What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-01 compared with 2023-04-26 · 155 added, 79 removed, 237 unchanged (50% of the section changed)

7 unchanged sentences

2023 Highlights

First Quarter 2023 Compared to First Quarter 2022

Second Quarter 2023 Compared to Second Quarter 2022

• Average number of WSEEs paid per month increased 7.2%

• Net income and diluted earnings per share (“diluted EPS”) increased 35.4% and 36.1% to $94.6 million and $2.45, respectively

• Net income and diluted earnings per share (“diluted EPS”) decreased 61.6% and 62.1% to $12.9 million and $0.33, respectively

• Adjusted EPS decreased 44.8% to $0.64

• Adjusted EBITDA decreased 32.2% to $50.9 million

First Six Months 2023 Compared to First Six Months 2022

• Average number of WSEEs paid per month increased 8.6%

• Net income and diluted EPS increased 3.9% and 3.7% to $107.5 million and $2.78, respectively

• Adjusted EPS increased 4.8% to $3.30

1 unchanged sentence

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 | 2023 First Quarter Form 10-Q

Insperity | 2023 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

1 unchanged sentence

Key Financial and Statistical Data

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

Three Months Ended March 31,

2023 2022 % Change

(in thousands, except per share, WSEE and statistical data) Three Months Ended June 30, Six Months Ended June 30,

2023 2022 % Change 2023 2022 % Change

Financial data:

22 unchanged sentences

(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

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

(per WSEE per month) 2023 2022 2023 2022

2 unchanged sentences

Revenues $ 1,697 $ 1,643 $ 1,809 $ 1,763

Insperity | 2023 First Quarter Form 10-Q

Insperity | 2023 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

8 unchanged sentences

• During Q2 2023, WSEEs paid increased 7.2% compared to Q2 2022.

The number of WSEEs paid from new client sales remained consistent when compared to Q1 2022, while the net gain in our client base and client retention declined compared to Q1 2022.

The number of WSEEs paid from new client sales declined when compared to Q2 2022, the net gain in our client base continued, but at lower levels than Q2 2022, while client retention remained consistent compared to Q2 2022.

• During the first six months of 2023 (“YTD 2023”), WSEEs paid increased 8.6% compared to the first six months of 2022 (“YTD 2022”).

The number of WSEEs paid from new client sales declined when compared to YTD 2022, the net gain in our client base continued, but at lower levels than YTD 2022, while client retention remained consistent compared to YTD 2022.

Average WSEEs Paid and

Year-over-Year Growth Percentage

Insperity | 2023 First Quarter Form 10-Q

Insperity | 2023 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 | 2023 First Quarter Form 10-Q

Insperity | 2023 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

2 unchanged sentences

(in thousands)

First Quarter 2023 Compared to First Quarter 2022

Second Quarter 2023 Compared to Second Quarter 2022

Our revenues for Q2 2023 were $1.6 billion, an increase of 10.7%, primarily due to the following:

1 unchanged sentence

• Revenues per WSEE per month increased 3.3%, or $54.

First Six Months 2023 Compared to First Six Months 2022

Our revenues for YTD 2023 were $3.4 billion, an increase of 11.5%, primarily due to the following:

• Average WSEEs paid increased 8.6%.

• Revenues per WSEE per month increased 2.6%, or $46.

Insperity | 2023 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.

4 unchanged sentences

(1) The Southwest region includes Texas.

Insperity | 2023 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:

2 unchanged sentences

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

Our average number of WSEEs per month in our middle market sector increased 19.7% during Q1 2023 compared to Q1 2022, representing approximately 26.1% and 24.0% of our total average paid WSEEs during Q1 2023 and Q1 2022, respectively.

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

As a result, our operating results are significantly impacted by our ability to accurately estimate, control and manage our direct costs relative to the revenues derived from the markup component of our gross billings.

Our gross profit per WSEE is primarily determined by our ability to accurately estimate and control direct costs and our ability to incorporate changes in these costs into the gross billings charged to PEO HR Outsourcing Solutions clients, which are subject to pricing arrangements that are typically renewed annually.

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

Insperity | 2023 First Quarter Form 10-Q

Our average number of WSEEs per month in our middle market sector increased 16.7% during YTD 2023 compared to YTD 2022, representing approximately 26.1% and 24.3% of our total average paid WSEEs during YTD 2023 and YTD 2022, respectively.

