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INSPERITY, INC. (NSP)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue rose 2% year over year to $1.613B as higher pricing offset a 2% decline in average WSEEs; GAAP diluted EPS was $(0.22) and adjusted EPS was $0.05, with adjusted EBITDA of $23M .
  • Results were above the midpoint of company guidance: Q4 adjusted EPS $0.05 vs prior guidance range $(0.10)–$0.12 and adjusted EBITDA $23M vs $15–$27M; management also noted Q4 adjusted EPS/EBITDA were above the midpoint of its expected range on the call .
  • Management highlighted a “growth inflection point” entering 2025 driven by a record fall sales/retention campaign: WSEEs paid from new clients +37% y/y in Q4, client retention ~99%, and January WSEEs turning positive year over year; mid‑market attrition improved sharply (down 63% vs 2024 in large accounts) .
  • 2025 guidance: Q1 adjusted EPS $1.89–$2.15; FY adjusted EPS $3.10–$3.95; Q1 adjusted EBITDA $121–$135M; FY $240–$285M; WSEEs +2% to +4% for the year; guidance assumes higher medical cost trend (5%–6.5%) and ~$62M Workday spend .
  • Catalysts: Workday partnership milestones (corporate tenant go‑live targeted for April 1), sustained WSEE growth, and pricing discipline; watch benefits cost trend and tax rate headwind (~$0.06 EPS impact in Q1/FY 2025) .

What Went Well and What Went Wrong

What Went Well

  • Record fall sales/retention campaign drove momentum: “record‑setting quarter in booked sales, up 8%,” WSEEs from new clients +37% y/y in Q4, and ~99% client retention; January turned to positive y/y WSEE growth, creating an inflection point entering 2025 .
  • Pricing power held: gross profit per WSEE $235/month “slightly above expectations” in Q4 on strong pricing; full‑year pricing and favorable H1 benefits claims lifted gross profit +1% despite lower WSEEs .
  • Workday partnership progressing: corporate tenant targeted for April 1; expected platform updates in March/September; early signs of mid‑market retention benefit with large‑account attrition markedly lower .

What Went Wrong

  • Client hiring remained weak in Q4, keeping paid WSEEs down 2% y/y to 309,093 and limiting gross profit dollars (down 2% y/y to $218M) despite stable GP per WSEE; operating expenses rose 17% y/y, including ~$19M Workday costs, driving a GAAP net loss .
  • Q4 GAAP diluted EPS swung to a loss of $(0.22) vs $0.52 y/y; adjusted EPS fell to $0.05 vs $0.75; adjusted EBITDA fell to $23M vs $56M y/y as opex and normalizing benefits costs weighed on margins .
  • Management’s 2025 outlook assumes benefits cost trend at high end of historical (5%–6.5%) and a higher tax rate, creating near‑term EPS pressure (about $0.06 headwind to Q1/FY 2025) while Workday implementation spend increases to ~$62M .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenues ($USD Millions)$1,580 $1,605 $1,561 $1,613
Gross Profit ($USD Millions)$222 $260 $229 $218
Operating Income (Loss) ($USD Millions)$23 $23 $1 $(15)
GAAP Diluted EPS ($)$0.52 $0.48 $0.07 $(0.22)
Adjusted EPS ($)$0.75 $0.86 $0.39 $0.05
Adjusted EBITDA ($USD Millions)$56 $66 $39 $23

Notes: Q4 2024 adjusted EPS/EBITDA exceeded the midpoint of company’s Q4 guidance ranges (EPS $(0.10)–$0.12; EBITDA $15–$27M) . Management stated Q4 adjusted EPS/EBITDA were above the midpoint of expectations on the call .

KPIs

KPIQ4 2023Q2 2024Q3 2024Q4 2024
Average WSEEs Paid315,072 306,958 309,088 309,093
Revenue per WSEE per Month ($)$1,672 $1,743 $1,683 $1,739
Gross Profit per WSEE per Month ($)$235 $282 $247 $235
Client Retention (Quarter)———~99%
WSEEs from New Clients (y/y, Q4)———+37%

Estimates vs. Actuals

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was not available at the time of analysis due to an SPGI rate limit; therefore, we cannot present a vs‑consensus comparison today. Where estimates are required, values were unavailable from S&P Global at this time.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Average WSEEs PaidQ1 2025N/A306,500–309,000 New
Average WSEEs PaidFY 2025N/A313,400–319,500 (+2%–4% y/y) New
Adjusted EPS ($)Q1 2025N/A$1.89–$2.15 New
Adjusted EPS ($)FY 2025N/A$3.10–$3.95 New
Adjusted EBITDA ($M)Q1 2025N/A$121–$135 New
Adjusted EBITDA ($M)FY 2025N/A$240–$285 New
Benefits Cost TrendFY 2025N/A5%–6.5% New
Effective Tax RateQ1/FY 2025N/A~30% in Q1; 28.5% rest of year (≈$0.06 EPS headwind for Q1/FY) New
Workday Implementation SpendFY 2025N/A≈$62M New
DividendNext PayN/A$0.60 per share payable Mar 27, 2025 Maintained

