Insperity, Inc. Q3 FY2024 earnings call

• Third quarter results showed solid financial performance despite challenges in client hiring. Booked sales were up 8% over the same period last year with a 2% increase in business performance advisers. Pricing for HR services was up 2%.
• Plans for 2025 include a growth acceleration through a successful fall selling and retention campaign, aiming to have paid worksite employees in Q1 even with Q4 levels. Over 700 trained business performance advisers, a well-designed pricing and incentive strategy, and a robust marketing campaign are in place.
• Workday strategic partnership progress: Deploying Workday for corporate use first to understand implementation, on track to deploy joint solution in first half of 2025. Developing client tenant, refining product offering, and establishing deployment/enablement organization.
• AI strategy: Leveraging AI to create efficiencies in sales and service, building internal tools to drive operational capacity management and optimization, with potential for client tool conversion and predictive insights.

In the third quarter, Insperity reported adjusted EPS of $0.39 and adjusted EBITDA of $39 million. The average number of paid worksite employees was just over 309,000, which was at the midpoint of the forecasted range, a 2% decline from Q3 2023 due to soft client hiring and loss of mid-market accounts. Client retention was strong at 99%. Gross profit decreased 11% from Q3 2023, impacted by the decline in paid worksite employees and healthcare claims. The Q3 2024 benefit cost trend was slightly above the high end of the forecasted range but below the initial budget.

• Full year 2024 adjusted EPS is forecasted in the range of $3.42 to $3.66 per share within the previous guidance range of $3.33 to $3.88. Adjusted EBITDA is forecasted in the range of $262 million to $274 million.
• Q4 forecast: Paid worksite employees down 1% to 2% compared to Q4 2023. Adjusted EBITDA range of $15 million to $27 million and adjusted EPS from negative $0.10 to positive $0.12.
• Adjusted the full year guidance to factor in slight increase in health claim activity and lower paid worksite employees.

• Macroeconomic environment continues to weigh on clients and prospects, impacting client hiring.
• Healthcare cost trends could affect pricing and margins.
• Competitive pricing pressures in the market could impact client acquisition and retention.

Q: On client retention and market competitiveness, including Workday partnership impact on large client retention and price aggressiveness from competitors.

A: Paul Sarvadi stated there's a competitive environment, but Insperity's incentives and long-term pricing policy have been effective. The Workday partnership has created a different perception in the mid-market, but it's hard to isolate its impact from other incentives.

Q: On expenses, G&A savings and AI efficiency offsetting costs.

A: Douglas Sharp said G&A savings were from focusing on efficiency in slower worksite employee growth. Paul Sarvadi mentioned AI has potential for operating leverage but is in early stages.

Q: On Workday timeline and client transition during selling season.

A: Paul Sarvadi said the Workday corporate deployment timeline is progressing, timed to align with the overall process. The go-to-market strategy with Workday has been well-received by prospects and clients.

Q: On selling season puts and takes, prospect transition to existing and Workday platforms.

A: Paul Sarvadi said the expectation of the Workday solution coming has been good for prospects and clients, with no significant delay from prospects waiting.

Q: On year end transition and AI progress in 2025.

A: Paul Sarvadi expected year end transition to be favorable, with work ongoing. AI is seen as bringing positive energy to operating efficiency in 2025.

Q: On BPA leverage and Workday client identification.

A: Paul Sarvadi mentioned good BPA leverage due to hard work and effective incentive plans. For Workday, specific mid-market clients are being targeted for the initial beta group.