NSP Q4 Deep Dive: Margin Recovery and HRScale Launch Frame 2026 Outlook

HR outsourcing provider Insperity (NYSE:NSP) fell short of the market’s revenue expectations in Q4 CY2025 as sales rose 3.4% year on year to $1.67 billion. Its non-GAAP loss of $0.60 per share was 28.9% below analysts’ consensus estimates.

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StockStory’s Take

Insperity’s fourth quarter results missed Wall Street expectations, reflecting ongoing challenges in the small- and medium-sized business sector and elevated healthcare claims costs. Management attributed the performance to persistently weak client net hiring and higher benefits expenses, which squeezed gross profit margins. CEO Paul Sarvadi described 2025 as “exceptionally challenging,” citing external macroeconomic headwinds and an industry-wide rise in health plan costs as primary factors behind the quarter’s underwhelming financial outcome. Operating expense reductions and client retention efforts provided some stability, but top-line growth remained pressured.

Looking forward, Insperity’s 2026 guidance is shaped by its continued focus on margin recovery and the rollout of HRScale, a new mid-market HR solution developed in partnership with Workday. Management expects improved profitability, driven by repricing efforts, client selection strategies, and cost containment, though growth expectations for paid worksite employees remain muted. Sarvadi emphasized that “margin recovery is the centerpiece of 2026,” with initiatives targeting better client mix and more sustainable pricing. The company is also closely monitoring healthcare cost trends and expects gradual stabilization as new contracts and plan design changes take effect.

Key Insights from Management’s Remarks

Management pointed to decisive actions in the fourth quarter aimed at stabilizing profitability, while launching new offerings to support future growth.

• Sales office consolidation: Insperity accelerated the consolidation of sales offices, incurring a one-time expense, as part of a broader push to optimize its cost structure and align resources with current demand.
• Client mix and retention focus: The company prioritized margin recovery over raw growth, leading to slightly higher client attrition but an improved client mix, as less profitable accounts were non-renewed or priced out.
• Healthcare cost headwinds: Elevated healthcare claims continued to pressure margins, though management highlighted renegotiated contracts with UnitedHealthcare and plan design changes aimed at mitigating these trends going into 2026.
• HRScale launch and investment: Insperity continued to invest in HRScale, a new solution targeting mid-sized businesses, with beta clients expected to go live early in 2026; this platform is intended to expand the total addressable market and drive future growth.
• Pricing and product flexibility: The company ramped up its insurance agency to offer more client-sponsored benefit options, reducing benefit plan risk exposure and providing customers with increased flexibility in how they manage employee benefits.

Drivers of Future Performance

Management’s outlook for 2026 centers on restoring profitability through margin-focused initiatives, cautious growth expectations, and the successful rollout of HRScale.

• Margin recovery and pricing: Insperity is continuing its strategy of repricing new and renewing clients, with average price increases in the teens and a focus on client selection. Management expects that improved client demographics and higher pricing will support gross profit growth, even as healthcare costs remain elevated.
• HRScale as a growth lever: The HRScale solution, developed with Workday, is set to go live for initial clients in early 2026. Management believes HRScale will drive adoption among larger clients and new prospects, providing long-term revenue visibility and better retention, though the short-term impact on earnings is expected to be limited.
• Cost optimization and restructuring: The company’s recent workforce realignment, impacting about 4% of non-sales staff, is expected to lower operating expenses by $20 million in 2026. Additional cost containment is planned through reduced HRScale investments after mid-year and ongoing efficiency efforts.

Catalysts in Upcoming Quarters

In the coming quarters, our team will focus on (1) the pace and profitability of HRScale adoption as new clients come online, (2) the progression of client repricing and retention rates as the margin recovery plan continues, and (3) the trajectory of healthcare cost trends following recent contract renegotiations. Updates on operational efficiency efforts and signs of renewed net hiring among clients will also serve as key indicators of Insperity’s recovery momentum.

Insperity currently trades at $33.89, in line with $33.66 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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