INSPERITY, INC. 10-Q

Item 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) June 30, 2022 December 31, 2021 Assets Cash and cash equivalents $ 510,869 $ 575,812 Restricted cash 53,329 46,929 Marketable securities 30,781 31,791 Accounts receivable, net 685,857 513,306 Prepaid insurance 52,939 11,285 Other current assets 71,186 53,312 Income taxes receivable 5,684 12,413 Total current assets 1,410,645 1,244,848 Property and equipment, net of accumulated depreciation 199,322 210,723 Right-of-use (“ROU”) leased assets 59,149 62,830 Prepaid health insurance 9,000 9,000 Deposits – health insurance 7,900 7,900 Deposits – workers’ compensation 166,077 185,027 Goodwill and other intangible assets, net 12,707 12,707 Deferred income taxes, net — 4,892 Other assets 28,106 15,158 Total assets $ 1,892,906 $ 1,753,085 Liabilities and stockholders' equity Accounts payable $ 6,034 $ 6,412 Payroll taxes and other payroll deductions payable 303,645 467,892 Accrued worksite employee payroll cost 662,762 409,653 Accrued health insurance costs 62,643 50,001 Accrued workers’ compensation costs 58,142 50,534 Accrued corporate payroll and commissions 69,775 74,778 Other accrued liabilities 83,599 69,303 Total current liabilities 1,246,600 1,128,573 Accrued workers’ compensation cost, net of current 173,686 192,694 Long-term debt 369,400 369,400 Operating lease liabilities, net of current 58,916 64,192 Deferred income taxes, net 9,172 — Total noncurrent liabilities 611,174 626,286 Commitments and contingencies Common stock 555 555 Additional paid-in capital 125,622 109,179 Treasury stock, at cost ( 709,810 ) ( 665,089 ) Retained earnings 618,765 553,581 Total stockholders’ equity (deficit) 35,132 ( 1,774 ) Total liabilities and stockholders’ equity $ 1,892,906 $ 1,753,085 See accompanying notes. Insperity | 2022 Second Quarter Form 10-Q 6 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) 2022 2021 2022 2021 Revenues (1) $ 1,432,107 $ 1,185,371 $ 3,009,944 $ 2,472,206 Payroll taxes, benefits and workers’ compensation costs 1,192,239 985,817 2,484,302 2,021,207 Gross profit 239,868 199,554 525,642 450,999 Salaries, wages and payroll taxes 106,522 94,362 213,961 197,437 Stock-based compensation 15,631 13,781 25,477 25,603 Commissions 10,743 8,251 21,053 15,970 Advertising 12,427 8,975 21,022 14,297 General and administrative expenses 36,095 29,211 77,100 60,847 Depreciation and amortization 10,100 9,751 20,284 17,798 Total operating expenses 191,518 164,331 378,897 331,952 Operating income 48,350 35,223 146,745 119,047 Other income (expense): Interest income 945 1,436 1,093 1,979 Interest expense ( 2,691 ) ( 1,975 ) ( 4,616 ) ( 3,574 ) Income before income tax expense 46,604 34,684 143,222 117,452 Income tax expense 13,005 9,530 39,739 30,376 Net income $ 33,599 $ 25,154 $ 103,483 $ 87,076 Less distributed and undistributed earnings allocated to participating securities ( 1 ) ( 37 ) ( 31 ) ( 193 ) Net income allocated to common shares $ 33,598 $ 25,117 $ 103,452 $ 86,883 Net income per share of common stock Basic $ 0.88 $ 0.65 $ 2.70 $ 2.26 Diluted $ 0.87 $ 0.65 $ 2.68 $ 2.24 ____________________________________ (1) Revenues are comprised of gross billings less WSEE payroll costs as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Gross billings $ 9,224,643 $ 7,637,851 $ 19,582,548 $ 15,688,273 Less: WSEE payroll cost 7,792,536 6,452,480 16,572,604 13,216,067 Revenues $ 1,432,107 $ 1,185,371 $ 3,009,944 $ 2,472,206 See accompanying notes. Insperity | 2022 Second Quarter Form 10-Q 7 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, (in thousands) 2022 2021 Cash flows from operating activities Net income $ 103,483 $ 87,076 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,284 17,798 Stock-based compensation 25,477 25,603 Deferred income taxes 14,064 9,161 Changes in operating assets and liabilities: Accounts receivable ( 172,551 ) ( 203,559 ) Prepaid insurance ( 41,654 ) ( 6,979 ) Other current assets ( 17,874 ) ( 7,609 ) Other assets and ROU assets ( 4,324 ) 5,407 Accounts payable ( 378 ) ( 2,140 ) Payroll taxes and other payroll