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Insperity Announces Fourth Quarter and Full Year 2016 Results
[February 13, 2017]

Insperity Announces Fourth Quarter and Full Year 2016 Results


Insperity, Inc. (NYSE: NSP), a leading provider of human resources and business performance solutions for America's best businesses, today reported results for the fourth quarter and year ended Dec. 31, 2016.

Fourth Quarter and Record Setting Full Year 2016 Results:

  • Q4 EPS up 73% to $0.45; adjusted EPS up 76% to $0.58
  • Q4 net income increased 50% to $9.5 million
  • Q4 adjusted EBITDA up 37% to $23.1 million
  • 2016 EPS increased 96% to $3.09; adjusted EPS up 64% to $3.59
  • 2016 net income increased 68% to $66.0 million
  • 2016 adjusted EBITDA up 28% over 2015 to $141.2 million
  • Full year 2017 adjusted EPS guidance of $4.21 to $4.42, a 17% to 23% increase over 2016

Fourth Quarter Results

Fourth quarter 2016 net income and diluted earnings per share of $9.5 million and $0.45, represented increases of 50% and 73%, respectively compared to the fourth quarter of 2015. Adjusted diluted earnings per share were $0.58, a 76% increase over the fourth quarter of 2015. Adjusted EBITDA increased 37% to $23.1 million.

"Our strong fourth quarter results capped off a record setting 2016 and set the stage for continuing double-digit worksite employee growth and profitability in 2017," said Paul J. Sarvadi, Insperity chairman and chief executive officer. "A successful year-end transition, combined with a record level of trained Business Performance Advisors positions us for accelerating worksite employee growth over the course of the year."

Revenues for the fourth quarter of 2016 increased to $729.1 million on a 13% increase in the average number of worksite employees paid per month. The worksite employee growth was the result of new client sales driven by an increase in the number of trained Business Performance Advisors, combined with a continuing high level of client retention. Net hiring of worksite employees by our clients continued to show weakness, and was overall a slight negative for the fourth quarter.

Gross profit increased 14% over the fourth quarter of 2015 to $110.5 million, with both benefits and workers' compensation costs managed to favorable trends. Adjusted operating expenses increased 10% over the fourth quarter of 2015, and included the growth in the number of Business Performance Advisors, while producing operating leverage in other areas of the business. This was demonstrated by a decrease in adjusted operating expense per worksite employee per month from $191 in the fourth quarter of 2015 to $186 in the fourth quarter of this year, inclusive of the increase in Business Performance Advisors.

Adjusted EBITDA increased 37% over the fourth quarter of 2015 to $23.1 million, and increased 22% on a per worksite employee per month basis from $37 in the fourth quarter of 2015 to $45 in the fourth quarter of 2016. The fourth quarter and full year 2016 effective income tax rates were 34% and 37%, respectively and were positively impacted by lower non-deductible items and an increase in R&D activity.

Full Year Results

For the year ended Dec. 31, 2016, reported net income increased 68% over 2015 to $66.0 million, and diluted net income per share increased 96% to $3.09. Adjusted diluted earnings per share increased 64% over 2015 to $3.59. Adjusted EBITDA increased 28% to $141.2 million.

Revenues in 2016 increased to $2.9 billion, on a 14% increase in the average number of worksite employees paid per month over 2015. This growth was driven by an increase in worksite employees paid from new sales and a further improvement in worksite employee retention from 84% in 2015 to a new historical high of 86% in 2016. Gross profit for the year ended Dec. 31, 2016 increased 12% to $491.6 million, while adjusted operating expenses increased only 7% to $385.0 million and declined 6% on a per worksite employee per month basis from $206 in 2015 to $193 in 2016.

Adjusted EBITDA per worksite employee per month increased 13% from $63 in 2015 to $71 in 2016 on double-digit worksite employee growth, effective pricing and direct cost management and operating leverage.

Cash outlays in 2016 included the repurchase of approximately 3.5 million shares of stock at a cost of $175.9 million, dividends totaling $20.6 million and capital expenditures of $34.0 million. Adjusted cash, cash equivalents and marketable securities at Dec. 31, 2016 was $44.9 million.

