What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-04-26 · 145 added, 74 removed, 265 unchanged (45% of the section changed)

17 unchanged sentences

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.

In the second quarter of 2022 (“Q2 2022”), the average number of WSEEs paid per month increased 19.4% year-over-year as the Q2 2022 increase in WSEEs paid at existing clients combined with WSEEs paid from new sales and client retention all exceeded the second quarter of 2021 (“Q2 2021”) levels.

We expect the average number of paid WSEEs per month to increase between 17% and 18% in the third quarter of 2022 as compared to the third quarter of 2021, which, if achieved, would equate to the average number of paid WSEEs per month growing 3.7% to 4.6% sequentially from the second quarter of 2022.

We experienced a 0.6% decrease in the year-over-year benefits costs per covered employee during Q2 2022 as compared to Q2 2021.

During Q2 2021, we experienced a 23.9% increase in the year-over-year benefits costs per covered employee as compared to Q2 2020.

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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

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

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

1 unchanged sentence

2022 Highlights

First Quarter 2022 Compared to First Quarter 2021

Second Quarter 2022 Compared to Second Quarter 2021

• Average number of WSEEs paid per month increased 19.4%

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• Adjusted EBITDA increased 24.6% to $75.0 million

First Six Months 2022 Compared to First Six Months 2021

• Average number of WSEEs paid per month increased 19.5%

• Net income and diluted EPS increased 18.8% and 19.6% to $103.5 million and $2.68, respectively

• Adjusted EPS increased 15.8% to $3.15

• Adjusted EBITDA increased 17.7% to $193.6 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 | 2022 Second 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 March 31,

2022 2021 % Change

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 % Change 2022 2021 % Change

Financial data:

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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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

(per WSEE per month) 2022 2021 2022 2021

2 unchanged sentences

Revenues $ 1,643 $ 1,624 $ 1,763 $ 1,730

Insperity | 2022 First Quarter Form 10-Q

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

8 unchanged sentences

• During Q2 2022, WSEEs paid increased 19.4% compared to Q2 2021.

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.

The number of WSEEs paid from new client sales and the net gain (loss) in our client base improved compared to Q2 2021, while client retention remained consistent with Q2 2021.

• During the first six months of 2022 (“YTD 2022”), WSEEs paid increased 19.5% compared to the first six months of 2021 (“YTD 2021”).

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

Average WSEEs Paid and

Year-over-Year Growth Percentage

Insperity | 2022 First Quarter Form 10-Q

Insperity | 2022 Second 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 | 2022 First Quarter Form 10-Q

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

2 unchanged sentences

(in thousands)

First Quarter 2022 Compared to First Quarter 2021

Second Quarter 2022 Compared to Second Quarter 2021

Our revenues for Q2 2022 were $1.4 billion, an increase of 20.8%, primarily due to the following:

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• Revenues per WSEE per month increased 1.2%, or $19.

First Six Months 2022 Compared to First Six Months 2021

Our revenues for YTD 2022 were $3.0 billion, an increase of 21.8%, primarily due to the following:

• Average WSEEs paid increased 19.5%.

• Revenues per WSEE per month increased 1.9%, or $33.

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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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Our average number of WSEEs per month in our middle market sector increased 23.2% during Q2 2022 compared to Q2 2021, representing approximately 24.3% and 23.6% of our total average paid WSEEs during Q2 2022 and Q2 2021, respectively.

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

First Quarter 2022 Compared to First Quarter 2021

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Second Quarter 2022 Compared to Second Quarter 2021

Gross profit for Q2 2022 increased 20.2% to $239.9 million compared to $199.6 million in Q2 2021.

Gross profit per WSEE per month for Q1 2022 decreased $17 to $342 compared to $359 in Q1 2021 due primarily to higher direct costs, offset in part by higher average pricing, as discussed below.

