Insperity Q2 2025 Earnings Report

Insperity EPS Results

• Actual EPS: $0.26
• Consensus EPS: $0.41
• Beat/Miss: Missed by -$0.15
• One Year Ago EPS: $0.86

Insperity Revenue Results

• Actual Revenue: $1.66 billion
• Expected Revenue: $1.66 billion
• Beat/Miss: Missed by -$4.11 million
• YoY Revenue Growth: +3.30%

Insperity Announcement Details

• Quarter: Q2 2025
• Date: 8/1/2025
• Time: Before Market Opens
• Conference Call Date: Friday, August 1, 2025
• Conference Call Time: 8:30AM ET

Insperity (NYSE:NSP) is a professional employer organization (PEO) that provides human resources and workforce-management services to small and midsized businesses. The company helps clients manage employment-related administrative responsibilities while supporting their broader human capital needs.

Its services include payroll and employee benefits administration, human resources support, employment compliance, risk management, recruiting, employee training, performance management and workforce optimization. Through its co-employment model, Insperity can provide access to HR expertise, technology and benefits programs that may otherwise be difficult for smaller businesses to develop independently.

Founded in 1986 as Administaff, the company adopted the Insperity name in 2011. It is headquartered in Kingwood, Texas, and serves businesses across the United States through its service and sales organization. Paul J. Sarvadi, who co-founded the company, has held senior leadership roles and has served as its chairman and chief executive officer.

Insperity Q2 2025 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: In Q2, Insperity reported EPS of $0.26 and adjusted EBITDA of $32 million, missing the low end of its forecast due to unexpectedly high benefits costs.
• Negative Sentiment: Benefits costs rose sharply, with per-employee costs up 9.6% year-over-year driven by specialty drug utilization and higher pharmacy trends, pressuring gross margins.
• Positive Sentiment: The Insperity–Workday strategic partnership is on track, targeting an early-2026 beta launch for Insperity HR Scale and supported by research validating its premium pricing potential.
• Positive Sentiment: Operating expenses decreased by 3% year-over-year with cuts in travel, professional fees, and G&A while maintaining strategic investments, including $14 million in Workday.
• Neutral Sentiment: For full-year 2025, Insperity expects worksite employee growth of 1–2%, benefits cost trends 75–100 bps above prior forecasts, EBITDA of $170–205 million, and adjusted EPS of $1.81–2.51.

Presentation

[Operator]

Good morning, my name is Tom and I will be your conference operator today. I would like to welcome everyone to the Insperity second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

Thank you. We appreciate you joining us today. Let me begin by outlining our plan for this morning's call. First, I'm going to discuss the details behind our second quarter 2025 financial results. Paul will then comment on our second quarter results, the ongoing implementation of our Workday strategic partnership, and our outlook for accelerated growth and improved profitability in 2026. I will return to provide our financial guidance for the third quarter and full year 2025. 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.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from 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. This morning we reported second quarter EPS of $0.26 and adjusted EBITDA of $32 million. These results fell slightly under the low end of our forecasted range by $0.03 per share and $1 million respectively, primarily due to a continuation of higher than expected benefits costs. I will provide additional details in just a minute. Our unit growth was within our forecasted range with an average number of paid worksite employees increasing 0.7% over Q2 of 2024 to 309,115. Our sales force demonstrated resiliency and solid productivity in a market that continued to face many economic uncertainties.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

Worksite employees paid from new sales increased by 2% over Q2 of 2024, reflecting an increase in sales efficiency from a team that is smaller and more tenured than it was a year ago. Our client renewals and service teams collaborated well to produce strong client retention averaging 99% per month and in line with our prior year results. Net hiring within the client base showed some improvement throughout the quarter, slightly exceeding both our expectations and Q2 2024 levels but remaining well below historical norms. Gross profit per worksite employee in Q2 2025 was $240 per month, down from $282 in Q2 of 2024. You may recall that Q2 2024 results were positively impacted by favorable development of healthcare plans which had totaled $25 million. In contrast, benefits costs in Q2 2025 continued to trend negatively, exceeding our forecast by $12 million.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

Of this amount, $8 million related to higher than expected pharmacy costs driven by higher utilization of specialty drugs such as the GLP-1s and a related acceleration in the unit cost of pharmacy on a per script basis due to a change in the mix of prescriptions towards higher cost drugs. The remaining $4 million was primarily attributable to a modest increase in incurred but not reported claims that we expect to pay in the future. Based on recent claims payment patterns, we have not seen further deterioration in claim development related to older periods like we did in Q1, and we have seen some indications that the previously discussed acceleration in inpatient and outpatient service utilization has moderated somewhat but remains elevated. We did see large claim frequency continue at an elevated level, with cancer and heart related conditions showing the largest year-over-year increases.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

