EX-99.1 2 v028070_ex99-1.htm
Exhibit 99.1

ADMINISTAFF ANNOUNCES THIRD QUARTER RESULTS,
RAISES 2005 GUIDANCE AND INTRODUCES 2006 OUTLOOK

·  Unit growth accelerates to 15%
·  Revenue and gross profit up over 20%
·  EPS up 86% to $0.26

HOUSTON - Nov. 1, 2005 - Administaff, Inc. (NYSE: ASF), the nation’s leading Professional Employer Organization (PEO), today announced a 99% increase in third quarter net income to $7.2 million in the 2005 period from $3.6 million in the 2004 period. Diluted earnings per share increased to $0.26 from $0.14 over the same period.

“Our unit growth rate has increased ahead of schedule due to improved sales efficiency, strong client retention and some contribution from new hires within the existing client base,” said Paul J. Sarvadi, Administaff chairman and chief executive officer. “These trends have continued through the early stages of our fall sales campaign, giving us increased confidence in accelerating our unit growth in 2006.”

Revenues for the third quarter of 2005 increased 20.9% over the 2004 period to $285.2 million on a 14.8% increase in the average number of worksite employees paid per month and a 5.3% increase in revenues per worksite employee per month.

Gross profit increased 22.0% over the third quarter of 2004 to $58.2 million, due to a combination of accelerated unit growth, increased service fee markup, and a surplus from the company’s direct cost programs. This surplus was primarily the result of continued favorable trends in healthcare and workers’ compensation costs. The average gross profit per worksite employee per month increased to $214 in the 2005 period from $202 in the 2004 period.

Continued operating leverage was demonstrated by a decline in operating expense per worksite employee per month, to $175 in the 2005 period from $180 in the 2004 period. Investments to drive unit growth, including marketing efforts surrounding the fall sales campaign, and additional incentive compensation tied to improved operating results, contributed to an expected 11.7% increase in total operating expenses to $47.6 million.

Operating income for the third quarter of 2005 increased 108.3% to $10.6 million, with an average operating income per worksite employee per month of $39 compared to $22 in the 2004 period.

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Year-to-Date Results

For the nine months ended September 30, 2005, the company reported net income and diluted earnings per share of $19.1 million and $0.72, versus $15.7 million and $0.58 for the same period in 2004. Diluted earnings per share increased 80.0% over the 2004 period, excluding the $0.18 per share impact of the Aetna lawsuit settlement in the 2004 period.

Year-to-date revenues were $864.1 million, a 19.9% increase over the 2004 period, which resulted from a 13.1% increase in the average number of worksite employees paid per month and a 6.0% increase in revenues per worksite employee per month. Gross profit for the nine months ended September 30, 2005 increased 15.2% to $168.5 million. The average gross profit per worksite employee per month was $215 compared to $211 in the 2004 period.

Year-to-date operating expenses increased 8.3% to $140.2 million, but declined 4.3% on a per worksite employee per month basis to $179 in the 2005 period from $187 in the 2004 period. The resulting operating income for the nine months ended September 30, 2005 was $28.3 million compared to $16.8 million in the 2004 period. Operating income per worksite employee per month increased 50.0% to $36 from $24 in the prior year.

Working capital has increased by $50 million since December 31, 2004, to $98 million.

“Year-to-date operating income is up 69% over 2004 on a 15% increase in gross profit, demonstrating the significant operating leverage in our business,” said Douglas S. Sharp, vice-president of finance, chief financial officer and treasurer. “As a result of this leverage and the current favorable trends in the core areas of our business, we are raising our 2005 guidance and have increased confidence for continued strong financial performance into 2006.”




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2005 Outlook

Administaff also provided its outlook for the fourth quarter and full year 2005.
 
   
Fourth Quarter
  
Full Year
  
Average worksite employees paid per month
    
92,750 - 93,250
    
88,400 - 88,600
  
Gross profit per worksite employee per month
  
$
217 - $221
  
$
216 - $217
  
Operating expenses (in millions) (1)
  
$
50.5 - $51.0
  
$
190.7 - $191.2
  
Net interest income (in millions)
  
$
1.2 - $1.4
  
$
3.5 - $3.7
  
Effective income tax rate
    
37.7
%
  
37.7
%
Average outstanding shares (in millions)
    
28.0
    
26.9
  
               

(1)
Includes $363,000 and $2.1 million in stock-based compensation expense, in the fourth quarter and full year, respectively.

2006 Preliminary Outlook

Following is the company’s preliminary outlook for 2006. Due to the combination of the fall sales campaign and heavy year-end client renewal period, this outlook assumes a 15% year-end turnover in the worksite employee base and pricing consistent with the current base.
 

