Insperity, Inc. (NYSE:NSP) is a leading provider of human resources and business performance solutions for America's best businesses. The company has a long history of delivering comprehensive HR services and innovative technology solutions to small and medium-sized businesses across the United States.
Business Overview
Insperity's core offerings are its professional employer organization (PEO) services, known as Workforce Optimization and Workforce Synchronization solutions. These solutions provide a wide range of HR functions, including payroll and employment administration, employee benefits, workers' compensation, government compliance, performance management, and training and development services. The company also offers a cloud-based human capital management solution, the Insperity Premier platform, as well as traditional payroll and human capital management solutions through its Workforce Acceleration offering.In addition to its PEO and payroll solutions, Insperity provides a suite of other business performance solutions, including Recruiting Services, Employment Screening, Retirement Services, and Insurance Services. These offerings are designed to help clients improve their overall business performance and achieve sustainable growth.
Financials
Financial Performance
Insperity has demonstrated strong financial performance in recent years. In 2023, the company reported annual revenue of $6.49 billion, a 9.2% increase from the previous year. Net income for the year was $171.38 million, while operating cash flow and free cash flow were $198.49 million and $158.37 million, respectively.In the first quarter of 2024, Insperity reported revenue of $1.80 billion, a 2% increase compared to the same period in 2023. Net income for the quarter was $79 million, a 17% decrease from the first quarter of 2023. The company's operating cash flow and free cash flow for the quarter were $31 million and $26 million, respectively.
Geographical Breakdown
Insperity's PEO HR Outsourcing Solutions revenue is distributed across several key geographic regions. In the first quarter of 2024, the Northeast region accounted for 28% of total PEO HR Outsourcing Solutions revenue, the Southeast region contributed 14%, the Central region made up 18%, the Southwest region (including Texas) represented 19%, and the West region generated 21% of total PEO HR Outsourcing Solutions revenue.Revenue Breakdown and Trends
Insperity's revenue is primarily derived from its PEO HR Outsourcing Solutions, which accounted for approximately 99% of total revenue in the first quarter of 2024. The company's Traditional Payroll Solutions and other business performance solutions make up the remaining 1% of revenue.In the first quarter of 2024, Insperity's PEO HR Outsourcing Solutions revenue increased by 2% compared to the same period in 2023, driven by a 3% increase in revenue per worksite employee per month. This was partially offset by a 1% decrease in the average number of worksite employees paid per month.
Guidance and Outlook
For the full year 2024, Insperity is forecasting adjusted EBITDA in the range of $254 million to $293 million and adjusted earnings per share (EPS) between $3.17 and $3.90. This guidance reflects the company's expectation of flat to 2% growth in the average number of worksite employees paid per month, as well as continued strong pricing and slightly lower direct costs and operating expenses.For the second quarter of 2024, Insperity is forecasting adjusted EBITDA in the range of $53 million to $66 million and adjusted EPS between $0.61 and $0.83. This guidance considers the company's typical quarterly earnings pattern, where the first quarter results are typically higher than subsequent quarters due to higher payroll tax surplus and lower benefit costs.
Recent Developments
Workday Strategic Partnership
One of Insperity's most significant growth initiatives is its exclusive strategic partnership with Workday, Inc. Through this partnership, the companies are jointly developing, marketing, selling, and supporting a unique solution that combines Workday's HR technology with Insperity's HR services. This new offering is expected to provide small and medium-sized businesses with a competitively disruptive solution that offers less upfront capital cost, ongoing expense, complexity, and implementation time than currently available in the market.The partnership has four major objectives: 1) Insperity becoming a Workday customer for its corporate staff, 2) developing and embedding a Workday instance within Insperity's Workforce Optimization offering, 3) establishing a deployment and enablement team within Insperity's service organization, and 4) creating a go-to-market plan for the new solution.
In the first three months of the partnership, Insperity and Workday have made significant progress on these objectives, with the corporate Workday tenant project plan progressing on schedule and the teams working closely to develop the new client-facing solution. Insperity is also excited about the positive feedback and enthusiasm it has received from clients and prospects regarding the potential of this new offering.
Risks and Challenges
While Insperity has demonstrated strong financial performance and growth, the company faces several risks and challenges that investors should be aware of. These include:1. Macroeconomic conditions: Insperity's business is sensitive to changes in the broader economic environment, and a prolonged economic slowdown or recession could impact its client base and financial performance.
2. Regulatory and compliance risks: As an HR services provider, Insperity must navigate a complex regulatory landscape, including changes in employment laws, tax regulations, and healthcare policies, which could increase its costs and liabilities.
3. Talent acquisition and retention: The company's ability to attract and retain skilled employees, particularly in sales and service roles, is critical to its success.
4. Competitive landscape: Insperity operates in a competitive industry, and it must continually innovate and differentiate its offerings to maintain its market position.
5. Integration and execution risks: The successful implementation of the Workday strategic partnership and other growth initiatives will require effective integration and execution by the company.
Liquidity
Insperity's financial ratios demonstrate its strong financial position. As of March 31, 2024, the company had a current ratio of 1.15 and a quick ratio of 1.08, indicating a healthy level of liquidity. The company's debt-to-equity ratio was 0.20, suggesting a conservative capital structure.In terms of liquidity, Insperity had $683 million in cash, cash equivalents, and marketable securities as of March 31, 2024, of which $443 million was payable for withheld taxes and other payroll deductions, and $34 million represented client prepayments. The company also had $280 million available under its $650 million revolving credit facility, providing ample financial flexibility to support its growth initiatives and operations.