Insperity(NSP) - 2025 Q1 - Quarterly Results

Executive Summary & Q1 2025 Results Insperity's Q1 2025 results show revenue growth offset by declining gross profit and net income due to higher healthcare costs, with management initiating pricing adjustments and progressing on strategic partnerships First Quarter 2025 Financial Highlights Insperity reported a 1% increase in average worksite employees (WSEEs) and a 3% rise in revenues for Q1 2025, reaching $1.9 billion, but gross profit decreased by 10% to $310 million due to higher healthcare costs, leading to significant declines in net income and diluted EPS Q1 2025 Key Financial Highlights | Metric | Q1 2025 | Q1 2024 | Change | | :-------------------------------- | :------ | :------ | :----- | | Average WSEEs paid | 306,023 | 303,904 | 1% | | Revenues | $1.9 billion | $1.8 billion | 3% | | Gross profit | $310 million | $345 million | (10)% | | Operating expenses | $242 million | $237 million | 2% | | Net income | $51 million | $79 million | (35)% | | Diluted EPS | $1.35 | $2.08 | (35)% | | Adjusted EBITDA | $102 million | $142 million | (28)% | | Adjusted EPS | $1.57 | $2.27 | (31)% | - Gross profit decrease was primarily due to higher-than-expected benefits costs, specifically an acceleration in inpatient, outpatient, and pharmacy costs, and increased frequency of large claim activity, with healthcare costs including approximately $12 million of higher-than-expected runoff from claims related to prior periods[4] - Operating expenses included $13 million for the Workday strategic partnership in Q1 2025, up from $5 million in Q1 2024[5] Management Commentary Management acknowledged the impact of macro-economic turbulence and healthcare cost volatility on Q1 financial results but emphasized solid execution on building a foundation for future growth, noting progress on the Workday strategic partnership and the initiation of a pricing plan to address rising healthcare costs - CEO Paul J. Sarvadi noted that Q1 financial results, reflecting macro-economic turbulence and healthcare cost volatility, contrasted with solid execution of the game plan for future growth acceleration[4] - Excellent progress was made on the Workday strategic partnership milestones, including an agreed-upon go-to-market plan anticipated to add a new growth driver in 2026 and beyond[4] - CFO James D. Allison stated that the company has made good progress with its operating plan, focusing on operating expense management and accelerating growth[6] - A pricing plan has been initiated to address the projected higher healthcare cost trend, and other options are under evaluation to contain or reduce costs and improve profitability in 2026[6] Shareholder Returns and Liquidity During the first three months of 2025, Insperity returned $42 million to shareholders through share repurchases and cash dividends, while maintaining a healthy liquidity position with $124 million in adjusted cash and $280 million available under its credit facility Q1 2025 Shareholder Returns & Liquidity | Metric | Amount | | :-------------------------------- | :----- | | Shares repurchased | 224,000 | | Cost of share repurchases | $19 million | | Dividends paid | $23 million | | Total return to shareholders | $42 million | | Adjusted cash (as of March 31, 2025) | $124 million | | Available under credit facility | $280 million | | Total credit facility | $650 million | 2025 Financial Guidance The company's 2025 financial guidance projects modest WSEE growth but anticipates significant declines in Adjusted EPS and Adjusted EBITDA for Q2 and the full year, alongside definitions of key non-GAAP metrics Q2 and Full Year 2025 Outlook Insperity provided updated guidance for Q2 and the full year 2025, projecting modest WSEE growth but a significant year-over-year decrease in Adjusted EPS and Adjusted EBITDA for both periods, reflecting the challenges faced in Q1 2025 Financial Guidance | Metric | Q2 2025 Guidance | YoY Change (Q2) | Full Year 2025 Guidance | YoY Change (FY) | | :---------------------- | :--------------- | :-------------- | :---------------------- | :-------------- | | Average