Business Context and Reporting Period
Company: Insperity, Inc. (NYSE: NSP)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: Insperity is a leading Professional Employer Organization (PEO) providing comprehensive human resources (HR) and business solutions to small and medium-sized businesses. The company operates under a co-employment model, offering payroll, benefits administration, workers' compensation, and compliance services through its HR 360, HR 360 Select Edition, and the newly developed HR Scale solutions (in partnership with Workday).
Key Financial Metrics
| Metric (in millions, except per share) | 2025 | 2024 | % Change |
|---|---|---|---|
| Revenues | $6,812 | $6,581 | 4% |
| Gross Profit | $900 | $1,052 | (14)% |
| Operating Income (Loss) | $(10) | $117 | (109)% |
| Net Income (Loss) | $(7) | $91 | (108)% |
| Diluted EPS | $(0.19) | $2.42 | (108)% |
| Adjusted Net Income | $39 | $135 | (71)% |
| Adjusted EBITDA | $131 | $270 | (51)% |
| Working Capital | $102 | $155 | N/A |
| Cash & Cash Equivalents | $642 | $1,039 | N/A |
| Long-Term Debt | $369 | $369 | 0% |
Note: Revenues exclude the payroll cost component of gross billings ($38.8 billion in 2025). Gross profit margin declined due to a 15% decrease in gross profit per Worksite Employee (WSEE), driven by a 9% increase in benefits costs per participant.
Material Changes vs. Prior Period
- Profitability Decline: The company reported a net loss of $7 million in 2025 compared to net income of $91 million in 2024. This was primarily driven by a 14% decrease in gross profit, which fell to $900 million.
- Cost Pressures: Direct costs per WSEE increased by 6%, largely attributable to a 9% increase in health insurance benefits costs. While pricing increased by 3%, it did not fully offset the rise in direct costs.
- Operational Efficiency: Operating expenses decreased 3% to $910 million, with expenses per WSEE dropping from $253 to $245. This was due to reductions in professional services, travel, and salary costs, partially offset by accelerated lease costs from office consolidations.
- Client Base: The average number of WSEEs paid per month increased 1% to 310,089. Client retention improved to 83% in 2025 from 81% in 2024.
- Cash Flow: Net cash used in operating activities was $278 million in 2025, a significant shift from the $520 million provided in 2024. This was influenced by the timing of payroll tax payments and the distribution of $440 million in Employee Retention Credit (ERC) funds to clients in early 2025.
Guidance, Outlook, and Risks
- Strategic Initiatives: Insperity is launching the "HR Scale" solution in Q1 2026, a joint offering with Workday targeting the middle market. The company also entered a brand partnership with Tiger Woods in August 2025.
- Health Insurance Costs: Management highlighted that health insurance costs are a significant driver of profitability. The company elected to limit its financial responsibility for claims to $500,000 per claimant for 2026 (down from $1 million in 2025) to manage risk.
- Regulatory Risks: The company faces risks related to the IRS review of Employee Retention Credit (ERC) claims. If claims are disallowed, Insperity could face liabilities or penalties. Additionally, changes in healthcare reform or state regulations could impact the PEO business model.
- Technology Risks: Disruptions to IT systems or cybersecurity incidents could materially disrupt operations, given the reliance on proprietary platforms and third-party vendors like Workday.
- Liquidity: The company maintains a $750 million revolving credit facility with $380 million available as of year-end. Management believes current cash, marketable securities, and credit facility availability are adequate for 2026 liquidity needs.
Investor Verification Checklist
- Health Insurance Run-off: Verify the sensitivity of the $11 million increase in benefits costs due to prior period claim run-off estimates and the impact of the new $500,000 individual claims limit for 2026.
- ERC Exposure: Assess the potential financial impact of IRS denials on the Employee Retention Credit claims processed for clients, including potential indemnification liabilities.
- HR Scale Adoption: Monitor the initial client uptake and revenue contribution of the HR Scale solution in Q1 2026 to validate the strategic partnership with Workday.
- Client Retention Trends: Track whether the 83% retention rate holds steady, particularly given the 30-day cancellation terms of standard Client Service Agreements (CSAs).
- Debt Covenants: Confirm continued compliance with financial covenants under the credit facility, specifically the interest coverage ratio and leverage ratio, given the shift to a net loss position.