"We had an exceptional year with worksite employee growth of 13.7% and a record level of adjusted EBITDA, up 28% to $141 million," said Douglas S. Sharp, senior vice president of finance, chief financial officer and treasurer. "We are positioned for exceptional shareholder return in 2017 as we execute our strategic growth plan and continue our share repurchase and dividend programs."

2017 Guidance

The company also announced its guidance for 2017, including the first quarter of 2017. Please refer to the accompanying financial tables at the end of this press release for the reconciliation of non-GAAP financial measures to the comparable GAAP financial measures.



    Q1 2017       Full Year 2017
       
Average WSEEs 174,200

-

175,800 185,000

-

188,000
Year-over-year increase 10%

-

11% 11.5%

-

13.4%
 
Adjusted EPS $1.78

-

$1.87 $4.21

-

$4.42
Year-over-year increase 9%

-

15% 17%

-

23%
 
Adjusted EBITDA (in millions) $63

-

$66 $161

-

$168
Year-over-year increase 3%

-

8% 14%

-

19%
 

Definition of Key Metrics

Average WSEEs - Determined by calculating the company's cumulative worksite employees paid during the period divided by the number of months in the period.

Adjusted EPS - Represents diluted net income per share computed in accordance with GAAP, excluding the impact of non-cash impairment and other charges, stockholder advisory expenses and stock-based compensation.

Adjusted EBITDA - Represents net income computed in accordance with GAAP, plus interest expense, income taxes, depreciation and amortization expense, non-cash impairment and other charges, costs associated with stockholder advisory expenses and stock-based compensation.

Insperity will be hosting a conference call today at 10 a.m. ET to discuss these results, provide guidance for the first quarter and full year 2017 and answer questions from investment analysts. To listen in, call 877-651-0053 and use conference i.d. number 56690992. The call will also be webcast at http://ir.insperity.com. The conference call script will be available at the same website later today. A replay of the conference call will be available at 855-859-2056, conference i.d. 56690992. The webcast will be archived for one year.

Insperity, a trusted advisor to America's best businesses for more than 30 years, provides an array of human resources and business solutions designed to help improve business performance. Insperity® Business Performance Advisors offer the most comprehensive suite of products and services available in the marketplace. Insperity delivers administrative relief, better benefits, reduced liabilities and a systematic way to improve productivity through its premier Workforce Optimization® solution. Additional company offerings include Human Capital Management, Payroll Software, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Financial Services, Expense Management, Retirement Services and Insurance Services. Insperity business performance solutions support more than 100,000 businesses with over 2 million employees. With 2016 revenues of $2.9 billion, Insperity operates in 61 offices throughout the United States. For more information, visit http://www.insperity.com.

The statements contained herein that are not historical facts are forward-looking statements within the meaning of the federal securities laws (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). You can identify such forward-looking statements by the words "expects," "intends," "plans," "projects," "believes," "estimates," "likely," "possibly," "probably," "goal," "opportunity," "objective," "target," "assume," "outlook," "guidance," "predicts," "appears," "indicator" and similar expressions. Forward-looking statements involve a number of risks and uncertainties. In the normal course of business, Insperity, Inc., in an effort to help keep our stockholders and the public informed about our operations, may from time to time issue such forward-looking statements, either orally or in writing. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies, or projections involving anticipated revenues, earnings, unit growth, profit per worksite employee, pricing, operating expenses or other aspects of operating results. We base the forward-looking statements on our expectations, estimates and projections at the time such statements are made. These statements are not guarantees of future performance and involve risks and uncertainties that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Therefore, the actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are: (i) adverse economic conditions; (ii) regulatory and tax developments and possible adverse application of various federal, state and local regulations; (iii) the ability to secure competitive replacement contracts for health insurance and workers' compensation insurance at expiration of current contracts; (iv) cancellation of client contracts on short notice, or the inability to renew client contracts or attract new clients; (v) vulnerability to regional economic factors because of our geographic market concentration; (vi) increases in health insurance costs and workers' compensation rates and underlying claims trends, health care reform, financial solvency of workers' compensation carriers, other insurers or financial institutions, state unemployment tax rates, liabilities for employee and client actions or payroll-related claims; (vii) failure to manage growth of our operations and the effectiveness of our sales and marketing efforts; (viii) the impact of the competitive environment in the PEO industry on our growth and/or profitability; (ix) our liability for worksite employee payroll, payroll taxes and benefits costs; (x) our liability for disclosure of sensitive or private information; (xi) our ability to integrate or realize expected returns on our acquisitions; (xii) failure of our information technology systems; (xiii) an adverse final judgment or settlement of claims against Insperity; and (xiv) disruptions to our business resulting from the actions of certain stockholders. These factors are discussed in further detail in Insperity's filings with the U.S. Securities and Exchange Commission. Any of these factors, or a combination of such factors, could materially affect the results of our operations and whether forward-looking statements we make ultimately prove to be accurate.

