What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-04-26 compared with 2021-11-02 · 95 added, 160 removed, 244 unchanged (51% of the section changed)

8 unchanged sentences

The effects of the COVID-19 pandemic, including actions taken by businesses and governments, have resulted in significant changes in U.S.

economic activity.

As the duration of the pandemic and such economic impacts remain uncertain, we have planned for a range of scenarios and have modified certain business and workforce practices.

To conform to government restrictions and best practices, we have taken steps designed to keep our staff safe while continuing to serve clients, including implementing flexible remote working arrangements for our employees and providing extra safety measures at corporate facilities.

economic activity and to the workplace in general.

While uncertainties continue regarding the pandemic, including its duration, future variants, and its longer-term impacts, we believe that we are positioned to continue to adjust our business plans and workforce practices as conditions change.

In response to the pandemic’s impact on the workplace, we implemented flexible remote working arrangements for our employees.

To serve our clients, we have instituted a number of service offerings and developed COVID-19 resources to assist clients with obtaining government provided tax credits, tax deferrals, loans and loan forgiveness and to provide guidance to assist clients with addressing the challenges faced by employers as a result of the pandemic.

These service offerings and guidance to assist clients during the pandemic included additional benefits support, remote workforce transition, monitoring and educating on regulatory changes, including vaccine mandates;

return to the workplace and workplace safety.

In the third quarter of 2021 (“Q3 2021”), the average number of WSEEs paid per month increased 11.1% year-over-year as the Q3 2021 increase in WSEEs paid at existing clients combined with WSEEs paid from new sales exceeded the third quarter of 2020 (“Q3 2020”) levels.

We expect the average number of paid WSEEs per month to increase between 11.0% and 12.0% in the fourth quarter of 2021 as compared to the fourth quarter of 2020, which, if achieved, would equate to the average number of paid WSEEs per month growing 3.1% to 4.1% sequentially from the third quarter of 2021.

We experienced a 10.3% increase in the year-over-year benefits costs per covered employee during the first nine months of 2021 as compared to the first nine months of 2020, which had substantially lower costs primarily due to the significant decrease in benefits utilization that we experienced during the second quarter of 2020.

During the second quarter of 2020, we experienced a 10.7% decrease in benefits costs per covered employee due primarily to lower utilization of medical services by plan participants as a result of the COVID-19 pandemic, including in response to COVID-19 governmental requirements or guidance related to the deferral of non-essential medical procedures and shelter-in-place and similar orders.

During the remainder of 2021 and possibly beyond 2021, benefits costs are expected to continue to be affected by the dynamics of the pandemic, including the impact on healthcare utilization and incremental COVID-19 testing, vaccine and treatment costs.

These service offerings and guidance to assist clients with the impacts of the pandemic include additional benefits support;

remote workforce transition;

monitoring and educating on regulatory changes, including vaccine mandates;

return to the workplace;

and workplace safety.

In the first quarter of 2022 (“Q1 2022”), the average number of WSEEs paid per month increased 19.5% year-over-year as the Q1 2022 increase in WSEEs paid at existing clients combined with WSEEs paid from new sales and client retention all exceeded the first quarter of 2021 (“Q1 2021”) levels.

We expect the average number of paid WSEEs per month to increase between 18% and 19% in the second quarter of 2022 as compared to the second quarter of 2021, which, if achieved, would equate to the average number of paid WSEEs per month growing 3% to 4% sequentially from the first quarter of 2022.

We experienced a 7.4% increase in the year-over-year benefits costs per covered employee during Q1 2022 as compared to Q1 2021.

During Q1 2021, we experienced a 1.8% increase in the year-over-year benefits costs per covered employee as compared to Q1 2020.

During 2022 and possibly beyond 2022, benefits costs are expected to continue to be affected by the dynamics of the pandemic, including the impact on healthcare utilization and incremental COVID-19 testing, vaccination and treatment costs.

This may result in a higher level of healthcare claims costs than our historical claim cost trends.

2 unchanged sentences

The extent to which our future results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the scope, duration and magnitude of the pandemic, impacts of changes in or variants of the COVID-19 virus, actions by businesses and governments in response to the pandemic, including programs designed to assist small and medium-sized businesses with the economic impact of the pandemic;

Insperity | 2021 Third Quarter Form 10-Q

and the speed and effectiveness of responses to combat the virus, including the development, availability and acceptance of therapeutics and vaccines.

