Insperity, Inc. (NSP) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents a mixed outlook. While there are positive elements like the HRScale rollout and strategic partnerships, concerns about elevated benefits costs, uncertain client transitions, and a lack of specific guidance on profitability metrics temper enthusiasm. The Q&A section highlights management's reluctance to provide specific details, adding to uncertainty. Given the company's mid-cap size, these factors suggest a neutral stock price reaction in the short term.
Key Financial Performance
Adjusted EPS for Q4 2025 Minus $0.60, a decrease compared to the previous year. The decline was due to accelerated sales office consolidation expenses of $2.8 million. Excluding this expense, adjusted EPS was negative $0.54.
Adjusted EBITDA for Q4 2025 Minus $13 million, a decrease compared to the previous year. Excluding the $2.8 million sales office consolidation expense, adjusted EBITDA was minus $11 million.
Average number of paid worksite employees in Q4 2025 312,377, an increase of 1.1% over Q4 2024. This was slightly below the forecasted range due to continued weakness and volatility in client net hiring.
Worksite employees paid from new clients in Q4 2025 Increased by 6% over Q4 2024. This growth was attributed to new client acquisition.
Client retention in Q4 2025 Averaged 99% per month, consistent with prior year results.
Gross profit per worksite employee in Q4 2025 $183 per month, generally in line with the forecast. Benefits costs were within the expected range, with higher-than-expected healthcare claims offset by favorable results in other benefits components.
Operating expenses in Q4 2025 Decreased by 6% compared to Q4 2024. This included $2.8 million related to accelerated sales office consolidation.
Investment in HRScale in Q4 2025 $15 million, including $10 million in operating expenses and $5 million in capitalized costs. This was a decrease from $19 million in Q4 2024, all of which was expensed.
Dividends paid in Q4 2025 $22 million. For the full year, $90 million in cash dividends were paid.
Stock repurchase in 2025 232,000 shares repurchased at a cost of $19 million.
Adjusted cash at the end of Q4 2025 $57 million.
Credit facility amendment in Q4 2025 Extended maturity date to December 15, 2028, increased borrowing capacity from $650 million to $750 million, and raised the maximum leverage ratio from 3x to 3.75x EBITDA.
Average number of worksite employees paid in 2025 Just over 310,000, an increase of 1% compared to 2024.
Adjusted EBITDA for 2025 $131 million, a decline of 51% compared to 2024. The decline was attributed to increased benefits costs and macroeconomic factors.
Adjusted EPS for 2025 $1.03, a decline of 71% compared to 2024. The decline was attributed to increased benefits costs and macroeconomic factors.
HRScale investment in 2025 $59 million, including $48 million expensed and $11 million capitalized.
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Operating Highlights
HRScale rollout: Invested $15 million in Q4 2025, including $10 million in operating expenses and $5 million in capitalized costs. Beta clients scheduled to go live in March 2026, with payroll starting April 1. Expected to have 6,000-8,000 paid worksite employees on HRScale by year-end 2026.
HR360 enhancements: Focused on margin recovery and growth momentum. New tools and processes introduced to support client selection and pricing. Sales efficiency improved by 13% in 2025.
Market expansion with HRScale: HRScale targets mid-market companies (150-5,000 employees), increasing total addressable market and advancing growth model. Early activity levels indicate strong demand.
Sales office consolidation: Accelerated in Q4 2025, incurring $2.8 million in additional operating expenses.
Organizational rightsizing: Reduced non-sales staff by 4%, expected to save $20 million in 2026, excluding a $9 million restructuring charge.
Credit facility amendment: Extended maturity to December 2028, increased borrowing capacity to $750 million, and raised maximum leverage ratio to 3.75x EBITDA.
Three-year plan: Focused on margin recovery in 2026, balanced growth and profitability in 2027, and high-performance metrics in 2028. Aims to return to double-digit revenue and gross profit growth.
Client pricing and selection strategy: Implemented to improve gross profit margins. Approximately 60% of clients yet to receive updated pricing in 2026.
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Risk or Challenges
Macroeconomic Uncertainty: Ongoing uncertainty in the small- and medium-sized business market and employment stagnation negatively impacted growth and profitability in 2025. This trend is expected to continue into 2026.
Health Care Costs: Industry-wide increase in health care claim costs caused a significant gross profit margin squeeze in 2025 and is expected to remain elevated in 2026.
Client Net Hiring Volatility: Client net hiring was weaker than expected, with unexpected net reductions in November 2025, impacting the number of paid worksite employees.
Sales Office Consolidation: Accelerated sales office consolidation resulted in additional operating expenses of $2.8 million in Q4 2025.
