Exhibit 99.1
ADMINISTAFF ANNOUNCES FULL YEAR
AND FOURTH QUARTER 2004 RESULTS
Unit growth accelerates to 10% by year-end
HOUSTON - Feb. 16, 2005 - Administaff, Inc. (NYSE: ASF), the nation’s leading Professional Employer Organization (PEO), today announced results for the full year and fourth quarter 2004. For the year ended Dec. 31, 2004, the company reported net income and diluted net earnings per share from continuing operations of $19.2 million and $0.72, versus $15.0 million and $0.55 for the same period in 2003. The 2004 results include proceeds from the Aetna settlement of $8.25 million, or $5.2 million and $0.19 per share after taxes.
From its continuing operations, the company reported fourth quarter net income and diluted earnings per share of $3.5 million and $0.14, versus $8.8 million and $0.32 in the 2003 period. Quarter-over-quarter results for 2004 and 2003 are not comparable due to a contractual change with clients allowing the company to invoice its comprehensive service fee at a higher rate earlier in the year to more closely reflect the annual pattern of employer-related payroll tax costs. Beginning in 2004, substantially all of the company’s client base was invoiced in accordance with this contractual change, compared to only 20% in 2003. Prior to 2004, the company’s earnings pattern included losses in the first quarter, followed by improved profitability in subsequent quarters throughout the year.
“We are pleased with the success of our fall campaign selling and retention efforts, which resulted in 81,426 paid worksite employees in December, an increase of 10% over December 2003,” said Paul J. Sarvadi, Administaff chairman and chief executive officer. “Achieving our stated goal of double-digit unit growth by year end lays a strong foundation for growth and profitability in 2005.”
Full Year Results
For the year ended Dec. 31, 2004, revenues increased 8.8% to $969.5 million, primarily due to a 4.9% increase in revenues per worksite employee per month and a 3.9% increase in the number of worksite employees paid.
Gross profit increased slightly to $197.7 million, as the 3.9% increase in the number of worksite employees paid offset a decline in the average monthly gross profit per worksite employee, from $219 in the 2003 period to $211 in the 2004 period. This expected decrease in gross profit per worksite employee per month was reflective of the company’s decision to moderate healthcare allocation increases in our comprehensive service fee, relative to expected cost increases over the last half of 2003 and first half of 2004. As a result, revenue per worksite employee per month increased by 4.9%, while direct costs per worksite employee per month increased by 7.3%.
Operating expenses increased 1.6% over the 2003 period to $175.6 million. On a per worksite employee per month basis, operating expenses decreased 2.1% to $188 compared to $192 in the 2003 period.
Operating income for the year ended Dec. 31, 2004 decreased 8.8% to $22.1 million compared to $24.3 million in the 2003 period, with an average monthly operating income per worksite employee of $24 in 2004 compared to $27 in 2003.
“We are confident in our ability to fund future double-digit unit growth and continue our share repurchase and dividend programs,” said Douglas S. Sharp, vice president of finance and chief financial officer. “We have generated EBITDA in excess of $40 million in each of the past two years and ended 2004 with working capital of $47.5 million, even after share repurchases of $17 million.”
Fourth Quarter Results
Revenues for the fourth quarter of 2004 increased 9.0% over the 2003 period to $248.7 million. This increase was due to an 8.9% increase in the average number of worksite employees paid per month, while revenues per worksite employee per month remained constant.
Gross profit for the fourth quarter was $51.4 million, with an average gross profit per worksite employee per month of $212. Gross profit and gross profit per worksite employee per month were $57.7 million and $259 in the 2003 period. The 2004 and 2003 results are not comparable due to the invoicing changes referenced above and a payroll tax accrual of $5.6 million in the 2003 period resulting from the receipt of an unemployment tax assessment from the State of California.
Operating expenses for the quarter increased from $43.4 million in the 2003 period to $46.1 million in the 2004 period. This increase was due primarily to a $1.8 million increase in marketing and advertising costs associated with the launch of the company’s new brand identity, which included the inaugural Administaff Small Business Classic professional golf tournament. In addition, in 2004 corporate salaries and wages increased $1.3 million over 2003, due primarily to lower capitalized software development costs in 2004 and a 2.5% increase in average pay. On a per worksite employee per month basis, operating expenses decreased 2.6% to $190 in the 2004 period from $195 in the 2003 period. This decrease was due to the 8.9% increase in the average number of worksite employees paid per month, offset by the increases referenced above.