“Risk Factors” included in Part I of our Annual Report on Form 10-K for teh year ended December 31, 2021.

Insperity | 2022 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

speed and effectiveness of responses to combat the virus, including the development, availability and acceptance of therapeutics and vaccines.

See Part II, Item 1A.

“Risk Factors” for additional information.

2022 Highlights

Third Quarter 2021 Compared to Third Quarter 2020

First Quarter 2022 Compared to First Quarter 2021

• Average number of WSEEs paid per month increased 19.5%

• Net income and diluted earnings per share (“diluted EPS”) increased 12.9% and 13.2% to $69.9 million and $1.80, respectively

• Adjusted EPS decreased 2.2% to $0.89

• Adjusted EPS increased 9.3% to $1.99

• Adjusted EBITDA increased 13.8% to $118.6 million

First Nine Months 2021 Compared to First Nine Months 2020

• Average number of WSEEs paid per month increased 5.2%

• Net income and diluted EPS decreased 14.6% and 14.3% to $114.4 million and $2.94, respectively

• Adjusted EPS decreased 12.8% to $3.62

• Adjusted EBITDA decreased 10.5% to $224.6 million

Please read “Non-GAAP Financial Measures” for a reconciliation of adjusted EBITDA and adjusted EPS to their most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”).

Insperity | 2021 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Key Financial and Statistical Data

(in thousands, except per share, WSEE and statistical data)

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 % Change 2021 2020 % Change

Three Months Ended March 31,

2022 2021 % Change

Financial data:

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Operating income 98,395 83,824 17.4 %

Other income (expense) (1,712) (1,628) 5.2 % (3,307) (3,961) (16.5) %

Other expense (1,777) (1,056) 68.3 %

Net income 69,884 61,922 12.9 %

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(2) Revenues per WSEE per month are comprised of gross billings per WSEE per month less WSEE payroll costs per WSEE per month as follows:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(per WSEE per month) 2022 2021

2 unchanged sentences

Revenues $ 1,887 $ 1,840

Insperity | 2021 Third Quarter Form 10-Q

Insperity | 2022 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

8 unchanged sentences

• During Q1 2022, WSEEs paid increased 19.5% compared to Q1 2021.

The number of WSEEs paid from new client sales and client retention improved compared to Q3 2020 and the net gain (loss) in our client base improved compared to Q3 2020 as clients continue to recover from the effects of the pandemic.

• During the first nine months of 2021 (“YTD 2021”), WSEEs paid increased 5.2% compared to the first nine months of 2020 (“YTD 2020”).

The number of WSEEs paid from new client sales improved compared to YTD 2020 and the net gain (loss) in our client base improved compared to YTD 2020 as clients continue to recover from the effects of the pandemic.

Client retention remained consistent compared to YTD 2020.

The number of WSEEs paid from new client sales, the net gain (loss) in our client base and client retention all improved compared to Q1 2021.

Average WSEEs Paid and

Year-over-Year Growth Percentage

Insperity | 2021 Third Quarter Form 10-Q

Insperity | 2022 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

9 unchanged sentences

Because our monthly markup is computed in part as a percentage of payroll cost, certain revenues are also affected by the payroll cost of WSEEs, which may fluctuate based on the composition of the WSEE base, inflationary effects on wage levels and differences in the local economies of our markets.

Insperity | 2021 Third Quarter Form 10-Q

Insperity | 2022 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

2 unchanged sentences

(in thousands)

Third Quarter 2021 Compared to Third Quarter 2020

First Quarter 2022 Compared to First Quarter 2021

Our revenues for Q1 2022 were $1.6 billion, an increase of 22.6%, primarily due to the following:

• Average WSEEs paid increased 19.5%.

• Revenues per WSEE per month increased 7.9%, or $115, on 3.9% higher average pricing, as well as the non-recurrence of the 2020 FICA deferral credits of $40.2 million.

First Nine Months 2021 Compared to First Nine Months 2020

Our revenues for YTD 2021 were $3.7 billion, an increase of 14.0%, primarily due to the following:

• Average WSEEs paid increased 5.2%.

• Revenues per WSEE per month increased 8.3%, or $128, on 5.2% higher average pricing, as well as the non-recurrence of the 2020 FICA deferral credits of $85.0 million and $11.6 million of comprehensive service fee credits.