Except to the extent otherwise required by federal securities law, we do not undertake any obligation to update our forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.

 

Insperity, Inc.

Summary Financial Information

(in thousands, except per share amounts and statistical data)

         
Dec. 31, Dec. 31,
2016 2015
Assets:
Cash and cash equivalents $ 286,034 $ 269,538
Restricted cash 42,637 37,418
Marketable securities 1,851 9,875
Accounts receivable, net 270,284 200,665
Prepaid insurance 15,041 7,417
Other current assets 19,526 17,135
Income taxes receivable   4,949    

-

 
Total current assets 640,322 542,048
 
Property and equipment, net 80,261 61,759
Prepaid health insurance 9,000 9,000
Deposits 148,638 140,162
Goodwill and other intangible assets, net 13,088 13,588
Deferred income taxes, net 14,025 16,976
Other assets   1,840     1,379  
Total assets $ 907,174   $ 784,912  
 
Liabilities and stockholders' equity:
Accounts payable $ 4,189 $ 5,381
Payroll taxes and other payroll deductions payable 247,766 205,393
Accrued worksite employee payroll cost 215,214 161,917
Accrued health insurance costs 26,360 13,643
Accrued workers' compensation costs 44,231 39,053
Accrued corporate payroll and commissions 40,761 39,103
Other accrued liabilities 22,437 20,250
Income taxes payable  

-

    2,971  
Total current liabilities 600,958 487,711
 
Accrued workers' compensation costs 141,291 124,746
Long-term debt   104,400    

-

 
Total noncurrent liabilities 245,691 124,746
 
Stockholders' equity:
Common stock 277 308
Additional paid-in capital 9,240 144,701
Treasury stock, at cost (227,152 ) (205,325 )
Accumulated other comprehensive income, net of tax (3 )

-

Retained earnings   278,163     232,771  
Total stockholders' equity   60,525     172,455  
Total liabilities and stockholders' equity $ 907,174   $ 784,912  
       

Insperity, Inc.

Summary Financial Information (continued)

(in thousands, except per share amounts and statistical data)

 
Three months ended Dec. 31, Year ended Dec. 31,
2016     2015     Change 2016     2015     Change
Operating results:

Revenues (gross billings of $4.892 billion, $4.337 billion, $17.933 billion and $15.806 billion, less worksite employee payroll cost of $4.163 billion, $3.687 billion, $14.992 billion and $13.202 billion, respectively)

$ 729,069 $ 650,011 12.2% $ 2,941,347 $ 2,603,614 13.0%
Direct costs:
Payroll taxes, benefits and workers' compensation costs   618,530   552,966 11.9%   2,449,737   2,165,747 13.1%
Gross profit 110,539 97,045 13.9% 491,610 437,867 12.3%
 
Operating expenses:
Salaries, wages and payroll taxes 58,679 52,749 11.2% 229,589 211,060 8.8%
Stock-based compensation 4,116 3,171 29.8% 16,643 13,345 24.7%
Commissions 5,642 5,556 1.5% 19,288 18,479 4.4%
Advertising 3,148 2,724 15.6% 16,447 15,980 2.9%
General and administrative expenses 20,337 19,256 5.6% 86,693 84,259 2.9%
Impairment charges and other

