Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (06-16-08 06:20 AM)

Filed with the SEC from May 22 to May 28:

Gevity HR (GVHR)
General Atlantic Service believes there may be benefits to exploring a potential strategic transaction between GVHR and TriNet Group, a General Atlantic unit. The investor may engage in communications with Gevity management, board or other stockholders regarding its operations, prospects, business and financial strategies, strategic transactions, assets and liabilities, and business and financing alternatives. General Atlantic reported holding about 2.21 million shares (9.5%).

BUSINESS OVERVIEW

General

Gevity HR, Inc. ("Gevity" or the "Company") specializes in providing small- and medium-sized businesses nationwide with a wide-range of competitively priced payroll, insurance and human resource ("HR") outsourcing services. Gevity helps employers:

•
Streamline HR administration. Gevity takes the stress and effort out of payroll management and administration, benefits and benefits administration.

•
Optimize HR practices. Gevity works with the client's team to build structure—policies, procedures and communications—for effective employment management, hiring practices and risk management over time.

•
Maximize people and performance. Gevity helps hone the skills and capabilities of clients' staff and management for long-term employee retention and business success.

Gevity's employment management solution is designed to positively impact its clients' business results by:

•
Increasing clients' productivity by improving employee performance and generating greater employee retention;

•
Allowing clients and their employees to focus on revenue producing activities rather than HR matters; and

•
Reducing clients' exposure to liabilities associated with non-compliance with HR-related regulatory and tax matters.

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 is a professional employer organization ("PEO"), which means the Company provides certain HR-related services and functions for clients under what is referred to as a co-employment arrangement. Under the co-employment arrangement, Gevity assumes certain HR/employment-related responsibilities, as provided for by a professional services agreement ("PSA") and as may be required under certain state laws. The co-employment relationship allows the PEO to become an employer of record and administrator for matters such as employment tax and insurance-related paperwork as well as relieving the client of these time-consuming administrative burdens. Because a PEO can aggregate a number of small clients into a larger pool, the PEO is able to create economies of scale—enabling smaller businesses to get competitively priced benefits.

The core services typically provided by a PEO are payroll processing, access to health and welfare benefits and workers' compensation coverage. In addition to these core offerings, the Company's Gevity Edge™ PEO solution provides value-adding HR services such as employee retention programs, new hire support, employment practices liability insurance coverage and performance management programs, all designed to help clients effectively grow their businesses. Gevity is one of few PEOs with dedicated field-based HR Consultants. The Company's HR Consultants work directly with clients to provide HR expertise and HR strategies that can help drive their business forward, while lowering potential exposure to HR-related claims.

Gevity also provides service to its clients through a non co-employment relationship. The non co-employment relationship between Gevity and its clients is also governed by a PSA. Under the non co-employment PSA, the employment related liabilities remain with the client and the client is responsible for its own workers' compensation insurance and health and welfare plans. The Company assumes responsibility for payroll administration (including payroll processing, payroll tax filing and W-2 preparation) and provides access to all of its HR services. This option became known as Gevity Edge Select™ and prior to 2007 did not have a significant impact on the Company's results of operations or financial position. During 2007 the Company increased its investment in Gevity Edge Select beginning with the acquisition of the payroll processing firm HRAmerica, Inc. ("HRA") on February 16, 2007. The Company acquired from HRA certain assets, including its client portfolio of approximately 145 clients (as measured by Federal Employer Identification Number ("FEIN") with approximately 16,000 client employees. Approximately 14,700 non co-employed client employees were acquired as of the date of the acquisition and approximately 1,300 co-employed client employees (8 clients) were acquired with an effective date of April 1, 2007. The acquisition provided the Company with technology and processes to enhance its non co-employment model, Gevity Edge Select. In addition to the purchase of HRA, contracts with a national provider for benefits administration and with national and regional brokers for insurance distribution had been signed in support of Gevity Edge Select.

After completion of a comprehensive strategic review, the Company decided to focus on the growth of its core PEO offering, Gevity Edge. As such, on February 25, 2008, the board of directors approved a plan to discontinue the Company's non co-employment offering, Gevity Edge Select, effective immediately. The Company has been working closely with its existing non co-employed clients to provide a smooth transition to either its core Gevity Edge PEO offering or an alternative service provider. The Company plans to continue to operate the platform maintained in its service facility in Charlotte, North Carolina for an interim period to allow affected non co-employed clients to either transition to its core Gevity Edge offering or an alternative service provider. The Company intends to complete this transition and close its service facility in Charlotte, North Carolina no later than June 30, 2008. Approximately, 30 jobs will be eliminated in both the Company's service center in Charlotte, North Carolina and its branch office in Atlanta, Georgia. The Company expects to take a pre-tax charge in the range of $4.5 million to $5.5 million in the first half of 2008 related to the additional write-off of assets associated with Gevity Edge Select as well as the accrual of other exit costs including appropriate severance arrangements.

The Company serves a diverse client base of small and medium-sized businesses in a wide variety of industries. The Company's clients have employees located in all 50 states and the District of Columbia. As of December 31, 2007, these clients and their employees were served by a network of 43 offices in Alabama, Arizona, California, Colorado, Florida, Georgia, Illinois, Maryland, Minnesota, Nevada, New Jersey, New York, North Carolina, Tennessee and Texas. In addition, the Company has internal employees located onsite at certain client facilities. As of December 31, 2007, the Company served approximately 6,900 clients, as measured by individual client FEIN, with approximately 132,600 active client employees. For the year ended December 31, 2007, the Company's top 25 clients accounted for less than 10% of its client billings, with no single client representing more than 1% of its client billings.

The Company's operations are conducted through a number of wholly-owned subsidiaries. The terms "Company" or "Gevity" as used in this report includes Gevity HR, Inc. and its subsidiaries.

The Company was incorporated in Florida and consummated its initial public offering in 1997 after acquiring all of the assets of a predecessor professional employer organization business. In May 2002, the Company's shareholders voted to change the Company's name from "Staff Leasing, Inc." to "Gevity HR, Inc."

Human Resource Outsourcing Industry

The Company believes that small and medium-sized businesses are the primary drivers of economic growth and the chief source of job growth. Dun & Bradstreet estimates that during 2007, 46% of the U.S. workforce was employed at these companies.

These businesses are also potential HR outsourcing customers since many desire to outsource non-core business functions, reduce regulatory compliance risk, rationalize the number of service providers that they use, enhance their benefit offerings and reduce costs by integrating HR systems and processes.

The National Association of Professional Employer Organizations ("NAPEO") defines the PEO industry as follows:

Professional employer organizations (PEOs) enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers' compensation. PEO clients focus on their core competencies to maintain and grow their bottom line.

Businesses today need help managing increasingly complex employee related matters such as health benefits, workers' compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. They contract with a PEO to assume these responsibilities and provide expertise in human resources management. This allows the PEO client to concentrate on the operational and revenue- producing side of its operations.

A PEO provides integrated services to effectively manage critical human resource responsibilities and employer risks for clients. A PEO delivers these services by establishing and maintaining an employer relationship with the employees at the client's worksite and by contractually assuming certain employer rights, responsibilities, and risk.

PEOs provide:

•
Relief from the burden of employment administration.

•
A wide range of personnel management solutions through a team of professionals.

•
Assistance to improve employment practices, compliance and risk management to reduce liabilities.

•
Access to a comprehensive employee benefits package, allowing clients to be competitive in the labor market.

•
Assistance to improve productivity and profitability.

Professional Services Provided by the Company

The Company provides a broad range of tools and services to its clients. These tools and services are primarily offered to the Company's clients on a "bundled" or all-inclusive basis. In addition to the Company's core services, clients may elect to offer health and welfare and retirement programs to their employees. The Company provides these core tools and services to its clients through the following methods:

Streamline HR administration — Gevity takes the stress and effort out of payroll management and administration, benefits and benefits administration.

As part of its current approach to client selection, the Company offers its Gevity Edge full service HR solution to businesses within specified industry codes. All prospective clients are evaluated individually on the basis of total predicted profitability. This analysis takes into account workers' compensation risk and claims history, unemployment claims history, payroll adequacy, and credit status.

With respect to potential clients operating in certain industries believed by the Company to present a level of risk exceeding industry norms, more rigorous underwriting requirements must be met before the Company agrees to provide Gevity Edge or co-employment related services to the potential client. This process may include an on-site inspection and review of workers' compensation and unemployment claims experience for the last three years.

The Company considers industries to be high risk if there is a likelihood of a high frequency of on-the-job accidents involving client employees or a likelihood that such accidents will be severe. In addition, under the terms of the Company's workers' compensation agreement, prospective clients operating in certain industries or with historically high workers' compensation insurance claims experience must also be approved by the Company's insurance carrier before the Company enters into a contract to provide services.

The Company also maintains a client review program that includes a detailed profitability and risk analysis of all of its existing clients. Based on the results of these analyses, the Company may modify its pricing or, if necessary, terminate certain clients that the Company believes would not contribute to its long-term profitability or otherwise be detrimental to its business.

The Company's client retention rate for 2007 was approximately 79.2%. This rate is computed by dividing the number of clients at the end of the period by the sum of the number of clients at the beginning of the period plus the number of clients added during the period. The client retention rate is affected by a number of factors, including the natural instability of small businesses and the number of clients that were terminated by the Company as part of its client review program.

All of the Company's clients are required to enter into a professional services agreement, which generally provides for an initial one-year term, subject to termination by the Company or the client at any time upon either 30 or 45 days prior written notice. Following the initial term, the contract may be renewed, terminated or continued on a month-to-month basis. Under the co-employment business service model, which covered approximately 98% of the Company's clients in 2007, the Company and the client each become a co-employer of the client's employees, and the Company operates as a licensed professional employer organization. Through Gevity Edge Select, clients were also offered the option to use the Company's services without the Company becoming a co-employer of the client's employees, in which case tax filings are made under the client's FEIN and the client provides its own workers' compensation insurance and health and welfare plans. As discussed in "Business—General," the Company has decided to exit the Gevity Edge Select business.

The Company retains the ability to immediately terminate the client (and co-employment relationship, if applicable) upon non-payment by a client. The Company manages its credit risk through the periodic nature of payroll, client credit checks, owner guarantees, the Company's client selection process and its right to terminate the client and the co-employment relationship with the client employees, if applicable.

Under the professional services agreement applicable to the co-employment model, employment-related liabilities are contractually allocated between the Company and the client. For instance, the Company assumes responsibility for, and manages the risks associated with, each client's employee payroll obligations, including the liability for payment of salaries and wages to each client employee, the payment of payroll taxes and, at the client's option, responsibility for providing group health, welfare and retirement benefits to such individuals. These Company obligations are fixed, whether or not the client makes timely payment of the associated service fee. In this regard, unlike payroll processing service providers, the Company issues to each of the client employees payroll checks drawn on the Company's bank accounts. The Company also reports and remits all required employment information and taxes to the applicable federal and state agencies and issues a federal Form W-2 to each client employee under the Company's FEIN.

Under the co-employment model, the Company assumes the responsibility for compliance with employment-related governmental regulations that can be effectively managed away from the client's worksite. The Company provides workers' compensation insurance coverage to each client employee under the Company's master insurance policy. The client, on the other hand, contractually retains the general day-to-day responsibility to direct, control, hire, terminate, set the wages and salary of, and manage each of the client's employees. The client employee services are performed for the exclusive benefit of the client's business. The client also remains responsible for compliance with those employment-related governmental regulations that are more closely related to the day-to-day management of client employees. In some cases, employment-related liabilities are shared between the Company and the client.

CEO BACKGROUND

Michael J. Lavington, age 61, has served as chairman of Gevity since October of 2007 and as a director since September 2006. In October 2007, our board announced that Mr. Lavington is our board's choice for appointment as the Company's chief executive officer, subject to obtaining all necessary immigration approvals. Since 2003, Mr. Lavington has acted as an independent business consultant serving clients in the United Kingdom and the United States. In 2002, Mr. Lavington left Global Telesystems, Inc., where he served as senior vice president of human resources and property from 2000. From 1999 to 2000, Mr. Lavington served as senior consultant with Garner International, an executive recruitment and business consultancy firm. From 1991 to 1999, Mr. Lavington worked for the Rank Group, PLC, initially as the group human resources director and later as president and chief executive office of their US subsidiary, Resorts USA, Inc. From 1984 to 1990, Mr. Lavington was employed by the Mecca Leisure Group, PLC, serving as group services director and later, from 1984 to 1991, as divisional managing director of its overseas division, which included the Hard Rock Café Group. In 1985, Mr. Lavington was appointed to the main board of Mecca Group. Mr. Lavington is a citizen of the United Kingdom.

George B. Beitzel, age 79, has served as a director of Gevity since November 1993. Mr. Beitzel retired from IBM in 1987, where he had served for 32 years, the last 14 as a member of IBM's board of directors and corporate officer. Mr. Beitzel currently serves on the board of directors of Actuate Corporation, Deutsche Bank Trust Company Americas, Bitstream, Inc. and Computer Task Group, Incorporated. Mr. Beitzel is chairman emeritus of Amherst College and Colonial Williamsburg Foundation. He is a graduate of Harvard Business School and served 12 years on the board of directors of the Associates at Harvard Business School.

Todd F. Bourell , age 37, has served as a director of Gevity since June 2007. Mr. Bourell is a partner at ValueAct Capital, LLC, a privately-owned hedge fund, which he joined in May 2001. Prior to joining ValueAct, he was employed at Wellington Management Company as an analyst covering the telecommunications services industry. Mr. Bourell also served as director of Insurance Auto Auctions, Inc. from September 2004 to May 2005. He is a graduate of the University of Pennslyvania's Wharton School of Business and Harvard College.

Paul R. Daoust , age 60, has served as a director of Gevity since May 2006. Mr. Daoust currently serves as chairman of the board and chief executive officer of HighRoads, Inc., a privately-held technology enabled solutions company in the human resources space, which he joined in February 2005. From October 2000 until his retirement in July 2003, Mr. Daoust served as chairman of the board and chief executive officer of GRX Technologies, Inc., a privately-held software company focused on supply chain management for the commercial insurance industry. Mr. Daoust also served as executive vice president and chief operating officer of Watson Wyatt Worldwide, Inc., one of the world's largest human resource consulting firms, from June 1993 to June 1998. He worked for Watson Wyatt for 28 years and served on their board of directors for nine years. He currently serves on the board of Salary.com, a publicly-held technology company in the human resources space, and on the advisory boards of Brodeur Worldwide (part of the Omnicom Group) and LaborMetrix, Inc.

Jonathan H. Kagan, age 51, has served as a director of Gevity since May 1999. Since January 2001, Mr. Kagan has been a managing principal at Lazard Alternative Investments. From 1995 to 2000, Mr. Kagan served as managing director of Centre Partners Management, LLC, managing investments on behalf of Centre Capital Investors II, LP and affiliated entities. From 1990 to 2000, Mr. Kagan was a managing director of Corporate Advisers, LP. From 1985 to 2000, he was a managing director of Lazard Freres & Co., LLC.

David S. Katz, age 42, has served as a director of Gevity since June 2003. Since February 2006, Mr. Katz has been a principal of GTCR Golder Rauner, LLC, a Chicago-based private equity investment firm. From April 2000 to January 2006, he served as a managing director of Frontenac Company, LLC, a private equity investment firm. Mr. Katz currently serves on the board of directors of APS Healthcare and Capella Healthcare, Inc., and has previously served on the board of directors of Natural Nutrition Group, Inc., Pro Mach, Inc. and numerous other privately-held companies. Mr. Katz joined Frontenac in 1994 after holding positions at The Clipper Group and The Boston Consulting Group.

Jeffrey A. Sonnenfeld, age 54, has served as a director of Gevity since May 2004. Dr. Sonnenfeld is currently the senior associate dean for executive programs and a professor at the Yale School of Management. In addition, he is the president and chief executive officer of the Chief Executive Leadership Institute which he founded in 1998 and which was acquired by Yale University in 2001. From 1989 to 1997, Dr. Sonnenfeld was a professor at the Goizueta Business School of Emory University. From 1980 to 1987, he was a professor at the Harvard Business School. Dr. Sonnenfeld currently serves on the board of directors of TheStreet.com, Inc. and Lennar Corporation.

Daniel J. Sullivan , age 61, has served as a director of Gevity since May 2007. Mr. Sullivan began his career as an operations supervisor for Roadway Express. In 1983, he joined Roadway Services where he founded Roadway Package System ("RPS"), serving as RPS's president and chief executive officer until 1990. Mr. Sullivan became vice president and group executive for Roadway Services in 1990, senior vice president and president of the National Carrier Group in 1993, president and chief operating officer in 1994, and chairman, president and chief executive officer in 1995. Mr. Sullivan served on the board of directors of Roadway Services from 1990 to 1996. In 1996, Mr. Sullivan led the transformation of Roadway Services to Caliber System, Inc. He served as chairman, president, and chief executive officer of Caliber until 1998. In 1998, Caliber System was acquired by FedEx Corporation. Mr. Sullivan returned to FedEx Ground (formerly RPS) and served as president and chief executive officer until his retirement on December 31, 2006. Mr. Sullivan is a member of the boards of directors of Computer Task Group, Inc. (Buffalo, NY), GDS Express, Inc. (Akron, OH), and Pike Electric, Inc. (Mount Airy, NC) and serves as a commissioner on the Flight 93 National Memorial Federal Advisory Commission.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

For a discussion of the Company's business see "Item 1. Business—General." The Company believes that the HR outsourcing market of small and medium-sized businesses, as measured by the number of employees per client, is by far its most attractive market in terms of low customer concentration, lack of the need for customized solutions, lack of price sensitivity, minimum capital investments, low client acquisition costs, short sales cycles and potential market growth.

The Company believes that the HR outsourcing competitive landscape is highly fragmented and populated by various point solution providers who offer only segments of the entire service offering that the Company provides to its clients.

The Company focuses on the professional service fees that it earns from its clients as the primary source of its net income and cash flow. When delivering its HR outsourcing solution to its clients through a co-employment relationship, the Company is also responsible for providing workers' compensation and unemployment insurance benefits to its clients' employees as well as health and welfare benefits if elected by the client. In so doing, the Company has an opportunity to generate net income and cash flow from these offerings and the effective management of the related risk, which is tempered by the need to remain competitive with its health and worker's compensation offerings. The Company has derived significant benefit in the past from its insurance offerings.

Prior to 2007, the Company operated in one reportable segment under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131"), due to its centralized structure and the single bundled service offering that it provided to its clients. The Chief Operating Decision Maker of the Company, as defined in SFAS No. 131, reviewed financial information on a Company-wide basis. During the fourth quarter of 2007, the Company initiated several key changes to its operations in response to integration issues associated with the HRA acquisition, the re-launch of Gevity Edge Select, and the changes in the Company's executive management team. As a result, the Company reassessed its reportable segments under SFAS 131 and determined that the Gevity Edge Select business (which includes the operations acquired in the HRA acquisition) should be a reportable segment apart from the Gevity Edge business based upon economic and operational characteristics and the financial performance review by the Chief Operating Decision Maker. The Company has broken out segment results for all periods presented to reflect this change in addition to the discussion and analysis of the results on an overall consolidated basis.

Gevity Edge

Gevity Edge consists primarily of the Company's core PEO business and operates on the Oracle HRMS and Payroll platforms. The Company's PEO solution combines administrative processing and HR support on a co-employment basis. This includes payroll processing and administration, payroll tax filing, workers' compensation coverage, health and welfare benefits programs, 401(k) plan administration, HR and regulatory compliance knowledge.

Gevity Edge Select

Gevity Edge Select consists primarily of the Company's non co-employment business and operates on the Ultimate Software UltiPro platform. The Company's non co-employment solution includes payroll processing and administration, payroll tax filing, 401(k) plan administration, HR and regulatory compliance knowledge while allowing clients to retain the benefits and insurance programs of their choice. See "Item 1. Business-General" for information regarding the Company's subsequent decision to exit the Gevity Edge Select business.

The Company believes that the primary challenge it faces in delivering its HR outsourcing solutions is its ability to convince small and medium-sized businesses to accept the concept of HR outsourcing. The Company believes that most small and medium-sized businesses outsource certain aspects of the Company's total solution, including payroll administration, health and welfare administration and providing workers' compensation insurance, but that only a small number of businesses outsource the entire offering that the Company provides.

The Company continues to focus on increasing the profitability of each client employee as well as increasing the overall number of client employees serviced. The Company believes that it can increase the overall number of client employees serviced through: (i) capitalizing on the growth opportunities within the existing client portfolio through pricing and retention; (ii) further penetration of existing markets from increased production and sales person productivity, supported by increased brand awareness, database management, and the development of additional HR products; (iii) potential acquisitions of client portfolios and complementary businesses and (iv) the investment in the hiring, training, support and retention of its business development managers, as well as investing in the enhanced management skill sets of its field general managers.

Revenues

The client billings that the Company charges its clients under its professional services agreements include each client employee's gross wages, a consolidated service fee and, to the extent elected by the clients, health and welfare benefit plan costs. The Company's consolidated service fee, which is primarily computed on a percentage of payroll basis, is intended to yield a profit to the Company and to cover the costs of the HR outsourcing services provided by the Company to the client, and, under Gevity Edge, certain employment-related taxes and workers' compensation insurance coverage. The professional service fee component of the consolidated service fee related to HR outsourcing varies according to a number of factors, such as the size and the location of the client. The component of the consolidated service fee related to workers' compensation and unemployment insurance is based, in part, on the client's historical claims experience. All charges by the Company are invoiced along with each periodic payroll provided to the client. The Company's long-term profitability is largely dependent upon the Company's success in generating professional service fees by providing value to its clients.

The Company accounts for its revenues using the accrual method of accounting. Under the accrual method of accounting, the Company recognizes its revenues in the period in which the client employee performs work. The Company accrues revenues and unbilled receivables for consolidated service fees relating to work performed by client employees but unpaid at the end of each period. In addition, the related costs of services are accrued as a liability for the same period. Subsequent to the end of each period, those wages are paid and the related service fees are billed.

The Company reports revenues from consolidated service fees in accordance with Emerging Issues Task Force ("EITF") No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The Company reports as revenues, on a gross basis, the total amount billed to clients for professional service fees, and, to the extent applicable, health and welfare benefit plan fees, workers' compensation and unemployment insurance fees. The Company reports revenues on a gross basis for these fees because the Company is the primary obligor and deemed to be the principal in these transactions under EITF No. 99-19. The Company reports revenues on a net basis for the amount billed to clients for client employee salaries, wages and certain payroll-related taxes less amounts paid to client employees and taxing authorities for these salaries, wages and taxes.

The Company's revenues are impacted by the number of client employees it serves, the number of client employees paid each period and the related wages paid, and the number of client employees participating in the Company's benefit plans. Because a portion of the consolidated service fee charged is computed as a percentage of gross payroll, revenues are affected by fluctuations in the gross payroll caused by the composition of the employee base, inflationary effects on wage levels and differences in the local economies in the Company's markets.

Cost of Services

Cost of services for Gevity Edge includes health and welfare benefit plan costs, workers' compensation insurance costs and state unemployment tax costs. Additionally, costs of services for both Gevity Edge and Gevity Edge Select include other direct costs associated with the Company's revenue generating activities, such as employer liability insurance coverage, drug screenings and background checks.

Health and welfare benefit plan costs are comprised primarily of medical benefit costs, but also include costs of other employee benefits such as dental, vision, disability and group life insurance. Benefit claims incurred by client employees under the benefit plans are expensed as incurred according to the terms of each contract. In addition, for certain contracts, liability reserves are established for benefit claims reported and not yet paid and claims that have been incurred but not reported.

In certain instances, the Company decides to make a contribution toward the medical benefit plan costs of certain Gevity Edge clients. The contribution is referred to as a "health benefit subsidy". The addition of the client employees of these clients as participants in the Company's medical benefit plans helps to stabilize the overall claims experience risk associated with those plans. An aggregate health benefit subsidy in excess of a planned amount may occur when the medical cost inflation exceeds expected medical cost trends or when medical benefit plan enrollment of those who qualify for a subsidy exceeds expectations. Conversely, a "health benefit surplus" may occur when the medical cost inflation is less than expected medical cost trends or when medical benefit plan enrollment of those who qualify for a subsidy is less than expected.

The Company offers its medical benefit plans through partnerships with premier health care companies. See "Item 1. Business—Vendor Relationships—Employee Benefit Plans." These companies have extensive provider networks and strong reputations in the markets in which the Company operates. The Company seeks to manage its health and welfare benefit plan costs through appropriately designed benefit plans that encourage client employee participation and efficient risk pooling.

Substantially all of the Company's Gevity Edge client employees are covered under the Company's workers' compensation program with AIG, which was effective January 1, 2003. Under this program, workers' compensation costs for the year are based on premiums paid to AIG for the current year coverage, estimated total costs of claims to be paid by the Company that fall within the program's deductible, the administrative costs of the program, the return on investment earned with respect to premium dollars paid as part of the program and the discount rate used in determining the present value of future payments to be made under the program. Additionally, any revisions to the ultimate loss estimates of the prior years' loss sensitive programs are recognized in the current year. In states where private insurance is not permitted, client employees are covered by state insurance funds. Premiums paid to state insurance funds are expensed as incurred.

On a quarterly basis, the Company reviews the current and prior year claims information. The current accrual rate and overall workers compensation reserves may be adjusted based on current and historical loss trends, fluctuations in the administrative costs associated with the program, actual returns on investment earned with respect to premium dollars paid and changes in the discount rate used to determine the present value of future payments to be made under the program. The final costs of coverage will be determined by the actual claims experience over time as claims close, by the final administrative costs of the program and by the final return on investment earned with respect to premium dollars paid. See "Item 1. Business—Vendor Relationships—Workers' Compensation Insurance."

The Company manages its workers' compensation costs through the use of carriers who the Company believes efficiently manage claims administration and through the Company's internal risk assessment and client risk management programs.

State unemployment taxes are generally paid as a percentage of payroll costs and expensed as incurred. Rates vary from state to state and are generally based upon the employer's claims history. The Company actively manages its state unemployment taxes by:

•
actively reviewing unemployment claims, and if warranted, contesting claims it believes are improper;

•
avoiding unemployment tax rate increases through the use of voluntary contributions where available;

•
using multiple state accounts for the classification of its workers where available;

•
electing to report under its clients' rates whenever possible; and

•
using state successorship rules for its acquisitions of client portfolios of other companies.

Operating Expenses

Operating expenses consist primarily of salaries, wages and commissions associated with the Company's internal employees and general and administrative expenses. Sales and marketing commissions and client referral fees are expensed as incurred. The Company expects that future revenue growth will result in increased operating leverage as the Company's fixed operating expenses are spread over a larger revenue base.

Income Taxes

The Company records income tax expense using the asset and liability method of accounting for deferred income taxes.

RESULTS OF OPERATIONS—ANALYSIS OF CONSOLIDATED OPERATIONS

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006.

Revenues

For 2007, revenues decreased to $605.0 million from $648.0 million for 2006, representing a decrease of $43.0 million or 6.6%. This decrease was a result of the reduction in all revenue components as described below.

The overall average number of client employees paid was 127,597 for the year ended December 31, 2007 compared to 126,584 for the year ended December 31, 2006. The average number of client employees paid for the year ended December 31, 2007, was favorably impacted by the growth of Gevity Edge Select which includes the impact of the HRA acquisition. For the year ended December 31, 2007, approximately 14,503 of the average number of client employees paid were attributable to Gevity Edge Select. For the core PEO business the average number of client employees paid declined approximately 10.2% when compared to the period ended December 31, 2006. This decline is attributable to the departure of legacy clients primarily as a result of the Company's 2006 initiative to bring healthcare premiums up to retail rates, lower than expected production levels during 2007 and the impact in 2007 of the economy on clients in Florida and clients in the financial and business services sectors.

The average wage per average number of client employees paid for 2007 increased 9.0% to $44,749, from $41,044 for 2006. This increase was due to the Company's strategy of focusing on clients that pay higher wages to their employees as well as the effects of inflation.

Revenues from professional service fees decreased to $144.3 million for the year ended December 31, 2007, from $163.0 million for the year ended December 31, 2006, representing a decrease of $18.8 million or 11.5%. The decrease was primarily due to the overall decrease in the average number of client employees paid in the Company's core PEO portfolio. The increase in Gevity Edge Select clients did not significantly impact professional service fees earned during of 2007 as the HRA clients acquired within Gevity Edge Select have a lower average professional service fee for a basic level of service. Accordingly, the decrease in annualized professional service fees per average number of client employees paid of 12.2%, from $1,288 in 2006 to $1,131 in 2007, was primarily attributable to the HRA acquisition.

Revenues for providing health and welfare benefits for the year ended December 31, 2007 were $351.0 million as compared to $352.0 million for the year ended December 31, 2006, representing a decrease of $1.1 million or 0.3%. Health and welfare benefit plan revenues decreased due to the decrease in the average number of participants in the Company's health and welfare benefit plans of approximately 10.1% and was partially offset by the increase in health insurance premiums as a result of higher costs to the Company to provide such coverage for client employees and the Company's approach to pass along all insurance-related cost increases. Gevity Edge Select clients are not covered under the Company's health and welfare benefit plans and therefore do not contribute to the Company's health and welfare benefit revenues.

Revenues for providing workers' compensation insurance coverage decreased to $84.5 million in 2007, from $106.1 million in 2006 representing a decrease of $21.6 million or 20.3%. Workers' compensation billing, as a percentage of workers' compensation wages for 2007, were 1.92% as compared to 2.30% for 2006, representing a decrease of 16.5%. Workers' compensation charges decreased in 2007 primarily due to a decrease in billings for Florida clients reflecting a reduction in Florida manual premium rates beginning in January 2007 and a reduction in the number of clients that participate in the Company's workers' compensation program. The manual premium rate for workers' compensation applicable to the Company's clients decreased 20.5% during 2007 compared to 2006. Manual premium rates are the allowable rates that employers are charged by insurance companies for workers' compensation insurance coverage. The decrease in the Company's manual premium rates primarily reflects the reduction in the Florida manual premium rates.

Revenues from state unemployment taxes and other revenues decreased to $25.2 million in 2007 from $26.9 million in 2006, representing a decrease of $1.6 million or 6.0%. The decrease was primarily due to the net effect of a decrease in co-employed client employees and related taxable wages which was partially offset by increases in the state unemployment tax rates that were passed along to clients. Gevity Edge Select clients do not provide state unemployment tax revenue to the Company.

Cost of Services

Cost of services, which includes the cost of the Company's health and welfare benefit plans, workers' compensation insurance, state unemployment taxes and other costs, was $415.7 million for 2007, compared to $444.2 million for 2006, representing a decrease of $28.5 million, or 6.4%. This decrease was due to the reduction in all costs of services components as described below.

The cost of providing health and welfare benefits to clients' employees for 2007 was $347.8 million as compared to $354.5 million for 2006, representing a decrease of $6.7 million or 1.9%. This decrease was primarily attributable to a decrease in the number of client employees participating in the health and welfare benefit plans and partially offset by the higher cost of health benefits. In addition, during 2007, the Company recorded a $3.1 million health benefit surplus due to favorable claims development compared to a $2.5 million health benefit subsidy recognized during 2006, primarily due to a $1.3 million one-time premium cost for the month of October 2006 not passed along to clients after the deferral of the start of the new health plan benefit year from October 1 to November 1. Gevity Edge Select clients are not covered under the Company's health and welfare benefit plans and therefore do not impact the Company's health and welfare benefit costs.

Workers' compensation costs were $39.4 million for 2007, as compared to $57.5 million for 2006, representing a decrease of $18.1 million or 31.5%. Workers' compensation costs decreased in 2007 primarily as a result of the overall decline in co-employed client employees and the related impact on the 2007 program year costs. In addition, the reduction in the prior years' workers' compensation loss estimates were $19.8 million during 2007 compared to $18.7 million during 2006. Gevity Edge Select clients are not covered under the Company's workers' compensation plans and therefore do not impact the Company's worker's compensation costs.

State unemployment taxes and other costs were $28.6 million for 2007, compared to $32.2 million for 2006, representing a decrease of $3.6 million or 11.3%. The decrease in co-employed client employees and related taxable wages were substantially offset by an increase in state unemployment tax rates beginning January 1, 2007, as well as an increase in costs associated with expanded client service offerings. Gevity Edge Select clients are primarily non co-employed clients that do not impact the Company's state unemployment tax expense.

Operating Expenses

Total operating expenses were $171.5 million for 2007 as compared to $155.9 million for 2006, representing an increase of $15.6 million, or 10.0%.

Salaries, wages and commissions were $86.8 million for 2007 as compared to $85.6 million for 2006, representing an increase of $1.2 million, or 1.4%. The increase is primarily a result of the net effect of the following: an increase in severance wages of approximately $3.0 million in 2007, principally related to reductions in support and management positions (including approximately $1.6 million related to the severance agreement of our former Chief Executive Officer); other net increases in wages of approximately $2.1 million primarily associated with the growth of Gevity Edge Select; a $2.1 million reduction in commission expense as a result of lower sales volume; and a $1.6 million reduction in stock compensation expense attributable to an increase in the estimated forfeiture rate as a result of employee terminations.

Other general and administrative expenses were $59.9 million for 2007 as compared to $54.7 million in 2006, representing an increase of $5.2 million, or 9.4%. This increase is primarily a result of costs associated with investments in marketing and information technology which will benefit operations beyond 2007, relating to improvements in service delivery and sales and includes an increase of $3.7 million associated with the operations of Gevity Edge Select. Additionally, there was an increase in bad debt expense of approximately $0.9 million related to terminated accounts in 2007.

As previously discussed under "Item 1. Business—Significant Transactions in 2007—Impairment Loss," the Company recorded an impairment loss of $8.5 million in the fourth quarter of 2007 relating to the long-lived and intangible assets of Gevity Edge Select. For additional discussion of the impairment loss see Note 7 of the consolidated financial statements beginning on page F-1.

The net reinsurance contract loss for the year 2006 was $1.65 million as a result of the net effect of the following. During the second quarter of 2006, the Company recorded a $4.65 million loss on a reinsurance contract related to its 2006 workers' compensation program. The Company determined that, as a result of the liquidation proceeding related to the Bermuda reinsurance company responsible for covering the layer of its workers' compensation claims between $0.5 million and $2.0 million per occurrence and the related termination of its reinsurance contract, a loss of $4.65 million should be recorded as of June 30, 2006, which represented the entire premium paid for coverage in 2006. During the third quarter of 2006, the Company recorded a gain on the reinsurance contract as a result of the receipt of $3.0 million pursuant to a court-approved settlement, which also called for the admission in the liquidation proceeding of an unsecured claim against the reinsurer in the amount of $2.2 million. The settlement is without prejudice to any claims Gevity may have against third parties relating to the reinsurer's liquidation. The Company is actively pursuing additional recovery. Future amounts recovered, if any, will be recognized in income when realization is assured beyond a reasonable doubt. In light of the liquidation proceeding, during the second quarter of 2006, the Company secured comparable coverage for the layer of claims between $0.5 million and $2.0 million from AIG retroactively effective to January 1, 2006. The cost of the replacement coverage for 2006 (approximately $4.8 million), has been included in cost of services for 2006 and replaces the cost incurred from the original policy.

Depreciation and amortization expenses were $16.3 million for 2007 compared to $13.9 million for 2006, an increase of 17.2%. The increase is primarily attributable to the amortization of technology assets capitalized during 2007. Also included in the increase was the amortization of the intangible assets related to the HRA acquisition.

Income Taxes

Income taxes were $5.5 million for 2007 compared to $13.2 million for 2006. The decrease is primarily due to a reduction in income before income taxes for 2007 compared to 2006. The Company's effective tax rate for 2007 and 2006 was 35.7% and 27.2%, respectively. The Company's effective tax rates differed from the statutory federal tax rates because of state taxes and federal tax credits. In addition, during 2006, the Company's effective tax rate was favorably impacted as a result of the filing of a change in accounting method with the Internal Revenue Service in the second quarter of 2006 and the related reversal of a tax reserve of approximately $2.0 million.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007

For the three months ended March 31, 2008, total revenues were $142.6 million compared to $161.1 million for the three months ended March 31, 2007, representing a decrease of $18.5 million or 11.5%. This decrease was a result of the reduction in all revenue components as described below.



As of March 31, 2008, the Company served approximately 6,500 clients, as measured by each client’s FEIN, with approximately 122,900 active client employees. This compares to approximately 7,400 clients, as measured by each client’s FEIN, with approximately 140,000 active client employees at March 31, 2007. The average number of client employees paid by month was 113,087 for the first quarter of 2008 compared to 123,902 for the first quarter of 2007. The declines in client and client employee metrics is attributable to the impact of higher than expected client and client employee attrition levels during 2007 and the first quarter of 2008 primarily as a result of the economy and lower than expected production levels during 2007. In addition, during the first quarter of 2008, the Company terminated approximately 200 unprofitable clients (impacting approximately 4,100 client employees) in an effort to improve overall earnings in the long term.



Revenues from professional service fees decreased to $30.6 million for the three months ended March 31, 2008, from $36.9 million for the three months ended March 31, 2007, representing a decrease of $6.3 million or 17.1%. The decrease was primarily due to the overall decrease in the average number of client employees paid as discussed above. Annualized professional service fees per average number of client employees paid decreased by 9.2%, from $1,190 for the three months ended March 31, 2007 to $1,081 for the three months ended March 31, 2008. This decrease was primarily attributable to the impact of the first quarter 2008 termination of unprofitable clients which generally had higher fee levels and the economy with its related impact on pricing.



Revenues for providing health and welfare benefits for the three months ended March 31, 2008 were $83.8 million as compared to $88.8 million for the three months ended March 31, 2007, representing a decrease of $4.9 million or 5.6%. Health and welfare benefit plan revenues decreased due to the decrease in the average number of participants in the Company’s health and welfare benefit plans of approximately 14% and was partially offset by the increase in health insurance premiums as a result of higher costs to the Company to provide such coverage for client employees and the Company’s approach to pass along all insurance-related cost increases.



Revenues for providing workers’ compensation insurance coverage decreased to $15.8 million for the three months ended March 31, 2008, from $21.2 million for the three months ended March 31, 2007, representing a decrease of $5.4 million or 25.3%. Workers’ compensation billings, as a percentage of workers’ compensation wages for the three months ended March 31, 2008, were 1.67% as compared to 1.94% for the same period in 2007, representing a decrease of 13.9%. Workers’ compensation revenue decreased in the first quarter of 2008 primarily due to a decrease in billings for Florida clients reflecting a reduction in Florida manual premium rates beginning in January 2008 and a decrease in the number of clients that participate in the Company’s workers’ compensation program. The manual premium rates for workers’ compensation applicable to the Company’s clients decreased 17.0% during the three months ended March 31, 2008 as compared to the three months ended March 31, 2007. Manual premium rates are the allowable rates that employers are charged by insurance companies for workers’ compensation insurance coverage. The decrease in the Company’s manual premium rates primarily reflects the reduction in the Florida manual premium rates.



Revenues from state unemployment taxes and other revenues decreased to $12.4 million for the three months ended March 31, 2008 from $14.3 million for the three months ended March 31, 2007, representing a decrease of $1.9 million or 13.0%. The decrease was primarily due to the decrease in Gevity Edge co-employment wages that provide unemployment tax revenue to the Company.



Cost of Services



The following table presents certain information related to the Company’s overall consolidated cost of services for the three months ended March 31, 2008 and 2007:

Cost of services, which includes the cost of the Company’s health and welfare benefit plans, workers’ compensation insurance, state unemployment taxes and other costs, was $107.5 million for the three months ended March 31, 2008, compared to $115.7 million for the three months ended March 31, 2007, representing a decrease of $8.3 million or 7.1%. This decrease was due to the reduction in the majority of the cost of services components as described below.



The cost of providing health and welfare benefits to clients’ employees for the three months ended March 31, 2008 was $82.8 million as compared to $86.2 million for the three months ended March 31, 2007, representing a decrease of $3.3 million or 3.9%. This decrease was primarily attributable to the decrease in the number of client employees participating in the health and welfare benefit plans and was partially offset by higher cost of health benefits. In addition, the first quarters of 2008 and 2007 were favorably impacted by the recognition of a health benefit surplus of $1.0 million and $2.6 million, respectively, based upon favorable claims experience. The Company expects that price increases implemented in conjunction with healthcare renewals effective October 1, 2007 and the continuation of current claims experience will continue to favorably impact healthcare costs during 2008. In addition, the Company is currently reviewing health plan features and costs with its insurance providers to address competitive issues within certain regions of the country.



Workers’ compensation costs were $10.0 million for the three months ended March 31, 2008, as compared to $15.0 million for the three months ended March 31, 2007, representing a decrease of $5.0 million or 33.1%. Workers’ compensation costs decreased in the first quarter of 2008 primarily due to the approximate 13% reduction in the average number of co-employed client employees paid and related reduction in claims, and the reduction in the prior years’ workers’ compensation loss estimates of approximately $2.7 million as a result of continued favorable claims development for those prior open policy years. For the three months ended March 31, 2007, the comparable reduction in prior years’ workers’ compensation loss estimates was $1.2 million.

State unemployment taxes and other costs were $14.6 million for both the three month periods ended March 31, 2008 and 2007. The decrease in the Company’s co-employed client employees and related taxable wages were substantially offset by an increase in state unemployment tax rates beginning January 1, 2008, that were not passed along to clients.



Operating Expenses

Total operating expenses were $37.3 million for the three months ended March 31, 2008 as compared to $41.1 million for the three months ended March 31, 2007, representing a decrease of $3.8 million or 9.2%.



Salaries, wages and commissions were $20.1 million for the three months ended March 31, 2008 as compared to $22.5 million for the three months ended March 31, 2007, representing a decrease of $2.5 million or 11.0%. The decrease is primarily a result of the net effect of the reduction in management and support personnel that occurred throughout 2007 and the first quarter of 2008 and was partially offset by the annual increase in wages and severance costs of $1.0 million related to both the Gevity Edge and Gevity Edge Select segments.



Other general and administrative expenses were $12.7 million for the three months ended March 31, 2008 as compared to $14.8 million for the three months ended March 31, 2007, representing a decrease of $2.1 million or 14.4%. The decrease is attributable to cost alignment measures taken during 2007 and the first quarter of 2008.



During the first quarter of 2008, the Company recorded a $0.5 million impairment loss related to the write-off of the remaining goodwill associated the acquisition of HRAmerica, Inc. (“HRA”) in 2007. As previously discussed, the Company decided in the first quarter of 2008 that it would exit the Gevity Edge Select business (which included the operations acquired from HRA). As a result of this decision it was determined that the goodwill should be written off.



Depreciation and amortization expenses were $4.0 million for the three months ended March 31, 2008 compared to $3.7 million for the three months ended March 31, 2007, representing an increase of $0.3 million or 8.1%. The increase is primarily attributable to the amortization of technology assets capitalized during 2007 and 2008.



The Company continues to review its overhead cost structure to ensure alignment with its business development.

Income Taxes



For the three months ended March 31, 2008, the Company had an income tax benefit of $1.0 million compared to income tax expense of $1.7 million for the three months ended March 31, 2007. The change is primarily due to an operating loss for the first quarter of 2008 compared to operating income in the first quarter of 2007. The Company’s effective tax rate for the three months ended March 31, 2008 and 2007 was 38.1% and 39.9%, respectively. The Company’s effective tax rates differed from the statutory federal tax rates because of state taxes and federal tax credits.

CONF CALL

Patrick C. Lee

Good morning ladies and gentlemen and thank you for joining us today. Before we review our fourth quarter 2007 results I would like to tell you that this call will contain forward-looking statements within the meaning of the Federal Securities laws. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential affects. Forward looking statements involve a number of known and unknown risks and uncertainties that may cause actual results to be materially different from those expressed or implied by the forward-looking statements. We encourage all of you to review our filings with the Securities & Exchange Commission. These filings contain more information regarding forward looking statements and risk factors that could cause materially different results from those expressed or implied in any forward-looking statements.

Once again, we are pleased that you have joined us today. For your convenience all press releases and the latest statistical date are available on the investor relations section of our website at www.Gevity.com. You will also find schedules on the site that reconcile all results as reported under Generally Accepted Accounting Principles to certain non-GAAP measures which may be referred to by our senior executives in our discussions today and from time-to-time discussed in our financial performance. Also if you’d like to be included on our distribution lists simply submit a request online at our investor relations homepage.

It is now my pleasure to introduce Gevity’s chairman of the board and CEO Mike Lavington.

Michael J. Lavington

Welcome to everyone on the call. With me this morning is Garry Welsh, our Chief Financial Officer who will shortly review our Q4 results and Jim Hardee our Chief Sales & Marketing Officer who will update you on the many profit improvement initiatives that he has put in place since joining in August of last year. Also present are Cliff Sladnick, our Chief Administrative Officer and Paul Benz our Chief Information Officer who is also responsible for our client support center.

The top management group has spent the last three months evaluating the Gevity business. I have visited virtually every regional sales office, spoken to a wide range of present and previous clients, accessed the competition and evaluated market opportunities. The overwhelming conclusion of the management team and board is that for the foreseeable future we should concentrate on strengthening and developing our core PO businesses. It is Gevity’s most productive path to success and presents the greatest opportunity to maximize our return to all stakeholders. It also provides total clarity on our strategic direction and demonstrates to our 7,000 plus PO clients that we are singularly focused on meeting their needs and therefore in the best position to exceed their expectations. It is our view that there are many opportunities to improve our PO offering and our overall competitive position.

We will, by way of example, invest in improving our HR and payroll technology platform processes. Additionally, we will continue to spend money on training especially the continued enhancement of our sales teams and client service support staff. Gevity will be dedicated to providing increasingly high standards of client care and support. It is our aim to be rated the number one player in our industry for client satisfaction. Starting next month the senior team including myself will be meeting our client advisory boards across the country to explain our intents and importantly receive their input.

Under Jim Hardee’s leadership we are making considerable improvements in our overall approach to sales and marketing. We are selling smarter and more effectively. We are targeting specific markets in clearly identified regions. Our pipeline is improving, our client retention is improving and the previously high level of sales force turnover is also improving. We are also optimistic that in the second half of the year we will have enhanced our healthcare offerings in most regions for the benefit of our clients.

Over the last three months we have undertaken a thorough analysis of our client base and have culled just over 200 unprofitable clients. We have also repriced a 150 other clients to profitable levels. We have also taken out about $8 million in cost at both corporate and regional office levels. We’ve closed a number of regional offices. Throughout the year there will be a relentless attention to performance improvement and accountability.

Let me now say a few words about our decision to exit the non PO market. Firstly and importantly, the continued aggressive pursuit of market share in this highly competitive area would have been disruptive and cash dilutive in 2008. It is more important at this moment in time for Gevity and its shareholders to regain a leadership position in the PO business than to develop and alternative revenue stream. The PO business needs focus. Gevity’s strategic intent needs to be clear and in 2008 we do not need distractions. Having said that, we still feel that the ASO and HRO market is attractive and we’ll continue to evaluate its appropriateness for Gevity. If we decide to reenter the market it will not be this year and it will be with a different market entry position and approach. Due to our decision to exit this segment of our business we are currently working with our Gevity Edge Select clients to ensure a smooth transition to either our core Gevity Edge offering or to an alternative service provider.

We will also be discontinuing our HR America business and will be closing the HR America support operation in Charlotte. Regrettably the HR America business has failed to realize the revenue and profit stream that was anticipated when the business was purchased in February 07. Garry Welsh will answer any questions you may have relating to the write down of intangible assets of HR America in Q4.

Garry will also comment on the detail of Q4 performance and the underlying trends. At headline level the Q4 outcome was better than anticipated thanks largely to a prior year workers’ compensation pick up. Q1 has started satisfactory and current production trends are favorable but we are starting the year with a lower base of worksite employees and our 2008 results will indeed be impacted by the full year affect of last year’s client attrition.

This morning we announced a quarterly dividend of $0.05 which is a more appropriate payout relative to our earnings and our needs to invest in the business. We will however produce sufficient cash flow to fund the dividend throughout the year. We also anticipate making significant progress in 2008 with our strategic repositioning which we believe will translate into double digit annual client employee growth beginning in 2009. Given the early stage of our strategic repositioning and in the light of the soft economy we believe it is prudent to abstain from giving any additional financial expectations for 2008. We believe that the new management team has taken the right tough decisions in the last three months and has laid the foundation for business improvement in 2008 and beyond.

I will now ask Jim Hardee our chief sales and marketing officer to say a few words.

James Hardee

Good morning everyone. I’ll provide a brief update regarding our fourth quarter, full year results, attrition rates, the sales headcount, inside on the BDM turnover and our progress on improving the sales environment. I am pleased to report that our sales production improved during the third quarter 2007. Our sales team produced 7,100 client employees which was up from 4,400 client employees in the third quarter 2007. This compares to 6,900 client employees produced in the fourth quarter 2006 and a growth rate of 2.9%. For the core PO business our sales team produced 5,000 client employees which are an increase of 16.3% over the 4,300 client employees in the third quarter of 2007. This compares to 6,900 employees in the fourth quarter of 2006. Sales in 2007 were 22,600 client employees with 2,200 Gevity Edge Select clients compared with 23,700 client employees and 900 Gevity Edge Select clients for 2006. Our productivity per BDM improved from 13 worksite employees per month for BDM in 2006 to 15 worksite employees per month for BDM in 2007. This represents a 7% increase year-to-year which is annualized.

Client employee attrition during the fourth quarter of 2007 was 10,300 compared to 7,400 in the third quarter. This compares to 14,000 client employees in the fourth quarter of 2006 which is a 26% improvement. Financial terminations comprised 20% of all terminations in the fourth quarter versus 44% in the third quarter 2007 and 10% in the comparable period in 2006. Client initiative terms represented 70% of the terms in the fourth quarter 2007 up from 50% in the third quarter and 85% in the comparable period in 2006. Gevity Edge Select terms represented 300 in the fourth quarter of 2007, 300 in the third quarter and 500 in the fourth quarter 2006. Employer attrition from terminations was 30,800 in 2007 compared to 29,700 in 2006. On a year-over-year basis our client employer attrition remain constant at 18.8%, this does include the HRA portfolio. Financial terminations represented 29% in 2007 up from 13% in 2006. Client initiated terms were 61% in 2007 versus 79% in 2006 and Gevity Edge Select terms were 2,300 in 2007 and 1,100 in 2006. The existing client employee base increased by 400 during the fourth quarter 2007 versus a decline of 2,500 in the third quarter this compares to a decline of 2,800 in 2006. During the full year there was a 3,600 decline in existing employees compared to a decline of 2,300 employees in 2006. We ended the year with 132 business development representatives. Our plans are to grow that number of business development representatives in the right locations by 5 to 10% in 2008.

I am very pleased with the pipeline of high quality candidates that we’ve identified and we expect to be able to meet any hiring needs throughout 2008. We showed a significant improvement in reducing our BDM turnover rates from 60% in the third quarter to 38% in the fourth quarter of 2007. This compares to 57% in the fourth quarter 2006. This is a positive indication that our management team has become to create the right environment necessary for our teams to succeed. In addition, we are making important investments in our people to increase their sales effectiveness by developing improved sales, support process and new training programs. During the fourth quarter we moved one of our most successful senior sales executives into the role to lead our training and management development program. He’s already had a positive impact on our business by delivering new training classes and targeted deployment of our top producers across the country to share best practices. We expect these actions along with targeted sales and delivery investments will have a positive impact on our new business growth, our BDM and GM skill development and improve productivity.

Now, back to Garry.

Garry J. Welsh

Good morning everybody. I’d like to start by reviewing our profit and loss statement to provide insight into our overall performance during the quarter and the year. I’ll then talk about our balance sheet strength. Turning first to the profit and loss statement, for the fourth quarter 2007 we reported earnings per diluted share of $0.01. This is net of a non-cash $8.5 million charge or $0.22 related to the impairment of assets associated with the HR America acquisition. The fourth quarter results also include a $1.6 million charge or $0.04 relating to a previously [inaudible] executive severance agreement. Excluding the effects of these two items, underlying earnings for the quarter were $0.27 per diluted share. This compares to $0.41 for the same quarter of 2006. For the full year 2007 the company generated $0.41 per diluted share net of the $0.22 asset impairment charge. This compares to $1.32 in 2006. Full year 2007 includes severance related charges of $5.6 million. This compares to $2.3 million of severance related charges in 2006.

The results for the quarter and the year include the performance of Gevity edge select and the HR America portfolio that was acquired in February of 2007. These generated a $1.8 million loss in the fourth quarter and a $4.8 million loss for the full year of 2007. Mike has already shared with you the strategic conclusion we have reached for this aspect of our business.

Client employee served; during 2007 our core PO portfolio declined from 127,800 total client employees served to 115,600 a reduction of 10%. This translates into a lower number of average paid client employees for 2007 and therefore directly impacts revenue and gross profit levels. During 2007 we gained 16,000 client employees from HR America. The fee levels for these clients are at a substantially lower level of fees than our core PO business.

Turning to revenue, revenue for the fourth quarter was $147 million compared to $146.5 million in the third quarter 2007. Although total revenue was essentially flat quarter-on-quarter there was a 5% reduction in the number of average paid client employees served during the fourth quarter. The lower revenue from the reduction in portfolio size was offset by an increase in held revenue per plan participant with affect from the one October renewal process. Revenue during the fourth quarter 2007 compared to the same period in 2006 declined by 6% from $156.5 million to $147 million. This variance was primarily driven by an 11% decrease in the average paid client employees of our core PO portfolio, lower professional services fees per client employee paid and lower workers’ compensation rates. These were partially offset by an increase in health revenue per plan participant. The workers’ compensation rate affect was primarily driven by lower manual rates in Florida.

Comparing full year 2007 to full year 2006 revenue declined by 7% from $648 million to $605 million. The drivers of this decrease were again, the reduction in size of the core portfolio, a decrease in professional service fee levels and lower manual workers’ compensation rates in Florida. These were partially offset by an increase in health plan revenue per plan participant. Gross profit increased 14% to $51.2 million during the fourth quarter of 2007 from $45.1 million in the third quarter. The primary factors driving this increase were firstly the strong performance in our workers’ compensation program due to continuing favorable claims trends. Secondly, improved contributions from tax related revenues and thirdly, a modest contribution from our health plan which was partially offset by a $1.8 million decline in professional service fees as a consequence of the reduction in size of the number of client employees served. Compared to the prior year fourth quarter gross profit declined 7% from $55.3 million. Again, the reasons for the decline were the impacts of the reduced size of our core portfolio, lower professional service fees per client employee paid and lower workers’ compensation rates all partially offset by improving healthcare gross profit contribution. Gross profit for the full year declined 7% to $189.3 million in 2007 from $203.8 million in 2006. Reductions in portfolio size and workers’ compensation rates were the key drivers.

Professional service fees; total professional service fees declined 5% to $34.3 million in the fourth quarter 2007 from $36.1 million in the third quarter 2007. The key driver was the reduction in the size of our core PO client employee base. Average paid client employees are those running payroll and on which we earned fees reduced by 5% i.e. from $113,100 in the third quarter 2007 to $107,900 in the fourth quarter of 2007. Average professional service fees per paid client employee remained essentially flat quarter-on-quarter. Looking at our core PO business professional service fees were $33.4 million during the fourth quarter of 2007 compared to $35.3 million during the third quarter of 2007. Total client employees served for our core PO business at the end of 2007 were 115,600 a reduction of 3% from the preceding quarter. Including Gevity Edge Select and HR America total client employees served at the end of the fourth quarter was 132,600. This represents a 2% drop on the position at the end of the third quarter. Compared to the prior year fourth quarter professional service fees declined 14% from $40 million to $34.3 million. This is primarily due to the reduction in size to the core PO portfolio. Comparing full year 2007 to 2006 total professional service fees decreased to $144.3 million from $163 million in the prior year. Again, this was largely due to the reduction in the size of the core PO portfolio.

The impact of client attrition had pricing impacts due to current economic conditions reduced average fee levels in the core PO portfolio by 3% year-on-year. Compared to the fourth quarter of the prior year core PO professional service fees were $39.8 million while the average paid client employees decline 11% from 121,500. Client employees in the core PO portfolio at the end of the fourth quarter 2006 were 127,800. For the entire year the core PO professional service fees were $141.5 million in 2007 compared to $162.6 million in 2006. Average paid employees declined 10% versus 2006 to 113,100. Average professional service fees per client employees for this group $1,251 in 2007 versus $1,291 in 2006.

Turning to workers compensation gross profit in the fourth quarter includes $16.4 million for two workers’ compensation related elements, namely current year workers’ compensation margins and prior year loss pick-ups. This figure compared with $10.2 million in the third quarter and $22.2 million for the fourth quarter 2006. Full year workers’ compensation contribution for 2007 was 45.1 million compared to $48.6 million in 2006. Current policy year workers’ compensation gross profit contribution for the fourth quarter of 2007 was $8.7 million compared to $6.1 million in the third quarter of 2007 and $6 million in the fourth quarter of 2006. Of the $8.7 million generated in the fourth quarter 2.8 million was a result of a decline in the ultimate loss fund for the full year. This is a reflection of favorable claims performance for the 2007 policy year. Current policy year workers’ compensation gross profit for the full year 2007 was $25.3 million compared to $29.9 million for the full year 2006. The 15% decline from 2006 to 2007 is driven by a smaller co-employed client portfolio base and the decline in manual premium in Florida that was effective January 1, 2007. We continue to see favorable trends in our client experience from prior plan years. This has resulted in a prior year loss pick-up of $7.7 million being recognized in the fourth quarter of 2007 and $19.8 million for the full year. This compares to $16.2 million in the fourth quarter of 2006 and $18.7 million for the full year of 2006.

Healthcare in the fourth quarter the contributions from our health plans was half a million dollars. For the full year 2007 the health plans contribution totaled $3.1 million compared to a negative $2.5 million contribution in 2006. The year-over-year improvement was a result of market pricing implemented in the annual benefits renewal in the fourth quarter of 2006 and further price increases in October 2007.

Moving on to expenses during the year we have taken action on our costs and we expect the full impact of this to emerge in 2008. Operating expenses for the fourth quarter 2007 including depreciation were $49.4 million. This included $8.5 million non-cash charge relating to the asset impairment and compares with $40.8 million in the third quarter of 2007 and $42.9 million in the fourth quarter of 2006. The fourth quarter [2000] expenses reflect the following exceptional items: firstly, the annual evaluation of goodwill and intangibles resulted in an impairment of the assets associated with the acquisition of HR America. The impairment loss totaled $8.5 million and related primarily to the assets acquired in the acquisition. Secondly, $1.6 million of executive severance related expenses were recorded in the quarter. Thirdly, we incurred $1 million of non-recurring costs in respect of hiring new employees and finally $2 million of variable compensation and other employee incentive related expense was recorded in the fourth quarter. Full year 2007 operating expense was $171.5 million including these exceptional items and severance related cost of $4 million incurred in earlier quarters of 2007. This compares to $155.9 million of operating expense in 2006 which included $2.3 million of severance related charges. Also including within the full year 2007 operating expenses are Gevity Edge Select HR America related costs of approximately $8 million.

Interest and other expense, net interest expense has decreased to $0.4 million in the fourth quarter from $0.8 million in the third quarter. This is a function of a lower average loan balance during the fourth quarter. In addition the company recorded in other expenses a $0.5 million fixed asset related write off for software no longer being used. For the entire year 2007 net interest expense increased to $1.7 million compared to $0.7 million of net interest income in 2006. This was due to a higher average outstanding loan balance for 2007. In 2007 the loan facility was used to fund the HR America acquisition, the stock repurchase program and normal working capital requirements.

In summary income before tax was $0.9 million in the fourth quarter of 2007 down from $3.5 million in the third quarter and $12.9 million in the fourth quarter of 2006. As stated previously the fourth quarter results included an impairment charge equal to $8.5 million for the HR America acquisition and executive severance related costs of $1.6 million. Adjusting for these items income before tax would have been $11 million for the fourth quarter. For the full year income before tax was $15.5 million in 2007 compared to $48.5 million in 2006. The main drivers of the decline are a result of the 10% decline in Gevity Edge core PO client employees from 127,800 at the end of 2006 to 115,600 at the end of 2007. Secondly, a 3% decline in professional service fee levels for our core PO clients. Thirdly, a decline in workers’ compensation manual rates primarily in Florida. Fourthly, the operating loss generated by Gevity Select HR America of $4.8 million and the previously mentioned $8.4 million asset impairment charge for the HR America acquisition.

Year-on-year health plan contributions improved by $5.6 million from a negative $2.5 million in 2006 to a positive $3.1 million in 2007. Tax, the effective tax rate for the fourth quarter was 67.9%. This effective rate is skewed by the relatively low pre-tax income. The effective break included adjustments for estimated tax reserves, true up of the final 2006 tax expense and the establishment of evaluation of allowance for differed tax asset no longer expected to be realized. In the third quarter the tax rate was 30.3% while the rate in the year ago period was 17.6%. The effective tax rate for 2007 is 35.7% compared to 27.2% in 2006. The increase in the rate is primarily related to the establishment of the evaluation allowance previously mentioned.

Cash flow, free cash flow for 2007 was $20.2 million as measured by net income plus non-cash charges for depreciation and asset impairment less capital expenditure and dividends. Excluding severance related charges in 2007 free cash flow for the year was $25.8 million. In 2007 we paid dividends of $8.6 million. We repurchased $30.3 million of our stock and invested $9.5 million acquiring HR America. Operating working capital reduced by $23.6 million. $18 million of this reduction relates to timing differences for payroll taxes primarily relating to the day of the week of our year end. And looking at the balance sheet briefly as of the 31st of December we had unrestricted cash of $10 million compared to $14.6 million at the end of third quarter of 2007. During the fourth quarter of 2007 we paid previously declared dividends of $2.1 million and incurred $0.7 million of capital expenditures. Our loan balance decreased to $17.4 million at the end of the quarter compared to $20.5 million at the end of the third quarter. This decrease reflects normal working capital fluctuations. Our total loan facility] is $100 million. The short term workers compensation receivable was $17 million at December 31st. We received $2 million of this in January 2008. We expect the balance to be received in the third quarter as per our experie4nce in previous years. Our long term workers compensation receivable as 30th December 07 was $105.3 million.

In summary we ended the quarter with $115.6 million in shareholders equity, $10 million of unrestricted cash, $105.3 million long term workers compensation receivable and $82.6 million available on our credit facility. A few other comments, as Mike explained earlier the leadership team has completed a review of our cost base and taken action to reduce cost through staffing reductions and closure of non-profitable branches. We expect to incur a charge of approximately $2.5 million in the first half of 2008 in respect of these savings. Secondly, during the first half of 2008 we will incur restructuring costs of $4.5 million to $5.5 million in respect to the exit from Gevity Edge Select and HR America. These include staffing related technology and third party vendor costs. Finally, to reiterate Mike’s earlier point and one that we made on our call back in November we are focused on client profitability not just head count growth. In quarter one we have taken action to remedy certain loss making clients situations through re-pricing and when necessary terminations. Now back to you Mike.

Michael J. Lavington

In summary we have clearly defined our strategy to concentrate on the PO business. We have reduced costs and have removed loss making aspects of our operation. A wide range of profit enhancing initiatives are under way and we are investing in our people and our processes. We are focusing attention on our client’s experience. While all of this is being done in a short time there is much more to accomplish and I look forward to keeping all our stakeholders fully informed as we deliver progressive improvements in our business model during 2008.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

1183 Views