However, we have not seen signs of adverse selection among new clients, as that large claim activity remains in a normal historical range. As reported, benefits cost per covered employee increased 9.6% year-over-year in Q2 and by 9% on a year-to-date basis. These results are skewed somewhat higher by the timing of recording favorable claims experience in the 2024 period and unfavorable claims experience in the 2025 period, but the fact remains that benefits costs continue to trend at a higher year-over-year rate, even slightly higher than the top end of our prior forecasted range. While this higher benefits cost trend has significantly impacted our earnings in 2025, we are executing plans designed to drive significant profitability improvement in 2026 through a careful combination of pricing increases, plan design changes, and the negotiation of the anticipated renewal of our contract with UHC.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

As to pricing, we have and continue to implement higher pricing targets for both new and renewing business in a strategic and methodical way. As we discussed in our Q1 call, we have been putting those bids out for a few months now, and our renewal discussions with clients do not appear to have changed in any meaningful way. We expect that the impact of these pricing measures will start to accumulate during the second half of this year and continue into 2026 as expected. We continue to see clients and plan participants migrate to lower cost plan options, which is a normal response to help offset the impact of higher prices. Plan migration has historically helped to mitigate the impact of higher cost trends over time.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

In addition, we have determined and are in the process of implementing benefit plan design changes effective January 2026 that are designed to further mitigate future cost trend and maintain our planned competitiveness in the marketplace. Our contract extension discussions with UHC are ongoing, and addressing the elevated pharmacy cost trends and the expanding use of specialty drugs is a high priority as we execute this plan. A key takeaway is that the challenges we are facing are not unique to Insperity, and we believe that the approach we are taking to address them is commonplace. To address current market conditions, operating expense management continues to be a keen area of focus, and we have seen a company-wide alignment and execution that continued to successfully manage operating expenses below budget across all expense categories while continuing to invest in our strategic priorities.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

On a year-over-year basis, operating expenses decreased by 3% with the most significant reductions in travel, professional fees, and other G&A costs. During the second quarter, we invested $14 million in our Workday strategic partnership, which was consistent with Q2 of 2024. Our effective tax rate was impacted by the amount of non-deductible expenses as a proportion of pre-tax income. During the second quarter, we continued to return capital to our shareholders through a regular dividend program, paying $22 million in cash dividends. On a year-to-date basis, we have paid cash dividends of $45 million and repurchased 224,000 shares of stock at a cost of $19 million. We ended the quarter with $114 million of adjusted cash, and we had $280 million available under our credit facility. Now at this time, I'd like to turn the call over to Paul.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Thank you, Jim, and thank you all for joining our call. Despite our reported Q2 results and the lower guidance for this year, we remain confident in our outlook for accelerated growth and improved profitability in 2026. This is due to several reasons I'll cover today, starting with the growth momentum recently achieved and the drivers we expect to continue growth acceleration over the balance of the year and into 2026. I'll also cover our updated HR solution portfolio announced yesterday and our excellent progress on Insperity HRScale, our new joint offering being developed through our strategic partnership with Workday. I'll finish with the robust plan we are executing over the balance of the year and continuing into next year, leading to our positive outlook.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

The highlight of the first half of 2025 is the resilience, agility, and focus on sales and retention amid a complex and shifting market landscape. We successfully addressed the evolving uncertainty experienced by small and medium-sized businesses resulting from macroeconomic, tariff, and policy developments in the first half of the year and challenges stemming from specific insurance carrier publicity issues in Q2. Even though year-over-year growth in paid worksite employees was 0.7% in each of the first two quarters, an underlying increase of more than 3% occurred from the low point in February through the end of July. All three growth drivers, including sales, client retention, and net hiring with the existing client base, contributed to this growth acceleration and were stronger than last year.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Booked sales also showed relative strength in the face of some significant headwinds, which we accomplished with 11% fewer trained business performance advisors selling a slightly greater number of worksite employees than in the same period last year. This sales efficiency improvement of 13% in Q2 validated the sales organization changes put in place early in the year and is encouraging as we approach the fall selling season. A key driver of these booked sales results in the quarter was our successful marketing programs that achieved our qualified lead goal and converted a solid number of leads into discovery calls and opportunities to bid for our business performance advisors.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Our marketing team also completed our new product architecture and updated our HR solutions portfolio to rebrand our flagship PEO service as Insperity HR360, our traditional employment solution as Insperity HRCore, and working with our strategic partner Workday to name our joint solution appropriately Insperity HRScale. Each solution is tailored to address specific aspects of human resource management, offering unrivaled, comprehensive support for businesses at every stage of growth and development. Together, these three premium HR solutions expand the total addressable market of SMBs and employees that can be served by Insperity. Our portfolio of add-on products is dedicated to solving complex challenges for these companies and improving the lives of business owners and their employees over time.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