Insperity | 2023 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

First Quarter 2023 Compared to First Quarter 2022

As a result, our operating results are significantly impacted by our ability to accurately estimate our direct costs relative to the revenues derived from the markup component of our gross billings.

Our gross profit per WSEE is primarily determined by our ability to accurately estimate direct costs and our ability to incorporate changes in these costs into the gross billings charged to PEO HR Outsourcing Solutions clients, which are subject to pricing arrangements that are typically renewed annually.

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

Gross Profit and

3 unchanged sentences

Year-over-Year Growth Percentage

Gross profit for Q1 2023 increased 16.2% to $332.1 million compared to $285.8 million in Q1 2022.

Gross profit per WSEE per month for Q1 2023 increased $19 to $361 compared to $342 in Q1 2022 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.

Our revenues per WSEE per month increased $36 due to higher average pricing.

The net decrease in direct costs between Q1 2023 and Q1 2022 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $2.5 million as discussed below.

The $17 per WSEE per month increase in direct costs is due primarily to the direct cost components changes as follows:

Insperity | 2023 First Quarter Form 10-Q

Insperity | 2023 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Second Quarter 2023 Compared to Second Quarter 2022

Gross profit for Q2 2023 decreased 6.3% to $224.6 million compared to $239.9 million in Q2 2022.

Gross profit per WSEE per month for Q2 2023 decreased $34 to $241 compared to $275 in Q2 2022 due primarily to higher direct costs, offset in part by higher average pricing, as discussed below.

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

Our revenues per WSEE per month increased $54 due to higher average pricing of 3.3%.

The net increase in direct costs between Q2 2023 and Q2 2022 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $13.1 million as discussed below.

The $88 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 $5 per WSEE per month and increased 2.1% on a cost per covered employee basis in Q1 2023 as compared to Q1 2022.

• The cost of group health insurance and related employee benefits increased $65 per WSEE per month and increased 9.7% on a cost per covered employee basis in Q2 2023 as compared to Q2 2022, due primarily to an increase in the number and severity of large claims up to our $1 million per person insurance claim limit.

Large claim activity accounted for approximately 75% of the higher costs, with claims over $750,000 being the primary driver of this increase.

The remaining approximately 25% related to higher-than-expected pharmacy costs, in which we experienced a significant step-up in the use of diabetes and weight loss drugs and behavioral health drugs.

• The percentage of WSEEs covered under our health insurance plans was 64.9% in Q2 2023 compared to 65.4% in Q2 2022.

• Reported results include changes in estimated claims run-off related to prior periods, which was a reduction in costs of $9.0 million, or $10 per WSEE per month, in Q1 2023 compared to an increase in costs of $0.8 million, or $1 per WSEE per month, in Q1 2022.

• Reported results include changes in estimated claims run-off related to prior periods, which was an increase in costs of $1.3 million, or $1 per WSEE per month, in Q2 2023 compared to a decrease in costs of $7.2 million, or $8 per WSEE per month, in Q2 2022.

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

7 unchanged sentences

Payroll tax costs

• Payroll taxes increased 11.1% on an 11.1% increase in payroll costs, or $22 per WSEE per month.

• Payroll taxes as a percentage of payroll costs were 6.7% in both Q2 2023 and Q2 2022.

Insperity | 2023 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

First Six Months 2023 Compared to First Six Months 2022

Gross profit for YTD 2023 increased 5.9% to $556.8 million compared to $525.6 million in YTD 2022.

Gross profit per WSEE per month for YTD 2023 decreased $8 to $300 compared to $308 in YTD 2022 due primarily to higher direct costs, offset in part by higher average pricing, as discussed below.

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

Our revenues per WSEE per month increased $46 due to higher average pricing of 2.7%.

The net decrease in direct costs between YTD 2023 and YTD 2022 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $8.2 million as discussed below.

The $54 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 $35 per WSEE per month and increased 6.0% on a cost per covered employee basis, due primarily to an increase in the number and severity of large claims up to our $1 million per person insurance claim limit.

Large claim activity accounted for approximately 75% of the higher costs, with claims over $750,000 being the primary driver of this increase.

