NSP — Insperity, Inc.

Summary of Insperity Q4 2025 Earnings Call

1. Key Financial Results and Metrics

• Adjusted EPS: Reported at -$0.60; adjusted EPS excluding sales office consolidation costs was -$0.54.
• Adjusted EBITDA: Recorded at -$13 million, with an adjusted EBITDA of -$11 million when excluding the consolidation costs.
• Average Paid Worksite Employees: Increased by 1.1% year-over-year to 312,377, slightly below forecasts due to client net hiring volatility.
• Gross Profit per Worksite Employee: Stood at $183 per month, generally in line with expectations.
• Operating Expenses: Decreased by 6% compared to Q4 2024, though included a $2.8 million expense for sales office consolidation.
• Dividends: Paid $22 million in Q4 and $90 million for the year, alongside 232,000 shares repurchased for $19 million.
• Cash Position: Ended Q4 with $57 million in adjusted cash.

2. Strategic Updates and Business Highlights

• Sales Office Consolidation: Accelerated efforts led to increased operating expenses but aimed at long-term efficiency.
• HRScale Rollout: Significant investment of $15 million in HRScale, a joint solution with Workday, expected to enhance service offerings for mid-market companies.
• Client Retention: Maintained a strong retention rate averaging 99% per month in Q4.
• Pricing Strategy: Adjustments made to pricing and client selection tools to support margin recovery, with a focus on higher-quality clients.

3. Forward Guidance and Outlook

• 2026 Projections:
  • Average paid worksite employees expected to range from -1.5% to +1.5% compared to 2025.
  • Adjusted EBITDA forecasted between $170 million to $230 million, a 30% to 76% increase.
  • Adjusted EPS anticipated in the range of $1.69 to $2.72, representing a 64% to 164% increase.
  • Q1 adjusted EBITDA guidance set between $81 million to $111 million and adjusted EPS between $1.03 to $1.50.

4. Bad News, Challenges, or Points of Concern

• Profitability Decline: Adjusted EBITDA declined 51% year-over-year to $131 million; adjusted EPS fell 71% to $1.03.
• Client Hiring Volatility: Experienced unexpected reductions in client net hiring, particularly in November, affecting the starting point for 2026.
• Healthcare Cost Pressures: Elevated healthcare claims costs continue to impact profitability, with expectations of ongoing challenges in 2026.
• Attrition Rates: Slightly higher attrition due to margin recovery pricing strategies, leading to fewer paid worksite employees at the beginning of 2026.

5. Notable Q&A Insights

• HRScale Confidence: Management expressed confidence in achieving 6,000 to 8,000 paid worksite employees on HRScale by year-end, with a mix of new clients and upgrades from existing HR360 clients.
• Healthcare Claims Dynamics: Expected claims trends to remain elevated, with efforts to mitigate costs through contract renegotiations and plan design changes.
• Client-Sponsored Health Plans: Management views the trend towards client-sponsored health plans as both strategic and market-driven, allowing for reduced risk and enhanced flexibility.
• Retention Rates: Retention for the year was approximately 83%, an improvement from the previous year, indicating effective management during the year-end transition.

In summary, Insperity is navigating a challenging environment with strategic initiatives aimed at margin recovery and growth, while facing headwinds from healthcare costs and client hiring volatility. The outlook for 2026 suggests cautious optimism, with significant efforts directed towards improving profitability and client retention.