Insperity NYSE: NSP reported first-quarter 2026 results that exceeded the midpoint of management’s expectations, led by improved gross profit trends and operating expense management as the company works through a multi-year margin recovery plan. Adjusted earnings per share were $1.31 and adjusted EBITDA was $103 million, both above the midpoint of the company’s expected range, according to Executive Vice President of Finance, CFO and Treasurer James Allison.
First-quarter results: margin recovery progress offsets softer unit growth
Insperity’s average paid worksite employees (WSEs) were 303,049 in the quarter, down 1.0% versus the first quarter of 2025 and at the low end of the company’s forecast range. Allison said quarterly performance reflected “outperformance in gross profit and operating expense management, partially offset by slightly lower than expected unit growth.”
New client sales contributed to the WSE softness. Allison said worksite employees paid from new client sales declined 7% compared with the prior-year quarter. Client attrition totaled 11% in Q1 2026, within the company’s historical 9% to 12% range. He added that net hiring within the client base was in line with forecasts and slightly higher than Q1 2025, but “occurred later in the quarter than we had expected,” which lowered the average WSE count for the period.
Total gross profit decreased 3% year over year to $302 million, which Allison characterized as a sharp improvement from the 21% gross profit decline experienced in Q4 2025. Gross profit per worksite employee was $332 per month, “slightly above our forecast and within our range of expectations,” driven mainly by lower-than-expected benefit costs.
Benefits cost per covered employee increased 5% over Q1 2025, an improvement from the roughly 9% trend seen during 2025. Allison attributed the improvement largely to favorable client mix changes tied to pricing and retention strategy, benefit plan design changes, and new contract terms with UnitedHealthcare.
UnitedHealthcare contract changes quarterly earnings cadence
Management emphasized that the new UnitedHealthcare agreement is expected to alter the company’s typical quarterly earnings seasonality. Allison said Insperity anticipates “less expected earnings early in the year and more expected earnings later in the year,” largely due to a pooling limit change from $1 million per member per year to $500,000.
Under the new structure, Allison explained, Insperity is paying a higher fixed premium charged evenly throughout the year, while claim reimbursements are expected to be “significantly weighted towards the latter quarters of the year.” He reiterated later that the contract’s financial impact should be “more back-end loaded” than some may have assumed.
Allison also cited several factors that helped Q1 benefit costs come in better than expected, including “slightly favorable runoff of prior period claims, reduced large claim activity, and lower than expected pharmacy claims,” while noting the company remained cautious about the range of outcomes for the rest of the year.
Expenses, restructuring, and HRScale spending
Total operating expenses declined 1% to $240 million, including a $9 million restructuring charge primarily related to severance tied to a workforce realignment. Excluding the charge, operating expenses fell 5% year over year.
Insperity invested $13 million in HRScale during the quarter, comprising $8 million in operating expenses and $5 million of capitalized costs. Allison noted that in Q1 2025, the company also spent $13 million on HRScale, but that amount was fully expensed in that period.
Adjusted EPS declined 17% year over year to $1.31, reflecting a higher effective income tax rate of 41% versus 29% in Q1 2025. Allison said the change was primarily due to Insperity’s lower stock price reducing tax benefits associated with stock compensation vesting, which largely occurs in the first quarter. He said the effective tax rate is expected to normalize for the remainder of the year.
Capital return and liquidity
During the quarter, Insperity paid $23 million in dividends and repurchased 171,000 shares for $4 million. The company ended Q1 with $36 million of adjusted cash, which Allison said reflected seasonal working capital timing related to corporate payroll, healthcare, and software maintenance contract funding.
As of March 31, 2026, Insperity had $380 million in unused capacity under its credit facility, with about $330 million available to borrow, Allison said.
Growth outlook: HRScale rollout and macro uncertainty
Chairman and CEO Paul Sarvadi said the company’s three-year plan prioritizes margin recovery in year one, with regaining growth momentum as the second priority in 2026. He said margin recovery drivers include the UnitedHealthcare agreement, plan design changes, strategic pricing and client selection, and operating efficiency improvements, with the goal of “a substantially full recovery as we move into 2027.”
On growth, Sarvadi said booked sales in Q1 were below internal targets “except for our Insperity HR360 mid-market sales,” and that process changes tied to margin recovery pressured both sales and retention. He said the company has implemented key learnings intended to improve booked sales performance over the balance of the year.
Sarvadi highlighted progress on HRScale, noting that initial beta clients were onboarded in March and that “payrolls and invoices were processed in April as scheduled.” He said the HRScale pipeline is building and described the offering as combining Insperity’s HR services and compliance expertise with Workday client-facing technology. Sarvadi said the company has “signed commitments for nearly 6,000 worksite employees to be on board within the next 6 months.”
He also said HRScale is intended to address what he called Insperity’s “historical success penalty,” where growing clients leave for technology built for larger firms, and to expand new client opportunities in businesses with 150 to 5,000 employees. Sarvadi added that prospects view HRScale as a “lower-risk decision” due to lower upfront investment, faster time to value, and lower ongoing costs compared with typical mid-market HCM and HR service combinations.
On retention, Sarvadi said attrition has been at the higher end of historical levels, but the company is seeing “the desired impact” because a greater share of departing clients were less profitable. He said attrition is expected to remain slightly higher but moderate as the year progresses.
Macro conditions were a central theme. Sarvadi cited Insperity’s Business Outlook Survey showing small and mid-sized businesses becoming more cautious since January. He said 54% of respondents expect a negative business impact, up from 42% in January, while 25% foresee positive effects, down from 37%. While 64% still expect to perform better in 2026 than 2025, that figure declined from 70% in January, he said.
In response, management lowered its worksite employee outlook but reiterated adjusted EBITDA guidance. Allison said the company is forecasting full-year 2026 average paid WSEs of 303,000 to 307,000, a decline of 1% to 2.3% from 2025. Insperity maintained full-year adjusted EBITDA guidance of $170 million to $230 million, citing expectations for continued margin recovery and operating expense savings to offset the lower unit outlook.
Allison said Insperity now expects a full-year adjusted EPS range of $1.60 to $2.60, reflecting a forecast 36% effective tax rate and an estimated 38.5 million weighted average shares outstanding for the remainder of the year.
For Q2 2026, Insperity guided to average paid WSEs of 302,500 to 304,500 (down 1.5% to 2.1% year over year), adjusted EBITDA of $18 million to $46 million, and adjusted EPS of $0.02 to $0.50. Allison again pointed to a flatter quarterly earnings pattern due to the UnitedHealthcare pooling change and the expectation that margin recovery impacts become more pronounced later in the year.
In the Q&A, Allison said management now expects gross profit per employee to be “a little bit higher than what we had in our original guidance,” citing being “a little bit ahead of schedule” on profit recovery efforts. Sarvadi said competitive pricing pressure has increased amid higher benefit costs and more client “shopping,” but argued HRScale provides “a significant competitive differentiation.”
Sarvadi also discussed Insperity’s AI strategy, saying the company is implementing AI internally in HR and payroll and plans to expand an “HR360 agent” to help clients navigate the platform. He said a future version will introduce conversational reporting using demographic and transaction data.
Closing the call, Sarvadi said Insperity was “excited that we have reached that first milestone of our profit recovery,” adding that the company will continue working to regain growth momentum as 2026 progresses.
About Insperity NYSE: NSP
Insperity, Inc is a leading provider of human resources and business performance solutions designed to help small and midsize businesses operate more efficiently. Headquartered in Kingwood, Texas, the company offers a comprehensive suite of products and services that span workforce management, payroll administration, employee benefits, risk management, and talent development. By leveraging its proprietary technology platform and team of HR experts, Insperity enables clients to focus on core business objectives while outsourcing complex administrative functions.
The company's flagship offering is its Professional Employer Organization (PEO) service, which allows clients to outsource critical HR tasks such as payroll processing, workers' compensation administration, and compliance with employment regulations.
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