* Results In Line With Previously Stated Guidance * Growth in Client Employee Count Expected in Second Quarter * Business Model Transformation on Track * Company Confirms Full Year Earnings Expectations * Board Approves Additional $36.5 Million For Share Repurchases
BRADENTON, Fla., April 26, 2007 (PRIME NEWSWIRE) -- Gevity (Nasdaq:GVHR), which serves as the full-service human resources department for small and mid-sized businesses, announced today, in line with the company's previously announced expectations, first quarter diluted earnings per share of $0.10.
"In the first quarter, we made further progress on our transformation to a 100% service fee-driven business model with the purchase of HRAmerica to support Gevity Edge Select(tm), the non co-employed option of our comprehensive HR solution," commented Erik Vonk, Gevity's Chairman and Chief Executive Officer. "Additionally, we delivered improved earnings quality while appropriately managing expenses. We are also seeing encouraging signs of progress in production indicators, which along with improving attrition levels, strengthens our confidence in planned accelerated client employee growth as the year progresses."
First Quarter Results
In line with the company's previously announced expectations, Gevity ended the first quarter with 140,000 client employees, of which 124,100 were from Gevity's core base and 15,900 were from the HRAmerica book of business.
Gevity added 5,100 new client employees in the first quarter and, as the quarter progressed, saw a number of indications of growing momentum in its sales efforts including increase in web traffic, lead activity and prospects contacted. These positively trending indicators signal building awareness in the market and growing interactions with prospects, which have led to an increase in the number of client employees included in requests for proposals each month.
Total retention levels improved within the first quarter. The average monthly attrition rate was 1.5% or 6,800 client employees for the full quarter. Change in the client employee count of existing clients resulted in an additional decline of 1,500 client employees, which has since stabilized, returning to more historical levels in March and April.
Revenue for the first quarter of 2007 was $161.1 million in 2007 compared to $169.7 million for the same period last year. As the company has described, the year-over-year change is primarily a result of a relatively smaller client portfolio in 2007 due to the departure of legacy clients in the fourth quarter of 2006. Most importantly within revenue, professional service fees per average paid client employee, excluding HRAmerica, increased from $1,219 in the first quarter of 2006 to $1,261 in the first quarter of 2007, which contributed to improved earnings quality as professional service fees represented 81.2% of gross profit in the first quarter of 2007 compared to 78.3% for the same period last year.
In the first quarter, operating expenses were unfavorably impacted by one time charges including severance payments, expenditure related to the HRAmerica acquisition and IT and marketing costs associated with the development and launch of Gevity Edge Select. Including these charges, operating expenses declined from $42.9 million in the fourth quarter of 2006 to $41.1 million in the first quarter of 2007, but were $4.0 million higher when compared to the first quarter of 2006. While the severance charge will not extend beyond the first quarter and operating expenses will be trending downward in the second quarter, elevated Gevity Edge Select, IT and marketing expenses will continue into the second quarter. Expenditure levels are budgeted to level off in the third and fourth quarters.
Business Model Transformation
Gevity's business transformation to a 100% service fee-driven model is on plan. After acquiring HRAmerica in February, Gevity expects its integration to be completed by July 1, 2007. The company's sales organization is expected to be fully trained on Gevity Edge Select by the end of the second quarter and prospecting has already resulted in a developing pipeline. Contracts with national providers for benefits administration and insurance distribution have been signed as well and will be operational by July 1, 2007. Gevity expects to begin generating growth from Gevity Edge Select in the third quarter.
2007 Outlook
The company reiterated its 2007 expectation of at least $1.27 earnings per diluted share based on 25.0 million shares outstanding and an effective tax rate of 38.5%. Included in the $1.27 earnings per diluted share is approximately $11.0 million of gross profit ($0.27 per diluted share) due to anticipated reductions in prior years' workers' compensation loss estimates assuming continued favorable claims development activity throughout the remainder of 2007. This compares to $1.32 earnings per diluted share for 2006, of which approximately $18.7 million of gross profit ($0.43 per diluted share) represented the reduction in prior years' workers' compensation loss estimates due to favorable claims development that occurred during 2006.
Within the second quarter, improving production and retention trends are expected to result in an annualized client employee growth rate in the mid-to-high single digits. Production is expected to accelerate for the remainder of the year, in large measure, as a result of the availability of Gevity Edge Select, incremental volume generated by recently opened offices, the regionalized mid-market effort and increased marketing investments. The improving retention levels seen in the first quarter of 2007 are expected to continue, and when combined with production expectations, total client employee organic growth is anticipated to be in line with the company's long-term performance standard of 12% by the end of 2007.