-

(640) (100.0)%

-

10,480 (100.0)%
Depreciation and amortization   4,150   4,203 (1.3)%   16,644   18,565 (10.3)%
Total operating expenses   96,072   87,019 10.4%   385,304   372,168 3.5%
Operating income 14,467 10,026 44.3% 106,306 65,699 61.8%
Other income (expense):
Interest income 340 43 690.7% 1,267 379 234.3%
Interest expense   (481)   (109) 341.3%   (2,396)   (459) 422.0%
Income before income tax expense 14,326 9,960 43.8% 105,177 65,619 60.3%
Income tax expense   4,806   3,621 32.7%   39,186   26,229 49.4%
Net income $ 9,520 $ 6,339 50.2% $ 65,991 $ 39,390 67.5%
Less distributed and undistributed earnings allocated to participating securities   (222)   (160) 38.8%   (1,496)   (981) 52.5%
Net income allocated to common shares $ 9,298 $ 6,179 50.5% $ 64,495 $ 38,409 67.9%
Basic net income per share of common stock $ 0.45 $ 0.26 73.1% $ 3.10 $ 1.58 96.2%
Diluted net income per share of common stock $ 0.45 $ 0.26 73.1% $ 3.09 $ 1.58 95.6%
       

Insperity, Inc.

Summary Financial Information (continued)

(in thousands, except per share amounts and statistical data)

 
Three months ended Dec. 31, Year ended Dec. 31,
2016     2015     Change 2016     2015     Change
 
Statistical Data:
Average number of worksite employees paid per month 172,578 153,144 12.7 % 165,850 145,830 13.7 %
Revenues per worksite employee per month (1) $ 1,408 $ 1,415 (0.5 )% $ 1,478 $ 1,488 (0.7 )%
Gross profit per worksite employee per month 214 211 1.4 % 247 250 (1.2 )%
Operating expenses per worksite employee per month 186 189 (1.6 )% 194 212 (8.5 )%
Operating income per worksite employee per month 28 22 27.3 % 53 38 39.5 %
Net income per worksite employee per month 18 14 28.6 % 33 23 43.5 %
 
(1) Gross billings of $9,449, $9,440, $9,011 and $9,032 per worksite employee per month, less payroll cost of $8,041, $8,025, $7,533 and $7,544 per worksite employee per month, respectively.
 
Insperity, Inc.

Summary Financial Information (continued)

(in thousands, except per share amounts and statistical data)
(Unaudited)
 
GAAP to Non-GAAP Reconciliation Tables
 
          Three months ended     Year ended
Dec. 31, Dec. 31,
2016     2015     Change 2016     2015     Change
 
Payroll cost (GAAP) $ 4,163,210 $ 3,686,902 12.9 % $ 14,991,510 $ 13,202,564 13.5 %
Less: Bonus payroll cost 598,288   573,542   4.3 % 1,648,936   1,611,857   2.3 %
Non-bonus payroll cost $ 3,564,922   $ 3,113,360   14.5 % $ 13,342,574   $ 11,590,707   15.1 %
 

Payroll cost per worksite employee per month (GAAP)

$ 8,041 $ 8,025 0.2 % $ 7,533 $ 7,544 (0.1 )%

Less: Bonus payroll cost per worksite employee per month

1,156   1,248   (7.4 )% 829   921   (10.0 )%

Non-bonus payroll cost per worksite employee per month

$ 6,885   $ 6,777   1.6 % $ 6,704   $ 6,623   1.2 %
 

Non-bonus payroll cost represents payroll cost excluding the impact of bonus payrolls paid to the company's worksite employees. Bonus payroll cost varies from period to period, but has no direct impact to the company's ultimate workers' compensation costs under the current program. As a result, Insperity management refers to non-bonus payroll cost in analyzing, reporting and forecasting the company's workers' compensation costs.

