BRADENTON, Fla., Nov. 5, 2008 (GLOBE NEWSWIRE) -- Gevity (Nasdaq:GVHR), which serves as the full-service human resources department for small- and mid-sized businesses, today reported a third quarter 2008 loss from continuing operations of $1.8 million, or $0.07 per share, as compared to income from continuing operations of $2.0 million, or $0.08 per diluted share, for the second quarter of 2008. Third quarter 2008 results included pre-tax cost alignment charges of $1.3 million, or $0.03 per share, relating to the consolidation of certain branch offices and the reduction of staffing levels.
"During the quarter, we took a number of actions to better align our costs, which when coupled with the effects of the challenging economic environment, led to a loss for the period," commented Michael J. Lavington, Chairman and Chief Executive Officer. "We remain confident that our ongoing efforts to increase our operating efficiency will strengthen our financial position and enhance our competitiveness in the marketplace."
Client Portfolio
Gevity ended the third quarter of 2008 with 104,300 client employees, which compares to 107,700 client employees at the end of the second quarter of 2008. For the third quarter, the Company continued its selling momentum by generating a 29% sequential increase in quarterly sales production over the second quarter. Additionally, the number of client-initiated terminations declined for the third consecutive quarter. The increased sales volume and lower client-initiated terminations were more than offset by a higher level of client employee attrition, which was principally driven by economic-related conditions and seasonality among existing clients.
"We are pleased with our progress in sales production levels during the quarter in light of the current market conditions," continued Mr. Lavington. "The improvements made to our health insurance offerings combined with a consistent and active training program have resulted in a more productive sales force, and we expect further advancements into the fourth quarter. Building on our selling efforts is particularly important to help mitigate the effects of the increased economic-related attrition we are experiencing within our client base."
Third Quarter Results
Gevity reported gross profit of $34.3 million for the third quarter of 2008, as compared to gross profit of $37.9 million for the second quarter of 2008. While the Company continued to experience favorable trends in workers' compensation claims developments, Gevity recognized a ratably smaller reduction in prior years' workers' compensation loss estimates during the 2008 third quarter, as compared to the 2008 second quarter. In total, the workers' compensation program generated $7 million in gross profit for the third quarter of 2008, as compared to $11 million in gross profit for the second quarter of 2008. The sequentially lower level of gross profit was also attributed, in part, to reduced professional service fees, as a consequence of fewer client employees.
Operating expenses totaled $34.8 million in the third quarter of 2008, as compared to $35.0 million in the second quarter of 2008. Included in operating expenses for the 2008 third quarter were the previously mentioned cost alignment charges of $1.3 million, which compare to $1.8 million of similar expenses in the second quarter of 2008. Additionally, as a result of the current economic environment, bad debt expenses increased $0.8 million from $0.1 million in the 2008 second quarter to $0.9 million in the 2008 third quarter.
Mr. Lavington concluded, "Our commitment to effective sales efforts and exceptional client service levels is generating positive results. Additionally, we are focused on strengthening the financial position of the Company, as recently demonstrated by the third quarter return of $33.1 million of excess workers' compensation collateral from AIG Commercial Insurance and continuing actions to realign our overhead cost base."
Discontinued Operations
As previously announced, Gevity exited the non co-employed market during the second quarter of 2008 in order to rededicate full Company resources to its core PEO business. The results of operations and other wind-down costs attributable to Gevity's exit from the non co-employed business are reported within discontinued operations in the Company's condensed consolidated statement of operations included in this news release.
Strategic Discussions
Gevity announced on July 30, 2008, that, in response to inquiries from, and contact with, several third parties regarding possible strategic transactions, its Board of Directors authorized the Company's management to initiate a formal process to evaluate potential strategic alternatives and to seek proposals from potentially interested parties. These strategic discussions are ongoing. The Company emphasizes that there can be no assurance, however, that the exploration of possible strategic transactions, including a business combination, will result in any transaction.
Third Quarter Conference Call
Management will discuss the Company's third quarter 2008 operating results during a live conference call today, November 5, 2008, at 10:00 a.m. Eastern Time. To participate in the call, dial (866) 550-6338, then ask for the Gevity conference call and provide the following pass code: 4471710. To access a live webcast or replay of the call, visit the 'Investor Relations' section of gevity.com.