Operating expenses are expected to decline in the second and third quarters of 2007 before leveling off to between $36 million and $38 million in the fourth quarter. Full year results are anticipated to generate free cash flow in excess of $28 million with an additional $32 million expected to be received from AIG in the year in connection with the company's workers' compensation program.
The anticipated client employee growth along with the managed spending levels are expected to drive second quarter earnings per diluted share well above first quarter results to between $0.17 and $0.19.
Mr. Vonk commented, "We are closing a period in which there was diminishing PEO benefit without any offsetting contribution of Gevity Edge Select. With the building blocks in place to bring the full value of our non co-employed offering to our clients, we are on target to deliver on our growth objectives for 2007 and beyond. In the course of this year, we anticipate making further progress towards our previously shared long-term performance standards."
Long-Term Performance Standards
growth 15% year over year growth in net
revenues*, including at least
12% unit growth
profit 15% - 20% year over year increase in
operating income
return on people $80,000 by 2010 as measured by EBITDA/
Gevity colleague
earnings quality** 100% fees by 2009
dividend pay out 30% after appropriate allocation of
capital to growth
* Net revenues equals total revenues minus revenues related to
health and welfare benefit plans. This measure will reflect the
fully insured, non-risk bearing nature of the health benefit
programs once achieved.
** Quality of earnings is the company's measurement of the percentage
of gross profit generated from service fees rather than from
margin as a reward for transferred insurance risk. The company
strives to generate gross profit consisting of 100% of service
fees by 2009. Service fees are expected to be composed primarily
of remuneration for human resource services and to a lesser
extent, a minor component of insurance-related service fees
including risk management, administration and agency fees.
Stock Repurchase Program
Pursuant to its $75 million share repurchase program authorized by the Board in August 2006, the company repurchased 1.34 million shares at a total cost of $29.8 million in 2006 and 0.3 million shares at a total cost of $6.7 million during the first quarter of 2007, leaving $38.5 million remaining under the original authorization. The Board has approved an additional $36.5 million, bringing the approved plan back to $75 million. Consistent with its objective of enhancing shareholder value, Gevity will continue to use its share repurchase program to vigorously pursue any opportunities to purchase shares when it believes its stock is undervalued and does not fully reflect the company's performance and prospects for the future. Share repurchases under the program may be made through open market repurchases, block trades or in private transactions at such times and in such amounts as the company deems appropriate, based on a variety of factors including price, regulatory requirements, market conditions and other corporate opportunities.
Mr. Vonk concluded, "The Board's decision underscores its confidence in our ability to transform our business model to one that is 100% service-fee driven while generating profitable growth. At the same time, the replenished share repurchase program demonstrates the Board's commitment to increasing shareholder value."
Stakeholder Day
On June 14, 2007, the company will be hosting its Fourth Annual Stakeholder Day in Sarasota, FL. Participants will be able to:
* Interact with senior managers, Gevity colleagues and other stakeholders, including analysts, clients, investors and strategic partners. * Learn more about Gevity's business model transformation in a dedicated break out session. * Find out more about Gevity's key differentiator, Gevity OnSite(tm), experienced HR Consultants based in local markets backed by nationwide resources, and easy-to-use technology including Gevity OnLine(tm) and Gevity OnCall(tm)
For more information, visit www.gevity.com/stakeholderday/stakeHolderDay.jsp.
Earnings Conference Call
Gevity invites you to participate in a live conference call and webcast this morning at 10:30 a.m. Eastern Time to discuss the company's first quarter results, its growth strategy and its business transformation. To participate in the call, dial (866) 617-6634 in the U.S. and Canada. Dial (706) 679-0889 internationally. Ask for the Gevity conference call and provide the following pass code: 2413079. Allow five to ten minutes before 10:30 a.m. Eastern Time to secure the line. Listen to a webcast of the call live by visiting http://www.gevity.com/investor_relations/index.html. Allow five to ten minutes before 10:30 a.m. Eastern Time to register (Minimum requirements to listen to broadcast: The Windows Media Player software, downloadable free from Microsoft, and at least a 28.8 KBPS connection to the Internet).
If you are unable to listen to the live call, audio will be archived on the Gevity website. To access the replay, visit the Investor Relations section of www.gevity.com.