We believe that offering solutions to these clients such as our recent addition of Insperity Contractor Management powered by Wingspan and to eligible employees such as our Insperity Perks+ program may add significant revenue streams to the company or increase the stickiness of our solutions. Now I would like to focus on Insperity HRScale and the excellent progress we have made on the way to bringing this unique solution to the marketplace. The four defined pillars of our work in the strategic partnership have included our Insperity Corporate Tenant, our Exclusive PEO Client Tenant, our Deployment and Enablement Services, and our Joint Go-to-Market Plan. Our Corporate Tenant was successfully launched earlier this year, and important milestones were achieved in all 3 of our remaining major initiatives in the second quarter. Our Exclusive PEO Client Tenant is the major project deliverable.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Embedding Workday Human Capital Management as the client-facing technology into the Insperity HR360 comprehensive HR service and technology platform to create Insperity HRScale, we are pleased to announce today that a detailed work and testing plan developed and agreed upon by both Workday and Insperity teams have established a target go-live date for Insperity HRScale beta clients early next year. This is an important step, and our enablement and deployment team is ready to work with the selected beta clients for the ramp up to the anticipated go-ive date. Although this plan is detailed, precise, and very well thought out, there are remaining risks that could cause the date to move out a bit further. In any event, we have a direct line of sight to launch Insperity HRScale. We have agreed on a plan for the beta clients.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

We are actively working to define a timeline for a number of new clients and an additional group of current Insperity clients to become Insperity HRScale clients later in 2026. I mentioned last quarter the completion of the go-to-market plan for HRScale with Workday. Senior leadership and other key personnel from both companies agreed upon a plan and methodology to take our joint solution to the market. Together, we are aligned on the target market, the product name, messaging and competitive positioning, the sales motion, and most importantly, we formed a new POD, or Product Oriented Delivery team, focused on achieving the objectives set by the leadership of both companies. We achieved our goal of establishing this team in Q2 and began co-selling discovery calls with target prospects in July.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

This team is focused on identifying suitable early adopter candidates, refining the appropriate sales motion, and selling the first new Insperity HRScale clients. Obviously, this effort has just begun. However, in our view, it's off to a very exciting start. The receptivity by prospects of the investment and commitment of Insperity and Workday to a strategic partnership focused on this underserved target market has been strong and encouraging. Our market research has shown conceptual buy-in by mid-market companies to Insperity HRScale, which is designed to focus on affordability, ease and speed of deployment, reducing complexity, and agility as companies scale. One of the most exciting milestones achieved recently is the completion of the Insperity HRScale pricing strategy provided by a leading consultancy firm.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Based upon extensive market research, these results affirmed the target market's intense need for both HR services and technology and validated the premium product fit of Insperity HRScale. This research specifically identified how components of Insperity HRScale are valued by the target market and determined their willingness to pay at various levels. The research supports HRScale premium pricing potential compared to historical HR360 pricing for mid-market accounts. This has provided what we need to establish our initial pricing framework, including upfront deployment and enablement fees, ongoing monthly HR service and technology support fees at the level exceeding our expectation yet within the value range that we believe the target market is willing and expecting to pay. This also provided valuable information to determine a pricing roadmap to align with the Insperity HRScale product roadmap into the future.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Now let me provide some context for our growth and profitability outlook for 2026 based upon executing our plans for the balance of the year. This plan has three key elements, including continuing growth acceleration, recovering our gross profit margin, and leveraging our operating expense management trend every year. The success of our fall sales and retention campaign is pivotal to achieving the desired starting point for the coming year in paid worksite employees, setting the stage for continued growth acceleration. This year we are starting earlier, offering strong incentives, and investing more to increase the likelihood and degree of success in sales and retention. We are officially launching the campaign in just a few weeks, which is approximately one month earlier than previous years. We have strong incentives for employees and prospective clients for sales and retention activity and results.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

We've also allocated a portion of the year-to-date operating expense savings to invest in marketing opportunities. We expect to drive an increase in sales leads and opportunities. We expect to be making announcements and increasing advertising soon that will reveal significant potential return on this added investment. Another input to growth expectations is the state of the small to medium-sized business community, which we believe is at an important inflection point compared to the last few years of one macroeconomic speed bump after another from inflation and interest rates to government policy and tariffs. The recent federal legislation signed into law is validating of support for the small business community, especially on the tax and investment outlook. We believe this may play out to be a catalyst for expansion in the SMB community, which could move the hiring trend back to historical levels next year.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

The second key element in our game plan for the balance of the year is execution of our gross profit margin recovery plans and in the healthcare pricing and cost framework. Jim has described three critical incentive initiatives, including pricing allocations, plan design changes, and our contract negotiation with our insurance carrier. All three have moved forward rapidly in the last quarter, and despite the benefits cost trend being slightly worse than expected, our recovery plan is progressing along, and we believe we are in a position to see improvement as we execute the recovery plan this year and heading into 2026. Another aspect of our positive outlook for next year is continuing the recent operating expense management focus to ensure operating leverage can be a part of our three-year plan beginning in 2026.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

One key element of this plan is to continue down our AI path, which we believe can be significant in our business model. Development of our AI capabilities, as I've discussed in the past, is well underway and in use by our client-facing HR professionals. Our AI focus is to improve the efficiency, value, productivity, and quality of our services to the benefit of our customers and our internal operations. Our strategy is to leverage the combination of our own proprietary tool to optimize Insperity's HR and service delivery expertise with other specific AI capabilities native to platforms that we use across the company. In summary, we have responded well to the challenges we have faced this year-to-date, and our plan for the balance of the year is on course toward accelerating growth and improved profitability in 2026 and beyond.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

At this point, I'd like to pass the call back to Jim.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

Thanks, Paul.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

Now let me provide an update to our full year 2025 outlook. As Paul discussed, we have started to see some modest worksite employee growth acceleration in recent months. In addition, there are indications that clarity around tax policy has buoyed small business economic sentiment. At the same time, we remain cautious about the level of net hiring in the existing client base for the full year. We are now forecasting worksite employee growth of 1%-2% over 2024. Given the higher benefits cost trends experienced in the first half of the year and more broadly seen in the marketplace at large, we are raising our forecasted range of benefits cost per covered employee by 75 basis points-100 basis points for the full year.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

We anticipate that the benefits cost trend will taper down from the 9% we have experienced in the first half of the year for two primary reasons. First, year-over-year comparisons in the first half of 2025 were impacted by last year's favorable claims development and that impact should subside in the second half of the year. In addition, we continue to see favorable changes in our plan demographics and plan migration that historically have helped to favorably impact benefits cost trends. We continue to expect that operating expenses will decline slightly sequentially in each of the remaining quarters. For the full year, we expect that operating expenses will be an overall reduction compared to 2024.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

This includes planned spending on the implementation of the Workday strategic partnership solution, which we expect to total approximately $58 million in 2025 versus $57 million in 2024, and additional marketing spend for our fall sales campaign. For purposes of adjusted EPS, we are forecasting an effective tax rate of 29% for the full year 2025. The effective tax rate on GAAP EPS is expected to be somewhat higher and could fluctuate based on the level of non-deductible expenses as a proportion of pre-tax income. Based on all of these factors, we are forecasting full year adjusted EBITDA in a range of $170 million-$205 million. We are forecasting full year adjusted EPS in a range of $1.81-$2.51.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

As for Q3, we are forecasting the average paid worksite employees to be in a range of 312,200-315,300, which represents an increase of 1%-2% over Q3 of 2024. We are forecasting adjusted EBITDA in a range of $24 million-$44 million and adjusted EPS in a range of $0.06-$0.49. As economic concerns show signs of stabilizing, business owners continue to see employee retention, engagement benefits, and cost of compliance as significant concerns. We believe that these are positive trends as we approach our fall sales and client renewal season. We are executing a pricing plan and implementing plan design changes in 2026 that we believe will address the elevated benefits cost trend environment.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

We remain focused on operating expense management and have initiated a three-year planning process to further sharpen the alignment of our sales, operations, operating, and development plans with our updated HR solutions portfolio strategy as we look to drive improved profitability in 2026 and beyond. At this time, I'd like to open up the call for questions. Thank you.

[Operator]

The floor is now open for questions. If you'd like to join the queue to ask a question at this time, please press star one on your telephone keypad to join the queue. We do ask if listening on speakerphone today that you pick up your handset while asking your question to provide optimal sound quality. Once again, please press star one on your keypad at this time. If you wish to join the queue to ask a question, please hold a moment while we poll for questions. Your first question this morning is coming from Andrew Nicholas from William Blair. Andrew, your line is live. Please go ahead.

