-- Second Quarter EPS Above Previously Stated Guidance -- Gevity Edge Select Launched -- Executive And Field Leadership Appointments Announced
BRADENTON, Fla., Aug. 7, 2007 (PRIME NEWSWIRE) -- Gevity (Nasdaq:GVHR), which serves as the full-service human resources department for small and mid-sized businesses, today reported second quarter diluted earnings per share of $0.19. The reported results are $0.02 above previously announced expectations for the second quarter due to a lower effective tax rate.
At the end of the second quarter of 2007, Gevity served 141,000 client employees compared to 138,000 in the second quarter of 2006 and 140,000 at the end of the first quarter of 2007. The client employee count includes the full effect of the HRAmerica acquisition. The company added 7,300 new client employees during the second quarter of 2007, of which 6,000 were from the core business. This is slightly more than the 5,900 client employees added in the second quarter of 2006 and an 18.7% improvement in production over the first quarter of 2007. Client employee annualized retention rate improved sequentially in the second quarter of 2007 from 81.6% to 83.2%, and compares to last year's second quarter level of 86.4%.
Professional service fees for the second quarter of 2007 were $37.0 million compared to $42.1 million in the same period last year and $36.9 million in the first quarter of 2007. Annualized professional service fees per average paid client employee for the period were $1,111, including the full effect of the HRAmerica acquisition. In the core portfolio, excluding the effect of the HRAmerica acquisition, annualized fees were $1,252 for the second quarter, which compares to $1,311 in the second quarter of 2006 and $1,261 in the first quarter of 2007, respectively.
"While average professional service fees and production are impacted by stepping up health insurance rates to retail levels, utilizing risk transfer-based discounted insurance to generate volume is not a sustainable business model in our view. Our co-employment based Gevity Edge(tm) solution is of proven value to small and medium-sized enterprises and includes an industry-leading array of competitively priced health care options," commented Erik Vonk, Gevity's Chairman and Chief Executive Officer. "With the availability of Gevity Edge Select(tm) as an alternative to the competitive Gevity Edge solution, we expect to increase volume significantly while generating income consisting entirely of fees in a business model unencumbered by risk transfer burdens."
Earnings for the second quarter of 2007 were $0.19 per diluted share compared to $0.26 in the second quarter last year and $0.10 in the first quarter of 2007. The change from the second quarter of 2006 to the second quarter of 2007 is primarily due to the combined effect of the development in professional service fees, a greater reduction in prior years' workers' compensation loss estimates and the costs associated with the integration of HRAmerica. The increase in diluted earnings per share from the first to the second quarter of 2007 is the result of an increase in prior years' workers' compensation loss estimates reductions from $1.2 million in the first quarter to $6.8 million in the second quarter, reduced operating expenses and an increase in costs from the HRAmerica integration.
Executive Resources
In a separate announcement, Gevity highlighted the appointment of executives to lead the company's sales, service, finance and marketing functions. Jim Hardee has joined the company as Senior Vice President of Sales and Service. Mr. Hardee joins Gevity from Agilysys, Inc. and has nearly three decades of experience with IBM Corporation. Garry Welsh has been appointed to Senior Vice President of Finance and Chief Financial Officer. In this capacity, Mr. Welsh will also oversee Gevity's insurance and risk management functions. He has served as interim Chief Financial Officer since May 1. Dan Shirra, Vice President of Marketing, who joined the Company in 2006, will lead the Company's marketing efforts, as Michael Collins, Senior Vice President and Chief Marketing Officer will be departing the Company effective August 15th. Gevity also welcomed three Vice Presidents to oversee the sales and service operations in the company's North Eastern, South Central and Western Regions.
2007 Outlook
The current 2007 full year guidance targets a range of $0.70 to $0.95 in diluted earnings per share. The expansive range of the guidance is indicative of the leverage inherent to the business model and the initial sensitivity associated with balancing the income streams generated by the co-employed and non co-employed delivery models. In response to volatility in income caused by the interdependencies between the two delivery models during the initial phase of their coexistence, the company has lowered its operating expense base for the remainder of the year. As a consequence of the expense control measures taken, third quarter operating expenses will include a $1.5 million severance charge. The severance charge, in addition to a reduced contribution from prior years' workers compensation loss estimates, is expected to result in a third quarter diluted earnings per share decline before yielding growth in diluted earnings per share in the fourth quarter.