About Gevity
Thousands of small and mid-sized businesses nationwide leverage the flexibility and scalability of Gevity's human resources (HR) solution to help them maximize the return on investment in their people. Essentially, Gevity serves as the full-service HR department for these businesses, providing each employee with support previously only available at much larger companies. Gevity delivers the Gevity Edge(tm), a comprehensive solution comprised of innovative management and administration services, helping employers to streamline HR administration, optimize HR practices, and maximize people and performance. This solution enables both businesses and their employees to achieve their full potential, giving them an edge over competitors. Gevity's unique approach features Gevity OnSite(tm), experienced HR Consultants based in local markets backed by nationwide resources and easy-to-use technology, including Gevity OnLine(tm) and Gevity OnCall(tm). For more information, call 1.800.2GEVITY (1.800.243.8489) or visit gevity.com.
A copy of this press release can be found on the company's Web site at www.gevity.com.
Pursuant to the Private Securities Litigation Reform Act of 1995, the company is hereby providing cautionary statements to identify important factors that could cause the company's actual results to differ materially from forward-looking statements contained in, or implied by, this press release.
Forward-looking statements are those that express expectations, beliefs, plans, objectives, assumptions or future events or performance that are not historical facts. They are often expressed through the use of words or phrases such as "will result," "are expected to," "anticipated," "plans," "intends," "will continue," "estimated," "projection," "preliminary," "forecast" and similar expressions. The results or events contemplated by forward-looking statements are affected by known and unknown risks that may cause the actual results of the company to differ materially from any future results expressed or implied by such forward-looking statements. Many of these risks are beyond the ability of the company to control or predict, such as risks relating to the following: to the company's guidance, including the challenges to achieving the company's growth strategy in general, gaining new client employees while passing on increased pricing, increasing professional service fees, resolving issues with the multi-carrier choice program, retaining clients through annual benefit enrollment, penetrating the middle market and opening new geographic offices, and its long-term performance standards, our dependence on technology services, the adequacy of our insurance-related loss reserves, the availability of insurance coverage for workers' compensation and medical benefits, damage due to hurricanes and other natural disasters, risks inherent in our acquisition strategy, our dependence on third party technology licenses, our dependence on key personnel, qualified service consultants and sales associates, fluctuations in our quarterly results and sustaining our growth, variability in health insurance claims, state unemployment tax rates and workers' compensation rates, liabilities resulting from our co-employment relationship with our clients, credit risks of our large clients, short termination provisions in our professional services agreements, our geographic market concentration, collateral requirements of our insurance, regulatory compliance, Internet and related security risks, potential liabilities due to potentially being an "employer" due to ERISA and tax regulations and litigation, challenges to expansion due to varying state regulatory requirements, competition and risks relating to recovering insurance premiums paid to a Bermuda reinsurance company. These and other factors are described in the company's filings with the Securities and Exchange Commission, including under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which such statement is made. The company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in $000's, except share and per share data, unaudited)
For the Three Months Ended
March 31,
---------------------
2007 2006
---------------------
Revenues $161,115 $169,689
Cost of services 115,721 120,087
---------------------
Gross profit 45,394 49,602
---------------------
Operating expenses:
Salaries, wages and commissions 22,538 20,868
Other general and administrative 14,793 12,874
Depreciation and amortization 3,735 3,297
---------------------
Total operating expenses 41,066 37,039
---------------------
Operating income 4,328 12,563
Interest expense, net (134) (12)
Other non-operating expense, net (14) (143)
---------------------
Income before income taxes 4,180 12,408
Income tax provision 1,666 4,214
---------------------
Net income $ 2,514 $ 8,194
=====================
Net income per common share - diluted $ 0.10 $ 0.30
=====================
Weighted average common shares
outstanding - diluted 25,040 27,177
=====================
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in $000's, unaudited)
March 31, December 31,
2007 2006
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 6,089 $ 36,291
Marketable securities - restricted 5,932 4,478
Accounts receivable, net 116,804 126,936
