Gevity HR CEO: 2008 a year of rebuilding

Will Atkinson | Nov 05, 2007 2:15pm EST | Comment

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Gevity HR, Inc. (Nasdaq: GVHR) CEO Michael Lavington said 2008 will be a year of “rebuilding and refocus” for the human resources outsourcing company. The chief executive made the comments during a midday conference call.

“Going forward, Gevity will be run on the basis of profitable contribution and cash flow and not on work-site employee growth,” Lavington said. “We will not be chasing high-risk business and we plan to clean up our book of unprofitable clients.”

On Oct. 19, Gevity reported its former CEO Erik Vonk stepped down and promoted Lavington, the COO, to take over both positions. Vonk attempted to move the company into staffing services without workers’ compensation and health insurance, in hopes of achieving a simpler business model. However, Vonk’s plan flopped as several important clients left and Gevity lost significant business.

The company plans to focus more on its professional employer organization, or PEO, segment. PEOs handle payroll, tax filings, worker compensation, labor compliance and other human resources-related tasks for businesses.

Before the opening, the Bradenton, Fla.-based company reported third-quarter revenue of $146.5 million, 4% below analyst estimates of $153 million and down 9% from $160.6 million a year earlier.

The firm’s quarterly profit fell 74% to $2.5 million, or $0.10 per share, missing Wall Street projections of $0.13 per share and compared with $9.6 million, or $0.35 per share, during the same period of 2006.

“We’ve had a disappointing year,” Lavington said. “A contributor has been the worsening economic conditions. Of all our regions, Florida has been the worst hit. We have also lost some of our larger clients in certain industries who have gone out of business.”

The larger clients were in “mortgage-related” businesses, he said.

For the three months ended Sept. 30, Gevity’s operating income declined 72% to $4.3 million, from $15.1 million last year. The company’s third-quarter operating expenses rose 15% to $40.8 million, from $35.5 million during the prior-year period. The chief executive said the firm is working on lowering costs.

“We are also closely examining our overhead operating costs and the way we conduct our business. We are confident that there are cost savings to be had,” Lavington said.

Lavington said Gevity is halting its share repurchase program and instead using funds to invest in the business and pay shareholder dividends. During the third quarter, he said the firm paid $7.5 million to repurchase 420,000 shares and paid $2.1 million in dividends.

Lavington said tough economic conditions impacted the firm’s quarterly results, but that the economy may provide Gevity with advantages.

“The business that we’re in normally does quite well during a recession, so there could be an upside,” Lavington said.

The human resources company plans to establish a more productive sales environment and an improvement on sales execution, said Jim Hardee, Gevity’s senior vice president and chief of sales and marketing. The firm plans to accomplish this through new sales tools, a more consistent selling approach, a revised compensation plan, improved order pipeline quality and acceleration of some of the company’s programs.

In midday trading, GVHR shares are nose-diving 32.27%, or $3.04, at $6.38. Over the last 52 weeks, shares have ranged from $6.33 to $24.11.