 
   

December 31,

2016

 

December 31,

2015

 
Cash, cash equivalents and marketable securities (GAAP) $ 287,885 $ 279,413

Less: Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions

221,710 185,719
Customer prepayments 21,256   17,037
Adjusted cash, cash equivalents and marketable securities $ 44,919   $ 76,657
 

Adjusted cash, cash equivalents and marketable securities excludes funds associated with federal and state income tax withholdings, employment taxes and other payroll deductions, as well as client prepayments. Insperity management believes adjusted cash, cash equivalents and marketable securities is a useful measure of the company's available funds.

 
          Three months ended     Year ended
Dec. 31, Dec. 31,
2016     2015     Change 2016       2015     Change
 
Operating expenses (GAAP) $ 96,072 $ 87,019 10.4 % $ 385,304 $ 372,168 3.5 %
Less: Impairment charges and other

-

(640 ) (100.0 )%

-

10,480 (100.0 )%
Stockholder advisory expenses

-

 

-

 

-

323   1,546   (79.1 )%
Adjusted operating expenses (non-GAAP) $ 96,072   $ 87,659   9.6 % $ 384,981   $ 360,142   6.9 %
 

Operating expenses per worksite employee per month (GAAP)

$ 186 $ 189 (1.6 )% $ 194 $ 212 (8.5 )%

Less: Impairment charges and other per worksite employee per month

-

(2 ) (100.0 )%

-

5 (100.0 )%

Stockholder advisory expenses per worksite employee per month

-

 

-

 

-

1   1  

-

Adjusted operating expenses per worksite employee per month (non-GAAP)

$ 186   $ 191   (2.6 )% $ 193   $ 206   (6.3 )%
 

Adjusted operating expenses represent operating expenses excluding the impact of impairment and other charges related to the sale of two aircraft and stockholder advisory expenses. Insperity management believes adjusted operating expenses is a useful measure of the company's operating costs, as it allows for additional analysis of the company's operating expenses separate from the impact of these items.

 
          Three months ended     Year ended
Dec. 31, Dec. 31,
2016     2015     Change 2016     2015     Change
 
Net income (GAAP) $ 9,520 $ 6,339 50.2 % $ 65,991 $ 39,390 67.5 %
Income tax expense 4,806 3,621 32.7 % 39,186 26,229 49.4 %
Interest expense 481 109 341.3 % 2,396 459 422.0 %
Depreciation and amortization 4,150   4,203   (1.3 )% 16,644   18,565   (10.3 )%
EBITDA 18,957 14,272 32.8 % 124,217 84,643 46.8 %
Impairment charges and other

-

(640 ) (100.0 )%

-

10,480 (100.0 )%
Stock-based compensation 4,116 3,171 29.8 % 16,643 13,345 24.7 %
Stockholder advisory expenses

-

 

-

 

-

323   1,546   (79.1 )%
Adjusted EBITDA (non-GAAP) $ 23,073   $ 16,803   37.3 % $ 141,183   $ 110,014   28.3 %
 

Net income per worksite employee per month (GAAP)

$ 18 $ 14 28.6 % $ 33 $ 23 43.5 %

Income tax expense per worksite employee per month

9 8 12.5 % 20 15 33.3 %

Interest expense per worksite employee per month

1

-

-

-

(1 ) (100.0 )%

Depreciation and amortization per worksite employee per month

9   9  

-

9   11   (18.2 )%

EBITDA per worksite employee per month

37 31 19.4 % 62 48 29.2 %

Impairment charges and other per worksite employee per month

-

(1 ) (100.0 )%

-

6 (100.0 )%

Stock-based compensation per worksite employee per month

8 7 14.3 % 8 8

-

Stockholder advisory expenses per worksite employee per month

-

 

-

 

-

1   1  

-

Adjusted EBITDA per worksite employee per month (non-GAAP)

$ 45   $ 37   21.6 % $ 71   $ 63   12.7 %
 

EBITDA represents net income computed in accordance with generally accepted accounting principles ("GAAP"), plus interest expense, income tax expense, depreciation and amortization expense. Adjusted EBITDA represents EBITDA plus non-cash impairment and other charges, costs associated with stockholder advisory expenses and stock-based compensation. Insperity management believes EBITDA and Adjusted EBITDA are often useful measures of the company's operating performance, as they allow for additional analysis of the company's operating results separate from the impact of these items.

