Executive Summary

Q1 2025 came in below plan on profitability as elevated healthcare utilization and prior-period claims runoff drove gross profit down 10% YoY; adjusted EPS was $1.57 and adjusted EBITDA $102M, both below prior guidance and S&P consensus, while revenue grew 3% YoY to $1.86B . EPS missed S&P Global consensus ($1.57 vs $2.02*) and revenue was slightly below consensus ($1.863B vs $1.866B*) due primarily to benefits cost volatility and delayed/canceled new client starts amid macro-policy uncertainty . Values retrieved from S&P Global.
Management cut full-year 2025 guidance: adjusted EPS to $2.23–$3.28 (from $3.10–$3.95) and adjusted EBITDA to $190–$245M (from $240–$285M), and raised the benefits cost trend to 6.5%–7.5% (from 5%–6.5%) .
Workday strategic partnership advanced: corporate instance launched mid-March; go-to-market plan agreed with co-sell motion for 2H25 and potential to materially accelerate mid-market growth beginning 2026; 2025 cash costs steady at ~$62M .
Capital returns continued: $42M in Q1 via $19M buybacks (224k shares) and $23M dividends; dividend maintained at $0.60 per share (Feb 27 and May 22) .

What Went Well and What Went Wrong

What Went Well
- Sales/retention execution: client retention improved to 91% attrition in Q1 vs 88% prior-year, and new client WSEEs rose 3% YoY; management emphasized operating expense discipline with sequential declines expected through the year .
- Workday partnership milestones: corporate Workday platform launched “nearly flawless” in mid-March; agreed go‑to‑market plan with targeted early adopters and co-selling in 2H25 . “This team will… begin calling on targeted early adopter candidates over the last half of this year” .
- Pricing response: company “initiated a pricing plan” to address higher healthcare trend and expects to realign pricing by January next year, with plan design changes under evaluation for 2026 .
What Went Wrong
- Benefits cost shock: benefits costs per covered employee rose 8.4% YoY; adjusted EPS/EBITDA below guidance due to $12M prior-period claims runoff and $16M higher Q1 claims, and ~10% increase in >$100k large claims frequency .
- Macro uncertainty: new administration policy issues (tariffs, etc.) triggered onboarding pauses/cancellations late in Q1, modestly reducing average WSEEs vs plan and dampening net client hiring .
- Guidance cut: FY25 adjusted EPS and EBITDA lowered materially, and benefits cost trend raised to 6.5%–7.5% from 5%–6.5% on updated claims/utilization analysis .

Financial Results

Overall P&L vs prior quarters

Metric	Q3 2024	Q4 2024	Q1 2025
Revenue ($USD Billions)	$1.561	$1.613	$1.863
Gross Profit ($USD Millions)	$229	$218	$310
Operating Income ($USD Millions)	$1	$(15)	$68
Adjusted EBITDA ($USD Millions)	$39	$23	$102
Diluted EPS (GAAP)	$0.07	$(0.22)	$1.35
Adjusted EPS (Non-GAAP)	$0.39	$0.05	$1.57

Key KPIs

KPI	Q3 2024	Q4 2024	Q1 2025
Average WSEEs Paid	309,088	309,093	306,023
Revenue per WSEE per month ($)	$1,683	$1,739	$2,029
Gross Profit per WSEE per month ($)	$247	$235	$338

Consensus vs Actual (Q1 2025)

Metric	S&P Global Consensus	Actual	Surprise	Beat/Miss
Revenue ($USD Billions)	$1.866*	$1.863	-0.16%*	Miss
Adjusted EPS	$2.02*	$1.57	-22.3%*	Miss

Values retrieved from S&P Global.

Additional P&L detail (YoY Q1):

Revenue +3% YoY to $1.863B on +3% revenue/WSEE and +1% WSEEs .
Gross profit -10% YoY to $310M on higher-than-expected healthcare costs; other GP components were in line (pricing, WC, payroll taxes) .
Operating expenses +2% YoY to $242M, including $13M Workday costs vs $5M in Q1 2024 .
Net income $51M; diluted EPS $1.35; adjusted EPS $1.57; adjusted EBITDA $102M .