WSEEs paid | 308,000 - 311,000 | 0.3% - 1.3% | 308,800 - 316,400 | 0.5% - 3.0% | | Adjusted EPS | $0.29 - $0.67 | (66)% - (22)% | $2.23 - $3.28 | (38)% - (8)% | | Adjusted EBITDA (in millions) | $33 - $53 | (50)% - (20)% | $190 - $245 | (30)% - (9)% | Definition of Key Metrics This section defines the key non-GAAP financial metrics used in the company's reporting and guidance, including Average WSEEs paid, Adjusted EPS, and Adjusted EBITDA, to provide clarity on how these figures are calculated - Average WSEEs paid is determined by calculating the company's cumulative WSEEs paid during the period divided by the number of months in the period[10] - Adjusted EPS represents diluted net income per share computed in accordance with GAAP, excluding the impact of non-cash stock-based compensation[10] - Adjusted EBITDA represents net income computed in accordance with GAAP, plus interest expense, income taxes, depreciation and amortization expense, amortization of SaaS implementation costs, and non-cash stock-based compensation[11] Company Information This section provides an overview of Insperity's mission and comprehensive HR solutions, including its 2024 revenues, and details regarding the Q1 2025 earnings conference call and webcast About Insperity Insperity, founded in 1986, is a leading provider of human resources and business performance solutions, offering a comprehensive suite of scalable HR solutions to help businesses succeed through premium HR service and technology, reporting $6.6 billion in revenues in 2024 - Insperity's mission since 1986 has been to help businesses succeed so communities prosper, offering a comprehensive suite of scalable HR solutions[13] - The company delivers administrative relief, reduced liabilities, and better benefit solutions through an optimal blend of premium HR service and technology[13] Insperity 2024 Revenues | Metric | Amount | | :------- | :----------- | | Revenues | $6.6 billion | Conference Call and Webcast Insperity hosted a conference call and webcast on April 29, 2025, to discuss the first quarter results and updated 2025 guidance, with replay and archived webcast available - A conference call was hosted on April 29, 2025, at 8:30 a.m. ET to discuss results and guidance, with a webcast available at http://ir.insperity.com[12](index=12&type=chunk) - A replay of the conference call is available at 877-481-4010, conference i.d. number 52321, and the webcast will be archived for one year[12] Forward-Looking Statements & Risk Factors This section outlines the disclaimer for forward-looking statements, emphasizing inherent risks and uncertainties, and details various factors that could materially impact Insperity's financial performance and operations Forward-Looking Statements Disclaimer This section provides a disclaimer regarding forward-looking statements, identifying them by specific terminology and cautioning that they are not guarantees of future performance, highlighting that actual results could differ materially due to various risks and uncertainties - Statements not historical facts are forward-looking statements, identifiable by words like 'anticipates,' 'expects,' 'intends,' 'plans,' 'projects,' 'believes,' 'estimates,' 'forecasts,' 'likely,' 'possibly,' 'probably,' 'could,' 'goal,' 'opportunity,' 'objective,' 'target,' 'assume,' 'outlook,' 'guidance,' 'predicts,' 'appears,' 'indicator' and similar expressions[14] - Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that cannot be predicted, with actual results potentially differing materially from those stated[14] - The company undertakes no obligation to update or revise any forward-looking statements unless required by applicable securities laws[16] Risk Factors The report outlines numerous risk factors that could materially affect Insperity's operations and financial results, including adverse economic conditions, volatility in healthcare and workers' compensation costs, regulatory changes, competitive pressures, and the ability to execute strategic partnerships - Key risk factors include adverse economic