Insperity, Inc. Q4 FY2024 earnings call

• Fourth Quarter Results: Executed a successful fall selling and retention campaign, achieving a record-setting quarter in book sales up 8% year-over-year. Client retention averaged 99% for the quarter, with significant improvement in larger account attrition (down 63% and 40% from prior two years).
• 2025 Initiatives: Focused on product and target market specialization in sales and service. Implemented a role-based approach to optimize the sales organization, expanded teams for mid-market and traditional employment solutions, and established new accountability levels for business performance advisers. Also, progress on the Workday strategic partnership, including corporate tenant launch on April 1, and upcoming enhancements to the exclusive client tenant with platform architecture improvements in March and September.

In the fourth quarter of 2024, Insperity reported adjusted EPS of $0.05 per share and adjusted EBITDA of $23 million, which was above the midpoint of the expected range. The average number of paid worksite employees was 393,093, a decrease of 2% from Q4 2023. Gross profit per worksite employee in Q4 was $235 per month, slightly above expectations. For the full year 2024, despite a 1.6% drop in paid worksite employees, gross profit increased by 1%. Gross profit per worksite employee per month was $285 in 2024, a 3% increase over 2023. Operating expenses in Q4 were in line with expectations, increasing 17% from Q4 2023, primarily due to investment in the Workday strategic partnership. For the full year 2024, adjusted EBITDA was $270 million and adjusted EPS was $3.58, both above initial guidance midpoints.

• Q1 2025: Expected average paid worksite employees in range of 306,500 to 309,000, an increase of 0.9% to 1.7% over Q1 2024.
• Full-Year 2025: Forecasts worksite employee growth of 2% to 4% over 2024, with sequential quarterly growth beyond Q1 of 1.5% to 2%. Benefits cost trend expected to be 5% to 6.5% (vs. 4.3% in 2024). Operating expenses flat compared to 2024. Full-year adjusted EBITDA in range of $240 million to $285 million; adjusted EPS in range of $3.10 to $3.95. Q1 adjusted EBITDA expected in range of $121 million to $135 million; adjusted EPS in range of $1.89 to $2.15.

Q: Good morning, and thanks for taking my questions. So lots of great detail in there. I was wondering with regards to the Workday partnership, two questions there. One, can you talk a little bit more about what you're seeing in terms of the sales leads, Paul? How they're coming together, how pleased are you with them at this level, and how much you expect that to accelerate as the year unfolds and particularly going into next year, a little bit of comments with regards to exactly how that ended up impacting the improved client retention with regards to the upper part of your market. And how intrigued your clients were. And then, Jim, if you could talk a little bit about the expenses, how are they going to be layered in over the course of the year? You mentioned $62 million. Is that going to be relatively even over the course of the year or does it fall off towards the back end? And any sort of preliminary ideas with regards to next year in terms of the spend? Thank you.

A: Great. Thank you. I appreciate the question. I'll let Jim handle the operating expense questions, and I'll start with a couple of questions you have around the go-to-market strategy. We've really made incredible progress on the go-to-market plan. The question that you had about the lead flow, there's more to the whole picture than just the lead flow. But I would say that looking back a year, I kind of anticipated potentially greater lead flow early but without having all of the other elements of the go-to-market strategy in place, it wasn't nearly as beneficial to try to drive that as significantly. Now as we go into this year, we are in a different position because we are ready as I mentioned, for announcing the joint solution and the go-to-market messaging, the training for sales teams on both sides, and that will make it a much more natural thing for the lead flow to happen. Now in addition to that, a significant obstacle was for us to get this built into the compensation or incentive structure on both sides of the fence. And that was a significant issue last year since we started this. After our partner was already solidly in play. I'm there incentive game plan. And we were able to build it in a little bit in ours. But at this point, we've spent the time and effort to really be on a good foundation for ramping that up as we hit these milestones. So that's good. Now relative to client retention, we literally have specific clients that are now in the line for the beta testing when that comes up. We've got significant interest in the new joint solution that will be coming out in the reasonable future now. And that's exciting, and it definitely made a difference. I know on some specific accounts, just being in that queue. Where accounts that were strongly considering the need for the type of technology that we'll be bringing to the market on top of our compliance platform. So we already see that happening. And we're really excited about how that's going to, I think, fundamentally change our retention of large accounts going forward. Jim, would you like to handle the operating expense side?

Q: And any ideas for next year? For 2026?

A: Yes. I think the guidance that we've given before still remains a good estimate of what we're thinking. Obviously, there are some reallocated internal resources that would then return to other projects and priorities. But as we get closer to the launch date and kind of find out exactly when that's going to be, I think that's going to be the key driver for 2026 investment.

Q: Good morning, and thanks for taking my questions. So lots of great detail in there. I was wondering with regards to the Workday partnership, two questions there. One, can you talk a little bit more about what you're seeing in terms of the sales leads, Paul? How they're coming together, how pleased are you with them at this level, and how much you expect that to accelerate as the year unfolds and particularly going into next year, a little bit of comments with regards to exactly how that ended up impacting the improved client retention with regards to the upper part of your market. And how intrigued your clients were. And then, Jim, if you could talk a little bit about the expenses, how are they going to be layered in over the course of the year? You mentioned $62 million. Is that going to be relatively even over the course of the year or does it fall off towards the back end? And any sort of preliminary ideas with regards to next year in terms of the spend? Thank you.

