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INSPERITY, INC. (NSP)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue rose 3% year over year to $1.658B, but gross profit fell 14% to $223M and GAAP diluted EPS was $(0.14); adjusted EPS was $0.26 and adjusted EBITDA was $32M, driven by higher benefits costs, particularly pharmacy and large claims .
  • Full-year 2025 guidance was lowered: adjusted EPS to $1.81–$2.51 and adjusted EBITDA to $170–$205M; Q3 guidance calls for adjusted EPS of $0.06–$0.49 and adjusted EBITDA of $24–$44M .
  • Management highlighted ongoing cost headwinds but pointed to improving sales efficiency, 99% monthly client retention, and a pricing/plan-design response; the Workday joint solution Insperity HRScale has a targeted beta go-live early next year, with early adopter availability in 2026 .
  • Stock reaction catalysts: lowered FY guidance and persistent healthcare cost trends; medium-term upside narrative centers on HRScale commercialization, pricing traction, and operating expense discipline .

What Went Well and What Went Wrong

What Went Well

  • Sales resiliency and efficiency: worksite employees from new sales increased 2% YoY; BPA count down ~11% with 13% sales efficiency improvement; monthly retention ~99% in Q2 .
  • Pricing actions and plan migration: management is implementing higher pricing targets and seeing clients migrate to lower-cost plans to mitigate trends .
  • Strategic progress with Workday: “Insperity HRScale…has a targeted go-live date with beta clients early next year, and sales and marketing efforts have begun” ; “a detailed work and testing plan…established a target Go Live date…early next year” .

What Went Wrong

  • Benefits costs overshot: Q2 benefits costs exceeded forecast by ~$12M, including ~$8M from higher specialty pharma (GLP‑1) utilization and ~$4M from higher IBNR; benefits cost per covered employee up 9.6% YoY .
  • Margin compression: gross profit fell 14% to $223M and gross profit per WSEE per month decreased to $240 from $282 in Q2 2024 .
  • Guidance reset reflecting higher trend: FY adjusted EPS cut to $1.81–$2.51 (from $2.23–$3.28 prior) and FY adjusted EBITDA to $170–$205M (from $190–$245M prior) .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Millions)$1,605 $1,863 $1,658
Gross Profit ($USD Millions)$260 $310 $223
Total Operating Expenses ($USD Millions)$237 $242 $230
Operating Income ($USD Millions)$23 $68 $(7)
Net Income ($USD Millions)$18 $51 $(5)
Diluted EPS (GAAP, $)$0.48 $1.35 $(0.14)
Adjusted EPS ($)$0.86 $1.57 $0.26
EBITDA ($USD Millions)$46 $91 $12
Adjusted EBITDA ($USD Millions)$66 $102 $32

KPIs

KPIQ2 2024Q1 2025Q2 2025
Average WSEEs Paid306,958 306,023 309,115
Revenues per WSEE per Month ($)$1,743 $2,029 $1,788
Gross Profit per WSEE per Month ($)282 338 240
Monthly Client Retention (%)——~99%
Benefits Cost per Covered Employee YoY (%)—9% YTD 9.6%
Adjusted Cash ($USD Millions)—$124 $114
Cash Dividends Paid ($USD Millions)—$23 $22 (Q2); $45 YTD

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Average WSEEs PaidFY 2025308,800–316,400 310,300–313,400 Narrowed (lower top, higher bottom)
Adjusted EPS ($)FY 2025$2.23–$3.28 $1.81–$2.51 Lowered
Adjusted EBITDA ($M)FY 2025$190–$245 $170–$205 Lowered
Avg WSEEs PaidQ3 2025—312,200–315,300 New
Adjusted EPS ($)Q3 2025—$0.06–$0.49 New
Adjusted EBITDA ($M)Q3 2025—$24–$44 New
Effective Tax Rate (Adj. EPS basis)FY 2025—~29% New
Interest Expense ($M)Q3 / FY 2025— / $25 $6 (Q3); $25 (FY) Maintained for FY; Q3 disclosed
SaaS Amortization ($M)Q3 / FY 2025— / $4 $1 (Q3); $5 (FY) FY raised