conditions, labor shortages, increasing competition for skilled workers, and the impact of inflation[14] - Increases in health insurance costs and workers' compensation rates, underlying claims trends, and health care reform pose significant risks[14] - The impact of the competitive environment and other developments in the human resources services industry, including the PEO industry, could affect growth and profitability[14] - Risks also include disruptions of information technology systems, failure to enhance service and technology offerings, and liability or damage to reputation from data theft or cyberattacks[14][17] - The ability to fully realize the anticipated benefits of the strategic partnership and plans to develop a joint solution with Workday, Inc. is also a risk factor[17] Financial Statements This section presents Insperity's condensed consolidated balance sheets, statements of operations, and key financial data per WSEE, detailing asset and liability changes, revenue composition, and profitability metrics Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets from $2,597 million at December 31, 2024, to $2,143 million at March 31, 2025, primarily driven by a reduction in cash and cash equivalents, with total liabilities also decreasing while stockholders' equity saw a modest increase Condensed Consolidated Balance Sheets (in millions) | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------------- | :------------- | :---------------- | | Total assets | $2,143 | $2,597 | | Cash and cash equivalents | $551 | $1,039 | | Accounts receivable, net | $834 | $829 | | Total current assets | $1,654 | $2,085 | | Total liabilities | $2,024 | $2,500 | | Payroll taxes and other payroll deductions payable | $457 | $901 | | Accrued health insurance costs | $68 | $19 | | Total current liabilities | $1,466 | $1,930 | | Total stockholders' equity | $119 | $97 | Consolidated Statements of Operations For the three months ended March 31, 2025, revenues increased by 3% year-over-year, but gross profit declined by 10% due to a 7% increase in payroll taxes, benefits, and workers' compensation costs, resulting in significant decreases in operating income and net income Consolidated Statements of Operations (Three Months Ended March 31, in millions) | Metric | 2025 | 2024 | Change | | :------------------------------------------ | :--- | :--- | :----- | | Revenues | $1,863 | $1,802 | 3% | | Payroll taxes, benefits and workers' compensation costs | $1,553 | $1,457 | 7% | | Gross profit | $310 | $345 | (10)% | | Total operating expenses | $242 | $237 | 2% | | Operating income | $68 | $108 | (37)% | | Net income | $51 | $79 | (35)% | | Diluted EPS | $1.35 | $2.08 | (35)% | Revenue Composition (Three Months Ended March 31, in millions) | Metric | 2025 | 2024 | | :------------------ | :----- | :----- | | Gross billings | $12,144 | $11,483 | | Less: WSEE payroll cost | $10,281 | $9,681 | | Revenues | $1,863 | $1,802 | Key Financial and Statistical Data (Per WSEE) Per WSEE per month data for Q1 2025 shows a 3% increase in revenues but an 11% decrease in gross profit, reflecting the higher benefits costs, with operating income and net income per WSEE also experiencing significant declines of 37% and 36%, respectively Key Financial and Statistical Data (Per WSEE per month, Three Months Ended March 31) | Metric | 2025 | 2024 | Change | | :---------------------- | :----- | :----- | :----- | | Average WSEEs paid | 306,023 | 303,904 | 1% | | Revenues | $2,029 | $1,977 | 3% | | Gross profit | $338 | $378 | (11)% | | Operating expenses | $264 | $260 | 2% | | Operating income | $74 | $118 | (37)% | | Net income | $56 | $87 | (36)% | Revenues per WSEE per month composition (Three Months Ended March 31) | Metric | 2025 | 2024 | | :---------------------- | :----- | :----- | | Gross billings | $13,228 | $12,595 | | Less: WSEE payroll cost | $11,199 | $10,618 | | Revenues | $2,029 | $1,977 | Non-GAAP Financial Measures & Reconciliations This section defines Insperity's non-GAAP financial measures and provides detailed reconciliations from GAAP to non-GAAP figures for Q1 2025 results