Attrition and Non-Renewals: Higher-than-expected attrition and company-initiated non-renewals due to margin recovery pricing contributed to fewer paid worksite employees and lower projected growth for 2026.
Rightsizing of Organization: A decision to reduce non-sales staff by 4% to align with future needs, which includes a $9 million restructuring charge.
HRScale Deployment Costs: Significant investment in HRScale, including $59 million in 2025, with ongoing costs expected in 2026, though at a reduced level.
Credit Facility Amendments: Amendments to the credit facility increased borrowing capacity and leverage ratio, but also reflect reliance on external financing.
Client Selection and Pricing Adjustments: New tools and processes for client selection and pricing, while aiding margin recovery, contributed to lower-than-expected new booked sales in late 2025.
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Guidance & Outlook
Revenue Growth: For 2026, the company expects growth in average paid worksite employees to range from -1.5% to +1.5% compared to 2025. This reflects a lower starting point due to challenges in 2025, including client attrition and lower-than-expected new booked sales.
Profitability Recovery: The company anticipates significant improvement in gross profit per worksite employee throughout 2026, driven by pricing and client selection strategies, renegotiated contracts with UnitedHealthcare, and plan design changes. Adjusted EBITDA is forecasted to increase by 30% to 76%, reaching a range of $170 million to $230 million.
HRScale Rollout: The HRScale solution is expected to drive growth in the mid-market segment, with 6,000 to 8,000 paid worksite employees projected to be on HRScale by year-end 2026. The rollout includes beta clients going live in Q2, with a focus on onboarding and servicing clients efficiently.
Operating Expenses: Operating expenses are expected to decrease in 2026 due to a 4% reduction in non-sales headcount and lower HRScale investment costs. The company plans to reinvest some savings into marketing, sales capacity, and HRScale service capacity.
Market Trends and Challenges: The company expects elevated health care cost trends to persist in 2026 but plans to mitigate these through pricing adjustments, client selection strategies, and alternative benefit offerings. The labor market uncertainty in the small- and medium-sized business sector is also expected to continue.
Three-Year Plan: The company has initiated a three-year plan targeting margin recovery in 2026, balanced growth and profitability in 2027, and high-performance key metrics in 2028. This includes double-digit revenue and gross profit growth and adjusted EBITDA growth rates exceeding 20% annually.
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Shareholder Return Plan
Q4 2025 Dividends Paid: $22 million
2025 Total Dividends Paid: $90 million
2025 Share Repurchase: 232,000 shares at a cost of $19 million
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Key Q&A
Q:Can you provide more details on the HRScale momentum, including the expected number of employees on the platform by year-end, the average size of clients, and the proportion of new clients versus transitioning ones?
A:Paul Sarvadi explained that they have visibility into achieving 6,000 to 8,000 employees on the platform by year-end. They are prioritizing larger current accounts to avoid attrition and are also excited about new accounts. However, specific allocations between new and transitioning clients are not yet determined. The process involves evaluating client needs and timing on a case-by-case basis.
Q:Is the 6,000 to 8,000 employee pipeline expected to significantly contribute to gross profit in 2026?
A:Paul Sarvadi confirmed that the pipeline is more about setting up for future contributions rather than significantly impacting gross profit in 2026. Clients will be onboarded in phases throughout the year.
Q:Can you provide numbers on the expected benefit cost trend in 2026?
A:James Allison stated that the claims trend is expected to remain elevated on a gross basis. Steps like negotiating fees with UnitedHealthcare and plan design changes are expected to reduce costs by about 2%. However, they are not yet providing a specific net trend figure.
Q:Do you foresee client-sponsored health care plans becoming a significant trend, and is it a strategic initiative?
A:Paul Sarvadi indicated that it is both a strategic initiative and a market trend. The company aims to offer the best options for clients while reducing risk on the benefits side. This approach also aligns with the needs of larger customers and provides additional growth opportunities.
Q:What percentage of churn involves lower profitability clients, and what is the net hiring assumption for 2026?
A:James Allison noted that the spread between the profitability of retained versus terminated clients is the largest in 15 years but did not provide an exact percentage. Paul Sarvadi mentioned that the net hiring assumption is based on a range around last year’s low numbers, reflecting ongoing labor market issues.
Q:What are the cash flow expectations for 2026, and how does investment shifting from OpEx to CapEx influence EBITDA?
A:James Allison explained that CapEx is expected to return to historical levels of $40-45 million annually as investments in HRScale wind down. Interest expenses may decrease slightly, and the company is monitoring cash flow to decide on potential borrowing. Dividend policy remains a high priority.
Q:How does reducing exposure to health care impact the long-term value proposition to customers?
