Insperity, Inc. Q3 FY2025 earnings call

Healthcare Claims Cost Escalation

• Industry claim trend for 2025 higher than initial estimates, with AI adoption by healthcare providers contributing to higher costs.
• Insperity adjusted pricing, signed UHC contract extension to reduce costs and mitigate risks.

HRScale Rollout

• Active co-marketing and co-selling with Workday, deployment of beta clients, demos resonating well, potential growth catalyst.

Book Sales Performance

• Q3 HR360 booked sales 45% higher than Q3 2024, large account signed with plan to upgrade to HRScale.

3-Year Plan

• Aim to return to double-digit growth and profitability metrics, leveraging HRScale, AI initiatives, and operating expense efficiencies.

Unit growth for Q3 2025 was within forecast range, with average paid worksite employees at 312,842, up 1.2% from Q3 2024. New client sales showed encouraging signs with booked sales efficiency and accounts in queue for first payroll increasing. Client retention averaged 99% per month. Adjusted EPS was minus $0.20 and adjusted EBITDA was $10 million. Gross profit per worksite employee in Q3 2025 was $208 per month, down from $247 in Q3 2024 due to higher benefits costs of $20 million. Operating expenses decreased 4% year-over-year, with significant software development success on HRScale. Dividends and share repurchases continued, ending Q3 with $120 million adjusted cash and $280 million available under credit facility.

Q4 and Full-Year 2025

• Average paid worksite employees expected 313,000-315,000 for Q4, full-year growth 1%. Adjusted EPS range $0.84-$1.47, adjusted EBITDA $119M-$153M. Q4 adjusted EBITDA range negative $25M to $9M, adjusted EPS range minus $0.79 to minus $0.16.

2026 Outlook

• Anticipate recovery of majority earnings shortfall, with HRScale rollout, UHC contract benefits, and operating expense efficiencies contributing. Detailed 2026 outlook to be provided in February earnings call.

• Uncertainty in prevailing health care cost trends and utilization.
• Changes in macroeconomic environment and labor market impacting results.
• Success of fall sales and renewal season critical.
• Uncertainty around full impact of AI on employment and business operations.

Q: Clarification on recovering majority of earnings shortfall A: Refers to gap between initial 2025 guidance and actual results, with expectation of recovery in 2026 due to HRScale, UHC contract, and operating efficiencies.

Q: Impact of pricing on 2026 worksite employee growth A: Pricing changes aligned with market, strong sales effort continuing, renewal rates at 99%, and higher new sales scheduled for January offsetting any potential repricing impacts.

Q: HRScale joint marketing pod feedback A: Positive reception, 3-day retreat, excitement about unique solution, and early pipeline filling.

Q: Healthcare pricing and unprofitable clients A: Pricing in line with market, efforts to retain profitable clients, UHC contract providing cost reduction and risk mitigation.

Q: HRScale pricing and operating expenses A: HRScale pricing includes uplift, discounts for early adopters, and complementary pricing with HR360. Operating expenses for HRScale in 2026 expected lower than 2025.

Q: AI impact on midterm plan A: AI seen as potential growth catalyst, timing of HRScale rollout beneficial amidst SMB labor market uncertainty, potential new business creation from AI-driven entrepreneurship.