deductions payable ( 164,247 ) ( 114,985 ) Accrued worksite employee payroll costs 253,109 195,045 Accrued health insurance costs 12,642 ( 3,621 ) Accrued workers’ compensation costs ( 11,400 ) ( 877 ) Accrued corporate payroll, commissions and other accrued liabilities ( 575 ) 13,697 Income taxes payable/receivable 6,729 ( 7,022 ) Total adjustments ( 80,698 ) ( 80,081 ) Net cash provided by operating activities 22,785 6,995 Cash flows from investing activities Marketable securities: Purchases ( 17,268 ) ( 30,862 ) Proceeds from maturities 17,665 30,340 Property and equipment: Purchases ( 9,043 ) ( 20,708 ) Net cash used in investing activities ( 8,646 ) ( 21,230 ) Cash flows from financing activities Purchase of treasury stock ( 56,805 ) ( 38,536 ) Dividends paid ( 37,097 ) ( 32,828 ) Other 2,270 4,027 Net cash used in financing activities ( 91,632 ) ( 67,337 ) Net decrease in cash, cash equivalents and restricted cash ( 77,493 ) ( 81,572 ) Cash, cash equivalents and restricted cash beginning of period 807,768 786,699 Cash, cash equivalents and restricted cash end of period $ 730,275 $ 705,127 Insperity | 2022 Second Quarter Form 10-Q 8 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Six Months Ended June 30, (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 $ 510,869 $ 455,387 Restricted cash 53,329 46,128 Deposits – workers’ compensation 166,077 203,612 Cash, cash equivalents and restricted cash end of period $ 730,275 $ 705,127 Supplemental operating lease cash flow information: ROU assets obtained in exchange for lease obligations $ 2,678 $ 15,047 See accompanying notes. Insperity | 2022 Second Quarter Form 10-Q 9 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Six Months Ended June 30, 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 — — — ( 56,805 ) — ( 56,805 ) Issuance of equity-based incentive awards and dividend equivalents — — ( 9,248 ) 10,399 ( 1,151 ) — Stock-based compensation expense — — 24,527 950 — 25,477 Other — — 1,164 735 — 1,899 Dividends paid — — — — ( 37,097 ) ( 37,097 ) Unrealized loss on marketable securities, net of tax — — — — ( 51 ) ( 51 ) Net income — — — — 103,483 103,483 Balance at June 30, 2022 55,489 $ 555 $ 125,622 $ ( 709,810 ) $ 618,765 $ 35,132 Balance at December 31, 2020 55,489 $ 555 $ 95,528 $ ( 626,984 ) $ 575,033 $ 44,132 Purchase of treasury stock, at cost — — — ( 38,536 ) — ( 38,536 ) Issuance of equity-based incentive awards and dividend equivalents — — ( 25,085 ) 26,421 ( 1,336 ) — Stock-based compensation expense — — 23,439 2,164 — 25,603 Exercise of stock options — — ( 329 ) 569 — 240 Other — — 843 739 — 1,582 Dividends paid — — — — ( 32,828 ) ( 32,828 ) Unrealized loss on marketable securities, net of tax — — — — ( 7 ) ( 7 ) Net income — — — — 87,076 87,076 Balance at June 30, 2021 55,489 $ 555 $ 94,396 $ ( 635,627 ) $ 627,938 $ 87,262 Insperity | 2022 Second Quarter Form 10-Q 10 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued) For the Three Months Ended June 30, 2022 and 2021 Common Stock Issued Additional Paid-In Capital Treasury Stock Retained Earnings and AOCI Total (in thousands) Shares Amount Balance at March 31, 2022 55,489 $ 555 $ 110,053 $ ( 681,625 ) $ 604,978 $ 33,961 Purchase of treasury stock, at cost — — — ( 29,364 ) — ( 29,364 ) Issuance of equity based incentive awards and dividend equivalents — — ( 34 ) 34 — — Stock-based compensation expense — — 14,952 679 — 15,631 Other — — 651 466 — 1,117 Dividends paid — — — — ( 19,853 ) ( 19,853 ) Unrealized gain on marketable securities, net of tax — — — — 41 41 Net income — — — — 33,599 33,599 Balance at June 30, 2022 55,489 $ 555 $ 125,622 $ ( 709,810 ) $ 618,765 $ 35,132 Balance at March 31, 2021 55,489 $ 555 $ 81,329 $ ( 628,391 ) $ 620,151 $ 73,644 Purchase of treasury stock, at cost — — — ( 8,850 ) — ( 8,850 ) Stock-based compensation expense — — 12,588 1,193 — 13,781 Other — — 479 421 — 900 Dividends paid — — — — ( 17,367 ) ( 17,367 ) Net income — — — — 25,154 25,154 Balance at June 30, 2021 55,489 $ 555 $ 94,396 $ ( 635,627 ) $ 627,938 $ 87,262 See accompanying notes. Insperity | 2022 Second Quarter Form 10-Q 11 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 Organizational Planning, Recruiting Services, Employment Screening, Retirement Services, and Insurance Services. 