About Gevity
As a leading provider of HR solutions, Gevity helps small businesses nationwide maximize performance through its world-class HR expertise and services -- including payroll, benefits, administrative processing, risk management, policies and procedures, new hire support, performance management, and employee development and retention. For more information, visit gevity.com.
(Unaudited financial statements and related tables are included below)
A copy of this news release is also available from 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 news release. Forward-looking statements are those that express expectations, beliefs, plans, objectives, assumptions or future events or performance that are not historical facts. Such statements 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 to predict, such as risks relating to the following: to the Company's guidance, including the challenges to achieve its growth strategy, obtaining new client employees, while passing on increased pricing for its services, including professional service fees, retaining clients through annual benefit enrollment, the Company's dependence on technology services, the adequacy of the Company's 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 the Company's acquisition strategy and its ability to successfully assimilate acquired entities, the Company's dependence on third-party technology licenses, the Company's dependence on key personnel, qualified service consultants and sales associates, fluctuations in the Company's quarterly results, variability in health insurance claims, state unemployment tax rates and workers' compensation rates, liabilities resulting from the Company's co-employment relationship with its clients, credit risks associated with the Company's large clients, short- termination provisions in the Company's professional services agreements, financial related concerns at clients which result in fewer employees or a termination of the relationship, the Company's geographic market concentration, collateral requirements of the Company's insurance programs, the ability of AIG, parent company of AIG Commercial Insurance, to continue as a going concern, regulatory compliance, the ultimate impact of the current economic crisis, the liquidity of the financial markets, Internet and related data security risks, potential liabilities as a consequence of potentially being deemed an "employer" under ERISA and other tax regulations as well as other civil liabilities, 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 the reader 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 thousands, except share and per share data)
(Unaudited) (Unaudited)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------------- -------------------
2008 2007 2008 2007
-------- -------- -------- --------
Revenues $125,077 $145,515 $395,431 $455,577
Cost of services (exclusive
of depreciation and
amortization shown below) 90,785 101,399 288,979 319,904
-------- -------- -------- --------
Gross profit 34,292 44,116 106,452 135,673
-------- -------- -------- --------
Operating expenses:
Salaries, wages and
commissions 18,552 20,768 56,089 62,493
Other general and
administrative 12,170 13,918 36,000 42,846
Depreciation and
amortization 4,093 3,898 11,971 11,431
-------- -------- -------- --------
Total operating expenses 34,815 38,584 104,060 116,770
-------- -------- -------- --------
Operating (loss) income (523) 5,532 2,392 18,903
Interest expense, net (708) (809) (1,760) (1,473)
Other income (expense), net 25 3 (10) (20)
-------- -------- -------- --------
(Loss) income from
continuing operations
before income taxes (1,206) 4,726 622 17,410
Income tax provision 566 1,517 710 5,953
-------- -------- -------- --------
(Loss) income from
continuing operations (1,772) 3,209 (88) 11,457
Loss from discontinued
operations, net of tax (179) (755) (3,290) (1,799)
-------- -------- -------- --------
Net (loss) income $ (1,951) $ 2,454 $ (3,378) $ 9,658
======== ======== ======== ========
(Loss) income from
continuing operations per
common share - diluted $ (0.07) $ 0.13 -- $ 0.47
Loss from discontinued
operations per common
share - diluted (0.01) (0.03) (0.14) (0.07)
-------- -------- -------- --------
Net (loss) income per
common share - diluted $ (0.08) $ 0.10 $ (0.14) $ 0.40
======== ======== ======== ========
Weighted average common
shares outstanding -
diluted 23,595 23,769 23,341 24,450
======== ======== ======== ========
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
(Unaudited) (Unaudited)
Sept. 30, Dec. 31,
2008 2007
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 12,466 $ 9,950
Marketable securities - restricted 4,810 6,102
Accounts receivable, net 124,948 130,209
Short-term workers' compensation receivable,
net 23,996 16,950
Other current assets 12,627 14,515
-------- --------
Total current assets 178,847 177,726
Property and equipment, net 20,015 22,176
Long-term marketable securities - restricted 4,025 3,934
Long-term workers' compensation receivable,
net 96,900 105,321
