BRADENTON, Fla., Nov. 5, 2007 (PRIME NEWSWIRE) -- Gevity (Nasdaq:GVHR), which serves as the full-service human resources department for small and mid-sized businesses, today reported third quarter earnings per diluted share of $0.10. These results include a $1.9 million severance related charge, or $0.05 per diluted share, arising from a previously announced streamlining of operations.
During the third quarter of 2007, Gevity's efforts to increase sales production were not sufficient to offset increased client attrition and reductions in work force of existing clients, both of which were exacerbated by a more challenging Florida economy. These factors led to a decrease in the company's number of client employees served from 141,000 at the end of the second quarter of 2007 to 135,500 at the end of the third quarter of 2007. Gevity ended its third quarter of 2006 with 138,300 client employees served.
"Although challenging economic factors impacted parts of our portfolio during the quarter, we have identified a number of areas where we can enhance our competitive position," commented Michael J. Lavington, Gevity's Chairman and Chief Executive Officer designate.
Gevity produced sales of 4,400 new client employees during the third quarter of 2007. This compares to sales of 5,100 client employees in the third quarter of 2006 and sales of 6,000 client employees in the second quarter of 2007.
"While sales levels were disappointing, we anticipate improvement under Jim Hardee's leadership. Moreover, we expect to create momentum with an intensified focus on strengthening and growing our core PEO offering," commented Mr. Lavington. "Additionally, we remain committed to developing a complementary income stream from the non co-employed market. We intend to further refine our Gevity Edge Select offering based on feedback from the initial stage of market testing."
Professional service fees for the third quarter of 2007 were $36.1 million compared to $42.1 million in the same period last year and $37.0 million in the second quarter of 2007. Annualized professional service fees per paid client employee, excluding the acquired HRAmerica portfolio, were $1,247 for the third quarter of 2007 compared to $1,316 in the third quarter of 2006 and $1,252 in the second quarter of 2007. Including the acquired HRAmerica portfolio, annualized professional service fees per paid client employee were $1,114 in the third quarter of 2007.
Earnings for the third quarter of 2007 were $0.10 per diluted share compared to $0.35 in the third quarter last year and $0.19 in the second quarter of 2007. Last year's third quarter number includes a $3.0 million reinsurance contract recovery, or $0.06 per diluted share. Gevity's current quarter earnings were largely driven by a continued trend of favorable workers' compensation claims development, as the company recognized a $4.1 million reduction in prior years' workers' compensation loss estimates. Earnings for the third quarter of 2007 underperformed the year earlier period due to a reduced level of professional service fees, a lower contribution from the current year's workers' compensation program, and the severance related charge. The change in earnings from the second quarter of 2007 to the third quarter of 2007 was primarily the result of a lower contribution from the company's workers' compensation program and the severance related charge.
2007 Outlook
Gevity indicated that preliminary figures for October show that the external environment continues to be a factor with respect to client terminations and the reduction in its existing clients' employees. As the company moves forward, it anticipates that the negative influences of the external environment will begin to be outweighed by improved sales production. In light of the client portfolio experiences through the end of October, Gevity now expects it will generate a 3% to 5% annual increase in employees served at the end of 2007, including the acquired HRAmerica portfolio. Given the sensitivity of the company's business model, Gevity anticipates that the reduced portfolio expectations will result in fourth quarter 2007 earnings per diluted share in the range of $0.06 to $0.10, excluding severance charges related to the prior Chief Executive Officer's departure.
Share Repurchase Program
Pursuant to its $75 million share repurchase program authorized by the Board in April 2007, Gevity repurchased 0.4 million shares at a total cost of $7.5 million during the third quarter of 2007. The company has $51.4 million remaining under its current authorization. For the full year, Gevity has repurchased 1.5 million shares at a total cost of $30.3 million. As of September 30, 2007, the company had 23.3 million shares outstanding.
"The Board and I agree that it is prudent to disengage from our active share repurchase program while my team and I develop and begin to implement our business plan," commented Mr. Lavington. "While we remain confident in our abilities to capitalize on growth opportunities, we believe shareholder value can be better enhanced by our investment in the business."