and 2025 guidance Non-GAAP Measures Overview and Definitions This section provides an overview of Insperity's non-GAAP financial measures, emphasizing that they are not GAAP-compliant and should not be considered substitutes, including definitions for non-bonus payroll cost, adjusted cash, EBITDA, adjusted EBITDA, adjusted net income, and adjusted EPS, explaining their utility for investors and management - Non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP measures[21] - Non-bonus payroll cost excludes bonus payrolls paid to WSEEs, used by management for analyzing, reporting, and forecasting workers' compensation costs[22] - Adjusted cash, cash equivalents, and marketable securities exclude funds associated with federal and state income tax withholdings, employment taxes, other payroll deductions, and client prepayments[22] - Adjusted EBITDA represents GAAP net income plus interest expense, income taxes, depreciation and amortization expense, amortization of SaaS implementation costs, and non-cash stock-based compensation, used by management and lenders to assess performance and leverage[22] - Adjusted EPS represents diluted net income per share computed in accordance with GAAP, excluding non-cash stock-based compensation[22] Reconciliations of Q1 2025 Non-GAAP Measures This section provides detailed reconciliations of GAAP to non-GAAP financial measures for the first quarter of 2025 and 2024, showing the adjustments made to payroll cost, cash, net income, and diluted EPS to arrive at their respective non-GAAP counterparts, highlighting the impact of items like bonus payroll and stock-based compensation Reconciliation of Payroll Cost (GAAP) to Non-bonus Payroll Costs (non-GAAP) (in millions) | Metric | 2025 | 2024 | | :-------------------- | :----- | :----- | | Payroll cost | $10,281 | $9,681 | | Less: Bonus payroll cost | $2,243 | $1,862 | | Non-bonus payroll cost | $8,038 | $7,819 | | Payroll cost % change YoY | 6% | — | | Non-bonus payroll cost % change YoY | 3% | 2% | Reconciliation of Cash, Cash Equivalents and Marketable Securities (GAAP) to Adjusted Cash (non-GAAP) (in millions) | Metric | March 31, 2025 | December 31, 2024 | | :------------------------------------------ | :------------- | :---------------- | | Cash, cash equivalents and marketable securities | $568 | $1,055 | | Less: Amounts payable for withheld taxes & deductions | $404 | $830 | | Less: Client prepayments | $40 | $91 | | Adjusted cash, cash equivalents and marketable securities | $124 | $134 | Reconciliation of Net Income (GAAP) to Adjusted EBITDA (non-GAAP) (in millions) | Metric | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Net income | $51 | $79 | | EBITDA | $91 | $132 | | Stock-based compensation | $11 | $10 | | Adjusted EBITDA | $102 | $142 | | Net income % change YoY | (35)% | (17)% | | Adjusted EBITDA % change YoY | (28)% | (7)% | Reconciliation of Diluted EPS (GAAP) to Adjusted EPS (non-GAAP) | Metric | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Diluted EPS | $1.35 | $2.08 | | Non-GAAP adjustments, net | $0.22 | $0.19 | | Adjusted EPS | $1.57 | $2.27 | | Diluted EPS % change YoY | (35)% | (15)% | | Adjusted EPS % change YoY | (31)% | (15)% | Reconciliations of 2025 Guidance Non-GAAP Measures This section provides the reconciliation of GAAP to non-GAAP financial measures specifically for the second quarter and full year 2025 guidance, detailing the adjustments made to projected net income and diluted EPS to arrive at the adjusted EBITDA and adjusted EPS guidance figures Reconciliation of GAAP to Non-GAAP Financial Measures for Q2 and Full Year 2025 Guidance (in millions, except per share amounts) | Metric | Q2 2025 Guidance | Full Year 2025 Guidance | | :-------------------------- | :--------------- | :---------------------- | | Net income (loss) | $(3) - $11 | $42 - $81 | | EBITDA | $14 - $34 | $130 - $185 | | Stock-based compensation | $19 | $60 | | Adjusted EBITDA | $33 - $53 | $190 - $245 | | Diluted EPS | $(0.07) - $0.31 | $1.10 - $2.15 | | Non-GAAP adjustments, net | $0.36 | $1.13 | | Adjusted EPS | $0.29 - $0.67 | $2.23 - $3.28 |