Intangible assets, net 3,989 11,386
Goodwill and other assets 20,198 21,368
-------- --------
Total assets $323,974 $341,911
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued payroll and payroll taxes $131,423 $151,105
Accrued insurance premiums and health reserves 11,913 13,557
Customer deposits and prepayments 13,139 13,581
Deferred tax liability, net 5,434 11,674
Accounts payable and other accrued liabilities 9,489 13,977
-------- --------
Total current liabilities 171,398 203,894
Revolving credit facility 32,500 17,367
Other long-term liabilities 4,862 5,088
-------- --------
Total liabilities 208,760 226,349
Total shareholders' equity 115,214 115,562
-------- --------
Total liabilities and shareholders' equity $323,974 $341,911
======== ========
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
For the Nine
Months Ended
September 30,
--------------------
2008 2007
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (3,378) $ 9,658
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities:
Depreciation and amortization 12,219 12,101
Impairment loss 532 --
Deferred tax benefit, net (5,328) (9,073)
Stock-based compensation 1,305 1,918
Excess tax benefit from share-based
arrangements (1,307) (313)
Provision for bad debts 1,682 1,262
Other 49 23
Changes in operating working capital (18,251) (5,881)
-------- --------
Net cash (used in) provided by operating
activities (12,477) 9,695
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities and
certificates of deposit (199) (1,708)
Proceeds from sale of marketable securities 1,400 --
Capital expenditures (1,928) (5,156)
Business acquisition -- (9,495)
-------- --------
Net cash used in investing activities (727) (16,359)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit
facility 15,133 20,467
Capital lease payments (327) --
Proceeds from exercise of stock options 4,042 974
Excess tax benefit from share-based
arrangements 1,307 313
Dividends paid (4,435) (6,526)
Purchase of treasury stock -- (30,290)
-------- --------
Net cash provided by (used in) financing
activities 15,720 (15,062)
-------- --------
Net increase (decrease) in cash
and cash equivalents 2,516 (21,726)
Cash and cash equivalents - beginning of
period 9,950 36,291
-------- --------
Cash and cash equivalents - end of period $ 12,466 $ 14,565
======== ========
GEVITY HR, INC. AND SUBSIDIARIES
STATISTICAL DATA - CONTINUING OPERATIONS
(unaudited)
Gevity Edge
------------------
3rd Quarter Percentage
2008 2007 Change
-------- -------- -------
Client employees at period end 104,278 118,728 -12.2%
Clients at period end(1) 5,983 7,020 -14.8%
Average number of client employees/
clients at period end 17 17 0.0%
Average number of client employees
paid(2) 95,717 113,146 -15.4%
Annualized professional service fees
per average number of client employees
paid(3),(4) $ 1,166 $ 1,249 -6.6%
Annualized total gross profit per
average number of client employees
paid(3) $ 1,433 $ 1,560 -8.1%
Annualized operating (loss) income per
average number of client employees
paid(3) $ (22) $ 196 -111.2%
(1) Client accounts as measured by individual client FEIN.
(2) The average number of client employees paid 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.
(3) 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.
(4) The annualized professional service fees is based upon
information from the following table (in thousands):
3rd Quarter
2008 2007
-------- --------
Revenues:
Professional service fees $ 27,898 $ 35,337
Employee health and welfare benefits 79,489 85,763
Workers' compensation 14,967 21,064
State unemployment taxes and other 2,723 3,351
-------------------
Total revenues $125,077 $145,515
===================
GEVITY HR, INC. AND SUBSIDIARIES
STATISTICAL DATA - CONTINUING OPERATIONS
(unaudited)
Gevity Edge
------------------
First Nine Months Percentage
2008 2007 Change
-------- -------- ------
Client employees at period end 104,278 118,728 -12.2%
Clients at period end(1) 5,983 7,020 -14.8%
Average number of client employees/
clients at period end 17 17 0.0%
Average number of client employees
paid(2) 98,044 114,826 -14.6%
Annualized professional service fees
per average number of client employees
paid(3),(4) $ 1,177 $ 1,255 -6.2%
Annualized total gross profit per
average number of client employees
paid(3) $ 1,448 $ 1,575 -8.1%
Annualized operating income per average
number of client employees paid(3) $ 33 $ 219 -84.9%
(1) Client accounts as measured by individual client FEIN.
(2) The average number of client employees paid 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.
(3) 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.
(4) The annualized professional service fees is based upon
information from the following table (in thousands):
First Nine Months
2008 2007
-------- --------
Revenues:
Professional service fees $ 86,529 $108,115
Employee health and welfare benefits 244,278 261,853
Workers' compensation 46,056 63,562
State unemployment taxes and other 18,568 22,047
--------------------
Total revenues $395,431 $455,577
====================