The remaining approximately 25% related to higher-than-expected pharmacy costs, in which we experienced a significant step-up in the use of diabetes and weight loss drugs and behavioral health drugs.

• The percentage of WSEEs covered under our health insurance plans was 65.2% in YTD 2023 compared to 65.9% in YTD 2022.

• Reported results include changes in estimated claims run-off related to prior periods, which was a decrease in costs of $9.8 million, or $5 per WSEE per month, in YTD 2023 compared to an increase in costs of $10.2 million, or $6 per WSEE per month, in YTD 2022.

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 increased 30.0%, or $3 per WSEE per month, in YTD 2023 compared to YTD 2022.

• As a percentage of non-bonus payroll cost, workers’ compensation costs in YTD 2023 were 0.24% compared to 0.21% in YTD 2022.

• We recorded a reduction in workers’ compensation costs of $15.0 million, or 0.10% of non-bonus payroll costs, in YTD 2023 compared to a reduction of $26.8 million, or 0.19% of non-bonus payroll costs, in YTD 2022, 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 11.2% on a 10.7% increase in payroll costs, or $16 per WSEE per month.

• Payroll taxes as a percentage of payroll costs increased to 7.6% in Q1 2023 compared to 7.5% in Q1 2022.

• Payroll taxes as a percentage of payroll costs increased to 7.2% in YTD 2023 compared to 7.1% in YTD 2022.

Insperity | 2023 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Operating Expenses

• Salaries, wages and payroll taxes — Salaries, wages and payroll taxes (“Salaries”) are primarily a function of the number of corporate employees, their associated average pay and any additional incentive compensation.

• Stock-based compensation — Our stock-based compensation relates to the recognition of non-cash compensation expense over the requisite service period of time-vested and performance-based awards.

6 unchanged sentences

◦ administrative costs, such as postage, printing and supplies

Insperity | 2023 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

◦ employee travel and training expenses

2 unchanged sentences

• 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 2023 Compared to First Quarter 2022

Second Quarter 2023 Compared to Second Quarter 2022

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) 2023 2022 % Change 2023 2022 % Change

8 unchanged sentences

Operating expenses per WSEE per month for Q2 2023 increased 1.8% to $224 compared to $220 in Q2 2022.

• Salaries of corporate and sales staff for Q1 2023 increased 15.9% to $124.5 million, or $6 per WSEE per month, compared to Q1 2022, primarily due to an increase in the number of service and support personnel as well as in the number of Business Performance Advisors.

• Stock-based compensation expense for Q1 2023 increased 12.8% to $11.1 million, but remained flat on a per WSEE per month basis, compared to Q1 2022.

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

• Commissions expense for Q1 2023 increased 6.9% to $11.0 million, but remained flat on a per WSEE per month basis, compared to Q1 2022.

• Advertising expense for Q1 2023 decreased 30.9% to $5.9 million, or $4 per WSEE per month, compared to Q1 2022.

This decrease was primarily due to a change in the timing associated with advertising.

• Salaries of corporate and sales staff for Q2 2023 increased 4.1% to $110.9 million, but decreased $4 on a per WSEE per month basis, compared to Q2 2022.

This increase was primarily due to an increase in service, support and BPA headcount, which was partially offset by lower incentive compensation expense in Q2 2023 compared to Q2 2022.

Insperity | 2023 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Stock-based compensation expense for Q2 2023 decreased 1.8% to $15.4 million, or $2 per WSEE per month, compared to Q2 2022.

The decrease was primarily due to a decrease in the number of stock awards anticipated to be earned related to performance-based awards granted under our long-term incentive plans based on our lower than expected year-to-date operating results in Q2 2023, partially offset by awards issued under our restricted stock program.

• Commissions expense for Q2 2023 increased 12.1% to $12.0 million, or $1 per WSEE per month, compared to Q2 2022.

The increase was primarily due to commissions associated with our PEO HR Outsourcing Solutions and sales managers, as well as an increase in the amount of sales channel referral fees paid during Q2 2023.

• Advertising expense for Q2 2023 increased 33.5% to $16.6 million, or $4 per WSEE per month, compared to Q2 2022.

This increase was primarily due to a change in timing associated with advertising.

• General and administrative expenses for Q2 2023 increased 19.6% to $43.2 million, or $5 per WSEE per month, compared to Q2 2022.