A: Great. Thank you. I appreciate the question. I'll let Jim handle the operating expense questions, and I'll start with a couple of questions you have around the go-to-market strategy. We've really made incredible progress on the go-to-market plan. The question that you had about the lead flow, there's more to the whole picture than just the lead flow. But I would say that looking back a year, I kind of anticipated potentially greater lead flow early but without having all of the other elements of the go-to-market strategy in place, it wasn't nearly as beneficial to try to drive that as significantly. Now as we go into this year, we are in a different position because we are ready as I mentioned, for announcing the joint solution and the go-to-market messaging, the training for sales teams on both sides, and that will make it a much more natural thing for the lead flow to happen. Now in addition to that, a significant obstacle was for us to get this built into the compensation or incentive structure on both sides of the fence. And that was a significant issue last year since we started this. After our partner was already solidly in play. I'm there incentive game plan. And we were able to build it in a little bit in ours. But at this point, we've spent the time and effort to really be on a good foundation for ramping that up as we hit these milestones. So that's good. Now relative to client retention, we literally have specific clients that are now in the line for the beta testing when that comes up. We've got significant interest in the new joint solution that will be coming out in the reasonable future now. And that's exciting, and it definitely made a difference. I know on some specific accounts, just being in that queue. Where accounts that were strongly considering the need for the type of technology that we'll be bringing to the market on top of our compliance platform. So we already see that happening. And we're really excited about how that's going to, I think, fundamentally change our retention of large accounts going forward. Jim, would you like to handle the operating expense side?

Q: And any ideas for next year? For 2026?

A: Yes. I think the guidance that we've given before still remains a good estimate of what we're thinking. Obviously, there are some reallocated internal resources that would then return to other projects and priorities. But as we get closer to the launch date and kind of find out exactly when that's going to be, I think that's going to be the key driver for 2026 investment.

Q: Good morning, everyone. This is Jasper Bivon for Tobey. Just curious if you could drill down into your experience with mid-market retention during the fourth quarter. How much of a difference maker would you say in the development of the Workday partnership? And some of the opportunities, like, the beta testing you mentioned out in this conversation?

A: Yeah. So, you know, the improvement was so dramatic. You know, 62% better than last year. Of course, last year, we had a number of large accounts leave and but even 40% better than the year before when we had an excellent year, that just shows you an early signal. And, you know, I know of a couple of, you know, of our largest accounts that work. A part of that picture that, you know, they're in the run for our beta test. And you know, they were candidates that would have been likely in that other category had we not been moving this direction. So you know, I also see that just the dialogue, the communication with our mid-market are aware of what we're doing. And the energy level on that front is high.

Q: Hi. Good morning. Paul, I'm going to start with the drill down on one of the comments that you made in your prepared remarks about premium pricing having been validated a bit with your research in that? Is that a new comment based on recent conversation with clients, or is that a continuation of pretty consistently positive feedback since you announced the Workday partnership at the outset?

A: Yeah. We did an initial study fairly early on that, you know, with outside consultants that are in that world deeply, and that information came out very solid. And the dialogue we're continuing to have with our clients still fits that picture. And, you know, we'll know more about that as the milestones are hit over the course of this year. But, no, I'm still very excited about that. I believe that our upfront, what we call our enrollment fee, will be an enrollment fee that includes what's historically viewed in the deployment enablement world. And so there's I believe, a significant increase will be very well received there because it'll be so much lower than the upfront cost that clients have to put in. And then also, need to understand that when somebody comes on to a product like Workday or others, there's a significant investment in staff, both HR and technology staff to run it for the long haul. And, you know, that will be part of what's internal in our organization, and we believe we'll get that our per employee markup that we will be charging will be also more than offset by what their investment would have been without us just for this component. So when you add that together, you know, our markup on these accounts, we expect to be higher because that value is significant more than what will be paying in subscription fees for those employees to be on the platform. So you know, it's an exciting picture about how that affects us going forward in our margin outlook.

Q: Good morning, guys, and congrats on the solid quarter. I wanted to ask a question on plan mix. It sounds like the retention from the fall campaign was really good. I know on the earnings call, one of your PEO competitors, they mentioned a little bit of adverse plan mix, and other competitors said they didn't really see any of that. So I was just curious if there are any costs in the fall campaign on the mix of benefits plans that you guys were selling, both to new and in retention clients as well.

A: Andrew, I would say that we've seen a movement over a consistent period of time, long period of time, continuing to see new business elect into plan offerings that are a little bit less expensive, have a little bit more cost sharing with the participants. Then the overall book, and I think that that continued this year. We've continued to add into our portfolio plan offerings consistent with that theme. And we've seen good uptake rates there. So we don't see that being adverse in any way. We see that just kind of being a way that the cost of health care gets shared between the employer and the employee. But overall, it looks pretty good from a demographic perspective.