Insperity | 2021 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Revenues per WSEE per month increased 2.6%, or $47.

We provide our PEO HR Outsourcing solutions to small and medium-sized businesses throughout the United States.

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(1) The Southwest region includes Texas.

Insperity | 2022 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The percentage of total PEO HR Outsourcing solutions revenue in our significant markets includes the following:

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Currently, we have a dedicated sales management, service personnel, and consulting staff who concentrate solely on the middle market sector.

Our average number of WSEEs per month in our middle market sector increased 2.4% during YTD 2021 compared to YTD 2020, representing approximately 23.7% and 24.4% of our total average paid WSEEs during YTD 2021 and YTD 2020, respectively.

Insperity | 2021 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our average number of WSEEs per month in our middle market sector increased 23.1% during Q1 2022 compared to Q1 2021, representing approximately 24.0% and 23.3% of our total average paid WSEEs during Q1 2022 and Q1 2021, respectively.

In determining the pricing of the markup component of our gross billings, we take into consideration our estimates of the costs directly associated with our WSEEs, including payroll taxes, benefits and workers’ compensation costs, plus an acceptable gross profit margin.

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We use gross profit per WSEE per month as our principal measurement of relative performance at the gross profit level.

Insperity | 2022 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Gross Profit and

3 unchanged sentences

Year-over-Year Growth Percentage

Insperity | 2021 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Third Quarter 2021 Compared to Third Quarter 2020

First Quarter 2022 Compared to First Quarter 2021

Gross profit for Q1 2022 increased 13.7% to $285.8 million compared to $251.4 million in Q1 2021.

1 unchanged sentence

Our pricing objectives attempt to achieve a level of revenue per WSEE that matches or exceeds changes in primary direct costs and operating expenses.

Our revenues per WSEE per month increased $115 due to higher average pricing, as well as the non-recurrence of the 2020 FICA deferral elections by clients pursuant to the CARES Act.

The net increase in direct costs between Q3 2021 and Q3 2020 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $6.1 million as discussed below.

Our revenues per WSEE per month increased $47 due to higher average pricing.

The net decrease in direct costs between Q1 2022 and Q1 2021 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $6.4 million as discussed below.

The $64 per WSEE per month increase in direct costs is due primarily to the direct cost components changes as follows:

Insperity | 2022 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Benefits costs

• The cost of group health insurance and related employee benefits increased $35 per WSEE per month and increased 7.4% on a cost per covered employee basis.

In Q3 2021, benefits costs continued to reflect the dynamics of the pandemic, including increased utilization of our health plan and COVID-19 related vaccination, testing and treatment costs.

• The percentage of WSEEs covered under our health insurance plans was 66.3% in Q1 2022 compared to 67.8% in Q1 2021.

• Reported results include changes in estimated claims run-off related to prior periods, which was a decrease in costs of $3.7 million, or $5 per WSEE per month, in Q3 2021 compared to a reduction in costs of $7.7 million, or $11 per WSEE per month, in Q3 2020.

• Reported results include changes in estimated claims run-off related to prior periods, which was an increase in costs of $0.8 million, or $1 per WSEE per month, in Q1 2022 compared to an increase in costs of $5.5 million, or $8 per WSEE per month, in Q1 2021.

Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Health Insurance Costs,” for a discussion of our accounting for health insurance costs.

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Our continued discipline around our client selection, safety and claims management has allowed for claims within our policy periods to be closed out at amounts below our original cost estimates.

• Workers’ compensation costs increased 20.5%, or $2 per WSEE per month, in Q3 2021 compared to Q3 2020 on an 18.2% increase in non-bonus payroll costs.

• As a percentage of non-bonus payroll cost, workers’ compensation costs in Q3 2021 were 0.30% in both Q3 2021 and Q3 2020.

• Workers’ compensation costs decreased 3.4%, or $4 per WSEE per month, in Q1 2022 compared to Q1 2021 on a 27.2% increase in non-bonus payroll costs.

• As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.20% in Q1 2022 and 0.26% Q1 2021.

• We recorded a reduction in workers’ compensation costs of $14.9 million, or 0.22% of non-bonus payroll costs, in Q1 2022 compared to a reduction of $13.2 million, or 0.25% of non-bonus payroll costs, in Q1 2021, primarily as a result of closing out claims at lower than expected costs.

