What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-06 compared with 2025-08-07 · 58 added, 50 removed, 140 unchanged (44% of the section changed)

36 unchanged sentences

Results of Operations

The following table sets forth the percentages of total revenues represented by selected items in the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2025 and 2024 ($ in thousands):

The following table sets forth the percentages of total revenues represented by selected items in the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2025 and 2024 ($ in thousands):

Percentage of Total Net Revenues

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Professional employer services

14 unchanged sentences

However, management believes that gross billings and wages are useful in understanding the volume of our business activity and serve as an important performance metric in managing our operations, including the preparation of internal operating forecasts and establishing executive compensation performance goals.

We therefore present for purposes of analysis gross billings and wage information for the three and six months ended June 30, 2025 and 2024.

We therefore present for purposes of analysis gross billings and wage information for the three and nine months ended September 30, 2025 and 2024.

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

PEO and staffing wages

6 unchanged sentences

Three Months Ended

September 30,

Year-over-year

Six Months Ended

Nine Months Ended

September 30,

Year-over-year

Three Months Ended June 30, 2025 and 2024

Net income for the second quarter of 2025 amounted to $18.5 million compared to net income of $16.7 million for the second quarter of 2024.

Diluted net income per share for the second quarter of 2025 was $0.70 compared to diluted net income per share of $0.62 for the second quarter of 2024.

Revenue for the second quarter of 2025 totaled $307.7 million, an increase of $28.0 million or 10.0% over the second quarter of 2024, which reflects an increase in the Company’s PEO services revenue of $30.3 million or 11.7% and a decrease in staffing services revenue of $2.3 million or 11.5%.

The increase in PEO services revenue was primarily attributable to an 8.0% increase in the average number of WSEs as well as a 1.7% increase in average billing per WSE per day.

Gross margin for the second quarter of 2025 totaled $73.3 million or 23.8% of revenue compared to $67.9 million or 24.2% of revenue for the second quarter of 2024.

Three Months Ended September 30, 2025 and 2024

Net income for the third quarter of 2025 amounted to $20.6 million compared to net income of $19.6 million for the third quarter of 2024.

Diluted net income per share for the third quarter of 2025 was $0.79 compared to diluted net income per share of $0.74 for the third quarter of 2024.

Revenue for the third quarter of 2025 totaled $318.9 million, an increase of $24.7 million or 8.4% over the third quarter of 2024, which reflects an increase in the Company’s PEO services revenue of $26.9 million or 9.9% and a decrease in staffing services revenue of $2.2 million or 10.3%.

The increase in PEO services revenue was primarily attributable to a 6.1% increase in the average number of WSEs as well as a 2.5% increase in average billing per WSE per day.

Gross margin for the third quarter of 2025 totaled $76.8 million or 24.0% of revenue compared to $74.4 million or 25.3% of revenue for the third quarter of 2024.

The decrease in gross margin as a percentage of revenues is primarily a result of the factors discussed within the separate components of gross margin below.

Direct payroll costs for the second quarter of 2025 totaled $13.2 million or 4.3% of revenue compared to $14.7 million or 5.3% of revenue for the second quarter of 2024.

The decrease in direct payroll costs as a percentage of revenues was primarily due to a decrease in staffing services within the mix of our customer base compared to the second quarter of 2024.

Payroll taxes and benefits for the second quarter of 2025 totaled $173.3 million or 56.3% of revenue compared to $148.8 million or 53.2% of revenue for the second quarter of 2024.

The increase in payroll taxes and benefits expense as a percentage of revenue was primarily due to expanded adoption of our PEO client benefit programs, resulting in client benefit costs of $17.7 million in the second quarter of 2025 compared to $7.1 million in the second quarter of 2024, as well as higher average payroll tax rates in the second quarter of 2025.

Workers’ compensation expense for the second quarter of 2025 totaled $48.0 million or 15.6% of revenue compared to $48.3 million or 17.3% of revenue for the second quarter of 2024.

The decrease in workers’ compensation expense as a percentage of revenue was primarily due to lower workers' compensation costs in the second quarter of 2025, which included favorable prior year liability and premium adjustments of $8.8 million, compared to favorable prior year liability and premium adjustments of $8.9 million in the second quarter of 2024.

