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INSPERITY, INC. (NSP)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 missed EPS and slightly missed revenue versus S&P Global consensus as elevated healthcare costs pressured margins; adjusted EPS was $(0.20) vs $0.22 consensus and revenue was $1.623B vs $1.632B consensus (benefits cost trend ~9% YoY) . EPS, revenue estimates from S&P Global: see asterisk note.
  • Management announced a multi‑year UnitedHealthcare extension through 2028 with expected 2026 cost savings and a lower large-claim pooling level ($500K), positioning for margin recovery next year .
  • Operating discipline continued (OpEx -4% YoY), but gross profit fell 15% on healthcare utilization, pharmacy costs, and large-claim frequency; adjusted EBITDA was $10M in Q3 .
  • FY25 outlook was reduced: adjusted EPS to $0.84–$1.47 (from $1.81–$2.51) and adjusted EBITDA to $119–$153M (from $170–$205M); Q4 adjusted EPS guided to $(0.79)–$(0.16) .
  • Potential stock catalysts: (1) tangible 2026 margin inflection from UHC contract and pricing actions; (2) HRScale rollout with Workday targeting mid‑market; (3) continued operating cost control .

What Went Well and What Went Wrong

  • What Went Well

    • Strategic health plan reset: UHC extension through 2028 with cost reductions, growth incentives, and reduced pooling level to $500K starting Jan 1, 2026 (expect ~2% favorable impact on gross benefits cost) .
    • Operating discipline: Q3 operating expenses fell 4% YoY to $220M (Workday spend $11M vs $19M prior-year quarter) .
    • HRScale rollout underway; co‑marketing/co‑selling with Workday; strong booked HR360 sales (up 45% YoY) and largest account in history slated to upgrade to HRScale, validating pricing power and demand .

  • What Went Wrong

    • Gross profit pressure: Q3 gross profit fell 15% YoY to $195M due to higher-than-expected benefits costs (inpatient, outpatient, pharmacy, and large-claim frequency) .
    • Benefits cost trend surprised to the upside: ~9.1% YoY in Q3; management noted industry-wide drivers including specialty drugs and elevated utilization .
    • FY25 guidance cut materially: adjusted EPS to $0.84–$1.47 and adjusted EBITDA to $119–$153M vs prior $1.81–$2.51 and $170–$205M, reflecting persistent healthcare cost headwinds .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$1.863 $1.658 $1.623
GAAP Diluted EPS$1.35 $(0.14) $(0.53)
Adjusted EPS (non‑GAAP)$1.57 $0.26 $(0.20)
Gross Profit ($USD Millions)$310 $223 $195
Operating Expenses ($USD Millions)$242 $230 $220
Adjusted EBITDA ($USD Millions)$102 $32 $10

Estimates vs. Actuals (S&P Global)

Metric (Q3 2025)ConsensusActualSurprise
Revenue ($USD Billions)$1.632*$1.623 $(0.009)
Primary EPS$0.22*$(0.20)*$(0.42)

Values marked with * retrieved from S&P Global.

Key KPIs

KPIQ1 2025Q2 2025Q3 2025
Average WSEEs Paid306,023 309,115 312,842
Revenue per WSEE per month ($)$2,029 $1,788 $1,729
Gross Profit per WSEE per month ($)$338 $240 $208

Guidance Changes

MetricPeriodPrevious Guidance (Aug 1)Current Guidance (Nov 3)Change
Adjusted EPSFY 2025$1.81 – $2.51 $0.84 – $1.47 Lowered
Adjusted EBITDA ($M)FY 2025$170 – $205 $119 – $153 Lowered
Avg WSEEs PaidFY 2025310,300 – 313,400 310,200 – 310,700 Narrowed/lowered midpoint
Adjusted EPSQ4 2025—$(0.79) – $(0.16) New
Adjusted EBITDA ($M)Q4 2025—$(25) – $9 New
Estimated Effective Tax Rate (Adj EPS)Q4 2025—28% (assumption for adjusted EPS) New
DividendOngoing$0.60 per share quarterly declared May 22, 2025 —No update provided in Q3 materials

