Deferred income taxes   8,509     10,702   Total noncurrent liabilities 64,530 62,716   Stockholders’ equity: Common stock 309 309 Additional paid-in capital 136,004 138,551 Treasury stock, cost (129,111 ) (135,712 ) Accumulated other comprehensive income 44 3 Retained earnings   224,512     220,009   Total stockholders’ equity   231,758     223,160   Total liabilities and stockholders’ equity $ 626,207   $ 576,470              

Administaff, Inc.

Summary Financial Information (continued)

(in thousands, except per share amounts and statistical data)

(Unaudited)

 

Three months ended September 30,

Nine months ended September 30,

2010

2009

Change

2010

2009

Change

  Operating results:

Revenues (gross billings of $2.444 billion, $2.322 billion, $7.274 billion and $7.223 billion, less worksite employee payroll cost of $2.030 billion, $1.931 billion, $5.990 billion and $5.966 billion, respectively)

 

 

 

$

 

 

 

414,146

 

 

 

$

 

 

 

390,908

 

 

 

5.9

 

 

 

%

 

 

 

$

 

 

 

1,284,226

 

 

 

$

 

 

 

1,257,199

 

 

 

2.1

 

 

 

%

Direct costs: Payroll taxes, benefits and workers’ compensation costs  

340,460

 

319,807

6.5

%

 

1,066,498

 

1,030,570

3.5

%

Gross profit 73,686 71,101 3.6 % 217,728 226,629 (3.9 )% Operating expenses: Salaries, wages and payroll taxes 34,866 34,644 0.6 % 108,558 108,940 (0.4 )% Stock-based compensation 1,970 2,184 (9.8 )% 6,148 7,881 (22.0 )% General and administrative expenses 15,546 15,111 2.9 % 47,674 47,111 1.2 % Commissions 2,889 2,807 2.9 % 8,494 8,976 (5.4 )% Advertising 2,605 2,632 (1.0 )% 11,180 10,057 11.2 % Depreciation and amortization   3,732   4,160 (10.3 )%   11,266   12,599 (10.6 )% Total operating expenses   61,608   61,538 0.1 %   193,320   195,564 (1.1 )% Operating income 12,078 9,563 26.3 % 24,408 31,065 (21.4 )% Other income (expense): Interest income, net   286   478 (40.2 )%   744   1,415 (47.4 )% Income before income tax expense 12,364 10,041 23.1 % 25,152 32,480 (22.6 )% Income tax expense   5,130   4,209 21.9 %   10,501   13,097 (19.8 )% Net income $ 7,234 $ 5,832 24.0 % $ 14,651 $ 19,383 (24.4 )%

Diluted net income per share

of common stock

$

0.28

$

0.23

21.7

%

$

0.56

$

0.76

(26.3

)%

           

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,

2010

2009

Change

2010

2009

Change

  Statistical data:

Average number of worksite employees paid per month

108,440

107,625

0.8

%

105,603

109,306

(3.4

)%

Revenues per worksite employee per month (1)

$

1,273

$

1,211

5.1

%

$

1,351

$

1,278

5.7

%

Gross profit per worksite employee per month

227

220

3.2

%

229

230

(0.4

)%

Operating expenses per worksite employee per month

189

191

(1.0

)%

203

199

2.0

%

Operating income per worksite employee per month

37

30

23.3

%

26

32

(18.8

)%

Net income per worksite employee per month

22

18

22.2

%

15

20

(25.0

)%

 

(1)

 

Gross billings of $7,513, $7,192, $7,653 and $7,342 per worksite employee per month, less payroll cost of $6,240, $5,981, $6,302 and $6,064 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,

2010

2009

Change

2010

2009

Change

  Payroll cost (GAAP) $ 2,030,006 $ 1,930,950 5.1 % $ 5,989,681 $ 5,965,854 0.4 % Less: Bonus payroll cost   105,674   91,375 15.6 %   427,163   409,000 4.4 % Non-bonus payroll cost $ 1,924,332 $ 1,839,575 4.6 % $ 5,562,518 $ 5,556,854 0.1 %  

Payroll cost per worksite employee (GAAP)

$

6,240

$

5,981

4.3

%

$

6,302

$

6,064

3.9

%

Less: Bonus payroll cost per worksite employee

 

325

 

283

14.8

%

 

449

 

415

8.2

%

Non-bonus payroll cost per worksite employee

$

5,915

$

5,698

3.8

%

$

5,853

$

5,649

3.6

%

 

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.

                                    Three months ended Nine months ended September 30, September 30,

2010

2009

Change

2010

2009

Change

Net income (GAAP) $ 7,234 $ 5,832 24.0 % $ 14,651 $ 19,383 (24.4 )% Interest expense

-

2 (100.0 )%

-

17 (100.0 )% Income tax expense 5,130 4,209 21.9 % 10,501 13,097 (19.8 )% Depreciation and amortization   3,732   4,160 (10.3 )%   11,266   12,599 (10.6 )% EBITDA 16,096 14,203 13.3 % 36,418 45,096 (19.2 )% Stock-based compensation   1,970   2,184 (9.8 )%   6,148   7,881 (22.0 )% $ 18,066 $ 16,387 10.2 % $ 42,566 $ 52,977 (19.7 )%  

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.