NSP

Business Context and Reporting Period

Company: Insperity, Inc. (NYSE: NSP)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2026
Business Overview: Insperity provides human resources and business solutions, primarily through Professional Employer Organization (PEO) services (Insperity HR 360, HR 360 Select, and HR Scale). The company operates as a single reportable segment (HR Solutions) and utilizes a co-employment model with clients.

Key Financial Metrics

Note: Q2 2025 Net Income was a loss of $5 million. YTD 2026 Net Income decreased 20% year-over-year.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 2% in both Q2 and YTD 2026 compared to the prior year. This growth was driven by a 3% increase in revenue per Worksite Employee (WSEE), offsetting a 1% decrease in the average number of WSEEs paid.
• Profitability Pressure: Gross profit decreased 3% in both periods due to rising direct costs. Specifically, health insurance costs increased 5.2% per covered employee, and workers' compensation costs rose 35% (Q2) and 33% (YTD) due to elevated healthcare trends.
• Operating Expenses: Total operating expenses decreased 8% in Q2 and 4% YTD. This was primarily due to an 11% reduction in corporate salaries (driven by a 6% headcount reduction in sales and support) and a 35% drop in stock-based compensation. However, advertising expenses increased 27% in Q2.
• Net Income Volatility: Q2 2026 reported a net income of $4 million compared to a $5 million loss in Q2 2025. However, YTD 2026 net income fell 20% to $37 million, impacted by a higher effective tax rate (46% vs. 30% in YTD 2025) due to stock award vesting and lower pre-tax income.

Guidance, Outlook, and Risks

• Outlook: Management continues to focus on margin recovery efforts, which has led to a decrease in new client sales and retention but an increase in net WSEE change at existing clients. The company maintains a strategic partnership with Workday, Inc.
• Liquidity: The company holds $619 million in cash and cash equivalents. It has a $750 million revolving credit facility with $419 million outstanding as of June 30, 2026. Management believes current resources are adequate for 2026 liquidity needs.
• Capital Allocation: The company paid $46 million in dividends YTD 2026. No shares were repurchased under the announced program in the first six months, though 171,548 shares were withheld for tax obligations. Approximately 1.4 million shares remain available for repurchase.
• Key Risks:
  • Cost Trends: Significant exposure to rising health insurance and workers' compensation costs, which directly impact gross margins.
  • Regulatory/Tax: Risks related to the "One Big Beautiful Bill Act" (H.R.1) and potential changes in tax laws affecting deferred tax balances and deductions.
  • Client Concentration: Vulnerability to regional economic factors and the ability to adjust service fees for tax increases.
  • Operational: Risks associated with data security, cyberattacks, and the solvency of insurance carriers.

Investor Verification Checklist

• Direct Cost Run-Rate: Verify the sustainability of the 35% increase in workers' compensation costs and 5.2% increase in health insurance costs per employee.
• WSEE Count vs. Revenue: Confirm the trend of declining WSEE counts (-1%) and whether pricing increases can continue to offset volume declines.
• Effective Tax Rate: Review the impact of the 46% effective tax rate in YTD 2026 and the specific tax effects of stock award vesting.
• Debt Covenants: Confirm continued compliance with the credit facility covenants, specifically the interest coverage ratio and leverage ratio, given the recent amendment to exclude dividends from the coverage ratio.
• Health Insurance Accounting: Review the "Selected Claims Limit" election for 2026 ($500,000 limit) and its impact on future claim accruals and cash funding requirements.