Gross profit per WSEE per month for Q2 2022 increased $2 to $275 compared to $273 in Q2 2021 due primarily to higher average pricing, offset in part by higher direct costs, 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.

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The $17 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.

• The cost of group health insurance and related employee benefits decreased $26 per WSEE per month and decreased 0.6% on a cost per covered employee basis due primarily to lower utilization and lower COVID-19 related costs in Q2 2022 as compared to Q2 2021.

• The percentage of WSEEs covered under our health insurance plans was 65.4% in Q2 2022 compared to 67.3% in Q2 2021.

• 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.

• Reported results include changes in estimated claims run-off related to prior periods, which was a reduction in costs of $7.2 million, or $8 per WSEE per month, in Q2 2022 compared to an increase in costs of $15.3 million, or $21 per WSEE per month, in Q2 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.

Workers’ compensation costs

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.

Our continued discipline around our client selection, workplace 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 decreased 11.7%, or $6 per WSEE per month, in Q2 2022 compared to Q2 2021 on a 25.9% increase in non-bonus payroll costs.

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Payroll tax costs

• 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.

• Payroll taxes increased 30.5% on a 20.8% increase in payroll costs, or $51 per WSEE per month, due to the non-recurrence of an $11.2 million reduction in Q2 2021 related to final 2021 state unemployment taxes and the Q2 2021 collection of $11.3 million in federal payroll tax refunds related to prior years.

• Payroll taxes as a percentage of payroll costs increased to 6.7% in Q2 2022 compared to 6.2% Q2 2021.

First Six Months 2022 Compared to First Six Months 2021

Gross profit for YTD 2022 increased 16.6% to $525.6 million compared to $451.0 million in YTD 2021.

Gross profit per WSEE per month for YTD 2022 decreased $8 to $308 compared to $316 in YTD 2021 due primarily to higher direct costs, offset in part by higher average pricing, as discussed below.

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 $33 due to higher average pricing.

The net increase in direct costs between YTD 2022 and YTD 2021 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $0.7 million as discussed below.

The $41 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 $4 per WSEE per month and increased 3.1% on a cost per covered employee basis.

• The percentage of WSEEs covered under our health insurance plans was 65.9% in YTD 2022 compared to 67.6% in YTD 2021.

• Reported results include changes in estimated claims run-off related to prior periods which was an increase in costs of $10.2 million, or $6 per WSEE per month, in YTD 2022 compared to an increase in costs of $5.7 million, or $4 per WSEE per month, in YTD 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.

Workers’ compensation costs

Our continued discipline around our client selection, workplace 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 decreased 8.0%, or $5 per WSEE per month, in YTD 2022 compared to YTD 2021.

• As a percentage of non-bonus payroll cost, workers’ compensation costs in YTD 2022 were 0.21% compared to 0.28% in YTD 2021.

• We recorded a reduction in workers’ compensation costs of $26.8 million, or 0.19% of non-bonus payroll costs, in YTD 2022 compared to a reduction of $23.0 million, or 0.21% of non-bonus payroll costs, in YTD 2021, 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 27.6% on a 25.4% increase in payroll costs, or $44 per WSEE per month, due to the non-recurrence of 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 7.1% in YTD 2022 compared to 7.0% in YTD 2021.

Operating Expenses

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Commissions are based on new accounts sold and a percentage of revenue generated by such personnel.

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Advertising — Advertising expense primarily consists of media advertising and other business promotions in our current and anticipated sales markets.

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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.

First Quarter 2022 Compared to First Quarter 2021

Second Quarter 2022 Compared to Second Quarter 2021

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

Three Months Ended March 31,

Three Months Ended June 30,

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

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• Salaries of corporate and sales staff for Q2 2022 increased 12.9% to $106.5 million, but decreased $6 on a per WSEE per month basis, compared to Q2 2021 on the 19.4% 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 that vested in Q1 2021.

