Insperity's Q1 2025: Contradictions in Small Business Optimism, Workday Partnership, and Healthcare Costs

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Benefits Costs and Financial Adjustments:
- Insperity reported first-quarter adjusted EPS of $1.57 and adjusted EBITDA of $102 million, below their guidance primarily due to higher-than-expected benefits costs.
- Benefits costs per covered employee increased by 8.4% year-over-year, impacting gross profit per worksite employee from $378 in Q1 of 2024 to $338 in Q1 of 2025.
- The increase in benefits costs was attributed to elevated claims adjudication, including an unprecedented level of claims from prior periods and an acceleration of inpatient hospitalization and outpatient services.

Client Retention and Sales Challenges:
- Total client retention improved to 9% in Q1 2025 from 12% in Q1 2024, while client net hiring was slightly positive.
- The average paid worksite employees increased by 0.7%, below quarterly guidance due to delayed or canceled new client starts in the latter half of the quarter.
- The market uncertainty and government policy initiatives led to a dramatic reversal in optimism among small and mid-sized business clients, affecting decision-making and new client sales.

Strategic Partnership with Workday:
- Insperity successfully launched its corporate Workday platform in mid-March, integrating many elements foundational for their client instance.
- The joint solution with Workday is expected to address a large underserved market, potentially doubling Insperity's mid-market sales production.
- The new joint offering is planned to be available in 2026, with a go-to-market plan that involves a product-oriented delivery team for sales and marketing.

Financial Outlook and Guidance Adjustments:
- Full-year worksite employee growth is now forecasted at 0.5% to 3% over 2024, reflecting a reduction in expectations due to macroeconomic factors.
- Adjusted EPS is guided to a range of $2.23 to $3.28 for the full year, and adjusted EBITDA is expected to be between $190 million to $245 million.
- The economic climate and client uncertainty have led to adjustments in growth expectations, with a focus on operational expense management and strategic planning for the future.