Insperity, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Insperity provides HR and payroll services, principally through PEO co-employment arrangements. Its reported revenue excludes client worksite employee payroll costs.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $1.802 billion | $1.770 billion | +2% |
| Gross profit | $345 million | $332 million | +4% |
| Operating income | $108 million | $121 million | -11% |
| Net income | $79 million | $95 million | -17% |
| Diluted EPS | $2.08 | $2.45 | -15% |
| Adjusted EBITDA | $142 million | $152 million | -7% |
| Adjusted EPS | $2.27 | $2.67 | -15% |
| Average WSEEs paid | 303,904 | 306,691 | -1% |
Approximate gross, operating, and net margins were 19.1%, 6.0%, and 4.4%, respectively, versus 18.8%, 6.8%, and 5.4% in Q1 2023. Revenue per WSEE per month rose 3% to $1,977; gross profit per WSEE per month rose 5% to $378.
Cash flow, debt, and liquidity
- Operating cash flow was $31 million, versus $40 million a year earlier. Investing cash outflow was $5 million; financing cash outflow was $83 million, including $21 million of dividends and $23 million of share repurchases and share withholding.
- Cash and cash equivalents were $667 million, restricted cash $61 million, and marketable securities $16 million at quarter-end. Management reported $683 million of cash, cash equivalents, and marketable securities, but $443 million related to payroll-tax and other deductions and $34 million to client prepayments. Adjusted cash and marketable securities, excluding those amounts, were $206 million.
- Working capital was $213 million, compared with $159 million at December 31, 2023. Long-term debt was $369 million; $280 million of facility capacity remained available after a $1 million letter of credit. The revolving facility matures June 30, 2027; its average interest rate for the quarter was 7.2%. Insperity reported compliance with its financial covenants.
Changes, commentary, and outlook
- Revenue growth reflected a 3% increase in revenue per WSEE, partly offset by a 1% decline in average WSEEs. Management said new-client WSEEs were consistent year over year, while client retention and net additions at existing clients declined. Middle-market WSEEs decreased 4%.
- Gross profit improved, but operating expenses rose 12% to $237 million. Higher corporate and sales compensation, incentive accruals, software and SaaS costs, travel, training, and professional fees contributed to expense growth.
- Q1 benefits costs included an $18 million reduction from revised estimates of prior-period claim run-off, compared with a $9 million reduction in Q1 2023. Workers’ compensation costs included a $9 million reduction from prior-period claims, versus $8 million a year earlier. These estimates are judgmental and materially affected reported costs.
- Management said cash on hand, operating cash flow, and available facility capacity should meet liquidity requirements for the remainder of 2024. The filing provides no specific full-year revenue or earnings guidance.
- On April 26, 2024, after quarter-end, Insperity amended its credit agreement to exclude certain Workday strategic-partnership expenses from the agreement’s EBITDA definition through 2025. The filing describes a strategic partnership and joint-solution development, but does not quantify expected benefits here.
- Risks include economic and labor-market weakness, client cancellations or nonpayment, health and workers’ compensation claims and cost trends, geographic concentration, variable-rate debt, regulatory exposure, cyber and technology disruption, and the ability to realize benefits from the Workday partnership. Management reported no material change to previously disclosed risk factors and believes pending ordinary-course litigation will not materially affect results. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether WSEE trends, client retention, and new-client sales improve in subsequent quarters.
- How sustainable the health and workers’ compensation claim-cost reductions are, and how claim estimates develop.
- Whether expense growth—particularly compensation and Workday-related technology costs—moderates relative to revenue growth.
- Liquidity available after payroll-related and client funds are excluded, and the effect of variable interest rates on debt service.
- The precise impact of the April 26 credit amendment and progress toward the Workday joint solution; the filing does not quantify expected financial benefits.