The increase was primarily due to increased travel and event costs, software licensing costs, and amortization of SaaS implementation costs.

Other Income (Expense)

Interest income increased $8.6 million in Q1 2023 compared to Q1 2022 due to increases in interest rates earned on investments in marketable securities and workers’ compensation deposits.

Interest expense increased $4.3 million in Q1 2023 compared to Q1 2022 due to increases in interest rates charged on borrowings under our credit facility.

Insperity | 2023 First Quarter Form 10-Q

The increase was primarily due to increased travel and event costs, software licensing and maintenance costs, and amortization of SaaS implementation costs.

First Six Months 2023 Compared to First Six Months 2022

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

Six Months Ended June 30,

(in thousands, except per WSEE) 2023 2022 % Change 2023 2022 % Change

Salaries $ 235,483 $ 213,961 10.1 % $ 127 $ 126 0.8 %

Stock-based compensation 26,466 25,477 3.9 % 14 15 (6.7) %

Commissions 23,055 21,053 9.5 % 12 12 —

Advertising 22,535 21,022 7.2 % 12 12 —

General and administrative 91,195 77,100 18.3 % 50 45 11.1 %

Depreciation and amortization 21,237 20,284 4.7 % 11 12 (8.3) %

Total operating expenses $ 419,971 $ 378,897 10.8 % $ 226 $ 222 1.8 %

Operating expenses for YTD 2023 increased 10.8% to $420.0 million compared to $378.9 million in YTD 2022.

Operating expenses per WSEE per month for YTD 2023 increased 1.8% to $226 compared to $222 in YTD 2022.

• Salaries of corporate and sales staff for YTD 2023 increased 10.1% to $235.5 million, or $1 per WSEE per month, compared to YTD 2022.

This increase was primarily due to an increase in service, support and BPA headcount, which was partially offset by lower incentive compensation expense in YTD 2023 compared to YTD 2022.

• Stock-based compensation expense for YTD 2023 increased 3.9% to $26.5 million, but decreased $1 on a per WSEE per month basis, compared to YTD 2022.

The increase was primarily due to awards issued under our restricted stock program, partially offset by a decrease in the number of stock awards anticipated to be earned related to performance-based awards granted under our long-term incentive plans based on our lower than expected year-to-date operating results in YTD 2023.

• Commissions expense for YTD 2023 increased 9.5% to $23.1 million, but remained flat on a per WSEE per month basis, compared to YTD 2022.

• Advertising expense for YTD 2023 increased 7.2% to $22.5 million, but remained flat on a per WSEE per month basis, compared to YTD 2022.

This increase was primarily due to increases in print and digital advertising and sponsorship costs.

Insperity | 2023 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• General and administrative expenses for YTD 2023 increased 18.3% to $91.2 million, or $5 per WSEE per month, compared to YTD 2022.

The increase was primarily due to increased travel and event costs, software licensing and maintenance costs, and amortization of SaaS implementation costs.

Other Income (Expense)

Interest income increased $15.7 million in YTD 2023 compared to YTD 2022 due to increases in interest rates earned on investments in overnight funds, marketable securities and workers’ compensation deposits.

Interest expense increased $8.3 million in YTD 2023 compared to YTD 2022 due to increases in interest rates charged on borrowings under our credit facility.

Income Tax Expense

Three months ended March 31,

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

2023 2022 2023 2022

Effective income tax rate 24.5% 27.9% 23.6% 27.7%

For the three months ended March 31, 2023, our provision for income taxes differed from the U.S.

For the six months ended June 30, 2023, 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 2023 and 2022, we recognized an income tax benefit of $4.9 million and $0.5 million, respectively, related to the vesting of short-term, long-term incentive, and restricted stock awards.

During the first six months of 2023 and 2022, we recognized an income tax benefit of $4.9 million and $0.2 million, respectively, related to the vesting of long-term incentive and restricted stock awards.

Insperity | 2023 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Non-GAAP Financial Measures

26 unchanged sentences

• non-cash stock based-compensation.