[Andrew Nicholas, Equity Research Analyst at William Blair]

Great, thank you and good morning. I wanted to first ask about Workday. Appreciate all the updates there and also the new kind of branding of all the solutions. I'm just curious in terms of with the beta timing now seemingly locked in, just wondering if you could speak to maybe a line of sight for 2026 financial impact or anything on that front that you could share to give us a sense for how much could benefit profitability and growth next year.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Yeah, thank you for the question, Andrew. I appreciate that, and we are super excited about our progress in that direction. It's a little early to lock down and to precisely predict the actual revenue and profitability impact. We are starting with the beta group that I'm really excited to announce today has a target date early in the year. Our next step is to have two, what I'll call, waves of additional client groups being added throughout the year. Next year, a group of new clients that I'll even call new beta clients because that's kind of the way we need to look at that.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Another group of current clients will be identified and will roll in sometime later in the year. We also have just now received all of the information that we need for the pricing elements, and that is also super important. As I mentioned in my remarks, it exceeded our expectations on how different elements are valued. Frankly, the value of the service component was even higher than expected. The ability for the client to look at the different pieces of what we're offering and our ability to price those accordingly, including upfront fees, ongoing service fees, ongoing technology support fees, and fees for adding technology elements over time, is significant. There are a lot of pieces to it, and now we are in the process, and over this next quarter we will lock down what would be called our recommended pricing for clients at different sizes, different levels, et cetera.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

We will then be able to more closely determine what we will actually apply in pricing to these groups of clients that are such an important part of our launch path. We will give advantages to those clients to come on. The reality is this is validating our long-term plan for really solving our success penalty of having companies grow out of our business model and having a great new avenue for new clients that are much larger coming into the company. We will be working on how this will be modeled in the future because I know that's an issue for you all as well. We still have to go through some other processes to start to give some direction on that.

[Andrew Nicholas, Equity Research Analyst at William Blair]

Understood. Maybe switching gears a little bit to the WSEE dynamics. Sounds like there is some progress, at least from the low point in February. I wanted to ask specifically about the net client hiring piece. Is that something that you've seen improve sequentially over the last couple months? Is there anything that you could say about regional or vertical dynamics there, and is there an expectation that that continues to improve over the course of the next couple quarters?

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Yes. The good news is that we have seen underlying hiring at a higher level than what has been happening now. Some of what happens this time of year is a natural summer help element and other things. In our analysis, we see that underlying there, there is movement in the right direction. It's still well below historical levels. I also believe the confidence level we're already hearing and seeing, even post the legislation, I really feel like we're about to see a release there. We haven't budgeted a lot of that into our model going forward the balance of the year, but we do believe that things are already better. Out of this first half of the year, there was only one month that was somewhat of a negative.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

That's good, that's moving in the right direction and we're going to do all we can to help our customers continue to grow.

[Operator]

Thank you. Your next question is coming from Tobey Sommer from Truist. Toby, your line is live. Please go ahead.

[Tobey Sommer, Managing Director at Truist]

Thanks. At this juncture, do you think that the original $150 million investment is still the right number? And.

[Tobey Sommer, Managing Director at Truist]

Do you at this juncture have better visibility into how much of that Workday associated expense will go away entirely and fall back to the bottom line?

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

Thank you for the question, Toby. I do think that the $150 million expense, when we put that out there, I think largely our focus was on the cost. Not only to get to go-live, but to think about kind of what was going to hit the income statement. I do think we're going to get to a point where we do see that there's going to be a product development roadmap beyond launch. We also believe that we're going to be at a point where those expenses become capitalizable as we get closer to launch. I would say over the five-year period, the overall investment in the product is likely to continue to be a little bit over $150 million. I also think that the impact on the income statement will reduce pretty significantly. At the same time, I think it's important to recognize that when we move into this launch, this launch phase, the beta phase, I would call it. Expect that you're going to have to muscle through. You know, some level of kind of working, you know, issues with the beta clients. One of the reasons you're going through this process is to make sure that you're building out, you know, very smooth processes and stuff. We're not expecting that those are going to be, you know, perfect in that first beta launch. We do think that from an operating cost standpoint, there's a little muscle in through, but that will happen in those early phases and then that there will be growing operating efficiency on that front over the first several years of the launch.

[Tobey Sommer, Managing Director at Truist]

I appreciate that. Thank you.

