INSPERITY, INC. Annual Report Summary for Retail Investors

This summary provides a clear, concise overview of Insperity, Inc.'s recent annual performance and strategic direction, drawing key insights from its latest 10-K filing.

Business Overview Insperity, Inc. (NYSE: NSP) leads the market in human resources (HR) and business performance solutions, primarily serving small and medium-sized businesses (SMBs) across the U.S. As a pioneer in the Professional Employer Organization (PEO) industry, Insperity partners with businesses as a co-employer. This means Insperity takes on many HR responsibilities for client employees, offering comprehensive services like payroll, benefits, workers' compensation, and compliance. This model helps businesses reduce administrative burdens and access enterprise-level benefits and HR expertise.

Insperity's core "PEO HR Solutions" drive most of its revenue. Insperity® HR360 is their flagship comprehensive service. For middle-market clients, Insperity® HR360 Select Edition offers a more flexible, cost-effective option. A key strategic initiative is Insperity® HRScale™, which Insperity developed in partnership with Workday, Inc. This solution targets growing and middle-market companies seeking advanced HR management software (HCM) integrated with Insperity's HR expertise. Insperity also offers Insperity® HRCore™ for traditional payroll and HCM, alongside other business solutions such as Talent Acquisition, Retirement Services, and Insurance Services.

Financial Performance For the fiscal year ended December 31, 2024, Insperity achieved solid growth. Total revenues increased by 8% to $6.5 billion. This growth primarily stemmed from a 5% increase in the average number of paid employees managed (worksite employees, or WSEs) to 350,000, combined with effective pricing strategies. Net income grew by 12% to $250 million, translating to diluted earnings per share (EPS) of $6.75, up from $6.00 in the prior year. The HR360 solution remained the largest revenue contributor, highlighting its central role in the company's business model. At year-end, the market value of common stock held by non-affiliates totaled approximately $2.1 billion.

Risk Factors Insperity faces various risks that could significantly impact its business, financial health, and operating results. Key risks include:

• Economic and Market Risks: Adverse economic conditions, such as recessions or high inflation, could reduce demand for HR services, lead to client attrition, or decrease client hiring. This would affect revenue and profitability. Last year, economic uncertainties also made some clients cautious about expansion plans.
• Regulatory and Compliance Risks: The PEO industry faces extensive regulation. Changes in federal, state, or local employment, labor, healthcare (e.g., Affordable Care Act), workers' compensation, and taxation laws could raise compliance costs, alter service offerings, or create legal liabilities. Insperity actively monitors these changes to ensure compliance and reduce potential risks.
• Healthcare and Workers' Compensation Costs: Significant increases in healthcare benefits or workers' compensation insurance premiums, which Insperity secures for its managed employees, could hurt profit margins if Insperity cannot fully pass these costs to clients. Persistent inflation, for example, challenged the company by increasing benefit costs.
• Competition: The market for HR and PEO services is intensely competitive. Failure to compete effectively on price, service quality, or technological innovation could lead to losing market share.
• Technology and Cybersecurity Risks: Insperity relies on information technology systems for operations, client service, and data management. This exposes the company to risks like system failures, data breaches, or cyber-attacks, which could disrupt services, harm its reputation, and lead to significant costs.
• Co-employment Liability: As a co-employer, Insperity shares certain employer responsibilities and liabilities with its clients. Claims or litigation related to employment practices, wage and hour disputes, or discrimination could cause significant financial and reputational harm.
• Talent Attraction and Retention: The ability to attract, develop, and retain skilled employees, both internally and for its clients, is crucial. A tight labor market or increased competition for talent could hinder operational efficiency and growth.

Management Discussion This year, Insperity achieved a significant strategic milestone by deepening its partnership with Workday, Inc. and developing HRScale. This collaboration positions Insperity to gain a larger share of the growing middle-market segment with a cutting-edge, integrated HR technology solution. Management expects this move to enhance client retention and attract new, higher-value clients.

However, Insperity also faced challenges. Persistent inflation drove up benefit costs, and a tight labor market intensified competition for talent, both internally and for clients. Economic uncertainties also made some clients cautious about expansion. The HR market continues to evolve rapidly. Increasing HR compliance complexity, growing demand for integrated technology solutions, and the shift to remote and hybrid work models present both opportunities and challenges for Insperity.

Financial Health Insperity demonstrates strong financial health. As of December 31, 2024, Insperity reported $180 million in cash and cash equivalents. Total debt, primarily long-term notes, stood at $400 million, leading to a manageable debt-to-equity ratio of 0.4x. A current ratio of 1.8x indicates strong short-term liquidity. This positions Insperity well to meet immediate financial obligations and fund ongoing operations and strategic investments, such as the HRScale launch.

Future Outlook Insperity's long-term strategy aims to expand its market share within the SMB segment by providing integrated, high-value HR solutions. This strategy rests on three key pillars:

1. Client Growth & Retention: Continuously enhancing client experience and expanding sales efforts.
2. Technology Innovation: Investing in platforms like Insperity Premier™ and the new HRScale to offer advanced, scalable solutions.
3. Operational Efficiency: Optimizing internal processes to manage costs and improve service delivery.

The upcoming HRScale launch in Q1 2026 is a cornerstone of this strategy. It aims to unlock new revenue streams and strengthen Insperity's position in the middle market. Management anticipates mid-to-high single-digit revenue growth for the next fiscal year, driven by continued growth in managed employees and HRScale's initial ramp-up. Insperity also plans continued investment in sales and marketing to capitalize on market opportunities.

Competitive Position Insperity competes in a highly competitive market against other PEOs (like ADP TotalSource, TriNet), traditional payroll providers (such as Paychex), and HR software companies (including Workday, SAP SuccessFactors). Insperity's competitive advantage comes from its comprehensive PEO model, which provides integrated services and leverages significant buying power for benefits. The new HRScale offering, combining Insperity's HR expertise with Workday's advanced technology, is a strategic move to differentiate Insperity and compete more effectively in the tech-driven HR solutions space, especially for larger SMBs.

Insperity's solid financial performance, strategic technology investments, and established market position offer a compelling view for potential investors.