Selling, general and administrative (“SG&A”) expenses for the second quarter of 2025 totaled $48.2 million or 15.7% of revenue compared to $45.6 million or 16.3% of revenue for the second quarter of 2024.

The increase of $2.6 million in SG&A expense was primarily attributable to increased employee-related costs compared to the second quarter of 2024.

Other income, net for the second quarter of 2025 totaled $2.3 million compared to other income, net of $3.1 million for the second quarter of 2024.

The decrease was primarily attributable to a decrease in investment income in the second quarter of 2025.

Our effective income tax rate for the second quarter of 2025 was 27.1% compared to 28.8% for the second quarter of 2024.

Direct payroll costs for the third quarter of 2025 totaled $14.6 million or 4.6% of revenue compared to $16.2 million or 5.5% of revenue for the third quarter of 2024.

The decrease in direct payroll costs as a percentage of revenues was primarily due to a decrease in staffing services within the mix of our customer base compared to the third quarter of 2024.

Payroll taxes and benefits for the third quarter of 2025 totaled $176.3 million or 55.3% of revenue compared to $154.1 million or 52.4% of revenue for the third quarter of 2024.

The increase in payroll taxes and benefits expense as a percentage of revenue was primarily due to higher average payroll tax rates in the third quarter of 2025 as well as expanded adoption of our PEO client benefit programs, resulting in client benefit costs of $19.6 million in the third quarter of 2025 compared to $9.0 million in the third quarter of 2024.

Workers’ compensation expense for the third quarter of 2025 totaled $51.3 million or 16.1% of revenue compared to $49.5 million or 16.8% of revenue for the third quarter of 2024.

The decrease in workers’ compensation expense as a percentage of revenue was primarily due to lower workers' compensation costs in the third quarter of 2025, which included favorable prior year liability and premium adjustments of $3.9 million, compared to favorable prior year liability and premium adjustments of $4.3 million in the third quarter of 2024.

Selling, general and administrative (“SG&A”) expenses for the third quarter of 2025 totaled $49.9 million or 15.6% of revenue compared to $49.1 million or 16.7% of revenue for the third quarter of 2024.

The increase of $0.8 million in SG&A expense was primarily attributable to increased employee-related costs compared to the third quarter of 2024.

Other income, net for the third quarter of 2025 totaled $2.0 million compared to other income, net of $2.3 million for the third quarter of 2024.

The decrease was primarily attributable to a decrease in investment income in the third quarter of 2025.

Our effective income tax rate for the third quarter of 2025 was 22.9% compared to 23.6% for the third quarter of 2024.

Our income tax rate typically differs from the federal statutory tax rate of 21% primarily due to state taxes as well as federal and state tax credits.

Six Months Ended June 30, 2025 and 2024

Net income for the first six months of 2025 amounted to $17.4 million compared to net income of $16.6 million for the first six months of 2024.

Diluted net income per share for the first six months of 2025 was $0.66 compared to diluted net income per share of $0.62 for the first six months of 2024.

Revenue for the first six months of 2025 totaled $600.2 million, an increase of $54.8 million or 10.0% over the first six months of 2024, which reflects an increase in the Company's PEO services revenue of $59.0 million or 11.7% and a decrease in staffing services revenue of $4.2 million or 10.7%.

Nine Months Ended September 30, 2025 and 2024

Net income for the first nine months of 2025 amounted to $38.1 million compared to net income of $36.2 million for the first nine months of 2024.

Diluted net income per share for the first nine months of 2025 was $1.45 compared to diluted net income per share of $1.35 for the first nine months of 2024.

Revenue for the first nine months of 2025 totaled $919.2 million, an increase of $79.5 million or 9.5% over the first nine months of 2024, which reflects an increase in the Company's PEO services revenue of $85.9 million or 11.0% and a decrease in staffing services revenue of $6.5 million or 10.6%.

The increase in PEO services revenue was primarily attributable to a 7.2% increase in the average number of WSEs as well as a 2.7% increase in average billing per WSE per day.

Gross margin for the first six months of 2025 totaled $115.9 million or 19.3% of revenue compared to $107.5 million or 19.7% of revenue for the first six months of 2024.

Gross margin for the first nine months of 2025 totaled $192.6 million or 20.9% of revenue compared to $181.9 million or 21.6% of revenue for the first nine months of 2024.