A:Paul Sarvadi emphasized that HR services are the core value provided, with benefits being one aspect. Reducing health care risk aligns with broader service demands and does not diminish the overall value proposition. The company is leveraging learnings from past challenges to improve future offerings.
Q:What is the expected pricing trend for health benefits renewals, and how many clients are yet to renew under the new plan?
A:James Allison stated that average price increases are in the teens, with about 60% of clients yet to renew under the new plan. Cost reductions from the UnitedHealthcare contract and plan design changes are estimated at 2%, with additional impacts from changes in client mix.
Q:What was the retention rate for 2025, and how are clients reacting to renewals?
A:Paul Sarvadi reported an 83% retention rate for 2025, an improvement from 81% the previous year. Client reactions to renewals have been managed effectively, with processes in place to help clients adjust plans and reduce costs.
Q:What are the expectations for investment levels in 2027, and how will this impact profitability?
A:Paul Sarvadi anticipates reduced investment levels in 2027 as the focus shifts to revenue generation from Workday and other initiatives. This is expected to lead to improved profitability.
Q:Can you break down the components of worksite employee guidance for next year, including retention, same-store growth, and bookings?
A:Paul Sarvadi explained that the guidance range of -1.5% to +1.5% growth reflects low net hiring, slightly higher attrition, and sales below budget. The company expects net gains in clients and worksite employees throughout the year, leading to positive numbers by year-end.
Q:How should we think about unit economics in 2027 with the new UHC contract and Workday revenue?
A:Paul Sarvadi stated that continued implementation of margin recovery steps and growth momentum from HR360 and HRScale will improve unit economics. Updates will be provided quarterly to track progress.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the allocation of new versus transitioning clients for HRScale, the exact net trend for benefit costs in 2026, and the percentage of churn involving lower profitability clients. Additionally, they did not specify the exact impact of investment shifts on EBITDA or provide detailed unit economics for 2027.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
HR sale
HRScale client
HRScale opportunity
HRScale solution
Today
account client
achievement
afternoon
alternative
beginning
benefit plan
broker
capacity
client HRScale
client benefit
client employee
comment plan
community
deployment enablement
driver margin
employee HRScale
employment
experience
flagship
health care
leverage
margin recovery
momentum HR
office consolidation
payroll
plan margin
prospect client
recovery momentum
recovery profitability
retention line
rollout HRScale
sale office
selection
strategy
tool
transformation
value offering
NSP Transcript
Insperity, Inc. (NSP) Q4 2025 Earnings Call Transcript
Unknown2-10
The earnings call summary presents a mixed outlook. While there are positive elements like the HRScale rollout and strategic partnerships, concerns about elevated benefits costs, uncertain client transitions, and a lack of specific guidance on profitability metrics temper enthusiasm. The Q&A section highlights management's reluctance to provide specific details, adding to uncertainty. Given the company's mid-cap size, these factors suggest a neutral stock price reaction in the short term.
Insperity, Inc. (NSP) Q3 2025 Earnings Call Transcript
Unknown11-4
The earnings call revealed disappointing financial results with an EPS miss and lower EBITDA due to high benefits costs. Despite a positive outlook for 2026, the immediate financials are concerning. The Q&A highlighted management's optimism about future recovery and strong sales, but did not address current issues effectively. With a market cap of ~$3.4 billion, the negative financial results and uncertainty in guidance are likely to lead to a negative stock price movement in the short term.
Insperity, Inc. (NSP) Q2 2025 Earnings Call Transcript
Unknown8-1
The earnings call presents a mixed picture: strong client retention and efficient sales are positive, but reduced growth guidance and declining gross profit per employee are concerns. The Q&A reveals optimism about future growth and strategic initiatives, yet lacks concrete guidance on the Workday partnership's financial impact. The partnership with Workday and share repurchases provide some optimism, but increased healthcare costs and uncertain future projections temper enthusiasm. Given the market cap of $3.44 billion, the stock price is likely to remain stable, resulting in a neutral prediction.
Insperity, Inc. (NSP) Q1 2025 Earnings Call Transcript
Unknown4-29
The earnings call reveals several negative factors: disappointing financial results with missed EPS and EBITDA guidance, higher-than-expected benefits costs, and delays in client onboarding. The Q&A section highlights uncertainties due to government actions and healthcare cost volatility, with management providing unclear responses. Despite some positive elements like share repurchases and a strategic partnership with Workday, the immediate outlook is clouded by these challenges. Given the market cap and the negative sentiment from analysts, the stock price is likely to see a negative reaction in the range of -2% to -8%.
NSP Slides
NSP Report
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