Insperity, Inc. Q1 FY2025 earnings call

• First quarter results were impacted by higher benefits costs. - Macroeconomic environment caused some new client starts to be delayed/canceled. - Client retention was a bright spot with 9% retention in Q1 2025. - Progress on Workday strategic partnership with launch of corporate Workday platform in mid-March and development of go-to-market plan. - Sales and marketing efforts showed positive signs with double-digit increase in business profiles and marketing leads.

In the first quarter, adjusted EPS was $1.57 and adjusted EBITDA was $102 million. The average number of paid worksite employees increased by 0.7% over Q1 2024 to 306,023. Worksite employees paid from new client sales increased 3% year-over-year. Client retention was 9% in Q1 2025 vs 12% in Q1 2024. Gross profit per worksite employee in Q1 2025 was $338 per month, down from $378 in Q1 2024 as benefits cost per covered employee increased 8.4% year-over-year. Benefits costs exceeded budget by $28 million, with $12 million related to prior period claims runoff and $16 million to Q1 claims.

• Full-year adjusted EBITDA forecast range: $190 million to $245 million. - Full-year adjusted EPS forecast range: $2.23 to $3.28. - Q2 average paid worksite employees forecast range: 308,000 to 311,000 (0.3%-1.3% increase over Q2 2024). - Q2 adjusted EBITDA forecast range: $33 million to $53 million. - Q2 adjusted EPS forecast range: $0.29 to $0.67.

• Higher-than-expected benefits costs due to acceleration of claims processing in current and prior periods, including inpatient, outpatient, pharmacy costs, and increased frequency of large claims. - Unprecedented widespread claims runoff from prior periods impacting benefits costs.

Q: Could you speak more to the cancels or onboarding pauses in the back-half of the first quarter?

A: The reversal in small-business sentiment due to government actions caused some accounts to pause. But there's been moderation with sales team supporting clients.

Q: Walk us through the cadence of Workday spend in 2025 and beyond?

A: $62 million budgeted for 2025, heavily weighted in first two years, with expected decline in later years as revenue starts flowing.

Q: What's your view on customer base sentiment and actions needed from Washington?

A: Sentiment is a pause, and locking down tax system or regulatory environment could help.

Q: How quickly can pricing adjustments be made and when to see margin improvement?

A: Pricing changes started, with majority of client base renewing later in the year, expecting margin improvement as year progresses.

Q: Any regional/industry differences in healthcare costs or hiring hesitancy? Lead-generation from Workday partnership?

A: Nationwide issue, not regional. Lead-generation from Workday partnership to start with new program in July.

Q: Receptivity of clients to pricing adjustments and profitability of Workday partnership?

A: Clients are receptive as pricing mirrors market. Profitability of Workday partnership expected to be a margin builder but details still being worked out.

Q: Net hiring in 2025 outlook and comparison to past cycles?

A: Net hiring diminished, current uncertainty compared to past cycles with factors like claims runoff making it a more conservative outlook.

Q: Leveraging Workday partnership in discussions with UnitedHealthcare?

A: Workday partnership can be leveraged to help evaluate benefits for underserved target market clients.