The decrease in gross margin as a percentage of revenues is primarily a result of the factors discussed within the separate components of gross margin below.

Direct payroll costs for the first six months of 2025 totaled $26.5 million or 4.4% of revenue compared to $29.4 million or 5.4% of revenue for the first six months of 2024.

The decrease in direct payroll costs as a percentage of revenues was primarily due to a decrease in staffing services within the mix of our customer base compared to the first six months of 2024.

Payroll taxes and benefits for the first six months of 2025 totaled $360.3 million or 60.0% of revenue compared to $310.7 million or 57.0% of revenue for the first six months of 2024.

The increase in payroll taxes and benefits expense as a percentage of revenue was primarily due to higher average payroll tax rates in the first six months of 2025 and PEO client benefit costs of $34.7 million in the first six months of 2025 compared to $13.7 million in the first six months of 2024.

Workers' compensation expense for the first six months of 2025 totaled $97.6 million or 16.3% of revenue compared to $97.9 million or 17.9% of revenue for the first six months of 2024.

The decrease in workers' compensation expense as a percentage of revenue was primarily due to lower workers' compensation costs in the first six months of 2025, including favorable prior year liability and premium adjustments of $12.6 million in the first six months of 2025 compared to favorable prior year liability and premium adjustments of $11.8 million in the first six months of 2024.

SG&A expense for the first six months of 2025 totaled $93.0 million or 15.5% of revenue compared to $88.0 million or 16.1% of revenue for the first six months of 2024.

The increase of $5.0 million in SG&A expense was primarily attributable to increased employee-related costs compared to the first six months of 2024.

Other income, net for the first six months of 2025 totaled $4.9 million compared to other income, net of $6.3 million for the first six months of 2024.

The decrease was primarily attributable to a decrease in investment income in the first six months of 2025.

Our effective income tax rate for the first six months of 2025 was 26.7% compared to 24.9% for the first six months of 2024.

Direct payroll costs for the first nine months of 2025 totaled $41.1 million or 4.5% of revenue compared to $45.6 million or 5.4% of revenue for the first nine months of 2024.

The decrease in direct payroll costs as a percentage of revenues was primarily due to a decrease in staffing services within the mix of our customer base compared to the first nine months of 2024.

Payroll taxes and benefits for the first nine months of 2025 totaled $536.6 million or 58.4% of revenue compared to $464.8 million or 55.4% of revenue for the first nine months of 2024.

The increase in payroll taxes and benefits expense as a percentage of revenue was primarily due to higher average payroll tax rates in the first nine months of 2025 as well as expanded adoption of our PEO client benefit programs, resulting in client benefit costs of $54.4 million in the first nine months of 2025 compared to $22.6 million in the first nine months of 2024.

Workers' compensation expense for the first nine months of 2025 totaled $148.9 million or 16.2% of revenue compared to $147.4 million or 17.6% of revenue for the first nine months of 2024.

The decrease in workers' compensation expense as a percentage of revenue was primarily due to lower workers' compensation costs in the first nine months of 2025, which included favorable prior year liability and premium adjustments of $16.5 million in the first nine months of 2025 compared to favorable prior year liability and premium adjustments of $16.1 million in the first nine months of 2024.

SG&A expense for the first nine months of 2025 totaled $142.9 million or 15.5% of revenue compared to $137.1 million or 16.3% of revenue for the first nine months of 2024.

The increase of $5.8 million in SG&A expense was primarily attributable to increased employee-related costs compared to the first nine months of 2025.

Other income, net for the first nine months of 2025 totaled $6.9 million compared to other income, net of $8.6 million for the first nine months of 2024.

The decrease was primarily attributable to a decrease in investment income in the first nine months of 2025.

Our effective income tax rate for the first nine months of 2025 was 24.7% compared to 24.2% for the first nine months of 2024.

Our income tax rate typically differs from the federal statutory tax rate of 21% primarily due to state taxes as well as federal and state tax credits.

8 unchanged sentences

Liquidity and Capital Resources

The Company’s cash balance of $37.2 million, which includes cash, cash equivalents, and restricted cash, decreased $45.4 million for the six months ended June 30, 2025, compared to a decrease of $4.8 million for the comparable period of 2024.