Gevity has observed that if developments to date with respect to pricing and client employee growth were to continue for the balance of the year, the company may generate diluted earnings per share in 2007 slightly below the previously announced range. However, by strengthening the sales team and capitalizing on its additional delivery method through Gevity Edge Select production, Gevity believes it is better positioned to achieve its stated range.
Share Repurchase Program
Pursuant to its $75 million share repurchase program authorized by the Board in April 2007, Gevity repurchased 0.8 million shares at a total cost of $16.1 million during the second quarter of 2007. Additionally, the company has acquired 0.3 million shares at a total cost of $6.4 million quarter-to-date through August 6, 2007, leaving $52.5 million remaining under its current authorization. For the full year, the company has repurchased 1.5 million shares at a total cost of $29.2 million. As of July 31, 2007, Gevity had 23.3 million shares outstanding.
Second Quarter Earnings Call
Gevity will discuss its second quarter 2007 results during a live conference call and webcast on Tuesday, August 7, 2007 at 10:30 a.m. Eastern Time. 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: 1157133. Allow five to ten minutes before 10:30 a.m. Eastern Time to secure the line. Listen to a live webcast or replay of the call by visiting the Investor Relations section of gevity.com. Allow five to ten minutes before 10:30 a.m. Eastern Time to register (Minimum requirements to listen to broadcast: Windows Media Player software, downloadable free from Microsoft, and at least a 28.8 KBPS connection to the Internet).
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 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 and you should not place undue reliance on any forward-looking statement. 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 For the Six Months
Ended Ended
June 30, June 30,
------------------- -------------------
2007 2006 2007 2006
------------------- -------------------
Revenues $150,408 $161,208 $311,523 $330,897
Cost of services
(exclusive of
depreciation and
amortization shown
below) 102,857 112,910 218,578 232,997
------------------- -------------------
Gross profit 47,551 48,298 92,945 97,900
------------------- -------------------
Operating expenses:
Salaries, wages
and commissions 20,391 19,507 42,929 40,375
Other general and
administrative 15,657 12,801 30,450 25,675
Reinsurance
contract loss -- 4,650 -- 4,650
Depreciation and
amortization 4,201 3,536 7,936 6,833
------------------- -------------------
Total operating
expenses 40,249 40,494 81,315 77,533
------------------- -------------------
Operating income 7,302 7,804 11,630 20,367
Interest income 251 184 416 436
Interest expense (697) (162) (996) (426)
Other non-operating
expense, net (9) (5) (23) (148)
------------------- -------------------
Income before income
taxes 6,847 7,821 11,027 20,229
Income tax provision 2,157 917 3,823 5,131
------------------- -------------------
Net income $ 4,690 $ 6,904 $ 7,204 $ 15,098
=================== ===================
Net income per
common share -
diluted $ 0.19 $ 0.26 $ 0.29 $ 0.56
=================== ===================
Weighted average
common shares
outstanding - diluted 24,524 27,075 24,780 27,131
=================== ===================
GEVITY HR, INC. AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
(in $000's, except per share data, unaudited)
The table below reconciles the results of operations discussed in the
attached press release and the following table that are presented on
a non-GAAP basis to their nearest GAAP equivalent.
