Insperity(NSP) - 2025 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements Financial statements for H1 2025 show 3% revenue growth but significant profitability decline, with a $5 million Q2 net loss and $522 million cash used in operations due to tax payments and client credit distributions Condensed Consolidated Balance Sheets Balance Sheet Summary (as of June 30, 2025 vs. Dec 31, 2024) | Account | June 30, 2025 (in millions) | December 31, 2024 (in millions) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $441 | $1,039 | ▼ $598 | | Total current assets | $1,517 | $2,085 | ▼ $568 | | Total assets | $2,018 | $2,597 | ▼ $579 | | Payroll taxes and other payroll deductions payable | $366 | $901 | ▼ $535 | | Total current liabilities | $1,357 | $1,930 | ▼ $573 | | Total stockholders' equity | $112 | $97 | ▲ $15 | Consolidated Statements of Income Income Statement Highlights (in millions, except EPS) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $1,658 | $1,605 | $3,521 | $3,407 | | Gross Profit | $223 | $260 | $533 | $605 | | Operating Income (Loss) | $(7) | $23 | $61 | $131 | | Net Income (Loss) | $(5) | $18 | $46 | $97 | | Diluted EPS | $(0.14) | $0.48 | $1.22 | $2.56 | - For the second quarter of 2025, the company experienced a 128% decrease in net income, resulting in a net loss of $5 million, compared to a net income of $18 million in Q2 2024. For the six months ended June 30, 2025, net income decreased by 53% year-over-year[12] Consolidated Statements of Cash Flows Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(522) | $51 | | Net cash used in investing activities | $(11) | $(11) | | Net cash used in financing activities | $(78) | $(127) | - Net cash used in operating activities was $522 million for the first six months of 2025, a significant decline from the $51 million provided by operating activities in the same period of 2024. This was primarily driven by changes in operating liabilities, particularly a $535 million decrease in 'Payroll taxes and other payroll deductions payable'[14] Notes to Consolidated Financial Statements The notes detail the company's accounting policies, particularly for health insurance and workers' compensation costs, which involve significant estimates. They also provide breakdowns of revenue by region, details on long-term debt, share repurchase activities, and highlight a subsequent event regarding new federal tax legislation (H.R.1) whose impact is still under evaluation - The company's PEO HR Solutions revenue is primarily derived from gross billings based on WSEE payroll costs plus a markup. Revenue is recognized ratably over the payroll period[36][37] - As of June 30, 2025, the company had an outstanding balance of $369 million on its revolving credit facility, with an available borrowing capacity of $280 million[50] - Subsequent to the quarter end, on July 4, 2025, a new federal law, H.R.1 ("One Big Beautiful Bill Act"), was enacted. The company is currently evaluating the potential effects of this law on its financial position and results[60][61] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes H1 2025 revenue growth to WSEE and pricing, but gross profit declined 12% due to higher benefits costs, and liquidity was impacted by significant cash use from operations Executive Summary Q2 2025 vs Q2 2024 Highlights | Metric | Change | | :--- | :--- | | Average WSEEs paid per month | ▲ 1% | | Net Income (Loss) | ▼ 128% to $(5)M | | Diluted EPS | ▼ 129% to $(0.14) | | Adjusted EBITDA | ▼ 52% to $32M | First Six Months 2025 vs 2024 Highlights | Metric | Change | | :--- | :--- | | Average WSEEs paid per month | ▲ 1% | | Net Income | ▼ 53% to $46M | | Diluted EPS | ▼ 52% to $1.22 | | Adjusted EBITDA | ▼ 36% to $134M | Results of Operations Revenues increased by 3% for both Q2 and the first six months of 2025, driven by a 1% growth in average WSEEs and a 3% increase in pricing. This was more than offset by a significant decline in gross profit, which fell 14% in Q2 and 12% year-to-date. The decline was primarily caused by higher benefits costs per WSEE, stemming from elevated pharmacy trends and large claim activity. Operating expenses remained relatively flat - Average WSEEs paid increased by 1% in both Q2 and the first six months of 2025 compared to the prior year periods[71] - Gross profit per WSEE per month for Q2 2025 decreased by $42 (15%) to $240, primarily due to higher direct costs, especially benefits costs, which increased by $65 per WSEE per month[95][97][100] - The increase in benefits costs was driven by elevated pharmacy trends and a higher frequency of large claims in Q2 2025. Additionally, Q2 2024 benefited from a $25 million decrease in costs from changes in estimated claims run-off, a benefit that did not recur in Q2 2025[100] - Total operating expenses for Q2 2025 decreased by 3% to $230 million, mainly due to a 14% reduction in general and administrative expenses[113] Non-GAAP Financial Measures The company uses non-GAAP measures such as Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS to provide insight into its core operating performance by excluding items like non-cash stock-based compensation. For Q2 2025, Adjusted EBITDA decreased 52% to $32 million, and Adjusted EPS decreased 70% to $0.26 Reconciliation of Net Income (Loss) to Adjusted EBITDA (in millions) | Line Item | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(5) | $18 | $46 | $97 | | Adjustments (Taxes, Interest, D&A, etc.) | $17 | $28 | $57 | $81 | | EBITDA | $12 | $46 | $103 | $178 | | Stock-based compensation | $20 | $20 | $31 | $30 | | Adjusted EBITDA | $32 | $66 | $134 | $208 | Liquidity and Capital Resources The company's liquidity is primarily supported by cash from operations and a $650 million revolving credit facility, of which $280 million was available at quarter-end. Net cash used in operating activities was $522 million for the first six months of 2025, a stark contrast to the $51 million generated in the prior year. This was largely due to the timing of payroll tax payments and the distribution of $440 million in client employee retention tax credits received in late 2024 - As of June 30, 2025, the company had $456 million in cash, cash equivalents, and marketable securities, and working capital of $160 million[127] - The significant use of cash from operations in the first six months of 2025 was heavily influenced by the distribution of $440 million of client employee retention tax credits that had been received from the IRS in Q4 2024[129] - During the first six months of 2025, the company used $45 million for dividends and $19 million for stock repurchases and withholdings[132] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations, impacting income on investments and expense on its $370 million variable-rate credit facility borrowings - The company is exposed to market risks from interest rate fluctuations, which impact its short-term investments and borrowings under its variable-rate credit facility[134] - As of June 30, 2025, borrowings and letters of credit outstanding under the facility totaled $370 million[134] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during Q2 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[137] - There were no material changes in internal control over financial reporting during the three months ended June 30, 2025[138] Part II - Other Information Item 1. Legal Proceedings The company is involved in various lawsuits in the normal course of business but does not believe the outcomes will have a material adverse effect on its financial position - The company is a defendant in various lawsuits arising in the normal course of business and believes the final outcome will not have a material adverse effect[58][139] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes have occurred in the company's risk factors since its 2024 Annual Report on Form 10-K[140] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company withheld 802 shares for tax obligations from restricted stock vesting, but made no program repurchases, leaving 1,407,764 shares available Share Purchases (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | April 2025 | 548 | $84.65 | 0 | | May 2025 | 254 | $66.79 | 0 | | June 2025 | 0 | N/A | 0 | | Total | 802 | $78.99 | 0 | - The 802 shares purchased during the quarter were withheld to satisfy tax-withholding obligations from vesting restricted stock units and were not part of the formal repurchase program[141] - As of June 30, 2025, the company was authorized to repurchase an additional 1,407,764 shares under its existing program[141] Item 5. Other Information During the second quarter of 2025, none of the company's directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the second quarter of 2025[142] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files