The decrease in cash at June 30, 2025 as compared to December 31, 2024 was primarily due to the factors discussed below.

Net cash used in operating activities for the six months ended June 30, 2025 amounted to $48.6 million, compared to cash used of $42.4 million for the comparable period of 2024.

For the six months ended June 30, 2025, net cash used in operating activities was primarily due to decreased premium payable of $41.2 million, increased trade accounts receivable of $29.6 million, decreased workers’ compensation claims liabilities of $14.4 million, decreased payroll taxes payable of $8.7 million, and increased prepaid expenses of $7.1 million, partially offset by increased accrued payroll and related benefits of $24.2 million, net income of $17.4 million, and share-based compensation of $4.9 million.

Net cash provided by investing activities for the six months ended June 30, 2025 totaled $26.1 million, compared to cash provided of $57.0 million for the comparable period of 2024.

For the six months ended June 30, 2025, net cash provided by investing activities consisted of proceeds from sales and maturities of investments and restricted investments of $77.8 million, partially offset by purchases of investments and restricted investments of $42.8 million and purchases of property, equipment and software of $8.9 million.

Net cash used in financing activities for the six months ended June 30, 2025 was $22.9 million, compared to cash used of $19.5 million for the comparable period of 2024.

For the six months ended June 30, 2025, net cash used in financing activities primarily consisted of repurchases of common stock of $17.3 million and dividend payments of $4.1 million.

The Company’s cash balance of $66.0 million, which includes cash, cash equivalents, and restricted cash, decreased $16.5 million for the nine months ended September 30, 2025, compared to a decrease of $46.1 million for the comparable period of 2024.

The decrease in cash at September 30, 2025 as compared to December 31, 2024 was primarily due to the factors discussed below.

Net cash used in operating activities for the nine months ended September 30, 2025 amounted to $10.2 million, compared to cash used of $43.3 million for the comparable period of 2024.

For the nine months ended September 30, 2025, net cash used in operating activities was primarily due to increased trade accounts receivable of $66.1 million, decreased premium payable of $35.6 million, decreased workers’ compensation claims liabilities of $19.2 million, increased prepaid expenses of $7.1 million, and decreased payroll taxes payable of $6.5 million, partially offset by increased accrued payroll and related benefits of $63.0 million, net income of $38.1 million, share-based compensation of $7.8 million, and increased other accrued liabilities of $7.3 million.

Net cash provided by investing activities for the nine months ended September 30, 2025 totaled $27.4 million, compared to cash provided of $29.0 million for the comparable period of 2024.

For the nine months ended September 30, 2025, net cash provided by investing activities consisted of proceeds from sales and maturities of investments and restricted investments of $84.1 million, partially offset by purchases of investments and restricted investments of $43.4 million and purchases of property, equipment and software of $13.3 million.

Net cash used in financing activities for the nine months ended September 30, 2025 was $33.8 million, compared to cash used of $31.9 million for the comparable period of 2024.

For the nine months ended September 30, 2025, net cash used in financing activities primarily consisted of repurchases of common stock of $24.8 million and dividend payments of $6.2 million.

The Company is required to maintain minimum collateral levels for certain policies issued under the insured program, which is held in a trust account (the “trust account”).

The balance in the trust account was $153.9 million and $197.1 million at June 30, 2025 and December 31, 2024, respectively.

The balance in the trust account was $159.9 million and $197.1 million at September 30, 2025 and December 31, 2024, respectively.

The trust account balance is included as a component of the current and long-term restricted cash and investments in the Company’s condensed consolidated balance sheets.

46 unchanged sentences

We attempt to limit our investment portfolio's exposure to market risk through low investment turnover and diversification.

Based on the Company’s overall interest exposure at June 30, 2025, a 50 basis point increase in market interest rates would have a $3.8 million downward effect on the fair value of the Company’s investment portfolio.

Based on the Company’s overall interest exposure at September 30, 2025, a 50 basis point increase in market interest rates would have a $3.6 million downward effect on the fair value of the Company’s investment portfolio.

Outstanding borrowings on the Company's line of credit bear interest at a variable market rate, which makes the cost of borrowing on the line of credit susceptible to changing interest rates.

At June 30, 2025, the Company had no outstanding borrowings on its line of credit.

At September 30, 2025, the Company had no outstanding borrowings on its line of credit.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis