Insperity’s third quarter saw a pronounced negative market reaction, with management attributing underperformance to a spike in healthcare claims, particularly higher outpatient and pharmacy utilization as well as an increase in large claims frequency. CEO Paul Sarvadi described this as a “significant and unexpected step-up in health care claims,” highlighting that these industry-wide cost pressures led to a material shortfall in profitability. CFO Jim Allison acknowledged, “These results fell below our forecasted ranges, primarily due to a further continuation of higher-than-expected benefits costs.” While client retention remained high, the company faced ongoing headwinds tied to the broader healthcare cost environment.
Is now the time to buy NSP? Find out in our full research report (it’s free for active Edge members).
Insperity (NSP) Q3 CY2025 Highlights:
- Revenue: $1.62 billion vs analyst estimates of $1.63 billion (4% year-on-year growth, in line)
- Adjusted EPS: -$0.20 vs analyst estimates of $0.22 (significant miss)
- Adjusted EBITDA: $10 million vs analyst estimates of $28.56 million (0.6% margin, 65% miss)
- Management lowered its full-year Adjusted EPS guidance to $1.16 at the midpoint, a 46.5% decrease
- EBITDA guidance for the full year is $136 million at the midpoint, below analyst estimates of $183.2 million
- Operating Margin: -1.5%, down from 0.1% in the same quarter last year
- Market Capitalization: $1.28 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Insperity’s Q3 Earnings Call
- Andrew Nicholas (William Blair) asked for clarification on whether the anticipated earnings rebound references 2024 results or initial 2025 guidance. CFO James Allison confirmed the shortfall is nearly all due to healthcare costs and is relative to both prior year and initial guidance.
- Andrew Nicholas (William Blair) questioned if higher benefit costs and repricing would hurt new client sales or retention. CEO Paul Sarvadi stated retention remained robust and new sales are ahead of last year, indicating pricing actions have not yet dampened demand.
- Jeff Martin (ROTH Capital Partners) inquired about the sales pod's experience marketing HRScale. Sarvadi described strong early interest and pipeline development, noting, “We’re already out there calling on customers...and we’re getting great reaction from the prospects.”
- Mark Marcon (Baird) asked about the expected magnitude of client attrition from repricing and the impact of lowering the large claim pooling level. Management explained higher pricing is primarily targeted at unprofitable clients, with the pooling change improving cost predictability.
- Tobey Sommer (Truist) sought details on HRScale pricing structure and whether it can offset incremental service expenses. Allison discussed the three-stage pricing model with initial discounts for early adopters but higher base pricing than legacy solutions, supporting both growth and margin potential.
Catalysts in Upcoming Quarters
In upcoming quarters, we will closely monitor (1) the adoption rate and revenue contribution from HRScale as it moves from beta to broader rollout, (2) the effectiveness of pricing actions in offsetting elevated healthcare claims costs and preserving client retention, and (3) the impact of the new UnitedHealthcare contract on cost trends and margin recovery. Progress in these areas will signal whether Insperity can execute its turnaround strategy and return to historical growth metrics.
Insperity currently trades at $34.15, down from $45.09 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).
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