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q1 2025)Current Period (Q3 2025)Trend
Healthcare claims/benefits cost trendQ1: Elevated inpatient/outpatient/pharmacy and large claims; initiated pricing plan . Q2: Benefits per covered employee +9–9.6%; GLP‑1s, specialty drugs; raised full‑year trend +75–100 bps .Q3 trend ~9.1%; elevated utilization (inpatient/outpatient), pharmacy, and higher large-claim frequency; industry-wide phenomenon .Persistently elevated; management acting via pricing and plan design
UnitedHealthcare contract/ risk poolingQ2: Negotiations ongoing; aim to address specialty drug costs and trends .Signed extension to 2028; cost reductions; lower pooling to $500K; ~2% favorable impact to gross benefits costs in 2026 .Positive structural shift for 2026+
HRScale (Workday) rolloutQ1/Q2: Milestones progressing; beta targeted early 2026; pricing study supports premium pricing .Rollout underway; co‑selling; strong interest; largest account to upgrade; product viability reached for capitalization of some costs .Accelerating execution and early pipeline traction
SMB macro / client hiringQ1: Macro turbulence; net hiring below historical norms . Q2: Modest sequential improvement; retention 99%/month .Q3: Seasonal net hiring negative; retention ~99%/month; sales booked efficiency up; 2026 cautious but constructive .Stabilizing; still below historical hiring
AI (internal and external impacts)Q2: Internal AI strategy to drive efficiency; Compass tool; external: plan to mitigate trends .External AI adoption by providers cited as cost driver (coding/authorization); internal AI expected to improve leverage .Mixed: external headwind; internal tailwind emerging

Management Commentary

  • “We are actively working to position Insperity for sustainable profitability at normal historical levels… including through the new contract with UnitedHealthcare… and the official rollout of HRScale” — Paul J. Sarvadi, CEO .
  • “The combination of cost savings from [UHC] contract and other plan design changes… are expected to have a favorable impact of about 2% of our gross benefits costs [in 2026]… [and] lowering our pooling level… to $500,000” — Jim Allison, CFO .
  • “In Q3, our booked HR360 sales were… 45% greater than [last year]… We sold our largest account in history… scheduled to… upgrade to HRScale” — Paul J. Sarvadi .
  • “Nearly all of [the 2025 earnings] shortfall is related to the benefits area… We believe that 2026 represents an opportunity to recover a majority of the… shortfall” — Management Q&A .

Q&A Highlights

  • 2026 earnings recovery: Management expects to recover a majority of the 2025 shortfall next year, anchored by pricing, plan design, and UHC contract savings .
  • Pricing and retention: Higher pricing is being implemented; retention remains ~99%/month, and sales momentum/January pipeline expected to offset any churn of lower-profit clients .
  • Risk pooling lowered: Pooling level reduced to $500K in 2026 to mitigate large-claim severity; management emphasized better carrier alignment and predictability .
  • HRScale economics: Premium pricing validated; phased beta/early‑adopter discounts; internal cost capitalization now eligible; 2026 OpEx impact ~$15M lower than 2025 for HRScale .
  • Industry healthcare dynamics: Elevated utilization, specialty drugs, and AI-enabled coding/documentation cited as drivers of higher insurer loss ratios and employer costs .

Estimates Context

  • Q3 2025 miss vs S&P Global consensus: Adjusted/Primary EPS $(0.20)* vs $0.22*; Revenue $1.623B vs $1.632B*; primary delta from higher-than-expected healthcare costs (utilization/pharmacy/large claims) .
  • Revisions likely: FY25 EPS and EBITDA ranges were cut; Street models should incorporate persistent elevated benefits trend (~9%) through Q4 and 2026 offset from UHC savings (~2% gross benefits cost), pricing lift, and lower pooling level .
    Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Elevated healthcare costs remain the core headwind; 2025 is reset lower, but structural actions (UHC contract, pooling reduction, plan design and pricing) support a 2026 margin rebound .
  • HRScale presents a credible new growth driver with premium pricing and strong enterprise/mid‑market interest; early execution milestones de‑risk the program .
  • Operating discipline is intact (OpEx down YoY); continued cost control plus AI-enabled efficiencies can enhance operating leverage as gross margin normalizes .
  • Mix management and pricing should improve unit economics; retention remains strong, and sales efficiency is up despite a smaller salesforce .
  • FY25 guide now embeds a conservative posture; watch Q4 benefit trend trajectory, January conversion pipeline, and early 2026 HRScale client adds for inflection signals .
  • Dividend remains intact ($0.60 quarterly declared in May); balance sheet liquidity includes $280M available on revolver and adjusted cash of $120M at Q3 .
  • Risk factors: persistence of industry healthcare inflation, macro/SMB hiring softness, and HRScale commercialization pace.

Additional Press Releases During the Period

  • Updated HR solutions portfolio (HR360, HRCore, HRScale) announced July 31, 2025, outlining strategy and expanded addressable market .
  • Contractor Management powered by Wingspan announced July 22, 2025, broadening product portfolio .