[Tobey Sommer, Managing Director at Truist]

On the margin profile of the business, I kind of want to ask a question that will allow you to incorporate what you've learned about pricing opportunities without necessarily giving us the numbers.

[Tobey Sommer, Managing Director at Truist]

Paul, do you feel like at the end of this exercise, we can call it, you know, two years from now, three years from now, whenever we're kind of up and humming, that the margin profile on a per worksite employee basis as well as margin profile at the corporate level on the income statement is better than it has been historically, the same or lower?

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

I believe this is my opinion based on what I understand in terms of the progress we're making and even this new information we have. I would expect it to be better. We are literally seeing validation of the premise of this investment. What I mean by that is, obviously retention is your lowest cost new business. That retention step up that I see from this effective execution over the next few years is going to be significant in my view. In addition to that, though specific to margin, you're looking at bringing on much larger clients at pricing that is even higher than I presumed in just the penciling of the possibilities. It will take a little time to ramp up to that as we develop the solution, but I see that happening as well.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Like I say, it's the trifecta for our business model. It's growing the company faster in bigger chunks at a time at higher prices. That means our historical operating leverage that we've had because the technology is better. I think that ultimately enhances our business model as well. It's just at an early stage for us to lock some of that stuff down. I appreciate the question, and I will just say that that's exactly what I see ahead and what we're working to accomplish.

[Operator]

Thank you. Your next question is coming from Jeff Martin from Roth Capital Partners. Jeff, your line is live. Please go ahead. Thank you.

[Jeff Martin, Co-Director of Research and Senior Research Analyst at Roth Capital Partners]

Good morning. I wanted to dive in a little bit to the launch of the joint marketing here. It seems like you're going to be spending a good portion of your time and resources in 2026 on getting these beta clients launched and things smoothed out, bringing on some new clients.

[Jeff Martin, Co-Director of Research and Senior Research Analyst at Roth Capital Partners]

How do you look at the joint marketing go live versus the ability to sell and turn those clients on in a timeframe that makes sense?

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Yeah. If you think about the typical scenario for a company who's having these types of needs, let me just remind you what we have validated is there's a deep need in this target marketplace for both services, HR services, having a better HR function, a strategic HR function that's really working, and the technology to help make that happen efficiently and effectively. If you are such a client out there today, in order to move that direction, the amount of time that it takes, the amount of investment it takes, the amount of complexity, it's all very difficult, takes a long time. Most companies have a mixed bag or a hodgepodge of components that they're trying to make all this happen. We're bringing them a rifle to nail this down and have ultimate scalability on both the service and the technology side.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Insperity HRScale is the perfect name for this. Now, if I'm one of those prospects and I look at, wait a minute, you're telling me that Insperity and Workday are totally committed, investing significantly to having this solved for me long term. Hey, I want on. I want on that ship. If it takes me, you know, even 18 months from now, that's how long it would take me. Try to do it myself and piecemeal this thing together. It would cost more and it would be a lot harder. I don't really have the people to make that happen myself. Anyway, I'm telling you, this is what we're seeing in the marketplace. You can hear me. I'm excited about the fact that we get to. We've been talking to prospects already.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

They connect immediately, conceptually to having these two great companies help them solve this for the long term and, you know, to be a part of it, to get in this queue, I think is going to be a, you know, a desirable thing for these prospects now, now that we're going to be able to lock down how we can price and offer the right kind of incentives to be a part earlier, maybe be the early adopters. That's great. That's an excellent step in addition to that. I just believe we see the demand out there and the need, I wouldn't even call it demand because they don't know the solution's out there yet. The need for what we're bringing to the table is clear and the value of it, perceived value of it, we believe is going to be high.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

That's why being out there now, having our team already out there having these conversations and being able to get this on people's plate to put in their plan for the future is very appropriate, even though we're launching the beta group early next year.

[Jeff Martin, Co-Director of Research and Senior Research Analyst at Roth Capital Partners]

Great. One other here, if I could. I think you said the salesforce BPA count is down 11% year-over-year. Sales efficiency drove a 13% sales efficiency ratio, which is encouraging. How are you thinking about growth in the BPA base over the next 12 to 24 months as this joint solution becomes really more prominent in the sales effort?