Earnings Call Themes & Trends

TopicQ2 2024 (prior)Q3 2024 (prior)Q4 2024 (current)Trend
AI/Technology initiativesFocus on long‑term growth; no explicit AI detail in release “Leverage our data infrastructure with AI” and Workday partnership to drive acceleration AI to create efficiencies; enhance services, not replace them Increasing emphasis on AI enablement
Macro/hiringChallenging SMB environment; WSEEs down 1% y/y SMB uncertainty; WSEEs down 2% y/y Post‑election optimism; still conservative on net hiring recovery (back‑half weighted) Cautious improvement outlook
PricingStrong pricing supported Q2 gross profit Long‑term pricing strategy maintained; price vs cost aligned Pricing “in good shape”; still competitive; used tailored incentives without eroding long‑term pricing Sustained discipline
Benefits cost trendLower benefits costs vs prior year spike aided Q2 Q3 slightly above expectations; full‑year at low end of 4.5%–6% FY 2024 actual 4.3%; 2025 guided to 5%–6.5% Normalizing higher
Workday partnershipNoted strategic priority Strategic partnership cited as opportunity Corporate tenant targeted Apr 1; mid‑market retention benefit; co‑selling later in 2025 Execution milestones near
Sales/retention—Focus on fall campaign setup Record sales (+8% booked), 99% retention; new client WSEEs +37% Strong improvement

Management Commentary

  • “We achieved this goal… moving our year‑over‑year growth rate from a negative in Q4 to a positive in January, reestablishing growth momentum entering 2025.” – CEO Paul Sarvadi on the fall campaign inflection .
  • “Gross profit per worksite employee in Q4 was $235 per month, slightly above our expectations, primarily due to strong pricing.” – CFO Jim Allison .
  • “The improvement was so dramatic, 62% better than last year… in our larger account segments… just shows you an early signal.” – CEO on mid‑market retention improvement linked to Workday interest .
  • “We are pleased to announce the Insperity corporate tenant is scheduled for a launch date of April 1… a big step in the right direction for the exclusive client tenant.” – CEO on Workday milestones .
  • “We are forecasting a benefits cost trend of 5% to 6.5% compared to 4.3% in 2024… operating plan… essentially flat compared to 2024… Workday spend ≈$62M in 2025.” – CFO on 2025 assumptions .

Q&A Highlights

  • Workday partnership: Lead flow expected to ramp once co‑selling, incentives, and training align; early proof points include specific clients lined up for beta, aiding retention in large accounts .
  • Expense cadence: Workday implementation costs expected to be relatively steady through 2025, with slight drop after corporate component completion; 2026 spending depends on launch timing .
  • Pricing vs medical trend: Management believes pricing remains competitive despite higher medical trends; expects to match price to cost while maintaining premium positioning .
  • Sales optimization: Role‑based specialization to improve efficiency across PEO, traditional employment, and mid‑market; underperforming BPAs removed to raise accountability and throughput .
  • Net hiring assumptions: Modeling remains conservative vs historical 4–6%; improvement expected to be back‑half weighted in 2025 as sentiment improves .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue could not be retrieved at the time of this analysis due to a rate‑limit error from S&P Global. As a result, we cannot provide a vs‑consensus comparison in this report.
  • Company framing: Q4 adjusted EPS and adjusted EBITDA finished above the midpoint of Insperity’s expected range, and above the midpoints of prior Q4 guidance (EPS $(0.10)–$0.12; EBITDA $15–$27M) .

Key Takeaways for Investors

  • Momentum into 2025: After a tough hiring backdrop in 2024, Insperity entered 2025 with positive January WSEE growth driven by record fall sales, strong retention (~99%), and +37% y/y new‑client WSEEs in Q4—supporting a return to WSEE growth this year .
  • Near‑term profit headwinds: Management guides to elevated benefits cost trend (5%–6.5%) and a higher tax rate (≈$0.06 EPS headwind Q1/FY), with ~$62M Workday spend; operating plan for 2025 is “essentially flat” opex vs 2024, implying sequential opex declines through the year as savings are realized .
  • Pricing discipline intact: Strong pricing kept GP per WSEE stable y/y in Q4 and slightly above internal expectations despite competitive conditions; tailored incentives protected long‑term premium pricing .
  • Workday as a strategic catalyst: April 1 corporate tenant go‑live, subsequent platform updates, and co‑selling later in 2025 could support mid‑market retention and pricing power, with larger financial contribution expected in 2026 .
  • Watch gross profit trajectory: Q4 GP dollars declined on lower WSEEs and higher opex; progress hinges on sustained WSEE growth and managing medical cost trends within guidance assumptions .
  • Capital returns continue: Dividend maintained at $0.60 per share (payable Mar 27, 2025) alongside share repurchases in 2024, supported by adjusted cash of $134M at year‑end and $280M of revolver capacity .