This increase was primarily due to a 5.2% increase in corporate headcount in Q2 2022 compared to Q2 2021, as well as higher incentive compensation accruals in Q2 2022 and increases due to staff compensation adjustments in response to current labor market dynamics and our recruiting and retention goals.

• Stock-based compensation expense for Q2 2022 increased 13.4% to $15.6 million, but decreased $1 on a per WSEE per month basis, compared to Q2 2021.

The increase was primarily due to awards issued under our restricted stock program.

• Commissions expense for Q2 2022 increased 30.2% to $10.7 million, or $1 per WSEE per month, compared to Q2 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.

The increase was primarily due to commissions associated with our PEO HR Outsourcing solutions, including a new incentive program for our BPAs and sales managers.

• Advertising expense for Q2 2022 increased 38.5% to $12.4 million, or $2 per WSEE per month, compared to Q2 2021.

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.

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• General and administrative expenses for Q2 2022 increased 23.6% to $36.1 million, but remained flat on a per WSEE per month basis, compared to Q2 2021.

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.

• Depreciation and amortization expense for Q2 2022 increased 3.6% to $10.1 million, but decreased $1 on a per WSEE per month basis, compared to Q2 2021.

The increase was primarily due to capital expenditures related to software development costs.

First Six Months 2022 Compared to First Six Months 2021

Six Months Ended June 30,

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

Salaries $ 213,961 $ 197,437 8.4 % $ 126 $ 138 (8.7) %

Stock-based compensation 25,477 25,603 (0.5) % 15 18 (16.7) %

Commissions 21,053 15,970 31.8 % 12 11 9.1 %

Advertising 21,022 14,297 47.0 % 12 10 20.0 %

General and administrative 77,100 60,847 26.7 % 45 43 4.7 %

Depreciation and amortization 20,284 17,798 14.0 % 12 12 —

Total operating expenses $ 378,897 $ 331,952 14.1 % $ 222 $ 232 (4.3) %

Operating expenses for YTD 2022 increased 14.1% to $378.9 million compared to $332.0 million in YTD 2021.

Operating expenses per WSEE per month for YTD 2022 decreased 4.3% to $222 compared to $232 in YTD 2021.

• Salaries of corporate and sales staff for YTD 2022 increased 8.4% to $214.0 million, but decreased $12 on a per WSEE per month basis, compared to YTD 2021 on a 19.5% increase in WSEEs paid per month.

This increase was primarily due to a 3.5% increase in corporate headcount, as well as increases due to staff compensation adjustments in response to current labor market dynamics and our recruiting and retention goals.

• Commissions expense for YTD 2022 increased 31.8% to $21.1 million, or $1 per WSEE per month, compared to YTD 2021.

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

• Advertising expense for YTD 2022 increased 47.0% to $21.0 million, or $2 per WSEE per month, compared to YTD 2021.

The increase was primarily due to increases in radio, print and digital advertising and sponsorship costs, partially offset by a reduction in television advertising.

• General and administrative expenses for YTD 2022 increased 26.7% to $77.1 million, or $2 per WSEE per month, compared to YTD 2021.

The increase was primarily due to increased travel and event costs, as well as technology SaaS licensing costs related to the implementation of a CRM solution.

• Depreciation and amortization expense for YTD 2022 increased 14.0% to $20.3 million, but remained flat on a per WSEE per month basis, compared to YTD 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 and sales office expansions.

Other Income (Expense)

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

Other Income (expense) for Q2 2022 was net expense of $1.7 million compared to net expense of $0.5 million in Q2 2021, and for YTD 2022 was net expense of $3.5 million compared to net expense of $1.6 million in YTD 2021.

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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Income Tax Expense

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Effective income tax rate 27.9% 27.5% 27.7% 25.9%

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

For the six months ended June 30, 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 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.

During the first six months of 2022 and 2021, we recognized an income tax benefit of $0.2 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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• non-cash stock-based compensation.