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Yeah, I believe this is the first time that we're going to have what I would call operating leverage on the sales side of the business. We are going to grow the BPA base but nominally, not near at the pace we had to in the past. Once we get this in place, we're already having good success in the mid-market space and this is going to enhance that and allow for us to grow the business, the worksite employee growth, the unit growth more rapidly with fewer BPAs. That's the game plan. There will be some growth, pretty nominal for the balance of the year and into next year. The efficiency gain that is evident is another reason why we are really ready to market more heavily and get more opportunities into the hands of these BPAs whose effectiveness is at a high level.

[Operator]

Thank you. Your next question is coming from Mark Marcon from Baird. Mark, your line is live. Please go ahead.

[Mark Marcon, Senior Research Analyst at Baird]

Good morning. I have a couple of questions. Paul and Jim, thanks a lot for all the detail. With regards to the healthcare cost, obviously everybody is seeing the same thing and facing the same pressures. I'm wondering if you have any preliminary thoughts with regards to when you look at a combination of plan design change versus pricing versus getting some more favorable treatment from UnitedHealthcare, how do you think of that combination and specifically how much would come from plan design change and how much would come from pricing? I know it's early days and perhaps if there's any sort of regional differences, how should we think about those? I have a follow up with regards to Workday.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

Yeah, thanks Mark. Appreciate the question. What I would say is, you know.

[Jim Allison, EVP of Finance, CFO, and Treasurer at Insperity]

When the trends are running the way that they're running, the primary way that you're going to keep up and catch up on the trends that are out there is through pricing, what you're looking to do with plan design changes and trying to influence participant, in client behavior on what plans they're selecting into and other things that we're working on. The contract negotiation with United, those are designed to limit the impact of the overall cost trend. Most of it, the majority of it, is through the pricing changes.

[Mark Marcon, Senior Research Analyst at Baird]

Okay.

[Jim Allison, CFO at Insperity]

You mentioned regional differences. There's always some local and regional differences. Different carriers are stronger in different parts of the country, and people have their eyes set on growth targets that may vary from state to state. The process that we look at as we're going through things is dynamic from that standpoint. I would not say that there's a part of the country right now that is not seeing the impact of higher trends.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Mark, I would add one more thing to what Jim is saying, because it is important that pricing is the appropriate methodology to balance price and cost when the claim cost is what you're addressing. The contract discussions are really important because if there's anything structural that needs to be changed to handle how we're affected by these things in the future, that is really important. That's a central element of what we're dealing with and what we're working on with UnitedHealthcare. Once you make such a change, it can have an early term benefit to the picture that you have. What's most important is that you are able to structure things in a way that help to mitigate against this in the future.

[Mark Marcon, Senior Research Analyst at Baird]

Really appreciate that. With regards to Workday.

[Mark Marcon, Senior Research Analyst at Baird]

If I'm hearing things correctly or interpreting things correctly, it sounds like we'll have essentially three waves of beta. Do you think does that mean that when we really start marketing in a broad scale to new clients or existing clients, that that probably would occur more towards the fall of 2026? I'm just trying to get a sense for that. With regards to the expenses associated with Workday, from a cash perspective, would you expect it sounds like you're not expecting, you know, a big drop off in terms of the expenses around that because you'd still be at the relatively early stages of onboarding clients, testing things, optimizing, etc. I'm just trying to understand that element as well. I appreciate any comments on those two elements.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Sure. First of all, on the waves, I'm not going to get out ahead of the amazing team of people that are going to great lengths to go into great detail to determine the exact times for these other two waves. I have my thoughts about it, I have my feelings about it, but I owe it to them to go through the work and to see the plan for this. Now, on the other side that you're talking, even though, yes, there's costs that are going to be incurred, Jim talked a little bit about how we, when you're doing it this way, you have to muscle through the first ones. You want to make sure that the experience of these early new customers is really good. You're going to definitely invest to make that happen.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

However, all this investment that, you know, I'm not an accountant, in my view, a lot of this should never be going through the income statement. It's an investment for the long term of capital, but it's running through the income statement.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Now. There is a time when that gets mitigated through the rules. Once you have a new product that you know is developed and working, I don't know when and how that works. Jim can comment about that if he wants. I think between the combination of revenue that we're going to have coming in, I don't know when it can be recognized either yet. I'm not the accountant, but between revenue coming in and being able to account for it for the expense side, I believe more appropriately, I think we have some nice upside coming, hopefully sooner than later.

[Mark Marcon, Senior Research Analyst at Baird]

Thank you.

[Jim Allison, CFO at Insperity]

If I add on to that just for a second, I would say, you know, and I've said this before, you've got costs coming from a couple of different categories. They're clearly third party outside specifically implementation costs. You also have a pretty significant amount of costs that are related to internal resources that are working on the project. Historically, when they were working on projects, they likely were working on things that were capitalizable and we are not capitalizing them right now. There's a third part of the costs that are going on right now, which are kind of the pre-build of operating expenses, onboarding and enablement teams as an example, that are going to transition over to working on actually setting up new customers.

[Jim Allison, CFO at Insperity]

The difference between now and then is that we will have implementation fees that will be associated with that activity once we get into launch. So. That helps.

[Operator]

Thank you. Your next question is coming from Andrew Polkowitz from JPMorgan. Andrew, your line is live. Please go ahead.

[Andrew Polkowitz, VP at JPMorgan]

Morning Paul, Jim. Thanks for all the color. Had two questions. The first one I just wanted to ask, in terms of the 3Q and 2025 outlook, what's the range of outcomes embedded from a healthcare cost trend perspective? Kind of hitting at the low and high ends of your EBITDA and EPS guidance.

[Jim Allison, CFO at Insperity]

We have focused obviously more on where we think we're headed for the year. The year-over-year comparison to last year will have a lot more to do with that trajectory towards that number compared to what happened last year. We think it's going to normalize a little bit from the 9% year-to-date that we've seen in the quarter or in 2025 so far. I personally don't get too caught up in what the actual specific quarterly trend is. What are we aiming towards on the annual trend? Compared to our prior forecast, we're looking at 75 bais points-100 basis points higher than that.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Yeah, I think I would just add, if you remember a quarter ago we kind of said that the low end of our range related to kind of a continuation of the elements that were driving costs up in that first quarter. Now the stuff related to last year, that all kind of got washed through. When we looked at the numbers from this quarter, we said, hey, that can't be that. High end of our range is the way it came in. You have to adjust for that for the balance of the year. That's what we did by adding the 75-100 additional basis points.

[Andrew Polkowitz, VP at JPMorgan]

Okay, that's super helpful. My follow up question, I wanted to ask a little bit about renegotiations with UnitedHealthcare. Just wanted to get some color on kind of what has been the outcomes in the past. Is it really about plan design visibility or earlier visibility into data trends, price, risk sharing? Just wanted to kind of understand what the range of potential outcomes for Insperity can be. Thank you.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

If I just look at the big picture of our history, and Jim has been the person in the hot seat on that front for a long time and has done a great job with UnitedHealthcare. I would say that we've gone from, you know, being just an amazing client for them and we've seen our actual administrative expense, et cetera, and our risk charges really at really low levels for what the industry sees. We've kind of gone past that to being a very solid channel partner for them and have worked toward. You know other aspects to the relationship to where we're more aligned on doing what we can together to grow. That was interrupted with some of these things happening in the marketplace at large. I think that's what we're looking to make sure that we've got this relationship structured where both of our incentives are aligned around what we do together, and that we benefit accordingly as we grow and manage these costs going forward together.

[Jim Allison, CFO at Insperity]

If I can add on to that. I think one of the real keys in the middle of this is when we have discussions like that around alignment, it is very often around what is the best situation for our plan participants. When we do things that are beneficial and advantageous to plan participants, not only is that a fiduciary responsibility we have, but that sets an environment that is good for us and good for UnitedHealthcare as we approach the market. It is no different than what we talk about from a cultural perspective of having a people centric approach and a customer-centric approach in this world. When we have a participant-centric approach, it's good for everybody, it's good for our participants, it's good for us in the long run. It's good for UnitedHealthcare in the long run.

[Operator]

Thank you. This does conclude our question-and-answer session for today. I would now like to hand the call back to Mr. Sarvadi for closing remarks.

[Paul Sarvadi, Chairman of the Board and CEO at Insperity]

Once again, we would just like to thank all of you for joining us today. We appreciate the questions and the detailed questions, and we hope we have provided information for you to see why we are so excited about the future and how we're looking forward to executing an important game plan for the balance of the year and looking forward to growth, acceleration, and improved profitability in 2026 and beyond. Thank you very much for participating today.

[Operator]

Thank you. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. Thank you once again for your participation. Goodbye.

Participants

Executives

• Jim Allison, CFO
• Jim Allison, EVP of Finance, CFO, and Treasurer
• Paul Sarvadi, Chairman of the Board and CEO

Analysts

• Jeff Martin, Co-Director of Research and Senior Research Analyst at Roth Capital Partners
• Andrew Polkowitz, VP at JPMorgan
• Mark Marcon, Senior Research Analyst at Baird
• Andrew Nicholas, Equity Research Analyst at William Blair
• Tobey Sommer, Managing Director at Truist