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Payroll tax costs

• Payroll taxes increased 35.8% on a 22.1% increase in payroll costs, or $96 per WSEE per month, due primarily to the non-recurrence of $40.2 million of the 2020 FICA deferral elections by clients pursuant to the CARES Act.

• Payroll taxes as a percentage of payroll costs increased to 6.0% in Q3 2021 compared to 5.4% Q3 2020, primarily due to the non-recurrence of the 2020 FICA deferral elections by clients pursuant to the CARES Act.

Insperity | 2021 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

First Nine Months 2021 Compared to First Nine Months 2020

Gross profit for YTD 2021 increased 1.6% to $649.5 million compared to $639.3 million in YTD 2020.

Gross profit per WSEE per month for YTD 2021 decreased $10 to $295 compared to $305 in YTD 2020 due primarily to higher direct costs, offset in part by higher average pricing, as discussed below.

Our pricing objectives attempt to achieve a level of revenue per WSEE that matches or exceeds changes in primary direct costs and operating expenses.

Our revenues per WSEE per month increased $128 due to higher average pricing as well as the non-recurrence of the 2020 FICA deferral elections pursuant to the CARES Act and the comprehensive service fee credits.

The net increase in direct costs between YTD 2021 and YTD 2020 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $7.4 million as discussed below.

The $138 per WSEE per month increase in direct costs is due primarily to the direct cost components changes as follows:

Benefits costs

• The cost of group health insurance and related employee benefits increased $60 per WSEE per month and increased 10.3% on a cost per covered employee basis due primarily to an increase in claims in YTD 2021 compared to YTD 2020, which had lower claims as a result of lower utilization and the deferral of non-essential health care procedures, primarily in the second quarter of 2020, in connection with the COVID-19 pandemic and related government requirements or guidance.

• The percentage of WSEEs covered under our health insurance plans was 67.2% in YTD 2021 compared to 68.0% in YTD 2020.

• Reported results include changes in estimated claims run-off related to prior periods which was an increase in costs of $4.5 million, or $2 per WSEE per month, in YTD 2021 compared to a reduction in costs of $1.9 million, or $1 per WSEE per month, in YTD 2020.

Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Health Insurance Costs,” for a discussion of our accounting for health insurance costs.

Workers’ compensation costs

Our continued discipline around our client selection, safety and claims management contributed to the decrease in our cost per WSEE and, as a result, has allowed for claims within our policy periods to be closed out at amounts below our original cost estimates.

• Workers’ compensation costs increased 0.5%, but decreased $1 on a per WSEE per month basis, in YTD 2021 compared to YTD 2020.

• As a percentage of non-bonus payroll cost, workers’ compensation costs in YTD 2021 were 0.29% compared to 0.33% in YTD 2020.

• We recorded a reduction in workers’ compensation costs of $31.4 million, or 0.18% of non-bonus payroll costs, in YTD 2021 compared to a reduction of $32.4 million, or 0.21% of non-bonus payroll costs, in YTD 2020, primarily as a result of closing out claims at lower than expected costs.

Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Workers’ Compensation Costs,” for a discussion of our accounting for workers’ compensation costs.

Payroll tax costs

• Payroll taxes increased 21.0% on a 16.8% increase in payroll costs, or $79 per WSEE per month, due primarily to the non-recurrence of $85.0 million of client FICA deferral elections pursuant to the CARES Act in YTD 2020, partially offset by the YTD 2021 collection of $16.8 million in federal payroll tax refunds related to prior years.

• Payroll taxes as a percentage of payroll costs increased to 6.7% in YTD 2021 compared to 6.4% in YTD 2020.

Insperity | 2021 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Payroll taxes increased 25.4% on a 29.8% increase in payroll costs, or $37 per WSEE per month, primarily due to the non-recurrence of the Q1 2021 collection of a $5.5 million federal payroll tax refund related to a prior year.

• Payroll taxes as a percentage of payroll costs decreased to 7.5% in Q1 2022 compared to 7.8% Q1 2021.

Operating Expenses

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◦ administrative costs, such as postage, printing and supplies

Insperity | 2022 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

◦ employee travel and training expenses

1 unchanged sentence

• Depreciation and amortization — Depreciation and amortization expense is primarily a function of our capital investments in corporate facilities, service centers, sales offices, software development and technology infrastructure.