Insperity | 2023 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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,

2023 2022 2023 2022

Per WSEE Per WSEE Per WSEE Per WSEE

Payroll cost $ 8,659,364 $ 9,272 $ 7,792,536 $ 8,942 $ 18,340,974 $ 9,893 $ 16,572,604 $ 9,706

5 unchanged sentences

10.1 % 2.8 % 25.9 % 5.5 % 11.5 % 2.7 % 26.6 % 6.0 %

Insperity | 2023 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Cash, cash equivalents and marketable securities $ 616,091 $ 765,896

5 unchanged sentences

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) 2023 2022 2023 2022

Per WSEE Per WSEE

Per WSEE Per WSEE Per WSEE Per WSEE

Net income $ 12,894 $ 14 $ 33,599 $ 39 $ 107,489 $ 58 $ 103,483 $ 61

10 unchanged sentences

(32.2 %) (37.2 %) 24.6 % 4.9 % 5.0 % (2.7) % 17.7 % (1.7) %

Insperity | 2023 First 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

June 30, Six Months Ended

(in thousands) 2023 2022 2023 2022

6 unchanged sentences

% Change period over period (45.2 %) 27.2 % 4.8 % 14.9 %

Insperity | 2023 Second 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

June 30, Six Months Ended

(amounts per share) 2023 2022 2023 2022

6 unchanged sentences

% Change period over period

(44.8 %) 27.5 % 4.8 % 15.8 %

Liquidity and Capital Resources

5 unchanged sentences

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 $732.1 million in cash, cash equivalents and marketable securities at March 31, 2023, of which approximately $457.8 million was payable in early April 2023 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $42.9 million represented client prepayments that were payable in April 2023.

At March 31, 2023, we had working capital of $215.1 million compared to $158.5 million at December 31, 2022.

We had $616.1 million in cash, cash equivalents and marketable securities at June 30, 2023, of which approximately $365.9 million was payable in early July 2023 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $31.3 million represented client prepayments that were payable in July 2023.

At June 30, 2023, we had working capital of $228.0 million compared to $158.5 million at December 31, 2022.

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 2023.

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.

As of March 31, 2023, we had an outstanding letter of credit and borrowings totaling $370.4 million under the Facility.

As of June 30, 2023, 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 | 2023 First 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 2023 was $39.4 million.

Net cash used in operating activities in the first six months of 2023 was $69.6 million.

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

5 unchanged sentences

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

In the period ended March 31, 2023, the last business day of the reporting period was a Friday, client prepayments were $42.9 million and employment taxes and other deductions were $457.8 million.

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

In the period ended June 30, 2023, the last business day of the reporting period was a Friday, client prepayments were $31.3 million and employment taxes and other deductions were $365.9 million.

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.

Insperity | 2023 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Workers’ compensation plan funding — During YTD 2023, we received $43.4 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.

1 unchanged sentence

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, 2023, premiums owed and cash funded to United have exceeded the costs of the United plan, resulting in a $41.5 million surplus, $32.5 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, 2023 were $71.1 million, which is included in accrued health insurance costs, a current liability in our Condensed Consolidated Balance Sheets.

As of June 30, 2023, Plan Costs were more than the net premiums paid and owed to United by $6.5 million, which is $15.5 million less than our agreed-upon $9.0 million surplus maintenance level.

The $15.5 million difference is reflected as a current liability and $9.0 million 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, 2023 were $10.8 million, which is included in accrued health insurance costs, a current liability in 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 33.9% to $103.1 million in the three months ended March 31, 2023, compared to $77.0 million in the three months ended March 31, 2022.

Please read “ Results of Operations – First Quarter 2023 Compared to First Q uarter 2022 .”

Our adjusted net income increased 4.8% to $127.7 million in the six months ended June 30, 2023, compared to $121.9 million in the six months ended June 30, 2022.

Please read “ Results of Operations .”

Cash Flows from Investing Activities

Net cash flows used in investing activities were $8.9 million for the three months ended March 31, 2023, primarily due to property and equipment purchases of $6.8 million.

Net cash flows used in investing activities were $16.3 million for the six months ended June 30, 2023, primarily due to property and equipment purchases of $14.0 million.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $46.8 million for the three months ended March 31, 2023.

Net cash flows used in financing activities were $85.0 million for the six months ended June 30, 2023.

We paid $41.6 million in dividends and repurchased or withheld $45.4 million in stock.

Insperity | 2023 First Quarter Form 10-Q

Insperity | 2023 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