Insperity, Inc. (NSP) Earnings

Management highlights

### Margin Recovery Progress - 2026's top priority is margin recovery, and Q2 2026 results reflect meaningful year-to-date progress, driven by company-wide discipline in implementing the three-part plan: ongoing pricing and client retention strategy, 2026 benefits plan design and UnitedHealthcare contract changes, and strict operating expense management. - The plan has improved price-cost matching in benefits, partially offset by lower favorable prior-year actuarial reserve adjustments for workers' compensation, driven by market-wide higher claims severity tied to elevated healthcare costs, which was in line with expectations. - Modest 1% YoY worksite employee decline demonstrates organizational resilience amid pricing changes, outperforming expectations for larger volume reductions. ### Business Development & Product Initiatives - Expanded insurance agency operation now offers additional benefit options for prospective and existing clients; 7% of the total client base and 14% of new clients (added in the past 12 months) currently obtain benefits outside the Insperity plan, with growing demand for this option that helps retain clients and acquire new business. - HR Scale, Insperity's joint mid-market HR solution with Workday, formally launched in Q2 2026 with beta clients live on the platform. Entering Q3 2026, HR Scale has nearly 8,000 committed worksite employees: over 5,000 live and 3,000 in implementation, with a growing pipeline of both existing client migrations and new prospects, expanding Insperity's total addressable market for larger mid-market clients. - AI adoption is accelerating internally and among clients: 63% of surveyed clients are piloting or integrating AI, with only 8% reporting no plans for AI use. Insperity's proprietary Compass AI platform supports internal productivity and client service; the HR 360 AI agent already improves client support efficiency, with planned conversational real-time reporting functionality to enhance client decision support. ### Client & Market Conditions - Client confidence remains resilient amid a cautious broader economic environment: 63% of surveyed clients expect 2026 performance to exceed 2025, with clients more optimistic about their own businesses than the overall economy; roughly one-quarter expect to hire in Q3 2026, and more than one-third anticipate 2026 workforce growth. Talent availability and workforce planning remain top client challenges.

Guidance

- Full year 2026 guidance for average paid worksite employees is updated to 305,000 to 307,000, representing a 1% to 1.6% YoY decrease from 2025, reflecting solid Q2 performance and continued strategy alignment for margin recovery. - Full year 2026 adjusted EBITDA is guided to $185 million to $225 million, representing a 41% to 72% YoY increase from 2025; adjusted EPS is guided to $1.88 to $2.43, representing an 83% to 136% YoY increase from 2025. The guidance range for EBITDA is wider than historical norms to account for continued elevated healthcare cost uncertainty in the second half of 2026. - Q3 2026 guidance expects average paid worksite employees of 305,500 to 307,500 (a 1.7% to 2.3% YoY decrease), adjusted EBITDA of $14 million to $41 million (a 40% to 310% YoY increase), and adjusted EPS of -$0.09 to +$0.41 (a 55% to 305% YoY increase). - Full year 2026 adjusted effective tax rate is expected to be 36%, and weighted average shares outstanding are expected to be approximately 38.6 million. - The UnitedHealthcare contract pooling level change (reduced from $1 million to $500,000 per member per year) will reduce historical earnings seasonality, shifting more profit impact to the second half of 2026 with the largest impact in Q4 2026. - Operating expenses are expected to continue declining YoY in 2026, driven by lower headcount costs, partially offset by higher marketing spend and growth in business performance advisor headcount, with HR Scale operating expenses expected to stay within budget.

Segment performance

Insperity reports consolidated results for Q2 2026, with no separate product segment financial breakdown provided in the transcript. Key consolidated Q2 2026 results: adjusted EPS of $0.34 per share (up 31% YoY), adjusted EBITDA of $36 million (up 13% YoY), both exceeding the midpoint of management's expected range. Average paid worksite employees totaled 305,764, a 1.1% YoY decrease, above the high end of the expected range. Total gross profit decreased 3% YoY to $217 million; gross profit per worksite employee decreased 1% YoY to $237 per month, an improvement from the 2% YoY decrease in Q1 2026. Total operating expenses decreased 8% YoY to $211 million, while cash operating expenses decreased 6% YoY. Total investment in HR Scale development declined to $8 million, with $5 million capitalized. Total dividends paid to shareholders in Q2 were $23 million. End-of-quarter adjusted cash was $95 million, up from $36 million at the end of Q1 2026.

Risks & headwinds

- Elevated underlying healthcare cost trends in the broader market create uncertainty around benefits cost outcomes for the second half of 2026, leading management to maintain a wider-than-historical guidance range for full year EBITDA. - Market-wide workers' compensation claims severity is increasing, with elevated healthcare costs as a major contributing factor, leading to lower favorable prior-year actuarial reserve adjustments compared to 2025. - Pricing and process changes tied to the margin recovery plan created near-term headwinds for sales and retention, which tempered first half 2026 growth results. - HR Scale is a new major product launch, requiring ongoing market education, partner alignment, and implementation scaling to achieve long-term growth and profitability targets.

Analyst Q&A

• Q: Can you share details on the makeup and origin of the initial HR Scale client base, and the state of the sales pipeline?

  A: The 8,000 total committed worksite employees include both migrations from existing Insperity clients and employees from new client accounts, covering a range of client sizes including some over 1,000 employees. Initial clients serve as references to build market momentum, and while product education is still ongoing, there is strong market enthusiasm and receptivity for the unique offering.

• Q: What is driving client movement to external health plans via the expanded insurance agency, and how does this impact Insperity's economics?

  A: Higher underlying healthcare cost escalation increased client demand for alternative plan options, so Insperity expanded its agency to offer more choices and retain/attract clients that prefer external plans. Clients on external plans are not part of Insperity's internal risk pool, so their benefit costs are not included in Insperity's reported benefits costs. Insperity does not take on claims risk for these plans, and is indifferent to which option clients choose, as the relationship is retained.

• Q: Why is the full year 2026 EBITDA guidance range wider than historical norms, and how would it differ if you used historical assumption patterns?

  A: The $40 million EBITDA guidance range is larger than the typical 25-30 million range, as it is prudent to account for continued elevated market healthcare cost trends, even though Insperity has seen favorable results from its margin recovery actions to date. The wider range reflects uncertainty around possible deviation from first half 2026 trends in the second half.

• Q: What is the profitability outlook for HR Scale, and how should investors model returns for the new product?

  A: Beta clients receive introductory discounted pricing with built-in price increases embedded in their multi-year contracts as the product scales. Long-term, HR Scale profitability is expected to be equal to or better than Insperity's existing HR 360 offering, driven by maturing pricing and efficiency gains as client volume grows on the platform.