Third Quarter 2021 Compared to Third Quarter 2020

First Quarter 2022 Compared to First Quarter 2021

The following table presents certain information related to our operating expenses:

Three Months Ended September 30,

Three Months Ended March 31,

(in thousands, except per WSEE) 2022 2021 % Change 2022 2021 % Change

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Operating expenses per WSEE per month for Q1 2022 decreased 6.7% to $224 compared to $240 in Q1 2021.

• Salaries of corporate and sales staff for Q3 2021 decreased 0.2% to $89.2 million, or $14 per WSEE per month, compared to Q3 2020.

The decrease was primarily due to lower incentive compensation accruals in Q3 2021.

• Salaries of corporate and sales staff for Q1 2022 increased 4.2% to $107.4 million, but decreased $18 on a per WSEE per month basis, compared to Q1 2021, on the 19.5% increase in WSEEs paid per month.

• Stock-based compensation expense for Q1 2022 decreased 16.7% to $9.8 million, or $5 per WSEE per month, compared to Q1 2021.

The decrease was primarily due to the non-recurrence of stock-based compensation expense related to our 2020 short-term performance based awards.

Insperity | 2021 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The decrease was primarily due to the non-recurrence of stock-based compensation expense related to our 2020 short-term performance based awards that vested in Q1 2021.

• Commissions expense for Q1 2022 increased 33.6% to $10.3 million, or $1 per WSEE per month, compared to Q1 2021.

The increase was primarily due to commissions associated with our PEO HR Outsourcing solutions, including a new incentive program for our BPAs, as well as an increase in the amount of sales channel referral fees paid during 2022.

• Advertising expense for Q1 2022 increased 61.5% to $8.6 million, or $2 per WSEE per month, compared to Q1 2021.

The increase was primarily due to increases in television, radio, print and digital advertising and sponsorship costs.

The increase was primarily due to increases in radio, print and digital advertising and sponsorship costs.

• General and administrative expenses for Q1 2022 increased 29.6% to $41.0 million, or $4 per WSEE per month, compared to Q1 2021.

The increase was primarily due to technology SaaS licensing costs, as well as increased travel costs as the COVID-19 pandemic travel restrictions have eased.

• Depreciation and amortization expense for Q3 2021 increased 26.8% to $9.9 million, or $2 per WSEE per month, compared to Q3 2020.

The increase was primarily due to increased travel and event costs.

• Depreciation and amortization expense for Q1 2022 increased 26.6% to $10.2 million, but remained flat on a per WSEE per month basis, compared to Q1 2021.

The increase was primarily due to the completion of a new facility on our corporate campus and increased capital expenditures related to software development costs.

First Nine Months 2021 Compared to First Nine Months 2020

Nine Months Ended September 30,

(in thousands, except per WSEE) 2021 2020 % Change 2021 2020 % Change

Salaries $ 286,669 $ 266,640 7.5 % $ 130 $ 127 2.4 %

Stock-based compensation 35,965 38,110 (5.6) % 16 18 (11.1) %

Commissions 24,694 23,657 4.4 % 11 11 —

Advertising 23,804 15,334 55.2 % 11 7 57.1 %

General and administrative 91,981 85,254 7.9 % 42 42 —

Depreciation and amortization 27,715 23,329 18.8 % 13 11 18.2 %

Total operating expenses $ 490,828 $ 452,324 8.5 % $ 223 $ 216 3.2 %

Operating expenses for YTD 2021 increased 8.5% to $490.8 million compared to $452.3 million in YTD 2020.

Operating expenses per WSEE per month for YTD 2021 increased 3.2% to $223 compared to $216 in YTD 2020.

• Salaries of corporate and sales staff for YTD 2021 increased 7.5% to $286.7 million, or $3 per WSEE per month, compared to YTD 2020.

This increase was primarily due to higher incentive compensation accruals in YTD 2021 related to better than expected YTD 2021 operating results, as well as a 1.0% increase in corporate headcount, including a 1.4% increase in total BPAs in YTD 2021 compared to YTD 2020.

• Stock-based compensation expense for YTD 2021 decreased 5.6% to $36.0 million or $2 per WSEE per month, compared to YTD 2020.

The decrease was primarily due to the non-recurrence of stock-based compensation expense related to our 2020 short-term performance based awards.

• Advertising expense for YTD 2021 increased 55.2% to $23.8 million, or $4 per WSEE per month, compared to YTD 2020.