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
Benefits cost trendGP per employee in line; 2024 GP +1% YoY; carrier/inflation backdrop noted Accelerated inpatient/outpatient/pharmacy; ~$12M prior-period runoff 9.6% YoY benefits cost; specialty pharma (GLP‑1) and elevated large claims; IBNR uptick Elevated; some moderation signs
Workday partnership / HRScale2025 milestone focus; investment $57M in 2024 Go-to-market plan agreed; pricing plan initiation Beta go-live targeted early next year; co-selling begun; premium pricing potential Advancing toward launch
Sales & retentionExceptional year-end campaign; entering 2025 inflection Pricing plan launched; unit growth +1% YoY New sales +2% YoY; monthly retention ~99%; sales efficiency +13% Improving
SMB macro / tariffs / policyMacro conditions impacted growth Macro turbulence affects results Small business sentiment buoyed by tax clarity; hiring may normalize in 2026 Stabilizing sentiment
AI initiatives——Continued AI development to drive service efficiency and operating leverage New/expanding
Product portfolio——Rebranded HR360/HRCore; introduced HRScale; contractor management via Wingspan Expanded portfolio

Management Commentary

  • CEO: “Despite our reported Q2 results and the associated lower guidance for this year, we have experienced recent growth momentum and are executing a plan…lay[ing] the foundation for accelerated growth and improved profitability in 2026” .
  • CFO: “Benefits costs in Q2 2025 continued to trend negatively, exceeding our forecast by $12 million…$8 million related to higher…GLP‑1s…[and] $4 million…IBNR” .
  • CEO: “A…plan…established a target Go Live date for Insperity HR Scale Beta clients early next year…we have a direct line of sight to launch” .
  • CFO: “We are forecasting full year adjusted EBITDA in a range of $170 million to $205 million…adjusted EPS in a range of $1.81 to $2.51…effective tax rate of 29%” .

Q&A Highlights

  • Workday investment and margin profile: Management expects total product investment modestly above $150M over five years, with expense impact declining as costs become capitalizable post-launch; longer-term margin profile per WSEE and corporate margins expected to be better given larger clients and premium pricing .
  • WSEE dynamics: Underlying net hiring showed improvement from February lows; regional differences exist but higher trends are broadly seen; retention remains strong .
  • Pricing vs plan design vs UHC renegotiation: Majority of cost trend mitigation will come via pricing; plan design and carrier contract changes aim to structurally limit trend impact and align incentives with UnitedHealthcare .
  • Near-term cost trend: FY benefits trend raised by 75–100 bps vs prior forecast, expected to taper from 9% YTD as comps normalize and plan migration helps .

Estimates Context

  • Q2 2025 vs consensus: Adjusted EPS $0.26 vs consensus Primary EPS $0.41* → bold miss; Revenue $1.658B vs consensus $1.662B* → slight miss .
  • Q1 2025 vs consensus: Adjusted EPS $1.57 vs consensus Primary EPS $2.02* → miss; Revenue $1.863B vs consensus $1.866B* → in line .
  • Forward Q3 2025: Guidance EPS $0.06–$0.49 brackets consensus $0.22*; guidance adjusted EBITDA $24–$44M; consensus EBITDA $28.6M* .
    Values retrieved from S&P Global.*
MetricQ2 2025 Consensus (SPGI)*Q2 2025 ActualSurprise
Primary EPS ($)0.408*0.26 Miss
Revenue ($USD Billions)1.662*1.658 Slight miss

Key Takeaways for Investors

  • Near-term earnings pressure from healthcare costs likely persists through 2025; management’s pricing/plan design/UHC negotiations are the key levers to stabilize gross profit into 2026 .
  • Sales execution and retention remain strong, supporting unit growth; fall selling campaign starts earlier with increased marketing spend—watch for lead conversion metrics and WSEE trajectory into year-end .
  • HRScale is a meaningful medium-term catalyst: beta go-live early next year and early adopters in 2026; premium pricing framework and larger-client mix can expand margins over time .
  • FY 2025 guidance reset lowers the bar; consensus is likely to move down further in EPS/EBITDA—positioning for potential upside if cost trends taper faster or pricing sticks .
  • Cash discipline intact: adjusted cash of $114M and $280M availability under revolver; continued dividends ($45M YTD) and selective buybacks ($19M YTD) provide capital return while funding strategic investments .
  • Watch pharmacy cost trend (GLP‑1 dynamics) and large claim frequency as primary drivers of variance; any carrier contract changes with UHC are potential positive inflections .
  • Trading lens: The lowered FY guide and cost headwinds are near-term negatives; positive narrative hinges on pricing traction and HRScale milestones—monitor Q3 progress versus guidance bands for inflection signals .