   
Full Year
  
Increase in average worksite employees paid per month
    
15% - 17
%
Gross profit per worksite employee per month
  
$
212 - $216
  
Operating expenses (in millions)(1)
  
$
207.0 - $211.0
  
Net interest income (in millions)
  
$
6.0 - $8.0
  
         
 
(1)
The high end of the operating expense range assumes a higher accrual for incentive compensation based upon achieving higher unit growth and gross profit goals.

Conference Call

Administaff will be hosting a conference call today at 10 a.m. ET to discuss these results, update guidance for 2005, discuss the preliminary outlook for 2006, and answer questions from investment analysts. To listen in, call 800-591-6923 and use passcode 41435774. 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 will be available at the same website later today. A replay of the conference call will be available at 888-286-8010, passcode 33806037, for two weeks after the call. The webcast will be archived for one year.



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About Administaff

Administaff is a leading personnel management company that serves as a full-service human resources department for small and medium-sized businesses throughout the United States. The company operates 38 sales offices in 21 major markets. For additional information, visit Administaff’s Web site at http://www.administaff.com.

“Safe Harbor” Statement Under The Private Securities Litigation Reform Act of 1995

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,” “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) our ability to effectively manage our retirement services operation; (v) 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; and (viii) an adverse final judgment or settlement of claims against Administaff. These factors are discussed in detail in our 2004 annual report on Form 10-K and elsewhere in this report. 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.

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Administaff, Inc.
Summary Financial Information
(in thousands, except per share amounts and statistical data)
   
September 30,
  
 December 31,
  
   
2005
 
2004
  
   
(Unaudited)
      
Assets
          
Cash and cash equivalents
  
$
108,818
  
$
81,740
  
Restricted cash
    
25,730
    
18,511
  
Marketable securities
    
46,854
    
27,950
  
 
Accounts receivable
    
88,716
    
67,210
  
Prepaid insurance and other current assets
    
24,022
    
19,159
  
Income taxes receivable
    
6,816
    
489
  
Total current assets
    
300,956
    
215,059
  
               
Property and equipment, net
    
64,680
    
69,057
  
Deposits and other assets
    
51,464
    
71,272
  
Prepaid insurance
    
11,000
    
―
  
Total assets
  
$
428,100
  
$
355,388
  
               
Liabilities and Stockholders’ Equity
              
Accounts payable
  
$
3,453
  
$
3,130
  
Payroll taxes and other payroll deductions payable
    
67,977
    
64,471
  
Accrued worksite employee payroll expense
    
74,833
    
59,277
  
Accrued health insurance costs
    
4,799
    
1,991
  
Accrued workers’ compensation costs
    
27,822
    
19,349
  
Other accrued liabilities
    
20,209
    
17,461
  
Deferred income taxes
    
2,311
    
231
  
Current portion of long-term debt
    
1,687
    
1,649
  
Total current liabilities
    
203,091
    
167,559
  
               
Long-term debt
    
33,620
    
34,890
  
Accrued workers’ compensation costs
    
29,912
    
22,912
  
Deferred income taxes
    
2,082
    
3,498
  
Total noncurrent liabilities
    
65,614
    
61,300
  
               
Stockholders’ equity:
              
Common stock
    
309
    
309
  
Additional paid-in capital
    
112,490
    
101,623
  
Treasury stock, cost
    
(52,054
)
  
(63,925
)
Deferred compensation expense
    
(3,412
)
  
―
  
Accumulated other comprehensive
  loss, net of tax   
    
(151
)
  
(127
)
Retained earnings
    
102,213
    
88,649
  
Total stockholders’ equity
    
159,395
    
126,529
  
Total liabilities and stockholders’ equity
  
$
428,100
  
$
355,388
  


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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,
      
   
2005
  
2004
  
Change
  
2005
  
2004
  
Change
  
Operating results:
                          
Revenues (gross billings of $1.622 billion, $1.323 billion, $4.756 billion and $3.861 billion, less worksite employee payroll cost of $1.337 billion, $1.087 billion, $3.892 billion and $3.141 billion, respectively)
  
$
285,202
  
$
235,865
    
20.9
%
$
864,062
  
$
720,804
    
19.9
%
Direct costs:
                                      
Payroll taxes, benefits and workers’ compensation costs
    
227,031
    
188,193
    
20.6
%
  
695,528
    
574,553
    
21.1
%
Gross profit
    
58,171
    
47,672
    
22.0
%
  
168,534
    
146,251
    
15.2
%
Operating expenses:
                                      
Salaries, wages and payroll taxes
    
25,471
    
21,779
    
17.0
%
  
73,436
    
65,161
    
12.7
%
Stock-based compensation
    
360
    
―
    
―
    
1,765
    
―
    
―
  
General and administrative expenses
    
12,476
    
12,322
    
1.2
%
  
39,077
    
37,003
    
5.6
%
Commissions
    
2,610
    
2,557
    
2.1
%
  
7,462
    
7,879
    
(5.3
)%
Advertising
    
2,956
    
1,547
    
91.1
%
  
7,355
    
5,955
    
23.5
%
Depreciation and amortization
    
3,693
    
4,376
    
(15.6
)%
  
11,099
    
13,497
    
(17.8
)%
Total operating expenses
    
47,566
    
42,581
    
11.7
%
  
140,194
    
129,495
    
8.3
%
Operating income
    
10,605
    
5,091
    
108.3
%
  
28,340
    
16,756
    
69.1
%
Other income (expense):
                                      
Interest income
    
1,645
    
606
    
171.5
%
  
4,097
    
1,620
    
152.9
%
Interest expense
    
(594
)
  
(517
)
  
14.9
%
  
(1,709
)
  
(1,566
)
  
9.1
%
Other, net
    
(84
)
  
(37
)
  
127.0
%
  
(97
)
  
8,249
    
(101.2
)%
Income before income tax expense
    
11,572
    
5,143
    
125.0
%
  
30,631
    
25,059
    
22.2
%
Income tax expense
   
4,389
    
1,531
    
186.7
%
  
11,574
    
9,398
    
23.2
%
Net income
  
$
7,183
  
$
3,612
    
98.9
%
$
19,057
  
$
15,661
    
21.7
%
Diluted net income per share
of common stock
  
$
0.26
  
$
0.14
    
85.7
%
$
0.72
  
$
0.58
    
24.1
%
Diluted weighted average
common shares outstanding
    
27,316
    
26,446
          
26,458
    
27,114
        

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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,
      
   
2005
  
2004
  
Change
  
2005
  
2004
  
Change
  
                           
Statistical data: 
                          
Average number of worksite
employees paid per month
    
90,493
    
78,817
    
14.8
%
  
87,030
    
76,940
    
13.1
%
Revenues per worksite employee
per month (1)
  
$
1,051
  
$
998
    
5.3
%
$
1,103
  
$
1,041
    
6.0
%
Gross profit per worksite employee
per month
    
214
    
202
    
5.9
%
  
215
    
211
    
1.9
%
Operating expenses per worksite
employee per month
    
175
    
180
    
(2.8
)%
  
179
    
187
    
(4.3
)%
Operating income per worksite employee per month
    
39
    
22
    
77.3
%
  
36
    
24
    
50.0
%
Net income per worksite
employee per month
    
26
    
15
    
73.3
%
  
24
    
23
    
4.3
%

(1)  
Gross billings of $5,976, $5,596, $6,072 and $5,576 per worksite employee per month, less payroll cost of $4,926, $4,598, $4,969 and $4,535 per worksite employee per month, respectively.
 
 
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Administaff, Inc.
Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
(Unaudited)

GAAP to Non-GAAP Reconciliation Table
(in millions, except per worksite employee and earnings per share data)


   
Three months ended
      
Nine months ended
      
   
September 30,
      
September 30,
      
   
2005
  
2004
  
Change
  
2005
  
2004
  
Change
  
                           
Payroll cost (GAAP)
  
$
1,337,230
  
$
1,087,311
    
23.0
%
$
3,891,756
  
$
3,140,597
    
23.9
%
Less: Bonus payroll cost
    
71,302
    
64,176
    
11.1
%
  
302,877
    
213,446
    
41.9
%
Non-bonus payroll cost
  
$
1,265,928
  
$
1,023,135
    
23.7
%
$
3,588,879
  
$
2,927,151
    
22.6
%
                                       
Payroll cost per worksite
employee (GAAP)
  
$
4,926
  
$
4,598
    
7.1
%
$
4,969
  
$
4,535
    
9.6
%
Less: Bonus payroll cost per
worksite employee
    
263
    
271
    
(3.0
)%
  
387
    
308
    
25.6
%
Non-bonus payroll cost per
worksite employee
  
$
4,663
  
$
4,327
    
7.8
%
$
4,582
  
$
4,227
    
8.4
%


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,
      
   
2005
  
2004
  
Change
  
               
Net income
  
$
19,057
  
$
15,661
    
21.7
%
Less: Aetna settlement proceeds, net of tax 
    
―
    
(4,991
)
  
―
  
Adjusted net income
  
$
19,057
  
$
10,670
    
78.6
%
                     
Earnings per share
  
$
0.72
  
$
0.58
    
24.1
%
Less: Aetna settlement proceeds, net of tax
    
―
    
(0.18
)
  
―
  
Adjusted earnings per share
  
$
0.72
  
$
0.40
    
80.0
%

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Adjusted net income represents net income computed in accordance with generally accepted accounting principles (“GAAP”), less proceeds from the 2004 Aetna settlement, net of taxes (“Adjusted Net Income”). Administaff management believes adjusted net income is 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 the gain resulting from the Aetna settlement proceeds in 2004 on earnings.
 
 
Non-bonus payroll and adjusted net income are not financial measures prepared in accordance with GAAP and may be different from similar measures used by other companies. Non-bonus payroll and adjusted net income 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 adjusted net income 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.
 

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