The increase was primarily due to the resumption of the Insperity Invitational in 2021, which was canceled in 2020 due to the COVID-19 pandemic, as well as increases in television, radio and digital advertising and sponsorship costs.

• General and administrative expenses for YTD 2021 increased 7.9% to $92.0 million, but remained flat on a per WSEE per month basis, compared to YTD 2020.

The increase was primarily due to technology SaaS licensing costs and professional services related to implementation of a CRM solution, partially offset by decreases in travel costs.

• Depreciation and amortization expense for YTD 2021 increased 18.8% to $27.7 million, or $2 per WSEE per month, compared to YTD 2020.

The increase was primarily due to the completion of a new facility on our corporate campus and increased capital expenditures related to software development costs and sales office expansions.

Other Income (Expense)

Other Income (expense) for Q3 2021 was net expense of $1.7 million compared to net expense of $1.6 million in Q3 2020, and for YTD 2021 was net expense of $3.3 million compared to net expense of $4.0 million in YTD 2020.

Insperity | 2021 Third Quarter Form 10-Q

Other Income (expense) for Q1 2022 was net expense of $1.8 million compared to net expense of $1.1 million in Q1 2021.

Insperity | 2022 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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Income Tax Expense

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Effective income tax rate 27.7% 25.2%

For the nine months ended September 30, 2021, our provision for income taxes differed from the U.S.

For the three months ended March 31, 2022, our provision for income taxes differed from the U.S.

statutory rate primarily due to state income taxes, non-deductible expenses and vesting of restricted and long-term incentive stock awards.

During the first nine months of 2021 and 2020, we recognized an income tax benefit of $2.2 million and $2.0 million, respectively, related to the vesting of short-term, long-term incentive, and restricted stock awards.

During the first three months of 2022 and 2021, we recognized an income tax benefit of $0.5 million and $2.2 million, respectively, related to the vesting of short-term, long-term incentive, and restricted stock awards.

Non-GAAP Financial Measures

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• interest expense,

• income tax expense, and

• depreciation and amortization expense.

• income tax expense,

• depreciation and amortization expense, and

• amortization of SaaS implementation costs

Adjusted EBITDA

5 unchanged sentences

• non-cash stock-based compensation.

Insperity | 2021 Third Quarter Form 10-Q

Insperity | 2022 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

1 unchanged sentence

Following is a reconciliation of payroll cost (GAAP) to non-bonus payroll costs (non-GAAP):

(in thousands, except per WSEE per month) Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Per WSEE Per WSEE Per WSEE Per WSEE

(in thousands, except per WSEE per month) Three Months Ended March 31,

Per WSEE Per WSEE

Payroll cost $ 8,780,068 $ 10,503 $ 6,763,587 $ 9,669

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Following is a reconciliation of cash, cash equivalents and marketable securities (GAAP) to adjusted cash, cash equivalents and marketable securities (non-GAAP):

(in thousands) September 30, 2021 December 31, 2020

(in thousands) March 31, 2022 December 31, 2021

Cash, cash equivalents and marketable securities $ 609,264 $ 607,603

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Following is a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP):

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands, except per WSEE per month) 2022 2021

Per WSEE Per WSEE Per WSEE Per WSEE

Per WSEE Per WSEE

Net income $ 69,884 $ 84 $ 61,922 $ 89

9 unchanged sentences

13.8 % (4.7) % 2.9 % 4.9 %

Insperity | 2021 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of net income (GAAP) to adjusted net income (non-GAAP):

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2022 2021

6 unchanged sentences

% Change period over period 8.8 % 5.8 %

Insperity | 2022 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS (non-GAAP):

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(amounts per share) 2022 2021

6 unchanged sentences

% Change period over period

(2.2) % 21.3 % (12.8) % 16.2 %

Liquidity and Capital Resources

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We have in the past sought, and may in the future seek, to raise additional capital or take other steps to increase or manage our liquidity and capital resources.

We had $500.6 million in cash, cash equivalents and marketable securities at September 30, 2021, of which approximately $198.4 million was payable in early October 2021 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $74.6 million represented client prepayments that were payable in October 2021.

At September 30, 2021, we had working capital of $202.3 million compared to $172.3 million at December 31, 2020.

We had $609.3 million in cash, cash equivalents and marketable securities at March 31, 2022, of which approximately $338.3 million was payable in early April 2022 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $117.8 million represented client prepayments that were payable in April 2022.