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 June 30, 2022 and our Consolidated Statements of Operations for the three and six month periods ended June 30, 2022 and 2021, our Consolidated Statements of Cash Flows for the six month periods ended June 30, 2022 and 2021 and our Consolidated Statements of Stockholders’ Equity for the three and six month periods ended June 30, 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 the plan; and (3) the number of participants in the plan, including both active and COBRA enrollees. Each reporting Insperity | 2022 Second Quarter Form 10-Q 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 June 30, 2022, and is included in deposits - health insurance as a long-term asset on our Condensed Consolidated Balance Sheets. As of June 30, 2022, Plan Costs were less than the net premiums paid and owed to United by $ 41.8 million. As this amount is in excess of the agreed-upon $ 9.0 million surplus maintenance level, the $ 32.8 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 June 30, 2022 were $ 55.9 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 six months of 2022 included an increase of $ 10.2 million for changes in estimated run-off related to prior periods. Our benefits costs incurred in the first six months of 2021 included an increase of $ 5.7 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 six months ended June 30, 2022 and 2021, we reduced accrued workers’ compensation costs by $ 26.8 million and $ 23.0 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 2.0 % 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 Second Quarter Form 10-Q 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table provides the activity and balances related to incurred but not paid workers’ compensation claims: Six Months Ended June 30, (in thousands) 2022 2021 Beginning balance, January 1, $ 239,623 $ 240,761 Accrued claims 18,780 20,559 Present value discount, net of accretion ( 3,501 ) 407 Paid claims ( 27,899 ) ( 22,904 ) Ending balance $ 227,003 $ 238,823 Current portion of accrued claims $ 53,317 $ 46,120 Long-term portion of accrued claims 173,686 192,703 Total accrued claims $ 227,003 $ 238,823 The current portion of accrued workers’ compensation costs on our Condensed Consolidated Balance Sheets at June 30, 2022 includes $ 4.8 million of workers’ compensation administrative fees. As of June 30, 2022 and 2021, the undiscounted accrued workers’ compensation costs were $ 243.9 million and $ 254.8 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. During the first six months of 2022, we received $ 30.2 million for the return of excess claim funds related to the workers’ compensation program, which resulted in a decrease to deposits - workers’ compensation. At June 30, 2022, we had restricted cash of $ 53.3 million and deposits – workers’ compensation of $ 166.1 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 $ 674.4 million and $ 490.5 million at June 30, 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 Second Quarter Form 10-Q 14 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 June 30, Six Months Ended June 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Northeast $ 388,680 $ 329,016 18.1 % $ 838,602 $ 702,645 19.3 % Southeast 192,782 150,810 27.8 % 394,985 307,070 28.6 % Central 252,039 206,084 22.3 % 523,350 431,784 21.2 % Southwest 279,936 238,368 17.4 % 588,774 495,348 18.9 % West 304,380 247,184 23.1 % 635,152 508,538 24.9 % 1,417,817 1,171,462 21.0 % 2,980,863 2,445,385 21.9 % Other revenue 14,290 13,909 2.7 % 29,081 26,821 8.4 % Total revenue $ 1,432,107 $ 1,185,371 20.8 % $ 3,009,944 $ 2,472,206 21.8 % 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: June 30, 2022 December 31, 2021 (in thousands) Cash & Cash Equivalents Marketable Securities Total Cash & Cash Equivalents Marketable Securities Total Overnight holdings $ 443,760 $ — $ 443,760 $ 490,154 $ — $ 490,154 Investment holdings 44,929 30,781 75,710 88,951 31,791 120,742 Cash in demand accounts 37,004 — 37,004 47,331 — 47,331 Outstanding checks ( 14,824 ) — ( 14,824 ) ( 50,624 ) — ( 50,624 ) Total $ 510,869 $ 30,781 $ 541,650 $ 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 June 30, 2022 and December 31, 2021 included $ 258.2 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 $ 116.6 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 Second Quarter Form 10-Q 15 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: June 30, 2022 December 31, 2021 (in thousands) Total Level 1 Level 2 Total Level 1 Level 2 Money market funds $ 488,689 $ 488,689 $ — $ 579,105 $ 579,105 $ — U.S. Treasury bills 8,032 8,032 — 5,782 5,782 — Municipal bonds 22,749 — 22,749 26,009 — 26,009 Total $ 519,470 $ 496,721 $ 22,749 $ 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 June 30, 2022 U.S. Treasury bills $ 8,056 $ — $ ( 24 ) $ 8,032 Municipal bonds 22,783 2 ( 36 ) 22,749 December 31, 2021 U.S. Treasury bills $ 5,783 $ — $ ( 1 ) $ 5,782 Municipal bonds 26,017 — ( 8 ) 26,009 As of June 30, 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 June 30, 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”), which we amended in June 2022 to, among other things, increase our borrowing capacity from $ 500 million to $ 650 million. The Facility may be further increased to $ 700 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 June 30, 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 $ 279.6 million. Insperity | 2022 Second Quarter Form 10-Q 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The Facility matures on June 30, 2027. Borrowings under the Facility bear interest at an annual rate equal to, at our option, an alternate base rate for alternate base rate loans or Adjusted Term SOFR for term SOFR loans, in either case plus an applicable margin. Adjusted Term SOFR is a forward-looking term rate based on the secured overnight financing rate plus a spread adjustment, which ranges from 0.10 % to 0.25 % depending on the interest period and type of loan. Depending on our leverage ratio, the applicable margin varies (1) in the case of term SOFR 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 Adjusted Term SOFR 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 six month period ended June 30, 2022 was 2.2 %. Interest expense and unused commitment fees are recorded in other income (expense). 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 June 30, 2022. 6. Stockholders' Equity During the first six months of 2022, we repurchased or withheld an aggregate of 615,694 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 six months ended June 30, 2022, 517,083 shares were repurchased under the Repurchase Program. As of June 30, 2022, we were authorized to repurchase an additional 1,186,545 shares under the Repurchase Program. Withheld Shares During the six months ended June 30, 2022, we withheld 98,611 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 Second quarter 0.52 0.45 During the six months ended June 30, 2022 and 2021, we paid dividends totaling $ 37.1 million and $ 32.8 million, respectively. Insperity | 2022 Second Quarter Form 10-Q 17 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 June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Net income $ 33,599 $ 25,154 $ 103,483 $ 87,076 Less distributed and undistributed earnings allocated to participating securities ( 1 ) ( 37 ) ( 31 ) ( 193 ) Net income allocated to common shares $ 33,598 $ 25,117 $ 103,452 $ 86,883 Weighted average common shares outstanding 38,229 38,591 38,259 38,410 Incremental shares from assumed time-vested and performance-based RSU awards 359 232 382 427 Adjusted weighted average common shares outstanding 38,588 38,823 38,641 38,837 Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect — — 13 — 8. Commitments and Contingencies Litigation We are a defendant in various 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 Second Quarter Form 10-Q 18 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS