INSPERITY, INC. 10-Q

Item 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) March 31, 2022 December 31, 2021 Assets Cash and cash equivalents $ 576,654 $ 575,812 Restricted cash 49,429 46,929 Marketable securities 32,610 31,791 Accounts receivable, net 670,223 513,306 Prepaid insurance 22,716 11,285 Other current assets 80,282 53,312 Income taxes receivable — 12,413 Total current assets 1,431,914 1,244,848 Property and equipment, net of accumulated depreciation 205,064 210,723 Right-of-use (“ROU”) leased assets 61,629 62,830 Prepaid health insurance 9,000 9,000 Deposits – health insurance 7,900 7,900 Deposits – workers’ compensation 190,756 185,027 Goodwill and other intangible assets, net 12,707 12,707 Deferred income taxes, net — 4,892 Other assets 21,107 15,158 Total assets $ 1,940,077 $ 1,753,085 Liabilities and stockholders' equity Accounts payable $ 7,826 $ 6,412 Payroll taxes and other payroll deductions payable 384,767 467,892 Accrued worksite employee payroll cost 645,623 409,653 Accrued health insurance costs 61,399 50,001 Accrued workers’ compensation costs 53,290 50,534 Accrued corporate payroll and commissions 43,279 74,778 Other accrued liabilities 86,627 69,303 Income taxes payable 3,784 — Total current liabilities 1,286,595 1,128,573 Accrued workers’ compensation cost, net of current 182,888 192,694 Long-term debt 369,400 369,400 Operating lease liabilities, net of current 62,119 64,192 Deferred income taxes, net 5,114 — Total noncurrent liabilities 619,521 626,286 Commitments and contingencies Common stock 555 555 Additional paid-in capital 110,053 109,179 Treasury stock, at cost ( 681,625 ) ( 665,089 ) Retained earnings 604,978 553,581 Total stockholders’ equity (deficit) 33,961 ( 1,774 ) Total liabilities and stockholders’ equity $ 1,940,077 $ 1,753,085 See accompanying notes. Insperity | 2022 First Quarter Form 10-Q 6 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, (in thousands, except per share amounts) 2022 2021 Revenues (1) $ 1,577,837 $ 1,286,835 Payroll taxes, benefits and workers’ compensation costs 1,292,063 1,035,390 Gross profit 285,774 251,445 Salaries, wages and payroll taxes 107,439 103,075 Stock-based compensation 9,846 11,822 Commissions 10,310 7,719 Advertising 8,595 5,322 General and administrative expenses 41,005 31,636 Depreciation and amortization 10,184 8,047 Total operating expenses 187,379 167,621 Operating income 98,395 83,824 Other income (expense): Interest income 148 543 Interest expense ( 1,925 ) ( 1,599 ) Income before income tax expense 96,618 82,768 Income tax expense 26,734 20,846 Net income $ 69,884 $ 61,922 Less distributed and undistributed earnings allocated to participating securities ( 47 ) ( 197 ) Net income allocated to common shares $ 69,837 $ 61,725 Net income per share of common stock Basic $ 1.82 $ 1.62 Diluted $ 1.80 $ 1.59 ____________________________________ (1) Revenues are comprised of gross billings less WSEE payroll costs as follows: Three Months Ended March 31, (in thousands) 2022 2021 Gross billings $ 10,357,905 $ 8,050,422 Less: WSEE payroll cost 8,780,068 6,763,587 Revenues $ 1,577,837 $ 1,286,835 See accompanying notes. Insperity | 2022 First Quarter Form 10-Q 7 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, (in thousands) 2022 2021 Cash flows from operating activities Net income $ 69,884 $ 61,922 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,184 8,047 Stock-based compensation 9,846 11,822 Deferred income taxes 10,006 22,946 Changes in operating assets and liabilities: Accounts receivable ( 156,917 ) ( 168,498 ) Prepaid insurance ( 11,431 ) ( 47,506 ) Other current assets ( 26,970 ) ( 14,257 ) Other assets and ROU assets ( 1,588 ) 1,508 Accounts payable 1,414 ( 362 ) Payroll taxes and other payroll deductions payable ( 83,125 ) ( 67,441 ) Accrued worksite employee payroll expense 235,970 168,498 Accrued health insurance costs 11,398 39,451 Accrued workers’ compensation costs ( 7,050 ) ( 3,393 ) Accrued corporate payroll, commissions and other accrued liabilities ( 18,971 ) ( 5,421 ) Income taxes payable/receivable 16,197 ( 5,345 ) Total adjustments ( 11,037 ) ( 59,951 ) Net cash provided by operating activities 58,847 1,971 Cash flows from investing activities Marketable securities: Purchases ( 6,964 ) ( 10,585 ) Proceeds from maturities 5,760 10,580 Property and equipment: Purchases ( 4,686 ) ( 12,072 ) Net cash used in investing activities ( 5,890 ) ( 12,077 ) Cash flows from financing activities Purchase of treasury stock ( 27,441 ) ( 29,686 ) Dividends paid ( 17,244 ) ( 15,461 ) Other 799 2,751 Net cash used in financing activities ( 43,886 ) ( 42,396 ) Net increase (decrease) in cash, cash equivalents and restricted cash 9,071 ( 52,502 ) Cash, cash equivalents and restricted cash beginning of period 807,768 786,699 Cash, cash equivalents and restricted cash end of period $ 816,839 $ 734,197 Insperity | 2022 First Quarter Form 10-Q 8 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Three Months Ended March 31, (in thousands) 2022 2021 Supplemental schedule of cash and cash equivalents and restricted cash Cash and cash equivalents $ 575,812 $ 554,846 Restricted cash 46,929 45,522 Deposits – workers’ compensation 185,027 186,331 Cash, cash equivalents and restricted cash beginning of period $ 807,768 $ 786,699 Cash and cash equivalents $ 576,654 $ 494,777 Restricted cash 49,429 46,353 Deposits – workers’ compensation 190,756 193,067 Cash, cash equivalents and restricted cash end of period $ 816,839 $ 734,197 Supplemental operating lease cash flow information: ROU assets obtained in exchange for lease obligations $ 775 $ 12,104 See accompanying notes. Insperity | 2022 First Quarter Form 10-Q 9 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Three Months Ended March 31, 2022 and 2021 Common Stock Issued Additional Paid-In Capital Treasury Stock Retained Earnings and AOCI Total (in thousands) Shares Amount Balance at December 31, 2021 55,489 $ 555 $ 109,179 $ (665,089) $ 553,581 $ (1,774) Purchase of treasury stock, at cost — — — (27,441) — (27,441) Issuance of equity-based incentive awards and dividend equivalents — — (9,214) 10,365 (1,151) — Stock-based compensation expense — — 9,575 271 — 9,846 Other — — 513 269 — 782 Dividends paid — — — — (17,244) (17,244) Unrealized loss on marketable securities, net of tax — — — — (92) (92) Net income — — — — 69,884 69,884 Balance at March 31, 2022 55,489 $ 555 $ 110,053 $ (681,625) $ 604,978 $ 33,961 Balance at December 31, 2020 55,489 $ 555 $ 95,528 $ (626,984) $ 575,033 $ 44,132 Purchase of treasury stock, at cost — — — (29,686) — (29,686) Issuance of equity-based incentive awards and dividend equivalents — — (25,085) 26,421 (1,336) — Stock-based compensation expense — — 10,851 971 — 11,822 Exercise of stock options — — (329) 569 — 240 Other — — 364 318 — 682 Dividends paid — — — — (15,461) (15,461) Unrealized loss on marketable securities, net of tax — — — — (7) (7) Net income — — — — 61,922 61,922 Balance at March 31, 2021 55,489 $ 555 $ 81,329 $ (628,391) $ 620,151 $ 73,644 Insperity | 2022 First Quarter Form 10-Q 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation Insperity, Inc., a Delaware corporation (“Insperity,” “we,” “our,” and “us”), provides an array of human resources (“HR”) and business solutions designed to help improve business performance. Our most comprehensive HR services offerings are provided through our professional employer organization (“PEO”) services, known as Workforce Optimization ® and Workforce Synchronization TM solutions (together, our “PEO HR Outsourcing solutions”), which we provide by entering into a co-employment relationship with our clients. Our PEO HR Outsourcing solutions encompass a broad range of HR functions, including payroll and employment administration, employee benefits, workers’ compensation, government compliance, performance management, and training and development services, along with our cloud-based human capital management solution, the Insperity Premier TM platform. In addition to our PEO HR Outsourcing solutions, we offer a comprehensive traditional payroll and human capital management solution, known as our Workforce Acceleration TM solution. We also offer a number of other business performance solutions, including Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Retirement Services, and Insurance Services, many of which are offered as a cloud-based software solution. These other products or services are offered separately or with our other solutions. The Consolidated Financial Statements include the accounts of Insperity, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements at and for the year ended December 31, 2021. Our Condensed Consolidated Balance Sheet at December 31, 2021 has been derived from the audited financial statements at that date, but does not include all of the information or footnotes required by GAAP for complete financial statements. Our Condensed Consolidated Balance Sheet at March 31, 2022 and our Consolidated Statements of Operations for the three month periods ended March 31, 2022 and 2021, our Consolidated Statements of Cash Flows for the three month periods ended March 31, 2022 and 2021 and our Consolidated Statements of Stockholders’ Equity for the three month periods ended March 31, 2022 and 2021, have been prepared by us without audit. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows have been made, and all such adjustments are of a normal recurring nature. Certain prior year amounts have been reclassified to conform to the 2022 presentation. The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations. 2. Accounting Policies Health Insurance Costs We provide group health insurance coverage to our WSEEs in our PEO HR Outsourcing solutions through a national network of carriers, including UnitedHealthcare (“United”), UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii, and Tufts, all of which provide fully insured policies or service contracts. The policy with United provides approximately 87 % of our participants’ health insurance coverage. While the policy with United is a fully-insured plan, as a result of certain contractual terms, we have accounted for this plan since its inception using a partially self-funded insurance accounting model. Effective January 1, 2020, under the amended agreement with United, we no longer have financial responsibilities for a participant’s annual claim costs that exceed $1 million. Accordingly, we record the costs of the United plan, including an estimate of the incurred claims, taxes and administrative fees (collectively the “Plan Costs”), as benefits expense, which is a component of direct costs, in our Consolidated Statements of Operations. The estimated incurred claims are based upon: (1) the level of claims processed during the quarter; (2) estimated completion rates based upon recent claim development patterns under Insperity | 2022 First Quarter Form 10-Q 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) the plan; and (3) the number of participants in the plan, including both active and COBRA enrollees. Each reporting period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participant demographics, and other factors are incorporated into the benefits costs, which requires a significant level of judgment. Additionally, since the plan’s inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginning of a reporting quarter. If the Plan Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the plan would be incurred and a liability for the excess costs would be accrued in our Condensed Consolidated Balance Sheets. On the other hand, if the Plan Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the plan would be incurred and we would record an asset for the excess premiums in our Condensed Consolidated Balance Sheets. The terms of the arrangement require us to maintain an accumulated cash surplus in the plan of $ 9.0 million, which is reported as long-term prepaid insurance. In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $ 6.5 million at March 31, 2022, and is included in deposits - health insurance as a long-term asset on our Condensed Consolidated Balance Sheets. As of March 31, 2022, Plan Costs were less than the net premiums paid and owed to United by $ 13.3 million. As this amount is in excess of the agreed-upon $ 9.0 million surplus maintenance level, the $ 4.3 million difference is included in prepaid insurance, a current asset, in our Condensed Consolidated Balance Sheets. The premiums, including the additional quarterly premiums, owed to United at March 31, 2022 were $ 55.0 million, which is included in accrued health insurance costs, a current liability in our Condensed Consolidated Balance Sheets. Our benefits costs incurred in the first three months of 2022 included an increase of $ 0.8 million for changes in estimated run-off related to prior periods. Our benefits costs incurred in the first three months of 2021 included an increase of $ 5.5 million for changes in estimated run-off related to prior periods. Workers’ Compensation Costs Our workers’ compensation coverage for our WSEEs in our PEO HR Outsourcing solutions is provided through an arrangement with the Chubb Group of Insurance Companies or its predecessors (the “Chubb Program”). The Chubb Program is fully insured in that Chubb has the responsibility to pay all claims incurred under the policy regardless of whether we satisfy our responsibilities. Under the Chubb Program for claims incurred on or before September 30, 2019, we have financial responsibility to Chubb for the first $ 1 million layer of claims per occurrence and, for claims over $ 1 million, up to a maximum aggregate amount of $ 6 million per policy year for claims that exceed $ 1 million. Chubb bears the financial responsibility for all claims in excess of these levels. Effective for claims incurred on or after October 1, 2019, we have financial responsibility to Chubb for the first $ 1.5 million layer of claims per occurrence and, for claims over $ 1.5 million, up to a maximum aggregate amount of $ 6 million per policy year for claims that exceed $ 1.5 million. Because we bear the financial responsibility for claims up to the levels noted above, such claims, which are the primary component of our workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment. We utilize a third-party actuary to estimate our loss development rate, which is primarily based upon the nature of WSEEs’ job responsibilities, the location of WSEEs, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers’ compensation claims cost estimates. During the three months ended March 31, 2022 and 2021, we reduced accrued workers’ compensation costs by $ 14.9 million and $ 13.2 million, respectively, for changes in estimated losses related to prior reporting periods. Workers’ compensation cost estimates are discounted to present value at a rate based upon the U.S. Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rate utilized in the 2022 period was 1.5 % and in the 2021 period was 0.5 %) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations. Insperity | 2022 First Quarter Form 10-Q 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table provides the activity and balances related to incurred but not paid workers’ compensation claims: Three Months Ended March 31, (in thousands) 2022 2021 Beginning balance, January 1, $ 239,623 $ 240,761 Accrued claims 8,373 9,616 Present value discount, net of accretion ( 1,309 ) ( 442 ) Paid claims ( 14,370 ) ( 13,246 ) Ending balance $ 232,317 $ 236,689 Current portion of accrued claims $ 49,429 $ 46,353 Long-term portion of accrued claims 182,888 190,336 Total accrued claims $ 232,317 $ 236,689 The current portion of accrued workers’ compensation costs on our Condensed Consolidated Balance Sheets at March 31, 2022 includes $ 3.9 million of workers’ compensation administrative fees. As of March 31, 2022 and 2021, the undiscounted accrued workers’ compensation costs were $ 248.0 million and $ 253.2 million, respectively. At the beginning of each policy period, the workers’ compensation insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”). The level of claim funds is primarily based upon anticipated WSEE payroll levels and expected workers’ compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included in deposits – workers’ compensation, a long-term asset in our Condensed Consolidated Balance Sheets. At March 31, 2022, we had restricted cash of $ 49.4 million and deposits – workers’ compensation of $ 190.8 million. Our estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while our estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on our Condensed Consolidated Balance Sheets. Revenue and Direct Cost Recognition We enter into contracts with our customers for human resources services based on a stated rate and price in the contract. Our contracts generally establish pricing for a period of 12 months, and are generally cancellable at any time by either party with 30-days’ notice. Our performance obligations are satisfied as services are rendered each month. The term between invoicing and when our performance obligations are satisfied is not significant. Payment terms are typically due concurrently with the invoicing of our PEO services. We do not have significant financing components or significant payment terms. Our revenue is generally recognized ratably over the payroll period as WSEEs perform their service at the client worksite. Customers are invoiced concurrently with each periodic payroll of its WSEEs. Revenues that have been recognized but unbilled of $ 655.3 million and $ 490.5 million at March 31, 2022 and December 31, 2021, respectively, are included in accounts receivable, net on our Condensed Consolidated Balance Sheets. Pursuant to the “practical expedients” provided under Accounting Standards Update No 2014-09, we expense sales commissions when incurred because the terms of our contracts generally are cancellable by either party with a 30-day notice. These costs are recorded in commissions in our Consolidated Statements of Operations. Insperity | 2022 First Quarter Form 10-Q 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Our revenue for our PEO HR Outsourcing solutions by geographic region and for our other products and services offerings are as follows: Three Months Ended March 31, (in thousands) 2022 2021 % Change Northeast $ 449,925 $ 373,629 20.4 % Southeast 202,201 156,260 29.4 % Central 271,310 225,700 20.2 % Southwest 308,838 256,979 20.2 % West 330,771 261,354 26.6 % 1,563,045 1,273,922 22.7 % Other revenue 14,792 12,913 14.6 % Total revenue $ 1,577,837 $ 1,286,835 22.6 % 3. Cash, Cash Equivalents and Marketable Securities The following table summarizes our cash and investments in cash equivalents and marketable securities held by investment managers and overnight investments: March 31, 2022 December 31, 2021 (in thousands) Cash & Cash Equivalents Marketable Securities Total Cash & Cash Equivalents Marketable Securities Total Overnight holdings $ 566,030 $ — $ 566,030 $ 490,154 $ — $ 490,154 Investment holdings 13,066 32,610 45,676 88,951 31,791 120,742 Cash in demand accounts 26,736 — 26,736 47,331 — 47,331 Outstanding checks ( 29,178 ) — ( 29,178 ) ( 50,624 ) — ( 50,624 ) Total $ 576,654 $ 32,610 $ 609,264 $ 575,812 $ 31,791 $ 607,603 Our cash and overnight holdings fluctuate based on the timing of clients’ payroll processing cycles. Our cash, cash equivalents and marketable securities at March 31, 2022 and December 31, 2021 included $ 338.3 million and $ 424.8 million, respectively, of funds associated with federal and state income tax withholdings, employment taxes, and other payroll deductions, as well as $ 117.8 million and $ 20.1 million, respectively, in client prepayments. 4. Fair Value Measurements We account for our financial assets in accordance with Accounting Standard Codification 820, Fair Value Measurement . This standard defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value measurement disclosures are grouped into three levels based on valuation factors: • Level 1 - quoted prices in active markets using identical assets • Level 2 - significant other observable inputs, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other observable inputs • Level 3 - significant unobservable inputs Insperity | 2022 First Quarter Form 10-Q 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Fair Value of Instruments Measured and Recognized at Fair Value The following table summarizes the levels of fair value measurements of our financial assets: March 31, 2022 December 31, 2021 (in thousands) Total Level 1 Level 2 Total Level 1 Level 2 Money market funds $ 579,096 $ 579,096 $ — $ 579,105 $ 579,105 $ — U.S. Treasury bills 6,856 6,856 — 5,782 5,782 — Municipal bonds 25,754 — 25,754 26,009 — 26,009 Total $ 611,706 $ 585,952 $ 25,754 $ 610,896 $ 584,887 $ 26,009 The municipal bond securities valued as Level 2 are primarily pre-refunded municipal bonds that are secured by escrow funds containing U.S. government securities. Our valuation techniques used to measure fair value for these securities during the period consisted primarily of third-party pricing services that utilized actual market data such as trades of comparable bond issues, broker/dealer quotations for the same or similar investments in active markets and other observable inputs. The following is a summary of our available-for-sale marketable securities: (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value March 31, 2022 U.S. Treasury bills $ 6,874 $ — $ ( 18 ) $ 6,856 Municipal bonds 25,837 — ( 83 ) 25,754 December 31, 2021 U.S. Treasury bills $ 5,783 $ — $ ( 1 ) $ 5,782 Municipal bonds 26,017 — ( 8 ) 26,009 As of March 31, 2022, the contractual maturities of the marketable securities in our portfolio were less than one year. Fair Value of Other Financial Instruments The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable, deposits and accounts payable approximate their fair values due to the short-term maturities of these instruments. As of March 31, 2022, the carrying value of borrowings under our revolving credit facility approximates fair value and was classified as Level 2 in the fair value hierarchy. Please read Note 5, “Long-Term Debt,” for additional information. 5. Long-Term Debt We have a revolving credit facility (the “Facility”) with borrowing capacity of up to $ 500 million. The Facility may be further increased to $ 550 million based on the terms and subject to the conditions set forth in the agreement relating to the Facility (as amended, the “Credit Agreement”). The Facility is available for working capital and general corporate purposes, including acquisitions, stock repurchases and issuances of letters of credit. Our obligations under the Facility are secured by 65 % of the stock of our captive insurance subsidiary and are guaranteed by all of our domestic subsidiaries other than certain excluded subsidiaries. At March 31, 2022, our outstanding balance on the Facility was $ 369.4 million, and we had an outstanding $ 1.0 million letter of credit issued under the Facility, resulting in an available borrowing capacity of $ 129.6 million. Insperity | 2022 First Quarter Form 10-Q 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The Facility matures on September 13, 2024. Borrowings under the Facility bear interest at an annual rate equal to an alternate base rate or LIBOR, at our option, plus an applicable margin. Depending on our leverage ratio, the applicable margin varies (1) in the case of LIBOR loans, from 1.50 % to 2.25 % and (2) in the case of alternate base rate loans, from 0.00 % to 0.50 %. The alternate base rate is the highest of (1) the prime rate most recently published in The Wall Street Journal, (2) the federal funds rate plus 0.50 % and (3) the 30-day LIBOR rate plus 2.00 %. We also pay an unused commitment fee on the average daily unused portion of the Facility at a rate of 0.25 % per year. The average interest rate for the three month period ended March 31, 2022 was 1.9 %. Interest expense and unused commitment fees are recorded in other income (expense). Following early opt-in by us or our lenders or such other time as LIBOR rates have permanently or indefinitely ceased to be published by the regulatory supervisory authority of LIBOR, then LIBOR will be replaced by a rate per annum equal to the secured overnight financing rate published by the Federal Reserve Bank of New York or such other benchmark as determined in accordance with the Credit Agreement. The Facility contains both affirmative and negative covenants that we believe are customary for arrangements of this nature. Covenants include, but are not limited to, limitations on our ability to incur additional indebtedness, sell material assets, retire, redeem or otherwise reacquire our capital stock, acquire the capital stock or assets of another business, make investments and pay dividends. In addition, the Credit Agreement requires us to comply with financial covenants limiting our total funded debt, minimum interest coverage ratio, and maximum leverage ratio. We were in compliance with all financial covenants under the Credit Agreement at March 31, 2022. 6. Stockholders' Equity During the first three months of 2022, we repurchased or withheld an aggregate of 308,057 shares of our common stock, as described below. Repurchase Program Our Board of Directors (the “Board”) has authorized a program to repurchase shares of our outstanding common stock (“Repurchase Program”). The purchases may be made from time to time in the open market or directly from stockholders at prevailing market prices based on market conditions and other factors. During the three months ended March 31, 2022, 209,841 shares were repurchased under the Repurchase Program. As of March 31, 2022, we were authorized to repurchase an additional 1,493,787 shares under the Repurchase Program. Withheld Shares During the three months ended March 31, 2022, we withheld 98,216 shares to satisfy tax withholding obligations for the vesting of long-term incentive and restricted stock awards. Dividends The Board declared quarterly dividends as follows: (amounts per share) 2022 2021 First quarter $ 0.45 $ 0.40 During the three months ended March 31, 2022 and 2021, we paid dividends totaling $ 17.2 million and $ 15.5 million, respectively. Insperity | 2022 First Quarter Form 10-Q 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 7. Net Income Per Share We utilize the two-class method to compute net income per share. The two-class method allocates a portion of net income to participating securities, which includes unvested awards of share-based payments with non-forfeitable rights to receive dividends. Net income allocated to unvested share-based payments is excluded from net income allocated to common shares. Any undistributed losses resulting from dividends exceeding net income are not allocated to participating securities. Basic net income per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the period, plus the dilutive effect of time-vested and performance-based restricted stock units (“RSUs”). The following table summarizes the net income allocated to common shares and the basic and diluted shares used in the net income per share computations: Three Months Ended March 31, (in thousands) 2022 2021 Net income $ 69,884 $ 61,922 Less distributed and undistributed earnings allocated to participating securities ( 47 ) ( 197 ) Net income allocated to common shares $ 69,837 $ 61,725 Weighted average common shares outstanding 38,288 38,216 Incremental shares from assumed time-vested and performance-based RSU awards 405 623 Adjusted weighted average common shares outstanding 38,693 38,839 Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect 25 — 8. Commitments and Contingencies Securities Class Action Lawsuit In July 2020, a federal securities class action was filed against us and certain of our officers in the United States District Court for the Southern District of New York. The name of the case is Building Trades Pension Fund of Western Pennsylvania v. Insperity, Inc. et al. , Case No. 1:20-cv-05635-NRB. On October 23, 2020, the court issued an order appointing Oakland County Employees’ Retirement System and Oakland County Voluntary Employees’ Beneficiary Association Trust as lead plaintiff (“Lead Plaintiff”). On December 22, 2020, the Lead Plaintiff filed its consolidated complaint alleging that we made materially false and misleading statements regarding our business and operations in violation of the federal securities laws and seeking unspecified damages, attorneys’ fees, costs, equitable/injunctive relief, and such other relief that may be deemed proper. On April 26, 2021, the defendants moved to dismiss the consolidated complaint with prejudice. The Lead Plaintiff filed its opposition to the motion to dismiss on June 10, 2021, and the defendants filed their reply in support of the motion to dismiss on July 12, 2021. On March 15, 2022, the court granted the defendants’ motion to dismiss with prejudice and the deadline to appeal has passed. Other Litigation We are a defendant in various other lawsuits and claims arising in the normal course of business. Management believes it has valid defenses in these cases and is defending them vigorously. While the results of litigation cannot be predicted with certainty, management believes the final outcome of such litigation will not have a material adverse effect on our financial position or results of operations. Insperity | 2022 First Quarter Form 10-Q 17 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS