Description

STFF is a professional employer services company with 9,500 clients and over 125,000 worksite employees. The company focused on blue-collar workers that carried a high-risk profile. At the end of 1999, Liberty Mutual ended their fixed cost worker’s compensation contract with the company, which was very profitable for STFF. Subsequently, the company signed a new contract with CNA and is now bearing some of the risk. The company is reserving approximately, $4.80 per $100 in salary, which the company is finding to be very conservative b/c claims frequency is down over 15% year over year.

Catalyst

STFF has also been changing their overall employee risk profile and has been focusing on white and gray collar workers. They have been terminating some of their blue-collar, less profitable clients, re-priced over 1,500 clients, and have re-focused their salesforce. The company has invested heavily in IT systems which has improved efficiencies and has proven to be an effective sales tactic. The company hired a new CEO, Michael Phippen, who brings over 20 years of sector experience. Revenue and Gross Profit per Worksite employee have been improving since the change in their worker’s compensation contract and began to focus on gray and white-collar employees.
The company has almost $4.50 in cash, no debt and the stock trades at $3.50. Operations are improving, worker compensation reserves have proven to be conservative to date, and the new CEO is focusing on their sales force turnover issues. STFF’s best public comp is Administaff, which has been significantly growing internally, and is richly valued. The former Chairman and current board member, owns over 20% of the company and CEO has been buying stock at these levels and higher.