Historically, the company’s earnings pattern has included losses in the first quarter, followed by improved profitability in subsequent quarters throughout the year. This pattern is due to the effects of employment-related taxes which are based on each employee’s cumulative earnings up to specified wage levels, causing employment-related taxes to be highest in the first quarter and then decline over the course of the year.
Revenues for the first quarter of 2001 increased 38.1% to $1.0 billion, primarily due to a 25.2% increase in the average number of worksite employees paid per month and a 9.4% increase in fee payroll cost per worksite employee per month. Gross profit increased 34.4% to $27.8 million. The average gross profit per worksite employee per month increased 7.8% to $138 in the first quarter of 2001, versus $128 in the 2000 period.
Our first quarter results were driven primarily by strong gross profit performance attributable to pricing strength and lower-than-expected unemployment taxes, said Richard G. Rawson, executive vice president of administration and chief financial officer. We have also implemented operating expense controls as planned, and we anticipate that these costs will remain relatively constant for the balance of the year.
Operating expenses increased 43.0% over the 2000 period to $36.3 million. On a per worksite employee basis, operating expenses increased 14.6% to $180 per month in the 2001 period from $157 per month in the 2000 period. This increase was primarily the result of increased compensation costs related to the expansion of sales, service and support staff during the fall of 2000, and an increase in rent expense and infrastructure costs related to the national sales and service expansion program. As a result, the operating loss for the first quarter of 2001 increased 81.0% to $8.5 million. On a per worksite employee basis, the operating loss increased 44.8% to $42 per month.
The weakness we reported at the beginning of the year in all three growth drivers — sales, client attrition, and layoffs exceeding new hires impacted our growth slightly more than originally expected, commented Paul J. Sarvadi, Administaff president and chief executive officer. However, we have experienced a quick turnaround in our sales results, and we are seeing signs that client attrition is returning to historical levels. While we do not expect these factors to substantially impact our financial results in the second quarter, we believe the same dynamics that led to previous periods of growth acceleration are coming together for the last half of this year and beyond.