Short-term workers' compensation
receivable, net 27,186 35,354
Other current assets 17,481 15,927
-------- --------
Total current assets 173,492 218,986
Property and equipment, net 24,859 23,847
Long-term marketable securities -
restricted 3,792 3,747
Long-term workers' compensation
receivable, net 97,573 85,872
Intangible assets, net 20,689 20,856
Goodwill and other assets 28,273 21,252
-------- --------
Total assets $348,678 $374,560
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued payroll and payroll taxes $146,099 $163,410
Accrued insurance premiums and health
reserves 13,967 17,287
Customer deposits and prepayments 13,120 11,893
Deferred tax liability, net 22,476 24,583
Accounts payable and other accrued
liabilities 9,533 12,466
-------- --------
Total current liabilities 205,195 229,639
Revolving credit facility 2,249 --
Other long-term liabilities 4,607 2,869
-------- --------
Total liabilities 212,051 232,508
Total shareholders' equity 136,627 142,052
-------- --------
Total liabilities and shareholders'
equity $348,678 $374,560
======== ========
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in $000's, unaudited)
For the Three Months Ended
March 31,
---------------------
2007 2006
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,514 $ 8,194
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 3,735 3,297
Deferred tax (benefit) provision, net (2,408) 343
Stock-based compensation 841 835
Excess tax benefits from share-based
arrangements (243) (1,475)
Provision for bad debts 524 56
Other 145 175
Changes in operating working capital (16,495) (24,055)
-------- --------
Net cash used in operating activities (11,387) (12,630)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities and
certificates of deposit (1,499) (76)
Capital expenditures (2,108) (4,208)
Business acquisition (9,466) --
-------- --------
Net cash used in investing activities (13,073) (4,284)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit
facility 2,249 --
Proceeds from exercise of stock options 674 1,359
Excess tax benefits from share-based
arrangements 243 1,475
Dividends paid (2,222) (1,846)
Purchase of treasury stock (6,686) (12,900)
-------- --------
Net cash used in financing activities (5,742) (11,912)
-------- --------
Net decrease in cash and cash equivalents (30,202) (28,826)
Cash and cash equivalents - beginning
of period 36,291 52,525
-------- --------
Cash and cash equivalents - end of period $ 6,089 $ 23,699
======== ========
GEVITY HR, INC. AND SUBSIDIARIES
STATISTICAL DATA
(unaudited)
1st Quarter Percentage
2007 2006 Change
-------- -------- ---------
Client employees at period end (1) 140,004 136,236 2.8%
Clients at period end (1), (2) 7,445 8,128 -8.4%
Average number of client employees/
clients at period end 18.81 16.76 12.2%
Average number of client
employees paid by month (1), (3) 123,902 127,556 -2.9%
Number of workers' compensation
claims 1,065 1,415 -24.7%
Frequency of workers' compensation
claims per one million dollars of
workers' compensation wages (4) 0.98 x 1.26 x -22.2%
Workers' compensation manual
premium per one hundred dollars
of workers' compensation
wages (4), (5) $ 2.18 $ 2.77 -21.3%
Workers' compensation billing per
one hundred dollars of workers'
compensation wages (4) $ 1.94 $ 2.43 -20.2%
Workers' compensation cost per one
hundred dollars of workers'
compensation wages (4) $ 1.38 $ 1.72 -19.8%
Client employee health benefits
plan participation (1) 33% 38% -13.2%
Annualized average wage per average
client employees paid by month
(1), (6) $ 43,528 $ 39,811 9.3%
Annualized professional service
fees per average number of client
employees paid by month (1), (6),
(7) $ 1,190 $ 1,219 -2.4%
Annualized total gross profit per
average number of client employees
paid by month (1), (6) $ 1,465 $ 1,555 -5.8%
Annualized operating income per
average number of client employees
paid by month (1), (6) $ 140 $ 394 -64.5%
(1) Statistics include the impact of the February 16, 2007
acquisition of HRAmerica, Inc. Approximately 137 non-coemployed
clients (as measured by individual client Federal Employer
Identification Number (FEIN)) with approximately 15,000 client
employees were acquired.
(2) Client accounts as measured by FEIN.
(3) The average number of client employees paid by month is
calculated based upon the sum of the number of paid client
employees at the end of each month divided by the number of
months in the period.
(4) Workers' compensation wages exclude the wages of clients electing
out of the Company's workers' compensation program.
(5) Manual premium rate data is derived from tables of AIG in effect
for 2007 and 2006, respectively.
(6) Annualized statistical information is based upon actual
quarter-to-date amounts which have been annualized (divided by 3
and multiplied by 12) and then divided by the average number of
client employees paid by month.
(7) The annualized professional service fees is based upon
information from the following table (in thousands):
1st Quarter
2007 2006
-------- --------
Revenues:
Professional service fees $ 36,869 $ 38,862
Employee health and welfare
benefits 88,752 89,259
Workers' compensation 21,200 27,415
State unemployment taxes and
other 14,294 14,153
--------------------
Total revenues $161,115 $169,689
====================