Non-GAAP adjustments (Q1 2025):

Stock-based comp $11M; EPS add-back $0.30 with $(0.08) tax effect; net EPS adjustment $0.22 to adjusted EPS $1.57 .

Capital allocation:

Buybacks: 224k shares for $19M; Dividends: $23M in Q1 .

Segments: Insperity does not report multiple revenue segments; results presented on a consolidated basis .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Average WSEEs Paid	FY 2025	313,400–319,500 (YoY +2.0%–4.0%)	308,800–316,400 (YoY +0.5%–3.0%)	Lowered
Adjusted EPS	FY 2025	$3.10–$3.95	$2.23–$3.28	Lowered
Adjusted EBITDA ($M)	FY 2025	$240–$285	$190–$245	Lowered
Average WSEEs Paid	Q2 2025	N/A (not provided on 2/10)	308,000–311,000 (YoY +0.3%–1.3%)	New
Adjusted EPS	Q2 2025	N/A	$0.29–$0.67	New
Adjusted EBITDA ($M)	Q2 2025	N/A	$33–$53	New
Benefits Cost Trend	FY 2025	5.0%–6.5%	6.5%–7.5%	Raised
Operating Expenses	FY 2025	~Flat vs 2024	Slightly down vs 2024; sequential declines each remaining quarter	Lowered (directional)
Dividend per Share	Ongoing	$0.60 declared 2/27/25	$0.60 declared 5/22/25	Maintained

Earnings Call Themes & Trends

Topic	Q3 2024 (Prev-2)	Q4 2024 (Prev-1)	Q1 2025 (Current)	Trend
Workday partnership	Building 4 pillars; corporate tenant targeted 1H25; co-branding/co-marketing/incentives underway	Corporate tenant planned 4/1; 2025 milestones toward launch; premium pricing validated by research	Corporate tenant launched mid‑March; go‑to‑market agreed; POD team; co-selling 2H25; 2026 growth driver	Accelerating execution
Benefits/healthcare costs	Slightly above forecast in Q3; trend near high end; specialty drugs a driver	2025 guidance assumed elevated trend (5%–6.5%)	Q1 spike: +8.4% YoY benefits cost; $12M prior-period runoff; higher large-claims frequency; trend raised to 6.5%–7.5%	Deteriorated, now mitigations in place
Pricing strategy	Maintained discipline; short-term incentives without harming long-term pricing	Comfortable pricing to match elevated cost trends	Initiated pricing plan; aim to realign by Jan; targeted account strategy to limit attrition	More aggressive price actions
SMB sentiment/hiring	Pre‑election hesitancy; low overtime/commissions in client data	Post‑election optimism entering 2025 but hiring still below normal	Policy uncertainty (tariffs) caused onboarding pauses; client survey shows sentiment swing negative; modest improvement expected	Worsened intra‑quarter, stabilizing
Mid-market retention	Strong pipeline; beta client identification	Dramatic improvement: large-account attrition down ~62% YoY in Q4; Workday interest helped	Continued focus; Workday beta queue supports retention	Improving
AI initiatives	Internal AI tool for service/sales efficiency under development	Continued emphasis; operating leverage potential	Reinforced as efficiency lever in 2025 plan	Steady progress
OpEx discipline	G&A savings; Workday investment ongoing	2025 OpEx plan ~flat vs 2024	OpEx to decline sequentially and be lower y/y in 2025	Tightening
Capital returns	Ongoing dividends and buybacks	Q4 dividend and buybacks; adjusted cash $134M	$42M returned in Q1; dividend maintained at $0.60	Stable

