Insperity, Inc. Q2 FY2025 earnings call

• Jim discussed second quarter financial results, noting EPS of $0.26 and adjusted EBITDA of $32 million, slightly below forecast due to higher benefits costs. Unit growth was within forecast, with sales force resiliency and solid productivity. - Paul highlighted confidence in 2026 outlook, citing growth momentum, progress on Workday strategic partnership (beta timing for Insperity HRScale), and updated HR solution portfolio. Key operational highlights include sales efficiency improvement, successful marketing programs, and progress on Insperity HRScale with defined pillars and milestones achieved. - Plans for 2026 profitability improvement through pricing increases, plan design changes, and contract negotiation with UHC, along with operating expense management focus.

In the second quarter of 2025, the average number of paid worksite employees increased 0.7% over Q2 of 2024 to 309,115. Gross profit per worksite employee in Q2 2025 was $240 per month, down from $282 in Q2 of 2024. Benefits cost per covered employee increased 9.6% year-over-year in Q2 and by 9% on a year-to-date basis. Sales force demonstrated resiliency with worksite employees paid from new sales increasing by 2% over Q2 of 2024. Client renewals and service teams achieved 99% monthly client retention. Net hiring within the client base showed some improvement but remained well below historical norms. Revenue contribution was primarily from worksite employee services, with benefits costs being a significant component affecting profitability.

• Full-year 2025 adjusted EBITDA is forecasted in the range of $170 million to $205 million, and adjusted EPS in the range of $1.81 to $2.51. - Q3 2025 is forecasted to have average paid worksite employees in the range of 312,200 to 315,300 (1%-2% increase over Q3 2024), adjusted EBITDA in the range of $24 million to $44 million, and adjusted EPS in the range of $0.06 to $0.49. - Anticipates benefits cost trend to taper down in the second half of 2025 due to easing of last year's favorable claims development impact and planned demographics/migration changes. - Plans to continue operating expense reduction sequentially in remaining quarters with additional marketing spend for fall sales campaign.

• Higher-than-expected benefits costs, with $8 million related to higher pharmacy costs (specialty drugs) and $4 million to incurred but not reported claims. - Continued elevated large claim frequency for cancer and heart-related conditions, though no adverse selection among new clients. - Economic uncertainties and market conditions affecting SMB hiring trends and benefits cost trends.

Q: About Workday, with beta timing locked in, any line of sight for 2026 financial impact?

A: It's early to precisely predict revenue and profitability impact. Starting with beta group, there will be waves of additional client groups, and pricing elements are being finalized. Validation of service component value exceeded expectations, but still in process to lock down recommended pricing for clients.

Q: On WSEE dynamics, net client hiring improvement sequentially?

A: Underlying hiring has moved in the right direction but is still well below historical levels. Confidence is increasing post legislation, which may act as a catalyst for SMB expansion.

Q: Workday investment, visibility on expense impact?

A: Overall investment in the product is likely to be a bit over $150 million over 5 years, but income statement impact will reduce significantly. Early phases of beta launch may have some working issues, but operating efficiency is expected to grow over time.

Q: Margin profile outlook?

A: Expect margin profile to be better due to retention improvement, bringing on larger clients at higher prices, and enhanced operating leverage from technology improvements.

Q: Joint marketing go-live and selling timeline?

A: There's a deep need in the target market for the combined HR services and technology solution. Prospects see value in Insperity and Workday's commitment, and demand is expected as the solution becomes known. Sales force BPA count will grow nominally with efficiency gains.

Q: Health care cost combination of plan design, pricing, UHC?

A: Primary way to address cost trends is through pricing. Plan design changes and contract negotiation with UHC are to limit cost impact. Regional differences exist, but all areas are seeing higher cost trends.

Q: Workday beta waves and expense cash perspective?

A: Exact timings of beta waves are being determined by the team. There will be costs incurred, but investment in early customers aims for good experience. A lot of expense is currently running through income statement but may be mitigated as the product matures, with revenue coming in to align accounting.