Insperity, Inc. Q4 FY2025 earnings call

Key Financial Results in Q4 - Adjusted EPS was minus $0.60 and adjusted EBITDA was minus $13 million; excluding sales office consolidation expense, adjusted EPS was negative $0.54 and adjusted EBITDA was minus $11 million. - Average number of paid worksite employees was 312,377, up 1.1% from Q4 2024, but below forecast due to client net hiring volatility. - Gross profit per worksite employee in Q4 was $183 per month, generally in line with forecast. - Operating expenses in Q4 decreased 6% vs Q4 2024, with $2.8 million related to sales office consolidation. ### 2026 Strategy - Focus on margin and profit recovery, regaining growth momentum through HR360 sales and retention initiatives and HRScale rollout. - Approximately 60% of current client base yet to receive applicable pricing upon renewal. - Accelerated strategies to provide prospects best product options, including client-sponsored benefit plan alternatives. - Sales convention in late January reinforced value-based selling and shared best practices. - HRScale rollout on track, beta clients to go live next month, expect 6,000 - 8,000 paid worksite employees on HRScale by year-end. ### 2025 Challenges - Faced macroeconomic challenges in small- and medium-sized businesses and elevated health care claim costs. - Took steps in 2025 like increasing pricing targets, renegotiating UnitedHealthcare contract, managing cash operating expenses under budget, and advancing HRScale partnership.

For the fourth quarter of 2025, adjusted EPS was minus $0.60 and adjusted EBITDA was minus $13 million. Excluding the $2.8 million related to the acceleration of sales office consolidation, adjusted EPS was negative $0.54 and adjusted EBITDA was minus $11 million. The average number of paid worksite employees was 312,377, an increase of 1.1% over Q4 of 2024. Gross profit per worksite employee in Q4 2025 was $183 per month, generally in line with the forecast. Operating expenses in Q4 2025 decreased by 6% compared to Q4 2024, with $2.8 million related to an acceleration of sales office consolidation included.

First Quarter 2026 - Average paid worksite employees expected in range of 303,000 to 305,000, a decline of 0.3% to 1% from Q1 2025. ### Full Year 2026 - Average paid worksite employees forecasted in range of minus 1.5% to plus 1.5%. - Adjusted EBITDA forecasted in range of $170 million to $230 million, an increase of 30% to 76%. - Adjusted EPS forecasted in range of $1.69 to $2.72, an increase of 64% to 164%. - Q1 adjusted EBITDA forecasted in range of $81 million to $111 million, adjusted EPS in range of $1.03 to $1.50.

Risks - Client net hiring volatility. - Uncertainty in health care cost trends. - Execution risk in HRScale rollout. - Uncertainty in the effect of organizational realignment. - Impact of interest rate changes on interest income.

Q: Good afternoon. My name is John, and I will be your conference operator today. I would like to welcome everyone to the Insperity Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. At this time, I would like to introduce today's speakers. Joining us are Paul Sarvadi, Chairman of the Board and Chief Executive Officer; and Jim Allison, Executive Vice President of Finance, Chief Financial Officer and Treasurer. At this time, I'd like to turn the call over to Jim Allison. Mr. Allison, please go ahead.

A: Thank you. We appreciate you joining us today. Let me begin by outlining our plan for this afternoon's call. First, I'm going to discuss the details behind our fourth quarter 2025 financial results. Paul will then comment on our year-end transition, profitability recovery efforts and other key drivers in 2026, including the rollout of our new HRScale solution. I will return to provide financial guidance for the first quarter and full year 2026. We will then end the call with a question-and-answer session. Before we begin, I would like to remind you that Paul or I may make forward-looking statements during today's call, which are subject to risks, uncertainties and assumptions. In addition, some of our discussion may include non-GAAP financial measures. For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any such forward-looking statements and reconciliations of non-GAAP financial measures to their comparable GAAP measures, please see the company's public filings, including the Form 8-K filed today, which are available on our website. Today, we reported adjusted EPS for the fourth quarter of minus $0.60 and adjusted EBITDA of minus $13 million. During the quarter, we accelerated the pace of sales office consolidation, resulting in an additional operating expense of $2.8 million. Excluding this expense, adjusted EPS was negative $0.54 and adjusted EBITDA was minus $11 million, near the middle of our forecasted ranges. The average number of paid worksite employees was 312,377, an increase of 1.1% over Q4 of 2024. This was slightly below our forecasted range due to continued weakness and volatility in client net hiring. Client net hiring was in line with our forecast in October and December, but was offset by an unexpected net reduction in November. Regarding worksite employees paid from new clients and client retention, both were generally in line with our forecast. Worksite employees paid from new clients increased by 6% over Q4 2024, while client retention was in line with prior year results, averaging 99% per month during Q4. Paul will discuss our year-end transition in a few minutes. Gross profit per worksite employee in Q4 2025 was $183 per month, generally in line with our forecast. Benefits costs were within our expected range as health care claims development related to prior periods ran out higher than expected, but were largely offset by favorable results in other benefits components. We also experienced some favorability in the workers' compensation and payroll tax areas. Operating expenses in Q4 2025 decreased by 6% compared to Q4 2024. As I mentioned earlier, our Q4 operating expenses included $2.8 million related to an acceleration of sales office consolidation. In Q4, we invested a total of $15 million in HRScale, the joint solution of our Workday strategic partnership, including $10 million in operating expenses and $5 million in capitalized costs. This compared with $19 million in Q4 of 2024, all of which was expensed. During the fourth quarter, we continued to return capital to our shareholders through our regular dividend program, paying $22 million in dividends. For the year, we paid cash dividends of $90 million and repurchased 232,000 shares of stock at a cost of $19 million. We ended the quarter with $57 million of adjusted cash. During Q4, we also amended our credit facility, which extended the maturity date to December 15, 2028, increased our borrowing capacity from $650 million to $750 million and raised our maximum leverage ratio from 3x to 3.75x EBITDA as defined in the agreement. As a result, at December 31, 2025, we had $380 million of available capacity under our credit facility. At this time, I'd like to turn the call over to Paul.

Q: Andrew Nicholas: I guess, first, I was hoping we could dig in a little bit further on the HRScale momentum. It sounds like you have line of sight into 6,000 to 8,000 employees on the platform by year-end. I was hoping you could maybe talk about how confident you are in that number? What the average size of clients coming online looks like? Is it at the lower end of the 150 to 5,000 range? Or how should we think about the typical client there? And how much of that year-end number is new clients versus ones that are transitioning from the HR360 platform?

A: Paul Sarvadi: Those are good questions, and it is exciting to be at this point on launching the new product. Now what we have to balance here is we, of course, have informed our current clients first, and we have to prioritize especially larger customers. So we have done that, and we do have visibility there. But we also have tremendous energy around the prospect base, and we do anticipate new accounts as part of this picture. However, this is more like filling slots for each quarter. And so what really gives us excitement about the visibility here is that as we close business, both selling current accounts to upgrade HRScale and new businesses, we're going to be able to lock them into whatever their effective date needs to be based on the implementation period that works best for them, et cetera. So I know that's kind of a long answer. We don't have those allocations specifically yet as to which accounts. Earlier, we have prioritized larger current accounts because we want to secure them and avoid the attrition that can be caused that is so significant. So -- but there's a balance there. And it's account by account going through the process, evaluating their needs, evaluating their timing, what works for them. And we're excited about both the ones that will be on this year, but also looking to really build that queue of those who are sold both new and upgrading accounts and have a significant queue as we go -- as we get toward the end of the year.