Business Outlook
Administaff also provided its outlook for the first quarter and full year 2005.
| | | First Quarter | | Full Year | |
| Average worksite employees paid per month | | | 83,000 - 83,250 | | | 86,000 - 87,000 | |
| Gross profit per worksite employee per month | | | | | | | |
Operating expenses (in millions)(1) | | | | | | | ) |
| Net interest income (in millions) | | | | | | | |
| Effective income tax rate | | | 38.3 | % | | 38.3 | % |
| Average outstanding shares (in millions) | | | 26.6 | | | 26.6 | |
(1) | Includes $250,000 and $2.2 million in stock-based compensation expense, in the first quarter and full year, respectively. |
(2) | The high end of the full year operating expense range assumes a higher accrual for incentive compensation based upon achieving higher unit growth and gross profit goals. |
Administaff will be hosting a conference call today at 10 a.m. ET to discuss these results, give guidance for the first quarter and full year 2005, and answer questions from investment analysts. To listen in, call 800-599-9795 and use passcode 64708872. The call will also be webcast athttp://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.
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 athttp://www.administaff.com.
(Note: The statements contained in this press release that are not historical facts, including those that are identified with the words “outlook,” “plan,” “expect,” “predict,” “appears,” “indicator” and similar words, are forward-looking statements that involve a number of risks and uncertainties. Therefore, the actual results of 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 the factors cited above as challenges and concerns and: (i) changes in general economic conditions; (ii) regulatory and tax developments, including possible adverse application of various federal, state and local regulations; (iii) changes in Administaff’s direct costs and operating expenses, including, but not limited to, increases in health insurance and workers’ compensation premiums and underlying claims trends, 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 Administaff’s operations; (iv) the effectiveness of Administaff’s retirement services operation; (v) changes in the competitive environment in the Professional Employer Organization industry; (vi) Administaff’s liability for worksite employee payroll and benefits costs; and (vii) an adverse final judgment or settlement of claims against Administaff. These factors are described in further detail in Administaff’s filings with the Securities and Exchange Commission.)
Administaff, Inc.
Summary Financial Information
(in thousands, except per share amounts and statistical data)
| | | | December 31, | |
| | | | 2004 | | | 2003 | |
| Assets | | | | | | | |
Cash and cash equivalents | | $ | 81,740 | | $ | 104,728 | |
Restricted cash | | | 18,511 | | | 4,584 | |
Marketable securities | | | 27,950 | | | 23,989 | |
Accounts receivable | | | 67,210 | | | 61,744 | |
Prepaid expenses and other current assets | | | 18,409 | | | 30,022 | |
Income taxes receivable | | | 489 | | | — | |
Deferred income taxes | | | — | | | 3,423 | |
Total current assets | | | 214,309 | | | 228,490 | |
| | | | | | | | |
Property and equipment | | | 163,449 | | | 160,993 | |
Accumulated depreciation | | | (94,392 | ) | | (82,224 | ) |
Net property and equipment | | | 69,057 | | | 78,769 | |
| | | | | | | | |
Deposits | | | 70,593 | | | 39,671 | |
Other assets | | | 679 | | | 1,141 | |
Total assets | | $ | 354,638 | | $ | 348,071 | |
| | | | | | | | |
| Liabilities and Stockholders’ Equity | | | | | | | |
Accounts payable | | $ | 2,380 | | $ | 4,319 | |
Payroll taxes and other payroll deductions payable | | | 64,471 | | | 65,310 | |
Accrued worksite employee payroll expense | | | 59,277 | | | 65,503 | |
Accrued health insurance costs | | | 1,991 | | | 6,559 | |
Accrued workers’ compensation costs | | | 19,349 | | | 5,489 | |
Other accrued liabilities | | | 17,461 | | | 15,898 | |
Income taxes payable | | | — | | | 7,520 | |
Deferred income taxes | | | 231 | | | — | |
Current portion of long-term debt | | | 1,649 | | | 1,860 | |
Total current liabilities | | | 166,809 | | | 172,458 | |
| | | | | | | | |
Long-term debt | | | 34,890 | | | 40,502 | |
Accrued workers’ compensation costs | | | 22,912 | | | 7,417 | |
Deferred income taxes | | | 3,498 | | | 5,060 | |
Total noncurrent liabilities | | | 61,300 | | | 52,979 | |
| | | | | | | | |
Stockholders’ equity: | | | | | | | |
Common stock | | | 309 | | | 309 | |
Additional paid-in capital | | | 101,623 | | | 101,681 | |
Treasury stock, cost | | | (63,925 | ) | | (48,795 | ) |
Accumulated other comprehensive income, net of tax | | | (127 | ) | | — | |
Retained earnings | | | 88,649 | | | 69,439 | |
Total stockholders’ equity | | | 126,529 | | | 122,634 | |
Total liabilities and stockholders’ equity | | $ | 354,638 | | $ | 348,071 | |
Administaff, Inc.
Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
| | | Three months ended December 31, | | | | Year ended December 31, | | | |
| | | 2004 | | 2003 | | Change | | 2004 | | 2003 | | Change | |
| Operating results: | | | | | | | | | | | | | |
| Revenues (gross billings of $1.515 billion, $1.314 billion, $5.377 billion and $4.829 billion, less worksite employee payroll cost of $1.266 million, $1.086 million, $4.407 billion and $3.938 billion, respectively) | | $ | 248,723 | | $ | 228,265 | | | 9.0 | % | $ | 969,527 | | $ | 890,859 | | | 8.8 | % |
Direct costs: | | | | | | | | | | | | | | | | | | | |
| Payroll taxes, benefits and workers’ compensation costs | | | 197,280 | | | 170,540 | | | 15.7 | % | | 771,833 | | | 693,754 | | | 11.3 | % |
Gross profit | | | 51,443 | | | 57,725 | | | (10.9 | )% | | 197,694 | | | 197,105 | | | 0.3 | % |
Operating expenses: | | | | | | | | | | | | | | | | | | | |
Salaries, wages and payroll taxes | | | 23,137 | | | 21,880 | | | 5.7 | % | | 88,298 | | | 82,802 | | | 6.6 | % |
General and administrative expenses | | | 12,280 | | | 11,997 | | | 2.4 | % | | 49,283 | | | 50,033 | | | (1.5 | )% |
Commissions | | | 2,568 | | | 2,526 | | | 1.7 | % | | 10,447 | | | 10,656 | | | (2.0 | )% |
Advertising | | | 4,066 | | | 2,288 | | | 77.7 | % | | 10,021 | | | 8,581 | | | 16.8 | % |
Depreciation and amortization | | | 4,017 | | | 4,717 | | | (14.8 | )% | | 17,514 | | | 20,759 | | | (15.6 | )% |
| | | | 46,068 | | | 43,408 | | | 6.1 | % | | 175,563 | | | 172,831 | | | 1.6 | % |
Operating income | | | 5,375 | | | 14,317 | | | (62.5 | )% | | 22,131 | | | 24,274 | | | (8.8 | )% |
Other income (expense): | | | | | | | | | | | | | | | | | | | |
Interest income | | | 829 | | | 737 | | | 12.5 | % | | 2,449 | | | 1,910 | | | 28.2 | % |
Interest expense | | | (527 | ) | | (508 | ) | | 3.7 | % | | (2,093 | ) | | (2,176 | ) | | (3.8 | )% |
Other, net | | | — | | | (18 | ) | | (100.0 | )% | | 8,249 | | | 462 | | | — | |
| | | | 302 | | | 211 | | | 43.1 | % | | 8,605 | | | 196 | | | — | |
Income before income taxes | | | 5,677 | | | 14,528 | | | (60.9 | )% | | 30,736 | | | 24,470 | | | 25.6 | % |
Income tax expense | | | 2,128 | | | 5,738 | | | (62.9 | )% | | 11,526 | | | 9,485 | | | 21.5 | % |
Net income from continuing operations | | $ | 3,549 | | $ | 8,790 | | | (59.6 | )% | $ | 19,210 | | $ | 14,985 | | | 28.2 | % |
Discontinued operations: | | | | | | | | | | | | | | | | | | | |
Loss from discontinued operations | | | — | | | (1,161 | ) | | — | | | — | | | (3,264 | ) | | — | |
Income tax expense (benefit) | | | — | | | (407 | ) | | — | | | — | | | (1,143 | ) | | — | |
| Net loss from discontinued operations | | | — | | | (754 | ) | | — | | | — | | | (2,121 | ) | | — | |
Net income | | $ | 3,549 | | $ | 8,036 | | | (55.8 | )% | $ | 19,210 | | $ | 12,864 | | | 49.3 | % |
Diluted net income per share of common stock: | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.14 | | $ | 0.32 | | | (56.3 | )% | $ | 0.72 | | $ | 0.55 | | | 30.9 | % |
| Loss from discontinued operations | | $ | — | | $ | (0.03 | ) | | — | | $ | — | | $ | (0.08 | ) | | | |
Diluted net income per share of common stock | | $ | 0.14 | | $ | 0.29 | | | (51.7 | )% | $ | 0.72 | | $ | 0.47 | | | 53.2 | % |
Diluted weighted average common shares outstanding | | | 26,099 | | | 27,444 | | | | | | 26,859 | | | 27,253 | | | | |
Administaff, Inc.
Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
| | | Three months ended | | | | Year ended | | | |
| | | December 31, | | | | December 31, | | | |
| | | 2004 | | 2003 | | Change | | 2004 | | 2003 | | Change | |
| | | | | | | | | | | | | | |
Statistical data: | | | | | | | | | | | | | |
Average number of worksite employees paid per month | | | 80,926 | | | 74,332 | | | 8.9 | % | | 77,936 | | | 75,036 | | | 3.9 | % |
Revenues per worksite employee per month(1) | | | | | | | | | — | | | | | | | | | 4.9 | % |
Gross profit per worksite employee per month | | | 212 | | | 259 | | | (18.1 | )% | | 211 | | | 219 | | | (3.7 | )% |
Operating expenses per worksite employee per month | | | 190 | | | 195 | | | (2.6 | )% | | 188 | | | 192 | | | (2.1 | )% |
Operating income per worksite employee per month | | | 22 | | | 64 | | | (65.6 | )% | | 24 | | | 27 | | | (11.1 | )% |
Net income from continuing operations per worksite employee per month | | | 15 | | | 39 | | | (61.5 | )% | | 21 | | | 17 | | | 23.5 | % |
(1) Gross billings of $6,241, $5,893, $5,749 and $5,363 per worksite employee per month less payroll cost of $5,217, $4,869, $4,712 and $4,373 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 | | | | | Year ended | | | | |
| | | December 31, | | | | | December 31, | | | | |
| | | 2004 | | 2003 | | Change | | 2004 | | 2003 | | Change | |
| | | | | | | | | | | | | | | | |
| Payroll cost (GAAP) | | $ | 1,266,466 | | $ | 1,085,805 | | | 16.6 | % | | $ | 4,407,063 | | $ | 3,938,021 | | | 11.9 | % | |
| Less: Bonus payroll cost | | | 179,463 | | | 164,364 | | | 9.2 | % | | | 392,909 | | | 330,903 | | | 18.7 | % | |
| Non-bonus payroll cost | | $ | 1,087,003 | | $ | 921,441 | | | 18.0 | % | | $ | 4,014,154 | | $ | 3,607,118 | | | 11.3 | % | |
| | | | | | | | | | | | | | | | | | | | | | |
Payroll cost per worksite employee (GAAP) | | $ | 5,217 | | $ | 4,869 | | | 7.1 | % | | $ | 4,712 | | $ | 4,373 | | | 7.8 | % | |
Less: Bonus payroll cost per worksite employee | | | 740 | | | 737 | | | 0.4 | % | | | 420 | | | 367 | | | 14.4 | % | |
Non-bonus payroll cost per worksite employee | | $ | 4,477 | | $ | 4,132 | | | 8.3 | % | | $ | 4,292 | | $ | 4,006 | | | 7.1 | % | |
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.
| | | Year ended December 31, | |
| | | 2004 | | 2003 | |
| | | | | | |
| Net income (GAAP) | | $ | 19,210 | | $ | 14,985 | |
| Interest expense | | | 2,093 | | | 2,176 | |
| Income tax expense | | | 11,526 | | | 9,485 | |
| Depreciation and amortization | | | 17,514 | | | 20,759 | |
| EBITDA | | $ | 50,343 | | $ | 47,405 | |
| Aetna settlement | | | (8,250 | ) | | — | |
| Adjusted EBITDA | | $ | 42,093 | | $ | 47,405 | |
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 andEBITDA 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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