Insperity(NSP) - 2024 Q4 - Annual Report

Company Operations - As of December 31, 2024, the company serviced an average of 309,093 worksite employees (WSEEs) per month through its regional service centers[16]. - The company operates 83 physical office locations across 48 markets, enhancing its service delivery capabilities[16]. - The company has 106 sales offices located in 48 markets as of December 31, 2024[56]. - The company serves clients and WSEEs throughout the United States, targeting businesses with approximately 10 to 5,000 employees[50]. - The company has four regional service centers servicing approximately 34%, 22%, 23%, and 21% of its WSEE base, respectively[170][171]. Service Offerings - The PEO HR Outsourcing Solutions are designed to relieve small and medium-sized businesses of administrative burdens, allowing them to focus on core competencies[14]. - The company’s Workforce Optimization solution is its primary offering, providing comprehensive HR outsourcing services[14]. - The company offers a cloud-based human capital management platform, Insperity Premier, which provides role-based access to HR functions for clients and WSEEs[28]. - The company offers a comprehensive human capital management and payroll services solution for clients not choosing PEO HR Outsourcing Solutions, integrating various HR functionalities[37]. - The company offers a lower-priced PEO service called Workforce Synchronization to meet middle market client needs[137]. Financial Performance - In 2024, the company paid dividends totaling $89 million, reflecting its financial condition and operating results[182]. - Net income decreased by 47% to$ 91 million, and diluted earnings per share (EPS) fell by 46% to $2.42[194]. - Adjusted EBITDA decreased by 24% to$ 270 million, with adjusted net income and adjusted EPS down by 36% and 35% to $135 million and$ 3.58, respectively[194]. - The company ended 2024 with working capital of $155 million[202]. - The company recorded a client attrition rate of approximately 19% in 2024, indicating potential challenges in client retention[125]. Market and Client Dynamics - The client retention rate for PEO HR Outsourcing Solutions was approximately 81% in 2024, down from 83% in 2023, with a five-year average retention rate of 84%[55]. - Clients exceeding 1,000 paid WSEEs represented 3% of total average paid WSEEs in 2024, compared to 5% in 2023[35]. - The average number of Worksite Employees (WSEEs) in the middle market sector decreased by 3% from 2023 to 2024, maintaining approximately 26% of the total average paid WSEEs[35]. - The middle market sector, defined as companies with 150 to 5,000 WSEEs, represented 26% of the average paid WSEEs in 2024[125]. Regulatory and Compliance - The company has received its designation as a Certified Professional Employer Organization (CPEO) from the IRS, clarifying its role in payroll tax reporting[21]. - The company’s services include compliance assistance with complex employment-related laws and regulations, enhancing the value proposition of its offerings[22]. - Insperity is subject to various federal, state, and local laws affecting its PEO HR Outsourcing Solutions operations[75]. - Compliance with the California Privacy Rights Act has required the company to reallocate resources and incur additional costs[144]. Risk Factors - The company faces risks from adverse economic conditions that could negatively impact demand for its outsourced HR services, particularly during periods of weak economic conditions or tight labor markets[94]. - Labor shortages and increasing competition for skilled workers have resulted in higher turnover and could adversely affect the company's growth plans and client service delivery[100]. - Inflationary pressures have increased operating costs, which may not be fully offset by price increases for services, potentially impacting profit margins[102]. - The company is dependent on its PEO clients to properly report the locations of WSEEs, and any miscalculations could lead to fines or penalties[110]. - The company faces potential disruptions in its business due to health care reform, which may affect its ability to provide health care benefits to WSEEs[114]. Insurance and Benefits - The health insurance contract with United provides approximately 86% of participants' health insurance coverage, expiring on December 31, 2026[67]. - Workers' compensation coverage through Chubb is fully insured and expires on September 30, 2025[67]. - The company has a financial responsibility with United limited to the first$ 1 million of paid claims per claimant per year[210]. - Estimated total benefits costs for 2024 are projected to be $3.0 billion[212]. Cybersecurity and Technology - The Board's Finance, Risk Management and Audit Committee oversees major risk exposures, including cybersecurity risks, to ensure effective governance[157]. - The company has established a formal incident response team and conducts regular cybersecurity training and exercises to enhance its security measures[162]. - The company faces risks from cybersecurity incidents, which could lead to significant financial losses and reputational damage[141]. - The company may incur substantial costs to comply with evolving regulations related to data privacy and cybersecurity[145]. Strategic Initiatives - The company is developing a joint solution with Workday, which involves significant resource allocation and integration challenges[149]. - The success of the strategic partnership with Workday depends on effective integration and cooperation, with potential risks of not achieving anticipated benefits[150]. - The company has adopted a strategy to market and sell additional solutions within and outside of its PEO HR Outsourcing Solutions, which may involve partnerships, investments, or acquisitions[152].