Third Quarter Earnings Call
Gevity will discuss its third quarter 2007 results during a live conference call today, November 5, 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: 18245818. 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, 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, experienced HR Consultants based in local markets backed by nationwide resources and easy-to-use technology, including Gevity OnLine and Gevity OnCall. 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, financial related concerns at clients which result in fewer employees or a termination of the relationship, 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 For the Nine
Months Ended Months Ended
September 30, September 30,
--------------------- ---------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Revenues $ 146,508 $ 160,615 $ 458,031 $ 491,512
Cost of services
(exclusive of
depreciation and
amortization shown
below) 101,443 110,012 320,021 343,009
--------- --------- --------- ---------
Gross profit 45,065 50,603 138,010 148,503
--------- --------- --------- ---------
Operating expenses:
Salaries, wages and
commissions 21,566 20,956 64,495 61,331
Other general and
administrative 15,028 13,959 45,478 39,634
Reinsurance
contract (gain)
loss -- (3,000) -- 1,650
Depreciation and
amortization 4,165 3,573 12,101 10,406
--------- --------- --------- ---------
Total operating
expenses 40,759 35,488 122,074 113,021
--------- --------- --------- ---------
Operating income 4,306 15,115 15,936 35,482
Interest income 375 361 791 797
Interest expense (1,164) (137) (2,160) (563)
Other income
(expense), net 3 -- (20) (148)
--------- --------- --------- ---------
Income before
income taxes 3,520 15,339 14,547 35,568
Income tax provision 1,066 5,782 4,889 10,913
--------- --------- --------- ---------
Net income $ 2,454 $ 9,557 $ 9,658 $ 24,655
========= ========= ========= =========
Net income per common
share - diluted $ 0.10 $ 0.35 $ 0.40 $ 0.91
========= ========= ========= =========
Weighted average
common shares
outstanding - diluted 23,769 26,968 24,450 27,100
========= ========= ========= =========
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in $000's, unaudited)
September 30, December 31,
2007 2006
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 14,565 $ 36,291
Marketable securities - restricted 6,046 4,478
Accounts receivable, net 121,150 126,936
Short-term workers' compensation
receivable, net 13,581 35,354
Other current assets 10,396 15,927
-------- --------
Total current assets 165,738 218,986
Property and equipment, net 24,159 23,847
Long-term marketable securities -
restricted 3,887 3,747
Long-term workers' compensation
receivable, net 95,848 85,872
Intangible assets, net 15,640 20,856
Goodwill and other assets 29,608 21,252
-------- --------
Total assets $ 334,880 $ 374,560
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued payroll and payroll taxes $ 127,420 $ 163,410
Accrued insurance premiums and health
reserves 12,126 17,287
Customer deposits and prepayments 24,113 11,893
Deferred tax liability, net 17,231 24,583
Accounts payable and other accrued
liabilities 11,444 12,466
-------- --------
Total current liabilities 192,334 229,639
Revolving credit facility 20,467 --
Other long-term liabilities 4,722 2,869
-------- --------
Total liabilities 217,523 232,508
Total shareholders' equity 117,357 142,052
-------- --------
Total liabilities and shareholders'
equity $ 334,880 $ 374,560
======== ========
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in $000's, unaudited)
For the Nine Months
Ended
September 30,
--------------------
2007 2006
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $9,658 $24,655
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,101 10,406
Deferred tax (benefit) provision, net (9,073) 841
Stock-based compensation 1,918 3,022
Excess tax benefits from share-based
arrangements (313) (4,199)
Provision for bad debts 1,262 381
Other 23 187
Changes in operating working capital (5,881) 2,264
-------- --------
Net cash provided by operating activities 9,695 37,557
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities and
certificates of deposit (1,708) (262)
Maturity of certificates of deposit -- 34
Capital expenditures (5,156) (13,410)
Business acquisition (9,495) --
-------- --------
Net cash used in investing activities (16,359) (13,638)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit
facility 20,467 --
Proceeds from exercise of stock options 974 6,615
Excess tax benefits from share-based
arrangements 313 4,199
Dividends paid (6,526) (6,591)
Purchase of treasury stock (30,290) (25,716)
-------- --------
Net cash used in financing activities (15,062) (21,493)
-------- --------
Net (decrease) increase in cash and cash
equivalents (21,726) 2,426
Cash and cash equivalents - beginning of
period 36,291 52,525
-------- --------
Cash and cash equivalents - end of period $14,565 $54,951
======== ========
GEVITY HR, INC. AND SUBSIDIARIES
STATISTICAL DATA
(unaudited)
3rd Quarter 3rd Quarter Percentage
2007 2006 Change
-------- -------- ----------
Client employees
at period end 135,469 138,338 -2.1%
Clients at period
end (1), (2) 7,172 7,911 -9.3%
Average number of
client employees/clients
at period end (1) 18.89 17.49 8.0%
Average number of
client employees paid
by month (1), (3) 129,606 128,035 1.2%
Annualized professional
service fees per
average number of
client employees paid
by month (1), (4), (5) $ 1,114 $ 1,316 -15.3%
Annualized total gross
profit per average
number of client
employees paid
by month (1), (4) $ 1,391 $ 1,581 -12.0%
Annualized operating
income per average
number of client
employees paid by
month (1), (4) $ 133 $ 472 -71.8%
(1) 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.
(2) Client accounts as measured by individual client 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) 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.
(5) The annualized professional service fees are based upon
information from the following table (in thousands):
3rd Quarter
2007 2006
-------- --------
Revenues:
Professional service fees $ 36,109 $ 42,131
Employee health and welfare benefits 85,762 87,916
Workers' compensation 21,126 26,469
State unemployment taxes and other 3,511 4,099
-------- --------
Total revenues $146,508 $160,615
======== ========
GEVITY HR, INC. AND SUBSIDIARIES
STATISTICAL DATA
(unaudited)
First Nine Months Percentage
2007 2006 Change
-------- -------- ----------
Client employees at
period end (1) 135,469 138,338 -2.1%
Clients at period
end (1), (2) 7,172 7,911 -9.3%
Average number of client
employees/clients at
period end (1) 18.89 17.49 8.0%
Average number of client
employees paid by
month (1), (3) 128,933 127,976 0.7%
Annualized professional
service fees per average
number of client
employees paid by
month (1), (4), (5) $ 1,138 $ 1,282 -11.2%
Annualized total gross
profit per average number
of client employees paid
by month (1), (4) $ 1,427 $ 1,547 -7.8%
Annualized operating
income per average number
of client employees
paid by month (1), (4) $ 165 $ 370 -55.4%
(1) 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.
(2) Client accounts as measured by individual client 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) Annualized statistical information is based upon actual
year-to-date amounts which have been annualized (divided by 9 and
multiplied by 12) and then divided by the average number of
client employees paid by month.
(5) The annualized professional service fees are based upon
information from the following table (in thousands):
First Nine Months
2007 2006
-------- --------
Revenues:
Professional service fees $110,009 $123,051
Employee health and welfare benefits 261,854 265,212
Workers' compensation 63,638 79,739
State unemployment taxes and other 22,530 23,510
-------- --------
Total revenues $458,031 $491,512
======== ========