 
          Three Months Ended

Dec. 31,

    Year Ended

Dec. 31,

2016     2015     Change 2016     2015     Change
 
Net income (GAAP) $ 9,520 $ 6,339 50.2 % $ 65,991 $ 39,390 67.5 %
 
Impairment charges and other

-

(640 ) (100.0 )%

-

10,480 (100.0 )%
Stock-based compensation 4,116 3,171 29.8 % 16,643 13,345 24.7 %
Stockholder advisory expenses

-

 

-

 

-

323   1,546   (79.1 )%
Total non-GAAP adjustments 4,116 2,531 62.6 % 16,966 25,371 (33.1 )%
Tax effect on non-GAAP adjustments (1,381 ) (920 ) 50.1 % (6,239 ) (10,242 ) (39.1 )%
Adjusted net income (non-GAAP) $ 12,255   $ 7,950   54.2 % $ 76,718   $ 54,519   40.7 %
 
Three Months Ended

Dec. 31,

Year Ended

Dec. 31,

2016 2015 Change 2016 2015 Change
 

Diluted net income per share of common stock

  (GAAP)

$ 0.45 $ 0.26 73.1 % $ 3.09 $ 1.58 95.6 %
 
Impairment charges and other

-

(0.03 ) (100.0 )%

-

0.42 (100.0 )%
Stock-based compensation 0.19 0.13 46.2 % 0.78 0.54 44.4 %
Stockholder advisory expenses

-

 

-

 

-

0.02   0.06   (66.7 )%
Total non-GAAP adjustments 0.19 0.10 90.0 % 0.80 1.02 (21.6 )%
Tax effect on non-GAAP adjustments (0.06 ) (0.03 ) 100.0 % (0.30 ) (0.41 ) (26.8 )%

Adjusted diluted net income per share of

  common stock (non-GAAP)

$ 0.58   $ 0.33   75.8 % $ 3.59   $ 2.19   63.9 %
 

Adjusted net income and adjusted diluted net income per share of common stock represent net income and diluted net income per share computed in accordance with GAAP, excluding the impact of non-cash impairment and other charges related to the sale of two aircraft in 2015, stock-based compensation and costs associated with stockholder advisory expenses. Insperity management believes adjusted net income and adjusted diluted net income per share of common stock are useful measures of the company's operating performance in this period, as they allow for additional analysis of the company's operating results separate from the impact of these items.

Non-bonus payroll, adjusted cash, cash equivalents and marketable securities, adjusted operating expenses, EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted net income per share of common stock are not financial measures prepared in accordance with GAAP and may be different from similar measures used by other companies. Non-bonus payroll, adjusted cash, cash equivalents and marketable securities, adjusted operating expenses, EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted net income per share of common stock should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measures as provided in the tables above.

The following is a reconciliation of GAAP to non-GAAP financial measures for first quarter and full year 2017 guidance (in millions, except per share amounts):

 
          Q1 2017       Full Year 2017
Guidance Guidance
Net income (GAAP) $35 - $37 $76 - $81
Income tax expense 19 - 20 45 - 47
Interest expense 1 3
Depreciation and amortization 4 18
EBITDA 59 - 62 142 - 149
Stock-based compensation 4 19
Adjusted EBITDA (non-GAAP) $63 - $66 $161 - $168
 
Diluted net income per share of common stock (GAAP) $1.66 - $1.75 $3.64 - $3.85
Stock-based compensation 0.19 0.90
Total non-GAAP adjustments 0.19 0.90
Tax effect on non-GAAP adjustments (0.07) (0.33)
Adjusted EPS (non-GAAP) $1.78 - $1.87 $4.21 - $4.42
 


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