At March 31, 2022, we had working capital of $145.3 million compared to $116.3 million at December 31, 2021.

We currently believe that our cash on hand, marketable securities, cash flows from operations and availability under the Facility will be adequate to meet our liquidity requirements for the remainder of 2022.

We intend to rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs, which we continually monitor in light of our strategic goals and the significant uncertainty created by the COVID-19 pandemic.

As of September 30, 2021, we had an outstanding letter of credit and borrowings totaling $370.4 million under the Facility.

As of March 31, 2022, we had an outstanding letter of credit and borrowings totaling $370.4 million under the Facility.

Please read Note 5 to the Consolidated Financial Statements, “Long-Term Debt,” for additional information.

Insperity | 2021 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cash Flows from Operating Activities

Net cash provided by operating activities in the first nine months of 2021 was $54.8 million.

Net cash provided by operating activities in the first three months of 2022 was $58.8 million.

Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients.

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therefore, operating cash flows decrease in the reporting periods that end on a Friday or a Monday.

In the period ended September 30, 2021, the last business day of the reporting period was a Thursday, client prepayments were $74.6 million and employment taxes and other deductions were $198.4 million.

In the period ended September 30, 2020, the last business day of the reporting period was a Wednesday, client prepayments were $46.5 million and employment taxes and other deductions were $147.1 million.

In the period ended March 31, 2022, the last business day of the reporting period was a Thursday, client prepayments were $117.8 million and employment taxes and other deductions were $338.3 million.

In the period ended March 31, 2021, the last business day of the reporting period was a Wednesday, client prepayments were $58.9 million and employment taxes and other deductions were $273.5 million.

Insperity | 2022 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Medical plan funding – Our health care contract with United establishes participant cash funding rates 90 days in advance of the beginning of a reporting quarter.

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In addition, changes to the funding rates, which are solely determined by United based primarily upon recent claim history and anticipated cost trends, also have a significant impact on our operating cash flows.

As of September 30, 2021, premiums owed and cash funded to United have exceeded the costs of the United plan, resulting in a $15.3 million surplus, $6.3 million of which is reflected as a current asset, and $9.0 million of which is reflected as a long-term asset on our Condensed Consolidated Balance Sheets.

The premiums, including an additional quarterly premium, owed to United at September 30, 2021, were $33.7 million, which is included in accrued health insurance costs, a current liability, on our Condensed Consolidated Balance Sheets.

• Operating results – Our net income has a significant impact on our operating cash flows.

Our adjusted net income decreased 13.0% to $140.9 million in the first nine months ended September 30, 2021, compared to $161.9 million in the first nine months ended September 30, 2020.

Please read “Results of Operations – First Nine Months 2021 Compared to First Nine Months 2020.”

As of March 31, 2022, premiums owed and cash funded to United have exceeded the costs of the United plan, resulting in a $13.3 million surplus, $4.3 million of which is reflected as a current asset, and $9.0 million of which is reflected as a long-term asset on our Condensed Consolidated Balance Sheets.

The premiums, including an additional quarterly premium, owed to United at March 31, 2022, were $55.0 million, which is included in accrued health insurance costs, a current liability, on our Condensed Consolidated Balance Sheets.

• Operating results – Our adjusted net income has a significant impact on our operating cash flows.

Our adjusted net income increased 8.8% to $77.0 million in the first three months ended March 31, 2022, compared to $70.8 million in the first three months ended March 31, 2021.

Please read “Results of Operations – First Three Months 2022 Compared to First Three Months 2021.”

Cash Flows from Investing Activities

Net cash flows used in investing activities were $22.4 million for the nine months ended September 30, 2021, primarily due to property and equipment purchases of $23.6 million.

Net cash flows used in investing activities were $5.9 million for the three months ended March 31, 2022, primarily due to property and equipment purchases of $4.7 million.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $95.2 million for the nine months ended September 30, 2021.

Net cash flows used in financing activities were $43.9 million for the three months ended March 31, 2022.

We paid $17.2 million in dividends and repurchased or withheld $27.4 million in stock.

Insperity | 2021 Third Quarter Form 10-Q

Insperity | 2022 First Quarter Form 10-Q

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND CONTROLS AND PROCEDURES

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What changed 10-Q

Item 2. Management’s Discussion and Analysis