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------- -------------------
2007 2006 2007 2006
------------------- -------------------
Operating expenses -
GAAP $ 40,249 $ 40,494 $ 81,315 $ 77,533
Reinsurance contract
loss (a) -- (4,650) -- (4,650)
------------------- -------------------
Operating expenses -
non-GAAP $ 40,249 $ 35,844 $ 81,315 $ 72,883
=================== ===================
Operating income -
GAAP $ 7,302 $ 7,804 $ 11,630 $ 20,367
Reinsurance contract
loss (a) -- 4,650 -- 4,650
------------------- -------------------
Operating income -
non-GAAP $ 7,302 $ 12,454 $ 11,630 $ 25,017
=================== ===================
Income before income
taxes - GAAP $ 6,847 $ 7,821 $ 11,027 $ 20,229
Reinsurance contract
loss (a) -- 4,650 -- 4,650
------------------- -------------------
Income before income
taxes -non-GAAP $ 6,847 $ 12,471 $ 11,027 $ 24,879
=================== ===================
Income tax provision
- GAAP $ 2,157 $ 917 $ 3,823 $ 5,131
Reinsurance contract
loss (a) -- 1,837 -- 1,837
------------------- -------------------
Income tax provision
- non-GAAP $ 2,157 $ 2,754 $ 3,823 $ 6,968
=================== ===================
Net income - GAAP $ 4,690 $ 6,904 $ 7,204 $ 15,098
Reinsurance contract
loss (a) -- 2,813 -- 2,813
------------------- -------------------
Net income - non-GAAP $ 4,690 $ 9,717 $ 7,204 $ 17,911
=================== ===================
Net income per common
share - diluted -
GAAP $ 0.19 $ 0.26 $ 0.29 $ 0.56
Reinsurance contract
loss (a) -- 0.10 -- 0.10
------------------- -------------------
Net income per common
share - diluted -
non-GAAP $ 0.19 $ 0.36 $ 0.29 $ 0.66
=================== ===================
(a) Results for the three and six month periods ended June 30, 2006
on a non-GAAP basis, exclude the effect of a $4,650 loss (and the
related income tax benefit of $1,837) that the Company recorded
during the second quarter of 2006 in connection with the
liquidation proceedings of the company's reinsurance provider for
its workers' compensation program.
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - NON-GAAP
(in $000's, except share and per share data, unaudited)
The following condensed consolidated statements of operations are not
presented in accordance with GAAP. Each of the items labeled as
"non-GAAP" has been reconciled to its nearest GAAP equivalent in the
preceding table. As a result, the following should not be construed
as an alternative to the statements presented in accordance with GAAP
and should only be used in conjunction with results reported in
accordance with GAAP.
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------- -------------------
2007 2006 2007 2006
------------------- -------------------
Revenues $150,408 $161,208 $311,523 $330,897
Cost of services
(exclusive of
depreciation and
amortization shown
below) 102,857 112,910 218,578 232,997
------------------- -------------------
Gross profit 47,551 48,298 92,945 97,900
------------------- -------------------
Operating expenses:
Salaries, wages
and commissions 20,391 19,507 42,929 40,375
Other general and
administrative 15,657 12,801 30,450 25,675
Reinsurance
contract loss
(non-GAAP) (a) -- -- -- --
Depreciation and
amortization 4,201 3,536 7,936 6,833
------------------- -------------------
Total operating
expenses
(non-GAAP) (a) 40,249 35,844 81,315 72,883
------------------- -------------------
Operating income
(non-GAAP) (a) 7,302 12,454 11,630 25,017
Interest income 251 184 416 436
Interest expense (697) (162) (996) (426)
Other non-operating
expense, net (9) (5) (23) (148)
------------------- -------------------
Income before income
taxes (non-GAAP)(a) 6,847 12,471 11,027 24,879
Income tax provision
(non-GAAP) (a) 2,157 2,754 3,823 6,968
------------------- -------------------
Net income
(non-GAAP) (a) $ 4,690 $ 9,717 $ 7,204 $ 17,911
=================== ===================
Net income per common
share - diluted
(non-GAAP) (a) $ 0.19 $ 0.36 $ 0.29 $ 0.66
=================== ===================
Weighted average
common shares
outstanding -
diluted (non-GAAP)(a) 24,524 27,075 24,780 27,131
=================== ===================
(a) See the preceding GAAP to Non-GAAP Reconciliation table for a
discussion of the non-GAAP items and for the reconciliation to
the nearest GAAP equivalent.
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in $000's, unaudited)
June 30, Dec. 31,
2007 2006
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 11,243 $ 36,291
Marketable securities - restricted 5,989 4,478
Accounts receivable, net 120,481 126,936
Short-term workers' compensation
receivable, net 30,300 35,354
Other current assets 11,735 15,927
--------- ---------
Total current assets 179,748 218,986
Property and equipment, net 24,663 23,847
Long-term marketable securities -
restricted 3,839 3,747
Long-term workers' compensation
receivable, net 108,269 85,872
Intangible assets, net 18,164 20,856
Goodwill and other assets 28,650 21,252
--------- ---------
Total assets $ 363,333 $ 374,560
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued payroll and payroll taxes $ 134,660 $ 163,410
Accrued insurance premiums and
health reserves 14,629 17,287
Customer deposits and prepayments 17,454 11,893
Deferred tax liability, net 19,748 24,583
Accounts payable and other
accrued liabilities 8,701 12,466
--------- ---------
Total current liabilities 195,192 229,639
Revolving credit facility 39,967 -
Other long-term liabilities 4,412 2,869
--------- ---------
Total liabilities 239,571 232,508
Total shareholders' equity 123,762 142,052
--------- ---------
Total liabilities and
shareholders' equity $ 363,333 $ 374,560
========= =========
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in $000's, unaudited)
For the Six Months Ended
June 30,
------------------------
2007 2006
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,204 $ 15,098
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 7,936 6,833
Deferred tax (benefit)
provision, net (5,712) 348
Stock-based compensation 1,434 1,881
Excess tax benefits from
share-based arrangements (290) (3,638)
Provision for bad debts 593 12
Other 140 175
Changes in operating working
capital (35,150) (27,758)
--------- ---------
Net cash used in operating
activities (23,845) (7,049)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable
securities and certificates of
deposit (1,603) (130)
Capital expenditures (3,875) (9,285)
Business acquisition (9,495) --
--------- ---------
Net cash used in investing
activities (14,973) (9,415)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving
credit facility 39,967 --
Proceeds from exercise of stock
options 751 5,421
Excess tax benefits from
share-based arrangements 290 3,638
Dividends paid (4,420) (4,204)
Purchase of treasury stock (22,818) (13,561)
--------- ---------
Net cash provided by (used in)
financing activities 13,770 (8,706)
--------- ---------
Net decrease in cash and cash
equivalents (25,048) (25,170)
Cash and cash equivalents -
beginning of period 36,291 52,525
--------- ---------
Cash and cash equivalents - end of
period $ 11,243 $ 27,355
========= =========
GEVITY HR, INC. AND SUBSIDIARIES
STATISTICAL DATA
(unaudited)
2nd Quarter 2nd Quarter Percentage
2007 2006 Change
----------- ----------- -----------
Client employees
at period end (a) 141,017 138,022 2.2%
Clients at period
end (a),(b) 7,404 8,018 -7.7%
Average number of
client employees/
clients at period
end (a) 19.05 17.21 10.7%
Average number of
client employees paid
by month (a), (c) 133,292 128,338 3.9%
Number of workers'
compensation claims 1,241 1,593 -22.1%
Frequency of workers'
compensation claims
per one million
dollars of workers'
compensation wages (d) 1.14 x 1.40 x -18.6%
Workers' compensation
manual premium per
one hundred dollars
of workers'
compensation wages
(d), (e) $ 2.17 $ 2.74 -20.8%
Workers' compensation
billing per one
hundred dollars of
workers' compensation
wages (d) $ 1.96 $ 2.27 -13.7%
Workers' compensation
cost per one hundred
dollars of workers'
compensation wages (d) $ 0.82 $ 1.63 -49.7%
Client employee health
benefits plan
participation 33% 38% -13.2%
Annualized average
wage per average
client employees
paid by month (a),(f) $ 43,408 $ 39,790 9.1%
Annualized professional
service fees per
average number of
client employees
paid by month (a),
(f), (g) $ 1,111 $ 1,311 -15.3%
Annualized total gross
profit per average
number of client
employees paid
by month (a), (f) $ 1,427 $ 1,505 -5.2%
Annualized adjusted
operating income per
average number of
client employees
paid by month (a),
(f), (h) $ 219 $ 388 -43.6%
(a) Statistics include the impact of the February 16, 2007
acquisition of HRAmerica, Inc. Approximately 145 clients (as
measured by Federal Employer Identification Number (FEIN)) with
approximately 16,000 client employees were acquired.
(b) Client accounts as measured by individual client FEIN.
(c) 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.
(d) Workers' compensation wages exclude the wages of clients electing
out of the Company's workers' compensation program.
(e) Manual premium rate data is derived from tables of AIG in effect
for 2007 and 2006, respectively.
(f) 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.
(g) The annualized professional service fees is based upon
information from the following table (in thousands):
2nd Quarter 2nd Quarter
2007 2006
----------- -----------
Revenues:
Professional service fees $ 37,031 $ 42,058
Employee health and welfare benefits 87,340 88,037
Workers' compensation 21,312 25,855
State unemployment taxes and other 4,725 5,258
----------- -----------
Total revenues $ 150,408 $ 161,208
=========== ===========
(h) The second quarter of 2006 is adjusted to eliminate the effect of
the $4.65 million loss on a reinsurance contract as a result of
the liquidation proceedings of the Company's reinsurer for its
workers' compensation program. See the related GAAP to Non-GAAP
reconciliation table in the attached press release.
GEVITY HR, INC. AND SUBSIDIARIES
STATISTICAL DATA
(unaudited)
First Six Months Percentage
2007 2006 Change
------------------ ----------
Client employees at
period end (a) 141,017 138,022 2.2%
Clients at period
end (a), (b) 7,404 8,018 -7.7%
Average number of client
employees/clients at
period end (a) 19.05 17.21 10.7%
Average number of client
employees paid by
month (a), (c) 128,597 127,947 0.5%
Number of workers'
compensation claims 2,306 3,008 -23.3%
Frequency of workers'
compensation claims per
one million dollars of
workers' compensation
wages (d) 1.06 x 1.33 x -20.3%
Workers' compensation
manual premium per one
hundred dollars of
workers' compensation
wages (d), (e) $ 2.17 $ 2.76 -21.4%
Workers' compensation
billing per one hundred
dollars of workers'
compensation wages (d) $ 1.95 $ 2.35 -17.0%
Workers' compensation cost
per one hundred dollars
of workers' compensation
wages (d) $ 1.10 $ 1.67 -34.1%
Client employee health
benefits plan
participation 33% 38% -13.2%
Annualized average wage
per average client
employees paid by
month (a), (f) $ 43,466 $ 39,800 9.2%
Annualized professional
service fees per average
number of client employees
paid by month (a),
(f), (g) $ 1,149 $1,265 -9.2%
Annualized total gross
profit per average
number of client
employees paid by
month (a), (f) $ 1,446 $1,530 -5.5%
Annualized adjusted
operating income per
average number of client
employees paid by
month (a), (f), (h) $ 181 $ 391 -53.7%
(a) Statistics include the impact of the February 16, 2007
acquisition of HRAmerica, Inc. Approximately 145 clients (as
measured by Federal Employer Identification Number (FEIN)) with
approximately 16,000 client employees were acquired.
(b) Client accounts as measured by individual client FEIN.
(c) 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.
(d) Workers' compensation wages exclude the wages of clients electing
out of the Company's workers' compensation program.
(e) Manual premium rate data is derived from tables of AIG in effect
for 2007 and 2006, respectively.
(f) Annualized statistical information is based upon actual
year-to-date amounts which have been annualized (divided by 6 and
multiplied by 12) and then divided by the average number of
client employees paid by month.
(g) The annualized professional service fees is based upon
information from the following table (in thousands):
First Six Months
2007 2006
--------- ---------
Revenues:
Professional service fees $ 73,900 $ 80,920
Employee health and welfare benefits 176,092 177,296
Workers' compensation 42,512 53,270
State unemployment taxes and other 19,019 19,411
-------------------------
Total revenues $ 311,523 $ 330,897
=========================
(h) The first six months of 2006 is adjusted to eliminate the effect
of the $4.65 million loss on a reinsurance contract as a result
of the liquidation proceedings of the Company's reinsurer for its
workers' compensation program. See the related GAAP to Non-GAAP
reconciliation table in the attached press release.