Insperity | 2022 First Quarter Form 10-Q

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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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 March 31,

Per WSEE Per WSEE

(in thousands, except per WSEE per month) Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Per WSEE Per WSEE Per WSEE Per WSEE

Payroll cost $ 7,792,536 $ 8,942 $ 6,452,480 $ 8,842 $ 16,572,604 $ 9,706 $ 13,216,067 $ 9,246

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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) March 31, 2022 December 31, 2021

(in thousands) June 30, 2022 December 31, 2021

Cash, cash equivalents and marketable securities $ 541,650 $ 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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

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

Per WSEE Per WSEE

Per WSEE Per WSEE Per WSEE Per WSEE

Net income $ 33,599 $ 39 $ 25,154 $ 34 $ 103,483 $ 61 $ 87,076 $ 61

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24.6 % 4.9 % (34.5) % (39.3) % 17.7 % (1.7) % (14.9) % (16.7) %

Insperity | 2022 Second 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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

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Stock-based compensation 15,631 13,781 25,477 25,603

Total non-GAAP adjustments 15,631 13,781 25,477 25,603

Tax effect (4,345) (3,643) (7,069) (6,621)

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% Change period over period 27.2 % (40.8) % 14.9 % (16.2) %

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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

(amounts per share) 2022 2021 2022 2021

2 unchanged sentences

Stock-based compensation 0.41 0.35 0.66 0.66

Total non-GAAP adjustments 0.41 0.35 0.66 0.66

Tax effect (0.12) (0.09) (0.19) (0.18)

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% Change period over period

27.5 % (40.9) % 15.8 % (16.0) %

Liquidity and Capital Resources

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Longer-term projects, large stock repurchases or significant acquisitions may be financed with public or private debt or equity.

We have a $500 million revolving credit facility (“Facility”) with a syndicate of financial institutions.

We have a revolving credit facility (“Facility”) with a syndicate of financial institutions, which we amended in June 2022 to, among other things, increase our borrowing capacity from $500 million to $650 million.

The Facility is available for working capital and general corporate purposes, including acquisitions and stock repurchases.

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 $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 had $541.7 million in cash, cash equivalents and marketable securities at June 30, 2022, of which approximately $258.2 million was payable in early July 2022 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $116.6 million represented client prepayments that were payable in July 2022.

At June 30, 2022, we had working capital of $164.0 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 related to the ongoing impacts of the COVID-19 pandemic.

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

As of June 30, 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 | 2022 Second 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 three months of 2022 was $58.8 million.

Net cash provided by operating activities in the first six months of 2022 was $22.8 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 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

In the period ended June 30, 2022, the last business day of the reporting period was a Thursday, client prepayments were $116.6 million and employment taxes and other deductions were $258.2 million.

In the period ended June 30, 2021, the last business day of the reporting period was a Wednesday, client prepayments were $50.4 million and employment taxes and other deductions were $226.7 million.

• Workers’ compensation plan funding - During YTD 2022, we received $30.2 million for the return of excess claim funds related to the workers’ compensation program, which resulted in an increase in working capital.

• 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 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.

As of June 30, 2022, premiums owed and cash funded to United have exceeded the costs of the United plan, resulting in a $41.8 million surplus, $32.8 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 June 30, 2022, were $55.9 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.”

Our adjusted net income increased 14.9% to $121.9 million in the first six months ended June 30, 2022, compared to $106.1 million in the first six months ended June 30, 2021.

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

Cash Flows from Investing Activities

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.

Net cash flows used in investing activities were $8.6 million for the six months ended June 30, 2022, primarily due to property and equipment purchases of $9.0 million.

Cash Flows from Financing Activities

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

Net cash flows used in financing activities were $91.6 million for the six months ended June 30, 2022.

We paid $37.1 million in dividends and repurchased or withheld $56.8 million in stock.

Insperity | 2022 First Quarter Form 10-Q

Insperity | 2022 Second Quarter Form 10-Q

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND CONTROLS AND PROCEDURES

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