Management Commentary

“Our first quarter financial results, reflecting macro-economic turbulence and healthcare cost volatility, are in stark contrast with the solid execution of our game plan” (CEO Paul Sarvadi) .
“Given the elevated level of healthcare costs… we have initiated a pricing plan… We also have other options under evaluation that could contain or reduce costs and drive improved profitability in 2026” (CFO James Allison) .
On the cost spike drivers: “Benefits costs exceeded our budget by $28 million… $12 million related to higher‑than‑expected runoff… $16 million related to higher‑than‑expected medical claims… large claims… increased by about 10%” (CFO) .
On mitigations: “We expect to be able to realign our pricing by January… evaluating plan design… and accelerating contract renewal discussions [with UnitedHealthcare] including possible structural changes” (CEO) .
On Workday: “This launch was nearly flawless… we agreed upon the plan to take our joint solution to market… begin calling on targeted early adopter candidates over the last half of this year” (CEO) .

Q&A Highlights

On onboarding pauses: Macro-policy shock (tariffs) in last ~5 weeks of Q1 led to delays/cancellations; moderation seen since, with teams emphasizing value in uncertain times .
On Workday spend cadence: ~Stable quarterly pattern through 2025, slightly higher later in the year with testing; years 3–5 spend should be “considerably less,” timing dependent on launch .
On pricing tolerance: Elevated industry-wide healthcare trends support receptivity; NSP will strategically target pricing by client profitability/demographics to limit attrition .
On timing to margin improvement: Pricing changes already underway; demographic mix and pricing should improve margins as year progresses; larger step-up expected in 2026 .
On regional/industry: Broad-based trends; Northeast improved vs last year; hesitancy nationwide more than regional .

Estimates Context

Relative to S&P Global consensus for Q1 2025, Insperity posted a significant adjusted EPS miss ($1.57 vs $2.02*, -22.3%) and a slight revenue miss ($1.863B vs $1.866B, -0.16%*), driven primarily by higher-than-expected healthcare costs and onboarding delays . Values retrieved from S&P Global.
With FY25 company guidance cut to adjusted EPS $2.23–$3.28 and adjusted EBITDA $190–$245M, we expect Street models to move lower to align with the higher benefits cost trend (6.5%–7.5%) and more cautious WSEE growth (0.5%–3.0%) .

Key Takeaways for Investors

Profitability headwinds are healthcare-driven and largely non-structural to demand; management moved quickly on pricing and plan design, with the goal of normalization by early 2026—watch for 2H25 claims trend moderation and pricing traction as catalysts .
FY25 reset is substantial (adj. EPS/EBITDA lowered); valuation support, if any, likely depends on investor confidence in 2026 recovery trajectory and Workday monetization path .
Workday partnership is progressing faster on milestones (corporate launch, GTM plan); early adopter co-selling in 2H25 could enhance retention and seed 2026 growth—track beta conversions and mid‑market pipeline updates .
Operating expense discipline offsets some margin pressure: management plans sequential OpEx declines and y/y reduction in 2025 even as Workday investments continue (~$62M) .
Sales funnel/retention fundamentals remain constructive despite macro noise: improved client retention, targeted pricing, and increased marketing leads support modest WSEE growth through 2025 .
Capital returns remain steady (dividend maintained at $0.60; buybacks ongoing), signaling balance sheet flexibility despite near-term volatility .
Trading setup: near-term sentiment tied to healthcare cost trend prints and Q2 guide execution (low bar set); medium-term thesis turns on Workday execution and pricing power restoring per‑WSEE profitability .

Appendix: Source Citations

Q1 2025 8‑K/Press release: results, tables, guidance .
Q1 2025 press release duplicate (Business Wire formatting) .
Q1 2025 earnings call transcript: details on benefits costs, pricing, Workday milestones, guidance context .
Q4 2024 press release/call (prior quarter comps and original FY25 guidance) .
Q3 2024 press release/call (two quarters back) .
Dividends: Feb 27, 2025 and May 22, 2025 declarations ($0.60) .

INSPERITY, INC. (NSP)·Q1 2025 Earnings Summary